BOARD OF DIRECTORS
Executive Directors
TO Chi Keung, Simon, BSc, ACGI, MBA
Chairman
Weiguo SU, BSc, PhD
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)
Lefei SUN, BSc, MA
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
MOK Shu Kam, Tony
Weiguo SU
Lefei SUN
TO Chi Keung, Simon
SUSTAINABILITY COMMITTEE
Edith SHIH (Chairman)
CHENG Chig Fung, Johnny
MOK Shu Kam, Tony
COMPANY SECRETARY
Edith SHIH
NOMINATED ADVISER
Panmure Gordon (UK) Limited
CORPORATE BROKERS
Panmure Gordon (UK) Limited
HSBC Bank plc
AUDITOR
PricewaterhouseCoopers
CORPORATE INFORMATION
Corporate Information
Chairman’s Statement
Chief Executive Officer’s Report
2022 Full Year Results and Business Updates
2022 Full Year 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 4
BUILDING A GLOBAL SCIENCE-FOCUSED BIOPHARMA COMPANY FROM AN ESTABLISHED BASE IN CHINA KEY HIGHLIGHTS
STRATEGY UPDATE
• Portfolio prioritization to drive near-term value creation
• Global partnering approach to bring innovative medicines to patients outside
of China
• Global vision and patient commitment unchanged
PRODUCTS & PIPELINE
• FRESCO-2 Phase III MRCT1 of fruquintinib in refractory metastatic CRC2 met
primary endpoint, rolling submission of NDA3 to U.S. FDA4 initiated
• Fruquintinib FRUTIGA Phase III gastric cancer study in China met PFS5 endpoint,
supplemental NDA in preparation
• Global SAVANNAH Phase II of savolitinib plus TAGRISSO® combo demonstrated
improved response rate in MET6-high patients, additional cohort re-opened for
enrolling for potential accelerated approval
• Over 15 registration/registration-intent studies ongoing with six products
• Sovleplenib and amdizalisib registration studies fully enrolled
• ORPATHYS® (savolitinib) to be included in NRDL7 effective March 1, 2023
CHINA COMMERCIAL DELIVERY
• Oncology/Immunology revenues up 37% (41% CER8) in line with guidance
• Combined in-market sales9 up 70% for ELUNATE®, SULANDA® and ORPATHYS®
• Well-positioned on the path to a profitable and sustainable business
All amounts are expressed in U.S. dollars unless otherwise stated.
HUTCHMED (China) Limited 2022 Annual Report 5
“
I am proud of the progress
that we at HUTCHMED have
made during 2022
”
SIMON TO, CHAIRMAN
This work is already bearing fruit, as indicated not only by the increase
in revenues, but also the positive clinical and regulatory progress we
have made with fruquintinib – culminating in the successful, post-
period licensing agreement with Takeda10, marking a significant
delivery against the Company’s strategy. This out-licensing ensures we
remain true to the overall goal of our business of safeguarding access to
our innovative medicines to patients globally. Further, our partnerships
provide significant financial momentum while we focus on revenue
growth from increased product sales in China.
This strategy of revenue growth and strategic partnerships places us
well on the path to a sustainable business. It is this path which will
allow us to continue our expansion, as demonstrated by HUTCHMED’s
continued delivery in China where our oncology commercial team has
reached about 900 people to support greater access to our medicines;
our ongoing development of savolitinib, which became our third
product on the NRDL; and the continued ability of our business to
develop medicines towards global markets. It is through this ability that
6
6
we expect to see multiple New Drug Applications being made not only
in China but with key regulators around the world as we look to extend
our ability to bring potentially life changing medicines to patients
around the world.
2022 has been a key turning point for HUTCHMED, but I believe
it will enable us to truly reach our goal of becoming a global
biopharmaceutical company.
Simon To
Chairman
February 28, 2023
CHAIRMAN’S STATEMENT “
2022 was a pivotal year for
”
HUTCHMED
WEIGUO SU,
CHIEF EXECUTIVE OFFICER AND
CHIEF SCIENTIFIC OFFICER
Challenged by difficult market conditions, the team worked incredibly
hard to position HUTCHMED for success today as well as for a promising
future. In November, we announced a new strategy that focuses on
accelerating our path to a sustainable and profitable business, which
involves a reprioritization of pipeline assets and a partnership approach
for bringing our innovative medicines more efficiently to patients
outside of China. We believe that this new strategy has unlocked greater
value in the Company and we are already seeing a positive impact from
this approach.
In early 2023 we announced a significant licensing deal with Takeda
for the global development, commercialization and manufacturing of
fruquintinib, outside of China. We are pleased to have attracted such
a strong partner and to place fruquintinib in the hands of a company
with the scale, expertise, resources and commitment to maximize
its success globally, as we believe we are already doing in China. The
expected proceeds from the deal notably extends our cash runway,
and the additional bandwidth allows us to continue to pursue value-
driving opportunities from our internal pipeline while supporting our
commercial growth in China. The Takeda deal perfectly exemplifies
our global partnership approach and showcases our commitment to
fulfilling our promises, swiftly and effectively.
assets through clinical development and towards patients. Ultimately,
this is how we will accelerate our path to a sustainable business over
the long term. As part of our pipeline prioritization, we have reduced
some funding to select international clinical programs and we look
to further develop of some of these programs through partnerships.
Specifically, these changes affect amdizalisib, HMPL-306 and HMPL-
760 international clinical programs. We will continue the surufatinib
clinical program in Japan where a bridging study is fully recruited.
Going forward, HUTCHMED still intends to continue to run early phase
development programs for select drug candidates in the U.S., EU and
Japan including sovleplenib where we believe our compounds are
differentiated from a global perspective. This does not impact our
commitment to patients, which, if anything, has intensified as we
sharpen our focus on a smaller set of programs that we believe have
the most immediate patient impact.
I am proud of what the team has achieved this year amidst very difficult
times for the sector, and feel very positive about our outlook.
This approach goes hand in hand with the strategic prioritization of our
pipeline. This includes focusing our development efforts on late-stage
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2023
HUTCHMED (China) Limited 2022 Annual Report 7
CHIEF EXECUTIVE OFFICER’S REPORT COMMERCIAL OPERATIONS
•
•
•
•
Total revenues increased 20% (24% CER) to $426.4 million in
2022 (2021: $356.1m), driven by commercial progress on our three
in-house developed oncology drugs in China;
Oncology/Immunology consolidated revenues up 37%
(41% CER) to $163.8 million (2021: $119.6m);
ELUNATE® (fruquintinib) in-market sales in 2022 increased
32% to $93.5 million (2021: $71.0m), reflecting its expanding lead in
market share, particularly in tier 2 and 3 cities;
SULANDA® (surufatinib) in-market sales in 2022 increased
178% to $32.3 million (2021: $11.6m), reflecting its first time NRDL
inclusion which started in January 2022;
•
•
•
ORPATHYS® (savolitinib) in-market sales in 2022 increased
159% to $41.2 million (2021: $15.9m) following its launch in the
second half of 2021 through AstraZeneca’s11 extensive oncology
commercial organization. Rapid initial self-pay uptake due to being
the first-in-class selective MET inhibitor in China, expect continued
uptake to be supported by NRDL inclusion starting March 1, 2023;
TAZVERIK® (tazemetostat) successfully launched in Hainan
province in China in June 2022; and
Successful management of commercial operations to expand
coverage of oncology hospitals and physicians despite
challenges of pandemic-related lockdowns in the first half of
2022.
$’millions
ELUNATE®
SULANDA®
ORPATHYS®
TAZVERIK®
Product Sales
Other R&D12 services income
Milestone payment
Total Oncology/ Immunology
2022
$93.5
$32.3
$41.2
$0.1
$167.1
In-market Sales*
2021
% Change
$71.0
$11.6
$15.9
–
$98.5
+32%
+178%
+159%
–
+70%
2022
$69.9
$32.3
$22.3
$0.1
$124.6
$24.2
$15.0
$163.8
Consolidated Revenue**
2021
% Change
$53.5
$11.6
$11.3
–
$76.4
$18.2
$25.0
$119.6
+31%
+178%
+97%
–
+63%
+33%
-40%
+37%
* = For ELUNATE® and ORPATHYS®, represents total sales to third parties as provided by Lilly13 and AstraZeneca, respectively; and ELUNATE® sales to other third parties as invoiced by
HUTCHMED.
** = For ELUNATE®, represents manufacturing fees, commercial service fees and royalties paid by Lilly, to HUTCHMED, and sales to other third parties invoiced by HUTCHMED; for ORPATHYS®
represents manufacturing fees and royalties paid by AstraZeneca; for SULANDA® and TAZVERIK®, represents the Company’s sales of the products to third parties.
8
2022 FULL YEAR RESULTS & BUSINESS UPDATES REGULATORY UPDATES
China
•
•
•
Received Breakthrough Therapy Designation in China for
sovleplenib (HMPL-523) in January 2022 for the treatment of ITP14;
Received approval for TAZVERIK® in the Hainan Boao Lecheng
International Medical Tourism Pilot Zone in May 2022 for the
treatment of certain patients with epithelioid sarcoma or follicular
lymphoma; and
Received Macau approvals for ELUNATE® and SULANDA®, the
first drugs approved in the territory based on China NMPA15 approval,
following regulatory updates in Macau.
Ex-China
•
•
•
Fruquintinib rolling NDA submission to U.S. FDA initiated in
December 2022 for the treatment of refractory CRC. The U.S. FDA
granted Fast Track Designation for the development of fruquintinib
for the treatment of patients with metastatic CRC in June 2020,
enabling the company to submit sections of the NDA on a rolling
basis;
Fruquintinib submissions to the EMA16 and the Japanese PMDA17
to follow the completion of the US NDA submission; all expected to
be completed in 2023;
Savolitinib granted Fast Track Designation by the FDA for
the combination treatment with TAGRISSO® of NSCLC18 patients
harboring MET overexpression and/or amplification following
progression on TAGRISSO®; and
•
Surufatinib U.S. NDA and EMA MAA19 withdrawn:
o
o
o
A Complete Response Letter regarding the US NDA (CRL) was
issued in April 2022 by the U.S. FDA, citing the requirement of
a multi-regional clinical trial in a more representative patient
population. Following the Letter, the U.S. NDA was withdrawn in
January 2023; the MAA was withdrawn in August 2022, following
interactions with EMA reviewers which suggested that there is a
low probability of a positive opinion;
In Japan, the bridging study is continuing and a pre-NDA PMDA
consultation is targeted for the first half of 2023; and
Pandemic-related issues concerning inspection access
contributed to FDA and EMA actions.
HUTCHMED (China) Limited 2022 Annual Report 9
CLINICAL DEVELOPMENT
ACTIVITIES in 2022
Savolitinib (ORPATHYS® in China), a highly selective oral
inhibitor of MET being developed broadly across MET-driven patient
populations in lung, gastric and PRCC20
Presentation of SAVANNAH global Phase II study data showing
improved response rates with increasing levels of MET
aberration for the TAGRISSO® combination (NCT03778229) in
NSCLC patients harboring EGFR21 mutation and MET amplification
or overexpression at WCLC22 2022. Overall results demonstrated
strong ORR23, DoR24 and PFS among patients with higher MET levels,
particularly among those with no prior chemotherapy;
Aligned with FDA for the pivotal Phase II study for accelerated
approval of the TAGRISSO® combination for NSCLC MET patients
following progression on TAGRISSO®, and began enrolling;
Initiated SAFFRON, a global, pivotal Phase III study of the
TAGRISSO® combination (NCT05261399), which triggered a
$15 million milestone payment. Enrolled patients will have MET levels
consistent with the higher MET level patient groups in SAVANNAH
and have had no prior chemotherapy;
Enrolling SACHI, a pivotal Phase III study of the TAGRISSO®
combination in China for NSCLC patients with MET amplification
following progression on EGFR inhibitor treatment (NCT05015608);
Enrolling SANOVO, a pivotal Phase III study of the TAGRISSO®
combination in China in NSCLC patients harboring EGFR mutation
and MET overexpression, comparing the combination with
TAGRISSO® monotherapy (NCT05009836);
Potential upcoming clinical and regulatory milestones for savolitinib:
•
•
Convert the gastric cancer Phase II study to a registration trial,
following discussion with NMPA in the first half of 2023; and
Complete enrollment of SAVANNAH pivotal Phase II study.
Fruquintinib (ELUNATE® in China), a highly selective oral inhibitor
of VEGFR27 1/2/3 designed to improve kinase selectivity to minimize
off-target toxicity and thereby improve tolerability; approved and
launched in China
•
•
•
Presented positive results of the global Phase III FRESCO-2
registration trial (NCT04322539) in 691 refractory metastatic CRC
patients, recruited from 14 countries including U.S., EU, Japan and
Australia at ESMO28 in September 2022. Treatment with fruquintinib
resulted in a statistically significant and clinically meaningful increase
in the primary endpoint of OS and the key secondary endpoint of PFS
compared to placebo;
Presented preliminary data from the U.S. Phase Ib
monotherapy study of fruquintinib in patients with refractory
metastatic CRC (NCT03251378) at 2022 ASCO GI29; and
Reported top-line results of the FRUTIGA China Phase III
registration study (NCT03223376) in 703 advanced gastric cancer
patients. The study met one of the primary endpoints of statistically
significant improvement in PFS, which is clinically meaningful. The
other primary endpoint of OS was not statistically significant. There
were statistically significant improvements in secondary endpoints
including ORR and DCR30, and improved DoR; and
•
Initiated China Phase III study of combination with PD-131 inhibitor
sintilimab in RCC32 (NCT05522231).
Presented final Phase II OS25 in patients with MET exon 14
skipping alteration NSCLC at ELCC26 2022 (NCT02897479);
Potential upcoming clinical and regulatory milestones for fruquintinib:
Enrolling the confirmatory China Phase IIIb study in MET exon
14 skipping altered NSCLC in both first-line and second-line and
above patients (NCT04923945);
Enrolling SAMETA, a global Phase III study in MET-driven
PRCC of the IMFINZI® combination comparing to sunitinib
(NCT05043090);
Enrolled a China Phase II study in gastric cancer patients who
have failed at least one line of systemic treatment (NCT04923932);
and
Initiated SOUND, a China Phase II study of the IMFINZI®
combination in EGFR wild-type NSCLC patients with MET alterations
(NCT05374603).
•
•
•
•
•
Submit a supplementary NDA to the NMPA for fruquintinib in
combination with paclitaxel in the treatment of advanced gastric
cancer in H1 2023, supported by results of the FRUTIGA study;
Complete recruitment of a Phase II registration enabling study
for endometrial cancer of fruquintinib in combination with PD-1
inhibitor sintilimab around mid-2023 (NCT03903705);
Submit FRUTIGA results for presentation at a scientific
conference;
Submit for presentation further Phase II data of fruquintinib
with PD-1 inhibitors; and
Publication of FRESCO-2 results in a peer-reviewed scientific
journal.
•
•
•
•
•
•
•
•
•
•
10
2022 FULL YEAR RESULTS & BUSINESS UPDATES Surufatinib (SULANDA® in China), an oral inhibitor of VEGFR, FGFR33
and CSF-1R34 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
Tazemetostat (TAZVERIK® in the U.S., Japan and the Hainan
Pilot Zone), a first-in-class, oral inhibitor of EZH2 licensed from
Ipsen41 subsidiary Epizyme42 in China
•
•
•
Initiated a China bridging study in follicular lymphoma in
July 2022 for conditional registration based on U.S. approvals
(NCT05467943);
Ipsen presented updated data from the Phase Ib portion of
the global SYMPHONY-1 Phase III trial at ASH43 (NCT04224493)
of tazemetostat combined with lenalidomide and rituximab (R²) in
patients with relapsed or refractory follicular lymphoma after at least
one prior line of therapy; and
Initiated the China portion of the global SYMPHONY-1 Phase III
trial in September 2022.
Earlier stage investigational drug candidates
In addition to the six drug candidates being developed in over
15 registration studies above, HUTCHMED is developing six further
oncology candidates in early stage clinical trials. These are HMPL-306,
a highly selective oral inhibitor of IDH1/244 designed to address
resistance to currently marketed IDH inhibitors; HMPL-760, a highly
selective, third-generation oral inhibitor of BTK45 with improved potency
versus first generation BTK inhibitors against both wild type & C481S
mutant enzymes; HMPL-453, a highly selective oral inhibitor of FGFR
1/2/3; HMPL-295, a highly selective oral inhibitor of ERK46 in the MAPK
pathway47 with the potential to address intrinsic or acquired resistance
from upstream mechanisms such as RAS-RAF-MEK; HMPL-653, an oral,
highly selective, and potent CSF-1R inhibitor designed to target CSF-1R
driven tumors as a monotherapy or in combinations; and HMPL-A83, a
differentiated, red blood cell sparing CD47 monoclonal antibody.
Subject to data and consultation with the CDE48, several of these earlier
stage drug candidates have potential to move into registration trials in
2023 and early 2024. We have recently agreed a registration enabling
trial design for HMPL-453 for the treatment of IHCC49 with the CDE and
preparations are underway to start the study. Results supporting this
decision will be submitted for scientific presentation in 2023.
•
•
Presented a pooled analysis of safety data from the SANET-p
and SANET-ep studies at the 2022 ASCO35 annual meetings; and
Presented data from the Phase Ib/II global tislelizumab
combination study at NANETS36 2022.
Potential upcoming clinical and regulatory milestones for surufatinib:
•
Complete bridging study in NET37 patients in Japan
(NCT05077384) in the first half of 2023 and discuss results with the
Japanese PMDA.
Sovleplenib (HMPL-523), an investigative and highly selective oral
inhibitor of Syk38, an important component of the Fc receptor and
B-cell receptor signaling pathway
•
Fully enrolled ESLIM-01 China Phase III study in primary ITP
(NCT03951623) in December 2022.
Potential upcoming clinical milestones for sovleplenib:
•
•
Report top-line results from ESLIM-01 China Phase III in the
second half of 2023; and
Complete Phase II Proof-of-Concept study in warm AIHA39 in
China and decide on whether to proceed into Phase III.
Amdizalisib (HMPL-689), an investigative and highly selective oral
inhibitor of PI3Kδ40 designed to address the gastrointestinal and
hepatotoxicity associated with currently approved and clinical-stage
PI3Kδ inhibitors
•
•
Completed recruitment of patients for China registration
Phase II study for the treatment of follicular lymphoma (with
Breakthrough Therapy Designation) in February 2023 (NCT04849351);
and
Initiated China combination trial with tazemetostat in February
2023 (NCT05713110).
Potential upcoming clinical and regulatory milestones for amdizalisib:
•
Report top-line results from the China registration Phase II
study for the treatment of follicular lymphoma in H2 2023.
HUTCHMED (China) Limited 2022 Annual Report 11
COLLABORATION UPDATES
IMPACT OF COVID-19
Takeda Exclusive Worldwide License for Fruquintinib
Outside China
Subject to customary closing conditions, including completion of
antitrust regulatory reviews:
•
•
Takeda will become responsible for development,
manufacturing and commercialization in all indications and
territories outside of mainland China, Hong Kong and Macau; and
HUTCHMED will be eligible to receive up to $1.13 billion,
including $400 million upfront on closing of the agreement
and up to $730 million in additional potential payments relating to
regulatory, development and commercial sales milestones, as well as
royalties on net sales.
Inmagene candidates discovered by HUTCHMED
Two Phase I trials initiated in Australia and the U.S. on two HUTCHMED
drug candidates being developed by Inmagene: IMG-007, an investigative
OX40 antagonistic monoclonal antibody designed to selectively shut down
OX40+ T cell function; and IMG-004, a reversible, non-covalent, highly
selective oral BTK inhibitor designed to target immunological diseases.
OTHER VENTURES
Other Ventures include our profitable prescription drug
marketing and distribution platforms
•
•
•
Other Ventures consolidated revenues increased by 11% (15%
at CER) to $262.6 million (2021: $236.5m);
SHPL50 non-consolidated joint venture revenues increased by
11% (14% at CER) to $370.6 million (2021: $332.6m);
Consolidated net income attributable to HUTCHMED from our
Other Ventures increased by 16% (17% at CER) to $54.6 million
(2021: $47.3m which excluded $95.6m related to HBYS51), which was
primarily due to the net income contributed from SHPL of
$49.9 million (2021: $44.7m); and
• We continue to review divestment and equity capital market options
and we have started the process for a share reform of the SHPL joint
venture.
12
COVID-19 had some impact on our research, clinical studies and our
commercial activities in 2022, particularly with respect to hospital
lockdowns, travel restrictions, and shipping difficulties. Clinical sites in
Shanghai were particularly impacted during April and May 2022. Measures
were put in place to reduce the impact of such restrictions to the extent
possible, including online patient follow-up and the retention of core
research teams on-site to maintain critical activities, with business
returning to normal in June. Restrictive measures related to the COVID-19
pandemic have gradually been lifted in China starting from December
2022, and we expect the travel, social and economic activities to
normalize.
SUSTAINABILITY
HUTCHMED has made continued progress in its commitment to the long-
term sustainability of its businesses and communities in which it conducts
business, including:
•
•
•
•
•
•
Enhanced disclosures, including publishing our second
Sustainability Report, and publishing eight new governance and
sustainability-related policies and statements;
Strengthened governance, including establishing a four-tier
governance framework to facilitate oversight and implementation of
sustainability issues;
Committed to 11 short-to long-term sustainability goals and
targets, incorporated sustainability KPIs on goals and targets into
management’s performance-based remuneration;
Comprehensive stakeholder engagement conducted with over
2,400 key internal and external stakeholders involving quantitative
and qualitative assessments, and a materiality analysis to help
identify the most material sustainability issues to the Company;
Enhanced sustainability awareness building in over 20 meetings/
sessions during the year amongst the general staff, the Sustainability
Working Group, senior management, the Sustainability Committee
and the Board; and
Climate risks action, including an assessment to identify climate-
related risks and opportunities for the Company, and following the
recommended disclosure framework of the Task Force on Climate-
related Financial Disclosures (TCFD).
We believe all these efforts will guide us towards a more sustainable
future. The 2022 Sustainability Report will be published alongside our
2022 Annual Report in due course and will include further information on
HUTCHMED sustainability initiatives and their performance.
2022 FULL YEAR RESULTS & BUSINESS UPDATES U.S. ACCOUNTING OVERSIGHT
As had been expected, in 2022 the U.S. Securities and Exchange
Commission (SEC) named over 170 China-based companies, including
HUTCHMED, to its conclusive list of public companies identified as having
retained a registered public accounting firm that the Public Company
Accounting Oversight Board (“PCAOB”) is unable to inspect or investigate
completely. However, on December 15, 2022, the PCAOB announced
that it was able to inspect and investigate completely registered public
accounting firms headquartered in mainland China and Hong Kong and
vacated its prior determination that it was unable to inspect or investigate
them completely. As a result, we do not expect to be identified as a
Commission-Identified Issuer for the fiscal year ended December 31, 2022
after we file our annual report on Form 20-F for such fiscal year.
This has had no impact on the business operations of the Company.
HUTCHMED (China) Limited 2022 Annual Report 13
Cash, Cash Equivalents and Short-Term Investments
were $631.0 million as of December 31, 2022 compared to
$1,011.7 million as of December 31, 2021.
Revenues for the year ended December 31, 2022 were
$426.4 million compared to $356.1 million in 2021.
•
•
Adjusted Group (non-GAAP52) net cash flows excluding financing
activities in 2022 were-$297.9 million (2021:-$73.5m) mainly due to
increased spending on Oncology/Immunology R&D; and
Net cash used in financing activities in 2022 totaled $82.8 million
(2021: net cash generated from financing activities of $650.0m
primarily from the offering of shares on HKEX53) mainly due to the
repayments of bank borrowings, dividends paid to non-controlling
shareholders of subsidiaries and purchases of ADSs54 by a trustee for
the settlement of equity awards.
•
Oncology/Immunology consolidated revenues increased 37%
(41% at CER) to $163.8 million (2021: $119.6m) resulting from:
ELUNATE® revenues increased 31% to $69.9 million (2021:
$53.5m) in manufacturing revenues, promotion and marketing
service revenues and royalties, as our in-house sales team increased
in-market sales 32% to $93.5 million (2021: $71.0m), as provided by
Lilly;
SULANDA® revenues increased 178% to $32.3 million (2021:
$11.6m), after inclusion on the NRDL starting in January 2022;
ORPATHYS® revenues increased 97% to $22.3 million (2021:
$11.3m), in manufacturing revenues and royalties following its launch
in the second half of 2021. AstraZeneca reported $41.2 million in-
market sales (2021: $15.9m) of ORPATHYS® in 2022;
TAZVERIK® revenues of $0.1 million following its successful
launch in Hainan province in June 2022;
Milestone payment of $15.0 million (2021: $25.0m milestone
payment upon first sale of ORPATHYS® in China), to us by
AstraZeneca, related to the initiation of SAFFRON; and
Other R&D services income of $24.2 million (2021: $18.2m), which
were primarily fees from AstraZeneca and Lilly for the management
of development activities in China.
•
Other Ventures consolidated revenues increased 11% (15% at
CER) to $262.6 million (2021: $236.5m), mainly due to higher sales
of prescription drugs. This excludes the strong 11% (14% at CER)
growth in non-consolidated revenues at SHPL of $370.6 million (2021:
$332.6m).
HUTCHMED (China) Limited 2022 Annual Report 15
2022 FULL YEAR FINANCIAL RESULTS Net Expenses for the year ended December 31, 2022 were
$787.2 million compared to $550.7 million in 2021.
Net Loss attributable to HUTCHMED for the year ended
December 31, 2022 was $360.8 million compared to
$194.6 million in 2021.
•
The net loss attributable to HUTCHMED in 2022 was $0.43 per
ordinary share/$2.13 per ADS, compared to net loss attributable to
HUTCHMED of $0.25 per ordinary share/$1.23 per ADS in 2021.
•
•
•
•
Costs of Revenues were $311.1 million (2021: $258.2m), the majority
of which were the cost of third-party prescription drug products
marketed through our profitable Other Ventures, as well as costs
associated with ELUNATE®, including the provision of promotion
and marketing services to Lilly, and the costs for SULANDA® and
ORPATHYS® which commenced commercial sales in July 2021;
R&D Expenses were $386.9 million (2021: $299.1m), which increased
mainly as a result of an expansion in the active development of
our novel oncology drug candidates. Our international clinical and
regulatory operations in the U.S. and Europe incurred expenses of
$170.9 million (2021: $140.1m), while R&D expenses in China were
$216.0 million (2021: $159.0m);
SG&A Expenses55 were $136.1 million (2021: $127.1m), which
increased primarily due to higher staff costs and selling expenses to
support the expansion of our Oncology/Immunology commercial
operations; and
Other Items generated net income of $46.9 million (2021: $133.7m),
which decreased primarily due to a one-off gain of $82.9 million in
2021 related to the divestment of HBYS.
16
2022 FULL YEAR FINANCIAL RESULTS CONDENSED CONSOLIDATED BALANCE SHEETS 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
As of December 31,
2022
630,996
97,988
110,904
75,947
73,777
39,833
2021
1,011,700
83,580
116,796
41,275
76,479
42,831
1,029,445
1,372,661
71,115
264,621
18,104
38,735
392,575
610,367
26,503
41,177
210,839
26,905
54,226
333,147
986,893
52,621
1,029,445
1,372,661
HUTCHMED (China) Limited 2022 Annual Report 17
FINANCIAL SUMMARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(in $’000, except share and per share data)
Revenues:
Oncology/Immunology – Marketed Products
Oncology/Immunology – R&D
Oncology/Immunology consolidated revenues
Other Ventures
Total revenues
Operating expenses:
Costs of revenues
Research and development expenses
Selling and general administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other expense, net
Loss before income taxes and equity in earnings of equity investees
Income tax benefit/(expense)
Equity in earnings of equity investees, net of tax
Net loss
Less: Net income attributable to non-controlling interests
Net loss attributable to HUTCHMED
Year Ended December 31,
2022
2021
124,642
39,202
163,844
262,565
426,409
(311,103)
(386,893)
(136,106)
(834,102)
(407,693)
–
(2,729)
(410,422)
283
49,753
(360,386)
(449)
(360,835)
76,429
43,181
119,610
236,518
356,128
(258,234)
(299,086)
(127,125)
(684,445)
(328,317)
121,310
(8,733)
(215,740)
(11,918)
60,617
(167,041)
(27,607)
(194,648)
Losses per share attributable to HUTCHMED – basic and diluted (US$ 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
(0.43)
847,143,540
(2.13)
169,428,708
(0.25)
792,684,524
(1.23)
158,536,905
18
FINANCIAL SUMMARY
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 960 scientists and
staff (December 31, 2021: ~820), and an in-house oncology commercial
organization of over 870 staff (December 31, 2021: ~630).
In January 2022, ELUNATE® was approved in the Macau Special
Administrative Region, our first drug to be approved in the territory and
the first based on NMPA approval, following the latest update to the
Macau provisions on new drug importation which allow drugs approved
in one or more specified jurisdictions to be authorized for use in Macau.
We have advanced 13 oncology drug candidates into clinical trials in
China, with four also in active 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 and the fourth,
tazemetostat, has been approved and launched in Hainan Pilot Zone and
submitted for registration in Hong Kong.
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 2022, approximately 32,000 (2021:
approximately 22,000) new patients were treated with ELUNATE® in China
resulting in in-market sales of $93.5 million, up 32% versus 2021
($71.0 million). ELUNATE® surpassed regorafenib in prescription numbers
for late stage CRC at the end of 2021 and that lead has continued to grow
in 2022.
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 manufacturing
fees, service fees and royalties paid to us by Lilly. In 2022, we consolidated
$69.9 million in revenue for ELUNATE®, equal to 74.8% of in-market sales.
Following negotiations with the China NHSA56, 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.
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.
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®. Despite these access programs, duration of treatment
was often affected by the economic constraints of patients. 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 represented approximately 15-20% of the
2021 self-pay price.
As a result of inclusion in the NRDL and our continued marketing
activities, patient access to SULANDA®, as well as duration of treatment,
have been expanding with total sales in 2022 increasing by 178% to
$32.3 million (2021: $11.6 million). In 2022, approximately 12,000 new
patients were treated with SULANDA®, representing approximately
2.5 times the approximately 4,800 new patients in 2021.
There are two therapies for advanced NETs approved and NRDL
reimbursed in China: SUTENT® for the treatment of pNET57 (approximately
10% of NET), and AFINITOR® in broadly the same indication as SULANDA®.
In April 2022, SULANDA® was approved in the Macau Special
Administrative Region.
20
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Savolitinib (ORPATHYS® in China)
In late June 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.
More than a third of the world’s lung cancer patients are in China. Among
those with NSCLC globally, approximately 2-3% have tumors with MET
exon 14 skipping alterations.
In 2021 and 2022, ORPATHYS® was sold as a self-pay drug. AstraZeneca
introduced a patient access program in late 2021 which subsidizes
use of ORPATHYS®, through progressive disease. In-market sales for
ORPATHYS® grew by 159% in 2022 to $41.2 million (2021: $15.9m) resulting
in our consolidation of $22.3 million (2021: $11.3m) in revenues from
manufacturing fees and royalties in 2022.
Following negotiations with the China NHSA in January 2023, starting
on March 1, 2023, ORPATHYS® will be included in the updated NRDL,
broadening patient access to this medicine.
Market understanding of the need for MET testing has improved
significantly, with ORPATHYS®’s brand share more than doubling since the
end of 2021 in the rapidly growing targeted therapy area. In the National
Health Commission’s Treatment Guidelines for Primary Lung Cancer 2022
and the China Medical Association Oncology Committee Lung Cancer
Group’s China Medical Association Guideline for Clinical Diagnosis and
Treatment of Lung Cancer, ORPATHYS® was identified as the only targeted
therapy recommended for MET exon 14 patients, while similar guideline
from CSCO58 also recommended ORPATHYS® as the standard of care for
such patients.
ORPATHYS® is the first and only selective MET inhibitor on the market
in China. 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.
Tazemetostat (TAZVERIK® in Hainan, China; the U.S.
and Japan)
In May 2022, tazemetostat was approved by the Health Commission
and Medical Products Administration of Hainan Province to be used
in the Hainan Boao Lecheng International Medical Tourism Pilot Zone
(Hainan Pilot Zone), under the Clinically Urgently Needed Imported Drugs
scheme, for the treatment of certain patients with epithelioid sarcoma
and follicular lymphoma consistent with the label as approved by the
FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a
destination for international medical tourism and global hub for scientific
innovation, welcoming 83,900 medical tourists in 2020, according to
official data.
Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma,
three patients began treatment in 2022, with the first patient having
remained on medication for over six months.
In December 2022, a market authorization application was submitted in
Hong Kong.
RESEARCH & DEVELOPMENT
HUTCHMED announced its strategy in November 2022 aimed at
accelerating its path to profitability and establishing a long-term
sustainable business, by prioritizing late-stage and registrational studies
to bring the most advanced drug candidates through regulatory approval
as they are most likely to drive near-term value, particularly the global
regulatory approvals and partnership of fruquintinib outside of China.
Selected programs will be considered as candidates for out-licensing
opportunities, particularly outside of China, with some early phase U.S./
EU-related studies deprioritized until then, enabling the Company to
focus internal resources on its later-stage drug candidates. These studies
include surufatinib (outside Japan and China), amdizalisib, HMPL-
760 and HMPL-306. Surufatinib, amdizalisib, HMPL-760, HMPL-306 and
sovleplenib are all considered as candidates for out-licensing outside of
China. HUTCHMED intends to continue to run early phase development
programs for selected drug candidates in U.S., EU and Japan where we
believe we can differentiate from a global perspective.
HUTCHMED (China) Limited 2022 Annual Report 21
Update on MET altered, EGFR wild type NSCLC in China – The June
2021 monotherapy approval by the NMPA was based on positive results
from a Phase II trial conducted in China in patients with NSCLC with
MET exon 14 skipping alterations (NCT02897479). Final OS and subgroup
analysis was presented for this trial at ELCC 2022 and published in the
journal JTO Clinical and Research Reports. The updated results further
confirmed the favorable benefit of savolitinib in these patients and in each
subgroup and the acceptable safety profile.
In addition to this trial and the confirmatory study in this patient
population (NCT04923945), the SOUND Phase II trial is an open-label,
interventional, multicenter, exploratory Phase II study to evaluate
savolitinib combined with IMFINZI® in EGFR/ALK/ROS1 wild-type,
locally advanced or metastatic NSCLC patients with MET aberrations
(NCT05374603). The primary endpoint is PFS.
Update on combination therapies in EGFR TKI-resistant NSCLC –
MET-aberration is a major mechanism for acquired resistance to both
first/second-generation EGFR TKIs as well as third-generation EGFR TKIs
like TAGRISSO®. Among patients who experience disease progression
post-TAGRISSO® treatment, approximately 15-50% present with MET
aberration. The prevalence of MET amplification and overexpression may
differ depending on the sample type, detection method and assay cut-
off used. Savolitinib has been studied extensively in these patients in
the TATTON and SAVANNAH studies. The encouraging 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 SAFFRON study
is currently open for enrollment.
In January 2023, the U.S. FDA designated as a Fast Track development
program the investigation of savolitinib for use in combination with
TAGRISSO® for the treatment of patients with locally advanced or
metastatic NSCLC whose tumors have MET overexpression and/or
amplification, as detected by an FDA-approved test, and who have had
disease progression during or following prior TAGRISSO®.
SAVANNAH (NCT03778229) – This global Phase II study in patients who
have progressed following TAGRISSO® due to MET amplification or
overexpression has three dose cohorts of savolitinib combined with
TAGRISSO®. In addition to continuing TAGRISSO® treatment, patients
received savolitinib 300mg QD, 300mg BID, or 600mg QD. The study
reopened for enrollment to further reinforce the strength of data, initially
presented at WCLC 2022. Recruitment is expected to be completed in the
second half of 2023. We continue to evaluate the possibility of using the
SAVANNAH study as the basis for U.S. accelerated approval.
Savolitinib (ORPATHYS® in China)
Savolitinib is an oral, potent, and highly selective oral inhibitor of MET. In
global partnership with AstraZeneca, savolitinib is being studied in NSCLC,
PRCC and gastric cancer clinical trials with over 1,500 patients to date,
both as a monotherapy and in combinations.
In February 2022, a $15 million milestone payment from AstraZeneca was
triggered by the initiation of start-up activities for the SAFFRON study.
In total, AstraZeneca has paid HUTCHMED $85 million of the total
$140 million in upfront payments, development and approvals
milestones that are potentially payable under the relevant license and
collaboration agreement.
Savolitinib – Lung cancer:
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.
The table below shows a summary of the clinical studies for savolitinib in
lung cancer patients.
Sites
Phase
Status/Plan
NCT #
NCT02897479
China
II Registration Approved &
launched in
2021; Final
OS analysis at
ELCC 2022
China
III
Confirmatory
Ongoing since
2021
NCT04923945
China
II
Ongoing since
2022
NCT05374603
Global
II
Registration-
intent
Global
III
Ongoing; Data
that supported
Phase IIIs at
WCLC 2022
Ongoing since
2022
NCT03778229
NCT05261399
China
III
Ongoing since
2021
NCT05015608
China
III
Ongoing since
2021
NCT05009836
Treatment
Savolitinib
monotherapy
Name, Line,
Patient Focus
MET exon
14 skipping
alterations
Savolitinib
monotherapy
MET exon
14 skipping
alterations
Savolitinib +
IMFINZI®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
SOUND:
MET-driven,
EGFR wild type
SAVANNAH:
2L/3L EGFRm+59;
TAGRISSO®
refractory; MET+
SAFFRON:
2L/3L EGFRm+;
TAGRISSO®
refractory; MET+
SACHI:
2L EGFR TKI60
refractory
NSCLC; MET+
SANOVO:
Naïve
patients with
EGFRm & MET+
22
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY The first presentation was at 2022 WCLC. These results were based on
an analysis of 193 efficacy evaluable patients who received savolitinib
300mg once daily plus TAGRISSO® 80mg once daily at data cut-off date
of August 27, 2021. Qualifying MET aberrations were FISH5+61 or IHC50+62.
Importantly, additional analysis using a higher cut-off level of MET
aberration were presented. The higher cut-off levels for MET aberration
are FISH10+63 and/or IHC90+64. The prevalence of this higher cut-off levels
of MET aberration was 34% of patients centrally tested for enrollment in
this study versus 62% at the lower, qualifying cut-off level.
Results showed a trend toward improved response rates with increasing
level of MET aberration. Across all patients in this analysis, ORR was 32%
(95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months),
and median PFS was 5.3 months (95% CI: 4.2-5.8 months). These results
are consistent with the TATTON and ORCHARD global studies. Among
the 108 SAVANNAH patients who met the criteria for higher cut-off levels
of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3
months (95% CI: 7.6-10.6 months), and median PFS was 7.1 months (95%
CI: 5.3-8.0 months).
Importantly, among the 87 patients who did not receive prior
chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was 9.6
months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95%
CI: 4.7-9.2 months). The safety profile of savolitinib plus TAGRISSO® was
consistent with the known profiles of the combination and each treatment
alone.
Note:
*Evaluable for efficacy defined as dosed patients with measurable disease at
baseline who had ≥2 on-treatment RECIST scans. Excludes eight patients with
invalid or missing test results for IHC90+ and/or FISH10+ status, these patients
were excluded from the subgroup analyses based on MET levels.
n = number of patients; ORR = objective response rate; mDoR = median duration
of response; mPFS = median progression-free survival; CI = confidence interval;
mo. = months;
Source: WCLC 2022 Abstract # EP08.02-140.
SAFFRON (NCT05261399) – Findings based on SAVANNAH and the TATTON
studies supported the initiation of the SAFFRON global Phase III study in
patients with EGFR-mutated, MET-driven, locally advanced or metastatic
NSCLC whose disease progressed on first-or second-line treatment with
TAGRISSO® as the most recent therapy, with no prior chemotherapy in
the metastatic setting allowed. Patients are prospectively selected for the
higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON
study will evaluate the efficacy and safety of savolitinib in combination
with TAGRISSO® compared to pemetrexed plus platinum doublet-
chemotherapy, the current standard-of-care treatment in this setting. The
primary endpoint of the study is PFS. Enrollment of SAVANNAH is being
prioritized until it is fully enrolled.
Two registrational studies are ongoing in China in EGFR mutated NSCLC
with MET aberrations: the SANOVO (NCT05009836) study in treatment
naïve patients, and SACHI (NCT05015608) study in patients whose disease
progressed following treatment with any first-line EGFR TKI. Both trials are
expected to complete enrollment in 2024.
MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH:
Efficacy outcomes by IHC and/or FISH status*
Savolitinib – Kidney cancer:
MET is a key genetic driver in papillary 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.
N=185*
(cid:31)(cid:30)(cid:30)(cid:29)(cid:28) (cid:27)(cid:26)
METE -TTTTTTTT-----high
(cid:25)(cid:24)(cid:23)(cid:22)(cid:30)(cid:21) (cid:20)(cid:19)(cid:18)(cid:17)(cid:16)(cid:15) (cid:14)(cid:25)(cid:13)(cid:24)(cid:12)(cid:30)(cid:21)
MET-low
(cid:25)(cid:24)(cid:23)(cid:11)(cid:30) (cid:10)(cid:22)(cid:30) (cid:20)(cid:19)(cid:18)(cid:17)(cid:16)(cid:15) (cid:14)(cid:25)(cid:13)(cid:24) (cid:11) (cid:9)(cid:12)(cid:30)
Prevalence among
patients screened
34%
28%
Prior Chemo
20%
No prior
chemo subset
Number of patients
n=108
n=87
18%
n=77
No prior
chemo subset
n=63
ORR,
[95% CI]
49%
[39–59]
52%
%%52%
5
11111111–––––63]
41–
[41
9%
[4–18]
10%
[4–20]
mDoR,
[95% CI]
mPFS [95% CI]
,
9.3 mo.
[7.6 –10.6]
7.1 mo.
[5.3 –8.0]
9.6 mo.
mo.m6 m
.6
9
[7.6
[77.6666 –1144.9]
66 14.9]
7 6 –
7.2 mo.
mo.m2 m
.2
7.
77 ––––9.2]
4.7 –
[4.7
6.9 mo.
[4.1 –16.9]
2.8 mo.
[2.6 –4.3]
7.3 mo.
[4.1 –NC]
2.8 mo.
[1.8 –4.2]
HUTCHMED (China) Limited 2022 Annual Report 23
The table below shows a summary of the clinical study for savolitinib in
kidney cancer patients.
We are partnered with Lilly in China and have agreed to partner with
Takeda outside of China. The table below shows a summary of the clinical
studies for fruquintinib.
Treatment
Savolitinib +
IMFINZI®
Name, Line,
Patient Focus
SAMETA:
MET-driven,
unresectable and
locally advanced
or metastatic
PRCC
Sites
Phase
Status/Plan
NCT #
Global
III
Ongoing since
2021
NCT05043090
Treatment
Fruquintinib
monotherapy
Name, Line,
Patient Focus
FRESCO-2:
metastatic CRC
Fruquintinib
monotherapy
CRC; TN65 & HR+66/
Her2-67 breast cancer
III
U.S./
Europe/
Japan/
Aus.
U.S.
I/Ib
Sites
Phase
Status/Plan
NCT #
U.S., EU, Japan
filings to complete
in 2023; Results at
ESMO 2022
CRC data at ASCO
GI 2022. Close to
completion
Ongoing since
2021; Fully enrolled;
Submitting data to
conference in H2
2023
Approved and
launched in 2018
Supplemental NDA
to be filed in H1 2023
Fully enrolled; Data
at European Journal
of Cancer 181 (2023)
26-37
Ongoing since 2021;
Ib data at CSCO 2021
NCT04322539
NCT03251378
NCT04577963
NCT02314819
NCT03223376
NCT04179084
NCT03903705
Fruquintinib +
tislelizumab (PD-1)
MSS68-CRC
U.S.
Ib/II
FRESCO: ≥ 3L CRC;
chemotherapy
refractory
FRUTIGA:
2L gastric cancer
China
III
China
III
CRC
China
II
Endometrial cancer China
II
registration-
intent
Fruquintinib
monotherapy
Fruquintinib +
paclitaxel
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
RCC
RCC
China
Ib/II
NCT03903705
Fully enrolled; 1L &
2L data submission
in 2023
China
III
Ongoing since 2022 NCT05522231
Gastrointestinal
tumors
China
Ib/II
NSCLC
China
Ib/II
Cervical cancer
China
Ib/II
NCT03903705
NCT03903705
NCT03903705
Fully enrolled; Data
submission in 2023
Fully enrolled; Data
submission in 2023
if mature
Fully enrolled; Data
submission in 2023 if
mature
Fruquintinib +
tislelizumab (PD-1)
CRC
Korea/
China
Ib/II
Fully enrolled
NCT04716634
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.
Treatment
Savolitinib
Name, Line,
Patient Focus
2L+ gastric
cancer with MET
amplification.
Two-stage,
single-arm study
Sites Phase
Status/Plan
NCT #
NCT04923932
China II
registration-
intent
Ongoing
since 2021;
Consult CDE
on registration-
intent in H1
2023
Fruquintinib (ELUNATE® in China)
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 efficacy and tolerability. Fruquintinib has
been studied in clinical trials with about 5,000 patients to date, both as a
monotherapy and in combination with other agents.
Aside from its first approved indication of third-line CRC (in China), studies
of fruquintinib combined with various checkpoint inhibitors (including
TYVYT®, geptanolimab and tislelizumab) are 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 and RCC) are ongoing in
China.
24
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Fruquintinib – CRC updates:
FRESCO-2 (NCT04322539) – Positive results from this double-blind,
placebo-controlled, global Phase III study in 691 patients with refractory
metastatic CRC were presented at ESMO 2022. The study demonstrated
that treatment with fruquintinib resulted in a statistically significant and
clinically meaningful increase in OS and the key secondary endpoint of
PFS compared to treatment with placebo. Specifically, the median OS was
7.4 months for the 461 patients treated with fruquintinib compared to 4.8
months for the 230 patients in the placebo group (HR 0.66; 95% CI 0.55–
0.80; p<0.001). Median PFS was 3.7 months with fruquintinib compared
to 1.8 months with placebo (HR 0.32; 95% CI 0.27–0.39; p<0.001). DCR was
55.5% with fruquintinib compared to 16.1% with placebo.
The safety profile of fruquintinib in FRESCO-2 was consistent with
previously reported fruquintinib studies. Grade 3 or above adverse events
occurred in 62.7% of patients who received fruquintinib, compared to
50.4% of patients who received placebo. Grade 3 or above adverse events
that occurred in more than 5% of patients who received fruquintinib were
hypertension (13.6% vs. 0.9% in the placebo group), asthenia (7.7% vs.
3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the
placebo group).
Filing of a rolling submission of a NDA was initiated in December 2022,
and expected to be completed in the first half of 2023. MAA filing to the
EMA and NDA filing to the PMDA are expected to follow in 2023.
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. The study provided proof-of-concept
evidence to initiate the FRESCO-2 study.
Consistent results across late-stage settings
in two pivotal Phase III studies
FRESCO-2 [1]
Global Phase III
FRESCO [2]
China Phase III
Fruquintinib
(n=461)
Placebo
(n=230)
Fruquintinib
(n=278)
Placebo
(n=138)
97%
>100%
52%
9%
39%
96%
>100%
53%
8%
40%
30%
~25%
0%
0%
0%
30%
~25%
0%
0%
0%
7.4
[6.7 -8.2]
+2.6
4.8
[4.0 -5.8]
9.3
[8.2 -10.5]
+2.7
6.6
[5.9 -8.1]
0.66
(0.55 -0.80, p<0.001)
0.65
(0.51 -0.83, p<0.001)
3.7
[3.5 -3.8]
+1.9
1.8
[1.8 -1.9]
3.7
[3.7 -4.6]
+1.9
1.8
[1.8 -1.8]
0.32
(0.27 -0.39, p<0.001)
0.26
(0.21 -0.34, p<0.001)
Prior Treatement
VEGFi
EGFRi as % of RASwt
TAS-102
Regorafenib
Both TAS-102 & rego
mOS, month
[95% CI]
HR
(95% CI, p -value)
mPFS, month
[95% CI]
HR
(95% CI, p -value)
DCR
55.5%
16.1%
62.2%
12.3%
data cut-off date :
June 24, 2022
January 17, 2017
Note: n = number of patients; VEGFi = VEGF inhibitor; EGFRi = EGFR inhibitor; RASwt =
RAS wild-type; mOS = median overall survival; mPFS = median progression-free
survival; CI = confidence interval; mo. = months;
Source:
[1]
ESMO 2022, LAB25. Dasari NA, Lonardi S et al. LBA25 – FRESCO-2: A global
phase III multiregional clinical trial (MRCT) evaluating the efficacy and safety of
fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022,
Proffered Paper session 2: GI, lower digestive Session. Annals of Oncology (2022)
33 (suppl_7): S808-S869. 10.1016/annonc/annonc1089;
[2]
Li J, et al. Effect of Fruquintinib vs Placebo on Overall Survival in Patients With
Previously Treated Metastatic Colorectal Cancer: The FRESCO Randomized
Clinical Trial. JAMA. 2018;319(24):2486-2496. doi:10.1001/jama.2018.7855.
HUTCHMED (China) Limited 2022 Annual Report 25
Fruquintinib – Gastric cancer:
Fruquintinib – Exploratory development:
In China, we support an investigator initiated trial program for
fruquintinib, and there are about 30 of such trials ongoing in various solid
tumor settings.
Fruquintinib – Partnership with Takeda:
In January 2023, HUTCHMED entered into an agreement whereby Takeda
will receive an exclusive worldwide license to develop and commercialize
fruquintinib in all indications and territories outside of mainland China,
Hong Kong and Macau, where it is marketed and will continue to be
marketed by HUTCHMED in partnership with Lilly. Subject to the terms
of the agreement, HUTCHMED will be eligible to receive up to US$1.13
billion, including US$400 million upfront on closing of the agreement,
and up to US$730 million in additional potential payments relating to
regulatory, development and commercial sales milestones, as well as
royalties on net sales. The deal is subject to customary closing conditions,
including completion of antitrust regulatory reviews. Following these
clearances, Takeda will become solely responsible for the development
and commercialization of fruquintinib in all the included territories.
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. HUTCHMED
currently retains 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.
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, enrolled approximately 700 patients in July 2022. Its co-primary
endpoints are PFS and OS. The trial met the PFS endpoint at a statistically
and clinically meaningful level. The OS endpoint was not statistically
significant per the pre-specified statistical plan, although there was an
improvement in median OS. Fruquintinib also demonstrated a statistically
significant improvement in secondary endpoints including ORR, DCR and
DoR. The safety profile of fruquintinib in FRUTIGA was consistent with
previously reported studies. Full detailed results are subject to ongoing
analysis and are expected to be disclosed at an upcoming scientific
meeting.
Fruquintinib – Combinations with checkpoint inhibitors:
Advanced endometrial cancer registration-intent cohort of TYVYT®
combination (NCT03903705) – 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. Initially
presented at CSCO 2021, data in this endometrial cancer cohort is
encouraging.
We agreed with the NMPA to expand this cohort into a single-arm
registrational Phase II study. The cohort is targeting to enroll over 130
patients.
Advanced metastatic renal cell carcinoma (NCT05522231) – In first-line
clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been
demonstrated for the combination of antiangiogenic therapy and
immunotherapy. However, there is limited evidence on the benefits of this
combination in the second-line setting. Phase II data disclosed at CSCO
2021 showed encouraging anti-tumor efficacy and durability in these
patients.
A Phase III trial of fruquintinib in combination with TYVYT® as second-line
treatment for locally advanced or metastatic RCC was initiated in October
2022. The study is a randomized, open-label, active-controlled study
to evaluate the efficacy and safety of fruquintinib in combination with
TYVYT® versus axitinib or everolimus monotherapy for the second-line
treatment of advanced RCC. The primary endpoint is PFS. Approximately
260 patients will be enrolled in the study.
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 MSS-CRC. The Phase II study in China and Korea for
fruquintinib in combination with tislelizumab is being led by BeiGene for
the treatment of advanced or metastatic, unresectable CRC.
26
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY A summary of the clinical studies of surufatinib is shown in the table
below.
Name, Line,
Patient Focus
NETs
NETs
Solid tumors
SANET-ep:
epNET69
SANET-p:
pNET
SURTORI-01:
2L NEC70
Sites
Phase
Status/Plan
NCT #
Ib/II Bridging Completed
NCT02549937
U.S. &
Europe
Japan
Bridging
Ib/II
U.S./
Europe
China
III
China
III
NCT05077384
NCT04579757
NCT02588170
NCT02589821
Ongoing since
2021
Since 2021;
Enrollment
stopped
Approved;
Launched in 2021
Approved;
Launched in 2021;
Pooled analysis at
ASCO 2022
China
III
Ongoing since 2021 NCT05015621
NENs71
China
II
Biliary tract cancer
China
SCLC73
China
Solid tumors
China
II
II
II
NCT04169672
Fully enrolled;
Data at ASCO 2021 &
ESMO IO72 2021
Fully enrolled
NCT04169672
Ongoing since 2022 NCT05509699
Fully enrolled
NCT04169672
Treatment
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib +
tislelizumab
(PD-1)
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib – Monotherapy in NET updates:
U.S. NDA and EMA MAA – Surufatinib received FDA Fast Track Designations
in April 2020 for the treatment of pNETs and epNETs. Orphan Drug
Designation for pNETs was granted in November 2019. In a May 2020
pre-NDA meeting, we reached an agreement with the FDA that the two
positive Phase III studies of surufatinib in patients with pNETs and epNETs
in China, along with the bridging trial in the U.S. could form the basis to
support a U.S. NDA submission. The FDA accepted the filing of the NDA
in June 2021. However, in April 2022, we received a Complete Response
Letter from the FDA regarding the NDA for surufatinib for the treatment of
pNETs and epNETs. Based on interactions with the FDA and EMA, a new
multi-regional clinical trial (MRCT) would be required to move forward
with this program in the U.S. and Europe.
We will continue to explore conducting a multi-regional clinical trial with a
partner that would support approval in U.S. and Europe.
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 existing
data package. The trial was initiated in September 2021 and results are
expected in the first half of 2023. We plan to engage with the PMDA when
these results are available.
Surufatinib – Combination therapy with checkpoint inhibitors:
A Phase II China study (NCT04169672) combining surufatinib with TUOYI®
enrolled patients in nine solid tumor types, including NENs, biliary
tract cancer, gastric cancer, thyroid cancer, SCLC, soft tissue sarcoma,
endometrial cancer, esophageal cancer and NSCLC. These have led to
the initiation in September 2021 of the first Phase III trial combining
surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a
Phase II study in SCLC in 2022.
We de-prioritized and stopped recruitment into an open-label, Phase
Ib/II study of surufatinib in combination with BeiGene’s tislelizumab in
the U.S. and Europe. The study was to evaluate the safety, tolerability,
pharmacokinetics and efficacy in patients with multiple advanced solid
tumors (NCT04579757).
Surufatinib – Exploratory development:
In China, we support an investigator initiated trial program for surufatinib,
with about 50 of such trials 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.
Hematological Malignancies Candidates
HUTCHMED currently has six investigational drug candidates targeting
hematological malig nan cies in clinical development. 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 develop ing HMPL-306 (targeting IDH1 and IDH2),
tazemetostat (a methyl trans ferase inhibitor of EZH2) and HMPL-A83 (an
anti-CD47 monoclonal antibody).
Sovleplenib (HMPL-523)
Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the
treatment of hematological malignancies and immune diseases. Syk is a
component in Fc receptor and B-cell receptor signaling pathway.
In 2021, we initiated a Phase III study in China for primary ITP, for which
it has received Breakthrough Therapy Designation, and presented data
on both primary ITP and hematological malignancies at ASH 2021.
HUTCHMED currently retains all rights to sovleplenib worldwide. The table
below shows a summary of the clinical studies for sovleplenib.
HUTCHMED (China) Limited 2022 Annual Report 27
NCT05029635
China
Ib
Treatment
Amdizalisib
monotherapy
Name, Line,
Patient Focus
Indolent NHL,
peripheral T-cell
lymphomas
Sites
Phase
Status/Plan
NCT #
NCT03779113
Amdizalisib
monotherapy
NCT05535933
3L Relapsed/
refractory
follicular
lymphoma
2L Relapsed/
refractory
marginal zone
lymphoma
Indolent NHL
China
China
II
registration-
intent
II
registration-
intent
I/Ib
U.S./
Europe
Amdizalisib
monotherapy
Amdizalisib
monotherapy
Ongoing;
Expansion data
presented at
ESMO 2021
Fully enrolled;
Breakthrough
Therapy
Designation
Ongoing since
Apr 2021
NCT03128164
NCT04849351
NCT04849351
De-prioritized
NCT03786926
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, has fully enrolled the follicular lymphoma cohort and is expected
to complete enrollment for the marginal zone lymphoma cohort around
mid-year.
Tazemetostat
In August 2021, we entered into a strategic collaboration with Epizyme, a
subsidiary of Ipsen, to research, develop, manufacture and commercialize
tazemetostat in Greater China, including the mainland, Hong Kong, Macau
and Taiwan. Tazemetostat is an inhibitor of EZH2 developed by Ipsen
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.
We are developing and plan to seek approval for tazemetostat in various
hematological and solid tumors, in Greater China. We are participating in
Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. 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.
Treatment
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Sovleplenib
monotherapy
ESLIM-01:
≥ 2L ITP
China
III
Sovleplenib
monotherapy
Indolent
NHL74
I/Ib
U.S./
Europe
Sovleplenib
monotherapy
Warm AIHA
China
II/III
Fully enrolled;
Breakthrough
Therapy
Designation
Ongoing;
Prelim. data at
ASH 2021
Ongoing since
2022; Phase III
decision in 2023
pending Phase
II results
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 who have received at
least one prior line of standard therapy. ITP is 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. Enrollment was
completed in December 2022.
China Phase II/III in warm AIHA – This is a randomized, double-blind,
placebo-controlled Phase II/III study to evaluate the efficacy, safety,
tolerability, and pharmacokinetics of sovleplenib in the treatment of
warm AIHA. AIHA is the result of destruction of red blood cells due to the
production of antibodies against red blood cells which bind to antigens
on the red blood cell membrane in autoimmune disorders. If the results
of the Phase II stage of the study indicate sufficiently satisfactory efficacy
and safety, the Phase III stage will be initiated. The China IND was
approved in July 2022. The first patient was enrolled in September 2022.
The enrollment of Phase II part of the study is expected to be completed
in 2023, and lead to a decision on whether to initiate Phase III.
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, supporting feasibility
of development in combination with other medicines. The first of such
activities is in combination with tazemetostat. HUTCHMED currently
retains all rights to amdizalisib worldwide. The table below shows a
summary of the clinical studies for amdizalisib.
28
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY The table below shows a summary of the clinical studies for tazemetostat.
Sites
Phase
Status/Plan
NCT #
Hainan N/A –
Hainan
Pilot Zone
N/A
Approved;
Launched in
2022
Treatment
Tazemetostat
monotherapy
Name, Line,
Patient Focus
Metastatic or
locally advanced
epithelioid
sarcoma;
Relapsed/
refractory
3L+ follicular
lymphoma
China Phase II bridging study in relapsed/refractory follicular lymphoma
(NCT05467943) – In July 2022, we initiated a multicenter, open-label,
Phase II study to evaluate the efficacy, safety and pharmacokinetics
of tazemetostat for the treatment of patients with relapsed/refractory
follicular lymphoma intended to support conditional registration in
China. The primary objective is to evaluate the efficacy of tazemetostat
in patients with EZH2 mutation (Cohort 1). The secondary objectives
are to evaluate the efficacy of tazemetostat in patients with EZH2 wild-
type (Cohort 2) and to evaluate the safety and the pharmacokinetics of
tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing.
Tazemetostat +
lenalidomide +
rituximab (R²)
SYMPHONY-1:
2L follicular
lymphoma
Global
Ib/III
Tazemetostat
monotherapy
Relapsed/
refractory
3L+ follicular
lymphoma
China
II
registration-
intent
(bridging)
Ongoing; PhIb
data at ASH
2022; China
portion of
global Ph III
started H2 2022
Ongoing since
July 2022
NCT04224493
China Phase II combination study in relapsed/refractory follicular
lymphoma (NCT05713110) – This is a multicenter, open-label, Phase
II study to evaluate the safety, tolerability and preliminary anti-tumor
efficacy of tazemetostat in combination with amdizalisib in patients with
R/R lymphoma. The first patient was dosed in February 2023.
NCT05467943
HMPL-306
Tazemetostat +
amdizalisib
Lymphoma sub-
types
China
II
Ongoing since
Feb 2023
NCT05713110
SYMPHONY-1 (NCT04224493) – This is a global, multicenter, randomized,
double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III
study of tazemetostat in combination with R² in patients with relapsed or
refractory follicular lymphoma after at least one prior line of therapy. Ipsen
conducted the Phase Ib portion of the study in 2021, which determined
the recommended Phase III dose 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 tazemetostat and R², respectively.
An interim analysis of the Phase Ib portion of the study, based on 44
follicular lymphoma patients as of June 14, 2022, was presented at ASH
2022. The safety profile of the tazemetostat and R² combination was
consistent with the prescribing information for both tazemetostat and R²,
respectively. Additionally, there was no clear dose response for treatment-
emergent adverse events (TEAEs) or dose modifications. Of 41 evaluable
patients, ORR was 97.6% with 51.2% complete response rate. Median PFS
and DoR were not yet reached with a median follow-up of 11.2 months.
In the Phase III portion of the trial, approximately 500 patients are
randomly assigned to receive the recommended Phase III dose 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. The first patient
was enrolled in May 2022 and the first China patient was enrolled in
September 2022.
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. HUTCHMED currently retains all rights to HMPL-306
worldwide. The table below shows a summary of the clinical studies for
HMPL-306.
Treatment
Name, Line,
Patient Focus
HMPL-306
monotherapy
Hematological
malignancies
HMPL-306
monotherapy
Solid tumors
including but not
limited to gliomas,
chondrosarcomas or
cholangiocarcinomas
HMPL-306
monotherapy
Hematological
malignancies
HMPL-760
Sites Phase Status/Plan
NCT #
China I
U.S.
U.S.
I
I
NCT04272957
NCT04762602
Ongoing since
2020; RP2D
determined
Ongoing since
2021; nominate
RP2D in 2023.
NCT04764474
Ongoing since
2021; nominate
RP2D in 2023
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 Phase I studies opened in early 2022 will include relapsed
or refractory B-cell non-Hodgkin’s lymphoma or CLL75 patients with or
without a prior regimen containing a BTK inhibitor. HUTCHMED currently
retains all rights to HMPL-760 worldwide.
HUTCHMED (China) Limited 2022 Annual Report 29
Ongoing since
2020; Data
submission
planned in
2023; Preparing
registration
study
Ongoing since
2022
Ongoing since
2022
Treatment
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
HMPL-760
monotherapy
CLL, SLL76,
other B-NHL
China
HMPL-760
monotherapy
CLL, SLL, other
NHL
U.S.
I
I
Ongoing since
Jan 2022
NCT05190068
De-prioritized
NCT05176691
HMPL-453
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. Approximately
10-15% of IHCC patients have tumors harboring FGFR2 fusion. HUTCHMED
currently retains all rights to HMPL-453 worldwide. The table below shows
a summary of the clinical studies for HMPL-453.
Treatment
HMPL-453
monotherapy
Name, Line,
Patient Focus
2L
Cholangiocarcinoma
(IHCC with FGFR
fusion)
Sites
Phase Status/Plan
NCT #
China
II
NCT04353375
Treatment
HMPL-295
monotherapy
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Solid tumors
China
I
Ongoing since
2021
NCT04908046
HMPL-653
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. HUTCHMED currently retains all rights to HMPL-653
worldwide.
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.
HMPL-453 +
chemotherapies
HMPL-453
+TUOYI® (PD-1)
Multiple
China
I/II
Multiple
China
I/II
NCT05173142
NCT05173142
Treatment
HMPL-653
monotherapy
Name, Line,
Patient Focus
Solid tumors
& tenosynovial
giant cell tumors
Sites
Phase
Status/Plan
NCT #
China
I
NCT05190068
Ongoing since
Jan 2022; ~110
expected to be
enrolled
After consultation with the CDE, a monotherapy registration trial design
has been agreed, and preparations are underway.
HMPL-A83
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. HUTCHMED currently retains all
rights to HMPL-295 worldwide.
HMPL-A83 is an investigational IgG4-type humanized anti-CD47
monoclonal antibody that exhibits high affinity for CD47. HMPL-A83 blocks
CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do
not eat me” signal that cancer cells use to shield themselves from the
immune system. HUTCHMED currently retains all rights to HMPL-A83
worldwide.
RAS-MAPK pathway is dysregulated in cancer, in which mutations or non-
genetic events hyper-activate the pathway in up to 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.
In preclinical studies, HMPL-A83 demonstrated a high affinity for CD47
antigen on tumor cells and strong phagocytosis induction of multiple
tumor cells, as well as weak affinity for red blood cells and no induction of
hemagglutination, implying low risk of anemia, a potential event of special
interest. HMPL-A83 has also demonstrated strong anti-tumor activity in
multiple animal models.
Treatment
HMPL-A83
monotherapy
Name, Line,
Patient Focus
Advanced
malignant
neoplasms
Sites
Phase
Status/Plan
NCT #
China
I
Ongoing since
July 2022
NCT05429008
30
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Immunology Collaboration with Inmagene
MANUFACTURING
We continue to use contract manufacturing organizations in China to
produce our clinical and commercial API77 supplies. For manufacturing
drug products, we currently use a combination of contract manufacturers
and our internal manufacturing facility. We have a drug product facility
in Suzhou which manufactures both clinical and commercial supplies
for some of our products. We are building a new drug product facility
in Pudong, Shanghai, which will increase our novel drug product
manufacturing capacity by over five times. The construction and
qualification of the Shanghai facility is expected to be completed in mid-
2023 and technology transfer will start for some projects into the facility in
late 2023. We expect to manufacture clinical supplies from the new facility
starting in 2023 and commercial supplies around 2025 after the necessary
regulatory filings and approvals.
We completed technology transfer for the API and drug product of
amdizalisib and sovleplenib into the selected commercial manufacturing
facilities in preparation for potential NDA filings. Process validation for
these products (both API and drug product) is expected to complete in
2023.
We completed the NDA enabling work related to manufacturing for the
global launch of fruquintinib at the commercial manufacturing sites.
Process validation for API of this product has been completed, and
process validation for drug product will be completed in the second half
of 2023 in time for potential approval and launch.
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. Under the terms of the agreement, we granted Inmagene
exclusive options to such drug candidates solely for the treatment of
immunological diseases. Funded by Inmagene, we 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 were submitted in 2022.
Treatment
IMG-007 (OX40
monoclonal
antibody)
Name, Line,
Patient Focus
Healthy
volunteers;
adults with
moderate to
severe atopic
dermatitis
Sites
Phase
Status/Plan
NCT #
Global
I
Ongoing since
2022
NCT05353972
IMG-004 (BTK
inhibitor)
Healthy
volunteers
Global
I
Ongoing since
2022
NCT05349097
IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal
antibody targeting the OX40 receptor. OX40 is a costimulatory receptor
member of the tumor necrosis factor receptor (TNFR) superfamily
expressed predominantly on activated T cells. The Phase I study in healthy
volunteers was initiated in July 2022 in Australia.
IMG-004 in immunological diseases – This is a non-covalent, reversible
small molecule inhibitor targeting BTK. Designed specifically for
inflammatory and autoimmune diseases that usually require long-term
treatment, IMG-004 is potent, highly selective and brain permeable. The
Phase I study in healthy volunteers in the U.S. was initiated in August
2022.
HUTCHMED (China) Limited 2022 Annual Report 31
Our Other Ventures include drug marketing and distribution platforms
covering about 290 cities and towns in China with over 2,900 mainly
manufacturing and commercial personnel. Built over the past 20 years,
it primarily focuses on prescription drugs and science-based nutrition
products through several joint ventures and subsidiary companies.
In 2022, our Other Ventures delivered encouraging growth with
consolidated revenues up 11% (15% at CER) to $262.6 million (2021:
$236.5m). Consolidated net income attributable to HUTCHMED from our
Other Ventures increased by 16% (17% at CER) to $54.6 million (2021:
$47.3m, excluding net income attributable to HUTCHMED of $7.1m
contributed from HBYS which was disposed in September 2021; $82.9m
from the divestment of HBYS and $5.6m from land compensation, before
withholding tax).
Hutchison Sinopharm78:
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
16% (21% at CER) to $237.3 million in 2022 (2021: $204.1m).
In 2021, the Hong Kong International Arbitration Centre made a final
award in favor of Hutchison Sinopharm against Luye79 in the amount of
RMB253.2 million ($36.4 million), plus costs and interest (the “Award”),
in connection with the termination of Hutchison Sinopharm’s right to
distribute SEROQUEL® in China. In June 2022, Luye provided a bank
guarantee of up to RMB286.0 million to cover the Award, pending the
outcome of an application by Luye to the High Court of Hong Kong to
set aside the Award. On July 26, 2022, Luye’s application to set aside the
Award was dismissed by the High Court with costs awarded in favor of
Hutchison Sinopharm. On October 7, 2022, Luye filed a Notice of Appeal
to the Court of Appeal regarding the dismissal and was accepted on
November 8, 2022. A Court of Appeal hearing date has been set for June
2023.
SHPL:
Our own-brand prescription drugs business, operated through our non-
consolidated joint venture SHPL, grew sales by 11% (14% at CER) to
$370.6 million (2021: $332.6m). This sales growth and favorable product
mix led to an increase of 12% (13% at CER) in net income attributable to
HUTCHMED to $49.9 million (2021: $44.7m).
The SHPL operation is large-scale, with a commercial team of about 2,300
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 about 550 manufacturing staff.
SXBX80 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 2022 of 21.0% (2021:
19.6%). Sales increased by 11% (14% at CER) to $341.6 million in 2022
(2021: $307.1m).
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 this list means that
all Chinese state-owned health care institutions are required to carry it.
SXBX pill is fully reimbursed in all China.
We continue to review divestment and equity capital market options and
we have started the process for a share reform of the SHPL joint venture.
Dividends: Our share of SHPL’s profits are passed to the HUTCHMED
Group through dividend payments. In 2022, dividends of $43.7 million
(2021: $49.9m) were paid from SHPL to the HUTCHMED Group level with
aggregate dividends received by HUTCHMED since inception of over
$280 million.
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2023
HUTCHMED (China) Limited 2022 Annual Report 33
OPERATIONS REVIEW – OTHER VENTURES USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
In addition to financial information prepared in accordance with U.S.
GAAP, this announcement also contains certain non-GAAP financial
measures based on management’s view of performance including:
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.
•
•
Adjusted Group net cash flows excluding financing activities
CER
Reconciliation of GAAP change in net cash used in
operating activities to Adjusted Group net cash flows
excluding financing activities:
$’millions
Net cash used in operating activities
Net cash generated from/(used in)
investing activities
Effect of exchange rate changes on cash
and cash equivalents
Excludes: Deposits in short-term investments
2022
2021
(268.6)
(204.2)
296.6
(306.3)
(9.5)
1,202.0
2.4
1,356.0
(921.4)
Excludes: Proceeds from short-term investments
(1,518.4)
Adjusted Group net cash flows excluding financing
activities
(297.9)
(73.5)
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 exclude
deposits in and proceeds from short-term investments 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
34
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, 2022
31, 2021
Actual
CER
effect
Actual
CER
effect
Consolidated revenues
— Oncology/Immunology
163.8
119.6
— Other Ventures^
262.6
236.5
44.2
26.1
48.9
(4.7)
37%
41%
36.4
(10.3)
11%
15%
-4%
-4%
^ 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 (Note)
Excludes net income attributable
to HUTCHMED contributed from
HBYS and one-time gains
— Other Ventures
— Consolidated entities
— Equity investees
— SHPL
237.3
204.1
33.2
43.2
(10.0)
16%
21%
-5%
370.6
341.6
332.6
307.1
38.0
34.5
47.1
42.7
(9.1)
(8.2)
11%
11%
14%
14%
54.6
4.7
49.9
49.9
–
54.6
4.7
49.9
49.9
142.9
2.6
140.3
44.7
95.6
47.3
2.6
44.7
44.7
(88.3)
2.1
(90.4)
5.2
(95.6)
(87.7)
2.3
(90.0)
5.6
(95.6)
7.3
2.1
5.2
5.2
7.9
2.3
5.6
5.6
(0.6)
(0.2)
(0.4)
(0.4)
–
(0.6)
(0.2)
(0.4)
(0.4)
-62%
86%
-64%
12%
-100%
16%
86%
12%
12%
-61%
89%
-64%
13%
-100%
17%
89%
13%
13%
-3%
-3%
-1%
-3%
–
-1%
–
-1%
-3%
-1%
-1%
Note: On September 28, 2021, the Group completed the divestment of HBYS and the net income attributable to HUTCHMED contributed from HBYS was $7.1 million for the
period ended September 28, 2021. For the year ended December 31, 2021, one-time gains include gain on divestment of $82.9 million and land compensation gain of
$5.6 million.
HUTCHMED (China) Limited 2022 Annual Report 35
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 and 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 $360.8 million for the year ended December 31, 2022
and net losses of $194.6 million for the year ended December 31, 2021.
As of December 31, 2022, we had cash and cash equivalents and short-
term investments of $631.0 million and unutilized bank facilities of
$140.3 million. As of December 31, 2022, we had $18.1 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 $318,000 and
$89,000 for the years ended December 31, 2022 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, 2022.
36
In addition, our non-consolidated joint venture, SHPL, held an aggregate
of $33.9 million in cash and cash equivalents and no bank borrowings as
of December 31, 2022. 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 generated from/(used in)
investing activities
Net cash (used in)/generated from
financing activities
Net (decrease)/increase in cash and cash
equivalents
Effect of exchange rate changes
Year Ended
December 31,
2022
2021
(in $’000)
(268,599)
(204,223)
296,588
(306,320)
(82,763)
650,028
(54,774)
139,485
(9,490)
2,427
Cash and cash equivalents at beginning of the year
377,542
235,630
Cash and cash equivalents at end of the year
313,278
377,542
Net Cash used in Operating Activities
Net cash used in operating activities was $204.2 million for the year ended
December 31, 2021, compared to net cash used in operating activities of
$268.6 million for the year ended December 31, 2022. The net change of
$64.4 million was primarily attributable to higher operating expenses of
$149.7 million from $684.4 million for the year ended December 31, 2021
to $834.1 million for the year ended December 31, 2022. The foregoing
was partially offset by an increase in revenue of $70.3 million from
$356.1 million for the year ended December 31, 2021 to $426.4 million for
the year ended December 31, 2022 and an increase in changes of working
capital of $26.2 million from $32.5 million for the year ended December
31, 2021 to $58.7 million for the year ended December 31, 2022.
GROUP CAPITAL RESOURCES
Net Cash generated from/(used in) Investing Activities
Net cash used in investing activities was $306.3 million for the year ended
December 31, 2021, compared to net cash generated from investing
activities of $296.6 million for the year ended December 31, 2022. The
net change of $602.9 million was primarily attributable to short-term
investments which had net deposits of $434.6 million for the year ended
December 31, 2021 as compared to net withdrawals of $316.4 million for
the year ended December 31, 2022. The net change was partially offset
by the proceeds received from divestment of an equity investee of
$159.1 million during the year ended December 31, 2021, compared to
a dividend of $16.5 million received from divestment of the same equity
investee during the year ended December 31, 2022.
Net Cash (used in)/generated from Financing Activities
Net cash generated from financing activities was $650.0 million for the
year ended December 31, 2021, compared to net cash used in financing
activities of $82.8 million for the year ended December 31, 2022. The
net change of $732.8 million was mainly attributable to net proceeds
from issuances of shares of $685.4 million from a private placement
in April 2021 and our public offering on the HKEX with over-allotment
option exercised in full in June and July, 2021. The net change was also
attributable to an increase in purchases of ADSs of $20.8 million by a
trustee for the settlement of equity awards of the Company which totaled
$27.3 million for the year ended December 31, 2021 as compared to
$48.1 million for the year ended December 31, 2022, as well as an increase
in dividends paid to non-controlling shareholders of subsidiaries of
$15.7 million from $9.9 million for the year ended December 31, 2021 to
$25.6 million for the year ended December 31, 2022.
LOAN FACILITIES
In May 2019, our subsidiary entered into a credit facility arrangement with
HSBC81 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 HIBOR82 plus 0.85% per annum. These credit facilities are
guaranteed by us and include certain financial covenant requirements.
The term loan was drawn in October 2019 and was repaid in May 2022.
The revolving loan facility also expired in May 2022.
In August 2020, our subsidiary entered into a 24-month revolving loan
facility with Deutsche Bank AG83 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. The revolving loan facility expired in August 2022.
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 ($108.4 million)
with an annual interest rate at the 5-year China Loan Prime Rate less
0.80% (which was supplemented in June 2022). 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, 2022, RMB126.1 million
($18.1 million) was utilized from the fixed asset loan facility.
In May 2022, our subsidiary entered into a 12-month revolving loan
facility with HSBC in the amount of HK$390.0 million ($50.0 million) with
an interest rate at HIBOR plus 0.5% per annum. This revolving facility is
guaranteed by us. As of December 31, 2022, no amount was drawn from
the revolving loan facility.
Our non-consolidated joint venture SHPL had no bank borrowings
outstanding as of December 31, 2022.
HUTCHMED (China) Limited 2022 Annual Report 37
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2022. 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,
warehouses, 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
18,104
4,294
22,130
10,122
54,650
–
318
20,323
4,498
25,139
360
1,273
1,807
4,149
7,589
1,918
1,200
–
1,360
4,478
15,826
1,503
–
115
17,444
The following table sets forth the contractual obligations of our non-consolidated joint venture SHPL as of December 31, 2022. 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
1,307
2,243
3,550
1,307
826
2,133
–
1,417
1,417
–
–
–
–
–
–
A substantial portion 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 PBOC84. 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.
38
GROUP CAPITAL RESOURCES
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 $0.1 million for the year ended December 31, 2022.
OFF-BALANCE SHEET
ARRANGEMENTS
We did not have during the years presented, and we do not currently have,
any material off-balance sheet arrangements.
CONTINGENT LIABILITIES
Other than as disclosed in note 15 to the full year financial statements, the
Group does not have any other significant commitments or contingent
liabilities.
GEARING RATIO
The gearing ratio of the Group, which was calculated by dividing total
interest-bearing loans by total equity, was 2.8% as of December 31,
2022, an increase from 2.6% as of December 31, 2021. The increase was
primarily attributable to the decrease in equity due to the increase in net
loss during the year.
Except for our investment in a non-consolidated joint venture SHPL with
a carrying value of $73.5 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, 2022.
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 our Other Ventures is
operated through SHPL. Dividends received from SHPL for the year ended
December 31, 2022 were $43.7 million.
FUTURE PLANS FOR MATERIAL
INVESTMENTS AND CAPITAL
ASSETS
Note 15 to the full year financial statements discloses our planned
expenditures on capital assets as of December 31, 2022. We are building
a new drug product facility in Shanghai, China, and will make additional
investments in capital assets accordingly.
MATERIAL ACQUISITIONS AND
DISPOSALS OF SUBSIDIARIES,
ASSOCIATES AND JOINT
VENTURES
During the year ended December 31, 2022, we did not have any other
material acquisitions and disposals of subsidiaries, associates and joint
ventures.
HUTCHMED (China) Limited 2022 Annual Report 39
PLEDGE OF ASSETS
Our 10-year fixed asset loan facility agreement with Bank of China Limited
is secured by the underlying leasehold land and buildings.
RMB126.1 million ($18.1 million) was utilized from the fixed asset loan
facility as of December 31, 2022.
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 0.2%, 1.5% and 1.8% in 2020, 2021
and 2022, 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, 2022.
40
GROUP CAPITAL RESOURCES SUSTAINABILITY
As an innovative, commercial-stage biopharmaceutical company, the
Company embraces sustainability at the core of how it operates. Over the
past two decades and on an ongoing basis, the Company is working hard
to contribute to the enhancement of healthcare systems by continuously
providing quality and accessible drugs. As the world adapted to the
changes brought about by the COVID-19 pandemic, it has highlighted
the importance of incorporating sustainability factors into our strategy.
The Company embarked on its sustainability journey in 2020 by making
voluntary disclosures in its inaugural Sustainability Report to demonstrate
its efforts, and establishing a board level Sustainability Committee in 2021
to support the Board of Directors in fulfilling their responsibilities. The
second Sustainability Report for 2021, with enhanced disclosures, was
published in May 2022 and the third Sustainability Report for 2022 will be
published alongside our 2022 Annual Report in due course.
Over the course of 2022, we have rolled out a number of substantial
sustainability initiatives, including renewing our focus on sustainability
material topics with the engagement of stakeholders, establishing 11
short- to long-term sustainability goals and targets, stepping up efforts
in sustainability governance by establishing a four-tier governance
framework to facilitate oversight and implementation of sustainability
issues within the Company, having sustainability KPIs on goals and
targets incorporated to management’s performance and remunerations,
and conducting our first climate-related risk assessment. The Company
believes that all these efforts will guide it towards a more sustainable
future. Please refer to the 2022 Sustainability Report for further
information on the sustainability initiatives and their performance.
CLOSURE OF REGISTER OF
MEMBERS
The register of members of the Company will be closed from Tuesday,
May 9, 2023 to Friday, May 12, 2023, both days inclusive, during which
period no transfer of shares will be effected, to determine shareholders’
entitlement to attend and vote at the 2023 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 Shops 1712-1716,
17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong
Kong, no later than 4:30 pm Hong Kong time on Monday, May 8, 2023 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 London time on Monday, May 8, 2023.
HUMAN RESOURCES
As at December 31, 2022, the Group employed approximately 2,030
(December 31, 2021: ~1,760) full time staff members. Staff costs for the
year ended December 31, 2022, including directors’ emoluments, totaled
$227.2 million (2021: $180.2 million).
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.
HUTCHMED (China) Limited 2022 Annual Report 41
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 $585.2 million from the offering and the over-allotment option for the purposes and in the
amounts (adjusted on pro rata basis based on the actual net proceeds) as disclosed in the prospectus issued by the Company dated June 18, 2021 is as
below:
Use of Proceeds
Advance our late-stage clinical programs
for savolitinib, surufatinib, fruquintinib,
amdizalisib and sovleplenib through
registration trials and potential NDA
submissions
Support further proof-of-concept studies
and fund the continued expansion of
our product portfolio in cancer and
immunological diseases through internal
research, including the development cost of
early-clinical and preclinical-stage pipeline
drug candidates
Further strengthen our integrated capabilities
across commercialization, clinical and
regulatory and manufacturing
Fund potential global business development
and strategic acquisition opportunities
to complement our internal research and
development activities and enhance our
current drug candidate pipeline
Working capital, expanding internal
capabilities globally and in China and
general corporate purposes
Percentage of
Total Net
Proceeds
(%)
50%
Approximate
Amount
($’millions)
292.7
Actual Usage
up to
December 31,
2022
($’millions)
292.7
Unutilized Net
Proceeds as of
December 31,
2022
($’millions)
–
Expected Timeline
for Utilization of
Proceeds (note)
Fully utilized
10%
58.5
58.5
–
Fully utilized
20%
15%
5%
100%
117.1
87.8
29.1
585.2
81.7
32.4
29.1
494.4
35.4
55.4
2023
2023
–
Fully utilized
90.8
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 substantially 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, 2022 prepared in accordance with
accounting principles generally accepted in the U.S. have been audited by the Company’s auditors, PricewaterhouseCoopers. The unqualified auditor’s
report is set out on pages 100 to 103 of this annual report. The consolidated financial statements of the Company and its subsidiary companies for the
year ended December 31, 2022 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, 2022 and up to the date of this annual report.
42
OTHER INFORMATION
BIOGRAPHICAL DETAILS OF
DIRECTORS
TO Chi Keung, Simon
Weiguo SU
Executive Director and Chairman
Mr To, aged 71, has been a Director since 2000
and an Executive Director and Chairman of 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 a non-executive director 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 65, has been an Executive Director
since 2017 and Chief Executive Officer of the
Company since March 4, 2022. He is also 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.
HUTCHMED (China) Limited 2022 Annual Report 43
INFORMATION ON DIRECTORS CHENG Chig Fung, Johnny
Edith SHIH
Executive Director and Chief Financial
Officer
Mr Cheng, aged 56, 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 69, 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 71, 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”) since 1991.
Both CKH and HWL were formerly listed on The Stock Exchange of Hong
Kong Limited and 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 commissioner 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 certain substantial shareholders
of the Company. The aforementioned companies are either subsidiaries
or associated companies of CKHH of which Ms Shih has oversight as
a director of CKHH. She is a past international president and current
member of the Council of The Chartered Governance Institute (“CGI”) as
well as a past president and current honorary advisor of The Hong Kong
Chartered Governance Institute (“HKCGI”) and current chairperson of
its nomination committee. Further, she is also chairman of the Process
Review Panel for the Accounting and Financial Reporting Council (formerly
known as the Financial Reporting Council) and a member of the Securities
and Futures Appeals Tribunal and of the Executive Committee and Council
of The Hong Kong Management Association.
Ms Shih is a solicitor qualified in England and Wales, Hong Kong and
Victoria, Australia and a fellow of both the CGI and HKCGI, holding
Chartered Secretary and Chartered Governance Professional dual
designations. She 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.
44
INFORMATION ON DIRECTORS Lefei SUN
Non-executive Director
Mr Sun, aged 43, has been a Non-executive
Director of the Company since 2022. He is also
a member of the Technical Committee of the
Company. He has been the managing director and
head of China healthcare for General Atlantic since 2018, in charge of
private equity investment and portfolio management in healthcare and
life sciences sectors. Before joining General Atlantic, Mr Sun was the
founding partner of Huatai Healthcare Іnvestment Fund, successfully
leading the investment in Mindray Medical, which is listed on Shenzhen
Stock Exchange.
Mr Sun is also a director of Adagene Іnc. and Genesis MedTech Group
Inc. He was formerly a director of CANbridge Pharmaceuticals Іnc. and
Ocumension Therapeutics Іnc.
Mr Sun holds a Bachelor of Science degree in Mathematics and Physics
from Tsinghua University. He also holds a Master of Arts degree in
neuroscience from the Johns Hopkins University.
Paul Rutherford CARTER
Senior Independent Non-executive
Director
Mr Carter, aged 62, 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 Immatics N.V. and VectivBio Holding AG. He is the 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. and Mallinckrodt plc.
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.
HUTCHMED (China) Limited 2022 Annual Report 45
Karen Jean FERRANTE
Graeme Allan JACK
Independent Non-executive Director
Independent Non-executive Director
Mr Jack, aged 72, 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.
Dr Ferrante, aged 65, 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.). 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. She was also a past member of the
Scientific Advisory Board of Kazia Therapeutics Limited.
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.
46
INFORMATION ON DIRECTORS MOK Shu Kam, Tony
Independent Non-executive Director
Professor Mok, aged 62, 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
non-executive independent director of Lunit USA Inc. and a member of
the scientific advisory board of Prenetics Global Limited (“Prenetics”). He
is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings
Ltd. in November 2021) and Aurora Tele-Oncology Limited. He was
formerly a board director of the American Society of Clinical Oncology
(“ASCO”), a steering committee member of the Chinese Society of Clinical
Oncology, past president of the International Association for the Study of
Lung Cancer, and the chairman of the board of ACT Genomics Holdings
Ltd. until it was acquired by Prenetics in December 2022. 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.
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 “Listing Rules”), the changes
in information of Directors of the Company, as notified to the Company, subsequent to the date of the 2022 Interim Report are set out below:
Directors
TO Chi Keung, Simon
MOK Shu Kam, Tony
Details of Changes
Ceased to be the non-executive chairman of Gama Aviation Plc on July 13, 2022 and remaining as
a non-executive director
(a)
(b)
Ceased to be the chairman of the board of ACT Genomics Holdings Ltd. in December 2022
Appointed to the scientific advisory board of Prenetics Global Limited on January 1, 2023
HUTCHMED (China) Limited 2022 Annual Report 47
DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES,
UNDERLYING SHARES AND DEBENTURES
As at December 31, 2022, the interests and short positions of the Directors and chief executives 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 executives 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
Weiguo SU
CHENG Chig Fung, Johnny
Dan ELDAR
Capacity
Nature of Interests
Number of Shares/
Underlying
Shares Held
Beneficial owner
Interest of spouse
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
1,020,000
1,446,185 (1)
7,442,645 (2)
719,880 (3)
3,743,455 (4)
190,470 (5)
97,620 (6)
53,040 (7)
Approximate %
Total
of Shareholding
2,466,185
0.29%
8,162,525
0.94%
3,933,925
0.45%
150,660
0.02%
0.14%
Edith SHIH
Beneficial owner
Personal interest
1,200,000 (8)
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
63,845 (9)
45,080( 10)
61,130 (11)
48,675 (12)
33,655 (13)
15,000 (14)
53,040 (15)
83,665 (16)
53,040 (17)
108,925
0.01%
109,805
0.01%
101,695
0.01%
136,705
0.02%
48
INFORMATION ON DIRECTORS
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) 93,087 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 of the Company (the “2015 Share Option Scheme”), subject to the vesting conditions of those options, and (3) entitlement of
Dr Weiguo Su to receive up to 395,442 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 61.
(3)
Dr Weiguo Su is interested in 143,976 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 18,599 ADSs held by Mr Cheng Chig Fung, Johnny, (2) entitlement of Mr Cheng Chig Fung, Johnny to receive up to 217,800 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 61.
(5)
Mr Cheng Chig Fung, Johnny is interested in 38,094 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(6)
Includes 19,000 Shares and 15,724 ADSs held by Dr Dan Eldar.
(7)
Dr Dan Eldar is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(8)
Includes 700,000 Shares and 100,000 ADSs held by Ms Edith Shih.
(9)
Includes 35,240 Shares and 5,721 ADSs held by Mr Paul Rutherford Carter.
(10) Mr Paul Rutherford Carter is interested in 9,016 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(11)
Represents 12,226 ADSs held by Dr Karen Jean Ferrante.
(12)
Dr Karen Jean Ferrante is interested in 9,735 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(13)
Represents 6,731 ADSs held by Mr Graeme Allan Jack.
(14)
The spouse of Mr Graeme Allan Jack is interested in 3,000 ADSs.
(15) Mr Graeme Allan Jack is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(16)
Represents 16,733 ADSs held by Professor Mok Shu Kam, Tony.
(17)
Professor Mok Shu Kam, Tony is interested in 10,608 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
Save as disclosed above, as at December 31, 2022, none of the Directors or chief executives 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, 2022, 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.
HUTCHMED (China) Limited 2022 Annual Report 49
BIOGRAPHICAL DETAILS OF
SENIOR MANAGEMENT
Michael Ming SHI
Karen Jane ATKIN
Executive Vice President and Chief Operating Officer
Dr Atkin, aged 57, 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 a Master of Business
Administration 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.
Executive Vice President, Head of R&D and Chief Medical
Officer
Dr Shi, aged 57, is the Executive Vice President, Head of R&D and
Chief Medical Officer of the Company. He oversees the drug discovery
and development of the Company from strategy to execution.
Prior to joining the Company in 2022, Dr Shi was the Global Head of R&D
and Chief Medical Officer at Transcenta Holding Limited where he helped
build a strong global research and development organization across China
and the U.S. and advanced seven programs into clinical development and
multiple preclinical candidate nominations. Before that, Dr Shi worked
at Novartis for over 15 years, where he held various senior leadership
positions including global program clinical head in clinical development.
He played key leadership roles in the clinical development of multiple
novel oncology/hematology products from clinical proof-of-concept to
successful execution of global pivotal trials, product registration and life-
cycle management. Dr Shi is a member of the American Society of Clinical
Oncology, European Society of Medical Oncology, American Society of
Hematology, American Association for Cancer Research, Sino-American
Pharmaceutical Association and an executive committee member of the
US-China Anticancer Association (USCACA). Dr Shi also worked as the
program director of genetics variation at National Institutes of Health
(“NIH”) under the direct supervision of former NIH director, Dr Francis
Collins and was an adjunct assistant professor at the University of
Michigan Medical School.
Dr Shi holds a PhD in Molecular Pharmacology and Toxicology from the
University of Southern California, and conducted postdoctoral research
at the Harvard Medical School. He received his medical education from
Peking Union Medical College.
50
INFORMATION ON SENIOR MANAGEMENT Zhenping WU
Hong CHEN
Senior Vice President and Chief Commercial Officer (China)
Mr Chen, aged, 52, 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.
Charles George Rupert NIXON
Group General Counsel
Mr Nixon, aged 53, 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 over 30 years of experience.
Executive Vice President, Pharmaceutical Sciences and
Manufacturing
Dr Wu, aged 63, joined the Company in 2008 and is the Executive Vice
President of Pharmaceutical Sciences and Manufacturing of the Company.
Dr Wu has over 29 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 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 45, 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 and Strategic
Alliances
Dr Wang, aged 59, is the Senior Vice President of Business Development
and 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.
HUTCHMED (China) Limited 2022 Annual Report 51
The Directors have pleasure in submitting to shareholders their report and
the audited financial statements for the year ended December 31, 2022.
DIVIDENDS
No interim dividend for the year ended December 31, 2022 was declared
and the Directors do not recommend the payment of a final dividend for
the year ended December 31, 2022.
RESERVES
Movements in the reserves of the Group during the year ended December
31, 2022 are set out in the Consolidated Statements of Changes in
Shareholders’ Equity on page 107.
CHARITABLE DONATIONS
Donations to charitable organizations by the Group during the year ended
December 31, 2022 amounted to approximately US$2.70 million (2021 –
approximately US$1.89 million).
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 104. Details of the ordinary shares of the Company
(“Shares”) are set out in note 16 to the Consolidated Financial Statements.
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 fair review of the business of the Company and its subsidiaries (the
“Group”) as required under Schedule 5 to the Companies Ordinance
(Chapter 622 of the Laws of Hong Kong), comprising a discussion and
analysis of the Group’s performance during the year, a description of
the principal risks and uncertainties facing the Group, particulars of
important events affecting the Group that have occurred since the end
of the financial year 2022 (if any) as well as an indication of likely future
development in the business of the Group are provided in the sections
“Chairman’s Statement”, “Chief Executive Officer’s Report”, “2022 Full
Year Results and Business Updates”, “2022 Full Year Financial Results”,
“Financial Summary” and “Operations Review” on pages 6 to 33 and
“Risk Management, Internal Control and Legal & Regulatory Compliance”
section in the Corporate Governance Report on pages 82 to 90 of this
annual report. Discussions on the Group’s environmental policies
and performance, the Group’s compliance with the relevant laws and
regulations that have a significant impact on the Group as well as an
account of the Group’s key relationships with its stakeholders that have
a significant impact on the Group and on which the Group’s success
depends, are provided in the “Sustainability” section on pages 97 to 99 in
the “Corporate Governance Report”. All such discussions form part of this
report. Further details are set out in the standalone 2022 Sustainability
Report.
RESULTS
The Consolidated Statements of Operations are set out on page 105 and
show the Group’s results for the year ended December 31, 2022.
52
DIRECTORS’ REPORT DIRECTORS
The Directors of the Company as of December 31, 2022 were:
Executive Directors:
TO Chi Keung, Simon
Weiguo SU
CHENG Chig Fung, Johnny
Non-executive Directors:
Dan ELDAR
Edith SHIH
Lefei SUN
Independent Non-executive Directors:
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
The following changes to the Board composition were effected during
2022 and prior to the date of this report:
(i)
(ii)
Mr Christian Lawrence Hogg retired as Executive Director and Chief
Executive Officer on March 4, 2022;
Dr Weiguo Su was appointed as Chief Executive Officer, in addition
to his roles as Executive Director and Chief Scientific Officer on
March 4, 2022; and
(iii) Mr Lefei Sun was appointed as Non-executive Director on May 16,
2022.
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.
Mr Lefei Sun, who was appointed on May 16, 2022, will hold office until the
forthcoming annual general meeting (the “2023 AGM”) pursuant to Article
89(3) of the Articles of Association of the Company and, being eligible, will
offer himself for re-election at the 2023 AGM.
The Company’s Articles of Association requires 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. To follow the market practice in the United
Kingdom whereby all directors are subject to annual re-election, Mr To Chi
Keung, Simon, Dr Weiguo Su, Mr Cheng Chig Fung, Johnny, Dr Dan Eldar,
Ms Edith Shih, Mr Lefei Sun, Mr Paul Rutherford Carter, Mr Graeme Allan Jack
and Professor Mok Shu Kam, Tony will all retire at the 2023 AGM and, being
eligible, will offer themselves for re-election by shareholders. Dr Karen Jean
Ferrante will retire at the 2023 AGM and will not offer herself for re-election
at the 2023 AGM.
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 43 to 47.
DIRECTORS’ SERVICE CONTRACT
None of the Directors of the Company who are proposed for re-election at
the 2023 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.
CONTINUING CONNECTED
TRANSACTIONS
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.
HUTCHMED (China) Limited 2022 Annual Report 53
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 Labeling 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 labeling
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 labeling 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.
54
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
DIRECTORS’ REPORT 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.
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. September 28, 2021) and
up to and including December 31, 2023. Subject to compliance
with the requirements of the HK 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 HK
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 (around US$1.54 million). The aggregate royalty
payable under the HBYS Brand License Royalty Agreement
(including any renewal thereof) shall not be more than
HK$120 million, even if the HBYS Brand License Royalty Agreement
is not terminated and continues to be renewed after 10 years.
As HWEL is a subsidiary of CKHH, it is a connected person of
the Company by virtue of being an associate of a substantial
shareholder of the Company and the license granted under the
HBYS Brand License Royalty Agreement constitutes a continuing
connected transaction of the Company.
HUTCHMED (China) Limited 2022 Annual Report 55
The Group believes that the entering into of the A.S. Watson Framework Connected Transactions Agreement, the Framework Travel Services Agreement,
the Hain Products Supply Agreement, the Framework Sinopharm Products Supply and Purchase Agreement and the HBYS Brand License Royalty
Agreement (collectively the “2022 CCTs”) will help to achieve business continuity and efficiency.
The annual caps of the 2022 CCTs in respect of the year ended December 31, 2022 and the corresponding aggregate transaction amounts for the year are
set out below:
2022 CCTs
(1) (a)
(b)
(2)
(3)
(4)
(5) (a)
(b)
(6)
Supply of products by the Group under the A.S. Watson Framework Connected
Transactions Agreement
Provision of marketing services by A.S. Watson Group under the A.S. Watson
Framework Connected Transactions Agreement
Provision of product labeling services by A.S. Watson Group under the A.S. Watson
Framework Connected Transactions Agreement
Provision of travel services by Hutchison Travel Group under the Framework Travel
Services Agreement
Provision of marketing, distribution and sale services by the Group under the Hain
Products Supply Agreement
Supply of products by the Group under the Framework Sinopharm Products Supply
and Purchase Agreement
Purchase of products by the Group under the Framework Sinopharm Products Supply
and Purchase Agreement
HBYS Brand License Royalty Agreement
Aggregate amount
for year ended
December 31, 2022
(US$ millions)
Cap Amount
(US$ millions)
3.61
0.23
0.16
Nil
7.55
69.42
2.43
1.54
14.95
1.50
0.79
1.50
27.76
236.75
4.90
1.54
The internal audit of the Group has reviewed the 2022 CCTs for the year ended December 31, 2022 and the relevant internal control procedures in respect
of the negotiation, review, approval, agreement management, reporting, consolidation and monitoring process of the 2022 CCTs, and is of the view that
the 2022 CCTs 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 2022 CCTs are sound and effective.
All the Independent Non-executive Directors of the Company, having reviewed the 2022 CCTs for the year ended December 31, 2022 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 2022 CCTs for the year ended December 31, 2022 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 2022 CCTs 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 2022 CCTs 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; and
(iv) with respect to the aggregate amount of each of the 2022 CCTs, the 2022 CCTs have exceeded the annual cap as set by the Company.
Related party transactions of the Group during the year ended December 31, 2022 are described in note 23 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.
56
DIRECTORS’ REPORT
PERMITTED INDEMNITY PROVISIONS
The Articles of Association provides 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, 2022 and as of the date of this report.
DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT
POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
Directors’ and chief executives’ interests and short positions in shares, underlying shares and debentures are set out in the section “Information on
Directors” on pages 48 to 49.
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, 2022, 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
38.46%
38.46%
38.45%
38.45%
Note:
(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 ADSs (each representing five Shares) 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 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.
Save as disclosed above, as at December 31, 2022, no other person (other than the Directors and chief executives 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.
HUTCHMED (China) Limited 2022 Annual Report 57
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
proposed share awards/remuneration, such that no Director
is involved in determining his or her own share awards/
remuneration.
(3)
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.
(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.
EQUITY-LINKED AGREEMENTS
(2)
No equity-linked agreements that will or may result in the Company
issuing shares nor require the Company to enter into an agreement that
will or may result in the Company issuing shares was entered into by the
Company during the year or subsisted at the end of the year.
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”).
The 2015 Share Option Scheme shall be valid until May 12, 2026.
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, Dr Weiguo Su and
Mr Cheng Chig Fung, Johnny, have been granted share options
under the 2015 Share Option Scheme.
A summary of the 2015 Share Option Scheme is as follows:
(1)
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).
58
DIRECTORS’ REPORT (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 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
(b) where the shares of the same class are not admitted
to 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)
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;
HUTCHMED (China) Limited 2022 Annual Report 59
(b)
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 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, canceled, 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 January 1, 2022 (being the beginning of the
financial year) and December 31, 2022 (being the
end of the financial year), the total number of the
shares available for grant under the 2015
Share Option Scheme were 11,771,818 and
4,090,998 respectively. As at February 28, 2023
(being the date of this annual report), the total number
of the shares available for issue under the 2015 Share
Option Scheme (including the share options granted
but yet to be exercised) was 48,236,458, representing
approximately 5.58% of the total number of shares in
issue;
(c)
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
(8) below and restrictions on grant to key individuals
under the 2015 Share Option Scheme; and
(d)
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.
Limit of each Eligible Person – 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)(d) above.
(8)
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.
60
DIRECTORS’ REPORT Particulars of share options outstanding under the 2015 Share Option Scheme at the beginning and at the end of the year 2022 and share options
granted, exercised, canceled or lapsed under the 2015 Share Option Scheme during 2022 were as follows:
Number of
share options
held as at
January 1,
2022
Granted
during the
year ended
December 31,
2022
Exercised
during the
year ended
December 31,
2022
Date of grant
of share
options
Lapsed/
canceled
during the
year ended
December 31,
2022
Number of
share options
held as at
December 31,
2022
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
–
–
–
–
–
–
–
–
–
–
Name or
category of
participants
Director
Christian
Lawrence
HOGG (1)
Apr 28, 2020 (3)
Dec, 14 2020 (3)
Mar 26, 2021 (3)
1,291,700
(=258,340 ADS)
39,610
(=7,922 ADS)
868,900
(=173,780 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)
282,400
(=56,480 ADS)
24,930
(=4,986 ADS)
Apr 28, 2020 (3)
Dec 14, 2020 (3)
Mar 26, 2021 (3)
Dec 14, 2021 (3)
May 23, 2022 (5)
Apr 28, 2020 (3)
Mar 26, 2021 (3)
May 23, 2022 (3)
CHENG Chig
Fung, Johnny
–
861,220
(=172,244 ADS)
401,900
(=80,380 ADS)
240,500
(=48,100 ADS)
–
–
–
446,600
(=89,320 ADS)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(968,775)
(=193,755 ADS)
322,925
(=64,585 ADS)
Apr 28, 2020
to Apr 27, 2030
(29,710)
(=5,942 ADS)
9,900
(=1,980 ADS)
Dec 14, 2020
to Dec 13, 2030
(868,900)
(=173,780 ADS)
–
–
–
–
–
–
–
–
–
–
–
–
3,000,000
1,000,000
1,000,000
Mar 26, 2021
to Mar 25, 2031
Jun 15, 2016
to Dec 19, 2023
Mar 27, 2017
to Mar 26, 2027
Mar 19, 2018
to Mar 18, 2028
789,700
(=157,940 ADS)
Apr 28, 2020
to Apr 27, 2030
18,960
(=3,792 ADS)
Dec 14, 2020
to Dec 13, 2030
282,400
(=56,480 ADS)
Mar 26, 2021
to Mar 25, 2031
24,930
(=4,986 ADS)
Dec 14, 2021
to Dec 13, 2031
861,220
(=172,244 ADS)
May 23, 2022
to May 22, 2032
401,900
(=80,380 ADS)
Apr 28, 2020
to Apr 27, 2030
240,500
(=48,100 ADS)
Mar 26, 2021
to Mar 25, 2031
446,600
(=89,320 ADS)
May 23, 2022
to May 22, 2032
US$22.090
per ADS
US$29.000
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
US$10.750
per ADS
US$22.090
per ADS
US$27.940
per ADS
US$10.750
per ADS
US$21.920
per ADS
US$28.160
per ADS
US$27.640
per ADS
(4)
(4)
(4)
£1.975
per share
£3.000
per share
£4.890
per share
US$21.920
per ADS
US$28.160
per ADS
US$27.640
per ADS
US$35.064
per ADS
US$10.910
per ADS
US$21.920
per ADS
US$27.640
per ADS
US$10.910
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
N/A
HUTCHMED (China) Limited 2022 Annual Report 61
Number of
share options
held as at
January 1,
2022
Granted
during the
year ended
December 31,
2022
Exercised
during the
year ended
December 31,
2022
Date of grant
of share
options
Lapsed/
canceled
during the
year ended
December 31,
2022
Number of
share options
held as at
December 31,
2022
(200,000)
–
2,736,860
Name or
category of
participants
Employees in
aggregate
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Jun 15, 2016 (2)
2,936,860
Apr 20, 2018 (3)
4,343,500
Jun 6, 2018 (3)
122,450
Aug 6, 2018 (3)
630,000
Oct 19, 2018 (3)
255,000
May 21, 2019 (3)
100,000
Oct 9, 2019 (3)
1,240,000
Dec 11, 2019 (3)
400,000
Apr 20, 2020 (3)
575,000
6,870,500
(=1,374,100 ADS)
465,000
(=93,000 ADS)
1,327,010
(=265,402 ADS)
6,391,600
(=1,278,320 ADS)
1,086,000
(=217,200 ADS)
784,010
(=156,802 ADS)
Apr 28, 2020 (3)
Aug 11, 2020 (3)
Dec 14, 2020 (3)
Mar 26, 2021 (3)
Sep 1, 2021 (3)
Dec 14, 2021 (3)
May 23, 2022 (3)
Sep 13, 2022 (3)
Exercise
period of
share options
Jun 15, 2016
to Dec 19, 2023
Apr 20, 2018
to Apr 19, 2028
Jun 6, 2018
to Jun 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
(502,740)
3,840,760
–
122,450
(255,000)
375,000
–
–
255,000
100,000
(100,000)
1,140,000
–
400,000
(390,000)
185,000
(394,800)
(=78,960 ADS)
6,475,700
(=1,295,140 ADS)
335,000
(=67,000 ADS)
(130,000)
(=26,000 ADS)
(125,000)
(=25,000 ADS)
1,202,010
(=240,402 ADS)
Dec 14, 2020
to Dec 13, 2030
(940,600)
(=188,120 ADS)
5,451,000
(=1,090,200 ADS)
Mar 26, 2021
to Mar 25, 2031
(255,000)
(=51,000 ADS)
831,000
(=166,200 ADS)
Sep 1, 2021
to Aug 31, 2031
–
784,010
(=156,802 ADS)
Dec 14, 2021
to Dec 13, 2031
(145,000)
(=29,000 ADS)
4,478,000
(=895,600 ADS)
May 23, 2022
to May 22, 2032
–
1,750,000
(= 350,000 ADS)
Sep 13, 2022
to Sep 12, 2032
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Price of Share
Exercise
price of
share options
prior to
the grant
date of
share options
prior to the
exercise date
of share
options
£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$10.750
per ADS
US$13.140
per ADS
(4)
(4)
(4)
(4)
(4)
(4)
£1.975
per share
£4.590
per share
£4.110
per share
£5.000
per share
£4.600
per share
£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
US$10.910
per ADS
US$13.077
per ADS
(6)
£2.110
per share
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
N/A
N/A
N/A
–
–
4,623,000
(=924,600 ADS)
1,750,000
(= 350,000 ADS)
Total:
36,485,530
7,680,820
(200,000)
(5,105,525)
38,860,825
62
DIRECTORS’ REPORT
Effective from May 30, 2019, each ordinary share of US$1.00 each of
the Company was subdivided into 10 new Shares of US$0.10 each
(the “Share Subdivision”). 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 Shares. Each ADS represents five Shares.
Notes:
(1)
(2)
(3)
(4)
(5)
Mr Christian Lawrence Hogg retired as Executive Director and Chief
Executive Officer of the Company 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 exercise of the share options is conditional upon the fulfilment of
certain performance targets relating to the Group over the financial
years 2022 to 2024 (the “Performance Targets”). The number of
share options to be exercisable will be determined on the date of
announcement of the annual results of the Company for the financial
year ending December 31, 2024 (the “2024 Results Announcement”).
Vesting will occur two business days after the 2024 Results
Announcement. The Performance Targets have been determined by
the Board and specified in the grant letter of Dr Weiguo Su. To the
extent that the Performance Targets have not been met, the relevant
number of share options granted to Dr Weiguo Su will lapse.
(6)
The stated price was the closing price of the Shares 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
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 Dr Weiguo Su and Mr Cheng Chig Fung,
Johnny, being Executive Directors of the Company, received share
options under the 2005 Share Option Scheme.
A summary of the 2005 Share Option Scheme is as follows:
(1)
(2)
(3)
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 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/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 2022 Annual Report 63
(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
recognized 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:
(8)
(a)
(b)
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 recognized stock exchange (including the AIM) (the
“Listing”);
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
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
64
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, canceled, lapsed or exercised)
will not be counted for the purpose of calculating
the limit as refreshed. As at February 28, 2023 (being
the date of this annual report), 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 660,570, representing
approximately 0.08% of the total number of the shares
in issue;
(c)
(d)
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 (8) below and
restrictions on grant to key individuals under the 2005
Share Option Scheme; and
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.
Limit of each Eligible Person – no 2005 Eligible Person
may be granted a share option if, as a result, the total
number of the 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)(d)above.
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.
DIRECTORS’ REPORT Particulars of share options outstanding under the 2005 Share Option Scheme at the beginning and at the end of the year 2022 and share options
granted, exercised, canceled or lapsed under the 2005 Share Option Scheme during 2022 were as follows:
Number of
share
options
Granted
during the
Exercised
during the
Lapsed/
canceled
during the
Number of
share
options
held as at
year ended
year ended
year ended
held as at
Date of grant of
January 1,
December 31,
December 31,
December 31,
December 31,
Exercise
period of
Exercise
price of
prior to the
grant date of
share options
Dec 20, 2013 (1)
2022
705,060
705,060
2022
–
–
2022
(44,490)
(44,490)
2022
2022
share options
share options
share options
–
–
660,570
Dec 20, 2013
to Dec 19, 2023
£0.6100
per share
£0.6130
(2)
per share
660,570
Price of Share
prior to the
exercise
date of
share
options (3)
£1.6700
per share
Category of
participants
Employees in
aggregate
Total:
The Share Subdivision is also applicable to the 2005 Share Option Scheme.
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 price as a result of the Share Subdivision. The price prior to the adjustment was closing price of the shares quoted on AIM on
the trading day immediately prior to the respective date of grant of share options.
(3)
The stated price was the closing price of the Shares immediately before the date on which the share options were exercised.
As at December 31, 2022, the Company had 38,860,825 share options and 660,570 share options outstanding under the 2015 Share Option Scheme
and the 2005 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 (weighted average)
US$4.24
Significant inputs into the valuation model (weighted average):
Exercise price
Share price at effective grant date
Expected volatility
Risk-free interest rate
Contractual life of share options
Expected dividend yield
US$11.29
US$11.09
46.71%
2.98%
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.
The number of ordinary shares that may be issued in respect of options granted under the 2015 Share Option Scheme during the 2022 financial
year divided by the weighted average number of ordinary shares in issue for the year was 0.91%. As the 2005 Share Option Scheme expired on June
3, 2016, no options were granted under the 2005 Share Option Scheme during the year.
HUTCHMED (China) Limited 2022 Annual Report 65
LONG TERM INCENTIVE PLAN
The Company adopted a Long Term Incentive Plan (“LTIP”) on April 24, 2015. The purposes of the LTIP are to attract skilled and experienced personnel,
to incentivize them to remain with the Company and to motivate them to strive for the future development and expansion of the Company. The
Company grants awards under the LTIP (the “LTIP Award(s)”) to participating directors or employees giving them a conditional right to receive Shares
of the Company or the equivalent ADS or cash payment (collectively the “Awarded Shares”) to be purchased by an independent third party trustee (the
“Trustee”) in the market up to a cash amount. Such LTIP awards are not satisfied out of new Shares, as is the case with the share options.
A summary of the LTIP is as follows:
(1)
(2)
Participants – any employee of the Company and its subsidiaries and affiliates of the Company and any director of the Company and its
subsidiaries, who the board of directors of the Company (the “Board”) considers in its absolute discretion have contributed or will contribute to the
Group will be eligible to participate in the LTIP (the “Participants”). Computershare Trustees (Jersey) Limited (the “Trustee”) has been appointed by
the Company to assist with the administration and vesting of the LTIP Awards.
Plan Administration – the Remuneration Committee meets and makes 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/her own LTIP Awards. Any Awarded Shares bought to satisfy any LTIP Award are purchased by the
Trustee of the LTIP, and such Awarded Shares are held by the Trustee on behalf of the awardee until the LTIP Awards have vested.
Summary of the Different Types of LTIP Awards
LTIP Award – Non-performance
Trustee and held by Trustee
Awarded Shares Bought by
Participants – Eligibility
Based/Performance Based
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
Scientific Officer) and employees
performance targets, used by
grant
Trustee to buy Awarded Shares
in the market
Chairman, Non-executive Directors and
Non-performance based award
Cash amount awarded used by
Mainly 25% of the LTIP
Independent Non-executive Directors
and certain employees
Trustee to buy shares in the
Awards vests annually in
market
equal amounts over a four-
year period
(3)
No Payment for the LTIP Award – No payment is required by the Participants for the LTIP Awards.
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 LTIP Awards can be either performance based awards or non-performance based
awards. For awards to salaried Executive Directors and employees, these are mainly performance based awards and typically 100% vests around
three years after the date of grant. 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 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, 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 LTIP 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.
(4)
(5)
66
DIRECTORS’ REPORT
(6)
LTIP Limit – At the annual general meeting of the Company held on April 27, 2022, the scheme mandate limit under the LTIP was refreshed
to 43,226,542 Shares, representing 5% of the shares in issue as at April 27, 2022. As at February 28, 2023 (being the date of this annual report),
37,240,062 Shares, representing 4.31% of the shares in issue, remains available under the scheme mandate limit. There is no maximum entitlement
of each Participant specified under the LTIP.
(7)
Remaining term of the LTIP – The LTIP shall be valid for a period commencing on the adoption date on April 24, 2015 and expiring on the 10th
anniversary. Therefore, it has a remaining term of approximately 2 years as at the date of this report.
Particulars of LTIP Awards balance at the beginning and at the end of the year 2022 and LTIP Awards granted, vested, canceled or lapsed under the LTIP
during 2022 are as follows:
Maximum
amount
stipulated in
the LTIP
Awards
Date of
grant of
Maximum
amount
stipulated
in the LTIP
Awards
granted
Unvested
LTIP
Awards
during the
during the
during the
as at
year ended
year ended
year ended
Lapsed/
Unvested
Vested
canceled
LTIP
Awards
as at
Price of
ADS prior
to the
grant date
Price of
ADS prior
to the
vesting
date of
LTIP
Performance
as at date of
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
grant
2022 (2)
2022
2022 (3)
2022
2022
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
Apr 20, 2020
N/A (7)
US$200,000
7,191 ADS
–
(2,397 ADS)
–
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Oct 20, 2021
N/A (7)
US$250,000
7,751 ADS
–
(1,937 ADS)
–
5,814 ADS
25% of LTIP Awards
N/A
US$8.45
Name or
category of
Participants
Director
TO Chi Keung,
Simon (6)
Christian Lawrence
HOGG (8)
Weiguo SU
Apr 20, 2020
Apr 20, 2020
Mar 15, 2017
Apr 20, 2020
Apr 20, 2020
Mar 26, 2021
N/A (7)
US$209,446
10,734 ADS
2020
2019
US$1,580,193
56,634 ADS
US$366,255
3,754 ADS
N/A (7)
US$293,004
15,016 ADS
2020
2021
US$1,407,120
50,431 ADS
US$1,622,123
93,545 ADS
–
–
–
–
–
–
May 23, 2022
2022
US$3,232,845
To be
US$3,232,845
determined (9)
(10,734 ADS)
–
(3,754 ADS)
(15,016 ADS)
–
–
–
–
–
–
–
–
–
–
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Mar 8, 2022
Mar 3, 2023
Mar 8, 2022
Mar 8, 2022
Mar 3, 2023
All LTIP Awards will
vest in Feb/Mar 2024
–
56,634 ADS
–
–
50,431 ADS
93,545 ADS
N/A
N/A
N/A
N/A
N/A
N/A
–
All LTIP Awards will
US$9.58
vest in Feb/Mar 2025
US$18.71
N/A
US$18.71
US$18.71
N/A
N/A
N/A
HUTCHMED (China) Limited 2022 Annual Report 67
Maximum
amount
stipulated
in the LTIP
Awards
granted
Unvested
LTIP
Maximum
amount
stipulated in
the LTIP
Awards
Date of
grant of
Lapsed/
Unvested
Vested
canceled
Awards
during the
during the
during the
as at
year ended
year ended
year ended
LTIP
Performance
as at date of
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
grant
2022 (2)
2022
2022 (3)
2022
Name or
category of
Participants
CHENG Chig Fung,
Apr 20, 2020
N/A (7)
US$81,923
4,198 ADS
Johnny
Apr 20, 2020
Mar 26, 2021
2020
2021
US$640,443
22,953 ADS
US$657,211
15,141 ADS
–
–
–
May 23, 2022
2022
US$680,242
To be
US$680,242
determined (9)
(4,198 ADS)
–
–
–
Dan ELDAR
Apr 20, 2020
N/A (7)
US$200,000
7,191ADS
–
(2,397 ADS)
–
–
–
–
–
LTIP
Awards
as at
2022
–
22,953 ADS
15,141 ADS
Price of
ADS prior
to the
grant date
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
Mar 8, 2022
Mar 3, 2023
All LTIP Awards will
vest in Feb/Mar 2024
N/A
N/A
N/A
Price of
ADS prior
to the
vesting
date of
LTIP
Awards (5)
US$18.71
N/A
N/A
N/A
–
All LTIP Awards will
US$9.58
vest in Feb/Mar 2025
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Oct 20, 2021
N/A (7)
US$250,000
7,751 ADS
–
(1,937 ADS)
–
5,814 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Edith SHIH (10)
Apr 20, 2020
N/A (7)
US$200,000
7,191 ADS
–
(2,397 ADS)
–
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Oct 20, 2021
N/A (7)
US$250,000
7,751 ADS
–
(1,937 ADS)
–
5,814 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
68
DIRECTORS’ REPORT
Maximum
amount
stipulated in
the LTIP
Awards
Date of
grant of
Maximum
amount
stipulated
in the LTIP
Awards
granted
Unvested
LTIP
Awards
during the
during the
during the
as at
year ended
year ended
year ended
Lapsed/
Unvested
Vested
canceled
LTIP
Awards
as at
Price of
ADS prior
to the
grant date
Price of
ADS prior
to the
vesting
date of
LTIP
Performance
as at date of
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
grant
2022 (2)
2022
2022 (3)
2022
2022
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
Name or
category of
Participants
Paul Rutherford
Apr 20, 2020
N/A (7)
US$200,000 (11)
6,112 ADS
–
(2,037 ADS)
–
4,075 ADS
25% of LTIP Awards
N/A
US$17.38
CARTER
Karen Jean
FERRANTE
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Oct 20, 2021
N/A (7)
US$250,000 (12)
6,588 ADS
–
(1,647 ADS)
–
4,941 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Apr 20, 2020
N/A (7)
US$200,000
7,191 ADS
–
(2,397 ADS)
–
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Oct 20, 2021
N/A (7)
US$250,000 (12)
6,588 ADS
–
(1,647 ADS)
–
4,941 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Graeme Allan JACK
Apr 20, 2020
N/A (7)
US$200,000
7,191 ADS
–
(2,397 ADS)
–
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
Oct 20, 2021
N/A (7)
US$250,000
7,751 ADS
–
(1,937 ADS)
–
5,814 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
HUTCHMED (China) Limited 2022 Annual Report 69
Maximum
amount
stipulated in
the LTIP
Awards
Date of
grant of
Maximum
amount
stipulated
in the LTIP
Awards
granted
Unvested
LTIP
Awards
during the
during the
during the
as at
year ended
year ended
year ended
Lapsed/
Unvested
Vested
canceled
LTIP
Awards
as at
Price of
ADS prior
to the
grant date
Price of
ADS prior
to the
vesting
date of
LTIP
Performance
as at date of
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
grant
2022 (2)
2022
2022 (3)
2022
2022
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
Name or
category of
Participants
MOK Shu Kam, Tony
Apr 20, 2020
N/A (7)
US$200,000
7,191 ADS
–
(2,397 ADS)
–
4,794 ADS
25% of LTIP Awards
N/A
US$17.38
Oct 20, 2021
N/A (7)
US$250,000
7,751 ADS
–
(1,937 ADS)
–
5,814 ADS
25% of LTIP Awards
N/A
US$8.45
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Other employees
Mar 15, 2017
in aggregate
Dec 15, 2017
Dec 14, 2018
Aug 5, 2019
Oct 10, 2019
2019
2019
2019
2019
USD5,142,591
31,672 ADS
USD529,477
3,075 ADS
USD1,488,996
10,151 ADS
USD652,020
N/A (7)
USD96,154
4,274 ADS
2,781 ADS
–
–
–
–
–
(31,010 ADS)
(662 ADS)
(3,075 ADS)
–
(8,657 ADS)
(1,494 ADS)
(4,274 ADS)
–
–
(2,781 ADS)
–
–
–
–
–
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Mar 8, 2022
Mar 8, 2022
Mar 8, 2022
Mar 8, 2022
25% of LTIP Awards vesting
on each of Oct 10, 2020,
Oct 10, 2021,
Oct 10, 2022,
Oct 10, 2023
N/A
N/A
N/A
N/A
N/A
US$18.71
US$18.71
US$18.71
US$18.71
N/A
Apr 20, 2020
N/A (7)
USD650,000
9,609 ADS
–
(3,203 ADS)
–
6,406 ADS
25% of LTIP Awards vesting
N/A
US$17.38
on each of Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Mar 8, 2022
Mar 3, 2023
Mar 3, 2023
(385,917 ADS)
(10,011 ADS)
–
(103,697 ADS)
768,336 ADS
(5,503 ADS)
27,626 ADS
–
–
–
–
(243,674 ADS) 2,148,342 ADS
All LTIP Awards will
(91,670 ADS)
210,589 ADS
vest in Feb/Mar 2024
All LTIP Awards will
vest in Feb/Mar 2024
N/A
N/A
N/A
N/A
N/A
US$18.71
N/A
N/A
N/A
N/A
Apr 20, 2020
Apr 20, 2020
Aug 12, 2020
Mar 26, 2021
N/A (7) USD9,773,916
395,928 ADS
2020
USD33,953,547
872,033 ADS
2020
USD2,171,022
33,129 ADS
2021
USD53,469,885
2,392,016 ADS
Sep 1, 2021
2021
USD7,279,340
302,259 ADS
–
–
–
–
–
70
DIRECTORS’ REPORT
Name or
category of
Participants
Total:
Five highest
paid individuals
during 2022
Total:
Maximum
amount
stipulated in
the LTIP
Awards
Date of
grant of
Maximum
amount
stipulated
in the LTIP
Awards
granted
Unvested
LTIP
Awards
during the
during the
during the
as at
year ended
year ended
year ended
Lapsed/
Unvested
Vested
canceled
LTIP
Awards
as at
Price of
ADS prior
to the
grant date
Price of
ADS prior
to the
vesting
date of
LTIP
Performance
as at date of
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
grant
2022 (2)
2022
2022 (3)
2022
2022
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
Sep 1, 2021
N/A (7)
USD503,077
12,443 ADS
–
(3,110 ADS)
–
9,333 ADS
25% of LTIP Awards
N/A
US$12.86
Dec 14, 2021
Dec 14, 2021
N/A (7)
N/A (7)
USD100,000
USD100,000
3,059 ADS
3,059 ADS
–
–
(3,059 ADS)
(764 ADS)
May 23, 2022
2022
USD54,938,691
To be
USD54,938,691
determined (9)
Sep 13, 2022
2022
USD3,789,159
To be
USD3,789,159
determined (9)
Sep 13, 2022
N/A (7) USD1,730,000
128,863 ADS
USD1,730,000
–
–
–
vesting on each of
Sep 1, 2022,
Sep 1, 2023,
Sep 1, 2024,
Sep 1, 2025
Dec 14, 2022
–
2,295 ADS
25% of LTIP Awards
vesting on each of
Dec 14, 2022,
Dec 14, 2023,
Dec 14, 2024,
Dec 14, 2025
N/A
N/A
US$14.27
US$14.27
–
–
All LTIP Awards will
US$9.58
vest in Feb/Mar 2025
All LTIP Awards will
US$14.35
vest in Feb/Mar 2025
128,863 ADS
25% of LTIP Awards
US$14.35
N/A
N/A
N/A
–
–
–
–
–
4,577,946 ADS
(506,169 ADS)
(459,492 ADS) 3,612,285 ADS
Mar 15, 2017
Apr 20, 2020
Apr 20, 2020
Mar 26, 2021
2019
USD993,359
8,888 ADS
N/A (7)
USD622,461
31,898 ADS
2020
2021
USD3,399,299
100,985 ADS
USD3,841,280
172,742 ADS
–
–
–
–
May 23, 2022
2022
USD5,458,989
To be
USD5,458,989
(8,888 ADS)
(31,898 ADS)
–
–
–
–
–
–
–
–
–
–
100,985 ADS
172,742 ADS
determined (9)
314,513 ADS
vesting on each of
Sep 13, 2023,
Sep 13, 2024,
Sep 13, 2025,
Sep 13, 2026
Mar 8, 2022
Mar 8, 2022
Mar 3, 2023
All LTIP Awards will
vest in Feb/Mar 2024
N/A
N/A
N/A
N/A
–
All LTIP Awards will
US$9.58
vest in Feb/Mar 2025
US$18.71
US$18.71
N/A
N/A
N/A
(40,786 ADS)
–
273,727 ADS
HUTCHMED (China) Limited 2022 Annual Report 71
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
For annual performance based award, performance targets may include
targets for shareholder returns, financings, revenues, net profit after taxes
and the achievement of clinical and regulatory milestones.
Shares purchased by the Trustee following determination of the cash
amount based on the actual achievement of performance targets stipulated
in the LTIP Award.
Vesting period for annual performance based awards is typically three years
after the date of grant. For non-performance based awards, 25% of the
award vesting annually over a four-year period.
The stated prices were closing prices of the ADS quoted on NASDAQ on the
trading day immediately prior to the respective dates of grant of LTIP Awards
during 2022.
The stated prices were closing prices of the ADS quoted on NASDAQ on
the trading day immediately prior to the respective dates of vesting of LTIP
Awards during 2022.
Similar to the arrangement for his Director's fees, these ADSs were not
received by Mr To Chi Keung, Simon, but were received by or for the account
of his employer, Hutchison Whampoa (China) Limited.
(7)
Non-performance based awards.
(8)
(9)
Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive
Officer of the Company on March 4, 2022.
To be determined according to the actual achievement of the performance
targets in 2022.
(10)
These ADSs were not received by Ms Edith Shih, but were received by or for
the account of her employer, Hutchison International Limited.
For LTIP Awards with performance targets, prior to their determination
date, the fair value of the LTIP Awards is determined based on the amount
that is expected to vest taking 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, 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 of the achievement of the performance
targets has been assigned to calculate the amount to be recognized as
an expense over the requisite period. For those LTIP Awards which do not
stipulate performance targets, their fair value is based on the cash amount
determined upon the grant of such awards. Refer to Note 17(ii) to the
consolidated financial statements for further details of the LTIP Awards.
The total maximum amount stipulated in the LTIP Awards granted
during 2022 were US$65,916,839. For those LTIP Awards stipulating
performance targets based on the estimated achievement of performance
conditions for 2022 financial year, the fair value was US$17,429,205 which
is recognized to share-based compensation expense over the requisite
vesting period. For those which do not stipulate performance targets, the
fair value was US$1,730,000.
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.
(11) Mr Paul Rutherford Carter elected, on acceptance of the grant of his awards,
to have 15% of his LTIP Awards (amounting to US$7,500 with respect to his
awards which vested on April 20, 2022) held on his behalf by the Trustee
administering the LTIP pending vesting in the form of cash, to settle his tax
liabilities in respect of his awards.
PURCHASE, SALE OR
REDEMPTION OF LISTED
SECURITIES
(12)
Both Mr Paul Rutherford Carter and Dr Karen Jean Ferrante elected, on
acceptance of the grant of their awards, to have 15% of their LTIP Awards,
(amounting to US$9,375 with respect to their awards which vested on
October 20, 2022) held on their behalf by the Trustee administering the LTIP
pending vesting in the form of cash, to settle their tax liabilities in respect of
their awards.
During the year ended December 31, 2022, neither the Company nor
any of its subsidiaries has purchased, sold or redeemed any of the listed
securities of the Company during the year.
72
DIRECTORS’ REPORT PRE-EMPTIVE RIGHTS
AUDITORS
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 2023 AGM.
ANNUAL GENERAL MEETING
The 2023 AGM will be held on Friday, May 12, 2023 at 5:00 pm (Hong Kong
time) at the 1st Floor, Harbour Grand Kowloon, 20 Tak Fung Street, Hung
Hom, Kowloon, Hong Kong. Details of the business/resolutions proposed
are set out in the Notice of the AGM.
By Order of the Board
Edith Shih
Director and Company Secretary
February 28, 2023
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 2022 AGM, the
Company obtained approval from shareholders by passing of special
resolutions to disapply the pre-emption rights.
MAJOR CUSTOMERS AND
SUPPLIERS
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.
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%
43%
As at December 31, 2022, 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.
HUTCHMED (China) Limited 2022 Annual Report 73
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 an effective corporate
governance framework is fundamental to promoting and safeguarding
the 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.
The Company has complied throughout the year ended December 31,
2022 with all applicable code provisions of 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”). 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 corporate governance practices. In
addition, the Company is subject to and complies with certain applicable
requirements of the Sarbanes-Oxley Act (the “SOX”).
THE BOARD
CORPORATE PURPOSE, VALUES AND CULTURE
The Group’s purpose is to improve the lives of patients globally through
the discovery, development and delivery of world class treatments for
cancer and immunological diseases, underpinned by the business values
of innovation, collaboration, integrity and sustainability across all levels of
the Group.
As a leading biopharmaceutical company based in China, the Group
lives up to this purpose by instilling a culture of innovation that is
driven by science, with the ambition of creating 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. Guided by
the Group’s core values, the Board, together with senior management,
play a leading role in defining the purpose and strategic direction of the
Group, set the tone and shape the corporate culture of the Company
to ensure all businesses across the Group are aligned with the same
purpose. Alongside the Group’s robust corporate governance framework
and effective risk management and internal control systems, the desired
culture is developed and reflected consistently in the operating practices
and policies of the Group, as well as its relations with stakeholders,
through active collaboration, effective engagement and regular training at
all levels. 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. From the Board performance
evaluation conducted, the Directors are satisfied with the performance
of the Board and acknowledged that the Board plays an effective role in
the development and determination of the Group’s culture, strategy and
overall commercial objective. 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.
74
CORPORATE GOVERNANCE REPORT CORPORATE STRATEGY
BOARD COMPOSITION
The primary objective of the Company is to be a 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, the Oncology/Immunology
operations, to develop and expand the drug candidate portfolio of the
Group for the global market, building on the first-mover advantage in the
development and launch of novel cancer drugs in China, and engaging
partners for late-stage development and commercialization outside
China. This strategy is aligned with the Company’s culture of innovation
and high engagement and empowerment with a strong 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 its objectives. The Group also focuses on
sustainability and delivering business solutions to support the transition
to a low-carbon economy. 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, risk management
and sustainability, 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, 2022 and up to the date of this report, the Board
comprised ten Directors, including the Chairman, CEO and Chief Scientific
Officer (the “CSO”), Chief Financial Officer (the “CFO”), three 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.
The following changes to the Board composition have taken place since
the date of the last corporate governance report:
(1)
On March 4, 2022, Mr Christian Lawrence Hogg retired as Executive
Director and CEO. Dr Weiguo Su was appointed as CEO and remains
as the Chief Scientific Officer.
(2)
On May 16, 2022, Mr Lefei Sun was appointed as Non-executive
Director.
Biographical details of the Directors are set out in the “Information on
Directors” section on pages 43 to 47 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.
HUTCHMED (China) Limited 2022 Annual Report 75
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.
BOARD PROCESS
The Board meets regularly, and at least four times a year with meeting
dates 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
performance and business activities 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 advice and services of the Company
Secretary. They also have full access to independent professional advice
at all times whenever deemed necessary 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 normally 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 2022, the Company held five Board meetings with 100% attendance of
its members. All Directors also attended the annual general meeting of the
Company (“AGM”) held on April 27, 2022. The attendance record is set out
below:
Board
Meetings
Attended/
Attendance
Eligible to
at 2022
attend
5/5
1/1
5/5
5/5
5/5
5/5
3/3
5/5
5/5
5/5
5/5
AGM
✔
N/A
✔
✔
✔
✔
N/A
✔
✔
✔
✔
Position
Chairman:
Executive Directors:
Name of
Director
To Chi Keung, Simon
Christian Lawrence Hogg (1)
Weiguo Su
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Independent Non-executive
Directors:
Edith Shih
Lefei Sun (2)
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
Notes:
(1)
Retired on March 4, 2022
(2)
Appointed on May 16, 2022
In addition to Board meetings, in 2022 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.
76
CORPORATE GOVERNANCE REPORT
All Non-executive Directors entered into 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 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 presented in separate resolutions. To
follow the market practice in the United Kingdom whereby all directors
are subject to annual re-election, 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 (other than statutory 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 PERFORMANCE
The Company regards board evaluation as a critical tool to assess Board
effectiveness and efficiency. Performance evaluation on the Board, its
Committees and the Chairman of each Committee had been conducted
since 2008. The evaluation involved each Director completing a
questionnaire to provide individual ratings as well as comments covering
a range of topics. The findings of the evaluation were then analyzed and
circulated to 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, and to develop action plans for improvement. The evaluation
parameters included, amongst others, the composition, diversity and
leadership of the Board as well as board processes. Based on the
performance review, the Board considers its existing practice effective.
The Board 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. In February 2023, the Board conducted a
review and considered that such mechanisms were properly implemented
during 2022 and were effective.
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 90 to 92 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 Long Term Incentive Plan (“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. Information about
remuneration of the Directors is set out on pages 93 to 95 of this report.
The remuneration of Independent Non-executive Directors are also
subject to a regular review mechanism to maintain competitiveness and
commensurate with their responsibilities and workload.
To facilitate attendance and participation at Board and other Board
committee meetings, the Company plans meeting schedules for the year
well in advance, with electronic facilities for attendance as required.
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 pages 76 to 77 on this report). Each
year, the Chairman meets with the Independent Non-executive Directors
twice without the presence of other Directors, enabling them to express
their views outside the boardroom.
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.
HUTCHMED (China) Limited 2022 Annual Report 77
TRAINING AND COMMITMENT
Upon appointment to the Board, a Director is provided with a package of comprehensive orientation materials on the Group comprising 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 management 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 in the form of seminars, webcasts and related 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 29 hours had been provided to
Directors during the year.
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 14 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 (1)
Weiguo Su
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Edith Shih
Lefei Sun (2)
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
Notes:
(1)
Retired on March 4, 2022
(2)
Appointed on May 16, 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.
78
CORPORATE GOVERNANCE REPORT
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.
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
sustainability 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.
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, 2022.
BOARD COMMITTEES
The Board is supported by five permanent board committees: Audit
Committee, Nomination Committee, Remuneration Committee, Technical
Committee and Sustainability Committee, details of which are described
later in this report. The terms of reference for these Committees, which
have been adopted by the Board, are available on the websites of the
Company and HKEX. Other board committees are established by the
Board as and when warranted to take charge of specific tasks.
COMPANY SECRETARY
The Company Secretary 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 purpose, values and strategy of the Company, take charge in
developing a robust compliance and ethical culture to meet both
mounting regulatory and investor expectations, and to ensure the culture
and the purpose, value and strategy of the Group are aligned.
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 and applicable laws,
rules and regulations 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 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.
HUTCHMED (China) Limited 2022 Annual Report 79
ACCOUNTABILITY AND AUDIT
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 is related to the Company’s external auditor. The Audit
Committee held three meetings in 2022 with 100% attendance.
Members
Attended/Eligible to attend
Graeme Allan Jack (Chairman)
Paul Rutherford Carter
Karen Jean Ferrante
3/3
3/3
3/3
The Group’s internal audit activity continues to be handled by CK
Hutchison Holdings Limited (“CKHH”, being the largest shareholder of
the Company) which appoints a General Manager with responsibility
for the internal audit (“Internal Audit GM”) to report directly to
the Audit Committee. Internal Audit GM and external auditor,
PricewaterhouseCoopers (“PwC”), attended all Audit Committee meetings.
In addition, the Audit Committee held private sessions with them, as well
as the CFO, separately without the presence of Management.
The function 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 (including
cyber risks) 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
financial statements, and reviewing the significant financial reporting
judgments contained therein, as well as overseeing the relationship
between the Company and its external auditors. It is also required to
develop and review the Company’s policies and practices on corporate
governance including compliance with statutory and the Rules
requirements; and review the scope, extent and effectiveness of the
activities of the Group’s internal audit function. In addition, it is authorized
to engage legal and other advisers and conduct investigations as it
determines to be necessary.
Throughout 2022, the Audit Committee discharged the duties and
responsibilities under its terms of reference and the applicable corporate
governance code. The following paragraphs of this report set out a
summary of the work performed by the Audit Committee during 2022 and
2023 (up to the date of this report).
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 100 to 103
which acknowledges the reporting responsibility of the Group’s Auditor.
ANNUAL REPORT AND CONSOLIDATED FINANCIAL
STATEMENTS
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.
80
CORPORATE GOVERNANCE REPORT
During 2022 and 2023 (up to the date of this report), the Audit Committee
met with the CFO and other senior management of the Company, the
Internal Audit GM and PwC, to review the 2022 interim and 2021 and 2022
annual results, reports and financial statements, and other financial,
corporate governance, risk management, internal control and cyber
risks of the Group. It received, considered and discussed the reports and
presentations of Management, Internal Audit GM and PwC. As part of these
reviews and discussions, the Audit Committee reviewed a SOX compliance
project conducted by the Company, which assessed the management
of internal controls and procedures, and the evaluation of the internal
control systems relating to financial reporting of the Company to ensure
compliance with the requirements of section 404 of SOX. The Company
also prepared and presented the Corporate Governance Compliance
Reports and Compliance and Litigation Reports during the Audit Committee
meetings. These reviews were conducted to ensure that the Group’s 2021
and 2022 annual results, reports and financial statements were prepared
in accordance with generally accepted accounting principles in the United
States (“USGAAP”) and comply with the applicable disclosure requirements
of the Companies Ordinance and the Hong Kong Listing Rules, and for such
control as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether
due to fraud or error. Based on these reviews and discussions, the Audit
Committee was satisfied that the Group’s 2022 interim and the Group’s
2021 and 2022 annual results, reports and financial statements have
been prepared in accordance with the aforementioned requirements and
recommended that these be approved by the Board.
The Audit Committee met three times during 2022 and one time during
2023 (up to the date of this report) with PwC to consider its reports on
the scope, strategy, progress and outcome of its independent review
of the Group’s 2022 interim financial statements and audit of the
Group’s 2021 and 2022 annual financial statements. It reviewed the
composition of the audit engagements teams and PwC’s strategy and
approach for the interim review and the annual audit, including the
audit risk and materiality assessment, the nature, timing and scope of
the audit procedures, and PwC’s reporting obligations before the audit
commences. It received and discussed updates with PwC on the audit
including observations on the control environment and material areas
in which significant accounting judgments were applied, as well as
information about the firm’s quality management and monitoring process
for the audit, the delivery of audit deliverables against agreed timetable
and milestones and the involvement of specialist and expert. The Audit
Committee was satisfied with PwC’s competence, expertise, resources, as
well as the effectiveness of the audit services.
There were no breaches of the policy on hiring employees or former
employees of the external auditor during the reported period. The Audit
Committee reviewed the audit fees and the fees for non-audit services
payable to PwC. The non-audit services were carried out in accordance
with PwC’s independence policy to ensure that they do not create a
conflict of interest, as well as the Group’s policy regarding the engagement
of its external auditors for the various services.
During the reported period, the Audit Committee also reviewed the
independence and objectivity of PwC. It had considered all relationships
(including requirements for rotation of audit partners, provision of
non-audit services and long-term audit relationship) between the
Company and PwC when assessing the independence and objectivity
of the external auditor. The Audit Committee considered PwC to be
independent and PwC, in accordance with applicable professional
ethical standards, provided the Audit Committee a letter confirming its
independence and objectivity for 2022.
To assist the Board in assessing the overall governance, financial reporting,
risk management and internal control framework and maintaining effective
risk management and internal control systems, covering all material
controls, including financial, operational and compliance controls, in 2022,
the Audit Committee reviewed the process by which the Group evaluated its
control environment and managed significant risks (including cyber risks).
It received, considered and provided feedback on the risk management
report, the composite risk register, the risk heat map, the presentation of
the Internal Audit GM and Management on their review with respect to
the effectiveness of the risk management and internal control systems of
the Group. Based on these reviews, the Audit Committee concurred with
Management confirmation that such systems are effective and adequate.
It also reviewed and was satisfied with the adequacy of resources,
qualifications and experience of the accounting, internal audit and financial
reporting functions, and the training programs and budget of the Group.
In addition, the Audit Committee reviewed, in conjunction with the Internal
Audit GM, the 2022 work plans and resource requirements, and deliberated
on the reports regarding the effectiveness of risk management and internal
control systems (including cyber risks) of the Group. Further, it also
considered the reports from the Legal Department on the Group’s material
litigation proceedings and compliance status on key 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 2022, 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. In January and February 2023, the Audit Committee also
reviewed and recommended to the Board updates to its terms of reference
and certain corporate governance policies including the Code of Ethics,
Anti-Bribery and Anti-Corruption Policy, and Whistleblowing Policy. It has
also received update reports on CPD training of Directors.
The Audit Committee, on behalf of the Board, also conducted a
review of the implementation and effectiveness of the Shareholders
Communication Policy in February 2023. Having considered the multiple
channels of communication and engagement in place (see “Relationship
with Shareholders and Other Stakeholders” on pages 95 to 97 of this
report), the Audit Committee was satisfied that the Shareholders
Communication Policy has been properly implemented during 2022 and
is effective.
HUTCHMED (China) Limited 2022 Annual Report 81
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 Audit GM 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, 2022, fees of US$2.5 million charged
by PwC in total were for both audit and non-audit services. The
non-audit services, which amounted to approximately US$0.3 million,
were related to tax compliance and 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.
The lead audit engagement partner who has been in the role since
2018 and, in accordance with PwC’s policy, will be due for rotation after
completing the annual audit for the year 2022. The Company was involved
in the succession planning of the external auditor. In 2022, the Audit
Committee discussed with the external auditor the provisions the firm had
in place for rotation of the lead engagement partner. PwC has arranged a
new lead audit engagement partner to assume the role.
82
The Audit Committee was satisfied with PwC’s competence, expertise,
resources, independence and objectivity, as well as the effectiveness
of the audit process, and recommended to the Board on the
re-appointment of PwC as the external auditor which will be considered
by the shareholders at the forthcoming annual general meeting.
AUDIT REPORT ON THE ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS
The consolidated financial statements of the Group for the year ended
December 31, 2022 have been audited by PwC in accordance with
USGAAP. The unqualified auditor’s report is set out on pages 100 to 103.
The consolidated financial statements of the Group for the year ended
December 31, 2022 have also been reviewed by the Audit Committee.
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, the Board, with due regard to the Company’s
risk appetite, evaluates and determines the nature and extent of the
risks (including sustainability and cyber risks) that the Company is willing
to accept in pursuit of its strategic and business objectives. The Board
inculcates appropriate 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. The reporting
and review processes include review by the Executive Directors and the
Board of budgets, strategic plans, and detailed operational and financial
reports as provided by business unit management, as well as review by
the Audit Committee of the ongoing work of the internal audit and risk
management functions of CKHH.
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.
RISK MANAGEMENT
The Company adopts an Enterprise Risk Management (“ERM”) framework
which is consistent with the COSO (the Committee of Sponsoring
Organizations of the Treadway Commission) framework. The ERM
framework facilitates a systematic approach in identifying, assessing and
managing risks (including sustainability and cyber risks) within the Group,
be they are of strategic, financial, operational or compliance nature.
CORPORATE GOVERNANCE REPORT Risk management is integral to the day-to-day operations of the Group and is a continuous process carried out at all levels of the Group. There are
ongoing dialogues between the Executive Directors and the management team of each core business division about the current and emerging risks
(including sustainability and cyber risks), their plausible impact and mitigation measures to ensure that the executive management teams of each core
business has performed its duty to have effective system. These measures include instituting additional controls and deploying appropriate insurance
instruments to minimize or transfer the impact or risks that the Group’s businesses face. The latter also includes Directors’ and Officers’ Liability Insurance
to protect Directors and officers of the Group against potential personal legal liabilities.
In terms of formal risk review and reporting, the Group adopts a “top-down and bottom-up” approach involving regular input from each core business
as well as discussions and reviews by the Executive Directors and the Board, through the Audit Committee. More specifically, on a half-yearly basis, each
core business unit is required to formally identify and assess the significant risks (including sustainability and cyber risks) their business faces, 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 composite Risk Register together with the related risk assessment report, form part of the risk management report for review and approval by the
Audit Committee on a half-yearly basis. The Audit Committee, on behalf of the Board, reviews the report, discusses the risk management and internal
control systems, including matters related to cyber risks, with the Internal Audit GM and Executive Directors, and provides input as appropriate so as
to ensure effective risk management is in place. The following table summarizes the risks factors of the Group which could affect the Group’s financial
condition or results of operations that differ materially from expected or historical results and the relevant mitigation actions.
With regards to sustainability risks, in 2022 the Company engaged an independent third party to conduct a climate risk assessment for the Group and a
climate risks and opportunities workshop for senior management. During the workshop, participants reviewed climate risks and opportunities, along with
the potential financial impacts. Following the assessment, climate risk has been newly incorporated into the sustainability risks of the ERM framework.
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
o Cash inflows from commercial operations
on attractive terms may compromise the Group’s ability to
o Sharing of clinical development costs with and
execute its business plans.
receipt of milestone income from partners through
collaborations
o Entering into an out-licensing arrangement with a
global pharmaceutical company
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
development and commercialization
unless and until it successfully completes its clinical trials,
receives relevant regulatory approval and generates
strategy of the Group in light of unmet medical needs.
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 in China
HUTCHMED (China) Limited 2022 Annual Report 83
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
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.
Attract, retain and motivate key
Attracting, retaining and motivating key executives
• Building culture of innovation and high engagement
executives and qualified personnel
and personnel is critical to an organization’s success,
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
• Setting up commercial infrastructure to perform
capacity.
commercialization activities of developed drug
products in China and looking for partners to
commercialize and develop late stage drug candidates
outside of China
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
registration of new drugs, interactions with healthcare
professionals and organizations among others. Violations
of such requirements may adversely affect the Group’s
businesses.
Product liability claims
The Group’s businesses face an inherent risk of product
• Establishing measures to ensure product safety
liability exposure related to sales of products or the
o
Independent laboratory testing
products licensed from third parties. If the Group cannot
o Compliance with relevant quality practices
successfully defend against product liability claims, if any,
o Sourcing from well-established suppliers
product reputation and financial results could be materially
• Procuring product liability insurance
Risks Related to the Group’s Dependence on Third Parties
affected.
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
collaboration. Any such matters would cause adverse
• Ongoing dialogue and regular meetings at executive
levels to facilitate strategic alignment and planning
impacts to business reputation and financial results.
84
CORPORATE GOVERNANCE REPORT RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
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
supply of necessary materials.
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
Although the restrictive measures related to the COVID-19
• The COVID-19 outbreak posed some challenges to the
adverse public health developments
pandemic have gradually been lifted around the world,
Group’s operations in 2022 resulting from restrictions in
could materially and adversely affect
the COVID-19 pandemic or any other adverse public health
travel, facility lockdowns, etc.
the Group’s business
developments may continue to have a negative impact on
• The Group put in place measures to reduce the impact
the Group’s business, which could have a material adverse
of such restrictions to the extent possible
effect on the business, financial condition and results of
• The Group will continue to monitor the situation
operations and cash flows.
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
minimum acceptable pricing when applying for
products
companies. Inclusion into the NRDL will result in a higher
inclusion in the NRDL by taking various factors into
sales volume and sales growth as well as a reduction in the
consideration, such as patient population size and
price.
patient out-of-pocket costs
• ORPATHYS® has been included in the updated NRDL
with effect from March 2023
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
• Setting up of information technology systems security
incidents
commercialize new drugs rely significantly on information
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)
HUTCHMED (China) Limited 2022 Annual Report 85
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
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, Personal
and data protection and privacy
protection and privacy laws at the local, state, national and
Information Protection Policy and other related policies
regulations
international levels where applicable. Legal requirements
and procedures on personal and customer data
regarding personal information and data protection and
governance with relevant compliance 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
• Briefing senior management and Directors on
information security matters in relevant Board
Committee meetings regularly
• Maintaining relevant cybersecurity insurance
• Conducting relevant cybersecurity assessment annually
through an independent third party
• No information security breach was observed
historically
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 69 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.
86
CORPORATE GOVERNANCE REPORT 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.
The Group’s internal audit activity is outsourced to CKHH and the Audit
Committee believes that outsourcing offers the Group access to the range
of skills and resources required and has 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 Internal Audit GM, 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. The Internal Audit GM
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 Internal Audit GM 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, 2022 covering all material financial, operational and compliance
controls, has conducted a review of their effectiveness, and was satisfied
that such systems are effective and adequate. In addition, the Board,
through the Audit Committee, reviewed and was 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.
HUTCHMED (China) Limited 2022 Annual Report 87
LEGAL AND REGULATORY CONTROL COMPLIANCE
Code of Ethics
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. All
employees adhere to various Group policies that reflect the core values
and corporate culture of the Group. The Code of Ethics is the central
tool through which the Company sets the conduct expectations for
employees underscoring the strong commitment of the Group to uphold
high standards of business integrity, honesty and transparency in all its
business dealings. The Company has also established anti-corruption
and whistleblowing policies and systems, which are conducive to setting
a healthy corporate culture and good corporate governance practices.
In addition, the Group has adopted and implemented a number of other
governance policies to incorporate the core values of the Group into its
operations and practices. 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, which are posted on
the website of the Group, include:
The Code of Ethics of the Group sets the standards for employees as are
reasonably 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 adherence
to 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 behavior. Employees
are required to report any non-compliance with the Code of Ethics in
accordance with the established reporting and escalation procedures.
Whistleblowing Policy
In line with the commitment to achieve and maintain the highest
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 within the Group. In this regard, the Company has adopted
the Whistleblowing Policy. The policy 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 fraud
or 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 incidents of bribery, theft, fraud or
similar offences to the Internal Audit GM for independent analyses and
necessary follow up.
88
CORPORATE GOVERNANCE REPORT Shareholders Communication Policy
Information Security 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, equal 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
which should be taken by employees who are in possession of
price-sensitive inside information, including identification of project by
code name and dissemination 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 and price-sensitive inside information or
confidential 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).
Policy on Personal Information Governance
The Group is also committed to the safeguard and protection of the
personal information acquired from (i) its employees, agents, consultants,
contractors, vendors, service providers, (ii) patients or clinical study
subjects who use the Group’s products and other customers, (iii)
healthcare professionals who study or prescribe the Group’s products, and
(iv) in connection with the Group’s investment or business development
activities including, the Group’s due diligence process, in compliance
with applicable data protection laws in jurisdictions in which the Group
operates. Personal information should only be collected for specified,
clear and legitimate purposes and only to the extent needed to achieve
those purposes and use of such data should only be proportionate to
clear purposes. Excessive personal information collection is prohibited.
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.
Trainings on information security, which includes policies, standards,
baselines, procedures, guidelines, responsibilities, related enforcement
measures, and consequences of failure to comply, are mandatory and
conducted regularly for all employees.
Board Diversity Policy and Director Nomination Policy
The two Board policies, Board Diversity Policy and Director Nomination
Policy set out the approach to achieving diversity as well as the approach
and procedures the Board adopts for the nomination and selection of
Directors. Further details of the policies are provided on page 90 of this
report.
INTERNAL AUDIT
The Internal Audit GM, 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, emerging
risks and opportunities (including sustainability and cyber-related ones),
as well as audit and fraud findings that may affect the risk profile of the
Group during the year.
HUTCHMED (China) Limited 2022 Annual Report 89
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 53 to 56 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,
within the agreed timeline. 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 and the Executive Directors on a regular basis.
Reports from the external auditor on internal controls and relevant
financial reporting matters are presented to internal audit and, as
appropriate, to the CFO. These reports are reviewed and appropriate
actions are taken.
The Board, through the Audit Committee, has conducted a review of the
Group’s risk management and internal control systems for the year ended
December 31, 2022 covering all material controls, including financial,
operational and compliance controls, and concurs with Management
confirmation that such systems are effective and adequate. In addition,
the Board, through the Audit Committee and the Sustainability
Committee, reviewed and was satisfied with the adequacy of resources,
staff qualifications and experience, training programs and budget of the
Group’s accounting, internal audit, financial reporting, and sustainability
performance and reporting functions.
NOMINATION OF DIRECTORS
NOMINATION COMMITTEE
The Nomination Committee comprises three members and is 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’s 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 Nasdaq Listing Rules and reviews the Director
Nomination Policy and Board Diversity Policy periodically and makes
recommendation on any proposed revisions to the Board. 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.
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.
90
CORPORATE GOVERNANCE REPORT The following Board Skills Matrix shows a breakdown of the diverse skills set of the Directors:
Board Skills Matrix
5 Directors
Pharmaceutical
Related Knowledge/
Experience
4 Directors
Financial
Reporting
7 Directors
Strategic Planning &
Risk Management
8 Directors
Business
Management
1 Director
Legal &
Regulatory
Note: The Board comprises 10 Directors.
The following chart shows the diversity profile of the Board as at December 31, 2022:
Board Composition and Diversity
10
9
8
7
6
5
4
3
2
1
0
Female
(20%)
Male
(80%)
Executive
Directors
(30%)
Non-executive
Directors
(30%)
Independent
Non-executive
Directors
(40%)
Chinese
(60%)
above 64 years old
(60%)
Non-Chinese
(40%)
64 years old or below
(40%)
Gender
Designation
Ethnicity
Age Group
Female representation at the Board stands at 20% (two out of ten), above average amongst companies listed on HKEX. The Company cements its
commitment to gender diversity within its business, so it continues to review and assess the appropriate level of gender diversity and composition that
aligns with the strategy of the Company. The Board is of the view that it is not necessary to set numerical targets and timeline for board gender diversity
for the time being. The Company actively seeks to ensure it has an appropriate mix of diversity and has a number of initiatives in place to meet its
strategic imperative of ensuring it has a diverse Board. It also conducts structured recruitment, selection and training programs at various levels within
the Group to develop a broader pool of skilled and experienced potential Board members.
HUTCHMED (China) Limited 2022 Annual Report 91
The Board also places tremendous emphasis on diversity (including
gender diversity) across all levels of the Group. The total gender diversity
of the workforce is balanced, with a slightly higher level female employee
base (male represents 46% and female represents 54%). To support
diversity across all facets, beyond gender, including race and ethnicity,
disability, LGBTQ+, social mobility and age, the Group is enhancing
diversity and inclusion efforts through employee networks, mentoring
programs, equitable hiring practices, policies and awareness raising
events and training for all employees to support inclusive behaviors.
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 2022
Sustainability Report of the Group, which will be published together with
this annual report.
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.
The Nomination Committee held four meetings in 2022 with 100%
attendance.
Members
Attended/Eligible to attend
Mok Shu Kam, Tony (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
4/4
4/4
4/4
During 2022, the Nomination Committee reviewed the structure, size and
composition (in particular with regard to gender diversity) of the Board,
ensuring that it has greater diversity and 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 in May 2022
recommended to the Board the appointment of Mr Lefei Sun as a
Non-executive Director. The appointment of Mr Lefei Sun was subject to
a stringent nomination process in accordance with the Director
Nomination Policy and Board Diversity Policy, to ensure the Board
possess the necessary skills, experience and knowledge in alignment
92
with the Company’s strategy. The Company believes that Mr Lefei Sun’s
substantial experience in capital markets, merger and acquisition, and
business strategy in the healthcare and life sciences sectors will provide
significant benefits to the Company.
The Nomination Committee also assessed the independence of all other
Independent Non-executive Directors and considered all of them being
independent, having regard to their annual independence confirmation
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
all 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. 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. In addition, there are no circumstances which would materially
interfere with their exercise of independent judgment. It also discussed
the succession planning for Directors and senior management.
At its meeting in February 2023, 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 2023 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 and effectiveness
during 2022. These are determined to be effective.
REMUNERATION OF DIRECTORS
AND SENIOR MANAGEMENT
REMUNERATION COMMITTEE
The Remuneration Committee comprises three members and is chaired
by Mr Paul Rutherford Carter, senior 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
LTIP awards and other remuneration related matters. Remuneration
matters are also considered and approved by way of written resolutions
and where warranted, at additional meetings.
CORPORATE GOVERNANCE REPORT
The Remuneration Committee held six meetings in 2022 with 100%
attendance.
with the strategy and sustainability of the Group and are appropriate in
the context of the external regulatory environment and the expectations
of stakeholders.
Members
Attended/Eligible to attend
Paul Rutherford Carter (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
6/6
6/6
6/6
The responsibilities of the Remuneration Committee are to assist the
Board in achieving its objectives of attracting, retaining and motivating a
broader and more diverse pool of 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 for all Directors and senior management of the
Group. Whilst the Board retains its power to determine the remuneration
of Non-executive Directors, the responsibility for reviewing and
determining the remuneration package of individual Executive Directors
and senior management of the Group is delegated to the Remuneration
Committee. 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.
During the year, the Remuneration Committee reviewed background
information on market data (including economic indicators, statistics
and the compensation benchmarking), headcount and staff costs. It also
reviewed and approved the proposed 2023 directors’ fees for Executive
Directors and made recommendation to the Board on the proposed
2023 directors’ fees for Independent Non-executive Directors. Prior to the
end of the year, the Remuneration Committee reviewed and approved
the 2022 year-end bonus and 2023 remuneration package of Executive
Directors and senior management of the Group. No Director or any or
his/her associates is involved in deciding his/her own remuneration. The
Remuneration Committee also viewed and recommended to the Board
updates to its Terms of Reference based on the latest HK CG Code which
took effect on January 1, 2023.
In addition, 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 benchmarking research on the compensation of a
peer group of U.S. and China biotech companies (the “Aon Benchmarking
Research”). 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, the Aon
Benchmarking Research and established an attractive policy to ensure
the Group is able to recruit and retain top talent. Vesting of share-based
awards under such policy is in line with the referenced peer group. The
Committee takes seriously its responsibility to ensure that the executive
remuneration practices of the Group drive strong performance, are aligned
In addition, the Committee reviewed and made recommendation to the
Board on grant of share awards under the LTIP and share options under
the share options scheme to incentivize talents and professional expertise
to stay and grow with the Group. Share awards and share options granted
are generally with vesting period for more than 12 months. Details on the
share awards and share options granted during the year are set out the
Director’s Report.
REMUNERATION POLICY
The remuneration of Dr Weiguo Su and Mr Cheng Chig Fung, Johnny
(Executive Directors) and senior management is determined by the
Remuneration Committee with reference to their expertise and experience
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 Independent Non-executive Directors of the Company have been
granted restricted share units bought in the market by the trustee of
the 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. No new LTIP were
granted to the Independent Non-executive Directors of the Company
in 2022. 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.
2022 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 2022 are as below:
HUTCHMED (China) Limited 2022 Annual Report 93
Name of Director
Salary and fees
US$’000
Executive Directors:
To Chi Keung, Simon
Christian Lawrence Hogg (5)
Weiguo Su
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Edith Shih
Lefei Sun (10)
85 (3) (4)
88 (6) (4)
775 (8) (4)
404 (8)
–
– (4)
–
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
Aggregate emoluments
117
103
111
103
1,786
Bonus
US$’000
–
18
1,127
442
–
–
–
–
–
–
–
1,587
Benefits-in-
kind
US$’000
Taxable
benefits
US$’000
Pension
contributions
US$’000
Vested non-
performance
based LTIP(1)
US$’000
Other
share-based
compensation(2)
US$’000
–
11
6
11
–
–
–
–
–
–
–
28
–
42
–
–
–
–
–
–
–
–
–
42
–
5
64
29
–
–
–
–
–
–
–
98
139 (3)
–
–
–
139
139 (9)
–
139
139
139
139
973
Total
US$’000
224
(1,155)
3,622
1,618
139
139
–
256
242
250
242
–
(1,319) (7)
1,650
732
–
–
–
–
–
–
–
1,063
5,577
Notes:
(1)
(2)
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, Dr Weiguo Su and Mr Cheng Chig Fung, Johnny 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
111 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 125 of this annual report and the details of the share options granted are set out in the
“Directors’ Report” section on pages 58 to 65.
(3)
Such Director’s fees and non-performance based LTIP awards were paid/transferred to his employer, Hutchison Whampoa (China) Limited.
(4)
Directors’ fees to these Directors from the Company’s subsidiaries during the period they served as directors have been paid to the subsidiaries of the Company/CKHH
and are not included in the amounts above.
(5)
Retired on March 4, 2022.
(6)
Emoluments paid include Director’s fees of US$13,589.
(7)
Amounts include the reversal of the amortization expense in prior years relating to lapsed share options and performance-based LTIP awards as a result of
Mr Christian Lawrence Hogg’s retirement on March 4, 2022.
(8)
Emoluments paid include Director’s fees of US$75,000.
(9)
Such non-performance based LTIP awards were transferred to her employer, Hutchison International Limited.
(10)
Appointed on May 16, 2022.
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.
94
CORPORATE GOVERNANCE REPORT
The remuneration paid to the members of 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
2022) is set out below:
RELATIONSHIP WITH
SHAREHOLDERS AND OTHER
STAKEHOLDERS
Remuneration Bands
Number of Individuals
US$700,000 to US$1,100,000
US$1,100,000 to US$1,500,000
US$1,500,000 to US$2,100,000
2
4
3
TECHNICAL COMMITTEE
The Technical Committee comprises six members and is chaired by
Dr Karen Jean Ferrante with the Chairman, Mr To Chi Keung, Simon and
Dr Weiguo Su, Executive Directors, Mr Lefei Sun (appointed on June 16,
2022), Non-executive Director, Mr Paul Rutherford Carter and Professor
Mok Shu Kam, Tony, both Independent Non-executive Directors, as
members. Mr Christian Lawrence Hogg ceased to be a member of the
Technical Committee upon his retirement from the Board on March 4,
2022. 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 Technical Committee held three meetings in 2022 with 100%
attendance.
Members
Attended/Eligible to attend
Karen Jean Ferrante (Chairman)
Paul Rutherford Carter
Christian Lawrence Hogg (1)
Mok Shu Kam, Tony
Weiguo Su
Lefei Sun (2)
To Chi Keung, Simon
3/3
3/3
0/0
3/3
3/3
2/2
3/3
Notes:
(1)
Ceased to be a member upon his retirement from the Board on March 4,
2022
(2)
Appointed as member on June 16, 2022
In order to stay attuned to changing expectations of stakeholders, the
Group gives high priority to, and actively promotes investor relations
and constructive dialogue with the investment community throughout
the year. Multiple channels of communication and engagement were
available.
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 2022,
over 500 investor interactions including virtual meetings, in-person
meetings and conference calls and correspondence were conducted.
The Board also provides 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, a wide range of information on the Group
is also available to shareholders and stakeholders on the website of the
Company. A dedicated Corporate Governance section is also available
on the website of the Company. The corporate governance policies and
practices are available and updated on a regular basis. There is also
a dedicated Sustainability section on the website containing further
information on sustainability as well as the sustainability policies.
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.
HUTCHMED (China) Limited 2022 Annual Report 95
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 2022 AGM, which was held on April 27, 2022 as an electronic/hybrid meeting at which
shareholders attended both physically and by electronic facilities and attended by all Directors and its external auditor. The respective chairmen of the
Board, the Audit Committee, the Nomination Committee, the Remuneration Committee, the Technical Committee and the Sustainability Committee
were all present. Directors are requested and encouraged to attend shareholders’ meetings.
Separate resolutions were proposed at the 2022 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 27, 2022 are set out below:
Resolutions proposed at the 2022 AGM
Percentage of Votes
1
Adoption of the audited financial statements, and the reports of the directors and independent auditors for the year ended
2(A)
2(B)
2(C)
2(D)
2(E)
2(F)
2(G)
2(H)
2(I)
3
4
5
December 31, 2021.
Re-election of Mr To Chi Keung, Simon as a director.
Re-election of Dr Weiguo Su as a director.
Re-election of Mr Cheng Chig Fung, Johnny 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.
Appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the auditors of the Company for
Hong Kong financial reporting and U.S. financial reporting purposes, respectively, and authorization of Directors to fix the
auditors’ remuneration.
Special Resolution:
Granting of a general mandate to the directors of the Company to issue additional shares.
Ordinary Resolution No. 5(1):
Granting of a general mandate to the directors of the Company to repurchase shares of the
Ordinary Resolution No. 5(2):
Refreshment of the scheme mandate limit under the Long Term Incentive Plan.
Company.
99.99%
92.45%
99.74%
99.71%
99.52%
99.03%
99.76%
99.98%
98.11%
97.46%
98.79%
99.39%
99.99%
91.76%
Accordingly, all resolutions put to shareholders at the 2022 AGM were passed. The results of the voting by poll were published on the websites of the
Company and applicable stock exchanges.
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 2023 and public float capitalization as at December 31, 2022.
The Group values feedback from shareholders and other stakeholders 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 cosec@hutch-med.com. Institutional investors and analysts can contact the Investor Relations of the Company by email at ir@hutch-med.com. The
Board receives updates from the Company Secretary and the Investor Relations of the Company from time to time on key issues raised by shareholders
and investors. In developing and formulating Group strategy, the Board considers such key issues raised and takes shareholder and stakeholder feedback
into account.
96
CORPORATE GOVERNANCE REPORT
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 January 2023, the Shareholders Communication Policy was updated to include the availability of sustainability report and sustainability
policies on the website of the Company. In February 2023, the Audit Committee reviewed the policy again and considered that the implementation of the
policy effective during 2022 (see “Audit Committee” on pages 80 to 81 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.
SUSTAINABILITY
SUSTAINABILITY GOVERNANCE
The key sustainability mission of the Group is to create long-term value for all stakeholders by aligning its sustainability objectives to the strategic
development of its businesses. The Board has the overall responsibility to ensure that sustainability issues are integrated into the strategy and long-term
development of the Group. It provides oversight of the sustainability performance of the Group through closely monitoring key sustainability matters
and performance indicators, along with trends, risks, and opportunities that may impact the business development of the Group. Supported by the
Sustainability Committee, senior management, and the Sustainability Working Group, the Board oversees the management approach to sustainability
matters and the formulation of sustainability strategies.
The Group firmly believes that establishing a robust sustainability governance structure is crucial for the long-term sustainable development of the Group.
As a result, in 2022 the Group enhanced its governance structure to a four-tier sustainability governance framework to better reflect the workflow of
group-wide sustainability initiatives as shown below. This diagram does not include the Audit Committee, which also maintains oversight of governance
and risk management of the Group.
Four-tier Sustainability Governance Structure of the Group
BOARD LEVEL
Board of Directors
(Chairman, CEO & CSO, CFO, three non-executive directors (“NEDs”),
four independent non-executive directors (“INEDs”))
BOARD COMMITTEE LEVEL
Sustainability Committee
(CFO, one NED, one INED)
MANAGEMENT LEVEL
Senior Management
(CEO & CSO, CFO, Chief Operating Officer, Chief Medical Officer and other department heads)
OPERATION LEVEL
Sustainability Working Group
(Representatives from different business units)
HUTCHMED (China) Limited 2022 Annual Report 97
Board of Directors
By closely monitoring sustainability trends, stakeholder expectations
and the business needs of the Group, the Board is devoted to steering
the group-wide sustainability strategy in achieving the goals and targets
of the Group. The Board oversees the sustainability strategy, reporting,
and risk management framework. It actively promotes the success of the
Group by directing the formation and implementation of its sustainability
strategy. The Board also regularly reviews progress against the Group’s
sustainability objectives and targets.
Sustainability Committee
In response to the growing concerns of sustainability issues, the
Sustainability Committee was established in 2021 to enhance the Group’s
sustainability governance practices.
The Sustainability Committee comprises three members and is chaired
by Ms Edith Shih, Non-executive Director and Company Secretary, with
Mr Cheng Chig Fung, Johnny, Executive Director, and Professor Mok Shu
Kam, Tony, Independent Non-executive Director, as members.
Mr Christian Lawrence Hogg ceased to be a member of the Sustainability
Committee upon his retirement from the Board on March 4, 2022. It
advises the Board and Management on and oversees the development
and implementation of 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.
In accordance with the Terms of Reference, the Sustainability Committee
meets at least twice a year to review the sustainability performance of the
Group and evaluate whether the Group is on track with the sustainability
priorities and goals. To assist the Board in handling sustainability-
related topics, the Committee meets regularly with the Board and make
recommendations to the Board on the Company’s sustainability risks
and opportunities, objectives, strategies, priorities, initiatives, goals, and
sustainability disclosures.
The Sustainability Committee held three meetings in 2022 with 90%
attendance. All members attended the Sustainability Committee meetings
except for a former Executive Director who was not able to attend one
meeting due to other prior business commitment.
Members
Attended/Eligible to attend
During 2022, the Committee discussed and reviewed the upcoming
sustainability initiatives with respect to the stakeholders of the Company,
including but not limited to the employees, investors and shareholders,
customers, business partners and suppliers. It also reviewed the
materiality assessment results, short to long term sustainability goals and
targets, climate risk assessment, as well as the sustainability progress
throughout the year. The Committee also endorsed and recommended
the 2021 Sustainability Report of the Company to the Board for approval.
At its meeting in February 2023, the Sustainability Committee received
an update on the sustainability initiatives and progress of the 2022
Sustainability Report. The adequacy of resources, staff qualifications and
experience, training programs and budget of the Group’s sustainability
performance and reporting function was also examined and considered
satisfactory by the Sustainability Committee.
Senior Management
The senior management meet regularly to discuss sustainability issues
ahead of their submission to the Sustainability Committee for their review
and oversight of the performance. They provide oversight on how the
Sustainability Working Group integrate sustainability into daily practices.
In addition, they have the overall responsibility to assess and manage
sustainability issues that impact the business, including staying abreast
on sustainability trends and developments of the Company. They also
discuss and develop strategic direction on emerging issues, develop,
shape and monitor the progress of the new sustainability targets and
receive updates from the Sustainability Working Group on the overall
performance.
In 2022, the senior management held two meetings and participated in
two internal engagement sessions related to sustainability initiatives.
Sustainability Working Group
The Sustainability Working Group consists of representatives from different
business units. Members of the Working Group have diverse backgrounds
and experience, representing a broad spectrum of skill sets across the
Group’s operations. The Working Group is responsible for the operational
support in driving sustainability performance across the Group.
In 2022, four meetings and six data collection trainings were conducted
for the Working Group members.
Edith Shih (Chairman)
Cheng Chig Fung, Johnny
Christian Lawrence Hogg Note
Mok Shu Kam, Tony
3/3
3/3
0/1
3/3
SUSTAINABILITY PROGRESS
The Group made continued progress in 2022 in its commitment to the
long-term sustainability of its businesses and communities in which it
conducts business.
Note: Ceased to be a member upon his retirement from the Board on March 4,
2022
98
CORPORATE GOVERNANCE REPORT
Enhanced Sustainability Disclosure
The Group enhanced its sustainability disclosure, including publishing its
second Sustainability Report with reference to various sustainability reporting
standards, and publishing eight governance and sustainability-related policies
and statements. These are the Sustainability Policy; Environmental Policy;
Human Rights Policy; Health and Safety Policy; Modern Slavery and Human
Trafficking Statement; Interaction with Healthcare Organizations, Healthcare
Professionals, Patients and Patient Organizations; Quality Management
System Summary; and Drug Safety Information Reporting Summary. Policy
details are available on the website of the Company. Enhanced disclosure,
including making reference to Taskforce on Climate-related Financial
Disclosure (“TCFD”) and Global Reporting Initiative (GRI) Standard disclosure
frameworks, has been made in the 2022 Sustainability Report.
Sustainability Goals and Targets
To align with the sustainability strategy and facilitate the monitoring of
its sustainability performance, the Board has set up and committed to 11
short, medium and long term new sustainability-related goals and targets
for the Company and its subsidiaries to achieve by 2050, covering all three
areas of environmental, social and governance. These new targets are an
important aspect in achieving the Company’s long-term vision of being a
more sustainable business. In adopting a S.M.A.R.T (Specific, Measurable,
Achievable, Relevant, Timely) target setting approach, the Sustainability
Working Group and senior management reviewed historical trends, goals
and targets of peer companies as well as key messages and ambitions, to
ensure practicability and effectiveness of its targets. The goals and targets
were based on the results of the comprehensive materiality assessment
(i.e. an assessment of the level of importance to stakeholders of the
Company). Following which, the set of targets were further discussed
and reviewed by the Sustainability Committee before being approved by
the Board. Please refer to the 2022 Sustainability Report for an overview,
details and progress of each goal and target.
Stakeholder Engagement and Materiality Analysis
Understanding the needs and expectations of the stakeholders of the Group
has been and continues to be vital to the development of its sustainability
strategy. It enables the Group to identify and prioritize existing and
emerging risks and opportunities across its business operations. Materiality
to the business is driven by internal and external viewpoints on how each
sustainability issue impacts the business and stakeholders, as well as the
Group’s impacts on society and the environment.
The Group maintains an ongoing, open, and transparent dialogue
with stakeholders to maximize opportunities for them to share their
perceptions and build long-term relationships. Gathering views from its
stakeholders helps the Group analyze and identify emerging social and
environmental risks and opportunities to the business. Key stakeholder
groups include employees, investors and shareholders, governments
and regulators, healthcare professionals and patients, business partners,
suppliers, industry associations and academia, non-government
organizations and the community, and the media. Key outcomes of the
engagement are summarized in the 2022 Sustainability Report.
The Board, with the support of an independent third-party, initiated a
robust and comprehensive materiality assessment in 2022, involving both
internal and external stakeholders to understand their perceptions of the
sustainability strategy of the Company and their evolving expectations
and priorities for the future. The importance and relevance of a range
of sustainability issues to the Group have been identified, assessed, and
prioritized. The Group believes that material issues should be prioritized
to ensure its efforts remain focused on those areas where it can have
the greatest impact and be in a better position to anticipate evolving
sustainability trends. Getting a better understanding of the Company’s
sustainability position and the insights collected can help in embedding
sustainability practices into its operations.
The materiality assessment matrix mapped 33 sustainability material
issues. All material issues have been addressed in the 2022 Sustainability
Report in accordance with the various reporting standards. The top five
material issues to internal and external stakeholders have been identified
as Business Ethics, Product Quality & Safety, Patient Outcomes, Clinical
Trial Practices, and Product Innovation.
Action on Climate Risks
In 2022, an independent third-party was engaged to conduct a climate
risk assessment to identify climate-related risks and opportunities, as well
as the potential financial impacts to help the Company better formulate
its climate resilience strategy. Climate-related risk was newly added into
the sustainability risks in the ERM framework of the Company following
its climate-risk assessment. Please refer to the 2022 Sustainability Report
with the first TCFD disclosures of the Company for details.
The Group believes that these efforts will guide it towards a more
sustainable future. A standalone Sustainability Report of the Company
for 2022 is published alongside the 2022 Annual Report and includes
further information on the Group’s sustainability initiatives and their
performances. It further discusses the abovementioned 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
February 28, 2023
HUTCHMED (China) Limited 2022 Annual Report 99
To the Shareholders of HUTCHMED (China) Limited
(incorporated in the Cayman Islands with limited liability)
Opinion
What we have audited
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.
The consolidated financial statements of HUTCHMED (China) Limited
(the “Company”) and its subsidiaries (the “Group”), which are set out on
pages 104 to 152, comprise:
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
the consolidated balance sheets as at 31 December 2022;
Independence
the consolidated statements of operations for the year then ended;
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.
the consolidated statements of comprehensive loss for the year then
ended;
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.
Key audit matter identified in our audit is related to the allowances for
credit losses on accounts receivable and other receivables (except for
prepayments).
•
•
•
•
•
•
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
the notes to the consolidated financial statements, which include
significant accounting policies and other explanatory information.
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 2022, 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 United States of America
(“U.S. GAAP”) and have been properly prepared in compliance with the
disclosure requirements of the Hong Kong Companies Ordinance.
100
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)
We performed the following audit procedures on the 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 obtained an understanding of management’s assessment process of
As described in Note 6 to the consolidated financial statements, as of
December 31, 2022, the gross balance of accounts receivable was
US$98.0 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, 2022, the gross balance of
other receivables was US$54.2 million which consisted of the balance of
prepayments of US$22.3 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.
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 allowances 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 2022 Annual Report 101
•
•
•
•
•
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.
102
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, February 28, 2023
HUTCHMED (China) Limited 2022 Annual Report 103
CONSOLIDATED FINANCIAL
STATEMENTS
HUTCHMED (CHINA) LIMITED
CONSOLIDATED BALANCE SHEETS
(IN US$’, EXCEPT SHARE DATA)
Note
2022
2021
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
Company’s shareholders’ equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 and
864,530,850 shares issued at December 31, 2022 and 2021 respectively
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive (loss)/income
Total Company’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
5
5
6
7
8
9
10
24(ii)
11
12
13
14
24(iii)
10
24(ii)
14
15
16
313,278
317,718
97,988
54,214
56,690
839,888
75,947
8,722
15,366
73,777
15,745
1,029,445
71,115
264,621
—
1,112
17,055
353,903
5,196
2,710
18,104
12,662
392,575
86,478
1,497,273
(971,481)
(1,903)
610,367
26,503
636,870
1,029,445
377,542
634,158
83,580
81,041
35,755
1,212,076
41,275
11,879
9,401
76,479
21,551
1,372,661
41,177
210,839
26,905
15,546
17,191
311,658
7,161
2,765
—
11,563
333,147
86,453
1,505,196
(610,328)
5,572
986,893
52,621
1,039,514
1,372,661
The accompanying notes are an integral part of these consolidated financial statements.
104
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN US$’, EXCEPT SHARE AND PER SHARE DATA)
Note
2022
Year Ended December 31,
2021
2020
Revenues
Goods
Services
—third parties
—related parties
—commercialization—third parties
—collaboration research and development
—third parties
23(i)
—research and development—related parties
23(i)
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 (expense)/income
Interest income
Other income
Interest expense
Other expense
18
20
22
26
26
Total other (expense)/income
Loss before income taxes and equity in earnings of equity investees
Income tax benefit/(expense)
Equity in earnings of equity investees, net of tax
24(i)
11
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
314,329
5,293
41,275
23,741
507
26,310
14,954
426,409
(268,698)
(3,616)
(38,789)
(386,893)
(43,933)
(92,173)
(834,102)
(407,693)
—
9,599
1,833
(652)
(13,509)
(2,729)
(410,422)
283
49,753
(360,386)
(449)
(360,835)
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)
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)
25
25
(0.43)
847,143,540
(0.25)
792,684,524
(0.18)
697,931,437
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2022 Annual Report 105
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN US$’)
Net loss
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive loss
Less: Comprehensive loss/(income) attributable to non-controlling interests
Total comprehensive loss attributable to the Company
Year Ended December 31,
2022
2021
2020
(360,386)
(167,041)
(115,517)
(8,469)
(368,855)
545
(368,310)
2,964
(164,077)
(28,029)
(192,106)
9,530
(105,987)
(11,413)
(117,400)
The accompanying notes are an integral part of these consolidated financial statements.
106
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN US$’, EXCEPT SHARE DATA IN ’)
Ordinary
Shares
Number
Ordinary
Shares
Value
Additional
Paid-in
Capital
Accumulated
Losses
Accumulated
Other
Comprehensive
(Loss)/Income
Total
Company’s
Shareholders’
Equity
666,906
66,691
514,904
(289,734)
(3,849)
288,012
—
—
—
(125,730)
As at January 1, 2020
Net (loss)/income
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
Long-term incentive plan ("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
196,333
—
480
—
—
—
—
—
—
—
—
—
48
—
—
—
—
—
—
—
—
(8,317)
545
8,727
7,203
15,930
(12,904)
—
(52)
44
—
—
—
—
—
—
—
—
—
—
(83)
(44)
—
As at December 31, 2020
Net (loss)/income
727,722
72,772
822,458
(415,591)
—
—
—
(194,648)
Issuance in relation to public offering
119,600
11,960
602,907
Issuance in relation to 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
Transfer between reserves
Divestment of an equity investee (Note 22)
Foreign currency translation adjustments
As at December 31, 2021
Net (loss)/income
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
Foreign currency translation adjustments
As at December 31, 2022
16,393
1,639
98,361
—
816
—
—
—
—
—
—
—
—
—
82
—
—
—
—
—
—
—
—
(29,806)
2,370
16,339
19,808
36,147
(27,309)
—
89
(21)
—
—
—
—
—
—
—
—
—
—
(89)
—
—
864,531
86,453
1,505,196
(610,328)
—
244
—
—
—
—
—
—
—
—
25
—
—
—
—
—
—
—
—
149
6,724
32,970
39,694
(48,084)
—
318
—
(360,835)
—
—
—
—
—
—
(318)
—
Non-
controlling
Interests
24,891
10,213
—
—
—
—
10
16
26
—
Total
Shareholders’
Equity
312,903
(115,517)
118,341
200,000
(8,317)
593
8,737
7,219
15,956
(12,904)
(125,730)
118,341
200,000
(8,317)
593
8,727
7,203
15,930
(12,904)
—
(1,462)
(1,462)
(139)
—
8,330
484,116
(194,648)
614,867
100,000
(29,806)
2,452
16,339
19,808
36,147
(27,309)
—
—
(1,468)
2,542
(35)
—
1,200
34,833
27,607
—
—
—
—
26
70
96
—
(174)
—
9,530
518,949
(167,041)
614,867
100,000
(29,806)
2,452
16,365
19,878
36,243
(27,309)
(9,894)
(9,894)
—
(443)
422
—
(1,911)
2,964
986,893
52,621
1,039,514
(360,835)
174
6,724
32,970
39,694
(48,084)
—
—
449
—
12
15
27
—
(360,386)
174
6,736
32,985
39,721
(48,084)
(25,600)
(25,600)
—
(994)
—
(8,469)
—
—
—
—
—
—
—
—
—
—
(4)
—
8,330
4,477
—
—
—
—
—
—
—
—
—
—
—
(1,447)
2,542
5,572
—
—
—
—
—
—
—
—
864,775
86,478
1,497,273
(971,481)
(1,903)
610,367
26,503
636,870
(7,475)
(7,475)
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2022 Annual Report 107
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US$’)
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
Dividend and proceeds received from divestment of Hutchison Whampoa
Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”)
Deposit received for divestment of other equity investee
Net cash generated from/(used in) investing activities
Financing activities
Proceeds from issuances of ordinary shares
Purchases of treasury shares
Dividends paid to non-controlling shareholders of subsidiaries
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 (used in)/generated from 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
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
Note
27
2022
(268,599)
Year Ended December 31,
2021
(204,223)
(36,664)
—
—
(1,202,013)
1,518,453
—
16,488
324
296,588
174
(48,084)
(25,600)
—
17,753
(26,923)
(83)
(82,763)
(54,774)
(9,490)
(64,264)
377,542
313,278
150
18,891
9,618
12,034
19
22
11
17(ii)
24(iii)
17(ii)
2020
(62,066)
(7,949)
(11,631)
(2,326)
(732,908)
629,373
—
—
—
(16,401)
(355)
930
(1,355,976)
921,364
(15,000)
159,118
—
(306,320)
(125,441)
717,319
(27,309)
(9,894)
(579)
—
—
(29,509)
650,028
139,485
2,427
141,912
235,630
377,542
425
5,014
8,607
1,450
318,934
(12,904)
(1,462)
—
—
—
(8,134)
296,434
108,927
5,546
114,473
121,157
235,630
815
5,940
298
4,828
The accompanying notes are an integral part of these consolidated financial statements.
108
HUTCHMED (CHINA) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Business
HUTCHMED (China) 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 and Macau. 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”) 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, 2022, the Group had accumulated losses of US$971,481,000 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, 2022, the Group had cash and cash equivalents of
US$313,278,000, short-term investments of US$317,718,000 and unutilized bank borrowing facilities of US$140,289,000. 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, 2022, 2021 and 2020 were US$43,718,000, US$49,872,000 and US$86,708,000
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
from the issuance date of the consolidated financial statements (the look-forward period used).
2. Particulars of Principal Subsidiaries and Equity Investee
Name
Subsidiaries
HUTCHMED Limited
HUTCHMED International Corporation
Hutchison Whampoa Sinopharm Pharma-
ceuticals (Shanghai) Company Limited
(“HSPL”)
Hutchison Healthcare Limited
Place of
establish-
ment and
operations
Equity interest attributable
to the Group
December 31,
2022
2021
Principal activities
PRC
U.S.
PRC
PRC
99.75 %
99.75 %
Research, development, manufacture and
commercialization of pharmaceutical
products
99.75 %
99.75 %
Provision of professional, scientific and
50.87 %
50.87 %
technical support services
Provision of sales, distribution and marketing
services to pharmaceutical manufacturers
100 %
100 %
Manufacture and distribution of healthcare
products
Hutchison Hain Organic (Hong Kong)
Hong Kong
50 %
50 %
Wholesale and trading of healthcare and
Limited (“HHOHK”) (note)
consumer products
HUTCHMED Science Nutrition Limited
Hong Kong
100 %
100 %
Wholesale and trading of healthcare and
consumer products
Equity investee
Shanghai Hutchison Pharmaceuticals
PRC
50 %
50 %
Manufacture and distribution of prescription
Limited (“SHPL”)
drug products
Note: 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.
HUTCHMED (China) Limited 2022 Annual Report 109
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. The Group has
not had any material credit losses.
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.
Accounts Receivable
Accounts receivable are stated at the amount management expects
to collect from customers based on their outstanding invoices. The
allowance for CECLs 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 CECLs 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
CECLs. 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.
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.
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
in accumulated other
comprehensive (loss)/income in shareholders’ equity.
reflected
Net foreign currency exchange losses of US$5,704,000 and net
foreign currency exchange gains of US$1,671,000 and US$3,265,000 were
recorded in other expense and income in the consolidated statements of
operations for the years ended December 31, 2022, 2021 and 2020
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 (“CECLs”) on financial assets not carried at fair value. CECLs 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.
110
Property, Plant and Equipment
Other Intangible Assets
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 and
motor vehicles
Leasehold improvements
20 years
5-10 years
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
for
impairment whenever events or changes
The Group evaluates the recoverability of long-lived assets in
for the
accordance with authoritative guidance on accounting
impairment or disposal of long-lived assets. The Group evaluates long-
lived assets
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.
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 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.
HUTCHMED (China) Limited 2022 Annual Report 111
LTIP
Revenue Recognition
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, revenues, net profit after taxes and the
achievement of clinical and regulatory milestones.
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. 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, 2022, 2021 and 2020 amounted to
US$11,795,000, US$7,181,000 and US$2,660,000 respectively.
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.
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.
112
in the
The transaction price generally
includes fixed and variable
form of upfront payment, research and
consideration
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.
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.
for separately:
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
(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.
is subsequently measured at cost
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
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.
HUTCHMED (China) Limited 2022 Annual Report 113
Income Taxes
Profit Appropriation and Statutory Reserves
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.
is sustainable based on
The Group accounts for an uncertain tax position
in the
consolidated financial statements only if it is more likely than not that
its technical merits and
the position
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.
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.
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.
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.
114
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:
Level 1
Level 2
Level 3
Total
Fair Value Measurement Using
(in US$’000)
As at December 31, 2021
Warrant (Note 19)
—
2,452
—
2,452
Cash equivalents, short-term investments, 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 fair values, and are therefore excluded from the above table.
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)
2022
December 31,
(in US$’000)
2021
178,326
134,952
313,278
317,718
630,996
104,620
272,922
377,542
634,158
1,011,700
Note: The maturities for short-term investments ranged from 91 to 99 days and 91 to 180 days for the years ended December 31, 2022 and 2021
respectively.
Certain cash and bank balances denominated in RMB, US$ 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$”)
£
Euro
2022
December 31,
(in US$’000)
2021
533,173
79,319
16,721
1,370
413
630,996
895,935
53,455
60,535
1,090
685
1,011,700
HUTCHMED (China) Limited 2022 Annual Report 115
6. Accounts Receivable
Accounts receivable from contracts with customers consisted of the following:
Accounts receivable—third parties
Accounts receivable—related parties (Note 23(ii))
Allowance for credit losses
Accounts receivable, net
December 31,
2022
2021
(in US$’000)
94,531
3,517
(60)
97,988
82,434
1,166
(20)
83,580
Substantially all accounts receivable are denominated in RMB, US$ 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
Accounts receivable—third parties
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
December 31,
2022
2021
(in US$’000)
84,007
7,478
1,947
1,099
94,531
78,288
2,867
78
1,201
82,434
2022
2021
(in US$’000)
2020
20
150
(107)
(3)
60
95
16
(92)
1
20
16
95
(18)
2
95
116
7. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the following:
Dividend receivables (Note 22)
Prepayments
Value-added tax receivables
Deposits
Amounts due from related parties (Note 23(ii))
Others
December 31,
2022
2021
(in US$’000)
26,246
22,329
1,491
1,214
998
1,936
54,214
46,387
14,128
16,616
1,255
1,149
1,506
81,041
No allowance for credit losses has been made for other receivables, prepayments and deposits for the years ended December 31, 2022 and 2021.
8. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted of the following:
Raw materials
Finished goods
December 31,
2022
2021
(in US$’000)
27,392
29,298
56,690
15,837
19,918
35,755
HUTCHMED (China) Limited 2022 Annual Report 117
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
2,432
—
—
—
(199)
2,233
1,788
116
—
—
(151)
1,753
17,828
171
(1,105)
1,336
(1,394)
16,836
11,571
3,741
(1,018)
—
(1,012)
13,282
(in US$’000)
5,987
541
(2)
1,412
(484)
7,454
2,352
590
(2)
(56)
(214)
2,670
27,957
4,945
(529)
1,637
(2,272)
31,738
17,188
3,880
(505)
56
(1,460)
19,159
19,970
40,625
—
(4,385)
(1,660)
54,550
—
—
—
—
—
—
74,174
46,282
(1,636)
—
(6,009)
112,811
32,899
8,327
(1,525)
—
(2,837)
36,864
Cost
As at January 1, 2022
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2022
Accumulated depreciation
As at January 1, 2022
Depreciation
Disposals
Transfers
Exchange differences
As at December 31, 2022
Net book value
As at December 31, 2022
480
3,554
4,784
12,579
54,550
75,947
Buildings
Leasehold
improvements
Plant and
equipment
Furniture
and fixtures,
other equipment
and motor
vehicles
Construction in
progress
Total
(in US$’000)
Cost
As at January 1, 2021
2,372
16,346
5,643
Additions
Disposals
Transfers
Exchange differences
—
—
—
60
452
(275)
916
389
24
(19)
197
142
As at December 31, 2021
2,432
17,828
5,987
Accumulated depreciation
As at January 1, 2021
Depreciation
Disposals
Exchange differences
As at December 31, 2021
Net book value
1,626
120
—
42
1,788
8,652
2,904
(223)
238
1,747
574
(18)
49
11,571
2,352
23,040
3,189
(705)
1,849
584
27,957
14,256
3,244
(688)
376
17,188
3,050
19,669
—
(2,962)
213
19,970
—
—
—
—
—
50,451
23,334
(999)
—
1,388
74,174
26,281
6,842
(929)
705
32,899
As at December 31, 2021
644
6,257
3,635
10,769
19,970
41,275
118
10. Leases
Leases consisted of the following:
Right-of-use assets
Offices
Factories
Warehouses (note)
Others
Total right-of-use assets
Lease liabilities—current
Lease liabilities—non-current
Total lease liabilities
December 31,
2022
2021
(in US$’000)
6,634
387
1,500
201
8,722
3,708
5,196
8,904
10,605
702
281
291
11,879
4,917
7,161
12,078
Note: Includes US$1.5 million right-of-use asset for warehouses in Suzhou that is leased through June 2026 in which the contract has a termination
option with 3-month advance notice. The termination option was not recognized as part of the right-of-use asset and lease liability as it is uncertain
that the Group will exercise such option.
Lease activities are summarized as follows:
Lease expenses:
Short-term leases with lease terms equal or less than 12 months
Leases with lease terms greater than 12 months
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from obtaining right-of-use assets
Non-cash: Lease liabilities changed in relation to modifications and terminations
Year Ended December 31,
2022
2021
(in US$’000)
134
5,238
5,372
5,212
2,689
(499)
106
4,306
4,412
4,954
7,665
(33)
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, 2022 was 3.24 years and 3.04% respectively. 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.
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
December 31,
2022
(in US$’000)
3,908
2,471
1,177
911
680
115
9,262
(358)
8,904
HUTCHMED (China) Limited 2022 Annual Report 119
11. Investments in Equity Investees
Investments in equity investees consisted of the following:
SHPL
Other
December 31,
2022
2021
(in US$’000)
73,461
316
73,777
75,999
480
76,479
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 (sold in 2021), is as follows:
(i) Summarized balance sheets
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
(ii) Summarized statements of operations
Revenue
Gross profit
Interest income
Finance cost
Profit before taxation
Income tax expense (note (c))
Net income (note(d))
Non-controlling interests
Net income attributable to the shareholders of
SHPL
December 31,
2022
2021
(in US$’000)
214,267
80,062
(147,952)
(4,944)
141,433
190,260
91,605
(128,993)
(7,131)
145,741
SHPL
HBYS(note (a))
Year Ended December 31,
2022
2021
2020
2021(note (b))
2020
370,600
281,113
980
—
116,454
(16,738)
99,716
—
332,648
255,089
1,216
—
105,325
(15,896)
89,429
—
(in US$’000)
276,354
204,191
975
—
77,837
(10,833)
67,004
—
209,528
111,066
205
—
36,715
(4,840)
31,875
(36)
232,368
116,804
271
(5)
107,715
(16,494)
91,221
62
equity investee
99,716
89,429
67,004
31,839
91,283
Notes:
(a)
In 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
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 a land compensation bonus of RMB110.3 million (approximately US$17.0 million) and 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. The Group has accounted for the investment in
HBYS under the equity method up to September 28, 2021.
120
(c) The main entity within the SHPL group has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the entity was
eligible to use a preferential income tax rate of 15% for the years ended December 31, 2022, 2021 and 2020.
(d) Net income is before elimination of unrealized profits on transactions with the Group. The amounts eliminated were approximately US$110,000,
US$36,000 and nil for the years ended December 31, 2022, 2021 and 2020 respectively.
For the years ended December 31, 2022, 2021 and 2020, other equity investee had net income of approximately US$10,000 and US$41,000 and
net losses of approximately US$194,000 respectively. In August 2022, the Group entered into an agreement with a third party (the “Buyer”) to sell its
entire investment in other equity investee for cash consideration of RMB2.2 million (approximately US$324,000) with closing subject to regulatory
approval in the PRC.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the carrying amount of investments in equity investees is as follows:
2022
SHPL
2021
2020
2021
2020
HBYS
(in US$’000)
Opening net assets after non-controlling interests as at
January 1
145,741
152,714
146,759
119,424
44,541
Net income attributable to the shareholders of equity
investee
99,716
89,429
67,004
31,839
91,283
Purchase of additional interests in a subsidiary of an
equity investee (note)
Dividends declared
Other comprehensive (loss)/income
Closing net assets after non-controlling interests as at
December 31
Group’s share of net assets
Goodwill
Elimination of unrealized profits on downstream sales
Divestment (Note 22)
—
(87,436)
(16,588)
—
(99,744)
3,342
—
(72,179)
11,130
—
(347)
(106,159)
(20,756)
1,387
4,703
141,433
145,741
152,714
70,717
2,872
(128)
—
72,871
3,128
—
—
76,357
3,051
—
—
46,491
23,246
—
—
(23,246)
119,424
59,712
—
—
—
Carrying amount of investments as at December 31
73,461
75,999
79,408
—
59,712
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
December 31, 2022
(in US$’000)
1,307
HUTCHMED (China) Limited 2022 Annual Report 121
12. Accounts Payable
Accounts payable—third parties
Accounts payable—non-controlling shareholders of subsidiaries (Note 23(iv))
December 31,
2022
2021
(in US$’000)
68,193
2,922
71,115
39,115
2,062
41,177
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
13. 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 capital expenditures
Accrued administrative and other general expenses
Accrued selling and marketing expenses
Deposits
Amounts due to related parties (Note 23(ii))
Deferred government grants
Others
December 31,
2022
2021
(in US$’000)
60,553
7,216
2,137
1,209
71,115
35,615
3,705
588
1,269
41,177
December 31,
2022
2021
(in US$’000)
156,134
42,442
21,390
14,491
11,564
3,616
2,101
673
12,210
264,621
116,134
41,786
11,343
15,836
8,412
2,111
1,915
314
12,988
210,839
122
14. Bank Borrowings
Bank borrowings consisted of the following:
Current
Non-current
December 31,
2022
2021
(in US$’000)
—
18,104
26,905
—
The weighted average interest rate for outstanding bank borrowings for the years ended December 31, 2022 and 2021 was 1.73% per annum and
1.08% per annum respectively. The carrying amounts of the Group’s outstanding bank borrowings as at December 31, 2022 and 2021 were
denominated in RMB and HK$ respectively.
(i) 3-year term loan and revolving loan facilities and 1-year revolving loan facility
In May 2019, the Group through its subsidiary, entered into a facility agreement with a bank for the provision of unsecured credit facilities in the
aggregate amount of HK$400,000,000 (US$51,282,000). The 3-year credit facilities included (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 the Hong Kong Interbank Offered Rate (“HIBOR”) plus
0.85% per annum, and an upfront fee of HK$819,000 (US$105,000) on the term loan. These credit facilities were guaranteed by the Company. The term
loan was drawn in October 2019 and was repaid in May 2022. The revolving loan facility also expired in May 2022.
In May 2022, the Group through its subsidiary, entered into a 1-year revolving loan facility with the bank in the amount of HK$390,000,000
(US$50,000,000) with an interest rate at HIBOR plus 0.5% per annum. This credit facility is guaranteed by the Company. As at December 31, 2022, no
amount was drawn from the revolving loan facility.
(ii) 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$108,393,000) with an annual interest rate at the 5-year China Loan Prime Rate less 0.8% (which was
supplemented in June 2022) and interest payments commencing upon completion of the underlying construction in progress. 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,
2022 and 2021, RMB126,083,000 (US$18,104,000) and nil were utilized from the fixed asset loan facility respectively, of which RMB769,000 (US$110,000)
and nil were related to capitalized interest respectively.
(iii) 2-year revolving loan facility
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$15,000,000) with an interest rate at HIBOR plus 4.5% per annum. This credit facility was guaranteed by the Company. The revolving loan facility
expired in August 2022.
The Group’s bank borrowings are repayable as from the dates indicated as follows:
Not later than 1 year
Between 1 to 3 years
Between 3 to 4 years
Between 4 to 5 years
Later than 5 years
December 31,
2022
2021
(in US$’000)
—
360
839
1,079
15,826
18,104
26,923
—
—
—
—
26,923
As at December 31, 2022 and 2021, the Group had unutilized bank borrowing facilities of US$140,289,000 and US$157,430,000 respectively.
HUTCHMED (China) Limited 2022 Annual Report 123
15. Commitments and Contingencies
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
The Group does not have any other significant commitments or contingencies.
16. Ordinary Shares
As at December 31, 2022, the Company is authorized to issue 1,500,000,000 ordinary shares.
December 31, 2022
(in US$’000)
22,130
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.
17. 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 (as
amended on April 27, 2020) (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, 2022, the aggregate number of shares issuable under the Hutchmed Share Option Scheme was 48,611,458 ordinary shares
and the aggregate number of shares issuable under the prior share option scheme which expired in 2016 was 660,570 ordinary shares. The Company
will issue new shares to satisfy share option exercises. Additionally, the number of shares authorized but unissued was 635,224,660 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.
124
A summary of the Company’s share option activity and related information is as follows:
Number of share
options
Weighted
average exercise
price in US$ per
share
Outstanding at January 1, 2020
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2020
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2021
Granted (note)
Exercised
Cancelled
Expired
Outstanding at December 31, 2022
Vested and exercisable at December 31, 2021
Vested and exercisable at December 31, 2022
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
7,680,820
(244,490)
(3,849,905)
(1,255,620)
39,521,395
16,077,770
21,113,285
4.48
4.66
1.23
5.02
6.46
4.49
5.96
3.01
5.50
5.52
4.88
2.26
1.98
5.19
5.66
4.34
4.24
4.57
Weighted average
remaining
contractual life
(years)
Aggregate
intrinsic value
(in US$’000)
6.67
24,316
7.21
53,990
7.04
82,377
6.55
4.91
4.80
11,525
46,491
6,288
Note: Includes 861,220 share options (represented by 172,244 ADS) granted to an executive director in May 2022 where the number of share options
exercisable is subject to a performance target based on a market condition covering the 3-year period from 2022 to 2024 which has been reflected in
estimating the grant date fair value. The grant date fair value of such awards is US$0.24 per share using the Polynomial model. Vesting of such award
will occur in March 2025.
In estimating the fair value of share options granted, the following assumptions were used in the Polynomial model for awards granted in the
periods indicated:
Weighted average grant date fair value of share options (in US$ per share)
0.85
2.24
1.76
Year Ended December 31,
2021
2022
2020
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:
2.26
2.22
46.7%
2.98%
10
0%
5.96
5.91
41.1%
1.62%
10
0%
4.66
4.66
42.6%
0.59%
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 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$. For share options exercisable into ordinary shares, the risk-free interest rates reference
the sovereign yield of the United Kingdom because the Company’s ordinary shares are currently listed on AIM and denominated in £.
(c) The Company has not declared or paid any dividends and does not currently expect to do so prior to the exercise of the granted share options,
and therefore uses an expected dividend yield of zero in the Polynomial model.
HUTCHMED (China) Limited 2022 Annual Report 125
The Company will issue new shares to satisfy share option exercises. The following table summarizes the Company’s share option exercises:
Cash received from share option exercises
Total intrinsic value of share option exercises
2022
Year Ended December 31,
2021
2020
174
92
(in US$’000)
2,452
2,999
593
2,475
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
2022
Year Ended December 31,
2021
2020
(in US$’000)
4,803
1,803
130
6,736
8,460
7,783
122
16,365
4,061
4,586
90
8,737
As at December 31, 2022, the total unrecognized compensation cost was US$10,907,000, and will be recognized on a graded vesting approach
over the weighted average remaining service period of 2.63 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, 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. 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.
126
Granted awards under the LTIP are as follows:
Grant date
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
May 23, 2022
September 13, 2022
September 13, 2022
Notes:
Maximum cash amount
(in US$ millions)
Covered
financial years
Performance target
determination date
5.3
37.4
1.9
0.2
2.1
0.3
57.3
7.3
0.5
1.7
0.1
0.1
60.4
3.8
1.7
2019
2020
note (c)
note (d)
2020
note (c)
2021
2021
note (c)
note (c)
note (c)
note (d)
2022
2022
note (c)
note (a)
note (b)
note (c)
note (d)
note (b)
note (c)
note (b)
note (b)
note (c)
note (c)
note (c)
note (d)
note (b)
note (b)
note (c)
(a) 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.
(b) 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.
(c) 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.
(d) This award does not stipulate performance targets and will be vested on the first anniversary of the date of grant.
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 2022 Annual Report 127
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, 2020
Purchased
Vested
As at December 31, 2020
Purchased
Vested
As at December 31, 2021
Purchased
Vested
As at December 31, 2022
Number of
treasury shares
Cost
(in US$’000)
941,310
3,281,920
(712,555)
3,510,675
4,907,045
(278,545)
8,139,175
14,028,465
(2,566,265)
19,601,375
6,079
12,904
(4,828)
14,155
27,309
(1,450)
40,014
48,084
(12,034)
76,064
Based on the estimated achievement of performance conditions for 2022 financial year LTIP awards, the determined monetary amount was
US$17,429,000 which is recognized to share-based compensation expense over the requisite vesting period to March 2025.
For the years ended December 31, 2022, 2021 and 2020, US$19,031,000, US$6,618,000 and US$7,038,000 of the LTIP awards were forfeited
respectively based on the determined or estimated monetary amount as at the forfeiture date.
The following table presents the share-based compensation expenses recognized under the LTIP awards:
Research and development expenses
Selling and administrative expenses
Cost of revenues
Recorded with a corresponding credit to:
Liability
Additional paid-in capital
2022
Year Ended December 31,
2021
2020
(in US$’000)
16,101
7,376
373
23,850
6,216
17,634
23,850
16,880
8,451
294
25,625
14,263
11,362
25,625
7,252
3,552
101
10,905
7,778
3,127
10,905
For the years ended December 31, 2022, 2021 and 2020, US$15,351,000, US$8,516,000 and US$4,092,000 were reclassified from liability to
additional paid-in capital respectively upon LTIP awards reaching the determination date. As at December 31, 2022 and 2021, US$3,701,000 and
US$12,836,000 were recorded as liabilities respectively for LTIP awards prior to the determination date.
As at December 31, 2022, the total unrecognized compensation cost was approximately US$34,668,000, which considers expected performance
targets and the amounts expected to vest, and will be recognized over the requisite periods.
128
18. Revenues
The following table presents disaggregated revenue, with sales of goods recognized at a point-in-time and provision of services recognized over
time:
Goods—Marketed Products
Goods—Distribution
Services—Commercialization—Marketed Products
—Collaboration Research and Development
—Research and Development
Royalties
Licensing
Third parties
Related parties (Note 23(i))
Goods—Marketed Products
Goods—Distribution
Services—Commercialization—Marketed Products
—Collaboration Research and Development
—Research and Development
Royalties
Licensing
Third parties
Related parties (Note 23(i))
Goods—Marketed Products
Goods—Distribution
Services—Commercialization—Marketed Products
—Collaboration Research and Development
—Research and Development
Royalties
Third parties
Related parties (Note 23(i))
Oncology/Immunology
Other Ventures
Total
Year Ended December 31, 2022
(in US$’000)
57,057
—
41,275
23,741
507
26,310
14,954
163,844
163,337
507
163,844
—
262,565
—
—
—
—
—
262,565
257,272
5,293
262,565
57,057
262,565
41,275
23,741
507
26,310
14,954
426,409
420,609
5,800
426,409
Oncology/Immunology
Other Ventures
Total
Year Ended December 31, 2021
(in US$’000)
33,937
—
27,428
18,995
525
15,064
23,661
119,610
119,085
525
119,610
—
236,518
—
—
—
—
—
236,518
232,262
4,256
236,518
33,937
236,518
27,428
18,995
525
15,064
23,661
356,128
351,347
4,781
356,128
Oncology/Immunology
Other Ventures
Total
Year Ended December 31, 2020
(in US$’000)
11,329
—
3,734
9,771
491
4,890
30,215
29,724
491
30,215
—
197,761
—
—
—
—
11,329
197,761
3,734
9,771
491
4,890
197,761
227,976
192,277
5,484
197,761
222,001
5,975
227,976
HUTCHMED (China) Limited 2022 Annual Report 129
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,
2022
2021
(in US$’000)
11,817
1,530
13,347
190
13,537
11,078
1,196
12,274
878
13,152
(a) Oncology/Immunology segment deferred revenue relates to invoiced amounts for royalties where the customer has not yet completed the in-
market sale, unamortized upfront and milestone payments and advance consideration received for cost reimbursements which are attributed
to research and development services that have not yet been rendered as at the reporting date.
(b) Other Ventures segment deferred revenue relates to payments in advance from customers for goods that have not been transferred and services
that have not been rendered to the customer as at the reporting date.
(c) Estimated deferred revenue to be recognized over time as from the date indicated is as follows:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
December 31,
2022
2021
(in US$’000)
13,347
12,274
150
40
—
476
255
147
13,537
13,152
(d) As at January 1, 2022, deferred revenue was US$13.2 million, of which US$11.8 million was recognized during the year ended December 31, 2022.
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.
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$10 million in
lieu of cost reimbursement.
130
Upfront and cumulative milestone payments according to the Lilly Agreement received up to December 31, 2022 are summarized as follows:
Upfront payment
Development milestone payments achieved
(in US$’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
2022
Year Ended December 31,
2021
2020
(in US$’000)
14,407
41,275
8,054
13,954
77,690
15,792
27,428
4,491
10,292
58,003
11,329
3,734
1,991
4,890
21,944
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$50 million of phase III clinical trial costs related to developing Orpathys for renal cell carcinoma (“RCC”), and remaining costs
will be shared between the Group and AZ. Subject to approval of Orpathys in RCC, the Group would receive additional tiered royalties on all sales
outside of China, with the incremental royalty rates determined based on actual sharing of development costs. In November 2021, the Group entered
into an additional amendment which revised the sharing between the Group and AZ of development costs for Orpathys in China for non-small cell
lung cancer, as well as adding potential development milestones.
Upfront and cumulative milestone payments according to the AZ Agreement received up to December 31, 2022 are summarized as follows:
Upfront payment
Development milestone payments achieved
First-sale milestone payment achieved
(in US$’000)
20,000
40,000
25,000
HUTCHMED (China) Limited 2022 Annual Report 131
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
19. In-Licensing arrangement
2022
Year Ended December 31,
2021
2020
(in US$’000)
9,904
14,467
12,356
14,954
51,681
6,509
14,113
4,772
23,661
49,055
—
7,780
—
—
7,780
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 (“Warrant Exercise Price”).
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. For the year ended December 31, 2022, US$5.0 million development milestone was paid and expensed to research
and development expenses as in-process research and development.
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.
On August 12, 2022, a third party announced that it has acquired all outstanding shares of Epizyme under a definitive merger agreement.
Consequently, the warrant was deemed expired under the terms of the In-license Agreement and warrant. For the years ended December 31, 2022 and
2021, fair value losses of US$2.5 million and US$12.5 million were recognized to other expense in the consolidated statements of operations
respectively.
20. Research and Development Expenses
Research and development expenses are summarized as follows:
Clinical trial related costs
Personnel compensation and related costs
Other research and development expenses
2022
Year Ended December 31,
2021
2020
255,935
119,306
11,652
386,893
(in US$’000)
190,051
91,639
17,396
299,086
105,869
63,542
5,365
174,776
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, 2022, 2021 and 2020, the Group has incurred research and
development expenses of US$14,654,000, US$18,408,000 and US$8,291,000 respectively, related to such collaborative arrangements.
132
21. Government Grants
Government grants in the Oncology/Immunology segment are primarily given in support of the construction of a manufacturing plant in
Shanghai and R&D activities which 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 payables, accruals and advance receipts (Note 13) and other non-current
liabilities. For the years ended December 31, 2022, 2021 and 2020, the Group received government grants of US$8,474,000, US$9,095,000 and
US$4,724,000 respectively.
Government grants were recognized in the consolidated statements of operations as follows:
Research and development expenses
Other income
2022
Year Ended December 31,
2021
2020
4,556
1,434
5,990
(in US$’000)
15,515
318
15,833
1,607
539
2,146
22. 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, 2022 and 2021, US$26.2
million and US$46.4 million of dividend receivables, net of taxes, from the third party was recorded in other receivables, prepayments and deposits
(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 for 10 years at 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, 2022 and 2021, US$1.5 million was included in amounts due to related parties (Note 23(ii)) and US$8.7 million and US$9.8 million
were included in other non-current liabilities respectively.
The gain on divestment of an equity investee was recognized in the consolidated statements of operations as follows:
Proceeds
Dividend receivables–third party (Note 7)
Less: Group’s share of net assets of HBYS (Note 11(iii))
Dividend receivables–HBYS
Withholding tax liability on dividend receivables–HBYS
Branding liability
Accumulated other comprehensive income and reserves
Transaction costs and others
Gain on divestment of an equity investee
Less: Capital gain tax
Less: Gain on divestment of an equity investee attributable to non-controlling interests
Gain on divestment of an equity investee attributable to the Group
Year Ended December 31,
2021
(in US$’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 2022 Annual Report 133
23. 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:
Year Ended December 31,
2022
2021
(in US$’000)
2020
3,610
1,683
5,293
507
4,256
—
4,256
525
4,231
3,770
227
127
354
980
—
350
—
350
971
12,721
5,484
—
5,484
491
3,347
332
—
332
955
—
December 31,
2022
2021
(in US$’000)
1,319
2,198
3,517
998
1,953
148
2,101
755
8,716
9,471
1,166
—
1,166
1,149
1,915
—
1,915
736
9,766
10,502
Sales to:
Indirect subsidiaries of CK Hutchison
An equity investee
Revenue from research and development services from:
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:
An indirect subsidiary of CK Hutchison (note (a))
(ii) Balances with related parties included in:
Accounts receivable—related parties
Indirect subsidiaries of CK Hutchison (note (b))
An equity investee (note (b))
Other receivables, prepayments and deposits
An equity investee (note (b))
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (c) and (e))
An equity investee (note (b) and (d))
Other non-current liabilities
An equity investee (note (d))
An indirect subsidiary of CK Hutchison (note (e))
134
Notes:
(a) The branding rights for HBYS from an indirect subsidiary of CK Hutchison were recognized in the consolidated statements of operations through
the gain on divestment of an equity investee (Note 22). For the years ended December 31, 2022 and 2021, the Group paid US$1,538,000 for each
of the two years.
(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 commercial, promotion and marketing rights.
(e) As at December 31, 2022 and 2021, a branding liability payable of US$1,538,000 was included in amounts due to related parties under other
payables, accruals and advance receipts. As at December 31, 2022 and 2021, US$8,716,000 and US$9,766,000 of the branding liability payable
was included in other non-current liabilities.
(iii) Transactions with non-controlling shareholders of subsidiaries:
Sales
Purchases
Dividends declared
(iv) Balances with non-controlling shareholders of subsidiaries included in:
Accounts receivable
Accounts payable
2022
Year Ended December 31,
2021
(in US$’000)
2020
47,611
7,936
25,600
41,974
10,660
9,894
36,500
13,936
1,462
December 31,
2022
2021
(in US$’000)
11,139
2,922
8,436
2,062
HUTCHMED (China) Limited 2022 Annual Report 135
24. Income Taxes
(i)
Income tax (benefit)/expense
Current tax
HK (note (a))
PRC (note (b) and (c))
U.S. and others (note (d))
Total current tax
Deferred income tax (benefit)/expense
Income tax (benefit)/expense
Notes:
Year Ended December 31,
2022
2021
(in US$’000)
2020
301
2,580
399
3,280
(3,563)
(283)
310
15,909
417
16,636
(4,718)
11,918
457
872
219
1,548
3,281
4,829
(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 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, 2022, 2021 and 2020, 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$14.4 million arising from the indirect disposal of HBYS (Note 22),
calculated at 10% of the excess of the disposal proceeds over the cost of acquiring the equity investment in HBYS.
(d) The Company’s subsidiary in the U.S. with operations primarily in New Jersey is subject to U.S. taxes, primarily federal and state taxes, which
have been provided for at approximately 21% (federal) and 0% to 11.5% (state tax) on the estimated assessable profit over the reporting years.
Certain income receivable by the Company is subject to U.S. withholding tax of 30%. Two of the Group’s subsidiaries are subject to corporate tax
in the UK and EU countries at 19% and 15% to 25%, respectively, on the estimated assessable profits in relation to their presence in these
countries.
136
The reconciliation of the Group’s reported income tax expense to the theoretical tax amount that would arise using the tax rates of the Company
against the Group’s loss before income taxes and equity in earnings of equity investees is as follows:
Loss before income taxes and equity in earnings of equity investees
Tax calculated at the statutory tax rate of the Company
Tax effects of:
Different tax rates applicable in different jurisdictions
Tax valuation allowance
Preferential tax rate difference
Preferential tax deduction and credits
Expenses not deductible for tax purposes
Withholding tax on undistributed earnings of PRC entities
Others
Income tax (benefit)/expense
(ii) Deferred tax assets and liabilities
The significant components of deferred tax assets and liabilities are as follows:
Year Ended December 31,
2022
(410,422)
(67,720)
2021
(in US$’000)
(215,740)
(35,597)
6,316
93,243
(171)
(40,791)
8,886
2,492
(2,538)
(283)
136
63,975
(148)
(29,838)
8,684
3,153
1,553
11,918
2020
(189,734)
(31,306)
4,025
46,321
(154)
(18,814)
3,476
3,962
(2,681)
4,829
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,
2022
2021
(in US$’000)
264,751
15,254
280,005
(264,639)
15,366
2,686
24
2,710
186,832
12,269
199,101
(189,700)
9,401
2,720
45
2,765
HUTCHMED (China) Limited 2022 Annual Report 137
The movements in deferred tax assets and liabilities are as follows:
As at January 1
Utilization of previously recognized withholding tax on undistributed earnings
(Charged)/Credited to the consolidated statements of operations
Withholding tax on undistributed earnings of PRC entities
Deferred tax on amortization of intangible assets
Deferred tax on temporary differences, tax loss carried forward and research
tax credits
Divestment of an equity investee
Exchange differences
As at December 31
2022
2021
(in US$’000)
2020
6,636
2,186
(2,492)
19
6,036
—
271
12,656
(3,548)
5,148
(3,153)
19
7,852
370
(52)
6,636
(2,343)
2,323
(3,962)
18
663
—
(247)
(3,548)
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
2032
December 31,
2022
2021
(in US$’000)
71,325
—
—
3,763
36,098
48,150
61,808
107,297
175,853
243,918
389,761
610,800
60,450
200
—
4,099
39,321
52,452
67,217
117,376
191,554
265,696
432,278
—
1,748,773
1,230,643
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$3.9 million and US$1.2 million U.S. Federal and New Jersey state research tax credits
which will expire between 2041 and 2042 (Federal) and 2028 and 2029 (New Jersey) respectively, if not utilized.
138
The table below summarizes changes in the deferred tax valuation allowance:
As at January 1
Charged to consolidated statements of operations
Utilization of previously unrecognized tax losses
Write-off of tax losses
Others
Exchange differences
As at December 31
2022
189,700
93,243
(1)
(125)
—
(18,178)
264,639
2021
(in US$’000)
122,378
63,975
(186)
—
(9)
3,542
189,700
2020
69,399
46,321
(114)
—
—
6,772
122,378
As at December 31, 2022, 2021 and 2020, the Group did not have any material unrecognized uncertain tax positions.
(iii) Income tax payable
As at January 1
Current tax
Withholding tax upon dividend declaration from PRC entities
Tax paid (note)
Reclassification from non-current withholding tax
Reclassification (from)/to prepaid tax
Divestment of an equity investee (Note 22)
Exchange difference
As at December 31
2022
2021
(in US$’000)
2020
15,546
3,280
2,186
1,120
16,636
5,148
(18,891)
(5,014)
—
(241)
—
(768)
1,112
—
25
(2,644)
275
15,546
1,828
1,548
2,323
(5,940)
812
485
—
64
1,120
Note: The amount for 2022 includes US$14.4 million capital gain tax paid for gain on divestment of HBYS (Note 22). The amount for 2020 is net of the
PRC Enterprise Income Tax refund of US$0.4 million received by HSPL.
25. Losses Per Share
(i) Basic losses per share
Basic losses per share is calculated by dividing the net loss attributable to the Company by the weighted average number of outstanding ordinary
shares in issue during the year.
2022
Year Ended December 31,
2021
2020
Weighted average number of outstanding ordinary shares in issue
847,143,540
792,684,524
697,931,437
Net loss attributable to the Company (US$’000)
Losses per share attributable to the Company (US$ per share)
(360,835)
(194,648)
(0.43)
(0.25)
(125,730)
(0.18)
(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, 2022, 2021 and 2020, 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, 2022, 2021 and 2020.
HUTCHMED (China) Limited 2022 Annual Report 139
26. 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 drugs 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 net (loss)/income attributable to the Company.
The segment information is as follows:
Oncology/Immunology
Year Ended December 31, 2022
R&D
U.S. and
Others
—
4
—
—
PRC
39,202
674
—
5
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
39,202
124,642
163,844
262,565
—
426,409
678
—
5
—
—
—
678
—
272
—
8,649
(652)
9,599
(652)
5
49,748
—
49,753
(552)
6,053
5,501
(631)
4,870
(1,345)
(3,242)
283
(215,834)
(7,576)
(186,945)
(484)
(402,779)
(8,060)
17,367
—
(385,412)
(8,060)
54,604
(299)
(30,027)
(305)
(360,835)
(8,664)
47,563
725
48,288
—
48,288
664
21
48,973
Oncology/Immunology
December 31, 2022
R&D
U.S. and
Others
PRC
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
221,337
30,281
251,618
45,984
297,602
235,500
496,343
1,029,445
72,775
3,350
11,830
—
—
316
2,103
3,167
—
—
—
—
74,878
6,517
11,830
—
—
316
—
—
—
—
—
—
74,878
6,517
11,830
—
—
735
1,308
—
3,137
85
316
73,461
334
897
—
—
—
—
75,947
8,722
11,830
3,137
85
73,777
Revenue from external
customers
Interest income
Interest expense
Equity in earnings of equity
investees, net of tax
Income tax
(expense)/benefit
Net (loss)/income
attributable to the
Company
Depreciation/ amortization
Additions to non-current
assets (other than
financial instruments
and deferred tax assets)
Total assets
Property, plant and
equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible asset
Investments in equity
investees
140
Revenue from external
customers
Interest income
Interest expense
Equity in earnings of equity
investees, net of tax
Income tax
benefit/(expense)
Net (loss)/income
attributable to the
Company
Depreciation/ amortization
Additions to non-current
assets (other than
financial instruments
and deferred tax assets)
Oncology/Immunology
Year Ended December 31, 2021
R&D
U.S. and
Others
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
—
3
—
—
43,181
812
76,429
—
119,610
812
—
20
—
—
—
20
236,518
282
—
—
982
(592)
356,128
2,076
(592)
60,597
—
60,617
7,160
7,182
(1,320)
5,862
(14,573)
(3,207)
(11,918)
PRC
43,181
809
—
20
22
(143,528)
(6,436)
(152,235)
(197)
(295,763)
(6,633)
4,032
—
(291,731)
(6,633)
142,890
(318)
(45,807)
(239)
(194,648)
(7,190)
25,295
4,321
29,616
—
29,616
1,056
327
30,999
Oncology/Immunology
December 31, 2021
R&D
U.S. and
Others
PRC
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’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
HUTCHMED (China) Limited 2022 Annual Report 141
Oncology/Immunology
Year Ended December 31, 2020
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
10,262
19,953
30,215
197,761
461
—
167
—
—
2,608
(787)
227,976
3,236
(787)
(97)
79,143
—
79,046
(167)
73
(824)
(4,078)
(4,829)
—
—
—
461
—
(97)
240
R&D
U.S. and
Others
—
—
—
—
PRC
10,262
461
—
(97)
(402)
642
(120,096)
(5,458)
(62,683)
(119)
(182,779)
(5,577)
7,282
—
(175,497)
(5,577)
72,785
(292)
(23,018)
(192)
(125,730)
(6,061)
22,574
754
23,328
—
23,328
817
1,090
25,235
Revenue from external
customers
Interest income
Interest expense
Equity in earnings of equity
investees, net of tax
Income tax
(expense)/benefit
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 amounts eliminated attributable to sales between PRC and U.S. and others under Oncology/Immunology segment were US$55,433,000,
US$46,891,000, and US$19,230,000 for the years ended December 31, 2022, 2021, and 2020 respectively.
A summary of customers which accounted for over 10% of the Group’s revenue for the years ended December 31, 2022, 2021 and 2020 is as follows:
Customer A
Customer B
Customer C
Customer D
2022
Year Ended December 31,
2021
(in US$’000)
75,606
51,681
47,611
(note)
56,082
49,055
41,974
(note)
2020
(note)
(note)
36,500
25,993
Note: Customer did not account for over 10% of the Group’s revenue during the year.
Customer A and B are included in Oncology/Immunology and Customer C and D are primarily included in Other Ventures.
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.
142
27. 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
Year Ended December 31,
2022
2021
(in US$’000)
2020
(360,386)
(167,041)
(115,517)
7,190
6,061
Depreciation and amortization
Amortization of finance costs
Loss on disposals of property, plant and equipment
Provision for excess and obsolete inventories
Provision for credit losses, net
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
Impairment of investment in other equity investee
Changes in right-of-use assets
Fair value losses on warrant
Gain from divestment of HBYS
Unrealized currency translation loss/(gain)
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
8,664
18
111
293
43
6,736
23,850
(49,753)
43,718
130
2,721
2,452
—
13,274
(19,174)
(14,451)
12,072
(21,213)
29,938
52,629
(2,701)
386
2,044
58,704
44
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
(268,599)
(204,223)
43
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)
HUTCHMED (China) Limited 2022 Annual Report 143
28. 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 financial position, results of operations 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, results of operations or cash flows 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 a decision on costs and interest in December 2021), the Group was awarded an amount of RMB253.2 million (equivalent to US$36.4
million) with interest of 5.5% per annum from the date of the award until payment and recovery of costs of approximately US$2.2 million (collectively
the “Award”). On June 27, 2022, Luye provided the Group a bank guarantee of up to RMB286.0 million to cover the Award amounts, pending the
outcome of an application by Luye to the High Court of Hong Kong to set aside the Award. On July 26, 2022, Luye’s application to set aside the Award
was dismissed by the High Court with costs awarded in favor of the Group. On October 7, 2022, Luye filed a Notice of Appeal to the Court of Appeal
regarding the dismissal and the notice was accepted on November 8, 2022. A Court of Appeal hearing date has been set for June 2023. The legal
proceedings are ongoing, no Award amounts have been received as at the issuance date of these consolidated financial statements and no Award
amounts have been recognized and no adjustment has been made to Seroquel-related balances as at December 31, 2022. Such Seroquel-related
balances include accounts receivable, long-term prepayment, accounts payable and other payables of US$1.1 million, US$0.5 million, US$0.9 million
and US$1.2 million respectively.
29. 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$0.1 million as at December 31, 2022 and 2021 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$53.7 million and US$54.4 million as at December 31, 2022 and 2021 respectively.
30. Subsequent Events
The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements were issued.
On January 23, 2023, the Group and Takeda Pharmaceuticals International AG (“Takeda”) entered into an exclusive out-licensing agreement (the
“Agreement”) to further the global development, commercialization and manufacturing of Fruquintinib outside Mainland China, Hong Kong and
Macau. The Group will receive up to US$1,130.0 million from Takeda, including upfront payments of US$400.0 million upon closing of the Agreement,
as well as potential regulatory, development and commercial sales milestone payments, plus royalties on net sales.
144
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
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; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 and
864,530,850 shares issued at December 31, 2022 and 2021 respectively
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive (loss)/income
Total Company’s shareholders’ equity
Total liabilities and shareholders’ equity
32. Dividends
No dividend has been declared or paid by the Company since its incorporation.
December 31,
Note
2022
2021
(in US$’000)
7,892
—
947
8,839
726,430
735,269
124,178
16
124,194
708
124,902
979
55,128
934
57,041
972,831
1,029,872
42,952
16
42,968
11
42,979
86,478
1,497,273
(971,481)
(1,903)
610,367
735,269
86,453
1,505,196
(610,328)
5,572
986,893
1,029,872
15
16
HUTCHMED (China) Limited 2022 Annual Report 145
33. 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)
2022
Year Ended December 31,
2021
(in US$’000)
2020
683
883
848
1,173
98
1,587
2,036
4,894
5,577
1,160
93
2,245
5,553
9,051
9,934
1,093
89
2,005
3,336
6,523
7,371
Note: During the years ended December 31, 2022, 2021 and 2020, certain directors were granted share options and LTIP awards in respect of their
services to the Group under the share option schemes and LTIP of the Company, further details of which are set out in Note 17. The share-based
compensation expenses were recognized in the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020.
(i)
Independent non-executive directors
The fees paid to independent non-executive directors were as follows:
2022
Year Ended December 31,
2021
(in US$’000)
2020
Paul Carter
Karen Ferrante
Graeme Jack
Tony Mok
117
103
111
103
434
117
103
111
99
430
The share-based compensation expenses of the independent non-executive directors were as follows:
Paul Carter
Karen Ferrante
Graeme Jack
Tony Mok
2022
Year Ended December 31,
2021
(in US$’000)
2020
139
139
139
139
556
91
91
91
91
364
117
103
104
84
408
73
73
73
73
292
There were no other remunerations payable to independent non-executive directors during the years ended December 31, 2022, 2021 and 2020.
146
(ii) Executive directors and non-executive directors
Executive directors
Simon To
Wei-guo Su
Johnny Cheng
Christian Hogg (note)
Non-executive directors
Dan Eldar
Edith Shih
Executive directors
Simon To
Wei-guo Su
Johnny Cheng
Christian Hogg (note)
Non-executive directors
Dan Eldar
Edith Shih
Executive directors
Simon To
Wei-guo Su
Johnny Cheng
Christian Hogg (note)
Non-executive directors
Dan Eldar
Edith Shih
Year Ended December 31, 2022
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
(in US$’000)
Share-based
compensation
Total
85
75
75
14
249
—
—
—
249
—
706
340
127
1,173
—
—
—
1,173
—
64
29
5
98
—
—
—
98
—
1,127
442
18
1,587
—
—
—
139
1,650
732
224
3,622
1,618
(1,319)
(1,155)
1,202
4,309
139
139
278
139
139
278
1,587
1,480
4,587
Year Ended December 31, 2021
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
(in US$’000)
Share-based
compensation
Total
85
75
72
77
309
70
74
144
453
—
412
328
420
1,160
—
—
—
1,160
—
35
28
30
93
—
—
—
93
—
835
410
1,000
2,245
—
—
—
2,245
92
1,934
733
2,246
5,005
92
92
184
5,189
177
3,291
1,571
3,773
8,812
162
166
328
9,140
Year Ended December 31, 2020
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
(in US$’000)
Share-based
compensation
Total
80
75
70
75
300
70
70
140
440
—
362
320
411
1,093
—
—
—
1,093
—
32
27
30
89
—
—
—
89
—
736
372
897
2,005
—
—
—
2,005
73
1,472
341
1,012
2,898
73
73
146
3,044
153
2,677
1,130
2,425
6,385
143
143
286
6,671
Note: Mr Christian Hogg retired as executive director on March 4, 2022.
HUTCHMED (China) Limited 2022 Annual Report 147
34. Five Highest-Paid Employees
The five highest-paid employees during years ended December 31, 2022, 2021 and 2020 included the following number of directors and non-
directors:
Directors
Non-directors
Year Ended December 31,
2021
2020
2022
2
3
5
3
2
5
3
2
5
Details of the remuneration for the years ended December 31, 2022, 2021 and 2020 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)
2022
Year Ended December 31,
2021
(in US$’000)
2020
1,497
51
1,759
2,001
5,308
859
52
802
1,465
3,178
715
48
735
1,104
2,602
Note: During the years ended December 31, 2022, 2021 and 2020, 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 17. The share-based
compensation expenses were recognized in the consolidated statements of operations during the years ended December 31, 2022, 2021 and 2020.
The number of Non-director Individuals whose remuneration fell within the following bands is as follows:
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
HK$16,500,000 to HK$17,000,000
Year Ended December 31,
2021
2020
2022
—
2
—
1
3
—
1
1
—
2
2
—
—
—
2
During the years ended December 31, 2022, 2021 and 2020, no remuneration was paid by the Group to any directors or Non-director Individuals
as an inducement to join the Group or as compensation for loss of office. Additionally, none of the directors or Non-director Individuals have waived
any remuneration during the years ended December 31, 2022, 2021 and 2020.
148
35. Reconciliation between U.S. GAAP and International Financial Reporting Standards
These consolidated financial statements are prepared in accordance with U.S. GAAP, which differ in certain respects from International Financial
Reporting Standards (“IFRS”). The effects of material differences prepared under U.S. GAAP and IFRS are as follows:
(i) Reconciliation of consolidated statements of operations
Year Ended December 31, 2022
IFRS adjustments
Lease
amortization
(note (a))
Issuance costs
(note (b))
Capitalization
of rights
(note (c))
Amounts as
reported
under
U.S. GAAP
(268,698)
(386,893)
(43,933)
(92,173)
(834,102)
57
31
49
182
319
(652)
(322)
(13,509)
12
Divestment of
an equity
investee
(note (d))
Amounts under
IFRS
—
(268,641)
—
—
—
—
—
—
—
—
—
—
—
—
(381,862)
(43,884)
(91,991)
(828,783)
(974)
(13,497)
(3,039)
(405,413)
49,737
(355,393)
(454)
(355,847)
(in US$’000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,000
—
—
5,000
—
—
—
5,000
—
5,000
—
5,000
Costs of goods—third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other (expense)/income
(2,729)
(310)
Loss before income taxes and equity in earnings
of equity investees
(410,422)
Equity in earnings of equity investees, net of tax
49,753
Net loss
Less: Net income attributable to non-controlling
interests
Net loss attributable to the Company
(360,386)
(449)
(360,835)
9
(16)
(7)
(5)
(12)
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
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 (expense)/income
Loss before income taxes and equity in earnings
of equity investees
Income tax benefit/(expense)
(229,448)
(299,086)
(37,827)
(89,298)
(684,445)
121,310
(592)
(12,643)
(8,733)
(215,740)
(11,918)
Equity in earnings of equity investees, net of tax
60,617
40
23
53
161
277
—
(400)
9
(391)
(114)
—
(1)
(in US$’000)
—
—
—
—
(163)
(163)
—
—
—
—
(163)
—
—
11,111
—
—
11,111
—
—
—
—
—
—
—
—
—
(229,408)
(287,952)
(37,774)
(89,300)
(673,220)
11,266
132,576
—
—
—
(992)
(12,634)
(9,124)
11,111
—
11,266
370
(193,640)
(11,548)
—
(11,636)
48,980
Net loss
Less: Net income attributable to non-controlling
(167,041)
(115)
(163)
11,111
interests
Net loss attributable to the Company
(27,607)
(194,648)
(2)
—
(27)
(117)
(163)
11,084
—
—
—
(156,208)
(27,636)
(183,844)
HUTCHMED (China) Limited 2022 Annual Report 149
Year Ended December 31, 2020
IFRS adjustments
Amounts as
reported
under
U.S. GAAP
Lease
amortization
(note (a))
Issuance costs
(note (b))
Capitalization
of rights
(note (c))
Divestment of
an equity
investee
(note (d))
Amounts under
IFRS
Costs of goods—third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other (expense)/income
Loss before income taxes and equity in earnings
of equity investees
Equity in earnings of equity investees, net of tax
Net loss
Less: Net income attributable to non-controlling
interests
Net loss attributable to the Company
(ii) Reconciliation of consolidated balance sheets
(178,828)
(174,776)
(11,334)
(50,015)
(424,644)
(787)
(115)
6,934
(189,734)
79,046
(115,517)
(10,213)
(125,730)
29
18
51
132
230
(237)
15
(222)
8
4
12
17
29
(in US$’000)
—
—
—
860
860
—
—
—
860
—
860
—
860
—
—
—
—
—
—
—
—
—
—
—
—
—
December 31, 2022
IFRS adjustments
—
—
—
—
—
—
—
—
—
—
—
—
—
(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)
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
Right-of-use assets
Investments in equity investees
Other non-current assets
8,722
73,777
15,745
(233)
(37)
—
—
—
—
Capitalization
of rights
(note (c))
(in US$’000)
—
—
15,370
Total assets
1,029,445
(270)
—
15,370
Other payables, accruals and advance
receipts
Total current liabilities
Total liabilities
264,621
353,903
392,575
—
—
—
—
—
—
Additional paid-in capital
1,497,273
—
(697)
—
—
—
—
Accumulated losses
(971,481)
(246)
697
16,084
Accumulated other comprehensive
(loss)/income
(1,903)
Total Company’s shareholders’ equity
610,367
Non-controlling interests
Total shareholders’ equity
26,503
636,870
8
(238)
(32)
(270)
—
—
—
—
(739)
15,345
25
15,370
Divestment of
an equity
investee
(note (d))
LTIP
classification
(note (e))
Amounts
under IFRS
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,489
73,740
31,115
—
1,044,545
(3,701)
260,920
(3,701)
350,202
(3,701)
388,874
3,701
1,500,277
—
(954,946)
—
(2,634)
3,701
629,175
—
26,496
3,701
655,671
150
December 31, 2021
IFRS adjustments
Divestment of
an equity
investee
(note (d))
LTIP
classification
(note (e))
Amounts
under IFRS
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
Right-of-use assets
Investments in equity investees
Other non-current assets
11,879
76,479
21,551
(257)
(24)
—
Total assets
1,372,661
(281)
Other payables, accruals and advance
receipts
Total current liabilities
Total liabilities
210,839
311,658
333,147
Additional paid-in capital
1,505,196
—
—
—
—
—
—
—
—
—
—
—
(697)
Capitalization
of rights
(note (c))
(in US$’000)
—
—
11,296
11,296
—
—
—
—
Accumulated losses
(610,328)
(233)
697
11,084
Accumulated other comprehensive
(loss)/income
Total Company’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
5,572
986,893
52,621
1,039,514
(7)
(240)
(41)
(281)
—
—
—
—
185
11,269
27
11,296
Notes:
(a) Lease amortization
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,622
76,455
32,847
—
1,383,676
(12,836)
198,003
(12,836)
298,822
(12,836)
320,311
12,836
1,517,335
—
(598,780)
—
5,750
12,836
1,010,758
—
52,607
12,836
1,063,365
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.
HUTCHMED (China) Limited 2022 Annual Report 151
(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.
152
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, 2022
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)
Dr. Weiguo Su
Chief Executive Officer and Chief Scientific 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*
*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
Name of each exchange on which registered
Nasdaq Global Select Market
Nasdaq Global Select Market*
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:
864,775,340 ordinary shares were issued and outstanding as of December 31, 2022.
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.
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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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
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
Item 16J. Insider Trading Policies
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SIGNATURES
3
5
7
7
7
7
69
161
161
184
199
203
203
204
213
214
217
217
217
217
218
218
218
218
219
219
219
220
220
220
220
220
220
221
222
224
This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31,
2022, 2021 and 2020 and our audited consolidated balance sheet data as of December 31, 2022 and 2021. 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, 2022, 2021 and 2020
and the audited consolidated statements of financial position data as of December 31, 2022 and 2021 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 year ended December 31, 2020 and the audited consolidated statements of financial position data as of
September 28, 2021 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, a holding company incorporated in the Cayman Islands, and its consolidated subsidiaries and joint
ventures, some of which, as noted below, are incorporated and operate in the PRC. “HUTCHMED Holdings” refers to HUTCHMED
Holdings Limited, a subsidiary of the Company and a holding company incorporated in the Cayman Islands. “HUTCHMED Limited”
refers to “HUTCHMED Limited”, a subsidiary of HUTCHMED Holdings which is incorporated in the PRC and through which we
operate our Oncology/Immunology operations in China. Our other principal operating subsidiaries for our Oncology/Immunology
operations are HUTCHMED International Corporation (incorporated in Delaware), HUTCHMED Holdings (HK) Limited (incorporated
in Hong Kong) and HUTCHMED (Suzhou) Limited (incorporated and operates in the PRC). “Hutchison Sinopharm” refers to Hutchison
Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC-incorporated joint venture with Sinopharm through
which we operate our principal consolidated joint venture. See Item 4. “Information on the Company—C. Organizational Structure” for
a diagram illustrating our corporate structure.
Conventions Used in this Annual Report
Unless otherwise indicated, references in this annual report to:
“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” refers to the People’s Republic of China including Hong Kong and Macau and, only for the purpose of this
annual report, excluding Taiwan; and only in the context of describing PRC rules, laws, regulations, regulatory authority, and
any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes
Taiwan, Hong Kong, and Macau; the legal and operational risks associated with operating in China also apply to our operations
in Hong Kong;
“CK Hutchison” are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on 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;
3
HUTCHMED (China) Limited
Table of Contents
INTRODUCTION
Introduction
PART I
Cautionary Statement Regarding Forward-Looking Statements
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 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection
Item 16G.Corporate Governance
Item 16H.Mine Safety Disclosure
Item 16J. Insider Trading Policies
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SIGNATURES
3
5
7
7
7
7
217
218
69
161
161
184
199
203
203
204
213
214
217
217
217
218
218
218
219
219
219
220
220
220
220
220
220
221
222
224
This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31,
2022, 2021 and 2020 and our audited consolidated balance sheet data as of December 31, 2022 and 2021. 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, 2022, 2021 and 2020
and the audited consolidated statements of financial position data as of December 31, 2022 and 2021 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 year ended December 31, 2020 and the audited consolidated statements of financial position data as of
September 28, 2021 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, a holding company incorporated in the Cayman Islands, and its consolidated subsidiaries and joint
ventures, some of which, as noted below, are incorporated and operate in the PRC. “HUTCHMED Holdings” refers to HUTCHMED
Holdings Limited, a subsidiary of the Company and a holding company incorporated in the Cayman Islands. “HUTCHMED Limited”
refers to “HUTCHMED Limited”, a subsidiary of HUTCHMED Holdings which is incorporated in the PRC and through which we
operate our Oncology/Immunology operations in China. Our other principal operating subsidiaries for our Oncology/Immunology
operations are HUTCHMED International Corporation (incorporated in Delaware), HUTCHMED Holdings (HK) Limited (incorporated
in Hong Kong) and HUTCHMED (Suzhou) Limited (incorporated and operates in the PRC). “Hutchison Sinopharm” refers to Hutchison
Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our PRC-incorporated joint venture with Sinopharm through
which we operate our principal consolidated joint venture. See Item 4. “Information on the Company—C. Organizational Structure” for
a diagram illustrating our corporate structure.
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” refers to the People’s Republic of China including Hong Kong and Macau and, only for the purpose of this
annual report, excluding Taiwan; and only in the context of describing PRC rules, laws, regulations, regulatory authority, and
any PRC entities or citizens under such rules, laws and regulations and other legal or tax matters in this annual report, excludes
Taiwan, Hong Kong, and Macau; the legal and operational risks associated with operating in China also apply to our operations
in Hong Kong;
“CK Hutchison” are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on 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;
3
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
“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” are to HUTCHMED Science Nutrition Limited, our wholly owned subsidiary;
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.
“Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our joint venture with Hain Celestial in which we
have a 50% interest;
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.
“Hutchison Healthcare” are to Hutchison Healthcare Limited, our wholly owned subsidiary;
“HUTCHMED Limited”, our PRC-incorporated subsidiary through which we operate our Oncology/Immunology operations
in China and in which we have a 99.8% interest;
“HUTCHMED Holdings” are to HUTCHMED Holdings Limited, our subsidiary incorporated in the Cayman Islands 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 PRC-
incorporated joint venture with Sinopharm in which we have a 50.9% interest and through which we operate our principal
consolidated joint venture;
“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 Limited, or the Hong Kong Stock Exchange;
“Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture
with Shanghai Pharmaceuticals in which we have a 50% interest;
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;
“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;
regulatory developments in China, the United States and other countries;
“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 $1.21, all translations of RMB into U.S. dollars were made at RMB6.96 to $1.00 and all translations of HK dollars into
U.S. dollars were made at HK$7.8 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of
December 31, 2022. 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.
4
5
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•
•
•
the ability of our oncology drug sales team to effectively develop and execute promotional and marketing activities to support
the marketing and sales of our approved drug candidates;
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
the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint ventures’
and manufacturers;
products and our drug candidates;
candidates;
the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for our drug
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
our ability to obtain additional funding for our operations;
•
“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” 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;
“Hutchison Healthcare” are to Hutchison Healthcare Limited, our wholly owned subsidiary;
“HUTCHMED Limited”, our PRC-incorporated subsidiary through which we operate our Oncology/Immunology operations
in China and in which we have a 99.8% interest;
“HUTCHMED Holdings” are to HUTCHMED Holdings Limited, our subsidiary incorporated in the Cayman Islands 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 PRC-
incorporated joint venture with Sinopharm in which we have a 50.9% interest and through which we operate our principal
consolidated joint venture;
“ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share;
“RMB” or “renminbi” are to the legal currency of the PRC;
“SEHK” are to The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange;
“Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture
with Shanghai Pharmaceuticals in which we have a 50% interest;
“Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company in China
listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange;
“Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a leading
supply chain service provider in China listed on the Hong Kong Stock Exchange;
“U.S.” or “United States” are to the United States of America;
“$” 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.
•
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•
•
•
•
•
•
•
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•
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 $1.21, all translations of RMB into U.S. dollars were made at RMB6.96 to $1.00 and all translations of HK dollars into
U.S. dollars were made at HK$7.8 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of
December 31, 2022. 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.
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 ability of our oncology drug sales team to effectively develop and execute promotional and marketing activities to support
the marketing and sales of our approved drug candidates;
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;
4
5
•
•
•
•
•
•
•
•
•
•
the potential benefits of our collaborations and our ability to enter into future collaboration arrangements;
PART I
the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements;
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic alliances with
AstraZeneca AB (publ), or AstraZeneca, Lilly (Shanghai) Management Company Limited, or Eli Lilly and Takeda
Pharmaceuticals International AG, or Takeda;
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
our financial performance;
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 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.
Not applicable.
D. Risk Factors.
Not applicable.
Not applicable.
ITEM 3. KEY INFORMATION
A. Reserved.
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
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.
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 PRC regulatory approvals of offshore offerings, anti-monopoly
regulatory actions, cybersecurity, data privacy and from U.S. regulators if there is a lack of inspection from the U.S. Public Company
Accounting Oversight Board, or PCAOB, on our auditors, which is further discussed below under “—Holding Foreign Companies
Accountable Act” and in various risk factors in this section. 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.
6
7
the potential benefits of our collaborations and our ability to enter into future collaboration arrangements;
PART I
the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements;
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic alliances with
AstraZeneca AB (publ), or AstraZeneca, Lilly (Shanghai) Management Company Limited, or Eli Lilly and Takeda
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.
the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity 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.
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 PRC regulatory approvals of offshore offerings, anti-monopoly
regulatory actions, cybersecurity, data privacy and from U.S. regulators if there is a lack of inspection from the U.S. Public Company
Accounting Oversight Board, or PCAOB, on our auditors, which is further discussed below under “—Holding Foreign Companies
Accountable Act” and in various risk factors in this section. 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.
•
•
•
•
•
•
•
•
•
•
Pharmaceuticals International AG, or Takeda;
our financial performance;
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
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
7
Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA if the SEC determines that we have filed audit reports
issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC
will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the
United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable
to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our
auditor. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our
annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that
vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is
unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a
Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine
whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB
determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and
Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial
statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the
filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a
Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject
to the prohibition on trading under the HFCAA. See Item 3.D. “Risk Factors—Risks Relating to our ADSs—The PCAOB had
historically been 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 of our auditor in the past has deprived our investors with the benefits of such inspections.” And Item
3.D. “ Risk Factors—Risks Relating to our ADSs—Our ADSs may be prohibited from trading in the United States under the HFCAA
in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the
threat of their being delisted, may materially and adversely affect the value of your investment.”
Furthermore, in connection with our historical issuance of securities to foreign investors, under currently effective PRC laws,
regulations and regulatory rules, as of the date of this annual report, we and our non-consolidated joint venture are not currently required
to obtain permissions from the China Securities Regulatory Commission (the “CSRC”), and we have not received any formal notice
from any PRC authority indicating that we should apply for or are otherwise subject to cybersecurity review or security assessment. In
addition, we and our non-consolidated joint venture have not been asked to obtain such permissions by any PRC authority or received
any denial to do so. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings
that are conducted overseas and/or foreign investment in China-based issuers. For example, the CSRC published the Trial Measures and
Listing Guidelines (defined below) on February 17, 2023, designed to regulate overseas securities offerings by PRC domestic companies.
Given the recent nature of the introduction of the Trial Measures and Listing Guidelines, and the fact that the Trial Measures and Listing
Guidelines are not due to become effective until March 31, 2023, there remains significant uncertainty as to the enactment, interpretation
and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities.
If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws,
regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, but fail to
receive or maintain such filings, permissions or approvals, we may face sanctions by the CSRC, the Cyberspace Administration of China
(the “CAC”) or other PRC regulatory agencies. In addition, rules and regulations in China can change quickly with little advance notice.
These regulatory agencies may impose fines and penalties on our operations in China, limit our operations in China, limit our ability to
pay dividends outside of China, limit our ability to list on stock exchanges outside of China or offer our securities to foreign investors
or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects,
as well as the trading price of our securities. Our non-consolidated joint venture faces the same risks as well. See also “Other Risks and
Risks Relating to Doing Business in China—The PRC government exerts substantial influence over the manner in which we conduct
our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the
value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC
legal system could materially and adversely affect us.” and “—The PRC government has increasingly strengthened oversight in
offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our
Permissions, Approvals, Licenses and Permits Required from the PRC Authorities for Our Operations and for the Offering
operations and our ordinary shares and ADSs could decline in value or become worthless.”
of Our Securities to Foreign Investors
Cash Flows Through Our Organization
We conduct our business primarily through our subsidiaries and joint ventures in China. Our operations in China are governed by
PRC laws and regulations. As of the date of this annual report, we and our non-consolidated joint venture, Shanghai Hutchison
Pharmaceuticals, have obtained the requisite permissions, approvals, licenses and permits from the PRC government authorities that are
material for the business operations of our subsidiaries and our joint ventures in China, including, among others, pharmaceutical
manufacturing permits, business licenses, drug registration certificates and pharmaceutical distribution permits and no such material
permission or approval has been denied. For a detailed discussion on the licenses and permits we and our non-consolidated joint venture
are required to obtain as a pharmaceutical company operating in China, see Item 4.B. “Business Overview—Certificates and Permits”,
“Business Overview—Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business
Overview—Regulations—Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” Given the
uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government
authorities, we may be required to obtain additional requisite permissions, approvals, licenses, permits and filings for the operation of
our business in the future. See also “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.”
HUTCHMED (China) Limited is a Cayman Islands incorporated holding company with no material operations of its own. We
conduct our operations primarily in China through our PRC subsidiaries and PRC joint ventures, collectively referred to as the Onshore
Entities below. HUTCHMED (China) Limited has an indirect equity ownership interest in all Onshore Entities through offshore Hong
Kong-incorporated holding companies, and it has received funding through various capital markets transactions (e.g., offerings and
private placements of equity securities). We also fund our operations through cash flows generated and dividend payments from our
Oncology/Immunology and Other Ventures operations (substantially all of which have been generated in China), service and milestone
and upfront payments from our collaboration partners to our PRC subsidiaries, and bank loans to our subsidiaries.
We utilize a portion of our funds outside of China to support the operations of our subsidiaries in China through capital contributions
and/or shareholder loans, which are the only methods by which we can fund our subsidiaries under PRC laws and regulations. Such
capital contributions and shareholder loans are subject to the satisfaction of applicable government registration and approval
requirements in China and limitations on the amount of shareholder loans relative to the amount of total capital contributions. If such
subsidiaries generate sufficient income, they may repay shareholder loans or distribute retained earnings through cash dividends as
determined by their respective board of directors. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings,
if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our PRC subsidiaries are required to
make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not
distributable as cash dividends except in the event of a solvent liquidation of the companies. The amount of any repayment of shareholder
loans or dividend payments can be distributed to our various offshore subsidiaries through our offshore Hong Kong-incorporated holding
companies. For more information, 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.” and Item 4.B. “Business Overview—
Regulations—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets—Regulation on
Investment in Foreign invested Enterprises.” Our joint ventures in China do not require intra-group funding as they have been profitable.
Service and milestone and upfront payments from our collaboration partners are received directly by our PRC subsidiaries and reinvested
into their operations.
8
9
Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA if the SEC determines that we have filed audit reports
issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC
will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the
United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable
to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our
auditor. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our
annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that
vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is
unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a
Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine
whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB
determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and
Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial
statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the
filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a
Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject
to the prohibition on trading under the HFCAA. See Item 3.D. “Risk Factors—Risks Relating to our ADSs—The PCAOB had
historically been 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 of our auditor in the past has deprived our investors with the benefits of such inspections.” And Item
3.D. “ Risk Factors—Risks Relating to our ADSs—Our ADSs may be prohibited from trading in the United States under the HFCAA
in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the
threat of their being delisted, may materially and adversely affect the value of your investment.”
Permissions, Approvals, Licenses and Permits Required from the PRC Authorities for Our Operations and for the Offering
of Our Securities to Foreign Investors
We conduct our business primarily through our subsidiaries and joint ventures in China. Our operations in China are governed by
PRC laws and regulations. As of the date of this annual report, we and our non-consolidated joint venture, Shanghai Hutchison
Pharmaceuticals, have obtained the requisite permissions, approvals, licenses and permits from the PRC government authorities that are
material for the business operations of our subsidiaries and our joint ventures in China, including, among others, pharmaceutical
manufacturing permits, business licenses, drug registration certificates and pharmaceutical distribution permits and no such material
permission or approval has been denied. For a detailed discussion on the licenses and permits we and our non-consolidated joint venture
are required to obtain as a pharmaceutical company operating in China, see Item 4.B. “Business Overview—Certificates and Permits”,
“Business Overview—Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business
Overview—Regulations—Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.” Given the
uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government
authorities, we may be required to obtain additional requisite permissions, approvals, licenses, permits and filings for the operation of
our business in the future. See also “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.”
Furthermore, in connection with our historical issuance of securities to foreign investors, under currently effective PRC laws,
regulations and regulatory rules, as of the date of this annual report, we and our non-consolidated joint venture are not currently required
to obtain permissions from the China Securities Regulatory Commission (the “CSRC”), and we have not received any formal notice
from any PRC authority indicating that we should apply for or are otherwise subject to cybersecurity review or security assessment. In
addition, we and our non-consolidated joint venture have not been asked to obtain such permissions by any PRC authority or received
any denial to do so. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings
that are conducted overseas and/or foreign investment in China-based issuers. For example, the CSRC published the Trial Measures and
Listing Guidelines (defined below) on February 17, 2023, designed to regulate overseas securities offerings by PRC domestic companies.
Given the recent nature of the introduction of the Trial Measures and Listing Guidelines, and the fact that the Trial Measures and Listing
Guidelines are not due to become effective until March 31, 2023, there remains significant uncertainty as to the enactment, interpretation
and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities.
If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws,
regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, but fail to
receive or maintain such filings, permissions or approvals, we may face sanctions by the CSRC, the Cyberspace Administration of China
(the “CAC”) or other PRC regulatory agencies. In addition, rules and regulations in China can change quickly with little advance notice.
These regulatory agencies may impose fines and penalties on our operations in China, limit our operations in China, limit our ability to
pay dividends outside of China, limit our ability to list on stock exchanges outside of China or offer our securities to foreign investors
or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects,
as well as the trading price of our securities. Our non-consolidated joint venture faces the same risks as well. See also “Other Risks and
Risks Relating to Doing Business in China—The PRC government exerts substantial influence over the manner in which we conduct
our business activities. Its oversight and discretion over our business could result in a material adverse change in our operations and the
value of our ordinary shares and ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC
legal system could materially and adversely affect us.” and “—The PRC government has increasingly strengthened oversight in
offerings conducted overseas or on foreign investment in China-based issuers, which could result in a material change in our
operations and our ordinary shares and ADSs could decline in value or become worthless.”
Cash Flows Through Our Organization
HUTCHMED (China) Limited is a Cayman Islands incorporated holding company with no material operations of its own. We
conduct our operations primarily in China through our PRC subsidiaries and PRC joint ventures, collectively referred to as the Onshore
Entities below. HUTCHMED (China) Limited has an indirect equity ownership interest in all Onshore Entities through offshore Hong
Kong-incorporated holding companies, and it has received funding through various capital markets transactions (e.g., offerings and
private placements of equity securities). We also fund our operations through cash flows generated and dividend payments from our
Oncology/Immunology and Other Ventures operations (substantially all of which have been generated in China), service and milestone
and upfront payments from our collaboration partners to our PRC subsidiaries, and bank loans to our subsidiaries.
We utilize a portion of our funds outside of China to support the operations of our subsidiaries in China through capital contributions
and/or shareholder loans, which are the only methods by which we can fund our subsidiaries under PRC laws and regulations. Such
capital contributions and shareholder loans are subject to the satisfaction of applicable government registration and approval
requirements in China and limitations on the amount of shareholder loans relative to the amount of total capital contributions. If such
subsidiaries generate sufficient income, they may repay shareholder loans or distribute retained earnings through cash dividends as
determined by their respective board of directors. Our PRC subsidiaries are permitted to pay dividends only out of their retained earnings,
if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our PRC subsidiaries are required to
make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not
distributable as cash dividends except in the event of a solvent liquidation of the companies. The amount of any repayment of shareholder
loans or dividend payments can be distributed to our various offshore subsidiaries through our offshore Hong Kong-incorporated holding
companies. For more information, 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.” and Item 4.B. “Business Overview—
Regulations—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets—Regulation on
Investment in Foreign invested Enterprises.” Our joint ventures in China do not require intra-group funding as they have been profitable.
Service and milestone and upfront payments from our collaboration partners are received directly by our PRC subsidiaries and reinvested
into their operations.
8
9
For the years ended December 31, 2022, 2021 and 2020, HUTCHMED provided funds to its PRC subsidiaries of $310.0 million,
$230.0 million and $188.0 million, respectively, of which $100.0 million, $100.0 million and $40.0 million, respectively, were in the
form of capital contributions and $210.0 million, $130.0 million and $148.0 million, respectively, were in the form of shareholder loans.
Additionally, during the years ended December 31, 2022 and 2021, shareholder loans of approximately $3.4 million and $2.0 million
was repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from PRC subsidiaries in
2022, 2021 and 2020.
For the years ended December 31, 2022, 2021 and 2020, the respective Hong Kong immediate holding company of our onshore
non-consolidated joint ventures (Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan prior to its divestment in September
2021) received dividends totaling approximately $43.7 million, $49.9 million and $86.7 million, respectively. These dividends were
subject to a 5% withholding tax upon distribution from the onshore non-consolidated joint ventures to their respective Hong Kong
immediate holding company.
HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries have entered
into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC subsidiaries to support their
operations via the settlement of service invoices based on actual activities.
We have comprehensive cash management policies in place, including specific policies with respect to fund transfers through our
organization. Our management regularly monitors the liquidity position and funding requirements of our subsidiaries and joint ventures.
When funding is required by our operations in China, a thorough assessment is performed on the purpose of the funding (e.g., R&D
investment, capital expenditures, etc.), the amount of funding and the form of injection (i.e., shareholder loans or capital contributions).
Conversely, when a dividend distribution is to be made by an onshore joint venture, a similar assessment is performed on the cash flow
forecast, sufficiency of funds and related factors. All necessary approvals are obtained at the chairman and chief executive officer levels
and the board of directors for the relevant entities prior to any transfer. All such transfers and distributions are reviewed and approved
by the relevant authorities where necessary, including the State Administration of Foreign Exchange, or SAFE, and the State
Administration for Market Regulations, or SAMR. Our cash management policies and procedures also govern the management of any
funds that are not yet required by our operations. Such funds are retained by our subsidiaries outside of China mainly in the form of
short-term investments, such as time deposits with major banks in Hong Kong.
We have never declared or paid dividends on our ordinary shares. There have been no transfers, dividends or distributions made to
U.S. investors to date. 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. See Item 8. “Financial Information—A.8 Dividend Policy” and Item 3.D. “Risk Factors—Risks
Relating to Our ADSs—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.”
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
• 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 our international operations
Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs
China
candidates
products
trials
• Risks relating to obtaining and maintaining permits and licenses for our and our joint ventures’ pharmaceutical operations in
• Risks relating to leveraging our Other Ventures’ prescription drug business to commercialize our internally developed drug
• 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
• Risks relating to our collaboration partners or our CROs’ failure to comply with regulatory requirements pertaining to clinical
• 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
10
11
For the years ended December 31, 2022, 2021 and 2020, HUTCHMED provided funds to its PRC subsidiaries of $310.0 million,
$230.0 million and $188.0 million, respectively, of which $100.0 million, $100.0 million and $40.0 million, respectively, were in the
form of capital contributions and $210.0 million, $130.0 million and $148.0 million, respectively, were in the form of shareholder loans.
Additionally, during the years ended December 31, 2022 and 2021, shareholder loans of approximately $3.4 million and $2.0 million
was repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from PRC subsidiaries in
2022, 2021 and 2020.
For the years ended December 31, 2022, 2021 and 2020, the respective Hong Kong immediate holding company of our onshore
non-consolidated joint ventures (Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan prior to its divestment in September
2021) received dividends totaling approximately $43.7 million, $49.9 million and $86.7 million, respectively. These dividends were
subject to a 5% withholding tax upon distribution from the onshore non-consolidated joint ventures to their respective Hong Kong
immediate holding company.
HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries have entered
into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC subsidiaries to support their
operations via the settlement of service invoices based on actual activities.
We have comprehensive cash management policies in place, including specific policies with respect to fund transfers through our
organization. Our management regularly monitors the liquidity position and funding requirements of our subsidiaries and joint ventures.
When funding is required by our operations in China, a thorough assessment is performed on the purpose of the funding (e.g., R&D
investment, capital expenditures, etc.), the amount of funding and the form of injection (i.e., shareholder loans or capital contributions).
Conversely, when a dividend distribution is to be made by an onshore joint venture, a similar assessment is performed on the cash flow
forecast, sufficiency of funds and related factors. All necessary approvals are obtained at the chairman and chief executive officer levels
and the board of directors for the relevant entities prior to any transfer. All such transfers and distributions are reviewed and approved
by the relevant authorities where necessary, including the State Administration of Foreign Exchange, or SAFE, and the State
Administration for Market Regulations, or SAMR. Our cash management policies and procedures also govern the management of any
funds that are not yet required by our operations. Such funds are retained by our subsidiaries outside of China mainly in the form of
short-term investments, such as time deposits with major banks in Hong Kong.
We have never declared or paid dividends on our ordinary shares. There have been no transfers, dividends or distributions made to
U.S. investors to date. 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. See Item 8. “Financial Information—A.8 Dividend Policy” and Item 3.D. “Risk Factors—Risks
Relating to Our ADSs—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.”
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.”
• 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 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
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 relying on third party suppliers for the active pharmaceutical ingredients in our drug candidate and drug
products
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
• 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
10
11
•
Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison
Risks Relating to Our Financial Position and Need for Capital
Other Risks and Risks Relating to Doing Business in China
•
•
•
•
•
Risks relating to COVID-19
Risks relating to compliance with privacy and cybersecurity 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 changes in laws, regulations and policies in China and 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
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 to incur significant expenses 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 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 significant
commercialization expenses related to product manufacturing, marketing, sales and distribution in China for Sulanda (surufatinib), our
unpartnered drug product approved in China in December 2020, and any of our other unpartnered 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 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. 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 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.
Our net cash used in operating activities was $62.1 million, $204.2 million and $268.6 million for the years ended December 31,
2020, 2021 and 2022, 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, 2022, 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:
•
•
Risks relating to being delisted from the Nasdaq if the PCAOB is unable to inspect or investigate completely auditors located
in China in the future
the number and development requirements of the drug candidates we pursue;
Risks relating to our largest shareholder which may limit the ability of other shareholders to influence corporate matters
and clinical trials;
the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting pre-clinical
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.
•
•
•
•
•
•
•
•
•
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 upfront 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; and
the costs of operating as a public company listed in Hong Kong, the United States and United Kingdom.
12
13
•
•
•
•
•
•
•
•
•
•
Other Risks and Risks Relating to Doing Business in China
Risks relating to COVID-19
Risks relating to compliance with privacy and cybersecurity 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 changes in laws, regulations and policies in China and 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
in China in the future
Risks relating to being delisted from the Nasdaq if the PCAOB is unable to inspect or investigate completely auditors located
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.
Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison
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 to incur significant expenses 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 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 significant
commercialization expenses related to product manufacturing, marketing, sales and distribution in China for Sulanda (surufatinib), our
unpartnered drug product approved in China in December 2020, and any of our other unpartnered 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 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. 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 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.
Our net cash used in operating activities was $62.1 million, $204.2 million and $268.6 million for the years ended December 31,
2020, 2021 and 2022, 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, 2022, 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 upfront 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; and
the costs of operating as a public company listed in Hong Kong, the United States and United Kingdom.
12
13
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 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;
of our drug candidates.
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
drug candidates.
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.
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 $634.2 million and $317.7 million as of December 31, 2021 and 2022, 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 $83.6 million and $98.0 million as of December 31,
2021 and 2022, 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
To date, fruquintinib, surufatinib and savolitinib (marketed as Elunate, Sulanda and Orpathys, respectively in China) are our only
internally developed drug candidates that have been approved for sale in China. 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
14
15
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.
that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve
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 $634.2 million and $317.7 million as of December 31, 2021 and 2022, 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 $83.6 million and $98.0 million as of December 31,
2021 and 2022, 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 in China) are our only
internally developed drug candidates that have been approved for sale in China. 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.
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
Raising capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to technologies or
acceptable terms, or at all.
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
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 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.
14
15
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. For example, in April 2022, the FDA issued a Complete Response
Letter (“CRL”) regarding the NDA for surufatinib for the treatment of non-pancreatic neuroendocrine tumors (NETs) and pancreatic
NETs and determined that the data package submitted does not support an approval in the U.S. at the time. We have subsequently
withdrawn our submission to the FDA and the EMA for surufatinib. Thus, significant uncertainty remains regarding the commercial
potential of Elunate, Sulanda and Orpathys.
We may not achieve profitability after generating revenues from Elunate, Sulanda, Orpathys and/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 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;
•
•
•
•
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.
16
17
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. For example, in April 2022, the FDA issued a Complete Response
Letter (“CRL”) regarding the NDA for surufatinib for the treatment of non-pancreatic neuroendocrine tumors (NETs) and pancreatic
NETs and determined that the data package submitted does not support an approval in the U.S. at the time. We have subsequently
withdrawn our submission to the FDA and the EMA for surufatinib. Thus, significant uncertainty remains regarding the commercial
potential of Elunate, Sulanda and Orpathys.
We may not achieve profitability after generating revenues from Elunate, Sulanda, Orpathys and/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 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;
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.
16
17
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:
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.
•
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;
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
•
the results of clinical trials may not meet the level of statistical significance required by the FDA, NMPA or comparable
regulatory authorities for approval;
current timeline or at all.
• 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.”
18
19
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.
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:
of our clinical trials;
•
the FDA, NMPA or comparable regulatory authorities may disagree with the number, design, size, conduct or implementation
• 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.”
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.
18
19
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. (a subsidiary of Ipsen Pharma SAS), or Epizyme, and Takeda 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;
• 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.
20
21
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. (a subsidiary of Ipsen Pharma SAS), or Epizyme, and Takeda 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;
• 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.
20
21
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.
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.
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;
regulatory authorities may withdraw or limit their approval of such drug candidates;
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 spread of infectious diseases, including but not limited to the duration and scope of related government orders
and restrictions.
• we may decide to remove such drug candidates from the marketplace;
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the
• we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and
value of our company to decline and limit our ability to obtain financing.
•
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.
22
23
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 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;
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.
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.
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
•
•
•
•
•
•
•
•
•
•
•
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;
the impact of the spread of infectious diseases, including but not limited to the duration and scope of related government orders
and restrictions.
• we may decide to remove such drug candidates from the marketplace;
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the
• we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and
value of our company to decline and limit our ability to obtain financing.
•
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.
22
23
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.
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.
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 April 2022, we received a CRL from the FDA regarding the NDA for surufatinib for the treatment of pancreatic NETs
and non-pancreatic NETs. The FDA determined that the current data package, based on two positive Phase III trials in China and one
bridging study in the U.S., does not support an approval in the U.S. at this time. The CRL indicated that a multi-regional clinical trial is
required for U.S. approval. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib.
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.
Under the Breakthrough Therapy Drug Review Procedures (For Trial Implementation), the Review and Approval Procedures for
Conditional Approval of Drug Marketing Applications (For Trial Implementation), and the Priority Review and Approval Procedures
for Drug Marketing Authorization (For Trial Implementation), the NMPA (or, where applicable, the National Health Commission, or
the NHC) may grant priority review approval (i) to innovative drugs or new improved drugs undergoing clinical trials that are used to
prevent and treat diseases that are seriously life-threatening or which seriously affect quality of life for which there is no effective
prevention or treatment, or for which there is sufficient evidence to show obvious clinical advantages compared with existing treatments,
(ii) to drugs undergoing clinical trials which meet the conditions for conditional approval specified in the Technical Guidelines for
Conditional Approval of Drugs, (iii) to innovative drugs and new improved drugs which are in shortage, prevent and treat major
infectious diseases and rare diseases, (iv) to new varieties, dosage forms and specifications that meet the physiological characteristics
of children, (v) to vaccines (including innovative vaccines) urgently needed for control and prevention of diseases, and (vi) under other
circumstances stipulated by the NMPA. 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.
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 June 2020, the FDA granted fast track designation to fruquintinib for metastatic CRC. 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.
24
25
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.
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.
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 April 2022, we received a CRL from the FDA regarding the NDA for surufatinib for the treatment of pancreatic NETs
and non-pancreatic NETs. The FDA determined that the current data package, based on two positive Phase III trials in China and one
bridging study in the U.S., does not support an approval in the U.S. at this time. The CRL indicated that a multi-regional clinical trial is
required for U.S. approval. We have subsequently withdrawn our submission to the FDA and the EMA for surufatinib.
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
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•
•
•
the risk that patient populations in such trials are not considered representative as compared to patient populations in the United
States and other markets.
Under the Breakthrough Therapy Drug Review Procedures (For Trial Implementation), the Review and Approval Procedures for
Conditional Approval of Drug Marketing Applications (For Trial Implementation), and the Priority Review and Approval Procedures
for Drug Marketing Authorization (For Trial Implementation), the NMPA (or, where applicable, the National Health Commission, or
the NHC) may grant priority review approval (i) to innovative drugs or new improved drugs undergoing clinical trials that are used to
prevent and treat diseases that are seriously life-threatening or which seriously affect quality of life for which there is no effective
prevention or treatment, or for which there is sufficient evidence to show obvious clinical advantages compared with existing treatments,
(ii) to drugs undergoing clinical trials which meet the conditions for conditional approval specified in the Technical Guidelines for
Conditional Approval of Drugs, (iii) to innovative drugs and new improved drugs which are in shortage, prevent and treat major
infectious diseases and rare diseases, (iv) to new varieties, dosage forms and specifications that meet the physiological characteristics
of children, (v) to vaccines (including innovative vaccines) urgently needed for control and prevention of diseases, and (vi) under other
circumstances stipulated by the NMPA. 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.
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 June 2020, the FDA granted fast track designation to fruquintinib for metastatic CRC. 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.
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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.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
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.
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 Weiguo Su, Ph.D., our Chief Executive Officer, 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.
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 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.
We have operations internationally and are subject to a variety of risks and complexities that may materially and adversely affect
our business, results of operations, financial condition and growth prospects.
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:
We have been involved in clinical and non-clinical development internationally for over a decade. 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:
restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls;
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
fines, warning letters or holds on clinical trials;
where we are located or do business;
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;
country-specific tax, labor and employment laws and regulations;
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.
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27
•
•
•
•
•
•
•
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.
There can be no assurance that we will effectively manage the increased complexity without experiencing operating inefficiencies
or control deficiencies. Such increased complexity may also lead to decisions to reposition our international operations to align them
with our overall and evolving business strategy, including with our recent strategic change to focus on path to profitability. 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.
Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
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.
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 Weiguo Su, Ph.D., our Chief Executive Officer, 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.
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 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.
We have operations internationally and are subject to a variety of risks and complexities that may materially and adversely affect
our business, results of operations, financial condition and growth prospects.
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
We have been involved in clinical and non-clinical development internationally for over a decade. 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:
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.
•
•
•
•
•
•
•
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.
There can be no assurance that we will effectively manage the increased complexity without experiencing operating inefficiencies
or control deficiencies. Such increased complexity may also lead to decisions to reposition our international operations to align them
with our overall and evolving business strategy, including with our recent strategic change to focus on path to profitability. 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.
26
27
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. On May 9, 2022, the NMPA published the draft PRC Drug Administration Implementation
Regulations for comment, of which Article 100 states that (i) with respect to experimental drugs undergoing clinical trials for treatment
of seriously life-threatening diseases for which there is no effective treatment, compassionate-use thereof may be proposed by physician
to patient if the patient cannot participate in the clinical trial of the drug and, based on medical analysis of the patient’s condition, the
physician believes that benefits of use may outweigh risks, and (ii) compassionate-use of experimental drugs should follow the principles
of patients’ voluntary requests, medical ethics and informed consent, and following review and approval by an ethics committee,
experimental drugs can be administered in institutions conducting clinical trials by physicians with use or training experience in
experimental drugs on patients with the same conditions as subjects receiving treatment by experimental drugs in clinical trials thereof.
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, surufatinib and savolitinib, an expanded access
program in the United States for compassionate use of surufatinib and have enlisted fruquintinib in the Macau Government Hospital
Named Patient drug formulary. 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.
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
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—
Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—
Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.”
us;
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•
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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. On May 9, 2022, the NMPA published the draft PRC Drug Administration Implementation
Regulations for comment, of which Article 100 states that (i) with respect to experimental drugs undergoing clinical trials for treatment
of seriously life-threatening diseases for which there is no effective treatment, compassionate-use thereof may be proposed by physician
to patient if the patient cannot participate in the clinical trial of the drug and, based on medical analysis of the patient’s condition, the
physician believes that benefits of use may outweigh risks, and (ii) compassionate-use of experimental drugs should follow the principles
of patients’ voluntary requests, medical ethics and informed consent, and following review and approval by an ethics committee,
experimental drugs can be administered in institutions conducting clinical trials by physicians with use or training experience in
experimental drugs on patients with the same conditions as subjects receiving treatment by experimental drugs in clinical trials thereof.
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, surufatinib and savolitinib, an expanded access
program in the United States for compassionate use of surufatinib and have enlisted fruquintinib in the Macau Government Hospital
Named Patient drug formulary. 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.
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—
Regulations—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulations—
Coverage and Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws.”
28
29
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 $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021
and 2022, 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, 2020, 2021 and
2022.
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 team to successfully manufacture, sell and market our approved drugs, and we
may not be able to generate any revenue from such products.
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
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, 2022, we had an oncology commercial team with over 860 staff in mainland China 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
30
31
•
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.
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.
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
•
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.
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 $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021
and 2022, 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, 2020, 2021 and
2022.
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 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, 2022, we had an oncology commercial team with over 860 staff in mainland China 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;
any future drugs; and
the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who then prescribe
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.
30
31
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. Orpathys has been added as a Category B medicine in the updated NRDL, effective from March 1, 2023.
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.
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.
candidates obsolete.
Rapid changes in the pharmaceutical industry may render our Other Ventures’ products or our internally developed drugs and drug
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;
•
•
•
•
•
32
33
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. Orpathys has been added as a Category B medicine in the updated NRDL, effective from March 1, 2023.
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.
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;
32
33
•
•
license diverse third-party products; and
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
develop new and competitively priced products which meet the requirements of the constantly changing market.
and products.
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.
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.
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.
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.
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 may pursue transactions as part of our business strategy, including continuing to actively evaluate non-core assets divestment
opportunities. We are considering alternative ways to divest non-core businesses in our Other Ventures segment, including Shanghai
Hutchison Pharmaceuticals for which we have started the process for a share reform. For more information, please refer to Item 4.A.
“History and Development of the Company.”
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.
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.
34
35
license diverse third-party products; and
•
•
develop new and competitively priced products which meet the requirements of the constantly changing market.
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.
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.
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.
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.
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.
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 may pursue transactions as part of our business strategy, including continuing to actively evaluate non-core assets divestment
opportunities. We are considering alternative ways to divest non-core businesses in our Other Ventures segment, including Shanghai
Hutchison Pharmaceuticals for which we have started the process for a share reform. For more information, please refer to Item 4.A.
“History and Development of the Company.”
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.
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.
34
35
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 expected collaborations, including with Takeda 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 may be 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, Eli Lilly and Takeda, 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 for China and with Takeda outside of China. 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.
We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or eventually close the deal. 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. In January 2023, we entered into
a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib
outside of mainland China, Hong Kong and Macau. The deal is subject to customary closing conditions, including completion of antitrust
regulatory clearance. If the transaction contemplated by this license agreement is not consummated or is delayed, our expectations
regarding future revenues, research and development costs, other operating expenses and operating cash flows associated with the
development and commercialization of fruquintinib would be materially affected. For additional information regarding the fruquintinib
collaboration with Takeda, please refer to “Business—Our Clinical Pipeline—3. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3
Inhibitor—Overview of Elunate Commercial Launch.
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.
36
37
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 expected collaborations, including with Takeda 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 may be 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, Eli Lilly and Takeda, 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 for China and with Takeda outside of China. 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.
We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or eventually close the deal. 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. In January 2023, we entered into
a license agreement with a subsidiary of Takeda to further the global development, commercialization and manufacture of fruquintinib
outside of mainland China, Hong Kong and Macau. The deal is subject to customary closing conditions, including completion of antitrust
regulatory clearance. If the transaction contemplated by this license agreement is not consummated or is delayed, our expectations
regarding future revenues, research and development costs, other operating expenses and operating cash flows associated with the
development and commercialization of fruquintinib would be materially affected. For additional information regarding the fruquintinib
collaboration with Takeda, please refer to “Business—Our Clinical Pipeline—3. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3
Inhibitor—Overview of Elunate Commercial Launch.
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.
36
37
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;
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.
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.
38
39
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;
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.
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.
38
39
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.
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 38.5% of our total outstanding share capital as of February 15, 2023. 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, 2020, 2021 and 2022, we paid
a management fee of approximately $1.0 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, 2020, 2021 and 2022, sales of our
products to members of the CK Hutchison group amounted to $5.5 million, $4.3 million and $3.6 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. After the initial outbreak of
COVID-19, from time to time, some instances of COVID-19 or its variants infections have emerged, such as the infections caused by
the Omicron variants emerged in late 2021 and spread across the globe including in China in early 2022. In response to the pandemic
and the evolving strands of different variants, many governments around the world 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. Such restrictive measures and the outbreak of COVID-19 itself
have in the past negatively impacted and may continue to negatively impact our operations, given the disruption 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, COVID-19 had an impact on our research, clinical studies
and our commercial activities in 2022 because of hospital lockdowns, travel restrictions and disruptions in logistics. Our clinical sites
in Shanghai were particularly affected during April and May in 2022, and in response, we put in place measures to reduce the disruptions,
including online patient follow-up and the retention of core research teams on-site to maintain critical activities. Although the restrictive
measures related to the COVID-19 pandemic have gradually been lifted around the world, including in China starting from December
2022, and we expect the travel, social and economic activities to gradually normalize and the impact of COVID-19 to be reduced in the
regions we operate, the COVID-19 pandemic or any other adverse public health developments may continue to have a negatively impact
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.
We are subject to stringent privacy and cybersecurity 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.
40
41
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.
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 38.5% of our total outstanding share capital as of February 15, 2023. 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, 2020, 2021 and 2022, we paid
a management fee of approximately $1.0 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, 2020, 2021 and 2022, sales of our
products to members of the CK Hutchison group amounted to $5.5 million, $4.3 million and $3.6 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. After the initial outbreak of
COVID-19, from time to time, some instances of COVID-19 or its variants infections have emerged, such as the infections caused by
the Omicron variants emerged in late 2021 and spread across the globe including in China in early 2022. In response to the pandemic
and the evolving strands of different variants, many governments around the world 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. Such restrictive measures and the outbreak of COVID-19 itself
have in the past negatively impacted and may continue to negatively impact our operations, given the disruption 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, COVID-19 had an impact on our research, clinical studies
and our commercial activities in 2022 because of hospital lockdowns, travel restrictions and disruptions in logistics. Our clinical sites
in Shanghai were particularly affected during April and May in 2022, and in response, we put in place measures to reduce the disruptions,
including online patient follow-up and the retention of core research teams on-site to maintain critical activities. Although the restrictive
measures related to the COVID-19 pandemic have gradually been lifted around the world, including in China starting from December
2022, and we expect the travel, social and economic activities to gradually normalize and the impact of COVID-19 to be reduced in the
regions we operate, the COVID-19 pandemic or any other adverse public health developments may continue to have a negatively impact
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.
We are subject to stringent privacy and cybersecurity 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.
40
41
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. For instance, we may be subject to additional regulations, laws and policies
adopted by the PRC government to apply more stringent social and ethical standards in data privacy resulting from the increased global
focus on this area. 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 regulatory
action and 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.
Regulatory authorities in China have implemented 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, and elaborates the factors to be considered when assessing the
national security risks of the relevant activities. The Measures for Cybersecurity Review further stipulates that online platform operators
holding personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review
before any public listing in a foreign country. As of the date of this annual report, we have not received any formal notice from any PRC
cybersecurity regulator that we should apply for or otherwise be subject to the cybersecurity review, or subject to any investigation or
received any inquiry, notice or sanction on cybersecurity review. The exact scope of “critical information infrastructure operators” under
the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and
enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure
operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and
regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations.
In addition, on November 14, 2021, the Data Security Management Measures (Draft for Comments) was published by the CAC for
public comments, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) a
merger, reorganization or division of online platform operators that have acquired a large number of data resources related to national
security, economic development or public interests which affect or may affect national security; (ii) a listing abroad when the data
processor processes over one million users’ personal information; (iii) a listing in Hong Kong which affects or may affect national
security; or (iv) other data processing activities that affect or may affect national security. It also requires data processors processing
important data or listed outside China to carry out a data security assessment annually by itself or through a third party data security
service provider and submit an assessment report to the local agency of the CAC. As there are still uncertainties regarding the further
enactment of new laws and regulations as well as the revision, interpretation and implementation of those existing laws and regulations,
we cannot assure you that we will be able to comply with such regulations in all respects.
The Measures on Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures, were published on
July 7, 2022, and became effective on September 1, 2022. The Security Assessment Measures specify that data controllers and/or critical
information infrastructure operators will be subject to security assessment under the following circumstances: (i) data controllers
exporting important data (which, under the Security Assessment Measures, is defined as data which if tampered with, damaged, leaked,
or if obtained or used illegally may endanger national security, the economy, social stability, and public health and safety, etc.), (ii)
critical information infrastructure operators or data controllers processing the personal information of one million people or more
exporting personal information, (iii) data controllers who have exported the personal information of 100,000 people or the sensitive
personal information of 10,000 people since January 1 of the previous year, or (iv) other situations provided for by the CAC that require
a security assessment. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator
that the Company should apply for or otherwise be subject to security assessment, or subject to any investigation or received any inquiry,
notice or sanction on security assessment. PRC government authorities may have wide discretion in the interpretation and enforcement
of the Security Assessment Measures, including whether we have exported “important data” as defined thereunder, and thus there is
uncertainty as to whether we may be subject to security assessment. Further, drafts of some of these measures have now been published,
including the Measures on Security Assessment for Individual Information Cross-border Transfer (Draft for Comments) in June 2019,
which may, upon enactment, require security review before transferring human health-related data out of China.
42
43
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. For instance, we may be subject to additional regulations, laws and policies
adopted by the PRC government to apply more stringent social and ethical standards in data privacy resulting from the increased global
focus on this area. 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 regulatory
action and 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.
Regulatory authorities in China have implemented 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, and elaborates the factors to be considered when assessing the
national security risks of the relevant activities. The Measures for Cybersecurity Review further stipulates that online platform operators
holding personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review
before any public listing in a foreign country. As of the date of this annual report, we have not received any formal notice from any PRC
cybersecurity regulator that we should apply for or otherwise be subject to the cybersecurity review, or subject to any investigation or
received any inquiry, notice or sanction on cybersecurity review. The exact scope of “critical information infrastructure operators” under
the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and
enforcement of the applicable laws. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure
operator under PRC law. If we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and
regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations.
In addition, on November 14, 2021, the Data Security Management Measures (Draft for Comments) was published by the CAC for
public comments, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) a
merger, reorganization or division of online platform operators that have acquired a large number of data resources related to national
security, economic development or public interests which affect or may affect national security; (ii) a listing abroad when the data
processor processes over one million users’ personal information; (iii) a listing in Hong Kong which affects or may affect national
security; or (iv) other data processing activities that affect or may affect national security. It also requires data processors processing
important data or listed outside China to carry out a data security assessment annually by itself or through a third party data security
service provider and submit an assessment report to the local agency of the CAC. As there are still uncertainties regarding the further
enactment of new laws and regulations as well as the revision, interpretation and implementation of those existing laws and regulations,
we cannot assure you that we will be able to comply with such regulations in all respects.
The Measures on Security Assessment of Cross-border Data Transfer, or the Security Assessment Measures, were published on
July 7, 2022, and became effective on September 1, 2022. The Security Assessment Measures specify that data controllers and/or critical
information infrastructure operators will be subject to security assessment under the following circumstances: (i) data controllers
exporting important data (which, under the Security Assessment Measures, is defined as data which if tampered with, damaged, leaked,
or if obtained or used illegally may endanger national security, the economy, social stability, and public health and safety, etc.), (ii)
critical information infrastructure operators or data controllers processing the personal information of one million people or more
exporting personal information, (iii) data controllers who have exported the personal information of 100,000 people or the sensitive
personal information of 10,000 people since January 1 of the previous year, or (iv) other situations provided for by the CAC that require
a security assessment. As of the date of this annual report, we have not received any formal notice from any PRC cybersecurity regulator
that the Company should apply for or otherwise be subject to security assessment, or subject to any investigation or received any inquiry,
notice or sanction on security assessment. PRC government authorities may have wide discretion in the interpretation and enforcement
of the Security Assessment Measures, including whether we have exported “important data” as defined thereunder, and thus there is
uncertainty as to whether we may be subject to security assessment. Further, drafts of some of these measures have now been published,
including the Measures on Security Assessment for Individual Information Cross-border Transfer (Draft for Comments) in June 2019,
which may, upon enactment, require security review before transferring human health-related data out of China.
42
43
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.
We believe, to the best of our knowledge, our business operations do not violate any of the above laws and regulations currently in
force in all material aspects. We have been taking and will continue to take reasonable measures to comply with applicable data privacy,
data protection and cybersecurity laws. We cannot guarantee the effectiveness of the measures undertaken by us and business partners,
and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which
may result in penalties against us. 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. To the extent that we need to alter our business model or practices to adapt to these announcement and provisions and future
regulations, laws and policies, we could incur additional expenses. We cannot assure you we can adapt our operations to it in a timely
manner. 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.
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.
44
45
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.
We believe, to the best of our knowledge, our business operations do not violate any of the above laws and regulations currently in
force in all material aspects. We have been taking and will continue to take reasonable measures to comply with applicable data privacy,
data protection and cybersecurity laws. We cannot guarantee the effectiveness of the measures undertaken by us and business partners,
and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which
may result in penalties against us. 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. To the extent that we need to alter our business model or practices to adapt to these announcement and provisions and future
regulations, laws and policies, we could incur additional expenses. We cannot assure you we can adapt our operations to it in a timely
manner. 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.
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.
44
45
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.
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 and our LTIP, or collectively the Schemes, which may result in increased share-based compensation expenses
and give rise to potential employment related disputes.
We have adopted the Options 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 $19.6 million, $42.0 million and $30.6 million for
the years ended December 31, 2020, 2021 and 2022, respectively, in our consolidated financial statements in accordance with U.S.
GAAP.
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. 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.
Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the
reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a
significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant
control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting
monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.
See also “The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight
and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and
ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and
adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.”
While the PRC economy has experienced significant growth in the past 40 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.
46
47
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.
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 and our LTIP, or collectively the Schemes, which may result in increased share-based compensation expenses
and give rise to potential employment related disputes.
We have adopted the Options 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 $19.6 million, $42.0 million and $30.6 million for
the years ended December 31, 2020, 2021 and 2022, respectively, in our consolidated financial statements in accordance with U.S.
GAAP.
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. 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.
Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the
reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a
significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant
control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting
monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.
See also “The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight
and discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and
ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially and
adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.”
While the PRC economy has experienced significant growth in the past 40 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.
46
47
Besides policies directly related to its economic development, the PRC government may also impose other policies from time to
time that may affect our ability to operate our business and the general business environment in China. For example, in response to the
COVID-19 outbreak, the PRC government implemented a series of policies to contain the spread of the virus which may have negatively
impacted various aspects of our operations. Since December 2022, the PRC government started to gradually lift the restrictive measures
under such policies and we expect the travel, social and economic activities in the regions we operate will normalize. See also “The
COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business.”
The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and
discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and
ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially
and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.
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. The Chinese government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state ownership. For example, the PRC government has recently
published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out
the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business,
financial condition and results of operations. See also “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” and “The PRC government has increasingly strengthened oversight in offerings conducted overseas or on
foreign investment in China-based issuers, which could result in a material change in our operations and our ordinary shares and
ADSs could decline in value or become worthless.”
Our ability to operate in China may be harmed by changes in its laws and regulations. The central or local governments may impose
new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to
ensure our compliance with such regulations or interpretations. For instance, regulations introduced by the NMPA concerning drug
inspection, investigation, evidence collection and disposal are relatively new, and because of the limited volume of published judicial
decisions, which are non-binding in nature, the interpretation and enforcement of these laws and regulations are uncertain. 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. The imposition of new regulations or interpretations of existing regulations can
occur quickly with little advance notice. We may incur penalties for any failure to comply with PRC laws and regulations. In addition,
any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and
management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing
statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level
of legal protection we enjoy than in more developed legal systems.
For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview—
Regulations—Government Regulation of Pharmaceutical Product Development and Approval—PRC Regulation of Pharmaceutical
Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement—PRC Coverage and
Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws—Other PRC Healthcare Laws.”
The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-
based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value
or become worthless.
The PRC government has recently indicated an intent to take actions to exert more oversight and control over offerings that are
conducted overseas and/or foreign investment in China-based issuers. For example, on July 6, 2021, the relevant PRC government
authorities made public the Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with the Law, or the Opinions.
These Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision of overseas
listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory
systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On December 24, 2021, the CSRC issued the Provisions of the State Council on the Administration of Overseas Securities Offering
and Listing by Domestic Companies (Draft for Comments) and the Administrative Measures for the Filing of Overseas Securities
Offering and Listing by Domestic Companies (Draft for Comments), collectively the Draft Overseas Listing Regulations, for public
comment until January 23, 2022.
Following issuance of the Draft Overseas Listing Regulations, on February 17, 2023, the CSRC issued the Notice on Filing
Arrangements for Overseas Securities Offering and Listing by Domestic Companies (the “CSRC Filing Notice”), stating that the CSRC
has published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial
Measures”) and five supporting guidelines (the “Listing Guidelines”), collectively the Trial Measures and Listing Guidelines. Among
others, the Trial Measures and Listing Guidelines provide that overseas offerings and listings by PRC domestic companies shall:
(i) require submission of relevant materials that contain a filing report and a legal opinion, providing truthful, accurate and
complete information on matters including but not limited to the shareholders of the issuer. Where the filing documents are
complete and in compliance with stipulated requirements, the CSRC shall, within 20 working days after receipt of filing
documents, conclude the filing procedure and publish filing results on the CSRC website. Where filing documents are
incomplete or do not conform to stipulated requirements, the CSRC shall request supplementation and amendment thereto
within five working days after receipt of the filing documents. The issuer should then complete supplementation and
amendment within 30 working days;
(ii) abide by laws, administrative regulations and relevant state rules concerning foreign investment in China, state-owned asset
administration, industry regulation and outbound investment, and shall not disrupt the PRC domestic market order, harm state
or public interests or undermine the lawful rights and interests of PRC domestic investors;
(iii) abide by national secrecy laws and relevant provisions. Necessary measures shall be taken to fulfill confidentiality obligations.
Divulgence of state secrets or working secrets of government agencies is strictly prohibited. Provision of personal information
and important data, etc., to overseas parties in relation to overseas offering and listing of PRC domestic companies shall be in
compliance with applicable laws, administrative regulations and relevant state rules; and
(iv) be made in strict compliance with relevant laws, administrative regulations and rules concerning national security in the spheres
of foreign investment, cybersecurity, data security, etc., and issuers shall duly fulfill their obligations to protect national
security. If the intended overseas offering and listing necessitates a national security review, relevant security review procedures
shall be completed according to the law before the application for such offering and listing is submitted to any overseas parties
such as securities regulatory agencies and trading venues;
The Trial Measures will come into effect on March 31, 2023. PRC domestic companies seeking to offer and list securities (which,
for the purposes of the Trial Measures, are defined thereunder as equity shares, depository receipts, corporate bonds convertible to equity
shares, and other equity securities that are offered and listed overseas, either directly or indirectly, by PRC domestic companies) in
overseas markets, either via direct or indirect means, must file with the CSRC within three working days after their application for an
overseas listing is submitted.
The Trial Measures provide that where a PRC domestic company seeks to indirectly offer and list securities in overseas markets,
the issuer shall designate a major domestic operating entity, which shall, as the domestic entity responsible, file with the CSRC. The
Trial Measures stipulate that an overseas listing will be determined as “indirect” if the issuer meets both of the following conditions: (1)
50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent accounting year are accounted for by PRC domestic companies (“Condition I”), and (2) the
main parts of the issuer’s business activities are conducted in the PRC, or its main places of business are located in the PRC, or the
senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in the PRC (“Condition
II”); whether Chinese citizens from Taiwan, Hong Kong, and Macau are included in the foregoing specification is not specified. The
determination as to whether or not an overseas offering and listing by PRC domestic companies is indirect shall be made on a ‘substance
over form’ basis; the Listing Guidelines further stipulate that if an issuer not satisfying Condition I submits an application for issuance
and listing in overseas markets in accordance with relevant non-PRC issuance regulations requiring such issuer to disclose risk factors
mainly related to the PRC, the securities firm(s) and the issuer’s PRC counsel should follow the principle of ‘substance over form’ in
order to identify and argue whether the issuer should complete a filing under the Trial Measures.
48
49
Besides policies directly related to its economic development, the PRC government may also impose other policies from time to
time that may affect our ability to operate our business and the general business environment in China. For example, in response to the
COVID-19 outbreak, the PRC government implemented a series of policies to contain the spread of the virus which may have negatively
impacted various aspects of our operations. Since December 2022, the PRC government started to gradually lift the restrictive measures
under such policies and we expect the travel, social and economic activities in the regions we operate will normalize. See also “The
COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business.”
The PRC government exerts substantial influence over the manner in which we conduct our business activities. Its oversight and
discretion over our business could result in a material adverse change in our operations and the value of our ordinary shares and
ADSs. Changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal system could materially
and adversely affect us. In addition, rules and regulations in China can change quickly with little advance notice.
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. The Chinese government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state ownership. For example, the PRC government has recently
published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out
the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business,
financial condition and results of operations. See also “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” and “The PRC government has increasingly strengthened oversight in offerings conducted overseas or on
foreign investment in China-based issuers, which could result in a material change in our operations and our ordinary shares and
ADSs could decline in value or become worthless.”
Our ability to operate in China may be harmed by changes in its laws and regulations. The central or local governments may impose
new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to
ensure our compliance with such regulations or interpretations. For instance, regulations introduced by the NMPA concerning drug
inspection, investigation, evidence collection and disposal are relatively new, and because of the limited volume of published judicial
decisions, which are non-binding in nature, the interpretation and enforcement of these laws and regulations are uncertain. 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. The imposition of new regulations or interpretations of existing regulations can
occur quickly with little advance notice. We may incur penalties for any failure to comply with PRC laws and regulations. In addition,
any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and
management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing
statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level
of legal protection we enjoy than in more developed legal systems.
For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview—
Regulations—Government Regulation of Pharmaceutical Product Development and Approval—PRC Regulation of Pharmaceutical
Product Development and Approval,” “Business Overview—Regulations—Coverage and Reimbursement—PRC Coverage and
Reimbursement” and “Business Overview—Regulations—Other Healthcare Laws—Other PRC Healthcare Laws.”
The PRC government has increasingly strengthened oversight in offerings conducted overseas or on foreign investment in China-
based issuers, which could result in a material change in our operations and our ordinary shares and ADSs could decline in value
or become worthless.
The PRC government has recently indicated an intent to take actions to exert more oversight and control over offerings that are
conducted overseas and/or foreign investment in China-based issuers. For example, on July 6, 2021, the relevant PRC government
authorities made public the Opinions on Strictly Scrutinizing Illegal Securities Activities in Accordance with the Law, or the Opinions.
These Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision of overseas
listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory
systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On December 24, 2021, the CSRC issued the Provisions of the State Council on the Administration of Overseas Securities Offering
and Listing by Domestic Companies (Draft for Comments) and the Administrative Measures for the Filing of Overseas Securities
Offering and Listing by Domestic Companies (Draft for Comments), collectively the Draft Overseas Listing Regulations, for public
comment until January 23, 2022.
Following issuance of the Draft Overseas Listing Regulations, on February 17, 2023, the CSRC issued the Notice on Filing
Arrangements for Overseas Securities Offering and Listing by Domestic Companies (the “CSRC Filing Notice”), stating that the CSRC
has published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial
Measures”) and five supporting guidelines (the “Listing Guidelines”), collectively the Trial Measures and Listing Guidelines. Among
others, the Trial Measures and Listing Guidelines provide that overseas offerings and listings by PRC domestic companies shall:
(i) require submission of relevant materials that contain a filing report and a legal opinion, providing truthful, accurate and
complete information on matters including but not limited to the shareholders of the issuer. Where the filing documents are
complete and in compliance with stipulated requirements, the CSRC shall, within 20 working days after receipt of filing
documents, conclude the filing procedure and publish filing results on the CSRC website. Where filing documents are
incomplete or do not conform to stipulated requirements, the CSRC shall request supplementation and amendment thereto
within five working days after receipt of the filing documents. The issuer should then complete supplementation and
amendment within 30 working days;
(ii) abide by laws, administrative regulations and relevant state rules concerning foreign investment in China, state-owned asset
administration, industry regulation and outbound investment, and shall not disrupt the PRC domestic market order, harm state
or public interests or undermine the lawful rights and interests of PRC domestic investors;
(iii) abide by national secrecy laws and relevant provisions. Necessary measures shall be taken to fulfill confidentiality obligations.
Divulgence of state secrets or working secrets of government agencies is strictly prohibited. Provision of personal information
and important data, etc., to overseas parties in relation to overseas offering and listing of PRC domestic companies shall be in
compliance with applicable laws, administrative regulations and relevant state rules; and
(iv) be made in strict compliance with relevant laws, administrative regulations and rules concerning national security in the spheres
of foreign investment, cybersecurity, data security, etc., and issuers shall duly fulfill their obligations to protect national
security. If the intended overseas offering and listing necessitates a national security review, relevant security review procedures
shall be completed according to the law before the application for such offering and listing is submitted to any overseas parties
such as securities regulatory agencies and trading venues;
The Trial Measures will come into effect on March 31, 2023. PRC domestic companies seeking to offer and list securities (which,
for the purposes of the Trial Measures, are defined thereunder as equity shares, depository receipts, corporate bonds convertible to equity
shares, and other equity securities that are offered and listed overseas, either directly or indirectly, by PRC domestic companies) in
overseas markets, either via direct or indirect means, must file with the CSRC within three working days after their application for an
overseas listing is submitted.
The Trial Measures provide that where a PRC domestic company seeks to indirectly offer and list securities in overseas markets,
the issuer shall designate a major domestic operating entity, which shall, as the domestic entity responsible, file with the CSRC. The
Trial Measures stipulate that an overseas listing will be determined as “indirect” if the issuer meets both of the following conditions: (1)
50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent accounting year are accounted for by PRC domestic companies (“Condition I”), and (2) the
main parts of the issuer’s business activities are conducted in the PRC, or its main places of business are located in the PRC, or the
senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in the PRC (“Condition
II”); whether Chinese citizens from Taiwan, Hong Kong, and Macau are included in the foregoing specification is not specified. The
determination as to whether or not an overseas offering and listing by PRC domestic companies is indirect shall be made on a ‘substance
over form’ basis; the Listing Guidelines further stipulate that if an issuer not satisfying Condition I submits an application for issuance
and listing in overseas markets in accordance with relevant non-PRC issuance regulations requiring such issuer to disclose risk factors
mainly related to the PRC, the securities firm(s) and the issuer’s PRC counsel should follow the principle of ‘substance over form’ in
order to identify and argue whether the issuer should complete a filing under the Trial Measures.
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49
Subsequent securities offerings of an issuer in (i) the same overseas market where it has previously offered and listed securities,
and (ii) an overseas market other than one where the issuer has previously offered and listed securities shall be filed with the CSRC
within three working days after offerings are completed. Additionally, the Trial Measures stipulate that after an issuer has offered and
listed securities in an overseas market, the issuer shall submit a report to the CSRC within three working days after the occurrence and
public disclosure of (i) a change of control thereof, (ii) investigations of or sanctions imposed on the issuer by overseas securities
regulators or relevant competent authorities, (iii) changes of listing status or transfers of listing segment, and (iv) a voluntary or
mandatory delisting.
The CSRC Filing Notice states that, beginning from March 31, 2023, PRC domestic enterprises which have already issued and
listed securities overseas and fall within the scope of filing under the Trial Measures shall be considered “existing enterprises” (“Existing
Listed Enterprises”). Existing Listed Enterprises are not required to complete filings immediately; rather, Existing Listed Enterprises
should complete filings if they are subsequently involved in matters require filings, such as follow-on financing activities, in accordance
with the Trial Measures.
There is a possibility that we may be deemed as an Existing Listed Enterprise as defined under the CSRC Filing Notice, and that
future offerings of listed securities or listings outside China by us may be subject to CSRC filing requirements in accordance with the
Trial Measures. Given that the Trial Measures and Listing Guidelines have been introduced recently, and that there remain substantial
uncertainties surrounding the enforcement thereof, we cannot assure you that, if required, we would be able to complete the filings and
fully comply with the relevant new rules on a timely basis, if at all. Further, as of the date of this annual report, the aforementioned
Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for
Comments) issued on December 24, 2021 remain in draft form and final and effective versions are yet to be published.
In addition, the Measures for Cybersecurity Review, which took effect on February 15, 2022, requires, among others, prior
cybersecurity review for online platform operators holding over one million users’ personal information before any public listing in a
foreign country. The Measures on Security Assessment of Cross-border Data Transfer, effective on September 1, 2022, specify that data
controllers and/or critical information infrastructure operators will be subject to security assessment. There remain uncertainties as to
whether such measures are applicable to our business. See also “We are subject to stringent privacy and cybersecurity 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.”
On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality
Provisions”), which will come into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies
that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when
providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In
the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain
approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the
event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with
procedures stipulated by national regulations. PRC domestic companies shall also provide a written statement of the specific sensitive
information provided when providing materials to securities service providers, and such written statements shall be retained for
inspection. As the Confidentiality Provisions were recently promulgated and are yet to take effect, their interpretation and
implementation remain substantially uncertain.
If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws,
regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, we may be
unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if
obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with
such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside
of China, the halting of securities offerings to foreign investors and other actions that could materially and adversely affect our operations
and the interest of our investors and cause a significant depreciation in the price of our ordinary shares and ADSs.
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions. Any failure or perceived failure
by us to comply with PRC anti-monopoly laws and regulations may result in governmental investigations or enforcement actions,
litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations.
We may pursue potential strategic acquisitions that are complementary to our business and operations. In doing so, we will be
subject to a variety of PRC anti-monopoly laws. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures
and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For
example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign
investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that
have or may have impact on the national economic security or (iii) such transaction will lead to a change in control of a domestic
enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM must be obtained in
circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic
companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact
on another market player must also be notified in advance to the SAMR when the threshold under the Provisions on Thresholds for Prior
Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in 2008 and amended in
2018, is triggered. PRC national security review rules, which became effective in September 2011, require a strict review of (a) mergers
and acquisitions by foreign investors that raise “national defense and security” concerns and (b) mergers and acquisitions through which
foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns. The rules also prohibit
any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control
arrangement.
Further, the Measures for the Security Review of Foreign Investments promulgated by the NDRC and MOFCOM, which became
effective from January 2021, require that a security review by relevant governmental authorities must be conducted for foreign
investments that affect or may affect national security in accordance with the provisions thereunder.
The PRC anti-monopoly enforcement agencies have in recent years strengthened enforcement under the PRC Anti-Monopoly Law.
In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement
functions from the relevant departments under the MOFCOM, the NDRC and SAMR. Since its inception, the SAMR has continued to
strengthen anti-monopoly enforcement. In November 2021, the State Council inaugurated the National Anti-Monopoly Bureau, which
aims to further implement fair competition policies and strengthen anti-monopoly supervision in the PRC, particularly to strengthen
oversight and law enforcement in areas involving innovation, science and technology, information security and people’s livelihoods.
Complying with the requirements of these regulations when pursuing acquisitive transactions could be time-consuming, and any
required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete
such transactions, which could affect our ability to expand our business or maintain our market share. Due to the enhanced enforcement
of the Anti-Monopoly Law, we may receive greater scrutiny and attention from regulators and more frequent and rigid investigations or
review by regulators, which may increase our compliance costs and subject us to heightened risks and challenges. In addition, there are
significant uncertainties on the evolving legislative activities and varied local implementation practices of anti-monopoly and
competition laws and regulations in China. The amended Anti-Monopoly Law, published in October 2021 in draft form for public
comment, became effective in August 2022. It imposes a higher regulatory requirement to complete an acquisitive transaction. Any
failure or perceived failure by us to comply with the anti-monopoly laws and regulations may result in governmental investigations or
enforcement actions, lawsuits or claims against us and could have an adverse effect on our business, financial condition and results of
operations. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—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.”
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51
Subsequent securities offerings of an issuer in (i) the same overseas market where it has previously offered and listed securities,
and (ii) an overseas market other than one where the issuer has previously offered and listed securities shall be filed with the CSRC
within three working days after offerings are completed. Additionally, the Trial Measures stipulate that after an issuer has offered and
listed securities in an overseas market, the issuer shall submit a report to the CSRC within three working days after the occurrence and
public disclosure of (i) a change of control thereof, (ii) investigations of or sanctions imposed on the issuer by overseas securities
regulators or relevant competent authorities, (iii) changes of listing status or transfers of listing segment, and (iv) a voluntary or
mandatory delisting.
The CSRC Filing Notice states that, beginning from March 31, 2023, PRC domestic enterprises which have already issued and
listed securities overseas and fall within the scope of filing under the Trial Measures shall be considered “existing enterprises” (“Existing
Listed Enterprises”). Existing Listed Enterprises are not required to complete filings immediately; rather, Existing Listed Enterprises
should complete filings if they are subsequently involved in matters require filings, such as follow-on financing activities, in accordance
with the Trial Measures.
There is a possibility that we may be deemed as an Existing Listed Enterprise as defined under the CSRC Filing Notice, and that
future offerings of listed securities or listings outside China by us may be subject to CSRC filing requirements in accordance with the
Trial Measures. Given that the Trial Measures and Listing Guidelines have been introduced recently, and that there remain substantial
uncertainties surrounding the enforcement thereof, we cannot assure you that, if required, we would be able to complete the filings and
fully comply with the relevant new rules on a timely basis, if at all. Further, as of the date of this annual report, the aforementioned
Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for
Comments) issued on December 24, 2021 remain in draft form and final and effective versions are yet to be published.
In addition, the Measures for Cybersecurity Review, which took effect on February 15, 2022, requires, among others, prior
cybersecurity review for online platform operators holding over one million users’ personal information before any public listing in a
foreign country. The Measures on Security Assessment of Cross-border Data Transfer, effective on September 1, 2022, specify that data
controllers and/or critical information infrastructure operators will be subject to security assessment. There remain uncertainties as to
whether such measures are applicable to our business. See also “We are subject to stringent privacy and cybersecurity 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.”
On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality
Provisions”), which will come into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies
that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when
providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In
the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain
approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the
event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with
procedures stipulated by national regulations. PRC domestic companies shall also provide a written statement of the specific sensitive
information provided when providing materials to securities service providers, and such written statements shall be retained for
inspection. As the Confidentiality Provisions were recently promulgated and are yet to take effect, their interpretation and
implementation remain substantially uncertain.
If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required or (ii) applicable laws,
regulations, or interpretations change and (iii) we are required to obtain such filings, permissions or approvals in the future, we may be
unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if
obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with
such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside
of China, the halting of securities offerings to foreign investors and other actions that could materially and adversely affect our operations
and the interest of our investors and cause a significant depreciation in the price of our ordinary shares and ADSs.
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions. Any failure or perceived failure
by us to comply with PRC anti-monopoly laws and regulations may result in governmental investigations or enforcement actions,
litigation or claims against us and could have an adverse effect on our business, financial condition and results of operations.
We may pursue potential strategic acquisitions that are complementary to our business and operations. In doing so, we will be
subject to a variety of PRC anti-monopoly laws. The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures
and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For
example, the M&A Rules require that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign
investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that
have or may have impact on the national economic security or (iii) such transaction will lead to a change in control of a domestic
enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM must be obtained in
circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic
companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact
on another market player must also be notified in advance to the SAMR when the threshold under the Provisions on Thresholds for Prior
Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in 2008 and amended in
2018, is triggered. PRC national security review rules, which became effective in September 2011, require a strict review of (a) mergers
and acquisitions by foreign investors that raise “national defense and security” concerns and (b) mergers and acquisitions through which
foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns. The rules also prohibit
any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control
arrangement.
Further, the Measures for the Security Review of Foreign Investments promulgated by the NDRC and MOFCOM, which became
effective from January 2021, require that a security review by relevant governmental authorities must be conducted for foreign
investments that affect or may affect national security in accordance with the provisions thereunder.
The PRC anti-monopoly enforcement agencies have in recent years strengthened enforcement under the PRC Anti-Monopoly Law.
In March 2018, the SAMR was formed as a new governmental agency to take over, among other things, the anti-monopoly enforcement
functions from the relevant departments under the MOFCOM, the NDRC and SAMR. Since its inception, the SAMR has continued to
strengthen anti-monopoly enforcement. In November 2021, the State Council inaugurated the National Anti-Monopoly Bureau, which
aims to further implement fair competition policies and strengthen anti-monopoly supervision in the PRC, particularly to strengthen
oversight and law enforcement in areas involving innovation, science and technology, information security and people’s livelihoods.
Complying with the requirements of these regulations when pursuing acquisitive transactions could be time-consuming, and any
required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete
such transactions, which could affect our ability to expand our business or maintain our market share. Due to the enhanced enforcement
of the Anti-Monopoly Law, we may receive greater scrutiny and attention from regulators and more frequent and rigid investigations or
review by regulators, which may increase our compliance costs and subject us to heightened risks and challenges. In addition, there are
significant uncertainties on the evolving legislative activities and varied local implementation practices of anti-monopoly and
competition laws and regulations in China. The amended Anti-Monopoly Law, published in October 2021 in draft form for public
comment, became effective in August 2022. It imposes a higher regulatory requirement to complete an acquisitive transaction. Any
failure or perceived failure by us to comply with the anti-monopoly laws and regulations may result in governmental investigations or
enforcement actions, lawsuits or claims against us and could have an adverse effect on our business, financial condition and results of
operations. See also “Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs—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.”
50
51
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.
tax.
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 (i) a non-PRC resident enterprise with no
office or premises established in China, or (ii) a non-PRC resident enterprise with an office or premises established in China but whose
income (i.e. dividends received) has no de facto relationship with said office or premises, 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
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.”
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. 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% (which in the case of dividends may be withheld at source). The
foregoing rates may be reduced by an applicable tax treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be
able to obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are
treated as a PRC resident enterprise. 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.
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.
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53
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.”
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 (i) a non-PRC resident enterprise with no
office or premises established in China, or (ii) a non-PRC resident enterprise with an office or premises established in China but whose
income (i.e. dividends received) has no de facto relationship with said office or premises, 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. 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% (which in the case of dividends may be withheld at source). The
foregoing rates may be reduced by an applicable tax treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be
able to obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are
treated as a PRC resident enterprise. 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.
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.
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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 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.
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, 2022, we had 232 issued
patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in major market
jurisdictions, and 7 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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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 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.
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, 2022, we had 232 issued
patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295 patent applications pending in major market
jurisdictions, and 7 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.
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
•
•
•
their products.
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
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
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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.
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
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• 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, some of our collaborators are
responsible for enforcing our intellectual property rights, for example, 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.
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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59
• 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, some of our collaborators are
responsible for enforcing our intellectual property rights, for example, 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.
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 listings of our shares in multiple venues may adversely affect the liquidity and value of them.
The PCAOB had historically been 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 of our auditor in the past has deprived 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 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. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and
investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made 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. On December 15, 2022, the PCAOB issued a report that vacated
its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to
inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer
has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting
firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange
Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause
investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the
quality of our financial statements.
Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or
investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and
adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that
has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being
traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect
or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was
subject to that determination. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA
following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB
removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered
public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after
we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong
Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these
jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be
identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In
accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-
counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future.
Although our ordinary shares have been listed on the SEHK and AIM and the ADSs and ordinary shares are fully fungible, we cannot
assure your that an active trading market for our ordinary shares on the Hong Kong Stock Exchange or AIM of the London Stock
Exchange will be sustained or that the ADSs can be converted and traded with sufficient market recognition and liquidity, if our shares
and ADSs are prohibited from trading in the United States. A prohibition of being able to trade in the United States 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 prohibition 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.
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.
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 February 15, 2023, Hutchison Healthcare Holdings Limited owned approximately 38.5% 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.
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Risks Relating to Our ADSs
The listings of our shares in multiple venues may adversely affect the liquidity and value of them.
The PCAOB had historically been 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 of our auditor in the past has deprived 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 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. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and
investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made 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. On December 15, 2022, the PCAOB issued a report that vacated
its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to
inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer
has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting
firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange
Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause
investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the
quality of our financial statements.
Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or
investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and
adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that
has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being
traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect
or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was
subject to that determination. In March 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA
following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB
removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered
public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after
we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong
Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these
jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be
identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In
accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-
counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future.
Although our ordinary shares have been listed on the SEHK and AIM and the ADSs and ordinary shares are fully fungible, we cannot
assure your that an active trading market for our ordinary shares on the Hong Kong Stock Exchange or AIM of the London Stock
Exchange will be sustained or that the ADSs can be converted and traded with sufficient market recognition and liquidity, if our shares
and ADSs are prohibited from trading in the United States. A prohibition of being able to trade in the United States 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 prohibition 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.
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.
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 February 15, 2023, Hutchison Healthcare Holdings Limited owned approximately 38.5% 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.
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We may be at a risk of securities litigation.
We may in the future lose our foreign private issuer status under U.S. securities laws, which could result in significant additional
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.
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.
Fluctuations in the value of the renminbi may have a material adverse effect on your investment.
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 required to file quarterly reports on Form 10-Q. We are also not subject to the proxy rules in the United
States, and we are not required to follow the related disclosure requirements with respect to our annual general meetings, including
disclosing a compensation discussion and analysis. Our 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.
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, 2023. 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, 2023 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, 2024, 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.
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.
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 gain of $9.5 million, a foreign currency translation gain of $3.0 million
and a foreign currency translation loss of $8.5 million for the years ended December 31, 2020, 2021 and 2022, 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 January 31, 2023, the closing sale price of our ADSs
ranged from a high of $43.94 to a low of $7.39 per ADS.
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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.
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, 2023. 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, 2023 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, 2024, 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.
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.
Fluctuations in the value of the renminbi may have a material adverse effect on your investment.
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 required to file quarterly reports on Form 10-Q. We are also not subject to the proxy rules in the United
States, and we are not required to follow the related disclosure requirements with respect to our annual general meetings, including
disclosing a compensation discussion and analysis. Our 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.
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.
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 gain of $9.5 million, a foreign currency translation gain of $3.0 million
and a foreign currency translation loss of $8.5 million for the years ended December 31, 2020, 2021 and 2022, 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 January 31, 2023, the closing sale price of our ADSs
ranged from a high of $43.94 to a low of $7.39 per ADS.
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The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the
The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at
following:
shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.
•
•
•
•
•
•
•
•
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.
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.
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.
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.
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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.
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.
also decline.
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
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 market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the
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.
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.
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Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
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.
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.
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 we are a passive foreign investment company for any taxable year, U.S. investors could be subject to adverse U.S. federal income
tax consequences.
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
The rules governing passive foreign investment companies, or PFICs, can have adverse U.S. federal income tax consequences for
U.S. investors of non-U.S. corporations. The PFIC status of a non-U.S. corporation for any taxable year depends upon the composition
of its income and assets, the value of its assets and the classification of items of its income and assets as active or passive under the PFIC
rules, as discussed further in Item 10.E. “Taxation—U.S. Taxation—Material U.S. Federal Income Tax Considerations with Respect to
Ordinary Shares and ADSs.” Based on the composition of our income and assets and the estimated average value of our assets (including
goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual
determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets,
including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues
to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined,
in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market
capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of
classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we are not,
or will not be, a PFIC for any taxable year.
If we are or become a PFIC, U.S. investors in our ordinary shares and ADSs generally will 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. We do
not expect to provide the information regarding our income that would be necessary in order for a U.S. investor to make a qualified
electing fund, or QEF, election if we are a PFIC for any taxable year. U.S. investors in our ordinary shares or ADSs should consult their
tax advisors regarding all aspects of the application of the PFIC rules to the ordinary shares and ADSs.
Under certain attribution rules, certain of our non-U.S. subsidiaries are expected to be treated as “controlled foreign corporations”
for U.S. federal income tax purposes, and, as a result, there could be adverse U.S. federal income tax consequences to U.S. investors
that own (directly or indirectly) our ordinary shares or ADSs and are treated as “Ten Percent Shareholders.”
Certain “Ten Percent Shareholders” (as defined below) in a non-U.S. corporation that is a “controlled foreign corporation” (a
“CFC”) for U.S. federal income tax purposes generally are required to include in income for U.S. federal income tax purposes their pro
rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even
if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be a CFC for U.S. federal income tax
purposes if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total
combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation.
A “Ten Percent Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended) that owns
directly or indirectly, or is considered to own constructively, 10% or more of the total combined voting power of all classes of stock
entitled to vote of such corporation or 10% or more of the total value of the stock of such corporation. We are not expected to be a CFC.
However, under certain “downward attribution” rules, certain of our non-U.S. subsidiaries are expected to be treated as CFCs by virtue
of being constructively owned by our U.S. subsidiaries. As a non-U.S. company, we do not intend to take these U.S. tax rules into
consideration in structuring its operations, nor do we intend to provide information to Ten Percent Shareholders that may be required in
order for those shareholders to properly report their U.S. taxable income with respect to our operations. U.S. investors that are or may
become Ten Percent Shareholders who directly or indirectly own our ordinary shares or ADSs should consult their tax advisors with
respect to the application of the CFC rules to them.
effect on our financial condition and results of operations.
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.
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.
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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.
If we are a passive foreign investment company for any taxable year, 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 U.S. federal income tax consequences for
U.S. investors of non-U.S. corporations. The PFIC status of a non-U.S. corporation for any taxable year depends upon the composition
of its income and assets, the value of its assets and the classification of items of its income and assets as active or passive under the PFIC
rules, as discussed further in Item 10.E. “Taxation—U.S. Taxation—Material U.S. Federal Income Tax Considerations with Respect to
Ordinary Shares and ADSs.” Based on the composition of our income and assets and the estimated average value of our assets (including
goodwill), we believe that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual
determination that is made on an annual basis and depends on particular facts and circumstances (such as the value of our assets,
including goodwill and other intangible assets). We hold a substantial amount of cash and financial investments and while this continues
to be the case, our PFIC status depends primarily on the average value of our goodwill. The value of our goodwill may be determined,
in large part, by reference to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market
capitalization declines we may become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of
classifying certain of our income and assets as active or passive. In light of the foregoing, no assurance can be provided that we are not,
or will not be, a PFIC for any taxable year.
If we are or become a PFIC, U.S. investors in our ordinary shares and ADSs generally will 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. We do
not expect to provide the information regarding our income that would be necessary in order for a U.S. investor to make a qualified
electing fund, or QEF, election if we are a PFIC for any taxable year. U.S. investors in our ordinary shares or ADSs should consult their
tax advisors regarding all aspects of the application of the PFIC rules to the ordinary shares and ADSs.
Under certain attribution rules, certain of our non-U.S. subsidiaries are expected to be treated as “controlled foreign corporations”
for U.S. federal income tax purposes, and, as a result, there could be adverse U.S. federal income tax consequences to U.S. investors
that own (directly or indirectly) our ordinary shares or ADSs and are treated as “Ten Percent Shareholders.”
Certain “Ten Percent Shareholders” (as defined below) in a non-U.S. corporation that is a “controlled foreign corporation” (a
“CFC”) for U.S. federal income tax purposes generally are required to include in income for U.S. federal income tax purposes their pro
rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even
if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be a CFC for U.S. federal income tax
purposes if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total
combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation.
A “Ten Percent Shareholder” is a United States person (as defined by the U.S. Internal Revenue Code of 1986, as amended) that owns
directly or indirectly, or is considered to own constructively, 10% or more of the total combined voting power of all classes of stock
entitled to vote of such corporation or 10% or more of the total value of the stock of such corporation. We are not expected to be a CFC.
However, under certain “downward attribution” rules, certain of our non-U.S. subsidiaries are expected to be treated as CFCs by virtue
of being constructively owned by our U.S. subsidiaries. As a non-U.S. company, we do not intend to take these U.S. tax rules into
consideration in structuring its operations, nor do we intend to provide information to Ten Percent Shareholders that may be required in
order for those shareholders to properly report their U.S. taxable income with respect to our operations. U.S. investors that are or may
become Ten Percent Shareholders who directly or indirectly own our ordinary shares or ADSs should consult their tax advisors with
respect to the application of the CFC rules to them.
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.
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.
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.
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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 Revised) 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.
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 known as 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 (As 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. A
dozen 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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69
We are a Cayman Islands company. As judicial precedent regarding the rights of shareholders under Cayman Islands law is different
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.
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 Revised) 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.
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 known as 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 (As 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. A
dozen 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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69
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, which had been used as our group identity, while Hutchison MediPharma had been the identity of our
novel drug research and development operations under which our oncology products had been developed and 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.
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 960 scientists, who have created
one of the broadest global clinical pipelines among our peer oncology and immunology focused biotechnology companies. Currently,
we are conducting approximately 40 different clinical studies in oncology patients globally, including over 15 Phase III registration and
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, 2020,
2021 and 2022.
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, CD47 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.
Commercially launching products while continuing to discover new assets. In China, three of our internally developed drugs,
Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib) are commercially available to patients. All three drugs are in
late-stage development outside of China, with the most advanced being fruquintinib for which a rolling NDA submission to the United
States FDA is being submitted. To accelerate the availability of our innovative medicines for patients globally, we seek partnerships to
commercialize our drugs outside of China, such as our partnership with AstraZeneca on savolitinib, and our recently agreed partnership
with Takeda on fruquintinib. In addition, we have eleven additional drug candidates that have entered clinical development and several
pre-clinical drug candidates.
Phase II registration-intent studies underway.
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 more than 20 years of 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 to over 870 persons at end of 2022 to support the
commercialization of Elunate, Sulanda and our other innovative drugs, if approved, throughout mainland China, Hong Kong and Macau.
Our oncology drug sales team covers over 3,000 hospitals and over 33,000 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 - namely, fruquintinib (partnered in China with Eli Lilly and to be partnered outside of China with
Takeda), savolitinib (partnered globally with AstraZeneca) and surufatinib (unpartnered) - 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, selectively conducting early-stage and proof-of-concept clinical trials in other jurisdictions
so that the programs progress globally, then form partnerships to complete late-stage development and/or commercial launch outside
Continue designing and creating molecules to develop into medicines with specific and differentiated characteristics for the
China.
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 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 market. We have a more than 20-year track record of marketing and
selling products in China. We aim to steadily grow our in-house oncology drug sales team in mainland China, Hong Kong and Macau
from over 870 at the end of 2022. Outside of China, we 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 beyond our existing Suzhou production facility after the completion
of our new plant in Shanghai, which will provide a five-fold increase in our existing production capacity.
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71
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, which had been used as our group identity, while Hutchison MediPharma had been the identity of our
novel drug research and development operations under which our oncology products had been developed and 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 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, 2020,
2021 and 2022.
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 960 scientists, who have created
one of the broadest global clinical pipelines among our peer oncology and immunology focused biotechnology companies. Currently,
we are conducting approximately 40 different clinical studies in oncology patients globally, including over 15 Phase III registration and
Phase II registration-intent studies underway.
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 more than 20 years of 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 to over 870 persons at end of 2022 to support the
commercialization of Elunate, Sulanda and our other innovative drugs, if approved, throughout mainland China, Hong Kong and Macau.
Our oncology drug sales team covers over 3,000 hospitals and over 33,000 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:
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
Realize the global potential of our oncology drug candidates
Our first wave of innovation - namely, fruquintinib (partnered in China with Eli Lilly and to be partnered outside of China with
Takeda), savolitinib (partnered globally with AstraZeneca) and surufatinib (unpartnered) - 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, selectively conducting early-stage and proof-of-concept clinical trials in other jurisdictions
so that the programs progress globally, then form partnerships to complete late-stage development and/or commercial launch outside
China.
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 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.
States FDA is being submitted. To accelerate the availability of our innovative medicines for patients globally, we seek partnerships to
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 market. We have a more than 20-year track record of marketing and
selling products in China. We aim to steadily grow our in-house oncology drug sales team in mainland China, Hong Kong and Macau
from over 870 at the end of 2022. Outside of China, we 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 beyond our existing Suzhou production facility after the completion
of our new plant in Shanghai, which will provide a five-fold increase in our existing production capacity.
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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, CD47 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.
Commercially launching products while continuing to discover new assets. In China, three of our internally developed drugs,
Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib) are commercially available to patients. All three drugs are in
late-stage development outside of China, with the most advanced being fruquintinib for which a rolling NDA submission to the United
commercialize our drugs outside of China, such as our partnership with AstraZeneca on savolitinib, and our recently agreed partnership
with Takeda on fruquintinib. In addition, we have eleven additional drug candidates that have entered clinical development and several
pre-clinical drug candidates.
Identify China business development opportunities to complement our internal research and development activities
We plan to explore opportunities to in-license complementary late-stage drug candidates in China to supplement our in-house
research and development capabilities, with a focus on drug candidates with the potential to both complement our existing drug pipeline
including through having synergistic effects and augment our oncology commercial portfolio, such as Tazverik from Ipsen. In addition,
we expect to progress some of our drug candidates by pursuing business development opportunities with other biopharmaceutical
companies in China such as our collaborations to evaluate combining fruquintinib with anti-PD-1 antibodies for the treatment of various
solid tumor cancers. We will also continue to work with our partners, AstraZeneca, Eli Lilly and Takeda (subject to closing of our recent
agreement), to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and fruquintinib (outside China
with Takeda and in China with Eli Lilly).
We are collaborating with Eli Lilly on the development and commercialization in China. Under the terms of our agreement with Eli
Lilly, we manage all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. We
recognize as revenues approximately 70-80% of Elunate in-market sales from manufacturing fees, service fees and royalties paid to us
by Eli Lilly. In 2022, we recognized $69.9 million in revenue for Elunate, equal to 74.8% of in-market sales.
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license
to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. In China, it is marketed and
will continue to be marketed by us in partnership with Eli Lilly. The deal is subject to customary closing conditions, including completion
of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and
commercialization of fruquintinib in all the included territories.
Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and improving
the health of its people
Surufatinib
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 over 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.
Oncology Commercial Operations
Savolitinib
Surufatinib launched as Sulanda 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.
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. Despite these access programs, duration of treatment was often affected by the economic constraints of patients. 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 represented
approximately 15-20% of the 2021 self-pay price.
As a result of inclusion in the NRDL and our continued marketing activities, patient access to Sulanda, as well as duration of
treatment, have been expanding with total sales in 2022 increasing by 178% to $32.3 million (2021: $11.6 million). In 2022,
approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new
In late June 2021, savolitinib became the first-in-class selective MET inhibitor to be approved in China and was launched as
Orpathys. 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. More than a third of the world’s lung cancer patients are in
China. Among those with NSCLC globally, approximately 2-3% have tumors with MET exon 14 skipping alterations.
patients in 2021.
Tazemetostat
In April 2022, surufatinib was approved in the Macau Special Administrative Region.
In 2021 and 2022, Orpathys was sold as a self-pay drug. AstraZeneca introduced a patient access program in late 2021 which
subsidizes use of Orpathys, through progressive disease. In-market sales for Orpathys grew by 159% in 2022 to $41.2 million (2021:
$15.9m) resulting in our consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing fees and royalties in 2022.
Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated
NRDL, broadening patient access to this medicine.
In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province to
be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under the Clinically Urgently
Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with
the label as approved by the FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a destination for international
medical tourism and global hub for scientific innovation, welcoming 83,900 medical tourists in 2020, according to official data.
Market understanding of the need for MET testing has improved significantly, with Orpathys’s brand share more than doubling
since the end of 2021 in the rapidly growing targeted therapy area. In the National Health Commission’s Treatment Guidelines for
Primary Lung Cancer 2022 and the China Medical Association Oncology Committee Lung Cancer Group’s China Medical Association
Guideline for Clinical Diagnosis and Treatment of Lung Cancer, Orpathys was identified as the only targeted therapy recommended for
MET exon 14 patients, while similar guideline from CSCO also recommended Orpathys as the standard of care for such patients.
Hong Kong.
Clinical Drug Development Summary
Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma, three patients began treatment in 2022, with the first
patient having remained on medication for over six months. In December 2022, a market authorization application was submitted in
Fruquintinib
Fruquintinib 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 and was launched as Elunate. We estimate that in 2022, approximately 32,000 (2021: approximately 22,000)
new patients were treated with Elunate in China resulting in in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million).
Following negotiations with the China 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. In January 2022, Elunate was approved in the
Macau Special Administrative Region, our first drug to be approved in the territory and the first based on NMPA approval, following
the latest update to the Macau provisions on new drug importation which allow drugs approved in one or more specified jurisdictions to
be authorized for use in Macau.
We are the Marketing Authorization Holder in China of three internally discovered and developed innovative oncology medicines,
savolitnib, fruquintinib and surufatinib, which are marketed as Orpathys, Elunate and Sulanda, respectively. Besides the three marketed
drugs, we have additional drug candidates in earlier stage clinical development. Several of our oncology drug candidates are in
development outside China including savolitinib, for which we are in a global partnership with AstraZeneca, fruquintinib, for which we
have agreed to license non-China rights to Takeda.
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this annual
report:
72
73
Identify China business development opportunities to complement our internal research and development activities
We plan to explore opportunities to in-license complementary late-stage drug candidates in China to supplement our in-house
research and development capabilities, with a focus on drug candidates with the potential to both complement our existing drug pipeline
including through having synergistic effects and augment our oncology commercial portfolio, such as Tazverik from Ipsen. In addition,
we expect to progress some of our drug candidates by pursuing business development opportunities with other biopharmaceutical
companies in China such as our collaborations to evaluate combining fruquintinib with anti-PD-1 antibodies for the treatment of various
solid tumor cancers. We will also continue to work with our partners, AstraZeneca, Eli Lilly and Takeda (subject to closing of our recent
agreement), to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and fruquintinib (outside China
with Takeda and in China with Eli Lilly).
We are collaborating with Eli Lilly on the development and commercialization in China. Under the terms of our agreement with Eli
Lilly, we manage all on-the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China. We
recognize as revenues approximately 70-80% of Elunate in-market sales from manufacturing fees, service fees and royalties paid to us
by Eli Lilly. In 2022, we recognized $69.9 million in revenue for Elunate, equal to 74.8% of in-market sales.
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license
to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China. In China, it is marketed and
will continue to be marketed by us in partnership with Eli Lilly. The deal is subject to customary closing conditions, including completion
of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the development and
commercialization of fruquintinib in all the included territories.
Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and improving
Surufatinib
the health of its people
We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient population,
34,000 new patients per year in China.
Surufatinib launched as Sulanda in 2021 for the treatment of all advanced NETs for which there is an approximate incidence of
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 over 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.
Oncology Commercial Operations
Savolitinib
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. Despite these access programs, duration of treatment was often affected by the economic constraints of patients. 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 represented
approximately 15-20% of the 2021 self-pay price.
As a result of inclusion in the NRDL and our continued marketing activities, patient access to Sulanda, as well as duration of
treatment, have been expanding with total sales in 2022 increasing by 178% to $32.3 million (2021: $11.6 million). In 2022,
approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new
patients in 2021.
In late June 2021, savolitinib became the first-in-class selective MET inhibitor to be approved in China and was launched as
Orpathys. Our partner, AstraZeneca, then launched Orpathys in mid-July 2021, less than three weeks after its conditional approval by
In April 2022, surufatinib was approved in the Macau Special Administrative Region.
the NMPA for patients with MET exon 14 skipping alteration NSCLC. More than a third of the world’s lung cancer patients are in
China. Among those with NSCLC globally, approximately 2-3% have tumors with MET exon 14 skipping alterations.
Tazemetostat
In 2021 and 2022, Orpathys was sold as a self-pay drug. AstraZeneca introduced a patient access program in late 2021 which
subsidizes use of Orpathys, through progressive disease. In-market sales for Orpathys grew by 159% in 2022 to $41.2 million (2021:
$15.9m) resulting in our consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing fees and royalties in 2022.
Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated
NRDL, broadening patient access to this medicine.
In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province to
be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under the Clinically Urgently
Needed Imported Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with
the label as approved by the FDA. Launched in 2013 and located in China, the Hainan Pilot Zone is a destination for international
medical tourism and global hub for scientific innovation, welcoming 83,900 medical tourists in 2020, according to official data.
Market understanding of the need for MET testing has improved significantly, with Orpathys’s brand share more than doubling
since the end of 2021 in the rapidly growing targeted therapy area. In the National Health Commission’s Treatment Guidelines for
Primary Lung Cancer 2022 and the China Medical Association Oncology Committee Lung Cancer Group’s China Medical Association
Guideline for Clinical Diagnosis and Treatment of Lung Cancer, Orpathys was identified as the only targeted therapy recommended for
MET exon 14 patients, while similar guideline from CSCO also recommended Orpathys as the standard of care for such patients.
Fruquintinib
Fruquintinib 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 and was launched as Elunate. We estimate that in 2022, approximately 32,000 (2021: approximately 22,000)
new patients were treated with Elunate in China resulting in in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million).
Following negotiations with the China 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. In January 2022, Elunate was approved in the
Macau Special Administrative Region, our first drug to be approved in the territory and the first based on NMPA approval, following
the latest update to the Macau provisions on new drug importation which allow drugs approved in one or more specified jurisdictions to
be authorized for use in Macau.
Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma, three patients began treatment in 2022, with the first
patient having remained on medication for over six months. In December 2022, a market authorization application was submitted in
Hong Kong.
Clinical Drug Development Summary
We are the Marketing Authorization Holder in China of three internally discovered and developed innovative oncology medicines,
savolitnib, fruquintinib and surufatinib, which are marketed as Orpathys, Elunate and Sulanda, respectively. Besides the three marketed
drugs, we have additional drug candidates in earlier stage clinical development. Several of our oncology drug candidates are in
development outside China including savolitinib, for which we are in a global partnership with AstraZeneca, fruquintinib, for which we
have agreed to license non-China rights to Takeda.
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this annual
report:
72
73
Program Investigational treatment
Disease
Target patient
Study
name
Sites
Dose �inding /
safety run-in
Proof-of-concept Registration
Savoli�nib + Tagrisso
Savoli�nib + Tagrisso
NSCLC
NSCLC
2L/3L EGFRm; Tagrisso ref.; MET+
SAVANNAH
Global
2L/3L EGFRm; Tagrisso ref.; MET+
SAFFRON
Global
*
**
Savoli�nib + Imfinzi (PD-L1)
Papillary RCC
Savoli�nib + Imfinzi (PD-L1)
Papillary RCC
MET+
All
SAMETA
Global
CALYPSO
UK/Spain
***
Savolitinib
Savoli�nib + Imfinzi (PD-L1)
Clear cell RCC
VEGFR TKI refractory
CALYPSO
UK/Spain
***
MET
Savoli�nib
Savoli�nib
Savoli�nib + Tagrisso
Savoli�nib + Tagrisso
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
China
China
China
Marketed
Note: AITL = Angioimmunoblastic T-cell lymphoma; AML = Acute myeloid leukemia; BC = Breast cancer; BTC = Biliary tract
Program
Savoli�nib
Inves(cid:20)ga(cid:20)onal treatment
Gastric cancer
Disease
2L; MET+
Target pa(cid:20)ent
Study
name
Country/
region
Dose finding /
China
safety run-in
Proof of concept
Registra(cid:20)on
Approved
Surufa�nib
Fruquin(cid:20)nib
Surufa�nib
Fruquin(cid:20)nib
CRC
NET
CRC, BC
NET
Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1) MSS -CRC^
NET
Solid tumors^
Surufatinib
Surufa�nib
VEGFR 1/2/3;
FGFR 1;
CSF-1R
Fruquin(cid:20)nib
VEGFR-1, -2, -3
Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1)
Surufa�nib + �slelizumab (PD-1)
Fruquin(cid:20)nib
Surufa�nib
Fruquin(cid:20)nib + paclitaxel
Surufa�nib
Fruquin(cid:20)nib + sin(cid:31)limab (PD-1)
Solid tumors
CRC
≥3L; chemotherapy refractory
FRESCO
Pancrea�c NET
GC
2L
Non-Pancrea�c NET
EMC
All
All
FRUTIGA
Refractory
Refractory
FRESCO-2
Global
Refractory
US
Korea/China
Korea/China
China
SANET-p
China
SANET-ep
China
(Bridging)
US
EU
JP
US/EU
China
China
Surufa�nib + Tuoyi (PD-1)
Fruquin(cid:20)nib + sin(cid:31)limab (PD-1)
RCC
NEC
Fruquin(cid:20)nib + sin(cid:31)limab (PD-1)
Surufa�nib + Tuoyi (PD-1)
CRC
ESCC
Fruquin(cid:20)nib + sin(cid:31)limab (PD-1)
Surufa�nib + Tuoyi (PD-1)
GI, NSCLC, Cervical
GC, SCLC
Fruquin(cid:20)nib + (cid:31)slelizumab (PD-1) CRC^
Surufa�nib + Tuoyi (PD-1)
BTC, Sarcoma
Note: ^ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
Surufa�nib + Tuoyi (PD-1)
TC, EMC, NSCLC
SURTORI-01
China
China
China
China
China
China
China
China
China
Savoli(cid:20)nib + osimer(cid:31)nib (EFGR)
NSCLC
EGFRm/MET+ osimer(cid:31)nib-refractory SAVANNAH
Global
*
Fruquin�nib
Savoli(cid:20)nib + osimer(cid:31)nib (EFGR)
Colorectal cancer
NSCLC
EGFRm/MET+ osimer(cid:31)nib-refractory
Refractory
SAFFRON
FRESCO-2
Global
US/EU/JP
Savoli(cid:20)nib
MET
Fruquintinib
VEGFR 1/2/3
Fruquin�nib
Savoli(cid:20)nib + durvalumab (PD-L1)
Papillary RCC
Breast cancer
MET+
SAMETA
Global
Savoli(cid:20)nib
Fruquin�nib + �slelizumab (PD-1)
NSCLC
TN breast cancer, EMC
MET exon 14 skipping altera(cid:31)on
Savoli(cid:25)nib
Fruquin�nib + �slelizumab (PD-1)
Savoli(cid:25)nib + osimer(cid:31)nib (EFGR)
Fruquin�nib
NSCLC
Solid tumors
NSCLC
Colorectal cancer
MET exon 14 skipping altera(cid:31)on
Treatment-naïve, MET+ /EGFRm
SANOVO
≥3L; chemotherapy refractory
Savoli(cid:25)nib + osimer(cid:31)nib (EFGR)
NSCLC
2L, MET+ /EGFR TKI-refractory
SACHI
Fruquin�nib + Taxol
Savoli(cid:25)nib
Gastric cancer
GC
2L
2L, MET+
China
China
China
FRESCO
China
FRUTIGA
China
Fruquin�nib + Tyvyt (PD-1)
Savoli(cid:25)nib + durvalumab (PD-L1) NSCLC
EMC
MET driven; EGFR wild type
SOUND
China
US
US
(Confirmatory)
S Korea
China
China
China
Fruquin�nib + Tyvyt (PD-1)
China
Note: HUTCHMED is inves(cid:31)ga(cid:31)ng savoli(cid:31)nib in a global collabora(cid:31)on with AstraZeneca. AstraZeneca leads development outside of China.
CRC
Fruquin�nib + Tyvyt (PD-1)
Surufa(cid:25)nib
RCC, HCC
NET
Fruquin�nib + Tyvyt (PD-1)
Surufa(cid:25)nib
GI tumors
Pancrea(cid:31)c NET
Surufa(cid:25)nib
VEGFR-1, -2, -3,
FGFR1,
CSF-1R
Fruquin�nib + �slelizumab (PD-1)
Surufa(cid:25)nib
Solid tumors
Non-Pancrea(cid:31)c NET
Surufa(cid:25)nib + toripalimab (PD-1)
NEC
Amdizalisib
Surufa(cid:25)nib + toripalimab (PD-1)
Indolent NHL, PTCL
SCLC
Amdizalisib
Surufa(cid:25)nib + toripalimab (PD-1)
Healthy volunteers
BTC, Solid tumors
All
All
SANET-p
China
SANET-ep
China
SURTORI-01
China
Japan
China
(Bridging)
China
China
US/EU
Australia
China
China
China
China
Australia
US/EU
China
(Bridging)
China
China
China
China
China
US/EU
China
China
China
ESLIM-01
China
China
Amdizalisib
(HMPL-689)
Amdizalisib
(HMPL-689)
PI3Kδ
PI3Kδ
Sovleplenib
(HMPL-523)
SYK
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Sovleplenib
Amdizalisib
Sovleplenib
Sovleplenib
Sovleplenib
Sovleplenib
(HMPL-523
Tazemetostat
EZH2
Tazemetostat
Sovleplenib
Tazemetostat
Sovleplenib
Relapsed/refractory
Relapsed/refractory
FL
FL
MZL
MZL
MCL, DLBCL
HL/NHL
CLL/SLL, HL
ITP
wAIHA
Indolent NHL
All
Relapsed/refractory
ESLIM-01
China
Sovleplenib
Tazemetostat
ES, FL
Indolent NHL
Syk
)
Tazemetostat + amdizalisib
Sovleplenib
Lymphoma
wAIHA
Note: Tazemetostat developed by Epizyme. Approved in the US for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned.
China
**
ITP
Relapsed/refractory
All
SYMPHONY-1
FL
FL
3L
B-cell malignancies
All
Relapsed/refractory
All
HMPL-453
Tazemetostat
FGFR1, 2, 3
EZH2
Tazemetostat ****
HMPL-453
FL
IHCC
Relapsed/Refractory
SYMPHONY-1
China
Tazemetostat ****
HMPL-453 + mul(cid:31)ple combos
FL
Solid tumors
3L
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
Solid tumors
Relapsed/refractory
US/EU
HMPL-306
IDH 1/2
HMPL-306
HMPL-306
HMPL-306
HMPL-306
HMPL-306
HMPL-295
IDH 1/2
ERK, MAPK pathway
HMPL-306
HMPL-295
HMPL-760
HMPL-760
BTK
BTK, 3G
HMPL-453
HMPL-653
CSF-1R
FGFR 1/2/3
HMPL-A83
HMPL-295
CD47
HMPL-760
HMPL-760
HMPL-760
HMPL-453
HMPL-653
HMPL-453
HMPL-295
HMPL-A83
ERK, MAPK pathway
HMPL-653
HMPL-653
CSF-1R
Global
China
AITL, AML, MDS, MPN Relapsed/refractory
Solid tumors
AML, CMML, MDS,
MPN
Heme. malignancies
Relapsed/ refractory
Solid tumors
Heme. malignancies
Relapsed/refractory
B-Cell NHL
NHL
B-Cell NHL
IHCC
Solid tumors, TGCT
Solid tumors
Mul�ple combos
Malignant Neoplasms
Solid tumors
Advanced
Solid tumors, TGCT
US/EU
China
China
China
China
China
US/EU
US/EU
China
US/EU
China
China
China
China
China
* Phase II registration-intent study subject to regulatory discussion;
74
NDA under review
MMA under review
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed (Hainan Pilot Zone)
GGlloobbaall
CChhiinnaa
cancer; CD-47 = Cluster of differentiation 47; CMML = Chronic myelomonocytic leukemia; CRC = Colorectal cancer; ERK
= Extracellular signal-regulated kinase; ES = Epithelioid sarcoma; EZH2 = Enhancer of zeste homolog 2; FL = follicular
lymphoma; GC= gastric cancer; GI= gastrointestinal; HL = Hodgkin’s lymphoma; IHCC = Intrahepatic cholangiocarcinoma;
ITP = Immune thrombocytopenia purpura; NDA = New Drug Application; NEC = Neuroendocrine carcinoma; MAA =
Marketing Authorization Application; MAPK pathway = RAS-RAF-MEK-ERK signaling cascade; MDS = myelodysplastic
syndrome; MDS = Myelodysplastic syndromes; MET = mesenchymal epithelial transition receptor; MZL = marginal zone
lymphoma; 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; SCLC = Small cell lung cancer; IDH 1/2 = isocitrate dehydrogenase 1/2; BTK
= Bruton’s tyrosine kinase; TGCT = Tenosynovial giant cell tumor; wAIHA = warm autoimmune hemolytic anemia.
Savolitinib – selective MET inhibitor in late-stage clinical development as a monotherapy and in combination therapies in global
partnership with AstraZeneca
Savolitinib 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.
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 (“ORR”) and disease control rate (“DCR”). The approval is conditional upon successful completion
of an ongoing confirmatory study in this patient population. The results reviewed by the NMPA when it approved savolitinib were also
published in The Lancet Respiratory Medicine.
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-aberration 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
(“WCLC”), in January 2021, and preliminary results from SAVANNAH were presented at WCLC in August 2022. Findings based on
SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated,
MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Targrisso as the
most recent therapy, with no prior chemotherapy in the metastatic setting allowed. China-based Phase III studies SACHI and SANOVO
were also initiated. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC
patients harboring MET overexpression and/or amplification following progression on Targrisso.
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.
75
Program Investigational treatment
Disease
Target patient
Study
name
Sites
Dose �inding /
safety run-in
Proof-of-concept Registration
Savoli�nib + Tagrisso
Savoli�nib + Tagrisso
NSCLC
NSCLC
2L/3L EGFRm; Tagrisso ref.; MET+
SAVANNAH
Global
2L/3L EGFRm; Tagrisso ref.; MET+
SAFFRON
Global
*
**
Savoli�nib + Imfinzi (PD-L1)
Papillary RCC
Savoli�nib + Imfinzi (PD-L1)
Papillary RCC
MET+
All
SAMETA
Global
CALYPSO
UK/Spain
***
Savoli�nib + Imfinzi (PD-L1)
Clear cell RCC
VEGFR TKI refractory
CALYPSO
UK/Spain
***
Gastric cancer
MET+
VIKTORY
S Korea
***
MET Exon 14 skipping
Naïve MET+ & EGFRm NSCLC
SANOVO
2L EGFR TKI ref. NSCLC; MET+
SACHI
Savolitinib
MET
Savoli�nib
Savoli�nib
Savoli�nib + Tagrisso
Savoli�nib + Tagrisso
Savoli�nib
Surufa�nib
Surufa�nib
Surufa�nib
NSCLC
NSCLC
NSCLC
NET
NET
NET
Gastric cancer
2L; MET+
Refractory
Refractory
Surufatinib
VEGFR 1/2/3;
FGFR 1;
CSF-1R
Surufa�nib
Surufa�nib
Surufa�nib + �slelizumab (PD-1)
Solid tumors
Pancrea�c NET
Non-Pancrea�c NET
All
All
(Bridging)
SANET-p
SANET-ep
SURTORI-01
China
Marketed
NDA under review
MMA under review
Marketed
Marketed
Colorectal cancer
Refractory
FRESCO-2
US/EU/JP
Fruquin�nib
Colorectal cancer
≥3L; chemotherapy refractory
FRESCO
Marketed
Fruquintinib
Fruquin�nib + Taxol
Gastric cancer
2L
FRUTIGA
China
China
China
China
US
EU
JP
US/EU
China
China
China
China
China
China
US
US
S Korea
China
China
China
China
China
China
China
US/EU
Australia
Australia
China
China
China
China
US/EU
China
China
China
China
China
US/EU
US/EU
China
US/EU
China
China
China
China
China
Surufa�nib + Tuoyi (PD-1)
Surufa�nib + Tuoyi (PD-1)
NEC
ESCC
Surufa�nib + Tuoyi (PD-1)
GC, SCLC
Surufa�nib + Tuoyi (PD-1)
BTC, Sarcoma
Surufa�nib + Tuoyi (PD-1)
TC, EMC, NSCLC
Fruquin�nib
Fruquin�nib
Breast cancer
Fruquin�nib + �slelizumab (PD-1)
TN breast cancer, EMC
Fruquin�nib + �slelizumab (PD-1)
Solid tumors
VEGFR 1/2/3
Fruquin�nib + Tyvyt (PD-1)
Fruquin�nib + Tyvyt (PD-1)
EMC
CRC
Fruquin�nib + Tyvyt (PD-1)
RCC, HCC
Fruquin�nib + Tyvyt (PD-1)
GI tumors
Fruquin�nib + �slelizumab (PD-1)
Solid tumors
Amdizalisib
(HMPL-689)
PI3Kδ
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Sovleplenib
Sovleplenib
Sovleplenib
Sovleplenib
(HMPL-523
Syk
Sovleplenib
)
Sovleplenib
Tazemetostat
Tazemetostat ****
Tazemetostat ****
EZH2
HMPL-306
IDH 1/2
HMPL-760
BTK, 3G
HMPL-453
FGFR 1/2/3
HMPL-295
HMPL-306
HMPL-306
HMPL-306
HMPL-760
HMPL-760
HMPL-453
HMPL-453
HMPL-295
Indolent NHL, PTCL
Healthy volunteers
FL
MZL
MCL, DLBCL
CLL/SLL, HL
Indolent NHL
Indolent NHL
wAIHA
ITP
FL
FL
B-cell malignancies
Solid tumors
Heme. malignancies
Heme. malignancies
B-Cell NHL
B-Cell NHL
IHCC
Solid tumors
Solid tumors
Mul�ple combos
ERK, MAPK pathway
HMPL-653
HMPL-653
Solid tumors, TGCT
CSF-1R
Global
China
* Phase II registration-intent study subject to regulatory discussion;
74
ESLIM-01
All
All
All
3L
Relapsed/Refractory
SYMPHONY-1
**
**
** (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.
Note: AITL = Angioimmunoblastic T-cell lymphoma; AML = Acute myeloid leukemia; BC = Breast cancer; BTC = Biliary tract
cancer; CD-47 = Cluster of differentiation 47; CMML = Chronic myelomonocytic leukemia; CRC = Colorectal cancer; ERK
= Extracellular signal-regulated kinase; ES = Epithelioid sarcoma; EZH2 = Enhancer of zeste homolog 2; FL = follicular
lymphoma; GC= gastric cancer; GI= gastrointestinal; HL = Hodgkin’s lymphoma; IHCC = Intrahepatic cholangiocarcinoma;
ITP = Immune thrombocytopenia purpura; NDA = New Drug Application; NEC = Neuroendocrine carcinoma; MAA =
Marketing Authorization Application; MAPK pathway = RAS-RAF-MEK-ERK signaling cascade; MDS = myelodysplastic
syndrome; MDS = Myelodysplastic syndromes; MET = mesenchymal epithelial transition receptor; MZL = marginal zone
lymphoma; 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; SCLC = Small cell lung cancer; IDH 1/2 = isocitrate dehydrogenase 1/2; BTK
= Bruton’s tyrosine kinase; TGCT = Tenosynovial giant cell tumor; wAIHA = warm autoimmune hemolytic anemia.
Savolitinib – selective MET inhibitor in late-stage clinical development as a monotherapy and in combination therapies in global
partnership with AstraZeneca
Savolitinib 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.
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 (“ORR”) and disease control rate (“DCR”). The approval is conditional upon successful completion
of an ongoing confirmatory study in this patient population. The results reviewed by the NMPA when it approved savolitinib were also
published in The Lancet Respiratory Medicine.
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-aberration 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
(“WCLC”), in January 2021, and preliminary results from SAVANNAH were presented at WCLC in August 2022. Findings based on
SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in patients with EGFR-mutated,
MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line treatment with Targrisso as the
most recent therapy, with no prior chemotherapy in the metastatic setting allowed. China-based Phase III studies SACHI and SANOVO
were also initiated. Savolitinib was granted fast track designation by the FDA for the combination treatment with Tagrisso of NSCLC
patients harboring MET overexpression and/or amplification following progression on Targrisso.
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.
75
Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission and
commercially launched as Elunate in China in CRC in November 2018
We own all rights to surufatinib globally.
Fruquintinib 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, endometrial
cancer, kidney 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 FDA granted fast track designation for the development of fruquintinib for the treatment of patients
with mCRC in June 2020, enabling us to submit sections of the NDA on a rolling basis. Based on the successful results of the FRESCO-
2 study, we initiated the filing of a rolling submission of an NDA to the FDA for fruquintinib for the treatment of mCRC.
Aside from its first approved indication of late-line CRC in China that is being applied for globally, we are conducting studies of
fruquintinib in combination with other drugs in various indications. For example, we plan to submit a supplemental NDA in China for
the treatment of gastric cancer in combination with paclitaxel following the results of the FRUTIGA Phase III study, and we have several
ongoing registration-intent studies of fruquintinib combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint
inhibitors (Tyvyt combo, in endometrial cancer and RCC) in China.
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. In January 2023,
we entered into an agreement whereby Takeda will receive an exclusive worldwide license to develop, manufacture and commercialize
fruquintinib in all indications and territories outside of China. The Takeda partnership is subject to customary closing conditions,
including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the
development and commercialization of fruquintinib in all the included territories.
Surufatinib—unique angio-immuno kinase inhibitor commercially launched as Sulanda in China in advanced NETs; first
VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs
Surufatinib 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.
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. In
2022, we presented a pooled analysis of safety data from the SANET-p and SANET-ep studies at the 2022 ASCO annual meeting.
Outside of China, we are conducting a bridging study to support registration of surufatinib for advanced NET in Japan. This Japan
trial was initiated in September 2021 and the results are expected in the first half of 2023. In the United States and Europe, we submitted
an NDA to the FDA and MAA to the EMA for surufatinib monotherapy for the treatment of NETs. After receiving a Complete Response
Letter from the FDA and negative feedback from EMA reviewers, we withdrew our NDA and MAA.
We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors.
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. 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 the final patient enrolled in the
study received their first dose in December 2022. In January 2022, sovleplenib received the Breakthrough Therapy Designation in China
for treatment of primary immune thrombocytopenia. 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. In September 2022, we also initiated a randomized, double-blind, placebo-controlled
Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA.
We own all rights to sovleplenib globally.
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.
We have multiple ongoing clinical studies of amdizalisib for various subtypes of lymphomas. 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 trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete
enrollment for the marginal zone lymphoma cohort around mid-year.
We own all rights to amdizalisib globally.
Tazemetostat
In August 2021, we entered into a strategic collaboration with Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), 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 Ipsen 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 are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China, through
a bridging study and other studies including in combination with amdizalisib. We are participating in Ipsen’s SYMPHONY-1 (EZH-
302) study, leading it in Greater China. We have initiated a Phase II study of tazemetostat with amdizalisib in 2023. 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.
76
77
Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission and
We own all rights to surufatinib globally.
commercially launched as Elunate in China in CRC in November 2018
Fruquintinib 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, endometrial
cancer, kidney 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 FDA granted fast track designation for the development of fruquintinib for the treatment of patients
with mCRC in June 2020, enabling us to submit sections of the NDA on a rolling basis. Based on the successful results of the FRESCO-
2 study, we initiated the filing of a rolling submission of an NDA to the FDA for fruquintinib for the treatment of mCRC.
Aside from its first approved indication of late-line CRC in China that is being applied for globally, we are conducting studies of
fruquintinib in combination with other drugs in various indications. For example, we plan to submit a supplemental NDA in China for
the treatment of gastric cancer in combination with paclitaxel following the results of the FRUTIGA Phase III study, and we have several
ongoing registration-intent studies of fruquintinib combined with chemotherapy (FRUTIGA study in gastric cancer) or checkpoint
inhibitors (Tyvyt combo, in endometrial cancer and RCC) in China.
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. In January 2023,
we entered into an agreement whereby Takeda will receive an exclusive worldwide license to develop, manufacture and commercialize
fruquintinib in all indications and territories outside of China. The Takeda partnership is subject to customary closing conditions,
including completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the
development and commercialization of fruquintinib in all the included territories.
Surufatinib—unique angio-immuno kinase inhibitor commercially launched as Sulanda in China in advanced NETs; first
VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs
Surufatinib 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.
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. In
2022, we presented a pooled analysis of safety data from the SANET-p and SANET-ep studies at the 2022 ASCO annual meeting.
Outside of China, we are conducting a bridging study to support registration of surufatinib for advanced NET in Japan. This Japan
trial was initiated in September 2021 and the results are expected in the first half of 2023. In the United States and Europe, we submitted
an NDA to the FDA and MAA to the EMA for surufatinib monotherapy for the treatment of NETs. After receiving a Complete Response
Letter from the FDA and negative feedback from EMA reviewers, we withdrew our NDA and MAA.
We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors.
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. 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 the final patient enrolled in the
study received their first dose in December 2022. In January 2022, sovleplenib received the Breakthrough Therapy Designation in China
for treatment of primary immune thrombocytopenia. 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. In September 2022, we also initiated a randomized, double-blind, placebo-controlled
Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in the treatment of warm AIHA.
We own all rights to sovleplenib globally.
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.
We have multiple ongoing clinical studies of amdizalisib for various subtypes of lymphomas. 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 trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma cohort and is expected to complete
enrollment for the marginal zone lymphoma cohort around mid-year.
We own all rights to amdizalisib globally.
Tazemetostat
In August 2021, we entered into a strategic collaboration with Epizyme, Inc. (a subsidiary of Ipsen Pharma SAS), 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 Ipsen 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 are developing and plan to seek approval for tazemetostat in various hematological and solid tumors, in Greater China, through
a bridging study and other studies including in combination with amdizalisib. We are participating in Ipsen’s SYMPHONY-1 (EZH-
302) study, leading it in Greater China. We have initiated a Phase II study of tazemetostat with amdizalisib in 2023. 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.
76
77
HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid
HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody
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. 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. We plan to initiate the dose expansion portion of this Phase I study in early 2023.
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
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. 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. The initial dose escalation stage to
determine the maximum tolerated dose and/or the RP2D is 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.
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47.
HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to
shield themselves from the immune system.
We own all rights to HMPL-A83 globally.
Discovery Research & Pre-clinical Development
We have built a drug discovery engine based in China, which has already produced a pipeline of around 20 differentiated clinical
and late pre-clinical stage drug candidates covering both novel and validated targets of which three are now marketed. 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.
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
We own all rights to HMPL-760 globally.
heterobifunctional small molecules.
HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors
Manufacturing
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. 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. We have recently
agreed a registration enabling study design for HMPL-453 for IHCC with the CDE. 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 I/II study of HMPL-453 in combination with chemotherapies or toripalimab
for advanced solid tumors in China in January 2022.
We use contract manufacturing organizations in China to produce our clinical and commercial API supplies. For manufacturing
drug products, we currently use a combination of contract manufacturers and our internal manufacturing facility. We have a drug product
facility in Suzhou which manufactures both clinical and commercial supplies for some of our products. We are building a new drug
product facility in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The
construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for
some projects into the facility in late 2023. We expect to manufacture clinical supplies from the new facility starting in 2023 and
commercial supplies around 2025 after the necessary regulatory filings and approvals.
We own all rights to HMPL-453 globally.
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
We completed technology transfer for the API and drug product of amdizalisib and sovleplenib into the selected commercial
manufacturing facilities in preparation for potential NDA filings. Process validation for these products (both API and drug product) is
expected to complete in 2023. We also completed the NDA enabling work related to manufacturing for the global launch of fruquintinib
at the commercial manufacturing sites. Process validation for API of this product has been completed, and process validation for drug
product will be completed in the second half of 2023 in time for potential approval and launch.
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 of HMPL-295 as a
monotherapy was initiated in July 2021.
Other Ventures
We own all rights to HMPL-295 globally.
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. We initiated a China Phase I study in January 2022.
We own all rights to HMPL-653 globally.
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, 2022. 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 about 2,300 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. 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.
78
79
HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid
HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody
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. 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. We plan to initiate the dose expansion portion of this Phase I study in early 2023.
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
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. 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. The initial dose escalation stage to
determine the maximum tolerated dose and/or the RP2D is 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.
We own all rights to HMPL-760 globally.
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47.
HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to
shield themselves from the immune system.
We own all rights to HMPL-A83 globally.
Discovery Research & Pre-clinical Development
We have built a drug discovery engine based in China, which has already produced a pipeline of around 20 differentiated clinical
and late pre-clinical stage drug candidates covering both novel and validated targets of which three are now marketed. 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.
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.
HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors
Manufacturing
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. 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. We have recently
agreed a registration enabling study design for HMPL-453 for IHCC with the CDE. 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 I/II study of HMPL-453 in combination with chemotherapies or toripalimab
for advanced solid tumors in China in January 2022.
We own all rights to HMPL-453 globally.
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
We use contract manufacturing organizations in China to produce our clinical and commercial API supplies. For manufacturing
drug products, we currently use a combination of contract manufacturers and our internal manufacturing facility. We have a drug product
facility in Suzhou which manufactures both clinical and commercial supplies for some of our products. We are building a new drug
product facility in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The
construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for
some projects into the facility in late 2023. We expect to manufacture clinical supplies from the new facility starting in 2023 and
commercial supplies around 2025 after the necessary regulatory filings and approvals.
We completed technology transfer for the API and drug product of amdizalisib and sovleplenib into the selected commercial
manufacturing facilities in preparation for potential NDA filings. Process validation for these products (both API and drug product) is
expected to complete in 2023. We also completed the NDA enabling work related to manufacturing for the global launch of fruquintinib
at the commercial manufacturing sites. Process validation for API of this product has been completed, and process validation for drug
product will be completed in the second half of 2023 in time for potential approval and launch.
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 of HMPL-295 as a
Other Ventures
monotherapy was initiated in July 2021.
We own all rights to HMPL-295 globally.
HMPL-653—CSF-1R inhibitor
We own all rights to HMPL-653 globally.
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.
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, 2022. 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 about 2,300 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. 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.
78
79
Net income attributable to our company from our Other Ventures totaled $72.8 million, $142.9 million and $54.6 million for the
years ended December 31, 2020, 2021 and 2022, respectively, and are remitted to our group through dividend payments primarily from
our non-consolidated joint venture mentioned above. In 2022, dividends of an aggregate amount of $43.7 million were distributed from
Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since inception of over $280 million.
The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against multiple
Our Clinical Pipeline
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 and gastric 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 aberrations 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.
Savolitinib Pre-clinical Evidence
Savolitinib + Tagrisso
SANOVO: Naïve
Ongoing since 2021
NCT05009836
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).
80
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
Non-small Cell Lung Cancer
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.
The table below shows a summary of clinical trials for savolitinib in NSCLC patients.
Clinical Trials of Savolitinib in NSCLC
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
Savolitinib monotherapy MET exon 14 skipping alterations
China
Approved
Savolitinib monotherapy MET exon 14 skipping alterations
China
Registration
and launched in 2021. Final OS
analysis at ELCC 2022
Ongoing since 2021
Confirmatory
Savolitinib + Imfinzi
SOUND: MET-driven, EGFR wild type China
Savolitinib + Tagrisso
SAVANNAH: 2L/3L
Global
Ongoing since 2022
Ongoing. Data that
Registration-
supported Phase IIIs at WCLC 2022
Savolitinib + Tagrisso
SAFFRON:2L/3L EGFRm+;
Global
Ongoing since 2022
NCT05261399
Savolitinib + Tagrisso
SACHI: 2L EGFR TKI
Ongoing since 2021
NCT05015608
NCT #
NCT02897479
NCT04923945
NCT05374603
NCT03778229
II
III
II
II
III
III
intent
III
EGFRm+; Tagrisso
refractory; MET+
Tagrisso refractory;
MET+
refractory NSCLC;
MET+
patients with EGFRm
& MET+
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.
China
China
81
Net income attributable to our company from our Other Ventures totaled $72.8 million, $142.9 million and $54.6 million for the
years ended December 31, 2020, 2021 and 2022, respectively, and are remitted to our group through dividend payments primarily from
our non-consolidated joint venture mentioned above. In 2022, dividends of an aggregate amount of $43.7 million were distributed from
Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since inception of over $280 million.
The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against multiple
Our Clinical Pipeline
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 and gastric 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
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.
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.
Non-small Cell Lung Cancer
The table below shows a summary of clinical trials for savolitinib in NSCLC patients.
Clinical Trials of Savolitinib in NSCLC
MET also plays a role in drug resistance in many tumor types. For instance, MET gene aberrations 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
Treatment
Trial Name, Patient Focus
Savolitinib monotherapy MET exon 14 skipping alterations
Sites
China
immunosuppression and pathogenesis of kidney cancer.
Savolitinib Research Background
Savolitinib monotherapy MET exon 14 skipping alterations
China
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.
Savolitinib Pre-clinical Evidence
Savolitinib + Imfinzi
Savolitinib + Tagrisso
Savolitinib + Tagrisso
Savolitinib + Tagrisso
Savolitinib + Tagrisso
SOUND: MET-driven, EGFR wild type China
SAVANNAH: 2L/3L
Global
EGFRm+; Tagrisso
refractory; MET+
SAFFRON:2L/3L EGFRm+;
Tagrisso refractory;
MET+
SACHI: 2L EGFR TKI
refractory NSCLC;
MET+
SANOVO: Naïve
patients with EGFRm
& MET+
Global
China
China
Phase
II
Registration
III
Confirmatory
II
II
Registration-
intent
III
III
III
Status/Plan
Approved
and launched in 2021. Final OS
analysis at ELCC 2022
Ongoing since 2021
NCT #
NCT02897479
NCT04923945
Ongoing since 2022
Ongoing. Data that
supported Phase IIIs at WCLC 2022
NCT05374603
NCT03778229
Ongoing since 2022
NCT05261399
Ongoing since 2021
NCT05015608
Ongoing since 2021
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.
80
81
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).
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479).
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479).
Savolitinib in Combination with Tagrisso
We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14
We have completed a 70-patient Phase II registration-enabling 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.
skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy.
At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy
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
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
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
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
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.
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%.
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). Results from this study were published in The Lancet
Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). 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. Final OS and subgroup
Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup
analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research
analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research
Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the
Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the
acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months
acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months
(95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval
(95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). 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%
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
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
aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of
14.3%.
14.3%.
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
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 aberrations. Savolitinib was granted fast track designation
by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification
following progression on Targrisso.
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.
In January 2023, the U.S. FDA designated as a Fast Track development program the investigation of savolitinib for use in
combination with Tagrisso for the treatment of patients with locally advanced or metastatic NSCLC whose tumors have MET
overexpression and/or amplification, as detected by an FDA-approved test, and who have had disease progression during or following
prior Tagrisso.
(NCT03778229).
SAVANNAH study: Phase II study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
Based on the encouraging results of the multiple TATTON studies, we and AstraZeneca have initiated this global Phase II study in
patients whose disease have progressed following Tagrisso due to MET amplification or overexpression, which has three dose cohorts
of savolitinib combined with Tagrisso. In addition to continuing Tagrisso treatment, patients received savolitinib 300mg QD, 300mg
BID, or 600mg QD. The study reopened for enrollment to further reinforce the strength of data, initially presented at WCLC 2022.
Recruitment is expected to be completed in the second half of 2023. We continue to evaluate the possibility of using the SAVANNAH
study as the basis for U.S. accelerated approval.
The results presented at the WCLC 2022 were based on an analysis of 193 efficacy evaluable patients who received savolitinib
300mg once daily plus Tagrisso 80mg once daily at data cut-off date of August 27, 2021. Qualifying MET aberrations were FISH5+ or
IHC50+. Importantly, additional analysis using a higher cut-off level of MET aberration were presented. The higher cut-off levels for
MET aberration are FISH10+ and/or IHC90+. The prevalence of this higher cut-off levels of MET aberration was 34% of patients
centrally tested for enrollment in this study versus 62% at the lower, qualifying cut-off level.
Results showed a trend toward improved response rates with increasing level of MET aberration. Across all patients in this analysis,
ORR was 32% (95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS was 5.3 months (95% CI:
4.2-5.8 months). These results are consistent with the TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients
who met the criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3 months (95%
CI: 7.6-10.6 months), and median PFS was 7.1 months (95% CI: 5.3-8.0 months).
Pa
esponse
Stable disease
Progressive disease
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell
Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell
lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir
lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir
Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
82
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Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479).
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479).
Savolitinib in Combination with Tagrisso
We have completed a 70-patient Phase II registration-enabling study in China of savolitinib as a monotherapy for MET exon 14
We have completed a 70-patient Phase II registration-enabling 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.
skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy.
At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy
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
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
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
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
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.
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%.
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). Results from this study were published in The Lancet
Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). 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. Final OS and subgroup
Respiratory Medicine and formed the basis for an NDA filing, which was approved by the NMPA in June 2021. Final OS and subgroup
analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research
analysis was presented for this trial at European Lung Cancer Congress 2022 and published in the journal JTO Clinical and Research
Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the
Reports. The updated results further confirmed the favorable benefit of savolitinib in these patients and in each subgroup and the
acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months
acceptable safety profile. At final data cut off-date of June 28, 2021. In the full analysis set of 70 patients, median PFS was 6.9 months
(95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). A 95% confidence interval
(95% confidence interval: 4.6-8.3). Median OS was 12.5 months (95% confidence interval: 10.5-21.4). 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%
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
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
aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related discontinuations rate of
14.3%.
14.3%.
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
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 aberrations. Savolitinib was granted fast track designation
by the FDA for the combination treatment with Tagrisso of NSCLC patients harboring MET overexpression and/or amplification
following progression on Targrisso.
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.
In January 2023, the U.S. FDA designated as a Fast Track development program the investigation of savolitinib for use in
combination with Tagrisso for the treatment of patients with locally advanced or metastatic NSCLC whose tumors have MET
overexpression and/or amplification, as detected by an FDA-approved test, and who have had disease progression during or following
prior Tagrisso.
SAVANNAH study: Phase II study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
(NCT03778229).
Based on the encouraging results of the multiple TATTON studies, we and AstraZeneca have initiated this global Phase II study in
patients whose disease have progressed following Tagrisso due to MET amplification or overexpression, which has three dose cohorts
of savolitinib combined with Tagrisso. In addition to continuing Tagrisso treatment, patients received savolitinib 300mg QD, 300mg
BID, or 600mg QD. The study reopened for enrollment to further reinforce the strength of data, initially presented at WCLC 2022.
Recruitment is expected to be completed in the second half of 2023. We continue to evaluate the possibility of using the SAVANNAH
study as the basis for U.S. accelerated approval.
The results presented at the WCLC 2022 were based on an analysis of 193 efficacy evaluable patients who received savolitinib
300mg once daily plus Tagrisso 80mg once daily at data cut-off date of August 27, 2021. Qualifying MET aberrations were FISH5+ or
IHC50+. Importantly, additional analysis using a higher cut-off level of MET aberration were presented. The higher cut-off levels for
MET aberration are FISH10+ and/or IHC90+. The prevalence of this higher cut-off levels of MET aberration was 34% of patients
centrally tested for enrollment in this study versus 62% at the lower, qualifying cut-off level.
Results showed a trend toward improved response rates with increasing level of MET aberration. Across all patients in this analysis,
ORR was 32% (95% CI: 26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS was 5.3 months (95% CI:
4.2-5.8 months). These results are consistent with the TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients
who met the criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI: 39-59%), median DoR was 9.3 months (95%
CI: 7.6-10.6 months), and median PFS was 7.1 months (95% CI: 5.3-8.0 months).
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell
Source: Lu S, Fang J et al. Once-daily savolitinib in Chinese patients with pulmonary sarcomatoid carcinomas and other non-small-cell
lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir
lung cancers harboring MET exon 14 skipping alterations: a multicenter, single-arm, open-label, phase 2 study. Lancet Respir
Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
82
82
83
Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was
Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was
9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib
9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib
plus Tagrisso was consistent with the known profiles of the combination and each treatment alone.
plus Tagrisso was consistent with the known profiles of the combination and each treatment alone.
(NCT05015608).
SACHI study: Phase III study of combination with Targrisso in 2L EGFR TKI refractory, MET amplified NSCLC patients
Novel biomarker and patient enrichment strategy driven by
SAVANNAH
N=185*
300mg QD
METE -TTTTTTTTTTTT-----high
IHC90+ and/or FISH10+
MET-low
IHC50 –90 and/or FISH 5 -10
Prevalence among
patients screened
34%
28%
Prior Chemo
20%
No prior
chemo subset
Number of patients
n=108
n=87
18%
n=77
No prior
chemo subset
n=63
ORR,
[95% CI]
49%
[39–59]
%%52%
5
52%
1111111––––––63]
41–
[41
9%
[4–18]
10%
[4–20]
mDoR,
[95% CI]
mPFS [95% CI]
,
9.3 mo.
[7.6 –10.6]
7.1 mo.
[5.3 –8.0]
9.6 mo.
mo.m6 m
.6
9
6 14.9]
[7.6
[77.66666 –1144.9]
7 6 –
7.2 mo.
mo.m2 m
.2
7.
7777 ––––––9.2]
4.7 –
[4.7
6.9 mo.
[4.1 –16.9]
2.8 mo.
[2.6 –4.3]
7.3 mo.
[4.1 –NC]
2.8 mo.
[1.8 –4.2]
*
*
Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans.
Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans.
Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from
Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from
the subgroup analyses based on MET levels.
the subgroup analyses based on MET levels.
Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH:
Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH:
savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470.
savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470.
WCLC 2022 Abstract # EP08.02-140.
WCLC 2022 Abstract # EP08.02-140.
SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
(NCT05261399)
(NCT05261399)
Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in
Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in
patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line
patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line
treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are
treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are
prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the
prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the
efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the
efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the
current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being
current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being
prioritized until it is fully enrolled.
prioritized until it is fully enrolled.
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. We expect to complete the enrollment of this trial in
2024.
(NCT05009836).
SANOVO study: Phase III study of combination with Targrisso in naïve NSCLC patients with EGFR mutant and MET positive
We have initiated SANOVO, a China Phase III study of savolitinib in combination with 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. We expect to
complete the enrollment of this trial in 2024.
Savolitinib in Combination with Imfinzi
Imfinzi is a human monoclonal antibody developed by AstraZeneca that binds to the PD-L1 protein and blocks the interaction of
PD-L1 with PD-1 and CD80 proteins, countering the tumor’s immune-evading tactics and releasing the inhibition of immune responses.
SOUND study: Phase II study of combination with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC
patients with MET aberrations (NCT05374603).
The SOUND Phase II trial is an open-label, interventional, multicenter, exploratory Phase II study to evaluate savolitinib combined
with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations. The primary
endpoint is PFS.
Kidney Cancer
The table below shows a summary of the clinical trial for savolitinib in kidney cancer patients.
Clinical Trial of Savolitinib in Kidney Cancer
Treatment
Savolitinib + Imfinzi
Trial Name, Patient Focus
Sites
SAMETA: MET-driven, unresectable and locally
Global
Phase
III
Status/Plan
NCT #
Ongoing since 2021 NCT05043090
advanced or metastatic PRCC
Notes: PRCC = papillary renal cell carcinoma; Global = more than two countries; and MET = mesenchymal epithelial transition receptor.
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85
Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was
Importantly, among the 87 patients who did not receive prior chemotherapy, ORR was 52% (95% CI: 41-63%), median DoR was
9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib
9.6 months (95% CI: 7.6-14.9 months), and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of savolitinib
plus Tagrisso was consistent with the known profiles of the combination and each treatment alone.
plus Tagrisso was consistent with the known profiles of the combination and each treatment alone.
*
*
Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans.
Evaluable for efficacy defined as dosed patients with measurable disease at baseline who had ≥2 on-treatment RECIST scans.
Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from
Excludes eight patients with invalid or missing test results for IHC90+ and/or FISH10+ status, these patients were excluded from
the subgroup analyses based on MET levels.
the subgroup analyses based on MET levels.
Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH:
Source: Ahn MJ, De Marinis F et al. EP08.02-140 MET Biomarker-based Preliminary Efficacy Analysis in SAVANNAH:
savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470.
savolitinib+osimertinib in EGFRm NSCLC Post-Osimertinib. .J Thorac Oncol. 2022 Sep;17(9):S469-S470.
WCLC 2022 Abstract # EP08.02-140.
WCLC 2022 Abstract # EP08.02-140.
(NCT05261399)
(NCT05261399)
SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in
Findings based on SAVANNAH and the TATTON studies supported the initiation of the SAFFRON global Phase III study in
patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line
patients with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose disease progressed on first- or second-line
treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are
treatment with Tagrisso as the most recent therapy, with no prior chemotherapy in the metastatic setting allowed. Patients are
prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the
prospectively selected for the higher level of MET aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the
efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the
efficacy and safety of savolitinib in combination with Tagrisso compared to pemetrexed plus platinum doublet-chemotherapy, the
current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being
current standard-of-care treatment in this setting. The primary endpoint of the study is PFS. Enrollment of SAVANNAH is being
prioritized until it is fully enrolled.
prioritized until it is fully enrolled.
SACHI study: Phase III study of combination with Targrisso in 2L EGFR TKI refractory, MET amplified NSCLC patients
(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. We expect to complete the enrollment of this trial in
2024.
SANOVO study: Phase III study of combination with Targrisso in naïve NSCLC patients with EGFR mutant and MET positive
(NCT05009836).
We have initiated SANOVO, a China Phase III study of savolitinib in combination with 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. We expect to
complete the enrollment of this trial in 2024.
Savolitinib in Combination with Imfinzi
Imfinzi is a human monoclonal antibody developed by AstraZeneca that binds to the PD-L1 protein and blocks the interaction of
PD-L1 with PD-1 and CD80 proteins, countering the tumor’s immune-evading tactics and releasing the inhibition of immune responses.
SOUND study: Phase II study of combination with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC
patients with MET aberrations (NCT05374603).
The SOUND Phase II trial is an open-label, interventional, multicenter, exploratory Phase II study to evaluate savolitinib combined
with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC patients with MET aberrations. The primary
endpoint is PFS.
Kidney Cancer
The table below shows a summary of the clinical trial for savolitinib in kidney cancer patients.
Clinical Trial of Savolitinib in Kidney Cancer
Treatment
Savolitinib + Imfinzi
Trial Name, Patient Focus
SAMETA: MET-driven, unresectable and locally
advanced or metastatic PRCC
Sites
Global
Phase
III
Status/Plan
NCT #
Ongoing since 2021 NCT05043090
Notes: PRCC = papillary renal cell carcinoma; Global = more than two countries; and MET = mesenchymal epithelial transition receptor.
84
84
85
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. MET is a key genetic driver in papillary RCC, and emerging evidence suggests that combining
immunotherapies with a MET inhibitor could enhance anti-tumor activity. 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.
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. 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 CALYPSO study is an investigator-initiated open-label Phase II study of savolitinib in combination with Imfinzi. The study
evaluated the safety and efficacy of the savolitinib and Imfinzi combination in PRCC patients at sites in the U.K. and Spain. Interim
results of the PRCC cohort of the CALYPSO study were 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.
SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or metastatic
PRCC (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 clinical trial for savolitinib in gastric cancer patients.
Clinical Trial of Savolitinib in Gastric Cancer
Treatment
Savolitinib monotherapy
Trial Name, Patient Focus
2L+ gastric cancer with MET
amplification. Two-stage,
single-arm study
Sites
China
Phase
II registration
intent
Status/Plan
Ongoing since 2021; Consult
CDE on registration-intent in H1
2023
NCT #
NCT04923932
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, which account for approximately 5% of all gastric cancer patients, demonstrated promising efficacy,
including VIKTORY, which reported a 50% ORR with savolitinib monotherapy in gastric cancer patients whose tumors harbor MET
amplification.
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
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 (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.
Overview of Orpathys Commercial Launch
Sold under the brand name Orpathys, savolitinib was granted conditional approval in China by the NMPA and launched in July
2021 by our partner, AstraZeneca. Orpathys is for the treatment of patients with non-small cell lung cancer with MET exon 14 skipping
alterations who have progressed following prior systemic therapy or are unable to receive chemotherapy. This approval follows a priority
review designation by the NMPA.
The revenues we generate from Orpathys are comprised of royalty revenue and revenue from the product sales of Orpathys which
we source from a third-party manufacturer and sell to AstraZeneca at cost. In 2021, we generated $11.3 million in total revenue from
Orpathys, of which $4.8 million was royalty revenue and $6.5 million was revenue from sales of goods to AstraZeneca. In 2022, we
generated $22.3 million in total revenue from Orpathys, of which $12.4 million was royalty revenue and $9.9 million was revenue from
sales of goods to AstraZeneca.
Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated
NRDL, broadening patient access to this medicine.
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.”
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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. MET is a key genetic driver in papillary RCC, and emerging evidence suggests that combining
immunotherapies with a MET inhibitor could enhance anti-tumor activity. 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.
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. 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 CALYPSO study is an investigator-initiated open-label Phase II study of savolitinib in combination with Imfinzi. The study
evaluated the safety and efficacy of the savolitinib and Imfinzi combination in PRCC patients at sites in the U.K. and Spain. Interim
results of the PRCC cohort of the CALYPSO study were 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.
SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or metastatic
PRCC (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 clinical trial for savolitinib in gastric cancer patients.
Clinical Trial of Savolitinib in Gastric Cancer
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Savolitinib monotherapy
2L+ gastric cancer with MET
China
II registration
Ongoing since 2021; Consult
NCT04923932
amplification. Two-stage,
single-arm study
intent
CDE on registration-intent in H1
2023
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, which account for approximately 5% of all gastric cancer patients, demonstrated promising efficacy,
including VIKTORY, which reported a 50% ORR with savolitinib monotherapy in gastric cancer patients whose tumors harbor MET
amplification.
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
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 (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.
Overview of Orpathys Commercial Launch
Sold under the brand name Orpathys, savolitinib was granted conditional approval in China by the NMPA and launched in July
2021 by our partner, AstraZeneca. Orpathys is for the treatment of patients with non-small cell lung cancer with MET exon 14 skipping
alterations who have progressed following prior systemic therapy or are unable to receive chemotherapy. This approval follows a priority
review designation by the NMPA.
The revenues we generate from Orpathys are comprised of royalty revenue and revenue from the product sales of Orpathys which
we source from a third-party manufacturer and sell to AstraZeneca at cost. In 2021, we generated $11.3 million in total revenue from
Orpathys, of which $4.8 million was royalty revenue and $6.5 million was revenue from sales of goods to AstraZeneca. In 2022, we
generated $22.3 million in total revenue from Orpathys, of which $12.4 million was royalty revenue and $9.9 million was revenue from
sales of goods to AstraZeneca.
Following negotiations with the China NHSA in January 2023, starting on March 1, 2023, Orpathys will be included in the updated
NRDL, broadening patient access to this medicine.
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.”
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2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor
Fruquintinib Clinical Trials
Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity with the
destination of minimizing off-target toxicity and thereby improve efficacy and tolerability. Fruquintinib has been studied in clinical
trials with about 5,000 patients to date, both as a monotherapy and in combination with other agents.
Fruquintinib Monotherapy - Colorectal Cancer
Aside from its first approved indication of third-line CRC in China, several studies of fruquintinib combined with various checkpoint
inhibitors (including Tyvyt and tislelizumab) are 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
and RCC) are completing or ongoing in China.
We are partnered with Eli Lilly in China and have agreed to partner with Takeda outside of China.
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.
of PFS in 2014.
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.
The table below shows a summary of the clinical trials 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
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Fruquintinib monotherapy
FRESCO: ≥3L CRC; chemotherapy
China
Approved and launched
NCT02314819
Fruquintinib monotherapy (1)
FRESCO-2: mCRC
refractory
III
III
in 2018
U.S., EU, Japan filings to
NCT04322539
U.S./Europe/
Japan/Australia
complete in 2023; Results
at ESMO 2022.
2022. Close to completion
Fruquintinib monotherapy
CRC, TN & HR+/HER2- breast
U.S.
I/Ib
CRC data at ASCO GI
NCT03251378
Notes: (1)
The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in
cancer
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.
FRESCO study; Phase III study of fruquintinib monotherapy in third-line CRC (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. At the time, no drug was 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
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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89
2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor
Fruquintinib Clinical Trials
Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity with the
Fruquintinib Monotherapy - Colorectal Cancer
destination of minimizing off-target toxicity and thereby improve efficacy and tolerability. Fruquintinib has been studied in clinical
trials with about 5,000 patients to date, both as a monotherapy and in combination with other agents.
Aside from its first approved indication of third-line CRC in China, several studies of fruquintinib combined with various checkpoint
inhibitors (including Tyvyt and tislelizumab) are 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
and RCC) are completing or ongoing in China.
We are partnered with Eli Lilly in China and have agreed to partner with Takeda outside of China.
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.
The table below shows a summary of the clinical trials 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
Fruquintinib monotherapy (1)
Trial Name, Patient Focus
FRESCO: ≥3L CRC; chemotherapy
refractory
FRESCO-2: mCRC
Fruquintinib monotherapy
CRC, TN & HR+/HER2- breast
cancer
Sites
China
U.S./Europe/
Japan/Australia
Phase
III
III
U.S.
I/Ib
Status/Plan
Approved and launched
in 2018
U.S., EU, Japan filings to
complete in 2023; Results
at ESMO 2022.
CRC data at ASCO GI
2022. Close to completion
NCT #
NCT02314819
NCT04322539
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.
FRESCO study; Phase III study of fruquintinib monotherapy in third-line CRC (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. At the time, no drug was 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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89
Quality-adjusted survival analysis
Quality-adjusted survival analysis
At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the
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
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
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
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,
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.
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
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
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.
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
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
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
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.”
information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.”
FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539)
FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539)
We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient
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
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. In September 2022, we presented the results from FRESCO-2 study at the European Society for
150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for
Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023.
Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023.
The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful
The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful
increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS
increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS
were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared
were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared
to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS
to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS
was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27–
was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27–
0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration
0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration
of follow-up was approximately 11 months for patients in both groups.
of follow-up was approximately 11 months for patients in both groups.
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.
90
91
91
Notes:
Notes:
[1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT)
[1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT)
evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered
evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered
Paper
Paper
session 2: GI,
session 2: GI,
lower digestive Session. Annals of Oncology
lower digestive Session. Annals of Oncology
(2022) 33
(2022) 33
(suppl_7): S808-S869.
(suppl_7): S808-S869.
10.1016/annonc/annonc1089.
10.1016/annonc/annonc1089.
We have not performed a head-to-head clinical trial of fruquintinib versus Stivarga. While it is difficult to directly evaluate and
Quality-adjusted survival analysis
Quality-adjusted survival analysis
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.
At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the
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
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
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
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,
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.
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
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
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.
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
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
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
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.”
information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.”
FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539)
FRESCO-2 study: Phase III study of fruquintinib monotherapy in mCRC (NCT04322539)
We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient
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
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. In September 2022, we presented the results from FRESCO-2 study at the European Society for
150 sites in 14 countries were enrolled. In September 2022, we presented the results from FRESCO-2 study at the European Society for
Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023.
Medical Oncology Congress 2022. We plan to complete new drug application filings in the U.S., Europe and Japan in 2023.
The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful
The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically meaningful
increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS
increase in the primary OS endpoint and key secondary PFS endpoint compared to treatment with placebo. The positive OS and PFS
were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared
were consistent across all subgroups. Specifically, the median OS was 7.4 months for the 461 patients treated with fruquintinib compared
to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS
to 4.8 months for the 230 patients in the placebo group (hazard ratio 0.66; 95% confidence interval 0.55–0.80; p<0.001). Median PFS
was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27–
was 3.7 months for patients treated with fruquintinib compared to 1.8 months for patients in the placebo group (HR 0.32; 95% CI 0.27–
0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration
0.39; p<0.001). The DCR was 55.5% in the fruquintinib group compared to 16.1% for patients in the placebo group. Median duration
of follow-up was approximately 11 months for patients in both groups.
of follow-up was approximately 11 months for patients in both groups.
FRESCO-2 met OS 1º Endpoint & PFS 2º Endpoint
Notes:
Notes:
[1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT)
[1] ESMO 2022, LBA25. Dasari NA, et al. LBA25 - FRESCO-2: A global phase III multiregional clinical trial (MRCT)
evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered
evaluating the efficacy and safety of fruquintinib in patients with refractory metastatic colorectal cancer. 12 Sep 2022, Proffered
Paper
(suppl_7): S808-S869.
Paper
(suppl_7): S808-S869.
10.1016/annonc/annonc1089.
10.1016/annonc/annonc1089.
lower digestive Session. Annals of Oncology
lower digestive Session. Annals of Oncology
session 2: GI,
session 2: GI,
(2022) 33
(2022) 33
90
91
91
The safety profile of fruquintinib in FRESCO-2 was consistent with previously reported fruquintinib studies. Grade 3 or above
adverse events occurred in 62.7% of patients who received fruquintinib, compared to 50.4% of patients who received placebo. Grade 3
or above adverse events that occurred in more than 5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in the
placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the placebo group).
Filing of a rolling submission of a NDA was initiated in December 2022, and expected to be completed in the first half of 2023.
MAA filing to the EMA and NDA filing to the PMDA are expected to follow in 2023.
Phase I/Ib study of fruquintinib monotherapy in metastatic colorectal and breast cancers (NCT03251378)
Fruquintinib Combinations with Checkpoint Inhibitors
The table below shows a summary of clinical trials for fruquintinib in combination with checkpoint inhibitors.
Clinical Trials of Fruquintinib with Checkpoint Inhibitors
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Fruquintinib and Tyvyt (PD-1)
Endometrial cancer
China
II registration-intent Ongoing since
NCT03903705
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 was used in the
FRESCO-2 study described above.
Fruquintinib and Tyvyt (PD-1)
Fruquintinib and Tyvyt (PD-1)
RCC
RCC
China
China
III
Ib/II
Ongoing since
NCT05522231
NCT03903705
Fruquintinib Monotherapy - 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 for fruquintinib in gastric cancer patients.
Fruquintinib and Tyvyt (PD-1)
CRC
China
II
NCT04179084
Clinical Trial of Fruquintinib in Gastric Cancer
Fruquintinib and Tyvyt (PD-1)
Gastrointestinal tumors China
Ib/II
NCT03903705
Treatment
Fruquintinib + paclitaxel
Trial Name, Patient Focus
FRUTIGA: 2L gastric cancer
Sites
China
Phase
III
Status/Plan
Supplemental NDA to be
filed in H1 2023
NCT #
NCT03223376
Notes: 2L = second line.
Fruquintinib and Tyvyt (PD-1)
NSCLC
China
Ib/II
Fully enrolled;
NCT03903705
Fruquintinib and Tyvyt (PD-1)
Cervical cancer
China
Ib/II
FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (NCT03223376)
Fruquintinib and tislelizumab (PD-1)
MSS-CRC
U.S.
Ib/II
NCT03903705
NCT04577963
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, enrolled 703 patients in July 2022. Its dual-primary endpoints are
PFS and OS. The trial met the PFS endpoint at a statistically and clinically meaningful level. The OS endpoint was not statistically
significant per the pre-specified statistical plan, although there was an improvement in median OS. Fruquintinib also demonstrated a
statistically significant improvement in secondary endpoints including ORR, DCR and DoR. The safety profile of fruquintinib in
FRUTIGA was consistent with previously reported studies. Full detailed results are subject to ongoing analysis and are expected to be
disclosed at an upcoming scientific meeting. We plan to file a supplemental NDA with the NMPA in 2023.
2021; Ib data
presented at CSCO
2021
2022
Fully enrolled;
1L&2L data
submission in
2023
Fully enrolled;
Data at European
Journal of Cancer
181 (2023) 26-37
Fully enrolled;
data submission in
2023
data submission in
2023 if mature
Fully enrolled;
data submission in
2023 if mature
Ongoing since
2021; Fully
enrolled;
Submitting data to
conference in H2
2023
Fruquintinib and tislelizumab (PD-1)
CRC
Korea / China
Ib/II
Fully enrolled
NCT04716634
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. In May 2020, we entered into a
collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining two of our drug candidates, including
fruquintinib, with BeiGene’s anti-PD-1 antibody tislelizumab.
92
93
adverse events occurred in 62.7% of patients who received fruquintinib, compared to 50.4% of patients who received placebo. Grade 3
or above adverse events that occurred in more than 5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in the
placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and hand-foot syndrome (6.4% vs. 0% in the placebo group).
Filing of a rolling submission of a NDA was initiated in December 2022, and expected to be completed in the first half of 2023.
MAA filing to the EMA and NDA filing to the PMDA are expected to follow in 2023.
Phase I/Ib study of fruquintinib monotherapy in metastatic colorectal and breast cancers (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 was used in the
FRESCO-2 study described above.
Fruquintinib Monotherapy - 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 for fruquintinib in gastric cancer patients.
The safety profile of fruquintinib in FRESCO-2 was consistent with previously reported fruquintinib studies. Grade 3 or above
Fruquintinib Combinations with Checkpoint Inhibitors
The table below shows a summary of clinical trials for fruquintinib in combination with checkpoint inhibitors.
Clinical Trials of Fruquintinib with Checkpoint Inhibitors
Treatment
Fruquintinib and Tyvyt (PD-1)
Trial Name, Patient Focus
Sites
Endometrial cancer
China
Phase
Status/Plan
II registration-intent Ongoing since
NCT #
NCT03903705
Fruquintinib and Tyvyt (PD-1)
Fruquintinib and Tyvyt (PD-1)
RCC
RCC
China
China
III
Ib/II
Fruquintinib and Tyvyt (PD-1)
CRC
China
II
Clinical Trial of Fruquintinib in Gastric Cancer
Fruquintinib and Tyvyt (PD-1)
Gastrointestinal tumors China
Ib/II
Treatment
Trial Name, Patient Focus
Fruquintinib + paclitaxel
FRUTIGA: 2L gastric cancer
Sites
China
Phase
III
Status/Plan
NCT #
Supplemental NDA to be
NCT03223376
Fruquintinib and Tyvyt (PD-1)
NSCLC
China
Ib/II
filed in H1 2023
Fruquintinib and Tyvyt (PD-1)
Cervical cancer
China
Ib/II
Notes: 2L = second line.
FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (NCT03223376)
Fruquintinib and tislelizumab (PD-1)
MSS-CRC
U.S.
Ib/II
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, enrolled 703 patients in July 2022. Its dual-primary endpoints are
PFS and OS. The trial met the PFS endpoint at a statistically and clinically meaningful level. The OS endpoint was not statistically
significant per the pre-specified statistical plan, although there was an improvement in median OS. Fruquintinib also demonstrated a
statistically significant improvement in secondary endpoints including ORR, DCR and DoR. The safety profile of fruquintinib in
FRUTIGA was consistent with previously reported studies. Full detailed results are subject to ongoing analysis and are expected to be
Notes: CRC = colorectal cancer; NSCLC = non-small cell lung cancer.
disclosed at an upcoming scientific meeting. We plan to file a supplemental NDA with the NMPA in 2023.
Fruquintinib and tislelizumab (PD-1)
CRC
Korea / China
Ib/II
2021; Ib data
presented at CSCO
2021
Ongoing since
2022
Fully enrolled;
1L&2L data
submission in
2023
Fully enrolled;
Data at European
Journal of Cancer
181 (2023) 26-37
Fully enrolled;
data submission in
2023
Fully enrolled;
data submission in
2023 if mature
Fully enrolled;
data submission in
2023 if mature
Ongoing since
2021; Fully
enrolled;
Submitting data to
conference in H2
2023
Fully enrolled
NCT05522231
NCT03903705
NCT04179084
NCT03903705
NCT03903705
NCT03903705
NCT04577963
NCT04716634
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. In May 2020, we entered into a
collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of combining two of our drug candidates, including
fruquintinib, with BeiGene’s anti-PD-1 antibody tislelizumab.
92
93
Tyvyt combination for advanced endometrial cancer registration-intent cohort (NCT03903705)
Overview of Elunate Commercial Launch
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 encouraging data in the advanced endometrial cancer cohort, it has been expanded into a single-arm registrational
Phase II study of over 130 patients.
Tyvyt combination for advanced metastatic renal cell carcinoma (NCT05522231)
In first-line clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been demonstrated for the combination of
antiangiogenic therapy and immunotherapy. However, there is limited evidence on the benefits of this combination in the second-line
setting. Phase II data disclosed at CSCO 2021 showed encouraging anti-tumor efficacy and durability in these patients.
A Phase III trial of fruquintinib in combination with Tyvyt as second-line treatment for locally advanced or metastatic RCC was
initiated in October 2022. The study is a randomized, open-label, active-controlled study to evaluate the efficacy and safety of
fruquintinib in combination with Tyvyt versus axitinib or everolimus monotherapy for the second-line treatment of advanced RCC. The
primary endpoint is PFS. Approximately 260 patients will be enrolled in the study.
Tyvyt combination for CRC (NCT04179084)
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), at the final analysis with data cut-off date of December 30, 2021, 44 patients were
enrolled into the CRC cohort (43 efficacy evaluable), 22 (21 efficacy evaluable) of whom received the RP2D. ORR was 21% for all
patients and 24% for those who received the RP2D. DCR was 88% for all patients and 100% 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 14.3 months for all patients and
14.8 months for those who received PRZD.
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 for CRC (NCT04577963 & NCT04716634)
A MSS-CRC cohort was added to an open-label, multi-center, non-randomized Phase Ib/II study in the U.S. to assess fruquintinib
in combination with tislelizumab. The 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 CRC.
Fruquintinib Exploratory Development
In China, we support an investigator initiated trial program for fruquintinib, and there are about 30 of such trials ongoing in various
solid tumor settings.
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.
During 2022, we introduced Elunate through approximately 7,200 local, regional and national educational events involving
approximately 215,000 healthcare professionals.
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 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. In 2022, we generated $69.9
million in total revenue from Elunate, of which $13.9 million was royalty revenue, $14.7 million was revenue from sales of goods
primarily to Eli Lilly and $41.3 million was revenue from promotion and marketing services to Eli Lilly.
Collaboration Partnerships
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
For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.”
service payments.
Takeda
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license
to develop, manufacture and commercialize fruquintinib in all indications and territories outside of mainland China, Hong Kong and
Macau, where it is marketed and will continue to be marketed by us in partnership with Eli Lilly. Subject to the terms of the agreement,
we will be eligible to receive up to $1.13 billion, including $400 million upfront on closing of the agreement, and up to $730 million in
additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. The
deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda
will become solely responsible for the development and commercialization of fruquintinib in all the included territories.
94
95
Tyvyt combination for advanced endometrial cancer registration-intent cohort (NCT03903705)
Overview of Elunate Commercial Launch
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 encouraging data in the advanced endometrial cancer cohort, it has been expanded into a single-arm registrational
Phase II study of over 130 patients.
Tyvyt combination for advanced metastatic renal cell carcinoma (NCT05522231)
In first-line clear-cell renal cell carcinoma (“ccRCC”), clinical benefits have been demonstrated for the combination of
antiangiogenic therapy and immunotherapy. However, there is limited evidence on the benefits of this combination in the second-line
setting. Phase II data disclosed at CSCO 2021 showed encouraging anti-tumor efficacy and durability in these patients.
A Phase III trial of fruquintinib in combination with Tyvyt as second-line treatment for locally advanced or metastatic RCC was
initiated in October 2022. The study is a randomized, open-label, active-controlled study to evaluate the efficacy and safety of
fruquintinib in combination with Tyvyt versus axitinib or everolimus monotherapy for the second-line treatment of advanced RCC. The
primary endpoint is PFS. Approximately 260 patients will be enrolled in the study.
Tyvyt combination for CRC (NCT04179084)
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), at the final analysis with data cut-off date of December 30, 2021, 44 patients were
enrolled into the CRC cohort (43 efficacy evaluable), 22 (21 efficacy evaluable) of whom received the RP2D. ORR was 21% for all
patients and 24% for those who received the RP2D. DCR was 88% for all patients and 100% 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 14.3 months for all patients and
14.8 months for those who received PRZD.
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
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.
During 2022, we introduced Elunate through approximately 7,200 local, regional and national educational events involving
approximately 215,000 healthcare professionals.
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 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. In 2022, we generated $69.9
million in total revenue from Elunate, of which $13.9 million was royalty revenue, $14.7 million was revenue from sales of goods
primarily to Eli Lilly and $41.3 million was revenue from promotion and marketing services to Eli Lilly.
Collaboration Partnerships
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.
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
For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.”
treatment-related adverse events were observed.
Tislelizumab combinations for CRC (NCT04577963 & NCT04716634)
Takeda
A MSS-CRC cohort was added to an open-label, multi-center, non-randomized Phase Ib/II study in the U.S. to assess fruquintinib
in combination with tislelizumab. The 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 CRC.
Fruquintinib Exploratory Development
solid tumor settings.
In China, we support an investigator initiated trial program for fruquintinib, and there are about 30 of such trials ongoing in various
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it will receive an exclusive worldwide license
to develop, manufacture and commercialize fruquintinib in all indications and territories outside of mainland China, Hong Kong and
Macau, where it is marketed and will continue to be marketed by us in partnership with Eli Lilly. Subject to the terms of the agreement,
we will be eligible to receive up to $1.13 billion, including $400 million upfront on closing of the agreement, and up to $730 million in
additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales. The
deal is subject to customary closing conditions, including completion of antitrust regulatory reviews. Following these clearances, Takeda
will become solely responsible for the development and commercialization of fruquintinib in all the included territories.
94
95
3. 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 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.
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.
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 clinical trials for surufatinib in neuroendocrine cancer patients.
Clinical Trials of Surufatinib in NETs
Treatment
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib
monotherapy(1)
Surufatinib
monotherapy
NETs
NETs
Trial Name, Patient Focus
Sites
Phase
Status/Plan
SANET-ep: Non-pancreatic NET
Approved; Launched in 2021
NCT #
NCT02588170
SANET-p: Pancreatic NET
Approved; Launched in 2021; Pooled
NCT02589821
III
III
China
China
U.S. &
Europe
Japan
Ib/II Bridging
Completed
analysis at ASCO 2022
Bridging
Ongoing since 2021
NCT02549937
NCT05077384
Notes: (1)
FDA granted surufatinib orphan drug designation for the treatment of pancreatic NETs in November 2019 and fast track
designation for our pancreatic and non-pancreatic NET development programs in April 2020.
Surufatinib Pre-clinical Evidence
NET = neuroendocrine tumor.
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.
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.
Surufatinib as a Monotherapy - 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, 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. In China, there are an estimated approximately 34,000 new patients of advanced NETs
per year.
SANET-ep study: Phase III study of surufatinib monotherapy in non-pancreatic NETs (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%).
96
97
3. 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 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.
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.
Initial approvals for surufatinib in China are for the treatment of advanced NET patients. NETs present in the body’s organ system
The table below shows a summary of clinical trials for surufatinib in neuroendocrine cancer patients.
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.
Mechanism of Action
oncology therapy.
Surufatinib Pre-clinical Evidence
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
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.
We currently have various clinical trials of surufatinib as a monotherapy and in combination with checkpoint inhibitors ongoing or
Surufatinib Clinical Trials
expected to begin in the near term.
Surufatinib as a Monotherapy - 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, 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. In China, there are an estimated approximately 34,000 new patients of advanced NETs
per year.
Clinical Trials of Surufatinib in NETs
Treatment
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib
monotherapy(1)
Surufatinib
monotherapy
Trial Name, Patient Focus
SANET-ep: Non-pancreatic NET
SANET-p: Pancreatic NET
NETs
NETs
Sites
China
China
U.S. &
Europe
Japan
Phase
III
III
Ib/II Bridging
Status/Plan
Approved; Launched in 2021
Approved; Launched in 2021; Pooled
analysis at ASCO 2022
Completed
Bridging
Ongoing since 2021
NCT #
NCT02588170
NCT02589821
NCT02549937
NCT05077384
Notes: (1)
FDA granted surufatinib orphan drug designation for the treatment of pancreatic NETs in November 2019 and fast track
designation for our pancreatic and non-pancreatic NET development programs in April 2020.
NET = neuroendocrine tumor.
SANET-ep study: Phase III study of surufatinib monotherapy in non-pancreatic NETs (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%).
96
97
)
%
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r
P
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80
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60
50
40
30
20
10
0
0
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS
SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS
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)
Number at risk
(number censored)
Surufatinib
Placebo
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)
··
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
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.
confidence interval; and HR = hazard ratio.
confidence interval; and HR = hazard ratio.
confidence interval; and HR = hazard ratio.
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized,
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized,
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496-
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496-
4.
4.
In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and
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
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.
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 (NCT02589821)
SANET-p study: Phase III study of surufatinib monotherapy in 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
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
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,
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.
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
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
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
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
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
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
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
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
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
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%).
above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%).
Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double-
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.
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
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
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
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.
can address and treat all subtypes of NETs.
Global development of surufatinib in NET
Global development of surufatinib in NET
Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation
Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation
for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two
for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two
positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could
positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could
form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we
form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we
received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based
received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based
on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the
on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the
U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in
U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in
U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021.
U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021.
Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937)
Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937)
We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of
We conducted 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
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
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
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.
or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data.
98
98
99
99
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS
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)
1 (56) 1 (56) 1 (57)
2 (55)
3 (17) 3 (17) 2 (18) 0 (20)
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
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.
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized,
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a randomized,
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496-
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496-
4.
4.
In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and
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
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.
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 (NCT02589821)
SANET-p study: Phase III study of surufatinib monotherapy in 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
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
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,
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.
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
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
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
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
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
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
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
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
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
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%).
above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%).
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
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.
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-
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.
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
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
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
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.
can address and treat all subtypes of NETs.
Global development of surufatinib in NET
Global development of surufatinib in NET
Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation
Surufatinib received FDA Fast Track Designations in April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation
for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two
for pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached an agreement with the FDA that the two
positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could
positive Phase III studies of surufatinib in patients with pNETs and epNETs in China, along with the bridging trial in the U.S. could
form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we
form the basis to support a U.S. NDA submission. The FDA accepted the filing of the NDA in June 2021. However, in April 2022, we
received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based
received a Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of pNETs and epNETs. Based
on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the
on interactions with the FDA and EMA, a new multi-regional clinical trial would be required to move forward with this program in the
U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in
U.S. and Europe. We will continue to explore conducting a multi-regional clinical trial with a partner that would support approval in
U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021.
U.S. and Europe. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021.
Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937)
Phase Ib/II bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT02549937)
We conducted a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of
We conducted 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
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
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
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.
or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data.
98
98
99
99
US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET
US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET
The table below shows a summary of clinical trials for surufatinib in combination with checkpoint inhibitors.
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
8
7
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 =
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.
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).
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.
Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610.
Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384)
Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384)
In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib
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. This Japan study is a two-stage, open label study of surufatinib where approximately
in the treatment of patients with advanced NETs. 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
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
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
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
metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and
pharmacokinetics.
pharmacokinetics.
Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient,
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 existing data package. The trial was initiated in September 2021 and
registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and
results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available.
results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available.
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib Exploratory Development
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of
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.
effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
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.
100
100
101
Clinical Trials of Surufatinib with Checkpoint Inhibitors
Treatment
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
SURTORI-01: 2L NEC
Neuroendocrine neoplasms
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Surufatinib and tislelizumab (PD-1)
BTC
Small cell lung cancer
Solid tumors
Solid tumors
Clinical Trials with Junshi’s Tuoyi
Trial Name, Patient Focus
Sites
Phase
Status/Plan
Fully enrolled; Data presented at ASCO 2021
NCT04169672
China
China
China
China
China
III
II
II
II
II
Ongoing since 2021
and ESMO IO 2021.
Fully enrolled
Ongoing since 2022
Fully enrolled
U.S./ Europe
Ib/II
Since 2021. Enrollment stopped
NCT #
NCT05015621
NCT04169672
NCT05509699
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 combining surufatinib with Tuoyi enrolled 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. These have led to the initiation in September 2021 of the first Phase III trial
combining surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022.
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.
Clinical Trial with BeiGene’s Tislelizumab
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. We de-prioritized and stopped recruitment into an open-label, Phase Ib/II
study of surufatinib in combination with tislelizumab in the United States and Europe. The study was to evaluate the safety, tolerability,
pharmacokinetics and efficacy in patients with multiple advanced solid tumors.
US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET
US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET
The table below shows a summary of clinical trials for surufatinib in combination with checkpoint inhibitors.
Clinical Trials of Surufatinib with Checkpoint Inhibitors
Treatment
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Trial Name, Patient Focus
Sites
SURTORI-01: 2L NEC
Neuroendocrine neoplasms
China
China
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Surufatinib and tislelizumab (PD-1)
BTC
Small cell lung cancer
Solid tumors
Solid tumors
China
China
China
U.S./ Europe
Phase
III
II
II
II
II
Ib/II
Status/Plan
Ongoing since 2021
Fully enrolled; Data presented at ASCO 2021
and ESMO IO 2021.
Fully enrolled
Ongoing since 2022
Fully enrolled
Since 2021. Enrollment stopped
NCT #
NCT05015621
NCT04169672
NCT04169672
NCT05509699
NCT04169672
NCT04579757
Clinical Trials with Junshi’s Tuoyi
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 combining surufatinib with Tuoyi enrolled 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. These have led to the initiation in September 2021 of the first Phase III trial
combining surufatinib with a PD-1 antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022.
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.
Clinical Trial with BeiGene’s Tislelizumab
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. We de-prioritized and stopped recruitment into an open-label, Phase Ib/II
study of surufatinib in combination with tislelizumab in the United States and Europe. The study was to evaluate the safety, tolerability,
pharmacokinetics and efficacy in patients with multiple advanced solid tumors.
Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx =
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.
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).
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.
Journal of Clinical Oncology 2020 38:15_suppl, 4610-4610.
Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384)
Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (NCT05077384)
In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib
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. This Japan study is a two-stage, open label study of surufatinib where approximately
in the treatment of patients with advanced NETs. 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
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
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
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
metastatic NETs; the primary outcome measure is ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and
pharmacokinetics.
pharmacokinetics.
Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA would include results from a 34-patient,
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 existing data package. The trial was initiated in September 2021 and
registration-enabling bridging study in Japan to complement the existing data package. The trial was initiated in September 2021 and
results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available.
results are expected in the first half of 2023. We plan to engage with the PMDA when these results are available.
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib Exploratory Development
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of
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.
effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
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.
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Overview of Sulanda Commercial Launch
Sovleplenib Research Background
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. 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.
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.
During 2022, we introduced Sulanda through a campaign of approximately 4,900 local, regional and national educational 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. In
2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new
patients in 2021.
4. Sovleplenib (HMPL-523), Syk Inhibitor
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.
Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological malignancies and immune diseases.
Syk is a component in Fc receptor and B-cell receptor signaling pathway. In 2021, we initiated a Phase III study in China for primary
ITP, for which it has received Breakthrough Therapy Designation, and presented data on both primary ITP and hematological
malignancies at ASH 2021. We currently retain all rights to sovleplenib worldwide.
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,
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. It is no longer in
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
development.
Sovleplenib Pre-clinical Evidence
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.
the 10% threshold recommended by FDA guidelines.
Sovleplenib Clinical Trials
Syk, a target for oncology
The table below shows a summary of the clinical trials for sovleplenib.
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.
Current Clinical Trials of Sovleplenib
Treatment
Trial Name, Patient Focus
Sites
Status/Plan
NCT #
Sovleplenib monotherapy
ESLIM-01≥2L+ Immune thrombocytopenia China
Fully enrolled; Breakthrough Therapy
NCT05029635
Phase
III
Sovleplenib monotherapy
Indolent non-Hodgkin's lymphoma
U.S./ Europe
I/Ib
Ongoing; preliminary data presented
NCT03779113
Sovleplenib monotherapy
Warm AIHA
China
II/III
Ongoing since 2022; Phase III
NCT05535933
Designation
at ASH 2021
decision in 2023 pending Phase II
results
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.
ESLIM-01 Phase III study of sovleplenib in patients with immune thrombocytopenia (NCT05029635)
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
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 who have received at least one prior line of standard therapy. ITP is 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. Enrollment was completed in December 2022.
102
103
Overview of Sulanda Commercial Launch
Sovleplenib Research Background
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. 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.
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.
During 2022, we introduced Sulanda through a campaign of approximately 4,900 local, regional and national educational 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. In
2022, approximately 12,000 new patients were treated with Sulanda, representing approximately 2.5 times the approximately 4,800 new
patients in 2021.
4. Sovleplenib (HMPL-523), Syk Inhibitor
Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological malignancies and immune diseases.
Syk is a component in Fc receptor and B-cell receptor signaling pathway. In 2021, we initiated a Phase III study in China for primary
ITP, for which it has received Breakthrough Therapy Designation, and presented data on both primary ITP and hematological
malignancies at ASH 2021. We currently retain all rights to sovleplenib worldwide.
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,
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. It is no longer in
development.
Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important target
Sovleplenib Pre-clinical Evidence
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.
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.
Sovleplenib Clinical Trials
Mechanism of Action
for modulating B-cell signaling.
Syk, a target for autoimmune diseases
Syk, a target for oncology
The table below shows a summary of the clinical trials for sovleplenib.
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.
Current Clinical Trials of Sovleplenib
Treatment
Sovleplenib monotherapy
Trial Name, Patient Focus
Sites
ESLIM-01≥2L+ Immune thrombocytopenia China
Phase
III
Sovleplenib monotherapy
Indolent non-Hodgkin's lymphoma
U.S./ Europe
I/Ib
Sovleplenib monotherapy
Warm AIHA
China
II/III
Status/Plan
Fully enrolled; Breakthrough Therapy
Designation
Ongoing; preliminary data presented
at ASH 2021
Ongoing since 2022; Phase III
decision in 2023 pending Phase II
results
NCT #
NCT05029635
NCT03779113
NCT05535933
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.
ESLIM-01 Phase III study of sovleplenib in patients with immune thrombocytopenia (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 who have received at least one prior line of standard therapy. ITP is 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. Enrollment was completed in December 2022.
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ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of HMPL-523 in adult
patients with primary immune thrombocytopenia were presented at the 63rd American Society for Hematology’s (ASH) annual meeting.
As of data cut-off date of September 30, 2021, a total of 34 patients were randomized to receive HMPL-523 and 11 patients to placebo.
Among 16 patients who were randomized to receive the RP2D of 300mg once daily, 11 patients (68.8%) experienced response as defined
by at least one incident of platelet count being ≥ 50×109/L in the initial 8-week double blinded phase of the study, compared to one out
of 11 patients (9.1%) randomized to receive placebo. During the subsequent 16-week open-label phase of the study, one additional
patient initially randomized to receive the RP2D experienced a response. Four patients randomized to placebo crossed over to receive
treatment at RP2D after the initial 8-week double blinded phase of the study; all four of these patients 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 ≥
50×109/L in at least 4 out of 6 last scheduled visits, were 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 who received treatment at all doses, regardless of whether they were initially
randomized to receive active treatment or crossed over during the open-label extension phase of the study. The median duration of
treatment was 142 days (range: 23-170). No patients discontinued treatment due to treatment-related adverse events, 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.
Phase I/Ib study of sovleplenib in indolent non-Hodgkin’s lymphoma (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.
Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933)
In September 2022, we initiated a Phase II/III trial of sovleplenib in adult patients with wAIHA in China. This is a randomized,
double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in
the treatment of warm AIHA. AIHA is the result of destruction of red blood cells due to the production of antibodies against red blood
cells which bind to antigens on the red blood cell membrane in autoimmune disorders. If the results of the Phase II stage of the study
indicate sufficiently satisfactory efficacy and safety, the Phase III stage will be initiated. The China IND was approved in July 2022.
The first patient was enrolled in September 2022. The enrollment of Phase II part of the study is expected to be completed in 2023, and
lead to a decision on whether to initiate Phase III.
5. 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, supporting feasibility of development in combination with other medicines. We currently retains all rights to
amdizalisib worldwide.
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 PI3Kδ, are lipid kinases that, through a series of intermediate processes, control the
activation of several important signaling proteins including the serine/threonine kinase AKT.
patients remain on therapy.
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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-γ.
HMPL‑689
Zydelig
Copiktra
Aliqopa
0.8 (n = 3)
114 (142x)
3
87 (109x)
>1,000 (>1,250x)
866 (433x) 143 (143x)
104 (52x) 2 (2x)
2
14
1
15
293 (147x) 8 (8x)
0.7
6.4 (9x)
0.5 (1x)
n/a
3.7 (5x)
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
The table below shows a summary of the clinical studies for amdizalisib.
Clinical Trials of Amdizalisib
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
Amdizalisib monotherapy
Indolent non-Hodgkin's lymphoma PTCL
China
Ib
NCT #
NCT03128164
Amdizalisib monotherapy
3L Relapsed/refractory follicular
China
II registration-
Fully enrolled; Breakthrough
NCT04849351
Amdizalisib monotherapy
2L Relapsed/refractory marginal zone
China
II registration-
Ongoing since April 2021
NCT04849351
lymphoma
lymphoma
intent
intent
Amdizalisib monotherapy
Indolent non-Hodgkin's lymphoma
U.S./ Europe
I/Ib
De-prioritized
NCT03786926
Ongoing; Expansion data
presented at ESMO 2021
Therapy Designation
Phase Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in China (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 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
ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of HMPL-523 in adult
patients with primary immune thrombocytopenia were presented at the 63rd American Society for Hematology’s (ASH) annual meeting.
As of data cut-off date of September 30, 2021, a total of 34 patients were randomized to receive HMPL-523 and 11 patients to placebo.
Among 16 patients who were randomized to receive the RP2D of 300mg once daily, 11 patients (68.8%) experienced response as defined
by at least one incident of platelet count being ≥ 50×109/L in the initial 8-week double blinded phase of the study, compared to one out
of 11 patients (9.1%) randomized to receive placebo. During the subsequent 16-week open-label phase of the study, one additional
patient initially randomized to receive the RP2D experienced a response. Four patients randomized to placebo crossed over to receive
treatment at RP2D after the initial 8-week double blinded phase of the study; all four of these patients 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 ≥
50×109/L in at least 4 out of 6 last scheduled visits, were 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 who received treatment at all doses, regardless of whether they were initially
randomized to receive active treatment or crossed over during the open-label extension phase of the study. The median duration of
treatment was 142 days (range: 23-170). No patients discontinued treatment due to treatment-related adverse events, 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.
Phase I/Ib study of sovleplenib in indolent non-Hodgkin’s lymphoma (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.
Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933)
In September 2022, we initiated a Phase II/III trial of sovleplenib in adult patients with wAIHA in China. This is a randomized,
double-blind, placebo-controlled Phase II/III study to evaluate the efficacy, safety, tolerability, and pharmacokinetics of sovleplenib in
the treatment of warm AIHA. AIHA is the result of destruction of red blood cells due to the production of antibodies against red blood
cells which bind to antigens on the red blood cell membrane in autoimmune disorders. If the results of the Phase II stage of the study
indicate sufficiently satisfactory efficacy and safety, the Phase III stage will be initiated. The China IND was approved in July 2022.
The first patient was enrolled in September 2022. The enrollment of Phase II part of the study is expected to be completed in 2023, and
lead to a decision on whether to initiate Phase III.
5. 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, supporting feasibility of development in combination with other medicines. We currently retains all rights to
amdizalisib worldwide.
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 PI3Kδ, are lipid kinases that, through a series of intermediate processes, control the
activation of several important signaling proteins including the serine/threonine kinase AKT.
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-γ.
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
0.8 (n = 3)
114 (142x)
>1,000 (>1,250x)
3
87 (109x)
Copiktra
1
2
104 (52x) 2 (2x)
866 (433x) 143 (143x)
14
293 (147x) 8 (8x)
15
The table below shows a summary of the clinical studies for amdizalisib.
Clinical Trials of Amdizalisib
Treatment
Amdizalisib monotherapy
Trial Name, Patient Focus
Indolent non-Hodgkin's lymphoma PTCL
China
Ib
Sites
Phase
Status/Plan
Amdizalisib monotherapy
3L Relapsed/refractory follicular
China
lymphoma
Amdizalisib monotherapy
2L Relapsed/refractory marginal zone
China
Amdizalisib monotherapy
lymphoma
Indolent non-Hodgkin's lymphoma
U.S./ Europe
II registration-
intent
II registration-
intent
I/Ib
Ongoing; Expansion data
presented at ESMO 2021
Fully enrolled; Breakthrough
Therapy Designation
Ongoing since April 2021
De-prioritized
Aliqopa
0.7
6.4 (9x)
0.5 (1x)
n/a
3.7 (5x)
NCT #
NCT03128164
NCT04849351
NCT04849351
NCT03786926
Phase Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in China (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 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.
104
105
FL
n=22
ORR: 81.8%
CR rate: 36.4%
CBR: 90.9%
100
75
50
25
0
-25
-50
-75
-100
)
%
(
n
o
i
s
e
L
t
e
g
r
a
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n
i
e
n
i
l
e
s
a
B
m
o
r
f
n
o
i
t
c
u
d
e
R
t
s
e
B
PD
PD
SD
SD
PR PR
CR
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)
Phase I/Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in the United States and Europe (NCT03786926)
MZL
n=14
CLL/SLL
n=3
MCL
n=8
DLBCL
n=89
PD* PD* PD* PD* PD* PD* PD*
PD
CR
PR
PD
SD
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 multiple 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
ORR: 50.0%
CBR: 100%
ORR:
100%
ORR: 75%
CBR: 87.5%
PD PD
PD
PD
PD
SD
SD
ORR: 24.1%
CBR: 48.3%
and preliminary efficacy such as ORR.
6. Tazemetostat, EZH2 Inhibitor
SD SD SD SD
SD
PR
PR
PR
PD
PD
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
6
-
0
4
-
0
4
-
0
7
-
0
7
-
0
7
-
0
1
-
0
1
-
0
5
-
0
4
-
0
3
-
0
2
-
0
4
-
0
2
-
2
1
-
0
4
-
0
3
-
0
2
-
0
2
-
0
4
-
0
4
-
0
4
-
0
0
0
0
0
0
1
0
0
0
0
2
0
0
2
0
2
2
2
1
0
1
0
1
2
2
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
3
-
0
8
-
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
3
-
0
1
-
0
5
-
0
4
-
2
6
-
0
3
-
0
6
-
2
1
-
0
3
-
0
2
-
0
9
-
2
2
-
0
6
-
0
6
-
2
9
-
0
4
-
0
9
-
0
8
-
0
8
-
0
2
-
0
2
-
2
9
-
0
1
-
0
3
-
0
4
-
0
2
-
0
4
-
0
4
-
0
9
-
2
7
-
2
4
-
0
2
-
0
1
-
0
2
-
0
3
-
0
1
-
0
2
-
0
3
-
0
0
3
3
0
0
0
0
0
0
4
1
2
0
0
1
3
3
0
2
3
2
3
6
4
9
1
3
2
3
5
1
3
1
2
1
7
2
6
6
1
1
2
9
0
4
0
0
3
4
0
0
4
4
2
0
2
3
0
0
2
3
5
2
4
1
9
1
6
4
7
7
3
4
0
0
6
8
4
0
0
9
2
4
8
0
8
3
0
1
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
7
1
0
1
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
PR
PR
CR
PR
CR
PR PR PR
CR
PR
PR
CR CR CR CR
SD
SD SD
SD
SD
SD SD
PR PR
PD
SD
PR
PR
PR
PR PR
PR
PR
PR
CR
PR
PR
PR
PR
PR
Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%.
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
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
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
= 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)
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
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.
lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021.
Presentation #833O
Presentation #833O
Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event
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
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
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%.
(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
Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory
marginal zone lymphoma in China (NCT04849351)
marginal zone lymphoma in China (NCT04849351)
Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a
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
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
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
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
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
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,
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, has fully enrolled the follicular lymphoma
PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma
cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year.
cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year.
106
106
107
Tazemetostat is an inhibitor of EZH2 developed by Ipsen 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. In August 2021, we entered into a strategic collaboration with
Epizyme, a subsidiary of Ipsen, to research, develop, manufacture and commercialize tazemetostat in Greater China, including the
mainland, Hong Kong, Macau and Taiwan. We are developing and plan to seek approval for tazemetostat in various hematological and
solid tumors, in Greater China. We are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. 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.
In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province of
China to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone, under the Clinically Urgently Needed Imported
Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as
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
approved by the FDA.
Mechanism of Action
cancer cell proliferation.
Tazemetostat Clinical Trials
The table below shows a summary of our clinical trials for tazemetostat.
Clinical Trials of Tazemetostat
Treatment
Tazemetostat monotherapy
Trial Name, Patient Focus
Sites
Metastatic or locally advanced
Hainan
Status/Plan
NCT #
Approved; Launched in 2022
N/A
epithelioid sarcoma;
Relapsed/refractory 3L+
follicular lymphoma
lymphoma
Relapsed/refractory 3L+
follicular lymphoma
Phase
N/A –
Hainan Pilot
Zone
registration-
intent
(bridging)
2022; China portion of global
Phase III trial started H2
2022
Tazemetostat +lenalidomide + rituximab (R2)
SYMPHONY-1: 2L follicular
Global
Ib/III
Ongoing: PhIb data at ASH
NCT04224493
Tazemetostat monotherapy
China
II
Ongoing since July 2022
NCT05467943
Tazemetostat + amdizalisib
Relapsed/refractory lymphoma
China
II
Ongoing since February 2023 NCT05713110
Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma:
Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma:
Phase I/Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in the United States and Europe (NCT03786926)
Best response of target lesion (N=76)
Best response of target lesion (N=76)
Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%.
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
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
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
= 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)
disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD)
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 multiple 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.
6. Tazemetostat, EZH2 Inhibitor
Tazemetostat is an inhibitor of EZH2 developed by Ipsen 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. In August 2021, we entered into a strategic collaboration with
Epizyme, a subsidiary of Ipsen, to research, develop, manufacture and commercialize tazemetostat in Greater China, including the
mainland, Hong Kong, Macau and Taiwan. We are developing and plan to seek approval for tazemetostat in various hematological and
solid tumors, in Greater China. We are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. 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.
In May 2022, tazemetostat was approved by the Health Commission and Medical Products Administration of Hainan Province of
China to be used in the Hainan Boao Lecheng International Medical Tourism Pilot Zone, under the Clinically Urgently Needed Imported
Drugs scheme, for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma consistent with the label as
approved by the FDA.
Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory
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.
lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021.
Mechanism of Action
Presentation #833O
Presentation #833O
Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event
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
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
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%.
(2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%.
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.
Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory
Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory
Tazemetostat Clinical Trials
marginal zone lymphoma in China (NCT04849351)
marginal zone lymphoma in China (NCT04849351)
Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a
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
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
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
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
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
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,
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, has fully enrolled the follicular lymphoma
PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China, has fully enrolled the follicular lymphoma
cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year.
cohort and is expected to complete enrollment for the marginal zone lymphoma cohort around mid-year.
The table below shows a summary of our clinical trials for tazemetostat.
Treatment
Tazemetostat monotherapy
Tazemetostat +lenalidomide + rituximab (R2)
Clinical Trials of Tazemetostat
Trial Name, Patient Focus
Metastatic or locally advanced
epithelioid sarcoma;
Relapsed/refractory 3L+
follicular lymphoma
SYMPHONY-1: 2L follicular
lymphoma
Sites
Hainan
Phase
N/A –
Hainan Pilot
Zone
Global
Ib/III
Tazemetostat monotherapy
Relapsed/refractory 3L+
follicular lymphoma
China
Tazemetostat + amdizalisib
Relapsed/refractory lymphoma
China
II
registration-
intent
(bridging)
II
Status/Plan
Approved; Launched in 2022
NCT #
N/A
Ongoing: PhIb data at ASH
2022; China portion of global
Phase III trial started H2
2022
Ongoing since July 2022
NCT04224493
NCT05467943
Ongoing since February 2023 NCT05713110
106
106
107
SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493)
Common FGFR Alterations in Certain Tumor Types
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. Ipsen conducted the Phase Ib portion of the study in 2021, which determined the recommended
Phase III dose 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 tazemetostat and R², respectively.
An interim analysis of the Phase Ib portion of the study, based on 44 follicular lymphoma patients as of June 14, 2022, was presented
at ASH 2022. The safety profile of the tazemetostat and R² combination was consistent with the prescribing information for both
tazemetostat and R², respectively. Additionally, there was no clear dose response for treatment-emergent adverse events (TEAEs) or
dose modifications. Of 41 evaluable patients, ORR was 97.6% with 51.2% complete response rate. Median PFS and DoR were not yet
reached with a median follow-up of 11.2 months.
In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the recommended Phase III dose
of tazemetostat 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. The first patient was enrolled in May 2022 and the first
China patient was enrolled in September 2022.
Phase II bridging study in relapsed/refractory follicular lymphoma (NCT05467943)
In July 2022, we initiated a multicenter, open-label, Phase II study to evaluate the efficacy, safety and pharmacokinetics of
tazemetostat for the treatment of patients with relapsed/refractory follicular lymphoma intended to support conditional registration in
China. The primary objective is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation (Cohort 1). The secondary
objectives are to evaluate the efficacy of tazemetostat in patients with EZH2 wild-type (Cohort 2) and to evaluate the safety and the
pharmacokinetics of tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing and is expected to be completed in 2023.
Phase II combination study in relapsed/refractory follicular lymphoma (NCT05713110)
This is a multicenter, open-label, Phase II study to evaluate the safety, tolerability and preliminary anti-tumor efficacy of
tazemetostat in combination with amdizalisib in patients with R/R lymphoma. The first patient was dosed in February 2023.
enrollment.
7. HMPL-453, FGFR Inhibitor
HMPL-453 Pre-clinical Evidence
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. Approximately 10-15% of IHCC patients have tumors harboring
FGFR2 fusion. We currently retain all rights to HMPL-453 worldwide.
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.
FGFR1
FGFR2
FGFR3
Gene amplification
Gene translocation
Lung squamous (7-15%)
Lung squamous (n/a)
H&N squamous (10-17%)
Glioblastoma (n/a)
Esophageal squamous (9%) Myeloproliferative syndrome (n/a)
Gene mutation
Gastric (4%)
Pilocytic astrocytoma (5-8%)
Intra-hepatic biliary tract cancer (14%) Endometrial (12-14%)
Lung squamous (5%)
Bladder (60-80% NMIBC; 15-20% MIBC)
Salivary adenoid cystic (n/a) Lung squamous (3%)
Cervical (5%)
Breast (10-15%)
Gastric (5-10%)
Breast (5-10%)
Bladder (3%)
Breast (1%)
Breast (n/a)
Breast (n/a)
Bladder (3-6%)
Glioblastoma (3-7%)
Myeloma (15-20%)
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
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 our clinical trials for HMPL-453.
Treatment
HMPL-453 monotherapy
Trial Name, Patient Focus
Sites
2L Cholangiocarcinoma (IHCC
China
Phase
II
with FGFR fusion)
Clinical Trials of HMPL-453
HMPL-453 + chemotherapies
HMPL-453 + Tuoyi (PD-1)
Multiple
Multiple
China
China
I/II
I/II
Ongoing since 2022
Ongoing since 2022
NCT05173142
NCT05173142
Status/Plan
Ongoing since 2020; Data
submission planned in 2023;
Preparing registration enabling
study
NCT #
NCT04353375
108
109
SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493)
Common FGFR Alterations in Certain Tumor Types
FGFR1
FGFR2
FGFR3
Gene mutation
Gastric (4%)
Pilocytic astrocytoma (5-8%)
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 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%)
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. Ipsen conducted the Phase Ib portion of the study in 2021, which determined the recommended
Phase III dose 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 tazemetostat and R², respectively.
An interim analysis of the Phase Ib portion of the study, based on 44 follicular lymphoma patients as of June 14, 2022, was presented
at ASH 2022. The safety profile of the tazemetostat and R² combination was consistent with the prescribing information for both
tazemetostat and R², respectively. Additionally, there was no clear dose response for treatment-emergent adverse events (TEAEs) or
dose modifications. Of 41 evaluable patients, ORR was 97.6% with 51.2% complete response rate. Median PFS and DoR were not yet
reached with a median follow-up of 11.2 months.
In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the recommended Phase III dose
of tazemetostat 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. The first patient was enrolled in May 2022 and the first
China patient was enrolled in September 2022.
Phase II bridging study in relapsed/refractory follicular lymphoma (NCT05467943)
In July 2022, we initiated a multicenter, open-label, Phase II study to evaluate the efficacy, safety and pharmacokinetics of
tazemetostat for the treatment of patients with relapsed/refractory follicular lymphoma intended to support conditional registration in
China. The primary objective is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation (Cohort 1). The secondary
objectives are to evaluate the efficacy of tazemetostat in patients with EZH2 wild-type (Cohort 2) and to evaluate the safety and the
pharmacokinetics of tazemetostat. Enrollment of cohort 2 is complete and cohort 1 is ongoing and is expected to be completed in 2023.
Phase II combination study in relapsed/refractory follicular lymphoma (NCT05713110)
This is a multicenter, open-label, Phase II study to evaluate the safety, tolerability and preliminary anti-tumor efficacy of
tazemetostat in combination with amdizalisib in patients with R/R lymphoma. The first patient was dosed in February 2023.
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. Approximately 10-15% of IHCC patients have tumors harboring
FGFR2 fusion. We currently retain all rights to HMPL-453 worldwide.
7. 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.
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 our clinical trials for HMPL-453.
Clinical Trials of HMPL-453
Treatment
HMPL-453 monotherapy
Trial Name, Patient Focus
2L Cholangiocarcinoma (IHCC
with FGFR fusion)
Sites
China
Phase
II
HMPL-453 + chemotherapies
HMPL-453 + Tuoyi (PD-1)
Multiple
Multiple
China
China
I/II
I/II
Status/Plan
Ongoing since 2020; Data
submission planned in 2023;
Preparing registration enabling
study
Ongoing since 2022
Ongoing since 2022
NCT #
NCT04353375
NCT05173142
NCT05173142
108
109
Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375)
9. HMPL-760, BTK Inhibitor
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.
After consultation with the CDE, a monotherapy registration final design has been agreed, and preparations are under way.
Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (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.
8. HMPL-306, IDH1 and 2 Inhibitor
HMPL-760 worldwide.
Mechanism of Action
BTK inhibitors.
HMPL-760 Clinical Trials
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.
10. HMPL-295, ERK Inhibitor
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.
HMPL-306 Clinical Trials
The table below shows a summary of our clinical trials for HMPL-306.
Clinical Trials of HMPL-306
Treatment
HMPL-306
monotherapy
HMPL-306
monotherapy
HMPL-306
monotherapy
Trial Name, Patient Focus
Hematological malignancies
Sites Phase
China
I
Ongoing since 2020; RP2D determined
NCT04272957
Status/Plan
NCT #
Solid tumors including but not limited to gliomas,
chondrosarcomas or cholangiocarcinomas
Hematological malignancies
U.S.
U.S
I
I
Ongoing since 2021; nominate RP2D in
NCT04762602
2023
Ongoing since 2021; nominate RP2D in
NCT04764474
2023
in patients with advanced malignant solid tumors.
11. HMPL-653, CSF-1R Inhibitor
110
111
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. We currently retain all rights to
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
The table below shows a summary of our clinical trials of HMPL-760.
Clinical Trials of HMPL-760
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
HMPL-760 monotherapy
HMPL-760 monotherapy
CLL, SLL, other B-NHL
CLL, SLL, other NHL
China
U.S.
I
I
Ongoing since January 2022
De-prioritized
NCT #
NCT05190068
NCT05176691
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. We currently retain all rights to HMPL-295 worldwide.
Mechanism of Action
RAS-MAPK pathway is dysregulated in human diseases, particularly cancer, in which mutations or nongenetic events hyperactivate
the pathway in up to 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 our clinical trial for HMPL-295.
Clinical Trial of HMPL-295
Treatment
Trial Name, Patient Focus
HMPL-295 monotherapy
Solid tumors
Sites
China
Phase
I
Status/Plan
Ongoing since 2021
NCT #
NCT04908046
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
HMPL-653 is an investigational 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 currently retain all rights to HMPL-653 worldwide.
Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375)
9. HMPL-760, BTK Inhibitor
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
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. We currently retain all rights to
HMPL-760 worldwide.
carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion.
After consultation with the CDE, a monotherapy registration final design has been agreed, and preparations are under way.
Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (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.
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 our clinical trials of HMPL-760.
Clinical Trials of HMPL-760
Treatment
HMPL-760 monotherapy
HMPL-760 monotherapy
Trial Name, Patient Focus
CLL, SLL, other B-NHL
CLL, SLL, other NHL
Sites
China
U.S.
Phase
I
I
Status/Plan
Ongoing since January 2022
De-prioritized
NCT #
NCT05190068
NCT05176691
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
10. HMPL-295, ERK Inhibitor
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
Mechanism of Action
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
(MDS), myeloproliferative neoplasms
(MPNs),
low-grade glioma and
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.
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
RAS-MAPK pathway is dysregulated in human diseases, particularly cancer, in which mutations or nongenetic events hyperactivate
the pathway in up to 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.
provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance to IDH inhibition
HMPL-295 Clinical Trials
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. We currently retain all rights to HMPL-295 worldwide.
8. HMPL-306, IDH1 and 2 Inhibitor
all rights to HMPL-306 worldwide.
Mechanism of Action
through isoform switching.
HMPL-306 Clinical Trials
Treatment
HMPL-306
monotherapy
HMPL-306
monotherapy
HMPL-306
monotherapy
The table below shows a summary of our clinical trials for HMPL-306.
Clinical Trials of HMPL-306
Trial Name, Patient Focus
Sites Phase
Status/Plan
NCT #
Hematological malignancies
China
Ongoing since 2020; RP2D determined
NCT04272957
I
I
I
2023
2023
The table below shows a summary of our clinical trial for HMPL-295.
Clinical Trial of HMPL-295
Treatment
HMPL-295 monotherapy
Trial Name, Patient Focus
Solid tumors
Sites
China
Phase
I
Status/Plan
Ongoing since 2021
NCT #
NCT04908046
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.
Solid tumors including but not limited to gliomas,
U.S.
Ongoing since 2021; nominate RP2D in
NCT04762602
chondrosarcomas or cholangiocarcinomas
Hematological malignancies
U.S
Ongoing since 2021; nominate RP2D in
NCT04764474
11. HMPL-653, CSF-1R Inhibitor
HMPL-653 is an investigational 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 currently retain all rights to HMPL-653 worldwide.
110
111
Mechanism of Action
HMPL-A83 Clinical Trials
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.
HMPL-653 Clinical Trials
The table below shows a summary of our clinical trial of HMPL-653.
Clinical Trial of HMPL-653
Treatment
HMPL-653
monotherapy
Trial Name, Patient Focus
Solid tumors &
China
Sites
Phase
I
tenosynovial giant
cell tumors
Status/Plan
NCT #
Ongoing since 2022, ~110 NCT05190068
patients expected
to be enrolled
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.
were submitted in 2022.
12. HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47.
HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to
shield themselves from the immune system. We currently retain all rights to HMPL-A83 worldwide.
Mechanism of Action and Preclinical Eridemia
CD47 is a cell surface transmembrane protein that is ubiquitously expressed on virtually all human cells. The overexpression of
CD47 is reported in a variety of tumors and is believed to be associated with immune escape from macrophage-mediated phagocytosis.
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-
A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield
themselves from the immune system.
In preclinical studies, HMPL-A83 demonstrated weak affinity for red blood cells and no induction of hemagglutination, implying
low risk of anemia. HMPL-A83 also demonstrated a high affinity for CD47 antigen on tumor cells and strong phagocytosis induction
of multiple tumor cells. HMPL-A83 has also demonstrated strong anti-tumor activity in multiple animal models.
The table below shows a summary of our clinical trial of HMPL-A83.
Clinical Trial of HMPL-A83
Treatment
Trial Name, Patient Focus
Sites Phase
Status/Plan
NCT #
HMPL-A83 monotherapy
Advanced malignant neoplasms China
I
Ongoing since July 2022 NCT05429008
We initiated our Phase I development in China in July 2022, and the study is a multicenter, open-label study to evaluate the safety,
tolerability, pharmacokinetics and preliminary efficacy of HMPL-A83 in patients with advanced malignant neoplasms. The primary
endpoints are DLT, safety, tolerability, RP2D and MTD. The secondary endpoints include pharmacokinetics, pharmacodynamics,
immunogenicity and preliminary efficacy profile. We expect to enroll around 100 patients in this study.
13. IMG-007 and IMG-004, 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. Under the terms of the agreement, we granted Inmagene exclusive options to such drug candidates solely for
the treatment of immunological diseases. Funded by Inmagene, we 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
Treatment
IMG-007 (OX40
Name, Line, Patient Focus
Sites Phase
Status/Plan
NCT #
Healthy volunteers; adults with moderate to
Global
I
Ongoing since 2022 NCT05353972
monoclonal antibody)
severe atopic dermatitis
IMG-004 (BTK inhibitor) Healthy volunteers
Global
I
Ongoing since 2022 NCT05349097
IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal antibody targeting the OX40 receptor. OX40 is a
costimulatory receptor member of the tumor necrosis factor receptor (TNFR) superfamily expressed predominantly on activated T cells.
The Phase I study in healthy volunteers was initiated in July 2022 in Australia.
IMG-004 in immunological diseases – This is a non-covalent, reversible small molecule inhibitor targeting BTK. Designed
specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004 is potent, highly selective
and brain permeable. The Phase I study in healthy volunteers in the United States was initiated in August 2022.
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
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.
toxicity;
•
•
•
•
112
113
Mechanism of Action
HMPL-A83 Clinical Trials
CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages. Studies
The table below shows a summary of our clinical trial of HMPL-A83.
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.
HMPL-653 Clinical Trials
The table below shows a summary of our clinical trial of HMPL-653.
Clinical Trial of HMPL-653
Treatment
HMPL-653
monotherapy
tenosynovial giant
cell tumors
Trial Name, Patient Focus
Sites
Solid tumors &
China
Phase
I
Status/Plan
NCT #
Ongoing since 2022, ~110 NCT05190068
patients expected
to be enrolled
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. HMPL-A83, IgG4-type humanized anti-CD47 monoclonal antibody
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47.
HMPL-A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to
shield themselves from the immune system. We currently retain all rights to HMPL-A83 worldwide.
Mechanism of Action and Preclinical Eridemia
CD47 is a cell surface transmembrane protein that is ubiquitously expressed on virtually all human cells. The overexpression of
CD47 is reported in a variety of tumors and is believed to be associated with immune escape from macrophage-mediated phagocytosis.
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal antibody that exhibits high affinity for CD47. HMPL-
A83 blocks CD47 binding to Signal regulatory protein (SIRP) α and disrupts the “do not eat me” signal that cancer cells use to shield
themselves from the immune system.
In preclinical studies, HMPL-A83 demonstrated weak affinity for red blood cells and no induction of hemagglutination, implying
low risk of anemia. HMPL-A83 also demonstrated a high affinity for CD47 antigen on tumor cells and strong phagocytosis induction
of multiple tumor cells. HMPL-A83 has also demonstrated strong anti-tumor activity in multiple animal models.
Clinical Trial of HMPL-A83
Treatment
HMPL-A83 monotherapy
Trial Name, Patient Focus
Sites Phase
Status/Plan
NCT #
Advanced malignant neoplasms China
I
Ongoing since July 2022 NCT05429008
We initiated our Phase I development in China in July 2022, and the study is a multicenter, open-label study to evaluate the safety,
tolerability, pharmacokinetics and preliminary efficacy of HMPL-A83 in patients with advanced malignant neoplasms. The primary
endpoints are DLT, safety, tolerability, RP2D and MTD. The secondary endpoints include pharmacokinetics, pharmacodynamics,
immunogenicity and preliminary efficacy profile. We expect to enroll around 100 patients in this study.
13. IMG-007 and IMG-004, 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. Under the terms of the agreement, we granted Inmagene exclusive options to such drug candidates solely for
the treatment of immunological diseases. Funded by Inmagene, we 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
were submitted in 2022.
Treatment
IMG-007 (OX40
monoclonal antibody)
Name, Line, Patient Focus
Sites Phase
Status/Plan
NCT #
Healthy volunteers; adults with moderate to
severe atopic dermatitis
Global
I
Ongoing since 2022 NCT05353972
IMG-004 (BTK inhibitor) Healthy volunteers
Global
I
Ongoing since 2022 NCT05349097
IMG-007 in atopic dermatitis – This is a novel antagonistic monoclonal antibody targeting the OX40 receptor. OX40 is a
costimulatory receptor member of the tumor necrosis factor receptor (TNFR) superfamily expressed predominantly on activated T cells.
The Phase I study in healthy volunteers was initiated in July 2022 in Australia.
IMG-004 in immunological diseases – This is a non-covalent, reversible small molecule inhibitor targeting BTK. Designed
specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004 is potent, highly selective
and brain permeable. The Phase I study in healthy volunteers in the United States was initiated in August 2022.
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.
112
113
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 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 over a dozen drug candidates put into clinical development. 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.
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 may 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 $198.5 million mainly from our collaborations with AstraZeneca and Eli
Lilly as of December 31, 2022. 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, 2022, we had received $64.9 million in milestone payments in addition to approximately $71.6
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.
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, 2022, Eli Lilly had
paid us $37.2 million in milestone payments in addition to approximately $65.7 million in reimbursements for certain development
costs.
114
115
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 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 over a dozen drug candidates put into clinical development. 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.
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 may 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 $198.5 million mainly from our collaborations with AstraZeneca and Eli
Lilly as of December 31, 2022. 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, 2022, we had received $64.9 million in milestone payments in addition to approximately $71.6
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.
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, 2022, Eli Lilly had
paid us $37.2 million in milestone payments in addition to approximately $65.7 million in reimbursements for certain development
costs.
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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.
Takeda
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.
Macau.
Other Collaborations
To date, we have paid Epizyme a $25.0 million upfront payment and an aggregate of $5.0 million milestone payments. We may be
required to pay an additional aggregate amount of up to $105 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.
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.
On January 23, 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development,
commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau, where it is marketed by us in
partnership with Eli Lilly. We may receive up to $1.13 billion including $400 million upfront on closing as well as potential regulatory,
development and commercial sales milestone payments, plus royalties on net sales. This deal is subject to customary closing conditions,
including the completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the
development and commercialization of fruquintinib in all included territories worldwide excluding mainland China, Hong Kong and
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 (A Subsidiary of Ipsen Pharma SAS)
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
Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns in China
with over 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it has been focused on
the sale of prescription drugs products and consumer health products conducted through the following entities:
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
Shanghai and Eastern China. The trademark is owned by the joint venture and in January 2023, the Shanghai government recognized
and awarded the brand as a Shanghai heritage brand. 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.
In August 2021, we entered into a licensing agreement with Epizyme Inc. (a subsidiary of Ipsen Pharma SAS) 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.
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 2022 of 21.0% (2021 of 19.6%) nationally and 47.9% (2021: 43.6%) in Shanghai. She Xiang Bao Xin pills’ sales represented
92.2% of all Shanghai Hutchison Pharmaceuticals sales in 2022.
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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.
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 (A Subsidiary of Ipsen Pharma SAS)
To date, we have paid Epizyme a $25.0 million upfront payment and an aggregate of $5.0 million milestone payments. We may be
required to pay an additional aggregate amount of up to $105 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.
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.
Takeda
On January 23, 2023, we entered into a license agreement with a subsidiary of Takeda to further the global development,
commercialization and manufacture of fruquintinib outside of mainland China, Hong Kong and Macau, where it is marketed by us in
partnership with Eli Lilly. We may receive up to $1.13 billion including $400 million upfront on closing as well as potential regulatory,
development and commercial sales milestone payments, plus royalties on net sales. This deal is subject to customary closing conditions,
including the completion of antitrust regulatory reviews. Following these clearances, Takeda will become solely responsible for the
development and commercialization of fruquintinib in all included territories worldwide excluding mainland China, Hong Kong and
Macau.
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
Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns in China
with over 2,900 manufacturing and commercial personnel as of December 31, 2022. Built over the past 20 years, it has been focused on
the sale of prescription drugs products and consumer health products conducted through the following entities:
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
Shanghai and Eastern China. The trademark is owned by the joint venture and in January 2023, the Shanghai government recognized
and awarded the brand as a Shanghai heritage brand. 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.
In August 2021, we entered into a licensing agreement with Epizyme Inc. (a subsidiary of Ipsen Pharma SAS) 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.
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 2022 of 21.0% (2021 of 19.6%) nationally and 47.9% (2021: 43.6%) in Shanghai. She Xiang Bao Xin pills’ sales represented
92.2% of all Shanghai Hutchison Pharmaceuticals sales in 2022.
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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 through Hutchison Sinopharm up till the end of
September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals.
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
products in Asia.
HUTCHMED Science Nutrition is our wholly owned subsidiary that is primarily engaged in the distribution of third-party consumer
She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 33 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 550
manufacturing staff.
As of December 31, 2022, Shanghai Hutchison Pharmaceuticals had a commercial team of about 2,300 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, 2022, Shanghai
Hutchison Pharmaceuticals engaged a group of approximately 530 primary distributors to cover China. These primary distributors in
turn used over 2,300 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, 2022, Hutchison
Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 900 third-party prescription drug and other
products directly to about 730 public and private hospitals in the Shanghai region and through a network of approximately 55 distributors
to cover all other provinces in China.
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. An application was made by Luye on December 14, 2021 to set aside the final award
which was heard by the High Court in Hong Kong on June 28, 2022 and dismissed by the judge on July 26, 2022. Luye have further
applied and obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing in the Court of
Appeal has been set for June 6, 2023. We did not have any revenue from the distribution of Seroquel for the years ended December 31,
2020, 2021 and 2022.
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, 2022, this team had grown to over 870 commercial sales and
marketing staff in mainland China and Hong Kong.
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, 2022, Hutchison Sinopharm had over 860 customers of which approximately 13%
were distributors, and the revenue generated from these distributors accounted for approximately 25% of the revenue of Hutchison
Sinopharm for the year ended December 31, 2022.
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119
She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 33 proprietary commercial protections under the
Hutchison Hain Organic
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.
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.
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 550
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 through Hutchison Sinopharm up till the end of
September and from October 1, 2022 onwards, through our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals.
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.
manufacturing staff.
Hutchison Sinopharm
As of December 31, 2022, Shanghai Hutchison Pharmaceuticals had a commercial team of about 2,300 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, 2022, Shanghai
Hutchison Pharmaceuticals engaged a group of approximately 530 primary distributors to cover China. These primary distributors in
turn used over 2,300 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 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, 2022, Hutchison
Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 900 third-party prescription drug and other
products directly to about 730 public and private hospitals in the Shanghai region and through a network of approximately 55 distributors
to cover all other provinces in China.
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. An application was made by Luye on December 14, 2021 to set aside the final award
which was heard by the High Court in Hong Kong on June 28, 2022 and dismissed by the judge on July 26, 2022. Luye have further
applied and obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing in the Court of
Appeal has been set for June 6, 2023. We did not have any revenue from the distribution of Seroquel for the years ended December 31,
2020, 2021 and 2022.
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, 2022, this team had grown to over 870 commercial sales and
marketing staff in mainland China and Hong Kong.
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, 2022, Hutchison Sinopharm had over 860 customers of which approximately 13%
were distributors, and the revenue generated from these distributors accounted for approximately 25% of the revenue of Hutchison
Sinopharm for the year ended December 31, 2022.
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119
Competition
Fruquintinib
Oncology/Immunology 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.
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
(ramucirumab) was approved for the treatment of second-line gastric cancer in China in 2022. TAS-102 (trifluridine/tipiracil
hydrochloride) was approved for mCRC in China in 2019. 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-
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.
line NSCLC.
Surufatinib
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.
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.
Below is a summary of existing therapies and therapies currently under development that may become available in the future which
Sovleplenib and Amdizalisib
may compete with each of our clinical-stage drug candidates.
Savolitinib
Savolitinib is the only selective MET inhibitor currently approved in China, while 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. Tepmetko (tepotinib)’s NDA for MET exon 14 skipping NSCLC is currently being
reviewed by NMPA. Market Authorization Applications for Tabrecta and Tepmetko were approved in 2022 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), REGN-5093 and REGN5093-M114 (in Phase I for NSCLC), glumetinib (NDA for MET exon 14 skipping
NSCLC is currently being reviewed by NMPA) and bozitinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by
NMPA). 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. MCLA-129 (NCT03132155) is a
EGFR/MET bispecific currently in early stage development.
Tazemetostat
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 lanraplenib and cerdulatinib (lymphoma).
Currently there are three PI3K inhibitors approved and on the market outside of China. 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. Zydelig (idelalisib) is approved for the treatment of chronic lymphocytic leukemia, globally. Copiktra
(duvelisib, PI3K-δ/γ dual inhibitor) is approved for CLL/SLL. In China, during 2022, Copiktra and linperlisib (YY-20394) were
approved for 3L+ follicular lymphoma. 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. Parsaclisib’s NDA for
third-line follicular lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ are in
clinical development for hematological cancers, including zandelisib (ME-401 discontinued outside of Japan) and ACP 319.
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.
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121
Competition
Fruquintinib
Oncology/Immunology 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.
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
(ramucirumab) was approved for the treatment of second-line gastric cancer in China in 2022. TAS-102 (trifluridine/tipiracil
hydrochloride) was approved for mCRC in China in 2019. 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.
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.
Below is a summary of existing therapies and therapies currently under development that may become available in the future which
Sovleplenib and Amdizalisib
may compete with each of our clinical-stage drug candidates.
Savolitinib
Savolitinib is the only selective MET inhibitor currently approved in China, while 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. Tepmetko (tepotinib)’s NDA for MET exon 14 skipping NSCLC is currently being
reviewed by NMPA. Market Authorization Applications for Tabrecta and Tepmetko were approved in 2022 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), REGN-5093 and REGN5093-M114 (in Phase I for NSCLC), glumetinib (NDA for MET exon 14 skipping
NSCLC is currently being reviewed by NMPA) and bozitinib (NDA for MET exon 14 skipping NSCLC is currently being reviewed by
NMPA). 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. MCLA-129 (NCT03132155) is a
EGFR/MET bispecific currently in early stage development.
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 lanraplenib and cerdulatinib (lymphoma).
Currently there are three PI3K inhibitors approved and on the market outside of China. 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. Zydelig (idelalisib) is approved for the treatment of chronic lymphocytic leukemia, globally. Copiktra
(duvelisib, PI3K-δ/γ dual inhibitor) is approved for CLL/SLL. In China, during 2022, Copiktra and linperlisib (YY-20394) were
approved for 3L+ follicular lymphoma. 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. Parsaclisib’s NDA for
third-line follicular lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ are in
clinical development for hematological cancers, including zandelisib (ME-401 discontinued outside of Japan) and ACP 319.
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.
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121
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.
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
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.
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 LOXO-435, AZD4547, rogaratinib, fisogatinib (BLU-554), famitinib, Debio 1347,
E7090, ICP-192, ICP-105, ASP5878, FGF401, RLY-4008 and HH185.
HMPL-306
Tilbsovo (ivosidenib) and Rezlidnia (olutasidenib) are approved therapies 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 BAY1436032 and DS-1001b.
HMPL-760
Approved first and second generation BTK inhibitors include Imbruvica, Calquence, Tirabrutinib, Brukinsa and orelabrutinib. A
third generation BTK inhibitor pirtobruntinib was approved for 3L+ in mantle cell lymphoma in January 2023. 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.
intellectual property position.
Patents
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.
HMPL-A83
To date, no CD47 antibody drug has been approved. A number of antibodies, including magrolimab, evorpacept, lemzoparlimab,
HX009, PF-07901801, AO-176, DSP107, and IBI188, among others are being developed in clinical settings as a single agent and/or in
combination with various therapeutical agents.
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, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295
patent applications pending in the above major market jurisdictions, and 7 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.
Other Ventures Competition
Savolitinib—The intellectual property portfolio for savolitinib contains two patent families.
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 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, 2022, we owned 58 patents in this family, including patents in China, the United States, Europe
and Japan, each expiring in 2030, and we also had 9 patent applications pending in various other jurisdictions.
122
123
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.
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 LOXO-435, AZD4547, rogaratinib, fisogatinib (BLU-554), famitinib, Debio 1347,
E7090, ICP-192, ICP-105, ASP5878, FGF401, RLY-4008 and HH185.
Tilbsovo (ivosidenib) and Rezlidnia (olutasidenib) are approved therapies 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 BAY1436032 and DS-1001b.
Approved first and second generation BTK inhibitors include Imbruvica, Calquence, Tirabrutinib, Brukinsa and orelabrutinib. A
third generation BTK inhibitor pirtobruntinib was approved for 3L+ in mantle cell lymphoma in January 2023. 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.
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-453
HMPL-306
HMPL-760
HMPL-295
HMPL-653
HMPL-A83
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.
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.
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,
Our Oncology/Immunology Patents
emactuzumab, AMG820 and IMC-CS4.
combination with various therapeutical agents.
Other Ventures Competition
To date, no CD47 antibody drug has been approved. A number of antibodies, including magrolimab, evorpacept, lemzoparlimab,
HX009, PF-07901801, AO-176, DSP107, and IBI188, among others are being developed in clinical settings as a single agent and/or in
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.
As of December 31, 2022, we had 232 issued patents, including 18 Chinese patents, 22 U.S. patents and 12 European patents, 295
patent applications pending in the above major market jurisdictions, and 7 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, 2022, we owned 58 patents in this family, including patents in China, the United States, Europe
and Japan, each expiring in 2030, and we also had 9 patent applications pending in various other jurisdictions.
122
123
The second patent family is directed to the method for the preparation of savolitinib. As of December 31, 2022, we owned one
patent in this family in South Africa, which will expire in 2039. As of December 31, 2022, we also had 16 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.
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, 2022, we had 7 patent
applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which,
Our collaboration partner AstraZeneca is responsible for maintaining and enforcing the intellectual property portfolio for savolitinib.
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 2041. This patent family is co-owned
by us and Genor Biopharma Co. Ltd.
Sovleplenib—The intellectual property portfolio for sovleplenib contains two patent families.
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, 2022, we owned
25 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in
The second patent family is directed to the salts of sovleplenib as well as crystalline forms thereof. As of December 31, 2022, we
owned four patents in this family in various jurisdictions, including the United States and Japan, each of which will expire in 2038. As
of December 31, 2022, we had 21 patent applications pending in this patent family in various jurisdictions, including China, the United
States and Europe, 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,
2022, we owned 25 patents in this family in various jurisdictions, including the United States, Europe, China and Japan, each of which
The second patent family is directed to crystalline forms of amdizalisib. As of December 31, 2022, 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
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
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, 2022, 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, 2022, we also had one patent application pending in Brazil.
The second patent family is directed to the compound and crystalline forms of surufatinib as well as methods of treating tumor
angiogenesis-related disorders with such compound and forms. As of December 31, 2022, 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, 2022, we also had one patent application pending in Brazil.
2032.
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, 2022, we owned 14 patents in
this family in various jurisdictions, including China, Europe and Japan, each of which will expire in 2036. We also had 5 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 directed to impurities of surufatinib and their preparation methods. With respect to this family, we had
will expire in 2035. As of December 31, 2022, we also had two patent applications pending in this family in Argentina and Brazil.
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 Chinese 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.
have an expiration date in 2039.
The seventh patent family is directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic
neuroendocrine tumors. 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 patent family is directed to the therapeutic combinations of surufatinib and chemotherapeutic agents. With respect to
this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041.
The ninth patent family is directed to solid dispersion of surufatinib. With respect to this family, we had one patent application
and any other indications that are approved according to the terms of the licensing agreement. For more details, please see “—Our
pending in China, which, if issued, would have an expiration date in 2041.
Collaborations—Epizyme.”
Fruquintinib—The intellectual property portfolio for fruquintinib contains five patent families.
HMPL-306—The intellectual property portfolio for HMPL-306 contains one patent family.
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, 2022, 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 16 patents in other jurisdictions including Europe
and Japan, each of which will expire in 2029.
The patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As
of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2038. As of December 31, 2022,
we also 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.
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, 2022, 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.
HMPL-760—The intellectual property portfolio for HMPL-760 contains one patent family.
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The second patent family is directed to the method for the preparation of savolitinib. As of December 31, 2022, we owned one
The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of
patent in this family in South Africa, which will expire in 2039. As of December 31, 2022, we also had 16 patent applications pending
fruquintinib. With respect to this patent family, we had one patent in China expiring in 2034.
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, 2022, 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, 2022, we also had one patent application pending in Brazil.
The second patent family is directed to the compound and crystalline forms of surufatinib as well as methods of treating tumor
angiogenesis-related disorders with such compound and forms. As of December 31, 2022, 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, 2022, 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, 2022, we owned 14 patents in
this family in various jurisdictions, including China, Europe and Japan, each of which will expire in 2036. We also had 5 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 directed to impurities of surufatinib and their preparation methods. 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 Chinese 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 fourth patent family is directed to the pharmaceutical composition of fruquintinib. As of December 31, 2022, 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 2041. This patent family is co-owned
by us and Genor Biopharma Co. Ltd.
Sovleplenib—The intellectual property portfolio for sovleplenib contains two patent families.
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, 2022, we owned
25 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in
2032.
The second patent family is directed to the salts of sovleplenib as well as crystalline forms thereof. As of December 31, 2022, we
owned four patents in this family in various jurisdictions, including the United States and Japan, each of which will expire in 2038. As
of December 31, 2022, we had 21 patent applications pending in this patent family in various jurisdictions, including China, the United
States and Europe, 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,
2022, 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, 2022, 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, 2022, 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
The seventh patent family is directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic
amdizalisib. With respect to this patent family, we had one patent in China expiring in 2038.
neuroendocrine tumors. 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.
Tazemetostat—The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc.
The eighth patent family is directed to the therapeutic combinations of surufatinib and chemotherapeutic agents. With respect to
this family, we had one patent application pending in China, which, if issued, would have an expiration date in 2041.
The ninth patent family is directed to solid dispersion of surufatinib. With respect to this family, we had one patent application
pending in China, which, if issued, would have an expiration date in 2041.
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.”
Fruquintinib—The intellectual property portfolio for fruquintinib contains five patent families.
HMPL-306—The intellectual property portfolio for HMPL-306 contains one patent family.
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, 2022, 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 16 patents in other jurisdictions including Europe
and Japan, each of which will expire in 2029.
The patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As
of December 31, 2022, we owned one patent in this family in the United States, which will expire in 2038. As of December 31, 2022,
we also 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.
The second patent family is directed to crystalline forms of fruquintinib as well as methods of treating tumor angiogenesis-related
HMPL-760—The intellectual property portfolio for HMPL-760 contains one patent family.
disorders with such forms. As of December 31, 2022, 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.
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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.
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, 2022, we owned one patent in this family in the United States, which
will expire in 2041. As of December 31, 2022, we also had 23 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 2041.
Patent Term
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, 2022, we owned 24 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, 2022, we had one patent application pending in Argentina.
The second patent family is directed to the salts of HMPL-453. As of December 31, 2022, we had 20 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 2040.
HMPL-295—The intellectual property portfolio for HMPL-295 contains one patent family.
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, 2022, in this patent family we had 24 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, 2022, in this patent family we had 22 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
2041.
Trade Secrets
HMPL-A83—The intellectual property portfolio for HMPL-A83 contains two patent families.
The first patent family is directed to novel anti-CD47 antibodies as well as methods of treating cancers with such antibodies.
As of December 31, 2022, in this patent family we had 22 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 2041.
The second patent family is subject to confidential review by the patent authorities. As of December 31, 2022, in this patent
family we had PCT, Argentina and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042.
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
Other Ventures Patents
As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 75 issued patents in China, (ii) one patent
granted in the U.S. and one granted patent in Canada under the Patent Cooperation Treaty, and (iii) 38 pending Chinese patent
applications and seven patent applications under the Patent Cooperation Treaty, among them, two of which were filed in China, including
patents for its key prescription products described below.
She Xiang Bao Xin Pills. As of December 31, 2022, 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, 2022, Shanghai Hutchison Pharmaceuticals also held an invention patent in China directed
to the formulation of the Danning tablet. This patent will expire in 2027.
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.
In addition, our joint ventures seek trademark protection for their products. As of December 31, 2022, our joint venture Shanghai
Hutchison Pharmaceuticals owned a total of 21 trademarks in China and one trademark in Canada 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.
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The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or
Patent Term
auto-immune diseases with such compounds. As of December 31, 2022, we owned one patent in this family in the United States, which
will expire in 2041. As of December 31, 2022, we also had 23 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 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, 2022, we owned 24 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, 2022, we had one patent application pending in Argentina.
The second patent family is directed to the salts of HMPL-453. As of December 31, 2022, we had 20 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 2040.
HMPL-295—The intellectual property portfolio for HMPL-295 contains one patent family.
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, 2022, in this patent family we had 24 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, 2022, in this patent family we had 22 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
2041.
HMPL-A83—The intellectual property portfolio for HMPL-A83 contains two patent families.
The first patent family is directed to novel anti-CD47 antibodies as well as methods of treating cancers with such antibodies.
As of December 31, 2022, in this patent family we had 22 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 2041.
The second patent family is subject to confidential review by the patent authorities. As of December 31, 2022, in this patent
family we had PCT, Argentina and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042.
Other Ventures Patents
As of December 31, 2022, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 75 issued patents in China, (ii) one patent
granted in the U.S. and one granted patent in Canada under the Patent Cooperation Treaty, and (iii) 38 pending Chinese patent
applications and seven patent applications under the Patent Cooperation Treaty, among them, two of which were filed in China, including
patents for its key prescription products described below.
She Xiang Bao Xin Pills. As of December 31, 2022, 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, 2022, Shanghai Hutchison Pharmaceuticals also held an invention patent in China directed
to the formulation of the Danning tablet. This patent will expire in 2027.
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.
In addition, our joint ventures seek trademark protection for their products. As of December 31, 2022, our joint venture Shanghai
Hutchison Pharmaceuticals owned a total of 21 trademarks in China and one trademark in Canada 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.
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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
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
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, 2020, 2021 and 2022, we generated revenue of $102.3 million, $188.9 million and $185.0 million
from our five largest customers, respectively. For the years ended December 31, 2020, 2021 and 2022, revenue from our five largest
customers represented approximately 45%, 53% and 43% of our total revenue, respectively, and revenue from our largest customer in
those periods represented approximately 16%, 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.
In 2020, 2021 and 2022, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers. Sales
to Sinopharm and/or its associates contributed 16%, 12% and 16% of our revenue in 2020, 2021 and 2022, respectively. Purchases from
Sinopharm and/or its associates contributed less than 1% of our total purchases in 2020, 2021 and 2022, respectively.
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For the years ended December 31, 2020, 2021 and 2022, the total purchases from our five largest suppliers were $58.0 million,
$100.6 million and $90.9 million, respectively. For the years ended December 31, 2020, 2021 and 2022, our purchases from our five
largest suppliers represented less than 20% of our total purchases. 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.
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.
Contract Research Organizations
Certificates and Permits
The following sets forth the material certificates and/or permits that we have obtained for our operations in China. We have received
all material certificates and permits that are, or may be, required for our operations in China. No material certificate, permission or
approval for our operations has been denied by relevant authorities in China. Given the uncertainties of interpretation and implementation
of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain
additional licenses, permits, filings or approvals for our products and business operations in China in the future, and may not be able to
maintain or renew our current licenses, permits, filings or approvals. In addition, rules and regulations in China can change quickly with
little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of an issuer with significant operations
in China, such as us, to obtain or maintain certificates, permits or licenses required to conduct business in China. In the absence of
required certificates, permits or licenses, governmental authorities could impose material sanctions or penalties on us.
HUTCHMED (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.
July 30, 2024.
December 31, 2025.
Shanghai Hutchison Pharmaceuticals holds a pharmaceutical manufacturing permit from its local regulatory authorities expiring on
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.
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, 2020, 2021 and 2022, we generated revenue of $102.3 million, $188.9 million and $185.0 million
from our five largest customers, respectively. For the years ended December 31, 2020, 2021 and 2022, revenue from our five largest
customers represented approximately 45%, 53% and 43% of our total revenue, respectively, and revenue from our largest customer in
those periods represented approximately 16%, 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.
In 2020, 2021 and 2022, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers. Sales
to Sinopharm and/or its associates contributed 16%, 12% and 16% of our revenue in 2020, 2021 and 2022, respectively. Purchases from
Sinopharm and/or its associates contributed less than 1% of our total purchases in 2020, 2021 and 2022, respectively.
For the years ended December 31, 2020, 2021 and 2022, the total purchases from our five largest suppliers were $58.0 million,
$100.6 million and $90.9 million, respectively. For the years ended December 31, 2020, 2021 and 2022, our purchases from our five
largest suppliers represented less than 20% of our total purchases. 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
The following sets forth the material certificates and/or permits that we have obtained for our operations in China. We have received
all material certificates and permits that are, or may be, required for our operations in China. No material certificate, permission or
approval for our operations has been denied by relevant authorities in China. Given the uncertainties of interpretation and implementation
of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain
additional licenses, permits, filings or approvals for our products and business operations in China in the future, and may not be able to
maintain or renew our current licenses, permits, filings or approvals. In addition, rules and regulations in China can change quickly with
little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of an issuer with significant operations
in China, such as us, to obtain or maintain certificates, permits or licenses required to conduct business in China. In the absence of
required certificates, permits or licenses, governmental authorities could impose material sanctions or penalties on us.
HUTCHMED (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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129
Regulatory Authorities
Highlights of the 2022 PRC Health Care Reforms include the following:
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;
open recruitment.
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 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.
More recently, on May 5, 2022, the General Office of the State Council issued the Key Tasks for Deepening the Reform of the
Medical and Health System in 2022 (the “2022 PRC Health Care Reforms”).
• The overall objectives of the 2022 PRC Health Care Reforms are to comprehensively promote construction of a healthy China,
deeply promote the experience of Sanming’s medical reforms (which refers to certain medical reforms undertaken in Sanming,
Fujian Province since 2012), promote the expansion and balanced distribution of high-quality medical resources, continue to
promote the transition from centering on disease treatment to centering on people’s health, and continue to promote solutions
to lack of and cost of access to medical care.
• According to the Sanming People’s Government website, the medical reforms that were undertaken in Sanming included but
were not limited to (1) reforms to the personnel and salary system of public hospitals, whereby Sanming implemented target
annual salaries for medical staff (being 3 times the average local salary), (2) introduction of competitive bidding processes in
order to reduce the costs of medicines, and (3) integration of medical insurance management institutions to reduce coordination
costs across departments. The 2022 PRC Health Care Reforms calls for promotion of Sanming’s medical reform experience,
including but not limited to (1) expansion of the scope of centralized procurement, whereby state and local governments in
each province should strive to have a total of more than 350 common drugs purchased; (2) reform of medical service prices,
whereby all provinces shall issue documents related to the establishment of a dynamic adjustment mechanism for medical
service prices before the end of June 2022, and (3) reform of the personnel and salary system of public hospitals, whereby
localities should be guided to make good use of staffing resources in light of their actual circumstances, and may explore the
recruitment of the best external qualified professional and technical personnel via strict and standardized procedures such as
• The 2022 PRC Health Care Reforms also promote high-quality development in medicine and healthcare, including but not
limited to (1) comprehensive and steady reform of public hospitals, whereby pilot provinces shall take the lead in exploring
and reviewing reform paths of public hospitals at all levels; (2) giving a greater role to government investment incentives; (3)
advancement of the national medical insurance program, such as promoting the improvement of the direct settlement of
expenses of inter-provincial and remote medical treatments, and unifying the scope of drugs covered by national medical
insurance across the country; (4) strengthening drug supply security, for example, by accelerating the granting of market
authorization to innovative drugs of clinical value; and (5) promotion of pilot projects for the revitalization of traditional
Chinese medicine. The 2022 PRC Health Care Reforms also call for (i) 35,000 general practitioners and 100,000 resident
doctors (including postgraduates with a master degree) to be trained through various approaches within the year, (ii) for the
enrollment of professional postgraduate students to be inclined towards areas facing skills shortages, such as general practice,
pediatrics, and psychiatry, and (iii) the promotion of telemecine services, which shall cover 95% of the country’s districts and
counties.
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.
130
131
Regulatory Authorities
Highlights of the 2022 PRC Health Care Reforms include the following:
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;
•
•
of cosmetics.
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
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 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.
More recently, on May 5, 2022, the General Office of the State Council issued the Key Tasks for Deepening the Reform of the
Medical and Health System in 2022 (the “2022 PRC Health Care Reforms”).
• The overall objectives of the 2022 PRC Health Care Reforms are to comprehensively promote construction of a healthy China,
deeply promote the experience of Sanming’s medical reforms (which refers to certain medical reforms undertaken in Sanming,
Fujian Province since 2012), promote the expansion and balanced distribution of high-quality medical resources, continue to
promote the transition from centering on disease treatment to centering on people’s health, and continue to promote solutions
to lack of and cost of access to medical care.
• According to the Sanming People’s Government website, the medical reforms that were undertaken in Sanming included but
were not limited to (1) reforms to the personnel and salary system of public hospitals, whereby Sanming implemented target
annual salaries for medical staff (being 3 times the average local salary), (2) introduction of competitive bidding processes in
order to reduce the costs of medicines, and (3) integration of medical insurance management institutions to reduce coordination
costs across departments. The 2022 PRC Health Care Reforms calls for promotion of Sanming’s medical reform experience,
including but not limited to (1) expansion of the scope of centralized procurement, whereby state and local governments in
each province should strive to have a total of more than 350 common drugs purchased; (2) reform of medical service prices,
whereby all provinces shall issue documents related to the establishment of a dynamic adjustment mechanism for medical
service prices before the end of June 2022, and (3) reform of the personnel and salary system of public hospitals, whereby
localities should be guided to make good use of staffing resources in light of their actual circumstances, and may explore the
recruitment of the best external qualified professional and technical personnel via strict and standardized procedures such as
open recruitment.
• The 2022 PRC Health Care Reforms also promote high-quality development in medicine and healthcare, including but not
limited to (1) comprehensive and steady reform of public hospitals, whereby pilot provinces shall take the lead in exploring
and reviewing reform paths of public hospitals at all levels; (2) giving a greater role to government investment incentives; (3)
advancement of the national medical insurance program, such as promoting the improvement of the direct settlement of
expenses of inter-provincial and remote medical treatments, and unifying the scope of drugs covered by national medical
insurance across the country; (4) strengthening drug supply security, for example, by accelerating the granting of market
authorization to innovative drugs of clinical value; and (5) promotion of pilot projects for the revitalization of traditional
Chinese medicine. The 2022 PRC Health Care Reforms also call for (i) 35,000 general practitioners and 100,000 resident
doctors (including postgraduates with a master degree) to be trained through various approaches within the year, (ii) for the
enrollment of professional postgraduate students to be inclined towards areas facing skills shortages, such as general practice,
pediatrics, and psychiatry, and (iii) the promotion of telemecine services, which shall cover 95% of the country’s districts and
counties.
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.
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131
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.
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 SAMR 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;
•
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 SFDA, 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 SFDA, and will have access to enhanced
communication channels with the SFDA. As of the date of this annual report, the SFDA has been succeeded by the SAMR and NMPA.
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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.
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 SAMR 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;
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 SFDA, 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 SFDA, and will have access to enhanced
communication channels with the SFDA. As of the date of this annual report, the SFDA has been succeeded by the SAMR and NMPA.
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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 SFDA (which, as of
the date of this annual report, has been succeeded by the SAMR and 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.
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.
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.
Drug Technology Transfer Regulations
On August 19, 2009, the SFDA 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.
Registration of Pharmaceutical Products
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.
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.
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.
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Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval: (i) active
Application for, and examination and approval of, drug technology transfer
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.
Drug Technology Transfer Regulations
On August 19, 2009, the SFDA 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.
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 SFDA (which, as of
the date of this annual report, has been succeeded by the SAMR and 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.
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.
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
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.
drugs with new drug certificates and drug approval numbers.
Registration of Pharmaceutical Products
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.
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.
drugs with respect to:
•
•
drugs with new drug certificates only; or
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.
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Good Manufacturing Practices
Administrative Protection for New Drugs
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 SFDA 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 SFDA 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.
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 CFDA 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 CFDA (which, as of the date of this annual
report, has been succeeded by the SAMR and 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.
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;
•
•
•
•
Rules.
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
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.
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Good Manufacturing Practices
Administrative Protection for New Drugs
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 SFDA 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 SFDA 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.
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 CFDA 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 CFDA (which, as of the date of this annual
report, has been succeeded by the SAMR and 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.
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;
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.
136
137
On December 26, 2016, the Medical Reform Office of the State Council, the National Health and Family Planning Commission,
the CFDA 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.
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
submission to the FDA of an IND application which must become effective before human clinical trials may begin and must
regulations;
be updated annually;
IRB approval before each clinical trial may be initiated;
indication;
preparation and submission to the FDA of an NDA;
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
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;
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
compliance with any post-approval requirements, such as REMS and post-approval studies required by FDA.
United States; and
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.
138
139
On December 26, 2016, the Medical Reform Office of the State Council, the National Health and Family Planning Commission,
Our drug candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United
the CFDA and other five government authorities promulgated the “Two-Invoice System” Opinions, which became effective on the same
States. The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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.
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.
•
•
•
•
•
•
•
•
•
•
•
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;
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.
138
139
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.
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
Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I, Phase II and
unacceptable deterioration over its shelf life.
Phase III clinical trials.
NDA Submission and FDA Review Process
• 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.
• 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.
of data or full or partial waivers.
• 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.
140
141
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.
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
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.
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.
• 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.
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.
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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.
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.
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.
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After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed
Abbreviated New Drug Applications for Generic Drugs
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.
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.
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.
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.
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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.
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 letter 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.
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.
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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 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.
Under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted by Congress in
Orphan Drug Designation and Exclusivity
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.
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 letter to sponsors who do not submit their pediatric assessments as required.
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.
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.
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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,
investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be
licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical drugs.
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.
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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.
The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical
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.
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.
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.
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.
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147
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.
her employer.
Coverage and Reimbursement
National Essential Medicines List
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
PRC 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 NHC, as of December 31, 2021, approximately 1.4 billion residents in China were enrolled in the national
medical insurance program, with participation rates remaining steadily above 95%. In 2021, total income of the National Basic Medical
Insurance Fund (including maternity insurance) reached RMB2,873.2 billion, an increase of 15.6% over the previous year.
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
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 (2022)” 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 (2022) and must not adjust the categories of drugs, remarks and the classification of drugs in the Drug
Catalog.
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 PRC Drug Administration Law Implementation Regulations,
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.
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.
148
149
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.
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.
Coverage and Reimbursement
National Essential Medicines List
PRC 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 NHC, as of December 31, 2021, approximately 1.4 billion residents in China were enrolled in the national
medical insurance program, with participation rates remaining steadily above 95%. In 2021, total income of the National Basic Medical
Insurance Fund (including maternity insurance) reached RMB2,873.2 billion, an increase of 15.6% over the previous year.
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
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 (2022)” 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 (2022) and must not adjust the categories of drugs, remarks and the classification of drugs in the Drug
Catalog.
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 PRC Drug Administration Law Implementation Regulations,
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.
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.
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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.
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. On January 22, 2021, the General Office of the State Council issued the
Opinions on Promoting the Normalization and Institutionalization of the Centralized and Quantitative Procurement of Drugs, stating
that (i) the scope of procurement should focus on including drugs in the NDRL with large dosages and high purchase amounts and
gradually cover all kinds of drugs that are clinically necessary and of reliable quality that are marketed in China, so as to ensure that all
drugs that should be procured are exhausted, (ii) marketing authorization holders who have obtained drug registration certificates for
drugs within the scope of centralized procurement can, in principle, participate in centralized drug procurement, provided they meet the
requirements of centralized procurement in areas including but not limited to quality standards, production capacity and supply stability,
and (iii) all public medical institutions (including military medical institutions) should participate in centralized drug procurement, and
designated pharmacies shall follow the management requirements of designated agreements.
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.
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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.
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. On January 22, 2021, the General Office of the State Council issued the
Opinions on Promoting the Normalization and Institutionalization of the Centralized and Quantitative Procurement of Drugs, stating
that (i) the scope of procurement should focus on including drugs in the NDRL with large dosages and high purchase amounts and
gradually cover all kinds of drugs that are clinically necessary and of reliable quality that are marketed in China, so as to ensure that all
drugs that should be procured are exhausted, (ii) marketing authorization holders who have obtained drug registration certificates for
drugs within the scope of centralized procurement can, in principle, participate in centralized drug procurement, provided they meet the
requirements of centralized procurement in areas including but not limited to quality standards, production capacity and supply stability,
and (iii) all public medical institutions (including military medical institutions) should participate in centralized drug procurement, and
designated pharmacies shall follow the management requirements of designated agreements.
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.
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151
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.
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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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.
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 Healthcare Laws
Commercial Bribery
Other PRC Healthcare Laws
Advertising of Pharmaceutical Products
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).
Product Liability
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.
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.
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 issued by the National Health and Family Planning Commission and effective on March 1, 2014, 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.
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.
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.
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155
Other Healthcare Laws
Commercial Bribery
Other PRC Healthcare Laws
Advertising of Pharmaceutical Products
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.
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.
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 issued by the National Health and Family Planning Commission and effective on March 1, 2014, 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.
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.
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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.
Payments to Physicians
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.
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.
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.
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.
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.
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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.
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.
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.
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157
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, effective on December 17, 2012, and amended in 2015, 2018 and 2019,
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.
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’s total investment limit was previously
approved by or filed with the MOFCOM or its local counterpart by reference to both its registered capital and expected investment scale.
A foreign-invested enterprise was required to obtain approval from or file with the MOFCOM or its local counterpart for any increases
to its total investment limit.
During 2019 and 2020, a series of reforms concerning foreign-invested enterprises came into effect, including but not limited to the
Foreign Investment Law of the PRC, effective January 1, 2020; the Implementation Rules for the Foreign Investment Law, effective
January 1, 2020, and Measures on Reporting of Foreign Investment Information, effective January 1, 2020. The reformed rules do not
require foreign-invested enterprises to complete the abovementioned filing or approval with the MOFCOM in relation to total investment
limits; rather, pursuant to Measures on Reporting of Foreign Investment Information, during enterprise incorporation and subsequent
changes in commercial registration, foreign investors and foreign-invested enterprises (as applicable) shall submit investment
information to the MOFCOM or its local counterpart.
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 the
foreign-invested enterprise is entitled (i.e., the maximum amount of debt which the company may borrow from a foreign lender).
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 (where necessary) 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.
• 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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159
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, effective on December 17, 2012, and amended in 2015, 2018 and 2019,
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.
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’s total investment limit was previously
approved by or filed with the MOFCOM or its local counterpart by reference to both its registered capital and expected investment scale.
A foreign-invested enterprise was required to obtain approval from or file with the MOFCOM or its local counterpart for any increases
to its total investment limit.
During 2019 and 2020, a series of reforms concerning foreign-invested enterprises came into effect, including but not limited to the
Foreign Investment Law of the PRC, effective January 1, 2020; the Implementation Rules for the Foreign Investment Law, effective
January 1, 2020, and Measures on Reporting of Foreign Investment Information, effective January 1, 2020. The reformed rules do not
require foreign-invested enterprises to complete the abovementioned filing or approval with the MOFCOM in relation to total investment
limits; rather, pursuant to Measures on Reporting of Foreign Investment Information, during enterprise incorporation and subsequent
changes in commercial registration, foreign investors and foreign-invested enterprises (as applicable) shall submit investment
information to the MOFCOM or its local counterpart.
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 the
foreign-invested enterprise is entitled (i.e., the maximum amount of debt which the company may borrow from a foreign lender).
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 (where necessary) 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.
• 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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159
C. Organizational Structure
C. Organizational Structure
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023.
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023.
Public
Shareholders
CK Hutchison
Holdings Limited
Directors
59.4%
38.5%
2.1%
The Company
(Cayman Islands)
staff.
We also lease a 26,989 square foot facility in Florham Park, New Jersey where we house our U.S.-based clinical and regulatory
Oncology / Immunology
Other Ventures(3)
99.8%(1)
100.0%(2)
50.0%(4)
HUTCHMED Holdings Limited
(Cayman Islands)
HUTCHMED Limited
(PRC)
100.0%
100.0%
100.0%
HUTCHMED
International Corporation
(Delaware, USA)
HUTCHMED Holdings
(HK) Limited
(Hong Kong)
HUTCHMED
(Suzhou) Limited
(PRC)
Shanghai Hutchison
Pharmaceuticals Limited
(PRC)
51.0%(5)
Hutchison Whampoa
Sinopharm
Pharmaceuticals
(Shanghai) Company
Limited
(PRC)
Subsidiaries
Non-consolidated
Entity
Notes:
Notes:
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
Limited.
Limited.
(2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED
(2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED
Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and
Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and
future internally developed drug candidates are allocated to the Oncology/Immunology operations.
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
(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.
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. Shanghai Pharmaceuticals Holding Co.,
(4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co.,
Limited is the other 50.0% joint venture partner.
Limited is the other 50.0% joint venture partner.
(5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
(5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
D. Property, Plants and Equipment
D. Property, Plants and Equipment
We are headquartered in Hong Kong where we have our main administrative offices.
We are headquartered in Hong Kong where we have our main administrative offices.
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161
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. The
construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for
some projects into the facility in 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.
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 2.8 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 Item 3.A.
“Selected Financial Data,” 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 materially 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.
C. Organizational Structure
C. Organizational Structure
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023.
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of January 31, 2023.
Notes:
Notes:
Limited.
Limited.
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
(2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED
(2) Held through HUTCHMED Investment (HK) Limited, a 100.0% subsidiary of HUTCHMED Holdings Limited. HUTCHMED
Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and
Limited’s revenue generated by sales of, and royalties, manufacturing costs and services fees in connection with, our current and
future internally developed drug candidates are allocated to the Oncology/Immunology operations.
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
(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.
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. Shanghai Pharmaceuticals Holding Co.,
(4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding Co.,
Limited is the other 50.0% joint venture partner.
Limited is the other 50.0% joint venture partner.
(5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
(5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
D. Property, Plants and Equipment
D. Property, Plants and Equipment
We are headquartered in Hong Kong where we have our main administrative offices.
We are headquartered in Hong Kong where we have our main administrative offices.
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. The
construction and qualification of the Shanghai facility is expected to be completed in mid-2023 and technology transfer will start for
some projects into the facility in 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 and regulatory
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 2.8 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 Item 3.A.
“Selected Financial Data,” 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 materially 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 approximately 960 scientists and staff has created, developed and in-
licensed a deep portfolio of 14 drug candidates. We have advanced 14 oncology drug candidates to clinical trials in China, with four
also in active 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, have all been approved and launched in China and
the fourth, tazemetostat, has been approved and launched in Hainan Pilot Zone and submitted for registration in Hong Kong. All three
drugs are also in late-stage development outside of China. 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 $1,590 million in our Oncology/Immunology operations as of December 31, 2022, 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 $175.5 million, $291.7 million and $385.4 million for the years ended December 31,
2020, 2021 and 2022, 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 $72.8 million, $142.9 million and
$54.6 million for the years ended December 31, 2020, 2021 and 2022, 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 $228.0 million, $356.1 million and $426.4 million for the years ended December 31, 2020, 2021 and
2022, respectively. Net loss attributable to our company was $125.7 million, $194.6 million and $360.8 million for the years ended
December 31, 2020, 2021 and 2022, respectively.
Basis of Presentation
Our consolidated statements of operations data presented herein for the years ended December 31, 2022, 2021 and 2020 and our
consolidated balance sheet data presented herein as of December 31, 2022 and 2021 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 12 in clinical development. In addition, we are proactively making a
strategic shift to focus on the most advanced assets from our internal developed pipeline, that are most likely to drive near-term value.
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—Regulations.”
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 $174.8 million, $299.1 million and
$386.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, representing approximately 76.7%, 84.0% and
90.7% 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
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
borrowings.
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 our collaboration partners in the rest of the world. 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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163
Through our Oncology/Immunology operations, our team of approximately 960 scientists and staff has created, developed and in-
licensed a deep portfolio of 14 drug candidates. We have advanced 14 oncology drug candidates to clinical trials in China, with four
also in active 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, have all been approved and launched in China and
the fourth, tazemetostat, has been approved and launched in Hainan Pilot Zone and submitted for registration in Hong Kong. All three
drugs are also in late-stage development outside of China. 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 $1,590 million in our Oncology/Immunology operations as of December 31, 2022, 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 $175.5 million, $291.7 million and $385.4 million for the years ended December 31,
2020, 2021 and 2022, 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 $72.8 million, $142.9 million and
$54.6 million for the years ended December 31, 2020, 2021 and 2022, 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 $228.0 million, $356.1 million and $426.4 million for the years ended December 31, 2020, 2021 and
2022, respectively. Net loss attributable to our company was $125.7 million, $194.6 million and $360.8 million for the years ended
December 31, 2020, 2021 and 2022, respectively.
Basis of Presentation
Our consolidated statements of operations data presented herein for the years ended December 31, 2022, 2021 and 2020 and our
consolidated balance sheet data presented herein as of December 31, 2022 and 2021 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 12 in clinical development. In addition, we are proactively making a
strategic shift to focus on the most advanced assets from our internal developed pipeline, that are most likely to drive near-term value.
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—Regulations.”
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 $174.8 million, $299.1 million and
$386.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, representing approximately 76.7%, 84.0% and
90.7% 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 our collaboration partners in the rest of the world. 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 in China 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, and HMPL-A83, 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 (global collaboration with
AstraZeneca) and fruquintinib (collaboration with Eli Lilly in China and expected collaboration with Takeda outside of China). 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. In addition, under our collaboration 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. In the future, we
expect to receive such payments from our recently agreed Takeda collaboration as well. Revenue recognized in our consolidated
financial statements from such agreements with AstraZeneca and Eli Lilly totaled $29.7 million, $107.1 million and $129.4 million for
the years ended December 31, 2020, 2021 and 2022, respectively.
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 (a subsidiary of Ipsen Pharma SAS) 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 an aggregate of $5 million milestone payment to date and
is eligible to receive up to an additional $105 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.
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. Orpathys will be included as a Category B medicine in the updated NRDL, effective
from March 1, 2023.
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, 2022. There were 17 of its drugs included in the National Essential Medicine List, of
which two were in active production as of December 31, 2022. 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.”
Ability to Effectively Market Own-Brand and Third-Party Drugs
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.”
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 90%, 92% and 92% of its total revenue for the years ended December 31, 2020, 2021 and 2022, 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.
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Our manufacturing site in Suzhou produces commercial supplies of fruquintinib and surufatinib. Our commercial supplies of
China Government Insurance Reimbursement and Drug Pricing Policies
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 in China 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, and HMPL-A83, 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 (global collaboration with
AstraZeneca) and fruquintinib (collaboration with Eli Lilly in China and expected collaboration with Takeda outside of China). 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. In addition, under our collaboration 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. In the future, we
expect to receive such payments from our recently agreed Takeda collaboration as well. Revenue recognized in our consolidated
financial statements from such agreements with AstraZeneca and Eli Lilly totaled $29.7 million, $107.1 million and $129.4 million for
the years ended December 31, 2020, 2021 and 2022, respectively.
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 (a subsidiary of Ipsen Pharma SAS) 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 an aggregate of $5 million milestone payment to date and
is eligible to receive up to an additional $105 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.
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. Orpathys will be included as a Category B medicine in the updated NRDL, effective
from March 1, 2023.
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, 2022. There were 17 of its drugs included in the National Essential Medicine List, of
which two were in active production as of December 31, 2022. 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.”
Ability to Effectively Market Own-Brand and Third-Party Drugs
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.”
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 90%, 92% and 92% of its total revenue for the years ended December 31, 2020, 2021 and 2022, 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.
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165
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
usage based royalty exception.
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.
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
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-
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.
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 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
disposal of long-lived assets.
We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or
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.
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.
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 ("CECLs")
based on an expected loss model, which requires the consideration of forward-looking economic variables and conditions in the reserve
calculation across the portfolio.
Allowance for Current Expected Credit Losses ("CECLs")
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167
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
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.
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
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.
been used or where changes in the estimates are reasonably likely to occur from period to period, and a different estimate would
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 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.
possession and inventory risk of the goods.
Impairment of Long-lived Assets
Revenue from sales of goods is recognized when the customer takes possession of the goods. We have determined that this usually
We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or
occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales
disposal of long-lived assets.
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
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.
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.
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 ("CECLs")
based on an expected loss model, which requires the consideration of forward-looking economic variables and conditions in the reserve
calculation across the portfolio.
Allowance for Current Expected Credit Losses ("CECLs")
166
167
We estimate our allowances for CECLs 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 CECLs 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 CECLs 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
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, 2022, 2021 and 2020 and the selected consolidated balance sheet data as of December
31, 2022 and 2021 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 the years ended December 31, 2019 and
2018 and as of December 31, 2020, 2019 and 2018 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 (expense)/income
Interest income
Other income
Interest expense
Other expense
Net loss
share)
Net loss
Total other (expense)/income
Loss before income taxes and equity in earnings of equity investees
Income tax benefit/(expense)
Equity in earnings of equity investees, net of tax
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
Number of shares used in per share calculation—basic and diluted
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive loss
Less: Comprehensive loss/(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
Year Ended December 31,
2022
2021
2020
2019
2018
$’000 (except share and per share data)
314,329
266,199
203,606
175,990
426,409
356,128
227,976
204,890
(178,828)
(152,729)
(129,346)
5,293
41,275
23,741
507
26,310
14,954
(268,698)
(3,616)
(38,789)
(386,893)
(43,933)
(92,173)
(834,102)
(407,693)
—
9,599
1,833
(652)
(13,509)
(2,729)
(410,422)
283
49,753
(360,386)
(449)
(360,835)
4,256
27,428
18,995
525
15,064
23,661
(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)
5,484
3,734
9,771
491
4,890
—
7,637
2,584
15,532
494
2,653
—
(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)
(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
(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)
(0.43)
(0.25)
(0.18)
(0.16)
(0.11)
847,143,540
792,684,524
697,931,437
665,683,145
664,263,820
(360,386)
(167,041)
(115,517)
(103,679)
(71,286)
(8,469)
(368,855)
545
(368,310)
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)
2022
2021
2020
2019
2018
313,278
317,718
1,029,445
353,903
38,672
636,870
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
168
169
We estimate our allowances for CECLs 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 CECLs 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 CECLs 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
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, 2022, 2021 and 2020 and the selected consolidated balance sheet data as of December
31, 2022 and 2021 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 the years ended December 31, 2019 and
2018 and as of December 31, 2020, 2019 and 2018 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 (expense)/income
Interest income
Other income
Interest expense
Other expense
Total other (expense)/income
Loss before income taxes and equity in earnings of equity investees
Income tax benefit/(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 (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive loss
Less: Comprehensive loss/(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
Year Ended December 31,
2022
2021
2019
2020
$’000 (except share and per share data)
2018
314,329
5,293
41,275
23,741
507
26,310
14,954
426,409
(268,698)
(3,616)
(38,789)
(386,893)
(43,933)
(92,173)
(834,102)
(407,693)
—
9,599
1,833
(652)
(13,509)
(2,729)
(410,422)
283
49,753
(360,386)
(449)
(360,835)
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)
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)
(0.43)
(0.25)
(0.18)
(0.16)
(0.11)
847,143,540
(360,386)
792,684,524
(167,041)
697,931,437
(115,517)
665,683,145
(103,679)
664,263,820
(71,286)
(8,469)
(368,855)
545
(368,310)
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)
2022
2021
2020
2019
2018
313,278
317,718
1,029,445
353,903
38,672
636,870
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
168
169
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 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.
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
Investees.”
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
Subtotal
Total
57,057
13.4
33,937
9.5
11,329
41,275
23,741
507
26,310
14,954
163,844
257,272
5,293
262,565
426,409
9.7
5.5
0.1
6.2
3.5
38.4
27,428
18,995
525
7.7
5.3
0.2
3,734
9,771
491
15,064
23,661
119,610
4.2
6.7
33.6
4,890
—
30,215
60.3
1.3
61.6
100.0
232,262
4,256
236,518
356,128
1.2
65.2 192,277
5,484
66.4 197,761
100.0 227,976
5.0
1.7
4.3
0.2
2.1
—
13.3
84.3
2.4
86.7
100.0
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 up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture,
Shanghai Hutchison Pharmaceuticals, 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 $276.4 million, $332.6
million and $370.6 million for the years ended December 31, 2020, 2021 and 2022, 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
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 $232.4 million and $209.5 million for the year ended December 31, 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.
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.
Cost of Revenues
Costs of goods—third parties
Costs of goods—related parties
Costs of services—third parties
Total
2022
2021
2020
$’000
%
$’000
%
$’000
%
Year Ended December 31,
268,698
3,616
38,789
311,103
86.4
1.1
12.5
100.0
229,448
3,114
25,672
258,234
88.9
178,828
1.2
9.9
3,671
6,020
100.0
188,519
94.9
1.9
3.2
100.0
The following table sets forth the components of revenues of our Other Ventures by product type for the years indicated.
The following table sets forth the components of cost of revenues of our Other Ventures by product type for the years indicated.
Revenues—Other Ventures
Prescription drug products
Consumer health products
Total
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
237,293
25,272
262,565
90.4
9.6
100.0
204,091
32,427
236,518
86.3 165,072
32,689
13.7
100.0 197,761
83.5
16.5
100.0
Cost of Revenues—Other Ventures
Prescription drug products
Consumer health products
Total
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
228,968
12,943
241,911
94.6
5.4
100.0
196,375
17,053
92.0
158,910
8.0
17,500
213,428
100.0
176,410
90.1
9.9
100.0
170
171
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 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
Subtotal
Total
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
57,057
13.4
33,937
9.5
11,329
9.7
5.5
0.1
6.2
3.5
27,428
18,995
525
15,064
23,661
7.7
5.3
0.2
4.2
6.7
3,734
9,771
491
4,890
—
38.4
119,610
33.6
30,215
232,262
65.2 192,277
60.3
1.3
61.6
100.0
4,256
236,518
356,128
1.2
5,484
66.4 197,761
100.0 227,976
100.0
5.0
1.7
4.3
0.2
2.1
—
13.3
84.3
2.4
86.7
41,275
23,741
507
26,310
14,954
163,844
257,272
5,293
262,565
426,409
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 up till the end of September and from October 1, 2022 onwards, through our non-consolidated joint venture,
Shanghai Hutchison Pharmaceuticals, 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 $276.4 million, $332.6
million and $370.6 million for the years ended December 31, 2020, 2021 and 2022, 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 $232.4 million and $209.5 million for the year ended December 31, 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.
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.
Cost of Revenues
Costs of goods—third parties
Costs of goods—related parties
Costs of services—third parties
Total
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
268,698
3,616
38,789
311,103
86.4
1.1
12.5
100.0
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
The following table sets forth the components of revenues of our Other Ventures by product type for the years indicated.
The following table sets forth the components of cost of revenues of our Other Ventures by product type for the years indicated.
Revenues—Other Ventures
Prescription drug products
Consumer health products
Total
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
237,293
25,272
262,565
90.4
9.6
204,091
32,427
86.3 165,072
13.7
32,689
100.0
236,518
100.0 197,761
83.5
16.5
100.0
Cost of Revenues—Other Ventures
Prescription drug products
Consumer health products
Total
2022
$’000
%
Year Ended December 31,
2021
%
$’000
2020
%
$’000
228,968
12,943
241,911
94.6
5.4
100.0
196,375
17,053
213,428
92.0
8.0
100.0
158,910
17,500
176,410
90.1
9.9
100.0
170
171
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.
•
•
significant and changing government regulation; and
the timing and receipt of any regulatory approvals.
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)
HMPL-A83 (IgG4-type humanized anti-CD47
monoclonal antibody)
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
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
48,249
52,115
37,635
23,138
27,046
2,776
14,865
1,362
4,954
1,778
2,840
19,019
—
—
20,158
255,935
119,306
11,652
386,893
12.5
13.5
9.7
6.0
7.0
0.7
3.8
0.4
1.3
0.5
0.7
4.9
—
—
5.2
66.2
30.8
3.0
100.0
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
—
—
5,341
28,254
32,106
7,422
7,383
1,356
5,389
—
—
—
—
4.1
—
—
(0.4)
63.6
30.6
5.8
100.0
—
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
The following table summarizes our research and development expenses by location for the years indicated.
Administrative expenses are also incurred by our corporate head office, which are not allocated to either Oncology/Immunology or
PRC
U.S. and others
Total
2022
Year Ended December 31,
2021
2020
$’000
215,963
170,930
386,893
%
55.8
44.2
100.0
$’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
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;
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.
future clinical study results;
uncertainties in clinical study enrollment rate;
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.
172
173
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
The following table sets forth the components of our selling expenses for the years indicated.
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
33,862
10,071
43,933
77.1
22.9
100.0
24,627
13,200
37,827
65.1
34.9
100.0
237
11,097
11,334
2.1
97.9
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.
The following table sets forth the components of our administrative expenses for the years indicated.
materially harmed.”
Selling Expenses
Selling Expenses
Oncology/Immunology
Other Ventures
Total
Administrative Expenses
Other Ventures.
Administrative Expenses
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
58,395
3,482
30,296
92,173
63.3
3.8
32.9
100.0
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
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.
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)
HMPL-A83 (IgG4-type humanized anti-CD47
monoclonal antibody)
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
PRC
U.S. and others
Total
2022
2021
2020
$’000
%
$’000
%
$’000
%
Year Ended December 31,
48,249
52,115
37,635
23,138
27,046
2,776
14,865
1,362
4,954
1,778
2,840
19,019
—
—
20,158
255,935
119,306
11,652
386,893
12.5
13.5
9.7
6.0
7.0
0.7
3.8
0.4
1.3
0.5
0.7
4.9
—
—
5.2
66.2
30.8
3.0
100.0
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
—
—
5,341
28,254
32,106
7,422
7,383
1,356
5,389
—
—
—
—
—
808
(74)
(0.4)
63.6
30.6
5.8
17,884
105,869
63,542
5,365
100.0
174,776
100.0
3.1
16.2
18.4
4.2
4.2
0.8
3.1
—
—
—
—
—
0.5
—
10.1
60.6
36.3
3.1
Year Ended December 31,
2022
2021
2020
$’000
215,963
170,930
386,893
%
55.8
44.2
100.0
$’000
159,038
140,048
299,086
%
53.2
46.8
$’000
111,473
63,303
100.0
174,776
%
63.8
36.2
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;
•
•
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
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
33,862
10,071
43,933
77.1
22.9
100.0
24,627
13,200
37,827
65.1
34.9
100.0
237
11,097
11,334
2.1
97.9
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.
The following table summarizes our research and development expenses by location 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
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
58,395
3,482
30,296
92,173
63.3
3.8
32.9
100.0
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
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.
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.
172
173
Equity in Earnings of Equity Investees
The following table shows our investments in our equity investees as of the dates indicated.
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 $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022 respectively.
Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was $45.6 million and $15.9 million for the
year ended December 31, 2020 and the period ended 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.
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
Shanghai Hutchison Pharmaceuticals
Others
Total
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
As of December 31,
2022
2021
$’000
73,461
316
73,777
75,999
480
76,479
As of December 31,
2022
2021
$’000
214,267
80,062
(147,952)
(4,944)
141,433
190,260
91,605
(128,993)
(7,131)
145,741
The following table shows the financial position of Shanghai Hutchison Pharmaceuticals as of the dates indicated.
Revenue
Other Ventures:
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan (1)
Total
370,600
—
370,600
100.0
332,648
— 209,528
542,176
100.0
61.4
38.6
100.0
276,354
232,368
508,722
54.3
45.7
100.0
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
Results of Operations
(1) On September 28, 2021, we completed the disposal of our equity interest in Hutchison Baiyunshan. Revenue in 2021 reflects the
be expected for any future period.
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(1)
Hutchison Baiyunshan(2)
Oncology/Immunology:
Others
Total
2022
Year Ended December 31,
2021
2020
$’000
%
$’000
%
$’000
%
49,748
—
5
49,753
100.0
44,678
— 15,919
73.7
26.3
33,502
45,641
42.4
57.7
—
100.0
20
60,617
—
100.0
(97)
79,046
(0.1)
100.0
Revenues
Cost of revenues
Research and development expenses
Selling expenses
Administrative expenses
Gain on divestment of an equity investee
Other (expense)/income
Income tax benefit/ (expense)
Equity in earnings of equity investees, net of tax
Net loss
Net loss attributable to our company
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
426,409
(311,103)
(386,893)
(43,933)
(92,173)
—
(2,729)
283
49,753
(360,386)
(360,835)
100.0
(73.1)
(90.7)
(10.3)
(21.6)
(0.6)
0.1
11.7
(84.5)
(84.6)
356,128 100.0
227,976
(258,234) (72.5)
(299,086) (84.0)
(37,827) (10.6)
(89,298)
(25.1)
(188,519)
(174,776)
(11,334)
(50,015)
(8,733)
(11,918)
60,617
34.1
(2.5)
(3.3)
17.0
—
6,934
(4,829)
79,046
(167,041) (46.9)
(115,517)
(194,648) (54.7)
(125,730)
100.0
(82.7)
(76.7)
(5.0)
(21.9)
—
3.0
(2.1)
34.7
(50.7)
(55.2)
— 121,310
Taxation
(1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the
Group of $36,000 and $110,000 respectively.
Cayman Islands
(2) 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.
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.”
Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. The fluctuation in the
investments in equity investees was primarily due to recording our equity in earnings of Shanghai Hutchison Pharmaceuticals, net of
tax, offset by dividends declared.
174
175
Equity in Earnings of Equity Investees
The following table shows our investments in our equity investees as of the dates indicated.
Shanghai Hutchison Pharmaceuticals
Others
Total
As of December 31,
2022
2021
$’000
73,461
316
73,777
75,999
480
76,479
The following table shows the financial position of Shanghai Hutchison Pharmaceuticals as of the dates indicated.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
As of December 31,
2022
2021
$’000
214,267
80,062
(147,952)
(4,944)
141,433
190,260
91,605
(128,993)
(7,131)
145,741
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.
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 $33.5 million, $44.7 million and $49.7 million for the years ended December 31, 2020, 2021 and 2022 respectively.
Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was $45.6 million and $15.9 million for the
year ended December 31, 2020 and the period ended 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
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
370,600
100.0
332,648
—
— 209,528
61.4
38.6
370,600
100.0
542,176
100.0
276,354
232,368
508,722
54.3
45.7
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.
Year Ended December 31,
2021
$’000
%
%
%
2020
2022
Equity in earnings of equity investees, net of tax
Other Ventures:
Shanghai Hutchison Pharmaceuticals(1)
Hutchison Baiyunshan(2)
Oncology/Immunology:
Others
Total
Year Ended December 31,
2022
2021
2020
$’000
%
$’000
%
$’000
%
49,748
100.0
44,678
— 15,919
73.7
26.3
33,502
45,641
—
20
—
(97)
49,753
100.0
60,617
100.0
79,046
—
5
42.4
57.7
(0.1)
100.0
Revenues
Cost of revenues
Research and development expenses
Selling expenses
Administrative expenses
Gain on divestment of an equity investee
Other (expense)/income
Income tax benefit/ (expense)
Equity in earnings of equity investees, net of tax
Net loss
Net loss attributable to our company
(1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the
Group of $36,000 and $110,000 respectively.
Cayman Islands
Taxation
$’000
426,409
(311,103)
(386,893)
(43,933)
(92,173)
—
(2,729)
283
49,753
(360,386)
(360,835)
100.0
(73.1)
(90.7)
(10.3)
(21.6)
356,128 100.0
(258,234) (72.5)
(299,086) (84.0)
(37,827) (10.6)
(25.1)
(89,298)
34.1
— 121,310
(2.5)
(8,733)
(3.3)
(11,918)
17.0
60,617
(167,041) (46.9)
(194,648) (54.7)
(0.6)
0.1
11.7
(84.5)
(84.6)
$’000
227,976
(188,519)
(174,776)
(11,334)
(50,015)
—
6,934
(4,829)
79,046
(115,517)
(125,730)
100.0
(82.7)
(76.7)
(5.0)
(21.9)
—
3.0
(2.1)
34.7
(50.7)
(55.2)
(2) 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.
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.”
Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. The fluctuation in the
investments in equity investees was primarily due to recording our equity in earnings of Shanghai Hutchison Pharmaceuticals, net of
tax, offset by dividends declared.
174
175
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.”
Revenue from Oncology/Immunology increased by 37.0% from $119.6 million for the year ended December 31, 2021 to $163.8
million for the year ended December 31, 2022, primarily due to an increase in revenue related to the sales of Sulanda from $11.6 million
for the year ended December 31, 2021 to $32.3 million for the year ended December 31, 2022. The increase was also attributable to the
sales of Elunate from $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) to $69.9 million for the year ended December 31, 2022 (of which $14.7 million was revenue from sales of goods primarily to Eli
Lilly, $13.9 million was royalty revenue and $41.3 million was revenue from promotion and marketing services to Eli Lilly). Sales of
Orpathys have also contributed to the increase in revenue from $11.3 million for the year ended December 31, 2021 (of which $6.5
million was revenue from sales of goods and $4.8 million was royalty revenue) to $22.3 million for the year ended December 31, 2022
(of which $9.9 million was revenue from sales of goods and $12.4 million was royalty revenue). The increase has been netted off by
reduction in revenue related to collaboration research and development services which have decreased from $42.7 million for the year
ended December 31, 2021 to $38.7 million for the year ended December 31, 2022, primarily attributable to receipt of a $25.0 million
milestone payment from AstraZeneca upon the commercial launch of Orpathys in August 2021 compared to the receipt of a $15.0
million milestone payment upon initiating start-up activities for a Global Phase III study of Orpathys in Lung Cancer in March 2022.
Such decrease has been netted off by the increase in revenue from other collaboration research and development from $17.7 million for
the year ended December 31, 2021 to $23.7 million for the year end December 31, 2022.
Revenue from our Other Ventures increased by 11.0% from $236.5 million for the year ended December 31, 2021 to $262.6 million
for the year ended December 31, 2022, primarily due to an increase in sales of prescription drugs products. Revenue from sales of
prescription drugs increased by 16.3% from $204.1 million for the year ended December 31, 2021 to $237.3 million for the year ended
December 31, 2022, primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. Revenue from sales of our
consumer health products on the other hand has decreased by 22.1% from $32.4 million for the year ended December 31, 2021 to $25.3
million for the year ended December 31, 2022, primarily due to decreased sales by our consolidated joint venture Hutchison Hain
Organic.
Cost of Revenues
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.
Our cost of revenues increased by 20.5% from $258.2 million for the year ended December 31, 2021 to $311.1 million for the year
ended December 31, 2022. This increase was due to increased sales by the Oncology/Immunology and Other Ventures operations.
Cost of revenues from Oncology/Immunology increased by 54.4% from $44.8 million for the year ended December 31, 2021 to
$69.2 million for the year ended December 31, 2022, primarily due to an increase in sales of Sulanda, Elunate (including the provision
of promotion and marketing services to Eli Lilly), and Orpathys.
Period-to-Period Comparison of Results of Operations
Cost of revenues from our Other Ventures increased by 13.3% from $213.4 million for the year ended December 31, 2021 to $241.9
million for the year ended December 31, 2022, which was primarily due to increased sales.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenues
Our revenue increased by 19.7% from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended
December 31, 2022, which resulted from increased revenue primarily in the Oncology/Immunology operations.
Cost of revenues as a percentage of our revenues increased from 72.5% to 73.0% across these periods.
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology increased by 29.4% from $299.1 million for the year
ended December 31, 2021 to $386.9 million for the year ended December 31, 2022, which was primarily due to a $65.9 million increase
in CROs and other clinical trial related costs and a $21.9 million increase in employee compensation related and other costs. These
increased costs were due to an expansion of clinical activities. In particular, this increase was attributable to the expansion of the clinical
activities of fruquintinib, savolitinib, amdizalisib and sovleplenib. Such increase was also attributable to the decrease in government
grants recognized. As a result, research and development expenses as a percentage of our revenue increased from 84.0% to 90.7% across
these periods.
Selling Expenses
Our selling expenses increased by 16.1% from $37.8 million for the year ended December 31, 2021 to $43.9 million for the year
ended December 31, 2022, primarily due to the increased marketing activities. Selling expenses as a percentage of our revenues
decreased from 10.6% to 10.3% across these periods.
176
177
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.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenues
Our revenue increased by 19.7% from $356.1 million for the year ended December 31, 2021 to $426.4 million for the year ended
December 31, 2022, which resulted from increased revenue primarily in the Oncology/Immunology operations.
Revenue from Oncology/Immunology increased by 37.0% from $119.6 million for the year ended December 31, 2021 to $163.8
million for the year ended December 31, 2022, primarily due to an increase in revenue related to the sales of Sulanda from $11.6 million
for the year ended December 31, 2021 to $32.3 million for the year ended December 31, 2022. The increase was also attributable to the
sales of Elunate from $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) to $69.9 million for the year ended December 31, 2022 (of which $14.7 million was revenue from sales of goods primarily to Eli
Lilly, $13.9 million was royalty revenue and $41.3 million was revenue from promotion and marketing services to Eli Lilly). Sales of
Orpathys have also contributed to the increase in revenue from $11.3 million for the year ended December 31, 2021 (of which $6.5
million was revenue from sales of goods and $4.8 million was royalty revenue) to $22.3 million for the year ended December 31, 2022
(of which $9.9 million was revenue from sales of goods and $12.4 million was royalty revenue). The increase has been netted off by
reduction in revenue related to collaboration research and development services which have decreased from $42.7 million for the year
ended December 31, 2021 to $38.7 million for the year ended December 31, 2022, primarily attributable to receipt of a $25.0 million
milestone payment from AstraZeneca upon the commercial launch of Orpathys in August 2021 compared to the receipt of a $15.0
million milestone payment upon initiating start-up activities for a Global Phase III study of Orpathys in Lung Cancer in March 2022.
Such decrease has been netted off by the increase in revenue from other collaboration research and development from $17.7 million for
the year ended December 31, 2021 to $23.7 million for the year end December 31, 2022.
Revenue from our Other Ventures increased by 11.0% from $236.5 million for the year ended December 31, 2021 to $262.6 million
for the year ended December 31, 2022, primarily due to an increase in sales of prescription drugs products. Revenue from sales of
prescription drugs increased by 16.3% from $204.1 million for the year ended December 31, 2021 to $237.3 million for the year ended
December 31, 2022, primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. Revenue from sales of our
consumer health products on the other hand has decreased by 22.1% from $32.4 million for the year ended December 31, 2021 to $25.3
million for the year ended December 31, 2022, primarily due to decreased sales by our consolidated joint venture Hutchison Hain
Organic.
Cost of Revenues
Our cost of revenues increased by 20.5% from $258.2 million for the year ended December 31, 2021 to $311.1 million for the year
ended December 31, 2022. This increase was due to increased sales by the Oncology/Immunology and Other Ventures operations.
Cost of revenues from Oncology/Immunology increased by 54.4% from $44.8 million for the year ended December 31, 2021 to
$69.2 million for the year ended December 31, 2022, primarily due to an increase in sales of Sulanda, Elunate (including the provision
of promotion and marketing services to Eli Lilly), and Orpathys.
Period-to-Period Comparison of Results of Operations
Cost of revenues from our Other Ventures increased by 13.3% from $213.4 million for the year ended December 31, 2021 to $241.9
million for the year ended December 31, 2022, which was primarily due to increased sales.
Cost of revenues as a percentage of our revenues increased from 72.5% to 73.0% across these periods.
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology increased by 29.4% from $299.1 million for the year
ended December 31, 2021 to $386.9 million for the year ended December 31, 2022, which was primarily due to a $65.9 million increase
in CROs and other clinical trial related costs and a $21.9 million increase in employee compensation related and other costs. These
increased costs were due to an expansion of clinical activities. In particular, this increase was attributable to the expansion of the clinical
activities of fruquintinib, savolitinib, amdizalisib and sovleplenib. Such increase was also attributable to the decrease in government
grants recognized. As a result, research and development expenses as a percentage of our revenue increased from 84.0% to 90.7% across
these periods.
Selling Expenses
Our selling expenses increased by 16.1% from $37.8 million for the year ended December 31, 2021 to $43.9 million for the year
ended December 31, 2022, primarily due to the increased marketing activities. Selling expenses as a percentage of our revenues
decreased from 10.6% to 10.3% across these periods.
176
177
Administrative Expenses
Our administrative expenses increased by 3.2% from $89.3 million for the year ended December 31, 2021 to $92.2 million for the
year ended December 31, 2022. This was primarily due to a $10.0 million increase in administrative expenses incurred by
Oncology/Immunology, which was mainly related to increased staff costs and other office expenses to support our expanded clinical
activities. Administrative expenses as a percentage of our revenues decreased from 25.1% to 21.6% 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 (Expense)/ Income
Our net other expenses decreased by 68.8% from $8.7 million for the year ended December 31, 2021 to $2.7 million for the year
ended December 31, 2022 primarily due to higher interest income of $7.5 million.
Income Tax Benefit/(Expense)
Our income tax expense decreased from $11.9 million for the year ended December 31, 2021 to $0.3 million income tax benefit for
the year ended December 31, 2022, primarily due to the capital gains taxes related to the disposal of our shareholding interest in
Hutchison Baiyunshan on September 28, 2021.
Net Loss
Equity in Earnings of Equity Investees
Cost of sales increased by 15.4% from $77.6 million for the year December 31, 2021 to $89.5 million for the year ended December
31, 2022, primarily due to higher sales of She Xiang Bao Xin pills. Shanghai Hutchison Pharmaceuticals’ revenue increased at a lower
rate than the cost of sales due to shut down costs associated with the temporary shutdown of the factory during the COVID-19 outbreak.
Selling expenses increased by 10.0% from $131.8 million for the year ended December 31, 2021 to $145.0 million for the year
ended December 31, 2022, as a result of increased spending on marketing and promotional activities to support the increase in sales.
Administrative expenses decreased by 4.0% from $22.6 million for the year ended December 31, 2021 to $21.7 million for the year
ended December 31, 2022, primarily due to a decrease in research and development expenses for new products.
Other net operating income decreased by 55.3% from $4.8 million for the year ended December 31, 2021 to $2.1 million for the
year ended December 31, 2022, primarily due to a decrease in government grants and interest income.
Taxation charge increased by 5.3% from $15.9 million for the year ended December 31, 2021 to $16.7 million for the year ended
December 31, 2022, primarily due to an increase in taxable profit.
As a result of the foregoing, profit increased by 11.5% from $89.4 million for the year ended December 31, 2021 to $99.7 million
for the year ended December 31, 2022. Our equity in earnings of equity investees contributed by this joint venture was $44.7 million
and $49.7 million for the years ended December 31, 2021 and 2022, 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.”
Our equity in earnings of equity investees, net of tax, decreased by 17.9% from $60.6 million for the year ended December 31, 2021
to $49.8 million for the year ended December 31, 2022, primarily due to the disposal of Hutchison Baiyunshan on September 28, 2021.
As a result of the foregoing, our net loss increased from $167.0 million for the year ended December 31, 2021 to $360.4 million for
the year ended December 31, 2022. Net loss attributable to our company increased from $194.6 million for the year ended December
31, 2021 to $360.8 million for the year ended December 31, 2022.
Shanghai Hutchison Pharmaceuticals
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated.
The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the
IASB and are presented separately elsewhere in this annual report.
For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020,
see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Equity in earnings of equity investee attributable to our company(1)
Year Ended December 31,
2022
2021
($’000)
370,600
(89,487)
(144,979)
(21,727)
2,126
(16,738)
99,683
49,748
%
100.0
(24.1)
(39.1)
(5.9)
0.5
(4.5)
26.9
13.4
($’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
(1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the
Group of $36,000 and $110,000 respectively.
our drug candidates.”
Shanghai Hutchison Pharmaceuticals’ revenue increased by 11.4% from $332.6 million for the year ended December 31, 2021 to
$370.6 million for the year ended December 31, 2022, 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 11.2% from $307.1 million for the year ended
December 31, 2021 to $341.6 million for the year ended December 31, 2022.
As of December 31, 2022, we had cash and cash equivalents of $313.3 million and short-term investments of $317.7 million and
unutilized bank facilities of $140.3 million. Substantially all of our bank deposits are at major financial institutions, which we believe
are of high credit quality. As of December 31, 2022, we had $18.1 million in bank loans, all of which was related to a fixed asset loan
from BOC. The total weighted average cost of bank borrowings for the year ended December 31, 2022 was 1.73% per annum. For
additional information, see “—Loan Facilities.”
178
179
March 3, 2022.
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
Gain on Divestment of an Equity Investee
Hutchison Baiyunshan.
Other (Expense)/ Income
Income Tax Benefit/(Expense)
Hutchison Baiyunshan on September 28, 2021.
Equity in Earnings of Equity Investees
Administrative Expenses
Our administrative expenses increased by 3.2% from $89.3 million for the year ended December 31, 2021 to $92.2 million for the
year ended December 31, 2022. This was primarily due to a $10.0 million increase in administrative expenses incurred by
Cost of sales increased by 15.4% from $77.6 million for the year December 31, 2021 to $89.5 million for the year ended December
31, 2022, primarily due to higher sales of She Xiang Bao Xin pills. Shanghai Hutchison Pharmaceuticals’ revenue increased at a lower
rate than the cost of sales due to shut down costs associated with the temporary shutdown of the factory during the COVID-19 outbreak.
Oncology/Immunology, which was mainly related to increased staff costs and other office expenses to support our expanded clinical
Selling expenses increased by 10.0% from $131.8 million for the year ended December 31, 2021 to $145.0 million for the year
activities. Administrative expenses as a percentage of our revenues decreased from 25.1% to 21.6% across these periods.
ended December 31, 2022, as a result of increased spending on marketing and promotional activities to support the increase in sales.
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
Other net operating income decreased by 55.3% from $4.8 million for the year ended December 31, 2021 to $2.1 million for the
Administrative expenses decreased by 4.0% from $22.6 million for the year ended December 31, 2021 to $21.7 million for the year
ended December 31, 2022, primarily due to a decrease in research and development expenses for new products.
Our net other expenses decreased by 68.8% from $8.7 million for the year ended December 31, 2021 to $2.7 million for the year
ended December 31, 2022 primarily due to higher interest income of $7.5 million.
year ended December 31, 2022, primarily due to a decrease in government grants and interest income.
Taxation charge increased by 5.3% from $15.9 million for the year ended December 31, 2021 to $16.7 million for the year ended
December 31, 2022, primarily due to an increase in taxable profit.
As a result of the foregoing, profit increased by 11.5% from $89.4 million for the year ended December 31, 2021 to $99.7 million
for the year ended December 31, 2022. Our equity in earnings of equity investees contributed by this joint venture was $44.7 million
and $49.7 million for the years ended December 31, 2021 and 2022, respectively.
Our income tax expense decreased from $11.9 million for the year ended December 31, 2021 to $0.3 million income tax benefit for
the year ended December 31, 2022, primarily due to the capital gains taxes related to the disposal of our shareholding interest in
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
Our equity in earnings of equity investees, net of tax, decreased by 17.9% from $60.6 million for the year ended December 31, 2021
to $49.8 million for the year ended December 31, 2022, primarily due to the disposal of Hutchison Baiyunshan on September 28, 2021.
As a result of the foregoing, our net loss increased from $167.0 million for the year ended December 31, 2021 to $360.4 million for
the year ended December 31, 2022. Net loss attributable to our company increased from $194.6 million for the year ended December
31, 2021 to $360.8 million for the year ended December 31, 2022.
Shanghai Hutchison Pharmaceuticals
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated.
The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the
IASB and are presented separately elsewhere in this annual report.
For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020,
see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on
March 3, 2022.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Year Ended December 31,
2022
2021
($’000)
370,600
(89,487)
(144,979)
(21,727)
2,126
(16,738)
99,683
49,748
%
100.0
(24.1)
(39.1)
(5.9)
0.5
(4.5)
26.9
13.4
($’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
Equity in earnings of equity investee attributable to our company(1)
(1) The amount for the years ended December 31, 2021 and 2022 includes elimination of unrealized profits on transactions with the
Group of $36,000 and $110,000 respectively.
Shanghai Hutchison Pharmaceuticals’ revenue increased by 11.4% from $332.6 million for the year ended December 31, 2021 to
$370.6 million for the year ended December 31, 2022, 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 11.2% from $307.1 million for the year ended
December 31, 2021 to $341.6 million for the year ended December 31, 2022.
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, 2022, we had cash and cash equivalents of $313.3 million and short-term investments of $317.7 million and
unutilized bank facilities of $140.3 million. Substantially all of our bank deposits are at major financial institutions, which we believe
are of high credit quality. As of December 31, 2022, we had $18.1 million in bank loans, all of which was related to a fixed asset loan
from BOC. The total weighted average cost of bank borrowings for the year ended December 31, 2022 was 1.73% per annum. For
additional information, see “—Loan Facilities.”
178
179
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 $44,000, $89,000 and $318,000 for the years
ended December 31, 2020, 2021 and 2022, 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, 2022. 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 $33.9 million in cash and cash equivalents
and no bank borrowings as of December 31, 2022. 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.”
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 generated from/(used in) investing activities
Net cash (used in)/generated from financing activities
Net (decrease)/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
2022
Year Ended December 31,
2021
($’000)
2020
(268,599)
296,588
(82,763)
(54,774)
(9,490)
377,542
313,278
(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
Net cash used in operating activities was $204.2 million for the year ended December 31, 2021, compared to net cash used in
operating activities of $268.6 million for the year ended December 31, 2022. The net change of $64.4 million was primarily attributable
to higher operating expenses of $149.7 million from $684.4 million for the year ended December 31, 2021 to $834.1 million for the year
ended December 31, 2022. The foregoing was partially offset by an increase in revenue of $70.3 million from $356.1 million for the
year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022 and an increase in changes of working capital
of $26.2 million from $32.5 million for the year ended December 31, 2021 to $58.7 million for the year ended December 31, 2022.
For a discussion of our net cash used in operating activities for the years ended December 31, 2021 and 2020, see Item 5.B.
“Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on
March 3, 2022.
Net Cash generated from/(used in) Investing Activities
Net cash used in investing activities was $306.3 million for the year ended December 31, 2021, compared to net cash generated
from investing activities of $296.6 million for the year ended December 31, 2022. The net change of $602.9 million was primarily
attributable to short-term investments which had net deposits of $434.6 million for the year ended December 31, 2021 as compared to
net withdrawals of $316.4 million for the year ended December 31, 2022. The net change was partially offset by the proceeds received
from divestment of Hutchison Baiyunshan of $159.1 million during the year ended December 31, 2021, compared to a dividend of $16.5
million received from divestment of the equity investee during the year ended December 31, 2022.
For a discussion of our net cash (used in)/generated from investing activities for the years ended December 31, 2021 and 2020, see
Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the
SEC on March 3, 2022.
Net Cash (used in)/generated from Financing Activities
Net cash generated from financing activities was $650.0 million for the year ended December 31, 2021, compared to net cash used
in financing activities of $82.8 million for the year ended December 31, 2022. The net change of $732.8 million was mainly attributable
to net proceeds from issuances of shares of $685.4 million primarily from a private placement in April 2021 and our public offering on
the SEHK. The net change was also attributable to an increase in purchases of ADSs of $20.8 million by a trustee for the settlement of
equity awards of the Company which totaled $27.3 million for the year ended December 31, 2021 as compared to $48.1 million for the
year ended December 31, 2022, as well as an increase in dividend paid to non-controlling shareholders of subsidiaries of $15.7 million
from $9.9 million for the year ended December 31, 2021 to $25.6 million for the year ended December 31, 2022.
For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2021 and 2020, see
Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the
The following table sets forth our contractual obligations as of December 31, 2022. For more information on bank borrowings and
interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant and equipment that are
contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various
factories, warehouse, offices and other assets under non-cancellable lease agreements. For more information on purchase obligations
and lease obligations, please see “—Capital Expenditures.”
SEC on March 3, 2022.
Contractual Obligations
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
Total
Payment Due by Period
Less Than
Total
1 Year 1‑2 Years 2‑5 Years
More Than
5 Years
18,104
4,294
22,130
10,122
54,650
—
318
20,323
4,498
25,139
($’000)
—
636
161
3,431
4,228
2,278
1,837
1,646
2,078
7,839
15,826
1,503
—
115
17,444
180
181
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 $44,000, $89,000 and $318,000 for the years
ended December 31, 2020, 2021 and 2022, 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, 2022. 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 $33.9 million in cash and cash equivalents
and no bank borrowings as of December 31, 2022. 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.”
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 generated from/(used in) investing activities
Net cash (used in)/generated from financing activities
Net (decrease)/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
Year Ended December 31,
2022
2020
2021
($’000)
(268,599)
296,588
(82,763)
(54,774)
(9,490)
377,542
313,278
(204,223)
(306,320)
(62,066)
(125,441)
650,028
139,485
2,427
235,630
377,542
296,434
108,927
5,546
121,157
235,630
Net cash used in operating activities was $204.2 million for the year ended December 31, 2021, compared to net cash used in
operating activities of $268.6 million for the year ended December 31, 2022. The net change of $64.4 million was primarily attributable
to higher operating expenses of $149.7 million from $684.4 million for the year ended December 31, 2021 to $834.1 million for the year
ended December 31, 2022. The foregoing was partially offset by an increase in revenue of $70.3 million from $356.1 million for the
year ended December 31, 2021 to $426.4 million for the year ended December 31, 2022 and an increase in changes of working capital
of $26.2 million from $32.5 million for the year ended December 31, 2021 to $58.7 million for the year ended December 31, 2022.
For a discussion of our net cash used in operating activities for the years ended December 31, 2021 and 2020, see Item 5.B.
“Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on
March 3, 2022.
Net Cash generated from/(used in) Investing Activities
Net cash used in investing activities was $306.3 million for the year ended December 31, 2021, compared to net cash generated
from investing activities of $296.6 million for the year ended December 31, 2022. The net change of $602.9 million was primarily
attributable to short-term investments which had net deposits of $434.6 million for the year ended December 31, 2021 as compared to
net withdrawals of $316.4 million for the year ended December 31, 2022. The net change was partially offset by the proceeds received
from divestment of Hutchison Baiyunshan of $159.1 million during the year ended December 31, 2021, compared to a dividend of $16.5
million received from divestment of the equity investee during the year ended December 31, 2022.
For a discussion of our net cash (used in)/generated from investing activities for the years ended December 31, 2021 and 2020, see
Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the
SEC on March 3, 2022.
Net Cash (used in)/generated from Financing Activities
Net cash generated from financing activities was $650.0 million for the year ended December 31, 2021, compared to net cash used
in financing activities of $82.8 million for the year ended December 31, 2022. The net change of $732.8 million was mainly attributable
to net proceeds from issuances of shares of $685.4 million primarily from a private placement in April 2021 and our public offering on
the SEHK. The net change was also attributable to an increase in purchases of ADSs of $20.8 million by a trustee for the settlement of
equity awards of the Company which totaled $27.3 million for the year ended December 31, 2021 as compared to $48.1 million for the
year ended December 31, 2022, as well as an increase in dividend paid to non-controlling shareholders of subsidiaries of $15.7 million
from $9.9 million for the year ended December 31, 2021 to $25.6 million for the year ended December 31, 2022.
For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2021 and 2020, see
Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the
SEC on March 3, 2022.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2022. For more information on bank borrowings and
interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant and equipment that are
contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various
factories, warehouse, offices and other assets under non-cancellable lease agreements. For more information on purchase obligations
and lease obligations, please see “—Capital Expenditures.”
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
Total
Payment Due by Period
Less Than
Total
1 Year 1‑2 Years 2‑5 Years
More Than
5 Years
18,104
4,294
22,130
10,122
54,650
—
318
20,323
4,498
25,139
($’000)
—
636
161
3,431
4,228
2,278
1,837
1,646
2,078
7,839
15,826
1,503
—
115
17,444
180
181
Shanghai Hutchison Pharmaceuticals
Capital Expenditures
The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals
as of December 31, 2022. 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
Loan Facilities
Payment Due by Period
Less Than
1 Year
1‑2 Years 2‑5 Years
More Than
5 Years
1,307
826
2,133
($’000)
—
757
757
—
660
660
—
—
—
Total
1,307
2,243
3,550
In May 2019, HUTCHMED Group (HK) Limited entered into a credit facility arrangement 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 which was repaid in May
2022. The revolving loan facility also expired in May 2022.
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. The revolving loan facility expired in August 2022.
In October 2021, 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 ($108.4 million) with an annual interest rate at the 5-year China Loan
Prime Rate less 0.80% (which was supplemented in June 2022). This credit facility is guaranteed by HUTCHMED Limited’s immediate
holding company, HUTCHMED Investment (HK) Limited, and secured by the underlying leasehold land and buildings of HUTCHMED
Limited, and includes certain financial covenant requirements. As of December 31, 2022, RMB126.1 million ($18.1 million) was utilized
from the fixed asset loan facility.
In May 2022, HUTCHMED Group (HK) Limited entered into a 12-month revolving credit facility with HSBC in the amount of
HK$390.0 million ($50.0 million) with an interest rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by us. As
of December 31, 2022, no amount was drawn from the revolving loan facility.
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of December 31,
2022.
Gearing Ratio
The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 2.8% as of
December 31, 2022, an increase from 2.6% as of December 31, 2021. The increase was primarily attributable to the decrease in equity
due to the increase in net loss during the year.
We had capital expenditures of $19.6 million, $16.8 million and $36.7 million for the years ended December 31, 2020, 2021 and
2022, 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 research
facilities and our manufacturing facility in Suzhou, China. Our capital expenditures have been primarily funded by cash flows from
operations, bank borrowings 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, 2022, we had commitments for capital expenditures of approximately $22.1 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 $2.4 million, $3.4 million and
$1.9 million for the years ended December 31, 2020, 2021 and 2022, respectively. These capital expenditures were primarily related to
the renovation of new office and improvements to its production facilities in Shanghai. These capital expenditures were primarily funded
through cash flows from operations of Shanghai Hutchison Pharmaceuticals.
C. Research and Development, Patents and Licenses, etc.
Full details of our research and development activities and expenditures are given in the “Business” and “Operating and Financial
Review and Prospects” sections of this annual report above.
Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources, or
that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition.
D. Trend Information.
E. Critical Accounting Estimates.
For information on our critical accounting estimates, please see “—Operating Results—Critical Accounting Policies and Significant
Judgments and Estimates” section of this annual report above.
182
183
Shanghai Hutchison Pharmaceuticals
Capital Expenditures
The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals
as of December 31, 2022. Shanghai Hutchison Pharmaceuticals’ purchase obligations comprise capital commitments for property, plant
and equipment contracted for but not yet paid. Shanghai Hutchison Pharmaceuticals’ lease obligations primarily comprise future
aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements.
Purchase obligations
Lease obligations
Total
Loan Facilities
Payment Due by Period
Less Than
Total
1 Year
1‑2 Years 2‑5 Years
1,307
2,243
3,550
1,307
826
2,133
($’000)
—
757
757
—
660
660
More Than
5 Years
—
—
—
In May 2019, HUTCHMED Group (HK) Limited entered into a credit facility arrangement 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 which was repaid in May
2022. The revolving loan facility also expired in May 2022.
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. The revolving loan facility expired in August 2022.
In October 2021, 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 ($108.4 million) with an annual interest rate at the 5-year China Loan
Prime Rate less 0.80% (which was supplemented in June 2022). This credit facility is guaranteed by HUTCHMED Limited’s immediate
holding company, HUTCHMED Investment (HK) Limited, and secured by the underlying leasehold land and buildings of HUTCHMED
Limited, and includes certain financial covenant requirements. As of December 31, 2022, RMB126.1 million ($18.1 million) was utilized
from the fixed asset loan facility.
In May 2022, HUTCHMED Group (HK) Limited entered into a 12-month revolving credit facility with HSBC in the amount of
HK$390.0 million ($50.0 million) with an interest rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by us. As
of December 31, 2022, no amount was drawn from the revolving loan facility.
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of December 31,
2022.
Gearing Ratio
The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 2.8% as of
December 31, 2022, an increase from 2.6% as of December 31, 2021. The increase was primarily attributable to the decrease in equity
due to the increase in net loss during the year.
We had capital expenditures of $19.6 million, $16.8 million and $36.7 million for the years ended December 31, 2020, 2021 and
2022, 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 research
facilities and our manufacturing facility in Suzhou, China. Our capital expenditures have been primarily funded by cash flows from
operations, bank borrowings 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, 2022, we had commitments for capital expenditures of approximately $22.1 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 $2.4 million, $3.4 million and
$1.9 million for the years ended December 31, 2020, 2021 and 2022, 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.
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 Results—Critical Accounting Policies and Significant
Judgments and Estimates” section of this annual report above.
182
183
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management.
Business Experience and Qualifications of our Directors and Senior Management
Below is a list of the names and ages of our directors and officers as of January 31, 2023, 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
TO Chi Keung, Simon
Weiguo SU
CHENG Chig Fung, Johnny
Edith SHIH
Dan ELDAR
Lefei SUN
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Michael Ming SHI
Karen Jane ATKIN
Zhenping WU
Mark Kin Hung LEE
May Qingmei WANG
Hong CHEN
Charles George Rupert NIXON
Age
Position
71 Executive Director and Chairman
65 Executive Director, Chief Executive Officer and Chief Scientific Officer
56 Executive Director and Chief Financial Officer
71 Non-executive Director and Company Secretary
69 Non-executive Director
43 Non-executive Director
62 Senior Independent Non-executive Director
Independent Non-executive Director
65
Independent Non-executive Director
72
Independent Non-executive Director
62
57 Executive Vice President, Head of R&D and Chief Medical Officer
57 Executive Vice President and Chief Operating Officer
63 Executive Vice President, Pharmaceutical Sciences and Manufacturing
45 Senior Vice President, Corporate Finance and Development
59 Senior Vice President, Business Development and Strategic Alliances
52 Senior Vice President and Chief Commercial Officer (China)
53 Group General Counsel
To Chi Keung, Simon has been a director since 2000 and an executive director and chairman of our Company 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 (“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 a non-executive director
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) 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.
Weiguo Su has been an executive director since 2017 and chief executive officer of our Company since March 4, 2022. He is also
our 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, 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.
Cheng Chig Fung, 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 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.
Edith Shih has been a non-executive director since 2006, the company secretary of our company 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 executive director and company secretary of CK
Hutchison. She has been with the Cheung Kong (Holdings) Limited (“CKH”) group since 1989 and with Hutchison Whampoa Limited
(“HWL”) since 1991. Both CKH and HWL were formerly listed on SEHK and 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 commissioner 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 our company and certain companies
controlled by certain substantial shareholders of our company. The aforementioned companies are either subsidiaries or associated
companies of CK Hutchison of which Ms. Shih has oversight as a director of CK Hutchison. She is a past international president and
current member of the council of The Chartered Governance Institute (“CGI”) as well as a past president and current honorary advisor
of The Hong Kong Chartered Governance Institute (“HKCGI”) and current chairperson of its nomination committee. Further, she
is also chairman of the process review panel for the Accounting and Financial Reporting Council (formerly known as the
Financial Reporting Council) and a member of the Securities and Futures Appeals Tribunal and of the Executive Committee and
Council of The Hong Kong Management Association. Ms. Shih is a solicitor qualified in England and Wales, Hong Kong and
Victoria, Australia and a fellow of both the CGI and HKCGI, holding chartered secretary and chartered governance professional dual
designations. She 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.
Dan Eldar has been a non-executive director of our 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.
Lefei Sun has been a non-executive director of our company since 2022. He is also a member of our technical committee. He has
been the managing director and head of China healthcare for General Atlantic since 2018, in charge of private equity investment and
portfolio management in healthcare and life sciences sectors. Before joining General Atlantic, Mr. Sun was the founding partner of
Huatai Healthcare Investment Fund, successfully leading the investment in Mindray Medical, which is listed on Shenzhen Stock
Exchange. Mr. Sun is also a director of Adagene Іnc. and Genesis MedTech Group Inc. He was formerly a director of CANbridge
Pharmaceuticals Іnc. and Ocumension Therapeutics Іnc. Mr. Sun holds a bachelor of science degree in mathematics and physics from
Tsinghua University. He also holds a master of arts degree in neuroscience from the Johns Hopkins University.
Paul Rutherford Carter has been a senior independent non-executive director of our company 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.
(“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 Immatics N.V. and
VectivBio Holding AG. He is the 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 and Mallinckrodt plc. 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.
184
185
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management.
Business Experience and Qualifications of our Directors and Senior Management
Below is a list of the names and ages of our directors and officers as of January 31, 2023, 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
TO Chi Keung, Simon
Weiguo SU
CHENG Chig Fung, Johnny
Edith SHIH
Dan ELDAR
Lefei SUN
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Michael Ming SHI
Karen Jane ATKIN
Zhenping WU
Mark Kin Hung LEE
May Qingmei WANG
Hong CHEN
Age
Position
71 Executive Director and Chairman
65 Executive Director, Chief Executive Officer and Chief Scientific Officer
56 Executive Director and Chief Financial Officer
71 Non-executive Director and Company Secretary
69 Non-executive Director
43 Non-executive Director
62 Senior Independent Non-executive Director
65
72
62
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
57 Executive Vice President, Head of R&D and Chief Medical Officer
57 Executive Vice President and Chief Operating Officer
63 Executive Vice President, Pharmaceutical Sciences and Manufacturing
45 Senior Vice President, Corporate Finance and Development
59 Senior Vice President, Business Development and Strategic Alliances
52 Senior Vice President and Chief Commercial Officer (China)
Charles George Rupert NIXON
53 Group General Counsel
To Chi Keung, Simon has been a director since 2000 and an executive director and chairman of our Company 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 (“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 a non-executive director
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) 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.
E. J. Corey.
Weiguo Su has been an executive director since 2017 and chief executive officer of our Company since March 4, 2022. He is also
our 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, 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
Cheng Chig Fung, 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 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.
Edith Shih has been a non-executive director since 2006, the company secretary of our company 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 executive director and company secretary of CK
Hutchison. She has been with the Cheung Kong (Holdings) Limited (“CKH”) group since 1989 and with Hutchison Whampoa Limited
(“HWL”) since 1991. Both CKH and HWL were formerly listed on SEHK and 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 commissioner 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 our company and certain companies
controlled by certain substantial shareholders of our company. The aforementioned companies are either subsidiaries or associated
companies of CK Hutchison of which Ms. Shih has oversight as a director of CK Hutchison. She is a past international president and
current member of the council of The Chartered Governance Institute (“CGI”) as well as a past president and current honorary advisor
of The Hong Kong Chartered Governance Institute (“HKCGI”) and current chairperson of its nomination committee. Further, she
is also chairman of the process review panel for the Accounting and Financial Reporting Council (formerly known as the
Financial Reporting Council) and a member of the Securities and Futures Appeals Tribunal and of the Executive Committee and
Council of The Hong Kong Management Association. Ms. Shih is a solicitor qualified in England and Wales, Hong Kong and
Victoria, Australia and a fellow of both the CGI and HKCGI, holding chartered secretary and chartered governance professional dual
designations. She 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.
Dan Eldar has been a non-executive director of our 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.
Lefei Sun has been a non-executive director of our company since 2022. He is also a member of our technical committee. He has
been the managing director and head of China healthcare for General Atlantic since 2018, in charge of private equity investment and
portfolio management in healthcare and life sciences sectors. Before joining General Atlantic, Mr. Sun was the founding partner of
Huatai Healthcare Investment Fund, successfully leading the investment in Mindray Medical, which is listed on Shenzhen Stock
Exchange. Mr. Sun is also a director of Adagene Іnc. and Genesis MedTech Group Inc. He was formerly a director of CANbridge
Pharmaceuticals Іnc. and Ocumension Therapeutics Іnc. Mr. Sun holds a bachelor of science degree in mathematics and physics from
Tsinghua University. He also holds a master of arts degree in neuroscience from the Johns Hopkins University.
Paul Rutherford Carter has been a senior independent non-executive director of our company 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.
(“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 Immatics N.V. and
VectivBio Holding AG. He is the 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 and Mallinckrodt plc. 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.
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Karen Jean Ferrante has been an independent non-executive director of our company 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
had also held positions of increasing responsibility at Pfizer Inc. (“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.). 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. She was also a past
member of the Scientific Advisory Board of Kazia Therapeutics Limited. 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.
Graeme Allan Jack has been an independent non-executive director of our company 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 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.
Mok Shu Kam, Tony has been an independent non-executive director of our company since 2017. He is also 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. Professor Mok is a non-executive director of
AstraZeneca PLC, a non-executive independent director of Lunit USA Inc and a member of the scientific advisory board of Prenetics
Global Limited (“Prenetics”). He is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings Ltd. in November 2021)
and Aurora Tele-Oncology Limited. He was formerly a board director of the American Society of Clinical Oncology (“ASCO”), a
steering committee member of the Chinese Society of Clinical Oncology, past president of the International Association for the Study
of Lung Cancer, and the chairman of the board of ACT Genomics Holdings Ltd. until it was acquired by Prenetics in December 2022.
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.
Michael Ming Shi is our executive vice president, head of R&D and chief medical officer, oversees the drug discovery
and development of our Company from strategy to execution. Prior to joining our company in 2022, Dr. Shi was the global head of
R&D and chief medical officer at Transcenta Holding Limited where he helped build a strong global research and development
organization across China and the U.S. and advanced seven programs into clinical development and multiple preclinical candidate
nominations. Before that, Dr. Shi worked at Novartis for over 15 years, where he held various senior leadership positions including
global program clinical head in clinical development. He played key leadership roles in the clinical development of multiple novel
oncology/hematology products from clinical proof-of-concept to successful execution of global pivotal trials, product registration and
life-cycle management. Dr. Shi is a member of the American Society of Clinical Oncology, European Society of Clinical
Oncology, American Society of Hematology, American Association for Cancer Research, Sino-American Pharmaceutical
Association and an executive committee member of the US-China Anticancer Association (USCACA). Dr. Shi also worked as the
program director of genetics variation at National Institues of Health (“NIH”) under the direct supervision of former NIH
director Dr. Francis Collins and was an adjunct assistant professor at the University of Michigan Medical School. Dr. Shi holds a
PhD in molecular pharmacology and toxicology from the University of Southern California, and conducted postdoctoral research
at the Harvard Medical School. He received his medical education from Peking Union Medical College.
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 branch 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 a master of business administration from the Open University, and 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 is our executive vice president of pharmaceutical sciences and manufacturing. Dr.
Wu has over 29 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
PhD from the University of Hong Kong and a master in business administration from the University of California at Irvine.
Mark Kin Hung Lee 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.
May Qingmei Wang is our senior vice president of business development and 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 PhD 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.
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) 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 LLB (Hons) from
Middlesex University and is a qualified solicitor in England & Wales with over 30 years of experience.
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Karen Jean Ferrante has been an independent non-executive director of our company 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
had also held positions of increasing responsibility at Pfizer Inc. (“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.). 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. She was also a past
member of the Scientific Advisory Board of Kazia Therapeutics Limited. 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.
Graeme Allan Jack has been an independent non-executive director of our company 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 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.
Mok Shu Kam, Tony has been an independent non-executive director of our company since 2017. He is also 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. Professor Mok is a non-executive director of
AstraZeneca PLC, a non-executive independent director of Lunit USA Inc and a member of the scientific advisory board of Prenetics
Global Limited (“Prenetics”). He is co-founder of Sanomics Limited (acquired by ACT Genomics Holdings Ltd. in November 2021)
and Aurora Tele-Oncology Limited. He was formerly a board director of the American Society of Clinical Oncology (“ASCO”), a
steering committee member of the Chinese Society of Clinical Oncology, past president of the International Association for the Study
of Lung Cancer, and the chairman of the board of ACT Genomics Holdings Ltd. until it was acquired by Prenetics in December 2022.
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.
Michael Ming Shi is our executive vice president, head of R&D and chief medical officer, oversees the drug discovery
and development of our Company from strategy to execution. Prior to joining our company in 2022, Dr. Shi was the global head of
R&D and chief medical officer at Transcenta Holding Limited where he helped build a strong global research and development
organization across China and the U.S. and advanced seven programs into clinical development and multiple preclinical candidate
nominations. Before that, Dr. Shi worked at Novartis for over 15 years, where he held various senior leadership positions including
global program clinical head in clinical development. He played key leadership roles in the clinical development of multiple novel
oncology/hematology products from clinical proof-of-concept to successful execution of global pivotal trials, product registration and
life-cycle management. Dr. Shi is a member of the American Society of Clinical Oncology, European Society of Clinical
Oncology, American Society of Hematology, American Association for Cancer Research, Sino-American Pharmaceutical
Association and an executive committee member of the US-China Anticancer Association (USCACA). Dr. Shi also worked as the
program director of genetics variation at National Institues of Health (“NIH”) under the direct supervision of former NIH
director Dr. Francis Collins and was an adjunct assistant professor at the University of Michigan Medical School. Dr. Shi holds a
PhD in molecular pharmacology and toxicology from the University of Southern California, and conducted postdoctoral research
at the Harvard Medical School. He received his medical education from Peking Union Medical College.
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 branch 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 a master of business administration from the Open University, and 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 is our executive vice president of pharmaceutical sciences and manufacturing. Dr.
Wu has over 29 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
PhD from the University of Hong Kong and a master in business administration from the University of California at Irvine.
Mark Kin Hung Lee 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.
May Qingmei Wang is our senior vice president of business development and 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 PhD 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.
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) 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 LLB (Hons) from
Middlesex University and is a qualified solicitor in England & Wales with over 30 years of experience.
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Board Diversity
Employment Arrangements with our Executive Officers
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 February 28, 2023)
Place of Principal Executive Offices
Foreign Private Issuer
Disclosure Prohibited under Home Country Law
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Place of Principal Executive Offices
LGBTQ+
Did Not Disclose Demographic Background
Hong Kong
Yes
No
10
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, 2022 to our chief
executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis.
Salary
and fees
($)
Bonus(3)
($)
774,940 (1) 1,126,563
404,415 (2)
443,077
3,748,868
3,082,493
Name and Principal Position
Weiguo SU
CHENG Chig Fung, Johnny
Other Executive Officers in the Aggregate
Notes:
(1) Amount includes director’s fees of $75,000.
(2) Amount includes director’s fees of $75,000.
Taxable Non-taxable Pension
benefits
benefits
($)
($)
—
6,548
— 10,577
101,846
contributions
($)
64,217
29,018
183,020
26,646
Total
($)
1,972,268
887,087
7,142,873
(3) 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. In
2022, we awarded $322,188 of such cash retention bonuses.
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Employment Agreements with Executive Officers at HUTCHMED Group (HK) Limited and HUTCHMED Holdings (HK)
Limited
We have entered into employment agreements with each of our executive officers who are directly employed by HUTCHMED
Group (HK) Limited or HUTCHMED Holdings (HK) Limited, namely Mr. Cheng Chig Fung, Johnny, Dr. Karen Jane Atkin, Mr.
Mark Kin Hung Lee and Mr. Charles George Rupert Nixon. Under these employment agreements, 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
officers 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.
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. Michael Ming Shi, Dr. May Qingmei Wang 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.
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 directly employed by
Hutchison Sinopharm. Under his employment agreement with Hutchison Sinopharm, 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.
Board Diversity
Employment Arrangements with our Executive Officers
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 February 28, 2023)
Place of Principal Executive Offices
Foreign Private Issuer
Disclosure Prohibited under Home Country Law
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Place of Principal Executive Offices
LGBTQ+
Did Not Disclose Demographic Background
B. Compensation.
Summary Compensation Table
Executive Officer Compensation
Hong Kong
Yes
No
10
Female
Male
Non-Binary
Gender
Did Not Disclose
2
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2022 to our chief
executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis.
Salary
and fees
($)
Bonus(3)
($)
774,940 (1) 1,126,563
404,415 (2)
3,082,493
443,077
3,748,868
Taxable Non-taxable Pension
benefits
benefits
contributions
($)
—
($)
6,548
— 10,577
($)
64,217
29,018
26,646
101,846
183,020
Total
($)
1,972,268
887,087
7,142,873
Name and Principal Position
Weiguo SU
CHENG Chig Fung, Johnny
Other Executive Officers in the Aggregate
Notes:
(1) Amount includes director’s fees of $75,000.
(2) Amount includes director’s fees of $75,000.
(3) 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. In
2022, we awarded $322,188 of such cash retention bonuses.
Employment Agreements with Executive Officers at HUTCHMED Group (HK) Limited and HUTCHMED Holdings (HK)
Limited
We have entered into employment agreements with each of our executive officers who are directly employed by HUTCHMED
Group (HK) Limited or HUTCHMED Holdings (HK) Limited, namely Mr. Cheng Chig Fung, Johnny, Dr. Karen Jane Atkin, Mr.
Mark Kin Hung Lee and Mr. Charles George Rupert Nixon. Under these employment agreements, 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
officers 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.
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. Michael Ming Shi, Dr. May Qingmei Wang 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.
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 directly employed by
Hutchison Sinopharm. Under his employment agreement with Hutchison Sinopharm, 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.
188
189
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.
Long-Term Incentive Compensation
The following table sets forth information regarding performance based LTIP awards granted to our chief executive officer and
chief scientific officer, chief financial officer and other executive officers on an aggregate basis in the year ended December 31, 2022.
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 and chief
scientific officer, chief financial officer and other executive officers on an aggregate basis as of December 31, 2022.
Notes:
Name and Principal Position
Weiguo SU, Chief Executive Officer and Chief Scientific Officer
CHENG Chig Fung, Johnny, Chief Financial Officer
Other Executive Officers in the Aggregate
Maximum
Aggregate
Value
of
LTIP awards(1)(2)(3)
$
$
$
3,232,845
680,242
3,410,498
Jun 15, 2016
2,736,860
— £
1.970
200,000
— Dec 19, 2023
on September 13, 2023, September 13, 2024, September 13, 2025 and September 13, 2026 respectively.
Date of grant of
share options(1)
Jun 15, 2016
Mar 27, 2017
Mar 19, 2018
Apr 28, 2020
Dec 14, 2020
Mar 26, 2021
Dec 14, 2021
May 23, 2022
Apr 28, 2020
Mar 26, 2021
May 23, 2022
Number of
unexercised shares
which are
vested
3,000,000
1,000,000
1,000,000
394,850 (= 78,970 ADSs)
9,480 (= 1,896 ADSs)
70,600 (= 14,120 ADSs)
6,230 (= 1,246 ADSs)
—
200,950 (= 40,190 ADSs)
60,125 (= 12,025 ADSs)
—
Number of
unexercised shares
which are
unvested
Exercise price
1.970
3.105
4.974
22.090
29.000
27.940
35.210
10.750
22.090
27.940
10.750
— £
— £
— £
$
$
$
$
$
$
$
$
394,850 (= 78,970 ADSs)
9,480 (= 1,896 ADSs)
211,800 (= 42,360 ADSs)
18,700 (= 3,740 ADSs)
861,220 (= 172,244 ADSs)
200,950 (= 40,190 ADSs)
180,375 (= 36,075 ADSs)
446,600 (= 89,320 ADSs)
Apr 20, 2018
Aug 6, 2018
Dec 11, 2019
701,100
375,000
300,000
— £
4.645
— £
4.860
100,000
Apr 28, 2020
879,200 (= 175,840 ADSs)
879,200 (= 175,840 ADSs)
Dec 14, 2020
154,930 (= 30,986 ADSs)
154,960 (= 30,992 ADSs)
Mar 26, 2021
257,775 (= 51,555 ADSs)
773,325 (= 154,665 ADSs)
Dec 14, 2021
89,225 (= 17,845 ADSs)
267,730 (= 53,546 ADSs)
May 23, 2022
— 1,015,800 (= 203,160 ADSs)
Sep 13, 2022
— 1,500,000 (= 300,000 ADSs)
£
$
$
$
$
$
$
3.592
22.090
29.000
27.940
35.210
10.750
13.140
Number of
Number of
shares issued options lapsed/
upon exercise
in 2022
cancelled in
2022
Option
expiration
date
—
—
—
—
—
—
—
—
—
—
—
— Dec 19, 2023
— Mar 26, 2027
— Mar 18, 2028
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Apr 27, 2030
— Mar 25, 2031
— May 22, 2032
—
—
—
—
—
—
—
—
—
— Apr 19, 2028
— Aug 5, 2028
— Dec 10, 2029
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Sep 12, 2032
Name and Principal Position
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
CHENG Chig Fung, Johnny
CHENG Chig Fung, Johnny
CHENG Chig Fung, Johnny
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Other Executive Officers in the
Aggregate
Notes:
(1) 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.
Notes:
190
191
(1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of December
31, 2022. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal year 2022. 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” for more details.
(2) Vesting will occur two business days after the date of the announcement of our annual results for the financial year 2024.
(3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive Officer
in an amount of US$1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares will be vested
The following table sets forth a summary of the compensation we paid to our directors other than Weiguo Su and Cheng Chig Fung,
Johnny during 2022.
Director Compensation
Name of Director
TO Chi Keung, Simon
Dan ELDAR
Edith SHIH
Lefei SUN
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Maximum Value of Non-
Fees Earned or Performance Based LTIP
Paid in Cash
Awards Granted
$
$
$
$
$
85,000 (1)
—
— (2)
—
117,000
102,500
111,000
103,000
—
—
—
—
—
—
—
—
(1) 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 an intermediate holding company of
our company are not included in the amounts above.
(2) Director’s fees received from our subsidiaries during the period she served as director that were paid to a subsidiary of CK Hutchison
are not included.
Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and sanitation
Long-Term Incentive Compensation
requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or indirectly which is
The following table sets forth information regarding performance based LTIP awards granted to our chief executive officer and
chief scientific officer, chief financial officer and other executive officers on an aggregate basis in the year ended December 31, 2022.
The following table sets forth information concerning the outstanding equity awards held by our chief executive officer and chief
scientific officer, chief financial officer and other executive officers on an aggregate basis as of December 31, 2022.
Notes:
Name and Principal Position
Weiguo SU, Chief Executive Officer and Chief Scientific Officer
CHENG Chig Fung, Johnny, Chief Financial Officer
Other Executive Officers in the Aggregate
of
Maximum
Aggregate
Value
LTIP awards(1)(2)(3)
3,232,845
$
680,242
$
3,410,498
$
(1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of December
31, 2022. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal year 2022. 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” for more details.
(2) Vesting will occur two business days after the date of the announcement of our annual results for the financial year 2024.
— £
1.970
200,000
— Dec 19, 2023
(3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive Officer
in an amount of US$1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares will be vested
on September 13, 2023, September 13, 2024, September 13, 2025 and September 13, 2026 respectively.
The following table sets forth a summary of the compensation we paid to our directors other than Weiguo Su and Cheng Chig Fung,
Johnny during 2022.
Director Compensation
Maximum Value of Non-
Fees Earned or Performance Based LTIP
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
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
Weiguo SU
CHENG Chig Fung, Johnny
CHENG Chig Fung, Johnny
CHENG Chig Fung, Johnny
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Other Executive Officers in the
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Notes:
Name and Principal Position
Date of grant of
share options(1)
which are
vested
Number of
unexercised shares
Number of
unexercised shares
which are
unvested
Number of
Number of
shares issued options lapsed/
upon exercise
cancelled in
Exercise price
in 2022
2022
394,850 (= 78,970 ADSs)
9,480 (= 1,896 ADSs)
70,600 (= 14,120 ADSs)
6,230 (= 1,246 ADSs)
394,850 (= 78,970 ADSs)
9,480 (= 1,896 ADSs)
211,800 (= 42,360 ADSs)
18,700 (= 3,740 ADSs)
—
861,220 (= 172,244 ADSs)
Apr 28, 2020
200,950 (= 40,190 ADSs)
60,125 (= 12,025 ADSs)
200,950 (= 40,190 ADSs)
180,375 (= 36,075 ADSs)
446,600 (= 89,320 ADSs)
Jun 15, 2016
Mar 27, 2017
Mar 19, 2018
Apr 28, 2020
Dec 14, 2020
Mar 26, 2021
Dec 14, 2021
May 23, 2022
Mar 26, 2021
May 23, 2022
Jun 15, 2016
Apr 20, 2018
Aug 6, 2018
Dec 11, 2019
3,000,000
1,000,000
1,000,000
—
2,736,860
701,100
375,000
300,000
Apr 28, 2020
879,200 (= 175,840 ADSs)
879,200 (= 175,840 ADSs)
22.090
Dec 14, 2020
154,930 (= 30,986 ADSs)
154,960 (= 30,992 ADSs)
29.000
Mar 26, 2021
257,775 (= 51,555 ADSs)
773,325 (= 154,665 ADSs)
27.940
Dec 14, 2021
89,225 (= 17,845 ADSs)
267,730 (= 53,546 ADSs)
35.210
May 23, 2022
— 1,015,800 (= 203,160 ADSs)
10.750
Sep 13, 2022
— 1,500,000 (= 300,000 ADSs)
13.140
— £
— £
— £
1.970
3.105
4.974
22.090
29.000
27.940
35.210
10.750
22.090
27.940
10.750
— £
4.645
— £
4.860
100,000
3.592
$
$
$
$
$
$
$
$
£
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Option
expiration
date
— Dec 19, 2023
— Mar 26, 2027
— Mar 18, 2028
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Apr 27, 2030
— Mar 25, 2031
— May 22, 2032
— Apr 19, 2028
— Aug 5, 2028
— Dec 10, 2029
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Sep 12, 2032
(1) 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
Notes:
number of ADSs where appropriate). Each ADS represents five ordinary shares.
Name of Director
TO Chi Keung, Simon
Dan ELDAR
Edith SHIH
Lefei SUN
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Awards Granted
—
—
—
—
—
—
—
—
85,000 (1)
—
— (2)
—
117,000
102,500
111,000
103,000
Paid in Cash
$
$
$
$
$
(1) 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 an intermediate holding company of
our company are not included in the amounts above.
(2) Director’s fees received from our subsidiaries during the period she served as director that were paid to a subsidiary of CK Hutchison
are not included.
190
191
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.
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.
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, 2022).
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.
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
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.
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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.
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, 2022).
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.
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.
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Outstanding Awards and Grants of Awards
Share options outstanding under the 2005 Option Scheme
The 2005 Option Scheme expired in 2016, and no further share options can be granted under it. As of December 31, 2022, options
to purchase an aggregate of 660,570 ordinary shares, representing approximately 0.1% of our outstanding share capital, with an exercise
price of £0.61 ($0.74) per ordinary share and an expiration date of December 19, 2023 remained outstanding under the 2005 Option
Scheme.
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.”
Board Committees
Share options outstanding and grants made in 2022 under the 2015 Option Scheme
Our board of directors has established an audit committee, remuneration committee, technical committee, nomination committee
As of December 31, 2022, options to purchase an aggregate of 38,860,825 ordinary shares, representing approximately 4.5% of our
outstanding share capital, at a weighted average exercise price of £3.48 ($4.21) per ordinary share and an expiration date of 10 years
from the respective date of grant except for the grant on June 15, 2016 of which the expiration date is December 19, 2023 remained
outstanding under the 2015 Option Scheme. In the year ended December 31, 2022, we granted options to purchase an aggregate of
7,680,820 ordinary shares, representing approximately 0.9% of our outstanding share capital, at a weighted average exercise price of
£1.87 ($2.26) per share under the 2015 Option Scheme. For the share options granted to Weiguo Su in 2022, the exercise of the share
options is conditional upon the fulfilment of certain performance targets relating to the Group over the financial year of 2022 to 2024.
Vesting will occur two business days after the date of announcement of the annual results of the Company for the financial year ending
December 31, 2024. The other options vest in equal instalments of 25% over a four-year period.
Grants and vesting of LTIPs
In the year ended December 31, 2022, we granted performance based awards under our LTIP to two of our executive directors and
976 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 $64,186,839. 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 2024. 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, 2022, we also granted non-performance based awards under our LTIP to two 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 $1,730,000. The LTIP awards vest in equal installments of 25% over four years. For additional information on LTIP awards to our
directors, please see “B. Compensation—Director Compensation.”
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
Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our board, as
interim or final results;
the case may be.
In the year ended December 31, 2022, an aggregate of 55,904 ADSs were given to award holders upon the vesting of performance
based LTIP awards, and 457,349 ADSs were given to award holders upon the vesting of non-performance based LTIP awards.
•
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;
C. Board Practices.
review significant financial reporting issues and the judgments which they contain;
Our board of directors consists of ten directors including three executive directors, three 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.
•
•
•
•
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;
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Outstanding Awards and Grants of Awards
Share options outstanding under the 2005 Option Scheme
The 2005 Option Scheme expired in 2016, and no further share options can be granted under it. As of December 31, 2022, options
to purchase an aggregate of 660,570 ordinary shares, representing approximately 0.1% of our outstanding share capital, with an exercise
price of £0.61 ($0.74) per ordinary share and an expiration date of December 19, 2023 remained outstanding under the 2005 Option
Scheme.
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.”
Board Committees
Share options outstanding and grants made in 2022 under the 2015 Option Scheme
Our board of directors has established an audit committee, remuneration committee, technical committee, nomination committee
As of December 31, 2022, options to purchase an aggregate of 38,860,825 ordinary shares, representing approximately 4.5% of our
outstanding share capital, at a weighted average exercise price of £3.48 ($4.21) per ordinary share and an expiration date of 10 years
from the respective date of grant except for the grant on June 15, 2016 of which the expiration date is December 19, 2023 remained
outstanding under the 2015 Option Scheme. In the year ended December 31, 2022, we granted options to purchase an aggregate of
7,680,820 ordinary shares, representing approximately 0.9% of our outstanding share capital, at a weighted average exercise price of
£1.87 ($2.26) per share under the 2015 Option Scheme. For the share options granted to Weiguo Su in 2022, the exercise of the share
options is conditional upon the fulfilment of certain performance targets relating to the Group over the financial year of 2022 to 2024.
Vesting will occur two business days after the date of announcement of the annual results of the Company for the financial year ending
December 31, 2024. The other options vest in equal instalments of 25% over a four-year period.
Grants and vesting of LTIPs
In the year ended December 31, 2022, we granted performance based awards under our LTIP to two of our executive directors and
976 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 $64,186,839. 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 2024. For additional information on LTIP awards
held by our executive officers, please see “B. Compensation—Executive Officer Compensation—Long-Term Incentive Compensation.”
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.
In the year ended December 31, 2022, we also granted non-performance based awards under our LTIP to two 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 $1,730,000. The LTIP awards vest in equal installments of 25% over four years. For additional information on LTIP awards to our
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:
directors, please see “B. Compensation—Director Compensation.”
• monitor the integrity of our financial statements, our annual and half-year reports and accounts and our announcements of
Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our board, as
interim or final results;
In the year ended December 31, 2022, an aggregate of 55,904 ADSs were given to award holders upon the vesting of performance
based LTIP awards, and 457,349 ADSs were given to award holders upon the vesting of non-performance based LTIP awards.
the case may be.
C. Board Practices.
Our board of directors consists of ten directors including three executive directors, three 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.
•
•
•
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;
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•
the clarity of the disclosure in our financial reports and the context in which statements are made; and
Technical Committee
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).
In relation to our internal controls and risk management systems, our audit committee, among other things:
Our technical committee consists of Karen Jean Ferrante, Paul Rutherford Carter, To Chi Keung, Simon, Weiguo Su, Mok Shu
Kam, Tony and Lefei Sun, 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.
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•
•
•
reviews the effectiveness of our internal control and risk management systems;
Nomination Committee
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;
Our nomination committee consists of Mok Shu Kam, Tony, Graeme Allan Jack and To Chi Keung, Simon, with Mok Shu Kam,
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.
ensures our internal audit function has adequate standing and resources and is free from management or other restrictions;
Sustainability Committee
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.
Our sustainability committee consists of Edith Shih, Cheng Chig Fung, Johnny and Mok Shu Kam, 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.
In relation to our external auditor, our audit committee, among other things:
Hong Kong Corporate Governance Code
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•
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;
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
reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements;
Code of Ethics
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.
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.
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 To Chi Keung, 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.
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.
Complaints Procedures / Whistleblowing Policy
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.
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the clarity of the disclosure in our financial reports and the context in which statements are made; and
Technical Committee
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).
In relation to our internal controls and risk management systems, our audit committee, among other things:
Our technical committee consists of Karen Jean Ferrante, Paul Rutherford Carter, To Chi Keung, Simon, Weiguo Su, Mok Shu
Kam, Tony and Lefei Sun, 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.
reviews the effectiveness of our internal control and risk management systems;
Nomination Committee
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;
Our nomination committee consists of Mok Shu Kam, Tony, Graeme Allan Jack and To Chi Keung, Simon, with Mok Shu Kam,
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.
ensures our internal audit function has adequate standing and resources and is free from management or other restrictions;
Sustainability Committee
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.
Our sustainability committee consists of Edith Shih, Cheng Chig Fung, Johnny and Mok Shu Kam, 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.
In relation to our external auditor, our audit committee, among other things:
Hong Kong Corporate Governance Code
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;
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.
reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements;
Code of Ethics
develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into any
pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject to approval
The audit committee is authorized to obtain, at our company’s expense, reasonable outside legal or other professional advice on
relevant ethical guidance; and
by our shareholders.
any matters within the scope of its responsibilities.
Remuneration Committee
Our remuneration committee consists of Paul Rutherford Carter, Graeme Allan Jack and To Chi Keung, 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.
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.
Complaints Procedures / Whistleblowing Policy
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.
196
197
Policy on Personal Information Governance
Our board of directors has adopted a policy on personal information governance which sets out our governance framework for the
safeguard of personal information of employees, customers and other relevant personal information subjects. The senior management
of each group company is accountable for the effective implementation of this policy.
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.
As of December 31, 2022, a total of 149 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 2,986 full time
employees as of December 31, 2022, and such employees are represented by labor unions and covered by collective bargaining
agreements. To date, we have not experienced any strikes, labor disputes or industrial actions which had or would have a material effect
on our business, and consider our relations with the union and 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.
See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.”
Code on Dealings in Shares
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation.
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).
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
We had 864,775,340 ordinary shares outstanding as of February 15, 2023. The following table and accompanying footnotes set
forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2023 by:
Board Diversity Policy
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary shares;
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, 2020, 2021 and 2022, we had 1,280, 1,759 and 2,025 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, 2020, 2021 and 2022 was as follows:
By Function:
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2022
2021
2020
1,022
960
43
2,025
891
820
48
1,759
643
594
43
1,280
198
199
E. Share Ownership.
Not applicable.
A. Major Shareholders.
•
•
•
each of our directors; and
each of our named executive officers.
Policy on Personal Information Governance
Our board of directors has adopted a policy on personal information governance which sets out our governance framework for the
safeguard of personal information of employees, customers and other relevant personal information subjects. The senior management
of each group company is accountable for the effective implementation of this policy.
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
As of December 31, 2022, a total of 149 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 2,986 full time
employees as of December 31, 2022, and such employees are represented by labor unions and covered by collective bargaining
agreements. To date, we have not experienced any strikes, labor disputes or industrial actions which had or would have a material effect
on our business, and consider our relations with the union and 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.
the creation, communication, storage, transmission and destruction of all different types of information. It applies to all forms of
E. Share Ownership.
information, including but not limited to electronic copies, hardcopy, and verbal disclosures whether in person, over the telephone, or
by other means.
See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.”
Code on Dealings in Shares
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation.
Our board of directors has adopted a policy on the handling of material inside information, consisting of information which is either
Not applicable.
“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
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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).
A. Major Shareholders.
We had 864,775,340 ordinary shares outstanding as of February 15, 2023. The following table and accompanying footnotes set
forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2023 by:
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
•
•
•
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.
Management—Board Diversity.”
D. Employees.
By Function:
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
As of December 31, 2020, 2021 and 2022, we had 1,280, 1,759 and 2,025 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, 2020, 2021 and 2022 was as follows:
2022
2021
2020
1,022
960
43
891
820
48
643
594
43
2,025
1,759
1,280
198
199
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. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of February
15, 2023, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares,
however, are not included in the computation of the percentage ownership of any other person.
B. Related Party Transactions.
Letters of awareness with respect to loans
Relationship with CK Hutchison
Name of beneficial owner
Executive Officers and Directors:
Weiguo SU
CHENG Chig Fung, Johnny
TO Chi Keung, Simon
Edith SHIH
Dan ELDAR
Lefei SUN
MOK Shu Kam, Tony
Michael Ming SHI
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
Karen Jane ATKIN
Zhenping WU
Mark Kin Hung LEE
May Qingmei WANG
Hong CHEN
Charles George Rupert NIXON
All Executive Officers and Directors as a Group
Principal Shareholders:
Hutchison Healthcare Holdings Limited(1)
Number of
Ordinary
Share held
Number of
American
Depositary
Share held
Percent of Issued
Share Capital**
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.
*
*
*
*
*
—
—
—
*
—
—
—
*
*
*
*
*
14,035,014
*
*
*
*
*
—
*
*
*
*
*
*
*
*
*
*
*
1,003,390
*
*
*
*
*
—
*
*
*
*
*
*
*
*
*
*
*
2.2 %
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.
332,478,770
—
38.5 %
Products sold to group companies of CK Hutchison
* Less than 1% of our total outstanding ordinary shares.
** For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially
owned by such person or group by the sum of (i) 864,775,340 ordinary shares outstanding as of February 15, 2023, and (ii) the
number of ordinary shares or ADSs underlying share options held by such person or group that are exercisable within 60 days of
February 15, 2023.
(1) 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.
As of February 15, 2023, 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 February 15, 2023, 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 158,779,205 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
or operations 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.
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, 2022, sales of our products to members
of the CK Hutchison group amounted to $3.6 million. In addition, for the year ended December 31, 2022, we paid approximately $0.2
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.
200
201
Our major shareholders do not have voting rights that are different from our shareholders in general. Beneficial ownership is
B. Related Party Transactions.
determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of February
15, 2023, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares,
however, are not included in the computation of the percentage ownership of any other person.
Letters of awareness with respect to loans
Relationship with CK Hutchison
Number of
Ordinary
Share held
Number of
American
Depositary
Share held
Percent of Issued
Share Capital**
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.
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, 2022, sales of our products to members
of the CK Hutchison group amounted to $3.6 million. In addition, for the year ended December 31, 2022, we paid approximately $0.2
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.
200
201
Name of beneficial owner
Executive Officers and Directors:
Weiguo SU
CHENG Chig Fung, Johnny
TO Chi Keung, Simon
Edith SHIH
Dan ELDAR
Lefei SUN
MOK Shu Kam, Tony
Michael Ming SHI
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
Karen Jane ATKIN
Zhenping WU
Mark Kin Hung LEE
May Qingmei WANG
Hong CHEN
*
*
*
*
*
—
—
—
*
—
—
—
*
*
*
*
*
—
—
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Charles George Rupert NIXON
All Executive Officers and Directors as a Group
Principal Shareholders:
Hutchison Healthcare Holdings Limited(1)
* Less than 1% of our total outstanding ordinary shares.
14,035,014
1,003,390
332,478,770
—
2.2 %
38.5 %
** For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially
owned by such person or group by the sum of (i) 864,775,340 ordinary shares outstanding as of February 15, 2023, and (ii) the
number of ordinary shares or ADSs underlying share options held by such person or group that are exercisable within 60 days of
(1) 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
February 15, 2023.
Islands.
As of February 15, 2023, 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 February 15, 2023, 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 158,779,205 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
or operations 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.
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.
Sharing of services with the CK Hutchison group
A. Consolidated Financial Statements and Other Financial Information.
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, 2022, we paid a
management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2022, 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.”
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
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.
Employment Agreements
compensation).
Indemnification Agreements
C. Interests of Experts and Counsel.
Not applicable.
ITEM 8. 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.
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.
A.8 Dividend Policy.
B. Significant Changes.
annual report.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4 and Item 9.C.
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this
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.”
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The Brand License Agreement contains provisions on quality control pursuant to which we are obliged to use the brands and related
Employment Agreements
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).
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
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.
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.
C. Interests of Experts and Counsel.
Not applicable.
ITEM 8. FINANCIAL INFORMATION
Sharing of services with the CK Hutchison group
A. Consolidated Financial Statements and Other Financial Information.
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.
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.
Any amount unpaid after 30 days accrues interest at the rate of 1.5% per annum. In the year ended December 31, 2022, we paid a
management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2022, we had $0.4 million in unpaid
B. Significant Changes.
fees outstanding to Hutchison Whampoa (China) Limited.
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this
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.”
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.”
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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
ADSs and ordinary shares.
last two years, party to any material contract, other than contracts entered into in the ordinary course of our business.
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
February 27, 2023, 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
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 with no office or premises established in
China, or with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with
said office or premises, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10%
withholding tax. 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% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax
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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.
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.
C. Material Contracts.
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
February 27, 2023, 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.
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 with no office or premises established in
China, or with an office or premises established in China but whose income (i.e. dividends received) has no de facto relationship with
said office or premises, as well as gains realized by such investors from the transfer of our shares or ADSs may be subject to a 10%
withholding tax. 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% (which in the case of dividends may be withheld at source). The foregoing rates may be reduced by an applicable tax
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treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax
treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
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.
U.S. Taxation
Corporate Tax
federal corporate tax of 21%.
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. The
Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Amendment Bill) was gazetted on 28
October 2022 to provide a new framework for Hong Kong’s Foreign Source Income Exemption regime with a view to bringing the
regime into force from 1 January 2023. The Amendment Bill aims to amend the Inland Revenue Ordinance (Cap. 112) to regard certain
foreign-sourced income as arising in or derived from Hong Kong and to provide for relief against double taxation in respect of certain
foreign-sourced income. Covered income includes interest, dividend, disposal gain from the sale of equity interests in an entity and
intellectual property income.
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
holding our ordinary shares or ADSs, and their partners or shareholders;
holders.
dealers or electing traders in securities that use a mark-to-market method of tax accounting;
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.
persons whose functional currency is not the U.S. dollar;
persons that acquired ordinary shares or ADSs as compensation;
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persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States.
Our subsidiaries in the United States, HUTCHMED International Corporation and HUTCHMED US Corporation, are subject to a
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 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 ownership of our securities. This discussion is limited to U.S.
Holders that 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 (generally, property held for investment). For the purposes of this summary, a “U.S. Holder” is a person
that is, for U.S. federal income tax purposes, a beneficial owner of an ordinary share or ADS and:
a citizen or individual resident of the United States;
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.
This summary does not purport to consider all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light
of their particular circumstances, including the possible effect of the special tax accounting rules under Section 451 of the Code, or
alternative minimum or Medicare contribution tax consequences. In addition, it 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, “individual retirement accounts or “Roth IRAs”;
partnerships (or other entities or ararngments treated as partnerships for U.S. federal income tax purposes) or S corporations
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treaty, but it is unclear if a non-PRC resident shareholder or ADS holder would be able to obtain in practice the benefits of any tax
U.S. Taxation
treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
Corporate Tax
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.
Cayman Islands Taxation
Overview of Tax Implications of Various Other Jurisdictions
Our subsidiaries in the United States, HUTCHMED International Corporation 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 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 ownership of our securities. This discussion is limited to U.S.
Holders that 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 (generally, property held for investment). For the purposes of this summary, a “U.S. Holder” is a person
that is, for U.S. federal income tax purposes, a beneficial owner of an ordinary share or ADS and:
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
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a citizen or individual resident of the United States;
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.
This summary does not purport to consider all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light
of their particular circumstances, including the possible effect of the special tax accounting rules under Section 451 of the Code, or
alternative minimum or Medicare contribution tax consequences. In addition, it does not address aspects of U.S. federal income taxation
that may be applicable to U.S. Holders subject to special rules, including:
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banks or other financial institutions;
insurance companies;
real estate investment trusts;
regulated investment companies;
grantor trusts;
tax-exempt organizations, “individual retirement accounts or “Roth IRAs”;
partnerships (or other entities or ararngments treated as partnerships for U.S. federal income tax purposes) or S corporations
holding our ordinary shares or ADSs, and their partners or shareholders;
dealers or electing traders in securities that use a mark-to-market method of tax accounting;
persons whose functional currency is not the U.S. dollar;
persons that acquired ordinary shares or ADSs as compensation;
persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States.
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The undertaking is for a period of twenty years from December 31, 2020.
Tax Concessions Act.
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. The
Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Amendment Bill) was gazetted on 28
October 2022 to provide a new framework for Hong Kong’s Foreign Source Income Exemption regime with a view to bringing the
regime into force from 1 January 2023. The Amendment Bill aims to amend the Inland Revenue Ordinance (Cap. 112) to regard certain
foreign-sourced income as arising in or derived from Hong Kong and to provide for relief against double taxation in respect of certain
foreign-sourced income. Covered income includes interest, dividend, disposal gain from the sale of equity interests in an entity and
intellectual property income.
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.
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persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal income tax
purposes; or
Taxation of Dividends
direct, indirect or constructive owners of 10% or more of our equity (by vote or value).
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes owns 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 partnerships and partners should consult their tax advisors as to the U.S. federal income tax consequences of acquiring,
owning and disposing of our ordinary shares or ADSs.
This discussion does not address the effects of any state, local or non-U.S. tax law or any U.S. federal taxes other than income taxes
(such as U.S. federal estate or gift tax consequences). 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 investor should consult its 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, final and proposed 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
of 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 that the deposit agreement, and all other related agreements, will
be performed in accordance with their terms.
INVESTORS SHOULD CONSULT THEIR 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 following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below.
As described in Item 8. “Financial Information—A.8 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, 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 will not qualify
for the dividends received deduction that may otherwise be allowed under the Code.
The amount of income from dividends paid in a non-U.S. currency will be the U.S. dollar amount of the dividend calculated
by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars.
If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss, taxable as ordinary
income or loss, if the dividend is converted into U.S. dollars after the date of receipt. Foreign currency gain or loss generally will be
treated as U.S.-source gain or loss.
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. We are
not eligible for the benefits of any U.S. income tax treaty. However, because our ADSs are listed on the Nasdaq, a non-corporate U.S.
Holder of ADSs may be eligible for the preferential tax rates on dividends, subject to applicable limitations (including a minimum
holding period and other requirements) and provided that we are not a PFIC (and are not treated as a PFIC with respect to the U.S.
Holder) for the taxable year of distribution of the precedeing taxable year.
For purposes of the foreign tax credit rules, dividends will be treated as foreign-source income. As described in “—Taxation in the
PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, U.S. Holders may be subject to PRC withholding taxes
on dividends paid by us. In that case, subject to certain conditions and limitations and the discussion below regarding the impact of
certain Treasury regulations, such PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in
the U.S.-PRC Tax Treaty for U.S. Holders eligible for the benefits of the U.S.-PRC Tax Treaty) generally will be eligible for credit
against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. The U.S. foreign tax credit rules are
complex. For example, under Treasury regulations, in the absence of an election to apply the benefits of an applicable income tax treaty,
in order to be creditable, non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not
determined whether the PRC income tax system meets these requirements. A U.S. Holder that is not entitled, or does not elect, to claim
a foreign tax credit for PRC tax withheld may instead be eligible to claim a deduction in respect of such withholding, but only for a year
in which such U.S. Holder elects to do so for all creditable foreign income taxes and subject to other applicable limitations. U.S. Holders
should consult their tax advisors regarding the foreign tax credit and deduction rules in light of their particular circumstances.
Taxation of Capital Gains
The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below.
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 and the U.S. Holder’s adjusted tax
basis in such ordinary shares or ADSs, in each case 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.
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purposes; or
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direct, indirect or constructive owners of 10% or more of our equity (by vote or value).
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes owns 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 partnerships and partners should consult their tax advisors as to the U.S. federal income tax consequences of acquiring,
owning and disposing of our ordinary shares or ADSs.
This discussion does not address the effects of any state, local or non-U.S. tax law or any U.S. federal taxes other than income taxes
(such as U.S. federal estate or gift tax consequences). 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 investor should consult its 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, final and proposed 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
of 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 that the deposit agreement, and all other related agreements, will
be performed in accordance with their terms.
INVESTORS SHOULD CONSULT THEIR 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.
persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal income tax
Taxation of Dividends
The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below.
As described in Item 8. “Financial Information—A.8 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, 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 will not qualify
for the dividends received deduction that may otherwise be allowed under the Code.
The amount of income from dividends paid in a non-U.S. currency will be the U.S. dollar amount of the dividend calculated
by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars.
If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss, taxable as ordinary
income or loss, if the dividend is converted into U.S. dollars after the date of receipt. Foreign currency gain or loss generally will be
treated as U.S.-source gain or loss.
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. We are
not eligible for the benefits of any U.S. income tax treaty. However, because our ADSs are listed on the Nasdaq, a non-corporate U.S.
Holder of ADSs may be eligible for the preferential tax rates on dividends, subject to applicable limitations (including a minimum
holding period and other requirements) and provided that we are not a PFIC (and are not treated as a PFIC with respect to the U.S.
Holder) for the taxable year of distribution of the precedeing taxable year.
For purposes of the foreign tax credit rules, dividends will be treated as foreign-source income. As described in “—Taxation in the
PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, U.S. Holders may be subject to PRC withholding taxes
on dividends paid by us. In that case, subject to certain conditions and limitations and the discussion below regarding the impact of
certain Treasury regulations, such PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided in
the U.S.-PRC Tax Treaty for U.S. Holders eligible for the benefits of the U.S.-PRC Tax Treaty) generally will be eligible for credit
against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. The U.S. foreign tax credit rules are
complex. For example, under Treasury regulations, in the absence of an election to apply the benefits of an applicable income tax treaty,
in order to be creditable, non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not
determined whether the PRC income tax system meets these requirements. A U.S. Holder that is not entitled, or does not elect, to claim
a foreign tax credit for PRC tax withheld may instead be eligible to claim a deduction in respect of such withholding, but only for a year
in which such U.S. Holder elects to do so for all creditable foreign income taxes and subject to other applicable limitations. U.S. Holders
should consult their tax advisors regarding the foreign tax credit and deduction rules in light of their particular circumstances.
Taxation of Capital Gains
The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below.
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 and the U.S. Holder’s adjusted tax
basis in such ordinary shares or ADSs, in each case 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.
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Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if a U.S. Holder held the ordinary
share or ADS for more than one year. Long-term capital gains of non-corporate U.S. Holders are taxed at a preferential tax rate. The
deductibility of capital losses is subject to limitations.
As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, any gain on the
sale of ordinary shares or ADSs may be subject to PRC taxes. Under the Code, capital gains of U.S. persons generally are treated as
U.S.-source income. However, if a U.S. Holder is eligible for the benefits of the U.S.-PRC Tax Treaty, the holder may be able to elect
to treat such disposition gain as PRC-source gain under the U.S.-PRC Tax Treaty for U.S. foreign tax credit purposes and claim a foreign
tax credit in respect of PRC taxes on such gains. 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 “limitations of benefits” requirements specified in the U.S.-
PRC Tax Treaty. Because the determination of treaty benefit eligibility is fact-intensive and depends upon a U.S. Holder’s particular
circumstances, U.S. Holders should consult their tax advisors regarding their eligibility for the U.S.-PRC Tax Treaty benefits. Treasury
regulations generally preclude a U.S. Holder from claiming a foreign tax credit with respect to PRC income taxes on gains from
dispositions of ordinary shares or ADSs if a U.S. Holder is not eligible for, or does not elect to apply the benefits of, the U.S.-PRC Tax
Treaty. However, non-U.S. taxes on disposition gains may be deductible or reduce the amount realized on the disposition. The rules
governing foreign tax credits and the deductibility of non-U.S. taxes are complex. U.S. Holders are also encouraged to consult their tax
advisors regarding the tax consequences in the event PRC tax is imposed on a disposition of ordinary shares or ADSs, including the
U.S.-PRC Tax Treaty’s resourcing rule, any reporting requirements with respect to a treaty-based return position and the creditability
or deductibility of any non-U.S. tax on disposition gains in their particular circumstances (including any applicable limitations).
Passive Foreign Investment Company Considerations
Status as a PFIC. The rules governing PFICs can result in adverse U.S. federal income tax consequences to U.S. Holders. We
generally will be 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) 50% or more of the average value of our assets (generally determined on a quarterly
basis) consists of our assets that produce, or are held for the production of, passive income. 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. Cash and cash equivalents are generally
treated as passive assets. Goodwill is generally treated as an active asset to the extent associated with activities that generate non-passive
income.
Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe
that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is
made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other
intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC
status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference
to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may
become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and
assets as active or passive. In light of the foregoing, no assurance can be provided that we were not, or will not be, a PFIC for any taxable
year.
U.S. federal income tax treatment of a shareholder of a PFIC generally. If we are a PFIC for any taxable year during which a
U.S. Holder owns ordinary shares or ADSs, the U.S. Holder, absent certain elections, generally will be subject to adverse rules
(regardless of whether we continue to be a PFIC) with respect to (1) any “excess distributions” (generally, the extent that any
distributions received by the U.S. Holder on its ordinary shares or ADSs in a taxable year exceed 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) any gain or excess distribution 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 became 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 (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,a non-corporate U.S. Holder will
not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC (or are treated as a PFIC with respect to
the U.S. Holder) in the taxable year in which such dividends are paid or in the preceding taxable year.
If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares or ADSs, we generally will continue to be
treated as a PFIC with respect to that U.S. Holder in all succeeding taxable years, even if we cease to meet the threshold requirements
for PFIC status described above, unless the U.S. Holder makes a timely “deemed sale election.” If we are a PFIC for any taxable year
and then cease to be a PFIC, a U.S. Holder may make 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.
If we are a PFIC for any taxable year, a U.S. Holder will 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 (any such entity, a “Lower-tier PFIC”) 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, in each case as if the U.S. Holder owned its proportionate share of the Lower-tier PFIC directly, even though the U.S.
Holder will not receive the proceeds of those distributions or dispositions directly. U.S. Holders are urged to consult their tax advisors
about the application of the PFIC rules to any of our subsidiaries.
PFIC “mark-to-market” election. In certain circumstances, a holder of “marketable stock” of a PFIC will be subject to tax
consequences different that those described above by making a timely mark-to-market election with respect to such stock. For the
purposes of these rules “marketable stock” is generally 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.”
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 will be treated as ordinary income, and any losses incurred on such sale or other disposition will be treated as
ordinary losses to the extent of any net mark-to-market gains previously included in income (with any excess loss treated as a capital
loss).
If we are 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 general PFIC rules described above under “—U.S. federal income tax treatment of a shareholder of a PFIC
generally” 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.
There is no law, regulation or administrative guidance that provides for a right to make a mark-to-market election for equity interests
in any Lower-tier PFIC the shares of which are not regularly traded on a qualified exchange. As a result, even if a U.S. Holder makes a
mark-to-market election with respect to our ordinary shares or ADSs, such U.S. Holder could nevertheless be subject to the PFIC rules
described under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” with respect to such U.S. Holder’s indirect
interest in any Lower-tier PFIC. U.S. Holders should consult their 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.
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Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if a U.S. Holder held the ordinary
share or ADS for more than one year. Long-term capital gains of non-corporate U.S. Holders are taxed at a preferential tax rate. The
deductibility of capital losses is subject to limitations.
As described in “—Taxation in the PRC” above, if we are deemed to be a “resident enterprise” under PRC tax law, any gain on the
sale of ordinary shares or ADSs may be subject to PRC taxes. Under the Code, capital gains of U.S. persons generally are treated as
U.S.-source income. However, if a U.S. Holder is eligible for the benefits of the U.S.-PRC Tax Treaty, the holder may be able to elect
to treat such disposition gain as PRC-source gain under the U.S.-PRC Tax Treaty for U.S. foreign tax credit purposes and claim a foreign
tax credit in respect of PRC taxes on such gains. 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 “limitations of benefits” requirements specified in the U.S.-
PRC Tax Treaty. Because the determination of treaty benefit eligibility is fact-intensive and depends upon a U.S. Holder’s particular
circumstances, U.S. Holders should consult their tax advisors regarding their eligibility for the U.S.-PRC Tax Treaty benefits. Treasury
regulations generally preclude a U.S. Holder from claiming a foreign tax credit with respect to PRC income taxes on gains from
dispositions of ordinary shares or ADSs if a U.S. Holder is not eligible for, or does not elect to apply the benefits of, the U.S.-PRC Tax
Treaty. However, non-U.S. taxes on disposition gains may be deductible or reduce the amount realized on the disposition. The rules
governing foreign tax credits and the deductibility of non-U.S. taxes are complex. U.S. Holders are also encouraged to consult their tax
advisors regarding the tax consequences in the event PRC tax is imposed on a disposition of ordinary shares or ADSs, including the
U.S.-PRC Tax Treaty’s resourcing rule, any reporting requirements with respect to a treaty-based return position and the creditability
or deductibility of any non-U.S. tax on disposition gains in their particular circumstances (including any applicable limitations).
Passive Foreign Investment Company Considerations
Status as a PFIC. The rules governing PFICs can result in adverse U.S. federal income tax consequences to U.S. Holders. We
generally will be 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) 50% or more of the average value of our assets (generally determined on a quarterly
basis) consists of our assets that produce, or are held for the production of, passive income. 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. Cash and cash equivalents are generally
treated as passive assets. Goodwill is generally treated as an active asset to the extent associated with activities that generate non-passive
income.
year.
Based on the composition of our income and assets and the estimated average value of our assets (including goodwill), we believe
that we were not a PFIC for our taxable year ended December 31, 2022. However, our PFIC status is a factual determination that is
made on an annual basis and depends on particular facts and circumstances (such as the value of our assets, including goodwill and other
intangible assets). We hold a substantial amount of cash and financial investments and while this continues to be the case, our PFIC
status depends primarily on the average value of our goodwill. The value of our goodwill may be determined, in large part, by reference
to our market capitalization, which has been, and may continue to be, volatile. Therefore, if our market capitalization declines we may
become a PFIC. In addition, there is uncertainty as to how to apply the PFIC rules for purposes of classifying certain of our income and
assets as active or passive. In light of the foregoing, no assurance can be provided that we were not, or will not be, a PFIC for any taxable
U.S. federal income tax treatment of a shareholder of a PFIC generally. If we are a PFIC for any taxable year during which a
U.S. Holder owns ordinary shares or ADSs, the U.S. Holder, absent certain elections, generally will be subject to adverse rules
(regardless of whether we continue to be a PFIC) with respect to (1) any “excess distributions” (generally, the extent that any
distributions received by the U.S. Holder on its ordinary shares or ADSs in a taxable year exceed 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) any gain or excess distribution 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 became 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 (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,a non-corporate U.S. Holder will
not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC (or are treated as a PFIC with respect to
the U.S. Holder) in the taxable year in which such dividends are paid or in the preceding taxable year.
If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares or ADSs, we generally will continue to be
treated as a PFIC with respect to that U.S. Holder in all succeeding taxable years, even if we cease to meet the threshold requirements
for PFIC status described above, unless the U.S. Holder makes a timely “deemed sale election.” If we are a PFIC for any taxable year
and then cease to be a PFIC, a U.S. Holder may make 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.
If we are a PFIC for any taxable year, a U.S. Holder will 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 (any such entity, a “Lower-tier PFIC”) 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, in each case as if the U.S. Holder owned its proportionate share of the Lower-tier PFIC directly, even though the U.S.
Holder will not receive the proceeds of those distributions or dispositions directly. U.S. Holders are urged to consult their tax advisors
about the application of the PFIC rules to any of our subsidiaries.
PFIC “mark-to-market” election. In certain circumstances, a holder of “marketable stock” of a PFIC will be subject to tax
consequences different that those described above by making a timely mark-to-market election with respect to such stock. For the
purposes of these rules “marketable stock” is generally 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.”
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 will be treated as ordinary income, and any losses incurred on such sale or other disposition will be treated as
ordinary losses to the extent of any net mark-to-market gains previously included in income (with any excess loss treated as a capital
loss).
If we are 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 general PFIC rules described above under “—U.S. federal income tax treatment of a shareholder of a PFIC
generally” 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.
There is no law, regulation or administrative guidance that provides for a right to make a mark-to-market election for equity interests
in any Lower-tier PFIC the shares of which are not regularly traded on a qualified exchange. As a result, even if a U.S. Holder makes a
mark-to-market election with respect to our ordinary shares or ADSs, such U.S. Holder could nevertheless be subject to the PFIC rules
described under “—U.S. federal income tax treatment of a shareholder of a PFIC generally” with respect to such U.S. Holder’s indirect
interest in any Lower-tier PFIC. U.S. Holders should consult their 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.
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No QEF election. We do not expect to provide the information regarding our income that would be necessary in order for a U.S.
Holder to make a timely “qualifying electing fund” election, or QEF election, if we were a PFIC, which, if available, could materially
affect the tax consequences of the ownership and disposition of the ordinary shares and ADSs if we are a PFIC for any taxable year.
Therefore, U.S. Holders will not be able to make this election.
H. Documents on Display.
PFIC information reporting requirements. If we are (or are treated with respect to a particular U.S. Holder as) a PFIC for any
year in which a U.S. Holder owns ordinary shares or ADSs, such U.S. Holder generally will be required to file an annual information
return on IRS Form 8621 with respect to us and any Lower-tier PFIC.
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.
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 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.
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.
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:
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.
J. Annual Report to Security Holders.
Form 6-K.
Foreign Exchange Risk
•
•
•
•
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 Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current report on
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.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Certain U.S. Holders of specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold may
be 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. INVESTORS ARE STRONGLY URGED TO CONSULT THEIR 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.
A substantial portion 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.
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.
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No QEF election. We do not expect to provide the information regarding our income that would be necessary in order for a U.S.
H. Documents on Display.
Holder to make a timely “qualifying electing fund” election, or QEF election, if we were a PFIC, which, if available, could materially
affect the tax consequences of the ownership and disposition of the ordinary shares and ADSs if we are a PFIC for any taxable year.
Therefore, U.S. Holders will not be able to make this election.
PFIC information reporting requirements. If we are (or are treated with respect to a particular U.S. Holder as) a PFIC for any
year in which a U.S. Holder owns ordinary shares or ADSs, such U.S. Holder generally will be required to file an annual information
return on IRS Form 8621 with respect to us and any Lower-tier PFIC.
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 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:
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.
the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social
I. Subsidiary information.
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
Not applicable.
J. Annual Report to Security Holders.
The Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current report on
Form 6-K.
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.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
security number;
or dividends; or
•
•
•
•
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.
Certain U.S. Holders of specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold may
be 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. INVESTORS ARE STRONGLY URGED TO CONSULT THEIR 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.
Foreign Exchange Risk
A substantial portion 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.
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.
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Credit Risk
Fees and charges our ADS holders may have to pay
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 $0.1 million for the year ended December 31, 2022.
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
• Any applicable fees and penalties thereon.
(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.
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
The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New York,
payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary
NY 10019, United States.
bank to the holders of record of ADSs as of the applicable ADS record date.
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
Fees
• To any person to which ADSs are issued or to any person to which a distribution is made in
Up to $0.05 per ADS issued
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)
• 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
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
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.
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.
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Credit Risk
Interest Rate Risk
allowances, and we believe that we have made adequate provision for uncollectible receivables.
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 $0.1 million for the year ended December 31, 2022.
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.
dollars.
ADSs may be held either:
Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted in U.S.
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
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):
Fees and charges our ADS holders may have to pay
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.
(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
• Any applicable fees and penalties thereon.
(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.
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.
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.
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.
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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.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
Fees and other payments made by the depositary to us
None.
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 November 2022, we received $630,000 net of taxes from the depositary as part of the consideration for
renewing the depositary’s appointment.
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.
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/.
None.
E. Use of Proceeds.
Not applicable.
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, 2022, 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, 2022. 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, 2022.
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renewing the depositary’s appointment.
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
Details on the conversion process between SEHK, Nasdaq and AIM are available at https://www.hutch-med.com/shareholder-
information/investor-faqs/.
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.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
Fees and other payments made by the depositary to us
None.
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 November 2022, we received $630,000 net of taxes from the depositary as part of the consideration for
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.
by our Principal Share Registrar, Computershare Investor Services (Jersey) Limited. All ordinary shares offered in our initial public
A. Evaluation of Disclosure Controls and Procedures.
offering in Hong Kong were registered on the Hong Kong share register in order to be listed and traded on the SEHK.
None.
E. Use of Proceeds.
Not applicable.
ITEM 15. 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, 2022, 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, 2022. 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, 2022.
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C. Attestation Report of the Independent Registered Public Accounting Firm.
(3) The fees disclosed are exclusive of out-of-pocket expenses and taxes on the amounts paid, which totaled approximately $117,000
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, 2022, as stated in its report,
which appears in this annual report.
(4) 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
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, 2022 that have
materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over financial reporting.
ITEM 16. RESERVED
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.”
Not applicable.
None.
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 2022 and 2021.
Audit fees(1)
Tax fees(2)
Total(3)
Notes:
For the year ended
December 31,
2022
2021
(in thousands)
2,200
337
2,537
4,614
406
5,020
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by
PricewaterhouseCoopers Zhong Tian for the audit of our annual financial statements and review of our interim financial statements.
The fees were also related to the professional services paid by us in connection with initial public offering in Hong Kong and
preparation for other capital market transactions and regulatory filings in 2021.
(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.
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and $52,000 in 2021 and 2022, respectively.
16F. Change in Registrant’s Certifying Accountant.”
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
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
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 PricewaterhouseCoopers.
The reports of PricewaterhouseCoopers on our consolidated financial statements for the fiscal year ended December 31, 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 year ended December 31, 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 year ended December 31, 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.
C. Attestation Report of the Independent Registered Public Accounting Firm.
(3) The fees disclosed are exclusive of out-of-pocket expenses and taxes on the amounts paid, which totaled approximately $117,000
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, 2022, 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, 2022 that have
materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over financial reporting.
ITEM 16. RESERVED
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 2022 and 2021.
For the year ended
December 31,
2022
2021
(in thousands)
2,200
337
2,537
4,614
406
5,020
Audit fees(1)
Tax fees(2)
Total(3)
Notes:
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by
PricewaterhouseCoopers Zhong Tian for the audit of our annual financial statements and review of our interim financial statements.
The fees were also related to the professional services paid by us in connection with initial public offering in Hong Kong and
preparation for other capital market transactions and regulatory filings in 2021.
(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.
and $52,000 in 2021 and 2022, respectively.
(4) 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.”
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 PricewaterhouseCoopers.
The reports of PricewaterhouseCoopers on our consolidated financial statements for the fiscal year ended December 31, 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 year ended December 31, 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 year ended December 31, 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.
218
219
ITEM 16G. CORPORATE GOVERNANCE
ITEM 18. FINANCIAL STATEMENTS
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:
report.
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
(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
For the immediately preceding annual financial statement period, our auditor, PricewaterhouseCoopers Zhong Tian LLP (a
registered public accounting firm that the PCAOB was unable to inspect or investigate completely) issued an audit report for us.
As of the date of this annual report and to our best knowledge:
(i) none of our shares or the shares of our consolidated foreign operating entities are owned by governmental entities in the
jurisdiction in which we or such consolidated foreign operating entities are incorporated or otherwise organized;
(ii) none of the governmental entities in the applicable foreign jurisdiction with respect to our registered public accounting firm
have a controlling financial interest in us or any of our consolidated foreign operating entities;
(iii) none of the members of our board of directors or the board of directors of our operating entities is an official of the Chinese
Communist Party; and
(iv) our or our operating entities’ articles of incorporation do not contain any charter of the Chinese Communist Party.
ITEM 16J. INSIDER TRADING POLICIES
Not Applicable.
ITEM 17. FINANCIAL STATEMENTS
See Item 18 “Financial Statements.”
PART III
220
221
ITEM 16G. CORPORATE GOVERNANCE
ITEM 18. FINANCIAL STATEMENTS
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.
221
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
For the immediately preceding annual financial statement period, our auditor, PricewaterhouseCoopers Zhong Tian LLP (a
registered public accounting firm that the PCAOB was unable to inspect or investigate completely) issued an audit report for us.
As of the date of this annual report and to our best knowledge:
(i) none of our shares or the shares of our consolidated foreign operating entities are owned by governmental entities in the
jurisdiction in which we or such consolidated foreign operating entities are incorporated or otherwise organized;
(ii) none of the governmental entities in the applicable foreign jurisdiction with respect to our registered public accounting firm
have a controlling financial interest in us or any of our consolidated foreign operating entities;
(iii) none of the members of our board of directors or the board of directors of our operating entities is an official of the Chinese
Communist Party; and
(iv) our or our operating entities’ articles of incorporation do not contain any charter of the Chinese Communist Party.
ITEM 16J. INSIDER TRADING POLICIES
Not Applicable.
ITEM 17. FINANCIAL STATEMENTS
See Item 18 “Financial Statements.”
PART III
220
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
Amended and Restated Memorandum and Articles of Association of HUTCHMED (China) Limited (incorporated by
reference to Exhibit 1.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022)
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 (incorporated by reference to Exhibit 4.2 to our annual
report on Form 20-F filed with the SEC on March 3, 2022)
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)
4.11
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
4.12
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
October 16, 2015)
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)
4.15+
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 (incorporated by reference to Exhibit 4.15 to our
annual report on Form 20-F filed with the SEC on March 3, 2022)
4.16*+
License Agreement by and among Takeda Pharmaceuticals International AG, HUTCHMED (China) Limited and
HUTCHMED Limited dated as of January 23, 2023
List of Significant Subsidiaries of the Company (incorporated by reference to Exhibit 8.1 to our annual report on Form
20-F filed with the SEC on March 3, 2022)
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
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
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
Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act
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)
4.13
4.14
8.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
15.3*
15.4*
15.5*
15.6†
16.1
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definitions Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
† Furnished herewith.
company if publicly disclosed.
+ Portions of the exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the
222
223
ITEM 19. EXHIBITS
EXHIBIT INDEX
1.1
2.1
2.2
2.3
2.4*
2.5
4.1
4.3
4.4
Amended and Restated Memorandum and Articles of Association of HUTCHMED (China) Limited (incorporated by
reference to Exhibit 1.1 to our annual report on Form 20-F filed with the SEC on March 3, 2022)
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
F/A filed with the SEC on April 29, 2020)
Description of American Depositary Shares (incorporated by reference to Exhibit 2.5 to our annual report on Form 20-
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)
4.2+
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 (incorporated by reference to Exhibit 4.2 to our annual
report on Form 20-F filed with the SEC on March 3, 2022)
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)
4.5
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)
4.6
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
4.7
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
4.8
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
October 16, 2015)
the SEC on October 16, 2015)
the SEC on October 16, 2015)
4.9
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)
4.10
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)
4.11
4.12
4.13
4.14
4.15+
4.16*+
8.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
15.3*
15.4*
15.5*
15.6†
16.1
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*
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)
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 (incorporated by reference to Exhibit 4.15 to our
annual report on Form 20-F filed with the SEC on March 3, 2022)
License Agreement by and among Takeda Pharmaceuticals International AG, HUTCHMED (China) Limited and
HUTCHMED Limited dated as of January 23, 2023
List of Significant Subsidiaries of the Company (incorporated by reference to Exhibit 8.1 to our annual report on Form
20-F filed with the SEC on March 3, 2022)
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
Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act
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.
222
223
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.
Audited Consolidated Financial Statements of HUTCHMED (China) Limited
Reports of Independent Registered Public Accounting Firm (PCAOB ID 1424 and 1389)
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Date: February 28, 2023
HUTCHMED (China) Limited
By:
/s/ Weiguo Su
Name: Weiguo Su
Title: Chief Executive Officer
Audited Consolidated Financial Statements of Shanghai Hutchison Pharmaceuticals Limited
As at December 31, 2022 and December 31, 2021:
Consolidated Balance Sheets
For the Years Ended December 31, 2022, 2021 and 2020:
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
Report of Independent Auditors
For the Years Ended December 31, 2022, 2021 and 2020:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at December 31, 2022 and December 31, 2021:
Consolidated Statements of Financial Position
For the Years Ended December 31, 2022, 2021 and 2020:
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Limited
Report of Independent Auditors
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at September 28, 2021:
Consolidated Statements of Financial Position
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
For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020:
For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020:
F-2
F-5
F-6
F-7
F-8
F-9
F-10
F-48
F-50
F-51
F-52
F-53
F-54
F-55
F-75
F-76
F-77
F-78
F-79
F-80
F-81
224
F-1
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.
Date: February 28, 2023
HUTCHMED (China) Limited
By:
/s/ Weiguo Su
Name: Weiguo Su
Title: Chief Executive Officer
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of HUTCHMED (China) Limited
Reports of Independent Registered Public Accounting Firm (PCAOB ID 1424 and 1389)
As at December 31, 2022 and December 31, 2021:
Consolidated Balance Sheets
For the Years Ended December 31, 2022, 2021 and 2020:
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, 2022, 2021 and 2020:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at December 31, 2022 and December 31, 2021:
Consolidated Statements of Financial Position
For the Years Ended December 31, 2022, 2021 and 2020:
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 Year Ended December 31, 2020:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at September 28, 2021:
Consolidated Statements of Financial Position
For the Period from January 1, 2021 to September 28, 2021 and the Year Ended December 31, 2020:
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-48
F-50
F-51
F-52
F-53
F-54
F-55
F-75
F-76
F-77
F-78
F-79
F-80
F-81
224
F-1
Refer to pages 100 to 152 in this annual report for the independent auditor’s report and the audited consolidated financial statements
of HUTCHMED (China) Limited.
SHANGHAI HUTCHISON
PHARMACEUTICALS LIMITED
F-2 to F-46
F-47
Refer to pages 100 to 152 in this annual report for the independent auditor’s report and the audited consolidated financial statements
of HUTCHMED (China) Limited.
SHANGHAI HUTCHISON
PHARMACEUTICALS LIMITED
F-2 to F-46
F-47
To the Board of Directors of Shanghai Hutchison Pharmaceuticals Limited
Accordingly, no such opinion is expressed.
Report of Independent Auditors
• 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.
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, 2022 and 2021, 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, 2022, including the related notes (collectively referred to as the
“consolidated financial statements”).
•
•
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.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2022 in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
February 28, 2023
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 consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated 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 consolidated 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 consolidated financial statement
•
•
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 consolidated financial statements.
F-48
F-49
• 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
February 28, 2023
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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2022 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 consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated 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 consolidated 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 consolidated financial statement
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 consolidated financial statements.
F-48
F-49
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Income Statements
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Note
5
6
7
15
8
Year Ended December 31,
2021
332,648
(77,559)
255,089
(131,821)
(22,627)
4,759
105,400
(116)
2022
370,600
(89,487)
281,113
(144,979)
(21,727)
2,126
116,533
(112)
116,421
(16,738)
99,683
2020
276,354
(72,163)
204,191
(111,892)
(17,907)
3,473
77,865
(12)
77,853
(10,833)
67,020
105,284
(15,896)
89,388
Other comprehensive (loss)/income that has been or may be reclassified subsequently
Profit for the year
to profit or loss:
Exchange translation differences
Total comprehensive income
Year Ended December 31,
2022
99,683
2021
89,388
2020
67,020
(16,581)
83,102
3,341
92,729
11,129
78,149
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-50
F-51
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Income Statements
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Note
5
6
7
15
8
Year Ended December 31,
2022
370,600
(89,487)
281,113
2021
332,648
(77,559)
255,089
(144,979)
(131,821)
(21,727)
(22,627)
2,126
4,759
116,533
105,400
(112)
(116)
116,421
(16,738)
105,284
(15,896)
99,683
89,388
2020
276,354
(72,163)
204,191
(111,892)
(17,907)
3,473
77,865
(12)
77,853
(10,833)
67,020
Profit for the year
Other comprehensive (loss)/income that has been or may be reclassified subsequently
to profit or loss:
Exchange translation differences
Total comprehensive income
Year Ended December 31,
2021
89,388
2022
99,683
2020
67,020
(16,581)
83,102
3,341
92,729
11,129
78,149
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-50
F-51
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Financial Position
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Changes in Equity
(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 assets
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
2022
2021
December 31,
10
11
12
13
14
15
16
17
18
19
15
15
33,923
21,856
3,672
154,816
214,267
62,831
1,717
6,291
823
8,327
294,256
23,095
121,354
2,791
712
147,952
3,585
1,360
152,897
33,382
107,977
141,359
294,256
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
As at January 1, 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, 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
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, 2022
Share
capital
Exchange General Retained
reserve
reserves
earnings
Total
equity
33,382
(8,524)
—
984
120,896
146,738
—
67,020
67,020
—
—
—
—
—
—
—
—
—
—
—
33,382
2,605
998 115,723 152,708
— 11,129
— 11,129
—
—
—
3,341
3,341
—
—
—
—
14
—
—
67,020
(14)
11,129
78,149
—
(72,179)
(72,179)
—
89,388
89,388
—
—
31
—
—
89,388
(31)
3,341
92,729
—
(99,744)
(99,744)
33,382
5,946
1,029
105,336
145,693
—
—
99,683
99,683
— (16,581)
— (16,581)
—
—
—
—
14
—
— (16,581)
99,683
83,102
(14)
—
(87,436)
(87,436)
33,382
(10,635)
1,043 117,569 141,359
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-52
F-53
Assets
Current assets
Cash and cash equivalents
Trade and bills receivables
Inventories
Total current assets
Property, plant and equipment
Other receivables, prepayments and deposits
Liabilities and shareholders’ equity
Other payables, accruals and advance receipts
Right-of-use assets
Leasehold land
Other intangible assets
Deferred tax assets
Total assets
Current liabilities
Trade payables
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
2022
2021
December 31,
10
11
12
13
14
15
16
17
18
19
15
15
33,923
21,856
3,672
154,816
214,267
62,831
1,717
6,291
823
8,327
23,095
121,354
2,791
712
3,585
1,360
33,382
107,977
141,359
294,256
294,256
281,817
147,952
128,993
152,897
136,124
50,038
17,482
3,350
119,390
190,260
73,650
2,445
7,025
722
7,715
12,411
111,793
4,089
700
4,983
2,148
33,382
112,311
145,693
281,817
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Financial Position
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Changes in Equity
(in US$’000)
As at January 1, 2020
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2020
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2021
Profit for the year
Other comprehensive loss
Exchange translation differences
Total comprehensive (loss)/income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2022
Share
capital
33,382
—
Exchange General Retained
reserves
reserve
(8,524)
—
earnings
120,896
67,020
984
—
Total
equity
146,738
67,020
— 11,129
— 11,129
—
—
—
—
2,605
—
—
33,382
—
—
14
—
—
67,020
(14)
(72,179)
11,129
78,149
—
(72,179)
998 115,723 152,708
89,388
89,388
—
—
—
—
—
33,382
—
3,341
3,341
—
—
5,946
—
—
—
31
—
1,029
—
—
89,388
(31)
(99,744)
105,336
99,683
3,341
92,729
—
(99,744)
145,693
99,683
— (16,581)
— (16,581)
—
—
—
—
(10,635)
33,382
—
—
14
—
— (16,581)
83,102
99,683
—
(14)
(87,436)
(87,436)
1,043 117,569 141,359
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F-52
F-53
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Cash Flows
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Notes to the Consolidated Financial Statements
1. General Information
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
Purchase of intangible asset
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
15
Year Ended December 31,
2021
2020
2022
96,270
1,219
(19,003)
78,486
93,970
1,116
(15,976)
79,110
(1,865)
(410)
20
(2,255)
(3,362)
—
32
(3,330)
(87,436)
(809)
(88,245)
(12,014)
(4,101)
(16,115)
(99,744)
(303)
(100,047)
(24,267)
1,827
(22,440)
112,609
912
(10,232)
103,289
(2,437)
—
63
(2,374)
(72,179)
(474)
(72,653)
28,262
2,972
31,234
50,038
33,923
72,478
50,038
41,244
72,478
The accompanying notes are an integral part of these consolidated financial statements.
F-54
F-55
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”) 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 February 28, 2023.
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, 2022. 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, 2022 and have not been early adopted by the Group:
Amendments to IAS 1 and IFRS Practice Statement 2(1)
IAS 8 (Amendments)(1)
IAS 12 (Amendments)(1)
IFRS 17(1)
IAS 1 (Amendments)(2)
IAS 1 (Amendments)(2)
IFRS 16(2)
IFRS 10 and IAS 28 (Amendments)(3)
Disclosure Initiative—Accounting Policies
Definition of Accounting Estimates
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
Insurance Contracts
Classification of Liabilities as Current or Non-current
Non-current Liabilities with Covenants
Lease Liability in a Sale and Leaseback
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, 2023.
(2) Effective for the Group for annual periods beginning on or after January 1, 2024.
(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.
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Cash Flows
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Notes to the Consolidated Financial Statements
1. General Information
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
Purchase of intangible asset
Net cash used in investing activities
Financing activities
Dividends paid to shareholders
Lease payments
Net cash used in financing activities
Proceeds from disposal of property, plant and equipment
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
2022
2021
2020
Year Ended December 31,
20
19
15
96,270
1,219
93,970
1,116
(19,003)
(15,976)
78,486
79,110
112,609
912
(10,232)
103,289
(1,865)
(3,362)
(2,437)
(410)
20
—
32
—
63
(2,255)
(3,330)
(2,374)
(87,436)
(99,744)
(809)
(303)
(88,245)
(100,047)
(12,014)
(24,267)
(4,101)
1,827
(16,115)
(22,440)
(72,179)
(474)
(72,653)
28,262
2,972
31,234
50,038
33,923
72,478
50,038
41,244
72,478
The accompanying notes are an integral part of these consolidated financial statements.
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”) 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 February 28, 2023.
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, 2022. 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, 2022 and have not been early adopted by the Group:
Amendments to IAS 1 and IFRS Practice Statement 2(1)
IAS 8 (Amendments)(1)
IAS 12 (Amendments)(1)
IFRS 17(1)
IAS 1 (Amendments)(2)
IAS 1 (Amendments)(2)
IFRS 16(2)
IFRS 10 and IAS 28 (Amendments)(3)
Disclosure Initiative—Accounting Policies
Definition of Accounting Estimates
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
Insurance Contracts
Classification of Liabilities as Current or Non-current
Non-current Liabilities with Covenants
Lease Liability in a Sale and Leaseback
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, 2023.
(2) Effective for the Group for annual periods beginning on or after January 1, 2024.
(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.
F-54
F-55
(a) Basis of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries.
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
The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
are recognized in the consolidated income statements.
the Group.
(e) Construction in Progress
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.
in accordance with the policy as stated in Note 2(d).
(f) Other Intangible Assets
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
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
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 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 five to 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
expenses.
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
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries.
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
The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
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).
activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above.
(f) Other Intangible Assets
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 five to 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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(a) Basis of Consolidation
the Group.
(b) Subsidiaries
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.
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
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
Plant and equipment
Furniture and fixtures, other equipment and motor
vehicles
Over the unexpired period of the lease or 5 years,
whichever is shorter
20 years
10 years
5 years
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(j) Trade and Other Receivables
Outside basis differences
Trade and other receivables are recognized initially at the amount of consideration, which 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.
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
(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.
its employees.
(o) Provisions
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in
(p) Leases
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.
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.
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.
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.
Leasehold land is accounted under IFRS 16.
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(j) Trade and Other Receivables
Outside basis differences
Trade and other receivables are recognized initially at the amount of consideration, which 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
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.
recognized in the consolidated income statements.
(k) Cash and Cash Equivalents
(n) Employee Benefits
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
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.
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
(o) Provisions
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.
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.
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in
(p) Leases
equity as a deduction from the proceeds.
(m) Current and Deferred Income Tax
(i) Current income tax
(ii) Deferred income tax
Inside basis differences
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.
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.
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.
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
Leasehold land is accounted under IFRS 16.
a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority.
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(q) Government Incentives
3. Financial Risk Management
Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be
(a) Financial risk factors
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
derivative financial instruments for speculative purposes.
to match them with the costs that they are intended to compensate.
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any
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.
The carrying amounts of cash and cash equivalents, trade and 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
(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.
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 and bills 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.
(i) Credit risk
assets.
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.
(ii) Liquidity risk
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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F-61
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, 2022 and 2021, 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.
(q) Government Incentives
3. Financial Risk Management
Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be
(a) Financial risk factors
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
derivative financial instruments for speculative purposes.
to match them with the costs that they are intended to compensate.
(i) Credit risk
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any
Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts
are of high credit quality. The Group has a practice to limit the amount of credit exposure to any financial institution.
The carrying amounts of cash and cash equivalents, trade and 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
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 and bills 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, 2022 and 2021, 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.
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
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
(t) Segment Reporting
(u) General Reserves
Interest income is recognized on a time-proportion basis using the effective interest method.
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.
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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Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at
5. Revenue and Segment Information
December 31, 2022 and 2021 was as follows:
Total liabilities
Total assets
Liabilities to assets ratio
(c) Fair value estimation
December 31,
2022
2021
(in US$’000)
152,897 136,124
281,817
294,256
52.0 %
48.3 %
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
Total segment assets
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.
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
and deferred tax assets)
Additions to non‑current assets (other than financial instruments
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
and deferred tax assets)
Additions to non‑current assets (other than financial instruments
Total segment assets
Year Ended December 31, 2022
Manufacturing Distribution
business
Total
business
PRC
(in US$’000)
367,512
501
117,210
110
9,151
3,088
370,600
479
(677)
2
89
980
116,533
112
9,240
3,636
532
4,168
December 31, 2022
Manufacturing Distribution
business
Total
business
PRC
(in US$’000)
291,877
2,379
294,256
Year Ended December 31, 2021
Manufacturing Distribution
business
Total
business
PRC
(in US$’000)
331,097
629
107,361
114
9,118
1,551
332,648
587
1,216
(1,961)
105,400
2
50
116
9,168
5,867
82
5,949
December 31, 2021
Manufacturing Distribution
business
Total
business
PRC
(in US$’000)
280,632
1,185
281,817
F-62
F-63
Total liabilities
Total assets
Liabilities to assets ratio
(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, 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.
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.
Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at
5. Revenue and Segment Information
December 31, 2022 and 2021 was as follows:
December 31,
2022
2021
(in US$’000)
152,897 136,124
294,256
281,817
52.0 %
48.3 %
Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined
that the Group has two reportable operating segments as follows:
—Manufacturing business—manufacture and distribution of drug products
—Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers
The operating segments are strategic business units that offer different products and services. They are managed separately because
each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed
based on a measure of operating profit/(loss).
The segment information is as follows:
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial instruments
Year Ended December 31, 2022
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
367,512
501
117,210
110
9,151
3,088
479
(677)
2
89
370,600
980
116,533
112
9,240
and deferred tax assets)
3,636
532
4,168
(a) Sales rebates
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
December 31, 2022
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
291,877
2,379
294,256
Year Ended December 31, 2021
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
331,097
629
107,361
114
9,118
1,551
587
(1,961)
2
50
332,648
1,216
105,400
116
9,168
(c) Deferred income tax
and deferred tax assets)
5,867
82
5,949
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.
Total segment assets
December 31, 2021
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
280,632
1,185
281,817
F-62
F-63
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
Year Ended December 31, 2020
Manufacturing
business
270,954
396
78,069
11
8,670
Distribution
business
PRC
(in US$’000)
Total
5,400
579
(204)
1
65
276,354
975
77,865
12
8,735
3,037
57
3,094
8. Taxation Charge
Current tax
Deferred income tax (Note 16)
Taxation charge
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$87.3 million for 2022
(2021: US$77.8 million; 2020: US$62.2 million). Sales between segments are carried out at mutually agreed terms. Revenue from
external customers from the manufacturing business is for sales of goods which are recognized at a point in time. Revenue from external
customers from the distribution business is for provision of services which are recognized over time.
6. Other Net Operating Income
Interest income
Net foreign exchange (loss)/gain
Government incentives
Other operating (loss)/income
7. Operating Profit
Operating profit
Operating profit is stated after charging/(crediting) the following:
Cost of inventories recognized as expense
Research and development expense
Depreciation of property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease expenses
Movement on the provision for trade receivables
Movement on the provision for excess and obsolete
inventories
Auditor’s remuneration
Employee benefit expenses (Note 9)
Year Ended December 31,
2021
2022
2020
980
(83)
2,198
(969)
2,126
(in US$’000)
1,216
25
2,999
519
4,759
975
70
2,601
(173)
3,473
Year Ended December 31,
2021
2022
2020
116,533
(in US$’000)
105,400
77,865
Year Ended December 31,
2021
2020
2022
(in US$’000)
63,079
7,169
8,148
449
166
245
917
—
(65)
227
111,200
50,637
9,350
8,100
60
172
233
1,171
—
(141)
223
100,311
47,299
6,301
7,878
(2)
160
217
725
(9)
2,447
198
80,728
Year Ended December 31,
2022
2021
2020
18,082
(1,344)
16,738
(in US$’000)
15,082
814
15,896
12,520
(1,687)
10,833
Year Ended December 31,
2022
2021
2020
116,421
29,105
(in US$’000)
105,284
26,321
1,397
(898)
1,946
(55)
(13,000)
(12,420)
134
16,738
104
15,896
77,853
19,463
1,137
(938)
(8,753)
(76)
10,833
Year Ended December 31,
2022
2021
2020
86,330
9,701
15,169
(in US$’000)
77,335
8,713
14,263
111,200
100,311
68,226
995
11,507
80,728
December 31,
2022
2021
(in US$’000)
33,923
50,038
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 effects of:
Tax calculated at the statutory tax rates of respective companies
Expenses not deductible for tax purposes
Utilization of unrecognized temporary differences
Tax concession (note)
Under/(over) provision in prior years
Taxation charge
Note: The Company has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the
Company is subject to a preferential income tax rate of 15% in 2022 and renew the HNTE status in 2023 (2021: 15%;
2020: 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 (2021: 200%; 2020: 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, 2022 was 14.4% (2021: 15.1%; 2020: 13.9%).
9. Employee Benefit Expenses
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
2020: US$16.4 million) are included in cost of sales.
10. Cash and Cash Equivalents
Cash and cash equivalents
Employee benefit expenses of approximately US$19.8 million for the year ended December 31, 2022 (2021: US$20.1 million;
The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB
denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the
PRC government.
F-64
F-65
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
Year Ended December 31, 2020
Manufacturing
Distribution
business
Total
business
PRC
(in US$’000)
270,954
396
78,069
11
8,670
5,400
276,354
579
(204)
1
65
975
77,865
12
8,735
3,037
57
3,094
8. Taxation Charge
Current tax
Deferred income tax (Note 16)
Taxation charge
Year Ended December 31,
2021
2022
2020
18,082
(1,344)
16,738
(in US$’000)
15,082
814
15,896
12,520
(1,687)
10,833
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:
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$87.3 million for 2022
(2021: US$77.8 million; 2020: US$62.2 million). Sales between segments are carried out at mutually agreed terms. Revenue from
external customers from the manufacturing business is for sales of goods which are recognized at a point in time. Revenue from external
customers from the distribution business is for provision of services which are recognized over time.
6. Other Net Operating Income
Interest income
Net foreign exchange (loss)/gain
Government incentives
Other operating (loss)/income
7. Operating Profit
Operating profit
Operating profit is stated after charging/(crediting) the following:
Year Ended December 31,
2022
2021
2020
980
(83)
2,198
(969)
2,126
(in US$’000)
1,216
25
2,999
519
4,759
975
70
2,601
(173)
3,473
Year Ended December 31,
2022
2021
2020
116,533
(in US$’000)
105,400
77,865
Year Ended December 31,
2022
2021
2020
(in US$’000)
63,079
7,169
8,148
449
166
245
917
—
(65)
227
50,637
9,350
8,100
60
172
233
1,171
—
(141)
223
47,299
6,301
7,878
(2)
160
217
725
(9)
2,447
198
80,728
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 assets
Depreciation charge of right-of-use assets and lease expenses
Movement on the provision for trade receivables
Movement on the provision for excess and obsolete
inventories
Auditor’s remuneration
Employee benefit expenses (Note 9)
111,200
100,311
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
Year Ended December 31,
2021
2022
2020
116,421
29,105
1,397
(898)
(13,000)
134
16,738
(in US$’000)
105,284
26,321
1,946
(55)
(12,420)
104
15,896
77,853
19,463
1,137
(938)
(8,753)
(76)
10,833
Note: The Company has been granted the High and New Technology Enterprise (“HNTE”) status. Accordingly, the
Company is subject to a preferential income tax rate of 15% in 2022 and renew the HNTE status in 2023 (2021: 15%;
2020: 15%). Certain research and development expenses are also eligible for super-deduction such that 200% of qualified
expenses incurred are deductible against taxable profits for tax purposes (2021: 200%; 2020: 175%).
The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the
year ended December 31, 2022 was 14.4% (2021: 15.1%; 2020: 13.9%).
9. Employee Benefit Expenses
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
Year Ended December 31,
2021
2022
2020
86,330
9,701
15,169
111,200
(in US$’000)
77,335
8,713
14,263
100,311
68,226
995
11,507
80,728
Employee benefit expenses of approximately US$19.8 million for the year ended December 31, 2022 (2021: US$20.1 million;
2020: US$16.4 million) are included in cost of sales.
10. Cash and Cash Equivalents
Cash and cash equivalents
December 31,
2022
2021
(in US$’000)
33,923
50,038
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.
F-64
F-65
11. Trade and Bills Receivables
14. Property, Plant and Equipment
Trade receivables—third parties
Trade receivables—related parties (Note 22(b))
Bills receivables
December 31,
2022
2021
(in US$’000)
12,845
3,695
5,316
21,856
9,555
649
7,278
17,482
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The
carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
Movements on the provision for trade receivables are as follows:
As at January 1
Increase in provision for trade receivables
Decrease in provision due to subsequent collection
As at December 31
12. Other Receivables, Prepayments and Deposits
2022
2021
2020
—
—
—
—
(in US$’000)
—
—
—
—
9
—
(9)
—
Prepayments to suppliers
Interest receivables
Deposits
Others
13. Inventories
Raw materials
Work in progress
Finished goods
December 31,
2022
2021
(in US$’000)
2,624
25
778
245
3,672
1,929
283
877
261
3,350
December 31,
2022
2021
(in US$’000)
22,804
108,168
23,844
154,816
54,585
39,668
25,137
119,390
Buildings
situated in
the PRC
Leasehold
and motor Construction
improvements
equipment
vehicles
in progress
Total
Furniture
and
fixtures,
other
equipment
(in US$’000)
26,438
15,033
Plant
and
117
(227)
974
(2,204)
25,098
14,817
2,830
(205)
(1,326)
16,116
516
(178)
478
(1,267)
14,582
9,498
1,474
(178)
(833)
9,961
136
2,924
—
(2,510)
(29)
521
—
—
—
—
—
118,042
3,622
(1,291)
—
(9,775)
110,598
44,392
8,148
(822)
(3,951)
47,767
8,982
4,621
521
62,831
Furniture
and
fixtures,
other
equipment
and motor
(in US$’000)
25,173
12,273
26,438
15,033
535
(207)
298
639
12,288
2,347
(145)
—
327
14,817
929
(481)
1,982
330
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
848
38
—
—
(71)
815
94
238
—
(18)
314
501
578
68
(128)
314
16
848
504
100
(128)
(390)
8
94
754
11,621
5,535
136
73,650
75,587
27
(886)
1,058
(6,204)
69,582
19,983
3,606
(439)
(1,774)
21,376
48,206
73,480
28
—
224
1,855
75,587
15,699
3,763
—
93
428
19,983
55,604
Buildings
situated in
the PRC
Leasehold
Plant
and
improvements
equipment
vehicles
in progress
Total
Construction
Cost
As at January 1, 2022
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2022
Accumulated depreciation
As at January 1, 2022
Depreciation
Disposals
Exchange differences
As at December 31, 2022
Net book value
As at December 31, 2022
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
F-66
F-67
11. Trade and Bills Receivables
14. Property, Plant and Equipment
Trade receivables—third parties
Trade receivables—related parties (Note 22(b))
Bills receivables
December 31,
2022
2021
(in US$’000)
12,845
3,695
5,316
21,856
9,555
649
7,278
17,482
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The
carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
Movements on the provision for trade receivables are as follows:
As at January 1
Increase in provision for trade receivables
Decrease in provision due to subsequent collection
As at December 31
12. Other Receivables, Prepayments and Deposits
2022
2021
2020
—
—
—
—
(in US$’000)
—
—
—
—
9
—
(9)
—
Prepayments to suppliers
Interest receivables
Deposits
Others
13. Inventories
Raw materials
Work in progress
Finished goods
December 31,
2022
2021
(in US$’000)
2,624
25
778
245
3,672
1,929
283
877
261
3,350
December 31,
2022
2021
(in US$’000)
22,804
108,168
23,844
154,816
54,585
39,668
25,137
119,390
Cost
As at January 1, 2022
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2022
Accumulated depreciation
As at January 1, 2022
Depreciation
Disposals
Exchange differences
As at December 31, 2022
Net book value
As at December 31, 2022
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
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor Construction
in progress
vehicles
75,587
27
(886)
1,058
(6,204)
69,582
19,983
3,606
(439)
(1,774)
21,376
48,206
848
38
—
—
(71)
815
94
238
—
(18)
314
501
(in US$’000)
26,438
117
(227)
974
(2,204)
25,098
14,817
2,830
(205)
(1,326)
16,116
15,033
516
(178)
478
(1,267)
14,582
9,498
1,474
(178)
(833)
9,961
136
2,924
—
(2,510)
(29)
521
—
—
—
—
—
Total
118,042
3,622
(1,291)
—
(9,775)
110,598
44,392
8,148
(822)
(3,951)
47,767
8,982
4,621
521
62,831
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor
vehicles
Construction
in progress
Total
73,480
28
—
224
1,855
75,587
15,699
3,763
—
93
428
19,983
55,604
(in US$’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
F-66
F-67
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor Construction
in progress
vehicles
(in US$’000)
22,606
581
(53)
361
1,678
25,173
8,760
2,786
(35)
777
12,288
9,526
935
(134)
1,155
791
12,273
5,665
1,511
(91)
485
7,570
2,828
1,519
—
(1,850)
188
2,685
1,116
—
—
80
1,196
12,885
4,703
1,489
76,932
68,213
—
—
334
4,933
73,480
11,212
3,493
—
994
15,699
57,781
539
—
—
—
39
578
383
88
—
33
504
74
Cost
As at January 1, 2020
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2020
Accumulated depreciation
As at January 1, 2020
Depreciation
Disposals
Exchange differences
As at December 31, 2020
Net book value
As at December 31, 2020
15. Leases
Leases consisted of the following:
Right-of-use assets:
Offices
Lease liabilities—current
Lease liabilities—non-current
Lease activities are summarized as follows:
December 31,
2022
2021
(in US$’000)
1,717
712
1,360
2,072
2,445
700
2,148
2,848
Year Ended December 31,
2022
2021
(in US$’000)
236
681
112
809
135
508
663
116
303
2,936
Lease expenses: Short-term leases with lease terms equal or less than 12 months
Depreciation charge of right-of-use assets
Interest expense (included in finance costs)
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from obtaining right-of-use assets
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Total lease payments
Less: Discount factor
Total lease liabilities
16. Deferred Tax Assets
The movements in deferred tax assets are as follows:
Total
103,712
3,035
(187)
—
7,629
114,189
27,136
7,878
(126)
2,369
37,257
December 31,
2022
2021
(in US$’000)
791
755
660
—
2,206
(134)
2,072
814
784
793
713
3,104
(256)
2,848
December 31,
2022
2021
(in US$’000)
—
—
76
7
6
5
94
7
—
83
7
6
—
103
December 31,
2022
2021
(in US$’000)
19,737
3,358
23,095
12,030
381
12,411
As at January 1
statements
Credited/(debited) to the consolidated income
—Accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary
differences
Exchange differences
As at December 31
2022
2020
2021
(in US$’000)
7,715
8,315
6,147
1,344
(732)
8,327
(814)
214
7,715
1,687
481
8,315
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$24,000 as at December 31, 2022 (2021: US$26,000).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2022
2023
2024
2025
2026
2027
17. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 22(b))
Lease contracts are typically within a period of 1 to 5 years. The weighted average remaining lease term and weighted average
discount rate as at December 31, 2022 was 2.7 years (2021: 3.7 years) and 4.70% (2021: 4.75%) respectively.
F-68
F-69
Buildings
situated in
the PRC
Leasehold
and motor Construction
improvements
equipment
vehicles
in progress
Total
Furniture
and
fixtures,
other
equipment
(in US$’000)
Plant
and
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
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
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
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:
December 31,
2022
2021
(in US$’000)
1,717
712
1,360
2,072
2,445
700
2,148
2,848
Year Ended December 31,
2022
2021
(in US$’000)
236
681
112
809
135
508
663
116
303
2,936
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, 2022 was 2.7 years (2021: 3.7 years) and 4.70% (2021: 4.75%) 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
Total lease payments
Less: Discount factor
Total lease liabilities
16. Deferred Tax Assets
The movements in deferred tax assets are as follows:
December 31,
2022
2021
(in US$’000)
791
755
660
—
2,206
(134)
2,072
814
784
793
713
3,104
(256)
2,848
As at January 1
Credited/(debited) to the consolidated income
statements
—Accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary
differences
Exchange differences
As at December 31
2022
2021
(in US$’000)
2020
7,715
8,315
6,147
1,344
(732)
8,327
(814)
214
7,715
1,687
481
8,315
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$24,000 as at December 31, 2022 (2021: US$26,000).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2022
2023
2024
2025
2026
2027
17. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 22(b))
December 31,
2022
2021
(in US$’000)
—
—
76
7
6
5
94
7
—
83
7
6
—
103
December 31,
2022
2021
(in US$’000)
19,737
3,358
23,095
12,030
381
12,411
F-68
F-69
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
20. Notes to the Consolidated Statements of Cash Flows
trade payables approximates their fair values due to their short-term maturities.
18. Other Payables, Accruals and Advance Receipts
(a) Reconciliation of profit for the year to net cash generated from operations:
Accrued salaries and benefits
Accrued selling and marketing expenses
Value‑added tax and tax surcharge payables
Payments in advance from customers (note)
Others
December 31,
2022
2021
(in US$’000)
21,100
73,721
5,204
14,004
7,325
121,354
17,796
68,217
9,693
11,858
4,229
111,793
Note: Substantially all customer balances as at December 31, 2021 were recognized to revenue during the year ended
December 31, 2022. Additionally, substantially all customer balances as at December 31, 2022 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
2022
2021
2020
4,089
18,082
(19,003)
(377)
—
2,791
(in US$’000)
5,032
15,082
(15,976)
108
(157)
4,089
2,395
12,520
(10,232)
192
157
5,032
Adjustments to reconcile profit for the year to net cash generated from operations
Profit for the year
Taxation charge
Finance costs
Interest income
Depreciation on property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets
Provision for excess and obsolete inventories
Movement on the provision for trade receivables
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Trade payables
Deferred income
Other payables, accruals and advance receipts
Total changes in operating assets and liabilities
Net cash generated from operations
2022
2021
2020
(in US$’000)
99,683
89,388
67,020
16,738
15,896
10,833
112
(980)
8,148
116
(1,216)
8,100
449
166
245
681
(65)
—
(5,682)
(4,374)
(580)
60
172
233
663
(141)
—
(693)
939
(80)
12
(975)
7,878
(2)
160
217
480
2,447
(9)
2,057
6,360
(227)
(35,361) (37,575)
(11,804)
10,684
1,237
7,804
18,608
(1,398)
(1,737)
905
26,511
746
(23,225) (18,608)
22,491
96,270
93,970
112,609
December 31,
2022
(in US$’000)
1,307
(b) Supplemental disclosure for non-cash activities
During the years ended December 31, 2022, there was an increase in accruals made for purchases of property, plant and equipment
of US$1.8 million (2021 and 2020: a decrease of US$0.3 million and an increase of US$0.6 million respectively).
21. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-70
F-71
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
20. Notes to the Consolidated Statements of Cash Flows
trade payables approximates their fair values due to their short-term maturities.
18. Other Payables, Accruals and Advance Receipts
Accrued salaries and benefits
Accrued selling and marketing expenses
Value‑added tax and tax surcharge payables
Payments in advance from customers (note)
Others
December 31,
2022
2021
(in US$’000)
21,100
73,721
5,204
14,004
7,325
17,796
68,217
9,693
11,858
4,229
121,354
111,793
Note: Substantially all customer balances as at December 31, 2021 were recognized to revenue during the year ended
December 31, 2022. Additionally, substantially all customer balances as at December 31, 2022 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
2022
2021
2020
4,089
18,082
(19,003)
(377)
—
2,791
(in US$’000)
5,032
15,082
(15,976)
108
(157)
4,089
2,395
12,520
(10,232)
192
157
5,032
(a) Reconciliation of profit for the year to net cash generated from operations:
Profit for the year
Adjustments to reconcile profit for the year to net cash generated from operations
Taxation charge
Finance costs
Interest income
Depreciation on property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets
Provision for excess and obsolete inventories
Movement on the provision for trade receivables
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Trade payables
Other payables, accruals and advance receipts
Deferred income
Total changes in operating assets and liabilities
Net cash generated from operations
2022
2021
2020
99,683
(in US$’000)
89,388
16,738
112
(980)
8,148
449
166
245
681
(65)
—
(5,682)
15,896
116
(1,216)
8,100
60
172
233
663
(141)
—
(693)
67,020
10,833
12
(975)
7,878
(2)
160
217
480
2,447
(9)
2,057
(4,374)
(580)
939
(80)
(35,361) (37,575)
1,237
10,684
18,608
7,804
(1,737)
(1,398)
(23,225) (18,608)
93,970
96,270
6,360
(227)
(11,804)
905
26,511
746
22,491
112,609
(b) Supplemental disclosure for non-cash activities
During the years ended December 31, 2022, there was an increase in accruals made for purchases of property, plant and equipment
of US$1.8 million (2021 and 2020: a decrease of US$0.3 million and an increase of US$0.6 million respectively).
21. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
December 31,
2022
(in US$’000)
1,307
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-70
F-71
Place of
establishment
and
Equity
interest
attributable
to the Group
Nominal value
of registered
capital
(in RMB’000)
December 31,
2021
2022
Name
operation
2022
2021
Type of legal entity
Principal activity
PRC
20,000
20,000
100 %
100 %
company
Limited liability
Distribution of
Limited liability
drug products
Agriculture and
sales of Chinese
Technology Co., Limited
PRC
1,500
1,500
100 %
100 %
company
herbs
The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements
On January 31, 2023, the Company’s Board of Directors declared a dividend of RMB988.3 million (US$147.0 million), of which
RMB500.0 million (US$74.4 million) and RMB488.3 million (US$72.6 million) are payable by and after December 31, 2023
Shanghai Shangyao Hutchison
Whampoa GSP Company
Limited
Hutchison Heze Bio
Resources &
24. Subsequent Events
were issued.
respectively.
22. Significant Related Party Transactions
The Group has the following significant transactions with related parties which were carried out in the normal course of business
23. Particulars of Principal Subsidiaries
at terms determined and agreed by the relevant parties:
(a) Transactions with related parties:
Sales of goods to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of goods from:
—SHTCML
—Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Rendering of research and development services from:
—A fellow subsidiary of SHHCMI(HK)L
Provision of marketing services to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of intangible asset from:
—A fellow subsidiary of SHHCMI(HK)L
Leasing office from:
—SHTCML
Year Ended December 31,
2021
2022
2020
(in US$’000)
13,861
4,231
18,092
11,072
683
1,683
13,438
12,181
3,492
15,673
10,002
1,311
—
11,313
10,465
2,854
13,319
7,922
1,016
—
8,938
507
525
491
952
127
1,079
410
—
1,146
—
1,146
—
247
2,781
—
2,781
—
337
No transactions have been entered into with the directors of the Company (being the key management personnel) during the year
ended December 31, 2022 (2021 and 2020: nil).
(b) Balances with related parties included in:
Trade and bills receivables
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other receivables, prepayments and deposits
—A fellow subsidiary of SHTCML
Trade payables
—SHTCML
— Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other payables, accruals and advance receipts
—Fellow subsidiaries of SHHCMI(HK)L
December 31,
2022
2021
(in US$’000)
3,622
73
3,695
402
1,266
152
1,940
3,358
649
—
649
547
—
381
—
381
1,256
1,149
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-72
F-73
The Group has the following significant transactions with related parties which were carried out in the normal course of business
23. Particulars of Principal Subsidiaries
Place of
establishment
and
operation
Nominal value
of registered
capital
Equity
interest
attributable
to the Group
December 31,
2022
2021
2022
2021
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
507
525
491
were issued.
The Group evaluated subsequent events through February 28, 2023, which is the date when the consolidated financial statements
On January 31, 2023, the Company’s Board of Directors declared a dividend of RMB988.3 million (US$147.0 million), of which
RMB500.0 million (US$74.4 million) and RMB488.3 million (US$72.6 million) are payable by and after December 31, 2023
respectively.
22. Significant Related Party Transactions
at terms determined and agreed by the relevant parties:
(a) Transactions with related parties:
Rendering of research and development services from:
Sales of goods to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of goods from:
—SHTCML
—Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
—A fellow subsidiary of SHHCMI(HK)L
Provision of marketing services to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of intangible asset from:
—A fellow subsidiary of SHHCMI(HK)L
Leasing office from:
—SHTCML
Trade and bills receivables
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other receivables, prepayments and deposits
—A fellow subsidiary of SHTCML
Trade payables
—SHTCML
— Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other payables, accruals and advance receipts
—Fellow subsidiaries of SHHCMI(HK)L
Year Ended December 31,
2022
2021
2020
(in US$’000)
13,861
4,231
18,092
11,072
683
1,683
13,438
952
127
1,079
410
—
12,181
3,492
15,673
10,002
1,311
—
11,313
10,465
2,854
13,319
7,922
1,016
—
8,938
1,146
—
1,146
—
247
2,781
—
2,781
—
337
December 31,
2022
2021
(in US$’000)
3,622
73
3,695
402
1,266
152
1,940
3,358
649
—
649
547
—
381
—
381
1,256
1,149
No transactions have been entered into with the directors of the Company (being the key management personnel) during the year
ended December 31, 2022 (2021 and 2020: nil).
(b) Balances with related parties included in:
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-72
F-73
HUTCHISON WHAMPOA GUANGZHOU
BAIYUNSHAN CHINESE MEDICINE
COMPANY LIMITED
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 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 the year 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
statements.
Emphasis of Matter
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 the results of their operations and their cash flows for the period from January 1, 2021 to September 28 2021, and the year ended
December 31, 2020 in accordance with the basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial
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-74
F-75
HUTCHISON WHAMPOA GUANGZHOU
BAIYUNSHAN CHINESE MEDICINE
COMPANY LIMITED
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 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 the year 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 the results of their operations and their cash flows for the period from January 1, 2021 to September 28 2021, and the year 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-74
F-75
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Income Statements
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Share of profits/(losses) of a joint venture and associated companies, net of tax
Finance costs
Gain on return of land
Gain on divestment of a subsidiary
Profit before taxation
Taxation charge
Profit for the period/year
Attributable to:
Shareholders of the Company
Non-controlling interests
Note
5
6
7
8
9
Period from
January 1, 2021
to September 28,
2021
209,528
(98,462)
111,066
(74,425)
(21,659)
5,306
20,288
29
(24)
16,433
—
36,726
(4,840)
31,886
31,850
36
31,886
Year Ended
December 31,
2020
232,368
(115,564)
116,804
(74,066)
(25,664)
6,071
23,145
(84)
(57)
84,667
37
107,708
(16,494)
91,214
91,276
(62)
91,214
The accompanying notes are an integral part of these consolidated financial statements.
Other comprehensive income that has been or may be reclassified subsequently to profit or
Profit for the period/year
loss:
Exchange translation differences
Total comprehensive income
Attributable to:
Shareholders of the Company
Non‑controlling interests
The accompanying notes are an integral part of these consolidated financial statements.
Period from
January 1, 2021
to September 28,
2021
31,886
Year Ended
December 31,
2020
91,214
1,393
33,279
33,237
42
33,279
4,728
95,942
95,976
(34)
95,942
F-76
F-77
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Income Statements
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Share of profits/(losses) of a joint venture and associated companies, net of tax
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Gain on return of land
Gain on divestment of a subsidiary
Profit before taxation
Taxation charge
Profit for the period/year
Attributable to:
Shareholders of the Company
Non-controlling interests
Note
5
6
7
8
9
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
209,528
(98,462)
111,066
(74,425)
(21,659)
5,306
20,288
29
(24)
16,433
—
36,726
(4,840)
31,886
31,850
36
31,886
232,368
(115,564)
116,804
(74,066)
(25,664)
6,071
23,145
(84)
(57)
84,667
37
107,708
(16,494)
91,214
91,276
(62)
91,214
The accompanying notes are an integral part of these consolidated financial statements.
Profit for the period/year
Other comprehensive income that has been or may be reclassified subsequently to profit or
loss:
Exchange translation differences
Total comprehensive income
Attributable to:
Shareholders of the Company
Non‑controlling interests
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
31,886
91,214
1,393
33,279
33,237
42
33,279
4,728
95,942
95,976
(34)
95,942
The accompanying notes are an integral part of these consolidated financial statements.
F-76
F-77
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Financial Position
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Changes in Equity
(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 income
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,
Note
2021
11
12
13
14
15
16
17
18
19
23(b)
16
20
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
The accompanying notes are an integral part of these consolidated financial statements.
Acquisition of additional interest in a subsidiary
Divestment of a subsidiary to non-controlling interest
As at January 1, 2020
Profit/(loss) for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income/ (loss)
Dividends declared to shareholders
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
—
—
—
—
—
—
—
—
—
—
—
4,700
4,700
—
(9)
—
—
1,387
1,387
—
4,035
Attributable to shareholders of the Company
Share
capital
Exchange
reserve
General
reserves
24,103
(2,043)
131
Retained
earnings
22,322
91,276
Non‑
controlling
interests
2,518
(62)
Total
44,513
91,276
Total
equity
47,031
91,214
—
—
—
—
—
—
—
91,276
4,700
95,976
— (20,756)
(20,756)
(131)
—
(207)
—
(347)
—
31,850
31,850
—
31,850
1,387
33,237
28
(34)
4,728
95,942
— (20,756)
(1,537)
(1,884)
35
982
36
6
42
35
120,368
31,886
1,393
33,279
24,103
2,648
— 92,635
119,386
24,103
— (106,159)
(106,159)
— (106,159)
— 18,326
46,464
1,024
47,488
The accompanying notes are an integral part of these consolidated financial statements.
F-78
F-79
Investments in a joint venture and associated companies
Other receivables, prepayments and deposits
Assets
Current assets
Cash and cash equivalents
Trade and bills receivables
Inventories
Total current assets
Property, plant and equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible assets
Liabilities and shareholders’ equity
Other payables, accruals and advance receipts
Deferred tax assets
Other non-current assets
Total assets
Current liabilities
Trade payables
Dividend payable
Lease liabilities
Current tax liabilities
Total current liabilities
Deferred income
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
11
12
13
14
15
16
17
18
19
16
20
23(b)
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
The accompanying notes are an integral part of these consolidated financial statements.
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Financial Position
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Changes in Equity
(in US$’000)
September 28,
Note
2021
Attributable to shareholders of the Company
Non‑
As at January 1, 2020
Profit/(loss) for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income/ (loss)
Dividends declared to shareholders
Acquisition of additional interest in a subsidiary
Divestment of a subsidiary to non-controlling interest
As at December 31, 2020
Profit for the period
Other comprehensive income
Exchange translation differences
Total comprehensive income
Dividends declared to shareholders
As at September 28, 2021
Share
capital
24,103
Exchange
reserve
(2,043)
—
—
General
reserves
131
—
Retained
earnings
22,322
91,276
Total
44,513
91,276
controlling
interests
2,518
(62)
Total
equity
47,031
91,214
—
—
—
—
—
24,103
—
—
—
—
24,103
4,700
4,700
—
(9)
—
2,648
—
1,387
1,387
—
4,035
—
—
91,276
—
— (20,756)
(207)
(131)
—
—
— 92,635
31,850
—
4,700
95,976
(20,756)
(347)
—
119,386
31,850
28
4,728
95,942
(34)
— (20,756)
(1,884)
35
120,368
31,886
(1,537)
35
982
36
—
—
31,850
—
— (106,159)
— 18,326
1,387
33,237
(106,159)
46,464
1,393
6
33,279
42
— (106,159)
47,488
1,024
The accompanying notes are an integral part of these consolidated financial statements.
F-78
F-79
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Cash Flows
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Notes to the Consolidated Financial Statements
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 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
21(a)
8
16
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
1. General Information
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
The accompanying notes are an integral part of these consolidated financial statements.
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$59.7 million respectively. Based on the Group’s
operating plan, the existing cash and cash equivalents along with the expected net cash to be generated from operating activities are
considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve
months (the look-forward period used) from the report issue date, and it is appropriate for the Group to prepare the consolidated financial
statements on a going concern basis.
F-80
F-81
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Cash Flows
(in US$’000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Notes to the Consolidated Financial Statements
1. General Information
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 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
21(a)
8
16
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
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
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.
The accompanying notes are an integral part of these consolidated financial statements.
F-80
F-81
(2) Summary of Significant Accounting Policies
(c) Transactions with Non-controlling Interests
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.
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.
The following standards, amendments and interpretations were issued but not yet effective for the financial period from January 1,
(d) Joint Arrangements
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
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
Deferred Tax related to Assets and Liabilities arising from a
and recognizes the amount in the consolidated income statements.
Single Transaction
Insurance Contracts
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
(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
(1) Effective for the Group for annual periods beginning on or after January 1, 2022.
operating policy decisions.
(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 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
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.
in US$, which is the Company’s presentation currency.
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.
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
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
(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.
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.
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(2) Summary of Significant Accounting Policies
(c) Transactions with Non-controlling Interests
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.
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.
The following standards, amendments and interpretations were issued but not yet effective for the financial period from January 1,
(d) Joint Arrangements
2021 to September 28, 2021 and have not been early adopted by the Group:
Annual improvement 2018-2020(1)
IFRS 3 (Amendments)(1)
IAS 16 (Amendments)(1)
IAS 37 (Amendments)(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.
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.
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.
(f) Foreign Currency Translation
(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.
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.
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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
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.
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.
(m) Inventories
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.
(o) Cash and Cash Equivalents
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.
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.
The profit or loss on disposal of a subsidiary is calculated by reference to the net assets at the date of disposal including the
(p) Financial Liabilities and Equity Instruments
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.
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.
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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.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
on the project is charged to the consolidated income statements.
All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they
are incurred.
(l) Impairment of Non-Financial Assets
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
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.
The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount
(m) Inventories
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.
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.
The profit or loss on disposal of a subsidiary is calculated by reference to the net assets at the date of disposal including the
(p) Financial Liabilities and Equity Instruments
attributable amount of goodwill.
(j) Other Intangible Assets
useful lives of ten years.
(k) Research and Development
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
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.
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.
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(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.
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.
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.
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.
Outside basis differences
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases.
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
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.
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.
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
(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.
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.
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(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.
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.
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.
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.
Outside basis differences
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases.
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.
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
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
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.
(r) Employee Benefits
its employees.
(s) Provisions
for future operating losses.
(t) 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-86
F-87
(x) Segment Reporting
(b) Capital risk management
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 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 was as follows:
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
Total liabilities (note)
Total assets
Liabilities to assets ratio
September 28,
2021
(in US$’000)
237,352
284,840
83.3 %
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.
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.
Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes
(c) Fair value estimation
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, 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 23(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-88
F-89
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.
(x) Segment Reporting
(b) Capital risk management
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers.
The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits
The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments,
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
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
The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total
bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors.
assets as shown on the consolidated statements of financial position.
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.
3. Financial Risk Management
(a) Financial risk factors
(i) Credit risk
to its financial assets.
are of high credit quality.
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.
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 was as follows:
Total liabilities (note)
Total assets
Liabilities to assets ratio
September 28,
2021
(in US$’000)
237,352
284,840
83.3 %
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
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.
Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes
(c) Fair value estimation
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, 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 23(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).
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-88
F-89
(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:
segment.
—Manufacturing business—manufacture and distribution of drug products
6. Other Net Operating Income
—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:
Manufacturing
business
Period from January 1, 2021 to September 28, 2021
Distribution
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
7. Operating Profit
Operating profit
F-90
F-91
Total segment assets
251,178
33,662
284,840
As at September 28, 2021
Manufacturing
business
Year Ended December 31, 2020
Manufacturing
business
Distribution
business
PRC
(in US$’000)
Distribution
business
PRC
(in US$’000)
16,941
83
2,312
—
6
123
1
215,427
188
20,833
84
51
6,361
2,432
Total
Total
232,368
271
23,145
84
57
6,484
2,433
Revenue from external customers
Interest income
Operating profit
of tax
Finance costs
Depreciation/amortization
and deferred tax assets)
Share of losses of a joint venture and associated companies, net
Additions to non‑current assets (other than financial instruments
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 year ended December 31, 2020: US$0.1 million). 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 year ended December 31, 2020: US$3.7 million) and included in the manufacturing business operating
Interest income
Gain on disposal of leasehold land
Loss on disposal of property, plant and equipment
Other operating income
Other operating expenses
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
205
—
(47)
5,631
(483)
5,306
271
166
(643)
6,734
(457)
6,071
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
20,288
23,145
(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:
—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:
Revenue from external customers
Interest income
Operating profit
of tax
Finance costs
Depreciation/amortization
and deferred tax assets)
Share of profits of a joint venture and associated companies, net
Additions to non‑current assets (other than financial instruments
Period from January 1, 2021 to September 28, 2021
Manufacturing
business
Distribution
business
PRC
(in US$’000)
18,909
64
2,076
—
6
98
—
190,619
141
18,212
29
18
5,515
2,405
Total
209,528
205
20,288
29
24
5,613
2,405
Total segment assets
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)
Manufacturing
business
As at September 28, 2021
Distribution
business
PRC
(in US$’000)
Total
251,178
33,662
284,840
Manufacturing
business
Year Ended December 31, 2020
Distribution
business
PRC
(in US$’000)
Total
215,427
188
20,833
84
51
6,361
2,432
16,941
83
2,312
—
6
123
1
232,368
271
23,145
84
57
6,484
2,433
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 year ended December 31, 2020: US$0.1 million). 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 year ended December 31, 2020: US$3.7 million) and included in the manufacturing business operating
segment.
—Manufacturing business—manufacture and distribution of drug products
6. Other Net Operating Income
Interest income
Gain on disposal of leasehold land
Loss on disposal of property, plant and equipment
Other operating income
Other operating expenses
7. Operating Profit
Operating profit
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
205
—
(47)
5,631
(483)
5,306
271
166
(643)
6,734
(457)
6,071
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
20,288
23,145
F-90
F-91
Operating profit is stated after charging/(crediting) the following:
The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s
weighted average tax rate as follows:
Cost of inventories recognized as expense
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on disposal of leasehold land
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease expenses
Movements on the provision for trade receivables
Movements on the provision for excess and obsolete inventories
Research and development expense
Auditor’s remuneration
Employee benefit expenses (Note 10)
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’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
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$14.6 million) in other receivables, prepayments and deposits.
9. Taxation Charge
Current tax
Deferred income tax (Note 17)
Taxation charge
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
6,093
(1,253)
4,840
17,108
(614)
16,494
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 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
(in US$’000)
36,726
9,181
45
(3,781)
192
6
(803)
4,840
107,708
26,927
(10,834)
66
339
44
(48)
16,494
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
23,705
6,679
1,221
31,605
28,380
6,954
1,488
36,822
September 28,
2021
(in US$’000)
73,616
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 year ended December 31, 2020: 15.3%).
10. Employee Benefit Expenses
Employee benefit expenses of approximately US$9.1 million for the period from January 1, 2021 to September 28, 2021 (for the
year ended December 31, 2020: US$11.1 million) are included in cost of sales.
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
11. Cash and Cash Equivalents
Cash and cash equivalents
The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB
denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the
PRC government.
F-92
F-93
Operating profit is stated after charging/(crediting) the following:
The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s
weighted average tax rate as follows:
Cost of inventories recognized as expense
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on disposal of leasehold land
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease expenses
Movements on the provision for trade receivables
Movements on the provision for excess and obsolete inventories
Research and development expense
Auditor’s remuneration
Employee benefit expenses (Note 10)
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
100,906
(in US$’000)
87,941
4,425
47
—
450
331
1,360
38
41
2,057
43
31,605
5,283
643
(166)
236
414
1,438
(20)
474
1,670
88
36,822
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$14.6 million) in other receivables, prepayments and deposits.
9. Taxation Charge
Current tax
Deferred income tax (Note 17)
Taxation charge
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
6,093
(1,253)
4,840
17,108
(614)
16,494
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 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
(in US$’000)
36,726
9,181
45
(3,781)
192
6
(803)
4,840
107,708
26,927
66
(10,834)
339
44
(48)
16,494
Note: The Company has been granted the High and New Technology Enterprise status. Accordingly, the Company is
subject to a preferential income tax rate of 15% and renewed the status in 2021. Certain research and development expenses
are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible for tax purposes.
The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the
period from January 1, 2021 to September 28, 2021 was 13.2% (for the year ended December 31, 2020: 15.3%).
10. Employee Benefit Expenses
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
23,705
6,679
1,221
31,605
28,380
6,954
1,488
36,822
Employee benefit expenses of approximately US$9.1 million for the period from January 1, 2021 to September 28, 2021 (for the
year ended December 31, 2020: US$11.1 million) are included in cost of sales.
11. Cash and Cash Equivalents
Cash and cash equivalents
September 28,
2021
(in US$’000)
73,616
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.
F-92
F-93
12. Trade and Bills Receivables
15. Property, Plant and Equipment
Trade receivables—third parties
Trade receivables—related parties (Note 23(b))
Bills receivables
September 28,
2021
(in US$’000)
4,290
1,975
21,609
27,874
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The
carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
Movements on the provision for trade receivables are as follows:
As at January 1
Increase in provision for trade receivables
Decrease in provision due to subsequent collection
Exchange differences
As at September 28/December 31
2021
2020
(in US$’000)
—
38
—
—
38
19
—
(20)
1
—
The impaired and provided receivables as at September 28, 2021 were aged over 1 year.
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
September 28,
2021
(in US$’000)
9,671
780
14,592
1,504
26,547
September 28,
2021
(in US$’000)
23,126
17,816
21,458
62,400
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
Cost
As at January 1, 2020
Additions
Disposals
Transfers
Disposal of a subsidiary
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
Buildings
and
facilities
Plant and
equipment
and motor
Construction
vehicles
in progress
Total
Furniture and
fixtures, other
equipment
(in US$’000)
61,267
27,769
12,615
62,176
28,704
14,171
396
(3)
—
516
440
(97)
358
234
16,368
1,763
(1)
137
16,559
1,278
(61)
138
18,267
17,914
623
(78)
906
105
10,522
1,384
(69)
89
11,926
1,979
943
—
(1,264)
17
1,675
—
—
—
—
—
103,630
2,402
(178)
—
872
106,726
43,449
4,425
(131)
364
48,107
43,909
10,790
2,245
1,675
58,619
Buildings
and
facilities
Plant and
equipment
and motor
Construction
vehicles
in progress
Total
Furniture and
fixtures, other
equipment
(in US$’000)
25,426
11,353
168
(187)
—
502
1,860
27,769
14,096
1,520
(150)
—
1,093
16,559
651
(522)
(27)
318
842
12,615
8,755
1,562
(464)
(23)
692
10,522
59,099
224
(2,204)
(28)
28
4,148
61,267
14,021
2,201
(926)
(10)
1,082
16,368
1,311
1,390
—
—
(848)
126
1,979
—
—
—
—
—
—
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
F-94
F-95
12. Trade and Bills Receivables
15. Property, Plant and Equipment
Trade receivables—third parties
Trade receivables—related parties (Note 23(b))
Bills receivables
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$’000)
—
38
—
—
38
(20)
19
—
1
—
The impaired and provided receivables as at September 28, 2021 were aged over 1 year.
13. Other Receivables, Prepayments and Deposits
Prepayments to suppliers
Value‑added tax receivables
Land compensation receivable
Others
14. Inventories
Raw materials
Work in progress
Finished goods
September 28,
2021
(in US$’000)
4,290
1,975
21,609
27,874
September 28,
2021
(in US$’000)
9,671
780
14,592
1,504
26,547
September 28,
2021
(in US$’000)
23,126
17,816
21,458
62,400
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
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
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
(in US$’000)
Plant and
equipment
Construction
in progress
27,769
440
(97)
358
234
28,704
16,559
1,278
(61)
138
17,914
12,615
623
(78)
906
105
14,171
10,522
1,384
(69)
89
11,926
1,979
943
—
(1,264)
17
1,675
—
—
—
—
—
Total
103,630
2,402
(178)
—
872
106,726
43,449
4,425
(131)
364
48,107
43,909
10,790
2,245
1,675
58,619
Buildings
and
facilities
59,099
224
(2,204)
(28)
28
4,148
61,267
14,021
2,201
(926)
(10)
1,082
16,368
Furniture and
fixtures, other
equipment
and motor
vehicles
(in US$’000)
Plant and
equipment
Construction
in progress
25,426
168
(187)
—
502
1,860
27,769
14,096
1,520
(150)
—
1,093
16,559
11,353
651
(522)
(27)
318
842
12,615
8,755
1,562
(464)
(23)
692
10,522
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
F-94
F-95
16. Leases
Leases consisted of the following:
Right-of-use assets:
Warehouses
Lease liabilities—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
September 28,
2021
(in US$’000)
420
452
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
953
407
24
427
887
551
57
609
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: 1.56 years) and 4.75% (as at December 31, 2020:
4.75%) respectively.
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Total lease payments
Less: Discount factor
Total lease liabilities
17. Deferred Tax Assets and Liabilities
Deferred tax assets
Net deferred tax assets
September 28,
2021
(in US$’000)
462
462
(10)
452
September 28,
2021
(in US$’000)
4,420
4,420
2021
2022
2023
2024
2025
2026
18. Trade Payables
The movements in net deferred tax assets are as follows:
At January 1
—Tax losses
Credited/(debited) to the consolidated income statements
—Accrued expenses, provisions, depreciation allowances
Exchange differences
At September 28/December 31
2021
2020
(in US$’000)
3,027
326
927
140
4,420
2,217
(396)
1,010
196
3,027
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$1.6 million as at September 28, 2021.
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
September 28,
2021
(in US$’000)
928
1,450
856
1,239
1,074
669
6,216
September 28,
2021
(in US$’000)
15,519
3,529
19,048
Trade payables—third parties
Trade payables—related parties (Note 23(b))
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
trade payables approximates their fair values due to their short-term maturities.
F-96
F-97
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
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
953
407
24
427
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: 1.56 years) and 4.75% (as at December 31, 2020:
16. Leases
Leases consisted of the following:
Right-of-use assets:
Warehouses
Lease liabilities—current
Lease activities are summarized as follows:
4.75%) respectively.
Future lease payments are as follows:
17. Deferred Tax Assets and Liabilities
Lease payments:
Not later than 1 year
Total lease payments
Less: Discount factor
Total lease liabilities
Deferred tax assets
Net deferred tax assets
September 28,
2021
(in US$’000)
420
452
887
551
57
609
462
462
(10)
452
September 28,
2021
(in US$’000)
September 28,
2021
(in US$’000)
4,420
4,420
The movements in net deferred tax assets are as follows:
At January 1
Credited/(debited) to the consolidated income statements
—Tax losses
—Accrued expenses, provisions, depreciation allowances
Exchange differences
At September 28/December 31
2021
2020
(in US$’000)
3,027
326
927
140
4,420
2,217
(396)
1,010
196
3,027
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$1.6 million as at September 28, 2021.
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2021
2022
2023
2024
2025
2026
18. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 23(b))
September 28,
2021
(in US$’000)
928
1,450
856
1,239
1,074
669
6,216
September 28,
2021
(in US$’000)
15,519
3,529
19,048
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
trade payables approximates their fair values due to their short-term maturities.
F-96
F-97
19. Other Payables, Accruals and Advance Receipts
21. Notes to the Consolidated Statements of Cash Flows
Other payables and accruals
Accrued salaries and benefits
Accrued selling and administrative expenses
Value‑added tax and tax surcharge payables
Deposits received
Other payables to manufacturers
Others
Advance receipts
Payments in advance from customers (note)
Deferred government incentives
September 28,
2021
(in US$’000)
5,384
35,266
2,588
4,748
8,794
5,934
62,714
16,310
1,460
17,770
80,484
Note: 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.
(16,433)
(84,667)
20. Deferred Income
Deferred government incentives:
Buildings and other non‑current assets
Others
September 28,
2021
(in US$’000)
11,272
3,641
14,913
(a) Reconciliation of profit for the period/year to net cash generated from operations:
Profit for the period/year
Adjustments to reconcile profit for the period/year to net cash
generated from operations
Taxation charge
Finance costs
Interest income
Share of (profits)/losses of a joint venture and associated
companies, net of tax
Depreciation on property, plant and equipment
Depreciation charge of right-of-use assets
Loss on disposal of property, plant and equipment
Gain on return of land
Gain on disposal of leasehold land
Amortization of leasehold land
Amortization of other intangible assets
Movement on the provision for trade receivables
Movement on the provision for excess and obsolete inventories
Amortization of deferred income
Gain on divestment of a subsidiary
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Other non-current assets
Trade payables
Other payables, accruals and advance receipts
Total changes in working capital
Net cash generated from operations
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
31,886
91,214
4,840
24
(205)
(29)
4,425
407
47
—
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
(166)
236
414
(20)
474
(1,689)
(37)
794
(19,124)
1,902
2,195
—
9,880
36,509
31,362
60,756
September 28,
2021
(in US$’000)
1,290
(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 year ended December 31, 2020: an increase of US$0.1 million).
22. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-98
F-99
Other payables and accruals
Accrued salaries and benefits
Accrued selling and administrative expenses
Value‑added tax and tax surcharge payables
Deposits received
Other payables to manufacturers
Others
Advance receipts
Payments in advance from customers (note)
Deferred government incentives
20. Deferred Income
Deferred government incentives:
Buildings and other non‑current assets
Others
September 28,
2021
(in US$’000)
5,384
35,266
2,588
4,748
8,794
5,934
62,714
16,310
1,460
17,770
80,484
September 28,
2021
(in US$’000)
11,272
3,641
14,913
Note: Substantially all customer balances as at September 28, 2021 are expected to be recognized to revenue within one
year upon transfer of goods or services as the contracts have an expected duration of one year or less.
19. Other Payables, Accruals and Advance Receipts
21. Notes to the Consolidated Statements of Cash Flows
(a) Reconciliation of profit for the period/year to net cash generated from operations:
Profit for the period/year
Adjustments to reconcile profit for the period/year to net cash
generated from operations
Taxation charge
Finance costs
Interest income
Share of (profits)/losses of a joint venture and associated
companies, net of tax
Depreciation on property, plant and equipment
Depreciation charge of right-of-use assets
Loss on disposal of property, plant and equipment
Gain on return of land
Gain on disposal of leasehold land
Amortization of leasehold land
Amortization of other intangible assets
Movement on the provision for trade receivables
Movement on the provision for excess and obsolete inventories
Amortization of deferred income
Gain on divestment of a subsidiary
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Other non-current assets
Trade payables
Other payables, accruals and advance receipts
Total changes in working capital
Net cash generated from operations
Period from
January 1, 2021
to September 28,
2021
Year Ended
December 31,
2020
(in US$’000)
31,886
91,214
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
(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 year ended December 31, 2020: an increase of US$0.1 million).
22. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
September 28,
2021
(in US$’000)
1,290
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-98
F-99
23. Significant Related Party Transactions
(b) Balances with related parties included in:
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,
2020
(in US$’000)
25,043
278
25,321
—
3,576
3,576
2,145
24,222
26,367
4,805
—
—
33,535
493
34,028
273
6,166
6,439
2,317
29,594
31,911
5,733
5
5
No transactions have been entered into with the directors of the Company (being the key management personnel) during the period
from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: nil).
All of the Group’s principal subsidiaries, joint venture and associated companies had a place of establishment and operation in the
F-100
Trade and bills receivables
—Fellow subsidiaries of GBPHCL (note (i))
Trade payables
—Fellow subsidiaries of GBPHCL (note (i))
Other receivables and prepayments—related parties
—Fellow subsidiaries of GBPHCL (note (i))
—An equity investee (note (i))
Other payables, accruals and advance receipts
—Fellow subsidiaries of GBPHCL (note (i))
Dividend payable (Note 3(b))
—GZHCMHK
—GBPHCL
Notes:
September 28,
2021
(in US$’000)
1,975
1,975
3,529
3,529
1,129
156
1,285
2,691
2,691
52,887
52,887
105,774
(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.
24. Particulars of Principal Subsidiaries, Joint Venture and Associated Companies
PRC.
Name
Ltd
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine (Bozhou) Co.
Hutchison Whampoa Guangzhou Baiyunshan Pharmaceuticals Limited
Hutchison Whampoa Guangzhou Baiyunshan Health & Wellness Co. Ltd
Hutchison Whampoa Baiyunshan Lai Da Pharmaceuticals (Shan Tou)
Fuyang Baiyunshan Hutchison Whampoa Chinese Medicine Technology
Wenshan Baiyunshan Hutchison Whampoa Sanqi Co. Ltd.
Daqing Baiyunshan Hutchison Whampoa Banlangen Technology Company
Company Limited
Company Limited
Limited
Shen Nong Garden Traditional Chinese Medicine Museum
Guangzhou Hulu Cultural Communications Company Limited
Shen Nong Garden Pharmacy Company Limited
Qing Yuan Hutchison Whampoa Baiyunshan Chinese Medicine Company
Joint Venture
Limited
Associated companies
Linyi Shenghe Jiuzhou Pharmaceuticals Company Limited
Tibet Linzhi Guangzhou Pharmaceutical Development Co. Ltd.
2021
Type of legal entity
Principal activity
100 % Limited liability company
drug products
100 % Limited liability company
Sales and marketing of drug products
100 % Limited liability company
Health supplemented food distribution
Manufacture, sales and distribution of
Manufacture, sales and distribution of
100 % Limited liability company
drug products
75 % Limited liability company
Agriculture and sales of Chinese herbs
51 % Limited liability company
Agriculture and sales of Chinese herbs
51 % Limited liability company
Agriculture and sales of Chinese herbs
Non-profit making
100 %
organization
100 % Limited liability company
Promote awareness of Chinese herbs
Promote awareness of Chinese herbs
Retail of drug products, health foods and
100 % Limited liability company
souvenirs
50 % Limited liability company
Agriculture and sales of Chinese herbs
30 % Limited liability company
Agriculture and sales of Chinese herbs
20 % Limited liability company
Trading of Chinese herbs
Nominal value Equity interest
of registered
attributable
capital
to the Group
September 28,
September 28,
2021
(in RMB’000)
100,000
10,000
10,000
10,000
3,650
2,000
1,020
1,000
1,000
200
1,000
3,000
2,000
F-101
23. Significant Related Party Transactions
(b) Balances with related parties included in:
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,
2020
(in US$’000)
25,043
278
25,321
—
3,576
3,576
2,145
24,222
26,367
4,805
—
—
33,535
493
34,028
273
6,166
6,439
2,317
29,594
31,911
5,733
5
5
No transactions have been entered into with the directors of the Company (being the key management personnel) during the period
from January 1, 2021 to September 28, 2021 (for the year ended December 31, 2020: nil).
F-100
Trade and bills receivables
—Fellow subsidiaries of GBPHCL (note (i))
Trade payables
—Fellow subsidiaries of GBPHCL (note (i))
Other receivables and prepayments—related parties
—Fellow subsidiaries of GBPHCL (note (i))
—An equity investee (note (i))
Other payables, accruals and advance receipts
—Fellow subsidiaries of GBPHCL (note (i))
Dividend payable (Note 3(b))
—GZHCMHK
—GBPHCL
Notes:
September 28,
2021
(in US$’000)
1,975
1,975
3,529
3,529
1,129
156
1,285
2,691
2,691
52,887
52,887
105,774
(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.
24. 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
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
Shen Nong Garden Pharmacy Company Limited
Joint Venture
Qing Yuan Hutchison Whampoa Baiyunshan Chinese Medicine Company
Limited
Associated companies
Linyi Shenghe Jiuzhou Pharmaceuticals Company Limited
Tibet Linzhi Guangzhou Pharmaceutical Development Co. Ltd.
Nominal value Equity interest
of registered
capital
September 28,
2021
(in RMB’000)
attributable
to the Group
September 28,
2021
Type of legal entity
Principal activity
100 % Limited liability company
100 % Limited liability company
100 % Limited liability company
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
75 % Limited liability company
51 % Limited liability company
Agriculture and sales of Chinese herbs
Agriculture and sales of Chinese herbs
51 % Limited liability company
Agriculture and sales of Chinese herbs
Non-profit making
organization
100 %
100 % Limited liability company
100 % Limited liability company
Promote awareness of Chinese herbs
Promote awareness of Chinese herbs
Retail of drug products, health foods and
souvenirs
50 % Limited liability company
Agriculture and sales of Chinese herbs
30 % Limited liability company
20 % Limited liability company
Agriculture and sales of Chinese herbs
Trading of Chinese herbs
100,000
10,000
10,000
10,000
3,650
2,000
1,020
1,000
1,000
200
1,000
3,000
2,000
F-101
9
10
11
1
2
3
4
5
6
7
8
MRCT = Multi-regional clinical trial.
CRC = Colorectal cancer.
NDA = New Drug Application.
FDA = Food and Drug Administration.
PFS = Progression-free survival.
MET = Mesenchymal epithelial transition factor.
NRDL = National Reimbursement Drug List.
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.
In-market sales = total sales to third parties provided by Eli Lilly (ELUNATE®),
AstraZeneca (ORPATHYS®) and HUTCHMED (ELUNATE®, SULANDA® and
TAZVERIK®).
Takeda = Takeda Pharmaceuticals International AG.
AstraZeneca = AstraZeneca AB (publ), a wholly-owned subsidiary of
AstraZeneca PLC.
R&D = Research and development.
12
Lilly = Eli Lilly and Company.
13
ITP = Immune thrombocytopenia purpura.
14
NMPA = National Medical Products Administration.
15
EMA = European Medicines Agency.
16
PMDA = Pharmaceuticals and Medical Devices Agency.
17
18
NSCLC = Non-small cell lung cancer.
19 MAA = Marketing Authorization Application.
PRCC = Papillary renal cell carcinoma.
20
EGFR = Epidermal growth factor receptor.
21
22 WCLC = World Conference on Lung Cancer.
23
24
25
26
27
28
29
ORR = Objective response rate.
DoR = Duration of response.
OS = Overall survival.
ELCC = European Lung Cancer Congress.
VEGFR = Vascular endothelial growth factor receptor.
ESMO = European Society for Medical Oncology.
ASCO GI = ASCO (American Society of Clinical Oncology) Gastrointestinal
Cancers Symposium.
DCR = Disease control rate.
PD-1 = Programmed cell death protein-1.
RCC = Renal cell carcinoma.
FGFR = Fibroblast growth factor receptor.
CSF-1R = Colony-stimulating factor 1 receptor.
ASCO = American Society of Clinical Oncology.
NANETS = North American Neuroendocrine Tumor Society Medical Symposium.
NET = Neuroendocrine tumor.
Syk = Spleen tyrosine kinase.
AIHA = autoimmune hemolytic anemia.
PI3Kδ = Phosphoinositide 3-kinase delta.
Ipsen = Ipsen SA, parent of Epizyme Inc.
30
31
32
33
34
35
36
37
38
39
40
41
434
Epizyme = Epizyme Inc., a wholly owned subsidiary of Ipsen SA.
ASH = American Society of Hematology.
IDH = Isocitrate dehydrogenase.
BTK = Bruton’s tyrosine kinase.
ERK = Extracellular signal-regulated kinase.
42
43
44
45
46
47 MAPK pathway = RAS-RAF-MEK-ERK signaling cascade.
48
49
50
51
CDE = Center for Drug Evaluation
IHCC = Intrahepatic cholangiocarcinoma.
SHPL = Shanghai Hutchison Pharmaceuticals Limited.
HBYS = Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine
Company Limited.
GAAP = Generally Accepted Accounting Principles.
HKEX = The Main Board of The Stock Exchange of Hong Kong Limited.
ADS = American depositary share.
SG&A Expenses = selling, general and administrative expenses.
NHSA = China National Healthcare Security Administration.
pNET= pancreatic neuroendocrine tumor.
CSCO = Chinese Society of Clinical Oncology.
EGFRm+ = Epidermal growth factor receptor mutated.
TKI = Tyrosine kinase inhibitor.
FISH5+ = MET amplification as detected by FISH with MET copy number ≥ 5
and/or MET: CEP signal ratio ≥ 2.
IHC50+ = MET overexpression as detected by IHC with 3+ in ≥ 50% tumor
cells.
FISH10+ = MET amplification as detected by FISH with MET copy number ≥ 10.
IHC90+ = MET overexpression as detected by IHC with 3+ in ≥ 90% tumor
cells.
TN = Triple negative.
HR+ = Hormone receptor positive.
Her2- = Human epidermal growth factor receptor 2 negative.
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68 MSS = Microsatellite Stable.
69
70
71
72
73
74
75
76
77
78
epNET = extra-pancreatic neuroendocrine tumor.
NEC = Neuroendocrine carcinoma.
NEN = Neuroendocrine neoplasms.
IO = Immuno-oncology.
SCLC = Small cell lung cancer.
NHL = Non-Hodgkin’s Lymphoma.
CLL = Chronic lymphocytic leukemia.
SLL = Small lymphocytic lymphoma.
API = Active pharmaceutical ingredient.
Hutchison Sinopharm = Hutchison Whampoa Sinopharm Pharmaceuticals
(Shanghai) Company Limited.
Luye = Luye Pharma Hong Kong Ltd.
SXBX = She Xiang Bao Xin.
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.
79
80
81
82
83
84
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 CAPITALIZATION
As at December 31, 2022:
Approximately US$1.5 billion (approximately
60.67% of the issued share capital of the
Company)
FINANCIAL CALENDAR
Closure of Register of Members
May 9, 2023 to May 12, 2023
Annual General Meeting
May 12, 2023
Interim Results Announcement
August 2023
REGISTERED OFFICE
P.O. Box 309, Ugland House
Grand Cayman, KY1-1104
Cayman Islands
Telephone:
Facsimile:
+1 345 949 8066
+1 345 949 8080
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
Wan Chai, 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
REFERENCES
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, that any approvals which are obtained will be obtained at any particular time, or that the sales of products marketed or otherwise
commercialized by HUTCHMED and/or its collaboration partners (collectively, “HUTCHMED’s Products”) 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, including, among others, the risk that HUTCHMED’s ADSs could be barred from trading in the United States
as a result of the Holding Foreign Companies Accountable Act and the rules promulgated thereunder; 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 the utilization,
market acceptance and commercial success of HUTCHMED’s Products after obtaining regulatory approval; competing products and drug candidates that may be superior to, or more cost effective than, HUTCHMED’s
Products and drug candidates; the impact of studies (whether conducted by HUTCHMED or others and whether mandated or voluntary) or recommendations and guidelines from governmental authorities and other
third parties on the commercial success of HUTCHMED’s Products and drug candidates in development; the ability of HUTCHMED to manufacture and manage supply chains for multiple products and drug candidates;
the availability and extent of reimbursement of HUTCHMED’s Products from third-party payers, including private payer healthcare and insurance programs and government insurance programs; the costs of developing,
producing and selling HUTCHMED's Products; the ability of HUTCHMED to meet any of its financial projections or guidance and changes to the assumptions underlying those projections or guidance; 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.