2023
ANNUAL
REPORT
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)
Ling YANG, BA, BSc, MBA
Independent Non-executive Directors
Paul Rutherford CARTER, BA, FCMA
Senior Independent Director
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
MOK Shu Kam, Tony
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
MOK Shu Kam, Tony (Chairman)
Paul Rutherford CARTER
Weiguo SU
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
2023 Full Year Results and Business Updates
2023 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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414
CONTENTS 4
BUILDING A GLOBAL SCIENCE-FOCUSED BIOPHARMA COMPANY FROM AN ESTABLISHED BASE IN CHINA KEY HIGHLIGHTS
STRATEGIC
Global vision, commitment to patients and path to self-sustainability
•
•
Executed our global vision of bringing our innovative medicines worldwide, as demonstrated
through the Takeda1 partnership which brought $435 million in upfront and milestone payments plus
manufacturing income and royalties on net sales, setting a strategic example for the rest of our pipeline.
On track to be self-sustaining with a disciplined approach to leveraging our R&D2 expertise and creating
value through licensing and commercialization.
PIPELINE
Fruquintinib global and China expansion, sovleplenib China NDA3
review, savolitinib NSCLC4 enrolled
•
•
•
•
Fruquintinib U.S. FDA5 approval three weeks ahead of PDUFA6 date for third-line CRC7, leading to
a swift launch by Takeda, inclusion in NCCN8 guidelines and U.S. in-market sales9 of $15.1 million.
Global regulatory progress with MAA10 filing to the EMA11 validated in June 2023 and NDA submitted to
PMDA12 in September 2023.
Fruquintinib NDA for second-line gastric cancer accepted for review in China. Registrations studies in
China for 2L EMC13 and 2L RCC14 completed enrollment during 2023 for fruquintinib in combination with
sintilimab, expecting NDA filing to the NMPA15 for EMC in early 2024 and topline results for RCC by end of 2024.
NDA for sovleplenib, a novel Syk16 inhibitor, for primary ITP17 accepted and granted priority review in
China, supported by data from Phase III trial (ESLIM-01), meeting all endpoints.
SAVANNAH, the pivotal global Phase II trial for savolitinib in NSCLC, completed enrollment, to be
followed by potential NDA filing to the U.S. FDA by AstraZeneca18 around the end of 2024.
OUTLOOK AND FINANCIAL
Expecting strong product revenue growth and reduced
expenses; substantial cash
•
•
•
•
Total revenue up 97% (102% at CER19) to $838.0 million for 2023, with Oncology/Immunology
consolidated revenue up 223% (228% at CER) to $528.6 million at high end of guidance, including
recognition of $280 million of the upfront payment from Takeda. Net income attributable to HUTCHMED
of $100.8 million.
2024 Oncology/Immunology consolidated revenue guidance of $300 million to $400 million, driven by 30%
to 50% growth target in marketed product sales and royalties.
R&D expenses focused in line with strategy targeting key projects.
Strengthened cash balance, with $886.3 million at year end (2022: $631.0m), ensures HUTCHMED is well
placed to deliver on its objective of becoming a self-sustaining business.
All amounts are expressed in U.S. dollars unless otherwise stated.
HUTCHMED (China) Limited 2023 Annual Report 5
“
2023 was a landmark year
for HUTCHMED with the U.S.
FDA approval and launch of
”
FRUZAQLA™
SIMON TO, CHAIRMAN
We have made significant progress throughout 2023. We executed
against our commitment to bring our innovative medicines to patients
worldwide with the U.S. FDA approval of FRUZAQLA™ in November 2023,
while remaining dedicated to becoming a self-sustaining business.
The Takeda partnership, which is one of the biggest small-molecule
overseas licensing deals in the history of China biotech, strengthened
our cash position by $435 million. Takeda delivered a successful U.S.
launch within 48 hours of approval, and has subsequently seen strong
early patient uptake.
We will continue to deliver on our strategy in 2024. We will stay focused
on our target of becoming sustainable through our balanced strategy
of growing sales of our novel medicines in China, and advancing our
medicines overseas with our partners. This, when combined with our
other goals on pipeline progression and further business development,
means that while the global macroeconomic environment remains
uncertain, HUTCHMED is positioned to thrive and continue to deliver
innovative medicines to ever more patients around the world.
Simon To
Chairman
February 28, 2024
6
CHAIRMAN’S STATEMENT “
HUTCHMED delivered
impressive financial results
and is on the path to self-
sustainability
”
WEIGUO SU,
CHIEF EXECUTIVE OFFICER AND
CHIEF SCIENTIFIC OFFICER
HUTCHMED delivered impressive financial results in 2023, with revenue
up 97% to $838 million. This, alongside our significantly strengthened
cash balance of $886 million, will enable us to continue advancing our
pipeline and successfully executing our strategy.
2023 was an important year for HUTCHMED, particularly for
fruquintinib, for which we filed market authorization applications in the
U.S., EU and Japan, based on the successful FRESCO-2 study. Following
the U.S. FDA approval for third-line patients with advanced CRC, we
continue to work together with Takeda to pursue additional launches in
new markets worldwide. In China, we also filed an NDA for second-line
gastric cancer based on the FRUTIGA study.
Another milestone was the successful ESLIM-01 registration study
in China in ITP patients for sovleplenib, our first potential novel
medicine in immunological diseases. The NDA was accepted and
granted priority review by the NMPA in January 2024. There are over
250,000 new and existing adult ITP patients in China20. The treatment
options are limited to steroids and TPO/TPO-RAs21, representing an
unmet medical need that sovleplenib could help address, with its
new mechanism of action and favorable safety profile. Syk inhibition
has the potential to target other major diseases such as rheumatoid
arthritis. We are also planning to initiate clinical development of
sovleplenib outside China in 2024.
For savolitinib, we completed the confirmatory trial in NSCLC patients with
MET22 exon 14 skipping alterations. An NDA submission is expected in the
first quarter of 2024, with potential to expand the label indication to include
first-line patients in China. Outside China, we will continue our work with
AstraZeneca on the pivotal global savolitinib lung cancer trial SAVANNAH,
which, subject to favorable data, can support a filing to the U.S. FDA for
approval. This study completed enrollment with a potential NDA submission
towards the end of 2024 in EGFR23 mutant NSCLC patients who progressed
on TAGRISSO® treatment, which received U.S. FDA Fast Track designation in
January 2023. We believe the convenient dosing, targeted efficacy and safety
profile of savolitinib as an oral medicine in combination with TAGRISSO®,
the leading oral third-generation EGFR TKI24, should position it well in a
competitive market and address the unmet needs of MET+ NSCLC patients.
Our China commercialization efforts progressed well, as we successfully
renewed NRDL25 coverage for both fruquintinib and surufatinib without
further price reduction. Their in-market sales saw strong growth in
2023. Over the next two years, we plan to continue growth in China
through expanded indications and the launch of new products together
with revenue from FRUZAQLA™ overseas commercialization.
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2024
HUTCHMED (China) Limited 2023 Annual Report 7
CHIEF EXECUTIVE OFFICER’S REPORT COMMERCIAL OPERATIONS
Total revenue increased 97% (102% at CER) to $838.0 million in 2023
(2022: $426.4m), driven by the Takeda partnership, our strong commercial
progress in China, and growth in third-party distribution sales, resulting in
a net income of $101 million for 2023.
Oncology/Immunology consolidated revenue were up 223% (228%
at CER) to $528.6 million (2022: $163.8m); towards the high end of
our guidance, driven by recognition of $280.0 million in partnering
revenue for the upfront payment, $32.0 million for U.S. FDA approval
milestone payments from Takeda, and our strong product sales growth
resulting from in-market sales up 28% (35% at CER) to $213.6 million
(2022: $167.1m);
•
•
•
ELUNATE® (fruquintinib China) in-market sales in 2023
increased 15% (22% at CER) to $107.5 million (2022: $93.5m),
reflecting its continued lead in market share;
FRUZAQLA™ (fruquintinib U.S.) in-market sales in 2023 were
$15.1 million, reflecting its U.S. launch in November 2023;
SULANDA® (surufatinib) in-market sales in 2023 increased 36%
(43% at CER) to $43.9 million (2022: $32.3m), reflecting its growing
market share after two years on the NRDL;
•
•
•
•
ORPATHYS® (savolitinib) in-market sales in 2023 increased
12% (19% at CER) to $46.1 million (2022: $41.2m). Sales in the first
quarter were impacted by customary channel fluctuations ahead of
its NRDL inclusion on March 1, with the subsequent three quarters of
2023 up 30% compared to the same period in 2022;
R&D services income up 116% (119% at CER) to $52.4 million
(2022: $24.2m), now also including fees from our new partner Takeda
for the management of regulatory activities;
Takeda upfront payment of $400.0 million received, of which
$280.0 million recognized in revenue during 2023, with the
remainder to be recognized when services and performance
obligations are completed; and
Successful management of commercial operations to expand
coverage of oncology hospitals and physicians, despite challenges
from COVID-19-related disruptions around the start of the year, and
from an anti-corruption crackdown of the healthcare sector in China
in the second half of 2023. Hospital access and related activities
became more restricted, but improved starting in October 2023.
2023
$107.5
$15.1
$43.9
$46.1
$1.0
$213.6
In-market Sales*
2022
$93.5
–
$32.3
$41.2
$0.1
%Δ (CER)
+15% (+22%)
–
+36% (+43%)
+12% (+19%)
>700%
$167.1
+28% (+35%)
$’millions
ELUNATE®
FRUZAQLA™
SULANDA®
ORPATHYS®
TAZVERIK®
Products Revenue
Other R&D services income
Upfront and milestone income
Total Oncology/Immunology
Other Ventures
Total revenue
2023
$83.2
$7.2
$43.9
$28.9
$1.0
$164.2
$52.4
$312.0
$528.6
$309.4
$838.0
Consolidated Revenue**
2022
$69.9
–
$32.3
$22.3
$0.1
$124.6
$24.2
$15.0
$163.8
$262.6
$426.4
%Δ (CER)
+19% (+26%)
–
+36% (+43%)
+30% (+37%)
>700%
+32% (+39%)
+116% (+119%)
+223% (+228%)
+18% (+24%)
+97% (+102%)
* = For ELUNATE®, FRUZAQLA™ and ORPATHYS®, mainly represents total sales to third parties as provided by Lilly26, Takeda and AstraZeneca, respectively.
** = For ELUNATE®, represents drug product supply, commercial service fees and royalties paid by Lilly, to HUTCHMED, and sales to other third parties invoiced by HUTCHMED; for FRUZAQLA™,
represents drug product supply and royalties paid by Takeda; for ORPATHYS®, represents drug product supply and royalties paid by AstraZeneca and sales to other third parties invoiced
by HUTCHMED; for SULANDA® and TAZVERIK®, represents the Company’s sales of the products to third parties.
8
2023 FULL YEAR RESULTS & BUSINESS UPDATES
REGULATORY UPDATES
China
LATE-STAGE CLINICAL
DEVELOPMENT ACTIVITIES
•
•
•
•
•
Fruquintinib NDA accepted in combination with paclitaxel for
second-line gastric cancer in April 2023;
Sovleplenib NDA accepted for primary ITP in January 2024, after
receiving priority review status in 2023;
Fruquintinib received Breakthrough Therapy designation in
combination with sintilimab for second-line endometrial cancer in
July 2023;
Fruquintinib received Hong Kong approval for third-line CRC in
January 2024; and
ORPATHYS® (savolitinib) and TAZVERIK® (tazemetostat)
received Macau approvals in March 2023.
Ex-China
•
•
•
•
Fruquintinib U.S. FDA approved in November 2023 for previously
treated metastatic CRC, after the NDA was granted priority review in
May 2023;
Fruquintinib NDA submitted to the Japanese PMDA in
September 2023;
Fruquintinib MAA submission to the EMA validated in June 2023;
and
Savolitinib, in combination with TAGRISSO®, designated a
U.S. FDA Fast Track program in January 2023 for the treatment of
patients with NSCLC with MET overexpression and/or amplification,
and who have had disease progression during or following prior
TAGRISSO®.
Savolitinib (ORPATHYS® in China), a highly selective oral
inhibitor of MET being developed broadly across MET-driven patient
populations in lung, gastric and papillary renal cell carcinomas
•
•
•
Completed enrollment of a pivotal global Phase II study
SAVANNAH (NCT03778229) for NSCLC patients who have progressed
following TAGRISSO® due to MET amplification or overexpression
designated as a Fast Track development program by the U.S. FDA,
with the possibility of accelerated approval. Continued enrolling
SAFFRON (NCT05261399), a global, pivotal Phase III study of the
TAGRISSO® combination supporting SAVANNAH;
Reported positive results from the confirmatory China Phase IIIb
study (NCT04923945) first-line cohort in MET exon 14 skipping
alteration NSCLC; completed enrollment in a second-line cohort; and
Initiated the registration stage of a China Phase II study
in third-line gastric cancer patients with MET amplification
(NCT04923932).
Potential upcoming clinical and regulatory milestones for savolitinib:
•
•
•
•
Submit China NDA for first-line and second-line MET exon 14
skipping alteration NSCLC in early-2024;
Complete enrollment of SACHI (NCT05015608), a pivotal Phase III
study of the TAGRISSO® combination in China for NSCLC patients
with MET amplification following progression on EGFR inhibitor
treatment in late 2024;
Complete enrollment of SANOVO (NCT05009836), a pivotal Phase III
study of the TAGRISSO® combination in China in first-line NSCLC
patients with EGFR mutation & MET overexpression in late 2024; and
Engage U.S. FDA regarding possible NDA filing on SAVANNAH,
subject to positive results, around year end 2024.
HUTCHMED (China) Limited 2023 Annual Report 9
Fruquintinib (ELUNATE® in China, FRUZAQLA™ in the U.S.),
a highly selective oral inhibitor of VEGFR27 1/2/3 designed to have
enhanced selectivity that limits off-target kinase activity, allowing for
high drug exposure, sustained target inhibition, and flexibility for the
potential use as part of a combination therapy
Presented FRUTIGA (NCT03223376) results at ASCO28 Plenary in
February 2024 in second-line gastric cancer patients on fruquintinib
plus paclitaxel. PFS29, ORR30 and DCR31 endpoints showed statistically
significant improvements. Although OS32 improvement was not
statistically significant overall, it was statistically significant in
a pre-specified analysis excluding patients taking subsequent
antitumor therapy;
Surufatinib (SULANDA® in China), an oral inhibitor of VEGFR,
FGFR34 and CSF-1R35 designed to inhibit tumor angiogenesis and
promote immune response against tumor cells via tumor associated
macrophage regulation
•
•
Reported data from the Phase Ib/II China toripalimab (PD-1
antibody) combination study at the 2023 AACR36 and ASCO annual
meetings (NCT04169672); and
Reported encouraging early results at ASCO 2023 of an
investigator-initiated trial of surufatinib in combination with a PD-1
antibody and chemotherapy in first-line treatment for pancreatic
ductal adenocarcinoma.
Completed enrollment of FRUSICA-1 (NCT03903705), a China
endometrial cancer registration cohort of a Phase II study of
fruquintinib in combination with PD-133 antibody sintilimab in July 2023;
Sovleplenib (HMPL-523), an investigative and highly selective oral
inhibitor of Syk, an important component of the Fc receptor and B-cell
receptor signaling pathway
Completed enrollment of FRUSICA-2 (NCT05522231), a China
Phase II/III study of fruquintinib in combination with PD-1 antibody
sintilimab in clear cell RCC in December 2023;
• Met primary endpoint and all secondary endpoints for a pivotal
Phase III study (NCT05029635) in adult patients with primary ITP in
China; and
Updated results from the clear cell RCC cohort of a China Phase II
study on fruquintinib in combination with PD-1 antibody sintilimab
at ASCO 2023 (NCT03903705); and
• Met primary endpoint for a Phase II Proof-of-Concept study
in warm AIHA37 in China (NCT05535933) with Phase III registration
study being planned.
•
•
•
•
•
Potential upcoming clinical milestones for sovleplenib:
•
•
Submit ESLIM-01 results for publication and/or presentation in
mid-2024; and
Initiate a dose-finding study in ITP in the U.S./EU in mid-2024.
Tazemetostat (TAZVERIK® in Macau and the China Hainan Pilot
Zone), a first-in-class, oral inhibitor of EZH2 licensed from Ipsen38
•
•
Completed recruitment of a China bridging study in follicular
lymphoma for conditional registration based on U.S. approvals in
September 2023 (NCT05467943);
Approved and launched in the Macau Special Administrative
Region in March 2023; and
Published in peer-reviewed journal The Lancet positive results
of the global Phase III FRESCO-2 registration trial (NCT04322539)
in previously treated metastatic CRC patients in June 2023.
Potential upcoming clinical and regulatory milestones for fruquintinib:
Completion of EMA MAA review for previously-treated metastatic
CRC in mid-2024;
Completion of PMDA NDA review for previously-treated metastatic
CRC in late-2024;
Registration filing to the NMPA for second-line endometrial cancer
in early 2024; and
Top-line results from Phase II/III registration trial in clear cell RCC
around year end 2024.
•
•
•
•
10
2023 FULL YEAR RESULTS & BUSINESS UPDATES •
Published promising results from the Phase Ib portion of
SYMPHONY-1, a global Phase 1b/III combination study in relapsed/
refractory follicular lymphoma patients after at least two prior
therapies (NCT04224493). ORR was 90.9%, and in the recommended
Phase III dose cohort, 18-month PFS and DoR39 estimates were 94.4%
and 100% with no dose-limiting toxicities.
Potential upcoming clinical and regulatory milestones for tazemetostat:
•
China NDA filing for relapsed/refractory 3L+ follicular lymphoma
expected in mid-2024.
HMPL-453, a novel, highly selective and potent inhibitor targeting
FGFR 1, 2 and 3
•
•
Reported human data for the first time at the 2023 ASCO annual
meeting; and
After consultation with NMPA, initiated the registration phase
of the ongoing Phase II trial for IHCC40 patients with FGFR 2 fusion
(NCT04353375).
Amdizalisib (HMPL-689), an investigative and highly selective oral
inhibitor of PI3Kδ41 designed to address the gastrointestinal and
hepatotoxicity associated with currently approved and clinical-stage
PI3Kδ inhibitors
• Met primary endpoint of ORR in the follicular lymphoma cohort
of a China registration Phase II study with Breakthrough Therapy
designation (NCT04849351). However, in recent discussions with
China NMPA, it is clear that a randomized study is now required to
support registration. In view of the changing regulatory requirement,
we are currently evaluating the clinical development plan and
regulatory guidance before deciding the regulatory strategy for this
indication.
COLLABORATION UPDATES
Closed Exclusive Worldwide License to Takeda for
Fruquintinib Outside China
•
•
Takeda is responsible for development, manufacturing and
commercialization in all indications and territories outside of
mainland China, Hong Kong and Macau; and
HUTCHMED is eligible to receive up to $1.13 billion, including
the $400 million upfront received in April 2023, and up to $730 million
in additional potential payments relating to regulatory, development
and commercial sales milestones, of which a $35 million milestone
payment was received in December 2023 after the approval by the
U.S. FDA, as well as manufacturing income and royalties on net sales.
Further clinical progress by Inmagene42 with two
candidates discovered by HUTCHMED
•
•
•
Inmagene initiated two global Phase IIa trials with IMG-007,
an anti-OX40 antibody, in adults with moderate-to-severe atopic
dermatitis and in adults with alopecia areata. It was safe and
well-tolerated in the completed Phase I study with no reports of
pyrexia or chills, which are common adverse events of rocatinlimab,
another anti-OX40 treatment;
Inmagene completed a Phase I study with IMG-004, a reversible,
non-covalent, highly selective oral BTK43 inhibitor designed to target
immunological diseases. IMG-004 was safe and well-tolerated in
this single-ascending-dose study, with a long half-life and sustained
pharmacodynamic effects that are well above others in its class; and
Inmagene exercised options for an exclusive license to further
develop, manufacture and commercialize these two drug candidates
worldwide subject to completion of a share subscription agreement
signed in February 2024 for approximately 7.5% of Inmagene shares
(fully diluted).
HUTCHMED (China) Limited 2023 Annual Report 11
OTHER VENTURES
Other Ventures include our profitable prescription drug
marketing and distribution platforms
•
•
•
Consolidated revenue increased by 18% (24% at CER) to
$309.4 million (2022: $262.6m);
SHPL44 non-consolidated joint venture revenue increased by
4% (10% at CER) to $385.5 million (2022: $370.6m);
Consolidated net income attributable to HUTCHMED from our
Other Ventures decreased by 8% (3% at CER) to $50.3 million
(2022: $54.6m), which was primarily due to decrease on the net
income contributed from SHPL to $47.4 million (2022: $49.9m)
resulting from the impact of gradual price adjustment from volume-
based procurement;
•
•
Enhanced data quality by introducing a digital data collection
platform to streamline collecting, managing, and reporting data,
ensuring improved data reliability, comparability and transparency;
Strengthened alignment in the five key sustainability pillars
which encompassed the most relevant and material sustainability
topics for HUTCHMED, including (i) climate action; (ii) access to
healthcare; (iii) human capital; (iv) ethics and transparency; and (v)
innovation;
• Marked improvements shown in major ESG ratings and awards,
reflecting wider recognition of HUTCHMED’s efforts in sustainability;
and
•
Enhanced disclosure by referencing the latest sustainability
disclosure standards and sector specific disclosure standards ahead
of requirement.
•
Disposed interests in HHOHK45 and HSN46 for $5.1 million; and
• We continue to explore opportunities to monetize the underlying
value of our SHPL joint venture including various divestment and
equity capital market alternatives.
These efforts will continue to guide HUTCHMED towards a more
sustainable future. The 2023 Sustainability Report will be published
alongside our 2023 Annual Report in April 2024 and will include
further information on HUTCHMED sustainability initiatives and their
performance.
SUSTAINABILITY
IMPACT OF COVID-19
While restrictive measures related to COVID-19 were gradually lifted in
China starting from December 2022, COVID-19 had some impact on our
research, clinical studies and our commercial activities in the first few
months of 2023. Measures were put in place to reduce the impact and, in
the second quarter of 2023, these activities normalized.
HUTCHMED is committed to progressively embedding sustainability
into all aspects of our operations and creating long-term value for our
stakeholders. In 2023, we continued to make progress, including:
Satisfactory progress made in 11 short- to long-term goals and
targets; sustainability performance on goals and targets continued
to be incorporated into management’s performance-based
remuneration;
Enhanced climate actions by conducting Scope 3 emissions
screening and measurement, and engaging with suppliers to
gradually implement sustainability initiatives collaboratively.
Following the climate risk assessment in 2022, regular monitoring
and reviews on climate risks and opportunities have been
undertaken; our climate actions continue to be disclosed in
alignment with the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD);
•
•
12
2023 FULL YEAR RESULTS & BUSINESS UPDATES Foreign exchange impact: The RMB depreciated against the U.S. dollar
on average by approximately 5% during 2023, which has impacted our
consolidated financial results as highlighted below.
Cash, Cash Equivalents and Short-Term Investments were
$886.3 million as of December 31, 2023 compared to
$631.0 million as of December 31, 2022.
•
•
Adjusted Group (non-GAAP47) net cash flows excluding financing
activities in 2023 were $206.7 million (2022: -$297.9m) mainly due to
the receipt of $435 million in upfront and milestone payments from
Takeda; and
Net cash generated from financing activities in 2023 totaled
$48.7 million mainly due to the drawdowns of bank borrowings
(2022: net cash used in financing activities of $82.8m).
Revenue for the year ended December 31, 2023 were
$838.0 million compared to $426.4 million in 2022.
•
Oncology/Immunology consolidated revenue increased 223%
(228% at CER) to $528.6 million (2022: $163.8m) resulting from:
o
o
o
o
o
SULANDA® revenue increased 36% (43% at CER) to
$43.9 million (2022: $32.3m) from our continuing marketing
activities, increasing patient access and longer durations of
treatment;
ORPATHYS® revenue increased 30% (37% at CER) to
$28.9 million (2022: $22.3m) after inclusion in the NRDL
effective from March 2023, comprising of manufacturing
revenue and royalties;
TAZVERIK® revenue was $1.0 million (2022: $0.1m) from
further sales in the Hainan Pilot Zone;
Partnering revenue of $312.0 million was the $280 million
recognized portion of the $400 million upfront payment,
and the $32 million recognized portion of the US$35 million
milestone payment from Takeda; and
Other R&D services income of $52.4 million (2022:
$24.2m), primarily related to fees from AstraZeneca, Lilly and
Takeda for the management of development and regulatory
activities.
ELUNATE® revenue increased 19% (26% at CER) to
$83.2 million (2022: $69.9m) due to continued market share
gains, comprising of manufacturing revenue, promotion and
marketing service revenue and royalties;
•
Other Ventures consolidated revenue increased 18% (24% at
CER) to $309.4 million (2022: $262.6m), mainly due to higher sales
of prescription drugs. This excludes 4% (10% at CER) growth in non-
consolidated revenue at SHPL of $385.5 million (2022: $370.6m).
FRUZAQLA™ revenue was $7.2 million, reflecting its U.S.
launch in early November 2023, comprising of manufacturing
revenue and royalties;
o
o
14
2023 FULL YEAR FINANCIAL RESULTS Net Expenses for 2023 were $737.2 million compared to
$787.2 million in 2022.
Net Income attributable to HUTCHMED for 2023 was
$100.8 million compared to Net Loss attributable to
HUTCHMED of $360.8 million in 2022.
•
The net income attributable to HUTCHMED in 2023 was $0.12 per
ordinary share/$0.59 per ADS49, compared to net loss attributable
to HUTCHMED of $0.43 per ordinary share/$2.13 per ADS in 2022.
•
•
•
•
Cost of Revenue increased by 24% to $384.4 million
(2022: $311.1m), of which cost of revenue from our Other Ventures
increased by 21% to $292.7 million (2022: $241.9m) due to the
increasing sales of third-party prescription drug products. Cost
of revenue from Oncology/Immunology increased by 33% to
$91.7 million (2022: $69.2m) due to the increase in product sales of
our marketed products and the cost of provision of promotion and
marketing services for ELUNATE® resulting from the increased sales
force;
R&D Expenses reduced 22% to $302.0 million (2022: $386.9m),
mainly due to the completion of several large registration-enabling
trials, the focus on ex-China development through partnerships,
and the ongoing strategic prioritization of our pipeline. Our
international clinical and regulatory operations in the U.S. and
Europe incurred expenses of $106.9 million (2022: $170.9m), while
R&D expenses in China were $195.1 million (2022: $216.0m);
SG&A48 Expenses were $133.2 million (2022: $136.1m), which
decreased primarily due to the restructuring of our U.S. Oncology/
Immunology commercial operations at the end of 2022 while
our China commercial infrastructure was able to support further
revenue growth; and
Other Items mainly comprised of equity in earnings of SHPL,
interest income and expense, FX and taxes, generated net income
of $82.4 million (2022: $46.9m), which increased primarily due to
higher interest income after receiving the $400 million Takeda
upfront payment.
HUTCHMED (China) Limited 2023 Annual Report 15
CONDENSED CONSOLIDATED BALANCE SHEETS DATA
(in $’000)
As of December 31,
2023
886,336
116,894
93,609
99,727
48,411
34,796
2022
630,996
97,988
110,904
75,947
73,777
39,833
1,279,773
1,029,445
36,327
271,399
127,119
79,344
22,197
536,386
730,541
12,846
71,115
264,621
13,537
18,104
25,198
392,575
610,367
26,503
1,279,773
1,029,445
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
Deferred revenue
Bank borrowings
Other liabilities
Total liabilities
Company’s shareholders’ equity
Non-controlling interests
Total liabilities and shareholders’ equity
16
FINANCIAL SUMMARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(in $’000, except share and per share data)
Revenue:
Oncology/Immunology – Marketed Products
Oncology/Immunology – R&D
Oncology/Immunology consolidated revenue
Other Ventures
Total revenue
Operating expenses:
Cost of revenue
Research and development expenses
Selling and general administrative expenses
Total operating expenses
Other income/(expense), net
Income/(loss) before income taxes and equity in earnings of equity investees
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to HUTCHMED
Earnings/(losses) per share attributable to HUTCHMED (US$ per share)
– basic
– diluted
Number of shares used in per share calculation
– basic
– diluted
Earnings/(losses) per ADS attributable to HUTCHMED (US$ per ADS)
– basic
– diluted
Number of ADSs used in per share calculation
– basic
– diluted
Year Ended December 31,
2023
2022
164,165
364,451
528,616
309,383
837,999
(384,447)
(302,001)
(133,176)
(819,624)
39,933
58,308
(4,509)
47,295
101,094
(314)
100,780
0.12
0.12
124,642
39,202
163,844
262,565
426,409
(311,103)
(386,893)
(136,106)
(834,102)
(2,729)
(410,422)
283
49,753
(360,386)
(449)
(360,835)
(0.43)
(0.43)
849,654,296
869,196,348
847,143,540
847,143,540
0.59
0.58
(2.13)
(2.13)
169,930,859
173,839,270
169,428,708
169,428,708
HUTCHMED (China) Limited 2023 Annual Report 17
Takeda launched FRUZAQLA™ in the U.S. within 48 hours after it was
approved for previously-treated metastatic CRC on November 8, 2023,
with the first prescription received a day after approval. According to
Takeda, uptake has been strong, with new patient starts exceeding
expectations, and additional regulatory applications progressing as
expected including in the EU and Japan. Since its launch until the end
of 2023, FRUZAQLA™ achieved in-market U.S. sales of $15.1 million.
This U.S. patient uptake was in parallel to the rapid inclusion of
fruquintinib to the 2023 “NCCN Clinical Practice Guidelines for Colon
Cancer” and the 2023 “NCCN Clinical Practice Guidelines for Rectal
Cancer” on November 16, 2023. Fruquintinib has also been successfully
recommended in six other major treatment guidelines for colorectal
cancer. These will continue to drive awareness and usage of fruquintinib
among doctors and patients.
In January 2024, ELUNATE® was approved in the Hong Kong Special
Administrative Region. This was the first medicine to be approved under
the new mechanism for registration of new drugs (“1+” mechanism). CRC
was the second most common cancer in Hong Kong in 2021, with about
5,900 new patients diagnosed and associated with about 2,300 deaths.
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 900 scientists and
staff (December 31, 2022: ~960), and an in-house oncology commercial
organization of approximately 930 staff (December 31, 2022: ~870).
We have 13 oncology drug candidates in clinical trials. Three of our
medicines, fruquintinib, surufatinib and savolitinib, have all been
approved and launched in mainland China with fruquintinib also
approved in the U.S., Hong Kong and Macau. Our fourth medicine,
tazemetostat, has been approved and launched in Hainan Pilot Zone
and Macau.
MARKETED PRODUCT SALES
Despite some initial challenges in the first quarter of the year due to the
impact of COVID-19 and impact from an anti-corruption crackdown of the
healthcare sector in China from the third quarter onwards, in-market sales
of HUTCHMED’s novel oncology products continued to grow at 28% (35%
at CER) to $213.6 million (2022: $167.1m) in 2023.
Fruquintinib (ELUNATE® in China, FRUZAQLA™ in the
U.S.)
ELUNATE® is approved for the treatment of third-line metastatic CRC for
which there is an approximate incidence of 105,000 new patients per
year in China. In 2023, ELUNATE® in China achieved in-market sales of
$107.5 million, up 15% (22% at CER) versus 2022 ($93.5 million). In China,
ELUNATE® is the leading treatment for late-stage CRC with 47% of 3L
treated patient share according to an IQVIA tracking study in Q2 2023.
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 revenue
approximately 70-80% of ELUNATE® in-market sales from manufacturing
fees, service fees and royalties paid to us by Lilly. In 2023, we consolidated
$83.2 million in revenue for ELUNATE®, equal to 77% of in-market sales.
Following negotiations with the China NHSA50, ELUNATE® continues to be
included in the NRDL for a new two-year term starting in January 2024 at
the same price as the 2023 NRDL price.
FRUZAQLA™ was launched in the U.S.
HUTCHMED (China) Limited 2023 Annual Report 19
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Surufatinib (SULANDA® in China)
SULANDA® was launched in China in 2021 for the treatment of all
advanced NETs51 for which there is an approximate incidence of 34,000
new patients per year in China.
Total in-market sales in 2023 increased by 36% (43% at CER) to $43.9
million (2022: $32.3 million). According to IQVIA tracking study report
in Q4 2023, SULANDA® maintained its position in the market with 21%
prescription share in NET treatment, ahead of competitors SUTENT®
and AFINITOR®.
Following negotiations with the China NHSA, SULANDA® continues to be
included in the NRDL for a new two-year term starting in January 2024, at
the same price as the 2023 NRDL price.
Surufatinib has been successfully recommended in 2023 “Chinese medical
association consensus for standardized diagnosis and treatment of
pancreatic cancer neuroendocrine neoplasms” and four other treatment
guidelines for neuroendocrine tumors. As a result, doctors’ acceptance
and patients’ access to SULANDA® continue to increase.
Savolitinib (ORPATHYS® in China)
ORPATHYS® is the first-in-class selective MET inhibitor to be approved in
China, launched and marketed by our partner, AstraZeneca 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, 2022 and the first two months of 2023, ORPATHYS® was sold as a
self-pay drug. Following negotiations with the China NHSA in
January 2023, ORPATHYS® has been included in the updated NRDL since
March 1, 2023 at a 38% discount relative to the self-pay price, broadening
patient access to this medicine. Sales in 2023 were impacted by customary
channel fluctuations following the announcement (in January 2023) and
implementation of the NRDL listing (in March 2023), with increased volume
in the latter part of 2023. In-market sales for ORPATHYS® increased 12%
(increased 19% at CER) in 2023 to $46.1 million (2022: $41.2m) resulting in
our consolidation of $28.9 million (2022: $22.3m) in revenue primarily from
drug product supply and royalties. Sales in the second, third and fourth
quarters of 2023 were substantially higher than during the same period in
2022 before NRDL listing, increasing 104% by volume.
Market understanding of the need for MET testing has improved
significantly, with approximately half of new advanced/relapsed NSCLC
patients in China being tested. 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 a similar guideline from CSCO52 also
20
recommended ORPATHYS® as the standard of care for such patients. As
MET testing awareness and access increases, more patients are expected
to be prescribed a selective MET inhibitor.
In March 2023, ORPATHYS® was also approved in the Macau Special
Administrative Region.
Tazemetostat (TAZVERIK® in Hainan and Macau,
China; the U.S. and Japan)
In May 2022, TAZVERIK® 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.
Tazemetostat was included in the 2022 CSCO guidelines for epithelioid
sarcoma. 16 epithelioid sarcoma patients began treatment in 2023
(2022: 3). Tazemetostat is included in the 2023 CSCO guideline for
follicular lymphoma.
In March 2023, TAZVERIK® was approved in the Macau Special
Administrative Region.
RESEARCH & DEVELOPMENT
With U.S. FDA approval of fruquintinib in November 2023, we now possess
a track record of discovery, clinical development and marketing approval
of an innovative medicine in the global market.
Our strategy is aimed at accelerating our path to establish a long-term
sustainable business, by prioritizing late-stage and registrational studies
in China and partnering outside of China. HUTCHMED intends to continue
to run early phase development programs for selected drug candidates
internationally where we believe we can differentiate from a global
perspective.
Below is a summary update of the clinical trial progress of our
investigational drug candidates. For more details about each trial, please
refer to recent scientific publications.
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, PRCC53 and gastric cancer clinical trials with about 2,500 patients
to date, both as a monotherapy and in combinations. AstraZeneca has
paid HUTCHMED $85 million of the total $140 million in upfront payments,
development and approval milestones that are potentially payable under
the relevant license and collaboration agreement.
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY The SAVANNAH global Phase II study in patients who have progressed
following TAGRISSO® due to MET amplification or overexpression has
completed recruitment. 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®. We
continue to evaluate the possibility of using the SAVANNAH study as the
basis for U.S. accelerated approval. In comparison to other treatments
options, this treatment is chemotherapy-free, biomarker-specific and
orally administered, aiming for a balanced efficacy, safety and quality-of-
life profile for lung cancer patients.
The SAFFRON study, which will evaluate the efficacy and safety of
savolitinib in combination with TAGRISSO® compared to pemetrexed plus
platinum doublet-chemotherapy, has now activated a majority of the
approximately 250 sites in over 20 countries planned for the study.
Two registrational studies are ongoing in China in EGFR mutated NSCLC
with MET aberrations: the SANOVO study in treatment naïve patients, and
SACHI study in patients whose disease progressed following treatment
with any first-line EGFR TKI. Both trials are expected to complete
enrollment in 2024.
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 (NCT02143466) and SAVANNAH (NCT03778229) studies. The
encouraging results led to the initiation of three Phase III studies: SACHI
and SANOVO were initiated in China in 2021, and the global, pivotal Phase
III SAFFRON study started enrollment in 2022.
Savolitinib – NSCLC updates:
The table below shows a summary of the clinical studies for savolitinib in
lung cancer patients.
Treatment
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib
monotherapy
Name, Line,
Patient Focus
SAVANNAH:
2L/3L EGFRm+54;
TAGRISSO®
refractory; MET+
SAFFRON:
2L/3L EGFRm+;
TAGRISSO®
refractory; MET+
SACHI:
2L EGFR TKI
refractory NSCLC;
MET+
SANOVO:
Naïve patients
with EGFRm &
MET+
MET exon
14 skipping
alterations
Sites
Phase
Status/Plan
NCT #
Global
II Registration
- intent
Fully enrolled
NCT03778229
Global
III
Ongoing since
2022
NCT05261399
China
III
Ongoing since
2021
NCT05015608
China
III
Ongoing since
2021
NCT05009836
NCT02897479
China
II Registration Approved &
launched in
2021; Final
OS analysis at
ELCC55 2022
Savolitinib
monotherapy
MET exon
14 skipping
alterations
China
IIIb
Confirmatory
Savolitinib +
IMFINZI®
SOUND:
MET-driven,
EGFR wild type
China
II
Fully enrolled
in H1 2023; 1L
cohort data at
WCLC56 2023
Ongoing since
2022
NCT04923945
NCT05374603
HUTCHMED (China) Limited 2023 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). A confirmatory Phase IIIb
study in this patient population fully enrolled in H1 2023 (NCT04923945).
Results from the first-line cohort of this study were disclosed at WCLC
2023. At data cut-off date of April 30, 2023, among the 84 patients in the
tumor response evaluable set (TRES), ORR was 60.7% (95% CІ: 49.5% to
71.2%) and DCR was 95.2% (95% CІ: 88.3% to 98.7%), as assessed by an
independent review committee. At median follow-up of 11.1 months,
median PFS was 13.8 months (95% CІ: 9.7 months to not reached). Median
DoR and OS have not been reached. No new safety signals were observed.
Tumor shrinkage in 92.9% of patients in tumor
response evaluable set by IRC, with ORR 60.7%
100
80
60
40
20
0
-20
-40
-60
-80
)
%
(
n
o
i
s
e
L
t
e
g
r
a
T
n
i
e
n
i
l
e
s
a
B
m
o
r
f
e
g
n
a
h
C
t
s
e
B
-100
Best overall response
PR (N=51)
SD (N=29)
PD (N=4)
Phase IIIb study of savolitinib monotherapy for the first-line treatment of NSCLC MET exon 14 skipping alterations
Note: NSCLC = non-small cell lung cancer; IRC = independent review committee; ORR = objective response rate; PR = partial response;
SD = stable disease; and PD = disease progression.
Source: Lu S, et al. A phase 3b study of savolitinib as 1L treatment in patients with locally advanced or metastatic NSCLC harboring MET exon 14
mutation. WCLC September 2021 t #OA21.03.Source: Lu S, et al. A phase 3b study of savolitinib as 1L treatment in patients with locally advanced or
metastatic NSCLC harboring MET exon 14 mutation. WCLC September 2021 t #OA21.03.
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 Sites
Phase
Status/Plan
NCT #
3L gastric
cancer
with MET
amplification.
Two-stage,
single-arm
study
China
II registration
- intent
NCT04923932
~64 patient
registration
cohort enrolling
since March 2023;
Breakthrough
Therapy
Designation
Preliminary efficacy and safety data from an interim analysis of 20
patients in a Phase II trial of savolitinib monotherapy in patients with
MET-amplified advanced or metastatic gastroesophageal junction
adenocarcinomas or gastric cancer was reported at AACR 2023, showing
promising efficacy in patients with MET-amplified diseases, particularly
in patients with high MET gene copy number. Confirmed ORR by
independent review was 45%, or 50% in the 16 patients with high MET
gene copy number. DoR rate at 4-months was 85.7%. The most common
grade 3 or above TRAEs57 (more than 5%) were decreased platelet count,
hypersensitivity, anemia, neutropenia and abnormal hepatic function.
The BID58 regimen is being investigated to further evaluate the efficacy
and safety of savolitinib in MET high patients. Following consultation with
the NMPA with this data, a patient registration cohort began enrolling in
March 2023.
22
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY
Savolitinib – Kidney cancer:
MET is a key genetic driver in PRCC. 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. Savolitinib has been studied
in multiple global studies in PRCC patients, including the SAVOIR
monotherapy and CALYPSO combination therapy global Phase II trials,
that both demonstrated highly encouraging results. 24-month follow-up
of CALYPSO trial (NCT02819596) showed median PFS of 15.7 months and
median OS of 27.4 months in MET-driven PRCC patients. These results led
to the initiation of a global Phase III, the SAMETA study, in 2021. Over 140
sites in over 20 countries are enrolling patients.
We are partnered with Lilly in China and with Takeda outside of China.
The table below shows a summary of the clinical studies for fruquintinib.
Treatment
Fruquintinib
monotherapy
Name, Line,
Patient Focus
FRESCO-2:
metastatic CRC
III
U.S./
Europe/
Japan/
Aus.
Sites
Phase
Status/Plan
NCT #
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
Fruquintinib
monotherapy
FRESCO: ≥ 3L CRC;
chemotherapy
refractory
China
III
Fruquintinib +
paclitaxel
FRUTIGA: 2L gastric
cancer
China
III
Fruquintinib (ELUNATE® in China, FRUZAQLA™ in the
U.S.)
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 5,700 patients to date, both as a
monotherapy and in combination with other agents.
Aside from its first approved indication of previously-treated metastatic
CRC (in China and the U.S.), studies of fruquintinib combined with various
checkpoint inhibitors (including TYVYT® and tislelizumab) are underway.
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.
Fruquintinib +
TYVYT® (PD-1)
FRUSICA-1:
endometrial cancer
China
II registration-
intent
Fruquintinib +
TYVYT® (PD-1)
FRUSICA-2: clear cell
renal cell carcinoma
China
II/III
Fruquintinib +
TYVYT® (PD-1)
Clear cell renal cell
carcinoma
China
Ib/II
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
CRC
China
II
China
Ib/II
Gastrointestinal
tumors, NSCLC,
cervical cancer
Fruquintinib
monotherapy
CRC; TN62 & HR+63/
Her2-64 breast cancer
U.S.
I/Ib
Fruquintinib +
tislelizumab (PD-1)
MSS65 -CRC
U.S.
Ib/II
NCT04322539
NCT02314819
NCT03223376
NCT03903705
NCT05522231
NCT03903705
NCT04179084
NCT03903705
NCT03251378
NCT04577963
Approved & launched
in the U.S. in Nov
2023; EMA MAA
validated in Jun 2023;
NDA filed in Japan
in Sep 2023; Results
published in The
Lancet; further data
presented at ASCO
GI59, JSMO60 & ASCO
2023
Approved & launched
in 2018
Supplemental NDA
accepted by NMPA
in Apr 2023; data at
ASCO Plenary Series
Feb 2024
Fully enrolled; NDA
filing expected in early
2024; Ib data at CSCO
2021
Fully enrolled; topline
results expected
around year end 2024
Fully enrolled;
Updated data at ASCO
2023
Data published in
European Journal of
Cancer
Fully enrolled; Gastric
cancer data at ESMO61
2023; NSCLC and
cervical cancer data at
ESMO Asia 2023
CRC data at ASCO
GI 2022; results
supported the
initiation of FRESCO 2
Ongoing since
2021; Fully enrolled;
Follow-up ongoing;
Conference
submission pending
completion of follow-
up
Fruquintinib +
tislelizumab (PD-1)
CRC
Korea/
China
Ib/II
Fully enrolled
NCT04716634
HUTCHMED (China) Limited 2023 Annual Report 23
Fruquintinib – CRC updates:
Fruquintinib – Combinations with checkpoint inhibitors updates:
FRESCO-2 (NCT04322539) – Positive results from this double-blind,
placebo-controlled, global Phase III study in 691 patients 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. ASCO presentations showed
that in subgroup analyses by prior lines of therapies up to six or more and
by prior treatment with approved agents, fruquintinib improved OS and
PFS for all subgroups and prior therapies, consistent with those of the
overall study population. A separate study showed that during the study
adverse events of special interest led to low rates of dose reduction (13.6%
for patients who received fruquintinib vs 0.9% for patients who received
placebo) and dose discontinuation (8.3% for patients who received
fruquintinib vs 6.1% for patients who received placebo).
Filing of a rolling submission of an NDA was accepted by the FDA in
May 2023 for priority review, with PDUFA date of November 30, 2023.
Fruquintinib (FRUZAQLA™ in the U.S.) was approved by the FDA on
November 8, 2023. The MAA filing to the EMA was validated in June 2023.
The NDA was submitted to the Japan PMDA in September 2023.
On January 26, 2024, fruquintinib obtained the marketing approval from
the Pharmacy and Poisons Board of Hong Kong for the treatment of adult
patients with previously treated metastatic CRC. This marked the first
medicine to be approved under the new mechanism for registration of
new drugs (“1+” mechanism) officially commenced on November 1, 2023.
It allows drugs which are beneficial for treatment of life-threatening or
severely debilitating diseases to apply for registration for use in Hong
Kong, if they have supporting local clinical data and recognition from
relevant experts, when they have been approved by only one reference
drug regulatory authority (instead of two otherwise). CRC was the second
most common cancer in Hong Kong in 2021.
China Phase IV (NCT04005066) – Results presented at ASCO 2023 from a
prospective, 3,005-patient study to evaluate the safety of fruquintinib in
real-world clinical practice in China are consistent with the fruquintinib
safety profile observed in existing clinical studies, with no new or
significant safety signals identified.
Advanced endometrial cancer registration-intent cohort of TYVYT®
combination (NCT03903705) – Platinum-based systemic chemotherapy
is the standard first-line treatment for advanced endometrial cancer in
China. However, patients who progress following first-line therapy 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. In July 2023, the cohort fully enrolled and
was granted Breakthrough Therapy Designation. If the study results are
positive, we expect to file the NDA with the NMPA in this treatment setting
in mid-2024.
Advanced metastatic clear-cell RCC (NCT05522231) – In first-line clear-cell
RCC, 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 (NCT03903705) data disclosed at ASCO 2023 showed encouraging
anti-tumor efficacy and durability in these patients. PFS results from
this exploratory study of the fruquintinib and sintilimab combination in
metastatic clear-cell RCC were reported. At data cut-off on November 30,
2022, median PFS was 15.9 months in 20 previously treated patients. No
new safety signals were observed.
A Phase II/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. The enrollment
was completed in December 2023. A total of 234 patients have been
enrolled in the study. We expect to announce topline results around year
end 2024.
24
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Fruquintinib – Gastric cancer updates:
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.
Results were presented orally at ASCO Plenary Series in February 2024.
Patients on fruquintinib combined with paclitaxel achieved median PFS
of 5.6 months, vs 2.7 months in the control group on paclitaxel only with
HR of 0.569 and p < 0.0001. There was a numerical improvement in OS,
with median OS of 9.6 months vs. 8.4 months; however, this was not
statistically significant. There was an imbalance of patients receiving
subsequent antitumor therapies across the two groups, with 52.7% in the
fruquintinib plus paclitaxel group vs. 72.2% in the paclitaxel monotherapy
group. In a pre-specified sensitivity analysis, when excluding patients
taking subsequent antitumor therapy, OS improvement was statistically
significant for the treatment arm at 6.9 months vs 4.8 months in the
control arm with HR of 0.72 and p=0.0422. 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.
In April 2023, the NDA in China was accepted for review by the NMPA.
)
%
(
l
a
v
i
v
r
u
S
e
e
r
f
-
n
o
i
s
s
e
r
g
o
r
P
100
80
60
40
20
0
0
3
6
Number of patient at risk
Fruquintinib+Paclitaxel
Placebo+Paclitaxel
351
352
210
132
121
67
9
49
20
12
21
13
100
80
60
40
20
)
%
(
l
a
v
i
v
r
u
s
l
l
a
r
e
v
O
0
0
3
69
1
2
Fruquintinib+Paclitaxel (F+PTX)
Placebo+Paclitaxel (PBO+PTX)
Progression-free survival (inten(cid:31)on-to-treat set) was
sta(cid:31)s(cid:31)cally significant
Events, n
Median PFS (95% CI), months
Stra(cid:31)fied HR (95% CI)
F+PTX
(N=351)
260
5.6
(4.6–6.4)
PBO+PTX
(N=352)
291
2.7
(2.7–3.5)
0.57 (0.48–0.68)
pvalue <0.0001
15
18
Time (months)
21
24
27
30
33
36
15
11
10
10
8
8
7
8
4
6
2
6
2
6
1
4
Fruquintinib+Paclitaxel (F+PTX)
Placebo+Paclitaxel (PBO+PTX)
Overall survival (inten(cid:18)on-to-treat set)
improvement was numerically significant
Events, n
Median OS (95% CI), months
Stratified HR (95% CI)
F+PTX
(N=351)
268
9.6
(8.9–10.8)
PBO+PTX
(N=352)
268
8.4
(7.8–9.4)
0.96 (0.81–1.13)
p
value 0.6064
Number of patient at risk
Fruquintinib+Paclitaxel
Placebo+Paclitaxel
351
352
301
307
221
204
159
137
108
96
76
70
52
53
40
43
15
21
18
Time (months)
24
26
37
27
20
33
30
14
24
33
9
19
36
7
15
Subsequent antitumor therapy imbalanced between the 2 groups:
52.7% in Fruquintinib + Paclitaxel vs 72.2% in Placebo + Paclitaxel
FRUTIGA phase III study of fruquintinib combined with paclitaxel for the second-line treatment of advanced
gastric cancer
Note:
Source: Xu R H, et al. Fruquintinib plus paclitaxel versus paclitaxel as second-line therapy for patients with advanced gastric or gastroesophageal
PFS = progression-free survival; OS = overall survival; HR = hazard ration; and CI = confidence interval;
junction adenocarcinoma (FRUTIGA): A randomized, multicenter, double-blind, placebo-controlled, phase 3 study. Journal of Clinical Oncology
2024 42:36_suppl. 438780.
HUTCHMED (China) Limited 2023 Annual Report 25
Fruquintinib – Exploratory development:
In China, we support an investigator-initiated trial program for
fruquintinib, and there are about 90 of such trials ongoing in various solid
tumor settings. A number of investigator-initiated trials were presented
at ASCO 2023, ESMO 2023 and ASCO GI 2024, including initial results of a
Phase II study of fruquintinib in combination with investigator’s choice of
chemotherapy in second-line metastatic CRC with microsatellite stable
(MSS) phenotype, as well as fruquintinib monotherapy for the treatment
of biliary tract cancer and soft tissue sarcoma.
Ex-China regulatory discussions – 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.
While discussions in 2020 suggested that two positive Phase III studies
of surufatinib in patients with pNETs and epNETs in China could form
the basis to support a U.S. NDA submission, this was ultimately not
accepted. A new multi-regional clinical trial (MRCT) would be required to
move forward with this program in the U.S., Europe and Japan. Following
dialogue with the Japanese PMDA, we have decided not to file a Japanese
NDA on the basis of the clinical trial data available at this time.
Fruquintinib – Partnership with Takeda:
In March 2023, HUTCHMED completed an exclusive worldwide license to
Takeda 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 is eligible
to receive up to $1.13 billion. This includes $400 million which was
received in April 2023 on closing of the agreement, and up to $730 million
in additional potential payments relating to regulatory, development
and commercial sales milestones, of which a $35 million milestone
payment was received in December 2023 for the approval by the U.S. FDA.
HUTCHMED is also eligible to receive royalties on net sales.
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 2,900 patients to date, both as a
monotherapy and in combinations, and is approved in China. HUTCHMED
currently retains rights to surufatinib worldwide.
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of
tumor associated macrophages and promote infiltration of effector T cells
into tumors could help improve the anti-tumor activity of PD-1 antibodies.
Several combination studies with PD-1 antibodies have shown promising
data. A summary of the clinical studies of surufatinib is shown in the table
below.
Name, Line,
Patient Focus
SANET-ep:
epNET66
SANET-p:
pNET67
SURTORI-01:
2L NEC68
Sites
Phase
Status/Plan
NCT #
China
III
China
III
Approved; Launched
in 2021
Approved; Launched
in 2021
NCT02588170
China
III
Ongoing since 2021 NCT05015621
China
II
NENs69, GC70, ESCC71,
SCLC72, NSCLC, EMC,
TC73, STS74, BTC75
NCT04169672
Fully enrolled; Data
at AACR 2023 & ASCO
2023
SCLC
China
II
Fully enrolled
NCT05509699
Treatment
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
26
Surufatinib – Combination therapy with checkpoint inhibitors:
A Phase II China study (NCT04169672) combining surufatinib with TUOYI®
enrolled patients in nine solid tumor types. 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 reported the results from the advanced endometrial cancer cohorts
at ASCO 2023. Amongst efficacy evaluable endometrial cancer patients,
median PFS was 5.4 months and 12-month OS rate was 71.0% (median
follow-up duration was 16.8 months). The combination showed a
tolerable safety profile. Additionally, results from the NSCLC cohort were
presented at AACR 2023 demonstrating promising anti-tumor activity
in first-line setting for advanced PD-L1 positive NSCLC patients with
manageable toxicity.
Surufatinib – Exploratory development:
In China, we support an investigator-initiated trial program for surufatinib,
with about 110 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. A number of investigator-
initiated trials were presented at ASCO 2023, ESMO 2023 and ASCO
GI 2024 for surufatinib in combination with other agents, including
with chemotherapy as well as with anti-PD-1 antibodies plus different
chemotherapy regimens in various solid types including pancreatic
adenocarcinoma, gastric/gastroesophageal junction adenocarcinoma and
biliary tract cancer. In one of these trials (NCT05218889) using surufatinib
in combination with camrelizumab (an anti-PD-1) plus chemotherapy in
first-line therapy for pancreatic adenocarcinoma, median PFS and OS
were 9.2 months and 15.6 months, respectively, compared to 6.3 months
and 8.6 months in the control group with chemotherapy only.
NCT02589821
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.
Sovleplenib has been studied in clinical trials with around 600 patients to
date.
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY In December 2022, we completed recruitment of a Phase III study in
China for primary ITP, for which it has received Breakthrough Therapy
designation. Positive proof of concept data was reported on primary ITP at
ASH76 2021 and published in Lancet Hematology in April 2023. In 2024, we
plan to start a dose-finding study in the U.S. HUTCHMED currently retains
all rights to sovleplenib worldwide. The table below shows a summary of
the clinical studies for sovleplenib.
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
ESLIM-01: ≥2L ITP
China
III
Treatment
Sovleplenib
monotherapy
NCT05029635
Fully enrolled;
positive topline
results achieved and
NDA accepted with
priority review status
in Jan 2024; results
to be submitted
at an upcoming
conference in mid-
2024; Breakthrough
Therapy Designation
Dose-finding study
to begin in 2024
Pending
NCT05535933
Phase II fully
enrolled; Phase III
expected in early
2024
Sovleplenib
monotherapy
Sovleplenib
monotherapy
≥2L ITP
U.S.
Ib
Warm AIHA
China
II/III
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 188
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. All endpoints were met in
August 2023 and the NDA has been accepted for review and granted
priority review by the NMPA in January 2024. We plan to submit the results
for presentation and/or publication in mid-2024.
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. The first
patient was enrolled in September 2022. The enrollment of Phase II part
of the study was completed in mid-2023 and primary end point has been
met. We expect to initiate Phase III in early-2024.
Tazemetostat (TAZVERIK® in Hainan and Macau,
China; the U.S. and Japan)
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.
Tazemetostat has been studied in clinical trials with around 1,300 patients
to date.
We are developing and plan to seek approval for tazemetostat in various
hematological and solid tumors in China. We are participating in Ipsen’s
SYMPHONY-1 (EZH-302) study, leading it in China. We are generally
responsible for funding all clinical trials of tazemetostat in China, including
the portion of global trials conducted there. Separately, we are conducting
a China bridging study in follicular lymphoma for potential conditional
registration based on its U.S. approvals. The study is fully enrolled and,
subject to the data, we plan to file the NDA in China in mid-2024. We are
responsible for the research, manufacturing and commercialization of
tazemetostat in China. Tazemetostat was approved in China Hainan Pilot
Zone in 2022 and the Macau Special Administrative Region in 2023.
The table below shows a summary of the clinical studies for tazemetostat.
Treatment
Tazemetostat
monotherapy
Tazemetostat
monotherapy
Name, Line,
Patient Focus
Metastatic or locally
advanced epithelioid
sarcoma; Relapsed/
refractory 3L+
follicular lymphoma
Relapsed/refractory
3L+ follicular
lymphoma
Sites
Phase
Status/Plan
Hainan,
Macau
N/A – Hainan
Pilot Zone,
Macau
Approved; Launched
in 2022 and 2023,
respectively
NCT #
N/A
China
II registration-
intent
(bridging)
Fully enrolled; NDA
filing expected in
mid-2024
NCT05467943
Tazemetostat +
lenalidomide +
rituximab (R²)
SYMPHONY-1:
2L follicular
lymphoma
Global
Ib/III
Tazemetostat +
amdizalisib
Relapsed/refractory
lymphoma
China
II
Ongoing; PhIb data
at ASH 2022; China
portion of global Ph
III started H2 2022
Ongoing since Feb
2023
NCT04224493
NCT05713110
SYMPHONY-1 Global Phase Ib/III combination study in relapsed/refractory
follicular lymphoma with ≥2 prior therapies (NCT04224493) – The Phase Ib
open-label portion of SYMPHONY-1 recruited 44 patients and showed
ORR of 90.9%. In the 800-mg BID recommended Phase III dose cohort,
18-month PFS and DOR estimates were 94.4% and 100%. There were no
dose-limiting toxicities.
HUTCHMED (China) Limited 2023 Annual Report 27
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 globally 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
Sites
China
Phase
II
Name, Line,
Patient Focus
2L
cholangiocarcinoma
(IHCC with FGFR
fusion)
Status/Plan
NCT #
NCT04353375
Results presented
at ASCO 2023;
registration cohort
enrolling since
March 2023
HMPL-453 +
chemotherapies
HMPL-453 +TUOYI®
(PD 1)
Multiple
China
I/II
Ongoing since 2022 NCT05173142
Multiple
China
I/II
Ongoing since 2022 NCT05173142
China Phase II in IHCC (NCT04353375) – This is an open-label, single-
arm Phase II study to evaluate the efficacy and safety of HMPL-453 in
the treatment of patients with advanced IHCC harboring FGFR2 fusions/
rearrangements after at least one line of systemic treatment failure or
intolerance. Results from 25 patients treated with two different dosing
regimens were presented at the ASCO 2023 annual meeting, supporting
the choice of the recommended Phase II dose of 300mg oral QD77
(ORR of 50%). After consultation with the NMPA, a monotherapy
registration trial design was agreed with ORR as primary endpoint, and the
first patient was enrolled in March 2023.
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 has been studied in clinical trials with around 500 patients to
date. HUTCHMED currently retains all rights to amdizalisib worldwide.
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
with alignment with China NMPA to support conditional approval. The
trial has fully enrolled the follicular lymphoma cohort and the marginal
zone lymphoma cohort enrollment is ongoing. In the follicular lymphoma
cohort, the primary endpoint of ORR met its pre-specified threshold of
demonstrating a clinically meaningful and a significant increase in ORR
in this setting. However, in recent discussions with China NMPA, it is clear
that a randomized study is required to support registration. In view of the
changing regulatory requirement, we are currently evaluating the clinical
development plan and regulatory guidance before deciding the regulatory
strategy for this indication.
Phase Ib expansion study in relapsed/refractory lymphoma (NCT03128164)
– This is an open-label study to evaluate amdizalisib in relapsed and/or
refractory non-Hodgkin lymphoma patients. Updated safety data as well
as efficacy data were reported at ICML in June 2023. At median follow-up
duration of 22.1 months, median DoR and PFS were not reached for the
26 efficacy evaluable patients in the follicular lymphoma cohort. For the
marginal zone lymphoma cohort of 16 efficacy evaluable patients, at
median follow-up duration of 20.3 months, median DoR was not reached
and median PFS was 26.8 months. Amdizalisib showed an acceptable
safety profile and promising anti-tumor activity in relapsed/refractory
lymphoma.
HMPL-306
HMPL-306 is a novel dual-inhibitor of IDH180 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.
Sites
Phase
Status/Plan
NCT #
NCT04849351
Treatment
HMPL-306
monotherapy
Myeloid hematological
malignancies
China
I
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
NCT04849351
HMPL-306
monotherapy
NCT03128164
Solid tumors
including but not
limited to gliomas,
chondrosarcomas or
cholangiocarcinomas
HMPL-306
monotherapy
Hematological
malignancies
U.S.
U.S.
I
I
Dose escalation
data presented
at EHA81 2023;
registration
Phase III study
planned in 2024
Ongoing since
2021
NCT04272957
NCT04762602
Ongoing since
2021
NCT04764474
Treatment
Amdizalisib
monotherapy
Name, Line,
Patient Focus
3L Relapsed/
refractory
follicular
lymphoma
China
II
registration-
intent
Amdizalisib
monotherapy
Amdizalisib
monotherapy
2L Relapsed/
refractory
marginal zone
lymphoma
Indolent NHL78,
peripheral T-cell
lymphomas
China
II
registration-
intent
China
Ib
28
Met primary
endpoint;
Breakthrough
Therapy
Designation
Ongoing since
Apr 2021
Completed;
Updated data
presented at
ICML79 2023
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY China Phase I in hematological malignancies (NCT04272957) – This
is a two-phase, open-label Phase I study to evaluate the safety,
pharmacokinetics, pharmacodynamics and efficacy of HMPL-306 in
patients of relapsed or refractory hematological malignancies harboring
IDH1 and/or IDH2 mutations. The dose escalation phase of the study is
completed. The first-in-human dose-escalation phase data was presented
at EHA Annual Meeting in June 2023 with ORR of 45-50%. Based on the
pharmacodynamic, pharmacokinetic and preliminary clinical findings,
a recommended Phase II dose was determined for the dose expansion
phase of the study. We are planning to initiate a Phase III registration
study during the first half of 2024.
HMPL-760
HMPL-760 is an investigational, non-covalent, third-generation BTK
inhibitor. It is a highly potent, selective, and reversible inhibitor with long
target engagement against BTK, including wild-type and C481S-mutated
BTK. China Phase I studies opened in early 2022 will include relapsed
or refractory B-cell non-Hodgkin’s lymphoma or CLL82 patients with or
without a prior regimen containing a BTK inhibitor. HUTCHMED currently
retains all rights to HMPL-760 worldwide.
Treatment
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Treatment
HMPL-295
monotherapy
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Solid tumors
China
I
NCT04908046
Ongoing since
2021; data at
ESMO Asia 2023
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 in combinations. Currently no
CSF-1R inhibitor has been approved in China.
HMPL-760
monotherapy
CLL, SLL83, other
B-NHL
China
I
NCT05190068
Ongoing
since Jan
2022; RP2D84
determined;
dose expansion
ongoing
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
HMPL-295
HMPL-A83
HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of
the RAS-RAF-MEK-ERK signaling cascade (MAPK85 pathway). This is our first
of multiple candidates in discovery targeting the MAPK pathway, followed
by HMPL-415 targeting SHP2. A China Phase I study was initiated in July
2021 for HMPL-295. HUTCHMED currently retains all rights to HMPL-295
worldwide.
RAS-MAPK pathway is dysregulated in cancer, in which mutations or non-
genetic events hyper-activate the pathway in 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. Safety and efficacy results on 22 patients
with advanced solid tumors were reported during ESMO Asia 2023.
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 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. HUTCHMED currently retains all
rights to HMPL-A83 worldwide.
Treatment
HMPL-A83
monotherapy
Name, Line,
Patient Focus
Advanced
malignant
neoplasms
Sites
Phase
Status/Plan
NCT #
China
I
Ongoing since
July 2022
NCT05429008
HUTCHMED (China) Limited 2023 Annual Report 29
HMPL-415
HMPL-415 is a novel SHP2 allosteric inhibitor. A China Phase I study was
initiated in July 2023. HUTCHMED currently retains all rights to HMPL-415
worldwide.
SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously
expressed mainly in the cytoplasm of several tissues. SHP2 modulates
diverse cell signaling events that control metabolism, cell growth,
differentiation, cell migration, transcription and oncogenic transformation.
It interacts with diverse molecules in the cell, and regulates key signaling
events including RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways
downstream of several receptor tyrosine kinases (RTKs) upon stimulation
by growth factors and cytokines. This is the second of multiple candidates
to have emerged from our discovery research that targets this pathway,
the first being HMPL-295. Dysregulation of SHP2 expression or activity
causes many developmental diseases, and hematological and solid
tumors.
Treatment
HMPL-415
monotherapy
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Solid tumors
China
I
Ongoing since
2023
NCT05886374
Immunology Collaboration with Inmagene
We have a strategic partnership with Inmagene, a clinical development
stage company with a focus on immunological diseases, to further
develop novel preclinical drug candidates we discovered for the potential
treatment of multiple immunological diseases. Funded by Inmagene,
we worked together to move two drug candidates towards clinical
trials. Inmagene advanced the drug candidates through global clinical
development. In October 2023, Inmagene issued a notice to exercise its
options to license these two drug candidates, and the parties entered
into a share subscription agreement in February 2024, which, subject
to customary closing conditions, entitles us to receive common shares
representing approximately 7.5% of the shares (fully diluted) in Inmagene
as consideration for the exercise of the options. Following receipt of the
shares, Inmagene will be granted an exclusive license to further develop,
manufacture and commercialize these two drug candidates worldwide.
30
Treatment
IMG-007 (OX40
antibody)
IMG-007 (OX40
antibody)
Name, Line,
Patient Focus
Adults with
alopecia areata
with 50% or
greater scalp
hair loss
Adults with
moderate to
severe atopic
dermatitis
Global
IIa
IMG-007 (OX40
antibody)
Adult healthy
volunteers
Australia I
IMG-004 (BTK
inhibitor)
Adult healthy
volunteers
Global
I
Sites
Phase
Status/Plan
NCT #
Global
IIa
NCT06060977
First patient
dosed in
October 2023
NCT05984784
NCT05353972
NCT05349097
First patient
dosed in August
2023
Single
ascending dose
completed
Single
ascending dose
completed
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. Phase I study in healthy
volunteers demonstrated that up to 600 mg of IMG-007 was safe and
well-tolerated, with no reports of pyrexia or chills, which were common
adverse events of rocatinlimab, another OX40 antibody treatment. At
projected therapeutic dose levels, IMG-007 demonstrated a mean terminal
half-life of 31-37 days. The long half-life combined with a potentially
improved safety profile supports IMG-007’s best-in-class potential as an
OX40 targeted therapy.
Two global, proof-of-concept Phase IIa trials are ongoing. One trial
evaluates the safety, pharmacokinetics and efficacy (EASI at week 12)
of IMG-007 in moderate-to-severe atopic dermatitis. Patients received
intravenous IMG-007 three times over four weeks. The first patient was
dosed in August 2023 and Inmagene expects interim data readout in
the third quarter of 2024. Another trial evaluates the safety of IMG-007
in adults with alopecia areata with SALT score ≥ 50. They will be given
three doses over four weeks. First patient was dosed in October 2023 and
Inmagene expects interim data readout in the third quarter of 2024.
IMG-004 in immunological diseases – This is a small molecule inhibitor that
binds to BTK in a non-covalent, reversible manner. Designed specifically
for inflammatory and autoimmune diseases that usually require long-
term treatment, IMG-004 is potent, highly selective and brain permeable.
A Phase I single ascending dose study in healthy volunteers in the U.S.,
initiated in August 2022, has recently completed. It showed that IMG-
004 was safe and well-tolerated with a long half-life and sustained
pharmacodynamic effects, supporting further clinical development.
Results will be submitted to an upcoming medical conference.
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY MANUFACTURING
We have a drug product manufacturing facility in Suzhou which
manufactures both clinical and commercial supplies for fruquintinib and
surufatinib. Our Suzhou facility passed a pre-approval inspection (PAI) by
the U.S. FDA in August 2023. We have qualified two drug product sites for
supplying fruquintinib to the U.S. market: our own facility in Suzhou and a
second site in Switzerland.
We have also completed construction of, qualified, and obtained Drug
Manufacturing Permit for a new drug product facility in Pudong, Shanghai,
which will increase our novel drug product manufacturing capacity by
over five times. The manufacturing and technology transfer for some
of our commercial products are underway to this new facility. This is in
line with our previously outlined expectations of manufacturing clinical
supplies from the new facility starting in 2023 and commercial supplies
around 2025, after the necessary regulatory filings and approvals.
In line with our commitment to sustainable practices and environmental
stewardship, we have installed solar panels at this new facility. They
contribute renewable energy directly to our operations, particularly
in cooling indoor areas, significantly reducing electricity usage and
greenhouse gas emissions.
We completed process validation for the API86 and drug product of
sovleplenib at the selected commercial manufacturing facilities to support
the approval of the product.
Shanghai facility
HUTCHMED (China) Limited 2023 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 2023, our Other Ventures delivered growth with consolidated revenue
up 18% (24% at CER) to $309.4 million (2022: $262.6m). Consolidated net
income attributable to HUTCHMED from our Other Ventures decreased by
8% (3% at CER) to $50.3 million (2022: $54.6m).
Hutchison Sinopharm87:
Our prescription drugs commercial services business, which in addition
to providing certain commercial services for our own products, provides
services to third-party pharmaceutical companies in China, grew sales
by 24% (31% at CER) to $295.4 million in 2023 (2022: $237.3m).
In 2021, the Hong Kong International Arbitration Centre made a final
award in favor of Hutchison Sinopharm against Luye88 in the amount of
RMB253.2 million ($35.4 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 and subsequent appeals. 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 June 6, 2023, an
appeal hearing filed by Luye was heard by the Court of Appeal in Hong
Kong and judgment is awaited.
SHPL:
Our own-brand prescription drugs business, operated through our non-
consolidated joint venture SHPL, grew sales by 4% (10% at CER) to
$385.5 million (2022: $370.6m). Net income attributable to HUTCHMED
slightly decreased by 5% (increase 1% at CER) to $47.4 million (2022:
$49.9m) mainly due to the impact of gradual price adjustment from
volume-based procurement.
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 560 manufacturing staff.
SXBX89 pill: SHPL’s main product is SXBX pill, an oral vasodilator
prescription therapy for coronary artery disease. SXBX pill is the second
largest botanical prescription drug in this indication in China, with a
national market share in January to December 2023 of 22.0% (2022:
21.0%). Sales increased by 2% (8% at CER) to $348.6 million in 2023
(2022: $341.6m).
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 of China.
We continue to explore divestment and equity capital market
opportunities to monetize our investment in SHPL.
Dividends: Our share of SHPL’s profits are passed to the HUTCHMED
Group through dividend payments. In 2023, dividends of $42.3 million
(2022: $43.7m) were paid from SHPL to the HUTCHMED Group level with
aggregate dividends received by HUTCHMED since inception of over
$320 million.
Consumer products businesses disposal: On December 7, 2023,
HUTCHMED disposed of its interests in HHOHK and HSN for HK$39.8 million
($5.1 million) to Hutchison Whampoa (China) Limited. The disposal allows
HUTCHMED to focus its resources on its core business areas.
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2024
HUTCHMED (China) Limited 2023 Annual Report 33
OPERATIONS REVIEW – OTHER VENTURES used for translation may have a significant effect on our reported results.
We believe the presentation at CER provides useful and meaningful
information because it facilitates period-to-period comparisons of our
results and increases the transparency of our underlying performance.
Reconciliation of GAAP change in net cash generated from/
(used in) operating activities to Adjusted Group net cash
flows excluding financing activities:
$’millions
Net cash generated from/(used in)
operating activities
Net cash (used in)/generated from
investing activities
Effect of exchange rate changes on cash
2023
2022
219.3
(268.6)
(291.1)
296.6
and cash equivalents
(6.5)
(9.5)
Excludes: Deposits in short-term investments
1,627.8
1,202.0
Excludes: Proceeds from short-term investments
(1,342.8)
(1,518.4)
Adjusted Group net cash flows excluding financing
activities
206.7
(297.9)
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:
•
•
Adjusted Group net cash flows excluding financing activities
CER
Management uses such measures internally for planning and forecasting
purposes and to measure the HUTCHMED Group’s overall performance.
We believe these adjusted financial measures provide useful and
meaningful information to us and investors because they enhance
investors’ understanding of the continuing operating performance of our
business and facilitate the comparison of performance between past and
future periods. These adjusted financial measures are non-GAAP measures
and should be considered in addition to, but not as a substitute for, the
information prepared in accordance with U.S. GAAP. Other companies
may define these measures in different ways.
Adjusted Group net cash flows excluding financing activities: We 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
-5%
-5%
-7%
-7%
–
-7%
-7%
-3%
-6%
Reconciliation of GAAP revenue and net income attributable to HUTCHMED to CER:
$’millions (except%)
Year Ended December 31,
Change Amount
Change%
2023
2022
Actual
CER
effect
Actual
CER
effect
Exchange
Exchange
Consolidated revenue
838.0
426.4
411.6
437.0
(25.4)
97%
102%
— Oncology/Immunology*
528.6
163.8
364.8
374.0
(9.2)
223%
228%
* Includes:
— Products Sales
— ELUNATE®
— FRUZAQLA™
— SULANDA®
— ORPATHYS®
— TAZVERIK®
— Other R&D services income
164.2
124.6
83.2
7.2
43.9
28.9
1.0
52.4
69.9
–
32.3
22.3
0.1
24.2
39.6
13.3
7.2
11.6
6.6
0.9
28.2
48.2
17.9
7.2
13.8
8.3
1.0
28.8
(8.6)
(4.6)
–
(2.2)
(1.7)
(0.1)
(0.6)
32%
19%
–
36%
30%
39%
26%
–
43%
37%
116%
119%
713%
728%
-15%
— Other Ventures^
309.4
262.6
46.8
63.0
(16.2)
18%
24%
^ Includes:
— Hutchison Sinopharm
— prescription drugs
295.4
237.3
58.1
74.0
(15.9)
24%
31%
-7%
Non-consolidated joint venture revenue
— SHPL
— SXBX pill
Consolidated net income attributable
to HUTCHMED
— Other Ventures
— Consolidated entities
— Equity investees
— SHPL
385.5
348.6
50.3
2.9
47.4
370.6
341.6
54.6
4.7
49.9
14.9
7.0
36.1
26.2
(21.2)
(19.2)
4%
2%
(4.3)
(1.8)
(1.3)
(1.6)
(3.0)
(0.2)
-8%
-39%
10%
8%
-3%
-35%
(2.5)
0.3
(2.8)
-5%
1%
-6%
-6%
-5%
-4%
-6%
HUTCHMED (China) Limited 2023 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.
Primarily due to an increase in total revenue driven by Oncology/
Immunology partnering, its strong commercial progress in China, and
growth in third-party distribution sales, we generated a net income
attributable to HUTCHMED of $100.8 million for the year ended December
31, 2023 (2022: net loss of $360.8m).
As of December 31, 2023, we had cash and cash equivalents and short-
term investments of $886.3 million and unutilized bank facilities of $68.1
million. As of December 31, 2023, we had $79.3 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 $168,000 and
$318,000 for the years ended December 31, 2023 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 $1.0 million as of December 31, 2023.
In addition, our non-consolidated joint venture, SHPL, held an aggregate
of $19.1 million in cash and cash equivalents and no bank borrowings as
of December 31, 2023. 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 generated from/(used in)
operating activities
Net cash (used in)/generated from
investing activities
Net cash generated from/(used in)
financing activities
Net decrease in cash and cash equivalents
Effect of exchange rate changes
Year Ended
December 31,
2023
2022
(in $’000)
219,258
(268,599)
(291,136)
296,588
48,660
(82,763)
(23,218)
(6,471)
(54,774)
(9,490)
Cash and cash equivalents at beginning of the year
313,278
377,542
Cash and cash equivalents at end of the year
283,589
313,278
Net Cash generated from/(used in) Operating Activities
Net cash used in operating activities was $268.6 million for the year ended
December 31, 2022, compared to net cash generated from operating
activities of $219.3 million for the year ended December 31, 2023. The
net change of $487.9 million was primarily attributable to the net loss
attributable to HUTCHMED of $360.8 million for the year ended December
31, 2022 compared to net income attributable to HUTCHMED of $100.8
million for the year ended December 31, 2023 (which included $312.0
million in upfront and milestone income recognized from Takeda).
36
GROUP CAPITAL RESOURCES
Net Cash (used in)/generated from Investing Activities
Net cash generated from investing activities was $296.6 million for the
year ended December 31, 2022, compared to net cash used in investing
activities of $291.1 million for the year ended December 31, 2023. The
net change of $587.7 million was primarily attributable to placement of
more short-term investments which had net withdrawals of $316.4 million
for the year ended December 31, 2022 as compared to net deposits of
$285.0 million for the year ended December 31, 2023. The net change
was partially offset by an increase in dividend received from divestment
of a former equity investee by $13.0 million from $16.5 million during the
year ended December 31, 2022 to $29.5 million during the year ended
December 31, 2023.
Net Cash generated from/(used in) Financing Activities
Net cash used in financing activities was $82.8 million for the year ended
December 31, 2022, compared to net cash generated from financing
activities of $48.7 million for the year ended December 31, 2023. The net
change of $131.5 million was mainly attributable to bank borrowings
which had a net repayment of $9.2 million during the year ended
December 31, 2022 as compared to net proceeds of $61.7 million during
the year ended December 31, 2023. The net change was also attributable
to a $39.0 million decrease in purchases of ADSs by a trustee for the
settlement of equity awards of the Company which totaled $48.1 million
for the year ended December 31, 2022 as compared to $9.1 million for
the year ended December 31, 2023, as well as a $16.5 million decrease in
dividends paid to non-controlling shareholders of subsidiaries from $25.6
million for the year ended December 31, 2022 to $9.1 million for the year
ended December 31, 2023.
LOAN FACILITIES
In October 2021, our subsidiary entered into a 10-year fixed asset loan
facility agreement with BOC90 for the provision of a secured credit facility
in the amount of RMB754.9 million ($105.5 million) with an annual interest
rate at the 5-year China LPR91 less 0.8% (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,
2023, RMB344.8 million ($48.2 million) was utilized from the fixed asset
loan facility.
In May 2022, our subsidiary entered into a 12-month revolving loan facility
with HSBC92 in the amount of HK$390.0 million ($50.0 million) with an
interest rate at HIBOR93 plus 0.5% per annum. This revolving facility is
guaranteed by us. The revolving loan facility expired in May 2023.
In November 2023, our subsidiary entered into a short-term working
capital loan facility with BOC in the amount of RMB300.0 million ($41.9
million) with an annual interest rate at the 1-year China LPR less 0.95%.
This credit facility includes certain financial covenant requirements. As of
December 31, 2023, RMB222.9 million ($31.1 million) was drawn from the
facility.
Our non-consolidated joint venture SHPL had no bank borrowings
outstanding as of December 31, 2023.
HUTCHMED (China) Limited 2023 Annual Report 37
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2023. 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
79,344
11,034
1,259
7,583
99,220
31,155
2,411
1,259
3,919
38,744
3,192
3,228
–
2,682
9,102
9,256
2,913
–
982
13,151
35,741
2,482
–
–
38,223
The following table sets forth the contractual obligations of our non-consolidated joint venture SHPL as of December 31, 2023. 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
376
1,459
1,835
376
791
1,167
–
668
668
–
–
–
–
–
–
A substantial portion of our revenue and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S. dollars.
While 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, any significant fluctuation in the value of renminbi may adversely affect our cash flows, results of operations and
financial condition in the future.
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 PBOC94. 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 results of a 1.0% interest rate shift would be a maximum increase/
decrease of $0.1 million for the year ended December 31, 2023.
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 10.7% as of December 31,
2023, an increase from 2.8% as of December 31, 2022. The increase was
primarily attributable to the increase in interest-bearing loans.
Except for our investment in a non-consolidated joint venture SHPL with
a carrying value of $48.4 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, 2023.
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, 2023 were $42.3 million.
FUTURE PLANS FOR MATERIAL
INVESTMENTS AND CAPITAL
ASSETS
Note 15 discloses our capital commitment as of December 31, 2023.
Subsequent to the construction completion of the drug product facility
in Shanghai, certain investments in capital assets in relation to the facility
will be made.
MATERIAL ACQUISITIONS AND
DISPOSALS OF SUBSIDIARIES,
ASSOCIATES AND JOINT
VENTURES
During the year ended December 31, 2023, we did not have any other
material acquisitions and disposals of subsidiaries, associates and joint
ventures.
HUTCHMED (China) Limited 2023 Annual Report 39
PLEDGE OF ASSETS
Our 10-year fixed asset loan facility agreement with BOC is secured by the
underlying leasehold land and buildings. RMB344.8 million ($48.2 million)
was utilized from the fixed asset loan facility as of December 31, 2023.
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 1.5% and 1.8% in 2021 and 2022
respectively and decreased by 0.3% in 2023. 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, 2023.
40
GROUP CAPITAL RESOURCES SUSTAINABILITY
HUMAN RESOURCES
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 of Directors (“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.
A standalone Sustainability Report of the Company for 2023 will be
published alongside the 2023 Annual Report in April 2024 and included
further information on the Group’s sustainability initiatives and their
performance. It will further discuss the abovementioned sustainability
mission and strategies, management approach, progress of goals and
targets, material quantitative data, as well as policies and key initiatives
of the Group. Over the course of 2024, the Group continues to engage
its stakeholders to identify areas for improvement in these sustainability
fronts.
As at December 31, 2023, the Group employed approximately 1,990
(2022: ~2,030) full time staff members. Staff costs for the year ended
December 31, 2023, including directors’ emoluments, totaled $213.7 million
(2022: $227.2 million).
The Group fully recognizes the importance of high-quality employees 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.
CLOSURE OF REGISTER OF
MEMBERS
The register of members of the Company will be closed from Tuesday,
May 7, 2024 to Friday, May 10, 2024, both days inclusive, during which
period no transfer of shares will be effected, to determine shareholders’
entitlement to attend and vote at the 2024 Annual General Meeting (or
at any adjournment or postponement thereof). All share certificates
with completed transfer forms, either overleaf or separately, must be
lodged with (a) the Hong Kong Branch Share Registrar of the Company,
Computershare Hong Kong Investor Services Limited, at Rooms 1712-1716,
17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong
Kong or (b) the Principal Share Registrar of the Company, Computershare
Investor Services (Jersey) Limited c/o Computershare Investor Services
PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United Kingdom,
no later than 4:30 pm Hong Kong time on Monday, May 6, 2024.
HUTCHMED (China) Limited 2023 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 HKEX95.
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 $585.2 million from the offering and the over-allotment option for the purposes and in the
amounts (adjusted on pro rata basis based on the actual net proceeds) as disclosed in the prospectus of the Company dated June 18, 2021 is as below:
Use of Proceeds
Advance our late-stage clinical programs
for savolitinib, surufatinib, fruquintinib,
amdizalisib and sovleplenib through
registration trials and potential NDA
submissions
Support further proof-of-concept studies
and fund the continued expansion of
our product portfolio in cancer and
immunological diseases through internal
research, including the development cost of
early-clinical and preclinical-stage pipeline
drug candidates
Further strengthen our integrated capabilities
across commercialization, clinical and
regulatory and manufacturing
Fund potential global business development
and strategic acquisition opportunities
to complement our internal research and
development activities and enhance our
current drug candidate pipeline
Working capital, expanding internal
capabilities globally and in China and
general corporate purposes
Percentage of
Total Net
Proceeds
(%)
50%
Approximate
Amount
($’millions)
292.7
Actual Usage
up to
December 31,
2023
($’millions)
292.7
Unutilized Net
Proceeds as of
December 31,
2023
($’millions)
–
Expected Timeline
for Utilization of
Proceeds (note)
Fully utilized
10%
58.5
58.5
20%
15%
5%
100%
117.1
87.8
29.1
585.2
117.1
87.8
29.1
585.2
Fully utilized
Fully utilized
Fully utilized
Fully utilized
–
–
–
–
–
Note: There was no change in the intended use of net proceeds as previously disclosed. The Company utilized the remaining net proceeds in accordance with such intended
purposes by the end of 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, 2023 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 110 to 114 of this annual report. The consolidated financial statements of the Company and its subsidiary companies for the
year ended December 31, 2023 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, 2023 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 72, 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 and has been with this company
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 66, 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 the 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 2023 Annual Report 43
INFORMATION ON DIRECTORS CHENG Chig Fung, Johnny
Edith SHIH
Executive Director and Chief Financial
Officer
Mr Cheng, aged 57, 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 70, 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 72, 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”). She is also a current member
and past chairperson of the nomination committee of HKCGI. 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 Executive Committee and Council of The
Hong Kong Management Association. She was also a member of the
Securities and Futures Appeals Tribunal.
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 Graeme Allan JACK
Independent Non-executive Director
Mr Jack, aged 73, 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). 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) 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).
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.
Ling YANG
Non-executive Director
Ms Yang, aged 44, has been a Non-executive
Director of the Company since July 2023. She
has been the managing director of Carlyle since
January 2017 and co-head of Carlyle Asia Healthcare
since November 2021, in charge of advising in healthcare investment and
portfolio activities of Carlyle in China. She is also chairwoman and
non-executive director of ADICON Holdings Limited.
Prior to Carlyle Group, Ms Yang worked in private equity at KKR Asia
Limited and in investment banking at Goldman Sachs in the U.S. She was
formerly a director of Shenzhen Salubris Pharmaceuticals Co., Ltd.
Ms Yang graduated summa cum laude and is a member of Phi Beta Kappa
with a Bachelor’s degree in Economics and Computer Science from Smith
College and she received her Master of Business Administration degree
from Harvard Business School.
Paul Rutherford CARTER
Senior Independent Non-executive
Director
Mr Carter, aged 63, 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 (currently GSK Plc.).
He is currently a director of Immatics N.V. and Kyowa Kirin International
Plc. 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, Mallinckrodt plc and VectivBio Holding
AG.
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 2023 Annual Report 45
MOK Shu Kam, Tony
Independent Non-executive Director
Professor Mok, aged 63, has been an Independent
Non-executive Director of the Company since 2017.
He is also chairman of the Nomination Committee
and Technical Committee and a member of the Audit
Committee and Sustainability Committee of the Company. Professor Mok
has more than 35 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 300 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. In September 2023, Professor Mok was
awarded The Sixth Fok Ying-Tung Prize – The World Outstanding Chinese
Doctor Award, for his contribution in lung cancer research.
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,
Visiting Professorship at Shanghai Jiao Tong University and Distinguished
Professorship at Fujian Cancer Hospital. 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.
From left: Ling Yang, Johnny Cheng, Tony Mok, Weiguo Su, Simon To, Dan Eldar, Edith Shih, Paul Carter, Graeme Jack
46
INFORMATION ON DIRECTORS 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 2023 Interim Report are set out below:
Directors
Edith SHIH
Ling YANG
Details of changes
Ceased to be the chairperson of the nomination committee of The Hong Kong Chartered
Governance Institute on January 1, 2024, while continuing as a committee member
Ceased to be a director of Shenzhen Salubris Pharmaceuticals Co., Ltd. in December 2023
DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT
POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
As at December 31, 2023, 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)
7,694,800(2)
467,725(3)
2,619,920(4)
75,705(5)
119,295(6)
31,365(7)
Approximate%
Total
of Shareholding
2,466,185
0.28%
8,162,525
0.94%
2,695,625
0.31%
150,660
0.02%
0.14%
Edith SHIH
Beneficial owner
Personal interest
1,200,000(8)
1,200,000
Paul Rutherford CARTER
Graeme Allan JACK
MOK Shu Kam, Tony
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
82,265(9)
26,660(10)
55,330(11)
31,365(12)
105,340(13)
31,365(14)
108,925
0.01%
86,695
0.01%
136,705
0.02%
HUTCHMED (China) Limited 2023 Annual Report 47
Notes:
(1)
(2)
The spouse of Mr To Chi Keung, Simon is interested in 780,000 ordinary shares (“Shares”) and 133,237 American depositary shares (“ADSs”, each representing five
Shares), in the Company as beneficiary of trusts. Mr To Chi Keung, Simon is the settlor of the same trusts in which his spouse has interests.
Includes (1) 3,000,000 Shares and 143,518 ADSs held by Dr Weiguo Su, (2) entitlement of Dr Weiguo Su to receive up to 2,000,000 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 62.
(3)
Dr Weiguo Su is interested in 93,545 ADSs as beneficiary of a trust pursuant to a Long Term Incentive Plan (“LTIP”), subject to vesting conditions.
(4)
Includes (1) 1,261,460 Shares and 41,522 ADSs held by Mr Cheng Chig Fung, Johnny, (2) entitlement of Mr Cheng Chig Fung, Johnny to receive up to 230,140 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 62.
(5)
Mr Cheng Chig Fung, Johnny is interested in 15,141 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(6)
Includes 19,000 Shares and 20,059 ADSs held by Dr Dan Eldar.
(7)
Dr Dan Eldar is interested in 6,273 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 9,405 ADSs held by Mr Paul Rutherford Carter.
(10) Mr Paul Rutherford Carter is interested in 5,332 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(11)
Represents 11,066 ADSs held by Mr Graeme Allan Jack.
(12) Mr Graeme Allan Jack is interested in 6,273 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(13)
Represents 21,068 ADSs held by Professor Mok Shu Kam, Tony.
(14)
Professor Mok Shu Kam, Tony is interested in 6,273 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
Save as disclosed above, as at December 31, 2023, 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, 2023, none of the Directors had any interests in certain businesses (apart from the business of the Company or
its subsidiaries) which competes or is likely to compete, either directly or indirectly, with the principal businesses of the Company or its subsidiaries
conducted during the year, which would require disclosure under Rule 8.10(2) of the Listing Rules.
48
INFORMATION ON DIRECTORS BIOGRAPHICAL DETAILS OF
SENIOR MANAGEMENT*
Michael Ming SHI
Zhenping WU
Executive Vice President, Head of R&D and Chief Medical
Officer
Executive Vice President, Pharmaceutical Sciences and
Manufacturing
Dr Wu, aged 64, 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.
Dr Shi, aged 58, 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. Before that,
he worked at Novartis for over 15 years, where he held various senior
leadership positions including global program clinical head in clinical
development. 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”) 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.
*
As of March 27, 2024
HUTCHMED (China) Limited 2023 Annual Report 49
INFORMATION ON SENIOR MANAGEMENT Charles George Rupert NIXON
Group General Counsel
Mr Nixon, aged 54, 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.
Mark Kin Hung LEE
Senior Vice President, Corporate Management and
Communications
Mr Lee, aged 46, is the Senior Vice President of Corporate Management
and Communications of the Company. He began working in healthcare
investment banking in the United States and Europe in 1998 and joined
the Company in 2009. Based in the New York and London offices of Credit
Suisse, Mr Lee was involved in the execution and origination of mergers,
acquisitions, public and private financings and corporate strategy for
life science companies such as AstraZeneca, Bristol-Myers Squibb and
Genzyme, as well as others medical product and service companies.
Mr Lee received his Bachelor’s degree in Biochemical Engineering
with First Class Honors from University College London, where he was
awarded a Dean’s Commendation. He also received a Master of Business
Administration from the Massachusetts Institute of Technology’s Sloan
School of Management.
May Qingmei WANG
Senior Vice President, Business Development & Strategic
Alliances
Dr Wang, aged 60, 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.
50
INFORMATION ON SENIOR MANAGEMENT The Directors have pleasure in submitting to shareholders their report and
the audited financial statements for the year ended December 31, 2023.
DIVIDENDS
PRINCIPAL ACTIVITIES
The principal activity of the Company is that of a holding company of a
biopharmaceutical group with operations in China, the U.S. and Europe. It
is focused on the research, development, manufacture and marketing of
pharmaceutical products.
BUSINESS REVIEW
A 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 2023 (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”, “2023 Full
Year Results and Business Updates”, “2023 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 76 to 109 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 106 to
109 in the “Corporate Governance Report”. All such discussions form
part of this report. Further details are set out in the standalone 2023
Sustainability Report.
RESULTS
The Consolidated Statements of Operations are set out on page 116 and
show the Group’s results for the year ended December 31, 2023.
No interim dividend for the year ended December 31, 2023 was declared
and the Directors do not recommend the payment of a final dividend for
the year ended December 31, 2023.
RESERVES
Movements in the reserves of the Group during the year ended December
31, 2023 are set out in the Consolidated Statements of Changes in
Shareholders’ Equity on page 118.
CHARITABLE DONATIONS
Donations to charitable organizations by the Group during the year ended
December 31, 2023 amounted to approximately US$2.28 million (2022 –
approximately US$2.70 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 on
page 128.
SHARE CAPITAL
The share capital of the Company is set out in the Consolidated Balance
Sheets. Details of the ordinary shares of the Company (“Shares”) are set
out in note 16 to the Consolidated Financial Statements on page 133.
HUTCHMED (China) Limited 2023 Annual Report 51
DIRECTORS’ REPORT DIRECTORS
The Directors of the Company as of December 31, 2023 were:
Executive Directors:
TO Chi Keung, Simon
Weiguo SU
CHENG Chig Fung, Johnny
Non-executive Directors:
Dan ELDAR
Edith SHIH
Ling YANG
Independent Non-executive Directors:
Paul Rutherford CARTER
Graeme Allan JACK
MOK Shu Kam, Tony
The following changes to the Board composition were effected during
2023 and prior to the date of this report:
(i)
Dr Karen Jean Ferrante retired as an Independent Non-executive
Director, member of Audit Committee and Chairman of Technical
Committee on May 12, 2023;
(ii)
Professor Tony Mok was appointed as member of Audit Committee
and Chairman of Technical Committee on May 12, 2023;
(iii) Mr Lefei Sun resigned as a Non-executive Director and member of
Technical Committee on July 13, 2023; and
(iv) Ms Ling Yang was appointed as a Non-executive Director on July 13,
2023.
Dr Karen Jean Ferrante and Mr Lefei Sun have confirmed that they have
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.
Ms Ling Yang, who was appointed on July 13, 2023, will hold office until
the forthcoming general meeting pursuant to Article 89(3) of the Articles
of Association of the Company and, being eligible, will offer herself for re-
election at the 2024 annual general meeting (“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, Ms Ling Yang, Mr Paul Rutherford
Carter, Mr Graeme Allan Jack and Professor Mok Shu Kam, Tony will all
retire at the 2024 AGM and, being eligible, will offer themselves for re-
election by shareholders.
The Company has received written confirmation from all Independent
Non-executive Directors affiriming their independence in accordance with
the criteria 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 46.
DIRECTORS’ SERVICE CONTRACT
None of the Directors of the Company who are proposed for re-election at
the 2024 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.
52
DIRECTORS’ REPORT CONNECTED TRANSACTIONS
During the year ended December 31, 2023 and up to the date of this
report, the Group conducted the following connected transactions, in
respect of which an announcement dated December 7, 2023 was issued in
compliance with Chapter 14A of the HK Listing Rules.
On December 7, 2023, HUTCHMED Group Investment Limited (“HGIL”,
a wholly-owned subsidiary of the Company) and Hutchison Whampoa
(China) Limited (“HWCL”, an indirect subsidiary of CK Hutchison
Holdings Limited (“CKHH”)) entered into the share sale and purchase
agreement relating to the disposal by HGIL of its (i) 100% interest in
Hutchison Organic Investment Holdings Limited (“HOIHL”, through which
the Company indirectly held its 50% interest in its consolidated joint
venture, Hutchison Hain Organic (Hong Kong) Limited (“HHOHK”)) and
(ii) 100% interest in HUTCHMED Consumer Products Holdings Limited
(“HCPHL”, through which the Company indirectly held its 100% interest in
HUTCHMED Science Nutrition Limited), for an aggregate purchase price of
HK$39.8 million (US$5.1 million) (the “Disposal”). Closing of the Disposal
took place on the same date.
As the core business of the Group is the discovery and global development
and commercialization of targeted therapies and immunotherapies for
the treatment of cancer and immunological diseases, the disposal by HGIL
of its interest in HOIHL and HCPHL, which held the Group’s consumer
products business, will allow the Group to focus resources on its core
business areas.
As at December 7, 2023, Hutchison Healthcare Holdings Limited (“HHHL”)
held approximately 38.16% of the shares in the Company. As HWCL is the
holding company of HHHL, HWCL is a connected person of the Company,
and the Disposal constituted a connected transaction of the Company
under Chapter 14A of the HK Listing Rules.
As one or more of the applicable percentage ratios in respect of the
Disposal exceed 0.1% but all (other than the profits ratio) are less than 5%,
the Disposal is subject to the reporting and announcement requirements
but is exempt from the circular and independent shareholders’ approval
requirements under Chapter 14A of the HK Listing Rules.
CONTINUING CONNECTED
TRANSACTIONS
1.
Supply of Products by the Group to AS Watson Group and Provision
of Associated Marketing Services by AS Watson Group
During the year ended December 31, 2023, from time to time, the
Group supplied products to AS Watson Holdings Limited (“AS
Watson”), an indirect subsidiary of CKHH, and/or its subsidiaries
(“AS Watson Group”), including the retail grocery and pharmacy
chains, ParknShop (HK) Limited (“PARKnSHOP”) and AS Watson
Retail (HK) Limited, which are owned and operated by AS Watson.
In connection with the supply and sale of the products by the
Group, AS 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 AS Watson (the “AS Watson
Framework Connected Transactions Agreement”) on June 15, 2021
to govern all existing and future supply of products by the Group
to the AS Watson Group and the associated provision of marketing
services by the AS Watson Group to the Group.
According to the terms of the AS Watson Framework Connected
Transactions Agreement, it is set to continue in effect until
December 31, 2023 and would be automatically renewed 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 AS Watson
Framework Connected Transactions Agreement. Following the
closing of the Disposal, the AS Watson Framework Connected
Transactions Agreement has been terminated.
In relation to the supply of products by the Group, the maximum
annual transaction amount receivable by the Group from AS
Watson Group for the financial years 2021, 2022 and 2023 (as
disclosed in the prospectus of the Company dated June 18, 2021
regarding the public offering of its shares on The Stock Exchange
of Hong Kong Limited (“HKEX”), the “Prospectus”) would 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
AS Watson Group to the Group, the maximum annual transaction
amount payable by the Group to AS Watson Group for the financial
years 2021, 2022 and 2023 (as disclosed in the Prospectus) would
not exceed US$1.25 million, US$1.50 million and US$1.79 million,
respectively.
HUTCHMED (China) Limited 2023 Annual Report 53
As AS 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 the AS Watson Group and the provision of associated
marketing services by the AS Watson Group to the Group
constituted continuing connected transactions of the Company.
2.
Product Labeling Services
The Company has entered into the AS Watson Framework
Connected Transactions Agreement with AS Watson (as described
above), which provides for the provision of product labeling
services by the AS Watson Group, whereby 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 AS Watson Group.
The maximum annual transaction amount payable by the Group
to the AS Watson Group for the financial years 2021, 2022 and 2023
(as disclosed in the Prospectus) would not exceed US$0.66 million,
US$0.79 million and US$0.95 million, respectively.
Following the closing of the Disposal, the AS Watson Framework
Connected Transactions Agreement has been terminated.
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.
According to the terms of the Framework Travel Services
Agreement, it is set to continue in effect until December 31, 2023
and would be automatically renewed 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.
The Company has terminated the Framework Travel Services
Agreement.
The maximum annual service fees payable by the Group to the
Hutchison Travel Group for the financial years 2021, 2022 and 2023
(as disclosed in the Prospectus) would 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 the Hutchison Travel Group to the Group constituted
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 would 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 would consist of the actual cost of the raw materials,
packaging materials, manufacturing expenses, amortization of and
die expenses, variation and logistics. HHOHK would 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.
54
DIRECTORS’ REPORT The maximum annual transaction amount to be recorded by the
Group from Hain Celestial for the financial years 2021, 2022 and
2023 (as disclosed in the Prospectus) would not exceed US$23.14
million, US$27.76 million and US$33.32 million, respectively.
Until the closing of the Disposal on December 7, 2023, Hutchison
Hain Organic Holdings Limited (“Hutchison Hain Organic”) was
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 was 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 constituted continuing connected transactions of the
Company under the HK Listing Rules.
Upon closing of the Disposal on December 7, 2023, the previously
existing Hain Products Supply Agreement which was entered
into between HHOHK and Hain Celestial, no longer constitutes
continuing connected transactions of the Group.
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.
According to the terms of the Framework Sinopharm Products
Supply and Purchase Agreement, it is set to continue in effect until
December 31, 2023 and would be automatically renewed 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, the
maximum annual transaction amount receivable by the Group
from Sinopharm and/or its associates for the financial years 2021,
2022 and 2023 (as disclosed in the Prospectus) would 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, the maximum
annual transaction amount payable by the Group to Sinopharm
and/or its associates for the financial years 2021, 2022 and 2023
(as disclosed in the Prospectus) would 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.
In anticipation of the expiration of the Framework Sinopharm
Products Supply and Purchase Agreement on December 31, 2023,
the Company renewed with Sinopharm the Framework Sinopharm
Products Supply and Purchase Agreement with effect from January
1, 2024 for a period of three years up to and including December 31,
2026.
6.
HBYS Brand License Royalty Agreement
Hutchison Chinese Medicine Holding Limited (“HCMHL”, a
subsidiary of the Company) entered into a brand license royalty
agreement (as amended and restated) (“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.
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.
In anticipation of the HBYS Brand License Royalty Agreement on
December 31, 2023, HCMHL renewed with HWEL the HBYS Brand
License Royalty Agreement with effect from January 1, 2024 for a
period of three years up to and including December 31, 2026.
HUTCHMED (China) Limited 2023 Annual Report 55
The Group believes that the entering into of the transactions under the AS 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 “2023 CCTs”) will help to achieve business continuity and efficiency.
The annual caps of the 2023 CCTs in respect of the year ended December 31, 2023 and the corresponding aggregate transaction amounts for the year are
set out below:
2023 CCTs
(1) (a)
(b)
(2)
(3)
(4)
(5) (a)
(b)
(6)
Notes:
Supply of products by the Group under the AS Watson Framework Connected
Transactions Agreement (Note 1)
Provision of marketing services by AS Watson Group under the AS Watson Framework
Connected Transactions Agreement (Note 1)
Provision of product labelling services by AS Watson Group under the AS Watson
Framework Connected Transactions Agreement (Note 1)
Provision of travel services by Hutchison Travel Group under the Framework Travel
Services Agreement (Note 2)
Provision of marketing, distribution and sale services by the Group under the Hain
Products Supply Agreement (Note 3)
Supply of products by the Group under the Framework Sinopharm Products Supply
and Purchase Agreement (Note 4)
Purchase of products by the Group under the Framework Sinopharm Products Supply
and Purchase Agreement (Note 4)
HBYS Brand License Royalty Agreement (Note 4)
Aggregate amount
for year ended
December 31, 2023
(US$ millions)
Cap Amount
(US$ millions)
1.91
0.15
0.09
0.01
4.25
100.23
3.57
1.54
17.94
1.79
0.95
2.25
33.32
335.78
5.88
1.54
(1)
The AS Watson Framework Connected Transactions Agreement was terminated upon closing of the Disposal.
(2)
The Framework Travel Services Agreement was expired.
(3)
The Hain Products Supply Agreement remains in effect but no longer constitutes transactions of the Group upon closing of the Disposal on December 7, 2023.
(4)
The Framework Sinopharm Products Supply and Purchase Agreement as well as the HBYS Brand License Royalty Agreement were renewed on December 21, 2023.
The internal audit of the Group has reviewed the 2023 CCTs for the year ended December 31, 2023 and the relevant internal control procedures in respect
of the negotiation, review, approval, agreement management, reporting, consolidation and monitoring process of the 2023 CCTs, and is of the view that
the 2023 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 2023 CCTs are sound and effective.
All the Independent Non-executive Directors of the Company, having reviewed the 2023 CCTs for the year ended December 31, 2023 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.
56
DIRECTORS’ REPORT
The Company has engaged its external auditor, PricewaterhouseCoopers,
to report on the 2023 CCTs for the year ended December 31, 2023 in
accordance with Hong Kong Standard on Assurance Engagements 3000
(Revised) “Assurance Engagements Other Than Audits or Reviews of
Historical Financial Information” and with reference to Practice Note 740
“Auditor’s Letter on Continuing Connected Transactions under the Hong
Kong Listing Rules” issued by the Hong Kong Institute of Certified Public
Accountants. Based on the work performed, the external auditor of the
Company has confirmed in its letter to the Board that nothing has come
to its attention which causes it to believe that:
(i)
the 2023 CCTs have not been approved by the Board;
(ii)
(iii)
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;
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 2023 CCTs, the
2023 CCTs have exceeded the annual cap as set by the Company.
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, 2023 and as of the date of
this report.
DIRECTORS’ AND CHIEF
EXECUTIVES’ INTERESTS AND
SHORT POSITIONS IN SHARES,
UNDERLYING SHARES AND
DEBENTURES
Related party transactions of the Group during the year ended December
31, 2023 are described in note 24 to the financial statements. Except as
disclosed above, none of such related party transactions constitutes a
non-exempted connected transaction under the HK Listing Rules.
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 47 to 48.
HUTCHMED (China) Limited 2023 Annual Report 57
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, 2023, 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 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
Capacity
Number of Shares
Held/Interested
Total
L/S (1)
Approximate% of
Shareholding
Names
CKHH(2)
Interest of controlled corporations
332,574,650
332,574,650
CK Hutchison Global Investments Limited (“CKHGIL”)(2)
Interest of controlled corporations
332,574,650
332,574,650
HWCL(2)
HHHL(2)
Deutsche Bank Aktiengesellschaft (3)
Notes:
(1)
Long Position (L) / Short Position (S)
Interest of controlled corporations
332,526,710
332,526,710
Beneficial owner
332,478,770
332,478,770
Depositary
109,852,740)
109,852,740)
Approved lending agent
15,500)
)
109,868,240
)
109,852,740
(L)
(L)
(L)
(L)
(L)
(S)
(L)
(L)
(S)
38.17%
38.17%
38.17%
38.16%
12.61%
12.61%
(2)
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 held by HHHL and is deemed to be interested in the Company; CKHGIL is deemed to be interested in
the Shares held by HWCL and is deemed to be interested in the Company; and CKHH is deemed to be interested in the Shares held by CKHGIL and is deemed to be
interested in the Company.
(i) 332,478,770 Shares were held by HHHL; (ii) 2,397 ADSs (each representing five Shares) were held by Hutchison Capital Holdings Limited (“HCHL”); (iii) 2,397 ADSs
were 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.
(3)
Deutsche Bank Aktiengesellschaft had an interests in an aggregate of 109,868,240 Shares (long position) and 109,852,740 Shares (short position) in the Company. This
included the interests of Deutsche Bank Trust Company Americas acting in its capacity as a depositary of the American depositary receipts program of the Company.
Save as disclosed above, as at December 31, 2023, 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.
58
DIRECTORS’ REPORT
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).
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.
HUTCHMED (China) Limited 2023 Annual Report 59
(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;
60
DIRECTORS’ REPORT (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, 2023 (being
the beginning of the financial year) and December
31, 2023 (being the end of the financial year), the
total number of the shares available for grant under
the 2015 Share Option Scheme were 9,750,633 and
12,624,443 respectively. As at February 28, 2024 (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 42,161,098, representing
approximately 4.84% 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
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.
HUTCHMED (China) Limited 2023 Annual Report 61
Particulars of share options outstanding under the 2015 Share Option Scheme at the beginning and at the end of the year 2023 and share options
granted, exercised, canceled or lapsed under the 2015 Share Option Scheme during 2023 were as follows:
Number of
share options
held as at
January 1,
2023
Granted
during the
year ended
December 31,
2023
Exercised
during the
year ended
December 31,
2023
Date of grant
of share
options
Lapsed/
canceled
during the
year ended
December 31,
2023
Number of
share options
held as at
December 31,
2023
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(322,925)
(=64,585 ADS)
(9,900)
(=1,980 ADS)
(3,000,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,000,000
1,000,000
Apr 28, 2020
to Apr 27, 2030
Dec 14, 2020
to Dec 13, 2030
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
61,700
(=12,340 ADS)
Jun 5, 2023
to Jun 4, 2033
US$22.090
per ADS
US$29.000
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$12.510
per ADS
US$21.920
per ADS
US$28.160
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
US$12.667
per ADS
N/A
N/A
(6)
£2.560
per share
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Name or
category of
participants
Director
Christian
Lawrence
HOGG (1)
Apr 28, 2020 (3)
Dec, 14 2020 (3)
322,925
(=64,585 ADS)
9,900
(=1,980 ADS)
Weiguo SU
Jun 15, 2016 (2)
3,000,000
Mar 27, 2017 (3)
1,000,000
Mar 19, 2018 (3)
1,000,000
Apr 28, 2020 (3)
789,700
(=157,940 ADS)
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)
18,960
(=3,792 ADS)
282,400
(=56,480 ADS)
24,930
(=4,986 ADS)
861,220
(=172,244 ADS)
401,900
(=80,380 ADS)
240,500
(=48,100 ADS)
446,600
(=89,320 ADS)
CHENG Chig
Fung, Johnny
Jun 5, 2023 (3)
–
61,700
(=12,340 ADS)
62
DIRECTORS’ REPORT
Number of
share options
held as at
January 1,
2023
Granted
during the
year ended
December 31,
2023
Date of grant
of share
options
Lapsed/
canceled
during the
year ended
December 31,
2023
Number of
share options
held as at
December 31,
2023
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
Employees in
aggregate
Exercised
during the
year ended
December 31,
2023
(2,736,860)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Jun 15, 2016
to Dec 19, 2023
–
–
–
3,840,760
122,450
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
(375,000)
–
(175,000)
80,000
–
100,000
(80,000)
1,060,000
–
–
400,000
185,000
(666,000)
(=133,200 ADS)
5,809,700
(=1,161,940 ADS)
255,000
(=51,000 ADS)
(80,000)
(=16,000 ADS)
(285,000)
(=57,000 ADS)
917,010
(=183,402 ADS)
Dec 14, 2020
to Dec 13, 2030
(756,300)
(=151,260 ADS)
4,694,700
(=938,940 ADS)
Mar 26, 2021
to Mar 25, 2031
(505,000)
(=101,000 ADS)
(371,385)
(=74,277 ADS)
326,000
(=65,200 ADS)
412,625
(=82,525 ADS)
Sep 1, 2021
to Aug 31, 2031
Dec 14, 2021
to Dec 13, 2031
(83,500)
(=16,700 ADS)
(1,009,200)
(=201,840 ADS)
3,385,300
(=677,060 ADS)
May 23, 2022
to May 22, 2032
–
–
(75,000)
(=15,000 ADS)
1,675,000
(= 335,000 ADS)
Sep 13, 2022
to Sep 12, 2032
(15,000)
(=3,000 ADS)
1,145,200
(=229,040 ADS)
Jun 5, 2023
to Jun 4, 2033
–
1,160,200
(=232,040 ADS)
Jun 15, 2016 (2)
2,736,860
Apr 20, 2018 (3)
3,840,760
Jun 6, 2018 (3)
122,450
Aug 6, 2018 (3)
375,000
Oct 19, 2018 (3)
255,000
May 21, 2019 (3)
100,000
Oct 9, 2019 (3)
1,140,000
Dec 11, 2019 (3)
400,000
Apr 20, 2020 (3)
185,000
6,475,700
(=1,295,140 ADS)
335,000
(=67,000 ADS)
1,202,010
(=240,402 ADS)
5,451,000
(=1,090,200 ADS)
831,000
(=166,200 ADS)
784,010
(=156,802 ADS)
4,478,000
(=895,600 ADS)
1,750,000
(= 350,000 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)
Jun 5, 2023 (3)
£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
US$12.510
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
US$12.667
per ADS
(6)
£2.356
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
(6)
US$19.072
per ADS
N/A
N/A
Total:
38,860,825
1,221,900
(5,820,360)
(4,725,710)
29,536,655
HUTCHMED (China) Limited 2023 Annual Report 63
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 weighted average closing price of the
Shares immediately before the dates on which the share options
were exercised.
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)
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$5.68
US$12.51
US$12.51
53.30%
3.69%
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
2023 financial year divided by the weighted average number of
ordinary shares in issue for the year was 0.14%.
As at December 31, 2023, the Company had 29,536,655 share
options outstanding under the 2015 Share Option Scheme.
(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.
64
DIRECTORS’ REPORT A summary of the 2005 Share Option Scheme is as follows:
(5)
(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.
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:
(a)
the total number of the shares which may be issued
upon the exercise of all share options to be granted
under all share option schemes of the Company must
not in aggregate exceed 5% of the shares in issue on
the date on which the shares are listed for trading on
a recognized stock exchange (including the AIM) (the
“Listing”);
HUTCHMED (China) Limited 2023 Annual Report 65
(b)
(c)
(d)
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 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, 2024 (being the date of this annual report), no shares are available for issue under the 2005 Share Option Scheme,
which lapsed in 2016. Furthermore, all outstanding share options have been fully exercised;
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.
(8)
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.
Particulars of share options outstanding under the 2005 Share Option Scheme at the beginning and at the end of the year 2023 and share options
granted, exercised, canceled or lapsed under the 2005 Share Option Scheme during 2023 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)
2023
660,570
660,570
2023
–
–
2023
(660,570)
(660,570)
2023
2023
share options
share options
share options
–
–
–
–
Dec 20, 2013
to Dec 19, 2023
£0.610
per share
£0.613
(2)
per share
Price of shares
Prior to the
exercise
date of
share
options (3)
£2.577
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 weighted average closing price of the Shares immediately before the dates on which the share options were exercised.
As the 2005 Share Option Scheme expired on June 3, 2016, no options were granted under the 2005 Share Option Scheme during the year and
there were no outstanding share options remaining under the 2005 Share Option Scheme.
66
DIRECTORS’ REPORT
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
Mainly 25% of the LTIP
Independent Non-executive Directors and certain
employees
by 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.
(4)
(5)
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 income/(loss) after taxes and the achievement of clinical, regulatory, business development and manufacturing
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.
HUTCHMED (China) Limited 2023 Annual Report 67
(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, 2024 (being the date of this annual report),
37,947,822 Shares, representing 4.39% 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 1 year as at the date of this report.
Particulars of LTIP Awards balance at the beginning and at the end of the year 2023 and LTIP Awards granted, vested, canceled or lapsed under the LTIP
during 2023 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
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
of grant
2023 (2)
2023
2023 (3)
2023
2023
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
Apr 20, 2020
N/A (7)
US$200,000
4,794 ADS
–
(2,397 ADS)
–
2,397 ADS
25% of LTIP Awards
N/A
US$16.81
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
5,814 ADS
–
(1,938 ADS)
–
3,876 ADS
25% of LTIP Awards
N/A
US$17.28
Name or
category of
Participants
Director
TO Chi Keung,
Simon (6)
Christian Lawrence
HOGG (8)
Weiguo SU
Apr 20, 2020
2020
US$1,580,193
56,634 ADS
Apr 20, 2020
Mar 26, 2021
May 23,2022
2020
2021
2022
US$1,407,120
50,431 ADS
US$1,622,123
93,545 ADS
US$3,232,845
– (14)
–
–
–
–
Jun 5, 2023
2023
US$3,289,770
To be
(9) US$3,289,770
determined
(56,634 ADS)
(50,431 ADS)
–
–
–
–
–
–
–
–
–
–
93,545 ADS
–
–
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Mar 3, 2023
Mar 3, 2023
Mar 4, 2024
All LTIP Awards will
vest in Feb/Mar 2025
N/A
N/A
N/A
N/A
All LTIP Awards will
US$12.50
vest in Feb/Mar 2026
US$17.35
US$17.35
N/A
N/A
N/A
68
DIRECTORS’ REPORT
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
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
of grant
2023 (2)
2023
2023 (3)
2023
Name or
category of
Participants
CHENG Chig
Fung, Johnny
Apr 20, 2020
Mar 26, 2021
May 23, 2022
2020
2021
2022
US$640,443
22,953 ADS
US$657,211
15,141 ADS
US$680,242
– (14)
–
–
–
Jun 5, 2023
2023
US$698,224
To be
(9)
US$698,224
determined
(22,953 ADS)
–
–
–
Dan ELDAR
Apr 20, 2020
N/A (7)
US$200,000
4,794 ADS
–
(2,397 ADS)
Price of
ADS prior
to the
grant date
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
Mar 3, 2023
Mar 4, 2024
All LTIP Awards will
vest in Feb/Mar 2025
N/A
N/A
N/A
All LTIP Awards will
US$12.50
vest in Feb/Mar 2026
Price of
ADS prior
to the
vesting
date of
LTIP
Awards (5)
US$17.35
N/A
N/A
N/A
LTIP
Awards
as at
2023
–
15,141 ADS
–
–
–
–
–
–
–
2,397 ADS
25% of LTIP Awards
N/A
US$16.81
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
5,814 ADS
–
(1,938 ADS)
–
3,876 ADS
25% of LTIP Awards
N/A
US$17.28
vesting on each of
Oct 20, 2021,
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024
Edith SHIH (10)
Apr 20, 2020
N/A (7)
US$200,000
4,794 ADS
–
(2,397 ADS)
–
2,397 ADS
25% of LTIP Awards
N/A
US$16.81
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
5,814 ADS
–
(1,938 ADS)
–
3,876 ADS
25% of LTIP Awards
N/A
US$17.28
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
HUTCHMED (China) Limited 2023 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
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
of grant
2023 (2)
2023
2023 (3)
2023
2023
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)
4,075 ADS
–
(2,037 ADS)
–
2,038 ADS
25% of LTIP Awards
N/A
US$16.81
CARTER
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)
4,941 ADS
–
(1,647 ADS)
–
3,294 ADS
25% of LTIP Awards
N/A
US$17.28
Karen Jean
FERRANTE (13)
Apr 20, 2020
N/A (7)
US$200,000
4,794 ADS
–
(2,397 ADS)
(2,397 ADS)
Oct 20, 2021
N/A (7)
US$250,000 (12)
4,941 ADS
–
–
(4,941 ADS)
–
–
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
25% of LTIP Awards
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
25% of LTIP Awards
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
N/A
US$16.81
N/A
N/A
Graeme Allan JACK
Apr 20, 2020
N/A (7)
US$200,000
4,794 ADS
–
(2,397 ADS)
–
2,397 ADS
25% of LTIP Awards
N/A
US$16.81
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
5,814 ADS
–
(1,938 ADS)
–
3,876 ADS
25% of LTIP Awards
N/A
US$17.28
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
70
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
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
of grant
2023 (2)
2023
2023 (3)
2023
2023
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
4,794 ADS
–
(2,397 ADS)
–
2,397 ADS
25% of LTIP Awards
N/A
US$16.81
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Other employees
in aggregate
Oct 20, 2021
N/A (7)
US$250,000
5,814 ADS
–
(1,938 ADS)
–
3,876 ADS
25% of LTIP Awards
N/A
US$17.28
vesting on each of
Oct 20, 2022,
Oct 20, 2023,
Oct 20, 2024,
Oct 20, 2025
Apr 20, 2020
N/A (7)
US$650,000
6,406 ADS
–
(3,203 ADS)
–
3,203 ADS
25% of LTIP Awards
N/A
US$16.81
Apr 20, 2020
Aug 12, 2020
Mar 26, 2021
Sep 1, 2021
Sep 1, 2021
2020
2020
2021
2021
US$33,725,090
739,303 ADS
US$2,171,022
27,626 ADS
US$55,031,831
2,212,398 ADS
US$7,279,340
210,589 ADS
N/A (7)
US$503,077
9,333 ADS
Dec 14, 2021
N/A (7)
US$100,000
2,295 ADS
–
–
–
–
–
–
vesting on each of
Apr 20, 2021,
Apr 20, 2022,
Apr 20, 2023,
Apr 20, 2024
Mar 3, 2023
Mar 3, 2023
Mar 4, 2024
Mar 4, 2024
(718,913 ADS)
(20,390 ADS)
(27,626 ADS)
–
–
–
–
–
(233,599 ADS) 1,978,799 ADS
(86,546 ADS)
124,043 ADS
(3,110 ADS)
–
6,223 ADS
25% of LTIP Awards
vesting on each of
Sep 1, 2022,
Sep 1, 2023,
Sep 1, 2024,
Sep 1, 2025
N/A
N/A
N/A
N/A
N/A
US$17.35
US$17.35
N/A
N/A
US$15.02
–
(2,295 ADS)
–
25% of LTIP Awards
N/A
N/A
vesting on each of
Dec 14, 2022,
Dec 14, 2023,
Dec 14, 2024,
Dec 14, 2025
HUTCHMED (China) Limited 2023 Annual Report 71
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
January 1,
December 31,
December 31,
December 31,
December 31,
Awards
period (1)
of grant
2023 (2)
2023
2023 (3)
2023
2023
Vesting Period
of LTIP Awards
of LTIP
Awards (4)
LTIP
Awards (5)
May 23, 2022
2022
US$56,484,593
963,781 ADS
Sep 13, 2022
2022
US$3,789,159
68,546 ADS
Sep 13, 2022
N/A (7)
US$1,730,000
128,863 ADS
–
–
–
–
–
(62,288 ADS)
901,493 ADS
All LTIP Awards will
vest in Feb/Mar 2025
(14,123 ADS)
54,423ADS
All LTIP Awards will
vest in Feb/Mar 2025
(32,215 ADS)
(12,849 ADS)
83,799
25% of LTIP Awards
N/A
N/A
N/A
N/A
N/A
US$14.88
vesting on each of
Sep 13, 2023,
Sep 13, 2024,
Sep 13, 2025,
Sep 13, 2026
Jun 5, 2023
2023
US$50,947,774
To be
(9) US$50,947,774
–
–
–
All LTIP Awards will
US$12.50
N/A
determined
4,679,635 ADS
(942,841 ADS)
(439,428 ADS) 3,297,366 ADS
vest in Feb/Mar 2026
Apr 20, 2020
Mar 26, 2021
May 23, 2022
2020
2021
2022
US$3,016,841
87,278 ADS
US$3,400,909
147,347 ADS
US$5,170,292
49,637 ADS
Sep 13, 2022
2022
US$480,176
7,362 ADS
Sep 13, 2022
N/A (7)
US$1,500,000
111,731 ADS
–
–
–
–
–
(87,278 ADS)
–
–
–
(27,932 ADS)
Jun 5, 2023
2023
US$6,264,425
To be
(9) US$6,264,425
–
determined
403,355 ADS (15)
(115,210 ADS)
–
–
–
–
–
–
–
–
147,347 ADS
Mar 3, 2023
Mar 4, 2024
49,637 ADS
All LTIP Awards will
vest in Feb/Mar 2025
7,362 ADS
All LTIP Awards will
vest in Feb/Mar 2025
83,799 ADSs
25% of LTIP Awards
N/A
N/A
N/A
N/A
N/A
US$17.35
N/A
N/A
N/A
US$14.88
vesting on each of
Sep 13, 2023,
Sep 13, 2024,
Sep 13, 2025,
Sep 13, 2026
–
All LTIP Awards will
US$12.50
N/A
vest in Feb/Mar 2026
288,145 ADS
Name or
category of
Participants
Total:
Five highest
paid individuals
during 2023
Total:
72
DIRECTORS’ REPORT
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
For annual performance based award, performance targets may include
targets for shareholder returns, financings, revenues, net income/(loss) after
taxes, and the achievement of clinical, regulatory, business development
and manufacturing 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 2023.
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 2023.
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 2023.
(10)
These ADSs were not received by Ms Edith Shih, but were received by or for
the account of her employer, Hutchison International Limited.
(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, 2023) 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.
(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, 2023) 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. Unvested LITP Awards of Dr Jean Karen Ferrante were lapsed
upon her retirement on May 12, 2023.
(13)
Dr Karen Jean Ferrante retired as Independent Non-executive Director of the
Company on May 12, 2023.
(14)
(15)
The Director did not achieve the performance targets set under the LTIP
Awards, resulting in no shares being allocated to him.
The total amount of unvested LTIP Awards as at January 1, 2023 does not
include ADSs to be determined according to the actual achievement of the
performance targets in 2023.
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 income/(loss) after taxes and the achievement of clinical, regulatory,
business development and manufacturing 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 2023 were US$54,935,768. For those LTIP Awards stipulating
performance targets based on the estimated achievement of performance
conditions for 2023 financial year, the fair value was US$50,261,626 which
is recognized to share-based compensation expense over the requisite
vesting period.
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.
PURCHASE, SALE OR
REDEMPTION OF LISTED
SECURITIES
During the year ended December 31, 2023, neither the Company nor
any of its subsidiaries has purchased, sold or redeemed any of the listed
securities of the Company during the year.
HUTCHMED (China) Limited 2023 Annual Report 73
PRE-EMPTIVE RIGHTS
AUDITORS
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 2023 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:
Percentage of total
revenue of the Group
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 2024 AGM will be held on Friday, May 10, 2024 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
The largest customer
Five largest customers combined
42%
64%
Edith Shih
Director and Company Secretary
As at December 31, 2023, 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.
February 28, 2024
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.
74
DIRECTORS’ REPORT
THE BOARD
CORPORATE MISSION, VISION, VALUES AND CULTURE
The Group’s core mission is to discover, develop and bring innovative
medicines for patients worldwide. Its vision is to be a leading innovative
biopharmaceutical company to improve lives globally, driven by medical
need. At the same time, being innovative, pragmatic, collaborative and
efficient are the essential values of the Group.
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,
2023 with all applicable code provisions of the Hong Kong Corporate
Governance Code (“HK CG Code”) contained in Appendix C1 (formerly
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”).
76
CORPORATE GOVERNANCE REPORT MISSION
To discover, develop and bring innovative medicines to
patients worldwide
VISION
To be a leading innovative biopharmaceutical company to
improve lives globally, driven by medical need
VALUES
INNOVATIVE
With innovation at the core of everything the Group does,
it discovers and develops novel, differentiated medicines
to address unmet medical needs.
The Group is driven by science to provide effective, safe,
advanced new treatments at world-class standards for
patients in need around the world.
EFFICIENT
The Group is committed to
responsibilities and promises as it
strives for greater effectiveness and
accountability.
The Group makes conscious
decisions on how it uses its
resources as it grows a productive
and top-notch drug discovery,
development and commercialization
that shapes the sustainable
organization.
Innovative
Efficient
Pragmatic
Collaborative
COLLABORATIVE
Guided by corporate strategy, the Group encourages
cross-functional collaboration and communication to
foster a culture of trust and support, where each member
of the team is empowered to take ownership of their work
and support one another to achieve collective goals.
To drive greater value to unmet medical needs, the Group
leverages the rapid advances of the industry by forming
broad and deep collaborations with mutual benefits.
PRAGMATIC
While striving to develop the
best outcomes for patients, the
Group maintains the highest
ethical and professional standards
of truthfulness, integrity and
accountability. It conducts business
responsibly, in full compliance with
all regulations.
The Group is committed to continue
to grow business in a sustainable
and conscious manner, managing
everything it does rationally, with
reason and sense. This will lead the
Group to realize the full potential of
its products, brands and business.
HUTCHMED (China) Limited 2023 Annual Report 77
CORPORATE CULTURE
–
–
–
Effective and Accessible Whistleblowing Framework: A strong
whistleblowing framework is crucial for detecting and addressing
impropriety, misconduct or malpractice within the Group.
The Board ensures the effectiveness and accessibility of the
whistleblowing framework, allowing employees and those who deal
with the Group to report concerns confidentially and without fear
of retaliation. This fosters a culture that encourages transparency,
ethical behavior and accountability.
Legal and Regulatory Compliance: The Board, supported by the
Company Secretary, has overall responsibility to oversee legal
and regulatory compliance within the Group. Regular reviews and
assessments are conducted to ensure the Group’s compliance with
applicable laws and regulations. By setting a strong tone at the top
and emphasizing the importance of compliance, the Board fosters
a culture that embodies legal and ethical standards, promoting
trust, integrity and responsible decision-making. Employees are
expected to follow the Code of Ethics and group policies that reflect
the values and corporate culture of the Group.
Staff Health, Safety, Wellbeing and Support: The Group places
a high priority on creating and maintaining a workplace culture
that is safe, healthy and supportive. The Group establishes
comprehensive governance, policies and procedures to ensure a
zero harm working environment. The Group also actively promotes
diversity and inclusivity within its workforce. In addition, the Group
implements initiatives that promote and support work life balance,
and provides resources for employee wellness.
From the Board annual 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.
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 Groups 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 encompasses a
range of measures and tools over time, including:
Active Collaboration: The Group encourages collaboration across
different functions, teams and levels to promote understanding,
cooperation and diversity of thought. This collaborative approach
fuels innovation and creativity, providing employees with an
environment where they can truly thrive and flourish, thereby
contributing to the sustainable growth of the Group.
Workforce Engagement: This involves fostering a culture of open
communication, transparency, and collaboration throughout the
Group. Core businesses undertake employee engagement activities
regularly to collect feedback and identify areas for improvement.
For example, employee survey is generally conducted annually.
These interactions help gauge overall employee sentiment and
alignment with the core values of the Group.
Employee Retention and Training: The Board oversees initiatives
related to overall employee retention and training. This includes
developing and implementing programs that promote growth
opportunities and career progression for employees at all levels,
and creating a positive work environment. The Group provides
induction sessions for new joiners to ensure they understand and
embrace the desired culture, values and expectation of the Group.
This is also supported by the Group’s comprehensive performance
management and reward process to ensure equity, engagement
and retention.
Stringent Financial Reporting: The Group maintains a robust
financial reporting system to provide accurate and transparent
financial information to stakeholders. This commitment promotes
a culture of integrity, accountability and ethical behaviour
throughout the Group.
–
–
–
–
78
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 of employees 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.
The Board currently comprises nine Directors, including the Chairman,
CEO and Chief Scientific Officer (the “CSO”), Chief Financial Officer
(the “CFO”), three Non-executive Directors and three Independent
Non-executive Directors (one of whom is the Senior Independent
Non-executive Director). Throughout 2023, 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 May 12, 2023, Dr Karen Jean Ferrante retired as an Independent
Non-executive Director.
(2) On July 13, 2023, Mr Lefei Sun resigned as a Non-executive Director.
On the same date, Ms Ling Yang was appointed as a Non-executive
Director.
Biographical details of the Directors are set out in the section of
“Information on Directors” on pages 43 to 46 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 the
Chairman and the CEO.
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 2023 Annual Report 79
In 2023, the Company held five Board meetings with overall attendance
of approximately 94%. All Directors also attended the annual general
meeting of the Company (“AGM”) held on May 12, 2023, except for one
Independent Non-executive Director who had prior overseas commitment.
The attendance record is set out below:
Board
Meetings
Attended/
Attendance
Eligible to
at 2023
Name of Director
attend
AGM
5/5
4/5
5/5
5/5
5/5
3/3
2/2
4/5
2/3
5/5
5/5
✔
✔
✔
✔
✔
✔
N/A
✔
X
✔
✔
Position
Chairman:
To Chi Keung, Simon
Executive Directors:
Weiguo Su
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Independent Non-executive
Directors:
Edith Shih
Lefei Sun (1)
Ling Yang (2)
Paul Rutherford Carter
Karen Jean Ferrante (3)
Graeme Allan Jack
Mok Shu Kam, Tony
Notes:
(1)
Resigned on July 13, 2023
(2)
Appointed on July 13, 2023
(3)
Retired on May 12, 2023
In addition to Board meetings, in 2023 the Chairman also met with the
Independent Non-executive Directors twice without the presence of other
Directors. 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.
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 developments 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 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. For
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 and applicable listing rules, a Director would abstain from
voting on resolutions approving any contract, transaction, arrangement
or any other kind of proposal put forward to the Board in which he/she or
any of his/her close associates is materially interested, and such Director
is not counted for quorum determination purposes.
80
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 as effective.
The Board is also 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 2024, the Board conducted a
review and considered that such mechanisms were properly implemented
during 2023 and were effective.
The current composition of the Board (comprising 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 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 98 to 101 of this report. Fees 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 granted to Independent Non-executive Directors in the
past were non-performance based, but such grants had been stopped
since 2022. 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 102 to 104 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 80 to 81 of this report). Each year,
the Chairman meets with the Independent Non-executive Directors twice
without the presence of other Directors, which provides an open agenda
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 discharge their responsibilities at the Board. Their
commitment is also subject to self-confirmation each year.
HUTCHMED (China) Limited 2023 Annual Report 81
TRAINING AND COMMITMENT
Upon appointment to the Board, Directors receive 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. In addition, from time to time, the Company organizes visits to its facilities (such as recently the new drug manufacturing facilities in Shanghai)
for both new and current Directors to facilitate their understanding of its business operations and production.
The Company arranges and provides Continuous Professional Development (“CPD”) training in the forms of formal training programmes, seminars,
workshops, expert briefings, webcasts and selected 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 40 hours had been provided to Directors in 2023.
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.
During 2023, CPD training was provided to Directors on the following areas and topics:
Areas
Legal and Regulatory
Topics
• Enforcement and disciplinary processes
• Regulatory updates from HKEX and the Securities and Futures Commission
• Financial services and tax policies
• De-SPAC transaction in Hong Kong
• Takeovers Code amendments
• Legal development in directors’ duties and ESG
Corporate Governance/Sustainability Practices
• Climate leadership in the context of Group businesses
• Sustainability trends and disclosures
• Regulations and reporting on diversity, equity and inclusion
• Global biodiversity framework
• Ethics anti-corruption policies and ethics training disclosure in ESG report
Financial Reporting/Risk Management
• Issuers’ financial statement disclosures
• Enforcement investigations and outcomes
• Corporate governance mosaic and financial reporting quality
Group’s Businesses/Directors’ Duties
• Roles and responsibilities of independent non-executive directors
• Tackling current governance and regulatory issues
Digital Information Technology
• Cybersecurity testing, policies and training
• AI and ChatGPT’s transformative impact on business and governance
82
CORPORATE GOVERNANCE REPORT
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:
Corporate
Governance/
Areas
Financial
Legal and
Sustainability
Reporting/Risk
Regulatory
Practices
Management
Group’s
Businesses/
Directors’
Duties
Digital/
Information
Technology
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Directors
Chairman:
To Chi Keung, Simon
Executive Directors:
Weiguo Su
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Edith Shih
Lefei Sun (1)
Ling Yang (2)
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante (3)
Graeme Allan Jack
Mok Shu Kam, Tony
Notes:
(1)
Resigned on July 13, 2023
(2)
Appointed on July 13, 2023
(3)
Retired on May 12, 2023
All Directors have confirmed that they have given sufficient time and attention to the affairs of the Group for throughout their tenure during the year
ended December 31, 2023. In addition, Directors disclose to the Company in a timely manner their other commitments, such as directorships in other
public listed companies and major appointments as well as update the Company on any subsequent changes.
HUTCHMED (China) Limited 2023 Annual Report 83
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
C3 (formerly Appendix 10) of the Hong Kong Listing Rules as the code of
conduct regulating Directors’ dealings in securities of the Company. In
summary, a Director who wishes to deal in the securities of the Company
must notify the Chairman (or a Director designated by the Board for such
specific purpose) in writing prior to any dealings and obtain a dated
written acknowledgement before any dealing. Any clearance to deal
granted in response to a Director’s request would be valid for no longer
than five business days of clearance being received. After dealings, the
Director must submit a disclosure of interests filing with respect to the
dealing, within one business day of transaction.
In response to specific enquiries made, all Directors have confirmed that
they have complied with the required standards set out in such code
regarding their securities transactions throughout their tenure during the
year ended December 31, 2023.
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, takes 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, values and strategy of the Group are aligned.
84
The Company Secretary plays a leading role in ensuring that the Company
develops and maintains a sound and effective corporate governance
framework, in particular, a set of risk management and internal control
systems so that regulatory compliance, good corporate governance
practices and culture are upheld and practiced by the Company.
The Company Secretary is responsible for apprising the Board with
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, the Company Secretary organizes seminars on specific
topics of importance and interest and disseminates reference materials to
Directors for their information.
The Company Secretary is also directly responsible for the Group’s
compliance with all obligations of the Hong Kong Listing Rules, AIM
Rules for Companies and applicable Nasdaq listing rules (collectively,
the “Rules”), including the preparation, publication and dispatch of
annual reports and interim reports within the time limits laid down in
the Rules, and 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 disclosure requirements of the Rules and applicable laws,
rules and regulations are complied with and, where required, reported
in the annual reports 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. She 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.
CORPORATE GOVERNANCE REPORT ACCOUNTABILITY AND AUDIT
GOING CONCERN
FINANCIAL REPORTING
The annual and interim results of the Company are published in a timely
manner, within three months and two months respectively of the year end
and half- year end.
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 110 to 114
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.
The Directors are responsible for the preparation of the consolidated
financial statements that give a true and fair view in accordance with the
accounting principles generally accepted in the United States of America
(“USGAAP”) and comply with the applicable disclosure requirements of
the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and
the Hong Kong Listing Rules. Directors should incorporate such internal
control as the Directors determine as necessary to enable the preparation
of financial statements that are free from material misstatement, whether
due to fraud or error.
ACCOUNTING POLICIES
The Directors consider that in preparing the consolidated financial
statements, the Group has adopted appropriate accounting policies 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 and reflect
the transactions 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.
The Directors, having made appropriate inquiries, are of the view that the
Group has adequate resources to continue in operational existence for the
foreseeable future and that, for this reason, it is appropriate for the Group
to adopt the going concern basis in preparing the consolidated financial
statements.
AUDIT COMMITTEE
The Audit Committee comprises three Independent Non-executive
Directors who possess the relevant business and financial management
experience and skills to understand financial statements and monitor
the financial governance, internal controls and risk management of the
Company. It was chaired by Mr Graeme Allan Jack with Mr Paul Rutherford
Carter and Dr Karen Jean Ferrante as members. After the changes of
Directors on May 12, 2023, the Audit Committee is now chaired by Mr
Graeme Allan Jack with Mr Paul Rutherford Carter and Professor Mok Shu
Kam, Tony as members. None of the Committee Members is related to the
Company’s external auditor.
The Audit Committee held three meetings in 2023 with 100% attendance.
Members
Attended/Eligible to attend
Graeme Allan Jack (Chairman)
Paul Rutherford Carter
Karen Jean Ferrante (1)
Mok Shu Kam, Tony (2)
Notes:
(1)
Retired on May 12, 2023
(2)
Appointed on May 12, 2023
3/3
3/3
1/1
2/2
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.
HUTCHMED (China) Limited 2023 Annual Report 85
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
cybersecurity 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 independent legal and other advisers and conduct
investigations as it determines to be necessary.
Throughout 2023, 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 2023 and
2024 (up to the date of this report).
During 2023 and 2024 (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 2023 interim and 2022 and 2023
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 2022 and 2023 annual results, reports and financial statements
were prepared in accordance with 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 2023 interim and the Group’s 2022 and 2023 annual results,
reports and financial statements have been prepared in accordance
with the aforementioned requirements and recommended that these be
approved by the Board.
86
The Audit Committee met three times during 2023 and one time during
2024 (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 2023 interim financial statements and audit of the
Group’s 2022 and 2023 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
commenced. 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 and comply with 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 written confirmation of its
independence and objectivity for 2023.
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 2023, the Audit Committee reviewed the process
by which the Group evaluated its control environment and managed
significant risks (including cybersecurity risks). It received, considered and
provided feedback on the risk management report, the composite risk
register, the risk heat map, the presentations 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.
CORPORATE GOVERNANCE REPORT •
•
•
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 engages 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, 2023, fees of US$2.9 million charged by PwC
in total were for both audit and non-audit services. The non-audit services,
which amounted to approximately US$0.2 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 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, 2023 have been audited by PwC in accordance with
USGAAP. The unqualified auditor’s report is set out on pages 110 to 114.
The consolidated financial statements of the Group for the year ended
December 31, 2023 have also been reviewed by the Audit Committee.
In addition, the Audit Committee reviewed, in conjunction with the
Internal Audit GM, the 2023 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 2023, 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,
February and November 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, Code of
Ethics for Business Partners, 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 2024. Having considered the multiple
channels of communication and engagement in place (see “Relationship
with Shareholders and Other Stakeholders” on pages 104 to 106 of
this report), the Audit Committee is satisfied that the Shareholders
Communication Policy has been properly implemented during 2023 and
is effective.
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, such as 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 must be undertaken, or is
otherwise best placed to undertake, by it in its capacity as an auditor.
HUTCHMED (China) Limited 2023 Annual Report 87
RISK MANAGEMENT, INTERNAL
CONTROL AND LEGAL AND
REGULATORY COMPLIANCE
RISK MANAGEMENT AND INTERNAL CONTROL
Effective risk management and internal control systems are fundamental
components of good corporate governance. They are pivotal to the
sustainable growth of the Group, fostering resilience, and safeguarding
the interests of stakeholders.
The Company recognizes the dynamic nature of the risks (including
sustainability and cyber risks) its businesses face. To ensure an effective
management of the risks, a comprehensive governance structure is in
place to systematically identify, assess, manage, and monitor risks that
may have a material adverse impact on the achievement of the Group’s
strategic and business objectives.
To illustrate the structure and process of the risk management and
internal control systems of the Group, the following table depicts detailed
roles and responsibilities, in terms of “Governance and Oversight” by the
Board through the Audit Committee and the Sustainability Committee,
“Risk Review and Communication” by the Executive Directors, “Risk and
Control Monitoring” by the Group functions, “Risk and Control Ownership”
by the executive management teams of each core business, and
“Independent Assurance” by the Group’s internal audit function.
Governance and Oversight
The Board
Has overall responsibility for the systems of risk management and internal control of the Group.
Evaluates and determines the nature and extent of the risks that the Group is willing to accept in pursuit of its strategic and business objectives,
with due regard to its risk appetite.
Inculcates appropriate risk culture across the business operations of the Group and ensures comprehensive policies and systems (including
parameters of delegated authority) are in place.
Reviews the effectiveness of the risk management and internal control systems of the Group, through delegation to the Audit Committee, and
through review of Group-wide strategies, budgets, business plans and performances.
Audit Committee
Sustainability Committee
Reviews and discusses the risk management and internal control
systems of the Group, with particular regard to their effectiveness, see
further the Audit Committee Terms of Reference.
Reviews sustainability risks and opportunities, and assesses emerging
sustainability issues and trends that could impact the business
operations and performance of the Group, see further the Sustainability
Committee Terms of Reference.
Risk Review and Communication
Executive Directors
Provides leadership on risk and return balance.
Monitors the risk profile of the Group and assesses if significant risks are appropriately mitigated.
Ensures that a review of the effectiveness of the risk management and internal control systems of the Group has been conducted, and makes
recommendation to the Board, through the Audit Committee, regarding the effectiveness of the systems.
88
CORPORATE GOVERNANCE REPORT Risk and Control Monitoring
Group Functions
Establishes relevant policies and procedures for Group-wide adoption.
Monitors the implementation and effectiveness of the risk management practices in core businesses and provides guidance where appropriate. In
particular, the following dedicated working groups are formed:
– IT Working Group, established by the Audit Committee consisting currently of a Non-executive Director, Internal Audit GM and CFO, who receives
reports from cybersecurity team led by the head of IT and Security and monitors the prevention, detection, mitigation, and remediation of
cybersecurity incidents.
– Sustainability working group, comprising representatives from different business units, supports the Sustainability Committee in discharging its
responsibilities.
Risk and Control Ownership
Core Businesses
Independent Assurance
Internal Audit
Carries out risk management activities and escalates promptly on
material issues.
Ensures that a risk-aware culture is maintained at all levels of the
operations through ongoing policy reinforcement and training.
Conducts a review of the effectiveness of the risk management and
internal control systems and provides management declaration on
the review results half-yearly.
Provides independent assurance as to the existence and effectiveness
of the risk management activities and controls in the business
operations of the Group (refer to pages 97 to 98 of this annual report
for more details).
Whilst the risk management and internal control systems of the Group are designed to identify and manage risks that could adversely impact the
achievement of the Group’s strategic and business objectives, they do not provide absolute assurance against material mis-statement, errors, losses,
fraud or non-compliance.
HUTCHMED (China) Limited 2023 Annual Report 89
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 cybersecurity
risks, with the Internal Audit GM and Executive Directors, and provides
input as appropriate so as to ensure effective systems 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.
In 2023, the Group continued to proactively address sustainability risks
following the climate risk assessment conducted in 2022. Climate risks
identified along with potential financial impacts have been integrated
into the ERM framework of the Group. This has led to improvements in the
integration of sustainability risks and ongoing monitoring.
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,
managing and monitoring risks (including sustainability and cyber
risks) within the Group, be they are of strategic, financial, operational or
compliance nature.
Risk management is an integral part of the day-to-day operations and
management 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)
that are relevant to their businesses, the plausible impacts of the risks and
mitigation measures to ensure that the executive management teams of
each core business have performed their duties to have effective systems.
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 the significant risks (including sustainability and cyber risks) their
business faces and assess the risk severity in terms of potential impact
and likelihood, 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.
90
CORPORATE GOVERNANCE REPORT RISK MANAGEMENT OVERVIEW
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Risks Related to the Financial Position and Need for Capital
Funding for product development
The research and development of drug candidates, as
• Continued to actively monitor available cash resources
programs and commercialization
well as commercialization in the areas of manufacturing,
against future cash requirements
efforts
marketing, sales and distribution of such drug candidates,
• Secured 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
Continued to regularly evaluate the research and
is dependent on the successful
unless and until it successfully completes its clinical trials,
development strategy of the Group in light of unmet
development and commercialization
receives relevant regulatory approval and generates
medical needs. Three oncology drugs, ELUNATE® in
of the drug candidates
substantial sales of approved innovative drugs in
metastatic colorectal cancer, SULANDA® in pancreatic
developments.
and non-pancreatic neuroendocrine tumors and
ORPATHYS® in non-small cell lung cancer with MET exon
14 skipping alterations, were approved and launched
in China. In addition, FRUZAQLA® was approved by U.S.
FDA for previously treated metastatic colorectal cancer in
November 2023.
Competition in discovering,
The development and commercialization of new drugs
• Determined potential markets with high unmet
developing and commercializing
is highly competitive. The competition from other
demands in drug discovery process
drugs
pharmaceutical companies with respect to current drug
• Formed strategic partnerships and collaborated with
candidates, as well as any future drug candidates, is always
other companies
present given market dynamics.
Attract, retain and motivate key
Attracting, retaining and motivating key executives
• Built 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
• Benchmarked salary and compensation structure
the achievement of research, development and
against peer groups
commercialization initiatives.
• Provided share-based compensation to incentivize key
management/talent
• Established key performance measurement and talent
development schemes
HUTCHMED (China) Limited 2023 Annual Report 91
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Commercial strategy for newly
Following the commercial launches of the Group’s pipeline
• Completed construction of a large-scale global
approved drug products
products, a comprehensive strategy is required to be
production facility in Shanghai
formulated to secure manufacturing and commercialization
• Established 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, e.g. partnering with Takeda for
fruquintinib ex-China rights
Risks Related to Sales of the Group’s Internally Developed Drugs and Other Drugs
Compliance with extensive regulatory
requirements for pharmaceutical
The regulatory framework in China governs and addresses
all aspects of operations within the pharmaceutical
• Established compliance team and implemented
internal policies and procedures to monitor compliance
companies in China
industry, including licensing and certification requirements,
• Benchmarked 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
• Established 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
• Procured product liability insurance
Risks Related to the Group’s Dependence on Third Parties
affected.
Relationships with collaboration
Poor relationships with collaboration partners could lead
• Established 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
• Organized ongoing dialogue and regular meetings at
collaboration. Any such matters would cause adverse
executive levels to facilitate strategic alignment and
impacts to business reputation and financial results.
planning
Sourcing of materials for clinical trials
The development and commercialization of drug
• Continued to actively monitor the supply of materials
and commercial products
candidates requires sufficient supplies (including Active
and inventory levels
Pharmaceutical Ingredient (API)) for clinical testing and
• Sourced materials and products from well-established
commercial demand. Development and commercialization
clinical suppliers with 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
•
Implemented 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.
92
CORPORATE GOVERNANCE REPORT RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Other Risks and Risks Related to Doing Business in China
COVID-19 and other adverse public
The COVID-19 outbreak posed some challenges to the
•
Implemented measures to reduce the impact of such
health developments could materially
Group’s operations in 2023 resulting from restrictions in
restrictions to the extent possible
and adversely affect the Group’s
travel, facility access, etc. Although the restrictive measures
• Continued to monitor the situation and take
business
related to COVID-19 have gradually been lifted around
appropriate mitigating action should there be any
the world, COVID-19 or any other adverse public health
further impact to our operations
developments may continue to have a negative impact on
the Group’s business, which could have a material adverse
effect on the business, financial condition and results of
operations and cash flows.
National Reimbursement Drug List
China’s NRDL system is driving down the price of innovative
• Undertook holistic assessments to determine minimum
(“NRDL”) pricing risk on innovative
drugs which affects the profitability of all biotech
acceptable pricing when applying for inclusion in the
products
companies. Inclusion into the NRDL will result in a higher
NRDL by taking various factors into consideration, such
sales volume and sales growth as well as a reduction in the
as patient population size and patient out-of-pocket
price.
costs
• ELUNATE® first included in the NRDL on January 1, 2020
and SULANDA® first included in the NRDL on January 1,
2022, and continue to be included in the updated NRDL
with effect from January 2024
• 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
• Continued to closely monitor the pharmaceutical
legal system and changes in laws and
be in part based on government policies and internal
regulatory environment in China
regulations in China
rules that are subject to the interpretation and discretion
• Benchmarked 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
•
Implemented of information technology systems
incidents
commercialize new drugs rely significantly on information
security which are subject to regular reviews internally
technology for storing clinical and financial data.
and by external experts
Information technology systems could be vulnerable
• Ensured the regular maintenance and upgrading of
to damage from external or internal security incidents,
information technology systems to enhance security
breakdowns, malicious intrusions and cybercrimes,
• Ensured compliance with best-practice cybersecurity
which may cause significant interruptions or losses to the
guidelines published by the National Institute of
business.
Standards and Technology (NIST)
• Established policies & procedures to continuously
monitor cybersecurity systems/incidents and assess
risks and if disclosure of any material incidents are
required
Foreign currency fluctuations
The value of the Renminbi against the U.S. dollar and
•
Implemented active cash management to mitigate
other currencies may fluctuate and is affected by changes
in political and economic conditions. Appreciation or
foreign currency exposure
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.
HUTCHMED (China) Limited 2023 Annual Report 93
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Compliance with personal information
The business is subject to personal information and data
• Established 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 monitored the development in the relevant
public security and escalating levels of enforcement action.
regulatory regime to ensure compliance with the
requirements
• Provided to Directors and senior management on
information security matters
• Maintained relevant cybersecurity insurance
• Conducted relevant cybersecurity assessment annually
through an independent third party
Compliance with anti-corruption
The business is in frequent contact with persons who
• Conducted ongoing review of policies and measures to
regulations
may be considered government officials under applicable
ensure compliance with the anti-corruption laws and
anti-corruption, anti-bribery and anti-kickback laws, which
regulations
include doctors at public hospitals in China and elsewhere.
• Conducted regular monitoring measures covering
The PRC laws and regulations strictly prohibit bribery of
various types of activities including events and speaker
government officials. Since July 2023, various ministries/
engagements for compliance with relevant regulations
administrations in the PRC jointly established a focus
• Conducted training on a continuous basis to ensure
group to investigate misconduct and irregularities in the
our staff are up-to-date on compliance requirements in
healthcare industry.
China
Risks Related to Intellectual Property
Protect product intellectual property
The discovery and development of innovative
•
Implemented active management and tracking of
rights
medicines require significant investment of resources. A
intellectual property rights
pharmaceutical company’s success depends in part on
• Consulted with external counsel as and when warranted
its ability to protect such investments, products and drug
• Established protection mechanisms including execution
candidates from competition by establishing and enforcing
of confidentiality and non-competition agreements,
intellectual property rights. Failure could cause additional
registration of intellectual property rights and defense
competition to harm the business.
of any intellectual property related claims
Pages 7 to 67 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.
94
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, 2023 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 2023 Annual Report 95
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 on 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 and business partners 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. In addition, 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.
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 and
business partners 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 aims 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.
96
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.
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 98 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 activities and controls in the business operations of the
Group. It has wide authority to access 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 review by the Audit
Committee. The audit 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 which may affect the risk profile of the Group
during the year.
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 57 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.
HUTCHMED (China) Limited 2023 Annual Report 97
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 Whistleblowing Policy, 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
effectiveness of the Group’s risk management and internal control systems
for the year ended December 31, 2023 covering all material controls,
including financial, operational and compliance controls, and concurs
with Management confirmation that such systems are effective and
adequate. No significant areas of concern which might affect shareholders
were identified. 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 provisions of the HK CG Code.
The responsibilities of the Nomination Committee are to review the
structure, size, diversity profile and skills set of members 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 the 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 the 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.
98
CORPORATE GOVERNANCE REPORT The Board comprises 9 Directors. The table below shows the Board structure, and skills set, expertise and competencies of the Directors:
Structure and Size
Committees
Qualification
Skills and Expertise
d
r
a
o
B
n
o
s
r
a
e
Y
23
6
13
7
17
0
7
6
6
e
g
A
72
66
57
70
72
44
63
73
63
r
e
d
n
e
G
M
M
M
M
F
F
M
M
M
y
t
i
c
i
n
h
t
E
C
C
C
NC
C
C
NC
NC
C
t
i
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u
A
n
o
i
t
a
r
e
n
u
m
e
R
n
o
i
t
a
n
m
o
N
i
✔
✔
D
E
N
I
/
D
E
N
/
D
E
ED
ED
ED
NED
NED
NED
INED ✔
INED ✔
INED ✔
✔
✔
✔
✔
y
t
i
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a
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S
✔
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T
✔
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✔
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a
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s
s
e
f
o
r
P
N1
l
a
n
o
i
t
a
c
u
d
E
BSc, ACGI, MBA
BSc, PhD
BEc
BA, MA, MA, PhD
N2
BSE, MA, MA, EdM
BA, BSc, MBA
BA
BCom
BMSc, MD
N3
N4
N5
C: Chinese
NC: Non-Chinese
Executive Director
ED:
NED: Non-executive Director
INED: Independent Non-executive Director
g
n
i
t
r
o
p
e
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a
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a
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B
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o
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a
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p
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E
/
e
g
d
e
l
w
o
n
K
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Name
Simon To
Weiguo Su
Johnny Cheng
Dan Eldar
Edith Shih
Ling Yang
Paul Carter
Graeme Jack
Tony Mok
Female
F:
M: Male
Notes:
N1: Member of Chartered Accountants Australia and New Zealand
N2:
Solicitor qualified in England and Wales, Hong Kong and Victoria, Australia; Fellow of both The Chartered Governance Institute and The Hong Kong Chartered
Governance Institute, holding Chartered Secretary and Chartered Governance Professional dual designations
N3:
Fellow of the Chartered Institute of Management Accountants in the United Kingdom
N4:
Fellow of the Hong Kong Institute of Certified Public Accountants; Associate of Chartered Accountants Australia and New Zealand
N5:
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
The charts below show the diverse skills set of the Directors and the diversity profile of the Board as at the date of this report:
Board Skills Matrix
3 Directors
Pharmaceutical
Related
Knowledge/
Experience
3 Directors
Financial
Reporting
7 Directors
Strategic
Planning &
Risk
Management
8 Directors
Business
Management
1 Director
Legal &
Regulatory
HUTCHMED (China) Limited 2023 Annual Report 99
9
8
7
6
5
4
3
2
1
0
Board Composition and Diversity
Female
(22%)
Male
(78%)
Executive
Directors
(33.33%)
Non-executive
Directors
(33.33%)
Independent
Non-executive
Directors
(33.33%)
Chinese
(67%)
above 64 years old
(56%)
Non-Chinese
(33%)
64 years old or below
(44%)
Gender
Designation
Ethnicity
Age Group
Female representation at the Board stands at approximately 22% (two out of nine), above average amongst companies listed on HKEX. Nevertheless, the
Board is always striving to improve its gender balance and aims to achieve a 30% female representation on the Board. This target will be reviewed on
an annual basis by the Nomination Committee. 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 Company will continue to seek
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.
Structured recruitment, selection and training programs at various levels within the Group will also continue to be conducted to develop a broader pool
of skilled and experienced potential Board members.
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 47% and female represents 53%). 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 2023 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 will be sent to shareholders prior to the
general meeting at which such Directors are to be proposed for re-election, 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 three meetings in 2023 with 100% attendance.
100
CORPORATE GOVERNANCE REPORT
Members
Attended/Eligible to attend
Mok Shu Kam, Tony (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
3/3
3/3
3/3
During 2023, the Nomination Committee reviewed the structure, size
and composition of the Board, ensuring that it has sound 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 July 2023 recommended to the Board
the appointment of Ms Ling Yang as a Non-executive Director. The
appointment of Ms Ling Yang was subject to a stringent assessment
process in accordance with the Director Nomination Policy and Board
Diversity Policy, to ensure the Board possesses the necessary skills,
experience and knowledge in alignment with the Company’s strategy. The
Company believes that Ms Ling Yang’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
Independent Non-executive Directors and considered all of them to be
independent, having regard to their 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 2024, the Nomination Committee reviewed
again the structure, skills set, expertise and competencies of the
members of the Board, affirmed the independence of the Independent
Non-executive Directors, deliberated and selected Directors for retirement
and re-election at the 2024 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 2023. 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.
The Remuneration Committee held five meetings in 2023 with 100%
attendance.
Members
Attended/Eligible to attend
Paul Rutherford Carter (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
5/5
5/5
5/5
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 the 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.
HUTCHMED (China) Limited 2023 Annual Report 101
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 2024 directors’ fees for Executive
Directors and made recommendation to the Board on the proposed
2024 directors’ fees for Independent Non-executive Directors. Prior to the
end of the year, the Remuneration Committee reviewed and approved
the 2023 year-end bonus and 2024 remuneration package of Executive
Directors and senior management of the Group. No Director or any of
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 Enterprise Solutions
(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 with the strategy and sustainability of
the Group and are appropriate in the context of the external regulatory
environment and the expectations of stakeholders.
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 in 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 the individual’s performance.
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 since 2022
and not intended in future. 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.
2023 REMUNERATION
Directors’ emoluments comprise payments to Directors by the Company
and its subsidiaries in connection with the management of the affairs
of 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 2023 are as below:
102
CORPORATE GOVERNANCE REPORT Name of Director
Salary and fees
US$’000
Executive Directors:
To Chi Keung, Simon
Weiguo Su (5)
Cheng Chig Fung, Johnny
Non-executive Directors:
Dan Eldar
Edith Shih
Lefei Sun (8)
Ling Yang (9)
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante (10)
Graeme Allan Jack
Mok Shu Kam, Tony
Aggregate emoluments
85 (3) (4)
872 (4) (6)
413 (6)
–
–
–
–
117
37
111
115
1,750
Bonus
US$’000
–
1,500
508
–
–
–
–
–
–
–
–
Benefits-in-
kind
US$’000
Taxable
benefits
US$’000
Pension
contributions
US$’000
Non-
performance
based LTIP (1)
US$’000
Other
share-based
compensation (2)
US$’000
Total
US$’000
–
8
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
71
30
–
–
–
–
–
–
–
–
101
71 (3)
–
–
71
71 (7)
–
–
71
(101) (11)
71
71
325
–
1,659
589
–
–
–
–
–
–
–
–
2,248
156
4,110
1,551
71
71
–
–
188
(64)
182
186
6,451
2,008
19
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. No
new LTIP awards have been issued to Independent Non-executive Directors since 2022.
Other share-based compensation to 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 123 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 134 of this annual report and the details of the share options granted are set out in the “Directors’ Report” section on
pages 59 to 66.
(3)
Such Director’s fees and non-performance based LTIP awards were paid/transferred to his employer, Hutchison Whampoa (China) Limited.
(4)
(5)
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.
In connection with share options granted in the year ended December 31, 2016 under the 2015 Share Option Scheme, Dr Weiguo Su was awarded retention bonuses
payable when and if he exercised his options. During the year ended December 31, 2023, a retention bonus of US$5,225,000 was settled when he exercised such
options, which amount is not included in the amounts above.
(6)
Emoluments paid include Director’s fees of US$75,000.
(7)
Such non-performance based LTIP awards were transferred to her employer, Hutchison International Limited.
(8)
Resigned on July 13, 2023.
(9)
Appointed on July 13, 2023.
(10)
Retired on May 12, 2023.
(11)
Amounts include the reversal of the amortization expense in prior years relating to lapsed non-performance based LTIP awards as a result of Dr Karen Jean Ferrante’s
retirement on May 12, 2023.
HUTCHMED (China) Limited 2023 Annual Report 103
RELATIONSHIP WITH
SHAREHOLDERS AND OTHER
STAKEHOLDERS
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 are 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 2023,
over 600 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, including details of the arrangements on dissemination of
corporate communications of the Company and for requesting printed
copies of corporate communications. 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.
The Committee consulted with the Group’s largest shareholder when
developing its remuneration policy. In reviewing and setting remuneration,
including that of Executive Directors, the Committee receives updates on
investors’ views from time to time. These lines of communication ensure
that emerging best-practice principles are factored into the Committee’s
decision-making.
The remuneration paid to the members of 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 2023) is set out below:
Remuneration Bands
Number of Individuals
US$700,000 to US$1,300,000
US$1,300,000 to US$2,200,000
US$2,200,000 to US$3,100,000
4
2
1
TECHNICAL COMMITTEE
The Technical Committee comprises six members and was chaired by
Dr Karen Jean Ferrante with the Chairman, Mr To Chi Keung, Simon and
Dr Weiguo Su, Executive Directors, Mr Lefei Sun, Non-executive Director,
Mr Paul Rutherford Carter and Professor Mok Shu Kam, Tony, both
Independent Non-executive Directors, as members. After the changes of
Directors on May 12, 2023 and July 13, 2023, the Technical Committee is
now chaired by Professor Mok Shu Kam, Tony with Mr Paul Rutherford
Carter, Dr Weiguo Su and Mr To Chi Keung, Simon as members. The
Committee considers from time to time matters relating to the technical
aspects of the business and research and development. It also invites
such executives as it thinks fit to attend meetings as and when required.
The Technical Committee held three meetings in 2023 with 93%
attendance.
Members
Attended/Eligible to attend
Karen Jean Ferrante (Chairman) (1)
Mok Shu Kam, Tony (Chairman) (2)
Paul Rutherford Carter
Weiguo Su
Lefei Sun (3)
To Chi Keung, Simon
1/1
3/3
3/3
3/3
1/2
3/3
Notes:
(1)
Ceased to be a member upon her retirement from the Board on May 12,
2023
(2)
Appointed as Chairman on May 12, 2023
(3)
Resigned as Non-executive Director on July 13, 2023
104
CORPORATE GOVERNANCE REPORT
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, regularly
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 2023 AGM, which was held on May 12, 2023 as an electronic/hybrid meeting at which
shareholders attended both physically and by electronic facilities. The 2023 AGM was attended by all Directors (except for one Independent Non-
executive Director, who had prior overseas commitment and was unable to attend the AGM) and its external auditor. The respective chairpersons of the
Board, Audit Committee, Nomination Committee, Remuneration Committee, and the Sustainability Committee were all present. Directors are requested
and encouraged to attend shareholders’ meetings.
Separate resolutions were proposed at the 2023 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 May 12, 2023 are set out below:
Resolutions proposed at the 2023 AGM
Percentage of Votes
1
Adoption of the audited financial statements, and the reports of the directors and independent auditors for the year ended
December 31, 2022.
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 Lefei Sun as a director
Re-election of Mr Paul Rutherford Carter 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:
Granting of a general mandate to the directors of the Company to repurchase shares of the Company.
2(A)
2(B)
2(C)
2(D)
2(E)
2(F)
2(G)
2(H)
2(I)
3
4
5
99.99%
95.74%
99.78%
99.65%
99.51%
99.43%
99.51%
99.99%
99.45%
97.69%
99.87%
98.53%
99.99%
Accordingly, all resolutions put to shareholders at the 2023 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 2024 and public float capitalization as at December 31, 2023.
HUTCHMED (China) Limited 2023 Annual Report 105
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 to 48th Floor,
Cheung Kong Center, 2 Queen’s Road Central, Hong Kong or 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.
SHAREHOLDERS COMMUNICATION POLICY
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 2024, the Audit Committee reviewed the policy
again and considered that the implementation of the policy effective
during 2023 (see “Audit Committee” on pages 85 to 87 of this report).
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 Board identifies and assesses climate and sustainability risks on
an ongoing basis. Through the Audit Committee and Sustainability
Committee, it reviews the risk management framework to ensure its
effectiveness in design, implementation and monitoring of risks. Climate-
related risk is incorporated in the sustainability risks management
framework of the Company, following the climate risk assessment
conducted in 2022. Thereafter, regular monitoring and reviews have been
undertaken to evaluate the efficacy of the climate resilience strategy and
potential financial impact.
DIVIDEND POLICY
The Board adopted a Dividend Policy for the Company. The Board intends
to retain all future earnings for use in the operation and expansion of
the business of the Company and does not have any present plan to pay
any dividends for the immediate future. The declaration and payment
of any dividends in the future will be determined by the Board, and will
be dependent on a number of factors, including the earnings, capital
requirements, overall financial condition, and contractual obligations of
the Company.
The Board is committed to embedding corporate social responsibility and
sustainability into the fundamental structure of the business to ensure
long-term value creation for all stakeholders.
The Group firmly believes that establishing a robust sustainability
governance structure is crucial for the long-term sustainable development
of the Group. Its four-tier sustainability governance framework reflects
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.
106
CORPORATE GOVERNANCE REPORT Four-tier Sustainability Governance Structure of the Group
BOARD LEVEL
Board of Directors
(Chairman, CEO and CSO, CFO, three non-executive directors (“NEDs”),
three 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)
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. It advises the Board and
Management on and oversees the development and implementation of sustainability initiatives of the Group, including reviewing the progress towards
meeting sustainability targets as well as sustainability disclosures, 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 makes recommendations to the Board on the Company’s sustainability risks and opportunities,
objectives, strategies, priorities, initiatives, goals, and sustainability disclosures.
HUTCHMED (China) Limited 2023 Annual Report 107
The Sustainability Committee held three meetings in 2023 with 100%
attendance.
Members
Edith Shih (Chairman)
Cheng Chig Fung, Johnny
Mok Shu Kam, Tony
Attended/Eligible to attend
3/3
3/3
3/3
During 2023, the Committee discussed and reviewed the 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 2022
Sustainability Report of the Company to the Board for approval.
At its meeting in February 2024, the Sustainability Committee received
an update on the sustainability initiatives and progress of the 2023
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 integrates 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 2023, the senior management held two meetings 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 2023, the working group conducted five meetings, to discuss
sustainability initiatives, four data collection training sessions; and one
group-wide online training for all staff in all locations.
SUSTAINABILITY PROGRESS
The Group made continuous progress in 2023 in its commitment to the
long-term sustainability of its businesses and communities in which it
conducts business.
Enhanced Sustainability Disclosure
The Group enhanced its sustainability disclosure, including publishing
its third Sustainability Report with reference to various sustainability
reporting standards. The 2023 Sustainability Report further enhanced
disclosure by making reference to the International Financial Reporting
Standards (“IFRS”) Sustainability Disclosure Standards (IFRS S1 and
IFRS S2) and the Sustainability Accounting Standards Board (“SASB”)
Biotechnology & Pharmaceuticals Sustainability Accounting Standard
ahead of requirement. The Group continues to disclose its climate action
in alignment with the recommendations of the Task Force on Climate-
related Financial Disclosures (TCFD).
Sustainability Goals and Targets
To align with the sustainability strategy and facilitate the monitoring of its
sustainability performance, the Board set up and committed to 11 short-
to long-term new sustainability-related goals and targets for the Company
and its subsidiaries in 2022 to achieve by 2025 and 2050, covering all
three areas of environmental, social and governance. These targets are an
important aspect in achieving the Company’s long-term vision of being
a more sustainable business. The senior management and Sustainability
Committee meet regularly to discuss and receive updates on the progress
of these targets. Please refer to the 2023 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.
108
CORPORATE GOVERNANCE REPORT
In 2023, the Company conducted screening and measurement of material
Scope 3 emission categories, aligning with forthcoming regulatory
changes for more emission accounting. It also increased its engagement
with suppliers to implement sustainability initiatives collaboratively. A
digital data collection platform was implemented to streamline collecting,
managing and reporting data, improving data reliability, comparability
and transparency.
The Group believes that these efforts will guide it towards a more
sustainable future. A standalone Sustainability Report of the Company
for 2023 is published alongside the 2023 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, 2024
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
environmental, social and governance 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.
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.
In 2023, the Company considered insights from SASB materiality topics
for the pharmaceutical industry, conducted peer benchmarking, and
analyzed global sustainability trends. This comprehensive approach
allowed a thorough review of materiality assessment results from 2022.
As a result, the original 33 material topics were re-grouped to 20. The
outcome of the materiality refresh was reported, discussed, and approved
by senior management, the Sustainability Committee and the Board.
Please refer to the 2023 Sustainability Report for details.
The sustainability strategy of the Company sets key strategic focus areas
under five Sustainability Pillars: Ethics and Transparency, Innovation,
Climate Action, Access to Healthcare and Human Capital, which take
into account peer benchmarking and assessment against the SASB
industry-based metrics, and also incorporate the most relevant material
sustainability topics identified in our materiality assessment.
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 then added into
the sustainability risks in the ERM framework of the Company.
HUTCHMED (China) Limited 2023 Annual Report 109
To the Shareholders of HUTCHMED (China) Limited
(incorporated in the Cayman Islands with limited liability)
Opinion
What we have audited
The consolidated financial statements of HUTCHMED (China) Limited (the
“Company”) and its subsidiaries (the “Group”), which are set out on pages
115 to 160, comprise:
•
•
•
•
•
•
the consolidated balance sheets as at December 31, 2023;
the consolidated statements of operations for the year then ended;
the consolidated statements of comprehensive income/(loss) for the
year then ended;
the consolidated statements of changes in shareholders’ equity for
the year then ended;
the consolidated statements of cash flows for the year then ended;
and
the notes to the consolidated financial statements, which include
significant accounting policies and other explanatory information.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on
Auditing (“HKSAs”) issued by the Hong Kong Institute of Certified Public
Accountants (“HKICPA”). Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the HKICPA’s Code
of Ethics for Professional Accountants (“the Code”), and we have fulfilled
our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Key audit matters identified in our audit are summarised as follows:
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
December 31, 2023, 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.
•
•
Allocation of transaction price in relation to the license and
collaboration agreement with Takeda Pharmaceuticals International
AG
Allowances for credit losses on accounts receivable, other receivables
(except for prepayments) and amounts due from related parties
110
INDEPENDENT AUDITOR’S REPORT Key Audit Matter
How our audit addressed the Key Audit Matter
We performed the following audit procedures on the allocation of
transaction price in relation to the Takeda Agreement:
We obtained an understanding of management’s assessment process
of allocation of transaction price in relation to the Takeda Agreement
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 the internal controls relating to how
management formulated the accounting estimates and assumptions
involved in determining the standalone selling prices for each performance
obligations identified, and the resulting allocation of transaction price to
each performance obligation in the Takeda Agreement.
We assessed the capability of management’s expert and evaluated the
valuation methodologies and the discount rates used by management
to determine the standalone selling prices of the identified performance
obligations, with the assistance of our internal valuation specialists.
We evaluated the reasonableness of the significant assumptions including
forecasted revenue, probabilities of regulatory approvals, estimated future
service costs and margin rates, by comparing these significant assumptions
to industry, business and market data and information available from
third-party sources.
We evaluated the relevance and reasonableness of the underlying data
used by management.
We evaluated the sensitivity of the significant assumptions by assessing
the changes to revenue recognition amounts from changes in these
assumptions.
Based on the audit procedures performed, we found that the estimates
used and judgments made by management in the allocation of transaction
price in relation to the Takeda Agreement were supportable in light of
available evidence.
Allocation of transaction price in relation to the license and
collaboration agreement with Takeda Pharmaceuticals
International AG
Refer to Notes 3 and 18 to the consolidated financial statements.
As described in Note 18 to the consolidated financial statements, the
Company and Takeda Pharmaceuticals International AG entered into an
exclusive out-licensing agreement (the "Takeda Agreement”) to further
the global development, commercialization and manufacturing of
Fruquintinib, under the brand name of Fruzaqla, in territories outside of
Mainland China, Hong Kong and Macau (the “Territory”), which resulted
in the recognition of US$278.9 million of licensing revenue, US$9.8 million
of revenue from manufacturing supply, US$62.4 million of research and
development services revenue and US$2.1 million of royalties revenue for
the year ended December 31, 2023.
The Company evaluated the Takeda Agreement under ASC 606, Revenue
from Contracts with Customers (“ASC 606”) and identified three material
performance obligations within the arrangement: 1) the licenses for the
development and commercialization of Fruquintinib in the Territory
and the manufacture of Fruquintinib for use in the Territory (“License
obligation”); 2) manufacturing supply of Fruquintinib to support
the development and commercialization activities in the Territory
(“Manufacturing supply obligation”); and 3) services for research and
development of ongoing clinical trials, regulatory submissions and
manufacturing technology transfer (“Services obligation”). The standalone
selling price of the License obligation and Manufacturing supply obligation
are determined using a discounted cash flow method based on the
probability-weighted present value of forecasted cash flows associated
with out-licensing Fruquintinib in the Territory. The standalone selling
price of the Services obligation is determined using a cost plus margin
approach based on the present value of estimated future services costs
plus a reasonable margin.
There were significant estimates and judgments by management
when determining the standalone selling prices for each performance
obligation identified and allocates the transaction price to each
performance obligation based on the relative standalone selling prices,
which will affect the timing and amounts of revenue recognized for each
performance obligation. The estimates of standalone selling price involved
management’s key assumptions such as forecasted revenue, probabilities
of regulatory approvals, estimated future service costs, margin rates and
discount rates, which in turn led to a high degree of auditor judgment
and significant audit effort in evaluating the audit evidence related to
management’s significant assumptions.
HUTCHMED (China) Limited 2023 Annual Report 111
Key Audit Matter
How our audit addressed the Key Audit Matter
Allowances for credit losses on accounts receivable, other
receivables (except for prepayments) and amounts due from
related parties
We performed the following audit procedures on the allowances for credit
losses on accounts receivable, other receivables (except for prepayments)
and amounts due from related parties:
Refer to Notes 3, 6, 7 and 24 to the consolidated financial statements.
As described in Note 6 to the consolidated financial statements, as of
December 31, 2023, the gross balance of accounts receivable was US$117.1
million and an allowance for credit losses of US$0.2 million was made.
As described in Note 7 to the consolidated financial statements, as of
December 31, 2023, the gross balance of other receivables was US$14.9
million which consisted of the balance of prepayments of US$7.1 million,
and no allowance for credit losses was made. As described in Note 24 to
the consolidated financial statements, as of December 31, 2023, the gross
balance of amounts due from related parties was US$28.5 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 portfolio groups of accounts receivable, other
receivables (except for prepayments) and amounts due from related
parties and estimated loss rates used by management.
We obtained an understanding of management’s assessment process
of allowances for credit losses on accounts receivable, other receivables
(except for prepayments) and amounts due from related parties 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 the internal controls relating to management’s
estimate of allowances for credit losses on accounts receivable, other
receivables (except for prepayments) and amounts due from related
parties.
We evaluated the appropriateness of the model and methodology used by
management to develop the current expected credit losses.
We assessed the reasonableness of portfolio groups of accounts receivable,
other receivables (except for prepayments) and amounts due from related
parties 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, with the assistance of our internal valuation
specialists.
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, other receivables (except for
prepayments) and amounts due from related parties were supportable in
light of available evidence.
112
INDEPENDENT AUDITOR’S REPORT
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.
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 required
to evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Group’s ability to
continue as a going concern for one year after the date the consolidated
financial statements are available to be issued.
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.
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.
HUTCHMED (China) Limited 2023 Annual Report 113
•
•
•
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 substantial 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.
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 Shin Wai Kit Ricky.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, February 28, 2024
114
INDEPENDENT AUDITOR’S REPORT CONSOLIDATED
FINANCIAL STATEMENTS
HUTCHMED (CHINA) LIMITED
CONSOLIDATED BALANCE SHEETS
(IN US$’000, EXCEPT SHARE DATA)
Note
2023
2022
December 31,
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Other receivables, prepayments and deposits
Amounts due from related parties
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
Short-term bank borrowings
Deferred revenue
Income tax payable
Lease liabilities
Total current liabilities
Lease liabilities, non-current portion
Deferred tax liabilities
Long-term bank borrowings
Deferred revenue, non-current portion
Other non-current liabilities
Total liabilities
Commitments and contingencies
Company’s shareholders’ equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 871,256,270 and 864,775,340
shares issued at December 31, 2023 and 2022 respectively
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive loss
Total Company’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
5
5
6
7
24
8
9
10
25(ii)
11
12
13
14
18
25(iii)
10
10
25(ii)
14
18
15
16
283,589
602,747
116,894
14,889
28,462
50,258
1,096,839
99,727
4,665
15,456
48,411
14,675
313,278
317,718
97,988
53,216
998
56,690
839,888
75,947
8,722
15,366
73,777
15,745
1,279,773
1,029,445
36,327
271,399
31,155
57,639
2,580
3,927
403,027
2,860
1,484
48,189
69,480
11,346
71,115
264,621
—
13,347
1,112
3,708
353,903
5,196
2,710
18,104
190
12,472
536,386
392,575
87,126
1,522,447
(870,869)
(8,163)
730,541
12,846
743,387
86,478
1,497,273
(971,481)
(1,903)
610,367
26,503
636,870
1,279,773
1,029,445
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2023 Annual Report 115
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN US$’000, EXCEPT SHARE AND PER SHARE DATA)
Note
2023
2022
2021
Year Ended December 31,
Revenue
Goods
— third parties
— related parties
Services
— commercialization — third parties
— research and development
— related parties
— collaboration research and development
— third parties
Other collaboration revenue
— royalties — third parties
— licensing — third parties
Total revenue
Operating expenses
Cost of goods — third parties
Cost of goods — related parties
Cost of services — commercialization — third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other income/(expense)
Interest income
Other income
Interest expense
Other expense
Total other income/(expense)
Income/(loss) before income taxes and equity in earnings of equity
investees
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to the Company
Earnings/(losses) per share attributable to the Company
(US$ per share)
— basic
— diluted
Number of shares used in per share calculation
— basic
— diluted
24(i)
24(i)
18
20
22
27
23
27
23
25(i)
11
26
26
26
26
388,924
8,264
48,608
481
80,397
32,470
278,855
837,999
(331,984)
(4,777)
(47,686)
(302,001)
(53,392)
(79,784)
(819,624)
18,375
—
36,145
12,949
(759)
(8,402)
39,933
58,308
(4,509)
47,295
101,094
(314)
100,780
0.12
0.12
314,329
5,293
41,275
507
23,741
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)
(0.43)
(0.43)
266,199
4,256
27,428
525
18,995
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)
(0.25)
(0.25)
849,654,296
869,196,348
847,143,540
847,143,540
792,684,524
792,684,524
The accompanying notes are an integral part of these consolidated financial statements.
116
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(IN US$’000)
Net income/(loss)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive income/(loss)
Less: Comprehensive loss/(income) attributable to non-controlling interests
Total comprehensive income/(loss) attributable to the Company
Year Ended December 31,
2023
2022
2021
101,094
(360,386)
(167,041)
(6,592)
94,502
39
94,541
(8,469)
(368,855)
545
(368,310)
2,964
(164,077)
(28,029)
(192,106)
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2023 Annual Report 117
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN US$’000, EXCEPT SHARE DATA IN ‘000)
Ordinary
Ordinary
Additional
Other
Company’s
Non-
Total
Shares
Number
Shares
Value
Paid-in
Capital
Accumulated
Comprehensive
Shareholders’
controlling
Shareholders’
Losses
Income/(Loss)
Equity
Interests
Equity
Accumulated
Total
As at January 1, 2021
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 private investment in public
equity
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 (Note 24(iii))
Transfer between reserves
Divestment of an equity investee (Note 22)
Foreign currency translation adjustments
16,393
1,639
—
816
—
—
—
—
—
—
—
—
—
82
—
—
—
—
—
—
—
—
98,361
(29,806)
2,370
16,339
19,808
36,147
(27,309)
—
89
(21)
—
—
—
—
—
—
—
—
—
—
(89)
—
—
As at December 31, 2021
864,531
86,453
1,505,196
(610,328)
Net (loss)/income
Issuances in relation to share option exercises
Share-based compensation
Share options
LTIP
LTIP — treasury shares acquired and held by
Trustee (Note 17(ii))
Dividends declared to non-controlling
shareholders of subsidiaries (Note 24(iii))
Transfer between reserves
Foreign currency translation adjustments
—
244
—
—
—
—
—
—
—
—
25
—
—
—
—
—
—
—
—
149
6,724
32,970
39,694
(48,084)
—
318
—
(360,835)
—
—
—
—
—
—
(318)
—
As at December 31, 2022
864,775
86,478
1,497,273
(971,481)
Net income
Issuances in relation to share option exercises
Share-based compensation
—
6,481
—
648
Share options
LTIP
LTIP — treasury shares acquired and held by
Trustee (Note 17(ii))
Dividends declared to non-controlling
shareholders of subsidiaries (Note 24(iii))
Transfer between reserves
Divestment of subsidiaries
Divestment of other equity investee
Foreign currency translation adjustments
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,446
6,175
23,619
29,794
(9,071)
—
168
(114)
(49)
—
100,780
—
—
—
—
—
—
(168)
—
—
—
As at December 31, 2023
871,256
87,126
1,522,447
(870,869)
4,477
—
—
—
—
—
—
—
—
—
—
—
(1,447)
2,542
5,572
—
—
—
—
—
—
—
—
(7,475)
(1,903)
—
—
—
—
—
—
—
—
(25)
4
(6,239)
(8,163)
484,116
(194,648)
614,867
100,000
(29,806)
2,452
16,339
19,808
36,147
(27,309)
—
—
(1,468)
2,542
34,833
27,607
—
—
—
—
26
70
96
—
(9,894)
—
(443)
422
518,949
(167,041)
614,867
100,000
(29,806)
2,452
16,365
19,878
36,243
(27,309)
(9,894)
—
(1,911)
2,964
986,893
52,621
1,039,514
(360,835)
174
6,724
32,970
39,694
(48,084)
—
—
(7,475)
449
—
12
15
27
—
(25,600)
—
(994)
610,367
26,503
100,780
5,094
6,175
23,619
29,794
(9,071)
—
—
(139)
(45)
(6,239)
314
—
9
(4)
5
—
(9,068)
—
(4,555)
—
(353)
(360,386)
174
6,736
32,985
39,721
(48,084)
(25,600)
—
(8,469)
636,870
101,094
5,094
6,184
23,615
29,799
(9,071)
(9,068)
—
(4,694)
(45)
(6,592)
730,541
12,846
743,387
The accompanying notes are an integral part of these consolidated financial statements.
118
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US$’000)
Net cash generated from/(used in) operating activities
Investing activities
Purchases of property, plant and equipment
Purchase of leasehold land
Refund 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”)
Proceeds from divestment of other equity investee
Proceeds from divestment of subsidiaries
Cash disposed from divestment of subsidiaries
Net cash (used in)/generated from investing activities
Financing activities
Proceeds from issuances of ordinary shares
Purchases of treasury shares
Dividends paid to non-controlling shareholders of 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 generated from/(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
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
28
19
22
24(i)
17(ii)
24(iii)
25(iii)
17(ii)
Year Ended December 31,
2022
(268,599)
2023
219,258
(32,612)
—
—
(1,627,875)
1,342,846
—
29,495
—
5,103
(8,093)
(291,136)
5,094
(9,071)
(9,068)
—
61,705
—
—
48,660
(23,218)
(6,471)
(29,689)
313,278
283,589
421
3,728
5,713
18,148
(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
2021
(204,223)
(16,401)
(355)
930
(1,355,976)
921,364
(15,000)
159,118
—
—
—
(306,320)
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
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2023 Annual Report 119
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 investee 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, 2023, the Group had accumulated losses of US$870,869,000 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, 2023, the Group
had cash and cash equivalents of US$283,589,000, short-term investments of US$602,747,000 and unutilized bank borrowing facilities of
US$68,069,000. 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 from Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) for
the years ended December 31, 2023, 2022 and 2021 were US$42,308,000, US$43,718,000 and US$49,872,000 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.
2. Particulars of Principal Subsidiaries and Equity Investee
Name
Subsidiaries
HUTCHMED Limited
HUTCHMED International Corporation
Hutchison Whampoa Sinopharm
Pharmaceuticals (Shanghai) Company
Limited (“HSPL”)
Hutchison Healthcare Limited
Place of
establishment
and operations
Equity interest
attributable to
the Group
December 31,
2023
2022
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
technical support services
50.87 %
50.87 %
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
Limited (“HHOHK”) (note)
HUTCHMED Science Nutrition Limited
Hong Kong
— %
— %
50 %
Wholesale and trading of healthcare and
consumer products
100 %
Wholesale and trading of healthcare and
(“HSN”) (note)
Equity investee
SHPL
PRC
50 %
50 %
Manufacture and distribution of
prescription drug products
consumer products
Note: On December 7, 2023, the Group completed a transaction to divest its entire investment in HHOHK and HSN to Hutchison Whampoa
(China) Limited, an indirect subsidiary of CK Hutchison Holdings Limited (“CK Hutchison”) (Note 24(i)).
120
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. When a subsidiary
is deconsolidated from the date that control ceases, any gain or
loss on the divestment of the interest sold is recognized in profit
or loss. Amounts previously recognized in other comprehensive
income/(loss) for the subsidiary are transferred to the consolidated
statements of operations as part of the gain or loss on the
divestment. 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 revenue and expenses during the reporting period.
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.
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.
Foreign Currency Translation
Cash and Cash Equivalents
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
revenue and expenses are translated at average exchange rates for
the year. Translation adjustments are reflected in accumulated other
comprehensive income/(loss) in shareholders’ equity.
Net foreign currency exchange gains/(losses) of US$8,661,000,
(US$5,704,000) and US$1,671,000 were recorded in other income and
expense in the consolidated statements of operations for the years
ended December 31, 2023, 2022 and 2021 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.
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.
HUTCHMED (China) Limited 2023 Annual Report 121
Inventories
Leasehold Land
Inventories are stated at the lower of cost or net realizable
value. Cost is determined using the weighted average cost method.
The cost of finished goods comprises raw materials, direct labor,
other direct costs and related production overheads based on
normal operating capacity. Net realizable value is the estimated
selling price in the ordinary course of business, less applicable
variable selling expenses. A provision for excess and obsolete
inventory will be made based primarily on forecasts of product
demand and production requirements. The excess balance
determined by this analysis becomes the basis for excess inventory
charge and the written-down value of the inventory becomes its
cost. Written-down inventory is not written up if market conditions
improve.
Property, Plant and Equipment
Property, plant and equipment consist of buildings, leasehold
improvements, plant and equipment, furniture and fixtures, other
equipment and motor vehicles. Property, plant and equipment are
stated at cost, net of accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful
lives of the depreciable assets.
Buildings
Plant and equipment
Furniture and fixtures, other equipment
20 years
5-10 years
4-5 years
and motor vehicles
Leasehold improvements
Shorter of (a) 5 years or
(b) remaining term of
lease
Additions and improvements that extend the useful life of an
asset are capitalized. Repairs and maintenance costs are expensed
as incurred.
Impairment of Long-Lived Assets
The Group evaluates the recoverability of long-lived assets
in accordance with authoritative guidance on accounting for the
impairment or disposal of long-lived assets. The Group evaluates
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of these assets may
not be recoverable. If indicators of impairment exist, the first step of
the impairment test is performed to assess if the carrying value of
the net assets exceeds the undiscounted cash flows of the assets.
If yes, the second step of the impairment test is performed in order
to determine if the carrying value of the net assets exceeds the fair
value. If yes, impairment is recognized for the excess.
Investments in Equity Investees
Investments in equity investees over which the Group has
significant influence are accounted for using the equity method. The
Group evaluates equity method investments for impairment when
events or circumstances suggest that their carrying amounts may
not be recoverable. An impairment charge would be recognized
in earnings for a decline in value that is determined to be other-
than-temporary after assessing the severity and duration of
the impairment and the likelihood of recovery before disposal.
The investments are recorded at fair value only if impairment is
recognized.
Leasehold land 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
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.
The Company’s ordinary shares are traded in the form of
ordinary shares and ADS. Each ADS represents five ordinary shares.
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.
122
Share-Based Compensation
Defined Contribution Plans
Share options
The Group recognizes share-based compensation expense on
share options granted to employees and directors based on their
estimated grant date fair value using the Polynomial model. This
Polynomial pricing model uses various inputs to measure fair value,
including the market value of the Company’s underlying ordinary
shares at the grant date, contractual terms, estimated volatility,
risk-free interest rates and expected dividend yields. The Group
recognizes share-based compensation expense in the consolidated
statements of operations on a graded vesting basis over the requisite
service period, and accounts for forfeitures as they occur.
Share options are classified as equity-settled awards. Share-
based compensation expense, when recognized, is charged to the
consolidated statements of operations with the corresponding entry
to additional paid-in capital.
LTIP
The Group recognizes the share-based compensation expense
on the LTIP awards based on a fixed or determinable monetary
amount on a straight-line basis for each annual tranche awarded
over the requisite period. For LTIP awards with performance targets,
prior to their determination date, the amount of LTIP awards that
is expected to vest takes into consideration the achievement of the
performance conditions and the extent to which the performance
conditions are likely to be met. Performance conditions vary by
awards, and may include targets for shareholder returns, financings,
revenue, net income after taxes and the achievement of clinical,
regulatory, business development and manufacturing 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.
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, 2023, 2022 and 2021 were US$11,708,000,
US$11,795,000 and US$7,181,000 respectively.
Revenue Recognition
Revenue is measured based on consideration specified in a
contract with a customer, and excludes any sales incentives and
amounts collected on behalf of third parties. Taxes assessed by a
governmental authority that are both imposed on and concurrent
with a specific revenue-producing transaction, that are collected by
the Group from a customer, are also excluded from revenue. The
Group recognizes revenue when it satisfies a performance obligation
by transferring control over a good, service or license to a customer.
(i) Goods and services
The Group principally generates revenue from (1) sales of
goods, which are the manufacture or purchase and distribution of
pharmaceutical products and other consumer health products, and
(2) provision of services, which are the provision of sales, distribution
and marketing services to pharmaceutical manufacturers. The Group
evaluates whether it is the principal or agent for these contracts.
Where the Group obtains control of the goods for distribution, it is
the principal (i.e. recognizes sales of goods on a gross basis). Where
the Group does not obtain control of the goods for distribution, it
is the agent (i.e. recognizes provision of services on a net basis).
Control is primarily evidenced by taking physical possession and
inventory risk of the goods.
Revenue from sales of goods is recognized when the customer
takes possession of the goods. This usually occurs upon completed
delivery of the goods to the customer site. The amount of revenue
recognized is adjusted for expected sales incentives as stipulated
in the contract, which are generally issued to customers as direct
discounts at the point-of-sale or indirectly in the form of rebates.
Sales incentives are estimated using the expected value method.
Additionally, sales are generally made with a limited right of return
under certain conditions. Revenue is recorded net of provisions for
sales discounts and returns.
Revenue from provision of services is recognized when the
benefits of the services transfer to the customer over time, which
is based on the proportionate value of services rendered as
determined under the terms of the relevant contract. Additionally,
when the amounts that can be invoiced correspond directly with the
value to the customer for performance completed to date, the Group
recognizes revenue from provision of services based on amounts
that can be invoiced to the customer.
HUTCHMED (China) Limited 2023 Annual Report 123
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 licenses to the development, commercialization
and manufacture rights of a drug compound, (2) the research and
development services for each specified treatment indication, and
(3) other deliverables, which are accounted for separately if they
are distinct, i.e. if a product or service is separately identifiable from
other items in the arrangement and if a customer can benefit from
it on its own or with other resources that are readily available to the
customer.
The transaction price generally includes fixed and variable
consideration in the form of upfront payment, research and
development cost reimbursements, contingent milestone payments
and sales-based royalties. Contingent milestone payments are not
included in the transaction price until it becomes probable that
a significant reversal of revenue will not occur, which is generally
when the specified milestone is achieved. The allocation of the
transaction price to each performance obligation is based on the
relative standalone selling prices of each performance obligation
determined at the inception of the contract. The Group estimates the
standalone selling prices based on the income approach and cost
plus margin 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 a percentage-of-completion
method. 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 revenue is 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.
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.
124
An asset representing the right to use the underlying asset
during the lease term is recognized that consists of the initial
measurement of the operating lease liability, any lease payments
made to the lessor at or before the commencement date less any
lease incentives received, any initial direct cost incurred by the
Group and any restoration costs.
After commencement of the operating lease, the Group
recognizes lease expenses on a straight-line basis over the lease
term. The right-of-use asset is subsequently measured at cost less
accumulated amortization and any impairment provision. The
amortization of the right-of-use asset represents the difference
between the straight-line lease expense and the accretion of interest
on the lease liability each period. The interest amount is used to
accrete the lease liability and to amortize the right-of-use asset.
There is no amount recorded as interest expense.
Payments associated with short-term leases are recognized as
lease expenses on a straight-line basis over the period of the leases.
Subleases of right-of-use assets are accounted for similar
to other leases. As an intermediate lessor, the Group separately
accounts for the head-lease and sublease unless it is relieved of
its primary obligation under the head-lease. Sublease income is
recorded on a gross basis separate from the head-lease expenses.
If the total remaining lease cost on the head-lease is more than the
anticipated sublease income for the lease term, this is an indicator
that the carrying amount of the right-of-use asset associated with
the head-lease may not be recoverable, and the right-of-use asset
will be assessed for impairment.
Income Taxes
The Group accounts for income taxes under the liability
method. Under the liability method, deferred income tax assets
and liabilities are determined based on the differences between the
financial reporting and income tax bases of assets and liabilities
and are measured using the income tax rates that will be in effect
when the differences are expected to reverse. A valuation allowance
is recorded when it is more likely than not that some of the net
deferred income tax asset will not be realized.
The Group accounts for an uncertain tax position in the
consolidated financial statements only if it is more likely than not
that the position is sustainable based on its technical merits and
consideration of the relevant tax authority’s widely understood
administrative practices and precedents. If the recognition threshold
is met, the Group records the largest amount of tax benefit that
is greater than 50 percent likely to be realized upon ultimate
settlement.
The Group recognizes interest and penalties for income
taxes, if any, under income tax payable on its consolidated balance
sheets and under other expense in its consolidated statements of
operations.
Earnings/(losses) per Share
Basic earnings/(losses) per share is computed by dividing net
income/(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 earnings/(losses) per share is computed by dividing net
income/(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 earnings/(losses) per share does not
assume conversion, exercise, or contingent issuance of securities
that would have an anti-dilutive effect.
Segment Reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief executive officer who
is the Group’s chief operating decision maker. The chief operating
decision maker reviews the Group’s internal reporting in order to
assess performance and allocate resources.
Profit Appropriation and Statutory Reserves
The Group’s subsidiaries and equity investee 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 investee, the amount
of appropriations to these funds are made at the discretion of its
respective board.
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.
HUTCHMED (China) Limited 2023 Annual Report 125
4. Fair Value Disclosures
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. Bank borrowings are floating rate instruments
and carried at amortized cost, which approximates fair values.
5. Cash and Cash Equivalents and Short-term Investments
Cash and Cash Equivalents
Cash at bank and on hand
Bank deposits maturing in three months or less
Short-term Investments
Bank deposits maturing over three months (note)
December 31,
2023
2022
(in US$’000)
129,968
153,621
283,589
602,747
886,336
178,326
134,952
313,278
317,718
630,996
Note: The maturities for short-term investments ranged from 91 to 187 days and 91 to 99 days for the years ended December 31, 2023 and
2022 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$”)
£
Others
6. Accounts Receivable
Accounts receivable from contracts with customers consisted of the following:
Accounts receivable — third parties
Accounts receivable — related parties (Note 24(ii))
Allowance for credit losses
Accounts receivable, net
December 31,
2023
2022
(in US$’000)
836,718
45,772
3,114
713
19
886,336
533,173
79,319
16,721
1,370
413
630,996
December 31,
2023
2022
(in US$’000)
115,169
1,896
(171)
116,894
94,531
3,517
(60)
97,988
Substantially all accounts receivable are denominated in RMB, US$ 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
126
December 31,
2023
2022
(in US$’000)
96,057
11,507
6,439
1,166
115,169
84,007
7,478
1,947
1,099
94,531
Movements on the allowance for credit losses:
As at January 1
Increase in allowance for credit losses
Decrease in allowance due to subsequent collection
Exchange difference
Divestment of subsidiaries
As at December 31
2023
60
141
(16)
(7)
(7)
171
2022
(in US$’000)
20
150
(107)
(3)
—
60
2021
95
16
(92)
1
—
20
7. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the following:
Prepayments
Interest receivables
Value-added tax receivables
Deposits
Dividend receivables (Note 22)
Others
December 31,
2023
2022
(in US$’000)
7,108
2,936
2,166
1,065
—
1,614
14,889
22,329
807
1,491
1,214
26,246
1,129
53,216
No allowance for credit losses has been made for other receivables, prepayments and deposits for the years ended December 31, 2023
and 2022.
8. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted of the following:
Raw materials
Finished goods
December 31,
2023
2022
(in US$’000)
26,784
23,474
50,258
27,392
29,298
56,690
HUTCHMED (China) Limited 2023 Annual Report 127
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Buildings
Leasehold
improvements
Plant and
equipment
Furniture and
fixtures, other
equipment and
motor vehicles
Construction
in progress
Total
(in US$’000)
Cost
As at January 1, 2023
Additions
Disposals
Divestment of subsidiaries
Transfers
Exchange differences
As at December 31, 2023
Accumulated depreciation and
impairment
As at January 1, 2023
Depreciation
Impairment
Disposals
Divestment of subsidiaries
Exchange differences
As at December 31, 2023
Net book value
2,233
—
—
—
54,549
(60)
56,722
1,753
565
—
—
—
(48)
2,270
16,836
216
—
(202)
1,420
(418)
17,852
13,282
1,824
515
—
(97)
(356)
15,168
7,454
99
(230)
—
16,373
(212)
23,484
2,670
1,008
2,013
(148)
—
(80)
5,463
31,738
1,094
(468)
(172)
8,453
(828)
39,817
19,159
4,491
1,150
(464)
(143)
(525)
23,668
54,550
36,916
—
—
(80,795)
(2,250)
8,421
—
—
—
—
—
—
—
112,811
38,325
(698)
(374)
—
(3,768)
146,296
36,864
7,888
3,678
(612)
(240)
(1,009)
46,569
As at December 31, 2023
54,452
2,684
18,021
16,149
8,421
99,727
Buildings
Leasehold
improvements
Plant and
equipment
Furniture and
fixtures, other
equipment and
motor vehicles
Construction
in progress
Total
(in US$’000)
2,432
—
—
—
(199)
2,233
1,788
116
—
—
(151)
1,753
480
17,828
171
(1,105)
1,336
(1,394)
16,836
11,571
3,741
(1,018)
—
(1,012)
13,282
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
3,554
4,784
12,579
54,550
75,947
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
128
10. Leases
Leases consisted of the following:
Right-of-use assets
Offices
Factories
Warehouse (note)
Others
Total right-of-use assets
Lease liabilities, current portion
Lease liabilities, non-current portion
Total lease liabilities
December 31,
2023
2022
(in US$’000)
3,321
113
1,061
170
4,665
3,927
2,860
6,787
6,634
387
1,500
201
8,722
3,708
5,196
8,904
Note: Comprised of a warehouse in Suzhou that is leased through June 2026 in which the contract has a termination option with 3-month
advance notice. The termination option was not recognized as part of the right-of-use asset and lease liability as it is uncertain that the Group
will exercise such option.
Lease activities are summarized as follows:
Lease expenses:
Short-term leases with lease terms equal or less than 12 months
Leases with lease terms greater than 12 months
Impairment
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from obtaining right-of-use assets
Non-cash: Lease liabilities changed in relation to modifications and terminations
Year Ended December 31,
2023
2022
(in US$’000)
203
5,314
2,088
7,605
5,461
3,429
—
134
5,238
—
5,372
5,212
2,689
(499)
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, 2023 was 2.49 years and 2.92% respectively. 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.
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
Total lease payments
Less: Discount factor
Total lease liabilities
December 31,
2023
(in US$’000)
4,042
1,192
919
698
124
6,975
(188)
6,787
HUTCHMED (China) Limited 2023 Annual Report 129
11. Investments in Equity Investees
Investments in equity investees consisted of the following:
SHPL
Other (note)
December 31,
2023
2022
(in US$’000)
48,411
—
48,411
73,461
316
73,777
Note: On April 13, 2023, the Group completed a transaction to divest its entire investment in a former equity investee to a third party.
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 (divested 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
Profit before taxation
Income tax expense (note (b))
Net income (note (c))
Non-controlling interests
Net income attributable to the shareholders of equity
investee
Notes:
SHPL
December 31,
2023
2022
(in US$’000)
201,025
73,939
(179,649)
(3,687)
91,628
SHPL
Year Ended December 31,
2022
2023
2021
(in US$’000)
385,483
284,361
754
112,488
(17,636)
94,852
—
94,852
370,600
281,113
980
116,454
(16,738)
99,716
—
99,716
332,648
255,089
1,216
105,325
(15,896)
89,429
—
89,429
214,267
80,062
(147,952)
(4,944)
141,433
HBYS
Period Ended
September 28,
2021(note (a))
209,528
111,066
205
36,715
(4,840)
31,875
(36)
31,839
(a) 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.
(b) 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, 2023, 2022 and 2021.
(c) Net income is before elimination of unrealized profits on transactions with the Group. The amounts eliminated were approximately
US$131,000, US$110,000 and US$36,000 for the years ended December 31, 2023, 2022 and 2021 respectively.
130
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the carrying amount of investments in equity investees is as follows:
Opening net assets after non-controlling interests as at
January 1
Net income attributable to the shareholders of equity
investee
Dividends declared
Other comprehensive income/(loss)
Closing net assets after non-controlling interests as at
December 31/September 28
Group’s share of net assets
Goodwill
Elimination of unrealized profits on downstream sales
Divestment (Note 22)
Carrying amount of investments as at December 31
2023
SHPL
2022
2021
(in US$’000)
HBYS
2021(note)
141,433
145,741
152,714
119,424
94,852
(146,974)
2,317
91,628
45,814
2,795
(198)
—
48,411
99,716
(87,436)
(16,588)
141,433
70,717
2,872
(128)
—
73,461
89,429
(99,744)
3,342
145,741
72,871
3,128
—
—
75,999
31,839
(106,159)
1,387
46,491
23,246
—
—
(23,246)
—
Note: The summarized financial information 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.
SHPL had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
12. Accounts Payable
Accounts payable
December 31, 2023
(in US$’000)
376
December 31,
2023
2022
(in US$’000)
36,327
71,115
Substantially all accounts payable are denominated in RMB, EUR and US$ and due within one year from the end of the reporting period.
The carrying values of accounts payable approximate their fair values due to their short-term maturities.
An aging analysis based on the relevant invoice dates is as follows:
Not later than 3 months
Between 3 months to 6 months
Between 6 months to 1 year
Later than 1 year
December 31,
2023
2022
(in US$’000)
33,233
1,058
941
1,095
36,327
60,553
7,216
2,137
1,209
71,115
HUTCHMED (China) Limited 2023 Annual Report 131
13. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the following:
Accrued research and development expenses
Accrued salaries and benefits
Accrued capital expenditures
Accrued selling and marketing expenses
Accrued administrative and other general expenses
Amounts due to related parties (Note 24(ii))
Deposits
Deferred government grants
Others
14. Bank Borrowings
Bank borrowings consisted of the following:
Current
Non-current
December 31,
2023
2022
(in US$’000)
153,737
45,048
23,659
16,340
15,777
2,162
1,564
740
12,372
271,399
156,134
42,442
21,390
11,564
14,491
2,101
3,616
673
12,210
264,621
December 31,
2023
2022
(in US$’000)
31,155
48,189
79,344
—
18,104
18,104
The weighted average interest rate for outstanding bank borrowings for the years ended December 31, 2023 and 2022 was 3.41% per
annum and 1.73% per annum respectively. The carrying amounts of the Group’s outstanding bank borrowings as at December 31, 2023 and
2022 were denominated in RMB.
(i) Short-term working capital loan facility
In November 2023, a subsidiary entered into a short-term working capital loan facility with a bank in the amount of RMB300,000,000
(US$41,923,000) with an annual interest rate at the 1-year China Loan Prime Rate (“LPR”) less 0.95%. As at December 31, 2023, RMB222,941,000
(US$31,155,000) was drawn from the facility.
(ii) 10 year fixed asset loan facility
In October 2021, a subsidiary entered into a 10-year fixed asset loan facility agreement with the bank for the provision of a secured
credit facility in the amount of RMB754,880,000 (US$105,490,000) with an annual interest rate at the 5-year China LPR 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, 2023 and 2022, RMB344,840,000 (US$48,189,000) and RMB126,083,000 (US$18,104,000) were utilized from the fixed asset loan
facility respectively. For the years ended December 31, 2023 and 2022, US$1,047,000 and US$110,000 were related to capitalized interest.
(iii) 1-year revolving loan facility
In May 2022, the Group through its subsidiary, entered into a 1-year revolving loan facility with a bank in the amount of HK$390,000,000
(US$50,000,000) with an interest rate at Hong Kong Interbank Offered Rate plus 0.5% per annum. This credit facility was guaranteed by the
Company and expired in May 2023.
The Group’s bank borrowings are repayable as from the dates indicated as follows:
Not later than 1 year
Between 1 to 3 years
Between 3 to 4 years
Between 4 to 5 years
Later than 5 years
December 31,
2023
2022
(in US$’000)
31,155
3,192
2,872
6,384
35,741
79,344
—
360
839
1,079
15,826
18,104
As at December 31, 2023 and 2022, the Group had unutilized bank borrowing facilities of US$68,069,000 and US$140,289,000 respectively.
132
15. Commitments and Contingencies
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
The Group does not have any other significant commitments or contingencies.
December 31, 2023
(in US$’000)
1,259
16. Ordinary Shares
As at December 31, 2023, the Company is authorized to issue 1,500,000,000 ordinary shares.
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 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, 2023, the aggregate number of shares issuable under the Hutchmed Share Option Scheme was 42,161,098 ordinary
shares. The Company will issue new shares to satisfy share option exercises. Additionally, the number of shares authorized but unissued was
628,743,730 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 ten years from the date of grant.
A summary of the Company’s share option activity and related information is as follows:
Outstanding at January 1, 2022
Granted (note)
Exercised
Cancelled
Expired
Outstanding at December 31, 2022
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2023
Vested and exercisable at December 31, 2022
Vested and exercisable at December 31, 2023
Number of share
options
37,190,590
7,680,820
(244,490)
(3,849,905)
(1,255,620)
39,521,395
1,221,900
(6,480,930)
(2,832,340)
(1,893,370)
29,536,655
21,113,285
18,198,170
Weighted
average exercise
price in US$
per share
4.88
2.26
1.98
5.19
5.66
4.34
2.50
2.30
4.61
5.55
4.57
4.57
5.10
Weighted
average
remaining
contractual life
(years)
7.04
Aggregate
intrinsic value
(in US$’000)
82,377
6.55
11,525
6.67
4.80
5.91
9,924
6,288
1,753
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$0.24 per share using the Polynomial
model. Vesting of such award will occur in March 2025 if the performance target based on a market condition is met.
HUTCHMED (China) Limited 2023 Annual Report 133
In estimating the fair value of share options granted, the following assumptions were used in the Polynomial model for awards granted
in the periods indicated:
Weighted average grant date fair value of share options (in US$ per share)
Significant inputs into the valuation model (weighted average):
Exercise price (in US$ per share)
Share price at effective date of grant (in US$ per share)
Expected volatility (note (a))
Risk-free interest rate (note (b))
Contractual life of share options (in years)
Expected dividend yield (note (c))
Notes:
Year Ended December 31,
2023
2022
1.14
2.50
2.50
53.3%
3.69%
10
0%
0.85
2.26
2.22
46.7%
2.98%
10
0%
(a) The Company calculated its expected volatility with reference to the historical volatility prior to the issuances of share options.
(b) The risk-free interest rates reference the U.S. Treasury yield curves because the Company’s ADS are currently listed on the NASDAQ and
denominated in US$.
(c) The Company has not declared or paid any dividends and does not currently expect to do so prior to the exercise of the granted share
options, and therefore uses an expected dividend yield of zero in the Polynomial model.
The Company will issue new shares to satisfy share option exercises. The following table summarizes the Company’s share option
exercises:
Cash received from share option exercises
Total intrinsic value of share option exercises
Year Ended December 31,
2022
(in US$’000)
174
92
2023
5,094
4,626
2021
2,452
2,999
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 revenue
Year Ended December 31,
2022
(in US$’000)
4,803
1,803
130
6,736
2023
3,250
2,843
91
6,184
2021
8,460
7,783
122
16,365
As at December 31, 2023, the total unrecognized compensation cost was US$5,057,000, and will be recognized on a graded vesting
approach over the weighted average remaining service period of 2.15 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, revenue, net income/(loss) after taxes
and the achievement of clinical, regulatory, business development and manufacturing 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. Based on the actual achievement
of performance target, the amount previously recorded in the liability will be adjusted through share-based compensation expense.
134
Granted awards under the LTIP are as follows:
Grant date
May 23, 2022
September 13, 2022
September 13, 2022
June 5, 2023
Notes:
Maximum cash amount (in
US$ millions)
Covered financial years
60.4
3.8
1.7
54.9
2022
2022
note (b)
2023
Performance target
determination date
note (a)
note (a)
note (b)
note (a)
(a) The annual performance target determination date is the date of the announcement of the Group’s annual results for the covered
financial year and vesting occurs two business days after the announcement of the Group’s annual results for the financial year falling
two years after the covered financial year to which the LTIP award relates.
(b) This award does not stipulate performance targets and is subject to a vesting schedule of 25% on each of the first, second, third and
fourth anniversaries of the date of grant.
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.
The Trustee’s assets include treasury shares and funds for additional treasury shares, trustee fees and expenses. The number of treasury
shares (in ordinary shares equivalent) held by the Trustee were as follows:
As at January 1, 2022
Purchased
Vested
As at December 31, 2022
Purchased
Vested
As at December 31, 2023
Number of
treasury shares
Cost
(in US$’000)
8,139,175
14,028,465
(2,566,265)
19,601,375
2,725,515
(4,714,205)
17,612,685
40,014
48,084
(12,034)
76,064
9,071
(18,148)
66,987
Based on the estimated achievement of performance conditions for 2023 financial year LTIP awards, the determined monetary amount
was US$50,262,000 which is recognized to share-based compensation expense over the requisite vesting period to March 2026.
For the years ended December 31, 2023 and 2022, US$7,332,000 and US$19,031,000 of the LTIP awards were forfeited respectively based
on the determined or estimated monetary amount as at the forfeiture date.
The following table presents the share-based compensation expenses recognized under the LTIP awards:
Research and development expenses
Selling and administrative expenses
Cost of revenue
Recorded with a corresponding credit to:
Liability
Additional paid-in capital
Year Ended December 31,
2022
(in US$’000)
16,101
7,376
373
23,850
6,216
17,634
23,850
2023
18,224
11,690
502
30,416
11,364
19,052
30,416
2021
16,880
8,451
294
25,625
14,263
11,362
25,625
For the years ended December 31, 2023, 2022 and 2021, US$4,563,000, US$15,351,000 and US$8,516,000 were reclassified from liability to
additional paid-in capital respectively upon LTIP awards reaching the determination date. As at December 31, 2023 and 2022, US$10,502,000
and US$3,701,000 were recorded as liabilities respectively for LTIP awards prior to the determination date.
As at December 31, 2023, the total unrecognized compensation cost was approximately US$50,447,000, which considers expected
performance targets and the amounts expected to vest, and will be recognized over the requisite periods.
HUTCHMED (China) Limited 2023 Annual Report 135
18. Revenue
The following table presents revenue disaggregated by contract type:
Invoiced Goods — Marketed Products
— Distribution
Services — Commercialization of Marketed Products
— Research and Development
License & Collaborations — Services
— Royalties
— Licensing
— Manufacturing supply
Third parties
Related parties (Note 24(i))
Invoiced Goods — Marketed Products
— Distribution
Services — Commercialization of Marketed Products
— Research and Development
License & Collaborations — Services
— Royalties
— Licensing
Third parties
Related parties (Note 24(i))
Year Ended December 31, 2023
Oncology/Immunology
Other Ventures
Total
(in US$’000)
83,087
—
48,608
481
80,397
32,470
278,855
4,718
528,616
528,135
481
528,616
—
309,383
—
—
—
—
—
—
309,383
301,119
8,264
309,383
83,087
309,383
48,608
481
80,397
32,470
278,855
4,718
837,999
829,254
8,745
837,999
Year Ended December 31, 2022
Oncology/Immunology
Other Ventures
Total
(in US$’000)
57,057
—
41,275
507
23,741
26,310
14,954
163,844
163,337
507
163,844
—
262,565
—
—
—
—
—
262,565
257,272
5,293
262,565
57,057
262,565
41,275
507
23,741
26,310
14,954
426,409
420,609
5,800
426,409
136
Invoiced Goods — Marketed Products
— Distribution
Services — Commercialization of Marketed Products
— Research and Development
License & Collaborations — Services
— Royalties
— Licensing
Third parties
Related parties (Note 24(i))
Year Ended December 31, 2021
Oncology/Immunology
Other Ventures
Total
(in US$’000)
33,937
—
27,428
525
18,995
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
525
18,995
15,064
23,661
356,128
351,347
4,781
356,128
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,
2023
2022
(in US$’000)
57,566
73
57,639
69,480
127,119
11,817
1,530
13,347
190
13,537
(a) Oncology/Immunology segment deferred revenue relates to unamortized upfront and milestone payments, invoiced amounts for
royalties where the customer has not yet completed the in-market sale and advance consideration received for cost reimbursements
which are attributed to research and development services that have not yet been rendered as at the reporting date.
(b) Other Ventures segment deferred revenue relates to payments in advance from customers for goods that have not been transferred and
services that have not been rendered to the customer as at the reporting date.
(c) Estimated deferred revenue to be recognized over time as from the date indicated is as follows:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Later than 4 years
December 31,
2023
2022
(in US$’000)
57,639
32,797
30,918
844
4,921
127,119
13,347
150
40
—
—
13,537
(d) As at January 1, 2023, deferred revenue was US$13.5 million, of which US$12.7 million was recognized during the year ended December
31, 2023.
HUTCHMED (China) Limited 2023 Annual Report 137
License and collaboration agreement with Takeda Pharmaceuticals
On January 23, 2023, the Group and Takeda Pharmaceuticals International AG (“Takeda”) entered into an exclusive out-licensing
agreement (the “Takeda Agreement”) in territories outside of Mainland China, Hong Kong and Macau (the “Territory”) to further the global
development, commercialization and manufacturing of Fruzaqla, also known as fruquintinib, a targeted oncology therapy for the treatment of
various types of solid tumors. Under the terms of the Takeda Agreement, the Group is entitled to receive a series of payments up to US$1.13
billion, including upfront, regulatory, development and commercial sales milestone payments, plus royalties on net sales in the Territory.
Fruzaqla was successfully approved for commercialization in the U.S. in November 2023, which triggered a regulatory approval milestone of
US$35 million.
Upfront and milestone payments according to the Takeda Agreement received up to December 31, 2023 are summarized as follows:
Upfront payment
Regulatory approval milestone payment achieved
(in US$’000)
400,000
35,000
As of December 31, 2023, the total revenue recognized under the Takeda Agreement is US$353.1 million, which included US$280.0
million of the upfront payment and US$32.0 million of the regulatory approval milestone payment received.
The Takeda Agreement has the following material performance obligations: (1) the licenses for the development and commercialization
of Fruzaqla in the Territory and the manufacture of Fruzaqla for use in the Territory, (2) manufacturing supply and (3) services for research and
development including ongoing clinical trials and regulatory submissions and manufacturing technology transfer.
The transaction price for these performance obligations includes the upfront payment, service cost reimbursements, milestone
payments and sales-based royalties. Milestone payments are not included in the transaction price until they become probable that a
significant reversal of revenue would not occur, which is generally when the criteria to receive the specified milestone are achieved.
The allocation of the transaction price to each relevant performance obligation was based on the relative standalone selling price
of each performance obligation determined at the inception of the contract. Variable consideration is allocated entirely to a performance
obligation or to a distinct good or service that forms part of a single performance obligation if the terms of the variable consideration
relate to the satisfaction of the respective performance obligation and the amount allocated is consistent with the amount expected to
be received for the satisfaction of the respective performance obligation. The standalone selling price of the licenses for the development
and commercialization of Fruzaqla in the Territory and the manufacture of Fruzaqla for use in the Territory and manufacturing supply was
determined using a discounted cash flow method based on the probability-weighted present value of forecasted cash flows associated with
out-licensing Fruzaqla in the Territory, and the standalone selling price of the services for research and development of ongoing clinical trials,
regulatory submissions and manufacturing technology transfer was determined using a cost plus margin approach based on the present
value of estimated future service costs plus a reasonable margin. Significant assumptions included in the determination of the standalone
selling prices for each performance obligation identified including forecasted revenue, probabilities of regulatory approvals, estimated future
service costs, margin rates and discount rates. Based on these estimations, proportionate amounts of transaction price to be allocated to the
licenses, and other performance obligations were 62% and 38% respectively at contract inception. Control of the licenses to Fruzaqla was
transferred at the inception date of the agreement and consequently, amounts allocated to this performance obligation were recognized at
inception. Manufacturing supply is recognized at a point in time when the control of the goods is transferred. Services are performed over
the term of the Takeda Agreement and amounts allocated are recognized over time using a percentage-of-completion method. Royalties are
recognized as future sales occur as they meet the requirements for the sales-usage based royalty exception.
Revenue recognized under the Takeda Agreement is as follows:
Manufacturing supply — Invoiced Marketed Products sales
— Allocated from upfront payment
Services — Research and Development
— Allocated from upfront and milestone payments
Royalties — Marketed Products
Licensing — Allocated from upfront and milestone payments
Year Ended
December 31, 2023
(in US$’000)
5,053
4,718
33,892
28,494
2,092
278,855
353,104
138
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”), as the China brand name for fruquintinib. 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$10 million in lieu of cost reimbursement.
Upfront and cumulative milestone payments according to the Lilly Agreement received up to December 31, 2023 are summarized as
follows:
Upfront payment
Development milestone payments achieved
(in US$’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 a percentage-of-completion method. 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 — Invoiced Marketed Products sales
Services — Commercialization of Marketed Products
— Research and Development
— Allocated from upfront and milestone payments
Royalties — Marketed Products
Year Ended December 31,
2022
(in US$’000)
14,407
41,275
8,031
23
13,954
77,690
2023
16,966
48,608
2,828
12
16,560
84,974
2021
15,792
27,428
4,491
—
10,292
58,003
HUTCHMED (China) Limited 2023 Annual Report 139
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$50 million of phase III clinical trial costs related to developing Orpathys for renal cell carcinoma (“RCC”),
and remaining costs will be shared between the Group and AZ. Subject to approval of Orpathys in RCC, the Group would receive additional
tiered royalties on all sales outside of China, with the incremental royalty rates determined based on actual sharing of development costs.
In November 2021, the Group entered into an additional amendment which revised the sharing between the Group and AZ of development
costs for Orpathys in China for non-small cell lung cancer, as well as adding potential development milestones.
Upfront and cumulative milestone payments according to the AZ Agreement received up to December 31, 2023 are summarized as
follows:
Upfront payment
Development milestone payments achieved
First-sale milestone payment achieved
(in US$’000)
20,000
40,000
25,000
The AZ Agreement has the following performance obligations: (1) the license for the commercialization rights to Orpathys and (2)
the research and development services for the specified indications. The transaction price includes the upfront payment, research and
development cost reimbursements, milestone payments and sales-based royalties. Milestone payments were not included in the transaction
price until it became probable that a significant reversal of revenue would not occur, which is generally when the specified milestone is
achieved. The allocation of the transaction price to each performance obligation was based on the relative standalone selling prices of each
performance obligation determined at the inception of the contract. Based on this estimation, proportionate amounts of transaction price
to be allocated to the license to Orpathys and the research and development services were 95% and 5% respectively. Control of the license
to Orpathys transferred at the inception date of the agreement and consequently, amounts allocated to this performance obligation were
recognized at inception. Conversely, research and development services for each specified indication are performed over time and amounts
allocated are recognized over time using a percentage-of-completion method.
Revenue recognized under the AZ Agreement and subsequent amendments is as follows:
Goods — Invoiced Marketed Products sales
Services — Research and Development
— Allocated from upfront and milestone payments
Royalties — Marketed Products
Licensing — Allocated from upfront and milestone payments
Year Ended December 31,
2022
(in US$’000)
9,904
14,106
361
12,356
14,954
51,681
2023
15,013
14,993
77
13,818
—
43,901
2021
6,509
12,743
1,370
4,772
23,661
49,055
140
19. In-Licensing arrangement
On August 7, 2021, the Group and Epizyme, Inc. (“Epizyme”) entered into a license agreement (the “In-license Agreement”) for
tazemetostat, a novel inhibitor of EZH2 that is approved by the U.S. Food and Drug Administration for the treatment of certain patients with
epithelioid sarcoma and follicular lymphoma. The Group is 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 (which occurred in 2023), the Group will incur tiered royalties based on net sales. For the year ended December 31, 2023, the Group
incurred royalties of US$9,000.
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 IPR&D. During the year ended
December 31, 2022, US$5.0 million development milestone was paid and expensed to research and development expenses as IPR&D.
The warrant was recorded as a financial asset at fair value with changes to fair value recognized to the consolidated statements of
operations. During the year ended December 31, 2022, an affiliate of Ipsen S.A. acquired all outstanding shares of Epizyme and the warrant
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$12.5 million were recognized to other expense in the consolidated statements of operations respectively.
20. Research and Development Expenses
Research and development expenses are summarized as follows:
Clinical trial related costs
Personnel compensation and related costs
Other research and development expenses
Year Ended December 31,
2022
(in US$’000)
255,935
119,306
11,652
386,893
2023
199,728
93,030
9,243
302,001
2021
190,051
91,639
17,396
299,086
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, 2023, 2022 and 2021, the Group has incurred
research and development expenses of US$22.0 million, US$14.7 million and US$18.4 million respectively, related to such collaborative
arrangements.
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, 2023, 2022 and 2021, the Group received government grants of US$4,111,000,
US$8,474,000 and US$9,095,000 respectively.
Government grants were recognized in the consolidated statements of operations as follows:
Research and development expenses
Other income
Year Ended December 31,
2022
(in US$’000)
4,556
1,434
5,990
2023
1,054
3,134
4,188
2021
15,515
318
15,833
HUTCHMED (China) Limited 2023 Annual Report 141
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
was entitled to a portion of such dividends and as at December 31, 2022, the Group recorded US$26.2 million dividend receivables, net of
taxes, from the third party to other receivables (Note 7), and as at December 31, 2023, the third party has fully settled these amounts.
In addition, the Group and Hutchison Whampoa Enterprises Limited, an affiliate of 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, 2023 and 2022, US$1.5 million was included in amounts due to related parties and US$7.6 million and
US$8.7 million were included in other non-current liabilities respectively (Note 24(ii)).
The gain on divestment of an equity investee was recognized in the consolidated statements of operations as follows:
Proceeds
Dividend receivables — third party
Less: Group’s share of net assets of HBYS (Note 11(iii))
Dividend receivables — HBYS
Withholding tax liability on dividend receivables — HBYS
Branding liability
Accumulated other comprehensive income and reserves
Transaction costs and others
Gain on divestment of an equity investee
Less: Capital gain tax
Less: Gain on divestment of an equity investee attributable to non-controlling interests
Gain on divestment of an equity investee attributable to the Group
Year Ended December 31,
2021
(in US$’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
23. Other income/(expense)
Other income:
Foreign exchange gains
Government grants
Others
Other expense:
Impairment of property, plant and equipment
Impairment of right-of-use assets
Foreign exchange losses
Fair value losses on warrant
Others
2023
Year Ended December 31,
2022
(in US$’000)
2021
8,661
3,134
1,154
12,949
(3,678)
(2,088)
—
—
(2,636)
(8,402)
—
1,434
399
1,833
—
—
(5,704)
(2,452)
(5,353)
(13,509)
1,671
318
437
2,426
—
—
—
(12,548)
(95)
(12,643)
142
24. Significant Transactions with Related Parties and Non-Controlling Shareholders of
Subsidiaries
The Group has the following significant transactions with related parties and non-controlling shareholders of subsidiaries, which were
carried out in the normal course of business at terms determined and agreed by the relevant parties:
(i) Transactions with related parties:
2023
Year Ended December 31,
2022
(in US$’000)
2021
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))
Divestment of subsidiaries to:
An indirect subsidiary of CK Hutchison (note (b))
(ii) Balances with related parties included in:
Accounts receivable — related parties
Indirect subsidiaries of CK Hutchison (note (c))
An equity investee (note (c))
Amounts due from related parties
An indirect subsidiary of CK Hutchison (note (c))
An equity investee (note (c) and (d))
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (e) and (g))
An equity investee (note (c) and (f))
Other non-current liabilities
An equity investee (note (f))
An indirect subsidiary of CK Hutchison (note (g))
Notes:
1,914
6,350
8,264
481
3,651
150
—
150
997
—
5,103
3,610
1,683
5,293
507
4,231
227
127
354
980
—
—
December 31,
2023
2022
(in US$’000)
—
1,896
1,896
228
28,234
28,462
2,017
145
2,162
450
7,619
8,069
4,256
—
4,256
525
3,770
350
—
350
971
12,721
—
1,319
2,198
3,517
—
998
998
1,953
148
2,101
755
8,716
9,471
(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 each of the years ended December 31, 2023, 2022 and 2021, the
Group paid US$1,538,000 for the branding rights.
(b) On December 7, 2023, the Group completed a transaction to divest HHOHK and HSN to an indirect subsidiary of CK Hutchison for
proceeds of US$5,103,000. A gain on divestment of US$96,000 was recorded in other income for the year ended December 31, 2023.
(c) 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. No allowance for credit losses has been made for amounts due from
related parties for the years ended December 31, 2023 and 2022.
HUTCHMED (China) Limited 2023 Annual Report 143
(d) As at December 31, 2023, dividends receivable of US$27,130,000 was included in amounts due from related parties.
(e) Amounts due to indirect subsidiaries of CK Hutchison are unsecured, repayable on demand and interest-bearing if not settled within one
month.
(f)
Includes other deferred income representing amounts recognized from granting of commercial, promotion and marketing rights.
(g) As at December 31, 2023 and 2022, 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, 2023 and 2022, US$7,619,000 and US$8,716,000 of the branding
liability payable was included in other non-current liabilities.
(iii) Transactions with non-controlling shareholders of subsidiaries:
Sales
Purchases
Dividends declared
Distribution service fee
(iv) Balances with non-controlling shareholders of subsidiaries included in:
Accounts receivable
Accounts payable
Other payables, accruals and advance receipts
Year Ended December 31,
2022
(in US$’000)
47,611
7,936
25,600
—
2023
66,417
5,733
9,068
369
2021
41,974
10,660
9,894
—
December 31,
2023
2022
(in US$’000)
7,824
27
309
11,139
2,922
—
144
25. Income Taxes
(i)
Income tax expense/(benefit)
Current tax
HK (note (a))
PRC (note (b) and (c))
U.S. and others (note (d))
Total current tax
Deferred income tax expense/(benefit)
Income tax expense/(benefit)
Notes:
2023
Year Ended December 31,
2022
(in US$’000)
2021
45
1,767
471
2,283
2,226
4,509
301
2,580
399
3,280
(3,563)
(283)
310
15,909
417
16,636
(4,718)
11,918
(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, 2025 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, 2023, 2022 and 2021, 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$14.4 million arising from the indirect disposal of HBYS (Note
22), calculated at 10% of the excess of the disposal proceeds over the cost of acquiring the equity investment in HBYS.
(d) The Company’s subsidiary in the U.S. with operations primarily in New Jersey is subject to U.S. taxes, primarily federal and state taxes,
which have been provided for at approximately 21% (federal) and 0% to 11.5% (state tax) on the estimated assessable profit over the
reporting years. Certain income receivable by the Company is subject to U.S. withholding tax of 30%. Two of the Group’s subsidiaries are
subject to corporate tax in the UK and EU countries at 19% and 15% to 25%, respectively, on the estimated assessable profits in relation
to their presence in these countries.
HUTCHMED (China) Limited 2023 Annual Report 145
The reconciliation of the Group’s reported income tax expense to the theoretical tax amount that would arise using the tax rates of the
Company against the Group’s income/(loss) before income taxes and equity in earnings of equity investees is as follows:
Income/(loss) before income taxes and equity in earnings of
equity investees
Tax calculated at the statutory tax rate of the Company
Tax effects of:
Different tax rates applicable in different jurisdictions
Tax valuation allowance
Preferential tax rate difference
Preferential tax deduction and credits
Expenses not deductible for tax purposes
Withholding tax on undistributed earnings of PRC entities
Income not subject to tax
Temporary difference
Others
Income tax expense/(benefit)
(ii) Deferred tax assets and liabilities
The significant components of deferred tax assets and liabilities are as follows:
2023
Year Ended December 31,
2022
(in US$’000)
2021
58,308
9,621
541
26,629
(3,065)
(32,667)
7,086
2,386
(5,826)
(817)
621
4,509
(410,422)
(67,720)
(215,740)
(35,597)
6,316
93,243
(171)
(40,791)
8,886
2,492
(2,142)
(1,614)
1,218
(283)
136
63,975
(148)
(29,838)
8,684
3,153
(2,704)
2,717
1,540
11,918
December 31,
2023
2022
(in US$’000)
Deferred tax assets
Cumulative tax losses
Others
Total deferred tax assets
Less: Valuation allowance
Deferred tax assets
Deferred tax liabilities
Undistributed earnings from a PRC entity
Others
Deferred tax liabilities
284,271
14,707
298,978
(283,522)
15,456
1,478
6
1,484
The movements in deferred tax assets and liabilities are as follows:
As at January 1
Movement of previously recognized withholding tax on undistributed earnings
(Charged)/Credited to the consolidated statements of operations
Withholding tax on undistributed earnings of PRC entities
Deferred tax on amortization of intangible assets
Deferred tax on temporary differences, tax loss carried forward and research
tax credits
Reclassification from current tax
Divestment of subsidiaries
Divestment of an equity investee
Exchange differences
As at December 31
2023
12,656
3,674
(2,385)
18
142
11
(49)
—
(95)
13,972
2022
(in US$’000)
6,636
2,186
(2,492)
19
6,036
—
—
—
271
12,656
264,751
15,254
280,005
(264,639)
15,366
2,686
24
2,710
2021
(3,548)
5,148
(3,153)
19
7,852
—
—
370
(52)
6,636
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.
146
The cumulative tax losses can be carried forward against future taxable income and will expire in the following years:
No expiry date
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
December 31,
2023
2022
(in US$’000)
74,515
3,529
35,030
46,766
60,033
103,913
171,142
237,384
379,321
594,311
176,363
1,882,307
71,325
3,763
36,098
48,150
61,808
107,297
175,853
243,918
389,761
610,800
—
1,748,773
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$4.7 million and US$1.1 million U.S. Federal and New Jersey state research tax
credits which will expire between 2041 and 2043 (Federal) and 2028 and 2030 (New Jersey) respectively, if not utilized.
The table below summarizes changes in the deferred tax valuation allowance:
As at January 1
Charged to consolidated statements of operations
Utilization of previously unrecognized tax losses
Write-off of tax losses
Divestment of subsidiaries
Others
Exchange differences
As at December 31
2023
264,639
26,629
(39)
(112)
(433)
—
(7,162)
283,522
2022
(in US$’000)
189,700
93,243
(1)
(125)
—
—
(18,178)
264,639
As at December 31, 2023, 2022 and 2021, 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)/to prepaid tax
Reclassification to deferred tax
Divestment of subsidiaries
Divestment of an equity investee (Note 22)
Exchange difference
As at December 31
2023
1,112
2,283
3,674
(3,728)
(397)
11
(177)
—
(198)
2,580
2022
(in US$’000)
15,546
3,280
2,186
(18,891)
(241)
—
—
—
(768)
1,112
Note: The amount for 2022 includes US$14.4 million capital gain tax paid for gain on divestment of HBYS (Note 22).
2021
122,378
63,975
(186)
—
—
(9)
3,542
189,700
2021
1,120
16,636
5,148
(5,014)
25
—
—
(2,644)
275
15,546
HUTCHMED (China) Limited 2023 Annual Report 147
26. Earnings/(Losses) Per Share
(i) Basic earnings/(losses) per share
Basic earnings/(losses) per share is calculated by dividing the net income/(loss) attributable to the Company by the weighted average
number of outstanding ordinary shares in issue during the year. Treasury shares held by the Trustee are excluded from the weighted average
number of outstanding ordinary shares in issue for purposes of calculating basic earnings/(losses) per share.
Weighted average number of outstanding ordinary shares in issue
Net income/(loss) attributable to the Company (US$’000)
Basic earnings/(losses) per share attributable to the Company
(US$ per share)
(ii) Diluted earnings/(losses) per share
2023
849,654,296
100,780
Year Ended December 31,
2022
847,143,540
(360,835)
2021
792,684,524
(194,648)
0.12
(0.43)
(0.25)
Diluted earnings/(losses) per share is calculated by dividing net income/(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.
Weighted average number of outstanding ordinary shares in issue
Effect of share options and LTIP awards
Weighted average number of outstanding ordinary shares in issue and dilutive
ordinary share equivalents outstanding
Net income/(loss) attributable to the Company (US$’000)
Diluted earnings/(losses) per share attributable to the Company
(US$ per share)
2023
849,654,296
19,542,052
869,196,348
100,780
Year Ended December 31,
2022
847,143,540
—
847,143,540
(360,835)
2021
792,684,524
—
792,684,524
(194,648)
0.12
(0.43)
(0.25)
For the years ended December 31, 2022 and 2021, 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.
27. Segment Reporting
The Group’s operating segments are as follows:
(i) Oncology/Immunology: focuses on discovering, developing, and commercializing targeted therapies and immunotherapies for the
treatment of cancer and immunological diseases. Oncology/Immunology is further segregated into two core business areas:
(a) R&D: comprises research and development activities covering drug discovery, development, manufacturing and regulatory
functions, out-licensing of in-house developed drugs, as well as administrative activities to support research and development
operations; and
(b) Marketed Products: comprises the invoiced sales, marketing, manufacture and distribution of drugs developed from research and
development activities including out-licensed marketed products.
(ii) Other Ventures: comprises other commercial businesses which include the sales, marketing, manufacture and distribution of other
prescription drugs and healthcare products.
The performance of the reportable segments is assessed based on segment net income/(loss) attributable to the Company.
148
The segment information is as follows:
R&D
U.S. and
Others
PRC
Year Ended December 31, 2023
Oncology/Immunology
Marketed Products
Other
Ventures
Subtotal
PRC
U.S. and
Others
Subtotal
Subtotal
PRC
Un-
allocated
Total
(in US$’000)
Revenue from external
customers
18,492
345,959
364,451
157,020
7,145
164,165
528,616
309,383
Interest income
Interest expense
Equity in earnings of
equity investees,
net of tax
Income tax (expense)/
786
(279)
—
16
—
—
802
(279)
—
—
—
—
benefit
(420)
(208)
(628)
(159)
—
—
—
—
—
—
—
802
(279)
455
(38)
—
34,888
(442)
837,999
36,145
(759)
—
47,295
—
47,295
(159)
(787)
(1,201)
(2,521)
(4,509)
Net (loss)/income
attributable to the
Company
Depreciation/
amortization
Additions to
non-current
assets (other
than financial
instruments and
deferred tax assets)
(198,551)
224,055
25,504
23,090
2,568
25,658
51,162
50,272
(654)
100,780
(7,146)
(494)
(7,640)
—
—
—
(7,640)
(344)
(223)
(8,207)
41,228
110
41,338
—
—
—
41,338
330
86
41,754
R&D
U.S. and
Others
PRC
December 31, 2023
Oncology/Immunology
Marketed Products
Other
Ventures
Subtotal
PRC
U.S. and
Others
Subtotal
Subtotal
PRC
Un-
allocated
Total
(in US$’000)
Total assets
177,601
24,687
202,288
61,472
2,129
63,601
265,889
163,311
850,573
1,279,773
Property, plant and
equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible asset
Investments in equity
investees
98,034
3,454
11,261
—
—
—
918
551
—
—
—
—
98,952
4,005
11,261
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
98,952
4,005
11,261
—
—
—
564
366
—
3,064
21
48,411
211
294
—
—
—
—
99,727
4,665
11,261
3,064
21
48,411
HUTCHMED (China) Limited 2023 Annual Report 149
Year Ended December 31, 2022
Oncology/Immunology
Marketed Products
Other
Ventures
Subtotal
PRC
U.S. and
Others
Subtotal
Subtotal
PRC
Un-
allocated
Total
(in US$’000)
R&D
U.S. and
Others
—
—
—
—
—
—
—
124,642
163,844
262,565
—
426,409
—
—
—
678
—
272
—
8,649
(652)
9,599
(652)
5
49,748
—
49,753
(631)
4,870
(1,345)
(3,242)
283
17,367
(385,412)
54,604
(30,027)
(360,835)
—
(8,060)
(299)
(305)
(8,664)
—
4
—
—
39,202
124,642
678
—
5
—
—
—
benefit
(552)
6,053
5,501
(631)
(215,834)
(186,945)
(402,779)
17,367
(7,576)
(484)
(8,060)
—
PRC
39,202
674
—
5
Revenue from external
customers
Interest income
Interest expense
Equity in earnings of
equity investees,
net of tax
Income tax (expense)/
Net (loss)/income
attributable to the
Company
Depreciation/
amortization
Additions to
non-current
assets (other
than financial
instruments and
deferred tax assets)
47,563
725
48,288
—
—
—
48,288
664
21
48,973
R&D
U.S. and
Others
PRC
December 31, 2022
Oncology/Immunology
Marketed Products
Other
Ventures
Subtotal
PRC
U.S. and
Others
Subtotal
Subtotal
PRC
Un-
allocated
Total
(in US$’000)
Total assets
221,337
30,281
251,618
45,984
Property, plant and
equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible asset
Investments in equity
investees
72,775
3,350
11,830
—
—
316
2,103
3,167
—
—
—
—
74,878
6,517
11,830
—
—
316
—
—
—
—
—
—
—
—
—
—
—
—
—
45,984
297,602
235,500
496,343
1,029,445
—
—
—
—
—
—
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
150
Year Ended December 31, 2021
Oncology/Immunology
Marketed Products
Other
Ventures
Subtotal
PRC
U.S. and
Others
Subtotal
Subtotal
PRC
Un-
allocated
Total
(in US$’000)
R&D
U.S. and
Others
—
3
—
—
43,181
76,429
812
—
20
—
—
—
7,160
7,182
(1,320)
(143,528)
(152,235)
(295,763)
4,032
(6,436)
(197)
(6,633)
—
—
—
—
—
—
—
—
—
—
—
76,429
119,610
236,518
812
—
282
—
—
982
(592)
356,128
2,076
(592)
20
60,597
—
60,617
(1,320)
5,862
(14,573)
(3,207)
(11,918)
4,032
(291,731)
142,890
(45,807)
(194,648)
—
(6,633)
(318)
(239)
(7,190)
PRC
43,181
809
—
20
22
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)
25,295
4,321
29,616
—
—
—
29,616
1,056
327
30,999
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 R&D in Oncology/Immunology segment were
US$36,370,000, US$55,433,000, and US$46,891,000 for the years ended December 31, 2023, 2022, and 2021 respectively.
A summary of customers which accounted for over 10% of the Group’s revenue for the years ended December 31, 2023, 2022 and 2021 is
as follows:
Customer A
Customer B
Customer C
Customer D
Year Ended December 31,
2022
(in US$’000)
—
75,606
51,681
47,611
2023
353,104
84,065
(note)
(note)
2021
—
56,082
49,055
41,974
Note: Customer did not account for over 10% of the Group’s revenue during the year.
Customer A, B and C are included in Oncology/Immunology and Customer D is primarily included in Other Ventures.
Unallocated expenses mainly represent corporate expenses which include corporate administrative costs, corporate employee benefit
expenses and the relevant share-based compensation expenses, net of interest income. Unallocated assets mainly comprise cash and cash
equivalents and short-term investments.
HUTCHMED (China) Limited 2023 Annual Report 151
28. Note to Consolidated Statements of Cash Flows
Reconciliation of net income/(loss) for the year to net cash generated from/(used in) operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash generated
Year Ended December 31,
2022
(in US$’000)
(360,386)
2023
101,094
2021
(167,041)
from/(used in) operating activities
Depreciation and amortization
Amortization of finance costs
Loss on disposals of property, plant and equipment
Impairment of property, plant and equipment
Impairment of right-of-use assets
Provision for excess and obsolete inventories, net
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
Impairment of investment in other equity investee
Changes in right-of-use assets
Fair value losses on warrant
Gain from divestment of HBYS
Gain from divestment of subsidiaries
Gain from divestment of other equity investee
Unrealized currency translation (gain)/loss
Changes in income tax balances
Changes in operating assets and liabilities
Accounts receivable
Other receivables, prepayments and deposits
Amounts due from related parties
Inventories
Accounts payable
Other payables, accruals and advance receipts
Lease liabilities
Deferred revenue
Others
Total changes in operating assets and liabilities
Net cash generated from/(used in) operating activities
29. Litigation
8,207
—
86
3,678
2,088
552
125
6,184
30,416
(47,295)
42,308
—
1,604
—
—
(96)
(45)
(1,574)
780
(21,336)
8,624
(339)
4,135
(32,542)
(4,409)
(1,752)
119,810
(1,045)
71,146
219,258
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)
11,922
150
(21,213)
29,938
52,629
(2,701)
386
2,044
58,704
(268,599)
7,190
44
70
—
—
(23)
(76)
16,365
25,625
(60,617)
49,872
—
(3,727)
12,548
(121,310)
—
—
(2,505)
6,904
(35,634)
(5,596)
(162)
(16,002)
9,565
66,224
3,079
11,071
(87)
32,458
(204,223)
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.
152
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$35.4 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 and subsequent appeals. 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. On June 6, 2023, a Court of Appeal hearing was held and a judgment is expected but yet to be received.
The legal proceedings are ongoing and as no Award amounts have been received as at the issuance date of these consolidated financial
statements, no Award amounts have been recognized and no adjustment has been made to Seroquel-related balances as at December 31,
2023. Such Seroquel-related balances include accounts receivable, long-term prepayment, accounts payable and other payables of US$1.1
million, US$0.2 million, US$0.9 million and US$1.1 million respectively.
30. Restricted Net Assets
Relevant PRC laws and regulations permit payments of dividends by the Company’s subsidiaries in the PRC only out of their retained
earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries in
the PRC are required to make certain appropriations of net after-tax profits or increases in net assets to the statutory surplus fund prior to
payment of any dividends. In addition, registered share capital and capital reserve accounts are restricted from withdrawal in the PRC, up to
the amount of net assets held in each subsidiary. As a result of these and other restrictions under PRC laws and regulations, the Company’s
subsidiaries in the PRC are restricted in their ability to transfer their net assets to the Group in terms of cash dividends, loans or advances,
with restricted portions amounting to US$1.0 million and US$0.1 million as at December 31, 2023 and 2022 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 an equity investee in the PRC, where the Group’s equity in undistributed earnings amounted to US$29.6
million and US$53.7 million as at December 31, 2023 and 2022 respectively.
31. Subsequent Events
The Group evaluated subsequent events through February 28, 2024, which is the date when the consolidated financial statements were
issued.
In February 2024, pursuant to the strategic partnership with Inmagene Biopharmaceuticals (“Inmagene”), Inmagene has exercised its
options to license two drug candidates discovered by HUTCHMED, IMG-007 and IMG-004, for approximately 7.5% of shares (fully diluted) in
Inmagene, subject to customary closing conditions.
HUTCHMED (China) Limited 2023 Annual Report 153
32. Additional Information: Company Balance Sheets (Parent Company Only)
Assets
Current assets
Cash and cash equivalents
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; $0.10 par value; 1,500,000,000 shares authorized; 871,256,270 and
864,775,340 shares issued at December 31, 2023 and 2022 respectively
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive loss
Total Company’s shareholders’ equity
Total liabilities and shareholders’ equity
33. Dividends
No dividend has been declared or paid by the Company since its incorporation.
Note
2023
2022
December 31,
(in US$’000)
65
1,308
1,373
795,326
796,699
65,501
142
65,643
515
66,158
87,126
1,522,447
(870,869)
(8,163)
730,541
796,699
7,892
947
8,839
726,430
735,269
124,178
16
124,194
708
124,902
86,478
1,497,273
(971,481)
(1,903)
610,367
735,269
15
16
34. Directors’ Remuneration
Directors’ remuneration disclosed pursuant to the Listing Rules, Section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance
and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:
Fees:
Other remuneration
Salaries, allowances and benefits in kind
Pension contributions
Performance related bonuses
Share-based compensation expenses (note)
Year Ended December 31,
2022
(in US$’000)
683
1,173
98
1,587
2,036
4,894
5,577
2023
615
1,154
101
2,008
2,573
5,836
6,451
2021
883
1,160
93
2,245
5,553
9,051
9,934
Note: During the years ended December 31, 2023, 2022 and 2021, certain directors were granted share options and LTIP awards in respect
of their services to the Group under the share option schemes and LTIP of the Company, further details of which are set out in Note 17. The
share-based compensation expenses were recognized in the consolidated statements of operations during the years ended December 31,
2023, 2022 and 2021.
154
(i)
Independent non-executive directors
The fees paid to independent non-executive directors were as follows:
Paul Carter
Karen Ferrante (note)
Graeme Jack
Tony Mok
2023
Year Ended December 31,
2022
(in US$’000)
117
103
111
103
434
117
37
111
115
380
The share-based compensation expenses of the independent non-executive directors were as follows:
Paul Carter
Karen Ferrante (note)
Graeme Jack
Tony Mok
Year Ended December 31,
2022
(in US$’000)
139
139
139
139
556
2023
71
(101)
71
71
112
2021
2021
117
103
111
99
430
91
91
91
91
364
Note: Dr Karen Ferrante retired as an independent non-executive director on May 12, 2023.
There were no other remunerations payable to independent non-executive directors during the years ended December 31, 2023, 2022
and 2021.
(ii) Executive directors and non-executive directors
Executive directors
Simon To
Wei-guo Su (note a)
Johnny Cheng
Non-executive directors
Dan Eldar
Edith Shih
Ling Yang (note b)
Executive directors
Simon To
Wei-guo Su
Johnny Cheng
Christian Hogg (note b)
Non-executive directors
Dan Eldar
Edith Shih
Year Ended December 31, 2023
Salaries,
allowances and
benefits in kind
Fees
Pension
contributions
Performance
related bonuses
Share-based
compensation
Total
(in US$’000)
85
75
75
235
—
—
—
—
235
—
805
349
1,154
—
—
—
—
1,154
—
71
30
101
—
—
—
—
101
—
1,500
508
2,008
—
—
—
—
2,008
71
1,659
589
2,319
71
71
—
142
2,461
156
4,110
1,551
5,817
71
71
—
142
5,959
Year Ended December 31, 2022
Salaries,
allowances and
benefits in kind
Fees
Pension
contributions
Performance
related bonuses
Share-based
compensation
Total
(in US$’000)
85
75
75
14
249
—
—
—
249
—
706
340
127
1,173
—
—
—
1,173
—
64
29
5
98
—
—
—
98
—
1,127
442
18
1,587
—
—
—
1,587
139
1,650
732
(1,319)
1,202
139
139
278
1,480
224
3,622
1,618
(1,155)
4,309
139
139
278
4,587
HUTCHMED (China) Limited 2023 Annual Report 155
Year Ended December 31, 2021
Salaries,
allowances and
benefits in kind
Fees
Pension
contributions
Performance
related bonuses
Share-based
compensation
Total
(in US$’000)
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
Executive directors
Simon To
Wei-guo Su
Johnny Cheng
Christian Hogg (note b)
Non-executive directors
Dan Eldar
Edith Shih
Notes:
(a)
In connection with share options granted in the year ended December 31, 2016 under the 2015 Share Option Scheme, Dr. Wei-guo Su
was awarded retention bonuses payable when and if he exercised his options. During the year ended December 31, 2023, a retention
bonus of US$5,225,000 was settled when he exercised such options, which amount is not included in the table above.
(b) Mr Christian Hogg retired as executive director on March 4, 2022, and Ms Ling Yang was appointed as non-executive director on July 13,
2023.
35. Five Highest-Paid Employees
The five highest-paid employees during the years ended December 31, 2023, 2022 and 2021 included the following number of directors
and non-directors:
Directors
Non-directors
Year Ended December 31,
2022
2023
2021
2
3
5
2
3
5
3
2
5
Details of the remuneration for the years ended December 31, 2023, 2022 and 2021 of the five highest-paid employees who are non-
directors (the “Non-director Individuals”) were as follows:
Salaries, allowances and benefits in kind
Pension contributions
Performance related bonuses
Share-based compensation expenses (note)
Year Ended December 31,
2022
(in US$’000)
1,497
51
1,759
2,001
5,308
2023
1,506
54
1,909
3,226
6,695
2021
859
52
802
1,465
3,178
Note: During the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022 and 2021.
The number of Non-director Individuals whose remuneration fell within the following bands is as follows:
HK$12,000,000 to HK$12,500,000
HK$12,500,000 to HK$13,000,000
HK$15,500,000 to HK$16,000,000
HK$16,500,000 to HK$17,000,000
HK$24,000,000 to HK$24,500,000
156
Year Ended December 31,
2022
2023
2021
1
—
1
—
1
3
2
—
—
1
—
3
1
1
—
—
—
2
During the years ended December 31, 2023, 2022 and 2021, no remuneration was paid by the Group to any directors or Non-director
Individuals as an inducement to join the Group or as compensation for loss of office. Additionally, none of the directors or Non-director
Individuals have waived any remuneration during the years ended December 31, 2023, 2022 and 2021.
36. Reconciliation between U.S. GAAP and International Financial Reporting Standards
These consolidated financial statements are prepared in accordance with U.S. GAAP, which differ in certain respects from International
Financial Reporting Standards (“IFRS”). The effects of material differences prepared under U.S. GAAP and IFRS are as follows:
(i) Reconciliation of consolidated statements of operations
Year Ended December 31, 2023
IFRS adjustments
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Tax effects of
intercompany
unrealized profit
(note (b))
Amounts
under IFRS
Cost of goods — third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other income/(expense)
Income/(loss) before income taxes and equity
in earnings of equity investees
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to the Company
(331,984)
(302,001)
(53,392)
(79,784)
(819,624)
(759)
(8,402)
39,933
58,308
47,295
101,094
(314)
100,780
(in US$’000)
66
106
46
89
307
(281)
63
(218)
89
(1)
88
(19)
69
—
—
—
—
—
—
—
—
—
307
307
—
307
(331,918)
(301,895)
(53,346)
(79,695)
(819,317)
(1,040)
(8,339)
39,715
58,397
47,601
101,489
(333)
101,156
Year Ended December 31, 2022
IFRS adjustments
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Capitalization of
rights
(note (c))
Amounts
under IFRS
Cost of goods — third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other income/(expense)
Income/(loss) before income taxes and equity
in earnings of equity investees
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to the Company
(268,698)
(386,893)
(43,933)
(92,173)
(834,102)
(652)
(13,509)
(2,729)
(410,422)
49,753
(360,386)
(449)
(360,835)
(in US$’000)
57
31
49
182
319
(322)
12
(310)
9
(16)
(7)
(5)
(12)
—
5,000
—
—
5,000
—
—
—
5,000
—
5,000
—
5,000
(268,641)
(381,862)
(43,884)
(91,991)
(828,783)
(974)
(13,497)
(3,039)
(405,413)
49,737
(355,393)
(454)
(355,847)
HUTCHMED (China) Limited 2023 Annual Report 157
Year Ended December 31, 2021
IFRS adjustments
Amounts
as reported
under
U.S. GAAP
Lease
amortization
(note (a))
Issuance costs
(note (d))
Capitalization
of rights
(note (c))
(in US$’000)
Divestment
of an equity
investee
(note (e))
Amounts
under IFRS
Cost of goods — third parties
Research and development
expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity
investee
Interest expense
Other expense
Total other income/(expense)
Income/(loss) before income
taxes and equity in earnings
of equity investees
Income tax (expense)/benefit
Equity in earnings of equity
investees, net of tax
Net income/(loss)
Less: Net income attributable to
non-controlling interests
Net income/(loss) attributable
to the Company
(229,448)
(299,086)
(37,827)
(89,298)
(684,445)
121,310
(592)
(12,643)
(8,733)
(215,740)
(11,918)
60,617
(167,041)
(27,607)
(194,648)
(ii) Reconciliation of consolidated balance sheets
40
23
53
161
277
—
(400)
9
(391)
(114)
—
(1)
(115)
(2)
(117)
—
—
—
(163)
(163)
—
—
—
—
(163)
—
—
(163)
—
—
11,111
—
—
11,111
—
—
—
—
11,111
—
—
11,111
(27)
(163)
11,084
December 31, 2023
IFRS adjustments
—
—
—
—
—
11,266
—
—
—
(229,408)
(287,952)
(37,774)
(89,300)
(673,220)
132,576
(992)
(12,634)
(9,124)
11,266
370
(193,640)
(11,548)
(11,636)
48,980
—
—
—
(156,208)
(27,636)
(183,844)
Amounts
as reported
under U.S.
GAAP
Lease
amortization
(note (a))
Tax effects of
intercompany
unrealized
profit
(note (b))
Issuance
costs
(note (d))
Capitalization
of rights
(note (c))
LTIP
classification
(note (f))
Amounts
under IFRS
(in US$’000)
Right-of-use assets
Investments in equity
investees
Other non-current assets
4,665
48,411
14,675
Total assets
1,279,773
Other payables, accruals
and advance receipts
Total current liabilities
Total liabilities
271,399
403,027
536,386
Additional paid-in capital
1,522,447
Accumulated losses
Accumulated other
(870,869)
comprehensive loss
(8,163)
Total Company’s
shareholders’ equity
Non-controlling interests
Total shareholders’
equity
730,541
12,846
743,387
(137)
(37)
—
(174)
—
—
—
—
(177)
14
(163)
(11)
(174)
—
307
—
307
—
—
—
—
307
—
307
—
307
—
—
—
—
—
—
—
(697)
697
—
—
—
—
—
—
15,093
15,093
—
—
—
—
16,084
(1,016)
15,068
25
—
—
—
—
4,528
48,681
29,768
1,294,999
(10,502)
(10,502)
(10,502)
260,897
392,525
525,884
10,502
1,532,252
—
—
(853,958)
(9,165)
10,502
—
756,255
12,860
15,093
10,502
769,115
158
December 31, 2022
IFRS adjustments
Lease
amortization
(note (a))
Issuance costs
(note (d))
Capitalization
of rights (note
(c))
LTIP
classification
(note (f))
Amounts
under IFRS
(in US$’000)
(233)
(37)
—
(270)
—
—
—
—
(246)
8
(238)
(32)
(270)
—
—
—
—
—
—
—
(697)
697
—
—
—
—
—
—
15,370
15,370
—
—
—
—
16,084
(739)
15,345
25
15,370
—
—
—
—
8,489
73,740
31,115
1,044,545
(3,701)
(3,701)
(3,701)
260,920
350,202
388,874
3,701
—
1,500,277
(954,946)
—
(2,634)
3,701
—
3,701
629,175
26,496
655,671
Amounts
as reported
under U.S.
GAAP
8,722
73,777
15,745
1,029,445
264,621
353,903
392,575
1,497,273
(971,481)
(1,903)
610,367
26,503
636,870
Right-of-use assets
Investments in equity investees
Other non-current assets
Total assets
Other payables, accruals and
advance receipts
Total current liabilities
Total liabilities
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive
loss
Total Company’s shareholders’
equity
Non-controlling interests
Total shareholders’ equity
Notes:
(a) Lease amortization
Under U.S. GAAP, for operating leases, the amortization of right-of-use assets and the interest expense element of lease liabilities are
recorded together as lease expenses, which results in a straight-line recognition effect in the consolidated statements of operations.
Under IFRS, all leases are accounted for like finance leases where right-of-use assets are generally depreciated on a straight-line basis
while lease liabilities are measured under the effective interest method, which results in higher expenses at the beginning of the lease term
and lower expenses near the end of the lease term.
(b) Tax effects of intercompany unrealized profit
Under U.S. GAAP, deferred taxes for unrealized profit resulting from intercompany sales of inventory is not recognized.
Under IFRS, deferred taxes for unrealized profit resulting from an intercompany sale of inventory is recognized at the buyer’s tax rate.
(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 IPR&D and were expensed to research
and development expense.
Under IFRS, the acquired development and commercial rights were capitalized to intangible assets. The recognition criterion is always
assumed to be met as the price already reflects the probability that future economic benefits will flow to the Group.
(d)
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.
HUTCHMED (China) Limited 2023 Annual Report 159
(e) Divestment of an equity investee
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.
(f)
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.
160
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, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
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*
Trading Symbol(s)
HCM
Name of each exchange on which registered
Nasdaq Global Select Market
Nasdaq Global Select Market*
*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)
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:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
871,256,270 ordinary shares were issued and outstanding as of December 31, 2023.
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
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
Accelerated filer
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 ☒
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:
Emerging growth company ☐
Non-accelerated filer
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).
(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
Item 17 Item 18
HUTCHMED (China) Limited 2023 Annual Report 161
☐ Yes ☐ No
HUTCHMED (China) Limited
Table of Contents
Introduction
Cautionary Statement Regarding Forward-Looking Statements
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Offer Statistics and Expected Timetable
Item 3.
Key Information
Item 4.
Information on the Company
Item 4A. Unresolved Staff Comments
Item 5.
Operating and Financial Review and Prospects
Item 6.
Directors, Senior Management and Employees
Item 7.
Major Shareholders and Related Party Transactions
Item 8.
Financial Information
Item 9.
The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other Than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Experts
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Item 16J. Insider Trading Policies
Item 16K. Cybersecurity
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SIGNATURES
3
5
7
7
7
7
67
158
158
181
199
203
203
204
214
214
217
217
217
217
218
218
218
218
219
219
219
219
219
219
219
220
221
221
221
222
224
INTRODUCTION
This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended
December 31, 2023, 2022 and 2021 and our audited consolidated balance sheet data as of December 31, 2023 and 2022. 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, 2023, 2022
and 2021 and the audited consolidated statements of financial position data as of December 31, 2023 and 2022 for our non-
consolidated joint venture, Shanghai Hutchison Pharmaceuticals. The financial statements of Shanghai Hutchison
Pharmaceuticals 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;
“AstraZeneca” are to AstraZeneca AB (publ);
“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;
“Eli Lilly” are to Lilly (Shanghai) Management Company 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;
162
3
HUTCHMED (China) Limited
Table of Contents
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
Item 16K. Cybersecurity
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
SIGNATURES
3
5
7
7
7
7
67
158
158
181
199
203
203
204
214
214
217
217
217
217
218
218
218
218
219
219
219
219
219
219
219
220
221
221
221
222
224
INTRODUCTION
This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended
December 31, 2023, 2022 and 2021 and our audited consolidated balance sheet data as of December 31, 2023 and 2022. 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, 2023, 2022
and 2021 and the audited consolidated statements of financial position data as of December 31, 2023 and 2022 for our non-
consolidated joint venture, Shanghai Hutchison Pharmaceuticals. The financial statements of Shanghai Hutchison
Pharmaceuticals 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;
“AstraZeneca” are to AstraZeneca AB (publ);
“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;
“Eli Lilly” are to Lilly (Shanghai) Management Company 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 2023 Annual Report 163
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
“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 previous wholly owned subsidiary
which we divested in December 2023;
“Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our previous joint venture with Hain
Celestial in which we had a 50% interest and divested in December 2023;
“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;
“Inmagene” are to Inmagene Biopharmaceuticals;
“ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share;
“RMB” or “renminbi” are to the legal currency of the PRC;
“SEHK” are to The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange;
“Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated
joint venture with Shanghai Pharmaceuticals in which we have a 50% interest;
“Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company
in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange;
“Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a
leading supply chain service provider in China listed on the Hong Kong Stock Exchange;
include statements regarding:
“Takeda” are to Takeda Pharmaceuticals International AG;
“U.S.” or “United States” are to the United States of America;
“$” 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 $1.27, all translations of RMB into U.S. dollars were made at RMB7.16 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, 2023. 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”, “Fruzaqla”, “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
•
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 or our collaboration partners’ 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 or our collaboration partners’ 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;
•
•
•
•
•
164
4
5
•
“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 previous wholly owned subsidiary
which we divested in December 2023;
“Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our previous joint venture with Hain
Celestial in which we had a 50% interest and divested in December 2023;
“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;
“Inmagene” are to Inmagene Biopharmaceuticals;
“ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share;
“RMB” or “renminbi” are to the legal currency of the PRC;
“SEHK” are to The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange;
“Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated
joint venture with Shanghai Pharmaceuticals in which we have a 50% interest;
“Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company
in China listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange;
“Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a
leading supply chain service provider in China listed on the Hong Kong Stock Exchange;
“Takeda” are to Takeda Pharmaceuticals International AG;
“U.S.” or “United States” are to the United States of America;
“$” 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 $1.27, all translations of RMB into U.S. dollars were made at RMB7.16 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, 2023. 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”, “Fruzaqla”, “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
identifying words. These
forward-looking statements, although not all forward-looking statements contain 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 or our collaboration partners’ 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 or our collaboration partners’ 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;
4
5
HUTCHMED (China) Limited 2023 Annual Report 165
•
•
•
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;
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
estimates of our expenses, future revenue, capital requirements and our needs for additional financing;
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
• our ability to obtain additional funding for our operations;
•
•
the potential benefits of our collaborations and our ability to enter into future collaboration arrangements;
ITEM 3. KEY INFORMATION
the ability and willingness of our collaborators to actively pursue development activities under our collaboration
agreements;
• our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic
alliances with AstraZeneca, Eli Lilly, Takeda and Inmagene;
• 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; and
• developments in our business strategies and business plans.
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.
Not applicable.
Not applicable.
A. Reserved.
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
HUTCHMED (China) Limited is a Cayman Islands holding company which conducts its operations in China through its PRC
subsidiaries (our corporate group does not utilize 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 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.
166
6
7
•
•
•
•
•
the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint
PART I
ventures’ products and our drug candidates;
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for
our drug candidates;
Not applicable.
estimates of our expenses, future revenue, capital requirements and our needs for additional financing;
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
• our ability to obtain additional funding for our operations;
Not applicable.
the potential benefits of our collaborations and our ability to enter into future collaboration arrangements;
ITEM 3. KEY INFORMATION
the ability and willingness of our collaborators to actively pursue development activities under our collaboration
A. Reserved.
agreements;
• our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic
alliances with AstraZeneca, Eli Lilly, Takeda and Inmagene;
• 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; and
• developments in our business strategies and business plans.
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.
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
HUTCHMED (China) Limited is a Cayman Islands holding company which conducts its operations in China through its PRC
subsidiaries (our corporate group does not utilize 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 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
HUTCHMED (China) Limited 2023 Annual Report 167
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. As a result, the SEC will not provisionally or conclusively identify an issuer as a Commission-
Identified Issuer if it files an annual report with an audit report issued by a registered public accounting firm headquartered in
mainland China or Hong Kong on or after December 15, 2022, until such time as the PCAOB issues a new determination. Whether
the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms
headquartered in mainland China and Hong Kong in the future is subject to uncertainty and depends on a number of factors
out of our, and our auditor’s, control, including the uncertainties surrounding the relationship between China and the United
States. 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
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, 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 and became effective on March 31, 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, there remains significant uncertainty as to the interpretation and implementation of regulatory
requirements related to overseas securities offerings and other capital markets activities. As of the date of this annual report,
in connection with our historical issuance of securities to foreign investors, we are not aware of any currently effective PRC
laws, regulations and regulatory rules that would require us or our non-consolidated joint venture 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 such permission or are subject to cybersecurity review or security assessment. 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
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 non-consolidated 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. 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.
168
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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. As a result, the SEC will not provisionally or conclusively identify an issuer as a Commission-
Identified Issuer if it files an annual report with an audit report issued by a registered public accounting firm headquartered in
mainland China or Hong Kong on or after December 15, 2022, until such time as the PCAOB issues a new determination. Whether
the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms
headquartered in mainland China and Hong Kong in the future is subject to uncertainty and depends on a number of factors
out of our, and our auditor’s, control, including the uncertainties surrounding the relationship between China and the United
States. 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
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, 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 and became effective on March 31, 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, there remains significant uncertainty as to the interpretation and implementation of regulatory
requirements related to overseas securities offerings and other capital markets activities. As of the date of this annual report,
in connection with our historical issuance of securities to foreign investors, we are not aware of any currently effective PRC
laws, regulations and regulatory rules that would require us or our non-consolidated joint venture 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 such permission or are subject to cybersecurity review or security assessment. 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
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 non-consolidated 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. 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.
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9
HUTCHMED (China) Limited 2023 Annual Report 169
For the years ended December 31, 2023, 2022 and 2021, HUTCHMED provided funds to its PRC subsidiaries of $20.0 million,
$310.0 million and $230.0 million, respectively, of which $20.0 million, $100.0 million and $100.0 million, respectively, were in
the form of capital contributions and nil, $210.0 million and $130.0 million, respectively, were in the form of shareholder loans.
Additionally, during the years ended December 31, 2023 and 2022, shareholder loans of approximately $2.6 million and
$3.4 million were repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from
PRC subsidiaries in 2023, 2022 and 2021.
For the years ended December 31, 2023, 2022 and 2021, the Hong Kong immediate holding company of our onshore non-
consolidated joint venture, Shanghai Hutchison Pharmaceuticals, received dividends totaling approximately $42.3 million,
$43.7 million and $49.9 million, respectively. These dividends were subject to a 5% withholding tax upon distribution from
Shanghai Hutchison Pharmaceuticals to its Hong Kong immediate holding company.
HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries in the
U.S. and E.U. have entered into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC
subsidiaries to them 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 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
• Risks relating to leveraging our Other Ventures’ prescription drug business to commercialize our internally developed
operations in China
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 collaboration partners, 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, manufacturing and commercialization of our
medicines
drug products
clinical trials
• Risks relating to relying on third party suppliers for the active pharmaceutical ingredients in our drug candidate and
• Risks relating to our collaboration partners or our CROs’ failure to comply with regulatory requirements pertaining to
• 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 Our Oncology/Immunology Operations and Development of Our Drug Candidates
• Risks relating to relying on distributors for logistics and distributions services
• Risks relating to our approach to the discovery and development of drug candidates and the lengthy, expensive and
• Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison
uncertain clinical development process
170
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11
For the years ended December 31, 2023, 2022 and 2021, HUTCHMED provided funds to its PRC subsidiaries of $20.0 million,
$310.0 million and $230.0 million, respectively, of which $20.0 million, $100.0 million and $100.0 million, respectively, were in
the form of capital contributions and nil, $210.0 million and $130.0 million, respectively, were in the form of shareholder loans.
Additionally, during the years ended December 31, 2023 and 2022, shareholder loans of approximately $2.6 million and
$3.4 million were repaid by a PRC subsidiary, respectively. There were no transfers of assets other than transfers of cash to/from
PRC subsidiaries in 2023, 2022 and 2021.
consolidated joint venture, Shanghai Hutchison Pharmaceuticals, received dividends totaling approximately $42.3 million,
$43.7 million and $49.9 million, respectively. These dividends were subject to a 5% withholding tax upon distribution from
Shanghai Hutchison Pharmaceuticals to its Hong Kong immediate holding company.
HUTCHMED also conducts operations outside of China through subsidiaries in the U.S. and E.U. Such subsidiaries in the
U.S. and E.U. have entered into service agreements with our PRC subsidiaries pursuant to which cash is transferred by our PRC
subsidiaries to them 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 Our Financial Position and Need for Capital
• Risks relating to our need for additional funding
• Risks relating to our existing and future indebtedness
uncertain clinical development process
10
For the years ended December 31, 2023, 2022 and 2021, the Hong Kong immediate holding company of our onshore non-
• Risks relating to competition in discovering, developing and commercializing drugs
• 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 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 collaboration partners, 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, manufacturing and commercialization of our
medicines
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 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 Our Oncology/Immunology Operations and Development of Our Drug Candidates
• Risks relating to relying on distributors for logistics and distributions services
• Risks relating to our approach to the discovery and development of drug candidates and the lengthy, expensive and
• Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison
11
HUTCHMED (China) Limited 2023 Annual Report 171
Other Risks and Risks Relating to Doing Business in China
Risks Relating to Our Financial Position and Need for Capital
• 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
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
• 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
partners advance the clinical development of our clinical drug candidates which are currently in active or completed clinical
equity incentive plans
• Risks relating to changes in laws, regulations and policies in China and uncertainties with respect to the PRC legal
expect to continue to incur significant commercialization expenses related to product manufacturing, marketing, sales and
system, China’s currency exchange limits and PRC government tax incentives or treatment
Risks Relating to Intellectual Property
• Risks relating to our, our joint ventures and our collaboration partners’ abilities to protect and enforce intellectual
property rights and maintain confidentiality of trade secrets
• Risks relating to infringing upon third parties’ intellectual property rights
Risks Relating to our ADSs
• Risks relating to being delisted from the Nasdaq if the PCAOB 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
the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting
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.
eliminate such efforts.
We expect to incur significant expenses in connection with our ongoing activities, particularly as we or our collaboration
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
distribution in China for surufatinib (marketed as Sulanda), 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. For example, 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 to support the research and development,
commercialization and manufacturing of our drug products and candidates.
As a result, we have experienced negative cash flows from operations in the past. Our net cash used in operating activities
was $204.2 million and $268.6 million for the years ended December 31, 2021 and 2022, respectively. Even though we generated
significant amount of net cash of $219.3 million from our operating activities in 2023, this may not continue in the future as it
depends on a variety of factors, including but not limited to:
•
•
•
•
•
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; and
•
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.
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 to supplement the cash generated from operating activities to support our
operations, we could incur losses and be forced to delay, reduce or eliminate our research and development programs or any
future commercialization efforts.
172
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13
Other Risks and Risks Relating to Doing Business in China
Risks Relating to Our Financial Position and Need for Capital
• 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
located in China in the future
matters
• Risks relating to being delisted from the Nasdaq if the PCAOB is unable to inspect or investigate completely auditors
• Risks relating to our largest shareholder which may limit the ability of other shareholders to influence corporate
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.
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 surufatinib (marketed as Sulanda), 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. For example, 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 to support the research and development,
commercialization and manufacturing of our drug products and candidates.
As a result, we have experienced negative cash flows from operations in the past. Our net cash used in operating activities
was $204.2 million and $268.6 million for the years ended December 31, 2021 and 2022, respectively. Even though we generated
significant amount of net cash of $219.3 million from our operating activities in 2023, this may not continue in the future as it
depends on a variety of factors, including but not limited to:
•
•
•
•
•
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; and
•
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.
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 to supplement the cash generated from operating activities to support our
operations, we could incur losses and be forced to delay, reduce or eliminate our research and development programs or any
future commercialization efforts.
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13
HUTCHMED (China) Limited 2023 Annual Report 173
Raising capital may dilute 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, 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 loan facilities could have significant adverse consequences, including:
candidates.
•
•
•
•
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.
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. Therefore, we expect
to continue to incur significant expenses related to our ongoing operations, particularly research and development expenses, for
the foreseeable future as we expand our development of, and seek regulatory approvals for, our drug candidates. We have
historically generated net cash outflows from operations in 2021 and 2022. Although our net cash from operations turned positive
in 2023, there is no guarantee that we will be able to continue to do so in the future as our operating cash flows depend on a
number of variables that we may not be able to accurately predict or fully control, including the number and scope of our drug
development programs and the associated cost of those programs, the cost of commercializing any approved products, our ability
to generate revenue 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.
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 $317.7 million and $602.7 million as of December 31, 2022 and 2023, 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 $98.0 million and $116.9 million as of
December 31, 2022 and 2023, 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
Our Oncology/Immunology operations historically operated at a net loss, and our future profitability is dependent on the
performance of our Oncology/Immunology operations which rely on the successful commercialization of our drug
To date, savolitinib, fruquintinib and surufatinib (marketed as Orpathys, Elunate and Sulanda, respectively in China and in
the U.S. for fruquintinib as Fruzaqla) are our only internally developed drug candidates that have been approved for sale. We
do not expect our Oncology/Immunology operations to be significantly profitable unless and until we consistently generate
substantial revenue from them and can successfully commercialize our other drug products.
Successful commercialization of our drug candidates is subject to many risks. Savolitinib is marketed as Orpathys in
collaboration with our partner, AstraZeneca. We have partnered with Eli Lilly and Takeda on the commercialization of
fruquintinib. Surufatinib is marketed by us as Sulanda without the support of a collaboration partner. Savolitinib, fruquintinib
and surufatinib are the first innovative oncology drugs we, as an organization, have commercialized, and there is no guarantee
that we or our collaboration partners 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 savolitinib, fruquintinib and surufatinib or our other drug products to be unsuccessful, including a
number of factors that are outside our control. In the case of fruquintinib, 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, fruquintinib 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 savolitinib, fruquintinib and surufatinib in China and globally. For
example, in April 2022, the FDA issued a Complete Response Letter regarding the NDA for surufatinib for the treatment of non-
pancreatic neuroendocrine tumors (NETs) and pancreatic NETs and determined that the data package submitted did not
support an approval in the U.S. at the time. We subsequently withdrew our submissions to the FDA and the EMA for surufatinib.
Thus, significant uncertainty remains regarding the commercial potential of savolitinib, fruquintinib and surufatinib.
Although our operations were profitable in 2023, we may not continue to achieve profitability based on the revenue to be
generated from savolitinib, fruquintinib and surufatinib and/or our other drug candidates, if ever. If the commercialization of
savolitinib, fruquintinib, surufatinib 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.
174
14
15
Raising capital may dilute our shareholders, restrict our operations or require us to relinquish rights to technologies or drug
We face risks with our short-term investments and in collecting our accounts receivables.
candidates.
We expect to finance our cash needs in part through cash flow from our operations, 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 loan facilities 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
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
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. Therefore, we expect
to continue to incur significant expenses related to our ongoing operations, particularly research and development expenses, for
the foreseeable future as we expand our development of, and seek regulatory approvals for, our drug candidates. We have
historically generated net cash outflows from operations in 2021 and 2022. Although our net cash from operations turned positive
in 2023, there is no guarantee that we will be able to continue to do so in the future as our operating cash flows depend on a
number of variables that we may not be able to accurately predict or fully control, including the number and scope of our drug
development programs and the associated cost of those programs, the cost of commercializing any approved products, our ability
to generate revenue 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.
•
•
•
•
or equity financing;
options.
Our short-term investments are bank deposits with maturities of more than three months but less than one year. Our short-
term investments were $317.7 million and $602.7 million as of December 31, 2022 and 2023, 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 $98.0 million and $116.9 million as of
December 31, 2022 and 2023, 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
Our Oncology/Immunology operations historically operated at a net loss, and our future profitability is dependent on the
performance of our Oncology/Immunology operations which rely on the successful commercialization of our drug
candidates.
To date, savolitinib, fruquintinib and surufatinib (marketed as Orpathys, Elunate and Sulanda, respectively in China and in
the U.S. for fruquintinib as Fruzaqla) are our only internally developed drug candidates that have been approved for sale. We
do not expect our Oncology/Immunology operations to be significantly profitable unless and until we consistently generate
substantial revenue from them and can successfully commercialize our other drug products.
Successful commercialization of our drug candidates is subject to many risks. Savolitinib is marketed as Orpathys in
collaboration with our partner, AstraZeneca. We have partnered with Eli Lilly and Takeda on the commercialization of
fruquintinib. Surufatinib is marketed by us as Sulanda without the support of a collaboration partner. Savolitinib, fruquintinib
and surufatinib are the first innovative oncology drugs we, as an organization, have commercialized, and there is no guarantee
that we or our collaboration partners 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 savolitinib, fruquintinib and surufatinib or our other drug products to be unsuccessful, including a
number of factors that are outside our control. In the case of fruquintinib, 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, fruquintinib 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 savolitinib, fruquintinib and surufatinib in China and globally. For
example, in April 2022, the FDA issued a Complete Response Letter regarding the NDA for surufatinib for the treatment of non-
pancreatic neuroendocrine tumors (NETs) and pancreatic NETs and determined that the data package submitted did not
support an approval in the U.S. at the time. We subsequently withdrew our submissions to the FDA and the EMA for surufatinib.
Thus, significant uncertainty remains regarding the commercial potential of savolitinib, fruquintinib and surufatinib.
Although our operations were profitable in 2023, we may not continue to achieve profitability based on the revenue to be
generated from savolitinib, fruquintinib and surufatinib and/or our other drug candidates, if ever. If the commercialization of
savolitinib, fruquintinib, surufatinib 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.
14
15
HUTCHMED (China) Limited 2023 Annual Report 175
All of our drug candidates 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 those that have already received approval for the treatment
of certain indications in China and United States. Although we may receive payments from our collaboration partners, including
upfront payments and payments for achieving development, regulatory or commercial milestones, for certain of our drug
candidates, our ability to generate significant revenue from our drug candidates is dependent on their receipt of additional
regulatory approval and successful commercialization, 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, and substantial
investment in manufacturing and significant efforts before we generate significant revenue from product sales. The success of
our drug candidates will depend on several factors, including the following:
•
•
•
•
•
•
•
•
•
•
•
successful completion of additional pre-clinical and/or clinical trials;
successful enrollment in, and completion of, additional clinical trials;
receipt of additional regulatory approvals from applicable regulatory authorities for planned clinical trials, future
clinical trials, drug registrations or post-approval trials;
successful completion of all studies required to obtain regulatory approval and/or fulfillment of post-approval
requirements in the United States, China, Europe, Japan 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
may cause delays in the approval or rejection of an application. The FDA, NMPA, EMA, PDMA and comparable regulatory
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.
176
16
17
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 in the 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 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, EMA, PDMA and comparable authorities in other countries 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, EMA, PDMA and other regulatory agencies in the
United States, China, Europe, Japan 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.
The process of obtaining regulatory approvals in the United States, China, Europe, Japan 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,
authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or
may decide that our data are insufficient for approval and require additional pre-clinical, clinical or other studies. Our drug
candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:
•
the FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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;
•
•
•
•
•
•
•
•
•
•
•
All of our drug candidates 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 those that have already received approval for the treatment
of certain indications in China and United States. Although we may receive payments from our collaboration partners, including
upfront payments and payments for achieving development, regulatory or commercial milestones, for certain of our drug
candidates, our ability to generate significant revenue from our drug candidates is dependent on their receipt of additional
regulatory approval and successful commercialization, 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, and substantial
investment in manufacturing and significant efforts before we generate significant revenue from product sales. The success of
our drug candidates will depend on several factors, including the following:
successful completion of additional pre-clinical and/or clinical trials;
successful enrollment in, and completion of, additional clinical trials;
receipt of additional regulatory approvals from applicable regulatory authorities for planned clinical trials, future
clinical trials, drug registrations or post-approval trials;
successful completion of all studies required to obtain regulatory approval and/or fulfillment of post-approval
requirements in the United States, China, Europe, Japan 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 in the 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 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, EMA, PDMA and comparable authorities in other countries 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, EMA, PDMA and other regulatory agencies in the
United States, China, Europe, Japan 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.
The process of obtaining regulatory approvals in the United States, China, Europe, Japan 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, EMA, PDMA and comparable regulatory
authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or
may decide that our data are insufficient for approval and require additional pre-clinical, clinical or other studies. Our drug
candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:
•
the FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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;
16
17
HUTCHMED (China) Limited 2023 Annual Report 177
•
•
•
•
•
•
the FDA, NMPA, EMA, PDMA or comparable regulatory authorities may disagree with our interpretation of data from
pre-clinical studies or clinical trials;
successfully than we do.
We face substantial competition, and our competitors may discover, develop or commercialize drugs before or more
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, EMA, PDMA 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, EMA, PDMA or comparable regulatory authorities may
significantly change in a manner rendering our clinical data insufficient for approval;
the FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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
trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the
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, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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 savolitinib, fruquintinib, surufatinib or one of our other products being removed
from the market or being less successful commercially.
178
18
19
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
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.
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, EMA, PDMA 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, EMA, PDMA or other regulatory authorities. The FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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.
•
•
•
•
•
•
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, EMA, PDMA 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, EMA, PDMA or comparable regulatory authorities may
significantly change in a manner rendering our clinical data insufficient for approval;
the FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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 savolitinib, fruquintinib, surufatinib or one of our other products being removed
from the market or being less successful commercially.
the FDA, NMPA, EMA, PDMA or comparable regulatory authorities may disagree with our interpretation of data from
pre-clinical studies or clinical trials;
We face substantial competition, and our competitors may discover, develop or commercialize 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.
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, EMA, PDMA 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, EMA, PDMA or other regulatory authorities. The FDA, NMPA, EMA, PDMA 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, EMA, PDMA 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.
18
19
HUTCHMED (China) Limited 2023 Annual Report 179
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, Takeda, BeiGene Ltd., or BeiGene, 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 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
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
• 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, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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.
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;
180
20
21
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 significantly harm our business, financial condition and prospects.
If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the
progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented.
We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our
collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as
required by the FDA, NMPA, EMA, PDMA 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.
•
•
•
•
•
•
•
•
•
•
•
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, Takeda, BeiGene Ltd., or BeiGene, 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 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;
programs;
• 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
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, EMA, PDMA 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, EMA, PDMA 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, EMA, PDMA 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 significantly harm our business, financial condition and prospects.
•
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
If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the
progress of such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented.
We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our
collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as
required by the FDA, NMPA, EMA, PDMA 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;
20
21
HUTCHMED (China) Limited 2023 Annual Report 181
•
•
•
•
•
the patient referral practices of physicians;
• we may be subject to regulatory investigations and government enforcement actions;
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.
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could
ability to successfully commercialize our drug candidates and generate revenue.
cause the value of our company to decline and limit our ability to obtain financing.
Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if
any.
Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or
halt clinical trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more
restrictive label or the delay or denial of regulatory approval by the FDA, NMPA, EMA, PDMA or other regulatory authorities. In
particular, as is the case with all oncology drugs, it is likely that there may be side effects 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, EMA, PDMA 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;
• manufacturing, customs, shipment and storage requirements;
• we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
cultural differences in medical practice and clinical research; and
• we may be required to change the way such drug candidates are distributed or administered, conduct additional
the risk that patient populations in such trials are not considered representative as compared to patient populations
clinical trials or change the labeling of the drug candidates;
in the United States and other markets.
•
•
•
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;
182
22
23
• we may decide to remove such drug candidates from the marketplace;
• we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and
• our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates
and could substantially increase the cost of commercializing our drug candidates, if approved, and significantly impact our
We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug
candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or
may require additional U.S.-based trials.
We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical
trials outside the United States, particularly in China where our Oncology/Immunology operations are headquartered as well
as in other jurisdictions such as Australia, Japan, South Korea 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 Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of
pancreatic NETs and non-pancreatic NETs. The FDA determined that the data package submitted in the application, based on
two successful Phase III trials in China and one bridging study in the U.S., were not sufficient to support approval in the U.S..
The Complete Response Letter indicated that a multi-regional clinical trial would be required for U.S. approval. We
subsequently withdrew our submissions 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;
•
•
•
•
•
•
•
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.
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could
cause the value of our company to decline and limit our ability to obtain financing.
Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if
any.
Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or
halt clinical trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more
restrictive label or the delay or denial of regulatory approval by the FDA, NMPA, EMA, PDMA or other regulatory authorities. In
particular, as is the case with all oncology drugs, it is likely that there may be side effects 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, EMA, PDMA 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;
the patient referral practices of physicians;
• we may be subject to regulatory investigations and government enforcement actions;
• we may decide to remove such drug candidates from the marketplace;
• we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and
• our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates
and could substantially increase the cost of commercializing our drug candidates, if approved, and significantly impact our
ability to successfully commercialize our drug candidates and generate revenue.
We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug
candidates at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or
may require additional U.S.-based trials.
We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical
trials outside the United States, particularly in China where our Oncology/Immunology operations are headquartered as well
as in other jurisdictions such as Australia, Japan, South Korea 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 Complete Response Letter from the FDA regarding the NDA for surufatinib for the treatment of
pancreatic NETs and non-pancreatic NETs. The FDA determined that the data package submitted in the application, based on
two successful Phase III trials in China and one bridging study in the U.S., were not sufficient to support approval in the U.S..
The Complete Response Letter indicated that a multi-regional clinical trial would be required for U.S. approval. We
subsequently withdrew our submissions 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;
• 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;
•
•
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.
•
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;
22
23
HUTCHMED (China) Limited 2023 Annual Report 183
If we are unable to obtain and/or maintain priority review by the NMPA, fast track designation by the FDA, or another
expedited registration pathway for our drug candidates, the time and cost we incur to obtain regulatory approvals may
increase. Even if we receive such approvals, they may not lead to a faster development, review or approval process.
Under the 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. In the past, we 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. 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.
Even if we or our collaboration partners receive regulatory approval for our drug candidates, we or our collaboration
partners are subject to ongoing obligations and continued regulatory review, which may result in significant additional
expense.
If the FDA, NMPA, EMA, PDMA or a comparable regulatory authority approves any of our drug candidates, we or our
collaboration partners 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 or our collaboration partners 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 or our collaboration partners are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we or our collaboration partners are not able to maintain regulatory compliance, we or
our collaboration partners may lose any regulatory approval that we or our collaboration partners may have obtained, which
would adversely affect our business, prospects and ability to achieve or sustain profitability.
We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with
any of our drugs that receive regulatory approval.
Once a drug is approved by the FDA, NMPA, EMA, PDMA or a comparable regulatory authority for marketing, it is possible
that there could be a subsequent discovery of previously unknown problems with the drug, including problems with third-party
manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs
with respect to our drug products, it may result in, among other things:
restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA, NMPA, EMA, PDMA or comparable regulatory authority to approve pending applications or
supplements to approved applications filed by us, or suspension or revocation of drug license approvals;
•
•
•
• drug seizure or detention, or refusal to permit the import or export of drugs; and
•
injunctions or the imposition of civil or criminal penalties.
Any government investigation of alleged violations of law could require us to expend significant time and resources and
could generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory
approval that has been obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our
business, prospects, financial condition and results of operations.
The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party
sources. If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain
is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely
affected, possibly materially.
Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular
diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions
regarding our drug development strategy, including determining indications on which to focus in pre-clinical or clinical trials.
These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will
depend on, among other things, their acceptance by the medical community and patient access, drug pricing and
reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not
be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain access
to, all of which would adversely affect our results of operations and our business.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the expertise of the members of our research and development team, as well as the other
principal members of our management, including 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.
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If we are unable to obtain and/or maintain priority review by the NMPA, fast track designation by the FDA, or another
expedited registration pathway for our drug candidates, the time and cost we incur to obtain regulatory approvals may
increase. Even if we receive such approvals, they may not lead to a faster development, review or approval process.
Under the 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. In the past, we 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. 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.
Even if we or our collaboration partners receive regulatory approval for our drug candidates, we or our collaboration
partners are subject to ongoing obligations and continued regulatory review, which may result in significant additional
expense.
If the FDA, NMPA, EMA, PDMA or a comparable regulatory authority approves any of our drug candidates, we or our
collaboration partners 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 or our collaboration partners 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 or our collaboration partners are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we or our collaboration partners are not able to maintain regulatory compliance, we or
our collaboration partners may lose any regulatory approval that we or our collaboration partners may have obtained, which
would adversely affect our business, prospects and ability to achieve or sustain profitability.
We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with
any of our drugs that receive regulatory approval.
Once a drug is approved by the FDA, NMPA, EMA, PDMA or a comparable regulatory authority for marketing, it is possible
that there could be a subsequent discovery of previously unknown problems with the drug, including problems with third-party
manufacturers or manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs
with respect to our drug products, it may result in, among other things:
•
•
•
restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA, NMPA, EMA, PDMA or comparable regulatory authority to approve pending applications or
supplements to approved applications filed by us, or suspension or revocation of drug license approvals;
• drug seizure or detention, or refusal to permit the import or export of drugs; and
•
injunctions or the imposition of civil or criminal penalties.
Any government investigation of alleged violations of law could require us to expend significant time and resources and
could generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory
approval that has been obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our
business, prospects, financial condition and results of operations.
The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party
sources. If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain
is based on a narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely
affected, possibly materially.
Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular
diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions
regarding our drug development strategy, including determining indications on which to focus in pre-clinical or clinical trials.
These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will
depend on, among other things, their acceptance by the medical community and patient access, drug pricing and
reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not
be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain access
to, all of which would adversely affect our results of operations and our business.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the expertise of the members of our research and development team, as well as the other
principal members of our management, including 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.
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HUTCHMED (China) Limited 2023 Annual Report 185
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.
Any adverse developments related to the administration of our drug candidates in compassionate use programs may affect
our and/or our partners’ ability to obtain regulatory approval or commercialize our drug candidates.
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:
•
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;
In many countries, physicians are permitted to administer unapproved drugs to patients who have life-threatening disease
with no viable available therapy. From time to time, we and our partners participate in such programs and offer our drug
candidates for patient treatment. Given that the patients receiving treatment under such programs often have very advanced
diseases, there is an increased risk that they may experience more severe adverse events. If serious adverse events or other
issues that call into question the potential efficacy and safety of our drug candidates occur when our drug candidates are
administered through compassionate use programs, the NMPA, the FDA and other regulatory authorities may delay, limit, or
deny approval of our drug candidates or require us and/or our partners to conduct additional clinical trials as a condition to
marketing approval, which would increase drug development costs.
•
•
•
•
•
country-specific tax, labor and employment laws and regulations;
Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs
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.
We may be restricted from transferring our scientific data abroad.
• obtain a pharmaceutical distribution permit from the NMPA; and
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.
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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;
•
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.”
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.
Any adverse developments related to the administration of our drug candidates in compassionate use programs may affect
our and/or our partners’ ability to obtain regulatory approval or commercialize our drug candidates.
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:
•
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;
In many countries, physicians are permitted to administer unapproved drugs to patients who have life-threatening disease
with no viable available therapy. From time to time, we and our partners participate in such programs and offer our drug
candidates for patient treatment. Given that the patients receiving treatment under such programs often have very advanced
diseases, there is an increased risk that they may experience more severe adverse events. If serious adverse events or other
issues that call into question the potential efficacy and safety of our drug candidates occur when our drug candidates are
administered through compassionate use programs, the NMPA, the FDA and other regulatory authorities may delay, limit, or
deny approval of our drug candidates or require us and/or our partners to conduct additional clinical trials as a condition to
marketing approval, which would increase drug development costs.
country-specific tax, labor and employment laws and regulations;
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;
We may be restricted from transferring our scientific data abroad.
• 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.”
•
•
•
•
•
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.
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.
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HUTCHMED (China) Limited 2023 Annual Report 187
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 $44.7 million, $49.7 million and $47.3 million for the years ended
December 31, 2021, 2022 and 2023, 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 Sinopharm which accounted for substantially all of our Other Ventures’
consolidated revenue for the years ended December 31, 2021, 2022 and 2023.
As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is partly
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, 2023, we had an oncology commercial team with over 900 staff to
support the commercialization of fruquintinib, surufatinib 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;
candidates or other products sold by us.
• our failure to prevent inappropriate business conducts, including behaviors that may violate anti-bribery and anti-
corruption laws and regulations;
•
the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who
then prescribe any future drugs; and
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29
•
the lack of complementary drugs to be offered by our sales personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines.
In such case, our business, results of operations, financial condition and prospects will be materially and adversely
affected.
We face substantial competition in selling our approved, internally developed drugs and the drugs of our Other Ventures.
The marketed drugs developed and sold by our Oncology/Immunology operations and the prescription drugs business
which is part of our Other Ventures’ operations face substantial competition in the pharmaceutical industry in China, which is
characterized by a number of established, large pharmaceutical companies, as well as smaller emerging pharmaceutical
companies, engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular
drugs. The identities of the key competitors with respect to drugs sold by our Oncology/Immunology and Other Ventures
operations vary by product and, in certain cases, competitors have greater financial resources than us and may elect to focus
these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our
products and may have broader sales and marketing infrastructure with which to do so.
Such drugs may compete against products that have lower prices, superior performance, greater ease of administration or
other advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct
illegal manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions,
reduced margins and loss of market share, whether achieved by either legal or illegal means, any of which could materially and
adversely affect our profit margins. We and our joint ventures may not be able to compete effectively against current and future
competitors.
If we are not able to maintain and enhance brand recognition of our drugs to maintain a competitive advantage, our
reputation, business and operating results may be harmed.
We believe that market awareness of our products sold through our Oncology/Immunology and Other Ventures operations,
which include our joint ventures’ branded products, such as Shang Yao, and the brands of third-party products which are
distributed through our joint ventures, has contributed significantly to our success. We also believe that maintaining and
enhancing such brands is critical to maintaining our competitive advantage. Although the sales and marketing staff of such
businesses will continue to further promote such brands to remain competitive, they may not be successful. If we or our joint
ventures are unable to further enhance brand recognition and increase awareness of such products, or are compelled to incur
excessive marketing and promotion expenses in order to maintain brand awareness, our business and results of operations
may be materially and adversely affected. Furthermore, our results of operations could be adversely affected if the Shang Yao
brand, or the brands of any other products, or our reputation, are impaired by certain actions taken by our joint venture
partners, distributors, competitors or relevant regulatory authorities.
Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures
operations or our drug candidates in China, the United States or other countries, which could diminish our sales or affect
our profitability.
The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some
countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period
begins after regulatory approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. Furthermore, once marketed and sold, government authorities and
third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will
pay for and establish reimbursement levels. Adverse pricing reimbursement levels may hinder market acceptance of our drug
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 $44.7 million, $49.7 million and $47.3 million for the years ended
December 31, 2021, 2022 and 2023, 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 Sinopharm which accounted for substantially all of our Other Ventures’
consolidated revenue for the years ended December 31, 2021, 2022 and 2023.
As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is partly
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, 2023, we had an oncology commercial team with over 900 staff to
support the commercialization of fruquintinib, surufatinib 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;
• our failure to prevent inappropriate business conducts, including behaviors that may violate anti-bribery and anti-
corruption laws and regulations;
then prescribe any future drugs; and
•
the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who
•
the lack of complementary drugs to be offered by our sales personnel, which may put us at a competitive disadvantage
relative to companies with more extensive product lines.
In such case, our business, results of operations, financial condition and prospects will be materially and adversely
affected.
We face substantial competition in selling our approved, internally developed drugs and the drugs of our Other Ventures.
The marketed drugs developed and sold by our Oncology/Immunology operations and the prescription drugs business
which is part of our Other Ventures’ operations face substantial competition in the pharmaceutical industry in China, which is
characterized by a number of established, large pharmaceutical companies, as well as smaller emerging pharmaceutical
companies, engaged in the development, production, marketing or sales of prescription drugs, in particular cardiovascular
drugs. The identities of the key competitors with respect to drugs sold by our Oncology/Immunology and Other Ventures
operations vary by product and, in certain cases, competitors have greater financial resources than us and may elect to focus
these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our
products and may have broader sales and marketing infrastructure with which to do so.
Such drugs may compete against products that have lower prices, superior performance, greater ease of administration or
other advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct
illegal manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions,
reduced margins and loss of market share, whether achieved by either legal or illegal means, any of which could materially and
adversely affect our profit margins. We and our joint ventures may not be able to compete effectively against current and future
competitors.
If we are not able to maintain and enhance brand recognition of our drugs to maintain a competitive advantage, our
reputation, business and operating results may be harmed.
We believe that market awareness of our products sold through our Oncology/Immunology and Other Ventures operations,
which include our joint ventures’ branded products, such as Shang Yao, and the brands of third-party products which are
distributed through our joint ventures, has contributed significantly to our success. We also believe that maintaining and
enhancing such brands is critical to maintaining our competitive advantage. Although the sales and marketing staff of such
businesses will continue to further promote such brands to remain competitive, they may not be successful. If we or our joint
ventures are unable to further enhance brand recognition and increase awareness of such products, or are compelled to incur
excessive marketing and promotion expenses in order to maintain brand awareness, our business and results of operations
may be materially and adversely affected. Furthermore, our results of operations could be adversely affected if the Shang Yao
brand, or the brands of any other products, or our reputation, are impaired by certain actions taken by our joint venture
partners, distributors, competitors or relevant regulatory authorities.
Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures
operations or our drug candidates in China, the United States or other countries, which could diminish our sales or affect
our profitability.
The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some
countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period
begins after regulatory approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. Furthermore, once marketed and sold, government authorities and
third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will
pay for and establish reimbursement levels. Adverse pricing reimbursement levels may hinder market acceptance of our drug
candidates or other products sold by us.
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HUTCHMED (China) Limited 2023 Annual Report 189
In China, for example, the Ministry of Human Resources and Social Security of the PRC (the “MOHRSS”) 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. Since January 2020,
January 2022 and March 2023, Elunate, Sulanda and Orpathys have been included in China’s NRDL as a Category B medicine,
respectively.
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. Various federal and state laws have been enacted
to control drug pricing or require manufacturers to disclose information about drug pricing. For example, the Inflation
Reduction Act of 2022, or IRA, was signed into law, and, among other provisions, mandates the negotiation of eligible Medicare
Part B and Part D drugs; redesigns the Medicare Part D benefit; and imposes inflationary rebates for Medicare drugs that
increase in price faster than the rate of inflation.
The IRA, or other federal or state laws, could affect the market conditions for, or pricing or reimbursement of, our products.
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.
Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases, or by
all payors, 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:
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, 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;
•
license diverse third-party products; and
• develop new and competitively priced products which meet the requirements of the constantly changing market.
If we or our joint ventures fail to respond to this environment by improving our existing products, licensing new third-party
products or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate
market acceptance, our business and profitability may be materially and adversely affected.
•
•
190
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.
30
31
In China, for example, the Ministry of Human Resources and Social Security of the PRC (the “MOHRSS”) 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. Since January 2020,
January 2022 and March 2023, Elunate, Sulanda and Orpathys have been included in China’s NRDL as a Category B medicine,
respectively.
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. Various federal and state laws have been enacted
to control drug pricing or require manufacturers to disclose information about drug pricing. For example, the Inflation
Reduction Act of 2022, or IRA, was signed into law, and, among other provisions, mandates the negotiation of eligible Medicare
Part B and Part D drugs; redesigns the Medicare Part D benefit; and imposes inflationary rebates for Medicare drugs that
increase in price faster than the rate of inflation.
The IRA, or other federal or state laws, could affect the market conditions for, or pricing or reimbursement of, our products.
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.
Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases, or by
all payors, 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.
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, 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;
•
license diverse third-party products; and
Sales of our generic prescription drugs sold through our Other Ventures rely on the ability to win tender bids for the medicine
• develop new and competitively priced products which meet the requirements of the constantly changing market.
If we or our joint ventures fail to respond to this environment by improving our existing products, licensing new third-party
products or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate
market acceptance, our business and profitability may be materially and adversely affected.
30
31
HUTCHMED (China) Limited 2023 Annual Report 191
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.
We are dependent on our joint ventures’ production facilities in Shanghai, China, our manufacturing facilities in Suzhou and
Shanghai, China and third-party or our collaboration partners’ manufacturing facilities for the manufacture of the principal
products of our joint ventures and our own drug candidates and products.
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 cost of production. Raw material price fluctuations could increase the cost to manufacture our products and adversely
affect our operating results.
Adverse publicity associated with our company or collaboration partners, our joint ventures or our or their products or third-
party licensed products or similar products manufactured by our competitors could have a material adverse effect on our
results of operations.
Sales of our and our joint ventures’ products are highly dependent upon market perceptions of the safety and quality of
such products, including proprietary products and third-party products we and they distribute. Concerns over the safety of
biopharmaceutical products manufactured in China could have an adverse effect on the reputation of our industry and the sale
of such products, including products manufactured or distributed by us, our collaboration partners and our joint ventures.
We and our joint ventures could be adversely affected if any of our or our joint ventures’ products, third-party licensed
products or any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any
negative publicity associated with severe adverse reactions or other adverse effects resulting from patients’ use or misuse of
our and our joint ventures’ products or any similar products manufactured by other companies could also have a material
adverse impact on our results of operations. We and our joint ventures have not, to date, experienced any significant quality
control or safety problems. If in the future we or our joint ventures become involved in incidents of the type described above,
such problems could severely and adversely impact our financial position and reputation.
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 finished product for fruquintinib and surufatinib sold
by our Oncology/Immunology operations are manufactured at our manufacturing facility in Suzhou, China. We outsourced the
manufacture of active pharmaceutical ingredients and finished product of savolitinib to a third-party manufacturer based in
Shanghai, China. We have also outsourced the manufacture of the active pharmaceutical ingredients to third-party
manufacturers based in China for fruquintinib and surufatinib and we have engaged a back-up supplier for fruquintinib for
China only. Until our new manufacturing facility in Shanghai is fully operational and it receives all the requisite government
and other approvals, we have no back-up manufacturing facility for the finished product of savolitinib and surufatinib, and our
ability to produce such drugs will be negatively impacted if we experience any significant production problems at our Suzhou
facility or at our third party manufacturers’ facilities. In relation to the U.S. market, finished product for fruquintinib can be
supplied by either our facility in Suzhou or a third-party manufacturer in Switzerland and potentially this third-party
manufacturer could supply finished product to us to be sold in China subject to relevant approvals. A significant disruption at
our, our collaboration partners’, our joint ventures’ and/or our contract manufacturer’s facilities, even on a short-term basis,
could impair our, our collaboration partners’ 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 collaboration partners’, 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 collaboration partners’, 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 collaboration partners’, 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.
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, Eli Lilly and Takeda and our in-licensing
arrangement with Epizyme, and any future collaborations that we enter into may not be successful. Disagreements or disputes
between parties to a collaboration arrangement regarding issues such as clinical development and commercialization,
intellectual property ownership and transfer, clinical supply of drug candidates or products, cost allocation and other matters
can lead to delays in the development process or commercializing the applicable drug candidate and, in some cases,
termination of the collaboration arrangement. In addition, we or our partners may seek to amend the terms of one or more our
collaboration agreements to adjust, among other things, the respective roles of our company and our collaboration partners
as circumstances change. Our interests may not always be aligned with those of our collaboration partners, for instance, we
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.
192
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33
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.
We are dependent on our joint ventures’ production facilities in Shanghai, China, our manufacturing facilities in Suzhou and
Shanghai, China and third-party or our collaboration partners’ manufacturing facilities for the manufacture of the principal
products of our joint ventures and our own drug candidates and products.
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 cost of production. Raw material price fluctuations could increase the cost to manufacture our products and adversely
affect our operating results.
results of operations.
Adverse publicity associated with our company or collaboration partners, 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
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, our collaboration partners and our joint ventures.
We and our joint ventures could be adversely affected if any of our or our joint ventures’ products, third-party licensed
products or any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any
negative publicity associated with severe adverse reactions or other adverse effects resulting from patients’ use or misuse of
our and our joint ventures’ products or any similar products manufactured by other companies could also have a material
adverse impact on our results of operations. We and our joint ventures have not, to date, experienced any significant quality
control or safety problems. If in the future we or our joint ventures become involved in incidents of the type described above,
such problems could severely and adversely impact our financial position and reputation.
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 finished product for fruquintinib and surufatinib sold
by our Oncology/Immunology operations are manufactured at our manufacturing facility in Suzhou, China. We outsourced the
manufacture of active pharmaceutical ingredients and finished product of savolitinib to a third-party manufacturer based in
Shanghai, China. We have also outsourced the manufacture of the active pharmaceutical ingredients to third-party
manufacturers based in China for fruquintinib and surufatinib and we have engaged a back-up supplier for fruquintinib for
China only. Until our new manufacturing facility in Shanghai is fully operational and it receives all the requisite government
and other approvals, we have no back-up manufacturing facility for the finished product of savolitinib and surufatinib, and our
ability to produce such drugs will be negatively impacted if we experience any significant production problems at our Suzhou
facility or at our third party manufacturers’ facilities. In relation to the U.S. market, finished product for fruquintinib can be
supplied by either our facility in Suzhou or a third-party manufacturer in Switzerland and potentially this third-party
manufacturer could supply finished product to us to be sold in China subject to relevant approvals. A significant disruption at
our, our collaboration partners’, our joint ventures’ and/or our contract manufacturer’s facilities, even on a short-term basis,
could impair our, our collaboration partners’ 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 collaboration partners’, 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 collaboration partners’, 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 collaboration partners’, 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.
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, Eli Lilly and Takeda and our in-licensing
arrangement with Epizyme, and any future collaborations that we enter into may not be successful. Disagreements or disputes
between parties to a collaboration arrangement regarding issues such as clinical development and commercialization,
intellectual property ownership and transfer, clinical supply of drug candidates or products, cost allocation and other matters
can lead to delays in the development process or commercializing the applicable drug candidate and, in some cases,
termination of the collaboration arrangement. In addition, we or our partners may seek to amend the terms of one or more our
collaboration agreements to adjust, among other things, the respective roles of our company and our collaboration partners
as circumstances change. Our interests may not always be aligned with those of our collaboration partners, for instance, we
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.
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HUTCHMED (China) Limited 2023 Annual Report 193
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 that 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, EMA, PDMA or similar regulatory
authorities outside the United States, China, Europe, Japan and 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.
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 collaboration partners rely, and expect to continue to rely, on third parties to conduct certain of our clinical
trials for our drug candidates. If these third parties do not successfully carry out their contractual duties, comply with
regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or
commercialize our drug candidates and our business could be harmed.
We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and
expect to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as
CROs, to conduct or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration
partners (as applicable) will be responsible for ensuring that each clinical trial is conducted in accordance with the applicable
protocol, legal and regulatory requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory
responsibilities. For any violations of laws and regulations during the conduct of clinical trials for our drug candidates, we could
be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.
Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the
clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are
outside of our direct control. Our reliance on third parties to conduct clinical trials results in less control over the management
of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating
with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities.
Outside parties may:
• have staffing difficulties;
fail to comply with contractual obligations;
experience regulatory compliance issues;
•
•
•
control.
• 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
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.
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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 that 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.
and commercialization plans.
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
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, EMA, PDMA or similar regulatory
authorities outside the United States, China, Europe, Japan and 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.
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 collaboration partners rely, and expect to continue to rely, on third parties to conduct certain of our clinical
trials for our drug candidates. If these third parties do not successfully carry out their contractual duties, comply with
regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or
commercialize our drug candidates and our business could be harmed.
We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and
expect to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as
CROs, to conduct or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration
partners (as applicable) will be responsible for ensuring that each clinical trial is conducted in accordance with the applicable
protocol, legal and regulatory requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory
responsibilities. For any violations of laws and regulations during the conduct of clinical trials for our drug candidates, we could
be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.
Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the
clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, are
outside of our direct control. Our reliance on third parties to conduct clinical trials results in less control over the management
of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating
with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities.
Outside parties may:
• have staffing difficulties;
•
•
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.
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HUTCHMED (China) Limited 2023 Annual Report 195
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, EMA, PDMA 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 and Sinopharm, 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 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, our collaboration partners and our joint ventures rely on our distributors for logistics and distribution services.
We, our collaboration partners 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, our
collaboration partners 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, our
collaboration partners’ and our joint ventures’ distribution network, including failure to renew existing distribution agreements
with desired distributors, could negatively affect product sales and materially and adversely affect our business, financial
condition and results of operations.
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 indirectly held approximately 38.2% of our total outstanding share capital as of February 15, 2024. 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, 2021, 2022 and 2023, 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, 2021, 2022 and 2023, sales of our products to members of the CK Hutchison group
amounted to $4.3 million, $3.6 million and $1.9 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.
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37
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
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, EMA, PDMA 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 and Sinopharm, 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.
additional clinical trials before approving the marketing applications for the relevant drug candidate. We cannot assure you
We, our collaboration partners and our joint ventures rely on our distributors for logistics and distribution services.
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 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, our collaboration partners 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, our
collaboration partners 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, our
collaboration partners’ and our joint ventures’ distribution network, including failure to renew existing distribution agreements
with desired distributors, could negatively affect product sales and materially and adversely affect our business, financial
condition and results of operations.
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 indirectly held approximately 38.2% of our total outstanding share capital as of February 15, 2024. 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, 2021, 2022 and 2023, 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, 2021, 2022 and 2023, sales of our products to members of the CK Hutchison group
amounted to $4.3 million, $3.6 million and $1.9 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.
36
37
HUTCHMED (China) Limited 2023 Annual Report 197
Other Risks and Risks Relating to Doing Business in China
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 cost of
compliance. Failure to comply with any of these laws could result in enforcement action against us, including investigations,
civil and criminal enforcement action, fines, imprisonment of company officers and public censure, claims for damages by
customers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material
adverse effect on our business, financial condition, results of operations or prospects.
Data protection and privacy laws and regulations generally require clinical trial sponsors and operators and their personnel
to protect the privacy of their enrolled subjects and prohibit unauthorized disclosure of personal information. We have
established procedures to protect the confidentiality of medical records and personal data of subjects enrolled in our clinical
trials. Access to clinical trial data has been strictly limited to authorized personnel only according to the relevant rules and
regulations. External parties involved in clinical trials are also required to comply with all relevant data protection and
confidentiality requirements. Data are to be used only for the intended use, as agreed by the patients and consistent with the
patients’ informed consent form. While we have adopted security policies and measures to protect our proprietary data and
patients’ privacy, personal patient information could be subject to leaks caused by hacking activities, human error, employee
misconduct or negligence or system breakdown. We also cooperate with third parties including collaboration partners,
principal investigators, hospitals, CROs and other third-party contractor and consultants for our clinical trials and operations.
Any leakage or abuse of patient data by our third-party partners may be perceived by the patients as a result of our failure.
Furthermore, any change in applicable laws and regulations could affect our ability to use medical data and subject us to
liability for the use of such data for previously permitted purposes. 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. While we do not believe that we are directly subject to HIPAA as either a “covered entity” or “business
associate,” U.S. sites at which we conduct clinical trials are likely to be covered entities and thus must ensure that they obtain
adequate patient authorization or establish another basis under HIPAA to disclose a clinical trial subject’s individually
identifiable health information to us and other entities participating in our clinical trials. In addition to federal regulation, many
U.S. states have begun to focus on efforts to regulate privacy and data security. For example, in California, the California
Consumer Protection Act, or CCPA, which went into effect on January 1, 2020 and was expanded by the California Consumer
Privacy Rights Act, or CPRA, which went into effect on January 1, 2023, collectively establishes a privacy framework for covered
businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in
the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and
potentially severe statutory damages framework for violations and for businesses that fail to implement reasonable security
procedures and practices to prevent data breaches. A separate law, the California Confidentiality of Medical Information Act,
also applies to pharmaceutical companies, including requirements for written authorization to use and disclose medical
information and restrictions on the circumstances under which medical information can be used for marketing purposes.
Several other states have also recently enacted or are considering comprehensive data privacy and security laws. Furthermore,
all fifty states, the District of Columbia, Puerto Rico, and U.S. territories have enacted data breach notification laws that require,
among other things, notifications to state governments and/or the affected individuals in the event of a data breach. These
various state laws differ from one another and impose significant compliance burden. 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 reputation
damage, increased scrutiny and liability including legal claims or proceedings and liability under federal or state laws that
protect the privacy of personal information.
198
38
39
Other Risks and Risks Relating to Doing Business in China
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 cost of
compliance. Failure to comply with any of these laws could result in enforcement action against us, including investigations,
civil and criminal enforcement action, fines, imprisonment of company officers and public censure, claims for damages by
customers and other affected individuals, damage to our reputation and loss of goodwill, any of which could have a material
adverse effect on our business, financial condition, results of operations or prospects.
Data protection and privacy laws and regulations generally require clinical trial sponsors and operators and their personnel
to protect the privacy of their enrolled subjects and prohibit unauthorized disclosure of personal information. We have
established procedures to protect the confidentiality of medical records and personal data of subjects enrolled in our clinical
trials. Access to clinical trial data has been strictly limited to authorized personnel only according to the relevant rules and
regulations. External parties involved in clinical trials are also required to comply with all relevant data protection and
confidentiality requirements. Data are to be used only for the intended use, as agreed by the patients and consistent with the
patients’ informed consent form. While we have adopted security policies and measures to protect our proprietary data and
patients’ privacy, personal patient information could be subject to leaks caused by hacking activities, human error, employee
misconduct or negligence or system breakdown. We also cooperate with third parties including collaboration partners,
principal investigators, hospitals, CROs and other third-party contractor and consultants for our clinical trials and operations.
Any leakage or abuse of patient data by our third-party partners may be perceived by the patients as a result of our failure.
Furthermore, any change in applicable laws and regulations could affect our ability to use medical data and subject us to
liability for the use of such data for previously permitted purposes. 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. While we do not believe that we are directly subject to HIPAA as either a “covered entity” or “business
associate,” U.S. sites at which we conduct clinical trials are likely to be covered entities and thus must ensure that they obtain
adequate patient authorization or establish another basis under HIPAA to disclose a clinical trial subject’s individually
identifiable health information to us and other entities participating in our clinical trials. In addition to federal regulation, many
U.S. states have begun to focus on efforts to regulate privacy and data security. For example, in California, the California
Consumer Protection Act, or CCPA, which went into effect on January 1, 2020 and was expanded by the California Consumer
Privacy Rights Act, or CPRA, which went into effect on January 1, 2023, collectively establishes a privacy framework for covered
businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in
the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and
potentially severe statutory damages framework for violations and for businesses that fail to implement reasonable security
procedures and practices to prevent data breaches. A separate law, the California Confidentiality of Medical Information Act,
also applies to pharmaceutical companies, including requirements for written authorization to use and disclose medical
information and restrictions on the circumstances under which medical information can be used for marketing purposes.
Several other states have also recently enacted or are considering comprehensive data privacy and security laws. Furthermore,
all fifty states, the District of Columbia, Puerto Rico, and U.S. territories have enacted data breach notification laws that require,
among other things, notifications to state governments and/or the affected individuals in the event of a data breach. These
various state laws differ from one another and impose significant compliance burden. 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 reputation
damage, increased scrutiny and liability including legal claims or proceedings and liability under federal or state laws that
protect the privacy of personal information.
38
39
HUTCHMED (China) Limited 2023 Annual Report 199
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.
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. However, no approval is required for “international collaboration in clinical trials” that
do not involve the export of HGR materials, provided that 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. The Implementation Rules for the Administrative
Regulation on Human Genetic Resources, or Implementation Rules for HGR, became effective on July 1, 2023, setting out
circumstances under which the provision of or granting of access to human genetic resource information to overseas
organizations, individuals or agencies controlled thereby affecting public health, national security or public interest in China
would be subject to security review by the Ministry of Science and Technology, including where (i) human genetic resource
information of important genetic families is involved; (ii) human genetic resource information of specific regions is involved,
(iii) exome sequencing and genome sequencing information resources with of a sample exceeding 500 individuals is involved;
and (iv) other circumstances that may affect the public health, national security and social public interest of China. 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 significant fines. 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.
200
40
41
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.
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. However, no approval is required for “international collaboration in clinical trials” that
do not involve the export of HGR materials, provided that 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. The Implementation Rules for the Administrative
Regulation on Human Genetic Resources, or Implementation Rules for HGR, became effective on July 1, 2023, setting out
circumstances under which the provision of or granting of access to human genetic resource information to overseas
organizations, individuals or agencies controlled thereby affecting public health, national security or public interest in China
would be subject to security review by the Ministry of Science and Technology, including where (i) human genetic resource
information of important genetic families is involved; (ii) human genetic resource information of specific regions is involved,
(iii) exome sequencing and genome sequencing information resources with of a sample exceeding 500 individuals is involved;
and (iv) other circumstances that may affect the public health, national security and social public interest of China. 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 significant fines. 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.
40
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HUTCHMED (China) Limited 2023 Annual Report 201
Product liability claims or lawsuits could cause us, our collaboration partners or our joint ventures to incur substantial
liabilities.
We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures. If unsuccessful,
such transaction may have an adverse effect on our business.
We, our collaboration partners 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 savolitinib, fruquintinib, surufatinib
and/or any of our drug candidates which receive regulatory approval, caused injuries, we, our collaboration partners 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 savolitinib, fruquintinib, surufatinib, 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 savolitinib, fruquintinib, surufatinib, 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.
An occurrence of a widespread health epidemic or other outbreaks or natural disasters could have a material adverse effect
on our business, financial condition and results of operations.
Our business could be materially and adversely affected by the outbreak of a widespread health epidemic, such as
COVID - 19, swine flu, avian influenza, severe acute respiratory syndrome, Ebola and Zika; natural disasters, such as earthquakes,
snowstorms, storm surges, floods, fires, drought and other extreme weather events and other effects of climate change; or
other events, such as wars, acts of terrorism, environmental accidents, power shortages or communication interruptions. The
occurrence of a disaster or a prolonged outbreak of an epidemic illness or other adverse public health developments could
materially disrupt our industry and our business and operations, and have a material adverse effect on our business, financial
condition and results of operations. For example, these events could cause a temporary closure of the facilities we use for our
operations, significantly disrupt 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. Our operations could also be disrupted if any of our employees or employees of
our business partners are suspected of contracting an epidemic disease, since this could require us or our business partners to
quarantine some or all of these employees or disinfect the facilities used for our operations.
From time to time, we may pursue strategic transactions, including acquisitions, investments, joint ventures and
divestitures. For example, we are continuing to actively evaluate non-core assets divestment opportunities as part of our
strategy to focus on our core businesses, which include the potential divestment of Shanghai Hutchison Pharmaceuticals. For
more information, please refer to Item 4.A. “History and Development of the Company.” 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. Joint ventures may result in issues such as conflicts in goals and
corporate cultures, commercial disputes with joint venture partners as well as imbalanced contributions and benefits.
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 also result in 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. There is also no guarantee that we can 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.
We, our collaboration partners, our joint ventures and our third party contractors 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 or they 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, our collaboration partners, our joint ventures and our third party contractors
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, our
collaboration partners, our joint ventures and our third party contractors are subject to risk of violations under the FCPA, the
U.K. Bribery Act, and other laws in the countries where we or they do business. We, our collaboration partners, our joint ventures
and our third party contractors 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, our collaboration partners, our joint ventures
or our collaboration partners, even though they may not always be subject to our control. It is our policy to implement
safeguards to discourage these practices by our, our collaboration partners’, our joint ventures’ and our collaboration partners’
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, our collaboration partners’, our joint ventures’ or our third party contractors’ 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.
When we or our collaboration partners begin to commercialize products in the United States and secure governmental
reimbursement of our products, we and our collaboration partners 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.
202
42
43
Product liability claims or lawsuits could cause us, our collaboration partners or our joint ventures to incur substantial
liabilities.
We, our collaboration partners 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 savolitinib, fruquintinib, surufatinib
and/or any of our drug candidates which receive regulatory approval, caused injuries, we, our collaboration partners 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 savolitinib, fruquintinib, surufatinib, 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 savolitinib, fruquintinib, surufatinib, 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.
An occurrence of a widespread health epidemic or other outbreaks or natural disasters could have a material adverse effect
on our business, financial condition and results of operations.
Our business could be materially and adversely affected by the outbreak of a widespread health epidemic, such as
COVID - 19, swine flu, avian influenza, severe acute respiratory syndrome, Ebola and Zika; natural disasters, such as earthquakes,
snowstorms, storm surges, floods, fires, drought and other extreme weather events and other effects of climate change; or
other events, such as wars, acts of terrorism, environmental accidents, power shortages or communication interruptions. The
occurrence of a disaster or a prolonged outbreak of an epidemic illness or other adverse public health developments could
materially disrupt our industry and our business and operations, and have a material adverse effect on our business, financial
condition and results of operations. For example, these events could cause a temporary closure of the facilities we use for our
operations, significantly disrupt 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. Our operations could also be disrupted if any of our employees or employees of
our business partners are suspected of contracting an epidemic disease, since this could require us or our business partners to
quarantine some or all of these employees or disinfect the facilities used for our operations.
We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures. If unsuccessful,
such transaction may have an adverse effect on our business.
From time to time, we may pursue strategic transactions, including acquisitions, investments, joint ventures and
divestitures. For example, we are continuing to actively evaluate non-core assets divestment opportunities as part of our
strategy to focus on our core businesses, which include the potential divestment of Shanghai Hutchison Pharmaceuticals. For
more information, please refer to Item 4.A. “History and Development of the Company.” 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. Joint ventures may result in issues such as conflicts in goals and
corporate cultures, commercial disputes with joint venture partners as well as imbalanced contributions and benefits.
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 also result in 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. There is also no guarantee that we can 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.
We, our collaboration partners, our joint ventures and our third party contractors 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 or they 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, our collaboration partners, our joint ventures and our third party contractors
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, our
collaboration partners, our joint ventures and our third party contractors are subject to risk of violations under the FCPA, the
U.K. Bribery Act, and other laws in the countries where we or they do business. We, our collaboration partners, our joint ventures
and our third party contractors 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, our collaboration partners, our joint ventures
or our collaboration partners, even though they may not always be subject to our control. It is our policy to implement
safeguards to discourage these practices by our, our collaboration partners’, our joint ventures’ and our collaboration partners’
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, our collaboration partners’, our joint ventures’ or our third party contractors’ 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.
When we or our collaboration partners begin to commercialize products in the United States and secure governmental
reimbursement of our products, we and our collaboration partners 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.
42
43
HUTCHMED (China) Limited 2023 Annual Report 203
Ensuring that our, our collaboration partners’, our joint ventures’ and our third party contractors’ 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, our collaboration partners, our joint
ventures, and our third party contractors 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.
Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards
and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct by our employees. Misconduct by our employees could
include intentional failures to comply with applicable regulations, provide accurate information to regulatory authorities or
comply with healthcare fraud and abuse laws and regulations. In particular, 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 pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also
involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. We have adopted a Code of Ethics, but it is not always possible to identify and deter employee
misconduct, and the precautions we have taken 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 and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of
operations, including the imposition of significant fines or other sanctions.
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 $42.0 million,
$30.6 million and $36.6 million for the years ended December 31, 2021, 2022 and 2023, 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. “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.
204
44
45
Ensuring that our, our collaboration partners’, our joint ventures’ and our third party contractors’ 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, our collaboration partners, our joint
ventures, and our third party contractors 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.
Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards
and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct by our employees. Misconduct by our employees could
include intentional failures to comply with applicable regulations, provide accurate information to regulatory authorities or
comply with healthcare fraud and abuse laws and regulations. In particular, 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 pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also
involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. We have adopted a Code of Ethics, but it is not always possible to identify and deter employee
misconduct, and the precautions we have taken 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 and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of
operations, including the imposition of significant fines or other sanctions.
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 $42.0 million,
$30.6 million and $36.6 million for the years ended December 31, 2021, 2022 and 2023, 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. “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.
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HUTCHMED (China) Limited 2023 Annual Report 205
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.
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 difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we
enjoy.
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 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 came 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.
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47
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.
notice.
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
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 difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we
enjoy.
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 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 came 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.
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HUTCHMED (China) Limited 2023 Annual Report 207
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.
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.
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 came 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 effective, 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.
SAMR issued the Provisions on Prohibition of the Abuse of Market Dominance on March 10, 2023, which came into effect on
April 15, 2023, pursuant to which an abuse of market dominance determined by the SAMR shall satisfy all the following criteria:
(i) the business operator is dominating the market; (ii) the business operator has eliminated or restricted competition; (iii) the
business operator has no legitimate reason to carry out such acts; and (iv) such acts by the business operator have an impact
on elimination or restriction of market competition. Pursuant to the Provisions on Prohibition of Monopoly Agreements issued
by SAMR and effective from April 15, 2023, entering into monopolistic agreements, which means agreements or concerted
practices to eliminate or restrict competition, is prohibited, unless such agreements satisfy the specific exemptions prescribed
in the Anti-Monopoly Law, such as improving technologies or increasing the efficiency and competitiveness of small and
medium-sized undertakings. If business operators fail to comply with the Anti-Monopoly Law or other relevant regulations, they
may be ordered to cease business activities, unwind transactions, and be subject to confiscation of unlawful profits and fines.
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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.
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.
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 came 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 effective, 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.
SAMR issued the Provisions on Prohibition of the Abuse of Market Dominance on March 10, 2023, which came into effect on
April 15, 2023, pursuant to which an abuse of market dominance determined by the SAMR shall satisfy all the following criteria:
(i) the business operator is dominating the market; (ii) the business operator has eliminated or restricted competition; (iii) the
business operator has no legitimate reason to carry out such acts; and (iv) such acts by the business operator have an impact
on elimination or restriction of market competition. Pursuant to the Provisions on Prohibition of Monopoly Agreements issued
by SAMR and effective from April 15, 2023, entering into monopolistic agreements, which means agreements or concerted
practices to eliminate or restrict competition, is prohibited, unless such agreements satisfy the specific exemptions prescribed
in the Anti-Monopoly Law, such as improving technologies or increasing the efficiency and competitiveness of small and
medium-sized undertakings. If business operators fail to comply with the Anti-Monopoly Law or other relevant regulations, they
may be ordered to cease business activities, unwind transactions, and be subject to confiscation of unlawful profits and fines.
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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.”
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.
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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.”
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.
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HUTCHMED (China) Limited 2023 Annual Report 211
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.
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, 2023, we had 274 issued patents, including 25 PRC patents, 24 U.S. patents and 13 European
patents, 354 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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There is uncertainty regarding the PRC withholding tax rate that will be applied to distributions from our PRC subsidiaries
The political relationships between China and other countries may affect our business operations.
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.
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.
time - consuming to resolve.
We may be involved in litigation, legal disputes, claims or administrative proceedings which could be costly and
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.
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, 2023, we had 274 issued patents, including 25 PRC patents, 24 U.S. patents and 13 European
patents, 354 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, Europe and Japan 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, our collaboration partners’ 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, our collaboration partners
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, our collaboration partners’ 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, our collaboration partners 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, our
collaboration partners 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.
The trade secrets of our company, our collaboration partners and our joint ventures 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, our collaboration partners’ 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners 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
•
•
of our or 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
To date, we, our collaboration partners and our joint ventures have not received any material claims of infringement by
any third parties. If a third-party claims that we, our collaboration partners or our joint ventures infringe its proprietary rights,
any of the following may occur:
• we, our collaboration partners 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, our collaboration partners 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, our collaboration partners 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, Europe and Japan 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, our collaboration partners’ 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, our collaboration partners
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, our collaboration partners’ 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, our collaboration partners 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, our
collaboration partners 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.
The trade secrets of our company, our collaboration partners and our joint ventures 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, our collaboration partners’ 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners 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, our collaboration partners and our joint ventures have not received any material claims of infringement by
any third parties. If a third-party claims that we, our collaboration partners or our joint ventures infringe its proprietary rights,
any of the following may occur:
• we, our collaboration partners 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners 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, our collaboration partners 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 collaboration partners, 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, our collaboration
partners 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, our collaboration partners 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.
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.
216
56
57
• we, our collaboration partners 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners’ 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, our collaboration partners 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, our collaboration partners 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 collaboration partners, 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, our collaboration
partners 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, our collaboration partners 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.
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.
56
57
HUTCHMED (China) Limited 2023 Annual Report 217
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, 2023.
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, 2024, Hutchison Healthcare Holdings Limited owned approximately 38.2% 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 certain
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.
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
identified as a
securities exchange or
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.
in the over-the-counter trading market
in the United States
if we are
218
58
59
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, 2023.
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, 2024, Hutchison Healthcare Holdings Limited owned approximately 38.2% 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 certain
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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HUTCHMED (China) Limited 2023 Annual Report 219
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
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.
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 compliance with the obligations contained
in the Companies Act and directors’ 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.
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, 2024. 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, 2024
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, 2025, which are more detailed and extensive than the forms available to a
foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors
and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the
Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements
under the Nasdaq listing rules. As a U.S.-listed public company, should we lose our foreign private issuer status, we will incur
significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
Fluctuations in the value of the renminbi may have a material adverse effect on your investment.
The value of the renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things,
changes in China’s and international political and economic conditions and the PRC government’s fiscal and currency policies.
Since 1994, the conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC,
which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates
on the world financial markets. It is expected that China may further reform its exchange rate system in the future.
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 $3.0 million, a foreign currency translation loss of $8.5 million and a foreign currency translation loss of
$6.6 million for the years ended December 31, 2021, 2022 and 2023, 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 February 15, 2024, the closing sale price of our ADSs
ranged from a high of $42.94 to a low of $7.65 per ADS.
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61
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.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic
U.S. issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting
requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a
U.S. domestic issuer. For example, we are not 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 compliance with the obligations contained
in the Companies Act and directors’ general fiduciary duties and duties of care, Cayman Islands law has no corporate
governance regime which prescribes specific corporate governance standards. We intend to continue to follow Cayman Islands
corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect
of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the
requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent
directors governed by a remuneration committee charter oversee executive compensation and (iii) the requirement under
Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for selection by either a
majority of the independent directors or a nominations committee comprised solely of independent directors. Cayman Islands
law does not impose a requirement that our board of directors consist of a majority of independent directors, nor does Cayman
Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or
nominating process. Therefore, our shareholders may be afforded less protection than they otherwise would have under
corporate governance listing standards applicable to U.S. domestic issuers. We have voluntarily complied with the Corporate
Governance Code contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK. See Item 6.C. “Board
Practice—Hong Kong Corporate Governance Code” for more details.
We may in the future lose our foreign private issuer status under U.S. securities laws, which could result in significant
additional costs and expenses.
We are a foreign private issuer as defined in the Securities Act, and therefore, we are not required to comply with all of the
periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status
is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the
next determination will be made with respect to us on June 30, 2024. 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, 2024
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, 2025, which are more detailed and extensive than the forms available to a
foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors
and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the
Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements
under the Nasdaq listing rules. As a U.S.-listed public company, should we lose our foreign private issuer status, we will incur
significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
Fluctuations in the value of the renminbi may have a material adverse effect on your investment.
The value of the renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things,
changes in China’s and international political and economic conditions and the PRC government’s fiscal and currency policies.
Since 1994, the conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC,
which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates
on the world financial markets. It is expected that China may further reform its exchange rate system in the future.
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 $3.0 million, a foreign currency translation loss of $8.5 million and a foreign currency translation loss of
$6.6 million for the years ended December 31, 2021, 2022 and 2023, 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 February 15, 2024, the closing sale price of our ADSs
ranged from a high of $42.94 to a low of $7.65 per ADS.
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HUTCHMED (China) Limited 2023 Annual Report 221
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including
The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not
the following:
vote at 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;
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
actual or anticipated fluctuations in our period-to-period operating results;
meeting; or
changes in financial estimates by securities research analysts;
•
a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders.
additions or departures of our executive officers;
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
release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and
company. Holders of our ordinary shares are not subject to this discretionary proxy.
sales or perceived sales of additional ordinary shares or ADSs.
Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
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.
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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63
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including
the following:
announcements of competitive developments;
regulatory developments affecting us, our customers or our competitors;
announcements regarding litigation or administrative proceedings involving us;
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
actual or anticipated fluctuations in our period-to-period operating results;
meeting; or
changes in financial estimates by securities research analysts;
•
a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders.
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
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.
sales or perceived sales of additional ordinary shares or ADSs.
Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
•
•
•
•
•
•
•
•
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.
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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HUTCHMED (China) Limited 2023 Annual Report 223
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
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 and other intangible assets), we believe that we were not a PFIC for our taxable year ended December 31, 2023.
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 and other intangible assets. The value of our goodwill and other intangible assets 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 be or 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. Furthermore, the proportionate value of our passive assets may increase over
time if the value of our ownership stake in any other company in which we own less than 25% (by value) increases. In light of the
foregoing, no assurance can be provided that we were 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 their 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.
to U.K. corporation tax.
made.
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
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% for taxable profits below GBP 50,000 and 25% for taxable profits above GBP 250,000, 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 possible 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 and other intangible assets), we believe that we were not a PFIC for our taxable year ended December 31, 2023.
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 and other intangible assets. The value of our goodwill and other intangible assets 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 be or 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. Furthermore, the proportionate value of our passive assets may increase over
time if the value of our ownership stake in any other company in which we own less than 25% (by value) increases. In light of the
foregoing, no assurance can be provided that we were 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 their 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% for taxable profits below GBP 50,000 and 25% for taxable profits above GBP 250,000, 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 possible 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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HUTCHMED (China) Limited 2023 Annual Report 225
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.
Nasdaq.
We cannot assure you that our ordinary shares will remain listed on the AIM or the SEHK or our ADSs will remain listed on
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, other than right to inspect and take copies of our register of members
contained in our articles of association, 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. Whilst there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, Hong
Kong or China, the courts of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in
personam obtained in such courts against the Company under which a sum of money is payable (other than a sum of money
payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in
certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided
that (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the
rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment
would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is
submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the
correct procedures under the laws of the Cayman Islands.
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 two 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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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, other than right to inspect and take copies of our register of members
contained in our articles of association, 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. Whilst there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, Hong
Kong or China, the courts of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in
personam obtained in such courts against the Company under which a sum of money is payable (other than a sum of money
payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) or, in
certain circumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided
that (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the
rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment
would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is
submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the
correct procedures under the laws of the Cayman Islands.
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 two 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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HUTCHMED (China) Limited 2023 Annual Report 227
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.
As our focus is the discovery and development of novel therapies in oncology and immunology, we recently disposed of
our interest in some non-core operations which we believe allows us to focus resources on our primary aim of accelerating
investment in our Oncology/Immunology assets. In September 2021, we disposed of our investment in Hutchison Baiyunshan,
our non-core and non-consolidated over-the-counter drug joint venture business. In December 2023, we disposed of our
interests in our consolidated joint venture Hutchison Hain Organic and our wholly owned subsidiary HUTCHMED Science
Nutrition. We are also considering divesting other non-core businesses under our Other Ventures, 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,
operations, which primarily manufacture, market and distribute prescription drugs in China. Our more than 20 years of track
2021, 2022 and 2023.
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, Syk, EZH2,
PI3Kδ, IDH, ERK, BTK, CD47 and SHP2. 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,
savolitinib, fruquintinib and surufatinib are commercially available to patients as Orpathys, Elunate and Sulanda, respectively.
Outside of China, fruquintinib has been approved by U.S. FDA in November 2023 and marketed as Fruzaqla by our partner
Takeda. 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 with Takeda on fruquintinib. In
addition, we have more than ten other drug candidates that have entered clinical development and several pre - clinical drug
candidates.
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 900 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
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
approximately 930 persons at end of 2023 to support the commercialization of fruquintinib, surufatinib and our other
innovative drugs, if approved, throughout China. Our oncology drug sales team covers approximately 3,500 hospitals and over
39,000 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, savolitinib (partnered globally with AstraZeneca), fruquintinib (partnered in China
with Eli Lilly and outside of China with Takeda) 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.
228
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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.
As our focus is the discovery and development of novel therapies in oncology and immunology, we recently disposed of
our interest in some non-core operations which we believe allows us to focus resources on our primary aim of accelerating
investment in our Oncology/Immunology assets. In September 2021, we disposed of our investment in Hutchison Baiyunshan,
our non-core and non-consolidated over-the-counter drug joint venture business. In December 2023, we disposed of our
interests in our consolidated joint venture Hutchison Hain Organic and our wholly owned subsidiary HUTCHMED Science
Nutrition. We are also considering divesting other non-core businesses under our Other Ventures, 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,
2021, 2022 and 2023.
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
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, Syk, EZH2,
PI3Kδ, IDH, ERK, BTK, CD47 and SHP2. 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,
savolitinib, fruquintinib and surufatinib are commercially available to patients as Orpathys, Elunate and Sulanda, respectively.
Outside of China, fruquintinib has been approved by U.S. FDA in November 2023 and marketed as Fruzaqla by our partner
Takeda. 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 with Takeda on fruquintinib. In
addition, we have more than ten other drug candidates that have entered clinical development and several pre - clinical drug
candidates.
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 900 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
approximately 930 persons at end of 2023 to support the commercialization of fruquintinib, surufatinib and our other
innovative drugs, if approved, throughout China. Our oncology drug sales team covers approximately 3,500 hospitals and over
39,000 oncology physicians in China, a network that we estimate represents over 90% of oncology drug sales in China.
amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically
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, savolitinib (partnered globally with AstraZeneca), fruquintinib (partnered in China
with Eli Lilly and outside of China with Takeda) 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.
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HUTCHMED (China) Limited 2023 Annual Report 229
Build and scale our manufacturing and commercialization capabilities
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 China, currently
over 900 at the end of 2023. 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 enhance our global supply chain to
support the sales of our approved drugs, including through our new manufacturing plant in Shanghai and by working with
third-party manufacturers.
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, to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and
fruquintinib (outside China with Takeda and in China with Eli Lilly).
Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and
improving the health of its people
We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient
population, represents a substantial and fast-growing market opportunity. Over the past decade, the PRC government has
endeavored to foster an innovative biopharmaceutical ecosystem, and in the last few years, the pace of reforms has accelerated
with a clear focus on providing Chinese patients access to world-class oncology therapies through expanded insurance
reimbursement and reduced time for clinical trials and drug approvals. As a result, the oncology drug market in China is growing
rapidly. Having invested in drug innovation in China for 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
Fruquintinib (Elunate in China, Fruzaqla in the U.S.)
Elunate is approved for the treatment of third-line metastatic CRC for which there is an approximate incidence of
105,000 new patients per year in China. In 2023, Elunate in China achieved in-market sales of $107.5 million, up 15% (22 % at
CER) versus 2022 ($93.5 million). In China, Elunate is the leading treatment for late-stage CRC with 47% of 3L treated patient
share according to an IQVIA tracking study in Q2 2023.
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 revenue approximately 70-80% of Elunate
in - market sales from manufacturing fees, service fees and royalties paid to us by Lilly. In 2023, we consolidated $83.2 million in
revenue for Elunate, equal to 77% of in-market sales.
This U.S. patient uptake was in parallel to the rapid inclusion of fruquintinib to the 2023 “NCCN Clinical Practice Guidelines
for Colon Cancer” and the 2023 “NCCN Clinical Practice Guidelines for Rectal Cancer” on November 16, 2023. Fruquintinib has
also been successfully recommended in six other major treatment guidelines for colorectal cancer. These will continue to drive
awareness and usage of fruquintinib among doctors and patients.
In January 2024, Elunate was approved in the Hong Kong Special Administrative Region. This was the first medicine to be
approved under the new mechanism for registration of new drugs (“1+” mechanism). Colorectal cancer was the second most
common cancer in Hong Kong in 2021, with about 5,900 new patients diagnosed and associated with about 2,300 deaths.
Surufatinib (Sulanda in China)
34,000 new patients per year in China.
Sulanda was launched in 2021 for the treatment of all advanced NETs for which there is an approximate incidence of
Total in-market sales in 2023 increased by 36% (43% at CER) to $43.9 million (2022: $32.3 million). According to IQVIA
tracking study report in the fourth quarter of 2023, Sulanda maintained its position in the market with 21% prescription share
in NET treatment, ahead of Sutent and Afinitor. Following negotiations with the China NHSA, Sulanda continues to be included
in the NRDL starting in January 2024. For this renewal, we kept the same price with 2023 NRDL price.
Surufatinib has been successfully recommended in 2023 Chinese medical association consensus for standardized
diagnosis and treatment of pancreatic cancer neuroendocrine neoplasms and four other treatment guidelines for
neuroendocrine tumors. As a result, doctors’ acceptance and patients’ access to Sulanda continues to increase.
Savolitinib (Orpathys in China)
Orpathys is the first-in-class selective MET inhibitor to be approved in China, launched and marketed by our partner,
AstraZeneca 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, 2022 and the first two months of 2023, Orpathys was sold as a self-pay drug. Following negotiations with the China
NHSA in January 2023, Orpathys has been included in the updated NRDL since March 1, 2023 at a 38% discount relative to the
self-pay price, broadening patient access to this medicine. Sales in 2023 were impacted by customary channel fluctuations
following the announcement (in January 2023) and implementation of the NRDL listing (in March 2023), with increased volume
in the latter part of 2023. In-market sales for Orpathys increased 12% (increased 19% at CER) in 2023 to $46.1 million (2022:
$41.2 million) resulting in our consolidation of $28.9 million (2022: $22.3 million) in primarily revenue from manufacturing fees
and royalties. Sales in the second, third and fourth quarters of 2023 were substantially higher than in the second, third and
fourth quarters of 2022 before NRDL listing, increasing 104% by volume.
Market understanding of the need for MET testing has improved significantly, with approximately half of new
advanced/relapsed NSCLC patients in China being tested. 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 a similar guideline from CSCO also recommended Orpathys as the standard of
care for such patients. As MET testing awareness and access increases, more patients are expected to be prescribed a selective
MET inhibitor.
Following negotiations with the China NHSA, Elunate continues to be included in the NRDL for a new two-year term starting
In March 2023, Orpathys was also approved in the Macau Special Administrative Region.
in January 2024 at the same price as the 2023 NRDL price.
Fruquintinib is being marketed by our partner Takeda outside of China. Takeda launched fruquintinib (Fruzaqla) in the U.S.
within 24 hours after it was approved for previously-treated metastatic CRC on November 8, 2023, with the first prescription
received a day after approval. According to Takeda, uptake has been strong, with new patient starts exceeding expectations,
and additional regulatory applications progressing as expected including in the EU and Japan. Since its launch until the end of
2023, Fruzaqla achieved in-market U.S. sales of $15.1 million.
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71
Build and scale our manufacturing and commercialization capabilities
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 China, currently
over 900 at the end of 2023. 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 enhance our global supply chain to
support the sales of our approved drugs, including through our new manufacturing plant in Shanghai and by working with
third-party manufacturers.
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, to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and
fruquintinib (outside China with Takeda and in China with Eli Lilly).
Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and
improving the health of its people
We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient
population, represents a substantial and fast-growing market opportunity. Over the past decade, the PRC government has
endeavored to foster an innovative biopharmaceutical ecosystem, and in the last few years, the pace of reforms has accelerated
with a clear focus on providing Chinese patients access to world-class oncology therapies through expanded insurance
reimbursement and reduced time for clinical trials and drug approvals. As a result, the oncology drug market in China is growing
rapidly. Having invested in drug innovation in China for 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
Fruquintinib (Elunate in China, Fruzaqla in the U.S.)
Elunate is approved for the treatment of third-line metastatic CRC for which there is an approximate incidence of
105,000 new patients per year in China. In 2023, Elunate in China achieved in-market sales of $107.5 million, up 15% (22 % at
CER) versus 2022 ($93.5 million). In China, Elunate is the leading treatment for late-stage CRC with 47% of 3L treated patient
share according to an IQVIA tracking study in Q2 2023.
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 revenue approximately 70-80% of Elunate
in - market sales from manufacturing fees, service fees and royalties paid to us by Lilly. In 2023, we consolidated $83.2 million in
revenue for Elunate, equal to 77% of in-market sales.
in January 2024 at the same price as the 2023 NRDL price.
Fruquintinib is being marketed by our partner Takeda outside of China. Takeda launched fruquintinib (Fruzaqla) in the U.S.
within 24 hours after it was approved for previously-treated metastatic CRC on November 8, 2023, with the first prescription
received a day after approval. According to Takeda, uptake has been strong, with new patient starts exceeding expectations,
and additional regulatory applications progressing as expected including in the EU and Japan. Since its launch until the end of
2023, Fruzaqla achieved in-market U.S. sales of $15.1 million.
This U.S. patient uptake was in parallel to the rapid inclusion of fruquintinib to the 2023 “NCCN Clinical Practice Guidelines
for Colon Cancer” and the 2023 “NCCN Clinical Practice Guidelines for Rectal Cancer” on November 16, 2023. Fruquintinib has
also been successfully recommended in six other major treatment guidelines for colorectal cancer. These will continue to drive
awareness and usage of fruquintinib among doctors and patients.
In January 2024, Elunate was approved in the Hong Kong Special Administrative Region. This was the first medicine to be
approved under the new mechanism for registration of new drugs (“1+” mechanism). Colorectal cancer was the second most
common cancer in Hong Kong in 2021, with about 5,900 new patients diagnosed and associated with about 2,300 deaths.
Surufatinib (Sulanda in China)
Sulanda was launched 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.
Total in-market sales in 2023 increased by 36% (43% at CER) to $43.9 million (2022: $32.3 million). According to IQVIA
tracking study report in the fourth quarter of 2023, Sulanda maintained its position in the market with 21% prescription share
in NET treatment, ahead of Sutent and Afinitor. Following negotiations with the China NHSA, Sulanda continues to be included
in the NRDL starting in January 2024. For this renewal, we kept the same price with 2023 NRDL price.
Surufatinib has been successfully recommended in 2023 Chinese medical association consensus for standardized
diagnosis and treatment of pancreatic cancer neuroendocrine neoplasms and four other treatment guidelines for
neuroendocrine tumors. As a result, doctors’ acceptance and patients’ access to Sulanda continues to increase.
Savolitinib (Orpathys in China)
Orpathys is the first-in-class selective MET inhibitor to be approved in China, launched and marketed by our partner,
AstraZeneca 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, 2022 and the first two months of 2023, Orpathys was sold as a self-pay drug. Following negotiations with the China
NHSA in January 2023, Orpathys has been included in the updated NRDL since March 1, 2023 at a 38% discount relative to the
self-pay price, broadening patient access to this medicine. Sales in 2023 were impacted by customary channel fluctuations
following the announcement (in January 2023) and implementation of the NRDL listing (in March 2023), with increased volume
in the latter part of 2023. In-market sales for Orpathys increased 12% (increased 19% at CER) in 2023 to $46.1 million (2022:
$41.2 million) resulting in our consolidation of $28.9 million (2022: $22.3 million) in primarily revenue from manufacturing fees
and royalties. Sales in the second, third and fourth quarters of 2023 were substantially higher than in the second, third and
fourth quarters of 2022 before NRDL listing, increasing 104% by volume.
Market understanding of the need for MET testing has improved significantly, with approximately half of new
advanced/relapsed NSCLC patients in China being tested. 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 a similar guideline from CSCO also recommended Orpathys as the standard of
care for such patients. As MET testing awareness and access increases, more patients are expected to be prescribed a selective
MET inhibitor.
Following negotiations with the China NHSA, Elunate continues to be included in the NRDL for a new two-year term starting
In March 2023, Orpathys was also approved in the Macau Special Administrative Region.
70
71
HUTCHMED (China) Limited 2023 Annual Report 231
Tazemetostat (Tazverik in Hainan and Macau, China; the U.S. and Japan)
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this
In May 2022, Tazverik 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. Tazemetostat was included in the 2022 CSCO guidelines for epithelioid sarcoma. 16 epithelioid
sarcoma patients began treatment in 2023 (2022: 3). Tazemetostat is included in the 2023 CSCO guideline for follicular
lymphoma.
In March 2023, Tazverik was approved in the Macau Special Administrative Region.
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, and fruquintinib, for which we have licensed rights outside of China to Takeda and which has been approved by
the FDA in the United States.
232
72
annual report:
annual report:
Fruquin�nib
Fruquin�nib
Program
Inves�ga�onal treatment
Disease
Target pa�ent
Proof of concept
Registra�on
Approved
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this
Refractory
FRESCO-2
Global
Marketed in the U.S.
Study
name
Country/
region
Dose finding/
safety run-in
Dose finding/
safety run-in
Proof of concept
Registra�on
Approved
Marketed
Marketed in the U.S.
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed (Hainan & Macau)
Marketed (Hainan & Macau)
CRC
CRC, BC
CRC
GC
CRC
US
Korea/China
Korea/China
Country/
China
region
Study
FRESCO
name
FRUTIGA
FRESCO-2
FRUSICA-1
FRESCO
FRUTIGA
FRUSICA-1
FRUSICA-2
China
Korea/China
China
Korea/China
Fruquin�nib + �slelizumab (PD-1) MSS-CRC^
Fruquin�nib + �slelizumab (PD-1)
Solid tumors^
Program
Inves�ga�onal treatment
Fruquin�nib
Disease
≥3L; chemotherapy refractory
Target pa�ent
Fruquin�nib
VEGFR-1, -2, -3
Fruquin�nib + paclitaxel
Fruquin�nib
2L
Refractory
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib
EMC
CRC, BC
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib + �slelizumab (PD-1) MSS-CRC^
RCC
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib + �slelizumab (PD-1)
CRC
Solid tumors^
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib
GI, NSCLC, Cervical
CRC
≥3L; chemotherapy refractory
Fruquin�nib
VEGFR-1, -2, -3
Fruquin�nib + �slelizumab (PD-1)
Fruquin�nib + paclitaxel
CRC^
GC
2L
Note: ˄ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
Fruquin�nib + sin�limab (PD-1)
EMC
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + osimer�nib (EGFR)
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + osimer�nib (EGFR)
RCC
NSCLC
CRC
NSCLC
EGFRm/MET+ osimer�nib-refractory
FRUSICA-2
SAVANNAH
EGFRm/MET+ osimer�nib-refractory
SAFFRON
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + durvalumab (PD-L1)
GI, NSCLC, Cervical
papillary RCC
MET+
SAMETA
Fruquin�nib + �slelizumab (PD-1)
Savoli�nib
CRC^
NSCLC
MET exon 14 skipping altera�on
Note: ˄ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
MET exon 14 skipping altera�on
Savoli�nib
Savoli�nib
MET
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
NSCLC
NSCLC
NSCLC
NSCLC
NSCLC
Treatment-naīve, MET+/EGFRm
EGFRm/MET+ osimer�nib-refractory
SANOVO
SAVANNAH
2L, MET+/EGFR TKI-refractory
EGFRm/MET+ osimer�nib-refractory
SACHI
SAFFRON
Savoli�nib
Savoli�nib + durvalumab (PD-L1)
GC
papillary RCC
2L, MET+
MET+
Savoli�nib + durvalumab (PD-L1)
Savoli�nib
NSCLC
NSCLC
MET driven; EGFR wild type
MET exon 14 skipping altera�on
Note: HUTCHMED is investigating savolitinib in a global collaboration with AstraZeneca. AstraZeneca leads development outside of China.
MET exon 14 skipping altera�on
(Confirmatory)
NSCLC
Savoli�nib
Savoli�nib + osimer�nib (EGFR)
Surufa�nib
NSCLC
Pancrea�c NET
Treatment-naīve, MET+/EGFRm
Savoli�nib + osimer�nib (EGFR)
Surufa�nib
NSCLC
Non-Pancrea�c NET
2L, MET+/EGFR TKI-refractory
Savoli�nib
Surufa�nib + toripalimab (PD-1) NEC
GC
Savoli�nib + durvalumab (PD-L1)
Surufa�nib + toripalimab (PD-1)
NSCLC
SCLC
2L, MET+
MET driven; EGFR wild type
Note: HUTCHMED is investigating savolitinib in a global collaboration with AstraZeneca. AstraZeneca leads development outside of China.
Surufa�nib + toripalimab (PD-1)
BTC, Solid tumors
China
Pancrea�c NET
HL/CLL
SANET-p
China
US/EU
Non-Pancrea�c NET
ITP
All
Relapsed/refractory
**
Surufa�nib + toripalimab (PD-1) NEC
Sovleplenib
ITP
Surufa�nib + toripalimab (PD-1)
Sovleplenib
SCLC
wAHA
Surufa�nib + toripalimab (PD-1)
BTC, Solid tumors
Sovleplenib
Tazemetostat + amdizalisib
ITP
Lymphoma
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.
Solid tumors
Relapsed/refractory
SYMPHONY-1
Tazemetostat + amdizalisib
Amdizalisib
Lymphoma
MZL
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.
(Confirmatory)
*
*
*
*
*
*
**
(Bridging)
(Bridging)
All
All
All
All
All
3L
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
3L
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
ES, FL
HL/CLL
FL
ITP
FL
wAHA
ES, FL
IHCC
FL
FL
FL
FL
NHL
MZL
Solid tumors
Solid tumors
Solid tumors
IHCC
Solid tumors
AITL, AML, MDS, MPN
Relapsed/refractory
AML, CMML, MDS, MPN
Relapsed/refractory
AITL, AML, MDS, MPN
Relapsed/refractory
AML, CMML, MDS, MPN
Relapsed/refractory
Solid tumors, TGCT
NHL
Relapsed/refractory
Malignant Neoplasms
Advanced
Solid tumors
Solid Tumors
Solid tumors, TGCT
Advanced Malignant
Savoli�nib
MET
Surufa�nib
VEGFR-1, -2, -3,
FGFR1,
CSF-1R
Sovleplenib
Surufa�nib
VEGFR-1, -2, -3,
(HMPL-523)
SYK
FGFR1,
CSF-1R
Tazemetostat
Sovleplenib
(HMPL-523)
EZH2
SYK
HMPL-453
FGFR1, 2, 3
Tazemetostat
Amdizalisib
EZH2
(HMPL-689)
PI3Kδ
HMPL-453
HMPL-306
FGFR1, 2, 3
IDH 1/2
Amdizalisib
(HMPL-689)
HMPL-760
PI3Kδ
BTK
HMPL-295
HMPL-306
ERK, MAPK pathway
IDH 1/2
HMPL-653
HMPL-760
CSF-1R
BTK
HMPL-A83
HMPL-295
CD47
ERK, MAPK pathway
HMPL-415
HMPL-653
SHP2
CSF-1R
HMPL-A83
CD47
Surufa�nib
Sovleplenib
Surufa�nib
Sovleplenib
Tazemetostat
Sovleplenib
Tazemetostat
Sovleplenib
Tazemetostat
Sovleplenib
Tazemetostat
HMPL-453
Tazemetostat
HMPL-453
Tazemetostat
Amdizalisib
HMPL-306
HMPL-453
HMPL-306
HMPL-453
HMPL-306
Amdizalisib
HMPL-760
Amdizalisib
HMPL-306
HMPL-295
HMPL-306
HMPL-306
HMPL-653
HMPL-760
HMPL-A83
HMPL-295
HMPL-415
HMPL-653
China
Global
China
US
China
China
China
China
China
China
Global
China
Global
China
Global
China
China
China
China
Global
China
Global
China
Global
China
China
China
China
China
China
China
China
China
China
China
China
US
China
China
China
China
China
China
US/EU
China
US
China
China
China
China
China
China
China
China
China
China
China
China
US/EU
China
US/EU
China
China
China
China
China
US/EU
China
US/EU
China
China
China
China
China
China
China
China
China
SAMETA
SOUND
SANOVO
SANET-p
SACHI
SANET-ep
SURTORI-01
SOUND
SANET-ep
SURTORI-01
ESLIM-01
ESLIM-02
SYMPHONY-1
ESLIM-01
ESLIM-02
73
73
HMPL-A83
Malignant Neoplasms
Advanced
Global
China
HMPL-415
SHP2
HMPL-415
Solid Tumors
Advanced Malignant
Global
China
In May 2022, Tazverik 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. Tazemetostat was included in the 2022 CSCO guidelines for epithelioid sarcoma. 16 epithelioid
sarcoma patients began treatment in 2023 (2022: 3). Tazemetostat is included in the 2023 CSCO guideline for follicular
lymphoma.
In March 2023, Tazverik was approved in the Macau Special Administrative Region.
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, and fruquintinib, for which we have licensed rights outside of China to Takeda and which has been approved by
the FDA in the United States.
Tazemetostat (Tazverik in Hainan and Macau, China; the U.S. and Japan)
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this
annual report:
Program
Program
Inves(cid:31)ga(cid:31)onal treatment
Inves�ga�onal treatment
Disease
Disease
Target pa(cid:31)ent
Target pa�ent
Proof of concept
Proof of concept
Registra�on
Registra(cid:31)on
Approved
Approved
The following table summarizes the status of our clinical drug portfolio’s development as of the date of the filing of this
Fruquin(cid:31)nib
Fruquin�nib
CRC
CRC
Refractory
Refractory
Marketed in the U.S.
Marketed in the U.S.
FRESCO-2
FRESCO-2
Global
Global
Study
Study
name
name
Country/
Country/
region
region
Dose finding/
Dose finding/
safety run-in
safety run-in
annual report:
Fruquin(cid:31)nib
Fruquin�nib
CRC, BC
CRC, BC
Fruquin(cid:31)nib + (cid:30)slelizumab (PD-1) MSS-CRC^
Fruquin�nib + �slelizumab (PD-1) MSS-CRC^
Program
Fruquin(cid:31)nib + (cid:30)slelizumab (PD-1)
Fruquin�nib + �slelizumab (PD-1)
Inves�ga�onal treatment
Fruquin�nib
CRC
Fruquin(cid:31)nib
Solid tumors^
Solid tumors^
CRC
Disease
Target pa�ent
≥3L; chemotherapy refractory
≥3L; chemotherapy refractory
Fruquin�nib
VEGFR-1, -2, -3
Fruquin(cid:31)nib
VEGFR-1, -2, -3
Fruquin�nib
VEGFR-1, -2, -3
GC
CRC
2L
GC
RCC
EMC
EMC
CRC, BC
2L
Refractory
Fruquin(cid:31)nib + sin(cid:31)limab (PD-1)
Fruquin(cid:31)nib + sin(cid:31)limab (PD-1)
Fruquin�nib + paclitaxel
Fruquin�nib
Fruquin(cid:31)nib + paclitaxel
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib + �slelizumab (PD-1) MSS-CRC^
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib + �slelizumab (PD-1)
Fruquin�nib + sin�limab (PD-1)
Fruquin�nib
Fruquin(cid:31)nib + sin(cid:31)limab (PD-1)
Fruquin�nib + �slelizumab (PD-1)
Fruquin�nib + paclitaxel
Note: ˄ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
Fruquin�nib + sin�limab (PD-1)
Fruquin(cid:31)nib + (cid:31)slelizumab (PD-1)
Fruquin(cid:31)nib + sin(cid:31)limab (PD-1)
GI, NSCLC, Cervical
CRC
GI, NSCLC, Cervical
CRC
Solid tumors^
CRC^
GC
CRC^
Note: ˄ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
RCC
NSCLC
EMC
RCC
CRC
2L
≥3L; chemotherapy refractory
Savoli(cid:31)nib + osimer(cid:31)nib (EGFR)
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + osimer�nib (EGFR)
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + osimer�nib (EGFR)
Fruquin�nib + sin�limab (PD-1)
Savoli�nib + durvalumab (PD-L1)
Fruquin�nib + �slelizumab (PD-1)
Savoli�nib
Savoli(cid:31)nib + durvalumab (PD-L1)
Savoli(cid:31)nib + osimer(cid:31)nib (EGFR)
EGFRm/MET+ osimer�nib-refractory
NSCLC
CRC
NSCLC
NSCLC
GI, NSCLC, Cervical
papillary RCC
CRC^
Papillary RCC
NSCLC
EGFRm/MET+ osimer(cid:31)nib-refractory
EGFRm/MET+ osimer�nib-refractory
SAVANNAH
SAFFRON
EGFRm/MET+ osimer(cid:31)nib-refractory
MET+
SAFFRON
SAMETA
MET+
MET exon 14 skipping altera�on
SAMETA
Savoli(cid:31)nib
Note: ˄ The Phase II study in China and Korea for GC, CRC or NSCLC is led by BeiGene.
Savoli�nib
MET exon 14 skipping altera(cid:31)on
MET exon 14 skipping altera�on
NSCLC
NSCLC
Study
FRESCO
name
FRESCO
FRUTIGA
FRESCO-2
FRUTIGA
FRUSICA-1
FRUSICA-1
FRUSICA-2
FRUSICA-2
FRESCO
FRUTIGA
FRUSICA-1
FRUSICA-2
SAVANNAH
Savoli�nib
MET
Savoli(cid:31)nib
MET
Savoli(cid:31)nib
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
Savoli�nib + osimer�nib (EGFR)
Savoli(cid:31)nib + osimer(cid:31)nib (EGFR)
NSCLC
NSCLC
NSCLC
NSCLC
NSCLC
NSCLC
Savoli(cid:31)nib + osimer(cid:31)nib (EGFR)
Savoli�nib
Savoli�nib + durvalumab (PD-L1)
GC
papillary RCC
NSCLC
Savoli(cid:31)nib
Savoli�nib + durvalumab (PD-L1)
Savoli�nib
GC
NSCLC
NSCLC
Treatment-naīve, MET+/EGFRm
MET exon 14 skipping altera(cid:31)on
EGFRm/MET+ osimer�nib-refractory
SANOVO
SAVANNAH
2L, MET+/EGFR TKI-refractory
Treatment-naīve, MET+/EGFRm
EGFRm/MET+ osimer�nib-refractory
SACHI
SANOVO
SAFFRON
2L, MET+
MET+
2L, MET+/EGFR TKI-refractory
MET driven; EGFR wild type
MET exon 14 skipping altera�on
3L, MET+
SAMETA
SACHI
SOUND
US
US
Korea/China
Korea/China
Korea/China
Korea/China
Country/
China
region
China
China
Global
China
China
US
China
China
Korea/China
China
China
Korea/China
China
China
China
China
China
China
China
China
China
Global
Global
China
Global
Global
China
Global
China
Global
China
China
China
China
China
Global
China
China
Global
China
Global
China
China
China
China
Dose finding/
safety run-in
Proof of concept
Registra�on
*
*
(Confirmatory)
(Confirmatory)
*
Savoli�nib
MET
Savoli(cid:31)nib + durvalumab (PD-L1)
NSCLC
Note: HUTCHMED is investigating savolitinib in a global collaboration with AstraZeneca. AstraZeneca leads development outside of China.
Savoli�nib
MET exon 14 skipping altera�on
NSCLC
(Confirmatory)
MET driven; EGFR wild type
SOUND
Note: HUTCHMED is investigating savolitinib in a global collaboration with AstraZeneca. AstraZeneca leads development outside of China.
Treatment-naīve, MET+/EGFRm
All
SANOVO
SANET-p
NSCLC
Pancrea�c NET
Savoli�nib + osimer�nib (EGFR)
Surufa�nib
Savoli�nib + osimer�nib (EGFR)
Surufa�nib
Surufa�nib
VEGFR-1, -2, -3,
FGFR1,
CSF-1R
Surufa(cid:31)nib
Surufa(cid:31)nib
GC
Savoli�nib
Surufa�nib + toripalimab (PD-1) NEC
Savoli�nib + durvalumab (PD-L1)
Surufa�nib + toripalimab (PD-1)
NSCLC
SCLC
Non-Pancrea(cid:31)c NET
NSCLC
Non-Pancrea�c NET
Pancrea(cid:31)c NET
2L, MET+/EGFR TKI-refractory
All
2L, MET+
MET driven; EGFR wild type
All
All
SACHI
SANET-ep
SANET-p
SURTORI-01
SANET-ep
SOUND
Surufa(cid:31)nib + toripalimab (PD-1) NEC
Note: HUTCHMED is investigating savolitinib in a global collaboration with AstraZeneca. AstraZeneca leads development outside of China.
Surufa�nib + toripalimab (PD-1)
BTC, Solid tumors
SURTORI-01
Surufa(cid:31)nib
VEGFR-1, -2, -3,
FGFR1,
CSF-1R
Sovleplenib
Surufa�nib
(HMPL-523)
VEGFR-1, -2, -3,
SYK
FGFR1,
CSF-1R
Sovleplenib
(HMPL-523)
SYK
Surufa(cid:31)nib + toripalimab (PD-1)
SCLC
Surufa(cid:31)nib + toripalimab (PD-1)
Surufa�nib
Sovleplenib
Surufa�nib
Sovleplenib
Pancrea�c NET
HL/CLL
BTC, Solid tumors
Non-Pancrea�c NET
ITP
Sovleplenib
Sovleplenib
Surufa�nib + toripalimab (PD-1) NEC
HL/CLL
ITP
Sovleplenib
Surufa�nib + toripalimab (PD-1)
Sovleplenib
Surufa�nib + toripalimab (PD-1)
Tazemetostat
ITP
ITP
SCLC
wAHA
Sovleplenib
BTC, Solid tumors
ES, FL
Sovleplenib
Sovleplenib
Tazemetostat
Tazemetostat
Sovleplenib
Tazemetostat
Tazemetostat
Sovleplenib
EZH2
(HMPL-523)
SYK
Sovleplenib
Tazemetostat + amdizalisib
Tazemetostat
wAIHA
HL/CLL
FL
ITP
FL
ES, FL
ITP
Lymphoma
FL
Tazemetostat
FL
Tazemetostat
Tazemetostat + amdizalisib
HMPL-453
Tazemetostat
HMPL-453
ES, FL
IHCC
Lymphoma
FL
Solid tumors
All
All
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
All
Relapsed/refractory
All
Relapsed/refractory
Relapsed/refractory
3L
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
All
3L
Relapsed/refractory
Relapsed/refractory
Tazemetostat
EZH2
HMPL-453
FGFR1, 2, 3
Tazemetostat
EZH2
Amdizalisib
(HMPL-689)
PI3Kδ
HMPL-453
FGFR1, 2, 3
Sovleplenib
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.
wAHA
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.
Tazemetostat
Amdizalisib
Tazemetostat + amdizalisib
Amdizalisib
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.
3L
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
FL
FL
Lymphoma
MZL
Solid tumors
China
China
China
China
China
China
(Bridging)
*
IHCC
*
HMPL-453
HMPL-453
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
US/EU
China
China
US
US
China
China
China
China
China
China
China
China
China
China
China
China
SANET-p
SANET-ep
SURTORI-01
ESLIM-01
US/EU
China
China
ESLIM-02
ESLIM-01
ESLIM-02
SYMPHONY-1
US
China
China
China
China
China
China
US/EU
China
ESLIM-01
SYMPHONY-1
ESLIM-02
SYMPHONY-1
**
**
**
(Bridging)
(Bridging)
Approved
Marketed
Marketed
Marketed in the U.S.
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed (Hainan & Macau)
Marketed (Hainan & Macau)
Marketed (Hainan & Macau)
Amdizalisib
(HMPL-689)
PI3Kδ
HMPL-306
HMPL-453
IDH 1/2
FGFR1, 2, 3
Amdizalisib
Amdizalisib
HMPL-306
HMPL-453
HMPL-306
HMPL-453
HMPL-306
Amdizalisib
(HMPL-689)
HMPL-760
PI3Kδ
BTK
HMPL-306
IDH 1/2
HMPL-306
Amdizalisib
HMPL-760
Amdizalisib
HMPL-306
HMPL-306
HMPL-295
HMPL-306
ERK, MAPK pathway
IDH 1/2
HMPL-760
HMPL-760
BTK
HMPL-653
HMPL-760
CSF-1R
HMPL-295
BTK
ERK, MAPK pathway
HMPL-295
HMPL-306
HMPL-295
HMPL-306
HMPL-306
HMPL-653
HMPL-760
HMPL-A83
HMPL-295
CD47
ERK, MAPK pathway
HMPL-653
HMPL-A83
HMPL-295
HMPL-653
CSF-1R
HMPL-415
HMPL-653
SHP2
CSF-1R
HMPL-A83
HMPL-415
HMPL-653
HMPL-A83
CD47
FL
MZL
Solid tumors
IHCC
AITL, AML, MDS, MPN
Solid tumors
AML, CMML, MDS, MPN
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
FL
Solid tumors
NHL
MZL
AITL, AML, MDS, MPN
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
AML, CMML, MDS, MPN
Solid tumors
Solid tumors
AITL, AML, MDS, MPN
NHL
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
Relapsed/refractory
AML, CMML, MDS, MPN
Solid tumors, TGCT
NHL
Solid tumors
Relapsed/refractory
Relapsed/refractory
Malignant Neoplasms
Solid tumors
Solid tumors, TGCT
Advanced
Solid Tumors
Solid tumors, TGCT
Malignant Neoplasms
Advanced Malignant
Advanced
HMPL-A83
Malignant Neoplasms
Advanced
HMPL-A83
CD47
HMPL-415
HMPL-415
SHP2
Solid Tumors
Advanced Malignant
Solid Tumors
Advanced Malignant
HMPL-415
SHP2
HMPL-415
72
#
#
*
*
US/EU
China
China
US/EU
China
China
China
US/EU
China
China
US/EU
China
China
US/EU
China
US/EU
China
China
China
China
China
China
China
China
China
China
China
China
China
China
73
73
Global
China
Global
China
Global
China
HUTCHMED (China) Limited 2023 Annual Report 233
* Phase II registration-intent study subject to regulatory discussion.
** In planning.
∧ In recent discussions with China NMPA, it is clear that randomized study is now required to support registration. In view of the
changing regulatory requirement, we are currently evaluating the clinical development plan and regulatory guidance before
deciding the regulatory strategy for this indication.
Notes: AITL: angioimmunoblastic T-cell lymphoma; AML: acute myeloid leukemia; BC: breast cancer; BTC: biliary tract cancer;
BTK: Bruton’s tyrosine kinase; CMML: chronic myelomonocytic leukemia; CRC: colorectal cancer; CSF-1R:
colony - stimulating factor 1 receptor; EGFR: epidermal growth factor receptor; EGFRm: epidermal growth factor
receptor mutation-positive; EMC: endometrial cancer; ERK: extracellular signal-regulated kinase; ESCC: esophageal
squamous cell carcinoma; EZH2: enhancer of zeste homolog 2; FGFR1: fibroblast growth factor receptor 1; FL: follicular
lymphoma; GC: gastric cancer; GI: gastrointestinal; HCC: hepatocellular carcinoma; HL: Hodgkin lymphoma; IDH 1/2:
isocitrate dehydrogenase 1/2; IHCC: intrahepatic cholangiocarcinoma; ITP: immune thrombocytopenic purpura; MAA:
Marketing Authorization Application; MAPK: mitogen-activated protein kinase; mCRC: metastatic colorectal cancer;
MET: mesenchymal-epithelial transition receptor; MDS: myelodysplastic syndrome; MPN: myeloproliferative
neoplasm; MSS: microsatellite stable; MZL: marginal zone lymphoma; NEC: neuroendocrine carcinoma; NET:
neuroendocrine tumor; NHL: non-Hodgkin lymphoma; NSCLC: non-small cell lung cancer; PD-1: programmed death - 1;
PD-L1: programmed death-ligand 1; PI3Kδ: phosphatidylinositol 3-kinase delta; RCC: renal cell carcinoma; SCLC: small
cell lung cancer; SYK: spleen tyrosine kinase; TC: thyroid cancer; TGCT: tenosynovial giant cell tumor; TKI: tyrosine
kinase inhibitor; TNBC: triple-negative breast cancer; VEGFR: vascular endothelial growth factor receptor; wAIHA =
warm autoimmune hemolytic anemia
Commercialized and Late-Stage Drug Candidates
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 across approximately 2,500 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 developing 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 Tagrisso 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 Tagrisso. In comparison to potential alternative treatments, this treatment
is chemotherapy-free, biomarker - specific and orally administered, aiming for a balanced efficacy, safety and quality-of-
life profile for lung cancer patients.
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. In addition, a gastric cancer patient China-registration
cohort began enrolling in March 2023. 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.
Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission;
commercially launched as Elunate in China and as Fruzaqla in the United States in CRC in November 2018 and November 2023,
respectively
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. Based on the successful results of the multi-regional FRESCO-2 study and the FRESCO
study in China, the FDA approved fruquintinib for the treatment of mCRC.
Aside from its first approved indication of third-line CRC in China, studies of fruquintinib combined with various checkpoint
inhibitors (including Tyvyt and tislelizumab) are underway. An NDA is under review in China for the treatment of gastric cancer
in combination with paclitaxel (FRUTIGA study), and registration-intent studies combined with checkpoint inhibitors (Tyvyt
combo, in endometrial cancer and RCC) are ongoing 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. Outside
of China, we are collaborating with Takeda which holds an exclusive worldwide license from us to develop, manufacture and
commercialize fruquintinib in all indications.
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.
We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors.
We own all rights to surufatinib globally.
234
74
75
* Phase II registration-intent study subject to regulatory discussion.
** In planning.
∧ In recent discussions with China NMPA, it is clear that randomized study is now required to support registration. In view of the
changing regulatory requirement, we are currently evaluating the clinical development plan and regulatory guidance before
deciding the regulatory strategy for this indication.
Notes: AITL: angioimmunoblastic T-cell lymphoma; AML: acute myeloid leukemia; BC: breast cancer; BTC: biliary tract cancer;
BTK: Bruton’s tyrosine kinase; CMML: chronic myelomonocytic leukemia; CRC: colorectal cancer; CSF-1R:
colony - stimulating factor 1 receptor; EGFR: epidermal growth factor receptor; EGFRm: epidermal growth factor
receptor mutation-positive; EMC: endometrial cancer; ERK: extracellular signal-regulated kinase; ESCC: esophageal
squamous cell carcinoma; EZH2: enhancer of zeste homolog 2; FGFR1: fibroblast growth factor receptor 1; FL: follicular
lymphoma; GC: gastric cancer; GI: gastrointestinal; HCC: hepatocellular carcinoma; HL: Hodgkin lymphoma; IDH 1/2:
isocitrate dehydrogenase 1/2; IHCC: intrahepatic cholangiocarcinoma; ITP: immune thrombocytopenic purpura; MAA:
Marketing Authorization Application; MAPK: mitogen-activated protein kinase; mCRC: metastatic colorectal cancer;
MET: mesenchymal-epithelial transition receptor; MDS: myelodysplastic syndrome; MPN: myeloproliferative
neoplasm; MSS: microsatellite stable; MZL: marginal zone lymphoma; NEC: neuroendocrine carcinoma; NET:
neuroendocrine tumor; NHL: non-Hodgkin lymphoma; NSCLC: non-small cell lung cancer; PD-1: programmed death - 1;
PD-L1: programmed death-ligand 1; PI3Kδ: phosphatidylinositol 3-kinase delta; RCC: renal cell carcinoma; SCLC: small
cell lung cancer; SYK: spleen tyrosine kinase; TC: thyroid cancer; TGCT: tenosynovial giant cell tumor; TKI: tyrosine
kinase inhibitor; TNBC: triple-negative breast cancer; VEGFR: vascular endothelial growth factor receptor; wAIHA =
warm autoimmune hemolytic anemia
Commercialized and Late-Stage Drug Candidates
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 across approximately 2,500 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 developing 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 Tagrisso 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 Tagrisso. In comparison to potential alternative treatments, this treatment
is chemotherapy-free, biomarker - specific and orally administered, aiming for a balanced efficacy, safety and quality-of-
life profile for lung cancer patients.
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. In addition, a gastric cancer patient China-registration
cohort began enrolling in March 2023. 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.
Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global NDA submission;
commercially launched as Elunate in China and as Fruzaqla in the United States in CRC in November 2018 and November 2023,
respectively
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. Based on the successful results of the multi-regional FRESCO-2 study and the FRESCO
study in China, the FDA approved fruquintinib for the treatment of mCRC.
Aside from its first approved indication of third-line CRC in China, studies of fruquintinib combined with various checkpoint
inhibitors (including Tyvyt and tislelizumab) are underway. An NDA is under review in China for the treatment of gastric cancer
in combination with paclitaxel (FRUTIGA study), and registration-intent studies combined with checkpoint inhibitors (Tyvyt
combo, in endometrial cancer and RCC) are ongoing 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. Outside
of China, we are collaborating with Takeda which holds an exclusive worldwide license from us to develop, manufacture and
commercialize fruquintinib in all indications.
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.
We have various additional clinical trials of surufatinib ongoing in combination with checkpoint inhibitors.
We own all rights to surufatinib globally.
74
75
HUTCHMED (China) Limited 2023 Annual Report 235
Sovleplenib (HMPL-523)—potentially the first selective Syk inhibitor for hematological cancer
Early-Stage Drug Candidates
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.
Sovleplenib has been studied in clinical trials with around 600 patients to date.
We recently submitted the NDA for sovleplenib for the treatment of adult patients with primary immune thrombocytopenia
(ITP), and the NDA was accepted by the NMPA in China in January 2024 after receiving priority review status in 2023. This NDA
is supported by data from ESLIM-01, a randomized, double-blinded, placebo-controlled Phase III trial in China of sovleplenib in
188 adult patients with primary ITP who have received at least one prior line of standard therapy. In January 2022, sovleplenib
received the Breakthrough Therapy Designation in China for treatment of primary immune thrombocytopenia.
Besides the clinical trials related to primary ITP, we also have various clinical trials of sovleplenib ongoing. 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. The enrollment of Phase II part of the study
was completed in mid-2023 and primary end point has been met. We expect to initiate Phase III in the first half of 2024. In 2024,
we also plan to start a Phase I/Ib dose-finding study in the United States.
We own all rights to sovleplenib globally.
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. Tazemetostat has been studied in clinical trials
with around 1,300 patients to date.
We are developing and planning to seek approval for tazemetostat in various hematological and solid tumors in China. We
are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in China. We are generally responsible for funding all clinical
trials of tazemetostat in China, including the portion of global trials conducted there. Separately, we are conducting a China
bridging study in follicular lymphoma for potential conditional registration based on its U.S. approvals. The study is fully
enrolled and we expect to file the NDA in mid-2024. We are responsible for the research, manufacturing and commercialization
of tazemetostat in China. Tazemetostat was approved in China Hainan Pilot Zone in 2022 and the Macau Special Administrative
Region in 2023.
HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors
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 intrahepatic
cholangiocarcinoma (IHCC) patients globally have tumors harboring FGFR2 fusion. Amongst others, we have an ongoing Phase
II study in patients with advanced IHCC with FGFR2 fusion that had failed at least one line of systemic therapy where we started
to enroll the registration cohort since March 2023.
We own all rights to HMPL-453 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 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. Amdizalisib has been studied in clinical trials with around 500 patients to
date. We own all rights to amdizalisib globally.
HMPL-306 is potentially the first dual inhibitor of IDH1 and IDH2 enzymes with applications in hematological malignancies and
solid tumors. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and
solid tumors, particularly among acute myeloid leukemia patients. We have several ongoing Phase I studies in China and the
United States on indications including myeloid hematological malignancies and various solid tumors. These include 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 where we have presented the first-in-human dose-escalation phase data at EHA Annual Meeting in June 2023.
Based on the pharmacodynamic, pharmacokinetic and preliminary clinical findings, a recommended Phase II dose was
determined for the dose expansion phase of the study. We own all rights to HMPL-306 globally.
HMPL-760 is an investigational, highly selective, non-covalent, third-generation oral inhibitor of BTK with improved potency
versus first generation BTK inhibitors against both wild type & C481S mutant enzymes. 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-295 is 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. 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. We own all rights to HMPL-295
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. We own all rights to HMPL - 653 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.
HMPL-415 is an investigational SHP2 allosteric inhibitor. SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously
expressed mainly in the cytoplasm of several tissues. It interacts with diverse molecules in the cell, and regulates key signaling
events including RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways. Dysregulation of SHP2 expression or activity causes many
developmental diseases, and hematological and solid tumors. We initiated a China Phase I study in July 2023. We own all rights
to HMPL-415 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.
236
76
77
Sovleplenib (HMPL-523)—potentially the first selective Syk inhibitor for hematological cancer
Early-Stage Drug Candidates
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.
Sovleplenib has been studied in clinical trials with around 600 patients to date.
We recently submitted the NDA for sovleplenib for the treatment of adult patients with primary immune thrombocytopenia
(ITP), and the NDA was accepted by the NMPA in China in January 2024 after receiving priority review status in 2023. This NDA
is supported by data from ESLIM-01, a randomized, double-blinded, placebo-controlled Phase III trial in China of sovleplenib in
188 adult patients with primary ITP who have received at least one prior line of standard therapy. In January 2022, sovleplenib
received the Breakthrough Therapy Designation in China for treatment of primary immune thrombocytopenia.
Besides the clinical trials related to primary ITP, we also have various clinical trials of sovleplenib ongoing. 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. The enrollment of Phase II part of the study
was completed in mid-2023 and primary end point has been met. We expect to initiate Phase III in the first half of 2024. In 2024,
we also plan to start a Phase I/Ib dose-finding study in the United States.
We own all rights to sovleplenib globally.
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. Tazemetostat has been studied in clinical trials
with around 1,300 patients to date.
We are developing and planning to seek approval for tazemetostat in various hematological and solid tumors in China. We
are participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in China. We are generally responsible for funding all clinical
trials of tazemetostat in China, including the portion of global trials conducted there. Separately, we are conducting a China
bridging study in follicular lymphoma for potential conditional registration based on its U.S. approvals. The study is fully
enrolled and we expect to file the NDA in mid-2024. We are responsible for the research, manufacturing and commercialization
of tazemetostat in China. Tazemetostat was approved in China Hainan Pilot Zone in 2022 and the Macau Special Administrative
Region in 2023.
HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors
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 intrahepatic
cholangiocarcinoma (IHCC) patients globally have tumors harboring FGFR2 fusion. Amongst others, we have an ongoing Phase
II study in patients with advanced IHCC with FGFR2 fusion that had failed at least one line of systemic therapy where we started
to enroll the registration cohort since March 2023.
We own all rights to HMPL-453 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 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. Amdizalisib has been studied in clinical trials with around 500 patients to
date. We own all rights to amdizalisib globally.
HMPL-306 is potentially the first dual inhibitor of IDH1 and IDH2 enzymes with applications in hematological malignancies and
solid tumors. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and
solid tumors, particularly among acute myeloid leukemia patients. We have several ongoing Phase I studies in China and the
United States on indications including myeloid hematological malignancies and various solid tumors. These include 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 where we have presented the first-in-human dose-escalation phase data at EHA Annual Meeting in June 2023.
Based on the pharmacodynamic, pharmacokinetic and preliminary clinical findings, a recommended Phase II dose was
determined for the dose expansion phase of the study. We own all rights to HMPL-306 globally.
HMPL-760 is an investigational, highly selective, non-covalent, third-generation oral inhibitor of BTK with improved potency
versus first generation BTK inhibitors against both wild type & C481S mutant enzymes. 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-295 is 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. 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. We own all rights to HMPL-295
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. We own all rights to HMPL - 653 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.
HMPL-415 is an investigational SHP2 allosteric inhibitor. SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously
expressed mainly in the cytoplasm of several tissues. It interacts with diverse molecules in the cell, and regulates key signaling
events including RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways. Dysregulation of SHP2 expression or activity causes many
developmental diseases, and hematological and solid tumors. We initiated a China Phase I study in July 2023. We own all rights
to HMPL-415 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.
76
77
HUTCHMED (China) Limited 2023 Annual Report 237
Manufacturing
Mechanism of Action
We use 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 facilities. We have a drug product
manufacturing facility in Suzhou which manufactures both clinical and commercial supplies for fruquintinib and surufatinib.
Our Suzhou facility passed a pre-approval inspection (PAI) for fruquintinib by the U.S. FDA in August 2023. We have qualified
two drug product sites for supplying fruquintinib to the U.S. market: our own facility in Suzhou and a second site in Switzerland.
We have also completed construction of, qualified and obtained Drug Manufacturing Permit for a new drug product facility
in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The manufacturing
and technology transfer for some of our commercial products are underway to this new facility. This is in line with our previously
outlined expectations of manufacturing clinical supplies from the new facility starting in 2023 and commercial supplies around
2025, after the necessary regulatory filings and approvals.
In line with our commitment to sustainable practices and environmental stewardship, we have installed solar panels at
this new facility. They contribute renewable energy directly to our operations, particularly in cooling indoor areas, significantly
reducing electricity usage and greenhouse gas emissions.
We completed process validation for the API and drug product of sovleplenib at the selected commercial manufacturing
facilities to support the approval of the product.
Other Ventures
In addition to our Oncology/Immunology operations, our Other Ventures include large-scale drug marketing and
distribution platforms covering about 290 cities and towns in China with over 2,900 manufacturing and commercial personnel
as of December 31, 2023. Built over the past 20 years, it primarily focuses on prescription drugs 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 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 560 manufacturing staff and (ii) Hutchison
Sinopharm, a consolidated joint venture focused on 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. Prior to our disposal of interest in December 2023, our Other Ventures also included Hutchison Hain Organic (Hong Kong)
Limited and HUTCHMED Science Nutrition Limited, which were our joint venture and wholly-owned subsidiary principally
engaged in wholesale and trading of healthcare and consumer products.
Net income attributable to our company from our Other Ventures totaled $142.9 million, $54.6 million and $50.3 million for
the years ended December 31, 2021, 2022 and 2023, respectively, and are remitted to our group through dividend payments
primarily from our non-consolidated joint venture mentioned above. In 2023, dividends of an aggregate amount of $42.3 million
were distributed from Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since
inception of over $320 million.
The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against
Our Clinical Pipeline
multiple indications.
1. Savolitinib (HMPL-504), MET Inhibitor
Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many
types of solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted
development of several other selective MET inhibitors. In clinical studies to date, savolitinib has shown promising signs of
clinical efficacy in patients with MET gene alterations in NSCLC, PRCC, CRC and gastric cancer with an acceptable safety profile.
In global partnership with AstraZeneca, savolitinib has been studied in approximately 2,500 patients to date, both as a
monotherapy and in combinations. For more information regarding our partnership with AstraZeneca, see “—Overview of Our
Collaborations—AstraZeneca.”
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
2,000 patients conducted by AstraZeneca in global partnership with us.
Savolitinib Pre-clinical Evidence
In pre-clinical trials, savolitinib demonstrated strong in vitro activity against MET, affecting its downstream signaling
targets and thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and
the secretion of VEGF that plays a pivotal role in tumor angiogenesis.
One of our key areas of focus in our pre-clinical trials is to achieve superior selectivity on a number of kinases. A commonly
used quantitative measure of selectivity is through comparing enzyme IC50, which represents the concentration of a drug that
is required for 50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a
maximum effect in vivo. High selectivity is achieved with a very low IC50 for the target cells, and a very high IC50 for the healthy
cells (approximately 100 times higher than for the target cells). IC50 is measured in nM (nano-mole, a microscopic unit of
measurement for the number of small molecules required to deliver the desired inhibitory effect).
In the MET enzymatic assay, savolitinib showed potent activity with IC50 of 5 nM. In a kinase selectivity screening with
274 kinases, savolitinib had potent activity against the MET Y1268T mutant (comparable to the wild-type), weaker activity
against other MET mutants and almost no activity against all other kinases. Savolitinib was found to be approximately
1,000 times more potent to MET than the next non-MET kinase. Similarly, in cell-based assays measuring activity against MET
phosphorylation, savolitinib demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent
(overexpressed) cells with IC50 at low nanomolar levels. In target related tumor cell function assays, savolitinib showed high
potency with IC50 of less than 10 nM. Furthermore, savolitinib demonstrated cytotoxicity only on tumor cells that were MET
gene amplified or MET overexpressed. In other cells, inhibition measurements demonstrated that IC50 amounts were over
30,000 nM, which is thousands of times higher than the IC50 on MET tumor cells.
The data above suggest that (i) savolitinib has potent activity against tumor cell lines with MET gene amplification in the
absence of hepatocyte growth factor, or HGF, indicating that there is HGF-independent MET activation in these cells;
(ii) savolitinib has potent activity in tumor cell lines with MET overexpressed, but only in the presence of HGF, indicating
HGF - dependent MET activation; and (iii) savolitinib has no activity in tumor cell lines with low MET overexpression/gene
amplification, suggesting that savolitinib has strong kinase selectivity.
238
78
79
Manufacturing
Mechanism of Action
We use 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 facilities. We have a drug product
manufacturing facility in Suzhou which manufactures both clinical and commercial supplies for fruquintinib and surufatinib.
Our Suzhou facility passed a pre-approval inspection (PAI) for fruquintinib by the U.S. FDA in August 2023. We have qualified
two drug product sites for supplying fruquintinib to the U.S. market: our own facility in Suzhou and a second site in Switzerland.
We have also completed construction of, qualified and obtained Drug Manufacturing Permit for a new drug product facility
in Pudong, Shanghai, which will increase our novel drug product manufacturing capacity by over five times. The manufacturing
and technology transfer for some of our commercial products are underway to this new facility. This is in line with our previously
outlined expectations of manufacturing clinical supplies from the new facility starting in 2023 and commercial supplies around
2025, after the necessary regulatory filings and approvals.
In line with our commitment to sustainable practices and environmental stewardship, we have installed solar panels at
this new facility. They contribute renewable energy directly to our operations, particularly in cooling indoor areas, significantly
reducing electricity usage and greenhouse gas emissions.
We completed process validation for the API and drug product of sovleplenib at the selected commercial manufacturing
facilities to support the approval of the product.
Other Ventures
In addition to our Oncology/Immunology operations, our Other Ventures include large-scale drug marketing and
distribution platforms covering about 290 cities and towns in China with over 2,900 manufacturing and commercial personnel
as of December 31, 2023. Built over the past 20 years, it primarily focuses on prescription drugs 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 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 560 manufacturing staff and (ii) Hutchison
Sinopharm, a consolidated joint venture focused on 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. Prior to our disposal of interest in December 2023, our Other Ventures also included Hutchison Hain Organic (Hong Kong)
Limited and HUTCHMED Science Nutrition Limited, which were our joint venture and wholly-owned subsidiary principally
engaged in wholesale and trading of healthcare and consumer products.
Net income attributable to our company from our Other Ventures totaled $142.9 million, $54.6 million and $50.3 million for
the years ended December 31, 2021, 2022 and 2023, respectively, and are remitted to our group through dividend payments
primarily from our non-consolidated joint venture mentioned above. In 2023, dividends of an aggregate amount of $42.3 million
were distributed from Shanghai Hutchison Pharmaceuticals to our group, with aggregate dividends received by our group since
inception of over $320 million.
The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against
Our Clinical Pipeline
multiple indications.
1. Savolitinib (HMPL-504), MET Inhibitor
Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many
types of solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted
development of several other selective MET inhibitors. In clinical studies to date, savolitinib has shown promising signs of
clinical efficacy in patients with MET gene alterations in NSCLC, PRCC, CRC and gastric cancer with an acceptable safety profile.
In global partnership with AstraZeneca, savolitinib has been studied in approximately 2,500 patients to date, both as a
monotherapy and in combinations. For more information regarding our partnership with AstraZeneca, see “—Overview of Our
Collaborations—AstraZeneca.”
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
2,000 patients conducted by AstraZeneca in global partnership with us.
Savolitinib Pre-clinical Evidence
In pre-clinical trials, savolitinib demonstrated strong in vitro activity against MET, affecting its downstream signaling
targets and thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and
the secretion of VEGF that plays a pivotal role in tumor angiogenesis.
One of our key areas of focus in our pre-clinical trials is to achieve superior selectivity on a number of kinases. A commonly
used quantitative measure of selectivity is through comparing enzyme IC50, which represents the concentration of a drug that
is required for 50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a
maximum effect in vivo. High selectivity is achieved with a very low IC50 for the target cells, and a very high IC50 for the healthy
cells (approximately 100 times higher than for the target cells). IC50 is measured in nM (nano-mole, a microscopic unit of
measurement for the number of small molecules required to deliver the desired inhibitory effect).
In the MET enzymatic assay, savolitinib showed potent activity with IC50 of 5 nM. In a kinase selectivity screening with
274 kinases, savolitinib had potent activity against the MET Y1268T mutant (comparable to the wild-type), weaker activity
against other MET mutants and almost no activity against all other kinases. Savolitinib was found to be approximately
1,000 times more potent to MET than the next non-MET kinase. Similarly, in cell-based assays measuring activity against MET
phosphorylation, savolitinib demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent
(overexpressed) cells with IC50 at low nanomolar levels. In target related tumor cell function assays, savolitinib showed high
potency with IC50 of less than 10 nM. Furthermore, savolitinib demonstrated cytotoxicity only on tumor cells that were MET
gene amplified or MET overexpressed. In other cells, inhibition measurements demonstrated that IC50 amounts were over
30,000 nM, which is thousands of times higher than the IC50 on MET tumor cells.
The data above suggest that (i) savolitinib has potent activity against tumor cell lines with MET gene amplification in the
absence of hepatocyte growth factor, or HGF, indicating that there is HGF-independent MET activation in these cells;
(ii) savolitinib has potent activity in tumor cell lines with MET overexpressed, but only in the presence of HGF, indicating
HGF - dependent MET activation; and (iii) savolitinib has no activity in tumor cell lines with low MET overexpression/gene
amplification, suggesting that savolitinib has strong kinase selectivity.
78
79
HUTCHMED (China) Limited 2023 Annual Report 239
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.
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
Treatment
Savolitinib + Tagrisso
Savolitinib + Tagrisso
Savolitinib + Tagrisso
Savolitinib + Tagrisso
Trial Name, Patient Focus
SAVANNAH: 2L/3L EGFRm+;
Tagrisso refractory; MET+
Sites
Global
SAFFRON: 2L/3L EGFRm+;
Tagrisso refractory; MET+
SACHI: 2L EGFR TKI refractory NSCLC;
MET+
SANOVO: Naïve patients with EGFRm
Global
China
China
& MET+
Phase
II
Registration-
intent
III
III
III
Savolitinib monotherapy
MET exon 14 skipping alterations
China
II Registration
Savolitinib monotherapy
MET exon 14 skipping alterations
China
IIIb
Confirmatory
Status/Plan
Fully enrolled
NCT #
NCT03778229
Ongoing since 2022
NCT05261399
Ongoing since 2021
NCT05015608
Ongoing since 2021
NCT05009836
Approved and launched in
2021.
Final OS analysis at ELCC
2022
Fully enrolled in the H1
2023.
First line cohort data at
NCT02897479
NCT04923945
Savolitinib + Imfinzi
SOUND: MET-driven, EGFR wild type
China
II
Ongoing since 2022
NCT05374603
WCLC 2023
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.
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479)
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.
At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were
efficacy evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other
selective MET inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid
carcinoma) and with tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of
patients in the study who show either partial response (tumor measurement reduction of greater than 30%) or complete
response), disease control rate, median progression-free survival or PFS and median OS.
At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate
was 93.4%. Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). 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 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 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 means that there is a 95% chance that the results will be within the stated range.
CTC grade 3 or above TEAEs, with greater than 5% incidence related to savolitinib treatment were peripheral edema (9%),
increased aspartate aminotransferase (13%) and increased alanine aminotransferase (10%). Clinical data demonstrated an
acceptable safety profile with an adverse events-related discontinuations rate of 14.3%.
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
Efficacy Evaluable (N=61)
ORR, % [95% CI]: 49.2 [36.1, 62.3]
DCR, % [95% CI]: 93.4 [84.1, 98.2]
e
n
i
l
e
s
a
b
m
o
r
f
e
g
a
t
n
e
c
r
e
p
t
s
e
B
+80%
+60%
+40%
+20%
0%
-20%
-40%
-60%
-80%
-100%
Partial response
Stable disease
Progressive disease
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Source: Lu S, Fang J et al. 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 Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
A confirmatory Phase IIIb study in this patient population fully enrolled in the first half of 2023. Results from the first-line
cohort of this study were disclosed at WCLC 2023. At data cut-off date of April 30, 2023, among the 84 patients in the tumor
response evaluable set (TRES), ORR was 60.7% (95% CІ: 49.5% to 71.2%) and DCR was 95.2% (95% CІ: 88.3% to 98.7%), as
assessed by an independent review committee. At median follow-up of 11.1 months, median PFS was 13.8 months (95% CІ:
9.7 months to not reached). Median DoR and OS have not been reached. No new safety signals were observed.
240
80
81
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.
Savolitinib Clinical Development
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
Treatment
Savolitinib + Tagrisso
Trial Name, Patient Focus
SAVANNAH: 2L/3L EGFRm+;
Tagrisso refractory; MET+
Sites
Global
Status/Plan
Fully enrolled
NCT #
NCT03778229
Savolitinib + Tagrisso
Global
Ongoing since 2022
NCT05261399
Savolitinib + Tagrisso
SACHI: 2L EGFR TKI refractory NSCLC;
China
Ongoing since 2021
NCT05015608
Savolitinib + Tagrisso
SANOVO: Naïve patients with EGFRm
China
Ongoing since 2021
NCT05009836
SAFFRON: 2L/3L EGFRm+;
Tagrisso refractory; MET+
MET+
& MET+
Savolitinib monotherapy
MET exon 14 skipping alterations
China
II Registration
Approved and launched in
NCT02897479
Phase
II
intent
Registration-
III
III
III
2021.
2022
Final OS analysis at ELCC
Confirmatory
2023.
First line cohort data at
WCLC 2023
Savolitinib monotherapy
MET exon 14 skipping alterations
China
IIIb
Fully enrolled in the H1
NCT04923945
Savolitinib + Imfinzi
SOUND: MET-driven, EGFR wild type
China
II
Ongoing since 2022
NCT05374603
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.
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (NCT02897479)
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.
At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were
efficacy evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other
selective MET inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid
carcinoma) and with tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of
patients in the study who show either partial response (tumor measurement reduction of greater than 30%) or complete
response), disease control rate, median progression-free survival or PFS and median OS.
At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate
was 93.4%. Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). 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 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 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 means that there is a 95% chance that the results will be within the stated range.
CTC grade 3 or above TEAEs, with greater than 5% incidence related to savolitinib treatment were peripheral edema (9%),
increased aspartate aminotransferase (13%) and increased alanine aminotransferase (10%). Clinical data demonstrated an
acceptable safety profile with an adverse events-related discontinuations rate of 14.3%.
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
+80%
+80%
+60%
+60%
+40%
+40%
e
n
i
l
Efficacy Evaluable (N=61)
Efficacy Evaluable (N=61)
ORR, % [95% CI]: 49.2 [36.1, 62.3]
ORR, % [95% CI]: 49.2 [36.1, 62.3]
DCR, % [95% CI]: 93.4 [84.1, 98.2]
DCR, % [95% CI]: 93.4 [84.1, 98.2]
e
n
i
l
e
s
a
b
m
o
r
f
t
e
g
a
n
e
c
r
e
p
t
s
e
B
e
s
a
b
m
o
r
f
e
g
a
t
n
e
c
r
e
p
t
s
e
B
+20%
+20%
0%
0%
-20%
-20%
-40%
-40%
-60%
-60%
-80%
-80%
-100%
-100%
Partial response
Partial response
Stable disease
Stable disease
Progressive disease
Progressive disease
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Source: Lu S, Fang J et al. 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 Med. 2021;9(10):1154-1164. doi:10.1016/S2213-2600(21)00084-9
A confirmatory Phase IIIb study in this patient population fully enrolled in the first half of 2023. Results from the first-line
cohort of this study were disclosed at WCLC 2023. At data cut-off date of April 30, 2023, among the 84 patients in the tumor
response evaluable set (TRES), ORR was 60.7% (95% CІ: 49.5% to 71.2%) and DCR was 95.2% (95% CІ: 88.3% to 98.7%), as
assessed by an independent review committee. At median follow-up of 11.1 months, median PFS was 13.8 months (95% CІ:
9.7 months to not reached). Median DoR and OS have not been reached. No new safety signals were observed.
80
81
HUTCHMED (China) Limited 2023 Annual Report 241
Savolitinib in Combination with Tagrisso
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 Tagrisso.
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.
In comparison to alternate treatments, our positioning remains chemotherapy-free,
biomarker - specific and oral combinations, aiming for a balanced efficacy and safety profile for lung cancer patients.
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 has completed an additional patient recruitment designed to further
reinforce the strength of data, initially presented at WCLC 2022. 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).
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.
Novel biomarker and patient enrichment strategy driven by
SAVANNAH
N=185*
300mg QD
MET-high
MET-low
IHC90+ and/or FISH10+
IHC50–90 and/or FISH 5-10
Prevalence
among patients
screened
34%
28%
Prior Chemo
20%
Number of patients
n=108
No prior
chemo
subset
n=87
18%
n=77
No prior
chemo
subset
n=63
ORR,
[95% CI]
49%
[39-59]
52%
[41-63]
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.
[7.6–14.9]
7.2 mo.
[4.7–9.2]
6.9 mo.
[4.1–16.9]
7.3 mo.
[4.1–NC]
2.8 mo.
[2.6–4.3]
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.
(NCT05261399)
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.
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.
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
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.
SAVANNAH has now activated a majority of the approximately 250 sites in over 20 countries planned for the study.
SACHI study: Phase III study of combination with Tagrisso 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.
242
82
83
Savolitinib in Combination with Tagrisso
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 Tagrisso.
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.
In comparison to alternate treatments, our positioning remains chemotherapy-free,
biomarker - specific and oral combinations, aiming for a balanced efficacy and safety profile for lung cancer patients.
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 has completed an additional patient recruitment designed to further
reinforce the strength of data, initially presented at WCLC 2022. 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).
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.
Novel biomarker and patient enrichment strategy driven by
Novel biomarker and patient enrichment strategy driven by
SAVANNAH
SAVANNAH
MET-high
MET-high
IHC90+ and/or FISH10+
IHC90+ and/or FISH10+
MET-low
MET-low
IHC50–90 and/or FISH 5-10
IHC50–90 and/or FISH 5-10
N=185*
N=185*
300mg QD
300mg QD
Prevalence
Prevalence
among patients
among patients
screened
screened
34%
34%
28%
28%
Prior Chemo
Prior Chemo
20%
20%
Number of patients
Number of patients
n=108
n=108
No prior
No prior
chemo
chemo
subset
subset
n=87
n=87
18%
18%
n=77
n=77
No prior
No prior
chemo
chemo
subset
subset
n=63
n=63
ORR,
ORR,
[95% CI]
[95% CI]
49%
49%
[39-59]
[39-59]
52%
52%
[41-63]
[41-63]
mDoR, [95% CI]
mDoR, [95% CI]
mPFS, [95% CI]
mPFS, [95% CI]
9.3 mo.
9.3 mo.
[7.6–10.6]
[7.6–10.6]
7.1 mo.
7.1 mo.
[5.3–8.0]
[5.3–8.0]
9.6 mo.
9.6 mo.
[7.6–14.9]
[7.6–14.9]
7.2 mo.
7.2 mo.
[4.7–9.2]
[4.7–9.2]
9%
9%
[4–18]
[4–18]
6.9 mo.
6.9 mo.
[4.1–16.9]
[4.1–16.9]
2.8 mo.
2.8 mo.
[2.6–4.3]
[2.6–4.3]
10%
[4–20]
10%
[4–20]
7.3 mo.
7.3 mo.
[4.1–NC]
[4.1–NC]
2.8 mo.
2.8 mo.
[1.8–4.2]
[1.8–4.2]
*
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.
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.
SAFFRON study: Phase III study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
(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.
SAVANNAH has now activated a majority of the approximately 250 sites in over 20 countries planned for the study.
SACHI study: Phase III study of combination with Tagrisso 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.
82
83
HUTCHMED (China) Limited 2023 Annual Report 243
SANOVO study: Phase III study of combination with Tagrisso 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 Tagrisso as a first-line treatment in
certain NSCLC patients whose tumors harbor EGFR mutations and overexpress MET. The Phase III trial is a blinded, randomized,
controlled study in previously untreated patients with locally advanced or metastatic NSCLC with activating EGFR mutations
and MET overexpression. The study will evaluate Tagrisso in combination with savolitinib comparing to Tagrisso alone, a
standard of care treatment option for these patients. The primary endpoint of the study is 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
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.
24-month follow-up of the CALYPSO study showed median PFS of 15.7 months and median OS of 27.4 months in MET-driven
PRCC patients.
metastatic PRCC (NCT05043090)
SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or
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.
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.
The first patient was dosed in October 2021.
Gastric Cancer
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
Ongoing since 2021
NCT #
NCT05043090
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 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
Savolitinib monotherapy
3L gastric cancer with MET
Sites
China
Phase
Status/Plan
NCT #
II registration
~64 patient registration
NCT04923932
amplification. Two-stage, single-arm
intent
cohort enrolling since
study
March 2023; Breakthrough
Therapy Designation
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 3L 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.
Preliminary efficacy and safety data from an interim analysis was reported at AACR 2023, showing promising efficacy in patients
with MET-amplified diseases, particularly in patients with high MET gene copy number. Confirmed ORR by independent review
was 45%, or 50% in the 16 patients with high MET gene copy number. Duration of response rate at 4-months was 85.7%. The
most common grade 3 or above TRAEs (more than 5%) were decreased platelet count, hypersensitivity, anemia, neutropenia
and abnormal hepatic function. The BID regimen is being investigated to further evaluate the efficacy and safety of savolitinib
in MET high patients. Following consultation with the NMPA with this data, a patient registration cohort began enrolling in
March 2023.
244
84
85
SANOVO study: Phase III study of combination with Tagrisso 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 Tagrisso as a first-line treatment in
certain NSCLC patients whose tumors harbor EGFR mutations and overexpress MET. The Phase III trial is a blinded, randomized,
controlled study in previously untreated patients with locally advanced or metastatic NSCLC with activating EGFR mutations
and MET overexpression. The study will evaluate Tagrisso in combination with savolitinib comparing to Tagrisso alone, a
standard of care treatment option for these patients. The primary endpoint of the study is 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.
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
Savolitinib in Combination with Imfinzi
of immune responses.
patients with MET aberrations (NCT05374603)
primary endpoint is PFS.
Kidney Cancer
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
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
Global
Phase
III
Status/Plan
Ongoing since 2021
NCT #
NCT05043090
locally advanced or metastatic PRCC
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.
24-month follow-up of the CALYPSO study showed median PFS of 15.7 months and median OS of 27.4 months in MET-driven
PRCC patients.
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
SOUND study: Phase II study of combination with Imfinzi in EGFR/ALK/ROS1 wild-type, locally advanced or metastatic NSCLC
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
3L gastric cancer with MET
amplification. Two-stage, single-arm
study
Sites
China
Phase
II registration
intent
Status/Plan
~64 patient registration
cohort enrolling since
March 2023; Breakthrough
Therapy Designation
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 3L 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.
Preliminary efficacy and safety data from an interim analysis was reported at AACR 2023, showing promising efficacy in patients
with MET-amplified diseases, particularly in patients with high MET gene copy number. Confirmed ORR by independent review
was 45%, or 50% in the 16 patients with high MET gene copy number. Duration of response rate at 4-months was 85.7%. The
most common grade 3 or above TRAEs (more than 5%) were decreased platelet count, hypersensitivity, anemia, neutropenia
and abnormal hepatic function. The BID regimen is being investigated to further evaluate the efficacy and safety of savolitinib
in MET high patients. Following consultation with the NMPA with this data, a patient registration cohort began enrolling in
March 2023.
84
85
HUTCHMED (China) Limited 2023 Annual Report 245
Overview of Savolitinib Commercial Launch
Fruquintinib Pre-clinical Evidence
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. The
revenue 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 sales, 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 sales, 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 was included in the updated NRDL, broadening patient access to this medicine. In 2023, we
generated $28.9 million in total revenue from Orpathys sales, of which $13.8 million was royalty revenue and $15.1 million was
revenue from sales of goods to AstraZeneca.
Partnership with AstraZeneca
In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib
with AstraZeneca. As noted above, given the complexity of many of the signal transduction pathways and resistance
mechanisms in oncology, the industry is increasingly studying combinations of targeted therapies (TKI, monoclonal antibodies
and immunotherapies) and chemotherapy as potentially the best approach to treating this complex and constantly mutating
disease. Based on savolitinib’s clinical progress as a highly selective MET inhibitor in a number of cancers, in August 2016,
December 2020 and November 2021, we and AstraZeneca amended our global licensing, co-development, and
commercialization agreement for savolitinib. We believe that AstraZeneca’s portfolio of proprietary targeted therapies is well
suited to be used in combinations with savolitinib, and we are studying combinations with Tagrisso (EGFRm+, T790M+) and
Imfinzi (PD-L1). These combinations of multiple global first-in-class compounds are difficult to replicate, and we believe
represent a significant opportunity for us and AstraZeneca. For more information regarding our partnership with AstraZeneca,
see “—Overview of Our Collaborations—AstraZeneca.”
2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor
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 5,700 patients to date, both as a monotherapy and in combination with other agents.
Aside from its first approved indication of previously-treated metastatic CRC (in China and the U.S.), several studies of
fruquintinib combined with various checkpoint inhibitors (including Tyvyt and tislelizumab) are underway, some of which
presented encouraging data. 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 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.
Pre-clinical trials have demonstrated that fruquintinib is a highly selective VEGFR 1, 2 and 3 inhibitor with high potency and
low cell toxicity at the enzymatic and cellular levels. In a kinase selectivity screening, fruquintinib was found to be
approximately 250 times more selective to VEGFR 3 than to the next non-VEGFR kinase.
As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely
inhibit VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling
pathways are often difficult to manage in clinical practice. Combining such drugs with chemotherapy can lead to severe
toxicities that can cause more harm than benefit to patients. To date, the first generation VEGFR TKI have been rarely used in
combination with other therapies, thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we
believe that it has the potential to be safely combined with other oncology drugs, which could significantly expand its clinical
potential.
Fruquintinib Clinical Development
Fruquintinib Monotherapy - Colorectal Cancer
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.”
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Fruquintinib monotherapy
FRESCO-2: metastatic CRC
U.S. /
III
Approved & launched in the
NCT04322539
Current Clinical Trials of Fruquintinib in CRC
Europe /
Japan /
Australia
Fruquintinib monotherapy
FRESCO: ≥3L CRC; chemotherapy
China
III
Approved and launched in
NCT02314819
refractory
Fruquintinib monotherapy
CRC, TN & HR+/HER2- breast cancer
U.S.
I/Ib
CRC data at ASCO GI 2022;
NCT03251378
Notes: 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.
U.S. in Nov 2023; EMA MAA
validated in Jun 2023; NDA
filed in Japan in Sep 2023;
Results published in The
Lancet; further data
presented at ASCO GI, JSMO
& ASCO 2023
2018
results supported the
initiation of the FRESCO-2
246
86
87
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. The
revenue 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 sales, 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 sales, 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 was included in the updated NRDL, broadening patient access to this medicine. In 2023, we
generated $28.9 million in total revenue from Orpathys sales, of which $13.8 million was royalty revenue and $15.1 million was
revenue from sales of goods to AstraZeneca.
Partnership with AstraZeneca
with AstraZeneca. As noted above, given the complexity of many of the signal transduction pathways and resistance
mechanisms in oncology, the industry is increasingly studying combinations of targeted therapies (TKI, monoclonal antibodies
and immunotherapies) and chemotherapy as potentially the best approach to treating this complex and constantly mutating
disease. Based on savolitinib’s clinical progress as a highly selective MET inhibitor in a number of cancers, in August 2016,
December 2020 and November 2021, we and AstraZeneca amended our global licensing, co-development, and
commercialization agreement for savolitinib. We believe that AstraZeneca’s portfolio of proprietary targeted therapies is well
suited to be used in combinations with savolitinib, and we are studying combinations with Tagrisso (EGFRm+, T790M+) and
Imfinzi (PD-L1). These combinations of multiple global first-in-class compounds are difficult to replicate, and we believe
represent a significant opportunity for us and AstraZeneca. For more information regarding our partnership with AstraZeneca,
see “—Overview of Our Collaborations—AstraZeneca.”
2. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor
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 5,700 patients to date, both as a monotherapy and in combination with other agents.
Aside from its first approved indication of previously-treated metastatic CRC (in China and the U.S.), several studies of
fruquintinib combined with various checkpoint inhibitors (including Tyvyt and tislelizumab) are underway, some of which
presented encouraging data. 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 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.
Overview of Savolitinib Commercial Launch
Fruquintinib Pre-clinical Evidence
In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib
Fruquintinib Monotherapy - Colorectal Cancer
Pre-clinical trials have demonstrated that fruquintinib is a highly selective VEGFR 1, 2 and 3 inhibitor with high potency and
low cell toxicity at the enzymatic and cellular levels. In a kinase selectivity screening, fruquintinib was found to be
approximately 250 times more selective to VEGFR 3 than to the next non-VEGFR kinase.
As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely
inhibit VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling
pathways are often difficult to manage in clinical practice. Combining such drugs with chemotherapy can lead to severe
toxicities that can cause more harm than benefit to patients. To date, the first generation VEGFR TKI have been rarely used in
combination with other therapies, thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we
believe that it has the potential to be safely combined with other oncology drugs, which could significantly expand its clinical
potential.
Fruquintinib Clinical Development
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
Trial Name, Patient Focus
Sites
FRESCO-2: metastatic CRC
U.S. /
Phase
III
Europe /
Japan /
Australia
Status/Plan
NCT #
NCT04322539
Approved & launched in the
U.S. in Nov 2023; EMA MAA
validated in Jun 2023; NDA
filed in Japan in Sep 2023;
Results published in The
Lancet; further data
presented at ASCO GI, JSMO
& ASCO 2023
Fruquintinib monotherapy
FRESCO: ≥3L CRC; chemotherapy
China
III
Approved and launched in
NCT02314819
Fruquintinib monotherapy
CRC, TN & HR+/HER2- breast cancer
U.S.
I/Ib
refractory
2018
CRC data at ASCO GI 2022;
results supported the
initiation of the FRESCO-2
NCT03251378
Notes: 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.
86
87
HUTCHMED (China) Limited 2023 Annual Report 247
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.
Quality-adjusted survival analysis
At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between
the two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to
investigate the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical
benefit-risk from a patient’s perspective and has been widely used in oncology treatment assessment. The survival time for
each patient was divided into three portions: time with CTC grade 3 or above toxicity before progression, time without
symptoms or CTC grade 3 or above toxicity, and time from progression or relapse until death or end of follow-up.
Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST
benefits were observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The
relative improvement of Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients.
Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was
subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September
2018, the NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018.
For more information regarding the Elunate product launch, see “—Overview of Fruquintinib Commercial Launch.”
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. Positive
results from this double-blind, placebo-controlled, global Phase III study in 691 patients 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. ASCO presentations showed that in subgroup analyses by prior lines of therapies up
to six or more and by prior treatment with approved agents, fruquintinib improved OS and PFS for all subgroups and prior
therapies, consistent with those of the overall study population. A separate study showed that during the study adverse events
of special interest led to low rates of dose reduction (13.6% for patients who received fruquintinib vs 0.9% for patients who
received placebo) and dose discontinuation (8.3% for patients who received fruquintinib vs 6.1% for patients who received
placebo).
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).
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).
248
88
89
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.
Quality-adjusted survival analysis
At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between
the two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to
investigate the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical
benefit-risk from a patient’s perspective and has been widely used in oncology treatment assessment. The survival time for
each patient was divided into three portions: time with CTC grade 3 or above toxicity before progression, time without
symptoms or CTC grade 3 or above toxicity, and time from progression or relapse until death or end of follow-up.
Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST
benefits were observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The
relative improvement of Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients.
Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was
subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September
2018, the NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018.
For more information regarding the Elunate product launch, see “—Overview of Fruquintinib Commercial Launch.”
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. Positive
results from this double-blind, placebo-controlled, global Phase III study in 691 patients 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. ASCO presentations showed that in subgroup analyses by prior lines of therapies up
to six or more and by prior treatment with approved agents, fruquintinib improved OS and PFS for all subgroups and prior
therapies, consistent with those of the overall study population. A separate study showed that during the study adverse events
of special interest led to low rates of dose reduction (13.6% for patients who received fruquintinib vs 0.9% for patients who
received placebo) and dose discontinuation (8.3% for patients who received fruquintinib vs 6.1% for patients who received
placebo).
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).
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).
88
89
HUTCHMED (China) Limited 2023 Annual Report 249
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 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 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 of follow-up was approximately 11 months for patients in both
groups.
FRESCO-2 met OS 1º Endpoint & PFS 2º Endpoint
FRESCO-2 met OS 1º Endpoint & PFS 2º Endpoint
100
1.0
OVERALL SURVIVAL
OVERALL SURVIVAL
Events/Patients (%)
Events/Patients (%)
Median (mo) (95% CI)
Median (mo) (95% CI)
mOS difference
mOS difference
Stratified HR (95% CI)
Stratified HR (95% CI)
Fruquintinib
Fruquintinib
317/461 (68.8%)
317/461 (68.8%)
7.4 (6.7, 8.2)
7.4 (6.7, 8.2)
Placebo
Placebo
173/230 (75.2%)
173/230 (75.2%)
4.8 (4.0, 5.8)
4.8 (4.0, 5.8)
+2.6 months
+2.6 months
0.662 (0.549, 0.800) p<0.001
0.662 (0.549, 0.800) p < 0.001
Fruquintinib + BSC
Fruquintinib + BSC
Placebo + BSC
Placebo + BSC
Median follow up:
Median follow up:
Fruquintinib:
Fruquintinib:
Placebo:
Placebo:
11.3 mo
11.3 mo
11.2 mo
11.2 mo
y
t
i
l
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t
i
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b
a
a
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r
r
P
P
0
0
1
1
2
2
3
3
4
4
5
6
7
7
5
6
Time since randomization (months)
Time since randomization (months)
9 10
9 10
8
8
11 12 13 14 15 16 17 18 19
11 12 13 14 15 16 17 18 19
100
1.0
)
i
l
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0.8
60
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60
0.4
20
0.2
0
0
PROGRESSION-FREE SURVIVAL
PROGRESSION-FREE SURVIVAL
Events/Patients (%)
Events/Patients (%)
Fruquintinib
Fruquintinib
392/461 (85.0%)
Placebo
Placebo
213/230 (92.6%)
392/461 (85.0%)
213/230 (92.6%)
Median (mo) (95% CI)
Median (mo) (95% CI)
mPFS difference
mPFS difference
Stratified HR (95% CI)
Stratified HR (95% CI)
3.7 (3.5, 3.8)
1.8 (1.8, 1.9)
3.7 (3.5, 3.8)
1.8 (1.8, 1.9)
+1.9 months
+1.9 months
0.321 (0.267, 0.386) p<0.001
0.321 (0.267, 0.386) p < 0.001
0
0
1
1
2
2
3
3
4
4
6
7
7
6
5
5
Time since randomization (months)
Time since randomization (months)
9 10
9 10
8
8
11 12 13 14 15 16 17 18 19
11 12 13 14 15 16 17 18 19
)
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ITT Population.
ITT Population.
Notes:
[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 Paper session 2: GI, lower digestive Session. Annals of Oncology (2022) 33 (suppl_7): S808-S869.
10.1016/annonc/annonc1089.
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.
Clinical Trial of Fruquintinib in Gastric Cancer
Treatment
Trial Name, Patient Focus
Fruquintinib + paclitaxel
FRUTIGA: 2L gastric cancer
Sites
China
Phase
III
Status/Plan
Supplemental NDA
accepted by NMPA in Apr
2023; data at ASCO Plenary
Series Feb 2024
NCT #
NCT03223376
FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (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 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.
Results were presented orally at ASCO Plenary Series in February 2024. Patients on fruquintinib combined with paclitaxel
achieved median PFS of 5.6 months, vs 2.7 months in the control group on paclitaxel only with HR of 0.569 and p < 0.0001. There
was an improvement in OS with median OS of 9.6 months vs. 8.4 months, however this was not statistically significant. There
was an imbalance of patients receiving subsequent antitumor therapies across the two groups, with 52.7% in the fruquintinib
plus paclitaxel group vs. 72.2% in the paclitaxel monotherapy group. In pre-specified sensitivity analysis, when excluding
patients taking subsequent antitumor therapy, OS advantage becomes nominal statistically significant for the treatment arm
at 6.9 months vs 4.8 months in control arm with HR of 0.72 and p=0.0422. 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.
In April 2023, the NDA in China was accepted for review by the NMPA.
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).
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.
250
90
91
The FRESCO-2 study demonstrated that treatment with fruquintinib resulted in a statistically significant and clinically
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.
Clinical Trial of Fruquintinib in Gastric Cancer
Treatment
Fruquintinib + paclitaxel
Trial Name, Patient Focus
FRUTIGA: 2L gastric cancer
Sites
China
Phase
III
Status/Plan
Supplemental NDA
accepted by NMPA in Apr
2023; data at ASCO Plenary
Series Feb 2024
NCT #
NCT03223376
FRUTIGA study: Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (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 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.
Results were presented orally at ASCO Plenary Series in February 2024. Patients on fruquintinib combined with paclitaxel
achieved median PFS of 5.6 months, vs 2.7 months in the control group on paclitaxel only with HR of 0.569 and p < 0.0001. There
was an improvement in OS with median OS of 9.6 months vs. 8.4 months, however this was not statistically significant. There
was an imbalance of patients receiving subsequent antitumor therapies across the two groups, with 52.7% in the fruquintinib
plus paclitaxel group vs. 72.2% in the paclitaxel monotherapy group. In pre-specified sensitivity analysis, when excluding
patients taking subsequent antitumor therapy, OS advantage becomes nominal statistically significant for the treatment arm
at 6.9 months vs 4.8 months in control arm with HR of 0.72 and p=0.0422. 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.
Notes:
[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,
In April 2023, the NDA in China was accepted for review by the NMPA.
)
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0.2
0
meaningful 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 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 0.27–0.39; 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
FRESCO-2 met OS 1º Endpoint & PFS 2º Endpoint
OVERALL SURVIVAL
Fruquintinib
Placebo
PROGRESSION-FREE SURVIVAL
Fruquintinib
Placebo
Events/Patients (%)
317/461 (68.8%)
173/230 (75.2%)
Events/Patients (%)
392/461 (85.0%)
213/230 (92.6%)
Median (mo) (95% CI)
7.4 (6.7, 8.2)
4.8 (4.0, 5.8)
Median (mo) (95% CI)
3.7 (3.5, 3.8)
1.8 (1.8, 1.9)
mOS difference
+2.6 months
mPFS difference
+1.9 months
Stratified HR (95% CI)
0.662 (0.549, 0.800) p < 0.001
Stratified HR (95% CI)
0.321 (0.267, 0.386) p < 0.001
Fruquintinib + BSC
Placebo + BSC
Median follow up:
Fruquintinib:
11.3 mo
Placebo:
11.2 mo
0
1
2
3
4
5
6
7
8
9 10
11 12 13 14 15 16 17 18 19
0
1
2
3
4
5
6
7
8
9 10
11 12 13 14 15 16 17 18 19
ITT Population.
Time since randomization (months)
Time since randomization (months)
Proffered Paper session 2: GI, lower digestive Session. Annals of Oncology (2022) 33 (suppl_7): S808-S869.
10.1016/annonc/annonc1089.
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).
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.
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HUTCHMED (China) Limited 2023 Annual Report 251
Fruquintinib in Combination with Checkpoint Inhibitors
Tyvyt combination for advanced metastatic renal carcinoma (NCT05522231)
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 + TYVYT (PD-1)
Trial Name, Patient Focus
FRUSICA-1: endometrial cancer
Sites
China
Fruquintinib + TYVYT (PD-1)
FRUSICA-2: clear cell renal cell
carcinoma
China
Phase
II
registration-
intent
II/III
Fruquintinib + TYVYT (PD-1)
Clear cell renal cell carcinoma
China
Ib/II
Status/Plan
Fully enrolled; NDA filing
expected in early-2024; Ib
data at CSCO 2021
Fully enrolled; topline
results expected around
year end 2024
Fully enrolled; Updated
data at ASCO 2023
NCT #
NCT03903705
NCT05522231
NCT03903705
Fruquintinib + TYVYT (PD-1)
CRC
China
II
Data published in European
NCT04179084
Fruquintinib + TYVYT (PD-1)
Gastrointestinal tumors, NSCLC,
cervical cancer
China
Ib/II
Fruquintinib and tislelizumab
(PD-1)
MSS-CRC
U.S.
Ib/II
Fruquintinib and tislelizumab
(PD-1)
CRC
Korea /
China
Ib/II
Journal of Cancer
Fully enrolled; Gastric
cancer data at ESMO 2023;
NSCLC and cervical cancer
data at ESMO Asia 2023
Ongoing since 2021; Fully
enrolled; Follow-up
ongoing; Conference
submission pending
completion of follow-up
Fully enrolled
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.
Tyvyt combination for advanced endometrial cancer registration-intent cohort (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. 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 patients (14.3%) 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.
We agreed with the NMPA to expand this cohort into a single-arm registrational Phase II study. In July 2023, the cohort fully
enrolled and was granted Breakthrough Therapy Designation. If the study results are positive, we expect to file the NDA with
the NMPA in this treatment setting in early-2024.
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 (NCT03903705) data disclosed at ASCO 2023 showed encouraging anti-tumor efficacy and
durability in these patients. PFS results from this exploratory study of the fruquintinib and sintilimab combination in metastatic
clear-cell RCC were reported. At data cut-off on November 30, 2022, median PFS was 15.9 months in 20 previously treated
patients. No new safety signals were observed.
A Phase II/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. The enrollment was completed in December 2023. A total of 234 patients have
been enrolled in the study. We expect to announce topline results around year end in 2024.
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 90 of such trials ongoing
in various solid tumor settings. A number of investigator-initiated trials were presented at ASCO 2023, ESMO 2023 and ASCO GI
2024, including initial results of a Phase II study of fruquintinib in combination with investigator’s choice of chemotherapy in
second-line metastatic CRC with microsatellite stable (MSS) phenotype, as well as fruquintinib monotherapy for the treatment
of biliary tract cancer and soft tissue sarcoma.
Overview of Fruquintinib Commercial Launch
Fruquintinib was first approved in mainland China by the NMPA in September 2018 and commercially launched in
November 2018. In February 2022, it received marketing approval in Macau. In November 2023, it received marketing approval
in the United States. In January 2024, it received marketing approval in Hong Kong which is the first medicine to be approved
under Hong Kong’s new mechanism for registration of new drugs (“1+” mechanism) officially commenced on November 1, 2023.
Fruquintinib is marketed as Elunate in China and Fruzaqla in the United States. We have partnered with Eli Lilly on fruiquintinib
in China and Takeda outside of China.
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(PD-1)
(PD-1)
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
Fruquintinib + TYVYT (PD-1)
FRUSICA-1: endometrial cancer
Sites
China
Status/Plan
NCT #
Fully enrolled; NDA filing
NCT03903705
registration-
expected in early-2024; Ib
Fruquintinib + TYVYT (PD-1)
FRUSICA-2: clear cell renal cell
China
NCT05522231
Phase
II
intent
II/III
Fruquintinib + TYVYT (PD-1)
Clear cell renal cell carcinoma
China
Ib/II
Fully enrolled; Updated
NCT03903705
Fruquintinib + TYVYT (PD-1)
CRC
China
II
Data published in European
NCT04179084
carcinoma
cervical cancer
Fruquintinib and tislelizumab
MSS-CRC
U.S.
Ib/II
Ongoing since 2021; Fully
NCT04577963
data at CSCO 2021
Fully enrolled; topline
results expected around
year end 2024
data at ASCO 2023
Journal of Cancer
cancer data at ESMO 2023;
NSCLC and cervical cancer
data at ESMO Asia 2023
enrolled; Follow-up
ongoing; Conference
submission pending
completion of follow-up
Fruquintinib and tislelizumab
CRC
Ib/II
Fully enrolled
NCT04716634
Korea /
China
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.
Tyvyt combination for advanced endometrial cancer registration-intent cohort (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. 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 patients (14.3%) 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.
We agreed with the NMPA to expand this cohort into a single-arm registrational Phase II study. In July 2023, the cohort fully
enrolled and was granted Breakthrough Therapy Designation. If the study results are positive, we expect to file the NDA with
the NMPA in this treatment setting in early-2024.
Fruquintinib in Combination with Checkpoint Inhibitors
Tyvyt combination for advanced metastatic renal carcinoma (NCT05522231)
Fruquintinib + TYVYT (PD-1)
Gastrointestinal tumors, NSCLC,
China
Ib/II
Fully enrolled; Gastric
NCT03903705
Tyvyt combination for CRC (NCT04179084)
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 (NCT03903705) data disclosed at ASCO 2023 showed encouraging anti-tumor efficacy and
durability in these patients. PFS results from this exploratory study of the fruquintinib and sintilimab combination in metastatic
clear-cell RCC were reported. At data cut-off on November 30, 2022, median PFS was 15.9 months in 20 previously treated
patients. No new safety signals were observed.
A Phase II/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. The enrollment was completed in December 2023. A total of 234 patients have
been enrolled in the study. We expect to announce topline results around year end in 2024.
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 90 of such trials ongoing
in various solid tumor settings. A number of investigator-initiated trials were presented at ASCO 2023, ESMO 2023 and ASCO GI
2024, including initial results of a Phase II study of fruquintinib in combination with investigator’s choice of chemotherapy in
second-line metastatic CRC with microsatellite stable (MSS) phenotype, as well as fruquintinib monotherapy for the treatment
of biliary tract cancer and soft tissue sarcoma.
Overview of Fruquintinib Commercial Launch
Fruquintinib was first approved in mainland China by the NMPA in September 2018 and commercially launched in
November 2018. In February 2022, it received marketing approval in Macau. In November 2023, it received marketing approval
in the United States. In January 2024, it received marketing approval in Hong Kong which is the first medicine to be approved
under Hong Kong’s new mechanism for registration of new drugs (“1+” mechanism) officially commenced on November 1, 2023.
Fruquintinib is marketed as Elunate in China and Fruzaqla in the United States. We have partnered with Eli Lilly on fruiquintinib
in China and Takeda outside of China.
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HUTCHMED (China) Limited 2023 Annual Report 253
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.
In 2021, we generated $53.5 million in total revenue from Elunate sales, 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. In 2023, we generated $83.2 million in total revenue from Elunate, of which $16.6 million was
royalty revenue, $18.0 million was revenue from sales of goods primarily to Eli Lilly and $48.6 million was revenue from
promotion and marketing services to Eli Lilly.
In 2023, we generated $7.2 million in total revenue from Fruzaqla sales, of which $2.1 million was royalty revenue and $5.1
million was revenue from sales of goods.
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.
For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.”
Takeda
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it received an exclusive worldwide
license from us to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China.
Subject to the terms of the agreement, we are eligible to receive up to $1.13 billion upfront and milestone payments. We have
received $435 million in payments to date, including $400 million upfront on closing of the agreement and $35 million milestone
payments from Takeda pursuant to this collaboration. We are eligible to receive up to $695 million in additional potential
payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales.
For more information regarding our partnership with Takeda, see “—Overview of Our Collaborations—Takeda.”
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 2,900 patients to date, both as a monotherapy and in combinations, and is approved in China. We currently
retain 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.
Surufatinib Pre-clinical Evidence
Surufatinib inhibited VEGFR 1, 2, and 3, FGFR1 and CSF-1R kinases with IC50 in a range of 1 nM to 24 nM. It also strongly
blocked VEGF-induced VEGFR2 phosphorylation in HEK293 cells and CSF-1R phosphorylation in RAW264.7 cells with an IC50 of
2 nM and 79 nM, respectively. Surufatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell
proliferation with an IC50 < 50 nM. In animal studies, a single oral dose of surufatinib inhibited VEGF-stimulated VEGFR2
phosphorylation in lung tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in
plasma 24 hours post dosing suggested suppression of FGFR signaling.
Surufatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of
differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In
a syngeneic murine colon cancer model, surufatinib demonstrated moderate tumor growth inhibition after single-agent
treatment. Flow cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant
reduction in certain tumor-associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in
tumor tissue, indicating surufatinib has a strong effect on CSF-1R. Interestingly, a combination of surufatinib with a PD-L1
antibody resulted in enhanced anti-tumor effect. These results suggested that surufatinib has a strong effect in modulating
angiogenesis and cancer immunity.
Surufatinib Clinical Development
ongoing or expected to begin in the near term.
Surufatinib Monotherapy - Neuroendocrine Tumors
We currently have various clinical trials of surufatinib as a monotherapy and in combination with checkpoint inhibitors
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.
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.
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. Surufatinib was granted approval for drug registration by
the NMPA for the treatment of advanced pancreatic NET and launched in June 2021. We believe that surufatinib is currently the
only approved targeted therapy that can address and treat all subtypes of NETs.
254
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95
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.
In 2021, we generated $53.5 million in total revenue from Elunate sales, 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. In 2023, we generated $83.2 million in total revenue from Elunate, of which $16.6 million was
royalty revenue, $18.0 million was revenue from sales of goods primarily to Eli Lilly and $48.6 million was revenue from
promotion and marketing services to Eli Lilly.
In 2023, we generated $7.2 million in total revenue from Fruzaqla sales, of which $2.1 million was royalty revenue and $5.1
million was revenue from sales of goods.
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.
For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.”
Takeda
In January 2023, we entered into an agreement with a subsidiary of Takeda whereby it received an exclusive worldwide
license from us to develop, manufacture and commercialize fruquintinib in all indications and territories outside of China.
Subject to the terms of the agreement, we are eligible to receive up to $1.13 billion upfront and milestone payments. We have
received $435 million in payments to date, including $400 million upfront on closing of the agreement and $35 million milestone
payments from Takeda pursuant to this collaboration. We are eligible to receive up to $695 million in additional potential
payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales.
For more information regarding our partnership with Takeda, see “—Overview of Our Collaborations—Takeda.”
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 2,900 patients to date, both as a monotherapy and in combinations, and is approved in China. We currently
retain 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.
Surufatinib Pre-clinical Evidence
Surufatinib inhibited VEGFR 1, 2, and 3, FGFR1 and CSF-1R kinases with IC50 in a range of 1 nM to 24 nM. It also strongly
blocked VEGF-induced VEGFR2 phosphorylation in HEK293 cells and CSF-1R phosphorylation in RAW264.7 cells with an IC50 of
2 nM and 79 nM, respectively. Surufatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell
proliferation with an IC50 < 50 nM. In animal studies, a single oral dose of surufatinib inhibited VEGF-stimulated VEGFR2
phosphorylation in lung tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in
plasma 24 hours post dosing suggested suppression of FGFR signaling.
Surufatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of
differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In
a syngeneic murine colon cancer model, surufatinib demonstrated moderate tumor growth inhibition after single-agent
treatment. Flow cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant
reduction in certain tumor-associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in
tumor tissue, indicating surufatinib has a strong effect on CSF-1R. Interestingly, a combination of surufatinib with a PD-L1
antibody resulted in enhanced anti-tumor effect. These results suggested that surufatinib has a strong effect in modulating
angiogenesis and cancer immunity.
Surufatinib Clinical Development
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 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.
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.
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. Surufatinib was granted approval for drug registration by
the NMPA for the treatment of advanced pancreatic NET and launched in June 2021. We believe that surufatinib is currently the
only approved targeted therapy that can address and treat all subtypes of NETs.
94
95
HUTCHMED (China) Limited 2023 Annual Report 255
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. While discussions with the FDA in 2020 suggested that two positive Phase
III studies of surufatinib in patients with pNETs and epNETs in China, could form the basis to support a U.S. NDA submission,
this was ultimately not accepted. A new multi-regional clinical trial (MRCT) would be required to move forward with this
program in the United States, Europe and Japan. Following dialogue with the Japanese PMDA, we have decided not to file a
Japanese NDA on the basis of the clinical trial data available at this time.
The table below shows a summary of clinical trials for surufatinib in neuroendocrine cancer patients.
Clinical Trials of Surufatinib in NETs
Treatment
Surufatinib monotherapy
Trial Name, Patient Focus
SANET-ep: Non-pancreatic NET
Sites
China
Phase
III
Surufatinib monotherapy
SANET-p: Pancreatic NET
China
III
Status/Plan
Approved; Launched in
2021
Approved; Launched in
2021
NCT #
NCT02588170
NCT02589821
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%).
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced 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)30496-4.
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 pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of
surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints
including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability.
In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as
the pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients
treated with surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p =
0.0011). ORRs were 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a
DCR of 80.8% versus 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver
metastasis and multiple organ involvement. Efficacy was also supported by blinded independent image review committee
assessment, with a median PFS of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-
0.549; p<0.0001). The safety profile of surufatinib was manageable and consistent with observations in prior studies. Treatment
was well tolerated for most patients, with discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as
compared to 6.8% in the placebo group. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were
hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%).
256
96
97
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. While discussions with the FDA in 2020 suggested that two positive Phase
III studies of surufatinib in patients with pNETs and epNETs in China, could form the basis to support a U.S. NDA submission,
this was ultimately not accepted. A new multi-regional clinical trial (MRCT) would be required to move forward with this
program in the United States, Europe and Japan. Following dialogue with the Japanese PMDA, we have decided not to file a
Japanese NDA on the basis of the clinical trial data available at this time.
The table below shows a summary of clinical trials for surufatinib in neuroendocrine cancer patients.
Clinical Trials of Surufatinib in NETs
Treatment
Trial Name, Patient Focus
Phase
Status/Plan
NCT #
Surufatinib monotherapy
SANET-ep: Non-pancreatic NET
Approved; Launched in
NCT02588170
Surufatinib monotherapy
SANET-p: Pancreatic NET
Approved; Launched in
NCT02589821
Sites
China
China
III
III
2021
2021
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%).
)
%
(
l
a
v
i
v
r
u
s
e
e
r
f
-
n
o
i
s
s
e
r
g
o
r
P
100
90
80
70
60
50
40
30
20
10
0
0
SANET-ep 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)
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)
··
Number at risk
(number censored)
Surufatinib
Placebo
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extra-pancreatic neuroendocrine tumours (SANET-ep): a
study. Lancet Oncol. 2020;21(11):1500-1512.
randomized, double-blind, placebo-controlled, phase 3
doi:10.1016/S1470-2045(20)30496-4.
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 pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of
surufatinib or a placebo once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints
including ORR, disease control rate, time to response, duration of response, OS, safety and tolerability.
In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as
the pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients
treated with surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p =
0.0011). ORRs were 19.2% for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a
DCR of 80.8% versus 66.0%, respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver
metastasis and multiple organ involvement. Efficacy was also supported by blinded independent image review committee
assessment, with a median PFS of 13.9 months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-
0.549; p<0.0001). The safety profile of surufatinib was manageable and consistent with observations in prior studies. Treatment
was well tolerated for most patients, with discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as
compared to 6.8% in the placebo group. CTC grade 3 or above TEAEs in this study with greater than 5% incidence were
hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%).
96
97
HUTCHMED (China) Limited 2023 Annual Report 257
SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS
Surufatinib
Surufatinib
Placebo
Placebo
HR for progression or death 0.49 (95% CI 0.32–0.76): p=0∙0011
HR for progression or death 0.49 (95% CI 0.32–0.76): p=0∙0011
100
100
90
80
)
%
70
(
l
a
v
i
v
r
u
s
60
50
40
e
e
r
f
-
n
o
i
s
s
e
r
g
30
o
r
P
90
80
70
60
50
40
30
)
%
(
l
a
v
i
v
r
u
s
e
e
r
f
-
n
o
i
s
s
e
r
g
o
r
P
20
20
10
10
0
0
0
0
2
2
4
4
6
6
8
8
10
10
12
12
14
14
Number at risk
(number censored)
Surufatinib
Placebo
Number at risk
(number censored)
Surufatinib
Placebo
79 (27) 61 (33) 50 (36) 43 (39) 33 (42) 25 (44) 20 (45) 19 (45) 13 (45) 8 (50) 8 (50) 5 (53) 4 (54) 2 (55) 2 (55) 1 (56) 1 (56) 1 (57)
113 (0)
59 (0) 33 (10) 20 (11) 12 (14) 10 (15) 9 (15) 6 (17) 6 (17) 6 (17) 5 (17) 4 (17) 4 (17) 4 (17) 4 (17) 3 (17) 3 (17) 3 (17) 2 (18) 0 (20)
79 (27) 61 (33) 50 (36) 43 (39) 33 (42) 25 (44) 20 (45) 19 (45) 13 (45) 8 (50) 8 (50) 5 (53) 4 (54) 2 (55) 2 (55) 1 (56) 1 (56) 1 (57)
113 (0)
59 (0) 33 (10) 20 (11) 12 (14) 10 (15) 9 (15) 6 (17) 6 (17) 6 (17) 5 (17) 4 (17) 4 (17) 4 (17) 4 (17) 3 (17) 3 (17) 3 (17) 2 (18) 0 (20)
16
16
18
20
18
Time (months)
Time (months)
20
22
22
24
24
26
26
28
30
28
32
30
34
32
36
34
36
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised,
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-
2045(20)30493-9.
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote
infiltration of effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
The table below shows a summary of 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)
Surufatinib and Tuoyi (PD-1)
Trial Name, Patient Focus
Sites
SURTORI-01: 2L NEC
NENs, GC, ESCC, SCLC, NSCLC, EMC,
TC, STS, BTC
Small cell lung cancer
China
China
China
Phase
III
II
II
Clinical Trials with Junshi’s Tuoyi
Status/Plan
Ongoing since 2021
Fully enrolled; Data at AACR
2023 & ASCO 2023
Fully enrolled
NCT #
NCT05015621
NCT04169672
NCT05509699
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 II 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. 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.
258
98
99
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.
Other cohorts —We reported the results from the advanced endometrial cancer cohorts at ASCO 2023. Amongst efficacy
evaluable endometrial cancer patients, median PFS was 5.4 months and 12-month OS rate was 71.0% (median follow-up
duration was 16.8 months). The combination showed a tolerable safety profile. Additionally, results from the NSCLC cohort
were presented at AACR 2023 demonstrating promising anti-tumor activity in first-line setting for advanced PD-L1 positive
NSCLC patients with manageable toxicity.
Surufatinib Exploratory Development
In China, we support an investigator-initiated trial program for surufatinib, with about 110 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. A number of investigator-initiated trials were
presented at ASCO 2023, ESMO 2023 and ASCO GI 2024 for surufatinib in combination with other agents, including with
chemotherapy as well as with anti-PD-1 antibodies plus different chemotherapy regimens in various solid types including
pancreatic adenocarcinoma, gastric/gastroesophageal junction adenocarcinoma and biliary tract cancer. In one of these trials
using surufatinib in combination with camrelizumab (an anti-PD-1) plus chemotherapy in first-line therapy for pancreatic
adenocarcinoma, median PFS and OS were 9.2 months and 15.6 months, respectively, compared to 6.3 months and 8.6 months
in the control group with chemotherapy only.
Overview of Surufatinib Commercial Launch
Surufatinib capsules, sold under the brand name Sulanda, were approved for marketing in China by the NMPA in December
2020 and June 2021 for the treatment of advanced non-pancreatic NETs and pancreatic NETs, respectively. In 2021, Sulanda
was sold as a self-pay drug whereby patients paid for treatment out-of-pocket. We used means-test early access and patient
access programs to help patients afford Sulanda. 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 inclusion was renewed for another two years starting in January
2024 for the same discounted price.
We have also confirmed a total of around 110 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.
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 December 2022, we completed
recruitment of a Phase III study in China for primary ITP, for which it has received Breakthrough Therapy Designation. Positive
data on both primary ITP and hematological malignancies was reported at ASH 2021 and published in Lancet Hematology in
April 2023. In 2024, we plan to start a Phase I/Ib dose-finding study in the United States. We currently retain all rights to
sovleplenib worldwide.
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
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
Number at risk
(number censored)
Time (months)
Surufatinib
113 (0)
79 (27) 61 (33) 50 (36) 43 (39) 33 (42) 25 (44) 20 (45) 19 (45) 13 (45) 8 (50) 8 (50) 5 (53) 4 (54) 2 (55) 2 (55) 1 (56) 1 (56) 1 (57)
Placebo
59 (0) 33 (10) 20 (11) 12 (14) 10 (15) 9 (15) 6 (17) 6 (17) 6 (17) 5 (17) 4 (17) 4 (17) 4 (17) 4 (17) 3 (17) 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 =
confidence interval; and HR = hazard ratio.
2045(20)30493-9.
Surufatinib in Combination with Checkpoint Inhibitors
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote
infiltration of effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
The table below shows a summary of clinical trials for surufatinib in combination with checkpoint inhibitors.
Clinical Trials of Surufatinib with Checkpoint Inhibitors
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
SURTORI-01: 2L NEC
NENs, GC, ESCC, SCLC, NSCLC, EMC,
Surufatinib and Tuoyi (PD-1)
Small cell lung cancer
TC, STS, BTC
China
China
China
III
II
II
Ongoing since 2021
2023 & ASCO 2023
Fully enrolled
NCT #
NCT05015621
NCT05509699
Fully enrolled; Data at AACR
NCT04169672
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 II 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. 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.
Other cohorts —We reported the results from the advanced endometrial cancer cohorts at ASCO 2023. Amongst efficacy
evaluable endometrial cancer patients, median PFS was 5.4 months and 12-month OS rate was 71.0% (median follow-up
duration was 16.8 months). The combination showed a tolerable safety profile. Additionally, results from the NSCLC cohort
were presented at AACR 2023 demonstrating promising anti-tumor activity in first-line setting for advanced PD-L1 positive
NSCLC patients with manageable toxicity.
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-
Surufatinib Exploratory Development
In China, we support an investigator-initiated trial program for surufatinib, with about 110 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. A number of investigator-initiated trials were
presented at ASCO 2023, ESMO 2023 and ASCO GI 2024 for surufatinib in combination with other agents, including with
chemotherapy as well as with anti-PD-1 antibodies plus different chemotherapy regimens in various solid types including
pancreatic adenocarcinoma, gastric/gastroesophageal junction adenocarcinoma and biliary tract cancer. In one of these trials
using surufatinib in combination with camrelizumab (an anti-PD-1) plus chemotherapy in first-line therapy for pancreatic
adenocarcinoma, median PFS and OS were 9.2 months and 15.6 months, respectively, compared to 6.3 months and 8.6 months
in the control group with chemotherapy only.
Overview of Surufatinib Commercial Launch
Surufatinib capsules, sold under the brand name Sulanda, were approved for marketing in China by the NMPA in December
2020 and June 2021 for the treatment of advanced non-pancreatic NETs and pancreatic NETs, respectively. In 2021, Sulanda
was sold as a self-pay drug whereby patients paid for treatment out-of-pocket. We used means-test early access and patient
access programs to help patients afford Sulanda. 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 inclusion was renewed for another two years starting in January
2024 for the same discounted price.
We have also confirmed a total of around 110 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.
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 December 2022, we completed
recruitment of a Phase III study in China for primary ITP, for which it has received Breakthrough Therapy Designation. Positive
data on both primary ITP and hematological malignancies was reported at ASH 2021 and published in Lancet Hematology in
April 2023. In 2024, we plan to start a Phase I/Ib dose-finding study in the United States. We currently retain all rights to
sovleplenib worldwide.
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HUTCHMED (China) Limited 2023 Annual Report 259
Mechanism of Action
Sovleplenib Pre-clinical Evidence
Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important
The safety profile of sovleplenib was evaluated in multiple in vitro and in vivo pre-clinical trials under good laboratory
target for modulating B-cell signaling.
Syk, a target for autoimmune diseases
The central role of Syk in signaling processes is not only in cells of immune responses but also in cell types known to be
involved in the expression of tissue pathology in autoimmune, inflammatory and allergic diseases. Therefore, interfering with
Syk could represent a possible therapeutic approach for treating these disorders. Indeed, several studies have highlighted Syk
as a key player in the pathogenesis of a multitude of diseases, including rheumatoid arthritis, systemic lupus erythematosus
and multiple sclerosis.
Sovleplenib Clinical Development
The table below shows a summary of the clinical trials for sovleplenib.
Syk, a target for oncology
Current Clinical Trials of Sovleplenib
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.
In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular
membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the
intracellular domain of the receptors. Syk is activated after being phosphorylated by certain kinases and then further induces
downstream intracellular signals including B-cell linker, PI3Kδ, BTK and Phospholipase C-y2 to regulate B-cell proliferation,
growth, differentiation, homing, survival, maturation, and immune responses. Syk not only involves the regulation of lymphatic
cells but also signal transduction of non-lymphatic cells such as mast cells, macrophages, and basophils, resulting in different
immunological functions such as degranulation to release immune active substances, leading to immunological reaction and
disease. Therefore, regulating B-cell signal pathways through Syk is expected to be effective for treating lymphoma.
Syk is upstream of both BTK and PI3Kδ, and we believe it could deliver the same outcome as inhibitors of BTK and PI3Kδ,
Sovleplenib monotherapy
Warm AIHA
China
II/III
Phase II fully enrolled;
NCT05535933
assuming no unintentional toxicities are derived from Syk inhibition.
Sovleplenib Research Background
The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure
of Tavalisse in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of
toxicity. While Tavalisse clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation,
it also caused high levels of hypertension which is widely believed to be due to the high levels of off-target kinase insert domain
receptor inhibition. In addition, Tavalisse has also been shown to strongly inhibit the Ret kinase, and in pre-clinical trials it was
demonstrated that inhibition of the Ret kinase was associated with developmental and reproductive toxicities.
The requirement for Syk kinase activity in inflammatory responses was first evaluated with Tavalisse, which was co-
developed by AstraZeneca/Rigel Pharmaceuticals, Inc. In 2013, AstraZeneca announced results from pivotal Phase III clinical
trials that Tavalisse statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria)
response rates of patients inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-
TNFα (a key pro-inflammatory cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to
demonstrate statistical significance in comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed.
Rigel Pharmaceuticals subsequently chose to develop Tavalisse for immune thrombocytopenia instead, for which it was
approved by the FDA in 2018 and the EMA in 2020.
Tavalisse was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused
large B-cell lymphoma patients with an ORR of 22%. Entospletinib has features of high potency and good selectivity toward
kinases. However, 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.
Treatment
Sovleplenib monotherapy
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
China
III
Fully enrolled; positive
NCT05029635
ESLIM-01≥2L+ Immune
thrombocytopenia
topline results achieved and
NDA accepted with priority
review status in Jan 2024;
results to be submitted at
an upcoming conference in
mid-2024; Breakthrough
Therapy Designation
in 2024
2024
Phase III expected in early
Sovleplenib monotherapy
≥2L ITP
U.S.
Ib
Dose-finding study to begin
Pending
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
188 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. All endpoints were met in August 2023 and the NDA has
been accepted for review and granted priority review by the NMPA in January 2024. We plan to submit the results for
presentation and/or publication in mid-2024.
ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of sovleplenib
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.
260
100
101
Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important
Mechanism of Action
target for modulating B-cell signaling.
Syk, a target for autoimmune diseases
and multiple sclerosis.
Syk, a target for oncology
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
In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular
membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the
intracellular domain of the receptors. Syk is activated after being phosphorylated by certain kinases and then further induces
downstream intracellular signals including B-cell linker, PI3Kδ, BTK and Phospholipase C-y2 to regulate B-cell proliferation,
growth, differentiation, homing, survival, maturation, and immune responses. Syk not only involves the regulation of lymphatic
cells but also signal transduction of non-lymphatic cells such as mast cells, macrophages, and basophils, resulting in different
immunological functions such as degranulation to release immune active substances, leading to immunological reaction and
disease. Therefore, regulating B-cell signal pathways through Syk is expected to be effective for treating lymphoma.
Syk is upstream of both BTK and PI3Kδ, and we believe it could deliver the same outcome as inhibitors of BTK and PI3Kδ,
assuming no unintentional toxicities are derived from Syk inhibition.
Sovleplenib Research Background
The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure
of Tavalisse in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of
toxicity. While Tavalisse clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation,
it also caused high levels of hypertension which is widely believed to be due to the high levels of off-target kinase insert domain
receptor inhibition. In addition, Tavalisse has also been shown to strongly inhibit the Ret kinase, and in pre-clinical trials it was
demonstrated that inhibition of the Ret kinase was associated with developmental and reproductive toxicities.
The requirement for Syk kinase activity in inflammatory responses was first evaluated with Tavalisse, which was co-
developed by AstraZeneca/Rigel Pharmaceuticals, Inc. In 2013, AstraZeneca announced results from pivotal Phase III clinical
trials that Tavalisse statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria)
response rates of patients inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-
TNFα (a key pro-inflammatory cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to
demonstrate statistical significance in comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed.
Rigel Pharmaceuticals subsequently chose to develop Tavalisse for immune thrombocytopenia instead, for which it was
approved by the FDA in 2018 and the EMA in 2020.
Tavalisse was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused
large B-cell lymphoma patients with an ORR of 22%. Entospletinib has features of high potency and good selectivity toward
kinases. However, 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.
Sovleplenib Pre-clinical Evidence
The safety profile of sovleplenib was evaluated in multiple in vitro and in vivo pre-clinical trials under good laboratory
practice guidelines and found to be well tolerated following single dose oral administration. Toxic findings were seen in repeat
dose animal safety evaluations in rats and dogs at higher doses and found to be reversible. These findings can be readily
monitored in the clinical trials and fully recoverable upon drug withdrawal. The starting dose in humans was suggested to be 5
mg. This dose level is approximately 5% of the human equivalent dose extrapolated from the pre-clinical “no observed adverse
event levels,” which is below the 10% threshold recommended by FDA guidelines.
Sovleplenib Clinical Development
The table below shows a summary of the clinical trials for sovleplenib.
Current Clinical Trials of Sovleplenib
Treatment
Sovleplenib monotherapy
Trial Name, Patient Focus
Sites
ESLIM-01≥2L+ Immune
thrombocytopenia
China
Phase
III
Status/Plan
NCT #
Fully enrolled; positive
NCT05029635
topline results achieved and
NDA accepted with priority
review status in Jan 2024;
results to be submitted at
an upcoming conference in
mid-2024; Breakthrough
Therapy Designation
Sovleplenib monotherapy
≥2L ITP
U.S.
Ib
Dose-finding study to begin
Pending
in 2024
Sovleplenib monotherapy
Warm AIHA
China
II/III
Phase II fully enrolled;
NCT05535933
Phase III expected in early
2024
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
188 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. All endpoints were met in August 2023 and the NDA has
been accepted for review and granted priority review by the NMPA in January 2024. We plan to submit the results for
presentation and/or publication in mid-2024.
ESLIM-01 is supported by the results of a randomized, double-blind and placebo-controlled Phase Ib study of sovleplenib
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.
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HUTCHMED (China) Limited 2023 Annual Report 261
Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933)
SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493)
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. The first patient was enrolled in September 2022. The enrollment of Phase II part of the study was completed in mid-
2023 and primary end point has been met. We expect to initiate Phase III in early 2024.
5. 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.
toxicities.
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. Tazemetostat has been studied in clinical trials
with around 1,300 patients to date.
We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors in China. We are
participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in China. We are generally responsible for funding all clinical
trials of tazemetostat in China, including the portion of global trials conducted there. Separately, we are conducting a China
bridging study in follicular lymphoma for potential conditional registration based on its U.S. approvals. The study is fully
enrolled and, subject to the data, we plan to file the NDA in China in late-2024. We are responsible for the research,
manufacturing and commercialization of tazemetostat in China. Tazemetostat was approved in China Hainan Pilot Zone in
2022 and the Macau Special Administrative Region in 2023.
Mechanism of Action
Mechanism of Action
EZH2 is one member of a class of histone methyltransferases (“HMTs”). It catalyzes the methylation of histone H3 at lysine
27 (H3K27) which controls expression of various genes and in turn plays a role in the normal physiology of many cell types.
Dysregulation of EZH2 has been seen in a wide range of cancers and is associated with poor clinical prognosis and outcomes.
Tazemetostat inhibits EZH2 which allows transcription of genes involved in functions such as cell cycle control and terminal
differentiation and thus inhibits cancer cell proliferation.
Tazemetostat Clinical Development
The table below shows a summary of our clinical trials for tazemetostat.
Clinical Trials of Tazemetostat
Treatment
Tazemetotat monotherapy
Tazemetotat monotherapy
Trial Name, Patient Focus
Metastatic or locally advanced
epithelioid sarcoma;
Relapsed/refractory 3L+
follicular lymphoma
Relapsed/refractory 3L+ follicular
lymphoma
Sites
Hainan/Macau
China
Tazemetostat +lenalidomide +
rituximab (R2)
SYMPHONY-1: 2L follicular lymphoma
Global
Phase
N/A – Hainan
Pilot Zone,
Macau
II
registration-
intent
(bridging)
Ib/III
Tazemetostat + amdizalisib
Relapsed/refractory lymphoma
China
II
Status/Plan
Approved; Launched in 2022
and 2023, respectively
NCT #
N/A
Fully enrolled; NDA filing
expected in late-2024
NCT05467943
NCT04224493
Ongoing: PhIb data at ASH
2022; China portion of global
Phase III trial started in the
second half of 2022
Ongoing since February 2023 NCT05713110
SYMPHONY-1 is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III
study of tazemetostat in combination with R (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 R, respectively.
The Phase Ib open-label portion of SYMPHONY-1 recruited 44 patients and showed ORR of 90.9%. In the 800-mg BID
recommended Phase III dose cohort, 18-month PFS and DOR estimates were 94.4% and 100%. There were no dose-limiting
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 + R or placebo + R. The study will also include a maintenance arm with tazemetostat or
placebo following the first year of treatment with tazemetostat + R or placebo + R. 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.
6. HMPL-453, FGFR Inhibitor
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.
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.
Common FGFR Alterations in Certain Tumor Types
Gene amplification
Gene translocation
Gene mutation
FGFR1
Lung squamous (7-15%)
Lung squamous (n/a)
Gastric (4%)
H&N squamous (10-17%)
Glioblastoma (n/a)
Pilocytic astrocytoma (5-8%)
Esophageal squamous (9%) Myeloproliferative syndrome (n/a)
FGFR2
FGFR3
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%)
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%)
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.
262
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103
Phase II/III Trial of sovleplenib for warm AIHA (NCT05535933)
SYMPHONY-1 Phase Ib/III Trial of tazemetostat for follicular lymphoma (NCT04224493)
SYMPHONY-1 is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III
study of tazemetostat in combination with R (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 R, respectively.
The Phase Ib open-label portion of SYMPHONY-1 recruited 44 patients and showed ORR of 90.9%. In the 800-mg BID
recommended Phase III dose cohort, 18-month PFS and DOR estimates were 94.4% and 100%. There were no dose-limiting
toxicities.
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 + R or placebo + R. The study will also include a maintenance arm with tazemetostat or
placebo following the first year of treatment with tazemetostat + R or placebo + R. 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.
6. HMPL-453, FGFR Inhibitor
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
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.
Common FGFR Alterations in Certain Tumor Types
Gene amplification
Gene translocation
Gene mutation
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. The first patient was enrolled in September 2022. The enrollment of Phase II part of the study was completed in mid-
2023 and primary end point has been met. We expect to initiate Phase III in early 2024.
5. 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.
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. Tazemetostat has been studied in clinical trials
with around 1,300 patients to date.
We are developing and plan to seek approval for tazemetostat in various hematological and solid tumors in China. We are
participating in Ipsen’s SYMPHONY-1 (EZH-302) study, leading it in China. We are generally responsible for funding all clinical
trials of tazemetostat in China, including the portion of global trials conducted there. Separately, we are conducting a China
bridging study in follicular lymphoma for potential conditional registration based on its U.S. approvals. The study is fully
enrolled and, subject to the data, we plan to file the NDA in China in late-2024. We are responsible for the research,
manufacturing and commercialization of tazemetostat in China. Tazemetostat was approved in China Hainan Pilot Zone in
2022 and the Macau Special Administrative Region in 2023.
EZH2 is one member of a class of histone methyltransferases (“HMTs”). It catalyzes the methylation of histone H3 at lysine
27 (H3K27) which controls expression of various genes and in turn plays a role in the normal physiology of many cell types.
Dysregulation of EZH2 has been seen in a wide range of cancers and is associated with poor clinical prognosis and outcomes.
Tazemetostat inhibits EZH2 which allows transcription of genes involved in functions such as cell cycle control and terminal
differentiation and thus inhibits cancer cell proliferation.
Tazemetostat Clinical Development
The table below shows a summary of our clinical trials for tazemetostat.
Clinical Trials of Tazemetostat
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Tazemetotat monotherapy
Metastatic or locally advanced
Hainan/Macau
N/A – Hainan
Approved; Launched in 2022
N/A
epithelioid sarcoma;
Relapsed/refractory 3L+
follicular lymphoma
Pilot Zone,
and 2023, respectively
Macau
Tazemetotat monotherapy
Relapsed/refractory 3L+ follicular
China
II
Fully enrolled; NDA filing
NCT05467943
lymphoma
registration-
expected in late-2024
Tazemetostat +lenalidomide +
SYMPHONY-1: 2L follicular lymphoma
Global
Ib/III
Ongoing: PhIb data at ASH
NCT04224493
rituximab (R2)
intent
(bridging)
2022; China portion of global
Phase III trial started in the
second half of 2022
Lung squamous (7-15%)
H&N squamous (10-17%)
Esophageal squamous (9%) Myeloproliferative syndrome (n/a)
Breast (10-15%)
Gastric (5-10%)
Breast (5-10%)
Bladder (3%)
Salivary adenoid cystic (n/a) Lung squamous (3%)
Glioblastoma (3-7%)
Breast (1%)
Myeloma (15-20%)
Breast (n/a)
Intra-hepatic biliary tract cancer (14%) Endometrial (12-14%)
Breast (n/a)
Lung squamous (5%)
Bladder (3-6%)
Tazemetostat + amdizalisib
Relapsed/refractory lymphoma
China
II
Ongoing since February 2023 NCT05713110
Source: M. Touat et al., “Targeting FGFR Signaling in Cancer,” Clinical Cancer Research (2015); 21(12); 2684-94.
Notes:
H&N = head and neck; NMIBC = non-muscle invasive bladder cancer; MIBC = muscle invasive bladder cancer; and n/a = data not available.
102
103
HUTCHMED (China) Limited 2023 Annual Report 263
Gastric (4%)
Pilocytic astrocytoma (5-8%)
FGFR1
FGFR2
FGFR3
Lung squamous (n/a)
Glioblastoma (n/a)
Bladder (60-80% NMIBC; 15-20% MIBC)
Cervical (5%)
HMPL-453 Research Background
Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (NCT05173142)
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
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.
7. 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 has been studied in clinical trials with around 500 patients to date. We currently retains all rights
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.
to amdizalisib worldwide.
Mechanism of Action
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.
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.
HMPL-453 Clinical Development
The table below shows a summary of our clinical trials for HMPL-453.
Clinical Trials of HMPL-453
The high efficacy and successful approvals of Bruton’s tyrosine kinase, or BTK, inhibitors and PI3Kδ inhibitors are evidence
that modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies.
Class I phosphatidylinositide-3-kinases, or PI3Ks, are lipid kinases that, through a series of intermediate processes, control
the activation of several important signaling proteins including the serine/threonine kinase AKT.
Treatment
HMPL-453 monotherapy
Trial Name, Patient Focus
Sites
2L Cholangiocarcinoma (IHCC with
FGFR fusion)
China
Phase
II
Status/Plan
NCT #
Results presented at ASCO
2023; registration cohort
enrolling since March 2023
NCT04353375
HMPL-453 + chemotherapies
HMPL-453 + Tuoyi (PD-1)
Multiple
Multiple
China
China
I/II
I/II
Ongoing since 2022
Ongoing since 2022
NCT05173142
NCT05173142
cascade.
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
Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375)
This is an open-label, single-arm Phase II study to evaluate the efficacy and safety of HMPL-453 in the treatment of patients
with advanced IHCC harboring FGFR2 fusions/rearrangements after at least one line of systemic treatment failure or
intolerance. Results from 25 patients treated with two different dosing regimens were presented at the ASCO 2023 annual
meeting, supporting the choice of the recommended Phase II dose of 300mg oral QD (ORR of 50%). After consultation with the
CDE, a monotherapy registration trial design was agreed with ORR as primary endpoint, and the first patient was enrolled in
March 2023.
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.
HMPL
689
Zydelig
Copiktra
Aliqopa
0.8 (n = 3)
‑‑
114 (142x)
2
1
0.7
104 (52x)
2 (2x)
6.4 (9x)
>1,000 (>1,250x) 866 (433x) 143 (143x) 0.5 (1x)
3
87 (109x)
14
15
293 (147x) 8 (8x)
n/a
3.7 (5x)
264
104
105
HMPL-453 Research Background
Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors (NCT05173142)
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
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.
7. 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 has been studied in clinical trials with around 500 patients to date. We currently retains all rights
to amdizalisib worldwide.
correlated with target inhibition in tumor models with abnormal FGFR activation.
Mechanism of Action
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.
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.
HMPL-453 Clinical Development
The table below shows a summary of our clinical trials for HMPL-453.
Clinical Trials of HMPL-453
The high efficacy and successful approvals of Bruton’s tyrosine kinase, or BTK, inhibitors and PI3Kδ inhibitors are evidence
that modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies.
Class I phosphatidylinositide-3-kinases, or PI3Ks, are lipid kinases that, through a series of intermediate processes, control
the activation of several important signaling proteins including the serine/threonine kinase AKT.
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
HMPL-453 monotherapy
2L Cholangiocarcinoma (IHCC with
China
II
Results presented at ASCO
NCT04353375
FGFR fusion)
2023; registration cohort
enrolling since March 2023
HMPL-453 + chemotherapies
HMPL-453 + Tuoyi (PD-1)
Multiple
Multiple
China
China
I/II
I/II
Ongoing since 2022
Ongoing since 2022
NCT05173142
NCT05173142
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.
Phase II HMPL-453 monotherapy in advanced IHCC (NCT04353375)
This is an open-label, single-arm Phase II study to evaluate the efficacy and safety of HMPL-453 in the treatment of patients
with advanced IHCC harboring FGFR2 fusions/rearrangements after at least one line of systemic treatment failure or
intolerance. Results from 25 patients treated with two different dosing regimens were presented at the ASCO 2023 annual
meeting, supporting the choice of the recommended Phase II dose of 300mg oral QD (ORR of 50%). After consultation with the
CDE, a monotherapy registration trial design was agreed with ORR as primary endpoint, and the first patient was enrolled in
March 2023.
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.
HMPL
689
Zydelig
Copiktra
Aliqopa
0.8 (n = 3)
‑‑
114 (142x)
2
6.4 (9x)
>1,000 (>1,250x) 866 (433x) 143 (143x) 0.5 (1x)
104 (52x)
1
2 (2x)
0.7
3
87 (109x)
14
293 (147x) 8 (8x)
15
n/a
3.7 (5x)
104
105
HUTCHMED (China) Limited 2023 Annual Report 265
Amdizalisib Clinical Development
HMPL-306 Clinical Development
The table below shows a summary of the clinical studies for amdizalisib.
The table below shows a summary of our clinical trials for HMPL-306.
Clinical Trials of Amdizalisib
Clinical Trials of HMPL-306
Treatment
Amdizalisib monotherapy
Trial Name, Patient Focus
3L Relapsed/refractory follicular
lymphoma
Sites
China
Amdizalisib monotherapy
2L Relapsed/refractory marginal zone
lymphoma
China
Amdizalisib monotherapy
Indolent non-Hodgkin’s lymphoma
PTCL
China
Phase
II
registration-
intent
II
registration-
intent
Ib
Status/Plan
Met primary endpoint;
Breakthrough Therapy
Designation
NCT #
NCT04849351
Ongoing since April 2021
NCT04849351
Completed; Updated data
presented at ICML 2023
NCT03128164
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
HMPL-306 monotherapy
Myeloid hematological malignancies
China
Dose escalation data
NCT04272957
HMPL-306 monotherapy
Solid tumors including but not limited
U.S.
Ongoing since 2021
NCT04762602
to gliomas, chondrosarcomas or
cholangiocarcinomas
HMPL-306 monotherapy
Hematological malignancies
U.S.
Ongoing since 2021
NCT04764474
presented at EHA 2023;
registration Phase III study
planned in 2024
I
I
I
II registration-intent study of amdizalisib
Phase
relapsed/refractory marginal zone lymphoma in China (NCT04849351)
in patients with relapsed/refractory
follicular
lymphoma and
Phase I HMPL-306 monotherapy in hematological malignancies (NCT04272957)
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 has fully enrolled the follicular lymphoma cohort and the
marginal zone lymphoma cohort enrollment is ongoing. In the follicular lymphoma cohort, the primary endpoint of ORR met
its pre-specified threshold of demonstrating a clinically meaningful and a significant increase in ORR in this setting. However,
in view of the changing regulatory landscape, we are currently evaluating the clinical development plan and regulatory
guidance before deciding the regulatory strategy for this indication.
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. Updated safety data as well as efficacy data were reported at
ICML in June 2023. At median follow-up duration of 22.1 months, median DoR and PFS were not reached for the 26 efficacy
evaluable patients in the follicular lymphoma cohort. For the marginal zone lymphoma cohort of 16 efficacy evaluable patients,
at median follow-up duration of 20.3 months, median DoR was not reached and median PFS was 26.8 months. Amdizalisib
showed an acceptable safety profile and promising anti-tumor activity in relapsed/refractory lymphoma.
8. HMPL-306, IDH1 and 2 Inhibitor
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.
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 (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 provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance
to IDH inhibition through isoform switching.
This is a two-phase, open-label Phase I study to evaluate the safety, pharmacokinetics, pharmacodynamics and efficacy of
HMPL
306 in patients of relapsed or refractory hematological malignancies harboring IDH1 and/or IDH2 mutations. The dose
escalation phase of the study is completed. The first-in-human dose-escalation phase data was presented at EHA Annual
Meeting in June 2023 with ORR of 45-50%. Based on the pharmacodynamic, pharmacokinetic and preliminary clinical findings,
‑
a recommended Phase II dose was determined for the dose expansion phase of the study.
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 CLL patients with or without a prior regimen
containing a BTK inhibitor. We currently retain all rights to HMPL-760 worldwide.
9. HMPL-760, BTK Inhibitor
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 Development
The table below shows a summary of our clinical trial of HMPL-760.
Clinical Trial of HMPL-760
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
HMPL-760 monotherapy
CLL, SLL, other B-NHL
China
I
Ongoing since January
NCT05190068
2022; RP2D determined:
dose expansion ongoing
10. HMPL-295, ERK Inhibitor
HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a
downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in
discovery addressing the MAPK pathway. We currently retain all rights to HMPL-295 worldwide.
266
106
107
Amdizalisib Clinical Development
HMPL-306 Clinical Development
The table below shows a summary of the clinical studies for amdizalisib.
The table below shows a summary of our clinical trials for HMPL-306.
Clinical Trials of Amdizalisib
Clinical Trials of HMPL-306
Treatment
Trial Name, Patient Focus
Sites
Phase
Status/Plan
NCT #
Amdizalisib monotherapy
3L Relapsed/refractory follicular
China
Met primary endpoint;
NCT04849351
Treatment
HMPL-306 monotherapy
Trial Name, Patient Focus
Sites
Myeloid hematological malignancies
China
Phase
I
Status/Plan
Dose escalation data
NCT #
NCT04272957
Amdizalisib monotherapy
2L Relapsed/refractory marginal zone
China
Ongoing since April 2021
NCT04849351
Amdizalisib monotherapy
Indolent non-Hodgkin’s lymphoma
China
Ib
Completed; Updated data
NCT03128164
presented at ICML 2023
HMPL-306 monotherapy
Hematological malignancies
U.S.
HMPL-306 monotherapy
Solid tumors including but not limited
to gliomas, chondrosarcomas or
cholangiocarcinomas
U.S.
Phase
II registration-intent study of amdizalisib
in patients with relapsed/refractory
follicular
lymphoma and
Phase I HMPL-306 monotherapy in hematological malignancies (NCT04272957)
relapsed/refractory marginal zone lymphoma in China (NCT04849351)
presented at EHA 2023;
registration Phase III study
planned in 2024
Ongoing since 2021
NCT04762602
Ongoing since 2021
NCT04764474
I
I
lymphoma
lymphoma
PTCL
registration-
Breakthrough Therapy
intent
Designation
II
II
registration-
intent
This is a two-phase, open-label Phase I study to evaluate the safety, pharmacokinetics, pharmacodynamics and efficacy of
HMPL
306 in patients of relapsed or refractory hematological malignancies harboring IDH1 and/or IDH2 mutations. The dose
escalation phase of the study is completed. The first-in-human dose-escalation phase data was presented at EHA Annual
Meeting in June 2023 with ORR of 45-50%. Based on the pharmacodynamic, pharmacokinetic and preliminary clinical findings,
a recommended Phase II dose was determined for the dose expansion phase of the study.
‑
9. HMPL-760, BTK Inhibitor
HMPL-760 is an investigational, non-covalent, third generation BTK inhibitor. It is a highly potent, selective, and reversible
inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK. China phase I studies opened
in early 2022 will include relapsed or refractory B-cell non-Hodgkin’s lymphoma or CLL patients with or without a prior regimen
containing a BTK inhibitor. We currently retain all rights to HMPL-760 worldwide.
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-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
HMPL-760 Clinical Development
The table below shows a summary of our clinical trial of HMPL-760.
Clinical Trial of HMPL-760
Treatment
HMPL-760 monotherapy
Trial Name, Patient Focus
Sites
CLL, SLL, other B-NHL
China
Phase
I
Status/Plan
NCT #
Ongoing since January
NCT05190068
2022; RP2D determined:
dose expansion ongoing
10. HMPL-295, ERK Inhibitor
HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a
downstream component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in
discovery addressing the MAPK pathway. We currently retain all rights to HMPL-295 worldwide.
106
107
HUTCHMED (China) Limited 2023 Annual Report 267
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 has fully enrolled the follicular lymphoma cohort and the
marginal zone lymphoma cohort enrollment is ongoing. In the follicular lymphoma cohort, the primary endpoint of ORR met
its pre-specified threshold of demonstrating a clinically meaningful and a significant increase in ORR in this setting. However,
in view of the changing regulatory landscape, we are currently evaluating the clinical development plan and regulatory
guidance before deciding the regulatory strategy for this indication.
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. Updated safety data as well as efficacy data were reported at
ICML in June 2023. At median follow-up duration of 22.1 months, median DoR and PFS were not reached for the 26 efficacy
evaluable patients in the follicular lymphoma cohort. For the marginal zone lymphoma cohort of 16 efficacy evaluable patients,
at median follow-up duration of 20.3 months, median DoR was not reached and median PFS was 26.8 months. Amdizalisib
showed an acceptable safety profile and promising anti-tumor activity in relapsed/refractory lymphoma.
8. HMPL-306, IDH1 and 2 Inhibitor
currently retain all rights to HMPL-306 worldwide.
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 (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 provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance
to IDH inhibition through isoform switching.
Mechanism of Action
RAS-MAPK pathway is dysregulated in cancer, in which mutations or nongenetic events hyper-activate the pathway in up
to 50% 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. ERK inhibition has the potential to overcome or avoid the intrinsic or acquired resistance from the inhibition
of RAS, RAF and MEK upstream mechanisms. Safety and efficacy results on 22 patients with advanced solid tumors were
reported during ESMO Asia 2023.
HMPL-295 Clinical Development
The table below shows a summary of our clinical trial for HMPL-295.
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. 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. We currently retain all rights to HMPL-A83 worldwide.
Clinical Trial of HMPL-295
HMPL-A83 Clinical Development
Treatment
HMPL-295 monotherapy
Trial Name, Patient Focus
Solid tumors
Sites
China
Phase
I
Status/Plan
Ongoing since 2021; data at
ESMO Asia 2023
NCT #
NCT04908046
The table below shows a summary of our clinical trial of HMPL-A83.
Clinical Trial of HMPL-A83
We initiated our Phase I development in China in July 2021. This is a multi-center and open-label study to evaluate the
safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-295, and to determine the maximum tolerated
dose and RP2D in patients with advanced malignant solid tumors.
11. HMPL-653, CSF-1R Inhibitor
HMPL-653 is an investigational novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors
as a monotherapy or in combination with other drugs. We initiated a China Phase I study in Janurary 2022. We currently retain
all rights to HMPL-653 worldwide.
Mechanism of Action
CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages.
Studies have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment,
relieve tumor immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to
achieve tumor inhibition. It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial
giant cell tumors and treat a variety of malignancies combined with immuno-oncology or other therapeutic agents. Currently
no CSF-1R inhibitor has been approved in China.
HMPL-653 Clinical Development
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 & tenosynovial giant cell
tumors
Sites
China
Phase
I
Status/Plan
Ongoing since 2022, ~110
patients expected to be
enrolled
NCT #
NCT05190068
Treatment
Trial Name, Patient Focus
HMPL-A83 monotherapy
Advanced malignant neoplasms
Sites
China
Phase
I
Status/Plan
NCT #
Ongoing since July 2022
NCT05429008
13. HMPL-415, SHP2 Allosteric Inhibitor
HMPL-415 is a novel SHP2 allosteric inhibitor. A China Phase I study was initiated in July 2023. We currently retain all rights
to HMPL-415 worldwide. SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously expressed mainly in the cytoplasm
of several tissues. SHP2 modulates diverse cell signaling events that control metabolism, cell growth, differentiation, cell
migration, transcription and oncogenic transformation. It interacts with diverse molecules in the cell, and regulates key
signaling events including RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways downstream of several receptor tyrosine kinases
(RTKs) upon stimulation by growth factors and cytokines. This is the second of multiple candidates to have emerged from our
discovery research that targets this pathway, the first being HMPL-295. Dysregulation of SHP2 expression or activity causes
many developmental diseases, and hematological and solid tumors.
HMPL-415 Clinical Development
The table below shows a summary of our clinical trial of HMPL-415.
Clinical Trial of HMPL-415
Treatment
Name, Line, Patient Focus
Sites
Phase
Status/Plan
NCT #
HMPL-415 monotherapy
Solid tumors
China
I
Ongoing since 2023
NCT05886374
268
108
109
to targeted therapies, and decrease the response to the approved standards of care, namely, targeted therapy and
12. HMPL-A83, IgG4-type Humanized Anti-CD47 Monoclonal Antibody
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.
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
A83 demonstrated a high affinity for CD47
use to shield themselves from the immune system. In preclinical studies, HMPL
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. We currently retain all rights to HMPL-A83 worldwide.
‑
Clinical Trial of HMPL-295
HMPL-A83 Clinical Development
Treatment
Trial Name, Patient Focus
HMPL-295 monotherapy
Solid tumors
Sites
China
Phase
I
Status/Plan
NCT #
Ongoing since 2021; data at
NCT04908046
ESMO Asia 2023
The table below shows a summary of our clinical trial of HMPL-A83.
Clinical Trial of HMPL-A83
Treatment
HMPL-A83 monotherapy
Trial Name, Patient Focus
Advanced malignant neoplasms
Sites
China
Phase
I
Status/Plan
Ongoing since July 2022
NCT #
NCT05429008
13. HMPL-415, SHP2 Allosteric Inhibitor
HMPL-415 is a novel SHP2 allosteric inhibitor. A China Phase I study was initiated in July 2023. We currently retain all rights
to HMPL-415 worldwide. SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously expressed mainly in the cytoplasm
of several tissues. SHP2 modulates diverse cell signaling events that control metabolism, cell growth, differentiation, cell
migration, transcription and oncogenic transformation. It interacts with diverse molecules in the cell, and regulates key
signaling events including RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways downstream of several receptor tyrosine kinases
(RTKs) upon stimulation by growth factors and cytokines. This is the second of multiple candidates to have emerged from our
discovery research that targets this pathway, the first being HMPL-295. Dysregulation of SHP2 expression or activity causes
many developmental diseases, and hematological and solid tumors.
HMPL-415 Clinical Development
The table below shows a summary of our clinical trial of HMPL-415.
Clinical Trial of HMPL-415
Treatment
HMPL-415 monotherapy
Name, Line, Patient Focus
Sites
Solid tumors
China
Phase
I
Status/Plan
Ongoing since 2023
NCT #
NCT05886374
Mechanism of Action
RAS-MAPK pathway is dysregulated in cancer, in which mutations or nongenetic events hyper-activate the pathway in up
to 50% of cancers. RAS and RAF mutations predict worse clinical prognosis in a wide variety of tumor types, mediate resistance
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. Safety and efficacy results on 22 patients with advanced solid tumors were
reported during ESMO Asia 2023.
HMPL-295 Clinical Development
The table below shows a summary of our clinical trial for HMPL-295.
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.
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 initiated a China Phase I study in Janurary 2022. We currently retain
11. HMPL-653, CSF-1R Inhibitor
all rights to HMPL-653 worldwide.
Mechanism of Action
CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages.
Studies have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment,
relieve tumor immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to
achieve tumor inhibition. It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial
giant cell tumors and treat a variety of malignancies combined with immuno-oncology or other therapeutic agents. Currently
no CSF-1R inhibitor has been approved in China.
HMPL-653 Clinical Development
The table below shows a summary of our clinical trial of HMPL-653.
Clinical Trial of HMPL-653
Treatment
Trial Name, Patient Focus
Sites
HMPL-653 monotherapy
Solid tumors & tenosynovial giant cell
China
Phase
I
Status/Plan
NCT #
Ongoing since 2022, ~110
NCT05190068
tumors
patients expected to be
enrolled
108
109
HUTCHMED (China) Limited 2023 Annual Report 269
14. Immunology Collaboration with Inmagene
chemical structures deliberately engineered to improve drug exposure in the targeted tissue; and
We have a strategic partnership with Inmagene, a clinical development stage company with a focus on immunological
diseases, to further develop four novel preclinical drug candidates we discovered for the potential treatment of multiple
immunological diseases. Funded by Inmagene, we worked together to move two drug candidates towards cinica trias.
Inmagene advanced the drug candidates through goba cinica deveopment. In October 22, Inmagene issued a notice to
exercise its options to icense these two drug candidates, and the parties entered into a share subscription agreement in
February 22, which, subject to customary cosing conditions, entites us to receive for common shares representing
approximatey .% of the shares (fuy diuted) in Inmagene as consideration for the exercise of the options. Foowing receipt
of the shares, Inmagene wi be granted an excusive icense to further deveop, manufacture and commerciaize these two drug
candidates wordwide. For more details on the collaboration arrangement, please see “—Our Collaborations—Inmagene.”
The table below shows a summary of the clinical trials led by Inmagene on IMG-007 and IMG-004.
Treatment
IMG-007 (OX40 antibody)
IMG-007 (OX40 antibody)
IMG-007 (OX40 antibody)
Name, Line, Patient Focus
Adults with alopecia areata
with 50% or greater scalp
hair loss
Adults with moderate to
severe atopic dermatitis
Adult healthy volunteers
IMG-004 (BTK inhibitor)
Adult healthy volunteers
Sites
Global
Phase
IIa
Global
Australia
Global
IIa
I
I
Status/Plan
First patient dosed
in October 2023
First patient dosed
in August 2023
Single ascending
dose completed
Single ascending
dose completed
NCT #
NCT06060977
NCT05984784
NCT05353972
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. Phase I study in healthy volunteers demonstrated that up to 600 mg of IMG-007 was safe and well-tolerated,
with no reports of pyrexia or chills, which were common adverse events of rocatinlimab, another OX40 antibody treatment. At
projected therapeutic dose levels, IMG-007 demonstrated a mean terminal half-life of 31-37 days. The long half-life combined
with a potentially improved safety profile supports IMG-007’s best-in-class potential as an OX40 targeted therapy.
Two global, proof-of-concept Phase IIa trials are ongoing. One trial evaluates the safety, pharmacokinetics and efficacy
(EASI at week 12) of IMG-007 in moderate-to-severe atopic dermatitis. Patients received intravenous IMG-007 three times over
four weeks. The first patient was dosed in August 2023 and Inmagene expects interim data readout in the third quarter of 2024.
Another Phase II trial evaluates the safety of IMG-007 in adults with alopecia areata with SALT score ≥ 50. They will be given
three doses over four weeks. First patient was dosed in October 2023 and Inmagene expects interim data readout in the third
quarter of 2024.
IMG-004 in immunological diseases – This is a small molecule inhibitor that binds to BTK in a non-covalent, reversible
manner. Designed specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004
is potent, highly selective and brain permeable. A Phase I single ascending dose study in healthy volunteers in the U.S., initiated
in August 2022, has recently completed. It showed that IMG 004 was safe and well-tolerated with a long half-life and sustained
pharmacodynamic effects, supporting further clinical development. Results will be submitted to an upcoming medical
conference.
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-
AstraZeneca Agreement.
based toxicity;
270
110
111
•
•
chemotherapies.
ability to be combined with other therapeutic agents, including targeted therapies, immunotherapies and
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 and Takeda). 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 or assist the engagement with
regulatory authorities up to and including filing the NDAs. 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 $633.5 million mainly from our collaborations with AstraZeneca, Eli Lilly and Takeda as of December 31, 2023.
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 with drug candidates
belonging to companies such as BeiGene. 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
14. Immunology Collaboration with Inmagene
We have a strategic partnership with Inmagene, a clinical development stage company with a focus on immunological
diseases, to further develop four novel preclinical drug candidates we discovered for the potential treatment of multiple
immunological diseases. Funded by Inmagene, we worked together to move two drug candidates towards cinica trias.
Inmagene advanced the drug candidates through goba cinica deveopment. In October 22, Inmagene issued a notice to
exercise its options to icense these two drug candidates, and the parties entered into a share subscription agreement in
February 22, which, subject to customary cosing conditions, entites us to receive for common shares representing
approximatey .% of the shares (fuy diuted) in Inmagene as consideration for the exercise of the options. Foowing receipt
of the shares, Inmagene wi be granted an excusive icense to further deveop, manufacture and commerciaize these two drug
candidates wordwide. For more details on the collaboration arrangement, please see “—Our Collaborations—Inmagene.”
The table below shows a summary of the clinical trials led by Inmagene on IMG-007 and IMG-004.
Treatment
IMG-007 (OX40 antibody)
IMG-007 (OX40 antibody)
IMG-007 (OX40 antibody)
Name, Line, Patient Focus
Adults with alopecia areata
with 50% or greater scalp
hair loss
Adults with moderate to
severe atopic dermatitis
Adult healthy volunteers
IMG-004 (BTK inhibitor)
Adult healthy volunteers
Sites
Global
Phase
IIa
Status/Plan
First patient dosed
in October 2023
NCT #
NCT06060977
Global
IIa
First patient dosed
NCT05984784
Australia
Global
I
I
in August 2023
Single ascending
dose completed
Single ascending
dose completed
NCT05353972
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. Phase I study in healthy volunteers demonstrated that up to 600 mg of IMG-007 was safe and well-tolerated,
with no reports of pyrexia or chills, which were common adverse events of rocatinlimab, another OX40 antibody treatment. At
projected therapeutic dose levels, IMG-007 demonstrated a mean terminal half-life of 31-37 days. The long half-life combined
with a potentially improved safety profile supports IMG-007’s best-in-class potential as an OX40 targeted therapy.
Two global, proof-of-concept Phase IIa trials are ongoing. One trial evaluates the safety, pharmacokinetics and efficacy
(EASI at week 12) of IMG-007 in moderate-to-severe atopic dermatitis. Patients received intravenous IMG-007 three times over
four weeks. The first patient was dosed in August 2023 and Inmagene expects interim data readout in the third quarter of 2024.
Another Phase II trial evaluates the safety of IMG-007 in adults with alopecia areata with SALT score ≥ 50. They will be given
three doses over four weeks. First patient was dosed in October 2023 and Inmagene expects interim data readout in the third
quarter of 2024.
conference.
IMG-004 in immunological diseases – This is a small molecule inhibitor that binds to BTK in a non-covalent, reversible
manner. Designed specifically for inflammatory and autoimmune diseases that usually require long-term treatment, IMG-004
is potent, highly selective and brain permeable. A Phase I single ascending dose study in healthy volunteers in the U.S., initiated
in August 2022, has recently completed. It showed that IMG 004 was safe and well-tolerated with a long half-life and sustained
pharmacodynamic effects, supporting further clinical development. Results will be submitted to an upcoming medical
Our Research and Development Approach
Our core research and development philosophy is to take a holistic approach to the treatment of cancer and immunological
diseases, through multiple modalities and mechanisms, including targeted therapies, immunotherapies and other pathways.
A primary objective of our research efforts has been to develop next generation drug candidates with:
• unique selectivity to limit target-based toxicity;
• high potency to optimize the dose selection with the objective to lower the required dose and thereby limit compound-
based toxicity;
•
•
chemical structures deliberately engineered to improve drug exposure in the targeted tissue; and
ability to be combined with other therapeutic agents, including targeted therapies, immunotherapies and
chemotherapies.
We have built a drug discovery engine, with which we strive to create differentiated novel oncology and immunology
treatments with global potential. These include furthering both small molecule and biologic therapies which address aberrant
genetic drivers and cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints.
We design drug candidates with profiles that enable them to be used in innovative combinations with other therapies, such as
chemotherapy, immunotherapy and other targeted therapy in order to attack disease simultaneously through multiple
modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients.
We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations
will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating
high quality global first-in-class or best-in-class drug candidates requires 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 and Takeda). 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 or assist the engagement with
regulatory authorities up to and including filing the NDAs. 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 $633.5 million mainly from our collaborations with AstraZeneca, Eli Lilly and Takeda as of December 31, 2023.
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 with drug candidates
belonging to companies such as BeiGene. 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.
110
111
HUTCHMED (China) Limited 2023 Annual Report 271
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, 2023, we had received $64.9 million in milestone payments in
addition to approximately $86.2 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, 2023,
Eli Lilly had paid us $37.2 million in milestone payments in addition to approximately $68.5 million in reimbursements for
certain development costs.
We could potentially receive future milestone payments for the achievement of development and regulatory approval
milestones in China. Additionally, Eli Lilly is obligated to pay us tiered royalties from 15% to 20% annually on sales made of
fruquintinib in China and Hong Kong, the rate to be determined based upon the dollar amount of sales made for all products
in that year. Under the terms of our 2018 amendment, upon the first commercial launch of fruquintinib in China in a new life
cycle indication, these tiered royalties increased to 15% to 29%. Under the terms of our 2020 amendment, we and Eli Lilly share
gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated
total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments.
Under the terms of our 2018 amendment, we are entitled to determine and conduct future life cycle indication
development of fruquintinib in China beyond the three initial indications specified in the original Eli Lilly Agreement. After the
2018 amendment, we assumed responsibility for all development activities and costs for fruquintinib in China in new life cycle
indications, and we have the liberty to collaborate with third-parties to explore combination therapies of fruquintinib with
various immunotherapy agents. Under the terms of our 2020 amendment, we took over development and execution of all on-
the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China.
We are responsible in consultation with Eli Lilly for the supply of, and have the right to supply, all clinical and commercial
supplies for fruquintinib pursuant to an agreed strategy for manufacturing. For the term of the Eli Lilly Agreement, such supplies
will be provided by us at a transfer price that accounts for our cost of goods sold.
The Eli Lilly Agreement is terminable by either party for breach that is uncured. The Eli Lilly Agreement is also terminable
by Eli Lilly for convenience with 120 days’ prior written notice or if there is a major unexpected safety issue with respect to a
product. Termination by either us or Eli Lilly for any reason will have the effect of, among other things, terminating the
applicable licenses granted by us, and will obligate Eli Lilly to transfer to us all regulatory materials necessary for us to continue
development efforts for fruquintinib.
Takeda
In January 2023, we entered into a license agreement with a subsidiary of Takeda (the “Takeda Agreement”) to further the
global development, commercialization and manufacture of fruquintinib outside of China. We have received a $400 million
upfront payment and a $35 million milestone payments. We are eligible to receive up to additional $695 million potential
regulatory, development and commercial sales milestone payments, plus royalties on net sales. Takeda is solely responsible
for the development and commercialization of fruquintinib in all included territories.
Development and collaboration under this agreement are overseen by a joint steering committee that is comprised of an
equal number of representatives from each party. Takeda is responsible for the development, manufacturing and
commercialization activities with respect to fruquintinib in the included territories, other than the existing clinical trials of
fruquintinib as of the effectiveness of the Takeda Agreement, which we may continue or wind-down.
Subject to earlier termination, the Takeda Agreement will continue until the expiration of the last royalty term for the last
licensed product in the territory. The Takeda Agreement is terminable by Takeda after the first anniversary of the agreement
effectiveness for convenience by providing a written notice in advance. Additionally, either party can terminate the Takeda
Agreement for cause. Termination for convenience or for cause will have the effect of, among other things, terminating the
applicable licenses granted by us. Termination will have the effect of obligating Takeda to assign us all of its rights to title, and
interests in and to all clinical trial data, regulatory submissions and regulatory approvals related to fruquinitinib.
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.
272
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113
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, 2023, we had received $64.9 million in milestone payments in
addition to approximately $86.2 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, 2023,
Eli Lilly had paid us $37.2 million in milestone payments in addition to approximately $68.5 million in reimbursements for
certain development costs.
We could potentially receive future milestone payments for the achievement of development and regulatory approval
milestones in China. Additionally, Eli Lilly is obligated to pay us tiered royalties from 15% to 20% annually on sales made of
fruquintinib in China and Hong Kong, the rate to be determined based upon the dollar amount of sales made for all products
in that year. Under the terms of our 2018 amendment, upon the first commercial launch of fruquintinib in China in a new life
cycle indication, these tiered royalties increased to 15% to 29%. Under the terms of our 2020 amendment, we and Eli Lilly share
gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated
total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments.
Under the terms of our 2018 amendment, we are entitled to determine and conduct future life cycle indication
development of fruquintinib in China beyond the three initial indications specified in the original Eli Lilly Agreement. After the
2018 amendment, we assumed responsibility for all development activities and costs for fruquintinib in China in new life cycle
indications, and we have the liberty to collaborate with third-parties to explore combination therapies of fruquintinib with
various immunotherapy agents. Under the terms of our 2020 amendment, we took over development and execution of all on-
the-ground medical detailing, promotion and local and regional marketing activities for Elunate in China.
We are responsible in consultation with Eli Lilly for the supply of, and have the right to supply, all clinical and commercial
supplies for fruquintinib pursuant to an agreed strategy for manufacturing. For the term of the Eli Lilly Agreement, such supplies
will be provided by us at a transfer price that accounts for our cost of goods sold.
The Eli Lilly Agreement is terminable by either party for breach that is uncured. The Eli Lilly Agreement is also terminable
by Eli Lilly for convenience with 120 days’ prior written notice or if there is a major unexpected safety issue with respect to a
product. Termination by either us or Eli Lilly for any reason will have the effect of, among other things, terminating the
applicable licenses granted by us, and will obligate Eli Lilly to transfer to us all regulatory materials necessary for us to continue
development efforts for fruquintinib.
Takeda
In January 2023, we entered into a license agreement with a subsidiary of Takeda (the “Takeda Agreement”) to further the
global development, commercialization and manufacture of fruquintinib outside of China. We have received a $400 million
upfront payment and a $35 million milestone payments. We are eligible to receive up to additional $695 million potential
regulatory, development and commercial sales milestone payments, plus royalties on net sales. Takeda is solely responsible
for the development and commercialization of fruquintinib in all included territories.
Development and collaboration under this agreement are overseen by a joint steering committee that is comprised of an
equal number of representatives from each party. Takeda is responsible for the development, manufacturing and
commercialization activities with respect to fruquintinib in the included territories, other than the existing clinical trials of
fruquintinib as of the effectiveness of the Takeda Agreement, which we may continue or wind-down.
Subject to earlier termination, the Takeda Agreement will continue until the expiration of the last royalty term for the last
licensed product in the territory. The Takeda Agreement is terminable by Takeda after the first anniversary of the agreement
effectiveness for convenience by providing a written notice in advance. Additionally, either party can terminate the Takeda
Agreement for cause. Termination for convenience or for cause will have the effect of, among other things, terminating the
applicable licenses granted by us. Termination will have the effect of obligating Takeda to assign us all of its rights to title, and
interests in and to all clinical trial data, regulatory submissions and regulatory approvals related to fruquinitinib.
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.
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HUTCHMED (China) Limited 2023 Annual Report 273
Inmagene
Shanghai Hutchison Pharmaceuticals
In January 2021, we and Inmagene entered into a strategic partnership to further develop four novel pre-clinical drug
candidates (the humanized OX40 (CD134) antagonistic monoclonal antibody (anti-OX40 mAB) (HMPL-A28), the BTK (Bruton
tyrosine kinase) inhibitor (HMPL-727), a RIPK1 (receptor-interacting protein kinase 1) inhibitor (HMPL-662) and a CSF-1R (colony
stimulating factor-1 receptor) inhibitor (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 $92.5 million and up to $135 million in
commercial milestones, as well as up to double-digit royalties upon commercialization. In October 2023, Inmagene issued
notices to exercise the options to two of the drug candidates; namely, HMPL-A28/IMG-007 and HMPL-727/IMG-004 and as a
consequence the parties entered into a Share Subscription Agreement in February 2024, which, subject to various customary
closing conditions, entitles HUTCHMED to receive common shares in Inmagene representing 7.5% of the fully diluted share
capital of Inmagene as consideration for the exercise of the options. Following receipt of such shares in Inmagene, Inmagene
will be granted an exclusive license to further develop, manufacture and commercialize these two drug candidates worldwide.
All of the rights of Inmagene under the strategic partnership in respect of the other two drug candidates, namely, HMPL-662
and HMPL-958 terminated and/or expired in March and September 2023 respectively.
Epizyme (A Subsidiary of Ipsen Pharma SAS)
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.
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.
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, 2023. 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, 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.
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 second largest botanical prescription drug in this
indication in China, with market share in January to December 2023 of 22.0% (2022: 21.0%) nationally. She Xiang Bao Xin pills’
sales represented 90% of all Shanghai Hutchison Pharmaceuticals sales in 2023.
She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 36 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 21 are included in the National Essential Medicines List, and two are in active production. The factory is
operated by about 560 manufacturing staff.
As of December 31, 2023, 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, 2023, Shanghai Hutchison Pharmaceuticals engaged a group of approximately 530
primary distributors to cover China. These primary distributors in turn used over 2,400 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, 2023,
Hutchison Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 1,000 third-party
prescription drug and other products directly to about 790 public and private hospitals in the Shanghai region and through a
network of approximately 125 distributors to cover all other provinces in China.
274
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115
Inmagene
Shanghai Hutchison Pharmaceuticals
In January 2021, we and Inmagene entered into a strategic partnership to further develop four novel pre-clinical drug
candidates (the humanized OX40 (CD134) antagonistic monoclonal antibody (anti-OX40 mAB) (HMPL-A28), the BTK (Bruton
tyrosine kinase) inhibitor (HMPL-727), a RIPK1 (receptor-interacting protein kinase 1) inhibitor (HMPL-662) and a CSF-1R (colony
stimulating factor-1 receptor) inhibitor (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 $92.5 million and up to $135 million in
commercial milestones, as well as up to double-digit royalties upon commercialization. In October 2023, Inmagene issued
notices to exercise the options to two of the drug candidates; namely, HMPL-A28/IMG-007 and HMPL-727/IMG-004 and as a
consequence the parties entered into a Share Subscription Agreement in February 2024, which, subject to various customary
closing conditions, entitles HUTCHMED to receive common shares in Inmagene representing 7.5% of the fully diluted share
capital of Inmagene as consideration for the exercise of the options. Following receipt of such shares in Inmagene, Inmagene
will be granted an exclusive license to further develop, manufacture and commercialize these two drug candidates worldwide.
All of the rights of Inmagene under the strategic partnership in respect of the other two drug candidates, namely, HMPL-662
and HMPL-958 terminated and/or expired in March and September 2023 respectively.
Epizyme (A Subsidiary of Ipsen Pharma SAS)
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.
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.
Other Collaborations
In October and November 2018, we entered into multiple collaborations to evaluate combinations of fruquintinib and
surufatinib. These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Tyvyt and a
global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. In September 2019, we expanded our
global collaboration agreement with Innovent to evaluate the safety and efficacy of Tyvyt in combination with surufatinib.
Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns
in China with over 2,900 manufacturing and commercial personnel as of December 31, 2023. 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:
Other Ventures
114
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.
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 second largest botanical prescription drug in this
indication in China, with market share in January to December 2023 of 22.0% (2022: 21.0%) nationally. She Xiang Bao Xin pills’
sales represented 90% of all Shanghai Hutchison Pharmaceuticals sales in 2023.
She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 36 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 21 are included in the National Essential Medicines List, and two are in active production. The factory is
operated by about 560 manufacturing staff.
As of December 31, 2023, 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, 2023, Shanghai Hutchison Pharmaceuticals engaged a group of approximately 530
primary distributors to cover China. These primary distributors in turn used over 2,400 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, 2023,
Hutchison Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 1,000 third-party
prescription drug and other products directly to about 790 public and private hospitals in the Shanghai region and through a
network of approximately 125 distributors to cover all other provinces in China.
115
HUTCHMED (China) Limited 2023 Annual Report 275
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. Luye provided a bank guarantee of up to RMB286
million to cover the final award pending the outcome of the appeal process. 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 obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing
in the Court of Appeal was heard on June 6, 2023 and we await the judgment. We did not have any revenue from the distribution
of Seroquel for the years ended December 31, 2021, 2022 and 2023.
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, 2023, this team had grown to approximately 930
commercial sales and marketing staff in mainland China and Hong Kong.
In 2023, a significant 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, 2023, Hutchison Sinopharm had over 920 customers of which
approximately 14% were distributors, and the revenue generated from these distributors accounted for approximately 35% of
the revenue of Hutchison Sinopharm for the year ended December 31, 2023.
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.
Oncology/Immunology Competition
Competition
The biotechnology and pharmaceutical industries are highly competitive. While we believe that our highly selective drug
candidates, experienced development team and chemistry-focused scientific approach provide us with competitive
advantages, we face potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies. Any drug candidates that we successfully develop and commercialize will
compete with existing drugs and/or new drugs that may become available in the future.
We compete in the segments of the pharmaceutical, biotechnology and other related markets that address inhibition of
key biological pathways in cancer and immunological diseases. There are other companies working to develop kinase inhibitors
and monoclonal antibodies as targeted therapies for cancer and immunological diseases. These companies include divisions
of large pharmaceutical companies and biotechnology companies of various sizes.
Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience in the discovery and development of drug candidates,
obtaining regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be
more successful than we may be in obtaining approval for drugs and achieving widespread market acceptance. Our
competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and
may render our drug candidates obsolete or non-competitive before we can recover the expenses of developing and
commercializing any of our drug candidates. We anticipate that we will face intense and increasing competition as new drugs
enter the market and advanced technologies become available.
Below is a summary of existing therapies and therapies currently under development that may become available in the
future which may compete with each of our clinical-stage drug candidates.
Savolitinib is the first selective MET inhibitor 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. 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. Glumetinib, bozitinib
and tepotinib were conditionally approved for MET exon 14 skipping NSCLC in China in 2023. Capmatinib’s NDA for MET exon
14 skipping NSCLC is currently being reviewed by NMPA. 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). 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).
Savolitinib
Fruquintinib
Approved VEGF inhibitors on the market for the treatment of CRC include Avastin (anti-VEGF monoclonal antibody),
Cyramza (anti-VEGFR2 monoclonal antibody), Stivarga (VEGFR/TIE2 inhibitor) and Zaltrap (ziv-aflibercept) (VEGF inhibitor).
Cyramza (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.
276
116
117
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
Oncology/Immunology Competition
Competition
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. Luye provided a bank guarantee of up to RMB286
million to cover the final award pending the outcome of the appeal process. 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 obtained leave to appeal the setting aside application to the Court of Appeal in Hong Kong and a hearing
in the Court of Appeal was heard on June 6, 2023 and we await the judgment. We did not have any revenue from the distribution
of Seroquel for the years ended December 31, 2021, 2022 and 2023.
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, 2023, this team had grown to approximately 930
commercial sales and marketing staff in mainland China and Hong Kong.
In 2023, a significant 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, 2023, Hutchison Sinopharm had over 920 customers of which
approximately 14% were distributors, and the revenue generated from these distributors accounted for approximately 35% of
the revenue of Hutchison Sinopharm for the year ended December 31, 2023.
Hutchison Healthcare
Shanghai Hutchison Pharmaceuticals.
facility operated by a third party.
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,
The majority of Hutchison Healthcare’s products are contract manufactured at a dedicated and certified manufacturing
The biotechnology and pharmaceutical industries are highly competitive. While we believe that our highly selective drug
candidates, experienced development team and chemistry-focused scientific approach provide us with competitive
advantages, we face potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies. Any drug candidates that we successfully develop and commercialize will
compete with existing drugs and/or new drugs that may become available in the future.
We compete in the segments of the pharmaceutical, biotechnology and other related markets that address inhibition of
key biological pathways in cancer and immunological diseases. There are other companies working to develop kinase inhibitors
and monoclonal antibodies as targeted therapies for cancer and immunological diseases. These companies include divisions
of large pharmaceutical companies and biotechnology companies of various sizes.
Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience in the discovery and development of drug candidates,
obtaining regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be
more successful than we may be in obtaining approval for drugs and achieving widespread market acceptance. Our
competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and
may render our drug candidates obsolete or non-competitive before we can recover the expenses of developing and
commercializing any of our drug candidates. We anticipate that we will face intense and increasing competition as new drugs
enter the market and advanced technologies become available.
Below is a summary of existing therapies and therapies currently under development that may become available in the
future which may compete with each of our clinical-stage drug candidates.
Savolitinib
Savolitinib is the first selective MET inhibitor 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. 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. Glumetinib, bozitinib
and tepotinib were conditionally approved for MET exon 14 skipping NSCLC in China in 2023. Capmatinib’s NDA for MET exon
14 skipping NSCLC is currently being reviewed by NMPA. 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). 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).
Fruquintinib
Approved VEGF inhibitors on the market for the treatment of CRC include Avastin (anti-VEGF monoclonal antibody),
Cyramza (anti-VEGFR2 monoclonal antibody), Stivarga (VEGFR/TIE2 inhibitor) and Zaltrap (ziv-aflibercept) (VEGF inhibitor).
Cyramza (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.
116
117
HUTCHMED (China) Limited 2023 Annual Report 277
Surufatinib
Amdizalisib
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.
Sovleplenib
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).
Tazemetostat
The most common treatments for follicular lymphoma are chemotherapies, usually combined with the monoclonal
antibody Rituxan, or Gazyva, which is an antibody that acts against the same target as Rituxan, CD20. While Rituxan and a
number of other widely used anti-cancer agents are labeled broadly for follicular lymphoma, no therapies are approved
specifically for the treatment of tumors associated with EZH2 activating mutations. There are a number of companies currently
evaluating investigational agents in the relapsed and refractory follicular lymphoma patient setting.
In the relapsed and refractory follicular lymphoma patient setting, both current and near-term competition exists. Current
competition includes CD20 combinations along with multiple PI3K inhibitors. Near term competition includes companies
currently evaluating investigational agents with varying mechanisms of action.
Other than tazemetostat, there are no therapies which have been approved specifically for the treatment of epithelioid
sarcoma. Epithelioid sarcoma, an INI1-negative tumor, is typically treated with surgical resection when it presents as localized
disease. When epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational
agents because, other than tazemetostat, there are no approved systemic therapies specifically indicated for this disease. To
the best of our knowledge there are no competitive products in development specifically for epithelioid sarcoma. However, we
are aware of several clinical trials run by competitors that recruit patients with soft tissue sarcoma, which is inclusive of
epithelioid sarcoma.
HMPL-453
Other Ventures Competition
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
HMPL-760
HMPL-295
agents.
HMPL-653
HMPL-A83
Currently there are two PI3K inhibitors approved and on the market outside of China. 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, duvelisib and linperlisib were approved for 3L+ follicular lymphoma in 2022 and copanlisib was approved for 3L+
follicular lymphoma in 2023. TQ-B3525’s NDA for 3L+ follicular lymphoma is currently being reviewed by NMPA. Linperlisib’s
NDA for peripheral T-cell lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ
are in clinical development for hematological cancers, including tenalisib (RP6530), duvelisib (peripheral T-cell lymphoma),
zandelisib (ME-401 discontinued outside of Japan), ACP 319, roginolisib (IOA-244) and BGB-10188.
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
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 pimicotinib (ABSK021), axatilimab, BLZ945, vimseltinib, AMB-05X, NMS-
03592088, ARRY-382, JNJ-40346527, emactuzumab, AMG820 and IMC-CS4.
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.
Our Other Ventures operations which focus on prescription drugs compete in the pharmaceutical industry in China, which
is highly competitive and is characterized by a number of established, large pharmaceutical companies, as well as some smaller
emerging pharmaceutical companies. This business faces competition from other pharmaceutical companies in China engaged
in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs.
The barrier to entry for the PRC pharmaceutical industry primarily relates to regulatory requirements in connection with
the production of pharmaceutical products and new product launches. The identities of the key competitors with respect to
our prescription drugs business vary by product, and, in certain cases, different competitors that have greater financial
resources than us may elect to focus these resources on developing, importing or in-licensing and marketing products in the
PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so.
278
118
119
Surufatinib
Amdizalisib
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.
Sovleplenib
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).
Tazemetostat
Currently there are two PI3K inhibitors approved and on the market outside of China. 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, duvelisib and linperlisib were approved for 3L+ follicular lymphoma in 2022 and copanlisib was approved for 3L+
follicular lymphoma in 2023. TQ-B3525’s NDA for 3L+ follicular lymphoma is currently being reviewed by NMPA. Linperlisib’s
NDA for peripheral T-cell lymphoma is currently being reviewed by NMPA. In addition, several drug candidates that inhibit PI3Kδ
are in clinical development for hematological cancers, including tenalisib (RP6530), duvelisib (peripheral T-cell lymphoma),
zandelisib (ME-401 discontinued outside of Japan), ACP 319, roginolisib (IOA-244) and BGB-10188.
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.
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
HMPL-295
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.
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.
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
HMPL-653
currently evaluating investigational agents with varying mechanisms of action.
Other than tazemetostat, there are no therapies which have been approved specifically for the treatment of epithelioid
sarcoma. Epithelioid sarcoma, an INI1-negative tumor, is typically treated with surgical resection when it presents as localized
disease. When epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational
agents because, other than tazemetostat, there are no approved systemic therapies specifically indicated for this disease. To
the best of our knowledge there are no competitive products in development specifically for epithelioid sarcoma. However, we
are aware of several clinical trials run by competitors that recruit patients with soft tissue sarcoma, which is inclusive of
epithelioid sarcoma.
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.
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 pimicotinib (ABSK021), 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.
Other Ventures Competition
Our Other Ventures operations which focus on prescription drugs compete in the pharmaceutical industry in China, which
is highly competitive and is characterized by a number of established, large pharmaceutical companies, as well as some smaller
emerging pharmaceutical companies. This business faces competition from other pharmaceutical companies in China engaged
in the development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs.
The barrier to entry for the PRC pharmaceutical industry primarily relates to regulatory requirements in connection with
the production of pharmaceutical products and new product launches. The identities of the key competitors with respect to
our prescription drugs business vary by product, and, in certain cases, different competitors that have greater financial
resources than us may elect to focus these resources on developing, importing or in-licensing and marketing products in the
PRC that are substitutes for our products and may have broader sales and marketing infrastructure with which to do so.
118
119
HUTCHMED (China) Limited 2023 Annual Report 279
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, enforcing our patents including any patent that have been issued or
may be issued that forms part of our patent portfolios, and operating without intentionally infringing valid and enforceable
patent and proprietary rights of other parties. We also rely on trade secrets, know-how, continuing technological innovation,
in-licensing and out-licensing opportunities to develop and strengthen 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 biologics, 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 drugs and drug candidates evolve. We file such patent applications
and pursue additional patent protection in major market jurisdictions, including but not limited to China, the United States,
Europe, Japan, Canada, South Korea, Russia, Australia, and Brazil.
Our Oncology/Immunology Patents
As of December 31, 2023, we had 274 issued patents, including 25 PRC patents, 24 U.S. patents and 13 European patents,
354 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 drugs and
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. With respect to any issued
patents, we may be entitled to obtain a patent term extension of up to 5 years, subject to statutory and regulatory requirements
to be met. For example, if and when a drug candidate receives approval by regulatory authority, such as FDA or NMPA, we can
apply for a patent term extension on one of the issued patents covering the drug. In the U.S., the exact duration of the extension
depends upon the time that we spend in clinical studies as well as getting approval from FDA. The expected expirations
summarized below do not include any additional terms for patent term extensions.
Savolitinib—The intellectual property portfolio for savolitinib as of December 31, 2023 are summarized below:
We had a first patent family for savolitinib directed to novel small molecule compounds as well as methods of treating
cancers with such compounds. In this patent family, we owned patents in various jusridictions, including patents in China, the
United States, Europe and Japan, each expiring in 2030. Based on NMPA approval of savolitinib, an application has been filed
with CNIPA for an extension of the Chinese patent term, which, if granted, would extend the Chinese patent term by up to five
We had a second patent family directed to the method for the preparation of savolitinib. In this patent family, we owned
patents in various jusridictions, including patents in China and Europe, each expiring in 2039. We also had patent applications
pending in this family in various jurisdictions, including patent applications in the United States 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
years.
savolitinib.
Fruquintinib—The intellectual property portfolio for fruquintinib as of December 31, 2023 are summarized below:
We had a first patent family for fruquintinib directed to novel small molecule compounds as well as methods of treating
tumor angiogenesis-related disorders with such compounds. In this patent family, we owned patents in various jurisdictions,
including patents in the United States and China expiring in 2028, and patents in Europe and Japan expiring in 2029.
We had a second patent family directed to crystalline forms of fruquintinib as well as methods of treating tumor
angiogenesis-related disorders with such forms. In this patent family, we owned patents in various jurisdictions, including
patents in the United States, China, Europe and Japan, each of which will expire in 2035.
We had a third patent family directed to the pharmaceutical composition of fruquintinib. In this patent family, we owned
patent in China expiring in 2039. We also had 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.
We also had a patent in China directed to the manufacturing process of fruquintinib.
Based on FDA approval of fruquintinib, applications have been filed with USPTO for an extension of the U.S. patent term,
which, if granted, would extend the US patent term by up to five years.
Our collaboration partner Takeda is responsible for maintains and enforcing the intellectual property portfolio for
fruquintinib outside of China.
Surufatinib—The intellectual property portfolio for surufatinib as of December 31, 2023 are summarized below:
We had a first patent family for surufatinib directed to novel small molecule compounds as well as methods of treating
tumor angiogenesis-related disorders with such compounds. In this patent family, we owned patents in various jurisdictions,
including patent in China expiring in 2027, patent in the United States expiring in 2031, and patents in Europe and Japan
expiring in 2028.
We had a second patent family directed to the compound and crystalline forms of surufatinib as well as methods of treating
tumor angiogenesis-related disorders with such compound and forms. In this patent family, we owned patents in various
jurisdictions, including two patents in China expiring in 2029 and 2030, respectively, patent in the United States expiring in
2031, and patent in Europe expiring in 2030. Based on NMPA approval of surufatinib, an application has been filed with CNIPA
for an extension of the Chinese patent term, which, if granted, would extend the Chinese patent term by up to five years.
We had a third patent family 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. In this patent family,
we owned patents in various jurisdictions, including patents in China, Europe and Japan, each of which will expire in 2036.
We had a fourth patent family directed to clinical indications of surufatinib. With respect to this patent family, we had a
patent in Japan expiring in 2036.
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We believe that we compete primarily on the basis of brand recognition, pricing, sales network, promotion activities,
Savolitinib—The intellectual property portfolio for savolitinib as of December 31, 2023 are summarized below:
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, enforcing our patents including any patent that have been issued or
may be issued that forms part of our patent portfolios, and operating without intentionally infringing valid and enforceable
patent and proprietary rights of other parties. We also rely on trade secrets, know-how, continuing technological innovation,
in-licensing and out-licensing opportunities to develop and strengthen 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 biologics, 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 drugs and drug candidates evolve. We file such patent applications
and pursue additional patent protection in major market jurisdictions, including but not limited to China, the United States,
Europe, Japan, Canada, South Korea, Russia, Australia, and Brazil.
Our Oncology/Immunology Patents
As of December 31, 2023, we had 274 issued patents, including 25 PRC patents, 24 U.S. patents and 13 European patents,
354 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 drugs and
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. With respect to any issued
patents, we may be entitled to obtain a patent term extension of up to 5 years, subject to statutory and regulatory requirements
to be met. For example, if and when a drug candidate receives approval by regulatory authority, such as FDA or NMPA, we can
apply for a patent term extension on one of the issued patents covering the drug. In the U.S., the exact duration of the extension
depends upon the time that we spend in clinical studies as well as getting approval from FDA. The expected expirations
summarized below do not include any additional terms for patent term extensions.
We had a first patent family for savolitinib directed to novel small molecule compounds as well as methods of treating
cancers with such compounds. In this patent family, we owned patents in various jusridictions, including patents in China, the
United States, Europe and Japan, each expiring in 2030. Based on NMPA approval of savolitinib, an application has been filed
with CNIPA for an extension of the Chinese patent term, which, if granted, would extend the Chinese patent term by up to five
years.
We had a second patent family directed to the method for the preparation of savolitinib. In this patent family, we owned
patents in various jusridictions, including patents in China and Europe, each expiring in 2039. We also had patent applications
pending in this family in various jurisdictions, including patent applications in the United States 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.
Fruquintinib—The intellectual property portfolio for fruquintinib as of December 31, 2023 are summarized below:
We had a first patent family for fruquintinib directed to novel small molecule compounds as well as methods of treating
tumor angiogenesis-related disorders with such compounds. In this patent family, we owned patents in various jurisdictions,
including patents in the United States and China expiring in 2028, and patents in Europe and Japan expiring in 2029.
We had a second patent family directed to crystalline forms of fruquintinib as well as methods of treating tumor
angiogenesis-related disorders with such forms. In this patent family, we owned patents in various jurisdictions, including
patents in the United States, China, Europe and Japan, each of which will expire in 2035.
We had a third patent family directed to the pharmaceutical composition of fruquintinib. In this patent family, we owned
patent in China expiring in 2039. We also had 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.
We also had a patent in China directed to the manufacturing process of fruquintinib.
Based on FDA approval of fruquintinib, applications have been filed with USPTO for an extension of the U.S. patent term,
which, if granted, would extend the US patent term by up to five years.
Our collaboration partner Takeda is responsible for maintains and enforcing the intellectual property portfolio for
fruquintinib outside of China.
Surufatinib—The intellectual property portfolio for surufatinib as of December 31, 2023 are summarized below:
We had a first patent family for surufatinib directed to novel small molecule compounds as well as methods of treating
tumor angiogenesis-related disorders with such compounds. In this patent family, we owned patents in various jurisdictions,
including patent in China expiring in 2027, patent in the United States expiring in 2031, and patents in Europe and Japan
expiring in 2028.
We had a second patent family directed to the compound and crystalline forms of surufatinib as well as methods of treating
tumor angiogenesis-related disorders with such compound and forms. In this patent family, we owned patents in various
jurisdictions, including two patents in China expiring in 2029 and 2030, respectively, patent in the United States expiring in
2031, and patent in Europe expiring in 2030. Based on NMPA approval of surufatinib, an application has been filed with CNIPA
for an extension of the Chinese patent term, which, if granted, would extend the Chinese patent term by up to five years.
We had a third patent family 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. In this patent family,
we owned patents in various jurisdictions, including patents in China, Europe and Japan, each of which will expire in 2036.
We had a fourth patent family directed to clinical indications of surufatinib. With respect to this patent family, we had a
patent in Japan expiring in 2036.
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HUTCHMED (China) Limited 2023 Annual Report 281
We had a fifth patent family directed to the pharmaceutical combinations of toripalimab and surufatinib. With respect to
this family, we had Chinese and 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.
We had a sixth patent family directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic
neuroendocrine tumors. With respect to this family, we had a patent application pending in the United States, which, if issued,
would have an expiration date in 2041.
We also had other patents/patent applications in China directed to the process, the formulation, and the therapeutic
diseases or auto-immune diseases with such compounds. In this family, we owned a patent in the United States, which will
combinations of surufatinib.
Sovleplenib—The intellectual property portfolio for sovleplenib as of December 31, 2023 are summarized below:
We had a first patent family 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. In this
patent family, we owned patents in various jurisdictions, including the United States, China, Europe and Japan, each of which
will expire in 2032.
We had a second patent family directed to the salts of sovleplenib as well as crystalline forms thereof. In this patent family,
we owned patents in various jurisdictions, including the United States and Japan, each of which will expire in 2038. We also had
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.
Tazemetostat—The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc.
We entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to develop, an
exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and
Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse
large B-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement. For more
details, please see “—Our Collaborations—Epizyme.”
HMPL-453—The intellectual property portfolio for HMPL-453 as of December 31, 2023 is summarized below:
We had a first patent family directed to novel small molecule compounds as well as methods of treating cancers with the
compounds. In this patent family, we owned patents in various jurisdictions, including China, Europe, Japan and the United
States, each of which will expire in 2034.
We had a second patent family directed to the salts of HMPL-453. In this patent family, we had 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.
Amdizalisib—The intellectual property portfolio for amdizalisib as of December 31, 2023 are summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers with the
compounds. In this patent family, we owned patents in various jurisdictions, including China, the United States and Japan,
each of which will expire in 2038. We also had patent applications pending in this patent family in various other jurisdictions,
including Europe, each of which, if issued, would have an expiration date in 2038.
HMPL-760—The intellectual property portfolio for HMPL-760 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, inflammatory
expire in 2041. We also had 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.
We also had patent applications directed to the method of preparing intermediates used in the manufacturing process of
HMPL-760.
HMPL-295—The intellectual property portfolio for HMPL-295 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers or auto-
immune diseases with such compounds. In this patent family, we had a patent in China expiring in 2040. We also had 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 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, inflammatory
diseases or auto-immune diseases with such compounds. In this patent family, we had a patent in China expiring in 2041. We
also had 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 as of December 31, 2023 is summarized below:
We had a first patent family directed to novel anti-CD47 antibodies as well as methods of treating cancers with such
antibodies. In this patent family, we had 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.
We had a second patent family directed to the formulation of HMPL-A83. In this patent family, we had PCT, Argentina
and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042.
HMPL-415—The intellectual property portfolio for HMPL-415 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, Noonan
Syndrome and LEOPARD Syndrome with such compounds. In this patent family, we had 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
We had a first patent family directed to novel small molecule compounds as well as uses of such compounds. In this patent
family, we owned patents in various jurisdictions, including the United States, Europe, China and Japan, each of which will
expire in 2035.
2042.
Other Ventures Patents
We had a second patent family directed to crystalline forms of amdizalisib. In this patent family, we had patents in various
jurisdictions, including the United States expiring in 2039. We also had 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.
As of December 31, 2023, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 87 patents in China, (ii) two patents
in Canada, one patent in the U.S. and one patent in Japan granted under the Patent Cooperation Treaty, and (iii) 41 pending
Chinese patent applications and ten 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.
We also had patent applications directed to the manufacturing process of amdizalisib.
HMPL-306—The intellectual property portfolio for HMPL-306 as of December 31, 2023 is summarized below:
282
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We had a fifth patent family directed to the pharmaceutical combinations of toripalimab and surufatinib. With respect to
this family, we had Chinese and 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.
We had a sixth patent family directed to methods of using surufatinib in treating advanced pancreatic and extra-pancreatic
would have an expiration date in 2041.
combinations of surufatinib.
We also had other patents/patent applications in China directed to the process, the formulation, and the therapeutic
Sovleplenib—The intellectual property portfolio for sovleplenib as of December 31, 2023 are summarized below:
inflammatory diseases, allergic diseases, cell-proliferative diseases, and immunological diseases with such compounds. In this
patent family, we owned patents in various jurisdictions, including the United States, China, Europe and Japan, each of which
will expire in 2032.
We had a second patent family directed to the salts of sovleplenib as well as crystalline forms thereof. In this patent family,
we owned patents in various jurisdictions, including the United States and Japan, each of which will expire in 2038. We also had
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.
Tazemetostat—The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc.
We entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to develop, an
exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and
Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse
large B-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement. For more
details, please see “—Our Collaborations—Epizyme.”
HMPL-453—The intellectual property portfolio for HMPL-453 as of December 31, 2023 is summarized below:
We had a first patent family directed to novel small molecule compounds as well as methods of treating cancers with the
compounds. In this patent family, we owned patents in various jurisdictions, including China, Europe, Japan and the United
States, each of which will expire in 2034.
We had a second patent family directed to the salts of HMPL-453. In this patent family, we had patent applications pending
in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would have an expiration
Amdizalisib—The intellectual property portfolio for amdizalisib as of December 31, 2023 are summarized below:
We had a first patent family directed to novel small molecule compounds as well as uses of such compounds. In this patent
family, we owned patents in various jurisdictions, including the United States, Europe, China and Japan, each of which will
date in 2040.
expire in 2035.
2039.
We also had patent applications directed to the manufacturing process of amdizalisib.
HMPL-306—The intellectual property portfolio for HMPL-306 as of December 31, 2023 is summarized below:
neuroendocrine tumors. With respect to this family, we had a patent application pending in the United States, which, if issued,
HMPL-760—The intellectual property portfolio for HMPL-760 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers with the
compounds. In this patent family, we owned patents in various jurisdictions, including China, the United States and Japan,
each of which will expire in 2038. We also had patent applications pending in this patent family in various other jurisdictions,
including Europe, each of which, if issued, would have an expiration date in 2038.
We had a first patent family directed to novel small molecule compounds as well as methods of treating cancers,
HMPL-760.
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, inflammatory
diseases or auto-immune diseases with such compounds. In this family, we owned a patent in the United States, which will
expire in 2041. We also had 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.
We also had patent applications directed to the method of preparing intermediates used in the manufacturing process of
HMPL-295—The intellectual property portfolio for HMPL-295 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers or auto-
immune diseases with such compounds. In this patent family, we had a patent in China expiring in 2040. We also had 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 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, inflammatory
diseases or auto-immune diseases with such compounds. In this patent family, we had a patent in China expiring in 2041. We
also had 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 as of December 31, 2023 is summarized below:
We had a first patent family directed to novel anti-CD47 antibodies as well as methods of treating cancers with such
antibodies. In this patent family, we had 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.
We had a second patent family directed to the formulation of HMPL-A83. In this patent family, we had PCT, Argentina
and Taiwan applications pending, each of which, if issued, would have an expiration date in 2042.
HMPL-415—The intellectual property portfolio for HMPL-415 as of December 31, 2023 is summarized below:
We had a patent family directed to novel small molecule compounds as well as methods of treating cancers, Noonan
Syndrome and LEOPARD Syndrome with such compounds. In this patent family, we had 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
2042.
Other Ventures Patents
We had a second patent family directed to crystalline forms of amdizalisib. In this patent family, we had patents in various
jurisdictions, including the United States expiring in 2039. We also had 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
As of December 31, 2023, our joint venture Shanghai Hutchison Pharmaceuticals had (i) 87 patents in China, (ii) two patents
in Canada, one patent in the U.S. and one patent in Japan granted under the Patent Cooperation Treaty, and (iii) 41 pending
Chinese patent applications and ten 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.
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She Xiang Bao Xin Pills. As of December 31, 2023, 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, 2023, Shanghai Hutchison Pharmaceuticals also held an invention patent in China
directed to the formulation of the Danning tablet. This patent will expire in 2027.
Patent Term
The term of a patent depends upon the laws of the country in which it is issued. In most jurisdictions, a patent term is 20
years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be
lengthened in some cases by patent term adjustment, which compensates a patentee for administrative delays by the USPTO
in excess of a patent applicant’s own delays during the prosecution process, or may be shortened if a patent is terminally
disclaimed over an earlier filed, commonly owned patent. In addition, 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. However, the extension shall not exceed five years and the resulting total effective patent term shall not
exceed 14 years from the FDA approval. 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. In China, the amended PRC Patent Law provides for both patent
term adjustment and patent term extension, similar to the United States. 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.
Similar extensions as compensation for regulatory delays are available in certain foreign jurisdictions. The actual
protection afforded by a patent varies on a claim by claim and country by country basis an depends upon many factors,
including the type of patent, the scope of its coverage, the availability of any patent term extensions or adjustments, the
availability of legal remedies in a particular country and the validity and enforceability of the patent.
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, Europe, Japan 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”, “Fruzaqla”, “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 “Fruzaqla” trademark is owned by us and licensed exclusively outside of
China to our collaboration partner, Takeda. 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, 2023, 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.
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 two suppliers to manufacture and supply us with the
active pharmaceutical ingredient for fruquintinib for commercial purposes in China and one of those suppliers is also
contracted to supply us with active pharmaceutical ingredient for commercial purposes outside of China. 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
and are in the process of engaging a second supplier of the active pharmaceutical ingredient for our products including
savolitinib, surufatinib and sovleplenib. 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 outside of China, 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.”
284
124
125
She Xiang Bao Xin Pills. As of December 31, 2023, Shanghai Hutchison Pharmaceuticals held an invention patent in China
Trademarks and Domain Names
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,
Danning Tablets. As of December 31, 2023, Shanghai Hutchison Pharmaceuticals also held an invention patent in China
directed to the formulation of the Danning tablet. This patent will expire in 2027.
is currently active.
Patent Term
The term of a patent depends upon the laws of the country in which it is issued. In most jurisdictions, a patent term is 20
years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be
lengthened in some cases by patent term adjustment, which compensates a patentee for administrative delays by the USPTO
in excess of a patent applicant’s own delays during the prosecution process, or may be shortened if a patent is terminally
disclaimed over an earlier filed, commonly owned patent. In addition, 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. However, the extension shall not exceed five years and the resulting total effective patent term shall not
exceed 14 years from the FDA approval. 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. In China, the amended PRC Patent Law provides for both patent
term adjustment and patent term extension, similar to the United States. 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.
Similar extensions as compensation for regulatory delays are available in certain foreign jurisdictions. The actual
protection afforded by a patent varies on a claim by claim and country by country basis an depends upon many factors,
including the type of patent, the scope of its coverage, the availability of any patent term extensions or adjustments, the
availability of legal remedies in a particular country and the validity and enforceability of the patent.
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, Europe, Japan 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.
We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”,
“HUTCHMED”, “Elunate”, “Fruzaqla”, “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 “Fruzaqla” trademark is owned by us and licensed exclusively outside of
China to our collaboration partner, Takeda. 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, 2023, 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.
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 two suppliers to manufacture and supply us with the
active pharmaceutical ingredient for fruquintinib for commercial purposes in China and one of those suppliers is also
contracted to supply us with active pharmaceutical ingredient for commercial purposes outside of China. 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
and are in the process of engaging a second supplier of the active pharmaceutical ingredient for our products including
savolitinib, surufatinib and sovleplenib. 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 outside of China, 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.”
124
125
HUTCHMED (China) Limited 2023 Annual Report 285
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, 2021, 2022 and 2023, we generated revenue of $188.9 million, $185.0 million and $538.0
million from our five largest customers, respectively. For the years ended December 31, 2021, 2022 and 2023, revenue from our
five largest customers represented approximately 53%, 43% and 64% of our total revenue, respectively, and revenue from our
largest customer in those periods represented approximately 16%, 16% and 42% 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 2021, 2022 and 2023, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers.
Sales to Sinopharm and/or its associates contributed 12%, 16% and 8% of our revenue in 2021, 2022 and 2023, respectively.
Purchases from Sinopharm and/or its associates contributed approximately 1% of our total purchases in 2021, 2022 and 2023,
respectively.
For the years ended December 31, 2021, 2022 and 2023, the total purchases from our five largest suppliers were $100.6
million, $90.9 million and $77.1 million, respectively. For the years ended December 31, 2021, 2022 and 2023, 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. We will renew them before their expiration.
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. We will renew them before their expiration.
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.
Regulatory Authorities
In the PRC, the NMPA is the authority that monitors and supervises the administration of pharmaceutical products and
medical appliances and equipment as well as cosmetics. The NMPA’s predecessor, the State Drug Administration, or the SDA,
was established on August 19, 1998 as an organization under the State Council to assume the responsibilities previously
handled by the Ministry of Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the
State Administration of Traditional Chinese Medicine of the PRC. The SDA was replaced by the State Food and Drug
Administration, or the SFDA, in March 2003 and was later reorganized into the China Food and Drug Administration, or the CFDA,
in March 2013. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council
Institutional Reform Proposal, according to which the duties of the CFDA were consolidated into the State Administration for
Market Regulation, or the SAMR, and the NMPA was established under the management and supervision of the SAMR.
The primary responsibilities of the NMPA include:
• monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as
well as cosmetics in the PRC;
traditional Chinese medicine;
•
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
•
•
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.
286
126
127
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, 2021, 2022 and 2023, we generated revenue of $188.9 million, $185.0 million and $538.0
million from our five largest customers, respectively. For the years ended December 31, 2021, 2022 and 2023, revenue from our
five largest customers represented approximately 53%, 43% and 64% of our total revenue, respectively, and revenue from our
largest customer in those periods represented approximately 16%, 16% and 42% 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 2021, 2022 and 2023, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers.
Sales to Sinopharm and/or its associates contributed 12%, 16% and 8% of our revenue in 2021, 2022 and 2023, respectively.
Purchases from Sinopharm and/or its associates contributed approximately 1% of our total purchases in 2021, 2022 and 2023,
respectively.
For the years ended December 31, 2021, 2022 and 2023, the total purchases from our five largest suppliers were $100.6
million, $90.9 million and $77.1 million, respectively. For the years ended December 31, 2021, 2022 and 2023, 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. We will renew them before their expiration.
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. We will renew them before their expiration.
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.
Regulatory Authorities
In the PRC, the NMPA is the authority that monitors and supervises the administration of pharmaceutical products and
medical appliances and equipment as well as cosmetics. The NMPA’s predecessor, the State Drug Administration, or the SDA,
was established on August 19, 1998 as an organization under the State Council to assume the responsibilities previously
handled by the Ministry of Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the
State Administration of Traditional Chinese Medicine of the PRC. The SDA was replaced by the State Food and Drug
Administration, or the SFDA, in March 2003 and was later reorganized into the China Food and Drug Administration, or the CFDA,
in March 2013. On March 17, 2018, the First Session of the Thirteenth National People’s Congress approved the State Council
Institutional Reform Proposal, according to which the duties of the CFDA were consolidated into the State Administration for
Market Regulation, or the SAMR, and the NMPA was established under the management and supervision of the SAMR.
The primary responsibilities of the NMPA include:
• monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as
well as cosmetics in the PRC;
•
•
•
formulating administrative rules and policies concerning the supervision and administration of cosmetics and the
pharmaceutical industry; evaluating, registering and approving of new drugs, generic drugs, imported drugs and
traditional Chinese medicine;
undertaking the standard, registration, quality and post marketing risk management of pharmaceutical products,
medical appliances and equipment as well as cosmetics; and
examining, evaluating and supervising the safety of pharmaceutical products, medical appliances and equipment as
well as that of cosmetics.
126
127
HUTCHMED (China) Limited 2023 Annual Report 287
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.
The National Healthcare Security Administration (the ‘‘NHSA’’), established in May 2018, is directly under the State Council
and is responsible for the management of the healthcare security system. It is primarily responsible for drafting and
implementing policies and standards on medical insurance, maternity insurance and medical assistance; supervising and
administering the healthcare security funds; formulating a uniform medical insurance catalogue and payment standards on
drugs, medical disposables and healthcare services; and formulating bidding procurement policies for drugs and medical
consumables and supervising the implementation.
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”).
Highlights of the 2022 PRC Health Care Reforms include the following:
• 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 cost 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 telemedicine services, which shall cover 95% of the country’s districts and counties.
On July 21, 2023, the NHC, the NDRC, the Ministry of Finance (the “MOF”), the MOHRSS, the NHSA and the NMPA jointly
issued the Key Tasks for Deepening the Reform of the Medical and Health System in the Second Half of 2023, which calls for,
among others, improvement to the two-invoice system policy, strengthening and promoting the supply and use of essential
medicines, additional rounds of centralized procurement of medicines and pharmaceutical consumables, and the promotion
of innovation in traditional Chinese medicines and its heritage.
Drug Administration Laws and Regulations
The PRC Drug Administration Law as promulgated by the Standing Committee of the National People’s Congress in 1984
and the Implementing Measures of the PRC Drug Administration Law as promulgated by the MOH in 1989 have laid down the
legal framework for the establishment of pharmaceutical manufacturing enterprises, pharmaceutical trading enterprises and
for the administration of pharmaceutical products including the development and manufacturing of new drugs and medicinal
preparations by medical institutions. The PRC Drug Administration Law also regulates the packaging, trademarks and the
advertisements of pharmaceutical products in the PRC.
Certain revisions to the PRC Drug Administration Law took effect on December 1, 2001. They were formulated to strengthen
the supervision and administration of pharmaceutical products, and to ensure the quality and the safety of pharmaceutical
products for human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the
development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and
prescribes a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies, and
medicinal preparations of medical institutions and the development, research, manufacturing, distribution, packaging, pricing
and advertisements of pharmaceutical products.
The PRC Drug Administration Law was later amended on December 28, 2013 and April 24, 2015 by the Standing Committee
of the National People’s Congress. It provides the basic legal framework for the administration of the production and sale of
pharmaceutical products in China and covers the manufacturing, distributing, packaging, pricing and advertising of
pharmaceutical products.
On August 26, 2019, the Standing Committee of the National People’s Congress promulgated the amended PRC Drug
Administration Law, which took effect on December 1, 2019. The amendment brought a series of changes to the drug
supervision and administration system, including but not limited to the clarification of the MAH system, pursuant to which the
MAH shall assume responsibilities for non-clinical studies, clinical trials, manufacturing and marketing, post-marketing studies,
monitoring, reporting and handling of adverse reactions of the drug. The amendment also stipulated that the PRC supports the
innovation of drugs with clinical value and specific or special effects on human diseases, encourages the development of drugs
with new therapeutic mechanisms and promotes the technological advancement of such drugs.
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.
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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.
•
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 telemedicine services, which shall cover 95% of the country’s districts and counties.
The National Healthcare Security Administration (the ‘‘NHSA’’), established in May 2018, is directly under the State Council
and is responsible for the management of the healthcare security system. It is primarily responsible for drafting and
implementing policies and standards on medical insurance, maternity insurance and medical assistance; supervising and
administering the healthcare security funds; formulating a uniform medical insurance catalogue and payment standards on
drugs, medical disposables and healthcare services; and formulating bidding procurement policies for drugs and medical
On July 21, 2023, the NHC, the NDRC, the Ministry of Finance (the “MOF”), the MOHRSS, the NHSA and the NMPA jointly
issued the Key Tasks for Deepening the Reform of the Medical and Health System in the Second Half of 2023, which calls for,
among others, improvement to the two-invoice system policy, strengthening and promoting the supply and use of essential
medicines, additional rounds of centralized procurement of medicines and pharmaceutical consumables, and the promotion
of innovation in traditional Chinese medicines and its heritage.
consumables and supervising the implementation.
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”).
Highlights of the 2022 PRC Health Care Reforms include the following:
• 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 cost 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.
Drug Administration Laws and Regulations
The PRC Drug Administration Law as promulgated by the Standing Committee of the National People’s Congress in 1984
and the Implementing Measures of the PRC Drug Administration Law as promulgated by the MOH in 1989 have laid down the
legal framework for the establishment of pharmaceutical manufacturing enterprises, pharmaceutical trading enterprises and
for the administration of pharmaceutical products including the development and manufacturing of new drugs and medicinal
preparations by medical institutions. The PRC Drug Administration Law also regulates the packaging, trademarks and the
advertisements of pharmaceutical products in the PRC.
Certain revisions to the PRC Drug Administration Law took effect on December 1, 2001. They were formulated to strengthen
the supervision and administration of pharmaceutical products, and to ensure the quality and the safety of pharmaceutical
products for human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the
development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and
prescribes a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies, and
medicinal preparations of medical institutions and the development, research, manufacturing, distribution, packaging, pricing
and advertisements of pharmaceutical products.
The PRC Drug Administration Law was later amended on December 28, 2013 and April 24, 2015 by the Standing Committee
of the National People’s Congress. It provides the basic legal framework for the administration of the production and sale of
pharmaceutical products in China and covers the manufacturing, distributing, packaging, pricing and advertising of
pharmaceutical products.
On August 26, 2019, the Standing Committee of the National People’s Congress promulgated the amended PRC Drug
Administration Law, which took effect on December 1, 2019. The amendment brought a series of changes to the drug
supervision and administration system, including but not limited to the clarification of the MAH system, pursuant to which the
MAH shall assume responsibilities for non-clinical studies, clinical trials, manufacturing and marketing, post-marketing studies,
monitoring, reporting and handling of adverse reactions of the drug. The amendment also stipulated that the PRC supports the
innovation of drugs with clinical value and specific or special effects on human diseases, encourages the development of drugs
with new therapeutic mechanisms and promotes the technological advancement of such drugs.
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.
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HUTCHMED (China) Limited 2023 Annual Report 289
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 which have taken effect. On May 9, 2022, the draft PRC Drug Administration Implementation
Regulations was published by the NMPA for comment and, as of the date of this annual report, remains in draft form, the final
and effective version of which is yet to be published.
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.
Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval:
(i) active ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical
materials and their preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and
biological products that have not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical
treatment advantages for such diseases as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not
been treated effectively. Under category (i) or (ii) above, the applicant for drug registration may apply for special examination
and approval when applying for the clinical trial of new drugs; under category (iii) or (iv) above, the applicant may only apply
for special examination and approval when applying for manufacturing.
In addition, on July 7, 2020, the NMPA released the Priority Review and Approval Procedures for Drug Marketing
Authorizations (for Trial Implementation), which further clarified that a fast track process for drug registration will be available
to the following drugs with distinctive clinical value: (i) (a) drugs in urgent clinical demand and in shortage and (b) innovative
drugs and modified new drugs for prevention and treatment of serious infectious diseases, rare diseases and other diseases;
(ii) new varieties, dosage forms and specifications of children’s drugs that conform to children’s physiological characteristics;
(iii) (a) vaccines that are in urgent need for disease prevention and control and (b) innovative vaccines; (iv) drugs that have been
included in the procedures for Breakthrough Therapy Designation; (v) drugs that are subject to conditional approval; and (vi)
other drugs which the NMPA deems applicable. It also specified that fast track status would be given to clinical trial applications
for drugs with patent expiry within three years and manufacturing authorization applications for drugs with patent expiry
within one year. Concurrent applications for new drug clinical trials which are already approved in the United States or E.U. are
also eligible for fast track NMPA approval.
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131
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 which have taken effect. On May 9, 2022, the draft PRC Drug Administration Implementation
Regulations was published by the NMPA for comment and, as of the date of this annual report, remains in draft form, the final
and effective version of which is yet to be published.
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.
Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval:
(i) active ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical
materials and their preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and
biological products that have not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical
treatment advantages for such diseases as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not
been treated effectively. Under category (i) or (ii) above, the applicant for drug registration may apply for special examination
and approval when applying for the clinical trial of new drugs; under category (iii) or (iv) above, the applicant may only apply
for special examination and approval when applying for manufacturing.
In addition, on July 7, 2020, the NMPA released the Priority Review and Approval Procedures for Drug Marketing
Authorizations (for Trial Implementation), which further clarified that a fast track process for drug registration will be available
to the following drugs with distinctive clinical value: (i) (a) drugs in urgent clinical demand and in shortage and (b) innovative
drugs and modified new drugs for prevention and treatment of serious infectious diseases, rare diseases and other diseases;
(ii) new varieties, dosage forms and specifications of children’s drugs that conform to children’s physiological characteristics;
(iii) (a) vaccines that are in urgent need for disease prevention and control and (b) innovative vaccines; (iv) drugs that have been
included in the procedures for Breakthrough Therapy Designation; (v) drugs that are subject to conditional approval; and (vi)
other drugs which the NMPA deems applicable. It also specified that fast track status would be given to clinical trial applications
for drugs with patent expiry within three years and manufacturing authorization applications for drugs with patent expiry
within one year. Concurrent applications for new drug clinical trials which are already approved in the United States or E.U. are
also eligible for fast track NMPA approval.
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HUTCHMED (China) Limited 2023 Annual Report 291
Drug Technology Transfer Regulations
Permits and Licenses for Manufacturing and Registration of Drugs
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.
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.
Manufacturing Permit.
Registration of Pharmaceutical Products
Conditions for the application of drug production technology transfer
Applications for drug production technology transfer may be submitted if:
•
the transferor holds new drug certificates or both new drug certificates and drug approval numbers, and the
monitoring period has expired or there is no monitoring period;
• with respect to drugs without new drug certificates, both the transferor and the transferee are legally qualified drug
manufacturing enterprises, one of which holds over 50% of the equity interests in the other, or both of which are
majority-owned subsidiaries of the same drug manufacturing enterprise;
• with respect to imported drugs with imported drug licenses, the original applicants for the imported drug registration
may transfer these drugs to local drug manufacturing enterprises.
Application for, and examination and approval of, drug technology transfer
Applications for drug technology transfer should be submitted to the provincial drug administration. If the transferor and
the transferee are located in different provinces, the provincial drug administration where the transferor is located should
provide examination opinions. The provincial drug administration where the transferee is located is responsible for examining
application materials for technology transfer and organizing inspections on the production facilities of the transferee. Medical
examination institutes are responsible for testing three batches of drug samples.
The Center for Drug Evaluation should further review the application materials, provide technical evaluation opinions and
form a comprehensive evaluation opinion based on the site inspection reports and the testing results of the samples. The 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.
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
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
Production Licenses
and effective period.
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
All pharmaceutical products that are produced in the PRC must bear a registration number issued by the NMPA, with the
exception of Chinese herbs and Chinese herbal medicines in soluble form. The medicine manufacturing enterprises must obtain
the medicine registration number before manufacturing any medicine.
Good Manufacturing Practices
The Guidelines on Good Manufacturing Practices, as amended in 1998 and 2010, or the Guidelines, took effect on August 1,
1999 and set the basic standards for the manufacture of pharmaceuticals. These Guidelines cover issues such as the production
facilities, the qualification of the personnel at the management level, production plant and facilities, documentation, material
packaging and labeling, inspection, production management, sales and return of products and customers’ complaints. On
October 23, 2003, the 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.
The Trial Drug Inspection Measures were subsequently revised on July 19, 2023. The Trial Drug Inspection Measures regulate
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.
292
132
133
Drug Technology Transfer Regulations
Permits and Licenses for Manufacturing and Registration of Drugs
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 new drug technology transfer may be submitted prior to the expiration date of the monitoring period of
Conditions for the application for new drug technology transfer
the new drugs with respect to:
drugs with new drug certificates only; or
drugs with new drug certificates and drug approval numbers.
•
•
certificates.
Conditions for the application of drug production technology transfer
Applications for drug production technology transfer may be submitted if:
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
•
the transferor holds new drug certificates or both new drug certificates and drug approval numbers, and the
monitoring period has expired or there is no monitoring period;
• with respect to drugs without new drug certificates, both the transferor and the transferee are legally qualified drug
manufacturing enterprises, one of which holds over 50% of the equity interests in the other, or both of which are
majority-owned subsidiaries of the same drug manufacturing enterprise;
• with respect to imported drugs with imported drug licenses, the original applicants for the imported drug registration
may transfer these drugs to local drug manufacturing enterprises.
Application for, and examination and approval of, drug technology transfer
Applications for drug technology transfer should be submitted to the provincial drug administration. If the transferor and
the transferee are located in different provinces, the provincial drug administration where the transferor is located should
provide examination opinions. The provincial drug administration where the transferee is located is responsible for examining
application materials for technology transfer and organizing inspections on the production facilities of the transferee. Medical
examination institutes are responsible for testing three batches of drug samples.
The Center for Drug Evaluation should further review the application materials, provide technical evaluation opinions and
form a comprehensive evaluation opinion based on the site inspection reports and the testing results of the samples. The 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.
Production Licenses
To manufacture pharmaceutical products in the PRC, a pharmaceutical manufacturing enterprise must first obtain a
Pharmaceutical Manufacturing Permit issued by the relevant pharmaceutical administrative authorities at the provincial level
where the enterprise is located. Among other things, such a permit must set forth the permit number, the name, legal
representative and registered address of the enterprise, the site and scope of production, issuing institution, date of issuance
and effective period.
Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period
of five years. The enterprise is required to apply for renewal of such permit within six months prior to its expiry and will be
subject to reassessment by the issuing authorities in accordance with then prevailing legal and regulatory requirements for the
purposes of such renewal.
Business Licenses
In addition to a Pharmaceutical Manufacturing permit, the manufacturing enterprise must also obtain a business license
from the administrative bureau of industry and commerce at the local level. The name, legal representative and registered
address of the enterprise specified in the business license must be identical to that set forth in the Pharmaceutical
Manufacturing Permit.
Registration of Pharmaceutical Products
All pharmaceutical products that are produced in the PRC must bear a registration number issued by the NMPA, with the
exception of Chinese herbs and Chinese herbal medicines in soluble form. The medicine manufacturing enterprises must obtain
the medicine registration number before manufacturing any medicine.
Good Manufacturing Practices
The Guidelines on Good Manufacturing Practices, as amended in 1998 and 2010, or the Guidelines, took effect on August 1,
1999 and set the basic standards for the manufacture of pharmaceuticals. These Guidelines cover issues such as the production
facilities, the qualification of the personnel at the management level, production plant and facilities, documentation, material
packaging and labeling, inspection, production management, sales and return of products and customers’ complaints. On
October 23, 2003, the 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.
The Trial Drug Inspection Measures were subsequently revised on July 19, 2023. The Trial Drug Inspection Measures regulate
the inspection, investigation, evidence collection and disposal and other actions carried out by medical products
administrative authorities with respect to the manufacturing, distribution and use of drugs. The Trial Drug Inspection Measures
stipulate that where an application for a pharmaceutical manufacturing permit is filed for the first time, on-site inspection shall
be carried out in accordance with the applicable requirements of the Guidelines. Where an application for re-issuance of a
pharmaceutical manufacturing permit is filed, a compliance inspection may be carried out if necessary based on the principles
of risk management, taking into consideration the enterprise’s compliance with the laws and regulations on drug
administration, the Guidelines, and the running of quality control systems.
Marketing Authorization Holder System
In May 2016, the State Council announced the piloting of the MAH system in ten provinces in China, where the market
authorization/drug license holders are no longer required to be the actual manufacturers. The MAH system will allow for more
flexibilities in contract manufacturing arrangements.
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HUTCHMED (China) Limited 2023 Annual Report 293
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.
Administrative Protection for New Drugs
The Administrative Measures Governing the Production Quality of Pharmaceutical Products, or the Administrative
Measures for Production, provides detailed guidelines on practices governing the production of pharmaceutical products. A
manufacturer’s factory must meet certain criteria in the Administrative Measures for Production, which include: institution and
staff qualifications, production premises and facilities, equipment, hygiene conditions, production management, quality
controls, product operation, maintenance of sales records and manner of handling customer complaints and adverse reaction
reports.
Distribution of Pharmaceutical Products
According to the PRC Drug Administration Law and its implementing regulations, and the Measures for the Supervision and
Administration of Drug Quality in Operation and Usage (issued by the SAMR on September 27, 2023 and effective on January 1,
2024), an MAH may directly distribute pharmaceutical products for which drug registration certificates have been obtained, or
distribute such products via a pharmaceutical distributor. Notwithstanding, an MAH can only carry out pharmaceutical product
retail activities if they have obtained a Pharmaceutical Distribution Permit.
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 Pharmaceutical Distribution Permit to retailers 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.
A pharmaceutical distributor shall establish a quality management system covering the entire process of their drug
business. The purchase and sales records, storage conditions, transportation process, quality control and other records shall
be completely and accurately documented, and shall not be fabricated and tampered with. MAHs and pharmaceutical
distributors must keep the relevant qualifications and sale and purchase receipts and records for not less than five years and
at least until one year after the expiry date of such drugs. Penalties may be imposed for any violation of record-keeping.
Penalties may be imposed on MAHs or pharmaceutical distributors that manufacture or distribute pharmaceutical
products without obtaining a Pharmaceutical Manufacturing Permit or a Pharmaceutical Distribution Permit.
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.
294
134
135
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.
Administrative Protection for New Drugs
The Administrative Measures Governing the Production Quality of Pharmaceutical Products, or the Administrative
Measures for Production, provides detailed guidelines on practices governing the production of pharmaceutical products. A
manufacturer’s factory must meet certain criteria in the Administrative Measures for Production, which include: institution and
staff qualifications, production premises and facilities, equipment, hygiene conditions, production management, quality
controls, product operation, maintenance of sales records and manner of handling customer complaints and adverse reaction
reports.
Distribution of Pharmaceutical Products
According to the PRC Drug Administration Law and its implementing regulations, and the Measures for the Supervision and
Administration of Drug Quality in Operation and Usage (issued by the SAMR on September 27, 2023 and effective on January 1,
2024), an MAH may directly distribute pharmaceutical products for which drug registration certificates have been obtained, or
distribute such products via a pharmaceutical distributor. Notwithstanding, an MAH can only carry out pharmaceutical product
retail activities if they have obtained a Pharmaceutical Distribution Permit.
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 Pharmaceutical Distribution Permit to retailers 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.
A pharmaceutical distributor shall establish a quality management system covering the entire process of their drug
business. The purchase and sales records, storage conditions, transportation process, quality control and other records shall
be completely and accurately documented, and shall not be fabricated and tampered with. MAHs and pharmaceutical
distributors must keep the relevant qualifications and sale and purchase receipts and records for not less than five years and
at least until one year after the expiry date of such drugs. Penalties may be imposed for any violation of record-keeping.
Penalties may be imposed on MAHs or pharmaceutical distributors that manufacture or distribute pharmaceutical
products without obtaining a Pharmaceutical Manufacturing Permit or a Pharmaceutical Distribution Permit.
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.
134
135
HUTCHMED (China) Limited 2023 Annual Report 295
U.S. Regulation of Pharmaceutical Product Development and Approval
Pre-clinical Studies
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public
Health Service Act, or PHSA, and their implementing regulations. The process of obtaining approvals and the subsequent
compliance with appropriate federal, state and local rules and regulations requires the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. regulatory requirements at any time during the product
development process, approval process or after approval may subject an applicant and/or sponsor to a variety of
administrative or judicial sanctions, including refusal by FDA to approve pending applications, withdrawal of an approval,
imposition of a clinical hold, issuance of warning letters and other types of enforcement correspondence, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts,
restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the U.S. Department of
Justice, or DOJ, or other governmental entities. Drugs are also subject to other federal, state and local statutes and regulations.
Our drug candidates must be approved by the FDA through the NDA process before they may be legally marketed in the
United States. The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
•
•
•
•
•
•
•
•
•
•
•
completion of extensive pre-clinical studies, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal
studies and formulation studies all performed in compliance with applicable regulations, including the FDA’s good
laboratory practice regulations;
suspended or terminated.
Clinical Studies
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.
the mechanism of action of the study drug.
The data required to support an NDA is generated in two 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
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.
Phase II and Phase III clinical trials.
Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I,
• 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
• 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.
296
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137
U.S. Regulation of Pharmaceutical Product Development and Approval
Pre-clinical Studies
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
submission to the FDA of an IND application which must become effective before human clinical trials may begin and
laboratory practice regulations;
must be updated annually;
IRB approval before each clinical trial may be initiated;
its proposed 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
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;
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.
•
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The data required to support an NDA is generated in two development stages: pre-clinical and clinical. For new chemical
entities, or NCEs, the pre-clinical development stage generally involves synthesizing the active component, developing the
formulation and determining the manufacturing process, evaluating purity and stability, as well as carrying out non-human
toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. The
conduct of the pre-clinical tests must comply with federal regulations, including good laboratory practices. The sponsor must
submit the results of the pre-clinical tests, together with manufacturing information, analytical data, any available clinical data
or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA
to administer an investigational drug product to humans. The central focus of an IND submission is on the general
investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the
FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within
that 30-day time period. In such a case, the IND sponsor must resolve with the FDA any outstanding concerns or questions
before the clinical trial can begin. Some long-term pre-clinical testing, such as animal tests of reproductive adverse events and
carcinogenicity, may continue after the IND is submitted. The FDA may also impose clinical holds on a drug candidate at any
time before or during clinical trials due to safety concerns or non-compliance. Accordingly, submission of an IND does not
guarantee the FDA will allow clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be
suspended or terminated.
Clinical Studies
The clinical stage of development involves the administration of the drug product to human subjects or patients under the
supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance
with GCPs, which include the requirement that, in general, all research subjects provide their informed consent in writing for
their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things,
the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to
monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted
to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by each institution at which the clinical
trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items
as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated
benefits. The IRB also reviews and approves the informed consent form that must be provided to each clinical trial subject or
his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the
reporting of ongoing clinical trials and completed clinical trial results to public registries. For example, information about
certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination
on their ClinicalTrials.gov website.
Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I,
in-depth review of the NDA by FDA, which may include review by a scientific advisory committee;
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.
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•
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. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first
application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs,
unless the product also includes a non-orphan indication. The FDA reviews all NDAs submitted before it accepts them for filing
and may request additional information rather than accepting an NDA for filing. The FDA conducts a preliminary review of an
NDA within 60 days of receipt and informs the sponsor by the 74th day after FDA’s receipt of the submission to determine
whether the application is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the
FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10
months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six
months from the filing date for a “priority review” NDA. The FDA does not always meet its PDUFA goal dates for standard and
priority review NDAs, and the review process is often significantly extended by FDA requests for additional information or
clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the
proposed drug is safe and effective for its intended use, and whether the drug is being manufactured in accordance with cGMP
to assure and preserve the drug’s identity, strength, quality and purity. The FDA may refer applications for drugs or drug
candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes
clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. The FDA may re-analyze the clinical trial data, which can result in extensive
discussions between the FDA and us during the review process.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new drug
to determine whether they comply with cGMPs. The FDA will not approve the drug unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the drug
within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure
compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing
facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter
or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete
and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in
the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal
clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical
studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of
the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always
conclusive and the FDA may interpret data differently than we interpret the same data.
If a drug receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for
use may otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included
in the drug labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of
adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to
monitor the effects of approved drugs. For example, the FDA may require Phase IV testing which involves clinical trials designed
to further assess a drug’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of
approved drugs that have been commercialized. The FDA may also place other conditions on approvals including the
requirement for a REMS to ensure that the benefits of a drug or biological product outweigh its risks. If the FDA concludes a
REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved
REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use,
such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on
approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of drugs. Drug
approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
298
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•
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. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first
application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs,
unless the product also includes a non-orphan indication. The FDA reviews all NDAs submitted before it accepts them for filing
and may request additional information rather than accepting an NDA for filing. The FDA conducts a preliminary review of an
NDA within 60 days of receipt and informs the sponsor by the 74th day after FDA’s receipt of the submission to determine
whether the application is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the
FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10
months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six
months from the filing date for a “priority review” NDA. The FDA does not always meet its PDUFA goal dates for standard and
priority review NDAs, and the review process is often significantly extended by FDA requests for additional information or
clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the
proposed drug is safe and effective for its intended use, and whether the drug is being manufactured in accordance with cGMP
to assure and preserve the drug’s identity, strength, quality and purity. The FDA may refer applications for drugs or drug
candidates that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes
clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. The FDA may re-analyze the clinical trial data, which can result in extensive
discussions between the FDA and us during the review process.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new drug
to determine whether they comply with cGMPs. The FDA will not approve the drug unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the drug
within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure
compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing
facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter
or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete
and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in
the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal
clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, pre-clinical
studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of
the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always
conclusive and the FDA may interpret data differently than we interpret the same data.
If a drug receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for
use may otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included
in the drug labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of
adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to
monitor the effects of approved drugs. For example, the FDA may require Phase IV testing which involves clinical trials designed
to further assess a drug’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of
approved drugs that have been commercialized. The FDA may also place other conditions on approvals including the
requirement for a REMS to ensure that the benefits of a drug or biological product outweigh its risks. If the FDA concludes a
REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved
REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use,
such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on
approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of drugs. Drug
approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
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Special FDA Expedited Review, Approval and Access Programs
Accelerated Approval
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, expanded access programs or the Right to Try Act can provide 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.
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 ten months under current PDUFA guidelines. These six and ten 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.
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.
Compassionate Use and Right to Try
In the United States, investigational medical products may be made available outside of clinical trials to certain patients
under expanded access or compassionate-use programs approved by FDA. These programs provide access to such
investigational medical products if patients have a life-threatening disease or serious disease or condition and no comparable
or satisfactory alternative therapy options are available. There is no legal obligation requiring a company to provide access to
investigational medical products via expanded access pathways. Additionally, the U.S. Right to Try Act of 2018 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. As with
expanded access pathways, there is no obligation for a pharmaceutical manufacturer to make its drug products available to
such eligible patients as a result of the Right to Try Act.
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.
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Special FDA Expedited Review, Approval and Access Programs
Accelerated Approval
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, expanded access programs or the Right to Try Act can provide 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.
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 ten months under current PDUFA guidelines. These six and ten 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.
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.
Compassionate Use and Right to Try
In the United States, investigational medical products may be made available outside of clinical trials to certain patients
under expanded access or compassionate-use programs approved by FDA. These programs provide access to such
investigational medical products if patients have a life-threatening disease or serious disease or condition and no comparable
or satisfactory alternative therapy options are available. There is no legal obligation requiring a company to provide access to
investigational medical products via expanded access pathways. Additionally, the U.S. Right to Try Act of 2018 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. As with
expanded access pathways, there is no obligation for a pharmaceutical manufacturer to make its drug products available to
such eligible patients as a result of the Right to Try Act.
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.
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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.
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
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
laws.
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.
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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.
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
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.
approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to
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.
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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 abbreviated new drug application, 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.
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 abbreviated new drug applications for drugs containing the active
agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or
approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference
to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and
effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in
certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric
exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs
from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric
trial in accordance with an FDA-issued “Written Request” for such a trial.
Rest of the World Regulation of Pharmaceutical Product Development and Approval
For other countries outside of China and the United States, such as countries in Europe, Latin America or other parts of
Asia, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to
country. In all cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory
requirements and ethical principles.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal
prosecution.
Coverage and Reimbursement
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, 2022, approximately 1.35 billion residents in China were
enrolled in the national medical insurance program, with participation rates remaining steadily above 95%. In 2022, total
income of the National Basic Medical Insurance Fund (including maternity insurance) reached RMB3,092.2 billion, an increase
of 17.6% 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.
Patients purchasing medicines included in Category A of the NRDL are entitled to reimbursement of the entire amount of
the purchase price. Patients purchasing medicines included in Category B of the NRDL are required to pay a certain percentage
of the purchase price and obtain reimbursement for the remainder of the purchase price. The percentage of reimbursement for
Category B medicines differs from region to region in the PRC.
The total amount of reimbursement for the cost of medicines, in addition to other medical expenses, for an individual
participant under the National Medical Insurance Program in a calendar year is capped at the amounts in such participant’s
individual account under such program. The amount in a participant’s account varies, depending on the amount of
contributions from the participant and his or her employer.
National Essential Medicines List
On August 18, 2009, MOH and eight other ministries and commissions in the PRC issued the Provisional Measures on the
Administration of the National Essential Medicines List, which was later amended in 2015, and the Guidelines on the
Implementation of the Establishment of the National Essential Medicines System, which aim to promote essential medicines
sold to consumers at fair prices in the PRC and ensure that the general public in the PRC has equal access to the drugs contained
in the National Essential Medicines List. MOH promulgated the National Essential Medicines List (Catalog for the Basic
Healthcare Institutions) on August 18, 2009, and promulgated the revised National Essential Medicines List on March 13, 2013
and September 30, 2018. According to these regulations, basic healthcare institutions funded by government, which primarily
include county-level hospitals, county-level Chinese medicine hospitals, rural clinics and community clinics, shall store up and
use drugs listed in the National Essential Medicines List. Per the Opinions of the General Office of the State Council on Improving
the National Essential Medicines System, issued and effective on September 13, 2018, with respect to the qualifying drugs on
the National Essential Medicines List, the medical insurance department shall prioritize their inclusion in the NDRL and adjust
their classifications as Category A or B, respectively, in accordance with the stipulated procedures.
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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 abbreviated new drug application, 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.
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 abbreviated new drug applications for drugs containing the active
agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or
approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference
to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and
effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in
certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric
exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs
from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric
trial in accordance with an FDA-issued “Written Request” for such a trial.
Rest of the World Regulation of Pharmaceutical Product Development and Approval
For other countries outside of China and the United States, such as countries in Europe, Latin America or other parts of
Asia, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to
country. In all cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory
requirements and ethical principles.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal
prosecution.
Coverage and Reimbursement
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, 2022, approximately 1.35 billion residents in China were
enrolled in the national medical insurance program, with participation rates remaining steadily above 95%. In 2022, total
income of the National Basic Medical Insurance Fund (including maternity insurance) reached RMB3,092.2 billion, an increase
of 17.6% 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.
Patients purchasing medicines included in Category A of the NRDL are entitled to reimbursement of the entire amount of
the purchase price. Patients purchasing medicines included in Category B of the NRDL are required to pay a certain percentage
of the purchase price and obtain reimbursement for the remainder of the purchase price. The percentage of reimbursement for
Category B medicines differs from region to region in the PRC.
The total amount of reimbursement for the cost of medicines, in addition to other medical expenses, for an individual
participant under the National Medical Insurance Program in a calendar year is capped at the amounts in such participant’s
individual account under such program. The amount in a participant’s account varies, depending on the amount of
contributions from the participant and his or her employer.
National Essential Medicines List
On August 18, 2009, MOH and eight other ministries and commissions in the PRC issued the Provisional Measures on the
Administration of the National Essential Medicines List, which was later amended in 2015, and the Guidelines on the
Implementation of the Establishment of the National Essential Medicines System, which aim to promote essential medicines
sold to consumers at fair prices in the PRC and ensure that the general public in the PRC has equal access to the drugs contained
in the National Essential Medicines List. MOH promulgated the National Essential Medicines List (Catalog for the Basic
Healthcare Institutions) on August 18, 2009, and promulgated the revised National Essential Medicines List on March 13, 2013
and September 30, 2018. According to these regulations, basic healthcare institutions funded by government, which primarily
include county-level hospitals, county-level Chinese medicine hospitals, rural clinics and community clinics, shall store up and
use drugs listed in the National Essential Medicines List. Per the Opinions of the General Office of the State Council on Improving
the National Essential Medicines System, issued and effective on September 13, 2018, with respect to the qualifying drugs on
the National Essential Medicines List, the medical insurance department shall prioritize their inclusion in the NDRL and adjust
their classifications as Category A or B, respectively, in accordance with the stipulated procedures.
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HUTCHMED (China) Limited 2023 Annual Report 305
Price Controls
Centralized Procurement and Tenders
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.
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 cost 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.
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.
306
146
147
Price Controls
Centralized Procurement and Tenders
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.
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 cost 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.
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.
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HUTCHMED (China) Limited 2023 Annual Report 307
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.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, as amended by the IRA, 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. Subject to certain limitations, Part D
prescription drug plan sponsors generally are not required to pay for or cover all covered Part D drugs, and can develop their own
drug formulary that identifies which drugs they 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 cost of prescription drugs may increase demand for drugs for which we
receive regulatory approval. The IRA amended the Part D benefit design to, among other items, require formulary coverage of
Medicare negotiated drugs and alter manufacturer, patient, Part D plan sponsor, and government financial responsibilities in
connection with the Part D benefit. Other components of the IRA affect Part D drugs by subjecting particular drugs to government
negotiated prices. 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 were 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. The IRA reformed the Medicare Part D benefit, including by sunsetting the coverage gap as of 2025, creating
a new manufacturer discount agreement that goes into effect January 1, 2025, establishing a $2,000 annual cap beyond which
beneficiaries will not bear any cost-sharing obligations, and restructuring manufacturer, patient, Part D plan sponsor and
government financial obligations in connection with the Part D benefit.
The IRA implements other Medicare program reforms, such as mandating the negotiation of eligible Medicare Part B and
Part D drugs, and imposing rebates for Medicare drugs that increase in price faster than the rate of inflation. Under the IRA’s
Medicare negotiation program, the U.S. government will negotiate the Medicare prices of single-source small molecule and
biologic products that have been on the market for 7 and 11 years, respectively, following FDA approval. Negotiated prices will
be capped at a statutory ceiling price that is likely to represent a significant discount from average prices to wholesalers and
direct purchasers. The negotiation program imposes substantial excise taxes on manufacturers that do not timely comply with
the negotiation requirements and subjects manufacturers to potential civil monetary penalties for failing to offer the maximum
fair price, violating the terms of the negotiation agreement, or knowingly providing false information.
Other legislative and regulatory changes have been proposed and adopted in the United States that affect reimbursement
for prescription drugs. In December 2017, Congress 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.
The Budget Control Act of 2011 (“BCA”) requires automatic spending reductions to reduce the federal deficit, including
Medicare spending reductions of up to 2% per fiscal year, with a uniform percentage reduction across all Medicare programs.
In 2013, the Centers for Medicare & Medicaid Services (“CMS”) began imposing a 2% reduction on Medicare payments.
Subsequent legislation extended sequestration for mandatory spending through FY2031 and the sequestration of Medicare
benefit payments spending through FY2032. Sequestration to Medicare was suspended from May 1, 2020 through March 30,
2022, and was limited in amount from April 1, 2022 through June 30, 2022. In addition, the American Rescue Plan Act of 2021
(“ARPA”) increased the federal budget deficit in a manner that triggers an additional sequestration mandated under the Pay As
You Go Act of 2010 (“PAYGO Act”). As a result, a further payment reduction of up to 4% was required to take effect in January
2022. However, Congress has delayed implementation of this payment reduction until 2023.
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which among other things,
prevented reductions in Medicare physician payment rates.
In addition, other proposed legislative and regulatory changes could affect reimbursement for prescription drugs. In
November 2017, CMS announced a Final Rule that set the reimbursement rate for prescription drugs that hospitals purchased
through the 340B Program at average sales price minus 22.5%, as opposed to the historical rate of average sales price plus 6%.
The American Hospital Association and others successfully challenged the Final Rule. The litigation was appealed, and the U.S.
Supreme Court ruled that, absent a survey of hospitals’ costs, CMS may not vary the reimbursement rates for drugs only for
340B hospitals. Congress and the U.S. administration may continue to evaluate other proposals that could affect third-party
reimbursement for our drug candidates, if approved.
308
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149
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.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, as amended by the IRA, 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. Subject to certain limitations, Part D
prescription drug plan sponsors generally are not required to pay for or cover all covered Part D drugs, and can develop their own
drug formulary that identifies which drugs they 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 cost of prescription drugs may increase demand for drugs for which we
receive regulatory approval. The IRA amended the Part D benefit design to, among other items, require formulary coverage of
Medicare negotiated drugs and alter manufacturer, patient, Part D plan sponsor, and government financial responsibilities in
connection with the Part D benefit. Other components of the IRA affect Part D drugs by subjecting particular drugs to government
negotiated prices. 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 were 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. The IRA reformed the Medicare Part D benefit, including by sunsetting the coverage gap as of 2025, creating
a new manufacturer discount agreement that goes into effect January 1, 2025, establishing a $2,000 annual cap beyond which
beneficiaries will not bear any cost-sharing obligations, and restructuring manufacturer, patient, Part D plan sponsor and
government financial obligations in connection with the Part D benefit.
The IRA implements other Medicare program reforms, such as mandating the negotiation of eligible Medicare Part B and
Part D drugs, and imposing rebates for Medicare drugs that increase in price faster than the rate of inflation. Under the IRA’s
Medicare negotiation program, the U.S. government will negotiate the Medicare prices of single-source small molecule and
biologic products that have been on the market for 7 and 11 years, respectively, following FDA approval. Negotiated prices will
be capped at a statutory ceiling price that is likely to represent a significant discount from average prices to wholesalers and
direct purchasers. The negotiation program imposes substantial excise taxes on manufacturers that do not timely comply with
the negotiation requirements and subjects manufacturers to potential civil monetary penalties for failing to offer the maximum
fair price, violating the terms of the negotiation agreement, or knowingly providing false information.
Other legislative and regulatory changes have been proposed and adopted in the United States that affect reimbursement
for prescription drugs. In December 2017, Congress 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.
The Budget Control Act of 2011 (“BCA”) requires automatic spending reductions to reduce the federal deficit, including
Medicare spending reductions of up to 2% per fiscal year, with a uniform percentage reduction across all Medicare programs.
In 2013, the Centers for Medicare & Medicaid Services (“CMS”) began imposing a 2% reduction on Medicare payments.
Subsequent legislation extended sequestration for mandatory spending through FY2031 and the sequestration of Medicare
benefit payments spending through FY2032. Sequestration to Medicare was suspended from May 1, 2020 through March 30,
2022, and was limited in amount from April 1, 2022 through June 30, 2022. In addition, the American Rescue Plan Act of 2021
(“ARPA”) increased the federal budget deficit in a manner that triggers an additional sequestration mandated under the Pay As
You Go Act of 2010 (“PAYGO Act”). As a result, a further payment reduction of up to 4% was required to take effect in January
2022. However, Congress has delayed implementation of this payment reduction until 2023.
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which among other things,
prevented reductions in Medicare physician payment rates.
In addition, other proposed legislative and regulatory changes could affect reimbursement for prescription drugs. In
November 2017, CMS announced a Final Rule that set the reimbursement rate for prescription drugs that hospitals purchased
through the 340B Program at average sales price minus 22.5%, as opposed to the historical rate of average sales price plus 6%.
The American Hospital Association and others successfully challenged the Final Rule. The litigation was appealed, and the U.S.
Supreme Court ruled that, absent a survey of hospitals’ costs, CMS may not vary the reimbursement rates for drugs only for
340B hospitals. Congress and the U.S. administration may continue to evaluate other proposals that could affect third-party
reimbursement for our drug candidates, if approved.
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HUTCHMED (China) Limited 2023 Annual Report 309
In October 2020, the U.S. Department of Health and Human Services (“HHS”) 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 January 2024, the FDA authorized Florida’s drug importation program, allowing the state of Florida to advance in
preparing to import certain prescription drugs from Canada.
In November 2020, HHS 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. Later federal laws further
delayed implementation of the final rule until 2032.
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.
Other PRC Healthcare Laws
Advertising of Pharmaceutical Products
Other Healthcare Laws
In accordance with the Interim Administrative Measures for the Censorship of Advertisements for Drugs, Medical Devices,
Health Food and Formula Food for Special Medical Purposes effective from March 1, 2020, the State Administration for Market
Regulation is responsible for organizing and guiding the censorship of advertisements for drugs, medical devices, health foods
and formula foods for special medical purposes. Any advertisement for drugs, medical devices, health food or formula food for
special medical purposes shall indicate the advertisement approval number in a prominent position. The validity period of the
advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall
be consistent with the shortest period of validity of the product registration certificate, record-filing certificate, or production
license. Where no period of validity is prescribed in the product registration certificate, record-filing certificate or production
license, the period of validity of the advertisement approval number shall be two years.
Packaging of Pharmaceutical Products
According to the Measures for The Administration of Pharmaceutical Packaging, effective on September 1, 1988,
pharmaceutical packaging must comply with the provisions of the national standard and professional standard. If there are no
standards, the enterprise can formulate its own standard after obtaining the approval of the provincial level drug
administration or bureau of standards. The enterprise shall reapply to the relevant authorities if it needs to change the
packaging standard. Drugs without packing must not be sold in PRC (except for drugs needed by the army).
Labor Protection
Under the Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and
December 29, 2018, the Labor Contract Law of the PRC, effective on January 1, 2008 and subsequently amended on
December 28, 2012, and the Implementing Regulations of the Labor Contract Law of the PRC, effective on September 18, 2008,
employers must establish a comprehensive management system to protect the rights of their employees, including a system
governing occupational health and safety to provide employees with occupational training to prevent occupational injury, and
employers are required to truthfully inform prospective employees of the job description, working conditions, location,
occupational hazards and status of safe production as well as remuneration and other conditions as requested by the Labor
Contract Law of the PRC.
Pursuant to the Law of Manufacturing Safety of the People’s Republic of China effective on November 1, 2002 and
subsequently amended on December 1, 2014 and September 1, 2021, manufacturers must establish a comprehensive
management system to ensure manufacturing safety in accordance with applicable laws and regulations. Manufacturers not
meeting relevant legal requirements are not permitted to commence their manufacturing activities.
Pursuant to the Administrative Measures for Production effective on March 1, 2011, manufacturers of pharmaceutical
products are required to establish production safety and labor protection measures in connection with the operation of their
manufacturing equipment and manufacturing process.
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.
310
150
151
In October 2020, the U.S. Department of Health and Human Services (“HHS”) 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 January 2024, the FDA authorized Florida’s drug importation program, allowing the state of Florida to advance in
preparing to import certain prescription drugs from Canada.
In November 2020, HHS 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. Later federal laws further
delayed implementation of the final rule until 2032.
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.
Other PRC Healthcare Laws
Advertising of Pharmaceutical Products
Other Healthcare Laws
In accordance with the Interim Administrative Measures for the Censorship of Advertisements for Drugs, Medical Devices,
Health Food and Formula Food for Special Medical Purposes effective from March 1, 2020, the State Administration for Market
Regulation is responsible for organizing and guiding the censorship of advertisements for drugs, medical devices, health foods
and formula foods for special medical purposes. Any advertisement for drugs, medical devices, health food or formula food for
special medical purposes shall indicate the advertisement approval number in a prominent position. The validity period of the
advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall
be consistent with the shortest period of validity of the product registration certificate, record-filing certificate, or production
license. Where no period of validity is prescribed in the product registration certificate, record-filing certificate or production
license, the period of validity of the advertisement approval number shall be two years.
Packaging of Pharmaceutical Products
According to the Measures for The Administration of Pharmaceutical Packaging, effective on September 1, 1988,
pharmaceutical packaging must comply with the provisions of the national standard and professional standard. If there are no
standards, the enterprise can formulate its own standard after obtaining the approval of the provincial level drug
administration or bureau of standards. The enterprise shall reapply to the relevant authorities if it needs to change the
packaging standard. Drugs without packing must not be sold in PRC (except for drugs needed by the army).
Labor Protection
Under the Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and
December 29, 2018, the Labor Contract Law of the PRC, effective on January 1, 2008 and subsequently amended on
December 28, 2012, and the Implementing Regulations of the Labor Contract Law of the PRC, effective on September 18, 2008,
employers must establish a comprehensive management system to protect the rights of their employees, including a system
governing occupational health and safety to provide employees with occupational training to prevent occupational injury, and
employers are required to truthfully inform prospective employees of the job description, working conditions, location,
occupational hazards and status of safe production as well as remuneration and other conditions as requested by the Labor
Contract Law of the PRC.
Pursuant to the Law of Manufacturing Safety of the People’s Republic of China effective on November 1, 2002 and
subsequently amended on December 1, 2014 and September 1, 2021, manufacturers must establish a comprehensive
management system to ensure manufacturing safety in accordance with applicable laws and regulations. Manufacturers not
meeting relevant legal requirements are not permitted to commence their manufacturing activities.
Pursuant to the Administrative Measures for Production effective on March 1, 2011, manufacturers of pharmaceutical
products are required to establish production safety and labor protection measures in connection with the operation of their
manufacturing equipment and manufacturing process.
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.
150
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HUTCHMED (China) Limited 2023 Annual Report 311
Commercial Bribery
Other PRC National and Provincial-Level Laws and Regulations
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.
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.
in the future.
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
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.
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.
Other U.S. Healthcare Laws
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.
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152
153
Commercial Bribery
Other PRC National and Provincial-Level Laws and Regulations
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.
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.
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HUTCHMED (China) Limited 2023 Annual Report 313
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 Physician Payments Sunshine Act (“Sunshine Act”), which is a part of the Affordable Care Act, among
other things, imposes annual 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. 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 imposed
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 that apply to
most U.S. health care providers with which we interact, such as our U.S. clinical trial sites. In addition, state laws, including,
notably the CCPA and other comprehensive data privacy and security laws, govern the privacy and security of personal health
information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance
efforts.
PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets
PRC Foreign Currency Exchange
Foreign currency exchange regulation in China is primarily governed by the following rules:
•
Foreign Currency Administration Rules (1996), as last amended on August 5, 2008, or the Exchange Rules; and
• Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
Under the Exchange Rules, the renminbi is convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items,
such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the SAFE’s
scrutiny.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital
account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of
China are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC.
Pursuant to the Circular on Further Improving and Adjusting the Direct Investment Foreign Exchange Administration
Policies, or Circular 59, promulgated by the SAFE on November 19, 2012, 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).
314
154
155
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 Physician Payments Sunshine Act (“Sunshine Act”), which is a part of the Affordable Care Act, among
other things, imposes annual 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. 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 imposed
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 that apply to
most U.S. health care providers with which we interact, such as our U.S. clinical trial sites. In addition, state laws, including,
notably the CCPA and other comprehensive data privacy and security 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 Administration Rules (1996), as last amended on August 5, 2008, or the Exchange Rules; and
• Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
Under the Exchange Rules, the renminbi is convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items,
such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the SAFE’s
scrutiny.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital
account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of
China are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC.
Pursuant to the Circular on Further Improving and Adjusting the Direct Investment Foreign Exchange Administration
Policies, or Circular 59, promulgated by the SAFE on November 19, 2012, 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.
Foreign currency exchange regulation in China is primarily governed by the following rules:
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).
154
155
HUTCHMED (China) Limited 2023 Annual Report 315
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.
The Company Law of the PRC was amended on December 29, 2023 (such amendment, the “Revised Company Law”), and
will take effect on July 1, 2024. Foreign-invested companies must comply with the Revised Company Law, unless otherwise
stipulated. Among others, the Revised Company Law introduces a rule requiring the registered capital of limited liability
companies to be fully paid within five years, which applies to all PRC limited liability companies. Companies incorporated
before the promulgation and implementation of the Revised Company Law are required to gradually adjust to meet the
deadline. In consequence, we may be required to accelerate payment of capital contributions towards the registered capital of
our PRC subsidiaries and joint ventures. Specific implementation measures of the Revised Company Law shall be prescribed by
the State Council, of which, as of the date of this annual report, final versions are yet to be released.
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.
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 partner was required to perform a state-owned asset assessment when Shanghai Hutchison
Pharmaceuticals was incorporated and our joint venture partner 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.
C.
Organizational Structure
15, 2024.
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of February
Public
Shareholders
CK Hutchison
Holdings Limited
Directors
60.7%
38.2%
1.1%
The Company
(Cayman Islands)
Oncology / Immunology
Other Ventures
99.8%(1)
100.0%(2)
50.0%(3)
HUTCHMED Holdings Limited
(Cayman Islands)
HUTCHMED Limited
(PRC)
100.0%
100.0%
HUTCHMED Holdings
(HK) Limited
(Hong Kong)
100.0%
HUTCHMED
(Suzhou) Limited
(PRC)
Shanghai Hutchison
Pharmaceuticals Limited
(PRC)
51.0%(4)
Hutchison Whampoa
Sinopharm
Pharmaceuticals
(Shanghai) Company
Limited
(PRC)
HUTCHMED
International
Corporation
(Delaware, USA)
Subsidiaries
Non-consolidated
Entity
Notes:
Limited.
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
(2) Held through HUTCHMED Investment (HK) Limited. HUTCHMED 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.
(3) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding
Co., Limited is the other 50.0% joint venture partner.
(4) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
D.
Property, Plants and Equipment
We are headquartered in Hong Kong where we have our main administrative offices.
316
156
157
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.
The Company Law of the PRC was amended on December 29, 2023 (such amendment, the “Revised Company Law”), and
will take effect on July 1, 2024. Foreign-invested companies must comply with the Revised Company Law, unless otherwise
stipulated. Among others, the Revised Company Law introduces a rule requiring the registered capital of limited liability
companies to be fully paid within five years, which applies to all PRC limited liability companies. Companies incorporated
before the promulgation and implementation of the Revised Company Law are required to gradually adjust to meet the
deadline. In consequence, we may be required to accelerate payment of capital contributions towards the registered capital of
our PRC subsidiaries and joint ventures. Specific implementation measures of the Revised Company Law shall be prescribed by
the State Council, of which, as of the date of this annual report, final versions are yet to be released.
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.
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 partner was required to perform a state-owned asset assessment when Shanghai Hutchison
Pharmaceuticals was incorporated and our joint venture partner 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.
In accordance with these regulations, we and our joint venture partners have contributed financing to our PRC subsidiaries
C.
Organizational Structure
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of February
15, 2024.
Public
Public
Shareholders
Shareholders
CK Hutchison
CK Hutchison
Holdings Limited
Holdings Limited
Directors
Directors
60.7%
60.7%
38.2%
38.2%
1.1%
1.1%
The Company
The Company
(Cayman Islands)
(Cayman Islands)
Oncology / Immunology
Oncology / Immunology
Other Ventures
Other Ventures
99.8%(1)
99.8%(1)
100.0%(2)
100.0%(2)
50.0%(3)
50.0%(3)
HUTCHMED Holdings Limited
HUTCHMED Holdings Limited
(Cayman Islands)
(Cayman Islands)
HUTCHMED Limited
HUTCHMED Limited
(PRC)
(PRC)
100.0%
100.0%
HUTCHMED
HUTCHMED
(Suzhou) Limited
(Suzhou) Limited
(PRC)
(PRC)
100.0%
100.0%
100.0%
100.0%
HUTCHMED Holdings
HUTCHMED Holdings
(HK) Limited
(HK) Limited
(Hong Kong)
(Hong Kong)
HUTCHMED
HUTCHMED
International
International
Corporation
Corporation
(Delaware, USA)
(Delaware, USA)
Subsidiaries
Subsidiaries
Non-consolidated
Non-consolidated
Entity
Entity
Notes:
Shanghai Hutchison
Shanghai Hutchison
Pharmaceuticals Limited
Pharmaceuticals Limited
(PRC)
(PRC)
51.0%(4)
51.0%(4)
Hutchison Whampoa
Hutchison Whampoa
Sinopharm
Sinopharm
Pharmaceuticals
Pharmaceuticals
(Shanghai) Company
(Shanghai) Company
Limited
Limited
(PRC)
(PRC)
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
Limited.
(2) Held through HUTCHMED Investment (HK) Limited. HUTCHMED 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.
(3) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited. Shanghai Pharmaceuticals Holding
Co., Limited is the other 50.0% joint venture partner.
(4) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
D.
Property, Plants and Equipment
We are headquartered in Hong Kong where we have our main administrative offices.
156
157
HUTCHMED (China) Limited 2023 Annual Report 317
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 recently completed the construction of an almost 55,000 square meter large-scale
manufacturing facility for innovative drugs on the site. The Shanghai manufacturing facility has successfully passed an
inspection by the local regulatory agency and was issued the Drug Manufacturing Permit in 2023. The clinical manufacturing
and technology transfer for some of our commercial products are underway in our new facility. The Shanghai factory will be
our largest manufacturing facility, with a production capacity estimated to be five times that of our facility in Suzhou.
We also lease a 12,679 square foot office in Florham Park, New Jersey to 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
2023.
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.
Research and Development Expenses
Factors Affecting our Results of Operations
318
158
159
Through our Oncology/Immunology operations, our team of approximately 900 scientists and staff has created, developed
and in-licensed a deep portfolio of 13 drug candidates. We have advanced 13 oncology drug candidates to clinical trials in China,
with four also in active clinical development in the United States and Europe. We have brought three of our internally developed
drugs, savolitinib, fruquintinib and surufatinib (marketed as Orpathys, Elunate and Sulanda, respectively) to patients in China.
Fruquintinib also received FDA approval in the United States in 2023 and is marketed as Fruzaqla. Moreover, tazemetostat has
been approved and launched in Hainan Pilot Zone and Macau and submitted for registration in Hong Kong. We also 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, Eli Lilly and Takeda. We and our collaboration partners have
invested approximately $2 billion in our Oncology/Immunology operations as of December 31, 2023, 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 $291.7 million and $385.4 million for the years ended December 31,
2021, 2022 and net income attributable to our company from our Oncology/Immunology operations was $51.2 million for the
year ended December 31, 2023.
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 healthcare
products in China. Net income attributable to our company generated from our Other Ventures operations was $142.9 million,
$54.6 million and $50.3 million for the years ended December 31, 2021, 2022 and 2023, respectively. In addition to helping 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 consolidated revenue was $356.1 million, $426.4 million and $838.0 million for the years ended December 31, 2021,
2022 and 2023, respectively. Net loss attributable to our company was $194.6 million and $360.8 million for the years ended
December 31, 2021 and 2022 and net income attributable to our company was $100.8 million for the year ended December 31,
Basis of Presentation
Our consolidated statements of operations data presented herein for the years ended December 31, 2023, 2022 and 2021
and our consolidated balance sheet data presented herein as of December 31, 2023 and 2022 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
the consolidated financial statements of Shanghai Hutchison Pharmaceuticals 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.”
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 more than ten 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.”
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 recently completed the construction of an almost 55,000 square meter large-scale
manufacturing facility for innovative drugs on the site. The Shanghai manufacturing facility has successfully passed an
inspection by the local regulatory agency and was issued the Drug Manufacturing Permit in 2023. The clinical manufacturing
and technology transfer for some of our commercial products are underway in our new facility. The Shanghai factory will be
our largest manufacturing facility, with a production capacity estimated to be five times that of our facility in Suzhou.
We also lease a 12,679 square foot office in Florham Park, New Jersey to 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.
Through our Oncology/Immunology operations, our team of approximately 900 scientists and staff has created, developed
and in-licensed a deep portfolio of 13 drug candidates. We have advanced 13 oncology drug candidates to clinical trials in China,
with four also in active clinical development in the United States and Europe. We have brought three of our internally developed
drugs, savolitinib, fruquintinib and surufatinib (marketed as Orpathys, Elunate and Sulanda, respectively) to patients in China.
Fruquintinib also received FDA approval in the United States in 2023 and is marketed as Fruzaqla. Moreover, tazemetostat has
been approved and launched in Hainan Pilot Zone and Macau and submitted for registration in Hong Kong. We also 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, Eli Lilly and Takeda. We and our collaboration partners have
invested approximately $2 billion in our Oncology/Immunology operations as of December 31, 2023, 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 $291.7 million and $385.4 million for the years ended December 31,
2021, 2022 and net income attributable to our company from our Oncology/Immunology operations was $51.2 million for the
year ended December 31, 2023.
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 healthcare
products in China. Net income attributable to our company generated from our Other Ventures operations was $142.9 million,
$54.6 million and $50.3 million for the years ended December 31, 2021, 2022 and 2023, respectively. In addition to helping 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 consolidated revenue was $356.1 million, $426.4 million and $838.0 million for the years ended December 31, 2021,
2022 and 2023, respectively. Net loss attributable to our company was $194.6 million and $360.8 million for the years ended
December 31, 2021 and 2022 and net income attributable to our company was $100.8 million for the year ended December 31,
2023.
Basis of Presentation
Our consolidated statements of operations data presented herein for the years ended December 31, 2023, 2022 and 2021
and our consolidated balance sheet data presented herein as of December 31, 2023 and 2022 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
the consolidated financial statements of Shanghai Hutchison Pharmaceuticals 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.”
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.
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 more than ten 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.”
159
HUTCHMED (China) Limited 2023 Annual Report 319
Overview
158
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;
to market ahead of competing drug candidates being developed by other companies.
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 $299.1 million, $386.9
million and $302.0 million for the years ended December 31, 2021, 2022 and 2023, respectively, representing approximately
84.0%, 90.7% and 36.0% of our total consolidated revenue for the respective period. These research and development figures
do not include payments made by our collaboration partners directly to third parties to help fund the research and
development of our drug candidates.
We have been able to fund the research and development expenses for our Oncology/Immunology operations via a range
of sources, including revenue generated from our commercialized drugs, payments received from our collaboration partners,
cash flows generated from and dividend payments from our Other Ventures, the proceeds raised from our initial public offering
on the AIM, initial public offering and follow-on offerings on Nasdaq, initial public offering on the SEHK, investments from other
third parties and bank borrowings.
This diversified approach to funding allows us to not depend on any one method of funding for our research and
development activities, thereby reducing the risk that sufficient financing will be unavailable as we continue to accelerate the
development of our drug candidates.
For more information on the research and development expenses incurred for the development of our drug candidates,
see “—Key Components of Results of Operations—Cost of Revenue 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, surufatinib and savolitinib have been approved for sale in China and fruquintinib has been approved for sale in
both China and the United States.
320
160
161
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
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, HMPL-A83 and HMPL-415, 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 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, Eli Lilly and Takeda, we received
upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain
development, regulatory milestones payments for our provision of research and development services for the relevant drug
candidate as well as commercial milestones and royalties. Revenue recognized in our consolidated financial statements from
such agreements with AstraZeneca, Eli Lilly and Takeda totaled $107.1 million, $129.4 million and $482.0 million for the years
ended December 31, 2021, 2022 and 2023, 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.
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.”
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:
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.
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 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, HMPL-A83 and HMPL-415, 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 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, Eli Lilly and Takeda, we received
upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain
development, regulatory milestones payments for our provision of research and development services for the relevant drug
candidate as well as commercial milestones and royalties. Revenue recognized in our consolidated financial statements from
such agreements with AstraZeneca, Eli Lilly and Takeda totaled $107.1 million, $129.4 million and $482.0 million for the years
ended December 31, 2021, 2022 and 2023, 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.
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.”
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HUTCHMED (China) Limited 2023 Annual Report 321
•
•
•
•
•
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 $299.1 million, $386.9
million and $302.0 million for the years ended December 31, 2021, 2022 and 2023, respectively, representing approximately
84.0%, 90.7% and 36.0% of our total consolidated revenue for the respective period. These research and development figures
do not include payments made by our collaboration partners directly to third parties to help fund the research and
development of our drug candidates.
We have been able to fund the research and development expenses for our Oncology/Immunology operations via a range
of sources, including revenue generated from our commercialized drugs, payments received from our collaboration partners,
cash flows generated from and dividend payments from our Other Ventures, the proceeds raised from our initial public offering
on the AIM, initial public offering and follow-on offerings on Nasdaq, initial public offering on the SEHK, investments from other
third parties and bank borrowings.
This diversified approach to funding allows us to not depend on any one method of funding for our research and
development activities, thereby reducing the risk that sufficient financing will be unavailable as we continue to accelerate the
development of our drug candidates.
For more information on the research and development expenses incurred for the development of our drug candidates,
see “—Key Components of Results of Operations—Cost of Revenue 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, surufatinib and savolitinib have been approved for sale in China and fruquintinib has been approved for sale in
both China and the United States.
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. In January 2024, the updated NRDL will continue to include
Elunate and Sulanda at the same terms as the current two year agreement. Orpathys has been included in the NRDL since March
1, 2023 at a 38% discount relative to the self-pay price.
Revenue from our Other Ventures, including the revenue of our non-consolidated joint venture Shanghai Hutchison
Pharmaceuticals, is affected by the sales volume and pricing of their own-brand and third-party prescription pharmaceutical
products. The sales volume of the products sold by these businesses is driven in part by the level of Chinese government
spending on healthcare and the coverage of Chinese government medical insurance schemes, which is correlated with patient
reimbursements for drug purchases, all of which have increased significantly in recent years as part of healthcare reforms in
China. The sales volume of pharmaceutical products in China is also influenced by their representation on the NRDL, which
determines eligibility for drug reimbursement, as well as their representation on the National Essential Medicines List, which
mandates distribution of drugs in China. Substantially all pharmaceutical products manufactured and sold by Shanghai
Hutchison Pharmaceuticals were capable of being reimbursed under the NRDL as of December 31, 2023. There were 21 of its
drugs included in the National Essential Medicine List, of which two were in active production as of December 31, 2023. 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
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 over 3,000 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 92%, 92% and 90% of its total revenue for the years ended December 31, 2021, 2022
and 2023, respectively. In addition, in recent years Hutchison Sinopharm has been increasingly focused on providing
distribution and commercialization services for prescription drugs licensed from third parties, and we have established and
continue to expand our oncology drug sales team which we utilize for our internally developed drugs for which we have
commercialization rights, if approved, throughout China.
If the marketing efforts of these joint ventures to doctors and hospitals are not successful, our revenue and profitability
may be negatively affected. Moreover, if we are unsuccessful in marketing any third party drugs, it may adversely affect our
ability to enter into commercialization arrangements on acceptable terms, gain rights to market additional third-party drugs
or prevent us from expanding the geographic scope of existing arrangements.
Seasonality
The results of operations of our Other Ventures operations are also affected by seasonal factors. Our Other Ventures
operations typically experience higher profits in the first half of the year due to the sale cycles of our distributors, whereby they
typically increase their inventories at the beginning of each year. In addition, in the second half of each year, our Other Ventures
operations typically spend more on marketing activities to help reduce such inventory held by distributors. We do not
experience material seasonal variations in the results of our Oncology/Immunology operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of operating results and financial condition are based upon our consolidated financial
statements. The preparation of consolidated financial statements requires us to estimate the effect of various matters that are
inherently uncertain as of the date of the consolidated financial statements. Each of these required estimates varies with regard
to the level of judgment involved and its potential impact on our reported financial results. Estimates are deemed critical when
a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from
period to period, and a different estimate would materially impact our financial position, changes in financial position or results
of operations. Our significant accounting policies are discussed under note 3 to our consolidated financial statements included
in this annual report. We believe the following critical accounting policies are affected by significant judgments and estimates
used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable.
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 healthcare 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. Revenue 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.
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.
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162
163
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. In January 2024, the updated NRDL will continue to include
Elunate and Sulanda at the same terms as the current two year agreement. Orpathys has been included in the NRDL since March
1, 2023 at a 38% discount relative to the self-pay price.
Revenue from our Other Ventures, including the revenue of our non-consolidated joint venture Shanghai Hutchison
Pharmaceuticals, is affected by the sales volume and pricing of their own-brand and third-party prescription pharmaceutical
products. The sales volume of the products sold by these businesses is driven in part by the level of Chinese government
spending on healthcare and the coverage of Chinese government medical insurance schemes, which is correlated with patient
reimbursements for drug purchases, all of which have increased significantly in recent years as part of healthcare reforms in
China. The sales volume of pharmaceutical products in China is also influenced by their representation on the NRDL, which
determines eligibility for drug reimbursement, as well as their representation on the National Essential Medicines List, which
mandates distribution of drugs in China. Substantially all pharmaceutical products manufactured and sold by Shanghai
Hutchison Pharmaceuticals were capable of being reimbursed under the NRDL as of December 31, 2023. There were 21 of its
drugs included in the National Essential Medicine List, of which two were in active production as of December 31, 2023. 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
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
our profitability.”
Reimbursement.”
Ability to Effectively Market Own-Brand and Third-Party Drugs
A key component of our Other Ventures operations is the extensive prescription drugs marketing network operated by our
joint ventures Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm, which includes over 3,000 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 92%, 92% and 90% of its total revenue for the years ended December 31, 2021, 2022
and 2023, respectively. In addition, in recent years Hutchison Sinopharm has been increasingly focused on providing
distribution and commercialization services for prescription drugs licensed from third parties, and we have established and
continue to expand our oncology drug sales team which we utilize for our internally developed drugs for which we have
commercialization rights, if approved, throughout China.
If the marketing efforts of these joint ventures to doctors and hospitals are not successful, our revenue and profitability
may be negatively affected. Moreover, if we are unsuccessful in marketing any third party drugs, it may adversely affect our
ability to enter into commercialization arrangements on acceptable terms, gain rights to market additional third-party drugs
or prevent us from expanding the geographic scope of existing arrangements.
Seasonality
The results of operations of our Other Ventures operations are also affected by seasonal factors. Our Other Ventures
operations typically experience higher profits in the first half of the year due to the sale cycles of our distributors, whereby they
typically increase their inventories at the beginning of each year. In addition, in the second half of each year, our Other Ventures
operations typically spend more on marketing activities to help reduce such inventory held by distributors. We do not
experience material seasonal variations in the results of our Oncology/Immunology operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of operating results and financial condition are based upon our consolidated financial
statements. The preparation of consolidated financial statements requires us to estimate the effect of various matters that are
inherently uncertain as of the date of the consolidated financial statements. Each of these required estimates varies with regard
to the level of judgment involved and its potential impact on our reported financial results. Estimates are deemed critical when
a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from
period to period, and a different estimate would materially impact our financial position, changes in financial position or results
of operations. Our significant accounting policies are discussed under note 3 to our consolidated financial statements included
in this annual report. We believe the following critical accounting policies are affected by significant judgments and estimates
used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable.
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 healthcare 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. Revenue 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.
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.
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HUTCHMED (China) Limited 2023 Annual Report 323
Revenue Recognition—License and Collaboration Contracts
Allowance for Current Expected Credit Losses (“CECLs”)
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.
We estimate our allowances for CECLs for accounts receivables, other receivables (except for prepayments) and amounts
due from related parties by considering past events, including any historical default, current economic conditions and certain
forward-looking information, including reasonable and supportable forecasts. The methodologies that the Group uses to
estimate the allowance for CECLs for accounts receivables, other receivables (except for prepayments) and amounts due from
related parties are as follows:
Individually evaluated—we review all accounts receivables, other receivables (except for prepayments) and amounts due
from related parties 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 receivables, other receivables (except for prepayments)
and amounts due from related parties 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 receivables, other
receivables (except for prepayments) and amounts due from related parties 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
Our Oncology/Immunology reportable segment includes revenue from license and collaboration contracts, which
generally contain multiple performance obligations including (1) the licenses to the development, commercialization and
manufacture rights of a drug compound, (2) the research and development services for each specified treatment indication,
and (3) other deliverables, which are accounted for separately if they are distinct, i.e. if a product or service is separately
identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that
are readily available to the customer.
The transaction price generally includes fixed and variable consideration in the form of upfront payment, research and
development cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone
payments are not included in the transaction price until it becomes probable that a significant reversal of revenue will not
occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance
obligation is based on the relative standalone selling prices of each performance obligation determined at the inception of the
contract. We estimate the standalone selling prices based on the income approach and cost plus margin 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 a percentage of completion method. 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 revenue is 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 or earning royalties on future sales. 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
We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the
impairment or disposal of long-lived assets.
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value
of these assets may not be recoverable. Indicators that we consider in deciding when to perform an impairment review include
significant under-performance of a business or product line in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in our use of the assets.
If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net
assets exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order
to determine if the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess.
324
164
165
Revenue Recognition—License and Collaboration Contracts
Allowance for Current Expected Credit Losses (“CECLs”)
Our Oncology/Immunology reportable segment includes revenue from license and collaboration contracts, which
We estimate our allowance for current expected credit losses (“CECLs”) based on an expected loss model, which requires
generally contain multiple performance obligations including (1) the licenses to the development, commercialization and
the consideration of forward-looking economic variables and conditions in the reserve calculation across the portfolio.
We estimate our allowances for CECLs for accounts receivables, other receivables (except for prepayments) and amounts
due from related parties by considering past events, including any historical default, current economic conditions and certain
forward-looking information, including reasonable and supportable forecasts. The methodologies that the Group uses to
estimate the allowance for CECLs for accounts receivables, other receivables (except for prepayments) and amounts due from
related parties are as follows:
Individually evaluated—we review all accounts receivables, other receivables (except for prepayments) and amounts due
from related parties 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 receivables, other receivables (except for prepayments)
and amounts due from related parties 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 receivables, other
receivables (except for prepayments) and amounts due from related parties 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
manufacture rights of a drug compound, (2) the research and development services for each specified treatment indication,
and (3) other deliverables, which are accounted for separately if they are distinct, i.e. if a product or service is separately
identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that
are readily available to the customer.
The transaction price generally includes fixed and variable consideration in the form of upfront payment, research and
development cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone
payments are not included in the transaction price until it becomes probable that a significant reversal of revenue will not
occur, which is generally when the specified milestone is achieved. The allocation of the transaction price to each performance
obligation is based on the relative standalone selling prices of each performance obligation determined at the inception of the
contract. We estimate the standalone selling prices based on the income approach and cost plus margin 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 a percentage of completion method. 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 revenue is 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 or earning royalties on future sales. 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
We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the
impairment or disposal of long-lived assets.
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value
of these assets may not be recoverable. Indicators that we consider in deciding when to perform an impairment review include
significant under-performance of a business or product line in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in our use of the assets.
If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net
assets exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order
to determine if the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess.
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HUTCHMED (China) Limited 2023 Annual Report 325
Key Components of Results of Operations
Revenue
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, 2023, 2022 and 2021 and the selected consolidated balance
sheet data as of December 31, 2023 and 2022 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, 2020 and 2019 and as of December 31, 2021, 2020 and 2019 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.
The following table sets forth the components by contract type of our consolidated revenue for the years indicated, which
does not include the revenue from our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. In December
2023, we sold our interests in our consolidated joint venture Hutchison Hain Organic and our wholly own subsidiary HUTCHMED
Science Nutrition, and their historical financial results and gain on divestment are reflected in our consolidated financial
statements. 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.
Consolidated statement of operations data:
Revenue
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 revenue
Operating expenses
Cost of goods—third parties
Cost of goods—related parties
Cost of services—commercialization—third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other income/(expense)
Interest income
Other income
Interest expense
Other expense
Total other income/(expense)
Income/(loss) before income taxes and equity in earnings of equity investees
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to the Company
Earnings/(losses) per share attributable to the Company (US$ per share)
—basic
—diluted
Number of shares used in per share calculation
—basic
—diluted
Net income/(loss)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive income/(loss)
Less: Comprehensive loss/(income) attributable to non-controlling interests
Total comprehensive income/(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
2023
388,924
8,264
48,608
80,397
481
32,470
278,855
837,999
(331,984)
(4,777)
(47,686)
(302,001)
(53,392)
(79,784)
(819,624)
18,375
—
36,145
12,949
(759)
(8,402)
39,933
58,308
(4,509)
47,295
101,094
(314)
100,780
Year Ended December 31,
2022
2020
2021
$’000 (except share and per share data)
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)
2019
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)
0.12
0.12
(0.43)
(0.43)
(0.25)
(0.25)
(0.18)
(0.18)
(0.16)
(0.16)
849,654,296
869,196,348
101,094
847,143,540
847,143,540
(360,386)
792,684,524
792,684,524
(167,041)
697,931,437
697,931,437
(115,517)
665,683,145
665,683,145
(103,679)
(6,592)
94,502
39
94,541
(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)
2023
2022
2021
2020
2019
283,589
602,747
1,279,773
403,027
133,359
743,387
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
Invoiced Goods—Marketed Products(1)
83,087
9.9
57,057
13.4
33,937
Revenue
Oncology/Immunology:
Services:
Commercialization—Marketed Products
Research and Development—related parties
License & Collaborations:
Services
Licensing
Royalties—Marketed Products
Manufacturing Supply(1)
Subtotal
Other Ventures:
Invoiced Goods(1)
Invoiced Goods—related parties
Subtotal
Total
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
48,608
481
80,397
32,470
278,855
4,718
528,616
301,119
8,264
309,383
837,999
5.8
0.1
9.6
3.9
33.3
0.5
63.1
35.9
1.0
36.9
41,275
507
9.7
0.1
27,428
525
23,741
26,310
14,954
—
5.5
6.2
3.5
—
18,995
15,064
23,661
—
163,844
38.4
119,610
257,272
60.3
232,262
5,293
1.3
4,256
262,565
61.6
236,518
100.0
426,409
100.0
356,128
100.0
9.5
7.7
0.2
5.3
4.2
6.7
—
33.6
65.2
1.2
66.4
(1)
Included in revenue from goods – third parties in our consolidated statements of operations.
Revenue from Oncology/Immunology primarily comprises revenue from Elunate, Sulanda and Orpathys in China and
revenue from Fruzaqla. 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. The revenue we generate from Fruzaqla is primarily comprised of revenue from manufacturing supplies to
Takeda as well as royalty revenue. Additionally, Oncology/Immunology revenue includes revenue from license and
collaboration agreements for upfront, milestone and research and development services payments for our drug candidates
developed in collaboration with Takeda, AstraZeneca and Eli Lilly.
The following table sets forth the components of revenue of our Other Ventures by product type for the years indicated.
Revenue—Other Ventures
Prescription drug products
Consumer health products
Total
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
295,396
13,987
309,383
95.5
4.5
237,293
25,272
90.4
204,091
9.6
32,427
86.3
13.7
100.0
262,565
100.0
236,518
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 products and a leading supply chain service provider in China.
326
166
167
Key Components of Results of Operations
Revenue
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, 2023, 2022 and 2021 and the selected consolidated balance
sheet data as of December 31, 2023 and 2022 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, 2020 and 2019 and as of December 31, 2021, 2020 and 2019 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.
The following table sets forth the components by contract type of our consolidated revenue for the years indicated, which
does not include the revenue from our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. In December
2023, we sold our interests in our consolidated joint venture Hutchison Hain Organic and our wholly own subsidiary HUTCHMED
Science Nutrition, and their historical financial results and gain on divestment are reflected in our consolidated financial
statements. 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.
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
Revenue
Oncology/Immunology:
Invoiced Goods—Marketed Products(1)
Services:
Commercialization—Marketed Products
Research and Development—related parties
License & Collaborations:
Services
Royalties—Marketed Products
Licensing
Manufacturing Supply(1)
Subtotal
Other Ventures:
Invoiced Goods(1)
Invoiced Goods—related parties
Subtotal
Total
83,087
9.9
57,057
13.4
33,937
48,608
481
5.8
0.1
41,275
507
9.7
0.1
27,428
525
80,397
32,470
278,855
4,718
528,616
301,119
8,264
309,383
837,999
9.6
3.9
33.3
0.5
63.1
23,741
26,310
14,954
—
163,844
5.5
6.2
3.5
—
38.4
18,995
15,064
23,661
—
119,610
35.9
1.0
36.9
100.0
257,272
5,293
262,565
426,409
60.3
1.3
61.6
100.0
232,262
4,256
236,518
356,128
65.2
1.2
66.4
100.0
9.5
7.7
0.2
5.3
4.2
6.7
—
33.6
(1)
Included in revenue from goods – third parties in our consolidated statements of operations.
Revenue from Oncology/Immunology primarily comprises revenue from Elunate, Sulanda and Orpathys in China and
revenue from Fruzaqla. 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. The revenue we generate from Fruzaqla is primarily comprised of revenue from manufacturing supplies to
Takeda as well as royalty revenue. Additionally, Oncology/Immunology revenue includes revenue from license and
collaboration agreements for upfront, milestone and research and development services payments for our drug candidates
developed in collaboration with Takeda, AstraZeneca and Eli Lilly.
The following table sets forth the components of revenue of our Other Ventures by product type for the years indicated.
Revenue—Other Ventures
Prescription drug products
Consumer health products
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
295,396
13,987
309,383
95.5
4.5
100.0
237,293
25,272
262,565
90.4
9.6
100.0
204,091
32,427
236,518
86.3
13.7
100.0
Revenue from our Other Ventures primarily comprises revenue from prescription drugs including the commercial services,
logistics and distribution business of our consolidated Hutchison Sinopharm joint venture with Sinopharm, a leading
distributor of pharmaceutical products and a leading supply chain service provider in China.
166
167
HUTCHMED (China) Limited 2023 Annual Report 327
Consolidated statement of operations data:
Revenue
Goods—third parties
—related parties
Services—commercialization—third parties
—collaboration research and development—third parties
—research and development—related parties
Other collaboration revenue—royalties—third parties
—licensing—third parties
Total revenue
Operating expenses
Cost of goods—third parties
Cost of goods—related parties
Cost of services—commercialization—third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other income/(expense)
Interest income
Other income
Interest expense
Other expense
Total other income/(expense)
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Less: Net income attributable to non-controlling interests
Net income/(loss) attributable to the Company
Earnings/(losses) per share attributable to the Company (US$ per share)
—basic
—diluted
—basic
—diluted
Number of shares used in per share calculation
Net income/(loss)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain
Total comprehensive income/(loss)
Less: Comprehensive loss/(income) attributable to non-controlling interests
Total comprehensive income/(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,
2023
2022
2021
2020
2019
$’000 (except share and per share data)
388,924
314,329
266,199
203,606
426,409
356,128
227,976
204,890
(178,828)
(152,729)
8,264
48,608
80,397
481
32,470
278,855
837,999
(331,984)
(4,777)
(47,686)
(302,001)
(53,392)
(79,784)
(819,624)
18,375
—
36,145
12,949
(759)
(8,402)
39,933
58,308
(4,509)
47,295
101,094
(314)
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)
283
49,753
(360,386)
(449)
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)
(11,918)
60,617
(167,041)
(27,607)
(194,648)
5,484
3,734
9,771
491
4,890
—
(3,671)
(6,020)
(174,776)
(11,334)
(50,015)
(424,644)
(196,668)
—
3,236
4,600
(787)
(115)
6,934
175,990
7,637
2,584
15,532
494
2,653
—
(5,494)
(1,929)
(138,190)
(13,724)
(39,210)
(351,276)
(146,386)
—
4,944
1,855
(1,030)
(488)
5,281
(4,829)
79,046
(115,517)
(10,213)
(125,730)
(3,274)
40,700
(103,679)
(2,345)
(106,024)
100,780
(360,835)
0.12
0.12
(0.43)
(0.43)
(0.25)
(0.25)
(0.18)
(0.18)
(0.16)
(0.16)
849,654,296
869,196,348
847,143,540
847,143,540
792,684,524
697,931,437
792,684,524
697,931,437
665,683,145
665,683,145
101,094
(360,386)
(167,041)
(115,517)
(103,679)
(6,592)
94,502
39
(8,469)
(368,855)
545
94,541
(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)
2023
2022
2021
2020
2019
1,279,773
1,029,445
1,372,661
283,589
602,747
403,027
133,359
743,387
313,278
317,718
353,903
38,672
636,870
377,542
634,158
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
Income/(loss) before income taxes and equity in earnings of equity investees
(410,422)
(215,740)
(189,734)
(141,105)
Revenue from our Other Ventures also comprises revenue from sales of organic and natural products by Hutchison Hain
Organic (which was divested in December 2023), Zhi Ling Tong infant nutrition and other health supplement products
manufactured by Hutchison Healthcare and distributed through Hutchison Sinopharm up until 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 (which was divested in December 2023).
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
$332.6 million, $370.6 million and $385.5 million for the years ended December 31, 2021, 2022 and 2023, 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 $209.5 million for the period ended September 28, 2021. 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 Revenue and Operating Expenses
Cost of Revenue
Our cost of revenue is primarily attributable to the cost of revenue of Hutchison Sinopharm and HUTCHMED Limited. The
following table sets forth the components of our cost of revenue for the years indicated.
Cost of Revenue
Oncology/Immunology:
Cost of Invoiced Goods
Cost of Services
Subtotal
Other Ventures:
Cost of Invoiced Goods
Cost of Invoiced Goods—related parties
Subtotal
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
44,040
47,686
91,726
287,944
4,777
292,721
384,447
11.5
12.4
23.9
30,403
38,789
69,192
9.8
12.5
22.3
19,133
25,672
44,805
74.9
1.2
76.1
100.0
238,295
3,616
241,911
311,103
76.6
1.1
77.7
100.0
210,315
3,114
213,429
258,234
7.4
9.9
17.3
81.4
1.3
82.7
100.0
The following table sets forth the components of cost of revenue of our Other Ventures by product type for the years
indicated.
Cost of Revenue—Other Ventures
Prescription drug products
Consumer health products
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
284,927
7,794
292,721
97.3
2.7
100.0
228,968
12,943
241,911
94.6
5.4
100.0
196,375
17,053
213,428
92.0
8.0
100.0
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:
Fruquintinib (targeting VEGFR1/2/3)
Savolitinib (targeting MET)
Surufatinib (targeting VEGFR/FGFR1/CSF-1R)
Amdizalisib (targeting PI3Kδ)
Sovleplenib (targeting Syk)
HMPL-306 (targeting IDH 1/2)
Tazemetostat (targeting EZH2)
HMPL-453 (targeting FGFR)
HMPL-760 (targeting BTK)
HMPL-653 (targeting CSF-1R)
HMPL-415 (targeting SHP2)
monoclonal antibody)
HMPL-295 (targeting ERK)
Others and government grant
Total clinical trial related costs
HMPL-A83 (IgG4-type humanized anti-CD47
Personnel compensation and related costs
Other research and development costs
Total
PRC
U.S. and others
Total
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
40,384
37,692
24,746
17,065
14,200
12,633
12,171
7,532
2,467
1,981
1,121
1,096
645
25,995
199,728
93,030
9,243
302,001
13.4
12.5
8.2
5.7
4.7
4.2
4.0
2.5
0.8
0.7
0.4
0.4
0.2
8.4
66.1
30.8
3.1
100.0
52,115
48,249
37,635
27,046
23,138
14,865
19,019
2,776
4,954
1,778
—
2,840
1,362
20,158
255,935
119,306
11,652
386,893
13.5
12.5
9.7
7.0
6.0
3.8
4.9
0.7
1.3
0.5
—
0.7
0.4
5.2
66.2
30.8
3.0
57,707
26,152
47,971
21,044
8,602
10,073
12,139
1,708
5,288
132
—
—
692
(1,457)
190,051
91,639
17,396
19.3
8.7
16.0
7.0
2.9
3.4
4.1
0.6
1.8
—
—
—
0.2
(0.4)
63.6
30.6
5.8
100.0
299,086
100.0
Year Ended December 31,
2023
2022
2021
$’000
195,070
106,931
302,001
%
64.6
35.4
100.0
$’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
The following table summarizes our research and development expenses by location for the years indicated.
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 revenue from the commercialization and sale of
any of our drug candidates that obtain regulatory approval. We may not 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;
328
168
169
Revenue from our Other Ventures also comprises revenue from sales of organic and natural products by Hutchison Hain
Research and Development Expenses
Organic (which was divested in December 2023), Zhi Ling Tong infant nutrition and other health supplement products
manufactured by Hutchison Healthcare and distributed through Hutchison Sinopharm up until 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 (which was divested in December 2023).
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
$332.6 million, $370.6 million and $385.5 million for the years ended December 31, 2021, 2022 and 2023, 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 $209.5 million for the period ended September 28, 2021. 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
Our cost of revenue is primarily attributable to the cost of revenue of Hutchison Sinopharm and HUTCHMED Limited. The
following table sets forth the components of our cost of revenue for the years indicated.
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
44,040
11.5
30,403
47,686
91,726
12.4
23.9
38,789
69,192
9.8
12.5
22.3
19,133
25,672
44,805
287,944
4,777
292,721
384,447
74.9
1.2
238,295
3,616
76.1
241,911
76.6
210,315
1.1
3,114
77.7
213,429
100.0
311,103
100.0
258,234
7.4
9.9
17.3
81.4
1.3
82.7
100.0
The following table sets forth the components of cost of revenue of our Other Ventures by product type for the years
Earnings of Equity Investees.”
Cost of Revenue and Operating Expenses
Cost of Revenue
Cost of Revenue
Oncology/Immunology:
Cost of Invoiced Goods
Cost of Services
Subtotal
Other Ventures:
Cost of Invoiced Goods
Cost of Invoiced Goods—related parties
Subtotal
Total
indicated.
Cost of Revenue—Other Ventures
Prescription drug products
Consumer health products
Total
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:
Fruquintinib (targeting VEGFR1/2/3)
Savolitinib (targeting MET)
Surufatinib (targeting VEGFR/FGFR1/CSF-1R)
Amdizalisib (targeting PI3Kδ)
Sovleplenib (targeting Syk)
HMPL-306 (targeting IDH 1/2)
Tazemetostat (targeting EZH2)
HMPL-453 (targeting FGFR)
HMPL-760 (targeting BTK)
HMPL-653 (targeting CSF-1R)
HMPL-415 (targeting SHP2)
HMPL-A83 (IgG4-type humanized anti-CD47
monoclonal antibody)
HMPL-295 (targeting ERK)
Others and government grant
Total clinical trial related costs
Personnel compensation and related costs
Other research and development costs
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
40,384
37,692
24,746
17,065
14,200
12,633
12,171
7,532
2,467
1,981
1,121
1,096
645
25,995
199,728
93,030
9,243
302,001
13.4
12.5
8.2
5.7
4.7
4.2
4.0
2.5
0.8
0.7
0.4
0.4
0.2
8.4
66.1
30.8
3.1
100.0
52,115
48,249
37,635
27,046
23,138
14,865
19,019
2,776
4,954
1,778
—
2,840
1,362
20,158
255,935
119,306
11,652
386,893
13.5
12.5
9.7
7.0
6.0
3.8
4.9
0.7
1.3
0.5
—
0.7
57,707
26,152
47,971
21,044
8,602
10,073
12,139
1,708
5,288
132
—
—
0.4
5.2
66.2
30.8
3.0
100.0
692
(1,457)
190,051
91,639
17,396
299,086
19.3
8.7
16.0
7.0
2.9
3.4
4.1
0.6
1.8
—
—
—
0.2
(0.4)
63.6
30.6
5.8
100.0
The following table summarizes our research and development expenses by location for the years indicated.
PRC
U.S. and others
Total
2023
Year Ended December 31,
2022
2021
$’000
195,070
106,931
302,001
%
64.6
35.4
100.0
$’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
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 revenue from the commercialization and sale of
any of our drug candidates that obtain regulatory approval. We may not 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:
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
284,927
97.3
228,968
7,794
292,721
2.7
100.0
12,943
241,911
94.6
5.4
196,375
17,053
100.0
213,428
92.0
8.0
100.0
•
•
•
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;
168
169
HUTCHMED (China) Limited 2023 Annual Report 329
•
•
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
consolidated joint venture, Hutchison Baiyunshan. Our equity in earnings of equity investees, net of tax, contributed by
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 for approved indications in both China and the United States, and 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
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
45,505
7,887
53,392
85.2
14.8
100.0
33,862
10,071
43,933
77.1
22.9
100.0
24,627
13,200
37,827
65.1
34.9
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. It also includes
sales and marketing expenses and related personnel expenses incurred by our Other Ventures in their distribution and
marketing of pharmaceutical and consumer health products.
Administrative Expenses
The following table sets forth the components of our administrative expenses for the years indicated.
Administrative expenses are also incurred by our corporate head office, which are not allocated to either
Oncology/Immunology or Other Ventures.
Administrative Expenses
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
47,966
5,435
26,383
79,784
60.1
6.8
33.1
100.0
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
Oncology/Immunology’s administrative expenses are primarily comprised of the salaries and benefits of administrative
staff, office leases and other overhead expenses incurred by HUTCHMED Limited.
Our Other Ventures’ administrative expenses are primarily comprised of the salaries and benefits of administrative staff,
office leases and other overhead expenses incurred by Hutchison Sinopharm, Hutchison Healthcare and Hutchison Hain
Organic (which was divested in December 2023).
Our corporate head office administrative expenses are primarily comprised of the salaries and benefits of our corporate
head office employees and directors, office leases and other overhead expenses.
330
170
171
Equity in Earnings of Equity Investees
We have historically derived a significant portion of our net income from our equity in earnings of equity investees, which
was primarily attributable to our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals and former non-
Shanghai Hutchison Pharmaceuticals was $44.7 million, $49.7 million and $47.3 million for the years ended December 31, 2021,
2022 and 2023 respectively. Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was
$15.9 million for the period ended September 28, 2021.
The following table shows the revenue of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan for the periods
indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS
as issued by the IASB and are presented separately elsewhere in this annual report.
Revenue
Other Ventures:
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan(1)
Total
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
385,483
100.0
370,600
100.0
332,648
—
—
—
—
209,528
61.4
38.6
385,483
100.0
370,600
100.0
542,176
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,
2023
2022
2021
$’000
%
$’000
%
$’000
%
47,295
100.0
49,748
100.0
—
—
—
—
—
5
—
—
44,678
15,919
73.7
26.3
20
—
47,295
100.0
49,753
100.0
60,617
100.0
Equity in earnings of equity investees, net of tax
Other Ventures:
Shanghai Hutchison Pharmaceuticals(1)
Hutchison Baiyunshan(2)
Oncology/Immunology:
Others
Total
respectively.
(1) The amount for the years ended December 31, 2021, 2022 and 2023 includes elimination of unrealized profits on
transactions with the Group of $36,000, $110,000 and $131,000 and GAAP difference of $1,000, $16,000 and $306,000
(2) On September 28, 2021, we completed the divestment of our shareholding interest in Hutchison Baiyunshan. Equity in
earnings of Hutchison Baiyunshan reflects the period from January 1, 2021 to September 28, 2021.
Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. 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.
•
•
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 for approved indications in both China and the United States, and 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.”
The following table sets forth the components of our selling expenses for the years indicated.
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
45,505
7,887
85.2
14.8
33,862
10,071
77.1
22.9
24,627
13,200
65.1
34.9
53,392
100.0
43,933
100.0
37,827
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. 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.
Administrative expenses are also incurred by our corporate head office, which are not allocated to either
Oncology/Immunology or Other Ventures.
Selling Expenses
Selling Expenses
Oncology/Immunology
Other Ventures
Total
Administrative Expenses
Administrative Expenses
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
47,966
5,435
26,383
79,784
60.1
6.8
33.1
100.0
58,395
3,482
30,296
92,173
63.3
48,359
3.8
7,712
32.9
33,227
54.2
8.6
37.2
100.0
89,298
100.0
Oncology/Immunology’s administrative expenses are primarily comprised of the salaries and benefits of administrative
staff, office leases and other overhead expenses incurred by HUTCHMED Limited.
Our Other Ventures’ administrative expenses are primarily comprised of the salaries and benefits of administrative staff,
office leases and other overhead expenses incurred by Hutchison Sinopharm, Hutchison Healthcare and Hutchison Hain
Organic (which was divested in December 2023).
Our corporate head office administrative expenses are primarily comprised of the salaries and benefits of our corporate
head office employees and directors, office leases and other overhead expenses.
Equity in Earnings of Equity Investees
We have historically derived a significant portion of our net income from our equity in earnings of equity investees, which
was primarily attributable to our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals and former non-
consolidated joint venture, Hutchison Baiyunshan. Our equity in earnings of equity investees, net of tax, contributed by
Shanghai Hutchison Pharmaceuticals was $44.7 million, $49.7 million and $47.3 million for the years ended December 31, 2021,
2022 and 2023 respectively. Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was
$15.9 million for the period ended September 28, 2021.
The following table shows the revenue of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan for the periods
indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS
as issued by the IASB and are presented separately elsewhere in this annual report.
Revenue
Other Ventures:
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan(1)
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
385,483
—
385,483
100.0
—
100.0
370,600
—
370,600
100.0
—
100.0
332,648
209,528
542,176
61.4
38.6
100.0
(1) On September 28, 2021, we completed the disposal of our equity interest in Hutchison Baiyunshan. Revenue in 2021 reflects
the period from January 1, 2021 to September 28, 2021.
The following table shows the amount of equity in earnings of equity investees, net of tax, of our non-consolidated joint
ventures for the years indicated.
Equity in earnings of equity investees, net of tax
Other Ventures:
Shanghai Hutchison Pharmaceuticals(1)
Hutchison Baiyunshan(2)
Oncology/Immunology:
Others
Total
2023
Year Ended December 31,
2022
2021
$’000
%
$’000
%
$’000
%
47,295
—
100.0
—
49,748
—
100.0
—
44,678
15,919
73.7
26.3
—
47,295
—
100.0
5
49,753
—
100.0
20
60,617
—
100.0
(1) The amount for the years ended December 31, 2021, 2022 and 2023 includes elimination of unrealized profits on
transactions with the Group of $36,000, $110,000 and $131,000 and GAAP difference of $1,000, $16,000 and $306,000
respectively.
(2) On September 28, 2021, we completed the divestment of our shareholding interest in Hutchison Baiyunshan. Equity in
earnings of Hutchison Baiyunshan reflects the period from January 1, 2021 to September 28, 2021.
Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals. 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.
170
171
HUTCHMED (China) Limited 2023 Annual Report 331
The following table shows our investments in our equity investees as of the dates indicated.
People’s Republic of China
Shanghai Hutchison Pharmaceuticals
Other
Total
As of December 31,
2023
2022
$’000
48,411
—
48,411
73,461
316
73,777
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,
2023
2022
$’000
201,025
73,939
(179,649)
(3,687)
91,628
214,267
80,062
(147,952)
(4,944)
141,433
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 revenue. 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.
2023
Year Ended December 31,
2022
2021
Hong Kong
Revenue
Cost of revenue
Research and development expenses
Selling expenses
Administrative expenses
Gain on divestment of an equity investee
Other income/(expense)
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Net income /(loss) attributable to our company
%
%
%
$’000
837,999
(384,447)
(302,001)
(53,392)
(79,784)
—
39,933
(4,509)
47,295
101,094
100,780
$’000
426,409
(311,103)
(386,893)
(43,933)
(92,173)
—
(2,729)
283
49,753
(360,386)
(360,835)
$’000
356,128
100.0
(73.1) (258,234)
(90.7) (299,086)
(37,827)
(10.3)
(89,298)
(21.6)
121,310
—
(8,733)
(0.6)
(11,918)
0.1
60,617
11.7
(84.5) (167,041)
(84.6) (194,648)
100.0
(45.9)
(36.0)
(6.4)
(9.5)
—
4.8
(0.5)
5.6
12.1
12.0
100.0
(72.5)
(84.0)
(10.6)
(25.1)
34.1
(2.5)
(3.3)
17.0
(46.9)
(54.7)
Cayman Islands
Taxation
HUTCHMED (China) Limited is incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on profits,
income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject
to withholding tax in the Cayman Islands. For more information, see Item 10.E. “Taxation—Overview of Tax Implications of
Various Other Jurisdictions—Cayman Islands Taxation.”
332
172
173
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, 2023 to December 31,
2025. Accordingly, these entities are eligible to a preferential EIT rate of 15% for the years ended/ending December 31, 2023,
2024 and 2025. 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.”
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.
Revenue
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Period-to-Period Comparison of Results of Operations
Our revenue increased by 96.5% from $426.4 million for the year ended December 31, 2022 to $838.0 million for the year
ended December 31, 2023, which resulted from increased revenue primarily in the Oncology/Immunology operations.
The following table shows our investments in our equity investees as of the dates indicated.
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, 2023 to December 31,
2025. Accordingly, these entities are eligible to a preferential EIT rate of 15% for the years ended/ending December 31, 2023,
2024 and 2025. 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, 2023 Compared to Year Ended December 31, 2022
Period-to-Period Comparison of Results of Operations
Net income /(loss) attributable to our company
100,780
12.0
(360,835)
(84.6) (194,648)
(54.7)
Revenue
Our revenue increased by 96.5% from $426.4 million for the year ended December 31, 2022 to $838.0 million for the year
ended December 31, 2023, which resulted from increased revenue primarily in the Oncology/Immunology operations.
173
HUTCHMED (China) Limited 2023 Annual Report 333
The following table shows the financial position of Shanghai Hutchison Pharmaceuticals as of the dates indicated.
Shanghai Hutchison Pharmaceuticals
Other
Total
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
As of December 31,
2023
2022
$’000
48,411
—
48,411
73,461
316
73,777
As of December 31,
2023
2022
$’000
201,025
73,939
(179,649)
(3,687)
91,628
214,267
80,062
(147,952)
(4,944)
141,433
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 revenue. 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.
Revenue
Cost of revenue
Research and development expenses
Selling expenses
Administrative expenses
Gain on divestment of an equity investee
Other income/(expense)
Income tax (expense)/benefit
Equity in earnings of equity investees, net of tax
Net income/(loss)
Year Ended December 31,
2023
2022
2021
$’000
%
$’000
%
$’000
%
837,999
100.0
426,409
100.0
356,128
100.0
(384,447)
(302,001)
(53,392)
(79,784)
—
39,933
(4,509)
47,295
101,094
(45.9)
(36.0)
(6.4)
(9.5)
—
4.8
(0.5)
5.6
12.1
(311,103)
(73.1) (258,234)
(386,893)
(90.7) (299,086)
(72.5)
(84.0)
(43,933)
(10.3)
(37,827)
(10.6)
(92,173)
(21.6)
(89,298)
(25.1)
—
—
121,310
(2,729)
(0.6)
(8,733)
283
0.1
(11,918)
49,753
11.7
60,617
34.1
(2.5)
(3.3)
17.0
(360,386)
(84.5) (167,041)
(46.9)
Cayman Islands
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.”
Taxation
172
Revenue from Oncology/Immunology increased by 222.6% from $163.8 million for the year ended December 31, 2022 to
$528.6 million for the year ended December 31, 2023, primarily due to revenue from Takeda of $353.1 million for the year ended
December 31, 2023 (of which $280.0 million was the revenue recognized from the $400 million upfront payment received, $33.9
million was revenue related to research and development services, $32.0 million was the revenue recognized from the $35
million milestone payment received which was triggered by FDA approval of Fruzaqla in November 2023, $5.1 million was
revenue from invoiced sales of goods to Takeda and $2.1 million was royalty revenue). The increase was also attributable to
the sales of Elunate from $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) to $83.2 million for the year ended December 31, 2023 (of which $18.0 million was revenue from sales of
goods primarily to Eli Lilly, $16.6 million was royalty revenue and $48.6 million was revenue from promotion and marketing
services to Eli Lilly). Sales of Sulanda have also contributed to the increase in revenue from $32.3 million for the year ended
December 31, 2022 to $43.9 million for the year ended December 31, 2023. The increase was also attributable to the sales of
Orpathys from $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) to $28.9 million for the year ended December 31, 2023 (of which $15.1 million was revenue
from sales of goods and $13.8 million was royalty revenue). The increase has been netted off by reduction in revenue related to
other (non-Takeda) research and development services which have decreased from $38.7 million for the year ended December
31, 2022 to $18.0 million for the year ended December 31, 2023, primarily attributable to 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 as well as less
cost reimbursement from Eli Lilly for the year ended December 31, 2023.
Revenue from our Other Ventures increased by 17.8% from $262.6 million for the year ended December 31, 2022 to $309.4
million for the year ended December 31, 2023, primarily due to an increase in sales of prescription drugs products. Revenue
from sales of prescription drugs increased by 24.5% from $237.3 million for the year ended December 31, 2022 to $295.4 million
for the year ended December 31, 2023, 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 44.7% from $25.3 million for the year
ended December 31, 2022 to $14.0 million for the year ended December 31, 2023, primarily due to decreased sales by our
consolidated joint venture Hutchison Hain Organic (which was divested in December 2023).
Cost of Revenue
Our cost of revenue increased by 23.6% from $311.1 million for the year ended December 31, 2022 to $384.4 million for the
year ended December 31, 2023. This increase was due to increased sales by the Oncology/Immunology and Other Ventures
operations.
Cost of revenue from Oncology/Immunology increased by 32.6% from $69.2 million for the year ended December 31, 2022
to $91.7 million for the year ended December 31, 2023, primarily due to an increase in sales of Elunate (including the provision
of promotion and marketing services to Eli Lilly), Sulanda, Orpathys and Fruzaqla.
Cost of revenue from our Other Ventures increased by 21.0% from $241.9 million for the year ended December 31, 2022 to
$292.7 million for the year ended December 31, 2023, which was primarily due to increased sales.
Cost of revenue as a percentage of our revenue decreased from 73.0% to 45.9% across these periods, primarily due to the
new revenue from Takeda.
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology decreased by 21.9% from $386.9 million for
the year ended December 31, 2022 to $302.0 million for the year ended December 31, 2023, which was primarily due to a $58.6
million decrease in CROs and other clinical trial related costs and a $26.3 million decrease in personnel compensation and
related costs. These decreased costs were primarily due to completion of major registration-enabling trials and strategic
prioritization of our pipelines. Research and development expenses as a percentage of our revenue decreased from 90.7% to
36.0% across these periods, primarily due to the new revenue from Takeda and the aforementioned decrease in spending.
Selling Expenses
Our selling expenses increased by 21.5% from $43.9 million for the year ended December 31, 2022 to $53.4 million for the
year ended December 31, 2023, primarily due to the expansion of our China oncology commercial team and increased
marketing activities. Selling expenses as a percentage of our revenue decreased from 10.3% to 6.4% across these periods,
primarily due to the new revenue from Takeda.
Administrative Expenses
Our administrative expenses decreased by 13.4% from $92.2 million for the year ended December 31, 2022 to $79.8 million
for the year ended December 31, 2023. This was primarily due to a $10.4 million decrease in administrative expenses incurred
by Oncology/Immunology, which was mainly due to the restructuring of our U.S. Oncology/Immunology commercial
operations in 2022. Administrative expenses as a percentage of our revenue decreased from 21.6% to 9.5% across these periods,
primarily due to the new revenue from Takeda and the aforementioned decrease in spending.
Other Income/(Expense)
We had net other expenses of $2.7 million for the year ended December 31, 2022 compared to net other income of $39.9
million for the year ended December 31, 2023. The change was primarily due to higher interest income of $26.5 million primarily
from the interest earned on the $400 million Takeda upfront received. The change was also contributed by the net foreign
exchange loss of $5.7 million for the year ended December 31, 2022 as compared to the net foreign exchange gain of $8.7 million
for the year ended December 31, 2023 on USD denominated bank balances in China.
We had income tax benefit of $0.3 million for the year ended December 31, 2022 compared to income tax expense of $4.5
million for the year ended December 31, 2023, primarily due to an increase in taxable profit in Oncology/Immunology which
was mainly due to the restructuring of our U.S. Oncology/Immunology commercial operations at the end of 2022.
Income Tax (Expense)/Benefit
Equity in Earnings of Equity Investees
Our equity in earnings of equity investees, net of tax, decreased by 4.9% from $49.8 million for the year ended December
31, 2022 to $47.3 million for the year ended December 31, 2023, primarily due to a decrease in gross profit margin by Shanghai
Hutchison Pharmaceuticals for the year ended December 31, 2023.
Shanghai Hutchison Pharmaceuticals
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years
indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS
as issued by the IASB and are presented separately elsewhere in this annual report.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Year Ended December 31,
2023
2022
($’000)
385,483
(101,122)
(150,717)
(26,107)
5,027
(17,022)
95,463
47,295
%
($’000)
100.0
370,600
(26.2)
(89,487)
(39.1)
(144,979)
(6.8)
1.3
(4.4)
24.8
12.3
(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
Equity in earnings of equity investee attributable to our company(1)
(1) Equity in earnings of equity investee attributable to our company is presented under U.S. GAAP. The amount for the year
ended December 31, 2023 includes elimination of unrealized profits on transactions with the Group of $131,000 and GAAP
difference of $306,000. The amount for the year ended December 31, 2022 includes elimination of unrealized profits on
transactions with the Group of $110,000 and GAAP difference of $16,000.
334
174
175
Revenue from Oncology/Immunology increased by 222.6% from $163.8 million for the year ended December 31, 2022 to
Selling Expenses
$528.6 million for the year ended December 31, 2023, primarily due to revenue from Takeda of $353.1 million for the year ended
December 31, 2023 (of which $280.0 million was the revenue recognized from the $400 million upfront payment received, $33.9
million was revenue related to research and development services, $32.0 million was the revenue recognized from the $35
million milestone payment received which was triggered by FDA approval of Fruzaqla in November 2023, $5.1 million was
revenue from invoiced sales of goods to Takeda and $2.1 million was royalty revenue). The increase was also attributable to
the sales of Elunate from $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) to $83.2 million for the year ended December 31, 2023 (of which $18.0 million was revenue from sales of
goods primarily to Eli Lilly, $16.6 million was royalty revenue and $48.6 million was revenue from promotion and marketing
services to Eli Lilly). Sales of Sulanda have also contributed to the increase in revenue from $32.3 million for the year ended
December 31, 2022 to $43.9 million for the year ended December 31, 2023. The increase was also attributable to the sales of
Orpathys from $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) to $28.9 million for the year ended December 31, 2023 (of which $15.1 million was revenue
from sales of goods and $13.8 million was royalty revenue). The increase has been netted off by reduction in revenue related to
other (non-Takeda) research and development services which have decreased from $38.7 million for the year ended December
31, 2022 to $18.0 million for the year ended December 31, 2023, primarily attributable to 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 as well as less
cost reimbursement from Eli Lilly for the year ended December 31, 2023.
Revenue from our Other Ventures increased by 17.8% from $262.6 million for the year ended December 31, 2022 to $309.4
million for the year ended December 31, 2023, primarily due to an increase in sales of prescription drugs products. Revenue
from sales of prescription drugs increased by 24.5% from $237.3 million for the year ended December 31, 2022 to $295.4 million
for the year ended December 31, 2023, 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 44.7% from $25.3 million for the year
ended December 31, 2022 to $14.0 million for the year ended December 31, 2023, primarily due to decreased sales by our
consolidated joint venture Hutchison Hain Organic (which was divested in December 2023).
Cost of Revenue
operations.
Our cost of revenue increased by 23.6% from $311.1 million for the year ended December 31, 2022 to $384.4 million for the
year ended December 31, 2023. This increase was due to increased sales by the Oncology/Immunology and Other Ventures
Cost of revenue from Oncology/Immunology increased by 32.6% from $69.2 million for the year ended December 31, 2022
to $91.7 million for the year ended December 31, 2023, primarily due to an increase in sales of Elunate (including the provision
of promotion and marketing services to Eli Lilly), Sulanda, Orpathys and Fruzaqla.
Cost of revenue from our Other Ventures increased by 21.0% from $241.9 million for the year ended December 31, 2022 to
$292.7 million for the year ended December 31, 2023, which was primarily due to increased sales.
Cost of revenue as a percentage of our revenue decreased from 73.0% to 45.9% across these periods, primarily due to the
new revenue from Takeda.
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology decreased by 21.9% from $386.9 million for
the year ended December 31, 2022 to $302.0 million for the year ended December 31, 2023, which was primarily due to a $58.6
million decrease in CROs and other clinical trial related costs and a $26.3 million decrease in personnel compensation and
related costs. These decreased costs were primarily due to completion of major registration-enabling trials and strategic
prioritization of our pipelines. Research and development expenses as a percentage of our revenue decreased from 90.7% to
36.0% across these periods, primarily due to the new revenue from Takeda and the aforementioned decrease in spending.
Our selling expenses increased by 21.5% from $43.9 million for the year ended December 31, 2022 to $53.4 million for the
year ended December 31, 2023, primarily due to the expansion of our China oncology commercial team and increased
marketing activities. Selling expenses as a percentage of our revenue decreased from 10.3% to 6.4% across these periods,
primarily due to the new revenue from Takeda.
Administrative Expenses
Our administrative expenses decreased by 13.4% from $92.2 million for the year ended December 31, 2022 to $79.8 million
for the year ended December 31, 2023. This was primarily due to a $10.4 million decrease in administrative expenses incurred
by Oncology/Immunology, which was mainly due to the restructuring of our U.S. Oncology/Immunology commercial
operations in 2022. Administrative expenses as a percentage of our revenue decreased from 21.6% to 9.5% across these periods,
primarily due to the new revenue from Takeda and the aforementioned decrease in spending.
Other Income/(Expense)
We had net other expenses of $2.7 million for the year ended December 31, 2022 compared to net other income of $39.9
million for the year ended December 31, 2023. The change was primarily due to higher interest income of $26.5 million primarily
from the interest earned on the $400 million Takeda upfront received. The change was also contributed by the net foreign
exchange loss of $5.7 million for the year ended December 31, 2022 as compared to the net foreign exchange gain of $8.7 million
for the year ended December 31, 2023 on USD denominated bank balances in China.
Income Tax (Expense)/Benefit
We had income tax benefit of $0.3 million for the year ended December 31, 2022 compared to income tax expense of $4.5
million for the year ended December 31, 2023, primarily due to an increase in taxable profit in Oncology/Immunology which
was mainly due to the restructuring of our U.S. Oncology/Immunology commercial operations at the end of 2022.
Equity in Earnings of Equity Investees
Our equity in earnings of equity investees, net of tax, decreased by 4.9% from $49.8 million for the year ended December
31, 2022 to $47.3 million for the year ended December 31, 2023, primarily due to a decrease in gross profit margin by Shanghai
Hutchison Pharmaceuticals for the year ended December 31, 2023.
Shanghai Hutchison Pharmaceuticals
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years
indicated. The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS
as issued by the IASB and are presented separately elsewhere in this annual report.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Equity in earnings of equity investee attributable to our company(1)
Year Ended December 31,
2023
2022
($’000)
385,483
(101,122)
(150,717)
(26,107)
5,027
(17,022)
95,463
47,295
%
100.0
(26.2)
(39.1)
(6.8)
1.3
(4.4)
24.8
12.3
($’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
(1) Equity in earnings of equity investee attributable to our company is presented under U.S. GAAP. The amount for the year
ended December 31, 2023 includes elimination of unrealized profits on transactions with the Group of $131,000 and GAAP
difference of $306,000. The amount for the year ended December 31, 2022 includes elimination of unrealized profits on
transactions with the Group of $110,000 and GAAP difference of $16,000.
174
175
HUTCHMED (China) Limited 2023 Annual Report 335
Shanghai Hutchison Pharmaceuticals’ revenue increased by 4.0% from $370.6 million for the year ended December 31,
2022 to $385.5 million for the year ended December 31, 2023, 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 2.1% from $341.6 million for
the year ended December 31, 2022 to $348.6 million for the year ended December 31, 2023. The increase in revenue was also
due to an $8.6 million increase in sales Zhi Ling Tong infant nutrition products manufactured by Hutchison Healthcare and
distributed by Shanghai Hutchison Pharmaceuticals starting from October 1, 2022.
Cost of sales increased by 13.0% from $89.5 million for the year December 31, 2022 to $101.1 million for the year ended
December 31, 2023, 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 mainly due to the impact of gradual price adjustment from volume-based
procurement.
Selling expenses increased by 4.0% from $145.0 million for the year ended December 31, 2022 to $150.7 million for the year
ended December 31, 2023, as a result of increased spending on marketing activities to support the increase in sales.
Administrative expenses increased by 20.2% from $21.7 million for the year ended December 31, 2022 to $26.1 million for
the year ended December 31, 2023, primarily due to an increase in staff costs and other office expenses to support commercial
activities.
Other net operating income increased by 136.5% from $2.1 million for the year ended December 31, 2022 to $5.0 million
for the year ended December 31, 2023, primarily due to an increase in government grants.
Taxation charge increased by 1.7% from $16.7 million for the year ended December 31, 2022 to $17.0 million for the year
ended December 31, 2023, primarily due to the reversal of certain deferred tax assets.
As a result of the foregoing, profit decreased by 4.2% from $99.7 million for the year ended December 31, 2022 to $95.5
million for the year ended December 31, 2023. Our equity in earnings of equity investees contributed by this joint venture was
$49.7 million and $47.3 million for the years ended December 31, 2022 and 2023, respectively.
For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of
Operations— Equity in Earnings of Equity Investees.”
Net Income/(Loss)
As a result of the foregoing, our net loss of 360.4 million for the year ended December 31, 2022 turned into net income of
$101.1 million for the year ended December 31, 2023. Net loss attributable to our company of $360.8 million for the year ended
December 31, 2022 turned into net income attributable to our Company of $100.8 million for the year ended December 31, 2023.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December
31, 2021, see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2022, filed with
the SEC on February 28, 2023.
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.
Primarily due to an increase in total revenue driven by Oncology/Immunology partnering, its strong commercial progress
in China, and growth in third-party distribution sale, net income attributable to the Company amounted to $100.8 million for
the year ended December 31, 2023, while for the years ended December 31, 2022 and 2021 the net loss attributable to the
Company was $360.8 million and $194.6 million, respectively. 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—Our Oncology/Immunology
operations have not generated significant profits and have operated at a net loss historically until recently, and our future
profitability is dependent on the successful commercialization of our drug candidates.”
As of December 31, 2023, we had cash and cash equivalents of $283.6 million and short-term investments of $602.7 million
and unutilized bank facilities of $68.1 million. Substantially all of our bank deposits are at major financial institutions, which
we believe are of high credit quality. As of December 31, 2023, we had $79.3 million in bank loans, of which $48.2 million was
related to a fixed asset loan and $31.1 million was related to a working capital loan. The total weighted average cost of bank
borrowings for the year ended December 31, 2023 was 3.41% per annum. For additional information, see “—Loan Facilities.”
Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are
required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their
registered capital. In addition, certain of our joint ventures are required to allocate certain of their after-tax profits as
determined in accordance with related regulations and their respective articles of association to the reserve funds upon their
board approval. Profit appropriated to the reserve funds for our subsidiaries and joint ventures incorporated in the PRC was
approximately $89,000, $318,000 and $168,000 for the years ended December 31, 2021, 2022 and 2023, 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 $1.0 million as of December 31, 2023. 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 $19.1 million in cash and cash
equivalents and no bank borrowings as of December 31, 2023. 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 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.”
336
176
177
Shanghai Hutchison Pharmaceuticals’ revenue increased by 4.0% from $370.6 million for the year ended December 31,
2022 to $385.5 million for the year ended December 31, 2023, 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 2.1% from $341.6 million for
the year ended December 31, 2022 to $348.6 million for the year ended December 31, 2023. The increase in revenue was also
due to an $8.6 million increase in sales Zhi Ling Tong infant nutrition products manufactured by Hutchison Healthcare and
distributed by Shanghai Hutchison Pharmaceuticals starting from October 1, 2022.
Cost of sales increased by 13.0% from $89.5 million for the year December 31, 2022 to $101.1 million for the year ended
December 31, 2023, 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 mainly due to the impact of gradual price adjustment from volume-based
procurement.
activities.
Selling expenses increased by 4.0% from $145.0 million for the year ended December 31, 2022 to $150.7 million for the year
ended December 31, 2023, as a result of increased spending on marketing activities to support the increase in sales.
Administrative expenses increased by 20.2% from $21.7 million for the year ended December 31, 2022 to $26.1 million for
the year ended December 31, 2023, primarily due to an increase in staff costs and other office expenses to support commercial
Other net operating income increased by 136.5% from $2.1 million for the year ended December 31, 2022 to $5.0 million
for the year ended December 31, 2023, primarily due to an increase in government grants.
Taxation charge increased by 1.7% from $16.7 million for the year ended December 31, 2022 to $17.0 million for the year
ended December 31, 2023, primarily due to the reversal of certain deferred tax assets.
As a result of the foregoing, profit decreased by 4.2% from $99.7 million for the year ended December 31, 2022 to $95.5
million for the year ended December 31, 2023. Our equity in earnings of equity investees contributed by this joint venture was
$49.7 million and $47.3 million for the years ended December 31, 2022 and 2023, respectively.
For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of
Operations— Equity in Earnings of Equity Investees.”
Net Income/(Loss)
As a result of the foregoing, our net loss of 360.4 million for the year ended December 31, 2022 turned into net income of
$101.1 million for the year ended December 31, 2023. Net loss attributable to our company of $360.8 million for the year ended
December 31, 2022 turned into net income attributable to our Company of $100.8 million for the year ended December 31, 2023.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December
31, 2021, see Item 5.A. “Operating Results” of our annual report on Form 20-F for the year ended December 31, 2022, filed with
the SEC on February 28, 2023.
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.
Primarily due to an increase in total revenue driven by Oncology/Immunology partnering, its strong commercial progress
in China, and growth in third-party distribution sale, net income attributable to the Company amounted to $100.8 million for
the year ended December 31, 2023, while for the years ended December 31, 2022 and 2021 the net loss attributable to the
Company was $360.8 million and $194.6 million, respectively. 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—Our Oncology/Immunology
operations have not generated significant profits and have operated at a net loss historically until recently, and our future
profitability is dependent on the successful commercialization of our drug candidates.”
As of December 31, 2023, we had cash and cash equivalents of $283.6 million and short-term investments of $602.7 million
and unutilized bank facilities of $68.1 million. Substantially all of our bank deposits are at major financial institutions, which
we believe are of high credit quality. As of December 31, 2023, we had $79.3 million in bank loans, of which $48.2 million was
related to a fixed asset loan and $31.1 million was related to a working capital loan. The total weighted average cost of bank
borrowings for the year ended December 31, 2023 was 3.41% per annum. For additional information, see “—Loan Facilities.”
Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are
required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their
registered capital. In addition, certain of our joint ventures are required to allocate certain of their after-tax profits as
determined in accordance with related regulations and their respective articles of association to the reserve funds upon their
board approval. Profit appropriated to the reserve funds for our subsidiaries and joint ventures incorporated in the PRC was
approximately $89,000, $318,000 and $168,000 for the years ended December 31, 2021, 2022 and 2023, 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 $1.0 million as of December 31, 2023. 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 $19.1 million in cash and cash
equivalents and no bank borrowings as of December 31, 2023. 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 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.”
176
177
HUTCHMED (China) Limited 2023 Annual Report 337
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 revenue 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 generated from/(used in) operating activities
Net cash (used in)/generated from investing activities
Net cash generated from/(used in) 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 generated from/(used in) Operating Activities
2023
Year Ended December 31,
2022
($’000)
2021
219,258
(291,136)
48,660
(23,218)
(6,471)
313,278
283,589
(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
Net cash used in operating activities was $268.6 million for the year ended December 31, 2022, compared to net cash
generated from operating activities of $219.3 million for the year ended December 31, 2023. The net change of $487.9 million
was primarily attributable to a net loss attributable to the Company of $360.8 million for the year ended December 31, 2022
turning into a net income attributable to the Company of $100.8 million for the year ended December 31, 2023 (which included
$312.0 million in upfront and milestone income recognized from Takeda).
For a discussion of our net cash used in operating activities for the years ended December 31, 2022 and 2021, see Item 5.B.
“Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022, filed with the SEC
on February 28, 2023.
Net Cash (used in)/generated from Investing Activities
Net cash generated from investing activities was $296.6 million for the year ended December 31, 2022, compared to net
cash used in investing activities of $291.1 million for the year ended December 31, 2023. The net change of $587.7 million was
primarily attributable to placement of more short-term investments which had net withdrawals of $316.4 million for the year
ended December 31, 2022 as compared to net deposits of $285.0 million for the year ended December 31, 2023. The net change
was partially offset by a $13.0 million increase in amounts received from the divestment of a former equity investee from $16.5
million during the year ended December 31, 2022 to $29.5 million during the year ended December 31, 2023.
For a discussion of our net cash generated from/(used in) investing activities for the years ended December 31, 2022 and
2021, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022,
filed with the SEC on February 28, 2023.
Net Cash generated from/(used in) Financing Activities
Net cash used in financing activities was $82.8 million for the year ended December 31, 2022, compared to net cash
generated from financing activities of $48.7 million for the year ended December 31, 2023. The net change of $131.5 million was
mainly attributable to bank borrowings which had a net repayment of $9.2 million during the year ended December 31, 2022 as
compared to net proceeds of $61.7 million during the year ended December 31, 2023. The net change was also attributable to
a $39.0 million decrease in purchases of ADSs by a trustee for the settlement of equity awards of the Company from $48.1 million
for the year ended December 31, 2022 to $9.1 million for the year ended December 31, 2023, as well as a $16.5 million decrease
in dividends paid to non-controlling shareholders of subsidiaries from $25.6 million for the year ended December 31, 2022 to
$9.1 million for the year ended December 31, 2023.
For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2022 and
2021, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022,
filed with the SEC on February 28, 2023.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2023. For more information on bank
borrowings and interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant
and equipment that are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum
lease payments in respect of various factories, warehouse, offices and other assets under non-cancellable lease agreements.
For more information on purchase obligations and lease obligations, please see “—Capital Expenditures.”
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
Total
Shanghai Hutchison Pharmaceuticals
lease agreements.
Purchase obligations
Lease obligations
Total
Loan Facilities
Payment Due by Period
Less Than
More Than
Total
1 Year
1
2 Years 2
5 Years
5 Years
79,344
11,034
1,259
7,583
99,220
31,155
2,411
1,259
3,919
38,744
($’000)
‑‑
958
1,638
—
‑‑
11,490
4,503
—
1,356
3,952
2,308
18,301
35,741
2,482
—
—
38,223
Payment Due by Period
Less Than
More Than
Total
1 Year
1
2 Years 2
5 Years
5 Years
376
1,459
1,835
376
791
1,167
($’000)
‑‑
—
‑‑
651
651
—
17
17
—
—
—
The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison
Pharmaceuticals as of December 31, 2023. 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
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 ($105.5 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, 2023, RMB344.8 million ($48.2
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.
The revolving credit facility expired in May 2023.
In November 2023, Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company entered into a short-term
working capital loan facility agreement with Bank of China Limited for the provision of a credit facility of RMB300.0 million
($41.9 million) with an annual interest rate at the 1-year China Loan Prime Rate less 0.95%. As of December 31, 2023, RMB222.9
million ($31.1 million) was utilized from the loan facility.
338
178
179
We believe that our current levels of cash and cash equivalents, short-term investments, along with cash flows from
operations, dividend payments and unutilized bank borrowings, will be sufficient to meet our anticipated cash needs for at
least the next 12 months. In the long term, we believe that we can meet our need for cash through revenue generated from
marketed products, public and private sales of our securities and the potential disposals of our remaining non-core businesses.
However, we may require additional financing in order to fund all of the clinical development efforts that we plan to undertake
to accelerate the development of our clinical-stage drug candidates. For more information, see Item 3.D. “Risk Factors—Risks
Relating to Our Financial Position and Need for Capital.”
Cash Flow Data:
Net cash generated from/(used in) operating activities
Net cash (used in)/generated from investing activities
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Net Cash generated from/(used in) Operating Activities
Year Ended December 31,
2023
2021
2022
($’000)
219,258
(268,599)
(291,136)
296,588
(204,223)
(306,320)
48,660
(23,218)
(6,471)
313,278
283,589
(82,763)
(54,774)
(9,490)
377,542
313,278
650,028
139,485
2,427
235,630
377,542
Net cash used in operating activities was $268.6 million for the year ended December 31, 2022, compared to net cash
generated from operating activities of $219.3 million for the year ended December 31, 2023. The net change of $487.9 million
was primarily attributable to a net loss attributable to the Company of $360.8 million for the year ended December 31, 2022
turning into a net income attributable to the Company of $100.8 million for the year ended December 31, 2023 (which included
$312.0 million in upfront and milestone income recognized from Takeda).
For a discussion of our net cash used in operating activities for the years ended December 31, 2022 and 2021, see Item 5.B.
“Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022, filed with the SEC
on February 28, 2023.
Net Cash (used in)/generated from Investing Activities
Net cash generated from investing activities was $296.6 million for the year ended December 31, 2022, compared to net
cash used in investing activities of $291.1 million for the year ended December 31, 2023. The net change of $587.7 million was
primarily attributable to placement of more short-term investments which had net withdrawals of $316.4 million for the year
ended December 31, 2022 as compared to net deposits of $285.0 million for the year ended December 31, 2023. The net change
was partially offset by a $13.0 million increase in amounts received from the divestment of a former equity investee from $16.5
million during the year ended December 31, 2022 to $29.5 million during the year ended December 31, 2023.
For a discussion of our net cash generated from/(used in) investing activities for the years ended December 31, 2022 and
2021, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022,
filed with the SEC on February 28, 2023.
Net Cash generated from/(used in) Financing Activities
Net cash used in financing activities was $82.8 million for the year ended December 31, 2022, compared to net cash
generated from financing activities of $48.7 million for the year ended December 31, 2023. The net change of $131.5 million was
mainly attributable to bank borrowings which had a net repayment of $9.2 million during the year ended December 31, 2022 as
compared to net proceeds of $61.7 million during the year ended December 31, 2023. The net change was also attributable to
a $39.0 million decrease in purchases of ADSs by a trustee for the settlement of equity awards of the Company from $48.1 million
for the year ended December 31, 2022 to $9.1 million for the year ended December 31, 2023, as well as a $16.5 million decrease
in dividends paid to non-controlling shareholders of subsidiaries from $25.6 million for the year ended December 31, 2022 to
$9.1 million for the year ended December 31, 2023.
For a discussion of our net cash (used in)/generated from financing activities for the years ended December 31, 2022 and
2021, see Item 5.B. “Liquidity and Capital Resources” of our annual report on Form 20-F for the year ended December 31, 2022,
filed with the SEC on February 28, 2023.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2023. For more information on bank
borrowings and interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant
and equipment that are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum
lease payments in respect of various factories, warehouse, offices and other assets under non-cancellable lease agreements.
For more information on purchase obligations and lease obligations, please see “—Capital Expenditures.”
Payment Due by Period
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
Total
Shanghai Hutchison Pharmaceuticals
Total
79,344
11,034
1,259
7,583
99,220
Less Than
1 Year
31,155
2,411
1,259
3,919
38,744
5 Years
More Than
5 Years
1
2 Years 2
($’000)
‑‑
958
1,638
—
1,356
3,952
‑‑
11,490
4,503
—
2,308
18,301
35,741
2,482
—
—
38,223
The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison
Pharmaceuticals as of December 31, 2023. 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.
Payment Due by Period
Purchase obligations
Lease obligations
Total
Loan Facilities
Total
376
1,459
1,835
Less Than
1 Year
1
2 Years 2
($’000)
‑‑
—
651
651
5 Years
More Than
5 Years
‑‑
—
17
17
—
—
—
376
791
1,167
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 ($105.5 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, 2023, RMB344.8 million ($48.2
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.
The revolving credit facility expired in May 2023.
In November 2023, Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company entered into a short-term
working capital loan facility agreement with Bank of China Limited for the provision of a credit facility of RMB300.0 million
($41.9 million) with an annual interest rate at the 1-year China Loan Prime Rate less 0.95%. As of December 31, 2023, RMB222.9
million ($31.1 million) was utilized from the loan facility.
178
179
HUTCHMED (China) Limited 2023 Annual Report 339
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
December 31, 2023.
Gearing Ratio
The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 10.7% as
of December 31, 2023, an increase from 2.8% as of December 31, 2022. The increase was primarily attributable to the increase
in interest-bearing loans.
Capital Expenditures
We had capital expenditures of $16.8 million, $36.7 million and $32.6 million for the years ended December 31, 2021, 2022
and 2023, 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, 2023, we had commitments for capital expenditures of approximately $1.3 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 $3.4 million, $1.9
million and $5.8 million for the years ended December 31, 2021, 2022 and 2023, 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.
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 February 15, 2024, 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.
Paul Rutherford CARTER
63 Senior Independent Non-executive Director
Name
TO Chi Keung, Simon
Weiguo SU
CHENG Chig Fung, Johnny
Edith SHIH
Dan ELDAR
Ling YANG
Graeme Allan JACK
MOK Shu Kam, Tony
Michael Ming SHI
Karen Jane ATKIN
Zhenping WU
Hong CHEN
Mark Kin Hung LEE
May Qingmei WANG
Age
Position
72 Executive Director and Chairman
66 Executive Director, Chief Executive Officer and Chief Scientific Officer
57 Executive Director and Chief Financial Officer
72 Non-executive Director and Company Secretary
70 Non-executive Director
44 Non-executive Director
73 Independent Non-executive Director
63 Independent Non-executive Director
58 Executive Vice President, Head of R&D and Chief Medical Officer
58 Executive Vice President and Chief Operating Officer
64 Executive Vice President, Pharmaceutical Sciences and Manufacturing
53 Executive Vice President and Chief Commercial Officer (China)
46 Senior Vice President, Corporate Management and Communications
60 Senior Vice President, Business Development & Strategic Alliances
Charles George Rupert NIXON
54 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.
340
180
181
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
December 31, 2023.
Gearing Ratio
in interest-bearing loans.
Capital Expenditures
The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 10.7% as
of December 31, 2023, an increase from 2.8% as of December 31, 2022. The increase was primarily attributable to the increase
We had capital expenditures of $16.8 million, $36.7 million and $32.6 million for the years ended December 31, 2021, 2022
and 2023, 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, 2023, we had commitments for capital expenditures of approximately $1.3 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 $3.4 million, $1.9
million and $5.8 million for the years ended December 31, 2021, 2022 and 2023, 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
D. Trend Information.
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.
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 February 15, 2024, 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
Ling YANG
Paul Rutherford CARTER
Graeme Allan JACK
MOK Shu Kam, Tony
Michael Ming SHI
Karen Jane ATKIN
Zhenping WU
Hong CHEN
Mark Kin Hung LEE
May Qingmei WANG
Charles George Rupert NIXON
Age
Position
72 Executive Director and Chairman
66 Executive Director, Chief Executive Officer and Chief Scientific Officer
57 Executive Director and Chief Financial Officer
72 Non-executive Director and Company Secretary
70 Non-executive Director
44 Non-executive Director
63 Senior Independent Non-executive Director
73 Independent Non-executive Director
63 Independent Non-executive Director
58 Executive Vice President, Head of R&D and Chief Medical Officer
58 Executive Vice President and Chief Operating Officer
64 Executive Vice President, Pharmaceutical Sciences and Manufacturing
53 Executive Vice President and Chief Commercial Officer (China)
46 Senior Vice President, Corporate Management and Communications
60 Senior Vice President, Business Development & Strategic Alliances
54 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.
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HUTCHMED (China) Limited 2023 Annual Report 341
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 the 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”). She is also a current member and past chairperson of the nomination committee of HKCGI. Further, she is
also chairperson of the process review panel for the Accounting and Financial Reporting Council (formerly known as the
Financial Reporting Council) and a member of the Executive Committee and Council of The Hong Kong Management
Association. She was also a member of the Securities and Futures Appeal Tribunal. 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 Israelʼs 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.
Ling Yang has been a non-executive director of our company since July 2023. She has been the managing director of Carlyle
since January 2017 and co-head of Carlyle Asia Healthcare since November 2021, in charge of advising in healthcare investment
and portfolio activities of Carlyle in China. She is also chairwoman and non-executive director of ADICON Holdings Limited.
Prior to Carlyle Group, Ms. Yang worked in private equity at KKR Asia Limited and in investment banking at Goldman Sachs in
the U.S.. She was formerly a director of Shenzhen Salubris Pharmaceuticals Co., Ltd. Ms. Yang graduated summa cum laude and
is a member of Phi Beta Kappa with a bachelorʼs degree in economics and computer science from Smith College and she
received her master of business administration degree from Harvard Business School.
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
(currently GSK Plc.). He is currently a director of Immatics N.V. and Kyowa Kirin International Plc. 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, Mallinckrodt plc and VectivBio Holding AG. 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.
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). 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) 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).
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 technical committee, a member of our audit committee and sustainability committee. Professor
Mok has more than 35 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 300 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. In September 2023, Professor Mok was awarded The Sixth Fok Ying-Tung Prize – The World
Outstanding Chinese Doctor Award, for his contribution in lung cancer research. 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 and Distinguished Professorship at Fujian
Cancer Hospital. 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.
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183
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 the 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”). She is also a current member and past chairperson of the nomination committee of HKCGI. Further, she is
also chairperson of the process review panel for the Accounting and Financial Reporting Council (formerly known as the
Financial Reporting Council) and a member of the Executive Committee and Council of The Hong Kong Management
Association. She was also a member of the Securities and Futures Appeal Tribunal. 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 Israelʼs 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.
Ling Yang has been a non-executive director of our company since July 2023. She has been the managing director of Carlyle
since January 2017 and co-head of Carlyle Asia Healthcare since November 2021, in charge of advising in healthcare investment
and portfolio activities of Carlyle in China. She is also chairwoman and non-executive director of ADICON Holdings Limited.
Prior to Carlyle Group, Ms. Yang worked in private equity at KKR Asia Limited and in investment banking at Goldman Sachs in
the U.S.. She was formerly a director of Shenzhen Salubris Pharmaceuticals Co., Ltd. Ms. Yang graduated summa cum laude and
is a member of Phi Beta Kappa with a bachelorʼs degree in economics and computer science from Smith College and she
received her master of business administration degree from Harvard Business School.
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
(currently GSK Plc.). He is currently a director of Immatics N.V. and Kyowa Kirin International Plc. 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, Mallinckrodt plc and VectivBio Holding AG. 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.
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). 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) 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).
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 technical committee, a member of our audit committee and sustainability committee. Professor
Mok has more than 35 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 300 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. In September 2023, Professor Mok was awarded The Sixth Fok Ying-Tung Prize – The World
Outstanding Chinese Doctor Award, for his contribution in lung cancer research. 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 and Distinguished Professorship at Fujian
Cancer Hospital. 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.
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HUTCHMED (China) Limited 2023 Annual Report 343
Michael Ming Shi is our executive vice president, head of R&D and chief medical officer. He 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. Before that, he worked at Novartis for over 15 years, where he
held various senior leadership positions including global program clinical head in clinical development. Dr. Shi is a member of
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 Anti-cancer Association (USCACA). Dr. Shi also worked as the program director of Genetics Variation at National
Institution of Health (“NIH”) 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 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, 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.
Hong Chen is our executive 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.
Mark Kin Hung Lee is our senior vice president of corporate management and communications. He began working in
healthcare investment banking in the United States and Europe in 1998 and joined our 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 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 & 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.
Charles George Rupert Nixon has been our group general counsel since May 2015 and has worked with our company since
2006. Prior to joining our 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) 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 LL.B (Hons) from Middlesex University and is a qualified solicitor in England & Wales with over 30
years of experience.
Board Diversity
On August 6, 2021, the SEC approved the Nasdaq Stock Market’s proposal to amend its listing standards to encourage
greater board diversity and to require board diversity disclosures for Nasdaq-listed companies. Pursuant to the amended listing
standards, HUTCHMED, as a foreign private issuer, is required to have at least two diverse board members or explain the
reasons for not meeting this objective by 2025. Furthermore, a board diversity matrix is required to be included in the annual
report on Form 20-F, containing certain demographic and other information regarding members of our board of directors.
HUTCHMED currently complies with the diversity requirement, as we currently have two female and seven male members on
our board of directors. The board diversity matrix is set out below.
Board Diversity Matrix (As of February 28, 2024)
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.
Remuneration Committee organization and purpose
Compensation Summary
Hong Kong
Yes
No
9
Female
Male
Non-Binary
Gender
Did Not Disclose
2
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
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 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. The Remuneration Committee held five meetings in 2023 with 100%
attendance.
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 the 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.
2023 Goals
In 2023, this strategy delivered significant results to our operations. As described below, a considerable number of
company goals were set and achieved in 2023 on our regulatory, clinical development, business development, manufacturing,
commercial, financial, organizational and sustainability operations. These included:
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Michael Ming Shi is our executive vice president, head of R&D and chief medical officer. He oversees the drug discovery and
Board Diversity
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. Before that, he worked at Novartis for over 15 years, where he
held various senior leadership positions including global program clinical head in clinical development. Dr. Shi is a member of
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 Anti-cancer Association (USCACA). Dr. Shi also worked as the program director of Genetics Variation at National
Institution of Health (“NIH”) 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 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, 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.
Hong Chen is our executive 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.
Mark Kin Hung Lee is our senior vice president of corporate management and communications. He began working in
healthcare investment banking in the United States and Europe in 1998 and joined our 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 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 & 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.
Charles George Rupert Nixon has been our group general counsel since May 2015 and has worked with our company since
2006. Prior to joining our 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) 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 LL.B (Hons) from Middlesex University and is a qualified solicitor in England & Wales with over 30
years of experience.
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 seven male members on
our board of directors. The board diversity matrix is set out below.
Board Diversity Matrix (As of February 28, 2024)
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.
Remuneration Committee organization and purpose
Compensation Summary
Hong Kong
Yes
No
9
Female
Male
Non-Binary
Gender
Did Not Disclose
2
—
—
—
7
—
—
—
—
—
—
—
—
—
—
—
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 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. The Remuneration Committee held five meetings in 2023 with 100%
attendance.
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 the 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.
2023 Goals
In 2023, this strategy delivered significant results to our operations. As described below, a considerable number of
company goals were set and achieved in 2023 on our regulatory, clinical development, business development, manufacturing,
commercial, financial, organizational and sustainability operations. These included:
184
185
HUTCHMED (China) Limited 2023 Annual Report 345
Regulatory goals. Filed regulatory submissions for the use of fruquintinib in colorectal cancer with the U.S. Food and Drug
Administration, the European Medicines Agency and the Japan Pharmaceuticals and Medical Devices Agency; filed regulatory
submission for the use of fruquintinib in gastric cancer with the China National Medical Products Administration; and obtained
approval for the use of fruquintinib in colorectal cancer in the U.S.
The Remuneration Committee reviewed and made recommendation to the Board on grant of share awards under the LTIP
and share options under the share option scheme to incentivize talent and professional expertise to stay and grow with the
Group. See “—Executive Officer Compensation” and “—Equity Compensation Schemes and Other Benefit Plans” for more
details on the share awards and share options granted during 2023.
Clinical Regulatory and Government Affairs goals. Listed savolitinib on the China National Reimbursement Drug List for the
first time and maintained listings for fruquintinib and surufatinib; enrolled first patients in the savolitinib gastric cancer Phase
II registration trial and the HMPL-453 intrahepatic cholangiocarcinoma Phase II registration trial; completed enrollment in the
confirmatory savolitinib MET exon14 non-small cell lung cancer trial, the fruquintinib endometrial cancer Phase II registration
trial, the fruquintinib renal cancer Phase III registration trial, the tazemetostat follicular lymphoma bridging Phase II trial and
the amdizalisib follicular lymphoma Phase II trial; and filed the investigational new drug application for HMPL-415.
Business development goal. Closed an exclusive license agreement for fruquintinib outside China with Takeda.
2023 review and recommendations
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 2024 directors’ fees for executive directors and made recommendation to the board on the proposed 2024 directors’
fees for independent non-executive directors. Prior to the end of the year, the Remuneration Committee reviewed and
approved the 2023 year-end bonus and 2024 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 Hong Kong Corporate
Manufacturing goals. Established the global supply chain for fruquintinib; passed pre-approval inspections by the U.S. Food
Governance Code which took effect on January 1, 2023.
and Drug Administration; completed and certified the new Shanghai factory.
Remuneration advisor
Commercial and financial goals. Reported China revenue from ELUNATE, SULANDA and TAZVERIK – the three medicines
marketed by the HUTCHMED commercial team – of $128.1 million compared to $102.3 million in 2022; received $400.0 million
in upfront payment from Takeda under the license agreement of fruquintinib plus regulatory milestones of $35 million; and
reported net profit of $100.8 million as compared to a net loss of $360.8 million in 2022.
Organization. Maintained headcount at approximately 2,000 while improving culture and employee satisfaction, including
as evidenced by the 2023 employee engagement survey that showed improvements across all industry benchmarks.
Sustainability. Improved sustainability disclosure; initiated and progressed Scope 3 and data collection programs towards
meeting the new International Sustainability Standards Board disclosure frameworks; improved sustainability ratings by
several key rating agencies including Hang Seng, ISS, MSCI, S&P Global, Sustainalytics and Wind; and received awards for
environmental, social and governance. The awards included five from the GBA ESG Achievement Awards 2023 by Metro Finance,
two from the ESG Leading Enterprise Awards by Bloomberg Businessweek, and the Top 20 Chinese Pharmaceutical Listed
Companies in ESG Competitiveness by Healthcare Executive.
Remuneration components
The goal of our remuneration programs is to align remuneration delivery with performance, measured both internally
against budgets and key operational achievements, and externally through share price. We believe this alignment was achieved
in 2023.
In general, our compensation consists of the following components:
•
•
•
Base salary, to attract and retain highly skilled talent. This fixed component of pay is to provide financial stability,
based on responsibilities, experience, individual contributions and peer company data;
Annual cash bonus incentive program, to motivate, promote and reward the achievement of key short-term strategic
and business goals of HUTCHMED as well as individual performance. This is a variable component of pay based on
annual corporate and individual performance; and
Equity incentives, to encourage Executive Directors, senior management and other employees to focus on out-
performance and align their interests with shareholders, as well as to promote retention and to reward outstanding
company and individual performance. This is in the form of grants of share options and LTIP awards, which are subject
to a vesting schedule based on continued service, the value of which depends on our share price performance, to align
employee interests with those of our shareholders over the longer-term.
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 Enterprise Solutions (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 with the strategy and sustainability of the Group and are appropriate in the context of the external
regulatory environment and the expectations of stakeholders.
Shareholder return comparison
The independent remuneration advisor, Aon also reviewed the total shareholder return comparator group used as a
component of the company’s performance based LTIP awards for 2023, using volatility and correlation analysis to evaluate the
appropriateness of this peer group. Its research from 2022 showed that about 80% of custom peer groups contained 30 peers
or fewer, and encouraged the Company to use peer groups of 30 companies or more. It focused on three primary and four
secondary criteria. Primary criteria for peers selection were their industry sector, centering on, commercial companies with
innovative specialty biopharmaceutical medicines or drug candidates; their listing location, centering on China or the United
States; and those with a three-year stock price that correlated with the Company. Secondary criteria were their therapeutic
focus, prioritizing companies with marketed products and development pipelines focused on oncology therapies; their stock
price volatility; their market capitalization, excluding micro-cap and large-cap companies; and their share trading history,
excluding companies that have not been public for at least three years.
346
186
187
Regulatory goals. Filed regulatory submissions for the use of fruquintinib in colorectal cancer with the U.S. Food and Drug
Administration, the European Medicines Agency and the Japan Pharmaceuticals and Medical Devices Agency; filed regulatory
submission for the use of fruquintinib in gastric cancer with the China National Medical Products Administration; and obtained
approval for the use of fruquintinib in colorectal cancer in the U.S.
The Remuneration Committee reviewed and made recommendation to the Board on grant of share awards under the LTIP
and share options under the share option scheme to incentivize talent and professional expertise to stay and grow with the
Group. See “—Executive Officer Compensation” and “—Equity Compensation Schemes and Other Benefit Plans” for more
details on the share awards and share options granted during 2023.
Clinical Regulatory and Government Affairs goals. Listed savolitinib on the China National Reimbursement Drug List for the
2023 review and recommendations
first time and maintained listings for fruquintinib and surufatinib; enrolled first patients in the savolitinib gastric cancer Phase
II registration trial and the HMPL-453 intrahepatic cholangiocarcinoma Phase II registration trial; completed enrollment in the
confirmatory savolitinib MET exon14 non-small cell lung cancer trial, the fruquintinib endometrial cancer Phase II registration
trial, the fruquintinib renal cancer Phase III registration trial, the tazemetostat follicular lymphoma bridging Phase II trial and
the amdizalisib follicular lymphoma Phase II trial; and filed the investigational new drug application for HMPL-415.
Business development goal. Closed an exclusive license agreement for fruquintinib outside China with Takeda.
Manufacturing goals. Established the global supply chain for fruquintinib; passed pre-approval inspections by the U.S. Food
and Drug Administration; completed and certified the new Shanghai factory.
Commercial and financial goals. Reported China revenue from ELUNATE, SULANDA and TAZVERIK – the three medicines
marketed by the HUTCHMED commercial team – of $128.1 million compared to $102.3 million in 2022; received $400.0 million
in upfront payment from Takeda under the license agreement of fruquintinib plus regulatory milestones of $35 million; and
reported net profit of $100.8 million as compared to a net loss of $360.8 million in 2022.
Organization. Maintained headcount at approximately 2,000 while improving culture and employee satisfaction, including
as evidenced by the 2023 employee engagement survey that showed improvements across all industry benchmarks.
Sustainability. Improved sustainability disclosure; initiated and progressed Scope 3 and data collection programs towards
meeting the new International Sustainability Standards Board disclosure frameworks; improved sustainability ratings by
several key rating agencies including Hang Seng, ISS, MSCI, S&P Global, Sustainalytics and Wind; and received awards for
environmental, social and governance. The awards included five from the GBA ESG Achievement Awards 2023 by Metro Finance,
two from the ESG Leading Enterprise Awards by Bloomberg Businessweek, and the Top 20 Chinese Pharmaceutical Listed
Companies in ESG Competitiveness by Healthcare Executive.
Remuneration components
The goal of our remuneration programs is to align remuneration delivery with performance, measured both internally
against budgets and key operational achievements, and externally through share price. We believe this alignment was achieved
in 2023.
•
•
In general, our compensation consists of the following components:
Base salary, to attract and retain highly skilled talent. This fixed component of pay is to provide financial stability,
based on responsibilities, experience, individual contributions and peer company data;
Annual cash bonus incentive program, to motivate, promote and reward the achievement of key short-term strategic
and business goals of HUTCHMED as well as individual performance. This is a variable component of pay based on
annual corporate and individual performance; and
•
Equity incentives, to encourage Executive Directors, senior management and other employees to focus on out-
performance and align their interests with shareholders, as well as to promote retention and to reward outstanding
company and individual performance. This is in the form of grants of share options and LTIP awards, which are subject
to a vesting schedule based on continued service, the value of which depends on our share price performance, to align
employee interests with those of our shareholders over the longer-term.
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 2024 directors’ fees for executive directors and made recommendation to the board on the proposed 2024 directors’
fees for independent non-executive directors. Prior to the end of the year, the Remuneration Committee reviewed and
approved the 2023 year-end bonus and 2024 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 Hong Kong Corporate
Governance Code which took effect on January 1, 2023.
Remuneration advisor
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 Enterprise Solutions (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 with the strategy and sustainability of the Group and are appropriate in the context of the external
regulatory environment and the expectations of stakeholders.
Shareholder return comparison
The independent remuneration advisor, Aon also reviewed the total shareholder return comparator group used as a
component of the company’s performance based LTIP awards for 2023, using volatility and correlation analysis to evaluate the
appropriateness of this peer group. Its research from 2022 showed that about 80% of custom peer groups contained 30 peers
or fewer, and encouraged the Company to use peer groups of 30 companies or more. It focused on three primary and four
secondary criteria. Primary criteria for peers selection were their industry sector, centering on, commercial companies with
innovative specialty biopharmaceutical medicines or drug candidates; their listing location, centering on China or the United
States; and those with a three-year stock price that correlated with the Company. Secondary criteria were their therapeutic
focus, prioritizing companies with marketed products and development pipelines focused on oncology therapies; their stock
price volatility; their market capitalization, excluding micro-cap and large-cap companies; and their share trading history,
excluding companies that have not been public for at least three years.
186
187
HUTCHMED (China) Limited 2023 Annual Report 347
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.
Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and
sanitation requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or
indirectly which is harmful to Hutchison Sinopharm during the term of the employment.
We may terminate Mr. Chen’s employment for cause at any time without notice. We may also terminate the employment
with prior notice and termination compensation if Mr. Chen is unable to perform his duties because of an illness or non-work-
related injury or he is incompetent and remains incompetent after training or adjustment of his position. Mr. Chen may
voluntarily terminate his employment agreement without cause with one month’s prior notice and immediately for cause.
Summary Compensation Table
Executive Officer Compensation
The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2023 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)
($)
872,520 (1) 1,500,000
413,123 (2)
508,241
3,439,341
2,524,727
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 $75,000.
benefits
($)
Taxable Non-taxable Pension
benefits
($)
7,885
10,897
155,128
contributions
($)
70,759
29,889
154,902
—
—
31,977
Total
($)
2,451,164
962,150
6,306,075
(3) In connection with share options granted in the year ended December 31, 2016 under the 2015 Share Option Scheme, Dr.
Weiguo Su and certain other executive officers were awarded retention bonuses payable when and if they exercised their
options. During the year ended December 31, 2023, retention bonuses of $5,224,885 and $4,722,040 were settled
respectively when Dr. Weiguo Su and certain other executive officers exercised such options, which amounts are not
included in the table above.
Employment Arrangements with our Executive Officers
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, Dr. May Qingmei Wang, 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 12 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 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.
348
188
189
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.
Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and
sanitation requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or
indirectly which is harmful to Hutchison Sinopharm during the term of the employment.
We may terminate Mr. Chen’s employment for cause at any time without notice. We may also terminate the employment
with prior notice and termination compensation if Mr. Chen is unable to perform his duties because of an illness or non-work-
related injury or he is incompetent and remains incompetent after training or adjustment of his position. Mr. Chen may
voluntarily terminate his employment agreement without cause with one month’s prior notice and immediately for cause.
Summary Compensation Table
Executive Officer Compensation
The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2023 to
our chief executive officer and chief scientific officer, chief financial officer and other executive officers on an aggregate basis.
Other Executive Officers in the Aggregate
2,524,727
3,439,341
31,977
155,128
154,902
6,306,075
Salary
and fees
($)
Bonus(3)
($)
872,520 (1) 1,500,000
413,123 (2)
508,241
Taxable Non-taxable Pension
benefits
benefits
contributions
($)
($)
—
—
7,885
10,897
($)
70,759
29,889
Total
($)
2,451,164
962,150
Name and Principal Position
Weiguo SU
CHENG Chig Fung, Johnny
Notes:
(1) Amount includes director’s fees of $75,000.
(2) Amount includes director’s fees of $75,000.
(3) In connection with share options granted in the year ended December 31, 2016 under the 2015 Share Option Scheme, Dr.
Weiguo Su and certain other executive officers were awarded retention bonuses payable when and if they exercised their
options. During the year ended December 31, 2023, retention bonuses of $5,224,885 and $4,722,040 were settled
respectively when Dr. Weiguo Su and certain other executive officers exercised such options, which amounts are not
included in the table above.
Employment Arrangements with our Executive Officers
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, Dr. May Qingmei Wang, 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 12 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 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.
188
189
HUTCHMED (China) Limited 2023 Annual Report 349
Share Options
Long-Term Incentive Compensation
The following table sets forth information concerning the outstanding equity awards held by our chief executive officer
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 as of December 31, 2023.
and chief scientific officer, chief financial officer and other executive officers on an aggregate basis in the year ended December
Number of
unexercised shares
which are
vested
Number of
unexercised shares
which are
unvested
Number of
Number of
shares issued options lapsed/
cancelled in
2023
Exercise price
1.970
3.105
4.974
22.090
29.000
27.940
35.210
10.750
22.090
27.940
10.750
12.510
— £
— £
— £
$
$
$
$
$
$
$
$
$
upon exercise
in 2023
3,000,000
—
—
—
—
—
—
—
—
—
—
—
197,425 (= 39,485 ADSs)
4,740 (= 948 ADSs)
141,200 (= 28,240 ADSs)
12,470 (= 2,494 ADSs)
861,220 (= 172,244 ADSs)
100,475 (= 20,095 ADSs)
120,250 (= 24,050 ADSs)
334,950 (= 66,990 ADSs)
61,700 (= 12,340 ADSs)
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
— Jun 4, 2033
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
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
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
Jun 5, 2023
Jun 15, 2016
Apr 20, 2018
Dec 11, 2019
3,000,000
1,000,000
1,000,000
592,275 (= 118,455 ADSs)
14,220 (= 2,844 ADSs)
141,200 (= 28,240 ADSs)
12,460 (= 2,492 ADSs)
—
301,425 (= 60,285 ADSs)
120,250 (= 24,050 ADSs)
111,650 (= 22,330 ADSs)
—
2,736,860
701,100
400,000
Aggregate
Apr 28, 2020
1,112,250 (= 222,450 ADSs)
370,750 (= 74,150 ADSs)
Other Executive Officers in the
Aggregate
Dec 14, 2020
44,895 (= 8,979 ADSs)
14,995 (= 2,999 ADSs)
Other Executive Officers in the
Aggregate
Mar 26, 2021
383,250 (= 76,650 ADSs)
383,250 (= 76,650 ADSs)
Other Executive Officers in the
Aggregate
Dec 14, 2021
172,770 (= 34,554 ADSs)
172,800 (= 34,560 ADSs)
Other Executive Officers in the
Aggregate
May 23, 2022
172,350 (= 34,470 ADSs)
517,050 (= 103,410 ADSs)
Other Executive Officers in the
Aggregate
Sep 13, 2022
375,000 (= 75,000 ADSs)
1,125,000 (= 225,000 ADSs)
$
$
$
$
$
$
22.090
29.000
27.940
35.210
10.750
13.140
Other Executive Officers in the
Aggregate
Jun 5, 2023
—
263,200 (= 52,640 ADSs) $
12.510
Notes:
— £
1.970
2,736,860
— Dec 19, 2023
— £
4.645
— £
3.592
—
—
—
—
—
—
—
—
—
— Apr 19, 2028
— Dec 10, 2029
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Sep 12, 2032
— Jun 4, 2033
(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.
350
190
191
31, 2023.
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)
$
$
$
3,289,770
698,224
3,457,643
(1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of
December 31, 2023. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal
year 2023. 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 will
purchase 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 2025.
(3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive
Officer in an amount of $1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares
were/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 2023.
Director Compensation
Name of Director
TO Chi Keung, Simon
Dan ELDAR
Edith SHIH
Ling YANG
Paul Rutherford CARTER
Graeme Allan JACK
MOK Shu Kam, Tony
Notes:
Fees Earned or
Paid in Cash
$
85,000 (1)
— (2)
—
—
$
$
$
117,000
111,000
114,860
Maximum Value of Non-
Performance Based LTIP
Awards Granted
—
—
—
—
—
—
—
(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 Mr. To 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 Ms. Shih served as director that were paid to a subsidiary
of CK Hutchison are not included.
May 12, 2023.
(3) A director’s fee of $37,068 was paid to Dr. Karen Jean Ferrante, who retired as an independent non-executive director on
Share Options
Long-Term Incentive Compensation
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, 2023.
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, 2023.
Name and Principal Position
Date of grant of
share options(1)
which are
vested
which are
unvested
Number of
Number of
unexercised shares
unexercised shares
Number of
Number of
shares issued options lapsed/
Option
upon exercise
cancelled in
expiration
Exercise price
in 2023
2023
date
3,000,000
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
CHENG Chig Fung, Johnny
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
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
Notes:
3,000,000
1,000,000
1,000,000
— £
— £
— £
592,275 (= 118,455 ADSs)
197,425 (= 39,485 ADSs)
14,220 (= 2,844 ADSs)
4,740 (= 948 ADSs)
141,200 (= 28,240 ADSs)
141,200 (= 28,240 ADSs)
12,460 (= 2,492 ADSs)
12,470 (= 2,494 ADSs)
—
861,220 (= 172,244 ADSs)
301,425 (= 60,285 ADSs)
100,475 (= 20,095 ADSs)
120,250 (= 24,050 ADSs)
120,250 (= 24,050 ADSs)
1.970
3.105
4.974
22.090
29.000
27.940
35.210
10.750
22.090
27.940
10.750
12.510
May 23, 2022
111,650 (= 22,330 ADSs)
334,950 (= 66,990 ADSs)
—
61,700 (= 12,340 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
Apr 28, 2020
Mar 26, 2021
Jun 5, 2023
Jun 15, 2016
Apr 20, 2018
Dec 11, 2019
Apr 28, 2020
1,112,250 (= 222,450 ADSs)
370,750 (= 74,150 ADSs)
22.090
Dec 14, 2020
44,895 (= 8,979 ADSs)
14,995 (= 2,999 ADSs)
29.000
Mar 26, 2021
383,250 (= 76,650 ADSs)
383,250 (= 76,650 ADSs)
27.940
Dec 14, 2021
172,770 (= 34,554 ADSs)
172,800 (= 34,560 ADSs)
35.210
May 23, 2022
172,350 (= 34,470 ADSs)
517,050 (= 103,410 ADSs)
10.750
Sep 13, 2022
375,000 (= 75,000 ADSs)
1,125,000 (= 225,000 ADSs)
13.140
Jun 5, 2023
—
263,200 (= 52,640 ADSs) $
12.510
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 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
— Jun 4, 2033
— Apr 19, 2028
— Dec 10, 2029
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— May 22, 2032
— Sep 12, 2032
— Jun 4, 2033
2,736,860
701,100
400,000
— £
4.645
— £
3.592
— £
1.970
2,736,860
— Dec 19, 2023
(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.
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
Notes:
Maximum
Aggregate
Value of
LTIP awards(1)(2)(3)
3,289,770
$
698,224
$
3,457,643
$
(1) The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of
December 31, 2023. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal
year 2023. 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 will
purchase 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 2025.
(3) Excluding performance based LTIP awards abovementioned, a non-performance based LTIP award granted to an Executive
Officer in an amount of $1,500,000, for which 111,731 ADSs were allocated on September 13, 2022. 25% of the shares
were/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 2023.
Director Compensation
Name of Director
TO Chi Keung, Simon
Dan ELDAR
Edith SHIH
Ling YANG
Paul Rutherford CARTER
Graeme Allan JACK
MOK Shu Kam, Tony
Notes:
Fees Earned or
Paid in Cash
Maximum Value of Non-
Performance Based LTIP
Awards Granted
$
$
$
$
85,000 (1)
—
— (2)
—
117,000
111,000
114,860
—
—
—
—
—
—
—
(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 Mr. To 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 Ms. Shih served as director that were paid to a subsidiary
of CK Hutchison are not included.
(3) A director’s fee of $37,068 was paid to Dr. Karen Jean Ferrante, who retired as an independent non-executive director on
May 12, 2023.
190
191
HUTCHMED (China) Limited 2023 Annual Report 351
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 and no further share option can be granted. Furthermore, all outstanding share
options granted under the 2005 Option Scheme have been fully exercised. 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 and all outstanding awards granted under the 2005 Option
Scheme have been fully exercised.
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
The following describes the material terms of our Option Schemes and LTIP, or collectively the Schemes.
of a share at the date of grant (as defined in our Option 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).
each Scheme.
Non-transferability of Awards. Awards may not be transferred except in the case of a participant’s death by the terms of
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, 2023).
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
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.
the time of grant.
352
192
193
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 and no further share option can be granted. Furthermore, all outstanding share
options granted under the 2005 Option Scheme have been fully exercised. 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.
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.
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 and all outstanding awards granted under the 2005 Option
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).
Scheme have been fully exercised.
The following describes the material terms of our Option Schemes and LTIP, or collectively the Schemes.
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
Awards and Eligible Grantees. The Option Schemes provide for the award of share options exercisable for ordinary shares
Non-transferability of Awards. Awards may not be transferred except in the case of a participant’s death by the terms of
or ADSs of our company to Eligible Employees (as defined in the Option Schemes) or non-executive directors (excluding any
each Scheme.
independent non-executive directors under the Option Schemes).
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.
non-executive director who is a proposed grantee). In addition, approval by our shareholders and the shareholders of such
Our board of directors may alter the terms of our LTIP, but amendments which are of a material nature cannot take effect
listed parent company is required if an option grant under our Option Schemes is to be made to a substantial shareholder or
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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HUTCHMED (China) Limited 2023 Annual Report 353
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
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, 2023).
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
Vesting. Vesting conditions of options granted under the Schemes are determined by the respective board of directors at
proposed grantee).
the time of grant.
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. Furthermore, all
outstanding share options granted thereunder have been fully exercised in 2023.
Share options outstanding and grants made in 2023 under the 2015 Option Scheme
As of December 31, 2023, options to purchase an aggregate of 29,536,655 ordinary shares, representing approximately 3.4%
of our outstanding share capital, at a weighted average exercise price of £3.59 ($4.57) per ordinary share and an expiration date
of 10 years from the respective date of grant remained outstanding under the 2015 Option Scheme. In the year ended December
31, 2023, we granted options to purchase an aggregate of 1,221,900 ordinary shares, representing approximately 0.1% of our
outstanding share capital, at an exercise price of £1.96 ($2.50) 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, 2023, we granted performance based awards under our LTIP to two of our executive
directors and 839 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 $54,935,768. 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 2025. For
additional information on LTIP awards held by our executive officers, please see “B. Compensation—Executive Officer
Compensation—Long-Term Incentive Compensation.” For additional information on LTIP awards to our directors, please see
“B. Compensation—Director Compensation.”
Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our
board, as the case may be.
In the year ended December 31, 2023, an aggregate of 876,557 ADSs were given to award holders upon the vesting of
performance based LTIP awards, and 66,284 ADSs were given to award holders upon the vesting of non-performance based
LTIP awards.
C. Board Practices.
Our board of directors consists of nine directors including three executive directors, three non-executive directors and
three 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.
Under the Articles of Association, our directors are subject to retirement at an annual general meeting at least once every
three years 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 a 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.”
Audit Committee
Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony, with Graeme Allan
Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony each meets the
independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We
have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation
S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations
of the SEC and the Nasdaq Stock Market.
Although we are a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit
committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for
the nomination, compensation and choice of our auditor, as well as control over the performance of their duties, management
of complaints made, and selection of consultants. Under Rule 10A-3, if the governing law or documents of a listed issuer require
that any such matter be approved by the board of directors or the shareholders of the company, the audit committee’s
responsibilities or powers with respect to such matter may instead be advisory. Our Articles of Association provide that the
appointment of our auditor must be decided by our shareholders at our annual general meeting or at a subsequent
extraordinary general meeting in each year.
The audit committee formally meets at least twice a year and otherwise as required. The audit committee’s purpose is to
oversee our accounting and financial reporting process and the audit of our financial statements. Our audit committee’s
primary duties and responsibilities are to:
• monitor the integrity of our financial statements, our annual and half-year reports and accounts and our
announcements of interim or final results;
• provide advice, where requested by the board of directors, on whether the annual report and accounts, taken as a
whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess our
company’s position and performance, business model and strategy;
review significant financial reporting issues and the judgments which they contain;
review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable
listing rules, other statements containing financial information such as significant financial returns to regulators and
release of price sensitive information first where board of director approval is required; and
•
review and challenge where necessary:
the consistency of, and any changes to, accounting policies both on a year-on-year basis and across our company;
the methods used to account for significant or unusual transactions where different approaches are possible;
• whether our company has followed appropriate accounting standards and made appropriate estimates and
judgments, taking into account the views of the external auditor;
the clarity of the disclosure in our financial reports and the context in which statements are made; and
all material information presented with the financial statements, such as any operations and financial review and
any corporate governance statements (insofar as it relates to the audit and risk management).
In relation to our internal controls and risk management systems, our audit committee, among other things:
•
•
•
•
•
•
Our board of directors has established an audit committee, remuneration committee, technical committee, nomination
committee and sustainability committee.
Board Committees
•
reviews the effectiveness of our internal control and risk management systems;
354
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195
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. Furthermore, all
outstanding share options granted thereunder have been fully exercised in 2023.
Share options outstanding and grants made in 2023 under the 2015 Option Scheme
As of December 31, 2023, options to purchase an aggregate of 29,536,655 ordinary shares, representing approximately 3.4%
of our outstanding share capital, at a weighted average exercise price of £3.59 ($4.57) per ordinary share and an expiration date
of 10 years from the respective date of grant remained outstanding under the 2015 Option Scheme. In the year ended December
31, 2023, we granted options to purchase an aggregate of 1,221,900 ordinary shares, representing approximately 0.1% of our
outstanding share capital, at an exercise price of £1.96 ($2.50) 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, 2023, we granted performance based awards under our LTIP to two of our executive
directors and 839 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 $54,935,768. 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 2025. For
additional information on LTIP awards held by our executive officers, please see “B. Compensation—Executive Officer
Compensation—Long-Term Incentive Compensation.” For additional information on LTIP awards to our directors, please see
“B. Compensation—Director Compensation.”
Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our
In the year ended December 31, 2023, an aggregate of 876,557 ADSs were given to award holders upon the vesting of
performance based LTIP awards, and 66,284 ADSs were given to award holders upon the vesting of non-performance based
board, as the case may be.
LTIP awards.
C. Board Practices.
Our board of directors consists of nine directors including three executive directors, three non-executive directors and
three 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.
Under the Articles of Association, our directors are subject to retirement at an annual general meeting at least once every
three years 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 a 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.”
Our board of directors has established an audit committee, remuneration committee, technical committee, nomination
committee and sustainability committee.
Audit Committee
Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony, with Graeme Allan
Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony each meets the
independence requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We
have determined that Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation
S-K. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations
of the SEC and the Nasdaq Stock Market.
Although we are a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit
committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for
the nomination, compensation and choice of our auditor, as well as control over the performance of their duties, management
of complaints made, and selection of consultants. Under Rule 10A-3, if the governing law or documents of a listed issuer require
that any such matter be approved by the board of directors or the shareholders of the company, the audit committee’s
responsibilities or powers with respect to such matter may instead be advisory. Our Articles of Association provide that the
appointment of our auditor must be decided by our shareholders at our annual general meeting or at a subsequent
extraordinary general meeting in each year.
The audit committee formally meets at least twice a year and otherwise as required. The audit committee’s purpose is to
oversee our accounting and financial reporting process and the audit of our financial statements. Our audit committee’s
primary duties and responsibilities are to:
• monitor the integrity of our financial statements, our annual and half-year reports and accounts and our
announcements of interim or final results;
• provide advice, where requested by the board of directors, on whether the annual report and accounts, taken as a
whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess our
company’s position and performance, business model and strategy;
•
•
review significant financial reporting issues and the judgments which they contain;
review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable
listing rules, other statements containing financial information such as significant financial returns to regulators and
release of price sensitive information first where board of director approval is required; and
•
review and challenge where necessary:
•
•
the consistency of, and any changes to, accounting policies both on a year-on-year basis and across our company;
the methods used to account for significant or unusual transactions where different approaches are possible;
• whether our company has followed appropriate accounting standards and made appropriate estimates and
judgments, taking into account the views of the external auditor;
•
•
the clarity of the disclosure in our financial reports and the context in which statements are made; and
all material information presented with the financial statements, such as any operations and financial review and
any corporate governance statements (insofar as it relates to the audit and risk management).
In relation to our internal controls and risk management systems, our audit committee, among other things:
Board Committees
•
reviews the effectiveness of our internal control and risk management systems;
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HUTCHMED (China) Limited 2023 Annual Report 355
•
•
•
•
•
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;
Nomination Committee
approves the appointment and removal of the head of the internal audit function;
ensures our internal audit function has adequate standing and resources and is free from management or other
restrictions;
reviews and monitors our executive management’s responsiveness to the findings and recommendations of the
internal audit function; and
reviews with management and our independent auditors the adequacy and effectiveness of our internal control over
financial reporting and disclosure controls and procedures.
In relation to our external auditor, our audit committee, among other things:
•
•
•
recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to
their resignation, dismissal, remuneration or terms of engagement, subject to approval by the shareholders;
planning and risk management.
considers and monitors the external auditor’s independence, objectivity and effectiveness;
reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements;
(“Hong Kong Corporate Governance Code”) contained in Appendix C1 of the Rules Governing the Listing of Securities on SEHK
Following the listing on the SEHK on June 30, 2021, our board of directors has adopted the Corporate Governance Code
in replacement of the U.K. Corporate Governance Code 2018 and is in compliance with all code provisions of the Hong Kong
Hong Kong Corporate Governance Code
• develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into
Corporate Governance Code.
any relevant ethical guidance; and
• pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject
to approval by our shareholders.
The audit committee is authorized to obtain, at our company’s expense, reasonable outside legal or other professional
of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in the
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.
Technical Committee
Our technical committee consists of Mok Shu Kam, Tony, Paul Rutherford Carter, To Chi Keung, Simon and Weiguo Su, with
Mok Shu Kam, Tony 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.
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.
Sustainability Committee
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,
Code of Ethics
Our board of directors has adopted a code of ethics to set standards for our directors, officers and employees as are
reasonably necessary to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts
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.
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.
356
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197
•
•
•
•
•
•
•
•
reviews the policies and procedures for the identification, assessment and reporting of financial and non-financial risks
and our management of those risks in accordance with the requirements of the Sarbanes-Oxley Act and other
applicable laws, rules and regulations and the applicable requirements of any stock exchange;
approves the appointment and removal of the head of the internal audit function;
ensures our internal audit function has adequate standing and resources and is free from management or other
restrictions;
internal audit function; and
reviews with management and our independent auditors the adequacy and effectiveness of our internal control over
financial reporting and disclosure controls and procedures.
In relation to our external auditor, our audit committee, among other things:
recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to
their resignation, dismissal, remuneration or terms of engagement, subject to approval by the shareholders;
considers and monitors the external auditor’s independence, objectivity and effectiveness;
reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements;
• develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into
• pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject
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.
any relevant ethical guidance; and
to approval by our shareholders.
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.
Technical Committee
Our technical committee consists of Mok Shu Kam, Tony, Paul Rutherford Carter, To Chi Keung, Simon and Weiguo Su, with
Mok Shu Kam, Tony 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 and monitors our executive management’s responsiveness to the findings and recommendations of the
Sustainability Committee
Nomination Committee
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.
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.
Hong Kong Corporate Governance Code
Following the listing on the SEHK on June 30, 2021, our board of directors has adopted the Corporate Governance Code
(“Hong Kong Corporate Governance Code”) contained in Appendix C1 of the Rules Governing the Listing of Securities on SEHK
in replacement of the U.K. Corporate Governance Code 2018 and is in compliance with all code provisions of the Hong Kong
Corporate Governance Code.
Code of Ethics
Our board of directors has adopted a code of ethics to set standards for our directors, officers and employees as are
reasonably necessary to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts
of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in the
reports and documents that we file or submit to the applicable stock exchanges, and in any other public communications; (iii)
compliance with applicable governmental and regulatory laws, rules, codes and regulations; (iv) prompt internal reporting of
any violations of the code of ethics; and (v) accountability for adherence to the code of ethics.
Code of Ethics for Business Partners
Our board of directors has adopted a code of ethics for our business partners, including our suppliers, vendors, customers,
agents, contractors, joint venture partners and representatives. This code of ethics contains general guidelines to promote the
standards outlined in our internal code of ethics as described above.
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.
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.
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HUTCHMED (China) Limited 2023 Annual Report 357
We recognize the importance of high-quality employees in sustaining market leadership. Salary and benefits are kept at
competitive levels, while individual performance is rewarded within the general framework of the salary, bonus and incentive
system of our company, which is reviewed annually. Employees are provided with a wide range of benefits that include medical
coverage, provident funds and retirement plans and long service awards. We stress the importance of staff development and
provides training programs on an ongoing basis. Employees are also encouraged to play an active role in community care
activities.
E. Share Ownership.
Not applicable.
A. Major Shareholders.
See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.”
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
We had 871,256,270 ordinary shares outstanding as of February 15, 2024. The following table and accompanying footnotes
set forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2024 by:
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary
•
•
•
shares;
each of our directors; and
each of our named executive officers.
Information Security Policy
Our board of directors has adopted an information security policy to define and help communicate the common policies
for information confidentiality, integrity and availability to be applied to us and our joint ventures. The purpose of the
information security policy is to ensure business continuity by preventing and minimizing the impact of security risks within
our company and our joint ventures. Our information security policy applies to all of our and our joint ventures’ business
entities across all countries. It applies to the creation, communication, storage, transmission and destruction of all different
types of information. It applies to all forms of information, including but not limited to electronic copies, hardcopy, and verbal
disclosures whether in person, over the telephone, or by other means.
Code on Dealings in Shares
Our board of directors has adopted a policy on the handling of material inside information, consisting of information which
is either “inside information” under the EU Market Abuse Regulation (Regulation (EU) 596/2014), or MAR, or “material non-
public information” under U.S. law. This policy, among other things, prohibits any employees, directors, other persons
discharging managerial responsibilities or their connected persons dealing in our securities or their derivatives, or those of our
collaborators, business partners, suppliers and customers, while in possession of material inside information. Certain members
of our senior management or staff, including persons discharging managerial responsibilities, and their connected persons are
subject to additional compliance requirements which are outlined in the code (including but not limited to obtaining written
pre-clearance from designated members of management prior to any dealing in any such securities is allowed).
Board Diversity Policy
Our board of directors has established a board diversity policy as our board of directors recognizes the benefits of a board
of directors that possesses a balance of skills, experience, expertise, independence and knowledge and diversity of perspectives
appropriate to the requirements of our businesses.
We maintain that appointment to our board of directors should be based on merit that complements and expands the
skills, experience, expertise, independence and knowledge of the board of directors as a whole, taking into account gender,
age, professional experience and qualifications, cultural and educational background, and any other factors that our board of
directors might consider relevant and applicable from time to time towards achieving a diverse board of directors. See also“—
Directors and Senior Management—Board Diversity.”
D. Employees.
As of December 31, 2021, 2022 and 2023, we had 1,759, 2,025 and 1,988 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, 2021, 2022 and 2023 was as follows:
By Function:
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2023
2022
2021
960
987
41
1,988
1,022
960
43
2,025
891
820
48
1,759
As of December 31, 2023, a total of 125 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
3,005 full-time employees as of December 31, 2023, 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.
358
198
199
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
We recognize the importance of high-quality employees 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.
types of information. It applies to all forms of information, including but not limited to electronic copies, hardcopy, and verbal
E. Share Ownership.
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.”
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation.
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders.
We had 871,256,270 ordinary shares outstanding as of February 15, 2024. The following table and accompanying footnotes
set forth information relating to the beneficial ownership of our ordinary shares as of February 15, 2024 by:
•
•
•
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary
shares;
each of our directors; and
each of our named executive officers.
Code on Dealings in Shares
Our board of directors has adopted a policy on the handling of material inside information, consisting of information which
is either “inside information” under the EU Market Abuse Regulation (Regulation (EU) 596/2014), or MAR, or “material non-
public information” under U.S. law. This policy, among other things, prohibits any employees, directors, other persons
discharging managerial responsibilities or their connected persons dealing in our securities or their derivatives, or those of our
collaborators, business partners, suppliers and customers, while in possession of material inside information. Certain members
of our senior management or staff, including persons discharging managerial responsibilities, and their connected persons are
subject to additional compliance requirements which are outlined in the code (including but not limited to obtaining written
pre-clearance from designated members of management prior to any dealing in any such securities is allowed).
Board Diversity Policy
Our board of directors has established a board diversity policy as our board of directors recognizes the benefits of a board
of directors that possesses a balance of skills, experience, expertise, independence and knowledge and diversity of perspectives
appropriate to the requirements of our businesses.
We maintain that appointment to our board of directors should be based on merit that complements and expands the
skills, experience, expertise, independence and knowledge of the board of directors as a whole, taking into account gender,
age, professional experience and qualifications, cultural and educational background, and any other factors that our board of
directors might consider relevant and applicable from time to time towards achieving a diverse board of directors. See also“—
Directors and Senior Management—Board Diversity.”
D. Employees.
As of December 31, 2021, 2022 and 2023, we had 1,759, 2,025 and 1,988 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, 2021, 2022 and 2023 was as follows:
By Function:
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2023
2022
2021
960
987
41
1,022
960
43
891
820
48
1,988
2,025
1,759
As of December 31, 2023, a total of 125 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
3,005 full-time employees as of December 31, 2023, 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.
198
199
HUTCHMED (China) Limited 2023 Annual Report 359
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, 2024, 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.
Name of beneficial owner
Executive Officers and Directors:
Weiguo SU
CHENG Chig Fung, Johnny
TO Chi Keung, Simon
Edith SHIH
Dan ELDAR
Ling YANG
MOK Shu Kam, Tony
Paul Rutherford CARTER
Graeme Allan JACK
Michael Ming SHI
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)
Notes:
Number of
Ordinary
Share held
Number of
American
Depositary
Share held
Percent of Issued
Share Capital**
company.
Relationship Agreement with the CK Hutchison group
*
*
*
*
*
—
—
*
—
—
—
*
*
*
*
*
12,288,882
*
*
*
*
*
—
*
*
*
*
*
*
*
*
*
*
1,525,217
*
*
*
*
*
—
*
*
*
*
*
*
*
*
*
*
2.3 %
332,478,770
—
38.2 %
*
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) 871,256,270 ordinary shares outstanding as of February 15,
2024, 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, 2024.
(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, 2024, 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, 2024,
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 107,984,025 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.
B. Related Party Transactions.
Letters of awareness with respect to loans
Relationship with CK Hutchison
CK Hutchison has provided letters of awareness to certain of our lenders stating that it is aware that loan facilities have
been provided to us and that its current intention is that for so long as amounts are outstanding under such loan facilities, it
will not reduce its direct or indirect shareholding as to result in it ceasing to be the single largest indirect shareholder of our
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, 2023,
sales of our products to members of the CK Hutchison group amounted to $1.9 million (amounts covered from January until
divestment of Hutchison Hain Organic on December 7, 2023). In addition, for the year ended December 31, 2023, we paid
approximately $0.2 million (amounts covered from January until divestment of Hutchison Hain Organic on December 7, 2023)
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. Following the disposal of the Group’s 100% interest in Hutchison
Hain Organic and 100% interest in HUTCHMED Science Nutrition, the aforementioned agreements were terminated in
December 2023.
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.
360
200
201
Our major shareholders do not have voting rights that are different from our shareholders in general. Beneficial ownership
B. Related Party Transactions.
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, 2024, 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.
Name of beneficial owner
Executive Officers and Directors:
Weiguo SU
CHENG Chig Fung, Johnny
TO Chi Keung, Simon
Edith SHIH
Dan ELDAR
Ling YANG
MOK Shu Kam, Tony
Paul Rutherford CARTER
Graeme Allan JACK
Michael Ming SHI
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)
Notes:
*
Less than 1% of our total outstanding ordinary shares.
Number of
Ordinary
Share held
Number of
American
Depositary
Share held
Percent of Issued
Share Capital**
*
*
*
*
*
—
—
*
—
—
—
*
*
*
*
*
—
—
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
12,288,882
1,525,217
332,478,770
—
2.3 %
38.2 %
** 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) 871,256,270 ordinary shares outstanding as of February 15,
2024, 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, 2024.
(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, 2024, 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, 2024,
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 107,984,025 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.
Letters of awareness with respect to loans
Relationship with CK Hutchison
CK Hutchison has provided letters of awareness to certain of our lenders stating that it is aware that loan facilities have
been provided to us and that its current intention is that for so long as amounts are outstanding under such loan facilities, it
will not reduce its direct or indirect shareholding as to result in it ceasing to be the single largest indirect shareholder of our
company.
Relationship Agreement with the CK Hutchison group
We entered into a relationship agreement dated April 21, 2006, which was amended and restated on June 13, 2019 with
effect from June 3, 2015, with Hutchison Whampoa (China) Limited, which is an indirect wholly owned subsidiary of CK
Hutchison, with a view to ensuring that our company is capable of carrying on its business independent of the CK Hutchison
group. We refer to this agreement as the Relationship Agreement. The Relationship Agreement provides, among other things,
that all transactions between any of us or our joint ventures, on the one hand, and the CK Hutchison group, on the other, will
be on an arm’s length basis, on normal commercial terms and in a manner consistent with the AIM Rules. The Relationship
Agreement further provides that the approval of our board of directors shall be required for any transaction between any of us
or our joint ventures, on one hand, and the CK Hutchison group, on the other hand and that in approving any such transaction,
our board of directors must consist of at least one director who is independent of CK Hutchison. Our board of directors must
consist of at least one director who is independent of the CK Hutchison group if Hutchison Whampoa (China) Limited is entitled
to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company, see Item 6.C. “Directors, Senior
Management and Employees—Board Practices.” Hutchison Whampoa (China) Limited has also agreed to procure that each
member of the Hutchison Whampoa (China) Limited group will not exercise its voting rights and powers so as to amend our
Memorandum or Articles of Association in a manner which is inconsistent with the Relationship Agreement. The Relationship
Agreement will continue to be effective until the first to occur of: (i) our shares ceasing to be traded on the AIM market or; (ii)
the CK Hutchison group individually or collectively cease to hold or control the exercise of at least 30% or more of the rights to
vote at our general meetings.
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, 2023,
sales of our products to members of the CK Hutchison group amounted to $1.9 million (amounts covered from January until
divestment of Hutchison Hain Organic on December 7, 2023). In addition, for the year ended December 31, 2023, we paid
approximately $0.2 million (amounts covered from January until divestment of Hutchison Hain Organic on December 7, 2023)
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. Following the disposal of the Group’s 100% interest in Hutchison
Hain Organic and 100% interest in HUTCHMED Science Nutrition, the aforementioned agreements were terminated in
December 2023.
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
HUTCHMED (China) Limited 2023 Annual Report 361
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 December 21, 2023, the brand license royalty agreement with Hutchison Whampoa Enterprises Limited was renewed
with effect from January 1, 2024 for a period of three years up to and including December 31, 2026, 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
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, 2023, we
paid a management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2023, we had $0.5
million in unpaid fees outstanding to Hutchison Whampoa (China) Limited.
Agreements with Our Directors and Executive Officers
Director and Executive Officer Compensation
See Item 6.B. “Compensation—Executive Officer Compensation” and “Compensation—Director Compensation” for a
discussion of our compensation of directors and executive officers.
Equity Compensation
See Item 6.B. “Compensation—Equity Compensation Schemes and Other Benefit Plans.”
Employment Agreements
(other than statutory compensation).
Indemnification Agreements
C. Interests of Experts and Counsel.
Not applicable.
ITEM 8. FINANCIAL INFORMATION
See Item 18 “Financial Statements.”
A.7 Legal Proceedings.
and management resources.
A.8 Dividend Policy.
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
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.
A. Consolidated Financial Statements and Other Financial Information.
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
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.
We have not experienced any significant changes since the date of our audited consolidated financial statements included
B. Significant Changes.
in this annual report.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4 and Item 9.C.
Our ADSs are listed on the Nasdaq Global Select and our ordinary shares are admitted to trading on the AIM market under
the symbol “HCM.” In addition, our ordinary shares are listed on the SEHK under stock code “0013.”
362
202
203
The Brand License Agreement contains provisions on quality control pursuant to which we are obliged to use the brands
Employment Agreements
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 December 21, 2023, the brand license royalty agreement with Hutchison Whampoa Enterprises Limited was renewed
with effect from January 1, 2024 for a period of three years up to and including December 31, 2026, 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
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, 2023, we
paid a management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2023, we had $0.5
million in unpaid fees outstanding to Hutchison Whampoa (China) Limited.
Agreements with Our Directors and Executive Officers
Director and Executive Officer Compensation
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 compensation).
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. We also maintain a
general liability insurance policy which covers certain liabilities of our directors and executive officers arising out of claims
based on acts or omissions in their capabilities as directors or officers.
C. Interests of Experts and Counsel.
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information.
See Item 18 “Financial Statements.”
A.7 Legal Proceedings.
There are no material legal proceedings pending or, to our knowledge, threatened against us. We are also not aware of any
incidents of non-compliance with laws and regulations that may have a significant impact on us which would have a material
adverse effect on our financial condition or results of operations. From time to time we become subject to legal proceedings
and claims in the ordinary course of our business, including claims of alleged infringement of patents and other intellectual
property rights. Such legal proceedings or claims, even if not meritorious, could result in the expenditure of significant financial
and management resources.
A.8 Dividend Policy.
We have never declared or paid dividends on our ordinary shares. We currently expect to retain all future earnings for use
in the operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and
payment of any dividends in the future will be determined by our board of directors in its discretion, and will depend on a
number of factors, including our earnings, capital requirements, overall financial condition, and contractual restrictions.
B. Significant Changes.
We have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4 and Item 9.C.
Our ADSs are listed on the Nasdaq Global Select and our ordinary shares are admitted to trading on the AIM market under
the symbol “HCM.” In addition, our ordinary shares are listed on the SEHK under stock code “0013.”
202
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HUTCHMED (China) Limited 2023 Annual Report 363
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.
E. Taxation.
C. Material Contracts.
Except as otherwise disclosed in this annual report (including the exhibits hereto), we are not currently, and have not been
in the last two years, party to any material contract, other than contracts entered into in the ordinary course of our business.
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.”
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, 2024, 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.”
364
204
205
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, 2024, 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.”
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HUTCHMED (China) Limited 2023 Annual Report 365
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 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.
Overview of Tax Implications of Various Other Jurisdictions
Cayman Islands Taxation
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. To keep in line with reform of foreign-sourced income regime, the Inland Revenue (Amendment) (Taxation on
Foreign-sourced Disposal Gains) Ordinance 2023 (the 2023 Amendment Ordinance) was enacted on 8 December 2023 with a
view to bringing the regime into force from 1 January 2024. The scope of assets covered for foreign sourced disposal gains is
expanded to cover all types of property.
Hong Kong tax on shareholders and ADS holders
Hong Kong Profits Tax will not be payable by our shareholders, including our ADS holders (other than shareholders/ADS
holders carrying on a trade, profession or business in Hong Kong and holding the shares/ADSs for trading purposes), on any
capital gains made on the sale or other disposal of the shares or ADSs. Shareholders, including our ADS holders, should take
advice from their own professional advisors as to their particular tax position.
U.S. Taxation
Corporate Tax
Our subsidiaries in the United States, HUTCHMED International Corporation 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:
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 arrangements treated as partnerships for U.S. federal income tax purposes) or S
corporations holding our ordinary shares or ADSs, and their partners or shareholders;
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.
• dealers or electing traders in securities that use a mark-to-market method of tax accounting;
366
206
207
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 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.
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. To keep in line with reform of foreign-sourced income regime, the Inland Revenue (Amendment) (Taxation on
Foreign-sourced Disposal Gains) Ordinance 2023 (the 2023 Amendment Ordinance) was enacted on 8 December 2023 with a
view to bringing the regime into force from 1 January 2024. The scope of assets covered for foreign sourced disposal gains is
expanded to cover all types of property.
Hong Kong tax on shareholders and ADS holders
our ADS holders.
Hong Kong Profits Tax will not be payable by our shareholders, including our ADS holders (other than shareholders/ADS
holders carrying on a trade, profession or business in Hong Kong and holding the shares/ADSs for trading purposes), on any
capital gains made on the sale or other disposal of the shares or ADSs. Shareholders, including our ADS holders, should take
advice from their own professional advisors as to their particular tax position.
U.S. Taxation
Corporate Tax
Our subsidiaries in the United States, HUTCHMED International Corporation 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:
•
•
•
•
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 arrangements treated as partnerships for U.S. federal income tax purposes) or S
corporations holding our ordinary shares or ADSs, and their partners or shareholders;
No tax is payable in Hong Kong in respect of dividends paid by a Hong Kong tax resident to their shareholders, including
• dealers or electing traders in securities that use a mark-to-market method of tax accounting;
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HUTCHMED (China) Limited 2023 Annual Report 367
•
•
•
•
•
persons whose functional currency is not the U.S. dollar;
Taxation of Dividends
persons that acquired ordinary shares or ADSs as compensation;
The following is subject to the discussion under “—Passive Foreign Investment Company Considerations” below.
persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States;
persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal
income tax purposes; or
direct, indirect or constructive owners of 10% or more of our equity (by vote or value).
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.
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 that distributions paid with respect to our ordinary shares or ADSs will be
reported 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 preceding 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. The IRS released notices that provide relief from certain of the provisions of the Treasury regulations described
above for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief
is issued (or any later date specified in such notice or other guidance). 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.
368
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209
•
•
•
•
•
persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of the United States;
persons holding our ordinary shares or ADSs as part of a straddle, integrated or similar transaction for U.S. federal
income tax purposes; or
direct, indirect or constructive owners of 10% or more of our equity (by vote or value).
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 whose functional currency is not the U.S. dollar;
Taxation of Dividends
persons that acquired ordinary shares or ADSs as compensation;
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 that distributions paid with respect to our ordinary shares or ADSs will be
reported 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 preceding 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. The IRS released notices that provide relief from certain of the provisions of the Treasury regulations described
above for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief
is issued (or any later date specified in such notice or other guidance). 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.
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HUTCHMED (China) Limited 2023 Annual Report 369
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.
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. As discussed above under “—Taxation of
Dividends,” the IRS released notices that provide relief from certain of these Treasury regulations’ provisions (including the
limitation described in the preceding sentence) for taxable years ending before the date that a notice or other guidance
withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). However,
even if these Treasury regulations do not prohibit a U.S. Holder from claiming a foreign tax credit with respect to PRC taxes on
disposition gains, other limitations under the foreign tax credit rules may preclude a U.S. Holder from claiming a foreign tax
credit. If PRC taxes (if any) on disposition gains are not creditable, they may be deductible or reduce the amount realized on
the disposition. An election to deduct creditable non-U.S. taxes instead of claiming foreign tax credits applies to all creditable
non-U.S. taxes paid or accrued in the taxable year. 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 treated under the PFIC rules
as 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. Ownership stakes of less-than-25% (by value) in other corporations are
treated as passive assets. 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 and
other intangible assets), we believe that we were not a PFIC for our taxable year ended December 31, 2023. 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
and other intangible assets. The value of our goodwill and other intangible assets 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 be or 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. Furthermore, the proportionate value of our passive assets may increase over
time if the value of our ownership stake in any other company in which we own less than 25% (by value) increase. 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, in certain cases, 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 for 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 if we
cease to be a PFIC for subsequent taxable years. 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.” Nasdaq, on which the ADSs are listed, is
a “qualified exchange” for this purpose. A non-U.S. exchange is a “qualified exchange” if it is regulated by a governmental
authority in the jurisdiction in which the exchange is located and with respect to which certain other requirements are met. The
IRS has not identified specific non-U.S. exchanges that are “qualified” for this purpose.
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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.
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. As discussed above under “—Taxation of
Dividends,” the IRS released notices that provide relief from certain of these Treasury regulations’ provisions (including the
limitation described in the preceding sentence) for taxable years ending before the date that a notice or other guidance
withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). However,
even if these Treasury regulations do not prohibit a U.S. Holder from claiming a foreign tax credit with respect to PRC taxes on
disposition gains, other limitations under the foreign tax credit rules may preclude a U.S. Holder from claiming a foreign tax
credit. If PRC taxes (if any) on disposition gains are not creditable, they may be deductible or reduce the amount realized on
the disposition. An election to deduct creditable non-U.S. taxes instead of claiming foreign tax credits applies to all creditable
non-U.S. taxes paid or accrued in the taxable year. 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 treated under the PFIC rules
as 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. Ownership stakes of less-than-25% (by value) in other corporations are
treated as passive assets. 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 and
other intangible assets), we believe that we were not a PFIC for our taxable year ended December 31, 2023. 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
and other intangible assets. The value of our goodwill and other intangible assets 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 be or 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. Furthermore, the proportionate value of our passive assets may increase over
time if the value of our ownership stake in any other company in which we own less than 25% (by value) increase. 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, in certain cases, 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 for 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 if we
cease to be a PFIC for subsequent taxable years. 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.” Nasdaq, on which the ADSs are listed, is
a “qualified exchange” for this purpose. A non-U.S. exchange is a “qualified exchange” if it is regulated by a governmental
authority in the jurisdiction in which the exchange is located and with respect to which certain other requirements are met. The
IRS has not identified specific non-U.S. exchanges that are “qualified” for this purpose.
210
211
HUTCHMED (China) Limited 2023 Annual Report 371
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 during a U.S. Holder’s holding period prior to the first taxable year with respect to
which the U.S. Holder made a mark-to-market election, the general PFIC rules described above under “—U.S. federal income
tax treatment of a shareholder of a PFIC generally” will apply with respect to the excess of the fair market value of the ADSs or
ordinary shares at the end of that first taxable year over the U.S. Holder’s tax basis in the ADSs or ordinary shares. 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.
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.
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:
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of
interest or dividends; or
•
•
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification
number and that the IRS has not notified the holder that the holder is subject to backup withholding.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S.
Holder’s U.S. federal income tax liability (if any) or refunded provided the required information is furnished to the IRS in a timely
manner. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding
and the procedures for obtaining such an exemption.
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 securities 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.
H. Documents on Display.
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information
with the SEC. Shareholders may access our reports and other information filed with the SEC by viewing them on the SEC’s
website, at www.sec.gov. We also make available on our website’s investor relations page, free of charge, our annual report and
the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as
reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor
relations page
is www.hutch-med.com/shareholder-information. The
information contained on our website
is not
incorporated by reference in this annual report.
We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the
same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to
reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting
companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are
required to file or furnish to the SEC the continuous disclosure documents that we are required to file on the AIM market.
We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will
include a review of operation and annual audited consolidated financial statements prepared in conformity with U.S. GAAP,
and all notices of shareholders’ meetings and other reports and communications that are made generally available to our
shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our
requests, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by
•
•
372
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 depositary from us.
I.
Subsidiary information.
Not applicable.
212
213
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 during a U.S. Holder’s holding period prior to the first taxable year with respect to
which the U.S. Holder made a mark-to-market election, the general PFIC rules described above under “—U.S. federal income
tax treatment of a shareholder of a PFIC generally” will apply with respect to the excess of the fair market value of the ADSs or
ordinary shares at the end of that first taxable year over the U.S. Holder’s tax basis in the ADSs or ordinary shares. 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.
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.
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:
the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her
social security number;
•
•
the holder furnishes an incorrect taxpayer identification number;
•
•
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of
interest or dividends; or
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification
number and that the IRS has not notified the holder that the holder is subject to backup withholding.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S.
Holder’s U.S. federal income tax liability (if any) or refunded provided the required information is furnished to the IRS in a timely
manner. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding
and the procedures for obtaining such an exemption.
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 securities 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.
H. Documents on Display.
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information
with the SEC. Shareholders may access our reports and other information filed with the SEC by viewing them on the SEC’s
website, at www.sec.gov. We also make available on our website’s investor relations page, free of charge, our annual report and
the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as
reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor
relations page
is not
incorporated by reference in this annual report.
is www.hutch-med.com/shareholder-information. The
information contained on our website
We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the
same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to
reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting
companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are
required to file or furnish to the SEC the continuous disclosure documents that we are required to file on the AIM market.
We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will
include a review of operation and annual audited consolidated financial statements prepared in conformity with U.S. GAAP,
and all notices of shareholders’ meetings and other reports and communications that are made generally available to our
shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our
requests, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by
the depositary from us.
I.
Subsidiary information.
Not applicable.
212
213
HUTCHMED (China) Limited 2023 Annual Report 373
J. Annual Report to Security Holders.
C. Other Securities.
The Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current
Not applicable.
report on Form 6-K.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Credit Risk
Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. We limit
the amount of credit exposure to any single financial institution. We make periodic assessments of the recoverability of trade
and other receivables and amounts due from related parties. Our historical experience in collection of receivables falls within
the recorded allowances, and we believe that we have made adequate provision for uncollectible receivables.
Interest Rate Risk
We have no significant interest-bearing assets except for bank deposits. Our exposure to changes in interest rates is mainly
attributable to our bank borrowings, which bear interest at floating interest rates and expose us to cash flow interest rate risk.
We have not used any interest rate swaps to hedge our exposure to interest rate risk. We have performed sensitivity analysis for
the effects on our results for the year from changes in interest rates on floating rate borrowings. The sensitivity to interest rates
used is based on the market forecasts available at the end of the reporting period and under the economic environments in
which we operate, with other variables held constant. According to the analysis, the impact on our results of a 1.0% interest
rate shift would be a maximum increase/decrease of $0.1 million for the year ended December 31, 2023.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted
D. American Depositary Shares.
in U.S. dollars.
ADSs may be held either:
(a)
directly: (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a
specific number of ADSs registered in the holder’s name; or (ii) by having uncertificated ADSs registered in the holder’s name;
or
(b)
indirectly, by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or
indirect participant in The Depository Trust Company, also called DTC.
The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New
York, NY 10019, United States.
Fees and charges our ADS holders may have to pay
ADS holders will be required to pay the following service fees to Deutsche Bank Trust Company America, the depositary of
our ADS program, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other
governmental charges payable on the deposited securities represented by ADSs):
Service
Fees
• To any person to which ADSs are issued or to any person to which a distribution is made
Up to $0.05 per ADS issued
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
• Cancellation or withdrawal of ADSs, including the case of termination of the deposit
Up to $0.05 per ADS cancelled
cash)
agreement
• 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)
374
214
215
J. Annual Report to Security Holders.
C. Other Securities.
The Company intends to submit annual report provided to security holders in electronic format as an exhibit to a current
Not applicable.
report on Form 6-K.
Foreign Exchange Risk
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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.
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.
Credit Risk
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 results of a 1.0% interest
rate shift would be a maximum increase/decrease of $0.1 million for the year ended December 31, 2023.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
D. American Depositary Shares.
Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted
in U.S. dollars.
ADSs may be held either:
(a)
directly: (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a
specific number of ADSs registered in the holder’s name; or (ii) by having uncertificated ADSs registered in the holder’s name;
or
(b)
indirectly, by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or
indirect participant in The Depository Trust Company, also called DTC.
The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New
York, NY 10019, United States.
Fees and charges our ADS holders may have to pay
ADS holders will be required to pay the following service fees to Deutsche Bank Trust Company America, the depositary of
our ADS program, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other
governmental charges payable on the deposited securities represented by ADSs):
Service
• To any person to which ADSs are issued or to any person to which a distribution is made
in respect of ADS distributions pursuant to stock dividends or other free distributions of
stock, bonus distributions, stock splits or other distributions (except where converted to
cash)
Fees
Up to $0.05 per ADS issued
• Cancellation or withdrawal of ADSs, including the case of termination of the deposit
Up to $0.05 per ADS cancelled
agreement
• Distribution of cash dividends
• Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from
Up to $0.05 per ADS held
Up to $0.05 per ADS held
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 on
the applicable record date(s)
established by the depositary
bank (an annual fee)
214
215
HUTCHMED (China) Limited 2023 Annual Report 375
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:
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
•
•
•
•
•
•
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.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Expenses for cable, telex and fax transmissions and for delivery of securities.
A-D. Material Modifications to the Rights of Security Holders; Assets Securing Securities; Trustees; Paying Agents.
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.
None.
None.
E. Use of Proceeds.
Not applicable.
•
Any applicable fees and penalties thereon.
The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers
(on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients)
delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees
payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the
depositary bank to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion
of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank
charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name
of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable
record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally
collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the
brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts
in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the
ADS holder.
Fees and other payments made by the depositary to us
The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds
towards our expenses relating to the establishment and maintenance of the ADR program, including investor relations expenses, or
otherwise as we see fit.
Ordinary Shares and Conversions
Our ordinary shares are admitted to trading on AIM and trade on the SEHK. Dealings in our ordinary shares on the AIM and SEHK
are conducted in pound sterlings and H.K. dollars, respectively.
In connection with the initial public offering of our ordinary shares in Hong Kong in June 2021, we established a branch register
of members in Hong Kong, or the Hong Kong share register, which will be maintained by our Hong Kong Share Registrar,
Computershare Hong Kong Investor Services Limited. Our principal register of members, or the Cayman share register, will continue
to be maintained by our Principal Share Registrar, Computershare Investor Services (Jersey) Limited. All ordinary shares offered in
our initial public offering in Hong Kong were registered on the Hong Kong share register in order to be listed and traded on the SEHK.
Details on the conversion process between SEHK, Nasdaq and AIM are available at https://www.hutch-med.com/shareholder-
information/investor-faqs/.
ITEM 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, 2023,
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, 2023. 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, 2023.
376
216
217
•
•
•
•
•
•
Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or
withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory
requirements applicable to ordinary shares, ordinary shares deposited securities, ADSs and ADRs.
•
Any applicable fees and penalties thereon.
The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers
(on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients)
delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees
payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the
depositary bank to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion
of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank
charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name
of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable
record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally
collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the
brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts
in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the
ADS holder.
Fees and other payments made by the depositary to us
The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds
towards our expenses relating to the establishment and maintenance of the ADR program, including investor relations expenses, or
otherwise as we see fit.
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/.
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:
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
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).
None.
Expenses incurred for converting foreign currency into U.S. dollars.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Expenses for cable, telex and fax transmissions and for delivery of securities.
A-D. Material Modifications to the Rights of Security Holders; Assets Securing Securities; Trustees; Paying Agents.
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, 2023,
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, 2023. 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, 2023.
216
217
HUTCHMED (China) Limited 2023 Annual Report 377
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
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, 2023, 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, 2023 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 Mok Shu Kam, Tony, with Graeme Allan
Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony 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, our principal external auditors,
for certain services rendered to our company, including some of our subsidiaries and joint ventures, during 2023 and 2022.
Audit fees(1)
Tax fees(2)
Total(3)
Notes:
Year ended
December 31,
2023
2022
($’000)
2,682
189
2,871
2,200
337
2,537
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by our principal
external auditors for the audit of our annual financial statements and review of our interim financial statements.
ITEM 16J. INSIDER TRADING POLICIES
(2) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by our principal
external auditors for tax compliance and tax advice.
378
218
219
$52,000 and $68,000 in 2022 and 2023, respectively.
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, our principal external auditors, 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
Not applicable.
None.
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As permitted by Nasdaq, in lieu of the Nasdaq corporate governance rules, but subject to certain exceptions, we may follow
the practices of our home country which for the purpose of such rules is the Cayman Islands. Certain corporate governance
practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general
fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific
corporate governance standards. For example, we follow Cayman Islands corporate governance practices in lieu of the
corporate governance requirements of the Nasdaq Global Select Market in respect of the following:
(i)
the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules,
(ii)
the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely
of independent directors governed by a remuneration committee charter oversee executive compensation, and
(iii)
the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or
recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of
independent directors.
Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent
directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or
nominating committee or nominating process. We voluntarily comply with Hong Kong Corporate Governance Code. See Item
6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details.
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
Not applicable.
Not Applicable.
There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2023 that
have materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over
in its report, which appears in this annual report.
D. Changes in Internal Control over Financial Reporting.
financial reporting.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTS
Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony, with Graeme Allan
Jack serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Mok Shu Kam, Tony 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, our principal external auditors,
for certain services rendered to our company, including some of our subsidiaries and joint ventures, during 2023 and 2022.
Audit fees(1)
Tax fees(2)
Total(3)
Notes:
Year ended
December 31,
2023
2022
($’000)
2,682
2,200
189
2,871
337
2,537
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
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, 2023, as stated
$52,000 and $68,000 in 2022 and 2023, respectively.
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, our principal external auditors, 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
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As permitted by Nasdaq, in lieu of the Nasdaq corporate governance rules, but subject to certain exceptions, we may follow
the practices of our home country which for the purpose of such rules is the Cayman Islands. Certain corporate governance
practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general
fiduciary duties and duties of care, Cayman Islands law has no corporate governance regime which prescribes specific
corporate governance standards. For example, we follow Cayman Islands corporate governance practices in lieu of the
corporate governance requirements of the Nasdaq Global Select Market in respect of the following:
(i)
the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules,
(ii)
the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely
of independent directors governed by a remuneration committee charter oversee executive compensation, and
(iii)
the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or
recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of
independent directors.
Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent
directors, nor does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or
nominating committee or nominating process. We voluntarily comply with Hong Kong Corporate Governance Code. See Item
6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by our principal
external auditors for the audit of our annual financial statements and review of our interim financial statements.
(2) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by our principal
external auditors for tax compliance and tax advice.
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not Applicable.
218
219
HUTCHMED (China) Limited 2023 Annual Report 379
ITEM 17. FINANCIAL STATEMENTS
See Item 18 “Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and the consolidated financial statements of our non-consolidated joint venture,
Shanghai Hutchison Pharmaceuticals, are included at the end of this annual report.
ITEM 16K. CYBERSECURITY
PART III
Cybersecurity risk management is an integral part of our overall enterprise risk management program. Our cybersecurity
risk management program is designed based on N.I.S.T cybersecurity framework. This framework includes steps for (a)
identifying cybersecurity threats, assessing the severity, identifying the source and whether the threat is associated with a third-
party service provider; (b) reporting material cybersecurity incidents to management and our board of directors; (c)
implementing safeguards, countermeasures and mitigation strategies; and (d) remediation and restoration of the affected
systems. Our cybersecurity team also engages third-party security experts for defense protection capability assessment and
system enhancements. In addition, our cybersecurity team provides training to all employees annually.
Our board of directors has overall oversight responsibility for our risk management, and delegates cybersecurity risk
management oversight to the audit committee of the board of directors. The audit committee is responsible for ensuring that
management has processes in place designed to identify and evaluate cybersecurity risks to which the company is exposed and
implement processes and programs to manage cybersecurity risks and mitigate cybersecurity incidents. The audit committee
also reports material cybersecurity risks to our full board of directors.
Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis,
establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate
mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of an IT
Working Group established by the audit committee consisting currently of Dr. Dan Eldar, a Non- Executive Director, Mr. James
Lai, Head of Corporate Internal Audit for CKHH, and Mr. Cheng Chig Fung, Johnny, Chief Financial Officer and Executive Director,
who receive reports from our cybersecurity team led by the Head of IT and Security and monitors the prevention, detection,
mitigation, and remediation of cybersecurity incidents.
Our Head of IT and Security and dedicated IT personnel are experienced information systems security professionals and
information security managers with more than 15 years of relevant experience. The IT Working Group regularly updates the
audit committee on the company’s cybersecurity programs, material cybersecurity risks and mitigation strategies and provides
cybersecurity reports quarterly that cover, among other topics, third-party assessments of the company’s cybersecurity
programs, developments in cybersecurity and updates to the company’s cybersecurity programs and mitigation strategies.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially
affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all
risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident. For
more information about these risks, please see “Risk Factors – 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” in this annual report.
380
220
221
ITEM 16K. CYBERSECURITY
PART III
Cybersecurity risk management is an integral part of our overall enterprise risk management program. Our cybersecurity
ITEM 17. FINANCIAL STATEMENTS
See Item 18 “Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and the consolidated financial statements of our non-consolidated joint venture,
Shanghai Hutchison Pharmaceuticals, are included at the end of this annual report.
risk management program is designed based on N.I.S.T cybersecurity framework. This framework includes steps for (a)
identifying cybersecurity threats, assessing the severity, identifying the source and whether the threat is associated with a third-
party service provider; (b) reporting material cybersecurity incidents to management and our board of directors; (c)
implementing safeguards, countermeasures and mitigation strategies; and (d) remediation and restoration of the affected
systems. Our cybersecurity team also engages third-party security experts for defense protection capability assessment and
system enhancements. In addition, our cybersecurity team provides training to all employees annually.
Our board of directors has overall oversight responsibility for our risk management, and delegates cybersecurity risk
management oversight to the audit committee of the board of directors. The audit committee is responsible for ensuring that
management has processes in place designed to identify and evaluate cybersecurity risks to which the company is exposed and
implement processes and programs to manage cybersecurity risks and mitigate cybersecurity incidents. The audit committee
also reports material cybersecurity risks to our full board of directors.
Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis,
establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate
mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of an IT
Working Group established by the audit committee consisting currently of Dr. Dan Eldar, a Non- Executive Director, Mr. James
Lai, Head of Corporate Internal Audit for CKHH, and Mr. Cheng Chig Fung, Johnny, Chief Financial Officer and Executive Director,
who receive reports from our cybersecurity team led by the Head of IT and Security and monitors the prevention, detection,
mitigation, and remediation of cybersecurity incidents.
Our Head of IT and Security and dedicated IT personnel are experienced information systems security professionals and
information security managers with more than 15 years of relevant experience. The IT Working Group regularly updates the
audit committee on the company’s cybersecurity programs, material cybersecurity risks and mitigation strategies and provides
cybersecurity reports quarterly that cover, among other topics, third-party assessments of the company’s cybersecurity
programs, developments in cybersecurity and updates to the company’s cybersecurity programs and mitigation strategies.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially
affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all
risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident. For
more information about these risks, please see “Risk Factors – 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” in this annual report.
220
221
HUTCHMED (China) Limited 2023 Annual Report 381
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
October 16, 2015)
with the SEC on October 16, 2015)
4.13
4.14
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 (incorporated by reference to Exhibit 4.16 to our annual report
on Form 20 – F filed with the SEC on February 28, 2023)
List of Significant Subsidiaries of the Company
Certification of Chief Executive Officer Required by Rule 13a-14(a)
Certification of Chief Financial Officer Required by Rule 13a-14(a)
8.1*
12.1*
12.2*
13.1†
Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
13.2†
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
United States Code
15.1*
Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered accounting firm, regarding the
consolidated financial statements of HUTCHMED (China) Limited
15.2*
Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated
15.3*
15.4*
financial statements of Shanghai Hutchison Pharmaceuticals Limited
Consent of Conyers Dill & Pearman
HUTCHMED (China) Limited Compensation Clawback Policy
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.
*
†
+
harm to the company if publicly disclosed.
Portions of the exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive
382
222
223
ITEM 19. EXHIBITS
EXHIBIT INDEX
1.1
2.1
2.2
2.3
2.4*
2.5
4.1
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
20-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
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)
4.3
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)
4.4
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 October 16, 2015)
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 the SEC on October 16, 2015)
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 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†
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 (incorporated by reference to Exhibit 4.16 to our annual report
on Form 20 – F filed with the SEC on February 28, 2023)
List of Significant Subsidiaries of the Company
Certification of Chief Executive Officer Required by Rule 13a-14(a)
Certification of Chief Financial Officer Required by Rule 13a-14(a)
Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code
Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code
15.1*
Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered accounting firm, regarding the
15.2*
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
15.3*
15.4*
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*
Consent of Conyers Dill & Pearman
HUTCHMED (China) Limited Compensation Clawback Policy
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
HUTCHMED (China) Limited 2023 Annual Report 383
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
Report of Independent Registered Public Accounting Firm (PCAOB ID 1424)
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Date: February 28, 2024
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, 2023 and December 31, 2022:
Consolidated Balance Sheets
For the Years Ended December 31, 2023, 2022 and 2021:
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income/(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, 2023, 2022 and 2021:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at December 31, 2023 and December 31, 2022:
Consolidated Statements of Financial Position
For the Years Ended December 31, 2023, 2022 and 2021:
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-51
F-53
F-54
F-55
F-56
F-57
F-58
384
224
F-1
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2024
HUTCHMED (China) Limited
By:
/s/ Weiguo Su
Name:Weiguo Su
Title: Chief Executive Officer
Audited Consolidated Financial Statements of HUTCHMED (China) Limited
Report of Independent Registered Public Accounting Firm (PCAOB ID 1424)
As at December 31, 2023 and December 31, 2022:
Consolidated Balance Sheets
For the Years Ended December 31, 2023, 2022 and 2021:
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income/(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, 2023, 2022 and 2021:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at December 31, 2023 and December 31, 2022:
Consolidated Statements of Financial Position
For the Years Ended December 31, 2023, 2022 and 2021:
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-51
F-53
F-54
F-55
F-56
F-57
F-58
224
F-1
HUTCHMED (China) Limited 2023 Annual Report 385
Refer to pages 110 to 160 in this annual report for the independent auditor’s report and the audited consolidated financial
statements of HUTCHMED (China) Limited.
SHANGHAI HUTCHISON
PHARMACEUTICALS LIMITED
386
F-2 to F-49
F-50
Refer to pages 110 to 160 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-49
F-50
HUTCHMED (China) Limited 2023 Annual Report 387
Report of Independent Auditors
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements (Continued)
• 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, 2024
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,
2023 and 2022, and the related consolidated income statements, consolidated statements of comprehensive income, changes
in equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023 in accordance with IFRS Accounting 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 IFRS Accounting 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 statements.
In performing an audit in accordance with US GAAS, we:
•
•
388
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-51
F-52
Report of Independent Auditors
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements (Continued)
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,
2023 and 2022, and the related consolidated income statements, consolidated statements of comprehensive income, changes
in equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes
(collectively referred to as the “consolidated financial statements”).
• 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.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023 in accordance with IFRS Accounting Standards as issued by the International
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, 2024
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 IFRS Accounting 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 statements.
In performing an audit in accordance with US GAAS, we:
•
•
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
F-51
F-52
HUTCHMED (China) Limited 2023 Annual Report 389
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Income Statements
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Note
5
6
7
15
8
Year Ended December 31,
2022
370,600
(89,487)
281,113
(144,979)
(21,727)
2,126
116,533
(112)
116,421
(16,738)
99,683
2023
385,483
(101,122)
284,361
(150,717)
(26,107)
5,027
112,564
(79)
112,485
(17,022)
95,463
2021
332,648
(77,559)
255,089
(131,821)
(22,627)
4,759
105,400
(116)
105,284
(15,896)
89,388
Other comprehensive income/(loss) that has been or may be reclassified
Profit for the year
subsequently to profit or loss:
Exchange translation differences
Total comprehensive income
Year Ended December 31,
2023
95,463
2022
99,683
2021
89,388
2,320
97,783
(16,581)
83,102
3,341
92,729
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
390
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F-54
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Income Statements
(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Note
5
6
7
15
8
Year Ended December 31,
2023
2022
385,483
370,600
(101,122)
(89,487)
284,361
281,113
2021
332,648
(77,559)
255,089
(150,717)
(144,979)
(131,821)
(26,107)
(21,727)
(22,627)
5,027
2,126
4,759
112,564
116,533
105,400
(79)
(112)
(116)
112,485
116,421
105,284
(17,022)
(16,738)
(15,896)
95,463
99,683
89,388
The accompanying notes are an integral part of these consolidated financial statements.
Profit for the year
Other comprehensive income/(loss) that has been or may be reclassified
subsequently to profit or loss:
Exchange translation differences
Total comprehensive income
Year Ended December 31,
2022
99,683
2023
95,463
2021
89,388
2,320
97,783
(16,581)
83,102
3,341
92,729
The accompanying notes are an integral part of these consolidated financial statements.
F-53
F-54
HUTCHMED (China) Limited 2023 Annual Report 391
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Financial Position
(in US$’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
Other non-current 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
2023
2022
December 31,
10
11
12
13
14
15
16
17
18
19
15
15
19,129
15,601
2,269
164,026
201,025
57,930
1,092
5,967
519
8,330
641
275,504
23,836
153,937
1,163
713
179,649
3,030
657
183,336
33,382
58,786
92,168
275,504
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
As at January 1, 2021
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
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Share
capital
33,382
Exchange
General
Retained
reserve
reserves
earnings
Total
equity
998
115,723
152,708
—
89,388
89,388
33,382
5,946
1,029
105,336
145,693
—
99,683
99,683
2,605
—
3,341
3,341
—
—
—
—
—
—
—
—
2,320
2,320
—
—
—
—
—
—
—
—
—
—
—
—
—
— (16,581)
— (16,581)
—
—
31
—
—
—
14
—
—
—
30
—
—
89,388
(31)
3,341
92,729
—
(99,744)
(99,744)
—
99,683
(14)
(16,581)
83,102
—
(87,436)
(87,436)
—
95,463
(30)
2,320
97,783
—
(146,974)
(146,974)
33,382
(10,635)
1,043
117,569
141,359
—
95,463
95,463
Dividends declared to shareholders (Note 18)
As at December 31, 2023
33,382
(8,315)
1,073
66,028
92,168
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
392
F-55
F-56
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)
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
Other intangible assets
Deferred tax assets
Other non-current assets
Total assets
Liabilities and shareholders’ equity
Other payables, accruals and advance receipts
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
2023
2022
December 31,
10
11
12
13
14
15
16
17
18
19
15
15
19,129
15,601
2,269
164,026
201,025
57,930
1,092
5,967
519
8,330
641
33,923
21,856
3,672
154,816
214,267
62,831
1,717
6,291
823
8,327
—
275,504
294,256
23,836
23,095
153,937
121,354
179,649
147,952
1,163
713
3,030
657
2,791
712
3,585
1,360
183,336
152,897
33,382
58,786
92,168
275,504
33,382
107,977
141,359
294,256
The accompanying notes are an integral part of these consolidated financial statements.
As at January 1, 2021
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
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Dividends declared to shareholders (Note 18)
As at December 31, 2023
Exchange
reserve
2,605
—
General
reserves
998
—
Retained
earnings
115,723
89,388
Total
equity
152,708
89,388
Share
capital
33,382
—
—
—
—
—
33,382
—
3,341
3,341
—
—
5,946
—
— (16,581)
— (16,581)
—
—
—
—
(10,635)
33,382
—
—
—
—
—
—
33,382
2,320
2,320
—
—
(8,315)
—
—
31
—
1,029
—
—
—
14
—
1,043
—
—
—
30
—
1,073
—
89,388
(31)
(99,744)
105,336
99,683
—
99,683
(14)
(87,436)
117,569
95,463
3,341
92,729
—
(99,744)
145,693
99,683
(16,581)
83,102
—
(87,436)
141,359
95,463
—
95,463
(30)
(146,974)
66,028
2,320
97,783
—
(146,974)
92,168
The accompanying notes are an integral part of these consolidated financial statements.
F-55
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HUTCHMED (China) Limited 2023 Annual Report 393
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Cash Flows
(in US$’000)
Operating activities
Net cash generated from operations
Interest received
Income tax paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
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 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
18
15
Year Ended December 31,
2022
2023
2021
96,080
645
(18,709)
78,016
96,270
1,219
(19,003)
78,486
(6,488)
—
12
(6,476)
(1,865)
(410)
20
(2,255)
93,970
1,116
(15,976)
79,110
(3,362)
—
32
(3,330)
(84,615)
(810)
(85,425)
(13,885)
(909)
(14,794)
(87,436)
(809)
(88,245)
(12,014)
(4,101)
(16,115)
(99,744)
(303)
(100,047)
(24,267)
1,827
(22,440)
33,923
19,129
50,038
33,923
72,478
50,038
The accompanying notes are an integral part of these consolidated financial statements.
394
F-57
F-58
Shanghai Hutchison Pharmaceuticals Limited
Notes to the Consolidated Financial Statements
1. General Information
Shanghai Hutchison Pharmaceuticals Limited (the “Company”) and its subsidiaries (together the “Group”) are principally
engaged in manufacturing, selling and distribution of prescription drug products. The Group has manufacturing plants in the
People’s Republic of China (the “PRC”) and sells mainly in the PRC.
The Company was incorporated in the PRC on April 30, 2001 as a Chinese-Foreign Equity joint venture. The Company is
jointly controlled by Shanghai HUTCHMED Investment (HK) Limited (“SHHCMI(HK)L”) 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, 2024.
2. Summary of Accounting Policies
The consolidated financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board (“IASB”) and
interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS Accounting
Standards. 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, 2023. 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, 2023 and have not been early adopted by the Group:
IAS 1 (Amendments)(1)
IAS 1 (Amendments)(1)
IFRS 16 (Amendments)(1)
IAS 7 and IFRS 7 (Amendments)(1)
IAS 21 (Amendments)(2)
IFRS 10 and IAS 28 (Amendments)(3)
Classification of Liabilities as Current or Non-current
Non-current Liabilities with Covenants
Lease Liability in a Sale and Leaseback
Supplier Finance Arrangements
Lack of Exchangeability
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, 2024.
(2) Effective for the Group for annual periods beginning on or after January 1, 2025.
(3) Effective date to be determined by the IASB.
The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any
material effects on the Group’s results of operations or financial position.
(a) Material Accounting Policies
(i) 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.
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Cash Flows
(in US$’000)
Operating activities
Net cash generated from operations
Interest received
Income tax paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible asset
Net cash used in investing activities
Financing activities
Dividends paid to shareholders
Lease payments
Net cash used in financing activities
Net decrease in cash and cash equivalents
Proceeds from disposal of property, plant and equipment
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
2023
2022
2021
Year Ended December 31,
20
19
18
15
96,080
645
96,270
1,219
(18,709)
(19,003)
78,016
78,486
(6,488)
—
12
(1,865)
(410)
20
93,970
1,116
(15,976)
79,110
(3,362)
—
32
(6,476)
(2,255)
(3,330)
(84,615)
(87,436)
(99,744)
(810)
(809)
(303)
(85,425)
(88,245)
(100,047)
(13,885)
(12,014)
(24,267)
(909)
(4,101)
1,827
(14,794)
(16,115)
(22,440)
33,923
19,129
50,038
33,923
72,478
50,038
The accompanying notes are an integral part of these consolidated financial statements.
Shanghai Hutchison Pharmaceuticals Limited
Notes to the Consolidated Financial Statements
1. General Information
Shanghai Hutchison Pharmaceuticals Limited (the “Company”) and its subsidiaries (together the “Group”) are principally
engaged in manufacturing, selling and distribution of prescription drug products. The Group has manufacturing plants in the
People’s Republic of China (the “PRC”) and sells mainly in the PRC.
The Company was incorporated in the PRC on April 30, 2001 as a Chinese-Foreign Equity joint venture. The Company is
jointly controlled by Shanghai HUTCHMED Investment (HK) Limited (“SHHCMI(HK)L”) 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, 2024.
2. Summary of Accounting Policies
The consolidated financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board (“IASB”) and
interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS Accounting
Standards. 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, 2023. 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, 2023 and have not been early adopted by the Group:
IAS 1 (Amendments)(1)
IAS 1 (Amendments)(1)
IFRS 16 (Amendments)(1)
IAS 7 and IFRS 7 (Amendments)(1)
IAS 21 (Amendments)(2)
IFRS 10 and IAS 28 (Amendments)(3)
Classification of Liabilities as Current or Non-current
Non-current Liabilities with Covenants
Lease Liability in a Sale and Leaseback
Supplier Finance Arrangements
Lack of Exchangeability
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, 2024.
(2) Effective for the Group for annual periods beginning on or after January 1, 2025.
(3) Effective date to be determined by the IASB.
The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any
material effects on the Group’s results of operations or financial position.
(a) Material Accounting Policies
(i) 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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HUTCHMED (China) Limited 2023 Annual Report 395
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.
(iv) Current and Deferred Income Tax
(1) Current income tax
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
The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying
amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant
assets and are recognized in the consolidated income statements.
the deferred income tax liability is settled.
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.
(ii) 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.
(iii) Financial Liabilities and Equity Instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including
trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the
effective interest method. An equity instrument is any contract that does not meet the definition of a financial liability and
evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are
shown in equity as a deduction from the proceeds.
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.
(2) 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 recognised 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 end of the reporting period and are expected to apply when the related deferred income tax asset is realised or
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are
offset when there is a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority.
Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries,
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.
(v) Revenue and Income Recognition
Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives
and amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are collected by the Group from a customer, are also excluded
from revenue. The Group recognizes revenue when it satisfies a performance obligation by transferring control over a good to
a customer.
The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the
customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The
amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued
to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using
the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions.
Revenues are recorded net of provisions for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which
is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally,
when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date,
the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer.
396
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F-60
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when
(iv) Current and Deferred Income Tax
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
(1) Current income tax
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
20 years
10 years
5 years
Over the unexpired period of the lease or 5 years,
whichever is shorter
The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying
amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant
assets and are recognized in the consolidated income statements.
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.
(ii) 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.
(iii) Financial Liabilities and Equity Instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including
trade and other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the
effective interest method. An equity instrument is any contract that does not meet the definition of a financial liability and
evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are
shown in equity as a deduction from the proceeds.
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.
(2) 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 recognised 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 end of the reporting period and are expected to apply when the related deferred income tax asset is realised or
the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are
offset when there is a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority.
Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries,
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.
(v) Revenue and Income Recognition
Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives
and amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are collected by the Group from a customer, are also excluded
from revenue. The Group recognizes revenue when it satisfies a performance obligation by transferring control over a good to
a customer.
The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the
customer takes possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The
amount of revenue recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued
to customers as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using
the expected value method. Additionally, sales are generally made with a limited right of return under certain conditions.
Revenues are recorded net of provisions for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which
is based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally,
when the amounts that can be invoiced correspond directly with the value to the customer for performance completed to date,
the Group recognizes revenue from provision of services based on amounts that can be invoiced to the customer.
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HUTCHMED (China) Limited 2023 Annual Report 397
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.
(b) Other Accounting Policies
(i) Basis of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries.
(v) Inventories
The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated.
Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
(ii) 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(b)(i) 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.
(iii) 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.
(iv) 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.
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.
(vi) Trade and Other Receivables
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.
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.
(vii) Cash and Cash Equivalents
(viii) 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.
(ix) 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.
398
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F-62
Payments in advance from customers are deferred if consideration is received in advance of transferring control of the
(iv) Impairment of Non-Financial Assets
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.
(b) Other Accounting Policies
(i) Basis of Consolidation
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 consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries.
(v) Inventories
The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated.
Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
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
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
(ii) Subsidiaries
Note 2(b)(i) above.
from the date that control ceases.
(iii) 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.
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.
(vi) Trade and Other Receivables
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.
(vii) 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.
(viii) 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.
(ix) 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.
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HUTCHMED (China) Limited 2023 Annual Report 399
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.
its customers.
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of
the leases.
Leasehold land is accounted under IFRS 16.
(x) Government Incentives
(i) Credit risk
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 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
Management periodically assesses the recoverability of trade and bills receivables and other receivables. The Group’s
historical loss rates 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. The Group has not
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.
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.
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.
As at December 31, 2023 and 2022, in addition to future lease payments due based on the lease term (Note 15) , the Group’s
all other current financial liabilities are mainly due for settlement within twelve months and the Group expects to meet all
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.
(xi) Segment Reporting
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.
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.
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.
(xii) General Reserves
In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes
appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund
and the staff bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s
Board of Directors.
3. Financial Risk Management
(a) Financial risk factors
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use
any derivative financial instruments for speculative purposes.
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.
The liabilities to assets ratio as at December 31, 2023 and 2022 was as follows:
Total liabilities
Total assets
Liabilities to assets ratio
December 31,
2023
2022
(in US$’000)
183,336 152,897
275,504
294,256
66.5 %
52.0 %
had any material credit losses.
(ii) Liquidity risk
liquidity requirements.
(b) Capital risk management
400
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F-64
Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease
(i) Credit risk
payments that depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects
the lessee exercising that option, if any. Lease liabilities exclude the following payments that are generally accounted for
separately: (i) non-lease components, such as maintenance and security service fees and value added tax, and (ii) any payments
that a lessee makes before the lease commencement date. The lease payments are discounted using the interest rate implicit
in the lease or if that rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would
have to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic
environment and terms and conditions.
An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial
measurement of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease
incentives received, any initial direct cost incurred by the Group and any restoration costs.
After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance
costs are recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
lease liability for each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease.
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of
the leases.
Leasehold land is accounted under IFRS 16.
(x) 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.
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 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 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. The Group has not
had any material credit losses.
(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, 2023 and 2022, in addition to future lease payments due based on the lease term (Note 15) , the Group’s
all other current financial liabilities are mainly due for settlement within twelve months and the Group expects to meet all
liquidity requirements.
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
(b) Capital risk management
basis over the expected lives of the related assets.
(xi) Segment Reporting
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.
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.
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.
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
(xii) General Reserves
Board of Directors.
3. Financial Risk Management
(a) Financial risk factors
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use
any derivative financial instruments for speculative purposes.
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.
The liabilities to assets ratio as at December 31, 2023 and 2022 was as follows:
Total liabilities
Total assets
Liabilities to assets ratio
December 31,
2023
2022
(in US$’000)
183,336 152,897
294,256
275,504
66.5 %
52.0 %
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HUTCHMED (China) Limited 2023 Annual Report 401
(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(a) includes a summary of the material accounting policies used in the preparation of the consolidated financial
statements. The preparation of consolidated financial statements often requires the use of judgements to select specific
accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and assumptions
concerning the future may be required in selecting and applying those methods and policies in the consolidated financial
statements. The Group bases its estimates and judgements on historical experience and various other assumptions that it
believes are reasonable under the circumstances. Actual results may differ from these estimates and judgements under
different assumptions or conditions.
The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods
used in the preparation of the consolidated financial statements.
(a) Sales rebates
Certain sales rebates are provided to customers when their business performance for an agreed period within the year and
the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the
estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject
to change based on actual performance and collection status.
(b) Useful lives of property, plant and equipment
The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the
intended use of these assets may cause the estimated period of use or value of these assets to change.
(c) Deferred income tax
Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and
liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be
utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations,
such differences will impact the carrying amount of deferred tax in the period in which such determination is made.
5. Revenue and Segment Information
Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has
determined that the Group has two reportable operating segments as follows:
—Manufacturing business—manufacture and distribution of drug products
—Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers and
healthcare products
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:
Total segment assets
272,104
3,400
275,504
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)
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, 2023
Manufacturing Distribution
business
business
Total
PRC
(in US$’000)
373,376
12,107
385,483
427
113,468
76
8,365
327
(904)
3
163
754
112,564
79
8,528
4,859
54
4,913
December 31, 2023
Manufacturing Distribution
business
business
Total
PRC
(in US$’000)
Year Ended December 31, 2022
Manufacturing Distribution
business
business
Total
PRC
(in US$’000)
367,512
3,088
370,600
117,210
501
110
9,151
479
(677)
2
89
980
116,533
112
9,240
3,636
532
4,168
December 31, 2022
Manufacturing Distribution
business
business
Total
PRC
(in US$’000)
Total segment assets
291,877
2,379
294,256
402
F-65
F-66
current financial liabilities, including trade payables and other payables and accruals, approximate their fair values due to their
The segment information is as follows:
The operating segments are strategic business units that offer different products and services. They are managed
separately because each business requires different technology and marketing approaches. The performance of each of the
reportable segments is assessed based on a measure of operating profit/(loss).
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non-current assets (other than financial
instruments and deferred tax assets)
The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods
Total segment assets
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non-current assets (other than financial
instruments and deferred tax assets)
Total segment assets
Year Ended December 31, 2023
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
373,376
427
113,468
76
8,365
12,107
327
(904)
3
163
385,483
754
112,564
79
8,528
4,859
54
4,913
December 31, 2023
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
272,104
3,400
275,504
Year Ended December 31, 2022
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
367,512
501
117,210
110
9,151
3,088
479
(677)
2
89
370,600
980
116,533
112
9,240
3,636
532
4,168
December 31, 2022
Manufacturing Distribution
business
business
PRC
(in US$’000)
Total
291,877
2,379
294,256
(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
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(a) includes a summary of the material 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.
used in the preparation of the consolidated financial statements.
(a) Sales rebates
Certain sales rebates are provided to customers when their business performance for an agreed period within the year and
the whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the
estimate of sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject
to change based on actual performance and collection status.
(b) Useful lives of property, plant and equipment
The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the
intended use of these assets may cause the estimated period of use or value of these assets to change.
(c) Deferred income tax
Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and
liabilities against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be
utilized. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Where the final outcomes are different from the estimations,
such differences will impact the carrying amount of deferred tax in the period in which such determination is made.
5. Revenue and Segment Information
Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has
determined that the Group has two reportable operating segments as follows:
—Manufacturing business—manufacture and distribution of drug products
—Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers and
healthcare products
F-65
F-66
HUTCHMED (China) Limited 2023 Annual Report 403
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non-current assets (other than financial
Year Ended December 31, 2021
Manufacturing Distribution
business
business
PRC
(in US$’000)
331,097
629
107,361
114
9,118
1,551
587
(1,961)
2
50
Total
332,648
1,216
105,400
116
9,168
instruments and deferred tax assets)
5,867
82
5,949
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$80.5 million
for 2023 (2022: US$87.3 million; 2021: US$77.8 million). Sales between segments are carried out at mutually agreed terms.
Revenue from external customers from the manufacturing business is for sales of goods which are recognized at a point in time.
Revenue from external customers from the distribution business is for provision of services which are recognized over time.
6. Other Net Operating Income
Interest income
Net foreign exchange (loss)/gain
Government incentives
Other operating (loss)/income
7. Operating Profit
Operating profit
Operating profit is stated after charging/(crediting) the following:
2023
Cost of inventories recognized as expense
Research and development expense
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease
expenses
Movement on the provision for excess and obsolete
inventories
Auditor’s remuneration
Employee benefit expenses (Note 9)
2023
Year Ended December 31,
2022
(in US$’000)
980
(83)
2,198
(969)
2,126
754
(78)
4,414
(63)
5,027
2021
1,216
25
2,999
519
4,759
2021
2023
Year Ended December 31,
2022
(in US$’000)
116,533
112,564
105,400
Year Ended December 31,
2022
(in US$’000)
63,079
7,169
8,148
449
166
245
70,397
8,621
7,417
32
158
288
2021
50,637
9,350
8,100
60
172
233
872
917
1,171
2,121
221
117,126
(65)
227
111,200
(141)
223
100,311
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:
8. Taxation Charge
Current tax (Note 19)
Deferred income tax (Note 16)
Taxation charge
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 provision in prior years
Taxation charge
Year Ended December 31,
2023
2022
2021
17,197
(175)
17,022
(in US$’000)
18,082
(1,344)
16,738
15,082
814
15,896
Year Ended December 31,
2023
2022
2021
(in US$’000)
112,485
116,421
105,284
28,121
29,105
26,321
1,628
(518)
(12,540)
331
17,022
1,397
(898)
1,946
(55)
(13,000)
(12,420)
134
16,738
104
15,896
Year Ended December 31,
2023
2022
2021
90,372
10,444
16,310
(in US$’000)
86,330
9,701
15,169
77,335
8,713
14,263
117,126
111,200
100,311
December 31,
2023
2022
(in US$’000)
19,129
33,923
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 2023 and successfully renew the HNTE status in
2023 (2022: 15%; 2021: 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 (2022: 200%;
2021: 200%).
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, 2023 was 15.1% (2022: 14.4%; 2021: 15.1%).
9. Employee Benefit Expenses
Employee benefit expenses of approximately US$22.8 million for the year ended December 31, 2023 (2022: US$19.8 million;
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
2021: US$20.1 million) are included in cost of sales.
10. Cash and Cash Equivalents
Cash and cash equivalents
404
F-67
F-68
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Year Ended December 31, 2021
Manufacturing Distribution
business
Total
business
PRC
(in US$’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
Additions to non-current assets (other than financial
instruments and deferred tax assets)
5,867
82
5,949
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$80.5 million
for 2023 (2022: US$87.3 million; 2021: US$77.8 million). Sales between segments are carried out at mutually agreed terms.
Revenue from external customers from the manufacturing business is for sales of goods which are recognized at a point in time.
Revenue from external customers from the distribution business is for provision of services which are recognized over time.
6. Other Net Operating Income
Interest income
Net foreign exchange (loss)/gain
Government incentives
Other operating (loss)/income
7. Operating Profit
Operating profit
Operating profit is stated after charging/(crediting) the following:
Cost of inventories recognized as expense
Research and development expense
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease
expenses
Movement on the provision for excess and obsolete
inventories
Auditor’s remuneration
Employee benefit expenses (Note 9)
Year Ended December 31,
2023
2022
2021
(in US$’000)
754
(78)
4,414
(63)
5,027
980
(83)
2,198
(969)
2,126
1,216
25
2,999
519
4,759
Year Ended December 31,
2023
2022
2021
(in US$’000)
112,564
116,533
105,400
Year Ended December 31,
2023
2022
2021
(in US$’000)
70,397
8,621
7,417
32
158
288
872
63,079
7,169
8,148
449
166
245
50,637
9,350
8,100
60
172
233
917
1,171
2,121
221
(65)
227
(141)
223
117,126
111,200
100,311
8. Taxation Charge
Current tax (Note 19)
Deferred income tax (Note 16)
Taxation charge
2023
Year Ended December 31,
2022
(in US$’000)
18,082
(1,344)
16,738
17,197
(175)
17,022
2021
15,082
814
15,896
The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the
Group’s weighted average tax rate as follows:
Profit before taxation
Tax calculated at the statutory tax rates of respective
companies
Tax effects of:
Expenses not deductible for tax purposes
Utilization of unrecognized temporary differences
Tax concession (note)
Under provision in prior years
Taxation charge
Year Ended December 31,
2022
(in US$’000)
116,421
2023
112,485
2021
105,284
28,121
29,105
26,321
1,628
(518)
(12,540)
331
17,022
1,397
(898)
(13,000)
134
16,738
1,946
(55)
(12,420)
104
15,896
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 2023 and successfully renew the HNTE status in
2023 (2022: 15%; 2021: 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 (2022: 200%;
2021: 200%).
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, 2023 was 15.1% (2022: 14.4%; 2021: 15.1%).
9. Employee Benefit Expenses
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
2023
Year Ended December 31,
2022
(in US$’000)
86,330
9,701
15,169
111,200
90,372
10,444
16,310
117,126
2021
77,335
8,713
14,263
100,311
Employee benefit expenses of approximately US$22.8 million for the year ended December 31, 2023 (2022: US$19.8 million;
2021: US$20.1 million) are included in cost of sales.
10. Cash and Cash Equivalents
Cash and cash equivalents
December 31,
2023
2022
(in US$’000)
19,129
33,923
F-67
F-68
HUTCHMED (China) Limited 2023 Annual Report 405
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.
14. Property, Plant and Equipment
11. Trade and Bills Receivables
Trade receivables—third parties
Trade receivables—related parties (Note 22(b))
Bills receivables
December 31,
2023
2022
(in US$’000)
11,461
1,303
2,837
15,601
12,845
3,695
5,316
21,856
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period.
The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
No allowance for credit losses has been made for trade and bills receivables for the years ended December 31, 2023, 2022
and 2021.
12. Other Receivables, Prepayments and Deposits
Prepayments to suppliers
Interest receivables
Deposits
Others
13. Inventories
Raw materials
Work in progress
Finished goods
December 31,
2023
2022
(in US$’000)
1,179
132
676
282
2,269
2,624
25
778
245
3,672
December 31,
2023
2022
(in US$’000)
40,808
91,351
31,867
164,026
22,804
108,168
23,844
154,816
Buildings
improvements
equipment
vehicles
in progress
Total
Leasehold
and motor Construction
Furniture
and
fixtures,
other
equipment
Plant
and
(in US$’000)
43,558
281
8,096
5,570
425
57,930
69,582
76
(23)
15
(1,865)
67,785
21,376
3,494
(7)
(636)
24,227
75,587
27
(886)
1,058
(6,204)
69,582
19,983
3,606
(439)
(1,774)
21,376
815
—
—
97
(24)
888
314
307
—
(14)
607
25,098
1,339
(106)
102
(696)
14,582
1,163
(222)
1,475
(434)
25,737
16,564
521
1,605
—
(1,689)
(12)
425
16,116
2,079
(87)
(467)
9,961
1,537
(213)
(291)
17,641
10,994
—
—
—
—
—
110,598
4,183
(351)
—
(3,031)
111,399
47,767
7,417
(307)
(1,408)
53,469
Furniture
and
fixtures,
other
equipment
Plant
and
(in US$’000)
26,438
15,033
117
(227)
974
(2,204)
25,098
2,830
(205)
(1,326)
16,116
516
(178)
478
(1,267)
14,582
9,498
1,474
(178)
(833)
9,961
848
38
—
—
(71)
815
238
—
(18)
314
136
2,924
—
(2,510)
(29)
521
118,042
3,622
(1,291)
—
(9,775)
110,598
—
—
—
—
8,148
(822)
(3,951)
47,767
94
14,817
—
44,392
Buildings
improvements equipment
vehicles
in progress
Total
Leasehold
and motor
Construction
48,206
501
8,982
4,621
521
62,831
Cost
As at January 1, 2023
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2023
Accumulated depreciation
As at January 1, 2023
Depreciation
Disposals
Exchange differences
As at December 31, 2023
Net book value
As at December 31, 2023
Cost
As at January 1, 2022
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2022
Accumulated depreciation
As at January 1, 2022
Depreciation
Disposals
Exchange differences
As at December 31, 2022
Net book value
As at December 31, 2022
406
F-69
F-70
The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB
14. Property, Plant and Equipment
denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated
by the PRC government.
11. Trade and Bills Receivables
Trade receivables—third parties
Trade receivables—related parties (Note 22(b))
Bills receivables
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period.
The carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
No allowance for credit losses has been made for trade and bills receivables for the years ended December 31, 2023, 2022
and 2021.
12. Other Receivables, Prepayments and Deposits
December 31,
2023
2022
(in US$’000)
11,461
1,303
2,837
15,601
12,845
3,695
5,316
21,856
December 31,
2023
2022
(in US$’000)
1,179
132
676
282
2,269
2,624
25
778
245
3,672
December 31,
2023
2022
(in US$’000)
40,808
91,351
31,867
164,026
22,804
108,168
23,844
154,816
Prepayments to suppliers
Interest receivables
Deposits
Others
13. Inventories
Raw materials
Work in progress
Finished goods
Buildings
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor Construction
in progress
vehicles
69,582
76
(23)
15
(1,865)
67,785
21,376
3,494
(7)
(636)
24,227
(in US$’000)
815
—
—
97
(24)
888
314
307
—
(14)
607
25,098
1,339
(106)
102
(696)
25,737
16,116
2,079
(87)
(467)
17,641
14,582
1,163
(222)
1,475
(434)
16,564
9,961
1,537
(213)
(291)
10,994
521
1,605
—
(1,689)
(12)
425
—
—
—
—
—
Total
110,598
4,183
(351)
—
(3,031)
111,399
47,767
7,417
(307)
(1,408)
53,469
43,558
281
8,096
5,570
425
57,930
Furniture
and
fixtures,
other
equipment
and motor
Leasehold
Plant
and
Buildings
improvements equipment
vehicles
(in US$’000)
Construction
in progress
Total
75,587
27
(886)
1,058
(6,204)
69,582
19,983
3,606
(439)
(1,774)
21,376
848
38
—
—
(71)
815
94
238
—
(18)
314
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
—
—
—
—
—
118,042
3,622
(1,291)
—
(9,775)
110,598
44,392
8,148
(822)
(3,951)
47,767
48,206
501
8,982
4,621
521
62,831
Cost
As at January 1, 2023
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2023
Accumulated depreciation
As at January 1, 2023
Depreciation
Disposals
Exchange differences
As at December 31, 2023
Net book value
As at December 31, 2023
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
F-69
F-70
HUTCHMED (China) Limited 2023 Annual Report 407
15. Leases
Leases consisted of the following:
Right-of-use assets:
Offices
Lease liabilities—current
Lease liabilities—non-current
Lease activities are summarized as follows:
Lease expenses: Short-term leases with lease terms equal or less than
12 months
Depreciation charge of right-of-use assets
Interest expense (included in finance costs)
Cash paid on lease liabilities
Cash paid on short-term leases
Non-cash: Lease liabilities recognized from obtaining right-of-use
assets
December 31,
2023
2022
(in US$’000)
1,092
713
657
1,370
1,717
712
1,360
2,072
Year Ended December 31,
2023
2022
(in US$’000)
207
665
79
810
175
78
236
681
112
809
186
135
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, 2023 was 1.8 years (2022: 2.7 years) and 4.69% (2022: 4.70%) respectively.
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Total lease payments
Less: Discount factor
Total lease liabilities
December 31,
2023
2022
(in US$’000)
758
651
17
1,426
(56)
1,370
791
755
660
2,206
(134)
2,072
16. Deferred Tax Assets
The significant components of deferred tax assets and liabilities are as follows:
Deferred tax assets
Accrued expenses
Others
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities
Net deferred tax assets
Accelerated depreciation allowances and others
The movements in deferred tax assets and liabilities are as follows:
December 31,
2023
2022
(in US$’000)
8,124
2,774
10,898
2,568
2,568
8,330
8,919
1,582
10,501
2,174
2,174
8,327
Credited/(debited) to the consolidated income
As at January 1
statements
—Accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary
differences
Exchange differences
As at December 31
2023
2022
(in US$’000)
2021
8,327
7,715
8,315
175
(172)
8,330
1,344
(732)
8,327
(814)
214
7,715
The Group’s deferred tax assets are mainly temporary differences including accrued expenses, provisions, deferred
income, accelerated depreciation and other temporary differences. There is no deferred tax assets in respect of tax losses which
have not been recognized in the consolidated financial statements as at December 31, 2023 (2022: US$24,000).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2024
2025
2026
2027
17. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 22(b))
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying
value of trade payables approximates their fair values due to their short-term maturities.
December 31,
2023
2022
(in US$’000)
—
—
—
—
—
76
7
6
5
94
December 31,
2023
2022
(in US$’000)
18,268
5,568
23,836
19,737
3,358
23,095
408
F-71
F-72
15. Leases
Leases consisted of the following:
Right-of-use assets:
Offices
Lease liabilities—current
Lease liabilities—non-current
Lease activities are summarized as follows:
December 31,
2023
2022
(in US$’000)
1,092
713
657
1,370
1,717
712
1,360
2,072
Year Ended December 31,
2023
2022
(in US$’000)
207
665
79
810
175
78
236
681
112
809
186
135
December 31,
2023
2022
(in US$’000)
758
651
17
1,426
(56)
1,370
791
755
660
2,206
(134)
2,072
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
Cash paid on short-term leases
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, 2023 was 1.8 years (2022: 2.7 years) and 4.69% (2022: 4.70%) respectively.
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Total lease payments
Less: Discount factor
Total lease liabilities
16. Deferred Tax Assets
The significant components of deferred tax assets and liabilities are as follows:
Deferred tax assets
Accrued expenses
Others
Deferred tax assets
Deferred tax liabilities
Accelerated depreciation allowances and others
Deferred tax liabilities
Net deferred tax assets
The movements in deferred tax assets and liabilities are as follows:
December 31,
2023
2022
(in US$’000)
8,124
2,774
10,898
2,568
2,568
8,330
8,919
1,582
10,501
2,174
2,174
8,327
As at January 1
Credited/(debited) to the consolidated income
statements
—Accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary
differences
Exchange differences
As at December 31
2023
8,327
2022
(in US$’000)
7,715
2021
8,315
175
(172)
8,330
1,344
(732)
8,327
(814)
214
7,715
The Group’s deferred tax assets are mainly temporary differences including accrued expenses, provisions, deferred
income, accelerated depreciation and other temporary differences. There is no deferred tax assets in respect of tax losses which
have not been recognized in the consolidated financial statements as at December 31, 2023 (2022: US$24,000).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2024
2025
2026
2027
17. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 22(b))
December 31,
2023
2022
(in US$’000)
—
—
—
—
—
76
7
6
5
94
December 31,
2023
2022
(in US$’000)
18,268
5,568
23,836
19,737
3,358
23,095
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying
value of trade payables approximates their fair values due to their short-term maturities.
F-71
F-72
HUTCHMED (China) Limited 2023 Annual Report 409
18. Other Payables, Accruals and Advance Receipts
20. Notes to the Consolidated Statements of Cash Flows
added tax and tax surcharge payables
Accrued salaries and benefits
Accrued sales rebates and marketing expenses
Value
Payments in advance from customers (note a)
Dividend payable (note b)
Others
‑
December 31,
2023
2022
(in US$’000)
21,899
61,996
3,139
7,093
54,260
5,550
153,937
21,100
73,721
5,204
14,004
—
7,325
121,354
(a) Reconciliation of profit for the year to net cash generated from operations:
Adjustments to reconcile profit for the year to net cash generated from operations
Note a: Substantially all customer balances as at December 31, 2022 were recognized to revenue during the year
ended December 31, 2023. Additionally, substantially all customer balances as at December 31, 2023 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.
Note b: On January 31, 2023, the Company declared a dividend of RMB988.3 million (US$147.0 million), of which
RMB600.0 million (US$84.6 million) has been distributed during the year ended December 31, 2023 and RMB388.3
million (US$54.3 million) is recorded as dividend payable under other payables, accruals and advance receipts as
at December 31, 2023.
19. Current Tax Liabilities
As at January 1
Current tax (Note 8)
Tax paid
Exchange difference
Transfer from other receivables
As at December 31
2023
2,791
17,197
(18,709)
(116)
—
1,163
2022
(in US$’000)
4,089
18,082
(19,003)
(377)
—
2,791
2021
5,032
15,082
(15,976)
108
(157)
4,089
410
F-73
F-74
Profit for the year
Taxation charge
Finance costs
Interest income
Depreciation on property, plant and equipment
Loss 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
Exchange differences
Changes in operating assets and liabilities:
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
21. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
2023
2022
2021
(in US$’000)
95,463
99,683
89,388
17,022
16,738
15,896
79
(754)
112
116
(980)
(1,216)
7,417
8,148
8,100
32
158
288
665
2,121
449
166
245
681
(65)
(3,019)
(5,682)
6,255
1,510
(4,374)
(580)
60
172
233
663
(141)
(693)
939
(80)
(11,331) (35,361) (37,575)
741
10,684
1,237
(20,012)
7,804
18,608
(555)
(1,398)
(1,737)
(23,392) (23,225) (18,608)
96,080
96,270
93,970
December 31,
2023
(in US$’000)
376
(b)
Supplemental disclosure for non-cash activities
During the years ended December 31, 2023, in addition to non-cash activities of lease liabilities as disclosed in Note 15,
there was a decrease in accruals made for purchases of property, plant and equipment of US$1.7 million (2022 and 2021: an
increase of US$1.8 million and a decrease of US$0.3 million respectively).
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
18. Other Payables, Accruals and Advance Receipts
20. Notes to the Consolidated Statements of Cash Flows
(a) Reconciliation of profit for the year to net cash generated from operations:
Profit for the year
Adjustments to reconcile profit for the year to net cash generated from operations
Taxation charge
Finance costs
Interest income
Depreciation on property, plant and equipment
Loss on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets
Provision for excess and obsolete inventories
Exchange differences
Changes in operating assets and liabilities:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Trade payables
Other payables, accruals and advance receipts
Deferred income
Total changes in operating assets and liabilities
Net cash generated from operations
Accrued salaries and benefits
Accrued sales rebates and marketing expenses
Value
added tax and tax surcharge payables
Payments in advance from customers (note a)
Dividend payable (note b)
‑
Others
December 31,
2023
2022
(in US$’000)
21,899
61,996
3,139
7,093
54,260
5,550
21,100
73,721
5,204
14,004
—
7,325
153,937
121,354
Note a: Substantially all customer balances as at December 31, 2022 were recognized to revenue during the year
ended December 31, 2023. Additionally, substantially all customer balances as at December 31, 2023 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.
Note b: On January 31, 2023, the Company declared a dividend of RMB988.3 million (US$147.0 million), of which
RMB600.0 million (US$84.6 million) has been distributed during the year ended December 31, 2023 and RMB388.3
million (US$54.3 million) is recorded as dividend payable under other payables, accruals and advance receipts as
at December 31, 2023.
19. Current Tax Liabilities
As at January 1
Current tax (Note 8)
Tax paid
Exchange difference
Transfer from other receivables
As at December 31
2023
2,791
17,197
(18,709)
(116)
—
1,163
2022
(in US$’000)
4,089
18,082
(19,003)
(377)
—
2,791
2021
5,032
15,082
(15,976)
108
(157)
4,089
2023
95,463
2022
(in US$’000)
99,683
2021
89,388
17,022
79
(754)
7,417
32
158
288
665
2,121
(3,019)
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)
741
6,255
1,510
(4,374)
(580)
939
(80)
(11,331) (35,361) (37,575)
1,237
10,684
18,608
7,804
(1,398)
(1,737)
(23,392) (23,225) (18,608)
93,970
96,270
96,080
(20,012)
(555)
(b)
Supplemental disclosure for non-cash activities
During the years ended December 31, 2023, in addition to non-cash activities of lease liabilities as disclosed in Note 15,
there was a decrease in accruals made for purchases of property, plant and equipment of US$1.7 million (2022 and 2021: an
increase of US$1.8 million and a decrease of US$0.3 million respectively).
21. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
December 31,
2023
(in US$’000)
376
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-73
F-74
HUTCHMED (China) Limited 2023 Annual Report 411
2023
2021
Year Ended December 31,
2022
(in US$’000)
22. Significant Related Party Transactions
(b) Balances with related parties included in:
The Group has the following significant transactions with related parties which were carried out in the normal course of
business at terms determined and agreed by the relevant parties:
(a) Transactions with related parties:
Sales of goods to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of goods from:
—SHTCML
—Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Rendering of research and development services from:
—A fellow subsidiary of SHHCMI(HK)L
Provision of marketing services to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of intangible asset from:
—A fellow subsidiary of SHHCMI(HK)L
Leasing office from:
—SHTCML
9,329
3,651
12,980
12,173
1,130
6,350
19,653
13,861
4,231
18,092
11,072
683
1,683
13,438
12,181
3,492
15,673
10,002
1,311
—
11,313
481
507
525
1,241
—
1,241
—
—
952
127
1,079
1,146
—
1,146
410
—
—
247
No transactions have been entered into with the directors of the Company (being the key management personnel) during
the year ended December 31, 2023 (2022 and 2021: nil).
412
F-75
F-76
Trade and bills receivables
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other receivables, prepayments and deposits
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Trade payables
—SHTCML
— Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other payables, accruals and advance receipts
—SHTCML (Note 18)
—SHHCMI(HK)L (Note 18)
—Fellow subsidiaries of SHHCMI(HK)L
December 31,
2023
2022
(in US$’000)
1,303
—
1,303
391
72
463
3,630
294
1,644
5,568
27,130
27,130
1,356
55,616
3,622
73
3,695
402
—
402
1,266
152
1,940
3,358
—
—
1,256
1,256
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.
23. Particulars of Principal Subsidiaries
Name
operation
2023
2022
2023
2022
Type of legal entity Principal activity
Place of
establishment
and
Equity
interest
attributable
to the Group
Nominal value
of registered
capital
(in RMB’000)
December 31,
PRC
20,000
20,000
100%
100%
company
drug products
Limited liability
Distribution of
PRC
—
1,500
—
100%
company
herbs
Limited liability
sales of Chinese
Agriculture and
Note: Hutchison Heze Bio Resources & Technology Co., Limited was liquidated in June 2023.
Shanghai Shangyao
Hutchison Whampoa GSP
Company Limited
Hutchison Heze Bio
Resources &
Technology Co., Limited
(note)
24. Subsequent Events
statements were issued.
The Group evaluated subsequent events through February 28, 2024, which is the date when the consolidated financial
22. 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:
—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
Year Ended December 31,
2023
2022
2021
(in US$’000)
12,173
11,072
9,329
3,651
12,980
1,130
6,350
19,653
1,241
—
1,241
—
—
13,861
4,231
18,092
683
1,683
13,438
12,181
3,492
15,673
10,002
1,311
—
11,313
952
127
1,079
1,146
—
1,146
410
—
—
247
Rendering of research and development services from:
481
507
525
No transactions have been entered into with the directors of the Company (being the key management personnel) during
the year ended December 31, 2023 (2022 and 2021: nil).
Trade and bills receivables
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other receivables, prepayments and deposits
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Trade payables
—SHTCML
— Fellow subsidiaries of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Other payables, accruals and advance receipts
—SHTCML (Note 18)
—SHHCMI(HK)L (Note 18)
—Fellow subsidiaries of SHHCMI(HK)L
December 31,
2023
2022
(in US$’000)
1,303
—
1,303
391
72
463
3,630
294
1,644
5,568
27,130
27,130
1,356
55,616
3,622
73
3,695
402
—
402
1,266
152
1,940
3,358
—
—
1,256
1,256
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.
23. Particulars of Principal Subsidiaries
Place of
establishment
and
operation
Nominal value
of registered
capital
Equity
interest
attributable
to the Group
December 31,
2023
2022
2023
2022
Type of legal entity Principal activity
(in RMB’000)
PRC
20,000
20,000
100%
100%
PRC
—
1,500
—
100%
Limited liability
company
Distribution of
drug products
Limited liability
company
Agriculture and
sales of Chinese
herbs
Name
Shanghai Shangyao
Hutchison Whampoa GSP
Company Limited
Hutchison Heze Bio
Resources &
Technology Co., Limited
(note)
Note: Hutchison Heze Bio Resources & Technology Co., Limited was liquidated in June 2023.
24. Subsequent Events
The Group evaluated subsequent events through February 28, 2024, which is the date when the consolidated financial
statements were issued.
F-75
F-76
HUTCHMED (China) Limited 2023 Annual Report 413
1
2
3
4
5
6
7
8
9
Takeda = Takeda Pharmaceuticals International AG, a subsidiary of Takeda
Pharmaceutical Company Limited.
R&D = Research and development.
NDA = New Drug Application.
NSCLC = Non-small cell lung cancer.
FDA = Food and Drug Administration.
PDUFA = U.S. Prescription Drug User Fee Act.
CRC = Colorectal cancer.
NCCN = National Comprehensive Cancer Network.
In-market sales = total sales to third parties provided by Eli Lilly (ELUNATE®),
Takeda (FRUZAQLA™), AstraZeneca (ORPATHYS®) and HUTCHMED (ELUNATE®,
SULANDA®, ORPATHYS® and TAZVERIK®).
10 MAA = Marketing Authorization Application.
EMA = European Medicines Agency.
11
PMDA = Pharmaceuticals and Medical Devices Agency.
12
EMC = Endometrial cancer.
13
RCC = Renal cell carcinoma.
14
NMPA = National Medical Products Administration.
15
Syk = Spleen tyrosine kinase.
16
ITP = Immune thrombocytopenia purpura.
17
AstraZeneca = AstraZeneca AB, a subsidiary of AstraZeneca plc.
18
CER = Constant exchange rate. We also report changes in performance at CER
19
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.
Source: IQVIA. Report on file.
TPO = Thrombopoietin; TPO-RAs = Thrombopoietin receptor agonists.
20
21
22 MET = Mesenchymal epithelial transition factor.
EGFR = Epidermal growth factor receptor.
23
TKI = Tyrosine kinase inhibitor.
24
NRDL = National Reimbursement Drug List.
25
Lilly = Eli Lilly and Company.
26
VEGFR = Vascular endothelial growth factor receptor.
27
ASCO = American Society of Clinical Oncology.
28
PFS = Progression free survival.
29
ORR = Objective response rate.
30
DCR = Disease control rate.
31
OS = Overall survival.
32
PD-1 = Programmed cell death protein-1.
33
FGFR = Fibroblast growth factor receptor.
34
CSF-1R = Colony-stimulating factor 1 receptor.
35
AACR = American Association for Cancer Research.
36
AIHA = Autoimmune hemolytic anemia.
37
Ipsen = Ipsen SA, parent of Epizyme Inc.
38
DoR = Duration of response.
39
IHCC = Intrahepatic cholangiocarcinoma.
40
PI3Kδ = Phosphoinositide 3-kinase delta.
41
Inmagene = Inmagene Biopharmaceuticals.
42
BTK = Bruton tyrosine kinase.
43
SHPL = Shanghai Hutchison Pharmaceuticals Limited.
44
HHOHK = Hutchison Hain Organic (Hong Kong) Limited.
45
414
HSN = HUTCHMED Science Nutrition Limited.
GAAP = Generally Accepted Accounting Principles.
SG&A= Selling, general, and administrative expenses.
ADS = American depositary share.
NHSA = China National Healthcare Security Administration.
NET = Neuroendocrine tumor.
CSCO = Chinese Society of Clinical Oncology.
PRCC = Papillary renal cell carcinoma.
EGFRm+ = Epidermal growth factor receptor mutated.
ELCC = The European Lung Cancer Congress.
46
47
48
49
50
51
52
53
54
55
56 WCLC = World Conference on Lung Cancer.
TRAE = Treatment-related adverse events.
57
BID = Twice a day.
58
GI = Gastrointestinal.
59
JSMO = Japanese Society of Medical Oncology.
60
ESMO = European Society for Medical Oncology.
61
TN = Triple negative.
62
HR+ = Hormone receptor positive.
63
Her2- = Human epidermal growth factor receptor 2 negative.
64
65 MSS = Microsatellite stable.
epNET = Extra-pancreatic neuroendocrine tumor.
66
pNET= Pancreatic neuroendocrine tumor.
67
NEC = Neuroendocrine carcinoma.
68
NEN = Neuroendocrine neoplasms.
69
GC = Gastric cancer.
70
ESCC = Esophageal squamous cell carcinoma.
71
SCLC = Small cell lung cancer.
72
TC = Thyroid cancer.
73
STS = Soft tissue sarcoma.
74
BTC = Biliary tract cancer.
75
ASH = American Society of Hematology.
76
QD = Once a day.
77
NHL = Non-Hodgkin Lymphoma.
78
ICML = International Conference on Malignant Lymphoma.
79
IDH = Isocitrate dehydrogenase.
80
EHA = European Hematology Association.
81
CLL = Chronic lymphocytic leukemia.
82
SLL = Small lymphocytic lymphoma.
83
84
RP2D = Recommended phase 2 dose.
85 MAPK = Mitogen-activated protein kinase.
86
87
API = Active pharmaceutical ingredient.
Hutchison Sinopharm = Hutchison Whampoa Sinopharm Pharmaceuticals
(Shanghai) Company Limited.
Luye = Luye Pharma Hong Kong Ltd.
SXBX = She Xiang Bao Xin.
BOC = Bank of China Limited.
LPR = Loan Prime Rate.
HSBC = The Hongkong and Shanghai Banking Corporation Limited.
HIBOR = Hong Kong Interbank Offered Rate.
PBOC = People’s Bank of China.
HKEX = The Main Board of The Stock Exchange of Hong Kong Limited.
88
89
90
91
92
93
94
95
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, 2023:
Approximately US$1.9 billion (approximately
60.45% of the issued share capital of the
Company)
FINANCIAL CALENDAR
Closure of Register of Members
May 7, 2024 to May 10, 2024
Annual General Meeting
May 10, 2024
Interim Results Announcement
August 2024
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
Wanchai, Hong Kong
Telephone:
Facsimile:
+852 2862 8628
+852 2865 0990
CREST DEPOSITARY
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
United Kingdom
Telephone:
Facsimile:
+44 (0)370 702 0000
+44 (0)370 703 6114
ADS DEPOSITARY
Deutsche Bank Trust Company Americas
1 Columbus Circle
New York, NY 10019
United States of America
Telephone:
Facsimile:
+001 212 250 9100
+001 732 544 6346
SHAREHOLDERS CONTACT
Please direct enquiries to:
48th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
Attn:
Edith Shih
Non-executive Director &
Company Secretary
ediths@ckh.com.hk
+852 2128 1778
E-mail:
Facsimile:
INVESTOR INFORMATION
Corporate press releases, financial reports and
other investor information on the Company are
available online at the Company’s website.
INVESTOR RELATIONS CONTACT
Please direct enquiries to:
E-mail:
Telephone:
Facsimile:
ir@hutch-med.com
+852 2121 8200
+852 2121 8281
WEBSITE ADDRESS
www.hutch-med.com
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 have been obtained will continue to remain valid and effective in the future, 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; discovery, development and/or commercialization of 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 pandemics and disease outbreaks. 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.