Hutchmed counting on oncology to drive growth

Drug development does not come cheap, as Hong Kong-based pharmaceutical company Hutchmed (HCM) well knows. Despite a comfortable net cash position and a growing product pipeline, the firm’s pre-tax losses increased substantially in the first half of this year. 

Research and development expenses for the period totalled $182mn (£149mn), up from $123mn in the first six months of 2021 – mainly as a result of its expanding oncology programme. Its existing cancer drugs, meanwhile, netted some $91mn in revenue over the period. 

More than 25 per cent of the world’s cancer patients live in China, so it’s easy to see why the company is keen to serve this market. Construction on a flagship drug manufacturing plant in Shanghai is currently underway, with operations expected to commence at the end of next year. The facility will increase manufacturing capacity by more than five times.

In its half-year results, the company said it remains on track to meet its own guidance of $160mn-$190mn in full-year revenues for its oncology and immunology division. 

“We will continue to leverage our solid balance sheet, strong commercial capability with extensive China coverage that generates cash, pipeline of innovative products and world-class people," said Dr Weiguo Su, Hutchmed’s newly appointed chief executive.

However, there’s no escaping the fact that Hutchmed’s shares have been under pressure of late (they’re down about 60 per cent this year). The combination of personnel changes and external pressures – Covid-19 lockdowns and worsening US/China relations among them – won’t be easy to bounce back from. 

In the coming years, FactSet broker consensus sees sales rising significantly from $269m in 2021 to $338mn this year and $430mn the next. Shareholders will ultimately want to see if the company can turn higher earnings into net profits, but for now its plans look credible, even if its geographic focus remains a question mark. A cautious buy.

Last IC View: Buy, 414p, 05 Mar 2021

*Includes $359mn of short-term investments