Hutchmed hones its pipeline prospects

An extensive research and development (R&D) programme finally seems to have paid off for Hutchmed (HCM), the Hong Kong-based pharmaceutical group that operates mostly in mainland China. After reporting a pre-tax loss for the 2022 financial year, the company is now comfortably in the black in the first half.

Cancer treatments were the primary driver of growth across the six months to the end of June, with revenues from the oncology/immunology division up 294 per cent to $359mn (£279mn). Hutchmed also recognised a $259mn payment from partner Takeda (US:TAK) as revenue in the first half. 

Earlier this year, it was announced that the Tokyo-headquartered firm would commercialise fruquintinib, one of Hutchmed’s oncology drugs, in territories outside of mainland China. Hutchmed is currently pursuing what it calls a “pipeline prioritisation plan”, which involves seeking further partners to help it sell its products beyond its home market. 

The plan also calls for a more focused approach to R&D activity. Expenses in this area fell by 20 per cent year on year to $145mn. “While we still anticipate significant continued R&D investment across our forecast years, we now expect a more manageable profile and rate of investment compared with our view even 12 months ago,” wrote Panmure Gordon analysts in a 31 July note.

Analysts do not, however, think Hutchmed will turn a pre-tax profit for the full financial year. While it can be difficult to value a group that has no earnings history, we think that its exposure to the high-demand field of oncology leave it well positioned for longer-term growth. Buy.

Last IC View: Buy, 282p, 28 Feb 2023