Key Takeaways
- U.S. securities regulator says Hutchmed is one of five Chinese companies in danger of delisting, a week after company announced the retirement of its longtime CEO
- Company’s shares have tumbled more than 40% on the developments, even as it reported strong revenue gains for 2021 and nears its first approval to sell a drug in the U.S.
By Richard Barbarossa
Talk about getting hit when you’re already down.
Just as it was trying to soothe investors worried about the imminent retirement of its longtime CEO, Hutchmed (China) Ltd. (NASDAQ:HCM), the cancer drug specialist backed by Hong Kong billionaire Li Ka-shing, has been included on a new U.S. blacklist, this one launched by the U.S. securities regulator singling out Chinese companies in danger of delisting.
The Thursday announcement by the Securities and Exchange Commission (SEC) looks mostly like a political stunt aimed at keeping up the pressure on Beijing to reach an agreement that will give Chinese companies continued access to U.S. stock exchanges. Still, investors didn’t greet the news with much enthusiasm. Hutchmed’s Hong Kong-listed shares were down nearly 16% in early Friday trade, amid a broader selloff for the many Chinese companies that could also be affected.
Hutchmed was one of five Chinese companies singled out by the SEC, which said the group faced potential delisting because it could not currently inspect their auditors’ records due to prohibitions by Beijing. While potentially worrisome, the SEC’s move looks less targeted at individual companies like Hutchmed, and more aimed at keeping up pressure on China’s securities regulator to reach an agreement that would allow for such information sharing.
In addition to placing the five companies on its inaugural list, the SEC also pointed out that nearly 300 other U.S.-listed Chinese companies whose auditors’ records are similarly inaccessible could all potentially be included in later updates.
For Hutchmed, the bigger company-specific issue lately has been a changing of the guard announced last week, which will saw 22-year company veteran and CEO Christian Hogg retire, just as it prepares for the imminent approval of its first product in the U.S.
In the statement announcing his retirement, Hutchmed said Hogg, who is 56, wanted to focus on his family back in Europe and had “no disagreement with the board” or any other noteworthy matters that shareholders needed to know about. It gave the boilerplate reassurance that Hogg will remain as a strategic advisor to ensure a smooth transition.
Hogg will be replaced by another company veteran, Dr. Weiguo Su, who has been with Hutchmed for about 17 years, including 10 as chief scientific officer and almost five as an executive director on its board. The changes became effective on March 4.
On the same day it announced Hogg’s departure, the company also released its full-year results for 2021, reporting its net loss for the year widened to $194.6 million from $125.7 million the previous year. That worrisome trend was offset somewhat by a quadrupling of revenues from the company’s oncology/immunology drugs to $119.6 million as its growing stable of approved drugs gained traction.
Hutchmed’s colorectal cancer drug Fruquintinib, marketed as Elunate in China, has been one of its strongest products. It was assisted by last year’s launches of Surufatinib, marketed as Sulanda and used to treat pancreatic cancer; and Savolitinib, marketed as Orpathys and used to treat lung cancer.
Strong growth forecast
Hutchmed forecast revenue from sales of those drugs will rise to between $160 million and $190 million in 2022. But it also admitted its spending would remain high as it increased investment to support its global expansion. To help fund that expansion, it said it could potentially sell off non-core assets such as its Shanghai Hutchison Pharmaceuticals Ltd. It said it could also raise new funds through a potential listing on China’s Nasdaq-style STAR Market.
Money raised through such actions, combined with the company’s $1 billion in cash, led it to say it anticipates “having sufficient runway to see our plans through.”
Investors weren’t quite as confident, however. Even before the latest slump on this week’s SEC announcement, Hutchmed’s Hong Kong-listed shares had tumbled 35% to an all-time low in the week after the earlier announcements of Hogg’s retirement and the company’s latest results. Factoring in the Friday morning losses, the shares are down about 43% since March 2, wiping out about $1.3 billion in market value.
Despite the knee-jerk response, the average price target among 11 analysts surveyed by Yahoo Finance for the company’s Nasdaq-listed shares is $45.83, almost 150% higher than their latest close of $18.48. Of course, many of those same analysts may now be scrambling to revise their targets in light of all the latest developments.
At 64 years old, incoming CEO Su is no spring chicken, and could well be a transitional appointment as the company searches for someone younger with longer-term potential. With a strong background in drug development, Su is well positioned to oversee the company’s transition to a globalized drug company, having been responsible for all aspects of the in-house discovery of its 12 novel oncology drug candidates.
Before joining Hutchmed in 2005, Su spent 15 years at the R&D arm of U.S. drug giant Pfizer after completing his PhD and doing post-doctoral work in chemistry at Harvard University under Nobel Laureate Professor E. J. Corey.
Su takes the helm at a crucial stage as Hutchmed awaits expected penultimate approval for Surufatinib to treat pancreatic and extra-pancreatic neuroendocrine tumors (NETs) in the U.S. by April 30. This is known as the Prescription Drug User Fee Act (PDUFA) date, which indicates the end of the review process by the Food and Drug Administration (FDA).
Approval would make the drug Hutchmed’s first for sale in the U.S., which could provide a significant boon to revenues. The drug is also in the later stages of the approval process in Europe.
Previously known as Hutchison China MediTech, Hutchmed competes against international players like Johnson & Johnson’s (NYSE:JNJ) Janssen Biotech and Novartis (NYSE:NVS), as well as Chinese startups like BeiGene Ltd. (NASDAQ:BGNE, 6160.US, 688235.SH)), Zai Lab (NASDAQ:ZLAB, 9688.HK)) and Shanghai Junshi Biosciences (1877.HK; 688180.SH). Two of those rivals, BeiGene and Zai Lab, were also among the five companies on the SEC’s newly released blacklist.
