Shenwan Hongyuan Group: Initiates a "buy" rating on HUTCHMED (00013) with a target price of HK$35.4.

Shenwan Hongyuan Group released a research report covering HUTCHMED (00013) for the first time, giving it a "buy" rating. Considering the commercialization of the company's core products, it is expected to achieve profitability by 2025, with a target price of HK$35.4. Currently, the company has three small molecule innovative drugs approved for domestic market, including fruquintinib (Elunate), savolitinib (Sulanda), and surufatinib (Walter), among which fruquintinib has successfully entered the international market and received FDA approval in November 2023. In addition, there are 13 tumor drugs in the pipeline currently in the clinical stage. The main points of Shenwan Hongyuan Group are as follows: Fruquintinib has been approved for marketing in the US, accelerating overseas commercialization. Fruquintinib is a self-developed small molecule VEGFR1, 2, and 3 oral inhibitor. It received NMPA approval in September 2018 for the treatment of third-line mCRC patients. In the overseas market, Fruquintinib (Fruzaqla) received FDA approval for marketing in November 2023, becoming the first and only drug approved for the treatment of refractory metastatic colorectal cancer, targeting three VEGF receptor kinases. In addition, Fruquintinib received EU approval in June 2024. In January 2023, the company reached a cooperation agreement with Takeda for the development, commercialization, and production of Fruquintinib globally (excluding mainland China, Hong Kong, and Macau). HUTCHMED received an initial payment of US$ 400 million, up to US$ 730 million in potential milestone payments, and sales royalties. In 2023, Fruquintinib's overseas sales were approximately $15 million, growing rapidly to $131 million in 1H24. The bank believes that with the overseas approval of Fruquintinib, sales volume is expected to increase further. Savolitinib is expected to submit a marketing application to the FDA. Savolitinib was conditionally approved by the NMPA in 2021 for the treatment of locally advanced or metastatic NSCLC patients with MET exon 14 skipping mutation, becoming the first approved selective MET inhibitor domestically. Currently, AstraZeneca is responsible for the sales and promotion of Savolitinib in the Chinese market. Based on the confirmatory phase III study of Savolitinib, the new indication for the first- and second-line treatment of MET exon 14 skipping NSCLC was accepted by the NMPA in March 2024, with potential expansion to first-line patients if approved. In addition, the global Phase II SAVANNAH study was completed patient enrollment in February 2024, for the treatment of second-/third-line osimertinib-resistant EGFRm/MET+ NSCLC patients. If successful, AstraZeneca is expected to submit a marketing application to the FDA by the end of 2024. If approved, it is expected to become the company's second overseas marketed product. The company is conducting seven registration studies on Savolitinib, including three global studies and four China studies, mainly covering non-small cell lung cancer, gastric cancer, and renal cancer. Actively layout other innovative pipelines. Sorapaributi is a self-developed oral spleen tyrosine kinase (Syk) inhibitor. In January of this year, the second-line treatment of immune thrombocytopenia (ITP) with Soraparinib was accepted by the NMPA. In addition, the company acquired the rights to Tazestrato (EZH2 inhibitor) for Greater China in 2021. Currently, the new drug marketing application for Tazestrato (third-line follicular lymphoma) was accepted by the NMPA in July 2024. In addition, the company started the Phase III clinical trial of HMPL-306 (IDH1/2) in May 2024, for the treatment of relapsed/refractory acute myeloid leukemia (AML) patients with IDH1 and/or IDH2 mutations. The bank believes that as other pipelines enter the late stage, it is expected to further enrich the company's product portfolio. Risk factors: Overseas commercialization of core products lower than expected; intensified industry competition, commercialized product pricing lower than expected; R&D progress of core pipeline products slower than expected.