Interim report disclosure, stock price plunges, why is HUTCHMED (00013) caught in the internal vortex attracting accelerated buying from southbound funds?

Since April 7th of this year, affected by external factors and the fluctuation of the Hang Seng Index, the stock price of HUTCHMED (00013) plunged by 22.12%. Following this, the stock price entered a period of fluctuation and rise, eventually reaching 30.75 Hong Kong dollars on July 29th, setting a new high for the year. However, just when the market believed that the company's stock price was poised to reach a new high with the trend of innovative pharmaceuticals in the Hong Kong stock market, the newly released mid-year report for 2025 from HUTCHMED delivered a heavy blow to the market. On August 7th, before the US stock market opened, HUTCHMED announced its financial performance for the first half of 2025. The financial report showed that the company's revenue for the period was $278 million, a decrease of 9.2% compared to the same period last year; additionally, benefiting from the sale of non-core joint venture equity interests, the company recorded a net profit of $455 million, an increase of 16.6 times. However, behind the above financial data, the domestic sales of the company's three major innovative drugs, fruquintinib, surufatinib, and savolitinib, all saw significant declines of 30-50%, leading to a 22% year-on-year decrease in the company's sales of its own products for the period. Since January of this year, HUTCHMED has announced the divestment of its traditional Chinese medicine business, making its innovative drug business the mainstay of its revenue. Now, with the significant decline in revenue from the three major core products, investors are understandably skeptical about whether the innovative drug business can smoothly "take over" and support HUTCHMED's future performance growth. After divesting its traditional Chinese medicine business, can the innovative drug business bear the burden? In this interim report, the most outstanding performance of HUTCHMED is undoubtedly its net profit growth. The company recorded a net profit of $455 million for the period, an increase of 16.6 times. The company explained this growth as being "benefited from the sale of non-core joint venture equity interests", referring to the proceeds from the sale of the traditional Chinese medicine business earlier this year. At the beginning of the year, HUTCHMED announced its intention to sell 35% of its shares in Shanghai Hutchison Pharmaceuticals to Jinpu Investment, and 10% to Shanghai Pharmaceuticals Holding, with a total transaction amounting to $4.478 billion (6.08 billion US dollars). After the completion of the transactions, HUTCHMED held only 5% of the shares in Shanghai Hutchison Pharmaceuticals. The expected pre-tax income from these transactions is approximately $477 million, leading to the 16.6 times increase in net profit. In actuality, the divestment of the traditional Chinese medicine business was interpreted by the market as another milestone event in HUTCHMED's accelerated transition to innovation. However, although the divestment of the traditional Chinese medicine assets demonstrated the company's determination in transforming into an innovative biotech company, the fact remains that the company has lost an important cornerstone of its performance in the short term. It is understood that Shanghai Hutchison Pharmaceuticals achieved revenue of 2.47 billion yuan in the first three quarters of 2024, with a net profit of 625 million yuan, serving as a stable performance engine for HUTCHMED. However, after losing the support of the traditional Chinese medicine assets, HUTCHMED's overall performance in 2024 showed a downward trend in total revenue, gross profit, and net profit year-on-year. The annual revenue was $630 million, down 25% year-on-year, and the net profit attributable to shareholders was $39.77 million, down 63% year-on-year. This means that the innovative drugs need to support the future performance growth of HUTCHMED. However, in the first half of this year, the domestic sales of the company's three major products all declined significantly. For example, revenue from Elunate (fruquintinib) decreased to $43 million (a decrease of 29% year-on-year), due to increased competition in the third-line treatment of colorectal cancer; revenue from Surufatinib (SULANDA, surufatinib) decreased to $12.7 million (a decrease of 50% year-on-year), due to the impact of somatostatin analog drugs; and revenue from Orpathys (savolitinib) decreased to $15.2 million (a decrease of 41% year-on-year), due to the inclusion of competitor products in medical insurance coverage. However, compared to the downturn in the domestic market due to internal factors, the performance of HUTCHMED's core products in overseas markets and through licensing partners remains impressive. Data shows that with the support of partner Takeda, overseas sales of fruquintinib in the first half of this year reached $163 million, a 25% increase year-on-year. Furthermore, another product, a combination of savolitinib and osimertinib, was approved in China for second-line treatment of MET-amplified EGFR-mutated NSCLC, covering 30% of resistant patients, triggering a milestone payment of $11 million from AstraZeneca. As the overseas revenue of fruquintinib accounts for 69.45% of the company's oncology revenue, the growth in overseas fruquintinib revenue offset the impact, leading to only a 4% decrease in oncology product revenue and a 9% decrease in overall revenue. However, the market is more concerned about the potential underperformance of overseas products led by fruquintinib. With Takeda Pharmaceuticals' promotion, fruquintinib began commercialization in key regions outside the US such as Japan and Europe in the second half of last year. Furthermore, Japan is still a primary battlefield for Takeda Pharmaceuticals, and after the groundwork laid in the third quarter of 2024, the market has high expectations for its growth this year. Is it a technical adjustment or an amplification of investor differences? Returning to the secondary market, it is easy to see that after falling below the lower Bollinger Band due to external market fluctuations in early April, the stock price of HUTCHMED mostly fluctuated between the middle and upper Bollinger Bands for the majority of the time. This price performance also aligns with the trend of innovative pharmaceuticals on the Hong Kong stock market this year. Looking at the historical stock price trend, after breaking through the upper Bollinger Band with a large bullish candle on July 29th, there was an expectation in the market for the stock price to return to the middle Bollinger Band. Judging by the volume, on July 29th, HUTCHMED had a trading volume of 16.3628 million shares, slightly higher than the previous days, but still below 20 million shares. During the following "three consecutive declines", the trading volume decreased daily, indicating a strong hesitant sentiment among investors. On August 4th, after touching the middle Bollinger Band, HUTCHMED's stock price started to rebound and fluctuate. At this time, the trading volume remained below 10 million shares, suggesting that these movements were still within the scope of technical adjustments. However, on August 8th, the day after HUTCHMED disclosed its 2025 mid-year report, the company's stock price experienced a cliff-like drop and ended the day with a significant decrease of 15.99%. The daily trading volume reached a high of 70.287 million shares, breaking the record for the highest volume since the company's listing, and the corresponding turnover rate increased significantly from 0.69% the previous day to 8.06%, indicating a more pronounced internal disagreement and market panic. From the significant difference in attitude towards HUTCHMED between domestic and foreign investors, it is evident that Chinese investment, Futu Securities, and Bank of China International were the top three buyers for HUTCHMED on that day, netting purchases of 5.1315 million shares, 1.182 million shares, and 905,500 shares respectively. On the other hand, JP Morgan, Barclays Asia, and Morgan Stanley were the top three sellers, netting sales of 5.242 million shares, 4.2345 million shares, and 1.2245 million shares respectively. It is worth noting that the Hong Kong Stock Connect funds have been the largest buyers for HUTCHMED in the past 20 days, with a total purchase of 14.3052 million shares. Clearly, the significant drop in HUTCHMED's stock price on August 8th triggered a "buying the dip" strategy for the Hong Kong Stock Connect funds, indicating that investors may be betting on the long-term returns from HUTCHMED. In addition to the above-mentioned "trio", the approval of sorapipinib, expected to be approved domestically this year, is also a major point of interest for HUTCHMED this year. It is understood that the number of ITP patients in China with existing stocks is expected to exceed 300,000 by 2027. 67% of patients will enter second-line treatment, with limited innovative therapies and a favorable competitive landscape. Sorapipinib, targeted at second-line ITP in China, has shown promising results in Phase III clinical trials and updated long-term treatment data at the ASH annual meeting last year, with a notable long-term response rate of 59.8%, making it a potential new treatment choice for ITP patients. Although the drug's market launch schedule has been delayed by one year than expected, the company previously estimated that the drug would complete its market application review for thrombocytopenia by the end of this year. If the company proceeds with the offshore BD authorization for sorapipinib, the drug could become an additional factor in HUTCHMED's future growth. In the market environment that values innovative drug BD transactions, this may increase the potential for HUTCHMED's future value.