HUTCHMED (China) - H2 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to HUTCHMED 2023 Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'd now like to pass the call over to your first speaker today, Mr. Mark Lee, Senior Vice President, Corporate Management and Communications of HUTCHMED. Thank you, Mark. Please go ahead.

Mark Lee (SVP, Corporate Finance & Development)

Thank you, Desmond. Welcome, everybody. Good morning, good afternoon, good evening. Just a brief message as usual. The performance results and operations of HUTCHMED are historic in nature, and past performance is no guarantee of the future. We've got forward-looking statements, which mean within the meaning of the safe harbor provisions of the U.S. SEC. This presentation is for investors only, and information on pharmaceuticals are not intended as advertising or medical advice. This presentation contains statistical and other third-party data, which we have not independently verified, so we can't guarantee on their accuracy. Nothing in this presentation constitutes an offer to the sale of shares. No representation warranty is implied on, on these, on this information, and anything in this presentation should be read in conjunction with HUTCHMED's results for the year ended December 31, 2023.

With that, I'd like to hand over to Dr. Weiguo Su, our CEO and Chief Scientific Officer. Weiguo?

Weiguo Su (CEO and Chief Scientific Officer)

Okay, thank you very much, Mark. Good evening. Good morning. Welcome again to HUTCHMED 2023 annual results presentation. 2023 was an exceptional year for HUTCHMED. We focused on fruquintinib global registration and launch with our partner, Takeda, while continuing to execute on our strategy towards profitability. This is a year where we made significant progress. The pipeline progresses significantly, none more significant than the U.S. approval for fruquintinib for advanced CRC, a historic milestone for HUTCHMED. Financially, we ended 2023 with a very strong cash position, thanks to the Takeda partnership and also strong growth from our China commercial operations. Next slide, slide number 4. Let me quickly introduce the agenda today. Johnny Cheng, our CFO, will go through the financial results for the full year 2023, followed by commercial update. Mr.

Changhong is not available today, and Johnny will cover for him. Next slide will be Dr. Wu, who will be giving a manufacturing update, particularly on our new facility and also our global supply strategy. Followed by Michael Shi, who will be giving an update on our late-stage pipeline and a wrap up. I will wrap it up and followed by Q&A. And for the Q&A, the full team will be available. So now for details of all the updates, let me invite our CFO, Johnny, for financial results. Johnny?

Johnny Cheng (CFO)

Thank you, Dr. Su, and, can we turn to page 6? So, yep, page 6, please. I think the screen is not moving. Yep. Next page. Okay, so we have a strong cash position at end of last year with over $880 million cash, contributed by $400 million of upfront payment from Takeda. So for which we have recognized $280 million, with the remaining $120 million to be recognized over the course of the next three years. Can we move to the next page, please? Page 7. The screen is not moving, so, Okay.

Weiguo Su (CEO and Chief Scientific Officer)

Johnny, yes.

Johnny Cheng (CFO)

So our operating performance. Yes, our operating performance, we have, regarding the top line, we have doubled the total revenue from last year to over $830 million. So oncology consolidated revenue was around $530 million, which met the high end of our guidance. As to the bottom line, we made a sizable profit of over $100 million, contributed by restructuring of our US commercial operation, prioritizing R&D investments, and tightly controlling operating expenses. Moving on to the next page, our 2024 oncology guidance. Page eight. So, our 2024 oncology guidance is $300 million-$400 million driven by 30%-50% growth targets for marketed product revenue. This guidance is in line with our 2023 product revenue growth of 39%.

Move on to the next page, page 9. A quick update on the sales of our FRUZAQLA in U.S. Takeda achieved $15 million in-market sales in the last 7 weeks of 2023 after FDA approval. So we are now waiting for approval from E.U. and Japan, targeted sometime later this year. As shown in the bar chart below, besides the U.S., there is a significant unmet medical need in E.U. and Japan for CRC patients. Yeah, we are on page 9.

Correct. So as shown in the bar chart below, besides the, the U.S. data, significant unmet medical need in E.U. and Japan for CRC patients. Okay, so we move on to the commercial on page, the next page, page 11. So China commercial environment, just to give you, give you all a quick update. A number of new policies have been issued recently to support quicker access to innovative medicines.

So, for example, accelerating the review process for breakthrough designated drugs and simplifying the NRDL renewal process. On the right-hand side of the chart, you can see we have scaled up our commercial presence, deepening hospital penetration, also expanding pharmacy coverage. Turn to the next page, page 12. For ELUNATE performance, we have continued to grow our business and achieved over $100 million in-market sales in 2023. On the right-hand side, as you can see, we have further expanded our market share over Stivarga. Moving on to SULANDA. Next page, page 13. We were able to maintain strong growth for this product, achieving 43% growth versus last year. On the right-hand side of the chart, actually we should be on page 13.

On the right-hand side of page 13, as you can see, we are widening our lead over, Sutent and Afinitor in terms of market shares. Moving on to ORPATHYS, page 14. This is the product commercialized by AstraZeneca and was admitted to NRDL in March 2023. They have overall achieved a 19% growth, despite a 38% price reduction after NRDL inclusion. So looking forward, based on strong clinical results from the confirmatory study, we may have a potential label expansion to first-line later this year, which could drive stronger sales growth. I will now pass on to, Dr. Wu to give you an update on our manufacturing operation. Dr. Wu?

Zhenping Wu (EVP, Pharmaceutical Sciences and Manufacturing)

Thank you, Johnny. Thanks, and let's go to slide number 16. As you were here at throughout today's presentation, what we have been trying to do is to 1, increase the number of product in the market in different indications, and 2, try to expand into other markets. Our manufacturing strategy is try to support this goals of for the company. In the last year, 2023, we've been focusing on expanding our capacity for both the China and the global market. The first thing we would like to update you is our Shanghai facility, and we have complete the facility construction and the qualification. Now in a very good position to leverage it, this brand new facility, which will give us 5 times more capacity.

We intend to have clinical supply made here this year. And also, we're doing work to enable us to commercial supplies from this facility to be ready in 2025. Another area we've been focusing on is to establish a global supply chain. As you know, we have our first product launched in the US, and so we have done well in this regard. We have our API CMO in China, qualified for the US market. For the drug product, we actually have two sites qualified. Our Suzhou site is our own facility, which we passed the pre-approve inspection by the FDA, so it's qualified. We also qualified a site in Switzerland, a CMO, that will supply drug to the US market.

As we gain approval for the EU and Japan, this supply chain will also be ready for making supplies for those markets. And last, I want to mention that in this new Shanghai facility, we have installed a solar panel, so we could reduce our electricity usage and also reduce the emission, and that's always a part of our ongoing efforts. Thank you. Now I'd like to introduce Dr. Shi, who is going to tell you about our pipeline. Mike?

Michael Shi (EVP, Head of R&D and Chief Medical Officer)

Thank you, Dr. Wu, and slide 18, please. Our clinical program continues to grow and mature and cover a broad spectrum of hematology and oncology product. Here, the slide showing the 15-plus ongoing registration for the seven leading product globally. Just to highlight a few key milestone, and in addition to fruquintinib approval in the U.S. last year, and the EU filing and Japan NDA submission, we also make a tremendous advancement in the life cycle indication. Fruquintinib NDA for second-line gastric cancer accepted for review in China, and also the pivotal phase II for second-line endometrial cancer and the phase III renal cancer in combination with sintilimab, also completed recruitment.

We expect an NDA filing early 2024 for EMC and top line results for the RCC in the end of 2024. Also for savolitinib and exon 14 non-small cell lung cancer confirmatory trial phase III already achieved the positive result, and we expect the NDA filing early 2024, and including the new label expansion in the first line setting. Also, our partner AstraZeneca also had a pivotal global phase II trial, SAMETA, completed recruitment, and also the potential U.S. filing around the end of 2024. Also, we are very pleased that sovleplenib, our novel Syk inhibitor, and for primary immune thrombocytopenia, the phase III trial also achieved positive phase III and NDA acceptance and granted priority review in China.

So it will be also achieve a positive phase II readout for sovleplenib in another autoimmune indication, warm autoimmune hemolytic anemia, and a phase III will start in Q1 this year. The other product, the bridging study for tazemetostat, our in-license product from Epizyme, will have the readout and potential filing later this year. Also multiple life cycle indication, launched product and the late-stage asset in registration trial, expanded to read out and file NDAs for 2025 and 2026 in the time frame, so paving the way for our accelerated growth in the 2025 beyond. And I also want to provide an update for another hematology product, tenalisib, our PI3K inhibitor.

In view of the changing regulatory environment, we are currently evaluating the clinical development plan and the regulatory path before designing regulatory strategy for indication. Let's move to slide 19. And also, I want to highlight the fruquintinib China second-line gastric cancer trial. Let's go to slide 19, please. I don't see the advancement. So gastric cancer is advancing globally, and newly diagnosed cases over 1 million, and China is really accounting for 44% of global new cases. And treatment options very limited in the second-line gastric setting and representing an urgent unmet medical need. So the FRUTIGA trial is designed to treat the fruquintinib in combination with paclitaxel in this second-line gastric cancer. So recruit about 700 patients, and this, we're hoping to expand the new indication.

So slide 20 highlights some of the top-line results for fruquintinib. Trial results was selected for ASCO plenary presentation. Slide 20, please. Fruquintinib plus paclitaxel almost doubled the progression-free survival, and from 2.7 months to 5.6 months, hazard ratio 0.56 is a p-value less than 0.0001. The Kaplan-Meier curve show an early separation in favor of fruquintinib plus paclitaxel group, and also maintain over the duration of the study. This improvement appears not only statistically significant, but also clinically meaningful. Next slide, slide 21. For overall survival, the other dual primary endpoint, we see fruquintinib plus paclitaxel prolong the OS from 8.4 to 9.6 months, absolute improvement of 1.2 months.

However, the OS did not reach a statistical significance. So we observed there's an imbalance between the two treatment groups, with 20% more patients in the placebo group receiving subsequent therapy, compared to fruquintinib group. So the OS result could be confounded by these subsequent therapies. Next slide, slide 22. Further analyses were conducted to examine the OS in patients who received and did not receive subsequent anti-tumor therapy. And the results here support the OS benefit in addition of fruquintinib to paclitaxel. The OS was improved, regardless of whether the patient received subsequent anti-tumor therapy or not. Although the patients without the subsequent therapy, we do see a statistically improvement of OS. This is a pre-planned analysis.

Moving on to the next slide, select number three. So the 23 is present a promising second line treatment offering in gastric cancer. So the slide 23 show to put the FUTICA data into perspective with another approved therapy, second line treatment option in China, with ramucirumab plus paclitaxel. We this is a cross trial comparison showing the Rainbow Asia study, which is a large study of over 100 400 patients. So you can see the fruquintinib clearly show a more robust improvement of the overall response rate and the PFS, and also a numerically better OS improvement. Slide 24. Okay, so I also mentioned about the other fruquintinib lifecycle indication development. We received the breakthrough designation in China for combination with sintilimab. Slide 24.

Yeah, so in the endometrial cancer, the EMC incidence and mortality are really projected to grow in China, and the patients who are progressed on first-line therapy remain very high unmet medical need, medical need. So we have completed the single-arm FRUSICA registration phase two trial study, and the regulatory filing expected early 2024. Slide 25, please. The increasing mortality rate in RCC in China also outpaces the other developed nations, and the second-line treatment options remain very limited. So we have completed a second-line RCC FRUSICA registration trial, and this is a phase three trial versus axitinib versus everolimus in second-line setting. So we completed enrollment last year, and hopefully, the favorable results from this trial could potentially lead to regulatory filing late 2024. Next slide, Slide 26.

The phase 2 trial for fruquintinib plus sintilimab POC study in RCC was published in the ASCO 2023. The results are highly encouraging, with the ORR about 60% and the median PFS almost 16 months. So the POC results are highly favorable, compared with other IO plus VEGFR therapy in RCC, and we anticipate the top line result later this year FRUFRUSICA-2 phase 3 trial and the subsequent NDA filing in 2025. Next slide, slide 27. Our second wave molecules are advancing rapidly in the late-stage development. And Sovleplenib, which is a highly differentiated Syk inhibitor, with a breakthrough designation in the immune thrombocytopenia in China.

The current treatment target either TREG or B cell pathway for producing autoantibody or stimulate the megakaryocyte to produce more platelets. Syk offers a dual mechanism by targeting both B cells to inhibit the autoantibody production and also prevent the macrophage to destroy the platelets. So, we have completed the China phase 3 SL-001 in the second line plus ITP patients. It met a primary and a secondary endpoint, NDA accepted by NMPA this last month, and the priority review for breakthrough designation. So we have also cleared the US IND for our phase 1b and 2 trial, and in the startup stage for global development. Next slide. Slide 28. So 28 is an IQVIA report on the China ITP treatment landscape.

We believe sovleplenib not only can compete in the, you know, currently treated ITP patients, about 250,000 patients, and also they can potentially help the patients who are lost follow-up, primarily due to no other effective treatment. Slide 29, please. We are particularly encouraged by our phase 1/2 trial demonstrate a robust overall response rate of 80% and the durable response rate of 40% in the relapsed refractory ITP patients. The high response rate on par with the current widely used second-line treatment option, which is TPO-RA. Despite in our trial, the sovleplenib trials had even more heavily pretreated patients, and with 75% of patients who also failed the prior TPO-RA treatment.

Compared with the other approved product, Tavalisse, which is a Syk inhibitor, and that you can see only the 18% durable response and 40% overall response. So clearly, sovleplenib has the best-in-class potential in the ITP indication. Next slide, slide 30.... And, we also achieve a positive phase two. Next slide. Yeah, the ITP phase three is already completed, and we submitted NDA, is under priority review. Hopefully, we can see the approval later this year. Okay, next slide, slide 31.

Similarly, like ITP and sovleplenib also currently in development in another autoimmune indication, warm autoimmune hemolytic anemia, is served the same mechanism by preventing the red blood cell you know engulfed by the macrophages, and also prevent the auto-antibody production from B cells. So, this unique dual mechanism can also be a potential treatment option for the ITP patients for the AIHA patients. And so, the POC has already got achieved, and we are starting the phase 3 shortly. Okay, slide 32. And also, I want to mention the other product. There are seven registration trial for the MET inhibitor, savolitinib, and currently enrolling.

They are led by our partner, AstraZeneca, globally for three trials, and HUTCHMED is leading the other four indications, including newly initiated phase three gastric cancer in the second-line setting. Next slide. Slide 33. And you know, we have presented our first-line MET exon 14 data in non-small cell lung cancer with MET exon 14 skipping mutation. It shows a deep and durable response for a 60% overall response rate, and the updated data will be presented as an oral presentation next month at the ELCC in Prague. Next slide, Slide 34, please. And also updating you about the progress of savolitinib global development, and global pivotal SAVANNAH trial has completed the enrollment.

Despite some of the new data readout, like, Mariposa, TL05 and ORIENT-31, we believe savolitinib plus TAGRISSO represents oral only chemo-free option for biomarkers like the MET-positive patients in EGFR mutation who progress on TAGRISSO. The anticipated US NDA filing around late this year by our partner, AstraZeneca, will be a huge catalyst for HUTCHMED after fruquintinib in the US approval in the RCC, so we are bringing our second in-house developed novel medicine closer to global approval. Okay, so just to recap our R&D progress, and we have a deep and broad portfolio in oncology, hematology, and also recent advancement in autoimmune disease.

So, I'm very proud our R&D team and the global partners remain focused and executed very well for the past year, and a multiple near-term global development catalysts for our 2024 and to 2025. So, I will turn the stage to Dr. Weiguo Su, our CEO and CSO. Weiguo?

Weiguo Su (CEO and Chief Scientific Officer)

Okay, thank you very much, Mike. Let's go to slide number 36. So 2023 was an extraordinary year. We made a lot of progress in 2023, both in R&D, the progressing the pipeline, as well, as well as commercialization in China. We managed a great robust growth in China commercial. But obviously, we are most proud of fruquintinib approval in the U.S., our first approval outside China, a big step towards our vision of bringing our innovative medicines to global patients. 2024 and beyond, obviously, we have a lot to look forward to, on our way to profitability, hopefully by 2025. We will focus on near-term and midterm launches of new product and new indications in China. We are obviously very excited about Sovleplenib for ITP.

ITP represents a major unmet medical need in China, as Mike pointed out. Almost half of the patients, after they try everything, they remain, their medical need remain unmet. And obviously, you know, the second indication, W-AIHA, now in registration trial for Sovleplenib as well. Oh, at the same time, we expect the approval of fruquintinib in Europe and Japan, as well as the NDA submission, potentially in the U.S. for our second drug, savolitinib, with our partner, AstraZeneca. So this is, this is, again, a major progress, for savolitinib. And these regulatory activities will ensure steady flow of new approvals and accelerate our revenue and profit growth in years to come. We are confident about our goal of becoming self-sustaining by 2025, and well-positioned for accelerated growth beyond 2025....

So next slide, just to wrap up, slide number 37. Again, we are really focused on execution of our strategy towards self-sustaining 2025. And look at our product portfolio and new product approvals outside China. For instance, savolitinib for lung cancer and also sovleplenib, moving outside China for clinical development as well. So we are extremely excited about the near term and longer term, for that matter, future for HUTCHMED. And with that, I would like to thank you for your attention and close the presentation, and we'll be open for Q&A. Thank you.

Operator (participant)

Thank you. We will now begin the question and answer session. If you'd like to ask question, please press star one one on your telephone and wait for your name to be announced. If you'd like to cancel your request, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Louise Chen from Cantor. Please go ahead.

Louise Chen (Managing Director, Equity Research)

Hi, congratulations on all the progress, and thank you for taking my questions. First question I wanted to ask you is what you've learned from the US launch of FRUZAQLA, and how can you apply that to the rest of your global expansion initiative? Second question I wanted to ask, I know you went over a lot of this in the presentation, but just to distill it down for investors, you do have a very large and productive pipeline. What are the key readouts and events that you think we should really focus on? Maybe if you could pick two or three. Thank you.

Weiguo Su (CEO and Chief Scientific Officer)

Okay, thank you very much, Louise. Maybe I'll do a quick response, and I can ask Mike to chime in. So FRUZAQLA launch, I think, Takeda is a great partner, and they prepared well, and we worked together very well through NDA submission, both, you know, in NDA submission in the U.S. and MAA in Europe, as well as Japan submission. So we worked together extremely well, and we also prepared the launch extremely well as well. Given, you know, in the U.S., the approval came ahead of our original expectation because it was granted priority review and approved, you know, only less than six months.

But Takeda really prepared well, and we worked together well, very well as well. So, for instance, you know, we had drug product all mapped out and we were ready to go as soon as we received the approval. The first prescription was written within, you know, a couple of days, basically, and NCCN guideline inclusion within 1 week. So clearly, you know, Takeda was ready to go, the launch team, and we were waiting for the approval. Now, so I think it kind of demonstrates the power of partnership, if you will, and you know, going forward in EU and Japan, we'll be doing the same.

For our second product, savolitinib, obviously, our focus now is on NDA submission behind savolitinib. Obviously, we, you know, we have so much data to support and submit, so we'll be working very closely with AstraZeneca on savolitinib. You know, it's, it's, we believe it's a great drug. With regard to pipeline, you know, we continue to actually prioritize our portfolio and make sure that we invest on the highest value projects. So behind the three approved products, we believe sovleplenib can be, you know, a very important product. Not only it's going to be the first immunology product, but it represents a very different, entirely different indication.

You know, talking about chronic disease, and you know, a major unmet medical need. Almost half of the patients stop trying because nothing works for them. Behind Sovleplenib, you know, we have several compounds, actually, moved into registration studies, including our IDH1/2 inhibitor for AML and also potentially solid tumors, as well. And you know, more targeted therapies in the pipeline as well. But you know, these are really for future registration and launches. We'll be actually really focused on Sovleplenib in China this year and also global development. We have a meeting scheduled with FDA to discuss the registration path and the plan.

Really, important for Sovleplenib. I think we believe it is gonna be a major product for us. Mike, you have anything else to add on?

Michael Shi (EVP, Head of R&D and Chief Medical Officer)

Yeah, I think just add on to what Dr. Su mentioned, right? Sovleplenib clearly represented a major, you know, novel mechanism for the ITP and other autoimmune disease. So just, we're gonna present our phase 3 data in an upcoming conference and publication. So hopefully that will put a very strong path forward for the development plan. And then also to add on to the FRUZAQLA product launch, I think the FRUZAQLA commercial team and Takeda team actually worked very well together. We actually planned the, you know, the drug supply ahead of the time. We are really ready, hoping we can ready launch in October timeframe, just you know to get it to the patients, right? To the prescription. So the product launch preparation went very well.

The add-on to the NCCN guideline in a week's time. And also, I think, Takeda is really having a strong Japan presence, right? So if we are doing alone, I don't think we can actually submit to Japan, you know, that soon. So that, I think that's really a good collaboration with our global partner, and we hope the savolitinib gonna repeat, right, for our next molecule to reach the global patients. Yeah.

Louise Chen (Managing Director, Equity Research)

Okay. Thank you.

Michael Shi (EVP, Head of R&D and Chief Medical Officer)

Thank you.

Weiguo Su (CEO and Chief Scientific Officer)

Thank you, Mike.

Operator (participant)

Thank you for the questions. One moment for the next question. Next question comes from the line of Alec Stranahan, from Bank of America. Please go ahead.

Alec Stranahan (Analyst)

Hey, guys. Thanks for taking our questions, and congrats on the progress in 2023. Three quick ones from me on savolitinib. I guess first, what is your go-to-market strategy for savolitinib, if it's approved? Would you be able to handle the launch, leveraging your current sales force in China, or would you need maybe a separate commercial arm, given it's a new indication for you? Second question, how big of a contributor do you see this in your current 2024 oncology revenue guidance, or could this be maybe additional to that? And then just lastly, I know you said in your press release that you plan to initiate clinical development outside of China for savolitinib in 2024. Would the plan be to partner for these studies, and I guess ultimate commercialization, ex-China? Thanks.

Weiguo Su (CEO and Chief Scientific Officer)

Okay, thanks, Alex, for the question. Savolitinib commercial launch, obviously, we already started to prepare. You know, we have the infrastructure in place. We obviously need to build a specialty team to support it. So that's the current plan in China. We, you know, obviously, we can leverage our commercial infrastructure in China. We do need a special team to support marketing and also sales as well. So that's the plan. And you know, we obviously have time to prepare. With regard to revenue contribution to 2024 in our forecast, it's almost nothing basically.

We expect it to be approved towards the end of the year. So, contribution should come actually in 2025. 2024, we'll probably just get going by, as soon as it's approved, but that will be towards, really towards the end of the year. You know, the last question about U.S. development or ex-China development and partnerships. So as I mentioned, right, we have a meeting scheduled with FDA shortly, and we'll discuss the development, our development plan and seek endorsement from FDA. Once that's clarified and, you know, we'll get going very, you know, very quickly. Partnership discussion, these discussions are ongoing, as always.

And I think once we publish the data, you know, very soon, actually, it could be, you know, could be sometime mid-year, this year at a major conference. Also, at the same time, we'll publish the proof of concept data for the second indication, the W-AIHA. All very strong data. So I think it will attract more potential partners. So the plan is to just wait, just kind of, you know, we'll, we already engaged, but we will continue to engage with potential partners. And I expect once we have clarified the development pathway outside China, and also the data is published, we'll probably intensify the discussion.

Alec Stranahan (Analyst)

Great. Thanks, Weiguo. Appreciate the color.

Weiguo Su (CEO and Chief Scientific Officer)

Thank you.

Operator (participant)

Thank you for the questions. Our next question comes from the line of Paul Choi, of Goldman Sachs. Please go ahead. Mr. Paul Choi, your line is open. You may unmute locally.

Paul Choi (Analyst)

Hi, congratulations on all the progress, and thank you for taking our questions. My first question is on savolitinib, and with regard to the SANOVO study, which you expect to, I believe, complete later this year. Just in terms of the incremental opportunity in terms of the frontline population, can you maybe just expand on how many patients are currently actively treated in China with available MET inhibitors? And just kind of how you think about the commercial opportunity there for the first-line opportunity. And then I had a follow-up question.

Weiguo Su (CEO and Chief Scientific Officer)

Yeah. So Paul, at the moment, savolitinib is approved for second-line and above, non-small cell lung cancer with exon 14 mutation or skipping mutations. So, that's a label, obviously, you know, its efficacy comparing to chemo, or IO, as well as, now we already published the first-line data. I would not be surprised there could be some, you know, some usage into the first-line. But all in all, I think it's been, at the moment, mostly, a second-line patients. The population in first-line, we think is- we believe it should be much bigger.

that, you know, you have to combine to a better clinical, even better clinical, benefit for these patients. So we believe will translate into a significant opportunity.

Paul Choi (Analyst)

Okay, great. Thanks. And then, as a follow-up question, maybe turning to, back to Sovleplenib for a minute, and ITP. As you think about, sort of different standards of care in, markets and, regions outside of China, how are you thinking about potentially, coordination on a, a placebo arm, or whether the studies will require a, active comparator arm, just to harmonize requirements, let's say, between the U.S., Europe, and other, other geographies? Just maybe some high-level thoughts on whether an active comparator would be required versus a placebo-controlled trial, would be great. Thank you.

Weiguo Su (CEO and Chief Scientific Officer)

Yeah. Again, well, for this specific question, we don't have a lot to offer at the moment, Paul. We'll be in discussion with FDA very shortly, and once we have it clarified, we'll, you know, we'll let you know. Actually, we'll announce once we are into the clinical development in the US.

Paul Choi (Analyst)

Okay, great. Thank you. I'll go back in queue.

Weiguo Su (CEO and Chief Scientific Officer)

Yeah, thanks.

Operator (participant)

Thank you for the questions. Our next question comes from Kelly Shi from Jefferies. Please go ahead.

Clara Dong (Analyst)

Hi, this is Clara on for Kelly. Thanks for taking my question, and congrats on the progress. So let me just ask a quick question on ITP. So once the global study will be initiated, how should we think about the cost change on R&D in general? And also for warm autoimmune hemolytic anemia, how large is the market in China? And, like, what do you need to see for this indication to initiate maybe future global development? Thank you.

Weiguo Su (CEO and Chief Scientific Officer)

Okay, thanks. Thank you for the question. Well, ITP, you know, it's at the moment anyways, you can see it, the market or the treatment has been dominated by TPO or TPO-RA. And but a lot of patients, they, there are a lot of other treatment options, but not necessarily approved. Some of those are just off-label usages. So, you know, we believe sovleplenib represents a novel mechanism of action.

Patients, there are a lot of patients that they don't, they probably already tried everything, and typically, somewhere between 8-10 years of various treatments, and then if nothing works for them, they just, you know, gave up or they just lost to follow-up. So it, it represents a big unmet medical need. So what—you know, I think, ITP is a very—you know, specific disease. So, you know, how we're gonna be able to target the patients, globally, outside China, how big is the study?

You know, so we'd like to understand the same, you know, particularly you say, right, the impact on our R&D expenses, our R&D spending. So until we have clarity, until we align on a development plan with FDA, it's hard to estimate. And obviously, it had a lot to do with the study design, the line of prior therapies, for instance, the sample size, and so forth. We also, as you know, behind the FRESCO and FRESCO-2, you know, we would at least share the data with U.S. FDA on FRESCO-2.

I mean, no, sorry, on ESLIM-01 study in China, hope that can serve as part of core registration studies. So whether this can reduce the sample size for this upcoming study outside China or how we think about this. So it all depends on, you know, this discussion with FDA and alignment with the FDA. Until then, you know, we think it would be manageable in terms of the cost. Certainly, you know, if we line up a partner, then it will be much less material on the cost. The warm autoimmune hemolytic anemia, which is actually a very rare disease.

It's even more rare than ITP. However, it has almost no treatment today, so it represents a very rare disease with an even stronger unmet medical need. So we believe this mechanism should target this disease very well, and Sovleplenib-

Clara Dong (Analyst)

Mm-hmm.

Weiguo Su (CEO and Chief Scientific Officer)

has generated very strong proof of concept data. You know, it will, you know, we'll, we're already into the phase three in China and likely we could do the same outside China once aligned with the U.S. FDA on ITP. When a dose optimization completes, yeah, it could be an option. Okay, thanks.

Operator (participant)

Thank you for the questions. One moment for the next questions. Next questions comes from the line of Mike Mitchell from Panmure Gordon. Please go ahead.

Mike Mitchell (Analyst)

Hi, everyone, thanks for taking my question. Great performance for the period. I've just got one focused question and one broader question, if that's okay. And the focused question on fruquintinib. I'm just thinking, of course, we have the submission in with the China regulator for gastric cancer, but in terms of ex-China development on gastric, what should we anticipate in terms of the appetite for potential further development? I'm just thinking about the overall survival endpoint and the standard of care reference used in the FRUTIGA study. So just thinking, what else you might need to do to orient the product for other markets, or is that just not on the agenda at present?

Weiguo Su (CEO and Chief Scientific Officer)

You know, the short answer is not relevant for outside China in a second-line setting. You just mentioned a standard of care difference, for instance. As a matter of fact, at the ASCO plenary, it was, you know, there was a panel of experts on the call and kind of concluded great data, could be a treatment option for patients in need. However, the data will not support outside China registration. Separate study needs to be done because of the standard of care difference and patient difference as well. So, yeah, the same study will not support global registration.

However, you know, we continue to believe, fruquintinib has a, has a role in gastric cancer, whether in, you know, in combination with chemo, such as paclitaxel or in combination with, with IO, PD-1, for instance. We actually published very strong data, in combination with PD-1 as well. So in, gastric cancer, outside China, we, we, you know, we think there is a role for fruquintinib, how we design the study, which line to target, it can, you know, we are still assessing this opportunity.

Mike Mitchell (Analyst)

Okay, got it. No, that's really helpful. Thank you. And then, just on a more broad question. I know there'll be a little bit of give and take with the recognition of Takeda payments in the P&L, but I'm just thinking about the balance sheet strength and how R&D tracks from here in light of the lower R&D spend versus last year. You know, there was obviously a shift pre and post the new strategy in terms of how hard you wanted to push on R&D investment, but is this still going to be a story of managing it within a range, or is there an opportunity to fine-tune, perhaps accelerate internal investment from this point onwards?

Weiguo Su (CEO and Chief Scientific Officer)

Yeah, good question. So, you know, as I mentioned earlier, we will be very careful on spending, very prudent on spending, and, we actually routinely now do portfolio prioritization, looking at every compound, every indication very carefully, to, and, you know, make sure, just to make sure that, we invest the highest value project possible. So we don't see any, any, expansion or any increase of R&D cost this year.

Mike Mitchell (Analyst)

Okay, that's great. Many thanks again.

Weiguo Su (CEO and Chief Scientific Officer)

Thank you.

Operator (participant)

Thank you for the question. We have no question at this time. Allow me to hand the call back to management for closing remarks.

Weiguo Su (CEO and Chief Scientific Officer)

Okay. Yeah, thank you all very much for attending the call, and we'll be happy to be further engaged through email or any other communication channels, or if you have any questions, let us know. Thank you.

Operator (participant)

That concludes today's conference call. Thank you for your participation. You may now disconnect.