HUTCHMED to Advance Next-Gen ATTC Platform with Nearly $1B Proceeds from Traditional Chinese Medicine Divestment

In 2025, the first acquisition in the pharmaceutical sector nearing RMB 1 billion emerged.

Recently, it was learned that Shanghai Pharmaceuticals (601607.SH) announced its intention to jointly acquire the equity stake in Shanghai Hutchison Pharmaceuticals held by HUTCHMED (00013.HK), together with a designated entity appointed by Shanghai Jinpu Jianfu Equity Investment Management Co., Ltd. (hereinafter referred to as the “Jinpu Jianfu Designated Entity”). Specifically, Shanghai Pharmaceuticals plans to use its own funds to acquire a 10% equity stake for RMB 995.0366 million (subject to the final price filed with state-owned assets supervision authorities).

The acquisition consideration for this transaction takes into account Shanghai Hutchison’s historical financial performance, market scarcity, future development prospects, and the synergistic and complementary value with SPH. The asset valuation was conducted using the income approach. As of the valuation reference date, the assessed value of Shanghai Hutchison’s total shareholders’ equity amounted to RMB 10.628 billion, representing an increase of RMB 9.288 billion (or 692.92%) over the audited book value of the parent company’s owners’ equity, and an increase of RMB 9.554 billion (or 889.96%) over the audited consolidated attributable equity. The total consideration for Shanghai Hutchison in this transaction is RMB 9.95 billion.

Following the completion of the transaction, SPH will hold a combined 60% equity stake in Shanghai Hutchison Pharmaceuticals, consolidate its financial statements, and become the actual controlling party, while HUTCHMED will retain a 5% indirect equity interest. At the opening of trading on the day after the transaction announcement, SPH’s share price rose by approximately 2%, and HUTCHMED’s surged by more than 10%.

Shanghai Hutchison Pharmaceuticals was established as a joint venture between Shanghai Traditional Chinese Medicine Co., Ltd., a wholly-owned subsidiary of SPH, and HUTCHMED, with each party holding a 50% equity stake. HUTCHMED is backed by Li Ka-shing’s flagship conglomerate, CK Hutchison Holdings Limited, which held a 38.17% stake in HUTCHMED as of June 30, 2024.

Shanghai Hutchison was initially a key component of Li Ka-shing’s strategic layout in the traditional Chinese medicine industry.

Li Ka-shing has long held a deep affinity for traditional Chinese medicine (TCM). According to China Economic Net, sources close to Li Ka-shing have stated that he harbors a strong “passion for the internationalization of TCM.” The establishment of HUTCHMED marked a significant step in transforming this personal passion into corporate strategy.

In 2000, optimistic about the development of China’s pharmaceutical industry, Hong Kong-based Hutchison Whampoa Limited (now CK Hutchison Holdings), under Li Ka-shing, invested USD 30 million to establish HUTCHMED in Zhangjiang, Shanghai. In its early stages, HUTCHMED was positioned to develop innovative botanical drugs and enter the modernized traditional Chinese medicine industry.

In 2001, in East China, HUTCHMED formed a joint venture with Shanghai No. 1 Chinese Medicine Factory, a subsidiary of Shanghai Medicinal Materials Corporation, to establish Shanghai Hutchison; in 2003, in North China, HUTCHMED partnered with the headquarters of Tongrentang Group to establish Tongrentang Hutchison; in 2004, in South China, HUTCHMED reached a cooperation agreement with Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd. to establish Baiyunshan Hutchison, based on Baiyunshan Chinese Medicine Factory, with a joint venture term of 50 years. In 2004, Li Ka-shing explicitly stated that traditional Chinese medicine would become the sixth pillar industry of Hutchison Whampoa.

Shanghai Hutchison Pharmaceuticals’ exclusive product, Shexiang Baoxin Pills, contributes over 90% of its revenue. This medication, based on a state-protected confidential formula and produced exclusively by the company, is widely used in clinical practice for the treatment of coronary heart disease, angina pectoris, myocardial infarction, and other conditions. According to HUTCHMED’s annual report, Shexiang Baoxin Pills have become the second-largest proprietary Chinese medicine prescription drug in China for the indication of coronary heart disease, holding a 22% market share.

Driven by this single product, Shanghai Hutchison Pharmaceuticals generated revenues of $332.6 million, $370.6 million, and $385.5 million in 2021, 2022, and 2023, respectively, drawing the envy of many innovative biotech firms. Furthermore, with the drug’s patent not expiring until 2029, it still has a long lifecycle ahead. Additionally, over the past two decades, Shanghai Hutchison Pharmaceuticals has contributed more than $320 million (approximately RMB 2.3 billion) in total dividends to HUTCHMED.

Meanwhile, also in 2001, Hutchison Whampoa invited Dr. Du Ying, then from Pfizer’s Strategy Department, to join and lead HUTCHMED. Under her leadership, HUTCHMED added a new strategic focus on “innovative anti-cancer drugs” and began collaborating with multinational pharmaceutical companies such as Eli Lilly and AstraZeneca, gradually building its independent R&D capabilities and becoming one of the earliest Chinese pharmaceutical enterprises engaged in innovative drug development. Starting in 2005, HUTCHMED initiated research into small-molecule anticancer chemical drugs.

Overall, HUTCHMED has focused on two major therapeutic areas: oncology and immunotherapy. In the field of oncology, HUTCHMED has targeted solid tumor indications such as breast cancer, gastric cancer, colorectal cancer, and cholangiocarcinoma. Regarding molecular targets, the company has prioritized MET, VEGFR1/2/3, and PI3K. Its key product pipeline includes Syk inhibitors, PI3Kδ inhibitors, FGFR1/2/3 inhibitors, and dual IDH1/2 inhibitors.

HUTCHMED’s three self-developed innovative oncology drugs—fruquintinib, surufatinib, and savolitinib—were approved for market launch in September 2018, December 2020, and June 2021, respectively, and have all been included in the National Reimbursement Drug List. In 2023, their sales amounted to $108 million, $43.9 million, and $46.1 million, contributing revenues of $83.2 million, $43.9 million, and $28.9 million to HUTCHMED, respectively.

After showing progress in the innovative drug sector, HUTCHMED began to gradually divest its traditional Chinese medicine assets.

In fact, although the traditional Chinese medicine (TCM) business is profitable, its market valuation is not necessarily high. HUTCHMED reported revenue of $838 million (approximately RMB 6.1 billion) in 2023, yet its current market capitalization stands at only around RMB 19.1 billion. However, a complete transformation into an innovative pharmaceutical company and active participation in global expansion could significantly enhance its valuation prospects. Furthermore, HUTCHMED’s previous positioning was somewhat ambiguous, with its core investors primarily being those focused on TCM. Given that the TCM market has seen less-than-optimistic development in recent years, the valuation of its innovative drugs may have been dragged down.

Therefore, in recent years, HUTCHMED has been accelerating the divestment of its traditional Chinese medicine (TCM) business. As early as 2021, HUTCHMED sold its stake in Guangzhou Baiyunshan and Hutchison Whampoa Traditional Chinese Medicine for $169 million.

From a financial performance perspective, HUTCHMED’s oncology product revenue reached $168.7 million in the first half of 2024, representing a year-on-year increase of over 60%, with a net profit of $25.8 million. The company projects that its combined revenue from oncology and immunology businesses will reach $300–400 million for the full year 2024, with revenue growth from marketed oncology products expected to be in the range of 30%–50%.

This stands in stark contrast to the company’s previous performance: in 2022, HUTCHMED reported a net loss of $360 million. It was not until 2023, supported by business development (BD) activities and commercialization progress, that the company turned profitable, posting a net income of $101 million. Upon completion of this transaction, HUTCHMED will secure ample cash reserves to support the research and development of innovative drugs. As of June 2024, the company’s cash balance had reached $800 million.

As multiple products are commercialized and launched on the market, HUTCHMED is also accelerating its commercial manufacturing efforts. In December 2020, HUTCHMED established a new production base in Zhangjiang, Shanghai, with a planned investment of $130 million over the next five years. Upon completion, the new Shanghai facility will work in conjunction with the existing Suzhou production base to support global clinical and commercial supply.

Among these, the 2023 full-year results and latest business updates announced by HUTCHMED on February 28, 2024, were particularly noteworthy. The results showed that in 2023, the company’s revenue reached $838 million, a year-on-year increase of 96.52%; net income was $101 million, marking its first return to profitability.

HUTCHMED, after 23 years since its founding, finally turned a profit, thanks to its overseas expansion.

In January 2023, HUTCHMED granted Takeda Pharmaceutical Company, a Japanese pharmaceutical company, the global rights to its flagship product fruquintinib outside of China. The deal included an upfront payment of $400 million, with total potential value reaching up to $1.13 billion, setting a new record for overseas licensing deals involving Chinese small-molecule novel drugs.

By November of the same year, fruquintinib (marketed as Fruzaqla) received FDA approval for the treatment of adult patients with previously treated metastatic colorectal cancer, becoming the first targeted therapy approved in the United States for this indication in over a decade and the second domestically developed small-molecule anticancer drug to successfully launch in the U.S. market, following BeiGene’s zanubrutinib.

Notably, within two months of its market launch, fruquintinib achieved sales of $15.1 million, contributing $7.2 million in revenue to HUTCHMED. Priced at $25,200 per box in the United States (approximately RMB 180,000), the drug costs more than 20 times its price in China, serving as a significant driver for Chinese biotech companies’ global expansion.

Benefiting from these two major milestones, HUTCHMED’s oncology and immunology business saw a 223% year-on-year increase in combined revenue to $528.6 million during the reporting period.

For SPH, the state-owned acquirer, the acquisition of Shanghai Hutchison Pharmaceuticals is conducive to leveraging the latter’s marketing and internationalization capabilities to develop its own traditional Chinese medicine (TCM) segment. In its 2024 semi-annual report, SPH stated that it is conducting secondary development on several of its TCM products, including Yangxinshi Tablets, Yuxuebi Capsules, Guanxinning Tablets, Babao Dan, Weifuchun Capsules, and Ginkgo Terpene Lactone. Behind this substantial investment lies SPH’s aim to empower its existing TCM portfolio by enhancing product marketing capabilities, strengthening evidence-based medicine and academic promotion for its TCM varieties, and boosting the internationalization of its TCM products. Indeed, the success of Musk Heart-Protecting Pills from Shanghai Hutchison Pharmaceuticals can serve as a reference for the secondary development of other TCM varieties under SPH.

As a company more focused on traditional Chinese medicine, Shanghai Hutchison Pharmaceuticals retains longer product life cycles and higher market recognition. Moreover, some of its products benefit from professional barriers such as national protected varieties, confidential formulas, and patents. With these advantages combined, its market competitiveness and profitability are even more pronounced.

Overall, by acquiring these traditional Chinese medicine (TCM) enterprises or major TCM products, state-owned capital can leverage such opportunities to achieve resource sharing and complementary advantages, thereby driving its own transformation, upgrading, and high-quality development.

Currently, fruquintinib, one of HUTCHMED’s core products, has been approved in the three major markets of the United States, Europe, and Japan. Industry consensus predicts that this drug will become China’s next billion-dollar molecule.

However, the hidden star of this deal is undoubtedly ADC.

HUTCHMED stated that it plans to reinvest the proceeds from this equity sale internally to further develop its internal pipeline and advance its core business strategies, including its next-generation ADC platform. Reportedly, this ADC platform is built upon HUTCHMED’s proven expertise in pursuing oncology pathways and small-molecule targeted therapies. By conjugating antibodies with targeted therapeutics rather than cytotoxins, these Antibody-Targeted Therapeutic Conjugates (“ATTCs”) provide a dual mechanism for targeted therapy.

Preclinical studies have demonstrated that ATTC exhibits potent antitumor activity with durable responses after a single dose. Compared to the administration of antibody or targeted therapeutic components alone, ATTC shows enhanced antitumor efficacy and improves the tolerability of targeted therapy. HUTCHMED plans to initiate the first clinical trials of ATTC in the second half of 2025.

Moreover, another high-potential asset in HUTCHMED’s pipeline is sovleptinib, an oral spleen tyrosine kinase (SYK) inhibitor. Currently, fostamatinib remains the only SYK inhibitor approved for marketing worldwide. Although industry consensus predicts that sovleptinib is likely to receive regulatory approval and launch in the first half of this year, it will still take time for sales to ramp up post-launch.

As HUTCHMED establishes its antibody-drug conjugate (ADC) platform and advances corresponding products into clinical trials and commercialization, it will inevitably continue to incur substantial cash burn. Before the next billion-dollar molecule is officially born, HUTCHMED still has a long way to go, and its transformation into a more pure-play innovative pharmaceutical company will reshape its overall valuation.