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HUTCHISON CHINA MEDITECH LTD filed this 6-K on 07-Aug-2025

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HUTCHMED (CHINA) LTD - 6-K - 20250807 - NOTES_TO_FINANCIAL_STATEMENT

HUTCHMED (CHINA) LIMITED

NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

HUTCHMED (China) Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in researching, developing, manufacturing and marketing pharmaceutical products. The Group has research and development facilities and manufacturing plants in the People’s Republic of China (the “PRC”) and sell its products mainly in the PRC, including Hong Kong and Macau. In addition, the Group has established international operations in the United States of America (the “US”) and Europe.

The Company’s ordinary shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited and the AIM market of the London Stock Exchange, and its American depositary shares (“ADS”) are traded on the Nasdaq Global Select Market (“NASDAQ”).

Liquidity

As at June 30, 2025, the Group had accumulated losses of US$380,319,000 primarily due to its spending in drug research and development activities. The Group regularly monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term. As at June 30, 2025, the Group had cash and cash equivalents of US$110,719,000, short-term investments of US$1,253,801,000 and unutilized bank borrowing facilities of US$53,969,000. Short-term investments comprised of bank deposits maturing over three months.

Based on the Group’s operating plan, the existing cash and cash equivalents, short-term investments and unutilized bank borrowing facilities are considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve months from the issuance date of the interim unaudited condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The interim unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The comparative year-end condensed balance sheet data was derived from the annual audited consolidated financial statements, but is condensed to the same degree as the interim condensed balance sheet data.

The interim unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users have read or have access to the annual audited consolidated financial statements for the preceding fiscal year.

The preparation of interim unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the interim unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Recent Accounting Pronouncements

Amendments that have been issued by the Financial Accounting Standards Board or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Group’s condensed consolidated financial statements.

3. Cash and Cash Equivalents and Short-term Investments


	June 30,	December 31,
	2025	2024

	(in US$’000)
Cash and Cash Equivalents
Cash at bank and on hand	67,300	84,480
Bank deposits maturing in three months or less	43,419	69,478
	110,719	153,958
Short-term Investments
Bank deposits maturing over three months (note)	1,253,801	682,152
	1,364,520	836,110

Note: The maturities for short-term investments ranged from 91 to 186 days for each of the six months ended June 30, 2025 and the year ended December 31, 2024.

Certain cash and bank balances denominated in Renminbi (“RMB”), US dollar (“US$”) and UK Pound Sterling (“£”) were deposited with banks in the PRC. The conversion of these balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. Cash and cash equivalents and short-term investments were denominated in the following currencies:


	June 30,	December 31,
	2025	2024

	(in US$’000)
US$	1,337,598	795,566
RMB	25,617	37,906
Hong Kong dollar (“HK$”)	1,148	2,396
£	110	212
Others	47	30
	1,364,520	836,110

4. Accounts Receivable

Accounts receivable from contracts with customers consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Accounts receivable—third parties	146,607	155,155
Accounts receivable—related parties (Note 17(ii))	405	452
Allowance for credit losses	(45)	(70)
Accounts receivable, net	146,967	155,537

Substantially all accounts receivable are denominated in RMB, US$ and HK$ and are due within one year from the end of the reporting periods. The carrying values of accounts receivable approximate their fair values due to their short-term maturities.

An aging analysis for accounts receivable—third parties based on the relevant invoice dates is as follows:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Not later than 3 months	123,548	138,695
Between 3 months to 6 months	15,782	9,914
Between 6 months to 1 year	6,071	5,418
Later than 1 year	1,206	1,128
Accounts receivable—third parties	146,607	155,155

Movements on the allowance for credit losses:


	2025	2024

	(in US$’000)
As at January 1	70	171
Increase in allowance for credit losses	42	25
Decrease in allowance due to subsequent collection	(68)	(168)
Exchange difference	1	(3)
As at June 30	45	25

5. Other Receivables, Prepayments and Deposits

Other receivables, prepayments and deposits consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Prepayments	11,556	7,924
Interest receivables	5,289	2,741
Value-added tax receivables	1,810	3,297
Deposits	1,125	1,081
Others	1,719	1,566
	21,499	16,609

No allowance for credit losses has been made for other receivables, prepayments and deposits for the six months ended June 30, 2025 and the year ended December 31, 2024.

6. Inventories

Inventories, net of provision for excess and obsolete inventories, consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Raw materials	24,430	24,349
Finished goods	24,024	26,051
	48,454	50,400

7. Investment in an Equity Investee

Investment in an equity investee consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) (note)	3,645	77,765

Note: SHPL is a private company with no quoted market price available for its shares.

On April 25, 2025, the group completed its transactions to divest 45% of its 50% shareholding in SHPL (Note 16).

Summarized financial information for SHPL is as follows:

(i)

Summarized balance sheets


	June 30,	December 31,
	2025	2024

	(in US$’000)
Current assets	215,248	213,707
Non-current assets	65,629	67,561
Current liabilities	(210,965)	(126,154)
Non-current liabilities	(5,890)	(3,858)
Net assets	64,022	151,256

(ii)

Summarized statements of operations


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Revenue	233,326	225,208
Gross profit	173,127	166,758
Interest income	493	338
Profit before taxation	81,754	80,213
Income tax expense (note (a))	(12,577)	(12,294)
Net income (note (b))	69,177	67,919

Notes:

(a)	The main entity within the SHPL group has been granted the High and New Technology Enterprise status. Accordingly, the entity was eligible to use a preferential income tax rate of 15% for the six months ended June 30, 2025 and 2024.

(b)	Net income is before elimination of unrealized profits on transactions with the Group. The amounts eliminated were approximately US$584,000 and US$152,000 for the six months ended June 30, 2025 and 2024 respectively.

(iii)

Reconciliation of summarized financial information

Reconciliation of the summarized financial information presented to the carrying amount of investment in an equity investee is as follows:


	2025	2024

	(in US$’000)
Opening net assets as at January 1	151,256	91,628
Net income	69,177	67,919
Dividend declared	(157,274)	—
Deemed distribution	—	(690)
Other comprehensive income/(loss)	863	(2,573)
Closing net assets as at June 30	64,022	156,284
Group’s share of net assets	3,201	78,142
Discounting on dividend payable	212	—
Goodwill	279	2,744
Elimination of unrealized profits on downstream sales	(47)	(367)
Carrying amount of investment as at June 30	3,645	80,519

8. Accounts Payable


	June 30,	December 31,
	2025	2024

	(in US$’000)
Accounts payable—third parties	43,078	42,521
Accounts payable—related parties (Note 17(ii))	647	—
	43,725	42,521

Substantially all accounts payable are denominated in RMB and US$ and are due within one year from the end of the reporting periods. The carrying values of accounts payable approximate their fair values due to their short-term maturities.

An aging analysis for accounts payable - third parties based on the relevant invoice dates is as follows:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Not later than 3 months	37,946	37,805
Between 3 months to 6 months	2,972	2,638
Between 6 months to 1 year	1,081	833
Later than 1 year	1,079	1,245
Accounts payable—third parties	43,078	42,521

9. Other Payables, Accruals and Advance Receipts

Other payables, accruals and advance receipts consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Accrued research and development expenses	137,621	153,978
Accrued administrative and other general expenses	22,306	14,046
Accrued salaries and benefits	20,380	29,751
Accrued capital expenditures	11,751	15,858
Accrued selling and marketing expenses	8,352	14,705
Deferred government grants	2,042	6,004
Amounts due to related parties (Note 17(ii))	2,002	2,016
Deposits	1,599	1,627
Provision for profit guarantee – current portion (Note 16)	3,105	—
Others	11,903	18,139
	221,061	256,124

10. Bank Borrowings

Bank borrowings consisted of the following:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Current	25,603	23,372
Non-current	67,841	59,434
	93,444	82,806

The weighted average interest rate for outstanding bank borrowings for the six months ended June 30, 2025 and the year ended December 31, 2024 was 2.89% per annum and 3.02% per annum respectively. The carrying amounts of the Group’s outstanding bank borrowings as at June 30, 2025 and December 31, 2024 were denominated in RMB.

(i) Short-term working capital loan facility

In October 2024, a subsidiary entered into a short-term unsecured working capital loan facility with a bank in the amount of US$41,923,000 (RMB300,000,000) with an annual interest rate at the 1-year China Loan Prime Rate (“LPR”) less 0.82%. As at June 30, 2025 and December 31, 2024, US$22,795,000 (RMB163,119,000) and US$22,167,000 (RMB163,119,000) were drawn from the facility respectively.

(ii) 10-year fixed asset loan facility

In October 2021, a subsidiary entered into a 10-year fixed asset loan facility agreement with the bank for the provision of a secured credit facility in the amount of US$105,490,000 (RMB754,880,000) with an annual interest rate at the 5-year China LPR less 0.8% (which was supplemented in June 2022) and interest payments commencing upon completion of the underlying construction in progress. This credit facility is guaranteed by the immediate holding company of the subsidiary and secured by the underlying leasehold land and buildings (Shanghai manufacturing facility). As at June 30, 2025 and December 31, 2024, US$70,649,000 (RMB505,556,000) and US$60,639,000 (RMB446,212,000) were utilized from the fixed asset loan facility respectively.

For the six months ended June 30, 2025, no interest was capitalized (For the year ended December 31, 2024: US$44,000).

The Group’s bank borrowings are repayable as from the dates indicated as follows:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Not later than 1 year	25,603	23,372
Between 1 to 3 years	8,423	6,426
Between 3 to 4 years	14,038	8,033
Between 4 to 5 years	14,038	12,049
Later than 5 years	31,342	32,926
	93,444	82,806

As at June 30, 2025 and December 31, 2024, the Group had aggregate unutilized bank borrowing facilities of US$53,969,000 and US$60,549,000 respectively.

11. Other Non-current Liabilities

Other non-current liabilities consisted of the following:


	June 30, 2025	December 31, 2024

	(in US$’000)
Provision for profit guarantee, non-current portion (Note 16)	75,980	—
Branding liability payable (Note 17 (ii))	6,650	6,475
Lease liabilities	3,109	4,089
Others	7,303	7,351
	93,042	17,915

12. Commitments and Contingencies

The Group had the following capital commitments:


		June 30,
		2025
		(in US$’000)
Property, plant and equipment
Contracted but not provided for		1,430

The Group does not have any other significant commitments or contingencies.

13. Share-based Compensation

(i) Share-based Compensation of the Company

The Company conditionally adopted a share option scheme on April 24, 2015 (as amended on April 27, 2020) (the “HUTCHMED Share Option Scheme”). Pursuant to the HUTCHMED Share Option Scheme, the Board of Directors of the Company may, at its discretion, offer any employees and directors (including Executive and Non-executive Directors but excluding Independent Non-executive Directors) of the Company, holding companies of the Company and any of their subsidiaries or affiliates, and subsidiaries or affiliates of the Company share options to subscribe for shares of the Company.

As at June 30, 2025, the aggregate number of shares issuable under the HUTCHMED Share Option Scheme was 40,183,238 ordinary shares. The Company will issue new shares to satisfy share option exercises. Additionally, the number of shares authorized but unissued was 627,888,530 ordinary shares.

Share options granted are generally subject to a four-year vesting schedule, depending on the nature and the purpose of the grant. Share options subject to the four-year vesting schedule, in general, vest 25% upon the first anniversary of the vesting commencement date as defined in the grant letter, and 25% every subsequent year. However, certain share option grants may have a different vesting schedule as approved by the Board of Directors of the Company. No outstanding share options will be exercisable or subject to vesting after the expiry of a maximum of ten years from the date of grant.

A summary of the Company’s share option activity and related information is as follows:


		Weighted	Weighted average
		average exercise	remaining	Aggregate
	Number of share	price in US$ per	contractual life	intrinsic value
	options	share	(years)	(in US$’000)
Outstanding at January 1, 2024	29,536,655	4.57	6.67	9,924
Granted (note (a))	2,965,328	3.69
Exercised	(344,825)	2.29
Cancelled	(892,600)	4.38
Expired	(1,624,285)	5.23
Outstanding at December 31, 2024	29,640,273	4.47	5.99	3,804
Granted (note (b))	1,493,435	3.27
Exercised	(510,375)	2.16
Cancelled	(935,775)	2.18
Expired	(1,637,050)	5.55
Outstanding at June 30, 2025	28,050,508	4.46	5.70	3,430
Vested and exercisable at December 31, 2024	21,186,120	4.92	5.13	1,387
Vested and exercisable at June 30, 2025	21,357,920	4.84	4.80	2,158

Notes:

(a)

Includes aggregate 2,765,328 share options granted to an executive director. 1,359,561 share options were granted in March 2024 and 1,405,767 share options were granted in August 2024 where the number of share options exercisable is subject to certain performance targets based on a market condition covering the 3-year periods from 2023 to 2025 and from 2024 to 2026 respectively which has been reflected in estimating the grant date fair value using the Monte Carlo simulation model. The grant date fair value of such awards are US$1.29 and US$1.24 per share respectively. Vesting of such awards will occur around March 2026 and March 2027 respectively if the performance targets are met.

(b)

This was granted to an executive director in June 2025 where the number of share options exercisable is subject to certain performance targets based on a market condition covering the 3-year period from 2025 to 2027 which has been reflected in estimating the grant date fair value. The grant date fair value of such award is US$1.17 per share using the Monte Carlo simulation model. Vesting of such award will occur around March 2028 if the performance targets are met.

In estimating the fair value of share options granted, the following assumptions were used in the Monte Carlo simulation model for the awards that are subject to certain performance targets based on a market condition and Polynomial model for other options granted in the periods indicated:


	Six Months Ended		Year Ended
	June 30, 2025		December 31, 2024
Weighted average grant date fair value of share options (in US$ per share)	1.17		1.29
Significant inputs into the valuation model (weighted average):
Exercise price (in US$ per share)	3.27		3.69
Share price at effective date of grant (in US$ per share)	3.27		3.69
Expected volatility (note (a))	56.62	%	54.69	%
Risk-free interest rate (note (b))	4.52	%	3.86	%
Contractual life of share options (in years)	10		10
Expected dividend yield (note (c))	0	%	0	%

Notes:

(a)	The Company calculated its expected volatility with reference to the historical volatility prior to the issuances of share options.

(b)	The risk-free interest rates reference the US Treasury yield curves.

(c)	The Company has not declared or paid any dividends and does not currently expect to do so prior to the exercise of the granted share options, and therefore uses an expected dividend yield of zero in the valuation models.

The Company will issue new shares to satisfy share option exercises. The following table summarizes the Company’s share option exercises:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Cash received from share option exercises	1,100	228
Total intrinsic value of share option exercises	526	161

The Group recognizes compensation expense over the requisite service period. The following table presents share-based compensation expense included in the Group’s condensed consolidated statements of operation:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Research and development expenses	1,206	801
Selling and administrative expenses	281	597
Cost of revenue	65	34
	1,552	1,432

As at June 30, 2025, the total unrecognized compensation cost was US$4,268,000 and will be recognized over the weighted average remaining service period of 1.95 years.

(ii) LTIP

The Company grants awards under the LTIP to participating directors and employees, giving them a conditional right to receive ordinary shares of the Company or the equivalent ADS (collectively the “Awarded Shares”) to be purchased by the Trustee up to a cash amount excluding any cash elected payments. Vesting will depend upon continued employment of the award holder with the Group and will otherwise be at the discretion of the Board of Directors of the Company. Additionally, some awards are subject to change based on annual performance targets prior to their determination date.

LTIP awards prior to the determination date

Performance targets vary by award, and may include targets for shareholder returns, revenue and net income/(loss) after taxes. As the extent of achievement of the performance targets is uncertain prior to the determination date, a probability based on management’s assessment on the achievement of the performance targets has been assigned to calculate the amount to be recognized as an expense over the requisite period with a corresponding entry to liability.

LTIP awards after the determination date

Upon the determination date, based on the actual achievement of performance targets, the amount previously recorded in the liability will be adjusted through share-based compensation expense. The Company will pay a determined monetary amount, up to the maximum cash amount based on the actual achievement of the performance targets specified in the award, to the Trustee to purchase the Awarded Shares. Any cumulative compensation expense previously recognized as a liability will be transferred to additional paid-in capital.

Granted awards under the LTIP are as follows:


	Maximum cash amount	Covered	Performance targets
Grant date	(in US$ millions)	financial years	determination date
March 13, 2024	0.7	note (a)	note (a)
August 5, 2024	19.3	2024-2026	note (b)
August 5, 2024	0.3	note (c)	note (c)
June 9, 2025	20.0	2025-2027	note (d)

Notes:

(a)	This award does not stipulate performance targets and is subject to a vesting schedule of 25% on each of the first, second, third and fourth anniversaries of the date of grant.

(b)

The annual performance targets determination dates are the dates of the announcements of the Group’s annual results for the financial years ending December 31, 2024, 2025 and 2026. Vesting occurs in 2027, three weeks after the date of completion of the share purchase for the awards for the financial year ending December 31, 2026.

(c)	This award does not stipulate performance targets and is subject to a vesting schedule of 50% on the first and second anniversaries of the date of grant.

(d)

The annual performance targets determination dates are the dates of the announcements of the Group’s annual results for the financial years ending December 31, 2025, 2026 and 2027. Vesting occurs in 2028, three weeks after the date of completion of the share purchase for the awards for the financial year ending December 31, 2027.

The Trustee has been set up solely for the purpose of purchasing and holding the Awarded Shares during the vesting period on behalf of the Company using funds provided by the Company. On the determination date, if any, the Company will determine the cash amount, based on the actual achievement of each annual performance target, for the Trustee to purchase the Awarded Shares. The Awarded Shares will then be held by the Trustee until they are vested.

The Trustee’s assets include treasury shares and funds for additional treasury shares, trustee fees and expenses. The number of treasury shares (in ordinary shares equivalent) held by the Trustee were as follows:


	Number of	Cost
	treasury shares	(in US$’000)
As at January 1, 2024	17,612,685	66,987
Purchased	10,259,133	36,064
Vested	(11,154,360)	(42,127)
As at December 31, 2024	16,717,458	60,924
Vested	(3,907,180)	(14,603)
As at June 30, 2025	12,810,278	46,321

For the six months ended June 30, 2025 and 2024, US$2,086,000 and US$8,574,000 of the LTIP awards were forfeited respectively based on the determined or estimated monetary amount as at the forfeiture date.

The following table presents the share-based compensation expenses recognized under the LTIP awards:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Research and development expenses	5,491	6,398
Selling and administrative expenses	1,811	3,203
Cost of revenue	389	279
	7,691	9,880
Recorded with a corresponding credit to:
Liability	630	2,844
Additional paid-in capital	7,061	7,036
	7,691	9,880

For the six months ended June 30, 2025 and 2024, US$751,000 and US$12,424,000 were reclassified from liability to additional paid-in capital respectively upon LTIP awards reaching the determination date. As at June 30, 2025 and December 31, 2024, US$1,266,000 and US$1,443,000 were recorded in liabilities respectively.

As at June 30, 2025, the total unrecognized compensation cost was approximately US$14,833,000, which considers expected performance targets and the amounts expected to vest, and will be recognized over the requisite periods.

14. Revenue

The following table presents revenue disaggregated by contract type:


	Six Months Ended June 30, 2025
	Oncology/Immunology	Other Ventures	Total

	(in US$’000)
Invoiced Goods —Marketed Products	47,744	—	47,744
—Distribution	—	134,230	134,230
Services —Commercialization of Marketed Products	19,985	—	19,985
License & Collaborations —Services	14,201	—	14,201
—Royalties	31,310	—	31,310
—Licensing	12,090	—	12,090
—Manufacturing supply	18,117	—	18,117
	143,447	134,230	277,677

Third parties	143,447	133,503	276,950
Related parties (Note 17(i))	—	727	727
	143,447	134,230	277,677


	Six Months Ended June 30, 2024
	Oncology/Immunology	Other Ventures	Total

	(in US$’000)
Invoiced Goods —Marketed Products	64,667	—	64,667
—Distribution	—	137,044	137,044
Services —Commercialization of Marketed Products	28,222	—	28,222
—Research and Development	236	—	236
License & Collaborations —Services	35,740	—	35,740
—Royalties	34,907	—	34,907
—Manufacturing supply	4,865	—	4,865
	168,637	137,044	305,681

Third parties	168,401	135,042	303,443
Related parties (Note 17(i))	236	2,002	2,238
	168,637	137,044	305,681

The following table presents liability balances from contracts with customers:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Deferred revenue
Current—Oncology/Immunology segment (note (a))	46,541	50,007
Current—Other Ventures segment (note (b))	302	64
	46,843	50,071
Non-current—Oncology/Immunology segment (note (a))	30,785	48,432
Total deferred revenue (note (c) and (d))	77,628	98,503

Notes:

(a)

Oncology/Immunology segment deferred revenue relates to unamortized upfront and milestone payments, invoiced amounts for royalties where the customer has not yet completed the in-market sale and advance consideration received for cost reimbursements which are attributed to research and development services that have not yet been rendered as at the reporting date.

(b)	Other Ventures segment deferred revenue relates to payments in advance from customers for goods that have not been transferred and services that have not been rendered to the customer as at the reporting date.

(c)	Estimated deferred revenue to be recognized over time as from the date indicated is as follows:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Not later than 1 year	46,843	50,071
Between 1 to 2 years	20,826	39,288
Between 2 to 3 years	5,337	4,084
Between 3 to 4 years	966	1,095
Later than 4 years	3,656	3,965
	77,628	98,503

(d)	As at January 1, 2025, deferred revenue was US$98.5 million, of which US$30.7 million was recognized during the six months ended June 30, 2025.

15. Research and Development Expenses

Research and development expenses are summarized as follows:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Clinical trial related costs	38,019	55,728
Personnel compensation and related costs	30,063	36,858
Other research and development expenses	3,908	2,670
	71,990	95,256

Research and development expenses include expenditures for collaborative arrangements under ASC 808 to evaluate the combination of the Group’s drug compounds with the collaboration partners’ drug compounds. For the six months ended June 30, 2025 and 2024, the Group has incurred research and development expenses of US$3.2 million and US$4.1 million respectively, related to such collaborative arrangements.

16. Gain on Divestment of an Equity Investee

On April 25, 2025, the Group completed the divestment of an aggregate 45% equity interest out of 50% in SHPL to third parties for cash consideration of US$608.5 million (RMB4.5 billion), including an aggregate 35% equity interest to two China-based private-equity funds (“PE Buyers”) and 10% equity interest to the parent company of the existing 50% SHPL joint venture partner. In regard to the sales and purchase agreements with the PE Buyers, they include a profit guarantee clause with contingent payments capped at US$94.6 million (RMB696 million) based on growth targets for the 3 years up to 2027. As of the date of disposal, the Group recognized a provision for profit guarantee of US$75.8 million, which was the present value of the estimated profit guarantee to the PE Buyers. As at June 30, 2025, provision for profit guarantee was US$79,085,000 of which US$3,105,000 and US$75,980,000 were included in other payables and other non-current liabilities respectively and reflects interest accretion and foreign exchange. Any subsequent changes to estimated profit guarantee and accretion of the discount on the provision will be recognized in the gain on divestment of an equity investee.

The Group has the rights to nominate one director out of seven on SHPL’s board of directors, thus the Group continues to have significant influence and accounts for its remaining 5% equity interest in SHPL using the equity method of accounting.

The gain on divestment of an equity investee was recognized in the condensed consolidated statement of operations as follows:


		Six Months Ended June 30, 2025
		(in US$’000)
Proceeds		608,503
Less: Provision for profit guarantee		(75,829)
Interest accretion on provision for profit guarantee		(1,110)
Carrying amount of 45% equity interest in SHPL		(48,680)
Accumulated other comprehensive income and reserves		(2,733)
Transaction costs and others		(2,695)
Gain on divestment of an equity investee		477,456
Less:Tax expenses		(61,133)
Gain on divestment of an equity investee, net of tax		416,323

17. Significant Transactions with Related Parties and Non-controlling Shareholders of Subsidiaries

The Group has the following significant transactions with related parties and non-controlling shareholders of subsidiaries, which were carried out in the normal course of business at terms determined and agreed by the relevant parties:

(i)

Transactions with related parties:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Sales to:
Indirect subsidiaries of CK Hutchison Holdings Limited (“CK Hutchison”)	—	4
An equity investee	727	1,998
	727	2,002
Revenue from research and development services from:
An equity investee	—	236
Purchase from:
An equity investee	1,795	1,452
Rendering of management services from:
An indirect subsidiary of CK Hutchison	519	535

(ii)

Balances with related parties included in:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Accounts receivable—related parties
An equity investee (note (a))	405	452
Amounts due from related parties
An equity investee (note (a) and (b))	50,662	7,899
Accounts payable—related parties
An equity investee (note (a))	647	—
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (c) and (e))	1,929	1,928
An equity investee (note (a) and (d))	73	88
	2,002	2,016
Other non-current liabilities
An equity investee (note (d))	109	142
An indirect subsidiary of CK Hutchison (note (e))	6,650	6,475
	6,759	6,617

Notes:

(a)

Balances with related parties are unsecured, repayable on demand and interest-free. The carrying values of balances with related parties approximate their fair values due to their short-term maturities, excluding non-current portion of the dividends receivable which has been discounted. No allowance for credit losses has been made for amounts due from related parties for the six months ended June 30, 2025 and the year ended December 31, 2024.

(b)	As at June 30, 2025 and December 31, 2024, dividend receivable of US$50,002,000 and US$6,795,000 was included in amounts due from related parties respectively.

(c)	Amounts due to indirect subsidiaries of CK Hutchison are unsecured, repayable on demand and interest-bearing if not settled within one month.

(d)	Includes other deferred income representing amounts recognized from granting of commercial, promotion and marketing rights.

(e)

As at June 30, 2025 and December 31, 2024, a branding liability payable of US$1,538,000 was included in amounts due to related parties under other payables, accruals and advance receipts. As at June 30, 2025 and December 31, 2024, US$6,650,000 and US$6,475,000 of the branding liability payable was included in other non-current liabilities respectively.

(iii)

Transactions with non-controlling shareholders of subsidiaries:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Sales	26,991	29,395
Purchases	355	127
Dividends declared	—	1,000
Distribution service fee	107	108

(iv)

Balances with non-controlling shareholders of subsidiaries included in:


	June 30,	December 31,
	2025	2024

	(in US$’000)
Accounts receivable	7,165	8,084
Accounts payable	98	77
Other payables, accruals and advance receipts	327	427

18. Income Taxes


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Current tax
HK	1	1
PRC	62,982	868
US and others	26	86
Total current tax	63,009	955
Deferred income tax expense	153	1,931
Income tax expense	63,162	2,886

The reconciliation of the Group’s reported income tax expense to the theoretical tax amount that would arise using the tax rates of the Company against the Group’s income/(loss) before income taxes and equity in earnings of an equity investee is as follows:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Income/(loss) before income taxes and equity in earnings of an equity investee	495,592	(4,756)
Tax calculated at the statutory tax rate of the Company	81,773	(785)
Tax effects of:
Different tax rates applicable in different jurisdictions	2,115	625
Tax valuation allowance	7,783	6,513
Preferential tax rate difference	(865)	(32)
Preferential tax deduction and credits	(8,348)	(8,405)
Different tax rates applicable to gain from divestment of an equity investee	(17,647)	—
Expenses not deductible for tax purposes	5,146	7,548
Utilization of previously unrecognized tax losses	(65)	(3)
Withholding tax on undistributed earnings of PRC entities	(66)	1,670
Income not subject to tax	(5,027)	(2,852)
Temporary difference	(1,762)	(1,615)
Others	125	222
Income tax expense	63,162	2,886

19. Earnings Per Share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing net income attributable to the Company by the weighted average number of outstanding ordinary shares in issue during the period. Treasury shares held by the Trustee are excluded from the weighted average number of outstanding ordinary shares in issue for purposes of calculating basic earnings per share.


	Six Months Ended June 30,
	2025	2024
Weighted average number of outstanding ordinary shares in issue	857,038,725	856,030,704
Net income attributable to the Company (US$’000)	454,954	25,801
Basic earnings per share attributable to the Company (US$ per share)	0.53	0.03

(ii) Diluted earnings per share

Diluted earnings per share is calculated by dividing net income attributable to the Company by the weighted average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding during the period. Dilutive ordinary share equivalents include shares issuable upon the exercise or settlement of share options and LTIP awards issued by the Company using the treasury stock method.


	Six Months Ended June 30,
	2025	2024
Weighted average number of outstanding ordinary shares in issue	857,038,725	856,030,704
Effect of share options and LTIP awards	15,525,788	16,503,762
Weighted average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding	872,564,513	872,534,466
Net income attributable to the Company (US$’000)	454,954	25,801
Diluted earnings per share attributable to the Company (US$ per share)	0.52	0.03

20. Segment Reporting

The Group’s operating segments are as follows:

(i)	Oncology/Immunology: focuses on discovering, developing, and commercializing targeted therapies and immunotherapies for the treatment of cancer and immunological diseases. Oncology/Immunology is further segregated into two core business areas:

(a)

R&D: comprises research and development activities covering drug discovery, development, manufacturing and regulatory functions, out-licensing of in-house developed drugs, as well as administrative activities to support research and development operations; and

(b)

Marketed Products: comprises the invoiced sales, marketing, manufacture and distribution of drugs developed from research and development activities including out-licensed marketed products.

(ii)	Other Ventures: comprises other commercial businesses which include the sales, marketing, manufacture and distribution of other prescription drugs and healthcare products.

In general, revenue, cost of revenue and operating expenses are directly attributable, or are allocated, to each segment. The Company allocates costs and expenses that are not directly attributable to a specific segment mainly on the basis of headcount or usage, depending on the nature of the relevant costs and expenses. The Company does not allocate assets to its segments as the chief operating decision maker does not evaluate the performance of segments using asset information.

The performance of the reportable segments is assessed based on segment net income attributable to the Company.

(i)Segment information:


	Six Months Ended June 30, 2025
	Oncology/Immunology
		Marketed		Other
	R&D	Products	Subtotal	Ventures	Unallocated	Total

	(in US$’000)
Revenue from external customers	44,408	99,039	143,447	134,230	—	277,677
Cost of revenue	—	(38,223)	(38,223)	(129,354)	—	(167,577)
Research and development expenses	(71,990)	—	(71,990)	—	—	(71,990)
Selling expenses	—	(11,828)	(11,828)	(2,045)	—	(13,873)
Administrative expenses	(14,599)	(1,564)	(16,163)	(2,222)	(9,366)	(27,751)
Gain on divestment of an equity investee	—	—	—	477,456	—	477,456
Interest income	509	—	509	57	19,023	19,589
Interest expense	(1,033)	—	(1,033)	(257)	(175)	(1,465)
Equity in earnings of an equity investee, net of tax	—	—	—	23,125	—	23,125
Income tax expense	(394)	(67)	(461)	(61,614)	(1,087)	(63,162)
Other segment items	(2,612)	(74)	(2,686)	928	4,683	2,925
Net (loss)/income attributable to the Company	(45,711)	47,283	1,572	440,304	13,078	454,954
Depreciation/ amortization	(5,602)	(422)	(6,024)	(51)	(43)	(6,118)
Additions to non-current assets (other than financial instruments and deferred tax assets)	5,649	10,000	15,649	150	—	15,799


	Six Months Ended June 30, 2024
	Oncology/Immunology
		Marketed		Other
	R&D	Products	Subtotal	Ventures	Unallocated	Total

	(in US$’000)
Revenue from external customers	40,841	127,796	168,637	137,044	—	305,681
Cost of revenue	—	(48,458)	(48,458)	(131,677)	—	(180,135)
Research and development expenses	(95,256)	—	(95,256)	—	—	(95,256)
Selling expenses	—	(24,817)	(24,817)	(2,534)	—	(27,351)
Administrative expenses	(16,395)	(341)	(16,736)	(2,346)	(11,378)	(30,460)
Interest income	418	—	418	116	20,040	20,574
Interest expense	(914)	—	(914)	(362)	(200)	(1,476)
Equity in earnings of an equity investee, net of tax	—	—	—	33,807	—	33,807
Income tax expense	(579)	(530)	(1,109)	(97)	(1,680)	(2,886)
Other segment items	4,048	(455)	3,593	198	(488)	3,303
Net (loss)/income attributable to the Company	(67,837)	53,195	(14,642)	34,149	6,294	25,801
Depreciation/ amortization	(6,076)	—	(6,076)	(130)	(46)	(6,252)
Additions to non-current assets (other than financial instruments and deferred tax assets)	3,763	—	3,763	1,929	1,234	6,926


	June 30, 2025
	Oncology/Immunology
		Marketed		Other
	R&D	Products	Subtotal	Ventures	Unallocated	Total

	(in US$’000)
Total assets	209,654	104,056	313,710	156,150	1,306,080	1,775,940
Property, plant and equipment	94,080	—	94,080	415	78	94,573
Right-of-use assets	1,730	—	1,730	1,317	832	3,879
Leasehold land	10,883	—	10,883	—	—	10,883
Intangible asset (note)	—	9,647	9,647	—	—	9,647
Goodwill	—	—	—	3,064	—	3,064
Investment in an equity investee	—	—	—	3,645	—	3,645
Investment in equity security	5,000	—	5,000	—	—	5,000

Note: During the six months ended June 30, 2025, Tazemetostat was granted approval by the National Medical Products Administration of China for the treatment of adult patients with relapsed or refractory follicular lymphoma with EZH2 mutation, triggering a US$10 million milestone payment, and a corresponding intangible asset was recognized.


	December 31, 2024
	Oncology/Immunology
		Marketed		Other
	R&D	Products	Subtotal	Ventures	Unallocated	Total

	(in US$’000)
Total assets	225,661	88,502	314,163	194,604	765,429	1,274,196
Property, plant and equipment	91,929	—	91,929	448	121	92,498
Right-of-use assets	1,845	—	1,845	1,615	1,037	4,497
Leasehold land	10,706	—	10,706	—	—	10,706
Goodwill	—	—	—	2,990	—	2,990
Investment in an equity investee	—	—	—	77,765	—	77,765
Investment in equity security	5,000	—	5,000	—	—	5,000

Unallocated expenses mainly represent corporate expenses which include corporate administrative costs, corporate employee benefit expenses and the relevant share-based compensation expenses, net of interest income. Unallocated assets mainly comprise cash and cash equivalents and short-term investments.

(ii)Geographic information:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Revenue from external customers:
PRC	205,120	229,069
US and Others	72,557	76,612
	277,677	305,681


	June 30, 2025			December 31, 2024
	PRC	US and Others	Total	PRC	US and Others	Total

	(in US$’000)
Total assets	1,716,982	58,958	1,775,940	1,212,722	61,474	1,274,196
Property, plant and equipment	94,030	543	94,573	91,849	649	92,498
Right-of-use assets	3,252	627	3,879	4,086	411	4,497
Leasehold land	10,883	—	10,883	10,706	—	10,706
Intangible asset	9,647	—	9,647	—	—	—
Goodwill	3,064	—	3,064	2,990	—	2,990
Investment in an equity investee	3,645	—	3,645	77,765	—	77,765
Investment in equity security	5,000	—	5,000	5,000	—	5,000

(iii)Other information:

A summary of customers which accounted for over 10% of the Group’s revenue for the six months ended June 30, 2025 and 2024 is as follows:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Customer A	72,557	76,612
Customer B	32,513	45,396

Customer A and B are included in Oncology/Immunology.

21. Note to Condensed Consolidated Statements of Cash Flows

Reconciliation of net income for the period to net cash used in operating activities:


	Six Months Ended June 30,
	2025	2024

	(in US$’000)
Net income	455,555	26,165
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization	6,118	6,252
Share-based compensation expense—share options	1,552	1,432
Share-based compensation expense—LTIP	7,691	9,880
Equity in earnings of an equity investee, net of tax	(23,125)	(33,807)
Gain from divestment of an equity investee	(477,456)	—
Dividends received from an equity investee	6,987	—
Other adjustments	2,606	709
Changes in operating assets and liabilities
Accounts receivable	8,596	(39,879)
Other receivables, prepayments and deposits	(4,943)	(393)
Amounts due from related parties	204	228
Inventories	2,095	3,636
Accounts payable	1,204	7,071
Other payables, accruals and advance receipts	(37,433)	(4,410)
Deferred revenue	(22,718)	(16,363)
Others	173	(353)
Total changes in operating assets and liabilities	(52,822)	(50,463)
Net cash used in operating activities	(72,894)	(39,832)