Hua领 Pharmaceuticals Terminates Commercialization Partnership with Bayer for Dorzagliatin, Having Secured RMB 1.5 Billion in Milestone Payments

On November 22, Hua Medicine issued an announcement, stating that on November 21, 2024, its wholly-owned subsidiary, Hua Medicine (Shanghai), sent a written notice to Bayer. The notice expressed the intention to transition the commercialization responsibilities of its self-developed first-in-class glucokinase activator, Huatangning (dorzagliatin tablets), used for treating type 2 diabetes, in China from January 1, 2025, to Hua Medicine.

To facilitate the transition, the company has the right and plans to terminate the agreement effective January 1, 2025. From the date of this announcement until the effective termination date, Bayer and the company will continue to fulfill their obligations under the agreement and commit to initiating a friendly, patient-centered transition plan.To support the continuous commercial sales of Hua Tang Ning in China, the company may seek other potential partners for the commercialization of Hua Tang Ning in China.

On August 17, 2020, Bayer and Hua Medicine established a strategic partnership and reached a commercial cooperation agreement in China for the novel diabetes treatment drug Huatangning, granting Bayer the exclusive commercialization rights for Huatangning in China.To date, Hua Medicine has received milestone payments from Bayer totaling 1.5 billion yuan.This funding will be used to build a self-owned sales team and expand overseas business, further enhancing Hua Medicine's competitiveness in the global diabetes treatment field.

Dorzagliatin is the world's first approved glucokinase (GK) activator drug, the first original new drug with a completely new mechanism in the diabetes field in the past decade, and also the world’s first innovative new drug for type 2 diabetes initially launched in China.

Hua Medicine has independently developed this globally pioneering GKA drug based on the original scientific concept of "repairing glucose sensing, restoring homeostasis, and treating diabetes at its source." The drug targets glucokinase (GK), the human blood glucose sensor, and acts on glucose storage and output organs such as the pancreas, intestines, and liver, improving impaired GK function in patients with type 2 diabetes, thereby enhancing β-cell function and reducing insulin resistance. Thus, it possesses a mechanism of action that restores physiological regulation of blood glucose balance and is expected to control the progression of type 2 diabetes and the occurrence of complications from the source.

In October 2020, Dorzagliatin was approved for marketing by the NMPA. Its two indications include monotherapy for patients with type 2 diabetes who have not been treated with medication, or combination therapy with metformin for adult patients with type 2 diabetes whose blood glucose is not well controlled by metformin alone.For patients with renal insufficiency, no dose adjustment is required. It is an oral hypoglycemic agent that can be used for type 2 diabetes patients with moderate to end-stage renal impairment and has unique advantages in the treatment of diabetic nephropathy.

As the first novel mechanism drug in the diabetes field in 10 years, the clinical data of Dorzagliatin has received widespread global attention. Its Phase II clinical research results were published in *The Lancet Diabetes & Endocrinology*; *Nature Medicine* simultaneously published peer-reviewed papers on its two Phase III studies, detailing and describing the results of monotherapy (SEED study) and combination therapy with metformin (DAWN study) for the treatment of type 2 diabetes.

In terms of combination therapy, the effect of using dorzagliatin in conjunction with empagliflozin (SGLT-2 inhibitor) and sitagliptin (DPP-4 inhibitor) is better than using them alone, which is expected to improve blood glucose control and islet function in patients with type 2 diabetes more effectively.

In addition, Hua Medicine is also exploring more possibilities of dorzagliatin, conducting clinical research in diabetes prevention, and investigating its benefits in the prevention of endocrine and neurodegenerative diseases.

According to the terms of the agreement, in 2020, Hua Medicine received an upfront payment of RMB 300 million. In January 2023, following NDA approval and successful completion of the first commercial sale, Hua Medicine received a payment of RMB 400 million. Additionally, Hua Medicine is eligible to receive up to RMB 3.78 billion in sales milestone payments. Hua Medicine will pay service fees to Bayer based on a certain percentage of net sales in China, initially sharing revenue equally. The revenue-sharing ratio will be adjusted accordingly once net sales in China reach the agreed-upon level. Furthermore, Hua Medicine will continue to act as the Marketing Authorization Holder (MAH) for dorzagliatin, being responsible for clinical development, registration, product supply, and distribution.

According to the approved market launch press release, Ms. Zhou Xiaolan, Global Executive Vice President of Bayer AG's Pharmaceuticals Division and President of Bayer Greater China, mentioned, "Bayhua® will work together with Glucobay® (Acarbose) — the first oral hypoglycemic drug with an impaired glucose tolerance (IGT) indication — and Continuous Glucose Monitoring Systems (CGMs) to establish comprehensive disease management for Chinese patients with type 2 diabetes, ranging from prevention to treatment, achieving the goal of 'steady-state glycemic control' through real-time blood glucose monitoring. Meanwhile, Bayer will actively explore digital solutions."

As a classic oral hypoglycemic agent commonly used by diabetes patients, Glucobay has been on the market in China for over 25 years. In 2020, Bayer's Glucobay® hit the second round of China’s national centralized procurement with the "lowest global price" of 0.1807 yuan per tablet, dropping from the original price of 65 yuan per box to 5 yuan per box, successfully winning the procurement bid. For a well-established brand with years of market presence, strong reputation among doctors and patients, and the ability to generate stable cash flow, securing a position in the centralized procurement market is crucial.

However, Bayer stated in its 2020 annual report that the inclusion of its best-selling drug Bay Glucobay in China's second round of centralized procurement had a negative impact on the company's performance. The full-year revenue in the Asia-Pacific region was $6.8 billion, a year-on-year decrease of 6.3%.Therefore, as an innovative diabetes drug with global first-in-class and novel mechanisms, Hua Tangning, which has a more competitive price, can undoubtedly become the "perfect partner" for Bayer's Bay Tangping.

After the 2023 National Medical Insurance Negotiation, Hua Medicine's Bayinling® (Dorzagliatin Tablets) was included in the National Medical Insurance Drug List, with the price per tablet decreasing from 5.54 yuan to 5.39 yuan. Unexpectedly, Dorzagliatin gained popularity through a short video showing the intense "soul-cutting" price negotiation of 5.52 yuan during the “I Love You” medical insurance talks.

Before entering the medical insurance, the price of Dorzagliatin was about 420 yuan/box, with a reduction of 64.1% in this adjustment.In total, taking 2 tablets of Dorzagliatin per day, with each tablet costing 5.39 yuan, results in a daily cost of 10.78 yuan, corresponding to an annual cost of 3935 yuan.This price is 46% higher than the most expensive oral hypoglycemic drug previously listed in the medical insurance directory.After the pricing was announced, market feedback suggested that this price met expectations and was an ideal pricing.

In fact, before being included in the medical insurance, Hua Medicine's flagship product, dorzagliatin, had already achieved commendable commercial success.

VCBeat once analyzed the sales of domestically listed oral hypoglycemic drugs in the first half of 2023. Among the top 20 brands sold in online pharmacies, AstraZeneca's Dapagliflozin Tablets, Merck's Metformin Hydrochloride Tablets, and Hua Medicine's Dorzagliatin Tablets ranked in the top three. Dorzagliatin, which has been on the market for less than a year, has already broken into the top three. Among numerous imported drugs, this innovative Class 1 drug produced in China is particularly precious and has secured a place in the highly competitive landscape of diabetes treatment.

According to the previous cooperation agreement, Hua Medicine, as the drug marketing authorization holder, will be responsible for clinical research, drug registration, drug supply, and distribution; Bayer, as the promotion service provider, will be responsible for the product's marketing, promotion, and medical education activities in China.Hua Medicine's collaboration model with Bayer is a 50-50 split, and the funds obtained are sufficient to cover the cost of building their own sales team while generating additional profits for the company.

Relying on the close cooperation with Bayer, the sales network of Dorzagliatin has successfully covered three major channels: online pharmacies, retail pharmacies, and hospital pharmacies, achieving a significant increase in sales revenue.At the same time, after entering the medical insurance, dorzagliatin has established a strong hospital channel network in China, covering more than 2,000 hospitals, especially with the densest coverage in city hospitals such as Beijing, Tianjin, and Shanghai.

The hospital channel network has laid a solid foundation for the continuous increase in medical insurance coverage. As of June 30, 2024, more than 2,100 hospitals and over 2,900 pharmacies have prescribed Hua Medicine's Huatangning®, compared to 143 hospitals and 1,080 pharmacies in the first half of 2023.

In the first half of 2024, the sales volume of Hua Medicine's Huatangning® reached 846,000 boxes, a significant increase from 212,000 boxes in the same period last year.Among them, the main sales are through hospitals (accounting for about 72% of total sales), the rest are through pharmacies (accounting for about 20% of total sales) and online drugstores (accounting for about 8% of total sales).

According to the semi-annual report, Hua Medicine's sales revenue in the first half of 2024 was RMB 1.027 billion, representing a 46.0% increase compared to the same period last year.Since its launch, Hua Medicine's Huatangning® has generated a total revenue of RMB 1.969 billion in China.In the first half of 2024, the gross profit margin was 46.5%, a decrease compared to 62.6% in the first half of 2023 and 48.8% for the whole year of 2023. With the continuous increase in medical insurance volume and improved production capacity, Hua Medicine expects the gross profit margin to recover.

To date, Hua Medicine has received milestone payments from Bayer totaling RMB 1.5 billion.This funding will be used to build a self-owned sales team and expand overseas business, further enhancing Hua Medicine's competitiveness in the global diabetes treatment field.