Hua Medicine (Shanghai) Ltd. (2552) Earnings Call Transcript & Summary

Before we kick up the session, I would like to highlight that this call is strictly for clients of Goldman Sachs and Hua Medicine only. And this conversation is not intended for the media and is off the record. Participants will be removed from the call if they cannot be properly identified and this webcast is not for the purpose sharing or receiving nonpublic otherwise confidential information. And attendees or public and market participants who may not receive or request nonpublic, otherwise confidential information about issuers or securities or about the markets for securities. So during today's call, Hua Medicine management team, including the Co-Founder and CEO, Dr. Li Chen; and the EVP and CFO, Mr. George Lin. So company is going to give us a briefing on the results, particularly Hua Medicine's, this is its first year into commercialization. So there has been a lot of updates here and also in terms of R&D progress. And then we're going to open the line for Q&A. If you have any questions, you can raise your hand in the Zoom app and we can definitely connect you into the call or you can actually type your questions into a Q&A box, and we can answer the questions on behalf of you. Now I'm going to turn the call to the management team to get started. Dr. Chen, please.

Okay. Thank you, everyone. Thanks, Ziyi, organizing this conference. Pleasure to meet you, discussing Hua Medicine's 2022 Annual Results. And this disclaimer as we are Hong Kong Stock Exchange listed company. And a quick overview on our business. I think starting from April 2021, our NDA for type 2 diabetes submission got accepted. And then we gone through a series...

Hey, Doctor, I think we are losing you.

Dr. Chen, you might want to stop the -- your video sharing that will increase your bandwidth. Still we can't really hear you.

Yes, probably before Dr. Chen can fix that, George, you want to continue?

Yes, I can do this. So very quickly, you can see that in -- starting in April 2021, as Dr. Chen was saying, our NDA was accepted by the Chinese NMPA. We presented a lot of data, as you can see at the ADA. Most significantly was that dorzagliatin can regulate GLP release in addition to the activation on GKA. In preparation of approval, we signed a supply chain strategic cooperation agreement with Sinopharm. And then very importantly, is everybody knows that GKA focuses on glucokinase, which is on the beta cell, but what's the benefit of improving beta cell function? Well, the benefit is that we were the only drug that's showing a controlled trial remission rate, we reached 65% and we announced this as well. A lot more preparation for commercialization, such as the increasing scale of manufacturing with WuXi STA as well as publishing in Nature Medicine as we continued to await approval from the NMPA. And then in October 2022, the approval for the NDA came, as you guys have seen, very broad label actually, approved for 2 indications and 3 allowances. We'll talk about that. And very quickly, which is, I think, one of the fastest, especially for a chronic disease, oral drug introduction in China, we were able to get it onto the market in less than a month. So by the end of October, we were able to launch. In addition, we acquired this new company called AscendRare based in Nanjing, but the founder is actually one of our old friends from UPenn Medical School, we worked with Franz Matschinsky, the Godfather, GKA. He's working on GK inhibitors in rare diseases. And so this was a very great opportunity for us to do that. In January 2023, we received additional milestone payments as we've announced in our press release of RMB 400 million from Bayer. So this bolsters our cash position. We'll talk about that. And in January 2023, right before Chinese New Year, we were able to resume normal commercialization because actually, our first batch that we launched and put on the market in early October, that actually was basically within the first week. We knew that we would have problem meeting the demand. So we actually put it on a controlled sales. And we announced -- in February, we announced the first 4 months of sales -- or the first 3 months of sales, so effectively November, December and January, that we had sold 148,000 packs, which ends up being a recorded revenue of RMB 49 million. That's unaudited number, and it does include 1 month in 2023. So different from the financial year 2022 results, but this gives you a sense of the momentum, and we can go into more detail about that. Dr. Chen, are you back? Yes. Still can't hear you. Maybe you want to dial back in on your phone for the voice. But as -- I'll just continue. But as we all know, the key thing about diabetes is there's a misperception that this drug -- this disease is taken care of. But actually, it's a global unmet medical need, right, as we've talked about in the past. I mean, there's 8 classes of drugs not counting insulin and not counting GKA, but if there's so many new drugs after insulin, why is insulin still the largest market share of drugs? Why are people still concerned about accessibility of insulin? It's because a lot of these products don't focus on the underlying cause of diabetes. And so at the end, their efficacy is going to wear off and you're going to end up with insulin. All of them are designed to actually treat the symptom of diabetes, which, of course, is important but the key beauty of the glucokinase activator is that this is the first time that a drug is designed to try to restore your autonomous ability to restore blood sugar levels. And so these charts all kind of show you that despite the fact that people think diabetes is under control, expenses are going up, population of diabetic patients, especially in emerging markets, is skyrocketing. And it's all due to this loss of glucose homeostasis, right, which, if you have a broken glucose sensor, then of course, you're not going to be able to maintain glucose homeostasis in an optimal time frame. Next slide. [ Dr. Chen] Next slide whoever is in control. Yes. Okay. So again, we kind of touched on this earlier, but you can see that dorzagliatin is a differentiated first-in-class antidiabetic drug. And the key thing is that it focuses on the glucose sensor by increasing glucose sensitivity of the diseased patients, right, who have lost glucose sensitivity. By doing so, it improves beta cell function. But in all of our published reports in Nature Medicine and Phase III trials in the land set even from Phase II, we've been able to show that this improvement in beta cell comes with it, a very important element, which is insulin resistance decline. So we're able to actually decrease the insulin resistance of patients, which is another hallmark of type 2 diabetes. In addition, as we look and mine into our data, we've noticed that actually glucokinase actually is beneficial in GLP-1 secretion. So GLP-1 is obviously a very important, currently new drug class. But those are exogenous GLP-1 that comes with it associated side effects, such as nausea, diarrhea, vomiting, et cetera, for about 20% of the patients that take it. Actually, what we're talking about here is inducing the body to secrete endogenous GLP-1. Of course, this is all a function of glucose level sensing. And so there's a lot of published reports that you can get on our website or you can contact our IR to look at the data that we've actually published, which is very interesting. The latest one, by the way, was just published, I think, in March or February, indicating our combination with sitagliptin and goes extensively into the GLP-1 as well. Next slide. Again, the way to actually induce remission in type 2 diabetes is actually improving early phase insulin secretion. This is one of the key factors in glycemic remission. And it's one of the things that is missing from all the other classes of drugs that we were talking about. So nobody else has been able to induce remission. And remember, just to clarify again, right, for us, the remission was over a 52-week period for patients in our Phase III monotherapy trial. These are earlier phase -- our earlier phase type 2 diabetic patients that participated in our Phase III trial, either on the drug for 28 weeks or 52 weeks, they were in remission for a following 52 weeks without any drug. So that's a 65% remission rate versus actually all the other drugs have done this in other trials and have not been able to do it. The only study that has been able to show some sort of remission is actually this DiRECT study, which requires significant weight loss, weight loss of 15 kilogram, that's actually quite difficult for most people to do. But we've seen that with surgery, for example, bariatric surgery and significant weight loss could actually induce diabetes remission, but no other drug has been able to prove this. And this chart here, this first phase insulin response was actually part of our data, but you can see actually, it does improve this first phase insulin response. So the people that were able to do this actually corresponded quite directly with remission. Next slide. Again, this is more data that we've seen that we've been able to mine in our -- both our SEED and DAWN studies for effective glycemic control, 43% to 45% which is really, really great for an oral drug when you compare it against all the other available oral drug available. And -- Dr. Chen?

So now can you hear me?

Much better. Yes.

Okay.

You go ahead.

Thank you.

There seems to be an echo.

Yes.

That's better now.

Right. And here, we are talking about the different indications where the overall objective for having dorzagliatin and advance it into the market, really representing a novel breakthrough from the drug, which is approved by NMPA and then one of the very important factor that the current NMPA is fully committed to the ICH guidelines and also conducting clinical studies, adopting the close to 95% of the ICH-related processes. So I think this approval also represent an opportunity and the capability in China in the regulatory agency tool review and approve a globally first-in-class molecule in China. And so it is not just a breakthrough to treat diabetes through restoring the impaired gluco-homeostasis, a very novel concept that George has basically discussed before. It is also showing that we are moving into the right direction of controlling diabetes. It's not just lowering the blood glucose, reduce your body weight, is to restore the biophysiological function of our body to control the blood glucose and then we can reach the remission without medication. So that's a very important step forward, and this has happened in China. Now with this approval in the drug label, this restoring impaired gluco-homeostasis in type 2 diabetes patients are clearly written down and very well published in the NMPA website. We also get 2 indications in this pivotal Phase III study SEED and in DAWN study, where we very well designed study protocols and execution. So with one real organized practice in Phase III, we got 2 indications for monotherapy in treatment of drug-naive type 2 diabetes patients, which allow us to treat the diabetes patients who are just diagnosed and then still under the diet and exercise management, but their blood glucose need control. The other group of patients are really -- they have been using metformin for years on average in our study, roughly about 6 years on that. And then the full dose of metformin cannot control their blood glucose. For those subjects, they can add dorzagliatin [indiscernible] to metformin and then get a blood gluco control. So this is 2 indication. And then we have 3 allowances, which means that in the diabetes, kidney disease patients, we can use dorzagliatin to control the blood glucose without adjusting of the dose. As many of you know, diabetics usually develop the -- accompany the complete patients called the diabetes kidney disease. They start losing their kidney function and then toward dialysis. Now dorzagliatin did not involve in the excretion of the kidney so that the drug can be used directly for the kidney dysfunction patients without changing the medication schedules and very different for all the other antidiabetics. So that's the advantage. And then we have 2 other allowances basically allow dorzagliatin to be combined with the oral drug sitagliptin, the DPP-4 inhibitor or with the empagliflozin, the SGLT-2 inhibitors and to better control blood glucose and also improve the beta-cell function and homeostasis. So think dorzagliatin launched with a well-designed targeted price, and then now we're already getting a very good feedback from the patients who are using dorzagliatin and benefiting from the improvement of the beta-cell functions and then try to reduce the post-meal glucose and then reduce the hypoglycemia. In that way, we better control the blood glucose fluctuation and then restore the homeostasis. Now if we look at the performance in the commercialization in early this year, end of January, we basically sold 148,000 pack and then generate revenue of around RMB 50 million. I think this representing one of the best launches in history for our oral drug during the out-of-pocket self-paid stage. And I think we are also moving into the production capability expansion to further support our commercialization this year. We are doing the expansion capabilities and together with our commercial supplier, WuXi AppTec, and also our API and the commercial supplier [indiscernible] so that we will ensure the fast-ramping opportunities during the sales and commercialization, working very closely with Bayer, who expanding their sales capabilities from 100 salesperson into 500 and then pushing the hospital frontline from 500 to over 1,000. So this is the efforts that jointly between Hua Medicine and the Bayer to move our product to the hand of our patients. And also, there is another very important channel contributed to our commercialization process. This is the digital pharmaceutical business platform, Champion by the Internet drugstores. And Hua Medicine has been following the guidance from NMPA, the pharmaceutical Internet management routines and standards. And now we will be able to get HuaTangNing through Jingdong, through [indiscernible]. If you are interested, and certainly within Mainland China, you can easily go to Jingdong and then type in HuaTangNing and then get the access to the physicians online and also getting the disease discussions and so on and then getting the prescription and eventually the drug for the treatment. This symbolize another major advances in the health care system for the chronic diseases patients can subscribe and obtain the medicine in diabetes or hypertension and so on, to be accessed and getting the help from the Internet drug store. Now quickly update on our R&D pipeline with HuaTangNing approval and then the allowed indications in the CKD combination with DPP-4 and SGLT-2. I think we got 2 major indications, 3 allowances, now enter into the market that patients can get their treatment under the guidance of the physician. It is a prescription drug. And now we have 3 channels to access the drug from the hospital, from the pharmacy, from the Internet pharmacy. And I think that representing a huge advances in the R&D drug discovery development innovation in China, but also continue the reform and opportunity in the pharmaceutical market. We are, at this time, continue to look into the combinations in the fixed dose with dorzagliatin and other oral antidiabetics and then the molecules and tablets are in the preparation to getting to the R&D. Remember, any of the fixed dose combination with dorzagliatin will become a new drug. And we are working with our partners and define our development processes, and hopefully, that we'll bring in additional benefits through the fixed dose combination eventually lead to the personalized diabetes care. Now, with dorzagliatin launched, we want to bring in the second generation of dorzagliatin, where it should have a once a day therapy and also be targeted in is effectively in the Western diabetes community. As we all know, diabetes in Eastern community symbolized by losing their beta-cell function early. And then in the Western community, they start to gain weight, and then increase the insulin resistance as their fundamental cost of the disease. Given dorzagliatin acting on the pancreas and liver and it's important to manage the hepatic insulin resistance by improve the glucokinase activity and expression level in the liver, we'll able to restore the impaired insulin resistance in the type 2 diabetes patients. These kind of studies are currently in planning. And then we are advancing the second generation of GKAs into IND filing towards end of this year. We are also looking to the way of developing glucokinase as a technology platform. GKA is allosteric activator of glucokinase. It brings the glucokinase activity up when its function is down in type 2 diabetes patients. Now we find that in some patients, like the congenital hyperinsulinemia. And this type of patients, they have a high insulin secretion related to a genetic variation of high activity of glucokinase. And we are now developing molecules to regulate this type of glucokinase activity and then eventually to help the patients in the hypoglycemia arena. Now as we already discussed, we have fructokinase inhibitor program now in good shape. We have several chemical classes, recently filed our patent and are now working in the animal model to define the applications and future indications in the metabolic diseases. We are also advancing the glutamate receptor negative allosteric modulator program in the CNS indication. Animal models being developed, better reflecting the joint events from the ionic glutamate and metabolic glutamate receptors. And through the both system and how glutamate is actually contributing to the neurodegenerative diseases. And this study together with the glucokinase for hypoglycemia are currently working with Professor, Changhong Li, the CEO of AscendRare in Nanjing and then join efforts between Hua Medicine and AscendRare now is the fully owned subsidiary of Hua Medicine and continue to drive forward in the drug metabolism area. Now we'll talk a little bit on the outlook. Most of the discussions we have done in the past, but here, we summarize the outlook into 2 sessions. One is the R&D part. I think second generation of the GKA, as I already mentioned. Now we are preparing to file IND in U.S. this year. And also, we had a plan to complete the Phase 1 research next year and then eventually through this process and we'll get our business development partners together in developing this drug in U.S. and European communities. And then I discussed the glucokinase inhibitors for the rare disease, congenital hyperinsulinemia, hypoglycemia. And this is the very innovative approach that Dr. Changhong Li has championed and we felt that this fitting to our glucokinase regulation platform and then expanded our capability of managing gluco homeostasis. Now with HuaTangNing good results and also its mechanistic study recently published by Juliana Chan and Ellan Chow in diabetes this year showing dorzagliatin directly acted on GKA in [ more than ] 2 patients. And then the second study we work with Professor, Chan and Ellan Chow is called Sensitize II in which impaired gluco patients, we call the IGT patients, were involved in the study together with normal gluco-tolerant patients in this study to evaluate the difference in the endocrine and into the beta-cell function to set the basic understanding of the difference in the IGT and NGT patients. And then through the intervention of dorzagliatin will be able to develop the new indication for dorzagliatin in the diabetes prevention. And that's the research we call the IGT to NGT. In this current situation reported by International Diabetes Federation, there are somewhere between 500 million to 600 million pre-diabetics. And they share a very common disease feature that is a highly and quickly elevated post-meal glucose which we mean the impaired gluco tolerance. And the fast-rising post-meal glucose has a lot of impact in the cardiovascular system and also microvascular system that lead to the diabetes complication that George discussed at the beginning of this talk. And we believe through the combination work with dorzagliatin, we can move to the patients with moderate diabetes and eventually severe diabetes and then preventing and then delay their diabetes complication. And then for the HuaTangNing working to the IGT patients, we'll be able to prevent the progression of IGT into diabetes and also release the potential risk of the high blood gluco fluctuation in this IGT patients. Now a quick summary about our outlook in the commercialization. And I think we have a very strong sales working with Bayer and now to cover more regions and hospitals and then we're also going to work more Tier 1 distributors and provide a better contribution in the e-commerce and the net Internet-driven sales commercial as well as supporting the hospital and the regional pharmacy by the Bayer's team. We are working very hard, as a matter of fact, to increase our capacity at WuXi at the same place where dorzagliatin API is manufacturing and also expanding to a new partner [indiscernible] and to make sure our API supply can meet the needs for our patients in China and potentially in the future, the Southeast Asian regions. And that we are preparing the NRDL entry this year and then study and preparing the dossiers and the materials, prepare for the filing in June, July time frame. And then obviously, I think we are also working with many KOLs. And then the leading investigators are HuaTangNing during the Phase III, talking about post-marketing studies, so that we're able to collect more data on HuaTangNing and its benefit and safety to the patients. So I think I gave together with George, the overview and forward-looking on the business, and George will provide you the financial review.

Great. Thanks, Dr. Chen. We can go to the next slide, right. Perfect. Exciting to report that finally on our financial report, we're starting with revenue sales due to the commercialization. So that's a wonderful event for us and our shareholders who have supported us. As you've seen in the announcement, our cash balance as of the end of 12/31/'22 was RMB 490 million versus RMB 675.2 million for the previous year. One key thing look at the note at the bottom of this and also in the announcement is that in mid-January, we received another RMB 400 million of cash for approval and commercialization milestone payments that was due to us from Bayer. I remember before this collection of this milestone, there was over RMB 4 billion milestone. So this comes as one of the first ones, but that will add to our cash balance that you see here. The total cash decrease was RMB 184.6 million and the actual recorded accounting cash decline used in operation activities was RMB 230 million, split pretty evenly between R&D as well as G&A and then for the first time we actually have selling expenses, which will increase. So let's talk a little bit more about that on the next slide. So on the next slide, this is interesting, and I'll give you some data that's in the announcement so that you can see it clearly. But for the year ended 12/31/2022, we sold approximately 53,000 packs of HuaTangNing and that generated sales of about RMB 17.6 million. If you just do the math, that means that each pack is about RMB 331 per pack to us. So earlier, you had seen the retail price, what the patient would pay on online channel like Jingdong or [indiscernible] is RMB 420, but for our recording less all the distribution costs, et cetera. it's RMB 331. And the reason why I want to give you that data is going forward, we'll be reporting packs -- pack remember, is 28 pills per pack. So it's RMB 15 right now per pill. You have to take it twice a day, so it's RMB 30 per day. And remember, we haven't entered into NRDL yet. So these sales number, as Dr. Chen has mentioned, is basically unseen for an oral metabolic chronic disease drug introduction that this kind of receptivity was done. If you look at for example, for Farxiga. Farxiga was introduced in China in March 2017. Actually, RMB 15 per pill just like us. If you look at the IQVIA data for the first 4 months, it's nothing like this. The key to this kind of good sales is being able to be across all of China, which we are nationally, as Dr. Chen mentioned, already in 500 hospitals, 70 distributors in addition to that pharmacies and 2 online channels. And then taking that time before the NDA to really let people understand why this drug is different. And the patients -- if you go -- especially if you go online -- as Dr. Chen mentioned, if you go online and just type HuaTangNing, it's amazing to hear the forum that's going on and the very benign and safe and tolerable profile. So people are taking it and really, really excited that there's minimal side effects. So anyways, this is the sales through December 31, 2022. We did also publish in February sales from launch to the end of January 31, 2023. So that gives you an extra month. And for that period of time, as Dr. Chen has already mentioned, it was 148,000 packs, generating revenues of approximately RMB 49 million. So you can see actually in January, if you just subtracted to in January, you're looking at around RMB 31 million of sales that is fully out of pocket. We think this number is probably a little bit high because as Dr. Chen mentioned, when we launched the drug within the first week, we knew that we did not have enough initial supply to be able to keep on ensuring continuous supply for those patients that are going to take it every day. So we restricted new patients from -- select new patients from getting the drug until we can ensure that supply. And then that supply and manufacturing batch, as Dr. Chen had already mentioned, came right before Chinese New Year, mid-January. And so it was very, very high pent-up demand. But that gives you a sense of kind of the sales and the receptivity that we're getting across the entire country, which is really, really rewarding for us. The gross profit, this number will keep on changing because the sales revenue was quite low for the year 2022. But of course, we have to invest a lot in building up our inventory, and we're building up a lot more capabilities and a lot more investment in working capital as Dr. Chen and the team negotiate about potentially entering the national reimbursement list, we can't tell you certainty that will end up in it. It all depends on the pricing. But of course, in anticipation of that, the sales would increase substantially. But this gross profit right now, I think, is not really meaningful just because we only had 2 months of official commercial launch and even during that period, it was restricted sales of our certification batches right, the 53,000 packs. So that gives you some sense of the revenue and the gross profit. Again, we look forward to reporting our commercial sales in the half year report, which should be quite exciting as well. On the next slide, selling expenses of RMB 15.3 million. If you look at how we piece it, RMB 5.8 million is for employee compensation. That's actually our team. That will increase, but it will plateau at some point. The RMB 8.2 million is the partnership with Bayer, right? So the partnership with Bayer, this will continue to increase with sales and the 1.3 again, will plateau. These will not be as significant, what will be significant will be this promotion expense because effectively, we're using Bayer's commercial force to really penetrate deeply throughout all of China and their hospitals and the pharmacies and be able to do that. Our R&D, a lot of our R&D will be decreasing. So this is good. So you'll see this trend. We will -- we expect to decrease probably a little bit more, but also hit our plateau as we invest in the glucokinase programs with AscendRare are as well as working on our second generation, working on our low-dose IGT to NGT items. Those will be R&D. But in terms of like the manufacturing and for HuaTangNing, dorzagliatin in the past, those expenses are done with the approval. And now a lot of the CMC is actually all embedded in cost, right? So going forward, this is how you should look at it for us. And then the last slide, the next slide is administrative expenses of RMB 129 million. This will remain fairly stable. We don't expect to really ramp up on this. We don't need to, given that Bayer is absorbing a lot of the sales cost, our infrastructure is in place. So this will continue to remain fairly stable around this RMB 120 million sort of range going forward. I guess as -- to conclude, as Dr. Chen mentioned, 2023 will be a year of investment in scale up. So we'll be investing, preparing for the NRDL. Those are our most important things. Bayer is responsible and that partnership is going very good. They will be responsible for making sure we penetrate all over China. I would say with this type of receptivity and welcome launch, success breeds even more success. So they're very excited about actually mobilizing all of their cardiometabolic, renal sales force to jump on this. You can imagine, salespeople are very excited to work on this drug which, of course, will end up at a premium relative to others and more money in their pockets with the sales targets that they have to do. So it is very exciting to see this initial, but early data and commercial receptivity. So with that, I will stop and maybe we have time for a few questions. Ziyi?

Yes, sure. Thank you. Well, investors, if you wish to raise your questions, you can type your questions into the Q&A box or raise your hand. I'm probably going to start with a few questions first. I think when the product hit the market, definitely people are going to be curious about this year's NRDL strategy, right? When you trying to get into NRDL when there has been a lot of different diabetes drug there at a really low price. I mean, Farxiga now is also pretty cheap. So what could potentially be your pricing strategy to get into NRDL potentially later this year? And also, we try to understand a bit more about the initial feedback from physicians when -- after they're using this drug, particularly, how does that go, can fit into the algorithm for diabetes treatment, when all the doctors have all different options available to them? And for patients, they have any say on picking which drugs?

So I will be asking a very good question. I think give you the thoughts and some of the actions being taken. One of the discussions recently at a different level, which related to the innovation and then innovation-driven economy and topics of setting up the mechanism in the market to support the continued development and growth of pharmaceutical innovations and then drug discovery research and as well as the infrastructure, the improvement of regulatory capability and assumptions, right? So the country is moving towards the innovation-driven economy and where the recognition of an ideal drug price, especially for the innovation drug is very low or comparatively low in general so that there are approaches to address the reward to the innovation drug like HuaTangNing. So those are the ongoing processes and discussions. And at the same time, we are preparing the dossiers and enlighting the reason why HuaTangNing deserve a good price and -- which is also an affordable price to the patients, they need this drug. And obviously, we need to address to the broader community is why we need HuaTangNing. Why can we just need old drug and why this old drug hasn't been able to prevent the high rate or incidence rate of stroke, cardiovascular diseases, kidney diseases and why collectively, in China, our health condition now is not 20% in healthy. It's somewhere about 5% in healthy if the patients suffer from diabetes. So the diabetes and diabetes complication will make a big impact to the China economy and also the central government strategy of Health China 2023. We don't have a lot of years to get 2023, and we need to act on the using the effective drug using the good medication and the algorithms to really help the medical community and the patients. So that's one part that we are preparing for the first time. Remember, this is the first time a real global innovation, the first-in-class drug and launched in China first, right? So we are the champions and then we are the pioneers. And we have pioneered many policy changes and the practice in the MAH, it's of the first company getting to the MAH system, one of the first group of company getting to the patent expansion program, one of the first company getting to the e-commerce sales through the web stores and will be the first few companies that lead continue reform in the government policy in the reimbursement system and promotion for the innovation. So we are very confident that we will get a reward for our innovation in China. So the second question is really related to the feedback. We have set up a post-marketing pharmacovigilance system and closely monitoring the feedbacks through our [ 4 800 ] instead of [ 1 800 ]. Instead of 400 hotline, and the hotline basically helping people to find a drug, find a drug store, where they can buy drug and also asking questions of how to use drug, and if there is a [ uncomfortableness ] or potential adverse event. And so far, I think, overall, the report on the incidence is very low -- subject of patients using the drug. And also, we have got people telling us the reason they switch over from the other drug to HuaTangNing because the other drug generate some intolerable side effect, like infections in the urine track and diarrheas and/or discount, GI side effects and so on. And they switch over to HuaTangNing and then they see their post-meal blood glucose drop down right away and also avoid from those nasty side effect. So I think that's pretty much in line with our expectations that patients will immediately benefit from the post-meal management and also get away from the side effect or intolerability of the other diabetic medication. And then the third thing is still many people want to try our DREAM study, right? And they want to take the drug for 3 months, 6 months, and then they want to see if their beta-cell function getting improved and their blood gluco get fluctuation, get smoother. And at the end of the day, whether they can reduce the dose and then eventually get rid of the drug. And many smart patients, they've been passing a different type of antidiabetic drug once they get on the market. And then they are very engaging. And they have, as far as I know, the so-called patient study groups and together with physicians and pharmacists to help them to managing their blood glucose. So overall, we are obviously working with our medical teams and then especially the teams from Bayer and the physicians and from the Bayer and collecting more data as we're moving along as the drug be used for a prolonged treatment period of time. I think a good time to do this assessment is by the middle of this year since the program is now following monitoring is setting up in 111.com as a flagship online store for dorzagliatin. And on there, there is information about the medicine and also the opportunity to interact with the physicians, and so that the physician also can follow up with the patients together medical needs. Thanks. George, you want to add on?

No, I think that's right. I think Ziyi asks all the excellent questions, especially on physician algorithms. And I think this is -- the label is really exciting and the data, which has been extensive, has very minimal side effects, right, as compared -- you mentioned SGLT-2. But on the side effects, I mean, it's very clear, there's UTI side effects, which is quite prevalent. With GLP-1, there's nausea, vomiting, there's even a black box for cancer, right? People kind of gloss over that. But as a patient, did they take that seriously if you get the side effect, if you feel nauseous and don't feel like eating anymore. And so I think it is an easy drug to get into and the effect is so benign. And then the therapeutic effect is there. And those are the hallmarks of a blockbuster drug. If you think about Lipitor, you think about metformin, right, you don't really feel it but from a therapeutic perspective, it's working. It's helping. And with real-world evidence, we hope to compile even more benefits. One of the cool things about this oral drug is we actually expect to see even more benefits like Dr. Chen was saying about remission, but first thing is a drug holiday, right? Maybe you take it for 6 months and then you have a drug holiday, you go on a lower dose. And these are things that people are just trying on themselves with the consultation of their physicians. It's very rewarding to see this.

For sure. Is there any guidance on 2023 sales numbers? People definitely get me curious about how big the drug could be, but first full year sales is going to be really important for investors to get the visibility of the drug potential?

Now let's see, we can't give specific estimates, but -- and it's still early days. Dr. Chen and I would argue that the most important thing for a chronic disease drug where the patients don't immediately die like in cancer, right? So what you really want your first year is to make sure this -- your question on the physician algorithm and everything is embedded throughout the medical community that they feel good about it and that will cover throughout all the hospitals. And then the sales will follow. So if we look at the old Farxiga and Trulicity launches, we are multiples ahead with the -- our current sales. And we're getting IQVIA data for the first time. We'll make that available when it's ready, but we're like way ahead. So we're past them. As Dr. Chen said, the goal is to get in excess of over 1,000 hospitals, distributors way up there and then pharmacies and online continue monitoring side effects, right, not to slow down the momentum. But to give you a sense, I mean, I think that RMB 31 million in January, it has some pent-up demand because initially, we had to control it. So doing a 30 million times 12 is not -- I don't think that's necessarily realistic. But I think if you're talking about in excess of 200 million, right, with who knows 80,000 to 100,000 patients, et cetera. And we don't really have that data because Bayer has it. I think that's a very, very strong target above 200 million sales for a drug that hasn't entered NRDL. And as you mentioned, if you go on jingdong.com, you can get metformin for RMB 1.6 per pill, right? Our drug is RMB 15, which is RMB 30, and we're still generating this kind of receptivity because if you think about it, RMB 30 per day, that's quite expensive. Well, how many people actually drink Starbucks Coffee in China, it's cheaper than a Starbucks coffee, and this is for your health. So I think we can't give you specific estimates, but the good news is we did give reported numbers, both for, right, the 2 months, November and December, which is for the fiscal year 2022. And then you get to see this additional sale in January and you can kind of make your assumption about that. But that's probably as much as we can give. Dr. Chen will definitely be excited to give even more data at the half year report. But right now, the key thing is to make sure we can meet this demand. The supply issue is where our resources focused on is to make sure we can keep on sending these batches.

Sure. In terms of the capacity in production side, could you also update us on your own in-house manufacturing capacity potentially in the future, let's say, 2023, 2024, what percent is going to be in your own facility and what percentage are going to be manufactured by WuXi AppTec and is there going to be any of the supply chain issues beyond 2023?

Yes. I think this has always been a discussion among ourselves and our partners CROs. Remember, this is a 3-stage commercialization manufacturing process. First, we need to address the API, the active pharmaceutical ingredients as a chemical compound and the ultimate production capability will reach to 100 metric ton. Now for any of these cancer drug, and I don't think they will never consider a ton scale manufacturing is already a lot, right? We are talking about 100 metric tons of APIs and the materials. So the most important part and then the rate limiting step of address the commercialization is the API in systems and the manufacturing. So the good thing is at the beginning, roughly about 10 years ago, we evaluated 3 companies who are involved in the API development. And now we have 2 of them with us. One, obviously, is WuXi [ Zhejiang ] and who is now our key suppliers of our API and then spray-dried formulation intermediates. And this spray dried technology basically form making dorzagliatin embedded into a biopolymer and that biopolymer can help dorzagliatin get absorbed in the upper intestine and then quickly reach to the target in the intestine, in the pancreas, in the liver. Very important formulation technology that allow us to address the homeostasis issue because we need to address the GKA function issue in those 3 organs and synchronize the signal. So anyways, that technology is also initiated at WuXi AppTec and eventually now we have the line of capability device to do that work. This year, WuXi is going to add another line of the spray dried technology online to support our expanded needs in the API for next year and the year beyond. The second manufacturer on the API I mentioned is the [ Zhejiang Jiuzhou ]. We started to work with them back to 2017. And now they got another -- they've got another spray dry machine. And that machine has a capacity, our produce, our formulation intermediate to 60 metric ton scale. So now adding the 2 at WuXi, whereas 20 metric ton per scale and then 60 here at [ Jiuzhou ] collectively, we have 100-ton API capability. And so that's one part. Very important, we are fully managing process and the interaction collaboration went really well. The other is the pill manufacturing, right? The final pills is manufactured at the [ Sino ], and their capacity currently is expanding close to 700 million tablets. So for 1 medicine, our own facility. And when we're talking about by 2025, or do 10 billion -- 1 billion pills and so on. And all those can be easily managed through the Sino and Hua Medicine's capability. So the final tablet manufacturing is not the limitation. It's the APIs and an early stage of the spray dried technology and the product is what the current limitation is all about. As I mentioned, the investment has been put in over the years. And this year, we put 1.5 -- 150 million investment into the 2 production lines together with our CROs, so that we will be able to ensure our overall commercialization.

Got it. That's good to know. I think there's one -- probably one more question that is, you talk about the R&D strategy, your new R&D strategy talking about next-gen -- second-generation GKAs, we're trying to understand a bit more about that, how different it could be compared to the first generation dorzagliatin? And also, I think previously, company has been talking about a lot of different fixed dose combinations with some of the existing different therapies, but it looks like you're not mentioning that in this year's slide. So is there any changes on the strategy? And overall, a question for -- on the financial side, it's going to be -- probably George can answer that, what's going to be the budget for R&D because 2022, we do see a notable decline in the R&D expenses given some of the completion of the trials. So -- but this year, how should we think about the R&D budget? And also going forward, how should we think about the R&D trend?

Well, let me answer that first, while Dr. Chen can answer the differentiation with second-generation GKA. But if we go to the pipeline slide, if we could flip there, Ziyi, we actually have not given up on a fixed-dose combination. The reality is right there. It used to be multiple, but now we just put it all in one. And as you remember, we do have fixed dose combo patents. These are NCEs, right, new chemical entities with patents that go out to at least 2039 for metformin, for sitagliptin and also for -- I want to say it's empagliflozin as well. So -- and we have it for other potential compounds as well. So you got metformin, which is approved on the loose dose, right, DPP-4 and sitagliptin, which we got allowances for and SGLT-2. So these are there. The reason why we haven't mentioned it as much and haven't initiated is, as you know, this would require at least, right, RMB 60 billion, RMB 70 billion -- RMB 50 million to do a Phase III in China, right? And it would be about RMB 200 million in the United States. So we would want to find a partner. We would want to do that with an international partner and then use that to expand outside of China. That's the current still strategy, I think, as we get more responses back and see that the effects are very beneficial for these combos, perhaps we have a higher chance, but that high barrier, international is the key thing. We will not do this. Dr. Chen has mentioned this before. We will not do this on our own, partly because we want international KOLs to feel like they own it. And number two, is this big investment. So you're not going to see that from our current needs as well. And same thing with the -- on your question on R&D, there won't be that much in 2023 or 2024, simply because our trials will be fairly early. If you look through the outlook, again, you'll see that we're doing Phase I trials, IND, these are small. We can easily absorb that. So we're going to see R&D pretty much at the same level unless we find a partner and then that will be off balance sheet funding by them. Dr. Chen, do you want to talk a little bit about the second generation and how it's different?

I think the position is very simple. As we're moving along with first generation, and we have a very good proof of concept and also have developing the biomarkers and then type 2 diabetes, subclassification algorithms and technology, I think with the global trend moving diabetes into the personalized treatment and eventually target on the remission instead of body weight loss, we need to have a different molecule, have different chemical structure, so get a new patent and also a new optimized the manufacturing capabilities and reduce the cost of good. At the same time, we'll be able to address the pharmacokinetics and the dynamic issues and become a once-a-day therapy. And in that, as George mentioned recently, I have just published a paper in Nature Communications, showing dorzagliatin can repair the last function of glucose stimulated GLP-1 release. That's the endogenous GLP-1 produced and corrected by dorzagliatin. And we will -- would like to improve the GLP-1 effect in the new generation of GKAs and then at the same time, maintain the ability of the synergy between the pancreas and the liver so that they will offer a better support in the diabetes care. Just having this analogy in the GLP-1 area, the first-in-class molecule is twice a day, right? The chief flagship molecule, is liraglutide, that's once a day injection. Of course, after 10 years on that work, and now we have a third generation once-a-week therapy. So you can see [ TK ] as one of the leading platform in the homeostatic control, will continue to expand and lead this way for the second and potentially third generation of molecules that are eventually going to cure the diabetes.

And just to reiterate, Ziyi, we will not increase R&D significantly, right, unless there's another BD movement or corporate finance. There's no need. We are investing in low risk or zero risk, high profit harvesting. We don't need to do that kind of thing anymore with this. There's plenty of growth opportunity.

Sure. Great. Thank you. Well, I think we're actually running out of time, and we actually -- it's already more than 1 hour. So any final comments and wrap up comments from Dr. Li or George?

Dr. Chen, do you want to go ahead?

Yes. I think thanks again for Ziyi and then our investors joining the call. I think Hua Medicine is transitioning from an R&D company into a commercial company, and the team has prepared. And we are engaged in to finding innovative ways to help our patients in the -- in China. I think China is a big market and the big opportunities so that we can work together and bring better health to the nation. Thanks.

Great. Thank you. Well, we're definitely looking forward to see more milestones coming in, particularly on the commercial side, like dorzagliatin, in the coming quarters, looking forward to probably half year results. And see what's going to be the commercial ramp-up. Thank you very much for joining the call. Thank you, Dr. Chen and George for sharing all those insights, and we're going to wrap up the call here. Thank you. Have a good day.

Okay. Thank you. Bye-bye.