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

Hello, everyone. Thank you for joining the Hua Medicine First Half 2026 Results Investor Call. This will be the English session. This is Matthew Yan, the China Health care Analyst at CITIC International. And we are very honored to have invited the management team of Hua Medicine to join. This includes the CEO and Founder, Dr. Chen Li; and also the Chief Strategy Officer, Dr. George Lin. And without further ado, we will start the call. [Operator Instructions] So now I will hand the call to Dr. Chen. Thank you. Please go ahead.

Thank you, Matthew, and thank you, everyone, for coming to Hua Medicine 2026 interim half year report. And Hua Medicine has a great half year with accelerated sales growth and our commercialization representing 73% in sales volume in packs and then also showing that the expansion of our commercialization team, increasing the collaboration between medical marketing and then commercial with the medical sales representative, enhance the productivity and then reduce the cost in the overall process. In this first half year, we can see that it's 36% compared with last half year and then 27% growth compared last second half with 2025 first half. And then we just remind you that we actually doubled the 2025 sales over 2024. So after Hua Medicine established our own capabilities in the commercialization, Hua Medicine business is getting very quick expansion. Now with success in the Mainland China and then for the commercialization, 2 important factors also get our future development secured. One factor is the NRDL price. We maintained our previous price level and then this price level will cover 2026 and in 2027. That gave us security for continue bring the benefit and the profit into the company. And also, the patent life get extended for 5 years to 2034. Those are the years I think Hua Medicine will enjoy the great benefits and cash cow effects while we have been developing dorzagliatin in Mainland for the market expansion in the next 5 years. So with the success, dorzagliatin also successfully introduced in Hong Kong, benefit from the reform by the Hong Kong government and then implementation one class guidelines where we engage the Midland innovation for the Hong Kong patients. Most importantly, this provides an important window for dorzagliatin and then for Hua Medicine to present ourself and product to the English-speaking community and then English training-based communities. I think it serves a great step for us to move into Southeast Asia and the Belt and Road countries. Also, we are very happy to launch our drug in Macao. And this is an area that give us the break ahead opportunity to go to the Portuguese and Latin language countries as we continue to expand the dorzagliatin applications. Now dorzagliatin has been launched in China for 3 years and then we're also conducting the real-life real-world study in the communities where the diabetes is more complex in the key hospitals in the nation. For the Tier 3 major hospitals, we experienced that many patients have a long disease history with multiple complications and usually use multiple medicine and in some cases, they are using 2 to 3 oral antidiabetic therapy and then insulin or adding on GLP-1 and still their blood glucose cannot be very well controlled. And at the bottom of this page, you can see that the initial average A1c is 9.3% reflecting the severity and complication of those disease population. And then after treatment, there is a clear 1.2% reduction of this drug level, the A1c level. And then most importantly on the right-hand panel, you can see that many patients who with long history of diabetes have a very bad control of gluco homeostasis. Their TIR means time in range is usually less than 50% and in those patient population, there will be a high risk for cardiovascular stroke, memory impairment and also renal diseases to prevent those major complications to happen. Having dorzagliatin significantly reduce the blood glucose and also improve the TIR and then the gluco homeostasis will provide a larger and a major revenue and process to the patients and to the medical community to reduce the overall cost for treatment of diabetes and diabetes complications. So those real-world study further demonstrated that the efficacy of dorzagliatin is not only where we reported that they are doing very well in the drug-naive early-stage patients. And in those real-world studies, I'm showing you data showing that in the moderate or severe diabetes patients, they also performed very well and providing a definitely strong support for the diabetes management. At the same time, dorzagliatin showed excellent safety and tolerability. The overall hypoglycemia rate is still below 1%, same as we reported in the RCT studies and also the time that patients use the medicine is getting longer and then stick with the care and then with much comfortable benefit. Now if we look at the next half of our efforts in the R&D, we're basically looking for the expansion of gluco homeostasis management from at the beginning. We store the creatinine, the glucose sensitivity and then focusing on repair the insulin secretion, GLP-1 secretion, which is very critical for the diabetes treatment. And then now through the combination, we are start to addressing the insulin resistance, GLP-1 resistance now provide a full platform with the combination to address the overall metabolic diseases. Now dorzagliatin adding also orforglipron, a new small molecule oral GLP-1 receptor agonist, has received astounding results with enhanced beta cell secreting function, preserved body weight loss without reduce the lean mass and also managing well with the lipid profile. So in addition to the combination with GLP-1 receptor agonist, we also conducted combination study with THR-beta agonist resmetirom. In this case, we find that this is a very effective way to reduce the liver fat, liver fibrosis and also the overall lipid profile get controlled and then reduction of uric acids. This provides additional clinical benefits to the new indication needs for those patients. Dorzagliatin adding for the pan-PPAR agonist has really enhanced insulin sensitivity and glucose sensitivity, beta cell function and also improved good lipid HDL. So this offer a very brief architecture showing that from the gluco homeostasis control point of view, the company has established a strong scientific platform and this platform is going to start to realize in the disease areas where we can target the early Alzheimer's diseases, frailty or monogenic diseases like MODY-2 or MODY-3 and most importantly, helping our patients in the diabetes kidney diseases. The study have shown that in the diabetes kidney disease population especially when their kidney function getting to the moderate stage of the damage, there is no good medicine to control their blood glucose except using insulin. However, the insulin utilization can cause the blood glucose fluctuation because of the impaired beta cell function. In this case, dorzagliatin have shown in several investigator-initiated trials the benefit of reduced and controlled blood glucose; at the same time, kept or improve the kidney functions. So that with the major demand in China, Asia Pacific and also even in European nations will open a new window for dorzagliatin and glucokinase homeostasis platform to expand our territory. Many people showing the interest on our second-generation glucokinase activator. I'll just remind you that the reason we want to bring a new molecule into this pipeline development is that we felt that the generation development in the last few years has been changed very quickly and then the demand of personalized diabetes care or personalized metabolic disease care requires new medicine with patient focus. Now second generation will focus the obese diabetes patient population with its capability to address GLP-1 secretion, have a once-a-day use that is convenient in the Western community and then also, we have a new patent life and give us the market opportunity to 2042. We have finished up 5 of 6 cohorts in the multiple ascending dose study and the total study, the clinical operation spanned for 25 days. The last cohort we are already started dosing this month and hopefully, we'll finish the in-life session in early September and then we go into the data cleanup as well as the unblinding and then looking to the report on the top line. We're expecting a good result from this study. So if we look at R&D pipelines, we have dorzagliatin treat drug-naive patients and then metformin tolerated patients is doing very well with very good sales growth in those population. And also, we have the clinical evidence showing adding to metformin, adding to SGLT-2, DPP-4 or GLP-1 and insulin provide a very good benefit to the patient population expanding our market coverage. In addition to this, obviously we start to embark on the monogenic diabetes and rare disease like MODY-2 and then CFRD and to the areas on the diabetes prevention, frailty, diabetes kidney diseases and also early Alzheimer's diseases. So you will start to experience the large development studies in the next year probably up to 6 clinical trials while moving dorzagliatin and GKA and gluco homeosis platform move forward. As we are developing our dorzagliatin as a global first-in-class medicine, we are having utilized the GK brain, which is a vertically integrated language model. This model has demonstrated its efficiency in the R&Ds where it gave us recommendations and drug design for the combination studies and also helping us to define our medical marketing efforts and clinical trial design. And recently, a handheld agent become available for our medical product sales representatives that greatly improve the communication and then dissemination of this medical information and also our publications spread in the top medical journal Nature Medicine, let's say in endocrinology and diabetes and diabetes care, diabetes and so on. So that our frontier will further expand from our internal knowledge and capability building to the knowledge dissemination and then expand accessibility to the physicians and patients. Now with this, the artificial intelligence for human advance is a program within the GK brain where we use the genetic, epigenetic, proteomic information and the drug disease information to come up with the ultimate solution to address the frailty, to address the memory loss, to improve at the end of the day, the life of human beings. So I think that's a quick view about Hua Medicine's general performance and achievements in the first half of '26. And now I want to turn to the financial section to George Lin, who will give you the update. George?

All right. Thanks, Dr. Chen. This is a fantastic first half that we're exceptionally proud of. As I go through these numbers Dr. Chen has kind of glossed over. But I want you to think how are they able to do this in type 2 diabetes when it's so crowded and there's so many generic drugs and prices are low and do it all themselves and I'll explain that to you. If you look at our revenue, we've grown 74%; after last year, we grew like close to 100%. And the low-hanging fruit is building our own invigorated sales team so that's easy and then going deeper into the different districts, but there's still many provinces we haven't gone into. And people, frankly, when they see a global first-in-class in China first; they might be hesitant at first, but it's been a long time. I mean almost 0.5 million patients are on this drug and the benefits are very lengthy and so that word of mouth is actually increasing. Very importantly is that our price has been maintained. We renegotiated our price for 2026 and 2027 to be the same as the original price and one of the main reasons is all this robust real-world evidence and additional benefits that we're collecting data on. That's super important. That's great for a healthier population and differentiates our drug. But the reality is it's an only in class. If you look at the GLP-1s, which is exceptionally hot, there's many in class. If you look at tirzepatide, you look at Ozempic; their daily price is not very far from our daily price and more likely than not, it may go down because there's other companies with GLP-1s that are coming out in orals as well. I would go and challenge you to find another type 2 diabetes drug that isn't focused on weight loss that has the profile that we have. And so with additional data, I think this kind of growth will continue as we build our sales force and as we go deeper. And especially as patients see these uses, the doctors see the exceptionally good uses of our drug, the beneficial profile and also in combination, as Dr. Chen has shown. These combinations indicate that in combination they work much better than either of those drugs alone. And so far we have not encountered any drug that we cannot be used in combination with. It's a fantastic result. And so a lot of confidence in that revenue growth and we're looking forward to this kind of continued wonderful back win. On the gross profit with scale, we're building the same drug. And when you just increase the scale through STA and Desano, it's going to be cheaper by unit. It's just as simple as that. We're going to be targeting somewhere close to the 70% when we hit peak sales, maybe even above that, but we'll see. On selling expenses, we've increased our own sales team and, as I mentioned, there's still provinces that we haven't touched yet. So we're continuing to grow. But from a Board perspective, we're fairly comfortable at this level. We told you in March that 29% seemed like an underinvestment, but we kind of wanted to see where we were with our team. We've had some changes in our team at the soldier level, but the senior leadership continues to be very strong. We're upgrading and we're making investments and I think we'll maintain in this 33% to 35% going forward. So for your models, I would think that this is going to be pretty stable. Next slide. So R&D we've kept pretty tight. And if you look at what Dr. Chen has talked about and you go back to that pipeline chart when you get a chance, you'll see the only one that actually is like larger, longer, could potentially be larger is actually this FTC, fixed dose combination. But that's actually just really demonstrating bioequivalence. It's not like a large scale Phase III trial that we've had to go through. So you're not going to see this really increase. All those other ones you saw are kind of proof-of-concept Phase I, Phase Ib. They're not going to be larger than 30, 50 patients. So in terms of our R&D expenses, we're exceptionally efficient, but we're actually going to broaden. And as Dr. Chen mentioned, we're going to go into these first-in-disease areas, which it's first in disease like prevention, prediabetes, MCI, mild cognitive impairment, which is basically early-stage Alzheimer's. Nobody is working on that from a metabolic perspective. This year 2 of the largest readouts probably globally in the pharmaceutical space is in the Alzheimer's space and it's in prevention. People have been talking about tau and removal of the amyloids, et cetera. Well, that didn't really work out that well, but actually prevention actually going early works really well. And for us, it's the same strategy. You treat it before -- we know that people with diabetes are predisposed to actually these neurological disease. Why not treat that in advance? So we're very, very confident about that that our drug we know is safe. Will it provide this extra benefit and that is a huge, huge benefit and huge market that we could potentially see? On administrative expenses, we're going to maintain this tight. We don't need to increase this that much. But of course when we've gone from 150 employees when we started with only 1 salesperson to now we're over 200, close to 250. That's going to increase a little bit. But we're going to be pretty tight on this because Dr. Chen and my KPI is actually on profitability for the whole company. And so we're very focused on making sure that when we're hiring into these, that's not front-facing, that we're being efficient. We're very excited that we're probably ahead of schedule from a company perspective in terms of breakeven. Let's see. But so far, as you can see on the next slide I think. Let's go to the next slide. You can see on the next slide from our business and our commercialization efforts, we're already quite profitable; but it doesn't include those 2 from the previous slide, the R&D and the administrative costs. But as we get higher and higher with an increase in sales and efficiencies with scale, our commercialization efforts is going to actually allow us to harvest even more profits. And you can see this on a net profit perspective quite tough as we're investing with only 1 product in a very competitive space. But thank goodness, our price remains the same. our net profit for the whole organization has improved from a loss of almost CNY 60 million to CNY 30 million. So that's a 100% improvement or 50% cost, however way you want to look at it from a math perspective. But this is a great thing that we're going to see and hopefully, we're going to get close to 0 by the end of the year. That's what we're kind of targeting. That's not actually what we had guided, but it looks like trends are looking pretty good towards that way. Next slide. And then our cash. Our cash, we look at this at a gross cash. This is not our net cash. We have some loans around CNY 300 million or so for the same period. But in terms of gross cash, this is what we've been reporting. You can see that our cash position remains really, really strong, effectively the same as we went public late in 2018 and we've been very frugal and efficient. We are looking to invest specifically on the second-generation GKA. We'll be doing additional things and there are some potentially promising targets. We'll just say they're promising. They're identified. We're hoping to negotiate on in-licensing some other compounds, specifically one that could be quite exciting, hopefully making an announcement in the second half of 2026. So more news to come on that. But cash position-wise, no problem especially as you see, we're becoming more cash flow positive. Next slide. And this is the end. Just to sum it up quick so that we can go to any questions. A lot of people ask about our forecast. We're not giving forecast, but if you do the math and you look at what our options in order for them to actually vest, we need to hit about CNY 900 million. So we're going to be striving very hard to do that. That's just the facts. We're going to launch in Macao. I think from Dr. Chen and my perspective, this is not actually a numerical number. Many provinces in China alone is more than the combined diabetics and they're at a reimbursed price. But it's important to be able to waive this franchise, glucose homeostasis both in English and Hong Kong and also in Portuguese in Macao. So this is really kind of a window dressing, but it's important also for our BD perspective. The FDC, the fixed dose combination we talked about, we're going to probably file this NDA sometime in 2027. So that's not going to be that much expenditures. It's not what you would expect. And we already have a lot of data that's very, very promising already starting from our Phase III and even our Phase I in the United States where at least those combinations just yield really, really great results when these 2 great oral drugs are combined in a fixed dose combo. One of our most anticipated readouts will be the Phase Ib MAD of second-generation GKA, the last cohort that Dr. Chen was talking about, is effectively double the dose of current dorzagliatin. So we're looking for even sharper reduction in HbA1c than what we see now in the real-world evidence studies that are actually even better than our reported Phase III. So it keeps on getting stronger and stronger as we go. First in disease indications, IND filings for both MODY-2 and frailty and then the real-world study is just going to keep on going. As I mentioned, from a BD perspective, really focused on out-licensing, finding a good partner for our second gen after our Phase Ib U.S. MAD study and then also potentially bringing in this identified in-license opportunity that should be quite exciting. So a lot of exciting near-term and long-term milestones for investors to look at and track us. And I think with that, Dr. Chen, if you've got any other closing remarks, we can probably go to Q&A.

Yes. I think this is a very good year and very exciting opportunities to continue dorzagliatin, the first global in class and also disease-modifying therapy. Wonderful market opportunities there as long as we continue to bring the best people into this process and adding AI agents to support our growth. We are not going to limit it to the commercialization success and we are going to expand our R&D success and with new products and new indications coming into next year. And so yes, we are looking forward to continue working with the investment communities and then driving the health care value to the next level. Thanks. Matthew?

[Operator Instructions] So while we are waiting for any questions online, got some questions from my side from the investor. First is regarding just on the pages, now we are very glad to see this year's top line revenues should be close to CNY 1 billion. Now you have set at CNY 900 million and also that's very reasonable if you factor in the first half spend. And so are we going to -- also there's mention that you will be hiring more people because of this sales momentum. So for 2027, I think previously you have a guidance of RMB 1 billion sales. So are we going to update that guidance already or not?

We probably will not update those. But Matthew, I don't have it with me. I should, it's kind of embarrassing. But it is filed with the Hong Kong Exchange what each year our stock options in order for them to vest needs to hit and I think those numbers are probably the most realistic because that was quite a fight and quite engineered. And Dr. Chen and the team obviously came up with a reasonable number, but I would say the Board asked for a stretch number. So I would go back and look at that, but I think it will probably exceed CNY 1 billion with the trend that we're going. And again this is very different from all the other companies, frankly, that you cover with life-threatening diseases like cancer, tons of other drugs in the pipeline chasing that first-in-class. And so that allows the reimbursement regime to really press down and add pricing pressure. With us, there is nobody behind us. I mean how do we hire 280 people, 250 people sales from scratch from 18 months ago. It's actually because a bunch of these big franchises, the MNCs with type 2 diabetes, they've actually suffered from VBO, from generic pricing. Actually we've had a lot of people come from these MNCs immediately seeing the writing on the wall saying, "Hey, I want to jump to your drug because your drug is protected at least through the end of 2027 and you've got exclusivity until 2034 whereas the drug I'm on as great as it is globally in China is subject to VBO". So I think this is kind of accumulating in diabetes patients. We believe it's a life-threatening disease, but certainly it's not like cancer. So it's kind of a snowball effect. As more people use it and as long as it works, they stay on it. Why would I change it? And the doctors don't want to change it, it's too cheap to go and rediagnose and everything. So this kind of dynamic is very different from all these other cancer, which is super exciting, but very short Phase III. This is where all the suffering, the long march Dr. Chen and the team had to do alone. Nobody else so far is behind us in China. And so I think this franchise is quite nice in that perspective. It's very nice in the chronic disease space to have reached this point.

Understood. Okay. And then another question is on the R&D side because as just mentioned there's a potential combination with a lot of type of MoA on different like with MASH or THR-beta and then MASH and other kind of indications. So I believe you already have some clinical evidence already. Checking on about this indication, would you move them into like late-stage development to have like official labels or will it be more like a real-world study evidence circulated around physicians so when they are prescribing the drug, you will be looking into different combination and then prescribe like by themselves? Is it something like that?

Actually it's a different strategy for the new indications. Traditional drug existing therapies cannot address the underlying mechanism in disease etiologies, pathological reasons. So through the current combination, we may be able to make the diabetes or diabetes complication milder or develop slower so that we prolong the healthy life span and then so that in the China 15th 5-year plan in the National Health Plan, we try to let people live healthier, live longer. I think dorzagliatin through the combination with the other therapies, they can do that. But if you look at the neurodegeneration diseases, liver degeneration diseases, muscle degeneration diseases; in those factors, you actually need to address the energy supply issue -- well, the energy, I mean glucose. Glucose is the only energy source for human intelligence. Now the energy resource storage and also metabolism needs to be restored. At the same time, we need to managing the inflammation, okay? We need to managing in addition to inflammation and then the energy management also, we need to managing the impact from the outside, the virus and bacteria and so on. So now the reason we are conducting those preclinical studies with a novel new class of small molecules is we're going to create a new molecule from those combinations or mechanistic combinations and then targeting more severe and then more clinical needed disease. I think at this time at a global level, the ability of address neurodegeneration; whether it's Alzheimer's, whether it's dementia, whether it's in the Parkinson's related; I don't think we have a clue to how to systematically address those issues. But that's what Hua Medicine is doing. And through understanding the whole gluco homeostasis system, we've been connecting the glucose as the primary energy source and the primary sensory source for the endocrine, for the neuroscience because gluco is the source of making neurotransmitters and also it's important in the source of T cell sensory. It's generating the lipid raft that creating this fundamental T cell sensory mechanism. So in addition to it's an energy source, there's other key function regulating our human intelligent management system. And this is where I think the combinations is supporting us, the new combination is supporting us to getting to the next level of the care. The traditional combination with the generic medicine now already on the market. People already know how to use it, physicians know how to use it. Adding dorzagliatin gave them additional benefit and then keep the market growing. So there's 2 separate approaches going to help reshape Hua Medicine.

Yes. Dr. Chen, I'd like to add one more thing. [ Sher Lin ], if you can move back to our different combination synergies. The one thing that's very exciting about the results that we presented at the ADA, we kind of glossed over it very quick. But GLP-1 obviously is one of the most exciting things, but we all know that there's GI and some sort of nausea and these things. So maybe 70%, 75% of the people respond to it and that's great. But what about the 25%? The 25% feel terrible. Here comes a silver bullet that's going to work to reduce their weight, but it doesn't work for them because they feel terrible. And both with orforglipron in mice, but also with semaglutide, we were able to show that in combination with our drug at much lower doses, we went from; Dr. Chen please correct me if I'm off; but like around like 70%, 75% initial response rate at the regular dose of GLP-1 in combination with ours at a lower dose, you get to 100%. And actually on the semaglutide, you lost even more weight around the visceral area. So dose paring is not just about saving money. It's actually much less tolerability. Now why would this work? Well, we saw in all our previous studies that actually what triggers GLP-1 endogenous release, glucokinase. But we don't trigger as much with dorzagliatin and that's one of the exciting things we're doing with second generation. We want to emphasize on that. Just like the original GLP-1s, it wasn't enough. So it took to the sixth or the eighth generation before you actually lost weight. But with dorzagliatin, not enough; but actually with endogenous and a much lower dose, which makes it much more tolerable, it actually works just as well. And so this is actually a very exciting aspect as people use and look for different ways, not necessarily a label. But when you have 0.5 million patients, everybody is going to be trying different things. And the drug is very safe and for this population where GLP-1 is so high profile, it doesn't work for them, I think it's actually very exciting. I think that group and I think DKD and all the MODY patients, they've had no other choice. And to that extent, it's kind of a first in disease for those patients. So I think that aspect as it gets kind of used more broadly, I pray to God we don't get any hotline calls and we certainly haven't. As long as it maintains its very good safety and tolerability and it keeps on getting widespread, doctors are going to pick up on it, patients are going to pick up on it, and it's reimbursed and it's safe and it works even more interesting in this way. So I think that is one aspect that we can kind of piggyback on other drugs and actually make them even better.