(Yicai) Nov. 25 -- Chinese drug developer Hua Medicine is terminating its agreement with German pharma giant Bayer for the distribution of its type 2 diabetes drug in China, just one year after the medicine was included in the country’s vast medical insurance scheme.

Hua Medicine’s share price [HKG:2552] was trading down 0.7 percent at HKD1.31 as of 12 noon, giving it a market valuation of HKD1.2 billion (USD154 million). Last Friday the stock plunged 15.3 percent to close the week at HKD1.32 apiece.

Hua Medicine is withdrawing the right to distribute its glucokinase activator dorzagliatin tablets in China from Bayer next year, the Shanghai-based company said on Nov. 22. The firm may seek other partners to commercialize the drug in China.

The dorzagliatin pills are a new class of drugs developed by Hua Medicine and were the first glucokinase activator drugs to get the greenlight to go to market in the world. The drug was approved for marketing by China’s National Medical Products Administration in September 2022.

Hua Medicine granted Bayer distribution rights in China of the diabetes drug in August 2020. At the time, it was agreed that Bayer would pay Hua Medicine milestone payments of up to CNY4.1 billion (USD566 million). Hua Medicine would also pay Bayer a certain percentage of its net sales in China for its services, and that sales revenue would be split equally in the initial stages.

Bayer has made CNY1.5 billion (USD207 million) in milestone and advance payments so far, but this is still less than half the initial estimate, according to Hua Medicine’s financial report for 2021.

Hua Medicine’s sales of dorzagliatin on the mainland have amounted to CNY197 million (USD27.2 million) since the drug first hit the market in October 2022. If the agreement to ‘split revenue equally in the initial stages’ was adhered to, Bayer will have earned a similar amount, meaning that the Leverkusen-based company has paid out far more than it has received.

Dorzagliatin is the only drug that Hua Medicine currently has on sale. To enter the medical bulk buy scheme, Hua Medicine slashed the price of the drug by 64.1 percent to CNY5.39 (USD0.74) a tablet. Although being part of the medical insurance program has boosted sales, the firm’s gross profit margin narrowed to 46.5 percent in the first half, down from 62.6 percent a year ago.

Editor: Kim Taylor