We'll kick off 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 it's off the record. Participants will be removed from the call if they cannot be properly identified. This call is not for the purpose of sharing or receiving non-public, otherwise confidential information. Attendees are public-side market participants who may not receive additional requests, non-public, otherwise confidential information about issues or securities about the market securities. Today, Hua Medicine is going to be presenting their 2024 full-year results and the recent business updates. Joining this call, including CEO Dr. Li Chen and the EVP, Mr. George Lin. The company is going to give us a brief introduction of the results first. We are going to open the line for questions and answer sessions.
Remember that if you have any questions, feel free to raise your hand, or you can type a question into the Q&A box. Management is going to be happy to answer your questions. Now, without further ado, I'm going to turn the call to Dr. Li Chen to get started.
Hi, everyone. Welcome to Hua Medicine Annual Reports. I'm Li Chen. We are the Hong Kong 18A listed company. Quickly update you with the company development. Hua Medicine is transitioning from an innovation drug discovery company into a commercialization-driven company. We basically started our journey roughly 12 years ago when SGLT2 launched in the diabetes market, and probably among the first few companies getting to the metabolic diseases-related area, where at that time we see the strong needs in the glycemic control and also the importance of the glucose homeostasis in the disease management and the progression, especially related to the diabetes complications. The figures, even at 2021, we still see diabetes-related Medicare expense approaching $1 trillion worldwide. In the top 10 nations, I think US and China are among the most desirable market for the innovation of antidiabetic drugs.
Most importantly, to focus on the glucose homeostasis and then reduce the blood glucose fluctuation and provide our neural system and immune system with enough energy, the ATPs. I think this journey has led us very successfully to launch the global first-in-class, dorzagliatin, the GKA. This drug got approved for the two major indications. One is for the drug-naive diabetics treatment. The other is for the metformin-tolerated diabetes patients. In addition, the drug can be used in the DKD patients, especially toward the late stage kidney disease. Also some other indications will help us to expand the opportunity, including the combination with SGLT2 or DPP-4. This drug got approved in 2022. We worked with the regulatory and then the government agencies to manage the drug entered into a national drug list, a reimbursement list in 2023.
2024 is the first year we have the drug used in China for the full year under the NRDL. That basically is the history of Hua Medicine through a discovery of an innovative drug and then brought it into the market and then made it accessible to our patients in China. In those early years for the commercialization, we partnered with Bayer. This collaboration with Bayer ended by the end of last year. Now Hua Medicine will take over the sales and the marketing efforts previously run by the Bayer team in China, now going to take over and then run by Hua. Now we have basically the ability of discovery, development, commercialization of the Global first-in-class medicine. At the same time, we felt that the dorzagliatin is very well received in China.
The first two months' sales in 2025 are very encouraging given the good foundation that Hua and Bayer collaborated on during 2023 and 2024. We have the sales increase close to 200% and compared with the same period in 2024. We also, through stopping the collaboration with Bayer, we are going to convert our contract liability of about RMB 1.2 billion into our gain in 2025 as Hua Medicine whole group. Forward-looking, Hua Medicine will continue to develop dorzagliatin and then Glucokinase-related therapeutics targeting multiple opportunities. Our recent study through the human genetic analysis and then using Mendelian Randomization methodology, we have found multiple opportunities for activating glucokinase as a fundamental change and then effective to bring the reduction of heart failure, coronary artery disease, memory loss, dyslipidemia, and recently the frailty and sarcopenia.
This is the major area where we see a lack of sustainable and stable glucose management, which leads to the dysfunction into the ATP homeostasis. I think a lot of opportunities can be further expanded through our discovery and development of the second-generation glucokinase activator, which is once-a-day oral therapy by working with our partners in the US. We are also establishing the opportunities through working with our partners in Hong Kong, developing the diabetes prevention and protection from the diabetes complications. Those work will be reported in the near future. If we look at our business positions, and at this time, look at the growth of HuaTangNing sales from 2023 to 2024, that is basically eight times in terms of the volume. The net sales also significantly increased despite a price reduction through the NRDL.
I think also we see the increase of the gross profit. Again, entering into NRDL, recognizing dorzagliatin as an innovative medicine in China has greatly facilitated the commercialization, especially entering into hospitals. At this time, by the end of 2024, we have 2,700 hospitals prescribed dorzagliatin. This hospital sales consist of 81% of the total sales in China. At the end of 2024, we have approximately 150,000 patients used dorzagliatin. Overall, our feedback is that the drug is very effective and safe, very well accepted by the medical community and the patients. As we plan for the transition, after our discussion with Bayer last year, Hua Medicine has made a strategic decision to engage in the commercialization and sales of HuaTangNing by ourselves through the hub and spoke operation model.
That means Hua Medicine will focus on the top 500 hospitals for the marketing and sales, and then establish our foothold in those areas, especially in the medical communication marketing efforts linked to the KOLs and expanding our influence and impact of our drug. At the same time, we decided to launch a 100-day, 100-staff initiative so that we mobilized 100 Hua Medicine staff who have been involved in drug development, research, and manufacturing of dorzagliatin in the past, understand how this drug works, and then what is the advantage of this medicine. Those staff got trained and qualified and sent to the hospital last year.
Starting from 4 December 2024, we have 100 people, went to the hospital, helped them together with Bayer's salesperson that Hua Medicine is going to be responsible for the marketing and sales of dorzagliatin, and then continue to provide support to our physicians, and then support through our distributors, make sure that our patients will continue to receive dorzagliatin during the transition period of time. At the same time, we recruit Mr. Lu Yu, who is a very experienced sales executive, been working with Novo Nordisk and Lilly for almost 20 years in diabetes drug marketing and sales. He joined us 1 January this year and then started creating a 120-people sales and marketing team in China. I'm very pleased to see that at this time, we'll be able to quickly enroll basically 80+ new employees for the sales and marketing team.
Together with our 100 existing Hua Medicine team, we'll be able to integrate our knowledge in the glucose homeostasis, the drug product initiative, as well as the marketing and sales promotion start to happen. By now, I think we had a very good first two months in 2025. Not saying this is going to can be multiplied easily by six and then estimate the whole year sale, but this is a very good start where we can see the major increase, as I said previously, and is in the hospital sales. As we're moving along, setting our hubs and spokes in China, we're also exploring the dorzagliatin go outside mainland China. The name, the trade name for dorzagliatin outside China, the English name is MYHOMSIS , which means My o-homeostasis will be very well controlled.
This particular strategy will basically engage us at Macau and Hong Kong this year for the registration, and at the same time, approaching to Southeast Asia, mainly for the reason that those in this Southeast Asian people, they share the very similar etiology of diabetes. They have a higher carbohydrate diet and then taking sugar more often, and then have an uncontrolled postprandial or post-meal blood glucose. Yearly, this represents the early failure of their pancreatic beta cell functions. This is what dorzagliatin can do very well. If you just look at the market, it's very significant in Southeast Asia. I think through the Federation of International Diabetes report, in the next 10 years, the prevalence rate will significantly increase from roughly 10% to 30%.
This presents us a very unique opportunity to bring dorzagliatin to those regions through ourselves and through the partnership. We also recognize that dorzagliatin has many opportunities in the diabetes and diabetes complications. Then we think that we should immediately launch the 2nd generation of dorzagliatin. If you look at the history in our drug development, insulin evolved four generations over 100 years because of lack of competition and then recognition of and understanding of the underlying cause of the disease. Then GLP-1 takes 20 years from the first one launched 2005 till now. We start from twice a day, then once a day, then once a week. Now we have once-a-week dual function. Those engagements not only improved the convenience of use, but also expanded the indications through the new generation and technology development. This is what we're going to do.
We're not going to wait 20 years to do our 2nd- generation to move into the frailty, the muscle loss, and related indications. We're not going to wait for the neurodegeneration diseases. We are now bringing the 2nd-generation with the new patent and also once-a-day therapy, and it has the ability to restore the glucose homeostasis, restore the insulin and the GLP-1 secretion in the type 2 diabetes patients, and prevention and the diabetes complication. We're going to do this while we are moving our dorzagliatin in China and continue to expand our market share in China and Southeast Asia. We're not forgetting the other half of the people who have the obesity and then require better treatment. I think dorzagliatin second generation GKA will offer that opportunity.
We have initial very successful phase I study completed in the US, and then we're going to start the MAD study this year. Just a few words about how we see the great opportunity gluco kinase activation going to help us developing our product franchise and then establish homeostasis as a platform for the drug development. Now with dorzagliatin launched in China and then 150,000 patients use it, we have seen very good stories that the patients who have renal dysfunction and then the blood glucose cannot be controlled by insulin. Now with dorzagliatin, they are reducing the insulin and control the blood glucose fluctuation very well. We have seen subjects using GLP-1 agonists together with dorzagliatin and then managing the postprandial, post-meal glucose.
Many indications now in the real world study suggest that using dorzagliatin in China or Asia Pacific will bring in the remissions, rejuvenation of diabetes complications and the prevention. That's very clear. This is seeing these experiences from our physicians. The other thing is using human genetic data and then the Mendelian analysis conducted by Dr. Juliana Chan in Hong Kong and our own team have consistently shown that glucokinase activation will bring the benefit to the memory loss, frailty, and sarcopenia, heart failure, and such. Those is the very strong evidence and scientific foundation for us to continue advance glucokinase activators. Most importantly, through our clinical study, we have shown that when we improve the time in range, which measures how well your blood glucose homeostasis is all about, connection with the diabetes complications.
Those summary over 18 clinical trials in Asian countries suggests that with increased TIR or Improved glucose homeostasis, it will significantly reduce almost 10 types of diabetes complications and then reduce the risk in there. This gave us a vast market opportunity for Hua Medicine to enter into. The pipeline continue to remain focused with two indications launched and then additional real-world studies in the diabetes remission or other benefit continuing. We also receive very good clinical evidence in treating MODY2. MODY2 is patients who had the GK deactivating mutation. Although it's a rare disease and the number of patients can be large in China, at the same time, we are working on the dorzagliatin in the memory loss. We have already started the animal study as a proof of concept, and then we will initiate this clinical observation in those areas.
dorzagliatin and metformin Fixed- Dose Combination has advanced quickly, and we are expecting we complete the preclinical GMP batch validation this year so that we can file and get approved in 2028. The 2nd- generation, as I already said, this is moving along quite well and will have a broad spectrum in the diabetes and the metabolic disease area. In addition, as I mentioned, the combination dorzagliatin with GLP-1, SGLT2, DPP-4 inhibitor, and insulin are under evaluation and explored by the physicians in the clinic so that we can quickly in the real world to get the benefit demonstrated in the type 2 diabetes patients, in the patients with obesity, in the patient with kidney dysfunction, and so on, which gave us a very good perspective for the future growth as a commercialization company.
Hua Medicine has established a very strong patent wall, and this is basically a quick summary for our patent portfolios. This offers us the multiple layers of our product protection with this 200 approved patents worldwide at the different region and then covers through 2044. You can see now Hua Medicine not only has the opportunity to bring the first global first in class GKA managing the glucose homeostasis into China market and opportunity expanded to Asian Pacific and then eventually Europe and the United States. We also have a very strong patent portfolio allowing us to do the partnering for the different regions, which make Hua Medicine a very attractive investment target. I will stop here and let George tell you more in terms of the financial section. George.
Thanks, Dr. Chen. Just a few additions to Dr. Chen's comments.
We are truly very excited about this earnings announcement simply because it is a remarkable new chapter for Hua Medicine as we move into a commercialization company that has very, very nice growth and increasing profitability that we actually can control. We appreciate all that Bayer has done, but with them as our partner, it was less able for us to firmly be in control and kind of figure out how much they were investing and what our sales and profitability would look like. That has completely changed effective 1 January this year. The second thing is, as Dr. Chen mentioned in the first page of this slide, nothing in the diabetes space has actually changed except for the fact that now there are very, very effective drugs for weight loss.
Having said that, nobody's addressing the root cause of type 2 diabetes, and nobody's as bold as us to actually move into remission prevention as well as prediabetes. These things still remain core to Hua Medicine, which is focused on glucose homeostasis. The beauty of this is the drug has been used in over 150,000 patients in China, like all over China. They're not in one province or anything. It's like over 2,700 hospitals. The profile remains exactly as they were in our phase three with very, very low hypoglycemia, I think still less than 1%. If you compare that against GLP-1, which again, fantastic, wonderful drug, but 20% of the people can't tolerate it. About, I think, 30%, another 30% or 40%, Ziyi would know better. After four or five months, they come off of it. Our drug remains very accessible, very affordable.
For the principal drivers of our company in the next few years, it's very simple. It's just get back to the basics, continue to tackle those main hospitals and expand coverage in the hospitals, increase our salespeople selectively so that we can increasingly enhance our return on investment in sales. That's the beauty of it. That is the principal reason for our separation with Bayer is that we will be able to really leverage our salesforce and not necessarily have to keep that expense going up as our revenues go up, which is a very nice segue to this chart here. You can see the revenues have grown tremendously from 2023, which is a private pay first year for the drug, to NRDL included for all of 2024, representing a massive price drop as is customary in China.
We traded that for increasing accessibility and affordability. The drug is exceptionally affordable for type 2 diabetes, very competitive even against the generic drugs, the branded generics for type 2 diabetes. You can look at the gross profit. It did not affect us that much, even though our price did drop. Our volume is going to continue increasing. With economies of scale, we'll be able to continue driving COGS down. That is the beauty of that. Most importantly, our net loss will continue to decline. Dr. Chen had mentioned previously that as a result of the fact that we did separate from Bayer, you can see in our interim 2025, we will record this RMB 1+ billion gain. You will see an exceptional profit one time as a result of that. There will be no more amortization of those contracts since that contract ended. Next slide.
The key operational expense, again, moving exactly how you want to see that for a company that is increasing and moving towards profitability. We have kept our administrative expense pretty much the same, but as a percentage of revenue, because of how much our revenue has increased, you can see that as a percentage, it is going down. That is the trend for both selling expenses and R&D as well. Selling expense, this is the good one, is as I mentioned previously, we are targeting to hire and have in force probably close to 100 salespeople by the end of this year. That is going to continue driving. Again, we are going to focus on the key hospitals and then expanding their reach as these relationships are reinvigorated with these key hospitals. That will give them more time to go to other hospitals.
We really do want to increase our return on investment on our sales. We will definitely see that as a percentage of sales goes down with time. Our R&D, for the most part, will not include the large phase three that would be a huge expense you would expect for type 2 diabetes. We would be relying on future partners in geographic areas, specifically the United States and Europe, as Dr. Li Chen mentioned for the 2nd-generation GKA, which is really being refined for that market with a once-daily, which will reduce COGS, but also increase convenience, which is very, very important for the Western market.
In addition to that, there is high potential for combination, which is increasingly the trend in type 2 diabetes, that our drug with its very unique and specific MOA could actually be a very good complementary drug for these other popular ones, including GLP-1, SGLT2, and DPP-4. Keep in mind that metformin, we actually do have the data and approved in China for the loose dose combination. You will see the R&D expense still pretty much remain in line. The last slide for the finances, Dr. Chen, is the cash. Again, we are in a great position with over RMB 1 billion as of the end of this year. This will allow us to easily continue moving forward as we eventually break into profitability.
Our plan, now that we actually have more control of our own destiny, our plan is to hit RMB 1 billion sales by the year end of 2027 and during that time achieve break even as well. With that, I'm going to stop and see if there's any questions.
Thank you, Dr. Li Chen, and thank you, George Lin. It has been a very eventful year in 2025 with a lot of inflections. I'll see if there are any questions coming from the online. If you have any questions, feel free to raise your hand or put your question into the Q&A box. Alternatively, you can also send an email to ziyi.chen@gs.com.
I actually have a couple of questions regarding the new strategy. Particularly, I think in the past couple of years, the diabetes market in China, and also we can count on the obesity market in China, has been changed a lot with now GLP-1, different kind of a new generation GLP-1 becoming very, very popular. The awareness of diabetes and the awareness of obesity has been increased a lot, and people kind of get used to using GLP-1, even if it's still in injectables.
How do you think about the future positioning of dorzagliatin in its current form versus all different kinds of options, metformin, semaglutide, tirzepatide, and potentially more GLP-1s coming to the market?
I will address this first, and then George can add on this. I think identifying GLP-1 be useful for the obesity primarily came from the European community. The concept of diabetes in Western countries is primarily driven by obesity. It's 30 years ago when I was at Roche and then we worked on the anti-obesity drug. I have the theory about obesity-driven diabetes, which makes sense because from the root cause of diabetes in the Western community, the major reason for the diabetes is the insulin resistance. The obesity obviously is a major reason to increase the insulin resistance and also at the same time causing the reduction of the GLP-1 secretion so that they will not be able to respond from the glucose-stimulated insulin and the GLP-1 secretion.
I think coming up with all the GLP-1 therapeutics, especially in the new generation of long-lasting GLP-1 or in the dual-acting GLP-1s, they are trying to address the issue where the physiological GLP-1 insulin secretion has a major defect on top of the insulin receptor dysfunction and resistance. I think dorzagliatin is actually a very good add-on to resolve these issues. If you remember the clinical data and then plus many preclinical data supported that dorzagliatin actually improved the glucose-stimulated insulin secretion and GLP-1 secretion. The GLP-1 secretion work was done in the obese diabetes patients in the US. You can see that regulation of GK is at upper stream in control or on the top commanding line in control of energy metabolism by regulating the three key hormones. One is insulin, the other is GLP-1, and the third one is glucagon.
I think the key balance in our future strategy is leveraging the existing success of GLP-1 therapy and then add on dorzagliatin, which improves the glucose sensitivity in those patients and then enhance the insulin secretion function and the GLP-1 secretion function so that we can at the end treat the underlying cause of the disease and then maximize the GLP-1 therapy. That's one thing that we start to see the benefit of combination of dorzagliatin with GLP-1. The second is our new second generation, which through the design and also the formulation development, we will enhance the GLP-1 factors so that they will expand the capability of the GLP-1 impact in addition to the potential other inheritance. That is very clear that we can further expand the opportunity in dorzagliatin and then GKA with GLP-1. That is basically two strategies. One is work on the combination.
I think this is the best partner, GKA and then GLP-1. Then is the enhance our molecule design and coming up with a second generation GKA, which biased toward GLP-1 effects.
Yeah, just to add on to that, to Dr. Chen's comments, I think the whole GLP-1 thing is amazing for us. It's definitely been a massive barrier, I guess, or sucking of resources into GLP-1. We as GKA, a non-GLP-1, have had to kind of go through that. I think the beauty of it is we've gone through it and the drug is now being used and monitored over 150,000 and is exceptionally accessible and affordable. Unlike other sort of diseases, type 2 diabetics is just such a heterogenic. It's very diverse, Eastern, Western, obese, thin, all kinds of different phenotypes of patients that require different sort of treatment. It's not a one-size-fits-all and winner takes all situation. Just like everybody is talking about OAMs, Obese Anti-Obesity Medicines, there's all kinds of different research being done because it's not a winner takes all.
It's a generational sort of therapy. I think the beauty of GK is that over time, dorzagliatin has shown that the benefits are going to continue to increase and people will continue to experience the safe intolerability at RMB 1,078 per day currently. That accessibility and affordability can be used very safely for patients that don't need that sort of weight loss. If you're not that heavy and you take some of the GLP-1 where you can lose weight, 30% is muscle loss. I mean, the latest Mendelian Randomization study that has been done on GK demonstrates that we would have a benefit against weight loss, against frailty, which is amazing. These are the kind of benefits that we're going to study. As Dr. Li Chen said, it's not going to take 20 years.
What we need to do is to do these POC in a very smart way that Dr. Chen has proven that they've been able to do and then to find a partner to use it in combination. We are not designed to replace or to winner takes all and all this, but certainly with remission, with prevention, with prediabetes, 25 milligram, 50 milligram for those that are prediabetic. These are areas that nobody else is studying because their drug is just not designed to do that. I think that's the beauty of our company now is as we move towards this mission of profitability and growth at the top line, we will continue investing in these really smart POCs so that we can attract the right partners to use it either in combination or in different phenotypes of type 2 diabetics.
Got it. Thank you. That's very clear. Looking into the new commercialization strategy you're talking about, the first 100 sales reps is going to cover the majority of the core hospitals. What kind of a market potential amid all those competitions do you see for dorzagliatin over the next few years if your core sales is going to cover all those 500 hospitals?
I think the first year for 2025 is basically we need as an organization transitioning into the sales and the marketing. Then with a sales marketing focus and establish our capability internally and also the infrastructure supporting the whole market and the sales operation. Now we have just shown that we can do that. There is an immense opportunity in China in the oral antidiabetic market. That is somewhere about RMB 30 billion market for the oral antidiabetics. With the patent cliffs and then other issues, I think dorzagliatin remains the major market force for the oral antidiabetics in the next 10 years. I have not seen any other new mechanism-based oral antidiabetics coming up, maybe oral GLP-1, but that is in five years.
I think the key for us is getting this opportunity and push the hell of it, putting our not only the sales and marketing team straight in the hospital. We also have our R&D people, the people who involve in the clinical operation, the medical science, who provide the deep knowledge, understanding, and the key interaction supporting our commercialization team. There is a change from previously while Hua Medicine is sitting on the back road and supporting our partner to do the promotion. Now the whole company will be in focusing on the promotion. That is a very different perspective. This year we'll have the team, the infrastructure, the integration orientation to relaunch dorzagliatin in China and then push it forward. We believe we can get this RMB 1 billion sales in China in 2027.
I think after that, the initial expansion from 500 hospitals, now in the three years, we'll get into 2,000 hospitals in the core business. At the same time, we'll have the CSOs as the hub in the different regions so that we'll have the hub spoke working together while Hua Medicine with focus on the core hospitals and then partner with the CSOs and expand the territory. In the timeline, I think this year is building internal capabilities, Hua Medicine to focus on commercialization. In next year and then forward, while expanding our internal capability, we'll establish the regional sales organization partnership so that we can quickly expand the access of this drug around China.
Got it. Thank you. I'm a bit curious about a real-world practice, given now all the physicians are facing a lot of options in terms of treating diabetes. When they get a new patient in or some of the patients failed previous treatment, how are they going to come up with a decision that they're going to use dorzagliatin instead of other treatments? What kind of a specific group of patients will be more likely to take dorzagliatin as a preferred treatment? It's more about the real-world treatment algorithm.
Yeah. I think this is in the process of summarizing and analyzing our post-marketing studies. Probably have the middle term of analysis toward the second half of this year in terms of the more so-called scientific-driven analysis. From what we heard from our staff who went out, talked to the physician, we found that many of the subjects are the metformin users. Usually, they took metformin and one or two other medicines and could not control their blood glucose. That is the time the physicians say, "Well, there's a new drug and pretty safe having the combination with metformin." They try those patients and then they worked very well. Not only be able to control the post-meal blood glucose and then reduce the blood glucose fluctuation and also have improvement in the fasting plasma glucose.
Those are the, I would say, probably 60% to 70% of our patients belongs to this. Remember, our drug now is primarily sold in the larger hospitals and then the so-called The San Jia Hospital. Many patients went there because they have uncontrolled blood glucose. The hospital sale is 80% of our total revenue in the hospital, I think representing the desirable management. The other aspect, we did this patient group analysis using Artificial Intelligence and then find the two group of patients will benefit very well from them. One is they have a very poor beta cell function, especially early insulin secretion issues. Using dorzagliatin improved early phase insulin and then reduce their post-meal glucose. In the clinic, it is easy to find those patients who usually have uncontrollable post-meal glucose.
The other ones are the early diabetics when they want to engage in remission study. Those are the subjects approaching very often to the community hospital and then through the internet to purchase dorzagliatin for either themselves or their family members. I think the characteristic for dorzagliatin to treat patients immediately in China are those with uncontrollable Post-meal glucose, which consists of probably 70% of the diabetic population in China based on Dr. Yang Weny ing's study and then recent epidemic studies.
Got it. Next, I'm thinking about the margin trend. If we look at the slides you have shown, currently the overall margin is actually at about 50% level or slightly below that. My understanding is that you're still using CMOs for that. The cost of manufacturing is still a bit high. How should we think about the future trend? Number one is that when you're taking back the overall commercialization rights, supposedly the volume is going to be scaled up much faster. They're definitely going to bring some economic scale benefits to your margin profile. Secondly, is there any plan of taking in the manufacturing or are you going to be looking at optimizing the CMC to potentially lower the manufacturing cost to further improve the margin?
That's a very good question. As the pipeline grows and then multiple products going to be introduced to Hua Medicine's market pipeline, the security on the drug supply becomes a very important issue. Also, that's going to contribute to the gross profit margin. That's very clear. As current approach, we have added one more CDMOs to our API manufacturing. This process will basically expand the needs on the market growth. At the same time, it reduces the cost of goods. Our target is getting this to basically gross profit into 80% over the next few years. That's very clear. The whole cost is in the API manufacturing and the related technology-based process. Then the pure manufacturing, the final finished drug, finished dose drug production can be further optimized.
We have already engineered in the larger scale process in the API and in the tabulating process has led to a significant reduction of these costs of goods. That will continue. The management has engaged this cost reduction process a couple of years ago. I think this year we'll have our second API line getting to the validation process and then go through the regulatory approval so that we'll get it online in the next couple of years.
Yeah, that's good to hear. A follow-up to that is if our margin is going to be trading up with all the efforts the company has been putting into the operation, manufacturing, everything. When do you expect the company to break even? Is the gross margin improvement being the major driver for that?
Yeah. Thank you.
Yeah. Yes, we mentioned before, and of course, this is all captured under the disclaimer, but the company and the management's KPI as agreed with the board is actually to achieve break-even sometime in 2027. The actual commercialization of HuaTangNing will probably be earlier than that. As you can see from the previous slide, you can see that COGS had moved a huge amount based on the revenue increase. If we are going to hit RMB 1 billion, you can imagine that gross profit will go up quite significantly. It is about really being disciplined on sales expense and really increasing our return on investment. I think it was one of your former CEOs, Hank Paulson, who says at Goldman Sachs, 20% of the people do 100% of the work or 80% of the work. It is the same thing with the hospitals in China.
We're talking 500, but if we reach out to 1,000 with the same number of salespeople, that is very possible because once they get familiar with our drug, it becomes much more automatic and you do not have to do the five visits. You might be able to get away with two or three visits. They will hear as well. One of the beauties of dorzagliatin is as this drug is being used, you just hear more and more and better things. It is very safe. It is tolerable. It is efficacious. People are actually getting a lot of these benefits. It is very different from what people are seeing with these other new drugs that are being used.
Got it.
Right now, we're just two months into our own commercialization. We kind of had to push Dr. Chen to say that we would give this kind of high-level guidance, but that is our target. The company's on its way. You can see the first two months have trended very well. As Dr. Chen said, don't just multiply that times six. We effectively had to do a lot of adjustments. People knew Bayer was on the way out, all this stuff. It's a very solid start. We're very excited about it.
Got it. Last question for me is really on the 2nd-generation. Particularly in the overseas market, what's going to be your plan for the second generation to, let's say, now you're running phase one and what's going to be the next step? Are you looking for partners or are you going to be running those major trials by yourself? Are you going to do monotherapies or potentially more broadly in the pro concept stage or pivotal study, you're going to more focus on the combinations?
The key to this strategy is to find that partner who will actually work, has the same mission as us, and who will work with us to either use this as an add-on or to do it as monotherapy. That is really up to our partner. We have our views on that, but we are not arrogant enough to say that we are going to go and conquer the US by ourselves. In addition, we are not looking forward to spending all that money all by ourselves as well. Number one is the partner. I think the second thing is you might have seen or you may not have, but in December, we announced the preliminary results of our phase I SAD study, which shows the 2nd-generation effectively from a PKPD profile looks very, very similar to dorzagliatin in the 1st- generation. What does that give us?
It gives us all the same effectively benefits that we've seen with Dosa and that we will see going forward. It extends our patent out beyond 2040. It is once a day. Right now, the second study that's going to happen this year in the US is actually the clinical dosage that will go. We're actually going to go and see if we can do even higher efficacy. That will generate even more interest in our view, given our discussions with the partner. That effectively is our strategy. I would say the third strategy obviously has to do something with the oral anti-obesity medicines that is all the rage. I think as Dr. Chen mentioned, the Western phenotype is more on the obesity side, and our drug in combination with an AOM will be fantastic. That will be the differentiator.
Everybody's talking about extended release, tolerability, and all these other things. Imagine time in range with advancement in CGM, remission, loss of weight. I mean, what else could you want?
Great. Thank you, Dr. Chen and George. I think we're running the call for about one hour. I am going to turn the call back to Dr. Chen for any wrap-up comments.
Okay. Thank you, Ziyi, and thank you everyone for joining Hua Medicine annual reports. We are looking forward to working with you and bringing this wonderful medicine in China to China and then from China to the world. Thank you again.
Great. Thank you. If you have any follow-up questions, feel free to send questions to our team of Hua Medicine or to us. Have a good day. Thank you. We're going to wrap up.
Thank you. Bye-bye.