Investors have questioned the high therapeutic reading – relative to existing drugs in the market – of the trial’s placebo.

Lin attributed the high reading to the fact that this was the first time that a novel diabetes drug has gone through phase three trial in China, where regulators have yet to set guidelines for such trials but have demanded that patients be subject to doctors’ check-up every four weeks.

The patients, mostly recruited from rural areas and who had not previously been prescribed diabetes drugs, were also told to watch their carbohydrate intake and encouraged to exercise more as diabetes patients are normally told.

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“These Chinese patients are more likely to follow the advice, especially since they had to see the doctor every four weeks,” he said.

Shanghai-based Hua’s diabetes drug candidate – dorzagliatin – recorded a 1.07 per cent reduction in HbA1c, an indicator of how well diabetes is controlled, 0.57 percentage point better than the placebo.

This was below the 0.81 percentage points achieved in the candidate’s phase two trial, and 0.7 to 0.9 percentage points seen in four other drugs already in the market.

But Lin emphasised that the candidate still comfortably exceeded the regulator National Medical Products Administration’s requirement of a betterment of at least 0.4 percentage points for the trial.

Besides, he said investors should consider the lack of adverse side effects of dorzagliatin like low blood sugar, kidney problems and joint pain that are caused by drugs in the market.

Since dorzagliatin is supposed to “repair” patients’ damaged insulin regulating function, it can potentially be a “cure” for some patients, who will not need the drug after certain period of intake. Existing drugs only lower blood sugar when the need arises.

Lin expects the 52-week trial to be completed in late February next year and the results to be announced around three months later.

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Ahead of the drug’s commercial launch targeted in 2021, Hua will seek to clinch a licensing deal with a large multinational pharmaceutical giant for approval and sale in the US, Europe and Japan.

Hua aims to charge the potential partner royalty of 20 to 35 per cent on sales revenue.

Hua itself has to pay Swiss major Roche, which developed the drug candidate and brought it past phase one clinical trial, royalty of 7 to 9 per cent of its revenue, said Lin, a former investment banker at Bank of America and Credit Suisse.

Hua paid US$2 million to Roche in 2011 for its global development and marketing rights, and has since spent around US$150 million to bring it to phase three trial.

It expects to spend up to US$100 million next year on its trials, including one that combines dorzagliatin and metformin – a decades-old generic drug for type 2 diabetes.

China has around 120 million diagnosed diabetes patients, just over a quarter of the 460 million estimated globally.

Hua plans to charge a discounted rate of around 6,500 yuan (US$925) per year per person for dorzagliatin so that it can be included in the national health care drug reimbursement scheme.

German rival Bayer’s Acarbose, a generic type 2 diabetes drug, currently covered by the scheme, costs around 4,500 yuan per year with annual sales of around US$1 billion in China, Lin said.