Chinese drugmaker Jiangsu Hengrui Medicine has got approval from the US Food and Drug Administration to conduct Phase 1 clinical trials for its drug to treat Type II diabetes.

The announcement, made on Thursday, boosted investor confidence in the company and its shares surged nearly 7 percent in the past two days. Once the drug completes the three clinical trials, it can be sold in the US markets and would be revenue accretive immediately.

Hengrui Medicine is the third Chinese drug company to get US FDA nod for clinical trials. The other two are Chinese herbal medicine companies, but until now, no made-in-China drugs have got approval for sales in the US markets.

Under US FDA regulations, the new drug has to undergo three phases of clinical trials that usually last for four to five years, before it can reach the marketplace.

Hengrui Medicine has applied for Patent Cooperation Treaty for its diabetes drug. The company has not applied to the State Food and Drug Administration for conducting any clinical trials in China and the drug is still unavailable in the mainland.

"Despite the risks and high costs, the announcement is positive from a mid-term perspective, as the clinical experiment will strengthen the company's research and development capability and help boost market confidence," said Cai Jianjun, drug analyst, Guodu Securities.

Tasly Group's Cardiotonic Pill and Kanion Pharmaceutical's Guizhi Fuling Capsule, are still undergoing clinical trials.

Clinical trials are expensive processes involving huge spends for companies. The expenditures could in some cases exceed $1 billion, said Cai.

Hengrui Medicine shares rose nearly 7 percent in last two days and closed at 38.19 yuan on Friday, following the announcement.

The global diabetes drug market is huge and has been rising rapidly. The number of diabetics worldwide is around 247 million, and the figure about China is 50 million. In 2008, sales of global diabetes drugs reached $24 billion. The market size in China is estimated to be around 7 billion yuan and set to rise 20 to 30 percent annually.

German drug firm Merck, which got approval for its diabetes drug to be sold in US markets in 2006, has since seen its sales grow nearly 109 percent to $1.4 billion in 2008, said Cai.

Dai Hongbin, secretary of the board from Hengrui Medicine, said diabetes drugs will be the new focus for the company.

(China Daily August 22, 2009)