CITIC Securities: Shortage of GLP-1 Formulations Gradually Easing, Limited Impact on Overall Market Demand for GLP-1 Active Pharmaceutical Ingredients

According to the Zhitong Finance and Economics APP, Zhongtai Securities released a research report stating that since August, the status of Exenatide and Semaglutide (except for the 0.25mg/0.5ml specification) has gradually changed to "available", triggering concerns in the market about the weakening demand for compound preparations in the pharmacy market. The team believes that the GLP-1 raw material market is above the ton level, with a large market space. As the shortage of Exenatide and Semaglutide preparations gradually eases, there may be some impact on the compound preparation market. However, according to recent calculations by the team, the total global demand is estimated to be around 50.5 tons by 2030. In addition, the successful clinical trials of oral Semaglutide for weight loss indicate a significant increase in demand for GLP-1 raw materials.

The pharmaceutical sector is both offensive and defensive, actively seizing bottom opportunities. This week, the Shanghai and Shenzhen 300 Index fell by 1.56%, with the pharmaceutical and biological sector falling by 0.41%, ranking 10th among 31 primary sub-industries. This week, the sub-industries of Chinese medicine, pharmaceutical commerce, medical devices, and chemical pharmaceuticals rose by 1.16%, 0.42%, 0.32%, and 0.02% respectively, while bioproducts and medical services fell by 1.64% and 3.48% respectively. This week, the pharmaceutical sector saw some structural rebound, with a clear style switch between highs and lows. However, the overall market is still weak, and the rebound is not strong. Zhongtai Securities advises to continue to grasp the fundamentally strong sub-sectors and individual stocks, focusing on sectors with expected marginal improvement and policy catalysis, such as: ① in-hospital drugs, diagnostics, and equipment with expected improvement and policy catalysis, ② specialty raw materials and low-value consumables with continuous improvement in fundamentals; on the other hand, actively seize the opportunities of previously strong stocks with no fundamental concerns after a pullback, such as ③ undervalued, stable growth state-owned enterprise reforms, high dividends; ④ high-growth, high-elasticity GLP-1 industry chain. In addition, during the August performance disclosure period, seize stocks that may exceed expectations and have fast apparent growth.

The shortage of GLP-1 preparations is gradually easing, with limited impact on the overall market demand for GLP-1 raw materials. Since August, the status of Exenatide and Semaglutide (except for the 0.25mg/0.5ml specification) has gradually changed to "available", triggering concerns in the market about the weakening demand for compound preparations in the pharmacy market. Zhongtai Securities believes that: ① the GLP-1 raw material market is above the ton level, with a large market space. As the shortage of Exenatide and Semaglutide preparations gradually eases, there may be some impact on the compound preparation market. However, according to the recent calculation in the report "Sanofi Bio: Comprehensive Layout in the Peptide Field, Capacity Release Welcomes Rapid Development" released by Zhongtai Securities, the total global demand is estimated to be around 50.5 tons by 2030; ② the successful completion of the Phase III OASIS1 weight loss study for oral Semaglutide (50mg, once daily) and the Phase III OASIS4 weight loss study for oral Semaglutide (25mg, once daily) indicate a significant increase in demand for GLP-1 raw materials: In July 2024, the marketing application for oral Semaglutide (25/50mg) has been recommended for approval by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA), and the European Commission (EC) is expected to make a decision within two months. The use of oral Semaglutide is significantly increasing compared to injections, so as oral Semaglutide weight loss indications are gradually approved, the demand for GLP-1 raw materials is expected to increase significantlySemaglutide and Tirzepatide sales remain strong, continue to focus on investment opportunities in the GLP-1 peptide industry. ① On August 8th, Lilly announced that the sales of Tirzepatide in the first half of 2024 were approximately $6.66 billion (+330%), exceeding market expectations. At the same time, it announced the submission of a new indication for Tirzepatide for the treatment of moderate to severe obstructive sleep apnea (OSA) in the United States and the European Union; ② On August 7th, Novo Nordisk announced that the sales of Semaglutide in the first half of 2024 were approximately $13 billion (+43%), with continued strong growth. Zhongtai Securities believes that with the rapid increase in heavyweight peptide drugs, continuous exploration of new indications, and ongoing development of multi-target drugs, the peptide industry chain is expected to usher in a new period of rapid growth. Leading companies in advanced segments are expected to enjoy the benefits first, achieve high-speed growth, with a focus on: Novotech Biotech, Shengnuo Biotech, Auric Bio, Hanyu Pharmaceutical, Borui Pharmaceutical, etc.

Medical Insurance Bureau releases the preliminary list of drug names, focusing on flexible varieties. On August 7th, the Medical Insurance Bureau's official website released the "List of Drug Names Passed Preliminary Review," involving 244 varieties outside the catalog (including Western and Chinese medicine, the same below), and 196 varieties within the catalog. Zhongtai Securities believes that the first inclusion of medical insurance usually has significant implications for commercialization volume. Inclusion in the catalog will play a significant role in various aspects such as product access to hospitals, departments, and treatment plans. At the same time, a significant reduction in medical insurance payments will greatly increase penetration rates. Recommendations include: ① Self-motivation field: Hengrui Medicine, China Biologic Products, Kangfang Biotech, etc.; ② Fundus vascular disease field: Kanghong Pharmaceutical, Beida Pharmaceutical, Rongchang Biotech, etc.; ③ High-priced rare disease field: Xinda Biotech, Ailis, etc.; ④ Major single-product negotiations: Shanghai Yizhong, Sansheng Pharmaceutical, etc.

Key recommended stock performance: Key recommendations for August: CR Sanjiu, Kangfang Biotech, Federal Pharmaceutical, Novotech Biotech, Xianju Pharmaceutical, Jiudian Pharmaceutical, Sansheng Guojian, Auric Bio, Novozan, Jiuhuang Biotech. Zhongtai Pharmaceutical's key recommendations fell by an average of 3.77% this month, underperforming the pharmaceutical industry by 3.51%; this week, the average decline was 2.43%, underperforming the pharmaceutical industry by 2.02%.

Weekly Market Dynamics: Analyzing the pharmaceutical sector from the beginning of 2024 to the present, the pharmaceutical sector's return rate is -21.1%, while the Shanghai and Shenzhen 300 index's return rate is -2.9% during the same period. The pharmaceutical sector underperformed the Shanghai and Shenzhen 300 index by 18.2%. This week, the Shanghai and Shenzhen 300 index fell by 1.56%, the pharmaceutical and biotechnology sector fell by 0.41%, ranking 10th among 31 primary sub-industries. This week, the sub-industries of Chinese medicine, pharmaceutical commerce, medical devices, and chemical pharmaceuticals rose by 1.16%, 0.42%, 0.32%, and 0.02% respectively, while biologics and medical services fell by 1.64% and 3.48% respectively. Calculated based on the 2024 profit forecast valuation, the current valuation of the pharmaceutical sector is 19.4 times PE, while the overall A-share market (excluding the financial sector) has a P/E ratio of approximately 14.9 times, resulting in a premium of 30.4% for the pharmaceutical sector relative to the overall A-share market (excluding the financial sector). Calculated using the TTM valuation method, the current valuation of the pharmaceutical sector is 24.0 times PE, lower than the historical average level (35.5 times PE), resulting in a premium of 36.0% for the pharmaceutical sector relative to the overall A-share market (excluding the financial sector)Risk Warning: Risks of policy disturbances, drug quality issues, and the risk of information lag or untimely updates in the public data used in research reports