Requirement: Explosive loading of GLP-1 macromolecules and availability of super elastic catalysts. Polypeptides have the advantages of both small molecule drugs and biopharmaceuticals, and possess unique advantages as pharmaceuticals. We believe that with the rapid increase in sales of GLP-1 star products such as semaglutide and tilboptide, the demand for peptide raw materials has explosive potential. We estimate that by 2030, the demand for active pharmaceutical ingredients (APIs) for semaglutide and tilpotide injections will reach the level of 50 tons, with a vast potential market space. Oral preparations have low bioavailability and high consumption of raw materials. We estimate that the corresponding demand will exceed 100 tons by 2030, and the demand will further increase. On this basis, the potential of GLP-1 in indications such as NASH and Alzheimer's disease is worth looking forward to. Considering the need for generic drug companies to stock up in advance before the expiration of the core patent for semaglutide, we believe that commercial orders have already begun to increase. After the increase in long-term supply, the price of active pharmaceutical ingredients will decrease. We estimate that the market size range of Simeglutide active pharmaceutical ingredients is 8.52-35.78 billion US dollars, and the profit margin is still considerable after exchanging quantity for price.

Supply: Large scale production has high barriers to entry, and high-quality production capacity is in short supply. Peptide production can be divided into biological fermentation method and chemical synthesis method, with solid-phase synthesis method currently being the mainstream. From a global perspective, Swiss companies are leading, while China is the main supplier of GLP-1 active pharmaceutical ingredients. 1) In terms of technological barriers, the production capacity of peptide drugs on a large scale is scarce, mainly due to the wide variety of potential impurities in the synthesis process, high purification requirements, high process control requirements, low purification yield, and difficulty in stable large-scale production. 2) In terms of the pace of capacity expansion: short-term large-scale capacity has not yet been released, and the supply-demand pattern will not change. The production capacity of peptide active pharmaceutical ingredients at home and abroad has just entered a stage of intensive expansion. We expect that the peak production capacity of original research drug companies Novo Nordisk and Eli Lilly will be released in 2026-2027. Overseas leaders Bachem and PolyPeptide will begin to release their new 2024H2 production. Domestic production capacity is expected to begin mass production after 2025. Currently, domestic manufacturers have publicly disclosed their expansion plans, which will increase production capacity by about 15-20 tons. Among them, there are still few enterprises with large-scale production capacity, and high-quality production capacity may be even more scarce.

The advantage of being a first mover in terms of production capacity is obvious, and we recommend focusing on companies with differentiated scale production capabilities and cost control capabilities. Considering the pace of production, we believe that the situation of insufficient supply of peptide raw materials will be maintained until at least 2026. 1) In the short term, the increase in single batch production scale has high technical barriers, and companies with ton level production capacity are scarce. Against the backdrop of supply shortage, demand is strong and performance has growth potential. 2) In the long run, enterprises with large-scale production capabilities have lower production costs and better profitability during periods of price decline. The total profit of exchanging quantity for price is still attractive.

risk

Fluctuations in core product prices, loss of core technical personnel, fluctuations in raw material drug sales, lower than expected approval and sales of formulations, exchange rate fluctuations, drug research and development risks, regulatory risks, and macro environmental risks.

Peptides have unique advantages and safety as pharmaceuticals, and the GLP-1 catalytic market is rapidly expanding

Peptides are close to small molecule drugs in terms of quality control and protein drugs in terms of activity, combining the advantages of both. Peptides refer to compounds composed of 10-100 amino acids linked by peptide bonds, with molecular weight between small molecule drugs and protein drugs, and possessing a unique pharmaceutical space. On the one hand, peptides have a simple structure, controllable quality, stable metabolism, low immunogenicity, and high resistance to protein hydrolysis, pH, and thermal degradation; On the other hand, it combines the advantages of biological activity, strong specificity, and good therapeutic effect of macromolecular protein drugs.

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The first peptide drug insulin was applied in clinical practice in 1922, and to date, the number of peptide drugs on the market has exceeded 100. At present, peptide drugs that have been listed are mainly used in the fields of metabolic diseases and tumors. In 1985, natural GLP-1 was first discovered, and in 2005, the first GLP-1 drug, Exendin-4, a synthetic exenatide, was approved for marketing; In 2017, Novo Nordisk launched long-acting GLP-1RA semaglutide; In 2022, Eli Lilly will launch the world's first GLP-1/GIP dual agonist, Telopotide.

Figure 2: Key Milestones for Peptide Drugs

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GLP-1 heavyweight products are rapidly increasing in volume and market recognition is constantly improving, presenting an opportunity for the peptide drug industry. After the launch of celebrity hypoglycemic and weight loss drug Liraglutide, the popularity of GLP-1 continues to increase. Subsequently, Novo Nordisk's semaglutide and Eli Lilly's GLP-1/GIPR dual target drug tilboptide were launched, with rapid sales growth and continuous expansion of the GLP-1 market. According to Pfizer's calculations, the sales of GLP-1 drugs could reach $90 billion by 2030. According to Frost&Sullivan's prediction, the global GLP-1 agonist market size will reach $115 billion (2023-2030E CAGR=14.3%) by 2030, and the peptide drug market size will reach $229 billion (2023-2030E CAGR=12.6%).

Chart 3: Sales of heavyweight GLP-1 drugs

Image. png Note: Exchange rate conversion (DKK/USD)=0.14

Source: Announcement from various companies, Research Department of CICC

Chart 4: GLP-1 Drug Sales Forecast for 2030

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Note: This is Pfizer's expectation

Source: Company Announcement, Research Department of CICC

The global demand for peptide raw materials has reached the level of tens of tons, and we look forward to the release of oral demand

Based on the average prices in the United States and Europe, we estimate that the sales revenue of Liraglutide+Smeaglutide+Tilpotide Injection in 2023 will correspond to a demand for approximately 1-3 tons of active pharmaceutical ingredients. We estimate that the dosage per million patients corresponds to the demand for active pharmaceutical ingredients: 6.4-10.5 tons for liraglutide, 0.9-1.0 tons for semaglutide injection, 45.9 tons for semaglutide oral formulation, and 6.3 tons for tilpotide.

Figure 5: Annual API Demand per Patient for Each GLP-1 Injection Form

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Note: Calculated based on 52 weeks per year; Exchange rate conversion (DKK/USD)=0.14; The number of patients treated is calculated based on the annual consumption; Prices and sales are calculated based on ex factory prices in the United States region

Data source: EUMEDS，KFF， Official websites of each company, announcements of each company, Research Department of CICC

We expect the demand for GLP-1 injection raw materials to reach 50 tons by 2030. We estimate that the demand for raw materials of semaglutide injection will be 5.0 tons by 2030. Assuming that the market share, except for semaglutide, is entirely occupied by tepaglutide, the demand for tepaglutide raw materials in 2030 is approximately 52.0 tons.

Figure 6: Estimated demand for raw materials of semaglutide and tilboptide injections (2030)

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Note: The population of hypoglycemic patients is type 2 diabetes (T2DM) patients, and the population of weight loss patients is overweight people with BMI>=30; Assuming the patient base remains stable

Data source: IDF，WHO，World Obesity， World Bank, China International Capital Corporation Research Department

Oral semaglutide has low bioavailability, and the demand for active pharmaceutical ingredients has super elastic growth potential. The oral bioavailability of semaglutide is still only about 0.5-1.0%, resulting in much higher oral doses than injection doses. We calculated that the per capita consumption of active pharmaceutical ingredients (APIs) for Rybelsus oral preparation for blood sugar and weight loss is 4592mg/year and 13972mg/year, respectively. Compared with the 100mg/year for Ozempic injection and 87mg/year for Wegovy, the consumption has increased by about 50-150 times, corresponding to an exponential increase in API demand. According to Novo Nordisk data, the proportion of oral preparations in semaglutide in 2022 is about 20.8%. At the same time, we refer to Pfizer's guidance that the proportion of oral preparations in the GLP-1 market will reach 30% in the future. Assuming that the proportion of oral use is 20%, the corresponding demand for oral active pharmaceutical ingredients in 2030 is 147.0 tons.

With the expiration of core patents for heavyweight drugs, API orders for generic drugs will gradually increase. Some countries and regions' core patents for semaglutide will expire in 2026, while the patent for oral semaglutide core compound "acylated GLP-1 compound" will expire in China in 2026. Considering the need for advance stocking, commercial orders for generic drugs have begun to increase in volume. In addition, the strong demand for research and development has led to a large demand for registered active pharmaceutical ingredients.

Figure 7: Major GLP-1RA Core Patent Expiration Years

Image. png Source: Official websites of various companies, Research Department of CICC

Looking forward to the "Prozac Moment" of semaglutide, the potential application scenarios of GLP-1 are expected to expand. In terms of indications expansion, non-alcoholic steatohepatitis, Alzheimer's disease, chronic kidney disease, cardiovascular and cerebrovascular diseases, etc. are the main areas of development for semaglutide, most of which have entered clinical phase III. We estimate that the corresponding number of potential GLP-1 treatment patients is 50.88 million. In addition, research on indications for GLP-1 products, including rare diseases, tumors, metabolic diseases, gastrointestinal diseases, orthopedic diseases, immune system diseases, etc., is also a blue ocean that GLP-1 products are expanding into.

Individual patient clinical solutions release out of hospital demand. To address the clinical needs of specific individual patients that cannot be met by marketed drugs, sections 503A (pharmacy dispensing) and 503B (outsourced site dispensing) of the Federal Food, Drug, and Cosmetics Act (FDCA) allow hospital pharmacies and community pharmacies to dispense drugs, or entrust outsourced site dispensing of drugs. Liraglutide, semaglutide, and tilpotide are all listed as scarce drugs by the FDA and are suitable for 503A and 503B. The registered outsourcing site must comply with cGMP requirements. Hims&Hers Health announced in May 2024 that they will launch a combination drug of semaglutide, with a starting price of $199 per month.

According to QYOBO data, the raw material intermediate of semaglutide in Q2 2024 is $568 per gram, which has remained stable since 2024. Based on this, we expect the current price of GMP grade API intermediates to remain at around 4000 yuan/gram. According to CNBC research data, the monthly production cost of Ozempic with semaglutide is approximately $4.73, which we estimate corresponds to around 3700 yuan/gram. Although there has been a significant decline compared to the high point in 2019, the absolute price remains relatively high.

Chart 8: Price Trends of Simeglutide API

Image.Pngdata source: QYOBO， Research Department of China International Capital Corporation

Exchange price for quantity, the market space is still considerable even after the price drops. Factors such as increased production capacity supply or an increase in the proportion of oral demand will lead to a decline in the average price of active pharmaceutical ingredients and intermediates. We use the average price of $398/g for Simeglutide API and intermediates as the price benchmark, with 50 tons as the median demand. Assuming the price range of GLP-1 API intermediates is $284-511/g and the annual demand is 30-70 tons, we estimate the market size range of Simeglutide API intermediates to be $8.52-35.78 billion.

Chart 9: Sensitivity Analysis of GLP-1 API Market Size

Image. png Source: Research Department of China International Capital Corporation (CICC)

The production process of peptides is complex, and the capacity for large-scale production is scarce

Peptide manufacturers provide drugs of different sizes and batches, including non GMP, GMP raw material intermediates, and formulations, from preclinical and clinical stages to drug approval for market. CMC services include the preparation of document packages such as raw material process development, scale-up production, analytical method development, gift validation, stability studies, and related batch records. The core value of peptide manufacturers lies in reducing research and development and production costs, and improving efficiency.

Figure 10: Peptide CDMO Service Content

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Source: Frost Sullivan, Research Department of CICC

Peptide synthesis technology is mature, and chemical synthesis is the mainstream. According to Peptide Research Society, as of November 2021, 68.8% of peptide molecules were prepared through chemical synthetic methods, and 22.8% were obtained through biosynthesis methods. 1) Biological fermentation method: Low cost, large commercial scale, but difficult purification, high impurities, and fewer peptide drug products that can be directly produced. 2) Chemical synthesis method: It has the advantages of low difficulty, easy accessibility, and high throughput, with high yield and purity, and is currently a popular method; Complex products can be first fermented to obtain intermediates, and then chemically synthesized to obtain target peptides. 3) Represented by synthetic biology and green enzyme catalysis, it has solved the problems of environmental pollution, insufficient production scale, and high cost.

Figure 11: Peptide Drug Synthetic Method

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Source: Frost Sullivan, Research Department of CICC

Novo Nordisk's semaglutide uses a combination of fermentation and solid-phase synthesis to prepare the main chain through biological fermentation, followed by modification and post-treatment. The side chains are then connected to the main chain, and finally purified. Eli Lilly's Tilpotide is produced through chemical synthesis (solid-phase+liquid-phase synthesis), with four branches formed first, followed by the synthesis of the main chain from the four branches and further processing and purification. Lilly's chemical synthesis method is easier to outsource and expand production capacity, while Novo Nordisk produces its own main chain.

Solid phase synthesis process dominates in chemical synthesis, with high yield and purity. 1) Solid phase synthesis: Fix the N-terminus of amino acids on an insoluble carrier resin, perform multi-step condensation of amino acids on this resin, repeat the process, and extend the peptide chain. Solid phase synthesis can be automated and is suitable for medium to long peptides. The intermediate products in each step cannot be purified and must be fed in excess. 2) Liquid phase synthesis: There are two strategies: stepwise synthesis and fragment combination, which are usually used in combination. Stepwise synthesis usually involves gradually adding connecting amino acids from the C-terminus of the polypeptide chain until the entire polypeptide chain is completed. Fragment condensation involves synthesizing each fragment and condensing them to synthesize the target polypeptide. Intermediate products can be purified and obtain physicochemical constants, and substituents can be freely modified, making them suitable for short peptides.

Figure 12: Comparison of Peptide Drug Chemistry Synthetic Methods

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Source: Medical Magic Cube, Frost&Sullivan, Research Department of CICC

The barrier to large-scale production of peptide drugs is high. There are various potential impurities in the peptide drug synthesis process, which require high purification and process control, and low purification yield, making it difficult to achieve stable large-scale production.

Low scale yield of long-chain peptide drugs: In the process of repeated addition of amino acids, as the peptide chain grows, there are more cyclic couplings. The synthesis of long-chain peptide drugs requires multiple chemical reactions, resulting in more side reactions and easy occurrence of many and large impurities such as mismatched peptides, racemic peptides, and missing peptides, leading to low efficiency and yield in the synthesis and production process.

Purification is a key technical difficulty: crude impurities are complex and numerous, and multiple purifications can cause significant losses. Among the commonly used separation and purification methods, reverse phase high-performance chromatography is widely used. To improve the separation and purification efficiency, multiple methods are often combined. In addition, a multi column system can be used to further increase yield and reduce solvent consumption.

The laboratory scale-up production route is complex: the large-scale production of peptide drugs requires high synthesis processes and production control, resulting in low yields and difficulty in large-scale production. Single batch yields can only reach the level of grams to hundreds of grams.

Figure 13: Barriers to Peptide Drug Production

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Data source: "Guiding Principles for Research Techniques of Chemical Synthesis Peptide Drugs (Trial)", Research Department of China International Capital Corporation

Figure 14: Methods for Separation and Purification of Peptide Drugs

Image. png Source: Pharmaceutical Magic Cube, Research Department of China International Capital Corporation

High quality production capacity is in short supply, and attention should be paid to industry chain companies with outstanding technological advantages

Overseas MNC production capacity will begin to be released on a large scale from 2026-2027. Due to the high demand for semaglutide and tilpotide, original manufacturers Novo Nordisk and Eli Lilly have increased their investment and acquisition efforts in production capacity. Since 2022, they have invested a total of approximately $33 billion and $13.4 billion respectively, with multiple production capacities under construction in areas such as active pharmaceutical ingredients, aseptic packaging, and injection production. Based on the company's publicly disclosed plan, we estimate that large-scale production capacity will be put into use starting from 2025, with a peak period of 2026-2027.

Chart 15: Peptide Production Capacity Construction Plan of Original Research Pharmaceutical Enterprises

Image.PngData source: announcements from various companies, official websites of various companies, IDA Ireland， Research Department of China International Capital Corporation

The GLP-1 active pharmaceutical ingredient is mainly supplied by Chinese companies, with major overseas competitors being Switzerland and India. As of July 15, 2024, there are 19 registered manufacturers of DMF for Simaglutide API in the FDA, including 13 in China, 2 in Switzerland (PolyPeptide and Bachem), and 2 in India (MSN and Sun Pharmaceutical). Nortai Biotech's Liraglutide and Simeglutide raw materials, as well as Hanyu Pharmaceutical's Liraglutide raw materials, have obtained FDA issued DMF First Adequate Letters, passed FDA technical review, and obtained quality recognition. There are relatively few registered activation manufacturers for Tilpotide DMF, with only three Chinese companies: Novotech Biotech, Paipeptide Biotech, and Harbin Jixianglong.

Swiss companies Bachem and PolyPeptide are global leaders in peptide active pharmaceutical ingredients. According to Frost&Sullivan data, the top two global peptide CRDMO market shares in 2023 are Bachem (13.8%) and PolyPeptide (10.0%). As of June 2024, the two companies had 36 and 32 FDA DMF activations, respectively. Both companies have a deep foundation in peptide production, with a history of over 50 years. According to the latest data on the official website, PolyPeptide produces half of the world's marketed peptide drugs.

Chart 16: Global Peptide CRDMO Competition Landscape (2023)

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Note: Only the market share of companies with peptide revenue accounting for over 50% is counted here

Source: Frost Sullivan, Research Department of CICC

Figure 17: Number of DMF activations by peptide API manufacturers

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Note: Data statistics as of June 2024

Data source: FDA， Research Department of China International Capital Corporation

Overseas manufacturers are in a capacity expansion cycle, and new capacity will be added in 2024H2. Bachem's production capacity is switching to a large batch production line. The company expects that after Building K 2024H2 is put into operation, Bubendorf's production capacity will at least double, and the newly built Sissler factory production capacity will be put into operation before 2030. PolyPeptide has 6 GMP production bases worldwide, and the company plans to start large-scale solid-phase synthesis production in 2024H2.

Chart 18: Overseas Peptide CDMO Capacity Expansion Plan

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Source: Announcement from various companies, Research Department of CICC

The number of domestic GLP-1 API application companies shall not exceed 10. As of July 2024, there are 5 registered active pharmaceutical ingredients for semaglutide and 6 for liraglutide in the CDE (Center for Drug Evaluation of the National Medical Products Administration). Among them, both Nuotai Biotechnology and Hanyu Pharmaceutical are registered. From the perspective of packaging specifications, Nuotai Biotechnology has the largest scale, with a single specification reaching the ton level, demonstrating the advantage of large-scale production.

Figure 19: Registration Status of CDE for Simeglutide and Liraglutide API

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Note: Data as of July 30, 2024

Data source: CDE， Research Department of China International Capital Corporation

Domestic production capacity is waiting to be released, and we expect a peak of around 20 tons. According to the impact assessment reports and announcements of various companies ENVIRONMENT, the intensive construction of new peptide raw material production capacity will be launched in 2023. We assume that the average production capacity construction cycle is about 2 years, and it is expected that the peptide raw material production capacity will only start mass production from 2025 to 2026. The total publicly available production capacity plan will reach about 15-20 tons. Assuming that the publicly available production capacity data accounts for about 70-80% of the national production capacity, we expect the peak production capacity of peptide raw materials in China to reach about 20 tons. Considering that the capacity design data in the environmental impact assessment report is relatively large, the actual capacity will be smaller than the number we calculated.

Against the backdrop of supply shortage, GLP-1 related orders have begun to increase in volume. Nuotai Biotechnology has granted customers the strategic cooperation of Simeglutide Injection and Oral Simeglutide API, contributing a revenue of 214 million yuan for GLP-1 API in 2023. Hanyu Pharmaceutical's gift customers have signed GLP-1 raw material orders with a publicly disclosed amount of 52.4-54 million US dollars (approximately 381-393 million yuan), and Liraglutide injection orders of 175 million yuan.

Chart 20: GLP-1 API Customer and Order Signing Status

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Source: Company Announcement, Research Department of CICC

The advantage of being a first mover in terms of production capacity is obvious, and we recommend focusing on companies with differentiated scale production capabilities and cost control capabilities. Peptide production capacity has just entered a phase of intensive expansion. Considering the pace of production, we believe that the situation of insufficient supply of peptide raw materials will be maintained until at least 2026. 1) In the short term, the increase in single batch production scale has high technical barriers, and companies with ton level production capacity are scarce. Against the backdrop of supply shortage, demand is strong and performance has growth potential. 2) In the long run, enterprises with large-scale production capabilities have lower production costs and better profitability during periods of price decline. At the same time, the total profit of exchanging quantity for price remains attractive.