The "miracle medicine" verified by Musk will be the next outlet track?

This article is based on publicly available information and is for informational purposes only and does not constitute any investment advice. 

How to lose 18 pounds in a month? Musk's answer is to control diet and take weight loss "miracle drugs." 

Because of Musk's personal "trial drug", the surprisingly effective diabetes drug "Semeglutide" quickly came out of the circle and became the most concerned weight loss drug in the world. Semeglutide is a glucagon-like peptide-1 (GLP-1) receptor agonist developed by Novo Nordisk, which enhances insulin secretion and inhibits glucagon secretion in a glucose concentration-dependent manner, thereby reducing blood sugar and weight loss. 

Semeglutide is difficult to find, which reflects people's urgent demand for weight loss drugs and the huge potential market space for diet drugs. Diet pills are likely to be the next revolutionary opportunity for the pharmaceutical industry, based on which we have conducted an in-depth analysis of this industry, hoping to answer the following three questions: 

1. Is semeglutide safe? Is it really as effective as Musk says? 2. The competitive landscape of GLP-1 diet pills 3. What are the investment opportunities for weight loss drugs in China? 

01 The mystery of the "miracle medicine for weight loss"

To understand the safety of semeglutide, investors must first understand the efficacy principle of GLP-1. 

As we all know, insulin is the most important treatment for diabetics, but if the dose is used improperly, it is easy to cause hypoglycemia, which has become the main problem that plagues diabetic patients. How to effectively avoid the side effects of hypoglycemia? "Incretin" with glucose concentration-dependent gradually entered the medical field. 

"Incretin" is a mucosal extract present in the upper part of the intestine, which promotes insulin secretion only when blood sugar rises, and loses its ability to "stimulate" insulin secretion when blood sugar levels return to normal. This "incretin effect" is the most important means of insulin production in humans after eating, accounting for about 60% of the total amount of insulin after eating. 

It is this highly selective expression of functions that makes "incretin" the most potential diabetes treatment option. 

In the 70s and 80s of last century, scientists isolated two kinds of "incretinin" in those mucosal extracts, namely glucose-dependent insulin secretion peptide (GIP) and glucagon-like peptide-1 (GLP-1), both of which are glucose-dependent and can exert the incretin effect. In follow-up studies, experts found that GLP-1 played a dominant role in the incretin effect in patients with type 2 diabetes, while the role of GIP was almost negligible. 

After humans discovered the importance of GLP-1, further research began around this target. The biggest limitation of GLP-1 sugar control is that the half-life of this hormone is very short, and it will be degraded by dipeptidyl peptidase (DPP4) within 2 minutes, so even if GLP-1 is injected into patients, it is difficult to achieve the expected effect. 

In response to the chain reaction of DPP4 degradation of GLP-1, scientists began to design DPP4 inhibitors to achieve the purpose of glucose reduction by slowing down the decomposition of GLP-1. DPP4 inhibitors have also become a new form of diabetes drugs. 

Of course, in addition to slowing down the decomposition of GLP-1, the industry has also begun to try to form analogues that will not be easily decomposed by DPP4 by modifying GLP-1 in a structural way, so as to avoid being rapidly degraded and inactivated, effectively prolong the action time, and achieve the role of treating diabetes. 

At the same time, GLP-1 receptors are widely distributed in many organs throughout the body, such as the central nervous system, gastrointestinal tract, cardiovascular system, etc. In addition to lowering blood sugar, GLP-1 is able to bind to receptors on the central nervous system to suppress appetite, reduce hunger and increase satiety to reduce energy intake. Semeglutide is based on this principle to develop GLP-1 analogues. 

Figure: Mechanism of action of GLP-1 analogues, source: TF Securities 

In the phase III clinical trial conducted by semeglutide, a total of 1961 obese subjects participated in the trial, injected with drugs and placebo, respectively, for 68 weeks under the same lifestyle intervention. FROM THE RESULTS, THE AVERAGE WEIGHT REDUCTION OF SUBJECTS IN THE SEMEGLUTIDE GROUP WAS 15.3KG, A DECREASE OF ABOUT 14.9%; THE CONTROL GROUP HAD TWO DATA OF 2.6KG AND 2.4%, RESPECTIVELY. 

Figure: Weight loss effect of semeglutide, source: AVIC Securities 

In clinical trials, semeglutide, which has outstanding weight loss effect, did not show serious side effects, and subjects only experienced mild side effects such as nausea, diarrhea, and constipation. 

Combined with clinical data, it is not difficult for investors to find that the weight loss effect and safety of semeglutide can be guaranteed. However, at present, the weight loss indications of semeglutide have not been approved in the Chinese market, and there are still great safety risks in the absence of medical advice for weight loss, so it must not be blindly used for weight loss. 

02 The intergenerational dispute of GLP-1 diet pills

Out of every ten people, there will be a fat man. Weight loss has become a must-fight place for many pharmaceutical companies to pry on for a long time. 

Although with the help of Musk, semeglutide is popular worldwide, it is not the only GLP-1 weight loss drug, another product of Novo Nordisk, liraglutide, has also been approved for weight loss indications. In addition, Eli Lilly, Sanofi, and Amgen are also eyeing this market. 

Liraglutide is a first-generation GLP-1 weight loss drug that was approved by the FDA as early as 2014 for weight loss. It can be said that it was the approval of liraglutide that kicked off GLP-1 as a weight loss drug. 

In terms of weight loss effect, although liraglutide is not as good as semeglutide, it has obvious advantages over traditional weight loss drugs, especially in terms of side effects, which greatly reduces the cost paid by users. However, since the half-life of liraglutide is only about 12 hours, daily injections are required, increasing the burden of patient compliance. 

Figure: Efficacy and side effects of currently listed diet drugs, source: Shengang Securities 

"miracle drug" semeglutide is a second-generation GLP-1 weight loss drug, which was approved by the FDA in June 2021 to treat ordinary obese patients for weight loss. In December last year, the applicable population of semeglutide was relaxed to treat adolescents over 12 years old. 

Compared with liraglutide, semeglutide has adjusted the molecular structure, greatly improved GLP-1 receptor affinity and albumin binding, not only has a better weight loss effect, but also only needs to be injected subcutaneously once a week, and patient compliance has been greatly improved, making semeglutide a hot product promoted by Musk. 

Throughout the entire weight loss drug industry chain, Novo Nordisk has become an absolute hegemon with the success of two GLP-1 drugs, and has accounted for more than 80% of the global weight loss drug share. It is precisely seeing the success of Novo Nordisk, overseas pharmaceutical giants are also busy developing a new generation of GLP-1 weight loss drugs, especially Lilly Lilly, which developed the world's first GLP-1 agonist exenatide, and it is difficult to accept the "cake" of weight loss indications exclusively by the "latecomer" Novo Nordisk. 

Based on this, the third generation of GLP-1 weight loss drugs came into being. The third-generation GLP-1 weight loss drug refers to the multi-target mechanism represented by Eli Lilly. Different from Novo Nordisk's focus on GLP-1 targets, companies such as Lilly have added new targets GIP and glucocorticin receptors (GCCRs) to GLP-1 targets, thus forming a two-target or even three-target strategy. 

Figure: Interaction mechanism between GIP and GLP-1 receptor, source: Guojin Securities 

At present, Eli Lilly's GLP-1/GIP dual-target agonist Tirzepatide is the most recently approved third-generation GLP-1 weight loss drug, and its diabetes indications have been approved, and the weight loss indications have also entered the FDA's "fast track", which is in the IND application stage, and is very likely to be approved in the United States this year. 

In the Phase 3 clinical data released by Eli Lilly in April last year, the tirzepatide highest-dose group lost 22.5% of their weight at week 72, and 63% of subjects lost at least 20% of their body weight, showing the efficacy of surpassing semeglutide, and is expected to become the most important competitor in the global weight loss market. 

In addition to Eli Lilly, Novo Nordisk itself is also developing the next generation of GLP-1 products, and pharmaceutical companies such as Amgen, Pfizer, altimmune, and Carmot Therapeutics have also laid out the third generation of GLP-1 weight loss drugs. Weight loss indications will be one of the most contested areas in the coming years. 

03 Investment Map of Diet Drugs in China

Although the story of overseas GLP-1 diet pills has been very exciting, the domestic market is still quiet. At present, only orlistat is the weight loss drug approved in the Chinese market, and no other products are on the market. 

GLP-1 diet pills are also considered promising in the Chinese market. Novo Nordisk and Eli Lilly also attach great importance to the Chinese market, and the semeglutide advocated by Musk has only been approved for diabetes indications in China, and the weight loss indication is still in the clinical phase 3 stage; Lilly's third-generation GLP-1 weight loss drug, Tirzepatide, is also in phase 3 clinical trials. 

In terms of domestic pharmaceutical companies, it is still mainly based on generic drug competition. Since the patent of the original GLP-1 diet drug liraglutide has expired, pharmaceutical companies such as Huadong Pharmaceutical, Fosun Pharma, Chia Tai Tianqing, and Tonghua Dongbao have focused on layout. Among them, the generic drug of Huadong Medicine has been approved for diabetes on March 30, becoming the first approved liraglutide generic drug in China, and the weight loss indication is still under approval; Chia Tai Tianqing, Tonghua Dongbao, and Hanyu Pharmaceutical are all in the marketing application, and the second approved generic drug of liraglutide is expected to be produced in them. 

The compound patent of the second-generation GLP-1 diet drug simeglutide will expire in March 2026, but due to confidentiality considerations, Novo Nordisk did not publish the experimental results data of specific compounds, so it was subject to patent litigation by Huadong Medicine in 2021. In September last year, the State Intellectual Property Office determined that the core patent CN200680006674.6 of meglutide was all invalid. However, since Novo Nordisk has appealed to the Beijing Intellectual Property Court, this ruling has not fully taken effect, and it remains to be seen the subsequent judgment. 

Although the patent of semeglutide has not yet been determined, domestic pharmaceutical companies such as Huadong Pharmaceutical, Lizhu Group, Federal Biotechnology, and CSPC Pharmaceutical Group have all begun to deploy generic drug research and development. It is worth noting that the semeglutide independently developed by Jiuyuan Gene, a subsidiary of East China Pharmaceutical, has entered clinical phase 3, as long as it wins the patent war with Novo Nordisk, then it can quickly enter the listing process. 

In terms of future-oriented third-generation GLP-1 diet drugs, only Innovent Biologics' GLP-1R/GCGR double agonist IBI362 has entered clinical phase 3 in China, and other domestic pipelines are in the early stage of clinical trials. IBI362 is Innovent introduced from Eli Lilly, according to the Phase 2 clinical data disclosed by Innovent, IBI362 has a maximum weight loss efficacy of 11.6% at 12 weeks, which is better than semeglutide and Tirzepatide. 

Figure: Comparison of IBI362, semeglutide and Tirzepatide, source: Shengang Securities 

Looking at China's GLP-1 diet drug market, domestic and foreign pharmaceutical companies are in a race to the death. As a global leader, Novo Nordisk's core appeal is to get the semeglutide weight loss indication approved in China as soon as possible and establish a first-mover advantage as soon as possible; As Novo Nordisk's main rival, Lilly also hopes that Tirzepatide can be approved first, and even award the pipeline to Innovent Biologics for multi-dimensional competition. 

On the other hand, most Chinese companies can take advantage of the patent void of Novo Nordisk and try to grab more market share. Among them, Huadong Pharmaceutical, which directly challenged Novo Nordisk's patent, is the pioneer and is currently the most competitive Chinese pharmaceutical company for GLP-1 diet drugs. In the future, the IBI362 introduced by Innovent has the potential to become the best product, and if this product can be launched sooner, Innovent may beat other competitors with its efficacy advantage. 

In a word, GLP-1 diet pills have become a golden track for domestic and foreign pharmaceutical companies, and the current global hegemon Novo Nordisk wants to hold the market, while other competitors want to hit the market. In this global competition, R&D speed will become the winner and loser, Huadong Pharmaceutical has taken the lead with R&D speed, and Innovent Biologics has the best products with the greatest potential.