On the afternoon of May 16, Gan & Lee Pharmaceutical Co., Ltd. (603087. SH) held its 2023 Annual General Meeting of Shareholders at its headquarters in Tongzhou District, Beijing. The number of investors who appeared to be on site exceeded the company's expectations, and after the meeting began, staff members continued to move chairs into the conference room so that investors standing on one side could be seated. The enthusiasm of the participants was evident.
In the past 4 months, Gan & Lee Pharmaceutical can be said to be "good and frequent". On April 23, the national insulin centralized procurement renewal bid was opened, and Gan & Lee Pharmaceutical's 6 products and related product specifications were selected in this round of procurement, and the proposed winning quotations have increased slightly to varying degrees compared with the previous centralized procurement. On April 24, Gan & Lee Pharmaceutical disclosed its latest annual report, the company's revenue in 2023 has increased significantly, net profit has turned around year-on-year, and the shadow of the first round of centralized procurement seems to have dissipated. However, judging from the questions raised by investors at the shareholders' meeting, the capacity utilization rate, the future growth space of the insulin market, and the competition in the field of GLP-1 are still full of uncertainties, and related topics have attracted the attention of investors.
Is there overcapacity?
In terms of production capacity, according to Sun Cheng, deputy general manager and financial director of Gan & Lee Pharmaceutical, the company's capital expenditure in recent years has been mainly used to invest in the construction of Shandong production base, and the construction of the plant has entered the final stage. In this regard, some investors raised the issue of capacity utilization and overcapacity risk. In his response, Sun Cheng mentioned that the construction and approval time of biological drugs is usually long, which may take 5 to 8 years, so the production capacity is generally prepared in advance.
Gan Zhongru, chairman of Gan & Lee Pharmaceutical, also said that in terms of more critical API production capacity, the current expected API production capacity scale of the Beijing plant and Shandong plant is significantly higher than the current sales scale, but considering the production capacity of GLP-1 product API, "our production capacity is enough in 3 to 5 years, but in the long run, we must expand production." Gan Zhongru pointed out that in addition to taking into account the particularity of the biopharmaceutical industry, the plant construction period is longer, "the investment of 6 tons and 8 tons of production capacity will not be too different", so although the capacity utilization rate is not high, this investment is still very necessary in the long run.
"Centralized procurement and production capacity scale is an important factor for Gan & Lee to maintain the leading position, if the price of insulin is still 140 or 50 yuan a piece that we sold at that time, it may have raised those small enterprises, but now this is not the case, large enterprises have reduced their profits to a level that cannot be reached without large-scale production." Focusing on investors' doubts about production capacity, Gan Zhongru extended his words.
Let's talk about the importance of centralized procurement
In the management's view, the low price of the first round of centralized procurement is undoubtedly the right decision for Gan & Lee Pharmaceutical. The company said in its 2023 annual report that with the implementation of the first round of centralized insulin procurement in 2022, with the help of the price advantage obtained and the opportunity of nearly 10,000 new hospitals, superimposed on the original market brand effect and the advantages of its own professional academic promotion team, the company has rapidly expanded its team and accelerated market coverage.
Sun Cheng introduced that the relationship between the volume of centralized procurement and sales volume is specific, on the basis of the purchase demand in the first year, plus the redistribution volume and the free market volume, that is, the final preparation sales. The low quotation of the first centralized procurement allowed the company to enter more hospitals, so the procurement demand in the first year of continuous procurement increased. Compared with the previous first round of centralized procurement, the rules of this successive procurement have changed, and the selection of low prices this time may no longer bring more admissions as in the first round, that is, it may not necessarily bring a significant increase in volume.
However, it should be noted that in 2023, the scale of revenue and net profit of Gan & Lee Pharmaceutical will still be significantly lower than the level before centralized procurement.
It can be confirmed that through the two centralized insulin procurement, the share of domestic manufacturers has been effectively improved, and the market share of pharmaceutical companies Novo Nordisk and Eli Lilly, which had long occupied the domestic insulin market, has decreased significantly. However, Gan Zhongru pointed out that the ultimate goal of Gan & Lee Pharmaceutical is to be the leader in China and even the world in the fields of insulin, diabetes and metabolic diseases, and to achieve this goal, innovative drugs and new products are needed. This is also the next step of Gan & Lee Pharmaceutical's plan, that is, to invest in the research and development of GLP-1 weight loss and hypoglycemic drugs, insulin weekly preparations, etc.
What are the advantages of GLP-1 drugs?
According to the disclosure, Gan & Lee Pharmaceutical's new biological drugs under development mainly include GLP-1RA weekly preparation GZR18 injection, GZR18 tablets, fourth-generation ultra-long-acting insulin weekly preparation GZR4 injection and fourth-generation premixed double insulin new drug GZR101 injection. Among them, GLP-1 target drugs have undoubtedly received more attention. Like many GLP-1 drugs currently under development in China, Gan & Lee's GZR18 is indicated for type 2 diabetes and obesity/overweight, and the annual report shows that GZR18 is the first innovative product of GLP-1RA in China to conduct head-to-head trials with semaglutide, and is currently in the phase II clinical stage.
However, at present, the competition in the field of GLP-1 drugs is fierce, and there are investors on the scene who ask questions about how the company can seize the opportunity in the fierce competition. Sun Cheng responded to this, he first admitted that this field is indeed very "volume", according to its statistics, more than 130 companies in China have begun clinical research on similar drugs. However, he also pointed out that if the progress of R&D speed, whether it is a weekly preparation, whether there is a clinical study of hypoglycemic and weight loss indications at the same time, whether the company has successful commercial experience in the field of endocrinology in the past, production capacity and other dimensions of screening, and finally can land and bring real value. "It's not like beating the drum and passing the flowers, raising the stock price and then falling down," Sun Cheng pointed out.
Gan & Lee Pharmaceutical also mentioned the company's consideration of differentiation advantages in its annual report, and commercialization ability is also a key word. "The commercialization of products is affected by the efficacy of the product, the company's production capacity, and the commercial sales team", "On the basis of ensuring the effectiveness of the drug, the company actively seeks product differentiation and efficacy to cope with the fierce market competition." The company is currently the first company to choose a domestic single-target GLP-1RA to evaluate the efficacy of the drug head-to-head with semaglutide injection," Gan & Lee Pharmaceuticals mentioned, adding that the company also emphasized its advantages in terms of production capacity and the team's years of experience in the field of diabetes.
In the future, going overseas is also one of the important directions of Gan & Lee Pharmaceutical. According to Sun Cheng, Gan & Lee Pharmaceutical's revenue from overseas emerging markets continues to grow, and its products have obtained a total of 57 drug registration approvals in 20 countries and formed formal commercial sales in 18 countries. In addition, the European and American marketing applications of the company's three products, insulin glargine injection, insulin lispro injection and insulin aspart injection, have been accepted by the FDA (United States Food and Drug Administration) and EMA (European Food and Drug Administration), which is an important step in the company's internationalization process. In addition, GZR18 under development, according to Gan & Lee Pharmaceutical's annual report, this product adopts the R&D strategy of dual clinical promotion in China and the United States, which will also be conducive to the expansion of the company's sales space in the international and domestic markets in the future.