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GLP-1: The weight of expectations

GLP-1 drugs continue to hog the limelight given the huge demand across the US and other markets for Type 2 diabetes and chronic weight management.  As of CY2023, we estimate ~8.8 mn patients were consuming GLP-1 drugs for diabetes and weight loss globally. Despite factoring in the intermittent hit from genericization, we expect the global branded formulation sales of GLP-1 drugs to report a robust 10-year CAGR of 12% to reach ~US$106 bn by CY2033E with Tirzepatide and Semaglutide being the key contributors. While the market is still nascent, our analysis of the long-term opportunity suggests missing obvious Indian CDMO winners as well as heightened generic competition, thereby curbing any outsized gains for Indian companies.

While GLP-1 drugs are not new, recent advancements have opened horizons

Led by meaningful reduction in weight coupled with a better safety profile, the market for GLP-1 drugs and their combinations hold a lot of promise. Across various studies, GLP-1 drugs have demonstrated weight loss of 15-25% compared to 3-11% for non-GLP drugs. In our view, the development of GLP-1 drugs for weight loss has just picked up pace, and several additional advances can be expected in the coming years. Building on to Liraglutide and Semaglutide, the incremental success of combinations such as Tirzepatide and Retatrutide provides further impetus. Apart from these injectables, companies continue to invest heavily in developing oral alternatives such as Rybelsus. In addition to diabetes and weight loss, companies continue to explore multiple other potential benefits of GLP-1 drugs.

We expect the branded global GLP-1 market to reach ~US$106 bn by CY2033E

In our estimates for the global GLP-1 market, we either build in generic launches as soon as the patents expire or factor in settled launches prior to expiry. We have also accounted for future launches of combination drugs, such as Retatrutide and Cagrisema. We forecast the global GLP-1 API and intermediates market size (ex-generics) to stand at US$2.9 bn and US$1.5 bn, respectively, by CY2033E. While insurance coverage is not widespread yet, we expect access to gradually increase as insurers witness the long-term benefit of these drugs in reducing claims.

Missing obvious winners could curb outsized gains for Indian companies

With the supply-demand mismatch yet to be completely resolved amid burgeoning demand, there remains a possibility of the innovators (Novo Nordisk, Eli Lilly, Pfizer) increasingly utilizing the services of CDMOs. From an Indian context, we believe Divi’s GLP-1 exposure as a CDMO is limited just to amino-protecting groups (a relatively smaller portion of value chain). Nevertheless, using our forecasts for the overall market size as well as factoring in Divi’s eventual entry in GLP-1 APIs in CY2027E, we optimistically estimate an NPV of Rs258/share from the GLP-1 opportunity for Divi’s. Given the steep valuations on elevated earnings, we believe the GLP-1 opportunity is already well-captured at Divi’s CMP. In addition, several Indian pharma companies have developed or are developing the generic formulations of the GLP-1 drugs. However, beyond Liraglutide, we expect the GLP-1 generic opportunity to play out only over the long term in the US. While the market is vast, our analysis of the crowded competitive landscape for GLP-1 generics suggests limited scope for inordinate gains for individual companies.

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