There is a “silent epidemic” among us. It’s insidious and devastating. And it’s raging across both the US and the world. The epidemic is diabetes.Diabetes has a terrible impact on the human body. According to doctors, it can lead to heart disease, cancer, stroke, kidney failure, foot amputations, and blindness. Preventing and mitigating the effects of this disease should be a top priority for everyone.
Below are three speculative plays on this terrible phenomenon. Although only suitable for aggressive investors, each stock could pay off with outsized returns.
At first the symptoms of diabetes are subtle; you can be at risk and not even know it. The American Diabetes Association says 8.3 percent of Americans have the disease and an additional 25 percent are prediabetic, meaning they run a good chance of developing the full-blown disease. Obesity is closely related to diabetes and the rates of both are rising rapidly.
Blood sugar is at the heart of diabetes. When you eat (or drink) carbohydrates—sweets, bread, potatoes, processed foods, etc.—blood sugar levels rise. Nothing particularly wrong there; it’s how your body gets energy.
Normally, after eating, insulin does a wonderful job at keeping blood sugar levels close to the “good” range. Diabetes occurs when the pancreas does not make or use insulin properly and blood sugar levels careen out of control, wreaking havoc on the body.
Prevention and Treatment
Prevention is the only real cure for Type 2 diabetes (95 percent of cases). Once the disease develops, you can’t cure it, only control it. Today’s type 2 diabetes epidemic is almost certainly caused by the rapid shift, across the world, into eating processed foods that are high in sugar and fat and low in fiber. The disease has a strong genetic component. American Indians, Hispanics, Asians, and Pacific Island! ers seem especially susceptible.
Unfortunately, government and other organizations do a poor job getting the “bad diet” message out. Generalized advice to “change your diet, increase your level of physical activity, and maintain a healthy weight is either not heard or simply ignored.
As a result, the epidemic rages on, while the number of afflicted and the costs of treating them escalate rapidly. This presents investors with opportunities. Below are three companies whose products and services help people with diabetes stem the effects of this intractable disease.
Novo Nordisk (NYSE: NVO) is a $90 billion Danish company that derives 73 percent of its revenue from diabetic products and services. The company is the world’s largest insulin maker and has several new drugs in the FDA pipeline. In February, the company’s price plummeted after the FDA demanded additional tests for its long-acting insulin analogue Tresiba.
The company is now betting nearly $3.7 billion in the oral diabetes market that it estimates to be nearly $18 billion by 2020.
Novo Nordisk’s stock has been trending up since the Tresiba disappointment. The company has strong revenue growth and is nearly debt free.
MannKind (NASDAQ: MNKD) has been much in the news the last few years. The excitement centers on its inhalable insulin drug Afreeza. The drug breezed through its phase III trials in mid-August, but FDA approval is still uncertain.
As most insulin is taken by (sometimes painful) injection, Afreeza could be a game changer. MannKind’s fortunes will rise or fall dramatically on the FDA’s decision.
MannKind is currently not profitable and book value is negative. Investors are pinning their hopes on Afreeza. The company’s share price, over $10 in March 2010, is now a little over $5.
Biodel (NASDAQ: BIOD) is a $50 million, relatively unknown micro-cap that’s attempting to position itself in the fast growing markets for ! rapid-act! ion insulin and glucagon.
Glucagon is a rescue drug that has the opposite effect of insulin, boosting blood sugar when levels drop too low. The company hopes to prosper with fast-growing demand for these two products. Biodel predicts the glucagon market will grow 6-8 fold over the next 8 years.
Biodel’s stock, down some 50 percent since late August, may now be in buying range. In September, Biodel’s CEO bought 10,000 shares at $3.34. Currently, the price is around $2.6. Insider buying usually indicates management has confidence in their company and now you can buy Biodel 22 percent below what the CEO paid. But then, CEOs have been known to be overly optimistic.
Sadly, the diabetes epidemic shows little sign of abating. Until (or if) it does, demand for diabetic products and services is almost guaranteed. Companies that can supply better products and services for this disease should do well.
Of the three companies above, Novo-Nordisk is the most conservative play. Its size and broad array of products and services make it the “safest” investment in this volatile sector. MannKind is strongly speculative. If Afrezza is approved by the FDA and lives up to its promise, the stock could skyrocket. If not, it will likely plummet. Biodel is also speculative but its recent price decline, followed by insider buying is an encouraging sign.
All pharmaceutical companies live or die by FDA approval and the above three are no exception.
Bruce Vanderveen is a Florida-based investment analyst and writer.
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