The Soaring Diabetes Rate In The United States And Where To Invest

| About: Novo Nordisk (NVO)
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Diabetes imposes a considerable financial burden on the individual patients, U.S. national healthcare system and economy. According to the report published in the journal Population Health Metrics, one in 10 U.S adults has diabetes now, and the prevalence is expected to rise sharply over the next 40 years with as many as one in 3 having the disease, primarily type 2 diabetes. In this article, a potential investment target to ride the growing diabetes population will be presented as the causes and the developing trends for Diabetes are discussed.

Understanding Diabetes

Diabetes, referred to by doctors as diabetes mellitus, describes a group of metabolic diseases in which the person has high blood glucose (blood sugar), either because insulin production is inadequate, or because the body's cells do not respond properly to insulin, or both as explained and quoted from Medical News Today. Patients may typically experience frequent urination and will become increasing thirsty and hungry. There are three major types of diabetes:

1) Type 1: The body does not produce insulin, referred as insulin-dependent diabetes, juvenile diabetes, or early-onset diabetes, where patients usually develop type 1 diabetes before their 40th year and approximately 10% of all diabetes cases are type 1;

2) Type 2: The body does not produce enough insulin for proper function or the cells in the body do not react to insulin. Approximately 90% of diabetes are type 2;

3) Gestational Diabetes: This type effects female during pregnancy, where undiagnosed or uncontrolled gestational diabetes can raise the risk of complications during childbirth, and the baby may be bigger than he/she should be.

Patients with type 1 diabetes will need to take insulin injections for the rest of their life. They must also ensure proper blood-glucose levels by carrying out regular blood test and following a special diet. By losing weight, following a healthy diet, doing plenty of exercise, and following their blood glucose levels, some people may be able to control their type 2 diabetes symptoms. However, type 2 diabetes is characteristically a progressive disease, which gradually gets worse, and patients will probably end up taking insulin, usually in tablet form. The risk of developing type 2 diabetes is greater as we get older and for overweight and obese people. Unfortunately, U.S. is experiencing an aging trend and an increasing population with obesity. Overall, diabetes is the No. 1 reason for adult blindness, kidney failure and limb amputation, and it is a large contributor to heart attacks and strokes.

Important Numbers

While diabetes may affect as many as 1 in 3 Americans by 2050, as compared to the current 1 in 10, the previous research had suggested that the financial burden may easily double in the next 20 years, as said by David Kendall, the chief scientific and medical officer of the American Diabetes Association. David Kendall also stated, "there's a dual message here: prevention where it's feasible, and critical and early intervention for those already diagnosed."

According to the data from 2011 National Diabetes Fact Sheet, released on January 26, 2011, 25.8 million children and adults in the United States, 8.3% of the population, have diabetes, including 18.8 million diagnosed and 7.0 million undiagnosed. There are also 79 million people with pre-diabetes. In addition, 1.9 million new cases of diabetes are diagnosed in people aged 20 years and older in 2010. As quoted directly from American Diabetes Association,

"The national cost of diabetes in the U.S. in 2007 exceeds $174 billion. This estimate includes $116 billion in excess medical expenditures attributed to diabetes, as well as $58 billion in reduced national productivity. People with diagnosed diabetes, on average, have medical expenditures that are approximately 2.3 times higher than the expenditures would be in the absence of diabetes. Approximately $1 in $10 health care dollars is attributed to diabetes. Indirect costs include increased factors such as absenteeism, reduced productivity, and lost productive capacity due to early mortality."

Investment Implications

The treatments for diabetes have to be continuous and on-going for the patients. The demand for the diabetes treatments will continue to grow in the U.S. with increased population suffering from diabetes. The trend will be further boosted by the aging U.S. population and increasing obesity rate. Here, we will present an investment opportunity for investors to follow up with this growing trend: Novo Nordisk A/S.

Novo Nordisk A/S (NYSE:NVO):

Novo Nordisk A/S is a Denmark-based company, engaging in the discovery, development, manufacturing and marketing of pharmaceutical products. NVO operates two major business segments: Diabetes and Biopharmaceuticals. Diabetes division offers a range of diabetes products, including modern insulins, such as NovoRapid, NovoMix and Levemir; new-generation insulins, such as Degludes and DegludecPlus; as well as the FlexTouch insulin pen, among others. Biopharmaceuticals division (comprising roughly 25% of revenue) provides treatments for people with hemophilia, growth hormone deficiency and for women experiencing symptoms of menopause.

With roughly 50% market share by value of the global insulin market, NVO is the leading provider of diabetes care products and benefits from decades of accumulated research and marketing experiences, sticky customers, scale advantages, and a strong patent portfolio. Based on the data gathered from MorningStar, NVO's key stats will be compared to its peers in the biotechnology industry within the healthcare sector. NVO has a comparable revenue growth of 13.2 and a much stronger EPS growth of 24.5 (3 year average), as compared to the industry averages of 13.6 and 15.5. NVO had demonstrated a strong, effective operation with its 37.5% operating margin, ttm, and 27.1% net margin, ttm, as compared to the averages of 28.5% and 14.5%. NVO's ROE of 57.3, ttm, and zero debt-to-equity, as compared to the industry average of 15.0, ttm, and 2.6 is impressive. NVO is currently under-valued with P/E of 25.1, comparing to the average of 41.8. With its strong balance sheet, consistent cash flow, and growing demand, the long-term outlook for NVO is very promising. A great, insightful analysis from the SA contributor can be read here. The latest Q3, 2012 earnings call transcript from Seeking Alpha can also be accessed here.

Note: Investors are encouraged to follow this increasing diabetes rate in the United States. However, above company is provided only as a starting point for interested investors to research further.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NVO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.