The numbers are sobering. Approximately 24 million Americans today have diabetes, and another 12 million are expected to be diagnosed by 2020, according to the American Diabetes Association. One survey puts the toll of lost productivity and caring for diabetes patients at $218 billion annually in the U.S. alone.
Yet for investors, the fast-growing diabetes industry suggests something else: opportunity.
Each week seems to bring another development. Earlier this month, Swiss pharma giant Roche Holding AG announced its acquisition of a unit working on a new type of insulin patch. That development came on the heels of AstraZeneca's rollout of the new diabetes drug, Onglyza, in India — a country that is projected to have the most diabetes cases globally by the end of 2010, according to the International Diabetes Federation (IDF). In January, Novo-Nordisk got approval for its new once-a-week diabetes drug, Victoza, one of a new generation of similar medications.
Of course, not every new diabetes product is a success. The FDA may be considering halting trials of GlaxoSmithKline’s diabetes treatment Avandia due to possible side effects like increased risk of heart attack. (In a statement, GlaxoSmithKline says it “welcomes additional scientific information that could help guide decisions around clinical trials and ultimately patient safety.”) Inhaled insulin drugs have also been something of a bust, with Eli Lilly, Pfizer and Novo-Nordisk abandoning efforts to develop those products.
Who are some of the biggest players? Here is a look:
Roche Holding
Ticker: ROG.VX
P/E ratio: 19
Stock price change YTD: -2.0% (as of April 29, 2010)
With $137 billion in global revenues, Roche is the biggest single player in the diabetes market. Among its hundreds of products, Roche makes blood glucose meters, lancing devices, data management systems and education programs, all related to diabetes.
In early April, Roche drew attention when it announced the acquisition of the Medingo unit of Elron Electronics. Medingo makes patches that let patients regulate the amount of insulin they take through the use of a remote control. The technology is considered promising because “it’s less invasive, and more comfortable, as well as more sanitary, as needles can be prone to infection,” says Andreas Dirnagl, managing director of health care services at Stephens, Inc., a financial services firm.
Elsewhere, Roche is betting on Taspoglutide, a Type 2 diabetes drug in the development stage which it hopes to file for FDA approval next year. Taspoglutide has drawn interest in the industry because it allows patients to inject the medicine just once a week, instead of daily, says Andrew Weiss, Bank Vontobel analyst. If approved, the medication eventually could add up to more than $2 billion in peak sales, analysts say.
Fresenius Medical Care North America
Ticker: FMS: 54.12*, -0.09, -0.16%
P/E Ratio: 18.41
Stock price change YTD: -3.36%
In its more advanced stages, diabetes can lead to kidney failure — a condition affecting 1.7 million people around the world today, according to Fresenius Medical Care North America. The company, a subsidiary of a German concern, offers dialysis care services in centers, at home and in hospitals. FMS says it has 2,553 dialysis clinics and some 195,650 patients world-wide, up from 1,680 clinics and 131,450 patients in 2006. At least some of that growth has come through acquisitions. In 2006, Fresenius’s purchased Renal Care Group, a Nashville, Tenn.-based dialysis services provider.
More recently, in 2008, the company paid $4 billion for Illinois-based APP Pharmaceuticals, maker of heparin, a blood-thinning drug used in dialysis treatments. (APP became the primary provider of heparin in the U.S. in 2007, after Baxter International (BAX: 47.68*, -0.55, -1.14%) withdrew its version from the market.) FMC’s dominance on the clinic side and its control of the heparin market sets it up for a healthy revenue stream, says Dirnagl. He adds that the business will just keep growing, as “no current technologies are on the horizon that would make dialysis obsolete.”
Eli Lilly and Amylin Pharmaceuticals
Eli Lilly
Ticker: LLY: 35.04*, +0.00, +0.00%
P/E Ratio: 9.10
Stock price change, YTD: 1.50%
Amylin
Ticker: AMLN: 20.83*, -0.69, -3.20%
P/E Ratio: N/A
Stock price change: YTD: 43.3%
These two companies are longtime players in the diabetes market, and in 2002 teamed up to produce the injectible Type 2 diabetes drug, Byetta. The newest iteration of Byetta (which is still in development) would be injected once a week, like Roche’s Taspoglutide and Novo-Nordisk’s Victoza. All three drugs operate on similar principles and are being promoted by their makers as more comfortable for patients.
But the yet-to-be released variant of Byetta hit a stumbling block in March, when the FDA asked for more information and delayed its introduction. The problem: Although weekly Byetta has shown to help glucose-control and weight-loss, it has also been linked to pancreatitis, says Steven Silver, an analyst at Standard & Poor's in New York. Lilly says it is working to better understand the link between Byetta and pancreatitis.
Separately, Lilly in 2008 ended development of its inhaled insulin drug, citing “increasing uncertainties in the regulatory environment.” It followed in the footsteps of Pfizer (PFE: 16.77*, -0.09, -0.53%), which in late 2007 pulled its inhaled insulin product, Exubera, off the market and gave back the drug rights to a partner company, Nektar Therapeutics.
Novo-Nordisk
Ticker: NVO: 82.21*, -0.23, -0.27%
P/E ratio: 20
Stock price change: YTD: 24%
NVO blazed a trail in 1923 when it became the first company to market insulin. Today, the $56 billion firm supplies more than half of the world’s insulin — a product that has racked up 31 consecutive quarters of double-digit sales growth, according to a spokesman. It also has a range of other insulin products, including the FlexPen, which allows insulin to be administered though a pen-like device. In 2009, the company’s diabetes arm brought in around $7 billion, a 12.4% increase from 2008, and spent $1 billion in diabetes research.
Like Lilly, Novo-Nordisk also has a drug injected once a week aimed at improving blood-sugar levels as well as weight control. But while Lilly and Amylin’s newest form of Byetta is awaiting FDA approval, the Novo-Nordisk version, called Victoza, won FDA approval in January 2010. (It has been available in some European countries and Japan since 2009.) According to Novo-Nordisk, global sales of Victoza in the first quarter of 2010 were $68 million.
Sanofi-Aventis
Ticker: SNY: 34.18*, +0.05, +0.14%
P/E ratio: 7.8
Stock price YTD: - 7%
France’s Sanofi-Aventis has long been known for its popular insulin, Lantus, and the company continues to broaden its diabetes offerings. It has a number of new products in the works, including Lixisenatide, a drug to manage Type 2 diabetes, which just completed a final-stage study.
The $98 billion company continues to expand into other realms, as well. In early April, Sanofi signed a long-term agreement with New Hampshire-based AgaMatrix for the development, supply and commercialization of blood glucose monitoring (BGM) solutions. "There is ample room for growth in the diabetes treatment area, given the size of the market, the unmet medical need, and safety concerns over current treatments," says Standard & Poor's Silver.
DaVita
Ticker: DVA: 62.50*, -1.46, -2.28%
P/E ratio: 15.73
Stock price change YTD: 8.17%
Denver-based DaVita, with a market cap of $6.6 billion, runs about a third of all dialysis clinics in the U.S. -- approximately the same number as Fresnius. In 2005, the company paid $3.1 billion for the U.S. renal care business of Sweden’s Gambro Healthcare. Other than that, DaVita says it has been growing organically about 4% to 5% a year. It is now in the process of buying the University of Chicago Medical Center’s three off-site dialysis clinics, a deal which should be finalized by late summer.
“Really over the long term, the only way that dialysis is going to see a downturn or become obsolete is if there is a cure for diabetes,” says Stephens’ Dirnagl. Cutting down on the number of new patients, along with discovering ways to grow or implant substitute or artificial organs could hinder the dialysis market, he adds. But “either one of these things is clearly more than a decade down the line at a minimum right now,” he says.
