How to profit from the obesity epidemic
Companies in diabetes treatment, weight management and weight-loss drugs could see see huge growth.
By Karen Riccio
More than a third of adults in the U.S. are considered obese, according to the Centers for Disease Control and Prevention. A report by the American Journal of Preventive Medicine says that by 2030, that figure could grow to 42%.
Add another 18% of children ages 6-19 considered obese, and we're talking about a multibillion-dollar epidemic.
That means a huge opportunity for investors in the health care sector.
Here's how. At least three industries, and key stocks in each, stand to benefit from the long-term fight against obesity: healthcare (testing/treatment of diabetes, heart disease, hypertension), weight management (dietary programs and physical activity); and pharmaceuticals (the so-called magic bullet).
This market is bigger than many realize. The term "obese" may bring to mind the 500-pound talk show guest, but that’s not the case. It only takes an extra 30 pounds to be classified as obese and to garner health risks. It ultimately comes down to having a body mass index (BMI) of 30 or higher, meaning you have too much fat.
30 million affected by diabetes
Obesity contributes to increased rates of more than 30 serious diseases. The most common, Type 2 diabetes, affects about 30 million people and is linked to excess fat and a sedentary lifestyle.
Eric Schlosser, author of "Fast Food Nation," states that "the annual health care costs in the United States stemming from obesity are approaching $240 billion,” or more than 20% of this country’s total medical bill. If the rate of childhood obesity stays constant, that figure could grow to $957 billion by 2030.
The sheer number of obese and the health care markets that cater to them mean a number of angles in for investors. Here are key industries and leading stocks:
The business of treating diabetes
The major manufacturers of insulin, the main treatment for diabetes, are Novo Nordisk (NVO), Sanofi-Aventis (SNY) and Eli Lilly (LLY). Global sales related to diabetes are a staggering $15.4 billion annually, increasing 400% since 2000.
It is predicted that by 2050, 20% to 30% of the U.S. population will have diabetes, mostly with obese-driven Type 2. United Healthcare estimates that Americans will spend $3.4 trillion over the next 10 years in diabetes-related costs.
Invested in weight management
The weight-management industry generates $59 billion in revenue annually in the U.S. alone. You might say that the potential loss of pounds by customers of Weight Watchers International (WTW), NutriSystem (NTRI) and Nestle (NSRGY) (which owns Jenny Craig and Lean Cuisine) could translate into healthy gains for investors.
Weight Watchers has focused on group support, sustainable food plans and behavior modification for 50 years. In 2012, consumers spent $5 billion on Weight Watchers’ branded products and services.
As you would expect, an economic slowdown in 2009 saw Weight Watchers' net revenue fall 8.9%. However, from fiscal 2008-2012, revenues compounded at an annual growth rate of 4.4% and shareholder equity rose 30%. Weight Watchers will likely remain one of the go-to companies for people needing to shed pounds.
Drug makers and the obesity market
When it comes to the drug industry, three heavyweights basically corner the market for obesity treatments: Xenical from Roche (RHHBY), Belviq from Arena Pharmaceuticals (ARNA) and Qsymia, a product of Vivus (VVUS).
Not expected to gain FDA approval until 2014 or 2015, Contrave from Orexigen (OREX) may eventually give the others a run for their money, but not in the short-term.
Unfortunately, no matter how we choose to prevent and treat obesity, the real battle has just begun. Good, bad or otherwise, so has the uptrend in related stocks.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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