Market Analysis

Industry Watch: The Growing Diabetes Risk

Firms that can meet a growing global health risk are poised to benefit.

Global type II diabetes rates are growing fast. Type II diabetes incidence in the United States and other Western nations is approaching 1 in every 10 individuals.i While this high incidence and the related spending to treat the disorder makes the developed world countries the most financially important diabetes markets, type II diabetes growth rates in the developing world are also rising. In fact, diabetes in China grew at nearly twice the global pace over the same period.ii The increased incidence of the disease isn’t lost on certain mega-cap Pharmaceuticals firms.

Not to be confused with type I, or juvenile diabetes, 90% of diabetics are type II and diagnoses grew globally at over 8% annually in the last decade.iii Regardless of type, diabetes sufferers don’t produce enough insulin to properly control blood glucose levels. The disorder typically requires insulin injections for the body to function properly—left untreated, diabetes can result in severe and irreversible health damage—even death. While type II lacks a singular, identifiable cause, it is commonly linked to weight gain and inactivity—two conditions on the rise in developed nations. This has created growing demand for insulin, monitoring devices and wound care (among other directly and indirectly related treatments), increasing profits for businesses that provide them.

But type II is also on the rise in developing nations. A wealth explosion over the past decade improved living standards for millions of Chinese. One of the first things to change as economic situation improves is diet. Overall, this is a long-term societal improvement. However, an introduction of foreign and processed foods as well as a more sedentary urbanized work environment introduced a relatively modern phenomenon in China—obesity.

What’s more, because increasing wealth and improved diet is a relatively recent (and overall welcome) development in China (and other Emerging Markets), there’s compelling evidence type II incidence rises with a relatively smaller weight gain than is typical in Western populations. That may certainly change, but for now, China’s aging and increasingly wealthy population should mean increasing type II rates for some time. Further, the disease remains underdiagnosed. The International Diabetes Federation estimates an astounding 92 million adults in China currently have diabetes—like the rest of world, half of those individuals do not yet know it.

Which means, globally, diabetes incidence is not only growing, it is a chronic disorder requiring most patients to administer life-saving but costly insulin products likely for a long period, possibly the remainder of their lives. This has recently positively contributed to the earnings growth of Pharmaceuticals companies that carved out a niche in the diabetes-care business relative to peers. Mega-cap Pharmaceuticals firms with the global distribution channels necessary to respond effectively to this health risk are well positioned to see increasing revenues from diabetes-related products.

That’s one factor favoring mega-cap Pharmaceuticals now. The other is a more macro feature—we believe we’re in a maturing phase of the current bull market. This is a period when investors who have been skeptical all along typically gain confidence in the expansion and buy in, generally favoring the largest, best known stocks (i.e., mega caps) or broad index funds which are heavily weighted to those stocks. Then, too, the heady earnings growth rates of the early bull market tend to moderate at this stage. Slowing growth rates shift investor preference to firms with more market share, strong balance sheets and globally diversified end markets that drive stable cash flows—characteristics of mega cap stocks. Mega-cap Pharmaceuticals fit those themes perfectly.

i International Diabetes Foundation: Diabetes Atlas

ii International Diabetes Foundation, Diabetes Atlas, China 14.8% CAGR, Global 8.4% CAGR.

iii International Diabetes Foundation, Diabetes Atlas.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.