Three Ways to Profit From a Super-Sized Trend
There are trends and mega trends… And now – thanks to the American Medical Association (AMA) – we’re on the verge of a super-sized trend.
The AMA recently changed obesity from a condition to a disease – just like cancer, AIDS, MS, hepatitis and so many others. That may not seem like a big deal, but it is.
You see, as a disease, the treatment of obesity must be covered by insurance companies under the Affordable Care Act.
It doesn’t matter how you gained the extra pounds: poor eating habits, sedentary lifestyle, or your mother’s genes. You’ll now be able to see a doctor and be treated for obesity and any ailments caused by it. And insurance companies must help foot the bill.
This may have the anthems of the world feeling a bit queasy, but weight management-related companies are licking their collective chops.
More than one-third of adults in the United States 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 six to 19 who are considered obese, and we’re talking about an epidemic.
As the author of Fast Food Nation, Eric Schlosser, states, “The annual healthcare costs in the United States stemming from obesity are approaching $240 billion.” That’s more than 20% of this country’s total medical bill.
If the rate of childhood obesity stays constant, that figure could balloon to $957 billion by 2030.
The term “obese” may conjure up images of reality TV personalities on “Extreme Weight Loss” or Dr. Phil’s latest pet project. But, in truth, it only takes an extra 30 pounds to be classified as obese. It ultimately comes down to having a body mass index (BMI) of 30 or higher. Flab, not muscle, tips the BMI scale.
And this dilemma is far more serious than your spouse asking, “Do I look fat in these jeans?” 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.
Of course, having obesity covered by insurance doesn’t guarantee that people will automatically turn to a doctor – rather than a fast food drive-through. But it’s motivation nonetheless. The sheer number of people who are obese – and the markets that cater to them – represent an opportunity to shape up our health and stock portfolios.
Facing the potential “trimming of fat” from insurance companies, at least three industries stand to benefit from the long-term fight against obesity…
Let’s take a brief look at each, along with specific opportunities for interested investors…
~ Beneficiary #1: Healthcare
The major manufacturers of insulin, the main treatment for diabetes, are Novo Nordisk (NVO), Sanofi-Aventis (SNY) and Eli Lilly (LLY). Global sales are a staggering $15.4 billion annually, increasing 400% since 2000. It’s 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 on diabetes-related costs.
~ Beneficiary #2: Weight Management
The weight management industry generates $59 billion in revenue annually in the United States alone. You might say that the potential loss of pounds by customers of Weight Watchers (WTW), NutriSystem (NTRI) and Nestle (NSRGY) – owner of Jenny Craig and Lean Cuisine – could translate into healthy gains for investors.
Personally, I like Weight Watchers for its 50-year focus on group support, sustainable food plans and behavior modification. In 2012, consumers spent $5 billion on Weight Watchers’ branded products and services. As you would expect, an economic slowdown in 2009 saw net revenue fall 8.9%. However, from fiscal 2008 to 2012, revenue compounded at an annual growth rate of 4.4% and shareholder equity rose 30%. With a little help from the healthcare system and smoother economic times, Weight Watchers will remain as much a staple as whole wheat bread.
~ Beneficiary #3: Pharmaceuticals
When it comes to the drug industry, three heavyweights basically corner the market: Roche’s (RHHBY) Xenical, Arena Pharmaceuticals’ (ARNA) Belviq and Vivus’ (VVUS) Qsymia. 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.
We can talk in great detail about how each pill differs, but all that really matters for consumers is how many pounds you can shed in what period of time (with the fewest debilitating side effects, and without contaminating any organs).
Cost is the other obvious factor, and getting insurers to cover the drugs is a key driver of sales…
For instance, Vivus experienced an abandonment rate of 30% when it first launched in September, “likely because of sticker shock from those not covered by insurance.” Belviq, made available in June, isn’t covered by most health plans, which is part of the reason some analysts think it got off to a slow start.
Bottom line: No matter how we choose to prevent and treat obesity, the real battle has just begun. The fact that insurance companies must help fund the fight could prove to be the biggest wildcard behind this super-sized trend.
Ahead of the tape,