Word to the Wise

We hear the statistics so often that we take them for granted.

According to the American Diabetes Association (ADA), nearly 17 million people in the United States now have diabetes. U.S. Health and Human Services Secretary Tommy Thompson estimates that there are nearly an equal number of people with pre-diabetes. A day doesn’t go by without some television show or magazine article telling us how obese the American people are and tying obesity to the growing epidemic of type 2 diabetes.

Sometimes, however, we become so focused on the disease of diabetes that we forget about the business of diabetes.

And diabetes isn’t just a business. It’s a big and growing business. Try taking a look at a different set of numbers.

Consider that, by most industry estimates, nearly 4 million people test their blood-glucose levels on a frequent basis (that is, two or more times each day). This estimate is below the level of testing recommended by the ADA, but it is a figure commonly used by companies in the glucose meter business. It means that, on average, people with diabetes consume more than 8 million test strips each day and more than 3 billion test strips each year.

Ever wonder why meters are regularly given away? The real money is from the continual sales of test strips. Test strips are “the goose that lays the golden egg,” in terms of profit for the meter companies.

Although the sale of test strips is the largest segment of the business of diabetes, generating worldwide sales in excess of $4 billion, it is not the only billion-dollar segment. Take a look throughout this magazine. Besides the advertisements for meters, you’ll also see ads for oral medications, insulin delivery systems, needles, sugar-free foods, and so on. With the number of people with diabetes expected to double by the year 2025, the companies involved in the business of diabetes stand to make tremendous profits.

So why not invest in these companies?

Think about this for a moment: Instead of looking at diabetes only as a disease, try looking at it as an investment opportunity. An opportunity you actually know something about.

So many people, when they think of investing for their future, broadly define their choices in areas such as technology or healthcare. All too often, they end up investing in companies they really know very little about. Many of us use a personal computer, for example, but are we qualified to understand all the details of the computer business?

Diabetes is something we live with each day of our lives—we know the details and the practical realities and the everyday problems. We use many of the products or medications that are involved in treating the disease. More than likely, we know others who also have diabetes, and we’ve discussed it with them. Why not take this body of knowledge and apply it to our portfolios?

No one would ever recommend making diabetes the only consideration when selecting investments, but why not explore an area in which you’re interested and knowledgeable?

Take, for example, those people who use an insulin pump. With Medtronic MiniMed (NYSE:MDT) controlling the majority share of the pump market, wouldn’t it be nice to own a piece of the company?

What about those of you who use a LifeScan glucose meter? LifeScan is a division of Johnson and Johnson (NYSE:JNJ). Or what about syringes, needles and lancets made by Becton, Dickinson (NYSE:BD)? Or insulins made by Eli Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO) and Aventis (NYSE:AVE)?

These are just a few of the companies actively involved in the business of diabetes. Hundreds more are involved in developing everything from noninvasive glucose meters to inhaled insulin.

Imagine how valuable a company would be if it came up with an accurate, easy-to-use, noninvasive glucose monitor.

Think that insulin available in pill form might be successful?

With the epidemic growth rate of diabetes, new companies are entering the field each day, many of whom are publicly traded.

As is true for any investment, just being in the business of diabetes does not guarantee a company’s success. For every Johnson and Johnson, there’s an Amira Medical (the failed alternate-site meter company that is no longer in business). Before investing in any company, it’s important to get as much information as possible, to allow you to make an informed investment decision.

But at least when you’re researching a diabetes company, you will be able to add just a little more insight—which might just give you an edge.

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