In New York City, you can't walk into a Starbucks and feign
dietary ignorance while ordering your favorite Frappuccino. The
calorie cost stares back at you as clearly as the price.
From Wall Street to the White House - with obesity strongly linked
to the steep rise in diabetes - the slimming of America has taken
on national importance. In some states like Mississippi, located in
the geographic region known as the "diabetes belt," the incidence
of obesity is as high as 30% and over 11% of the adult population
has been diagnosed with type 2 diabetes. Along with weight gain,
age is another leading risk factor. The large proportion of aging
baby boomers emphatically correlates to this epidemic.
"I know of no other disease increasing by about 8% per year," said
Dr. John Anderson, President of Medicine and Science for the
American Diabetes Association. Throughout the country, about 79
million people with prediabetes are at risk for developing
full-fledged type 2 diabetes.
Yet amid all of the troubling symptoms and statistics, there is
good news: Movements are afoot to raise dietary awareness and to
spread knowledge about the importance of exercise in order to help
deter the onset of type 2 diabetes. In the meantime, "Although
diabetes costs are growing, we're spending the dollars
effectively," according to Matt Peterson, a spokesman for the
American Diabetes Association. "We're picking it up earlier and
caring for it better. We're getting the right value for our money."
Legendary investor Warren Buffett and visionary pharma billionaire
Phillip Frost have both voted with their pocketbooks to support
biotechs that help to treat and contain the rising epidemic.
Buffett's top biotech holding
is dialysis services provider
Dr. Phillip Frost, of
) fame, founded
SafeStitch Medical Inc.
) in 2006. Frost has the largest stake in the small biotech, which
minimally invasive anti-obesity
(bariatric) surgical procedures, markets innovative disposable
medical devices to treat obesity, and advances surgical procedures
for hernia repair.
Currently about 400,000 bariatric surgeries are performed worldwide
each year. Existing procedures are high risk, can cost as much as
$70,000, and involve open abdominal surgery. SafeStitch has an an
alternative outpatient procedure in the pipeline that is not only
safer and has a faster recovery time, but also represents a
significant reduction in cost.
Recently SafeStitch reported positive findings in a seven patient
preliminary pilot clinical trial using its proprietary transluminal
devices to restrict gastric acid reflux in three patients and to
cause meaningful weight loss of 30-60% in two obese patients after
two years. The company plans to extend the pilot study and will
submit an Investigational Device Exemption (
) to the FDA this year. "We plan to seek FDA approval in due
course," stated Dr. Jane Hsiao, current Chairman of SafeStitch
Dr. Charles Filipi, Chief Medical Officer at SafeStitch, reported,
"To the best of our knowledge, no other transoral devices have
achieved these results. By going through the mouth, there is less
risk of infection, and only conscious sedation is required. This
should result in lower costs for bariatric (weight loss) and GERD
Overall, the biotech sector is predicted to swell from the current
$950 billion in spending per year to
$1.2 trillion by 2016.
Baby boomer spending on anti-obesity and diabetes-related meds
should continue to benefit certain biotechs, especially those
associated with diabetes, where costs have mushroomed by over 40%
since 2007, totaling about $245 billion in 2012.
Buffett's Top Biotech Holding
Along with hypertension, diabetes is the biggest cause of kidney
failure, which necessitates expensive dialysis treatments for those
who aren't lucky enough to receive a transplant. Currently almost
half a million Americans depend on kidney dialysis to stay alive.
One in three patients
receive treatment from DaVita HealthCare.
Berkshire Hathaway Inc.
(NYSE:BRK.A) continued to buy DaVita throughout 2012, increasing
its stake by 127%. Like most of Berkshire's "bets," it has paid off
well, rising by over 41% to date. In early April, DaVita earned a
continued vote of confidence from Deutsche Bank, which upgraded the
biotech and forecast earnings growth greater than $9 per share in
Most of DaVita's patients --
more than 80%
-- are covered by Medicare. Among the challenges the company faces
is increased pressure from insurance companies to lower its rates
for those with private insurance. If insurers succeed in
negotiating better rates, it could have a negative impact on the
company's earnings. So far this year, Davita reported net income
for the first quarter that was 7% higher than it was a year
"The aging of America ... is going to lead to more demand for our
services," said Kent Thiry, DaVita's CEO. "Our mission is, however,
to help prevent prevent kidney failure, to help prevent other
chronic illnesses, and at the same time, reduce costs and improve
quality once people have them."