The Truth Behind Weight-Loss, Diabetes Drugs
The REAL Diabetic Investor has a few thoughts...
When it comes to anything related to diabetes, David Kliff isn't known to sugar-coat his opinions...
Better yet, he's not afraid to be quoted on the record...
His Diabetic Investor newsletter, launched 30 years ago after receiving a diabetes diagnosis, has carved out quite a niche.
I first stumbled on Dave years ago when I was doing short research. I was looking at potentially compelling issues with DexCom (DXCM), which makes a continuous glucose monitor. After a quick conversation, I realized that going further with it as a potential short was a harebrained idea...
The stock skyrocketed, and even though it's well off its late 2021 highs, it really has never looked back...
Since then, I've called him up to pick his brain about a few companies, including one I was considering recommending to my QUANT-X System readers. (As in the past, he helped steer me clear of a potential landmine.)
► With diabetes turning into a hyper-growth business, I thought this would be the perfect time to catch up...
We talked about…
The insulin alternatives that have become popular weight-loss drugs.
Continuous glucose monitors.
Whether Eli Lilly (LLY) and Novo-Nordisk (NVO) will sell their insulin businesses.
The winners and losers in the insulin-pump business.
One under-the-radar up-and-comer he's excited about.
And which diabetes-related company he thinks Apple (AAPL) should acquire.
Starting with the weight-loss drugs…
In Dave’s view, both Lilly and Novo-Nordisk have good products – both derived from the GPL-1 class of insulin alternatives. While he believes Lilly “probably the best oral in development," when it comes to which one is best to own, he said, "I'd buy them both" adding...
These are two companies that will dominate the space. Everybody else goes for scraps and is well behind, and these drugs have long patent lives. It's a license to print money.
The rapid evolution and acceptance of these drugs, of course, has been nothing short of remarkable. That Novo-Nordisk could roll out its Rybelsus oral version during COVID and still become a billion-dollar drug, Dave says, was "a miracle."
(Note: Novo-Nordisk is up 60% since my recommendation last September in my Empire Real Wealth newsletter. You can get more information on a subscription by clicking here.)
He adds…
To show how crazy this is – and I'm astonished by this – I was told by friends there are hair salons administering [Novo’s] Ozempic to their clientele.
(We both wonder how they’re getting it! But I digress..)
What about Pfizer's (PFE) entry into the space with an oral pill of its own, which has been hailed to be as good as Rybelsus? Dave isn’t impressed, telling me…
I think the Pfizer effort in weight loss is dead on arrival, because it's two times daily and everything else is once-weekly. Plus, you have a plethora of orals coming.
A big question is whether the drugs will get drugs get insurance coverage for weight loss.
"It's pretty simple," Dave says. "It's all about money," adding...
You are going to see public pressure brought on Medicare and private payers to pay for this. They will have no choice, and I'm not sure Lilly or Novo will have to bribe them to do it like they did with insulin.
He thinks it'll wind up following the pattern of what happened with continuous glucose monitors ("CGM"). Or, as he explained...
If you look at CGM, a long time ago, people wondered if they would ever get covered, but I said it will take some time. It's kind of like chopping a tree down. You don't get it with the first swat of the axe.
It started with coverage only for Type 1 diabetics – the most severe – and has since expanded. Now, almost any insulin user can get coverage and Dave thinks it’s only a matter of time before the drugs get coverage...
The next step is they'll take away restrictions for the type of insulin, where it will cover anybody, regardless of whether the person is on orals. And the public is clamoring for this.
But if you really want to know what Dave thinks about insurance coverage, here’s what he wrote on LinkedIn, in response to a Fierce Healthcare post regarding why insurers are reluctant to cover the drugs for weight loss…
Turning to insulin… now that the price of insulin has finally come down to earth, what do Novo and Lilly do with their insulin operations?
As a commodity, insulin is "all about scale and manufacturing efficiencies so it wouldn't shock me" if somehow they sold it to someone or spun it off to get it off their books, Dave said. As he explains...
Yes, they're still making money, but it's not as obscene as it used to be, and the political environment is against them. I've been predicting this for a year, and I finally think we're at that point.
Could they keep it and milk it? Sure, but maybe they can monetize it by selling it to private equity and let them do it.
And if there is one company I could see buying an insulin franchise over everybody else, it would be Amazon (AMZN), because it's a commodity.
I mentioned CGMs earlier, and I saw a LinkedIn post by Dave that piqued my interest...
In that post, Dave said, "I've said it before and will say it again, what you see now for CGMs is just the tip of the iceberg."
By that, he is referring to the way CGMs have expanded their uses beyond diabetic insulin users. Now, even athletes are using it to monitor their metabolic health. The two leading CGM manufacturers are DexCom and the Libra from Abbott Labs (ABT). From Dave...
There is a lot you can do with this data...
All these companies are riding a wave, and it's tied to the weight-loss drugs. People are seeing a relationship between metabolic health and weight-loss drugs.
This tsunami is catching everything in its wake. Everything is going the CGM way. Devices are very patient-friendly. You slap it on your arm, you wear it for two weeks, take it off, and slap on another.
As for which is best – DexCom or the Libra – Dave says "both get the job done," but DexCom's device is considered more accurate.
Then there’s iPhone maker Apple (AAPL) … a few years ago, Dave told me that he believed Apple could wind up buying DexCom...
So here we are a few years later, there has been no deal. What does he think now? He continues to believe it’s a possibility, telling me…
It fits perfectly into their strategy. There's Apple and Android and Apple could use something like that because it binds people to their platform. And they could charge a small amount of money to do things with the data.
Dave also believes that Apple has poked around the diabetes space. He says it wouldn't surprise him if Abbott sold Libra to Apple, but he made it clear he thinks CGMs are a more natural fit, explaining...
I think they're serious about space but also deliberate about it and don't have to do this today. But now that DexCom has become more affordable (thanks to its stock, which has slid), if there's one company in diabetes they should buy, that's the one.
As for insulin pump, based on what Dave has written, it's clear he thinks one company stands out from the rest…
He continues to rave about Insulet (PODD), in large part because its OmniPod device is tubeless, meaning it isn't connected to a separate reservoir of insulin. Dave says, "It's so easy to learn," adding...
We're headed for a world in which any moron could design an insulin pump, and many have. But right now they all do the same thing the same way. So right off, the differentiating factor is design. The less steps a patient has to do, the better. So everybody is trying to head in that direction.
But not all insurance covers tubeless devices, which leaves the others with Tandem Diabetes Care (TNDM) and Medtronic (MDT) the largest.
Among the tubed, Dave is a fan of an under-the radar, up-and-comer – and privately held – Beta Bionics, whose main product recently received approval from the Food and Drug Administration. He says it's furthest along in creating a simple design for a tubed product. "It's not quite slap-on, turn-on, but it's pretty close," he told me.
He also has a warning…
With the American Diabetes Association annual meeting coming up in San Diego soon, and with CGMs being so hot, there could be a deluge of new product introductions, such as this one by Know Labs. Once again, on his LinkedIn feed, Dave cautions…
But for the real products, he says that patients don't care which device they use, "as long as it's the cheapest." He went on to say...
Older companies don't understand this. It's not a medical device; it's a consumer product. DexCom and Abbott are spending a fortune on TV advertising. Insulet is doing the same thing.
Finally, if it looks like diabetes has never been hotter, that’s because it hasn’t..
"Never in my life did I think it would be a positive to be a person with diabetes," Dave says.
The biggest focus, of course, is the weight-loss drugs. He says his private equity and professional investor friends are asking how they can make money on this weight-loss craze other than buying Lilly and Novo stock. He concluded...
That's what I've been trying to sort out. There's a lot of crap out there, but obviously I don't want to invest in crap.
Nobody does. Thanks for the thoughtful analysis, Dave!
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts, and should not be construed as investment advice.
(I write two investment newsletters for Empire Financial Research, Empire Real Wealth and Herb Greenberg’s Quant-X System. For more information, click here and here.)
Feel free to contact me at herbgreenberg@substack.com. You can follow me on Twitter @herbgreenberg.
So I have used both Dexcom and Libre and I do agree with Dave’s assessment that the Dexcom is more accurate, particularly when compared to a 90 day blood work analysis as the basis. I do think because Abbott is into so many avenues of medical care and research, I think that they could be the better company to bet on especially if we see technology blending where technology meant for one disease is used in other diseases and general health, like continuous monitoring. When they create one for blood pressure that’ll be the next technological leap forward.
(As an aside, the Medicare & Medicaid programs prefer Dexcom to Libre because Dexcom still provides a reciever unit with its latest version where the Libre Freestyle 3 dropped it assuming everyone will have a smartphone. That’ll be fixed by the time the next iteration is released.)
Simply fantastic article. From the weight loss drugs to glucose monitoring and a broader understanding of how reimbursement works....all in one article. Thank you so much Herb!