Investing in the War Against Obesity

Obesity has become a central issue in the global health care agenda; both governments and their citizens are becoming increasingly more conscious about this problem, which is having strong negative consequences in terms of personal well-being and public health care costs. Recognizing the problem is the first step toward improvement, but we still have a long way to go in order to find permanent solutions to the global obesity epidemic.

The war against obesity is here to stay, and it will provide different opportunities for companies and their shareholders to profit from this trend over years to come.

The obesity pandemic
According to the latest annual report from the Robert Wood Johnson Foundation and the Trust for America's Health, adult obesity rates have remained level in almost every state in the U.S. over the last years. But overweight and obesity rates are still too high: More than two-thirds of American adults are either overweight or obese, 13 states have adult obesity rates above 30%, 41 states have rates above 25%, and every state is above 20%. 

Obesity is not only associated with developed countries anymore. According to a recent report by the United Nations Food and Agricultural Organization, Mexico has surpassed the US as the most obese nation in the world with a 32.8% obesity rate among Mexican adults, compared to 31.8% among adults in the United States. 

More sedentary urban jobs, coupled with a higher concentration of commercially available low-quality food and poor nutritional education are expanding the obesity epidemic in emerging countries.

Diabetes, asthma, orthopedic problems, and some types of cancer are directly related to obesity, so this has huge implications on a personal level and also when it comes to public health care costs. The world is at war against obesity, and plenty of resources will be invested in that battle over the next years.

The obesity pills
Two biotech companies are fighting for the leading position when it comes to commercializing drugs to combat obesity: Arena Pharmaceuticals (NASDAQ: ARNA  ) with Belviq and VIVUS (NASDAQ: VVUS  ) with Qsymia -- both drugs are already competing against each other in the market -- and investors have some strong reasons to closely monitor the evolution of sales.

Arena and VIVUS are relatively small companies with market capitalizations in the area of $1.54 billion and $1.23 billion, respectively. Considering the size of the opportunity, if any of them manages to achieve considerable success, investors could be rewarded with explosive returns in the middle term.

On the other hand, these companies expose investors to significant risks -- developing and marketing new drugs is always an expensive and uncertain activity -- and Arena nor VIVUS has proven the commercial success of their respective drugs. Sales of Belviq and Qsymia have been lackluster so far, and it's far too early to make any definitive assessments, so both obesity drugs are facing significant challenges.

When it comes to treating obesity, diet and exercise is still the preferred recommendation by doctors around the world, and any drug would need to prove strong efficacy and low side effect risks if it's going to change that. Both Arena and VIVUS are trying to improve insurance coverage for their drugs, and that's an important factor to watch as it could have important implications on the positive or negative side depending on the extent of coverage they manage to obtain.

Healthy living
Fortunately, not every bet on the war against obesity is necessarily a high-risk investment. Companies like Whole Foods. (NASDAQ: WFM  ) and Nike (NYSE: NKE  ) provide the chance to benefit from the trend toward healthier living habits while at the same time positioning your portfolio in high-quality businesses with rock-solid fundamentals.

Whole Foods enjoys a leadership position in the organic and natural foods industry, and the company is also one of the best managed grocery retailers in the U.S. with profit margins substantially above those of the competition.

Whole Foods has been remarkably successful in riding the healthy eating trend over the last years, and the company still has plenty of opportunities for expansion both in the U.S. and abroad. Management is forecasting sales growth in the range of 12% to 14% for 2014 on the back of 6.5%-8% comparable store sales growth and 8%-9% square footage expansion, so momentum is still strong for this organic food leader.

Nike is a global powerhouse in the athletic footwear and apparel business, and the company owns the most recognized brand in the industry, which allows it to obtain superior pricing power and above-average profitability for shareholders. Product innovation, powerful marketing campaigns, and a wide distribution network have been the company's success drivers over the last decades.

The company reported a 7% increase in revenues from continuing operations in the last quarter, and sales excluding currency charges grew at a 9% versus the same quarter in the previous year. Future orders were up 8% in the quarter, so Nike is performing strongly and is well positioned to continue benefiting from healthier living habits around the world.

Bottom line
There are different approaches to investing in the war against obesity. Biotech companies like VIVUS and Arena offer explosive upside potential if they manage to succeed with their obesity drugs, but the risks can be too high for many investors. These are high-risk, high-reward situations.

Companies like Nike and Whole Foods, on the other hand, offer much more visibility and the opportunity to invest in high-quality businesses supported by strong secular tailwinds. They don't have the same kind of explosive potential as small biotech companies, but they provide quality and reliability instead.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 28, 2013, at 2:01 PM, marp11 wrote:

    SINCE arna's marketing costs are paid by partner EISAI, that takes away your expense problem

    since BELVIQ has been on the market 9 weeks without DTC yet,and sales are 9x's better then Q'S were your

    FUD IS BEYOND FOOLISH AGAIN

    stay short

  • Report this Comment On August 28, 2013, at 2:42 PM, RSRdriver wrote:

    No matter which way these Areniacs spin the numbers, the truth is no one wants this useless drug even when it is given away for free! The latest numbers prove this.

    And, until you start telling the WHOLE truth about the numbers versus Vivus,I suggest you stick with the message board long fools. They will accept anything remotely positive about Belviq at this point!

  • Report this Comment On August 28, 2013, at 2:44 PM, marp11 wrote:

    ARNA GETS PAID FULL PRICE FROM EISAI, IF EISAI CHOOSES TO GIVE AWAY 15 DAY FREE SAMPLES

    ARNA GETS PAID FULL PRICE

    NICE TRY THOUGH

    NEXT 10K WILL BURY YOU FOR GOOD

  • Report this Comment On August 28, 2013, at 2:49 PM, RSRdriver wrote:

    SO WHAT! The numbers are what counts at this point and they point toward total failure with MD's.

    If they can't give this 'drug' away and the EU surely does not want it, bankruptcy is next! Accept it and move on. Or, is it too late for you?

  • Report this Comment On August 28, 2013, at 4:30 PM, marp11 wrote:

    You wrote: " Arena and Vivus have both been forced into discounting their respective products to gain traction, and even at that, it is not like consumers are lining up outside the doctors office to get a prescription."

    Correct about Vivus, but wrong about Arena. It is Arena's partner Eisai that has discounted its U.S. sales roll-out of Belviq, Yes or No? Please comment.

    You wrote: "forced" - I remember Eisai or Arena ever stating that--where or from whom do you arrive at that comment? My source of information is that Eisai strategized their own marketing plan PRIOR to the June-entry of Belviq into the market. Can you please comment on this?

    Furthermore, it is not Arena bearing the cost of Eisai's sales strategy to offer a 15 day free trial. Yes or No? The agreement states that Eisai bears the cost of its marketing strategy and discounting Belviq is Eisai's choice/decision, not Arena's. You seem to suggest that Arena isn't being paid for the manufacture supply (base cost) of Belviq and I flatly disagree. Please comment.

    Finally, you wrote that "it is not like consumers are lining up outside the doctors office to get a prescription." No, as in my case, I waited the usual 45 minutes sitting in the waiting room.

    I'm looking forward to your feedback. I hope you'll see that I'm inviting dialogue with you and neither of us should feel attacked as learn from each other. Thanks

  • Report this Comment On August 28, 2013, at 6:23 PM, RSRdriver wrote:

    Obviously, it is too late for you!

  • Report this Comment On August 28, 2013, at 7:07 PM, JustPassinThru wrote:

    @ RSRdriver:

    "No matter which way these Areniacs spin the numbers, the truth is no one wants this useless drug even when it is given away for free!" "And, until you start telling the WHOLE truth about the numbers versus Vivus,I suggest you stick with the message board long fools."

    And what is the "WHOLE truth about the numbers"? Is YOUR truth supposed to be the "whole" truth? Anyone following Arena and reading the message boards knows what kind of "impartial" observer you are RSR.

    Investors can get an excellent summary of how Belviq sales are doing vs. Qsymia at the same period in their product roll-outs here:

    http://stocktwits.com/message/15268613

    This chart clearly illustrates what is happening with Belviq on it's roll-out (and pre-DTC advertising launch): Belviq sales are leaving Qsymia in the dust! (Of course that is no surprise to investors following the VVUS train-wreck story...).

    "If they can't give this 'drug' away and the EU surely does not want it, bankruptcy is next!" - A perfect summary of the VVUS train-wreck corporate story. I guess it is easier to take Arena's competition's real life situation and mis-apply it Arena than invent some other fabrication? Or maybe hoping that Motley Fool readers are so out of touch with what is happening in the weight loss market that they won't notice your rearrangement of the truth?

    Of course with the previously referenced chart there isn't a comparison to two or three invented sales growth curves that a self-important Seeking Alpha non-analyst is hyping as outweighing the impressive real-world sales results of Belviq.

    I would suggest your previous comment right back to you: "Accept it and move on. Or, is it too late for you?" Arena longs know what they've got, and Arena's management's given us no reason to let go of our shares.

  • Report this Comment On August 28, 2013, at 10:26 PM, gazoo99 wrote:

    RSRdriver.....

    Things must be bad in VVUS land to have you back here again!

    You only pop up when troubles a brewing in VVUS land to try and help the shorts in ARNA....."COVER"

  • Report this Comment On August 28, 2013, at 10:28 PM, gazoo99 wrote:

    Bet the next quarter numbers for VVUS are in the "TANK" again.....

    LMAO

  • Report this Comment On August 29, 2013, at 4:54 AM, RSRdriver wrote:

    I'm sure there are ARNA "investors" right here who are impressed by message board info and pumps such as this "Stocktwits" that is quoted. I have seen other ARNA investors quote Investor Village as a qualified source too!

    The people in this game that matter only laugh but should feel sorry for some of these "longs"!

    Someone should do an investigation on how so many dimwits got into this stock!

    Is there a place you can go and tweet them up like some dimwit flashmob?

    This is a serious question and one only has to look at the same message boards (yahoo etc..) to see why.

    Someone is truly abusing these people.

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