3 Reasons to Focus on Diabetes

With demand for diabetes drugs set to increase rapidly, AstraZeneca, Bristol-Myers Squibb, and Pfizer appear to be well placed to benefit.

Jan 26, 2014 at 2:30PM

This week saw the release of positive news flow for AstraZeneca (NYSE:AZN) and Bristol-Myers Squibb (NYSE:BMY), with the two global pharmaceutical majors announcing the marketing authorization for diabetes drug Xigduo by the European Commission.

The drug in question, Xigduo, is a combination of Forxiga, a selective and reversible inhibitor of SGLT2, and metformin hydrochloride. The former works by inhibiting the reabsorption of excess glucose in the kidney, inhibiting SGLT2 (a sodium-glucose cotransporter found predominantly in the kidney), which is responsible for the majority of glucose reabsorption. Meanwhile, the latter works through suppressing glucose production by the liver.

The combination of the two drugs is the first regulatory approval for a fixed-dose combination of an SGLT2 inhibitor and metformin.

This is an important step for both companies, with it potentially being more significant for AstraZeneca, as it recently agreed to take over Bristol-Myers Squibb's share of the two companies' diabetes alliance joint venture. However, Bristol-Myers Squibb should still benefit from further upbeat news (and profits) as it agreed to take milestone payments and a cut of future royalties from the diabetes drugs developed through the alliance.

Even so, shares in both companies didn't react strongly to the news, with share prices being only marginally firmer following the news, before tailing off at the end of the week, in line with the wider market.

The news, though, highlights the opportunity for both companies to benefit from further positive developments in the diabetes space. Indeed, in 2013 type 2 diabetes was estimated to affect more than 380 million people worldwide, with this figure expected to reach close to 600 million over the next two decades.

Furthermore, both AstraZeneca and Bristol-Myers Squibb, as well as sector peer Pfizer (NYSE:PFE), appear to be well positioned in terms of the strength of their fundamentals, enabling them to benefit from long-term growth in demand for diabetes drugs (Pfizer is also developing treatments for type 2 diabetes).

Indeed, all three companies have strong balance sheets, as evidenced by the moderate levels of debt being held.

For example, AstraZeneca's debt-to-equity ratio is currently 43%, while the corresponding figures for Bristol-Myers Squibb and Pfizer are 54% and 46%, respectively.

Such moderate levels of debt compared with net assets could prove to be crucial for the long-term health of the three companies, since, when interest rates do eventually rise, they are more likely to be able to afford the interest charged on their debt. In other words, all three companies appear to be running balance sheets that are not overly leveraged, which puts them on a sound footing to benefit from further positive news flow.

Of course, while interest rates are low, it does make sense to refinance and to take advantage of the low cost of servicing debt. This is exactly what Pfizer has done, with the company increasing its debt-to-equity ratio from 30% in 2008 to the aforementioned 46% in 2012. This has enabled the company to increase returns to shareholders through the capital structure being made up of a greater amount of debt over the past five years, but it still remains at a sensible level to safeguard the long-term health of the company.

Indeed, the moderate debt levels of AstraZeneca, Bristol-Myers Squibb, and Pfizer seem likely to put the companies on a sustainable long-term footing with which to benefit from the expected increased demand for diabetes drugs. With the number of people affected by type 2 diabetes expected to increase by over 50% over the next 20 years, this could prove to be a highly lucrative space for the trio.

The Motley Fool's top stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Peter Stephens owns shares of AstraZeneca. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers