Procter & Gamble's Prices, China's Population, and More

In this podcast, Motley Fool senior analyst Bill Mann discusses:

• Procter & Gamble bumping up against the limits of its pricing powers.
• Why China still has a demand problem.
• How companies in the U.S. are moving some operations from China to Vietnam and India.

Motley Fool senior analyst Sanmeet Deo talks with Dexcom CEO Kevin Sayer about his company's work in continuous glucose monitors and a major shift affecting the future of healthcare.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Jan. 19, 2023

Chris Hill: This episode is brought to you by Gravity. Gravity has been keeping stuff on the ground since the beginning of time. To learn more, go to gravity.org. We've got healthcare, consumer goods, and some data out of China that investors might want to know about Motley Fool Money starts now. I'm Chris Hill, and joining me today, Motley Fool Senior Analyst Bill Mann. Thanks for being here.

Bill Mann: Hey, Chris. How are you doing?

Chris Hill: I'm doing all right. I want to start with Procter & Gamble. By the way, before anyone wonders, why are you talking about a boring company like Procter & Gamble? I'm just going to point out that over the past one year and the past five years, P&G has solidly beaten the S&P 500.

Bill Mann: I don't know why you're stepping on the lead with Procter & Gamble though, because boring is beautiful in the stock market.

Chris Hill: I agree. I'm just saying, occasionally, we hear from the dozens of listeners and they express their opinion on boring companies.

Bill Mann: I think you've got to be more secure in your willingness to dive into the companies that people think aren't necessarily cutting edge, because you know what is cutting edge? Making money.

Chris Hill: Absolutely. P&G second-quarter profits and revenue were in line with expectations, but they actually fell compared to a year ago. We've talked before about Procter & Gamble being, in some ways, a surprising candidate for being a business that has pricing power. But it seems like this quarter is showing us and showing P&G the limits of their pricing power, because I'm reading this latest quarter as people are trading down for, among other things, the detergent that they're willing to pay for.

Bill Mann: Yeah. The most famous one of those companies is Wrigley, and Wrigley was the company that Charlie Munger once very famously said, they could move the price of their gum up a nickel, because people are still going to pay up for Wrigley because the mouth is a very personal place. It turns out, when you're looking at a company like Procter & Gamble, that it is a branded product company and so they make products like Oral-B and Bounty and people buy those because they believe that they work. But you're right, they are discovering that there may be a limit, because they raised prices by five percent, but their overall demand decreased on a product basis, six percent. Companies really have to be careful about things like that, one that believes that they have pricing power, because you can raise prices and raise prices and raise prices and people will not hesitate to pay, but there is a limitation and I think Procter & Gamble may be finding right now that they need to rethink what their strategy is as it comes to pricing.

Chris Hill: But am I correct that Procter & Gamble is a more nimble business in terms of what they choose to charge for their different products than, say, a business like Chipotle, which has pricing power. But Chipotle can't really yo-yo the price of their burritos on a weekly basis in the same way that P&G can do with detergent.

Bill Mann: It's a really funny point that you make and it really does speak to the difference between products that you buy in grocery stores versus when you go into a restaurant, where you are making multiple purchases and so what you tend to react too, is maybe very fancily we can call it price of cart, as opposed to the two or three items that you get when you go into a Chipotle or into any other restaurant, so yes, it does have something to do with it, but I think that the overall price of a shopping experience does, in fact, get people to pay attention to those places where, while I've got Bounty and Bounty is the quicker picker upper, I could just as easily buy the store brand and it will be fine at two-thirds of the price.

Chris Hill: Earlier this week, we got data from the National Bureau of Statistics that China's population declined in 2022. This is the first time this has happened since the 1960s and one year previously, China's population growth in 2021 was 0.03 percent, which was the lowest on record. You pay more attention to China than I do. When you heard the data earlier this week, you thought what?

Bill Mann: I thought that, as I generally think whenever I think of Chinese statistics, why did they report this now? I suspect that this means that their population has actually been declining for years and I think that we are now at the find-out stage of the very cruel multi-decade one-child policy that China had, which they have scrapped, but it really does take some time and just like we were talking about with Procter & Gamble, Chinese lives have been built around a smaller number of kids and so just lifting and changing that policy doesn't mean that everyone is suddenly going to start making a lot more babies, so I think that what we're seeing in China, again, and we've talked about this before, a crazily unbalanced economy, which where most of the growth comes on the supply side for exports, but also in things like land sales. They have yet to figure out how to encourage Chinese citizens to demand more, to consume more and I think that you are about to see a real challenge in China from an economic basis.

Chris Hill: What does that mean for businesses like Apple, Starbucks, and others that part of the bull case for these American businesses is their growth opportunity in China?

Bill Mann: Well, I think that you've got to put those two things in context. The reason that there's a growth opportunity in China has not been so much based on the population growth and it's had to do with the fact and I really do stand on this, the Chinese miracle of taking nearly a billion people from poverty into the middle-class is one of the greatest economic success stories that has happened in history, so there still is the potential for development there, there still is potential for Chinese citizens to raise their per capita income, to raise their spending, so I think we're actually OK thinking in terms of consumption. Think about what I just said a second though, Chris, they're actually trying to figure out how to get them to consume more in China to rebalance that economy. So I think it's actually an OK situation for them, but there are greater implications in terms of China's both implied and actual standing in the world in terms of how important it is as an economy.

Chris Hill: Let's just go ahead and assume that at some point, whether it's later this month or later this year, we get some official declaration by the global powers that India is now the most populous country in the world.

Bill Mann: They are the most likely candidate, aren't they?

Chris Hill: They are the most likely candidate and most likely to continue growing. As an investor, what should you do with that information? Should you start ratcheting up if not your exposure to India as a market, at least what you're learning about opportunities in India?

Bill Mann: I think that many of the opportunities in India are basically the same as the opportunities that happened in China. Going back to Procter & Gamble, one of the things that we know from 2020 is that they had most of their products were dependent upon, in some part of the supply chain, something in China and that's changed a great deal. They looked at that and they said, that's a single point of failure, that's not something that we should allow to remain a risk for us.

Where have they moved? They've moved to Vietnam, they've moved to Bangladesh and they've moved to India a lot, so I think you see two different things happening in India. Yes, the population is still rising, which means that they've got a massive amount of people really below 20 years of age. But you're also seeing a point in time in which India is becoming a much more trusted partner for a lot of parts of the supply chains for a lot of Western companies and I think that matters. It may not be that we have the capacity to export deflation like we did to China in the 1980s that we would in India, but there still is a lot of room for much more deep economic cooperation between Western companies and countries and India.

Chris Hill: Bill Mann, always great talking to you. Thanks for being here.

Bill Mann: Thanks, Chris. 

Chris Hill: Some healthcare companies cover a lot of ground while others have a singular focus. Kevin Sayer is the CEO of Dexcom, which makes continuous glucose monitors for people with diabetes. Shares are up more than 650 percent over the past five years. Motley Fool Senior Analyst Sanmeet Deo caught up with Sayer to talk about the problem his company is solving and a major shift affecting the future of healthcare.

Kevin Sayer: People who battle diabetes have always needed information to better control their disease and when we started this journey, at Dexcom was way back in 1999, and the goal of the company was to make a glucose measurement technique, it was better than fingersticks. At that point in time and for quite some time, the only way people can manage their diabetes, particularly those on insulin, was to stick their fingers multiple times a day, which literally involve putting a needle, picking your finger, getting a drop of blood, and reading that and it would give you a value at a point in time and based on that one point in time, people would make decisions, particularly those in insulin, what am I going to do? How much insulin do I take if I'm about to eat this meal? We felt that there were better ways to do that and devoted ourselves to developing continuous glucose monitors to whereby instead of sticking your finger, we can provide that data to an individual on a regular basis with a connected device.

The way we solve that problem changed over time. We originally were going to put an implantable thing in your body that would last for a long time. We have right now a disposable subcutaneous sensor. That's a little sensor, literally, the width of human hair that goes in under your skin a little bit, not even half an inch and that generates electrochemical signal, which becomes an estimated glucose value and those glucose values are transmitted to the technology where a customer wants to see it either on their phone or on an insulin pump, possibly on a watch or another shared device. At this point in time, in addition to giving individuals data every five minutes, instead of sticking their finger 288 times a day, we have alerts and alarms that will warn people if they're too high or too low and have a dangerous healthcare event coming, a possible dangerous event coming. We also allow that data to be shared. If you've met parents of young children that have Type 1 diabetes, their biggest fear is sleep time because maybe the child would go too low. Well, our technology literally enable people to sleep.

Because if those in their care circle go low at night or have a dangerous event, they can get woke up on their own phones and go take care of that. We've made a number of advances in this technology. It's gone from being a very small company as we started off, the revenues the year before I started were $40 million in 2010 and I came here full-time in 2011. Our revenues we announced this week were $2.91 billion for the year 2022 and our user base has grown to 1.7 million customers around the world, so the technology is grown very quickly and it's also a very serious problem. People need this information, they really, really do. Well, the best part of my job, quite honestly, and I'll start quickly, but I'm one of the few guys in the world who can walk through an airport wearing a Dexcom shirt and people run off and hug me because they're so grateful for what this device has done in their lives. I would like to think it's because I'm amazing, but I'm not, I just get to represent a technology that is really important and has really had a big influence on not just individuals but entire families, so it's been great.

Sanmeet Deo: It's amazing the technology that you guys have. Just to frame the industry, diabetes, as many people know, is, unfortunately, growing in the amount of patients. What is the industry size? Who do you serve in that area? Just to break it down for viewers that may not be aware.

Kevin Sayer: That's a very good question. Up to this point in time, the majority of our system users who come from those who have Type 1 or Type 2 diabetes who require multiple shots of insulin a day, and that is where the majority of our current users come from and this technology is, as I talked about yesterday, about 50 percent of people in that category in the US use continuous glucose monitoring a lower percentage than other geographies because we continue to get reimbursement and expand in those areas. Recently, CMS expanded CGM coverage for those who take any insulin, and that should double the size of that addressable market in the US ultimately to about seven, between seven and eight million individuals.

Over time, what we see in this correlates directly with diabetes. Diabetes is growing rapidly all over the world. From the statistics that I cited yesterday, my presentation, there were 150 million people with diabetes in 2000, there's over 500 million with diabetes today and the cost of taking care of these people just continues to go up. We believe that with proper information from our sensors, we can drive those costs down across the diabetes spectrum, not just in those with intensive insulin, but those who take drugs for Type 2 diabetes as well, Dexcom CGM has a very positive effect.

Sanmeet Deo: One thing I noticed I remember seeing in your presentations were, if you do the point-in-time, glucose monitoring, it might look good at that single point in time, but what you're going through throughout the day is almost more important, you could've been too high in your glucose readings for the day and not have known it if you're not doing this continuous monitoring or too low, and so that can be a big issue.

Kevin Sayer: Yeah. In fact, there's a demonstration that we often show an individual taking four fingersticks a day can look quite decent. In fact, you can almost, if you're taking care of yourself time those, my mother had Type 2 diabetes. She would stick her finger once a day, but she'd stick it at 07:15 every morning so she'd get a good reading because she hadn't eaten anything yet and she'd say, "Look, I'm healthy," when in fact she really wasn't. But over the course of day, things change dramatically. I have a sensor, I often wear it. I don't have diabetes but I wear these products oftentimes just to go give our engineer's feedback as to what I learned

But I've learned a lot about my own health there and yesterday, when I was speaking at the JPMorgan conference, my glucose from adrenaline spike from below 100-132 in less than half an hour. Great, big, and that's what adrenaline does to glucose values. Now, I don't have diabetes, so my body can overcome that. But imagine the adrenaline spike in somebody who doesn't have the same physiology as me and what does that do to them. By having CGM data, they can make proper decisions and react. But you learn all sorts of things about your health by wearing these products.

Sanmeet Deo: That's one of the fascinating things about medical devices and just healthcare going from point-in-time treatment and care to continuously monitoring and evaluating how a person is doing in terms of their health. In terms of, I want to get into your products. So let's say, knock on wood, I get diagnosed with Type 2 diabetes, is this a product that is going to be prescribed to me by doctor, can I go pick it up at a store somewhere or a pharmacy? Then what's the learning curve for me to understand how important this is?

Kevin Sayer: Currently, our device is a prescription device and you get a prescription and get it at most any drug store. Reimbursement for our system, we've worked with all the commercial payers or CMS coverage for those who are on insulin. We also have cash-pay programs available for those who don't have coverage so we try and make it available to as many people as we possibly can. But it is a prescription device at this point in time. We dream someday of maybe having a version that isn't. But for now, we're very comfortable where we are simply because the medical need for particularly those insulin users is so acute, it's important that their doctors know, and their caregivers know what they're doing and that they're getting the right technology.

But even without diabetes, or if you were diagnosed with Type 2 diabetes, putting this on, particularly our new product, our G7, which I hope we can talk about a little later, it's very simple and easy to use. It passes directly to your phone and we have Android and iOS apps that consumers can use. That data goes straight to your phone and you can see exactly where your glucose value is, with those values being refreshed every five minutes. On top of that, you can program for yourself specific alerts and alarms. Again, as an early Type 2 patient, you probably wouldn't do that because you don't really run the risk of going low like somebody on insulin. But you might want alerts if you have specific highs, and then what you do with that data is you literally can, in many ways, train yourself.

I don't have diabetes, but I can give you examples of things I've seen in my own life wearing sensors. The late-night dessert is not a good thing. But it's the worst thing that I wouldn't even imagine. Glucose spikes and depending on the type of dessert, if it's cake and ice cream and there's a lot of fat in it, that spike could last a very long time and you combine that with sleep data and I have a bad night. You will learn about certain meals that don't do well for you. Red sauce pasta, for example, results in a very fast glucose spike that comes down quickly. But white sauce pasta ends up with a spike that last much, much longer. You learn what the effect of a workout does on your day.

If I have a day where I put in a good workout in the morning, I do have a glucose spike from the journal of the workout, but over the course of the day, my glucose values are 10-15 percent lower than they are if I don't exercise, which again leads to help, so you see the effect of that exercise and then the glucose reactions to your meals also move accordingly based on whether or not you've worked out and you've depleted your body of some of this extra glucose that's been built up. You'll learn the effects of a good night and a bad night sleep. It doesn't take a lot of insight to figure it out. One of the things we hope to do over the next several years is develop analytics and insights to actually help people.

People don't want to be told what to do. I don't want to be told, "Don't eat the cake, stupid head." That's a bad thing. But it's not bad to tell me in the morning after I woke up, ask the question, what did you eat last night or did you eat something last night that led to these glucose values? We're looking at patient experiences that way. In addition to being a medical device company, we are investing heavily in software development because we're making this transition. You alluded to it a bit earlier, healthcare is moving from in the hospital and the doctor's office directly to people controlling their health and that's going to be our mission going forward. Not just diabetes but health in general because we think this glucose signal can be so powerful across the entire healthcare spectrum.

Chris Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.