If you visit your local grocery or health-food store, chances are you'll see a section devoid of gluten products. If you don't know what I'm talking about now, you will soon. The $2.6 billion gluten-free food market in the United States is expected to nearly double by 2015. The growth is being driven by the need to better serve individuals with gluten intolerance and celiac disease, who can't properly digest gluten found in wheat, barley, and rye. While only 1% of all Americans are diagnosed with the autoimmune disease, as few as 10% of people living with the disease are formally diagnosed. The University of Chicago Celiac Disease Center succinctly sums it up: "The number of Americans with celiac disease would fill 936 cruise ships. Passengers on 843 of the ships won't know they have it."
That means two things. The medical community has a lot of work to do to better diagnose patients (even those with mild cases), and the gluten-free market will continue to explode. Can you capture that growth while helping individuals with celiac disease? Of course you can. Here are several investment ideas in food and pharmaceuticals that are gluten-free.
Changing the food industry
You may not realize it, but wheat, barley, and rye find their way into the ingredient lists of many foods. Starches such as maltodextrin can be obtained from a number of crops, such as corn, potato, and wheat. You can see how mislabeling or failing to properly label food products makes the lives of individuals with gluten difficulties more complex.
Major food producers General Mills (GIS 0.76%) and Kroger (KR 0.58%) are taking action. Aside from funding the University of Chicago's research, General Mills offers 300 products in popular brands such as Progresso soups, Betty Crocker, and Pillsbury that have kicked wheat-sourced ingredients off their label. In fact, the company's Rice Chex was the first major cereal in the United States to go gluten-free.
And while Kroger is only half the size of the food industry's Big G, it offers hundreds of products without gluten (link opens a PDF). The company owns stores around the country and also manufactures some of the foodstuffs on its shelves. A vast product portfolio has boosted the top and bottom lines in the past year and sent shares to an all-time high.
Health-food store Whole Foods Market (WFM) has treated shareholders and gluten-free eaters well in recent years. In 2004, the company opened the Gluten Free Bakehouse, which doesn't produce so much as one gluten-containing cookie (they do make cookies, though). That commitment has only bolstered the Whole Foods faithful and should continue to capture and drive future market growth.
The end of gluten allergies?
While the food industry is focused on taking the simple route (removing gluten from foodstuffs), the pharmaceutical industry is focused on curing the disease altogether. To illustrate the problem in more detail, individuals with celiac disease lack the proper set of enzymes needed to fully digest gluten proteins found in wheat, barley, and rye. Incomplete digestion elicits an immune response, which causes inflammation of the digestive tract. Given the explosion in therapeutic antibody development in recent years, the medical community is confident that a successful treatment and cure can be developed.
AbbVie (ABBV 1.09%) and partner Alvine Pharmaceuticals are developing ALV003, which is an oral therapy containing two enzymes that break down gluten. Depending on results from a soon-to-be initiated phase 2b trial, AbbVie will acquire the drug or Alvine in its entirety. The latter would give AbbVie an intriguing early-stage pipeline for celiac disease -- the first of its kind in the pharmaceutical industry.
I like to remind investors that less than 15 years ago there were virtually no viable treatments for several other autoimmune diseases such as moderate to severe rheumatoid arthritis and Crohn's disease. That changed with TNF-alpha inhibitors such as AbbVie's Humira -- now the world's top-selling drug -- which combined for tens of billions of dollars in annual sales in 2012. Future therapies that improve on current treatments or perhaps even cure these ailments will be developed. It is only a matter of time.
Foolish bottom line
The gluten-free food market is poised to continue growing as awareness movements gain traction. The food industry, which has historically caused nightmares for many celiac-disease patients, is finally making strides to properly label products and offer safe alternatives. That isn't the only investment opportunity, however. Should AbbVie's developmental drug successfully make it to market in the next several years, look for an increased effort to properly diagnose individuals (an offshoot of many new treatments) -- not to mention a potential blockbuster. That would allow AbbVie to help more patients and likely drive gluten-free food sales even higher. With compounding effects like that, why not entertain these investment ideas?