Obesity is a huge and growing crisis in the U.S., and wherever there are problems, opportunities exist for enterprising companies. Just how big is the crisis? According to the Centers for Disease Control, 34% of adults are obese, while another 34% are overweight -- making up 68% of the adult U.S. population.
This prevalence is a major problem, since obesity is the driver of many chronic conditions including heart disease, vascular diseases, diabetes, and cancer. In fact, obesity surpassed smoking last year as the top preventable health threat in the U.S., contributing to the huge rise in medical expenses.
According to the Society of Actuaries, the total economic cost of obesity and being overweight is estimated at $270 billion per year in the U.S. and $30 billion per year in Canada. That $300 billion is the result of an increased medical care ($127 billion) and loss of worker productivity because of: higher death rates ($49 billion), disability of active workers ($43 billion), and total disability ($72 billion). That's a huge drag on the economy and a growing one.
One way to fix this problem would be for Americans to take responsibility for their actions, exercise more, eat a balanced diet, etc. The other way is more popular and lucrative for companies: pills!
As of a year ago, there was one obesity drug out on the market, Abbott Labs'
At least three companies are still vying for the obesity prize, though:
Results So Far
||lorcaserin||Marginal efficacy and produces cancer in rats.|
||Qnexa||More safety data needed.|
||Contrave||Marginal efficacy and four safety issues -- psychiatric adverse events, seizures, serum creatinine, and cardiovascular.|
All three have the potential to skyrocket if their respective drugs make it past the FDA. So far, though, the results have not been overwhelming. Each company is sitting on a small pile of cash, which should see it through the next couple years. However, I would stay away from them unless you are looking for a very high-risk, high-reward stock.
A better way
There are other ways to play this opportunity. Americans do not want to be obese, but like everything else, it will take a lot to get people to change their behavior. A Society of Actuaries survey of 1,000 adults found that 83 percent would be willing to follow a healthy lifestyle program if they received incentives from their health insurance plan.
That's good news for companies that run programs to help people lose weight. NutriSystem
The social aspect of its meetings -- and the mutual support and encouragement that results -- is a key competitive advantage. It not only helps clients lose weight but also gives customers an incentive to stick with the program. The company also provides an online program for those who live too far from a meeting spot or who just don't want to go to meetings.
This has translated into a great business, with an ROA of nearly 20% and free cash flow that consistently exceeds net income. The company does have one weight issue of its own: It's currently overweight with debt from its previous private equity owners. However, the company has begun its own weight-loss program and has been disciplined in paying down debt.
Arena, Orexigen, and VIVUS are long shots, but if one hits, investors will make FAT profits! In the meantime, you are better off buying Weight Watchers if you want to play the obesity trend.
If you're looking for more stocks, check out this free report on the "risky" health-care company Warren Buffett is secretly buying.
Weight Watchers International is a Motley Fool Inside Value pick. Motley Fool Alpha owns shares of Abbott Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.