The Expense Of Diabetes: Is It Worth It? Eli Lilly & Co. (LLY), Novo Nordisk A/S (NVO), Abbott Laboratories (ABT)

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With studies showing 33% of Americans with diabetes or pre-diabetes, it is obvious that the industry should be booming. Like most fields there is stiff competition in the industry. I recently wrote a piece explaining why it appears these companies should be good investments. Since then earnings have been released, so let’s see how they stack up now.

Lilly calls active as shares soar; Put spreads constructed on Verizon, AT&TEli Lilly & Co. (NYSE:LLY) and Novo Nordisk A/S (ADR) (NYSE:NVO) are the two largest insulin companies in the world.  They are slightly more specific than other companies because their market is narrower. Generally speaking, type one diabetics need insulin and most type two diabetics don’t (although more and more type two’s are using insulin). Although only one in three hundred American’s are type one diabetics, that is nearly twice as much as it was thirty years ago. The rates of type one diabetics are increasing globally at three percent every year.

Lilly and Novo Nordisk posted different results in their Q4 results. Although Lilly posted better than expected earnings, revenues did decline by 1%. The patent expiry of Zyprexa led to the decrease, but other products such as Cymbalta, Forteo and Alimta nearly made the loss a wash. Novo Nordisk showed a solid 18% increase in sales growth, and net profits also increased by 25%.

Lilly forecasts earnings to increase 15% in 2013. Novo Nordisk expects to see around 10% growth in sales and operating profits.

Abbott Laboratories (NYSE:ABT)
is a test strip manufacturer that recently spun off a new company coined AbbVie Inc (NYSE:ABBV) which virtually split Abbott Laboratories (NYSE:ABT) in half. Abbott remained the diabetic manufacturer.  Despite this spin off, Abbott posted solid numbers this past quarter as well as some expected declines. Although the company posted a 46% decrease in net income for the quarter, net sales increased by 4%. For the year, net income increased by over 26%, or $1.23 billion dollars. Net sales increased by over $1 billion as well.

Abbott’s CEO Miles White had this to say, “In 2012, we achieved a significant milestone in Abbott’s 125-year history with the creation of AbbVie while delivering another year of strong results. Abbott’s mix of diversified healthcare businesses and pipeline is favorably aligned with key healthcare and emerging market trends and well positioned to deliver top-tier growth in 2013.”

With over 40% of Johnson & Johnson (NYSE:JNJ)’s revenue acquired from medical devices/diagnostics, diabetes is again playing a major role in a company’s success. In Q4, medical devices/diagnostics sales rose to $7.38 billion dollars in the fourth quarter, an increase of 13.7%. Johnson & Johnson (NYSE:JNJ) expects to increase revenues this year by 7%, bringing the expected total to around $72 billion. This past quarter, the company’s sales increased 8% with the Synthes deal contributing 5.6% of that growth. It becomes obvious when looking at these numbers how significant of a role medical devices/diagnostics really are to Johnson and Johnson.

The last company we will look at today is the clear insulin pump market leader. Diabetes directly accounts for 10% of Medtronic, Inc. (NYSE:MDT)’s revenues. Indirectly (mainly complications from the disease) Diabetes accounts for 40% of the company’s revenues. However, I don’t want to talk about earnings or diabetes with this company.

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