Sell Block: Sugarless Never Tasted So Sweet

Sometimes Cramer’s stock ideas are like Law & Order episodes – they’re ripped from the headlines.

Case in point: A July 26 New York Times story reported that Type 2 diabetes in American children is growing at a rate of 10% to 15% a year. From 2001 to 2007, prescriptions for these kids rose 151%. Never morbid, but always astute, Cramer knew there was a way to play this epidemic-like trend.

Enter Novo Nordisk, the top insulin producer in the world with a 52% market share.

Novo Nordisk has a diabetes 2 and weight-loss drug – 30% of American kids are overweight – called Liraglutide that’s expected to outperform Amylin Pharmaceutical’s Byetta, a similar treatment. Cramer’s betting that Food & Drug Administration approval will be a huge catalyst for Novo Nordisk, and he wants investors in before the announcement. (The company’s capital markets day in September is another catalyst investors should anticipate.)

Liraglutide is a once-a-day injection compared to Byetta’s two shots a day. And Liraglutide has proved better at controlling blood sugar levels, just as capable at inducing weight loss, and carried it with it less side effects than Byetta.

Liraglutide has been tested for weight loss on non-diabetics as well. Compared to top weight-loss drug Xenical, patients who used NVO’s treatment lost about 10 pounds more. And Liraglutide also erased any pre-diabetes signs in 80% of the patients who took this medicine. Barack Obama, take notice – here’s the preventative healthcare you talk so much about.

The market for Liraglutide and Byetta – and they are the only two drugs in the field – is expected to hit $4.4 billion by 2012. it was only $636 million last year. And with diagnosis rates on the rise, that market could get bigger.

Plus, once Novo Nordisk gets approval, which his expected by Q2 2009, doctors who are already used to prescribing Byetta can start to recommend Liraglutide for off-label uses like weight loss and preventative care as well.

Byetta sales grew about 570% for Amylin from its first to second year, so Cramer doubts NVO will be trading at $63 and change for long. He said $70 in the short term is more likely, and if Liraglutide takes off as expected, who knows how much higher.

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