Tobin Targets Diabetes Treatment

07/11/2003 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

ChangeWave Investing involves uncovering long-term trends that will impact a stock, sector, the market, or economy. Editor Tobin Smith says, "In dollar terms, the Diabetes Wave we've been writing about recently is the biggest and fastest growing ChangeWave we have ever tracked." Here’s a speculation on a potential new approach to treatment.

"It is estimated that 17 million Americans have diabetes, which accounts for 10% of our nation's healthcare costs. We are tracking a variety of companies in the diabetes space, and Insmed (INSM NASDAQ) is one of the most promising speculative names. The idea behind this pick is simple--they own the intellectual property for a type of hormone replacement therapy that has shown significant impact in controlling diabetes. The market for hormone replacement therapies is huge. Insmed owns the ‘key’ (via dominant patent position) to safely deliver an insulin-like growth factor-binding protein. Over time, patients with either type I or II diabetes can become less sensitive to insulin and require high amounts to maintain adequate control of blood glucose. Management believes their compound called SomatoKine has a $1 billion annual market potential and could help diabetics reduce their use of insulin--an exciting prospect for treatment of the disease.

"Keep in mind that this play is highly speculative and very volatile, but the reward we're seeking is equally exciting. We'll initiate a buy our in our long-term Legacy portfolio at prices under $3 with a $30 target by 2005. This portfolio is the place where we act as late-stage venture capitalists hoping for 1,000% returns from non-profitable companies we find to have key patented intellectual property that addresses billion-dollar future markets. As a Legacy portfolio stock, you should only buy one with ‘Vegas money’ and learn to ignore day-to-day price fluctuations. Remember, you are buying this for a result we believe will come in years--not months. Don't feel pressured to overpay for this stock. The volatility of the stock should give us the opportunity to build a cost basis under $3."

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