No. of Recommendations: 10
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isn't diabetes going to decline substantially because of the new GLP-1 drugs?
Edit: I asked perplexity and it says probably not.
That was my first thought. If only because the segment of society with high rates of diabetes and renal failure does not overlap hugely with the segment that can afford those injections. That might change over time, but offhand I don't think drugs can or will cure the problem.
Perplexity's answer is a good example of an AI tool which gives a plausible-sounding answer which is actually nonsense.
Why won't the new drugs have a big impact? Perplexity says that diabetes rates are rising despite the new drugs, but to justify this, it quotes a 2014 article published before the advbent of the new GLP-1 drugs like semaglutide (Ozempic, etc.) or the GLP-1/GIP dual agonist drugs like tirzepatide (Mounjaro, etc.) or of course the even more effective GLP-1/GIP/Gcg drugs like retatrutide, which have yet to be approved. Not only does the Perplexity article not mention the dual or triple agonist drugs, it claims that only 36% of diabetes patients achieve glycemic control with currently available therapies, citing the same outdated article. And the drugs are not just used to control diabetes, they are used to control obesity and prevent diabetes.
The other major competitors for hemodialysis services are transplantation, which is likely to continue to become more affordable, and usually represents a cheaper and more effective solution than dialysis. The other alternative is peritoneal dialysis, which you do at home. The stagnation in DaVita's revenues, over the last 10 years, despite an aging population and increasing obesity in the USA, may be evidence that the increase in renal failure is not all going to hemodialysis.
The other vulnerability that DaVita has, or at least had when I looked into it more a few years ago, is that most of its earnings come from the small proportion of their clients who are not covered by Medicare. Although the total population of patients in renal failure in the USA is bound to increase, most of them will be over 65 and will qualify for Medicare coverage. In the past, DaVita has managed to maintain the very high-margin non-Medicare revenues by a variety of somewhat shady means. This is a very recent example:
https://www.justice.gov/opa/pr/davita-pay-over-34m...It has always surprised me that Buffett is comfortable having Berkshire associated with this company, although I believe it is a Wechsler investment. Wechsler joined Berkshire in 2012, had owned DVA previously, and it started showing up in Berkshire's portfolio in Q4 of 2011. Here is an article about Wechsler, and with a link to Wechsler's final letter to his investment partners, where he talks about this investment:
https://www.kingswell.io/p/ted-weschlers-final-par...That Kingswell article was written in 2023, and they claim that: "In the nine years since Weschler’s comments, DVA has earned just 2.1% compounded annual returns."
That will have improved in the last 16 months, with shares up from about $80 to $154. The company pays no dividends, so if the whole stake had been bought in December 2011, shares would have gone from $39 to $154, a 11.4% return. In fact, the shares were acquired from Q4 2011 to Q4 2014, at an average price which, eyeballing it, looks like it was probably about $55. $55 to $154 between June 2013 and now would be more like a 10% annual return. Not great, not terrible, with most of that return is from the better performance in the last 5 years.
I would be delighted if Buffett lightened up, but knowing Buffett, I presume he is going to let Wechsler do what he wants with it.
