Motley Fool Hidden Gems Investing - China, India, and the Question of Population Growth

Episode Date: January 19, 2023

Data this week suggest India is about to pass China as the world's most populous country.    (0:25) Bill Mann discusses: - Procter & Gamble bumping up against the limits of its pricing powers - Why China still has a demand problem - How companies in the U.S. are moving some operations from China to Vietnam and India   (11:25) Sanmeet Deo talks with Dexcom CEO Kevin Sayer about his company's work in continuous glucose monitors and a major shift affecting the future of healthcare. Stocks discussed: PG, CMG, AAPL, SBUX, DXCM   Host: Chris Hill Guest: Bill Mann, Sanmeet Deo, Kevin Sayer Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. This episode is brought to you by Gravity. Gravity's been keeping stuff on the ground since the beginning of time. To learn more, go to gravity.org. We've got healthcare, consumer goods, and some data out of China that investors might want to know about. Motley Fool Money starts now. I'm Chris Hill, and joining me today, Motley Fool Senior Analyst Bill Mann. Thanks for being here. Hey, Chris, how are you doing? I'm doing all right. I want to start with Procter & Gamble. And by the way, before anyone wonders, why are you talking about a boring

company like Procter & Gamble? I'm just going to point out that over the past one year and the past five years, P&G has solidly beaten the S&P 500. Yeah, I don't know why you're stepping on the lead with Procter & Gamble, though, because boring is beautiful in the stock market. Oh, I agree. I agree. I'm just saying, occasionally we hear from the dozens of listeners and they express their opinion on boring companies. I think you've got to be more secure in your willingness to dive into the companies that people think aren't necessarily cutting edge, because you know what is cutting edge? Making money. Absolutely. P&G's second quarter profits and revenue were in line with expectations,

but they actually fell compared to a year ago. And we've talked before about Procter & Gamble being, in some ways, a surprising candidate for being a business that has pricing power. But it seems like this quarter is showing us and showing P&G the limits of their pricing power, because I'm sort of reading this latest quarter as people are trading down for, among other things, the detergent that they're willing to pay for. Yeah. The most famous one of those companies is Wrigley. Wrigley was the company that Charlie Munger once very famously said, they could move the price of their gum up a nickel because people are still going to pay up for Wrigley because the mouth is a very personal place. It turns out when you're looking at a

company like Procter & Gamble, that it is a branded product company. They make products like Oral-B and Bounty, and people buy those because they believe that they work. But you're right, they are discovering that there may be a limit because they raised prices by 5%, but their overall demand decreased on a product basis 6%. Companies really have to be careful about things like that, one that believes that they have pricing power. Because you can raise prices and raise prices and raise prices, and people will not hesitate to pay. But there is a limitation. And I think Procter & Gamble may be finding right now that they need to rethink what their strategy is as it comes to pricing. But am I correct that Procter & Gamble

is a more nimble business in terms of what they choose to charge for their different products than, say, a business like Chipotle, which has pricing power, but Chipotle can't really yo-yo the price of their burritos on a weekly basis in the same way that P&G can do with detergent? It's a really funny point that you make, and it really does speak to the difference between products that you buy in grocery stores versus when you go into a restaurant where you are making multiple purchases. What you tend to react to is, I don't know, maybe very fancily we could call it price of cart, as opposed to the two or items that you get when you go into a Chipotle or into any other restaurant. So, yes, it does

have something to do with it. But I think that the overall price of a shopping experience does, in fact, get people to pay attention to those places where, well, I've got Bounty, and Bounty is the quicker picker-upper. I could just as easily buy this store brand, and it will be fine at two-thirds of the price. Earlier this week, we got data from the National Bureau of Statistics that China's population declined in 2022. This is the first time this has happened since the 1960s. And one year previously, China's population growth in 2021 was 0.03%, which was the lowest on record. You pay more attention to China than I do. When you heard the data earlier this week, you thought what?

I thought that, as I generally think whenever I think of Chinese statistics, why did they report this now? I suspect that this means that their population has actually been declining for years. And I think that we are now at the find-out stage of the very cruel multi-decade one-child policy that China had, which they have scrapped, but it really does take some time. And just like we were talking about with Procter & Gamble, Chinese lives have been built around a smaller number of kids. And so, just lifting and changing that policy doesn't mean that everyone is suddenly going to start making a lot more babies. So, I think that what we're seeing in China, again, and we've talked about this before, a crazily unbalanced economy,

which where most of the growth comes on the supply side, you know, for exports, but also in things like land sales, they have yet to figure out how to encourage Chinese citizens to demand more, to consume more. And I think that you are about to see a real challenge in China from an economic basis. What does that mean for businesses like Apple, Starbucks, and others that part of the bull case for these American businesses is their growth opportunity in China? Well, I think that you've got to put those two things in context. The reason that there's a growth opportunity in China has not been so much based on the population growth, and it's had to do with the fact, and I really do stand on this, the Chinese miracle of taking nearly a billion

people from poverty into the middle class is one of the greatest economic success stories that has happened in history. So there still is the potential for development there. There still is potential for Chinese citizens to raise their per capita income, to raise their spending. So I think we're actually okay thinking in terms of consumption. And think about what I just said a second though, Chris. They're actually trying to figure out how to get them to consume more in China to rebalance that economy. So, I think it's actually an okay situation for them, but there are greater implications in terms of China's both implied and actual standing in the world in terms of how important it is as an economy. Let's just go ahead and assume that at some

point, whether it's later this month or later this year, we get some sort of official declaration by the global powers that be, that India is now the most populous country in the world and continue. They are the most likely candidate, aren't they? They are the most likely candidate and most likely to continue growing. As an investor, what should you do with that information? Should you start ratcheting up your, if not your exposure to India as a market, at least what you're learning about opportunities in India? I think that many of the opportunities in India are basically the same as the opportunities that happen in China. Going back to Procter & Gamble, one of the things that we know

from 2020 is that most of their products were dependent upon, in some part of the supply chain, something in China and that's changed a great deal. They looked at that and they said, that's a single point of failure, that's not something that we should allow to remain a risk for us. Where have they moved? They've moved to Vietnam, they've moved to Bangladesh and they've moved to India a lot. I think you see two different things happening in India. Yes, population is still rising, which means that they've got a massive amount of people really below 20 years of age. But you're also seeing a point in time in which India is becoming a much more trusted partner for a lot of parts of the supply chains for a lot of Western

companies. I think that that matters. It may not be that we have the capacity to export deflation like we did to China in the 1980s that we would in India, but there still is a lot of room for much more deep economic cooperation between Western companies and countries and India. Bill Mann, always great talking to you. Thanks for being here. Thanks, Chris. Some healthcare companies cover a lot of ground while others have a singular focus. Kevin Sayre is the CEO of Dexcom, which makes continuous glucose monitors for people with diabetes. Shares are up more than 650% over the past five years. Motley Fool senior analyst, Sanmeet

Deo, caught up with Sayre to talk about the problem his company is solving and a major shift affecting the future of healthcare. You know, people who battle diabetes have always needed information to better control their disease. And when we started this journey at Dexcom, it was way back in 1999. And the goal of the company was to make a glucose measurement technique that was better than finger sticks. At that point in time, and for quite some time, And the only way people could manage their diabetes, particularly those on insulin, was to stick their fingers multiple times a day, which literally involved putting a needle, pricking your finger, getting a drop of blood and reading that. And it would give you a value at a point in time. And based on that one point in time, people would make decisions with particularly dosing insulin.

What am I going to do? How much insulin do I take if I'm about to eat this meal? And we felt that there were better ways to do that and devoted ourselves to developing continuous glucose monitors to whereby instead of sticking your finger, we can provide that data to an individual on a regular basis with a connected device. The way we solved that problem changed over time. We originally were going to put an implantable thing in your body that would last for a long time. And we have right now a disposable subcutaneous sensor that's a little sensor, literally the width of a human hair that goes in under your skin a little bit, not even half an inch. And that generates an electrochemical signal, which becomes an estimated glucose value.

And those glucose values are transmitted to the technology where a customer wants to see it, either on their phone or on an insulin pump, possibly on a watch or another shared device at this point in time. In addition to giving individuals data every five minutes instead of sticking their finger 288 times a day, we have alerts and alarms that will warn people if they're too high or too low and have a dangerous healthcare event coming, a possible dangerous event coming. We also allow that data to be shared. If you've met parents of young children that have type 1 diabetes, their biggest fear is

sleep time because maybe the child would go too low. well. Our technology has literally enabled people to sleep because if those in their care circle go low at night or have a dangerous event, they can get woke up on their own phones and go take care of that. So we've made a number of advances in this technology. It's gone from being a very small company as we started off. The revenues the year before I started were $40 million in 2010. And I came here full time in 2011. Our revenues we announced this week were $2.91 billion for the year 2022. And our user base has grown to 1.7 million customers around the world. So the technology has grown very quickly and it solves a very serious problem. People need this information.

They really, really do. The best part of my job, quite honestly, and I'll stop quickly, but I'm one of the few guys in the world who can walk through an airport wearing a Dexcom shirt and people run up and hug me because they're so grateful for what this device has done in their lives. I would like to think it's because I'm amazing, but I'm not. I just get to represent a technology that is really important and has really had a big influence on not just individuals, but entire families. So it's been great. Yeah. I mean, it's amazing the technology that you guys have. Just to frame the industry, I mean, diabetes, as many people know, is unfortunately growing in the amount of patients. What is the kind of industry size?

Who do you serve in that area? Just to kind of break it down for viewers that may not be aware. Well, that's a very good question. Up to this point in time, the majority of our system users have come from those who have type 1 or type 2 diabetes who require multiple shots of insulin a day. And that is where the majority of our current users come from. And this technology is, as I talked about yesterday, about 50% of people in that category in the U.S. use continuous glucose monitoring, a lower percentage in other geographies as we continue to get reimbursement and expand in those areas. Recently, CMS expanded CGM coverage for those who take any insulin, and that should double the size of that addressable market in the U.S., ultimately to about seven, between seven

and eight million individuals. Over time, what we see, and this correlates directly with diabetes, diabetes is growing rapidly all over the world. From the statistics that I cited yesterday in my presentation, there were 150 million people with diabetes in 2000, there's over 500 million with diabetes today. And the cost of taking care of these people just continues to go up. We believe that with proper information from our sensors, we can drive those costs down across the diabetes spectrum, not just in those with intensive insulin, but those who take drugs for type 2 diabetes as well. Dexcom CGM has a very

positive effect. Yeah. You know, one thing I noticed, I remember seeing in your presentations where if you do the point-in-time glucose monitoring, it might look good at that single point in time, but what you're going through throughout the day is almost more important. You could have been too high in your glucose readings for the day and not have known it if you're not doing this continuous monitoring or too low. And so that can be a big issue. Yeah. And in fact, there's a demonstration that we often show an individual taking four finger sticks a day can look quite decent. And, and in fact, you can almost, if you're taking care of yourself, time those. My mother had type two diabetes. She would stick her finger once a

day, but she'd stick it at seven, like 7.15 every morning. So she'd get a good reading because she hadn't eaten anything yet. And she'd say, look, I'm healthy. When in fact she really wasn't. But over the course of day, things changed dramatically. I have a sensor on. I often wear, I don't have diabetes, but I wear these products oftentimes just to go give our engineers feedback as to what i learned but i've learned a lot about my own health there and yesterday uh when i was speaking at the jp morgan conference my glucose from adrenaline spiked from below 100 to 132 in less than half an hour great big and and that's what adrenaline does to glucose values now i don't have diabetes so my body can overcome that but imagine the adrenaline spike in somebody who

doesn't have the same physiology as me and what does that do to them by having cgm data they can make proper decisions and react but you learn all sorts of things about your health by wearing these these products yeah that's kind of one of the fascination the fascinating things about medical devices how they're going from and just health care going from point in time kind of treatment and care to continuously monitoring and evaluating how a person's doing in terms of their health in terms of like i want to get into like your products so let's say knock on wood i get diagnosed with type two diabetes. Is this a product that is going to be prescribed to me by a doctor? Can I go pick it up at a store somewhere or pharmacy? And then kind of what's

the learning curve for me to understand how important this is? So currently our device is a prescription device and you get a prescription and get it at most any drugstore. And reimbursement for our system, we've worked with all the commercial payers, their CMS coverage for those who are on insulin. We also have cash pay programs available for those who don't have coverage. So we try and make it available to as many people as we possibly can. But it is a prescription device at this point in time. We dream someday of maybe having a version that isn't, but for now we're very comfortable where we are. Simply because the medical need for particularly those insulin users is so acute, it's important that their doctors know and their caregivers know what they're doing

that they're getting the right technology. But even without diabetes, or if you were diagnosed with type 2 diabetes, putting this on, particularly our new product, RG7, which I hope we can talk about a little later, it's very simple and easy to use. It pairs directly to your phone. We have Android and iOS apps that consumers can use. That data goes straight to your phone and you can see exactly what your glucose values with those values being refreshed every five minutes. On top of that, you can program for yourself specific alerts and alarms. Again, as an early type 2 patient, you probably wouldn't do that because you don't really run the risk of going low like somebody on insulin. But you might want alerts if you have specific highs.

And then what you do with that data is you literally can in many ways train yourself. And I don't have diabetes, but I can give you examples of things I've seen in my own life-waring sensors. The late-night dessert is not a good thing. But it's a worse thing than I would even imagine. Glucose spikes, and depending on the type of dessert, if it's cake and ice cream and there's a lot of fat in it, that spike will last a very long time, and you combine that with sleep data, and I have a bad night. You learn about certain meals that don't do well for you.

Red sauce pasta, for example, results in a very fast glucose spike that comes down quickly. But white sauce pasta ends up with a spike that lasts much, much, much, much longer. You learn what the effect of a workout does on your day. If I have a day where I put a good workout in in the morning, I do have a glucose spice from the journal of the workout, but over the course of the day, my glucose values are 10% to 15% lower than they are if I don't exercise, which again leads to health. So you see the effect of that exercise and then the glucose reactions to your meals also move accordingly based on whether or not you've worked out and you've depleted your body of

some of this extra glucose that's been built up. You learn the effects of a good night and a bad night's sleep. It doesn't take a lot of insight to figure it out. One of the things we hope to do over the next several years is develop analytics and insights to actually help people. People don't want to be told what to do. Like, I don't want to be told, don't eat the cake, stupid head. You know, that's a bad thing.

But it's not bad to tell me in the morning after I woke up, ask the question, what did you eat last night? Or did you eat something last night that led to these glucose values? And so we're looking at patient experiences that way. In addition to being a medical device company, we are investing heavily in software development because we're making this transition. You alluded to it a bit earlier. Healthcare is kind of moving from like in the hospital and the doctor's office directly

to people controlling their health. And that's going to be our mission going forward, not just diabetes, but health in general, because we think this glucose signal can be so powerful across the entire healthcare spectrum. Chris Hill. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening, we'll see you tomorrow.