Warren Buffett Bets on Biotech

Brian Hicks

Updated October 16, 2012

We’re all familiar with Warren Buffett’s legendary investing acuity. His decisions have proved themselves in the market over and over, and investors know to pay attention to Berkshire Hathaway’s (NYSE: BRK.A) fortunes.

Last week, Berkshire bought 217,597 shares of DaVita Inc. (NYSE: DVA) for $109.76 a share (total value $23.88 million). At the end of business on Friday, Berkshire held 10,483,112 DaVita shares for total holdings of almost $1.15 billion.

It isn’t the first time Berkshire has dealt with DaVita, and over the last several months, Berkshire has increased its position steadily. Between late September and early October, Berkshire had purchased 350,349 shares for between $100.96 and $108.21 per share.

DaVita happens to be a leading kidney care provider in the U.S. market; it provides dialysis services to patients reporting chronic kidney failure and late-stage renal disease. As of June this year, DaVita was present at 1,884 outpatient clinics serving a total of 149,000 patients.

Putting it all together, Seeking Alpha notes that it seems Buffett’s company is making a long bet on the rising frequency of diabetes in the U.S.

DaVita’s current market capitalization is $10.45 billion, and it has a forward price/earnings ratio of 16.12. It has a price/sales ratio of 1.37 and a nice price/book ratio of 4.35. DaVita doesn’t offer dividends, but it’s clearly reinvesting in its growth as PP&E grew to $1,586, 460 (June 2012) from $1,170,808 (December 2010).

But if Buffett is indeed betting on an increase in diabetes, it’s worth looking at other players in the market. Seeking Alpha mentions Insulet Corp. (NASDAQ: PODD), whose product OmniPod is so far the only tubeless insulin pump available. And it also mentions drug manufacturer Novo Nordisk A/S (NYSE: NVO), one of the first companies to create insulin in 1923.

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