Diabetes is no longer solely an American epidemic.#-ad_banner-#

The Journal of the American Medical Association just released a study that shows 11.6% of Chinese adults have the debilitating disease, surpassing America’s 11.3%. With a population topping 1 billion, China is now home to more than 100 million people suffering from diabetes — a third of the global diabetes population.

And with emerging markets gaining more access to middle-class amenities such as high-fat food, the trend is accelerating. The International Diabetes Federation projects that more than 550 million people will be diagnosed with diabetes by 2030, up from 371 million diabetes patients in 2012. That’s a huge opportunity for the global leader in diabetes medication and treatments.

Not only is this market leader home to five of the top 10 selling diabetes medications in the world, it’s also developing a deep pipeline of next-generation diabetes drugs and is protected by a huge competitive moat. That has driven an outsize gain of 58% in the past two years:

Novo Nordisk A/S (NYSE: NVO) is the undisputed global leader in the diabetes market. The company’s impressive product portfolio is home to five of the world’s 10 best-selling diabetes medications. That has helped Novo capture 48% share in the insulin market, 46% share in the modern insulin market and 27% of the total diabetes care market.

The company’s dominance in the diabetes care market has been driven by its flagship product, called NovoLog in the U.S. and NovoRapid outside the U.S. The fast-acting insulin application used before eating to control blood sugar levels is the third-largest diabetes drug in the world, recording revenue of $2.8 billion in 2012. Although NovoLog sales have moderated in recent years, recent third-quarter results saw sales increase a respectable 8% from the previous year.

In terms of growth, Novo’s Type 2 diabetes drug Victoza has been leading the pack. In spite of booking $1.8 billion in revenue in 2012, sales jumped 20% from the previous year in recent third-quarter results. Although that is impressive sales growth for a blockbuster drug with close to $2 billion in annual revenue, growth was trending above 30% in the first half of the year. That led Novo to announce it will be adding 400 new U.S. sales reps for 2014. That sets the stage for increasing sales of Victoza as the company has plans to file for a new FDA-approved indication on Victoza at the end of the year.

But Novo isn’t resting on its laurels. The company is using its market-leading status and deep pockets to develop a robust pipeline of next-generation diabetes drugs and applications.

In May, Novo filed for European Union (EU) approval of its Type 2 diabetes drug lDegLira, a combination of its Victoza and Tesiba medications. That would create an entire new continental market for Nova to tap into with an industry-leading drug.

It has another Type 2 diabetes drug called Semaglutide currently in Phase III testing that is expected to be completed by 2016. It also has an obesity drug called Liraglutide 3 MG that recently completed Phase III testing and is expected to be submitted for regulatory review in the U.S. and EU at the end of the year.

Novo will leverage its industry-leading portfolio and pipeline to tap into high-growth emerging markets, particularly China and its 114 million diabetics. The company has been operating in China since the 1960s and invested $400 million in an insulin production facility in Tianjin in 2008.

The good news is driving consensus estimates calling for 21% earnings growth this year and 11% in 2014 and average annual earnings growth of 14% in the next five years, more than double the industry average of 6%.

Risks to Consider: Novo Nordisk will face a number of expiring high-revenue patents in the next five years. Its Victoza drug is also being targeted by Eli Lilly’s (NYSE: ELI) Dulaglutide. Although Dulaglutide isn’t yet commercially available, it poses a threat to long-term sales growth of Victoza.

Action to Take –> Nova is the undisputed global leader in the fast-growing diabetes drug market. That has earnings projected to grow 14% annually in the next five years, more than twice the industry average of 6.2%. But in spite of that bullish growth projection, Nova’s forward P/E (price-to-earnings) ratio of 19 is in line with the industry average. That makes NVO a buy anywhere under $220.

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