Where there’s chaos, there’s money-making opportunity. One conspicuous example is diabetes, a disease that’s exploding worldwide. It’s an opening for companies with material exposure to diabetes – those that have products, product candidates, or royalty streams related to the treatment of the disease.

I decided to look into the investment implications of the burgeoning growth in this disease as a result of an e-mail from Dante Asnoff, who a couple of weeks ago wrote: “Dan, I am a diabetic and I went to a high school reunion last week where I met five or six classmates who also are diabetic. A number of my friends also have diabetes. I suddenly woke up to the fact that companies treating this illness have got to be making a bundle. Do you agree? If so, why not a column on your favorite diabetes stock plays?”

First, it’s worth noting you and Merrill Lynch are on the very same wavelength. Among the diabetes fighters it views as enticing investments are Eli Lilly ($54.25), Norvo Nordisk ($61.25), Alkermes ($18.64), Nektar Therapeutics ($18.04), and Becton Dickinson ($61.06). It also likes OSI Pharmaceuticals ($36.42), which it believes has an unappreciated diabetes franchise.

One Merrill strategist figures the shares of these companies have the wherewithal to rack up gains of 15% to 30% over the next 12 to 18 months.

One reason is the indicated sales and profit growth resulting from the enormity of the disease, which, partly fueled by the giant increase in obesity, is the sixth-leading cause of death in America. All told, about 21 million people in the country have diabetes, of which about a third have not yet been diagnosed. Worldwide, diabetes sufferers number 190 million, according to the World Health Organization, which estimates that by 2030 more than 330 million will have the disease.

Diabetics suffer greatly from chronic and often fatal complications associated with the disease, including cardiovascular disease, nephropathy (kidney failure), blindness, and neuropathy (disease of the nervous system).

For pharmaceutical biggie Eli Lilly, products designed to battle diabetes were a $3 billion business last year, or about 20% of sales. Lilly, a major player in the global diabetes market, has three diabetes franchises: traditional insulin, which consists of Humulin and Humalog (about $2.2 billion in total sales); Byetta, an oral drug that is in brisk demand (Lilly is co-promoting it with Amylin, and Actos, and its contribution to Lilly will begin to wind down this year), and a late-stage (phase 3) pipeline product called Arxxant for diabetic retinopathy, which Merrill views as a high-risk program. The company also is developing insulin that can be inhaled in collaboration with Alkermes. Merrill also has a number of other diabetes favorites, including:

* Novo Nordisk, a Denmark-based world leader in insulin and diabetes care that also manufactures and markets a variety of other pharmaceutical products. Key products include Insulin Analogues and NovoSeven (hemophilia). In 2005, diabetes products accounted for 7% of its pharma sales.

* Becton Dickenson, which generates 13% of its volume from diabetes products and is expected to record $128 million of blood glucose monitor sales this year, up a hefty 52% from last year. Excluding BGM sales, Merrill figures the 965 1118 1068 1129company’s diabetes care franchise will total $666 million in 2006, up about 8% versus last year.

* Alkermes, a leader in the delivery of complex macromolecules. Its Medisorb technology is incorporated in Exanatide LAR (long-acting Byetta) and its technology is also used in AIR-Insulin, which is in phase 3 development.

* Nektar, a leader in the delivery of macromolecular drugs to the deep lung. It is partnered with Pfizer on Exubera, an inhaled short-acting insulin -the first such to receive regulatory approval both in America and the European Union. Exubera is expected to reduce the number of injections of short-acting insulin; it will be marketed globally by Pfizer.

* OSI Pharmaceuticals, a mid-cap pharmaceutical company with underappreciated future royalties in diabetes due to its 2004 acquisition of the DPII-IV (dipeptydl peptidase IV) platform technology from a German biotech company, Probiodrug AG.Also acquired from the company was a portfolio of patents covering methods of using DPI-IV inhibitors in the treatment of diabetes, as well as PSN9301, an oral, fast-acting DPI-IV inhibitor that has completed phase 2a clinical studies in type 2 diabetes patients. OSI Pharmaceuticals will receive a 2.5% royalty on worldwide sales of DPI-IV inhibitors, an oral diabetes drug category that Merrill estimates has peak potential sales of up to $3 billion.

The bottom line seems obvious: Diabetes care has nowhere to go but up. Capitalizing on such growth is what making money on Wall Street is all about.

dandordan@aol.com