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Tickers in this Article: BIOD, DXCM, PODD, RHHBY, NVO, MNKD, VVUS
Diabetes has long been one of the most "investable" diseases, with a host of pharmaceutical, biotech, and medical device plays on this serious (and increasingly common) condition. Recent weeks have not been kind to the sector, though, as a range of problems and challenges have sent investors to the sidelines.

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FDA - Don't Call Us, We'll Call You
Several companies have seen their fortunes take a bad turn either in the clinic or from the Food and Drug Administration.

Roche (Nasdaq:RHHBY) has essentially been sent back to the drawing board on its weekly GLP-1 drug taspoglutide, and there is a good chance that the side-effect problems that halted a Phase 3 study will prove insurmountable. Another would-be long-acting GLP-1 drug (to be marketed by Eli Lilly (NYSE:LLY) was surprisingly rejected due to FDA worries about safety and a demand for a new study.

Biodel (Nasdaq:BIOD) recently saw its application for a new formulation of insulin rejected due to sample handling and patient drop-out problems, and the FDA's unwillingness to brook a post-hoc analysis of the data. Both Vivus (Nasdaq:VVUS) and Arena Pharmaceuticals (Nasdaq:ARNA) saw their obesity drugs rejected (obesity is a leading cause of Type 2 diabetes), though the FDA left a sliver of hope for both companies (particularly Vivus).

GlaxoSmithKline (NYSE:GSK) had to go back in front of the FDA to keep its drug Avandia on the market. Due in large part to potentially serious cardiovascular side-effects, Glaxo has pulled the drug in Europe and the FDA has significantly restricted its use in the United States.

Other Wounds Seem More Self-Inflicted
It is not just the FDA that is confounding companies looking to serve this multi-billion dollar market. While DexCom (Nasdaq:DXCM) recently reported over 60% growth in the sale of its disposable continuous glucose monitors, the market wanted more and sent the stock down more than 20% in early trading. To be fair, the stock had been doing quite well, and if the company can keeping producing better than 50% product revenue growth, the stock could very well rebound.

MannKind's (Nasdaq:MNKD) issues could be more serious, though. A former employee has accused the company of basically covering up "potential fraud and scientific misconduct" in a pivotal clinical study of the company's inhaled insulin (Afrezza). The company denies these allegations, but there is definitely a risk now that this will hold up FDA approval (a decision is due before year-end). At a minimum, and considering the FDA's safety-first obsession these days, I wouldn't be surprised if the FDA issues a complete response letter (basically a rejection) and demand more information about these accusations before approval.

It's Not All Bad News
Not every company in the diabetes space is struggling right now. Novo Nordisk (NYSE:NVO) is seeing nearly 20% local currency growth in its insulin analogs, and excellent uptake of its new drug Victoza. Elsewhere, disposable insulin pump maker Insulet (Nasdaq:PODD) is in sight of its 52-week high, revenue growth has been trending above 30%, and analysts are almost uniformly positive on this emerging small-cap company.

The Bottom Line
It is just a fact of life that there are ups and downs in every sector within medical technology. Orthopedics, dialysis, and blood products have had their trials by fire in the past, and other sectors will have their problems in the future. Some of these companies helped create their own problems (with sloppy trial design, for instance), and their travails do not mean the market is bad. Although the intransigence of the present FDA is a worry, the reality is that diabetes is a serious condition affecting millions of people that represents an annual multi-billion dollar opportunity. With so much at stake, this will remain a viable and attractive sector, but investors need to learn from this rough patch and choose carefully in the future. (To learn more, see The Ups And Downs Of Biotechnology.)

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