1. 1 | Sustainable Investment Spotlight – Sustainable Investment Research, Bank J. Safra Sarasin
Overweight and diabetes –
a global epidemic
• Rates of overweight and obese people are increasing worldwide and have reached epi-
demic scale.
• Obesity and diabetes engender very high costs and burden for society.
• At the same time, they offer opportunities for innovative pharmaceutical, medical
technology and food companies.
• As a sustainable investor Bank J. Safra Sarasin is harnessing these opportunities to
the benefit of clients, while contributing to enhance health in society.
Sustainable Investment Spotlight
Sustainable Investment Research, Bank J. Safra Sarasin
November 2016
Overweight, a big challenge to society
Overweight seems to be relentlessly growing
trend, as its global prevalence has steadily
risen over the last 30 years. This evolution
has been observed in both developed and
developing economies, creating a truly glob-
al challenge. As a result, more than 2 billion
people are overweight or obese today.
From direct health consequences and asso-
ciated costs to hundreds of billions in lost
productivity, the overweight epidemic has
major consequences for society. It is no
wonder that combatting obesity has
emerged as one of the nine goals set forth
by the World Health Assembly in 2013.
Solutions and opportunities to address
obesity and related diabetes
According to the World Health Organization
(WHO), obesity is a major cause of diabe-
tes. The incidence of both conditions has
indeed grown in parallel and reached un-
precedented levels year after year (Chart 1).
In Mexico, for example, around 70% of
adults are overweight or obese, while the
country features the highest prevalence of
diabetes among OECD countries.
The treatment of diabetes, and more widely
of obesity, engenders tremendous costs,
both directly and indirectly (Chart 2). In the
US, direct and indirect costs associated
with diabetes amount to over USD 170bn
every year, accounting for c. 10% of total
healthcare spending. This makes diabetes
one of the most costly diseases, but also
represents an attractive market for pharma-
ceutical and medical technology companies.
For investors, this means that opportunities
exist to contribute to tackling the global
overweight challenge while benefiting from
related commercial developments.
Rapid growth of the diabetes drug market
The global market for diabetes drugs
amounts to USD 60bn and has grown at
15% p.a. in the last 10 years (Chart 3).
In addition to the sheer size of the patient
population and its long term growth, the
chronic nature of diabetes requiring treat-
ment for life and the health economic argu-
ment for intense treatment both enhance
the appeal of the diabetes market.
Chart 1: Growth of overweight and obesity
vs diabetes in the global population
Source: WHO, IHME, Bank J. Safra Sarasin, 2016
Chart 2: Share of health care costs associ-
ated with diabetes in the US
Source: American Diabetes Association, 2013
Contacts
Chi Tran-Brändli
Sustainable
Investment Analyst
MedTech
David Kägi
Sustainable
Investment Analyst
Pharma and Biotech
Guillaume Krepper
Sustainable
Investment Analyst
ESG

2. 2 | Sustainable Investment Spotlight – Sustainable Investment Research, Bank J. Safra Sarasin
Chart 3: The global market for diabetes
drugs by treatment class (USD bn)
Source: Novo Nordisk, IMS, Bank J. Safra Sarasin, 2016
Drug treatments for obesity and diabetes
The options to treat obesity with drugs are
very limited. Due to mediocre efficacy, sig-
nificant safety risks and some rather spec-
tacular failures in the past, this market has
stayed quite small. While losing weight
through diet and exercise is usually encour-
aged as a first step of type 2 diabetes ther-
apy, this has a negligibly low sustainable
success rate. Thus most patients are treat-
ed with one or several of the many effective
drugs, which have become available since
insulin was discovered in the 1920s. Treat-
ment has become more intense over the
years, as it was realized that tight control of
blood sugar is crucial to avoid the severe
and costly complications of diabetes, which
include heart attacks, strokes, limb amputa-
tions, blindness and kidney failure.
Definition of Diabetes
Diabetes is a chronic condition that occurs
when blood sugar rises to high uncontrolled
levels due to either an inability to produce
enough insulin (type 1 diabetes) or due to
the body becoming unresponsive to insulin
(type 2 diabetes). Type 2 diabetes is strong-
ly associated with obesity.
Treatment of type 2 diabetes usually starts
with Metformin, an effective and safe drug
that is available as an inexpensive generic.
It acts by reducing the production of glucose
in the liver. Over time, most patients will
have to add additional drugs such as sul-
phonylureas, DPP-4 inhibitors or SGLT-2 in-
hibitors, in order to continue to control their
blood glucose level. The former two stimu-
late the release of insulin from the pancre-
as, while the latter increases the excretion
of glucose via the kidneys. Eventually, many
patients have to add injected drugs to their
treatments, most often in the form of long
acting insulin or GLP-1. An intense treat-
ment plan would also require the injection of
short-acting insulin at mealtime.
As insulins are the eminent cornerstone of
diabetes treatment, it should not surprise
that the companies that dominate the insu-
lin category are those with the highest 2015
share in the diabetes drug market: Novo
Nordisk at 27% is leading, followed by Sano-
fi with 20% and Eli Lilly with 15%.
New drugs are changing diabetes treat-
ment
In the last few years, two new classes have
been added to the armatorium against dia-
betes. Both are rapidly gaining in im-
portance, because, in each class, a repre-
sentative drug has been shown to reduce
cardiovascular disease. This is a much de-
sired effect of a diabetes drug, given that
cardiovascular disease is the main culprit
for the shortened life expectancy of diabet-
ics. The first class are the SGLT-2 inhibitors,
which lead to modest weight loss and lower
blood pressure. Both of these effects may
play a role in reducing cardiovascular risk.
The drug with the best clinical data in this
class is Jardiance from Eli Lilly.
The second class comprises the GLP-1 ana-
logues. They are derived from the natural
hormone incretin, which stimulates the re-
lease of insulin after a meal. In contrast to
insulin, their risk to lower blood glucose be-
low critical levels is small and they also help
to lose body weight by promoting the feeling
of satiety. Some of the newer GLP-1 ana-
logues have to be injected only once a
week, which has added to their success.
Combinations of GLP-1 analogues with basal
insulin are about to arrive to markets this
year and have a good chance to become an
important new treatment modality.
Opportunities for growth in emerging mar-
kets
Globally, the majority of diabetes cases are
in developing countries (Chart 4). Of the
415m of diabetics worldwide, China and In-
dia alone account for 110m and 69m, re-
spectively, with numbers expected to in-
crease steeply in the next 20 years. De-
mand for drugs in those markets will in-
crease even more by the still very low
percentage of patients, who are getting
treatment at all today. Novo Nordisk esti-
mates that in China, only 37% of diabetics
are diagnosed, only 23% are treated and on-
ly 10% achieve adequate blood sugar con-
trol.
For multinational pharma companies, the
diabetes drugs market in some emerging
markets, particularly China, has grown re-
markably fast in the past. The products sold
there were mostly relatively inexpensive oral
drugs and human insulins. Recently, the
competition from local players in those ma-
ture drug classes has become much strong-
er, with the effect that multinational compa-
nies such as Novo Nordisk have seen their
growth rates moderate. It is becoming clear,
that going forward multinational companies
will have to adapt their portfolio in emerging
markets to demands of the emerging middle
classes, which will increasingly afford more
modern and effective diabetes treatments.
Chart 4: Prevalence of overweight and
obesity (% of total adult population)
Source: WHO, IHME, Bank J. Safra Sarasin, 20166
Advances in Medical Devices
Insulin use has traditionally involved taking
measurements of blood glucose level with
blood drawn through a finger prick and injec-
tions of insulin several times a day. Medical
devices aim to make the use and proper
management of insulin more hassle-free.
The two main areas of innovation involve in-
sulin pumps and continuous glucose moni-
toring (CGM) devices.
An insulin pump provides the diabetic pa-
tient with rapid or short-acting insulin con-
tinuously. A bolus of insulin could also be
delivered at mealtime by the pressing of a
button by patients. This device frees pa-
tients of the hassle of carrying around an
insulin pen. The latest types of insulin
pumps are disposable, lasting about 3 days,
and are discretely thin and are free of tubing
to allow the maximum comfort. However, pa-
tients still need to track their blood glucose
levels separately. Companies involved in the
latest insulin pump technologies are Med-
tronic, Abbott Laboratories, Roche and
Johnson & Johnson. Smaller companies in-
clude Insulet, Tandem and Ypsomed.
CGM devices are wearable and track glu-
cose level every 30 seconds. The sensors
do not test blood but rather the fluid under
the skin for glucose. Although CGM has
been recommended as appropriate for con-
trolling the risk of hypoglycaemia, the U.S.
Food and Drug Administration (FDA) only re-
cently approved the information given by a

3. 3 | Sustainable Investment Spotlight – Sustainable Investment Research, Bank J. Safra Sarasin
CGM device (from Dexcom) as an appropri-
ate basis for the dosing of insulin.
This approval opened the way for the crea-
tion of the so-called artificial pancreas. This
would entail a wearable device that con-
nects an insulin pump to a CGM device, al-
lowing the pump to automatically inject
small amounts of insulin based on the
measurements of the CGM device to keep
the patient’s insulin level within the desired
range. Medtronic recently received approval
in the US to commercialize a not fully auto-
mated device that represents the first step
towards an artificial pancreas.
Artificial pancreas
Source: Mayo Clinic, 2016
Getting to the roots: more sectors need
to contribute
If treatment and adaptation in the health
care system are necessary to address over-
weight and its related costs, fundamental
lifestyle and dietary changes are also need-
ed to tackle its causes. Here again, compa-
nies can be part of the solution. Indeed, the
food industry is increasingly seen as having
a responsibility to reduce the growth rate of
obesity. Recent implementation of sugar
taxes in various countries – most recently in
the United Kingdom but previously also in
France, Hungary and Mexico among others –
has created an immediate business risk no-
tably for soda makers. Providing healthy low-
sugar and low-fat alternatives also represent
a lucrative opportunity for the sector. Ac-
cording to Euromonitor, a global market in-
telligence firm, the healthy food market will
indeed reach the $1trillion threshold by
2017 representing nearly a 100% increase
in 10 years.
Bariatric surgery also treats diabetes
It is increasingly recognized that the best
and most effective method of treating diabe-
tes in obese patients, however, does not in-
volve medication but rather surgery. Bari-
atric surgery, or metabolic surgery, involves
various surgical methods (gastric banding or
bypass) to reduce the size of the stomach.
It has been seen in the past as a drastic
way of treating severe obesity.
Chart 5: Diabetes remission rates after bar-
iatric surgery vs. after diet and exercise
Source: ConscienHealth, Bank J. Safra Sarasin, 2016
However, researchers have demonstrated in
numerous studies over the years that, fol-
lowing bariatric surgery, not only do patients
achieve great weight loss but their diabetes
also disappears in most case within a rela-
tively short period of time (Chart 5).
The preponderance of evidence has there-
fore led the American Diabetes Association,
along with 44 other medical associations, in
April 2016 to recommend bariatric surgery
as a treatment for diabetes in obese pa-
tients. Thus, it could be expected that
healthcare insurers would be in future more
willing to finance the costs of bariatric sur-
gery, which are currently carried by patients
out-of-pocket. Medtronic offers products to
facilitate bariatric surgery.
Investing in solutions
To capture these opportunities in the health
care sector and beyond, investors need to
identify companies providing relevant prod-
ucts and services. At Bank J. Safra Sarasin,
this is achieved by analysing industries and
companies both from a thematic and sus-
tainability perspective through dedicated key
issues integrated in issuers’ sustainability
rating as well as thematic universes target-
ing companies with suitable offerings.
Selection of sustainable companies with a
strong positioning related to overweight.
Source: Bank J. Safra Sarasin, 2016
As a result and to the benefits of our cli-
ents, we are able to target companies that
are best positioned to thrive along these
opportunities while contributing to tackle the
global overweight challenge.
Bundled payments as cost-control
measure
With concerns over rising medical costs
(with diabetes and other comorbidities of
obesity being major contributors), govern-
ment payers are increasingly turning to a
‘value based’ or ‘bundled payment’ reim-
bursement model for medical products and
services. In this model, unlike in the tradi-
tional fee-for-service model, providers are
paid a predetermined amount of money to
care for the totality of a patient’s condition
including drugs, medical devices and ser-
vices. This approach should align medical
providers’ financial interest with the goal
of giving patients the best care at the low-
est amount of costs. The more efficient a
provider (or coordinated group of providers)
is able to achieve this goal versus the av-
erage of their competitors, the higher their
profit would be. The US government has
introduced this payment model for the care
of certain target groups of patients that
engender the highest amount of costs in
the medical system. One of these groups
is patients with end stage renal disease
(ESRD), which is mainly comprised of the
sickest diabetes patients. Early studies
have shown that savings of at least 10%
could easily be expected. The trend to-
wards bundled payments has begun to
lead to vast changes in the medical pro-
viders and services space in the US.
Those companies that are investing early
to adapt to and capitalize on this trend will
be able to survive and thrive best in the fu-
ture.

4. Important legal information
This publication has been prepared by the Sustainable Investment Research Department of Bank J. Safra Sarasin Ltd, Switzerland, (hereaf-
ter “Bank”) for information purposes only. It is not the result of financial research conducted by the Bank’s CIO private clients research
department. Although it may contain quotes of research analysts or quote research publications, this publication cannot be considered as
investment research or a research recommendation for regulatory purposes as it does not constitute of substantive research or analysis.
Therefore the “Directives on the Independence of Financial Research” of the Swiss Bankers Association do not apply to this document. Any
views, opinions and commentaries in this publication (together the “Views”) are the views of the Sustainable Investment Re-search De-
partment and may differ from those of the Bank’s research or other departments. The Bank may make in-vestment decisions or take pro-
prietary positions that are inconsistent with the Views expressed herein. It may also provide advisory or other services to companies men-
tioned in this document resulting in a conflict of interest that could affect the Bank’s objectivity. While the Bank has taken steps to avoid or
disclose, respectively, such conflicts, it cannot make any representation in such regard.
The Views contained in this document are those of the Sustainable Investment Research Department as per the date of writing and may be
subject to change without notice. This publication is based on publicly available information and data (“the Information”). While the Bank
makes every effort to use reliable and comprehensive Information, it cannot make any representation that it is actually accurate or com-
plete. Possible errors or incompleteness of the Information do not constitute legal grounds (contractual or tacit) for liability, either with re-
gard to direct, indirect or consequential damages. In particular, neither the Bank nor its shareholders and employees shall be liable for the
Views contained in this document.
Sustainability Rating Methodology
The environmental, social and governance (ESG) analysis of companies is based on a proprietary assessment methodology developed by
the Sustainable Investment Research Department of BJSS. All ratings are conducted by in-house sustainability analysts. The sustainability
rating incorporates two dimensions which are combined in the Sarasin Sustainability-Matrix®:
- Sector Rating: Comparative assessment of industries based upon their impacts on environment and society.
- Company Rating: Comparative assessment of companies within their industry based upon their performance to manage their environ-
mental, social and governance risks and opportunities.
Investment Universe: Only companies with a sufficiently high Company Rating (shaded area) qualify for Bank J. Safra Sarasin sustainability
funds.
Key issues
When doing a sustainability rating, the analysts in the Sustainable Investment Research Department assess how well companies manage
their main stakeholders’ expectations (e.g. employees, suppliers, customers) and how well they manage related general and industry-
specific environmental, social and governance risks and opportunities. The company’s management quality with respect to ESG risks and
opportunities is compared with its industry peers.
Controversial activities (exclusions)
Certain business activities which are not deemed to be compatible with sustainable development (e.g. armaments, nuclear power, tobacco,
pornography) can lead to the exclusion of companies from the Bank J. Safra Sarasin sustainable investment universe.
Data sources
The Sustainable Investment Research Department uses a variety of data sources which are publicly available (e.g. company reports, press, in-
ternet search) and data/information provided by service providers which are collecting financial, environmental, social, governance and reputa-
tional risk data on behalf of the Sustainable Investment Research Department.
The entire content of this publication is protected by copyright law (all rights reserved). The use, modification or duplication in whole or part
of this document is only permitted for private, non-commercial purposes by the interested party. When doing so, copyright notices and
branding must neither be altered nor removed. Any usage over and above this requires the prior written approval of the Bank. The same
applies to the circulation of this publication. Third party data providers make no warranties or representations of any kind relating to the
accuracy, completeness or timeliness of the data provided and shall have no liability for any damages of any kind relating to such data.
© Bank J. Safra Sarasin Ltd 2016
Bank J. Safra Sarasin Ltd
Elisabethenstrasse 62
P.O. Box
CH - 4002 Basel
Tel + 41 (0)58 317 44 44
Fax + 41 (0)58 317 44 00
Printed on 100% recycled paper