Health insurer UnitedHealth Group is out with a new report that says half of Americans could have diabetes or be on their way to getting it by 2020. By the end of the decade, the epidemic could more than double the current spending on diabetes and prediabetes patients to nearly $500 billion annually.

Fools should be asking, "How the heck can I profit from this?"

There are two types of diabetes. Type 1 diabetes is usually diagnosed in children and young adults and is at least somewhat tied to genetics. There's no way to know how to prevent it because you can't change your DNA, and we don't really know what other triggers might causes it. Type 1 isn't the main issue anyway.

A vast majority of diabetics have Type 2 diabetes, which develops in patients who eat too much fat and not enough carbohydrates and fiber and who get too little exercise. Gaining just 11 to 16 pounds doubles the risk of Type 2 diabetes, and gaining 17 to 24 pounds nearly triples the risk.

Weight gain can obviously be prevented or reversed, and companies such as Weight Watchers International, NutriSystem (Nasdaq: NTRI), and Medifast (NYSE: MED) that offer products to shed the pounds could benefit from having Americans pack on the pounds -- in theory, at least. Let's face it, though: No one likes dieting, and that's not likely to change even if there's a diabetes epidemic.

Diet and exercise aren't appealing, but a magic pill that made the pounds go away -- there's certainly a market for that. Unfortunately, it's been hard to come by. Drugs have either not worked very well, had side effects -- Wyeth's fen-phen for example -- or sometimes both.

Three companies are currently vying to bring the next pill to the market. VIVUS (Nasdaq: VVUS) has the best shot. Qnexa was turned down by the Food and Drug Administration, but there seems to be a potential pathway toward approval. Arena Pharmaceuticals' (Nasdaq: ARNA) lorcaserin was also turned down, but its approval pathway looks a little more foggy, although not impassable. Orexigen Therapeutics is a bit of a wildcard, since it goes in front of a FDA advisory panel next month, but considering the first two drugs got shot down on their first attempt, I wouldn't be surprised to see Orexigen fare the same.

The cureless treatment
Assuming Americans aren't going to shed the pounds, that pretty much leaves treatments as the only option. And since there's no cure for diabetes, it's pretty much a lifelong treatment. Cha-ching!

Since diabetes is a progressive disease, you can pretty much pick anywhere on the pathway and find a drug that should benefit from an increase in the number of diabetics.

Patients usually start on a generic oral medication such as metfromin before progressing on to oral brand-name drugs such as Takeda's Actos or Merck's (NYSE: MRK) Januvia. After the oral medications have stopped working, injectable drugs are employed. Drugs such as Amylin Pharmaceuticals' (Nasdaq: AMLN) Byetta and Novo Nordisk's Victoza are sometimes used before patients move on to insulin.

The best way to take advantage of this trend is to invest in drugmakers that specialize in diabetes; investing in a company such as Merck just because it has a big diabetes drug isn't going to do much, considering Merck's size. Here are three possible buys that get progressively riskier:

  • Novo Nordisk sells some other drugs, but it specializes in insulin and sells the aforementioned Victoza. You'll probably want to buy the American depositary receipt, which trades under the ticker NVO, since the company's shares trade natively on the Copenhagen exchange.
  • Amylin Pharmaceuticals looked like a sure thing to bring Bydureon, its once-weekly version of Byetta, to market, but the FDA threw a wrench in that plan last month. It still looks as if Bydureon should get approved, but investors will need to be patient.
  • MannKind (Nasdaq: MNKD) is by far the riskiest of the three. The FDA has turned down its inhaled-insulin device once already. A second decision is expected at the end of next month, but it's not clear whether the agency might ask for additional information, given how safety-conscious the FDA has become.

Before you hit that buy button ...
Remember, you have time. This epidemic isn't going away anytime soon. There's no rush. Add some diabetes companies to your watch list, and buy when the time is right.