Thicker waistlines have healthcare policy makers worrying that healthcare spending tied to diabetes and resulting cardiovascular disease will surge over the coming decades. Those fears have sparked a flurry of research and development into drugs that could help reduce the risk of type 2 diabetes by helping patients lose weight, including Orexigen Therapeutics' (NASDAQ:OREX) recently approved Contrave.

Yet despite winning the FDA's green light in September, shares in Orexigen have failed to gain ground this year. Instead, they've dropped nearly 20%. Let's take a closer look and see why shares have fallen and whether or not there may be value lurking in the company's shares.

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Source: Centers of Disease Control

First, a bit of background
Almost 90% of diabetics are overweight and improving economies in emerging countries and ageing baby boomers in the U.S. have industry watchers predicting that the global population of diabetics will swell from 366 million people to 552 million people by 2030. 

Here in the U.S., roughly 79 million Americans are diagnosed with symptoms that if left untreated are likely to lead to full-fledged diabetes. That's a scary number when we consider by how much it dwarfs the 21 million diabetics currently diagnosed in America. 

If the majority of these prediabetic patients end up progressing -- roughly 70% currently do -- then the cost of diabetes is undeniably heading higher. The ADA estimates that direct medical care and economic costs (like missed days of work) of diabetes in total cost the U.S. $245 billion in 2012, up a staggering 41% from 2007. 

Big problem, uncertain solutions
Changing patient lifestyles to help them lose weight and reduce their chances of being diagnosed with diabetes is hard. Healthy food is often more expensive than high fat or sugary foods, and access to gyms and exercise equipment can be costly and time consuming for those struggling to make ends meet.

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Source: Department of Veterans Affairs

So, drugmakers Vivus, Arena Pharmaceuticals, and Orexigen have spent hundreds of millions of dollars researching drugs that can be prescribed alongside diet and exercise to promote weight loss.

The FDA has approved drugs from each of these three companies, and these solutions are endlessly intriguing but also face significant hurdles.

Despite a proven ability in trials to help lower weight by as much as 10%, use of these drugs has been more a trickle than a flood.

Sales of Vivus' Qsymia, which won FDA approval in 2012, totaled just $11 million in the second quarter, and Arena hasn't had much luck with its drug either: Arena's Belviq posted sales of just $10 million last quarter. That's a pretty disappointing result given expectations ahead of their approval had some expecting revenue in the billions of dollars per year.

Falling on deaf ears
The lackluster use of weight loss drugs is likely due to doctors concern over their safety. All three companies saw the FDA reject their applications the first time around over fears that their drugs actually increase the risk of cardiovascular disease.

Those concerns are being addressed by ongoing studies tracking patients taking the drugs, but that stigma is proving hard to overcome.

For its part, Orexigen's cardiovascular outcomes trial, launched in 2012, produced interim results last year that were good enough to support FDA approval. The study also confirmed that patients taking Contrave were two to three times more likely to lose at least 5% of their body weight than patients taking a placebo.

While those results are encouraging, the inability of Vivus and Arena's drugs to garner traction means that investors are probably right to take a wait-and-see approach to Contrave. Personally, I'm more than content to sit on the sidelines until at least one of these companies can prove that there's a willing market for these weight loss drugs.

 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.