Diabetes is fast becoming a health care tsunami that threatens to sweep the world.

The World Health Organization counted 171 million diabetics worldwide in 2006. By 2030, that number will double.

The National Center for Chronic Disease Prevention and Health Promotion says one in three Americans born after 2000 will develop diabetes at some point.

The National Institutes of Health estimate that by 2031, 38 million Americans will be diabetic.

The most acute cases will require insulin injections to survive. All Type 1 diabetics — which comprise 10% to 20% of diabetics in developed countries — need insulin. Their immune systems attack the insulin produced by the pancreas.

Rising Demand

Obesity is a major cause of Type 2 diabetes. It can be treated by diet, exercise and oral medication. Type 2s might also need insulin if meds and behavior change fail.

Five million U.S. diabetics need insulin to manage their disease, says Caroline Corner, an analyst with Montgomery & Co. Treatment requires two devices, one to measure and one to administer.

The traditional method of glucose monitoring is to prick a patient's finger, put a drop of blood on a test strip, make a calculation and inject the right amount of insulin up to four times a day.

The American Diabetes Association estimates the market for U.S. finger stick meters and disposables at $6 billion a year.

Several companies want finger-stickers to switch to newer technologies. One is known as CGMS (continuous glucose monitoring systems). The systems are about the size of pacemakers, but they're worn externally. They measure glucose with sensors attached to the skin.

The second technology to improve diabetes management is the insulin pump. These infuse insulin through the skin, but the patient must tell the pump how much insulin to infuse.

The holy grail is an artificial pancreas, a device to both measure glucose and infuse insulin automatically. That hasn't happened yet, mainly because it's hard to marry the two functions, says Aaron Kowalski, research director of the Juvenile Diabetes Research Foundation's artificial pancreas project.

His organization has raised $10 million to prod research — something many companies have been slow to do.

"The companies would do it eventually, but we have a more urgent time frame," Kowalski said.

The foundation intends to speed up development, regulatory approval and market acceptance of artificial pancreas technology within five years.

Three competing companies have joined the artificial pancreas research project: DexCom, (DXCM) Medtronic (MDT) and Abbott Laboratories. (ABT)

Medtronic and DexCom both have CGM systems on the market that monitor a diabetic's sugar level constantly. Abbott has one awaiting regulatory approval.

With around $3 million in annual revenue, DexCom is a fraction of the size of Medtronic, which is on pace to produce around $13 billion in sales this year.

DexCom, still unprofitable, saw shares hit a seven-month high of 10.05 on Aug. 9. Medtronic regularly pumps out double-digit earnings growth. Its stock hit a 52-week high of 55.76 on Sept. 19.

The size gap notwithstanding, DexCom Chief Executive Terrance Gregg sounds confident that his firm can compete. He claims better technology: DexCom's CGMS allows seven-day use; Medtronic's has a three-day sensor.

Both have alarms to warn patients of high or low glucose. But while Medtronic has a CGMS and pump in one unit, there's no automatic link between the two. The patient must still tell the pump how much insulin to infuse.

Medtronic officials stand by their technology.

"Based on our extensive clinical experience," said spokesman Steven Cragle, "we have not found that sensor longevity is a critical factor in helping patients achieve the outcome they're seeking, which is to control their blood sugar effectively."

Market Growth

DexCom's growth plan includes partnering with interested pump makers.

"We will open our architecture to anyone who wants our software in their devices," Gregg said.

That looks like a good business model, says Kowalski, a Type 1 diabetic who uses a DexCom sensor and Medtronic pump.

"We want all people who need it to have access to these technologies and to have a thriving competitive market for these devices and products," he said.

One company with advanced pump technology is Insulet. (PODD) Called OmniPod, it's disposable and wireless.

OmniPod is simpler to use than competing pumps and cheaper over time, says analyst William Plovanic of Canaccord Adams, which has done business with Insulet.

"By 2010, insulin pumps will be the therapy of choice for 23% of Type 1 diabetics," Plovanic said.

Insulet went public on May 15 at $15 per share. Shares now trade near 22.

The company has prototypes that marry OmniPod with Abbott's five-day CGMS, which has been approved in Europe.

Plovanic says there's a possibility of Insulet partnering up with other firms.

"Insulet is not precluded from alliances with other companies," he said.

As for the artificial pancreas: It's still a dream.

"It's years and years, if not decades, away," Corner said.

Maybe not. Yale University researchers have linked a Medtronic sensor and pump with a laptop computer controlling insulin infusion.

"We got much better control than diabetes patients could do themselves," Kowalski said.

Big Opportunity

With 20 million diabetics and 50 million pre-diabetics in the U.S., the opportunities in the diabetic field are enormous, says Mark Brooks, managing director of Scale Venture Partners.

"There's a lot of competition to get into deals," he said.

His firm has invested in Alimera Sciences, which is developing a treatment for a diabetes-caused eye problem that can lead to blindness.

"We're looking at opportunities to make delivery of insulin simpler than it is," Brooks said. "The risks match the reward."