NEW YORK ( TheStreet) -- Two of my closest friends, including my college roommate, were diagnosed with diabetes recently. I was taken aback when they told me because both my friends are fit and not even close to being overweight. This got me thinking that diabetes is not just a problem for the obese but it's probably the largest health concern facing our country.

The grim statistics bear this out: At current growth rates, one out of every three adults in this country will have diabetes by the year 2050, according to the CDC.

Biotech investors who want to take advantage of this unfortunate demographic trend should take a look at Lexicon Pharmaceuticals ( LXRX - Get Report).

Lexicon's LX4211 is a once-daily pill belonging to a novel class of diabetes drugs known as sodium-dependent glucose transporter (SGLT) inhibitors that work by blocking the reabsorption of glucose into the bloodstream. Instead, patients on SGLT inhibitors excrete glucose in their urine.

LX4211 inhibits SGLT-1, which is the primary transporter of glucose from the gastrointestinal tract and SGLT-2, the mechanism by which glucose is transported from kidneys back into the bloodstream.

As a "dual" SGLT inhibitor, LX4211 stands apart from Bristol-Myers Squibb ( BMY - Get Report) and AstraZeneca's ( AZN - Get Report) dapaglifozin and Johnson & Johnson's ( JNJ - Get Report) canaglifozin, both of which inhibit SGLT-2 only. In January, FDA rejected dapaglifozin and asked for more clinical date to assuage concerns about higher rates of bladder and breast cancer reported in the treatment arms of phase III studies. J&J submitted canaglifozin to FDA in June.

By stopping glucose reabsorption in the gut, LX4211 could have more of a beneficial effect after a meal and may also help release beneficial peptides such as GLP-1 that help glucose secretion.

LX4211 also has the potential to be safer than the other drugs in the SGLT inhibitor class because blocking glucose reabsorption in the gut first followed by the kidneys may translate into less glucose secreted in urine. Glucose-rich urine stored in a patients' bladder might be associated with the higher rates of bladder infections and bladder cancer seen with dapaglifozin.

Lexicon's LX4211 phase IIb trial results have been outstanding. LX4211 at the highest 400 mg dose combined with metformin demonstrated a reduction of 0.86% in hemoglobin a1c (HbA1c), a standard measure of blood-sugar control. This reduction compares favorably with both dapaglifozin (0.67% HbA1c reduction) and canaglifozin (0.7% HbA1c reduction) in their respective phase III trials.

Weight loss reported in the phase IIb trial was approximately 2 kg to 2.5 kg per patient at the two highest LX4211 doses compared to a slight weight gain for placebo. This is similar to what was seen in the SGLT-2 inhibitor drugs. There were also statically significant reductions in both systolic and diastolic blood pressure favoring LX4211.

HbA1c reduction increased steadily as the LX4211 dose increased but the amount of sugar secreted in the urine stayed fairly steady at about half the levels measured in the phase III studies of dapaglifozin and canaglifozin. This is a very interesting finding, which again, underscores why LX4211 could be safer than the other SGLT inhibitors.

There were no drug-associated severe adverse events reported in Lexicon's phase IIb trial. Targeting SGLT-1 has raised concerns about gastrointestinal side effects but nausea was reported in just 10% of LX4211-treated patients.

Lexicon plans to meet with the FDA soon to discuss a phase III program for LX4211. Studies should begin next year. The company has been open about wanting to find a partner, so I would expect a Big Pharma deal to be signed within the next few months.

Lexicon' pipeline outside of LX4211 includes a drug to treat carcinoid syndrome moving into phase III studies, and drugs to treat ulcerative colitis and irritable bowel syndrome in phase II.

Lexicon shares closed Monday at $2.55 but don't make the mistake of thinking of the company as a small-cap biotech stock. With 500 million shares outstanding, Lexicon's market cap is more than $1.2 billion. Lexicon required a lifeline during the market collapse of 2008-2009 that forced the company to push through a highly dilutive, below-market financing. Fortunately, the investment company that saved Lexicon remains a large shareholder and is not a flipper.

I usually balk at owning stocks with balance sheet weighed down with too many outstanding shares, but Lexicon is very attractive at its current valuation because LX4211 has real potential to be a blockbuster diabetes drug.

Rosenblum is long Lexicon.

Dan Rosenblum has been a full-time stock trader since 1999 after leaving a job at a publicly held medical-device company. Rosenblum joined that year and has been the online trading community's resident biotech expert ever since. Rosenblum writes the newsletter, which has outperformed the S&P 500 and the Nasdaq Biotechnology Index every year since its inception in 2006. Rosenblum lives with his wife and kids in Rockland County, New York.