What happened

After the Food and Drug Administration greenlit the use of software that can suspend insulin when its insulin pump is used in conjunction with DexCom's (DXCM -0.14%) continuous glucose monitor (CGM), shares of Tandem Diabetes Care (TNDM -1.89%) are rallying 10.2% at 12:45 p.m. EDT on Friday.

So what

Historically, diabetes patients can spend up to 70% of their day outside their desired blood glucose range, and as a result, they're at risk of seeing their disease progress to a point where it causes life-threatening complications.

A man in a suit holding a rubber stamp with the word approved on it.

IMAGE SOURCE: GETTY IMAGES.

In a bid to better control blood sugar levels, doctors and patients are increasingly embracing monitors that can track blood sugar levels in real time and pumps that provide background insulin. The use of these systems together can conceivably automate insulin dosing. However, software that can predict future blood sugar levels to avoid the risk of hypoglycemia, or ultra-low levels of blood sugar that can be life-threatening, is necessary for that to happen.

For this reason, the approval of Tandem Diabetes Care's latest upgrade to its insulin pumps is important. In trials, using Tandem's Basal-IQ algorithm to predict blood sugar levels 30 minutes into the future resulted in a 31% relative reduction in time spent by patients with blood glucose levels below 70 mg/dL when compared to a CGM and an insulin pump alone.

Tandem Diabetes Care's suspend feature works by automatically stopping insulin delivery when low blood sugar is expected and then automatically restarting it when blood glucose levels trend back upward. 

Now what

Until now, Medtronic's (MDT 0.31%) MiniMed 670G was the only approved automated monitoring and insulin pump delivery system available to patients, but when Tandem Diabetes Care launches its new feature in August, it will provide stiff competition.

Medtronic doesn't break out MiniMed 670G sales specifically, but the revenue opportunity associated with this advance in treatment is significant. The number of users of the MiniMed 670G increased from about 20,000 people in December 2017 to 70,000 exiting March 2018 and Medtronic cites the MiniMed 670G as major reason behind its low 20% year-over-year growth in its diabetes segment. Medtronic's diabetes sales totaled $2.1 billion in fiscal 2018. 

Unexpectedly, Tandem Diabetes Care's FDA approval includes the use of its new feature alongside DexCom's latest CGM, the G6. A more feature-rich CGM than its predecessor, the G6 removes the need for finger sticks for calibration and its sensors can be worn for 10 days rather than seven days. Pairing the G6 with Tandem Diabetes Care's t:slim insulin pump out of the gate could make Tandem's solution even more attractive, and investors should therefore seriously consider adding this stock to their growth portfolios.