What happened

After investment bank Baird upped its rating on the insulin pump maker to a buy, shares of Tandem Diabetes Care (TNDM -0.93%) shot up by 16% at 1:15 p.m. EST on Wednesday.

So what

Tandem Diabetes' sells insulin pumps that type 1 diabetics and insulin-intensive type 2 diabetics can use to manage their disease. The company faces stiff competition from the likes of Medtronic (MDT -2.33%) and Insulet (PODD -8.35%), but it made a big headway toward capturing a more meaningful share of the pump market this summer when it launched a new automated insulin system that pairs its pumps with a continuous glucose monitor made by DexCom (DXCM -0.08%).

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In the past, insulin pump users needed to consult with their CGM and, often, confirm blood sugar readings with a finger stick, but next-generation systems like the one sold by Tandem Diabetes automatically track your blood glucose readings and dose insulin as required. In Tandem Diabetes system, its Basal-IQ algorithm predicts blood sugar levels 30 minutes in advance and it can shut off insulin if someone's at risk of having a blood glucose level that's dangerously low. 

The launch of this new system has put Tandem Diabetes on a path toward profitability. In the third quarter, its pump shipments grew 118% to 8,434 and its sales jumped 71.5% to $46.3 million. Based on that performance, management told investors during its conference call that it's "well-positioned to reach our breakeven target for adjusted EBITDA in Q4 of this year."

The upbeat outlook and the fact that Tandem Diabetes shares have tumbled from a peak of about $50 in September to roughly $33 as of this writing appears to have been enough to convince Baird that shares offer upside. This morning, the company lifted its rating to outperform from neutral and set a price target of $46.

Now what

The company estimates its market share to be about 12%, but that's likely to increase given the third-quarter results and the potential for its system to make insulin dosing easier on patients.

Having said that, Medtronic's got its own similar system on the market and Insulet is developing an automated system, too, so Tandem Diabetes will still have to compete aggressively for sales in the future. The potential associated with disrupting the diabetes market shouldn't be understated, though. There are over 30 million people with diabetes, including more than 1 million with type 1 diabetes, in the U.S., and increasingly more people who could eventually benefit from automated insulin systems are being diagnosed every year.