Roche Diagnostics Corp., which operates its North American headquarters from Indianapolis, announced an agreement that will get it into the continuous glucose monitoring game in the United States—the latest wave of innovation in diabetes care.

Switzerland-based Roche will partner with San Diego-based DexCom Inc. to incorporate its continuous glucose monitoring sensor with a wireless handheld device Roche is developing to help diabetics test their blood sugar and track their glucose levels throughout the day.

The Roche handheld device would also control Roche’s insulin pumps—including a still-to-come patch pump called Solo, which Roche acquired along with its Israel-based maker last year.

Continuous glucose monitors allow diabetic patients to get more frequent readings on their blood glucose levels, which can fluctuate substantially throughout the day. More frequent readings could help them better manage their diets and medications, including shots of insulin.

Standard blood glucose meters require patients to prick their finger each time they test, something that is not pleasant to do. Roche is one of the leaders in standard glucose meters and test strips, selling $2.6 billion worth last year, according to San Francisco-based research firm Close Concerns Inc.

By combining a continuous glucose monitor with an insulin pump—typically used by patients with Type I diabetes—Minnesota-based Medtronic Inc. was able to leap out to an early lead in the new technology.

Also, Massachusetts-based Insulet Corp. has paired its patch pump OmniPod with continuous glucose monitors made by DexCom and by Illinois-based Abbott Laboratories. And New Jersey-based Johnson & Johnson also has a deal with DexCom to link up its insulin pump with DexCom’s continuous glucose monitor.

But Roche has been on the sidelines—until last week. It agreed to pay DexCom $3 million upfront and contribute an estimated $1 million or more toward development of DexCom’s next-generation sensor. Roche also will pay a $100 royalty to DexCom for each of the handheld devices it sells.

“With this partnership we are taking the next step in further integrating the key elements of optimal diabetes management into combined solutions that can contribute to improved medical outcomes,” Luc Vierstraete, Roche’s global head of diabetes care, said in a prepared statement.

Roche’s insulin pump sales have been meager—just $24 million in the United States last year and $223 million worldwide, according to Close Concerns. The firm estimated that Roche will not receive approval from the U.S. Food and Drug Administration for its new Solo patch pump until 2013. Close Concerns does not expect DexCom’s new sensor to receive market approval until 2014.

“The agreements should also make Roche more competitive on the pump front,” wrote Close Concerns analysts Kelly Close, Joseph Shivers and Adam Brown, in a research report on the agreement. They added, “Roche will also certainly benefit from the DexCom ‘halo.’”

Under terms of a separate agreement, Roche’s sales force will begin to promote DexCom’s continuous glucose monitor, called the Seven Plus, to health care providers. DexCom is now promoting its continuous glucose monitor as a standalone product that diabetics can use, whether they use an insulin pump or not.

DexCom is still working, however, to get health insurers to pay for the devices, as consumers have been slow to pay out of pocket for them, Close Concerns said.