Tandem Diabetes Care (TNDM) delivered a stronger underlying Q2 than the headline results suggested, with improving execution and faster-than-expected adoption of its PayGo subscription model, RBC Capital Markets said.

The company's PayGo subscription model is gaining significant traction in its first full quarter, with 10% of US sales coming through pharmacy channels. Formulary coverage has reached 45%, already approaching the high end of Tandem's full-year target, according to the note Thursday.

The near-term headwind from zero-upfront PayGo pump shipments was about $8 million in Q2, but was more than offset by favorable supply pricing. RBC called PayGo a "transformational shift" that more than doubles expected lifetime revenue per patient while removing the largest barrier to pump adoption.

The investment firm also said underlying US pump demand remains healthy, with record second-quarter shipments of 22,000 pumps, sequential growth of more than 20% in new starts and continued strength in multiple daily injection conversions.

Tandem submitted an application for its Mobi Tubeless insulin delivery system, with management targeting clearance and a scaled launch in H2. If launched on schedule, 2027 would be the first full year of contribution from the product, which RBC expects to drive meaningful revenue acceleration and margin expansion.

RBC maintained the company's stock rating at outperform and adjusted the price target to $26 from $30.

Shares of Tandem Diabetes were up more than 17% in Friday trading.

Price: 22.07, Change: +3.28, Percent Change: +17.46