iRhythm shares fall on reports of more FDA inspection issues

iRhythm, a company that manufactures portable heart rate monitors

(Nasdaq: IRTC)
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The company’s shares fell today on reports of further FDA inspection problems and the unexpected departure of its chief financial officer.

IRTC shares fell more than 10% to $75.68 a share at noon today. Mass deviceThe Medtech 100 Index fell half a percent. The disclosures, which came after the market closed yesterday, accompanied a Street-beating second-quarter earnings report.

During yesterday’s earnings call with analysts, CEO Quentin Blackford reported continued progress in resolving two FDA warning letters from last year regarding iRhythm’s Zio AT electrocardiogram (EKG) monitoring system. The San Francisco-based company filed for two 510(k) plans in January to address the FDA’s concerns: one to address backlogs of changes previously made to the Zio AT system, and the other to address design features and labeling updates. Blackford said the company filed its first response to FDA questions about the applications this week, and the second plan will be submitted soon.

However, a transcript of the Seeking Alpha show reveals Blackford adding:

“With respect to the FDA, the agency was on-site at our facilities in San Francisco and Orange County in late July. The inspections concluded yesterday with several 483 observations. We are in the early stages of evaluating these and will respond to the FDA in a timely manner. Overall, the observations focused primarily on our quality and regulatory compliance system, including complaint handling and medical device reporting, risk analysis regarding the involvement of certified company technicians in the preparation of ECG reports through the CAPA process.”

Also last night, iRhythm announced that CFO Brice Bobzien is stepping down for personal reasons, effective Aug. 31. Bobzien, who hails from the Midwest, cited the need to care for elderly family members with health issues during the earnings conference call.

“Brice has been an outstanding leader at iRhythm over the past two years and has made significant contributions to the transformation of iRhythm’s finance organization during his tenure at the company,” Blackford said in a press release.

Daniel Wilson, currently executive vice president of corporate development and investor relations at iRhythm, will succeed Bobzien as CFO.

“Dan has a long history with iRhythm, having advised the company on its initial public offering and then joined iRhythm in 2019,” Blackford said.

Analysts say FDA troubles and CFO departure distract from good news at iRhythm

Truist analysts called the new 483 observations benign. They specifically noted Blackford’s report that iRhythm remains on track to meet two expected Zio AT approvals with a 510(k) filing in late 2024 for the next-generation Zio MCT.

Truist analysts — as well as analysts at BTIG and Needham & Co. — maintained a Buy rating on IRTC shares but lowered their price targets.

Marie Thibault and Sam Eiber of BGIT said: “While IRTC’s fundamentals remain solid — strong volumes, impressive margins, relatively controlled expenses — we believe this FDA update could have a near-term impact on the stock.”

iRhythm lost $20.1 million, or 65 cents a share, in the quarter ended June 30, 2024, compared with a loss of $18.5 million, or 61 cents a share, in the second quarter of 2023. Revenue rose more than 19% to $148.0 million, beating Wall Street analysts’ consensus for a loss of 89 cents on sales of $146.2 million.

The company now expects full-year revenue to increase 18%-20% to $580 million-$590 million, with adjusted EBITA of 3.5%-4%. This forecast is better than iRhythm’s previous forecast of sales growth of 17%-19% to $578 million-$588 million, with adjusted EBITA of 3%-4%.

“The 19.3% year-over-year revenue growth in the second quarter was driven by continued growth in new account openings over the previous twelve months, but also by the expansion of the outpatient cardiac monitoring market through deeper penetration into primary care channels,” said Blackford. “Zio’s value proposition of delivering on the Five-Fold Healthcare Goal is clearly resonating with providers in integrated delivery networks as well as large, national primary care accounts.