Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- iRhythm Technologies Inc (IRTC, Financial) achieved revenue of $148 million in Q2 2024, representing a 19.3% year-over-year growth.
- The company has seen strong growth from new accounts opened in the past 12 months and increased penetration in existing accounts.
- The CAMELOT real-world evidence data has demonstrated Zio's superiority, leading to favorable negotiations with payers and updates to coverage policies.
- iRhythm Technologies Inc (IRTC) is expanding into primary care, targeting over 15 million patients with cardiac-related palpitations annually.
- The company is making significant strides in international markets, with plans to launch commercial activities in four Western European countries and a regulatory decision expected in Japan by late 2024.
Negative Points
- The company is dealing with an FDA warning letter and has received several 483 observations focused on quality systems and regulatory compliance.
- iRhythm Technologies Inc (IRTC) is incurring incremental legal and consulting fees related to the FDA warning letter and DOJ subpoena, which could impact financial performance.
- Adjusted net loss in Q2 2024 was approximately $18.8 million, compared to $13.1 million in Q2 2023.
- The company anticipates $8 million to $10 million in costs associated with the FDA warning letter and DOJ subpoena for the full year 2024.
- There is uncertainty around the scope and focus of the DOJ investigation, which could pose risks to the company's operations and financials.
Q & A Highlights
Q: Can you provide more details on the 483 observations from the FDA inspection? Are they minor, and how quickly can they be resolved?
A: We will respond to the observations within 15 days. The FDA is trying to define how to regulate this new category. The fundamental issue is whether the IDTF and CCTs are part of the product. The observations focus on quality systems and regulatory compliance, not on the safety or efficacy of the product.
Q: How should we look at the revenue outlook for the rest of the year on a sequential basis? What are the drivers of the increase?
A: We feel good about the momentum in the business, with contributions from new store growth, same store growth, and primary care. We expect third-quarter revenue to be 25% of full-year revenue, reflecting normal seasonality.
Q: What were the drivers of the gross margin improvement, and how should we think about sustainability?
A: The improvement was due to logistical savings and reduced software development costs. These contributed about 100 basis points of benefit in the quarter. We will continue to hire resources as we scale volumes, but the efficiencies are sustainable over time.
Q: Can you provide more details on the DOJ investigation and its scope?
A: The DOJ's inquiry is broad, focusing on quality systems and design history files from 2016-2019. We are protecting attorney-client privilege. The investigation seems to focus on the AT or MCT category, but we can't speculate further.
Q: Can you elaborate on the sleep space market evaluation planned for next year?
A: We will leverage a third-party sleep test initially, reimbursed at $150-$200. The goal is to provide a seamless service for physicians and patients. We plan to develop our own home sleep test capability over time.
Q: How do the new FDA observations impact the recently submitted 510(k) and the resolution of the warning letter?
A: The observations do not change our expectations for clearing the Zio AT product. We remain on track for the September-October timeframe for approval. The Zio MCT submission is also on track for late 2024.
Q: Can you discuss the impact of the new payer policy shift on ASPs and future pricing?
A: The new policy allows for 14-day monitoring as a step through to ILRs, driven by CAMELOT data. This will improve access and reduce hurdles for patients. While it doesn't immediately impact ASPs, it opens up opportunities for future pricing negotiations.
Q: What are the risks if the FDA discussions don't go as planned?
A: The risks could include another warning letter, but there are no discussions about the safety or efficacy of the product. The focus is on documentation and process control. We are committed to resolving these issues.
Q: How should we think about the impact of MCT on margins and profitability when it launches?
A: MCT is a higher-revenue product but more costly to service. We have efficiencies planned to offset these costs. We expect to maintain our long-term gross margin targets despite the shift to MCT.
Q: Can you discuss the policy change making Zio a precursor to ILRs and its impact on field relationships?
A: The policy change is driven by the high cost of ILRs. Payers are interested in cheaper alternatives like Zio. This could lead to more coordination in the field, but we don't compete directly with ILRs. The change is beneficial for us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
