Irhythm Technologies Inc IRTC shares traded lower on Wednesday after Kerrisdale Capital said it's short the stock and expects iRhythm’s revenue growth to slow dramatically in coming quarters.
Kerrisdale’s bearish thesis is based on iRhythm’s Zio single-lead heart rate monitor, which accounts for nearly all of the company’s $150 million in revenue.
“A closer look at the circumstances surrounding the reimbursement treatment of the Zio Patch reveals that at the core of iRhythm’s revenue base is an exceedingly generous, but increasingly fragile, reimbursement regime,” Kerrisdale claims in its report.
The firm said the Zio is outperforming competing heart monitors in terms of revenue per device, and Kerrisdale claims that outperformance is due to the company’s clever maneuvering of the American Heart Association’s reimbursement coding procedures. As a result, Kerrisdale says iRhythm can essentially “name its own price” for the Zio, a “price-gouging” practice that won’t last for much longer.
Kerrisdale estimated that reimbursement levels may drop my more than a third once Medicare and commercial payers begin to realize what’s happening.
In addition, Kerrisdale said the Zio’s window to operate without significant competition is closing. Other companies are now selling devices that appear to offer superior performance to the Zio based on recently published data. Kerrisdale said these new competitors threaten iRhythm’s market share and could create pricing pressures for the Zio.
Finally, Kerrisdale said iRhythm’s recent attempts to expand its business into the real-time cardiac monitoring space has apparently fallen through given the Zio AT is no longer listed on the company’s website.
“That leaves iRhythm as a one-hit wonder with a shrinking reimbursement revenue pool and a slew of superior competition,” Kerrisdale said.
A representative from iRhythm was not immediately available for comment.
After dropping Wednesday morning, Irhythm shares closed nearly unchagned on the day at $87.34.
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