iRhythm lauds growing revenue, sales force expansion during Q1 2018 earnings call

By Dave Muoio
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iRhythm Technologies, maker of the Zio XT and Zio AT adhesive heart monitors, announced first quarter financials boasting higher revenue and an improved gross margin during an earnings call for investors earlier this week. These promising numbers were paired with a net loss nearly double what was reported last year during the same quarter, although these were waved off by executives as the result of infrastructure and sales team investments.

“Importantly, we saw expanding market acceptance for both Zio XT and Zio AT,” iRhythm President and CEO Kevin King said during the call. “Our continued success in growing our sales channel to meet demand for our service gives us confidence such that we are raising our revenue guidance to $128.5 million to $133.5 million, from $126 million to $131 million, which represents [Accounting Standards Codification (ASC)] 606-adjusted growth guidance in the range of 36 percent to 41 percent.”

iRhythm’s first quarter revenue was $30.6 million, a 51 percent increase over the previous year (after adjusting for the ASC 606 revenue recognition standard adopted by the company in the past year). Gross profit for the quarter was $22 million, for a gross margin of 71.8 percent. These same measures in the previous year’s quarter, adjusted, were $13.9 million and 68.7 percent, respectively.

Both King and iRhythm CFO Matthew Garrett took time during the call to highlight the company’s recent work on building its infrastructure, most notably its continued investment into research and development and an exceptionally large increase in sales personnel.

“Sales team expansion in the first quarter went exceptionally well, as we not only saw a significant number of highly qualified candidates, but we were able to hire ahead of our plan,” King said. “Given our success in the first quarter, I’m confident that we’ll reach our stated targets and timeframes for the year.”

The company’s internal investments didn’t come cheap. The quarter’s operating expenses came in at $32.6 million, compared to an adjusted $19.5 million during the same time last year. Net loss for Q1 2018 was $11.1 million (-$0.47 per share), an increase over the previous Q1’s $6.1 million loss ($0.28 per share).

Still, the executives' overall message to investors was one of optimism.

“2018 is off to a great start with strong first quarter revenue growth and increased gross margins,” King said in a statement. “Our track record of growing revenue within new and existing accounts continued into the first quarter, and the exceptional progress in salesforce hiring will strengthen our ability to meet the increasing demand for Zio XT and Zio AT.”

Research continues for adhesive patch ECGs

During the call, King touted the strong primary results of the mSToPs study, a collaboration between iRhythm, the Scripps Translational Science Institute, Aetna, and Janssen that investigated the detection of atrial fibrillation using Zio devices.

In the study, the results of which where presented during the American College of Cardiology’s annual meeting in March, researchers enrolled 1,738 participants to received either immediate or delayed active ECG monitoring in their homes for up to four weeks. All participants in the trial were enrolled remotely, and were not required to visit their local medical center.

After one year, atrial fibrillation was newly diagnosed among 6.3 percent of those who were monitored with a Zio XT, as opposed to only 2.3 percent of those receiving routine care. Further, four percent of those in the intervention group were also diagnosed with potentialy actionable arrhythmias other than atrial fibrillation.

“We believe these results represent a strong first step in our efforts to develop the market for targeted detection of asymptomatic atrial fibrillation and look forward to further clinical evidence to be generated from this and other studies including a 3-year end point for mSToPS that will evaluate stroke rate and cost effectiveness between the Zio-monitored and routine-care groups.”

On the other hand, recent research published in the American Heart Journal suggests some discrepancies between ambulatory ECG monitor patches.

In a small study of 30 patients conducted by researchers from four Washington state-based institutions, a team directly compared the readings of iRhythm’s Zio XT to Bardy Diagnostics’ Carnation Ambulatory Monitoring (CAM) patch. Both of the FDA-approved devices were placed on a patient during the same visit, and monitored patients’ ECGs for seven days.

Over this time period, researchers found that the CAM patch identified more episodes of atrial tachycardia, atrial flutter, and nonsustained ventricular tachycardia. Both monitors were easy to apply and remove, they wrote, although higher clarity from the CAM patches led to increased confidence from reviewing physicians.

Above all, though, the researchers warned that observed differences in the specific arrhythmias diagnosed using the two types of monitors could result in varying clinical decision making.

“Most innovations in AEMs have focused on increased monitoring duration. Although duration of recording improves arrhythmia diagnosis, a very important factor is the clarity of the ECG recording. AEM diagnostics and ECG clarity vary with electrode location, signal noise, signal processing technology, and electronic design,” Dr. Robert Rho, a cardiologist at the Overlake Medical Center in Bellevue, Washington, and the study’s lead researcher, said in a statement. “This study demonstrates that significant differences in diagnostic yield exist between these two seemingly similar patch ambulatory ECG monitors applied during the same seven-day monitoring period, and that these differences can impact clinical decision making."

Of note, Bardy Diagnostics markets the CAM patch for continuous monitoring over a seven-day period, whereas iRhythm’s Zio XT is designed to collect data for 14 days straight.