Spruce Point Capital Management issued a detailed report on iRhythm Technologies, Inc. (NASDAQ:IRTC) on Monday, projecting a long-term downside risk of 40% to 70% for its stock.
The short-seller argued that investors are overlooking regulatory, competitive, and management challenges that could undermine the company's market position.
What Is iRhythm?
The medical technology firm, best known for its Zio line of wearable cardiac monitors, launched its first device — the Zio XT — in 2009.
This long-term cardiac monitor, now branded as Zio Monitor, records heart activity for up to 14 days. It has since secured roughly 70% of the extended wear monitoring market.
In 2019, iRhythm introduced the Zio AT, which included cellular transmission capabilities to alert doctors in near real time of potential cardiac events.
While promoted as a major step forward, the product has faced regulatory scrutiny over safety concerns.
Despite relying heavily on its core product, iRhythm has pitched investors on new avenues of growth, including targeting asymptomatic patients, introducing a next-generation mobile cardiac telemetry device, and expanding internationally.
Spruce Point is scrutinizing these opportunities, citing limited physician enthusiasm and increased competitive pressure.
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Viability In Question
A forensic review conducted by Spruce Point, including a survey of 100 cardiologists, raised red flags over the safety and competitiveness of iRhythm's products.
The report also criticized the company's profitability, management credibility, and handling of regulatory issues.
According to the firm, the FDA found that iRhythm's analysis revealed multiple device deficiencies that could endanger patients' lives. Yet, the company allegedly failed to act on these findings for several years.
During this period of regulatory inaction, insiders sold an estimated $90 million to $160 million worth of stock, Spruce Point said.
The firm argued that investors have been too lenient with management and optimistic about the company's growth narrative, noting that iRhythm shares have climbed 141% in the past year.
Spruce Point maintains that the risks tied to regulation, execution, and credibility are far from resolved, leaving the stock vulnerable to steep declines.
Financials
- iRhythm Technologies reported an adjusted loss of 32 cents in the second quarter, beating the consensus loss of 48 cents.
- Sales reached $186.7 million, beating the consensus of $173.94 million.
- iRhythm Technologies raised its fiscal 2025 sales guidance from $690 million-$700 million to $720 million-$730 million versus the consensus of $695.74 million.
- iRhythm on Monday published AVALON study results showing its Zio long-term monitoring service outperforms other approaches in arrhythmia diagnosis, speed, cardiovascular outcomes, and overall costs—based on real-world data from 428,707 patients.
Benzinga reached out to iRhythm for comments but hasn’t received a response.
Price Action: IRTC stock is down 2.92% at $155.89 at the last check on Monday.
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