Wearable cardiac monitor developer iRhythm (Nasdaq: IRTC) disclosed its third subpoena in more than two years from federal investigators.
The news raised some questions from analysts, who were otherwise positive about iRhythm’s first-quarter earnings report yesterday evening.
San Francisco–based iRhythm said that on April 4, it received a subpoena duces tecum from the U.S. Department of Justice Civil Division’s Consumer Protection Branch. Company officials told analysts that they were fully cooperating. They said it was too early to speculate on the nature or timing of the inquiry.
Analysts noted that Boston Scientific said in its most recent quarterly report that it received a subpoena from the DOJ on April 5 seeking documents and information relating to its ambulatory electrocardiography monitoring (AECG) business. Boston Scientific is also cooperating.
BTIG analysts stuck with their Buy rating for IRTC shares, noting that the DOJ’s Consumer Protection Branch recently announced new policies that reward voluntary self-disclosure.
“We think it may be possible that IRTC’s efforts to strengthen its risk and compliance functions could be a positive factor,” said BTIG’s Marie Thibault and Sam Eiber. “Still, it is difficult to predict what next steps for this inquiry could be, any potential impact on the company’s commercial operations, or timelines. We do not see any reason for panic at this point, but acknowledge that this is unsettling and that it may be a small overhang on the stock.”
IRTC shares were down more than 8% to $123.30 apiece in morning trading today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down slightly.
On March 26, 2021, iRhythm received a grand jury subpoena from the U.S. Attorney’s Office for the Northern District of California. The subpoena requested information related to communications with the FDA and the company’s products and services. On September 14, 2021, iRhythm received a second subpoena requesting additional information.
Putting the iRhythm subpoena in perspective
It’s worth noting that subpoenas and a federal investigation don’t necessarily mean that iRhythm is in serious legal jeopardy.
“In our experience, these items can often take long periods of time to resolve and often don’t amount to anything substantial. Until we get resolution, it could serve as a stock overhang on some level, but our initial read is that it shouldn’t be a major issue,” said Truist analysts Richard Newitter, Samuel Brodovsky and Lin Zhang.Overall, iRhythm’s first-quarter earnings were positive.
The company lost $39.1 million, or $1.29 per share, off of $111.4 million in revenue for the quarter ended March 31, 2023. Losses were narrower than in the same period a year ago, and sales were up 20.6%.
Adjusted to exclude one-time items, iRhythm reported $1.10 in losses per share, wider than the 90¢ per share losses expected on The Street. However, revenue beat the Wall Street analyst consensus of $107.05 million.
iRhythm expects full-year 2023 revenue to grow approximately 17–19% compared to the previous year, ranging from $480–490 million.
“Entering 2023, we achieved significant growth in our core U.S. business, building upon the solid momentum we had exiting the prior year,” iRhythm CEO Quentin Blackford said in a news release.
“Our teams continued to build upon the discipline and rigor introduced in the back half of last year to capture key strategic wins, driven by a continued push into primary care as well as increasing penetration into large and national accounts,” he said. “The strength of the quarter was fueled by registration volumes in our Zio XT business, including another record quarter of new account openings.”