iRhythm Technologies (IRTC) Sinks as CEO Departs, Citi Downgrades to 'Neutral'

Shares of iRhythm Technologies (NASDAQ: IRTC) are down 20% in early trading after Mike Coyle, President and CEO of the company, has decided to resign from his position, effective June 1, citing personal matters.

The company’s CFO Douglas Devine will step up as interim chief executive officer until a new CEO is appointed. iRhythm said Coyle will continue to provide consulting services to the company until it finds a permanent CEO replacement.

“On behalf of the Board, we would like to thank Mike for his leadership of the Company since joining in January and the contributions he has made in helping to advance our commercial plans as well as our progress in the reimbursement discussions underway. We respect Mike’s prioritization of his personal matters and wish him all the best,” said Abhijit Talwalkar, Chairman of the iRhythm Board.

“This was a difficult decision for me given the many growth opportunities I see for iRhythm and my confidence in the Company. However, it was the right one for me personally,” said Coyle.

The digital healthcare solutions company said the current situation is not expected to affect its plans including its discussions with Novitas and other Medicare Administrative Contractors (MACs) as well as its pursuit of national pricing with the Centers for Medicare and Medicaid Services.

Following the news, Citi analyst Joanne Wuensch downgraded the stock to “Neutral” from “Buy” as CEO departure is likely to push shares trading sideways “for a while,” as the “pathway to recovery at this stage is less than obvious.”

“Sometimes you have to step aside, and so we are. We have been long-term bulls on iRhythm’s Zio XT and Zio AT platforms, both for the diagnosis of symptomatic and asymptomatic atrial fibrillation (AF), but after a series of reimbursement walls followed by the departure of its very recent CEO, Mike Coyle, we are declaring “uncle”,” the analyst said in a note.

On a more positive note, the company also reiterated its second-quarter guidance of around 4% sequential volume growth and operating expenses to be approximately flat compared to the first quarter.

“For reimbursement, next steps are for management to work through a multi-pronged strategy as it pursues national pricing with the Centers for Medicare and Medicaid Services (CMS), in which it leverages the RUC analysis and historical methodologies for valuations, as well as with Novitas and other Medicare Administrative Contractors (MACs) in looking at a more realistic assessment of the costs associated with the product to improve the level of reimbursement,” Wuensch adds.

The analyst also lowered the price target to $78.00 per share from $105.00 per share.

“While stocks that are increasing revenue in the 20%+ range tend to receive premium multiples, those with considerable hair and uncertainty can fall far below (the average SMID cap EV/Revenue multiple is currently 9.2x 2022E). For example, XENT fell as low as 3.6x NTM EV/Revenue in August 2019 when faced with reimbursement uncertainty. NVRO traded as low as 2.4x in December 2018 when the company was serially missing estimates. Even DXCM reached a low of 4.4x in September 2017 when Abbott’s Libre was FDA approved. This is a long way of saying we believe that IRTC will overshoot at the open before recovering, but the pathway to recovery at this stage is less than obvious,” the analyst added.

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