iRhythm shares soar after FDA clears Zio AT device updates

Investing.com -- Shares of iRhythm Technologies, Inc. surged 12% in pre-market trading on Tuesday after the company said that it had secured U.S. Food and Drug Administration clearance for updates made to its Zio AT device. 

The clearance follows a 510(k) submission related to design modifications that had previously been filed under a "letter to file," ensuring the cardiac telemetry device remains available for use in the United States.

Truist Securities has raised their price target for iRhythm shares from $80 to $95, based on a valuation of approximately 4.5x EV/Sales applied to their estimated revenue of $694 million for 2025. 

The increase in valuation reflects the regulatory news, seen as a crucial first step in resolving ongoing regulatory issues that have affected iRhythm over the past two years.

Truist had recently lowered their valuation due to uncertainties related to the FDA and regulatory overhangs, including potential delays with the two Zio AT 510(k) submissions.

The FDA approval comes as a milestone for iRhythm, which has been focused on addressing regulatory requirements. 

“We are pleased to have received this first 510(k) clearance in line with the sequence of how we submitted the first of two 510(k)s at the beginning of this year, and we look forward to hearing about our second 510(k) in the near future,” said the company's President and CEO, Quentin Blackford in a statement. 

Zio AT, iRhythm's mobile cardiac telemetry system, is designed to continuously monitor patients’ heart activity for up to 14 days. 

The device transmits real-time data to healthcare providers through a combination of an ECG patch, a wireless gateway, and an advanced deep-learning algorithm. 

The system's clinical reports provide physicians with crucial data to aid in diagnosing cardiac conditions.

While one of the two 510(k) clearances has been cleared, uncertainty remains regarding the approval timing of the second 510(k), said analysts at Oppenheimer in a note. 

The ZM2 submission is expected to be delayed until after this second clearance, likely pushing it into 2025. 

Oppenheimer notes that gaining just a 10% market share in the MCOT market could equate to an additional $100 million in revenue for iRhythm, a market currently dominated by competitors like Boston Scientific (NYSE:BSX) and Philips Healthcare.