Investor Short Report Flags Steep Downside Risk For iRhythm Technologies (CORRECTED)

Editor's Note: An earlier version misstated that iRhythm had not responded; the company provided a statement on Aug. 18.

Spruce Point Capital Management issued a detailed report on iRhythm Technologies, Inc. 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.

In response to the report, iRhythm Technologies told Benzinga: "We are aware of a report that reiterates previously disclosed matters that we have and will continue to address in our public filings and communications.”

“iRhythm is committed to transparency and patient safety and will continue to focus on its strong growth trajectory through operational excellence, financial discipline, and by delivering high-quality services for patients and customers," the company added.

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.

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.