IRADIMED CORPORATION (IRMD) Earnings Call Transcript & Summary

Hello, everyone. My name is Léo Kensicher. I'm an associate here in the JPMorgan Healthcare Investment Banking team. And this evening, it's my pleasure to introduce Roger Susi, Founder, President and CEO; along with Jack Glenn, CFO. And I'll pass it off to Roger to kick off the presentation. Thank you.

Thanks, Léo. Hello, everyone, and welcome to our IRadimed Device Company presentation. Again, as introduced, I'm Roger Susi, I'm the President and Founder of IRadimed Corp. I'll quickly go through some forward-looking statements as we are a public company. I'm not going to read all that. You've probably seen that many times and get right into it. I'm going to begin by talking about the end, just kind of go over some numbers. So as you see there, IRadimed is a revenue-producing business. We just wrapped up 2024 at $72 million (sic) [ $73 million ], Jack. And we are a profitable business. We generate cash, have good growth and we actually pay dividends. So we've also a robust balance sheet as the little bag of money there on the slide shows. How do we get there? So we are a safety play. We don't -- we make devices. We don't rely on reimbursements. It's not a directly billable kind of device or a single-use part of it, it's simply a safety device for MRI. So I'm going to back up just a skosh and mentioned where we came from with this time line slide. So both Jack and I have been in a previous business called Invivo. In the mid-80s, at Invivo, I founded that also a company in a garage literally. And we were in the patient monitoring space, competing with some of the larger boys at the time, accidentally in the mid-80s fell into this MRI niche, and we discovered that patients undergoing MRI had no way to be monitored. That was the initial problem. Also the IV pump idea was there, too. They didn't really have a way to continue pumping fluids in the MRI. But we started with this monitor concept. And that's way back, that's '87 as the slide shows. That company went public in like '93. And in 2004 or 2005, it was acquired ultimately by Philips. So our former company is part of Philips and still did and maintained a huge piece of the market for MRI patient monitors, about 95% of it. I left there at that time, had the idea for this IV pump and formed IRadimed. And so IRadimed really got off the ground about 2005. And with a nonmagnetic MRI safe IV fluid delivery device. So time line moves forward, and you can see that we started business with this pump. We went public in 2014. And then we entered the monitor space to compete with my former, which Philips owns with this patient monitor in 2016 and soon to be a next-generation yet MRI safe IV pump coming. So we're going to definitely get into that more later. So a little bit of background, what's going on in the MRI environment. It is somewhat dangerous. IRadimed has this very enjoyable position where we have no competition with this MRI safe IV pump. And really our only competition in the monitor is my former monitor that Philips has. So it's a rather sheltered competitively market is very niche, though. So what's the hazards? This quick slide kind of goes over some of, I guess, the things that create the need. So an MRI is obviously a gigantic magnet. The slide shows a device that was supposed to be MR conditionally usable, but obviously, it had something magnetic in that upper box, and it got sucked into the board. You also have burn risks because the magnet uses a lot of RF energy. You can burn patients. You have wires or conductors touching them. And around the pie or all is a list of all the various other sort of things that cause -- that can lead to adverse events in the MRI suite. So here's a shot of our founding MRI-safe, nonmagnetic IV pump. Again, as I said, it's the only one in the world. This device here shown has been really on the market pretty much in this look since 2005 or '06. So we are well due for a new device. Some of the takeaways here are what we've got out there. We've got about 7,300 of these pumps installed. Most of them with a second channel. This is the second channel so the device could actually provide 2 fluids of delivery. Most U.S. customers buy it exactly like in the picture, a 2-channel product. And then the other box with the antenna sticking out of it is the remote control. So if you're familiar with MRI, shielded box, nobody is in there with the patient usually, you have this pump running in there, could need doses titrated, could go into alarm, need some kind of attention. You do that for the most part, from the remote control. So that is custom wireless link that we designed so that this remote control can operate wirelessly and yet not upset the MRI imaging process. This is a shot of our #2 product. Our revenue is about evenly split now between the IV pump, which was launched a while ago, and this patient monitor, which was only launched about 6-plus years ago to compete with Philips. So the difference here is our monitor unlike the Philips is really non-magnetic. The Philips device that they bought from our former company Invivo was magnetic still. And so we made it big and heavy so that it wouldn't fly. It's kind of -- I lovingly refer to it as my washing machine on wheels. But this -- we learned quite a bit about how to make nonmagnetic things doing this MRI IV pump. The [ core ] was actually based on a piezo ceramic motor. So the motor doesn't generate, use or make any kind of magnetic field. We learned a lot about how to use these ceramic and piezo elements, and that's what led us to be able to make this patient monitor as you see, that's the size of a lunch box and it weighs 8 pounds. The former device I left with Philips is the size of a small washing machine, like I said, it weighs about 105 pounds. So this is quite an advancement to the state of the art. What keeps us in business, what keeps people from competing with us? I'm often asked, right? Well, here's a slide we have quite a lot of IP around the fundamentals of the IV pump, this ultrasonic ceramic motor, the way we can transmit signals out of this MRI shielded room. There's 19. I think I just got another one, actually, there's 20 now. And that's part of the story. But probably the bigger part of the story is not IP protection. It's just that we're in a rather hazardous environment. And it's a pretty heavy lift technically even if you didn't have to get around these patents. It's a pretty heavy lift technically to do this. And the market is it's somewhat sheltered and somewhat small. If you're looking for a $1 billion market, this is not it. But I'll show you how we're going to get past the 100 million in a skosh. So some of the way we do that is by thinking about what the opportunities are ahead, right? Here are some of the stats, 100 million MRI scans is done a year, right? There's 12,700 or so MR scanners actively running in the U.S., maybe more like 7,000 or 8,000 of them in the more critical centers where we have a good opportunity to sell product. We are already in about half of those. So we still have plenty of greenfield to go. But keep in mind, the stat of how many of this old pump primarily I'm talking about now are out in the world. Some of these are very old, and we haven't been able to launch. And so this is the key to where I'll show you this next generation pump soon in a slide or 2, how we can do a big replacement market, how we have a big replacement potential. A real quick thing that we also had happen with the IV pump, and we hope to do with the monitor is it's not just a story of 1 pump per 1 MRI scanner. That is the case for about 80% of our customers when we first break in and we sell a customer, and what we're competing with is they've been running long lines. They've been stringing together IV tube and pumping fluid 30 feet from a magnetic pump, which they keep outside the room or they just free drip the fluid or they stop it and send you to CT. That's how we get in. We plant one and it grows from there. About 20% of our customers have grown to where these power users, as we call them. And the key to that is on this slide. It's workflow. So if you're a facility that does a lot of moving of patients that need drugs maintained an MRI like children, neuros, people from various critical care wards. That becomes this power user, multi-pump user that has this multiplying effect on what we sell. So you can imagine, initially, we were just targeting in the middle, putting a pump by a scanner. But then like I said, 20% of our users start to work that into their workflow. So closely, they realize we got a patient on a pump in the bore. We need to prep one from critical care or some other area of the hospital, and we bring them down. They want to put them on our nonmagnetic pump there and transport with that. So that's starting from the left side of the slide. Meanwhile, the patient just was scanned and got done, he's on his way back to the room somewhere, and he still has that MR pump on them. So this brought us into where we need 3 to 4 pumps to support each MR that these higher acuity centers have, facilities like Boston Children's with 3 magnets only running very hard in the radiology department, seeing a lot of children, they actually run about 15 pumps to keep up with their workflow to support 3 magnets. So that is multiplier effect that's shown on this slide. And we hope to do that with our little portable patient monitor, too. But so far, we've been eating very well just picking off the Invivo Philips business, one for one. But keep that in mind. So our commercial strategy real quick is, in the U.S., we have a direct sales force. We have 30 territories. And we have 3 international -- 3 guys that work directly for us on the international business. We use distributors internationally. And this is how we control our business. It's best done with a direct sales force. So here's the story I want to get to anyway. That's why I kind of sped through this rather quickly. I don't want to bore anybody, and the heat here is making us all drowsy, I'm sure, but this is the story. This is the new pump. So that pump that I showed you that we've been selling and still selling well is basically a 20-year-old design. So we've been working on this next-generation pump for a good while now and we're in the process of getting it cleared. It's a 510(k) device. And you can see by the look of it, it looks different, right? It's smaller if you can tell, and it's horizontally laid. But with this device, instead of having a main brain with 1 pump channel in it and you attach a second channel for the dual, the twin channel setup, which is the majority of our customers in the U.S. with this device, you would buy 2 pumps. And they link together on a smart spine that's on this nonmagnetic IV pole and then you can link together up to 4. All 4 use 1 remote controller. Remote control is a little different, too, than the one for the existing pump. It's a bigger screen, and you can see up to 4 pumps and control up to 4 pumps with that 1 display. Price. Here's where the pricing is. This typical kit that we sell a U.S. hospital, 2 channels, remote control, IV pump is around $37,000. That's our ticket. This replacement to replace those, 2 pumps and the smart pole, it's about going to be not much more, but about 42,000. The real story is not the added money. The real story is how many are out there. So like we showed, you've got when we launch, you'll have close to 6,000 pumps, 11,000 or 12,000 channels that are older than 5 years old. And anything older than 5 years old in the device biz is ready to be replaced. They budget for this, they get in the cycle, figuring the life of these -- and the life of it is listed as 5 years. So it's time to replace your 5-year-old pump even though because we haven't had anything to replace it with, we've got a lot of 12- or 14-year pumps running out there, too. This pent-up demand, though, is huge. We sell about 1,100 or 1,200 channels a year right now. That's how -- that's where this revenue is coming from. With 11,000 or 12,000 pump channels out in the field, if we only take 10% of them and replace them a year, which will never catch up. That's a 100% increase in business, 120 at revenue because it's a little bit more expensive. So we're looking at a big inflection here with this pump being cleared. Once it gets cleared, as we put on there, right, midyear here, we plan to have it cleared. I'm not going to have revenue in it this year per se, maybe we'll sell 100 of them or so in the fourth quarter. This is really a big inflection in our revenue in 2026. So we hope to hold it down in the first year to only grow 120% and take -- double our product, sell another 1,100 channels on top of the 1,100 we sell now to the replacement market. But in '27 and '28, that's going to have to grow. So this business has grown in the teens and 20% already for many, many years. But with this new pump, we're looking at probably 5-year, 6-year run of much higher growth than that as we replace these old pumps out there. So that's really the key story to IRadimed and to where we're going and very exciting to us that this replacement market is going to open up that much opportunity. To talk about some features of the pump itself, yes, we made this pump, obviously. It's a little fancier obviously, and has more brains to it than the original pump. One of the things that slows us down in selling into the greenfield, if you will, is a typical hospital, if you can imagine, a 200-, 300-bed hospital, they might have 300 or 400 non-MRI pumps in there. They're everywhere. And they're going to buy 2, 3, 4 or 5 of these. So one of the things that slows down or can lend to procrastination on the buyer's -- from the buyer's perspective is, yes, we have this old antiquated work around. We run these long lines or whatever. We've done that for 20 years. And yes, we have problems with that. We waste drugs. We got air bubbles in there. We pump blood -- air into patients. The pumps don't like pumping through long tubing, it's off-label. But we do it. And so now we'd have to learn a new pump. And that puts a little fear in the mind of some buyers and it gives them reason to procrastinate. If there's a hard job that our salesman do, that's it. It's overcoming that tendency that people have to just stick with what they were doing for 20 years. And to the extent that we win and have planted already quite a few pumps out there, they convince people otherwise. So one of the things we did with this pump to also help us penetrate our greenfield quicker is it's smarter. We added a lot of sensing. There's sensing that can tell when people are operating the door to open it to load the IV set. They're sensing about it. They're loading the IV set correctly. And all the while, on the screen, our little animations or cartoons, if you will, that are walking the user through, oh, don't do that, we just detected you went the wrong direction. Back up, do this. And you get a little gold star and we think it takes away the pain of having to actually be trained so hard and read the manual, for example. And so the pump sort of like a cell phone will walk you through how to use itself. This, we think, will actually allow us to also beyond the replacement market, which is still the largest story, penetrate our greenfield deeper as well. And so cultivate more single users get them to get that first one and then we move them into that power user area where they have 3 or 4 to support every MRI system. That's our strategy, commercial strategy. So growth, right? Where are we at? Well, we've been growing well in the last number of years. We wrapped up, as I said, 2024 at $72-plus million. I can't quite give you guidance on where we're going in '25, but there will be growth in 2025, even though this pump will -- new pump won't be yet part of it. We still have growth in the monitor in the old pump. But by end of 2026, we see us pass on the $100 million. Because in '26, that's when that 120-plus percent growth kicks in from just the replacement business, plus whatever we can get a little bit more out of the greenfield because the product is sexier and more easily thought about how you use it, getting into [ the mind ]. So got a lot of bullets here on this slide. You can glance through them as I talk, but the takeaway is really the replacement market that will have potential with the new pump. Here's the last -- this is the last couple of years showing you the progression in our growth this way. This is by quarter, by the numbers. Just let people scan that. And here's the takeaways, right? We have -- we create customer value, of course, we have quite a bit of technical expertise. One of the reasons we probably don't have competition is who makes things with ceramic parts. If you want a motor, you just go buy a motor. So one of those barriers that we have is we can't even buy those components. We make them because they're not available on the merchant market. So not only is the pump and monitor both full of these nonmagnetic things like valves and motors and pumps and so forth is a competitor can't just go look at what we have in there, what -- where we bought it from and just buy them and make one. We make those. Those are custom. Our radio is custom-made just to get out of the room. So there are some barriers to entry all along there plus the patent protection. We do feel we're pretty strong with distribution, having our own sales force. That's definitely contributes to our success. Being able to call directly on and have people who we train and we control to tell the story because on the one hand, sometimes having a competitor is not a bad thing. You can just follow them. But when you're the pioneer, there was never a device like this on the market. You have to tell -- you have to sing your own song and people have to start dancing to it, and you can't say, "Oh, we're just like so and so, only better." No -- there's no parallel. So that's the good and the bad of being the only one doing something. And of course, the bottom line is obviously people are adapting and adapting to our technologies and our products and buying it, so it is successful. And with that, maybe I'm almost ready for some questions. But before I do that, I want to -- just to highlight that replacement market, why we're so certain it's going to work. A lot of people just don't get that sometimes. So here is an actual thing we just did. In 2023, our team, careful how you reward the sales folks, right? Our team was rewarded in a certain way where the commissions work and they sold this monitor pretty well in '23. So the monitor we're generally half and half from monitor and pump business. But the monitors did better in 2023 and the pumps were slowing down. Again, it's an old pump. We know we have this new pump coming. So in late '23, I sat down with the team and I said, I'm worried. I don't like this trend. Yes, that pump is old, and we don't expect it to keep going crazy. But why did it slow down? Probably self-inflicted because we gravitated to selling more monitors that year. They got compensated well that way. And so that's the way it went. So what can we do in 2024 this past year to see if we can reverse that trend or at least slow it down with the old pump before this new pump comes. So we identified 300 customers in the U.S. who collectively have 1,200 to 1,500 pumps that are older than 7 years, 7 years or older. We sell extended maintenance to almost every pump. So for another $3,000 or $4,000 a system, we take care of it. You break it, PMs even, you send it in. We send you a loan and we take care of it. That's kind of an insurance policy. And I looked at, well, we're selling insurance to 80-year-olds. Is that a good idea? These older pumps. Maybe customers won't be too perturbed if we don't offer that anymore. So we've sent a letter to those 300 customers, and we told them we're not going to sell the extended maintenance on 7-plus year old pumps any longer, and you have some starting January 1 of 2024. And at first, we hunkered down looking for the hate mail, nothing. In fact, they just asked for quotes. And sure enough, starting first quarter 2024, we started to see a little uptick. And Jack and I had thought, if we can get 100 extra pumps in 2024 because of this, that will be great. That will really fill in a nice -- that will turn the trend and be clear on the dial. You'll be able to see that effect. Well, Q2, Q3 and now wrapping up Q4 this year, we ended up with over 500. Now think about what that is. These are people that had 7 or older -- 7-plus year older pumps like that purple-ish I showed you, those old pumps. I liken it to -- that was cleared in 2009. So I liken it, too. We're making a little violet colored 2009 Toyota Corolla and you have some that are now 7 years and older. And we don't have -- we still make 2009 violet Toyota Corollas in 2025. You run the wheels off yours, we think you should buy a new 2009 Toyota Corolla. And that's what that was. It's just phenomenal. But I think that shows pretty clearly that the replacement market has huge pent-up demand. They bought quite a few old design pumps to replace actual old pumps. When we actually have a new pump, that's just, to me, gives the credibility to how huge that opportunity to replace those 11,000 channels will be. So with that, I think I'll just entertain any questions, and we can just have a chat.

Perfect. Well, maybe before kicking it off to the audience, I'll start off with a couple of questions. Roger, touching on the replacement opportunity that you were speaking about and the recent successes that you've seen with that. How do you believe the numbers will look sort of going forward in 2026 and beyond? And why do you have confidence that it will continue being such a significant opportunity?

Yes, you want to talk about the numbers, Jack, a little bit? Or -- I'll talk about why we're confident, maybe you can paint that number.

Yes, sure. I think that when you look in 2026 with the introduction, we think hopefully, we'll get some units out in the field in Q4 of this year, but really, it's going to be a 2026 story. And when you sort of -- as Roger has touched on the opportunity, I think we're going to -- we believe that this is going to be quite significant. But as we roll out 2026, again, we believe that by the end of 2026, we'll be at a $100 million run rate and a lot of that due to the pump. And going forward, though, the significance is that when you look at that installed base that we have, those older units will keep -- there's another segment of 4-, 5-year-old units will become available the following year. So we think that -- as you look at the tail of this new pump, it could be significant 5 to 7 years plus going out.

Yes, it's not a shock that just works for 2026. Actually, we're kind of a little bit worried when we do launch the new pump, we're worried it could be too much of a landslide, and so we're actually going to wind up our sales team, and we're going to give them each a few hospitals to target and talk about the new pump, too. We don't want to go out on mass. And just hit the whole installed base with one blast. We think it will be too crazy.

Wonderful. Well, maybe touching on that point actually, and thinking about your ability to manufacture all of these pumps. Can you talk about the timing of your new facility opening and what the cost will be and sort of what that will mean for manufacturing capacity going forward?

Great question. Yes. Great question, sort of fill that and we have a 24,000-square foot facility, and we rent probably another 6,000 or 8,000 on top of that, this next door and some adjunct property there. So we are standing on top of each other, and we're very busy in that maybe total 30,000 square feet of space. We're pretty -- yes, we're pretty efficient space-wise, but at this point, doing the business that we do, it is high time for more space. So we started construction of a 62,000-square foot facility here, must have been March or April, and we plan to be in there in June. So that's also in the Orlando area. And it's, I don't know, 10, 15 minutes from where we're at currently. So we don't think the move will be disruptive to our employees much. And that, we hope, will take us through actually moved in the building, we're obsoleting now exactly 10 years ago. It was a month before we went public. We moved into that building, and we've definitely got our money's worth out of that place. So we're looking to hopefully get another 10 or so years out of this next 62,000 square feet. But the one thing that we did on top of that is we bought a pretty big piece of land. So we can expand that same building without moving again. And so that's our capacity plan.

Yes. And I would just maybe add to that. As far as the cost to us, when we purchased the land, Roger referenced, it was about a little over $6 million. And the total build for the new facility is probably somewhere around $13 million. So all in, somewhere around $19 million. We again have been funding that internally out of our cash flow, and been able to maintain the cash balance roughly what we started the year with. So it kind of speaks to it on top of that, paying the dividend. So it kind of speaks to our ability to generate cash.

Very impressive. I'd like to open it up to the audience in case there are any questions.

What's the difference in [indiscernible]?

Huge. A typical pump that you would buy from an ICU Medical or a Baxter or something. Now they're making -- as I mentioned, we make 1,100 pump channels a year. They're making 20,000. But they sell them for $3,000 or $4,000. So we're like 10x that price. This is 10x a magnetic pump.

[indiscernible]?

No, no, no. Out of those 100 million scans, I think we had that back flash through that slide quickly. But out of those -- that 100 million scans done a year, we are on 0.5% of them. So we have ways to go -- to get to that point. I mean we're just scratching that. So yes, it's -- there's still plenty of runway with this pump quite a bit. The monitor business is a business, like I said, we're splitting now between ourselves and Philips, the monitor business is about a $100 million business in itself. But the pump business, though it's neck and neck with that monitor business, it's going to outpace the monitor over these coming 5, 6, 7 years. It's the sort. There's a disposable with it, of course, I didn't mention. We'll come back into that a little bit. So there is a disposable, but it's not -- we don't give away the hardware to sell the disposable. We actually have almost the same gross profit on the hardware, the devices as we do on the disposable, this device runs about 77% gross margin. Disposable as well...

Fantastic as well. I noticed in your presentation, your corporate partnership is not with Philips. But Philips doesn't make the pumps. So is that part compatible with their magnets?

Philips makes only a monitor. I'm missing the point.