iRhythm Holdings, Inc. (IRTC) Earnings Call Transcript & Summary

Absolutely. Absolutely, I feel comfortable about that.

Okay, perfect. So what are the issue dynamics of payment has been, we obviously understand index, not index in CMS, but there is this dynamic of the cheap geographic modifier code and once again, like the conversion factor, very unique to iRhythm's business. You have different co sites of service where scan and reads are happening. And some of those regions are higher-priced than others. The West Coast, obviously, in San Francisco is one of those regions. So to the extent that you were to process reads in that region, there obviously would be a reimbursement uplift that's a very de minimis piece of your business today. The question is what's the opportunity over time? And what's the strategic advantage for a iRhythm to shift more business to the San Francisco region given the higher reimbursement rate.

Well we have 3 IDTFs today, right? These are Independent Diagnostic Testing Facilities. They're Medicare approved and sanctioned locations, Texas, Illinois and California. And I don't really see major shifts in utilization of resources based upon our ability to get paid more or less, David. These places are chosen because of the availability of resources, largely centered around academic medical centers, for example, Houston, the Houston academic medical center population of employees is very high, and we've been able to draw from that from a staffing perspective. Obviously, there's more reimbursement, but there's also higher cost than California. Payment rates are higher and so forth. So I wouldn't think that we're going to make decisions on location-based upon our ability to get paid more or less. I think that that's something that is probably third or fourth order effect here. We want to deliver a high-quality service. We want the availability of that service to be -- to meet within the service level guidelines that we set with our accounts in terms of turnaround times on the same-day -- same-day out type of thing, skill set mix and so forth. If by chance, we can do more business in Texas or California, Illinois, we will, but it's not going to be a primary driver for us.

Why would you not want to do that, Kevin? Obviously, greater revenue could be to increased investment. Is it a profitability dynamic? Obviously, there's a reason why the reimbursement is higher because the cost of living obviously is higher. But why would that not be a strategic imperative over us for a 3-year period of time?

Well it will be, but I'm somewhat sensitive to the optics of moving business for the purposes of getting paid more. I think that, that's just a lightning rod for people to scrutinize us, and I want to make sure that there's a foundation of good decision-making behind any resource allocation that we have. It's -- others in the industry have picked up and moved to other places, and they've gotten scrutinized. And I think it just gives you a bad reputation. It's kind of a gouging type effect, if you will. And I want to be seen as a company that's doing the right thing for patients and the right things for payers and make sure that if I make a decision to do something, I've got a real solid basis for it. Skill set resources and demand are the reasons right now.

Okay. Understood. What about friction in the channel for reimbursement perspective, Kevin? It's hard for us to appreciate the having permanent CPT code versus a temporary code. It was their friction of the channel? And what's a good proxy for having to go about trying to assess what that friction was from an opportunity perspective?

Friction then relative to competitors or friction relative to accounts?

Well a lot of different -- well both. I mean, I think you had competitors talking against this code saying, "Hey, don't get onboard there because it's going to be temporary in nature. Obviously, you had customers who had some apprehension as well? And is there any proxy you could offer us to sort of ascertain what that friction was or what the upside could be from it?

Well look, I think on the competitive side, when you're unable to meet or exceed the level of evidence that's been put forth for iRhythm, the last thing you have to deal with is price, right? So yes, it's easy to say that I can be less expensive or it's easy to cast out on against iRhythm's business model. But to me, that's just the absence of clinical evidence to show that anybody is even close to being superior to us. Equal or superior to us. I think the remap study that was published not long ago, that might have been our last study, right? This was a head-to-head study, iRhythm against 3 other types of competition compared to a control group that had pacemakers and iRhythm correlated perfectly with the pacemaker, and everybody else was somewhere between 10% and 20 -- 10% and 30% off, plus or minus, on the detection of AFib, for example. Relative to account friction, now that we've got a permanent code coming our way, I think any remaining hesitancy by accounts or physicians to prescribe the temporary code has obviously been lifted. I don't know how to quantify that. I think a lot of investors have done probably more research on that than we have, and people are projecting that there will be an uplift. I do believe there will be, but I don't yet know how to quantify that overall. But a quantification number obviously would be good, not bad standpoint.

Okay. Let's go on to 2 other important catalysts. The first thing is mSToPS, obviously, data coming up at AHA. Obviously, it could be symptomatic, asymptomatic could be a 2x improvement in the TAM for the business. What should be -- what are you looking for out of that trial? What should investors be focused on here?

Yes. So mSToPS is looking like it's going to be presented at AHA. That's sort of the latest information we have. I don't have the information on the study. But what we should be looking at our 3-year cost and outcomes data, where outcomes are mostly around utilization of services. We saw in the initial study, a threefold increase in the detection of AFib in the asymptomatic at risk population compared to the control. We saw a year later, lower cost as measured by utilization of services, hospitalizations, emergency departments, et cetera. And now we're going to have the 3-year look at the same. And I'm very upbeat about what I think the study is going to show. If the 1-year data and the initial detection rates are high, it stands to reason that the 3-year data is even better. Certainly for utilization of services, and I'm hoping that we'll begin to see reduction in stroke risk, although a lot of people tell us the reduction in strokes risk may even take longer than that. But from a payer standpoint, the willingness to fund asymptomatic screening or asymptomatic, I don't know the right word is, profiling, if you will, of these types of patients. Cost and economics are going to really win the day, I think, in my view. And so if we can show a positive cost advantage to the monitored group versus non monitored group, I think we've cracked the market, and we should be able to get underway. We have a lot of experiments right now in the fire.

How should we think about that cost improvement, Kevin? Is it going to be measured in sort of the number to treat, the number of devices to treat to get a specific outcome. Is it going to be measured in QALY, a more traditional cost-effective outcome? Is there a -- is there a particular number or bogey that you think the payers are going to focus in on?

I think it's going to be measured by dollars, and it's going to be measured -- and those dollars will be in utilization categories. Emergency room visits, hospitalization, specialty department visits. The cost of stroke is pretty well understood or pretty well modeled as being about $150,000 per year. Those types of metrics will compare A versus B. And I think that the modeling that we've done that we've shown to payers has got a number of imports if X then you can get Y and the payers have been giving us pretty good feedback on the model that we've developed. But it will be around those utilization of service categories.

Okay. And then this kind of gets into last catalyst. But one of the partnerships that Verily was to come up with some tech to maybe help us with the symptomatic -- I'm sorry, asymptomatic population. But there also was this notion of some of the software tools they had to sort of mine, payer data. I mean should we expect the mSToPS data to be powerful enough to the payers? Or do you think it's going to require a more refinement in targeting within payers like UnitedHealthcare to really identify the population that can be best served by ZIO.

I think mSToPS is sufficient in its design and completing its design that it should show -- if it shows a benefit, it will be well circumscribed. In this type of population, you can't expect to get that benefit. When going to payers, we have to identify the appropriate population. And that's where a mining of the data comes into play. So to take your example of UnitedHealthcare, I don't know how many UnitedHealthcare members there are, but let's say that there are 30 million UnitedHealthcare members. It's not feasible and it's not reasonable to monitor all 30 million. So what's that target population. And there, we would use the indices that we're talking about, things that we've developed, things that Verily might have that we could be able to use to enrich a population toward -- find an enriched target population for us. But I don't really think that, that's a fact. It's a factor around implementation. It's not a factor on whether or not people are interested towards forward value of this stuff.

Okay. And so a couple of days ago, we saw clinical trial filed as it relates to the product you're working with on -- with Verily -- it was not randomized study, but it's best we now know that you're working on something. I actually said in the clinical trial talking about that was a watch. Can we now sort of assume that the product that you're working on with Verily is a -- is the hard work component is a watch, some of us have wondered whether it's basic launch or it's more of a health, lifestyle technology platform that Verily is after here. What can you share with us now that we have the clinical trial [indiscernible] piece available?

Yes. Verily has been using what they call the study watch in a variety of markets, clinical markets, if you will, baseline study being one of them. And they use that for a variety of others. And that is the platform. Platform is being modified for us, but it is a wearable. It's not a consumer-grade product. It's an FDA prescribed product, if you will, that will meet very stringent requirements for detection capabilities. But it is a wearable similar to that type of [indiscernible] you're describing.

But business model here. It's not a consumer-driven dynamic like you would see so with the Apple Watch. Is the way to think about this, you have the mSToPS data, that made a powerful case in the asymptomatic population. Then you sort of do a little bit what Dexcom has done in the Type-2 diabetes population. You work with UnitedHealthcare or some large payer on a population that probably across certain perimeters that probably should be wearing a device like this to reduce cost and improve outcomes. Is that kind of how you see this moving forward?

Yes, exactly. We've talked about this in the past. So ZIO being a 14-day prescription, in the mSToPS study, patients were 2 ZIO's. Right? So they got 28 days' worth of monitoring, and we found 6% atrial fibrillation. There is data out there from implantable loop recorders that if you look for a year, you might sign twice as much AF. Now it's not practical and it's not cost-effective to put invasive devices in asymptomatic patients. But fundamentally, what we're trying to do is monitor patients for a long period of time to capture those intra fibrillation events. And so one could imagine, hey, I could just put 8 iRhythm ZIO patches on a patient or perhaps I could get them to wear something. And so it's really about the convenience and the patient compliance factor that we're trying to get after here by developing something that patients can wear for a long period of time.

So how long -- go ahead, sorry.

I was going to say then it's all powered by our artificial intelligence algorithms and all of the workflow tools that we have, right? So this is one element of our stack, the wearable biosensor layer.

Okay. So you talked about -- we initially thought this is sort of back half '21, maybe there's been about a 6-month or so delay based on COVID dynamics. When do we think we can see this product would be commercially available to patients? Is it going to be available in the first half of '22?

Well the development program is a 2-year program. It really hasn't altered its time line or trajectory. We met a milestone last quarter, I think it was, and we're staying on track here. So we're in more finishing, I think then now. This is the end of our first year in September, I think, or October last year. So we've got another year to go, and we should be entering more real-world clinical trials with products shortly, and a lot of it has to do with testing the completeness of the platform, right? Does the algorithm match up to the detection capability and can the algorithm help inform detection and vice versa? So yes, I think it's reasonable within the next year that we could -- end of next year, that we could begin to see products in the marketplace.

And just wrapping up, just based on sort of what we talked about in terms of the commercial, how this product has to be commercially built. I mean can we see material commercial revenues in '22? It's not clear to every investor exactly how this goal will allow. Will it be payer driven? Will it be clinician driven? It feels to me, it could be more payer driven.

Yes, that's right. I think the initial go-to-market here is independent of any CPT coding, if you will. This is all going to be contracted business with payers that have large populations of adverse patients. Where the health economic data is compelling to them, and they're willing to go at risk with us or they're willing to pay us. So it could be done as a fee-for-service. It could be as an at-risk payback model or something of that nature, we haven't really disclosed too much about what we're doing there. But it's going to be sort of a one-to-one iRhythm to a payer. And the payers targeting a population will follow those patients for a period of time, think about replicating mSToPS.

Understood. With that, we're out of time. Kevin, thanks so much for being here, and we'll have a good time in meetings today, and we'll be talking soon. I'm sure.

Good. Thank you, David. Take care.

Thank you.

Bye-bye.