Mobile cardiac telemetry (MCT) technology is helping improve the odds for over five million Americans that suffer from irregular heart rhythms. Globally, the market is valued at roughly $22 billion, explains Tyler Laundon, editorial of the highly specialized Cabot Small Cap Confidential.
Two of the most intriguing small-cap medical device stocks in the market are BioTelemetry (BEAT) and iRhythm (IRTC). Let’s break down each company and see which comes out on top.
BioTelemetry provides digital population health management (PHM) services within the healthcare system. Its Healthcare segment, which includes diagnosis and monitoring of cardiac arrhythmias, is its biggest business (85% of revenue).
The company is also expanding into the diabetes management market with a newly introduced remote blood glucose monitoring (BCM) solution.
BioTelemetry has a market cap of $1.5 billion. It monitors over one million patients a year, processes over four billion heartbeats daily and supports over 30,000 physicians and sites. This all means quicker diagnosis for patients, a better quality of life, and lower costs to the healthcare system.
One of the revenue growth drivers was the 2017 acquisition of BioTelemetry’s largest competitor, Switzerland-based LifeWatch. The strategic rationale for the acquisition — besides to knock out a major competitor — was to help BioTelemetry grow into a connected health powerhouse.
Since acquiring LifeWatch almost exactly a year ago, BioTelemetry has rolled out two new monitors in a convenient patch form-factor; the next-generation MCT and an extended wear Holter.
One of the other interesting selling points for the stock is that BioTelemetry’s arrhythmia monitoring technology powers the Apple Heart Study (AHS), which is likely to be the largest heart study ever.
Apple Watch is not a diagnostic tool, but is instead used as an early screening device to uncover abnormalities in a general population. If an abnormality is found, the patient is then prescribed an electrocardiogram (ECG) patch from BioTelemetry.
iRhythm is a digital healthcare company that has developed a platform for diagnosing cardiac arrhythmias through use of a wearable ePatch and through cloud-based data analytics and machine-learning capabilities.
The company’s stated goal is to be the leading provider of first-line ambulatory electrocardiogram (ECG) monitoring for patients at risk for arrhythmias. The company has a market cap of $2 billion.
To reach that goal the company created the ZIO by iRhythm service, which was cleared by the FDA in June 2017. Management says ZIO can diagnose many arrhythmias more quickly and efficiently than traditional technologies.
The solution includes a wearable biosensor that’s relatively small and unobtrusive that beams data to a service center where it’s processed into reports that can inform treatment options, if necessary. ZIO can be worn for up to two weeks.
The company’s mSToPS clinical study is large (over 5,000 patients) and has shown ZIO to be especially effective at identifying silent AFib in high risk, undiagnosed patients. ZIO is relatively new to the market but has been growing quickly. And iRhythm has been supporting that growth through a rapidly expanding sale force.
iRhythm is not yet profitable; that said, some analysts see the company turning a profit at some point next year as operating leverage kicks in and gross profit margins expand toward the 75% to 80% target (gross profit margin recently surpassed 70%).
So which is the better stock? Truth be told, I think there is room for both BioTelemetry and iRhythm in the same portfolio. The market for ambulatory electrocardiogram monitoring in the U.S. is large and growing.
BioTelemetry has greater market share in cardiac monitoring but is also exposed to other markets, whereas iRhythm is a pure-play ECG monitoring stock. iRhythm has a much higher organic growth rate, estimated at over 30% in 2019, whereas BioTelemetry will probably grow revenue closer to 10%.
Investors can slice and dice these two stocks to try to figure out which one is better. But I’m not sure that effort is worth it. Why try to choose one winner, when there can be two!
My advice is that if you’re interested in the heart monitoring market, split your investment capital between both stocks and change your allocation over time, if and when it appears that one company is making big strides at the expense of the other.
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