iRhythm Technologies Faces FDA Warning and Lawsuit

News Summary

iRhythm Technologies Inc. is grappling with significant legal issues after the FDA issued a Warning Letter due to safety concerns regarding its Zio AT System. The letter highlights critical deficiencies in the company’s quality management and reporting methods, especially concerning transmission of arrhythmia events. In addition to this regulatory battle, the company is also fighting a securities class action lawsuit over alleged misinformation to shareholders. As iRhythm works to improve its systems, concerns about compliance and ongoing litigation continue to weigh heavily on investor sentiment.

San Francisco, CA – iRhythm Technologies, Inc. (NasdaqGS: IRTC) is currently facing significant legal and regulatory challenges following the receipt of a Warning Letter from the U.S. Food and Drug Administration (FDA) on May 30, 2023. The letter highlighted various non-conformities with medical device regulations related to the company’s Zio AT System, which has raised alarms regarding the device’s safety and the company’s reporting practices.

The FDA identified serious deficiencies in iRhythm’s quality management system, particularly related to the Zio AT device’s transmission of arrhythmia events. The letter also pointed out that iRhythm had failed to disclose known risks associated with the device, including limits in the transmission capability that could potentially lead to missed diagnoses and health risks for patients. Notably, two patient deaths were reported to the FDA as a result of these oversights.

Following the FDA’s warnings, iRhythm is embroiled in a securities class action lawsuit, wherein it, along with certain executives, is accused of failing to provide material information to shareholders during the Class Period. The court has recently permitted the case to continue after denying iRhythm’s motion to dismiss. In response to these issues, former Louisiana Attorney General Charles C. Foti, Jr., who is a partner at Kahn Swick & Foti, LLC (KSF), is investigating potential breaches of fiduciary duties by the company’s executives and the possibility of violations of state or federal laws.

As part of this investigation, KSF is focused on gathering information from long-term iRhythm shareholders to inform them of their legal rights. The FDA’s warning also noted that iRhythm had received over 999,000 customer complaints regarding transmission limits since 2019, but took corrective measures only in 2023, following the serious nature of the FDA’s concerns.

The FDA underscored significant labeling violations, including the omission of a crucial transmission limit, increasing the risk of misdiagnosis among patients. Additionally, the FDA labeled the Zio AT device as “adulterated” and “misbranded,” conditions that can expose the company to potential recalls, fines, or even criminal penalties. iRhythm’s ongoing issues raise questions about how effectively the company has managed recurring device defects and risks associated with data contamination.

Despite these challenges, iRhythm recorded an 18% increase in revenue in the most recent quarter, totaling $147.5 million, although it reported a net loss of $46.2 million. iRhythm’s CEO Quentin Blackford indicated that the company is actively working to enhance its quality management system in light of the FDA’s feedback. Furthermore, the company plans to delay the submission of its next-generation Zio device until these remediation efforts are satisfactorily completed.

Concerns among investors persist regarding the potential financial burden associated with compliance to FDA regulations and the implications of ongoing litigation. Despite the challenges, analysts have maintained a “Buy” rating for iRhythm, citing the company’s potential for high-teens sales growth in the upcoming year.

Additionally, the FDA has granted 510(k) clearance for design modifications and labeling updates to the Zio AT device, with the revised version expected to be available by 2025. The pathway for iRhythm remains complex as the company strives to address these multifaceted issues while navigating a turbulent market and legal landscape.

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