Missed Intuitive Surgical? Buy This Stock Instead – The Motley Fool

Investors who saw the future of surgery in robotics were well-rewarded if they invested in Intuitive Surgical's initial public offering (IPO). Up over 14,000% since it started trading in June 2000, this innovator has been a monster. Intuitive Surgical has continued to reward shareholders over the last five years with a 246% gain compared to an increase of just under 90% for the S&P 500.

If you missed out on Intuitive Surgical, you may understandably be a bit down. Fortunately, there always are promising opportunities in the healthcare sector. Like Intuitive in its early days, iRhythm Technologies ( IRTC -5.75% ) is generating lots of data demonstrating its utility while also expanding its market. The heart-monitoring tech platform is offering great potential for both patients and hospital systems.

Each year, there are over 11 million patients in the U.S. with an abnormal heart rhythm. One abnormality, atrial fibrillation (Afib), is associated with a fivefold increase in the risk of stroke. Individuals over age 55 have a 40% lifetime risk of Afib, and 158,000 deaths and 450,000 hospitalizations each year are associated with this heart condition. So it stands to reason that early recognition could improve a patient's quality of life. iRhythm's Zio device is tackling this immense problem.

Zio is a wearable, single-use cardiac monitor that can pick up unsafe heart rhythms. Patients wear a patch-like device for up to 14 days. Then the data is run through the company's AI platform for analysis. A digital report is provided to the treating clinician via desktop or mobile device -- or conveniently uploading it directly into the patient's electronic health record.

Image source: Getty Images.

So far, it seems to be working well. When actively screening for Afib -- which involves two separate two-week screening periods three months apart -- Zio had an increased detection rate, 11.4% vs. 7.7% for usual care. Not only that, but compared to patients who only seek medical care when they think there is something wrong, those using Zio had a much lower rate of stroke, heart attacks, heart failure, and hospitalizations after wearing the device.

Upon detection, some of the problems from Afib can then be decreased with blood-thinning medications such as Pfizer and Bristol-Myers Squibb's Eliquis or Johnson and Johnson's Xarelto.

Taking a closer look at its core market, the company recently conducted a study of patients who passed out, a condition called syncope. A subset of these patients was able to be discharged from the hospital rather than be admitted for at least 24-48 hours. iRhythms technology found an arrhythmia in 8.2% of these patients, with 46% of those events occurring after 48 hours.

This is important as most syncope hospitalizations are discharged within 48 hours, so it can be argued that this population may benefit from prolonged monitoring -- which was safely able to be done as an outpatient. If Zio continues to have positive studies, it will continue to push itself further and further into its addressable markets. In turn, patients can possibly avoid costly hospitalizations and potentially be safer by having prolonged monitoring.

The company estimates there are 5.6 million people who receive cardiac monitoring annually in the U.S., such as in the syncope example above. It also believes there are another 10 million in adjacent markets. This includes patients at high risk of undiagnosed arrhythmias, such as post-cardiac procedures such as ablations and valve replacements. About 8 million of these are patients who report palpitations and are under the care of a primary care clinician. As such, iRhythm views outpatient cardiac monitoring via primary care offices as its next big growth market.

I have to think iRhythm could also have its eyes set on silent (or asymptomatic) Afib cases -- another huge, addressable market. Internationally, the company believes there are an additional 5 million patients in select international markets, such as the U.K. and Japan. The product is in the early stages of commercialization in the U.K. and is pursuing regulatory approval in Japan.

Zio has already been used by over 4 million patients, generating over a billion hours of curated electrocardiographic (aka, ECG or EKG) data. And with so much experience under its belt, the device does not just detect arrhythmias, but actually meets or exceeds cardiologist-level detection. As time goes on, I suspect the algorithms will only get better -- much like as time went on, surgeons got better with robotics. So it stands to reason that this market will continue to move toward automation, which will save the system morbidity, mortality, and hospitalizations -- all significant tailwinds for iRhythm.

With only approximately 20% penetration in its core market of about 5 million patients combined with roughly another 15 million patients, plus potentially many more (if silent Afib screening gains traction), this $4.3 billion healthcare company might just be getting started.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis even one of our own helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Missed Intuitive Surgical? Buy This Stock Instead - The Motley Fool