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A clear leader in MRI compatible devices
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Business Breakdowns, now that it’s free, is an exploration of the companies I think are interesting. It’s not a stock pitch, but rather a quick ramp into reasonable understanding. It’s not meant to be a deep dive – instead – it’s just enough for a rabbit hole to get you started. As the tagline reads, it’s “like reading a 10-k, but way better.” There are quite a few 10-k breakdown newsletters out there, so my goal isn’t just to state facts, it’s just to explore companies I find interesting.
With that said, let’s look at founder-led IRadimed (that rhymes!) today.
The company originally caught my eye because the 10-k clearly states they don’t have competition: “We are the only known provider of a non-magnetic intravenous (“IV”) infusion pump system that is specifically designed to be safe for use during MRI procedures.”
IRadimed makes 3 MRI-safe products. These are:
MRidium 3860+ MRI Compatible IV Infusion Pump System
IRadimed 3880 MRI Compatible Patient Vital Signs Monitoring System
IRadimed FMD1 3600 with Remote Alarm Logging Unit
The first two products make up 99% of revenue because the third is brand new. The MRidium 3860+ is an infusion pump system and the IRadimed 3880 is a vital monitoring system. When patients need an IV drip or chemo or blood, they have to be hooked up to an infusion system. That’s the thing with the wheels and the bag and the needle in your arm. However, because of the metal-based components in the remote control and the pole, these systems can’t be used in an MRI room.
Before jumping in, I think it’s important to understand why that is.
MRI stands for magnetic resonance imaging. Since the body is mostly made up of water and water molecules have 2 hydrogen protons that are magnetically charged, MRI machines use powerful magnets to align these hydrogen atoms. The machine then emits radio waves that cause these atoms to temporarily change their orientation, flipping from aligned to unaligned. When the radio waves stop, the atoms return to their aligned state, releasing energy that is detected by coils in the MRI machine. The signals captured by these coils contain information about the body's internal structure. Lastly, a computer processes the data to reconstruct detailed images of the body. And that’s how an MRI works.
However, the magnets are so strong – about thirty to sixty thousand times more than the magnetic field of Earth – that they can actually move the metal inside your body. Oftentimes, implants like a hip replacement are MRI compatible but not always. Other things like piercings, neurostimulators, defibrillators, and pacemakers aren’t compatible and could cause real damage if present in an MRI machine. That also extends to anything in an MRI room. This isn’t so much for the reason that you’d get magnetized and get stuck to the outside of the machine if you had a metal plate in your arm, but because it can mess up the quality of the images. However, projectile accidents can certainly occur. Over the last 10 years, of the 1,500-ish adverse MRI incidents, 9% have been projectile problems – things like a metal walker that was brought into the MRI being sucked inside as pictured below (yes, this is how strong the magnets are).
This is where IRadimed’s products come into play. Typically patients that need to be on a drip can’t get an MRI because the infusion systems have some level of ferrous (metallic) materials. Likewise, patient vitals can’t typically be monitored in an MRI machine for the same reason. IRadimed solves this problem. And they’re the only company so far that has figured this out. In 2013, Bayer Radiology exited the space after some issues with its products. Since then, no competitors have entered the market. This could be for a few reasons. For one, the market is pretty small. In the US, the company estimates roughly 10,500 total infusion pumps as the total addressable market, with the global opportunity at more like 38,000. So within the US, at an average selling price of $30,000, the market size is a little over $300 million and globally, more like $1.1 billion. Two, there are reasonable technological barriers to entry and IRadimed has all of the mindshare. For a large company it’s simply not worth the headache. And for a small company, the problem is actually not super easy to solve. Further, IRadimed keeps improving the product and its installed base is pretty large, having sold about 6,600 units since inception. To be clear, the infusion product doesn’t have direct competition but there are a few workarounds. The most pressing substitute is B Braun’s SpaceShip product that uses what’s called a Faraday Cage (aka shielded box). This is a cage that insulates the metallic components of the infusion system so that the MRI’s coils aren’t affected. These shielded box solutions can’t be placed right next to the MRI machine and if a nurse needs to change the flow rate on the IV, it would have to be wheeled out of the room before making the change. Though the cost of these shielded boxes are about 80% lower than IRadimed’s patented product, a lot of large hospitals won’t think twice about the expense, considering the lower liability. The possibility of a projectile accident is just too big of a risk, even if the odds are pretty low. What some smaller hospitals will do is have the infusion system outside the MRI room, hooked up with what is essentially a long extension cord, to the patient. This also poses some problems to the flow rate and can cause false alarms for nurses if the tubing gets jostled. So, while there are workarounds to this problem, IRadimed fixes the problem entirely.
Mind you, the last paragraph was only referring to the infusion product. The vitals monitoring product does have some competition from GE and a few private competitors. The market is roughly the same size globally but not quite as large in the US, despite the higher $45,000 selling price. In fact, revenue from the infusion system and the vitals monitoring are split almost evenly these days, even though the vitals product got FDA clearance in 2017 and the original infusion product was approved all the way back in 2005. However, the same dynamics apply to both products. IRadimed has the mindshare and a dominant position in a fairly small market. The niche of patients that require an IV drip, blood transfusion, or chemo and need regular MRIs is very important but it’s not a giant subset.
IRadimed makes about a quarter of its revenue from disposable tubing that goes from the transfusion system to the patient so there is a decent chunk of recurring revenue. What also caught my eye about the company was the mid-to-high 20% operating margins and the fact that by the end of this year, revenue will have compounded over 20% for the last three years. In fact, for the last several quarters, the company has been a rule of 50 company, when you add revenue growth and margins together. Free cash flow can oscillate because of inventory dynamics. The company tries to hold at least 3 months worth of product and it only has one Japanese supplier for its non-magnetic motors in the infusion systems. The supply chain is slowly resolving but the company does sell a physical product to large customers like hospital group purchasing organizations. With that said, free cash flow is typically pretty strong.
It’s hard to get a revenue estimate going forward because there isn’t much linearity to sales. It can be fairly lumpy as the company gets large orders of infusion pumps or vital monitoring systems, especially because the company does less than $60 million in revenue.
Besides the company’s lack of competition, the most important thing about it is its founder, Roger Susi. He has been working on MRI compatible systems since the late 70’s and this company is his baby. His family still owns well over 40% of outstanding shares and he seems to be a long-term thinker. Just two small examples are that the company is expanding its manufacturing facility in Florida by 3x over the next few years and its latest product that got released last year is a sign of innovation.
This product basically plugs right into the wall outside of an MRI machine and lights up red when someone is fast approaching with some sort of metal. It monitors the speed of someone to see if they’re walking into the room or just passing by. And further, it can detect whether someone is accidentally bringing metal into the MRI room. If someone sees the green light, then they are safe to enter the room.
The company dominates the niche in the medical device space, making MRI safe equipment. The founder owns a ton of stock, and the company is growing nicely with juicy profit margins. The lack of competition makes this company pretty compelling but it’s also worth digging into the market size to see if the company can continue raising prices and releasing new products.
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