- BTCY continues to win new business at a rapid pace, with current quarterly revenue likely to be double revenue reported just two quarters ago, well ahead of management’s past guidance.
- Reduced reimbursement rates for extended holter have no impact on BTCY, unlike the negative impact it has for competitors.
- BTCY is seeking to uplist to a major exchange sooner than later, which will provide more exposure and better liquidity.
- An app currently under development by BTCY could blow the top off current management guidance and analyst estimates.
- While there are certainly risks, the stock could conceivably be a 5-bagger over the next 2-3 years.
BTCY is partnering with physicians to help them increase their revenue in the cardiac monitoring space instead of directing that revenue to medical device companies. BTCY accomplishes this by selling/leasing its mobile cardiac telemetry (MCT) device to physicians. Then, when physicians prescribe the device to patients using BTCY’s product, they are able to bill for the device themselves, rather than outsourcing that revenue to a device company. With each rental, the physician pays BTCY a technology fee. In short, where physicians were previously allowing medical device companies to collect the approximate $800/use of the MCT, through BTCY, the physicians themselves now collect that additional income and pay BTCY their technology usage fee. My previous article discussed why this approach helps to save the patient money as well.
Mobile Cardiac Telemetry Business Is On Fire
BTCY’s only current technology in commercial use is Bioflux, their MCT device. As noted in the introduction, BTCY management guided for 30% sequential growth and triple digit annual growth over the next two years. This growth will be achieved in two ways: (1) by expanding the business in 2021 from 20 to 30 states; and (2) by recognizing the recurring “technology-as-a-service” (TaaS) revenue each time the device is used. As it relates to point #2, BTCY management has clarity on future revenue because each time they sell a device they know it will be used repeatedly for years to come, and the higher-margin TaaS revenue will begin to dwarf device sales revenue.
Based upon my channel checks, we sensed that BTCY began the year steady, but with a triple headwind of (1) deductibles resetting on January 1, (2) patients/physicians away on winter vacations, and (3) a resurgence of Covid in many parts of the US. But by March, it was clear that BTCY was picking up the pace. Our suspicions were confirmed on April 14 when BTCY pre-announced their Q4 (ending March 31) unaudited results. The progress was stellar!
Source: BTCY Website
BTCY said they ended the month of March on a $7M annual revenue run rate. And as BTCY’s expanding salesforce is finding its groove, my checks would indicate that BTCY’s Q2 this year will likely meet or exceed $2M in revenue for the entire quarter (i.e. double the revenue from two quarters earlier). To put that in perspective, since BTCY has grown every month for over two years, we expect the annual revenue run rate based on June numbers to be approaching $9-10M. Again, this reasoning is not simply “wishful thinking,” but is based on BTCY’s historic growth, where they have now attained monthly revenue growth sequentially for well over two years (apart from one month due to temporary Covid shutdowns in 2020, at the beginning of the pandemic in the US).
BTCY Upcoming Expansion
Over the long term, BTCY has plans to expand well beyond the adult cardiac monitoring market. But in this article, we’ll focus on three key areas of expansion in the near term, and specifically in the cardiac monitoring space. Our three areas of focus are (1) Biotres, an extended holter monitor; (2) Bioheart, a direct-to-consumer MCT device; and (3) a yet-to-be named app to be used by both physicians and patients. I will discuss each in more detail below.
Biotres – Extended Holter Device
At the request of physicians over the past few years, BTCY decided to develop an extended holter device (BTCY management speaks about this device on their last conference call, which I linked to earlier in this article). An extended holter device is essentially a standard holter device, but is worn for an extended (i.e. longer) period of time. The extended holter is inferior to the MCT device inasmuch as the device only records “cardiac events,” such as a-fib. It does not record constantly, as the MCT device does. So why use an extended holter?
The extended holter is for low-to-medium risk cardiac patients. The MCT is primarily for high-risk patients. The alternative for these high-risk patients is to be admitted to the hospital for constant observation (MCT is obviously a much cheaper alternative). So, although the MCT is many times more expensive than extended holter, it is much less expensive than hospitalization. We will discuss this below further when we detail recent changes to reimbursement rates in the extended holter market.
For now, what is important to understand is that the extended holter broadens the number of patients who might use a BTCY device, and from whom the company would receive additional TaaS revenue. While the company previously hoped for FDA approval for Biotres in April 2021, that, like all other non-Covid-related medical device reviews, was put on hold. However, our research of multiple companies indicates that the FDA is now circling back to non-Covid-related devices and will be reviewing and approving those over the months ahead. With that in mind, we are hopeful that BTCY will still be able to sell Biotres commercially by the end of this calendar year.
Bioheart – Direct-to-Consumer Device
Bioheart is BTCY’s upcoming direct-to-consumer (DTC) product. The product is similar to Bioflux, but can be used without a physician’s prescription. The idea behind Bioheart is that it gives BTCY more touchpoints with end users, allowing them to collect more revenue and data, while also increasing brand awareness. As noted, BTCY is currently operating in 20 states, with 10 more expected to be added throughout 2021. That leaves 20 states without BTCY products available through physicians. But for a consumer who purchases Bioheart, if they determine they should see a physician based on the device’s monitoring of their heart, they could choose to reach out to a BTCY physician via telemedicine. In preparation for this, and to assist their current business, BTCY signed an agreement with a telemedicine company last August. According to people familiar with the company, at least 50% of cardiologists in BTCY’s network are set up to use telemedicine in a way they could serve Bioheart users, which would allow them to bill insurance similarly to an in-office visit. I look forward to learning and seeing more about how BTCY markets this product, which should come out sometime over the summer months.
Source: BTCY Website
BTCY App for Physicians and Patients
Perhaps the most exciting development at BTCY is their new, yet-to-be named app. This app was briefly mentioned and discussed during a presentation at the December 2020 LD Micro Conference. Based on research, we have determined the app is under development and likely to begin testing soon. The intent of the app is to help physicians and patients symbiotically manage chronic heart disease. Based on this approach, the app should be reimbursable under the category of “Outreach and Education.” The general purpose of the app would be to help patients stick to their physician-prescribed care plan. It would also create a network effect, where patients diagnosed by Biotres/Bioflux/Bioheart then use BTCY’s app for their daily care plan, later to use one of these products again to ensure their care plan is producing the desired benefits.
As with all its products, BTCY will likely collect a technology fee for use of this app. We believe a good estimation of the reimbursement rate for such use would be $20/month per patient. Above, I mentioned how BTCY’s Bioflux has the lowest total addressable market (TAM) because it is almost exclusively used for high-risk patients. Comparatively, the TAM of BTCY’s app would be enormous because cardiologists in BTCY’s network could theoretically use this app with all of their patients.
Reimbursement Concerns in the Extended Holter Space
Earlier this spring, Novitas Solutions published Medicare reimbursement rates for electrocardiogram (ECG) monitoring devices. This significantly impacted the amount of reimbursement available for extended holter monitors. Because the monitoring time was longer than the holter, Medicare previously reimbursed much more for extended holter than for the standard holter device. However, Novitas now argues that the extended holter does not provide information that is significantly more valuable to a clinician because a holter device only records “cardiac events.” In other words, it does not provide constant monitoring, as does an MCT device.
Because of this argument, the reimbursement rate for extended holter has been cut from the historical amount of $300 to $103-115 depending on the exact code. As you can imagine, that is quite a revenue hit for a company such as iRhythm (IRTC), which serves the extended holter market. Investors recognized this, and the stock has dropped from recent highs of over $265 to around $76/share now. But this change in Medicare reimbursement rates will have virtually no impact on BTCY’s future extended holter business, and zero impact (except perhaps positive) on their MCT business.
The MCT device is significantly different than an extended holter. The current reimbursement rate of approximately $800 per use reflects that. The reason for the difference is clear. First, an MCT device constantly monitors the patient. Whereas the extended holter only records “cardiac events,” the MCT records everything, providing much more valuable data, and allowing clinicians to see that a “cardiac event” may be about ready to happen.
Source: BTCY Website
The second main difference between extended holter and MCT is the patient population using these devices. MCT devices are currently used almost exclusively on “high risk” patients. The alternative to the MCT is admission to the hospital for monitoring. For that reason, because MCT is so much cheaper than a hospital stay, there is little incentive for reimbursement rates to be cut. Medicare and insurance companies would much prefer the $800 MCT bill than the multi-thousands-of-dollars bill from hospitals!
Extended Holter Business
Again, the reimbursement changes from Novitas do affect the reimbursement rates for extended holter monitoring. But this will have little to no impact on BTCY. Why? Because BTCY’s TaaS-based business model differs significantly from competitors. As noted, when physicians use BTCY competitors, the physician is normally reimbursed only a $25 reading fee when they prescribe the device. The device company receives the $103-115 (formerly $300) for use of the extended holter device. But the BTCY model is different. BTCY sells or leases its devices to physicians. So when the physician prescribes the BTCY device, the physician receives not only the $25 reading fee, but also the entirety of the $103-115 for use of the device. The physician then pays from that reimbursement a relatively small technology fee to BTCY.
Since BTCY is currently not FDA-approved for its extended holter monitor, Biotres, the physicians that use BTCY’s MCT Bioflux currently only receive the $25 reading fee for prescribing and reading an extended holter monitor. The physician’s reading fee remains unchanged under Novitas’ newest rates. So the physician is not hurt by this reimbursement change; it is the device company who previously received the $300, who now will only receive the $103-115 who is harmed by these changes.
Once the BTCY Biotres is approved, physicians in BTCY’s network can easily transition to Biotres. Under that arrangement, these physicians will now begin receiving an extra $103-115 of revenue they previously missed because these fees were collected by the device companies. So the reimbursement decrease from $300 to $103-115 is irrelevant to the physician, who previously received $0 from those reimbursement codes. For BTCY, the only possible “harm” would be that perhaps they will lower what they previously thought they could charge for a technology fee when the physician would have received $300 per use, but now receives only $103-115. But BTCY only receives a relatively small percentage of that money, and currently receives no revenue from the extended holter market, so this change is essentially irrelevant for BTCY.
Uplisting to a Major Exchange & Analyst Coverage
BTCY is working on an uplisting to a major US exchange. From speaking with people familiar with the company’s thinking, we believe they hope to achieve such an uplisting sooner than later. We believe the company could attempt to uplist by end of calendar year 2021.
Speaking of exposure, at least one analyst has now issued a report on BTCY. Recently, an analyst from Maxim initiated coverage on BTCY with a one-year price target of $6. The report was impressive, including excerpts from interviews with physicians who are using BTCY’s Bioflux product. The $6 price target was reached by the gold-standard DCF valuation.
BTCY has been transparent about their plans to raise additional funds through equity. To that point, BTCY recently filed an S-3 “shelf registration” with the SEC. We have not detected an urgency for the company to raise capital, and expect they will wait until the share price appreciates to what they believe is much closer to its fair value. But BTCY has made no secret that they are currently prioritizing growth over profitability, despite the fact they could become profitable quickly, if desired. But their approach, with which we agree, is that they should not focus on becoming slightly profitable now, but instead should grow to become enormously profitable later.
Another risk is that BTCY will not continue to grow at current rates. While it is inevitable at some point for BTCY’s growth rate to slow, we believe they have sufficient tailwinds for the next 2-3 years, at least, to continue triple digit annual growth. They currently serve fewer than half of the US states, and they have two new products coming out in the relative near-term, as well as what could become a highly lucrative app. If these products do not succeed in gaining traction, then BTCY’s growth could stall.
The final risk is BTCY’s current volatility/low liquidity. The stock can swing significantly—sometimes even 10-20% or more—intraday. So BTCY investors should be prepared for that and should allocate based on their own risk/reward assessment, and based on their tolerance for volatility.
Smart Money Markets is bullish on BTCY. Not only has the company so far outperformed its own stated guidance, but they have multiple tailwinds, including the possibility of a new app that could significantly multiply revenues in a short time, at high margins. While competitors have been handicapped by the drastically reduced reimbursement rates for extended holter monitoring, BTCY remains unfazed due to their unique business model. As they begin to see analyst coverage, and eventually uplist to a major exchange, BTCY will receive more exposure in the investment community, likely leading to a higher valuation. Our base case scenario leads me to believe the stock could at least triple within 18-24 months if the company continues to execute according to plan, an expectation that was also recently echoed by the Maxim analyst.
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