Inari (NARI), a new position for me.
In my end of the year write-up three weeks ago, I mentioned that I had taken a little position that I wasn’t ready to discuss yet. I’ve now fully decided to make it a (small) position, and it is now just under a 4% position, and I expect I will not add to it over 4% of my portfolio (although it may grow over that level on its own). I would also strongly advise that you don’t establish large positions in this company if you decide to invest in it, as this is not an established company, and it has a trading volume much less than the rest of our companies. If there is bad news, getting out of your position in a hurry might be problematic. And whatever you do, don’t just buy Inari because I did! Make your own decision. It may not fit into your investing style and criteria at all.
Inari is a medical device company which markets several products for the removal of venous clots and pulmonary emboli. Its IPO was in May 2020. Ordinarily I have little to do with small med-tech companies but this one has advantages. What kind of advantages.
1 – Its devices already have FDA approval. They are already producing rapidly expanding revenue.
2 – They have huge advantages over the prior treatment which required long term use of expensive dangerous medications (thrombolytic anticoagulants), more invasive surgery, stays in ICU, morbidity and mortality from the procedures, etc. The Nari procedures can be done in the cath lab, from what I understand, with the patient awake, with zero ICU days, zero mortality, no thrombolytic drugs, etc.
3 – The products are one-time use. There is no capex expense for the hospital or the physician, and the revenue will be recurring, and have a considerably greater than 100% Net Retention Rate as physicians who tentatively tried it this year will use it on more and more patients next year.
4 – The products are extremely well accepted by doctors and hospitals. Revenue growth has been:
**2018 7 million**
**2019 51 million**
**2020 (est) 140 million**
**2019 7 10 14 20 = 51**
**2020 27 25 39 49 = 140**
5 – They have a 92% gross margin and are already profitable for the past five quarters
Take a look at those results, and take into account that the April, May, June quarter of 2020 was hit by the initial Covid panic, and revenue actually declined slightly from $27 million in the March quarter to $25 million in the June quarter. They rebounded in the September quarter to $39 million, but there were some worries that the December quarter would also be hard hit by the Covid comeback but, to my relief, they just pre-announced $48 to $49 million, up from $20 million the year before, perhaps slowed by just $5 million by Covid.
Here are the Sept quarter results, followed by more excerpts from my notes:
• Record procedure volume, with over 3,700 patients treated, up 185% yoy and up 48% sequentially.
• Revenue of up 172% yoy and up 52% sequentially.
• Finished with $168 million in cash.
In the quarter we made significant progress in our mission to transform the lives of patients with venous disease. We introduced meaningful new technology and aggressively expanded our commercial footprint. Most importantly, we treated a record number of patients. The increase was driven by continued US expansion and increased product adoption. We are are grateful that our hospital customers and physicians have also adapted and established a constructive operating environment for patient treatments. We have found ways to execute effectively through the pandemic in all areas of our business. We are, however, encouraging a bit of caution as we look forward. Cath lab volumes have not returned to normal, while Covid cases and hospitalizations already at all-time highs continue to rise as we approach winter. We have again seen impacts on our hospital customers, on patients seeking and gaining access to care, on our commercial efforts at various hotspots throughout the country, and on our day to day operations, while we remain confident in our growth drivers and our medium and long term prospects for aggressive and sustainable growth, we continue to recognize the uncertainty of the immediate term.
Gross margin was 91.7%, up from 89.4% last year.
Operating expenses were 73% of revenue, improved from 83% last year. [Good] Remember that we did have increased expenses related to being a public company.
Operating income was $7.2 million compared to $0.9 million last year
Net income was $6.5 million, up from $0.4 million last year.
EPS was 12 cents up from 1 cent.
Cash was $168 million, which reflected a $30 million total payoff of our long-term debt during the quarter.
Outlook and COVID-19
Due to uncertainty surrounding the COVID-19 pandemic, we will not provide financial guidance for the remainder of 2020 at this time.
About Inari - Inari is focused on treating venous thromboembolism and improving the quality of life of patients suffering from this disease by safely and effectively removing blood clots. Inari has developed two minimally invasive, novel catheter-based mechanical thrombectomy devices that are designed to remove large clots from large vessels and eliminate the need for thrombolytic drugs.
The ClotTriever system is 510(k)-cleared by the FDA for deep vein thrombosis.
The FlowTriever system is 510(k)-cleared by the FDA for pulmonary embolism.
Note that both products are disposable and there is no need for capital expense by doctor or hospital. Intuitive, easy to use, single-use devices that do not require capital equipment or the use of thrombolytic drugs and that enable a short learning curve. Products allow for short, single sessions and are designed to eliminate:
need for expensive thrombolytics, which require
costly ICU stays, and which carry
risks of major bleeding.
Blended revenue per procedure is $9,100
Conference Call
The results further confirm the excellent safety record of FlowTriever treatment of pulmonary embolism. There were no deaths at the 48 hour follow up. Patients with similar risk profile historically carry a significant mortality risk. In addition, there were no cardiac injuries, no pulmonary injuries, no procedure-related deteriorations. And importantly, there were no instances of intracranial hemorrhage, a devastating complication associated with both systemic and catheter directed thrombolytic-based treatments.
Efficacy data were equally compelling. Statistically and clinically significant decreases in heart rate and pulmonary artery pressure were shown, along with statistically and clinically significant increase in cardiac index, all while the patient was still on the table. These data are consistent with anecdotal observations that patients feel better even before they leave the cath lab.
Finally, post-procedure ICU stay was zero days. This is of course always important for clinical and economic reasons, but even more so in the midst of a pandemic, while hospitals are doing their very best to preserve ICU beds for COVID and other very sick patients.
We entered Q4 with approximately 120 territories, up from 90 sequentially, due to increased hiring…
Our goal is to also access those patients currently treated with conservative medical management, which represents perhaps 90% of Pulmonary Embolism patients and about 67% of our Deep Venous Thrombosis patients. We believe we’re beginning to have some success on this front. [Saul: Big potential expansion of TAM]
Finally, during the quarter, 14 articles in peer-reviewed journals featured the Inari technology. The highlight was a retrospective multicenter analysis, in which 34 high risk PE patients were treated in four centers. Only one mortality was reported at the mean 205 day follow-up. For reference, patients of similar risks carry a mortality rate up to 40%.
Another growth driver is to continue to expand our product portfolio. For example, earlier this year we introduced a 24 French aspiration and delivery catheter for pulmonary embolism. This resulted in significant migration from our smaller 20 platform. This is important as larger bore catheters remove more clot and the clot matters. We believe this is critical to both acute and longer term outcomes.
More recently, we introduced the T24 Flex, which is 40% more flexible than the original Triever24, making it even more deliverable. The early response from our customers to the T24 Flex has been highly favorable and we expect it will drive further migration to the larger platform.
We anticipate introducing several additional product enhancements over the coming months, including our FlowSaver device. This device is a simple disposable filtration system that will enable physicians to reintroduce extracted blood back into the patient. This will enable the physician to be more aggressive, making more aspiration passes without concern for blood loss. The goal, again, is to remove as much clot as possible.
As a reminder, our current primary aim is not to produce net income. Rather, we are aiming to deliver sustainable revenue growth and our positive net income is a positive byproduct of the company’s performance, and it allows us to invest more aggressively in the growth drivers rather than using our capital to cover operating losses.
Analyst comment: these extraordinary results that you’ve put up here clearly suggest that this market for treating venous clots with mechanical thrombectomy technologies is not only inflected, but inflected in the middle of a pandemic, which is just pretty amazing.
There is a ton of runway. And again, you cannot underestimate the self-evident nature of the effect of the clot. There’s just never a time the clot comes out and someone says, well, I’m just not sure that taking it out really helped. That just doesn’t happen!
Dec 2020 – Thanks to WakeBoarder who brought it to the board and to my attention.
Free cash flow turned positive in Sep 2020 quarter.
Business model is asset light without much capex.
Total addressable market is huge with room for global expansion.
NARI is a medical device company offering single use disposable catheter systems to treat deep vein thrombosis (DVT) and pulmonary embolism (PE). Simplified, these devices are used to remove blood clots from the body of the patients. No machine or durable equipment sales. R&D for additional venous treatments is work in progress.
Products are on the market and they have several patents.
Saul: Global expansion could pose a problem. A tiny company like this might have to work entirely with distributors in foreign markets. And foreign countries have very small medical payments and insurance reimbursements compared to the US. They would probably have to sell devices to distributors at most at 20% to 30% of the price that they sell at retail in the US to allow for the lower final price points, and also to allow the distributors to make at a 50% to 100% profit (which they would probably insist on). This would still bring in additional gross profit dollars to Inari, but at a lower rate per procedure.
Another problem I see is that there is no moat except that it works, and if another company came out with either a better product, or with an equal product at a significant cheaper price, the doctors could possibly change device companies tomorrow and not miss a beat. However doctors are pretty conservative, and if they have a procedure that they have learned to use, and that they know works well, and works safely, they are probably very unlikely to change unless there is a CLEAR advantage.
WakeBoarder - Q3 2019, a year ago was the first quarter they were profitable. With the exception of Q2 '20, every quarter has been profitable since then. They are also cash flow positive as of Q3 '20.
The company claims 3,700 patients treated in Q3 2020 in the USA with the products (annualized 14,800). They claim their TAM is around 442000 cases per year in the USA (source: current investor presentation). Time will tell if Inari can reach a good chunk here.
About reimbursement and pricing: although the products look expensive at first sight, these catheter systems LOWER the total costs of treatment in the health system as they reduce ICU bed usage and total time of treatment. But of course you never know what regulators and clinics think at the end of the day.
International expansion: if the products basically sell themselves it will be easy to find international distributors at good rates (SG&M for this should be similar to internal costs for sales in the USA). Distributors are always looking for easy sells and door opener products but they avoid tough sales at all costs. According to their Q3 2020 call they plan to have their own sales team on the ground in Europe as the products received a CE mark, but rollout is delayed because of the current virus situation.
The company has a kind of subscription business model once a doctor likes the product. But it has to be seen if there is a good moat around the company or whether new competitors can eat their lunch within a second. At the end of the day the competitive situation is probably the key. Other companies will enter this market as it seems to be too attractive. And, of course, there should be no material adverse events.
Denny - While you may lose Gross Margin going through a channel for foreign sales, you should also reduce SG&M expenses so the net margin may not be too different, depending on what the Channel brings to you. For example, you can have one account manager meaning many Partners/Distributors but those Partners may have multiple sales people and are working at growing the pipeline as well as have feet on the ground to provide training and services. So while you lose at the Gross Margin level you gain at the net margin level
14,800 out of 442,000 translates into a current 3.35% market penetration. Doctors out there, what sort of market penetration do you think a good product can have and how long to get there?
50% in 10 years is a CAGR of 31%
The above, of course, ignores new products and procedures which would boost CAGR much higher.
Jan 2021 - Press Release – new FDA clearance
• Inari receives 510(k) clearance from the FDA for its FlowTriever system for the treatment of Clot in Transit in the right atrium.
• FlowTriever is the first thrombectomy system not requiring a cardiopulmonary bypass circuit to be FDA cleared for blood clots in the right atrium.
• 25,000 patients are diagnosed with this condition in the United States annually, and the condition is associated with a mortality rate of over 80% if left untreated.
• “FlowTriever offers an exciting new treatment option to safely remove clot from the right atrium in a short, single session procedure without general anesthesia while avoiding the bleeding risks of thrombolytics,” interventional cardiologist Gautam Kumar said.
Jan 2021 - Pre-announcement of results
Preliminary Fourth Quarter Revenue and Business Highlights:
• Preliminary unaudited revenue is expected to be in the range of $47.9 million to $48.9 million in the fourth quarter, up 141% to 146% yoy, and up 24% to 26% sequentially.
• The company completed approximately 4,600 procedures in the quarter, up 156% yoy, and up 24% sequentially.
“We are pleased with our procedural growth in the fourth quarter and the opportunity to save and transform the lives of VTE patients, especially in the face of the challenges presented by the pandemic. Our team is executing our strategic plan and we look forward to sharing our progress on our quarterly earnings call.”
I hope that this was of help,
Saul
I’m not saying that it’s going to grow like Zoom did. I’m just saying that it found a niche where there wasn’t a completely satisfactory product, and then suddenly there was, and it was easy to learn, easy to use, and it worked.