Inari (NARI), a new position for me

I think they are very much in the low hanging fruit phase where they have a new device, take it to the big hospitals in the region that basically buy anything the doctors want, and get some people to use it for a while. There are a handful of these in each major market. When they expand to the smaller community hospitals, the value becomes a much bigger issue.

Hi IRdoc,
You certainly may be right. You are much closer to the action than I am. We will just have to see what happens. In the coming March quarter, with catastrophic levels of Covid around the country, it will certainly be harder for their salesmen to make new contacts.
Best,
Saul

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As a retired attorney who spent his career in the patent field counseling, prosecuting and (mostly) litigating patents, I would like to caution against placing too much weight on the mere existence of a patent portfolio. Obviously it is good that this company has an active patent program, but with patents the devil is always in detail that none of us, including me, can adequately assess without a detailed review of each patent, its application history in the patent office(s), the prior art, and expert technical understanding. As a general proposition, the patent portfolio that cannot be successfully attacked and/or designed around is a rare commodity in the world of patents.

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Very interesting. This is the first time I’ve seen the numbers-speak approach to an industry I don’t know and have been apprehensive to invest in! Very cool to approach and think through. This thread is amazing as well. Thank you all for contributing! A question:

Is manufacturing or supply chain a concern at all here? Can this hamper growth? Peloton makes me ask ;). We have a widget to consider here.

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Is manufacturing or supply chain a concern at all here? Can this hamper growth?

Since they went from $7 million revenue to $140 million in two years (20x growth) with a 92% gross margin, it’s hard to imagine that they are having any pricing pressure or supply issues. (But I don’t have any inside information)

Saul

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Is manufacturing or supply chain a concern at all here? Can this hamper growth? Peloton makes me ask ;). We have a widget to consider here.

I don’t have any knowledge of where and how Inari makes their devices. We are not talking about huge numbers here, and the devices aren’t usually terribly expensive, so most of these device companies will replace expired catheters for free. Most likely they have more than enough capacity to make more, and having excess inventory is not going to hurt like it did NVDA.

But you also can’t outsource production of these types of devices to random factories in China. And given the small numbers I’m guessing they don’t have several factories making these things. I took a tour of one factory where they bussed in dozens of people (for some reason mostly older women) each day and they sewed and soldered on parts to the ends of catheters under microscopes. If that building suffered a fire or something I suspect they would have lost production capacity for a long time. And other companies, even big ones, have been affected by natural disasters (e.g. in Puerto Rico) or have had production flaws leading to recalls and long term shortages. So for a company with just a few products, it’s certainly a risk, I just don’t know how much of one. The risk is more in something disrupting the production or a flaw in the system than over stocking or shipping problems.

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But you also can’t outsource production of these types of devices to random factories in China. And given the small numbers I’m guessing they don’t have several factories making these things. I took a tour of one factory where they bussed in dozens of people (for some reason mostly older women) each day and they sewed and soldered

Not sure how to make the above italics (it is quoted), but the operative word, I think, is ‘sewed’. Such skills as sewing are very scarce in younger generations in the U.S.

I waited until some members of my family (docs in vascular surgery) had some experience with this product along with my assessment as a critical care physician managing precisely the kinds of patients that this product targets. The product is well-liked and easy to use, according to my vascular contacts, and most US general hospitals are likely to eventually have one.

We think that a moderate sized busy regional hospital will probably use the device 4 to 8 times per month. There are about 6,0000 hospitals of that size or smaller in the US, so this gives you a yearly domestic (estimated) TAM of 24,000 to 48,000 interventions per month, and it could be less than that. The device probably does not reduce the Length of Stay (LOS) for critically ill Pulmonary Embolism (PE) patients or prevent their monitoring in ICU, and the non critical PE group would probably be monitored outside of ICU and treated with customary anticoagulation and not be subject to the device or tPA. The device is most useful for symptomatic internal iliac and deep vein lower extremity thrombosis (DVT) as it can promptly relieve symptoms and allow those patients to be treated with simpler anticoagulants and not the more expensive tPA (which does require ICU care for 24 hours or more) but those patients are far less frequent, hence the 4-8 per month estimate. There is still a need for anticoagulation after treatment with the device unless there is a distinct contraindication. Long term, symptoms or no, there may be no difference in outcome between early intervention with the device and customary anticoagulation after tPA.

So, this company has a domestic peak demand that can be estimated, in my opinion. Unlike some of our software data companies, it is not “infinite,” but it certainly is recurrent. Where they are on the “S” curve and their sales acceleration will most likely be the determinant of their stock price.

Hope this helps.
Brian (No holding in NARI).

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