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Inari Medical Seeks Commercialization Capital In U.S. IPO

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Quick Take

Inari Medical (NARI) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm develops and markets medical devices to treat patients with venous conditions.

NARI is growing rapidly and nearing breakeven. I’ll provide an update when we learn more about pricing and valuation from management.

Company & Technology

Irvine, California-based Inari was founded to develop two catheter-based thrombectomy FDA-approved devices to treat patients with deep vein thrombosis and pulmonary embolism.

Management is headed by President and CEO William Hoffman, who has been with the firm since 2015 and was previously CEO of Visualase, an MRI-guided laser company acquired by Medtronic.

Below is a brief overview video of Inari’s ClotTriever system:

Source: Inari Medical

The company’s primary offerings include:

Inari has received at least $54 million from investors including U.S. Venture Partners, Cooperatieve Gilde Healthcare, Versant Ventures, Milder Community Property Trust, and CVF.

Customer Acquisition

The company introduces its products to relevant practicing physicians through a dedicated, direct sales force of 63 reps as of December 31, 2019 and continues to add sales personnel.

Selling, G&A expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

2019

72.8%

2018

156.7%

Source: Company registration statement

The selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of selling, G&A spend, was 1.2x in the most recent reporting period.

Market & Competition

According to a 2016 market research report by MarketsandMarkets, the global market for thrombectomy devices is expected to reach $1.45 billion by 2022.

This represents a forecast CAGR of 6.7% from 2017 to 2022.

The main drivers for this expected growth are a growing number of minimally invasive procedures, an increasing target patient population, ample medical reimbursements and continuing technological innovation.

Major competitive vendors include:

  • Stryker (SYK

  • Medtronic (MDT)

  • AngioDynamics

  • Boston Scientific (BSX)

  • Johnson & Johnson (JNJ)

  • Terumo Corporation (OTCPK:TRUMF)

  • Penumbra (PEN)

  • Spectranetics

  • Edwards Lifesciences (EW)

  • Argon Medical Devices

  • Teleflex (TFX)

Financial Performance

Inari’s recent financial results can be summarized as follows:

  • Dramatic growth in topline revenue

  • Similarly high growth in gross profit

  • High and increasing gross margin

  • Swing to operating profit

  • Swing to negative cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

2019

$ 51,129,000

648.7%

2018

$ 6,829,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

2019

$ 45,218,000

715.0%

2018

$ 5,548,000

Gross Margin

Period

Gross Margin

2019

88.44%

2018

81.24%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

2019

$ 801,000

1.6%

2018

$ (9,139,000)

-133.8%

Net Income (Loss)

Period

Net Income (Loss)

2019

$ (1,192,000)

2018

$ (10,153,000)

Cash Flow From Operations

Period

Cash Flow From Operations

2019

$ (4,935,902)

2018

$ 10,892,115

Source: Company registration statement

As of December 31, 2019, Inari had $23.6 million in cash and $29.5 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2019, was a negative ($8.1 million).

IPO Details

Inari intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO as follows:

to expand our commercial activities, including marketing personnel and programs; to fund product development, research activities, and clinical development activities; and the remainder for working capital and general corporate purposes.

Management’s presentation of the company roadshow is not yet available.

Listed bookrunners of the IPO are BofA Securities, Morgan Stanley, Canaccord Genuity and Wells Fargo Securities.

Commentary

Inari is seeking U.S. capital market funding to further commercialize its approved devices and continue research for development of new venous treatment devices.

The company’s financials show a firm that is growing revenue and gross profit rapidly and is just passing through operating breakeven.

Selling, G&A expenses as a percentage of total revenue have dropped significantly as sales have ramped; its sales & marketing efficiency rate is a still reasonable 1.2x.

The market opportunity for thrombectomy devices is moderately large but features significant competition.

The fact that NARI has grown so quickly in a crowded market means they have taken market share from some of the other players, so that is a positive sign.

Management’s valuation assumptions will be an important aspect of the desirability of the IPO.

I’ll provide a final opinion when we learn more details from management.

Expected IPO Pricing Date: To be announced.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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