Inari Medical, Inc. (NASDAQ:NARI) Q1 2024 Earnings Call Transcript

Inari Medical, Inc. (NASDAQ:NARI) Q1 2024 Earnings Call Transcript May 1, 2024

Inari Medical, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen. And welcome to Inari Medical Inc. First Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. At the end of the company’s prepared remarks, we will conduct a question-and-answer session. As a reminder, this call is being recorded and will be available on the company’s website for replay shortly. I’d now like to turn the conference over to John Hsu, VP Investor Relations. Please go ahead.

John Hsu: Thank you, operator. Welcome to Inari’s conference call to discuss our first quarter 2024 financial performance. Joining me on today’s call are Drew Hykes, President and Chief Executive Officer; and Mitch Hill, Chief Financial Officer. This call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements related to Inari’s estimated full year 2024 revenue, operating loss or profitability expectations, and the expected operating performance and potential strategic benefits of LimFlow. These statements are based on Inari’s current expectations, forecasts, and assumptions, which are subject to inherent uncertainties, risks, and assumptions that are difficult to predict.

Actual outcomes and results could differ materially from any results, performance or achievements expressed or implied by the forward-looking statements due to several factors. Please review Inari’s most recent filings with the SEC, particularly the risk factors described in our latest Form 10-K for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management’s expectations as of today. Inari undertakes no obligation to update these statements, except as required by applicable law. On today’s call, we will refer to both GAAP and non-GAAP financial measures in announcing our Q1 2024 results. Please refer to today’s press release for reconciliation of the non-GAAP measures discussed on this call and referred to in the press release.

The press release and the slides accompanying this call are available on our website at inarimedical.com. A recording of today’s call will be available on our website by 5:00 p.m. Pacific time today. With that, I’ll turn our call over to Drew.

Drew Hykes: Thank you, John and thank you for joining our call today. We’re pleased with our performance in the first quarter, achieving record revenue of more than $143 million, reflecting over 23% growth. Our performance was driven by consistent, crisp execution and strong contributions across the Inari portfolio. I would like to thank the team for driving strong adoption of our market-leading PE and VTE therapies, executing on our plans to diversify into sizable new patient populations and continuing to expand internationally. In addition to strong top line growth, we continue to make progress on our path to profitability, and we are reaffirming our expectations to reach sustained operating profitability in the first half of 2025.

As we look ahead, we are as committed as ever to the strategic objectives that support our continued strong growth. These objectives reflect the ethos and goals that have long been core to Inari’s culture and have guided our commercial and operational progress. Our first objective is to continue to scale the adoption of our highly differentiated, purpose-built toolkits across large, attractive markets. This year, this includes our plans to drive deeper adoption within our existing U.S. account base via our VTE Excellence initiative, gain access to new accounts across our emerging therapies portfolio, and expand internationally, including commercially, into Japan and China. In addition, we remain committed to ongoing portfolio expansion to address unmet patient needs in venous and other diseases.

These initiatives have yielded strong growth, as reflected by the rapid adoption in our emerging therapies portfolio in the first quarter. This early success follows years of purposeful investments. We are encouraged by the progress we are seeing across emerging therapies and see huge opportunities to continue to drive meaningful growth. As always, our innovation strategy is to target unmet patient needs with purpose-built tools, and in conjunction with that, to protect our leadership by leveraging our strong and comprehensive IP portfolio. Next, we will continue to lead the way with high-quality, market-impacting clinical data. To that end, we remain on track to showcase our PEERLESS data in the second half of the year. As a reminder, PEERLESS is the first of our three RCTs, and we recently completed the 550-patient enrollment.

The study will evaluate patient outcomes using our FlowTriever device as compared to catheter-directed thrombolysis. PEERLESS will generate high-quality clinical evidence that will move the field forward and further establish FlowTriever as the optimal interventional therapy for intermediate-risk PE patients. Meanwhile, enrollment is progressing well in our two other RCTs. PEERLESS II, comparing FlowTriever to anticoagulation alone, and DEFIANCE, comparing ClotTriever to anticoagulation alone. Our registry data also continues to move the field forward. Last month, Dr. David Dexter presented interim two-year follow-up data from the CLOUT Registry, the largest prospective multi-center data set generated since the ATTRACT trial. These results confirm the excellent safety, low rethrombosis, and effectiveness of the ClotTriever system for the treatment of DVT.

In fact, in the long-term follow-up from CLOUT, patients treated with ClotTriever demonstrated a significant and sustained improvement in post-thrombotic syndrome at rates that were one-third to one-half those seen in historical DVT studies. We continue to believe high-quality clinical evidence is critical to maintaining and expanding our leadership position and growing the market. Indeed, the robust underlying market growth in VTE today is in large part due to the data Inari has already generated and the commitment we have made to developing this market. Our next strategic priority is to continue to leverage our powerful commercial engine. The size, quality, and expertise of our team are meaningful differentiators for our business. We have the largest VTE-focused Salesforce in the industry and will continue to hire reps and split territories at a measured pace to support our growth.

Today, this team is driving VTE Excellence initiatives to increase the use of our solutions within existing accounts. We are also having growing success engaging hospital administrators at the IDN level to facilitate the adoption of VTE Excellence across multiple hospitals within their network from a top-down perspective. Taken together, our efforts are yielding great results. As an example, in some of our most advanced accounts, we are now seeing TAM penetration rates above 50%. This is a testament to the fact that our VTE Excellence program is working to catalyze positive adoption patterns, but much work and opportunity remains. Over time, we are confident this team of experienced professionals can continue to move the needle from our current high single-digit TAM penetration to strong double-digit penetration and beyond.

With the benefit of high-quality data and updated guidelines, we believe mechanical thrombectomy for VTE will ultimately exceed the TAM penetration rate seen today in acute ischemic stroke and could one day approach the TAM penetration of PCI for the treatment of STEMI. We aim to accomplish these strategic objectives while delivering a premium financial profile characterized by strong, durable growth, best-in-class gross margins, and increasing operating leverage. We know that the strength of our financial profile is founded, first and foremost, on the success of our three growth pillars, our VTE franchise, emerging therapies franchise, and our international business. We are market leaders in a $6 billion TAM for venous thromboembolism technologies in the U.S., and we are continuing to drive adoption within this substantial underpenetrated opportunity.

In Q1, our global VTE revenue was $137 million, up 20% versus the prior year, supported by our ongoing commercial expansion, market development, and evidence generation efforts. We continue to see strong underlying growth in U.S. VTE procedures and expect that this market, defined as mechanical thrombectomy alone, can and will continue to grow in the neighborhood of 20%. From a market position standpoint, although we anticipate continued competitive activity in this large and high-growth market, we remain highly confident in maintaining our leadership position and continuing to deliver robust VTE growth. All of this is factored into our guidance, which you’ll hear from Mitch later on. Turning to our global emerging therapies business. In Q1, emerging therapies revenue was $6 million, up 185% versus the prior year.

This segment consists of four distinct patient populations outside of VTE, together comprising a $4 billion TAM in the U.S. alone. In chronic venous disease, RevCore continues to perform well, the first mechanical thrombectomy device to treat venous stent thrombosis. We’re also excited to be executing the limited market release of VenaCore, our second purpose-built tool within the CBD toolkit, which will unlock another portion of this significant TAM. We hope to bring this technology fully to market in the second half of the year, and we’ll have more to share then. As a reminder, we believe the addressable market for CBD includes an annual incidence of approximately 100,000 patients, representing a $1 billion U.S. TAM alongside a substantial prevalence pool.

Turning to CLTI. We have made great progress integrating the LimFlow business into Inari and driving the early U.S. launch. LimFlow offers new hope and new options to the 55,000 patients per year suffering from no-option CLTI, translating into a $1.5 billion U.S. TAM. We’re highly encouraged by the progress we have made to date in accessing this patient population. For LimFlow, we continue to view 2024 as a year of foundation building and remain focused on physician training, VAC approvals, thoughtful patient selection, and deliberate wound care follow-up. We are successfully navigating VAC approvals today, and we have completed an initial and growing series of commercial cases. We are seeing good traction and enthusiasm from physicians and have already completed our first two commercial training programs.

In addition, we’re pleased to highlight that earlier this month, CMS proposed a new technology add-on payment, or NTAP, for LimFlow, as we had anticipated. The proposed NTAP would add up to an incremental $16,000 to the hospital’s existing DRG. We expect to see a final ruling from CMS later this year. The third market addressable by our emerging therapies portfolio is acute limb ischemia, a $600 million U.S. TAM characterized by tremendous unmet needs and a lack of purpose-built tools. We remain on track to initiate a limited market release and commercialize our second-generation Artix system later in 2024. In our fourth and final emerging therapies market, InThrill for the treatment of AV fistula clot continues to effectively address unmet needs in this large and underserved patient population.

We’re working on a second-generation InThrill platform and look forward to bringing it to market next year. Finally, I would like to discuss our international progress. Q1 was a very strong quarter internationally with revenue of $9.5 million, up 120% versus the prior year. Growth in Q1 also reflected the largest sequential dollar increase we’ve ever had in international. Strength was primarily driven by adoption of our solutions in Europe, but we also saw strong performance across Latin America, Canada, and Asia-Pacific. We’re pleased to see the investments we have made over the past several years in establishing our international business begin to translate into meaningful commercial traction in these markets. Although international still represents a relatively small part of our overall patient impact, we continue to expect international sales will count for at least 20% of revenue over time.

Before I turn the line to Mitch, I’d like to share, as always, a story about the incredible impact of our technology on patients. Last month, a 29-year-old postpartum woman was just one day post-op for an emergency C-section at a university hospital in Germany. Due to severe hemodynamic instability, this young mother was put on ECMO, scanned, and diagnosed with a pulmonary embolism. Thankfully, the physicians at this hospital were well-trained to utilize FlowTriever and the entire supporting Inari toolkit. Ultimately, her physician team utilized four of our devices, Intri24, T20Curve, FT2, and FlowStasis to rapidly and effectively treat her condition. The immediate result was substantial clot removal and the return to a normal heart rate. After several days of further improvement, this patient was discharged to her family a newborn baby and made a full recovery.

She is just one of the many thousands of European patients whom we have been able to serve with our technology in the three years since we introduced our toolkits to the region. We’re honored to help such patients return to their families. Such patient stories motivate us to continue our efforts to offer Inari products throughout the world. In closing, we’re pleased with our Q1 performance and confident in our outlook into the remainder of 2024 and beyond. We often say that we are just getting started at Inari, and despite being several years into our commercial journey, this remains more true today than ever. With that, I will turn the call over to Mitch.

Mitch Hill: Thanks, Drew. Turning to our first quarter 2024 results, Inari’s revenue for the first quarter of 2024 was $143.2 million, up 23.3% over the same period of the prior year. This represents sequential growth of over $11 million. Global VTE revenue in the first quarter was $137.2 million, up 20.3% over the same period of the prior year. Global emerging therapies revenue in the first quarter was $6 million, up 184.5% over the same period of the prior year. International revenue of $9.5 million was up 120% compared to the prior year. Our best-in-class gross margin was 86.8% for the first quarter of 2024 compared to 88.2% in the prior year period. The year-over-year change was due to increasing internationalization of the business, ramp-up costs associated with new products, and product mix.

Operating expenses were $141.5 million in the first quarter of 2024 compared with $107.8 million for the same period in the prior year. R&D expense was $26.9 million in the first quarter of 2024, up 21.8% compared with $22.1 million for the same period of 2023. The increase in R&D expenses was primarily due to increases in materials and supplies related expenses, clinical and regulatory expenses, and personnel related expenses in support of our growth drivers to support new products and build the clinical evidence base. SG&A expense was $103.1 million in the first quarter of 2024, up 20.3% compared with $85.7 million for the same period of the prior year. The increase in SG&A expenses was primarily due to increases in personnel related expense as a result of increased headcount, increased commissions due to higher revenue, professional fees, and travel costs.

In the first quarter of 2024, the change of fair value adjustment of our contingent consideration liability was $6.3 million. Acquisition related expenses were $2.8 million, and amortization expense related to our acquired intangible asset was $2.5 million. There were no expenses related to these three items in the prior year quarter. Inari recorded a GAAP operating loss of $17.2 million in the first quarter of 2024 compared with a GAAP operating loss of $5.3 million for the same period of the prior year. On a non-GAAP basis, which excludes acquisition related expenses, acquired intangible asset amortization, and changes in the fair value of contingent consideration, the first quarter operating loss was $5.6 million. The non-GAAP adjustments had no impact on the first quarter of 2023.

Net loss was $24.2 million for the first quarter of 2024 compared to a net loss of $2.2 million for the same period of the prior year. The basic and fully diluted net loss per share for the first quarter of 2024 was $0.42 on a weighted average basic and diluted share count of 57.9 million. This compares with a basic and fully diluted net loss per share of $0.04 on a weighted average basic and diluted share count of 54.8 million in the same period of the prior year. As we execute against our goals of driving strong growth and leverage within the business, we are also maintaining a thoughtful approach to managing our balance sheet. In the first quarter of 2024, our cash flows used in operating activities were $12.3 million compared to approximately $2 million in the same period of 2023, primarily due to investments in our product portfolio, including LimFlow.

At the end of the first quarter, we had a healthy balance of cash and investments totaling $102 million. We remain confident in our ability to self-fund our business and strategic objectives with current cash and access to liquidity. We anticipate our cash balance will remain at approximately $100 million for the rest of the year. Turning to 2024 outlook. We are raising our full year 2024 revenue guidance from prior guidance of $580 million to $595 million to $592.5 million to $602.5 million. This updated guidance reflects growth of approximately 20% to 22% over 2023. Our guidance reflects contributions from all three of our growth pillars, VTE, emerging therapies, and international. For 2024, from a phasing perspective, we continue to expect strong performance in the back half of the year.

By way of reference, in 2023, we saw modestly higher revenue in Q2 versus Q1. We expect to see this typical seasonality again in Q2 2024. As a result, we expect Q2 revenue to be flat to slightly up sequentially. Lastly, I would like to comment on Inari’s progress towards profitability. We are continuing to invest in our strategic objectives to drive growth while positioning the business to achieve sustained operating profitability in the first half of 2025. On our last call, we mentioned that we expect to see greater operating losses in the first half of 2024 versus the second half. We continue to hold this expectation today. With that, I’ll turn the call back to the moderator for questions. For the Q&A segment, we will be joined by Dr. Tom Tu, Inari’s Chief Medical Officer.

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Larry Biegelsen with Wells Fargo. Please go ahead.

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Q&A Session

Unidentified Analyst: Hi, it’s Leigh calling in for Larry. Thanks for taking our question. Just a question regarding the growth in Q1. So we backed into U.S. core VTE sales of about $128 million, and that’s up about 16% year-over-year. Can you just confirm if our basic math is correct? And if that is correct, how do you bridge that against the 20% market growth that you are alluding to? And I have a follow-up. Thank you.

Drew Hykes: Yeah. Thanks, Leigh. This is Drew. I can get started on that. Mitch may want to chime in as well. So relative to VTE, we’re pleased with how that part of the business performed in Q1. We saw 20% growth across VTE globally, a little faster than that. Internationally, albeit off a small base, a little slower than that. Here in the U.S., obviously off a much larger base. In terms of the underlying market growth, historically, you’ve heard us characterize the growth in this market, which we define as mechanical thrombectomy for VTE, as growing in the neighborhood of 20%. Call it 18% to 22%. I think when the dust settles on Q1, you’re going to see the same kind of robust underlying market growth. We have every expectation that that robust market growth will continue as we look ahead.

In terms of our position in that market, we remain the clear market leader. So despite competitive dynamics, despite the potential for modest share fluctuations back and forth, we remain the clear market leader in this market. And we’re confident in continuing to be the market leader as we move forward. And that confidence is built on our purpose-built solutions, high-quality data, the strength of our commercial engine, all those things taken together. And I think as a result, we continue to expect robust growth from VTE. And that’s exactly what you saw as we moved through 2023. That’s what you saw most recently here in Q1. And that anticipation of robust growth from VTE is also reflected in the updated guidance.

Mitch Hill: Yeah. And maybe, Leigh, for just to add to Drew’s comments, as you know, we don’t aggregate the data at the U.S. VTE level. So I think I can sort of follow your math, because the O-U.S. side is growing faster. So the U.S. side is growing a little bit slower. I think Drew did a nice job addressing the market growth versus how we feel about it. One of the things I look at that I’m very pleased with for the business is just the dollar growth of the business, sort of quarter-over-quarter, if you look back over the past year. And as I look at the growth of the business, for example, from Q2 to Q3, and then from Q3 to Q4, and Q4 to Q1, the Q4 to Q1 time period with 10.5 million of sequential growth is actually the highest that we’ve had, look back over the course of the past year. So we’re really pleased with the progress the business is making. And for the reasons that Drew mentioned during the prepared remarks, we feel like we’re still just getting started.

Unidentified Analyst: Great. That’s helpful. And then just as far as the subsegments within VTE, can you comment more specifically around DVT versus PE market share? Based on, [indiscernible] we’ve done, sounds like you’re holding on to the PE share, perhaps a little better than the DVT share. Just any call you can provide around that. Thanks again for taking questions.

Drew Hykes: Yeah. We saw robust growth in VTE across both PE and DVT. Balanced growth across both of the two franchises. We see competitive dynamics at play across both of the franchises, but robust growth in both areas. And that was clearly evident in the Q1 results.

Mitch Hill: Yeah. Leigh, I mean, we continue to feel like we’re the clear and dominant market leader in the PE side of the business, probably a four to one lead there. I think on the DVT side of the business, consistent with where we were maybe back in the second half of 2023, kind of a one and a half to two to one lead there. I guess I’d just like to comment though that this concept of share dynamics or share shifts is something that’s very dynamic and it’s something that kind of changes, depending on who the treating physicians are. It’s not a one way street, by any means. And we’re in there definitely competing for share. We’re in there working with the treating physicians, working with the non-interventional physicians as well, in our program building and everything else to try to help make sure that patients get the best possible care.

Operator: The next question comes from Stephanie Piazzola with Bank of America. Please go ahead.

Stephanie Piazzola: Hi, thanks for taking the question. I wanted to ask about the guidance raise. It looks like you raised the guidance at the midpoint by more than the beat in the quarter. So maybe if you can expand on where the guidance raise is coming from, how much of it is from U.S. core versus O-U.S. and emerging therapies. Thanks.

Drew Hykes: Yeah. Thanks, Stephanie. I’ll get started on that. Mitch may want to follow on. So it’s about a $5 million beat and about a $10 million raise at the midpoint. And I think that reflects the strength, the momentum that we saw across all three parts of the business as we exited a strong 2023 and made our way through Q1. We saw a strengthened VTE. We saw robust growth across emerging therapies. And we saw another strong quarter of crisp execution and growth from the international part of our business. And I think all of those considerations are factored into the increase in guidance by $10 million at the midpoint.

Mitch Hill: Yeah. And just to add to that, Stephanie, as I said there at the end of the prepared remarks, from the point of view of sort of the trajectory of the beat, if you will, we’re seeing a greater acceleration in the business in the second half. So we would expect to see some increase there. The flat to slightly up comment is something that we’re kind of thinking through as it relates to our Q2 number. And we saw some seasonality, as Drew mentioned, in the past couple of years, actually, in the business. And so we would expect to see that again here in 2024. First couple of weeks of April, we saw lots of spring break activity and things of that kind in the business. So no surprise and no different than other companies are experiencing. But we just wanted to be confident in terms of the number we put out there for Q2. And that’s hopefully helpful to your question.

Stephanie Piazzola: Yeah. Thank you. That’s really helpful. And then maybe just as a follow up. I wanted to ask about, a competitor recently launched a next generation version of their product. And there are some other new entrants expected in the market here soon. I know you mentioned that this is reflected in the guidance, but maybe if you could elaborate on that a little bit more, if you’re seeing any early disruption from that and kind of what you expect for the rest of the year. Thank you.