Inari Medical, Inc. (NASDAQ:NARI) Q4 2022 Earnings Call Transcript

Inari Medical, Inc. (NASDAQ:NARI) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Good afternoon, and welcome to the Inari Medical Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Caroline Corner, Investor Relations. Please go ahead.

Caroline Corner: Thank you, Operator. Welcome to Inari’s fourth quarter 2022 earnings call. Joining me on today’s call are Drew Hykes, President and Chief Executive Officer; and Mitch Hill, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding the markets in which Inari operates, trends and expectations for Inari’s products and technology, trends in demand for Inari’s products, Inari’s expected financial performance, expenses and position in the market; and the impact of COVID-19 on Inari’s operations and Inari’s customers’ operations.

These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements. Please review Inari’s most recent filings with the SEC, particularly the risk factors described in Inari’s annual report on Form 10-K for the year ended December 31, 2022, 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. Inari’s press release for the fourth quarter 2022 results is available on Inari’s website, www.inarimedical.com, under the Investors section and includes additional details about Inari’s financial results.

Inari’s website also has the latest SEC filings, which you are encouraged to review. A recording of today’s call will be available on Inari’s website by 5:00 p.m. Pacific Time today. Now I would like to turn the call over to Drew for his comments and fourth quarter 2022 business highlights.

Drew Hykes: Thank you, Caroline, and thank you everyone for joining us today. Our fourth quarter was successful and highly productive. Revenue growth was strong and we executed crisply across all our growth drivers. We presented important new data from the two largest prospective thrombectomy studies ever conducted in DVT and PE, and we initiated full market release of two new products, all while continuing our work to drive market expansion and uptake of our devices. I will share additional details about all of this shortly, but we’d like to start now as we always do with a patient story which highlights the clinical impact and continued competitive advantage of our purpose built technology. Last month, a 50 year old man in Texas with complex DVT involving both legs and a clouded IVC filter presented to the hospital.

A consulting interventionalist decided to trial a new 16-French device to gain an understanding of how it performed. Despite the device’s purported ability to minimize blood loss, over a 1,000 milliliters of blood was removed, which is 20% of the patient’s total blood volume. After over two hours of work, the physician abandoned the device trial due to inability to remove residual traumas combined with safety concerns related to the significant blood loss. The physician then opted for treatment with the ClotTriever system and in 30 minutes, the patient was completely thrombus free. That portion of the procedure only resulted in 10 milliliters of additional blood loss. We believe this case highlights the fundamental shortcomings of competitive platform which failed to remove all the clot while resulting in significant blood loss.

Blood loss adds time and complexity for the physician operator, is economically disadvantaged for the hospital and most importantly is dangerous for the patient. VT patients who require just one unit of transfusion, roughly 200 milliliters are associated with a threefold increase in mortality, double the hospital costs and 66% increase in 30-day readmission. In contrast, our ClotTriever and FlowTriever systems have been purpose built safely and effectively remove all the clot in both DVT and PE and to do so with minimal blood loss. In fact, the blood loss from ClotTriever reported in our CLOUT registry was just 40 millimeters and the blood loss from FlowTriever reported in our flash registry after the introduction of FlowSaver was just 100 milliliters.

Now I’d like to provide a brief summary of our Q4 financial performance. Our revenue in Q4 was $107.8 million at the high end of our preannounced revenue range of $107 million to $108 million and up 30% year-over-year and 12% sequentially from Q3. The performance was driven by robust underlying procedure growth across both the FlowTriever product lines. We are pleased with how our business performed in Q4 and enthusiastic about how we’re positioned heading into 2023 and beyond. Our end markets are large and remain highly underpenetrated. And while we continue to view competition in VTE as potentially additive to our efforts to develop the market, make no mistake, as the clear market leader we are highly confident in our ability to maintain our competitive position relative to devices with inferior safety or efficacy profiles.

Our patients deserve the best possible outcomes and we remain steadfast in our mission. With that, I’ll now turn to our growth drivers. Our first growth driver is the expansion of our sales organization. We ended the year with just over 280 U.S. sales territories. Following the hiring of our largest sales class to date back in Q2, we intentionally moderated our hiring in Q3 and Q4. We’re pleased with the resulting operating leverage and productivity gains we’re beginning to recognize with our sales force. Consistent with that approach, in 2023, we expect to continue adding sales professionals each quarter, albeit at a more measured pace and anticipate ending the year with at least 310 territories. Continued expansion of our sales organization results in smaller and smaller territories.

This, in turn, positions us well to execute on our second growth driver, which is increasing penetration in existing accounts. Despite our commercial success, the vast majority of VT patients continue to be treated with anticoagulation alone and never even see a physician who is a VT expert. Our goal is to establish systems and processes, similar to stroke and MI that ensure patients are consistently identified, screened and evaluated by a VT expert. Our VT Excellence program is a highly differentiated, comprehensive and repeatable approach to partner with hospitals to do just that. We’re leveraging the capabilities we have created and are continuing to see solid progress moving our customers through to the most advanced phases of VT Excellence, where TAM penetration is several times higher than in the earlier phases.

Although VT Excellence has proven to be very effective at developing the VT market, we believe it also clearly differentiates us from competition. Our third growth driver is to build upon our base of clinical evidence. The past several months have been among our most productive ever. We presented key updates from our CLOUT and FLASH registries in September and October. These studies once again highlighted that ClotTriever and FlowTriever are safe, remove more clot than any other devices ever studied and achieve best-in-class patient outcomes. Importantly, the data also show our devices are highly effective with only a small amount of blood loss. This gives our physician customers the confidence to treat VTE patients completely and remove all the clot without compromising patient safety.

Looking ahead, the FLAME study has been accepted as a late-breaking clinical trial at the American College of Cardiology Conference in early March. FLAME is the largest ever prospective study in high-risk PE. These are the sickest 10% of PE patients who are in active hemodynamic collapse. We believe FLAME will change the standard of care in high-risk PE. Importantly, the results could also broaden adoption of FlowTriever therapy within intermediate-risk PE patients. Keep in mind, the intermediate risk PE patient population is 5x larger than the high-risk PE patient population. Turning to our RCTs. We’re pleased to recently announce the first enrollment in our DEFIANCE RCT, comparing ClotTriever to anticoagulation alone. The study is designed to establish ClotTriever as the standard of care for DVT treatment.

We’re also seeing robust enrollment in our PEERLESS RCT, comparing FlowTriever to catheter-directed lytic therapy for the treatment of PE patients. If successful, PEERLESS will usher in the end of lytic-based interventions and intermediate risk PE. The significant investment we have made in our clinical competencies is paying off and we believe our commitment to generating high-quality data will help change the standard of care in VTE. Although this commitment is based upon a sense of responsibility to physicians and patients, it also serves to further differentiate in distance scenario from both current and future competition. Our fourth growth driver is to expand our product portfolio. We have several updates to share here as well. First, ProTrieve has been in full mark release for the past several months.

ProTrieve is a device that provides protection to the heart and lungs during complex DVT procedures involving extensive clot. We are pleased with how the launch is progressing and encouraged by the enthusiastic feedback from physicians. We estimate ProTrieve can be used in approximately 15% of our existing DVT procedures. We believe a large percentage of competitive DVT interventions could also benefit from ProTrieve. The device is generally sold outside of our per procedure pricing at an ASP of $4,000, representing a meaningful revenue opportunity. InThrill is also progressing well in the early stages of full market release. InThrill thrombectomy system designed for small vessels including AV fistula and veins in the upper extremities and below the knee.

We estimate the combined total addressable market is 250,000 to 300,000 procedures per year in the U.S. alone, an ASP of $4,000, InThrill represents an additional $1 billion market. We’re also making progress on the development of our purpose-built chronic venous disease toolkit with an annual incidence of roughly 100,000 patients and a prevalence of over 1 million, chronic venous disease represents the largest incremental unmet need that we are addressing. We know that unlocking this opportunity will require us to leverage the same types of market development capabilities we have established while working in VTE. Next, I want to provide an update on Artix, our system that combines both aspiration and mechanical thrombectomy to treat peripheral arterial thrombosis.

Although this is a mature market, there is still a high reliance on thrombolytics and open surgery. We recently completed the Artix limited market release or LMR. We observed some excellent case outcomes and the system exhibited a pristine safety profile. Despite this, we have decided to implement some improvements to the system based upon physician feedback we gathered during the LMR. We expect the Artix toolkit to reenter LMR in 2024 once this work is completed. We remain committed to addressing important unmet needs in this patient population and will release Artix broadly when it meets the high standards that we and our customers expect. In summary, our pipeline is full, and we anticipate a steady cadence of additional product launches in 2023, a clear reflection of the investment we have made in innovation.

Our last growth driver is expansion into international markets. Q4 marked another quarter of record case in revenue for our international business. Based upon continued growth and relevance, we are pleased to provide a revenue breakout for the first time. Growth in the quarter was 144% over Q4 of 2021 and up 27% sequentially. For the full year 2022, our international business generated revenue of $9.4 million compared to $2.6 million in 2021. Our performance was primarily driven by continued adoption in Europe. On the product front, we were pleased with the recent MDR approval of FlowSaver. Beyond Europe, we also saw a strong case growth during the quarter in our existing markets in Latin America, Canada and Asia Pacific. We recently completed our first cases in Australia, New Zealand and Argentina, and we anticipate additional launches later this year.

In China and Japan, we are continuing to pursue regulatory approval while also exploring our go-to-market strategies. I’d like to close by commenting on my first 60 days as CEO. We completed 2022 with a record Q4, driven by strength across our core business. That momentum carried through into 2023, and we are off to a strong start with January and February among the best months we have ever had. In short, I could not be more excited about the health of our business and the bright future of our company. Our markets are large, the unmet needs are significant, and we have never been more confident in our ability to compete. Most importantly, we are serious about our responsibility to do better for our patients. I have no doubt we can and will grow consistently for many quarters to come.

With that, I’d like to turn things over to Mitch.

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Mitch Hill: Thank you, Drew, and good afternoon, everyone. Inari’s revenues for the fourth quarter of 2022 were $107.8 million, up $24.6 million or 30% from $83.2 million for the same period of the prior year and up 12% or $11.6 million sequentially over the third quarter of 2022. Compared to Q4 of 2021, our revenue growth was due to our continued efforts to open new customer accounts, expand our sales force and deepen our relationship with existing customers. In 2022, we significantly expanded both the FlowTriever and ClotTriever product lines and also begin commercializing the ProTrieve and InThrill products. The revenue split between product lines was similar year-over-year with 32% of our revenue derived from the sale of ClotTriever and other systems during the fourth quarter of 2022 versus 30% in 2021 and 68% derived from the sale of FlowTriever systems compared to 70% in 2021.

Gross margin was 87.8% for the fourth quarter of 2022 compared with 90.1% in the fourth quarter of 2021. The decline was primarily due to the addition of new products to our FlowTriever system toolkit. This adds additional cost of goods sold due to our per procedure pricing model. Operating expenses were $100.5 million in the fourth quarter of 2022 compared with $73.2 million in the same period of the prior year. R&D expense was $20.4 million in the fourth quarter compared with $18.7 million for the same period of 2021. The $1.7 million net increase in R&D expense was primarily driven by an increase in head count offset by a onetime licensing cost in Q4 of 2021 that didn’t recur in Q4 of 2022. SG&A expense was $80.1 million in the fourth quarter of 2022 compared with $54.5 million for the same period of the prior year.

The $25.6 million increase was primarily due to personnel-related expenses as we increased our headcount and secondarily due to higher travel expenses. Net loss for the fourth quarter of 2022 was $5.8 million compared to net income of $1.1 million for the same period of the prior year. The basic and fully diluted net loss per share for the fourth quarter of 2022 was $0.11 based on the weighted average basic and fully diluted share count of 53.6 million. These compare with a basic and fully diluted net income per share of $0.02 based on a weighted average basic and fully diluted share count of 50 million and 55.6 million, respectively, for the same period of the prior year. Shifting to full year 2022 financial results. Inari’s revenues for the full year were $383.5 million, up $106.5 million or 38% from $277 million for the full year 2021.

36% of this annual growth was driven by our U.S. business, while 2% of the growth was generated internationally, primarily in Europe. Compared to 2021, our revenue growth was due to our continued efforts to open new customer accounts, expand our sales force, introduce new products and deepen our relationship with existing customers. Revenue split between product lines was substantially the same year-over-year, with 32% of our revenue derived from the sale of ClotTriever and other systems and 68% derived from the sale of FlowTriever systems. Gross margin was 88.4% for the full year 2022 compared with 91.1% for the full year 2021. The decline was primarily due to the addition of new products to our FlowTriever per procedure model as well as a decrease in operating leverage due to the expanded footprint of our manufacturing operations.

Operating expenses were $367.1 million for the full year 2022 compared with $241.4 million for the full year 2021. R&D expense was $74.2 million for the full year 2022 compared with $51 million for the full year 2021. The $23.2 million increase in R&D expense was primarily driven by an increase in headcount as well as product development and clinical evidence development costs. These initiatives are consistent with our previously discussed growth drivers. SG&A expense was $292.8 million for the full year 2022 compared with $190.4 million for the full year 2021. The $102.4 million increase was primarily due to personnel-related expenses as we increased headcount across the organization and secondarily due to higher travel expenses, marketing costs and professional service costs.

Net loss for the full year 2022 was $29.3 million compared to net income of $9.8 million for the full year 2021. The basic and fully diluted net loss per share for 2022 year was $0.55 based on the weighted average basic and fully diluted share count of 52.8 million shares. These compare with a basic income per share of $0.20 and fully diluted net income share of $0.18 based on a weighted average basic share count of 49.8 million shares and fully diluted share count of 55.6 million shares for the year 2021. Before I move on to the balance sheet updates, I’d like to comment briefly on the company’s full year 2022 operating loss of $28.1 million. Consistent with our messaging during 2022, we invested aggressively in our growth drivers. We’ve leveraged these investments to deliver robust growth, build important capabilities and ultimately better serve our patients.

Earlier in the call, Drew shared the exciting progress we are making growing Inari’s international business. Building this foundation has taken and will continue to take significant investment. In fact, the international business accounted for roughly half of our operating loss in 2022. As we look ahead to 2023, we are working to reduce the rate of operating expense growth while leveraging our previous investments, we expect to show sequential progress related to these efforts as we move through the year. Looking even further ahead to 2024, I’d like to repeat our commitment to achieve sustained operating profitability by the first half of the year. Moving to the balance sheet. Our cash and investments at the end of Q4 totaled $326.4 million, consisting of $60.2 million of cash and $266.2 million of short-term investments.

By way of reference, our cash and investments as of the end of Q3 of 2022 were $319.2 million. Our cash flows used in operating activities were $14 million for the full year 2022 compared to cash flows provided by operating activities of $25.5 million in the full year 2021. Lastly, I’d like to address Inari’s financial guidance. For the full year 2023, I’d like to reaffirm our revenue guidance of $470 million to $480 million. With that, I’ll turn the call back to the moderator for questions. For the Q&A segment Drew and I will be joined by Dr. Tom Tu, Inari’s Chief Medical Officer.

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Q&A Session

Operator: Our first question is from Travis Steed with Bank of America. Please go ahead.

Travis Steed: Hi everybody. Thanks for taking the questions. I guess to start with maybe some comments on Q1. I heard you say January, February, the best months you’ve ever had. But curious if you could kind of break out some of the competitive trialing impact that you saw if you’re comfortable with consensus of $104 million. And then on the 2023 guidance, just curious if you could help break out how you’re thinking about the new product contribution versus share and market growth within the 2023 guidance?

Drew Hykes: Sure. Thanks for the question, Travis. I can handle the — some of the competitive dynamics and what we’ve seen here most recently. And then I think Mitch can probably take the guidance part of your question. Maybe I’ll start just by reminding everybody that this is a $6 billion market that we are operating in, and we believe it’s 6%, maybe 7% penetrated with our technologies. Our focus, as you know, historically, has largely been on market growth, on market expansion, on making the investments we need to make to really begin changing the standard of care for these patients. A point of market growth is worth 10x the point of market share at this rate of penetration. So our focus historically and as we move forward is largely on market expansion.

To the extent we’re having new high-quality rivals and to the market, they can help with that market development effort. And I think that has the potential to be quite valuable and impactful for patients. Having said all that, where we compete head-to-head, we continue to feel very confident in our ability to protect and even extend our existing leadership position. We’ve got a significant head start. We’ve got hands down, the best field team in the market. We’ve got a highly differentiated approach to market development. We’ve got a mountain of clinical data that is growing larger by the day. We’ve got innovative, purpose-built technology and a robust innovation pipeline. I think all of that gives us a lot of confidence we’re going to be able to continue to protect and extend our leadership position.

Specific to Lightning FLASH, we’re six weeks into that product launch. We have seen competitive trialing. We are quite familiar with what a 16-French platform offers clinically. We’ve had that product in our own portfolio for a couple of years now. And the feedback we’re hearing from our team and from physicians is very consistent. 16-French platform, we believe, is underpowered in PE and is going to leave clot behind, and that’s exactly what we’re hearing consistently. On the DVT side, we believe an aspiration only approach is going to leave clot behind for the vast majority of these patients that have chronic well-adhered clot. And again, that’s exactly what we anticipated and exactly the feedback we’re hearing consistently. At the same time, as they’ve moved from a 12-French to a 16-French platform, they’re going to increase exponentially, the amount of aspirational flow and the amount of blood loss that goes along with that.

And despite attempted mitigations, we are hearing consistently of significant blood loss. Tom can talk more about the clinical implications that led blood loss along the way here. But that’s what we’re hearing. And as a result, we have not had a single Inari account that has trialed CAT 16 and converted to Penumbra. So we believe bottom line that the CAT 16 product, the impact will be limited to cannibalizing CAT 12 in existing Penumbra accounts. So maybe I’ll pause there and hand things over to Mitch to address the guidance part of your questions.