A Member of Pat McKeough’s Inner Circle recently asked for his advice on Inari Medical, a company that makes highly specialized medical devices.
Pat likes the firm’s demonstrated revenue growth trajectory and strategic expansion into new markets. The company’s 21.4% year-over-year sales growth is coupled with a successful acquisition that positions it even more strongly in the medical device sector. However, Pat notes the firm is a relatively new IPO.
Inari Medical Inc. (Symbol NARI on Nasdaq; www.inarimedical.com) is a medical device company whose products treat patients suffering from Chronic Venous Disease (phlebitis) and other related issues. Its two main products are ClotTrievers, which remove blood clots from blood vessels, and FlowTrievers, which treat pulmonary embolisms (when blood clots, often in the legs, break off and flow through the veins to cause a blockage).
Inari first sold shares to the public and began trading on May 27, 2020, at $19 a share. The next day, the shares jumped to $42.91. They kept on rising to a peak, about a year later, of $130, and they have since headed steadily sideways to downwards.
On November 1, 2023, Inari agreed to acquire LimFlow S.A., a privately owned French medical device company whose products treat chronic limb-threatening ischemia (CLTI). (That’s when blood flow in the limbs is severely restricted.) LimFlow devices work to deliver oxygenated blood back into the foot through the patient’s veins. That’s important because if left untreated, CLTI leads to increased mortality, limb amputation, and a lower quality of life.
CLTI is also estimated to affect 1.5 million people annually worldwide, with about a third of diagnosed patients in the U.S. It is one of the biggest unmet needs in vascular medicine. LimFlow aligns well with Inari’s mission to treat unmet patient needs.
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Inari will pay $250 million in cash to close the deal, plus as much as $165 million if LimFlow meets performance targets. Inari previously held a minority stake in LimFlow.
Over the last few years, Inari has reported rapidly rising revenue. In fact, revenue jumped 173.4%, from $51.1 million in 2019 to $139.7 million in 2020. In 2021, it climbed another 98.3% to $277.0 million. That was followed by a 38.4% increase in 2022, to $383.5 million. In 2023, revenue rose a further 28.7%, to $493.6 million.
Earnings varied over those years: the company lost $1.2 million, or $0.20 a share, in 2019; in 2020 it reported a profit of $13.8 million, or $0.43 a share; in 2021, earnings were $9.8 million, or $0.20 a share; and in 2022, the company lost $29.3 million, or $0.55 a share. In 2023, Inari lost $1.6 million, or $0.03 a share.
Inner Circle: Inari Medical’s long-term outlook is positive
In the quarter ended September 30, 2024, Inari’s revenue rose 21.4%, to $153.4 million from $126.4 million a year earlier. The increase was driven primarily by an expansion in its sales territories, opening of new accounts, increase in adoption of its procedures, global commercial expansion, and introduction of new products. The company lost $18.4 million, or $0.31 a share, in the latest quarter, compared to a profit of $3.2 million, or $0.06 a share, a year earlier.
The firm spends a high 18% of its revenue on research and development. While research spending hurts current earnings, it creates a hidden asset that helps the company succeed long term against its rivals.
Companies mostly write off their research costs when they spend the money, and this depresses the current year’s earnings. Information on corporate research spending is freely available, yet many investors pay little attention to it. Investors recognize that research can lead to new or improved products or services. But the payoff for these improvements, if any, will come from long-term sales and profit growth.
All in all, Inari’s outlook is positive. Apart from its FlowTriever and ClotTriever devices, the company has developed some complementary products. These include Revcore, a mechanical thrombectomy device, which removes clots, and the T16 Curvecatheter (a thin tube inserted into the body as part of a medical treatment).
Demand for many of its products is on the rise, and the company has expanded its sales force. What’s more, it has lots of room for international growth.
Recommendation in Pat’s Inner Circle: Inari Medical Inc. is okay to hold.
