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Inari Medical is upping its price range of IPO – Thierry Rochelle Private Equity

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Charles Davis
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info@rochelleprivateequity.com

Inari Medical (NARI) has filed a prospectus for its IPO of ~7.3M common shares, increasing the expected price range to $17 – 18 from $14 – 16.

Underwriters’ over-allotment will be an additional ~1.1M shares.
Existing shareholders have indicated an interest in buying ~$20M of the stock.
Inari Medical (NARI) has filed to raise $110 million in an IPO of its common stock, per an amended registration statement.
The company sells medical devices to treat vein thrombosis and pulmonary embolism conditions.
NARI has produced enviable revenue growth and net profit results as it plans to use most of the IPO proceeds for additional R&D plans. The IPO appears reasonably valued so may be worth considering.

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:
ClotTriever – deep vein thrombosis
FlowTriever – pulmonary embolism

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
Three Mos. Ended March 31, 2020
60.8%
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 stable at 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, although decelerating in rate of growth
Similarly high growth in gross profit
High and increasing gross margin
Swing to operating profit
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
Three Mos. Ended March 31, 2020
$ 26,953,000
288.1%
2019
$ 51,129,000
648.7%
2018
$ 6,829,000

Gross Profit (Loss)

Period
Gross Profit (Loss)
% Variance vs. Prior
Three Mos. Ended March 31, 2020
$ 24,247,000
303.2%
2019
$ 45,218,000
715.0%
2018
$ 5,548,000

Gross Margin

Period
Gross Margin

Three Mos. Ended March 31, 2020
89.96%

2019
88.44%

2018
81.24%

Operating Profit (Loss)

Period
Operating Profit (Loss)
Operating Margin
Three Mos. Ended March 31, 2020
$ 4,836,000
17.9%
2019
$ 801,000
1.6%
2018
$ (9,140,000)
-133.8%

Net Income (Loss)

Period
Net Income (Loss)

Three Mos. Ended March 31, 2020
$ 4,112,000

2019
$ (1,192,000)

2018
$ (10,153,000)

Cash Flow From Operations

Period
Cash Flow From Operations

Three Mos. Ended March 31, 2020
$ (679,308)

2019
$ (4,935,902)

2018
$ (10,892,115)

As of March 31, 2020, NARI had $32.4 million in cash and $40.0 million in liabilities, of which $29.5 million was in the form of promissory notes.
Free cash flow for the twelve months ended March 31, 2020 was negative ($7.4 million).
IPO Details
NARI intends to sell 7.3 million shares of common stock at a midpoint price of $15.00 per share for gross proceeds of approximately $110 million, not including the sale of customary underwriter options.
Certain existing shareholders have indicated an interest to purchase shares of up to $20 million in the aggregate at the IPO price. This is a positive signal as to valuation.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $688.4 million.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 15.91%.
Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds as follows:
approximately $60.0 million to fund product development, research activities, and clinical development activities;
approximately $20.0 million to expand our commercial activities, including marketing personnel and programs; and
the remainder for working capital and general corporate purposes.
Management’s presentation of the company roadshow is available here.
Listed underwriters of the IPO are BofA Securities, Morgan Stanley, Wells Fargo Securities, and Canaccord Genuity.
Commentary
NARI is seeking an above average IPO amount for a life science company, although the firm is at commercial stage.
The company’s financials show impressive revenue growth and a recent swing to net profits, though it is still producing negative operating cash flow.
Selling, G&A expenses as a percentage of total revenue are dropping as the firm scales its operations and the Selling, G&A efficiency multiple is stable at a reasonable 1.2x.
The market opportunity for thrombectomy devices is of moderate size and expected to grow at a similarly moderate rate over the coming years.

As a comparable-based valuation, NARI is asking IPO investors to pay a slight discount to Penumbra, another thrombosis device treatment company.
NARI’s growth metrics are far higher but profits much less than PEN’s. In all, the IPO appears reasonably priced given the firm’s growth trajectory.

For further information contact:
Charles Davis
Thierry Rochelle Private Equity
info@rochelleprivateequity.com

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