Inari Medical: Top Buy For End Of 2023 And 2024 (NASDAQ:NARI)

Thesis

Inari Medical (NASDAQ:NARI) has been on my watchlist for some time, and after the recent few quarters, now is an opportunity to buy. I rate this company as a strong buy for the end of 2023 as we move into 2024. The company’s revenue in Q3 2023 was up over 31% year over year, delivered $3.2M in net income compared to a $10.2M net loss the same quarter last year, and ended this previous quarter with $351.3M in cash and investments. The acquisition of LimFlow will provide a potential $1.5B annual opportunity in the United States alone. Sitting at a market cap right at $3B, down 17% year to date, off of its 52-week high of $83.00, and a price to sales (ttm) right at six, I believe this has room to run at least 20% in the shorter term and much higher potential returns over the next three to five years.

Background

Each year, close to 1 million Americans are diagnosed with venous thromboembolism (VTE), a blood clot that forms in a vein, often resulting in disabling pain and poor quality of life. The clot can travel to the lungs, causing a pulmonary embolism, which can be life-threatening. Approximately 100,000 people die from VTE annually. Unfortunately, the disease is often undertreated.

Inari Medical is a medical technology company that specializes in developing products for the treatment of venous diseases. The company was founded in 2013 and is headquartered in Irvine, California. It was established to create innovative products to help physicians improve patient outcomes in treating venous diseases. Inari Medical’s flagship product is a catheter-based system to remove blood clots from the body’s most prominent veins. The company has received FDA approval for this product, which is currently used in hospitals across the United States. In addition to its flagship product, Inari Medical has developed a range of other medical devices designed to treat venous diseases. These include a device for the treatment of pulmonary embolism, a device for the treatment of deep vein thrombosis, and a device for the treatment of chronic venous insufficiency. The company has experienced significant growth in recent years and has become a leading player in the medical technology industry. Its products have been well-received by physicians and patients alike, and the company has received numerous awards for its innovative products and commitment to patient care.

Third Quarter 2023

For Q3 2023, the company crushed its expectations, generating $126.4M in revenue, which marks a significant increase of 31.4% compared to the same period in the previous year. This growth represents product adoption and market expansion. Inari achieved a net income of $3.2M during Q3 compared to a $10.2M net loss in the same quarter of the previous year. The company finished the quarter with $351.3M in cash and investments. Gross profit for Q3 amounted to $111.9M, with a gross margin of 88.5%. Operating expenses for the same period in 2023 totaled $109.8M, representing an increase primarily due to personnel-related expenses, mainly based on stock-based compensation. Operating income for Q3 reached $2.1M, representing an improvement from a $9.8M operating loss in the same quarter last year.

Inari’s performance demonstrates its commitment to advancing its mission, making it a great long-term investment opportunity in the medical technology sector. The company raised its revenue guidance for the full year 2023, now expecting revenue from $490 million to $493 million, an increase of $4.5 million at the midpoint from their previous guidance range of $482 million to $492 million. More excellent details of the quarter results can be found in the company’s most recent 10Q.

LimFlow Acquisition

On the 1st of November, 2023, Inari Medical, Inc., a renowned medical device company, announced its acquisition of LimFlow. LimFlow is a private medical device company whose goal is transforming the treatment of chronic limb-threatening ischemia (CLTI), a severe condition for which there is a growing need due to high mortality rates. The minimally invasive LimFlow System bypasses blocked arteries in the leg to deliver oxygenated blood into the foot via veins, specifically for those patients facing amputation due to no other viable treatment or options. The acquisition transaction involves a cash payment of $250 million, along with additional payments of up to $165 million surrounding certain commercial and reimbursement milestones. The acquisition is expected to close during Q4 of this year. It is set to provide numerous benefits to Inari, including a new addressable market, different revenue growth segments, and offering solutions for patients with severe CLTI. As its commercial launch matures, Inari expects LimFlow to become a meaningful contributor to revenue growth with robust gross margins at scale. LimFlow enriches Inari’s portfolio and adds new capabilities in a large and underpenetrated market. Inari believes that of the over 550,000 people suffering from CLTI in the United States alone, nearly 10 percent of that population has no treatment options aside from amputation. If Inari can provide for this group, this could represent an about $1.5B opportunity annually. Inari also thinks a more significant international opportunity exists for less severe diseases.

Inari CEO Drew Hykes says,

The acquisition of LimFlow is closely aligned with our mission to address significant unmet patient needs and adds another highly differentiated growth platform to our portfolio. The CLTI market is poised for durable growth, driven by compelling technology, outstanding clinical results, and multiple expansion opportunities. As a minority investor and board observer in LimFlow since early 2022, we have seen firsthand the life-changing impact this technology has on patients, as well as how complementary our two businesses are.

LimFlow CEO Dan Rose views the deal as a great opportunity, stating,

By joining with Inari and benefitting from their exceptional resources and capabilities, we expect to be well-positioned to increase access to our technology and advance our shared mission of creating better outcomes for patients.”

All in all, I believe that this will provide another long term growth segment for an area with a significant unmet need with a product that is already FDA approved while expanding the pipeline.

Risks

Numerous risks can be found in the company’s most recent 10K, but some of the most relevant to me are the following:

The market for their solutions is characterized by high competitiveness, with competitors often boasting longer operating histories, more established products, and more significant resources. In the highly competitive medical device industry, subject to rapid change and influenced by new technologies, the company competes in VTE solutions against manufacturers of thrombolytic drugs like Roche and medical device companies producing thrombectomy devices for vascular blockage treatment. Notable competitors include divisions of Boston Scientific Corporation (BSX), Abbott (ABT), Philips (PHG), AngioDynamics (ANGO), and Teleflex (TFX), as well as smaller companies with limited product ranges.

As interest in catheter-based VTE treatments grows, heightened competition is expected, potentially from technologies or therapies demonstrating superior safety, effectiveness, cost-efficiency, or market acceptance. Furthermore, the company may face competition from entities with longer, more established operating histories and significantly larger financial, technical, marketing, sales, and distribution resources, potentially impeding market penetration and financial results. These competitors benefit from established treatment patterns, found healthcare professional relationships, financial and human capital, name recognition, diversified product lines, and the ability to provide competitive advantages through rebates or bundled offerings.

Inari’s business could face adverse impacts from unfavorable macroeconomic conditions. These conditions encompass a range of factors, including changes in inflation, interest rates, overall economic conditions, uncertainties arising from political instability, trade disputes between nations, and global financial market conditions. For instance, a significant increase in business costs due to inflation or other factors may hinder their ability to pass on price increases to customers.

Moreover, fluctuations in interest rates and the accessibility of credit markets could disrupt their customers’ capacity to purchase their products. Macroeconomic factors may also affect the viability of their current or potential future manufacturers, sole source or single source suppliers, licensors, or licensees, potentially hampering their ability to produce components, materials, or services related to their products. Any failure on the part of these suppliers or partners to stay in business could impact the company’s product manufacturing and its ability to meet product demand.

Final Thoughts

For my final thoughts, Inari Medical will be one of my best-performing stocks in the next three to five years. Buying at these levels is an excellent baseline with a significant risk to reward. If the recent acquisition can provide north of $1B in annual revenue, the current price of the company is a steal. This company is bound to be volatile, but I predict I will beat the market in 2024 and over the next five years by holding shares of this company. I am rating Inari Medical as a buy.