Inari Medical (NARI) has filed to raise $110 million in an IPO of its common stock, per an SEC registration statement.
The company sells medical devices to treat vein thrombosis and pulmonary embolism conditions.
NARI has produced impressive revenue growth and net profit as it plans to use most of the IPO proceeds for additional R&D efforts, presumably to expand its addressable market.
My opinion on the IPO is a BUY at up to $15.00 per share.
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 led 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.
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.
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.
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)
- Boston Scientific (BSX)
- Johnson & Johnson (JNJ)
- Terumo Corporation (OTCPK:TRUMF)
- Penumbra (PEN)
- Edwards Lifesciences (EW)
- Argon Medical Devices
- Teleflex (TFX)
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 the firm's recent operational result:
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).
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 to fund product development, expand its existing product commercial activities, 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.
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.
BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 20.3% since their IPO. This is a upper-tier performance for all major underwriters during the period.
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 life science investors, my opinion on the IPO is a BUY at up to $15.00 per share.
Expected IPO Pricing Date: May 21, 2020.
(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)