Inari Medical Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 13 speakers on the call.

Operator

Good day, and welcome to the Inari Medical Incorporated Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. As a reminder, this call is being recorded and will be available on the company's website for replay shortly. And now, I will turn the call over to John Hsu, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to Inari's conference call to discuss our Q3 2023 financial performance and the acquisition of Limflo. Joining me on today's call are Drew Hikes, President and Chief Executive Officer Mitch Hill, Chief Financial Officer And Doctor. Tom Tu, Inari's Chief Medical Officer. This call includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Statements made on this call that do not relate to matters of historical fact should be considered forward looking statements, including statements related to Inari's estimated full year 2020 Revenue anticipated closing of the Linflo acquisition potential strategic benefits of the Linflo acquisition expectations regarding our proposed Acquisition of Limpopo and potential operating performance of Limpopo and are based on Inari's current expectations, Forecasts and assumptions, which are subject to inherent uncertainties, risks and assumptions that are difficult to predict. Actual outcomes and results could differ materially from any results, performance or achievements expressed or implied by the forward looking statements due to a number of factors. Please review Inari's most recent filings with the SEC, particularly the risk factors described in Inari's annual report on Form 10 ks for the year ended December 31, 2022 and subsequent quarterly reports on Form 10 Q 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. Enari undertakes no obligation to update these statements, except as required by applicable law.

Speaker 1

The press releases and slides to accompany this call are available on our website at anarimedical.com. A recording of today's call will be available on Anari's website by 5 P. M. Pacific Time today. With that, I'll turn the call over to Drew.

Speaker 2

Thank you, John, and thank you, everyone, for joining us today. We're pleased with our Q3 performance. We generated record revenue and executed crisply across all our growth drivers. 1st and foremost, Growth was driven by continued strength in our core VT business, along with meaningful contributions from our international business And new products. Indeed, our end markets are large and remain highly underpenetrated and we continue to see healthy procedure volume underlying the DTE market.

Speaker 2

From a profitability perspective, we continue to make steady progress, returning to positive operating income for the first time since Q4 of 2021. We also generated positive net income for the 2nd consecutive quarter. We continue to build on our significant base of clinical evidence, Making progress across our 3 RCTs, while publishing the FLAME study results. As our Q3 results demonstrate, We remain the clear market leader in DTE and our future growth prospects have never been more compelling. Building on this strength, We are opportunistically broadening our capabilities to address significant new market opportunities via the LimbFlow acquisition,

Speaker 1

which we

Speaker 2

will discuss later in the call. Most importantly, Lympho is aligned with our patient first philosophy. This will be reflected in a story highlighting the impact limb bookings have on the significant unmet need of no option patients with chronic limb threatening ischemia or CLTI. Back to the quarter. I'd like to start with a summary of our Q3 financial performance.

Speaker 2

Revenue in Q3 was $126,400,000 up 31% year over year. Our international business generated revenue of In addition to our top line performance, we also made steady progress during the quarter on our bottom line and returned to operating profitability for the first time since 2021. This achievement underscores our commitment to invest strategically in the business, while also driving operating leverage, with revenue growing at double the rate of OpEx in the quarter. During Q3, we also made progress across our 5 growth drivers. Our first growth drivers are expanding our U.

Speaker 2

S. Commercial footprint. We added more headcount in Q3 and remain on track to meet our year end goal. We continue to generate operating leverage and productivity gains from a more measured pace of territory development. Our broad commercial footprint and methodical approach to expansion results in focused areas of coverage, positioning us well to introduce new products to the market and to execute on our second growth driver, Increasing penetration of existing accounts.

Speaker 2

VTE Excellence is a highly differentiated, comprehensive and repeatable approach to help hospitals establish VTE programs and drive deeper penetration of our therapies. We remain in the very early innings of market penetration and we continue to see tremendous value and a programmatic approach to ensure patients are consistently identified, screened and evaluated by a VTE expert. We continue to make progress and are successfully moving customers along the VTE excellence to more advanced phases of program development, where TAM penetration is 3 to 4 times higher than in earlier phases. Our 3rd growth driver is to increase awareness and adoption for Inari's products by building on our broad base of clinical evidence. In the Q3, we continued advancing both the quality and quantity of our clinical data.

Speaker 2

First off, as we anticipated, The FLAME study was published on October 17 in the journal Circulation Cardiovascular Interventions. With the recent publication, we expect to see further awareness of this important study and physicians taking notice of the FLAME data, which is already beginning to change practice patterns. We believe the highly positive results of FLAME in extremely sick patients is powerful enough to build physician confidence for intervening on less sick, Intermediate risk patients spilling over into a patient population that is 5 times larger. Turning to an update on our RCTs. Patient enrollment in our PURELISS 1 RCT comparing FLOTREVER to cathode directed lytic therapy remains strong and has eclipsed the 3 quarter mark during Q3.

Speaker 2

We anticipate a data readout in 2024. For PURELISS 2, the RCT for intermediate risk PE patients randomizing treatment with flow through with ranticoagulation We remain focused on site activations and expect patient enrollment to commence in early 2024. Lastly, we continue to ramp up enrollment in Defiance, the RCT comparing clot retriever to anticoagulation alone, Executing 3 simultaneous RCTs, which will collectively enroll up to 1700 patients, clearly reflects our commitment to generating high quality clinical data. We will leverage these data to change the standard of care for VTE. Our 4th growth driver is to expand our product portfolio.

Speaker 2

We continue to make progress across the 6 products that are in full market release in the second half of twenty twenty three.

Speaker 3

3

Speaker 2

of these products, Revcore, Enthrill and ProTree add direct incremental revenue opportunities. We've gained good initial traction and are receiving excellent clinical feedback across all three products and we still see tremendous opportunity to keep building awareness and usage across our customer base. The other three products, which are now in FMR, enhance our existing purpose built toolkits, demonstrating continued innovation in our core VTE portfolios. Both products are T16 Curve and the 2 products that have most recently entered FMR, Klotriever XL And the Generation 2 version of Klotriever Bold. Klotriever XL extends the treatment range of the Klotriever platform, which together can now target a range of clocchronicity from the vena cava to the popliteal vein.

Speaker 2

The Gen 2 Clot River Bowl delivers the same stellar performance for clot clearance With greater ease of use and procedural efficiency, these 6 products in FMR are a testament to a robust pipeline and commitment to addressing unmet needs with purpose built tools. Our last growth driver is expansion into international markets. Q3 marked another quarter of record case and revenue production outside of the U. S. Our performance was driven primarily by increased adoption in Western Europe, complemented by solid case growth in our early stage markets in Latin America, Canada and Asia Pacific.

Speaker 2

We continue to make good progress in both China and Japan and anticipate beginning to treat patients in both of these markets in 2024. We will have more to share on our go to market strategies in these two important markets over the coming quarters. Given the spectacular unmet need, we expect our international business could represent greater than 20% of total revenue over time. And now, I'll turn it over to Mitch to discuss our Q3 financial performance in greater detail.

Speaker 3

Thank you, Drew, and good afternoon, everyone. Anay's revenues for the Q3 of 2023 were $126,400,000 up 31% over the same period as prior year. The revenue split between product lines is similar year over year with 60% of our revenue derived from the sale of FlowTriber Systems Compared to 69% in 2022 and 32% from the sale of Clotriever and other systems Compared to 31% in 2022. In addition to our strong commercial execution in the quarter, we recently signed a lease to expand our operations footprint With a facility in Costa Rica, it will take some time to develop the location. We expect this investment to provide additional manufacturing capacity while also supporting our premium gross margin profile.

Speaker 3

Turning to the P and L, gross margin remained flat At 88.5 percent for the Q3 of 2023 and the Q3 of 2022, operating expenses were $109,800,000 in the 3rd expense was $21,500,000 in the Q3 of 2023 compared with $19,100,000 for the same period of 2022. The $2,400,000 increase in R and D expense was primarily driven by an increase in material and supplies expenses And secondarily, due to higher personnel related expenses as we increased our headcount. SG and A expense was $88,300,000 in the Q3 of compared with $75,800,000 for the same period of the prior year. The $12,500,000 increase was primarily due to personnel related expenses as we increase our headcount and secondarily due to higher expenses related to professional fees. Operating income was $2,100,000 in the Q3 of 2023 compared with a $9,800,000 operating loss for the same period in the prior year.

Speaker 3

This performance reflects our team's commitment to disciplined spending controls, while fully funding our commercial, clinical and innovation growth drivers. Net income for the Q3 of 2023 was $3,200,000 compared to net loss of $10,200,000 for the same period in the prior year. The basic and fully diluted net income per share for the Q3 of 2023 was $0.06 0.05 Based on weighted average basic and fully diluted share count of 57,400,000 58,600,000 respectively, These compare with a basic and fully diluted net loss per share of $0.19 based on a weighted average basic and fully diluted share count of $53,500,000 for the same period of the prior year. Moving on to the balance sheet, our cash and investments at the end of Q3 totaled $351,300,000 consisting of $89,200,000 of cash and $262,100,000 of short term investments. This compares with cash and investments as of the end of Q4 of 2022 of 326,400,000 Our cash flows provided by operating activities were $15,900,000 for the Q3 of 2023, Compared to cash flows used in operating activities of $13,100,000 in the Q3 of 2022.

Speaker 3

Lastly, I'd like to address Enari's financial guidance. For the full year 2023, I'd like to note that we are increasing our revenue guidance to $490,000,000 to $493,000,000 an increase of $4,500,000 at the midpoint relative to our prior range. Now I'd like to turn it back to Dew to discuss our acquisition of Lympho.

Speaker 2

Thanks, Mitch. We are thrilled to discuss Lennar's acquisition of Lympho, A pioneer in limb salvage for patients with CLTI,

Speaker 4

which is one of the

Speaker 2

most significant unmet needs in all of vascular medicine. We made a minority investment in LimbFlo and became a Board observer in early 2022. We have long respected the LimbFlo team and their progress in transforming the treatment paradigm of CLTI. We're looking forward to welcoming Lympho to the Inari family. Most importantly, the acquisition aligns with Inari's mission of addressing large unmet patient needs.

Speaker 2

Limplo's novel purpose built technology is Full FDA approval is supported by high quality clinical data and is commencing launch into a significant incremental TAM. We're confident we can leverage the core competencies we've developed in VTE to make Lympho a success and can do so without distracting ourselves from our ongoing work in PE and DBT. For all these reasons, we view the acquisition as a great strategic fit for our business. We'll discuss each of these elements in greater detail. Executing this transaction is a significant milestone for Inari.

Speaker 2

It reflects the rock solid performance of the core business, which has enabled us to capitalize on this compelling opportunity from a position of strength. Our business is thriving and our relentless focus on execution allowed us to deliver robust revenue growth in Q3 alongside disciplined OpEx control. Further, we're announcing this transaction on the foundation of a robust balance sheet. Since our IPO, We've been focused on maintaining a strong cash position, while being good stewards of capital. That discipline has put us in a position to pursue this acquisition.

Speaker 2

Despite the exciting opportunity to enter the CLTI market, I also want to emphasize that we remain fully committed to our mission to improve outcomes of VTE patients and firmly believe we can continue our work in VTE while also taking on this acquisition. Our team's tireless efforts and dedication to this mission Have positioned us to pursue this acquisition with a partner that is equally committed to creating innovative solutions to address unmet patient needs. Before diving into a more detailed look at Lympho, I'd like to share, as we always do, a patient story that underscores the dramatic improvement that this technology delivers. In 2019, a 78 year old man had to have his right leg amputated due to CLTI because there were no other options available to him. A short time later, he also developed rest pain and gangrene of his left foot.

Speaker 2

Angiography demonstrated highly occluded and calcified peripheral arteries With no suitable anatomy for bypass or intervention. Facing a second amputation, he was desperate for a better option. This patient's interventionist provided him with a new treatment option, performing a novel transcatheter arterialization of the deep veins or CAD V with the Lympho system. The simple percutaneous procedure rerouted arterial blood to the patient's intact venous system, Restoring healthy perfusion to his foot. Post procedure, his ischemic pain resolved and over time his foot healed completely.

Speaker 2

Thanks to Lympho. He was able to keep his leg and avoid the extremely dire prognosis associated with being wheelchair bound. Lendflo quite possibly saved this patient's life. The profound clinical impact from one of the first patients treated with this novel technology Underscores the ability of a purpose built toolkit to address a tremendous unmet patient need. The story also highlights common themes with Inari's core VT platforms, A differentiated solution utilized by our same physician call point that delivers an effective and life changing improvement for the patients being treated.

Speaker 2

As I just outlined in the patient story, living with CLTI is quite challenging and the most advanced stages of disease carry morbidity and mortality burden. CLTI is a global health care crisis impacting more than 1,500,000 patients each year globally, Approximately 560,000 of which are in the U. S. There are approximately 150,000 non traumatic Hema related amputations annually in the U. S, which lead to high mortality rates, repeated hospitalizations and significant medical costs.

Speaker 2

With no other options currently available, Lympho was designed to provide a solution for these patients. In terms of sizing the opportunity for Inari, of the 560,000 patients suffering from CLTI in the U. S. Each year, We estimate approximately 55,000 patients have disease that has progressed to the point where they have no treatment options other than amputation. These 55,000 patients have approximately 70,000 limbs that are immediately addressable with the TABC system.

Speaker 2

Applying our target ASP against this figure results in a $1,500,000,000 TAM. Beyond this immediate no option U. S. Addressable market, we believe there are 2 opportunities that offer the potential for significant expansion. First, We see opportunities to target U.

Speaker 2

S. Patients with less severe disease, which we believe will expand the TAM by about 500,000,000 We also agree there is a significant opportunity to commercialize Winflo's device internationally, which we believe would further expand the TAM by $2,000,000,000 By pursuing these additional growth avenues, longer term, we see a path to upside expansion of LimbFlow's global TAM to over $4,000,000,000 Next, I'd like to provide an overview of the purpose built technology that is enabling this game changing CAD B procedure. The Lympho system consists of multiple purpose built components, including specialized catheters to enable the below the knee artery to vein crossing, a differentiated push valuatome and covered stents. In the TAAD B procedure, the toolkit is used to reroute arterial blood into the healthy venous system to deliver oxygenated blood back into the foot. The technology has been proven to save limbs by healing wounds and preventing amputation.

Speaker 2

LYNPFLO has already generated compelling clinical evidence across multiple trials to demonstrate the safety and effectiveness of its treatment. Of note, the landmark PROMISE 2 study was published in the New England Journal of Medicine In March of 2023, this trial demonstrated 76% of no option CLTI patients were able to keep their leg Now I'd like to go over the compelling strategic rationale underpinning this transaction. Our ethos and mission are focused on addressing significant unmet needs and thinking big. Lympho is equally committed to the same important ideals in perfect alignment with Inari's mission. Lympho has several attractive attributes from a regulatory, IP and reimbursement standpoint.

Speaker 2

The system is fully PMA approved and the only on label device for no option CLTI. As the first mover in the market, Lendflo has a robust IP portfolio and there are significant barriers to entry for new entrants. The key elements of reimbursement are in place with an established path to enhanced payment in multiple sites of service. The transaction expands our total addressable market into an area with significant revenue and profit Building on this foundation, LEMPLOY is a natural fit with our specific commercial expertise, Clinical capabilities, market development playbook and ability to iterate new products. We believe that leveraging Inari's core competencies We'll make a meaningful impact on LimbFlo's trajectory and ultimately allow us to treat more patients faster.

Speaker 2

Importantly, we are confident we can integrate and execute on the Lympho opportunity while maintaining the same momentum and focus on VTE. LEMPLO will be commercialized using an independent sales organization completely separate from VTE. This team will pursue a narrow and deep commercial strategy focused on a relatively small number of high volume CLTI centers. Following FDA approval in September, We believe Lympho became a must add technology for all Lymph Salveck Centers of Excellence capable of differentiating and growing these programs. Despite the largely independent sales effort, we believe there are significant similarities between Lympho and the market development work Inari does every day in the chronic venous disease space.

Speaker 2

We also anticipate synergies when we reenter the acute limb ischemia market with Ardix next year. Taken together, Lymphlo will offer compelling additional growth opportunity for Inari and has the potential to be an important component of our overall revenue mix. Framing the opportunity, one could use our commercial ramp in VTE as an analog. After 7 years of commercial effort, We have currently reached approximately 7% penetration in our $6,000,000,000 U. S.

Speaker 2

VTE market. No option CLTI is a similarly large underpenetrated $1,500,000,000 U. S. TAM with equally compelling unmet needs. We believe over the medium term, We can achieve similar penetration in CLTI as to what we have accomplished in VTE.

Speaker 2

In fact, We're optimistic that we may be able to ramp faster in CLTI given the more concentrated customer base, the no option nature of these patients and the high quality published evidence we will be able to leverage right from the start of the launch. Lympho is commencing its U. S. Commercial ramp. Sales reps are hired, fully trained and beginning to sell.

Speaker 2

Limplo's TADZI toolkit offers a clear first mover advantage as a fully FDA approved product and the only on label device for no option CLTI. The team will be able to efficiently drive adoption given the concentration of procedures among a relatively small number of LTI Centers of Excellence. In conclusion, we are excited to bring Lympho's clinically differentiated technology in house. The acquisition aligns with our mission to address unmet patient needs, offers an additional growth driver in a significant incremental TAM and leverages the core competencies we honed in our successful commercial ramp in the VTE market. We believe Lympho will make an incredibly positive impact not only on patients, but also our business.

Speaker 2

I'll now turn it back over to Mitch to discuss the deal terms and financial considerations.

Speaker 3

Thank you, Drew. Starting with the deal terms, our agreement to acquire Lendflo includes a payment of $250,000,000 paid in cash at close, which is expected to occur in the Q4 of 2023, plus additional contingent consideration of up to $165,000,000 in cash Based on the achievement of certain reimbursement and commercial milestones with the potential to be paid over the next 3 years, The earliest potential milestone payment under the agreement is due in 2025. Enari closed Q3 with just over $350,000,000 of cash and cash equivalents and currently has access to $75,000,000 in liquidity from an asset based credit facility. Our strong cash position has allowed us to be nimble as it relates to various strategic opportunities and will enable us to fund our acquisition of Linnflo. As Drew mentioned earlier, one of the core elements of our strategy since the IPO has been to operate with a strong balance sheet, and we will continue to evaluate opportunities to further strengthen it.

Speaker 3

Turning to the financial highlights of the transaction. As you heard Drew describe, we believe Lendflo has significant revenue growth potential. We anticipate initial operating support for Lendflo's commercial launch of Approximately $2,000,000 to $3,000,000 per month. As Linflow's revenue begins to ramp throughout 2024 and into 2025, We believe it will increasingly cover its expenses, reducing the impact on our operating income. Regarding profitability, We will continue to invest in our growth drivers in a disciplined manner, while leveraging our commercial infrastructure.

Speaker 3

As a reminder, at our September 2022 Analyst Day, we committed to achieving sustained operating income by the first half of twenty twenty four. We continue to take this commitment seriously. And based on our Q3 results, we are a bit ahead of schedule. On a pro form a basis with the acquisition of Bloomflow, we now expect to reach Sustained operating profitability in the second half of twenty twenty five. In summary, we're pleased that Anari is in a strong And with that, I'll hand the call over to the moderator for Q and A.

Operator

Thank you. We will now begin the question and answer session. In the interest of time, please limit yourself to one question and one follow-up. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Calum Titchmarsh from Morgan Stanley.

Operator

Please go ahead.

Speaker 5

Yes. Thanks guys for taking the question. Could you maybe help us if you can understand how much of the growth seen in the quarter came from high utilization levels in existing accounts versus new account additions? And then any color on how you think these two drivers could shape up into 2024 as the competitive

Speaker 2

Yes. Thanks for that, Cal. Most of the growth Almost entirely comes from existing accounts at this point. We're in 1500, 1600 active accounts. We continue to open some new accounts each quarter, but that's certainly plateaued compared to years ago.

Speaker 2

As a result, the growth, The case volume is coming from existing accounts and that trend will only continue to tilt in that direction going forward. That By the way, it's exactly what our VTX Excellence program is designed to focus on, is driving penetration and adoption of existing accounts at developing a programmatic systematic approach to these patients. So We feel well positioned to continue to drive that trend even faster than what you've seen up to this point.

Speaker 5

Great. And then just one follow-up, if I may. I know a competitor in the field released some data early last week illustrating that a certain CDP platform could potentially offer Superior safety profile compared to FLOTREVA in PE patients. I was wondering whether maybe Tom you could provide some of your thoughts on this data set and then any doc feedback you've had if any.

Speaker 6

Thanks for the question, Calum. I think firstly, if you look at CDT Utilization rates over time, they've done nothing but decrease quarter after quarter for the past several years. That's because the market has already decided That it's time to move on from lytic based therapies to mechanical thrombectomy. The data set that was provided Really wasn't a trial. It was a retrospective analysis.

Speaker 6

A lot of questions about selection bias. Even supporters of that technology asked a lot of very challenging questions of the validity of that data set, Mostly because the conclusion was something that's completely unlike our clinical experience. In no other technology does lytic based platform provide less bleeding than a non lytic based platform. So I think we've seen incredible skepticism from our customers so far.

Speaker 5

Great. Thanks for the color.

Operator

The next question comes from Larry Biegelsen from Wells Fargo. Please go ahead.

Speaker 7

Good afternoon. Thanks for taking the question. Congrats on the acquisition. The clinical data for LimbFlo is Quite impressive. All right.

Speaker 7

So a lot to ask here. Drew, I guess just I just want to confirm here the penetration of 7%, That's by year 7, so $15,000,000 a year or $100,000,000 call it in year 7, dollars 15,000,000 per year, including 2024, maybe just help level setups and make sure I heard everything correctly, please.

Speaker 2

Yes. So what we're trying to point out Larry in the prepared remarks there, we're to frame what we see as The medium term revenue potential for, lympho and we were using the penetration that we've achieved over the last 6 or 7 years in VTE, which now stands at 7% as a proxy for what we believe we'll be able to achieve As we began launching into the CLTI TAM of $1,500,000,000 In some ways, we think we're going to be able to potentially go faster Then we've been able to drive penetration VTE. That's because after all these patients are no option. They literally have no option other than amputation. It's a much more concentrated account base of high volume centers than what we faced in VTE.

Speaker 2

And on top of that, we're going to have high quality clinical evidence that we did not have available to us in VTE right out of the gate published in the New England Journal of Medicine. So we think that's a good proxy for the kind of revenue potential that we see with Linflo. And And over the medium term, we think we're going to be able to drive the penetration, if not the same levels we've achieved in VTE north of that.

Speaker 7

The $15,000,000 in $24,000,000 is that the right way to think about it?

Speaker 2

Yes. No, I don't think that's the right way to think about it. So we're just commencing The U. S. Launch right now, the Linflo team is.

Speaker 2

I think in many ways 2024 will be a year of foundation building. It will be a year of training, A year of establishing back approvals of getting the foundation established for the broader launch. We have not put a revenue number for LimbFlow in 2024. I think as we roll out our formal 2024 guidance, Presumably early next year, we'll try and put some more context around where we see Lympho contributing. But I think it'll be a relatively modest contribution Here in this 1st year of their full commercial launch.

Speaker 7

Thanks. And then Tom, just one follow-up on lympho for you. So what we've heard is that it's a relatively long procedure, call it 2 hours and a relatively long recovery time. So my question for you is, do you guys see would you agree and do you see opportunities to improve that over time? Thanks for taking the questions.

Speaker 6

Thanks for the question, Larry. Absolutely, I think one other statistic about the procedural aspects worth mentioning is the 99% technical Training, education, more experience as well as perhaps technical improvements. We're very pleased to see right out of the gate early users can achieve The kind of fantastic results that were demonstrated in the New England Journal article.

Speaker 7

All right. Thanks guys.

Speaker 5

Thanks, Larry.

Operator

The next question comes from Bill Plovanic from Canaccord. Please go ahead.

Speaker 8

Great. Thanks. Good evening and congratulations on the quarter and the deal. In terms of the core business, I think the question we're all asking is, and it seems like the quarter is telling us is, is trialing over?

Speaker 3

What are you seeing

Speaker 8

in the field from trialing today? Kind of are we past that from that competitive standpoint? And then just on a more granular level is, you gave us the international, but was the core business Up sequentially or was that all driven by new products in international?

Speaker 2

Yes. Thanks for the question, Bill. So we did see some trialing kind of spillover into Q3, but as we had anticipated, I think much of that activity is behind us at this point. And the business performed really well. We saw strength across the business.

Speaker 2

We saw Strong procedural growth in both PE and DVT in the U. S. That obviously continues to make up the bulk of the growth and the bulk of The revenue, we saw strong growth in that area. We saw continued contribution from new products and new TAMs, Enthrill and ProTrieve and Revcor, all contributing to the quarter, but certainly much more modest compared to the core VTE and then Another strong quarter of growth internationally, across the board, again, led by Western Europe. So We saw strength across the board that all contributed to a really nice solid Q3, 31% growth on the top line.

Speaker 2

And Next to that, some really nice continued progress on our path to profitability and our disciplined approach to OpEx investment.

Speaker 8

Sure. And then on the guidance is, 4th quarter guidance is flushing out at about 22% year over year. You've been running hot at 30% for the year roughly, if all three quarters combined and up and down, but right around there. Why what's the reasoning or thought process behind that deceleration as we head into the Q4?

Speaker 3

I think, Bill, we just want to make sure that we're very confident in the guidance that we provide for Q4. And there's obviously some fluctuations here as we reach the end of the year and there's some holiday time and some of the things that factor into our thinking about that. But primarily, it's just one of wanting to feel comfortable with the numbers we provide to The Street.

Speaker 8

And I'd be last question, I promise, remiss not to ask on the lympho. Just I think a couple of times you've mentioned the reimbursement. What's the wood you need to chop on the reimbursement side to kind of get that all settled out? And thanks for taking my questions.

Speaker 2

Thank you. Yes. Thanks, Bill. So, lympho does have established reimbursement, both inpatient as well as outpatient. So that's in place today.

Speaker 2

There's DRG codes inpatient where we believe the majority of procedures will occur here. That was certainly the case, For instance, in their PROMISE 2 study here in the U. S. So that's in place and will allow a foundation for us to build on. We do have line of sight to enhanced reimbursement inpatient via the potential for an NTAP, which would take effect late next year, as well as line of sight, to enhance reimbursement in an outpatient, via the potential for a Newtek APC.

Speaker 2

So both of those would be additive on top of the existing reimbursement that's already established in those two respective sites of service.

Operator

The next question comes from Marie Thibault from BTIG. Please go ahead.

Speaker 9

Good evening. Congrats on a great quarter and congrats on the LimbFlow deal as well. I wanted to ask here a little bit more on the LimbFlow side. You mentioned Gents, operating support $2,000,000 to $3,000,000 per month. Do you expect that to ramp throughout 2024?

Speaker 9

So is that just sort of a starting point? And can you remind us of the margin profile on that device based on existing sort of ASPs and reimbursement assumptions?

Speaker 3

Hey, Marie. I appreciate the question. The $2,000,000 to $3,000,000 a month that we mentioned is actually a number that we expect would decline as we move throughout 2024. The exact pace of that drop, we're not quite sure. As Drew mentioned earlier, we're still putting together and working on The revenue sort of planned for 2024, but that's a number that we would expect.

Speaker 3

Ultimately, they'll begin to kind of cover some of their own costs And then that number would decline in 2024 and into 2025. From a margin profile point of view, I think it's best to kind of think about that In terms of the overall blended gross margin of Inari, so this would be inclusive of the Linflo product. And that's the one that I can tell you, we're still comfortable kind of guiding to that mid sort of 80s percent gross margin For the company, so as we did 88.5% in the current quarter, we expect the gross margin of Enari as a consolidated We will decline a bit over time, primarily due to the international growth of the business. So the new product kind of additions to it has some effect, But not a significant effect.

Speaker 9

Okay. That's really helpful, Mitch. Thank you. And then a second question here on sort of the core business and the OpEx outlook. You've done Very nice job of controlling spend there.

Speaker 9

How are you thinking about sales force on the core market? You've got a lot going on with both BT and PE and some of the new products, are you nearing sort of what you view as peak sales force levels? Is there a lot more expansion to do, Cutting up of territories, how do you think about that holistically?

Speaker 2

Yes, Marie, I think we continue to see runway out ahead of us to continue to add To that team, we've certainly added each and every quarter in 2023 and I think we would anticipate adding As we move through 2024 as well, I do think the pace of those ads are beginning to slow at least relative to some of the huge classes we've added So I do think we're modulating the pace of those ads. But given The penetration we're currently at and the runway out ahead and the need to not only focus on VTE, but also Begin doing work around some of these other new TAMs be it within Thrill and ABF or the work we've begun doing in chronic venous disease with Revcor, Looking over the horizon the next year reentering the arterial market with Ardex, all that I think also points to The need for continued adds to the field team.

Speaker 9

Sure. Sounds like you'll be very busy. Thank you so much.

Speaker 2

Thank you.

Operator

The next question comes from Adam Maeder from Piper Sandler. Please go ahead.

Speaker 10

Hi, guys. Good afternoon and thank you for taking the questions here. Congrats on the quarter and the deal. I want to start on nimflo and And was actually hoping to get some more detail on the sales force that you're bringing over. How many reps are, I guess, coming on board?

Speaker 10

How much overlap is there with your existing customer base? It feels like it's a good fit with the existing Call Point, but was hoping you could expand on that. And then lastly, why not let the core sales team also offer the Lympho product. And then I had

Speaker 2

a follow-up or 2. Thanks. Yes. Thanks for that, Adam. So to start, Lympho just got FDA approval, PMA approval back in September.

Speaker 2

They've got an initial team that has been recruited and trained and onboarded, fully trained And they are commencing the U. S. Launch as we speak. That number is something in the neighborhood of a dozen sales professionals. Right now on the team, we obviously would anticipate adding to that group as we go forward.

Speaker 2

The overlap with the call point, I think you're absolutely right. There is a significant amount of overlap across the folks. We anticipate Performing the lymph flow procedure with our historical call points in DVT and PE. It's a combination of astro surgeons and IRs and ICs, The exact same group we've been focused on historically. So there is some nice overlap there.

Speaker 2

To answer the last part of your question, we believe out of the gate here This technology deserves the kind of focus and dedication of a dedicated field organization. It's a non emergent procedure and it's also a fairly concentrated group of high volume CLTI, limb salvage centers of excellence. So I think a dedicated sales organization we can have it be a pretty manageable in scope and still get the job done. So I think for now we're anticipating this will stay a separate sales organization focused On LimpFlow, I will keep the mothership sales organization focused on VTE. I do think there's some really potential synergies and efficiencies with some of the work we've begun doing from a market development standpoint relative to chronic venous disease.

Speaker 2

You've heard us talk in the past about the market development specialist team that we've deployed to begin to understand how to identify chronic Venous disease patients who are out being cared for in wound care centers and in some cases primary care, podiatry. Those are the same places where we believe many of these no option CLTI patients are also being cared for. So you can imagine some obvious synergies in some of that work, which I do think will cross over between the two sales organizations.

Speaker 10

That's great color, Drew. Thank you for that. And I guess for my second question, I'm going to actually sneak in a third here. Just one clarification that the TBT and the NTAP that came up, I guess I wanted to clarify that. Have you or the lymph flow team submitted for those?

Speaker 10

And you think there's a good likelihood of those being accepted and going into effect next year? I just wanted to clarify that. And then for the follow-up question, Just any kind of early thoughts on the, the BTE market as we look ahead to 2024 and potential pace of growth for the category? Thanks again.

Speaker 2

Yes. So on your first question on TPT, yes, the Linflo team has submitted For both Newtek, APC as well as NTAP. So those submissions are underway. They would take effect here most likely next year in 2024. We're confident or optimistic that those will come through, but until you actually get the approvals, there is some uncertainty there.

Speaker 2

Keep in mind, they do have established reimbursement already and those would additive or incremental on top of that. In terms of your second question on the underlying growth rate, I think the market is as healthy as we have seen it. Really robust growth, increased awareness, lots of really good traction momentum from an overall market standpoint. And obviously, We think our efforts on BT excellence and clinical data are driving some of that market growth. No reason for us to expect Any change in that as we look out from here, as we roll out our formal 2024 guidance, we'll certainly put some context around The market, but as we exited Q3 here, really nice healthy market backdrop.

Speaker 2

Thanks, Drew. Thanks, Al.

Operator

The next question comes from Mike Sarcone from Jefferies. Please go ahead.

Speaker 11

Hey, good afternoon and thanks for taking my questions. I've got some two follow ups on the Lympho acquisition. The 12 reps to start, You mentioned you anticipate adding to the group going forward. I was just wondering what is the sufficient amount of reps to To address that initial $1,500,000,000 U. S.

Speaker 11

Opportunity and is that $2,000,000 to $3,000,000 of Cost that you expect to decline over time, does that incorporate the expectation for additional reps for Linflo?

Speaker 2

Yes. The $2,000,000 to $3,000,000 certainly incorporates our anticipated investment in the field organization. Like I said, we're someplace in the neighborhood or Limb flow is someplace in the neighborhood of 12 reps today. Keep in mind, this is a much more concentrated market landscape than what we've faced in VTE. We think there's maybe a couple of 100 High volume, limb salvage CLTI centers of excellence in the U.

Speaker 2

S. And these are non emergent cases. So as a result, I don't think we would anticipate needing to build anywhere near the size of the channel that we have established in VTE. Hard to put a number on it this early in the process, but I think some of those dynamics are certainly worth considering. And I think it will certainly be Much smaller in scope to what we've established and built on the VTE business.

Speaker 11

Got it. Thank you. And just to follow-up on, not to get ahead of ourselves here, but the incremental opportunities for less severe CLPI patients and the OUS opportunity, what do you think about timing on those efforts and when could we We hear more start to see contributions on that front.

Speaker 2

Yes. I think those are both likely longer term opportunities for us. The expansion to less sick, less severe CLTI would likely involve a study and likely another PMA path Regulatory approval into Rutherford 4 patients, some of that may happen on its own, off label. But for us to get an on label indication for that would require some additional clinical work and navigating back through a regulatory path. Likewise, international certainly a spectacular unmet need with the same population as we look internationally.

Speaker 2

But work to do there certainly from a reimbursement standpoint 1st and foremost. So we will assess and begin work likely in both of those areas, but I think Pragmatically speaking, both of them are likely a longer term opportunity for us over time.

Speaker 11

Okay. Thank

Speaker 3

you. Thank you.

Operator

The next question comes from Richard Newitter from Truist Securities. Please go ahead.

Speaker 12

Hi. Thanks for taking the questions, guys. A couple for me. Maybe just starting with Lympho. Congrats on the deal.

Speaker 12

I may have missed this in juggling calls. Did you mention anything about how this will impact the profit profile Dilution and modest revenue, I think I heard modest revenue contribution in 2023, but what about on the profitability?

Speaker 3

Sure, Richard. It's Mitch. I appreciate the question. We previously, as you know, talked about operating profitability in the first half of twenty twenty four. This is for Inari.

Speaker 3

And I'm not sure if you caught it, but we actually reported an operating profit here in Q3. So we feel like we're a little bit ahead of schedule. We may have some fluctuations in Q4 and Q1 of upcoming, but that's kind of been the game plan for the core business. When we layer the Lympho acquisition on top, because of this $2,000,000 to $3,000,000 a month of cash support that you've heard about a couple of times during this call, We need to move the sort of the operating profit target for the combined business out into the second half of twenty twenty five. That's our So hopefully that's helpful to your question.

Speaker 12

Okay. Yes. No, that's very helpful. And then, just I think there's been some confusion out there with how the pricing models Work with what's in your bundle, what's not as you've started to add a number of new products to the portfolio. I was just wondering if you could Maybe help clarify for investors how what the different pricing models are and which of the newer More recently launched products are factoring into the bundle that are outside of the bundle.

Speaker 12

I just think that could benefit the Investment community, hearing a little bit more about the mechanism of pricing and those new products fitting into the procedure pricing model. Thanks.

Speaker 2

Sure, Richard. So I think you likely understand in the FlowTriver part of our business That has always been under historically a per procedure price model that covers essentially the entire Flow Trever toolkit. On the Clock Trever side, the majority of our, Clock Trever accounts are still on a SKU based approach where we're pricing The clothear sheath and the clothear catheter separately. Some of the new products, I think this is where some of the confusion or questions come from. Some of our new products straddle both.

Speaker 2

So Revcore for instance can be a SKU based account from pricing standpoint In some other accounts, it can be included in one of our PPPs. So, ProTree would be the same kind of example where it can Be in some accounts as a SKU based pricing and in others as part of a PPP bundle. So I think Some of the questions come from the fact that these new products are straddling both of the two pricing strategies.

Speaker 12

Okay. And then go ahead. Yes, sorry.

Speaker 3

Just to quickly follow-up on that. That's really a customer Combination or convenience that we developed the VTE PPP, we've had we have a lot of cases, probably 15% or more of our DVT cases, which are complex, Meaning there can be clot up around the IVC part and we'll sometimes use the clot retriever to remove the kind of the DVT portion of the clot and And then a FLOWTRIEV or 2 remove the clot up around the IBC and rather than charge the hospital basically for a clot retriever on a SKU basis and then for the FLOW We have developed the idea of a VTE PPP, which is at a much lower price And the 2 would be separately. And that's something that we really did in response to customer feedback, and it's been very well received and accepted.

Speaker 12

Yes, and it sounds like you're doing the same thing for some of the recently launched products. I'm just curious on those combo DVT and PE procedure, what percentage of the mix is that? Is that 15%, 10%, 20%? Yes.

Speaker 2

It's a pretty modest part of the overall patient presentation. I think 10%, 15% is A pretty good ballpark estimate.

Speaker 12

Okay. Thanks a lot guys.

Speaker 3

Thank you.

Operator

The next question comes from David Rescott from Baird. Please go ahead.

Speaker 10

Hey, guys. Thanks for taking the questions. Congrats on the acquisition and the quarter here. First question from us, just on some of the comments around The midterm or medium term expectations for the contribution from Limbflow as well as that 2025 or Midpoint or second half 20 25 margin, profitability. Do those assume You know that there are any either revenue kind of cross selling synergies associated with the acquisition or a lot of these more of the And a bare bones assessment based on maybe what the maybe prior even LimbFlow expectations could have been?

Speaker 10

Or are there any type of synergies that you're accounting for when You're calling out this midterm contribution and 2025 profits.

Speaker 3

Yes, David. Let me get that started and Drew may want to pile on. But Essentially, our thinking about the revenue for example, we've yet to really craft the 2024 Kind of revenue guidance for Inari and then how that will kind of be layered with the Lympho acquisition. As Drew mentioned, we are extremely excited about the opportunities for the business and you've got a sense for how we feel that can grow over kind of an intermediate term period of time. From my commentary about the cash flow support and also the profitability goal in terms of shifting out by year, Those are really under the kind of the construct of having the Inari core business continue to grow and develop as is Essentially having the Limb flow business with its separate sales force.

Speaker 3

And then we'll kind of look for a lot of opportunities in other support services In terms of opportunities to provide support for LimbFlo, obviously, there's a lot of G and A and other type Capabilities that we already have as a part of the an RA company that we can provide to Linflo. So there are opportunities there to It'll be efficient, but those businesses are essentially intended to be very focused

Speaker 2

And

Speaker 3

kind of grow at their own pace essentially, based on the market opportunities, which we're able to develop and the market development efforts that we make.

Speaker 10

Okay. That's helpful. And then I know you guys have talked in the past about your confidence that this underlying BTE market or thrombectomy market and BTE has been growing, I think, 20% or so, and have talked about as the market leader Starting to grow above that level. So just wondering if that still is your belief, VandaRifte acquisition here signals any You know hesitancy and either that or new product growth expectations that you have and I just did want to make sure that I heard the Artex 2024 comments appropriately. Thank you.

Speaker 2

Yes, you did hear the ARDEX reentry in 2024 correctly. To answer the first part of your question, I think we've never been more confident in the strength of the core VT franchise. We saw great momentum here in the 1st 9 months of this year, we're seeing strong case growth across both PE and DBT. We like what we're seeing in The VTE market development work that we're doing, we're leveraging the clinical data and looking ahead that will be in the form of RCT data. We're seeing nice traction and pickup from some of our new products and some of our new TAMs and international is continuing to show some nice traction and Strong sequential growth.

Speaker 2

So taken together, we feel really confident in how the core franchise is performing and all that Of course, it's against the backdrop of a really healthy market set up as well. So I think all that is reflected in our confidence to undertake and acquisition and add Limbflow into the portfolio. I think that reflects the strength and the confidence we have in the core franchise.

Speaker 10

All right, great. Thanks and congrats again.

Speaker 3

Thank you.

Operator

The next question comes from Chris Pasquale from Nephron Research. Please go ahead.

Speaker 4

Thanks. Congrats on the deal. It seems like a great fit. I had one question on Linflo and then one on the existing business. On Linflo, as you think about the potential to move up the curve to Rutherford for patients, What's happening with that population today?

Speaker 4

Are these patients getting surgery or other endovascular therapies? Just trying to understand what you'd be looking to displace in that population?

Speaker 6

Thanks for the question, Chris. So just to be clear, LimFlo is a technology that's really appropriate for what we call no option These are patients who don't have any option for traditional revascularization angioplasty The Rutherford class is the level of current symptomatology of the patient. So the added opportunity in Rutherford IV are Patients who are somewhat less symptomatic, but still are no option in terms of their revascularization. So What we would be displacing is simply conservative therapy, watchful waiting and amputation.

Speaker 4

That's helpful. Thanks for clarifying that. And then on the existing business, Revcor seems like it's off to a strong start. I'm curious whether you think you're picking Cases there that you would not otherwise be involved in or that's just providing a better solution in procedures that you would have been in already, trying to understand how incremental That product really is.

Speaker 6

Yes. So I'll tackle that one as well. I think the Revcor product is completely incremental to our VTE Business. These are patients who have occluded venous stents. There is currently no approved option for treatment of those patients other than for Revcor.

Speaker 6

I think what those patients might be getting in an off label fashion prior to Revcor is conservative therapy or angioplasty and realigning with scent which we know is a terrible solution from a lot of other disease So I think all of the RevCorp business that we're doing is incremental.

Speaker 2

Great. Thank you.

Operator

There are no more questions in the queue. This concludes our question and answer session and the conference has now concluded.

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Earnings Conference Call
Inari Medical Q3 2023
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