INARI MEDICAL, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and related notes thereto for the year endedDecember 31, 2020 , included in our Annual report on form 10-K.
Overview
We are a commercial-stage medical device company focused on developing products to treat and transform the lives of patients suffering from venous diseases. Our primary product offering consists of two minimally-invasive, novel catheter-based mechanical thrombectomy devices. We purpose-built our products for the specific characteristics of the venous system and the treatment of the two distinct manifestations of venous thromboembolism, or VTE - deep vein thrombosis and pulmonary embolism. Our ClotTriever product is FDA-cleared for the treatment of DVT. Our FlowTriever product is the first thrombectomy system FDA-cleared for the treatment of pulmonary embolism, or PE, and is also FDA-cleared for clot in transit in the right atrium. We believe the best way to treat VTE and improve the quality of life of patients suffering from this disease is to safely and effectively remove the blood clot. With that in mind, we designed and purpose-built our ClotTriever and FlowTriever products to remove large clots from large vessels and eliminate the need for thrombolytic drugs. We believe our products are transformational and could be the catalyst to drive an evolution of treatment for venous diseases, establishing our products as the standard of care for DVT and PE. We believe our venous-focused commercial organization provides a significant competitive advantage. Our most important relationships are between our sales representatives and our treating physicians, which include interventional cardiologists, interventional radiologists and vascular surgeons. We have developed systems and processes to harness the information gained from these relationships and we leverage this information to rapidly iterate products, introduce and execute physician education and training programs and scale our sales organization. We market and sell our products to hospitals, which are reimbursed by various third-party payors. We have dedicated meaningful resources to building a direct sales force inthe United States , and we continue to expand our sales organization through additional sales representatives and territories. OnMay 27, 2020 , we completed our IPO, which resulted in the issuance and sale of 9,432,949 shares of common stock, including 1,230,384 shares sold pursuant to the exercise of the underwriters' over-allotment option, at the IPO price of$19.00 per share. We received net proceeds of approximately$163.0 million from the IPO, after deducting underwriters' discounts and commissions of$12.6 million and offering costs of$3.7 million .
Prior to our IPO, our primary sources of capital were private placements of
preferred stock, debt financing arrangements and revenue from sales of our
products. Since inception, we had raised a total of approximately
For the three months endedMarch 31, 2021 , we generated revenue of$57.4 million , with a gross margin of 91.9% and net income of$7.5 million , compared to revenue of$27.0 million , with a gross margin of 90.0% and net income of$4.1 million for the three months endedMarch 31, 2020 .
COVID-19
InDecember 2019 , a novel strain of coronavirus, SARS-CoV-2, was identified inWuhan, China . Since then, SARS-CoV-2, and the resulting disease, COVID-19, has spread to most countries, including all 50 states inthe United States . The global healthcare system continues to face an unprecedented challenge as a result of the COVID-19 situation and its impact. COVID-19 has had and may continue to have an adverse impact on aspects of our Company and business, including the demand for our products, our operations, and the ability to research and develop and bring to market new products and services. In response to the pandemic, inMarch 2020 , many governmental authorities suspended or canceled elective, specialty and other procedures and appointments, and some states and countries issued "stay at home" orders limiting non-essential activities, travel and business operations. These orders significantly decreased the number of procedures performed using our products during March andApril 2020 and otherwise negatively impacted our operations. In response to the impact of COVID-19, we implemented a variety of measures to help manage through the impact and position us to resume operations quickly and efficiently once these restrictions were lifted. The results for the first quarter of 2021 reflect some recovery from the declines we experienced in the first quarter of 2020. However, with cases continuing to resurge in certain areas, and hospitals at capacity in some instances due to non-COVID-19 treatments, to the extent individuals and hospital systems de-prioritize, delay or cancel deferrable medical procedures, our business, cash flows, financial condition and results of operations may continue to be negatively affected. In addition, COVID-19 has strained hospital systems around the world, resulting in adverse financial impacts to those systems, which has resulted in and may continue to result in reduced expenditures for the products we provide and may adversely affect the 23
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collectability of our current and future accounts receivable balance. We continue to actively monitor the COVID-19 situation and its impact.
While we are encouraged by our first quarter results, we are aware that the actual and perceived impact of COVID-19 is changing and cannot be predicted. As a result, we cannot assure you that our recent procedure volumes are indicative of future results or that we will not experience additional negative impacts associated with COVID-19, which could be significant. We continue to focus our efforts on the health and safety of patients, healthcare providers and employees, while executing our mission of transforming lives of VTE patients. While we expect the COVID-19 pandemic may continue to negatively impact 2021 performance, we believe the long-term fundamentals remain strong and we will continue to effectively manage through these challenges.
Procedure Volume
We regularly review various operating and financial metrics to evaluate our
business, measure our performance, identify trends affecting our business,
formulate our business plan and make strategic decisions. We believe the number
of procedures performed to treat DVT and PE using our products is an indicator
of our ability to drive adoption and generate revenue. We believe this is an
important metric for our business; however, we anticipate that additional
metrics may become important as our business grows. The following table lists
the number of procedures performed in each of the three-month periods as
indicated:
Three Months Ended
March 31, March 31,
Procedures(1) 2021 Dec 31, 2020 Sept 30, 2020 June 30, 2020 2020
DVT 2,800 2,400 2,000 1,400 1,300
PE 2,700 2,200 1,700 1,100 1,100
5,500 4,600 3,700 2,500 2,400
(1) We define a procedure as any instance in which a physician treats DVT or PE
using our products. We estimate the number of procedures performed based on
records created by our sales representatives. This metric has limitations as
we only have records for the procedures where our sales representatives have
notice that a procedure has been performed. Revenue is recognized based on
hospital purchase orders, not based on the procedure records created by our
sales representatives. Numbers are rounded to the nearest hundred.
Components of our Results of Operations
Revenue
We currently derive all our revenue from the sale of our ClotTriever and FlowTriever products to hospitals primarily inthe United States . Our customers typically purchase an initial stocking order of our products and then reorder replenishment product as procedures are performed. No single customer accounted for 10% or more of our revenue during the three months endedMarch 31, 2021 and 2020. For the three months endedMarch 31, 2021 , approximately 61% of our customers used both of our products, 30% used ClotTriever only and 9% used FlowTriever only. We expect revenue to increase in absolute dollars as we expand our sales organization and sales territories, add customers, expand the base of physicians that are trained to use our products, expand awareness of our products with new and existing customers and as physicians perform more procedures using our products. Revenue for ClotTriever and FlowTriever products as a percentage of total revenue is as follows: Three Months Ended March 31, 2021 2020 ClotTriever 35 % 37 % FlowTriever 65 % 63 %
For the three months ended
Cost of Goods Sold and Gross Margin
We manufacture and/or assemble all our products at our facility inIrvine, California . Cost of goods sold consists primarily of the cost of raw materials, components, direct labor and manufacturing overhead. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalty expense. Shipping costs billed to customers are reported as a reduction of cost of goods sold. We expect cost of goods sold to increase in absolute dollars as our revenue grows and more of our products are sold, however, we also expect to realize opportunities to increase operating leverage in our manufacturing operations. 24 -------------------------------------------------------------------------------- We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross margin could fluctuate from quarter to quarter as we introduce new products, adopt new manufacturing processes and technologies, and as we expand internationally. Treatments using the FlowTriever may involve one or more Triever aspiration catheters and one or more FlowTriever catheters. We charge customers the same price for each FlowTriever procedure, regardless of the number of components used. As a result, changes in the number of components used, the cost of these components and the introduction of additional components can impact our gross margin.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products that are in development. These expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. Additionally, R&D expenses include costs associated with our clinical trials and registries, including clinical study design, clinical study site initiation and study costs, data management, and internal and external costs associated with our regulatory compliance, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings. We expense R&D costs as incurred. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and registries and other related activities.
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions, physician education programs, commercial operations and analytics, finance, information technology and human resource functions. Other SG&A expenses include sales commissions, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, physician training, professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our sales and marketing organization and infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting, insurance and other expenses associated with being a public company. Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents and short-term investments.
Interest Expense
Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our indebtedness.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities consists of gains and losses
resulting from the remeasurement of the fair value of our preferred stock
warrant liabilities at each balance sheet date. Upon the closing of our IPO, our
outstanding preferred stock warrants automatically converted into warrants to
purchase shares of our common stock. At such time, the final fair value of the
warrant liability was reclassified to stockholders' equity (deficit). We will no
longer record any related periodic fair value adjustments.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the three months ended
The following table sets forth the components of our unaudited statements of
operations in dollars and as percentage of revenue for the periods presented
(dollars in thousands):
Three Months Ended March 31,
2021 % 2020 % Change $
Revenue $ 57,397 100.0 % $ 26,953 100.0 % $ 30,444
Cost of goods sold 4,623 8.1 % 2,706 10.0 % 1,917
Gross profit 52,774 91.9 % 24,247 90.0 % 28,527
Operating expenses:
Research and development 8,163 14.2 % 3,018 11.2 % 5,145
Selling, general and administrative 36,898 64.3 % 16,393 60.8 % 20,505
Total operating expenses 45,061 78.5 % 19,411 72.0 % 25,650
Income from operations 7,713 13.4 % 4,836 18.0 % 2,877
Other income (expense)
Interest income 68 0.1 % 55 0.2 % 13
Interest expense (73 ) (0.1 %) (346 ) (1.3 %) 273
Other expenses (41 ) (0.1 %) - 0.0 % (41 )
Change in fair value of warrant
liabilities - 0.0 % (433 ) (1.6 %) 433
Total other expenses, net (46 ) (0.1 %) (724 ) (2.7 %) 678
Income before income taxes $ 7,667 13.3 % $ 4,112 15.3 % $ 3,555
Revenue. Revenue increased $30.4 million , or 113%, to $57.4 million during the
three months ended March 31, 2021 , compared to $27.0 million during the three
months ended March 31, 2020 . The increase in revenue was due primarily to an
increase in the number of products sold. The increase in revenue was offset in
part by the negative impact of the COVID-19 pandemic on procedure volume and new
orders during the three months ended March 31 , 2021.Revenue for the three months
ended March 31, 2020 was also negatively impacted by a rapid deceleration in the
number of products sold in March due to the COVID-19 pandemic.
Cost of Goods Sold and Gross Margin. Cost of goods sold increased $1.9 million ,
or 71%, to $4.6 million during the three months ended March 31, 2021 , compared
to $2.7 million during the three months ended March 31, 2020 . This increase was
due to the increase in the number of products sold and additional manufacturing
overhead costs incurred as we invested significantly in our operational
infrastructure to support anticipated future growth. Gross margin for the three
months ended March 31, 2021 increased to 91.9%, compared to 90.0% for the three
months ended March 31, 2020 , due to an increase in the average selling prices of
our products and improved operating leverage.
Research and Development Expenses. R&D expenses increased $5.2 million , or 170%,
to $8.2 million during the three months ended March 31, 2021 , compared to
$3.0 million during the three months ended March 31, 2020 . The increase in R&D
expenses was primarily due to increases of $3.5 million of personnel-related
expenses, $0.9 million in materials and supplies, $0.5 million of clinical study
and registry expenses, and $0.1 million in professional fees, in support of our
growth drivers to increase our new product pipeline and build the clinical
evidence base.
Selling, General and Administrative Expenses. SG&A expenses increased $20.5
million , or 125%, to $36.9 million during the three months ended March 31, 2021 ,
compared to $16.4 million during the three months ended March 31, 2020 . The
increase in SG&A costs was primarily due to an increase of $17.1 million in
personnel-related expenses as a result of increased headcount across our
organization and increased commissions due to higher revenue, an increase of
$1.0 million in insurance costs, an increase of $0.7 million in professional
fees, and an increase of $0.3 million in travel costs.
Interest Income. Interest income increased by $13,000 to $68,000 during the
three months ended March 31, 2021 , compared to $55,000 during the three months
ended March 31, 2020 . The increase in interest income was primarily due to an
increase in average cash and cash equivalents during the three months ended
March 31, 2021 , compared to the three months ended March 31, 2020 , partially
offset by lower rates.
Interest Expense. Interest expense decreased by $0.3 million or 79% during the
three months ended March 31, 2021 , compared to the three months ended March 31,
2020 . This decrease was primarily due to lower average borrowings under our
credit facilities during the three months ended March 31, 2021 .
Change in Fair Value of Warrant Liabilities. We recorded no change in fair value
of warrant liabilities for the three months ended March 31, 2021 , compared to
$0.4 million for three months ended March 31, 2020 .
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Other expenses. Other expenses of
Liquidity and Capital Resources
To date, our primary sources of capital have been the net proceeds we received through private placements of preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. OnMay 27, 2020 , we completed our IPO, including the underwriters full exercise of their over-allotment option, selling 9,432,949 shares of our common stock at$19.00 per share. Upon completion of our IPO, we received net proceeds of approximately$163.0 million , after deducting underwriting discounts and commissions and offering expenses. InAugust 2020 , we repaid in full the$30.0 million of principal owed under the credit facility with Signature Bank. As ofMarch 31, 2021 , we had cash and cash equivalents of$102.9 million , short-term investments of$71.2 and an accumulated deficit of$20.0 million . InSeptember 2020 , we entered into a new revolving Credit Agreement withBank of America which provides for loans up to a maximum of$30 million . As ofMarch 31, 2021 , we had no principal outstanding under the Credit Agreement and the amount available to borrow was approximately$28.2 million .
Based on our current planned operations, we expect that our cash and cash equivalents and available borrowings will enable us to fund our operating expenses for at least 12 months from the date hereof.
If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products as a result of the risks described in this Quarterly Report, we may seek to sell additional common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our platform technologies or products or grant licenses on terms that are not favorable to us. Additional capital may not be available on reasonable terms, or at all.
Cash Flows
The following table summarizes our cash flows for each of the three-month periods indicated (in thousands):
Three Months Ended March 31,
2021 2020
Net cash provided by (used in):
Operating activities $ 8,766 $ (679 )
Investing activities (22,511 ) (609 )
Financing activities 2,214 10,022
Effect of foreign exchange rate on cash
and cash equivalents (183 ) -
Net increase (decrease) in cash and cash
equivalent $ (11,714
)
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities for the three months endedMarch 31, 2021 was$8.8 million , consisting primarily of net income of$7.5 million and non-cash charges of$4.8 million , offset by an increase in net operating assets of$3.5 million . The increase in net operating assets was primarily due to increases in accounts receivable of$3.4 million and inventories of$3.1 million to support the growth of our operations, an increase in prepaid and other assets of$2.9 million primarily from prepaid insurance, which were partially offset by increases in accounts payable of$2.5 million and accrued liabilities of$3.6 million due to timing of payments and growth of our operations. The non-cash charges primarily consisted of$3.8 million in stock-based compensation,$0.6 million in depreciation,$0.2 million in amortization of the right-of-use assets and$0.1 million provision for doubtful accounts. Net cash used in operating activities for the three months endedMarch 31, 2020 was$0.7 million , consisting primarily of net income of$4.1 million and non-cash charges of$1.3 million , offset by an increase in net operating assets of$6.1 million . The increase in net operating assets was primarily due to increases in accounts receivable of$3.4 million and inventories of$1.2 million to support the growth of our operations, an increase in prepaid and other assets of$1.3 million from deferred offering costs, and a decrease in accrued liabilities of$0.5 million , partially offset by increases in accounts payable of$0.3 million due to timing of payments and growth of our operations. The non-cash charges primarily consisted of$0.3 million in depreciation, stock-based compensation of$0.5 million , and the change in fair value of the preferred stock warrant liability of$0.4 million . 27 --------------------------------------------------------------------------------
Net cash used in investing activities in the three months ended
Net cash used in investing activities in the three months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities in the three months endedMarch 31, 2021 was$2.2 million primarily consisting of proceeds of$1.9 million in proceeds from the issuance of common stock under our employee stock purchase plan. Net cash provided by financing activities in the three months endedMarch 31, 2020 was$10.0 million primarily consisting of net proceeds of$10.0 million received from additional borrowings under the credit facility with Signature Bank.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable regulations of theU.S. Securities and Exchange Commission , that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business
to the Company's contractual obligations from those disclosed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Annual report on Form 10-K for the year ended
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There were no material changes to our critical accounting policies or in the methodology used for estimates from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 with the exception of the Company's adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASC 842). See the section entitled "Recently Adopted Accounting Pronouncements" within the Company's Summary of Significant Accounting Policies and Note 7, Leases for further discussion of the Company's adoption of ASC 842 and related disclosures.
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