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Edited Transcript of NARI.OQ earnings conference call or presentation 12-Nov-20 9:30pm GMT

·46 min read

Q3 2020 Inari Medical Inc Earnings Call Nov 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Inari Medical Inc earnings conference call or presentation Thursday, November 12, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mitchell C. Hill Inari Medical, Inc. - CFO * William H. Hoffman Inari Medical, Inc. - CEO, President & Director ================================================================================ Conference Call Participants ================================================================================ * Danielle Joy Antalffy SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst * David Ryan Lewis Morgan Stanley, Research Division - MD * Lawrence H. Biegelsen Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst * Robert Adam Hopkins BofA Merrill Lynch, Research Division - MD of Equity Research * William John Plovanic Canaccord Genuity Corp., Research Division - Analyst * Caroline V. Corner Westwicke Partners, LLC - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to Inari's Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Ms. Caroline Corner. Please go ahead, ma'am. -------------------------------------------------------------------------------- Caroline V. Corner, Westwicke Partners, LLC - MD [2] -------------------------------------------------------------------------------- Thank you, operator. Welcome to Inari's Third Quarter 2020 Earnings Call. Joining me on today's call are Bill Hoffman, President and Chief Executive Officer; and Mitch Hill, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which Inari operates; trends and expectations for Inari's product and technology; trends and demands for Inari's products; Inari's expected financial performance, expenses and position in the market; and the impact of COVID-19 on Inari's operations and Inari's customers' operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements. Please review Inari's most recent filings with the SEC, particularly the risk factors described in Inari's S-1 filing and in Inari's quarterly report on Form 10-Q for the third quarter ended September 30, 2020, 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. Inari undertakes no obligation to update these statements except as required by applicable law. Inari's press release for third quarter 2020 results is available on Inari's website, www.inarimedical.com, under the Investors section and includes additional details about Inari's financial results. Inari's website also has the latest SEC filings, which you're encouraged to review. A recording of today's call will be available on Inari's website by 5:00 p.m. Pacific Time today. Now I would like to turn the call over to Bill for his comments on third quarter of 2020 business highlights. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- Thank you, Caroline, and thank you, everyone, for joining us today. We have enjoyed a busy and highly productive Q3, which we will review in a moment. But I'd like to start first with a story that might help remind you of who we are and what we do. Last quarter, I shared with you a story about a patient with a massive pulmonary embolism, who was in such poor condition that his wife was summoned to the cath lab to say goodbye. Moments later, the physician used our FlowTriever technology to extract several large blood clots from the patient's pulmonary arteries, leading to immediate improvement of symptoms and vital signs while the patient was still on the table, followed by a remarkable and rapid recovery. I'd like to share now with you a very different story about a deep vein thrombosis or DVT patient with a guarded prognosis due to his underlying cancer. This patient, in fact, has terminal metastatic prostate cancer. The patient presented multiple times to the hospital for various cancer-related procedures, drug infusions and follow-ups. He complained of heaviness, pain and swelling of his legs worsening with each visit, further and further [limiting] this formerly highly active man's ability to even walk. During a multidisciplinary tumor board meeting at the hospital in which various imaging and cancer treatment strategies are discussed, the interventional radiologist asked a simple question, how is the patient doing? The answer was the patient could not walk. A simple imaging test revealed extensive blood clots in both legs, extending into the pelvis and even into the vena cava in the abdomen, which was causing the leg swelling and significant pain. Sadly, clotting disorders and deep vein thrombosis are very common in cancer patients. The interventional radiologist lobbied the consulting oncologists, all of whom were consumed with his cancer treatments to consider treating the blood clots. After some discussion about whether it is "worthwhile" to treat DVT in a terminally ill cancer patient, the patient was ultimately treated with the Inari ClotTriever. Large volumes of clot were removed from both legs. The patient was discharged from the hospital the next day, the pain, swelling and heaviness resolved. A few weeks later, the patient's son sent a letter to the treating physician thanking him for paying attention to the patient's chief complaint and allowing him to enjoy whatever time he has left in the highest-quality way. The letter included a picture of the patient playing in the yard with his grandchildren. Deep vein thrombosis, unless it embolizes to the lungs to become pulmonary embolism, is rarely a life-threatening condition. It is, however, one of the most miserable and severely lifestyle-limiting conditions imaginable. We, along with our physicians and customers, are committed to impacting the lives of our patients, regardless of the quantity of life remaining, in the most beautiful and important ways. This is not just what we do. This is who we are. We remain so thankful for this opportunity and for the responsibility entrusted in us by our physicians, our customers and our investors. As you'll hear shortly, we are growing our DVT business, along with our PE business, aggressively. Despite our success to date, fewer than 5% of all patients who can and probably should benefit from our devices are being treated with FlowTriever or ClotTriever. Most of them never even see a physician who knows about our devices or that these treatments even exist. We have work to do, and we love the work. With that, I'd like to turn now to our quarterly performance. Our revenue in Q3 was $38.7 million, up 172% from the same quarter last year and up 52% sequentially from Q2. As you know, we pay close attention to procedure volume as this metric more closely than any other aligns with our mission to treat our patients. And over time, we believe it correlates strongly with revenue. During Q3, our physicians performed more than 3,700 procedures, up over 185% from the same quarter last year and up 48% sequentially from Q2. Our sequential growth of approximately 50% in both revenue and procedures was strong. Like Q2, we saw positive intra-quarter trends as procedure volume in July, August and September were all sequentially higher. We have seen that trend continue into the early part of Q4 as procedure volume and revenue were up modestly in October again. Please note, similar to other companies, we are offering this monthly intra-quarter information due to the pandemic, and we may discontinue this practice in future earnings calls. In Q3, we believe we took a strong step toward returning to the company's pre-pandemic growth. We found the hospital operating environment in Q3 mostly constructive, and we have found ways to execute effectively through the pandemic in all areas of our business. We are, however, encouraging a bit of caution as we look forward. Cath lab volumes have not returned to normal, while COVID cases and hospitalizations, already at all-time highs, continue to rise as we approach winter. We have again seen impact on our hospital customers, on patients seeking and gaining access to care, on our commercial efforts at various hotspots throughout the country and on our day-to-day operations. While we remain confident in our growth drivers and our medium- and long-term prospects for aggressive and sustainable growth, we continue to recognize the uncertainty in the immediate term. We are not in position to issue forward-looking guidance at this time. During Q3, our DVT procedures represented 54% of total case volume while PE represented 46%. Procedure mix has been consistent within just a few percentage points since the beginning of 2019, suggesting that adoption of each product and procedure is equally strong. Perhaps useful to note that this consistency in case mix is organic. There are no differential sales incentives, messaging or emphasis on one device or procedure compared to the other. Not coincidentally, we believe, this ratio of our PE to DV procedure volume closely reflects the ratio of total addressable market measured by procedures. Revenue mix favored FlowTriever, 63%, compared to ClotTriever at 37% owing largely to the higher average selling price for FlowTriever compared to ClotTriever and the fact that FlowTriever is used in a small percentage of DVT procedures. Our revenue mix has also been consistent from quarter-to-quarter. Before jumping to our discussion about growth drivers, I'd like to update you on the progress of our FLASH registry. Interim data from the first 230 patients enrolled into our FLASH registry were presented on October 18 as a late-breaking clinical trial at the annual Transcatheter Cardiovascular Therapeutics conference or TCT. The results further confirm the excellent safety record of FlowTriever treatment of pulmonary embolism. There were no deaths at the 48-hour follow-up. Patients with similar risk profile historically carry a significant mortality risk. In addition, there were no cardiac injuries, no pulmonary injuries, no procedure-related deteriorations. And importantly, there were no instances of intracranial hemorrhage, a devastating complication associated with both systemic and catheter-directed thrombolytic-based treatments. Efficacy data were equally compelling. Statistically and clinically significant decreases in heart rate and pulmonary artery pressure were shown, along with statistically and clinically significant increase in cardiac index, all while the patient was still on the table. These data are consistent with anecdotal observations that patients feel better even before they leave the cath lab. Finally, ICUs day post-FlowTriever procedure was 0 days. This is, of course, always important for clinical and economic reasons but even more so in the midst of a pandemic while hospitals are doing their very best to reserve ICU beds for COVID and other very sick patients. 30-day results of this cohort will be presented at the annual meeting of the American Heart Association and available tomorrow, November 13. Perhaps the most important metric in this new data set will be the 30-day mortality end point. Attention will also be paid to the 30-day readmission rate as well as the continued improvement in hemodynamics and dyspnea scores. PE studies to this point have invariably focused on surrogate end points, primarily RV/LV ratio, whereas the FLASH study shows significant impact on clinical end points that are considerably more important and relevant implications for patient care We believe these end points represent an important step forward in the assessment of PE treatment. I'd like to turn now to our key growth drivers and the progress we have made on each in the third quarter. First, we continue to expand our sales organization to target new hospitals and physicians. Given the estimated size of our U.S. addressable market, which comprised more than 440,000 patients and $3.6 billion in revenue potential, we continue to believe our sales organization will rival inside the largest interventionally focused sales organizations in the market today. Historically, we have added about 10 territories per quarter. Although that cadence was interrupted by COVID in Q2, we increased our pace of hiring and began Q3 with approximately 90 territories. Throughout Q3, we found the candidate pool especially deep perhaps as a result of our IPO and the increased awareness of our company and our story. And we seized the opportunity to hire more aggressively. As a result, we entered Q4 with approximately 120 territories. Between now and the end of the year, we will be pursuing our next quarterly cohort of sales professionals in anticipation of their joining the company in January of 2021. At this time, we do not anticipate this group will be as large as our Q4 cohort. Increasingly, this expansion has and will continue to provide opportunity to split territories to focus on our second growth driver, which is building awareness and driving deeper adoption at existing hospital customers. Our goal is to access the patient population conventionally treated with conservative medical management, which represents perhaps 90% of our PE TAM and about 2/3 of our DVT TAM. We believe we are beginning to have some success on this front. We see growing interest in our procedures from referring physicians such as pulmonologists, hospitalists, critical care physicians and emergency room physicians. And we have increased our efforts to educate and communicate regularly with these physicians at the account level. Similarly, we are increasing our efforts to help install more systematic processes for identifying, triaging, treating and following up on PE and DVT patients. Such programs are standard for heart attack and stroke treatment but are virtually nonexistent in PE and DVT treatment. We also continue to execute and expand our Clot Warrior Academy, which is a virtual training, education and physician engagement platform. In addition to our weekly insight series and technique series, which we have discussed in the past, we recently installed several additional Clot Warrior Academy programs. These include a patient series in which we invite patients to share their lifesaving stories to a broader audience; a leadership series, which is an interactive forum for our faculty; and Clot Warrior Academy unplugged, which is an interactive peer-to-peer education program tailored to the specific needs of our local physician groups at the account level. We conduct 5 to 7 such unplugged events each week. Even more recently, we have added Clot Warrior Academy live in which we stream live cases to invited customers. Our vision, which we expect to execute in 2021, is to conduct full days of live cases on a regular basis. Our commitment to training and education via Clot Warrior Academy represents yet another example of our comprehensive approach to advancing the understanding of these disease states and improving the standard of care for our patients. Our third growth driver is to continue to build upon our base of clinical evidence. In addition to the FLASH registry results, which we discussed earlier, we continue to make progress on our FLAME study, a multicenter, prospective 2-arm trial for high-risk PE patients. The protocol is complete, and we expect first patient enrollments in the first half of 2021. Finally, during the third quarter, we saw the publication of 14 articles in peer-reviewed journals featuring the Inari technology. The highlight was a retrospective multicenter analysis by Toma et al., in which 34 high-risk PE patients were treated in 4 centers. Only one mortality was reported at the mean 205-day follow-up. For reference, patients of similar risk carry a mortality rate up to 40%. Our continued investment in clinical data is useful not only for expanding the market and driving adoption, but it will also inform the eventual design of definitive controlled trials for both of our technologies. Our fourth growth driver is to continue to expand our product portfolio. For example, earlier this year, we introduced the Triever24, which is a 24-French aspiration and delivery catheter for pulmonary embolism. This resulted in significant migration from our smaller 20-French platform. This is important as larger-bore catheters remove more clot, and the clot matters. We believe this is critical to both acute and longer-term outcomes. More recently, we introduced the T24Flex, which is 40% more flexible than the original Triever24, making it even more deliverable. The early response from our customers to the T24Flex has been highly favorable, and we expect it will drive further migration to the larger platform. We anticipate introducing several additional product enhancements over the coming months, including our FlowSaver device. This device is a simple disposable filtration system that will enable physicians to reintroduce extracted blood back into the patient. This will enable the physician to be more aggressive, making more aspiration passes without concern for blood loss. The goal again is to remove as much clot as possible. We'll have more to say about this and several other new product offerings over the coming months. Looking further into 2021, we are very excited about the robust lineup of new products and innovation in our pipeline. Our fifth and final growth driver is expansion into adjacent and international markets. There are multiple large and unmet needs in the venous space beyond our current TAM and in the vascular space more broadly. We are actively exploring these ideas. We're also making tangible progress toward international expansion with an initial focus on Western Europe. We've recently received an updated CE Mark for our current generation of ClotTriever system, and we also anticipate an updated CE Mark for FlowTriever early in 2021. Beyond Europe, we have begun initial market assessment and regulatory work for other key international markets, targeting countries with the largest markets but also with the longest regulatory and reimbursement lead times. With our focus on best possible patient outcomes and treating physician experience, we expect our international commercial ramp to be gradual. I'd like to conclude by reminding you that we are committed to our mission to save and transform the lives of our patients as per the anecdotes we shared earlier. This cause is bigger than ourselves and much more important than business. We believe that nothing is more important than taking care of our patients. We believe that all business success and consequent value creation are merely by-products of doing the right things for our patients while taking care of our customers and our teammates. We believe we're in the early, earliest phase of our mission and that we can and will grow sustainably and aggressively for many quarters and years to come. With that, I'd like to turn things over to Mitch. -------------------------------------------------------------------------------- Mitchell C. Hill, Inari Medical, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Bill, and good afternoon, everyone. Inari revenues for the third quarter of 2020 were $38.7 million compared to $25.4 million for the prior quarter and up $24.5 million or 172% from $14.2 million for the same period of the prior year. This year-on-year increase was driven by the continued expansion of our sales force, the opening of new accounts and deeper penetration of our products in existing accounts. Revenue is split between our 2 products as follows. 37% of our revenue was derived from the sale of ClotTriever products during the third quarter of 2020 compared with 38% in the prior year. And 63% was derived from the sale of FlowTriever during the third quarter of 2020 compared to 62% for the third quarter of 2019. Gross margin was 91.7% for the third quarter of 2020 compared with 89.4% in the third quarter of 2019. During 2020, the company has reported gross margins of 90% in Q1, 86.3% in Q2 and now 91.7% in Q3. As you recall, our Q2 margin was adversely affected by the write-off of idle capacity costs during the month of April. Had these costs not occurred, both our Q2 and Q3 margins would have been in the 90% range or consistent with Q1. Operating expenses were $28.3 million in the third quarter of 2020 compared with $11.8 million in the same period of the prior year. R&D expense was $5.2 million in the third quarter compared with $1.7 million for the same period of 2019. The $3.5 million increase in R&D expense was primarily driven by an increase in head count as well as product development and clinical evidence development costs. SG&A expense was $23.1 million in the third quarter of 2020 compared with $10.1 million for the same period last year. The increase was primarily due to personnel-related expenses as a result of increased head count across our organization and increasing commissions due to higher revenue, higher facility costs and public company compliance costs. Net income for the third quarter of 2020 was $6.5 million compared with a net income of $0.4 million for the same period of the prior year. I'd like to make a quick comment on the company's positive net income during Q3, which we appreciate, by the way. As a reminder, we are not optimizing the company to produce net income. Rather, we are building Inari to deliver sustainable revenue growth. Inari's net income is a positive by-product of the company's performance, and it allows us to invest more aggressively in the growth drivers reviewed by Bill rather than using the company's capital to cover operating losses. The basic and fully diluted net income per share for the third quarter were $0.13 and $0.12, respectively. And the weighted average basic and diluted share counts were 48.3 million and 55.4 million, respectively, compared with a basic and fully diluted net income per share of $0.06 and $0.01, respectively, and a weighted average basic and diluted share counts of 6 million and 43.9 million, respectively, for the same period of the prior year. The number of shares last year is significantly lower because of the conversion of preferred stock and additional common shares issued as a result of the IPO. I'd like to move on to a few balance sheet updates. Our cash balance at the end of the third quarter was $168 million. During Q3, we repaid a $30 million term debt facility that existed at the time of the company's IPO back in May. Along with the repayment of the term debt facility, we established a new revolving credit facility with a capacity of $30 million. During the first 9 months of 2020, our cash flows from operating and investing activities were $0.4 million compared to a negative $6.2 million during the first 9 months of 2019. As demonstrated by these figures, Inari continues to operate with a relatively neutral cash flow profile. We believe our cash on hand is sufficient to fund our current operating plans for the foreseeable future. This includes the investment initiatives, as outlined during our recent public offering. With that, I'd like to thank you for your attention, and I'll now turn the call back over to the operator for your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Bob Hopkins with Bank of America. -------------------------------------------------------------------------------- Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [2] -------------------------------------------------------------------------------- Bill and Mitch, my first question is really on the market because these extraordinary results that you've put up here, I mean, clearly suggest that this market for treating venous clots with mechanical thrombectomy technologies has not only inflected but inflected in the middle of a pandemic, which is just pretty amazing. So I'd love to get a better understanding from you, is there anything kind of onetime in these results in your view? And maybe how much of the prothrombotic nature of COVID has played a role in increasing awareness of this problem and of your therapeutic option? Just would love a little thoughts on the market. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- Yes. So Bob, you're seeing the same things that we are seeing. I think there's a self-evident nature of the clot that's been -- it's very satisfying. Physicians say it's satisfying. Patients get better on the table, and you can see why, right? You can see the clot. And I do think there's an inflection that is not onetime in nature. There's no reason to believe it's onetime in nature. There's probably dozens, maybe even 100 peer-reviewed journal articles at this point showing the correlation or the causative effect of COVID on clotting disorders. And yet we really haven't seen confirmed -- a lot of confirmed COVID-positive patients being treated. We're just not seeing much of that. I suspect we've treated more than we know. Some of them were probably positive but not known at the moment of the procedure. But there is, as you suggest, a lasting impact. I mean my mom, my mom knows that VTE, deep vein thrombosis and pulmonary embolism is associated with COVID. So I mean there's a very common knowledge of this. And I don't think there's ever been that sort of knowledge and appreciation of the nature of this disease prior to COVID. So I do think that's lasting. So we'll see how this goes, but we don't anticipate -- we're not seeing anything that suggests this is a onetime sort of phenomenon just based on COVID or any other variable. -------------------------------------------------------------------------------- Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [4] -------------------------------------------------------------------------------- Yes. And then I guess the other thing I wanted to ask you about is you mentioned a couple of technologies in the pipeline that could be TAM expanding. And I'm sure it's too early to go into much detail, but I'm just curious if there's any more detail you'd be willing to provide on where you might be headed next. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [5] -------------------------------------------------------------------------------- Yes. Thanks for that, Bob. Not -- probably not yet. We're maybe another earnings call or 2 away from providing a little bit more color on that. But suffice to say that clot management, the simple extraction -- well, not -- it's not simple, but the extraction of clot is not the only unmet need in the venous space. So we've been very, very aggressive at really just trying to understand the unmet needs that overlap with our core competencies, which we believe are related to not just engineering but also commercialization and knowledge of this disease state relationships and a commercial organization that's capable of being replicated. So we're not quite ready yet, but we do like what we've seen. We think the unmet needs reflect just a real lack of attention that's been paid to the venous space until very, very recently. And so we'll have more to say about that soon, but we are really excited about it. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from the line of David Lewis with Morgan Stanley. -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [7] -------------------------------------------------------------------------------- I'll echo Bob's comments on the quarter. Congrats on a nice quarter. I wanted to just maybe follow up on that last question, Bill, a little bit. In terms of the expansion that's happening in the marketplace, do you have a sense of whether the market is inflecting more in DVT relative to PE? And sort of related to that, I mean I note that your sales force or commercial sales force theoretically could double this year based on your commentary you just provided. Where are they being deployed relative to DVT and PE? -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [8] -------------------------------------------------------------------------------- So the answer to the first question, we have not seen any differential uptake in DVT compared to PE or vice versa. It is happening at roughly the same pace. And I think that's -- the evidence for that is that our ratio of DVT to PE procedures has been very, very remarkably consistent. I mean not even any noise since January, since really the beginning of our real commercial effort, our commercial effort in earnest, so to speak, at the beginning of last year. So I don't think there's any uptake differential between the 2. What's the second question, David? Is it sales force? Oh, sales organization... -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [9] -------------------------------------------------------------------------------- The sales force -- reps since the beginning of the year. So the rep count could double this year. I was kind of curious where they're being deployed. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [10] -------------------------------------------------------------------------------- So first of all, I would say don't count on it doubling. We'll have a lot more to say about that later. But I will say that our sales organization is -- the same people selling DVT are selling PE. There's no bifurcated sales organization in that sense. We don't have any differential messaging or incentives or anything of that nature. So we believe that every hospital that has a cath lab or an interventional suite is capable and probably will, at some point, be treating DVT and PE, right? These patients show up not in a hub-and-spoke or center of excellence sort of way that stroke may be characterized. These patients show up, whatever catchment area they happen to be, they stumble into the ER and maybe -- literally do stumble into the ER sometimes. So we believe that our sales organization is going to continue to penetrate an increasing number of these centers. We're probably in roughly 800 centers. Maybe probably a little over half of those centers have both products. And that continues to increase as we -- sometimes we get the -- first, we get the DVT procedure installed and then PE. So we think that will continue to grow. But there's no bifurcation, and we see just tons of running room, not just in expansion into new hospitals but, I think, much more importantly, expansion into further adoption, deeper penetration into the patients who are showing up at hospitals we are already in. And I think there's a ton of runway in both. -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [11] -------------------------------------------------------------------------------- Okay. I'll just do one more, and I'll jump back in queue. Just a couple of data sets came out here intra-quarter. Obviously, FLASH, your registry as well as SUNSET, and there were some other smaller data sets. I just wonder if you could share, what impact have these data sets had on the marketplace or do you think these data sets could have in the marketplace in the next couple of quarters? And I'll jump back in queue. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [12] -------------------------------------------------------------------------------- Okay, David. So I'll take that. And we have Tom, too, our Chief Medical Officer, here as well if there's additional detail we can allow him to weigh in. So we were really, really excited about the FLASH data. And of course, we'll be -- 30-day follow-up tomorrow, it will be presented tomorrow at the AHA. We can't really comment much on that just yet. But the most important thing we're seeing here is safety. And conventionally or traditionally, the PE and DV treatments, mostly because they're lytic-based or have been conventionally lytic-based, suffer from a fairly important harm signal. And what we're showing here is that they're -- this is safe, right? We have now -- FLASH showed 230 patients. Our FLARE showed 106 patients. Wible has published with his own retrospective trial at 46 patients, Toma at 34 patients, high risk -- these are the most sick PE patients. And we've seen one death in all of those. That's almost -- a little over 400 patients. So that really matters. The FLASH showed no pulmonary injuries, no cardiac injuries, no intracranial hemorrhage, of course. And I suspect if you took 230 patients in almost any peripheral procedure, you'd see some harm signal stronger than what we're seeing. We believe this procedure is very, very safe. And that matters. Likewise, I think the impact on the clinical variables, the hemodynamic variables, pulmonary artery pressure decreasing, while cardiac index is increasing, heart rate decreasing, those things matter, and they correspond very closely to what we've seen anecdotally, the satisfaction of treating patients who feel better and tell you they feel better on the table. So we think all of that is very useful. That said, I think we've communicated this before. There is no inflection point anywhere in our product development cycle, as we can see it right now, nor in our clinical queue, right? For better or for worse, our potential to grow is related to our ability to just execute the plan. So all of these things are contributory. They're all very useful. We love the story that we're able to tell. There's been tremendous interest in this. We've dedicated Clot Warrior Academy specifically to FLASH. There's a lot of interest in it. But we don't see it necessarily as an inflection point. It's just additive, and our success is determined by our ability to execute. If there's further questions, Tom can dive in here. Did we lose you? -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [13] -------------------------------------------------------------------------------- No, I'm good from my end. Very clear. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Our next question comes from the line of Larry Biegelsen with Wells Fargo. -------------------------------------------------------------------------------- Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst [15] -------------------------------------------------------------------------------- Congratulations on hiring Kevin Strange. The name rings a bell. It's a nice pickup for you guys. So just let me start with one short-term question just on Q4. I heard the comments on October, I think, modestly higher than the run rate you exited Q3, if I heard correctly. Should we be thinking about Q4 sales similar or better than Q3? And I had a couple of follow-ups. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [16] -------------------------------------------------------------------------------- Yes, Larry, so thank you. And there's a reason why we're not delivering guidance. I mean you're seeing the same things that we're seeing with the headlines, is they literally change every single day, and it's all negative. But I think we're in a little bit better spot this time. So let me say this. We -- in the third quarter, we saw momentum, like each month was significantly better, like an acceleration in the acceleration. We're very, very excited -- on a second derivative-type stuff, we were very, very excited about that. Almost -- right from the very beginning of this quarter, we saw some increased headwinds almost all related to COVID, right? Just restrictions, inability to get and to see our non-interventional stakeholders, things that just slow us down didn't stop the growth but slowed things a little bit. We've seen the same sort of thing in November, a little bit better than October thus far. But I don't want to -- I mean I want to offer -- I want to just make sure there's a bit of caution because just anecdotes pile in every day. Tomorrow, we were supposed to do a live -- Clot Warrior Academy live, and we just found out that the procedure was canceled because of COVID. We see these sorts of things pop up on a fairly regular basis. So that makes a difference. I will say that hospitals are in a much better condition, much better position this time to deal with COVID. As we've seen, there's more equipment, there's more ventilators, although maybe we don't need those. The pain is more distributed. It's not in 1 or 2 centers. It's distributed over a much larger, much broader swath of hospitals. So I want to be a little bit careful -- despite the fact that we have continued to grow thus far, I just want to be a little bit thoughtful and cautious about what might happen through the remainder of Q4. That said, our growth drivers remain intact. All of the things we talked about in the prepared remarks remain true. We have shown that we can execute in suboptimal conditions. If there's even a modicum of constructive operating environment, we can execute. We found a toolbox that we did not have entering this COVID crisis. So we feel good long term about our ability to execute a plan that is very, very aggressive. But again, I think a note of caution here for Q4 is in order. -------------------------------------------------------------------------------- Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst [17] -------------------------------------------------------------------------------- That's helpful. Let me just -- 2 more for me, and I'll ask them both right now. On international, you're going to have at the beginning of next year approval for both of your devices in Europe. So can you talk about what you're doing to plan for the international launches? And should we expect some revenues in 2021? And then just lastly, Mitch, the P&L really stood out this quarter. I heard your color commentary, but a little more color on the gross margin, sustainability and how we should think about OpEx going forward? -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [18] -------------------------------------------------------------------------------- Yes. Thanks, Larry. So regarding international markets, we were very, very excited up until about a few weeks ago when Europe started to shut down. And that's going to create some challenges. So again, the COVID impact is real. That said, we have a sales organization -- the beginning of the sales organization, a real sales organization that's pretty fired up. We've had lots and lots of discussions, both from the home office here and our new sales professionals with thought leaders in top positions in the markets that we're targeting right now. We found a way to train. We can't obviously get on -- we can't take Tom or our top sales professionals here and go train in Europe. But we do have anatomic models. We've certainly learned how to use Zoom. We're super users. And so we have found ways to be effective from afar. So I like our chances of being able to execute this plan and as much as we are able to be in hospitals. So we'll stay tuned. We do expect revenue next year, although I would say at this point, it's measurable but not meaningful is the way we're thinking about this so far. I'll turn the other question over to Mitch. -------------------------------------------------------------------------------- Mitchell C. Hill, Inari Medical, Inc. - CFO [19] -------------------------------------------------------------------------------- Sure. Yes, Larry, thanks for your question. And what I was trying to get to in my prepared remarks were the kind of gross margin, I'd say, normalized gross margin for 2020 and because we had some dislocation there in Q2 due to idle capacity. If you sort of factor that out and you flow that through to Q3, we're sort of looking at a 90% gross margin for the business throughout 2020. I think on a longer-term basis, as we've discussed before, we see this business probably in some part due to the international expansion that Bill just mentioned and some part due to the fact that we're still adding more tools, if you will, to the toolkit on the price per procedure basis for the FlowTriever device. We see the margin moderating a bit in the company, and we're still looking for our margin kind of in the low to mid-80s over the longer term for the business. But clearly, in the near term, we feel like we're going to continue to have a very, very positive margin performance in the company. In terms of the operating expense, obviously, we've had some significant uptick compared to prior year and also compared to our sequential quarter. And I think the best -- the most exciting thing to us is the growth in the R&D line. So there, we're looking at the product development team as well as the clinical evidence development group and the opportunity we've had there really as a result of the resources we acquired through the IPO to invest significantly in those 2 areas. And we see a tremendous opportunity to do that. We see our ability to -- as Bill mentioned a couple of questions ago, to continue to improve the safety and effectiveness and performance of our devices as well to look at some adjacent spaces in the venous anatomy and to see where we can do that. So the clinical evidence development side of the business is very -- there's a very robust plan. We've added significantly to the head count in both the R&D area and the clinical evidence development area. And I think we've talked before, the wave that we are trying to create essentially of evidence and also product performance and basically the kind of the gee-whiz obscene amount of people where more and more physicians will say, "Hey, this is something that we have to do. It's is the right way to treat these patients who are suffering from VTE." -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from the line of Bill Plovanic with Canaccord Genuity. -------------------------------------------------------------------------------- William John Plovanic, Canaccord Genuity Corp., Research Division - Analyst [21] -------------------------------------------------------------------------------- Can you hear me okay? -------------------------------------------------------------------------------- Mitchell C. Hill, Inari Medical, Inc. - CFO [22] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [23] -------------------------------------------------------------------------------- Got you, Bill. -------------------------------------------------------------------------------- William John Plovanic, Canaccord Genuity Corp., Research Division - Analyst [24] -------------------------------------------------------------------------------- So a couple of questions. First is, how important is the 30-day FLASH data? And then what do you think is needed to really change the treatment guidelines for VTE? -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [25] -------------------------------------------------------------------------------- Yes. So as I said before, I mean I think the FLASH data that we've seen thus far has been very favorably received. Without getting into any details since the information is embargoed until tomorrow morning, we think the FLASH 30-day data will be useful as well. And yet it's not guideline-changing. It is additive. It's a terrific story, and it's contributory to the story that we have been telling with some evidence now. And it's all highly, highly favorable. But it's an execution story. And in order to change guidelines, it's almost a trailing indicator, right? It's something that occurs long after people kind of recognize the obviousness to some extent of the need to treat. I suspect it is level 1 -- level 1 evidence is required to change guidelines. That's a prospective multicenter randomized trial, New England Journal of Medicine quality sort of study that typically results in guideline changes. So we're ways away from that. As we've discussed in the past, we are using the information from FLASH and from CLOUT, which we haven't talked about in this call, to inform the ultimate kind of definitive trials that we think will be useful at changing guidelines. But for now, there is a ton of runway. And again, I think there's -- you cannot underestimate the self-evident nature of the clot. There's just never a time that clot comes out and someone says, "Well, I'm just not sure that really mattered." There's no chance that makes someone healthier, right? So I think we've got a long, long runway. And we're even seeing some doubters, people that doubted the story, beginning to come around with -- especially with the safety data that's emerging from our trials. -------------------------------------------------------------------------------- William John Plovanic, Canaccord Genuity Corp., Research Division - Analyst [26] -------------------------------------------------------------------------------- Yes. No, definitely evident to TCT, PERT and even VIVA. The second question is more for Mitch, is just on -- if you look at the -- I mean it's -- 3x growth year-over-year is impressive. And just as you think about that, I think you mentioned over 800 accounts is -- or facilities. Is that -- as you look at the growth you're seeing, is this coming out of the expansion into new facilities? Or is this just getting that much deeper into where you are if -- or even if one outbalanced the other would be -- just trying to understand a little. -------------------------------------------------------------------------------- Mitchell C. Hill, Inari Medical, Inc. - CFO [27] -------------------------------------------------------------------------------- Good question, Bill. And we're actually -- we're seeing it really as a kind of a balanced growth story for the company. So we do continue through the horizontal footprint expansion of the business to add more folks to our sales team and to increase the number of territories. And we think we've got a pretty good growth path in front of us for that. So there is some kind of net new accounts and net new territories that are involved in this story. But I think as or maybe even more important than that, the going deep idea, which is the second growth driver that Bill talked about earlier, is something we're seeing some great results out of that. And as kind of more and more institutions are interested in the idea of forming per teams and where the opportunity that we have to educate the reframed physician community and to show them sometimes the evidence, the clot that Bill mentioned a minute ago that comes out of some of these patients, and there's this -- everyone recognizes that, that matters. And so we believe that we have a pretty balanced growth approach, and we're very focused in both of those areas to drive the company forward. -------------------------------------------------------------------------------- William John Plovanic, Canaccord Genuity Corp., Research Division - Analyst [28] -------------------------------------------------------------------------------- And then just if I could, one last question. Just if you think of -- I think, Bill, your commentary was the calling card has historically been DVT. And then kind of you get all -- you educate them on the PE side of things and it's kind of once you're in there. But given COVID, has that started to transition more toward the PE first, leading with PE? -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [29] -------------------------------------------------------------------------------- Yes. So Bill, I -- it may have misspoke -- I was maybe using that as an example. Sometimes it's DVT first. Sometimes it's PE first. I think it's equally likely that PE is the driver and DVT is the follow-up. And sometimes they're both introduced together depending on which operators are targeted and which ones are kind of driving the introduction of devices. So I don't really think that DVT has been the driver in the past. I'm not sure that PE is the driver now. Again, I think the real benefit or the real impact -- I shouldn't say benefit. It's been an awful disease for all the reasons we know. But the real impact on VTE is the simple awareness of VTE generally, not just PE. And in fact -- well, I'll leave it there. That's the nature of COVID. So no, I don't think that PE is now being introduced first more than it has in the past. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question comes from the line of Danielle Antalffy with SVB Leerink. -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [31] -------------------------------------------------------------------------------- Congrats on a really strong quarter. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [32] -------------------------------------------------------------------------------- Thanks, Danielle. -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [33] -------------------------------------------------------------------------------- Yes, no problem. So just a question on the go-deep concept. And I guess I'm just trying to get a sense of sort of if you look at the total market and where we are from a penetration perspective for interventions in DVT and especially PE, it's still very low. So at your centers that have readily adopted this technology who you would maybe characterize as high-volume users, where have those numbers tick to? And I guess I'm asking the question in the context of trying to get at, like what's a reasonable assumption for where penetration, for example, in PE can go 10% today? Can it go -- are you seeing centers already getting that number up to 25% or higher -- any color you can give there? -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [34] -------------------------------------------------------------------------------- Yes, I think so. I think what you're asking is how well have we been able to penetrate the market on a more local level rather than these global numbers that we've been sharing? If that's the question, I -- we... -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [35] -------------------------------------------------------------------------------- Yes, that's it. Yes. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [36] -------------------------------------------------------------------------------- Yes. Okay. So the answer is we have seen a handful, maybe even smaller than a handful, of customers nearly maximize just -- and the way we talk about penetration, we think there's a ratio of PEs per bed per year, right? And that ratio determines kind of how many patients a given hospital of a given size is likely to see. So that's the way we measure. There's a little bit of noise in that. But we've seen a handful of hospitals, smaller than a handful, penetrate very, very close to the levels that we might think of as full penetration, but that's rare. Most of them are in the very, very low single digits or teens in terms of penetration. What we're really excited about, however, is we have been able to increase it, right? We have been able in hospitals in which we focus on communicating with non-interventional stakeholders, pulmonologists, hospitalists, ER physicians, for example -- we have been able to increase the number of patients being referred. And that's very, very encouraging in the long haul. Eventually, what we'd like to do is get to a point where this is systematized. If you stumble into an ER with chest pain, the first thing that happens is you'll get an EKG, right? There's very low chance that someone is going to miss your MI if you're unfortunate enough to have one. There's also no chance that once it's identified, they know exactly what to do with that patient. These things are all protocolized. We know who's going to treat. We know how the follow-up goes. We know how long the patient is going to be in the hospital and who follows up with the patient after they leave the hospital and so forth. And none of those things are true right now in DVT and PE treatment. So I think there's opportunities, not only just in the conventional sort of education of all of the non-interventional stakeholders, but there's also really, really important upside potential for us to systematize this process over time. So that's going to take a little bit longer, but we are really encouraged to see our ability to impact this at the local level. -------------------------------------------------------------------------------- Mitchell C. Hill, Inari Medical, Inc. - CFO [37] -------------------------------------------------------------------------------- And Danielle, just one other idea to sort of put some numbers to what Bill is saying. As you know, we believe over approximately 440,000 people present or could be eligible for these interventional procedures each year. So if you think about that on a quarterly basis, call it, 110,000 people, and we did 3,700 procedures in Q3, you can see that we're still -- this is a sub-5% type of penetration at the moment. And so we have some institutions that are very well penetrated, but for the most part, across the market, we're just getting started. -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [38] -------------------------------------------------------------------------------- That's super helpful. And then just a question on the competitive landscape. I mean you guys put up such a strong quarter. I mean are you seeing competition out there? Or is this not even the right way to look at it, and this is not a zero-sum game? I mean that's my bent, but I don't want to bias your answer. So yes, I guess just any comment you can make on the competitive landscape would be helpful. -------------------------------------------------------------------------------- William H. Hoffman, Inari Medical, Inc. - CEO, President & Director [39] -------------------------------------------------------------------------------- Thanks, Danielle. So yes, I think you're right. It's clearly not a zero-sum game. Our -- we've communicated about competition in the past. And I think I'll reiterate that now that it's been highly, highly net positive. Anybody bringing a thrombectomy catheter, there's a number of new competitors, there'll be other ones coming down the pike as well, they are communicating -- high-quality rivals communicating a story that is about 80% the same as ours, right? The clot's bad. The clot should come out. Here's a way to get the clot out, eliminate thrombolytic drugs, eliminate the consequent ICU stay and the potential for bleeding. That's about 80% similar to our story. So it's been highly, highly valued. I can't emphasize enough the net positive impact of competition entering the space. The awareness, the communication of these stories is at an all-time high, and it's probably going to increase. And that's been really terrific, and I think you can see that from the growth numbers. So that said, our products are differentiated. We like our chances head to head. We are as aggressive as you might expect head to head because there's a patient on the other end of that catheter. These aren't just whimsical sort of trials, and we're very serious about that and will continue to be. But net positive overall and the more, the merrier for all these things, really good for patients. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.