OptimizeRx (OPRX -2.47%) is a tiny small-cap that is still under $1 billion in valuation. But it probably won't stay there for long. Shares of this pharmaceutical marketing company have been soaring, running up nearly 450% over the last 12 months. And another fast-growing healthcare company, Inari Medical (NARI -1.71%), has seen its stock jump 173% in the same time span.
What's driving these shares higher? It's the triple-digit revenue growth, of course. OptimizeRx reported a revenue jump of 110% in its most recent quarter, while Inari clocked in with an amazing 178% increase in sales. Read on to see if these two fast-growing healthcare companies are right for your portfolio.
Image source: Getty Images.
Why is OptimizeRx stock skyrocketing?
While many of us buy healthcare stocks on the basis of scientific research and new drugs in the pipeline, there's an additional aspect of this sector that can't be overlooked -- the pharmaceutical sales call. It's wonderful to have an amazing new drug validated by the Food and Drug Administration (FDA). But that's just the beginning. Pharmaceutical sales can't happen unless doctors prescribe the new pills. And if the doctors haven't heard of your newest innovation, that's not going to happen.
So big pharma spends a lot of money trying to market its drugs to doctors. It's a $20 billion mini-industry within healthcare, revolving entirely around the pharmaceutical sales call. In the U.S., over 80,000 pharmaceutical sales reps try to grab a few minutes with 800,000 prescribing physicians. It's the healthcare equivalent of door-to-door sales at the doctor's office.
Many doctors hate this interruption and try to avoid it. In a study that was completed before the COVID-19 pandemic, 46% of doctors would not see pharmaceutical sales reps in person. And 39% had not even communicated with a sales rep over a six-month period. So how do you market pharmaceuticals to this hard-to-reach (and very busy) group?
You go where they are. Doctors spend an inordinate amount of their day online, looking at electronic health records (EHR) on their patients. In a 24-hour period, first-year interns spend over 10 hours interacting with EHRs. Even when seeing a patient, doctors are often multitasking, and looking up health records online.
OptimizeRx is disrupting the pharmaceutical sales rep industry by marketing pharmaceuticals to doctors via EHR. The company has over 370 EHR systems in its network, reaching over 60% of all prescribing physicians. The internet is faster, easier, and cheaper than the door-to-door route. And by marketing via EHR, OptimizeRx is able to get relevant pharmaceutical information to a doctor during the ordinary course of treatment.
In one use case, a pharmaceutical company received FDA approval for a new indication for one of its cancer drugs. The company used OptimizeRx to immediately get the word out via EHR. Doctors who were in the network were three times more likely to prescribe that drug.
Optimize is small right now, with $34 million in revenue over the last 12 months. But the future is very bright, with $170 million of orders in the pipeline. This amazing growth story has just begun.
Data by YCharts.
Zooming higher and already profitable
Inari Medical makes its money with devices that remove blood clots in veins. The company offers two noninvasive devices, the FlowTriever for pulmonary embolism, and the ClotTriever for deep vein thrombosis. While the FDA has approved 170 devices for removing clots from arteries, Inari was the first to receive approval for devices to remove clots in veins. As a consequence, the company has huge revenue growth right now.
| Metric | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 |
|---|---|---|---|---|
| Revenue | $19.8 million | $26.9 million | $25.3 million | $38.7 million |
| Gross profit | $17.7 million | $24.2 million | $21.9 million | $35.4 million |
Data source: Yahoo! Finance.
The company had a blip in sales growth in Q2, when COVID-19 upset the applecart, but by the next quarter sales started shooting even higher. Indeed, the company's noninvasive devices are likely to see stronger demand because of COVID-19, as the coronavirus can cause blood clots. In one study, 20% of COVID-19 patients had clots in the veins, and 31% of COVID-19 patients in the ICU had them. These blood clots increased the risk of death by 74%.
In the third quarter, physicians removed 3,700 clots with Inari's two devices, up 185% from a year ago. Overall, 16,000 patients have been treated with the devices. The addressable market is vast, with over 440,000 patients a year in the U.S. suffering from clots in the vein. That is potentially $3.6 billion in revenue for Inari, just in the U.S. The market opportunity is even larger worldwide.
What's really nice from an investor perspective is all the recurring revenue Inari receives from its two devices. Once a hospital buys a ClotTriever or FlowTriever, and physicians learn how to use the device, Inari will see a lot of repeat sales. That's because both of these devices are disposable. Use it once and you need to buy another one.
From a patient's perspective, it's far better to have a clot removed than to be on blood thinners for a lifetime. And noninvasive removal is a definite improvement over the class of drugs known as thrombolytics, or "clot-busting" drugs. Those drugs are ineffective for venous clots, which are often significant in size and hardened. Thrombolytics can also cause bleeding complications, and are contraindicated in 50% of patients with clots in the vein.
Inari's noninvasive solutions are superior to the standard of care. That's why the company is seeing massive revenue growth right now, as the medical community wakes up to these remarkable devices. While Inari's stock is highly expensive, with a price-to-sales ratio of 51 and a P/E of 800, the upside is still high. Risk-tolerant investors should do quite well investing in either Inari Medical or OptimizeRx.
