Penumbra, Inc. (PEN) Earnings Call Transcript & Summary

Hello, everybody, welcome back for the last medtech session of the day, and we are here with the management team of Penumbra. And Adam, thank you so much for joining us as well as the rest of your team at the Citibank Virtual Healthcare Conference.

Yes. Well, thanks for having us. Glad to be here.

Good. It was -- one of the things you and I talked about briefly last night after the earnings call was this sort of subtle but polite, "Joanne, our vascular revenue was greater than our neurovascular revenue now." And I was like, yes, I know that. I know that. But it was a really polite way of reminding me of saying the company has changed a lot. I mean this isn't the stroke company that IPO-ed a couple of years ago. It's evolved.

And so reflecting back on that, what surprised you the most?

Yes. That's -- it's a great question, what surprised us the most. We -- first of all, it's been 5-plus years since we IPO-ed, which when I think about that, sort of causes me, I guess, to reflect on a few of my gray hairs. But we -- our first quarter after we went public, the -- one of the big things that people talked about was that we had just launched CAT 8. And CAT 8, which was our first big peripheral thrombectomy catheter, provided a nice bit of early-launch revenue, and people we're surprised at that in our first quarter as a public company. And so if I look back on that moment and then I compare to where we are today, I'm not actually surprised because it was sort of part of what we had wanted to do. But it -- but plans don't always work, and it sort of has here. What is exciting for us, and I think everyone at Penumbra, is just how many people we can still help in the peripheral space in thrombectomy, it's dramatically larger number of people that have some serious medical issues, both on the arterial, venous PE side. And now with Lightning 7 as well as Lightning 12, we've brought that technology, this really kind of extraordinary proprietary technology that really took us 4 years to do, is really sophisticated to -- maybe this is the wrong term, but it helps proceduralize or automate the procedure of it. It helps you know when you're in clot, how you can function in that. It still, of course, requires the great skill of physicians, but it allows for the kind of success that we're seeing in getting this clot out in a routine way. And that's pretty exciting. It comes at a time, particularly in COVID where needing to have single session treatment, getting the patients in and out of the hospital fast is at an all-time high. And the alternative for the most part is a longer-term, several-day drip of tPA in the ICU. And so when we compare that, I think we're in pretty good shape and providing something that really matters. So it's exciting to see. I think the biggest thing that surprised me maybe is the fact that we have 3,200 people at Penumbra. I wouldn't have guessed that we have that many people 5.5 years ago.

So many directions to go from here but I'm going to go with the one on vascular. And so many of our conversations early on with the company, post IPO, was the development of the stroke market and aspiration and stent retrievers and competition, competition, and then we talked about competition. And what I have been really surprised by is how much the vascular portfolio has evolved. And so just briefly, if you'd just give a mile-high or maybe even less, view of what is in that bucket today? And then when you and I are talking in 3 years, what do you think is going to be in that bucket then?

For peripheral. So for peripheral, our business is made up of really, let's call it, 3 buckets. Most of the time, we talk about it in 2, but I want to pull out coronary for a second. So we have the thrombectomy part of the business, which obviously, just the sheer numbers, are the largest. The way I talk about it is there are about 450,000 people in the U.S. alone that have some form of intervention or surgery for their clot in their body. And most -- that's not done with years and massive amounts of clinical data. That's done by physicians because they really have to. That clot is there. It is going to create some very serious issue, and they have to do it. The majority of those patients, about 250,000, are on the arterial side. And then the DVT, PE and dialysis patients sort of make up the other subsets of those. But that work, the majority of that treatment, that intervention is through dripping tPA over a several-day period. And I think we were offering a much better and easier and, we think, safer solution. So that's sort of that part of it. The coronary, which is really a separate device designed for rapid exchange, is a little different in that in most of the patients that it's used in, it's not the main cause of the issue. It's ancillary. The patient has other things, a STEMI case, plaque, and the product is used sort of in a different way. It's a much faster procedure. The clots, usually much more acute and soft. But that alone, we estimate about 200,000 patients potentially could benefit from aspirating in their coronary. So it's kind of -- that's almost the same size as the stroke market or is the same size as the U.S. stroke market that we're talking about. And then the third sort of leg, in addition to the arterial, venous and PE side on thrombectomy, is the embolization business. And that's been a real exciting sort of bright spot in that we designed a series of embolization tools, coils that most people, and we can feel that way too, sometimes is they're just coils. Lots of coils, lots of big companies have coils. But the coils are unique in that they're larger than typical coils and they're softer than typical coils. And the combination of that allows you to do the work necessary in a much more efficient and better way. And then we've built that out with other parts of the line to anchor in high-flow vessels and things like that, that allow you to do things that you weren't able to do with coils before. And as a combination of those sort of unique tools, that, I think, has allowed us to sort of stake out our place that we're providing sort of very specialized tools that don't exist in other portfolios and have made procedures easier and better for physicians. And it's been pretty satisfying to watch that grow. I think there's a lot of room, as I said on the earnings call yesterday, for that to continue for many, many years. We're in the earliest stages. There's still 90% of the patients that are being intervened or surgically treated today that we're not helping with our tools. So we got a lot of work ahead of us.

What does Lightning 7 bring that Lightning 12 didn't have?

Yes, that's a great question. So on the -- so Lightning 12 is really designed for use in the veins, and now it has a PE indication as well. It's a bigger catheter, obviously, and can remove a fair amount of volume of clot pretty quickly. When you go to the arterial side, we have what we call CAT 6 and CAT 8. CAT 6 and a few other smaller sizes for smaller arteries, CAT 8 for some of the bigger arteries. But the goal, just like in stroke, was as big a catheter as you can logically use. But one of the hurdles that we ran into for a number of years in converting and, I should say, convincing physicians to go from using tPA, dripping tPA over a few days, to try our system is the size of the -- the French size of the hole that you need to make in order to -- the puncture hole to do the procedure. And going up to an 8 French size, we're asking a lot of those doctors. And we really wanted to be able to stick with a smaller French size to address some of their concerns. But to just do that and make a smaller catheter would have impacted its effectiveness. The smaller the catheter, the less clot you get out. So we waited until we had the technology that we developed for CAT 12 and our neuro guide catheter, BMX, which is a very novel technology that allows us to go down a whole French size in the outer diameter, but increase the inner diameter in ratio, so that we're just a little bit smaller, but not much than our CAT 8, but a whole French size smaller in our outer diameter. So that's, on the catheter side, the benefit. You're getting a whole French size smaller, which I think will answer a lot of the concerns to try the system. At the same time, keeping most of, if not almost all the power that you get from the bigger catheter. And then we address the issue of blood loss or the risk of blood loss by adding Lightning to it, which sort of automates that part of the procedure and makes it, we think, much more efficient and streamlined. So it's the combination of those things that I think will allow us to approach the physicians that might have been reluctant to move away from dripping tPA to try this. And we haven't launched it yet. We've just done evaluation cases. So let's wait and see. Last time we launched our Lightning system, Lightning 12, 2 weeks into the launch, I declared that it was the best launch in our company's history, and I know that got a lot of attention. It turned out to be true. And I knew that from just the reaction early on to the use of it. So let's see how the reaction goes in the launch, and we'll report back. But we're pretty optimistic about it.

When you say we added Lightning to it, for those of us not in the OR, what does that mean?

So Lightning is a tool that goes with the catheter, it's not actually the catheter itself. It doesn't actually go in the body at all. It's, in effect, sort of automated tubing that connects from the catheter to the pump. It's got a valve and a whole series of electronics that sense when you're in clot, when you're not. It has an auditory signal to tell you that your catheter tip is in the clot. And then the valve goes on and off in rapid fire only when you're in clot. So if you're in free-flowing blood, it's off, and you won't be just sucking out blood. It's a very sophisticated tool. We spent, as I said, 4 years developing it. It's -- you can, on the website, see a picture. It's got a whole electronic component, and it plugs into the pump. To go back historically, about 3 years ago now, we launched a new pump in neuro, and there was a lot of conversation about that. And people said, pumps don't matter. This pump added higher vacuum power, that's what we sort of said, and it's why we did the pump for the most part. But the other reason we did the pump is that we added a USB port in the back of the pump. And that USB port, which we didn't have in our prior pump, is what allows you to plug Lightning into the pump and power it. So without that, Lightning wouldn't work because you need the power source. And that was a critical part of our thinking for having that pump. Obviously, I didn't want to share that at that time because it would have shared what we were working on in a way that I didn't want to. But the combination of those, the power plus the power source, the USB port, were part of the reason for that product, for the change in it.

And one of the things you were talking a little bit more, maybe because we're talking more about Lightning, is the CAT RX product line. And at what stage does that coronary revenue become significant enough that I add a third line in my revenue model?

Yes. Well, so yes, it's hard to know what that threshold for you is. We'll continue to talk about it. It's not insignificant to us, but it's our same sales team. And it's part of that process. The interventional cardiologists not only do use CAT RX, but they do roughly about 25% of the peripheral cases out there, with a lot of focus on PE. So there are customers anyway, and CAT RX sometimes is the way we get to know them, and sometimes CAT RX follows them using our peripheral work. But it's our same sales force. We haven't built a separate team. So that's why it's all sort of part of the vascular part of the business.

What else do you think you need in vascular?

Yes. It's a good question. As -- the way we always think about our product portfolio is we don't think about what else do we want to sell, what kind of -- we think about what products really matter that don't exist. We don't want to sell the third or fourth version of a product. We want to sell things that really are unique and matter to the physicians. So we're always looking and we'll continue to look at medical issues and conditions that need solutions through technology and try to address that. Unfortunately, I'm not going to share what we think those are right now.

A surprise.

But it won't be adding versions of other -- of products that already exist, unless they're fundamentally better or different. It will be focusing -- and the coil is a good example where coils existed, but we've really done something with that technology that I think has pushed in advance the field pretty dramatically. And I think our share of that market and the reaction to that coil over the last years has shown that. So it doesn't have to be totally novel, it just has to really push the field forward and matter.

And how do you look at your vascular portfolio versus competitors?

Well, we're -- it depends on what competitor you're talking about. Sometimes larger companies have a broader portfolio. We, and sometimes smaller companies, have a very single-product portfolio. I think we are just very purposeful on working on things and developing products that have significant opportunity. Thrombectomy, that opportunity is one of the largest, I think, untapped markets where it's just a matter of us doing our work as the technologies evolve. And we're not done in innovating. Lightning is great, but we can make it even better. And I think over the years, we'll get to the point where, I've always talked about it with our customers this way, we're caught in the body, whether it's in the arteries, veins, lungs, it's not a thing anymore. You just take it out and don't worry about it. Right now, it's still a thing, like it's -- it requires focus and energy. And PE particularly can have devastating outcomes. People lose their legs or limbs because of clot in their arteries. We got to get to the point where that's not the case. It's just, "Hey, I've got some clot here, let's get it out." It's a routine procedure. So that's our goal. We're making progress with Lightning there. But until we get there, we're not going to stop.

So is it safe to say your real competition is people not doing anything? Or people reverting to pharmaceutical lysis?

Yes. I think the competition today is people using tPA or open surgery as their sort of main historical treatment and us, again, just going to them, educating them, bringing them up to speed as to what new technology exists so that they can give it a shot. With Lightning 12, one of the reasons I was so confident it was such a good launch 2 weeks into it is once you use it, it's pretty hard to go back. It's a pretty effective tool. And that's what I saw and heard in those cases. And that's the goal, is to just make this a very easy thing to do, is to get clot out of your legs or your arms or your torso pretty easily. And that's going to be our work in that field for quite a while. But as you know, we're not going to limit ourselves to one thing. We can do several things at once. And we'll add some more over the next years.

So before we leave vascular, is there anything you would like to add to that section?