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

All right. Good afternoon for those of you on the East Coast, and good morning for those of you on the West Coast. I'm Larry Biegelsen, the medical device analyst. And it's my pleasure to host this session with the management team -- or the CEO, I should say, of Penumbra, Adam Elsesser. In terms of format, it's going to be a fireside chat. [Operator Instructions] We're going to try with the polling questions, which have been going pretty well. And I think that's it. Adam, thanks for joining us.

Yes. Thanks for having us.

All right. So why don't we jump in start with the COVID question, unfortunately? Next year, hopefully, we won't be asking about COVID. But just I'd love to hear, Adam, on the recovery trend or lack thereof of recovery, how the Delta variant has impacted things since the Q2 call?

Yes. A totally fair question. And without -- I want to sort of be careful not to give away Q3 or anything like that. But we definitely -- when we gave our earnings call for Q2, we were late enough. We saw the -- some of the trends. So we took a lot of that already into account in our back-end guidance. And so there was nothing particularly different or new that I want to sort of comment on here than what we said on that call. There is some obvious disparity in geographies, both within the states and the rest of the world. For example, Asia seems to be -- parts of Asia anyway doing a little bit better. But none of that was sort of a surprise, and it was pretty much how we have seen it so far. The -- unrelated to sort of the revenue side of the business, it does change how you interact with customers in certain climates. But again, we're used to that. We've done it pretty well over the past year-plus. And so other than the hurry up and get started and then stop and all that stuff, we -- it hasn't had the kind of impact that we had in the past.

That's helpful. And Adam, I wanted to ask you just kind of a couple of financial questions. We're asking all our companies about 2022. It seems a little bit unfair maybe this year because of COVID. But maybe just help us think about some of the key tailwinds and headwinds to think about next year, COVID aside. And you do have a goal of $1 billion in 2023. Is that back-end loaded? Or do you think that's pretty linear from 2021 to 2023?

Yes. Well, just starting -- obviously, we're not -- and I appreciate the way you framed the question. We're not going to give guidance now for 2022. But what we said on the last earnings call, and I want to sort of highlight and say again here, we are set up with a lot of very, very positive drivers. Starting in now the biggest part of our business, our Vascular business between the thrombectomy part of our business, both on the arterial and the venous side, the embolization part of our business, our coronary business, we really have a lot ahead of us that I think will be quite important and we'll likely be able to continue to grow pretty comfortably. There's a lot of greenfield left. As it relates to the Neuro business, we have launched now the entire RED series, RED 72, RED 68 and 62. And the reaction customers had have been great. So when you look at how we are set up toward that goal, we're pretty optimistic. Again, as how do we look at the next couple of years, I think we're in pretty good shape.

That's helpful. So a lot to unpack there. Red 72, I heard your comment there. I'd love to ask about that. But first, you're hosting an analyst meeting, I think, in person on September 21, just booked my flight. And -- but your focus is going to be on REAL. And my understanding is it's just going to be REAL. You're not going to talk about any other products or anything. It's just going to be REAL, right?

Yes, it is just REAL. There's -- it's a brand-new area. We've evolved it a lot since we first talked about REAL a couple of years ago, and it's really an opportunity to go deep and explain what our goals there are. That is one of those rare opportunities that comes along for a company that we -- if we do well, can really fairly revolutionize sort of the whole immersive health care space. And we want to make sure everyone understands what our goals and ambitions are as we try to execute on it. It's not likely going to have an immediate impact in the next quarter or so, but it does set us up for another opportunity to help a huge number of patients.

So are you going to provide a financial -- long-term financial goals? Any -- are you going to help us understand -- this is a difficult product for us to model. You know that. Are you going to provide any kind of long-term financial goals?

Let me not steal too much thunder from that day. We're going to, I think, provide as much information as we have today that we can that will give people a sense of what we're trying to accomplish. And I think that's the best way to frame it.

Okay. Well, why don't we see what the audience thinks? We have 1 polling question. And basically, is it -- Luke from OpenExchange. Maybe if we could show the polling question, and I'll read it. Luke, are you with us? Great. All right. How much do you think REAL can contribute to the number of revenue in 2025: less than $50 million; $50 million to $100 million; over $100 million; d, I don't think REAL is real; and e, depends on what we hear from Adam at the September meeting? So those are the 5 options. And there's a bit of a lag. So I'll -- I'll ask Adam another question before we see the result. I mean I guess, when -- maybe any color on when you said it won't become a meaningful revenue contributor in the next quarter. So I assume it should in 2022. Is that fair?

The -- I don't want to sort of get into the sort of parlance of meaningful or not. Your question, I think, sort of shows that there's a -- maybe will be some disagreement as to what's meaningful. From my perspective, the goal is focused on how do we build a platform and ecosystem that can help as many people as possible. And at the pace that we can do that at, I think everyone knows us pretty well. We're ambitious. We take on things. We want to do it as quick and effectively as possible. And we're putting together a pretty amazing team between our studio, the work that Sixense has been doing and others that we'll introduce. We have a real opportunity, I think, to do what is necessary and harness the power that VR has in immersive health care in real significant ways across all kinds of different applications, not just in rehab but in mental health applications. So the goal is obviously to help those people as fast as possible. And I think it will become fairly obvious. We're not doing this to sort of play around the edges. We are definitely doing this to do everything we can to help people. If we are successful in that, if we execute that goal that we lay out, then it will obviously be pretty meaningful. And we'll wait and see. But I'm pretty confident that we can -- we have a real good shot at it.

So Luke, do we have the results yet or should I keep going? Okay. I guess, Adam, you've been -- if you go on Instagram, you can see that you guys are presenting REAL and you have a presence in a lot of conferences. You've got a few keynotes. It doesn't seem like it's contributed much to revenues so far, obviously, from your comments. I guess my question is why -- given REAL is not new, and you have been marketing in a lot of conferences, what are you seeing -- like what's been the reaction at these conferences? Why isn't it contributing more yet?

Yes. Well, the question is a great question. And I think it will become even more obvious when we're together on the 21st. The world that VR plays in health care is -- it's a broad world. There's a lot of people involved in it. And what we need to do is bring -- rather than have them all sort of playing against each other, we need to create an ecosystem where everyone is working in effect together. And that's where there'll be the most success, including our success. So a lot of the conversations we're having are to lay the groundwork for that inside the existing ecosystem with all those players. And so that involvement, if you will, in these conferences and the various events that you properly commented on are to do the work necessary to achieve our long-term goals. And I think will become pretty obvious on the 21st.

Okay. Luke, do we have results? All right, Adam, drumroll. Less than $50 million.

Awesome. Low expectations. I can only do better.

How many people? I don't think REAL is real, 17%, interesting. Okay. So less than $50 million was the #1 pick. All right. So yes, cool. That's helpful. So Adam, why don't we move on? I actually wanted to ask about -- so move to Vascular. And I'm going to start with one on, I think, CAT RX, you -- which is the coronary product, Indigo basically for coronary. And you've done a big trial called CHEETAH, clinicaltrials.gov says that trial is completed. It's a 400-patient study, PCI patients with a high thrombus burden. One would think that if it's completed, we'll see that data later this year at a conference like TCT. Is that a fair conclusion? And what will we learn from this study?

I love your questions. It is a fair conclusion that you will see that data. I'm obviously not going to announce at this stage where it will be presented, but it is a fair conclusion. What we should sort of back up on -- just to remind everyone, the TOTAL trial, which is a large randomized trial, significant size, it had a -- didn't meet its endpoint, but it did show pretty clearly that there is still room and need for innovation in high-risk patients and the patients that had the highest thrombus burden and had the most risk. And that's sort of well agreed upon in the field that there is still room. So the CHEETAH trial goes after that data. It's focused only on those high-risk patients. And obviously, I'm not going to present the data, but our hope is that it shows that there's some benefit with those patients. And if -- again, a single-arm study, but if we can start to understand that, then we can sort of think about the next phase of going after a more randomized approach to try to get better and better data. But to start, you're talking about a group of patients. Right now, about 65,000 patients in the U.S., just to use U.S. numbers, that have some form of either us or catheter-based thrombectomy performed. And there's up to about 195 high risk or sort of high thrombus patients that potentially could have procedures done. So when you look at it,in that form, you're looking at a potential market. TOTAL went after everybody, even patients that didn't have clot. If you look at it in the more limited faction of high risk, you're still talking about a market that's almost the same size of our stroke market. And so I think it shows -- and we'll hope and see what happens with the CHEETAH data. But if it is successful, we will have the ability to start to impact even more and more of those patients.

That's helpful. That's great. All right. So I wanted to move on. One question I got on REAL that I think is a good question that I wanted to ask you, to go back. There are numerous VR telehealth rehab companies. Why will Penumbra be the winner?

That is a great, great question. In fact, there's a lot of them, and we're going to talk about the scale of that opportunity. What I -- what most of those companies are doing is focusing on building really amazing applications. There are software companies doing that. That's critical, and it's a critical part of our long-term strategy that they keep doing that. But what they're not doing is building the whole ecosystem and focusing on the rest of it. And we'll lay that out and the details of that and why we think we have a slightly different opportunity than some of the companies that are focusing just on the application part. But it's a great question and one that I'm pretty confident we will answer on the 21st.

Okay. That's helpful. On -- one more on Vascular. How do you innovate further here? You've had tremendous success. And I'm asking about thrombectomy with Lightning 12 and now Lightning 7, I believe. Hopefully, I'm reading my numbers right.

Yes, you got them, Lightning 7 and Lightning 12.

Yes. I know it's early, but we saw Abbott did a deal where they bought this Walk Vascular. We saw another one get cleared on the FDA website 2 weeks ago: NedSpace, DeVoro a private company. It's getting -- it's pretty obvious that it's getting crowded. So how do you stay ahead of the pack on the peripheral thrombectomy side?

Yes. Well, first of all, I don't think it's getting crowded at all. I would disagree with that. I am actually really encouraged that companies are getting in this space. None of those companies that you just mentioned, we didn't know about, obviously, and know the technology. I'm thrilled to welcome a great company like Abbott into the space because the first and biggest challenges, as I've said over and over again, is we need to collectively move people, whether it's arterial side, DVT, PE from lytic or surgery to doing mechanical thrombectomy. And the more people that are helping push physicians into that field, into that idea and mindset of single-session treatment, the better for patients, I think, in the long run. So I think that's incredibly helpful. How we stack up, if you will, we are still focused on doing that. We're not yet focused on head-to-head competition. I have a lot of confidence with Lightning as it is, that it will stack up quite well competitively. I think we already have a feel for that in the market. But I think everyone who knows and follows us knows that we don't just stop with our innovation. And even though Lightning 7 and Lightning 12 are doing really well, we think they can do even better in the long run. And we are going to continue to take the lessons we've learned and see the things that we can improve upon. And I think that's been our model. The slight difference between this and the stroke business, where the competition got pretty crowded, but even that, we're -- I think have the ability to keep ahead is what we're doing is a little different. It's not just sort of catheter technology like it is in stroke. We're now into a world where we're using Lightning, as you know, is a software-driven out system that regulates flow, as an auditory and visual signal when you're in clot for ease of use. Those are the kinds of things that sort of keep you ahead, and then we can even maximize that in terms of clot removal going forward. So I'm pretty confident about our place in this field for quite a while, and I could use -- the company can use the help -- patients can use the help of more and more companies trying to get people on to single session.

All right. Fair enough. So we had 10 minutes left, and I have to say I'm a little disappointed that you haven't talked about Thunderbolt. Mentioned Thunderbolt once yet in the first 20 minutes, but we'll transition to Neuro business, even though REAL is technically Neuro, too. But you recently had the RED 72 device cleared. You have RED 62, 68 now 72. You mentioned that actually early in this conversation that RED 72, I think, I heard you say have launched or you're launching it. What is the status of RED 72? And how is it different from JET 7 XTRA FLEX, which obviously was recalled late last year?

Yes. Well, I mean, obviously, the -- it's different from XTRA FLEX in the fundamental premise that it doesn't use the same material that was on XTRA FLEX that created the issue that required it to be recalled. So obviously, we don't use that material. So that's the most significant. RED 72, though, is a -- early cases tell us what we thought we already knew, which is it is a great product. It tracks really, really well. It's based on our core technology that we've been using forever and ever, but with things on it that allow it to track even better than before. So we have a lot of confidence early on with the performance of that catheter. And that same technologies on RED 62, which has done incredibly well, both for distal clots and also for M1 clots, where people who are more comfortable taking a catheter that size up to the M1 have found it to be very valuable. So the groundwork is being laid with the RED series. Again, early, early days. We'll see most of the benefit of that in future quarters and -- in terms of Q4 and into next year. But we're pretty optimistic, and it's really nice to be back there. One of the things we have seen is that in all the competitive trialing and everything that's happened over the past sort of 9 months since XTRA FLEX is -- was taken off the market, no particular product sort of captured the entire market's sort of, oh, my God, this is the one. This is -- and so there's a real opportunity, and I think RED is filling it very quickly to sort of get back into a driver's seat. And so I think with RED, we're going to see some significant opportunity over the next year or so. And then you mentioned it, so I'll follow up and not make you follow up with a question, what happens after that. And Thunderbolt is after that. We have time now with RED series to get that to the point where we can talk about it and launch it. Until then, I'm going to keep it where it is, which is just a name and not a lot more details beyond that. But we're feeling very, very optimistic about our ability to provide the kind of things in stroke that patients and doctors need right now. And it's a pretty exciting time for the company.

Adam, just a couple of follow-up questions on RED 72. I feel like obligated to ask a couple of things. One, do you think some physicians will be reticent to use RED 72 because of the experience with XTRA FLEX?

Yes. I think it's a really -- that's a fair question. I can't speak for every doctor, and I'm sure there might be somebody that you do enough calling that you can find that says that. Our experience so far has been the exact opposite. There's a pent-up demand for people -- that people have to get our newest thing. There was a lot of, as you know, differing views on that product. But a lot of people really like that product. And I think there's a lot of goodwill that we have right now. And we felt at the SNIS meeting, I was -- it was my first in-person meeting in 1.5 years this summer, and RED 62 had already launched, RED 72 had not yet been cleared. But there was a lot of sort of anticipation over the RED series, given the performance of 62. And so no, I think, overall, the market and physicians know us, trust us. I think this experience did, more than anything, to solidify that. And I think we're in a pretty good shape.

And one last one, a little bit more of a more delicate question. How do you address this contrast issue where physicians do it off-label. It was an issue with XTRA FLEX. What's going to happen with -- I know you -- it's something you don't recommend. But how do you see that playing out with RED 72?

Yes. Look, I think we've -- to remind everyone, that issue is we definitely don't and won't ever have in our labeling recommending that or suggesting it. Our labeling still says, please inject -- do your contrast injection to the guide catheter. So that's the starting point. And the reason is not for safety of the catheter but for purposes of not pushing clot back out into a case. That being said, obviously, with this product, we have done testing and submitted data to the FDA that shows the catheter strength and so on. And so that I hope is obvious that we would do that, and we feel very comfortable that this catheter will perform quite well.

And you don't think you lost there's any trade-off with trackability?

I don't want to -- trade-off is an interesting question. Is this going to track exactly like XTRA FLEX? Maybe not. We'll attract better than anything else out there. Early senses, it tracks pretty darn well.

Okay. Fair enough. And then on Thunderbolt, you kind of made it tough for me to ask anything. You kind of...

Yes. You like that?

I'm not going to say anything except the name. But I mean, 1 question. Do you think -- what are the chances that we could see this year approval?

I think it's best for me not to sort of get into timing questions just because, obviously, I don't control all the timing, obviously. So I'm not going to do that. Needless to say, if one is stepping back and looking at our Neuro business, we -- with the RED series, we're -- and again, I'm not taking away from, I don't want this to be a comment that I'm backpedaling anything on Thunderbolt; I'm not. But we're good with the RED series for quite a while. Thunderbolt is really exciting, and I can't wait to have it. But we don't need it like in the short term to have the kind of success and growth that we expect to have. So please don't interpret that as anything negative or backpedaling; it's not. But we're lucky enough to have a lot of good things happening right now in our Neuro division.

That's helpful. Adam, we've got about 2 minutes left here. We didn't talk about, I mean, geographic expansion in China and Japan, recovery in Japan, expansion in China. How are you feeling about just kind of the international business today?

Yes. I think we're pretty excited internationally. We hired just recently a senior executive in Europe to help put together sort of a more localized sort of management structure in Europe. I think that will help drive some growth. Japan is obviously rebounding from where we were last year, and there's opportunities ahead, obviously, with the RED series. They don't have that yet. But when they do, I think they will do well with it. And then they certainly don't have the Lightning franchise in Japan. So there's a lot of opportunity there. In China, again, early days, just 5 products, none of our newer stuff or any of our peripheral stuff. So there's additional opportunities there. So I think we got a lot of opportunity ahead geographically, and we're just going to take them on as we can to bring that technology to as many people as we can.

Perfect. All right. We're out of time. I think we covered a lot of ground. Appreciate you being here, Adam, and look forward to seeing you on September 21.

Yes. Thank you very much, and I look forward to seeing everyone on 21st, and thank you for great questions.

Got it. Thanks, everyone.

Thank you.