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

Good morning, everyone, and welcome to Penumbra's 2021 Investor Day. I'm Jee Hamlyn-Harris and I work on the IR team here at Penumbra. It's great to see so many of you here in person today. And to those on our webcast, thank you as well for joining us. As a housekeeping matter, we ask that all of our in-person guests, please keep on their face conference during today's event. The formal presentations will commence today with Penumbra's Chairman and CEO, Adam Elsesser, who will share our vision for the real system platform. Following Adam's remarks, you will hear from some of our team about the clinical basis to virtual reality and the technology and capacity that we have built through advance health care using VR. We expect the formal presentations today to conclude around 11:30, following which we will have a live Q&A session. We will conclude the day with lunch and an opportunity for you all to try some of our products. Before we begin the formal presentations, we would like to go over the safe harbor and forward-looking statements. I won't read those in totality today, although I could probably recite them, but please note that much of what we say does involve some risks and uncertainties. Please refer to the full slide in our presentation deck. With that, I would like to turn it over to Adam Elsesser, Penumbra's Chairman and CEO.

Thank you, Jee, and good morning, and welcome to Penumbra's 2021 Investor Day focused on immersive health care. I've been looking forward to this event for quite a while. It is a privilege to work for a company that develops a medical product that revolutionizes an entire field of medicine. At Penumbra, we have been extraordinarily fortunate to do just that, not only once but twice so far in our history. And now today, we will lay out our plans to try to that again. In 2008, we did it with the launch of our first of many stroke products, the Penumbra system in the field of ischemic stroke. In 2020, we did it again with the launch of Lightning with Indigo in the field of arterial and venous thrombectomy. And now today, we will share our plans to do it again with immersive health care. Our goal over the next few years is to build a seamless platform to provide immersive therapy to the broadest range of patients possible. Simply put, to achieve this goal, we need to provide both the hardware and the software. We also need to build an ecosystem and a large installed base so that patients have access to the best immersive applications. These applications or content will come from 3 sources: our own amazing studio, Penumbra contracting with outside studios and eventually through third-party developers. By now, we all know this fundamental business model. It's been done in other fields like mobile phones and gaming. Some of you might remember something I said when we went public 6 years ago, almost to the day. I said that if we can execute well, hire the best people and keep innovating, our vascular business would be bigger than our neuro business in 5 to 6 years. We were fortunate to do those things, and our vascular business now is bigger than our neuro business. So now if we can execute, hire the best people and keep innovating in immersive health care, it is possible that our immersive health care business can be the biggest part of our business in the next 5 to 6 years. Today, we will share with you how we plan to do these things in a field that is very different from our current field and technology. Let's start with our ability to innovate. Today, I am proudly announcing that we have entered into a definitive agreement to acquire our trusted partner, Sixense. Sixense and the people on its team together bring decades and decades of experience in immersive computing and the development of the hardware and software necessary to bring our vision to a reality. There are many aspects that make this acquisition essential to our success in immersive health care. Today, I'm going to focus on 4 areas. The first is their patented tracking technology. Jeremy Bailenson, the Founding Director of Stanford University's Virtual Human Interaction Lab and one of the world's foremost experts in virtual reality and more specifically, virtual reality for health care. And by the way, one of our expert panelists today, Sit of Sixense's tracking technology. There is a joke I like to tell VR audiences. I ask them, what are the 5 most important technological affordances in VR that make good and effective experiences? The answer is tracking, tracking, tracking, tracking and tracking. What makes Sixense so incredible is their ability to track so many degrees of freedom at once. They are the clear leader in systems, which allow for realistic full body movements. In addition, Sixense brings a rich library of content that will be used to help many people in health care. They have also started some fascinating work with an important partner in diversity, equity and inclusion training. This important work traditionally would be considered a training function. However, as it is currently unfolding, we believe it could fit very nicely into immersive health care portfolio. And finally, and one of the most important recent developments, Sixense takes the solitary experience of virtual reality and makes it a connected experience for patients with REAL Connect. We will highlight some of these developments today. The second critical element is our ability to hire the best people to bring immersive technology to health care. Throughout the past year or so, we have been hiring a significant number of extraordinarily talented people to join the incredibly -- incredible people already working on this project at Penumbra. At the end of the presentation, I will introduce some of our senior leaders. But before that, I would like to take a moment to introduce us soon to be new member of the Penumbra team, who will be starting next month. It is my absolute pleasure to announce that Riley Russell will be joining Penumbra as Executive Vice President of Third-party Partnerships. Riley, welcome. Riley has more than 30 years of experience in games and the interactive entertainment industry. But before coming to Penumbra, Riley had a storied career as Chief Legal Officer of Sony Interactive Entertainment, where not only did he have formal legal responsibility for PlayStation Video Game Console, PlayStation Network and PlayStation VR. He also has, in the past, led third-party relations and developer support and managed all licensed, published relationships and strategic product planning for all PlayStation product -- platforms. Riley's experience, relationships and wisdom will be invaluable as he helps Penumbra build the real platform for immersive health care. Finally, we need to execute. We will spend the next hour walking through what we are doing to bring this technology to immersive health care. Now I'd like to introduce Jason Mills, who, for most of you does not need an introduction. Jason joined Penumbra last year as Executive Vice President for Strategy. Jason today will walk through the scale of the patient opportunity that we are trying to take on. Jason?

Thank you very much, Adam. It is really great to see you all again. Thank you for spending time with us this morning. For the next few minutes, I will highlight for you 4 key aspects of the opportunity we have in front of us in immersive health care with the REAL platform. First, the areas of health care within which REAL advances care for patients. Second, our channel strategy, where the patients are, who can benefit from REAL. Third, the number of patients we believe we can help each year. And fourth, how our new model and channel strategy pair together to address the largest opportunity Penumbra has ever taken on. As you can see here on this slide, as many of you know, neuro rehab was our initial focus with the original REAL system. To be very clear, we are more excited than ever about the opportunity we have to help patients in this area. That said, over the past 18 months, our vision for the REAL platform has expanded significantly as we have learned so much more about the powerful and broad clinical utility of immersive VR. Indeed, we have identified more than 20 evidence-based VR therapies for patients. These therapies are broadly applicable across 3 large segments of health care, rehabilitation, mental health and therapies for older adults. So where are we going? And how many patients can we help? From acute hospital settings to assisted living facilities, we have identified 14 distinct health care channels as a starting point. Within these 14 channels, we estimate there are over 100,000 traditional sites of care in the United States alone. And across these sites of care, we estimate more than 50 million applicable patients journey through these sites each year who we can help with the REAL platform. Pairing our channel strategy with our new commercial model, we estimate the REAL platform addresses a market opportunity that exceeds $10 billion in the United States alone. Given the huge number of patients we can help, we are investing to build a large installed base to serve not only the huge number of patients within and beyond these starting channels, but also third-party developers of evidence-based therapies. Our new model offers a customizable approach to serve a broad range of health care customers. It also provides a platform for the broad ecosystem of developers who would benefit from a large installed base of REAL Systems. Indeed, most successful models of this type derive a significant portion of revenue from third-party partnerships. In sum, the immersive health care opportunity is significantly larger than any other market Penumbra has ever addressed. It is now my pleasure to introduce Gita Barry, Executive Vice President and General Manager of our Immersive Healthcare business. Gita?

Thank you, Jason. Now that you've heard about our vision for immersive health care and how many patients we can help, I'd like to dive deeper into the REAL System platform. With the help of a few leaders on our team, we'll discuss the clinical opportunities for virtual reality, what health care VR looks like today and in the future and share videos of REAL System activities and how those relate to our hardware configurations. To get us started, let me invite Margaret Martonosi, Director Scientific Discovery to share about the clinical opportunities in VR. Margaret has more than 20 years of clinical experience in social work and more than 10 years in digital therapeutics development, most recently at Pear Therapeutics.

Thank you, Gita. So the evidence for virtual reality in health care is large and growing rapidly. Virtual reality has been advancing health care across key areas such as rehabilitation, mental health, acute care and outpatient procedures and chronic disease management. Virtual reality has been shown to improve patient engagement, resulting in increased patient adherence to treatment. For instance, one study with HIV patients showed that VR patient education led to improved adherence to entire retroviral therapy. Virtual reality has also been shown to increase patient satisfaction. For example, in a randomized controlled trial with patients undergoing cranial and spinal operations, VR therapy helped decrease patients' anxiety prior to surgery, leading to increased patient satisfaction. As Jason alluded to, there are more than 20 evidence-based VR therapies, all rest on solid foundational ground from well-proven traditional therapies. Virtual Reality therapy can be effective even as a stand-alone therapy or as a complementary therapy with increased effectiveness. VR-based distraction therapy is an example of stand-alone therapy for pain. VR-based exposure therapy and VR-based neuro rehab therapy are examples of complementary therapy to traditional therapies. Evidence-based VR therapies fall into 3 main buckets. The first one is rehabilitation therapies, starting with VR-based neuro rehab, the initial focus of the REAL platform. There is significant evidence for stroke and novel neuro conditions, including Parkinson's disease. Other areas of VR rehab include orthopedic, musculoskeletal and pulmonary, just to name a few. The second bucket is VR-based mental therapies. Examples of such therapies include VR-based cognitive behavioral therapy for mood disorders, VR-based distraction therapy for pain, discomfort and opioid avoidance, VR-based exposure therapy for anxiety disorders and substance use disorders, VR-based mindfulness therapy for stress reduction, pain management and mood disorders, VR-based social connectedness to combat loneliness, VR-based bio feedback and no feedback for pain, stress, anxiety, neuro trauma and hypertension. The third bucket pertains to VR-based therapies specific for older adults, such as, for example, reminiscence therapy and cognitive stimulation. Now I would like to turn our attention to some common comorbidities that are associated with acute and chronic conditions, health procedures and aging. The reason to focus on those comorbidities is that they can all be helped with VR. Imagine, for instance, a patient with a spinal cord injury, that patient may struggle with depressed mood and grief from their loss of abilities as well as pain and isolation. This is similar to a patient with cancer who is experiencing pain, depressed and anxious moods about their condition and treatment options and at times, discomfort during infusions. Both patients may also be dealing with ongoing stress, fatigue and sleep problems. For all the patients, there may be added challenges from hearing and vision loss, loss of mobility and institutional living. Both common comorbidities are main contributors of psychological burden for patients and have a significant impact on those patients while being an ability to self-manage and adhere to treatment. So thinking about our spinal cord injury patient and cancer patient examples, how might VR help with their comorbidities. For anxious and/or depressed moods, a provider may use VR-based behavior activation, mindfulness and relaxation therapies. For pain and discomfort, VR-based distraction, mindfulness and relaxation therapies may be what is called for. For loneliness, VR-enabled social connectedness may be employed in addition to the other fear piece. Fatigue and sleep problems may be helped with VR-based mindfulness and relaxation therapies. For age-related challenges, reminiscence therapy and cognitive stimulation may be employed. Both VR-based therapies have a beneficial trickle-down effect on all those acute chronic conditions we reviewed the procedures and age-related challenges we discussed. The net impact on the lives of millions of affected patients can be huge.

Thank you, Margaret. With so much opportunity for VR in health care and so many studies demonstrating improved outcomes when VR is incorporated into the therapeutic setting, what's limiting adoption? The answer is that VR technology is hard for providers to adopt in its current form. Today, there are more than 100 companies with VR-based health care solutions, working every day to support patients. Many of them have good content with activities based in sound clinical science and are advised by leaders in their respective field. Broad adoption of these systems is limited by, first, the constraints of using off-the-shelf gaming hardware. These solutions require the company to deliver a product, both in hardware and software that really isn't designed for the health care user. Providers need help to address how do you clean it? How easy is it to change the settings and how quickly? These considerations aren't necessarily needed in the individual consumer space but are must in the health care setting. Also, a lot of great content is locked into a company's hardware offering. So company X has a great solution for traumatic brain injury. But if you want to add another activity, you're out of luck. Instead, you need to buy more headsets from another company to access that new content that you want. Do this 3 times, and you'll see your closet filled with hardware with software that the staff can't remember how to use, given the unique operating requirements of each particular system and all for a short time that they have with the patient or user. And finally, even with the great content available, there's also just not enough of it. Margaret and Jason highlighted the many opportunities for immersive VR experiences. But there's not yet a leading solution in each of these areas, nor enough to do content on a regular basis to support clinical demands. Despite these obstacles, there is a strong desire to invest in immersive VR healthcare, but the situation is out of balance. Overcoming the obstacles is a lot to expect from a setting that isn't primarily focused on technology but rather excellent patient care. Our goal is to address these challenges, allowing for broad adoption of immersive VR in health care settings and increasing the number of patients who can benefit from VR-based activities developed by software developers and clinicians. Our goal is to deliver an ecosystem that addresses patient satisfaction, patient engagement and clinical outcomes through the following: an expansive activity catalog with experiences designed by Penumbra and our software development partners to meet the provider and user needs for many different health conditions where VR can enhance the clinical experience, again, as Margaret and Jason have highlighted. Operating software that is easy to adopt and maximizes time spent in activity rather than in setup and services that are designed to inform the health care provider in their ongoing support of patient users. And finally, hardware designed specifically to meet the needs of health care settings. For example, we employ a stand-alone headset that doesn't need to be tethered to a computer and we use tracking technology that doesn't require external cameras. These 3 elements are foundational for a complete VR health care experience that allows customers and patients to focus on clinical care rather than technology. We've been working on this health care ecosystem with Sixense since 2017. That then builds upon their hardware development efforts that have started in 2007. These elements are the foundation of REAL System. In addition, we also understand the following: training and support with both technology and clinical experts, clinical experts, like our dedicated team of occupational and physical therapists supporting our flagship REAL System, commitment and follow-through on updates across the entire system, activities, operating software, hardware based on customer needs and ongoing feedback, demonstrating our commitment and confidence in VR technology. This serves both our health care customers as well as our software development partners. And finally, confidence in data security. We understand health care standards and make the commitment to keep patient data secure and focused on health care. The efforts today by so many in this field are helping bring VR into the health care space. As I mentioned, clinical obstacles still remain unresolved for clinicians. But when everything is working together, it can be easy to adopt. Add to that commitment to ongoing updates and innovation, and we build an ecosystem that health care providers can have confidence in. And that will lead to strong growth and ultimately a large health care installed base. Let's now turn to the REAL System offering. I'd like to invite Steve Chen, Director of Product, to share more with you about our t-Series and y-Series products. Steve has more than 25 years of experience in interactive software and video game design, including time at Lucasarts.

Thank you, Gita. Welcome. You've heard a lot about the REAL System scientific approach from Margaret and the REAL System vision from Gita. The first generation of y-Series, the REAL System is available today. It's aimed at motor and cognitive rehab therapy at inpatient and outpatient facilities. The core system is a complete therapy product that includes a 6-degree of freedom headset combined with Sixense's full body tracking technology and a tablet that allows the therapist to control and direct therapy session. This is all contained in a durable package designed to withstand the demanding therapy facility environment. The t-Series will be for telehealth, using the same headset as the y-Series and will come in configurations designed to be used in the home and at the direction of a remotely connected therapist. These hardware platforms will include operating system software designed for patients and providers that will enable great VR patient experiences that make therapy engaging and fun. We've combined a clinically based approach with a group of world-class VR software developers to create compelling activities and experiences for health care. I'd like to share what our team and our development partners have been working on. Let's begin with Happy Valley, a computer creative world that's commercially available today on the REAL System. It features 18 activities that therapists can employ as a part of a program to improve a patient's range of motion, balance and upper body strength as is typical in neuro and orthopedic rehab settings. And activities like harvest, patients who use their arms up to greet the sun. The sun provides feedback to the patient about their movement. During therapy session, a therapist can actively adjust the settings to address things like weakness on a patient's left or right-hand side. In activities like nest top, patients exercise reach and control of their arms by placing different kinds of birds in the right nest. Activities like this encourage both motor and cognitive skill development and remove the fear and stress associated with conventional therapy settings. This helps patients reach their full potential. Not only do the activities vary but so do the environment. This is Catching Glow. This is an activity for upper body motor coordination and neck rehab. You can see that this has been designed for patients looking for less visual stimulation while still getting the benefits of VR-based rehab. Another experience is music and motion, a music-themed fantasy experience built to address range of motion control and coordination therapy. A core principle of rehab therapy is to encourage movement early in the process. This is key to regaining function in affected extremities. By matching the rhythm with the movement, patients activate parts of the brain that stimulate motor pathways and encourage neural healing. Here, patients pick from a variety of music tracks and environments and then use body movements to interact with objects like notes moving towards them. Just like Happy Valley, settings like speed and duration are directed by the therapist. Music and motion can be tuned for patients at any level of ability from patients with very limited capabilities to patients that are the most advanced. The World of Island Antics is quirky and colorful and inhabited by cute alien characters. Island Antics impose -- emphasizes big dynamic movements. We have exercises like this are key to improving posture stability and the ability to focus your attention. In this activity, patients help their tiny alien friends get from one side to the other by tracing long-wide arcs. In another, patients trace long-wide arcs to control levers in order to unplug the plumbing. For a more high energy, high action experience, Pinball puts the patient in the middle of 3 different pinball tables. This activity is designed to help patients recover upper body strength, coordination and endurance. Patients control a unique paddle, visually held with 2 hands, but it can be controlled by 1 or both. The paddle lets them hit and direct pin balls around creatively themed worlds like the Alien Arrival, Carnival and the Magic Garden. And just like all other activities, therapists can adjust the settings to ensure that patients at all levels get the most benefit from the high stimulation levels and the competitive nature of this experience. This one is called the Magic Garden. The Virtual Athletic Club, just like Pinball, is high energy, competitive and action-oriented. It is designed to help patients develop coordination, strength and endurance as well as important cognitive skills. In this shoulder inflection activity called COSMIC C, patients follow along with an avatar who guides them through the environment while they perform repetitions of specific upper body exercises along with the rhythm of the music. While in this one called Paddle Pong, patients develop coordination endurance through increasingly challenging waves of music and configurations of targets. Flourish combines a fantasy environment with a wide range of motor rehab exercises and an engaging story that rewards perseverance and achievements. Patients are guided by a variety of characters to restore the natural beauty of their world to performing exercises. Some characters present physical exercises, while others present mindfulness and breathing exercises. Successful completion of these exercises rewards patients by advancing the story and healing the world. Combining narrative with game plan exercise in this way helps patients to progress and stay with their rehab program. So while high energy and high stimulation environments benefit many patients, some patients benefit from lower stimulation and/or lower intensity environments for rehab. Mimic is designed for these patients and focuses on motor and cognitive functions. In this computer-generated world, therapists select the appropriate level of stimulation and activity for their patients. These examples are a few of the 15 activities available in Mimic that help patients focus on their breathing and their movement. Some activities are more game-like and physics-based while others are more about exploration, creativity and distraction like this one where you're playing with rocks and crystals in a calming zero-gravity environment. Mindful Market is based around a farmer's market themed environment. This experience addresses the recovery of high-level cognitive skills like sorting, ordering and calculation. Patients get to role play common activities of daily life or ADLs, like preparing food or performing household tasks. They participate in activities like the sandwich shop which you see here, harvest helper over the snap stand, where they perform common tasks that help them recover functions like working memory and the ability to sort things. This one's harvest helper. Over time, they rebuild their resilience to these kinds of stimulation. And as always, therapists select and customize the complexity and repetition of the activities to meet the needs of their patients and adjust as their patients progress. Our next experience, Pleasant Cove immerses you in a relaxing seaside resort where patients engage in a mix of lower intensity activities. In this activity, patients can learn to play a song and a xylophone to reinforce both motor and memory skills. In another, patients plant seeds and grow flowers, which helps them work on sustained attention and coordination. In this cards running exercise, patients place cards representing the steps of common activities like getting dressed or bathing, basic activities of daily living. This helps patients work skills like procedural memory and sequencing as well as their upper body coordination. Visual awards like this one at the end, served to bring a sense of fun and entertainment to the experience. Serene Lake, like its name, offers a safe and calming outdoor environment for more than 11 lower-intensity cognitive activities and motor exercises, all while being guided by our friendly Fox helper. These are a few examples of the activities available. In this activity, follow the squirrel therapists can adjust the settings so patients use their upper body and gaze to help squirrels collect acorns and fill a treat. Other activities focused on combining cognitive rehab exercises with upper body motor exercises to help patients recover critical skills. Expanding on the activities in Serene Lake and Pleasant Cove, the World of Float is inhabited by helpful creatures that guide patients through breathing and movement exercises. These activities are founded on principles like discovery, meditation and mindfulness. Breathing exercises like this one offer therapists the tools to help patients develop the focus to reduce their stress and regulate their moods. In this Tai Chi-themed activity, patients emulate the movements they see on screen and get encouragement and feedback from the creatures in the world. The gentle and smooth movements are designed to help patients recover flexibility, strength and balance. In this catch activity, patients play a game of catch with the creatures in the world, which helps them recover their coordination. Finally, we envision many other possibilities for VR-based activities to offer therapists and their patients. One example is mending garden. This healing environment features activities can be -- that can be used as a part of a program focused on cognitive behavioral therapy and emotional well-being. These are examples of the constructive activities patients engage in like mending pottery, and another, they process negative thoughts by blowing bubbles. Thank you for letting me show you what the REAL System has today and a glimpse of what we have planned in the future.

Thank you, Steve, for providing an overview of our t- and y-Series products and the incredible content we've developed for these platforms. I'd like to now introduce Joel Breton, President of Sixense Studios to share more about our i-Series product. Prior to joining Sixense in 2019, Joel was the Vice President of VR Content at HTC. He's also an award-winning video game producer of more than 20 platinum selling games.

Thank you so much, Gita, for the introduction. Great to be here with you all today. And today, I am pleased to introduce you to the REAL i-Series platform. The REAL i-Series is a self-guided experience with more than 10 hours of immersive content aimed to support mental well-being and cognition. It features our wireless 6-degree of freedom headset and our innovative 360-degree plus video technology that allows the most real-life experience by providing a 6-degree of freedom headset movement within a 360 video. The i-Series platform has been created from the ground up with the first time VR user in mind. We anticipate i-Series to be used in a wide range of health care settings. In some settings, users may only use the i-Series once or twice for 5 to 20 minutes each time. And in some settings, users may use the i-Series multiple times a week for the duration of their care experience. Much care and attention has gone into the first-time user experience to ensure their comfort and ease of use, knowing that training isn't feasible in many of these settings. The entire i-Series experience is self-directed with an easy onboarding tutorial before launching into the amazing VR content. Our design North Star was to remove all friction from the user experience. Users simply put on the i-Series headset and power it on, and they are ready to experience some of the most amazing places on earth. Here is a preview of the content lineup to give you a flavor of what's available for users. Let's unplug and play with the i-Series. I'm sure many of us have missed traveling to new cities and countries over the past year. We designed World Traveler for users who are interested in exploring the world either as a reminder of past experience or to consider future possibilities. World Traveler whisks you in an instant to popular international cities like the Paris, the City of Lights. Now keep in mind, as you are viewing these scenes on a 2D flat screen here, you are seeing less than 20% of the full scene visible to users in VR. i-Series users will instead find themselves right in the middle of these scenes. They can look up, they can look down, they can look all around and they will feel the sensation of being completely transported to that city or location. London is always a good idea, where you will experience firsthand steering up at Big Ben gigantic clock tower from Parliament Square or maybe you will recall a previous visit to Westminster Abbey. Users have several ways to explore these cities at their own pace with varying lengths of activities to accommodate use across a wide range of settings. Guided tour mode allows you to experience a short 5-minute narrative tour of the top locations of each city. And an explorer mode, it offers a much longer tour of each city with up to an hour long trip, spending much more time at each location. And trivia mode challenges your knowledge and memory following the narrative city tour and introduces a bit of self-competition with each answer earning points based on time taken for correct answers. Now beyond megacities, we envision that nature and wild life experiences would also appeal to users and provide environments conducive to a range of techniques. In customer discussions, we've already identified opportunities for this type of content, which is designed to support conditions like anxious and depressed moods, pain and discomfort, loneliness and others. Opportunities include pre-op and post-op care, infusion settings and supporting medical staff who are working so hard to meet the high demands of their jobs. So we created 3 super nature applications designed to fully immerse the users inside of calm and serine natural environments. So in Wildlife Encounters, you will be able to experience an African safari complete with massive elephants like this one. You will also be able to encounter giraffe and zebra on this adventure. You can take wildlife journeys to South American rain forest, offering first-hand experiences with many of earth's amazing creatures. Now keep in mind, with the i-Series headset and the 6-degree of freedom tracking, combined with our 360-plus technology, this allows 6-degree of freedom headroom within the 360 film. And this completely immerses the user inside the environment. For instance, in this scene, you can lean your head closer towards this mother and her baby monkey and you will experience a sensation of moving closer to them in real life. It is incredible to experience wildlife this close and this real. My father was an avid scuba diver, and he spent many days chasing beautiful fish and even a shark on one occasion in the underwater paradise of Monterey Bay. Underwater Adventures is an app designed for users just like my dad, who love underwater sea life, but are not able to take a diving trip due to their health challenges or current location. Beach Retreats is an application that is very close to my heart because I am a beach person. For users like me, we created Beach Retreats which takes the user on a tour of earth's most incredible beaches. Users will find themselves completely transported inside these wonderful beach environments. In Guided Mindfulness, users have a wide range of mindfulness practices to experience. These guided practices vary in length from 3 minutes to 20 minutes and they include essential mindfulness concepts such as breathing, body scans, relaxation and thankfulness. For both beginners and more experienced users in mindfulness practices, these activities immerse users in a calm environment to help remove the external environment and allow for full focus of becoming intensely aware of one's feelings and senses. Serene Lake, which we just saw in Steve's series, y- and t-Series preview is also an i-Series application with gaze control. Users are presented with a computer created world and cognitive stimulation activities. They can choose from 6 unique activities to challenge their minds in a calming lake environment. For instance, let's see if you can do this one. We've shown a turtle with a star on his belly, then the star will be hidden. Turtles will be shuffled and you'll have to follow the star turtle to choose again at the end. See if you can do it. There he is. The activity difficulty level will advance as users progress through successive levels. Now Enhance is an application that includes cognitive simulation activities to be used in a wellness context. The application includes brain challenges and puzzles for all skill levels. And one activity users memorizing recall objects of different shapes and colors and locations to complete levels of increasing difficulty before time expires. Designed with expert neuroscientist guidance, these activities engage the users' cognitive skills in a measurable way. Now in addition to creating activities and experiences for the user, we look to enhance the platform with a key feature to address the solitary nature of VR and the feelings of isolation and loneliness that users may experience in a number of health care settings. Let me introduce you to REAL Connect. So imagine an i-Series user in a Kansas health care facility, she has chosen to take a virtual field trip to Paris and she invites her father who lives in Ohio to join her on a virtual journey. With REAL Connect, that can share guided tour of Paris and enjoy memories and laughter recalling their past adventures. Another REAL Connect user could be experiencing their infusion, and at the same time, having a guided mindfulness session being guided by their practitioner connecting from a location across town. With our REAL Connect feature, we allow users to experience any of the 360-plus video content on the i-Series platform and they can easily share this experience with a friend or loved one in real time with a video chat window inside the VR headset. We are thrilled to offer this innovation on the i-Series platform at launch. Thanks for letting me share the amazing content and features inside the REAL i-Series platform. I can't wait for you all to try it for yourselves.

Thank you, Joel. We are excited about what we have to offer users and health care providers. We plan to rapidly build the activity catalog with our own studio of resources and software development partners to deliver the most comprehensive state-of-the-art clinically-based immersive VR offering. We aim to do this to best serve patients, delivering excellent patient satisfaction, unbeatable patient engagement and improve clinical outcomes versus conventional therapies alone. I want to take a moment to share some of the impact that our efforts are making with patients using our flagship REAL System product today. First, I'd like to highlight Brandon. Brandon is recovering from a stroke that he suffered 2 years ago. He works in rehab sessions to increase function in his right arm and hand. According to his therapists, REAL System motivates Brandon to utilize his upper body and has been instrumental in keeping him engaged and challenged during his therapy sessions. Next, I'd like to share Karen's story. Karen suffered a shoulder injury in a car accident in 2018 and 2 years later, had shoulder surgery to help her range of motion and pain issues. Karen's rehab efforts yielded mixed results. She continued to experience limited range of motion and pain, and she felt that she had plateaued. After 5 weeks of using REAL System, Karen was once again meeting her therapy goals, we engaged in therapy and her shoulder was moving again. There are so many patients I could highlight, like Deb, who is in our audience today. Our team works every day for patients, both those who are actively using our system and for all the patients we have yet to meet. We are just in the earliest stages of this journey to deliver excellent patient satisfaction, unbeatable engagement and improved clinical outcomes with the REAL System. Let me now introduce Amir Rubin, Founder and CEO of Sixense, who will share more about our goals for the future and our technology road map.

Thank you, Gita. Our entire team at Sixense is so excited to join Penumbra on our shared mission to improve millions of lives through immersive health care. I want to start with one of my favorite quotes by Alan Kay. His work at Atari and Apple revolutionized the way we interact with computers. And he is considered by many to be the father of personal computers. Allen was known to say people who are really serious about software should make their own hardware. This perfectly describes the essence of the work that we are doing to build the leading platform of immersive health care. You have heard Gita talk about the elements of our platform ecosystem. Now let me share with you our key priorities in developing the REAL platform. At the top of our list are ease of use and comfort. They are the foundation of our platform, and we will continue to refine both throughout the innovation process. To address the broad range of physical and mental health conditions that both Jason and Margaret mentioned, we will maintain the focus on highly intuitive user interface design and ergonomics. At the same time, we must continuously improve the REAL Systems performance to increase immersion including computing power, the headset display and, of course, full body tracking. [indiscernible] Health, one of our most exciting innovations with the REAL platform will first become available with the REAL i-Series in form of REAL Connect. REAL Connect, as you heard before, enables one-to-one in VR connections that can help users connect with family, friends, caregivers and clinicians. We plan to expand to one to many and many to many connections in the future. Last but not least, full body tracking. The ability to track the full body is essential for the expansion of therapy applications and adoption and platform adoption. It has been proven that more immersive the virtual reality experience is, the more effective therapy will be. Now addressing data analytics and objective measures. By improving the platform performance, we will be able to collect more patient data and enable clinical and provide more personalized care. We will also continue to advance feedback, tracking technology to open the possibilities to address more and more physical and mental health conditions on the REAL platform. To support the expansion of the activities and experiences we plan to develop tools and open the REAL platform to independent software developers, these developers will bring significant expertise as we invite them to publish their applications on the REAL immersive platform. I'd like to share with you a video of our groundbreaking full body motion capture system. Before I play the video, allow me to keep in mind -- allow me to -- please keep in mind a couple of points. You will see my avatar portrayed in a virtual mirror that mimics my exact movement, allowing me to evaluate the tracking in relation to my avatar. The red dot that you will see represents my gaze control that allows me to interact with the application. And now I would like to show you a video of our full body motion capture system in action. Now you can see my avatar, the representation of all the hard work that our development team has done. Allow me to go into -- let's switch this is work that we are doing to allow developers more flexibility. And here, we have the tracking system. So let's introduce what I'm wearing. You have a sensor, a tracker on each hand, a tracker on each elbow, a tracker behind my back on my waist level. You have one between my shoulder blades on my back, one, of course, on the head and one on each foot and under each knee. Now everything is fully tracking, as you can see, full body tracking with the sensors. Now let's add an avatar. So now you have the avatar and you have the trackers. So we see the trackers, again, the same places, knees, hands, behind the back and all. Let's talk about the kind of data that you receive from our avatar. As you can see here, the left-hand position, this is the Z, you follow my red dot, this is the Z axis. You see, I am at 154 centimeters, 176, and I go all the way down with my left hand, 255, 257, et cetera. This is, of course, you've got the X and Y and Z everything, full real-time tracking, as you can see, right hand, left-hand. Same thing as you can tell on the bottom for developers to be able to make sure both the trackers and the avatar behaves as they expected. Let's take a look for a moment here into some of the advancements that full body gives us. Again, we've seen already with the current REAL System, how your hands are being tracked. You have the Happy Valley with the Sunrise for motion -- for the range of motion of your upper body. But now we're adding, of course, your low body. Allow me just to make it avatar only. So we don't have the checkers in the way. And now you can see, let's say, I need ankle, footwork exercise, we have me -- as you can tell, I can do both. I can do work that therapies can translate from their normal protocols all the way back into the VR experiences that application developers can take it in. Now obviously, avatars are very important. And the importance is to be able to bring the patient into the virtual reality in a way that it's believable. It's critical for the integration of avatars in applications, especially as we're moving into group therapy, social rehab, and that's hopefully will come soon -- hopefully it will come soon enough on the REAL System in the future applications, in the future generations of our REAL platform. Now let's talk quickly about what is it that you see. In front of me, there's a virtual mirror. It allows me as a developer to look at my gesture, is looking at my tracking, and my avatar allows me to see is it -- is it what I intended to deliver as I design this avatar. Now let's just stand up and see how standing. How do I look like when I stand up, when I move around. Again, this is an early avatar. This is still -- you can see it's a little stiff and all. We are still working on it. But the most important thing as you can tell, is the fact that it's getting to be more and more realistic. Again, we don't have facial expressions, I don't have the eye tracked yet or the overall the lips or the face expression, this is what comes in future headsets as we add additional trackers like eye tracking, face tracking, et cetera, you'll be able to bring all the expressions in. But again, as you can see here, at full body you can see all my data that is being provided data into the applications and again, to the therapists to be able to use so you can provide both patients and clinicians feedback on progress that patients make. Now let's take a recording. Recording allows me to see, do I like my avatar's performance. So for example, let's say that for the sake of advanced exercise, I go and I do exercise like these. So I go up and down, and I do all sorts of exercises and I move. Now let's start playback. When I do play back, I can look at myself. I can take a look at, do I like the way my avatar translates the tracking data, the avatar is getting. You can see, I can look around. I can have the opportunity from every perspective to check my avatar's performance. And again, I'm ending it so I can go back and enjoy, again, another session of evaluation. Let us try to bring boxing gloves. Here, I have a boxing glove on my hands. Of course, it can be a golf club. It can be a baseball bat. It can be anything, can be a toothbrush, it can be anything that you might want to allow your patients to work with. And for us, it's all about enabling patients to feel that they're achieving the goals that they set for themselves as the process of their rehabilitation not only need to be entertaining, but also needs to be goal-oriented. So we have all sorts of plan. So now let's again start a recording. So we're recording now. And here, you see me if I may have taken a position on this. So you can see me, look at all the tracking data that is being real-time generated to the application, all this data. So I go in and I punch. Of course, this, we don't have yet haptics feedback. But of course, it's on the road map, which is obviously very important for the sense of presence. Again, you go in, you punch, you practice, you look into it. And then let's play it back again. Let's see me performing. Here, allow me to -- okay, here I am acting a little bit, but boom, let's play it a little bit. And again, this is me watching my avatar performing. Again, everything here you can see is working. I can go and put it in a loop. And again, it's going to play again, and I can go and I can view it from every perspective. And I can see, do I like what I did, do I want to modify something. Introducing high-end avatars into VR experience requires a high-end motion capture system. Current high-end motion capture systems used by movie studios, for example, cost hundreds of thousands of dollars and provide high accuracy but requires complex setup and a lot of additional overhead. The REAL motion capture system is high accuracy, low-cost, fully mobile, self-contained system that enables full body avatars in virtual reality in real time. Our full-body motion capture system, combined with our REAL Connect telehealth solution will allow patients and clinicians to be represented in health care activities and applications, which we believe will have a significant effect on the future of health care. From one generation to the next, we will continue to innovate and improve the capabilities of our immersive health care platform. Over the next 4 years, we will be focused on adding clinically based activities and applications, expanding our telehealth offerings, broadening our data analytics and objective measures, improving system performance and providing full body therapy. We believe that following our technology road map, will allow us to become the destination for health care applications, improving millions of lives through immersive health care. Thank you very much. I'd like to thank you. I will not stop before time. Thank you. I would like to call Adam back up to the stage.

Thank you, Amir. And of course, I want to thank the rest of the team for your presentations today. But more importantly, I want to acknowledge and thank everyone at Penumbra and Sixense for the years of work you have all done to put us in such a good position to take on this challenge. Thank you. Now I started this meeting by saying that we believe that if we innovate, hire the best people and execute, we can build immersive health care into the biggest part of our business. I hope you have a better understanding of the innovation we have already achieved and some of the work ahead for us. I hope you can see that we're starting to execute on this plan. As for talent, I introduced Riley earlier today, but now I'd like to introduce some of the other senior members of the team that Penumbra has hired as well as the leaders from Sixense. This team and the many others who work with them are some of the best in this field and have brought decades of expertise in hardware technology, software content, data analytics and platform architecture plus wisdom and lessons learned from past work. Again, thank you to this amazing team for taking on this hugely important work to help so many people. As many of you heard me say publicly at 2 investor conferences in the last 2 weeks, our core Neuro and Vascular business is doing very well right now. And we believe we are in the strongest position we have ever been in with our interventional product portfolio and our ability to keep innovating in our core business. Just like 6 years ago when our stroke business started its growth curve, and we took on Vascular. It is from our current position of strength that we are taking on the important job of building a platform in immersive health care. And now we are honored to have an extraordinary panel of experts in Virtual Reality and health care to discuss the current and future dynamics of immersive health care. It is my pleasure to introduce David Lewis, who will moderate our expert panel. I'm sure David is a familiar face to many of you. But for those of you who don't know, David is the former Managing Director and Medical Devices Analyst at Morgan Stanley, a position he held for over 15 years. David has almost 25 years experience on Wall Street. We greatly appreciate David moderating our panel today. David? If you want to come on up. And I'd like to ask the panel to come on up and take your seats, and we will get started with this great panel. Thank you.

Well, thank you, Adam. It's my pleasure to be here. I'm excited to see some familiar faces in the audience. I'm also excited that ever since I left Morgan Stanley, I have no official responsibilities here whatsoever today. So that's the other positive. But as I approach looking at REAL a few weeks and months ago, I had several questions I'm sure many of you in the audience also have. And obviously, the panel, I hope will flush some of this out. But as I thought about the business and thought about REAL, I asked a lot of different questions, but sort of 3 very fundamental questions. And first of all, which is, why now? Why are we at sort of the precipice of inflection for the use of VR technology or what we're going to call today immersive health care into multiple verticals. And obviously, we care mostly about health care. The second thing is sort of is we, as medical device analysts are very focused on widgets. Patient has a problem. We have a widget, the widget solves the problem. It seems to make a lot of sense. Virtual reality is a fundamentally different medium. And the question is, can virtual reality be as successful as traditional medical device widgets in solving big clinical problems. And that's one of the key question I have today for the panel. And the last thing is, and the question I ask, I'm sure many of you are asking is, why is Penumbra the right provider to bring immersive health care to solve these very large health care problems, something else, I think we'll drive into. The good news is we have a very interesting panel to answer all those large questions. These are not dabblers in virtual reality. These are people who have decades of experience in virtual reality. They also have perspective, not just in health care, but health care and other technology verticals. If people are asking is Penumbra the right party? These are the individuals to ask those key questions about whether Penumbra is the right party for health care? And where does their technology stack up versus the broader landscape of VR. These are also people who have real business models or experiencing real business models, driving this technology in areas whether it's Jeremy was driver driving this technology into workplaces or obviously what Walter has done with his more repair therapeutics. And obviously, what Riley has done with building business models that are highly dependent on building ecosystems of development to solve big problems. So I think we have the right people present, comfortably scooted with myself, but we'll see what we can achieve here. So I guess the first question is that I really struggle with is, why now? Why are you gentlemen so confident that we're sort of at the precipice of inflection for the use of VR in multiple ecosystems and most specifically to this audience, into health care. Maybe Jeremy, I'll start with you. Why is now the beginning of something great as it relates to VR's penetration into different verticals?

Yes. So thank you for that. I guess the way I'm going to answer that is I'm going to point to that white suit case over there. which does full body tracking. When I started doing VR 1999, it took a room like this with millions of dollars of equipment, silicon graphics machine stacks with them. We can now build an amazing VR experience, and it fits in a suitcase now. That's brilliant. I don't want to diminish that, but the technology has gotten to a point where we can take what used to cost a room and put it in a suitcase. It's unbelievable.

Okay. Before we start, actually, Jeremy, I should had you introduce yourself. Let's just take a quick moment here. Please introduce yourself, and then we'll go to Walter, Skip, and Riley real quick. Just give us a 30-cent sense of who you are and sort of why you're here.

My name is Jeremy Bailenson, my PhD is in cognitive science. In the late '90s, I was building AI models of the brain. In 1999, I left that field, learned how to build the hardware for a virtual reality tracking, learned how to program content, and switch to questions about how you can use VR for other things besides studying the brain, for example, communication, collaboration, training, education and entertainment. So I run the VR lab at Stanford and we study how VR affects the brain, we study it as a medium. And that's what I do.

Walter?

I'm Walter Greenleaf. My PhD is in behavioral neuroscience. I'm also a psychophysiologist by training. I've had a bimodal career as a scientist, I've have the opportunity to work with Jeremy at the Virtual Human Interaction Lab, but also with the National Mental Health Innovation Center at the University of Colorado. I have had the pleasure, the other part of my career trajectory has been in medical product development. I had the pleasure of being the founding CSO with Pear Therapeutics and adviser to groups that you're probably familiar with like Mindstrong Health. And I've had the opportunity to work with a number of the emerging early-stage medical VR companies. I've been active in that field since well before we even had the term virtual reality back in the late 1980s. So it's my pleasure to be here today seeing this important inflection point and so excited to see what Penumbra is bringing forth.

Skip?

I'm Skip Rizzo. I'm a clinical and neuropsychologist back in the '80s and early '90s, I worked directly with patients in brain injury rehab. And I got really frustrated with the c**p that actually passed as rehab tools back then. And one day one of my clients came in with a Game Boy, and I saw him glued to this Game Boy playing Tetris. More than I saw him in any rehab activity we could throw at him. At that moment, I knew this is the direction I want to go in and in 1995, I started the Medical Virtual Reality Lab, at the University of Southern California and over the last 25 years, we've developed, evaluated, tested applications across the full spectrum of mental health care and physical rehab.

Okay. And our nonscientist Riley.

Yes, let's going to say I don't have a PhD. I spent the last 30 years in the video game industry. I watched it as we built business models and brought publishers in and people into the ecosystem and developed it over the years. I've served both as the Chief Legal Officer, but I've also served as the Head of Third-party Republishing, in other roles throughout the growth of the PlayStation. I just joined a year before it started and have been there ever since. I was approached and offered a position here. I've worked in VR since 1991 in different phases. I was approached. I thought, well, we finally solved the Zombie Apocalypse problem in the entertainment, so I thought I'd come over here and really have an opportunity to help people when Adam told me why wouldn't you want to help 50 million people, I thought to myself, yes, this is the time. This is the inflection point. The hardware is here, the science is here and we can do it. And so I'm really honored to be here. It's a real change for me, but it's very, very exciting.

Okay. And Jeremy, I want to come back and push you again on something you just said. So look, to convince the audience that we're going to have adoption of VR in health care. I still have sortation there's adoption of VR outside of health care and sort of your work with Striver which is trying to take virtual reality into large workplaces. Can you think of a specific example of a large Fortune 500 company who is excited about bringing VR into the organization that had success?

Yes, I could give you a dozen. I'll focus on Walmart. So Striver is a company I cofounded, we used VR to train. Training things like how do you handle a difficult customer? How do you handle holiday rush, the cacophony the day after Thanksgiving. How do you spot a safety violation? What do you do if a person with a gun comes into a crowded room, what are the steps you take. Walmart has trained over 1 million associates in the past year, have trained for these situations at Walmart alone. We can take a step back and think about that. We put 3 VR stations in every single one of their 4,700 stores. They're using it constantly to train. And I can tell you, once you ever deal with a situation in VR, for example, the cacophony of a holiday rush, people all around you, yelling at you, because of turnover only 1 in 2 employees have ever been in that situation. You will never train it from a PowerPoint presentation ever again. It's the right way to do the job.

And then Walter, why -- so there's a use case for this outside of health care. Why is VR? What does VR bring that is so powerful for health care?

It brings the ability to activate our cognitive and our mood processes in a way that we can help people learn to manage and regulate those processes. It creates a sense of presence, a sense of urgency, it gives the ability to tell a story and have people have some urgency in the health care process. It's also a fantastic platform to hang other technology onto such as wearable sensors and to be able to assess people's EEG, their heart rate variability, their motion as part of the therapeutic process. So it's a very integrative platform.

Okay. A lot of investors in the audience think of health care -- health care institutions and information technology as sort of oxymoronic like sort of military intelligence. And I sort of fear that is this sort of go the same way? And I wonder, can you think -- or the panel -- will start with Skip. Can you think of an example right now where a health care institution is clamoring for VR technology and it's sort of working actively and successful?

Well, I think certainly, the VA now is turning its attention. They have an innovation group that's focused on implementing VR across the VA system. We're already working towards getting the Penumbra system at some of the centers of excellence within the VA. My work with Veterans Administration goes back to 2004 with the creation of a posttraumatic stress disorder exposure therapy application that's been distributed widely across there. And I think when you get into a place like that, that has been traditionally viewed as kind of slow on the uptake, and you start to see the excitement and the energy is very encouraging. So I think that this is going to be something that we're going to see across a wide range of the different channels that were presented earlier.

Any other examples, Jeremy.

Well, for me, every time someone within a hospital or an insurance company comes to the lab, they all have VR goggles in their closets. They're using them. What they don't have is just -- I just got to witness, just let me just brag for being a part of it. I mean, it's everything. The hardware works, their software that works across it. You saw all those amazing different applications. It's one tool that does the job and that's going to keep doing the job. And so I would say every hospital, they all have VR, they just have bad VR and we're solving that problem.

Okay. So all of you have been in this field for a very long time, but there's been a lot more activity in the last 5 years than probably the prior 20. So I guess what have been some of those bottlenecks to the adoption of VR technology in health care VR technology broadly? Walter, start with you.

Well, one, of course, has been cost. It's only recently that VR has become affordable to the consumer electronics price. But I think more importantly, it's comfort. Previous generations didn't have fast enough refresh and update rates and the visual experience was for some people created some feelings of simulator sickness and discomfort. We're now well beyond that stage. And I think also our society has got a little bit more used to the concept of using technology as a way to interact with large groups of people, especially now that the wins are behind us in terms of digital health and engendered by COVID and the response to it. Having a VR experience, especially group VR experience is so much more than a Zoom call. And I love Jeremy's description of VR as experience on demand. And that to me has been the watershed of changes. Now we can have really robust experiences in VR that we feel present and we feel like we're there. Heretofore, it was just pieces of that puzzle.

Okay. I mean, Riley, you've had a lot of experience with various gaming consoles and the ubiquity of gaming. How important is stand-alone VR as a catalyst to what we're all talking about today?

No, I think it's critical. Because it's the ease of use. And if you have to connect pieces to go together it just makes it that much harder. There's that much more friction on every level to get the person both either the therapist or the user to put it together, to put pieces together, then you're going to have to have parts that -- does this computer run this, you'll have different operating systems or power levels of the computer. So would you want something -- really the technology of it although it gets more and more advanced, it goes away. The hospital, the clinicians, the user, the consumer should not be thinking about the technology. They should be thinking about the therapy and the therapy works. And if that works, then they'll demand it. That's what they want. They want to make people whole. They want to make people cured. And if we can build the system, we can have a system that stands alone, it's easy to use, that does what it's supposed to, then there'll be great success, I think.

I mean just a broader question maybe to Jeremy, just bottlenecks to the system, and have the bottlenecks been -- can you say they've been hardware. They've been software. What have been -- would you break down the bottlenecks in the specific area and say this has been a significant issue technologically?

So the tracking system that Sixense has developed, it solves so many problems, right? You can move your body, you don't need an external sensor. It just works. So I think tracking is one, but more surprising to a lot of people is going to be content, right? VR content is the bottleneck. There's nothing to do, when Steve just took us and Joel through all those experiences, I mean each one of those is a world. And in these worlds, there's dozens of scenes and in a scene there's dozens of activities. I mean there is stuff to do now. And for a long time there just hasn't been stuff to do. So to me, we talk about execution as one of the things Penumbra strives for. When I found out that Penumbra had locked in 7 of the best VR Studios for 5-year deals exclusive in medical, that's execution. I mean -- and that's why we're seeing such amazing content. I mean, thinking about how do we actually give people something to do once they're NVR, and that hasn't been there before.

Telemedicine is a big buzzword, and it was a bigger buzzword in COVID. I guess I'm surprised no one has mentioned as a near-term catalyst COVID. Walter, what's going to be the impact of COVID on the adoption of VR immersive health care across health care institutions?

Well, everyone in this room knows that this is the transitional era for digital health from something that people were dabbling at, at medical device and pharma companies and health care systems. Now it's just part of how we're going to do health care. And I think that -- there's been one direct impact of COVID. But also, I think we're -- people are more aware of their health care, the importance of managing stress. The importance of being connected to each other and supporting each other. And I think all those things point to a fantastic time for bringing out a product stream like that's coming out now.

So I'm going to ask kind of a loaded question. Adam basically sat in front of these people and said, look, we were an innovator in stroke and built that market. People doubted our ability to build a peripheral business, then they built a peripheral business. But he made sort of this declaratory statement about how big this particular business REAL can be in 3 to 5 years. How confident all are you that we are on this sort of the more adoption curve. We are 3 to 5 years away from a substantial inflection in the use of this business. You guys have 2 decades of experience. Is 3 to 5 years really going to bring more change in adoption than we saw in the prior 20? Or are we sitting here in 10 years saying, it's going to be another 5 years.

I would say that a couple of factors lead to positive anticipation here. The technology has, in fact, caught up with the vision. And in parallel, last 25 years of science, studying these kinds of applications. has documented that this is not just some Star Trek thing. This is like the real deal that can improve clinical outcomes. And that has been a bottleneck in the past. A lot of times I bring a system to a center and say, "Hey, this is great. Well, can you show me the data." And now I can point to, literally, as you saw on the slide earlier, thousands of studies documenting where this really adds value. So I think Penumbra is well suited. When I think back on some of the early writings that we all did back in the '90s, a lot of times at the end of the article, you'd say, what is needed for the future? And there was a long list of things that were going to have to be done. They're done now here. And the vision that I see from my work with you guys is that it's not like we're done, let's put the product out. It's a culture of innovation. And that's really the most exciting thing for me, haven't done lab-based research and some clinical setting research with products, but that -- this is the point in my career where I want to be involved in getting this stuff, kicking it out of the lab, getting it in the hands of users. This is the team to do it.

Riley, is there any worthwhile comparison to think about like as you solve different components of the ecosystem coming together in gaming and sort of when the gaming inflection happened and what you would point to here?

Yes, I think that's exactly what's happening and why I'm here. It goes back to the very early days of the gaming were gaming nobody really even know what the business was, and there's a platform that went out, but there was no market around it. And we're at a point where we have all the pieces we need. We have the technology. We know that it works. We can use plenty of people who could build the software, but there's no developed marketplace for it. There's no organized system to get it there. There's no way for the users to bill for it and all that has to be built. So what Penumbra is going to do by focusing in the health carrier and the only one really focusing there is to build that marketplace and that ecosystem that allows everyone to participate, the developers, the health companies, the hospitals and patients. And ultimately, I think this is the point. This is the time where that can all come together because everything else, the technology, the software, the skill, the knowledge is all there. It just has to be marshaled and brought to market.

Jeremy, I think you want to comment, there are 2 things, Jeremy. One, I'm going to kind of comment on that, but also it sounds like we're at the precipice of inflection. Maybe talk about everyone in this room wants to know what's next, what's coming in the next 3 to 5 years? What are the things that really increase the addressable market, maybe address those as well.

Yes. So first, let me say, I've been teaching a class about VR since 1999, every year teach this class, and we talk about VR. For the first time in my career, I'm teaching NVR. Tomorrow, 171 Stanford students are going to sit in their living rooms, put on VR goggles. We're going to be beamed together in a room like this, and we're going to conduct class. We're going to talk. We're going to go to the moon. We're going to do science. We're going to do stuff together. But I've been talking to this forever and for the first time, I get to actually teach NVR. It's -- you can't say enough about where we've come from just a hardware standpoint. Three to 5 years, what are we talking about? We're talking about being able to sense our physiology and your brain waves and to do that accurately while you're in VR. We're talking about data analytics where we understand high-level constructs about how you've moved. We're talking about scent, we're talking about better touch, and all sorts of different sensors, and all that's on a great road map.

Okay. When I look at -- you're all very passionate about the content that's been sort of developed. And I think about VR, and I started this whole conversation talking about the abstractness of virtual reality versus immersive health care versus widget-based medical devices. So I think it's hard to look at those screens and say there's actually a legitimate clinical manifestation of what this stuff can do. How confident are all of you that the level of evidence that Penumbra says we can treat 25 different comorbidities. How confident are you that, that is a legitimate statement that this stuff has been proven to impact at the clinical workflow in a very material way, and maybe Walter we will start with you.

I'd say 100% confident. There's been some tremendous work, as Skip pointed out, over decades validating. Now these are relatively small sample size studies, although there's a few Phase II larger studies going on right now. And they need to be recompensulated with today's technology and it's been a bit of a moving target. But the fundamental validation of the approach and the -- and I think it's worth mentioning that it's not just therapeutics. It's also prevention, training, improved assessments as well as next-generation therapeutic set, we have the evidence pointing us the pathway to go down. So it's really the full stack of the health care spectrum that we have validation of entry points. There's more work to be done, but we know where to go and what pathways to avoid.

Skip?

I think the approach Penumbra has taken is really the way to go in the sense that they're not just building one application for one disorder. Certainly, there's always a target with an application, but they're addressing the process of therapy. They're addressing elements within any one of these systems that can be applied across patient populations. And as we know with patient populations, there's no one single type of patient, everyone is different. Everyone has different needs, different goals, different objectives. When you can start to bring together a process approach from the development stage all the way to implementation, that's where you're going to see success, and that's what's happening.

Okay. So one obvious manifestation of this technology is stroke rehab and anyone can look at those interactive sensing and tracking and say, well, this can be very powerful for someone who is trying to regain motor skills, that I totally get. Can you talk to me about some of the other use cases that you've seen in your lab or seeing data on that are powerful that maybe the audience is not thinking about?

It almost would be easier to say where it's not applicable in health care. But helping with autism spectrum reorder, helping with addictions, helping with anxiety disorders, helping with addressing skilled refusing training and situational confidence for people who have social anxiety disorder. So a very long list in both physical medicine and behavioral medicine of pathways to provide improved care.

And just to push you to why VR? Why is immersive health care better to solve those clinical conditions than non-immersive health care?

Well, we don't have to rely on our imagination alone. And especially if we're dealing with something that's painful or uncomfortable for individual or something that's -- we can staircase the patient, give them a scenario, take what might obviously be a very difficult process to do cognitively, break it into discrete steps and people to -- teach people the skills to manage their mood state or their cognitive state in a very powerful way. And we can integrate that with more of a precision medicine approach. This is the era of also machine learning and deep analytics where we can take the data, we can to be collecting from these fantastic systems, put this together in a way that helps us to better design of our interventions.

Jeremy, can you give us specific examples that you're looking at that are helpful?

I think we have here is an emotionally evocative and cognitively stimulating set of technologies that can foster experiential learning and controlled stimulus environments. It's just not possible in any other way. Remember back in the early 2000s when I present this idea at psychology conferences and people are kind of shaking their head, I'd say, look, when you're flying home from this conference, would you rather that your pilot trained and was certified in a simulator for how to deal with wind share or fog landing or do you prefer that they learned it from a book or death by PowerPoint, or on the job training. And then psychologist started to get it, a controlled stimulus environment that allows us to engage people, to measure the performance in real time, to sometimes automate processes, to reduce the load on the clinician is just -- I mean, as Walter said, doesn't it work? That's an easier question to answer. I think we just have so many ingredients. You can go in a deep dive technical level, but we can expose people to things that they are fearful of or been traumatized by, we can distract them from painful medical experiences, reduce need for opioid medications. So we can motivate people, engage people and things they wouldn't do in any other way, particularly in the rehab space, we can measure. And I mean, these are all the ingredients of good clinical care and this technology and this development allows us to do that.

Well, you probably saw a lot of game like information by the presentations, we can promote adherence, and that is so critical, all too often with many of the interventions we have people give up after a short while, especially at least some of the things that are on mobile phone apps, et cetera. But with this very immersive engaging technology, we can make it more of a quest, a personal quest, and we can find ways to promote people by showing feedback of their progress. And one of the techniques that Jeremy's pioneered is showing them how it affects their future self. You can have an image of how sticking with what you need to do even if it's difficult, will help you be healthier and close that feedback loop.

Okay. Yes. It's funny. I was talking to elementary school friend of mine the other day about playing Castle Wolfenstein as many, I probably don't remember. That was a 2-dimensional game and an Apple II computer. And I think, Riley, has nothing in common. I can't even play the games on these new novel next-generation systems that are here today. And I think about Google Maps, right, Google Maps is simply a -- it's an electronic manifestation of a 2-dimensional map, but it's so much more than that. And I wonder, Jeremy, if you think about your lab, now you're taking a class -- a traditional class and you're throwing into VR, and it'd probably be much more than a traditional class. But in your lab, can you think about simple mundane tasks that were done sort of a virtual environment and became dramatically more than what you would have thought?

Yes. So I'll get to the level in a second, but I want to go back to -- because we kind of glossed over stroke. And it is such a home run epic win to use VR for stroke rehab. A dear friend who had a stroke and his rehab was a piece of chalk on a board. And that's -- he had to draw in certain places in VR. We know where your hand is by the millimeter, we know where you're supposed to be going, we know where you're looking. It's just a home run use case. I just -- when I first met Adam, I said thank you for actually bringing a product to market because we've known this in academia. And now we actually -- it's just such a great use case. So I'm really -- I just don't want to gloss that over.

Let me add something to that. In addition, what you're designing for stroke rehab, it also serves triple duty for traumatic brain injury, multiple sclerosis, a wide range of clinical conditions where this rehab process could have significant impact, sorry.

Yes. Yes. No. So in the lab, we do a lot of work as Walter mentioned in the future cell. And this is things that once you now have this full body avatar, that $0.06 is built, you can now start doing some really wild and cool things in the lab. So the future cell study, we brought 20 year olds in the lab, and they went to the mirror and saw themselves in the mirror. We then used computer graphics to age them, so a 20-year-old would see what she looked like in the mirror when she was going to be 70 years old. So you'd get a connection to what your future is going to be like, this was done in collaboration with banking institutions. And the idea was, can we get someone to connect with their future, so they're going to defer gratification to improve their lives later on. And so we give them the choice of somebody now or more if they put it in a savings account. And we showed it by greeting yourself -- your future self in a mirror, you're more likely to defer gratification to save for your future.

Sure. Morgan Stanley love that.

But it's a win-win, right. I mean it's a win-win. They are putting their money in their savings account. And yes, Morgan Stanley love that as Bank of America loves that too.

Okay. That's almost as good, but not quite there. The -- okay. So I guess the other question I struggled with a lot these last few weeks is we're not in Silicon Valley. We're now in Alameda, but we're close to Silicon Valley. And I think of all these things happening in the broader technology landscape, Facebook is buying Oculus for $2.5 billion. We think TikTok may have bought Pico for $800 million. There's some pretty big players in the technology landscape jumping into VR. And I think the average investor says, should Penumbra really be doing this. So kind of a couple of questions here for the panel. From a technology perspective, what you see from Sixense and see from Penumbra, where are they relative to peers in terms of competing just in a core technology stack and maybe Jeremy, I'll start with you?

First of all, I'm thrilled to be around a company who owns the whole VR stack that is not a social media company. So you mentioned TikTok and Facebook, no offense to those business models, but I like the fact that we're a medical company, and we build hardware and software, and it's not tied to social media. So we -- can we just celebrate that for a moment that we are not a social media company. And I'll let my colleagues take it from here.

Would you have any trepidation of putting your health care information on social media, is that what you're saying to us?

I don't use social media. So the answer is probably yes.

I think there's lessons to be learned from Facebook's development and direction to go and some of the other groups. But again, this is a medical device company. This is their domain. Facebook isn't interested in this. Just the level of thought and detail that I've observed since I've been working with you guys is just well beyond anything I've seen and I've done a little bit of work with Apple in the past and a couple of Google Jig saw the work that we did, not the same level of understanding of what the clinical needs are and the marketplace to sustain this. I mean, there's so many companies that have popped up and they're going to do this, they do great work. They build one app and they can't sustain themselves. This group has that power to charge forward and continue to evolve and innovate with medical focus.

Well, I think that the tech titans are going to need us. They want to move their enabling technology into the medical arena, and they need groups like us who know how to do that right to bring it forward. And they've invested a lot in developing VR technology and AR technology and other spectrums of emergent. And -- but in order to move to the enterprise, I think Medicine is going to be one of the leading enterprises, they need groups like Penumbra to make it happen in an integrated coherent way.

[indiscernible] with you, when you're a non-health care guy that for some reason, wants to be a health care person at the tail end of your career here. But the -- when you think about VR penetrating the broader gaming world, and this notion that you can have kind of a core technology set, and that's used for gaming, but you would never sort of take a gaming or technology provider and sort of moving to health care. Is that whole water to you that they can drive sustainable advantage by being in the vertical?

I think the technology could be moved, but the focus of the companies are not there. And if you're an entertainment company, you're going to be focused on entertainment. You may say, oh, we're open up to health care but there's no marketplace for them to go to. There's certainly not going to be a play station in hospitals. And when we looked at games, we focused on just gaming. We didn't make it everything. When we try to make it everything, everything gets lost. And I'm sure that with Facebook and Oculus, again, they're a social media company, that's what they're going to focus on, that's what they're going to be about. And they may try to hang other things off of them. But this company knows the health care market, and they'll be able to market around it. The technology -- I've seen technology across all the spectrum and it's great to -- everybody has great technology, but this is going to be technology dedicated to this area, and that's going to allow health care to take off. If it isn't, if it's just a general purpose system out there that everybody has to put all the pieces together and then build the company, build the software and go market it, it just won't be able to take off. We're going to build an ecosystem that allows the people who want to be in health care to deliver health care via VR. To me, it's about delivering the product more than it is about the VR play. I think VR is amazingly -- it's an amazing -- I don't have the years of clinical tests and trials and all that. But anecdotally and experiential, I have seen it. I've seen it. I was responsible for an accessibility program for a short period when I was at Sony. We brought in some handicapped individuals. We were able to give an individual who could never -- had never walked an opportunity to climb a CAP 10. And the wellness, just forget about whether -- we didn't cure anything, but just his pleasure and excitement, but more than that, his mother just cried, just tried to see her son enjoy something that he could never do. And this is what VR offers to everything and we're going to bring it to health care and make huge strides to helping people. And I think it takes a health company to do that. And that's frankly why I'm coming.

Just a very direct answer to your question because you asked, is the technology as good as the other guys. And it's right there. Try it. It's awesome. We're giving debt.

Okay. That's a very direct question. One thing I struggle with as a medical device analyst, I'm pretty going to figure out what makes a medical device successful. What's going to make the number successful. Adam talked a lot about executing, we're already starting to execute some basic stuff people process, culture, all that happy stuff. But what is going to make Walter, in your opinion, Penumbra successful in executing in sort of immersive health care?

Good design. I think understanding what's needed and mapping the technology that in an appropriate way, creative design, making it interesting, engaging, promoting adherence. And I think also robust analytics, taking all the information they can get with every experience that a person has and using that to help us refine protocols. So many of the protocols in this area have been based on passed down from generation to generation is the right way to do something, particularly in PT and OT. But now we're going to have the data to help refine those protocols and figure out what's best and more importantly, be able to map it to the individual and their personal goals. So I think it puts us in a great position to iterate and improve, innovate and I think be iconoclastic. I think we're just going to shake things up in a way that's really going to make a big difference.

Can you say definitively that Penumbra has a first-move advantage in immersive health care? Is that definitive in all your minds?

I would say, yes, absolutely. We've all seen companies come and go, but never at the scale they've never -- they could never get over that last hurdle. They have a couple of good ideas. They got passionate people. But this has all the ingredients to do it on a large scale and to sustain. I remember asking Adam at one point, are you willing to put in the hard work over the next couple of years with the payoff later on. I remember you laughed because you mentioned how long it took in your original business to get to that point. And I think this is the place. This is the group. This has all the ingredients that -- I've had dreams about for the last 25 years about eventually the field is going to have one of these companies that's going to take it serious and deliver it. And that's what I see with Penumbra.

Having been around this world for a while, VR, I don't think that they have the first mover advantage. I think they are going to be the first successful mover that's bringing this all together, and that's, I think, key -- they have all the parts they need for a successful mover.

In the future here to be successful, medical device innovation is very iterative in many respects and it's been iterative in their stroke business and their peripheral business. What is that iterative thing that people should be looking for to inform their success? Is it going to be the magnitude of the content? Is it going to be the developer world? What do you think is going to define sustainable advantage here for Penumbra immersive health care? Jeremy, we can start with you?

So a 2-part answer to that question. Number one, when Margaret on her slide showed all those areas. And I just want to highlight a number, 125 meta analysis. What that means is that within each of these sub areas, it could be wellness, it could be loneliness, it could be stroke, there's been enough studies that you can build a meta analysis that combines all that data. That is a strikingly large number that signals that the field is ready for something like this. The second thing is the hiring of the people that can actually interpret that data. And so when the slide of -- the people slide that Gita put up, that was incredible. There's other rock stars, people that are on that team, such as we are, the 3 of us have never been on a stage together ever, and we've known each other for 20 years. I mean, it's -- the collection of brilliant minds that are working with this problem, it's unmatched. It's really special.

I think the intention clinician usability and the diversity of content so that you're going to be able to address not just one niche market, but the whole field.

Well, I think an important thing is the ecosystem horizontally as pointed out in some of the slides, many of the particular clinical indications have a number of therapeutic approaches to it. And if you just have one product that is one thing and can only do that and you need to do something else with that patient, and it's on a different product that doesn't speak to the first product, it's going to be a real mess. And -- but I'd be able to come up with a variety of different therapeutic approaches. All the problems that Penumbra has identified as starting points are complex, and you need to have a variety of tools to work on them and they just can't be one thing. You have to have a spectrum of solutions.

Okay. So Penumbra has now deployed a not insignificant amount of capital to acquire Sixense. And the question I have is why is Sixense, the asset, the unique asset to acquire? What is so unique, frankly, about that business?

So I'll start. My first Sixense experience was in 2013. And I was blown away that they could track my arms and legs and that they could do so correcting for distortion without calibration. And that was 8 years ago when I got that first demo, and it's just skyrocketing quality ever since. I mean, it's just -- they're just a great company.

They've been around, and they've been innovating and evolving their technologies, and you see it now at this endpoint or not the endpoint, but the start point for the future. I remember, I think I saw an online demo in 2010. And I sent an e-mail to whoever the contact person was, can I get a hold of the system, we want to run a study. And I mean, it was -- you've got decades of experience in developing this stuff. And you just -- a lot of people who have come into the field in the last couple of years, VR is hot and everything. They haven't been around long enough to know where the pitfalls are, where the mine fields are. I mean, part of the reason I think we're involved, you have us involved not only because of our moderate history of success, but also the mistakes that we've made and learned from, and that's how innovation evolves. It's -- you make a mistake, but you get up and you evolve it. And that's, I think, from my work with Amir, it's dogged, stubborn evolution that takes time. And that's why this is a match made in happen?

Well, and you saw some of the results that Jill presented of their talented studio work, too. So it's not just their sensor technology, which is incredibly important, but it's also the approach and the passion they bring to.

And how important, I mean, Jeremy, you talked about that [indiscernible], you're getting a lot of air time today, tracking, tracking, tracking and tracking. I think that was thought. But the -- how important is it that they have great tracking or the fact that they just -- they ciphered off and they started focusing on medical so many years ago?

So I think the answer is yes to both. So with our research in the lab, we've run a number of studies where we directly pit the quality of tracking, the accuracy, the lag, the update rate, all of the things that make tracking special, we pit that say against photographic realism of content or pit that against how interactive the experience is in terms of button pressing things of that nature, tracking wins every time. So it's -- if you're going to produce and experience that, a, has efficacy and training, that b, makes you feel comfortable and present, it's all about how the virtual world responds to your movements. That is VR. So if you were to give me a choice -- actually, I'll tell you guys a secret. Half of the time in my VR demos, we don't even render in stereo. We show the same image to both eyes because if you've got good tracking, people don't know it's not stereo. Tracking is more important than visuals, I'll sum up saying that.

How important is field? I mean, you talked about this full body Avatar, how hard is that to do? And how important is that going to be to immersive health care? I mean, Skip we'll start with you?

I think to do it well, it's going to be essential as we move forward into certain clinical areas. People have experimented with other methods that are okay, but don't give you the same level of fidelity. And not just for the quality of the data and fostering a good interaction. But if you don't do it well, sometimes people -- they'll try the system one time and go, this isn't for me. And you'll lose them. So that's why this is an essential element. I agree tracking wins every time.

And I would say that many, if not most, VR experiences and clinical VR experiences are lonely. You're there by yourself. And if there is another person there with you, they look like a robot. And so the importance of the Real Connect system where you can have a clinician or a coach or a friend or a relative or an expert there with you having an experience and the ability also to put an Avatar that moves in a way that is realistic, it's just going to up the level of engagement that we're going to have in virtual experiences.

Okay. So one thing that's in classic Penumbra style, Adam did share a lot of financial numbers of what this is all going to look like in 5 years, and I wasn't expecting it. But Riley, one thing that was very unique to me as I started learning more about this was this ecosystem, the gaming ecosystem, right? But it's also this strange chicken or egg problem, right? Developers develop in a system that they can get paid, right, the more they can get paid, the more they develop and this ecosystem sort of builds upon itself. Can you talk to us a little bit about how important it is to build this sort of clinical content development ecosystem?

I think it becomes critical. I mean, we have technology that defines the system. We have developers to develop for it. But if they don't have a marketplace to go, they simply won't do it. So we will have to define all that. We'll have to bring them tools. And I think the proof will be as we -- as time goes on and they keep coming back and we expand into greater and more capable technology that just almost becomes seamless as we go forward. So I think the ecosystem is what's missing. The technology has been there. The software developers are there. The proof that it works has been there for quite some time. But it's very hard for anyone to make any kind of business out of this. If we build the ecosystem, I believe that they'll come and I believe that it will be very successful and we'll have a real business here.

And I think an important point to be aware of is that our government has put billions and billions of dollars worth into funding basic academic research that many amazing admissions have translated out into seed stage and Series A stage companies. Those companies do not have a way to get to the market. And so all the billions of investment exploring next-generation therapeutics and assessments is going to languish unless there is a platform for those early-stage companies to move forward into the medical ecosystem and Penumbra is enabling that. And it's a way of harvesting all that important basic research.

Riley, this room does not know you as well as they probably should, right, this ain't your gaming room, right?

This is not my room.

In the gaming room, you're pretty hot commodity. But one of the things that you would...

It's hot here.

It's pretty hot here, you're right. Yes. One of the things you want to do in the gaming industry was really reduce friction between all these different parties, right? So can you just help us understand -- I don't think that didn't mean anything to me. So how do you work to reduce friction between, look, more content on certain platforms being those platforms are going to become dominant platforms and health care institutions are going to work with systems that have content across multiple verticals and you have to get people to develop. So as you think about how you broke down those walls of friction in gaming, what did it take to do that? And is Penumbra starting to do this?

Yes, almost yes. I think Penumbra is starting to do that, although we're still at the early stages of where probably where I stepped into the business. First, you have to -- at every stage, you have to convince the parties that, yes, we're really going to do this. We're here. We're going to be staying. And by the time -- if you were talking to developers, they need to know by the time they get their software done, that there's going to be a market and it's going to be a sustainable market. They're going to need tools to help them. They don't really want to have to reinvent the user interface system. If you can give them a standard user interface system, it makes it much easier. They can get on to developing their software. If we can teach them all the -- where your hands are and where your legs are, if we can just give them the tools to do that. So they don't have to recreate that. That saves months and months of programming. And then we give them the ability to place to market to or wait and deliver it, just getting it from their offices to the consumer or ultimately a hospital therapist or doctor. How do you do that? They have to have a sales force to do that. And then you get to the buyer. The buyer is it a doctor, a therapist, a hospital, how do they know what they're buying. And if you can have a name that they recognize, a name that they trust, a name that they know that we're not just bringing in slock to the market because in the video game industry, that was a huge problem that would cause the collapse of, too much bad software. We're going to have to be looking at that. Are we producing software, are we bringing therapies that actually work as opposed to just a mishmash of things that people can pick and choose from and maybe don't work. And then get it into the hospital and make it super easy to use. I come from a world that for 20 years, all we said was plug and play. We don't -- we're not a PC. We don't want components that don't fit or match. The consumer has to think about it, and that's exactly what we want in the hospital. We want a therapist a doctor, a user just to be able to put it on and it works. And you got to make that whole chain work flawlessly. And any friction at any point makes it harder. And so when I'm coming on, it's hopefully to eliminate some of those friction points.

And, Riley, I was at an Apple developer meeting or a sales force development meeting, I wouldn't even raise this because this would be understood as commonplace. But if you think about the gaming industry, roughly, how much of the revenue was sort of hardware versus software content?

Well, pure revenue, of course, the hardware has a high price point. So the revenue is huge. You really need to look down at profits. And it's the -- there's 3 components, usually of most game platforms, and it's the sale of the platform. They make -- or at least some of them make their own software. And then there's, what we call, the third-party publishing program or the publishing program. And if you look at where all the profits are, that's where it really comes. It's not so much from the sale of the hardware. It's from the delivery of all the material in the industry to the end user.

So this network effect of third-party developers and the gaming industries piece of that ecosystem was probably the single biggest driver of profit.

It is, yes without a doubt.

And that is the same type of ecosystem that can exist in immersive health care, right, if this goes right?

If this goes right, we will be delivering not only Penumbra product, which should be the very best but it won't be everything and it shouldn't be everything because somebody else will be better at -- I still don't know the complete list of all the things that we're going to be able to do. But somebody will simply be better at it than what Penumbra does. They'll have experiences, and they'll bring it to -- but we will be sharing in their success on the Penumbra platform. And if we can get -- if we become the supplier for all the different software that's available, all the different therapies that are available, that will be a very profitable business.

Any questions on kind of content development in response as to what Riley is saying?

I mean -- so when Steve showed that grid at the end, what people need to know is that each one of those squares in that big grid of the CG scenes, is a world. And in that world, it's -- there's companies that are evaluating $30 million, $40 million and all they do is build one of these squares. I mean, it's -- we have an epic wealth of content here, and we're going to just -- it's going to be multiplied once we bring on more parties to us.

And when Penumbra really good at it, they should build it. And if someone else is better, they should be open enough and innovative enough to bring those people on and work with them to work for our system because the system should get better and better and better and be more pervasive and it'll be common knowledge. It won't be people thinking, "Oh, this is new and innovative," they'll say, well, let's get the system. We have the therapies that work.

Just sticking with this whole notion of kind of real-world examples. Just thinking about Pear here, Walter just to wrap up. You were the first Chief Scientific Officer of Pear and Pear is the leader in prescription digital therapeutic. But it kind of occurred to me, it's very similar, right? There's concentration and there's reimbursement issues. Just help us understand the early experience of Pear and how they launched their first couple of titles or PDTs and how you see any of the parallels to Penumbra?

Well, I think the parallel is that if you want to change a highly optimized system that doesn't have a lot of room or necessarily appetite for change, not only do you have to be innovative in what you're bringing, but you also have to -- you have to figure out how to make it revenue positive for your clients and your customers. And I think that's the challenge in the medical ecosystem. I think it's a time of dramatic change because of the adoption of so many powerful digital health systems and also with the tech titans and groups like Amazon and Walmart getting into health care. But I think that the fundamental is coming up with a product with value, figuring out how to position in such a way that not only does it make people healthier, but it also addresses the business ergonomics of the system. What are the constraints of the clinic, what are the constraints of the hospital, is it a time constraint, is it a finance constraint and designing to address those constraints, not just designing for improved efficacy.

Okay. I think we've kind of run out of time here, but I'll leave it open to the panel. You have 20 years of experience, and I have 2 weeks on immersive health care. So anything we haven't talked about or discussed or parting words that we should hammer home.

If anybody doesn't think this is the future of many areas of health care, then they're not paying attention. I mean, this is where it has to go. We've got real significant challenges in the health care system now. We can do things that evolve clinical care, engage patients, break down barriers to care as well and we're strategically useful automate some of the therapy so that with the clinician supervision, people can do more things on their own and like the tele therapy approach and so on. I mean, look at -- I love the scientist for World Health Organization estimated something like 600 million people on the planet right now have a mental health condition worthy of some type of treatment, of which 2/3 fully will never see the inside of the therapy office. Can we expand the limits or push the limits for getting people and breaking down barriers to care by engaging them in this type of stuff, this is the future.

I guess my parting observation is that timing is really important. And there's been a lot of groundbreaking work over the last few decades in this arena in both the tech sector and the basic research behind this. But I think now is the right time. I think a year or 2 earlier, it would not have been the right time to do this. A year or 2 from now, it would also -- it'd be too muddled with other false starts. I think the timing for this is perfect right now.

I'll just say, and I think I speak for Skip and Walter here as people that have been in VR for 20 years and Riley as well has been -- what I just got to see today, that doesn't happen every day. This is a geeky thing for me to say, but we just witnessed a presentation that is special.

Inspirational.

It's a moment. It really is the moment. And I'd say that just excited.

I think we'll look back 10 years from now and I think our goals were understated. I think we will be -- we will exceed all expectations, yes.

Okay. Well, let's leave it and exceed all expectations. All right. Thank you so much, thank you all for listening.

Well, thank you, guys. David, for moderating and Skip, Walter, Jeremy and Riley for your wisdom and Riley is special, you got a lot of work to do. So let's get you started. I'm going to open up to questions. We're going to start with folks in the room, and then we'll try to go to the webcast.

So Larry has got the first question. Late one second, we're going to pass the mic around so that the webcast can hear the question.

Larry Biegelsen, Wells Fargo. Adam, 2 from me. I'm going to ask about the sales ramp and the comments you made upfront and then I wanted to ask a little bit about the business model. So we all heard your comments upfront that this could be bigger than vascular and neuro in 5 or 6 years.

Yes, I did say 5 or 6 years. David took a couple of years off when he shortened it to 3 to 5, but I did say 5 to 6.

And so we can all do the math. I mean, that implies over $400 million in sales at least by 2025, 2026. So my question is, you've had approval since early 2019. Why the ramp seems to have been relatively slow, maybe COVID obviously had an impact. But why has the ramp been slowed so far? And how should we think about the ramp going forward? Can sales be meaningful? I won't say material meaningful in 2022? And I had one follow-up.

Yes, it's a great question. So the question is why, and I think in the presentation, particularly Gita walked through the why pretty carefully. There's a lot of barriers. I had an opportunity to meet with the CEO of a large hospital system, and we weren't meeting to talk about this but she actually raised this topic. And they complained because they literally had 20 different headsets in their hospitals, all doing different things. They were sitting on the floor of the hospital closet, they didn't know which one was charged or which one had this. They believe in it, and they were looking for this solution. So that's the reason. We need a platform that can handle all of the various things so that you're not sort of looking at a disjointed effort. When we get that out there, and it will take some time. We have a year plus of just doing the work to get the installed base started. So to answer your second question, will we see meaningful revenue in 2020? It depends on the definition. The rest of our business, as I said earlier, is growing so well and is so strong that as a ratio of that, I don't know if you would call it meaningful, but it will be meaningful for the start of this platform.

And just one follow-up. I guess my question is on the business model. Maybe if you could talk a little bit about that. Are you confident that you've addressed the issue that Walter raised about making this profitable to providers and payers, which is obviously critical for adoption.

Yes. So the business model is exactly what we have heard everyone wants. People want to be able to buy some hardware and then pick and choose what applications they want. That's exactly what everyone has said. So am I confident in it? I'm pretty confident that everyone who has been in this ecosystem looking for this solution has told us that this is the model they want. We have to go do it, and we'll find out within the next year or 2 if there are tweaks to it, I'm sure there will be. But that's the reason we're focusing on this model. And we're going to put some real investment in getting that installed base, getting started, getting people going again, so that we can also have an opportunity to have third-party studios to do some real great work and publish on the platform. Thank you there. Yes. Next question is from Bill.

Bill Plovanic, Canaccord. I'm actually going to just take it up to a high level. We saw a lot here today. Look forward to the demonstrations after. But just what is going to be the initial market strategy? And what's your initial target market? Because I mean, focus is key, right? You talked about the installed base and you can't do all things at once. So just where are you starting? And how are you doing it?

Yes. So that's a great question. So if you step back and remember Jason's presentation around sort of what the sort of initial 14 channels are, if you will. That's the obvious starting point. There's a lot there. But within those channels, there's obviously some bigger players and smaller players. And the goal is to go to those who have already expressed an interest and a lot of them have in the idea of VR in general and us in particular. And we'll start there, and we'll go from there. So it's a fairly logical -- you go to folks who already know they want it, and we're solving a lot of the problems. And we'll wait and see how successful that is, but we're pretty confident that the interest is there, and now we have to execute.

I guess for me, is that a specific type of provider?

Yes. Well, so if you looked at the list that -- and you can go back and look at the slides, there are big giant sort of channels, if you will, hospitals as a channel, people who are presurgery and have all kinds of anxiety about it, post-surgery recovery. The list goes on and on within the system of a hospital where this can be used. Obviously, rehab clinics is another large channel, assisted living facility. So that list of channels and within those, there are large operators who have expressed and interest in having this type of technology to take care of their patients.

And one last kind of follow-up. Is this -- is it starting in neuro? Or will it also be in like orthopedic rehab? I mean, there are multiple different content that you're providing. Is it a land and expand strategy? Is it like one channel, one market or...

The new -- one of the things that's important to understand from today's meeting is we went from -- and I think Jason had the slide up at the first with a list of conditions, one of them being neuro rehab and a long list of others. So we started there, and we are now, and you saw the content that we have produced. That's what we're talking about. So we're not limiting this to neuro rehab. We are broadening this with the I-Series as well to a much broader application and that work starts now. Yes?

Can you just talk a little bit about the -- you first commercialized the products, maybe 1 or 2 years ago. I appreciate that COVID had impacted things. Can you talk about some of the feedback that you have seen in the past 1 to 2 years that either 1, made you more confident in the strategy you have going forward or 2, led to some of the changes that we're seeing here today from the strategy laid out last Analyst Day?

Yes, it's a great question. What we've learned -- we launched this roughly at the end of 2019, so just shy of 2 years. And what we have learned is pretty extraordinary. Most importantly, and I have to say this, we showed a very small sampling of a few patient stories. We learned that it works. We've learned that patients like it. They get very engaged and they can do better. And without that, we wouldn't be doing this. And that is the most important thing, it works. With that knowledge, then we went ahead and spent a lot of time. And COVID actually, in this case, gave us the opportunity to understand where all the friction points were not just in our own technology, but in the whole ecosystem and way VR goes out and helps across the spectrum. And we've tried to address all of those. Some of them we've already addressed pretty easily. Others will happen over the next year or 2 and making this something that is easy, seamless and doesn't slow down the delivery of good therapy. So we're doing that work and we'll see over the next couple of years whether that was the right thing to do, but that's coming from the users of the systems.

And just one quick follow-up. There was an interesting discussion kind of expanding into the software side. This is more than just hardware. It's creating this entire ecosystem. I think a lot of the other -- maybe big tech, if you look at a corollary, a lot of their revenues eventually are coming from kind of just creating the ecosystem itself. Is that somewhere where you envision or rethinking -- are we not thinking big enough if we're just thinking medical device sales here? This can become a software platform as well with kind of those high-margin recurring sales?

Yes. I think that was exactly the right takeaway. And I think Riley answered that question during the panel as well, when he talked about the gaming industry and where profits come from the third-party developers. The goal here is very simple. If we are successful at putting this hardware out as a platform, our goal, not only with the Penumbra studios and now with the addition of Sixense, we're going to have 2 new studios, a total of 3 great studios doing work. You heard we have contracted with some of the best studios in VR on an exclusive basis for a number of years for the health care space. When you add all that content, we're going to do great. But the goal is to have even better and more and more content to help more and more people. So we're hopeful to attract even more studios and Riley has worked with the best studios in the world. A lot of the other team have, and we think we will be able to attract some real work that can help even more and more people. When that happens, yes, will we do okay financially, probably, by having third-party studios on our platform. The goal is simply how many people can help as fast as possible. There's a question over here.

Ryan Zimmerman, BTIG. We've heard this number, I think it was mentioned about the meta analysis. There's 125 out there. I think we can obviously see that there's a clinical benefit. But do you feel you need to do any clinical studies with the real system to gain payer adoption, buy in within the various market opportunities that you're targeting today?

Yes. That's a great question. The answer is it depends on at what point in the curve. Sort of if you go back and look at our vascular business as an analogy, we have all these patients. We describe it as -- defined is about 450,000 that are being treated today without any data whatsoever. If we want to go beyond that into the next 2,000 or 300,000 or 400,000, we probably need data. It's sort of like that. There's a lot of patients that need to be treated, want to be treated, their providers want to treat that we can do now. Obviously, as we continue on and applications get more defined, there will be clinical work done, that's obvious. And that will continue to fuel the adoption going forward. But it's certainly not necessary as a starting point because people are using it and they want to use it. They just don't have the right platform to do it in a way that's seamless right now.

For me just the second question is just we're hearing a lot about this ecosystem, and I'd love to understand kind of the corollary of how long, Riley, in your view, it took for the video game market to develop that ecosystem? But then today or a few years from now, are these developers that you're talking about ready to embrace purely content development for this application beyond the studios you've contracted with? Or is that going to take time to kind of mature in itself?

Yes, that's a great question. Since you're right next to Riley, let's pass the mic to the person who can, I think, answer that better than me.

Well, I don't think we're at ground zero. I think that there's been some development and approach and people are interested. But I just sort of put it in -- I have to analyze -- take -- look back and look to the -- where it was in the industry I was in and it's sort of just between we're coming into the period where Tendo stepped in and brought order to the market. And I have the greatest respect for the guys over at Tendo because they were never really a tech company, but they knew business models and they knew their market. And I think that's what's happening here. We deal in tech, but we know the business, we know health care and we're going to bring and build a market around it. So that will take a few years, frankly, to make sure that we're performing and we're working and we grow it. But as we grow it, that's when we'll begin to reach out to different developers and publishers and other health care companies that may never even have thought about being in the software business. But they'll come if we can demonstrate a market. I'm hoping to bring in companies that I've worked with for 20 years, but I also hope to discover some companies that I've never heard of because there's always somebody who once there's a market, they turn around and go, I've got a great idea, I'm going to bring that to market, and I hope to bring those people too. It's going to be an ongoing process. First, let's do it for Penumbra, let's build the market, then let's bring other people in.

Riley, Jeremy wanted to add something.

If you make VR content right now, there is not a hospital headset. There is not a medical VR hardware device you can use, one that's safe, one that's private. So developers are going to love this because they actually get to go to hospitals now and other facilities.

I think there's a lot of people who would like to be in this business, but don't have any idea how. What is the marketplace to get to. If we can give them that, they'll come.

Great. Thank you guys. Other questions from the room over there?

David Rescott with Truist Securities. You talked a little bit about kind of the third-party partnerships that you're planning to utilize with the system. I guess, could you just give us a sense or some examples of what some of these types of partnerships could be? Is this something where a biotech company that's developing a Parkinson's drug could be using this type of technology and clinical outcomes or potentially for some kind of stroke rehab? I would just be interested to hear kind of what some of these examples of the third-party relationships could be?

Yes. Let me maybe make sure we're saying it the right way. When we're talking about third-party developers, we're talking about software studios developing specifically content applications to help whatever medical condition they're working on. You raised another point around partnerships per se, are there entities who want very specific applications for their own thing? You used drug companies as a good example. There's no doubt that there is a lot of interest in the drug industry for compliance purposes, how do you keep people compliant on the drug, how do you deal with certain issues and anxieties around it. And there is -- we're well aware of that. Those interests and that need is a clear part of this that would be more specific sort of white label work, and those partnerships are certainly available given what we're talking about. But the work ahead of us for now is really focused on driving a much broader therapeutic application. Those are important aspects, but they're not the single most important thing we're doing. So developers versus partnerships is that distinction. Yes. Let me -- any other questions in the room now. If not, we'll go to the web. And we have Aaron who's monitoring the questions.

So the first question comes from Robbie Marcus with JPMorgan. Can you walk us through cost and annual revenue streams per unit? How we think about COGS and OpEx associated with future launch? And how to think about the selling model and the future adoption?

Robbie, I wish you were here in person. The answer is no. Listen, we -- it's premature. It's also not in our interest on a competitive basis to do that. Obviously, to go through unit by unit, headset by headset, at this point is premature. But needless to say, we didn't host an Investor Day and go to this effort if we haven't done an awful lot of math around this to gain an awful lot of confidence. And I know it's frustrating. You can't write your models now. I apologize for that, but you're going to have to trust us that we've done the math. You take 50 million people that you can help and there's obviously appropriate math that comes from that. But it's a little premature to do that.

Our next question comes from Joanne Wuensch from Citi. How do you plan on launching program? How will it be measured? And what is the impact on operating margins?

So the launch of the program and how it's measured is somewhat similar to everything else we do. We're obviously now launching the program. The I-Series is out there. We had a press release about that a month or so ago, our original Y-Series, which be updated soon with more and more content we just shared and talked about. So the process is out there. How we measure it? Again, it's how many -- what kind of installed base can we get, how many folks we can start to use now that we have a much broader series of tools and hardware applications than we had before? And we'll measure that by how the installed base goes over the next year or so. And then we'll go from there.

And another question from Joanne Wuensch. What will stop others from entering the market?

Well, unlike other areas that we have competitors, albeit even in that situation, the more and more folks come into peripheral like announcement today, the better for us because it means we have larger and larger companies helping move from lytic treatment in the vascular to single-session treatment. So I welcome that help. Here, it's even more so. We have already outlined that there's over 100 companies doing medical health care VR. Those are all companies that are working on the software side. None of them have their own hardware. And all of them with -- if their content is good enough, we want to publish on our system. So they're not really competitors. They're actually going to help us drive more and more people who can be treated and feel better. So I'm all in. I'm glad that we have an opportunity to work with so many talented people trying to do good work.

So one of the questions is, do we have a sense about how the reimbursement process will work?

Do we have a sense? So if the question is, is there a process now to go get specific reimbursement, the answer is over time, we obviously think that there is an opportunity to do that in certain applications. Right now, obviously, that doesn't exist. But just like on the clinical data side, it's already being used. It's already been paid for. It's just not in many, many applications. It's just not a very effective or efficient sort of delivery of this medium or this tool in health care. So we don't need to change that in the short term or even in potentially in the midterm, we believe to be successful. But over time, like anything, the more data that comes, the more people are successful, the more that will drive the reimbursement dollars, and we'll be on top of that.

In relation to REAL, what's the closest you've ever gotten to getting distracted? As you work on your vision, what are some of the most important things to say no to?

Oh, I thought you were actually talking about the actual therapy in REAL that can involve distraction therapy from pain and other applications. But what you're talking about is my own work and making sure I don't lose sight of the core business, I think. I think we've shown -- I hope we've shown today the exact answer to that question. At a time in place when our core business is as strong as it's ever been, we're showing the kind of success that we wanted and we've hoped for. We've also built this whole starting point to launch into a whole new area. I haven't -- I've been able to lead the company doing both. It's not me. It's -- as you met a lot of people who have joined this effort and are doing extraordinary work a lot more than me. So I think we can do a couple of things at once. I think we've proven that. And I think that's the mission of the company, it's always been, how do we help as many people as possible. And Riley was kind enough to remember my challenging him to stop working on games and come and help a lot of people. That's the mission of the company, and that's what we're going to do. I think we have the capacity to do it and not get distracted. Albeit you play one of the games, it's pretty fun. You might want to enjoy going to Paris or London for a little bit. Yes, another question right here. Yes, it's okay. We'll take a question and then we'll go back.

Just real quick, Adam. This is Ryan Zimmerman from BTIG. The system you're launching today or recently launched, excuse me, in the home. If I go back to the 2019 Analyst Day, the system was tethered to a health care provider. This is going to be a home-based system. I'm just wondering if you could talk about kind of the agency's comfort with some of these virtual reality systems in the home when there isn't health care support for it, whether there's a classification or some type of regulatory hurdle that you need to think about?

Yes, let me be very clear. The I-Series initially is in all the channels that Jason walked through, the 14 initial channels and all, those are all not home based. Those are all channels in which there is health care being provided. That's our first work. When he put up the number, $10 billion plus, let's say the plus is the addition of direct-to-consumer or home based. So there's a little bit different. These are -- and you saw in Joel's presentation around the I-Series, examples of where patients may use it inside the health care settings. So that's our focus to start. Are there other questions from the web?

There's one last question. It's unrelated to REAL. What does leadership look like at Penumbra and how -- and who do you choose to empower?

Did my daughter ask that question? What does leadership look like at Penumbra and who do I choose to empower? Leadership looks like this. It looks like product lines in stroke and vascular and now in immersive health care that are doing something that no one's ever done before. And we have built, I think, one of the top leadership teams in the entire health care field. I couldn't be prouder. We can continuing to add new people. We just hired an extraordinary woman from one of our direct competitors to run our European operation. Same thing on the international front. So we continue to add new and more talented people to supplement, but otherwise is, I think, a great team. I empower people who take the reins and do the work and have shown that over the years. I think it's pretty obvious in the success of the company. We have one more question here with Larry?

Larry Biegelsen from Wells Fargo. So Adam, on the milestone slide that you put up, I'm looking at it. It's helpful, but it's kind of -- it's a little vague. So can you -- right if I look at the FDA approval, it's sitting, health care provider, it's upper, it's very limited right now. Can you put a little bit more meat on the bone there on that time line? What are some of the approvals over the next, call it, 12 to 24 months that we should look for that are really catalysts here? And I have one more follow-up.

Yes. So the -- let me disassociate for a second what we are doing and what you are say are clearances coming. Our clearance with the FDA is pretty broad. And so a lot of things are current expectations given where the technology was several years ago was limited, but our actual abilities are much broader. So I want to just sort of pull those apart a second. So it's not that you will just be looking for FDA action. Where we're headed, I think you saw pretty clearly, which is 2 types of -- or 3 types of hardware platforms. The first in which you can have your entire body being tracked and therefore immersed. Right now, we do that on the upper body. You saw the video in which we can now do that on the entire body. We have to fold that into the product and of course, build content. We also have that capability coming with what we call the T-Series where you can do that, but do it remotely where you can have your therapist join you and run your experiences as opposed to just watch you, but actually guide your experiences on the T-Series. And then, of course, the i-Series, which is something that can be done without any other hardware, just a headset and very simply where the tutorial is shown on the headset itself and can be done in many, many different settings and much broader and that's of course already out there and then add REAL Connect. So let's start with sort of the platform of different configurations of hardware that are necessary for the different medical conditions that we're trying to do. That was an important thing to understand. So we're not -- we don't have one configuration because not everybody needs all of those things. If you're about to get an infusion like [ Jo ] showed. You don't want to put on sensors and track your whole body, you want to just have the ability to sort of relax, lower your anxiety sort of get through what is an uncomfortable or sometimes painful experience by joining somebody in VR, you don't need the other stuff. So that all is in place. And as we continue, we'll update you on when we add other things we had alluded to it around haptics and other things, we'll update you when we start to add those.

Which of these things require FDA clearances, standing, for example, lower extremity at home? What are the FDA clearances that you need to achieve what you showed us today?

Yes. Again, we have a pretty broad clearance, and I'd rather not, for obvious competitive reasons, start to walk through what all those details and what our conversations with the FDA are here. But I have a lot of confidence that the hurdles will not be FDA clearance for us.

One more, trying to figure out what to ask because there's so many questions, but -- so you're trying to do a lot here it seems to me, and there's a lot of different opportunities. So how are you trying to get a question asked earlier kind of what's the sweet spot here, the ideal patient, the low-hanging fruit, how are you prioritizing your investments because you can't do everything, right, and be successful? So trying to -- so maybe you can help us understand that. And what are the KPIs you're tracking and going to share with us on REAL, how are we going to be able to track your success?

Yes. So look, the way one thinks about this is the patients that we already know can benefit from this. And the areas in which those health care communities have already embraced and understand the power of VR. That seems obvious. So as we talk about going out there and building that installed base, that's where we go first. By definition, there's very few people in health care who don't know about the VR and the possibility. Some are much further along than others. And so those conversations will then bring along and when certain organizations see somebody else in that field do it, they'll likely follow. We know how that works in health care. So that's where we focus on the commercial side. And obviously, the content that's been developed. You saw a lot of it today, a host of new content. Those all -- that is all designed for that broad group of patients in those areas where we think we can first start. So that's the starting point. How do we measure it? Again, this is not something I'm expecting to sort of get credit for today. This is a long time. Just like when we went public, we didn't get a lot of credit for our vascular business and that was okay, and it did just quietly sort of built. We're going to do that here. I just -- it's a big enough thing. We're bringing in Sixense, we're investing, and it was sort of time to share with you guys and the health care community what this effort looks like. And now we're going to get back to work, and we're going to spend the next year or 2 doing the hard work to build this out. And if it's successful, in not 3, 5 years, but 5 to 6 years, I think we'll know pretty easily. All right. I think that's it on the questions. Listen, thank you guys for your attention everyone who dialed in on the webcast and everyone who came in person. And I appreciate your attention today. Thank you.