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

Well, welcome, everybody. Long day. Hello. I'm Joanne Wuensch. I'm the medical technology analyst here at Citi. And thank you for joining this session. We have the management team of Penumbra, including the CEO, Adam Elsesser. Wow, long couple of days. So how are you?

I'm great and glad to be here. Thanks for having us.

Excellent. So I want to talk a little bit about the big picture of where you see Penumbra and where you see it going. You've become a little bit more specific in outlying the various categories that you're looking to drive revenue growth in or with. So just level set us.

Yes. So thank you sort of for asking it that way. We -- when we started the number all those years ago, we had this crazy idea that stroke patients could benefit if we could find a way to remove the blood clot fast enough to restore blood and perfuse the rest of their brain quick enough. Took a while. Our first product was okay, but not great. And we got better and better. And here we are at a point where it's pretty darn good, but we still think it can get even faster and better. And that's the work we've been doing in this work on the RED series and, of course, Thunderbolt. We also did that in a lot of different other areas. We've done that in the vasculature with our embolization line, which is a very unique set of tools, not typical. They're bigger. They're softer, sometimes longer and able to do a much broader range of cases than their traditional technology has been able. And then we moved into the peripheral thrombectomy in both the arterial side, DVT, PE and of course, coronary. So all of that, we think we can keep innovating, keep adding to get to the point where we're moving blood clot anywhere in the body, basically, becomes no longer sort of a novel thing. And you don't have to put the patient in the ICU. You don't have to do any of that. You just take it out. And that's our goal, is to continue to drive that innovation to make those cases easier, simpler, more routine, if you will, so that patients will benefit. And then we took that same sort of philosophy, if you will, and are applying it to Immersive Healthcare, where we're taking technology that isn't particularly designed for health care but has real applications across the largest number of patients we can impact. And we're trying to do something that the field really wants, which is build a platform both on the hardware and software so that we can not only ourselves harness innovation around great applications, but really find the ability to harness lots of other people's creative and thoughtful applications as well. So when you add that all up, it's a fair amount of work both now and in the future. But if we continue to perform the way we have been, we'll continue to help more and more people every quarter.

So I want to start backwards in terms of current revenue contribution, but ultimately, maybe most significant. Let's start with REAL. And we had a meaningful analyst meeting in September. And what has changed since then? What has evolved since then? And then one of the conversations you and I had after earnings this week was, how do you think about revenue contribution?

Yes. So what has changed is we've started to really execute on that plan. What we basically laid out is that we're going to be doing 3 big things. We're working on the technology, both the hardware and software, to build this platform and build the SDKs as well as the actual platform itself. And that's ongoing. We are very confident we can do that. We have built a great team of people in the field that have done this in other settings. And we have a lot of companies. We can do that. We've also started the conversations with some of the large end users in those 14 channels. And what will -- we'll continue to do that. That's the installed base, if you will, of people who will be using this across a wide spectrum, not just in rehab like we started, but in a wide range of other applications, from assisted living to other clinics where the -- not just the physical movement or rehab applications, but the mental health applications, stress reduction, depression, in some cases, memory and pain and so on can have a real impact. And then the third big element is the conversations with third-party developers. So a lot of these are folks who are in the space already who are doing really, really good work. They tend to be smaller companies building applications on other people's hardware. That's not really going to be likely a viable pathway. And so there's the beginning of those conversations and an interest to be able to use and publish on our hardware, on our platform. So what we'll do -- we're not focused on short-term revenue this year for that reason. What we're doing is really doing -- laying the groundwork so that we can have this platform and have as many people working with us as possible to build the kind of content that's necessary to make it successful. But we'll share over time more in the back half of the year how we're doing on those. They're not going to be direct, here's how to measure us by revenue, but you'll be able to get a feel for what users are working with us and partnering with us, what developers have sort of agreed to be on the platform. And we'll do our best to share that as we can throughout the back half of the year.

Excellent. When you gave financial guidance, was there REAL revenue included in it?

No. Not really. Not in the substantive way.

Okay. Excellent. Let's talk a little bit about Indigo CAT RX. CHEETAH data was presented in the fall. Can you rebase us on what that data was? And what does that mean for that product?

So the CHEETAH data, that was a great study, a 400-patient study. It basically showed, one, on the safety side, obviously -- start there first. There were no device-related events. So the device performed well. The device was in the body for a little over a minute. And I wanted to stress that because a lot of these are cases in which time matters a lot and you don't want to slow down the procedure. So it was in the body for a little over a minute. And the rate that you saw clot or the reperfusion rate, if you will, the myocardial blush grade 3 was 98-point-something percent, you can't get better than that. You basically are saying the device took about a minute. There were no issues with the device, and you got all the clot out. So if you had designed -- if we had picked what endpoints we would want, the data we would hope for, we might not have even been this optimistic. So it was a real win. And the conversations now and the work ahead of us is to continue to get that out there, to talk to the physicians, to make sure they're particularly the ones that are using manual aspiration, which means they've already decided they need to get the clot out, offering them a tool that seems to, obviously, through the data do it much better.

And how does this translate to how your marketing team is using the data and what it may or may not mean for revenue?

Yes. So it certainly will be part of the growth story. We put out our guidance, obviously, just this week when we had our earnings call, and we took into account this being particularly -- it's in the U.S. right now, a driver of that growth. But not -- the way we look at the 4 vascular thrombectomy markets -- ALI, that's arterial side, DVT, PE and coronary, is they're all going to contribute, and they're all going to be part of that. And it will depend sort of territory by territory, doctor by doctor which goes faster in any given quarter. If there's groups in one location that do a lot of DVT and they convert, that might be the case in that quarter, and then it will change depending on how we get to other doctors in other parts of the country. So all of them will contribute to the growth. We don't look at each one of them and say, let's only focus on this or that, which is a great thing. We have a lot to do and a lot of different levers to pull and -- that I think puts us in a pretty strong position.

Excellent. Let's talk about the other areas of the Peripheral Vascular franchise. When you start talking about or thinking about the 4 areas, which one is the driver? Are they all drivers? How do you think about developing the products?

Yeah. They're all drivers. And I do -- I received that question a bunch, obviously. It's almost like asking me which of my children I like the best. It isn't how it works. We right now have best-in-class products in all these areas. And there's actually a fifth, which is our embolization business, which keeps growing, notwithstanding that it's not an underpenetrated market. So there, it's really share that we continue to do well in. So all of them matter because there are patients on the other end of those who need the products and the technology. And we don't look at any one of them on any given quarter and say this is the one that will matter more. Now we know, as I said, rep by rep, there'll be different growth rates depending on sales reps relationships with doctors, access to new doctors and customers. But on a whole, and if you step back and say, let's look back in 2 years or 3 years, I think one would likely be looking back and saying all of them contributed pretty significantly to the sort of strong durable growth that we expect year-over-year.

Excellent. You've got the Lightning portfolio. You've been making great strides with the Lightning 12, Lightning 7. For those who are somewhat newer to the story, can you walk us through the difference between both of those products and why it's important to have them in the portfolio?

Yes. So Lightning as a technology, it was really a transformative technology for us when we launched it in the middle of 2020. And for those don't know, it basically is a -- it doesn't go in the body. It's a device that attaches to the catheter. In the case of Lightning 7, that's a 7-French catheter versus 12 -- on the 12. And then and each Lightning is different because it has a different algorithm based on the size of the catheter. So they're not really -- there's some differences there. But that being said, it attaches them to the pump, and it controls through an electronic mechanism of valve that opens and shuts at an incredibly rapid pace when you're in blood clot and not in blood clot. So you don't ever take out too much blood that you then have to risk hurting the patient, or even worse, sometimes putting back in. The key is you just want to get the clot out, and you want to get it out quickly. And Lightning was able to do that for us where we could, on our venous side, upsize a little, you want to be careful on that going too big, but upsize a little and still not risk any blood loss. The other additive benefit of the Lightning series on both -- on 7 and 12 is the ease of use that comes with it. There is both visual and auditory signals that you get from the device when you're in clot and not in clot. And there's no other way to do that. It's a blind procedure. You're looking at an angio screen. You don't know because it's not a live picture, if it's blood clot or not. You guess -- you did a road map, and you kind of know generally, but this tells you automatically both by visual queue on the device itself with a color change of -- as well as a sound that you can hear. So you don't even have to look at it. And that ease of use has, I think, made the cases shorter, easier. It's given a lot of benefit to the doctors. And we hear about that constantly about the benefit to them and the safety element for their own patients. So the combination of that is really where Lightning has propelled us. Now that being said, our company, we're never satisfied that we're done. And we think we can even improve upon the performance both on the arterial and the venous side. And I did allude in our earnings call towards the end of the year, we're going to have, hopefully, a new technology that will even be better than that. And I don't mean fundamentally different from Lightning, but take what we know and improve upon it even more so. The goal being, again, getting closer and closer to the point where the -- it just seems obvious that you should treat these patients, that you should just get the blood clot out and be done. And I think ease of use and completeness of clot removal have always remained the goal of these procedures so that it just becomes fairly obvious that you should do this for those patients.

So your allusion to the new platform, is that for both the arterial and the venous side? And is that a Lightning X, Lightning 20? Or have we moved to something else?

Well, so I haven't said that yet, and I'm not going to reveal too much on this call, if it's okay with you. I apologize. But I will tell you that we -- that as you think about arterial and venous, there are fundamental differences, and we've learned a lot in the past couple of years about what works, what doesn't, what's maybe too big, what creates issues, all that kind of stuff. And so what we're doing -- and this will be a divergence a little where arterial -- the innovation on arterial is going to be different. It's not just an X version, as you said. And the 2, between venous and arterial, start to slightly diverge in terms of the solution because they're obviously different and bring different challenges. And for that, I'm excited, again, because we're learning more. We're doing better, and we're trying to make this procedure so simple that -- why wouldn't you do it?

So I have in my notes a couple of clinical trials that are related to Lightning. You've got the STRIDE-PE, the EXTRACT-PE and the STRIDE trial. Am I targeting the correct trials? And are there readouts that are coming up? And should we be paying attention to these a bit more?

Yes. Well, EXTRACT-PE has already readout. That happened -- that was a trial we ran before Lightning with our old system. Ironically, it's still best-in-class data that I'm proud to say even that with our old system, STRIDE-PE is to basically update that with Lightning 12 and sort of get that kind of formal data that we'll be able to use as we think about the next study going forward. So that's on the PE side. And STRIDE is on the DVT side. I'm sorry. And we're pretty excited that, again, using current data -- current devices to get a sense of where that is. Readouts, I don't expect them in the next couple of months. The trials are still starting on the earlier ends of enrolling but could go relatively quickly.

Okay. Anything else you want to talk about the Peripheral Vascular franchise that I should have asked?

No. I think that's right. I said STRIDE is on the arterial side. And the moment I said it, I realized I had gotten that wrong. So let me just correct that. But no, I think you got it. We have a great business, but it seems to -- we're on pace to continue to make innovations and make it even stronger.

Excellent. Let's go to what was once your bread and butter, neurovascular. And one of the things that really struck me as I was writing up the fourth quarter note was how this time last year, we were talking about the JET 7 Flex recall and how much -- how many sales you would be losing. And you've sort of hurdled that.

Yes. Well, thanks for -- I love talking about neuro. Neuro might not be our financial bread and butter, but it certainly has a near and dear place in, I think, everyone's heart at this company. It was our passion, still is for so long. And I am unbelievably excited about where we are right now. I'm really proud of the team. Obviously, no one wants to have a recall. We did extraordinary well to build and design the RED series to take what we knew, make really, really good catheters and obviously get them through the FDA really quickly. And the performance of those series of catheters has been really extraordinary. And even I called out RED 62, which is a smaller version, and we typically don't do that, but that catheter is performing so well. And we're seeing more and more people use it as their primary catheter because its trackability is so good. And that is really important because before Thunderbolt comes, the RED series are the catheters to be used with Thunderbolt. And so we have this momentum now. We think there's a lot more people that have expressed interest, and we want to make sure that we get all of the folks using that catheter, which gives us a little breathing room, if you will, because we're doing well and we have growth ahead just with the catheter to run the study with Thunderbolt because that way, when we do launch it, assuming it goes as we expect, the launch of that, not only in the U.S., but using that data in other parts of the world will speed it up in a much bigger way. So we're not in a position of, if you will, weakness or where we need to drive it faster. We have a lot of growth just with the RED series ahead of us this year. So we might as well take advantage of that time and then do it this way. And I'm excited about it. I think that, that will be -- we're getting close to our dream of being able to treat almost everybody really quickly. And let's wait until we finish this. We don't know until it's done, but we've done -- the team has done extraordinary work. And I'm really, really optimistic. And the way we're doing this is if it plays out the way, I think it will be fun.

So you led us straight to Thunderbolt.

Yes.

What can you tell us about it?

Yes. Well, I've said before, Thunderbolt, again, doesn't go in the body. We use the RED series. It's a version -- it's taking what we -- new from Lightning but really going further. We're using modulating aspiration to harness the sort of purest form of aspiration. And the key there is to, in effect, reduce, if not eliminate the friction at the tip of the catheter between the clot and the catheter. If you can do that, and we think we can, and it certainly does that and all the work we've done, then you are looking at getting more and more clot out -- complete clot removal in a much faster and efficient way. And again, that's the goal, right? If you can do that, if you can take even a smaller catheter like the RED 62 up to the clot, push a button, and the clot goes away pretty quickly, there's no question you've done the good work. So I'm excited about it. Let's wait until we run the trial, but...

Can you share with us the timing of the trial or when we might see...

Yes. So I think I've learned some lessons because I think I've confused some people with changing strategy here. Again, it was done out of strength, not the other way around. So we're still finalizing that. And once we have the ID issued, obviously, we'll be able to share all of that. But until then, I don't want to get ahead of myself. But yes, it's coming. And I'm excited about it. Traditionally, again, I don't want to -- traditionally, stroke trials have been in this field. These are all 510(k) products, as you know, are small. There are not a lot of follow-up. So I don't expect it to be a massive multiyear undertaking. I think it's pretty efficient to do.

Okay. Most of the Penumbra portfolio has been internally developed, some has been externally. How do you think about reviewing technology, employing the trigger to make that acquisition?

Well, so very little of our interventional stuff has been developed externally. Lightning and Thunderbolt had somebody who -- it was their idea that came onboard. They did a lot of the work, but with us. So it was a joint effort, if you will. That's really the only significant example. A lot of -- we haven't bought, for example, a fully finished interventional product from somebody. We obviously did buy Sixense to get the entire work both on hardware and software going for Immersive Healthcare, but that's the only example of that. Look, our R&D team is as strong -- I am so proud that we have been able to scale this team. It's obviously much larger than it used to be. And the culture and the thought process where we enable young engineers to think differently, think about what we're doing. We're doing stuff that hasn't ever been done before. We're thinking about a problem differently. We're not just making something that other people have made and copying other companies work. We're always doing something that has never been done. And when you do that, what you really need to do is empower the folks who have those ideas. In our case, many of them are quite young and have novel ideas. They don't know that it can't be done, if you will. And when you do that, it's not a straight line. Sometimes you fail at first. But our level of success coming from that thought process and that method, I think, speaks for itself. And I am particularly impressed with the way our R&D team has worked because as we've gotten bigger, I think it's gotten better, not worse. And a lot of times, as you scale that, you lose that ability to take risks and to try things that are different, and we haven't done that. So yes, I constantly stand in all of our engineers.

So moving a little bit over to the financial aspect of the P&L. As I've watched the company over time, it seems to me that there's a lot of investment that continues. Do you -- how do you think about managing that investment? And in some ways, do you want to be an EPS company?

Yes. So I wish Maggie was here because she can speak the language -- no, no, no, she can speak the language better than I. Here's how I think about it. We have managed this business. We've been profitable almost every quarter since we started selling back in 2008 long before we went public. So most companies aren't profitable in their first year of selling as a medical device company. We have always been careful. That being said, as we've gotten bigger, the opportunities have gotten bigger, and we've been very careful to invest in proportion to the scale of the opportunity. So I'm quite proud of that. Like that's a good thing. You find that line between investing but staying careful and profitable. I don't think that's going to change for a while. As long as there are things that need to be done, again, we're not buying the third or fourth version of another product that someone else has. We're doing things that need to be done to help people. And when you do that, I think everyone has cheered our efforts on because that's important work. And again, we do it carefully with discipline, but that's how I think about it.

And the physical facility that you're in now, do you have the space to continue to ramp at the pace that you've been growing?

Yes. Well, we've been adding space over time. We added -- the building I'm sitting in is across the street from our original campus. That was a building that was built during the pandemic, we moved in. We have pretty good deals on our real estate. That was my former life, so I take pride in that. But yes, I think we're fine, and we have the ability to, on space wise to keep doing this.

And all of your manufacturing is done there?

So we -- a lot of it is still done here in, Alameda, but we built a facility several years ago up in Roseville, California, which is about 2 hours from here. And during the pandemic, we have added to that. We still -- it's not anywhere near finally at capacity, but that has been the area where we are growing because we're basically full here. And that's gone well. That obviously has been and Maggie has talked about in the past, a bit of element on cost -- on the margin as we build that up and gotten them online and transferred some of the products out there. But long term, it's going to be a much better investment, close enough that we can still quickly move from R&D to manufacturing. We don't have to get on planes and move engineers around, which saves huge amounts of time. At the same time, it does have a cheaper base -- ultimate long-term cost base. So I think that was a good investment.

So we're nearing the end of our time talking today. What do you think investors are missing about the Penumbra story right now?

That's a question -- it's hard to know. I've gotten questions after this last earnings, just the things that you've asked around, the Thunderbolt timing and this and that. Hopefully, we've helped answer those and given people a sense of the confidence that we have in our business. I think folks who have invested in us understand that we're not a one product company focused on one thing, that we're showing that we can do multiple things at once and do it well. And I think the ability to find areas that no one else is in to sort of live with that uncertainty of what is the product and how does it work and what do you do, add -- hiring great people, which we've been very fortunate to do, and then execute well. I think that's been a pretty good recipe for success for us for a long time. And for anyone who doesn't know, that is what we're going to keep doing. And I would imagine that, that's what you want most companies to do. So there you have it.

Thank you for joining us today. I hope the rest of your day is great.

Great. Well, you, too. Thank you, guys. Appreciate it. Take care.

Bye-bye.