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

Yes, sure. We'll try this.

I'll do this quick. That's our safe harbor disclosure. First of all, just as a baseline, there are 6 large underpenetrated markets. We've talked about this before: Acute limb ischemia; deep vein thrombosis; of course, ischemic stroke; coronary; and PE are the 5 big interventional ones. You add those patients in the U.S. alone and obviously add up to significantly over 1 million possible patients to help. And then our Immersive Healthcare business, which is starting to gain some definition. Next slide. Next slide. Let's talk about Thunderbolt briefly. Thunderbolt, something we've talked about a bit here. Thunderbolt is our newest stroke product. We're starting our trial. There, you can see an image of the sort of control panel for Thunderbolt. Thunderbolt, again, does not go into the body. It connects to the pump and the catheter. And the valves in there and the microprocessor algorithm, in effect, orchestrate modulating aspiration. Next slide. This is sort of the setup, the tubing to the pump. As I said, in the catheter, you have 1 valve connected to the pump, 1 to a non-pressurized saline bag. And the combination of those open and close those valves about 12 times a second, which in effect orchestrates the modulation. That changes the friction, dramatically reduces the friction at the tip of the catheter, which allows you to aspirate or ingest the clot in a much faster way. I'm going to show a very quick video. This is on a loop, so you'll see it. Hopefully, the video will play. Next slide, please. So if you see the top picture, that's continuous aspiration. That's a bigger catheter than we even have on the market, just showing same clot, same model, it's not going to ingest that clot. And it's going -- again, it's on a loop. It just won't do it. The bottom one is with a slightly smaller than our 72, the RED 68. And you can see how fast it ingests that clot over and over again. Again, same clot, same model, same size. And again, the only different thing here is Thunderbolt and the modulating aspiration. And that's what we're so excited about. That changes how we think stroke will be perceived and treated going forward if you can get the clot out much faster and more completely. And it's pretty clear in that video. Next slide, please. This is Lightning Bolt, which is, in effect, a cousin or sister of Thunderbolt. This is for the arterial side and the peripheral. It does what Thunderbolt does, which I just showed you, in terms of the modulating aspiration. But it also maximizes the blood loss mitigation feature that is much more necessary in the larger vessels in the peripheral. Again, pretty excited about that opportunity as well. Next slide. And then here's Lightning Flash. Lightning Flash builds on our really successful Lightning 7 and Lightning 12 by adding not only a new catheter, but primarily a new algorithm that we've built that really focuses on a new way to gauge the pressure so that it can be much faster in opening and closing the valves and really maximize a couple of things. The first, maximizes the amount of clot you can take out quickly. It maximizes the blood loss mitigation factor when you're doing something in large vessels; and this is really, really important, it does not have a traumatic effect on the lumen of the vein. That's really important. We're not dragging something through the lumen. We're not taking out endothelium and hurting the vein, which could cause rethrombosis, retreatment and a whole different cascade of events. This, we think -- right now, Lightning 12 does that. We think this will do that even better in certain cases. Next slide. So as a final summary, and we announced this on our earnings call last week, we have 5 studies that are underway, some finishing up. The STRIDE PE study, which we'll announce later this fall, the first part of that data. The STRIDE study; BOLT; and the THUNDER study, which is just getting underway with the ID which we've talked about; and the INSIGHT study. INSIGHT, you might not have heard much about. INSIGHT is a study that's going on for a while in the stroke, where we're actually taking the clot and doing research on that clot itself, and trying to get, in effect, a library of the types of clot that show up in stroke. And with that, there's all kinds of research that can be done as to where does the majority of clot come from? How do we think about prevention? And really, it's something that physicians and we are excited about for long-term planning and care. And then, of course, the 2 randomized studies that we talked about on the earnings call, 1 for PE and 1 for coronary. And so that's our quick presentation. Sorry for the slight technical hiccup. And we'll turn it back to Bill to questions.

Great. Well, thanks, Adam, and thanks here. We all thought Zoom was tough. Being back in person can be a little more challenging here. Wow, that's definitely transformative technology for you. It -- we're kind of moving from the age of the catheter to the -- to really raving up your engine.

Yes, there you go. Not to be -- have a pun there.

So there was a lot of discussion on the most recent conference call and the new technologies. And Jason, thanks for joining us up on the podium for those who -- yes, and that in the audience telephonically. But let's start with the Thunderbolt in the neurotechnology space. Can you help us understand what you're doing differently? And I think the video actually helps a lot, but -- and we saw the other catheter up there. But how much -- when you say easier, faster, democratizing, how do you see this transforming kind of the marketplace? I don't think we've seen a technology like that come to the market yet.

Yes. It's a great question. And it's hard to predict exactly how it will play out, but what we think will happen. We've come a long, long way. And I don't want to not give credit to everyone, including our company, that has done the work to get to the point where you can actually treat stroke patients with some sense of success. When we first started, no one thought we could do it at all. And then we got to a point where you could do it, but it took about an hour per case, which was better than nothing. We're now at a point with the technology, primarily aspiration-based technology, and in some cases, stentrievers more as an adjunct than the main treatment; have gotten to the point where, most of the time, you can sort of do it. But that doesn't mean every case is a quick, every case is easy. And there is a sort of plateau in that level of success. And in order to really sort of finish, the way I'll call it, the arc of innovation here, you need to have this type of technology where it's as predictable as it can be. I'm never going to say 100% because it's a body and complicated. But to the point where almost every case you start, you have the sense that you will be able to complete it and finish it in a very short period of time. Then we've done our work, and I think that opens the field up for the kind of growth, the kind of sense of we have to continue to do this because it's working. And so that's, for us, the excitement, the ability to sort of having started the arc of innovation in this field and possibly come close completing it over a course of 20 years. That's something we're pretty proud of, and I can't wait to see the impact in the field and patients.

I've talked to Adam about this. The elephant in the room is, I used to be in your chair, obviously, but I did meet Adam in 2007. And we've talked about the, now, what, almost 18 years, they started the company in 2004, of learning how to take clot out of the body. And unfortunately, as you know, Bill, clot is in the body in a number of different anatomies, and getting it out is some -- is different depending on which anatomy you're in. And what the team has been able to do, and it's been 18 years of learning, but Thunderbolt took the team almost half a decade to figure out how to introduce a microprocessor to a thrombectomy system. So there's a lot of know-how over a long period of time on how to get a clot out, but how to introduce something that will eliminate the trade-offs that oftentimes folks have had to deal with in getting clot out of the body, be they catheters that they are big and may damage the inside of the vessel or take too blood out. How do you take the clot out without doing damage or taking blood out? And that's really been, as Adam mentioned, the arc of innovation over the course of almost 2 decades.

Yes. Penumbra has been there since the beginning, right? I mean, you transformed the market, from stentriever, to aspiration, to -- and now you've got the next generation. This seems like this is a big product for you. Talk about the approval time lines, but then also the adoption time line. Is this a product that we need to see a lot of data for adoption? Or is this one you -- like the doc has the a-ha moment. They get it in their hands, they use it, and it's...

Yes. So one of the reasons we sort of embrace the idea with the FDA of a trial was to speed up adoption eventually. Our current products, the RED series, as you know, we're taking share back with that. And so we have a little time and we wanted to be patient here. If we ran a trial and the trial does what we expect it to do, the adoption will be dramatically different because we'll have already shown a very different process in the cases. Now there isn't much for a doctor to think about because the catheter is the same, the pump's the same, and it's really the "tubing" that's different. It's not even going in the body. And so -- and the setup to connect it all takes about a second. There's nothing new or novel about it. And so again, assuming it is what we think it is, as the trial progresses, I think the adoption will be pretty quick. There's a lot of excitement in the field, not just from people in the trial, but people who aren't in the trial. They've seen the videos. They've heard about it from colleagues. And so I think it's really us to run the trial. The trial, you can never totally predict. We think it would be roughly 6, 7, 8 months maybe to enroll, a 3-month follow-up. And then pretty quick, hopefully, turnaround with the data and submit. So that's why we think sort of the second half of 2023, we should be able to have this product ready to go.

And then how should we think about the neuro business between now and then? I think last year was a pretty big growth year in the U.S. And this year, it's slowing a little. How do we think about it?

Yes. Well, I don't actually think that's true. If you look at our U.S. business this last quarter, we took additional share. We had a sequential gain in quarter-to-quarter, even though the whole market was more challenged. So I think -- and one looks at the various hospital data sets and so on, sees that we are still gaining share in the U.S. And in our international business, we do expect to hopefully launch the RED series toward the end of this quarter in Europe, which I think will be really important. We haven't had a new product launch in Europe, so we've been working with older-generation stuff for a while there. And that will reinvigorate that market as well. So I actually think that there's a lot of opportunity between now and then to continue to solidify our position, regain some share that we've lost with some of these private companies and others. And I think the conversation is starting to change. There was this perception which we started, so I don't want to blame anyone else for it, that bigger is always better. But like anything in intervention, that's just not true. The right answer is it has to be just right. And sort of the Goldilocks theory, if you will. And we're now at a point where bigger isn't better. People are putting bigger and bigger catheters up there, and that comes with complications. It comes with dissections. It comes with lack of biliary access. Lost time in cases. And we're now seeing sort of the backlash of that, where people are like, "You know what? I'm just going to go with the best-tracking catheter that's the right size." And I think that sets us up, again, for real success with Thunderbolt as well.

Excellent. And on the RED Series, the last in Neuro, I promise. I think you mentioned towards the back half of this quarter. Is there anything in Europe holding up that European commercialization? Is it regulatory, or...

No, just the new process to get things cleared.

So wait for the MDR to go through.

Yes. We're -- we think we're on track, it just takes time.

Okay. Let's shift over to the peripheral. And that was an amazing video. So I think we got the world premiere here, so thank you very much for that. But on Lightning Flash for venous and Lightning Bolt for arterial, what makes those unique? And how do we compare that? Is there a comparison to Thunderbolt? Or what's really the advances there? You don't have more videos for us, do you?

Yes. No, we don't. We've got to hold some back. The way to think about it is this. On the arterial side in peripheral, you have a similar situation where the catheters are bigger because the arteries are bigger, obviously, in the legs and so on. So you -- and the clot texture and so on is also sort of lends itself to the Bolt part of the technology that you just saw there. So that's why we'll have Lightning Bolt on the peripheral side. But we also have to make sure that the blood loss aspect of it is still there because blood loss becomes a big issue. And as you know, some people take too much blood out, then they have to recycle it and put it back in. And that brings a whole another set of issues to those patients. So we're not doing that. We don't want to take out. I think every patient and every doctor would say, "If you don't have to take out the blood, better than taking out and putting it back in or ultimately having transfusions and so on." So blood loss, it combined with the Bolt sort of modulating aspiration is the cornerstone of that. Which, again, we think the Lightning 7 has worked really well and we've seen great success, obviously, with it, but this just might open the door for people still thinking about -- they're using lytics or something, and they're saying, "I'm not sure yet that the trade-offs have been satisfied." I think that will satisfy those people and say, "You know what? There's no reason -- there aren't any trade-offs anymore, so we might as well just take the clot out and send the patient home." On the venous side, I think there's a real transformation in the field right now as people are realizing what is -- what they should be doing and what they shouldn't be doing. And Lightning 12 has really helped that. You want to get the clot out, but you don't want to do damage. And we've seen this story before, guys. Stentriever is being dragged through the arteries in the brain. They're taking out endothelium as they go. That's why aspiration won. We already know that. So we have to get to the point where we're not doing that damage. And you hear that now. Doctors are talking. It started in a big way at SIR and moved into [ SVIS ]. And it's part of the discussion in the early stages. So I think Lightning 12 is set up for that. Lightning Flash just takes that, again, to the next level. So what might be a 10-minute case with Lightning 12, and I'm just picking ratios, might be a 2-minute case with Lightning Flash. And that's awesome. Again, better for everyone. It is better, but it's not necessary in the short time frame, between now and when it launches, to continue to see success.

Just to underscore a couple of things Adam mentioned. He mentioned in his slide, the underpenetrated market. So when he's talking about taking clot out of the body. That clot is being dealt with today by physicians in some way, shape or form. The most -- majority of the time, in all the anatomies that we have technology that's progressing, it's done with lytics the majority of the time. So we're really addressing 2 things: Moving the technology to a point where physicians can choose an interventional technology, ours, that eliminates the trade-offs and doesn't damage the vessel; but also to allow them to do a procedure much safer, more efficaciously and perhaps more expediently to take the clot out. So that more physicians can do it really well and really quickly for the patient. So it's important to sort of underscore the markets that we're talking about here. There's a lot of patients that are -- that have clot that need intervention. And this technology eliminates the trade-offs to help us to treat those patients.

And I think from a -- which I'd love to have you opine on just the market in general. I think this quarter in the peripheral, we saw a slowdown by a lot of the players in the peripheral market. And there's some -- we wrote about it, but some thought that maybe, with COVID going away, people that were doing lytics went to treatment, now are kind of going back to lytics or -- because of staffing. Just any thoughts on kind of -- it was a pretty big slowdown for the quarter for the sector. This wasn't a company specific, it was really across the board.

Yes. Fair enough. I don't think it has anything to do with that COVID question. It just doesn't show up in any of our conversations with physicians as a topic at all. I think it's as simple as -- again, I think it's mostly staffing inside the hospitals, the cath labs, particularly. As I said on the earnings call, both in prepared remarks and questions, we've seen that sort of come back pretty strongly. So I don't think it was any kind of question around patients and COVID directly. It's more just...

And the growth was actually strong. It's just not 100% every single quarter. And I remember being in your seat talking to Adam about stroke. Stroke wasn't linear, either. You'd have quarters that were good, but not as good as the last quarter. And then it would accelerate. So it's...

That's the nature of a new business that doesn't exist. If you're already treating the patient, you're just treating with a different technology, that's an easier thing to grow. Here, you're growing the patient population, so it's not going to be linear. But that being said, again, we've seen a good rebound and we're in pretty good shape.

I know we're out of time, but since we started a little late, I'd like to take 1 more minute here and at least finish on financials. I think there's a pretty strategic shift for you on this call in terms of discussions about profitability and looking at investments a little more. And I just -- give us -- you gave us some gross margin projections and tightening up spending a little bit. How should just we think about that in general? And is there any messaging behind that, since we're behind...

Yes. I know we have just a minute. Let me start with the premise. There hasn't been a change at all. And I appreciate that the numbers might have changed. We have always tried to run a profitable business. Long before we went public, we ran a profitable business. We ran a profitable business for most of the time we've been public. We, in the last couple of years, did invest in a couple of things. We invested in a new manufacturing facility that reduced our margin as we got that up to speed. We also, on top of that, had to deal with appropriately keeping our workforce safe, spread out. It cost more money to do that. We have said quarter after quarter, that, that's not a long-term thing, and that we were going to get back at those issues on the gross margin side. As it relates to the operating margin, we obviously are navigating through both a hyper growth period. We have a new ERP system. Lots of things that we had to invest in, some not as glamorous as others. But there is no change in philosophy or anything else. We've always wanted to be profitable and disciplined. And the nice thing is we now can show that a little bit, showed that in this quarter. And I think going forward, we're going to continue to show that.

Great.

Adam. Jason, thank you for joining us. And thanks for your patience.