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

Thanks, everyone. I'm Robbie Marcus, the Medtech analyst at JPMorgan. Thanks for joining. Happy to have our next session, Penumbra. I'm going to introduce Adam Elsesser, the CEO, and then we'll do a little Q&A after. Adam?

Thank you. Good morning. It is actually great to be back in person. This year's 41st annual JPMorgan Healthcare Conference, navigating the hallways. I want to thank JPMorgan for inviting us and of course, Robbie, for your coverage of Penumbra. Toward the end of the presentation today, I'll be playing some videos. If you're listening to this presentation via the webcast, you can view the slide deck and play the videos by going to our website under the Investor Relations heading since they won't be able to be seen through the webcast. And I appreciate your understanding on that. I'm just trying to see here where the buttons are for the slide thing. Here we go. That's our safe harbor statement. Let's kick it off. Penumbra is a health care company focused on interventional products that treat a variety of medical conditions throughout the body. We're best known for our thrombectomy business. These are products that remove blood clots from the brain, from the arteries in the body, from the veins, the pulmonary artery and the heart. We started the company in 2004 and currently have approximately 4,000 employees worldwide with half female and a majority of U.S.-based employees are non-white. We're headquartered in Alameda, right here across the bay. And we project that our revenues in 2023 will exceed $1 billion. I want to review the number of patients that we think we can ultimately help with our products. First, let's look at the thrombectomy patients. For consistency's sake, we'll look at the numbers from the United States, but obviously, we sell many of our products in international markets. We estimate that there are roughly 157,000 patients who have a pulmonary embolism in U.S. each year that might benefit from our products. We estimate that there are roughly 351,000 patients with a deep vein thrombosis or DVT, albeit other sources suggest it could be as high as 450,000 patients. 259,000 patients with acute limb ischemia, or clot in their arteries. 289,000 patients with clot in their coronary arteries and 200,000 patients with clot in their brain that can be treated with mechanical thrombectomy. The total of all these patients is 1.25 million people every year. The current rate of treatment with mechanical thrombectomy in each of these areas varies from under 10% to about 25%. So there's a significant opportunity to help a great many more people in the years ahead. Now let me review our embolization and access portfolio. These are very important clinical areas that have been established, though, for quite some time. The use of our technology continues to grow in large part because of our constant innovation in both of these areas. We expect additional product launches to continue to grow the use of Penumbra's products in access and embolization. Let me briefly discuss our Immersive Healthcare business. As we have stated in the past, we have restructured our work in this field to better fit with the current market, the opportunity to help a significant number of people, potentially more than 50 million people is very much the driving force behind this effort. We believe that the work we're doing with the United States Department of Veteran Affairs as well as other health care organizations will demonstrate how to properly introduce these products into the therapeutic workflow for patients who need rehabilitation as well as patients struggling with aging and many other conditions, including mental health issues. Now let's focus on 2023. We are set to launch 2 extremely consequential products in our Vascular business. Lightning Flash received clearance from the FDA in late December, and we have already successfully completed our evaluation cases. The product has performed exactly as we had hoped. And we will be moving into the launch of Lightning Flash this week. We expect LIGHTNING BOLT to be clear this quarter and following our required evaluation cases we expected to launch in late March. Thunderbolt, our product to treat patients with ischemic strokes is continuing to perform as expected in the Thunder trial. In addition, we have several other products that we expect will launch in 2023 that will add to our growth. We're also focusing on generating significant clinical data. We are running the Thunder regulatory trial. In addition, we have announced that we will be starting the Storm-PE Study, the first ever randomized trial comparing Lightning to medical management in the treatment of pulmonary embolism. We are also starting the CHEETAH ACS Study, which compares our cataract coronary rapid exchange system to the current standard of care to treat clot in the coronary arteries. When you add it all up, 2023 is poised to be the most consequential year in our company's history. Now let's look at how these 3 groundbreaking products all perform. I'm going to show videos of Thunderbolt, LIGHTNING BOLT and Lightning Flash to give everyone a sense of how computer orchestrated aspiration works in the various vascular beds. First, I'll show you the video of Thunderbolt. We have shown this video before. These videos are on automatic loops. The top video shows an aspiration catheter with an inner diameter larger than 0.074 inches, which is larger than our RED 72 together with our engine pump. You will see the clot move, but it is not ingested. Take a look at the top video. And it's going to stay stuck at the tip of that catheter. Now on the bottom video, it's RED 68, so a smaller catheter with Thunderbolt. As you can see, the smaller catheter with Thunderbolt ingest the clot quite quickly. Now the next videos. This is the first time we've shown these videos of LIGHTNING BOLT and Lightning Flash. First, LIGHTNING BOLT. This first video is Lightning 7 alone in a model of the superficial femoral artery in the leg. The system has turned on. You can see it's a large piece of fairly fibrous clot. You can see it's holding on to it, but it's not going to ingest it easily. And in cases like this where you have that large piece of clot, you'll have to hold on to it, secure it and wrestle it out by pulling it up, and you'll see that happen here. And eventually, you'll pull that into a guide catheter. So it works, but it doesn't ingest the clot quickly and take some time to get out of the body. Now I'm going to show you the video for LIGHTNING BOLT. You can see in that image, there's a flashing button, green button to go, once you push it. I think that's a little easier than the current way we remove clot in the body on the arterial side. Now for the demonstration of Lightning Flash. In this video, we are showing Lightning Flash removing clot from the main pulmonary artery as well as the left and right side of the pulmonary artery. As background, most physicians say that the aspiration portion of a case like this with their current mechanical thrombectomy product to choice takes around 15 minutes. Some say 10 minutes, a few, say, as little as 7 to 8 minutes. We confirm the 10- to 15-minute time period in this exact same model with this type of cotton. With that in mind, here is Lightning Flash. [Presentation]

And you can see the aspiration time is about 45 seconds for the main artery and the right and the left side with minimal blood loss, which you can see in the bottom of that canister. So I'm not going to take the full amount of time we'll get right to questions. But those are the Penumbra's cornerstone products for 2023. Robbie, I'd love to have you lead the questions?

Sure. Well, great. So I appreciate you showing the videos. It's impressive to see how fast it's going to go. Correct me if I'm wrong, you've already gotten approval for Lightning Flash at the end of the year. My understanding is you typically do a small, limited launch with some cases and then a full launch. So maybe just the initial reaction from physicians upon doing some of these first cases and what the feedback has been like.

The -- yes, it's a great question. So the first cases have gone really well. We did our required under our design control system. We have a certain number of valuation cases. We did those pretty quickly. And then we're -- as I said, we're moving to a full launch this week. The cases has so far have gone exactly as we hoped. The system does what we want. It removes an awful lot of clot, as you can see in that video really quickly, but it minimizes the blood loss at the same time. So you're finding that sort of balance that we really need to do. You can see you have an incredibly trackable catheter. In that video, you can see how it moved between the size of the vessel, not easy to do with a much larger catheter. And the reaction, both in DVT cases and in PE cases has been pretty extraordinary.

Now there's more than 2 competitors, but there's 2 that hold the vast majority of market share. Two very different approaches in terms of size of catheter and vacuum pressure and I would say a lot of doctors use both devices, but not all. So do you think this is going to be an easier device for doctors that are more to Penumbra's technology? Or do you think this is more of a -- everyone can use it?

Yes. Look, last thing I'm going to do in the beginning of the year here at your conferences get into a us versus them type discussion. So I'm not going to do that. I will say, though, when you think about this catheter, what do you want in a product that removes blood clot? You want something that is easily trackable to wherever the blood clot is and very quickly takes the clot out without any other downside, i.e., blood loss or some other issue. That is -- we're pretty...

Get a little closer.

I'm sorry. We're pretty close to that. You saw in those videos that we can do that both on the arterial side with LIGHTNING BOLT, which is coming soon and also with Lightning Flash. So when people talk about and you call and ask doctors about, for example, PE, and they say, I want a bigger catheter, they don't actually want a bigger catheter, they want the perception that they can get more clot out faster. Obviously, bigger catheters are actually harder to track, less mobile, but they have the correct perception that sometimes it means the clot comes out faster. When you have a system that can get that clot out faster and have a smaller catheter, kind of the best of both worlds. So I think we're in a pretty good spot.

So this is a market on the venous side where there is less data than in stroke. And a lot of the market development has been around ease of use, better results, but it's been based on smaller data sets and successful so far. So as you think about what a product like this can do for market development, expanding the market and getting doctors to start using thrombectomy more and more, what's your level of optimism around that? And is it something that we see right away? Or is this something that takes a bit of time for doctors to digest?

I think it really depends on which vascular bed we're talking about. DVT is a little different than PE, a little different than coronary and of course, different than the arterial side. So the biggest difference in all of those compared to stroke is where the patient is. The hurdle that has always been there with stroke is notwithstanding the data that we have that says we should do this, we still had to move the patient from the place where they first showed up, which hospital they went to, many times, they don't show up to a stroke center and they have to be moved to one. Here, that's really not the case. So it will be the rare place that won't be able to do this. The type of doctors that do these procedures are either interventional radiologists, cardiologists or vascular surgeons. And almost every hospital has one or more of those subspecialties. So when you take that issue out, then it comes down to the variety of reasons why they're doing something else today. And those are easier to handle. In PE, for example, that's why we're running the Storm-PE trial because there the biggest issue is getting those patients that are currently showing up and not yet being referred to -- for interventional treatment but getting medical management. We think that we're at a point with the product development to show that it is better to be treated with Lightning then with medical management. And if we can show that in this randomized trial, I think we'll open up that field pretty dramatically. And then we'll take on the other issues. Arterial is a little different. There, you're really competing with either open surgery or catheter-directed lysis, both not really proven as in a randomized trial. So their ease of use becomes the biggest issue. If it's just easier and faster, likely you'll see a conversion pretty quickly. And if you saw the video with LIGHTNING BOLT pretty fast, pretty fast.

For Storm-PE, how do we think about timelines on when we might see data on that?

Yes. We're -- we just got Flash approved, rolling out there. So we'll probably have an update maybe in February on our fourth quarter call. But obviously, we announced the study. We know what it looks like. So we want to -- we're anxious to get started on it. We obviously want to put our best product forward. So we wanted to have Flash available. But we'll probably give a more formal update on that call.

Great. And have you moved into a full launch yet? Or is it still unlimited?

With Flash?

Yes.

So in the prepared remarks, I said that we will be moving to a full launch this week.

Shame on me.

It's okay.

Maybe I'll just pause quickly and see if there are questions in the room.

Videos were that good.

I'll keep going then. So COVID definitely did have a benefit in the peripheral business for you, helping move patients out of ICUs, getting treatment. Have you seen those trends continue? And do you think that will only move in one direction forward post COVID?

Yes. It's a good question. Last year, we saw a few countervailing forces. We saw -- that trend is definitely hasn't gone backwards people saying, "Oh, now I want to put people back into the ICU and drip tPA" But we just saw and dealt with in the first part of the year, less in the second half of the year, the sort of real acute staffing issues. So we had sort of a countervailing issue than ICU space more procedural capacity and techs and nurses and so on. I think things feel more stable. There's a sense of, I think, real excitement and sort of, I won't say, back to normal because it doesn't feel like what's normal anymore. But it does feel like some of those issues are no longer sort of the highlighting issue. I don't see going backwards from people who did start mechanical thrombectomy because of ICU beds going the other way. I haven't heard of that. Let's go backwards.

And since you bring up staffing, have you seen any improvements over the past few months?

Yes. The way we can tell, we're -- our reps are in hospitals all the time, and so they can feel it, and we try to get some qualitative reaction at. What -- the best way to say is we don't hear about it a lot. In that second quarter of 2022, that's all you heard about. It was sort of this banning of everyone's existence. We just don't hear about that anymore. Is it solved? I don't think so. If you look at the paper, there's been some articles about staffing and particularly on the nursing side. So it's clearly still there. But I don't think, at least we're in our business seeing a decrease in business because of it in the same way we saw in that one second quarter of 2022.