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

I only mentioned that one on the call because I wanted to sort of level set that one of the larger systems, we're just getting started, which is great, and there's a lot of excitement there. But it varies between large and small and the rest of the customers that have already come up with...

That makes sense. Maybe thinking about the market development a little bit more. I know we are bouncing around here a little bit, but the 800,000 patients on the venous side, like do you have the technology need to go after all those patients at this point or future iterations to get there? And kind of the same question on the arterial side of the business as well.

Yes. So that's a great question. The answer is the idea -- the technology, the proprietary technology around computer orchestrated aspiration is the technology that will get us there. That's the most important point. And because we see that, because physicians are now talking about that, we can focus our energies, and I talked about that on the call around these areas over the next bunch of years. There are going to be tweaks, there are going to be additional things. Somebody asked a question today, which I thought was an insightful question. We used to call Lightning Bolt Lightning Bolt. Now we call it Lightning Bolt 7. I think that it's pretty obvious why we added a number there. So those types of things will come. But none of the things that will come that we think are helpful will be -- are sort of new innovations. They're sort of blocking and tackling things that we've done throughout our career as a company. And that's pretty exciting. And the teams, as I said, really focused on getting there pretty quickly.

Do you need more clinical data? Or is it more just like to fill in this market?

Data is always helpful. It depends on the type of data. And there are obviously certain studies like STORM-PE, which we announced, which now that Flash is here, will be enrolling very soon where we can show the use of mechanical, our Flash device versus anticoagulants. I think that will be helpful in the PE space. I think each -- other, DVT and arterial are slightly different. And I think we'll add that -- whatever data is necessary, but I think it's a little bit different than an area like PE.

And when you think about -- you saw the stroke market develop, then how would you think about the trajectory of kind of the venous market, arterial market? And what you think about where the stroke market is potentially going?

Yes. I mean, I think that's a great question. I think the biggest difference between the stroke market and these other areas is you don't have to move the patient in a time-sensitive way. And that's a huge deal. And some of the procedures are obviously time sensitive, certain PE cases, certain arterial case, a lot of arterial cases. But not all of them are as time sensitive. But even if they are, you really aren't moving the patient for the most part as more and more capability gets built out in the hospitals and desire to treat them interventionally. So without that, that as the big barrier, I think you're going to see a different. Well, we've already seen a different uptake in the last sort of 4 -- since 2016 when we were talking about it. And I think that's in large part because the logistics are in our favor.

And maybe more on the vascular side -- or sorry, the arterial side. What's the awareness like within the physician community? I think really just struggled to understand why you can't have more of an open procedure or [indiscernible] when now you have this new technology?

Yes. I don't see it that way. Great physicians have been trying to help these patients for a long time, and vascular surgeons have done great work by getting out clot in that manner. So they've been doing it for a long time, and it's generally been pretty successful. So I don't see it as that simple like everyone should stop. They have to hear about it. They have to experience it. I think it's pretty compelling once you do, and that's our experience so far, which has given us confidence. But that -- obviously, we can't go to every single physician at once. And so it's going to take some time. But all of the reactions and all the positive trends in the reactions are what's giving us this confidence.

That's helpful. I do want to -- if anybody in the audience has questions, feel free to jump in, raise your hand. We can keep this interactive. Maybe on switching to stroke, in the clinical trial. I think you said you'd give an update in the next month or 2 or a quarter or 2? Like is that getting closer to finishing enrollment?

So let me sort of share -- so enrollment, the trial is going well. The enrollment is never as fast as anyone obviously wants, and we'll be able to sort of get a better sense of when it will end. None of that should worry anyone. That's a positive thing. And the reason is that -- right now, we have this moment in time with RED 43 and SENDit, which goes inside 72, where the ability to track our catheters to the face of the clot is back, in fact, to what it was back in the days when we had Xtra Flex. Unfortunately, and I don't want to revisit those controversies. But there are a lot of people who love that product and it really enabled them to treat successfully because the trackability was so good. Now with SENDit, which is an inner catheter inside that comes loaded inside 72, we are seeing physicians who had moved away from our aspiration system coming back because it's so trackable. And in fact, the comments are like, oh my God, this is even more trackable than extra flex, which is a high compliment. Obviously, it doesn't have any of the other downsides. So we have -- the team and our sales and marketing team are pretty excited about having time to take share back and repenetrate the market so that when Thunderbolt comes, there is no discussion about what catheter. They're already using our catheters and Thunderbolt just attaches to it. So in some funny way, this actually worked out really well because we have the time to make this about the catheters, and they're performing unbelievably well and we're seeing the share shift back. So -- and again, we don't need -- I mean, from a revenue standpoint, we have a lot of growth ahead in our other business, so we're in pretty good shape right now.

When you think about the share, I don't know where you think you are in terms of gaining that share back? How much further you can go in terms of like how much share you lost? Can you get it all back, portion of the back, how long that takes? Think through some of the share dynamics in the stock market.

Yes. I mean so the markets evolved in stroke used to be when we went public, we have some big companies we compete against now. There's like 6 or 7 small private companies that all have catheters selling. So it's a lot more disjointed than it used to be. So it's not one company that we're -- it's just the market, which I think makes it easier, not harder. And as we start to take share, it starts to redefine the space. So there's a lot of excitement. There's a lot of momentum. The morale and the team is sort of back to really good right now because of that. So it's funny.

Do you feel like the market is accelerating a little bit as well?

Probably. Nothing -- if you can pretty easily treat the stroke because you get the catheter there quickly and treat it, you're probably going to be pretty excited about treating and that leads to the effort that is necessary to grow the business. Hard to quantify really market growth across the board versus share right now. It's easier to define share. So we're optimistic, let's wait a few quarters to see.

Right. Makes sense. And the Thunderbolt launch, like how would you think about the momentum of that in terms of comparing it to like the Flash launch, the Bolt launch? Is it a little slower? I mean stroke, what's the percentage of stroke?

Yes. So Thunderbolt hasn't launched. We're just enrolling in the trial. Yes. I think it will be pretty good. Again, the only caution, and it's not a caution about the product or anything is stroke is the most penetrated and the smallest of the markets we're talking about. So the opportunity is still smaller than the other ones. And I only say that remind everyone that's not at all that we're not passionate about, the work we're doing and our motivation. But what will show up as a driver for us over the next 5 years, stroke will play, I think, a significant part of that, but it will still be smaller than the other ones.

When you think about the international opportunity in some of these products internationally, I mean obviously, China is a bit bumpy with the VBPs and stuff like that. So maybe just spend some time on getting people comfortable with the launches and growth internationally over the next -- over this year and the next?

Yes. So we've been fortunate to have a pretty strong international business. Jason answered the question around China before, we're not immune from those issues, but the way the deal is structured and also the fact that most of those products are prior generations allows us to have opportunity for growth in China as well, where we are now more focused is how to bring these latest generations of product, Flash, Bolt, ultimately Thunderbolt, to the international markets and in what form so that we're getting proper reimbursement, proper focus rather than just sort of selling what we can. And that's a great -- that's a great place to be where we can sort of step back and do the work right and not feel rushed to use international grow because we're going to have a lot of growth here for a while. So I think that puts us in a pretty good spot, not just now but really over the next 5-plus years.

Makes sense. And then I know Mag is not here, but just a high-level gross margin question, trying to think vastly to ask you this question. But maybe one way just to think for -- like when you think about innovation and like how much of a focus is like margins when it comes to innovation and pricing and all that? And how -- when you think about the new product launches, like how much of this margin, 70% growth margins come up in the launches itself?

Yes. I was going to tell a joke, and I realized it might not work. But I would say it anyway. We used to obviously not focus on margins. We were all about the pace of innovation, constantly improving the product. And we frankly didn't spend a lot of time on it. Obviously, with COVID and what the pressure on margins and our size, the combination of that obviously led to an appropriate need to pay attention to both gross margins, operating margins and so on. I think what you're seeing is that we're doing that. And I'm pretty proud of that because there's -- we challenged on the operations side coming out of COVID as we were able to get back to sort of more normal, not spread out the lines, not do -- have all the safety measures in place to some more normal semblance of an operation that had a sort of different cost structure to it. In addition, this newer group of technologies, computer aspiration by definition, has a slightly more accretive margin higher. So when you add that work together, together with the product mix coming, I think we're going to be in pretty good shape. I wish margins on the gross margin side could change faster. There's things run through over a period of time. It's not immediate. That's just the nature of running an operation where we make all of our own products and have all of that plus product launches that come all the time. So that's just the nature of where we are. I think we're in really good shape. We have a pretty good visibility to the next year or 2, and it puts us in a good shape. On the operating side, I care a lot about being profitable. You remember when we first went public, we were profitable. We didn't -- I didn't know you didn't have to be profitable. And so we certainly know and care about running a profitable business. We showed that this quarter, obviously, as we are focused on being focused on our spending and getting the best benefit. When you go forward, we're pretty built out. I mean, I'm not going to say we're not going to hire a lot of people, but we don't need to hire -- we don't need to double our sales force to get where we're going. We have a good sales force. They cover the country. And we can see some leverage coming particularly in SG&A pretty clearly over the next couple of years.

Just start generating cash, what do you -- how are you thinking about the use of cash?

It's a good question. Our focus is on driving -- the best thing we can do right now, and I'm not saying it costs money, but is to do the work necessary to treat all of the people that can be treated first in this country and then in other countries for clot in their arteries, their veins and their lungs. If we can do that, end stroke. And if we can do that, all of these other issues are taken care of. That is our focus. We don't need to add little things here and there because that's our focus.

That's helpful. The last 50 seconds here, there were some questions on the MAUDE database. So I just wanted to give you the airtime to...

Yes. I think everyone knows, over the last couple of years, we take complaints and MDRs very seriously. We're obviously quite conservative in the way things are reported. If you go look at those, they obviously -- there's nothing about the Flash algorithm or the product really that are relevant to those events. And I think everyone knows that, I think it's pretty obvious.

Thanks, Adam. Thanks for coming.

All right. Thank you. Appreciate it.