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

Yes, it's a great question. The vascular beds are quite different in a lot of ways. One is on the arterial side, the other is both in the lungs, and on the venous side. And so you will have -- you have 3 different surgeons subspecialties -- physician subspecialties that are treating all 3 of them. But the arterial side is more of a vascular surgeon AV and there -- so there's a lot more surgery on the arterial side than there is on the venous or PE side, obviously. So what the surgeons need to see out of the technology is for perhaps different than what an interventional radiologist or interventional cardiologists, intimacy radiologists do a lot of the PEs as well as DVTs. And there is some overlap there, but I think you get my point that what they need to see out of a technology is different. And so on the arterial side, the Penumbra has been really the primary, if not the only innovator over the years in terms of arterial endovascular catheter technology to take the clot out of your arteries. We obviously continue that with Lightning Bolt 7. And so we are solely educating and developing that market, and it being heavy surgery, heavy lytics. It's a different dynamic than on the venous side, equally underpenetrated, obviously, on the venous side. But I think there's been more attention paid over the last couple of years to mechanical thrombectomy. That notwithstanding the venous market serviceable patient population. We think we can help 800,000 patients across those 3. In venous alone, it's about 2/3 of that. So that market is larger than the arterial market. And -- but equally, ripe for better patient care, we think, with computer-orchestrated thrombectomy. So by definition, a bigger number of patients, the larger number of patients may contribute to the venous products, specifically Lightning Flash right now to being -- it just has a bigger patient population to whom it is applicable.

I got it. That's helpful. I want to talk about the 2 products in a little bit more detail. But just before that, I wanted to touch on the P&L. So you have committed to delivering OpEx growth at a pace of growing OpEx at a pace that is slower than sales growth.and delivering plus-10% operating margins exiting 2023. I think part of that was the $10 million in annualized savings from the Immersive Health spending. Can you just elaborate on the areas, the other areas where leverage is coming from? And just what impact you're seeing from the launches?

Yes, it's a great question, and it's really important that we continue to help more and more patients, at the same time run an increasingly profitable business, both things can be equally true here, and we think will be. And so to answer your question directly, obviously, given where we are in the penetration of the patients we can help were very low. We continue -- and I think we said this in our prepared remarks in the last quarter, over the next 5-plus years, we see opportunities for strong top line growth. We've also talked quite a bit about our gross margins, which now are in the 62%, 63% range, and we see a pathway to 70% plus over the next few years. So obviously, that's a significant source of leverage to the operating margin line. We -- as you get into the middle of the P&L, have been very efficient and productive on the R&D side, we will continue to be, but we don't intend to use that as a source of leverage. We continue to expect to invest similarly as a percentage of revenue in the R&D line. And then SG&A, we don't need to hire significantly to grow our business. So there is investment there, but disciplined investment that should allow us to expand our operating profitability alongside the top line growth and the gross margin expansion. So -- and the guidance we've given for -- slightly over 10% by the end of the year is certainly not an ending point. We -- given our commentary about 5-plus years on -- in terms of helping more patients and the gross margin expansion, we intend to discipline spending for the next several years as well, such that, that's sort of a starting point to the next 5 years.

Can you put a final point perhaps on the time line here for you to get to the plus-70% gross margin? And then how about, I don't know, the next milestone, 20% operating margin. Perhaps you can put it in the context of should we expect like a linear ramp or maybe certain years would be more heavy versus others?

Yes. So we haven't been explicit there, but I'll try to help you a little bit, a few years -- it's not one, but it's not 5. So 2 to 3 years is sort of a reasonable time frame. And we haven't commented beyond what we've said about operating margins towards the end of this year. But that's why I wanted to say what I said about that's not going to be the end. Nothing is linear in life really, except for math, but -- and not even that's not always linear as you know. But in business, there will be years that the margin expansion is greater than other years. But I don't see over those few years, 5-plus years, there to be a demonstrable difference really. So not completely linear, but you can get a sense for it in your model.

Yes. No, that's really helpful color. So a couple of questions on Flash. Can you perhaps talk to us about the time savings and blood loss relative to the predecessor device. Based on some of the checks that we did, it seemed like there was a 30% time saving and the blood loss was down by 50%. And what we were hearing is that it's not 0, but it's better than the predecessor product, materially better. And then also, we were hearing that maybe this is a better product in certain patient types, such as -- those who may have soft clots or where there's less blood loss. So just any reaction to that, do you agree, disagree. What's your take?

So here's what I would say. I think Lightning Flash is the most optimal technology ever created for taking clot out of the venous and peripheral anatomy in the long [indiscernible] PE. And if you take a step back for a second, ultimately, the act or the principles behind taking clot out of those anatomies are simple to discuss, obviously, not easy, as you can tell with the innovation taking a long time and continuing to evolve, and we think -- and perhaps revolutionize here with computer-orchestrated thrombectomy. But the principles are simple. Take all the blood clot out -- the free-forming blood clot out of the vascular bed as quickly as you possibly can without damaging the vasculature safety, right, or taking too much blood out, right? And Flash is moved in terms -- effectively what we're seeing there is eliminate the trade-offs, take all the clot out fast. So the 3 words that you can think about is safety, efficacy and speed. And we think Flash optimizes each one of those relative to anything ever introduced to this patient population. That's just true. And so the commentary with respect to trade-offs and safety issues, we think we're really excited about what this does from a safety standpoint. Obviously, when you're talking about safety, again, you're talking about don't take too much clot out, don't damage the vasculature. When you're talking about efficacy, get all the clot out. And to your point -- question about soft clot, this clot, that clot, Flash is the most optimal solution to take any morphology of clot out hard stop. If it's become collagen and part of the endothelium, you don't want to take that out. That's not clot by definition.

Got it. That's helpful. I guess just to take a step back, you guys have talked about the computer-orchestrated technology platform, and that's what's differentiated for some of the investors who may be newer to the story. Can you just maybe briefly explain what that means, and why your technology platform is different?

Yes, absolutely. So it's a marriage between the most innovative catheter technology, we believe, and something Penumbra has done for many, many years, starting with the stroke side, and the introduction of computer algorithms. So we have a computer that sits in the sterile space. It is a part of the tubing that connects our engine pump to the catheter being used. So in the example of LIGHTNING BOLT, let's use that as an example. It is our 7 French catheter, CAT 7. And that computer has a microchip in it that discerns the pressures that exist within the system. And when you are engaged with clot, the pressures are different than when you are not engaged with clot. And so the technology really -- the evolution of computer-orchestrated technology is happening faster and faster on the computer side such that the speed with which the system discerns the difference between clot and free-flowing blood such that you can then maximize the aspiration of clot and minimize the aspiration of anything else. And Flash is taking that to a new level. And that is automated with the computer that's inherent in this catheter system. And so ultimately, where we hope to go with this technology is that the physician takes the appropriate-size catheter to the clot regardless of the vascular bed in the body and puts the catheter there and presses a button and the computer orchestrates the aspiration of clot and mitigates the aspiration of anything else. And we -- with Flash and BOLT, the progress along that arc of innovation is probably the most significant in the company's history.

Yes. That's really helpful color. Just -- I guess on LIGHTNING BOLT, it does marry lightning technology with Thunderbolt. Can you talk to us a little bit about the initial feedback and your go-to-market strategy with that?

Yes. So BOLT and Flash algorithms, the computer algorithms are different, BOLT -- let's start with Flash. Flash orchestrates a single valve system where the valve is opening and closing to obviously aspirate clot and not anything else. The BOLT technology, when you hear that in the nomenclature, we have a second valve in there. And that second valve is connected to an ambient non-pressurized saline bag such that when that second valve opens, a small minute amount of saline is introduced into the tubing, not at the tip of the catheter, there's nothing coming out of the catheter. And so changing the dynamics of the fluid within the system allows us to do what we call modulated aspiration, which has changed the interaction of that clot at the tip, which is being sort of sucked into the catheter with the catheter so that you can -- the idea is the modulated aspiration allows the clot to be fully ingested back through the catheter into the canister and so that you can do faster, more safe, effective procedures as the clot moves through and doesn't get stuck in the catheter. So -- and the impact from that technology vis-a-vis what physicians were used to, even with Lightning 7 is paramount. It is significant. Lightning 7 is a great product. But Lightning Bolt 7 with the modulated aspiration has changed the perspective. Because in more cases -- and we have to get more data to more experience to say the majority of cases in all of them and get to all of them, hopefully, eventually, that's the goal, is that you're seeing full ingestion of the clot because of that modulate aspiration. So what does that mean? Well, for vascular surgeons who are really good at surgery that want to get that clot out and see it come out, they may say, look, I'm good at surgery. I'm a surgeon. It's in my name. I'm going to cut the patient open and take the clot out with an emolectimy balloon because they see the clot come out. When they're seeing the clot come out into vascularly now with Lightning Bolt 7 in a few minutes without having to do an invasive cut down, that changes their perspective. And similarly with interventional radiologists who may do prefer lytics for certain patients. It only takes 5, 10 minutes to put a lytic catheter there. But if you can take the clot out in the same amount or less time, and the patient doesn't have to -- have a catheter dwelling with a drug in an ICU for 24 to 48 hours, that changes their perspective. So it's early days. But that's the kind of thing we're hearing from our physicians that excites them about this new patient care.

That's helpful. And I know we have less than a minute left. I just wanted to quickly touch on the THUNDER trial and Thunderbolt. Are you still on track for approval maybe later this year? And then can you just talk about maybe -- I think there could be a pricing premium that you could get on it. And just if you can then talk a little bit about the platform. And also, how should we think about the long-term growth trajectory given -- putting all these 3 pieces together.

You shoved a lot there in the last couple of seconds. I'll try to get as much as possible. Obviously, the THUNDER trial is something we're enrolling. So we don't have full control over. What I will say is when we talk about the energy around the stroke market, we're seeing the patients that are being screened for this. There is a lot of positive momentum, energy, whatever you want to call it, around treating stroke. There's a lot of reasons for that we didn't get to, but I think that's a positive. The trial -- this trial, like other stroke trials has a very definitive window, 8-hour window. You have to know that the patient last known normal is within 8 hours. Otherwise, you can't enroll them in the study. So that's a result, as we've talked about, in lots of screen failures for no other reason except for you can't discern that, that patient is within 8 hours. So could -- would we like it to go faster, of course, we would like it to go faster. But it is progressing, and we're happy about it. We'll update timing about which we have less control than launching a product, for example, as the year goes on. With respect to Thunderbolt, when it is through the trial and approved and launched, this product -- what we've seen is -- well, we're seeing it in LIGHTNING BOLT. It's similar to technology. And if you can take the catheter there, and more and more doctors can get a catheter to the M1, and push a button and the clot comes out really quickly, like in a matter of a minute or 2, that changes things. So you don't need to use ancillary products like stent retrievers. So obviously, there's a value to that will be inherent in the price of the product that we'll discuss later, but it is higher than our aspiration catheters today. And ultimately, I think to your last question, technology, and we're already seeing it now with the RED 72, a SENDit technology, which is really meeting with a lot of positive remarks. We just launched that. Technology is making tracking -- and tracking these 072 catheters, hours to the clock very quickly. That actually is creating a lot of energy around treating stroke that I think is positive for patients. So we're just launching SENDit, RED 72 is SENDit technology. So more to come on that. But it's exciting so far as we sort of move from where we are today into the Thunderbolt era. It's important to note, though, the experience and momentum we're generating with SENDit RED 43 is important because those catheters are going to be used with Thunderbolt. The catheter technology we have today, the RED series will be part of the Thunderbolt series.

Got it. Jason, I know we're out of time. Thank you so much. Appreciate it.

Sorry to running you over. Thank you.