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

Great. Good morning. Thank you for joining us at Canaccord's 43rd Annual Global Growth Conference. I am Bill Plovanic, one of the Canaccord senior medical device analysts. We're excited to host Penumbra. And with us today is Jason Mills, EVP of Strategy. Thanks for joining us today, Jason.

Thank you.

And just a reminder, the format today is a brief overview presentation followed by a fireside -- the format today is a brief overview presentation followed by a fireside chat Q&A session. And with that, I'd like to hand it over to Jason.

Thanks, Bill. I think I'm mic-ed up, so maybe I'll be able to hear without these microphones. Thank you very much. My name is Jason Mills. As Bill said, I'm the Executive Vice President of Strategy. And it is my pleasure to be back at the Canaccord conference in this capacity with this terrific company to talk about Penumbra. And I'm going to go through these slides that are a number of them, but to get to Q&A, maybe move through them relatively quickly. But I think we will have these slides up on our website and happy to follow up with any of you as you want to dig through some of the dynamics of not only our company but the products and especially the new transformational technology that we've been launching here recently. So seeing if this works. All right, we move past the safe harbor statement. I wanted to make sure that you knew it was on here. So if you want to consult that later, that is on here. So Penumbra. Penumbra was founded in 2004. And it was founded on the premise of clot in your body is not a good thing. And getting clot out of your body, while it can be difficult, the mission was to make it as fast, as safe, as simple and as easy as possible. And we started in one of the truly more difficult areas of the body to get clot out, and that is the brain in stroke patients. And we've evolved technologies built purposely for getting clot out everywhere in the body where it is deleterious to patients. And we'll go through the transformational technologies we've developed and are continuing to develop to do that in much safer and more efficacious ways for patients. We're headquartered in Northern California. We manufacture all of our products in the United States. We've grown quite a bit over the last several years and are now over 4,000 employees. You can see some fairly phenomenal diversity about which we are very, very proud. So I'm going to jump right into what we are doing and who we are trying to help. We have a mission and a focus on, as I mentioned, clot, getting clot out of the body. We have a part of our business that is embolization and access, which helps many other patients. But in the interest of time, I really wanted to focus on clot removal, or thrombectomy as it's called. And these are the five patient populations that we can help today with our technology. They -- we started, as I mentioned, in ischemic stroke. And there are about 200,000 patients, and these are United -- numbers in the United States. The numbers globally are 3, 4x this. But in the United States, there are 200,000 ischemic stroke patients with clot in large vessels that are very deleterious to patients that we are, as an industry and we're the market leader, treating about 25% to 30% of those patients and significant clinical evidence suggests we will treat many, many more in the future. In addition to that, outside of the brain, in the rest of the body, we are treating clot in the lungs, pulmonary embolism, which is about 160,000 patients we think we can treat today, not an aspirational number. But these are patients that are in the health care system today with significant clot burden that are amenable to thrombectomy, using computer-aided thrombectomy as I'll get to in a second, which is proprietary to Penumbra. Similarly, in deep vein thrombosis, nearly double that number of patients, 351,000 patients, again amenable today. There are probably 2x the number of patients to this that have deep vein thrombosis. What I'm including here are those patients with significant clot burden that we think the clinical evidence today argues for intervention with our technologies. And then lastly, acute limb ischemia, that's on the arterial side in the vasculature. There are about 260,000 patients we think we can go after and help today, and coronary in the heart, about 290,000 patients. So in the United States, about 1.25 million patients today amenable to our technology. And mechanical thrombectomy, writ large, is treating roughly 10% to 15% across this vast number of patients. We have a very long way to go. Just focusing on three real quickly. And the reason I'm highlighting these three is today, this is where we have computer-aided thrombectomy. This is proprietary to Penumbra. It marries the power aspiration that we've standardized our thrombectomy emission on with computer algorithms that orchestrate the clot removal. And it is -- what it has done is it's created a technology proprietary to Penumbra that has optimized, we think, the power, the safety and the efficacy of getting clot out of the body in these three areas, which, of course, together is roughly 75% of that 1.25 million. This is about 800,000 of those patients today. Touching briefly on another part of our business, Immersive Healthcare. And I touch on Immersive Healthcare briefly because this is really important to us. We're doing a lot of work on our proprietary technologies in virtual reality and its applications to many aspects of health care. This is not a big part of our revenue right now. It could be our biggest business in several years. We're doing the important work now working with key partners, most notably the Department of Veterans Affairs, to evaluate our technology's use where it fits in the workflow of patients undergoing a number of -- a myriad of indications from physical rehabilitation to mental and cognitive health issues. And there are quite a few patients within the realm of where Immersive Healthcare can help. So we're very excited about the work we're doing here. And we'll obviously be updating everyone on the progress we are making and will continue to make over the course of time. I want to start with stroke and a product we just launched that has really, I think, transformed one of the two primary aspects of taking clot out of your brain when a patient has a stroke. The two parts of a stroke intervention are tracking the catheter to the face of the clot. The second part is getting the clot out. If you can't get the catheter through the tortuous anatomy in your brain, you're not able to get the clot out, regardless of the efficacy of the technology that we have to suck that clot out, to aspirate it out. RED 72, with our proprietary SENDit technology, we think is taking this field a long way in terms of the first part of that procedure and allowing doctors to track a relatively large catheter. We [ think ] the Goldilocks size of an .072" catheter to the face of the clot very, very quickly, very, very safely, almost all of the time, if not all of the time. And the way we're able to do this is by marrying an inner catheter technology we call SENDit with our RED 72 aspiration catheter. These are purpose-built together now. And you can see white inner catheter there that the .072" on the outside, you can see the .072" catheter is tracking over that. The inner SENDit catheter takes up 99% of that inner space. And that helps to track around the very tortuous anatomy, especially the ophthalmic artery. This is really allowing us to help physicians with that first part of the procedure. And we think this technology over the course of the next several quarters will drive our market share, which is already the highest market share, to an even more dominant place over the course of the next several quarters as we build towards a technology that addresses directly the second part of the procedure, the aspiration of the clot. And that's our computer-aided technology for stroke called Thunderbolt. And I'm sure Bill will get into that a bit in the Q&A. You can see here the evolution of this technology and how other catheters have been used to help track the larger catheter to the face of the clot and how SENDit has really changed the aspect, the dynamic of this first part of the procedure vis-a-vis taking up that inner space. That's a very difficult thing to do because the problem has been with an inner catheter to that size is the potential for binding and that catheter binding and not able to track up. We've solved that with SENDit and seen great success. I think this -- if this video plays, you will see the catheter work and how quickly it can move around that tortuous anatomy. Move now quickly to Lightning Bolt. I realize I'm taking up way more time than I should, and Bill's going to yell at me. Lightning Bolt is a technology we recently launched in the second quarter. It is our computer-aided technology for the arterial side of the thrombectomy business. You can see the evolution of treating arterial clot. Still to this day, open surgery is done a vast majority of the time along with using a very toxic drug, a lytic drug dripped via catheter. We have evolved this over time with innovative technology that's really culminated in what we think the way forward is in this space, which is computer-aided mechanical aspiration with Lightning Bolt. And you can see here, this is part of the catheter system. We've made it very, very simple. This sits in the sterile space. You can see the control box on the bottom that sits in the sterile space and the component that sits on our proprietary pump that's outside of the sterile field. And this initiates what we call modulated aspiration, which orchestrates valves in the catheter system that open and close based on the algorithms of the computer to suck clot out but not blood. And in the case of Lightning Bolt, it has a second valve that introduces non-pressurized drips of saline to change the dynamic of fluid in that catheter so that you can act on the friction that exists between the tip of the catheter and clot. You can see here, generally, when you're sucking clot out of the body, the clot is bigger than the lumen of the catheter. So it has a tendency to get stuck. When using Bolt, the Bolt mode changes the dynamic of that friction using modulated aspiration to aspirate that clot out very fast. We're talking about a matter of a minute or so. And sometimes, these cases could take several minutes, 30, 40 minutes with other technologies, even our older technologies. And computer-aided technology with Bolt, Lightning Bolt, has really transformed how we're getting clot out of the arterial. And you can see a lot of the applications. I'm going to move through some of these slides quickly, so we can get to Q&A. And you can see these on the slide afterwards. This just shows some pictures of pre and post. And you can see just the age of that clot, the -- you can see the coloration of that clot shows that it can be hard. It can be very, very gummy at times. Bolt is able to get out all of this clot. I think I've moved past on my screen, what you're seeing. Here we go. So you can see some of the pictures here of before and after. Let's move to Lightning Flash, which has had a transformational impact on our business and on patients in the venous space, including pulmonary embolism and deep vein thrombosis. What we've done with Lightning Flash is introduced a new catheter, a 16 French catheter with new computer-aided algorithm. So this has generated a technology that's the most powerful thrombectomy technology ever created. And the Flash mode is able to generate that power, that aspirational power and importantly differentiate clot removal from blood so that you're taking the clot out and not the blood. And that allows you to use the power of power aspiration without the trade-offs. We again are using this technology, having just launched it in the first quarter, in both pulmonary embolism and deep venous thrombosis. And you can see here again some of the pre- and post-op pictures. And these cases are happening in minutes. It's really changed the dynamic of the speed of these procedures as well as optimizing both safety and efficacy. This picture we put in here to show the different chronicities of clot that exists in these cases. And this technology really doesn't differentiate in terms of how ubiquitously it gets any of these clot types out, gets them all. I'm going to play this, this will show, I think if it runs in sequence, and you see when it's starting, it's sampling. This is showing you it's inflowing blood, so it's not aspirating, it's sampling. And the pressure differentials tell the computer not to open full power. As it gets into clot, you'll see that it then turns on and will take that clot out very, very fast. And you can see the clot being caught in the upper part of the canister. And any residual liquid will go to the lower part and it's very, very little. And you see it just takes it all at once. The color changes will show you whether -- your green is in blood, yellow is obviously in clot removal or Flash mode. If we can move, that's it. Bill, we can sit down for at least 8 minutes.

Perfect. Thank you, Jason. Thanks for the overview. We'll get to the Q&A now. And we do have 8 minutes. So let's jump right into it. Yes, the solid -- let's go to guidance first. A solid quarter guidance was, I think, the main touch point of the conference call. You raised it to reflect the Q2 results. However, the second half was not as robust as the first half implied. You expect Q3 to be 25% of the full year and fourth quarter is growing 30%. Talk about how we should think about the second half growth as it relates to new products, product segments, geographies and seasonality.

Yes, it's a great question. So the second half, the guidance reflects an expectation that in the United States, which is a little over 70% of our business, we will see at least as good a growth as we saw in the first half. And in fact, it implies that we will see accelerating growth in the United States in the second half than the first. And that's a product of these products that we spent time talking about a few minutes ago, Lightning Flash and Lightning Bolt 7 in venous and arterial primarily. Outside the United States, we don't have these products. We are growing. But the comparisons in the third quarter translate into slower growth and then we'll be back to double digits internationally in the fourth is what we said. So I think the focus, generally speaking, is on where we have these transformational computer-aided products and what that implies for the growth in our business. And again, it's an even faster second half than first. And we talked a lot about in our -- on our call the submission process at hospitals. We've never had with any product launch -- and we've launched hundreds at this point -- we've never had a phenomenon like we have now with Lightning Flash and Lightning Bolt 7 in terms of the number of new customers and total customers that are currently going through the approval process to get this product on their shelves, which is a requirement when you're introducing a brand-new technology like this as any company would tell you. And we mentioned on the call, we have well over 1,000 hospitals currently undergoing that. So we didn't want to get too far out in front of anticipating the timing of all of those in the guidance we've given so far. And we've only given quantitatively guidance to this year. But obviously, I think one can sort of infer that the strength that we're going to see this year, including the second half, is only one piece of it. And what this portends I think as you look into next year is pretty exciting for 2024.

And since we're on that topic, how do we think about '24? I mean, historically, you've been a 15%-plus growth company. Now you're getting -- I mean, you're putting up 25%-plus growth, which for a $1 billion revenue company is impressive.

Larger number starts to...

Yes, makes it much more difficult. But how do we think about that in terms of the U.S. because it sounds like a lot of these accounts will be coming on as we exit the back half of the year? And then how do we think about that cadence of getting these products into the international market?

Yes. All very good questions. I obviously stopped short from giving quantitative guidance quite yet for 2024 or 2025. But hopefully, you can infer from my comments that we're pretty excited about the growth that we have in front of us. And again, we'll stop short about what that number is. We'll obviously get to that hopefully very soon. What it -- your question about the international markets and the timing for approval of these products, generally, in our experience, it's been 12 to 18 months, given the MDR processes relative to the U.S. introductions. And we're obviously getting a lot of interest from our partners in Asia Pacific, too, in China and Japan. And that's probably subsequent to Europe. So I don't think it's years and years away. I think within the next couple of years, we will have these products in most areas of the world, where the -- we can have an impact on the patient population. That having been said, the concomitant work that's going on right now at the company in partnership with physicians and regulatory bodies and reimbursement bodies around the world is developing the evidence and compiling the health economics and developing the preponderance of data that is necessary to get the reimbursement structures in international markets that really represent the value of what this technology brings to patients. So that's work that's underway.

And then just last question on kind of guidance and expectations. It was a strong quarter. It was a beat. The back half guidance, it was a raise, maybe not as much as some people were looking for. And it seems like expectations, maybe some people got out over their skis. But what do you think was lost in translation in the quarter or misunderstood? Because it's been a pretty significant drop in the stock price. So there's been a disconnect between the performance and expectations. Where do you think -- from everything you've heard come in, where is that disconnect?

I think -- I mean, I think it's a fair question. I think the disconnect is perhaps not -- and maybe our fault, my fault that the communication about the process and what we have coming and it's us just not wanting to just allocate all of that or factor all of that into our guidance for the near term, the next couple of quarters, but trying to help people understand the unprecedented nature of what this portends for our business and something we haven't seen before. It's different than we've seen. It's just not appropriate, I think, to count those accounts before they go through the process. The reality is we very rarely don't succeed. And once we're championed by a doctor through to get into the approval process at their hospital, we get through nearly 100% of them. Sure, there's one or two where that doesn't happen, but it's very rare. So it's not a matter of if, it's a matter of when and just being, as I said on the call, the word I used is appropriate with respect to how we're sort of factoring that into the quantitative guidance we've given. Again, I think it's important to sort of address in a way that we didn't do a very good job of on the call of what that means, not just for this year, which, as I mentioned, is not much in this year, but what that could mean for our continued growth in 2024.

And so drill down into that a little more, so as we think about Flash was Q1, Bolt is Q2, how -- are we -- in terms of Flash, are we 25% launched, 50% launched? Can you qualify that, quantify that in any way, shape or form? Because obviously, Bolt is newer and probably less impact on the quarter.

Yes. So what I can say is -- and against -- going back to the wording we used in our prepared remarks, we were very careful about that so that they can be referred back to. As we said, the -- we're closer to the beginning of the end. That would obviously suggest we think we're under that halfway mark. And the extent to which we're under it in our view, relative to where we'll be, say, in 6, 8, 12, 18 months, that number could be a lot under 50% or a little. But it's -- we've still got a long way to go, a lot more to go than we have accomplished.

And we're out of time, but I'll stretch...

And that's even more of an extreme. We're even earlier, I should say, with Bolt because it was launched early in the quarter. And it has to go through a similar process. And sometimes it's a similar physician group that's going to champion that through. So they have to do them sequentially. It's very difficult to do them simultaneously.

Let's just ask a question on Thunderbolt, the delay and what the FDA wants. I'm trying to kind of understand that it's rare for the FDA -- I was trying to think of another example of where a company had started a trial and the FDA came back and changed it and wanted a different endpoint, so...

Yes. So let me clarify that. They're not wanting a different endpoint. They're wanting us to reclassify an endpoint that we were already collecting data on from a secondary to a primary to align with other trials that are ongoing in the stroke field. When we submitted this design, they approved it. They decided to align it more with every -- all the other trials going on with some of the .088" oversized catheters that they wanted this to be reclassified. When you're doing that, and it's ICH that gets reclassified from secondary to primary, generally speaking, there aren't -- the incidence of that, especially with us, is really, really low. And so the numbers would drive the statistics to a little bit of a higher overall number to power it appropriately. That's all it was. I will say, and I know we're out of time, what we've discovered with SENDit is making us more excited about the ultimate impact that Thunderbolt will have. And just to explain that in 30 seconds, if you don't get the catheter there, Thunderbolt doesn't matter. Thunderbolt acts on the second part of that procedure and getting the clot out more ubiquitously and faster because of the modulated aspiration algorithms. But you've got to use our catheters to get it there to be able to press the Thunderbolt button. And we think that our share of the number of interventions done in stroke will be meaningfully different than it otherwise would have been if we didn't have SENDit. And so giving us this time -- and I know optically, a delay never comes across positively. But as we think about it, we can actually benefit, we believe, truly from the fact that SENDit will have a period of time now to gain a majority share. So if you're going to spend as a hospital, the extra money that Thunderbolt, it justifies, you're more apt to do that if -- when you open that catheter box with Thunderbolt in it, that you know that you can get the catheter there really fast and the catheter there that you want. So the attachment rate could actually be better with this time to gain share via SENDit.

Perfect. A great way to end it. Jason, thanks for joining us, a pleasure as always.

Appreciate it. Thanks, everybody.

Thank you.