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

Okay everyone, we'll go ahead and get started. Welcome to the 2024 RBC Capital Global Healthcare Conference. I'm Shagun Singh, Senior Medical Device Analyst at RBC. And I'm very pleased to have Penumbra here with us, kicking off day 2 of the conference. Joining us from the company are Adam Elsesser, CEO; as well as Jason Mills, EVP of Strategy. Adam and Jason, thank you so much for being here today. I appreciate it.

Thanks for inviting us.

Great. So I thought Adam we'll start with some high-level questions. It appears to me that there has been a shift in strategy at the company in recent quarters and really positioning it for the long term by streamlining commercialization. You've talked about a focus on clinical as well as market development and improving profitability. So maybe you can level set investors and just walk us through this transition and how you think about Penumbra over the next maybe 3 to 5 years as well as 10 years?

Yes. That's a great question and an appropriate observation. The only caveat is if you go back 20 years ago when we started the company, we started the company with this idea that could we come up with a safe and fast and simple way to get caught out initially of the brain and then the rest of the body. And it's really hard to do that, and it's taken us lots and lots of time to continue to innovate and improve the products. And we now, with last year's launch of our CAVT platform have gotten to the point where those 3 things have -- had generally been satisfied. So with that comes the next phase of work to make sure that the scales have sort of tipped from "Yes, it's good to get clot out, but there are lots of ways to do it" to "this is the best way to do it" and now we have to go after making sure everyone knows that through the work that you've outlined, both with enough people in the ground to talk about it with the support, the data support and of course, the effort in the field that the health economic data, everything else to say, now is the time to really get that clot up using the CAVT platform.

Got it. And how do you think about the company over the next 3 to 5 years versus 10 years? Any key strategic priorities there?

Well, the clear priority and that reflect -- is reflected in the way we sort of recast the revenue streams and so on of the company is around -- and around the thrombectomy that is using CAVT. So starting in the U.S. and going to the international markets after that. That is what's going to drive the company's growth, but equally importantly, it is the mission of the company. Let's -- we have 10% of the patients getting this technology. And we now have the information that says there's 90% more that should get it. That's an amazing thing. We can do an awful lot of good. Obviously, the company will do well if we do that. But most importantly, there'll be an awful lot more people who feel better when they have clot in their body and it becomes less of a catastrophic crisis.

And just to add on to that. You asked about the work we've talked about over the last several months, but -- and you also asked about profitability. So one thing that is true is the work we're doing in market, access market development, this is really -- now is the time to do that because the product, CAVT and the platform, is here. To have done that work 5, 6, 7 years ago, it wouldn't have been the appropriate or exact right time. We didn't have CAVT. CAVT, this platform is the right platform to be doing all of this work to try to drive access. And then the other thing is Adam often says he likes to run a profitable company. I think, I wasn't at the company then but the company was profitable well before it went public. And we're enjoying, and we expect to continue to enjoy really strong growth, but the other word we'll talk about is profitability. So growth and profitability are both important.

That's really helpful color. I wanted to dig in a little bit deeper into this initiative. So on the commercialization front, I think you began to expand the footprint more meaningfully at the end of Q3. What kind of expansion have you driven within your vascular and neurovascular businesses? And then how should we think about productivity? I think a lot of your territory managers were put in place in the first part of 2024. So do we see productivity improvements in the back half?

Yes. It's a really good question. So we philosophically have always had a relatively smaller sales force than a lot of our competitors. There's just a difference in philosophical view. And last year, given the scale of new customers that we're interested because of CAVT, to be very candid, we were a little late in sort of pulling that trigger and saying, we need more help. We just had a lot to do with new accounts coming in and getting through that process. So we started that. And you're right. This -- the first quarter, people were still coming up to speed. They were finishing their training. They were getting organized and so on. I think we're going to see the benefit of that in the back half of the year, and our guidance even reflects that in terms of the cadence of that. So we're pretty happy we did that. I think we now have a team that's in place for this next phase. I think we'll be a little more careful watching those numbers and making sure we don't get caught again, but so far, so good for this year.

Just to -- I think you had indicated 25% more territory managers on the vascular side. Is that where you've got the head count that you need to be? And anything you can share in terms of productivity metrics?

We don't really do that historically. We -- I will tell you that we -- to give you some sort of sense of numbers, the average, I might have this slightly off, but generally it's accurate. The average territory size before we hired or account size before we hired this was about 18 to 20 accounts per rep. I think we're averaging around 12 now, give or take. So don't hold me exactly to those numbers. So there's some definite benefit. But again, that's still a lot of accounts per rep. And as more and more people want to use our products that, one, it makes for very productive territories and cost effective, but it does stretch people to be out there and doing the work.

Anything you can share in terms of the number of accounts that you're targeting?

Well, we're -- it's every account in the U.S. that can, does or can do thrombectomy. I had an interesting opportunity. Recently, we were doing a joint marketing event with Shockwave, they had -- it was a group of interventional cardiologist. And I've met a cardiologist who's using our product called CAT RX, where the coronary clot removal loved it, had never done PE, had never done DVT and was talking throughout the day to a bunch of his colleagues who were also doing PE. And he said, this is amazing. I should start doing PE. I haven't been doing it. I see those patients. We just haven't, in my practice, taking them on. And he then spent the better part of 45 minutes on our simulator in the back of the room, sort of getting the hang of it. And so it's a small one person story, but it gave me some confidence that, again, that was the time the products have gotten good enough that we're going to see that kind of transition happen.

That's helpful. And then with respect to market access, and I think you've indicated that you're collaborating with some of the large hospital systems to validate clinical benefits as well as health economics. Any timing you can share there? Are you seeing any impact of those initiatives?

Yes. Well, that's a longer-term strategy. We've been very clear about that. But what is important and the reaction that I should share is, everyone that we've talked to so far gets it. They have already done their own math. They've already looked at the data in their own systems for the most part. There's not a lot of disagreement that, okay, things have changed. With CAVT, outcomes are better and the health economics are positive. And that, to me, is the most important thing because if that wasn't true, and it wasn't true back in 2013 when we first came up with our first thrombectomy product for the rest of the body. It just wasn't true. The product wasn't good enough to have that reaction. But now, it is. And so now it's just a question of, what is the work they need to do. Again, we can help support with content and all but what do they need to do that in the various vascular beds, whether it's in arterial, DVT or PE. The work is slightly different. Patient flow comes then slightly differently. And we can help talk to them about the work they need to do to make sure they're capturing all of those patients in their region. And so it's early. It's again, not going to happen overnight, but the reception to that discussion is extremely different now with CAVT than it was before.

That's very encouraging. Let's talk about innovation a little bit more. So with respect to Lightning Flash, I think you've indicated you have about 46% share in DVT and about 20% in PE. You're launching Flash 2.0 as well. And you've talked about pent-up demand there. So can you tie it all together for us and talk to us about what does this mean in terms of the adoption of your Lightning Flash franchise?

Yes. I'm not going to quantify yet the adoption around numbers and sure, obviously, I think that will continue to shift. I think we saw that in the first quarter numbers. But most importantly, it's what is the product doing? And if you look at the way Flash 2.0 is performing, it's pretty extraordinary. Flash 1.0 was a great product, obviously. It totally transformed the -- our place, particularly in the VTE market last year, 2.0 is just that much better. And to sum it up the right way, you get more clot out faster than ever before, which is kind of extraordinary. We've had people who are new to the Flash portfolio, to the new product line doing their first cases with device time in a complicated PE case of 2 minutes, 3 minutes of device time. That's just unheard of. And again, in those cases, particularly PE, but it's true in all vascular beds, the faster you can do it usually means the less complications, the less mucking around, the less stuff is happening. So we feel pretty good about it. Again, early. We're weeks into it, months into it. But I think there's a lot of interest and momentum. And I think there are people who were watching Flash 1.0 going, okay, that's pretty intriguing, but I've been doing something else for a while. And now with Flash 2.0, it's hard to [indiscernible].

Is this factored to your guidance fully? Or are you still kind of waiting to see how it ramps, given that it was launched just in late April. As I look at your guidance for the [ balance ] so on the thrombectomy side, [ U.S.] you did 35% growth in Q1. It implies a bit of a step down in the back half of the year. So just curious, is this fully factored in? Or is that growth rate just a function of comps or conservatism?

Yes, I wouldn't -- what we always do when we issue guidance, and we look at all of the things that we know at the time when we issued that guidance, and we take our best shot at it when you're talking about a projection. We've been doing that since we went public 9 years ago. So I don't think it's -- I wouldn't characterize our guidance other than we look at the information we had. Obviously, as that changes and we performed, we'll take that into account as we go.

Got it. And then just as a follow-up, I guess, the back half from Q2 to Q4 guidance implies a bit of a step down. Is that conservatism? Or is it a function of comps? Anything to consider there?

I mean I would just echo what Adam said. We had our earnings call just a couple of weeks ago. And so we factored in everything that we knew at the time into our guidance. Of course, we reiterated what we said 3 months ago. We assessed everything again.