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

Perfect. Good morning, everyone. Thanks for joining us for Day 3 of the William Blair Growth Stock Conference. Really appreciate that everyone was able to make the trip and is still here on Day 3. I know it's always the hardest day. My name is Margaret Kaczor Andrew. I am the research analyst here at William Blair & Company that covers Penumbra. I am required to tell you before we begin that there is a full list of research disclosures or conflicts of interest at williamblair.com. With that, very happy to introduce Adam Elsesser, President, Chairman and CEO of Penumbra; and Jason Mills in the audience, EVP of Strategy. Thanks, guys.

Thanks. Let me do this dance around here. Thanks all for coming. And again, to echo Margaret's comments, thank you for hanging in there at the last day and still being here. I want to sort of review the business. I'll do it in a little bit more generalized form and then get more specific as we go. There's our safe harbor. Again, for those new to learning about Penumbra, we're headquartered in Alameda, California, Northern California. We manufacture at this point, all of our products in California. We sell not just in the United States but throughout the world. We've been around for about 20 years. We started the company in 2004 with this idea of acute ischemic stroke and have expanded it much broader since. So we have a good footprint around the world, and we have a little over 4,000 employees worldwide at this point. Our business at the beginning of the this year, we sort of restructured how we talk about our business into thrombectomy, which I'll do most of the talking around and embolization and access. Because we started out as a neurovascular company with stroke and then we added peripheral, by definition, we sort of went from -- well, we have neuro and then peripheral but as thrombectomy grew and has a much obviously longer runway, we thought it would be helpful to start framing the business really in those terms of thrombectomy versus embolization access. I want to say something real quick about embolization access and not just sort of gloss over it. It is a great part of our business. In fact, our very first product -- and let me back up, embolization is almost all peripheral, so not neuro. We have a suite of products in embolization that do different things when you're trying to embolize various parts of the body. They are very unique. They're typically bigger, softer, longer and incredibly effective and efficient in doing the job. We've had, over the years, we've been doing this now at about a decade. We've become the market leader. We've had lots of people try to compete and copy that. It's hard to do. And we feel pretty comfortable that with the current products we have and future products, we will stay very strong as the market leader in our embolization business. On the access business, that's primarily neuro access. And that, for lack of -- we call it access way, way back in the day. In the '90s, those were called guide catheters. It seems better to call it access tools, particularly in neuro where we guide catheter in our spare time and we're able to launch it a little bit before our stroke product, vascular beds. I'm going to sort of quickly go through that in no particular order. Pulmonary embolism, everyone has heard about it. It's obviously devastating. We estimate there's about 157,000 patients. These are U.S. numbers that could be treated today with our CAVT platform. And what -- other people have different numbers, their estimates, but I want to make sure on all these numbers, people sort of understand our thought process. These are patients -- we obviously know there are many more patients that have pulmonary embolism. So you could get bigger numbers. But we're not sure and we're not sure yet that we can say with a straight face that all of those should be candidates to be treated. If it's a very, very, very mild PE, it may not be the right candidate and maybe anticoagulation sort of resolves it very quickly and is the better thing. So these are really patients that really would benefit that have more severe PEs. Deep vein thrombosis, that's really the biggest category of potential patients. We estimate it's about 350,000 in the U.S. Again, that's not all DVT patients. That's primarily focusing on iliofemoral and areas that have already been shown to benefit. There are way more DVTs in the U.S. every year, but there's work to be done to add those. And obviously, if you just look at all these patients, we have our work cut out for us over the next number of years to make sure that these patients are treated. And as that happens, we'll obviously start to look at adding patients that have these issues and go from there. But we're not quite there yet. Acute limb ischemia, this is blood clot in your leg on the arterial side. So this is not like a stroke, except it's sort of like a stroke. That means because the arteries are bringing the blood away from the heart out to the limbs, you're not bringing blood in the oxygen to the rest of the leg. And if you don't remove that, you can risk them having the tissue and the downstream part of leg die in a ischemic event. And that ultimately leads to amputation if the leg is no longer functional. So that's a really important thing. Again, the estimate is about to 200,000, just shy of 260,000 in the U.S. The current treatment for those is 2 things. These are mostly patients that show up to the hospital because it's an ischemic event. It's clear as it can be that you're having it. This is different than, say, PAD, which is really a different disease with calcium buildup. This is acute clot. It's just a different thing. It's called the ALI typically. Ischemic stroke, we've talked about that. As everyone knows for about 20 years, this is when you have clot in the arteries in your brain. And we've been working on that. There have been lots of trials and lots of competition over the years, and that's estimated at about 200,000 people in the U.S., and we're treating somewhere around sort of, what, 30-ish percent of those, I think, give or take. Coronary, oftenly sort of overlooked. It's a little bit different in that the clot in the coronary arteries is not always, in fact, rarely, sometimes the main issue. Usually, it's part of having a blockage in a STEMI case. And then it's sort of in the way and you want to remove it, you don't want to risk downstream issues and you can't always see wells so you want to take it out. Occasionally, it's the main issue, and it's just clot but more than that not, it's part of a different issue. There, we have a product called CAT RX that is doing well and helping a lot of those patients. That I hope gives you a sense of what those markets are, the numbers and all that. The big change that happened last year for us was really the launch of Lightning Flash, we'll call it 1.0, was just called Lightning Flash at that time. We'll talk about its 2.0 in a second. Lightning Bolt 7, which goes into the arteries, and then Thunderbolt, which is in a trial, a regulatory trial for stroke. These are technologies that really you have the computer harness and activate the valve on the aspiration source in a way that is much faster and much higher sort of fidelity than the human hand can do. So we're able to take out a lot more clot and do it in a way that we just never could do before. And so that really started the next phase of the company. It was sort of a crazy busy year last year, transformative, obviously, for us as a company as we got to a point where people started recognizing that this platform was really now good enough, if you will, and maybe that's the wrong term, to be able to go after all of these patients that I just went through. Beforehand, it would have been -- we would have wanted to from a business standpoint, but there would have been trade-offs that are legitimate. And now really, those trade-offs have fallen by the wayside because of the use of CAVT, the computer in these cases. Let me briefly talk about Flash 2.0 and what the difference is between 1.0. We get that question a lot, and then I'm going to share a couple of quick cases with you guys so you can see it. So Flash 2.0, for lack of a better way to frame it, the algorithm, the computer algorithm that controls the operation of it, we got higher fidelity. That's how I think it's the most logical way at least for me to try to articulate it. That means the computer can turn the valve on and off faster and sense whether you're in clot or not faster. I'm going to show you a slide in a second that sort of shows you the steps that are sort of different between the two. So that means, again, the 3 things that matter the most that I said, now we can talk with a straight face about doing this on everybody are speed, safety and simplicity. You've always talked about those things. You can't do this if it's not incredibly safe. You can't do it if it's not fast and simple because otherwise, you get into trade-offs. And Flash 2.0, particularly for PE cases where you're in larger spaces, I think really made the case that those 3 things are really satisfied. This just gives you a little bit of sense of what I meant by fidelity. So in Flash 1.0, there were sort of 3 moments in the algorithm. It was sampling, i.e. the valve is not open, it's sensing am I in clot, am I not. The moment you detected clot, it sort of went to solid yellow and then there was a delay, very quick delay, but still a delay when it went to sort of flash mode where the valve would open. So it was done, again, to focus first on safety. You want to make sure you're not opening that valve in the right -- in the wrong time and place, so we overcompensated, if you will. And then we improved that. We spent the better part of the year talking to every physician, trying to get their feedback and changed to really collapse that to a higher fidelity where you go from sampling to what we're now calling Gallop Mode, which is getting caught and then closing it again to sampling that much faster so that the safety was not only protected, it was enhanced and the speed of getting the cloud out became that much better. So we're going to show some cases here. This is a sort of first time Flash user, somebody who had both used other tools for mechanical thrombectomy as well as lytics. This was a submassive saddle PE. You can see -- and I don't know if I can do that sort of trying to put a little circle there. And then you can see that's in the -- there is no contrast because there's blood clot there. And then you can see both in the post left and then the bottom 2 where the contrast fills up those spaces, which means the clot's been removed. And then this is sort of a more of an attempt at a life-size drawing that people like to show their clot. One of the worst things about removing clot is that people like to show off their blood clot. And here we are right before lunch, I apologize. But it is, I think, an important measure and a reminder to the physicians at the time and weirdly patients have liked to see these images of like what was going on with their body. So I think it's going to continue. But you can see how much of that clot was taken out. This whole case took 17 minutes. And I don't mean the device part of the case, I mean from start to finish. That's not normal. Like that's a new thing and we're pretty excited about it. We saw a 34% drop in their PEA pressures from the beginning to the end of the case, which is significant. So the patient got better right then in that 17-minute period. Again, a new user, somebody who had not yet decided to use Flash. This is another case. This is actually another example of a saddle PE. This case, again, new user about a 45-minute case time total from skin to skin so it took a little longer. You can see again the clot. What's interesting to me on this picture is it comes out, see how it's still forming in place how it was formed and going into the various branches and that didn't break up at sort of that strong and fibrous of a clot and it can still be sort of sucked out relatively quickly. And then you can see, obviously, in these images here, it's pretty wide open, and the patient did really well. The next -- this case -- let me see, this is a pretty big PE. This would be qualified as a massive PE. And you can see, again, the transformation from one to another, took about 40 minutes from start to finish, not device time was much lower. But by the time you did a puncture and got access and finished. And then, of course, this is the famous clot picture and how much. To give you a sense, that's a filter in the canister of the pump, which is about that round, it's about, what, 10 inches plus for people who are listening on the webcast, in diameter, and it's relatively full of clot. And the nice thing here is the patient left the angio suite on their own air. They weren't on supplemental air, which is -- that's a huge victory for those patients. I'm going to show one more Flash 2.0, but this is the DVT case. This had about 5 minutes of device time. There were some issues of getting down. This was an occluded IVC filter in the DVT patient. Patient is 25 years old. So young, it can happen and very minimal blood loss, and you can see again the scale of that clot that was removed from that filter and done in time so that the client was still acute clot and can be taken away. Let me switch gears. I'm looking at time and want to make sure we finish Lightning Bolt, again, is our product for arterio, also uses the computer. The computer orchestrates the valves, but they add another element because the arteries are smaller. And so clot tends to be more focal and focused, and this is where you have what we call modulated aspiration, where the aspiration sort of goes on and off in this computer controlled, which allows you to take out sometimes more focal, harder pieces of clot that are filling the artery. Similar technology that we're using, obviously, in Thunderbolt, just different algorithms slightly because of the different size of the catheter. This is a case. This was done and you can see the leg and it's a number of different sort of trifurcation that were closed. And then you can see in this picture, they're all wide open. What's interesting here is how white that clot is that tends to be older clot, which means you can still get that out in traditional aspiration means without CAVT, that would have been pretty hard to get out. You might have been able to cook the catheter and pull it out, hanging off the tip, which is what people did for a long time in stroke, but they wouldn't have ingested it. And you can see how many pieces. So that case would have taken a lot of time. In this case, it took 10 minutes of device time. So that's what I'm trying to give you guys a sense of. Briefly talk about Thunderbolt. I'll also share a case Thunderbolt in a trial. Everyone knows that. The trial is going well. We're -- as we move through it, gaining excitement of both the pace of enrollment as well as the anecdotes we're getting from physicians and how well it's going. And I can't wait. I'm also happy that we have been able in our stroke business to get RED 72 ascended so widely penetrated because that's a really good starting point to do these cases because if you can get -- unlike in a lot of portions of the body, we're tracking the product to it isn't -- it matters, but it's not the most critical part. Here, getting the catheter to the M1 and in cases of smaller clots, further down with other sized catheters is critical. And we've been very successful at doing that. If we hadn't done that, we wouldn't -- Thunderbolt wouldn't have mattered because people wouldn't -- if they didn't think they could get the product there, they wouldn't want to use it. So we've done a really good job during this time frame of getting RED 72 ascended, pretty well penetrated. Let me show this case. This is a 61-year-old woman had a stroke unable to communicate, high, high NIH stroke scale which really they were really not doing well. They couldn't communicate, paralysis on the entire right side. It was an M1 occlusion. And I'm going to try -- there's a video. Let's hope it works. Bear with me as we switch out and play it. Our technical skills about embedding it weren't quite good enough. So this watches the tracking of RED 72. Can you see it? My angle is not exactly perfect to put the -- but you can see the product snaking up there. And it goes really far up. You're in the brain sort of above the eye at this point with a decent sized catheter. And then yes, this is on repeat so you'll see it again. But that just gives you a sense of what a stroke case, like this part of the case matters. Once they got the catheter there, the -- we can switch back to the -- revascularization time, the time of using the product, using Thunderbolt, was about 11 minutes. And with one pass, sort of one push of the button if you will, they got what's called TICI 3, which means all the clot was removed and ingested into the canister in that time frame. So that's sort of the type of thing we're seeing, and it's sort of what we had hoped for and anticipated. So let me maybe end this way. This is the moment that we spent 20 years waiting for. And let me tell you what that means and what it doesn't mean. The products are at a point where we can now talk about this throughout the medical community about treating people that need to be treated. They're not the same trade-offs in the sort of well in this subgroup or that subgroup. And that, for us, is something you've probably heard us be pretty excited about. And I think that's great. Between now -- so we can have those conversations and we can do that work. I'm not saying this in any other way. We still have to compete. We still have other companies. You guys remind us that all the time. And we're going to keep competing. For those of you who have watched us over the years, we've always competed. We have competed with everyone since long before we went public, and we're going to continue to compete. And that's where between innovation, having enough people will drive that success. And then as that's going, we can start to engage with the hospital systems and the health care community about really going after all the other patients. So I'm that excited. It is a good opportunity for us. Don't get me wrong. We still have to do the work. We still have to compete. But we're in a really good spot, and we're in a good sort of leveling place to start that. And again, for those of you who have known me for a long time, the competition part is sort of fun and we're not going to not going to let people not be treated with the best product. It's that really simple. So on that, I got 2 minutes to go and I'll conclude. Thank you, guys.

Perfect. So we have 2 minutes, so I'm going to ask a really complicated question that you've got a time limit on so it will remind you of your time. But anyway, so there's been a lot of talk about market share gains. You just referenced it right there. But I think what a lot of long investors are trying to understand is how do you break open this market, right? You're talking about these great technologies, great data. How do you -- what's that driver? And what have you learned as you've entered all these hospitals to be able to do so?

Yes. Look, if we didn't have to compete would happen much faster because the products independently are obvious, and they work that way if you're judging them without a competitive environment. When you compete, again, you have to deal with that first, and then you -- they can be done simultaneously, but it becomes a slightly different sort of trajectory. And I'm -- I would love people to understand that, that's not bad. I mean, like, obviously, our competitors aren't going to just acknowledge, "Oh it's a better product. And so therefore, we're -- thank you very much for innovating and will go away." I mean it would be awesome, but I don't see that happening. So we have to educate people. We have to do the work, and we're doing it. And that's not -- I'm not saying that that's new or different. I've always known that, and we'll keep doing that. I guess what I want everyone to know is we're good at that, if you look at our track record, and we'll keep going and doing that. But we cannot -- we don't have to wait until we do that to start engaging about the next phase of growth. And so we can do both simultaneously. And look, blood clot in the body, acute clot is literally one of the most sort of vexing or biggest issues in acute care today. Like it's a huge deal. How many other areas has in any kind of sort of acute setting have 1 million-plus people in the U.S. who have that issue, and it isn't easily solvable. So we're in the precipice of that. That's fun. That's amazing that we got this far. So we're going to keep going, I promise.

Sure. Well, with that, we're going to take this to the breakout, which is in the Adler Room. Thank you.

Thanks.