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

All right. We're going to get started. Rich Newitter, Truist Securities here. The next presentation or fireside chat is with Penumbra. We have Jason Mills, Executive President of Strategy; and Shruthi Narayan, the Executive Vice President and General Manager at Penumbra. Welcome, both of you.

Thank you.

Thank you for having us.

Lots to talk about today. But Jason, I thought maybe we'd start a little higher level, Flash and Bolt, two signature launches for you over the last several years or 2 years now. And the launches seem to be going well. They have been accelerating the venous growth rate for the company. Maybe tell us a little bit about where you are in each of those adoption curves and the evolution of those markets? And where you see this CAVT category going that you're effectively creating over the next several years?

Yes. I think that's a great place to start from a higher level. I think as most people know, Penumbra started its journey as a company 20 years ago with the idea of getting clot out of the brain in for stroke procedures, and it's still a really important part, 1 of the 5 vascular beds that we really focus our attention on. CAVT, as you mentioned, computer-assisted vacuum thrombectomy is a proprietary technology that has really transformed not only our business, but the way that physicians are thinking in the body. We have that proprietary platform and the products, Flash and Bolt you mentioned, Lightning Flash and Lightning Bolt 7 targeted right now for the venous thromboembolism space, DVT and PE for Flash, and then for Bolt in the arterial space. And the key premise really to think about when you're thinking about thrombectomy writ large, and really what CAVT is optimizing above anything we've ever created or anybody else has ever created to get caught out of the body in the history of doing that practice is the safety, the speed and the simplicity with which we are doing clot removal. And computer-assisted vacuum thrombectomy has allowed us to optimize the safety, speed and simplicity and minimize or not have the kind of trade-offs that historically traditional therapies have had. Now it's about -- so now is the time to talk to physicians and to get physicians using the product. Once they do, they see what we see, which is that CAVT is really the future in getting clot out of the body for the right reasons. It's obviously a righteous journey because we're doing those there things: safety, speed and simplicity in ways that we or anyone else has not been able to achieve in the past. And so we're seeing that both conversion. Obviously, people ask about market share. We're seeing a significant amount in VTE, especially where in arterial, we're already the majority of the market. We're seeing that happen. But it's also important to talk about, and I'm sure you're asked about, over the course of the last several months now, it's been more than a year, the programs around market development and providing the clinical evidence and the health economic evidence is pertinent now. It's apropos now more than it's ever been because of CAVT. This platform is addressing these vascular beds, all of them that we have CAVT in ways that we or anyone else has never been able to address these patient populations. And as you know, Rich, and others know, the number of patients that are great candidates for thrombectomy and specifically CAVT, we're only around 10% penetrated. In stroke, we've gotten to 30%. It's the high watermark, and we have a long way to go, still there. But in all of the other vascular beds, it's literally -- it's not just getting started, we've made a lot of progress, but the big part of the bell curve is yet to come and now is the time to go after that.

Yes. And I think we're seeing that here with the most recent introduction of Flash 2.0. We're continuing to innovate. We're continuing to add to what CAVT can do. And as more and more physicians get their hands on it, they're seeing what it can do for their patients. The speed of the procedure, getting done quickly, that's a really important topic right now in PV, where physicians are realizing the faster you can get in and out, the better for the patient, and that our technology lends really well to that. It has a right-sized profile to be able to cross that right heart without some of the trade-offs that previously been alluded to. And lastly, I think just the simplification of the procedure allows for it to be a lot more ubiquitous, whether someone is just out of training or someone that has been doing in 25 years, both of them are able to have the same level of outcomes. That's how you sort of democratize the procedure and then start to work on the next phase, which is the market development and really starting to make sure more patients get access to treatment.

And the last thing maybe I'll add before you get on to the next question. It's really important we're doing this work as well because the outcomes people have will be important, and whatever they're using will be important to -- for the referral channel and the appropriate referral channel to progress and mature. If you are seeing technologies that are resulting in bad outcomes, if you're using products, for example, in a decompensating PE patient that adds more stress to the right heart and therefore, bad outcomes that come from that or re-thrombosis issues with using products that are damaging the inside of a vasculature, what we have seen in the past and what we are trying to head off at the past is a -- is the momentum in that referral channel needs to continue to progress. And we're doing that work in large part because we need to make sure they're using products that aren't causing outcomes that would cause that momentum to be stymied in any certain way. So it's -- now is the time to be doing that.

You've been pretty prescriptive on kind of the top line guidance for '24, especially for the U.S. thrombectomy piece of the business, that's the growth engine. The three main components, you've got VTE, as you said, that's growing above the 27% to 30% range for the U.S. thrombectomy growth guide. You've got U.S. neurothrombectomy, you said that's lower than the average there, right?

In the first quarter, it was within that range.

I was going to say that in a second, that was above trend, but I think the algorithm for the year was that would be a little lower. And maybe correct me if I'm wrong, and then you've got coronary, which is well below the average kind of there.

Below the average, but yes, is still growing double digit. That's fair sort of juxtaposition.

U.S. neurothrombectomy we model lower teens growth rate for the year; we model U.S. venous well above 40%, 50% range.

There are a significant number of more patients in VTE, combined DVT and PE than there are in the other spaces. So it's smaller base too.

Smaller base too. Yes, so I guess the question there is, should we be thinking about those growth components fairly linearly throughout the year in 2024? Are there going to be puts and takes, maybe venous is going to be way, way higher and U.S. thrombectomy comes down for quarter. You did 27% last quarter.

Yes.

That doesn't -- you have a tougher comp in 2Q, like how do we think about the parts there? Or should they be fairly ecstatic?

Yes, obviously, nothing in life is purely linear. The general trend, though, we think, is in the positive direction. So I think you've got the algorithms right in terms of how you're thinking about our business. Obviously, to us, whether it's a coronary patient or a DVT patient, arterial patient, treating those patients are -- from a human aspect, the same to us. From a business standpoint, as everyone thinks about our business, the VTE segment Flash in particular, is a higher revenue per procedure than, for example, coronary. So there is a different contribution to the business. But for us -- and where we can help the most patients, there are more DVT and PE patients combined that are still left out there to help with CAVT than there are any other spaces, albeit arterial is probably similarly underpenetrated. So yes, I think you've got the algorithms right, but nothing is as linear as we'd like it to be when we put things into an Excel model. But generally speaking, I think you've got the algorithms right.

Maybe just thinking about the components of growth to get to 27% to 30%. It's going to differ by each one of those subsegments. But help us think through kind of the unit contribution versus price, and then also mix because I think people are confused over -- you're going to be anniversary-ing the first year of launch, right? And you have some tough comps coming in 2Q, 3Q, 4Q. So how much price/mix was in there that you have to overcome as we move through the rest of '24 to get people confident that this isn't just about a onetime launch?

It's a really fair question and completely understandable to ask. So last year, the majority of our growth was the unit volume, if you will. So it was continuing to treat more patients than we did in the previous year. This year, it's even more so that. We -- and so another way to say that is there was some mix shift in price in both arterial and venous. I think we've talked about that sort of magnitude wasn't -- it certainly wasn't doubling. It was around $1,000 plus when you're thinking about using our Lightning 7 versus Lightning Bolt 7, Lightning 12 versus Lightning Flash. So there -- and we were doing more growing venous procedures on top of that. So there was some non-unit growth that we're comping against that we won't comp this year to the same extent. We're still -- you're still seeing, as you saw in the first quarter, growth in procedure, thrombectomy procedures in VTE and arterial faster than stroke in coronary. So our internal mix shift of thrombectomy procedures writ large is in a positive direction from a standpoint of revenue per procedure. But if you're just looking at VTE vis-a-vis VTE last year, your growth is going to be more unit even though last year was majority unit 2, it's even more so the onus on growing the market and some share gain as well this year vis-a-vis the price conversion that we'll see less of.

And I guess -- so that kind of goes -- what's your estimate in VTE? What's your estimate of the underlying U.S. market growth rate?

Yes. So it's best viewed with a level of certainty that is appropriate in arrears as opposed to looking forward. The tenants for organic growth, and we're doing that work now through not only innovation and our commercial team but also importantly, our market access programs, which encompasses clinical evidence from randomized studies to retrospective, big data analysis to other work we're doing, that encompasses all that to drive that market development growth. So you have organic growth in the markets, which is just a pulmonologist referring a patient where they don't refer all their PE patients, even some of the high-risk patients today, seeing that patient do well with CAVT and thinking, "Oh, maybe I'll refer more patients." That's organic growth. And in VTE, we -- in the last quarter, it was probably slightly above 20% organic growth. And over the last year, it's been solidly in that range. Looking forward, the tenants for growth in VTE are there for that to continue. We aren't necessarily counting on that level of growth, but the tenants are there for organic growth to continue to be strong. And then in addition to that, we're not resting on just organic growth, just the doctors talking to each other, albeit that's very important. It's the market access, clinical evidence work and health economics work that we're doing to drive what we would call market development growth, which is in addition to [indiscernible].

So just to be clear, what you're referring to as organic in that sense is what the market does without your efforts to [ use ] it.

That's correct. Yes.

And the reason we're focused on that additional market development growth and the market access initiatives, now it's because we see what CAVT is offering to our physicians and they're starting to see it. Where they're excited about doing this case is, okay, I can do it predictably, get done quickly, move on to the next patient. And so with that, they say, all right, now let's do the work of those other 90% of patients who are still not getting access to treatment for whatever reason, let's start to partner up on how best to go and take that on.

So let me just go back. You said that you expect unit growth for venous to actually accelerate in 2024 versus '23. Did I hear that correctly?

No. I don't think you did. We didn't tell you what the unit growth was last year. So we didn't say that, and you don't know what it was last year because we didn't break out each component.

What was the -- you were saying that the growth will be more unit dependent than it was last year, because you had maybe more mix from last year.

That's what we were trying to say.

If the market is sustaining 20%, maybe something a little less, how do you sustain a nonprice mix reliant growth algorithm for that business unless the market is accelerating? Or you're accelerating your share gain?

It's share gain. And -- so we've seen -- we've seen that since the launch of Flash 1.0. We had a PE -- our share of PE thrombectomy procedures in January of 2023 before we launched Flash was about 5%. It's now over 20%. In DVT, our share of thrombectomy procedures and DVT before Flash launch early last year was about high 20%, low 30%. We're now ticking over 50%. CAVT over the long run is, in our view, should be the vast majority. We're approaching, for example, 60% share, notwithstanding a whole bunch of people trying to compete in stroke. Our share continues to gain. And so it will be a function of outcomes. And in VTE, with Flash 2.0, what you're seeing is an excuse for doctors that for whatever reason, decided or were convinced not to try 1.0, are giving it a try. The interesting thing is, and it's validating that we're on the right track, that the competitive response is, shall I say very tenacious, and that's validating because we are seeing the response to that in a way that suggests we're doing the right thing. We know we're doing the right thing. It's a righteous fight, but it's a fight, nonetheless. I think that's when we're in our best element at Penumbra as when we're in this righteous fight with a product we know is unequivocally better than anything on the market now, and where we're going in the future, we'll continue to accelerate that lead. But it is eliciting the kind of competitive response. That frankly, I think people expect out of the other participants in this field.

I just want to maybe get a better sense for that comment. So you're mentioning the competitive response because it's generating the feedback you would have expected because it's been so successful or you're potentially seeing a competitive response that you now need to pivot around in order to drive the share gains you would have hoped to have gotten.

Yes. It's not a matter of pivoting, it's a matter of just continuing to do the work out there to talk to physicians to get them to not only try the product, but to continue notwithstanding sales practices that we wouldn't match.

Got it. So did you see a step-up since the launch of 2.0 in those competitive sales practices?

One would think, given what's going on in -- for other companies with respect to those sales practices, since December, it would have changed in one direction, and it's actually changed in the other direction in a more aggressive way.

Got it. And I'm just curious, as you contemplated your growth algorithm for venous knowing the launches you had and knowing all of the competitive response per mutations that could have been out there, are things kind of moving along as you would have expected? Or are there competitive responses or things that weren't baked in to your view that [indiscernible].

Yes. I totally understand the question. I think you tried to take all of that into account. You obviously aren't running the practices or behavior of another company and have no control over it. You can only control the way in which you respond. And of course, Penumbra has a way of running a business that we continued and will continue to do. So hard to answer that question in a vacuum in the near term, but we feel really good about how this plays out over the medium to longer term.

Yes. And I think from a physician response standpoint, they're seeing and commenting on the fact that the future is CAVT, what we're bringing in terms of innovation, what we're doing in terms of considering the safety profile of these procedures and actually then moving the field forward is all the things they would like to see. And that's how these deals sort of start to change. And so like Jason commented on when we think about that sort of long-term trajectory that we're on and the path we're building to get there, we have -- we're very encouraged.

Maybe help us think through that longer-term growth trajectory, both at a total company level and how venous fits in within that. What's the -- we're all wondering what the sustainable top line growth profile is? Is it 15-plus percent, 10%, 25%, 50%, whatever it might be. Can you help us think through the end markets that you're going -- moving new products into? What they have to grow at to get to some -- it sounds like 15%, 20% just to take where your '24 guidance within that range. How do you sustain that level of growth of increasing competition and considering both U.S. neurothrombectomy and venous as we move '25, '26? How do we think through that algorithm?

Yes. So we -- you and I talked about this. We've been asked the question in a similar nonpublic forum at a bus tour about, hey, in 2019, you did around $500 million in revenue. And at the time, the company held an Analyst Day -- Penumbra held an Analyst Day and said in 2023 over a 5-year period we would double the business to $1 billion. Last year was 2023. It was actually over that at $1 billion, just under $60 million, $1.06 billion. And so the question was the question you're asking is over the next 5 years, can you double the business again, and that would imply what you're saying at the around the mid-15%, 16% compound annual growth rate. And you're asking specifically about U.S. thrombectomy. So if you isolate U.S. thrombectomy, in this hypothetical, what you're doing is you're assuming that our embolization and access business is U.S. and international, and our international thrombectomy business, to isolate U.S. thrombectomy is growing at some pace lower than that implied compound annual growth rate. It's fair?

Yes.

Okay. So what do you need out of U.S. thrombectomy is the question. If we assume that we're innovating across all 5 vascular beds. We're the only company doing that. And right now, you at the beginning of this call -- this meeting sort of lay the land of coronary versus stroke, what each is growing. If each one of those maintains the growth rate juxtaposed to each other. In other words, VTE grows faster than coronary and that continues. All of them are growing not faster than but maybe even slightly slower than, because over time as you continue to penetrate...

Slower than '24 level.

It's slower than what they each one of those are growing today relative to each other. And you look out those 5 years, the number of thrombectomy procedures in 2023, growing to the number of thrombectomy procedures across all those 5 in 2028 would be roughly 9% to 10%, more -- the mix would be obviously venous and arterial and revenue per procedure is higher in those.

[indiscernible] half of 9%.

So that's how 9% or 10% rose to that implied growth rate. That's the bridge.

Nothing else, just the implied math between...

But you don't need 20% growth in thrombectomies, which we get at writ large, which we get asked about a lot. It might be close to that, probably not that, but close to that in venous, maybe arterial just a step below that, but still faster stroke in coronary, the implied growth rates wouldn't even need to be higher than mid-single digits.

Right, on individual cases.

That also would assume no share -- the share gain would be -- the share we have in 2023, if you just hold it constant in 2028, which for us would be a completely unsatisfactory position...

I want to make sure I have the components there. What you were describing was a, if you assume no share increases between '23 and '28, just the market supporting that growth, you will be participating in them with your position now, and then you would layer on the mix benefit because...

More procedures in the higher revenue procedures...

And share gains. On top of that, you bridge from call it, 10% to the 15%.

Yes. Share gain is not even included. So that would be...

Even higher than 15%.

Yes. I mean so -- we expect both market growth and market share gain, but we're not doing our jobs, and all of the efforts that we're doing from the market access programs are really focused on developing the market and for there to be -- and by the way, what that would imply for penetration of the -- if you add up all of the opportunities in 5 vascular beds, we've said 1.25 million patients in the U.S. every year. So at the end of that 5-year period of time, what is that sort of experiment result in, in terms of penetration? About 25%. So you're still not at a place we feel is satisfactory. We think the majority of these patients need to be treated, not 25%. We're obviously at like 10% to 15% across all 5 of those today.

Got it.

Yes. And ultimately, if a patient has a blood clot, no matter where it is in their body, no matter where it is in the U.S., they should be able to have access to this technology, and ultimately, also globally, but that's sort of the work ahead.

That's why we're so excited about not just what we're talking about and what we're doing now with Flash 2.0, but about the next several years. This is something that we're building and developing over time. And this is just in the United States. We're obviously doing a lot of work outside the U.S. to provide the foundation for these products to have market in Europe, EMEA.

Yes, that wasn't including international CAVT launch.

Well, no, because we held...

Hold those constant.

Well, we didn't hold them constant in that experiment, that hypothetical experiment they're growing slower than that implied CAGR, whatever growth rate you want to...

But there could be an opportunity for that to be higher if...

The opportunities are significant, but we've communicated, we've got -- we're going to do well with those products in lieu of reimbursement changes, but reimbursement changes to make them adequate in certain large international countries is important to reach the number of patients that we're going to reach in the U.S. internationally.

Yes. Got it. I think we're at the time marker here, but really interesting discussion.

Did we get to all your questions?

You did not? I have two more pages, but that's okay. Thank you very much. Happy to talk to you.

We will talk further after...

For participating and it was great. Thank you.

It's a good conference. Thank you.