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

My name is Bill Plovanic. I'm one of the senior medtech analysts here with Canaccord Genuity. Up with us next, we have Penumbra and Adam Elsesser, the Founder, CEO, Chairman; and Jason Mills, the EVP of Strategy. We're going to start off with a short presentation and then move to a fireside chat. With that, Adam?

Thanks, Bill. I appreciate it. I'm going to be relatively quick here so we can get on with some questions. I'm glad to be here at the Canaccord conference this year. There is our safe harbor disclosures. Our business has evolved over the years, we've been in business now 20 years to really 2 business units at this point. Our thrombectomy business, which is really what started the company around the idea of removing blood clot from the brain for stroke and expanded to the rest of the body. And then our embolization and access business. Our embolization covers both vascular where it's a very successful in sort of market-leading coil and neuro as well. And then access, which is a primarily a neuro business where we have products that really are the starting point of most cases and have been very success for us. I want to focus on thrombectomy for a second. This is the area that we're going to hear a lot more about, and we have a lot of opportunity, but work ahead for us. This just lays out the various areas of the body where we're removing blood clots and the potential patients. And these are not sort of the pie in the sky potential patients. Those numbers are higher. These are parts of the body where our current technology goes and can remove these clots. So you can see on the slide, there's 150-some-odd thousand pulmonary embolisms that we think we can reach. This is in the U.S., over 350,000 DBTs. 250-plus thousand arterial patients. Stroke patients are estimated around 200, some have that number higher. And then coronary is a little shy of 300,000. When you add it all up, it's over 1 million patients in the U.S. alone. Obviously, adding the rest of the world, it's an awful lot of people. Blood clots in the body are really one of those things, one of the biggest acute medical conditions that hasn't yet been sort of fully resolved and solved, and we think we're on our way. CAVT or computer-assisted vacuum thrombectomy is really the technology that launched last year in a big way that we believe will open up this opportunity. It does what other technologies that we or others have not fully been able to do, which is remove the blood clot really quickly with a real appropriate safety profile. So that at this point, this is better than the other modalities, whether it's thrombolysis or whether it's open surgery for arterial or other therapies that people are using. So Lightning Flash 2.0, which just launched in late September is really starting to set the standard of removing the clot really quickly. We're excited to see the success of that and we'll continue that going forward Lightning Bolt 7 and arterial continues to have significant growth as we anniversary the launch of that last year. And then, of course, Thunderbolt is our product for stroke that's in a clinical trial, and we're getting -- I'm pretty excited to see that get to the point that it's at and get ready to introduce Thunderbolt to the market as well. I'll end by just showing a quick image. This was a Lightning Flash case we did early on in the launch and it happened within a very short period of time. I think it was about 10 minutes, maybe 11 minutes. You can see how much clot was taken out on both sides of the lung, did it very quickly with a very sort of clinically appropriate amount of blood loss and the patient ended up doing great. So with that, I want to thank for the quick introduction and I'll open up to questions with Bill.

Adam, Jason, thank you so much for joining us today, and thanks for the audience for being here. We'll start it out with the news this morning.

Yes.

$200 million share buyback, $200 million buyback with $100 million already done. Just -- so any color behind that or anything you'd like to share regarding that?

Yes. I think it should be pretty self-explanatory. That being said, obviously, we have -- we're doing quite well. We have a significant cash resources. It seemed like the right thing to do. It is the right thing to do to bring some value to our shareholders given where our price is right now. And given the pace that we expect to continue, it just seems like a very logical thing to do.

Excellent. Good news to wake up to this morning for investors that's for sure. So let's dive into Q2 guidance, work through some of the moving pieces here. And this is a broad question. Do you think you've adequately lowered guidance so that we're a full reset to work out from here? I mean and just historically a lot of times companies -- by nature, you're optimistic. You have to be. And sometimes, as you run into some challenges, it takes 1 or 2 times before you finally get the final reset of numbers and then we can work off of from there. And that's why I asked the question.

Yes. Look, we have spent -- it was my error, last year, we got ahead of ourselves. We're in the middle of the most significant launches in the company's history. It wasn't easy to sort of put your hands around the timing of conversions and so on. And so we got a little ahead of ourselves. And then we spent the better part of the year talking about guidance, which is appropriate, given what we said and not the substance of the business. And since our earnings call, I've been incredibly pleased that we've spent 95% of the time talking about the substance of the product, their performance, how we're going to go after this, both in the short term as we convert people to Flash 2.0 and Lightning Bolt 7 as well as the long term as we look at the market development issues that we're doing. So I'm pretty happy about where we are and pretty confident, not only in this year, but particularly as we go into '25 and '26.

So I'm going to keep asking about guidance even though I know we want to get to product. So do you think that the second half of '24 -- will be the longer-term low point in terms of year-over-year growth because we're looking at, I think, Street high single digit for both quarters or maybe touching 10% -- and -- where do we go longer term? Is this a 15% grower? How do we think about just -- how do you think about it? I mean, I think -- and we'll come back to just the CAV technology in general. But.

Yes. Look, we -- without a doubt, not going to make the same mistake I made last year -- this year by quantifying what our growth rate is going to be at this stage of the year. That being said, we gave a fair amount of qualitative commentary around what is different about '25 and beyond, and we won't have some of the international headwinds, whether its China or the countries we exited with embolization [ access ] to compare against, we will have a slightly delayed launch for Flash and Bolt in Europe, which actually helps '25 versus this year. So when you take out those headwinds for this year, which are important because you want to get your business in its strongest position to go forward, not just on revenue growth, but on operating margin as well. I think we're in really, really good shape. And again, the work we're doing that we think will start to pay dividends in '25, '26, '27 will put us in a really different spot. So without quantifying it, I'm very optimistic.

And you may get to this later, but the other thing that's really important that you have asked about in the past is CAVT and the new products that are coming. And we've said fairly consistently and updated the timing for the new products that are coming consistently given the same time frame, [ 3 ] additional CAVT products, I think we said the last time, last quarter, 9 months. So obviously, that should augment help 2025 where it's not going to contribute much in 2024 -- and beyond 2025.

And as we look at the U.S. thrombectomy business, and that's where I think some of the change was -- and you framed it as a guidance philosophy and being more conservative. How much was this -- is really a philosophy change versus perhaps not seeing the growth or continued year-over-year pricing you had anticipated? And as I think of the VTE market just going forward, what are the barriers to penetration. So the question really spans as I look at you and your competitors, it seems like maybe there's a slight deceleration in the market itself.

Yes.

And are we hitting a point that we need something else to get another inflection point. It's going to like the low-hanging fruit early adopters who have been picked. And where are we in that market?

I think that's -- there's always a little aspect of that. I think we've gone past that a few years ago. So I don't think it's that -- we saw that in the stroke market pretty clearly way back in the day where the people that were willing and wanting to treat them sort of did that. And then there was a little bit of plateau as you then continue to grow. I don't think that's what's happening here. I think the most important thing, and it's -- you have to remember the scale of the vascular business is dramatically different than the neuro business. So you have a lot of different people that have us say in that and are part of that chain of getting those patients treated. And I think -- I don't think the markets slow down. I mean we're obviously on the VTE side growing faster than our biggest competitor because we're taking share and seeing the market grow, which is a good spot to be in as we move into that. And that's not because of tactics or anything else, that's because the simple fact that with Flash 2.0, we have the best product. And the product gets the clot out faster than anything and it doesn't come with the same safety risk. You don't have cardiac decompensation. You don't have to put in contaminated blood. You don't have blood all over the floor and the drape and all the other issues. And that's a big deal. That's the thing that slows growth. When referring doctors see issues with their patients, they refer, they're hesitating to grow. So we have to in order to keep the market growing, make sure that people are moving to a safer product. And it's that simple. I know there's sort of a desire for everyone to get along and everyone grows together. But that's unfortunately, not hopeful for the growth of the market because if you're a pulmonologist and referring your patient and then they die because of cardiac decompensation, are you going to be shy about referring those patients? Yes, obviously, you're going to think about the risk profile, not something that is happening now with Flash 2.0. So it's critical that we do that work, and I think that work ahead of us in the short term is incredibly motivating for our team, and it's working. There's a huge reaction and sort of, "Oh, that all makes sense like, okay, I've always why we were doing that. If you think about it, the other societies, other groups of physicians, not in interventional, have guidelines about putting in shed blood, like you're not supposed to, but all of a sudden, it's okay now. Like no, it's not. The science is well established. We don't even have -- we're not making that up. It's published and out there. And I think it's just to remind people that, okay, now we have a product that doesn't require that, and we're going to start to see that shift. So in the short term, I think we're in a great position. And then when you think about the long term, the work that can be done, the data that we've generated that will make public when it's appropriate, is fairly compelling to hospitals that the procedure that we're talking about, CAVT, whether it's DVT or PE -- well [ at ] arterial, it's clearly better and it's much more cost effective. And when you add those 2 things together, it lays the groundwork for the next phase of significant growth.

Let's touch on that on just the CAVT technology. I think -- you're the only one that offers that in the market today, I believe.

Yes.

Who do you see coming down potentially competitive? And then just I think one of the things is with that technology it's software iteration. So you can always add a bigger tube, you're not limited by here just the mechanical aspects of it. Do you see -- if there's any feedback that we've gotten from the physicians is I wish they had a bigger tube per PE. Is that something -- I think if I go back 3, 4 years ago, when you're at 12 French, you're like, yes, we don't know if we can get to 16, now you get a 16 French, is that just hard work and software durations and you'll get to an 18 or 20 or 22. How should we think about that? Is that.

So I think that's a really good question and one that I don't know that there's an exact answer yet. And the reason is this, you say you want a bigger catheter because the perception is you get clot out faster. The question is, and this is what I was alluding to, when you have a large catheter crossing the right heart, you add risk to the procedure that is unnecessary if you don't need it. And so I have yet to hear someone who has a lot of experience with Flash 2.0, for example, say, I really need a bigger catheter because it gets the clot out the right way. It's -- and everyone in Interventional has always said, it's better to use a smaller catheter if it does the same job as a bigger catheter or better. So I am not sure that that's an accurate assumption in the world of people who have already been exposed to actively using Flash 2.0 because then you add that other safety element, which we're trying to avoid. That being said, I don't know if it's early enough in the process and we'll continue to play and innovate like we've done for 20 years. But I think the key is to continue to limit the safety issue is who you're getting the cloud out faster than you've ever done before.

And do you see it -- we've seen a lot of smaller companies that are coming to market, and they're coming with mechanical, more similar to some of your competitors than the CAVT technology. As you see those come into accounts, which I'm -- whether it's a lot or a little. Do you think that you're more at risk? Or would you say the competitors are more at risk? Who's given just the design of the technology and how do you do that?

I have a lot of respect for the whole medical device field and all the companies that are trying to do something that's valuable and helpful for patients. That being said, I think it's a real challenge if I was running a company that had a catheter and an aspiration source or some [indiscernible] grab clot -- at this stage, I would be pretty anxious running that company because I think it's going to be really hard to compete. The computer can do it faster than the human hand can do it. It's just true. I think we inherently know that and we see it in practice. And you sort of ran up to the question but didn't ask of other people coming with computer-assisted version. We have some pretty good patents on that. We're continuing to add to that portfolio. We've already filed some IPR actions that we won, we will be extremely aggressive, obviously, in enforcing those patents. It's the first time in 20 years. We've had a number of patents to enforce. So we might as well. And so I think it becomes harder to compete going forward. That being said, we certainly understand competition and aren't afraid of it. But I doubt it will happen soon.

And then as we look at the thrombectomy business in general, especially on the peripheral side, do you think you get the VTE, the arterial, the coronary, how do we think about kind of the growth of those different areas? Because I mean you're a broader player than most. And so when -- I think a lot of investors bucket all of that into one bucket and don't really understand how diverse it is.

Yes, it's a very -- there are different people typically not always doing those different cases. So arterial is still a lot of those cases are done by vascular surgeons. They do open surgery. Some are done by IRs who do thrombolysis. And then, of course, Lightning Bolt 7 has seen a significant growth in its business. I think that will continue as we move into there. Haven't really -- there's -- I know there's 3 or 4 companies in that space, we don't see much of them. They're not a significant competitive threat right now. And I think that the technology, it will be harder to sort of get a foothold in there. So for us, it's really about the conversion of those patients to the CAVT products. And again, right now, Lightning Bolt 7 primarily is above the knee. Obviously, there's lots of clots below the knee, and that becomes an open field with CAVT technology going forward. So I think we're in pretty good shape with where we are on the arterial side. DVT and PE, again, Lightning Flash is sort of opening the minds of people who didn't convert last year with Lightning Flash 1.0. And again, first, we have to get people to convert, and then we get to do the work that I've talked about with market development. There's I mean just think about it. If you have a DVT, the number -- we're so less than 10% penetrated in people who could have a relatively straightforward procedure and go home and be fine versus wait a month, take anticoagulation, come back, not have it resolved, be too late. All those issues can be resolved by moving that sort of referral pattern to a more upfront. And that -- the data on that is I'm alluding is quite compelling, and it's pretty exciting. We just have to get to the point where we can start that process. We -- I had fun. I went to the first hospital that we tried that out on with this data. I met with the C-suite hospital to discuss here's the data around looking at that across a large number of hospitals in the country, it's quite compelling. Clinically, it's compelling. That's the first step, obviously. But from a profit contribution that's equally compelling, if not more so. And that lays the groundwork then for them to do the work to make sure that the patients in their community are getting the best treatment upfront.

There are 2 things I'd like to add on the last point you made about the market access programs we have. There was a lot more we put in the prepared remarks, this last call. So I would encourage people to go back and look at our words. We talked a lot about it. The quality of those data are important because anyone can do assessments. But it takes a lot more effort and comprehensiveness from a team perspective to do it. Propensity match high quality to do it right so that a see the data in the light they need to see it to change practice. The other thing is about the market question, if you take a step back and look at the complexion of our markets, there is a significant bandwidth across the 3 specialties [ inter ] radiologists, interventional cardiology vascular surgeons. They obviously need to see the clinical evidence, which we're providing them. They also need a system they can rely on from a safety standpoint, speed is very important. But the third S we haven't talked about in this simplicity, the more simple and simplicity requires innovation to get there. Profile, as you know, an Interventional Medtech has always been the thing. It's harder to innovate and profile to get it to do better work and a lower profile. That's where the innovation is, that's what obviously he was alluding to. So -- but the complexion of the market from the standpoint of the bandwidth and the provider community is there to service the rest of the market that we're not currently penetrated into, which is quite a lot.

I think you talked about arterial and you're above the knee and going below the knee. Is that a smaller catheter? Or is that a software change and it sounds like that might be 1 of the 3 remaining, if I can poke a little there.

It's both in terms of changes. And I don't think you have to poke. I think it's pretty clear that lots of people have clot below their knee and taking it out the old-fashioned way has worked up until now, but it's not the same as doing it with CAVT.

Again, an area that profile matters.

Yes. And we have about a minute left. And I just wanted to get to China and then just the whole Immersive Health. In China, a lot of dynamics going on, different revenue streams, just simply like -- what needs to happen to get through this? I mean the guidance, where are we and when do we get to....

Look, we have a partner in China. Genesis has done an amazing job. We have 2 different fundamental revenue streams. And I think our business is going to be in a good shape long term. Obviously, the Chinese economy is not in the same shape that it had been that happens, doesn't usually stay that way forever, and I think we'll be in pretty good shape with the -- our sort of flagship products under a distribution deal going forward. So I really don't think it's a significant thing in the long run, especially as you sort of look at the comps differently. So I think we're in pretty good shape. Immersive, you alluded to, it's a simple thing. We have an opportunity that we didn't have when we first started that, which is looking out at the 1 million-plus people in the U.S., plus the rest of the patient -- the comparative numbers across the world, where we honestly feel we have the tools that are better than ever to go after and help those patients. And that has to be our primary focus. And Immersive Healthcare still -- the products still work. We take a lot of pride in helping the veterans, particularly and the rest of the patients we've helped. But there is no clear pathway to sort of a financial viable model right now. And so we have to focus on the thing that can help the most patients in the short term and midterm.

I think to finish up because we're out of time its just -- with the recent changes in guidance with everything going on, obviously, the stocks fall back, you announced the buyback. What do you think investors are missing?

Look, I don't want to begin to question what they're missing. I think -- I'll answer that question by saying what we think we are. There's a lot of moving parts. We're in a moment of transformation. We went from a company that did one thing to a company that is doing a few other things. And then last year, we launched products that were fairly transformable. I mean different than even, I think, performed better than we had even hoped and we have higher expectations. So now we're in a moment where -- we can't just talk about it. We have to start to show that we can do that work. So I'm not sure anyone is missing anything. I think the work we have to do is ahead of us. And I have a huge amount of confidence. I always have, that we can go do that work. I've also said it's going to take time, and it's just like stroke, it's not a straight line. But the clarity in which we can see that from the conversations we're having in the field daily, is giving us that confidence. And so we're just going to keep going. And look, I think we should end on the most important thing. At the end of the day and my 20-some-odd years in this field, and I think most people would agree, the best products ultimately are what is [ adopted ] and drive a change in the way people are treated. And we are now sitting in a situation where we have those best products. But now we have to show it. And so let's agree that maybe in a year or 2, we'll not have to answer that question because we'll have shown it.

Perfect finish. Thank you so much.

Thank you.