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

All right. Welcome back. I'm Larry Biegelsen, the med tech analyst at Wells Fargo, and it's my pleasure to host this session with Penumbra. With us, we have Adam Elsesser, the Chairman, President and CEO. The format is going to be fireside chat. If anyone has a question they want to ask, just raise your hand and we'll come around with a mic. Adam, thanks so much for being here.

Yes. Thanks, Larry, for having us yet again. Appreciate it.

So Adam, let's start with a big picture question. You set a goal of $1 billion in revenue by 2023. You clearly achieved it. Broad strokes, how are you thinking about Penumbra's next billion-dollar revenue growth, and how do you get there? Of course, I'm not asking for growth rates, just the drivers.

Yes. I think that's really the key question, and it's not just the $1 billion, but I reframe it as how do we go after and what do we do to ensure that the almost 1 million people, if you take into account stroke, 800,000 plus in just the peripheral vascular beds who aren't getting mechanical thrombectomy with our system, can get that over the next number of years? So what are we doing to do that? What's the strategy? How are we going to execute on that? Because that really is the fundamental driver of the next number of years, not just sort of in billion dollar chunks. And we've been outlining that at length, did it on the earnings call and in subsequent meetings, and that's really the essence of what the next number of years look like.

Got it. All right. We'll drive -- jump into the growth drivers. But first, on the guidance, you lowered the '24 revenue guidance due in part to a more conservative approach. What is management's current approach to guidance? And why has it changed?

Well, I'm going to say this somewhat tongue in cheek because it's you. It's to not do what I did on this very stage last year. That's our fundamental approach. Look, last year was a transformational year. We launched the 2 most consequential products we've ever had. The level of interest and excitement, the feedback -- it was hard -- it was different. It was hard to sort of put your hands around, and I was a little too optimistic last year and leaned into it. I've since said let's not do that, so we can focus on, in all the conversations, everything else that is going to drive the growth more substantively. So I think we learned from that. We're here to now talk about all that other stuff.

Got it. And we'll definitely get to the other stuff. Just a couple of more guidance questions. You lowered the guidance by $60 million due to a variety of factors. How much or any of it do you get back next year? So for example, $20 million in China, $15 million from Europe.

Yes. The way we framed it rather than, again, quantifying everything specifically, is that what we faced this year in terms of headwinds, whether it's this issue with China, which is very, hopefully, short term, the slight delay in the process around the CE mark, which has been resolved. That was somewhat easy -- not easy, time consuming, but now resolved. All of those things were headwinds. We also got out of some markets with our embolization and access business that weren't profitable anymore. So we don't face some of those issues next year. And so what we've said is we expect next year to have a different set of comps and a different sort of trajectory based on that. I'm not quantifying it, I'm not going to, but those are things that aren't known to us to be headwinds next year.

You talked about the SKU exits, I think. I guess I understand you don't want to talk about specific markets. We've talked about this before. But are you willing to provide an aggregate number of how much that's impacting 2024 so we can evaluate the underlying business?

Yes. The way to think about it is this, and I'll give you a little color and then really talk about it. So every country has different reimbursements. Some countries, for example, if you take our embolization business, reimburses it per product or per coil. In those situations, it's hard to compete because our coil is very different. It's much larger. It's much longer, in many cases. In the U.S., for example, we -- reimbursement is done on a DRG basis, and so the dollars play out differently. We're actually a better cost alternative. We use a lot less coils, even though our coils cost more per coil because there's an awful lot more platinum in a much larger, longer coil. So the underlying business, to answer your question, both in embolization, which is primarily a peripheral business, and access, which is primarily a Neuro business, those are really strong. We have fairly significant dominant share in both. That share has continued to grow. Those markets aren't growing at the rate we expect thrombectomy to grow, but underlying, they're in really good shape. And I think we showed that this year, where we had competitive launches in the U.S. It took some energy in a quarter to react to that, and I think we've shown that time and time again, we can do that. So that business is great. It's something we're very proud of. We help an awful lot of people with these uniquely designed coils that are not sort of easily interchangeable with other product, and we're pretty proud of it. That being said, when you compare the growth opportunity in both of those businesses to the growth opportunity ahead in thrombectomy, obviously, thrombectomy has a much bigger opportunity ahead. So we're going to spend more of our time, and more of our growth will come from thrombectomy.

Right. But in terms of quantifying the SKU exits at the beginning of the year when you guided, it looked like it was about $40 million. And does that -- is that close?

Yes. Again, let's not go -- I don't want to speak off the cuff. I don't have that number in my head the way to be accurate enough, but it is not the same headwind in next year that we had this year. And so it's a little bit different comp next year.

All right. So transitioning to the thrombectomy business. The U.S. thrombectomy business missed street estimates by about $5 million in Q2, and you lowered that guidance by about $20 million. Why was Q2 lighter? And why did you lower the guidance? I mean that's your key growth driver.

Again, so we're almost 10 minutes in and we're still talking about guidance, but I'm happy to answer that question as best I can. What -- we obviously launched Flash 2.0 a little later, which I said on the earnings call, in the quarter than not. We obviously had some attention focused on the coil business because of the competitive launches. None of that, given the scale in our minds, was something for us to worry about. When you look at the component that we talked about, our arterial business grew in the high 30s, which is pretty good. Our VTE business, even without the Flash 2.0 there the whole quarter, outgrew our competitor substantially, obviously. And our stroke business grew at 19%. So we did pretty well on an annualized basis, and I feel pretty proud of that. I think moving forward, we've laid out a process and a guidance that is slightly more comfortable, and most importantly, and this is what I think we have to remember, is we have -- if you look at -- in peripheral, we can talk about stroke as well, we have the best product on the market. The product that takes out clot the fastest, that's critical. You don't get to go the next step if you don't take out clot the fastest, and the product that has the best safety profile. And I think that's what's clear, and you're seeing doctors talk about that a lot. Not every doctor yet, because we don't yet have 100% share. If every doctor was talking about it, obviously. But a lot are, and it is happening where we're seeing that movement. Again, not to get ahead of results, it's doctor by doctor, person by person, but it's happening. Because at the end of the day, the best product, the best product almost always gets the most usage. I think that's fairly obvious.

So you had a good Q2, still growth rates-wise. U.S. -- well, U.S. vascular thrombectomy grew around mid-20%. You talked about venous and arterial each up in high 20s, and coronary growing low double digits. So before we talk about Neuro, what's driving -- what's the outlook for the U.S. vascular thrombectomy business?

Yes. So let me maybe spend a minute walking through what does that look like, what are physicians saying and reacting to? So what I've said is that when you use Flash -- start with DVT and PE. When you're a first-time user of Flash 2.0, you did not use Flash 1.0, you -- the doctors are having a fairly significant like positive reaction to the speed in which the clot comes out compared to what they currently use. It's a faster procedure. That's not up for debate. If people who haven't used it say it's not true, it's because they haven't used it. If they have used it, I am not aware of any -- I'm sure there's somebody, but a significant number at all who have not had an incredibly positive reaction to how fast the clot can come out. And that really matters. The shorter the procedure -- if you can get the clot out in 10 or 15 minutes in what otherwise is the case that they're used to spending 45 minutes to an hour, you're going to notice that. And it's ultimately good for the field and for the patients. So that's the first step. For people who had used Flash 1.0, they certainly like 2.0. It's a nice iterative improvement, but they've already understood the benefits of using CAVT in those cases. So that's the first and most important step. So that's where we start. But then the next step, and we had this conversation way back in the day around stroke, and I think you remember it. You have to also talk about what trade-offs you now don't have. And that's where some of the discussion around what are the safety benefits of this. We don't have, in our IFU, the same qualifications or contraindications or warnings around some of those issues like cardiac decompensation, the putting blood -- the need to put blood back in, because we don't take a clinically significant amount out. And on DVT, the idea of interacting with the wall of the vein in a way that isn't appropriate. Those are not things we have to deal with. So we talked -- the doctors respond. Now if you have a product that takes the clot out better, you might tolerate some safety challenges. That's normal. That's sort of how innovation works. So there's no judgment in that. It's just the process of innovation. But now that we have a product that can get the clot out faster and it doesn't have those limitations, that's something that doctors are talking about. And I just find it interesting that doctors talking to each other about what is best for patients is somehow a bad thing. Like, God bless, like that's what we want doctors to do. I'm incredibly proud that doctors are doing that, and we should let them figure out what's best to do. That seems to make a lot of sense. And in a field like this, we want to keep innovating. We don't want to stop, and we're going to keep innovating. We got a lot more coming. We have some new products coming. I think that will be fun. You'll be all over that, because you usually find them first. And I can't wait to extend the reach of CAVT to other vascular beds or to expand the number of patients in certain vascular beds we can treat.

It sounds like we should check the trademark database or...

I didn't say trademark database, but whatever you -- I was alluding to your historic ability to be the first to know when things are ready to go.

All right. We'll keep looking. Adam, that's helpful. I mean, clearly, you're the market leader on the arterial side, and that's Bolt. On the venous side, you've gained more share in DVT than PE. You've said that before.

Well, historically. I don't expect that to -- I think we'll catch up on PE.

So you feel like with Lightning Flash 2.0, you're catching up.

No question. I mean we've got a ways to go, but we're definitely seeing some progress.

Yes. I mean I think at JPMorgan, you gave share of numbers of DVT and PE that was catching up.

That was 9 months ago, yes.

And you talked about the competitor issues. I guess there's 2 issues. One is the ClotTriever XL issue, and then the FlowSaver issue. You alluded to both of those. Which one is having more of an impact in the market, from your perspective?

I don't -- it's not in my place to talk about other companies' products per se other than for us to be able to talk about the benefits of our product in comparison. I mean that's sort of what companies do, as you know. And so that's what we're doing. I think those are real issues. It's not me saying something. I find it interesting that it's somehow an opinion or competitive noise. They're factual things. They're in the documents. They're in the literature. They're in their own data that they support. I don't think it's a debate. It's just factual. And I think doctors are understanding that. Again, not everyone all at once, that would be a lot, and it's not sort of how information travels. But over time, I think doctors who are spending the time to look at it and discuss it are understanding those limitations. And so I think all of it adds up to a question of going back to the most fundamental thing. Got to get the clot out fast, and you got to do it safely.

And PERT is next week. That's a big meeting.

I'm excited about it.

What are you -- what do you think will come out at that meeting that's noteworthy?

I think it's a forum to put a bunch of physicians together and have them talk about what is the right way to treat patients. And I think any time you can do that, patients benefit.

And I know you want to talk about your own product, but returning -- what is unsafe about returning blood to the patient?

Well, let's start with our own research. And this is, again, about us, because I think it's important to start there. We did a ton of research almost 10 years ago. I can't give you the exact time. But we had catheters and pumps, and we needed to get bigger to be effective in the venous side. So we did a ton of research around, okay, well, if you're sucking out clots from those locations and the catheter has to be of a certain size, what are we -- that's too much blood coming out. So what do we do in order to protect against that? And we did a ton of research around putting shed blood back in. Could you filter it? Is it damaged? Is it whatever? And we concluded that, for lots of reasons, that it wasn't a good idea. It wasn't a good idea because of standards that had been promulgated in other fields. It wasn't a good idea as to what happened to the blood. And so we moved away from it and didn't pursue it. And then we pursued CAVT, because it was a better way to not run into that safety issue. So we know that intuitively from our own work. But then if you just look at the work outside, and again, it's available for others to research. I'm not going to publicly sort of lay it all out against the competitors' product. But it's all available, why one would rather not do it if they didn't have to. And the fact that it doesn't help and it could hurt, I just think you have to ask, why do you do it then? And I think the answer to that is really the more important question. But again, I'm not here to talk about other people's products.

Got it. So the 3 new products you have coming of CAVT, does that still include one this year?

Yes.

Okay. And the only thing -- I feel like the only thing you really said on the new product is other vascular beds. I mean people have interpreted that to mean below the knee. That's about the only kind of, I think, clue you've offered. Is that fair?

Yes. One of them is definitively below the knee.

Okay. The other 2 are -- remind me again?

Other products. But they're peripheral.

You have said they're peripheral. Okay. How are you thinking about the market growth in general for peripheral? There's a ton of studies going on, like 7 outcomes trials, randomized controlled trials, including one of your own. Do you think these trials are going to just kind of keep the kind of trajectory of, call it, 20% growth for the market, or we could see an inflection?

Yes. So I think -- the randomized trials are mostly in PE, where having -- again, the ones that matter are the ones that randomize against mechanical thrombectomy versus anticoagulation. That's the question. Other randomizations aren't really the key question. So I think we have -- they won't be bad for the market, but they're not the same magnitude. So we have to wait until the series of trials -- and there's us and obviously, our competitor, and then there's an age -- lots of those trials that are randomized against anticoagulation. Those, we'll see come out in a couple of years, hopefully, that's the time frame. And I think it will have an important -- I think the market will still grow until then in PE. But in the other vascular beds, DVT and arterial, it's less about a randomized trial and more about doing the groundwork that we're doing now and starting earliest days of really working with hospitals and hospital systems around looking at the datasets that we now have from 2 different GPOs around clinical outcomes of us compared to anticoagulation and thrombolysis and open surgery for arterial and then also looking at the health economics of it, and then laying out sort of a plan for hospitals to do work as opposed to us, that will bring in and change the treatment paradigm for all those patients, the 90% that we're not treating. That's just work every day. Lots of different places to go, lots of different people to talk about it and get that work started. That's not a 1-year project. So the inflection point coming from that work is more just steady, good growth. Not small growth, but good growth over time. You might hit some inflection point there where you've done that work enough, then it accelerates. That's premature to be able to talk about that until we know. What I am heartened with, and this is, I think, the best thing, is the early conversations. And I've been -- I was at the first one. I've been hearing direct reports as the team has done multiple conversations. This is typically with C-suites of hospitals and hospital systems. The reaction is incredibly positive. It really -- they're not surprised. They kind of get it. They're, I think, surprised at -- positively surprised at the difference on the health economics and how beneficial it is at a scale that I think even they are a little surprised at, in a good way. But no one's really disagreed and challenged it. It's intuitively where they thought it would be. So then they just have to get to work, and we help lay out a good plan. And again, that just takes time, but that's how one goes after the rest of the patients and brings the technology to them so that they can be benefited.

Just to go back to PERT next week, you're not aware of any like new data coming out there, positive or negative. It's more of the physician just discussion that you were alluding to earlier? I looked at the program, it's not obvious. There's no...

Yes. So I don't want to oversell information that will come out. So I mean, I'm going. I think it will be really interesting.

Got it. Is there a specific day we should be there? And you made a comment earlier about Lightning Flash or Lightning Bolt in Europe. Is there any change there in terms of like CE mark approval?

No change. It's just we had hoped to have approval sometime like in the second quarter or early second quarter, so we have a good year, almost a year. The issue that got stuck has been resolved. And so I think we're in really good shape right now.

Okay. So you haven't announced a CE mark for those products.

I have not announced that.

Okay. Got it. All right. So turning to Neuro. You had a strong quarter in the second quarter for U.S. Neuro, about 20% growth, I think. The market has gotten pretty crowded. And the interesting thing is we're seeing -- so Adam, there's 2 approaches. It's kind of like stent retrievers, and you pursued aspiration. Now we have these aspiration companies pursuing large bore aspiration devices, right? 088. You alluded to it a bit on the call. You're pursuing cyclical aspiration or you call it, I think, something else. But there's companies pursuing that, like you, and there's companies pursuing these large bore catheters. Why is Thunderbolt a better approach?

Yes. So let's just sort of go back to -- first of all, cyclical aspiration refers to the idea of turning a pump on and off. That's not what we do. That doesn't do anything. Modulated aspiration, where you're using the combination of aspiration and non-pressurized saline to open up and do it at a rapid pace is what we do. I'm not aware -- there is one company that has that idea. They obviously have lost 2 IPR actions. There was a third one filed. So we'll see how that goes. Again, we have some pretty good patents on this topic, and I don't expect to see a ton of followers based on where we are with our current patents. As it relates to large bore, that was an idea that probably was one step too far. If you're a company saying, "Oh, let's compete with Penumbra. We have to make a catheter that's slightly different. Let's make a little bigger one." And I think they went too far, because the catheters don't typically fit in the M1. And that's just the physical dimension. The literature says the average dimension of an M1 artery is 2.3 to 2.5, roughly. An 088 catheter is 2.79. So by definition, it's a little too big. But like everything, people try it and they get excited and this, but at the end of the day, what we saw at SNIS last year is the reality of that setting in. The fact that it doesn't get there most of the time. It doesn't actually bring the same results, because people sort of forgot about the science of aspiration. How does aspiration actually work? You can't be occlusive and still aspirate. Aspiration happens because of the pressure differential. And so it is -- I think we're seeing those products be less interesting to most physicians as the reality of them are setting in, and I think that's helping our business grow, and I think it will continue that going forward. And so then if that's not the viable solution, then what is? It's a better catheter than we make. And fair enough. I'm always open to be challenged, to compete with people trying to make a better catheter than we do. We have a pretty long track record of doing well in that competition. We add Thunderbolt to it, it becomes a challenging barrier. But if that's how stroke ends up fighting, I think we're set up pretty well in that dynamic.

So you think basically, they're too big, they won't be able to -- they can't...

We -- I don't -- it's not me. Again, please don't keep saying -- I'm just telling you the facts. Like that's the size of the artery, and that's the size of the catheter. You tell me if you would want that put into your M1. I don't know. Like I don't really want someone stretching my M1 if they don't have to.

Makes sense.

Please -- I mean, that's not me. It's really important to keep to facts here, not opinion.

Adam, we ask you this all the time, but time line on Thunderbolt. There is -- you've got public database out there. The company -- I believe the companies are responsible for updating it. Some update it regularly, some don't. But your update, the clinicaltrials.gov has the THUNDER trial ending in March 2025. Any commentary if that's up-to-date?

We will update it -- we have an obligation, obviously, to -- we can't predict, and the last time I tried to, I was slightly wrong because things changed. So we obviously have an obligation to update it when we finished enrollment, and we will do that.

Okay. And you're happy with the pace of enrollment, it sounds like?

Yes. Very.

Good. And what kind of impact do you think Thunderbolt could have on your stroke businesses? Should we be thinking about the analogs for peripheral?

Well, it's a 2-step process, as I've said. So if you're already using our catheter, I think people are going to find it very helpful. There maybe people who decide to not use it in every single case, but I don't expect that. There have been some people in our trial, for example, who were somewhat skeptical who are incredible converts now and will use it all the time. So I have a lot of optimism of that. For those who aren't using our catheter already, then we have to do the 2-step process, and I've laid that out for a while, of first, having them want to use our catheter and the trackability, which now with RED and SENDit I think will give them that comfort, and then, of course, want to use Thunderbolt. But there's a lot of excitement around it, and I think the thing that gives us a lot of confidence, and I think that gives a lot of physicians a lot of confidence on the neuro side is that the technology is basically the same as Lightning Bolt 7. Lightning Bolt 7, we've done, what, 25,000 cases already. It's not -- even though we're running a trial, it's -- this is not untested. Like we've done a lot with this technology, and it really works. And I think that gives the whole field some comfort that this isn't novel. It's new to neuro, but it's not new to taking out clot in the arteries.

Adam, I'm going to go back to peripheral, if that's okay. We don't have perfect information, but we try to look at your share gains within -- in venous, and you gained a lot of share over the last year, but the share gains seem to have slowed a little bit in Q2. The question is with these differences you talked about between your product and competitor products, do you think your share gains can reaccelerate?

Yes. The right answer to that question, and it's a totally fair question, and it's probably what I know intuitively and I got in trouble with last year, share is not a linear process. There's a process. You can't look at it and say, "This is their share gain and they're going to just map that out in a straight line." So it doesn't happen that way, because it's doctor by doctor, person by person, and that process is a little harder to predict quarter-by-quarter. When you look at the whole year, yes, you're going to see a different number, but we unfortunately measure it on a quarter-by-quarter basis. I am feeling incredibly confident -- again, not to get overconfident, not to project that I don't understand the hard work ahead. I do. But again, going back to the most important question, when you have a product that gets the clot out fastest and you don't have some of the same safety limitations of the current technology, you will ultimately do really well with that.

So Adam, so let me ask you. We've done surveys, two, I think. In the last year, we've talked to doctors. I understand your perspective that returning blood might be -- is unsafe, okay? But there's still some doctors who think that your product...

I just -- I knew this -- it's not my perspective. It's a fact. Just please, come to PERT, come other places, talk to people. It is a fact.

Are there still physicians out there, because we see it in our surveys, that still...

Obviously.

Are concerned about the blood loss with Penumbra product.

Anyone who has used our product with Flash 2.0, I cannot imagine, unless there's some weird reason, that they would say that. It is not true.

So it's just people that have not tried it yet. Okay. And that's fair. I'm sure not every doctor has tried it.

Well, if every doctor tried it, we wouldn't be talking about share. We'd have it all. So we'll leave it on that note that our goal is to get everyone to try it. Because so far, when you try Flash 2.0, it might take a little while to deal with it, but you are going to switch.

So the concerns people might have had in the past about blood loss, that will go away, if you will, when they try...

Well, it's just not true. It's not true. There is not an inappropriate amount of blood loss. In fact, it's the opposite with the product that you're talking about. That's why they have to put it back in. That's the reason for it, that they put it back in because there's so much. It's a very interesting dynamic, isn't it?

I didn't have a chance to ask you about 2025, but maybe we'll skip that this year.

Perfect. Thank you. I appreciate it. Thank you, guys.

I'll let you off the hook.

Thank you.