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

All right. Thanks, everyone, for joining the Baird Global Healthcare Conference. We have Penumbra for this session. Pleased to have Adam Elsesser, the CEO of the company, here to join us. I believe you can send in questions, but we have a pretty decent or a pretty hefty Q&A schedule prepared here. So I did want to start off maybe just on some high levels for the past couple of years. You had a new product. I think you've talked about it as one of the most meaningful product launches in the company's history, pretty significant margin expansion over that period, did announce one of the first kind of repurchases -- I believe, share repurchases for the company. But as you look out over the next couple of years, when you think about penetration the different markets, of where you are. I guess, what are you most excited about? A lot of the time we get some newer investors of the story that are new and want to learn more about how you're thinking about growth over the period, how you're messaging over the period? But how should we think about a couple of those pieces?

Yes. Well, first of all, thanks for having us. I'm glad to be here. Really, this is a pretty transformational moment in the company's history. As people know, we've been working at trying to remove clot initially for stroke patients and expanding it across the body for 20 years. It's a challenging technical feat. There are all kinds of trade-offs. There are ways to do it. You either aspirate it out or suck it out or you grab it and pull it out. And all of those have had sort of limitations and trade-offs over the years. And with the launch of -- and it's actually 2 products that launched last year, one in the arterial side, Lightning Bolt 7, and then Lightning Flash and now Flash 2.0. Really, we're -- with those products, we got to the point we are now at a point where those trade-offs are really limited. We can get the clot out faster than anything else. And that's a huge deal. You don't really get to start unless you can get the clot out faster. And then our safety profile is much better than any other technology and/or modality, even non-mechanical. And so for the first time, really with -- we have the ability to start talking about all the patients that we can treat. And that's the -- been sort of the reason we're in existence, that's what we've been shooting for and really at the beginning stages of being able to talk about how do we go get the other 90% of the patients looking at the U.S. numbers that were not yet treating. And obviously, it's incredibly exciting. It's rewarding. It's a lot of work ahead. We have a really great strategy, and we're starting to execute on it. And it's going to hopefully play out over the next 3, 4, 5 years, in a pretty profound way.

I think that 2019 maybe was the last Analyst Day that you set out there, you put the goal for $1 billion by 2023, you ended up hitting that. Just trying to think about how we should gauge the longer-term growth of Penumbra. I look at consensus, right, next billion comes by 2028. It's a 14% CAGR, I guess. You do 12% and you get to 2029. So how do you think about that next $1 billion mark that you're looking to get after?

Well, it's a great question. I'll start by saying I'm batting 500 on projecting out numerically how we're going to do the $1 billion sort of hit right when we said. Obviously, last year, I was less effective at predicting. So I'm going to sort of not indulge in the sort of numerical things other than to sort of really walk through the thing -- the work ahead and the things that we're doing so that people can judge what is the likelihood that we're going to be able to go after this. When you're starting with blood clot in the body, you're already starting with one of the more significant clinical -- acute clinical issues today. That's a big deal. No one has ever said blood clot is a good thing. No one has ever said. I'm so glad you have blood in your arteries or your veins or your lungs or obviously, with stroke patients. So getting it out quickly, getting it out safely are really the critical things, and we're now at a place -- and again, we'll get better and better, products will continue to evolve. We have more things coming, as you know, and in fact, showed up on Monday on the website, but -- the FDA website, but we did get one of the three new products that I've alluded to cleared, and I'm excited about that. It's a product that will be used in arteries below the knee. We're pretty excited about opening up that new area with CAVT, the product by the time we're -- we have product and get ready launch. It will be sometime mid-plus October. So it's not today, but it's coming very soon. And again, that will give us another opportunity to go after more of the patients that we've talked about.

Maybe we'll just stick on that point. Then I heard you mentioned mid-October. Is that a launch? Is that...

We got clearance for getting ready to -- you've got to do a lot of the paperwork to follow up and get the product ready and IFUs printed and all that. So that's an estimate of some time when we think we'll ready to go.

The below-the-knee segment for peripheral arterial disease so when you think about the need or the value proposition that you would have with a -- assuming CAVT thrombectomy product in the below-the-knee segment and the arteries. How do you think about the landscape that's out there? Why do you think that CVAT or CAVT is product that should be going into this market? Can you help us just frame up how we should be thinking about this and the contribution...

Yes, it goes back to the 2 fundamental things that we've said. We think with our experience with Lightning Bolt 7, which is for above-the-knee arterial side, the way that product has worked, how fast we can get the clot out, the safety profile is profound. And we have seen a huge change, obviously, just last quarter. That was the fastest-growing segment of our businesses with Lightning Bolt 7. The need below-the-knee is significant. There's a significant number of arterial patients that have clot below-the-knee, and this just bringing that tool to it. Ironically, the -- if you think about the Thunderbolt in its trial, we're taking a similar technology as Lightning Bolt up into the brain, obviously, taking it below the knee makes an awful lot of sense.

I think oftentimes in below-the-knee versus above-the-knee, you have a smaller anatomy, vessel size, right? So it's more difficult to get into even across sense and atherectomy devices. So can you help us think about why this product is the right one to go after it? And when you think about the maybe installed base that you have today of the arterial segment for above-the-knee, how quickly and easily can you get into the below-the-knee segment with the existing...

If we can get deep into the brain with Thunderbolt, we can certainly go below-the-knee. Again, we are known for our ability to make catheters that can get there and then adding the Thunderbolt technology, the modulated or Lightning Bolt technology depending on which vascular bed you're in. The idea of modulated aspiration, I think, between the Thunderbolt cases together with the 12,000-plus Lightning Bolt cases, we already know it works. It works really, really well. So getting there and the access point really has been sort of our specialty over the years and adding this technology to speed up getting the clot out safely is really needed.

Across DVT or VTE, the neurovascular segment, you've always kind of talked about market expansion, gaining share a bit of price in there. So when you think about the arterial segment, will even go with Bolt but as well as what you could do below-the-knee, I guess maybe it's more market expansion, but how do you think about those three kind of pieces to where the growth from this newer product comes and do you have a name for it yet?

We do have a name. We'll have the word Lightning in it and -- which makes obvious sense. The -- we do have smaller catheters right now that we take below-the-knee, but just basic aspiration sort of like base -- like what is done in stroke. So this will be clearly an additive on those cases. But I think more than anything, what we've seen with Lightning Bolt 7 is opening the door for people, who were doing open surgery or catheter-directed lysis to now feel that there's an opportunity -- a very clear opportunity to switch because of the speed that CAVT brings to the table as well as the safety profile. So I think it's pure numbers, ultimately, it will be more market expansion. Obviously, in the short term, there will be some gain from our existing users.

You talked about the -- I think the -- at the time, there was three or so new CAVT products. This clearly is one of them. So from the other -- 2 more, right, what...

There's actually way more than that the ones that I called out because we have a little more sense of timing. So there are obviously more than that in the future of our company that we're working on, but 2 more that make up the suite of products that I alluded to...

Over the next 18, 24 months?

No, I think what the last update was said something like 9 months or something if I'm not mistaken.

And the other 2 in some other type of vascular bed and existing vascular bed, any way to think about...

Yes. They -- we haven't specified that. And for competitive reasons, I'm not going to be more specific right now. But they do open up the opportunity to go after cases that were not necessarily treating today.

Okay. I want to going more into the VTE segment, but I want to step back first, just around the update to where you are today from the guidance for the full year, 3 to 4 pieces in there that resulted in the lower guide on the Q2. Can you walk through maybe just the timing of when those things kind of popped up and how you get into Q2 and you lower kind of the outlook. Obviously, there's a couple of pieces that are near term. You had the change to the way in which you're thinking about the philosophy for VTE, but just help us think through the timing and the implications for that and what you baked into that kind of...

Look, obviously, we called out specific things with CE mark in Europe and which we had hoped for much earlier in the year, and that's been resolved. So it will be helpful tail end of this year and into next year as expected when we made that guide change, China, which is really just the ebb and flow of what's going on there in a small bit for immersive. The rest was really focused just on the fact that I got ahead of ourselves. Last year was a crazy transformational year with the launches of both Lightning Flash and Lightning Bolt 7. And around this time, I leaned in more than I should have. And we spent the better part of the year, just talking about our guide and all of that instead of the substance of the business, which, again, is totally my fault. So by doing that, I think we've allowed room for us to be clearer about what our outlook for the business is and how we're going to go do it, the work we have ahead both in terms of market access and share gain and how do we think about these products and their performance and how this field develops. And I think that's been helpful. People have seemed to respond pretty positively.

It sounds like China and U.S., right -- or sorry, OUS have the opportunity to reaccelerate next year off of what -- now clearly is a lower number this year. When you think about the '23 to '25 for pure U.S. thrombectomy, you do have a tougher comp still in the back half of the year. I think it implies 20%-ish so growth in the U.S. thrombectomy segment. So how did you take into consideration what maybe the market implications are, the share gain, implications are? I think you talked about how price no longer really is a tailwind. This is all volume growth at this point. So just help us think through that kind of back half U.S. thrombectomy segment.

Yes. We have a lot of momentum. Obviously, in the arterial side, we saw a significant growth in this last quarter with Lightning Bolt 7. Obviously, in the fourth quarter, we're going to have at least part of the quarter to have our new product. So that's positive. And then on the VTE side, on DVT and PE, we're seeing a lot of interest with Flash 2.0. It's really an opening, which I think is significant because we now have a product that objectively gets the clot out faster in those vascular beds than any other modality and/or mechanical product. And that's the first step in any case. Can you get the clot out fast? And if you can, then you get to have the next conversation, which is, "We can get the clot out faster. And we don't -- if you're already inclined to use a mechanical tool, we get it out faster without the same safety limitations that our biggest competitor has." And that's not to say -- that's not a negative comment. That's not a competitive comment. I guess it's technically competitive. It's just a fact. We don't have the same warnings in our label that they have for a reason because the tools are different. And that's just something that people should know, as doctors are making decisions and learning new technology. They need to know that. So we don't have to worry in the same way about cardiac decompensation. We don't have to deal with shed blood and all of the information and data that says it's not a good thing to put it back in. We don't have to worry in the same way because we're not pushing the boundaries of what our own contraindication say around while adherent clot on the DVT side. So those are just -- those are facts. Those aren't mean statements. It's just relevant to talking to doctors about what's actually happening. And I'm somewhat amused that there's this idea that somehow that's competitive chatter. It's just facts. Anyone can verify them pretty quickly. So we have to have those conversations, and doctors are raising it with us. And they're realizing, wow, I can get the clot out really fast now without those safety issues. That's a good thing. That's what we want. That's what everyone is trying to do. And I think it's a pretty awesome moment for the field to have the innovative technology that we've developed.

I know you got asked this on the Q2 call, but if we look at kind of the exit rates in the second half of the year, around 10% for the total business. We talked about China, right, the OUS, thrombectomy segment, right, appearing clear to reaccelerate next year, maybe deceleration in U.S. VTE, but still maybe on a strong number. So as you've gone from some of those thoughts a month ago or so, how are you thinking about -- I know you're not going to give any comments on the number for 2025, but just thinking about whether or not acceleration off the back half still is possible even with some of these newer segments that are coming online?

Yes, look 2024, we had a couple of headwinds that were unique. We talked about the China one. We've talked about on our embolization business, which is primarily a business focused on the vascular side, our access business, which is primarily a neuro business, exiting certain markets OUS because of we weren't -- we were sort of losing money as reimbursement in certain countries has gone down over the years. Always hard to do that because we have other business in those countries. And so when you exit, you have to sort of do that, but we decided this was the year to do that in certain countries. And so when you add all that up, we aren't going to have those same headwinds in 2025. And we're going to have the benefit of some of these new product launches that I've alluded to. Flash 2.0 is 1 of them, and we're seeing the benefit of that pretty dramatically. So we're set up, I think, for a pretty good year going forward. We hadn't -- we're sort of -- the second half of the year really starting to get going on some of our early work on the market access that I've delineated before so that we can start to set ourselves up for growing the market in 2025, 2026 and beyond. So I think we're -- without putting numbers on it, qualitatively, we're set up for, I think, a pretty good run going forward.

The international U.S. embolization access businesses get a little bit less airtime than the other segments, but how do you think about those markets in a steady state? Are they mid-single-digit growth, high single-digit growth when you think about the next 3 years. What does that look like without some of the moving pieces?

Yes. I mean -- so stepping back and just talking about our embolization access business and sort of what is it. I think it would be helpful to sort of walk through that and I think the answer becomes obvious. So if you look at our neuro access business, when we started Penumbra, back in 2004, it's a long time ago, there wasn't a product that didn't exist any neuro designed access tools or guide catheters. Anyone in neuro, who were doing procedures, were using products designed primarily for the coronary and using them up in the brain. So we designed size specific products, right lengths, and really sort of built that whole franchise in that business in the neurovascular field. And we've stayed pretty on top of that. And we've had this year, another launch, a product called MIDWAY that is doing really well in the access category. So I think that business has given us a great foundation. We're known for throughout the world. People like our access tools. And again, not every country is reimbursing appropriately for us to be in those markets, but I think we have a pretty significant share and are well known for that. Is that growing? It's definitely growing. Is it the kind of market we're talking about all neuro procedures so it sort of grows with the market? Not something that can somewhat grow independently. And it will continue to do that, but obviously, not as high as the possibilities with thrombectomy, where it's just dramatically underpenetrated. And the same sort of goes true on the embolization business, which is primarily a peripheral business. The products we are selling initially started out with a neuro focus. And as we moved on, folks realized that the coils, which are primarily bigger in diameter, longer than a lot of coils and softer, have unique properties that are really valuable in the peripheral space, particularly. And we've just added to and built unique shapes and sizes and so on over time, where they're just valuable. And that market is growing, but again, more steady state. It's not going to grow at -- it's a penetrated market where we have pretty dominant share. It will continue like we've seen over the past couple of years to grow.

On the U.S., I guess, VTE, thrombectomy segment, our assumption at this point is the market itself high teens, maybe somewhere in the low 20s range so far this year. When you think about your position in DVT/PE, the opportunity out in front, maybe more so in the PE space than in DVT, but can you help us think about how you're thinking about the next two to three years from a market growth adoption perspective? You have new trials coming out in the next couple of years as well as from your competitive perspective, how we should think about the share gain potential in PE and also DVT?

Yes. Well, let's start with share gain, and then we'll talk about market growth because I think both are slightly different and both matter. Focusing first on DVT. I think we've seen over the past year-and-a-half, really two years, a significant shift already in share in DVT. I think that we're going to continuing -- we'll continue to educate. And I think given, again, some of the issues and the safety stuff with our competitors, we're going to continue to see a share shift there. Again, that's not a negative comment. It's just a practical comment. If you can get the clot out and not have some of those downsides, that's a better thing. I think DVT has a slightly different pathway to grow. There aren't the need for randomized trials at this stage in the same way as PE. We already have a pretty good sense through the ATTRACT Trial even though it wasn't a positive outcome, the iliofemoral DVT benefits typically. So that's a huge chunk of patients there. It's really the market access work that now kicks in. Now that we have such a significant share, hospitals are engaging around that work, and that will continue to drive it. On PE, obviously, we started the year with a much lower share than DVT. I think Lightning, Flash 2.0 has proven to get the clot out faster and as, again, more and more people try it. And again, that's not nothing. You got to get people to stop what they've been doing in the last couple of years and try something new. But as that word is spread and as people are opening up their mind that the clot can come out much faster, I think it becomes a solid base to take share and then the market access work kicks in from there. The trials are significant. The trials -- the first trial that our competitors running is really a slightly different trial. It's comparing sort of two experimental things sort of not the standard of care so much. It's their device versus catheter-directed lysis, if I'm not mistaken. That's not going to be bad. It will, I think, helpful for the field. I think the real trials that will come in the future in the next couple of years are the ones that are comparing against anticoagulation. And I think those -- I'm pretty excited. We have one competitor that won -- NIH has one. There's a number of them coming. And I think that will help beat more akin to the stroke trials. I do want to just remind everyone, you remember this, during the stroke trial world, the -- ultimately, the best product as it kept getting innovated was what won. They're not very product-specific trials. And again, most of the trials in the short world was not our product, not even our modality and we obviously came out on top. And large reason, because the things that I have said before here, getting the clot out faster is important, true in stroke for this and doing it safely, again, true in stroke for this. Those are the things that ultimately sort of win the day. And I think all of us would agree we have been treated those are the things that we'd want. And so I think our innovation puts us in a good shape for that field, too.

All right. We've got 2 minutes, and I want to spend some time on neuro, but just a last one on VTE. I think in DVT, U.S. share maybe closer to 50% or so, maybe half that or so in the PE segment. Do you think the portfolio you have today or with Flash 2.0 that your share of the U.S. throwing back to your marketing PE should be closer to what it is in DVT?

Yes, but I'm not going to be satisfied with that.

Okay. On neurovascular and we got 2 minutes left here. So the growth in this segment, I think, relative to our expectations, for Penumbra itself has been coming in a lot better than we had anticipated. The competitive landscape out there is there, and it sounds like that's a market maybe that's a mid-teens type grower. When you think about what Thunderbolt can do relative to the growth that you've already seen with SENDit, how should we be thinking about this maybe above-market growth over the next couple of years for neurovascular?

Yes, I think we have to wait and see. Once Thunderbolt has the enrollment done, we can get into a discussion more about that. But I'm optimistic just how the pace of that's all going, and I'm getting pretty excited about it. I think the bottom line comes down to the same thing. In stroke, we saw a lot of private companies come in, all of them with very similar technology, sort of guide catheter size products, these [indiscernible] products. We have a guide catheter of that size and have for many years. It's a lot to push up into the M1. They don't really fit all the time. And one of the data sets that was presented at the SNIS meeting, showed that it doesn't even get to the face of the clot the majority of the time. And so I think that's a limitation. And I think the field sort of realizing, okay, we went one step too far with this and now we really have to focus on the technology that we've had. I think Thunderbolt will add to that. I think having as many people try our catheter -- our RED series with -- particularly RED 72 SENDit really sets us up great for Thunderbolt when it comes.

Okay. I had one more, but I think we're out of time. So we'll stop it there. Thanks again.

Thank you. Appreciate it.