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

All right. Good morning, everybody. Thanks so much for joining us. My name is Matt O'Brien. I cover Medtech here at Piper Sandler, really excited and lucky to have the Penumbra team here with us today from the company is Adam who's the CEO; and then Jason and I thought I saw Cecilia out in the audience. So thanks so much for coming all the way across country for us.

Happy to be here, thank you for having us.

So maybe, Adam, just to start off with some of these new products, I don't know how much you want to share, but I'm really compelled. We've done a lot of work. Dan was on the team as well. It's done a lot of work on all these new products which you have come in, maybe starting with 2.0, what are you seeing? I know it's we're several quarters in now, but what are you seeing in terms of adoption interest level? Is it building? Is it plateauing? Where are we at with 2.0?

Yes. First of all, thank you for starting with my favorite topic, which is just our constant innovation that we've had for the better part of 20 years now. Specifically with 2.0, we were able to build on Flash 1.0, which really was the start-up sort of a new paradigm in removing blood clot and with 2.0, what we were able to do, basically, the best way to describe it is the speed in which it reacts, the computer reacts to being in clot or not in clot. That sort of fidelity is now much greater so that you can open and close the valve faster and therefore, take a lot more clot much faster and have really no blood loss that comes with that. And that really was sort of 1.0 was great. And so people who had used it thought, okay, this is a nice iterative improvement, but it really was for the people who, for whatever reason, hadn't tried 1.0. Their reaction to it has been pretty fun to watch. The case times are really much, much worse. So at this stage, it's by far the fastest way to remove blood clots, both in DVT and PE where we've seen a big shift in interest. And I think that's just building. I think at the end of the day, look, there's been a lot of companies and the field has been blessed to have companies open this field up and to start this field and to show that there might be a better way to treat these patients so that particularly the sixth ones. But even those who have to deal with quality of life for a long time can have a better deal. And so -- but like in anything, you got to keep innovating because if you look at stroke, where we started 20 years ago and where we are today, you wouldn't recognize it and so I think that allows that innovation with 2.0, it really is -- now the fastest, safest product out there. And I don't think we're done innovating. I think we're going to keep adding to that paradigm.

Okay, okay. I kind of want to ask a little bit more about that, and we'll get to that later. So on the blood loss side, what are you seeing in 2.0? And then what kind of progress are you making on the pulmonary embolism side? Because I think 1.0 did really well in DBT like kind of this more greenfield area for you what you're seeing there?

Yes. I think the numbers that people saw this last quarter showed that we were continuing to take relatively significant share as well as spurring the market to continue to grow. So both of those 2 things are important. And I think we'll continue to do that for the foreseeable future. The product is -- just the interest level is really nicely -- is high right now. People -- just sort of common sense. If you can get the clot out with no blood loss faster than what you're currently using. And why wouldn't you use it? I mean, that sort of seems obvious. We don't -- it works so fast that device times are so fast that there isn't time for blood loss if you will. The current product that they're using the older technology takes a lot longer, and therefore, there's time and they have a lot of blood loss that they then have to put back in. And that comes with a bunch of other comments and risks that are fine if you have no choice, but not if we do have a choice.

Got it. Okay. Appreciate that. What about just the growth in the market, generally speaking. I mean do we -- are your new technologies enough to continue to accelerate the market? Or do we need all this clinical data from Peerless 1 and 2 and in store, et cetera, from you guys to accelerate this, I can't get over the fact that we leave all these clots in all the time or we use lytics, whatever it will be. What do we need to really see acceleration?

Yes. So PE specifically as PE, it's different, obviously, DBT where the it's the same product. But in PE, really, we do need the trials that are being run against anticoagulation. Peerless 1 wasn't that trial. I think everyone understood that limitation. And I don't think it's a particularly it's sort of older technology, again, something that was already sort of coming out of favor. As it relates to anticoagulation, which is really the main issue, we're going to have a series of trials, Storm PE and NIH-funded trial in Peerless 2. And I think that is the body of evidence that will allow us to sort of rethink this. It's very similar to what we experienced and saw and participated in with stroke, where you had a different treatment paradigm in order to change that with all the physicians involved in that decision-making, you needed those trials. We had a number of them happen, and then we saw that sort of start to evolve. The benefit though is we don't really have the issue of moving patients that we had in stroke. And that obviously was a huge issue it had a lot of momentum for a while, but it's ultimately what we have to deal with in stroke, which is going to be different here the patients are really at the hospital. So they can be treated. And once these trials come, I think we'll see that shift in PE pretty dramatically.

And the infrastructure is in place with these patients once they're there to go ahead and intervene [indiscernible] stroke.

Yes, there you would have to -- the biggest topic was moving the patients to a certified stroke center.

Yes. Got it. What about longer-term penetrate in DBT and PE and we're -- they're still lightly penetrated. MR CLEAN was obviously on the neuro side, a massive accelerant in terms of penetration. Where do you think these penetration rates in DBT and PE can go over time with these studies and with your technology.

It's hard to say 100% because nothing is ever a 100%. But I think the field is open now seeing the successes as the products have gotten safer and easier and quicker and the technology continues to evolve to really moving in this direction. I don't think it will -- I think it will happen. There's work to be done really at a hospital level in their community within the protocols in individual hospitals. Some of that we've defined as our market access work that we're starting, and that might take a while. But I think it is work that -- we understand what that work is. We understand how to do it. We've seen some trial successes already with it. And just -- it's just sort of the blocking and tackling of changing a paradigm when new technology makes it worth changing. And it just takes some time, but it's -- the positive reaction to the current technology is different than we've ever seen before.

Interesting. Okay. Okay.

But I'm not saying that to get ahead of ourselves. It still takes hospital by hospital, person by person -- we've been pretty clear about that.

Yes. That makes sense. What about the competitive side of things is here -- it seems to me there's a lot of differentiation in what a number of cells to the marketplace, but some people will say, "Oh, you just need a more simplistic aspiration product. It does it need to be all that differentiated -- how do you -- what resonates with clinicians where they're not going to switch over to the next thing that comes along? And then how do you keep pricing stable in that type of a dynamic environment?

Yes. Well, let's talk about the technology first touch on pricing in a second. The technology, there's really 3 mechanisms that you can use to remove clot. And I'm saying 3 as a self-serving thing you'll hear in a second. But they're grabberscraper tools, things that hold on to and grab out stuff. Those have been around since the early days of stroke, obviously. So we have a lot of experience watching what those do, how they work and their limitations. And then their aspiration based system in the aspiration world, there's either syringe-based aspiration or continuous aspiration with an outside pump. But those alone all of those, whether it's a grabber type tool or sort of analog aspiration system. That's what the world has been for the better part of 20 years. And they have huge limitations. So it really is the third category, which is CABT, where the computer is doing the work that the human hand can't do fast enough that has changed that trajectory, that paradigm. And so I think it's logical when you see a market that has so much potential, so much growth and so many willing physicians who want to see that growth happen, that you would come into it with whatever you could come into it. But I honestly think that it's somewhat ironic. There's a couple of private companies out there now selling products that look like what we sold in 2014 and '15 and '16, and we're told they're not good enough for the prime time. I mean maybe the world has changed, and they want to go backwards. I don't see that as a typical.

We don't go typically backwards in technology.

I've not seen that. On the pricing, our pricing is set with in the current DRG to make the procedure profitable for the hospital. We presented some early data showing that in Las Vegas earlier this quarter. And I think that is a critical piece of this. This has to be a profitable procedure if you're asking hospitals to do more and more and more of it. So it has to be better clinically, which we also showed, and it has to be profitable and that becomes a really critical piece. So I think we have the capacity to do really well within that current pricing structure. I don't think you need to raise it. I also don't think there's a lot of risk in having to lower your price, if that was sort of the part of the question in part because of that profitability and then the benefit that you're showing clinically.

Okay. All right. So let's flip over to the arterial side and Jason, we've been covering this space -- having watched as a movie credit count for 20 years on the below-the-knee side, clear clinical need, no question. Nothing's really worked, be it stents or drug-coated balloons or sorry, just traditional balloons. What have you guys gotten right to where it's going to work this time?

Yes, well, so let me -- beyond -- I mean I'll specifically talk about below-the-knee, but I want to make sure that I focus the disease is the right way. So what we are focusing on clot. So we're moving clot weather that clot is acute, whether it's already sort of somewhat hardened up a little, but clot means not attached to the vessel wall, not clot, not a [indiscernible]. So it's not atherectomy, and they're very different. Obviously, with atherectomy, it's a whole different world, a whole different set of tools and players. But with just clot, sometimes they two overlap but they still need different tools to do that. And with clot, again, there's a huge amount of clot that shows up in the arteries in the body. Some of it below-the-knee, a lot of it above-the-knee, even in the to arm sometimes. And having a tool that can just again move that reliably very quickly interventionally is very -- that's a huge deal. Right now, unlike PE and somewhat DBT, those patients are mostly treated by physicians that would be our customers. Vascular surgeons do a lot of open surgery, where they can do a cut down and use a [ pogruty ] balloon to drag out that clot. We've seen people who have done that for years and years start to use lighting bolt 7 and now like in Bolt 6x., because of just how fast it is and again, the safety profile. When you can do a case and the patient sort of like clot is gone and the whole thing didn't take that long at all and the recovery is different than having a whole cut down and risk of open surgery. It's just a different animal. And again, then you add in the economic benefit coming from a higher DRG and lower cost structure, it starts to look like a positive momentum for us.

Got it. How is 6x different than 7x? Is it just the pace of the procedures?

Yes, well, 6x and -- so both of them, lighting bolt 6x, lightning bolt 7x are the similar algorithmic modulated aspiration technology that also was used in Thunderbolt, the technical differences size of the catheter so that it's smaller and can fit below the knee and/or in other smaller arteries. In addition, it has an inner for delivery tools similar to send it in neuro so that you can have access in more distal ways, much easier, which is, again, a point that physicians like they don't want to -- the farther you're going this comes, again, a little bit more of an issue, less, obviously, than in the brain, but relevant.

Isn't this a -- do you think this will be a meaningful contributor to growth next year? I know to get ahead of yourself too much, but I mean, we're pretty bold up on it. Is that a fair assessment?

I think rather than isolate each vascular bed, I think we have to look at the totality of the CVT products that are -- that have already been approved and then will continue to get approved and look at it as a context of over the next years CAVT will be a meaningful part of our growth, obviously, in our company. I think each one has opened up new opportunity. The two newest ones, new opportunities with CAVT as opposed to with sort of more older technology that we had. And so that, by definition, is a benefit. But yes, I do think the growth of -- our growth for the company is looking at the CAVT portfolio as a whole and feeling pretty good about where that's going to take us.

Okay. Understood. Do you get a pricing benefit as you roll out new products? So next generation below-the-knee, that is it going to be higher ASP product?

Well, so yes. When you add CAVT, it's by definition, it's got a higher cost than just a plain catheter because you have a whole computer system in each case. So 6x if you are already using one of our smaller catheters and then now you're using success, that is a price benefit of it.

Okay. All right. Good to hear. Thunderbolts. How are we doing on the progression of getting that product approved where we at?

So the trial finished enrollment just what I've lost track of time a couple of months ago. We said on the earnings call that we will likely finish the follow-up at the end of this year. And once that happens, we'll start the process of looking the data, reviewing it, having core lab adjudicated, all that and then, of course, submitting it.

Got it. What should we think about in terms of timing, the middle of the year, second half of next year?

I appreciate the question and certainly the need and the desire for an answer, having gotten stung on that topic before, particularly with Thunderbolt. I'm going to not be more specific. The work ahead of us is relatively clear sort of -- there's nothing unique about the process of -- it is a 510(k) versus a PMA. So it really is just around the data and once we get that organized and ready to go it goes to the process.

Got it. And not to push too much, but you've been going back and forth with FDA through this whole process. So you've had pretty good conversations with them. So you should have a pretty good sense of what they're looking for? And then hopefully, it will be the 90-day period, maybe a little bit longer for the review cycle.

Yes. Look, I'm excited about bringing that technology. I think the timing is right in neuro as we alluded to on the earnings call, there have been a couple of years of a lot of sort of discussion around larger aspiration catheters, 88 and all and most of those. Whether companies have admitted or not the field has sort of relegated that catheter size to being a guide catheter, which is for the -- for people, this memory, the first 088 guide catheter ever made was made by Penumbra. It's called the Neuron MAX. We've sold over 1 million Neuron MAX most popular neuro guide catheter ever. So we're happy to have some other competitive guide catheters. I think we'll define as we continue to think about that and even update our Neuron MAX it's a beautiful catheter. I just think the field has realized that it's just too big to fit in M1. And I think it's now interested and ready the field is and having a technology like Thunderbolt.

Okay. What do you think Thunderbolt is going to do to the market? What is the market? I mean whenever it comes something in '26. I mean it was kind of plateaued, I think in about 30% penetration in there. I mean do you think you can accelerate growth.

I think there's a lot of different things that the field is now talking about for the first time in sort of post-COVID. And I've become involved in a series of conversations with some of the more senior physicians in the field in the last sort of few months around what do we -- can we do as a field, what can the hospitals do individually or end systems. The very fact that we're having those conversations and really addressing the limitation to that growth and the things that sort of stopped the growth to me is a huge sign. Because since COVID we really haven't had those conversations until now. So the fact that we're having them again and again, whether that's because of new technology, it's just because it's the cycle of like what happens to people in their practice and sort of digging out of what was a complicated time with low staff, traveling nurses and taxes, all the stuff that we all have talked about, it gives me a lot of hope that the conversations are now really engaged. And there's a series of things that the field can do to see that growth go. I think people generally want feel like we haven't finished the work. We have to get -- will we ever get to 100%? Probably not, but we have to get way better than 30%.

Got it.

I think physicians generally feel that way. But I think there's an opportunity here.

Last product question, what inning are we in, in terms of some of the iterations that you've made to your technologies? And where can these things go over the next several years?

Yes. That's a great question. I am without being very specific about where we can go and what the technology can do. We're at the beginning. The I am so intensely proud of the team and the development engineers at #4. Here we are 20 years into it, and we're accelerating our innovation. We've had a number of investors who want to come and just talk to our engineers, not about specific products, but more, how does the company 20 years old have the level of sort of innovation that we have. Like what -- how do we do that? And I love doing that because I don't have to say a word, the engineers talk and I just sit there like, wow, this is so cool. So I have a lot of confidence that innovation and in our 4-pronged strategy that we laid out on the last call, earnings call, innovation was #1. Innovation is definitely going away.

Okay. And last real quick question. Operating margin is going to outpace gross margin expansion, and I know gross margin is supposed to expand nicely. Where is that leverage coming from? on the operating margin side.

Pretty simple, really amazing products that work better than anything you don't need an awful lot of energy to sell themselves.

That good. Okay, so there's that much leverage. Okay. Got it. Got it. All right. Well, I think we're all out of time, so have to wrap up there. Thanks so much. Really appreciate it.

Thank you. Appreciate it. Thank you.