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

Happy to have our next session presenting Adam Elsesser, CEO of Penumbra. Adam will do some presentation with slides and then Q&A afterwards. Adam?

Good afternoon, everyone. I want to obviously thank JPMorgan for inviting us and of course, Robbie for his great coverage of us over the years. This is our safe harbor statement. Just a little background, for those of you who don't know. Our company is headquartered here in the Bay Area right across the Bay Bridge in a wonderful community of Alameda. We have around 4,500 employees worldwide. Our products are currently manufactured right here in California, in both Alameda and a few hours eastward in the town of Roseville in California. And our products are available in about 100-plus markets throughout the world. We've been in business for -- we're entering our 20th year. Our business really is focused on 3 areas, and I want to touch on them all, but do a deeper dive, of course, on thrombectomy. We have an embolization business, which we've had for quite a while. We, of course, have our thrombectomy business with led now by CAVT platform and then our access business. I want to sort of walk through a little bit more detail around the embolization and access business because we tend to not sort of explain that in a lot of these settings. So I wanted to do that for a touch. Our embolization business crosses both our neuro and our vascular platform. It's though primarily in terms of just volume of revenue in the peripheral space. And the technology really is known for being sort of larger, longer, softer than other coil platforms. And that's been what has allowed us to sort of have -- sort of the market-leading share in that market. This is sort of a list of the variety of actual product categories and names. They differentiate a little bit based on size and properties. But what I want to say is that, that business has done incredibly well. It's created, of course, a ton of loyalty. It works really, really well and sometimes very, very complicated cases. And we're not done innovating there, too. We've spent a lot of time talking about innovation in the other areas, particularly CAVT and thrombectomy. But we're not finished innovating, and we think we can continue to make better and better tools on the embolization side as well. On the access side, that's primarily a Neuro business. Some private companies in neuro now combine access and aspiration catheters, there -- we don't do that. They're really 2 separate things. And access catheters are basically what we all used to call guide catheters. It's sort of the basic starting point of most interventional procedures. We -- many, many years ago, it was actually our first commercial product, made the first specifically-designed neuro guide catheter. Prior to that, neuro physicians would use primarily coronary guide catheters since that was the only thing available. We've since broadened that offering and I put down there Neuron MAX 088. That product we made the first 088 guide catheter in, I think, it was 2011, maybe it was '12, but many, many years ago. And that product has been a mainstay of sort of the access or guide catheter market for the better part of a decade-plus. We've sold over 1 million units of that product over the years. More than any other product in the company's history. And I say that because in the last couple of years, there's been obviously a lot of talk about "super bore larger aspiration catheters," which are now sort of being retooled to be guide catheters. And I think a lot of folks who don't know the history know that our place in that market, our capacity in that market. And I think it's just worth sort of pointing out that I think we know how to make a really good guide catheter that is in 088. So that sort of gives you guys a sense of that part of our business. I want to do a deep dive on the thrombectomy side. This is where our effort and focus will really come over the next few years and the opportunity that we have here. Just to remind everyone, these are the sort of, I think, relatively conservative numbers of patients in the U.S. that can be treated with our current technology. The arterial side is just shy of 260,000; the venous side, over 350,000; pulmonary embolism, just under 160,000; coronary 280,000-plus; and then stroke, which we've talked about a long time -- for a long time. We're under 10% penetrated in these numbers. And so there's a huge opportunity, particularly now with the advent of the newer technology that what CAVT brings sort of the ability of a computer to do the work faster compared to analog technology to really show the benefit clinically and economically of treating these patients with CAVT. So we're going to go through that -- what that looks like and what that journey looks like as we move into this next phase of really focusing on trying to get everyone the best and most modern technology. I just sort of remind everyone the current product names and sort of what they do. Lightning Flash 2.0 is right now a 16 French catheter used in both DVT and PE. The technology is a little bit different from a software standpoint than what we see in Lightning Bolt and Thunderbolt, where we use a technology called modulated aspiration. It's a little more sophisticated. We have brought that Bolt technology to a bigger catheter with Bolt 12, and it's working incredibly well. And so there -- Bolt 12 is used in both larger arteries and also smaller veins. So it's -- I want to just make sure -- for a while that was the Bolt technology was for arteries and the Flash technology was for PE and veins, that's not really true. It's really just what does it do and how can one maximize the benefit of this technology. And when I say that, the most important thing here is how fast can you get the clot out. Not total procedure time, which involves things outside the control sometimes of tracking the catheter to the face of the clot or anatomy or so on. But just how long does the device take to remove the clot? Because the goal of a device is to remove the clot as fast as possible and as safely as possible. If you can remove the clot in 10 minutes versus an hour, you're going to take the one that takes 10 minutes because that's better for the patient. It's obviously better for the system, the cost, the time and so on is much better. So we've talked about that in the past. But I wanted to do something maybe slightly atypical. I want to go through a series of cases. Not 1 or 2, but I think it's 20-plus cases. Real quick, I promise, I won't bore you with them. But I want to show how both all of these technologies -- and we're going to go through every one of these products that are listed here and show what is now happening. And this isn't cherry picking cases. This is picked from thousands and thousands of possible cases. We just picked these because the images were easily available, and we can get permission. But this is sort of the new standard. And it's compared to things that take a lot longer, whether it's our competitor on the DVT side that takes an average of 40-plus minutes. And that's from published data, that's not me making that up, or from the arterial side where you do open surgery and do a cut down and so on, which obviously takes some period of time. And so I think this is trying to put in mind what matters, which is how fast can we safely get the clot out. So let me go. This first case, you can see, the first image is the picture with a pre-mechanical thrombectomy. The next one is with the contrast showing it wide open. And then the picture of the clot, it's the left pulmonary artery. That was 2 minutes of device time, 2 minutes. Again, that compares to some of the numbers I've said. Another PE case with Flash 2.0. This is both sides, the bilateral piece. So you have the left and the right side, the pre and the post. And then you have pictures of the clot taken out of both sides. Again, that picture -- that case was done with 8 minutes of device time. This is a picture of a case, another PE. Again, about less than 3 minutes, we were able to get both sides open with a fair amount of clot, less than 3 minutes. I'm just trying to put in context what this new technology can do. Another PE, about 10 minutes of device time. You can see how much clot was taken out and how wide open the pulmonary arteries after that case. This is another Flash case. This is actually a bilateral DVT case that also has an included IVC filter less than 10 minutes. The image of the clot, that's a ruler. So it's about a foot long of clot, but in multiple layers and took less than 10 minutes to remove that. Another PE case 4 minutes. You can see the pre and the post. And again, how much clot was taken out, 4 minutes. Sorry, there we go. Again, another 2.0 case is a TIPS case. You can see 6 minutes this amount of clot. Some of the white coloring in the clot shows it's a little more chronic, still no problem, still quick and was able to remove it that quickly. Another DVT case. Again, I promise we're going to finish this pretty quick. 8 minutes. Again, you can see the color there of the clot. It's relatively white, which is a fairly fibrous moving into the chronic nature. No problem, still only 8 minutes. Switching from Flash 2.0 to Lightning Bolt 6X. This is the new -- one of the 2 new products we launched this past quarter. This is sort of upper extremity. The brachial artery up here sort of in the shoulder, less than 2 minutes. You can see the first picture where it's blocked off and then it's wide open and the clot was there. Less than 2 minutes for the device to function and take out the clot. Another 6X case, popliteal artery 5 minutes. Image with the color there is a little harder to see, but you can see the clot. And again, less than 5 minutes. Another 6X case, 6 minutes. This one is interesting because is that clot? Is it something else? You can see the white sort of group but it was including the artery, the renal artery. And again, in 6 minutes, it was taken out and you can see the flow wide open. This was another success case, which you can see very, very small focal piece of clot. Less than 1 minute was able to get the clot out, and it was wide open after that. Lightning Bolt 7, which has been around for about a year plus, 1.5 years. A decent amount of clot there, slightly bigger catheter, again, taken out. This is in the iliac artery but taken out in about 2 minutes of aspiration time. I promise a moment's time. Lightning Bolt 7, 4 minutes of fem-fem bypass. Again, white nature, the clot, very, very organized. Still only took about 4 minutes to open that up and be wide open. Again, another superior mesenteric artery. Less than 1 minute to get all that clot out with this new technology. Got them. I'm almost done. 3 minutes. That one is a funny image because the teeny, teeny little pieces of clot that sort of broke up because of the function that Lightning Bolt had. Lightning Bolt 12, again, one of our other new products. This was in a DVT case. So back to a smaller catheter for smaller veins. Fair amount of clot. Again, 5 minutes of device time. Another -- this was actually an artery. Also with Lightning 12, 3 minutes. Now I'm going to show 3 Thunderbolt cases. As you all know, the trial completed enrollment. So I wanted to show you that this is an M1 occlusion up in a typical location for large vessel strokes. 4 minutes device time. You can see the blockage and then wide open after Thunderbolt was used. Another M1 -- I'm sorry, ICA terminus. About a minute of device time and the clot was removed. Final case, 2 minutes, a distal M1. A proximal M2, wide open after 2 minutes. So the point of what I wanted to make here is, this is sort of the innovation that we've started. We're not done innovating. This is our 4-pronged strategy that we laid out in the last earnings call, and you're going to hear us refer back to this quite a lot. We're going to keep innovating. We have a long product road map, both heavy focus on CAVT going forward. Constantly making the products better and better even though they're pretty darn good now as you could see, but we're going to continue to do that. We're going to add other aspects that we've alluded to around data since we have a computer in every case and what we can do with that. We're going to focus on clinical data, both randomized data, like the STORM-PE study, which is a PE study. Critically important for the field. There are other studies that are running -- that are also helpful to show that doing something other than anticoagulation is a good idea. That's sort of what we have to show. In addition to that randomized data, we have a whole series of data sets that have started to come out. One on PE, where we looked at through a whole year-plus of work with Vizient. Covers about 40% of the hospitals. And looking at the benefit of CAVT in the case of the data set PE against anticoagulation to look at how it does clinically, but also the health economics. Is this viable? Is this good, bad? And it's very, very compelling. Other data sets in ALI arterial as well as DVT will be presented, I believe, at SIR that will show similar type of things on those as well. And then we're going to keep adding to this on an annual basis because that's how we do some of the other work. And we have hospitals engage in the work that is necessary to begin to move. They're thinking from doing anticoagulation to mechanical thrombectomy. So that's really, ultimately, how the market grows through that type of market access work with that kind of clinical data. The third aspect, of course, is just our extraordinary commercial team. We're blessed and I'll -- you'll get tired of me saying this by having the best commercial team ever assembled. Apologize to our competitors. It's just -- I think that's well known, and I'm proud of them. And it's helpful. They're incredibly diligent. They're missionary. They don't give up. They care deeply about the physicians and the patients they serve. And we're going to focus on -- we hired some additional people in 2024. We're going to focus on making sure that, that team, particularly on the vascular side has the ability to be focused. Focused on and able to continue to launch our new products as well as the products that we currently have. And we'll continue to evolve and tweak that organization in order to be able to do the work ahead of us. And then the final point -- and I think I've hit my 20 minutes, so we'll open up to questions in a second, is profitability. Obviously, we've shown that we can do all this with having a profit. Our gross margin, I know, has been a topic. It's obviously going up. But in addition to gross margin driving that, our efficiency is pretty significant, and profitability matters. I think we'll continue -- our goal is to continue to see that grow faster. And I think you'll be pleasantly surprised as 2025 unfolds. So with that, I'll say thank you, and we'll open up to questions.

Well, great. Adam, you were telling me not 1 person has asked you this question today. So let me start off, obviously, leading into the conference. Stryker acquired your competitor Inari in the venous space. You can look at this from 2 angles. You could look at this as a large company like Stryker is validating the space you participate in. And maybe for Penumbra that there might be some disruption with the acquisition. It opens a door for you to maybe gain some more share that wouldn't have been there without the acquisition. On the other side, Stryker is a very large and successful company and maybe it will be a little stiffer competition. So how do you react to that? And what's your view on the acquisition?

Yes. It's a totally fair question. I think I'll leave it at this for now. Look, Stryker is not a stranger to us. I think everyone knows, we've competed with them, against them. However, you want to frame it, for almost 15 years. They -- I think it was 2010, if I've got my chronology right where they bought Boston Scientific's neuro division. So we've -- since we've -- a couple of years into being commercial, we've spent a lot of time competing. I feel pretty comfortable that we know how to do this. And given our current technology, how well it's working, which I just spent time. Given our incredibly amazing sales voice, tenure, loyal, I think we're going to be in good shape.

Maybe on the back of that, we could talk about -- you had a number of new product launches this year. You put a lot of them on the screen. Tell me if I missed any. You had Flash 2.0 and Bolt in...

6X.

6X and TraX. Yes, and Bolt 12. The first 2 were more venous with TraX in arterial, right?

Yes. So Lightning Bolt 12 is both arterial and venous, 6X is primarily arterial.

Do you feel like now -- arterial, you've been the market leader for a long time, and you're moving -- continue to gain share on the venous site. Do you feel like these are the products where Penumbra is exactly where it needs to be in terms of competition? Or is there still more that you need to add to the portfolio to get to the position you want to be in?

Yes. That's actually a really good question. I'm glad you asked it. So in terms of competing against other mechanical tools, I think it was pretty clear that I feel like our current portfolio of products to remove the clot faster and safer than anything else by a lot, like a pretty significant margin. And that's why I went through that number of cases just to really sort of make sure people understood how it's working. And I'm extraordinarily happy with that. I won't tell the whole story just from a time standpoint but our first stroke case we ever did many years ago. I think it was 2005 or something, I've lost track of time, was successful. We got the clot out. It was amazing. The patient got better on the table. The idea that one could do that was like mind blowing. The case took an 1.5 hours of device time. And everyone thought that was extraordinary. That was fast. That was the starting point of 2005. That was 20 years ago. That was okay that it -- like that was amazing. And now we're down at minutes. We're measuring it in minutes. That's called innovation. You get better and better and better. And I think everyone would -- I'd rather have it taken out in a minute than 1.5 hours. So do I think there's room to keep doing that with -- even though we have amazing products now? I do. I think we're going to get better and better and better. And I think we're going to be broader [ rough ] . I know that sounds maybe selfish like we want it all. But yes, we want to make the best product for patients we can possibly make. And I feel we're headed there. So you're going to see more stuff, and it will just get better. But yes, on a competitive standpoint, it's pretty hard to compete with an analog technology at this stage.

Obviously, what needs to -- or where you can improve is different on stroke and peripheral even between arterial and venous. What are some of the key metrics? If speed -- if we're doing 2-minute, 5-minute procedures. And I'm sure some are shorter, some are longer. Beside speed, is it size? Is it vacuum, is vacuum power? Is it the ability to bend and navigate? What are some of the things that you'd be looking to improve?

So catheters themselves getting them better and more trackable and so on, there's room to continue to improve on that without a doubt because there's always going to be room on that. But we've come a long, long way, and it will become less of the story, albeit there's still room to do that. And I think the next part of the story is what I talked about, which is not procedure time, I just want to correct, but the device time. The time that product is on like aspiration is running. In some cases, if you look at a really complicated stroke, tracking even in the best of hands takes time and access is a little challenging. I'm talking about once you get there, how fast does the clot come out, which is what the point of this CAV technology is. Like the computer is only focused on getting that clot out once you get the catheter there. And there, I think, even though we're really fast, you just saw these times, I think we can be even faster and even more complete. And I'm excited to see the technology we've been working on. A lot of that is just software. A lot of that isn't hardware. It's just tinkering with algorithms and getting those more and more perfected.

We saw really good adoption in venous when you added CAVT, the computer-assisted vacuum technology. Arterial, you had majority market share. So it probably didn't have as big an impact to growth there but still helped. And Thunderbolt in stroke could potentially come later this year. How should we think about the magnitude in stroke? Is this something that can not only help take share but expand the market? Or is it less meaningful than the venous? How should we think about that?

Well, yes, it's hard to pick like which disease they means more. They all matter if you're a patient with clot in one of those locations. So I think that's important.

Let's make it easy, to revenue growth.

Yes. I think -- look, everyone has heard me talk about Thunderbolt. I'm obviously excited about it in part because we started in stroke and it's going to be nice to sort of bring that technology to the field that we started. That being said, from a pure dollar standpoint, when you look at the numbers that I put up in the presentation, obviously, when you add up arterial DVT and PE, that's a lot more patients than stroke. So from a pure dollar standpoint, the simple math is you're going to see a higher dollar contribution from those areas than stroke. That being said, it all matters. And I think the fields are small enough. Neuro physicians are different, obviously, than the peripheral, but a lot of times they share labs and talk to each other. And so they've already -- the neuro guys have already watched their peripheral colleagues be using this same technology in the legs and in arteries. So I think that has helped grow the anticipation and the excitement. So I think the market's ready for it. I'm pretty excited about it.

Is there the same room for pricing with CAVT as there was in peripheral to prevent a stroke?

Yes, yes, there's definitely -- there's some room for price. There's -- when you see right now how some people do things, they use a sentry where an aspiration catheter and all that. When you add up sort of the average pricing, if we were to be in that range without going above that and getting into the wrong thing, I think we have some room there.