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

All right. Good afternoon, everyone. Thank you for joining us at the William Blair Grow Stock Conference this year. My name is Margaret Kaczor Andrew. I am the medical technology analyst that covers Penumbra for Blair. For a complete list of research disclosures or conflicts of interest, please see williamblair.com. Before I'm going to turn it over to Adam, maybe I'll do just a short brief comment on our end. Penumbra has been one of our top names, not only for this year, but also for the next 2 to 5 years. And the pitch frankly, has been relatively straightforward. One, you have this large VTE market, that is actively adopting mechanical thrombectomy products. In the meantime, you also have one of your largest competitors that may be going through some integration issues, but maybe you can take advantage of to. Two, you've got an upcoming approval of a new CAFT platform for neuro. Remember, this is the platform that created this big growth in VTE to start out with a few years back. And then three, you've got upcoming clinical data that's coming out that could really change societal guidelines and drive an inflection in adoption of mechanical thrombectomy in general. And that's starting in 2026 and going to keep going after that. Throw on some margin expansion on top of it, and you've got a very good story to want to own. But that's that, I'm going to leave it to Adam to provide more context on that.

Thank you, Margaret, and great to see everyone. Really happy to be here at William Blair, and thank you for including us. I'm going to stand just this way because otherwise, I have no idea what the slide is there. This is our safe harbor disclosure. Just a quick background. For those of you who don't know, we're -- company is based in California and a town called Alameda, California in the Northern California Bay Area. As of now, all of our products are manufactured in 2 large facilities in California, 1 on our campus in Alameda and the other about 2 hours away near Sacramento in a town called Roseville. We have plans underway or not just plans to build a facility outside the United States that will be used either for expansion, but either for products that have a slightly different margin profile or for products that are sold internationally depending on where we are at that time. It's not planning on coming online until about 2027. Right now, company-wide, we have over 4,500 employees, again, manufacturing, R&D and all the other functions, sales and marketing and so on. We have products available on -- throughout the world. The company has been around now. We're in our 21st year. So we have been selling internationally for quite some time. And we have folks in most of the countries in the world and have many, many, many years of experience selling in international markets, watching the changes country by country as things change, which it always does and are, I think, well positioned to continue to make our products available as appropriate and able in countries throughout the world. We're based with sort of 3 buckets of products, embolization, which is basically platinum coils. Technology has been around for a while, started many, many years ago with a company in the neuro space called Target Therapeutics made a detachable platinum coil. Our access portfolio, which is really catheters that form the sort of highway to go where you're needing to go. It's sort of a larger catheter that you then put a smaller catheter through. And those access tools really have -- we have revolutionized them initially in the neuro space and then thrombectomy, which is really what drives our current growth and what we really started the company for. The idea of taking clot out of the brain was what motivated us to start Penumbra. That has expanded to all other parts of the body, the arterial side, the veins, the lungs, even the coronary, and it is driving, I think, the growth primarily going forward. Quick, a little deeper dive on thrombectomy just to sort of level set, I'm using numbers from the U.S. as an example, obviously, if you apply this to all the other countries, the numbers would be much higher, but these are just U.S. So if you take the 5 basic vascular [ bets ], you're looking at an opportunity of well over 1 million patients. I want to comment a little on these numbers. These are conservative estimates. And I say that because other companies have different numbers. No one knows with certainty what exact numbers these are. And so we've taken the position of being a bit more conservative. For example, if you look at PE, other companies are well over 200,000, 250,000. That may be true. And obviously, we don't know for sure, but we have taken a much more conservative approach on what this is. Obviously, if the denominator is bigger, the opportunity to help and positively impact a lot more patients is even greater than this. But I want to give you a quick sense. Sometimes these numbers are sort of lost in the headlines. So if you just look at the 5 buckets, DVT, the venous side is actually the largest number. And that's just of a type. If you take all DVT, it's much larger than that. And I want to point that out because that's a huge opportunity for us to help a lot of patients. It's not one that always gets the attention that stroke and pulmonary embolism get. But in terms of sheer numbers of people that can be helped, it's obviously pretty significant. And we're starting to make some interesting inroads there that I'll address in a moment. So just to give you guys some sense of what those numbers really are. Our current technology, we call it CAVT or computer-assisted vacuum thrombectomy. This is the idea of using a computer chip to orchestrate or control the valve that opens and closes the aspiration that comes from that pump you can see in the picture. And what we have learned is that the analog versions that we've had, the idea of a catheter and a pump and some companies have a catheter under a syringe. That's great, except you can't do -- it's one dimensional. You can't do anything with it. You either turn it on or off. And what we have found is we've gone into larger vessels and move to this next level is that if you can control that in a way that is -- the computer controls it, senses when you're in clot, when you're not in clot, flow, you can dramatically change the effectiveness of how fast you can ingest clot without having additional blood be sucked out. And that's a huge thing. So this technology, which is now several years old, we're on our second version if you can see there on the slide, Lightning Flash 2.0. Lightning Flash, the original Lightning flash, we didn't actually call it 1.0, but 2.0 is the -- solely an update to the algorithm to the computer programming that changed pretty dramatically how this product worked. And so one can think going forward, how -- what that opportunity looks like when you can much more quickly change a computer program, then physically make a new product or a new size or what have you. So I'm really excited about the innovation coming, and I'll address that in a second. On the arterial side, you have Lightning Bolt 7, Lightning Bolt 6x and Lightning 12. The numbers are just sizes of catheters. And that's a technology that is a little more sophisticated. It uses something we call modulated aspiration that really can deal with taking a slightly more focal clot out very effectively. So your time of ingestion of the clot is reduced pretty dramatically. And that's been the big innovation that we've seen. And then Thunderbolt, which is a very similar technology to Lightning Bolt that is the same fundamental technology is the product name brand used on the neuro side. And we just completed our clinical trial and submitted that to the FDA for for review and ultimately clearance. So that -- I'm excited about that. There's been a lot of anticipation. I think we have spent the better part of 21 years here innovating over and over again on the catheters, how do you make these catheters big enough, not too big that you actually mess up aspiration. That's a different story. There is a time when you go too big, and some folks have where aspiration is actually negatively impacted, but big enough, just big enough, but then the next thing -- but that can also track easily up to the brain. But then the next thing is how do you impact ingestion times? How do you make the case shorter again and more effective and more predictable. And that's where Thunderbolt comes in. And I'm very, very excited, everyone who knows that we're excited about bringing that to the market. I'm going to not go through a ton of cases, but I do want to highlight a couple of things. So this is using Lightning Flash 2.0, the image on the far left is the left side blocked. And then you can see the middle image where the that whole space. It's now open. And then, of course, the now obligatory picture of the blood clot that was taken out of that patient. The thing to note there is the device time. It's 2 minutes. When I mean device time, I don't mean skin-to-skin tracking things there. That's now what it is for patients and can always get a little easier or better, but that's not really the problem here. It's how fast can that clot come out. And in this case, it was 2 minutes that the device was on. That used to be an hour plus. And obviously, I showed you a really good case. But there are a lot of them in this time frame. That has become the new standard, very quick on these cases. And I think that's really what I want people to take away from here. Again, Lightning Flash 2.0, but this time used in a DVT. Again, you can see the blockage on the left side than the 2 next pictures where it's post. You can see it's a post up there where the contrast fils that, it's wide open. And then again, the clot that is coming out there. It took 8 minutes of device time for all of that clot to open up the vein in the leg. Moving to the arteries. This is a Lightning Bolt 6x. Again, you can see the blockage on that the darker artery there, it sort of looks like stub at the end on the bottom of the 2 darker ones. And then the next middle picture, it's wide open and all of those clots. So the clot is a little different. It's a little smaller, more focal pieces of clot. But again, it was less than 2 minutes once the device was turned on to get that clot out. Compare that to an open surgery case where you would do a cut down, you would open up the artery and sort of balloon and drag it through the artery to take it out, then sew it all up versus doing a quick interventional procedure that the device time itself was less than 2 minutes. It's a different moment in time for this technology. Here is Lightning Bolt 7. Again, you can see this is pretty dramatic where -- this is a mesenteric artery. You can see the blockage there in the middle of the left-hand picture, and then all the branches wide open. And again, less than 1 minute to take out what is a relatively small focal piece of clot from the tip of that artery okay? So that's just giving you a little bit of sense. This is a DVT that we use Lightning Bolt 12 for. Lightning Bolt 12 is primarily used in smaller veins, but can be used occasionally in larger arteries. Again, 5 minutes of device time and again, opening up that vein pretty easily. And then the final one, just because I'm excited Thunderbolt has -- you can see the picture on the left, the blockage and see a little bubble in the middle and then the artery that sort of stops on the picture on the right, where that's wide open, and you've taken all of that cut. We don't yet -- not -- in neuro they don't always take pictures of all the clot, so we don't have that. And this was also in a clinical trial and felt, I think, a little silly to do. So you don't have the clot picture, but you can see how fast that worked in those patients. I want to touch briefly on the other parts of our business because they matter to us as well, our embolization and access business. Our access business really has been sort of the thing that's redefined, particularly the neurovascular space, when we started, there was no neuro-specific guide catheter that anyone make. We were the first company to do that, and we opened up the capacity many, many years ago to access easily the case times and so on because of our guide catheters. We've -- I put down Neuron MAX 088. That's a number that if you follow the field at all, you might have heard, companies are out there with catheters that they thought could be used at that size for stroke. We made the first Neuron MAX 088 product many, many years ago. As a guide catheter, it's a great guide catheter. The size is the right size for guide catheter. We've sold well over 1 million units of that product. It's the market leader. Obviously, one can imagine if the goal is to use as a guide catheter, but push it a little higher up. One can do that, make a new version that does that. So that's on the Access side. On the embolization side, we've built -- we have -- some of these coils are used in neuro, but the bulk of them are sold on the vascular side, where the fundamental premise of our coils is big, bigger coils or larger, longer, softer coils. And the combination of the bigger, longer, softer is really the defining thing of our coil franchise. And just recently, you can see there under Ruby, the second one, there's something called the XL system. We just are in the early stages of getting ready to launch the Ruby XL coil, which is by far the biggest, longest softest coil that we've launched, and it will be used really to open up another round of types of lesions that we can do. So we're pretty excited. The business is -- we haven't had a new coil launch in a while. The team is pretty ready to go, and I think we can make a big difference with that. I've talked a little bit about this for a bit now. This is sort of a four-pronged strategies like what is -- what do we have to do over the next number of years. And it really starts with innovation, and I'll touch on that in a minute, a little deeper. But it also talked -- we need to continue to invest in our commercial team, providing them focus. We're doing that now because we have a lot to do on the embolization side and the thrombectomy side, how do we properly provide focus, so we're doing that as well as the third prong which is what we call market access, the idea of how do we -- what do we do? How do we -- what kind of data do we need to have hospitals realize that they can treat more of these patients. And it's not only good clinically, that's obviously the first and most important part that it's also very importantly good financially. It's not -- you're not asking a hospital to lose money by doing the right thing and treating more and more patients. and I'll touch on that in a second. And then, of course, doing all of those 3 things while we're expanding our margins and increasing profitability and cash flow. And we've proven we can do that. And I think we're going to continue to do that going forward. So sort of hold us to these 4 things, that's what I'm holding us to if we do this, I think we'll continue to build a very successful company. I want to briefly touch about on innovation. We're 21 years in business. And we're, I think, more confident in our innovation, our ability to innovate now than we ever have been. The team is extraordinary. And we just keep going. The way we innovate, the way the teams are set up, the way we think about how we -- what we spend, what we don't spend, I think, is really a key to our success. And this is a public webcasting. So I'm not going to give you every secret, but I would be delighted to -- we've hosted a few folks out to our company, not to show them the products we're working on because that wouldn't work. But like how do we do it? What is like the secret to sort of how we set this up in the mindset of our team in R&D. And it's some of the most fun I've ever had doing that because I think there's an insight into why I think we have been so successful and will continue to be around R&D. I want to briefly more -- talk a little bit more about the idea of market access. So market access is this fundamental idea of how do you talk to hospitals to say, it's in your power to treat more patients with DVT or PE or ALI? And why would you do that? So what we've done is we've used Vizient, which is one of the largest GPOs, it covers 40-some-odd percent of hospitals. They've gone and looked at their data. We've created a propensity match data set with our product in each of those categories. Arterial, DVT and PE separately looking propensity matched against patients that got what is considered the standard of care anticoagulation and shown the difference in clinical outcomes. Each one has a slightly different measure to say are the patients doing better clinically. And it confirms that. Yes, they're doing better clinically. And then what is that financial impact on the hospital? Does it cost us money? Does it make us money? When you look at all the costs on both sides of the ledger for both patient sets, against the reimbursement for those patients, both public and private because reimbursement comes in different forms. And so it's about 50-50. It's mix of public and private payers. And the reality is it is better clinically and it's more profitable. And it's very much more profitable. And those are the numbers that we're sharing with hospitals. We're sitting down and really laying that out. And then they're obviously deciding, we have the power and the control to look at this and think about treating more and more of these patients by focusing on the right protocols and doing things. And those that we've already done this with have been very successful. We've seen a significant uptick in the patients that are getting a better treatment and everyone seems pretty happy about it, obviously, the patients the most. So this is going to be key. It's time consuming. You're going hospital by hospital, meeting with the leadership of the hospital, I've done some of them. It's incredibly fun because -- when do you get to go and say, by the way, your patients can get better and you can make more money. It's not something normally where we're going to charge you some more and you're fighting about price over product. So it's a lot of fun and the work is rewarding and I'm excited to see that continue. Now that we've sort of proven it out, conceptually, we're going to accelerate that. So that's the core of how do you grow this market, not just take share. I'm going to start to end with just a quick review and then we'll maybe have a minute or 2 for questions or not. On our past financial performance, the slides sort of are there. It shows historically ending with Q1 and what our revenue is, breakdown for the U.S. thrombectomy number as well with some of the growth numbers there. This is some of the profit -- the performance, the gross profit and so on. Again, you can see there's sort of a rhythm to that every year start, first couple of quarters, the margin is a little smaller because of sales meetings and payroll taxes and all that kind of stuff and then it grows throughout the year. But we're, I think, right on track to be where we had said we were going to be. This is what we've said for our 2025 guidance on the last quarter's call, and we're excited to be in a position where we can continue to see the kind of growth we're seeing. Just as a quick aside, this has come up a bunch, I think it's been said. But just as a level setting, we've talked about China in last call, and our revenue from China is sort of going down because of tariffs now, but also before it has gone down just because of the economic situation. We're sort of now going significantly down. If you were to just take China out of the revenue from 24% to 25% even, you would be in a situation where that guidance that we've given for the company, which is 12% to 14% would be probably closer to 16% to 18%. So that's the sort of headwind that we're facing just this year on China. It's not that much, but it's notable because I understand if you're looking at guidance, growth ranges, it has a onetime sort of impact there. But I think we're in really good shape going forward. We're set up for the ability to help an awful lot of people going forward. So with that, thank you, and I'll turn it back to you if you have a question or 2.

Question from the audience, happy to do it. Again, I'm happy to do it. [indiscernible] I want to start with VTE. I mean, you guys have put up 40% plus growth for a few quarters now. Market growth seems like it's relatively stable. I know there's been a little noise maybe around that more recently. But I guess a couple of things. One, what's driving that growth for you all if you could differentiate it. Two, how -- can you speak to the 20% market growth in VTE, not only in '25, but '26 and beyond, especially in the context of data that's coming?

Yes. So the question is around our VTE growth the last couple of quarters. VTE has grown at 40%. The question is what's driving that growth, and then the market growth aspect of that. Is that somewhat sustainable going forward? So let me -- I'll start with the first part of the question. Obviously, over the last couple of quarters, we've seen a pretty significant shift in share toward our product. That -- I think folks heard me talk about that maybe a quarter or 2 before it actually happened. But then it happened. It takes a while for share to shift. People have to change their mind. They have to get comfortable. They have to try a case and then decide to go. And we saw a pretty big group move toward using us frontline in the last couple of quarters. That process, by no means are we the dominant yet player, we're starting to catch up, so there's a lot more to get. Share shift doesn't happen linearly. I've said this a bunch of times. There are times when there's a big data set or there's a reimbursement decision, something that drives much faster shift, but in this case, it's really personal preference. There's like what is better? And what have I heard my friends say. So it's a word of mouth thing. So it takes time. You get a group of people who are the most open and willing. They tend to come first, then you get the next group. And as you start to convert those, you start to engage with the next group of folks, and then it takes them some time. So it's not a linear process. But I think it's pretty clear that the best product works and ultimately, will take most of that share. And we're in the middle of that. It's hard to compete with the sort of impression if people are giving us a fair trial. There was a physician who really was struggling with the decision to try us, did the first case and not to embarrass this particular person, he's a wonderful guy. They're almost like -- I won't say disappointed, thrilled that the case was amazing, but now like, "Oh, God, now I have to actually deal with the [indiscernible] which it's a process. So I'm pretty excited about that. The next phase is that you don't wait for, but you can't really do what I said around market access and go to the hospitals the people in those hospitals don't want to use your product. So you first have to convert them and then you have to work with their hospitals to talk about the larger opportunity than what they're currently doing, which can be 80%, 90% of the possible cases, we're not treating. So we're 10% or 15% penetrated. There's a lot more to get with the market access data that I just talked about that we got from Vizient. So the 2 are really tied together, and I think it sets us up for multiple years of growth. And that's really even before we talked about STORM-PE, which we ran out of time, STORM-PE is a randomized clinical trial, NPE that I'm excited about because I think it will help the field going forward. in that sense pretty significantly. And I'll end it on that.

[indiscernible] will be in the other room. Thank you so much.

Thanks guys.