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

All right. Next fireside chat here, we are very excited to have Penumbra and we have Adam Elsesser, the President and CEO. Adam, thank you for joining us. Jason Mills as well. Thank you.

Thank you.

Thanks for having us.

Been opening these up a little bit to kind of just higher level 30,000-foot view type questions. But your U.S. and overall thrombectomy growth rates across neuro and specialty peripheral vascular have been very impressive. Your growth rate, I think, for the year was increased slightly after a very strong 1Q from '19 to '20 to '20 to '21. So maybe a good starting point. Can you just talk to us about how you feel about the growth engines across all the different thrombectomy pieces of the business? And what gives you the confidence to kind of increase that? I know you have a new guidance philosophy, too.

Yes. Thanks for the question. So the fundamental basis is the innovation that has driven our products to be as good as they are. And it shows up the most in the last couple of quarters, obviously, in the VTE side of the business, particularly arterial as well, where we have CAVT as well. But particularly in VTE, we've seen outsized growth where in DVT and PE particularly, we're taking significant share. Again, because the technology now just works better. It's faster, safer, simpler than more analog technologies. We've moved into sort of the digital age of thrombectomy. Our confidence around where that technology is as well as where it's going to go and what we can continue to do to build on that success and improve on it, I think, is pretty high now. And of course, you add that to the other things that what we announced yesterday, I think we're set up for a pretty significant period of success going forward here.

Great. So I definitely want to hit on both your neurothrombectomy business and VTE, but let's start with VTE. And thinking about kind of the market growth characteristics, you're clearly outpacing and taking share, as you said. Can you just give us a sense as to how you see currently the market growth trending, I mean, relative to 40% numbers. And then where is the sustainable kind of growth trajectory headed for talk DVT and then PE maybe?

Well, it's hard to pinpoint an exact market growth number. Obviously, the estimates that we've had and others have sort of shared is high teens, low 20s, something in that range as a percentage. I think it varies a little bit quarter-by-quarter. And so that has been pretty robust. I think for it to continue, you have to do the work that we call market access, which is to make the case to the hospital systems that what they're doing here matters clinically that patients do get better clinically and that there's a positive economic rationale or benefit to them for doing this. Now more than ever, the ability to be profitable in a procedure is critical. Hospitals are, as everyone knows, stretched. And the data that we have that we've gotten from Vizient and another source really demonstrates not only the clinical benefit in DVT and PE, but also the economic benefit, which is pretty extraordinary. So those are -- that's what will drive that particularly on the DVT side. PE, I think will come with the trials. We, again, announced STORM-PE concluded enrollment yesterday that, I think, those trials or that particular trial will be a pretty significant driver similar to what happened in the stroke world where you have a group of physicians in this case, pulmonologists and as well as emergency room doctors and interventionalists sort of all joining together, I'm waiting for the -- really the first trial that can show a positive effect. And I think that will have a pretty significant uptick in the number of patients that get referred for intervention.

So I want to hit on STORM-PE. Thanks for bringing that up. I guess the first question, though, is should we just think of the share gain with an existing kind of mid-teens to high-teens market growth trajectory as what's going to sustain you for -- I think the consensus has you growing 30%, for example, for the year when your U.S. venous business. Something like that doesn't necessarily require the step-up in market penetration that perhaps these trials can engender. Is that a fair assumption?

Yes. I mean, look, that's what's been happening for the last couple of quarters.

I guess, how much runway that is there?

Yes, I think there's -- we're not -- we're approaching -- when you add DVT and PE together, we're starting to potentially approach just half but not quite. That means there's a lot more business to take in terms of share and...

Half of share of the market you're saying.

Yes. So that allows us -- there's a lot of runway there.

Share runway.

Share runway. And then when you add in the work we're doing to accelerate the market growth, we feel pretty comfortable.

So you and your competitor have studies for PE STORM is obviously yours. Congratulations on finishing the enrollment there. So I think you've already alluded that you're pretty confident that this data set can potentially help maybe steepen the penetration rate a little bit at some point. Is that -- am I putting words in your mouth? Or is that fair?

Yes. First of all, let's wait until the data is presented. I don't want to get ahead of ourselves. But assuming...

Assuming positive data.

Assuming it's positive, I think it will have a fairly significant impact on the field. The field has wanted these studies the barrier -- I mean, we saw a huge change in number of patients treated in stroke when the studies came out in 2014 and '15. The thing that we don't have as a positive is we don't have to move the patient. They're already in the hospitals where they're going to be treated. So the barriers to turning that on are dramatically easier, again, assuming a positive results. So I think everyone has -- understands that. I have been in discussions with leaders of the various societies and pertinent organizations like that. People are ready for the results of these studies to come up. I think it's going to be interesting because I don't think there is -- I think the products are now different enough that there's not some just overall class effect use whatever you want. I think they might be more specific to the various products, which, again, I think can inure to our benefit.

So you don't think if PEERLESS 2 were to show 1 set of outcomes and STORM-PE would show another, you don't think that would be a push pull of the category? Do you think that ...

So if you're saying STORM-PE is positive and PEERLESS 2 is negative...

Or other way around. Is it going to be...

Yes. That's not that -- let's stick with the other back pattern. Yes, I don't think that would hurt us just like PEERLESS 1 didn't hurt us, even though that was sort of not incredibly openly well received, it didn't hurt us at all. In fact, it kind of helped sort of put a finer point on the difference in technology. And we -- again, there's a lot of parallels to stroke where we saw that with aspiration versus stent retrievers. They...

We're still seeing that.

Yes. 100%.

And then just on STORM-PE, why -- your trials are different, obviously. But why is RV to LV ratio the critical endpoint?

Well, that's just the most accepted endpoint. There's no -- when you're looking at doing a study that hasn't ever been done, you look to what possible past types of studies. And if you look at ULTIMA that was run, it wasn't a mechanical thrombectomy tool, but it was a tool to enhance the use of lytics against anti-coagulation, that used RV/LV ratio that's sort of the standard when you go through with the FDA clearance process for a PE specific indication. So it's really been com-accepted as the right standard at this stage, obviously, as 1 does more and more work in PEs additional endpoints are added. We have a list of secondary endpoints that I think, are going to be very, very helpful for the field, but that as a primary endpoint is relatively accepted as the standard of care right now for the endpoint.

As I just think of the venous thrombectomy space, you just mentioned there assuming positive clinical efforts moving the industry forward not backwards. And your share capture potential within still under sort of populations. Is there any reason why we shouldn't just view that segment of your business as a sustainable 20-plus percent growth business as we look out? Why wouldn't it be?

So again, I've learned to not put numbers to how I see the business prematurely. So I'm going to stay disciplined on that. But as a qualitative comment, I think everyone can hear, I am extremely optimistic about the technology that we currently have and how fast and successful it works in cases and what we're going to have in the future that will only make that better. So yes, I am very optimistic about the future of our VTE business.

That's great. Maybe switching over to neurovascular for a moment. That's -- obviously, it's not as significant of a growth engine for you as the Venous business, and I appreciate that, but this is still a growth business. So maybe first, just starting off with how you see the underlying market? Where is the market growing? We estimate, and you can react to that maybe. We estimate it's about a mid-single-digit to upper mid-single-digit growth market, and you guys are clearly gaining some share there. '25, we have a little less share gain, a little less pricing lift. And then we've got Thunderbolt potentially coming into the future. So can you talk a little bit about the market, your position in it? And then we'll get into Thunderbolt?

Yes. So the -- you're right, I think it's hard to pinpoint exactly, but it is not growing, obviously, at the same pace that the VTE market is growing. It's had -- the trials have now a decade past. Lots of work had been done in the first phase of that to get patients to the right place to get treated. COVID slowed that process down a bit. There are pockets where you're seeing a lot of energy around moving patients and you're seeing a pretty significant growth in those markets and others where you're not seeing that. So on balance, it has slowed to the numbers, I think, roughly that you're talking about. So there what changes we'll see. I think there is still a desire to make sure that everyone who could be treated gets treated. So I think there will be work done over the next bunch of years. But I think the game has become more in the short term, sort of share capture. There's been a ton of people coming into this field. We've shared in the past, I think there's 30-some-odd catheters, many, many companies, most of them private with a catheter to try to do aspiration. And I think that's created initially some effort, but now more of an opportunity because at the end of the day, having the trusted name, the company that really started this whole thing on aspiration out there doing the work. And I think it's a perfect setup for Thunderbolt coming in. I can't wait.

I mean, do you have any reaction -- my ballpark kind of market assessment? And then just directionally, is there any deviation from what you can tell on that market going faster or slower, basically?

Yes, I don't see it accelerating in terms of market growth, where we have gotten most of our gain has been in share starting back in 2020 where we lost some of the share with the recall of XTRA FLEX. I think that is now with red 72 silver label and send it and so on. I think we've seen a lot of that come back. I think it also -- I think the reality that if you step back a bit and sort of what are we trying to do with these products? And maybe this is helpful. When we first launched the first drug product, the catheter size was an 041. And it worked. It got up to the clot. At that time, taking a catheter that was that size up to the M1 was considered a pretty novel feat. And it got the clot out. The dilemma was it took a long time to get the clot out. You had to have a separator to sort of break the clot up as it was at the tip. And it wasn't -- we had to do better. So we made a slightly bigger catheter, 054 and that worked a little better, then we made an 060, then we may now 068 and then we got to an 072. I think the problem that the field went through for 2 or 3 or 4 years here, is that folks then wanted to go even bigger. Well, 072 is good, let's go to 088. And so they took a guide catheter size product up and tried to take it to the M2. The problem with doing that is that didn't actually help Aspiration because there is a limit where the size actually hurts your Aspiration. The way the science works is you need flow to have proper Aspiration. And when your catheter is occlusive or almost occlusive in these cases, you actually don't have flow. And I think the new data sets that have come out from a couple of companies on that have proven that, yes, you might be able to get it there, but it actually doesn't make it better. It doesn't improve what we call ingestion time, the time it takes once you get there to ingest the clot. And that's where I think our current size is better because it actually -- there's flow around there and you can actually ingest but also where Thunderbolt comes in because it will -- obviously, we've seen this now in the arterial side in the peripheral, it totally changes the ingestion time, which is the key. The idea of ingestion time is why we kept getting bigger and bigger and bigger. Otherwise, we would have stayed with an 041, which is very easily trackable there. You would just have ingestion time of an hour plus. And no one thinks that's good enough. So we have to get better and better. And so the focus, I think, is where it should be on how fast does it take to ingest the clot.

So Adam, just as we turn to Thunderbolt, I wanted the opportunity to be able to just ask you this because I know you've been talking at a couple of my competitors' conferences over the last few weeks. We've received inbound questions from investors about kind of the tone and the posturing whatever you want to say, but take this opportunity please. The other one who attended these conferences, what would you say to someone who says, "Oh, he was talking down Thunderbolt either the data or the timing or the potential impact." I don't know where exactly that's coming from but how would you respond to that?

Look, it's a simple thing. I was reacting to a few days earlier. Another competitor put out a note saying it was imminent. I saw the stock jump up. And I just wanted to level set everyone to what the actual impact. I understand the excitement around it. I share the excitement. I didn't want to be the one overly creating that. I am very excited about Thunderbolt. It is the next phase of 20 years of work. We have been doing this for 20 years, making catheters, better and better to improve the ingestion time, like I just said, for these drug patients. And now we have the first phase of the new tool, not just catheter size because we've run out of room, but something else that can dramatically improve ingestion time. It's the first phase because we already know from the work we've done in other CAVT areas that Flash 2.0 is better than Flash 1.0. So one can assume that now we can continue to improve algorithms to make them better and better. So I'm incredibly excited about that. Like no one can read anything into it. I can't wait. I also, though, a month-plus ago, knew that we are getting close to finishing and rolling in STORM. And I wanted people to realize that, that impact is significant. And it is not an FDA trial. I mean, IDE, but it doesn't require approval per se. It's just the data. And I just wanted to balance like we have both good things. We can have 2 good things at once. And I just wanted to bring that up to the forefront because I knew this study, obviously, would be finishing enrollment.

So I think you're just saying nothing to read into beyond making sure no one got too ahead of themselves from a timing standpoint.

No, of course, not.

And then can you help us think through what is the potential time line that we should be thinking about the milestones? I mean I know you said you don't want to present the data before it's approved. So just give us the benchmark on Thunderbolt.

So yes, the -- we're going through the process now. We obviously -- I don't want to comment on the specifics. We're going through the process. We're going to finish that process and then we'll present the data. To the extent the approval happens before the data is presented, we're going to launch the product and we'll present the data after that. So it's not a complicated process.

Okay. But you had mentioned there's 2 conferences.

Yes. One is this summer in July, so that's coming up and the other is in the fall. I don't have an update as to which one, but don't read anything into it. It's just about when we get approval.

Got it. And then maybe just describe a little bit...

Clearance, I should say, to be -- not approval, clearance, just to be correct in my terminology.

How is Thunderbolt different from continuous aspiration or stent retrievers. And then if you can also talk to how you believe this is best captured in the -- in your clinical study and the endpoints?

Yes. So the real difference goes to that element that I already talked about, which is the time of ingestion. How long the case takes obviously matters from start to finish. But the catheters that we use are the same as what we always use. So trackability of catheters isn't new here. The thing that's new here is the tool, Thunderbolt. Thunderbolt doesn't go in the body. It just attaches to the catheter and the pump, and it changes how one gets the clot out using what we call modulated aspiration. So the thing that I think physicians will want to know is how fast did that work? How consistently fast did that work? Now there's no clear comparison other than their own experience. And when you think how many times when they put a catheter there, do they wait before they do something else.

You mean first pass or second.

Yes. Well, it's not just first pass because sometimes first pass might take 10 minutes by the time they sort of secure it and so on. So it's not -- it's beyond that. It's just the element of how fast and how consistently can you ingest the clot into the catheter. That's what we're measuring with Thunderbolt.

And maybe just remind us, so that's -- there's a threshold I'm blanking on the terminology. It's the PF30, right? That's the...

FPE30.

FPE30. So is that the endpoint that's going to be most important? What about the first pass endpoint?

Yes, the standard endpoints will all be there. We'll obviously measure the TICI scores and the first pass effect and all of those things. What I'm talking about is something that hasn't been measured typically before, which is the actual time of ingestion from starting the moment of when you're trying to get the clot out to when you're done, that's a new idea because no one's measured that before. And again, so that makes it hard to compare for the investing community, obviously, but it doesn't really make it hard for doctors to understand because they know intuitively, some cases, go really fast and some take a long time. And when you think about sort of what does that look like on the whole across their practice. The experience will be, look, consistently, we can get the clot out faster. If that's true, then the product will be necessary.

So that's new. That will be new territory, but it doesn't -- you're not in any way signaling that it diminishes the importance of the other endpoints, right?

The other endpoints aren't good. You don't get to play.

Okay. That's what I'm trying to just...

Obviously.

And then just -- there's 3 ways you grow potentially here, right? You expand the market penetration. I don't think that that's what this is going to be. You got to get the patients to where they need to be, and that's the bottleneck. So it's probably not that you have revenue per patient going up or price. And it feels like that's going to be the most immediate and obvious way this will impact the business. Maybe just walk us through that component. And then how else you expect this -- what kind of impact do you expect this to have on your U.S. neurothrombectomy business?

I think -- in our stroke business, I think it will have 2 impacts. One, you've mentioned price, obviously, for those who are using our system ready, they're adding this component. There are people who use a bunch of other adjuncts. So if they switch to this, the price for them is the same. But for us, obviously, we capture more of that. And then the other significant part is share capture. As people try it and use it, our hope obviously is that it allows them sort of convinces them that this is the way you treat stroke going forward. This is sort of the modern technology, the most innovative technology in the field. So that's our hope is share and price going forward. And in the long run, we're going to keep doing the fight on making sure everyone can get to the right place, but that's a much longer-term process.

And just as I think about where -- I think existing solutions is about $4,000 to $5,000 a today, right?

For us.

For you. When a physician does a combination or Solumbra at about double that price. So it sounds like that's the room you have to work with if you were thinking about a price premium. You're not -- you haven't said what it is.

Yes. So we're always very careful around price to make sure that the procedure stays profitable for the hospital. And so there are people who -- and a combination of products that have pushed that above $10,000 sort of as a line where it starts to eat into that a little. Our goal is to keep this combined sort of just under $10,000. And I think we'd be in a good spot where everyone then wins.

And again, the low-hanging fruit, if you will, would seem to be converting Solumbra procedures, right? What percentage of the market would you say that is?

Yes. It's a hard thing to note for sure. I would -- our estimates are around 30-some-odd percent.

That's inclusive of sector stand-alone, which is small and diminishing, but...

Yes. Stent retriever alone in the U.S. is pretty small. In some other regions, it's a little higher, but in the U.S., it's pretty low.

So it's nothing else, right? There would be an opportunity for you to drive mix benefit from that, right in that.

There's no question there's a mix benefit. And I think between, again, share and price, it's going to be a great product. Most importantly, we all know time is brain and in stroke cases the faster you can get the procedure done, the faster you can ingest the clot, the better for the patients. So for us, it is a -- this is the start of the next phase of 20 years of innovation to look out and think what we -- where we're going to go in the future, it's pretty satisfying.

We don't really have much time for a big one, but maybe just open-ended, what do you have the most confidence and excitement about over the next 6 months?

Next 6 months, God, I just spent minutes talking about it at all.

Anything in there or all your children are equal?

I love all my children. I'm a proud father of four and I love them all. But yes, between STORM-PE, between Thunderbolt, between other things that I haven't even shared, we're going to have some fun.

Excellent. Thank you, both of you.

Thank you. Appreciate it.