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

Welcome, everyone. Patrick on the Medtech team. Thanks for coming again to second day of Morgan Stanley's Global Healthcare Conference. The best bit, disclaimers, morganstanley.com/researchdisclosures. It's very exciting. I'm sure you'll all be going there imminently. What is exciting is getting to have the PEN team here. So thank you so much, both Adam and Shruthi for coming as CEO and President now. Such exciting. Do you want to stop there? I mean, like that just seems like a natural place with a new title in that way. How did that come to be? And Adam, do we still have you for a while?

Well, are you trying to get rid of me or just the implication here. Listen, Shruthi joined us 13 years ago in the marketing team, having already had a pretty impressive career at another company where she started as an engineer, went into regulatory sales and has just excelled at helping build the company as it is today. The entire peripheral side was something she helped build from the ground up with others, but really instrumental and took over the whole interventional business a couple of years ago. So it's the natural progression. And she's respected and liked by really everyone in the company. It's great.

All right. I mean why don't we kick off from a particular area, STORM. Maybe for those just to level set people from your perspective, why this matters in PE, what this could end up doing for clinical management of patients with PE, just the overview of STORM from a clinical stand?

Yes. Great question. So on the STORM-PE trial, the first randomized controlled trial that will be comparing mechanical thrombectomy versus anticoagulation for the intermediate high-risk PE patient population. And this is a trial actually designed by a steering committee that was composed of both interventionalists and non-interventionalists. So if you're looking to answer the question, will CAVT show rapid right heart recovery and will it be superior to anticoagulation with no increased safety risk? Once you answer that question, it also looks at some of the secondary sort of endpoints around the quality of life, functional outcomes, things like that, that will also be interesting information to provide to both the interventionalists as well as the non-interventionalists. The patient population, if you talk about the numbers, it's about 157,000 patients that make up this group of intermediate and high-risk PEs. And so I think it will be the first meaningful data set that provides answers for this important question given it's never been done before. If positive, it will then be information that institutions will be able to use. The PERT teams as they're called, are the PE teams within each hospital that are making treatment decisions for patients. And having this data will then hopefully provide the information they need for them to move advanced treatment up in the overall paradigm so that when a patient presents with a PE in the ER, they're actually referred on to the interventional suite for treatment as opposed to being sent back on anticoagulation.

I think I have a view on this. But from your perspective, how much of the clinical data in the market matter? Like how much attention is being paid by the docs? Like are they -- from your perspective within the trial, are they going to be like pulling apart RV/LV and like really trying to pull apart the details or just broad trial success. Is that going to be enough from your perspective to change guidelines?

I mean guidelines, I think, is -- it's a separate topic maybe because there's actually many different sets of guidelines and they're sort of on a schedule as to when they get updated. And so this will be one of the data sets that will help inform the guidelines for sure. And I think beyond that, it really comes down to at an institutional level, the folks that are involved in making the decision on PEs now have a body of data that actually shows that treatment with advanced therapy is beneficial with no increased safety risk.

Yes. I would just add exactly what you said, but one sort of additional point and that is this is the question that everybody, both on the interventional side and the non-interventional side have wanted answered. So it is important. This isn't, "Hey, let's make up some comparison that no one cares about." This is the question. And so we're lucky enough to be the first trial to finish and present that data. But there is some anticipation because everyone who -- whether they're interventionalists or somewhere in the path of care of these patients really want to know this answer.

Nothing like Level 1 evidence to change things? I mean -- so we'll get this in TCT.

Yes. And to clarify, I think we've said this now, but the TCT is going to have the primary endpoint, which is the one that matters, obviously, in terms of is it superior. The secondary endpoints, there was a -- they're back to back with VIVA, missed it because they had to go out 3 months, we weren't ready to submit those. So those are going to be presented again, of course, with the primary endpoint a week later at VIVA. So it's a little odd to split that up, but it's logical. I think, when it's all said and done, it will be pretty obvious.

Presumably, just anatomically, the RV/LV side, I know we don't want to speculate on the other endpoints. But if that's reading out very positively, you would expect some of the secondary endpoints to be in a pretty good spot as well, right?

Yes. Why don't we let the experts present the data.

That's reasonable. I feel that's reasonable. Maybe just -- again, I want to level set the room without using too many acronyms and people who might be less familiar, RV/LV and why that's the read and the primary endpoint, just to make sure everyone's level set on that side of things?

Yes. It's to basically show that a patient that suffers from a PE has an elevated RV strain or right heart strain. And so this just shows that you're able to normalize it by offloading the RV as they call it. And what that basically means is that you've released the strain on the heart, and so it's having to work less. And that's really what you're trying to do by quickly removing that clot, so there's less strain on the heart and the patient is able to sort of get back to oxygen saturation levels. And that's the most important question because if you don't have that and you don't have that immediate resolution, you can't really think about the rest of it, right? So that's the study was powered to answer that question.

And the response is usually pretty rapid as well, right? The RV/LV?

Yes, yes.

Extremely fast. It essentially is...

If the product works.

Yes, exactly.

Quickly, it's fast.

Yes. I mean I think we're at 10% penetration today. If you were in our seat, how would you envisage that changing on the assumption of broadly positive clinical data? How would you think about that over a multiyear time period?

Yes. I think like everything else, the data will be the first sort of the set of information that's rolled out to both the interventional community through their conferences as well as the noninterventional community through their conferences. As a reminder, the international KPIs of this trial are both the interventionists and the non-interventionalists. So they'll sort of help spearhead that effort of getting the information out. And once the different constituents have the information, they'll then go about within their institution to start updating the protocol. So that can take obviously, time for all that to play out. You can maybe kind of reflect back on when MR CLEAN and some of the stroke trials came out back in the 2015 sort of time period and how that sort of started to make some change happen in the stroke field. So there are some parallels to be drawn because, again, it's the non-interventionalists that's sort of first seeing the patient, very similar to the noninterventional neurologists that were seeing the patient in stroke.

If we took that 2015 sort of adoption curve, are you saying that that's a reasonable parallel for us to use here?

I wouldn't jump in and only -- the difference is in stroke, they have this fundamental barrier of moving the patient. Where did they show up, what hospital, only certain numbers would do actually stroke treatment. Here, we really don't have that barrier. Almost all the centers where a physician -- I'm sorry, a patient would show up and is able to do this intervention. I'm sure there's some exceptions somewhere, but most are. And so that changes dramatically that curve and the time period and not to go from one to the other because you don't have to deal with a very impractical issue. So that is something we look forward to, and I think patients will benefit from.

One of the other key areas that gets brought up a lot is Thunderbolt, right? So maybe to the audience, give me a sense of what Thunderbolt is, why ingestion time matters, how you see that developing in the market?

Yes. Well, let me -- let's start back with the history for 2 seconds, and I hate to bore everyone here. But the company started with its first stroke product. Our catheter had an inner diameter of 0.041. We -- it worked. We were amazed. People were anxious that we could take a catheter that big up to the M1 because no one had done it before. We changed how catheters were made, made it softer and more flexible. But the problem is, even though it was big, it was not big enough that it really quickly got ingested the clot. So we went bigger and again, had to make the catheter different and better. We went to 0.054, then we went to 0.060, then we went to 0.068 and then we went to 0.072, where we stopped. We stopped at 0.072, not because we couldn't make a bigger catheter and even a bigger catheter that tracked really well. We obviously can do that. We stopped because aspiration works by the physics of it by having flow. And if you are occlusive or even semi-occlusive, you negatively impact the flow. And so a lot of other people who thought, "Oh, they stopped at 0.072. This is a business opportunity, might not have spent enough time with the basic physics." Because it -- and the data sets now are showing, "Okay, it doesn't actually do anything different." So we didn't do that. But way back when we had an 0.072 and we've had a few versions, we started another project. And so the whole computer project was started for stroke. It happened to have gotten done and usable for the vascular, but it was started for the one issue that wasn't yet solved, which is we can now get catheters to the face of the clot, but ingestion times weren't good enough. We wanted ingestion time to get better and better consistently, not just 60% of the time. And so that project was started for stroke. It's obviously since been incredibly valuable in the rest of the body. But for that reason, we're excited, the field is excited, I think, because the idea of consistent ingestion times is still -- we are still chasing that, and we hope Thunderbolt might solve that.

One of the advantages would be an ability to drive some pricing given the time is brain and that side of things, and so that works. I mean, how are you thinking about that price push into the customers and their willingness to pay?

One of the things we've been known for over the almost 20 years of selling to these customers is we've always priced fairly. We don't take annual price increases and things like that. We want to price this so that the procedure as it is reimbursed, which is a good reimbursement, is profitable for the hospital because you can't ask somebody to do more and more if it's not profitable to the hospital, and that benefits patients. So we have priced this. So we do well, which we're obviously doing, and the hospital can do well by increasing the number of patients they're doing. That's true in stroke. It's true in the peripheral. So we're pricing this in a way that if you, for example, use aspiration and a stentriever, which a number of people do, this will actually be cheaper than that combination by a little bit. And I think that kind of pricing thought is really important because it eases the way for a lot of people. So for people who just use aspiration, it might be a little more than what they're used to. But it also -- if you look at -- all of the cases might not because the cases that aren't consistently easy, they might be at 50% or 60%. The other ones take additional stuff and energy, and this might even add out too. So I think there is a decent story that it helps the hospitals, which ultimately helps patients, and we do fine.

I was going to say, so you're saying maybe half of the cases are the more complex where...

Yes, something in that range.

Yes. And I think CAVT, they've also seen what CAVT has done in the rest of the body. It's certainly -- we changed the way physicians now think about treating clot in the rest of the body. So they're either in shared labs, hearing from their other counterparts and the hospital system as a whole has also gotten a better understanding of what CAVT can do. So I think that certainly also would help.

I mean for the whole construct of most of the areas you operate in, the hospitals have pretty good margin structures already today, right?

In our thrombectomy business, things are well reimbursed.

Yes, which basically helps drive adoption.

Yes.

Yes. Okay. That makes sense. I mean on Thunderbolt, how are you thinking about that adoption curve? How are you thinking about communicating to the customer base, CAVT and like the benefits, if you like?

Yes. I mean we're -- it's -- neuro is small. So everyone talks to each other. No one doesn't know that Thunderbolt is coming. We have -- launching products in neuro is different than the much larger peripheral vasculature. So I think we got this. We have only about 20 years of experience.

Switching then to Ruby XL, which is going to help you. Basically -- go to the 20% of the market, you basically don't have a lot of exposure about -- on that side of things. How do you think about the rollout there? How do you think about the adoption curve, initial discussions, everything on Ruby would be great?

Yes. I can take that. So on the Ruby XL product line, what it's really meant to do is now have an embolization coil line for the larger catheter profile. So we've had our embolization coils in the smaller catheter profile and actually the market-leading coils, and we've had that since about 2013 for the rest of the body. We've taken a lot of the same features and brought it to the larger catheter market, which is about 20% of the embolization market as a whole, like you just said. And the thing about it is there have been a couple of other options that have existed, but they've existed for 10-plus years. So there's been not a lot of innovation. So physicians have been very eager to see some innovation in the space. And from some of the early feedback, it's been very positively received. We also, at the beginning of the year, in order to have our existing team focus on the CAVT opportunity with all the sort of share gain we were seeing, decided to bring on a new team to take on embolization as a whole so that both of the teams can focus in on those areas and continue to service the demand of our customers. So we got sort of lucky with the timing of Ruby XL getting cleared when it did. So this new team that's now onboarded and up and running are also introducing a new product to their customers, which is kind of a nice spot for them to be in. I have to say we brought on this amazing group of people that come from spaces like AAA, TAVR and other embolization companies, and they've all -- it's been awesome to just bring on a team here that's out there executing on this launch.

AAA is a tough market. I can imagine they're pretty happy to be somewhere else. To your point, that was the 50 new reps on that side. Is it that we just have a lot in the chamber when it comes to innovation, and therefore, it would just make sense just to specialize the bag just that a little bit more. Is that the crux of the decision?

Yes. Even without that, it made sense, but we have that, as we've alluded to and you just acknowledged. So it really would be hard to do it all and do it with the same focus. What I would say, and to me, any time you do something like this, hiring, expanding your sales force, we have done that. So we've gotten relatively used to it and how to talk about it internally and all. But doing something like this where you're taking away an entire product portfolio that many of these people built from the ground up, it's tricky, and we spent some time. I had some anxiety about it. I will tell you, Shruthi and [indiscernible], the Head of Sales for Peripheral, really had this down, and they have navigated sort of the communication and the execution around this in a way that is -- it's incredibly impressive. No real big anxiety, a lot of excitement, a lot of like, "Oh, we can do better collectively." It's pretty impressive. And I think it will lay the groundwork for a while because we didn't have that kind of morale issue that usually comes from taking something away.

Yes. It seems like how about communication actually practically work? Was it essentially saying this is just going to be more of an opportunity to focus. And I know that as a company anyway, you guys run more of a like stable total comp system, if you know, rather less variability for some -- in some ways. So like did that help? Like how did the communication work into the reps exactly?

Yes. I mean our -- huge kudos to our sales leaders for doing it the way we did. But yes, if you look at the CAVT opportunity and the team knows because we've been called in for arterial cases, venous cases, PE cases, then you -- and coronary cases and then you add on top of that all these embolization cases, there's -- in order to really be able to focus, in order to continue to see that share shift happen, it needed us to be able to go do this. And so there was that conversation. And like we always do, we're going to continue to keep innovating in all the areas that we're in. And a lot of our reps know that. They've been here and seen that. We also kept our sales leadership structure the same. So our CAVT representative and the embolization representative reporting to the same manager. So that also helps with sort of that cross-pollination and keeping it all sort of through Penumbra spirit, if you will. So I think it's worked out great so far, and we're continuing on the journey here.

Yes. It probably helps to have new innovation you talked about across every division, right? So...

It does not hurt.

I mean on that point, like R&D in general, like we had chatted about that being kind of your favorite people for both of you internally...

You can't say that in a public forum.

My words, not yours. Some of your favorite people. I mean they're the ones that give you the ammunition anyway. And what do you put down for that, like keep that culture, that sort of slightly entrepreneurial spirit? Like how do you keep that going in a company that's got a lot bigger over the years?

That's -- it's a great question, how to keep it going. Of all the things I worry about, I don't worry about that for the simple reason that it is just so ingrained in -- I mean, one could screw it up by demanding different behavior, but we're not going to do that. And we have created an environment around innovating, which means it sometimes messy time frames and schedules are not always perfect. But we don't innovate to that. We innovate to really focus on the products, doing something that nothing else does. And we have a team, a lot of experienced people, a lot of younger people, the way it all works, it's kind of magic. And anyone who wants to spend time, I love doing that, not to learn about the specific products, but obviously, that's not something we share. But what the thought process is, what the culture is, how does that work. We've done that for some, and it's people walk away pretty jazzed about that. And I wish I could take some credit for it. It is just a remarkable group of people who have dedication to making something better than it exists today to treat a serious disease, and that's noble work.

I'm a finance guy at the end of the day, so I'm going to have to ask a couple of what Musk described as boring bonehead questions. So inevitably, I'm going to have other question. I mean the guide implies a bit of a decel in the second half. Like how much is that a sort of conservatism just sort of -- I'm not going to say calm before the storm cheesy like that. But you know what I mean, like how much is that relative to what you're seeing in the market?

Well, we put out a guide at the beginning of the year. Nothing has fundamentally changed other than we raised it a little bit to match the beat. So none of this is new information. This is how we're guiding. I think we obviously did learn our lessons from a year ago, and we're going to try to be more disciplined in that.

And if you were asked, like you've got a number of catalysts, obviously, heading into next year. But what would you think of as the base sort of thought process around growth for the next couple of years? You mean like a slightly more midterm.

Yes. Well, I'm not obviously going to give a specific number, but I will tell you, in addition to the catalysts you pointed out, we also don't have the headwind of China that we had this year. It's much more a teeny number comparatively. So it won't be that kind of headwind. So I think in terms of a percentage growth rate, that obviously takes into account those things. When you step back from the specific numbers, I think it's pretty obvious to sense that we have a lot of confidence in the momentum. The products in arterial and VTE, now in our embolization business on the neuro side, obviously, the Thunderbolt coming, Red 43 Silver Label and now the emergence of MMA cases with our unique coil that isn't shaped that can seemingly have a unique place in treating a large number of people, almost thought to be bigger than cerebral aneurysms, we're in a pretty good spot, and we have a fair amount of momentum going into next year. I think that's a fair statement.

You feel like the U.S. VTE market has been incredibly strong for a long period of time. Is there any reason that anything would derail that? Like how do you feel about that midterm as well?

Yes. Well, so the VTE market is made up of PE and DVT. We just spent a bunch of time talking about PE and what that looks like. DVT is sort of this interesting part of it that is not always talked about as much. There is obviously data that's already been out there that treating iliofemoral DVT is appropriate, which is why we're treating some of them. But I think the size of that opportunity from a pure number standpoint is the biggest one. And we've been working with hospitals around the clinical -- with clinical data that we've gotten from Vizient on what does that look like clinically if you're treated with CAVT and then what does it look like from a health economic standpoint, and it's a pretty compelling argument. So we have to add that into the work we're doing, which we are, and I think we can make a huge impact. I think it is starting to become obvious to physicians that technology and products matter. They're not all the same. You can't have a catheter in a syringe or a catheter in a pump and say they're all the same. And technology is going to start to really play an outsized role in differentiating how patients are treated. And I think that's shown up in the last 3 quarters in our numbers, and I think it will likely continue.

As an outside observer, at least for me, I felt like that was a slightly bizarre obsession with comparing and contrasting the different players in the market. Do you feel that way too and the people want to be fixated on the competitive environment relative to the data?

Yes. It's an understandable practice. I mean when one is competing, we could get fixated on it. It's part of the process. That's not how we feel right now because the product is doing well. It's got a lot of momentum. People are trying it, they're using it, they're excited. And as I said, we're not done innovating. So when we can keep adding to the core element of how to do this faster and more effectively, I think it's going to be hard to catch up at some point.

I mean it's the truth for pretty much all of my companies, but the vast majority of the discussion ends up being U.S.-based. But I'm curious like how you're viewing the OUS. And if you could split it, I guess, has developed and sort of more emerging but how you view that opportunity?

I'll briefly -- and you can add. So the last 1.5 years plus, we've sort of taken the time, really 2 years to deal with some things that over time has sort of evolved and changed. The markets have changed their reimbursement, so we weren't profitable anymore and this has changed and economies have changed in certain countries that have lowered reimbursement. So we had to sort of deal with that. Now we're not new to the international markets. We've been selling internationally for 18 plus, 19 years. We have people all over the world. We have a fairly good understanding as one can have. So I think we've done a lot of that hard work. I think last quarter started to show the beginning of that in our international business. I would expect that would continue as we move into this new phase with all of our franchises, not just the core thrombectomy franchise that we've talked about. So I feel pretty good about it. That being said, obviously, the reimbursement, the price point, the scale of the U.S. business and our footprint here is going to be bigger than the other places.

Have you found like any of the systems is particularly more user-friendly from a manufacturer standpoint flowing into them like any of the individual countries or regions have been better to do business in from your perspective than others?

Yes, but it changes over -- like if I look back over the last 10 or 15 years, it ebbs and flows, it changes. And that sort of makes sense. Economies change, politics change. So you have to be nimble. And I think we've learned how to do that over the last number of years and not settle in to just expect it to be one way because it's not. And I think that will put us in a pretty good spot going forward.

Yes, we have the team, like Adam said, the distributor partners for many years and then the ability to sort of stay fluid as the landscape keeps changing and focusing in on the latest technology where we're able to get the reimbursement and kind of work through those processes. It takes time. But at the same time, I think we're -- we feel good about the last 18 months of work that's been put in and trying to see the impact of some of that.

You guys do a reasonable number of investor meetings and you get probably the same questions over every analyst of which I have asked there, so apologies. But anything like -- what are you surprised you don't get asked about? Like what should I be asking me that I'm not? Like I'm sure that the internal focus on things isn't necessarily was matching the external fixation on different things. So like to your mind, like what doesn't get asked?

Yes, it's a good question. I think we covered -- I mean, usually, it's how do we stay so innovative that you actually did ask that, which I appreciate. We are -- I think we covered a lot of the ground. I think the fields we're in are not insignificant. I think it is -- it's an interesting time because of the launch of Ruby XL on the embo side and the focus with the sales force and the neuro interest around M&A is that our embolization business is going to have a good run. That should be, I hope, viewed as a good thing, not -- it's accretive. It's not going to hurt us. It should be good. So I'm excited that we can have a positive impact on some areas that we weren't otherwise in, at the same time, having a real likely moment around some of these disease state on thrombectomy.

I think we'll all be looking forward to TCT. Adam, Shruthi, thank you so much. Really appreciate it.

Thank you.

Thank you. Appreciate it.

Thanks for having us.