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

All right. Good morning, everybody. Thanks so much for joining us. My name is Matt O'Brien. I'm one of the med-tech analysts here at Piper Sandler. Picking up day 2 here with a phenomenal company in Penumbra. From the company, we have Adam, who's the CEO; Shruthi, who is the President of the company. We're also joined by Arani, who is one of the co-founders, and then Cecilia and Jason are in the audience as well. Thank you so much for coming all the way across the country to be with us.

Happy to be here.

So can we start with what happened in Q3, especially in the embo and access business. As I was saying to you earlier, it was so good, I actually thought there was a mistake in that press release. But just talk about the strength that you saw there, splitting the sales force, and then just the durability of that growth, because I think that's being underappreciated by investors.

Yes. Well, Shruthi, why don't you start with the sales force and why we did it, and then some of the new products and all that?

Yes. So towards the end of last year, we saw this growing sort of interest in the CAVT portfolio, the franchise. And to get our team to be 100% focused on that, we said, now is a good time to actually expand and add an additional set of people that can focus on our growing embolization product line as well. We've had our embolization products for multiple years since 2013 in the periphery. And physicians have just loved these coils and how they perform. So it needed its due attention. And so with that in mind, we said let's bring on this really tenured group of people that are going to be spread around the country, a little over 50 people that came in and joined the team from really tenured areas like TAVR and aortic and other coil companies. They just came to be a part of this innovative culture that we have at Penumbra. And we sort of got lucky with the timing of Ruby XL, which is the sort of latest addition to that coil portfolio. And so right when they came in and got trained up and running, they then got to go and launch Ruby XL to our customers. And as you saw and as you pointed out in Q3, that was the first full quarter of launch of Ruby XL, and we really saw it take off. There's a huge amount of interest in that coil. What it essentially does is it fills spaces faster. It's a larger vessel coil. So any time you're trying to fill large spaces, you can just use the Ruby XL, and that's what physicians have been looking for. There's been very little innovation in that area for a while. And so they were excited to see Penumbra bring the softness, the volume advantage that we are known for with our coils, bring that to the large vessel sort of space. And these reps have, like I mentioned earlier, all this tenure, and so they are continuing to elevate our overall sort of commercial team and how we operate. So we're seeing sort of the early innings of all that play out right now, and we're pretty excited about what's ahead.

Got it. Okay. So maybe I'll just stay there for a second. Hemorrhagic stroke, it's a smaller market, obviously, than ischemic. And then it's also thought of as maybe a little more commoditized. So when you talk about a soft coil, can you talk a little bit more about Ruby XL specifically, the uniqueness and how that's scaling?

Yes, let me -- so what Shruthi was talking about is on the peripheral vascular side.

Okay. I'm sorry.

No, no, it's totally fine. There's a lot of different parts of the body here that we focus on. So you do a lot of embolization in the peripheral vascular. The neuro, we'll get to in a second, but that's a very specific thing that also is having a new area sort of birth, if you will. The coil -- the platform that Shruthi is talking about has really been around for a long time. We have a new offering with the Ruby XL, but the whole platform fills spaces faster, softer, better. And it's been around for a while. We've had lots of the companies we compete against in those spaces have tried to match our technology and not yet done that. So it's unlikely that they're going to keep trying. So I think we have a pretty likely run here of being able to continue to grow on the peripheral vascular side of our business, on the coil side. On the neuro side, you're right, the hemorrhagic, which is sort of cerebral aneurysms, if you will, as another way of framing it, has been somewhat not only commoditized, but coils and flow diverters and various other tools. The growth that we're seeing on the neuro side, which is also significant, is coming from a new procedure called MMA embolization. And that really wasn't being done even a couple of years ago, and it just started being done. This is where you have a dural hematoma and you're trying to embolize it to stop that. The early returns, if you will, have been really, really positive. We play in that world against sort of liquid embolics, which can have a safety challenge. Once a liquid leaves the catheter, you don't control where it goes. With a coil, obviously, you do. We happen to have a coil in that world, in that space. We did not design it for this. We designed it for other applications, but it happens to work. Well, it doesn't really have a shape, it just sort of runs and fills the length of the artery in a way that really is incredibly productive for these patients. So we're seeing a pretty significant growth. There was a report came out recently that predicted -- that sort of tried to -- again, we haven't done this, but this report was saying that there's a lot of interest and the opportunity, if you will, and MMA embolization alone could be a $1 billion opportunity for a while. And that's wonderful. We're excited. We're seeing that, too. So you combine that with what's happening on the peripheral vascular side. And for the first time in a number of years, our coil franchise, our embolization franchise is going to be growing at the same pace as the rest of our business. So it's pretty exciting. And they're accretive to margin.

That was my next question. Well done. You read my mind, which it's not hard to do. But what about the sales force? Is it -- for the embo sales force, is it complete? Is it good to go? Or are you going to keep adding?

On the peripheral vascular, it is in a good spot now. Obviously, as the business keeps growing, there'll be a little bit of add here and there, just as we always do, but nothing -- like we don't have a plan to hire another 50 people.

Right. Got it. Okay. And then when you talk about the durability of growth there, I mean, similar kind of levels as just the overall business, or even faster than what you've been doing kind of the mid-teens or even upper teens for that business?

Yes. So we'll wait until the next quarter's call to give sort of numbers to that guidance. But needless to say, I think between where we are on our thrombectomy and what's happening in the STORM and everything else in our VTE product business and what's happening here, you combine it all, yes, I think we don't have the China headwinds anymore. International without China is now back in a good spot. We've done a lot of hard work to get the business there. I think we're feeling pretty confident that we're going to have some fun years here.

Good. Excellent. Okay. So you touched on STORM-PE a little bit. I would love to talk a little bit more about that. I know it's early, but data was good. It was really good. What kind of feedback have you gotten early days on that? And some of the pushback that I hear is like, oh, it's a small study. It's not really going to influence the overall industry, but we haven't had much clinical data like this. So why is it not a great perception?

So there is no -- we have not heard that other than through the investment community, to be very candid with you. The size of the study -- I think most people do understand basic clinical science that the size of the study is based on how little -- how many -- how few patients you can use to prove your point. In this case, we did it with 100 patients. It doesn't make it bad, that makes it even better. Most physicians understand that. That is not a -- obviously, if you're a competitor, you say that. But that's obviously not a valid scientific idea. The fundamental thing here is the reception to this data, both on the primary endpoints, but the secondary endpoints, which were really extraordinary. The study was not powered to show any superiority on the secondary endpoints, and the 4 most important ones showed superiority. You add the safety element, which showed just how unbelievably safe and fast our procedure is compared to even other mechanical systems, has been really just extraordinary. I mean the reaction through both the interventional community, but the noninterventional community has been really kind of fun. So the work started with out there doing the work. The hospitals are changing protocols as we speak. It takes some time, but we have not heard -- I can't -- have we heard stories there? Like, we're not going to address this.

No. And in fact, the physician community is thankful that someone finally decided to run this trial that showed that mechanical thrombectomy with CAVT is superior to anticoagulation. Essentially, it's as safe as not intervening on these patients at all, which is a big statement. So not only do you have the safety profile that everyone, the interventional and noninterventional community, look for, but then you also have the RV/LV ratio reduction, that leading to better long-term outcomes as we've shown in the secondary endpoints in times that were a record 25-minute procedure times, device times, and 56-minute procedure times are unheard of. So I think for the physician community to see that, to see that there was a very low requirement, each operator only had to have 2 prior cases with CAVT before they could enroll in the trial. So they talked about the device being really easy to use, and that was a big topic at the conferences. And that has then prompted physicians to say, well, not only is this safe, it's really easy to use. I don't have to do 100 cases before I get comfortable with the technology, it's time to switch. And that's what we're seeing.

Okay. And how big a deal was the RVRL (sic) [ RV/LV ] update? I mean, is that an issue that the clinicians are dealing with quite a bit and that it's top of mind where it's like, wait, we're doing -- this is superior here and this is a big deal and really going to influence my utilization?

Yes. Actually, RV/LV ratio is how the classifications are actually decided. So when you have a right heart strain or a high RV/LV ratio, you fall into the category of an intermediate/high-risk PE or a high-risk PE. And so that's the diagnostic measure that physicians use to then decide should this patient actually be treated or not. And the goal there is to then reduce the RV/LV ratio like we did in the study, and be able to show that you're relieving the pressure on the right heart and the patient is able to get back to normal function.

And I think the point that was made at Veeva and then beyond, and has been repeated hundreds and hundreds of times, is that the rest of the data in the trial, the 6-minute walk test as well as the other functional outcomes, all validated the use of RV/LV ratio as a primary endpoint. They all work in sync. Obviously, if those endpoints weren't as incredibly strong and statistically significant, one could say, okay, well, what did we actually do here? But when you have it all, just across the board, it validates that is obviously the right endpoint given the use of it in the diagnostic setting.

Got it.

So yes, we have not heard -- again, the 2 things that one hears from the Wall Street community is the size of the trial and that endpoint, that is not at all what we're hearing in the medical.

And what are you hearing from the referring physicians? That was interesting, too, that got their attention as well. Because I know that's always been a challenge of getting the patients in, getting mechanical thrombectomy done.

Yes. I mean, it's been just extraordinary.

Yes. I think the makeup of the steering committee, having 4 noninterventionalists as well as 3 interventionalists that were part of the steering committee, that in itself was a fact they were involved in the design of the study, they were involved in the execution of the study, they were involved in the results, the rollout, the publication. And so now they've got what they need to go and talk to their sort of peers and counterparts. And that work is well underway, both through some of our education efforts, but also through the PERT consortium, which is the largest sort of group that's solely focused on PE. And their members are both interventionalists as well as noninterventionalists from all the main institutions around the country that are treating PEs. So they're getting the word out through their channels as well. And they also announced what was called the PRISM program, which is meant to go and get centers to update their protocols and digest this information and start to refer patients on for treatment that should be treated.

Got it. Okay. I guess the penetration rates of mechanical thrombectomy are pretty low, right? Is that because pre-STORM-PE, it was viewed as, as you mentioned, the RV/LV levels, like this is really just for the more challenging complex patients. And then STORM-PE can really open up kind of that intermediate group. Is that the way to think about it? Or is that too simplistic?

Yes. I mean that's, I think, a fair way to look at it. And you now have data, randomized controlled data that shows that mechanical thrombectomy is superior to anticoagulation. Up until now, that hasn't been available. So the standard of care up until now has been anticoagulation, unless the patient clinically deteriorates, and that's when they escalate to some sort of a treatment. That now is going to be what changes where they're not waiting for the patient to clinically deteriorate when they come into the ER. They say, okay, they have high RV/LV ratio. Let's go in and treat them with CAVT.

Got it. Okay.

Yes. I mean I just want to put a real fine point on that. That is sort of why some people were being treated, because they were being watched, they get a little anticoagulation, and they wait until they start to crash and get bad. And then they're like, okay, now we have no choice but to treat them. That's what started sort of building the whole market. And if you think about it, okay, now we have really strong evidence, just don't wait. And there's just a common sense. Like if I were to ask you or anyone else, if you had a PE, would you have -- saying, no, no, no, I want to see if anticoagulation works. And I understand there's a risk that I could crash and die, but I'm going to take that risk, because I don't want something that's been proven really safe to take the clot out first. Like it just doesn't make any sense. And so now we have the evidence that supports the common sense approach here. So that's why it's being so well accepted. And the safety profile being now serious is a deal too, because it's like [indiscernible].

Okay.

If it was not as safe, then there's a risk to doing that. But there is no risk to doing that, because it is as safe. And numerically, in the trial, at least it wasn't statistical, but it was numerically even safer. There is just no reason not to do that. And people have wanted that data to support that behavior. No one wants to watch their patient crash and then hope that they can be rescued. It doesn't make any sense.

So you have a huge installed base already. How quickly do you think they can start to implement these protocols? Sorry, we're all numbers here. I mean is it second half of next year? Is it even faster than that?

Yes. We're, what, a month barely into it. So it's hard to give you the kind of numbers. But the way I would look at it is the first phase here is the acceptance, the knowledge of this data, the ability to sort of now engage with the teams in your hospitals to change protocols. All of that is well underway. It didn't happen in 10 seconds, but it is already happening. To get the sort of full benefit will take a little time. But again, that's why we at least want to stress here. The reaction to this has been, across the board, positive. People want to do this. There's no logical reason to not do this. There's no group or team saying it's just about education, just about doing the work to change hospital protocols. And as that happens, I think more and more people will have the benefit of waiting to crash.

And the protocols will get updated, but that doesn't mean that the referring physicians are going to wait for that when a patient like comes in the door today, for example, right? They just see, okay, the patient is...

Yes. And we've seen that already. We've seen that already.

Got it. Okay. That's fantastic. It sounds like the market is ready to accelerate. You have a new product, 3.0. I thought 2.0s are very quick. What are the features of 3.0 that are different from 2.0?

So the way I would describe it, when we launched 2.0, there was a lot of discussion, well, it's just incrementally better. Yes. But 2.0 was what got us here, because that incrementally better meant it was way faster and it took out less blood -- there's a lot less blood loss. So it just worked better than 1.0. 3.0 does the same thing. So it works faster than 2.0, and there's even less blood loss. So those are the 2 fundamental things. How did that happen? And this, I think, is worth me explaining sort of what the product change was, because I think it's important. With 2.0, it was just a software change. And the algorithm got a little bit more fidelity, so it can open and close the valve of the aspiration source faster. With 3.0, there was both a software change, but also more significantly, a hardware change. And that is -- in Flash, that technology, the computer unit that controls the valve and the valve itself is at the end of the tubing that connects directly to the pump. So it's all the way up the source of the pump. With the Bolt technology that we use for the arterial side, and also with now Bolt 12 on the venous side as well, now also Bolt 16, the unit is in the middle of the tubing, which is in the sterile field that has the valve in it, and that's where the computer is. So the valve for 3.0 -- so we're using that same hardware for 3.0. So the valve is halfway further toward the tip of the catheter. So when you open and close the valve and you're that much closer, the fidelity of how fast the valve can open and close increased because of the physical proximity as well as the software being updated to adjust to that. So you now have -- the Bolt 16, which also got, cleared and 3.0 use the same hardware. They're separate products today, but one can obviously imagine them someday being the same thing that you could toggle between the two, which would be helpful for a clot that might be a little more organized or fibrous and you can just go back and forth. But 3.0 has that huge fidelity advantage. It's just that much faster. So if you look at the trial, our device time were, what, 25 minutes, which was unheard of in the PE field. If that can cut down even by 10 minutes or so, blood loss is less, you're talking about a whole different thing. When you're asking people to treat 80% more patients, time does matter, time in the lab. You don't really have time for 1.5 hours plus case anymore. You want to get it done really quickly.

Got it. Okay. Makes sense. So I know everybody in the room and on the call are going to kill me if I don't ask, but I'm going to have to ask about Thunderbolt. Would you classify the questions you got back as pretty straightforward? Did they ask you for more data?

So the questions -- yes, so let me give you guys some -- the FDA, particularly the neuro division, is very thorough. They've always been thorough about new products. We have never had a situation where one has known how long we've been under review for a new product, because we haven't had a trial since we've been a public company. So there's never been this clock that everyone is measuring. There is nothing about this process. They ask a lot of questions. Some of them are, why are they asking that? Others are, that's a logical question. They're thorough. We want them to be thorough. That's a good thing. We then answer those questions. No conspiracy. I look at the data, it's extraordinary. This product works. We're going through the process. Since our submission, they've asked a few clarifying questions. We're going to answer those. It's the process. There is nothing that one can be anxious about.

Okay. And there's nothing external that was outside of your control as far as shutdown goes or anybody left because of shutdown or...

Not that we have been made aware of. I mean, we might not know that, obviously, but not that we have been made aware of at all.

Okay. And maybe just talk a little bit about ASP on that product. When it does get cleared? How do we think about that?

We haven't set that yet. It obviously will be higher than our current ASP. There's a sort of a total amount that you don't want to exceed. And so there's a little bit of trade-off. If someone is using our catheter and inner catheter and sort of add it up, the delta will be less than if they're just using a primary catheter of ours. There's room in there for an ASP uptick. That will take process. You got to go through VAC and all, which is a little more straightforward in neuro, just because there's less accounts. So we're ready to go. We've launched a lot of neuro products over the years. We know how to do it. I know it's gotten sort of an outsized view of the world. It is an exciting product. We can't wait. We have so many other things that are -- I mean, if you just look at MMA, and again, I'm not saying look over here, not here, but we have to pay attention to other things, too. If the MMA -- if it's true that it's a $1 billion opportunity for us, and we have a unique product that no one else has that seems to work really well and is the safest alternative and potentially the most cost effective, it would be strange for us not to also want to do that at the same time as have Thunderbolt, right?

Yes. Makes sense.

But we're going to do it all. And that makes for a really fun view.

Absolutely. Okay. All right. Well, I think we've taken us over. I apologize for that. Adam, Shruthi, thanks so much for the feedback. Really do appreciate it.

Yes. Thank you. Appreciate it.

Thank you. Great questions.