Ready. Hello, everybody. Rick Wise here again, and I'm pleased to welcome my guest, Glen French, Chief Executive Officer of Pulmonx. Glen, we keep doing this, and it's great to have you back again in this seat and talk about Pulmonx. It's been a very good year since you and Derrick have returned to the company, and I think the improvement in the operating picture is very visible. Third quarter sales returned to growth in both your businesses. U.S. was up 7%, OUS up 5%. Talk about some of the changes that you've been implementing at just a high level. We'll dig into them some more, but what's changed most on the commercial execution front, and compare and contrast that with what's going on internationally?
Yeah. In some ways, we can start with international. I left the company. I don't know if people know my history. I was the CEO of Pulmonx for about a decade. I retired in early 2024 and came back about 20 months later, and have been back now almost exactly one year. The last meeting that we held in Europe in early 2024, sort of the typical annual kickoff, we do a meeting in the U.S., we do a meeting for our international team, always based in Europe. We knew that we had the treating centers set up across Europe, and we really needed to focus on driving patients into those centers. So, essentially focus on same store sales and execute against that in a very focused way.
We delivered 15% growth in 2024 in international business and 15% growth ex-China in our, well, that'll come up in a moment why that matters, in 2025 as well. We're off and running. If you look at our growth, again, ex-China, and that's in Europe, which is the bulk of our international business, it's far stronger. It's closer to 10%. I think it's at 9%
in the quarter, and we expect to deliver double-digit growth there as well. So, we're essentially executing on. We executed on a plan of driving, focusing on driving patients that are close to the treating centers into those treating centers and making sure that the treating centers themselves were executing on bringing patients from the front door to the procedure room in a very efficient way. That's relevant because it's a pretty simple situation. You set up accounts, yet with champions and with processes that work well, and you drive patients through. You try to capture the patients that are easiest to get. So, the treating physician too often, in the past, wasn't even looking at their own patients fully.
I see. Mm-hmm.
They weren't going to their partners. A lot of these pulmonologists flock together at these treating centers. You might have 10, 20, 30 pulmonologists at a place like the Cleveland Clinic, and they're essentially partners in a large practice. You want to make sure that they understand this new technology and the type of patients that they should be treating. There are a spectacular number of patients with severe COPD. Some of them have emphysema and a specific distribution that's ideal for our procedure, so we want to make sure we get them. There are pulmonary function labs in these hospital systems. We're treating trapped gas. Trapped gas is diagnosed through these pulmonary function tests. We just want to make sure that we're picking the low-hanging fruit.
One of the things that we had this kind of best practices established a couple years ago and executed it outside the United States. I left, and when I came back, as is sometimes the case with new people, they wanted to embrace a bunch of new things, and we weren't getting a good return on those investments.
I see.
There's many of which have been talked about in prior conversations with prior management. We just kind of went back to the basics. We took that playbook that I articulated relative to the European organization.
Let's make sure in our case, we had 50% sales turnover, so number one, we need to fill the seats. Number two, we needed to elevate very quickly the capabilities of these new people because tenure went way down.
Right.
Because of the loss of these folks, bring them up to speed quickly, get these centers, our best centers, make sure that they are where they need to be, and then drive patients into them. We narrowed the focus. When I came back, the last U.S. sales leadership meeting, which occurred a month or so before we decided to make the change, I remained on the board while I was in this intervening time. I came back and I looked at the slides from the last sales leadership meeting. They had 30 imperatives. You have 30 things you have to do as a sales organization, and I'm like, "How can anybody?
Right.
We focus on four things now. Those are essentially around making sure that the accounts are up and running and efficient and using best practices, and then picking the low-hanging fruit as it relates to driving patients in. That's what we've been focused on. The first quarter that we were back, we bottomed out after eight consecutive successively slower growth quarters. The last five quarters we reported before Derrick and I left were average 41% growth in the U.S. That bottom-out quarter, like literally every percent change over prior quarter bottomed out at 11. It was almost a straight line. It went down.
Yeah.
The first up quarter was -7%, then -4%, and the last one was +7%. We've made it very clear that we see ourselves as a double-digit grower. We've got a lot of upside on the opportunity. I'll let you ask some more questions.
No, it's great. It's a great setup, a very important one, and certainly points in a positive direction. So I appreciate the back-to-basics aspect of the strategy. I don't know how I should ask it. Does the patient throughput or identification throughput accelerate from here? Because now these systems are in place, the salespeople are in place, and the doctors are ready, and so that's part of this let's get back to double-digit growth kind of trajectory ahead, potentially?
Yeah. We're really focused on trying to get back to, I just think, a better functioning organization that's more focused and executing well. That, as I mentioned, requires us to focus on training, which we have been doing. We're trying to, it's typical.
Physician training?
Both physician training and our sales organization-
Okay
training, because we got to bring people up to speed quickly. Normally, this idea that it can take six to 12 months to get a rep to sort of where they need to be is just too long. We're trying to shorten that to the greatest extent possible, and we've embraced changes in our sales training process. We've fundamentally altered the physician training process as well.
We used in the past, and this was on my watch as well, a very traditional approach to physician training. You would have a training center, say Temple University Hospital in Philadelphia, University of Chicago, those kind of high-level training centers that you would fly people into. They would be there all day. Half of it is sitting in a lecture room, half of it is standing in the procedure, looking over the shoulder of a global expert who is executing the procedure. Typically, we would ask the participants to come in with certain information on one or two patients that they would want to treat. They would leave that training class, they would go treat that patient, and then they would watch the patient for six months or something, make sure everything was fine.
When you start out with n=1 , it is very difficult to get to the second procedure.
Right.
Just because people just want to take the time to see how they are doing, and if there were any things on the edges that they were concerned about, they might hesitate. Now what we do is a much more of a proctoring sort of approach, where we have an expert who is on the phone, on video conference with the physician in advance of actually the training itself. Rather than the classroom training, they are doing that online. We are in collaboration with the American Lung Association with a training program there. The expert is having a Zoom call with the physician talking about potential patients. They try to line up three patients. The expert flies in, and that expert is over the shoulder of the doctor who is doing the procedure.
Watches them.
They're doing two or three procedures in that one sitting. Then that expert is on a Zoom call afterwards talking about how are they doing, what did you learn, what are we thinking, and then talking about what other patients do you have in the pipeline. As a consequence, the time to get a physician to, say, five patients is fundamentally different than it was in the past. We used to have people who I think just wanted to go to the country club and say, "Yeah, I do this procedure.
They didn't really do the procedure.
We don't have any of those people anymore. So these new accounts that we're bringing online are in a fundamentally different place on average than the new accounts that we brought on, say, four years ago.
That's exciting to hear. Just in thinking about the revenue model, breaking it down to three pieces, existing accounts, opening new centers, and expanding the number of patients in these accounts, what's the biggest opportunity, do you think, and which of those are going to have the biggest, just high level, biggest impact on growth in 2027, 2028?
Yeah
kind of timeframe?
Well, one and three are related, existing accounts and same-store sales. Increasing the number. The one that's different is the new accounts.
I think we are doing a much better job on new accounts than we did in the past, but new accounts have never, I mean, other than right out of the blocks, they really have not been central to what we are focused on.
The first year or two after you get approval, you are really focused on bringing on new accounts. Since then, I mean, if you go back through all of our transcripts over the last several years, it is always fairly incidental. We guide to something on the order of 10 new accounts per quarter, 40 per year. We have got hundreds of accounts now. We are not going to triple the number of accounts that we have. We are unlikely to double the number of accounts that we have. We expand the number of accounts that we have very opportunistically.
A perfect example is a referring doctor who is, let us say, in Westchester County here in New York, who has got a bunch of patients that they are seeing, and they have got a bunch of patients that are potentially candidates for this procedure, and the patients are going, "I do not want to go into New York.
It is a nightmare. I mean, I have a hard time moving around. I am on oxygen. I do not want to go into New York.
Right.
The physician looks at it and goes, "This procedure is not that hard to do. I could do this." And they end up getting trained up, and they take those patients that they would normally refer, and they start to do them. The majority of the newer accounts are literally a doctor 30 miles north of Tampa who has got a fairly rural population-
That is true.
That does not want to send people into the big city.
We are at, I think we have got on the order of 400-some accounts, and maybe we top out at 600, but we are just scratching the surface on the opportunity. We are maybe 10% penetrated into the opportunity that exists, and that is on an incident basis. Prevalence is 10 times that amount. But on an incident basis, it is lightly penetrated, and we believe that we are in the right centers, and the things that we need to do is all about same-store sales. It is all about one and three.
Okay.
Be in the right accounts and then drive patients into those accounts.
Right.
That's where the growth is.
Is it simply a rinse and repeat in those accounts, just as you were highlighting about training and proctoring and going from, if there were 20 pulmonologists, just going from pulmonologists, bringing each one into the family, so to speak?
It's pretty straightforward. It is what you just said. It's also leveraging where the information is. The pulmonary function lab might see 5,000 patients a year.
Right.
Patients with COPD, there's some subset of those that have significant air trapping. Our procedure, I think anybody who knows what we're doing, is patients with emphysema have significant tissue destruction. In those areas of significant tissue destruction, air can find its way in and can't find its way out. Imagine you've got a one-liter empty bottle in your chest cavity, which is a fixed space, and that one or two liters of trapped gas inhibits healthier tissue to expand. If you could magically go in and remove that empty bottle and allow healthier tissue to expand in its space, then the hypothesis is you will improve pulmonary function and quality of life. The initial concept was pursued surgically, crack open the chest of critically ill patients and go in and lop out parts, these offending areas of the lung, and the efficacy was good, very good.
The safety was very bad because the patients couldn't withstand the insult of the procedure.
The procedure is called lung volume reduction surgery. There's hundreds of them done per year in the U.S.
Wow.
We will this year do 10x as many of our procedures as have ever been surgically done.
Yeah.
The reason why is we're able to treat patients who wouldn't be candidates just because they're not well enough to.
Undergo them.
withstand the insult of the procedure. We go in bronchoscopically, no cut. We go into the target area that we're trying to bring down. We put in these little one-way valves that allow the gas to leave and not go back in, and because all of that, it's like a very low-density sponge. It's all air. If that comes out, what could be two liters becomes, on an X-ray, in some cases, just a sliver of tissue.
That's the absence of air-filled lung. It's like cotton candy under a microscope. I mean, there's very low density in the target areas that we're looking to bring down.
That is a good description. On the sales force side, you talked about accelerating training, getting them up the learning curve. Just at a high level, remind us how big the sales force is today. My impression from your public comments is that you do not need more reps necessarily at this point, or do you? How do they support your desire to get back to double-digit growth? What has to happen on the sales side?
Yeah. Well, much like with the account growth, which I described as opportunistic, our sales force does grow. It is just at a very slow rate, and it is very opportunistic.
Right now, actually, these are public comments, so I am not going to say. I do not want a rep to hear this. But you look at territories, and it is obvious. If I was to get into specifics, it would be obvious that we need to divide some of these geographies.
One thing that I have said publicly before, we have one territory in the West that literally touches the Mexico border and the Canadian border.
Wow.
Yeah. We have 44 territories. The U.S. is divided into. Literally every inch of the U.S. is divided into one of those 44 territories, and we have 20 junior reps. Roughly half of those geographies, we have a second person who's in that geography. A lot of our reps today are former junior reps. The reason why we place an additional headcount into that geography is either because it's a massive piece of dirt, I mean, it's just like I described, and it's just impossible for one person to cover it, or it's a spectacularly large business. Our territories on average are on the order of $1.4 million.
Our territory actual size is anywhere from $0.5 million to north of $3 million.
The $3 million territories that come to mind are not like New York, Chicago, and Los Angeles.
Interesting.
I'm not going to say where they are, but they are not what you would guess.
Right.
Which is incredibly encouraging because it is like you get the right people with the right plan executing the right way, and you can be in Wisconsin generating I just picked Wisconsin whatever, generating a ton of business.
You have talked about splitting territories as an opportunity to drive deeper account penetration. I mean, is the opportunity, I mean, are there one or two a year kind of rate or?
Yeah. We were at 42 last year. We are at 44 now, so like 5% growth. I think it has everything to do with, like, do you have either a geography that is too large for one person to cover? Do you have a business that you think you can cut in half, put in an additional headcount? In many cases, what we would do is we would typically, if we had that large geography, we would probably have a junior rep, so we would be asking ourselves, "Is that person ready?" And if they are, then that is an obvious person to take over what would be a new territory. And the cost of elevating that junior rep into a new territory is not the full cost of taking somebody off the street and bringing them into a newly formed territory.
The incremental cost is not that great. If we assess the opportunity for growth, if creating this one plus one situation versus one over one is generating enough revenue, then at 75% + gross margin, there is not a massively high bar for us to make a decision that it makes sense to divide these territories. We will do it opportunistically.
One topic that I am always fascinated about, and I wonder, coming back after some time away, whether doctors are more excited about, less excited about AeriSeal. AeriSeal, for those who do not know, is designed to reduce collateral ventilation so that severe emphysema patients who are not currently eligible for a Zephyr stent can become treatable. You have framed it as roughly a 20% global TAM expander. Maybe first remind us of the patient problem it solves, and where are we in terms of bringing that to market?
Yeah
and reducing physician objections to patient identification?
Great. We talked about the idea that you can identify the patients that we are targeting. They are almost invariably former smokers. They present to their physician as, "Boy, I am not able to play with my grandkids the way that I used to. I am not able to walk up my driveway and get my mail as easily. I am short of breath walking to the second floor." The physician will say, "Okay, well, you are a former smoker. You are short of breath. Let us do a CT scan." They will assess the CT scan and say, "Well, the density of your lung tissue is less than what we would imagine. All indications are that you have emphysema." If the destruction leads to this air trapping, then they can be assessed for this volume reduction procedure, which is what we execute. That is where we start.
Now, we have a quantitative CT analysis software. That scan that is used to diagnose the patient is dropped into our StratX quantitative CT analysis software. It helps with treatment planning, which is the most damaged of the five lobes. You have three on one side, two on the other. We are going to target one of them. What is the probability that that target lobe is connected to the lobe next to it? Because if it is connected, if there is collateral ventilation between the target lobe and the adjacent lobe, then our valves are not going to work, because as air comes out and it is not supposed to go back in through our valves, it will not go back in through the valves, but it will refill that target lobe through the back channels, through those collateral ventilation channels.
The scans that we look at, we calculate the completeness of the division between, and if it is greater than 80%, then it is a target for us. You schedule the patient. You think you got, there is an 80% complete fissure. You go in, and prior to placing valves, we have this product called Chartis Pulmonary Assessment System. Chartis Pulmonary Assessment System is essentially a computer attached to a catheter with a balloon on the end. You go into the target area that you are hoping to bring down, you blow up the balloon, and you measure changes in pressure and flow on the far side of the balloon.
If you calculated the target to be one liter of trapped gas and three liters flows back through that balloon catheter, you know you have collateral ventilation. That is not a good patient to treat. You are not going to get a win.
Why put a permanent implant into somebody who you know in advance is not going to benefit? Those patients get woken up about 20% of the time.
They are incredibly disappointed. 80% of the time, it is a green light, we place valves, and patients are woken up, and they are super happy. That was where they wanted to get to. 20% of the time, they are crushed. We acquired a technology called AeriSeal. Think about AeriSeal like a bike patch kit. You got a flat tire, I got leakage here, I want to seal that communication channel between the target lobe and the adjacent lobe. Imagine during that procedure, 20% of the time, you get a red light on Chartis that says you cannot put in valves. The doctors already talked to the patient in advance and said, "We are either going to put in valves, about an 80% chance, or we are going to put in AeriSeal and try to seal that fissure." Actually, we have done a study with AeriSeal in this application.
It has been reported already at the European Respiratory Society meeting some time ago and has been accepted for publication. It will soon be published.
That data shows that 75% of the time that we seek to seal that fissure, we can do it, which enables, means that 75% of that cohort is going to be treatable with valves. The revenue opportunity is on AeriSeal in all of these patients, and for valves that we would not have otherwise used in 75% of these patients. The TAM expansion in that application is about 20%. The asset that we bought from a company called Aeris Therapeutics, this AeriSeal, was studied in 100 patients as a standalone treatment. It is a very precise treatment. It can be used on a segmental level or a sub-segmental level, which is a subset of the way that we use valves today. My point with that is that we have additional research that is underway for those kinds of applications.
Which could be theoretically, and we would need to prove this in studies, we got 100 patients of data that suggests that it is a volume-reducing technology as well, could be used in parallel with valves theoretically, could be used in series. Imagine a patient gets valves, and because it is a progressive disease, five years later, they could be saying, "Well, I had five lobes, now I effectively have four. I do not know how comfortable I am going to three," i.e., using valves again five years later. Maybe there is an opportunity to go into a heterogeneous lobe and take down some of the highly hyperinflated areas of that lobe using a technology like AeriSeal. This is a potential TAM expander beyond the one that we are studying. We are very deeply into the CONVERT II trial, which is the IDE trial, which we negotiated with FDA.
We have a CE mark on AeriSeal. As soon as we are done enrolling patients out in Europe and Australia, which will be next year, we will roll to commence commercialization with AeriSeal outside the U.S., essentially in the markets, the European CE mark markets. We will see our first revenue at the beginning of next year, I mean, at the end of next year, and we will commence meaningful revenue from AeriSeal outside the U.S. in 2028. The path to the U.S. marketplace is about two years further because we got to wait for the follow-up from CONVERT II.
and then get FDA, go through the roughly one-year-long process with FDA to get that. That's probably late 2029.
Thank you for the thorough answer. We only have literally a minute left, but it sounds like you're poised, you're executing well, and you're poised to show, I'm not asking for a prediction or a guidance, but sort of steadily improving, moderately improving growth as we look ahead to these next couple of years because of all these commercial execution and data and ultimately AeriSeal.
Yeah.
I mean, those are just cranking away, executing away.
It's very simple. We lost 50% of our sales organization in 2024/2025. We got a bunch of new people. We're filling seats. We're getting them up to speed. We're getting our accounts to where they need to be. We're pushing patients through, and we're trying to push the TAM expanders as quickly toward the market as we can. It's a very, very simple execution play.
That's great. On that note, Glen, I thank you as always for being here and sharing your thoughts.
Great.
Good luck with everything.
Thank you.
Thank you