RBC's 2023 Global Healthcare Conference. I'm Shagun Singh, Senior Medical Device Analyst here at RBC. I'm very pleased to have Penumbra presenting here with us for the fireside chat. Joining us here is Jason Mills, Executive Vice President of Strategy at Penumbra. Jason, thank you so much for being here today. We really appreciate it.
Yeah, Shagun, great to be here. Thank you for having us. First time here, so it's fun.
Great. Thank you. I thought we'll just kick it off with Q1 2023 results, which you just wrapped about two weeks ago. You know, maybe we can start with volumes. You know, you guys delivered a pretty strong Q1 number, 20% sequential increase in sales. What were the key growth drivers? If you could elaborate, that would be helpful.
Yeah. Well, thanks again for having us. You know, the first quarter was a record quarter for Penumbra. It was driven in large part by our thrombectomy business, in particular our thrombectomy products on the vascular side. As you, I know, we were fortunate enough to get approval for and launch a transformational product called Lightning Flash, which we think is the way forward. Computer-orchestrated thrombectomy, a part of our computer-orchestrated thrombectomy portfolio, which is we think the way forward in taking clot out of the body. This particular product is tailor-made for DVT and pulmonary embolism procedures. That was a strong contributor in the quarter.
We think, you know, that portfolio is really the way forward for the next year and beyond that five-plus years we talked a lot about on the earnings call. In addition to that, we saw, you know, some renewed energy around the stroke business. It's a smaller, you know, patient population, but nonetheless very important. We saw some growth, good growth on the neuro side as well, with stroke, and that was really driven by innovation as well, new products on the stroke side that I'm sure we'll talk a little bit more about as this conversation moves.
Got it. That's helpful. You did deliver about 30% sequential growth in venous procedures in Q1, which is well above historical levels. It does appear that maybe about $15 million, so of the $20 million sequential increase was driven by Flash. Is that in the ballpark?
The majority of the sequential increase in revenue was vascular thrombectomy. Yes, we talked about Lightning Flash being the biggest product launch in the company's history in that first quarter of launch. We had talked previously about its predecessor product, Lightning 12, being the previous record holder. It was a significant contributor, but obviously we're just getting started with that product. We're looking forward to things ahead.
Got it. You also indicated that the majority of customers reordered Flash, you know, pretty similar rate between old and new customers. In April you received contracts with some of the largest hospital systems in the U.S. I'm just curious, is that in line with your expectations and is that something that's already factored into guidance?
Yeah. Obviously when a physician tries the product. Just to take a step back. Before a product, a new transformational product goes through a Value Analysis Committee, typically, hospitals will allow physicians to order one or two to try the technology and then the process of contracting and then VAC process starts. All of that is very in line with what we've as a company, have seen throughout many, many years of launching products. That was similar to what we have seen. Obviously, we're, you know, very excited by the fact that many physicians, those that have used our previous technologies, those that hadn't used our previous technologies, that tried Flash, were equally excited about the outcomes they were getting for their venous and PE patients.
You know, we're, again, just getting started with that, but it's been a really strong time of momentum with a brand-new product that's sort of, we think, transforming the space. Just early days really.
Got it. Any color you can provide on monthly procedure trends, in Q1 and, you know, just anything you may be seeing quarter to date in Q2?
Yeah, we typically don't comment to, you know, the real near term. I think qualitatively you hear from us a lot of excitement about what the product is doing for patients, and that certainly hasn't dissipated every time that you and I speak or we talk publicly about our business. Maybe that gives you an indication of the fact that we are very early with what we think is a transformational product in Lightning Flash. I'm sure we'll get to Lightning Bolt 7, which in the arterial side is equally transformational in the computer-orchestrated portfolio. We're even earlier with that having just launched that within the last month or so.
Got it. I wanted to get your take on just the vascular procedure volumes. They seem to be pretty strong emerging from the pandemic. You know, especially on the PE side is what we're hearing based on some of our checks. Can you perhaps elaborate on what's driving the strong underlying market demand and just the durability of it?
I do think that you're seeing more patients, you know, on an ongoing year-over-year basis and sequential basis, receiving a thrombectomy as the mode of therapy for getting clot out of the body. I think getting clot out of the body has never been a controversial thing. Clot in the body, being bad is not controversial at all. The way in which it's taken out of the body, I think is evolved and, you know, with our latest products and computer-orchestrated technology, we think that you've seen even more energy around this.
The vast majority of these patients still to this day, 90% of those 800,000 patients that are now applicable to computer-orchestrated thrombectomy, 90% of them are not being treated with any form of thrombectomy, let alone computer-orchestrated thrombectomy. There's still a long way to go, but certainly, there's a lot of energy around it. Physicians are dictating their practice based on the outcomes that they are seeing in their patients. I think with this new technology, they're seeing great outcomes. That's I think what's driving it.
Got it. I wanted to touch on 2023 guidance. You know, your guidance implies about $200 million in incremental year-over-year sales in 23, you know, given obviously that you have two new products that are being launched this year. It compares to about $187 million, you know, with Lightning 12 launch back a few years back. Have you fully factored in the contribution from Flash and Bolt, or is there some conservatism baked in at this point given that, you know, you're still early in those rollouts?
We are very early in those rollouts. With it, you know, we wanna make sure that we, you know, we'll understand and learn more about each product and the markets, and how they're participating in those markets as the year goes on. We'll get, you know, obviously more and more intelligence about that. I think you hear from us that we're excited about what, how those products have performed so far. We'll continue to inform you and others as the year moves on. What we have seen to date makes us, you know, excited. Obviously, with respect to our quantitative guidance, it changed.
It increased, quite a bit, from the February timeframe when we gave the initial 2023 guidance to the April timeframe or early May, I guess it was when we gave the updated guidance. That, that is, I think 23%-25% growth. It's, fairly significant step up and we'll, you know, continue to look at our business as the year progresses.
I think it did come in ahead of expectations. You know, as we think about Flash versus Bolt, can you just elaborate on how these two launches are different in terms of the populations they are driving conversion from, and which one of these do you expect will be a bigger revenue contributor to Penumbra?
Yeah, it's a great question. Their vascular beds are quite different in a lot of ways. You know, one's on the arterial side, the other is both in the lungs and on the venous side. You will have, you know. You have three different surgeon subspecialties, physician subspecialties that are treating, you know, all three of them. The arterial side's more of a vascular surgeon [guess] heavy, so there's a lot more surgery on the arterial side than there is on the venous or PE side, obviously.
What the surgeons need to see out of a technology is perhaps different than what an interventional radiologist or interventional cardiologist, interventional radiologists do a lot of the PEs as well as DVTs. There is some overlap there, but I think you get my point, that what they need to see out of a technology is different. On the arterial side, there, you know, Penumbra has been really the primary, if not the only innovator over the years in terms of arterial endovascular catheter technology to take the clot out of your arteries. We obviously continue that with Lightning Bolt 7. We are, you know, solely educating and developing that market. It being heavy surgery, heavy lytics, it's a different dynamic than on the venous side.
Equally under-penetrated obviously, on the venous side. I think there's been more attention paid over the last couple of years to mechanical thrombectomy. That notwithstanding the venous market, serviceable patient population. We think we can help 800,000 patients across those three. In venous alone, it's about 2/3 of that. That market is larger than the arterial market. Equally, you know, ripe for better patient care, we think with computer-orchestrated thrombectomy. By definition, a bigger number of patients, a larger number of patients, may contribute to the venous product, specifically Lightning Flash right now, to being, you know, it just has a bigger patient population to whom it is applicable.
I got it. That, that's helpful. I wanna talk about the two products in a little bit more detail, just before that, you know, I wanted to touch on the P&L. You have committed to delivering OpEx growth at a pace or growing OpEx at a pace that is slower than sales growth and delivering, you know, +10% operating margins exiting 2023. I think part of that was the $10 million in annualized savings from the Immersive Healthcare spending. Can you just elaborate on the areas of, you know, the other areas where leverage is coming from, and just what impact you're seeing from the launches?
Yeah, it's a great question, and it's really important that we continue to help more and more patients at the same time, run an increasingly profitable business. Both things can be equally true here, and we think will be. You know, to answer your question directly, obviously, given where we are in the penetration of the patients we can help, we're very low. We continue, and I think we said this in our prepared remarks in the last quarter, over the next five-plus years, we see opportunities for strong top-line growth. We've also talked quite a bit about our gross margins, which now are in the 62%-63% range, and we see a pathway to 70%+ over the next few years.
Obviously, that's a significant source of leverage to the operating margin line. We, as you get into the middle of the P&L, have been very efficient and productive on the R&D side. We will continue to be, but we don't intend to use that as a source of leverage. We continue to expect to invest similarly as a percentage of revenue in the R&D line. You know, SG&A, we don't need to hire significantly to grow our business. There is investment there, but disciplined investment, that should allow us to expand our operating profitability alongside the top-line growth and the gross margin expansion. And the guidance we've given for slightly over 10% by the end of the year is certainly not an ending point.
We, you know, given our commentary about five-plus years on in terms of helping more patients and the gross margin expansion, we intend discipline spending for the next several years as well, such that that's sort of a starting point to the next five years.
Can you put a final point perhaps on the timeline here for you to get to the +70% gross margin? Then, you know, how about, I don't know, the next milestone, 20% operating margin? You know, perhaps you can put it in the context of should we expect like, you know, a linear ramp or, you know, maybe certain years would be more heavy versus others.
We haven't been explicit there, but I'll try to help you a little bit. A few years is, you know, not one, but it's not five. You know, two to three years, is, you know, sort of a, you know, a reasonable timeframe. We haven't commented beyond what we said about operating margins towards the end of this year. That's why I wanted to say what I said about that's not gonna be the end. You know, nothing's linear in life really, except for math. Not even that's not always linear, as you know. You know, in business, you know, there will be years that, the margin expansion is greater than other years. I don't see over those, you know, few years, five-plus years, there to be a demonstrable, you know, difference, really. Not completely linear, but, you know, you can, you can get a sense for it in your model.
Yeah, no, that's really helpful color. A couple of questions on Flash. You know, can you perhaps talk to us about the time savings and blood loss relative to the predecessor device? Based on some of the checks that we did, it seemed like there was a 30% time saving, and the blood loss was down by 50%. What we were hearing is that it's not zero, but it's better than the predecessor product, materially better. Then also we were hearing that, you know, maybe this is a better product in certain patient types, such as, you know, those who may have soft clots or where there's less blood loss. Just any reaction to that. Do you agree, disagree? What's your take?
Here's what I would say. I think Lightning Flash is the most, you know, optimal technology ever created for taking clot out of the venous and peripheral anatomy in the lungs, PE. If you take a step back for a second, ultimately, you know, the act or the principles behind taking clot out of those anatomies are simple to discuss, obviously not easy, as you can tell with the innovation taking a long time and continuing to evolve, and we think and perhaps revolutionize here with computer-orchestrated thrombectomy. The principles are simple: Take all the blood clot out, the free-forming blood clot out of the vascular bed as quickly as you possibly can without damaging the vasculature, safety, right? Or taking too much blood out, right?
Flash has moved, you know, effectively what we're seeing there is eliminate the trade-offs, take all the clot out fast. The three words that you can think about is safety, efficacy, and speed. We think Flash optimizes each one of those relative to anything ever introduced to this patient population. That's just true. The commentary with respect to trade-offs and safety issues, we think we're really excited about what this does from a safety standpoint. Obviously, when you're talking about safety, again, you're talking about don't take too much blood out, don't damage the vasculature. When you're talking about efficacy, get all the clot out. To your point question about soft clot, this clot, that clot, Flash is the most optimal solution to take any morphology of clot out hard stop.
If it's, you know, if it's become collagen and part of the endothelium, you don't wanna take that out. That's not clot by definition.
Got it. That's helpful. You know, I guess just to take a step back, you know, you guys have talked about the computer-orchestrated technology platform, that's what's differentiated. You know, for some of the investors who may be newer to the story, can you just maybe briefly explain what that means and why your technology platform is different?
Yeah, absolutely. It's a marriage between the most innovative catheter technology, we believe, and it's something Penumbra has done for many, many years, starting with the stroke side, and the introduction of computer algorithms. We have a computer that sits in the sterile space. It is a part of the tubing that connects our engine pump to the catheter that are being used. In the example of Lightning Bolt, let's use that as an example. It is our 7 French catheter, CAT7, and that computer has a microchip in it that discerns the pressures that exist within the system. When you are engaged with clot, the pressures are different than when you are not engaged with clot.
The technology really, the evolution of computer-orchestrated technology is happening faster and faster on the computer side, such that the speed with which the system discerns the difference between clot and free-flowing blood, such that you can then maximize the aspiration of clot and minimize the aspiration of anything else. Flash is taking that to a new level, and that is automated with the computer that's inherent in this catheter system. Ultimately, where we hope to go with this technology is that the physician takes the appropriate size catheter to the clot, regardless of the vascular bed in the body, and puts the catheter there and presses a button, and the computer orchestrates the aspiration of clot and mitigates the aspiration of anything else.
Uh, that-
With Flash and Bolt, the progress along that arc of innovation is probably the most significant in the company's history.
Yeah. that's really helpful color. Thank you for that. You know, just, I guess on Lightning Bolt, you know, it does marry Lightning technology with Thunderbolt. Can you talk to us a little bit about the initial feedback and your go-to-market strategy with that?
Yeah. Bolt and Flash algorithms are the computer algorithms are different. Or let's start with Flash. Flash orchestrates a single valve system where the valve is opening and closing to obviously aspirate clot and not anything else. The Bolt technology, when you hear that in the nomenclature, we have a second valve in there, and that second valve is connected to an ambient non-pressurized saline bag, such that when that second valve opens, a small minute amount of saline is introduced into the tubing, not at the tip of the catheter. There's nothing coming out of the catheter.
Changing the dynamics of the fluid within the system allows us to do what we call modulated aspiration, which has changed the interaction of that clot at the tip, which is being sort of sucked into the catheter with the catheter so that you can. The idea is that modulated aspiration allows the clot to be fully ingested back through the catheter into the canister, so that you can do faster, more safe, effective procedures as the clot moves through and doesn't get stuck in the catheter. The impact from that technology vis-a-vis what physicians were used to, even with Lightning 7, is paramount. It is significant.
Lightning 7 is a great product, but Lightning Bolt 7 with the modulated aspiration has changed the perspective because in more cases, and you know, we have to get more data to, you know, more experience to say the majority of cases than all of them and get to all of them, hopefully, eventually, that's the goal, is that you're seeing full ingestion of the clot because of that modulated aspiration. What does that mean? Well, for vascular surgeons who are really good at surgery that wanna get that clot out and see it come out, they may say, "Look, I'm good at surgery. I'm a surgeon. It's in my name. I'm, you know, I'm gonna cut the patient open and take the clot out with an embolectomy balloon," because they see the clot come out.
When they're seeing the clot come out endovascularly now with Lightning Bolt 7 in a few minutes without, you know, having to do an invasive cutdown, that changes their perspective. Similarly with interventional radiologists who may prefer lytics for certain patients. It only takes, you know, 5, 10 minutes to put a lytics catheter there. If you can take the clot out in the same amount or less time and the patient doesn't have to have a catheter dwelling with, you know, with a drug in there in an ICU for 24-48 hours, that changes their perspective. You know, it's early days. That's the kind of thing we're hearing from our physicians that excites them about this new patient care.
That's helpful. I know we have less than a minute left. I just wanted to quickly touch on the THUNDER trial and Thunderbolt. You know, are you still on track for approval maybe later this year? Can you just talk about, you know, maybe, you know, I think there could be a pricing premium that you could get on it. You know, just if you can talk a little bit about the platform and also how should we think about the long-term growth trajectory given putting all these three pieces together?
You shoved a lot there in the last couple seconds. I'll try to get through as much as possible.
I think.
Obviously, the THUNDER trial is something we're enrolling. You know, we don't have full control over. What I will say is, when we talk about the energy around the stroke market, we're seeing the patients that are being screened for this. There is, you know, a lot of positive momentum, energy, whatever you wanna call it, around treating stroke. A lot of reasons for that we didn't get to, but I think that's a positive. The trial, this trial, like other stroke trials, has a very definitive window, 8-hour window. You have to know that the patient last known normal is within 8 hours. Otherwise, you can't enroll them in the study.
That's result, as we've talked about, in lots of screen failures for no other reason except for you can't discern that that patient is within eight hours. Would we like it to go faster? Of course, we would like it to go faster. It is progressing, and we're happy about it. We'll update timing, you know, about which we have less control than, you know, launching a product, for example, as the year goes on. With respect to Thunderbolt, when it is through the trial and approved and launched, this product, what we've seen is. Well, we're seeing it in Lightning Bolt. It's similar technology.
If you can take the catheter there, and more and more doctors can get a catheter to the M1 and push a button and the clot comes out really quickly, like in a matter of one or two minutes, that changes things. You don't need to use ancillary products like stent retrievers. Obviously there's a value to that will be inherent in the price of the product that we'll discuss later. It is, you know, higher than our aspiration catheters today. Ultimately, I think to your last question, technology, and we're already seeing it now with the RED 72 SENDit technology, which is really, you know, really meeting with a lot of positive remarks. We just launched that. Technology is making track and tracking these RED 72 catheters hours to the clock very quickly.
That actually is creating a lot of energy around treating stroke that I think is positive for patients. We're just launching SENDit, RED 72 with SENDit Technology, so more to come on that. It's exciting so far as we, you know, sort of move from where we are today into the Thunderbolt era. It's important to note, though, the experience and momentum we're generating with SENDit and RED 43 is important because those catheters are gonna be used with Thunderbolt. The catheter technology we have today, the RED series, will be part of the Thunderbolt series.
Got it. Jason, I know we are out of time. Thank you so much. Appreciate it.
Sorry for running you over. Thank you.