All right. Good morning, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo, and it's my pleasure to kick off our 2023 healthcare conference with Penumbra. With us this morning, we have Adam Elsesser, Chairman, President, and CEO, Jason Mills, Executive Vice President of Strategy, and Jee Hamlyn-Harris, Head of Investor Relations. In terms of format, it's going to be fireside chat. If anybody has a question they want to ask, just raise your hand, and we'll come around with the mic. So Adam, thanks so much for being here.
Thank you for having us.
So, you know, Adam, I wanted to start off. I always like to start off with a big-picture question. And you gave a goal of $1 billion in revenue for 2023 a few years ago. You're on track to exceed that. And you've talked about on recent earnings calls robust growth trajectory over the next five plus years. So what, what's giving you this confidence, and how do you define robust?
Well, let me... So there's sort of two parts to that question. Let's start with what gives me the confidence first, and then, then I'll, I'll try to define robust a little more. What gives us confidence right now, and we sort of tried to lay it out. I, I don't think I did a maybe a great job on the last earnings call. What is different about this moment in time for us than at any other moment in time? What, what are we seeing and, and how are we reacting to it? So, you know, just as a little history again, we started out almost 20 years ago with this crazy idea that you could potentially remove blood clots, and that, at that time, from deep in the brain, and have an impact on stroke patients.
The same fundamental principles apply to removing blood clots everywhere else in the body. Things change a little, sizes of catheters and so on. But we knew it would take a long time because it wasn't obvious, it wasn't easy, it hadn't been done before. But we are now at a point with our current technology, Lightning Flash and Lightning Bolt, where we see sort of the, the end game, if you will. And we've been working at this and improving and improving and improving for quite a while. And when you think about the vascular space, you know, we have been doing this since right around when we went public. In 2014, you know, we really launched our products and, and kept going in 2015 beyond.
And all of our versions, whether it's the arterial side or the venous side, were good for the moment in time, but they weren't good enough to say, "This is how the story ends." And we would get feedback from our customers, sometimes our very loyal and good customers. "Yes, it's better than it was, but it's not good enough. It's not good enough." And we now are at a time with that same core group, and it's not one or two people, it's a significant number, who have used Flash and Bolt extensively. And their reaction is, "This is, this is the platform." Now, we're going to keep tweaking and add, and we have robust things to continue, but this is sort of the technology platform where it's where it is going to end.
Where the three things that matter most, which is safety, obviously first, speed, and simplicity, are satisfied. And we've never heard that before from customers. So that's incredibly, you know, We have a lot of confidence from hearing that. That's a big deal. But that's not enough because that's, you know, people who otherwise have bought into the idea of computer-aided vacuum thrombectomy, or CAVT, as they're now calling it. That's like, you know, an echo chamber if you're just listening to your friends. What is confirming of that is what we talked about on the earnings call, and that is the fact that we now have so many customers, more than we have ever had in almost this huge second wave of a launch, that want to use the product.
Some because they've used it once or twice, and then they go through the hospital submission process. Others because they've seen or heard trusted colleagues use it, and they want to get on with it because of the fact that it's safe and it's fast and it's simple. The scale of that is something that we tried to quantify. Most launches, you know, there's about a six plus month period, and you get most of your customers during that launch time. That's what people are saying, you know, we done. You know, we're now into that period, and this is sort of how it ends. What we tried to explain is this is the beginning of the whole next phase of launch, where people who have never used us now want us.
Some who used it once or twice and then have to wait until they can buy it through the process. So there's. I know people buy data sets, and they saw this idea that people used it once or twice and stopped using it. I know our competitor took, you know, I kind of like it. They took comfort in that fact, what they don't know, and I guess now they will, is that almost all their customers have put it under submission to-- because they want it. So, you know, we're gonna have a lot of fun. You know, they don't know. I mean, doctors don't tell a company they're still using their product with, "Oh, by the way, I'm gonna switch to the competitor as soon as I can." So they wouldn't necessarily know that. I guess they do now.
But, but that's what gives us so much comfort. That's on the venous side. Same thing on the arterial side. We sort of are credited of, and I'm proud to be credited with this, that we are the, quote, "market leader" on arterial. We are, except the market leader has, like, less than 10% share because the vast majority of those patients are being treated with open surgery or lytic. And so the same thing is happening on the Lightning Bolt side, where the customers, the, the people who are using other modalities but still treating those patients, are coming to us at a scale we have never seen before. And it always follows a little later because they, by definition, have a viewpoint. And so the day you launch the product, they're not like: Oh, now I'm gonna switch. They have to wait to see the product used.
They have to wait to see other people experience it, have good experiences, and then they start. So there's always gonna be this sort of six-month lag time, but that's why we look at, you know, finishing this strong with the fourth quarter and into next year in a really strong way. So to go to your final question, I know I'm taking up a lot of time answering your first question, but I did warn you. We, you know, we look at, you know, 2024, for example, as, you know, the next year and say, you know, it is given everything I just said, it is, we think that at least a 20% growth rate is very achievable.
Right. That's super helpful. So you answered the 2024 question. So the street's at about 17%, you think at least 20% is achievable?
Yes.
I guess I'll push you a little bit. You talked about five years.
Yes.
I mean, is there a plan? You set out this billion-dollar goal. Is there a plan to set out another goal once you achieve this billion-dollar goal, the long-term goal?
Yeah. There's no question about it. If you look at the number of patients that we have to treat, the sort of superiority of our technology, I think you can sort of do the math and say that we're gonna have a pretty good run over the next number of years.
Okay. So a lot of places to go to from here. You know, I'm gonna ask you... I'm actually gonna ask you one more big-picture question.
Okay.
So at...
The meeting will be over.
Right. I, I guess the question is really around, you know, a lot of your end markets, outside of neuro, one of the pushbacks we hear from physicians, they don't have great outcomes data, particularly-
Yeah
... in vascular. You, my impression is you focus more on, you know, the technology, developing the best technology, but less so on outcomes data. And is there... Now that you've talked earlier about having the devices that physicians want, is there gonna be a shift in terms of your strategy or-
Yeah
... or, you know, investment to more driving-
Yeah
-the market?
I think there's a misunderstanding about what outcomes data means in this field. When we talk to most physicians, what they're looking for is the three things that I talked about. So first of all, nobody thinks clot is a good thing.
Right.
Like, let's just all agree on that. No one says, "Oh, you know, I'm not sure I should take that clot out." Everyone would prefer the clot to be gone. So the fundamental idea is already in a different spot than some technologies in other areas where you're like, "Should I do it, or shouldn't I do it?" You know, it's sort of an open question. Here, everyone would prefer the clot out. So the thing that people want to know are the three things that I've talked about. Safety is obviously important, so data that is accurately reflecting the safety profile of a product matters. There's a lot of talk about making sure that's true. Second, speed. Speed obviously matters, and simplicity, as you're never gonna be the product or portfolio product that owns this field without having it simple.
You can't have 16 different things and tools, you know, as part of a toolkit. You have to have one, and it has to work, and it has to work fast and safely. And so that's the kind of outcomes data verifying that, that people want. Once you do that, and we do that, we have already studies. We're having additional studies. The only area where a randomized trial matters, you know, directly is in PE, where you have to go after the patients we're not yet treating, which are patients who might get anticoagulants. So we are the only company, you know, starting—the, that will be the first trial to, to go against, in a randomized way, against anticoagulation. And there's a lot of excitement about it. The PERT Consortium-...
supportive of it, and to do that, and we can't wait to announce the first patient enrolled in that trial.
STORM-PE.
Yes.
And that, so first patient in will be approximately when?
As soon as it happens, we will announce it, I promise.
Okay. 2024... 2023 possible?
I do not control the timing of clinical trials, as we've all learned.
Okay. All right, so just moving on to vascular. You know, the Q2 results were interesting because U.S. vascular thrombectomy was up 50% year-over-year, but the rest of vascular was flattish. I think that's what you said on the call. So what happened, and how are you thinking about the rest of the year for vascular? It looks like it has to accelerate to meet kind of the guidance you gave for, you know, vascular in Europe.
Yeah. Look, the thing that matters to us, and hopefully to people who are investing in Penumbra, is our U.S. vascular business right now and our stroke, U.S. stroke business, where we have the two biggest new launches in the company's history. We've talked about why those are so important, why they're so significant for the last few minutes here. So we've always talked about the sort of lumpiness of distributor orders and this and that. You know, we've said that year, you know, quarter after quarter. It's not worrisome. Our business is strong. It will only be stronger because we have the two best products coming in the next, you know, bunch of years to some of those geographies. So we'll be fine. You know, it's not like there's a problem. It's just the lumpiness of the way we do business.
That's why we gave the 50% number. We haven't seen that kind of growth in the U.S. with these, you know, in a long, long time, and that should be the number that people, you know, give, look at, and say, "Okay, the product is working. Those two products are working enough to see that kind of growth." And again, that's what we're going to try to continue to focus on. Our focus is going to be on Lightning Flash, Lightning Bolt, and RED 72 SENDit in stroke until Thunderbolt comes, and then we have a second bite of the apple with Thunderbolt.
That's helpful. Sticking with vascular, maybe the 1,000-plus hospitals going through the VAC process-
Yeah.
that you talked about on the Q2 call. It's hard. We don't have a sense for how many accounts you have and to put that number into perspective.
Yeah.
Is there anything you can share with us?
It's more hospitals than we already have with Flash and Bolt. That's what I've said. So it's more. So, and what it represents is the vast, vast majority of those are new customers. So on the arterial side, that's people who use open surgery or lytic. On the venous side, it's people who use one of our competitors' products. They don't know that yet. They might have tried it once or twice and then submitted. They don't tell the company. That's the scale of what's happening. That's why we are so confident that we are going to see a huge shift. We've already seen it, obviously, in DVT, where we're now, you know, at least, you know, 50% of those cases, and we're going to see it, and we're seeing it in PE, and the wave of that is yet to come.
Some will come this quarter. Lots will come in fourth quarter. Lots will come into the beginning year. And those are the hospitals that were under submission in the first week of August. There's more that are coming that came under submission since then.
So you're saying today, just so I hear it correctly, 50%... You think you have 50% share of procedures in the U.S. today in DVT? Just to be clear.
Yeah, look, I mean-
Rough.
I think it was this very meeting last year where we were talking about doctors talking to each other and, you know, making sure that, you know, again, safety and was crystal clear. That issue is relatively, you know, not, I can't say resolved with every physician, but it's been somewhat resolved, and we have seen a pretty significant share shift. But again, the benefit we're seeing in PE as well with this product has given us a lot of confidence that we're going to move in that direction pretty quickly here.
Is there any way, on the 1,000-plus accounts, to talk about conversions? I mean, it's a public web, webcast. Are you going to give us any kind of update, the 1,000-plus-
Yeah.
You know, hospitals-
Even how many of those-
What percent have converted or, you know-
Yeah
... have adopted the product?
Well, so if it's under submission-
Right.
They-
The VAC committee doesn't have to say yes, right? They could say no. Or you're saying-
Oh, oh, when you say conversions, how many are successful?
Successful.
I thought we were talking about-
Yeah
... product conversions.
Yeah.
Yeah, we... You know, I'm sure we've not gotten an approval once or twice, in the history of the company. It's pretty rare.
Right.
Pretty rare.
Right, um-
I mean, again, physicians are the ones who want the product. You know, this isn't the company end-running the doctors. This is physicians doing the work to bring the product in and us supporting it.
And the lumpiness that you talked about. So obviously, US thrombectomy was strong in Q2. You know, the other part of the business was flattish. You talked about OUS distributors being lumpy. What's the assumption in the guidance for the second half of the year that drives the acceleration in the overall vascular business?
So the acceleration in the vascular business in the back half of the year is well over 1,000 accounts who want our products, who didn't use to use our products. I mean, it's that simple, guys. That's more than what we have today, who want our products, and whether it happens in the third quarter or fourth quarter, first quarter, that's what's going to drive our business in the short near term and well into 2024, because that's a lot of business, and the doctors want it. Why? Because computer-assisted vacuum thrombectomy, DVT, is safe, it's very fast, and it's simple.
Got it. And when we look at the market for the venous market for DVT and PE, it's growing in, like, the mid-twenties. So this is a rapidly growing market. How sustainable do you think that is, that rapid growth?
I think the growth, you know, again, every time we talk about market growth, you know, I, I just put out the one caveat. Market growth is never linear, quarter by quarter, you know, it doesn't work that way. But if you look out after over the 5+ year horizon, which I've set, we think that there'll be significant growth because, one, you finally have a product that is fast, safe, and simple. It will, by definition, want to, you know, move that growth. Two of the three areas, those patients are mostly already in the hospital, so there's not a lot to do other than shift perception. Now, on arterial, that's more based on use of the product. On PE, we have to run this trial, so takes a little longer, but there's growth that will come from just the experience of using it.
On DVT, there's some work to be done, because not all those patients come into the hospital yet. That work is going to be done through the hospital systems themselves, wanting... You know, again, we're lucky in that this is a procedure that is profitable for a hospital. So hospitals who are doing a procedure that's profitable and very, very beneficial to a patient will want to do more of that. And we certainly encourage them to do that work, to bring in and do the work. We obviously, as a company, it's not appropriate, it's not legal for us to market our product, you know, as a product procedure directly to referring physicians. That's not something one would do.
But hospitals certainly can do the kind of recruiting, and community awareness that we think will drive significant growth.
Adam, I wanted to... We only have 14 minutes left. I wanted to make sure we've talked about neuro.
Yeah.
Still an important part of your business.
Mm-hmm.
Strong growth,
Yeah
... in the first half of the year. I actually wanted to make sure we got to Thunderbolt.
Mm-hmm.
You know, you talked about a change to the primary safety endpoint on the Q2 call.
Mm-hmm.
But you also said that there's still discussions going on kind of with FDA, so some things might not have been finalized. Remind us of why the change, and if there's any, you know, update in the status with FDA.
Yeah. So as soon as the final letter is - there's no ongoing negotiations or discussions, so we just wait, want to wait till the final paperwork comes, so we're not changing things again. But again, I'm pretty confident of where we are. The endpoint was changed, we believe, because it makes it consistent with the other trials that other companies are running. When we submitted our IDE, we gather all of these endpoints, so it's not like we didn't already have that information. We have all of this safety information. The question was just which was the technical primary endpoint and therefore what is used to power the size of the study?
Our study now has the same safety endpoints as the other studies, and it has the same number of patients as the other studies. So I guess the FDA wanted some consistency there. Obviously, would have been great to hear that at the beginning. It's not a significant thing for the... And this is really an important point. If we are going to be successful with Thunderbolt, physicians have to be really comfortable, not only comfortable, but affirmatively excited to also use the catheters. 'Cause remember, Thunderbolt isn't a product that actually goes in the body. It's attached to the end of the catheter outside the body and our pump, and it modulates the aspiration to get the clot out faster.
So the catheter that goes in the body is already being used, and we want physicians to think that they can use our catheters no matter what, that it will track all the way down, you know, from the femoral artery past, you know, the carotid and around the ophthalmic artery, which comes and feeds the eye. That's a really hard turn. And so what we don't want is to launch Thunderbolt and have people go, "You know what? I love the idea, but I'm not comfortable using your catheter." Because then Thunderbolt's wasted. So we now have the opportunity to drive share, and we've proven that over the last two quarters, and we think we'll prove that over the next two or three quarters. And how do we know that? That's, again, not a hope. Same reason that we're that confident about our vascular business.
We just didn't quantify on the earnings call the number of accounts coming with RED 72 and SENDit that have never been our customers before because they are excited about RED 72 and SENDit. So we're going to wait through that process of hospital submissions to get RED 72 with SENDit on the shelf, and we think we'll capture share. The benefit for us is, rather than waiting for Thunderbolt, even with a shorter trial, Thunderbolt does what? It has a premium price, it drives market share, and it drives market growth. With RED 72 and SENDit, it has a premium price, drives market share and market growth. So we get to do that now before we're waiting for Thunderbolt, and then when we lock in that everyone likes the catheter, we get to do it again with Thunderbolt.
It's kind of worked out pretty well for us, and I, I know it sounds a little funny to say that a delay might have worked out well, but sometimes you get lucky, and in this case, it worked out well.
Adam, you know, a couple things. So when do you think you'll be in a position to give us an update on timing for Thunderbolt?
So I gave you pretty accurate-
Well, when it comes to-
Directional timing. What I said is we'll wait till we get the final letter to update the, you know, the ClinicalTrials.gov.
Okay.
That, that's... Like, there is nothing-
I haven't-
It's not-
Forgive me, I haven't checked.
Yeah.
Has that been updated yet?
I, I, I-
No. No.
Sometime soon, but.
So as soon as that's updated on ClinicalTrials.gov-
Yeah
... we'll be able to-
It's not... Yes, it's a technical detail. There's nothing fundamental that we believe is going to change.
Okay. And Adam, it's interesting, the 20% you gave for 2024, I'm assuming that does not include any Thunderbolt sales?
That's right. So what I said on the earnings call is Thunderbolt is not in 2023, 2024 or 2025.
Okay. So should we interpret that to mean that you're not launching Thunderbolt until-
No!
Well, I'm just confirming that.
It means that we're not relying on Thunderbolt.
No, I understand. I just wanted to confirm that.
We're not relying on Thunderbolt.
Right.
If it launches, great, but we think we'll have growth for quite a while with RED 72 and SENDit to the point where we get dominant share. I also just want to point out something. Because of the historic nature of our businesses, and this is not to say I am not incredibly passionate about stroke. Obviously, 20 years of doing this, I hope, gives me some credit that I'm passionate about it. But the scale of the stroke business versus the scale of the vascular opportunity, they're not equal. And so we spend a lot. You know, we spend half the time talking about one half of the business and the other half about the other, but they're not equally half.
Like, if we—let's say we only are successful in going after half of the 800,000 patients in vascular that we're talking about. We only get half in the next five-
Right
... plus years. How much is that? That's 400,000 patients. What does that translate to? It's a lot, right?
Right.
$10,000.
You're going to tell us what the ASP... Right.
Well, you know what it is.
Right.
It's $10,000, roughly. It's a little less-
Right
But $10,000. Do the math. The stroke business, wildly successful, given, you know, we've grown 30,000 patients in 10 years. That's great! 30,000, maybe 35,000. So maybe in the next 10 years, we grow another 30-some odd thousand. They're not equal. They matter. We care. They're human beings that we want to help. But financially, the two aren't half versus half.
Okay.
Does everyone get that? I hope everyone gets that.
Like, I get it, but I still had one more question on Thunderbolt.
Yes.
Because it was the first, you know, of the modular-
Yeah
aspiration products
Yeah
that you started talking about a few years ago, and so there was a lot of excitement around it.
Yeah, there still is.
That's, that's my question. Has anything... You know, you've talked about it-
It's an extraordinary product.
Okay. So your view on it hasn't changed?
It's an extraordinary product. It's the trial is running. We're excited about it. We think the trial will be successful. There's no reason to not look at those cases and go, "Oh, my God, this thing's amazing!" Just like Lightning Bolt, which is the same technology, where we've done well over 1,000+ patients, it works really well. So much so that you have people who, for 20 years, have done open surgery and have said for years to us, "We're not interested. We're not interested." Now we're going, "Oh my God, after one case, I want this thing on my shelf, and I want to use it to treat arterials." It's great technology. It's amazing technology.
Good. Okay, cool. I actually just wanted to ask about margins.
Yes.
Because I know margins have become more important to you, gross and operating margins. Just remind us of how you're thinking about both of those in 2023, and you talked about 2024 a little bit. I think on operating margins, you know, you're expected to move from mid-single digits to low double digits exiting 2023.
Mm-hmm.
How do we think about the, you know, progress beyond 2023?
We'll get more profitable.
Is there... Remind us, your goal is, you expect to be in at 20%. Remind me what, what you said kind of the long-term target is. Yeah. Okay.
We'll get-
But we're going to continue-
We're going to continue to get more profitable.
70, you said gross margin. I think you said you could get to 70% or something like that, Jason? Yeah. 70%+ - Yeah - is the goal. But you haven't put a timeline around that?
We said within several years.
Okay.
So, and we're on track.
Okay. Let me scan the room here. We actually have five minutes left... I have plenty of questions, but maybe there's one in the audience. If not, I'm gonna keep going. How quickly can you launch these new products outside the U.S., in Canada?
Yeah. So that's a really important question. You know, the timeline for. We've sort of gotten European approvals a little bit more organized. You know, like, 2-3 years ago, things were pretty undefined. So we feel like that could happen. The bigger question in all of these markets, whether it's, you know, there or in Japan or China, what have you, is reimbursement. Because. We're fortunate enough to be able to take our time, given the scale of the growth we see in the U.S. over the next 3-4 years, 5 years plus, to not rush, you know, launching these in international markets with less than ideal reimbursement. And as the category of CAVT takes hold, I think it will drive a premium reimbursement. That's certainly our hope and our strategy.
But we have to play that out, and we're just getting started, you know, in those conversations and looking at the health economics and making those arguments as we start to go. So it will take a touch longer, but again, that's not an issue because we have the luxury of that, given the scale of the growth ahead for us in the U.S. over the next number of years.
Gosh, I lost my train of thought. I did have a question.
About reimbursement?
No, it wasn't about reimbursement. So you have STRIKE-PE. I'll just get that one coming in VIVA. That's a registry for PE.
Yeah.
How important is that?
I think, you know, it's generally, most of that is prior generation. I think it's important directionally on how this works. But the real PE trial will be STORM-PE, where we're randomizing it with, and Flash is the technology we're using.
Okay, I remember my question.
Yeah.
Oh, China.
Yeah.
More of a tick-the-box question-
Okay.
but people are concerned about-
Yeah
- Anticorruption initiatives there.
Mm-hmm.
What's your perspective, you know, for Penumbra?
You know, I think everyone's impression, you know, about what's going on in China, you know, there's a lot of moving targets. I did have a call with the head of our partner in China recently. You know, and things are as people perceive them. We're fortunate enough, you know, that our deal... Again, remember, it's structured with a number of different components. There's a licensing component, there's a royalty component, and there's a distribution component. So we have a whole range of model there. I think that's generally, so far, given us some protection against some of these daily and local issues. And so I feel good about that.
In the long run, again, you know, our growth in the next five years is, you know. Again, our China business is good, and it's nice that we're trying to make our products available. I think we'll continue to do that. But our growth is primarily gonna be U.S.-based on these products that I've talked about. But again, we don't see, I think, the same level of concern that others might see because of the nature of our deal.
This is you're speaking specifically to the anticorruption initiative or VBP?
Yes.
Because there's a lot of noise in China, right?
There's a lot of it. You know, yeah, there's a lot of stuff, and I'm sort of lumping it all together.
Right. So nothing, you're basically suggesting there's nothing that's new.
No
... that concerns you?
No.
Maybe, well, lastly, just kind of, I don't know if we can get it in, but the guidance, you know, you did 26% growth in the second quarter. You're guiding to 23%-25% in the third, and then 30% in the fourth. You know, why a little bit of a deceleration in Q3 and an acceleration in Q4?
Yeah. So there's well over 1,000 accounts. They're not all gonna come now. Most of them are gonna come in the fourth and first quarter. There's the biggest, you know, ability to talk about the growth rate, plus, you know, this, the international seasonality and all that. But yeah, it's that simple.
Anything unique about seasonality this year?
No
... with pent-up demand or anything like that?
No.
No- normal?
No.
Normal. Okay, all good. 0, it says on the clock. Adam, thanks so much.
Well done.