Afternoon, everyone, 2023 Baird Global Healthcare Conference. I'm Dave Rescott, Senior MedTech Analyst here at Baird. Pleased to have the Penumbra team with us, Jason Mills, EVP of Strategy. You can send in questions off that placard onto this, little iPad I have up here if you want. Otherwise, we have about 30 minutes or so for some Q&A. So Jason, thanks for, for being here.
Yeah, thanks, David, for having us.
Um-
First time at the Baird Conference, so-
Glad to have you. Hope next year, too.
Good experience. Thank you.
So let's start off, maybe flashing back or, or looking back, 2019. The goal was to achieve $1 billion in sales-
Yeah
... by 2023. The company's on track to do that this year. You know, so have hit those goals. You know, wondering over the next four to five years, maybe what the growth outlook looks like for the company, and if we may have an opportunity to see maybe on paper, maybe more what the outline looks like. You know, if there's another analyst day maybe coming up that you could, you know, give some more, you know, hard endpoints to-
Yeah
... where the growth looks like over the next couple of years.
Yeah. I appreciate the question, again, thanks. It's been a good experience for us here at Baird. Indeed, in 2019, and this is obviously before any of us knew, or even had in our lexicon COVID, we, at the time, the company said that we thought $1 billion in revenue was achievable by 2023, and notwithstanding COVID, we are indeed on track to achieve that and exceed that, actually, given our guidance for 2023. What we've talked about, really, along our journey over the next five plus years, is really more of the opportunity in front of us, especially in our primary business of taking clot out of the body.
In just focusing on three out of the five areas of the body we take clot out of, where we have computer-aided vacuum thrombectomy, which we think is transforming, taking clot out of the body and will be the predominant way this is done going forward. There are 800,000 patients, and this is specifically in the arterial anatomy, and in the deep veins, where there's thrombus there, DVT, as well as in the lungs with pulmonary embolism. Cumulatively, the incidence of patients that have a clinically significant clot in those three areas is 800,000 patients.
The industry is treating 10% of those patients today, maybe a little less than that, and the feedback we're getting on the latest launches in Computer-Aided Vacuum Thrombectomy, specifically Lightning Flash, apropos to both DVT and PE, and Lightning Bolt 7 on the arterial side, is we've moved the arc of innovation along that significantly, and that now physicians believe, thought leaders believe we have the technology. We can go out and help, if not all of those patients, the vast majority of them. So if we're only successful in helping with our technology half of those patients, that's a significant number of patients to help, and it obviously, you can do the math in terms of the opportunity that portends for Penumbra's business.
We have a lot more in front of us than behind us, and it is really a testament to the outcomes we're seeing with these two technologies.
In the 800,000 patients, you said arterial DVT PE, that's specifically within the peripheral vascular business, so excluding what the neurothrombectomy segment does, or is that inclusive of-
Yeah, that's just arterial vascular, so not, not in the neuro side.
Okay.
DVT and PE. We also have proprietary technologies for the neuroanatomy, taking clot out of the brain for interventional stroke procedures. You know, the company was started, as you know, with the premise of getting clot out of the brain as quickly as possible for patients that had suffered a stroke. And we've evolved technologies to address, in a purposeful way, taking clot out of those four anatomies. In addition to that, the heart and the coronary anatomy, we have a product called CAT R X that continues to grow and be one of our most successful products. So we really are focused on clot wherever it is in the body.
Okay. I think the biggest news maybe last week within my coverage universe, 20% growth next year is achievable. One, confirming that that was what the management team had said at a competitor conference last week, and then, two, when we think about the moving pieces to get there, I think, you know, the guidance for this year assumes that vascular is the, you know, a bigger driver. Any sense for how we should think about that growth number next year and how you get there?
Yeah. Yeah, thanks for that question. We indeed put a little bit more specificity around it, albeit it's still a bit more quantification as opposed to the qualification we'd given on the second quarter call about our real optimism around our business. So nothing's changed about how excited we are about our business. We decided just to be a bit more specific. We usually give guidance on our fourth quarter call, specific guidance. We'll continue to, you know, plan on doing that. But we thought it was appropriate to talk about the trajectory of our business in a bit more of a quantifiable way. And what we said was, we thought at least 20% growth was achievable in 2024.
But I think it's also important to say, and, you know, going back to your first question, 2024 isn't the end of the journey. We would expect to, you know, not only gain share and develop the market, continue to grow the market in 2024. But that also—we won't be nearly done when we turn the page to 2025 and 2026. And we have several initiatives, you know, clinical, health, economic initiatives, in addition to continuing to innovate, that will drive us forward towards those 800,000 patients in just those three areas. You asked the question about what's gonna drive that growth. The biggest opportunity for us is in those three areas of arterial, DVT, and PE. But we have also launched new technology to move our leadership position forward in stroke.
In addition to stroke, we expect to see continued strong growth in coronary as well. The predominant driver of that will be in U.S. vascular thrombectomy.
Okay. A lot to get into there, which we'll go into in a little bit. Just again, from a high level, I think the view has been that you make your way toward gross margins above 70%, maybe mid-70s, longer term. You know, without a better sense for a guidance level for when you get there, we have you getting there by 2027. Over/under, do you think, around when maybe that mid-70 or at least 70% gross margin becomes a reality for Penumbra?
Yeah. So just to level set, this business had, before COVID, run in the mid mid-high 60% level. We invested quite a bit in Northern California to keep our folks safe and spreading people out. At the same time, we opened up a new facility about 2 hours away, outside of Sacramento. And longer term, that's gonna contribute to our ability to expand from where we are today at 63.5% gross margins last quarter to 70%+. And what we've said is a few years, so your your year and your model certainly represents that. I you know I think we're gonna try to work really hard to achieve that level before your timeframe. But you know, there's a lot of work to do.
I think we do have visibility into that, notwithstanding the work, and the components of that are mix shift in our products. Thrombectomy tends to be higher margins. That's where the majority of our growth will come from for a while. The productivity gains we're already seeing, frankly, that isn't reflected yet in the actual reported gross margins, as we scale up our Roseville facility and eliminate duplicate costs. And then we have longer-term initiatives that are underway now, that really manifest in the two to four-year period of time, that are specific to improving productivity, across the organization, manufacturing organization writ large.
Okay. Have the success that you've seen with Flash so far, with Bolt and then, you know, with SENDit, I guess, you know, so far, too, and then potentially longer term with Thunderbolt, has that changed the way in which you think you can get to that, you know, 70%+ gross margin level, or even on the operating side from the broader leverage of the portfolio?
I don't think the success of those products, and we continue to be really excited about what we're seeing from those products in really early days, I'm sure we'll get into that, has changed how we're thinking about their contribution to our margin profile over time. I think the bottom line is, when you think about our opportunities to help a lot more patients than we're currently helping today, the growth opportunities on the top line, what we've just talked about with our gross margin expansion opportunities and our disciplined spending, we don't need to, you know, increase our sales force by leaps and bounds. Our folks are really professional. They are strong leaders in their regions and territories.
And we can therefore, you know, continue to invest in R&D at a similar pace, and our R&D productivity has been outstanding over the years, and grow our overall operating expense infrastructure at a slower pace than where we think our revenue will grow in any given year, let alone over a five-year period. So I guess, said more simply, we should be significantly more profitable over the next several years.
I think exiting the year at 10%, above 10%, maybe around 10% operating margins for 2023, exiting the year. Consensus for next year is at 11%. You know, obviously, the blended step-up is bigger when you think about where you started the year at. You mentioned that, you know, you don't necessarily have to significantly invest in the business. How should, I guess, we think about maybe more of that near-term profit, you know, outlook, as well as where you think you can get longer term?
Just to go back to something you said, I... We will continue to significantly invest in the business, but our growth profile should be faster. You know, there's some margin expansion potential, notwithstanding we continue to invest in the business. I just wanted to make sure that our commitment to investing in innovation is a golden goose that will continue to feed. You know, we will continue to invest where appropriate, just where, you know, in a disciplined way. You know, we think that there, over time, are opportunities to invest. It's just not gonna be at as fast a pace as where we think our top line can grow.
Okay. You know, guidance for the full year, I think, sits at 24%-26%. You grew 22% in the first half, so you're accelerating into the second half of the year. You know, from a high level, we've heard, you know, questions around, you know, vacation, you know, travel in the quarter and, you know, potentially rising COVID cases. Anything you've been seeing on the ground level as it relates to a more unseasonably seasonality in Q3 at all?
... No, I think, you know, we obviously consider all of those things as we think about the third quarter of any given year. I don't think we're seeing anything that is different-
Okay.
materially. And then-
So, you know, in the second half of the year, I think in Q2, there was, you know, the vascular thrombectomy business grew 50%+. That was in Q2, been growing pretty strong so far in Q2. You also had, I think, some maybe weaker sales, maybe in embolization or in the international segment. So can you just talk about maybe specifically what that was, and then how you're contemplating that either maintaining at these current levels or improving in the second half of the year?
Yeah. So the second half of the year, the growth will be driven, predominantly in the United States, in our vascular thrombectomy business. We also expect to see continued momentum that we've shown in the stroke business, in our Neurothrombectomy business. But the growth profile, on a percentage basis will be driven by vascular thrombectomy in the US, where we have these new products, Lightning Flash and Lightning Bolt 7.0. Outside the US, there tends to be more lumpiness on a quarter-to-quarter basis because while we're direct in a lot of markets, we have distributors in other markets. So a lot of our distributors sell both our neuro business and our vascular business, so there can be, you know, one quarter where neuro is more weighted and the vascular quarter the next quarter.
So looking at it on a full year basis, I think you get a more clearer picture of progress we're making in distributor markets. But on a quarter-to-quarter basis, we have what we've had, you know, in the third quarter, which we guided to our international business being in single-digit growth and then re-accelerating to double digits in the second half. Again, these are markets we still see a lot of growth out of, and they're markets we don't have any of our new products that everyone is asking about with respect to Flash, Bolt, and SENDit in stroke.
Okay. I guess starting or sticking us on the VTE segment. Flash was launched in the early part of January. You had Bolt coming out toward the end of March, I believe. I think at the time of Q2, the company highlighted 1,000 accounts that are currently going through the VAC process. One, any update on maybe where those company or where those accounts are within that VAC process? Two, can you at least give us a perspective maybe of where that is relative to maybe how many accounts you're in, in total, either from the existing business or specifically for Bolt and Flash?
Yeah, all really good questions, and what we specifically said is well over 1,000. We didn't say 2,000, or else we would've said that. So it... You can sort of do the math and split the difference, but the reason we called that out at all was because the number of submissions, which is a manifestation of the interest level and specifically the demand for our product to be on the shelves. And in the majority of case, demand for our product to be on the shelf at customers that had not used our thrombectomy products heretofore, the previous generation products, was frankly unprecedented in the company's history. Just the sheer number of accounts that were going through the submission process.
Just so everyone knows, the submission process for a unique technology is generally required in the vast majority of cases, both those customers that had been customers with our thrombectomy business and, of course, new customers who hadn't. Both, you know, it was the same for both, generally speaking. That process can last on the front end, you know, two to three months if things go very quickly, in some cases, you know, 9 months and even, you know, up to a year, depending on the hospital system. So, you know, we don't have control of that timing. What we do know is that there might be a case or two where we haven't gotten through the submission process in dozens and dozens of product launches over the last 20 years of the company.
But we're successful getting through that process almost all of the time. The timing of when you get through that process is not up to us, because by definition, a physician at that hospital has to champion that product through the process. So we have been appropriate with respect to how we think those new accounts will come online. But in the meantime, they cannot buy our product. They typically get approval to use and buy from us one or two products before they start the submission process. And then until they get this, you know, the approval and they've gone through supply chain and pricing, at which point they can place the order, they don't. So there's a lag there. That's part of the process that's built into our guidance.
Yes.
But the good news is, we said that the number of accounts in submission, relative to the number we've been selling in, especially on the venous side and also on the arterial side too, to some extent, you know, are- you would significantly increase, let's just say it that way, significantly increase the number of accounts into which we would be selling our thrombectomy products-
Our-
- relative to last year.
Yeah. Are those accounts that you are expanding into that are significantly increasing, are they accounts that are generally doing more conservative medical management, other thrombectomy, other kind of catheter-directed thrombolytics? Where is the-
Yeah, so-
share versus market expansion versus share gain from interventional or sorry, other interventions?
... So I'll answer that question 'cause the answer is different, because the dynamics are different in the venous thromboembolism space and versus the arterial space. In the venous space, it's generally customers that had used other mechanical thrombectomy modalities. So syringe-based thrombectomy or grabber technologies, right? And so they are demanding and interested in computer-aided vacuum thrombectomy. On the arterial side, there isn't much. We have developed and shepherded the arterial thrombectomy market over the last number of years. And so it's generally the alternative is traditional therapies, which are twofold: surgeries, embolectomy balloons used in a cut-down procedure or catheter-directed lytic drips, which are done in the ICU.
Those make up, you know, 8-9 out of every, you know, every 10 patients treated with arterial clot today. And so the new customers there are predominantly surgeons or interventionalists that are doing one, or both of those traditional therapies.
Okay. Last one on, on FLASH, then some of those points that you mentioned on, on Bolt and arterial. Just as it relates to the process and what you've seen so far, is the typical timeframe in which a new account works its way through the VAC, is that a 3-month window, a 6-month window, 9-month, 12-month? Where do you think some of these accounts that are currently in that VAC process start to roll? Is that Q4, Q1, Q2? How do they roll in?
Well, so they all vary, so it's difficult to tell, and our guidance is contemplating appropriately so, that we don't have control over. But we're assuming that, you know, we'll. That a few will, but I would say it this way, the vast majority of them will have worked through the process, whether they are on the short end of that curve or the long end of that curve, as we roll into 2024. So, you know, our 2023 guidance assumes that we're going to, you know, get some of those through that process, but the vast majority is likely going to be more influencing our 2024 business.
Okay. We're under 10 minutes now left, so on Bolt, and then we'll shift to some other, the neuro side. Where you are with Bolt, you know, now, you mentioned that there is a, you know, a little bit of a difference between surgical, you know, maybe vascular surgeons versus the interventionalists. Can you help us at least think about that opportunity relative to where the bulk of growth maybe has come from so far with Bolt, and where you expect the majority of growth to come from going forward as it relates to either just driving a higher number of interventionalists intervening or just converting a lot of those open surgical cases toward, you know, more minimally invasive interventions?
Yeah. So, clearly we've seen, and Bolt was launched subsequent to FLASH in the early part of the second quarter. And the early effort was to introduce that product to users of our thrombectomy systems heretofore. So the Lightning 7 users, the CAT 6, CAT 8 users, et cetera. And, you know, we continue to go through that. That's gone, you know, really well. When they use Lightning Bolt 7, even those that have success with Lightning 7, the technology is truly, you know, another move along that arc of innovation that they respond to.
The next phase of Lightning Bolt for us will be to continue to educate and help vascular surgeons on one end and interventionalists on the other see the difference that they can have in the speed and safety, as well as the ubiquitousness, if you will, of getting clot out relative to if you're a surgeon having to cut down and do it surgically, or if you're an interventionalist who has tended to send those patients to an ICU for a couple of days of lytic drip. And you know, really the proof is in using the product and seeing the outcomes for yourself, and we've seen. The reason we're so excited about it is we've seen a number of physicians who heretofore have said, "You know, I may have tried thrombectomy.
“I, I believe surgery in my hands is the way I want to continue to go,” that see it differently when they're using Lightning Bolt 7. And it's because of the modulated aspiration technology, able to get the catheter there quickly, push a button, and the clot gets ingested in a matter of minutes, is profound to them, both in terms of how quickly the clot comes out and how less invasive that procedure is relative to surgery, and how lower risk generally it can be relative to the risks that are associated with a lytic drip.
Okay. On the, the VTE side, you, you talked about the physician interest in computer orchestrated aspiration thrombectomy. You know, we know that you guys are doing the STORM-PE trial, maybe potentially market expansion, or there's other companies doing stuff in DVT/PE. How much of the market expansion do you think is dependent on some of these head-to-head trials longer term, relative to perhaps what computer orchestrated aspiration is opening up in the near term?
... In PE specifically?
Both PE and then DVT.
So, good question. I'll sort of take them both separately because they're slightly different. In PE, that there is, you know, I think more of an emphasis on and a need for clinical data. And there are specific questions that both the interventionalists and the referring physician, the pulmonologist, need answered that is best delivered to them through the STORM-PE study. That answers the questions. We've been developing that. Dr. James Benenati, a luminary in the space, our Chief Medical Officer, has worked closely with the societies and the key opinion leaders at those societies to develop the clinical study and specifically the endpoints that will answer the question they need answered.
For pulmonologists to refer more of their patients with submassive high-risk pulmonary embolisms to an interventionalist for an intervention, as opposed to either anticoagulation or otherwise. And that will be important. The STORM study. We've gotten centers to now go live and active. They are actively screening patients. And so we're optimistic about enrolling that study over the course of time, and that's a relatively small randomized study, 100 patients. So that will be important, as we'll continue market development and just outcomes that people are getting by using the product. On the deep vein thrombosis side, it's slightly different.
In deep vein thrombosis, you have patients that aren't coming into the hospital, that are generally being seen by general practitioners outside of the hospital, and the market development work there is different, and it's ongoing for us. We'll continue to work through hospitals because the best referral data point for those referring physicians are the outcomes their patients are getting, who they refer to the interventionalists. The concept in DVT is very simple: get the aspiration catheter there as quickly as possible. You know, press a button, get all the clot out, don't take blood out, don't damage the vasculature. That's the key sort of premise around taking clot out of the body in any anatomy. That's certainly true in DVT, and outcomes will drive that.
What we're also working on, though, and this is both a near-term process as well as a cross-functional collaboration that is important to Penumbra, is clinical and health economic evidence that will be really important in answering the questions for hospitals, to see not only the clinical improvements they'll get out of doing thrombectomy and DVT, but the health economic benefit out of doing it. And they will then take that message to their communities and general practitioners, and over time, that could be one of the biggest drivers of development of that market.
Okay, we have a minute and a half left. Probably should spend more time on Thunderbolt and Acute Ischemic Stroke than the time that we have left, but, I'm gonna just kinda quickly try to get two or two questions here or so. One, so the Thunderbolt was delayed by about 12 months or so. What gives you the level of confidence that the delay that we have thus far is kind of maybe where the ultimate delay is? Are you assuming that there's any contribution for this in any of the, the comments that you've made about 2024 already?
No.
And then-
So the last part of that question is no. We haven't specifically talked about 2025, but we wouldn't include it in that either. But we are very confident that the timelines we've talked about are the timelines because we're not assuming an acceleration in the pace of enrollment, notwithstanding that's typically what you see as centers become more pro, you know, more proficient at enrolling patients over the course of a trial.
Okay.
So we're assuming a similar pace of enrollment, you know, perhaps a higher number of centers as time goes on and the patient... So if you just do the math on what that translates into, you know, 12+, you know, 12, 13 months-
Mm-hmm
... is the appropriate timeframe.
Okay.
So if people were expecting us to complete enrollment end of this year, beginning of next year, then you apply that 12 months because of a higher end value of the trial.
Okay, last one. So, you know, you talked about potentially, you know, what could Thunderbolt do? Maybe you gain share, you have an ASP benefit, you expand the market. You've already seemed to have done three of those things with the SENDit technology. Can you just talk about how SENDit-
It's a stepwise, we are doing all three, but we're doing all three in a step function with, with SENDit, and there will be another step with Thunderbolt. The real key thing to note here is that SENDit addresses the front end of the procedure. It allows more ubiquitous, trackability of a 0.72 catheter to the face of the clot. If you're allowing physicians to do that at a higher success rate, their propensity to adopt a technology that acts on the second part of the procedure, once you get the catheter there, which is clot ingestion into the catheter all the way through so that you get holistic removal of that, that clot, their propensity to use that technology, Thunderbolt, is higher because they know they can get the catheter there.
Okay. So Thunderbolt or SENDit doesn't take away the ability for Thunderbolt to potentially-
They will be used together.
Okay. Okay, that's all the time we have. Thank you.
Thanks, David. Appreciate it.