Q3 2020 Penumbra Inc Earnings Call
At this time I would like to welcome everyone to <unk> third quarter 2020 conference call.
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After the speakers remarks, there will be a question and answer session if.
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I would like to introduce Smith, Chief Hamlin Harris Investor Relations for the number.
Eric You May begin your conference.
Thank you operator, and thank you all for joining us on today's call to discuss the numbers earnings release for the third quarter Twentytwenty. Okay.
A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation can be viewed under the investors tab on our company website at Www Dot com.
During the course of this conference call. The company will make forward looking statements that relate to the safe Harbor provisions of the private Securities Litigation Reform Act of Nike Nike side.
The statements regarding our financial performance commercialization clinical trials regulatory status quality compliance and business trends.
Actual results could differ materially from most stated or implied by our forward looking statements due to certain risks and uncertainties, including though.
As referenced in our 10-Q for the quarter ended September 30, 20, Twond, which is scheduled to be filed with the FTC on November two 2020 as well as those described in our 10-K for the year ended December 31, 219, which is fine with it.
On February 26, Twentytwenty Andrew.
As a result, we caution you against placing undue reliance on these forward looking statements I mean, Kirk interview periodic filings with the FCC, including the 10-Q and 10-K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results with a mother first it up so.
Including but not limited to the impact of the COVID-19 pandemic went out of business.
So the operations and financial condition.
I never disclaims any duty to update or revise our forward looking statements as a result of new information future events developments or otherwise.
On this call certain financial measures presented on a non-GAAP basis.
Section of revenue.
A reconciliation of GAAP to non-GAAP financial measures is provided in our posted press release.
We anticipate the prepared comments on today's call will run approximately 20 minutes I.
I know that's a good number to chairman and CEO will provide a business update.
Anyone else Chief Financial Officer will then discuss our financial results for the quarter and Jason Mills, our executive.
Vice President of strategy for joint Adam and I can speak every day with that I would like to turn the call Adam Elsa.
Thank you cheap and good afternoon everybody.
Thank you for joining numbers third quarter 2020 conference call.
Total revenues for the third quarter were $151.1 million a year over year increase of 8% as reported and 44% sequentially looking.
Looking at our largest market in the United States revenue grew 22% year over year.
Both neuro and vascular franchises outperformed our expectations.
Vascular revenue of $75.2 million grew 34% year over year and 62% sequentially.
Our neuro revenue of $75.9 million declined 9% year over year, but increased 29% sequentially.
Looking forward both of these franchises are strong.
Innovation accelerating and opportunities for growth in each are significant over the next several years.
During my prepared remarks, this quarter I will focus on five topics I will address the impact. The COVID-19 has had on number this quarter and its potential future impact then I will address the board growth engines at penumbra.
Skill or.
Neuro international expansion and the real system.
First let me spend a few minutes discussing our latest thoughts on the pandemic.
We returned to revenue growth this quarter. Despite the continued pressures from COVID-19.
Our efforts to deal with the pandemic. This quarter were primarily focused on keeping our employees safe while significantly increasing our manufacturing capacity to meet growing demand a challenge our team took on successfully.
We're not aware of any employee to employee transmission. The COVID-19 virus up a number.
We kept our workforce intact, indeed growing its size materially during the quarter.
And we made sure that at risk employees would be paid even if they were unable to work a normal schedule.
This work obviously has had an impact on our margins in the short term, which Maggie will discuss in her commentary.
We are all aware of the rising case numbers, an increase in corporate related hospitalizations in many regions in the United States and abroad.
It is impossible not to be cautious about these cobot related risks that may lie ahead.
Especially in the near term.
In addition to our effort to safely keep up with product demand the pandemic could impact some suppliers ability to supply materials to keep up with our strong growth in certain products.
And lastly, well hospitals have done an extraordinary job figuring out how to accommodate an increasing procedure schedule well meeting the needs of its kobin patients. We recognize that any further acceleration cobot infections in hospitalizations could put a strain not only on our hospital customers.
So could impact patients attitude about scheduling procedures.
I'll now focus on our four growth drivers that we presented to put numbers Investor day last December and have continued to discuss throughout this year.
Let's start with our vascular franchise.
Which we have said will drive both near and mid term growth.
Our vascular results. This quarter are clear evidence of the enormous opportunity we have in front of us to help a large number of patients.
The Bachelor Thrombectomy market is larger and less penetrated than our stroke business and ready for a paradigm change. So we are not at all surprised we're not surprised at all that our vascular franchise is now equal in revenue to our neuro franchise.
And will likely grow to become the Companys largest business in the fourth quarter.
Well, our neuro business is on very solid footing.
The vascular opportunities simply larger and easier to access.
Indeed, the number of peripheral thrombectomy patients in the United States each year on.
On the arterial and the Bina side.
It is more than double the number of treatable stroke patients.
What's more vascular patients are already being treated and hospitals by our current customers with either lititz or surgical intervention.
Innovation the number is bringing to this market is already making a huge difference in patients lives and could ultimately change the way. The majority of these vascular patients are treated in the future.
I stated on our last earnings call that our launch of the new Lightning 12 system in mid July.
Was the best product launch and put numbers history and.
And I believe our vascular growth is proving this out.
We are even more motivated by the positive impact lightning is having on patients.
The anecdotal reports from physicians on the performance of Lightning 12 has been exceptionally well.
We believe that lightning.
Together with our larger highly talkable catheter has so far proven to be the right combination of size and power.
To address the vast majority of targeted beans cases in the United States.
Now the hardwork starts.
Over the next several quarters, our team will be busy navigating through the value analysis committees at hospitals to make lightning available to a broader group of customers in the United States.
We then look forward to introducing lightning 12 into key international markets in the second half of 2021.
We are just scratching the market's surface with lightning 12, and its impact on our vascular business is nascent.
But we're also excited about investments, we're making in additional innovation.
And clinical evidence both of which we think will drive the indigo power aspiration paradigm forward globally.
Of note, we recently received FDA clearance of the Lightning Lightning seven system and.
We will commence or launch in the United States in early 2021, when we have appropriate inventory.
Like late in 12 Lightning seven utilizes our next generation hyper too based Talkable catheter technology, and we think lightning seven could be a very important tool to help physicians remove arterial caught.
Finally, our vascular embolization business also had its best quarter ever notwithstanding incremental benefit from catch up in some elective cases push back from Q2 to Q3.
Well, it's impossible to know definitively we estimate this benefit could have been as much as $2.5 million in the quarter.
And it is a testament to our vascular team and our unique products that we had a record quarter Invesco embolization, even excluding this estimated benefit.
Let's turn to our neuro franchise, where we were pleased with the improvement in our business coming out of the second quarter.
We posted double digit growth sequentially in a schematic stroke neuro embolization and access.
Before getting toward neuro pipeline, let me talk about jets have an extra flex.
We are fielded right number of questions from the investment community over the past few months regarding this product and the notification letter we sent to positions at the end of July.
First it is important to state.
The jets seven extra flex is the most advanced trackable re profusion catheter, we have ever launched and its strong contribution to our Q3 results, which I will touch on in a moment supports this statement.
Second we are proud of our physician customers working together with the pin number team to take the time to re familiarize and put into practice.
Important instructions on how to use jets have an extra flex to safely and successfully treat their stroke patients.
Given the questions. This quarter, we think it's important to share more detail on two fronts.
First jumped seven extra flex revenue in the U.S. and the third quarter was within $400000 of the products highest sales quarter ever.
Secondly, and more importantly, we're not aware of any new reports either as reported to the company or the Mod database that were the subject of the notification and were related to events that occurred after the date of the notification.
It is important to remember.
Competition in the Neurovascular space has always been.
And will likely continue to be significant and aggressive.
As I stated publicly at Investor conferences in September other manufacturers are using our updated instructions for use in a competitive manner to get physicians to try their products.
And this targeted effort drove trialing by some customers.
Due to the exceptional performance of just seven extra reflects the vast majority of these customers have come back to using jet seven extra reflects.
That said.
As we have regularly stated in the past we expect competition to continue to be aggressive in the neurovascular space.
And our World class commercial team will continue to make sure our customers know the value of our products.
Looking forward the number continues to design and innovate products to treat patients who suffer strokes.
We recently completed our initial cases for BMX, 96, catheter, which payers with jets have an extra flex as well as future products to enable a quicker and more advanced stroke procedure.
We are very optimistic about the benefit BMX 96 will offer physicians in their stroke patients in the quarters ahead.
We are confident in our current portfolio of market leading products in neuro.
Led by Jets have an extra flex and we are very excited to deliver another new paradigm to physicians treating stroke in 2021.
Now, let me focus on our international business.
During the third quarter, our international business recovered well getting all the way back to Q1 2020 levels in most geographies.
Excluding Japan, our total international revenues grew 2% year over year and 58% sequentially.
Japan was obviously impacted this quarter by the pause in the launch of Jets up an extra flex that I shared publicly in early September at an Investor Conference.
We have been told that our distributor partner plans on restarting that launch later this quarter following Japanese approval of the changes to the eye if you.
Japan is a potentially large future growth engine for the number on both an absolute and relative basis as we launch new products, both neuro and vascular into Japan and build from the relatively small revenue run rate. We currently have in the region.
Let me take a minute to talk about our strategy to increase our growth profile in international markets.
The overall growth of our business continued to shift toward vascular we are evolving our international sales capacity as well.
For example, we are creating dedicated commercial teams in both vascular and neuro in Europe, as we look to accelerate the pace with which we can reach patients with our innovative products in both franchises.
In addition, we continue to evaluate creative commercial strategies in certain key geographies.
As we seek to improve our ability to supply those areas with our newest products.
Now, let me turn to the real system.
As we previously indicated we were forced to delay the initial rollout of the real system due to the pandemic and we're just now starting to introduce the first systems to rehab clinics.
The initial feedback we've been getting from patients justifies the commitment to an immaterial investments, we're making in this product.
One example is a patient in the southeast who had a stroke over a year ago.
And went to traditional rehab for an entire year.
For improvement using traditional rehab plateaued quickly with her arm only regaining limited functionality.
Following this difficult year, she started using the real system.
And only about a month abuse. She has regained functional mobility in her arm.
This and many other stories are so inspiring and they motivate the entire team to push hard for the next phases of the real system.
Namely teller rehab and home use as well as additional applications targeting targeting other large serious medical conditions the.
The myriad medical conditions to which our real system is applicable represents by far the largest total market opportunity that the number has ever taken on.
And we are incredibly enthusiastic about the number of people we can help.
We will publicly present the advancements we are making in both the real product portfolio and business models and the first half of 2021.
Finally.
2020 has proven to be a challenging year for our country and the world at large as we have faced a pandemic as well as unease and uncertainty in our society.
Throughout these challenging times the number team has risen to the occasion.
And help the company achieve our current success, while also putting us in the strongest position we have been for continued growth in the future.
It is the measure of people on how they perform an act during challenging times and I am extremely honored to work with this team that has shown its character professionalism and humility.
I'm proud to say that number team has measured up and met the challenge.
I'll now turn the call over to Maggie.
Thank you Adam good afternoon, everyone.
Today, I will discuss financial results for the third quarter 2020, additional details will be contained within the quarterly report on top on form 10-Q to be filed on November 2nd Twentytwenty CST.
For the third quarter ended September 30 of 2020, our total revenues were $151.1 million, an increase of 8.3% reported and 7.7% in constant currency compared to the third quarter of 2019.
Our geographic mix of sales in the quarter were 73% U.S. and 27% International.
You asked an international reported a sequential growth of 41% and 53%.
Actively compared to Q2 2020.
Revenues from our vascular business were $75.2 million in the third quarter of 2020.
An increase of 34% reported and 33% in constant currency.
In the quarter, our vascular performance was driven by growth from both I'll come back to me and by station franchises.
Mentored by the Lightning 12 product launch and recovery in embolization cases from the prior quarter.
Revenues from our neuro business were $75.9 million in the third quarter of 2020.
A decrease of 9% reported and 10% in constant currency compared to the same period a year ago.
Our U.S. neuro business increased 15% reported on a sequential basis.
Driven by growth across all new real businesses.
In addition, our international Neuro franchise saw improvement in distributor orders and total new rail international revenue increased 57% on a sequential basis and decreased 18% compared to Q3 2019 different by timing of just seven extra flex law.
In Japan.
Our gross margin in the quarter was 60% of revenue compared to 69% of revenue for the same quarter last year did.
The decrease compared to Q3 2019 is driven by three components.
Keeping our employees safe and meeting demand our top priorities for us.
In doing so we have made incremental investment on COVID-19 related safety measures, which include trade off made in productivity and capacity.
Second to support new product launches and meet increasing demand in less efficient manufacturing environment, we have a salaried investment indirectly by hires and production support to enable production scale up in both the meta and real scale manufacturing facilities.
And finally Unabsorbed manufacturing variances from Q2 also negatively impacted our gross margin as inventories so through into third quarter.
We expect gross margin to improve gradually in coming quarters with current demand trends and we think the investment in product resources and infrastructure will drive margin expansion further in the future.
In the quarter, we had one time nonrecurring personnel related expenditures of $20.7 million associated with the launch of Lightning 12.
The following financial metrics will represent non-GAAP financial results.
Excluding these nonrecurring expenditures.
In the quarter, our adjusted operating expenses were $90.4 million or 60% of revenue compared to $83 million or 60% of revenue a year ago, representing 9.5% sequential growth compared to the second quarter of 2020.
As revenue momentum improved we rebalanced some temporary cost control measures that weve had put in place in the wake of cobot we.
We also increased volume read at hiring and related activities in the quarter.
And we continue to make strategic investment in a number of new product development opportunities at a similar level to second quarter of 2020.
We achieved adjusted operating income must feel point $5 million in the quarter compared to an operating income of $13 million for the same period last year.
Turning to cash flow and balance sheet.
Accounts receivable increased by $15 million and net inventory increased by $8 million compared to second quarter of 2020.
Working capital levels were consistent with volume trends.
We ended third quarter, 2020, with $269 million in cash and cash equivalents and marketable securities and no debt.
Finally in early April we withdrew guidance for 2020 in the outset of COVID-19 pandemic.
We are not formally reinstating guidance at this time because of the uncertainty caused by current increase in COVID-19 cases and hospitalization.
However, we do want to state that if there were no new negative cobot impacts in the medical device industry from this point forward we.
We would be comfortable with our fourth quarter revenue at or slightly above our record third quarter levels.
And now I would like to turn the call back to Adam for closing remarks.
Thank you Maggie.
In the third quarter, the number achieved the highest quarterly revenue in the company's history.
This is a testament to our people and our culture.
Our products, an incredible capacity for constant innovation.
Most importantly, our customers.
I applaud physicians nurses and health care professionals, whose extraordinary dedication is on display every day, but it has been especially evident over the past several months. These.
These heroes redoubled their efforts to treat more patients suffering from neurovascular and peripheral vascular disease as they continued to face enormous challenges fighting COVID-19.
Thank you all for your extraordinary work and.
And now we'd like to open the call to questions. Operator. Please go ahead.
At this time I would like to remind everyone that in order to ask a question Press Star then the number one on your telephone keypad.
Just for just a moment to compile becoming a roster.
Our first question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.
Hi, Good afternoon, guys. Thanks for taking the question and congratulations on a really nice quarter here.
You know Adam yes.
Yeah, you weren't kidding, when you said on the last call that.
Lightning 12.
It would be the most successful launch in the company's history. So I wanted to start there.
You know with U.S. vascular.
Was there anything one time in Q3 can you can you talk a little bit about the mix versus the volume benefit.
And how do we how should we think about this level of sales.
Going forward.
Yes first of all Larry.
Thanks for the question.
So the.
The vast as you remember we started.
The launch of this product introduction of it sort of two weeks into the quarter. So we really had 10 weeks.
In the quarter to do this so the vast majority.
This is is just cases.
Being done there's there's very little sort of in stocking and other things as you know that takes a lot of time and particularly now.
It seems to be taking even longer so so the vast majority of this is really the increase for lightning is really just case usage.
And as I said on the last quarter that response to this just very easily and quickly really after one case, we've seen over and over again, it's been just that remarkable.
It just works is it's it's just sort of the right balance of size.
And power as I alluded to sort of safely be able to get caught out of DVT and a host of other cases, so we're really optimistic.
We had high expectations for this product.
And.
So far the market has responded favorably to it but.
You know as a alluded to in my prepared remarks, the hard work starts now.
We have to go through the value analysis committee isn't on that so.
Seems to be taking a little longer than it used to be.
So so that's going to take a number of quarters to do.
But in the long run we think we're on a on a Greek pathway with this product.
For being able to help a significant number of people.
That's great and Adam on International you talked about international upfront in your prepared remarks should we expect to see that improve sequentially.
And Q in Q4, and I wanted to sneak one more in here. Adam you gave a goal of $1 billion in sales in 2023 at the analyst meeting in December is that still intact or should we think about that being may be pushed out a year because of kogut. Thanks for taking the questions.
Sure.
To answer the first question.
Barring new chain.
Changes in Cove, it and I, just I want to I know nothing specific this is not foreshadowing our October started out you know in relationship to.
Every other October and the quarter before in a typical manner. So don't read anything into this but you know you wake up today and read the headlines that France, and Germany, and Italy, and Spain are all going on locked down and your question was international so so we don't know, but barring those issues.
If we don't have those new impacts yes.
Yes, we do expect the international.
To continue to recover.
As you suggested.
As it relates to.
The question.
We are absolutely comp.
Confident that.
We will continue to.
Grow and reach that goal the exact timing of it and quarter.
Again, given the fact that today, we're facing headline after headline around kobin.
Particularly gives me just slight pause to commit to a exact moment in time.
But I think this quarter shows you that our.
Business is as strong as ever and that we have a lot of confidence that we will I'm not only get to the billion but.
Get into the plus world.
In a timeframe that is appropriate.
Thanks for taking the questions guys.
Of course.
Your next question is from Bill Plovanic with Canaccord. Your line is open.
Oh, great. Thanks, Good evening can you hear me okay.
Yes, Hi, Bill.
Hey, Adam.
So just drill down into Larrys questions a little further just in the in the.
In the peripheral market is there anything specific or any areas that you mentioned DBT, but DVT various PE versus other areas that you are seeing the bulk of the growth come from.
And then also.
Also piggyback on the international question in the opening remarks, you discussed some changes to the international structure, if really splitting the sales force is you know is that something that could be accomplished rather quickly where it's in place by year end. This year and then you're kind of 21 hit the ground running or is this kind of a rolling adjust.
We'll see over time to that channel.
Yes, good questions built.
On the question of mix, it's really been all across the board there's absolutely no one area that we can pin too.
Which really is not surprising but gives us a great deal of confidence.
Between those areas that that we've really found.
Sort of just the just right spot or the sweet spot so.
So we feel particularly good about it.
And don't forget.
This is we're talking about lightning 12 is the new product, but the rest of our portfolio on their tiro Sidon coronary side have also been quite successful.
With and continue to grow independent of.
This product launch, albeit.
I certainly don't want to take any anything away from from this great product launch as it relates to the structure.
In Europe those initial changes.
We're just made.
In the last short period of time.
To see the effect of those.
We'll take a little longer we created sort of that the management structure and now we have some hiring to do not a lot, but a little in and also.
We we have lightning is not yet approved.
Or cleared in Europe, or CE, Mark. So once we get that that will also drive growth and I alluded to that in.
In my prepared remarks.
Okay, and if I could ask a follow up it's just starting to the 20.7 million in one time charges were placing can you give a little granularity on what specifically that would be for.
Yes.
Without sort of getting into an area you know.
Where it could be.
Competitive against US there was the primary bulk of that was related to work on the development side.
That that was part of an understanding.
That allows lightning to to exist in the first place.
And that's why it's a one time charge.
Okay. Thank you very much.
Yes, my pleasure.
Your next question is from Robbie Marcus with Jpmorgan. Your line is open.
Yeah. Thanks for taking the question and congrats on a nice quarter.
Adam I know you don't get asked a lot on realty, our but there has been reimbursement changes.
Right and the script I was wondering how people should think about that ofer, let's say the next two to four years. Here is is this something that can start to contribute to revenue at the close surrender that time range or is this really still some opportunity that's exciting or but further out.
Yes, thanks for.
We're asking about real ROI.
Real.
The exact timeframe.
Of sort of the launch in the business model and all that.
We'll again.
Do more publicly as I alluded to in the first half of next year.
But I do think if you're defining.
The the near term or sort of mid term as the first two years versus you.
Four years later from that.
The answer is definitely it can start to contribute.
You know the most important thing is.
Yes.
For that we want to have everyone understand is that as we have evolved.
The product.
And moved into more tele rehab and other medical conditions. Besides more traditional neuro rehab you know that.
Tam if you will has really dramatically increased.
And again, we'll lay that out in more detail when we unveiled this publicly but it really has made this.
A huge opportunity so we're going to be careful we are going to be you know.
To do it right.
When we have everything organized and the product I'm ready to go we can't wait to share with everyone.
Great. Thanks, and maybe a quick follow up on.
You know your competitor in.
Peripheral aspiration has a higher price point than you based on I believe your comments and some of the checks we've done how should we think about the third quarter us peripheral performance in terms of price versus volume it out if.
If you don't want to tell us exactly any qualitative measures.
Measures would be really helpful getting us in the right direction. Thanks.
Yeah, I think it's a totally.
Totally fair question.
The vast majority of this is volume.
And.
As opposed to price.
As you know.
There's a small uptick.
In price that.
That is also bounced out a little by the law.
Less use of the separate or in the case. So there is a little bit of price, but I would absolutely attribute the vast majority of these cases as new cases.
That we would not have necessarily gotten.
Primarily you know I mean this field as large as I've said you know there that's the biggest competitor.
His physicians using.
Catheter directed lysis or TCPA.
And that's where we focused our energies and time.
And.
And as I said in my prepared remarks at this moment in time. This area is right for a paradigm change and and.
We found a very willing.
Group of physicians, if you will a large group, who who were willing to try it and realize the value of it immediately so.
To answer the question that it's mostly volume and mostly patients that we weren't treating before.
Well, that's great to hear thanks, Adam.
Yes, Thank you Robby.
Our next question is from Bob Hopkins with Bank of America Your guidance.
Hi, great good afternoon.
Hey, Adam.
Thanks for the call and the results just a couple of follow ups.
One quick one in the second quarter, you talked about international de stocking was that a factor this quarter and is that pretty much done at this point.
Yes.
Thank you.
Most of that is back.
We didn't really see that as an effect or we didn't call that out specifically this quarter. So I would agree with that.
Assessment, Yes, and then I'm just curious in the quarter you know thank you for giving the U.S. neuro number I'm just curious when it comes to your.
You assist cubic stroke revenues do you think that the what you experienced in the quarter was fairly representative of what went on with the broader market.
Well I don't know because.
One of the competitors Evan Manny.
Manufacturers have reported.
I would assume.
And I think I went out of my way to say that it might be a little less than the broader market. Because we had all the competitive trialing that was going on.
I don't know that as you know this was a noisy quarter for our neuro.
Franchise and lots of competitive behavior, not something again that we.
Aren't used to but but I wouldn't.
I can't answer that until we know those numbers.
What it tells me, though in the long run and where how we performed in the reaction.
Of our customers in the long run is really heartening.
You know notwithstanding all the noise and effort.
Our the vast majority of our customers have.
Have shown that they appreciate the value of this product and I think our business is pretty solid for for going forward.
And then lastly on the view that touch on really quickly is because is this question of competition more broadly across the business school.
You know three or four years ago people really started to get nervous on the neuro side with competition and there were a lot of false starts there and you guys.
Basically remain very competitive all the way through out that's what people got worried about competition much too early on the neuro side.
I was wondering if you just kind of comparing contrast competition that you see coming on the vascular side from several companies that are announcing new products.
Versus the neuro would you characterize is kind of a similar dynamic or are there differences you think or should we be we should be aware of as we evaluate competition on the vascular side compared to the neuro side.
Yes.
I really.
Not to be disrespectful to any of the people who are in this space.
Great.
Manufacturers really all together trying to do the right thing, which is to move the field.
To a place where removing clot in the body is a much more.
Logical and better procedures than where we are.
And I have a lot of respect for him, but that being said you know I don't think we.
We think about competition this feel much the way we've always thought about it in neuro you know it's always been acute in neuro, we entered the field after those companies here, it's a little different.
For most of them and.
It's just so large and we're all are mechanisms are all a little different we have different thoughts.
So we don't really see competition at all in the same framework in fact.
I'd be surprised if the other companies don't say the same thing.
It doesn't have the same the same type of.
Reaction and thing that narrow does and it's just so much larger if you look at neuro. There's you know how many 10 companies now in neurovascular, all chasing a relatively small group of of cases, that's great and we've really proud of our work and proud of what we'll do in the future going forward.
As we think we can continue to.
Compete very well, but it.
It's just not the same as the vascular opportunity. If you think about it Bob took us through.
Teen years to build our stroke business to where it is today and it's taken five years to build our neuro our vascular business to be the same size.
I think that tells you what you need to know about how we see the future of this field.
Yes. Thank you I appreciate the answer.
Yep.
Your next question is from joint venture with Citi. Your line is open.
Good afternoon. Thank you for taking the question I actually have two and I'll ask them upfront.
First one half gear with some research and development expenses. This number has risen significantly in the last two quarters I'm. Just wondering if you think about this as I go forward rate or whether or not you know given kind of the launches, but you've been able to get out the door successfully it comes down to a more normalized level on a dollar basis and then the SEC.
Good question, a little bit more big picture in terms of the narrow market. When we talk with physicians were still hearing stories about how the number of this scheme mixed stroke patients.
Our lower than they what they were last year and a pre cobot environment are you seeing that or is it just the Doc if I happen to be picking and if so why do you think that it.
Thanks.
Thanks, Matt.
Now you will ask answer the first question then I'll do the second one yeah, hi doing thanks for the question.
In terms of the operating expense.
Think that after we exclude that a onetime nonrecurring expense that we highlighted.
The baseline 90 million dollar expense is a.
Reasonable baseline for us to understand I looking forward how.
Our base operating expense trend with volume going forward.
If you remember starting from last quarter, we have a step up in R&D investments specifically related to a few new development programs and that likely will continue.
Our near.
Near short term corridors.
And then as it relates to the neuro question you know it really is.
I mean, it's a really insightful question and it's it's kind of mixed we certainly have.
Some customers that are seeing a significant increase.
In stroke patients.
At least you know sort of in the near term from from sort of the end of Q1 and into Q2.
And then there are some customers who.
Who are available can treat patients and have seen a small decrease.
I don't really.
No how to describe that other than.
The change the real challenge.
Of of the stroke field that we've been talking about for the last five and a half years of getting patients to the right place.
And obviously, there's there's no evidence whatsoever that people are having less strokes.
So the question is is this patient flow question.
And is something about the moment in time and co bid.
Changing that flow where patients are not getting transferred the way they used to get transferred.
And the answer may be true in those circumstances, it's certainly not across the board and other hospitals have seen an increase.
But in those that that maybe you've talked to and that we know of it.
It just it I think highlights that challenge.
It also.
Worth pointing out that challenge doesn't exist in the vascular business, which is probably why we're seeing that continue to grow and will because those patients are always already where they should be.
So.
You know, we're not giving up obviously, we've come a long way in stroke, and we have incredibly optimistic view of our future stroke business.
But I think that is that challenge is always going to be.
There are about getting the patient to the right place and and there must be something about this moment in time to cope with it that's making that challenging at least for the hospitals that that I know of in the ones you're talking to.
Thank you.
Yes, my pleasure.
Again, ladies and gentlemen, if you would like to ask a question press Star and then the number one on your telephone keypad. Our next question is from Margaret because order with William Blair. Your line is open.
Hey, guys. Good afternoon, thanks for taking the question.
Maybe the first one for me is just following up on your commentary around the Baxter Lightning 12, obviously.
Obviously, despite the delay there so Brian really really quickly but.
What impact could this have around adoption over the next three to five quarters relative to your prior expectations and.
I really can't catch up pretty quickly or not.
So the the the way we see.
I mean this product as I said, it I said it last quarter, a few weeks into the launches.
It's the best product we've ever launched its the uptick is really extraordinary.
And and really it's really on us and the.
The hospital systems to get this now in terms of profit.
And that that process.
Is never easy as you know to go through the value analysis Committee at hospitals. There are some hospitals that have made that even harder by because of the financial strain on hospitals systems is this year have put outright bans on new products.
There's one system that did that but we were able to get a quick waiver because of.
The value that this product brought so.
So really is just that work hard to predict the timing of that.
Other than to knowledge that it's ahead of us.
And it won't be linear simple that being said.
The product itself.
I think is in is performing in a way that really can.
Really capture so many of these patients that are.
They're now getting catheter directed lysis, instead of mechanical thrombectomy, and and that I think really gives us a lot of confidence in this.
Okay.
So that seems kind of out of your control, but obviously you're trying to to do your best to manage the situation hopefully gets better and 21, yes.
And then I wanted to follow up a little bit on the commentary around Q4 performance and I know, there's a lot of uncertainty here.
But I think you gave some guidance around.
Yes, not assuming cold it continues that frankly, I'm a little surprised that you wouldn't see further acceleration sequentially. Yeah, we saw that in the year ago period, but for that so maybe walk us through those dynamics, how did you guidance I come up with those numbers.
And anything you can give us in terms of European shutdown, but they've had any impact at this point as well. Thanks.
Yes.
It's totally fair question. So first of all to remind everyone. We did not give formal guidance.
We were.
Very clear about that what we wanted to do is give you sort of a qualitative framework to sort of think about.
Our business in the fourth quarter.
We're pretty careful to look at what happened.
This quarters last quarter.
And what are the sort of fundamental trends, which are positive.
That being said you know we did call out.
Some carryover couple.
A couple of million dollars a little more.
On our peripheral embolization business that obviously doesn't repeat in the fourth quarter. So that that came gave us.
The numbers.
Again if.
If things don't get worse.
You know, we think that that's attainable if things get worse, you know, we don't know and.
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Escalating obviously this morning alone you know, we all woke up to the news in the market reacted to it.
So we don't we don't know that but.
But let me make sure everyone understands beyond fourth quarter.
You know we are in the strongest position as a company we've ever been in.
I made.
I Hope you heard me say that.
And we feel that as we navigate coded in on top of that we also have.
The strongest portfolio, we've had a product and we think we're going to have significant growth.
When the uncertainty of Cobiz is out we're in really good shape, we're proving that even with co bid, we can do pretty well, but.
We're being cautious around those numbers because that.
Got it thanks, guys and congrats on the quarter.
Yes. Thank you.
Our next question is from Ryan Zimmerman with P. T. G. Your line is open.
Thank you.
Yeah, Weve seen some preliminary clinical data note in increase quality and as a result, the covenant speaking with some of the vascular surgeon, Dave There's certainly confirm that they're seeing a higher number of patients is resolved, but I'm. Just wondering if you could speak to what you've seen in the business that would support or a few at this trend and whether that can be an incremental tailwind over the coming quarters as physicians treat.
Those increased cases, it's is it fair to assume that these patients would be above and beyond kind of that 400000 that you previously outlined.
Yes.
And that's a very good question and the answer is yes, the numbers that we've been giving around.
Around arterial and venous cases of for 430000 that are treated by some means either surgical intervention or catheter directed licenser or just kind of limited.
His be before Covis.
So.
There's no question that that number in the short term could go higher what we don't think is that.
These are these cobot patients are you.
Uniquely the ones that we're treating right now you know where they're all just increasing that pool for the short term.
And one of the things that I think is really.
Making us optimistic about this is that as people who have news.
Particularly catheter directed lysis in the past and I've tried lightning 12.
Their reaction to Oh.
Product, we we might just.
Convert and so in that case to the extent that there are more patients in the short term that they can treat that's great, but but it really goes to the larger market that we're just tapping into so.
You know I I mean, we got a long way to go before we're treating 400 and.
30000 patients in the us.
We're still single digit penetrated so.
We got to we've got a lot of work ahead of us, but yes, you're right. It does add to the pool a little bit in the short term.
Okay Chris.
That answer and then just one for Matt, Yes, we've talked a lot about line in this quarter and given the price premium you are getting with lightning I guess measured against less utilization of separators Mag Im just wondering if you could comment on kind of the margin impact. This may or may not have for the company as like new continues to really be one of the key driver.
First in the vascular business.
Yeah in terms of margins gross margin impact.
Tightening could have them very like accretive impact to our margin. Thanks.
Yes, I guess about our margin performance.
Definitely not a material impact in our gross margin this quarter that it's related to specifically pricing makes.
Understood. Okay. Thank you for taking the questions.
Yes.
All right. Thank you.
There are no further questions at this time Ms. Hamlin here, so I turn the call back over to you.
Thank you operator on behalf of our management team. Thank you all again for joining us today and for your interest in Penumbra.
Look forward to updating you on our fourth quarter call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
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