Penumbra Inc (PEN) 2015 Q4 法說會逐字稿

At this time, I'd like to welcome everyone to the Penumbra fourth quarter and year end 2015 conference call.

(Operator Instructions)

I would now like to introduce, Mrs. Sara Thompson, Head of Investor Relations for Penumbra. Mrs. Thompson, you may begin your conference.

Thank you, Operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the fourth quarter and year-end 2015. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation, can be viewed on our Investor Relations website.

During the course of this conference call, the Company will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our prospectus dated September 17, 2015, relating to our IPO filed with the SEC.

As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our periodic filings with the SEC, including the prospectus previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or market price of our stock. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of the new information, future events, developments or otherwise.

Thank you, very much. And with that, I'd like to turn the call over to Adam Elsesser, Penumbra's Chairman and CEO.

Thank you, Sara. I'd like to welcome you to Penumbra's fourth quarter and year-end 2015 conference call. I'm joined today by Daniel Davis, President of North America; and Sri Kosaraju, Chief Financial Officer and Head of Strategy.

First, I will review key business updates from the quarter, then Sri will cover the financials as well as an overview of our revenue guidance for 2016, and finally, I will conclude with a recap of our year. Our total revenues for the fourth quarter of 2015, were $54.4 million, compared to $35.4 million, for the fourth quarter of 2014. An increase of 53.7% as reported, and 58.5% in constant currency. We achieved net income in the quarter of $1.6 million, compared to $0.4 million of net income for the same period last year. For the full-year 2015, our total revenues were $186.1 million, compared to $125.5 million, for the full-year 2014, an increase of 48.3% as reported and 53.9% in constant currency. We had net income for the full-year of $2.4 million, compared to $2.2 million of net income for 2014.

We saw strength in all our main product families in both neuro and peripheral vascular. Historically, we have not seen that occur often and we do not expect to see that every quarter. When this does happen, it further highlights the benefit as well as the opportunity of Penumbra's broad product portfolio.

Let me touch on a few key themes across both businesses. I'll start with our neuro business. First, the ischemic stroke market has had a strong first leg of growth in 2015. Penumbra saw more stroke centers come online in 2015, in both the US and abroad. We estimate that in the US in 2015, roughly 16,000 to 17,000 patients were treated with mechanical thrombectomy, which represents slightly greater than 10% of what we believe to be the addressable patient population.

It is our sense that today, many stroke centers still treat less than 50 strokes per year. The most organized and developed centers treat near or over 200 strokes per year. This not only shows great progress, but also the great opportunity to impact more patients.

While the ischemic stroke market remains strong, we sense that we're moving into the second leg of growth. This next leg is about developing market so that more patients can get to a stroke surgeon in time to be treated. In the fourth quarter, we started to see actionable steps being taken, both at a national level and a more targeted local level, to help develop and define models for better patient flow. The implementation of these models is a three to five year effort at best, and these efforts will gain further support as we continue to promote the positive treatment and economic benefits of mechanical thrombectomy.

Our next key theme is around how we see the evolving treatment techniques for ischemic stroke. We continue to experience strong growth and adoption of direct aspiration with the Penumbra System, and specifically, ACE and ACE64. We continue to believe that there is a role for other tools as well.

As you may be aware, we have our own 3D stint retriever trial underway, and I will provide a minor update. The trial was temporarily halted by the independent data safety monitoring committee with 198 patients enrolled of the 230 planned patients. The committee expressly indicated that there were no safety issues. The trial data has not yet been unblinded, however. Since we've been informed that there were no safety issues, we would anticipate submitting to the FDA by year-end as we have previously disclosed.

Coming back to how we see the evolving treatment techniques. The feedback through the fourth quarter for medical meetings, papers, and our own results, all continue to confirm the foundational role that direct aspiration is playing in stroke therapy. We remain very focused on continuing to innovate in this area to further strengthen our leadership position.

We also wanted to highlight innovation across our broader neuro portfolio. BENCHMARK, which was introduced at the end of 2014, has augmented our neurovascular access platform and has helped contribute to strong neuro access growth.

In the quarter, we also introduced our SMART Coil for neurovascular embolization. We have been carefully preparing for SMART's introduction as we think it could be a highly differentiated project. We have seen positive early results and feedback from initial cases with leaders in the field. SMART will require meaningful investment and effort over the next few quarters in order to gain the appropriate traction. We do not expect to see meaningful results until later this year.

Now, moving on to a few updates within peripheral vascular. The momentum in our peripheral vascular business continued this quarter. I will provide color on what we are seeing in peripheral thrombectomy with Indigo, but it is important to highlight that our peripheral business also benefited in the period from the pull through of our embolization portfolio. As we get more penetrated with Indigo, our physicians are getting more exposure to the benefits of Ruby, POD and the POD Packing Coil, which we introduced in January.

The comment on peripheral thrombectomy. The JPMorgan conference, we dove in deeper on how we see the market. We mentioned that in the US, there are an estimated 150,000 cases each year, of which we believe about half are incorporating device treatments today. As many of you know, this was our second full commercial quarter in the US after launching the larger sizes of Indigo, CAT6 and CAT8.

In the quarter, we continued to prioritize current customers who used the smaller sizes of Indigo. Additionally, in the quarter, we also introduced CAT6 and CAT8 in new geographies outside the US. We maintain our view from last quarter, adding new customers will take time given practice habits and also various hospital committee processes. There is considerable effort needed to continue working with existing customers as well.

Importantly, we continue to hear from physicians and patients about how truly transformational the Indigo system is in areas where current treatments may not be effective. While it is still early, we see Indigo being used across multiple venous and arterial diseases where physicians were either using existing device, or where they were administering catheter-directed thrombolysis.

Finally, I'd like to share an incredible phenomenon that has happened recently on multiple occasions. Physicians at medical conferences have approached me to tell me about particular patients they recently treated with our products and to thank Penumbra for making these products. Last month, a physician told me about a 30-year old woman, a practicing lawyer, who had severe stroke in the basilar artery and was locked in. In other words, she could not move, talk or communicate at all, but had retained her cognitive ability. She was treated with ACE and made an on the table recovery.

Another physician, at a different conference, told me about a young woman who had suffered since she was a teenager from extreme pain in her legs caused by an arteriovenous malformation. After being treated with the Ruby coil, she broke down in tears as she was pain free for the first time in years. It is an incredible feeling personally and one that the entire Penumbra team shares when we can have this type of positive impact and hear these stories directly from the physicians.

I'll now turn the call over to Sri, for more specific details on the quarter.

Thank you, Adam.

As Adam mentioned, for the fourth quarter ended December 31, 2015, our total revenues were $54.4 million, an increase of 53.7% reported compared to the fourth quarter of 2014, or 58.5% in constant currency. Our geographic mix of sales in the quarter were 69.7% US and 30.3% international. Neuro and peripheral vascular represented 71.8% and 28.2% of sales respectively.

More specifically, revenue from our neuro business grew to $39 million in the fourth quarter of 2015, from $29.2 million in the same period a year ago, an increase of 33.8% reported or 38.9% in constant currency. Our neuro growth was driven by sales of our Penumbra System, which includes ACE and ACE64. Consistent with our comments last quarter, we expect the market's growth rates for ischemic stroke to transition as the market heads into the second leg and also, as we head into comparative periods that fully include the impact post MR CLEAN.

Revenue from our peripheral or vascular business grew to $15.4 million in the fourth quarter of 2015, from $6.2 million in the same period a year ago, an increase of 147.2% reported or 150.5% in constant currency. We are very encouraged with the result in peripheral vascular. They exceeded our expectations.

In the quarter, we had strong pull through from peripheral embolization, and we also launched Indigo in Europe. Within peripheral thrombectomy, we believe that we could see incremental growth from here occurring later in the year from both ongoing usage with existing centers as well as new centers. Our gross profit in the quarter was $36.5 million, or 67% of revenues, compared to $23.9 million, or 67.5% of revenues for the same quarter last year.

Now, moving to our operating expense. Total operating expense for the quarter was $34.6 million, or 63.7% of revenue, compared to $23.6 million, or 66.6% of revenue for the same quarter a year ago. Our research and development expenses were $5.5 million for Q4 2015, compared to $4.1 million for Q4 2014. The increase was primarily due to greater compensation expense resulting from increased headcount to support continued investment in our products.

SG&A expenses were $29.2 million for Q4 2015, compared to $19.4 million for Q4 2014. Our spend increased primarily due to increases in headcount and related compensation expense, as well as increases associated with our operating as a public company. We had net income of $1.6 million in Q4 2015, compared to net income of $0.4 million in Q4 2014.

Moving to our balance sheet, we ended the quarter with $148.8 million in cash and cash equivalents and marketable securities, compared to $159.1 million at the end of September 30, 2015. Our decrease in cash was due to greater working capital associated with the recent product introductions as well as our preparations to open an additional distribution location in the Eastern United States.

Now, I'll turn to cover a few metrics for the full-year 2015. Our total revenues for the year were $186.1 million, an increase of 48.3% reported, compared to the full-year of 2014, or 53.9% in constant currency. For the year, our geographic mix of sales were 68.4% US and 31.6% international.

Neuro and peripheral vascular represented 76% and 24% of sales for the year, respectively. Revenue from our neuro business was $141.4 million for the full-year 2015, an increase of 33.1% reported or 39.2% in constant currency. Revenue from our peripheral vascular business was $44.7 million for the full-year 2015, an increase of 131.9% reported or 134.9% in constant currency.

Our gross profit for the year was $124.1 million, or 66.7% of revenues, compared to $82.8 million, or 66% of revenues for the full-year of 2014. Total operating expense for the year, was $119.9 million, or 64.4% of revenue, compared to $79.8 million, or 63.6% of revenue for the full-year 2014.

Our R&D expenses were $18 million for 2015, compared to $15.6 million for 2014. We anticipate R&D spending to increase on an absolute basis as we develop new products, add R&D personnel and initiate new clinical activities.

SG&A expenses were $101.9 million for 2015, compared to $64.3 million for 2014. We anticipate increasing our spend as we make additional hires across SG&A, initiate post-market studies, and grow our IT infrastructure.

As a note, the medical device excise tax represented about $2.2 million in 2015. For the year, we had net income of $2.4 million, compared to net income of $2.2 million in 2014.

Now, turning ahead. We are introducing revenue guidance for the full-year 2016, in the range of $230 million to $235 million, which at the midpoint, represents revenue growth of 25% over full-year 2015.

And now, I'd like to turn the call back to Adam for closing remarks.

Thank you, Sri.

2015 was an important year for Penumbra. The year started with the announcement of data from the stroke trials and the guidelines issued supporting mechanical thrombectomy for certain stroke patients. It quickly moved to our physician customers, embracing the latest innovation for stroke patients with the launch of our ACE64 reperfusion catheter.

We saw the launch of our larger sizes of our Indigo system with an expanded venous indication and started hearing about the impact that product is having on patients and their families. We also introduced our SMART Coil, a product that brings real innovation to an otherwise mature field. These commercial opportunities will be an important focus in driving growth over the next few years.

Another important initiative this coming year will be to increase our investments to support our long-term growth. We will be adding select key personnel, making IT investments and investing in new clinical trials and studies. While we are incredibly excited about the opportunity in front of us, it is imperative that I remind you that the work ahead of us is extremely hard.

Working with dedicated people all over the world to ensure that appropriate stroke patients get to a stroke surgeon is not easy or quick and will take everyone working in concert to do some really heavy lifting. The work ahead of us in peripheral thrombectomy to encourage a true paradigm shift in treating blood clots in the body is hard work for our sales and clinical team.

It takes time and tireless effort to introduce the clinical and economic benefits of the Indigo system to physicians, staff and purchasing departments in hospitals. We also have a huge task ahead of ourselves in launching the SMART Coil directly into a mature and highly competitive market. We have to get our COIL into the hospitals and on the shelves, which sometimes requires displacing another company's coils.

We have to do all this work that I detailed while we directly compete with some of the largest medical device companies in the world. We are ready for this challenge and for the opportunity to positively impact thousands and thousands of people.

Thank you for joining us on the call today, and we'll now answer questions.

(Operator Instructions)

Mike Weinstein, JPMorgan.

Thank you. Adam, and Sri, and everybody, congratulations on a fantastic quarter. Let me start with the peripheral business, if I can. Last quarter, Adam, you talked about the rollout of Indigo into the larger sizes and how that had been an accelerate, if you would, on the business. You kind of cautioned us from extrapolating but you had another obviously very, very strong quarter there. Can you just add some more commentary to your prepared remarks?

Sure, Mike, and thank you. I'll give a little impression and then Sri can follow up with a touch more detail. The phenomenon that we talked about of launching the product and having easier time getting it into hospitals that already had the product, the smaller sizes, that ended up continuing into the next quarter, into the fourth quarter. And we also saw the launch of our product in Europe, the early part of that launch, which also had a similar phenomenon. Sri can comment a little, on some of the more details.

Those dynamics in Europe are much like what we saw in the US last quarter with the bolus. To comment on Europe, it's not as big of a market as the US. Roughly 30,000 existing procedures versus 150,000 in the US. So, obviously, a different size market, but we did see the pickup of that.

I think the expectations, Mike, that we set, just to be clear, last quarter, I think are very true this quarter as it relates to a sequential matter. We'd expect to be sequentially behind where we are this quarter. And in my comments, I also alluded to the incremental growth from here, is something we would see as back end loaded, which is consistent with the three month to nine month timeframe we talked about last call.

Yep, understood. Adam, I wanted to touch on your remarks relative to the Separator 3D and the stopping of the trial. If I recall, the trial was randomized between the Penumbra System with 3D and the Penumbra System without. Am I reading right into your comments that the trial was stopped because of efficacy of the incremental efficacy of adding the retriever on top of aspiration?

Well, you're right in the comment of what the trial is. It was our original direct aspiration with our stent retriever versus just direct aspiration, so that's accurate. I can't comment on the trial in really anyway since the data is still blinded, and all we know is that there was expressly no safety issues. Our assumption is that, and given the number of patients enrolled that, that would lead to us submitting, as I said, toward the back half of this year.

Okay. So let's say -- to say my hypothesis on maybe what's going on there with the trial is correct, it would seem to speak to a [slumber] strategy versus adapt. Would you agree?

I don't -- I would not necessarily agree to that. As you know, there are three fundamental techniques. The use of a stent retriever alone, the use of direct aspiration together with a stent retriever and then the use of direct aspiration alone.

I think the field, people sometimes have preferences. I think there's a slow but steady evolution toward direct aspiration. We are fully supportive of that and have for a number of years. As I also said in my prepared remarks, we stand firmly supportive of that in our work and future innovation as well.

Okay. Last question and I'll just jump into it. I had Kevin Logo on my conference call series last week. One of the things that we got to talking about was the development of the stroke market and what Stryker was doing to try and invest in the market development. He talked a little about some of their collaboration with Medtronic to do that.

If you think about your strategy, obviously, being a smaller company with smaller resources than your two principal competitors, how do you play a role in the market's development without having to throw significant cash at it? What role does Penumbra play relative to the larger, obviously, much bigger companies?

I think that's a great question. I want to start by saying, and I really said it in my comments, this is really hard work and it requires all of us, meaning all the companies that are involved, all of the physicians, the societies, patient advocacy groups as they get focused on this, to do this kind of work. It's really no one entity or company or a group of people. We have been very involved with some of the physician societies. We've been very involved on the targeted local level. Wherever we can help, we have been willing and able to offer our help.

And it's really exciting to see. There are some early signs of some of this effort paying off, whether it's at a county level, in certain small states, there's some movement with some legislation, so it's really, I think, all going to start. Obviously, it takes time, but I think we're all in this together to do that work.

Well, congratulations again. Thank you, guys.

Thanks, Mike.

Bob Hopkins, Bank of America.

Hi, thanks for taking the question. Again, my congratulations as well on a strong quarter and a great start to life as a public company. Sorry for the background noise. I'm at an airport.

I just wanted to follow-up on a couple quick things. First of all, relative to the guidance your offering today and your comments about the size of the stroke market in 2016, can you give us a sense as to what sort of market growth you're anticipating for the treatment of acute ischemic stroke in 2016 versus 2015? What's embedded in your guidance there?

Yes, just a couple thing on the growth rates broadly, Bob, and we can touch on your question as well. We, obviously, saw great growth in 2015. If we focus on the two big drivers, stroke and peripheral thrombectomy, both had catalyzing events that saw immediate growth.

As Adam touched on, across both, we are extremely excited about what the future holds in these markets, but the dynamics of these markets are changing. Adam touched on the market development work in stroke, also the time it takes to change treatment paradigm and peripheral thrombectomy with Indigo. Those are dynamics that we want to make sure people appreciate as we think about the growth optics going forward.

About your question, I think all of us, meaning all of the competitors, are generally in the same ballpark as it relates to the long-term CAGR of the stroke market. But I think the challenges, how do you measure 2015 growth versus 2016 growth? As we've said repeatedly, it's not going to be linear. There are going to be, in our minds, stair steps of growth along the way. When we start introducing this concept of the second leg, that's really what we're talking about.

Okay. But just in terms of the specifics around 2016 versus 2015, that's not something you're going to comment on?

We're not going to break down the guidance, Bob. As we talked about the overall number, the midpoint is 25%, and I think that's where we're going to keep it.

Okay. And then I just also wanted to ask about Indigo in a little bit more detail. Can you give us a sense as to how many centers you are in right now? How many centers you think you'll be in at the end of the year? And just, how does the growth process work? Is there data coming this year that you can show the physicians, or is it all just word-of-mouth, on the podium, single center experience? Help us understand how you're driving the growth of Indigo currently and as we work throughout 2016?

Yes, Bob. I'll start and then Daniel can jump in with some specifics. Because Indigo has a broad application, in basically, all peripheral, arterial and venous locations, it's not -- and I think I've said this before, it's not one size fits all. So a lot of the work is done really on an experience basis with physicians who are doing the cases.

There is clinical work that we are starting in very specific areas within that larger category. None of that will be coming out imminently, obviously, because we're just getting started with it. But there is really work being done both at, obviously, medical conferences and individual work at centers and physicians. Daniel can offer a little bit of additional thoughts there.

Hi, Bob. This is Daniel Davis. To really touch on the Indigo opportunity, I think there are two key issues here. The first is really the change in the treatment paradigm, and that's going to take time. Today, you see in the US, most of these patients are in the hospital and the primary option for the patients today is [Wettix]. The real opportunity here is to change that paradigm. That work takes time. Some physicians see one case and they immediately gravitate toward Indigo as kind of their favorite option, and others continue to use it in conjunction with Wettix, with a different recipe.

The second piece is really the work that it takes to get the product on the shelf in the hospital and I think we referenced this last call. That's really a three to nine month process depending on the hospital itself. And so, as we move to new centers, not just centers that had the previous smaller sizes of Indigo, that continues to take time. So that's what our team is doing now and they're doing a great job and getting some good traction in doing that.

And then, just in terms of number of centers?

Bob, I don't think we're going to get into that kind of detail as it relates to new centers and existing centers. But just maybe to help, and this is what I mentioned in the answer to Mike, if we were to think about the European launch and excluding that, I think the US numbers would be essentially flat versus last quarter, sequentially.

Okay. Lastly, just quickly, Adam, can you comment on the competitive landscape and what you're seeing from the new catheter launches from Medtronic or TrueMed? Obviously, it doesn't look like it's having much of an impact, but I'd love any kind of qualitative or quantitative description you might be willing to give of how you think that's going.

Sure. Obviously, we've seen a number of companies launch guide catheters. However, the feedback that we are consistently getting is that our technology is superior.

Fair enough. I guess the numbers speak for themselves. Thanks a lot, guys.

Thanks, Bob.

(Operator Instructions)

Lei Huang, Wells Fargo.

Thanks, it's Lei calling in for Larry. Just a few questions starting with your 2016 guidance. Can you provide any color in terms of how we should think about the split between neurovascular and peripheral vascular in 2016? Would it be similar to the 2015 split? And if you can provide any color in terms of revenue cadence throughout the year?

Great questions, Lei. Thank you. As I mentioned, we're not going to drill down further on the guidance that we offered, but maybe just some other color that might help. You know, clearly, with our neuro business, if you look at the recent quarter and its growth versus the peripheral business, there are differences in sizes of those businesses and that's why we characterized the mix.

They're also very -- there are differences in the growth rates as well. Obviously, peripheral is growing very, very fast, and so we would expect that's growth that's going to continue, but it will taper as that business scales and gets more mature. That mix of business will slowly start moving to peripheral, but we're not going to comment on the magnitude or the numbers on that. And remind me of your second question.

The second part of that was just in terms of revenue cadence through the year between quarters? If there's any color which you can provide there?

Great questions. Again, recall on Indigo, we talked about that incremental growth from here being more back end weighted. And with some of the other commentary we've talked about on the market dynamics with our other products, they are going to also be similar in that a lot of this growth will be more towards the back half of the year.

And just in terms of ACE. You launched ACE64 last year. We understand that you have ACE68 potentially coming down the pipe soon, and that we also heard that you either have launched or are launching your tubing package with ACE64. Can you comment on either or both of those?

Sure. Let's start with the ACE64 kit. That was actually launched with our new high flow tubing which provides even greater aspiration power. And that was really in response to physician input, wanting us to have a greater tubing and package them together. Regarding ACE -- and that lunch is underway. That's been out there for a couple of months now, and the response has been very, very positive. And we expect it to continue over the next months. Regarding ACE68, we have previously said that midyear, we will launch that, and we think we are on track for that.

Okay, thanks. And just in terms of the tubing with the ACE64, is that one where you packaged the products together? So, basically, you're account is buying the whole thing together rather than piecemeal?

Yes, they are packaged together. But it's important to know but that's new tubing that has a higher flow rate and it provides a better aspiration power.

Perfect, and then just last question on the 3D stent retriever, when and how do you plan to disclose the study results? Will we see anything before you file or before the approval? And what form, I guess?

It's a very fair question, and I don't know the answer since, again, we don't yet know what the data says since it still blinded. But we will, obviously, let you know when we know.

Okay. Fair enough. Thank you. Good quarter, guys.

Thanks, Lei.

Jason Mills, Canaccord Genuity.

Hi, thanks for taking the question. Congrats on a terrific year, Adam and Sri. Can you hear me okay?

Yep, we can.

Perfect. I'm going to just start with the stent retriever trial. Perhaps you could help me walk through our analysis on it. If you're telling us, Adam, that the trial was stopped early with no safety issue, and we think about the possible scenarios, one of which is that there was -- one of them distinguished itself from the other and the other scenario seems to be that they didn't. In the former scenario, it would seem to imply that a safety signal would've been present. Since you're telling us that it's not, it would suggest that there's not distinguishment between the two arms, and therefore, ACE is at least equivalent or adapt equivalent to Solumbra and certainly much cheaper. Is there anything wrong with that analysis?

No.

Okay. Probably the shortest answer we'll hear from you, Adam. It's helpful though. Thank you. And then, Sri, your walk through some details about the ischemic stroke market. I'm wondering if I could apply it a little bit with respect to whether or not there were any changes to the mechanics of the calculus in that market?

As we went through the process of picking up code, you helped us understand the difference in the three possibilities for a stroke surgeon, adapt, Solumbra, or stent retriever alone and there was some mix there. Has there been any material changes loaded to what you told us in the past with respect to either the mix in the US, or the ASPs in the US?

Great question, Jason. There are no changes from our perspective, and it's been less than six months, I think, since we went out and nothing's changed. As I mentioned, I think we are as excited about the market as we've been. I think the long-term growth rates are consistent.

I think the mix discussion that you described, I think we've seen that over the last quarter, through papers, some medical meetings and discussions, that the discussion about aspiration, the drum beat on that has gotten louder. I think it's very hard to characterize that for you quantitatively on how those first line treatment mixes change. But we do sense that there is a slow and steady march towards the direction of aspiration and we're pretty excited about it.

That's helpful. Maybe one of these days, Adam, Apollo will be part of the prepared remarks and it will come up in Q&A before the fourth question. Being at the premeeting for the stroke festivities down in L.A in February, Apollo actually got maybe as much air time in the premeeting as ischemic stroke, and it seems to be a significant unmet need. Can you talk about Apollo a little bit and talk about the next couple of years as to when that might start to impact patient lives in a way in which would actually impact your P&L at some point?

Yes, I'd be delighted. Thank you for asking that question. Apollo, which is the product name for us to treat intraventricular hemorrhage and, hopefully, expand someday beyond that to intracerebral hemorrhage, is one of the things that I, on a personal basis, I am intensely proud of. One, we've sort of taken on the development work around this. It reminds me and I think a lot of the physicians in this community of where stroke was a decade ago. A huge unmet need with no viable real treatment.

So, we're in the very earliest stages of that. We have recently invested the beginning of investment in clinical work under the invest trial, which is a physician led and run study to look at the benefits of this treatment. We're, obviously, very involved in continuing to work on the product itself and as we've done in stroke, we're on our sixth generation.

We're going to continue to invest our resources to improve the product so that we can really make a difference. The invest trial itself is scheduled to be at least two years, if not a little longer, so we're not going to see it for several years. But the work is being done and I'm intensely proud of what we can do in that field to impact those patients.

Okay. So, a significant impact to the revenue model is probably still a couple years away then?

It's a minimum of a couple years away before we start to see any significant --.

And last less question for me to Sri. Congrats on the profitability again in the fourth quarter. Your guidance, obviously, didn't comment about expenses or profitability in 2016. Generally speaking, do you expect it to be a year?

You mentioned absolute increases in R&D and SG&A in 2016, but obviously, you're also modeling 25% growth in revenue. So I'm wondering if you expect to see gross margin leverage and operating profitability again in 2016 given the momentum in the business?

I'll hit that in reverse order, Jason. So that on the margin front, I think you saw a small uptick in our margins, and a lot of that is geographic and product mix based. But as we're launching new products like we're doing this year, or last year, 2015, A64 and at the end of the year SMART, we're going to see some weight on those margins. So I wouldn't expect to see those start to move near-term as we are in this product launch cycle that we're in.

And then the second part on operating expenses. Similar to last quarter, when we have very strong top line growth, we see that. We see the true benefits of that. We were a little more specific I think in this call about some of the specific investments that we're intending to make in 2016. Those are real and a lot of those -- they're obviously big projects, hard to time -- but they're people, they're clinical, and then they're IT-based. So these are pretty tangible, real things.

We would expect in 2016, that our operating expense growth would actually be higher than the revenue guidance that we've given alluding to a loss in 2016. But I think as we talked about on the prior call, our intent is that we're going to be driving revenues greater than our operating expenses and driving leverage over that period.

That's helpful. Thank you, guys.

Thanks.

There are no further questions at this time. Mrs. Thompson, I turn the call back over to you.

And with that, on behalf of our Management, thank you, again, for joining us today and for your interest in Penumbra. We look forward to updating you on our first quarter call.

This concludes today's conference call. You may now disconnect.