Penumbra Inc (PEN) 2016 Q2 法說會逐字稿

Good afternoon, my name is Chantal and I'll be your conference operator for today. At this time, I would like to welcome everyone to Penumbra's second-quarter 2016 conference call.

(Operator Instructions)

I would like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, 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 second-quarter of 2016. 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 provision 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 referenced in our 10-Q for the quarter ended June 30, 2016, which will be filed with the SEC on August 9, 2016 as well as those described in our 10K for the year ended December 31, 2015, which was filed with the SEC on March 8, 2016.

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 10-Q and 10K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise.

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

Thank you, Dan. I would like to welcome everyone to Penumbra's second quarter 2016 conference call. I am joined today by Daniel Davis, President of North America; and Sri Kosaraju, Chief Financial Officer and Head of Strategy. I will start today's call with a few highlights.

Our total revenues for the second quarter of 2016 were $65.1 million compared to $42.3 million for the second quarter of 2015 an increase of 53.9% as reported. We achieved net income in the quarter of $0.2 million compared to a net loss of $2.7 million for the same period last year. The strength of our performance was again broad-based across both neuro and peripheral vascular.

We will outline what contributed to our performance this quarter as well as our views on a few unique attributes in the quarter. In addition, I will walk through recent announcements about our products, which demonstrate our focus on driving innovation and market leadership. I will then hand it over to Sri to cover more details on the financials as well as an update to our annual revenue guidance.

We continue to execute on our strategic plan for our neuro franchise. A few weeks ago at the annual meeting of the Society of NeuroInterventional surgery, or SNIS, we showcased our recently introduced ACE68 reperfusion catheter, the latest innovation of our complete stroke system. ACE68 represents the latest and most advanced stroke technology that we have ever introduced.

The Early feedback confirm what we hope to see -- easier tracking of a larger bore in perfusion catheter, which leads to faster and more complete recanalization for stroke patients. At the end of my comments, I will share some further context for how we see this product and its potential differentiation.

Also at the SNIS meeting the data from the 3-D trial comparing our stent retriever and direct aspiration devices used in combination against just our direct aspiration devices were also presented. Our stent retriever and our direct aspiration devices in combination were found to be non-inferior to our direct aspiration devices alone, which met the primary endpoint of the trial. We believe this bodes well for submitting our 3-D revascularization device to the FDA by the end of the year as I had previously stated. Furthermore the 3-D trial represents the first evidence comparing the treatment effects of a stent retriever with direct aspiration versus direct aspiration alone.

There are several important implications. First, that the aspiration alone was not inferior meaning it was as good as treatments including stent retrievers. And second that both arms compare favorably to the published Hermes meta-analysis. This will serve to further inform the medical community as we continue to innovate and improve on the ability to start with direct aspiration frontline. While the 3-D trial is a meaningful strategic step for our neuro franchise, we want to reiterate that we do not expect any near-term impact to our financial results.

Our next update is regarding the overall ischemic stroke market. We continue to be encouraged and motivated about the large multi-year opportunities to treat patients with mechanical thrombectomy. As we have expected we are seeing gradual growth in the number of patients being treated today. Our focus remains on the efforts needed to ensure that all treatable stroke patients get to the right hospital so that they have a chance to be treated with mechanical thrombectomy.

More recently we have undertaken detail political and public awareness work in most countries in Europe as well as some very exciting efforts in the US. These initiatives involve political, economic, and public awareness events, as well as the more localized work with stroke stakeholders in specific areas.

Lastly, our Neuro franchise continues to see strong growth in access and embolization. In this particular period we saw an additional pickup in growth in these areas related to competitor dynamics which we believe will likely be short-term in nature. We also saw an increase in growth due to the geographic expansion of our Neuro coil products.

Switching to our peripheral vascular business we continue to see the strong initial impact of both our product families. We saw tremendous momentum coming out of the annual meeting of the society of interventional radiology or SIR which took place in early April. Our early growth continues to be strong across both peripheral thrombectomy as well as our peripheral embolization portfolio.

As it relates to Indigo, I want to spend a few moments talking about a few initiatives that our team is currently focused on to drive broad and long-term sustainable impact in this market. First we are focusing a great deal of time on our existing customers to ensure success with their initial cases as well as ensuring that Indigo is being fully utilized in all its potential applications.

Second, we are investing a great deal in training opportunities for both physicians and Angiosuite technicians across the country in order to enhance Indigo's techniques and capabilities. Finally we are actively engaged with thought leaders to stay at the cutting edge of peripheral thrombectomy.

I would like to end my remarks by coming back to ACE68 and sharing with you a remarkable event that occurred during this past quarter. To remind you, removing the blood clot in a stroke patient as fast as possible is essential in improving the chances of a good outcome. To fully appreciate the event that I want to share, one needs to know that 10 years ago it was not unusual for a stroke intervention to take an hour and a half or longer. Two years ago 45 minutes to an hour was normal. This past quarter that changed. In late June a hospital received their first shipment of our newest stroke product, the ACE68. An 83-year-old patient was brought into the Angiosuite to be treated. The entire case from puncture of the femoral artery for access to removing the blood clot took less than five minutes.

And the best part of the story was this patient not only returned to a neurologically normal condition, but desperately wanted to go home from the hospital the very next day. While this will not happen in every case yet, this case and the others like this are a window into the future of stroke treatment -- extremely fast, extremely beneficial, and extremely cost effective.

It is amazing to see the results of so many people's hard work to get to this point. The hospital staff, the ambulance drivers, the physicians, and of course the great people at Penumbra who have never given up on making better and better technology.

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

Thank you, Adam.

For the second quarter ended June 30, 2016 our total revenues were $65.1 million an increase of 53.9% reported compared to the second quarter of 2015. The impact due to currency fluctuations did not have a material impact to our results, as such we will only be highlighting our reported changes on our commentary today.

Our geographic mix of sales in the quarter was 67.1% US and 32.9% international. Neuro and peripheral vascular represented 69.7% and 30.3% of sales respectively. Revenue from our neuro business grew to $45.4 million in the second quarter of 2016 from $34.4 million in the same period a year ago, an increase of 31.9% reported.

Our growth in neuro continues to be driven by the growth in the ischemic stroke market as well as sales of our penumbra system which includes ACE, ACE64 and now ACE68, which we introduced late in the second quarter. In the quarter it is worth highlighting a few additional unique contributors to our neuro growth. In both neuro access and neuro embolization we benefited from separate competitor recalls and in the quarter we also introduced our smart coil in Japan.

As it relates to the smart coil we do not expect meaningful contributions in the second half of the year due to lengthy hospital consignment processes. More broadly as we look forward to next quarter, we expect to see the impact from the summer particularly in Europe, as well as in scheduled cases in the US as well. Revenue from our peripheral vascular business grew to $19.7 million in the second quarter of 2016 from $7.9 million in the same period a year ago, an increase of 149.6% reported.

We saw strong growth across both peripheral thrombectomy and peripheral embolization. In the period we benefited from the SIR meeting which contributed to a noticeably strong pickup in the quarter. Our Indigo system for peripheral thrombectomy has seen strong initial center penetration from new technology adopters. While our early experience has shown signs of increasing usage within certain centers, we remain focused on the vast number of existing users who are still transitioning their practice habits to become more active and ongoing users.

In Adam's earlier commentary he touched on several initiatives that we are undertaking which will all require time before we see further results. As it relates to our peripheral embolization products, we continue to see favorable pull-through dynamics which have been helped by the added excitement around Lantern, our recently introduced microcatheter which is designed to help deliver both Ruby and POD. As a final comment on peripheral vascular as we head into the third quarter, our year-over-year peripheral vascular comparisons will begin to include the launch of our larger sizes of Indigo along with our Vebnus indication.

Our gross profit in the quarter was $41.5 million or 63.7% of revenues compared to $27.4 million or 64.7% of revenues for the same quarter last year. We generally see gross margin declines in periods of new product launches. In addition we also expect our gross margins to be pressured over the next few quarters as we take steps to proactively ramp our operations and production capacity to support our growth.

Now moving to our operating expense -- total operating expense for the quarter was $42.1 million or 64.7% of revenue compared to $31.2 million or 73.7% of revenue for the same quarter a year ago. Our research and development expenses were $6.3 million for Q2 2016 compared to $4.8 million for Q2 2015. The increase was primarily due to greater personnel related expenses resulting from increased headcount to support continued investment in our products as well as increases in consultant and contractor expenses. SG&A expenses were $35.9 million for Q2 2016 compared to $26.4 million for Q2 2015.

Our spend increased primarily due to greater personnel related expenses resulting from increased headcount, increases in travel related expenses, as well as increases in facilities and information technology expenses. We had net income of $0.2 million in Q2 2016 compared to a net loss of $2.7 million in Q2 of 2015. Moving to our balance sheet we ended the quarter with $139 million in cash, cash equivalents, and short-term investments. (sic - see press release "$139.9)

I will end my comments with an update on our revenue guidance for the year. As you recall, we began this year guiding the revenues up $230 million to $235 million and today we are updating that guidance to $250 million to $255 million to reflect our recent results and updated outlook.

And now I would like to turn the call back to Adam for closing remarks.

Thank you, Sri. We are in a great position halfway through 2016. Our team has continued to execute at every level: engineering, production, quality, and commercial. I am extremely proud of their efforts.

However, as I have indicated in the past, it is essential to remember that past success does not automatically translate into future success. We have a great deal of work ahead of us on product development, on the continued ramping of our operations, and on competing in a highly competitive commercial environment. Accomplishing our goals will take true dedication and patience. It will take all of us at Penumbra working in sync to achieve these goals.

I know that everyone at Penumbra is humbled by the importance of the work in front of us and deeply committed to doing it in a world-class manner, which will then translate to making a huge difference in the lives of so many patients and their families.

Thank you, operator. We can now open the call to questions.

(Operator Instructions)

Mike Weinstein, JPMorgan.

Thank you. Can you hear me okay?

Yes.

Hello, Mike.

First off, congratulations on a fantastic quarter. Obviously incredibly impressive performance.

Adam, I was hoping you could spend a minute first on the peripheral vascular business. It is not often we see businesses grow 150% year over year, and particularly when you have been at it for a few quarters now. So number one, can you help shed light on the growth in thrombectomy franchise versus the embolization franchise?

It sounded like both are very strong, but can you give an indication -- thrombectomy driving it and embolization is getting pulled along, or is it that there's two separate engines there?

And can you talk about the comments you made about momentum post the SIR meeting. Was that because of the prism data on Indigo? What was -- what really drove that momentum in the business you saw the last couple months?

Yes. Thank you, Mike.

To sort of start with the first question around -- are they separate businesses -- they are obviously separate product portfolios that have a different process of working with our physician customers in various cases. However, there is some benefit that comes from being in the lab a lot with our customers who are starting to learn and get experience with Indigo and some potential opportunities are pulled through, to use the vernacular, that comes with that on our peripheral embolization.

However, there are other situations where they really are separate and customers who have really started to learn the benefits of our coil -- which is very unique in the space -- have found that independently something that is impacting their choice in a greater number of cases. To move to the SIR part of the question, it really wasn't a data-driven experience, albeit certainly the Prism data is very positive for us.

It was really the opportunity to engage with a significant number of customers throughout the meeting, whether it was in our booth or symposiums or talks, and really show them the benefit for really the first time around the Indigo system and the larger size of the Indigo system and with what the possibilities of that could be. When we came out of that, we really started to focus on those physicians who had that experience and wanted to learn firsthand the benefit of the product in a variety of types of cases, both on the venous and the arterial side.

Okay.

Adam, two follow-ups -- one, with customer feedback now coming in on 68. Can customers see the difference in the performance out in the field of 68 versus 64? I'd be interested in what you are hearing on that, and obviously 60 was great 64 is even better and 68 sounds even better; can they tell the difference?

And second, you made a reference on the neuro access side of the business that you benefited from some competitor issues and that may one time. Do you want to call that out little bit more? Thanks.

Sure.

Well let me start with the 68 question, and then I can at a high level address access and have Daniel Davis to maybe comment a touch more on the access question. The 68 is without a doubt the best thing that we have ever launched, and the two things that we are hearing right away are the tractability of the catheter -- it really tracks better than anything that we have ever launched of that general size.

And second, because it is larger and we have -- it comes with our new high flow tubing, which the combination of those has allowed for cases to take a shorter and shorter time, and that is why I highlighted the idea or the fact that we have now had a number of reports of cases being done under five minutes, and I mean starting with the incision in the femoral artery to being done. And that is such a remarkable event or moment in time to be able to see that possibility, and that is all because of the fact that the catheter tracks much faster and also then aspirates more completely that much faster, so it is really a great moment.

On access, it is less of a specific product being substituted for a recalled product. It has to do with the larger recall that Cook is facing and how our access portfolio has benefited more generically than on a product -- substituted product basis, and I'll let Daniel address that little bit more.

Thanks, Adam.

Adam pointed out that it is not directly that the primary products we sell in access that really were the category affected by Cook. But what it gave our sales force the opportunity to do was really engage with customers and help them solve problems. And that is always a great thing in the field if the reps can be valuable to the customer and help them overcome an issue, whether it be short-term or long-term. It really gave them a unique opportunity to engage with the technology that we have, not just for those type of products but more importantly with our entire access portfolio on the neuro side.

Perfect. Thank you. I have other questions, but I will let others jump in.

Thank you.

Bob Hopkins, Bank of America.

This is Travis Steed on for Bob.

Appreciate it's early, but can you share with us some of the physician feedback you have had in the field since the 3-D data were published? And how are you thinking about the percentage of cases that use aspiration today changes and over what time frame are we looking at?

Well that is a good question, and I think it is a little early for us to have any definitive reaction or modeling around that. We don't think ultimately it has a huge impact in any near-term way. One, the 3-D device itself will not be approved or cleared, rather, for some period of time. We have not submitted it yet.

And second we are already in the majority of the cases, whether it is in aspiration alone or in what I think is probably the larger segment of Solumbra users where it's a stent retriever plus aspiration, so even if a customer or a physician were to be now intrigued by the idea that there is data that supports the use of aspiration alone we would not see any benefit from that on a financial basis.

Obviously the case might go faster and there might be some benefit from the patient standpoint, but we are already in most of those cases. So it really is that the group of patients, rather the group of physicians, who are using just a stent retriever without the assist of direct aspiration. And it is just way too early for us to comment on the impact that this data will have on those.

I will tell you as a general comment that the overall reaction both at SNIS and in the week and a half or so since that meeting ended, to the data and to the fact that there is now the clear proof about what we have always stated around aspiration, has been extraordinarily positive and very, very supportive in the physician community.

And again one last reminder, that trial was done with -- two generation's ago aspiration tools. So 64 and 68 were not used in that trial, and some of the older technology was used. So I think it really bodes well for the future, but I don't think it will have an impact in the short term.

Okay, great. That is helpful.

Can you help us understand some of the moving pieces and assumes on your revenue guidance, you did over 50% revenue growth in the first half, but only assuming low 20% in the second half. Just trying to decipher how much of that is conservatism versus what you are seeing in your business?

Travis, it's Sri. I'll comment on that.

We will not qualify our guidance any further than we have. But just a couple reiterations of the comments we made today. One, Q2 was an extraordinary quarter if you look at it across both businesses. In our neuro business we saw the highest sequential increase on a percent basis in a quarter than we have seen over the last eight quarters, so extraordinary performance in that business.

On the peripheral side as we are dealing with sort of early quarter since the launch of Cat6 and Cat8 last year with the venous indication, Q2 was our largest dollar sequential increase that we saw since the launch of those devices. So it was an extraordinary quarter from many respects. And we highlighted a few other areas as well where we saw benefit. If you couple that with the summer seasonality that we've typically have seen, we would expect that Q3 is a sequential decline to Q2.

So that is an important thing to understand in our guidance. But even despite that, if you look at the back half of the year, it is sequentially up versus the front half of the year, as you think about the guidance we laid out. So we continue to feel strong about our business. We continue to feel it is heading in the right direction. I highlighted the Q2 phenomenon.

And then the last point I'll make on that is regarding the comps. Our second half comps get tougher. We've talked about our neuro comps in prior calls and I alluded to my comments today, Q3 we take on a pretty sharp increase in a comparable related to what we saw in the launch of the larger sizes, Cat6 and Cat8 again that I talked about before. So the last point is around a changing comp environment.

Okay. Thanks for taking the questions.

Larry Biegelsen, Wells Fargo Securities.

Good afternoon. Thanks for taking the questions and congratulations on another good quarter.

I just wanted to ask one clarifying question on the smart coil comments in the second half. Was that for Japan only or worldwide? I think I heard you say Sri you don't expect meaningful revenue in the second half.

It was not clear if that was worldwide or Japan. And just while we are on smart coil, could you give us a little bit more color on how the launch is going? Until this point, I think you had about 25% share of large aneurysms and this gives you an opportunity to penetrate the smaller aneurysms, which are much larger portion of the market. So it will be helpful to hear a little bit more on that.

And I had a follow-up. Thanks.

Sure, thanks Larry.

So I will start with your first question and Adam will touch on your second one. As it relates to SMART, that was a broader global worldwide comment on SMART. And if you recall, in Japan we have a distributor relationship. So the introduction of SMART related to that relationship with our distributor was what we refer to in our comments. And as we look at the back half of the year, again that is in all global comment related to the US, Europe and Japan.

And then Larry, as it relates to the question of the launch, if you remember, we talked, I think, in the past -- coils particularly neural coils are consigned as a general matter. And so there is a long process of getting consignments into hospitals, particularly in the extremely competitive environment that we operate in the coil market. In addition, we are investing in scaling our production, and that takes some time. And we've alluded to that as well, because that is a really important point.

We have to build up consignment inventory, which is obviously the different scales in inventory just to be sold on a per-use basis. And that just is taking the kind of time that we have always indicated.

Understood.

And then I wanted to ask one on the ischemic stroke market. Can you talk about the growth momentum in the overall market in the first half and how we should think about the second half?

I think you said in the US in 2015, there are 16,000 to 17,00 cases up from I think 12,000 or so in 2014 -- we are modeling somewhere around -- same incremental growth in patients, but slower you know percentage growth to about 22,000 in 2016.

Is that -- is the market shaping up as expected? Any commentary on that would be helpful. Thank you.

Larry, the market is moving as we had expected. And I think the numbers that you mention are consistent with what we have talked about and what we view. And so, I think we would just confirm for you that the market is moving at that growth rate and consistent with what we had expected. And I will let Adam touch on that a little further.

Yes. Obviously agree with Sri 's comment about the growth of what we've have talked about in the future.

What I'd highlight in the past, and I want to comment again as we get more and more into this, the first year, really all of last year, we were hoping and seeing a lot of conversation around the market development. But other than local work, not a lot of organized activity. At this past SNIS meaning just a week and-a-half ago, the vast majority of the time spent both on the podium in the hallways in the conversations and the meetings that were had with the leadership, that is all we talked about is the efforts that are going to be put in that are now underway politically, on a state-by-state basis, on an economic basis, on a public relations basis, and there are a number of those initiatives that are starting.

They will take, and in this we are 100% in agreement with our competitors, this will take a number of years. But the work is being done, and I can tell you it is incredibly heartening as somebody who has been in this field for a long time to watch people embrace this work, get excited about doing this work. So I do think we will see the growth continue, but I think we have to wait and let some of these efforts take time and grow the fruit that we think they will grow in future years.

Thanks for taking the questions.

Thanks, Larry.

Thank you.

Jason Mills, Canaccord Genuity.

Hello, Adam. Hello, Sri. Congratulations on a great quarter. Can you hear me okay?

Yes, we can. Thank you, Jason.

Great. Let me follow-up on Larry's question, just with respect to the market and your commentary about the initiatives going on: a multi-part question.

Could you talk about what work you may be doing with CMS, other insurers as it relates to market development with the understanding that from a CMS standpoint, I think you talked about this in the past, after stroke care and stroke management of patients that don't reach the proper provider in time, it is a significant cost burden and what initiatives are afoot there, and what impact do you see to the broader market for interventional stroke over the next couple years.

And then secondly, within ischemic stroke guidelines, guidelines from an SMIS perspective are fairly generic, but obviously as you pointed out with AHA there's mention of stair retrievers. It does not impinge on your access to the market, but it would seem, given these data presented SNIS, that there would be motivation for those guidelines to be changed, maybe in your favor over time. I would be interested in your thoughts on that, as well. And then I have a few quick follow-ups.

Great questions. Let's start with the political work and then I will touch briefly on the reimbursement. The real work as we see it has to happen politically. The SNIS society has taken on the effort as a physician society around going after several states to see if they can put in a model at the state level to ensure that the right patient gets to the right place. That is obviously incredibly exciting. It will take some time to have those kind of rules put into place.

On a reimbursement level, just to remind you and everyone, reimbursement currently is quite good for stroke -- for mechanical thrombectomy, so it is less and the private payers have really sort of stepped up as well. So it is less an effort. I know that there are some discussions at the society levels to try to realign or re-incentivize some of the patient float based on reimbursement, but way too early to start commenting on that work that is being done and it is certainly possible in the future.

And then to briefly address the question -- I certainly am obviously very excited about the randomized data comparing a stent retriever and direct aspiration versus just aspiration alone, and I certainly would assume that the HA would be interested in that data. But I obviously cannot comment on their process of updating the guidelines, what have you. As you have said it has not really had any impact whatsoever, but I am sure it is a matter of time.

That's helpful. And then back to the previous question you commented about the data -- the randomized data and the fact that you are in the majority of the cases and therefore seemingly conservatively, and might be maybe suggesting that it may not be a significant paradigm change. However, I am wondering if you could comment about the first line therapy mix as it stands today versus maybe when the original data sets were published a year and a half ago. And help us understand the mix given at that time and seemingly it has not change much over the last year. Stent retriever use alone was still a relatively large portion of the market in our model close to 40%, so seemingly that is a part of the market that would be accessible if minds change over time. And I am just wondering if these data have any medium-term impact on migration and first line therapy mix in your mind.

It is a hard -- again a week and a half after the data was released so it is hard to answer that question definitively. I will tell you that if physicians are using stent retrievers alone or with balloon guide rather, they are pretty wedded to that technique as opposed to those who are using the combination. And to remind you, obviously, it is a majority who are using either aspiration alone or in combination.

That is the first wave where people are going to be empowered, I think, to try with their aspiration with our aspiration catheter to go without a stent retriever. But again it is hard to quantify that in any short-term basis just a week and a half or two weeks after the data is released. So we will know over time, but I do not think we are going to see a wild change in the short term.

Over time we have always taken the position that we believe that the migration will continue. One, the data will continue to develop. And second, when you can do a five-minute case and the cost-effectiveness of that is going to be hard to argue with that over time.

And Jason, I know a couple of the questions have been trying to translate this back to the model and the stroke model and numbers and to comment and reiterate some points made to the numbers, I think we have all expected and modeled a steady move or March towards direct aspiration. And I think this data, as we view it, solidifies that foundational view that we are moving that direction.

I don't think there is an immediate implication that the mix drastically changes right now, and from our perspective it only supports it. And again to come back to the bigger point for us -- the moves in those numbers a few points from moving folks who are using a stent retriever to salumber a direct aspiration, while beneficial, is no greater than the move of the market. And obviously, that is the bigger focus for us on top of all this.

Right. Thank you for that color. Just one follow-up and that I'll get back in the queue. A lot of things going on here so there are a lot of questions. With respect to aspiration we get -- I'm sure everybody on the call gets several questions about eventual competitiveness and direct aspiration.

You have been at this for a while. But the more salient question is given the data trial that you have invested in, what do you expect anybody that would seek to compete with ACE68, what trial do you expect that they would need to run to secure not only FDA approval but the mind share that you will have with these data to be comparable to these data? And do you, or have you, seen any activity in that area? Thanks for taking my questions.

Jason I really appreciate it.

Look we've talked about it in past calls. You guys have asked these questions around competitive guide catheters that don't have an indication to re-vascularize stroke patients the way that the Penumbra system does, and we expect that to continue.

ACE68 really is such an extraordinary tool that we expect that on its face to compete pretty handily with those guide catheters. For a company to get on label and have a system that has tubing and a pump and just as a reminder, our indication for the Penumbra system is a closed one. You are not allowed to sort of the piecemeal our products in usage.

Obviously physicians are not liable to the FDA for doing that, but they are becoming increasingly aware that if they are breaking our system in pieces and using it in the wrong way or against our labeling rather they could be liable to patients obviously. And I think they are just being pretty careful now that we have really the preeminent aspiration tools most physicians that I have heard of would not put their practices at risk that way.

So I think that is a pretty important tool -- aspect of this -- for them to get on label at least in the past. And again I cannot speak to what happens in the future. The FDA has been pretty clear that you would need to run a clinical trial to support your 5/10 K. And that trial would of course have to have their own aspiration source because you could not use ours. And they would have to be non-inferior to an existingly cleared product; so either a stent retriever or our aspiration system and given the current success of them, it would be a pretty significant sized trial.

Thanks for the color.

There are no further questions at this time. I will now turn the call back over to Mr. Wilson.

Thank you, operator. On behalf of our Management team, thank you all again for joining us today and for your interest in Penumbra. We look forward to updating you on our next call. Have a good day.

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