Penumbra Inc

NYSE:PEN

Earnings Call Transcript 2018-Q2

[Operator]

Good afternoon. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra’s Second Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

Thank you. I would now like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, you may begin your conference.

[Dan Wilson, Director and Head of Business Development]

Thank you, Denise, and thank you all for joining us on today’s call to discuss Penumbra’s earnings release for the second quarter 2018. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliations can be viewed under the Investors tab on our Company website at www.penumbrainc.com. 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 referenced in our 10-Q for the quarter ended June 30, 2018, which will be filed with SEC on August 7, 2018, as well as those described in our 10-K for the year ended December 31, 2017, filed with the SEC on February 27, 2018.

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 10-K 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. We anticipate the prepared comments on today’s call will run approximately 13 minutes. Thank you very much.

And with that, I would like to turn over the call to Adam Elsesser, Penumbra’s Chairman and CEO.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thank you, Dan. Good afternoon, and thank you for joining Penumbra’s Second Quarter 2018 Conference Call. I’m joined today by members of our senior management team. I will begin our call today with several business updates, and then Sri will provide commentary on our financial results, as well as an update on our revenue guidance.

Our total revenues for the second quarter of 2018 were $109.6 million, representing a year-over-year increase of 36% as reported and 33.8% in constant currency. We had operating income in the quarter of $9.3 million, compared to an operating loss of $1.3 million for the same period last year. We had another quarter of exceptionally strong financial results.

Both of our major markets in Neuro and Vascular are continuing to grow well and we believe that both have long-term durability. Additionally, we continue to have confidence in our capacity to innovate, and to add new products that can positively impact patients. Within our Neuro franchise, our growth is being driven by the market growth in ischemic stroke.

We saw steady market growth this quarter, following the strong market growth that we observed in the first quarter. It is important to remind everyone that this growth is not necessarily linear as the past years have shown. On our last call, we highlighted several positive market developments in stroke. Data on extending the window to treat patients and the Tennessee State Legislation to direct EMS to triage and transport patients to the best stroke center as quickly as possible.

Though we see enthusiasm from these developments we believe they will take time before they translate into market practice. Two weeks ago, The Society of NeuroInterventional Surgery held their 15th Annual Meeting. I was struck by the ongoing energy and passion of the decisions to improve stroke systems of care. The efforts today are primarily manifested in the local work to bring stroke patients to an appropriate hospital.

The discussions around the systems of care give us great confidence in this long-term effort. Additionally, they were broader discussions around additional patient populations where mechanical thrombectomy could bring better clinical outcomes.

Another notable update from the meeting was around direct aspiration. The final results from the COMPASS trial were presented at the late-breaking session on July 25. As you might recall, COMPASS is a randomized control trial that compares direct aspirations to stent retriever as a first-line approach for mechanical thrombectomy. The trial met its primary endpoint of non-inferior clinical outcome with direct aspiration arm being numerically higher.

The new data that was presented at the meeting showed an approximate $5000 per case, total cost difference in favor of aspiration when using either list price or supply chain price. These data provide level-1 evidence of non-inferior clinical outcome and also confirm the direct aspiration as economic benefits versus stent retriever therapy.

This evidence only supports the ongoing trend toward aspiration and may further catalyze competitive entry. We continue to believe that our system’s performance is the greatest advantage we provide our customers and their patients.

It is clear that physicians in the field are motivated to continue to improve stroke treatment. We believe that Penumbra will play an important role in helping to make the procedure better, and faster for patients.

Over the past decade, we have constantly worked to improve our stroke technology. Through our experience in tens of thousands of cases, we are confident that we can make the procedure even better. Until now, when thinking about direct aspiration techniques, physicians have generally focused on the aspiration catheter. However, our team has historically focused on both the catheter and the aspiration source.

Three years ago, our development team began a project to design our third-generation aspiration source. This past June, we received FDA clearance for Engine, which represents a major enhance to the Penumbra system.

Our team has combined the science of aspiration with our vast clinical experience to develop and aspiration source with improved vacuum power and ease of use which we believe can help the system’s performance.

We are ready to begin rolling out Engine and look forward to educating our physician customers on this latest technology improvement to the Penumbra system. I would also like to provide a brief update on competition within the stroke market.

The current competitive products are consistent with what we have expected. The efforts to market these products began towards the end of the second quarter and we expect to see continued in earnest through the third and fourth quarters.

As I have said before, we have great respect for our competitors. However, our development team is up to this competitive challenge and we believe we can continue to set the standard in providing the best complete product system for direct aspiration. Our amazing commercial team is energized and fully ready to make sure their customer know the true benefit of Penumbra’s products.

Moving to our Vascular franchise, we saw notably stronger financial growth this quarter in both embolization and thrombectomy. I want to take a moment to commend our commercial team on their incredible focus and execution. But a year ago, we began investing in efforts that broadened our reach into the Vascular surgery community.

This past June at The Society of Vascular Surgery Meeting, we began to notice real signs of progress from our initial efforts. While it is still early, we are encouraged by the work that we are doing with Vascular surgeons to bring better treatment to patients.

I’d like to end my remarks with sharing a brief story that a physician shared with me recently about a patient that was treated with our Indigo System. A woman was admitted to a hospital with a cold leg caused by a blood clot in her artery. The leg was getting worse. So they started to treat her by gripping TPA which they did for 36 hours.

After that therapy the leg below the knee was still completely impacted. So they scheduled that portion of her leg to be amputated. Right before the scheduled amputation, the physician decided to try aspirate the clot with Indigo. It worked. They removed a very large clot. The patient’s leg was saved. The scheduled amputation canceled and according to the physician she literally walked out of the hospital.

Stories like these inspire our entire team but they also provide huge motivation and a deeper understanding with healthcare providers involved in these treatments.

I’ll now turn the call over to Sri to cover the financials.

[Sri Kosaraju, Chief Financial Officer and Head of Strategy]

Thank you, Adam. For the second quarter ended June 30, 2018, our total revenues were $109.6 million, a year-over-year increase of 36% reported and 33.8% in constant currency. Our geographic mix of sales in the quarter were 65% U.S. and 35% international. Neuro and Peripheral Vascular represented 68% and 32% of sales, respectively.

Multiple areas of our business helped drive our exceptional revenue growth in the quarter. Revenue from our Neuro business grew to $74.2 million in the second quarter 2018, a year-over-year increase of 32% reported and 29.4% in constant currency.

Our Neuro growth was driven by sales of our Penumbra System for ischemic stroke. We saw procedural volumes steadily grow following the rapid pace of growth which we observed in the first quarter.

Through the first half of the year, the stroke market has grown at a faster pace than our expectations. But as we continue to remind investors, we do not expect this pace to continue and as history has shown, market growth is not linear. While we did not see competitive aspiration launches began until late in the second quarter, we expect to see trialing to occur through the third and fourth quarters.

Additionally, as we head into the second half of the year, we faced tougher year-over-year comparables in Neuro.

Revenue from our Vascular business grew to $35.4 million in the second quarter 2018, a year-over-year increase of 45.3% reported and 43.9% in constant currency. We saw increased growth across our embolization and thrombectomy products which was driven by our commercial focus and efforts with the Vascular surgery community.

As we have observed with our interventional radiology customers, we expect to invest meaningful time with initial customers to fully educate them on Indigo, then as possible use cases before we approach additional new customers.

Our gross margin in the quarter was 65.9% of revenues, compared to 63.2% of revenues for the same quarter last year. We continue to believe our gross margins will remain range bound in the near-term.

Total operating expense for the quarter was $63 million or 57.4% of revenue, compared to $52.3 million or 65% of revenue for the same quarter a year ago. In the quarter, a good portion of our new hires and SG&A came towards the end of the quarter and thus we did not see the full impact in the quarter.

Our research and development expenses were $8.2 million for Q2 2018, compared to $8.1 million for Q2 2017. SG&A expenses were $54.8 million for Q2 2018, compared to $44.2 million for Q2 2017. Our spend increased primarily due to increases in headcount and related compensation expense.

We had operating income in the quarter of $9.3 million, compared to an operating loss of $1.3 million in the same period last year.

We continue to be focused on investing in our business and operations to support our future growth. With the update of our second quarter results, we are also revising our 2018 revenue guidance range to $420 million to $425 million from our previously stated range of $410 million to $415 million. As discussed, as we move into the back half of the year, we expect tougher comparable to impact our reported year-over-year growth rates.

Additionally, for the third quarter, we expect summer seasonality and competitive trialing to imply a sequential decrease in revenues compared to our second quarter results.

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

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thank you, Sri. I am incredibly proud to be part of the Penumbra team. The energy, enthusiasm and effort that each one of the employees puts into their jobs every day truly makes a difference in people’s lives. As Penumbra grows, we are constantly pushing ourselves to overcome challenges and become better and better which helps make our company even stronger.

This is the true character of Penumbra. This extraordinary spirit together with a growing multi-product portfolio in two large underpenetrated markets gives us a great deal of confidence in the months and years ahead.

Thank you for joining us on the call today and we will now answer questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Bob Hopkins with Bank of America. Your line is open.

[Bob Hopkins, Bank of America]

Hello, thanks. Can you hear me okay?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes. Hi, Bob.

[Bob Hopkins, Bank of America]

Great, good afternoon. So, congrats on a really strong quarter. I just have a couple quick things I really wanted to touch on here. One, Adam, was the pipeline. I just want to make sure I heard you correctly. So, could you just tell me when exactly are you going to be into the full launch on the new pump? And then, earlier in the year, I think we talked about the new aspiration catheter is welcoming some point this year. So, if there is any update on that, I’d love to hear it. So, just a pipeline question to start.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Sure. Well, it’s – so to start with the catheter, I think to your answer to that question, I said it would come sometime during this year. And we are still on pace with that. It’s under submission and we fully expect that to happen this year.

Regarding the pump that just got approved, we are starting to – in the initial phases of inventory and getting that rolled out from what we can tell just in the earliest moment, we are very excited and it does what we wanted to do which provides a real strong deep vacuum that we think will show even better results than we’ve shown before.

[Bob Hopkins, Bank of America]

And I assume I know the answer to this, but, would you be able to share any of the features of the new catheter that’s coming?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

No.

[Bob Hopkins, Bank of America]

Okay. I guessed right. On the competition side that you highlighted here, no surprise to anybody, just curious what you are seeing from the competitors on pricing? And kind of anything you guys are doing to try to convince your customers to stick with you, but most importantly on the pricing side, I think just initially, I am curious about what’s going on with pricing if anything?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, I think that’s a great question, Bob and there is a number of layers to that. So, bear with me as I sort of attack each one. First, as it relates to just catheters, let’s remember that most of these catheters have been on the market for sometime as guide catheters and have been sold typically at a lower price than our aspiration source. So, there is not a new price pressure that we have – that we are just now seeing. It’s been out there in the market for several years.

Second, as you look at pricing, this field has always had sort of a mixed pricing in the Neuro field and we have always seen that premium products tend to command a premium and we don’t expect that to change sort of philosophically in this field and I think we will compete well.

On top of that, the third layer relates to the full suite of tools that people offer and as you know we have the full suite of tools as well. So, as companies try to compete in the aspiration world, we obviously have an awful lot of leeway to compete in the full suite of tools that are potentially used in this procedure. So, I think from a pricing standpoint, we are in very, very good shape going forward.

[Bob Hopkins, Bank of America]

And then, my last question on competition and I’m sure lot of people will ask about Peripheral. But on the competitive side, as you thought about formulating your guidance for the back half of the year, just how many incremental competitors do you think are coming in the back half of the year?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

So, we, as you know have a fairly good visibility into that world. I won’t say, we can’t be surprised. But this field is fairly small and we do know a fair amount that’s going on and I do think we should expect and I had it in my prepared remarks that we expect additional competitive entrants into the aspiration world. So we’ve taken into account a fairly open understanding of what is out there in the field.

[Bob Hopkins, Bank of America]

Fair enough. Thanks so much for taking the questions.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Sure, thanks, Bob.

[Operator]

Your next question comes from Larry Biegelsen with Wells Fargo. Your line is open.

[Larry Biegelsen, Wells Fargo]

Good afternoon guys. Thanks for taking the question. I’ll bite on the peripheral question. So the growth was pretty remarkable this quarter, 44%, the highest we’ve seen since the beginning of 2016. Adam, a little bit more color on what’s driving that and the sustainability of it? Is it really, is it really just going more broadly to Vascular surgeons or is there something else there?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, thanks, Larry for the question. So, if you look back at our growth in peripheral, it’s always taken sort of a step-wise fashion. We’ve had some good growth and we’ve flattened out for a quarter or so. That’s what’s happening here. We have gone into in earnest this group of physicians. We’ve been laying the foundation for that effort for a bit and talking about it for a bit and we are starting to see that pay off. And that’s what we saw this quarter. We expect this to continue this way, meaning in a step-wise fashion for a while. We’ll see this kind of growth, we’ll see the flattening out for a bit. We’ll see it again.

I want to remind you and everyone on the call that the numbers, the potential patients that we can treat in peripheral thrombectomy rival and equal than the same numbers generally that we are talking about in the stroke market. The markets are going to grow differently, because the efforts are very different. This is a little more traditional sort of education of physicians.

The patients are typically in the hospital as opposed to stroke whether or not, but there is a lot of work and a lot of opportunity ahead of us. So we expect, again, it’s going to be lumpy, but we expect this kind of growth to continue for some time.

[Larry Biegelsen, Wells Fargo]

That’s helpful. And just last for me, A, could you talk about any shifts you’ve seen to adapt based on the COMPASS data and your expectations going forward, just in terms of the treatment paradigm? And just lastly, on the new competition in aspiration, have you seen anything unexpected, Adam? Thanks for taking the questions.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, thanks, Larry. First on COMPASS and when COMPASS was first presented at ISC or in the beginning of the year, and then, again presented with the final data as well as the cost analysis, I think, it’s too soon after SNIS, just several weeks ago to have any sort of hard data to support this. It’s really anecdotal from what we heard physicians say either to us or to folks who then told us.

But we definitely heard some folks talk about the fact that now with the data, there is a desire to try this procedure. I think you add Engine and some of the techniques that we are educating folks around that and the use of the Engine, I think we are going to see a continued sort of interest in it. The cost savings becomes pretty significant.

If you think about $5000 per case, the DRG changed all over the country, but that is almost 10% in some places of the whole DRG. And so, that’s a significant savings as hospitals think about the cost and the investment in providing stroke care and a more comprehensive treatment and Neuro ICUs and so on and any kind of savings like that becomes pretty important to the program.

So I do think we feel and the sort of moves feels like we are going to see our system given another shot from people who might not have done adapt first. You had another question anything…

[Larry Biegelsen, Wells Fargo]

Any surprises?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, so far nothing that we have been surprised by. I think I again made that comment in the script. We had expected pretty much what we have seen and I think we feel fairly comfortable that we are in pretty good shape compared to it.

[Larry Biegelsen, Wells Fargo]

Thanks for taking the questions guys.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thanks, Larry.

[Sri Kosaraju, Chief Financial Officer and Head of Strategy]

Thanks, Larry.

[Operator]

Your next question comes from Robert Marcus with J.P. Morgan. Your line is open. Robert Marcus your line is open. Thank you. Your next question comes from Jason Mills from Canaccord Genuity. Your line is open.

[Cecilia Furlong, Canaccord Genuity]

Hi, Adam and Sri, it’s actually Cecelia on for Jason. I just wanted to ask on the peripheral side of the business. Any updates on your efforts and PE and just the EXTRACT PE study? And if you could just help frame the potential impact of this study on expanding the TAM going forward?

[Sri Kosaraju, Chief Financial Officer and Head of Strategy]

Yes, thanks. That’s a good question. So, the EXTRACT - to remind everyone is a study is a – a study focused on pulmonary embolism patients. The enrollment is continuing. We had talked about that study reading out sometime in 2019 toward the end of it that’s we are still on pace for that. We think it will make a significant delta or a significant impact on the potential patients we can treat.

There are a lot of patients that we know we can help patients that have either massive PEs or sub-massive PEs that they can convert to massive where we really become one of the only tool that can be used effectively. So, it’s on track. Obviously, don’t know the details and can’t reveal that. But we are optimistic about it.

[Cecilia Furlong, Canaccord Genuity]

Okay, thank you. And then, just continuing in peripheral, but could you provide any updates on the opportunity you are seeing right now in coronary and as what type of impact we can expect going forward and general timing? Thank you.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, thanks. That’s a good question. So our – to remind everyone, our coronary product is called, it’s part of the Indigo System called CAT RX. We are continuing to do cases and the cases are going very well. So we remain optimistic that the caveat there is to remind everyone we are going into an area here with a very, very well developed and refined procedure that is pretty well done and we can’t mess that up.

So as I’ve said before, we are doing this very carefully making sure that we understand the role of this product, the benefits that it has and how and when we can be hopeful to physicians and their patients as we get more information and are able to sort of define that opportunity. We will certainly share that. But at this point, we are still in the sort of earlier stages of learning that.

[Cecilia Furlong, Canaccord Genuity]

Okay, thanks. And if I could just sneak one last one in. Can you just update us on some of that those running through the state legislatures right now and just when you think we could see these local as well as regional efforts begin to really change the paradigm on the national scale?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Sure. So, as we mentioned, Tennessee, the governor just signed the law in Tennessee law, so that’s now in place. On our last call, we talked about Massachusetts and New York that those efforts are continuing. There is no new sort of particular update other than the – how should I say, sometimes messy legislative political process unfolding and there is some discussion at the SNIS level of what states to – but, that’s really on their side of the discussion.

And when I have more updates, I will have them, but there does not seem to be any kind of setback or decrease of momentum in all the discussions that we are hearing about and we did meet with the political team at SNIS to get sort of a full briefing, the level of sort of feeling and momentum is if anything gaining as opposed to anything else.

So, I feel very optimistic. As I’ve said in the past, I think it’s going to take a number of states and maybe a few big states to start to see a real shift and a movement in sort of across all other 50 states. But the progress is real here and I am really delighted and grateful that the team at SNIS is doing this work.

[Cecilia Furlong, Canaccord Genuity]

Okay, thank you very much.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thank you.

[Operator]

Your next question comes from Robert Marcus with J.P. Morgan. Your line is open.

[Robert Marcus, JP Morgan]

Great, and sorry about before. I appreciate it.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

No problem.

[Robert Marcus, JP Morgan]

Sri and Adam, can you talk about, we've seen so much growth in adoption of interventional care in the OR. What do you think the next leg of growth is here? Is it in the OR? Is it in the ambulance? Is it still in getting legislation to drive better utilization outside the hospital? How do you where do you see the next leg of growth for this?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, that’s a good question. I think the – there is some and I think the question is sort of getting out and I am guessing the idea of is there a diagnostic tool in these that we can use in the ambulance to diagnose a large vessel stroke definitively to make sure the patients get to the right place or is there some form of actual therapeutic treatment that can be given in the ambulance.

I – there are number of people who are trying that. There are number of efforts underway. There are other efforts to use some really extraordinarily software technology to look at imaging in hospitals to help diagnose large vessel stroke. I think those are great efforts and I think they all aid the same fundamental principle that we got to get patients to the right hospital.

It is not something that I think is going to likely happen that we are going to be intervening with a full angio suite in an ambulance anytime soon. So I think the major effort is still getting patients to the right hospital to be treated. So that’s really going to the interventional side of the question. The additional work that we’ve seen start around time window and increasing the pool of patients, that’s continuing.

We are now looking at –and some trials are starting around even expanding that to a different group of patients that have low aspect score and so on. We will see how that goes. That’s really just adding more to the otherwise large untapped market that we have. But I think the real effort in the first phase here is to get patients to the right place to be treated, so that they have their best shot at making an outcome.

I personally think the next phase is what do they do after they are treated, and the rehab and recovery and stuff and I think is you guys know from our past discussion, that’s an area that we are starting to do some very early work on. But I am excited about that too.

[Robert Marcus, JP Morgan]

Great. Maybe as a follow-up, you guys focus on aspiration and that's obviously the key driver for you. But you do also have 3D and it's not something we hear you talk about a lot even though it has good data today and it should be able to compete well with the big guys. So, can you help us understand what the strategy is with 3D and how much can you use 3D to help offset some of the upcoming competition in aspiration?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Well, I think, your question sort of answers the question. The answer is, philosophically, we have always believed that starting with aspiration is the right thing from a time, cost, ease of use perspective. We have always supported the use of stent retrievers as an ancillary adjunct tool in certain cases where it’s necessary and that’s why we have it, because we think that they play a role.

So, we think that’s an important part of it. Is it better for us to have the whole suite of tools as more competition comes to our area where we were generally alone? Absolutely, it’s better to have the full suite of tools and we could use that I think effectively. We’ve shown in the market as accepted that 3D as a really good stent retriever and it does the work quite effectively.

In fact, it’s somewhat unique design where you are pulling the clock off the wall as opposed to sort of pushing it against the wall, it’s quite effective. And sometimes people have responded better to that. But our sort of mission is to continue this effort, we think that there is much more room for continued improvement for some period of time in aspiration and the science of aspiration and.

We’ve shown as on this call with our launch of Engine and we think that there is more room to improve all of aspiration and the tools related to it really for a number of years going forward.

[Robert Marcus, JP Morgan]

Great. Thanks a lot.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thanks.

[Operator]

Your next question comes from Isaac Ro with Goldman Sachs. Your line is open.

[Isaac Ro, Goldman Sachs]

Good afternoon guys. Thank you. Just want to come back to guidance and it’s obviously competition and maybe tie the two together. The question is that, if we look at the full year update you guys gave us, I think you’ve raised guidance by about $10 million at the midpoint.

And I am wondering if as we think about the back half of the year, aside from the comments that Sri already made, is there any assumption around whether or not competition has an effect on your growth rate this year and I know Adam, you said that the competition you are seeing is not new. But I am wondering if – in your assumptions there is an element of that baked in, in terms affecting your growth rate this year.

[Sri Kosaraju, Chief Financial Officer and Head of Strategy]

Isaac, I’ll start with that. The question around competition and how we think about it relative to our guidance. I think just two thoughts to start philosophically what we’ve tried to encompass everything when we think about guidance and we lay out the year’s guidance at the beginning of the year. Market competition, our products, what we have, what we have out in the marketplace and we did the same thing this year as we’ve done in the last couple of years.

We started this year and everybody talking about guidance of roughly 20%. Today’s update would suggest growth rate for the year of something closer to 27%. We obviously feel very strong about both parts of the business and the new areas that we are pursuing. So the momentum across the business is strong.

But what’s important particularly with stroke, it’s hard to evaluate it on a short-term basis on a monthly or quarterly basis and some people like to characterize it as accelerating or decelerating based on any one particular quarter. This is a market that you view based on the drivers. You have to look at it on a lengthier basis.

And thus the comments through the first half, the growth in the market has been exceptionally strong, but again in our history, and what we’ve seen, we’ve not seen that kind of growth persists for more than a couple quarters than we’ve seen at the sort of lumpier or not linear if you will. So, that’s what’s involved in that.

The competition again since our IPO three years ago, we’ve been talking about the IPO that we believe aspiration as a mechanism would grow and as that happens then we would start seeing more competitive entry. That went into the guidance that we started off this year with and that continues to be our view sort of in our update today. So, it is involved in it. I think there are other factors beyond stroke market competition.

There are also comps they are quite impactful when you look at year-over-year growth rates that I know you appreciate, but have to be considered when you compare – if you were to compare the first half to the second half.

[Isaac Ro, Goldman Sachs]

Okay. Thank you. And then, just a follow-up on the medium vessel occlusion market, I know it’s still really early and we are focused on the core opportunity, but curious where that opportunity or that segment of the market falls on to your listed priorities? And how you are thinking about the kind of data that you – something you can generate as a community to open up that part of the market? Thank you.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Isaac, when you say, you’ve cut out just for a second. You said, medium, do you mean like the smaller parts of the vessels and the brain like the M2 and M3 vessel?

[Isaac Ro, Goldman Sachs]

Yes, and of course, feel free to expand upon that. Can you say you have more new ones you want to touch on it. Just want to maybe focus on other areas of the therapeutic pathway that could be available over time?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, the lines or cuts, I want to make sure I got the important part of the question. Stroke is we typically focused as a market and physicians on treating the first segment of the middle cerebral artery. As you go distal to that, those parts have sometimes been hard to get to and less focus on. I think in the last year or two that’s starting to change and I think that’s an important part of what we can do therapeutically.

We shouldn’t be satisfied that we got sort of the big clot out and we left potentially smaller pieces in branch vessels. So, I think the tools are evolving and we certainly are focused on this for some time and we’ll continue to focus on it with tools that can go after clots in a more distal branches safely and effectively as best we can.

I don’t think you are going to – you are not going to see a large change in the numbers, because there is some overlapping in those patients. There is sometimes the same patient. But hopefully, you can see potentially improved outcomes if we are really trying to get as much as clot out as possible.

[Isaac Ro, Goldman Sachs]

Helpful. Thank you.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, thank you.

[Sri Kosaraju, Chief Financial Officer and Head of Strategy]

Thanks, Isaac.

[Operator]

[Operator Instructions] Your next question comes from Joanne Wuensch with BMO Capital Markets. Your line is open.

[Unidentified Analyst]

Yes, hi. This is [Indiscernible] in for Joanne. Our first question is with regards to pricing. We talked a little bit about the competitive pricing out there, but what is your pricing strategy with the new engine pump and when the next-generation catheter comes out, will the COMPASS data give you more confidence to charge a premium compared to your current generation devices?

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Yes, thanks. It’s a good question. So, we typically don’t talk about our pricing strategy sort of in a public way. That’s from a competitive standpoint never been a good strategy. I can tell you that we have been very successful pricing. This is not the first time we’ve had a either a new catheter or a new aspiration source.

This is our third aspiration source that we went through a transition from our first or second very effectively and I think we know how to do that. So we are going to do that again and price around the aspiration source is really not a key part of it. There is not a lot of new additional revenue that comes from that.

On the catheter side, we’ve really been able to maintain price even in a market where you have seen some decline overtime. We don’t expect in a highly competitive market to increase price dramatically, but we don’t expect to see a lot of current price pressure.

[Unidentified Analyst]

Great. That’s helpful. And then, just my follow-up. For gross margins, I understand the language around range bound that you discussed earlier. But could you add some color into kind of some of the pushes and pulls with regards to that with your new facility, new product launches, things of that nature? Thank you very much.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thanks, Matt. So, what we’ve talked about with gross margins and you saw a slight uptick. But generally, if you look back at the recent several few quarters, we’ve been in the same kind of range if you will at 65%. The conditions and the dynamics around our business that sort of influence that in the near-term, there is two large ones.

One, we are in a place where we are continuing to launch new products and that obviously when we do that, those products as they ramp up start with slightly lower yields and improve with time. The second part and you captured some of this in your question of new facilities with the growth that we are seeing, obviously, a lot of our energy efforts and investment are around some of the expansion in production – in producing our products.

And so, we are moving aggressively and getting ahead of that and that’s really a focus area of ours given that we are in two highly growing large markets to be at the forefront of that and in that - with having enough products. So we are being pretty aggressive and I’d say more proactive in getting in front of that to some extent and having sort of the flexibility to capitalize on growth.

So you’ll see some of that flow through in way on the gross margins. But we think that’s an important capacity for us to have as you all know, we make our product here and it’s a core competency of ours. So, we are going to obviously take full advantage of being aggressive with it.

[Unidentified Analyst]

Thank you very much.

[Adam Elsesser, Chairman, Chief Executive Officer and President]

Thank you.

[Operator]

There are no further questions queued up at this time. Mr. Wilson, I’ll turn the call back over to you.

[Dan Wilson, Director and Head of Business Development]

Thank you, Denise. 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 third quarter call.

[Operator]

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