Spruce Point Capital Management Releases A Strong Sell Research Opinion On Penumbra, Inc. (NYSE: PEN)

NEW YORK, July 31, 2019 /PRNewswire/ -- Report entitled "Sucking Wind" outlines how Penumbra faces 40-55% downside risk to approximately $85.00 to $110.00 per share after accounting for a wave of new competition, deeply misunderstood market share loss, pricing pressure and a contracting valuation premium as growth slows.

• Recent Entrance Of Major MedTech Company Dramatically Alters Competitive Landscape: Penumbra, a niche surgical product company focused on treating thrombosis, was the first to market (2007) with an aspiration catheter ("AC") cleared by the FDA for treatment of acute ischemic stroke. Major medical device companies left the space alone for most of the 2010s, instead focusing their efforts on stent retrievers – the standard of care in mechanical thrombectomy until recently. However, now that aspiration thrombectomy for ischemic stroke has gained wider acceptance as a cheaper and sufficiently-effective approach, four major device companies have entered the space within the last two quarters.  

• Rapid Pace Of Market Share Loss Deeply Misunderstood By Market: Analysts have grown to understand Penumbra as a dominant player in its vertical, with ~90% share. While they recognize that competition is coming, they have no historical basis for modeling the pace of market share loss and appear to assume only low-to-mid single-digit annual losses through the coming years. IQVIA (NYSE:IQV) Medical Device and Supply Audit (MDSA) data, which project nation-wide sales for individual medical devices from a panel of 650 U.S. hospitals, indicate that, even as the mechanical thrombectomy market grows, Penumbra is losing U.S. share so rapidly that monthly unit sales have been down through five of the last six months, with monthly declines of up to 28%. Our conversations with doctors corroborate this data, with many neurosurgeons indicating that, over just the last 6 to 9 months, they have shifted from using Penumbra in 70-90% of neurovascular aspiration therapy procedures to just 10-30% of these procedures.  It also bears mention that Medtronic, a recent entrant to the neuro aspiration catheter space, claimed on its recent conference call to already have 15% market share and anticipates reaching 25% by fiscal year end and 50% over time.   

• Commoditized Offering And Bundled Pricing By Competitors To Lead To Significant Pricing Pressure:  While Penumbra has had the only AC approved for acute ischemic stroke treatment through most of the 2010s, ACs are functionally little different from intermediate guide catheters, mechanical thrombectomy accessories priced 75% or more below ACs. Many doctors have used these catheters as "off-label" ACs due to price differences or product preferences. Large medical device companies will have, and have had, little trouble entering the market with products already equivalent or superior to Penumbra's. They also sell their ACs in bundles with stent retrievers and other adjacent products, which support per-item savings of up to 33%. Penumbra – an almost purely AC-driven company with a poorly-rated "3D separator" stent retriever and few other products – cannot offer similar bundles and is likely to experience significant pricing pressure as the sector migrates to this purchasing model.
   
  Slower Growth and Awareness Of Lack Of Differentiation To Drive Valuation Premium Contraction:  Penumbra is valued on par with high-tech medical device companies with significant IP protection. We believe PEN's products are far more commoditized and subject to competition, which it is now experiencing for the first time. Valuing PEN in-line with a more appropriate peer universe of commodity producers would reduce PEN's multiple from 10x to 5x FY20 sales. Even bullish sell-side analysts have an average price target 6% below current levels as valuations have climbed to nosebleed levels through the past several weeks. Spruce Point sees 40-55% downside in the stock after adjusting future sales growth to reflect the onset of competition and applying a more reasonable 5-6.5x FY20 sales multiple. 

Spruce Point Capital has a short position in Penumbra, Inc (PEN) and stands to benefit if its share price falls.

About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.

Contact 
Sean Donohue  
Spruce Point Capital Management 
[email protected] 
212-519-9813

Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.

SOURCE Spruce Point Capital Management, LLC

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