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.

Sean Donohue
Spruce Point Capital Management

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

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SOURCE Spruce Point Capital Management, LLC