Dive Brief:

• Penumbra recalled its Jet 7 Xtra Flex catheter device due to the risk of injuries and even death while removing clots in stroke patients, following advice from FDA. The company announced the recall after the market closed Tuesday. The recall follows a July warning letter from the company to healthcare providers.
• Fourteen unique patient deaths have been tied to the device out of 200 total medical device reports, according to an FDA notice. Other serious injuries reported include vessel damage, hemorrhaging and stroke.
• Penumbra's stock price fell by 7.3% when the market closed Wednesday, with no significant change occurring overnight.

Dive Insight:

The Jet 7 Xtra Flex catheter was used to remove blood clots in patients with acute ischemic stroke. The distal tip of the product was susceptible to damage while in use, which created the risk to patients during pressurization or contrast injection, according to the company.

CEO Adam Elsesser said during a call the recall came at the FDA's request after a 14th patient death was reported in October. The CEO said no patient deaths have been reported since October and the company fully agreed that the product should be pulled.

"If we can't mitigate the risk, then this is the right exit," Elsesser added.

The CEO stood by the effectiveness of the product, saying that if risks could have been better mitigated, it "would have been on the market for many years."

Penumbra's warning to clinicians also came at the request of the FDA.  

Penumbra expects to take a one-time revenue hit of less than $20 million in the fourth quarter, according to Elsesser. The device represented about 7.5% of revenue in the third quarter.

Wall Street analysts noted that while the recall is not ideal, Penumbra is still well-positioned to succeed even without the catheter on the market. Still, at least one noted an about-face from earlier executive guidance on the matter.

"This clearly wasn’t how management wanted to resolve this product overhang, and there’s no way around the fact that this is a disappointing blow to the company’s credibility given the positive commentary we've received from the company since the initial July warning notice," J.P. Morgan analysts wrote.

However, they added that the recall "will also serve as a potential clearing event given how concerns around Xtra Flex were distracting investors away from what continues to be a strong double-digit growth company."

William Blair similarly said that Penumbra has other products to weather the hit. But the analysts countered the idea that the recall would do any serious damage to the company's reputation.

"In our experience, clinicians want to know that the company is being honest with them, communicating clearly, and always working in the best interest of patients," the analysts wrote. "When that happens, they generally stick with the vendor."

Elsesser cast optimism that customers would switch over to other products and that some sale losses could be recaptured, noting enough supply of the original Jet 7 and the ACE 86 Reperfusion catheters to support potentially increased sales.

J.P. Morgan analysts estimated that about 25% of Jet 7 Xtra Flex sales would be made up in 2021, representing about $30 million.

William Blair analysts wrote that any hit to the company would be lessened a bit as they estimate stroke sales to make up approximately 27% of 2021 sales but just 12% of sales growth. Penumbra's vascular business, which is estimated to represent nearly 70% of sales growth in 2021, is expected be a more crucial driver for the company next year.

The U.S. stroke market is projected to grow to about $1 billion in the U.S. and at least $2 billion globally, according to William Blair. The analysts believe that Penumbra will lose some market share in the near future, but should be able to make up ground as the market is only 20% penetrated.

Penumbra could recapture market share as early as next year. Elsesser said that new products in the stroke space will be launched in 2021, but he did not give a specific timeline.