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What Investors Need to Know About the Penumbra IPO

By Eric Volkman - Sep 17, 2015 at 6:08PM

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The company is the latest medical-device maker to hit the stock exchange.

For investors, the medical devices field is an interesting, sideways play on the broader healthcare sector. Compared to their more traditional drug-producing peers, device makers as a group have several distinct advantages. Among these are a less tortuous -- not to mention cheaper -- product development cycle and limited competition.

At the moment, there are not a great many device makers on the stock market. But that's been changing recently, with a number of them coming to market via IPOs. The latest device specialist to go public is Penumbra, which will start trading on Friday. Let's take a brief look at this company and the prospects for its stock. 

An intrusive business
Penumbra was founded in 2004, and it concentrates on making devices that help treat neurological and peripheral vascular conditions. Its core products are used to help remove clots, most critically in the brain, in order to help treat stroke.

Penumbra has managed to build a sizable business. It employs around 1,000 people throughout the world and sells directly to clients in its native U.S., Canada, most of Europe, and Australia. It uses distributors to sell to other select international markets.

The company has obviously done a good job of roping in those customers: Revenue grew by more than 70% from 2012 to 2014 to nearly $126 million.

Penumbra has generally been in the black, but that bottom line is a bit erratic -- it came to just under $2 million in 2012, leaped to $4.1 million the following year, then dropped to $2.2 million in 2014. Meanwhile, for the first six months of this year, Penumbra posted a loss of around $169,000, versus a $1.7 million profit in the same period of 2014.

It seems there's plenty of room for improvement in both those line items. According to Penumbra's estimates, the total market for neurological and peripheral vascular devices in the U.S. and Europe was roughly $1.3 billion last year. This means the company captured less than 10% of the market. Furthermore, the company quoted third-party statistics indicating that in 2010 there were roughly 33 million instances of stroke and 202 million people around the world suffering from peripheral artery disease. So Penumbra's particular segment has a lot of promise -- but the competition is large and somewhat intimidating.

In its IPO prospectus, Penumbra specifically referred to industry stars like Boston Scientific, Stryker, Medtronic, and even Johnson & Johnson -- not to mention a host of smaller specialty device makers -- as potential competitors. 

Neurological niche
So this is a crowded operating room. Yet Penumbra's niche is big enough for the company to carve out more business, particularly given the experience and presence it brings to that segment. Considering that, I'd say that the company's share price has the potential to swell following the IPO.

Said issue is slated to take place on Friday, when 3.8 million shares of the company will be sold at an initial price between $25 and $28 per share. The stock is to be listed on the New York Stock Exchange under the ticker symbol PEN.

The underwriting syndicate is led by JPMorgan Chase and Bank of America Merrill Lynch.

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Stocks Mentioned

JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$131.27 (1.41%) $1.83
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$181.09 (0.91%) $1.63
Stryker Corporation Stock Quote
Stryker Corporation
SYK
$236.50 (0.66%) $1.56
Boston Scientific Corporation Stock Quote
Boston Scientific Corporation
BSX
$41.20 (2.64%) $1.06
Medtronic plc Stock Quote
Medtronic plc
MDT
$99.08 (-0.36%) $0.36

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