Keynote: Fireside Chat with Adam Elsesser and Walter Greenleaf

Yeah, well thank you, Walter. It's great to be here at this great conference and festival. A real brief history on Penumbra: we certainly didn't start out as a company focused on virtual reality and the gaming world and its impact. We started out in the traditional medical device way by making products that could go inside the body to treat a myriad of conditions, whether it's a stroke or some other condition in the body in the vasculature. We got into thinking about virtual reality about four plus years ago when I was introduced to a great company, Sixth Sense, that had done some early work and developed some novel technology around tracking and avatar use. It became pretty obvious from that meeting that there were a lot of medical conditions where the use of VR could really enhance treatment and recovery, depending on the condition. Stroke recovery, for one, where you're trying to tap into neuroplasticity and get the brain rewired, is a perfect application for using VR, as well as a host of other conditions around mental health and pain management. So we really started that journey, and over the last year and a half, when we've been working with the community with our current product, we have really understood a lot of the benefits and the friction points. I think we're in a position now where we understand that we can help solve a lot of those and work with a lot of the great companies together who are developing really great content for a variety of medical conditions. So I think we're at the starting line of what I think will be a really great two, three, four years in the development of this extraordinary technology to help a huge number of people, potentially tens of millions.

Sure. It started, as I alluded to, with our partnership with Sixth Sense, where their technology was particularly intriguing for our original application, which was a neuro rehab that is necessary because of some neurological injury or condition where moving the body and tracking your body accurately to know how well you were improving was critical. Also, because we were a medical device company, we're used to making the whole product. We worked early on to develop relationships around the hardware and the headset itself plus the tracking, so we've invested a lot in the hardware side of this as well as on the software side, building an incredible group of folks in our own studio. But it became very clear in talking to customers that there are a lot of people who are developing really great applications where they've done a lot of work and have a real clinical basis for that work. The friction points are how do you get those applications out there? If everyone is selling hardware and their software, users don't really know what to do with that. They can't have a closet full of headsets, where do you charge them all, how does that all work? So they're looking for a streamlined solution. We think with all of that great work out there, we should all be combining forces. There's a lot of the stuff that people don't always want to do, like working with IT departments in healthcare facilities, hospitals that have a lot of rules, legal departments with rules around data and collection, and laws around patients. Our goal is to make that part pretty easy. We know how to do that part, at least we're giving it our best shot, and really allow for a lot of these extraordinary developers of applications to have a place to go with that. So we can handle the other part as well. We'll see how it turns out, but I think there's an opportunity. It's one of those rare clinical applications. We started out doing things that hadn't been done before in treating stroke with physical devices to go in and remove blood clot, and we didn't know if it would work and if it would matter to the patient. Here, we already know there's so much data from people's experiences with the use of VR in a host of medical conditions that that part of the question has been answered already. That's a big deal. Now we just have to work on how to deliver the technology in an easy and seamless way so that everyone who needs it has access to it. That challenge is huge, it takes a big investment, but it seems a little more certain. There are lots of uncertainties, but it's a little more certain than the fundamental clinical question. I think most of us feel pretty comfortable that there's enough evidence to say what we're trying to do here will help a lot of people. So it's pretty exciting.

Well, thank you for asking that question. At the end of the day, that's what matters the most and what drives all of us, and frankly was one of the reasons that I've been so profoundly excited about this. Very early on, we worked with a patient who had a stroke, and she had sort of plateaued in her recovery. She was pretty diligent in going to traditional rehab but still had plateaued for the most part. Then working with VR and her therapist, she continued to make progress after having plateaued, and it was really obvious that the VR itself was what was allowing her to start to have success and really regained a huge amount of function. To watch her, and now in a more commercial setting, to watch patients who come into rehab having sort of almost given up, feeling like they're not going to continue to improve, and then really sometimes within a week or two of using VR, make another breakthrough. We get those stories now almost every week from our team in the field, and it's exciting. It's just extraordinary to watch that early success. Focusing on our current early applications around stroke rehab and other neurological conditions, it is really hard. You're basically forcing yourself to rewire your brain to put those movements or those functions for your arms. It's interesting and boring, and we need to leverage the skills that our friends in the game community can help bring to make it more of an odyssey or a quest or a journey and a story. When it happens, there's nothing better. I alluded to the story of this first patient. When we first met, she wasn't really able to write; she lost most of the function in the hand and arm that she used to write. Then about a year plus later, maybe a little longer, she was coming into our office to work with our development team and brought me a little, really one of the most extraordinary gifts, which was a handwritten note that she had written with her hand that she can now use. What else is there? That's what it's all about.

Absolutely. We recently, on our last earnings public earnings call, called that out as one of the areas. We haven't gone into great detail, but it is definitely an area that we are focused on. I think there are a lot of other folks who know and believe and have even shown some real benefit. I think now more than ever, the opportunity... One of the things, again we have not yet gone into some of the additional hardware work that we're doing, but VR is in many configurations more of a solitary experience. You put a headset on and you sort of go somewhere else. What we want to do, and I think we are going to do, is bring that to be able to connect with folks in a way that makes it less solitary, whether it's your therapist in doing rehab or family members and so on. I think that opens up some of the possibilities for real change in the way we think about the experiences that can be done in VR. So we're pretty excited about the future, and again looking forward to working with a lot of really amazing folks out there.

Yeah, to start, we built our own studio. We didn't really know what we were doing. We were a medical device company used to hiring biomedical engineers and making products that would go into a sterile pouch and get sterilized before they were used in surgery. So I had to learn the whole concept of what a studio was and how it functioned and who to hire, but we got lucky and hired some just extraordinarily talented folks in our own studio to get us started. But to supplement their work and to go a little faster, we have worked with some other studios in a sort of second-party relationship, and that will continue. We'll certainly add to it, and then as you've alluded, go into more of a third-party platform relationship. So there'll be a lot of opportunity hopefully for anyone interested in doing therapeutic healthcare applications in a lot of different areas. We'd love to share as soon as we can our timeline and what that might look like over the next number of years. It's not going to be built out instantaneously; there's a lot of work ahead, but we do think there's going to be a real opportunity. When you add up the people that suffer from the conditions that we can help, that's how I look at our work, measured in the number of people we can help. This is by far the largest opportunity we have as a company to help people. We measure a lot of our other areas in the hundreds of thousands of people that we can help, and that's real. Here, we can measure the number of people in really the tens of millions of people just in the US, and worldwide it becomes much more significant. So it's a rare moment.

Yeah, that's a great question. I don't sort of look at it quite that way. I've always looked at the distinction between risk and uncertainty. There's been some academic research on the differences between those two. Risk, as you framed it, is really a measurable thing. You quantify the pros and the cons and you can sort of calculate the likelihood you'll do X or Y. Uncertainty is very different. Uncertainty is, can it be done? When we first started this project, it was really in the category of uncertainty. It was four plus years ago, the field wasn't as developed, it was much more nascent. But at the end of the day, the thing that was obvious was that if we got the technology right, it would likely help. That to me made it sort of obvious that we should try this. To take you back to when we first started the company, now 17 years ago or something like that, I've lost track of time, we had this idea of making a catheter that could go through the femoral artery down in your groin and snake all the way past the heart deep into the brain and suck out blood clot that caused a stroke. Everyone who heard that thought it was crazy, and even the doctors who were going to end up using our product thought it was crazy. So that is already in our DNA as a company. You have to do things that haven't been done. If you're just doing things that have been done, you'll just be following others. So something like this really became pretty clear that if we can get the technology right, if we can build the structure and focus on where the friction points are in the delivery of the technology, we have a higher level of certainty that it will work because we already had a sense from the work you've done and a lot of the folks you've worked with over the years have done to already prove that. So you did the hard work at the beginning to prove this over the years, and we're just coming in and borrowing your great work to try to push it forward.

Yeah, absolutely. Walter, thank you. You've watched and been part of driving the use of this technology in therapeutic healthcare really from the beginning. What would be your advice for people who want to get into this space? Where would you suggest they focus in terms of two or three or four of the applications or medical conditions? Where would they start if they were interested in doing things that are new and novel, not following up on the lessons you've learned sometimes the hard way?

Yeah, I think it's a great perspective. I do think there are just a huge group of opportunities, whether it's as an independent company working on applications or support applications. To anybody who is looking to get involved more directly, we can't hire enough engineers right now to work on some of this work that we're doing. So I think with that, we can do some pretty good work over the next decade or so.

Yeah, I totally agree with that. That's one of the best parts to me of this journey so far. Unlike some of the other areas that we make products in where we have direct competitors and we're all trying to do good work, but you can only use one product in a patient's body, so doctors pick. Here, there's such an opportunity to all work together in a way that builds something special, and everyone can do well in the process, including obviously the patients.