Executive Summary / Key Takeaways

• Pulmonx is executing a focused "acquire, test, and treat" strategy to penetrate the estimated $12 billion severe emphysema market, leveraging its differentiated Zephyr Valve technology and innovative LungTraX platform.
• Q1 2025 demonstrated solid top-line performance with 20% reported revenue growth (21% constant currency) year-over-year, driven by continued volume growth in both the U.S. and international markets, including notable strength in China.
• The company is investing in initiatives like LungTraX Detect for proactive patient identification and therapy awareness specialists to address bottlenecks in patient workflow and physician referrals, anticipating accelerated U.S. growth in the second half of 2025.
• Management reaffirmed full year 2025 revenue guidance of $96 million to $98 million and expects gross margin of approximately 74%, projecting operating leverage despite increased R&D spend on clinical trials like AeriSeal CONVERT II.
• Pulmonx maintains a solid liquidity position ($88.7 million cash, cash equivalents, and marketable securities as of March 31, 2025) and recently extended its term loan interest-only period through maturity in October 2027, expressing confidence in reaching cash flow breakeven with existing resources.

Setting the Scene: Addressing a Critical Unmet Need

Pulmonx Corporation, a commercial-stage medical technology company, is dedicated to providing a minimally invasive treatment for patients suffering from severe emphysema, a debilitating form of chronic obstructive pulmonary disease (COPD). Since its inception in 1995 and reincorporation in Delaware in 2013, Pulmonx has focused on developing solutions for patients whose medical management has reached its limits and who are not candidates for or do not desire surgical interventions like lung volume reduction surgery (LVRS) or transplantation. The company pioneered the Zephyr Endobronchial Valve, which received FDA pre-market approval (PMA) in 2018 following a breakthrough technology designation, marking a significant milestone after years of commercialization efforts in Europe dating back to 2003.

The core of Pulmonx's offering is a comprehensive solution designed to address the complexities of treating severe emphysema. This solution centers around the Zephyr Valve, a small, one-way valve placed bronchoscopically in the airways to block airflow to diseased parts of the lung, allowing healthier regions to expand and function more efficiently. Supporting the Zephyr Valve procedure is the Chartis Pulmonary Assessment System, which includes balloon catheters and a console used for patient assessment, although its revenue generation is dependent on valve sales. The LungTraX Platform, a software solution, complements the procedural aspects by aiming to streamline patient identification and workflow.

Pulmonx's strategic approach is encapsulated in its "acquire, test, and treat" framework, designed to unlock the estimated $12 billion global market opportunity for severe emphysema treatment. This strategy acknowledges the operational challenges faced by healthcare providers in identifying and managing eligible patients within existing systems. The company believes that by focusing on these three pillars – efficiently acquiring the right patients, streamlining the testing process for eligibility, and expanding treatment capabilities – it can accelerate market penetration and achieve sustainable long-term growth of 20% or more.

Technological Differentiation and Innovation

Pulmonx's technology provides a quantifiable edge in treating severe emphysema. The Zephyr Valve itself is a unique device, but its effectiveness is significantly enhanced by the accompanying diagnostic and workflow tools. The Chartis System, for instance, offers a more accurate assessment of collateral ventilation compared to some alternative methods, providing physicians with critical information for patient selection and treatment planning. While specific comparative metrics against all competitors are not detailed, the focus on precise assessment is a key differentiator.

The LungTraX Platform represents a significant technological advancement aimed at addressing workflow bottlenecks. LungTraX Connect streamlines the process of getting patient CT scans to the StratX analysis platform by integrating directly with hospital PACS systems, eliminating manual uploads and potentially reducing time to treatment. LungTraX Detect, an AI-driven component, takes this further by proactively analyzing non-contrast chest CT scans within the hospital system to identify patients with radiographic emphysema, regardless of the initial reason for the scan. Early pilot results from LungTraX Detect centers show an average emphysema detection rate of approximately 15% among scanned patients, consistent with published data, and a notable increase in the number of patients entering the workup process. This capability is designed to bypass traditional referral bottlenecks and identify a potentially incremental patient population, offering a distinct advantage over competitors whose solutions may lack this integrated screening capability.

Beyond its current offering, Pulmonx is investing in the AeriSeal System, a potential next-generation product utilizing a synthetic polymer foam to occlude collateral air channels. Clinical data from the CONVERT I trial demonstrated successful conversion of collateral ventilation status in 77.6% of patients treated with AeriSeal, and subsequent Zephyr Valve treatment in converted patients resulted in clinically meaningful benefits, with 89% achieving target lobar volume reduction (TLVR) of >= 350ml (mean TLVR 1,062ml). This technology has the potential to expand Pulmonx's immediately addressable market by an estimated 20% globally by enabling treatment for patients with collateral ventilation who are currently ineligible for Zephyr Valves alone. The global pivotal CONVERT II trial is underway to support a U.S. PMA application, with anticipated commercial launches outside the U.S. around 2026 and in the U.S. around 2027.

Pulmonx also continues to refine its existing products, such as the Chartis Precision Catheter, rolled out in Q4 2024, which offers improved visibility, trackability, and an easier tip design for placement, aiming for enhanced ease of use and potentially better patient outcomes. The ongoing release of long-term clinical data, such as the 5-year follow-up from the LIBERATE study demonstrating durable improvements and improved survival compared to historical controls, further validates the long-term benefits of the Zephyr Valve and strengthens the clinical evidence supporting its use.

Competitive Landscape and Positioning

The market for severe emphysema treatment is competitive, encompassing medical management, surgical options like LVRS and lung transplantation, and other minimally invasive devices. Pulmonx's primary direct competitors in the minimally invasive device space include Olympus Corporation (OLYSY) (Spiration Valve System) and Broncus Medical, Inc. (InterVapor System, not approved in the US). Larger, more diversified medical technology companies like Boston Scientific (BSX), Medtronic (MDT), and ResMed (RMD) also operate in related respiratory device segments, bringing significant resources, established relationships, and broader product portfolios.

Compared to these larger players, Pulmonx operates as a focused specialist. While BSX, MDT, and RMD command larger overall market shares in broader respiratory or medical device markets (estimated 15-25% for BSX and MDT in relevant segments, 10-15% for RMD in respiratory devices), Pulmonx holds an estimated 5-10% share in the specific COPD device market but is growing faster. Pulmonx's 20% revenue growth in Q1 2025 and 22% growth in FY 2024 outpaced recent growth rates reported by BSX (12-15%), MDT (5-7%), and RMD (8-10%).

Pulmonx's technological advantages, such as the potentially higher efficacy of the Zephyr Valve in reducing hyperinflation (estimated 20-30% based on clinical data) and the precision offered by the Chartis System (estimated 10-20% more accurate collateral ventilation assessment than some RMD devices), provide a competitive moat in its niche. The LungTraX platform's ability to automate patient identification and streamline workflow is another differentiator, addressing operational challenges that competitors may not target as directly.

However, Pulmonx faces disadvantages due to its smaller scale. This can lead to higher operating costs per unit (estimated 10-15% higher) and potentially lower manufacturing throughput compared to the economies of scale enjoyed by larger competitors like BSX and MDT. While Pulmonx's Q1 2025 gross margin of 72.5% is comparable to BSX's (70-75%) and higher than MDT's (65-70%), it lags behind RMD's (75-80%). Pulmonx's operating margins are also significantly lower than those of its larger, more diversified peers, reflecting higher relative operating expenses as it invests heavily in commercial expansion and R&D. This impacts cash flow generation and financial efficiency metrics like ROIC and ROE, where Pulmonx lags behind its more established competitors.

Indirect competitors, such as pharmaceutical companies offering drug therapies and emerging firms developing non-invasive technologies, also pose a threat by potentially reducing the pool of patients seeking device-based interventions or offering lower-cost alternatives. Pulmonx's focused strategy makes it potentially more vulnerable to these indirect threats than competitors with broader portfolios.

Despite these challenges, Pulmonx's strategic positioning as a specialist with differentiated technology and a focus on addressing workflow inefficiencies provides a clear value proposition. The high barriers to entry in the medical device market, including significant R&D costs and regulatory hurdles, offer some protection to Pulmonx's niche, although they also highlight the capital intensity required for continued innovation and market expansion.

Recent Performance and Strategic Execution

Pulmonx delivered solid financial results in the first quarter of 2025, demonstrating continued momentum. Total worldwide revenue reached $22.5 million, representing a 19.5% increase over Q1 2024 (21% on a constant currency basis). This growth was fueled by continued volume increases in both the United States and international markets. U.S. revenue grew 11% year-over-year to $14.2 million, while international revenue saw a significant acceleration, increasing 39% (43% constant currency) to $8.3 million. The strong international performance was notably driven by robust results in China, attributed to both underlying demand and greater-than-expected distributor stocking in response to the evolving trade landscape.

Gross profit for Q1 2025 was $16.3 million, resulting in a gross margin of 72.5%. This was a decrease from the 74.7% gross margin in Q1 2024, primarily due to the shift in geographic revenue mix towards international markets, which typically have lower margins. However, management anticipates full year 2025 gross margin to be approximately 74%, with expected improvement in the second half driven by a more favorable geographic mix, higher production volumes benefiting from manufacturing overhead leverage, and ongoing cost optimization initiatives.

Operating expenses totaled $30.9 million in Q1 2025, an 8% increase from $28.6 million in Q1 2024. This increase reflects continued investment in strategic growth initiatives. Research and development expenses rose 13% to $4.8 million, primarily due to accelerating enrollment in clinical trials, including the AeriSeal CONVERT II study. Selling, general, and administrative expenses increased 7.2% to $26.1 million, driven by expanded commercial investments such as advertising, marketing, and personnel costs, partially offset by lower legal expenses. Despite the increase in absolute dollars, management highlighted disciplined investment and cost optimization efforts aimed at achieving operating leverage as the business scales.

The net loss for Q1 2025 was $14.4 million, compared to $13.7 million in Q1 2024. The adjusted EBITDA loss was $8.5 million, a slight increase from $8.0 million in the prior year period. These losses reflect the company's continued investment phase as it builds out its commercial infrastructure and advances its pipeline.

Execution of the "acquire, test, and treat" strategy is progressing. In the "acquire" phase, Pulmonx is actively increasing awareness through peer-to-peer events (over 40 in Q1 2025), new CME modules (engaging over 37,000 clinicians previously), and direct-to-patient initiatives (record unique engagements in Q1 2025, targeting nearly 70,000 in 2025). The hiring of therapy awareness specialists in seven U.S. geographies is underway to drive community physician education and referrals, with expected impact in the second half of 2025. The pilot launch of LungTraX Detect is showing promising early results in identifying emphysema patients from PACS scans, with dozens of customers entering the contracting phase for broader adoption.

In the "test" phase, the company continues to expand its U.S. account base, adding 10 new accounts in Q1 2025 to reach 285 active centers. The focus remains on driving utilization in existing accounts by addressing workflow bottlenecks. LungTraX Connect is being marketed to streamline workup processes, and a new program offering a third-party technology-enabled solution for virtual patient management is being piloted to help hospitals scale workup capacity without adding internal headcount.

In the "treat" phase, international expansion is gaining traction, with strong Q1 2025 growth driven by Europe and China. The Japanese post-market study is progressing towards broader commercialization around 2026. Clinical development of AeriSeal continues with increasing enrollment in CONVERT II, targeting commercial launch outside the U.S. around 2026 and in the U.S. around 2027.

A notable development outside of financial performance was the resolution of the USDOJ civil investigative demand related to relationships with healthcare providers. In March 2025, the USDOJ declined to intervene in the related Qui Tam Action, allowing the company to move past this investigation and focus on its core business.

Financial Health and Outlook

As of March 31, 2025, Pulmonx maintained a solid liquidity position with $88.7 million in cash, cash equivalents, and marketable securities. While the company used $13.2 million in operating activities during Q1 2025, consistent with the first quarter being historically cash-intensive due to bonus payments, management believes its existing cash resources, combined with expected revenue growth and operating leverage, are sufficient to fund operations for at least the next 12 months and achieve cash flow breakeven.

Further enhancing its financial flexibility, Pulmonx amended the terms of its CIBC (CM) term loan in April 2025, extending the interest-only payment period through the loan's maturity in October 2027. As of March 31, 2025, the outstanding debt under this facility was $37.2 million, bearing interest at a floating rate (9.0% effective rate in Q1 2025) and collateralized by substantially all company assets. The amended agreement includes a financial covenant requiring trailing twelve-month revenue growth of at least 10% when cash and cash equivalents fall below $80.0 million, a condition the company was in compliance with as of March 31, 2025.

For the full year 2025, Pulmonx reaffirmed its revenue guidance in the range of $96 million to $98 million, representing growth generally in line with prior expectations. This guidance anticipates solid international growth in the first half, followed by an acceleration in U.S. growth in the second half as the impact of the "acquire, test, and treat" initiatives takes hold. The outlook incorporates current foreign exchange projections, while acknowledging potential future fluctuations. Gross margin is expected to be approximately 74% for the year, trending higher in the latter half. Operating expenses are projected to be between $133 million and $135 million, including approximately $22 million in noncash stock-based compensation, reflecting full funding of the strategic growth initiatives while aiming for operating leverage.

Management's confidence in the guidance and the long-term growth trajectory (20%+) is rooted in the foundational work completed in 2024 and the scaling of initiatives in 2025. Potential upside to the guidance could come from faster-than-anticipated adoption of LungTraX, greater impact from physician education programs, and stronger patient engagement through DTP efforts.

Risks and Challenges

Despite the positive momentum and strategic focus, Pulmonx faces significant risks. The company has a history of net losses and negative operating cash flow, requiring continued financing until profitability is achieved. Reliance on the Zephyr Valve as the primary revenue driver makes the business vulnerable if market acceptance or reimbursement levels falter. While positive coverage policies exist with major commercial payors and Medicare covers the procedure on a case-by-case basis, securing and maintaining adequate reimbursement remains critical.

The use of the Zephyr Valve carries inherent risks, including complications like pneumothorax or death, which could limit adoption or lead to product liability claims. Manufacturing is concentrated at the California headquarters and relies on single-source suppliers, creating vulnerability to disruptions. Expanding the sales force and scaling operations efficiently is crucial but challenging.

Regulatory risks are pervasive, requiring compliance with extensive regulations in the U.S. and internationally. Modifications to products may require new approvals, and failure to comply with post-market requirements could lead to enforcement actions or recalls. Clinical trials for pipeline products like AeriSeal are lengthy, expensive, and have uncertain outcomes.

Competition is intense, with larger players possessing greater resources and established market positions. While Pulmonx's technology offers advantages, competitors may counter with pricing strategies, broader portfolios, or advancements in alternative therapies. Global macroeconomic conditions, including tariffs and foreign currency fluctuations, can also impact financial results. Data privacy and IT security risks are increasing, particularly with the expansion of the LungTraX platform handling patient data.

Conclusion

Pulmonx is executing a clear and focused strategy to address the significant unmet need in the severe emphysema market. Leveraging its differentiated Zephyr Valve technology and the innovative LungTraX platform, the company aims to streamline patient identification and workflow, increase physician and patient awareness, and expand its addressable market through pipeline products like AeriSeal.

The Q1 2025 results demonstrated solid top-line growth, reflecting the initial impact of these strategic initiatives, particularly the acceleration seen in international markets. While the U.S. growth rate moderated, management is taking decisive action with targeted programs expected to drive re-acceleration in the second half of 2025.

Pulmonx's financial position appears stable enough to support its planned operations and reach cash flow breakeven with existing resources, bolstered by the recent extension of its term loan's interest-only period. The reaffirmed 2025 guidance signals confidence in continued growth and operating leverage, despite ongoing investments in R&D and commercial expansion.

The investment thesis for Pulmonx hinges on its ability to successfully execute the "acquire, test, and treat" strategy, drive broader adoption of its technology, and navigate the competitive landscape and inherent risks of the medical device industry. The potential of the LungTraX platform to unlock new patient channels and the AeriSeal system to expand the treatable population represent significant future catalysts. Investors should monitor the adoption rate of the new commercial initiatives, progress in clinical trials, and the company's ability to maintain financial discipline as it scales towards its long-term growth objectives.