Q1 2023 Shockwave Medical Inc Earnings Call
[music].
Good afternoon, and welcome to Shockwaves first quarter 'twenty to 'twenty three earnings conference call.
At this time all participants are in a listen only mode, we'll be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes, I would now like to turn the call over to Debbie Kaster.
As president of Investor Relations with Shockwave for a few introductory comments. Please go ahead. Thank.
Thank you all for participating in today's call joining me today from Shockwave Medical's, Doug Godshall, President and Chief Executive Officer, Isaac Zacharias, President and Chief Commercial Officer, and Trent Powell, Vice President of Finance, who is standing in for Dan Puckett, well he's out of the country on a much deserved family vacation.
Earlier today Shockwave released financial results for the quarter ended March 31st 2023.
A copy of the press release is available on shockwaves website before we begin I would like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call other than statements of the historical fact are forward looking statements.
All forward looking statements, including without limitation statements relating to our sales and operating trends business and hiring prospects financial and revenue expectations reimbursement proposal future product development and approval and integration of Neovasc and technologies into our business are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties, including the impact of macroeconomic conditions and global events, such as the COVID-19 pandemic.
That could cause actual results or events to material differ materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our annual report on Form 10-K on file with SEC and available.
On Edgar and in our other reports filed periodically with the SEC.
Chocolate disclaims any intention or obligation, except as required by law to update or.
Revise any financial projections or forward looking statements, whether because of new information future.
Vince or otherwise.
The conference call contains time sensitive information and is accurate only as of the live broadcast today may eight 2023, and with that I'll turn the call over to Doug.
Thanks, Debbie good afternoon, everyone and thank you for taking the time to join US to review shockwaves results for the first quarter of 2023.
You started out well following the strong end to 2022 first quarter revenues of $161 1 million represented a 72% increase from the first quarter of 2022.
All areas of the business contributed to our growth in the quarter with U S coronary U S peripheral.
And then international each delivering solid sequential double digit growth in the quarter compared to the fourth quarter of 2022.
Later in the call Isaac who will provide additional details on the commercial side of our business, but first I want to highlight some recent accomplishments.
Last month, we announced the full U S commercial launch of our L. Six peripheral IV L catheter on the heels of the limited launch of the product.
As a reminder.
<unk> was developed specifically to expand the capabilities of our peripheral portfolio and in particular to address difficult to crack calcification and larger vessels such as the Hilli X.
The customer response to its performance and initial demand for <unk> has exceeded our expectations and it appears to offer broader utility then we hit we had anticipated.
<unk> launch also comes following a very successful launch and transition to Empire, plus last year, which continues to perform well.
In the above the knee applications and increasingly is being used in below the knee vessels.
<unk> plus our next generation coronary product began a full launch in international markets during the quarter and will be showcase next week at Euro PCR in Paris.
Ctrip plus offers up to 120 pulses.
50% increase from Q2 and early feedback has also been very positive on this product.
We have seen in situ plus being used in long calcified segments with an orange ranges of calcified morphology and complex lesion types.
Our team has reported that over 70% of the cases done with C to plus have used more than 80 pulses, which indicates that the additional pulses are being used quite regularly.
We are optimistic that this will lead to increased adoption of coronary ideal.
We plan to launch <unk> plus in the U S. Early in the fourth quarter of 2023.
We also added a new future growth platform last quarter by acquiring Neovasc reducer system.
The transaction just closed a few weeks ago and our team is quickly getting integrated into the commercial R&D and because youre at two trial activities.
Our general manager of the Reducer program led the transaction and has deep experience in leading High-proof high performing teams in the cardiovascular arena and our clinical group is leaning in aggressively to help the legacy Neovasc team accelerate trial enrollment.
We're not yet ready to update our revenue or enrollment forecasts.
But our commercial focus for now is to understand what will be required to create a market for the reducer. So we're ready when we have data from because you are too much.
As much as we used our early international launch of C. Two to prepare for the broader global and U S launches.
I will say that the feedback we've received from Europe European customers, who use this device commercially has been consistently very positive and as a result.
We are more bullish now than we were when we announced the transaction more to come.
Yeah.
Europe PCR will not only serve as a public launch meeting for Ctrip plus it will be a venue for multiple IV L and reducer presentations.
We will also be celebrating the five year anniversary of the launch of coronary Ivy Hill, we have come a very long way in a relatively short period of time.
We will be sponsoring several symposium in trading villages at PCR, where we plan to further educate physicians on IV L. In addition to covering refractory angina and.
And how are newly newly acquired reducer product plays a role for these no option patients.
And while many of us will still be busy in Paris, The society for cardiovascular angiography and interventions or Sky conference, we'll be kicking off in Phoenix.
I don't know that for us at Sky will be the presentation of our CAD three post approval study from the Cath PCI registry, which will reflect reflect the real world safety and effectiveness effectiveness of coronary Ivy Hill.
Lastly on the scientific side.
We had great attendance at our CRT symposium back in February where the main focus was the impact of calcified nodules on two year clinical outcomes. After IV L assisted coronary stenting.
As our data matures. It continues to demonstrate that Ivy Hill is equally effective across the full spectrum of calcified lesions, whether circumferential E centric or nodular.
And as we continue to generate compelling data that supports broader use of Ivy Hill.
Our R&D team keeps paving the way for future growth with our expanding pipeline.
We have discussed our intention to launch two new products per year, and we have also talked about our plan to have seven different devices by 2026.
We plan to lay out our product roadmap and a bit more detail later in the year at our Investor innovation event.
Which will be holding on October 23rd in San Francisco during TCT.
Okay.
And finally on reimbursement CMS issued its proposed fiscal 2020 for inpatient prospective payment system or a P. P. S document.
For hospital inpatient procedures in April .
The proposed rule included three new DRG is specific to Ivy Hill.
Two of the new DRG would pertain to coronary IV all cases involving the insertion of a stent with and without core Morbidities and the third new DRG would cover all coronary or IV. All cases that do not include a stent.
The proposed dollar values associated with these new drg's seem entirely appropriate given the resource intensity of treating the conflict. The extremely complex calcified anatomies that comprises the universe of patients ideal addresses every day.
We look forward to the final inpatient rule likely later this summer.
Which will then become effective October 1st 2023.
Our strong first quarter performance suggests that we will deliver results in a higher range than our prior guidance.
We now anticipate topline revenue in the range of $700 million to $720 million for the full year of 2023.
Presenting a growth of 43% to 47% from 2022.
This guidance does not contemplate any revenue contribution from the reducer, which we expect will be less than $5 million for the balance of 2023.
With that I will turn the call over to I'd like to provide more color on the commercial front.
As Debbie noted Dan is on a long planned and well earn vacation with his family and we are delighted to have trend with us today to discuss the details of our financial results. After after Isaac.
Isaac.
Thank you Doug.
<unk> posted another strong quarter across U S coronary U S peripheral and our international business.
U S peripheral revenue was up 12% from last quarter and once again almost doubled from a year ago growth was driven by solid usage across three peripheral products and all vessel beds.
In the U S. We are fully transitioned to M. Five plus have steadily increased below the knee business with asked for an increasingly M five plus.
And are off to a very encouraging early start to the L. Six launch.
Our launch strategy for <unk> six is consistent with what has worked for our other product launches. We expect to launch accounts in a very controlled deliberate manner to help ensure that customers understand when and where to use L. Six.
<unk> six is designed specifically to treat larger peripheral vessels of the iliac common femoral arteries are.
Our engineers were able to achieve delivery of a more uniform high energy profile to these large vessel lesion.
Helping a compact omidria array that is distinct from our other products.
In addition to the improved energy profile, the larger diameter balloons are better able to facilitate energy delivery and dialed it up to the targeted vessel diameter.
The results in clinical practice are surprising us and our customers. What we are hearing most often is how impressed physicians or with the angiographic results. After all six noting in many cases that the Audrey looks as good as if it were sent in.
We are pleased with the clinical utility and are seeing strong utilization across the sizes.
About 60% of all six cases are coming from the new sizes offered 910, and 12 millimeters, suggesting that we may see some incremental penetration into procedures that M. Five plus could not optimally address.
In addition to a strong clinical value proposition L. Six carries a strong economic value proposition for hospitals.
Ideal as clinically indicated for use in iliac arteries.
This is not the case for many of you got Directv devices.
Reimbursement is not consistent for atherectomy in contrast, IV all carries additional reimbursement iliac arteries that adequately covers hospital cost to acquire all six.
Okay.
U S coronary revenue grew a solid 11% sequentially from Q4, and 57% compared to the prior year average daily sales increased 10% sequentially from Q4, and 54% from a year ago, driven primarily by increased penetration into our existing accounts.
As anticipated new account additions continued to decline as we only added about 60, new accounts in the first quarter the strong growth in our U S coronary business in Q1 as a sign that the key activities. We initiated in the second half of last year are succeeding we have been able to increase penetration of coronary IV LNR accounts with nearly 99% of <unk>.
120, 23 U S coronary revenue coming from accounts that were launched before 2023.
I will take just a minute to remind you of the activities that we believe have worked to drive deeper penetration of coronary IV L. <unk>.
First we added the Cogs, we ended the quarter with 90 territories and about 1.9 clinical specialist per territory. We plan to continue optimizing our structure, adding territories and increasing the clinical specialist per territory throughout this year.
This strategy enables us to spend more time with physicians to help train them and then reinforced when they should be appropriately using IV L.
The time, our team spends in the hospitals drive increased penetration for both coronary and peripheral.
On the international side, we posted record revenue that was almost double our year ago performance with strong results in all of our international markets.
Sales of coronary and peripheral products, both grew over 80% from a year ago, and we had a solid start for our newly launched C to plus catheter.
Referral momentum is growing internationally as we have increased our marketing resources substantially.
We now have a very focused efforts that are supported by kols to foster peer to peer education.
Similar to <unk> and the other launches you've seen us execute our seats plus launch follows our strategy of being methodical launch targeting high volume accounts going deeper and spending time educating each count.
It is early in the launch but the team is very encouraged about the feedback they are getting so far.
Geographically, we saw particularly strong growth for our coronary businesses in Germany, and Japan, and Germany. The change in January to reimburse coronary coronary I V O procedures at higher paying Drg's combined with the launch of C to plus had been a game changer in the first few months.
As you know German hospitals are very focused on economics, and I be always margin negative in most cases prior to January of this year. Despite.
Despite being on the market for nearly five years and being represented by a strong direct sales team coronary IV Ellen penetration in Germany is only about 1%, which is far lower than any other western European countries.
We look forward to continued growth in Germany, as we expand our team to better service and educate physicians on the use of IV L. I expect that our penetration in Germany will go from the lowest to the highest amongst western European countries.
Our launch in Japan is going very well, we are already seeing solid use of IV <unk> and our launch the counts with strong penetration in high volume centers propelled by enthusiastic physician support.
Plan to continue building that team and adding sales reps field marketing professionals and additional support functions to further accelerate adoption in Japan.
We are encouraged by the early success. Our teams are achieving this year in Germany, and Japan markets, where reimbursement for IV, all is adequate and economic considerations are well addressed.
We believe this is a positive indicator for potential increases in penetration in the U S. As a long term reimbursement picture for coronary IV L is beginning to come into focus over the course of this year.
We have seen the first of three proposed rules for U S reimbursement in 'twenty 'twenty four readout with the IV P. S addressing the hospital inpatient setting.
This summer, we hope CMS chooses to address coronary IV on the outpatient setting in 2024, and we remain bullish about the long term picture when they do until then T. B T covers the hospital's device cost.
We also know that a new CPT code for coronary IV L will enable physicians to receive incremental payment for the first time for any of our therapies.
This summer, we will see what incremental payments CMS proposed for those physicians.
Okay.
We have worked to create an environment, where the incentives for the patient physician and hospital are all along the Gulf where the patient has to have IV treatment for their calcified PCI, because it's very safe and helps ensure a better result the.
The physician shares at school, particularly when they are receiving incremental payment for the additional work of using IV L.
The hospital once the patients to get the best therapy and is further motivated when the procedures have positive economics. We have early evidence of what Ivy Hill penetration can be when these incentives are all aligned from the early and very encouraging adoption rates, we have seen thus far in Japan with that I will turn the call it trend to review the financials.
Thank you Isaac good afternoon, everyone Shockwave Medical's revenue for the first quarter ended March 31st 2023 was $161 1 million or 72% increase from $93 6 million in the first quarter of 2020 to.
U S revenue was $131 6 million in the first quarter of 2023 growing 68% from $78 5 million in the first quarter of 2022.
Our coronary product contributed $99 million to U S revenue in the quarter U S revenue from our peripheral products was $40 5 million in the first quarter of 2023.
The growth in U S revenue reflects increased utilization at existing accounts, new account adoption of IV al and continued sales force expansion.
International revenue was $29 4 million in the first quarter of 2023, representing a 95% increase from $15 1 million in the first quarter of 2022.
Our coordinated product contributed 23 million to international revenue in the first quarter of 2023.
International revenue from our peripheral products was $5 6 million in the first quarter of 2023.
The increase in international revenue over the prior year period reflects continued geographic expansion, including China, and Japan clothing customer getting clothing customer demand and of course, if our direct sales force in Europe .
Looking at product lines, our peripheral products Shockwave and five chocolate Empire, plus shockwave as for Shockwave <unk> accounted for $46 1 million of total revenue in the first quarter of 2023 compared to $22 9 million in the first quarter of 2022.
102% increase.
Coronary products Shockwave C, two and Shockwave Ctrip plus accounted for $113 9 million of total revenue in the first quarter of 2023 compared to $70 3 million in the first quarter of 2022.
Representing a 62% increase in.
In addition to sales of generators contributed $1 1 million in revenue in the first quarter of 2023 compared to <unk> 4 million in the first quarter of 2022.
Gross profit for the first quarter of 2023 was $140 million compared to $80 7 million in the first quarter of 2022.
Gross margin for the first quarter of 2023 with 87% as compared to 86% in the first quarter of 2022 then.
The improvement in gross margin was primarily driven by product mix as well as continued improvements in productivity and process efficiency.
Total operating expenses for the first quarter of 2023 were $100 2 million, a 53% increase from $65 4 million in the first quarter of 2022.
Sales and marketing expenses for the first quarter of 2023 were 54 million compared to $36 million in the first quarter of 2022.
Increase was primarily driven by sales force expansion.
R&D expense for the first quarter of 2023 or $27 million compared to $17 million in the first quarter of 2022. The increase was primarily driven by head count growth journey.
General and administrative expenses for the first quarter of 2023, or $19 2 million compared to $12 4 million in the first quarter of 2022.
The increase was primarily driven by higher head count to support the growth in the business.
Net income for the first quarter of 2023 was $39 1 million compared to a net income of $14 5 million in the first quarter of 2022.
Basic net income per share for the period was a dollar and seven cents diluted net income per share for the period was $1 three.
We ended the first quarter of 2023 with $416 9 million in cash cash equivalents and short term investments.
At this point I would like to turn the call back to get working on them.
Thank you trend and Isaac.
We are encouraged that our vision of sustained high end growth in all categories and geographies, which was achieved again last quarter.
And we see little reason for that to stop anytime soon.
Well done by our global team and we look forward to reporting on their continued achievements and upcoming quarters with that we can open the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
We ask that you limit your questions to one and a follow up so that others may have an opportunity to ask questions for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Adam <unk> with Piper Sandler. Please proceed with your question.
Hi, good afternoon, Doug and team and thank you for taking the questions. Congrats on a great start to the year.
Doug I apologize for asking this upfront, but feel compelled to ask is there anything more that you can say or anything you can say on the media reports about deal interest from Boston scientific where have you approached and any comment on the status of those conversations.
Yes, it's our policy not to comment on speculation so we.
We will continue to not comment, but I appreciate the question.
Okay.
Fair enough, but worth a shot there.
Yeah, maybe I can ask about the maybe.
Maybe I can ask about the guidance.
So 700 to 720 million a healthy guidance range of $40 million over the previous guide you'd be Q1, I think by $14 million.
So maybe just talk about what gives you the confidence to raise by that amount at this juncture in the year and then if you could also just kind of walk us through a little bit about the construction of the guidance in terms of.
Coronary versus peripheral U S O U S et cetera, and then had a follow up thanks.
Yeah, Isaac and I'll tag team on this.
The Oh I know there were there was.
We felt pretty confident that that was a an aberration not a trend.
And this year, it's proving that we were right to believe that in the year has started out.
From a procedure basis are quite well.
Globally, Yeah and.
We're also very encouraged that the.
The investments we made have been making and will continue to make through through this year, particularly in the U S on penetration or are already starting to to show dividends are whether that's.
The increase in educational programs or expansion of our clinical specialist team.
Where are where the increased utilization both coronary and peripheral.
Are taking shape nicely and we believe that that's going to.
Continue through the year.
Yeah and then.
We're assuming some modest impact of the VIP P S.
Internationally as Isaac indicated Japan's off to a very encouraging start Germany. The benefits of improved payment is also.
Proving out and and the smaller but but.
Improving traction that we're seeing on peripheral and nationally is is encouraging although the contribution is meaningful meaningfully less than the others just because it's starting from a smaller base.
Okay perfect.
That's great color I don't know if there's anything to add otherwise I can move on to the follow up.
Yeah, I would just I'd add that the we were really like what we're seeing in the first quarter from the L. Six launch early stages C to plus early stages.
And then the other part of your question I think from a composition standpoint, it's the mix geographically and by product that is gonna be.
Reasonably consistent in our updated guidance, but we won't break it out.
Okay.
Okay. That's helpful color guys. Thank you for that and.
Maybe just one quick one on reimbursement.
I'm actually asking about the outpatient rule for calendar 2024.
And the potential that the transition or under pass through payment next year.
You gave very helpful remarks on the last earnings call and talked about competence and you know.
A smooth transition we'll call it.
Just curious if you have any updated views or thoughts or if anything's kind of changed since that last update we got thanks, so much for taking the questions and congrats on a great start.
Thanks, No no training no change because we don't have.
<unk> news to report at this juncture that won't be until the proposed rule comes out this summer.
I would say it is.
It was a pleasant surprise to see CMS has proposed.
Those are all for Ips too.
To generate new Drg's and that wouldn't have happened if we didn't have the untapped because they wouldn't have been able to identify Ivy I'll only cases on the inpatient basis, but I think the.
Uh huh.
There's a.
Potential read through that one could take that CMS did what they do they looked at the mass and the mass said.
That they need to structure, new Giardi drg's.
That's a lot more work for them than what would be required to.
Just let us into the $50 90 for APC that that we have.
As suggested.
And then once again have a code that they can track with the transitional pass through so if they look at the costs associated with IV L outpatient procedures and they do the math just like they did the math for inpatient.
We are we continue to be highly confident that they will land and 50 194.
<unk> is still in their hands, but given that they've moved.
Early and aggressively on inpatient we think first half of next year, either January or July seems more and.
The more likely outcome.
Yeah.
Thanks for the color.
Our next question comes from Bill <unk> with Canaccord Genuity. Please proceed with your question.
Great. Thanks, you guys. Congratulations you make it tough to ask questions could you give us so much information, but you're already.
You don't have to have it doesn't you don't have to medical.
Oh, no we have to pre sell side analysts at their job.
My my questions are really more into Japan, and China, and just I I don't maybe you said something on China and I missed it on that answer but kind of curious I was trying to coming back for you in the response rebound there and then on China. I think you know you had so much success in the U S. So early which I think surprised.
A lot of people on the coronary device trying to understand can you compare and contrast, maybe the infrastructure and scale with a commercial organization in Japan today, and kind of how should we expect that to scale up over the next year or two and kind of maybe relative to where were you when you launched.
Coronary in the U S and maybe that'll help us get a better feel for how coronary can can launch in Japan. Thanks.
Sure. Thanks for the questions Bill.
So China, yeah, the as others have reported Covid when they opened up in Covid swept through just about everywhere in four weeks.
It was done so there was a very soft January and China between that and the new year, and but we've seen kind of paces and they track are we.
We track cases of that.
February March April things are things are going well.
They've got provincial listings in place, which took a long time to kind of cycle through.
And and then getting getting product on the shelf and training in the cases will keep coming and so really pleased with what we're seeing in China. This year.
Japan.
Very well.
<unk>.
Physician excitement is is really high I think as we go through the year, we'll see a lot more publications and podium presence in Japan with <unk>.
And does the dynamic of that is in the U S. We had been selling peripheral IV L.
For three plus years by the time, we launched coronary and many of the physicians, who were buying or using peripheral IV L or interventional cardiologists, who are you doing it either for peripheral interventions or for large bore access so the familiarity with the product was very high compared to what it is in China, the generator base and the install.
Base was very high compared to what it was in.
Then it is in Japan.
And the team in Japan is relatively smaller than the team in the U S. So I think those are the structural elements that will make the launch in Japan slower than in the U S. A.
Hospital reimbursement for <unk>.
Purchasing the device from day, one I think you know, Japan, Japan, I'll start kicking up pretty quickly more slowly than the U S. But over time, you know call. It 612 18 months there'll be just be a nice really solid momentum build there.
Great and then if I could thanks for that if I could ask a neovasc just I think it does what you said the strategy really is kind of maintain the support you've had internationally I mean, given the guidance of $5 million I think they were running maybe 10 million a year annualized so it sounds like you'll kind of support what's going on.
On but not invest in that it'll be more of a focus on the pivotal trial and kind of driving that to completion and getting data and then and then really taking that data and driving it is it did I hear that correctly.
So they weren't running at 10, I think there was an analyst to have them running at 10 and once we dug in and it was.
Well north of well south of $5 million run rate.
We are allocating a sort of as a as a career opportunity.
A couple of our very strong commercial folks onto the program.
To help both.
Support existing customers as well as most importantly determine.
What's the right way to sell this product.
Uh Huh, how do we.
Sort of do the early market development in Europe much as we did in the in situ when we launched in Europe .
Learn from that and as our data matures from <unk> to <unk>.
Which is a very sophisticated trial and we think we will have global impact both in terms of confirming for four potential customers how well the device uses but also confirmed for payers.
We think that that had that the data from that trial.
Is what will enable us to really put a so drive revenue in a more meaningful way. So we're in market development market creation procedure creation and champion development mode.
Today in.
Limited.
Cases in certain countries like there is reimbursement in the U K there is some reimbursement in Germany.
Going into countries, where there is no reimbursement.
He is probably not going to be very productive use of our time and so we're not we're not going to hum.
Sort of tried to push water a pill and then as we are.
Start to turn the card on the data then we will we will have a very good appreciation for how to effectively commercialize in the U S.
And as we as we generate reimbursement in other countries to do so internationally.
And it's a relatively large footprint geographically so we need to go back through and see that Doug pointed as Doug said, we're at where do we think it makes sense to invest in marketing and selling in this product and building centers of excellence today.
And then what what where it doesn't it make sense today, but you know.
As we get more data and in turnover CR two data, obviously, a lot of geographies that makes sense in the future, but I just think we need to rationalize the activity that was being done and we're in process of doing that.
Excellent. Thank you.
Our next question comes from Travis Steed with Bank of America. Please proceed with your question.
Hey, congrats on a nice quarter I want to go back to the guide raise versus the Q1 beat a $14 million beat versus the street guidance going up $40 million. So a much bigger raise and maybe is that something you're seeing in April and how the procedure environment in Q1.
Progress I don't know if things, we're just getting better over the course of Q1 and things were even better in April just kind of curious if you could comment on the journal procedure environment on N PCI volumes over the course of Q1.
Yeah. It was a nice thing about Q1 as it was not.
Procedure volume was outside of China procedure volume.
Was healthy and steady through the quarter, it's not like Oh March rescue of the quarter. So it was a it was a good steady cadence.
We're not seeing.
That falter here at all heading into the second quarter. So we feel we feel confident in the underlying procedure and we feel confident that.
The.
Meaningful disruptions caused by Covid and staffing shortages and the like.
That's in the cost already and I think the comps on staffing are probably worse than theyre going to be going forward as hospitals have.
Largely sorted sorted through the issues and seem to be able to to have figured out how to manage.
There are their staffing more effectively than they could with the uncertainty around COVID-19.
So we're.
As we sort of walked through.
New product launches.
Essex in situ plus.
Increased.
Staffing on our end as we as we continue to add sort of high caliber clinical specialist territory managers in the U S.
Continued performance, which is very encouraging in Japan, and Germany, and China, you sort of have a.
With this.
With this level of a guide.
Oh, that's a couple of things Doug and then a quick follow up on the reimbursement the inpatient reimbursement codes.
Maybe help us understand how the how that impacts the business in terms of revenue and potential there and then I'll ask the op margin question as well in terms of both the.
Q1, obviously, a strong 25% almost op margin versus the 22% to 23% where the street was kind of that for the full year. So I think things are progressing really well, they're just making sure. We should think about flowing through for the rest of the year as well.
He asked about the inpatient proposed rule and how that would influence our God. It's positive I'm, we're not going to break it out but.
But I think it didn't.
It didn't hurt our.
Confidence that the rest of the year is going to be strong and I think it's an opportunity to for us to go talk and message about about that with our customers and as you know and do that in conjunction with a C to plus launch kind of comment on the <unk>.
Third quarter. So so it's really a positive development it'll give us a nice little thing to talk about it. In addition to see two plus and then we will see.
You know where the proposed rule is in July for the physician payment and what what CMS decides to do with the outpatient APC designation.
But as we've seen in the past when.
And we saw this with the above the knee reimbursement last year.
When this goes into effect on October one we will have had.
A few months or for a foreshadowing, but it's not like hospitals respond the next day and double their volume so it's a positive but it's not a.
An immediate change in the slope of the curve yeah makes sense. Thanks for the questions.
Our next question comes from Larry <unk> with Wells Fargo. Please proceed with your question.
Good afternoon, thanks for taking the questions I'd Echo my congratulations on a good start to the year here.
So Doug.
We know you won't comment on rumors, but I'd love to hear how you think about maximizing shareholder value and balancing and immediate reward today versus your potential future earnings power.
Hum.
Hum.
Yeah, So we love our business, it's it's really.
More than anything I love the <unk>.
Customers respond to our product and the people that work here.
So.
Our job is to try to create.
Great technologies that fundamentally improved.
The outcomes for patients and make.
These procedures more satisfying and fun for our customers.
So that's our we think if we do that then the.
The shareholders will be rewarded.
If there ever came a day when somebody felt like.
They wanted to make an offer that our board should consider you know.
We have a very professional board they'll do their jobs.
Uh huh.
We're very focused on the task at hand of trying to create as a stronger company as we can.
That's helpful and just for my follow up what are the positives and negatives of being a single product company or are there opportunities at least you know mainly a single product company. I know you have neovasc now are there opportunities you can't achieve because you don't have a larger presence in the cath lab or or you don't have greater geographic reach thanks for taking.
The questions.
Well, we're in 68 countries I think because 68 countries now so we're pretty good there aren't many left that we are dying to get into so we feel like we're when we finally got the ones that are left you Guy if you will.
So we feel really good about our geographic reach.
And and and what we've what we've witnessed from our global sales team is.
I think I think theres been tremendous benefit from the focus.
Like every day, we wake up and we have to find a way to be successful with the with the devices we have.
And to make them better so that.
We continue.
Continuous feed the the sales team and take advantage of the significant.
The unmet need that still is out there. We're just really scratching the surface, whether it's peripheral or coronary U S or international.
We discovered Neovasc as we were out looking for other potential great ideas and.
And we think we really got Lucky frankly that we found one that oh.
Was was was under resource by nature of those sort of financial constraints faced neovasc, but there were some really great people on the team and when you talk to customers I've been in Europe , a couple of times over the past couple of months and.
I am so much more excited than I was when we bought it because when you talk to these guys. They consistently say this device really works.
And and they see a dramatic improvement in the outcomes for their patients with <unk> with angina or for whom they've tried things for years and years and nothing works. So.
Both of the products, we have today the products that we have in development.
Internally it had shockwave.
And now with the addition of Neovasc gives us really high confidence in sustained growth for many years to come. So we're we don't we don't see our current situation is that.
Challenged it by any means as long as we execute yeah. That's just punctuate that you're already with a you know we're able to grow the business still at that.
Decent growth rates, while investing in global marketing sales resources investing in facilities.
Not just here in California, but in Costa Rica, and investing a lot of money in R&D and still delivering you know and.
EBIT it ought to be able to.
Make us a strong healthy company that can go be acquisitive, when we want to so it really doesn't feel like we're hampered in any way to us.
Alright, thanks for taking the questions guys.
Thanks Lou.
Our next question comes from Michael Pollack with Wolfe Research. Please proceed with your question.
Hey, good afternoon. Thank you for taking the questions I have two both on reimbursement inpatient and then I want to ask about the CPT code. So so I didnt patient the last call a lot of great detail from Rob and co on just the pathway here and in the message on inpatient was.
Hey look for PCI device selection doesn't drive payment.
And as I look at this proposal it would appear.
To me as.
As a as a dumb person on the outside that device selection function prospectively.
Drive payment now for P C I, specifically our product and so.
I'm, just looking to better understand how massive of a potential shift. This is if this is finalized I mean is it is it too much of a stretch to call. This a game changing proposal and inpatient.
Your perspective on that would be great and kind of also looking for.
How much risk.
Do you perceive here and the comment period around this proposal these new DRG is getting finalized.
So yeah, our view has always been.
That.
Because.
Patient procedures.
Are associated with specific technology that is where customers.
They focus on outpatient reimbursement because they know if he use atherectomy, it's one payment if he use dense it's another payment.
So there's a technology linkage to the level of payment and since that never previously existed for inpatient we all get thrown in to the same bucket.
And it's all the payment is all determined by them.
The complexity and complications that the patient.
Indoors.
But that.
That may not be true assuming this.
This <unk> PPS rule comes through later this year in.
In which case, it's both the Ah patient condition and.
Whether or not they are Ivy Hill is used on them. So.
We'll see but we may have to amend our our our view because now.
In this in the sole case of IV L. It might matter.
What device you use an inpatient and in which case then there would be technology linkage.
At least in our case for for those inpatient payment levels in there.
It certainly isn't going to be harmful.
To be able to combine.
Physician payment.
Once CPT comes through.
Inpatient uplift in payment and.
And being on par on on the outpatient side.
Helpful and then the follow up on the CPT.
Proposal can you just level set what where does the baseline payments said and what might this proposal looked like thank you so much.
Yeah. So we.
Right now physicians and it varies obviously by country and payer et cetera, but think of it as about 500 bucks to get it to do.
The PCI and another 75 ish to do atherectomy in the U S and the U S. Yes.
And Shockwave presently is still 500, if you don't get incremental payment.
After the CPT.
Panel last year voted in favor of a category one CPT code for IV L. A the next step when the processes that the Rock Committee then goes in and.
Surveys physicians to determine what.
What the RV use or when they so basically how much work do they do when they do a shockwave case.
And that will feed back into the system and determine.
What.
What physicians will get paid incremental to that stent procedure and.
And we will know what is proposed here in our in the next few months sort of a July timeframe, we should have both the <unk>.
Proposed rule for outpatient in the proposed rule for CPT.
Both of which.
It would affect 2024.
Yes, we'd be speculating if we said what we thought where we thought we would the physician payment woodland.
Thank you.
Very very happy we made it through reimbursement with Rockwood that Rob.
Our next question comes from Cecilia furlong with Morgan Stanley . Please proceed with your question.
Good afternoon, and thanks for taking the questions I wanted to focus on Germany. Some of the strength that you talked about seeing there post the reimbursement update but just your outlook really for increasing our sales force. There. Your presence there and then also your comments on penetration where it is today I'm very low relative to Western European Cup.
How you think about that ramping over time, and where you ultimately look at penetration falling over the next couple years.
Yeah sure. Thanks for the question.
Let's see we will probably double our sales force in Germany, This year and that's already underway.
And that that's really the higher the there to handle the higher volume and demand we expect on coronary with it with the DSD change.
So that that's that's.
In process now and we've got a number of programs.
Established and kind of using some of the things we learned in the U S, particularly on the peripheral reimbursement uplift on how to go re educate hospitals and on.
On the change in reimbursement because right now in Germany, It's a IV al as you know it.
It's it hasn't been reimbursed sufficiently for five years and you have to undo that that perception. So that's part of the work that the team has worked it we will do.
This year next year.
And so you know when you look at the penetration in Germany is about 330000 P. C eyes, and we were about 1% penetrated as we exited last year.
Despite having a really good strong direct sales force.
And in the country. So I think if you look at that compared to where we are in western Europe and the U S.
I think they can be they could be our second or third highest penetrated country. Eventually that would be you know with Japan and the U S. I would expect kind of be the three highest penetrated countries.
Just on the economics in place the economics that will be in place are already are in place and the fact that we have direct sales teams there.
Execute very well.
So I think over the next two or three years, Germany has got a lot of upside and it's we're looking forward to it.
Seeing how how much it is.
Okay, and if I could follow up as well I was just on B TK I'm familiar comments on them just the interplay really between us for an Empire plus now what you've seen recently and then just any updates to that as far as specifically and potentially stopping them from an MPC standpoint, and thanks for taking the questions.
Yeah, we all.
I'll work backwards.
We can CMS continues to collect data for.
Through our PTK sic codes that we already have in place.
As a reminder, the PTK procedures or pay more than the ATK procedures. So.
And straight angioplasty below the knee pays 10000, and an IV all the case.
Or atherectomy above the knee page 10000.
So the payment levels are all sort of $5000 higher than they are above the knee. So were right. Now we are reimbursed the same above the knee and below the knee.
Is that the rectum he has paid higher below the knee. So our our hope eventually is to land in that that higher APC level. Although the current the current payment below the knee is not cited nearly as often by customers as to why they would not use use shockwave as it was above the knee above the knee is a more economically.
<unk> sensitive.
Vessel bed.
No payment is perfectly adequate below the knee.
We'd be happy if it was higher and hopefully over time as Medicare CMS accumulate more data.
They will move US there we don't we're not anticipating that that will be happening this year and TBD about next year.
The what might help that as that Empire pluses getting use it or increasing our rate of below the knee.
The longer treatment lengths.
Faster pulses longer catheter shaft are all being very well received.
By our customers so we have a.
Uh huh.
Relevant.
Increase in utilization of the three and a half from the four millimeter outer diameter links for four of our Empire plus.
SKU.
The matrix.
At Oh that indicate that we are starting to see a nice complement to the S. Four device so where.
And since that currently is at a higher price that that could augur long term to the benefit of that.
Levels as CMS looks at the overall.
Cost of the procedure.
But but it does seem highly complementary test for at this juncture and as we.
Moved towards our.
Hum.
Our Investor Day later this year, you'll see that below the knee is because a meaningful focus for us on a on a couple of our upcoming product launches in the next.
In the next two years.
Great. Thank you.
Thank you.
Our next question comes from Imran Zafar with Deutsche Bank. Please proceed with your question.
Hi, Good afternoon, guys. Thank you so much for taking my question and congratulations on great quarter I wanted to first ask about gross margin. Obviously, another very strong first quarter. So when you look out over the next two to three years can you just talk about the sustainability of these levels just talking about the moving parts geographic mix.
Direct versus distributor.
And then Costa Rica coming on board at some point next few quarters can you talk about your ability to maintain that sort of high eighties gross margin longer term. Thanks.
Yeah we're.
You you highlighted a couple of the puts and takes as China is trying to grows that's great for the top line unhelpful in the market on the on the.
Gross margin side, but.
Japan, where we are direct and we're not paying a.
Distributor transfer price that's that's.
That's a nice counterbalance to China in terms of the international contribution to gross margin and same with Germany.
U S is the strongest contributor to gross margin.
Giving given reimbursement and pricing advantages to the U S system, and we envision U S will continue it's a really healthy growth rate into the future.
Our product mix.
I don't we don't envision any.
Meaningful.
Negative or positive contribution from the product mix, often often when we launch new products such as IL six as working out the Kinks. It has higher costs as we figure out.
How to optimize fixtures in processes and the like and we're in the process in doing that right now without <unk>.
But but over time that'll that'll that'll.
Resemble where we are with other products in terms of gross margin and.
And then we will move that to Costa Rica, once we sort of work through the.
The optimization process.
Costa Rica facility our facility.
It won't be contributing until the back half of next year, which is when we should start shipping product from there.
And I wouldn't model.
A meaningful change to our gross margin from Costa Rica, although there is potential upside given.
Given the.
Better labor.
And overhead that we'll see out of that facility.
Okay. Thank you and then just one quick one on the pipeline.
Any updates on when we might see some initial human data from the mitral indoor aortic.
ABL catheters.
We will when we put out a roadmap out in in October at our October 23rd event.
Should give you a sense of when we're going to be in the clinic.
At least with aortic mitral, it's in the clinic right now off label when people do a case here, where they're using our peripheral catheter.
So we're still exploring what the what's the right way to be if there's a way for for Shockwave to participate in mitral.
Great. Thank you so much.
Our next question comes from Mike Matson with Needham. Please proceed with your question.
Yeah. Good afternoon. Thanks for taking my questions I wanted to ask another one on the below the knee opportunity some of the feedback that we've gotten is that the S. Four catheter, while it can get below the knee, it's a little a hallmark side. So.
You mentioned, you've got some things in your pipeline there, but I was just wondering if you're planning on but it's excess.
Extra small catheter or something that can go deeper into the ankle.
Ankle region and.
You know when we could maybe see that if you can even make the balloon small enough to sit down there.
We're always trying to find ways to make.
Make our systems more deliverable, what we hear an S. Four more often much more often as they wish it was longer which is why they're starting to deploy and five plus down below the knee.
So we are I think when you as we lay out our.
Our BT Kay.
Portfolio, because it's really going to be a portfolio of multiple products to treat them.
The variety of vessels.
Vessels and diseases below our below the knee I think where we're quite encouraged that what has been a nice business, but underpenetrated more than any other vessel beds that we treat we think be teekay is going to be a really nice contributor starting in 2024.
Okay got it.
And then I just want to ask one on the tax rate I don't know if youre willing to give us some sort of guidance for the year, but it did come in significantly below what I've been modeling, which is kind of the 25% range I don't I don't know where you are in terms of starting to pay sort of a full tax rate, but I thought it might be this year, but.
I guess I was so worried trend wasn't going to get to answer your question.
So I'm glad you asked.
Yes, it's still safe to model 25%.
We're still in a while so from a cash outflow and it'll be last that this quarter in particular was low because we had some discrete items.
For instance between book and tax that's causing that right from a modeling perspective, 25% as well.
Correct.
Okay got it thank you.
Alright, I think I think that's a wrap thanks, everybody for your time and attention and thank you, Mike, particularly for asking the question.
Much appreciate it and.
And we all missed Dan but trend crushed it so.
Thanks, very much have a good day.
Yeah.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
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