Q4 2022 Shockwave Medical Inc Earnings Call
Good afternoon, and welcome to Shockwaves fourth quarter and full year 2022 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.
Debbie Kaster, Vice President of Investor Relations at Shockwave for you in shattering comments.
Thank you all for participating in today's call joining me today from Shockwave medical aren't Doug Godshall, President and Chief Executive Officer is exactly Ryan President and Chief Commercial Officer, Dan Puckett, Chief Financial Officer.
Earlier today Shockwave released financial results for the quarter and year ended December 31st 2022.
A copy of the press release is available on Shockwave website before we begin I would like to remind you that management will make forward looking statements. During this call within the meaning of federal Securities Law, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
Of 1995.
Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements, including without limitation statements relating to our sales and operating trends.
And hiring prospects neutral and revenue expectation.
Product development and approvals and the closing of our acquisition of Neovasc 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 materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for.
For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors sections on our annual report on Form 10-K on file with the SEC and available on Edgar and in our other reports filed with the SEC.
Shockwave 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 events or otherwise.
This conference call contains time sensitive information and is accurate only as of the live broadcast today February 16th 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 fourth quarter and full year 2022.
Shockwave team delivered another strong quarter and an outstanding year with many important achievements.
To highlight just a few of our key accomplishments in 2022.
We had two new products approved in the U S.
Demonstrated superiority and one year follow up in the pad III randomized trial.
Added regulatory shipping approvals in 12, new countries, including Japan and China.
Launched over 500 coronary counts in the U S.
Had several wins in reimbursement across the globe.
And broke ground on a new manufacturing new manufacturing facility in Costa Rica.
We achieved record quarterly revenue of $144 million in the fourth quarter of 2022.
Which was more than a 70% increase from the fourth quarter of 2021.
This brought our revenue for the year to $490 million more than doubling our revenues from 2021.
What we found most encouraging about these results was the growth and contribution across all product lines and geographies.
Our fourth quarter 2022 revenue versus fourth quarter of 2021 revenue was up over 60% for U S. Coronary was up over 90% for U S peripheral and up over 70% for our international business.
Rather remarkable across the board.
Later in the call Isaac will share some additional insights from the commercial side of the business and then Dan will provide some details around our financial results.
But I'd like to start with a few updates on recent activity here at Shockwave.
We are pleased to have been granted FDA approval for our C to plus coronary product in mid December .
Which was much sooner sooner than we expected as our regulatory team continues their trend of efficient approvals.
As a reminder, C to plus 50% more pulses going from 80 to 120.
The experience in the European limited launch gives us high confidence in the performance of C to plus and we plan to launch in the U S. In the second half of this year.
This is the first in a series of new coronary products that we plan to launch with the expectation that each new product will improve customer experience expand IV, all utility and by extension further increase coronary penetration.
But we're obviously pleased that reimbursement for coronary Ivy Hill in Germany was increased on January 1st of this year.
Germany has the largest number of PCI isn't all European nations at approximately 330000 per year, yes penetration of coronary IV L has been appreciably lower than in other large European markets.
Largely because of funding gap for ICL procedures.
We believe the increases in reimbursement will meaningfully reduce the principal barrier to IV LNP utilization in Germany.
Presently working on to double the size of our German team in order to support anticipated market expansion.
We've been receiving great feedback on our El <unk> peripheral catheter, which is currently in limited launch in the U S.
As you May remember this.
This catheter was purpose built to address resistant dense calcium and large vessels.
The limited launch has been going very well and has given us great insights.
To provide a bit more color later in the call.
We hosted multiple well attended events during the fourth quarter, including at both Veeva and beef.
We also shared updates from our Patriot observational study at both of these conferences.
We look forward to sharing more ideal data at <unk> next week, where there are six sessions, highlighting ivy ill, including further discussions on nodular calcium.
As well as the presentation on our empower female study design.
It should be another great showcase for Ivy Hill.
As you May have seen late in January the society of cardiovascular angiography and intervention or Sky published updated guidelines, which included coronary IV L. As a treatment option in all U S Cath labs, including afcs, regardless of surgical backup status.
Previous guidelines restricted recommended treatment two facilities with onsite surgical backup.
We believe this is a great endorsement of the safety of Ivy Hill.
Okay.
Our C to launch in Japan commenced in earnest in January .
With appropriate reimbursement now in place we have confidence that we can launch see two very effectively.
As you can provide a bit more color later in the call and while the launch is just getting started we're generally encouraged thus far.
Okay.
Lastly earlier in January we announced that we entered into a definitive agreement to acquire Neovasc and our enthusiasm for the reducer systems potential has grown post announcement largely because of the clinical community responded even more positively than we hidden anticipated.
This unique product has the potential to elegantly address a very large population of patients who currently do not have a treatment option for their debilitating refractory angina.
The acquisition of Neovasc, which is set to close by the end of this quarter is a solid step in shockwaves strategic mission to leverage the talents of our world class team to develop and commercialize a steady cadence of novel technologies for underserved patient populations.
Before I turn the call to Isaac I would reiterate as we shared in our call last month.
That we anticipate delivering topline revenue in the range of 662 $680 million for the full year 2023, representing growth of 35% to 39% from 2022.
With that.
I'll turn the call over to Isaac and then Dan will share more details on the broader business and financial results.
Vic.
Thank you, Doug we had another strong quarter across the U S coronary U S peripheral and international segments globally staffing issues affected procedural volumes and some in some centers to various degrees throughout the quarter.
And some of our peers have noted we expect the staffing challenges to continue improving throughout 2023.
U S peripheral revenue in the quarter was 10% above the prior quarter and almost double the U S peripheral revenue from a year ago.
The launch of our <unk>, plus catheter organic growth new accounts and appropriate reimbursement all contributed to the solid revenue increase.
And five plus continues to be very well received by our customers and we're seeing increased usage in accounts once they adopt them five plus.
We are very pleased with the results of the limited launch of our <unk> catheter in the U S. During.
During the fourth quarter, our focus was to understand the capabilities of the catheter and to collect feedback on which clinical scenarios are best suited for Essex.
Physicians have indicated that they find it most useful and largely accident common femoral arteries.
And Cynthia meters on all six are spaced closer together than the emitters on M five plus.
You have noted that it more efficiently cracks logic centric lesions.
It's too early to predict how much L. Six will be used in cases that were previously not done with IBM, but in the LMR nearly 60% of the cases were treated with a 910 and 12 millimeter Asics. This suggest that many procedures were likely cases that would not have been done with the eight millimeter M. Five plus we.
We intend to move to a full launch about six in the U S. Later in the first quarter.
Our U S coronary business grew nicely during the fourth quarter of 2022 as average daily sales increased 11% compared to the third quarter of 2022, and 65% compared to the prior year.
Growth was almost entirely from sales into existing accounts as we added fewer than 90 accounts in the fourth quarter during.
During 2023, we plan to focus on driving coronary adoption through optimizing the structure of our sales organization physician education and engagement the anticipated launch of <unk> plus in the second half of the year and continued publications of clinical data to support the use of IV L. I am confident that we will continue to be successful in increasing IV up penetration.
Based on the increased utilization we saw in 2022 from the accounts, we launched in 2021.
Turning to our U S sales force we ended the year with just about 90 territories and about 1.8 clinical specialists per territory.
As noted on our last call our hiring cadence is on pace to end 2023 with between 110, and 120 territories and over two clinical specialists per territory.
We plan to add more territories in the first half of 2023 compared to the second half.
Our international business generated nearly $26 million in revenue in the fourth quarter, representing 76% growth from the prior year.
We continue to have strong momentum in France, and the U K, which have now been selling direct for over a year together they grew over 30% in Q4 versus prior year.
Okay.
China was also a strong contributor in the fourth quarter, we expect the momentum in China to continue as we gained provincialist listings.
And subsequent account approvals throughout 2023.
That said the fourth quarter of 2022, and the first quarter of 2023 had been negatively impacted by the surge of Covid that occurred in China.
Our international team is now comprised of more than 70 people, which is up from 40 at the end of 'twenty 'twenty. One we are selling at over 60 countries and our direct and seven of those country.
We are generating a strong return on our investment in international markets and we expect to continue that investment in 2023 and beyond.
In the second quarter of this year, we plan to convert from distributors to direct sales in Spain, Portugal and Canada.
And each of these countries, we expect to achieve significant revenue growth, but penetration and increased margin on direct sales versus sales through distributors.
By the end of 2023, we plan to have direct selling organizations in 11 countries, including the U S.
I look forward to providing more detail on the early experience in Japan next quarter. We are very pleased with how the launch of <unk> has started and are confident that Japan will be a strong growth driver.
Finally, we conducted a limited launch of <unk> plus in Europe in the fourth quarter and are very pleased with the results. The customer feedback has been positive and the product is performing as expected.
Customers reported that the additional pulses in situ plus enabled them to treat longer lesions bifurcated lesions and lesions with nodular, an eccentric calcium more effectively than we see too.
Further because of the additional pulses customers reported using C to plus in cases that they otherwise would not have you see two primarily because they would have been reluctant to use C to C. Two catheters due to the cost.
We are increasingly confident that C to plus will not only improve customer satisfaction with IBM, but also increase the adoption of Baidu App, we anticipate moving to a full market release in most international markets early this year.
As we do with C. Too we will incorporate what we learned from our C to plus experience in Europe to shape, our U S launch strategy.
With that I will turn the call over to Dan to review the financials.
Thank you good afternoon, everyone Shockwave Medical's revenue for the fourth quarter ended December 31, 2022 was 144 million a 71% increase from $84 2 million in the fourth quarter of 2021.
U S revenues of $118 3 million in the fourth quarter of 2022, an increase of 70% $69 6 million in the fourth quarter of 2021.
Coronary products contributed $82 $1 billion to U S revenue in the fourth quarter of 2022, 62% increase from $6 7 million in the fourth quarter of 2021.
<unk> products accounted for $36 million of U S revenue, an increase of 94% from $19 6 million in the fourth quarter of 2021.
Generally this accounted for $2 million of U S revenues in the quarter.
The growth in U S revenue was driven by increased utilization at existing accounts new.
Kind of adoption of IV L and continued sales force expansion.
International revenue was $25 7 million in the fourth quarter of 2022, representing a 76% increase from $14 6 million in the fourth quarter of 2021.
International revenue from coronary products was $20 6 million in the fourth quarter of 2022, 78% increase from $11 6 million in the fourth quarter of 2021.
International revenue from peripheral products was $4 $5 million in the fourth quarter of 2022, 61% increase from $2 8 million in the fourth quarter of 2021.
Generators accounted for $6 million and international revenue in the fourth quarter of 2022.
The increase in international revenue over the prior year period reflects continued geographic expansion, including China growth in customer to customer demand and growth of our direct sales force in Europe .
The increase in international revenue was partially impacted by unfavorable foreign exchange rates.
Looking at product lines, our peripheral products accounted for $40 5 million for total revenue in the fourth quarter of 2022 compared to 21 4 million in the fourth quarter 2021, and 89% increase our coronary products accounted for $102 7 million of total revenue in the fourth quarter of 2022 compared to $62.
$3 million in the fourth quarter of 2021, representing a 65% increase in addition sales of generators contributed $8 million in revenue for the fourth quarter of 2022, which is an increase of 58% compared to the fourth quarter of 2021.
Gross profit for the fourth quarter of 2022 was $126 5 million compared to $71 5 million in the fourth quarter of 2021 gross.
Gross margin for the fourth quarter of 2022 was 88% as compared to 85% of fourth quarter of 2021.
Improvement in gross margin was partly driven by product mix as well as continued improvement in productivity and process efficiencies.
Total operating expenses for the fourth quarter of 2022 were $84 1 million.
46% increase from $57 5 million in the fourth quarter of 2021.
Sales and marketing expenses for the fourth quarter of 2022 were $43 4 million compared to $33 2 million.
In the fourth quarter of 2021 <unk>.
The increase was primarily driven by sales force expansion.
R&D expenses for the fourth quarter of 2022, or $23 7 million compared to $14 7 million in the fourth quarter of 2021. The increase was primarily driven by head count growth.
General and administrative expenses for the fourth quarter of 2022 were $17 million compared to $9 6 million in the fourth quarter of 2021. The increase is primarily driven by higher head count to support the growth of the business.
Net income for the fourth quarter of 2022 was $140 9 million compared to net income of $12 9 million in the fourth quarter of 2021.
We recognized a $99 million income tax benefit in the quarter. Upon the release of a substantial portion of the valuation allowance related to our deferred tax assets.
Basic net income per share for the period was $3.89 dilutive net income per share for the period was $3 71.
We ended the fourth quarter of 2022 with $304 5 million in cash cash equivalents and short term investments.
Finally, I'd like to briefly recap some highlights from our full year 2022 results total revenue for the full year 2022 was $489 7 million, an increase of 107% compared to full year 2021 revenue.
$237 1 million.
Revenue for the full year 2022 is $407 4 million, representing a 119% increase over 2021 revenue of $186 3 million.
International revenue was $82 3 million for the full year 2022, compared to $50 8 million in 2021, representing a 62% increase gross margin for the full year 2022 was 87% compared to 83% in 2021.
Total operating expenses were $300 6 million in 2022, an increase of 53% compared to operating expenses by $196 6 million in 2021 total net income for the full year 2022 was 216 million compared to a net loss of $9 1 million in 2021 at this.
I'd like to turn the call back to Doug for closing comments.
Thank you all for joining us for the call today.
I look back at 2022 and what this team has accomplished the list is quite impressive.
We have some exciting things coming in the year ahead and at the same time, our team remains focused on our core and continuing to expand the treatment of arterial calcification with our products.
Thank you we will now 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 he would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from Travis Steed with Bank of America. Please proceed with your question.
Okay. Thanks for the question, Doug I did want to ask about PCI volumes in Q1 or anything to call out in Q1, if the PCI volumes, where we're back to normal you know the trends to call out and if the street was kind of thinking about Q1 down a couple of million versus Q4, if that's the right way to think about it.
To follow up on margins after that.
Yeah as a as we talked I just spoke about earlier this quarter.
There was a.
Sort of a lull in the October November timeframe that started to recover in December I'd say on balance that that recovery appears to us to have been sustained so were.
I don't know to be able to explain what happened other than sort of a variable staffing seemed to be one of the biggest contributors are staffing outages in the beginning of the fourth quarter.
But but it doesn't the lull in October does not seem to have carried forward into the first quarter.
Okay. That's helpful. I guess youre not going to comment on the street numbers for Q1, I assume but if you are that that'd be helpful. And then the follow up would be on margins. If you think about like X. Excluding the dull dilution and just think about op margins for the base business, if 2023s, a year that you can get margin expansion or margins.
Or flat or down and the base for the kind of given some of the investments you're making.
Uh huh.
I'll answer your first question that I didn't answer the first time on on the street and not everybody has updated their numbers for Q1. So it's hard to react I think after this call folks will be updating the numbers.
Ah yes.
Where are we continue to see efficiency in our base business, obviously, we've where we're bringing in neovasc.
Here in the not too distant future so.
That will obviously not be.
Be accretive to operating margin.
As will be.
Trade spending and the $30 million range to run that business this year.
But but we're certainly pleased with what we saw and in terms of the the core IV L business, both the gross and.
Margin.
Margin.
Exiting exiting 2022.
Okay, all right sounds good and I think sort of Washington, So I'll follow up.
Our next question comes from Adam <unk> with Piper Sandler. Please proceed with your question.
Great. Good afternoon, and thank you for taking the question I actually wanted to start on reimbursement, where there's been some.
Investor focus and specifically U S coronary.
The transitional pass through payment expiring June 1st 24 I believe.
Maybe just walk through how youre thinking about those potential impacts on your business if any.
And with the transitional pass through I know you are in the process of trying to map.
Code before the TVT expires, so maybe just talk path forward, there and level of confidence that you will ultimately be successful and also have a smooth transition with no.
Reimbursement Air Pocket, and then I had a follow up thanks.
Okay great.
And.
One of the reasons I'm confident is because as Rob Fletcher, our vice president of marketing and market access is running the program, who also happens to be on the call. So I'll.
I'll do a very brief overview, and then I'll hand, it to Rob So and tap as you put it out sunset. This year. That's for inpatient procedures are it is not what drives.
Decision, making or perception of reimbursement and and.
Interventional procedures generally both peripheral and coronary and then GPT.
<unk> is sunsetting next year in the July timeframe.
And and we've been very focused on on strategies for.
For ensuring that there is oh do we have a strong path going forward.
To prepare for that sunsetting, and I'll, let rob sort of provide that.
Our perspective on how we're approaching that in and why we feel we feel really good about about where things will land ultimately.
Hi, everyone.
For the question can you guys hear me okay.
Yep.
Great Yeah.
How do I like to take this opportunity to give us some background into this.
Some of the issues that you've raised here and let's start with the transitional pass through.
I think that's what's probably most on everybody's minds. So it's obviously all transitional pass through programs are temporary in nature. They come to an end and it's CMS is routine business to analyze the data collected and make a determination on how and how much to pay.
So.
There's two main things you need to successfully transition off of a transitional pass through program. One you need a procedure level code that hospitals can use to get payment after the program adds.
So a new category one CPT code for coronary ipl's procedures will become effective on January one 2024, so check that's in place.
You need cost data that was sufficient in volume and meets the criteria for that higher APC assignment.
So I'll take a coronary IV all as you know has been very rapid which also means that there's a large volume of claims data with which CMS can analyze make those determinations.
We have of course, the analyzed medicare's claims data following their methodology and applying their criteria I can say that the data are compelling we meet criteria for the higher APC that as APC 50, 194, and we need it now.
I suspect that the scenario that investors are really concerned about is the scenario, where if after the T. P T ads payment.
Payment falls back down to the baseline a P C, thereby leaving no additional payment for courtyard coronary ideal and this is an understandable concern because it's happened before to other technologies in Med Tech history.
But we think this risk is very low and that's because the data is very clear and compelling we're not teetering on the edge of the criteria, we're well past it we've been continually refreshing the analysis as data continues to roll in from the program and the conclusion has been stable and consistent that we'd meet criteria for the higher a P C.
So CMS makes database decisions and they're going to do so with this PPP program as well I can tell you that coronary IV L. Clearly does not fit into the baseline EPC. So therefore, we really do not see this as much of a risk.
So for investors and you kind of mentioned this Adam I'd like to put forward that the the risk really isn't in the payment going away from our view, it's more on the timing and the smoothness of the transition from <unk> to a permanent APC assignment and the reason why there is some risk around this just because there's a lack of <unk>.
<unk> between the transitional pass through calendar, which is quarterly in the APC calendar, which is typically addressed on an annual basis via the Cms's rulemaking process.
So the T. P. T program ends on June 30th 'twenty, 'twenty, four which is obviously in the middle of the year.
CMS could decide to address the TPP transition in the 'twenty 'twenty four rule or in the 2025 rule.
So if CMS were to week until the 'twenty 'twenty five rulemaking to address the transition to an a P C.
Conceivably be a six month gap between additional payment being available by a transitional pass through which will be in place for the first half of 'twenty 'twenty four and additional payment via an a P. C assignment that would go into effect in January 2025.
Well, we're aware of this of course, Shockwave and our partners from the interventional community.
Have therefore ask CMS to address the transition from transitional pass through to an APC assignment in the 'twenty 'twenty four rule.
So as I mentioned, a moment ago that we believe that the data is clear compelling it's stable and it's the luminous.
We believe that the procedure level coding is in place and frankly, there's just sort of the importance Oh.
Of of coronary IV, Ellen and how quickly it has become a critical tool in PCI. So in the short time that it's been on the market IV else becomes the most widely used plaque modification tool in PCI.
Uniquely beneficial in female patients, suggesting that IV, all could be frontline therapy for women and it also enables patients in rural areas to receive treatment for their complex disease and nearby hospitals without having to be transferred to faraway hospital that has on site cardiac surgery.
So we believe these issues are also important to CMS and there're aware of these unique advancements and we believe that CMS will consider these in their decision.
Whether to address coronary IV on the 'twenty 'twenty four or wait until 2025 to make any a P. C assignment.
But I just want to point out that even if it winds up being 2025, we believe that the risk or impact to the business would certainly be short term and manageable we're talking about six months.
And as stated previously coronary IV al has become an important therapy and PCI.
I would also mention that while that might be sort of the.
Ah countercurrent from a reimbursement perspective, the sort of tailwind would.
Would be that there would be a CPT code in place that will renew more physician. So so there's a few factors to bounce here at them, but.
I just wanted to take a moment to kind of elaborate on the situation and why a shockwave grooming.
Our confidence in the prospects.
Okay.
That's very helpful. Rob I appreciate the default some response and thanks for the color there Doug.
Maybe for the follow up wanted.
Wanted to ask about U S coronary growth.
Where the story is really all about utilization and same store sales growth and 23.
I think there was some comments in the prepared remarks about.
The different levers that you're going to pull on but was hoping you could just kind of flush that out a little bit more how you plan to walk your customers up the adoption curve drive center utilization, whether it's T plus nodular calcium.
The construction of the sales force just any any more color there would be a it would be much appreciate it. Thank you.
Yeah, Adam Hi, I'll I'll take that this is Isaac.
The well I think in the prepared remarks, and what we laid out on the last call was sort of the.
The outline of the plan that that we've already enacted to help drive penetration, it's coronary penetration, but it's also peripheral penetration really on the what we've seen from our from our sales data is that on the accounts that we launched in 2021 for coronary.
We see what happened to utilization of the product in those accounts throughout 2022 and ultimately that gives us confidence that we can drive continued penetration.
That and where we think the the unmet need is still quite a bit higher than our current penetration so far.
From a territory optimization, we talked about adding territories and increase the number of Fcs's per territory and generally what that does it just gives you more touch points with the physicians the nurses the technicians.
And helps us launch products, while we do that.
The educational programs that we're putting in place this year for R.
Our team our sales team and from peer to peer educational programs for physicians will focus on.
It kind of more advanced techniques for Ivy Hill.
And lesion morphologies and how to treat those lesion morphologies more effectively with IV L. So it's really incorporating the learnings we've had from since the launch and then driving new education.
We have clinical publications coming out, particularly specifically around eccentric and nodular calcium and then that'll dovetailed nicely into what we're seeing on the <unk> plus performance in Europe .
Which is you know you've got more pulses and it's more effective in treating nausea costume with those pulses.
So I think as we look towards the second half of the year launch the two plus we want to we don't have a hold that to the second half of the year. So we can effectively launch al six.
In the first half of the year.
But then with the publications the peer to peer training and C to plus to reinforce utilization in lesions that.
Right now or maybe less less ideal for Ivy Hill, because of the 80 pulse limit.
Yeah.
Really helpful. Thank you.
Yeah.
Our next question comes from Bill <unk> with Canaccord Genuity. Please proceed with your question.
Great. Thanks, Good evening I'd, just like to start out with C to a couple of questions. Just one is you know with <unk> plus and more pulses.
You know per unit does that you know.
Would you expect to see maybe a decrease in the number of units sold for the cases that were may be using two that that will all go to one and then just on the back to the sales organization in the U S and I think one of the comments either you or Doug Doug Isaac made was just didn't sales force optimization I would assume that was in.
In relation to just adding more Tms in SCS is but I just wanted to make sure are you bifurcated the sales force to start focusing some on coronary and some teams are specifically on peripheral or is it more just kind of the you're going to continue with one foot salesforce dresses all.
Yeah, So I'll start with C to plus size. It can talk about Salesforce C to plus we are.
Sure.
Where we see kind of 1.0, something catheters per case, there's a very today with <unk>.
As a it's a premium performance product, but it's also a premium priced product folks are quite reluctant to grab a catheter.
Which also means there are cases that they look at today and say who that might take two catheter, so I'm not going to use <unk> and.
The early feedback out of Europe , and our limited releases as they are there some percentage of cases, they're doing now would see two plus in our limited release that they otherwise would not have been using <unk> for that very reason am I.
I know this is heath centric and it's tough I'd, yeah, I'm not going to.
Get halfway through the case and then have to buy it and then have to buy a second procedure. So I can treat.
E centric I can treat longer lesions, we see two plus.
And bifurcations, where I would've otherwise maybe you have to burn two catheters now I can do a full case with that 50% increase in impulses. So our.
Our impression and it's an impression so far.
Is that the de Minimis sort of second catheter cases that we may lose because of the extra pulses will be greatly outweighed by the incremental cases will pick up because of the.
Uh huh.
The greater treatment.
Dose persist if you think about it that way that's gonna be inherent in this catheter so.
I, certainly don't think youre going to see any decrease in and unit numbers as a result of in situ plus.
And then you can talk about sales force optimization sure.
Yes.
A good clarifying question Bill we are just talking about optimization, it's really geographic optimization optimization of how many FCS is each territory has an optimization of optimization of how many accounts are in each territory and I mean, the key to that is as you know.
Our goal is to launch two products per year.
And the more accounts, obviously a territory as the last time you can spend in each account the more diluted your present your presence and your messaging becomes and the more products. The rep has to sell that dilutes again, so as we bring in more products into the bag Umm al six this year. So you do plus next year, we've got two more on the slate are ctrip.
This year two more on the slate next year, we want to have these territories right sized in terms of the number of hospitals, so that the people servicing the territories and our team can spend adequate time at all places within the hospital that they need to be selling.
Okay, and then just clarification on Travis is question on op margins on the core business I wanted to be clear so at least stable to improving op margins in the core business, including the acquisition is that a fair way to think about it.
Okay, and thanks for reading my acquisition.
As Dan excluding the acquisition, we should be fairly stable, we're going to invest heavily in 'twenty three.
Sales and marketing like Isaac alluded to earlier, we're going direct we've got some some other initiatives in place R&D. We've got 20 plus program. So we're going to invest but we're going to be fairly stable with that heavy investment even ex.
X X acquisition, Yes, and then you're going to top that.
$30 million this year, even if it's a shorter here.
We got some custom work and we'll refine that.
Once that that deal is closed.
You've got to factor that in on top of it.
And to level set and make 100% clear I mean, you ended at 29, 5% operating margin in the fourth quarter is that the base we're building off of.
No I would look at the kind of the blended.
For the year, where we ended up we shouldn't improve off the year. We ended up at 25% I think for 'twenty two.
So we should get a little improvement.
Back to Opex.
For the full year to be about the same in 'twenty three 'twenty two as a percent of revenue.
Thank you.
Our next question is from Michael Clarke with Wolfe Research. Please proceed with your question.
Okay. Thank you, maybe an encore opportunity for Rob here great.
Update on the TVT pathway. The question on untapped was also asked then.
I'd Love just a little more meat on the bone there are puts and takes around the sunset of that booster.
Willow matter for customers.
And you're using your products if not you know why not.
Yeah I'd.
I'd be happy to answer that but Rob will do a better job so I'll, let rob take it.
Alright. Thanks.
When it comes to the inpatient side I think the important thing to understand is that.
All of the PCI procedures map to one of four different DRG.
Which are which are payment bands and the determination of whether you get sort of the baseline version of the DRG or some sort of higher paying version are really all based on patient factors like complications and comorbidities and it's not really based on the device type per se.
In that sense you know.
Thank all of the PCI devices are on a level playing field and so I think that's the first and most important thing to understand so that's why kind of the inpatient reimbursement side of things as long as you're kind of in that same group at <unk>, which we are and everything else is threatened me well kind of will get paid the same I think that's the important thing to understand and so.
I'm not sure that you know.
We have we are enjoying in in fact presently but.
Just sort of the two edges of this as well.
I don't know that I'd point to that is the thing that's driving our business incrementally. It's it's there.
Helpful, but if it goes away. It's also sort of we don't think there is to you know we don't know that Theres upside. We don't know if there's downside to it per se. So we don't we're not really handicapping is a major driver I understand how that can be the case in many other markets, but in the interventional space as Doug mentioned earlier in the call, it's really tends to be driven by a whatsapp.
On the outpatient side.
Yeah.
A.
One of the reasons I feel pretty confident that that is true is when we launched in peripheral.
We're about a half of the hospital based procedures are in patient.
For I don't know four years. All we heard was we are not reimbursed or youre not ready and when we tried to explain to customers yeah, but.
All under the same DRG as Atherectomy instance, in everything that they would point back to the yeah, but.
Outpatient.
Atherectomy has incremental payment and you don't.
And and.
And it is we were we were.
Sort of pigeon holed as an unreimbursed device, even though in theory hasn't heard half of our procedures were paid exactly the same as.
As other procedures, because it's all dictated by the patient condition not by the device that you're using.
And.
When we received incremental and tap for inpatient procedure.
That didn't have any incremental benefit for us in our coronary pickup.
The.
Pressure that we felt initially when we launched and the customer frustration when we.
Initially launched was hey.
This is a this is a big new cost to our PCI procedures.
You'd Vega reimbursement as soon as we got transitional pass through it completely relieving the pressure and nothing really changed a few months later when we got into Yeah. Let me just pile on one thing because that.
We get this question a lot and we're trying to put it to bed. The the other scenario that we can point to add is in addition, what Doug just said is as Rob said, there's if you're doing an interventional PCI.
Perhaps to one or four drg's it doesn't none of those matter what technology is used in the procedures.
So if you take out the rectum me for instance.
If you take atherectomy there is if you do atherectomy PCI. It it's an inpatient procedure one atherectomy product on the market cost very similar amount to what Ivy L costs. The other atherectomy product costs about half that much and we never hear any physician talking about choosing one atherectomy product over another because of the cost.
They just don't think that way.
Very helpful from an interesting topic.
So on maybe for Dan with the release of the <unk>.
Valuation allowance should we be modeling a tax rate in 2023 or is there still some NOL to burn through such that you know a tax accrual is 24 and beyond.
Yeah, No for book purposes, we've guided like 25% on the tax assumption, we do have Nols, we've got $239 million in Nols, we should burn through those in 'twenty three or so.
So on the cash side.
Back to pay what lesson, probably less than 10 million Bucks in 'twenty three for taxes.
Okay that helps.
Yep. Thank you.
Okay.
Our next question comes from Larry <unk> with Wells Fargo. Please proceed with your question.
Good afternoon, and thanks for taking the question.
I will take advantage of Rob's presence and ask one more on reimbursement.
So Rob just if you if you meet the criteria for a B C. 5194, you know why is the potential timing gap that that wasn't clear to me and just.
<unk> as a percent of U S coronary that outpatient.
Versus inpatient I had one follow up.
Hi, Larry Thanks for the question Okay.
Okay. So.
Just take it in reverse order a P.
P. C is between inpatient and outpatient we generally have that at about about 50 50.
And I think as data emerges with the coding sets that are coming into fruition, we'll we'll be able to better answer the question in the future about how much that mix may be the same or different for coronary argue at all but we don't really have any reason to think it's different.
So that's that's that's sort of your second part of your question. Larry Your first part I believe was related to the sort of timing gap and yeah I think.
What happens is that that transitional pass through is on a calendar a quarterly calendar and so we happened to <unk>.
Have a R. T P. T approved in the third quarter of 2021, so that means that started in July one.
Program goes for three years. So it's supposed to then sunset or end on June 32024 that happens to be mid year.
CMS typically wants to make.
Make their determinations on a P. C assignment via their annual rulemaking process, which is allows for public comment and full sort of description of Cms's analysis and thinking in reaction to that they'd like to consider it very carefully and so based on that calendar that means that they would either have to.
Address it in their proposed rules are.
Final rules here in 2024 of 2025 since the program. The transitional program ends in the middle of the year. So that's really the rub is.
Will they address it in 2024 or 2025, we believe just based on the sort of stability and consistency of the data.
That likely you know whether to do the analysis now to make a determination whether 'twenty 'twenty four rule, they're doing it year or they're going to come to the same conclusion and that is a pretty clear and compelling this needs to map to 50 194. So so they're going to do it anyway, we think and so for the reasons kind of mentioned earlier, we believe in it.
Its more.
It's more important to do it now that avoids any kind of potential disruption or confusion among hospitals and physicians.
And.
The other thing I'd just offer up Larry is that you know this is Ben.
Really a success story, we think four for Shockwave, but also for CMS. Because this was kind of one of the first that I'm aware of anyway. The first.
Breakthrough designated device to kind of go all the way through the process in interventional cardiology.
So you know here that this program.
Within months of FDA approval. The transitional program was the pass through program was initiated it was.
Terrific at doing this job of.
Medicare of facilitating access to breakthrough therapy for medical for Medicare beneficiaries, and so now they come to the end of this program, it's just sort of.
Structural gap caused by their calendars and and you know we think it's just been so successful that there you know the reasonable easier so if they're going to just stick the landing.
And make sure that they transition off of the program in a successful manner as they sort of transitioned onto it because at the end of the day.
What are their aims is to make sure that Medicare beneficiaries have access to to breakthrough devices. So it seems consistent with their program that they would want to or in their mission that they'd want to avoid any time gaps. So that's that's sort of our or our thinking of why they may find it compelling.
Is that helpful. Eric Okay.
It does just to be clear.
It could be changed for the 'twenty 'twenty four rule. This year, we could find out about it or it could be changed you know for the 20th twenty-five or Youre, just not sure, which one it's going to be but it sounds like you think that is.
It makes more sense and there's a good chance it could be for the 2024 rule I don't want to put words in your mouth, but is that the right way to think about it.
Right, Larry and we and.
Some of our partners in the interventional cardiology community have gone to CMS and made that request that they address it in 2024, so it's up to them whether they decide to do that but we certainly put forward all of the D analysis and the arguments for why they may do that.
That's helpful and just lastly, Doug I feel compelled to ask no one's asked yet about abbott's acquisition of our pending acquisition of CSI I mean, I Havent you know obviously believes that you know that atherectomy share.
Pet stabilized I think you know.
That's the part of the impetus for doing the deal I mean, what what's your view on how you know this on that and how this they're acquisition could could change things for you. Thank you.
Yeah, but as you know we don't.
We spent almost all of our time focused on all the <unk>.
Most of my patients who aren't getting any.
Calcium modification so we've never thought of this as a.
Share game between Shockwave in atherectomy, we see ourselves as largely complementary at least our current devices that we sell in the coronary.
Yes.
There's obvious evidence that people were where you could use shockwave people were using shockwave.
Particularly instead of.
Orbital versus rotational.
I think the.
Directionally I think the the.
The atherectomy.
Jimmy procedures, we did pick up as a as a clinical of share where we're largely a diamondback less so.
Roto later.
I don't know too many people who are.
Trying to switch back to atherectomy are I don't know anyone in fact, who's saying Oh I I.
Was using Shockwave I'm going to go back.
So have has the full.
As the dust settled we're okay, now I know, where I'm going to use Ivy ill and I and I am not going to further reduce my atherectomy utilization I'm not sure.
One of the areas, where atherectomy has some attractiveness is if you have a long lesion.
And you're not sure if 80 pulses is going to get it done you might grab.
And atherectomy catheter and treat the longer lesion because you can you can sort of keep moving it.
We will see if see two plus and its ability to treat longer lesions.
Enables the physician to use a more predictable safer option.
In which case them.
And then maybe the shift hasn't hasnt fully hasnt.
Hasn't been fully realized yet, though we will have a better sense I guess post <unk> plus launch in the U S. We won't really be able to sell internationally because.
There's really no presence for diamondback internationally.
Alright, Thank you very much.
Our next question comes from Cecilia furlong with Morgan Stanley . Please proceed with your question.
Hey, great. Good afternoon, and thank you for taking the questions I wanted to ask about that you'll be teekay presence portfolio. If you will what you've seen to date with them five plus plus or how.
How you're thinking about growth in the beach K region, specifically in 'twenty three versus.
22, and then just how you're thinking about that business from a longer term I know you have many asked but just how you're thinking about better targeting that that region going forward.
Yeah, so where.
I think what we've we've been running a.
Almost like a feasibility exercise with us for to prove that Ivy Hill is really an excellent product for below the knee disease.
And yet.
It requires S four which is a shorter balloon and most of the below the knee lesions are quite long.
It requires some patience and persistence and Luckily.
Many physicians, absolutely love IV L and they see that it is safer and and more.
Reliable and reproducible for below the knee lesions. So they say they do the work with a 40 millimeter length balloon.
Uh huh.
We're certainly.
Encourage thus far for the for the sort of.
The area just below the puppet deals for below the knee.
Seeing incremental adoption of the smaller diameters of three floors of the five plus which sort of validates to us.
Desire for something longer than than the S. Four.
And and yet we also see how a limited our penetration to date relative to the vast number of patients who have calcified arteries below the knee.
One of them one of the most calcified vessel beds.
Our penetration is relatively speaking more than than above the knee lesions.
So where we're sort of looking our chops both both for further utilization of five plus but.
As you indicated we anticipate having ample life plus S. Four and at least two other below the knee design versions in the next 24 months 12 to 24 months. So.
We are we see BT K as a meaningful growth driver to our business.
In the 'twenty to 'twenty four 'twenty five timeframe.
And that also is one of the reasons why we're running the beat Teekay two study because we think.
Sort of having a robust dataset land right as our portfolio expands and we have.
A spectrum of different devices that are.
That are custom designed to treat the variety of vessel beds and lesion lengths for the complex disease below the knee is as we think.
<unk> is a is going to end up in a really nice package come 2024 and 2025.
Okay, and if I could just follow up on China as well if you could just speak to in more detail. What you have seen recently just from Covid pressure.
From a geographic standpoint, where you are at this point from a rollout standpoint, and then just how you're thinking about timelines at this point to for the locally manufactured product.
[laughter] Cecilia.
As you can or actually for the Covid when they opened up in Q4 COVID-19 swept through very quickly.
And that that impacted hospitals procedures patients in Q4 and in Q1, I think what we're seeing kind of post Chinese new year is in most of the big cities that it's kind of back to normal because COVID-19 went through so quickly and hospitals are back to normal.
So from a trend standpoint, we will have our biggest.
Biggest number of cases in in China. This week since launch.
We'll have I think excellent growth this year compared to last I don't want to speak about the numbers themselves but.
Really really a strong year and that's that's based on.
Kind of an excellent launch by that team and the JV. They just haven't done a fantastic job with promotion physician education.
And marketing is they've got a stage launch the product. They are currently going doing the yeoman's work of getting provincial listings. So that you get a code for the product then you get do you need to get that got Codell that lifted and then hospitals can start buying so they're working through that and that's just going to be work this year.
But within the procedure.
Most probably all provinces pay some amount for our PCI procedure.
So there is payment for the procedure and then if you get the.
The listing the hospital can buy the product.
And then we'll work on.
The province is getting additional payment on top of the PCI procedure payment for IV L. A so this is going to be a multiyear run, but theres a theres a plan in place and it's being executed.
On the local product, we are not yet ready to say when we expect that to be ready.
Great. Thank you for taking the questions.
Sure.
Our next question is from Iran, Zafar with Deutsche Bank. Please proceed with your question.
Oh, Hey, good afternoon. Thanks, so much for taking my question.
First on Germany.
New coronary reimbursement you got there.
Obviously, a huge PCI market and generally for reimbursed.
Medical devices, you see pretty fast and pretty extensive adoption. So I'm just wondering how we should think about.
You know, how how big that market could be and how quickly in terms of 2023 revenue contribution. It also sounds like you have some market development work.
The Sony has to be done there in terms of sales force expansion et cetera. So if you can just frame that opportunity both near term and long term.
That'd be great. Thank you.
Sure and welcome aboard and Brian Good to have you.
Ah the disconnect.
For perspective, we talked a lot about Japan.
250000, <unk> year, and Germany is actually north of that at 330000.
Prices generally for devices are lower in Germany than they are in Japan. They.
They are really really good at.
Putting the screws to company to keep prices down and it's certainly constrained utilization of IV L.
Because when a controller pulled the doctor insight aside and says stop using that product you are causing us a loss.
They are they are very good at putting pressure on physicians to constrain use or get prices reduced.
We took the strategy in Germany, as we did in the U S of sort of understanding the system and understanding that it was a cost based system.
Unfortunately utilization was high enough is similar to what we've seen in the U S.
That we still have a very good chance of having an uplift in our D R G, which which thankfully.
It did come to fruition this past January .
The size of the market.
May not be a quick.
Quite as large as Japan, even though the volume is higher just because of that and sort of ASP differential but it is a.
It stands to be our largest opportunity not just incremental opportunity of the total incremental opportunity.
In Europe , and it ought to be our second largest or I guess, the largest country sort of China, Japan.
Germany somewhere in that in that neighborhood, whereas now.
<unk> utilization is sub 1% of PCI in Germany, whereas it's sort of north of 3% and in countries like the U K. So we've got.
Sort of a many fold increase in utilization that we ought to see in Germany.
Okay, and then one quick follow up.
Right.
Depending on your answer to this might be a little bit of missile trailer question, but the CTO PCI segment.
<unk> seen some pretty compelling.
K series published recently on show some pretty good outcomes with IPO.
Usage and I'm, just wondering how big that opportunity is it pretty niche or is it is it potentially pretty meaningful in terms of addressable market for Ivy Hill.
It's important because the top operators spend a disproportionate amount of their life dealing with those cases. So we when we first launched like when Isaac and.
Some of our colleagues flew over to Europe . When we first got approved and launched the product because we didn't have any we didn't have any sales infrastructure.
We started with those the CTO operators now it's also the kind of case that tends to get referred because other people don't want to deal with it because it is not a.
It's not the routine PCI. So so it is a it's an it's a niche.
In the single digit digit percent of the total cases, but it's.
Being part of that and being part of the solution for those C. T OS.
Is meaningful because of the sort of how it enhances the reputation of the technology.
We're it's important to us.
If it all went away we would still have a very robust business, but it.
And it's certainly an area, where we want to continue to get better.
Because it.
Does what we try to do all the time, if we can make those cases go more smoothly more predictably.
We will who will increase utilization overall pulled more cases out of surgery.
And expand utilization of <unk> of Uh Huh of Ivy Hill.
Yeah, I think we're at that point and just to that point, you know from an investment standpoint.
We have a significant amount of R&D dollars going into programs that are intended to.
Make IV all products that are very cross the board and <unk> and.
And much more cross more than we have today and that's really going in tackling that.
C T O or a wire cross the ball, but not balloon across the board type of lesion.
Okay. Thank you for taking my question.
Thank you.
We have reached the end of our question and answer session I would now like to turn the floor back over to Doug question for closing comments.
Yeah, Thanks, everybody for your time and and appreciate hopefully.
It was helpful, particularly on the reimbursement side, which I know there were lots of initial and follow up questions. So appreciate the interest and attention with chatting with everybody in the near future.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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