Q3 2023 Shockwave Medical Inc Earnings Call
Good afternoon, and welcome to your Shockwaves third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
We will 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, Vice President of Investor Relations at Shockwave for a few introductory comments.
Thank you all for participating in today's call joining me today from Shockwave Medical's, Doug Godshall, President and Chief Executive Officer.
Exactly right President and chief.
Commercial officer, Dan Puckett, Chief Financial Officer.
Earlier today Shockwave released financial results for the quarter ended September 32023.
A copy of the press release is available on chocolate website.
Finally, I would like to remind you that management will make statements during this call.
Looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
Yeah.
Any statements contained in this call other than statements of historical facts are forward looking.
Yeah.
All forward looking statements, including without limitation statements related to my operating trend.
Perfect.
Sure.
Reimbursement proposal future product development and approval.
And the integration that you are asking technologies and current business based upon our current estimates vary.
These statements involve material risks and uncertainties, including the impact of macro economic conditions and global events, such as the company that could cause actual results or events to materially differ from those anticipated.
But that's fine.
Accordingly, you should not.
Undue reliance on them.
Unless there's a description of the risks and uncertainties.
Please refer to the risk factors section in our annual report on Form 10-K filed with that.
And now on Edgar and in our other reports filed periodically with yet.
How quick disclaims any intention or obligation except as required by law.
Any financial protections for quantity.
And that's whether because of new information future events or otherwise.
This conference call contains time sensitive information accurate only as of the live broadcast today November.
Six 2023.
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 third quarter of 2023.
Our comments will be fairly brief today since we just had our innovation day, a couple of weeks ago.
Third quarter revenue of 186 million represented a 42% increase from the third quarter of 2022, we had a strong quarter led by our global coronary franchise.
Revenue from our coronary products grew almost 50% from year ago, while revenue from our peripheral products grew roughly 30% from the third quarter of 2022.
Yeah.
Our global coronary results in the quarter exceeded our expectations.
<expletive> will be covering details regarding the U S launch of the new coronary device C to plus we are increasingly enthusiastic about the impact that device will have in the U S.
We had very strong coronary results in our international markets and that is partially attributable to the momentum that Ctrip plus has created.
We think this is a harbinger of what to expect in the U S.
We have seen an encouraging response to this product during the limited launch phase and we are consistently hearing about the benefits of being able to treat long diffuse any centric lesions did see two would have been to limit it to treat it really solid new product.
Revenue from our U S peripheral businesses in the third quarter was up 31% from a year ago.
Solid growth, though lower than we had expected as we didn't witness the usual procedure rebound that we have seen historically in September.
One recent phenomenon that coincidentally started in September is there an increased level of pre authorization pressure from private payers, particularly aetna, which delays procedures.
This is particularly the case for patients being treated for claudication or leg pain.
We've been seeing this in the field and heard it often at TCT N V. The.
Fortunately our launches of V. Eight in javelin are on the near term horizon and the below the knee segment is primarily comprised of critical limb ischemia patients.
We'll have a more acute clinical need so they should be less subject to prioritization pressure, it's payers continue their policies that long.
As we said at the innovation day, we are confident in our long term growth of our U S peripheral business driven by meaningful new product launches every year and access to an expanded number of procedures that are performed in the OBL once a new CPT code is established.
Regarding the international business it should be evident from our results that the team has done a great job of identifying areas, where shockwave is underutilized.
Our strategy of going direct is paying off well and a couple of months. The strong momentum we are seeing in Japan, and Germany as we have discussed previously.
We've reviewed the reducer at some length recently and the interest level in response at TCT. Once again reinforced our sizable this opportunity is going to be for us.
We had over 100 positions a 10 day reducer symposium, which is a great sign for a product that is only in clinical trials in the U S.
The team in the U K is executing very well and we are restructuring the French and German teams to ensure we can deliver shockwave like support of our customers in those countries.
We have a new leader in Germany, who will rebuild the sales team and we will do the same in France.
Touching quickly on some of our clinical trial activity.
I was shocked India trial has enrolled over 1000 patients in 18 months of crossover 50 sites in India.
This represents the largest real world coronary IV all evidence to date.
30 day data was just presented at TCT last month, and again demonstrated consistent safety and effectiveness in real in the real world as we have seen in our pre pre market studies, despite being more complex patients and lesions.
Our B T. K two trial is enrolling briskly and we anticipate completing our 250 patient enrollment this quarter.
And lastly, empower which is examining the impact of PCI outcomes and the use of IV L. In female patients with calcified coronary artery disease is enrolling ahead of schedule.
As a reminder, we are targeting total enrollment of 400 subjects across 50 global sites by mid 2025.
Finally on reimbursement.
Last week as part of the calendar year 'twenty 'twenty four physician fee schedule final rule Seamus confirmed a category one CPT add on code for procedures involving coronary intervention lithotripsy.
Which will become effective January 'twenty January 1st 2024.
It means that physicians will now be paid approximately $140 when they perform IV L. In addition to their remuneration they receive for performing piece yes.
That represents a 20% to 30% increase in physician reimbursement.
Isaac will cover China in more detail, but we did see an impact to our business in the third quarter due to the anti corruption campaign and we expect that to continue over the next few quarters.
Overall, we are pleased with the performance of our business and despite a reduced forecast for China, which assumes roughly $10 million less revenue in the second half of this year compared to our prior forecast.
And a slightly more cautious view of near term peripheral grows in the U S. We still anticipate topline revenue in the range of 725 to 730 million for the full year of 2023 Rep.
Representing growth of 48% to 49% from 2022.
Regarding 2024, we will provide formal guidance on our fourth quarter call, but we remain comfortable with the current consensus of $920 million.
With that I will turn the call over to Isaac and provide more color on the commercial front Isaac.
Thank you Doug I.
I am pleased with the team's effort and results in Q3.
Revenue from our U S peripheral business in Q3 was up 31% from a year ago and slightly down from Q2 of this year Q3 seasonality and the new insurance hurdle as Doug mentioned.
We completed the launch about six in the quarter and we expect that the number of new centers adopting L. Six will increase slowly going forward.
Q3 was strong for our U S coronary business revenue grew 34% compared to Q3 of 2022 and 5% sequentially from Q2 of this year.
Overall, 99% of this revenue was from existing accounts.
We shouldn't focus of the U S team in September from the <unk> six to the Ctrip last March.
We initiated the limited market release of our new C to plus product and I'm very pleased with the early results. There was a lot of excitement around the product and the feedback we've received in the U S about C to plus mirrors, what our international customers told us.
We appreciate the extra 40 pulses commented that the outcomes and longer diffuse lesions eccentric lesions and calcified nodules havent brewed from good to great.
These are the lesion types that some customers were reluctant to use <unk> because they were weren't confident that they can be effectively treated with only 80 pulses.
As a reminder, the three new DRG for inpatient PCI went into effect on October 1st.
As we have said in the past when reimbursement for IV. All procedures has increased the impact to our growth is steady and gradual it is not a light switch.
We expect to see tailwind from this change throughout next year and into 2025.
We're on schedule to grow the sales force in the U S to over 110 territories by the end of this year, we'll have about two clinical specialists per territory.
On the international side, we are pleased to report revenue that was 88% higher than Q3 of 2022.
11% sequentially from Q2 of this year.
Doug said earlier, the performance of our international coronary business exceeded our expectations. This.
This was the result of the strength in the five large European markets of Germany, U K, Italy, Spain and France.
I'll highlight our coronary business in Germany, which continues to expand rapidly. Thanks to the increased reimbursement that started in January.
The team delivered coronary growth of nearly 200% in Q3 compared to Q3 of 2022.
20% sequentially versus Q2, despite seasonality.
Sustained performance demonstrates the long tailwind, we see for revenue growth when reimbursement increases.
We began selling direct in Italy in October looking ahead to Q4 in 2020 'twenty four we expect that the focus of our sales team in Italy will help drive more penetration, which is what we've seen in other markets as we transition from a strong distributor to a strong direct sales team.
We appreciate the long partnership we've had with our Italian distributor I know about.
Their performance in both coronary and peripheral IV L was excellent.
They already top to top tier distribution partner.
I'd be remiss not to mention how pleased I am with our Canadian sales team, which went live in Q2, they are small, but mighty and are delivering great growth and the great White North Bay.
The strength of our international coronary business in Q3 is a testament to the positive response, our customers have to see two plus and gives us confidence that the U S launch will be a strong tailwind for coronary growth next year.
In Japan, we had another great quarter penetration in our launched accounts continues to exceed our expectations and our team is doing a great job in ramping up physician training and peer to peer educational programs. We launched 200 accounts. This year through Q3 and anticipate launching another 100 accounts in Q4 again excellent performance in the first three quarters of the Japan launch.
Finally, as Doug noted on China, we are in close touch with our JV partner Genesis Med Tech and continue to monitor how the current government anti corruption campaign will impact our business.
The ongoing dynamic for adopting newer procedures and newer technology is one of caution.
Obviously, IV all falls into the category of newer technology with new cost to the hospital inpatients most.
Most customers and hospitals are postponing the adoption of new technologies. During this time and we expect that to continue at the anti corruption campaign continues.
Short products and procedures.
Long established in China.
Do not seem to be impacted nearly as much as new procedures technology or capital equipment.
This has resulted in a sharp decline in the number of new accounts adopting I B M.
This is meaningful since we are in the early stages of getting the product on Prudential listings and then listed within each hospital in the province.
We expect new site launches will start up again, when the anticorruption campaign completes its work in each province in Austin.
As a result, the J D purchased approximately 20% last in Q3 than we had previously forecasted.
As Doug said, we are now forecasting meaningfully reduced sales to the JV in Q4.
With that I will turn the call to Dan to review the financials.
Thank you good afternoon, everyone Shockwave Medical's revenue for the third quarter ended September 30th 2023 was 186 million% to 42% increase from $131 3 million in the third quarter of 2022.
U S revenue was $146 9 million in the third quarter of 22023, an increase of 33% from $110 5 million in the third quarter of 2022.
Coronary products contributed $103 6 million to U S revenue in the third quarter 2023, an increase of 34% from $77 3 million in the third quarter of 2022.
U S revenue from our peripheral products was $43 1 million in the third quarter of 2023, an increase of 31% from $32 9 million net third quarter of 2022.
U S generated revenue was <unk> 2 million in the third quarter 2023.
The growth of U S revenue during the quarter reflects increased utilization at existing accounts, new account adoption of IV out and continued sales force expansion.
International revenue was $39 1 million in the third quarter of 2023, representing an 88% increase from $20 8 million in the third quarter of 2022.
Coronary products contributed $32 7 million to international revenue in the third quarter of 2023, an increase of 108% from $15 7 million in the third quarter of 2022.
International revenue from our peripheral products was $4 8 million in the third quarter of 2023, an increase of 17% from $4 1 million in the third quarter of 2022.
Revenue from our reducer product, which we acquired through the Neovasc acquisition that closed in April of this year contributed $1 3 million to international revenue in the third quarter of 2023 <unk>.
<unk> generated just contributed 3 million international revenue in the third quarter of 2023.
The increase in international revenue over the prior year period reflects continued geographic expansion, particularly Japan increased productivity of a direct selling team in Europe, and the momentum of our C to plus launch.
Looking at product lines, our peripheral products Shockwave M. Five.
Chuck with Empire, plus Shockwave as for Shockwave al six accounted for $47 $8 million of the total revenue in the third quarter of 2023 compared to $37 million in the third quarter of 2022 of 29% increase.
Our coronary products Shockwave situ Shockwave CPU plus a candidate for $136 3 million of total revenue in the third quarter of 2023 compared to $93 million in the third quarter of 2022, representing a 47% increase.
Revenue from our reducer product accounted for $1.3 million of total revenue in the third quarter of 2023, the sales of generators contributed $6 million in revenue in the third quarter of 2023.
Gross profit for the third quarter of 2023 was $161 5 million compared to $113 5 million in the third quarter of 2022 gross margin was 87% for the third quarter of 2023 compared to gross margin of 86% for the third quarter of 2022.
Total operating expenses for the third quarter of 2023 were $117 9 million or 54% increase from $76.7 million in the third quarter of 2022.
Sales and marketing expenses for the third quarter of 2023 were $56 9 million compared to $42 1 million in that third quarter of 2022.
The increase was primarily driven by sales force expansion.
R&D expenses for the third quarter of 2023, $39 5 million compared to $20 2 million in the third quarter of 2022. The increase was primarily driven by head count growth higher clinical related expenses, including reducer and facility expansion to support R&D Gen.
General and administrative expenses for the third quarter of 2023, or $21 5 million compared to $14 4 million in the third quarter of 2022 they.
The increase was primarily driven by higher head count to support the growth of the business net income for the third quarter of 2023 with $35 million, which was consistent with net income in the third quarter of 2022.
Basic net income per share for the period was 95 cents diluted net income per share for the period was 92 cents in response to investors recently, asking that we provide a clearer picture of our operating strength and profitability, we will be providing adjusted EBITDA for.
For Q3 2023, our adjusted EBITDA was $65 million, an increase of 31% compared to an adjusted EBITDA of $49 8 million in the third quarter of 2022.
Expect to continue to make significant investments to support and sustain our growth and anticipate full year 2023 overall operating margin in a range of 20% to 22%. We ended the third quarter of 2023 with $917 3 million in cash cash equivalents and short term investments, which is inclusive of net proceeds of <unk>.
$634 4 million from our convertible debt offering in August at this point I'd like to turn the call back to Doug for closing comments, Thank you Dan and.
And thank you all for joining US today, we had a great quarter at Shockwave as we continued to execute and grow our business.
At the same time saving an exciting path for our future with that I will open the call to questions.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session.
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Our first question comes from the line of Patrick Wood with Morgan Stanley. Please proceed with your question.
Perfect. Thank you very much I've got two quick ones I'll go one by one if that's all right.
Interesting comments around the pre authorization just curious you know why do you think that's happening the the kind of duration and if there's something that we might see abate next door is this kind of the new status quo going forward from some of the providers.
It seems like it's linked.
Linked to that New York Times article.
A few months ago, which we thought it was interesting.
And wasn't going to have an effect, but it does that seems to have stimulated the private payers aetna, particularly to to pushback on peripheral procedures are generally are not not not just specific.
Device type of procedures like Theyre, not just pushing back on atherectomy they are challenging.
Peripheral cases, requiring prior authorization on all of them.
It was a policy that was in place previously, but now they're enforcing it.
And it seems like it was since it was only a couple of months separated from one that article came out that are our best guess is that was the justification for HAE.
It looks like there's over utilization, we don't want to pay for over utilization. So we're gonna pushed back and pushed back pretty hard.
And in terms of forecasting the health the duration are hard to say I mean, our our.
Our thesis is that this will take a little time to work through the system. In these patients once you work them up and put them on exercising optimal medical therapy et cetera, et cetera, a lot of them will come out the other end and still need a procedure, but.
But it's a little hard for us to say for sure.
How durable this will be there or is there sort of outsourced.
This this to a third party to.
Sort of offload the work and be more rigorous than than that and it was being on its own or others were being on their own.
So theres a little bit of a new dynamic there where we're looking to understand better are certainly something we've heard her quite consistently over the past six to eight weeks like this is.
Six weeks. This is a phenomenon that that wasn't really there before that is a change and we're looking to better understand it.
Super helpful. Thank you and then just thinking about next year.
I appreciate you have an idea but consist the all of you change and there's a bunch of.
I guess reimbursement improvements that are going going through how hard has it been to kind of communicate those to the community and you know do you feel that those are genuinely meaningful for further uptake in adoption just curious what you have that.
We are we're very encouraged by the positive feedback we're hearing on the DRG uplift, it's but it's as Isaac indicated what we've observed in the past.
It doesn't.
Sink into the minds of the hospitals and doctors right away. It takes a little time for them to understand.
And and for that to then influenced device utilization.
What we are certainly hearing is a.
When the when the centers understand that.
Subs are meaningful meaningfully higher DRG level is understood that the hospital. It does seem to take pressure off where pressure was.
Being applied in a lot of centers, there's there was a.
Strong encouragement by administration to constrain.
Constrain use of of C. Two if possible and at least the anecdotal feedback is this DRG change is.
Alleviating some of that downward pressure.
It's a little too early to say and here's how that is translated into an increase in use but we certainly think the.
The triple benefit of higher DRG is a great new product with <unk>, plus and then come January.
Physician fee uplift.
We think is bodes very well for coronary growth for next year in the in the U S.
And it's going to be probably a little hard to disaggregate, which one contributes the most because we think they're all they're all good guys.
Love It thanks go to the questions.
Thanks, Patrick.
Our next question comes from the line of Travis Steed with Bank of America. Please proceed with your question.
Hey, Thanks for taking the question so on the on the Preauthorization stuff. It's just not only are you thinking thats more broadly with all the payers and just why wouldn't it's got to be a little bit more widespread going forward.
And I guess as a follow up to that as well.
It sounds like that happened in the last six to eight weeks and that was enough to drive down peripheral you know eight 5% sequentially.
How do you how did you sort of comfortable reiterating our full year 2023 guidance, you know, giving the magnitude of that impact kind of the last month of September.
It's hard to say and Isaac Robin I'll I'll sort of tag team through this since Rob Rob's team spends a lot more time with all the payers obviously.
It's hard to say if the pressure will spread to other privates. Other privates also have policies in place and and there are sort of varying levels of pressure that they apply on prior off.
Ben sort of soldiering through prior offs for quite some time on the private side.
As I think I implied in my guide So China is obviously, a bogie for the fourth quarter.
And we are anticipating that coronary, we'll do them probably better than the street has modeled right now and in peripheral will will be a will come in below where the street hasn't models right now because we're just assuming that the.
That this.
Softness.
Our procedures is going to is going to persist through the end of this year and it's.
It's not it's not like a huge drain on procedures, but it's just enough widespread enough where the you've got a backlog of patients starting to accumulate in centers as they work through the prior off process.
Yeah, just Oh, maybe Travis a couple of other things. So I think you know sequentially peripheral U S was down 6%.
Where.
July like Doug said July and August were sort of on track for what we'd expected and September if if you look at kind of what what usually happens in that peripheral in our peripheral business in September as September accounts for a much oversized chunk of the quarter. So if September doesn't start moving which it didnt very very well.
That's why we saw the impact in and as we've talked to a lot of customers and we've been able to identify pockets.
Where where this is being you know where you got heavy aetna population and its being enforced.
There is definitely a you see a big a big impact on those those centers. So again, we're monitoring it I don't think long term. This is something that that's going to kind of change change that market, but short term until until we see how aetna plays out and what happens to those patients you know after they've gone back for 30.
Days and done.
Ducks that exercise et cetera smoking sensation.
See how they come back into the pipeline.
Got it helpful would you be willing to take a guess at the impact on revenue or it was like $5 million or X million dollars from the reimbursement thing if you'd be willing to take half I'd love to hear that and then Doug you've been saying you're comfortable with the street's 25% growth in 2024.
This is a new a new variable on the reimbursement side.
Yeah as I as I said in the prepared remarks, where we remain comfortable with the the nine 'twenty consensus I think that mix is going to be more coronary base, partly because of all the.
The positive new product launch reimbursement benefits et cetera.
And.
The recovery there.
Gradual recovery of China, which we think will happen next year, our China model is lower than it was initially.
And we think.
We're gonna be a little bit cautious going into the year on on peripheral but despite all that we're very comfortable with the 920.
Yeah.
Great. Thanks, a lot.
Our next question comes from the line of Adam Maeder with Piper Sandler. Please proceed with your question.
Hi, good afternoon, and thank you for taking the questions.
Two for me and one quick clarification I guess on the clarification front are you able to.
To break out <unk> versus CLI, what is that peripheral case mix in the U S look like for you guys historically.
It's hard for us to know the the broad case mix is probably a sort of fortyish percent Claude again 60 ish percent CLI.
So we're excited that we're gonna have a fantastic CLI portfolio are below the knee portfolio come starting the middle of the next year towards the end of next year with the E rate and then javelin.
But I think we have to assume that we're in or above the knee, we're probably not too dissimilar to the average and above the knee is probably more bias towards Claude again, then then CLI cause CLI is heavily a below the knee segment.
So that would suggest that.
That debt above the knee is greater than a 50% call. It again.
Mix.
That's helpful Doug.
Thank you for that and then for the next question wanted to ask about.
Outpatient coronary reimbursement how.
How are you thinking about any potential impact to your business in the back half of 'twenty four after the TPG sunsets in the middle of next year.
CNS.
Did not help map to APC $5 94.
Do you think theres going to be an impact there and then.
Can you speak to your level of confidence that this gets addressed in the next rulemaking period and goes into effect Jan one 2025.
So I'll start with the impact on the business, we still think the.
De Minimis to no impact on our business in that period, and we've got two great reimbursement drivers.
That will be well understood by the middle of next year, when TPG Sunsets and then soon thereafter will.
It will be the the proposed rule for for 2025, So Robin if you Wanna.
No change in confidence at all changed your confidence.
Remains.
Again, a question of none of it but when and.
<unk>.
The conclusion of the transitional pass through program and the assignment of long term reimbursement is on the docket.
For the coming year, where Adam it was not on the docket. This year, we were just asking it.
Proactively so that's where we're at.
<unk> confident in the analysis the data that that hasn't changed and we remain confident that CMS will address this issue.
On the docket next year.
That's very helpful. Thank you and for the last question just wanted to flip over to margins Q3 operating margin had a nice sequential step up.
Over Q2 levels better than we were modeling.
Just any any color on Q4, it sounds like you've reaffirmed guide of 20 to 22 for the full year, but that seems maybe a little bit conservative.
At least you know at the bottom half of the range, but wanted to just get more color. There and then I had the street modeling, 24% operating margin for 2024 wondering if you have any reaction to that figure at this point in time.
Sure Adam Yes, we're pleased with the margin in Q3, we do expect a little uptick on Opex in Q4 related to sales and marketing we've got a lot of conferences a lot of programs some education.
Clinical so the margin will probably dip, but on your point on the 20% to 22% we're expecting it to be on the upper range at this point in time. So it's still in line with the upper range. Thanks for highlighting that and on the 24, but I think 24% 24, we're not giving guidance.
Talked about our kind of.
The trajectory on innovation day.
For now I, just kind of focus on that.
Okay. Thanks, Dan.
Our next question comes from the line of Bill <unk> with Canaccord Genuity. Please proceed with your question.
Hi, everyone. It's John on for Bill Tonight. Thanks for taking my questions. Maybe also just to circle back to the outpatient question and maybe ask it a different way for you Doug what's the current mix between inpatient and outpatient in coronary I know historically been around 50 50, but im curious if thats changed or do you see that changing next year. These reimbursement changes.
And how are you going to message to customers. This around the South Asian gas in the second half of next year. Thanks.
Yeah, I, we don't have data.
That indicates it's different our business is any different than the 50 50.
Historical split in and.
The general historical trend, we don't have updated numbers other than a few years ago. So we're not we're still operating under the sort of inpatient outpatient 50, 50 assumption and it seems to.
When we sort of anecdotally talk to customers. Some people are really heavy in patient if they get a lot of referrals and some patients are heavier out some hospitals.
Our heavier outpatients. So I think it's safe, it's safe is safest to assume 50 50.
I don't think even though the drg's are quite handsome and teaching centers theyre, even more handsome there.
Really healthy if you're in an urban teaching centers because they pay at a different rate than say, an urban or a suburb or a rural hospital for example, but.
And appropriate clinically and.
And they will be delighted that theyre going to get paid a nice.
Additional remuneration as I practice that works you got that you've got it right that time.
And when it's an inpatient they'll like it even better because the hospital will be in a in a really good financial position and I think.
Back to the sort of why is the second half of the year, we're not going to matter in terms of a gap in where the TPG until they get a final APC.
Uh huh.
They're going to look at the aggregate financial improvement that theyre getting on Ivy ill up until July and then.
It's a short gap and they'll have a.
Strong.
Habit of doing what's right for the patient best for several years of using C. Two and even more C to plus.
By the time, they even have thought through okay, I'm doing great on inpatient not as well on eight outpatient sort of all of a sudden it'll be January and they'll have what we believe will be the.
51 had any for higher APC. So it's.
It may six months may feel like a long time by Wall Street centers, but for a hospital's reimbursement gears. That's that's barely noticeable period is done.
Got it. Thank you and then just on the prior authorization do you always have any internal support mechanisms. Our teams are helping support customers through that are you thinking of and investing there.
There are several things that are.
Going on and supported this now first there and that's the primary thing I would point to is there has been some action by the medical societies, The American College of Cardiology, and Sky Interventional Cardiology Society, and an attempt to work with specifically Aetna and their third party evercore.
In terms of it.
Rolling out or at least.
Providing a sort of a longer.
Smith window for this prior authorization practice. So I think that is certainly something that is.
You know.
One that we hope will be effective the other there is another society. The OAS that represents a sort of more ambulatory surgical centers and that that group has also started kind of a place to collect information.
Information regarding delays and patient care that may be affected.
May have arisen.
Arisen as a result of this policy change so I believe all 0.1st to the action of the various societies out there as being ones that represent the entirety of medical care and really the goals of patient care I think from a shockwave perspective, we do have a field reimbursement team that has been and remains available.
All to support customers as they seek things like prior authorization and the like so so I think all of those things are in place.
Thank you.
Our next question comes from the line of Larry <unk> with Wells Fargo. Please proceed with your question.
Thanks for taking the question Hey, Doug I apologize Adam asked the question earlier did you say if this is happening the prior authorization more B T K oar.
Above the knee pushback.
Well, it's it's all procedures, but the hardest push back are the hardest ones to get through our the other Claude Akins.
And a lot of countries they don't even treat cardigans much because its leg pain.
And so I think the the.
The payers are probably using my my.
Conspiracy view as they look at they look at the New York Times article and say, Hey, wait a minute I can delay payment on these patients and maybe I shouldn't be paying for them at all so I'm going to.
Higher this company to.
Become sort of throw sand and the degree of gears and see if we can avoid covering some of these patients because maybe we were paying for too much anyway.
My best guess for what they're how.
They're looking at the situation.
And so since below the knee is predominantly a critical limb ischemia not all but predominantly.
That would suggest that the above the knee segment is the one that's getting the is more affected as a percent on a per cent basis by or more were successfully affected by the prior off pushback.
And so my question is how are you addressing this from an evidence standpoint, because when this when the New York Times article came out I thought you guys would be okay because of the pad.
Two I think trial showed.
Showed.
Reduced stent utilization so from an evidence standpoint, how are you addressing that I did have one follow up.
I'll, let Rob Yeah since I think the mix on it yeah, I think I think one of the things here to clarify is that is.
This isn't us.
Really a IV L specific issue. This is general two P E D interventions and so.
The kinds of things that we see is where there is some delay in terms of when the procedure can be scheduled because prior off is requested that prior off may take a number of different phone calls and even an escalation procedure to even get through in other cases, there may be.
Examples where the payer would.
Quest that there are for a given patient that additional steps to be taken in other words, some other sort of exercise regime or smoking cessation is as mentioned here on the call sometimes pharmaceutical agents prior to the idea of of them that patient actually undergoing a procedure. So some of this is Jim.
Related in general to the to the idea of a ph D intervention and not so much specific to <unk>, where I would agree with you Larry there is terrific.
Evidence to support utilization of IV.
Okay, that's fine.
A table that that patient doesn't get to the table and that's really what we're talking about here.
Thank you.
Switching gears just on.
On M&A.
I've been thinking about this and it would seem like mechanical circulatory support for high risk PCI, which seem to be a natural adjacency for IV al I guess my question is would you agree and if so what are some of the features and milestones you focus on when when assessing impella challengers. Thanks.
You know, we thought about buying J&J, but they're just saying it's a it's it's just too it's too rich and then and then Ashley left and that made it impossible to get a just kidding I am where.
I think that's a great therapy and in particular for <unk>.
For shock patients I think it is going to do a lot of good. We are we do a lot of cases with impella. There obviously, the only ones out there. So we are.
We like what that does for patients and there are lots of other therapies out there that we also like the benefit they do for patient so.
Where are where we're paying a lot of attention to a lot of different segments and.
Haven't obviously, if we thought we were going to announce a deal we would have announced it in conjunction with this call. So we have nothing to announce about our BD strategy at this juncture.
Thanks, a lot.
Yep.
Yeah.
Our next question comes from the line of Mike Matson with Needham <unk> Company. Please proceed with your question.
Yeah. Thanks, Tom So I completely understand your point about the outpatient coronary reimbursement how the six months isn't it isn't a real long time, but I guess I was just wondering if you could.
Can you explain kind of what the economics will be for the both procedures.
In that setting.
Without the TPG you like in other words, how much how much money will the hospital thinking on each procedure roughly speaking.
Oh, that's a that's hard mask because all these like different like how what are the devices. They use and a procedure how complicated. It is it how long does it take so I don't I won't I won't try to come up with an average but.
The APC 51, ninety-three pays about $10000 national average and.
Our devices, a little bit less than $5000 cost. So there's there's certainly money leftover in for a long time in the peripheral space, we had a business where the reimbursement was $5000.
And in our device costs was close to 3000 and and while that was.
You've got a lot better when we when we moved up to the 50 193, a P. C on the peripheral side and had a 10000 dollar payment and you're really no pushback on financials anymore.
When physicians feel that the device is the right thing for the patient.
It's a $5000 was adequate $10000 is more than adequate so.
We think there's there's it may not be a money maker for.
For the hospital, but but it's not such a huge sounded like the payment is so close to the cost of our device where.
It's it's gonna cause we believe the strong pushback from administration because aside from the fact that it's just going to take a long time to work its way through administration and back down to the Doctor even if they have a problem.
Not such a severe problem that we think oh it would it would.
Caused them to change practice and certainly.
I can't imagine any doctors, saying I'm going to use shockwave for inpatient and I'm not going to use it for outpatient I think it's going to average out.
To be just status quo and.
And obviously, we think the status quo is gonna be up next year.
Yeah, Okay that makes sense, alright, and then just as far as the sales force goes I think you said the prepared remarks, you're at 110 and territories with two clinical specialists per territory. So I think that's kind of maybe in line or the lower end of the guidance you'd given earlier.
Where you wanted to get this year. So what I'm wondering is how do you feel about kind of where your coverages geographically and you know is there a room to add more reps or clinical specialists.
For God.
Something we should expect that you continue to expand the headcount there.
Yeah. Good question, Yeah. So the the numbers I gave on the on the script, we're where we expect to be at the end of this year in terms of reps and clinical specialists per per rep per territory.
We will continue adding some next year are much much fewer than we added this year, we're putting together those plans now, but there'll be a little more management bigger teams, we need more management to keep to keep the.
The span.
At a at a place where the management can teach and train and when you are launching two proxy here.
Business planning and teaching and training is a huge part of what.
What we need to do with the team so well will will add modestly next year, but it won't be as big of a lift is it is this year.
Our next question comes from the line of Imran Safar with Deutsche Bank. Please proceed with your question.
Hey, good afternoon, everybody. Thanks for taking my question.
They can get a couple of questions on the international coronary business.
And specifically around 2024 hour work.
One in Germany. It sounds like you guys are still probably mid single digit penetrated of that.
Coronary market.
Whats the reasonable expectation exiting 'twenty 'twenty four is 20% global number in terms of Tam penetration, they're exiting next year.
Yeah. So I think we're low single digit right now in Germany.
And that we are I think 1% coming into this year, despite being on the market for four years. So it's we're seeing exceptional growth now that the the payment to the hospital supports the IV procedure adequately.
But I don't think going from low single digit to 20% is reasonable in two years. We're just looking to have kind of a nice sustained expanded growth.
And and so the German team, we've beefed up that team this year and they're doing an outstanding job.
Okay. Thank you and then maybe just maybe to put a point on that though I'd say you know you're going to have a U S, Japan, Germany, all with adequate reimbursement.
To support the IV all procedures. So that's why we see the strongest growth coming in the coming years.
Okay. Thank you and then on China coronary you talked about the anticorruption crackdown stymied in new hospital penetration.
And I think you also said back half 'twenty three China revenues were going to be had about 10 million versus your prior plan.
Just to level set can you just give us a sense of how big the China business is now on an annualized basis, and even without getting new hospital accounts and trying to can you still grow that business double digits next year, just from higher utilization within your established accounts.
Good question I would rather not give kind of specific China revenue numbers, but taking you know we.
We got wind or talk to the JV partner literally two days after our last earnings call. So it would've been nice to know.
The week before we did reset guidance.
And I think you're we're not going to be able to until they enter corruption campaign moves through its.
Its phases, we're not going to be able to add new centers that that seems very unlikely right now and that's our so we're we're planning not to be able to add new centers for the foreseeable future, but the sales in existing centers is staying pretty strong the dynamic we were going to wrestle with here in the fourth quarter and in the first half of next year is.
Getting the JV the inventory at the JV to a level to support a steady state and somewhat growth business versus a steady state growth business, plus new hospital additions and so not have and we're still very early in the hospital acquisition phase.
So not having that trajectory of new App, New hospital acquisitions, and again early innings on that we.
We need to burn down.
Inventory at the JV and that's why we were essentially.
If we see going into 'twenty, four and hopefully.
Again, not trying to be conservative and not guess at how long. This takes them hopefully it starts to free up towards the end of next year.
Sooner, but for end of next year kind of a one year campaign would not be unheard of.
Okay. Thank you and then just sticking with the old U S coronary themed Japan.
Give some metrics around customer.
Additions year to date, and then expected for <unk> can you translate that into kind of where you are in terms of penetration whether it's on a procedure basis or account basis in Japan. Thank you.
So that.
Account basis, you know will end the year theirs.
20% of the accounts, but those those accounts that we will have launched or are certainly oversized in terms of the amount of volume they do.
And so you still though a vast minority of P. C is.
Well in the accounts, we launched this year, which we expect to end the year at about 300, a well, we'll still be doing small minority of PCI and then as we roll through next year that starts to get us into a kind of towards the end of next year, where we can get access for the accounts launched in the first two years to a.
A majority of PCI.
Perfect. Thank you so much.
Okay.
Our next question comes from the line of Michael <unk> with Wolfe Research. Please proceed with your question.
Hey, good afternoon. Thank you I just wanted to drill down on U S peripheral again sorry.
And if you if you said it I missed it I've been juggling calls, but the.
Sequentially for the fourth quarter.
U S. Peripheral revenue do you still expect it to grow with normal seasonal pattern or do you think this is.
Prior off dynamic rolling through kind of.
Contributes to flattish or down whats your best guess for U S peripheral in the fourth quarter.
Yeah.
Our guests to be conservative is probably better to assume flattish. Then then much growth in this quarter as we sort of we didn't see the.
It didn't see the rebound in September that we normally see and didn't really see it through October so I think it's safer to assume flattish.
And then the into 'twenty for.
You know this dynamic.
A headwind, but you are launching two.
Two new products the tailwind.
It sounds like streets, too high, but I guess in the context of blessing $920 million for the Street next year for total company revenue.
Up.
About 26, 27%.
U S peripheral would be growing below that.
They're starting point and then I guess just to be more precise is are you willing to put a.
I kind of floor and for U S peripheral growth for 'twenty four.
It will grow below corporate average I think that's a safe assumption as well as we're modeling it out right now.
And U S coronary and international coronary will will grow well above that that average.
Yeah, and I'd, just say you know as you know we service to you actually globally, we service our business with one one sales force and so they are either they need to be facile in both coronary and peripheral but what what happens in that scenario. As you know we don't have we could add an expense and add another sales force in which case you could keep pushing hard on everything.
Equally but when you have a single sales force we tend to toggle effort you know.
Lean lean into something.
One quarter or two quarters, then lean into something else and over the last six eight quarters, we've been leaning into.
Peripheral launches with both M five plus and now six and as we've turned into September like I said on the call and first half of next year, we're going to have a lot of focus on the coronary C to plus launch in the U S. So we think we.
We expect a lot of momentum come through with coronary and hopefully this.
Minor headwind, we have with the pre often the.
It goes away in which case peripheral start sailing a little bit more.
Okay. Thank you.
And the and the <unk> will launch in the back half of next year in javelin is probably more like early 'twenty five as we shared last couple weeks ago. So.
Below the knee starts to really contribute back into next year.
Our next question comes from the line of Mike Kratky with Leerink. Please proceed with your question.
Hi, everyone. Thanks for taking my question first can you just confirm whether your longer term guidance through 2026 considered the weakness in peripheral and the impact in China from Raymond anti corruption you'd be willing to reiterate that 25% revenue CAGR.
Ah yes.
Great and then as a separate one.
First full quarter of Neovasc Reducer sales post acquisition, how does that compare to your internal expectations and what are the catalyst or initiatives that you think are really going to help drive an inflection in sales for that product ahead of U S launch in 'twenty seven.
Yeah. So in the past we've described this the phase we're in right now with with reducer as sort of figuring out the model figure out.
Referral pathways.
Uh Huh Fe understand.
In advance of the <unk> two data, which.
Which we think is going to be very.
Important for our international business, obviously critical for us because we've got a.
When on that trial to get U S approval.
But as we understand in the markets, where we can play right now which is the U K, France, and Germany, what does it take to build a robust business.
And as I described earlier the U K team is doing a really good job of figuring that out.
We've had to work.
<unk> worked through.
To figure out who else on international team.
In the other two markets are.
Are working hard to figure that model out and so we're in the process of.
Restructuring.
Hiring a new team in both Germany, and France, where are where there is currently adequate payment.
And and.
That'll be up and running next year, which we think will be stimulative to growth. If everybody's were performing at the level of the U K team.
You'd be seeing a nice growth rates. So that's our sort of expectation is we will have a shockwave team versus an inherited team other than the inherited team in the UK that we were really impressed with so far.
Understood Thanks very much.
Our next question comes from the line of Danielle <unk>.
And talk with.
With UBS. Please proceed with your question.
Hey, good afternoon, guys. Thanks, so much.
For taking my question I'm, sorry to harp on the peripheral. Thank you guys would probably tired of talking about it but just to follow up on Larry's question.
You know talking about the evidence that is needed I guess a different angle here. It is it does it is this dynamic doesn't change does that change the great Outwork, Eric can you laid out at analyst day at all and I guess, just curious about how physicians react today is there something that eventually physicians.
It doesn't change get frustrated.
Yes sure.
Just trying to get a better understanding of is it just delaying the time of procedures, because and now take longer to get the prior author is this something that could ultimately prevent physicians from really treating these patients.
That's the key is really a shame.
Yeah, I mean, it's it's.
This is a.
A nuisance not a fundamental change in the scale of the opportunity.
More of a.
Speed bump than a roadblock, if I can find different analogies.
Yeah.
The affect it and so zero zero zero change and opportunity we have.
Near term.
Some caution which is what we're trying to communicate today that we think turns in.
It turns into a b teekay growth engine, starting next year.
And then we pick up reimbursement and Obl's and have other product launches for above the knee and.
And above the knee becomes a significant drove growth driver and in no way.
Where are we.
Backing away from what we think is an enormous opportunity in peripheral both above the knee and below the knee with big chunky growth vehicles, just not in the next kind of six months or.
So.
Uh huh.
Little bit of a reset on the near term because of this.
More aggressive implementation of our preexisting policy for for.
For the those Aetna covered lives private and.
Our Medicare advantage administered aetna patients. So it's a it's a big enough population because of that and its pretty big that.
If every if a lot of centers have a little bit of a drag on their on their patients it's enough given our.
The breadth of our installed base, which we're very proud of like it adds up when onesie twosies patients adds up across a broad spectrum of doctors, it's not enough for the doctors are like.
I mean, some doctors are very frustrated because they have a lot of that patients. Other doctors that yeah, I lost a patient or two last months, but I'll get them back once I win the argument so it's a.
It's not it's not a fundamental sort of this this is such an aggressive change that suddenly pad procedures are going to drop precipitously.
Just going to <unk>.
Not grow in our in our business is not going to grow as much in those are in the very near term.
I would just add there are many there are many there are many centers because this isn't a policy change I mean this policy has been in place for all the providers.
I am good at getting a preop for peripheral arterial disease. Some centers have a they worked with the policy already they have a smoothie machine for doing it the doctors don't even know what half.
Happens other centers this is that well.
Youre changing how are patients flow and they are not set up to deal with the changed so I think the likelihood is centers, who are doing big peripheral volume who are.
Having this roadblock put out by Aetna they'll figure out you know administratively how to deal with the roadblock its smooth things out going forward.
Got it that's helpful and then just on the coronary.
You know, we're always still focused on center adds there, but obviously not every cardiology says about the chocolate ICL.
Each center, so just curious about the incremental.
<unk> potential.
The existing centers, if you can somehow free.
The opportunity that way that would be that would be helpful. Thanks. So much.
Yeah. That's a good question so to your point, we we've kind of completed adding centers a number of quarters ago for the most part.
So we're where we are getting the growth of revenue is sort of to two places with physicians, who have adopted us as part of their treatment algorithm.
As the economics improve and as they get more experience with Shockwave moving earlier in the PCI to use Shockwave if theres calcium.
And we have experience with physicians, who do that they tend to say the cases are smoother they don't get in trouble so much.
Theres less gear used if they use shockwave earlier when the calcium is there. So that's kind of we call that moving.
Up the treatment algorithm and the second place for growth is.
Physicians within that hospital, who haven't really adopted us and.
That's I think a rich area for us and what we're doing on that front is it the business planning level for the territories really a focus on understanding which which doctors are practicing at the hospital they move around sometimes within areas and which of those physicians are utilizing shockwave why or why not and then you know that is helping our team target.
Physicians in the hospital and getting them to adopt so that that's sort of that the rest of the growth going forward.
Thank you so much.
Sure.
There are no further questions in the queue I'd like to hand, the call back to.
Doug Godshall for clothing home or closing remarks.
Thanks, very much and thanks, all of you for your time and attention and look forward to seeing you.
Many of you later this quarter.
Have a good day.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.