Shockwave Medical, Inc.

Good afternoon and welcome to the Shockwave's fourth quarter and year-end 2021 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 Castor, 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 are Doug Gottschall, President and Chief Executive Officer, Isaac Zacharias, Chief Commercial Officer, and Dan Puckett, Chief Financial Officer. Earlier today, Shockwave released financial results for the quarter and year ended December 31st, 2021. A copy of the press release is available on Shockwave's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to the 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, business and hiring prospects, financial and revenue expectations, and future product development and approvals are based upon our current estimates of various assumptions. These statements involve material risks and uncertainties, including the impact of the COVID-19 pandemic that could cause actual results or events to material differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place any undue reliance on these statements. The list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our annual report on Form 10-K on file with the SEC and available on EDGAR and in our other reports filed periodically with 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 17, 2022. 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 Shockwave's results for the fourth quarter and full year of 2021. The past year has been full of ups and downs for all of us, but the Shockwave team has persisted through the many challenges as we continue to pursue our mission to improve outcomes for patients with calcified vascular disease. We achieved quarterly revenue of $84.2 million in the fourth quarter of 2021, which was 271% above the fourth quarter of 2020, and annual revenue of $237.1 million in 2021, an increase of 250% above the full year 2020. Our strong global growth confirms how significant the clinical need has been for a better calcium treatment and how well our team is hitting the mark with IVL. Despite the ongoing impact of COVID as Delta transitioned into Omicron, our business and our team continued to outperform our expectations. Isaac will touch on more specifics in a moment, but at a high level, while Coronary led the quarter once again, we also saw a nice uptick from the third quarter in both our international business and our US peripheral franchises. 2022 is shaping up to be another strong year for the company with three main drivers, continued coronary growth as we add new accounts and better penetrate existing accounts, accelerated peripheral growth due to the combination of the upcoming launch of our M5 Plus catheter and the improved peripheral reimbursement for our above-the-knee codes, and continued strengthening of our international business, led by a full year's benefit of the transition from distributor to direct sales in France and the U.K., While Omicron will be a downdraft on the first quarter for Shockwave and most of MedTech, we have high hopes for the post-first quarter recovery. And as a result, we expect our full year 2022 revenue to fall in the range of $405 to $425 million, representing growth of 71% to 79% from 2021. To provide more color on the commercial front, I will now turn the call over to Isaac. Then Dan and I will share more detail on the broader business and financial results.

Thank you, Doug. Despite the increased number of COVID cases in the latter part of Q4, our team put up great numbers to finish out 2021. US coronary sales continued to be strong as we near the anniversary of that launch. Further, our US peripheral and our international businesses reported strong sequential and year-on-year growth. With these solid numbers, it is hard for us to parse out the specific impact that COVID had on our Q4 business. That said, we did start to see an increasing number of restrictions on elective procedures, and staffing issues as we exited the year. This has continued in Q1 with staffing shortages causing postponement of cases, even when elective procedures are not being restricted by the hospital. On balance, the situation seems to be getting better globally as Q1 progresses. In the absence of a new strain or some unforeseen situation, we remain cautiously optimistic that there will not be significant COVID-related disruptions to our business for the balance of 2022. We continue to be pleased with the performance of our U.S. sales team and their ability to service customers effectively with the peripheral and coronary products in one bag. As expected, more accounts are using both coronary and peripheral as customers increasingly adopt IVL for the variety of indications. In the fourth quarter, 58% of our U.S. accounts purchased both coronary and peripheral products, 20% purchased only coronary, and 22% purchased only peripheral. Our goal remains to eventually have all of our customers using both coronary and peripheral IVL. Dialing in on some of the U.S. coronary metrics from the fourth quarter, C2 reorders represented 83% of the quarterly revenue, continuing the solid trend we have seen throughout the year, and we expect this to keep growing as the number of new accounts decreases throughout the year. While U.S. coronary growth was driven by launched accounts, New account openings were strong in Q4 as we added an average of one new coronary account per territory per month. This number has trended downward as expected as we continue to steadily penetrate the total account base and selectively add new territories. We will continue adding accounts throughout 2022 while at the same time increasing C2 use within our existing customer base. Our initial order quantity continues to average five units per new account, and we don't expect this to change for the accounts that will launch this year. The team delivered solid growth in the peripheral products in the quarter. As you are aware, this is a hospital-based business for us, and the solid performance in the quarter is a reasonable indicator that despite the challenges our customers have with COVID and staffing, they will see the value in treating heavily calcified regions with IVL. In the fourth quarter, nearly half of our U.S. territory managers sold more than a million dollars of IVL product. This is a testament to their ability to deliver on both the coronary and peripheral sides of the business. We don't have a target number for how large a territory should be in terms of sales, but we are pleased with the growth we have seen and expect this will continue to grow. Turning to the international business, where we are selling products in almost 60 countries, we saw healthy sales growth as the team finished the year strong. Our international team expanded from 19 to 40 people in 2021 as we continue to add to our sales and marketing teams. We now have employees based in 11 countries, including Japan, India, and across Europe. The global presence of Shockwave employees helps us stay close to our customers and make sure we are being responsive to their feedback and needs. The team also works closely with our distribution partners, and we are pleased with that side of the business. Q4 was the first full quarter of direct sales in the UK and France. Our team's engagement with customers had an immediate impact, resulting in new accounts and increasing penetration in existing accounts. Revenue from the UK and France in the fourth quarter increased 90% compared to the fourth quarter of 2022. Of this increase, 63% was attributable to increased unit volume. Our direct team is also able to focus more on the peripheral business in those countries, and we expect to see solid growth for peripheral IVL, albeit off small base. Turning to Asia, we remain on track to receive PMDA approval for C2 in Japan in late Q1 or early Q2 2022. We expect to have reimbursement in place in Q4, at which time we will begin launching C2 in Japan. We have also begun working with KOLs and the PMDA on a strategy to bring our peripheral products to the Japanese market. In China, we have made excellent progress with our joint venture and now expect to have approval for the shockwave-import coronary and peripheral catheters later this year. Finally, we are pleased to have started enrollment in a 1,000-patient post-market registry for our C2 product in India. Together with our distribution partner in India, we will gather high-quality data in what will be the biggest real-world registry for coronary IVL. In closing, I'd like to thank our global commercial team and distribution partners for another strong year as they continue to bring IVL to more customers while dealing with the day-to-day challenges from COVID. Back to you, Doug.

Thanks, Isaac. I will now touch on some other updates and highlights for the Shockwave business in 2021. Our success in securing reimbursement for both peripheral and coronary applications were, of course, some of our more important accomplishments in 2021. On the coronary side, we were pleased to be granted a new technology add-on payment, or NTAP, for coronary IVL performed in the hospital inpatient setting, as well as a transitional pass-through code for coronary IVL in the outpatient setting. And then in November, we had a big win for our peripheral business when the Centers for Medicare and Medicaid Services, or CMS, reassigned the payment for peripheral IVL procedures performed on above-the-knee arteries in the hospital outpatient setting. This rule, which became effective January 1, 2022, increases payment that hospitals received when IVL is performed by itself or adjunctively with drug-coded balloons, stents, or atherectomy in iliac, femoral, and popliteal arteries. Above-the-knee procedures are the large majority of peripheral cases, and IVL procedures in hospitals are now paid on parity with etherectomy, which puts us on a level economic playing field for the first time. This uplift in payment was certainly excellent news, and we anticipate it will have a progressive, positive impact on our above-the-knee business over time. Also on the peripheral front, we are increasingly enthusiastic about the upcoming launch of M5+. we had briefly described this new product a few months back when we were commencing our limited market release. So as a reminder, compared to M5, M5 Plus has three meaningful upgrades. First, M5 Plus has a longer catheter shaft, which enables it to reach below the knee when using a femoral access or to reach the iliacs and common femoral artery from the radial approach. Second, The plus version also comes in an 8-millimeter diameter size. A large percentage of iliac arteries are 8 millimeters, so having this larger size will help us further strengthen both our symptomatic iliac procedures as well as the large vore axis segment of our business. And third, the feature that is resonating most in our limited release is the doubling of the pulse rate, sort of a double tap. Instead of taking 30 seconds to complete a cycle, it will now take 15 seconds with M5+. One physician told me a couple of weeks ago that he refuses to go back to M5 slow. He only wants to use M5 fast. Customers have responded to all these upgrades even more positively than we had anticipated. Our plan is now to switch from a limited release to a full launch of M5 Plus globally in the second quarter of this year. As the pioneers of intravascular lithotripsy, we are constantly receiving feedback about what features and designs our customers are looking for. and we incorporate that into what is becoming an increasingly substantial product pipeline. The extremely positive initial response our customers have had to M5 Plus suggests that our team is doing a very good job of hearing what enhanced features our customers want. We have not described our portfolio in detail, but we are targeting two launches each year with a blend of meaningful performance and feature upgrades, such as with M5 Plus, as well as new configurations and designs that will expand the addressable patient population our customers are able to treat. By 2025, we expect to have at least six different designs that our customers will be able to plug into our generator, and everything we will be selling then will be different and better than what we are selling today. Being first has its advantages. To ensure we have the capacity to execute on the steady stream of products on our to-do list, We are well on our way towards more than doubling our R&D team from 40 talented individuals at the beginning of last year to what will likely be more than 100 by the end of this year. And as our pipeline has advanced, so has our portfolio of intellectual property. We've continued to expand our patent estate, including continuations related to the two patents that were recently invalidated. Notably, The Patent Office issued these continuations after reviewing all the materials from the IPR process, which we included with the submission. There are many other apparatus and method claims in our portfolio of over 50 U.S. and over 70 foreign patents, the collective breadth of which gives us confidence that we have a very formidable patent position that is more than sufficient to protect our technology. We won't win just because we have a substantial patent estate, but we certainly won't lose because of patents either. Of course, we are constantly trying to stay one step ahead, serving our customers better than anyone else, creating unique new products that wow them, and strengthen our patent portfolio as we innovate. We have also continued to advance the science around IVL, which has supported the expansion of calcium modification both in the peripheral and coronary vessels. We had multiple very impactful clinical presentations and publications over the quarter. In October, at TCT, One-year results from the DISRUPT-CAD3 clinical study of coronary IVL were presented for the first time and were subsequently published, demonstrating the consistency of shockwave coronary IVL outcomes over time across a wide spectrum of calcium morphologies and between genders. Then, earlier this month, results from the gender analysis of CAD3 were highlighted in the new expert consensus statement in the Journal of the Society for Cardiovascular Angiography and Interventions, or SCIE. The consensus opinion was that, due to the strength of the results, IVL may emerge as the first-line therapy for plaque modification in women. This is quite humbling, coming from such an influential group. Also in October, at the VIVA 21 conference, a presentation of an interim analysis of our Disrupt Pad 3 observational arm, confirmed that IVL safely, effectively, and consistently modifies calcium in complex calcified lesions across multiple peripheral vessel beds with a low need for bailout stenting, even in these very complex real-world cases. And in November, we enrolled the first patient in our DISRUPT BTK2 global post-market study that is designed to assess the long-term benefit of peripheral IVL on the most challenging calcified below-the-knee lesions. 2021 was clearly an exceptional year for the company on the commercial front, and things are lining up to make 2022 another excellent growth year. But none of this would have been possible without the stellar execution of our broader operational team. In the middle of COVID waves, supply chain chaos, and nearly quadrupling of our sales in a single year, we never had a hint of a backorder or quality issue. That's pretty rare. and our team deserves an immense amount of credit for staying focused on doing everything they could for our customer and their patients. Commercially, we'll be in over 1,300 U.S. cath labs in the very near future, which means we will have successfully navigated our way through 1,300 VAC committees. No small feat. And on top of that, We opened a new clean room, leased a new building so we could double our R&D lab, started shipping M5 catheters from our contract manufacturing partner, and passed multiple audits, including MDR and MDSAT. Rather remarkable that the team pulled all that off without a hitch. With that, I will turn the call to Dan.

Thank you, Doug. Good afternoon, everyone. Shockwave Medical's revenue for the fourth quarter ended December 31, 2021, was $84.2 million, a 271% increase from $22.7 million in the fourth quarter of 2020. U.S. revenue was $69.6 million in the fourth quarter of 2021, growing 449% from $12.7 million in the fourth quarter of 2020. The increase included $50.7 million from the coronary product, Shockwave C2, which was launched in the U.S. in February of 2021. The growth in the U.S. was also enhanced by continued Salesforce expansion. International revenue was $14.6 million in the fourth quarter of 2021, representing a 45% increase from $10 million in the fourth quarter of 2020. The increase in international revenue over the prior year reflects continued growth in customer demand and the expansion of our direct Salesforce in New York. Looking at product lines or peripheral products, Shockwave M5 and Shockwave S4 accounted for $21.4 million of total revenue in the fourth quarter of 2021, compared to $14.1 million in the fourth quarter of 2020, a 52% increase. Our coronary product, Shockwave C2, accounted for $62.3 million of total revenue in the fourth quarter of 2021, compared to $8.2 million in the fourth quarter of 2020, representing a 661% increase. In addition, the sales of generators contributed $0.5 million in revenue in the fourth quarter of 2021, which is the same as the fourth quarter of 2020. Gross profit for the fourth quarter of 2021 was $71.5 million, compared to $16.2 million in the fourth quarter of 2020. Gross margin for the fourth quarter of 2021 was 85%, as compared to 72% in the fourth quarter of 2020. was partly driven by product mix as well as continued improvement in productivity and process efficiencies. Total operating expenses for the fourth quarter of 2021 were $57.5 million, a 79% increase from $32.1 million in the fourth quarter of 2020. Sales and marketing expenses for the fourth quarter of 2021 were $33.2 million, compared to $16.4 million in the fourth quarter of 2020. The increase was primarily driven by Salesforce expansion. R&D expenses for the fourth quarter of 2021 were $14.7 million compared to $9 million in the fourth quarter of 2020. The increase was primarily driven by headcount growth. General and administrative expenses for the fourth quarter of 2021 were $9.6 million compared to $6.6 million in the fourth quarter of 2020. The increase was primarily driven by higher headcount to support the growth of the business. Net income for the fourth quarter of 2021 was $12.9 million compared to a net loss of $15.9 million in the fourth quarter of 2020. Basic net income per share for the period was $0.37. Diluted net income per share for the period was $0.34. We ended the fourth quarter of 2021 with $201 million in cash, cash equivalents, and short-term investments. Finally, I'd like to briefly recap some highlights from our full year 2021 results. Total shockwave revenue for the full year 2021 was $237.1 million, an increase of 250% compared to full year 2020 revenues of $67.8 million. Revenue from the U.S. for the full year 2021 was $186.3 million, representing a 402% increase over 2020 revenue of $37.1 million. International revenue was $50.8 million for the full year 2021 compared to $30.7 million in 2020, representing a 66% increase. The gross margin for the full year 2021 was 83% compared to 69% in 2020. Total operating expenses were $196.6 million in 2021, an increase of 75% compared to operating expenses of $112.5 million in 2020. Total net loss for the full year 2021 was $9.1 million compared to net loss of $65.7 million in 2020. At this point, I'd like to turn the call back to Doug for closing comments.

Thanks, Dan. As I look back at what our team accomplished in 2021, the list is both long and impressive, particularly given the extraordinary challenges that have faced all of us for the past two years. It is such a privilege to be part of this team and to be associated with such a game-changing technology. Thank you all for joining us today and for your continued support.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered and you wish to move yourself from the queue, please press the pound key. Our first question comes from Adam Maynard with Piper Sandler.

Great. Thanks so much, guys, for taking the questions, and congratulations on a fantastic finish to a great year. I wanted to start with the full year guidance that you provided and just drill down there a little bit. We'd love to get some additional color by segment. You know, I think if I heard correctly, I think you made the comment, Doug, that APK, or I'm sorry, peripheral growth, rather, should accelerate next year. Did I hear that right behind the reimbursement change? So maybe just talk a little bit about peripheral versus coronary, and then also kind of how you're contemplating, you know, additional items like any potential staffing or capacity issues and just broader pace of procedure volume recovery and then add a follow-up. Thanks.

Yeah, and thanks, Adam. And I'll tag team with Isaac on this. So the – we think the – of M5 Plus and improved reimbursement, along with the expansion of our staffing in the field and sort of maturation of the launch on Coronary, are all factors that augur towards an acceleration in peripheral growth this year in the U.S. The response to M5 Plus has been, frankly, more positive. We were excited about the product, and we're more excited about it now. after seeing how positively our customers respond to it. The above-the-knee uplift in payment, which is tremendous for us, we think is likely to be a steadier, multi-quarter positive impact. I certainly saw it in the field when I spent a week, week and a half in the field visiting with customers. It doesn't sink in right away with them immediately, particularly the physicians, that we essentially just doubled the payment level for, or the hospital's payment level has just doubled for the standard shockwave as a standalone procedure. And to some extent, that's really a positive. We want to have a steady incremental increase impact over time, not like a light switch that happens one week and then is behind them. And so I think in that area, it's going to take a little bit longer to sort of remind folks regularly, make sure the physicians and administrators are all aware of the fact that shockwave is above the knee is now actually both incredibly positive clinically, but now positive economically as well for the center. In terms of staffing, Isaac, maybe you want to just talk a little bit philosophically about how you're thinking about the field.

Yeah, I think it should be a very positive year for the peripheral business, particularly above the knee with the product launch and reimbursement changes, Doug said. And we expect that momentum to build throughout the year. You know, the comps in 21 were a little off, you know, in places due to heavier COVID impact in 20. And as we're looking at 22, at least what we're seeing so far is staffing shortages, and that's a global phenomenon. And likely, though, we think those cases will be there when staffing's there. And so, There might be a little shift back and forth, but, you know, I think early in the year here we've seen staffing shortages coupled with Omicron causing, you know, some challenges coming into the year, but it looks to be getting better, I think. And I'd say that's true on a global perspective with, you know, from a major country standpoint with Germany maybe being a little behind the curve still in terms of where they're at with COVID sweeping through.

And what I'm not sure about yet, at least in my small sample size in the field, one of the centers I was in was lamenting how incredibly sick their peripheral patients were that were coming in, sort of biased, more severe, which may accrue to our benefit since we treat the more severe stuff. But these were patients who had been kept out of the hospital longer than they should have. So by the time they came in, they went from leg pain to open wounds and much more severe disease. So that may be one of the things we see is a tendency over the next quarter or so as you're catching up on cases, you may get the sicker people who were once again being kept out of the hospital because of COVID restrictions and staffing shortages.

Okay, got it. That's a very helpful, fulsome response. And maybe I'll just pivot to the second question. And it's on the pipeline. And I think, Doug, you talked about having six different catheter designs that you can plug into the generator by 2025, if I heard you right. I know you're being close to the vest here intentionally, but wondering if you're willing to at least say if these are going to kind of be in the same areas where you're already playing in, that being coronary and peripheral artery disease, or if you anticipate you'll be playing in kind of adjacent markets. you know, by that time as well. Just any additional color there that you're willing to provide would be great. Thanks so much for taking the questions.

Yeah, commercially, by 2025, I would expect it will be in the peripheral and coronary segments, longer-term TBD.

And I'd just say, Adam, importantly, you know, to be clear, they won't be interchangeable products. For instance, there won't be two products that you could use either or in a specific vessel or clinical situation. So there will be six distinct products, distinct applications, distinct indications. Okay, understood.

Thanks again.

Yep. Our next question comes from Larry Beagleson with Wells Fargo.

Good afternoon. Thanks for taking the question, and I'll echo Adam's congratulations. A pretty remarkable year for you guys. So, Doug, I wanted to start on international. Is there any revenue in the 2022 guide for Japan and then China? I thought that was a new update that you slipped in there. Correct me if I'm wrong. but that you'd have approval for peripheral and coronary of the imported product by the end of this year. So can you confirm if that's, you know, the timing's moved forward and how you see that opportunity?

And I had a follow-up. Yeah, so working backwards, China, good catch. We did pull it in a year or two because up until today we had been saying 2023, 2024. So our team... in concert with Genesis, has done a really good job. It's still a little bit unclear exactly when this year it will be approved. Like any regulatory body, it's a little bit murky in China or hard to pin down with precision. PMDA, on the other hand, we feel pretty confident that best case end of March, We're sort of less best case maybe sometime in May, so sometime in the next few months. We have a high degree of confidence that we will be approved. But to really get any commercial traction in Japan that would be worth changing our numbers for, you really need reimbursement, and we will not have reimbursement until the end of the year. So once approved, we'll apply to MHLW to figure out what the reimbursement level will be, and then we'll be able to start fully commercializing essentially in 2023.

So, Larry, the guidance contemplates a small amount of revenue contribution from Japan and China this year. That's, as Doug said, uncertainty on timing in China and just blocking and tackling timeline in Japan to get reimbursement and then launch.

Got it. Thanks for that. Just one for Dan and one for Doug. Just Dan on the P&L, how should we think about operating margin in 22? And Doug, obviously, there was a lot of noise this quarter on competition. Maybe just a little bit more color on how you protect your first mover advantage and when you expect competition in Europe and the U.S. Thanks for taking the questions, guys.

Sure. We're going to continue to invest in the business. As Doug alluded to, we're going to invest heavily in R&D, and we're excited about that. With that said, we're still expecting to get some more leverage out of the business as the year moves on, given the revenue ramp. The trend is good for this year and into next year, I'd say.

In terms of potential competition in the future. As you and I have talked, and we've talked about publicly, we anticipated, given the extremely positive response we've had from our customers, that we would have competition as soon as 2024. So nothing's really changed from our perspective, other than people have stated publicly that they intend to compete. While we are extremely bullish about our patent portfolio in the electrohydraulic lithotripsy arena, and we'll certainly assert that against anybody who tries to copy what we're doing, we are by no means sort of sitting back and waiting and intending to win through litigation. That's sort of a foolish strategy, and that doesn't do anything to make things better for our customers. So I think what you heard today was a more public commentary on how intensely we've been approaching our product development activities because we think hiring the best engineers is as important as hiring the best salespeople and in some ways more important because they're the ones who create these great problem-solving technologies to feed to the sales team. And we've... We have more than doubled the number of projects in our product pipeline over the past 12 months, and we're quite bullish based on the feedback we've been getting from customers who've been sort of helping us think through what we ought to be prioritizing. So we intend to win by innovating and creating better products for our customers, and we think it will be helpful that if and when competition shows up, We will have multiple things to plug into our generator that will be better than what we're selling today. So whatever products people think they're going to be competing with, it will probably be actually different than what they will be competing with when they do try to enter the market. Thank you very much, Doug.

The next question comes from Bill Flavonic with Canaccord.

Hey, great. Thanks. Good evening. First of all, congratulations. I don't think I've ever seen a company outperform initial expectations by over $100 million in a year at this size, so that's pretty impressive in my career. My questions are first, in terms of guidance, how should we think of first quarter 2022 You know, given the commentary as it relates to the fourth quarter, I mean, I think last year you were up 40 percent sequentially. I don't think that's realistic because of the C2 launch. But I just wonder if you could help us understand that. Second question is M5 is a percent of U.S. sales. And then just a broader question on, you know, what? You know, in terms of the usage today, how much of the use is in severely calcified lesions, and what do you think percentage you're starting to see in moderately calcified lesions?

So, thanks, by the way, for the kind words. The first quarter is going to be an interesting one. I mean... I was talking to a doc who, one of the top TAVR centers, and in January, they would have expected to do like 60 or 70 TAVRs, and they did three. Now, that's a more severe downdraft than we've seen in our business, but it's representative of how severely some hospitals shut down procedures, because if they shut down TAVRs, they're certainly shutting down like procedures in a lot of the coronaries. Uh, so that was, uh, loosening up end of, end of January, even in the most severely shut down. But, but it's a little earlier for us to say with, with certainty that there's going to be how much of a, of a catch up there will be in March because you also have the staffing constraints that kind of prevent you from an overshoot. Uh, so we think all those old cases will get cleaned out. It's just going to be cleaned out over time. Um, So you are right to assume that the kind of quarter-on-quarter growth that we saw a year ago when we had a product launch is not achievable, given the fact that we had a product launch in the middle there, and we have the COVID downdraft in the first six-ish weeks of the quarter, as we're anticipating will be. So as you're modeling, I think probably modeling the whole sector, you probably want to model a um, a lighter Q1 than you otherwise would have had it not been for Omicron because I think Omicron affected Q1 more than it affected Q4 probably. Um, in, in terms of M5's role in our, in our U.S. peripheral business, it's, it's most of it. We have a, we have a nice S4 business. Don't want to lose it. M5 is the business, uh, by and large. Um, It's a preponderance of our U.S., and even more so, it's a preponderance of our global business. So the fact that we're launching M5 Plus globally is going to be a meaningful upgrade for all of our peripheral customers and probably for future as yet not converted peripheral customers. In terms of the mix of severe and moderate, you know, most – Less than 10% of the docs in the U.S. do intravascular imaging, and the only way to really quantify how much calcium there is is to do IVUS or OCT. If you look at an X-ray image, a fluoro image, they say to look at whether you see calcium on both sides of the vessel. So you see this look that looks like rails, so these white lines on the sides of the vessel, and that tells you if you have severe calcium or not. kind of subjective. Yes, you're looking at an image, but it's not like you take a blood test and say, oh, Doug has severe and Isaac has mild. So it's unknowable what percent of our cases are quote-unquote moderate now. Certainly, we are treating moderate patients or our customers are treating moderate patients because they probably inflate a balloon, it doesn't inflate well, and they stop and they put in shockwave and it works really well. So I don't know if we'll ever know what percent is severe and what percent is moderate. I think it's almost all of our cases are cases where the doctor has either failed something else or is so sure they're going to fail something else that they use shockwave, and so it's severe enough is the way I would look at it.

Okay. And then when we think of the, you know, the BTK, disrupt BTK2 study, you know, when can IVL replace mechanical atherectomy in devices, but when will also atherectomy still be needed? And if you kind of look at the cases, I know we've seen 5% penetration. I think it's something like that with atherectomy today, especially BTK, but maybe it's higher. But, you know, what do you think you could displace there? That's my question. Thank you.

Yeah, Bill, thanks for the question. I think, you know, like we see, like we've talked about, you know, the Ultimately, I think we view atherectomy as a complementary technology, whether that's below the knee, above the knee, or in the coronaries. When you get below the knee, I think there's larger lumens, again, where you can get a balloon, an IVL balloon. These tend to have, I think, where you can benefit a lot from having a very atraumatic IVL below the knee that's not going to cause severe dissections. and can crack the, you know, the medial calcium and help the vessel expand ultimately. I think with that rectum, you know, if you've got tighter lesions, you get a wire across, and you can't get a balloon across, then you've got to open that up with that rectum. And I think a lot of times in doing that, that might be a definitive, you know, prep for the vessel, and you'll follow it with a balloon or maybe someday a DCB. So I don't think there's a conversion that we have. I think what we're looking for is demonstrating, you know, through data and with improved products that we are a good solution for a lot of below-the-knee calcified lesions, but not a solution that necessarily does away with that rectum.

Thank you. Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. Our next question comes from Cecile Furlong with Margaret Stanley.

Great. Thank you for taking the questions, and I'll echo everyone else's congrats on another strong execution quarter for the team. I wanted to ask Doug, just on coronary, with NTAP now in place, what have you seen from an inpatient-outpatient procedure volume mix? And as you look beyond a COVID-impacted type of environment? Where do you see this going longer term?

You know, we don't have data on the macro coronary inpatient-outpatient mix outside of shockwave and probably won't for another, I don't know, year because it usually takes a little while for all that all to get collected. And in our own cases, we kind of don't care. So... We don't care. The doctor often doesn't know. Am I going to keep the patient overnight? Not to keep the patient overnight, it's not really part of our conversation. We may meet with the, well, we do meet with the administrative folks at the hospital who do the coding to make sure that they know how to code NTAP and how to code transitional pass-through. I think the effect that both transitional pass-through in July and NTAP in November had was that they predominantly it was when when transition pass-through came through they drastically dramatically reduced the economic anxiety that cath lab directors and physicians had when using shockwave prior to that certainly we couldn't get through some back committees and pricing and cost was a constant constant topic because we did not have an incremental payment on top of the standard PCI payment levels and while There's still conversation about price and budgets and the like. The fact that we have add-on payments, we have something to address that economic anxiety, which we didn't have before July. So I don't – what's quite evident to me, and maybe Isaac will have something to correct me on, but I don't think anybody said, oh, well, now that you have NTAP, I'm going to do more inpatient procedures. I think they are now able to treat the patient in any way they see fit, and if they think the best way to treat a patient is with Shockwave, they don't feel guilty using Shockwave, or they don't have to be reluctant to use Shockwave, which they probably would have been, particularly over time, if we did not get these extra payments, they probably would have been under more pressure from the administration, which now they should be under less pressure.

Yeah, I think that's right, Doug. With where the payments are at now and the transitional pass through an NTAP, there is no kind of overhang either way on what the physician does and what the patient needs for treatment. I do think, you know, if you think about it from a patient-physician perspective, if you're going in for an elective PCI, let's say, and the physician thinks you should be able to go home that day, you know, with an outpatient procedure, the best thing for that patient and the physician is that the patient, you know, gets out of the hospital and goes home. And... what really I think the way we think about it from an IVL standpoint is it's a safe procedure. It doesn't create complications during the procedure. And so more likely than not, if that patient was intended to go home, IVL is going to help make sure that patient goes home that day, which is a great thing.

Great. Thank you. And if I could ask a few questions just on your international business as well. how you're thinking about UK and France contributions to international sales in 2022, what you contemplated in your guidance just directionally, and then looking to 2023 as well, how you view the ramp in Japan versus China, just any comments on a relative basis, how you view those two markets ramping and beginning really in 2023. And thank you.

Yeah, sure. So the dynamic in the UK and France is a bit different because in the UK we had a sales agent where we recognized the revenues that were sold at a kind of full ASP. So as we switch to a direct sales team, the benefit in the U.K. will be volume, and that will be predominantly, I think, near-term volume on coronary as they get more penetration in the existing accounts because there's more focus on the product and there's more focus on teaching physicians, more physicians. and longer term on peripheral as the team will actually focus on, you know, using IVL for pre-TAVI, using IVL for ILIACs, and then appropriate peripheral situations. In France, there's a benefit, two-fold benefit, right? There's the ASP uplift you get because we go from a distributor margin to a direct sell, and then you get the same focus benefit we're going to get in the UK, and I think based on how things were going between the UK and France, there's more upside in France on volume as well, because it was relative to the UK, lower penetration of IVL in coronary, and again, very little penetration of IVL in peripheral. So I think as we look at 22, we'll get good contribution year on year from UK and France. It'll be a volume and an ASP contribution and that won't be done in 22. There's a lot of opportunity there, and I'm really proud and impressed with the team just coming out of the gate strong and their ability to start driving activity and awareness of IVL beyond where it was.

And then in terms of 23 for Asia, certainly we have our internal modeling that we have a range of possible outcomes which are also influenced by when we get approved and what our reimbursement level looks like in Japan. We see this year very much one of the key activities this year is really to set ourselves up for Asia to become one of our growth drivers next year. Whatever we get this year is great, but we want to make sure what we do this year is more of an eye towards 2023, 2024 significant contribution. And so we're, obviously we're not guiding to 2023, but we have, given that Japan has 250,000 PCIs, which is about a quarter of the US market, a very high percentage of imaging, a very, very significant reluctance to do anything that causes adverse events more than really any other country I've ever sold into. It's like the perfect country for Shockwave, sort of the fit in terms of the safety, ease of use, and identification of calcium. So we're quite optimistic about the role that Shockwave will play in Japan. Last I heard, China was a pretty big country with a lot of patients and 1.5 million PCIs, so that should be a nice opportunity for us, too.

Yeah, maybe I'll just throw a little more color on that. One thing about Japan, you know, if you look at the CAD4 data set, it was the cleanest acute 30-day data set we've seen of any of the CAD trials. I mean, they're just excellent PCI operators. and they really value safety and predictability in their practices. So that is favorable for IBL generally. I think the other thing that our leadership team in Japan has done, and the general manager particularly, has really worked closely with the society, the cardiovascular society in Japan, CIVIT, to help create together with the cardiovascular leadership in Japan, what is the appropriate way to roll this product out So there's been, you know, 18 months of commercial preparation on how to roll this product out in Japan. And so I think, you know, we'll be ready and we'll do that in conjunction with all the leadership, cardiovascular leadership in Japan, and that should help. And one of the things about China, one of the reasons we like the JV aspect in China is instead of just importing product to a distributor, you know, that helps us drive focus. And as we saw with the unit volume uplift in the UK and France, if we can get focus through a distributor, and in China it's through a JV, which really helps us keep focus on the product, I think we'll do a really nice job in China relative to kind of a typical distribution arrangement.

Great. Thank you for taking the questions.

Thanks, Julie. And I'm not showing any further questions at this time. So, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.