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Edited Transcript of SWAV.OQ earnings conference call or presentation 13-Feb-20 9:30pm GMT

Q4 2019 Shockwave Medical Inc Earnings Call

FREMONT Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Shockwave Medical Inc earnings conference call or presentation Thursday, February 13, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Puckett

ShockWave Medical, Inc. - CFO & Secretary

* Douglas E. Godshall

ShockWave Medical, Inc. - President, CEO & Director

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Conference Call Participants

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* Adam Carl Maeder

Piper Sandler & Co., Research Division - VP & Senior Research Analyst

* David Ryan Lewis

Morgan Stanley, Research Division - MD

* Jason Richard Mills

Canaccord Genuity Corp., Research Division - MD of Research & Analyst

* Lawrence H. Biegelsen

Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

* Robert Adam Hopkins

BofA Merrill Lynch, Research Division - MD of Equity Research

* Debbie Kaster

Gilmartin Group LLC - MD

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Presentation

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Operator [1]

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Good afternoon, and welcome to Shockwave's Fourth Quarter and Year-end 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Debbie Kaster from the Gilmartin Group for a few introductory comments.

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Debbie Kaster, Gilmartin Group LLC - MD [2]

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Thank you all for participating in today's call. Joining me are Doug Godshall, President and Chief Executive Officer of Shockwave Medical; and Dan Puckett, Chief Financial Officer of Shockwave Medical. Earlier today, Shockwave released financial results for the quarter and year ended December 31, 2019. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during the 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 expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends and our future financial expectations, which includes expectations for hiring, growth in our organization and regulatory affairs and guidance for revenue in 2020, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results, events to materially differ from those anticipating -- anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our S-1 on file with the SEC and available on EDGAR.

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 13, 2020.

And with that, I'll turn the call over to Doug.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [3]

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Thanks, Debbie. Good afternoon, everyone, and thank you for joining us today. I'm pleased to welcome you to Shockwave's call to review our results for the fourth quarter and full year 2019. We reported $14.3 million in revenue for the fourth quarter and $42.9 million for the full year 2019, which were up $9.3 million and $30.7 million, respectively, over the same periods in 2018. We continue to be encouraged by the growing adoption of intravascular lithotripsy, or IVL, as a unique solution for patients suffering from complex vascular calcification and by the strength and success of our field team in educating our customers and helping improve outcomes for patients with complex calcified disease.

Dan will provide details on our financials a bit later in the call, but I'm going to start by highlighting some of our accomplishments over the past few months. And I will also share an update on how we are seeing IVL used, which has transformed a bit since we went public less than a year ago. We will also discuss some of our plans as we get ready to launch coronary in the U.S.

First, a quick overview of our operational progress this last quarter. We transitioned from a limited market release to a full commercial launch of our S4 below-the-knee product in the U.S., including the release of our 2.5 millimeter version in December to complement the 3.0, 3.5 and 4.0 millimeter sizes that were launched in November.

We continued to make good progress on our CAD III U.S. IDE trial and expect to complete enrollment this March. We initiated the CAD IV study in Japan in November. We signed a lease for a second facility, more than doubling our space in Santa Clara. We expanded geographically and sold our product in 42 countries over the course of the year, and we completed the successful follow-on financing which -- with gross proceeds of roughly $103 million. As you can tell, our dedicated team continues to execute effectively on multiple fronts as we expand our efforts to treat a broader spectrum of patients globally.

With the expanded from limited launch of S4 this past quarter, we are seeing broad use up and down the lower leg with a very high level of satisfaction in virtually every case. We've been really pleased with the early traction and diverse use of S4 below-the-knee. There are a limited number of safe and effective options for treating disease below-the-knee, an area where there is a base of 300,000 procedures annually with roughly a 65% range of calcification. So we believe this is going to be a vessel bed where lithotripsy is going to make a significant impact for patients. It's still early in the launch, and as physicians increase their experience, we continue to engage with them to best understand how they are incorporating S4 into their treatment algorithm.

There is a pattern of sweet spots emerging. They are: first, down at the ankle, where small and heavily calcified arteries often recoil almost immediately after standard angioplasty; second, areas where the vessels branch, such as the tibioperoneal trunk, or TPT, and the proximal anterior tibial artery, or AT, both of which carry high risk of complication when using other technologies; and third, when there's only a single vessel remaining to provide blood flow to the foot, referred to as single vessel runoff. In which case, safely restoring flows is what determines whether a patient gets to keep their foot or not.

The addition of S4 to our portfolio is providing even more diversification of vessels to our commercial procedurements. We spent a lot of time discussing below the knee over the past 6 months and for good reason. But it feels like this has led to an underappreciation of how meaningful the above-the-knee vessel opportunities are for us. So I'd like to remind everyone about the spectrum of vessels we can treat and in many cases, uniquely treat.

The femoropopliteal arteries run the length of the thigh and then behind the knee. While these vessels are somewhat less calcified than most of the other vessels we treat with about 50% of lesions being calcified, there are still close to 700,000 procedures in this group tier, the largest of the peripheral subsegments.

Given the procedure volume, the SFA is the bread and butter for most peripheral technologies, and we are seeing a great deal of IVL use in the SFA, despite the large number of alternatives for this segment. IVL tends to be used in the toughest, most calcified subset of lesions, where our technology helps customers achieve a great lumen gain and almost no risk of complications.

The popliteal artery, which is the segment behind the knee, is unique because of all the movement of the vessel when the leg bends, and it's an area where physicians want to avoid stents at all costs. So the safe, low pressure, minimal dissection aspect of IVL is proving to be a very attractive option.

The common femoral artery, or CFA, is a short, bifurcated segment just above the SFA. Approximately 75% of lesions in the common femoral artery are calcified. And our internal estimate is that there are over 100,000 procedures annually between surgical and interventional approaches. The common femoral has traditionally been overlooked as a separate market opportunity because this vessel has long been the purview of the vascular surgeon since surgical endarterectomy is still considered the gold standard and accounts for nearly half the common femoral procedures. Surgery has remained the preferred approach for many physicians because they want to avoid compromising or blocking the branch artery, the profunda, which is a risk when using interventional options, such as stents or atherectomy. IVL's ability to safely expand the lumen without embolic debris or high-pressure dilatation resonates strongly with our customers.

The vessels that have been the most unanticipated surprise for us are the iliacs. Our data indicate that there are actually more symptomatic iliac than below-the-knee cases with roughly 400,000 iliac procedures annually. And the disease is similarly as calcified, about 70%. There are not a great number of safe options for treating calcified iliacs, since a perforation can be catastrophic, and even managing dissections can be tricky.

Covered stents are the most common go-to option in heavily calcified iliacs since the covering usually prevents catastrophic outcomes and -- in the event of a dissection or a rupture. However, covered stents are expensive and can compromise the vessels that should ideally remain patent since the iliac side branches feed blood to the pelvic area. By using Shockwave at very low pressures and letting the IVL crack the calcium, our customers are having -- have learned that they can safely open up the iliac and -- with minimal risk of major complication, and can then follow with a stent, either covered or non-covered if they so choose.

Lastly, but still in the iliacs, is the large-bore access opportunity. This is the smallest segment in terms of procedure numbers with up to 15% of nearly 300,000 large-bore catheter cases potentially benefiting from IVL. While the procedure number is not as large as the other opportunities, the beauty of large bore is that it is obvious to everyone what a profound benefit Shockwave offers. Patients, physicians and, most importantly, VAC committees recognized immediately that delivering a TAVR transfemorally versus having to resort to alternative access strategies is just better, safer and more economical.

If you aggregate all these calcified vessels, you end up with almost 1 million patients in developed endovascular markets where Shockwave can make a difference. That's an enormous opportunity, and we have barely scratched the surface.

Shifting gears to our field team. We continue to get a lot of questions around the pace of expansion and planned future structure of the organization. With the overlapping physician customers and device techniques for both peripheral and coronary use of IVL, we are very confident in our decision to continue forward with a single sales force where all territory managers and clinical specialists will be responsible for both peripheral and coronary procedures. Our U.S. organization continues to execute and perform in a very balanced way across the country. The field team is comprised of area managers, clinical specialists and territory managers. And we envision ending 2020 with 110 to 120 professionals in the field, nearly doubling the 61 we ended with in 2019. We are planning to bring the majority of these hires on board by the end of the third quarter to ensure that most territory managers and clinical specialists will have at least a quarter to sell peripheral before the coronary launch. Internationally, we have a team of 10 direct field professionals along with 18 distributor partners, who will be adding modestly to our direct presence over the course of 2020.

Turning now to clinical. We spent a significant time and effort during the quarter building clinical evidence through both our company-sponsored and investigator-sponsored research. CAD III, our 442-patient U.S. coronary IDE was the start of the quarter and the year, really. As of December 31, we had 346 patients enrolled, and we continue to anticipate enrollment completing in March. Assuming a third quarter submission and a 6-month review by FDA, that would lead to U.S. approval in the first quarter of 2021.

Also on the topic of CAD III, earlier this week, the FDA approved a continued access protocol for C2. We are pleased that the FDA was willing to grant us this additional cohort of patients since it will keep the device in the hands of our investigators leading up to the commercial launch and will enable us to collect additional data to further support the safety and efficacy of the C2 system.

CAD IV, our study in Japan, started out very briskly because our investigators had patients waiting for the trial to start, and there were 27 patients enrolled as of December 31. Based on the current rate, we expect to complete enrollment of this 64-patient cohort in the second quarter. We continue to model the timing of approval in Japan to be mid-2022.

On the peripheral side, we restarted the randomized arm of PAD III also in November and are working with sites to get through the logistics of getting the revised documents approved. We had a few patients enrolled through the end of the year and expect the pace will pick up as some of the bigger enrollers come online this quarter. Since no new paperwork was required for the registry on PAD III, it picked right back up and was enrolled briskly as soon as we told sites that we were adding another 500 patients. We ended the year with over 1,100 registry patients.

Finishing up with a few details around our facilities and operations. Our employee count at the end of 2019 was at 286 compared to 162 at the beginning of the year. We completed our move to our 35,000-square-foot facility in Santa Clara last summer, but our hiring plans indicated that we were going to be out of space by the middle of this year. And if C2 does as well as we expect it to, we were at risk of not having enough capacity in the 3 clean rooms we run today. Fortunately, the 50,000-square-foot building next door to us had been vacant for some time and have the same owner as our current building. We were able to extend our current lease and enter into a lease for the new building, both of which now last through 2028.

We're going to convert the current building almost entirely to a manufacturing facility, taking our clean room space from 3,500 square feet today to more than 8,000 square feet. And the new building will house an expanded R&D lab as well as all of our administrative and supportive function. We anticipate that this larger footprint will give us enough space for the foreseeable future. We were quite fortunate that this opportunity is available to us since adjoining buildings is much more efficient and greatly preferred by our team.

Needless to say, it was more than helpful to have had the investor support and the follow-on offering last fall since that gave us the ability to make this important long-term commitment. 2020 looks to be another year where we will be growing at a rapid pace on multiple fronts, and we believe that the pieces we put in place in 2019 will serve as a strong foundation to support this growth.

With that, I would like to turn call to Dan.

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Daniel Puckett, ShockWave Medical, Inc. - CFO & Secretary [4]

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Thank you, Doug. Good afternoon, everyone. Shockwave Medical's revenue for the fourth quarter ended December 31, 2019, was $14.3 million, a 183% increase from $5.1 million in the same period of the prior year.

U.S. revenue was $7.6 million in the fourth quarter of 2019, growing 200% from $2.5 million in the same period of last year, all of which was derived from our peripheral products. This increase was driven by continued sales force expansion into new territories and increased adoption of our products.

International revenue also saw a nice increase in the quarter, growing 164% to $6.7 million in the fourth quarter of this year from $2.5 million in the same period last year. The main driver of our international revenue growth was continued penetration in our established international markets, combined with contribution from some new countries.

Looking at our peripheral products, M5 and S4 accounted for $8.7 million of the total revenue compared to $3.1 million in the same period of 2018, a 179% increase. As a reminder, we just launched the S4 product in the U.S. in the middle of Q4 2019. Our coronary product, C2, accounted for $5.3 million of the total revenue in the fourth quarter of 2019 compared to $1.9 million in this same period last year, representing a 181% increase. All of our C2 revenue is currently international.

In addition, the sales of generators, most of which were international, contributed $317,000 in revenue in the fourth quarter this year compared to $58,000 in the same period last year. Gross profit for the fourth quarter of 2019 was $8.8 million compared to $1.8 million for the fourth quarter of 2018.

Gross margin for the fourth quarter of 2019 was 61% as compared to 35% in the same period last year. Contributors to gross margin improvement included continued improvements in production processes to drive efficiencies and greater absorption of fixed costs from increased production. Gross margin in Q4 was impacted by start-up costs, including equipment, supplies and training of our new CER 3 production lab that we brought online in the quarter.

Total operating expenses for the fourth quarter of 2019 were $24.1 million, an 87% increase from $12.9 million in the fourth quarter of 2018. R&D expenses for the fourth quarter of 2019 were $10.1 million compared to $6.1 million in the fourth quarter of 2018. The increase was primarily attributable to clinical study costs for CAD III, IDE and CAD IV Japan.

Sales and marketing expenses for the fourth quarter of 2019 were $9.6 million compared to $4.9 million in the fourth quarter of 2018. The increase was primarily due to sales force expansion in the U.S. and internationally as well as increases in marketing program spending. General and administrative expenses for the fourth quarter of 2019 were $4.4 million compared to $1.8 million in the fourth quarter of 2018. This increase was primarily due to expenses associated with being a public company and legal costs related to the IPRs.

Net loss for the period was $14.7 million as compared to a net loss of $11.2 million in the same period of last year. Net loss per share in the fourth quarter of 2019 was $0.49.

We ended the fourth quarter of 2019 with $195.3 million in cash, cash equivalents and short-term investments. This number includes net proceeds of $96.7 million from the follow-on offering completed in November. On the topic of cash, this week, we refinanced our existing $17 million debt facility with Silicon Valley Bank in 2018. The new debt agreement in the amount of $16.5 million has a term of 48 months with an interest-only period of 18 months. Net proceeds after paying off current Silicon Valley Bank debt principal and interest from the refinance will be $3.2 million.

Before turning to our outlook for 2020, I'd like to briefly recap our full year 2019 results. Total Shockwave revenue for the year was $42.9 million, an increase of 250% compared to full year 2018 revenue of $12.3 million. Revenue from U.S. for the full year 2019 was $22.7 million, which increased more than threefold over 2018 revenue of $7 million. International revenue was $20.2 million for the full year 2019 compared to $5.3 million in 2018, representing a 285% increase.

Now turning to our outlook for 2020. We expect full year 2020 revenue to be in the range of $74 million to $77 million, which would represent a growth of 72% to 79% over the full year 2019.

At this point, I'd like to turn the call back to Doug for closing comments.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [5]

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Thanks, Dan. When we look back at the past year, I'm really encouraged by the progress we have made. IVL has surprised us by being used effectively in ways we had not thought possible and in ways that make a huge difference in treating patients. The team performed extremely well in 2019, but we know the opportunity in front of us is substantial, and we are nowhere reaching our potential.

Thank you all again for taking the time to join us today. And with that, I would like to open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from David Lewis with Morgan Stanley.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [2]

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Just a few for me. Doug, just update on PAD III timing, when do you think you can finish enrollment? And I guess the more specific questions are, is this going to be enough for expanded reimbursement? Should investors be thinking more '21 or '22 for that reimbursement? And I had a couple of quick follow-ups.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [3]

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Yes. Thanks, David. So PAD III, the randomized arm, we are -- we continue to believe that it will enroll -- complete enrollment end of this year, so fourth quarter. That we do not believe that, that data from that trial is required for reimbursement. So if you look at, for example, a CPT code, you need level IIa evidence. You don't need level III -- level I evidence, like a randomized trial. We already have publication of metanalysis that just came out recently, which would qualify as that level IIa. So we currently have, based on our understanding and feedback we've received, that we have sufficient publications for application for a code.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [4]

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Okay. And just a couple of just quick follow-ups, Doug. On BTK 2.5, should we expect 2.5 to have a significant impact on BTK trajectory relative to 3.0, and then I'll just ask the third one right now. Just on DCB, it's pretty clear throughout earnings, the DCB recovery, probably up 10% sequentially with most of the major DCB providers. Any impact you've seen in the channel relative to DCB? So those 2, and I'll jump back in queue.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [5]

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Yes. No. We're not seeing -- yes, we are seeing a -- DCBs are doing what kind of what we had predicted they'd do. They would rebound not all the way to where they were 18 months ago, but certainly north of where they were 9 months ago when they were really in their low watermark. That does not -- we're -- just as when it was high in 2018, that didn't really affect us; lower in 2019, it didn't affect us -- is not -- the slight incremental growth does not seem to have had any impact on our business one way or the other.

In terms of below the knee, we decided to launch the 2.5, first of all, because it performed very well in the limited launch, and it was quite evident that our customers really felt more comfortable in some of those smaller, more distal lead vessels with the 2.5, even if a 3.0 would have been adequate. And sure enough, our sales mix is going to be pretty heavily biased towards the 2.5, 3.0 versus a 3.5, 4.0.

It's too early for me to say, Oh, well, if we didn't have 2.5, we would have lost, whatever, 20% of the opportunity. I do think -- I mean, it's always easier to use a device if you're a physician if you feel more comfortable, and if you feel like it's the right size. So it does eliminate a potential sort of anxiety and reluctance to use the device if I add in the 2.5. It's not -- we're not -- we always hope we would launch it, so it's not materially changing our expectations for the device. We remain bullish on S4.

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Operator [6]

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Our next question comes from Bob Hopkins with Bank of America.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [7]

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And just wanted to follow-up on that a little bit. I appreciate the opening commentary, though, on all the different opportunities. But this is -- this newest one, below the knees, I have just a couple more here. Just curious, Doug, like just help us understand the launch. What percentage of your accounts did you get into in the quarter? And I know you gave us some nice commentary on where it's being used today. But from your early experience, what do you think of the prospects for this to become kind of more of a workhorse across multiple different disease type below the knee?

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [8]

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Yes, it does -- that's where it does seem to be in the use we've had to date. It works very effectively throughout the lower leg. What we've sought to understand is in part because we want to -- we do want to understand, are there certain locations that -- where it does work better. And the answer is it seems to work well wherever you use it. But it's always easier, just as with common femoral we discovered from a -- both a clinical application as well as a sales strategy targeting that location, it was easier to get physicians to think about, hey, I really don't have a good solution there.

Similarly, sort of distal lesions down around the ankles or some of those bifurcated areas up at the -- sort of further up the leg resonates pretty well with physicians. Because as they think about it, they realize those are areas where they are anxious or reluctant when using other technologies.

We've not talked about -- we're not -- we're sort of not ready to talk about how many of our sites as a percentage we're in yet with S4. Although certainly, the -- we're encouraged by the adoption, and it's a lot easier to get into sites that already have M5 because they already understand the value and utility of Shockwave, and we've already got contracts in place and the like. So that's -- our initial push is almost entirely going into sites where they already use Shockwave because they're receptive, and we're certainly encouraged by the early adoption.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [9]

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And then as a quick follow-up, can you just -- on a different topic actually on reimbursement. Just give us your latest rough thoughts on time lines for when you think there could be incremental reimbursement available on the peripheral side and how long it will take on the coronary side. And also, just how much of a priority is that process for you right now?

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [10]

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Organizationally, it's -- there are a few of us who spend a significant amount of time working through the effort that it takes to -- fairly long-term effort that it takes to get reimbursement. But it's not like we turn the whole sales team around -- on reimbursement. There's nothing they can do on that. So we have a small core team that has worked on things like, let's make sure we've got the -- all the publications that are required, so check, that's been done; a slightly larger team working to make sure that we have good relations with the various societies, and we think we're in good standing now with the sort of 4 key societies that have to coalesce around whatever they're going to do on the -- in the lower extremities, so ACC, SCAI, SVS, SIR. And that was a big improvement over where we were, say, December of 2018, where we really had sort of very, very fledgling relations with those societies. I'd say we're in good shape right now, which at least ensures that we have a seat at the table.

And then once you have those 2 pieces in place, perhaps the most important thing is to make sure you have significant energy and enthusiasm coming from the members of the society. So if physicians really like your device and make it down to the leadership of the society, that it would be very helpful for them to have incremental reimbursement. That's sort of necessary because it doesn't matter if you have good publications, if the docs don't want to use the device, the societies aren't going to really work on your behalf. So we certainly believe we're in very good shape on that front. So the sort of building blocks are in place.

Now it is a -- it takes time. We wanted to have all those in place for the moment when the societies were told, it was time to reassess the codes. It's now being talked about by others in the field that those codes are going to be going under reassessment. We became aware of that last year. But there's never sort of a formal announcement that goes out. It's more word of mouth. And fortunately, we were in the loop on it. So at least we are in a position where we have the pieces that you need.

The timing for that reassessment of the lower extremity basket, though, however, is likely to be fairly drawn out because you have 4 societies that have to agree, AMA has to agree, and then RUC committee gets involved.

It's more likely than not that it is going to be measured in years, not quarters, before there's a final new basket as they would describe it. They have multiple things they have to worry about. They have the existing technologies that they have to -- that they, obviously, want to protect and they hope don't change dramatically. But they also have new technologies like Shockwave and DCBs that are not currently incorporated. And the societies are very, very careful not to tell companies like ours what their plans are, because they have to be very careful, a, they don't know what the consensus is going to be; and b, they recognize that it's a -- could be very meaningful if they tell you one thing, then they do a different thing. So they sort of collect input and then go off on their own and decide what they're going to do. Our expectation is there will be a proposal that will come forth later this year from the societies, but it will likely be sort of end of 2022 potentially before they -- before there's a final basket.

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Operator [11]

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Our next question comes from Larry Biegelsen with Wells Fargo.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst [12]

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Doug, just wanted to start with the 2020 guidance and looking for a little bit of color. You -- the midpoint of the guidance assumes about 75% growth year-over-year. Any color on U.S. versus OUS and peripheral versus coronary? And maybe, Dan, any comments on the cadence of growth in 2020? Is there anything we should be thinking about? And I had a couple of follow-ups.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [13]

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Yes. So we'll go -- we'll tag team on that. Certainly, U.S. -- well, U.S. growth will be all peripheral, obviously, since we're not anticipating coronary approval until the end of next year. We believe S4 will be nicely stimulative to that growth. And S4, we didn't -- there will be a little bit of S4 internationally, but because of the new MDR, the improved S4 with the thicker blue material won't likely get approved until later this year, which is more than a year after it was approved in the U.S. Fortunately, all the other devices are approved and commercial internationally. So the MDR process isn't affecting us there.

We'll pick up some international peripheral, but it will be selective by country and less meaningful than the coronary driver internationally. So it's not -- we seek to have -- continue to have a fairly balanced business between U.S. and international with peripheral driving U.S. and international being driven by coronary and geographic expansion of coronary.

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Daniel Puckett, ShockWave Medical, Inc. - CFO & Secretary [14]

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As far as cadence, Larry, I think you're going to see nice continued progression as we continue to penetrate internationally and in the U.S., and we're bringing on additional sales resources, which will add to that. So you'll see a nice progression as the year goes on.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst [15]

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And then 2 quick ones for me. One, Doug, on the CAD III -- I thought it was CAD III or was it sort of CAD II or III. But the continued access protocol, you mentioned in your prepared remarks, how meaningful could that be in 2020? And just lastly, the large-bore access opportunity, you talked about that being nice for account openings. How are you measuring that? For example, there's 600, 700 TAVR centers in the United States. How are you doing penetrating those accounts relative to maybe non-TAVR accounts? Help us understand how that large -- that opportunity is helping you.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [16]

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Yes. Thanks. Yes. So it -- that large-bore access, which is -- which has traditionally been very TAVR-centric, although we're now using large bore access as a key strategy for our vascular surgery -- vascular surgeon efforts because they'll use large bore for their EVAR and TVAR devices. So we've had a few symposia recently on that, that have been really positive. So large bore isn't just TAVR, however. It -- pre-TAVR it was certainly a key driver and continues to be a key driver. We're -- we know where all the TAVR sites are. We certainly target TAVR sites as an entry point to get into the account since most of them -- pretty much all of them also do endovascular work. And so we're in more than half, but still have meaningful opportunity to expand to additional TAVR sites as well as now using that same sort of large-bore access type strategy for the EVAR, TVAR, which is an obvious benefit for the vascular surgeon just as the pre-TAVR is an obvious benefit for the cardiologists.

In terms of the continued access protocol, you asked how significant it would be for this year. I don't know if I fully understand the question, but I'd say it...

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst [17]

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How many patients started...

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [18]

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Yes, yes, yes. It's -- we can treat up to 500 patients that -- but it's still constrained by the same inclusion and exclusion criteria. So we get a lot of screen failures because as with every trial, you have to screen out certain patient populations. So this will be subject to those same inclusion/exclusion criteria. So it would not -- it's hard to fathom how we would possibly exhaust those 500 patients. I don't think we'll come anywhere close between now and the time that we get approved. But it's -- so it's almost like an unlimited incremental pool of data that we'll have at the time -- or soon after the time that we get approved or -- what's -- what we think is most important about it is, I mean, having more data is great. It will strengthen our data set, but it became clear, listening to some of our sites that they felt is important that we keep the device in their hands between now and launch, so that we would launch with familiarity and momentum versus sort of out of sight, out of mind for a year.

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Operator [19]

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Our next question comes from Jason Mills with Canaccord Genuity.

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Jason Richard Mills, Canaccord Genuity Corp., Research Division - MD of Research & Analyst [20]

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Doug, can you hear me okay?

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [21]

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Yes.

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Jason Richard Mills, Canaccord Genuity Corp., Research Division - MD of Research & Analyst [22]

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I want to start OUS coronary. So sequentially, it's doubled from the first quarter to the fourth quarter. Sequentially, you've been tracking just under $1 million a quarter. Could you give -- talk about how that progresses? You've got law of larger numbers, but great momentum there. So how should we think about your 2020 cadence in OUS coronary? And then does that trajectory get impacted at all vis-à-vis the data for CAD III, the U.S. study, once it's published? Perhaps just help us out a little bit with respect to -- I know the opportunity is big. As the numbers get larger, how should we think about the cadence OUS?

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [23]

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Yes. So the -- first, I'll answer the data question first. The data from CAD I, CAD II and dozens of single center-type publications I think has dispelled any doubt about whether IVL in the coronaries is safe and effective. It's sort of accepted and given, particularly internationally, where they -- so many of the KOLs now have the device and have access to the device and have had a chance to use it. And inflating something to 4 atmospheres, having the lesion just sort of pop open and never any embolic debris issues, I don't think that CAD III data will do anything other than validate what -- that which they already know. And that, of course, presupposes that CAD I and CAD II are good predictors of what we'll see in CAD III and the including/exclusion criteria are awfully similar. So I don't know why they wouldn't be.

We'll see continued expansion of C2 internationally, both penetrating within existing countries, within existing centers. Some of the very small countries, like I think I've used Denmark as an example before, we're in all the centers, but all the centers, meaning like 5. So in some of those smaller countries, we are well distributed. The question then is how well penetrated are we? And in those centers, that's where we -- and working with our distributors, look to turn our attention to peripheral large-bore access and the like, sort of the next bridge to growth.

The -- we continue to add geographies. So we'll expand within new geographies where we aren't fully penetrated, which is the vast majority of the countries where we are as well as adding new geographies. Like we just added India earlier this year, which we are optimistic about thus far, at least based on the feedback we've gotten. Large population, obviously, great physicians, but also the device seems to resonate well, which makes sense. It's a heavily calcified population due to the significant diabetic issue in that country.

So we'll -- we envision international growth being consistent and meaningful for not just 2019, 2020, but in the coming years as well because we have yet to -- from all accounts, we've yet to reach all the geographies you need to reach. And even within the geographies, we don't envision that flattening out for some time. But less stimulated by a specific event like CAD III data.

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Jason Richard Mills, Canaccord Genuity Corp., Research Division - MD of Research & Analyst [24]

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Got it. That's helpful. I guess another way to ask it is, this year, it was just over 1/3 of total revenue, that means C2 and all of that, obviously, outside the United States. 2020 will be all outside the United States again. Should we be thinking about it as a mix of, say, the midpoint of your guidance to be something similar to 2019?

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [25]

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What international -- I mean, international will continue growing coronary. What international doesn't have because of the -- well, first of all, the MDR delay on S4, but also just the procedure volume for peripheral is not as high internationally as it is in the U.S. So international will be largely a coronary growth still, whereas U.S. will get sort of the additional boost of S4. So the -- while we anticipate having a nicely balanced business. It's reasonable to assume that it will be biased a little bit more towards the U.S. because of the incremental S4 revenues that the U.S. picks up that international doesn't get to benefit from.

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Jason Richard Mills, Canaccord Genuity Corp., Research Division - MD of Research & Analyst [26]

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Okay, great. Got it. And then it seems like you're trying to avoid giving specific numbers for S4 versus M5. But could you talk about sort of as a mix of the revenue in 2020, what S4 might contribute as a percentage of, let's say, the U.S. business? Or perhaps contextualize it as best as you can so that we can understand maybe the mix between your above-the-knee business and below-the-knee business.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [27]

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Yes. So -- yes, the -- I think you'd understand. What we don't want to do is we don't want to put ourselves in a position where we're saying our business will be X percent below the knee and Y percent above the knee, and then suddenly start trying to drive our sales team to hit a specific number when maybe the best thing to help the most patients is, wow, everybody wants to see us in the common femoral. Well, yes, but the problem is, now if I overshoot on M5 and I don't quite hit what The Street thinks I'm going to do on S4, then people get nervous that S4 is not doing well.

I can say S4 is doing very nicely. We're very encouraged by the adoption thus far. But it is early and folks are sorting out how they'll use the device. We -- I think what -- our early experience so far over the past few months is that it is validating our perception that our peripheral business is healthier with the combination of S4 and M5. We do have more ability to address the specific needs of our existing customers as well as provide a new option for physicians who are frustrated with their below-the-knee therapeutic options. And we're able to now treat multi-level disease more often because they're -- you will often see people treating inflow disease in the SFA or popliteals, and then they'll drop down and be doing work in the tibials. And until a few months ago, they might use us for inflow, but then they would have to go and use somebody else below the knee. And now we're giving them something that gives us an opportunity to treat both and potentially sort of an upsell for us because now they can potentially 2 Shockwave catheters, one M5 and one S4.

So given the procedure volume of all of those above-the-knee vessels that we talked about, it will -- we don't see a time when S4 ever sort of surpasses M5. So it's going to be a percentage of the M5 just because there are just fewer below-the-knee procedures. But as you pointed out to me, there are also fewer good options below the knee. So we are we're quite pleased with the clinical response to the device so far. We -- sort of all the anecdotal reports that come back are sort of, wow, this is a fantastic device for this case.

But with hundreds of thousands sort of -- several times more above-the-knee cases between iliacs and common femorals and SFAs, it's going to be hard for S4 to quite catch up with that, even though we're hopeful that we have an even higher penetration below the knee than we have above the knee as a percentage of the cases.

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Operator [28]

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And we have a question from Adam Maeder with Piper Sandler.

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Adam Carl Maeder, Piper Sandler & Co., Research Division - VP & Senior Research Analyst [29]

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Congrats on another nice quarter. One on BTK from me. I know it's early, but just curious if adoptions being driven by share taking. Or if it's just more patients that are being treated due to the ease of use of S4 in the clinical profile, i.e., is it market expansive? And then we've also heard that there are some cases being done in tandem with atherectomy. So just wondering if you could put a finer point or percentage on those cases that are getting both products? And then I had a follow-up.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [30]

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Sure. It's a low percentage of the cases. I don't know sort of how far below 20%, but below that of combo cases. What's sometimes hard to differentiate is, when we get used with atherectomy, whether it's below the knee or above the knee, how often is that done because there's clear clinical benefit to combine the devices. And how often is it done because you get the incremental reimbursement with atherectomy that brings more cash into the procedure, so you can clinically rationalized using atherectomy, use a really small burr, create a hole and then you Shockwave to sort of get your lumen gain. So it feels ethical clinically, but it also feels helpful financially to combine the 2 devices into the procedure. Although, the incremental margin from that atherectomy, pretty good if you're going to do something like use a filter also in the case is negligible. But I do think there are certainly times when we're not -- we're a great device when -- once you get it across, but there are some pretty, tight, narrow lesions where atherectomy is helpful in opening it up to then add Shockwave.

In terms of the reasons or instances when physicians are electing to use the device, balloons are still the majority of cases below the knee. Atherectomy is less -- adopted less below the knee than it is above the knee in large part. Because well, first, there are fewer atherectomy devices used below the knee or companies that sell devices below the knee. But when you are really worried about embolism or dissection or perforation in some of these patients, you're going to bias towards the safest alternative. And the safest alternative has been traditionally balloon angioplasty, and now we can provide them something in an equal or safer embodiment with the intravascular lithotripsy, but we obviously have the added benefit of being able to address calcification.

So my understanding, and it's sort of anecdotal feedback because it's not like sites tell us, oh, I canceled the atherectomy case and decided to use Shockwave. It's more like this case looks like a great Shockwave case. I'm going to use it. So -- but my -- our impression is that most of the case -- most of the use cases we're getting are sort of would have been a balloon, and they're going to use Shockwave instead. So in that definition, I would -- I think you'd probably call that sort of market expanding versus share taking, at least is what I think you would look at it.

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Adam Carl Maeder, Piper Sandler & Co., Research Division - VP & Senior Research Analyst [31]

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Okay. I really appreciate all that color, Doug. And maybe just one for Dan. I think you guys talked about bringing most of the new U.S. sales reps on at the end of Q3. Just hoping to get a better sense for level of OpEx spend this year and then into 2021.

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Daniel Puckett, ShockWave Medical, Inc. - CFO & Secretary [32]

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Sure. We're going to continue to, as you noted, expand pretty significantly on the sales front. So you're going to see it definitely ramp as we expand. To Doug's point, we're looking at close to doubling the team, so you'll see a continued ramp leading up to coronary.

R&D, we've still got some clinical activities. We've got CAD III, we've got CAD IV, we've got PAD III. So we're still going to see some spending in '20 related to supporting those clinical activities. We've added a couple of R&D teams to work on some pipeline stuff, so we'll continue to see some R&D spend increases as well in '20.

G&A will be fairly modest. We'll add some accounting and some legal support as we grow the business and as needed.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [33]

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And we've got a sales training class across the hall. They really wanted us to do the call from that room so they could introduce themselves.

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Operator [34]

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Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Doug Godshall for any closing remarks.

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Douglas E. Godshall, ShockWave Medical, Inc. - President, CEO & Director [35]

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Thanks very much, and thanks, everybody, for joining us for the call today. Obviously, we're encouraged by the foundation we were able to build in 2019 and quite optimistic about our prospects for 2020 and beyond, and appreciate all the support and interest that you all have shown. Thanks very much for your time.

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Operator [36]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.