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Good morning, and welcome to Shockwave Medical Second Quarter 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, 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 Godshall, President and Chief Executive Officer; Dan Puckett, Chief Financial Officer; and Isaac Zacharias, Chief Commercial Officer.
Earlier today, Shockwave released financial results for the quarter ended June 30, 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 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 and various assumptions.
These statements involve material risks and uncertainties, including the impact of COVID-19 pandemic that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.
Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our annual report on Form 10-K on file with the SEC and available on EDGAR and in other reports filed periodically with the SEC.
Shockwave disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, today, August 9, 2021.
And with that, I'll turn the call over to Doug.
Thanks, Debbie. Good morning, everyone, and thank you for taking the time to join us to review Shockwave's results for the second quarter of 2021. We reported $55.9 million in revenue for the second quarter of 2021, representing an increase of 444% from the second quarter of 2020, and a 75% increase from the first quarter of this year. The performance in the quarter was again led by the growing adoption of coronary IVL in the U.S., which continues to outpace our expectations.
Our U.S. commercial team continued their stellar execution this past quarter. We saw excellent performance across the board, but obviously, C2 carried the day. More and more sites are proving that they are fully prepared to use C2 independently after our launch process is complete. And we were encouraged to witness an increased percentage of our C2 sales resulting from reorders, as one would hope to see as the launch progresses. Sales from launched products comprised 74% of total U.S. C2 revenue for the quarter. We achieved this increase in reorder rates while we were simultaneously adding new accounts throughout the quarter, averaging 1.5 new accounts per territory per month. This steady cadence enables us to continue to provide thorough training and case support at each launched account before moving on to the next site. The initial order quantity for new site starts remained at 5 units on average per account.
During the quarter, 44% of our accounts purchased both coronary and peripheral products, 9% purchased only coronary and 47% purchased only peripheral. These numbers reflect both the synergy of our 2 businesses and also how many more accounts we still have in front of us with the C2 launch since nearly every hospital that performs PAD procedures also perform coronary procedures. We continue to compensate our team in a fashion that was designed to create a balanced sales approach between coronary and peripheral, which appears to be working given the peripheral growth we witnessed this past quarter. We're in the process of adding additional field personnel and expect to end this quarter with close to 70 U.S. territories.
We also expect to add several clinical specialist positions, which together should be the last meaningful U.S. field expansion for this year. Since we first started selling commercial in the U.S. in 2017, we have focused primarily on providing our customers with the safest, most consistent solution to treat patients with complex calcification. In parallel, we have spent the past several years endeavoring to improve reimbursement to complement the clinical imperative of IVL use.
These efforts are now paying off, as is evidenced by the recent granting by CMS of both a transitional pass-through payment for outpatient coronary IVL, which went into effect on July 1 as well as the New Technology Add-On Payment or NTAP for in-patient coronary IVL procedures that will go into effect on October 1 of this year. We have recently added to both our U.S. and international reimbursement teams, and we view reimbursement as an area that still offers meaningful upside for the company and our customers.
Turning to international. We are now commercial in 58 countries, and our team came through once again with great execution and drove growth in virtually all our markets on both an annual and quarterly basis. While historically, our international sales have been very coronary-centric, our peripheral franchise contributed nicely this past quarter, which suggests our market development efforts in the international PAD space are starting to bear fruit.
So all-in-all, great progress internationally, particularly considering the ebbs and flows of COVID. As the usage of IVL has expanded across the globe, we have learned more about our markets and in the process, it has become increasingly evident that the opportunity for IVL is even larger than we had previously estimated. Therefore, we felt it was time to do a refresh on our estimate of the total addressable market, or TAM, for IVL. Since going public, we have consistently estimated our TAM to be approximately $6 billion. At that time, however, IVL was not approved or launched in most geographies where we operate today. So we lack visibility to procedure volumes in many countries. Additionally, some markets have experienced significant procedure growth in the last few years. Based on these new inputs, we have increased our estimate of the TAM for IVL to roughly $8.5 billion based on projections for procedures in 2022. I'm going to quickly run through some of the components of that number that have seen the biggest changes. It's worth noting that our estimate for percentage of calcifications has remained consistent across all vessel beds -- consistent with our prior estimates.
Starting with peripheral and SFA procedures where we now have improved visibility to international procedure volumes. Our updated estimate of total global SFA procedures is approximately $950,000, up from $700, 000 at the time of our IPO. Our market that our customers created with Shockwave has treatment of iliac artery to facilitate passing of large bore catheters such as TAVR or EVAR. As TAVR cases have grown globally, we now estimate the total large bore catheter market has grown from 275,000 to 475,000 procedures.
We're also increasing our estimate of below-the-knee procedures by 30%, moving from 300,000 to 400,000. And that still underestimates the BTK potential since it fails to capture the significant population that does not get treated, those who undergo bypass surgery or those who undergo an amputation.
And lastly, coronary. Our revised estimate of the addressable market for coronary procedures has increased from 3.5 million to 6 million procedures globally. The sizable change stems from our visibility into more geographies as well as procedure volume growth, particularly in China, where we now believe total PCI procedures will reach 1.5 million in 2022.
Putting this all together, our big opportunity is actually even bigger than we initially had estimated. And we now believe IVL can address the market of over $8.5 billion.
Shifting now to clinical. We had the distinction of having 3 manuscripts published simultaneously in JAK interventions this last quarter, creating something of an IVL journal.
We also were recently informed that our abstract describing 750 patients from our PAD III observational registry was accepted for presentation in a late-breaking session at VIVA '21 conference this fall, making it the second year in a row for us to have a late breaker at VIVA. And finally, our JV in China has just started a trial of C2, and we will soon be commencing a peripheral study. These studies are designed to ensure that we are prepared in the event that country-specific data is required for approval by CFDA. If CFDA does not require these data for approval, having local data should still be beneficial for our marketing efforts.
During the quarter, our team has attended 9 conferences, where there were 10 live cases, 8 symposia and 13 webinars to support our C2 launch. And to complement our leadership in technology and demonstrate our commitment to education, we partnered with the OPTIMA team, led by Dr. James Spratt in the UK and created Shockwave's Calcium Masterclass, a proprietary educational tool that we believe is the most ambitious and comprehensive resource on coronary calcification.
Our R&D team has been hard at work advancing our pipeline with a blend of enhancements to our current products, which we believe will make performance even better in the hands of our customers, as well as some new approaches to the use of IVL that we expect will further expand our treatable population.
We've received many inquiries about our pipeline over the past few months, and our approach will be to share details about specific products when a launch is on the near-term horizon, or if we are preparing to commence a clinical study for devices that require a trial for approval. We are increasingly bullish about our portfolio, but we don't think it benefits us or our shareholders or our customers to share details about products that are still years away from entering the clinic. That said, the first product in what we expect will be a steady cadence of new introductions is M5 plus, which recently received FDA clearance for peripheral indication.
M5 plus has a longer catheter shaft than our implied catheter, so physicians will be able to treat iliac and common femoral disease via radial access. They will also be able to treat below-the-knee disease more readily using M5 plus, which is appealing for those larger or more proximal BTK vessels. The 2 features that our customers are even more excited about are the addition of an 8-millimeter diameter balloon and a faster pulse cadence going from 1 hertz to 2 hertz.
The 8-millimeter diameter is something our symptomatic iliac and large bore customers have been asking for and now they will have it. The faster pulses will cut the treatment time in half from 30 seconds per cycle to 15 seconds, which may not sound like much, but the physicians have loved it in the case we've done so far. We conducted a small controlled study and are now starting a limited launch, which we will steadily expand leading to a full launch in the first quarter of 2022.
Operationally, we continue to make great progress on both the facilities and people side of the business. We had 528 employees at the end of the second quarter as we continue to build out our sales team, increase production capacity and to invest in R&D. R&D team will grow significantly over the next 2 years as we continue to identify projects that we expect will expand the potential of IVL. We recently finalized an agreement with a contract manufacturer. And by the end of this year, they will be producing the majority of our M5 catheters. This will give us extra capacity in Santa Clara for C2 volume and should also improve our M5 margins.
We continue to be very pleased with the performance of IVL across the globe. And given the outperformance of our coronary product in the U.S. this quarter, we are increasing our guidance for the year. Our updated expectation is that we will generate between $218 million and $223 million in revenue for the full year of 2021. This would represent growth up to 232% from our revenue for the full year of 2020.
With that, I will now turn the call to Dan.
Thank you, Doug. Good morning, everyone. Shockwave Medical's revenue for the second quarter ended June 30, 2021, was $55.9 million, a 144% increase from $10.3 million in the second quarter of 2020. U.S. revenue was $42.9 million in the second quarter of 2021, growing 675% from $5. 5 million in the second quarter of 2020. The increase included $26.3 million from the coronary product, Shockwave C2, which was launched in the U.S. in February this year.
The growth in the U.S. was also driven by a recovery from the trough of the pandemic impact in 2020 as well as sales force expansion and increased adoption of our products. International revenue was $13 million in the second quarter of 2021, representing a 174% increase from $4.8 million in the second quarter of 2020. The growth in international revenue over the prior year reflects the impact from pandemic recovery as well as increased adoption in existing geographies.
A brief comment on COVID and our expectations. As we have stated in the past, we are not in the business of forecasting the impact of the pandemic. That said, while the Delta variant is having an impact across the globe and has flared up in pockets in the U.S., we believe that the impact on interventional procedures will be transient as it was in the beginning of the year.
Looking at product lines, our peripheral products, Shockwave M5 and Shockwave S4, accounting for $18.8 million of total revenue in the second quarter of 2021 compared to $6.5 million in the second quarter of 2020, a 189% increase. Our coronary product, Shockwave C2, accounted for $36.7 million of total revenue in the second quarter of 2021 compared to $3.7 million in the second quarter of 2020, representing a [905%] increase. In addition, the sales of generators contributed $0.4 million in revenue in the second quarter of 2021 compared to $0.1 million in the second quarter of 2020. Gross profit for the second quarter of 2021 was $46 million compared to $6.7 million for the second quarter of 2020.
Gross margin for the second quarter of 2021 was 82% as compared to 65% in the second quarter of 2020. Improvement in gross margin was partly driven by the launch of Shockwave C2 in the U.S., which has the highest selling price of all our products. In addition, we're seeing continued improvement in the manufacturing productivity and process efficiencies, which have also contributed to the gross margin expansion.
Total operating expenses for the second quarter of 2021 were $46.2 million, an 87% increase from $24.7 million in the second quarter of 2020. Sales and marketing expenses for the second quarter of 2020 were $25.7 million compared to $11.2 million in the second quarter of 2020. The increase was primarily driven by sales force expansion in the U.S. R&D expenses for the second quarter of 2021 were $11.8 million compared to $8.1 million in the second quarter of 2020. The increase was primarily driven by headcount growth. General and administrative expenses for the second quarter of 2021 were $8.6 million compared to $5.4 million in the second quarter of 2020. The increase was primarily driven by higher headcount to support the growth of the business. Net loss for the second quarter of 2021 was $0.4 million compared to a net loss of $18.1 million in the second quarter of 2020. Net loss per share for the period was $0.01.
While we are very encouraged that we were close to profitability this quarter, we do anticipate some variability in our operating margin in the near term as we continue to invest in our R&D programs and commercial activities. We ended the second quarter of 2021 with $174. 7 million in cash, cash equivalents and short-term investments.
At this point, I'd like to turn the call back to Doug for closing comments.
Thanks, Dan, and thank you all for joining us for the call this morning. I continue to be impressed with our team and their extraordinary execution and by the support of our investigators and customers across the globe.
The ability to make a difference in so many lives is what motivates us all, and we look forward to continuing to do so well into the future. Take care, be well, and we welcome your questions.
[Operator Instructions]. Your first question comes from Bob Hopkins from Bank of America.
Thank you and congrats on phenomenal performance. Doug, I wanted to ask about your new TAM assumptions and just want to make sure I understood exactly what's changing the numbers because, obviously, it was a big increase. So just to be clear, it sounds like it's not the percentage of cases out there that you see with calcium. It sounds like it's not your ability to penetrate the market, but rather just the sheer number of interventional cases going on around the globe that's driving the increase in TAM. Do I have that correct? Or am I missing something?
Yes. No, obviously, the biggest uplift -- and thanks, Bob. The biggest uplift was from China, which has grown substantially. But as we have commercialized into 58 different countries, we have a much better line of sight into procedure volumes, whether that's India, China, Eastern Europe, et cetera. And those -- many of those markets are less well-studied. So when we first calculated our addressable market back end of 2018, leading into our IPO in '19, we did our best to estimate how many SFA procedures and coronary procedures, et cetera, there are. So some of those markets have grown substantially. Some, we just have better visibility and realize there are more procedures going on.
And just for those who are less close to how we calculate TAM than perhaps you are, Bob, we don't look at sort of how many people have coronary artery disease or how many people have peripheral artery disease, we would have a -- obviously, a substantially larger TAM if you calculated the true potential addressable market. We chose a more sort of realizable market by taking the existing procedure volumes, then what percent of those patients are classified. And so we don't calculate based on market development of interventional procedures per se, but rather our ability to penetrate or the population that would benefit that is already being treated perhaps sub-optimally in our view because they're not using Shockwave all the time. But we're encouraged, obviously, by the -- our ability to dependent markets around the globe. But we are barely scratching the surface and particularly relative to our TAM estimate.
Okay. Got it. And then just one quick update on the U.S. coronary launch. It sounds like you've been controlling the amount of accounts that you're in. Can you just give us a sense as to where you are with the number of accounts that you're in, in terms of the number of total accounts that you see that are possible versus the number of accounts that you're in today? Just give us a little update on the pacing of the opening of accounts and coronary in the U.S.
Sure. And Isaac is on the call, too, as well. So we can tag team, Isaac, if you want to add color. So if you recall last quarter -- so we got approved in February, had 6 or so weeks in that first quarter, full quarter this time. And in both quarters, we averaged about 1.5 accounts per territory. We started with about 60 territories, give or take. We're building that number out in terms of the number of territories. But the -- even as we have sort of slowly added territories, the pace of new site additions has remained at about 1.5 per rep per territory per month or for the entire, I guess, time since we got approved per month. And we're nowhere near halfway through the penetration of accounts to 2 PCIs, there's about 1,400 or so, the 2 PCIs, obviously diminishing returns, once you cross through the 11,000, 12,000 range with much smaller accounts. And Isaac, I don't know if you want to add additional color.
No. I think you captured it. And we're still doing a good job of bringing on peripheral accounts that have historically been peripheral accounts and as they adopt coronary. Now they're kind of using all 3 product lines, and that's our goal, obviously, is to get as many accounts as possible using coronary and the peripheral products.
Your next question comes from Adam Maeder from Piper Sandler.
I wanted to start with the guidance outlook. I was hoping to just hear a little bit more about what's embedded in the guidance assumptions as we look to the back half of the year, particularly as it relates to COVID-19 trends with Delta, Q3 seasonality and then just the NTAP and pass-through payment, which are seemingly coming to fruition. So why don't you start there and then I have a follow-up.
That was a good summary of the puts and takes that we've been working through as we've been modeling. Will there be seasonality in Europe and the U. S., particularly on the peripheral side? Certainly, there always is. People are taking vacations. And hopefully, many of you on this call are going to get to take vacation and last year when a lot of folks didn't get to take one, they've been waiting. So doctors will take some time off, administrations will take some time off, et cetera. So that has us viewing the next 2 quarters as one that this quarter will be affected by that sort of vacation stuff. And so it will be more of a back-end loaded because you also have the benefit of now inpatient and outpatient add-on payments. So that is a tailwind.
So that's one minor headwind through the summer and then a tailwind after the summer. And so COVID is the one, as Dan articulated awfully hard for us to predict. Obviously, there's lots of news out of Florida. I'm hoping folks there get vaccinated so they can blunt it. And yet if you combine folks who -- people have been vaccinated in the U.S., people who have now developed a natural immunity via having hand COVID and the pace at which Delta is coursing through the system, our best guess.
And obviously, it's a guess, but our best guess is that we may not be at the peak yet, but it will probably fall off rather rapidly. And certainly, for everyone's sake, we hope it does. The other practical reality is that hospitals have learned how to manage patients better, fewer going on events. They're staying in ICUs for less time. So they're coming in, but they're both younger than they used to be. So they don't get stuck as long in the ICU and hospitals are able to manage them better.
So there -- unfortunately, the hospitals now have a decent amount of practice. And certainly, there will be some that we'll suspend in interventional procedures. And so there'll be pockets of slowdowns, but we think it will be similar to the sort of January, February, where it got a little dicey in certain geographies and then things go bounce back fairly robustly.
That's really helpful, Doug. And then one for Dan on the P&L, strong performance this quarter. I think I heard the comments, some variability going forward on OpEx margin. But maybe just help us think through gross margin cadence given that we saw a sizable step-up. How sustainable is that profile? And then just help us think about OpEx spend going forward as well. Just trying to get a better sense for when we could ultimately hit profitability.
Sure. Yes, we're very pleased with the progress we've made on gross margin. For the rest of the year, we expect gross margin to be consistent with this quarter. We have just expanded our lab in Santa Clara. And so we're going to be hiring some people that will need to be trained. So we're not going to see a lot of uplift until we get everybody kind of trained and efficient and that will take the next quarter or 2.
Next year on gross margin, we do expect some upside from the manufacturing in Costa Rica, maybe 1% or 2 into next year. So this year, consistent next year, we should see some uplift. On the OpEx, we do expect a little bump up in Q3. We're starting -- we've got some R&D activities, including clinical cooking. We're going to continue to invest in sales and marketing. Come Q4, we should be in the block and not look back.
Your next question comes from Bill Plovanic from Canaccord.
A couple of questions here. But first, just I was wondering if you could give us some color on what your VAC time lines are looking. I'm trying to get some granularity on the pace of new accounts per month, I think, is clicking at 1.5 it's maintained at that level. And I know you always -- the strike goal, I believe, was 2 for the sales force. And I'm just curious, you always have the aspirations to go higher. What's kind of holding the reps back from getting to that 2? Is it VAC? Is it something else? And then just as you -- secondly, look at the utilization on your existing accounts, I would assume that the kind of outperformance, which was really high in coronary was a function of just the existing accounts doing much more cases than expected. Wonder if you had commentary on that?
Yes. And I'll tag team with Isaac on this one, too. So we -- what we -- our thesis going into this and the thesis that Isaac and the commercial team generated was that -- we know our product is intuitive and fairly easy to train on straightforward use, et cetera. But we did not -- we felt that if we trained each site thoroughly, meaning as many physicians as possible touch the device and do cases during a launch period.
And this -- everyone on the staff becomes familiar with how and when to use Shockwave that we would be able to leave that account and know that they would use 2 appropriately and not need us there badgering them to use. And that the state would then be largely independent. -- And yes, we would still serve that account, but we wouldn't have to have a clinical specialist in the lab every day to remind people to use coronary. I -- so far that thesis, the theory that Isaac and team had has proven to be a very wise approach. The accounts are very receptive to have us there. It is being there for a couple of weeks, also enables us to cross-sell into the peripheral space.
So that has had a halo effect that is encouraging to see. And then we move on to the next slide. And what we didn't want to do is have our sales team with all the enthusiasm for C2 run from account to account, doing cases because then they were just going to have to go back and resell. And so we will not let them sell to more than 2 per month. And it's less than 2 on average for a variety of reasons. Some of it is you're waiting for VAC proceeds to get through your off-selling peripheral, et cetera. So we're not -- we're actually I’d say probably on balance, encouraged that it's a little bit less than 2 versus hitting 2 every month because the numbers certainly suggest that this -- the strategy is working. So I'll pause. Isaac, any further color?
I’d just reinforce the -- hi, Bill, the limit was 2 per month. That's a limit, not a goal. My expectation was that if you put a limit at 2 per month for all the reasons, Doug. Doug outlined that it would be -- it would naturally be less than 2 per month because not everyone is going to hit the limit every month. So I think we're encouraged by the 1.5 number. As Doug said, that as time goes on, that will continue to get smaller.
And specifically on VAC or what the timing is, I don't think we see any sort of culprit or something we think is problematic that's holding back certain accounts or other accounts, they're moving through the process, the sales team and their management housing funnel of accounts. And they're generally clicking through them pretty well. So I'd say right now, we don't see anything from a constraint standpoint that feels like it's holding us back or we need to unlock some other tactic.
Yes. And I would say the transitional pass-through was helpful in the past, knowing that it was coming in June, it was helpful having in July enabled sites to spool up their VAC processes where they had been in a small subset of the accounts where they just couldn't figure out how to get through VAC without reimbursement. So TPT and in a couple of months, NTAP will enable us to continue to add accounts in some that are more economically focused hospitals.
And if I could, want to ask 1 on operating expenses. The revenues were up $24 million sequentially, but your sales and marketing was up only $1.7 million. I mean that's like 7% of that increase. And I think Dan gave us some kind of ideas on leverage, but I mean that's a big number. And then just -- is that something that would continue for a while? Or did you spend forward, back in the first quarter, and we're just kind of seeing the kind of -- maybe it was a guarantee or something kick in. I'm just trying to get -- that's a lot of leverage. And I'm kind of figure out how to think about that going forward.
This is a topic Isaac mentions often, so I'm going to let him take this one.
Yes. Hi, Bill, so last year, the team -- the sales team in the U.S. particularly spent, but a lot of time hiring. We more than doubled the U.S. sales force last year, and that was, as you know, a forward spend in anticipation of the coronary launch. In Q1, we did not have quota for the sales team on corner because we didn't know when we would get approval. So there was some compensation associated with the coronary launch in February and March that was kind of typically more than we would pay a quota-based system.
So this is our first quarter with what I'd say is a -- the majority -- the vast majority of our territories have been hired and are under quota now for the coronary and the peripheral products. And as they continue gaining new accounts and then further penetrating those accounts, we expect to see continued SG&A leverage from that. As the territories and the goal is to have as few as territories as we need to service our customers and then have those territories be as kind of deep as possible within each account, and that makes them relatively very profitable territories?
And then the second piece on the leverage, if you bring in the international piece, our German team has been stable for a while, but we've brought on now direct sales teams in the U.K. and France. So that right now looks like expense for us. And as we start turning the crank on actually doing the direct sales in those countries in Q3 and particularly Q4 this year, we should start seeing some leverage -- some more leverage out of the international business as well.
Your next question comes from Larry Biegelsen from Wells Fargo.
Congrats on all the success here, guys. Doug, I wanted to follow up on Adam's question earlier on the NTAP and the pass-through payment. Do you think some centers have been holding back their usage of IVL waiting for these enhanced reimbursements to go into effect?
Too early to say for sure. It would appear to us that the utilization in the -- particularly in the early adopter sort of February, March, April sites, they were using it in every instance, they felt appropriate. And the more they use it, it seems the more you like it, but did not appear to be -- to have any economic constraints. They were sort of economically aware but unconstrained.
As you got into, as I mentioned earlier, as you got into June, I think there were sites that were -- well, I know there were sites that were struggling with convincing their VAC committee to bring C2 on board. And so as the -- as we add sites now, it will be a blend of sites that might not have been able to come on board were it not for the transitional pass-through or ultimately NTAP as well and sites that were just in our queue and we haven't gotten to yet.
So they weren't waiting for NTAP, they were more waiting for us. And so obviously, the -- if a site would not have been able to order Shockwave or not for reimbursement, then by definition, that's going to be an increase. We'll obviously be monitoring to see if there is an uplift at sort of same-store sales, whatever the right analog is sort of higher reorders at earlier sites because now they feel even less constrained in use at this juncture, it's too early to say.
Okay. And Doug, I'm going to try to sneak 2 in here. One is just on the long-term opportunity. Moderate to severe calcification, you've said in the U.S., it's 20% to 30% of PCI cases. And what's your latest view on the peak penetration for IVL? Would you be disappointed if it weren't 1/3 of the moderate to severe cases? And I'll stop there. I just wanted to ask one quick one on the pipeline after that.
Yes. So almost everybody -- every physician we speak to feel -- first of all, there's unanimous view that calcium is becoming an increasing percentage of the patients they treat. So while we say 30% calcified, moderate and severe combined, it -- I think the next time we adjust our TAM, it could very well be because we have data that shows us that the percentage is actually higher than it used to be because certainly the physicians anecdotally feel that it is. And it makes sense, aging diabetes for the 2 predictors and those are both [high].
In terms of the severe calcium, the published data suggests that that's 15%, so half of the 30%. And that's also the number that most physicians land on as a -- that's the population that absolutely positively should get some sort of calcium modification and only 5% pre-Shockwave, only 5% data in the U.S., a couple of percent did in Europe.
And so we -- our ease of use predictability, reliability, safety profile, all the things that resonate with our physicians also as is happening now, and we expect will happen in the future is increasing the percentage of the patients that are getting calcium modification versus just a plain stent or a balloon instant. And so if 15% is at least the number that ought to get modified. Your number would suggest that we would have 10% of the total PCI volume or 1/3 of the total calcium -- if that's a number you're asking, certainly, we're -- we don't sort of go into an account and say, okay, you do 500 PCIs. Therefore, you -- 15% of those. So 75 a year ought to have some sort of calcium modification. We sort of don't do that math. It is certainly evident to us that the percent of cases that are now getting treated in the U.S. is increasing at any site that has launched C2 is now modifying patients more thoughtfully and able to treat them more clinically appropriately with Shockwave. So would I be disappointed with less than 10%? We're ambitious.
So I would -- I certainly hope we get it at least to that number. And I think Shockwave, because of its ease of use and safety has the ability to penetrate into the less severe population as well because there's essentially no doubt side to using our device.
That's super helpful. Doug, just quickly on the pipeline. Based on your comments upfront, does that mean we're not going to get kind of this fulsome pipeline update late this year, early next year that I think you've been talking about? And just on that theme, just thoughts on additional products adding to the bag, organic versus inorganic. What are your latest thoughts?
Yes, we're still mulling whether in what form we would do a pipeline update. We're -- we've talked about the first half of next year, and that's still on our radar. What we don't want to do and don't plan to do is to put up a slide of a design that will hit the clinic in 2024, 2025 or whatever that we -- that is like just a prototype I think that's too much selling futures, companies get in trouble when they go there. I think our current products and near-term products, which we will likely early next year be more comfortable saying here are the next things coming, not everything, but here are the things coming in the near term, I think they're pretty exciting.
And so more likely than not, we'll share at least the next -- the next installments of the application of Shockwave and thinking through early part of next year still. What I was trying to clarify is that sort of longer-term multiyear product portfolio cadence that some companies put out there. We don't think that's wise for us to do, nor necessarily helpful to investors.
Did -- inorganic, I mean, the non-IVL question? Sorry, Doug.
So we're -- Isaac and I both did M&A for living for -- I think, both of those did it for 5 or 6 years. So we're not averse to finding things externally that are highly complementary. The challenge one would have in a business like ours right now is what would be stimulative to growth given the growth that we see in front of us, hard to find many things that would make sense as a sort of opportunity cost because if we spend time on something that you acquire, then that's time you're not spending on building your own business and building out your technology. So we're -- we pay attention and if there's something that is just so obvious that it makes sense to us, then we'll think about doing something, but that's not our -- that's obviously not our main focus.
Your next question comes from Cecilia Furlong from Morgan Stanley.
Doug, I wanted to start and just if you could provide a bit more detail in terms of peripheral the trends you're seeing in accounts following initial coronary uptake and adoption and really where you're able to gain traction where you hadn't previously? Anything you'd call out specifically relative to either ATK or BTK. Just anything along those lines would be helpful.
Sure. So our conversation structure for our field team is, as I said in my prepared remarks is endeavors to create a balanced selling approach where you can't -- we don't get -- as a territory manager, you don't get totally absorbed selling C2 and then stop paying attention to peripheral.
If you do that, you will not -- you won't make as much money. So they've got to sell both peripheral and coronary and they've got to sell both S4 and M5 on the peripheral side to max out the compensation. And not that our team would ignore peripheral or that they don't like selling peripheral. It's just when you have a shiny new toy, like C2 that everybody wants to talk about, there's a natural inclination to be distracted and spend less time on your peripheral business.
So I think the way we have structured that has ensured that when you're in the hospital selling C2 and everyone's high-fiving you because the case went so well, you remember that there's a vascular surgeon down the hall who might have a case, a tough iliac case and you ought to go check that out and see if you can help improve outcomes for that case. So we're quite encouraged that across the -- below the knee and above-the-knee segments that we have can we sort of saw growth generally across the various ways that Shockwave gets used throughout the quarter.
So it's not as if wow, our popliteal business just went through the roof, and that drove it. It was a widespread utilization increase across the hundreds of accounts where we sell. We're cautiously optimistic that the goal of leveraging the sort of -- or our belief, not goal, our belief that having a sales team selling both peripheral and coronary and the obvious synergies of treating iliac for large-bore access, where the same doctor does coronaries or treating coronaries for the same doctor who does below-the-knee disease, that our system is somewhat unique in med device in that we think we're stronger having one sales team sell both, whereas most companies have had to split, we don't see that anytime in the future because we do think there is a net positive to our peripheral business by virtue of being in the coronaries.
And if I could ask as well, just on Japan. Could you just provide an update around your team build out in the region ahead of approval and reimbursement. Just any additional near-term plans you have related to kind of building out that team further?
Yes. And I'll -- Isaac, you want to take this one? You're in [Suki's] team.
Sure. Thanks, Cecilia. Yes, we have a handful of people now in our team in Japan as we kind of both work more -- as we work with the PMDA to facilitate the C2 approval as we work with the MHLW to set the path forward for reimbursement and then starting to get some senior leadership in for sales and marketing. And so that's -- I think it's going per plan. And again, thinking should have -- hopeful to have PMDA approval in the first half of next year and then a 6- to 9-month cycle to get the reimbursement in place. And we want to be prepared. We want -- as much education as we can and awareness to be out there for the product, and then we'll go ahead and execute on the coronary launch next year.
Your next question comes from Rebecca Wang from SVB Leerink.
I just have a follow-up question on your margin profile. You said gross margin in the second half will be similar Q2 and there is some margin expansion in 2022. So when we think about your longer-term margin profile, as coronary IVL growth to become a larger portion of your business, is it fair to think that you gross margin can approach 85% or even high 80s range longer term? And then on operating margin, you now expect to be profitable in Q4. Ultimately, what is the ultimate operating margin we should think about in the long term?
So Dan, I'll tag team on this. The -- yes, so we're investing this year not necessarily at the rate that we are growing our revenue line but enough investment on the lab expansion, training, equipment, all the stuff Dan described, that will keep us at we believe a stable gross margin through 2021. Given we're at 82, and we think we'll get 1 point or 2 step up out of our contract manufacturer as we move up there, your sort of 84, 85 number is not out of realm of possibility. Dan?
Yes. No, I agree, Doug. On the operating margin long term, we are -- I'd like to say we're going to be above -- in the mid-30s. I mean, high 20s is kind of where we're pretty confident in, and I'm hoping we'll even get more leverage, but that's down the road. That's with all the manufacturing efficiencies and really cooking and going direct in a lot of countries. So we expect big things, and we're working towards that.
And a quick follow-up on China. Do you have -- I know it's still early, but do you have a rough timeline, when do you expect China to contribute in revenue?
So when we signed the agreement in the first quarter of this year, we suggested that the first product imported product. So we manufacture the JV imports and they sell it direct to customers that we anticipated that, that would be 2 to 3 years out. And at the locally manufactured product was more like 4 to 5. We've not revised that time frame. So you'd be looking at 2023, 2024 for the imported product. The team -- our JV partner is certainly very aggressive, very knowledgeable and are doing everything they can to pull those time lines in. But to some extent, you're subject to the CFDA.
There is no further question this time. You may continue.
All right. Thanks. Thank you, everyone. Look forward to speaking with many of you over the coming weeks, and I do hope you get a chance to take some time and be ready for the back end of the year. Thanks for your support. Speak soon.
This concludes today's conference call. Thank you all for joining. You may now disconnect.