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Good afternoon and welcome to ShockWave's fourth quarter and year-end 2020 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recoded 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, Isaac Zacharias, Chief Commercial Officer and Dan Puckett, Chief Financial Officer. Earlier today, ShockWave released financial results for the quarter and year ended December 31, 2020. 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 process, 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 the COVID-19 pandemic that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.
For 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 our 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, February 17, 2021.
And with that, I will turn the call over to Doug.
Thanks Debbie. Good afternoon everyone and thank you for taking time to join us to review ShockWave's results for the fourth quarter and full year of 2020. The past year was full of many significant challenges for Shockwave and all of us. And despite the challenges put in front of us by the global pandemic, obviously the most significant recent achievements with the receipt of the PMA approval for C2, our coronary device and we will speak to that in more detail. But before we do, it's worthwhile recounting some of the team's recent accomplishments.
We reported $22.7 million in revenue for the fourth quarter and $67.8 million for the full year of 2020, representing increases of 59% and 15%, respectively from the same periods in 2019. Both the U.S. and international franchises grew at over 50% for the year which reflects the global appeal of IVL. In October, at TCT Connect, our CAD III U.S. coronary IDE study data were presented as a late-breaking trial and it confirmed that the safety and effectiveness endpoints of the trial were met.
In November, the primary endpoint of our randomized PAD III study was also presented as a late-breaking trial, this time at VIVA. The investigators demonstrated that intravascular lithotripsy is superior to angioplasty in severely calcified peripheral artery disease. Earlier this month, data from our CAD IV pivotal study in Japan were published confirming safety and efficacy in a complex patient population.
In early December, CMS announced the creation of four new codes that established specific payment for intravascular lithotripsy procedure, procedures performed in an outpatient setting in arteries below-the-knee as well as eight new codes for IVL performed in ambulatory surgery centers. We grew our overall team by nearly 60% over the course of 2020 with the most substantial growth occurring in our U.S. field organization which now numbers over 125 individuals. And we made meaningful progress on our R&D programs which led to an acceleration of patent filings and we ended the year with over 100 issued patents.
Isaac is going to do a deeper dive into our commercial efforts, but before handling the call up, I want to provide a brief update on the COVID-19 situation as it relates to Shockwave and the trends we are witnessing which are largely consistent with what others have reported. U.S. peripheral and international coronary procedures tapered off through the fourth quarter as COVID restrictions were put in place and some patients selected to do defer their treatment to avoid entering hospitals. Our business remained stable through the quarter and into January despite the dip in procedures on a macro level which we found encouraging as it indicates that we captured a higher share of the cases that were still being done.
Thankfully, most signs indicate that we are coming out of the worst phase of the current virus surge. So we anticipate that elective procedures will recover steadily over coming weeks as ICUs continue to free up capacity. That said, it remains extremely hard to predict the trajectory and impact of the virus given the additional variables of vaccines and new variants.
To provide some additional context on our commercial operations and C2, I am happy to hand the call to Isaac.
Thanks Doug. We have been preparing for the U.S. coronary launch for the better part of a year. The entire U.S. sales organization is now out there executing on our launch plan. As we discussed before, our goal as a company is to foster independent use of IVL, whether that uses coronary or peripheral.
What we mean by this is that customers can achieve great outcomes with IVL even when a Shockwave rep is not in the room. This model is a win-win for customers and Shockwave. We have been successful doing this in the countries in which we have launched IVL internationally and with our peripheral products in the U.S. Our coronary launch tactics in the U.S. are aligned with the same strategy.
Now let me share with you five key actions that have helped the team prepare for a successful launch. First, we began training our sales force over six months ago. The training program developed by our marketing team is extremely comprehensive and includes modules on anatomy, calcified disease, advance PCI tools and techniques, coronary IVL best practices, launch tactics and pricing strategy. The content is delivered online which has made it very accessible and easy for the team to circle back and refresh themselves periodically.
Our training focuses on teaching the team no just when to use IVL but also when not to use IVL. We want to be responsible stewards when bringing this new technology to the market. We are fortunate to have many of the CAD III investigators and our international customers participate in the training program. These physicians teach the team how and when to use. IVL appropriately from the perspective of an experienced IVL operator. The strong results from the DISRUPT CAD III study will be a tailwind as we launch this product, particularly since it makes it clear to customers that IVL is safe and effective, even in the most challenging calcified cases.
Second, we have a data-driven approach that our territory managers use to prioritize their account targets. We incorporate several factors including PCI volume, atherectomy volume, IVL experience, IDN or GPO affiliation and VAC process and timing. Each territory manager is now prepared to prioritize their activity at the target accounts in their area. While the normal hospital access pathways have been impacted to varying degrees by COVID, we anticipate that most of our targeted accounts will be able to partner with us to get through the back approvals quickly and commit to the time needed to properly launch C2 in their hospital.
Third, we are fortunate to be able to leverage the experience from our three years of international sales to train our team on the most successful way to launch an account. In short, a successful launch requires a mutual commitment between Shockwave and the account to ensure that once launched our customers can use appropriately use IVL independently. Prior to introducing C2 at a center, our territory managers work with the account to identify patients who are good candidates for IVL. We will provide digital training tools that physicians and staff can use to just educate themselves prior to launch.
During the one to two weeks that we are launching a new center, we will provide in-person didactic training to operators and their stuff. With proper preparation, we expect to have multiple opportunities to treat appropriate patients during the in-service period. This will help ensure that we train as many physicians and cath lab staff as possible so they can successfully and independently continue using coronary IVL. Especially in this COVID environment, we know the customers appreciate the ability to work independently from sales reps support. If we execute well on our account launches, I am confident that in the coming years IVL will be broadly adopted and viewed as a necessary tool for achieving optimal PCI outcomes.
Fourth, a few words about pricing. As we have done in the international markets, we will sell C2 at a premium price relative to other calcium modification devices. It is a novel differentiated product which safety improves patient outcomes. It's easy-to-use and expands the population of patients that cardiologists can treat. Further, the device price is a component of the overall IVL PCI procedure cost, which CMS evaluates when determining both add-on and long-term payment levels. We have set the C2 price at a level that we believe will optimize the future reimbursement of IVL.
For near-term reimbursement, we have already submitted an application for a new tech add-on payment or NTAP to CMS. If awarded, this will provide incremental payment for IVL in the inpatient setting. Now that we have received our approval, we will soon be applying for the transitional pass-through or TPT payment. If awarded, this will provide incremental payment for when IVL is used in the hospital outpatient setting. We hope to have both the NTAP and TPT payments in place within the year.
Fifth and finally, for our C2 launch to be successful, our team must maintain and grow the peripheral business in 2021. Our sales reps have worked hard to ensure that our territories are appropriately sized and that we have enough field clinical specialists to support both coronary and peripheral accounts. The peripheral business tends to be more rep intensive than the coronary business so we have posted our teams to manage their effort and time accordingly.
The field team has spent the last 18 months helping customers become more independent with their peripheral IVL use. We are advantaged in that most peripheral accounts will be early targets for our coronary launch and many of our peripheral customers are interventional cardiologists who are already using IVL for peripheral and TAVI access. This account and customer synergy will help us maintain a strong peripheral business while we execute on our coronary launch.
Switching gears now to our international business. We are in the process of building a direct sales team in France and the U.K. We will transition the business in those countries from our distributors in the middle of 2021. We are very pleased with the results our distributors achieved in past in the U.K. In fact, it is those results that led us to conclude that we can drive further penetration and better margins with a focused Shockwave sales force. We hired sales leadership for both countries in the fourth quarter and we have begun onboarding territory managers in both countries this quarter.
In Japan, we are in the process of building a local team that will be prepared to launch the coronary product in 2022. Our decision to build the Japan business with a local leadership team is justified by the size of the market and the myriad benefits of having a direct team in Japan including communication, physician engagement and focus. The strength of the recently published CAD IV data further encourages us about the potential for C2 in Japan.
It continues to be a busy and exciting time for our organization. I am very pleased by the effort, dedication and accomplishments of our talented and growing commercial team. We are all pumped up to get on with the C2 launch in the U.S. and continue extending the Shockwave team in the international markets. The energy and passion of our employees is tangible and it's a pleasure to be a part of this team.
With that, I will turn the call back over to Doug.
Thanks Isaac. I will now touch on a few other operational updates. In addition to the early approval of C2 in the U.S., we continued to make good progress on international regulatory activities. We are on schedule with our Japan efforts with the first modules slated for submission to PMDA by the early second quarter. We are also making good progress with their notified body to obtain device certifications under the new MDR regulations.
We successfully passed our first quality system audit under MDR and we are recommended for certain patients based on those results. Tracking to the new more rigorous standards is critical since they are slated to become mandatory this May. Our team and investigators have been quite prolific in the generation of clinical papers with almost 160 IVL publications on over 2,100 patients to-date. This number will continue to expand as we publish data from studies such as the recent CAD IV publication and the soon to be published PAD III randomized data.
Let me next provide some additional detail regarding peripheral reimbursement since it is always a topic of interest. As a reminder, last July we received four peripheral codes from CMS for hospital-based outpatient procedures. This is a great first step. However, because above-the-knee and below-the-knee procedures were locked together into the same four codes, CMS would not have been able to track costs separately in those vessel beds.
We worked with CMS last fall and were pleased by their swift action in changing the outpatients rule in December with the addition of four new codes for IVL in below-the-knee lesions. These codes now pay for IVL in BTK lesions at a higher rate than ATK lesions, which is consistent with the rest of the lower extremity basket. Ultimately, our hope is that the cost data that CMS is collecting will lead them to uplift both above-the-knee and below-the-knee payments levels for IVL. The continued penetration we have seen in our in-hospital peripheral procedures, even in the face of broader procedural slowdowns due to COVID, gives us confidence that CMS will be able to gather cost data on IVL quickly.
The annual rule issued in December also included eight new codes for IVL in the ambulatory surgery centers or ASC set of service which we are pleased to see. There are not a lot of PAD interventions performed in ASCs presently, but the addition of these codes serves as validation that CMS is paying attention. Securing reimbursement when you start from scratch takes time, but we and our customers are encouraged by the steady progress we made over the past year.
Finally, there is the broader lower extremity code set that covers both hospitals and OBLs as well as physician fees. The medical societies work directly with AMA CPT panel and we have no new information to report on the lower extremity basket. The agenda for the next CPT editorial panel will be posted on March 12 and we will all be able to see if the new proposal has been submitted for this lower extremity code set.
As these many components of our business progress, we continue to strengthen our capabilities and capacity. To that end, the R&D team has moved into a much larger lab in our new building and we expect the upgrade and expansion of our manufacturing facilities will be completed within the next few months. The meaningful efficiency gains we experienced over the course of 2020 have put us in a comfortable inventory position for the launch of C2 and obviously resulted in an encouraging step-up in gross margin over the second half of last year. The productivity improvements will continue to accrue to our benefit as we move into our new clean room, although there will certainly be some ebbs and flows as we bring in a bolus of new equipment and a surge of additional operators in the coming months.
I will now turn the call to Dan.
Thank you Doug. Good afternoon everyone. Shockwave Medical's revenue for the fourth quarter ended December 31, 2020 was $22.7 million, a 59% increase from $14.3 million in the same period of 2019. U.S. revenue was $12.7 million in the fourth quarter of 2020, growing 66% from $7.6 million in the same period of 2019. The increase was driven by continued sales force expansion into new territories and increased adoption of our products. International revenue was $10 million in the fourth quarter of 2020, representing a 51% increase from $6.7 million in the prior year period. The growth in international revenue was primarily driven by increased adoption in the existing geographies. We are now commercially selling IVL in 55 countries outside the U.S.
Looking at product lines. Our peripheral products, M5 and S4 accounted for $14.1 million of the total revenue in the fourth quarter of 2020 compared to $8.7 million in the same period of 2019, a 62% increase. Our coronary product, C2, accounted for $8.2 million of the total revenue in the fourth quarter of 2020 compared to $5.3 million in the same period of 2019, representing a 54% increase. All of our C2 revenue is currently international. In addition, the sales of generators, most of which were international, contributed $466,000 in revenue in the fourth quarter of 2020 compared to $317,000 in the same period of 2019.
Gross profit for the fourth quarter of 2020 was $16.2 million compared to $8.8 million for the fourth quarter of 2019. Gross margin for the fourth quarter of 2020 was 72% as compared to 61% in the fourth quarter of 2019. Contributors to gross margin expansion included continued improvement in manufacturing productivity and process efficiencies.
Total operating expenses for the fourth quarter of 2020 were $32.1 million, a 33% increase from $24.1 million in the fourth quarter of 2019. Sales and marketing expenses for the fourth quarter of 2020 were $16.4 million compared to $9.6 million in the fourth quarter of 2019. The increase was primarily driven by sales force expansion in the U.S.
R&D expenses for the fourth quarter of 2020 were $9 million compared to $10.1 million in the fourth quarter of 2019. The decrease was driven by lower clinical expenses as most of our major studies has completed enrollment in the first half of 2020.
General and ministry expenses for the fourth quarter of 2020 were $6.6 million compared to $4.5 million in the fourth quarter of 2019. The increase was primarily driven by higher headcount to support the growth of the business.
Net loss for the fourth quarter of 2020 was $15.9 million compared to a net loss of $14.7 million in the same period of 2019. Net loss per share for the period was $0.46. We ended 2020 with $202.4 million in cash, cash equivalents and short term investments.
Finally, I would like to briefly recap our full year 2020 topline results. Total Shockwave revenue for the full year 2020 was $67.8 million, an increase of 58%, compared to full year 2019 revenue of $42.9 million. Revenue for the U.S. for the full year 2020 was $37.1 million, representing a 64% increase over 2019 revenue of $22.7 million. International revenue was $30.7 million for the full year 2020 compared to $20.2 million in 2019, representing a 52% increase.
With the continued uncertainties of COVID and the vaccine rollout globally and their combined impact on both COVID spread and procedure trends, we will not be able to provide meaningful financial guidance at this time. We continue to monitor both the broad global trends, as well as those of our business and look forward to providing you with guidance at the appropriate time.
At this point, I would like to turn the call back to Doug for closing comments.
Thanks Dan. And first, I would like to express our support and concern for our friends, colleagues and customers and their patients who are struggling without heat and electricity in various parts of the country. We wish you well and hopefully things return to the pre-cold snap normal as if to the extent that in itself was normal since we all know the 2020 and into 2021 has been a very a 12 month that none of us will ever forget. And yet, it's hard to describe how fortunate I feel with the talented team surrounding me that never once lost sight of what drives us and creates value, which is serving our customers and their patients. 2021 is going to be predictably unpredictable for a period of time. But I am certain that Shockwave team will do all we can to deliver best-in-class service and technology for the treatment of patients with cardiovascular calcification.
And with that, I would like to open the call for questions.
[Operator Instructions]. Your first question is from the line of David Lewis of Morgan Stanley. Your line is open.
Well, thank you for the question. Good afternoon. Congrats on the quarter and the C2 approvals team. Very, very impressive. Just maybe one here on probably C2 and then a quick follow-up, But I guess either for Doug or Isaac, I just wondered if you could comment on some assumptions that the detail around the C2 launch was excellent. So one, we are kind of assuming $5,000 U.S. price point. I wonder you could update us on that and consensus numbers for 2021? Sort of have $20 million, $25 million of U.S. coronary. I wonder if you could react to that? And then Isaac, for you, just thinking about the target lesion population, just that you kind of think about your marketing plans heading into the U.S. here, what's the right patient cohort percent of PCI lesions that you think is the appropriate cohort for C2? And then just a quick follow-up.
Yes. So in terms of the specific price, I think for modeling, it would probably be appropriate to use something around $4,700 selling price. That's around the range of what we have been quoting to customers here over the past 28 hours or whatever it's been. And so I think for the model that would work. It's also a number that works well, both in terms of reflecting the value of the technology and by happenstance also helps both near-term reimbursement and long-term landing the right APC. So that's the number that we called out around. And I will let Isaac pick up the launch specific questions.
Sure. Hi David. How are you doing? I think the way we are going to approach customers in the U.S. is remarkably similar, I would say, to what we have done in international markets. And that is, have our reps articulate the value proposition of coronary IVL. And really, as you start to enter the market, I think there are real -- we will work with customers on identifying patients and lesions that are not well treated by existing technologies. And I think as you have just heard, our reps do all of these things really well.
And what we kind of focus on as we come into each account is, where do they have problems even with existing technologies and how can we help satisfy those unmet needs. And that's really the training that we bring to this. It's how we talk about the product with VAC committees and getting into kind of where we think penetration might end up in the U.S. I would say, I could prefer a guess right which would certainly be wrong. I think what we are focused on is, it's like I said, really landing the technology appropriately so customers understand how to use it and then work on getting payment from CMS that they can help support the continued use.
Very helpful.
And then you asked about the year which, obviously there are so many uncertainties around procedure trajectory, we are of the belief that sort of second, third, fourth week of January is were the bottom of the trough in terms of impact on ICU use and the like. And hopefully, we are right and that will have a steady recovery of procedures. And obviously, the most recent downdraft was not as severe as last March and April when there was such fear and a complete shutdown of electives. We obviously aren't seeing that. But it does make it a little bit challenging to say, okay, we have extremely high level of confidence that by June 20 it's going to be 100x percent of what would be deemed as normal. So that does make guiding difficult which also makes answering your question a bit challenging.
Here is what we anticipate. We do anticipate, based on the initial feedback, that we will be able to launch C2 and that there will be sites that will be able to work through the VAC process and bring us onboard. And so we aren't seeing anything at this juncture in the early response that would say our launch expectations are going to be materially adversely affected by COVID. That does not appear to be the case. And so our goal is obviously to be very thorough and effective in how we launch as I described and not allow chasing cases or chasing revenue in the third week of February or fourth week of February to derail us from what we think is a much more effective long-term strategy of converting and selling accounts in a very plentiful effective manner. And so if all that comes to pass, what we are seeing is anything that says to us, at least on the coronary side and our expectation on procedure recovery side that would have us be particularly uncomfortable with the expectations around coronary right now.
Okay. That's super helpful given the environment. I will just ask one more quick one here just on BTK. I know not the focus of this call, but how are you feeling about the traction in BTK kind of exiting 2020, heading into 2021? Thanks so much and congrats again.
Yes. Thanks. And Isaac, obviously feel free to chime in. We continue to be encouraged by the balanced growth of our peripheral business. Our S4 business is growing. Our M5 business is growing. The unique ability of IVL to address lesions, whether it's an iliac or common femoral or a tibial lesion where there's heavy calcification and other things, either fail or the operator knows they won't work to begin with, has enabled us to cobble together obviously an encouraging business and clinical business approach. And so we are never satisfied, by any means. But we continue to be encouraged by the steady growth and traction, both above-the-knee and below-the-knee.
Next question?
Thank you. Your next question comes from the line of Bob Hopkins from Bank of America. Your line is open.
Great. Thank you and good afternoon. First question I will ask this kind of a market question and then ask a Shockwave question. So for Doug or for Isaac or both, it's just a general market question. With the decline in obviously COVID-related hospitalizations that we have seen over the last couple of weeks, when you are thinking about just what you are seeing out there in terms of procedure volumes, are you starting to see a pickup in the last couple of weeks in case volumes generally? In other words, have we have kind of hit the bottom and are starting to climb back up? Or are we still sort of wallowing at the lows? Just I want to get your perspective on broader trends and procedures first.
Yes. I think Isaac and I just talked about this earlier today. We are moderately encouraged here in February which is the first glimmer of encouragement, I would say, that we felt in several weeks. It doesn't feel like a head fake. It does feel like things are starting to return. The challenge is, obviously, we don't have a macro. Seeing all procedures, we see the ones that we participate in and at least in the U.S., cautiously encouraged, I guess.
And, Isaac, maybe you want to chime in on international since we have such a strong international business as well.
Yes. Sure. I think unlike in Q2, when the virus first emerged, what appeared to happen throughout Q4 and into early this year is kind of almost a whack-a-mole where some areas or regions would be back moving and then you would see a flare-up and things would tighten up or electors would close down in an area or in a couple of hospitals. And that was just happening throughout the last, I think, four or five months. And I think what we are seeing now seems better, but it's pretty early, Bob. It's hard to tell. I am bad at predicting what this virus is going to do and how people are going to react. So I think it's early, but I am more encouraged than I was a month ago, I would say. And I think it just continue to do the best we can with the procedures we have got. And what is nice is, it doesn't seem like we are getting wholesale shutdowns of electives across big parts of our region.
Okay. That's helpful. It was really a question on just like, the here and now. Predicting, I realize, is difficult, but it feels like from a lot of data points that it would make logical sense that procedure volumes broadly are starting to get a little bit better, especially in the United States, but I just wanted to confirm it.
Yes.
Okay. And then the other question, it's going to be kind of an interesting year in terms of data points on reimbursement. So just for the record, I was wondering if you can give us a sense for specifics on timing for when you expect on TPT new tech add-on payment? And just maybe set expectations for what we might see on March 12?
So March 12, we have no idea, whether the lower extremity basket will be resubmitted for the May meeting or if they will hold and submit for the October meeting. For the medical societies, the current state is attractive and the future state is uncertain. And so not that they are stalling, but it's not like, oh, they are rushing to change the current codes as fast as they possibly can.
So whether it's going to be on the agenda for the next meeting or the meeting after that, it's not known to us and we probably will find out when everybody else finds out because I think the societies, they have solicited all the feedback that they need from different companies. And I think they are now hunkered down and negotiating among themselves since it's four different societies that all have to join hands and jump together. So that's the longer-term Level 1 CPT code process.
Near-term, on the peripheral side, we do not expect to see a change of APC level for our peripheral codes, now that we have eight of them before the annual rule-making in October. That's sort of the more comfortable time for CMS to make changes. There is no certainty, certainly no certainty that we will get uplifted. I think the CMS objectively reviews the data that they will receive. I think it will be pretty obvious that we should be in a higher-paying APC, both for above and below-the-knee.
So we will see it as soon as that could happen would be October. October is also when we would anticipate that the new tech add-on payment for inpatient coronary procedures would go into effect, given our breakthrough designation. It's not a guarantee, but we think it's more likely than not that we would satisfy the criteria for an NTAP for coronary.
And then the last piece is the transitional pass-through which we have obviously been prepping to apply for and had to wait till we got approved, which thankfully we now are. We will be filing that in the not-too-distant future. There's, I would say, not remote, but slim chance that that gets approved in the first cycle which would be July. That also seems sort of more likely that they would bundle that into an October time frame. So if we were fortunate on the coronary side, we would get both inpatient and outpatient, additional payments for NTAP for inpatient and TPT for outpatient at the October time frame.
Great. Very helpful. Thanks, guys.
Yes.
Your next question comes from the line of Larry Biegelsen of Wells Fargo. Your line is open.
Good afternoon guys. Thanks for taking the question and congratulations on the quarter and the approval.
Thanks Larry.
Doug, two on coronary. Just first, I am interested in the account overlap between peripheral accounts and your targeted coronary accounts. Any additional color or quantification you can provide and how that can help the coronary launch? And I had one follow-up.
Do you want to take that, Isaac? Or you want me to take that?
Sure. Hi, Larry. There's quite a bit of overlap in where we put together just a list of target accounts in each territory and then look at those accounts from a coronary perspective and look at those accounts on who's doing peripheral business with us. So I think in the better part of this year, a lot of our early new launch accounts will be accounts where there is established peripheral business, interventional cardiologists who are doing some of that peripheral business and they are higher volume complex PCI operators as well.
Thank you. And Doug, I know there's a lot of enthusiasm for the coronary procedure for Shockwave in the U.S. But I am curious how much of a barrier, you know, the one pushback that we have seen and heard about is pricing. So how much of a barrier do you think that will be before and after you get the new tech add-on? And hopefully get the new tech add-on and transitional pass-through payment. I am sure you saw the TCTMD article yesterday which talked about doctors using IVL mainly in large vessels and bifurcations. What's your reaction? Thanks for taking the questions.
Yes. And I will tag team with Isaac on this one as well. When we launched internationally, I don't think I can find any customer that was thrilled that we were selling at a premium to atherectomy. And yet our launch, both internationally and in the U.S., is to provide an important new tool for patient populations where other devices aren't able to do a good enough job and adequately address the disease. And we will take the same approach here.
We are not trying to take share from the sort of smallish atherectomy pool. We think there's a much larger population that isn't getting adequate calcium modification. And once our international customers had the initial reaction to our price, I am sure they all wish we would lower price, but other than in some select countries, it has not really proved to be a significant barrier to adoption and we don't expect it will here either.
The added advantage we have here is, not only is the price appropriate for the technology, but there's a very clear, comprehensible reason why this price actually will accrue to the benefit of the hospitals and ultimately the patients in that it enables us to qualify for the add-on payments and ultimately should help qualify for a Level 1 CPT code as we go to work towards the longer term objective.
And so while there is likely to be some initial friction, I think my perception is the level of enthusiasm for the system and the appreciation and the conversations we have been having. The appreciation that they have seen this work before when the atherectomy code came into being, there was also some sort of friction on the price of atherectomy and yet it worked. It enabled CMS to come up with a code that rewarded the use of that device and created a good economic support system for atherectomy use and we are looking to go down a similar road.
And many of the customers we have spoken to are very familiar with that story and understand what we are doing. And right now, we are not seeing a lot of evidence that it's going to be a major barrier to utilization. Maybe some decreased used early, but in the long run, it will pay off.
And I will just add to that, Larry. The key for us on this is, first, having a rationale about why we are pricing the way we are. And we shared that with you. Next is having our reps understand that rationale. And we have done a lot of work on that front. And then the third step in to then being able to talk to their customers about it and administrators about it. And I think if we do that well and couple that with what I think is patients which is warranted given the environment, given the price and the lack of payment as we roll out, that customers will come along with us and we will remain patient and over time, build the business.
Thanks guys for taking the questions and congrats again.
Thanks.
Your next question comes from the line of Adam Maeder of Piper Sandler. Your line is open.
Hi guys. Good afternoon and congrats on the nice finish to the year. The first question is probably for Doug or Isaac. This came up a bit in the prepared remarks and the Q&A. But can you give us just a little bit more insight around the different vessel beds, ATK, BTK, coronary and how those fared during the quarter and what the trajectory of those segments looked like throughout Q4? Just any color there would be appreciated. And then I had a follow-up.
Yes. So both our peripheral segment, as I mentioned earlier, our peripheral products are both growing and contributing nicely to the growth at comparable growth rates. Now our above-the-knee business is the larger business. So it's contributing more dollar growth than the below-the-knee segment. And yet we made very good strides with some of the key below-the-knee, critical limb ischemia operators.
Those who do below-the-knee work tend to concentrate a lot of their activity on below-the-knee work. And those who don't do much of below-the-knee work or are more generalists in peripheral space, while they are below-the-knee business, not that it matters to us, that's not where the procedure volume was concentrated. So we have had a real concerted effort over the past quarter or so to make greater inroads into the CLI community and that seems to be bearing fruit as they evaluate and start to incorporate S4 into their treatment algorithms.
So our above-the-knee business is stronger because of the existence of our below-the-knee business and base business. They seem very complementary. Just like we anticipate that the integration of C2 is actually going to have a halo effect for our overall peripheral business and we have already seen it in some of our conversations as we talk.
Coronary with folks who aren't using aren't using M5 for TAVR PREP, it opens the door for us to have a conversation like why are you doing an alternative access when you could be using Shockwave to open up the iliacs. So our express intention is to take advantage of the fact that we have a single sales force who can leverage the relationship with the cardiologists who do some peripheral or might do structural heart or the like. There's so much synergistic crossover with coronary in our peripheral business that we think it's going to be a real advantage given the use case of our system that C2 will complement S4 and M5, as opposed to cannibalize the selling time for those products.
Thanks for the color. That's helpful. Thanks Doug. And then I will ask one on the pipeline. It's been a little while since we have gotten an update on the TAVL program for aortic stenosis. I know it's very early there, but it's a sizable opportunity for the company if the right technology can be developed. So just any update on that program that you can share at this point in time? And then separately, you started to talk a little bit about just exploration of new indications for IVL. Just wondering if there's anything you can share there as well? Thanks so much.
Sure. Yes. So we remain optimistic about our prospects to develop a therapy for treating aortic stenosis. We continue to make strides with what we hope will be the next device that goes into the clinic. But it is such a different environment to use Shockwave than when you have got flat leaflets with calcium built on within them versus putting our IVL inside of an artery. And so we have learned a lot over the years. And as we described it last year, TAVL was sort of it had been heavily in research mode. And I would say, we made good progress on researching what it is we need to do perhaps a bit differently to make it more intuitive, more predictable when treating aortic stenosis. And our plan is, later this year or early next year, to have a broader pipeline discussion, not just advances in the peripheral and coronary device activity, but also areas such as TAVL. And so I would say, stay tuned, either later this year or early next year, we look to have a pipeline, a broader, more detailed pipeline conversation.
Sounds good. Thank you.
Your next question comes from the line of Bill Plovanic of Canaccord. Your line is open.
Great. Thanks. Good evening. Congratulations on the approval. And the first question for Doug and Isaac is relative to the launch. As you launched C2, I am just curious, the learnings you gained internationally and kind of what are those key learnings? And how has that influenced the launch of C2? And then my second question will be just some of the transition international and the impact on the finances.
Since Isaac basically flew back and forth to Europe every other week launching C2. I will let him take it.
Yes. Similar to what I have laid out, we have really tried to learn from what went well in our international experience and what didn't go well and incorporate that into the U.S. training and U.S. launch. And a lot of that learning, frankly, was delivered and that training was delivered to the sales force by customers who have since the beginning of our launch of the coronary product in Europe worked with us and help us learn together kind of where is IVL appropriate? Where can it work where other things cannot? When is it not appropriate? And so we really know a lot more about how the technology works and where it works than we did when we launched in Europe. And that's really kind of what's driven the foundation of a lot of the training that we have in the U.S.
But essentially, it's going to be launched the same way and that is talking to customers about the unmet needs they have with their current technology. There are specific areas of those unmet needs. Most customers who treat complex PCI have patients that fit in those specific categories and that's where we start. And that really, in our experience, helps. It helps the customer understand where IVL can help them in their practice and help their patients. And the community starts to grow from there. But that's always our starting point when we go into accounts.
And then on the VAC process and I don't know as you go through how many of the accounts actually need to go through VAC for coronary? And then given that you already have peripheral on most of the initial accounts, like, what's the timing of that process? Is that a week? Is it a month? How should we think about, I understand the commentary of it's about two weeks to onboard an account, but how does it take to get through that first gate, which is the VAC?
It's really highly variable. And so I think what we will see is, as our territory managers go in and start working with accounts, there's going to be some of their target accounts that can move through the process quickly. Some that are more like two to four weeks, some that might take a longer and we will just start stacking up into their launch planning when those accounts are coming in, so they can start scheduling their in-service one to two week launch week with the account. So in a way, the variability helps because if everyone got to a VAC in a week, we would be inundated with people wanting to launch, but it will naturally kind of space itself out.
Okay. Thank you for that. And then my other question is, you mentioned on international, in a couple of markets that you were going direct. And how should we think about the impact in Q1 as you make that transition on the business? Is this material? Is it, you know, you have already worked those inventory down so we haven't seen it in the numbers? How should we think about that?
Yes. So in the first quarter, you won't see an impact because the transition will be mid-year. And we have gotten to a point where it should be a fairly smooth transition. And at least in Japan, it will have no effect because we are going direct when we launch next year.
In the U.K., we see the benefit primarily being revenue growth and penetration of what we think is a real market for peripheral in the U.K. and yet less of an ASP lift because the model we have in the U.K. is a sales agent model versus a distributor model.
And then in France, we have a smaller business than the U.K., which is one of the reasons we are building direct is our distributor did a very good job of validating that the market is real, both coronary, primarily coronary, but also peripheral. And yet they had a bag that was too full to really put in the effort that we think the market warrants and therefore we have both unit volume increase, meaningful potential in France as well as ASP because we don't have the transfer price in France.
So it's sort of a mixture of benefits in the countries where we are going direct. And at the end of the day and the commonality is, we think the markets are in those countries and we will be assessing other countries as well, is more substantial than maybe a distributor is able to realize given that they are less focused by definition than a direct presence we will have.
Great.
And if I may --
Sure. Go ahead Isaac.
Sorry, just one clarifying question or a comment on the inventory as we transition in mid-year. We have the team in Europe is working closely already with the distribution partners to plan a smooth transition so that there was not excess inventory that people can't sell that has been purchased, et cetera. So we expect it to be a very kind of smooth, seamless transition that shouldn't impact balance sheet or inventory.
Okay. Thank you. And then in guidance, I know it's really difficult given COVID and kind of the ebb and flows of this, but if I can ask the question differently, as you look at the first week pre-coronary in the peripheral business, if that annualized out and I understand there's a lot of variables here. I mean, in terms of comparison to fourth quarter, are you up, down? I am just trying to directionally kind of get a feel for where Q1 may be going with that trough and bounce because we don't know how deep the trough is and how big the bounce is. But if we get some sort of normalcy to maybe a point in time, it's helpful?
Yes. So in terms of our understanding of procedure volume month-to-month, the underlying base of procedures felt, seemed, I don't know what the right word is, seemed lower in January than it did in November, December. But as I described, our sort of daily drum beat of sales was not dissimilar month-to-month. There's obviously the numbers aren't identical, but they are not dissimilar, which gave us the impression that if the procedures are down, but your daily cadence is similar, that would suggest you are getting a high percentage of the cases that are getting done.
In terms of the bounce back, we rolled out all the different letters. I wouldn't give it a V-shape recovery, but nor was the trough as low as it was back in the second quarter. So as you can tell from both Isaac and I, we are ultra careful not to get ahead of the curveballs that the buyers keeps throwing at our customers and then by extension, their procedure volumes. So we feel like it's going to be a climb out, but it's going to be a slow ascent from the trough of mid-January.
Okay. Thanks for taking my questions.
There are no further questions at this time. I would like to turn the call back over to your speaker, Doug Godshall, for any closing remarks.
Okay. Thank you operator and thank you everybody for your time and attention. And hopefully, 2021 is going to be a superior year to 2020 in terms of the average daily living we all do. And hopefully the vaccines all take hold and we are all in the same place together again in the not-too-distant future. So with that, thank you very much and have a good rest of your quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.