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Shockwave Medical Inc (SWAV) Q1 2020 Earnings Call Transcript

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SWAV earnings call for the period ending March 31, 2020.

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Shockwave Medical Inc (SWAV -2.32%)
Q1 2020 Earnings Call
May 12, 2020, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon and welcome to Shockwave's First Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

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

Debbie Kaster -- Investor Relations

Thank you all for participating in today's call. Joining me are Doug Godshall, President and Chief Executive Officer of Shockwave Medical; and Dan Puckett, Chief Financial Officer of Shockwave Medical. Earlier today, Shockwave released financial results for the quarter ended March 31, 2020. A copy of the press release is available on the Company's website.

Before we begin, I'd like to remind you that management will make statements during the call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements, including without limitation, 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 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, May 12, 2020.

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

Douglas Godshall -- President and Chief Executive Officer

Thanks, Debbie. Good afternoon, everyone, and thank you for joining us today. I hope that all of you and those around you are healthy and are successfully navigating this challenging time. We greatly appreciate your interest in Shockwave.

Before we begin the discussion of our results, I would like to offer a few comments on the COVID-19 pandemic. We've been closely monitoring the situation, not only for the potential impact to our business, but for how it may affect our employees, physician customers, patients and the global community around us. And I want to acknowledge and thank the healthcare workers, so many of whom we consider are friends who have been on the frontline fighting for us all.

The past couple of months have been far from normal. But the Shockwave team has demonstrated the creativity, flexibility and dedication to continue moving us forward safely with minimal disruption, which will enable us to serve our customers and their patients well into the future.

Following my update, I will turn the call over to Dan to discuss our financial results in more detail. I will then close and we will open the call for your questions. To start, I will review our recent highlights. We reported $15.2 million in revenue for the first quarter, which was up 109% over the $7.3 million we reported in revenue in the first quarter of 2019, and we ended the quarter with a $170 million in cash. We completed enrollment in CAD III, our US pivotal trial for the coronary indication in March. In early April, we completed enrollment in CAD IV, our coronary pivotal study in Japan. We made good progress expanding our US field team and ended the quarter with 78 individuals in the field, up from 61 on December 31. We launched C2 in India at the India Live Meeting in February and received a very positive response, which is encouraging given that there are over 0.5 million coronary interventions in India annually.

Now, I would like to provide some perspectives on market dynamics. We started the first quarter at a very encouraging pace that would have landed us above pre-COVID street consensus on both revenue and gross margin. COVID was beginning to impact procedure volumes in early March and they slowed precipitously in almost every geography after March 13. While some of our cases did continue, the majority were delayed or canceled. The IVL cases that were still being performed, albeit at a reduced rate for TAVR access and critical limb ischemia in the US encouraging coronary cases internationally.

The peak procedure volume for Shockwave in the US appears to have been in late February, and by the second week of April, the volume bottomed out at roughly 60% below the February peak. In the second half of April and into early May, we have witnessed a modest volume return of PAD cases, but it has been extremely localized with some geographies becoming quite busy and others seeming to have no intention of restarting until late May at the earliest. Fortunately, the conversation of ramping up elective procedures has universally gone from if to when and we now are seeing cases scheduled for the second half of May, which is a noticeable improvement.

Ultimately, our customers believe that vast majority of the patients they had planned to treat pre-COVID will still receive the treatment they needed, but we anticipate it will be a few months before they can methodically work to the backlog, rebuild the pipeline of new patients and ultimately return to what one would call normal. The early evidence in centers that are beginning to restart suggest that large bore access and critical limb ischemia, or CLI cases, return most quickly in the US, followed by more standard claudication cases. The fact that CLI will be top of mind for our customers is good news for our S4 below the knee device, which is still early in its rollout.

In addition to below the knee and large bore cases, we also believe that common femoral cases are likely to pick up a bit faster since common femoral disease is often more severe and the standard-of-care is surgical endarterectomy, which requires hospitalization and suffers from a reasonably high complication rate. Generally, the ability of IVL to reduce complications, mitigate runaway costs reduce the need for in-patient treatment and shorten length of stay is likely to be highly valued as physicians prioritize what procedures to do and aside what devices to use for those procedures.

Internationally, the impact on procedures was very similar to what we saw in the US, with some significant disparities as we look country-to-country, not unlike what we are seeing between states in the US. As in the US, the lowest procedure week appears to have been the second week of April with a modest increase week-over-week thereafter. We believe the return of procedures will also resemble the US and be slow for the first couple of months as mechanisms for managing patients are sorted out. But then it will become busier, leading into and through what is ordinarily the slow summer months. Like our US PAD business, our coronary application often enables cardiologists to treat complex, calcified patients via a percutaneous outpatient approach instead of undergoing surgery and remaining in the hospital to recover.

So stepping back a bit, we grew 109% in the first quarter despite the considerable COVID headwinds in March and while the winds grew even stronger in April, we are starting to see them subside somewhat globally and we feel that the myriad benefits of IVL that positioned us so well just eight weeks ago are still present and will auger to our advantage as the patients return. Safe, simple, and effective is a great combination in any era.

Operationally, we have continued to hire very selectively since mid-March and we've put many new hires on hold until we had a better sense of how long and deep the procedure reductions would be and by extension, how meaningfully COVID would impact our business. As mentioned previously, at the end of March, we had 78 professionals in the field in the US versus 61 at the end of 2019, which is a bit ahead of where we expect it to be. We continue hiring additional field personnel when we identify candidates who meet our very high standards and we are still planning to end the year with more than 110 people in the field in the US. Our team has continued to support our customers, albeit from a polite distance, and it is great to see the strength of the relationships our team has with the clinicians. This will be critical to facilitate access to hospitals as new policies are implemented.

The downtime also enabled us to conduct extensive training programs across our various applications, and to train more thoroughly on our growing library of publications. Trapping dozens of Type A sales professionals in their homes for two months and having them train and plan every day has not been pretty, but our team is rested, better prepared, and eager to get back to serving our customers.

One of the most impressive things I have witnessed recently is the dedication and commitment shown by our operations, quality and R&D teams. They can't do their work from home and while most of the country was hunkered down on Zoom, these groups didn't skip a beat. Our R&D team advanced our pipeline projects at the pre-COVID rate and on the manufacturing side, we were able to cut over time and yet output actually increased in April. The extra inventory we have built gives us a helpful cushion if demand returns rapidly or should our new clean room takes longer to permit and build them we are expecting.

Turning now to clinical and regulatory. We were very fortunate to be able to make considerable progress with our key trials this year. Starting with CAD III, our US coronary IDE, as of the end of the quarter, we had enrolled 384 patients and we only needed 372 valuable patients to satisfy the pre-specified statistical plan in our protocol. The FDA agreed that we could submit with at least 372 patients, and we are now working with sites to follow-up on the last handful of patients, monitor the data, and prepare the final module of the PMA. Based on our current work plan, we continue to anticipate a third quarter submission and a six months review by FDA, which would lead to U.S. approval in the first quarter of 2021.

CAD IV, our trial in Japan, also completed enrollment and to the credit of our investigators, they were able to enroll through the COVID escalation. We will be working with our sites and PMDA to stay on track with our submission and approval timelines, which continues to suggest a mid-2022 approval in Japan.

On the peripheral study side, the PAD III trial, both registry and randomized arms were initiated in order to help demonstrate the utility of IVL and to develop the market for the device. The registry arm of PAD III has enrolled over 1,200 patients. We now have a considerable cohort of patients in this study treated above the knee with our M5 device. So we have elected to narrow the focus and we'll now only be including patients treated with the S4 going forward.

The randomized arm of PAD III was just starting to come back online following the DCB debacle, but then COVID arrived and the trial was disrupted again. We have taken advantage of this opportunity to reassess how to pursue the study in determining whether a different strategy is warranted given the considerable resources it requires and the challenges of managing studies during COVID. The goal of PAD III was to statistically validate what we see in the clinic every day that IVL delivers excellent lumen gain with minimal dissections and reduces the need for stents. We believe the outcomes from this study will be helpful to our commercial team, so we discussed the idea of stopping the trial with our principal investigators and collectively decided to do so after the final prescheduled cases are completed this week. We will begin the process of data lock and then map out when those results of the trial will be presented likely early next year. We are pleased to have enrolled over 300 patients in a rigorous, randomized controlled study and appreciate the effort of the investigators.

As we look to move to the next phase and our customers return to treat their patients, it is important to note that through these challenging months, we have held steadfast and we will continue to maintain our focus on our organizational priorities to provide a safe, productive environment for our employees to optimally serve our customers and their patients; to continue to generate clinical data to demonstrate the unique benefits of IVL; to prepare for a near- and long-term growth by thoughtfully investing in expanded capacity and enhanced capabilities; and to advance the next wave of innovations to further expand the addressable markets for IVL.

With that, I will turn the call to Dan.

Daniel Puckett -- Chief Financial Officer

Thank you, Doug. Good afternoon, everyone. Shockwave Medical's revenue for the three months ended March 31, 2020 was $15.2 million, a 109% increase from the $7.3 million in the same period of the prior year. US revenue was $7.8 million in the first quarter of 2020, representing 114% increase in the same period of last year. This increase was driven by continued sales force expansion into new territories and increased adoption of our products. International revenue was $7.4 million, growing 104% in the same period of last year. Our international growth was driven by continued penetration in our established markets combined with geographic expansion.

Looking the other product lines, our peripheral products, M5 and S4 accounted for $9.1 million of the total revenue in the first quarter of this year, compared to $4.4 million in the same period of 2019, a 105% increase. Our coronary product, C2, accounted for $5.8 million of the total revenue in the first quarter of this year, compared to $2.7 million in the same period last year, representing a 117% increase. All of our C2 revenue is currently international. In addition, the sales of generators and sterile sleeves contributed $300,000 in revenues in the first quarter of 2020, compared to $200,000 in the same quarter last year.

Gross profit for the first quarter of 2020 was $9.5 million, compared to $4.2 million in the first quarter of 2019. Gross margin for the first quarter of 2020 was 63%, as compared to 58% in the same period of last year. Contributors to gross margin improvement included continued improvements in production processes to drive efficiencies and greater absorption of fixed costs from increased production.

Total operating expenses for the period were $28.5 million, a 74% increase from $16.4 million in the same quarter last year.

R&D expenses were $11.9 million, compared to $7.5 million in the same period of last year. The increase is primarily driven by clinical study costs for CAD III, IDE and CAD IV Japan and increases for R&D headcount in programs.

Sales and marketing expenses were $10.4 million in the first quarter of this year, compared to $5.9 million in the same period of the prior year. The increase was driven by sales force expansion in the US and internationally.

General and administrative expenses for the first quarter of 2020 were $6.2 million, compared to $3 million of the same period last year. The increase is primarily due to expenses associated with being a public company and legal costs related to the IPRs.

There are obviously many expenses that we will not realize as travel, tradeshows and some trials are delayed or cancelled. In these reductions in spending in some areas have given us the ability to continue investing in other areas, such as inventory build and product development, while most importantly, maintaining our valuable workforce and our financial security. While we were not able to precisely predict the impact of COVID-19 in our business in the near-term, we do know demand is being affected in the second quarter and therefore anticipate margins will come down in the quarter due to continued fixed costs allocated over decreased product revenue. We then expect a gradual recovery through the third and into the fourth quarter of 2020.

Net loss for the first quarter of 2020 was $18.8 million, compared to a net loss of $12.8 million in the same period of last year. Net loss per share for the period was $0.59.

During the quarter, we spent $4.7 million in capital expenditures, including $4 million for the buildout of our new facility next door to our existing facility in Santa Clara, which we leased in the fourth quarter of 2019 to facilitate the expansion of production lab space in existing building and we ended the quarter with a $170.4 million of cash, cash equivalents, and short-term investments.

As we announced last month, given the uncertainty around the global environment, and economy, we have withdrawn our revenue guidance for 2020 fiscal year and we will revisit the topic when appropriate. We are confident in the proactive measures we have taken as a Company to address the pandemic and its impact on our health, our business and our overall well-being, including restricting travel and requiring all but except employees to work from home. We will continue to monitor the external environment to ensure we manage the business in a fiscally prudent manner and we have identified multiple levers that we can pull to slow down our spending should the procedure ramp is slower than we expect.

Our employees and technology are two most important assets, and our strong cash position is an asset we are extremely fortunate to have and one that we do not take for granted. We are running our business during this unprecedented time with a keen eye on all three of these essential pillars as we continue to build for the future.

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

Douglas Godshall -- President and Chief Executive Officer

Thanks, Dan. We know these are uncertain times for us. And I want to assure you that we are dedicated to doing our part to support the health and wellness of our team, our customers and our patients as we continue our effort to transform the treatment of complex calcified cardiovascular disease. Like everyone else, we've spent the past three months geographically separate and spending way too much time looking at one another's faces on our computer screen and yet, our team has come together and have demonstrated that they can execute and service of our customers despite considerable adversity. I am fortunate and proud to be associated with such an impressive group and such a remarkable technology.

Thank you all again for your support and for taking the time to join us today. Take care of yourselves and do well.

With that, I'd like to open the line to questions.

Questions and Answers:


Thank you. [Operator Instructions] Our first question comes from David Lewis with Morgan Stanley. Please go ahead.

David Lewis -- Morgan Stanley -- Analyst

Good afternoon and congrats on a kind of a solid quarter given the environment. Just a couple for me, Doug and Dan. Just starting off, Doug, you talked about sort of which procedure subsets, or which vessel beds are more durable than others. I wonder if you think about Access and SFA more broadly. Do you think both those vessel beds can get back to some sense of normalcy by the fourth quarter?

Douglas Godshall -- President and Chief Executive Officer

Yeah. Thanks, David. I think the Access will go -- will come faster, because it's being driven by EVAR, TVAR [Phonetic] and TAVR, all of which will rate fairly high as physicians are trying to figure out which patients to prioritize and which patients are choosing to get treated.

SFA, standard claudication, we think we will be -- sort of as you think about all the vessels we treat that will probably be the one that takes a little bit longer, because it's leg pain, it's not salvage. Interestingly, the one vessel I didn't really talk about much in -- well, all in our script was, not just iliac for Access, but iliac symptomatically -- that remained surprisingly durable. It has remained surprisingly durable as a percentage of our cases. So, probably because we are -- the inflow for the legs and if you got to treat it, you got to treat it. So, we think in order of sort of sequencing, it will be Access cases, critical limb ischemia, then common femoral and iliac and the laggard will be SFA. It will feel more normal in the sort of late third quarter into the fourth quarter we think unless there is a severe double dip or something like that we are not anticipating. But it's -- but will SFA be all the way back to where it was at its peak in terms of total procedures, not likely until the fourth quarter and -- but hopefully in the fourth quarter.

David Lewis -- Morgan Stanley -- Analyst

Okay. Very clear. And just two quick ones for me, as well. So, one you made some pricing commentary, Doug. It's interesting, a lot of med-tech companies aren't talking about the impact of COVID on pricing. So, any specific reason why we should be think about pricing for your business or was that just abundance of caution and just PAD III still gets you those -- given it's being stopped, is it still gets you what you intended out of PAD III?

And then just a not related question on coronary. You kind of indicated, you still hire the same number of reps by the end of the year at 110. So, should we think about the coronary launch, I'm not talking about the quantification, but just qualitatively, whatever the coronary launch was supposed to do in 2021? Do you still think you can sort of deliver that type of number or is it impacted at all by the pacing of rep hiring this year? Thanks so much.

Douglas Godshall -- President and Chief Executive Officer

Yeah. I think we're not seeing any effect on pricing. But there are lot of things that have changed in the world on a daily, weekly basis that we hadn't anticipated so just had an abundance of caution. There are things that could change in the future that we are not anticipating and certainly, our pricing has been remarkably stable since our launch, our price in the US has not budged an inch and we don't anticipate it will, and internationally pricing is just a little more varied because you've got the distributor margins and alike. So, we are not expecting any impact on price as a result of COVID. We treat patients generally for whom other options are not great, we can do it safer, more effectively and more simply than other options, particularly in cases like large bore access and coronaries and the like. So, no expectation for pricing change.

In terms of rep hiring, we were looking at sort of a normal distribution this year, centered around the middle of the year in terms of hiring, ramping up in the first quarter with bolus of hires in the second, third and then tailing off in the fourth. I would say, it's going to skew now. It will skew, third, fourth. We did better than expect in the first quarter, so we got a head start. We are -- sort of every week or so, we look at where we believe cases are coming back online and where we're stretched a little thin and we agree, OK, let's go, target at a clinical specialist in that area or a territory manager in that area. So, our -- we are filling our roster just a little bit more selectively versus having a big training class of 10, 15 people at a time.

We have not altered our expectations for next year. We are fortunate. We've attracted some incredibly talented folks, and we'll get them a little bit later. So they'll have to catch up faster, but we fully expect we'll have full capability and time for the coronary launch. And we are already hearing that coronaries are starting to come back a bit, talking to my friends who are currently selling coronary devices. They are seeing a rebirth after the sort of strange pause from STEMI, we're expecting to come back online here in coming months in Europe for coronaries and we expect it will be fully back online and more like it has been traditionally once we get approved next year.


Thank you. Our next question will come from Robert Hopkins with Bank of America. Please go ahead.

Kyle Pezzi -- Bank of America Merrill Lynch -- Analyst

Hey, Doug and Dan, this is Kyle Pezzi on for Bob. I just have two quick questions. I just wanted to get a sense -- you may have missed this earlier, but as the rollout of BTK been impacted at all by COVID and just wanted to get some broader viewpoints on how we should think about how you are conducting your market development efforts more broadly in light of COVID? And how much you think the current environment will set you back as you grow into 2021 and beyond? And then I just have one quick follow-up after that.

Douglas Godshall -- President and Chief Executive Officer

Sure. Yeah. The -- well, certainly -- we all, as an industry, have been impacted by the challenges faced by our customers, first and foremost, and their ability to manage their facilities and do cases when they can, etc., and our ability to therefore access the accounts has been challenged just like everybody else has been, which doesn't help when you are in the middle of launching a product like we are with S4. So, we've supported tactually, carefully, when invited, we have still covered cases through COVID but obviously at a greatly reduced rate. So, it certainly has not -- it's not been an accelerant to our launch by any stretch. What it did has done is, it's given us an opportunity to share best practices for the territory managers who had been particularly successful at launching S4. And we've had opportunity for the sales and marketing leadership to conduct even deeper level dives on critical limb ischemia and S4 and the opportunities to -- and ways to share the benefits of that technology with our customers. So, as we reemerge from the shutdown collectively as a society, I think we are better positioned now frankly for the S4 continued rollout than we were before, because we've taken advantage of the downtime.

In terms of market development, beyond S4, it's hard to get new customers opened and get through VAC committees when VAC committees aren't meeting. So, it has slowed some of our new customer acquisition expectations, as it -- I'm sure it has with everybody. But we are hearing that VAC committees are starting to reemerge and we're starting to get on to agendas for VAC committees. And we aren't hearing that there is, at least at this juncture, that there is a change of approach from the committees and we think that our lead with large-bore access will continue to auger well to our benefit and frankly probably, will be even more appealing, because if you now have an option of doing an alternative access and keeping your patient in hospital for a couple of days or you Shockwave pre-TAVR. It's even more obvious now that for hospital, patient, physician, getting the patient in and out with the SAPIEN or what have you, is a whole lot more attractive than hanging around the hospital for a couple days. So, that applies to frankly our application and almost every anatomy.

Kyle Pezzi -- Bank of America Merrill Lynch -- Analyst

Got it. That's helpful. And then just one quick follow-up. Obviously, kind of a lot has changed in the last few months and on the Q4 call, you had talked a little bit about reimbursements. Just wanted to get the latest update there. I know that's a couple of years away, but just want to make sure we got your latest views on that. And if anything's changed as a result of PAD III or anything like that? I know it's obviously couple of years away, but just want to get your views.

Douglas Godshall -- President and Chief Executive Officer

Yeah. So, we are -- as best we can maintaining contact with the societies that are -- have been tasked with coming up with the new basket of the lower extremity codes and they, like everybody else have been on a bit of a pause. It is our -- it continues to be our expectation that there will be a new set of codes, CPE codes proposed for later this year. They were asked last year to come up with the codes and they've been debating among the four societies as to what that basket should look like. It seems likely that they'll do that in the June time frame, although I don't have certainty that they would do that. But that would put them in line for the fall CPT meetings.

As best I can tell, listening to the societies, they don't think it will lead to a new approved set of codes next October of 2021, which is why we suggested we think whatever the new basket of codes are, it's most likely to go into effect at the end of 2022, which would be for the fiscal year 2023. Again, I can't give any assurance that we will be in that basket. It's encouraging that the growing number of members of all of the societies seem quite favorably pre-disposed toward Shockwave and want to be able to use it more and think that if payments were a little bit better, they could -- it would benefit them and their patients and their centers. So we seem to have a lot of support, which again, no guarantees, but thus far, the society seem to be engaged and trying as best they can remotely to come up with a consensus proposal to get to AMA for the CPT process.

Kyle Pezzi -- Bank of America Merrill Lynch -- Analyst

Thanks, Doug.

Douglas Godshall -- President and Chief Executive Officer

Yeah. Thanks, Kyle.


Thank you. Our next question will come from Larry Biegelsen with Wells Fargo. Please go ahead.

Kevin Farshchi -- Wells Fargo Securities -- Analyst

Good afternoon. This is Kevin on for Larry. Thanks so much for taking the questions. First, just have one on the clinical front, and then I had a follow-up on the P&L. So Doug, on coronary, you mentioned you're on track to submit in Q3. You obviously completed enrollment and announced that. My question is, when do you expect you will release the data of that trial? And then I'll hold for the follow-up. Thanks.

Douglas Godshall -- President and Chief Executive Officer

Yeah. So, assuming there is something that resembles TCT this year, whether that's a live meeting we go to and sitting in halls and listen to presentations or it's a remote meeting like so many are becoming, our target is to have the data presented at TCT this fall.

Kevin Farshchi -- Wells Fargo Securities -- Analyst

Okay. Perfect. And then, on the P&L front, obviously, in light of the reduced revenues, any thoughts specifically on gross margin and operating expenses in Q2 and the second half of 2020? On the opex front, it looks like those levels came up sequentially in the quarter, largely due to the hires.

And then secondly, as you think about your cash position in the coming quarters, do you feel like you have enough to weather the storm and reach profitability with what you have today? Thanks.

Douglas Godshall -- President and Chief Executive Officer

I'll -- maybe I'll tag team with Dan on this as best as we can. So, on gross margin near term, given the meaningful slowdown in procedures, which will translate into, obviously, a slowdown in revenues in the current time frame, as we described, that will not have a positive impact on our gross margin. So they'll come down.

In terms of our -- and Dan, I'll let you walk through opex a bit. In terms of our expectation on the cash position, fortunately, we had tremendous support last year, both in the IPO and our follow-on financing, and we didn't appreciate how timely that follow-on offering was, but obviously, in hindsight, we were really lucky to be in a position to raise the extra money last year and find ourselves with, at the end of March, $170 million in cash. And a lot of future spend on things like new clinical trials that we're thinking about doing next year and trade shows and other items that are desirable to spend money on. We think they're the right thing to spend money on. But if for some reason, we are in a position where, hey, we should slow down our spend to preserve cash a little bit. We've got over a dozen different sort of discretionary spend items that we've identified that if we had to, hey, we could slow down, push off spend a little bit, slow down some hires in areas outside of like the sales team where we could be a little bit more conservative on cash and then further extend our runway. So we're -- we feel fortunate to be in such a strong cash position at this juncture and think it will last well into the future.

And Dan on [Speech Overlap].

Daniel Puckett -- Chief Financial Officer

Sure. I'll add on -- and to Doug's point on Q2 on the gross margin. We got some costs and other cost of goods sold that don't get put on the balance sheet and they'll flow through and that will impact the margin, as alluded to earlier, somewhat in Q2. And then we expect things to improve and drive more favorably as the year goes on.

On opex, as I alluded to on the script, we've got some costs that have naturally fallen out, given the slowdown, travel trade shows and conferences. And so, those are going to not be reoccurring for the most part in the near-term. We've got some natural hedges. So on opex, I wouldn't expect a lot of growth on the opex for the rest of the year. We're still going to be adding salespeople as appropriate, building out the commercial funding, our critical programs. I mean, we're still maintaining our critical functions and initiatives. And so, we're not backing off there, but we've got some natural hedges, but I would not expect the opex to step up considerably as the year goes on, given some of the natural hedges we've got.

Hopefully that helps.

Kevin Farshchi -- Wells Fargo Securities -- Analyst

Very clear. Thanks for taking the questions, guys.

Douglas Godshall -- President and Chief Executive Officer

Thank you.


Thank you. Our next question will come from Cecilia Furlong with Canaccord Genuity. Please go ahead.

Cecilia Furlong -- Canaccord Genuity -- Analyst

Hi, Doug and Dan. I wanted to ask, I guess, first off, just what you're seeing in centers through COVID using IVL to facilitate transfemoral TAVR access. Just what this has done to drive awareness of IVL generally, and how you view this positioning coming out of this on the other side?

Douglas Godshall -- President and Chief Executive Officer

Yeah. The -- certainly for the sort of immediate time frame that we've been living through for the past eight weeks or so, TAVR access in the US has been a very large percentage of our cases relative to the norm. It's not half of our cases by any stretch, but it's an important core procedure base. Because you're still doing TAVR on the sort of emergent elective kind of a patient, where you really need to get the TAVR done. You really don't want to keep the patient in the hospital overnight, so you Shockwave to open up the iliac.

It's that same logic that has enabled that large-bore TAVR access to be our lead sales pitch or strategy for getting hospitals interested in Shockwave. If they're doing TAVR, almost everybody, once they think about it realizes there's no downside to using Shockwave, and there's a lot of upside to using Shockwave pre-TAVR. We would expect, and certainly, we've been working with our sales team to think about how do we further accelerate and that TAVR access strategy, so that everyone who's doing TAVR is using Shockwave when appropriate for those cases. We've recently brought on a couple of really strong sales leaders from one of the larger companies that sells a TAVR device. And they're thinking hard about, OK, how would I -- how can we take advantage of our very recent experience in that TAVR space to help further accelerate Shockwave nationally in TAVR accounts.

So, we anticipate it will still be the one of the main firstline appeals to the VAC committees and hospitals that we can reduce complications, reduce length of stay, improve outcomes for patients getting TAVRs or EVARs or TVARs. And so, it's critical in the US; it is still early stage internationally. But internationally, there's an obviousness that this would be advantageous to the patient just like it's obvious to the US customers.

Cecilia Furlong -- Canaccord Genuity -- Analyst

Great. Thanks, Doug. And then if I could also ask just what the 2.5 millimeter S4. What you saw pre-COVID just in terms of making people more comfortable and driving volume and then coming out on the other side as well? Just kind of how you build off of this with CLI and just ramp to the back of the year? Thank you.

Douglas Godshall -- President and Chief Executive Officer

Yeah. And by the way, life post-Jason, nice to hear you directly Cecilia. So, the -- I mean, it would have been possible, but challenging to continue picking up new accounts with S4 without the 2.5. It's so obviously a -- provides comfort to the physician to have the smaller device. They -- it's probably just as safe to use the 3 millimeter. But in their minds, it's not as safe because that's how they've been trained. So, if we only launch the 3, the 3.5 and the 4.0, it would have ultimately been successful, but arguably maybe less successful than having the 2.5. Just -- it's a little bit of pushing water uphill if you're treating a 2 to 2.5 millimeter vessel. It's hard to convince yourself, you should use a bigger balloon when you've had bad experiences using bigger balloons on those vessels with higher pressure balloons.

So, it enabled us to sort of continue the rollout. And it's not like there was a step function change because it got approved -- or we approved its launch once we had finished the limited launch. That all happened in the fall. So, it was only staggered off by maybe six weeks from the rest of the launch, four to six weeks. So there wasn't a long runway pre-2.5 millimeter. I think having the full four sizes will be -- will enable us as critical limb ischemia cases come back online, probably a little sooner than the SFA, as I said earlier, it's -- we're going to be glad to have the 2.5, let's just say that.

Cecilia Furlong -- Canaccord Genuity -- Analyst

Great. Thank you.

Douglas Godshall -- President and Chief Executive Officer

Thank you.


Thank you. And today's final question will come from Adam Maeder with Piper Sandler. Please go ahead.

Adam Maeder -- Piper Sandler & Co. -- Analyst

Hi, guys. Congrats on the solid start to the year and thanks for taking the questions. Maybe to start, just a bigger picture question on BTK, now that you're about, I think, six months into launch here in the US. How do you think about the longer-term opportunity and the commercial ramp of below the knee versus coronary and above the knee? And just curious if you could maybe force those three applications in terms of potential uptake?

Douglas Godshall -- President and Chief Executive Officer

Sure. So, coronary, we don't have in the US, but it will be -- we certainly believe that it will be the most rapid uptake, certainly has been internationally. There's just an obviousness when you -- once you have our C2 device in your hands, you find all sorts of patients who you were previously either sending to surgery or treating suboptimally with underdeployed stents or trying to manage these complex patients with tools that aren't really designed to treat the different vessels we can treat in coronaries. So that will be the fastest, we believe. And that's why we're looking to staff up, so substantially to prepare for that launch early next year.

Second would be the large-bore access. Again, it's just obvious.

Third, surprisingly, to me at least, because I hadn't predicted it is symptomatic iliacs. There's just nothing really good to treat those vessels other than a covered stent and a high-pressure balloon inside of a covered stent to try to avoid rupture, major dissection, potential disaster for patient and physician and the sort of elegant safety of Shockwave really resonates in the iliacs.

And then, I'd say, it's sort of common femoral and below the knee. Again, two vessels where not great options for a lot of these patients with a lot of calcium in both of those. Below the knee, the cases are a little bit longer, and there are fewer cases than, say, in the iliacs. So that's maybe one of the reasons why iliacs has been so encouraging for us. But the safety below the knee, the ability to avoid dissection, the ability to treat bifurcated lesions, avoid embolic debris, are all so clearly spot on for that below the knee target that we certainly expect that that is going to be a real vital part of our business going forward.

And again, in this era, as patients coming back are coming back because they really need a procedure done because they're at risk of having their foot amputated. We're eager to get back out and sort of get the launch back up and rolling because we were, as you pointed out, we were well in -- we were getting well into it, and then we sort of got stunted by COVID as everybody did.

So we're -- the diversity of vessels, even though it's M5 and S4, it's two products, but it's so many different applications. And that sort of the richness of those different applications we expect will play off of each other very nicely as we continue to rollout. And we're not -- what we're not going to do is, we're not going to say, OK, you must sell -- 50% of your business has to be S4 and 50% of your business has to be M5 in part because it's going to vary a bit by territory. Do you have a lot of below the knee business going in your territory? Then you'll be able to take advantage of it. If you're maybe a big TAVR territory, you're probably going to buy us a little bit more toward TAVR until you have that fully penetrated, etc. So, it's nice to have a bit of a portfolio of products and a portfolio of applications of those products.

Adam Maeder -- Piper Sandler & Co. -- Analyst

Okay. I appreciate all that color, Doug. And then for just a follow-up. On CAD III, it sounds like TCT is the likely venue there. But just on the data itself, how should investors think about any potential clinical data risk with that study? I know we've seen other coronary data sets that look strong, and the OUS coronary business has obviously done very well. So, is it fair to assume that you view the data risk to be very low? And then just what do you think the data needs to show to drive strong adoption with US clinicians? Thanks for taking my questions.

Douglas Godshall -- President and Chief Executive Officer

Sure. So, the -- our expectation is that, given the consistency of what we see both commercially, as well as our CAD I and CAD II studies and dozens of publications that others have done using our device. I think we will demonstrate that our device is very safe in the coronaries. What we've -- remarkably in CAD I and CAD II, we only had non-Q-wave MIs as our MACE. And non-Q-wave MIs are -- you get those sometimes just by temporarily shutting off a side branch. And then the side branch comes back on after you deploy a stent. So, they are transient, by definition. And not something that a clinician would ordinarily pick up on outside of a trial. So, very minor complications.

With more patients in our study, obviously, pushing 400, it seems likely that you'll have some other phenomenon just because you're -- anytime you wire somebody's coronary arteries, you're going to have a risk of some events. But we would expect if we are comfortably below a 10% MACE rate as we have been in CAD I and CAD II, that that would be the kind of results that our physicians would be hoping to see. If we have any events outside of non-Q-waves, if they're a very small number, then I think that's what physicians would expect. And given the widespread awareness of IVL in the coronaries, and at least what I perceive to be a fairly high pent-up demand. I think as long as we cross those -- that sort of very safe threshold as we have in the past, it's already sort of well understood for the -- as its potential benefit for a wide array of patients who are either not getting atherectomy, can't get atherectomy, have left main disease where you don't know what to do as a physician, etc. I think we'll be in very good shape with those kind of results.

The sort of residual stenosis result, which sort of an afterthought in our trial, sort of less than 50% residual is -- that's not a factor that anybody is going to look at because once you put a stent in, you're going to cross that threshold. So, we're going to be measured by safety, and we certainly expect that we will demonstrate that safety.

Adam Maeder -- Piper Sandler & Co. -- Analyst

It's very helpful. Thank you.


Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to management for any further remarks.

Douglas Godshall -- President and Chief Executive Officer

Thank you, operator, and thanks, everybody, for taking the time. I know these are trying times and we've had a lot of distractions over the past couple of months. I can't tell you how much I appreciate the support of our investors. But most importantly, the support of our customers and our employees. We're in a really fortunate place as a team with a lot of work yet to do and a lot of patients that we need to take care of. So thanks again, and we'll speak to everybody soon.


[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Debbie Kaster -- Investor Relations

Douglas Godshall -- President and Chief Executive Officer

Daniel Puckett -- Chief Financial Officer

David Lewis -- Morgan Stanley -- Analyst

Kyle Pezzi -- Bank of America Merrill Lynch -- Analyst

Kevin Farshchi -- Wells Fargo Securities -- Analyst

Cecilia Furlong -- Canaccord Genuity -- Analyst

Adam Maeder -- Piper Sandler & Co. -- Analyst

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