Nevro Corp (NVRO) Q4 2020 Earnings Call Transcript

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Nevro Corp (NVRO -3.23%)
Q4 2020 Earnings Call
Feb 24, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Katherine and I'll be your conference operator today. At this time, I would like to welcome everyone to the Nevro's Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Julie Dewey for introductory remarks. Thank you. Please go ahead.

Julie Dewey -- Vice President, Investor Relations & Corporate Communications

Good afternoon and welcome to Nevro's fourth-quarter 2020 earnings conference call. We appreciate you joining us. I am Julie Dewey, Nevro's VP of IR, and Corporate Communications. With me today are Keith Grossman, Chairman, CEO, and President, and Rod MacLeod, Chief Financial Officer.

The format of our call today will be a discussion of fourth-quarter trends and business results from Keith, followed by detailed financials from Rod, and then we'll open up the call for questions. Please note, there are also slides available related to our fourth-quarter performance on the Nevro Investor Relations website on the Events and Presentations page.

Earlier today, Nevro released its financial results for the fourth quarter ending December 31, 2020. A copy of our earnings release is available on our Investor Relations section of our website at nevro.com. This call is being broadcast live over the Internet to all interested parties on February 24, 2021, and an archived copy of this webcast will be available on our Investor Relations website.

Before we begin, I'd like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of federal securities laws. Our results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-K to be filed later today for a detailed presentation of risks. The forward-looking statements in this call speak only as of today and we undertake no obligation to update or revise any of these statements. In addition, we will refer to adjusted EBITDA, which is a non-GAAP measure. It is used to help investors understand Nevro's ongoing business performance. Please refer to GAAP to non-GAAP reconciliation tables within our earnings release.

And now I'll turn the call over to Keith.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Thanks, Julie. Hello, everyone, and thank you for joining us. Today, we reported fourth quarter 2020 worldwide revenue of $109.7 million, representing a decline of 4% compared to the fourth quarter of 2019. On a sequential basis, worldwide revenue increased 1% over the prior quarter. U.S. sales declined 3% of the prior year to $94.6 million in the fourth quarter but increased 4% sequentially over the prior quarter. International revenue decreased 8% year-over-year as reported, or 14% on a constant currency basis with -- to $15.1 million in the fourth quarter, and that represents a sequential decline of 14% over the prior quarter.

Both U.S. and international revenue was meaningfully impacted by the resurgence of COVID activity in the second half of the quarter. U.S. trials per day, perms per day and revenue all improved over Q3 results despite the increase in COVID activity. Now while encouraging, it's important to note that activity started stronger at the beginning of the quarter and degraded over the course of the quarter as COVID activity increased.

Compared to prior year, fourth-quarter total U.S. permanent implant procedures decreased 1% with trial procedures declining 8%. Approximately 200 scheduled U.S. permanent implant procedures or roughly $5 million in sales were canceled and still unrecovered at the end of the fourth quarter, with the majority of those occurring in the month of December. Reductions in both trials and perms in the quarter were caused by a combination of both facility reduction of elective procedures, patient reluctance to move forward due to COVID concerns, or the exposure a diagnosis of healthcare providers with the COVID virus themselves.

Throughout 2020 and despite the impact on our business of COVID, we delivered strong progress across our business. First, we maintained our workforce during an unprecedented and challenging pandemic environment and enabled our Nevro team to do their jobs safely and in most cases virtually and effectively. We also added key members to our leadership team. Our field team continued to support our customers and patient side-by-side with front-line health-care workers and patients. We used our unique NevroCloud capabilities to reach out to patients and have now had over 800,000 remote patient interactions throughout the challenges of the COVID environment, both optimizing therapy for our patients and getting canceled cases back on the calendar for our customers faster than our competitors could.

We continue to capture share in our U.S. market throughout 2020, and expanded our competitive advantage with the ongoing Omnia launch. In fact, over the combined course of 2019 and 2020, we think we've picked up 4 to 5 U.S. market share points.

Our R&D and clinical teams prioritized in advance future products and indication growth drivers, including the first major upgrade to our Omnia platform, which you'll hear more about later in this call. On the intellectual property front, we were successful in our offensive litigation against both Boston Scientific and Stimwave, maintaining exclusivity for high-frequency SCS therapy. We completed a successful capital raise within weeks of the onset of COVID, adding over $300 million to our balance sheet, and demonstrated prudent expense management throughout the year, delivering adjusted EBITDA positive performances in both the third and the fourth quarters.

We kicked off a project to establish our own manufacturing operations in Costa Rica, and we expect to be approved to make and sell our own products sometime next year, improving our cost position and our manufacturing flexibility. Continuing our long-standing commitment to our growing body of clinical evidence, data from both our PDN and NSRBP randomized clinical trials was accepted for the late-breaking abstract session at NAN's, positioning us to help physicians treat new and underserved patient population suffering from debilitating chronic pain. But we ended the year on a high note by announcing our FDA submission to seek approval for the treatment of chronic pain associated with PDN. This condition affects millions of patients who are suffering today with no really good options.

In any year, I think these are accomplishments that we would be proud of, but in 2020, our team accomplished these goals during a global pandemic and I want to thank the entire Nevro team for all that they did, not only in response to the pandemic but for keeping the company moving forward in spite of it.

So let me update you on the current state of the COVID impact on our business. As of today, COVID continues to impact patient demand, case scheduling, and cancellation rates with procedure still strongly impacted as we're seeing in December. We continue to think that this impact will diminish with each sequential quarter this year as vaccine availability improves and patients begin to again seek elective care at a more typical pace. Rod will get into a bit more detail on what that means going forward on the standpoint of our guidance.

We believe many patients are continuing to defer treatment until they feel comfortable a visiting physician, particularly as they perceive a vaccine to be just around the corner. Similar to the demand trends experienced in the second and third quarters of 2020, we expect the resurgence of COVID in the fourth quarter of 2020 and first quarter of this year will create another period of pent-up demand recapture as infection rate subside and vaccine availability improves and starts to positively affect patient behavior. Now, obviously, the timing and size of the recovery is really difficult to predict.

While the environment continues to be a difficult one, today on a relative basis, we believe we continue to capture market share in the core lower-back and leg-pain markets throughout 2020 as a result of our best-in-class HF10 SCS technology, our expanded Omnia platform, new and important indications and sharpened commercial execution. And I really believe we're well-positioned for attractive and sustainable growth as the pressure of COVID it on our business subsides.

We had another terrific NANS conference this year with data presented from 20 clinical abstracts including late-breaking abstract results from our SENZA-PDN and SENZA-NSRBP randomized clinical trials, both of which demonstrated highly favorable results to nearly all pre-specified endpoints at six and 12 months in the PDN study and three months in the NSRBP study. No other SCS treatments have demonstrated such positive results in treating these patient populations and we believe these are significant opportunities for Nevro.

We announced that we submitted our PMA Supplement to the FDA in December to seek approval for PDN and that submission was accepted by the FDA in early January. If approved, the SENZA system would be the only spinal cord stimulation system FDA approved with a specific on-label indication for treating PDM and assuming a six-month review cycle from acceptance and approval from the FDA would also have positioned us to initiate U.S. launch activities in the second half of 2021.

As a reminder, there are over 5 million patients in the U.S. diagnosed with PDN and approximately 2 million of these patients are refractory to our failing conventional medical management and in need of a new solution to treat their chronic pain. That represents a roughly $47 billion prevalence pool in the U.S. and an estimated annual incidence rate of approximately $5 billion.

I have to say I'm about as excited for this launch as any I can remember. Our goal is to get off to a fast start in the second half of the year in referral and trialing activity, setting the stage for an exciting revenue impact in 2022. I'd like to spend a couple of minutes setting the stage for the rest of this year's PDN launch activities. We've submitted our six-month PDN trial results for publication, which have been accepted in the premier peer-reviewed journal. We plan to submit 12-month data later this year. In addition, the health economic data will be analyzed and submitted for publication later this year along with real-world evidence from our NevroCloud platform analyzing the long-term outcomes of HF10 patients diagnosed with PDN.

An important aspect of our launch is to ensure market access. We've already started approaching payers with the goal of expanding policy coverage to include PDN patients where it doesn't exist today. So far, it seems the data will be compelling for those payers, particularly given this patient population where they just haven't received much traction with other therapeutic options that they're paying for.

Part of our message to payers is that the quality of the clinical evidence and the outcomes reported as well as the potential FDA approval will all be unique to HF10 therapy and should be treated as such through their coverage policy decision making. We think there is already a meaningful percentage of patients that will have coverage at the time of our launch. Through local coverage determination of the Medicare contractors or MACs, we estimate approximately 50% of Medicare beneficiaries should have access at launch.

On the commercial side, the majority of commercial health plans have not historically included PDN in their SCS coverage policy. So in aggregate between the two groups, we estimate that roughly 25% of our PDN patients will have access at launch. While some payers may require 12-month data, we expect to have that data by the time we receive FDA approval. With this in mind, we expect our commercial coverage to increase over time as additional commercial payers expand coverage throughout 2022.

Our research has shown that while pain physicians are very interested in treating PDN patients, they don't see a lot of them referred to them today. So education of those referring doctors will be a key part of our commercial launch. We've analyzed U.S. claims data and identified the doctors that are treating the most PDN patients today.

In the U.S., the top 1% of physicians ranked by PDN patients treated, which is around 2,200 doctors treat approximately 10% of all PDN patients, and the top 10% of physicians treat approximately 21% of all PDN patients. This relatively concentrated referring physician channel consists of primary care physicians, endocrinologists, internal medicine, and podiatrists.

To reach these referring doctors, we will be staffing a dedicated referral sales organization as well as remote-selling resources ready to begin calling on these referring doctors with the goal of educating them on the benefits of HF10 therapy and how their patients can access it.

In addition, we'll be driving awareness with the referring doctors via digital marketing programs. Our existing sales force who are now focused on the pain medicine community will also have informational tools and resources to provide to our pain physicians, so that they may begin to conduct outreach within their own referring physician communities. Our research found that referring physician enthusiasm for HF10 in PDM patients is very high. In fact, when presented with our trial data, 75% of referring physicians rated HF10 of at 5 or 6, on a 6-point attractiveness scale for treatment of PDN.

There is also a strong desire to use HF10 prior to prescribing opioids. Our research indicates that physicians expect to refer nearly 90% of their refractory PDN patients for HF10 therapy before recommending opioids, providing hope for the new solution for the millions of patients suffering today. We've also formed a PDN Advisory Board, which consists of a cross-specialty of physicians to refine our initiatives, help shape PDN clinical guidelines, and advise on future study designs. We plan to increase our presence at key diabetes conferences starting with this year's American Diabetes Association conference to drive awareness, beginning with scientific abstract submissions and evolving to a broader footprint upon FDA approval.

In addition, we've also completed research with PDN patients. These patients are truly suffering and are desperate for new solutions as one patient told us, I quote, it got to the point where I couldn't tell what was worse, the pain or the side effects of my medication. I wasn't able to concentrate when the pain was there, but if I took my medication, it was like I was a zombie, I wasn't even there, end quote. This sentiment pretty aptly summarizes what we hear from the majority of the PDN patients that we speak with.

About 84% of PDN patients we surveyed said they would go see a pain specialists for HF10 therapy once referred. We know that these diabetes patients take an active part of their care and are highly engaged online. So we're building upon our success in direct-to-patient digital marketing to our back and leg market and we're expanding that focus even now, so that as many PDN patients as possible will already be informed by the time a new treatment option is available to them.

In summary, 2021 is about gaining FDA approval for PDN, educating physicians that treat these underserved patients, driving awareness with the PDN patients themselves, and facilitating payer coverage expansion. Our 2021 investment in the activities I've listed and many others, by the way, will total approximately $22 million this year and will be included in the forward-looking details Rod provides in just a moment. Because of the timing of the expected approval and of course the time needed to then move patients through the referral to trial to perm pathway, we expect only a mid-single-digit million revenue contribution from PDN in the back half of '21 and most of that will be in the fourth quarter. But then setting us up for a broader penetration and much larger revenue contribution in 2022 and beyond.

Internationally, we will be executing phase launch plans in the U.K., Germany, and Australia. We expect these activities to mirror U.S. timing and launch plans to expand as we progress Into 2022. So we're hoping for a really exciting year for this new indication. I'm also pleased to announce that we recently received FDA approval for our first major Omnia upgrade. If you recall, when we originally launched Omnia, one of the unique benefits was that the platform is upgradable. So our patients can continue to get the benefit of innovation without requiring a brand new IPG. We're launching a limited market release of this upgrade in March with a full market release in Q2 in the U.S. and Australia. We've also submitted our application for approval in Europe and expect to have clearance later in Q2.

Now this upgrade will give Omnia the ability to accept the loading of 35 programming options for a patient immediately after implant, instead of the current limit of just five. This change combined with the changes made to the new patient remote device means that many of the future therapy adjustments that are now reprogramming events that need to be done in person by our field team can become a simple program selection by the patient, guided by one of our expanding team of therapy support specialists over the phone.

The 35 programs originally selected will be done under the oversight of our clinicians as always, and the order in which a patient would be directed to select them in the future will be driven by the same NevroCloud informed algorithms that are used by our field personnel today.

Finally, the new upgraded patient remote will also include an auto impedance check feature. The impedance check is necessary to verify connection between the IPG and all of the electrodes on both leads. Currently, a member of our field team needs to be physically present. This happens in the -- or at the time of every implant when leads are connected to the IPG. The impedance check is also performed at a hospital or satellite imaging facility when any patient with one of our devices requires an MRI.

The new patient remote can eliminate the need for our sales rep to be there in person to perform either of these impedance checks. And by the way, these development projects kicked off just months ago as part of our rapid response to the COVID challenges and our team did a great job of bringing these upgrades to market in record time. This new package of Omnia upgrades will not only help us to be more responsive to patient needs, but importantly, all of these changes are also going to make our sales team much more efficient over time and will be an important part of the efficiency with which we scale over the next few years. We're also expecting to launch our new trial stimulator model -- module in the first half of this year, once it's approved. The new module is designed to provide improvements in patient comfort, and through a smaller, more streamlined, cable-free system that simply allows patients to focus more on their pain relief than the logistics of the trial system.

We're going to begin the early steps of developing the nonsurgical portion of our market using the new three-month NSRBP data presented at NANS. Our work will start with surgeons, patients, and payers, and with six and 12-month data coming, and our competitors eventually helping to push on this under-penetrated market, we think this patient group will help to drive SCS market growth in the coming years.

One of the areas I'm particularly proud of is our ability to manage expenses and drive operating leverage without eroding our team or our core capabilities to drive growth. Prior to the pandemic, we took steps to focus on our overall cost structure and place an emphasis on improving operational efficiencies. Even with the decline in revenue in 2020, our operating expenses as a percent of revenue dropped 700 basis points from 2019 levels. On a dollar basis, we were able to reduce operating expenses by more than $50 million compared to 2019. While we expect operating expenses, particularly, sales and marketing costs to increase as we emerge from the pandemic and continue investing in our PDN launch preparations, leveraging the income statement will continue to be a top priority.

So while we're certainly still in the midst of this pandemic, we do see a light at the end of the tunnel, and we remain very bullish on the longer-term growth drivers for this business. First, but still, under-penetrated SCS market that should continue to grow, we believe for years to come. Second, the pent-up demand of all those elective procedures that have been COVID-deferred over the last year, that will begin to seek care again as the year progresses and COVID starts to recede. If you look at where a healthy market should have been last year relative to 2019, those numbers suggest deferred procedures in the worldwide SCS market in 2020 represented as much as $0.5 billion worth of product sales.

We believe many of these patients will make their way back to SCS therapy in the quarters following COVID. Third, our ability to continue to increase our share of this market over time with better technology, better outcomes, and better execution. And fourth, market expanding clinical data like NSRBP and new market creating indications like PDN.

As we think about our ultimate emergence from the pandemic, it should be the beginning of a really attractive growth period for this company. And lastly, I want to once again express my appreciation and gratitude to the entire Nevro team for their efforts throughout what was a very challenging 2020, which enabled us to deliver on our commitments to our customers, our patients, our employees, and our shareholders.

And with that, I'll pass the call over to Rod.

Rod MacLeod -- Chief Financial Officer

Thanks, Keith. I'll begin with our worldwide revenue for the fourth quarter of 2020, which is a $109.7 million, a decrease of 4.1% compared to $114.4 million in the prior-year period. Gross profit for the fourth quarter of 2020 was $78 million, a decrease of 4% compared to $81.3 million in the prior-year period. The decrease in gross profit was driven primarily by the year-over-year reduction in revenue. Gross margin in the fourth quarter was 71%, consistent with the prior-year period.

Operating expenses for the fourth quarter of 2020 were $78.9 million, a 15% decrease compared to $92.9 million in the prior-year period. The year-over-year decrease in operating expenses was primarily related to a decrease in clinical trial expenses related to our PDN and NSRBP studies, lower travel-related expenses, as well as management's continued initiatives to drive leverage throughout the business, which had begun well before COVID.

Fourth-quarter operating expenses also benefited from a crude bonus expense, 401k match, payroll taxes, and project expenses, all of which will be higher in the first -- in the first quarter as we start the New Year.

Legal expenses associated with patent litigation were $5.1 million for the fourth quarter of 2020 compared to $1.7 million in the prior-year period. In December, we announced an agreement to conclude our patent lawsuit in the Northern District of California against Boston Scientific. We continue our ongoing patent cases in the District of Delaware, and at the patent office relating to patents for other spinal cord stimulation technologies, unrelated to high-frequency therapy.

Net loss from operations for the fourth quarter of 2020 was $900,000 a 93% improvement compared to a loss of $11.7 million in the prior-year period. Non-GAAP adjusted EBITDA for the fourth quarter of 2020 was $15.7 million compared to $1.5 million in the prior-year period. Non-GAAP adjusted EBITDA excludes certain litigation expenses, interests, taxes, and non-cash items such as stock-based compensation and depreciation, and amortization. Please see our financial tables for GAAP to non-GAAP reconciliations.

During the pandemic, we continued to focus on cash preservation while balancing the need to reinvest in the recovery process and our growth initiatives in PDN and NSRBP. Cash, cash equivalents, and short-term investments totaled $588 million as of December 31, 2020. This represents an increase during the fourth quarter of 2020, at $15.1 million.

Turning now to 2021 guidance, it's important to note that we will be using non-GAAP financial measures to describe our outlook for the business. Non-GAAP adjusted EBITDA excludes certain litigation expenses, interests, taxes, and non-cash items such as stock-based compensation and depreciation, and amortization. Once again, please see the financial tables in our press release issued today for GAAP to non-GAAP reconciliations.

As Keith mentioned earlier, the impact of COVID coming into the first quarter of 2021 has little changed thus far from the end of fourth quarter of 2020, as high case volumes and new variants add additional uncertainty. Nevro expects first quarter of 2021 worldwide revenue of approximately $84 million to $86 million in sales. This assumes COVID headwinds in the first two months of the first quarter of 2021, with improvement beginning in March of 2021. The Company expects operating expenses in the first quarter of 2021 of approximately $83 million to $86 million. This includes litigation expenses and additional investment in PDN market development. As for the full year, it's clear that we and many other companies are struggling with the topic of if and how to provide 2021 guidance. So we believe it is important to give you some visibility into how we are thinking about the totality of 2021 as well.

The full-year guidance provided today is highly sensitive to the company's COVID-recovery assumptions, which include an ongoing and steady recovery in the U.S. and key international geographies leading to more normalized key scheduling and elective procedure levels beginning in the second quarter of 2021. This guidance also assumes the impact from COVID-19 will diminish with each sequential quarter of this year as the vaccine availability improves and patients begin to again seek elective care at typical levels.

Of course if the vaccine rollout takes longer, recovery is delayed or patient's willingness to seek treatment is slower than anticipated, or alternatively, recovery is faster or there is a larger recapture of pent-up demand than anticipated then any or all of these factors could quickly and easily impact our guidance range.

With that in mind, we currently expect worldwide revenue for full-year 2021 of approximately $430 million to $450 million. This range assumes FDA approval of PDN at the beginning of the third quarter of 2021and a mid-single-digit million-dollar revenue contribution from PDN in 2021 with the majority generated in the fourth quarter. For full-year 2021, gross margin is expected to be approximately 69% as we will be incurring about 100 basis point impact to margins as we build out operations in the Costa Rica plant this year. We're very excited about the Costa Rica expansion and we believe it will deliver considerable leverage over the next several years.

Operating expenses are expected to be approximately $370 million for 2021. This includes litigation expenses and ongoing investment in PDN market development, which I will speak about shortly. We expect full-year 2021 non-GAAP adjusted EBITDA to be in the range of zero to $15 million, which compares to a non-GAAP adjusted EBITDA loss of $3.9 million in 2020.

We also want to provide some additional color regarding our commercial launch of PDN and its impact on the income statement. We believe that these investments will drive some early revenue contribution from PDN in the third and fourth quarters of 2021. but more importantly, position us with a solid run rate of patient referrals and trials as we enter 2022. On the expense side, we expect to spend approximately $22 million of operating expenses in 2021 to support a successful PDN launch as well as market development with roughly 60% of the expenses occurring in the back half of this year. Given the significant opportunity that PDN represents, we believe this investment is appropriate to support a successful launch and optimize growth in 2022 and beyond.

Finally, I think it's important to review our progress on our journey to drive growth and scale profitably in our core business. Let's look at our operating expenses as a percentage of revenue for example. Over the years, operating expenses have gone from 93% of revenue in 2019 to 86% of revenue in 2020 and our guidance for 2021, excluding the $22 million of PDN expenses suggests operating expenses of 73% to 76% of revenue for 2021.

Additionally, our 2021 expense assumptions even assume an additional $11 million of patent litigation expenses over 2020, which represents an additional 250 basis points of leverage. Many of the changes we're investing in this year, such as our integration of manufacturing, early development of the PDN market, and the Omnia upgrade that facilitate greater commercial productivity are designed to provide continued improvement in our financial leverage as we grow.

We believe that with these investments, we can create even greater leverage in the coming years, though please keep in mind that even including all of the investments I have just mentioned, our total operating expenses would only be about 1% higher than those operating expenses in 2019.

In closing, we entered 2021 in a great position strategically with best-in-class SCS technologies, share gain momentum, future growth opportunities in PDN and

NSRBP, superior clinical data, and a strong commercial organization. We have made significant progress on our operating margin expansion efforts over the past year and we have ongoing opportunities to continue to improve in this area as well as driving continued leverage in the business in 2021 and beyond.

That concludes our prepared remarks, I'll turn the call back over to Julie to moderate the Q&A session.

Julie Dewey -- Vice President, Investor Relations & Corporate Communications

Thanks, Rod. Before we start the Q&A session, we'd like to ask that you please limit yourself to one question and one short follow-up. Operator, we're ready for the Q&A instructions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Adam Maeder with Piper Sandler.

Adam Maeder -- Piper Sandler -- Analyst

Hi, guys. Thanks for taking the questions, and congrats on the progress made in 2020. I wanted to ask about latest trends and what you're seeing in the business, what you saw in the business in January and thus far into February. It sounds like the environment still remains a bit challenging. So I wanted to better understand where permanent implants and trials sit today and how those have progressed year-to-date. Just any color there would be helpful, and then I have a follow-up. Thanks.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. Well, Adam, over the course of last year, we tried to give a little bit more intra-quarter color on things like trials, because we were in a period of time where we didn't have a guidance in place. We put guidance in place now for the quarter and the year and so I want to be a little bit careful, we don't get too deep into metrics for the month of January or December. But -- and so let me speak a little bit more generally. I would say January probably started out about like December, maybe worse. From just a general level of activity standpoint, numbers of trials, cancellations, etc., February marginally better despite the added complication of weather around the country in the U.S. And I would say early signs that things are going to begin getting better in March though that's an expectation at this point, of course not a reality.

So I would say if you look at the December -- mid-December to end of January timeframe, that was probably about the worst six-week period for general activity in this therapy since probably the May to early June time frame of last year. So we don't certainly expect to ever see what we saw last March and April again but, there was an awful lot of complications -- COVID-related complications around procedural activity, case cancellations, center close -- shut-downs, etc. That is starting to get better now, here in the second half of February.

Adam Maeder -- Piper Sandler -- Analyst

That's really helpful color, Keith, I appreciate that. And then for the follow-up, maybe to ask about NSRBP. I just wanted to ask for an update on how those conversations are going with payers. If you're seeing any positive read-throughs from the data that was presented at NANS. And I think historically, NSRBP has been kind of around 30% of your mix. So how do you think about the impact from the data this year to that mix increase just trying to understand if it's going to be a key tailwind in '21 or if it's more of a '22 and kind of medium- to-longer term benefit. Thanks so much.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. I think it's a little bit too early to say on payer feedback NSRBP. We have probably gotten off to a little bit quicker start talking to payers about reactions to PDN. I think in the case of NSRBP, while we will be having those payer meetings throughout the year, we recognize that most payers are going to want six or even 12-month data on the nonsurgical refractory back pain side of things. So more to come, maybe we can give you a little bit more of the reaction later in the year. Certainly, our expectations for that population of patients had some impact on our expectations for this year. Generally, I think it's relatively small this year and it begins to grow in 2022 and 2023.

Operator

Your next question comes from the line of Joanne Wuensch with Citibank. Joanne, your line is open.

Matt Hendrickson -- Citibank -- Analyst

Yes, hi, this is Matt Hendrickson in for Joanne. Keith, you gave some great color on just the number of patients that have delayed but have been recoverable with procedures. As we think about 2021, and we look at kind of that backlog being filled out, is there something along the line where we're looking at that kind of second half seen bolus of those backlog patients or do you expect that faucet to open up immediately as kind of things subside?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Well, that is the question of the day. That maybe the question of the year. I think trying to predict when and why that -- and at what pace that begins to open up is the challenge in thinking about this year and the challenge that we face in providing guidance for this year. I think in general, we've done an awful lot with studying patients and physicians through market research, what they expect, what they plan to do. I think at this point a lot of patients are really waiting for the vaccine. We saw in the first quarter, a little bit more impact from centers. I think in early February, we had 90 hospitals in the U.S. that have shut down elective procedures, now that's not a big percentage of our hospitals, but it's not insignificant either. And we haven't seen really a center impact, an institution impact for quite some months. That's now beginning to show signs of opening back up. But for the most part, this has been a patient issue, and a patient reticence to seek care until the environment meets their needs and that means in most cases, the availability of a vaccine and reduced infection rates in their local communities. So I do think if you look at most of the forecast and the forecast that we believe internally, we think that means patients begin returning to elective care, not just SCS but returning to these types of elective procedures in second quarter and as the pace really begins to pick up in Q3 and Q4. Now that's based on a lot of macro assumptions about how things play out with a worldwide pandemic. So we don't have any particular or unique expertise on that topic, we're following it as closely as we can and as closely as most, but that's sort of our view of things right now.

Matt Hendrickson -- Citibank -- Analyst

That's good color. And as my follow-up, you also provided a lot of good color on your PDN strategy, as you start looking at the data there has been a bunch since NANS, what has been a data point that has surprised you the most? I mean, kind of, makes the argument even more compelling potentially?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

I'm sorry, the data point that has surprised us the most in the clinical trial data?

Matt Hendrickson -- Citibank -- Analyst

Yes.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, I think there's two things that have really been received well by the clinical community. One is the sustainability of the pain relief. So if you look at what was really dramatic pain relief at the three-month point -- I think the big question that it raised among most was hey, look this is great, but it's 3 months, can we really sustain pain relief this dramatic at 6 and 12 months? So I think what has gotten a lot of discussion, a lot of attention and it will be reported on in future publications is the rate at which we've been able to keep pain relief in these patients over time, and I think that's why patients, with referring doctors and importantly what payers will want to see. We continue to see sensory restoration in these patients at 6 and 12 months. We continue to see quality of life improvements in these patients. We know that those are going to be important to payers and the referring doctors in our research. And so I think just the ability to sustain some of these things that were so dramatic at 3 months out the 6 and 12 months, particularly in those areas are the things that have been received, particularly well.

Operator

Your next question comes from the line of Bill Plovanic with Canaccord Genuity. Sir, your line is open.

Bill Plovanic -- Canaccord Genuity Group Inc. -- Analyst

Great, thanks. Good evening. Thanks for taking my questions. First, I'm just curious with obviously we're seeing an impact on procedures. But I would think the other companies report their quarters and some have done a little better, some a little worse. And I'm just -- what I'm trying to understand -- what gives you confidence that it truly is a center, patient issue and not a share lost issue as we come into the fourth quarter and into January? And then I have a follow-on.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes. Well, we track the market. I mean we do it internally and we use third parties, and we're very confident that it's not a market share as you -- in fact quite the opposite, we've picked up share, we think, in every quarter of 2020 and throughout most of 2019. So I don't think this is a share issue. This is a -- in fact, I'm certain of that, this is a market issue. And as we dissect all the things that might make up a market issue, it really comes down to patient behavior. And as patient behavior is relative to pandemic infection rates, and vaccine availability, I mean it is -- it's a relatively complicated landscape, but if you really tease through the unimportant to get to the important, that's what this is about.

Bill Plovanic -- Canaccord Genuity Group Inc. -- Analyst

Great, thank you. And then on PDN launch, I think you've given a lot of color about kind of the timing of the costs and the general buckets of the cost. But I'm trying to understand is you -- if you spend on this launch, how much of these expenses are one-time in nature, building all the materials, building all the programs, what have you, maybe starting some of them direct to patient versus ongoing in nature?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, I think there's some substantial portion of each. I mean, on the other hand, project-related program design consulting, building out of initiatives, those are one-time expenses in the year. That doesn't mean you won't have other similar expenses the following year. So it's kind of difficult for me to say that hey, i have this invested amount this year, you can expect X percent to be repeated in the following year. But I will say this is probably a particularly intensive year from an investment standpoint, because we want to launch this right. We think this is a uniquely good opportunity for the company and we want to get it right the first time.

Bill Plovanic -- Canaccord Genuity Group Inc. -- Analyst

Okay, and clarification on Costa Rica, will Costa Rica be up and shipping product this year or is that a 2022 event? And that's all, I think.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, Bill. That's a '22 event. So we assume that we're FDA approved, and shipping commercial products sometime in '22.

Bill Plovanic -- Canaccord Genuity Group Inc. -- Analyst

Thank you.

Operator

Your next question comes from comes from the line of Bob Hopkins with Bank of America.

Bob Hopkins -- Bank of America -- Analyst

Okay. Thank you and good afternoon.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Hi, Bob.

Bob Hopkins -- Bank of America -- Analyst

Hey, Keith. I appreciate your quantification of the potential backlog of $0.5 billion to the industry and I guess given your share, it's maybe, you have a right to win and maybe $100 million of that or more, I realize there's some -- that's a pretty simple math, but I'm curious how you went about thinking about the guidance that you just provided us for 2021 as it relates to that backlog. Can you share any thoughts on how much of that backlog you assumed you would capture in the year versus sort of normal trend growth and just kind of curious how you went about constructing the guidance relative to the backlog?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Well, of course, we don't start with guidance, we start with an internal plan and in that internal plan, we don't really assume because there's no way for us to assume that demand for the therapy that seemed to vanish in 2020 over 2019, comes back at a certain pace or certain -- or a certain share of that because there's just no way to really know that. Now the part of the on capture demand that we can quantify are patients that we know are in the funnel and we've talked about those a lot. So canceled cases, deferred trials, cancel trials, canceled perms, we track them all pretty thoroughly and carefully internally. Those we can be relatively certain when they're going to come back, how many will come back in 2021. We can always pinpoint the month or even the quarter, but we have a pretty good idea of what contribution that plays in this year's plan. And we -- of course, we haven't broken those things out, but in terms of the guidance, there is a lot of uncertainty around some of the things that we've been talking about and we felt it was important to give guidance we have, guidance withdrawn for the last year. There was a fair amount of complexity that we wanted to be able to communicate to you this year around PDN's spend, revenue contribution, timing in cadence, etc., and felt it would be difficult to do that without giving some guidance. However, it's a pretty fuzzy environment right now. The implication there for guidance is that you're probably going to air toward a larger range and you're probably going to air toward some measure of conservatism, and that's in fact where we've ended up. But to say what wasn't part of our calculus, Bob, was to say, hey, there is $500 million of market in 2019 that just wasn't there in 2020, or even though we know the patients were there. Therefore, we're going to get 20% of that and it's going to happen over the next 22.5 months. It's not that precise and it's frankly not reflected in our guidance or even in our internal projections.

Bob Hopkins -- Bank of America -- Analyst

That's -- yeah, that sounds logical. Appreciate that. The other question I wanted to ask you is just, it's a little bit more of a 2021 question, and I realize there's a lot of legitimate excitement about what you guys could do toward the end of the year and into 2022 and beyond. But coming off NANS, there's a lot of competitors talking about a lot of new waveforms, new technologies and just curious as you're out in the marketplace recently because a lot of these things are brand new, your thoughts on the competitive landscape as we look to the next 12 months here before you've got these new indications really kicking in. Just -- you're seeing anything different on that front relative to all the noise that we heard it at NANS?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

No. I mean there's really not much significant that's new. I mean I think the newest thing probably was Medtronic introduction of the DTM waveform. There is really not that much else out there that's new, that's really meaningful or that different. Now, there are some things coming, we've talked about the Saluda introduction, the Biotronik introduction. We are hearing late this year or first half of 2022 in both cases. But really none of that is new, that we've been talking about those things for the last couple of quarters. So I don't know that we see the competitive landscape that differently than we did before.

Operator

Your next question comes from the line of Larry Biegelsen with Wells Fargo. Larry your line is open.

Kevin Farshchi -- Wells Fargo -- Analyst

Good afternoon. Thanks so much for taking the questions. This is Kevin on for Larry this evening. I wanted to follow up on Bob's question around the guidance and I completely understand that it's very difficult to forecast. I guess I was curious with 10% to 15% growth over '19, do you have a sense for kind of the assumptions you use around U.S. SCS market growth in the number? And I appreciate that the funnel is difficult to understand, but kind of if you assume that similar percentage came back of canceled cases in the bolus that you saw in Q3, how does that factor into the numbers? And then, I was curious kind of as you think of the low and the high end of the range, is it fair to say that the 10% is the floor based on what you see today with no additional wave of COVID and increased vaccine adoption. Thanks so much.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. I mean, I think from a guidance standpoint, it's -- as the guidance kind of stands on its own, I mean we -- that's the low end of the range. So we would consider that a floor. Look, I could sit here and in this kind of environment, I could easily color a case of downs of -- downside below our guidance and upside above our guidance. So but our guidance attempts to contemplate at the lower end what we would consider to be a floor -- a reasonable floor of performance. In terms of the growth of the market, we've decided that we don't want to be the Oracle of market growth here at Nevro, a couple of years ago. And so I haven't weighed in on that very much.

But if you look at the growth over -- now you've phrased it versus 2019 but I think our -- the range of our guidance over 2020 is something like 16% to 24% -- 19% to 24%. Our assumptions are that at 19% to 24% from min to max on our guidance range that we continue to gain some market share this year. So it's safe to assume that our assumptions about market growth are lower than the assumptions that we are giving you for our growth rates.

Kevin Farshchi -- Wells Fargo -- Analyst

Keith, very helpful. Thank you.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Okay.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley. David, your line is open.

David Lewis -- Morgan Stanley -- Analyst

Good afternoon. Just two quick ones for me. I guess one just back in the first-quarter guidance. I was just sort of taking a look at seasonality. The seasonality you're looking for in the first quarter is basically been in line with the seasonality we've seen in the last two or three years -- in the last two. And I'm just trying to figure out does that makes sense that seasonality would be traditional heading into the first quarter relative to last couple of years? It seems like that would not be the case. And then I had a quick follow-up.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

I would say there is nothing about normal quarter-to-quarter seasonality that is factored into our first-quarter guidance. In this environment, I don't know how much that would matter. We're sitting here further than midway through the quarter. We've got a fair amount of exposure to the quarter and what's happening with our patients and our centers and it has everything to do with where we actually think the quarter is going to be. It's in other words, for me, as I think about first-quarter seasonality relative to Q4 would be an output, not an input to my thinking. David, I assume you're saying it under normal course. It should be higher or lower in your view?

David Lewis -- Morgan Stanley -- Analyst

Well, it should be the seasonal point as I -- I think you kind of answer the question, which is that it needs to be happenstance. It comes out that way because in this particular quarter, I can't think of anything that's normal. It doesn't sound like you relied on historical seasonality, just for the quarter, it sounds like you did a bottoms-up and the numbers landed where they landed.

Julie Dewey -- Vice President, Investor Relations & Corporate Communications

That's exactly right.

David Lewis -- Morgan Stanley -- Analyst

Okay. And then, Keith, just related to that, I still have my little question to that. Of course, you typically have a trial-to-perm ratio that's pretty predictive. Did you assume that predictive trial to perm ratio and then the back half of the six weeks of the quarter or did you assume a more conservative number? And then I'll ask my second question just right now, which is on PDN. Keith, the target now at that $22 million, what's reps, what's not but that could be 50 reps, is that kind of in the ballpark for your referral force, and where does that refer force have to be in terms of total rep cunt to win here over the next several years? Thanks so much.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Okay. Yeah, on the forecast. There is a lot of ways we triangulate to a forecast internally. Only one of those tools is the model using trial-to-perm conversion rates. So it now -- we might rely on it a little further as we look at, say, an annual number, but for a quarter, we're halfway through. It's only part of the calculus, we actually have patients already on the surgical calendar, etc. So that's kind of how we think about the forecast half-way through a quarter. It is an input but it's not the only thing we're relying on.

On the spend estimate for PDN, that includes -- you're not too far off, David. That includes, I feel the headcount of between 30 and 40 folks that will be in a separate detail organization. This is a referral organization, they won't have anything to do with procedures. With surgical procedures, with patient programming, there'll be detail reps that we'll be out talking to those highest volume referring doctors and detailing data, etc. And it's -- that's about the size of that initiative for this year.

Operator

Your next question comes from the line of Robbie Marcus with J.P. Morgan.

Allen Gong -- J.P. Morgan -- Analyst

Hi, guys, this is actually Allen on for Robbie. So when we think about PDN and kind of the gating factors to the launch of the pace of getting coverage educating physicians. How should we really think about that playing out over the course of 2021 and into 2022. You highlighted expecting to have like a pretty good funnel heading into 2022 but how should we really think about that building up?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

I want to make sure I understand the question, Robbie. So you're -- are you asking how we're thinking about you kind of the calculus between the number of patients referred to trial in '21 versus expectations for '22 with PDN or maybe you could be a little more specific.

Allen Gong -- J.P. Morgan -- Analyst

I just meant the gating factors behind actually, getting the new referring organization to these docs. And then obviously it's not exactly if you get then those patients into the right place. So how should we think about the kind of delay and lag to actually getting patients onto an SCS system?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

I see. Well, I mean if you look at the numbers that we've talked about today, it assumes there is a definite delay. We don't want anyone's expectation to be the day we announced we have FDA approval that we're starting to put implants in people. We've got to go out and educate something that we can do on label. Until we have that FDA approval, that education has to show up in the form of referred patients who then have to move on to trials and then perm so it's a treatment pathway that takes a little bit of time, thus our guidance. So you should be thinking about -- I would say look our research suggests that both patients and referring doctors are extremely receptive to this data, the ones who have seen it. Most haven't yet seen it. So we've got to get out to the ones managing most patients, educate them, and begin to get that referral stream started. I think it will be -- I think we'll be pleased with the activity that's just my opinion. I think based on the research we've done, we're going to see the referral stream pick up relatively quickly. We don't have any experience yet with the rate at which those referred patients convert to trials and then perms. What I want is to come into '22 with a lot of patients having been referred and beginning at the very least to enter the trial part of that algorithm.

Allen Gong -- J.P. Morgan -- Analyst

All right. And then as a quick follow-up, CMS finalized the decision to essentially mandate authorization for SCS patients. You've highlighted in the past how this isn't exactly as relevant for your business and how you view this as more of an issue for primary cell devices rather than rechargeable, but how should we really think about the impact of that going forwards, both for yourself and the broader SCS market?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, this is -- actually this is for any SCS procedure. It's -- and it's for Medicare fee-for-service patients in the hospital setting. So that all kind of wills down what I said, if you take each step, it whittle down to something like a mid-teens, I think, percentage of our patients. But it's not necessarily just primary cell devices. It's all SCS devices that fall into that category. That comes into effect midyear year, I think July 1st, and frankly, that will put that patient group kind of in line with most of the patients we treat that already go through a prior auth procedure. So it's not both the percentage and the conformity with the rest of our patients, make it a change that we're not terribly worried about. We don't -- we prefer it not happen, but we're not terribly worried about it from a business standpoint.

Operator

Your next question comes from the line of Danielle Antalffy from SVB Leerink.

Danielle Antalffy -- SVB Leerink -- Analyst

Hey, good afternoon, everyone. Thank you so much for taking the question. Keith, I wanted to ask a kind of higher-level question. I hope it hasn't been asked. I apologize, lots of bothering here right now. But just as we look at -- so Nevro came out initially with the first sort of randomized clinical trial that demonstrated a meaningful benefit versus an existing but now, you've got the PDN data, you've got the nonsurgical refractory vaccine data. I mean at some point it feels like this data is just continuing to validate the efficacy of the device. So I guess my question is how has the conversation with physicians and specifically those that had been maybe like late adopters or doubters about the technology? How has the recent data changed that conversation? And then the second part of the question I'll ask now is when you look at aspirational market shares in this market given the fact that you do have all of this data, what should we be thinking about -- with you know where Nevro would stack up within the core players?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, well, I think every little bit helps. I think the combination of the original RCT data that we brought to the market initially with high-frequency SCS combined with countless smaller datasets along the way. And then the addition of these two larger RCT datasets in NSRBP, and PDN, and they all add to the story. They all make a difference. And I think they all make us a more attractive option for doctors and patients. I think the proof is in the pudding. It's in utilization. I think what we've seen over the course of 2019 and 2020 is the best reflection of whether or not it matters. We think it does matter, along with other things, but we think the gains in market share that we've made ofF late on the back of many of these datasets is the best way to answer your question. I think that will continue to be the case. And I think I think we will enjoy the PDN market really -- not, it's not completely to ourselves, I think will enjoy the lion's share of that market for some time to come. And so I think if you consider PDN as part of the overall CS market, I think that of course, all by itself will help grow our market share. But if you look at just lower-back and lengthening pain market as it exists today -- market share, by the way, let me preface this by disclaiming that market share is really tough to put your finger on in this market for lots of reasons that most of you know, and so I won't bore you with them, but it is rather opaque. Having said that, we think that ending 2020 on a dollar basis in the U.S., we are about a 20%-21% market share participant. The leader in this market is probably in the low 30s. So market share is spread not evenly, but somewhat evenly over four participants. I think, look, the challenge to our organization is that over the next five years, we want to be a leader in this market. We think we can be and in fact, we think we should be a leader in this market. What that means in terms of market share that will change over time, we'll have more market participants, market growth could vary over that timeframe, do you include PDN or not if we're the only ones participating? But I think we deserve to think of ourselves as a market-leading technology in this business over the coming years. And I think that's certainly our aspiration and expectation for this business.

Danielle Antalffy -- SVB Leerink -- Analyst

Okay, thanks so much.

Operator

Your next question comes from the line of Kaila Krum with Truist Securities.

Kaila Krum -- Truist Securities -- Analyst

Great. Hi, thanks for taking our questions. And just a couple on PDN for us. So, first, you guys said you may have about a quarter of the market covered by payers at the time of launch. I mean, how quickly do you think other payers will follow? And is it a function of needing more data for those other payers? Or is it a function of timing of policy updates, which just generally happened in January and the summer?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

It's both. It is both. It's -- keep in mind, some of these payers we just -- they haven't even had the conversation yet. Some of these payers may not even be aware of the data yet. So we're in the process of implementing a plan that will put us in front of all these payers with the data so that they can make sensible decisions. I mean most of their non-coverage policies that are in place are in place simply because there wasn't a reason to have a coverage policy. They didn't have data. They didn't have explicit approval for this ideology. And so it's not that they had an inherent bias against treating these patients with this technology. They just didn't have anyone approved who had RCT data. So I think our progress will be good, Kaila. It's really hard for us to quantify do we think we can get from this percent to this percent over the course of one-year cycle because this is the first time going through this with this indication, this data, and these payers. So I'm really reticent to give you any predictions, other than -- I think of the interactions we've had so far, we're encouraged by the reception to the data that we've had.

Kaila Krum -- Truist Securities -- Analyst

That makes sense. Thanks, Keith. And then just if PDN contributed $5 million to $6 million in the fourth quarter. I mean annualize that $20 million to $25 million. So I guess would you consider that sort of the floor for what PDN could represent in '22? or what in your view would push that number higher or lower? Thank you.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, I think, look, I mean I wouldn't expect -- I don't want to guide for '22. I don't want to give multi-year PDN guidance, but I certainly would expect Q4 to may not be high for some reason. In other words, if we were to use your number, $5 million or $6 million in Q4, I guess everyone around this table would be a bit surprised if '22 was a simple 4x of that number. I would expect and you can, I think, judge by the way we're investing in it this year. I would expect '22 PDN revenues to be some interesting multiple whatever we're able to turn in this year's performance and 4x Q4 would seem to be a reasonable way to think about a floor. Yes.

Kaila Krum -- Truist Securities -- Analyst

Thank you.

Operator

Your next question comes from the line of Matt Taylor with UBS.

John C. Lee -- UBS Group AG -- Analyst

Hey, guys, this is John Lee in for Matt. Thanks for squeezing us in. I guess on the the international launch plans for PDN, can you maybe just help us think about the market size and opportunities in the three countries you mentioned, relative to the U.S.? And then maybe if you can talk a little bit about the pathway for other countries to come online in the coming year.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah, I think we actually spoke of that in our prepared remarks. We're going to be rolling out our PDN marketing initiatives in most of our markets. In about the same timeframe, we're rolling them out in the U.S., so the second half of the year. I'm not prepared today with total PDN populations in those markets. That's something we might be able to speak to in future calls.

But certainly, there is significant interest in our Australian and European markets. And in some isolated pockets, they're beginning to look at patients for PDN now where they have -- where they believe they have approval. But we don't expect to put a lot of our own initiatives in place until the second half of this year when we're launching more broadly. So I would say maybe more to come on some of the market sizeing for the OUS markets in the next couple of quarters.

John C. Lee -- UBS Group AG -- Analyst

Okay, great. That's helpful. And then I guess maybe just one on longer-term margins. I remember last year at a NAN, the one, we talked about guiding to positive EBITDA and a year later now, you're guiding to similar levels in terms of revenue and EBITDA. A lot's happened over the past year, so I was just wondering your view in terms of the longer-term margins pent-up for Nevro. How has your view changed compared to your thinking about a year ago?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. Well, in the short-term the course has been I mean, it's completely different picture now than it was at prior year's NANs which was before anybody was thinking about COVID. I don't think the longer-term view has changed. As we think about a business like ours that is in the roughly 70% gross margin range, we think, obviously, as Rod mentioned a moment ago with our own manufacturing, we think the gross margin profile can be better than that over time. We think there's lots of ways that we've already articulated that we'll see efficiency in our cost of growth going forward, and particularly, in our commercial costs.

I would say look, if you look across the MedTech landscape at scale and let's say the scale is $500 million to $1.5 billion companies that are in that range for gross margin are typically in the 20% to 30% operating income range and probably are closer to 30% then 20%. I think at those kind of scales, we wouldn't have a different expectation for this business. So I think we feel as though this business scales very attractively over the next $500 million in revenue.

Operator

Your next question comes from the line of Margaret Kaczor with William Blair.

Maggie Nolan -- William Blair -- Analyst

Hey guys, this is Maggie on for Margaret. Thanks for taking my question. So you launched Omnia about a year ago now and maybe didn't get as much uptake as you would have thought because of COVID. What's your penetration in your accounts of Omnia today look like, how do you expand the penetration into other accounts going forward, and how impactful do you think the recently approved new updates can be in expansion in revenue growth? Thanks.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. I think in the U.S. market, Omnia is up to last time I looked around 74% of -- 74% maybe 75% of all utilization. So it's received pretty widespread adoption among our users. Of those 5 market share points that we think we've gained over the last two business cycles, we think somewhere between 1.5 and 3 of those points came in 2020 since we launched Omnia despite the COVID environment and we think Omnia had a lot to do with that. A part of the value proposition that we laid out for our customers with Omnia when we launched it was the promise that we would be able to make improvements, make changes they wouldn't have to think about.

Re-implanting patients are only getting access to those improvements in new patients that we would be able to upgrade the existing Omnia and less than a year later, we're already talking to them or are about a year later, we're already talking to them about a major upgrade that responsive to, in many cases, their needs. So I think Omnia will continue to allow us to get traction. I've said this before, it's not a typical product innovation cycle in the sense that it really was a major strategic shift for us. It was going from just high frequency to offering high-frequency uniquely as well as every other frequency available. And I think that's sort of part of the value proposition that's not -- that others can't replicate and that's pretty enduring.

So we think for all those reasons, we are able to continue to use Omnia to capture share for some time to come. And as we think about Omnia's impact, I mean it's an important part of some of the growth expectations we've talked about today.

Maggie Nolan -- William Blair -- Analyst

Great. That's helpful, and just from a follow-up. Looking three to five years out, what do you think the market will look like from a growth perspective and a penetration perspective, what do you think the next evolution of the market will be? So the past couple of years, we've seen different focuses on waveforms, indications to various device sizes. So what is never specifically going to be putting their investment dollars behind to spur future growth outside of new indications? Thanks.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yeah. Well, I'm not going to predict the market size five years out. I think it's going to be one of those markets that given the size of the underlying TAM, just continues to offer year-over-year growth rate. So I don't think it's a market that all of a sudden based on any innovation and just because of the large addressable market all of a sudden grows 30% or 50% just because the patients happen to be there. But I do think it's a market that because those patients were there, grows have an attractive rate as technology gets better and awareness of the technology and the outcomes becomes higher over time, and that's one of the things we like about the underlying markets as we think that they offer that kind of growth that we can build on.

What drives that kind of growth in terms of innovation. Look, I think there a lot of interesting things coming. If I think about some of the things that we think will drive that kind of growth. It's innovation in the areas of both frequency and waveforms of innovative form factors of the use of big data and AI to inform therapy choice and improved outcomes. It's data to treat new patients and new categories of patients like we've seen in PDN. I think there's a lot of things that are capable of growing this market and all of those areas, I just listed are areas in which we're making investments.

Operator

Your last question comes from the line of Suraj Kalia with Oppenheimer.

Suraj Kalia -- Oppenheimer & Co. Inc. -- Analyst

Good afternoon, everyone. Keith, can you hear me all right?

D. Keith Grossman -- Chairman, Chief Executive Officer & President

We can hear you.

Suraj Kalia -- Oppenheimer & Co. Inc. -- Analyst

Perfect. So, Keith, you gave a lot of commentary on PDN and I know a number of questions have been asked. Let me ask that -- the same thing a little differently. Keith, can you give us a specific example of medical device surgical reps in the PCP and endocrinology suite that could possibly guide us on thought process of the PDN market development. Any other device that you all are modeling or thinking through here with the reps. They were surgical reps in the PCP endocrinology suite making an argument to have patients jump over into surgery.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

I'd have to think about it. I'm not going to give you off the cuff. I mean people have had employed referral sales organizations to call on the PCP market to refer patients for years. Certainly in the pharma space, but in the device space as well. I don't want to just come up with one-off, off-the-cuff, Suraj, maybe you have one in mind, and that's why you're asking. But it's something we can think about and happy to talk to you about that later.

Suraj Kalia -- Oppenheimer & Co. Inc. -- Analyst

Got it. And, Keith, one last question. I'll hop back in the queue. You've been there at the helm for two years. Keith. As you look at the market from a bird's eye view perspective, what is your impression of switching costs in the market? Just trying to piggyback on Bob's earlier questions in terms of the number of waveforms that is obviously a new entrant, that is going to be coming into the market and the field checks do come back positive and I'm curious how you see the switching costs from one platform to another as you've spent over the last two years. Thank you for taking my questions.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Well, I think, look, I mean the switching costs as I compare them to other segments of MedTech, I suppose, are reasonably low. I mean, one doesn't have to invest $1 million in capital equipment and training and refurbish into our suite and that kind of thing you employ the use of a different implantable as we see in other segments. So if your doctor is using one SCS system, the cost necessary to be trained and deploy another system, I would say in my experience, relative to other sectors is relatively low. And I think that's to both our advantage and disadvantage, right? I think we've been capturing share and some of that has come in competitive accounts or splitter accounts and it's -- then we benefit from that very fact. Maybe you can expand on your question, Suraj, and tell me what you're actually trying to get to.

Suraj Kalia -- Oppenheimer & Co. Inc. -- Analyst

No, Keith, no subliminal question. Just trying to understand one of the key things is -- just in the overall space, right, wrong, or indifferent, the lack of head-to-head studies to get questions about durability, expanse, so on and so forth. Everyone has a certain argument and there is obviously a new entrant, that is going to be coming in shortly. So I'm just trying to wrap around ahead, what should we see possibly in terms of share shifts? And how you all think through that? That was really the gist of the question.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Yes, I think, look, any credible new competitor that does it right that has the resources and has good data and has a good system has the expectation of coming in and getting some share. I'm not going to sit here and predict which entrant might get what amount of share from which entrenched competitors or existing competitors because I don't know that. If you look on one cases, it's Nuvectra, where there was a lot of valuation and high hopes about the share that that device would take and that didn't happen. There have been some other smaller devices that have come into the market, I think, with the intent of taking more market share and they haven't. This is not an easy market to come in and enter. I mean, it requires more than the technology more than good data, and more than innovation. There is a significant market footprint that has to be -- and incredible one that has to be built for customers to begin to rely on you as a technology provider. And it's not inconsequential. And there are tough competitors in this market and we consider ourselves one of them. So I think for someone new coming into this market. They've got to do a lot other than just bring new innovation. Now if they do those things, then you've got to look at the innovation and say who is most likely to want to use that, which doctors who use which devices now, in which patients. And the vulnerability to a new entrant is not going to be the same on the part of every competitor in this space. And those are things we consider as well. I think we feel like we're pretty well-positioned.

Operator

And there are no further questions at this time, and now I would like to turn the conference back to Mr. Keith Grossman for closing remarks.

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Okay, thank you everyone for joining us. We appreciate it. We'll look forward to talking to you next quarter and giving you an update on our progress.

Operator

[Operator Closing Remarks].

Duration: 80 minutes

Call participants:

Julie Dewey -- Vice President, Investor Relations & Corporate Communications

D. Keith Grossman -- Chairman, Chief Executive Officer & President

Rod MacLeod -- Chief Financial Officer

Adam Maeder -- Piper Sandler -- Analyst

Matt Hendrickson -- Citibank -- Analyst

Bill Plovanic -- Canaccord Genuity Group Inc. -- Analyst

Bob Hopkins -- Bank of America -- Analyst

Kevin Farshchi -- Wells Fargo -- Analyst

David Lewis -- Morgan Stanley -- Analyst

Allen Gong -- J.P. Morgan -- Analyst

Danielle Antalffy -- SVB Leerink -- Analyst

Kaila Krum -- Truist Securities -- Analyst

John C. Lee -- UBS Group AG -- Analyst

Maggie Nolan -- William Blair -- Analyst

Suraj Kalia -- Oppenheimer & Co. Inc. -- Analyst

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