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ShockWave Medical Inc (SWAV) Q2 2021 Earnings Call Transcript

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SWAV earnings call for the period ending June 30, 2021.

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ShockWave Medical Inc (SWAV 1.55%)
Q2 2021 Earnings Call
Aug 09, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning and welcome to ShockWave's Medical second-quarter earnings conference call. [Operator instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Debbie Kaster, vice president of investor relations at ShockWave for a few introductory comments.

Debbie Kaster -- Vice President, Investor Relations

Thank you all for participating in today's call. Joining me today from ShockWave's Medical are Doug Godshall, president and chief executive officer; Dan Puckett, chief financial officer; and Isaac Zacharias, chief commercial officer. Earlier today ShockWave released financial results for the quarter ended June 30, 2021. A copy of the press release is available on ShockWave's website.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. All forward-looking statements including without limitation statements relating to our sales and operating trends, business and hiring prospects, financial and revenue expectations, and future product development and approvals are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties including the impact of COVID-19 pandemic that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.

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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 other reports filed periodically with 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 if the live broadcast today, August 9, 2021.

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

Doug Godshall -- President and Chief Executive Officer

Thanks, Debbie. Good morning, everyone, and thank you for taking the time to join us to review ShockWave's results for the second quarter of 2021. We reported $55.9 million in revenue for the second quarter of 2021, representing an increase of 444% from the second quarter of 2020 and a 75% increase from the first quarter of this year. The performance in the quarter was again led by the growing adoption of coronary IVL in the U.S., which continues to outpace our expectations.

Our U.S. commercial team continued their stellar execution this past quarter. We saw excellent performance across the board, but obviously C2 carry the day. More and more sites are proving that they are fully prepared to use C2 independently after our launch process is complete and we were encouraged to witness an increased percentage of our C2 sales resulting from reorders as one would hope to see as the launch progresses.

Sales from launch products comprised 74% of total U.S. C2 revenue for the quarter. We achieved this increase in reorder rates while we were simultaneously adding new accounts throughout the quarter, averaging 1.5 new accounts per territory per month. The steady cadence enables us to continue to provide thorough training and case support at each lost account before moving on to the next site.

The initial order quantity for new sites starts to remain at five units on average per account. During the quarter, 44% of our accounts purchased both coronary and peripheral products, 9% purchased own coronary and 47% purchased only peripheral. These numbers reflect both the synergy of our two businesses and also how many more accounts we still have in front of us with a C2 launch since nearly every hospital that performs PAD procedures also perform coronary procedures. We continue to compensate our team in a fashion that was designed to create a balanced sales approach between coronary and peripheral, which appears to be working given the peripheral growth we witnessed this past quarter.

We are in the process of adding additional field personnel and expect to end this quarter with close to 70 U.S. territories. We also expect to add several clinical specialist positions, which together should be the last meaningful U.S. field expansion for this year.

Since we first started selling commercials in the U.S. in 2017, we have focused primarily on providing our customers with the safest most consistent solution to treat patients with complex calcification. In parallel, we have spent the past several years endeavoring to improve reimbursement to complement the clinical imperative of IVL use. These efforts are now paying off as is evidenced by the recent granting by CMS of both a transitional pass-through payment for outpatient coronary IVL, which went into effect on July 1st as well as the new technology add-on payment or NTAP for inpatient coronary IVL procedures that will go into effect on October 1st of this year.

We recently added to both our U.S. and international reimbursement teams and we review view reimbursement as an area that still offers meaningful upside for the company and our customers. Turning to international, we are now commercial in 58 countries and our team came through once again with great execution and drove growth in virtually all our markets on both an annual and quarterly basis. While historically our international sales have been very coronary centric, our peripheral franchise contributed nicely this past quarter, which suggests our market development efforts in the international PAD space are starting to bear fruit.

So all in all, great progress internationally particularly considering the evidence and flows of COVID. As the usage of IVL has expanded across the globe, we have learned more about our markets and in the process, have become increasingly evident that the opportunity for IVL is even larger than we had previously estimated. Therefore, we felt it was time to do a refresh on our estimate of the total addressable market or TAM for IVL. Since going public we have consistently estimated our TAM to be approximately $6 billion.

At that time, however, IVL was not approved or launched in most geographies where we operate today. So we lack visibility into procedure volumes in many countries. Additionally, some markets have experienced significant procedure growth in the last few years. Based on these new inputs we have increased our estimate of the TAM for IVL to roughly $8.5 billion based on projections for procedures in 2022.

I'm going to quickly run through some of the components of that number that have seen the biggest changes. It's worth noting that our estimate for the percentage of classifications has remained consistent across all the old vessel bids consistent with our prior estimates. Starting with peripheral and SFA procedures, where we now have improved visibility to international procedure volumes. Our updated estimate of total global SFA procedures is approximately 950,000 up from 700,000 at the time of our IPO.

A market that our customers created with ShockWave treatment of iliac artery to facilitate the passing of large-bore catheters such as TAVR or EVAR. As TAVR cases have grown globally, we now estimate the total large-bore catheter market has grown from 275,000 to 475,000 procedures. We're also increasing our estimate of below-the-knee procedures by 30% moving from 300,000 to 400,000. And that still underestimates the BTK potential since it fails to capture the significant population that does not get treated, those who undergo bypass surgery, or those who undergo an amputation.

And lastly, coronary. Our revised estimate of the addressable market for coronary procedures has increased from 3.5 million to 6 million procedures globally. The sizable change stems from our visibility into more geographies as well as procedure volume growth, particularly in China, where we now believe total PCI procedures will reach 1.5 million in 2022. Putting this all together, our big opportunity is actually even bigger than we initially estimated and we now believe IVL can address a market of over $8.5 billion.

Shifting out of clinical, we had the distinction of having three manuscripts published simultaneously in JAK interventions this last quarter, creating something of an IVL journal. We also were recently informed that our abstract describing 750,00 patients from our PAD three observational registry was accepted for presentation in a late-breaking session at VIVA '21 conference this fall. Making it the second year in a row for us to have a late-breaker VIVA. And finally, our JV in China has just started the trial of C2 and we will soon be commencing a peripheral study.

These studies are designed to ensure that we are prepared in the event that country-specific data is required for approval by CFDA. If CFDA does not require these data for approval, having local data should still be beneficial for our marketing efforts. During the quarter, our teams attended nine conferences where there were 10 live cases, eight symposia, and 13 webinars to support our C2 launch. And to complement our leadership and technology and demonstrate our commitment to education, we partnered with the optima team, led by Dr.

James Spratt in the U.K. and created ShockWave's calcium masterclass in a proprietary educational tool. That we believe is the most ambitious and comprehensive resource on coroner calcification. Our R&D team has been hard at work advancing our pipeline with a blend of enhancements to our current products, which we believe will make the performance even better in the hands of our customers, as well as some new approaches to the use of IVL that we expect will further expand our treatable population.

We've received many inquiries about our pipeline over the past few months and our approach will be to share details about specific products when he launches on the near-term horizon or if we are preparing to commence a clinical study for devices that require a trial for approval. We are increasingly bullish about our portfolio, but we don't think it benefits us or our shareholders or customers to share details about products that are still years away from entering the clinic. That said, the first product and what we expect will be a steady cadence of new introductions as M5 plus, which recently received FDA clearance for peripheral indication. M5 plus has a longer catheter shaft than our implied catheter so physicians will be able to treat iliac and common femoral disease by a radial axis.

They will also be able to treat below-the-knee disease more readily using M5 plus, which is appealing for those larger more proximal BTK vessels. The two features that our customers are even more excited about are the addition of an eight-millimeter diameter balloon and a faster pulse cadence going from one hertz to two hertz. The eight-millimeter diameter is something are symptomatic iliac and large bore customers have been asking for and now they will have it. The faster pulses will cut the treatment time in half from 30 seconds per cycle to 15 seconds, which may not sound like much, but the physicians have loved it of the case we've done so far.

We conducted a small controlled study and are now starting a limited launch, which will steadily expand leading to a full launch in the first quarter of 2022. Operationally, we continue to make great progress on both the facilities and people side of the business. We had 528 employees at the end of the second quarter as we continue to build out our sales team to increase production capacity and to invest in R&D. Our R&D team will grow significantly over the next two years as we continue to identify projects that we expect will expand the potential of IVL.

We recently finalized an agreement with a contract manufacturer and by the end of this year, they will be producing a majority of our M5 catheters. This will give us the extra capacity in Santa Clara for C2 volume and should also improve our M5 margins. We continue to be very pleased with the performance of IVL across the globe. And given the outperformance of our coronary product in the U.S.

this quarter, we are increasing our guidance for the year. Our updated expectation is that we will generate between $218 million and $223 million in revenue for the full year of 2021. This would represent growth of up to 232% from our revenue for the full year of 2020. With that, I will now turn the call to Dan.

Dan Puckett -- Chief Financial Officer

Thank you, Doug. Good morning, everyone. ShockWave Medical's revenue for the second quarter and on June 30, 2021, was $55.9 million, a 144% increase from $10.3 million in the same quarter of 2020. U.S.

revenues $42.9 million in the second quarter of 2021, growing 675% from $5.5 million in the second quarter of 2020. The increase included $26.3 million from the coronary product ShockWave C2, which was launched in the U.S. in February this year. The growth in the U.S.

is also driven by recovery from the trough of the pandemic impact in 2020 as well as sales force expansion and increased adoption of our products. International revenue is $13 million in the second quarter of 2021 representing a 174% increase from $4.8 million in the second quarter of 2020. The growth in the international revenue over the prior year reflects the impact from pandemic recovery as well as increased adoption in existing geographies. A brief comment on COVID in our expectations.

As we have stated in the past, we are not in the business of forecasting the impact of the pandemic. That said while Delta variant is having an impact across the globe and has flared up in pockets in the U.S., we believe that the impact on interventional procedures will be transient as it was at the beginning of the year. Looking at product lines, our peripheral products ShockWave M5 and ShockWave S4 accounted for $18.8 million of total revenue in the second quarter of 2021, compared to $6.5 million in the second quarter of 2020, a 189% increase. Our coronary product ShockWave C2 accounting for $36.7 million of total revenue in the second quarter of 2021, compared to $3.7 million in the same quarter of 2020, representing a 905% increase.

In addition, the sales of generators contribute $0.4 million in revenue in the second quarter of 2021, compared to $0.1 million in the second quarter of 2020. Gross profit for the second quarter of 2021 is $46 million, compared to $6.7 million for the second quarter of  2020. The gross margin for the second quarter of 2021 was 82% as compared to 65% in the second quarter of 2020. Improvement to gross margin was partly driven by the launch of ShockWave C2 in the U.S., which has the highest selling price of all our products.

In addition, we're seeing continued improvement in manufacturing productivity and process efficiencies, which have also contributed to the gross margin expansion. Total operating expenses for the second quarter of 2021 were $46.2 million, an 87% increase from $24.7 million in the second quarter of 2020. Sales and marketing expenses for the same quarter of 2020 were $25.7 million, compared to $11.2 million in the second quarter of 2020. The increase is primarily driven by sales force expansion in the U.S.

R&D expenses for the second quarter of 2021 were $11.8 million, compared to $8.1 million in the second quarter of 2020. The increase is primarily driven by headcount growth. General and administrative expenses for the second quarter of 2021 were $8.6 million, compared to $5.4 million in the second quarter of 2020. The increase is primarily driven by a higher headcount to support the growth of the business.

Net loss for the second quarter of 2021 was $0.4 million, compared to a net loss of $18.1 million in the second quarter of 2020. Net loss per share for the period is $0.01. While we are very encouraged that we were close to profitability this quarter, we do anticipate some variability in our operating margin in the near term as we continue to invest in our R&D programs and commercial activities. We ended the second quarter of 2021 with $174.7 million in cash, cash equivalents, and short-term investments.

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

Doug Godshall -- President and Chief Executive Officer

Thanks, Dan, and thank you all for joining us for the call this morning. I continue to be impressed with our team and their extraordinary execution and by the support of our investigators and customers across the globe. The ability to make a difference in so many lives is what motivates us all and we look forward to continuing to do so well into the future. Take care, be well, and we welcome your questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Your first question comes from Bob Hopkins from Bank of America. Your lines are open.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Oh, great and thank you. And congrats on a phenomenal performance. Doug, I wanted to ask about your new TAM assumptions and just want to make sure I understood exactly what's changing the numbers because obviously it was a big increase. So just to be clear it sounds like it's not the percentage of cases out there that you see with calcium.

It sounds like it's not your ability to penetrate the market, but rather just the sheer number of interventional cases going on around the globe that drive the increase in Tam. Do I have that correct or am I missing something?

Doug Godshall -- President and Chief Executive Officer

Yeah -- no, that -- obviously the biggest uplift -- and thanks, Bob. About the big biggest uplift was from China, which has grown substantially. But as we have commercialized into 58 different countries, we have a much better line of sight into procedure volumes whether that's India, China, Eastern Europe, etc. And those -- made those markets are less well-studied, so when we first calculated our addressable market back end of 2018 leading into our IPO '19, we did our best to estimate how many SFA procedures and coronary procedures etc.

there are. So some of those markets are have grown substantially. Some we just have better visibility and realize there are more procedures going on. And just for those who are less close to how we calculate TAM than perhaps you are Bob, we don't look at sort of how many people have coronary arteries, disease, or how many people have peripheral artery disease.

We would have, obviously, a substantially larger TAM if you calculated the true potential addressable market. We chose a more sort of realizable market by taking the existing procedure volumes than what percent of those patients are classified. And so we don't calculate based on market development of interventional procedures per se, but rather our ability to penetrate or the population that we could -- that would benefit that is already being treated perhaps optimally, in our view, because they're using ShockWave all the time. But we're encouraged, obviously, by the -- our ability to penetrate markets around the globe, but we are barely scratching the surface and particularly relative to our TAM estimate.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

OK. Got it. Thank you for that. And then just one quick update on the U.S.

coronary launch. Sounds like you've been controlling the amount of accounts that you're in. Can you just give a sense as to where you are with the number of accounts that you're in? In terms of the number of total accounts that you see that are possible versus the number of accounts that you're in today? Just give us a little update on the pacing of the opening of accounts in coronary in the U.S. Thank you.

Doug Godshall -- President and Chief Executive Officer

Sure. And then Isaac's on the call too as well so we can tag-team. Isaac, you can add color. So if you recall last quarter, so we got approved in February had six or so weeks in that first quarter, a full quarter this time.

And in both quarters, we averaged about one and a half accounts per territory. We started with about 60 territories, give or take. We're building that number out in terms of the number of territories but even as we have sort of slowly added territories, the pace of new site additions has remained at about one and a half per rep per territory per month or for the entire, I guess, time since we got approved per month. And we're nowhere near halfway through the penetration of the accounts.

The two PCI about 1,400 or so. The two PCI is obviously diminishing returns when you cross through the 1,100, 1,200 range, which is much smaller accounts. And Isaac, I don't know if you want to add additional color.

Isaac Zacharias -- Chief Commercial Officer

No. I think you captured it and we're still doing a good job of bringing on peripheral accounts that have historically been peripheral accounts. And as they adopt coronary and now they're kind of using all three product lines. And that's our goal obviously is to get as many of accounts as possible using coronary and the peripheral products.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Good. Thank you.

Operator

Your next question comes from Adam Maeder from Piper Sandler. Your line is open.

Adam Maeder -- Piper Sandler -- Analyst

Hey, guys. Congrats on the quarter and thanks for taking the questions. I wanted to start with the guidance outlook. I was hoping to just hear a little bit more about what's embedded in the guidance assumptions? As we look to the back half of the year, particularly as it relates to COVID-19 trends with Delta, Q3 seasonality, and then just the NTAP and pass-through payment, which are seemingly coming to fruition.

So I wanted to start there and then add a follow-up. Thanks so much.

Doug Godshall -- President and Chief Executive Officer

That was a good summary of the puts and takes that we've been working through as we as we've been modeling. Will there be seasonality in Europe in the U.S. today on the peripheral side? Certainly, there always is. People are taking vacations and hopefully many of you on this call are going to get a sick vacation.

And last year when a lot of folks didn't get to take one, they've been waiting. So doctors will take some time off, administrators will take some time off, etc. So that's has us viewing the next two quarters as one that this quarter will be affected by that sort of vacation stuff and so it'll be more of a back-end loaded because you also have the benefit of now inpatient and outpatient out on payments. So that is a tailwind.

So that's one minor headwind through the summer and then a tailwind after the summer. And so COVID is the one, as Dan articulated, awfully hard for us to predict. Obviously, there's lots of news out of Florida. I'm hoping folks there get vaccinated so they can blunt it.

And if you -- and yet if you combine folks who people have been vaccinated in the U.S., people who have now developed a natural immunity by having had COVID, and the pace at which Delta is coursing through the system, our best guess and this is a guess, but our best guess is that we may not be at the peak yet but we -- but it will probably fall off rather rapidly. And certainly for everyone's sake we hope it does. The other practical reality is that hospitals have learned how to manage patients better, fewer are going on vents. They're staying in ICUs for less time so they're coming in, but they're both younger than they used to be.

So they don't get stuck as long the ICU and hospitals are able to manage them better. So there are unfortunately the hospitals now have a decent amount of practice and certainly, there will be some that will suspend and interventional procedures and so there'll be pockets of slowdowns. But we think it'll be similar to the sort ofJanuary, February where it got a little dicey in certain geographies and then things bounced back fairly robustly.

Adam Maeder -- Piper Sandler -- Analyst

It's really helpful, Doug. Thanks for the color there. And then one for Dan, the P&L strong performance this quarter. I think I heard the comments.

Some variability going forward on opex margin, but maybe just help us think through gross margin cadence, given that we saw a sizable step up. How sustainable is that profile? And then just to think about opex spend going forward as well, just trying to get a better sense of when we can ultimately get profitability. Thanks so much for taking the questions.

Dan Puckett -- Chief Financial Officer

Sure. Yeah, we're very pleased with the progress we have made on the gross margin. For the rest of the year, we expect the gross margin to be consistent with this quarter. We have just expanded our lab in Santa Clara.

So we're going to be hiring some people that will need to be trained. So we're not going to see a lot of uplifts till we get a good kind of trained and efficient and that'll take the next quarter 2. Next year on gross margin, we do expect some upside from the manufacturing in Costa Rica. Maybe a percent or two long into next year.

So this year is consistent, next year we should see some uplift. On the opex, we do expect a little bump up in Q3. We're starting -- we've got some R&D activities including clinical cooking. We're going to continue to invest in sales and marketing.

Come Q4, we should be in the block and not look back.

Adam Maeder -- Piper Sandler -- Analyst

It's very helpful. Thank you.

Operator

Your next question comes from Bill Plovanic from Canaccord. Your line is open.

Bill Plovanic -- Canaccord Genuity -- Analyst

Great. Thanks. A couple of questions here. But first just as well if you could give us some color on what your VAC timelines are looking.

I'm trying to get some granularity on the pace of new accounts per month. I think it's clicking at 1.5. It's maintained at that level. And I know you always the stretch goal I believe was two for the sales force.

I'm just curious -- you always have the aspirations to go higher. What's kind of holding the reps back from getting to that two? Is it VAC? Is it something else? And then just as you, secondly, look at the utilization on your existing account, I would assume that the kind of outperformance, which was really high on coronary, was a function of just the existing accounts doing much more cases than expected.

Isaac Zacharias -- Chief Commercial Officer

Market commentary on the --

Doug Godshall -- President and Chief Executive Officer

Yeah. And I'll tag team with Isaac on this one too. So we -- what we -- our thesis going into this, and n the thesis that Isaac and the commercial team generated was that we know our product is intuitive and fairly easy to train on, straight forward, easy to use, etc., but we did not -- we felt that if we trained each site thoroughly, meaning as many physicians as possible touch the device and get into cases during a launch period, and thus everyone on the staff becomes familiar with how and when to use ShockWave, that we would be able to leave that account and know that they would use it appropriately and not need us there badgering them to use it. And that the state would then be largely independent and yes we would still serve that account, but we wouldn't have to have a clinical specialist in the lab every day to remind with this coronary.

So far, that thesis, the theory that Isaac and team had has proven to be a very wise approach. The accounts are very receptive to have us there. It is being there for a couple of weeks, also enables us to cross-sell into the peripheral space. So that has had a halo effect that is encouraging to see and then we move on to the next slide.

And what we didn't want to do is to have our sales team, with all the enthusiasm for C2, to run from account to account doing cases because then they were just going to have to go back in and resell. And so we will not let them sell to more than two per month and it's less than two on average for a variety of reasons. Some of it is you're waiting for VAC procedures to get through your upselling peripheral etc. So we're not -- we're probably on balance encouraged that it's a little bit less than two versus hitting two every month because the numbers certainly suggest that this strategy is working.

So I pause. Isaac, any other color.

Isaac Zacharias -- Chief Commercial Officer

I just reinforce the -- hi, Bill. The limit was two per month. That's a limit, not a goal. My expectation was that if you put a limit at two per month for all the reasons Doug outlined that it would be it would naturally be less than two per month because not everyone's going to hit the limit every month.

So I think we're encouraged by the one and a half number. As Doug said, as time goes on that will continue to get smaller. And specifically on VACs or what the timing is, I don't think we see any sort of culprit or something we think is problematic. It's holding back certain accounts, or other accounts, or other accounts.

They are moving to the process, the sales team, and their management has a file of accounts and they're generally clicking through them pretty well. So, I'd say right now we don't see anything from our constraints standpoint that feels like it's holding us back or we need to unlock some other tactic.

Doug Godshall -- President and Chief Executive Officer

And I would say the transitional pass-through was helpful in the past. Knowing that it was coming in June was helpful. Having it in July enabled sites to spool up their back processes where they had been in a small subset of the accounts where they just couldn't figure out how to get through VAC without reimbursement. So TPT and in a couple of months, NTAP will enable us to continue to add accounts you can see in some that are more economically focused hospitals.

Bill Plovanic -- Canaccord Genuity -- Analyst

Great. And if I can want to ask one on operating expenses, the revenues were up $24 million sequentially, but your sales and marketing were up only $1.7 million. I mean that's like 7% of that increase. And I think Dan gave us some kind of ideas on leverage but I mean that's a big number and then just.

Is that something that would continue for a while or did you spend forward back in the first quarter? And we're just kind of seeing the kind of maybe was a guarantee or something kick in. I'm just trying to get -- that's a lot of leverage. And I'm trying to kind of figure out how to think about that going forward.

Doug Godshall -- President and Chief Executive Officer

This is a topic Isaac mentions often so I am going to let him take this one.

Isaac Zacharias -- Chief Commercial Officer

Yeah. Hi, Bill. It was the last year the team unit sales team in the U.S., particularly spent a lot of time hiring. We more than doubled the U.S.

sales force last year and that was as a forward spend in anticipation of the coronary launch. In Q1, we did not have a quota for the sales team on coronary because we know when we would get approval. So there was some compensation associated with the coronary launch in February and March that was kind of typically more than we would pay our quota-based systems. This is our first quarter with what I'd say is a majority -- the vast majority of our territories have been hired and are under the quota now for the coronary in the peripheral products.

And as they continue gaining new accounts and then further penetrating those accounts, we expect to see continued SG&A leverage from that we -- as the territories. And the goal is to have as fewer territories as we need to service our customers and then have those territories be as kind of deep as possible within each account. And that makes them relatively very profitable territories. And the second piece on the leverage if you bring in the international piece, our German team has been stable for a while, but we've brought on now direct sales teams in the U.K.

and France. So that right now looks like an expense for us. And as we start turning the crank on the actually doing the direct sales in those countries in Q3 and particularly Q4 this year we should start seeing some leverage some more leverage out of the international business as well.

Bill Plovanic -- Canaccord Genuity -- Analyst

Great. Thanks for taking the questions.

Operator

Your next question comes from Larry Biegelsen from Wells Fargo. Your line is open.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Hey. Good morning, guys Thanks for taking the question, and congrats on all the success your guys. I wanted to follow up on Adam's question earlier on the NTAP and the pass-through payment. Do you think some senators have been holding back their usage of IVL waiting for these enhanced reimbursements to go into effect?

Doug Godshall -- President and Chief Executive Officer

Too early to say for sure. It would appear to us that the utilization in the pretty early in the early adopter sort of February, March, April sites they were using it in every instance they felt appropriate. And the more they used it, it seems the more you like it but that did not appear to be to have any economic constraints. They were sort of economically aware but unconstrained.

As you got into -- as I mentioned earlier as you got into June, I think there were sites that were -- well I know there were sites that were struggling with convincing their VAC committee to bring C2 on board. And so as the -- as we add sites now it will be a blend of sites that might not have been able to come on board were it not for a transitional pass-through or ultimately NTAP as well, and sites that were just in our queue and we hadn't gotten to yet. So they weren't waiting for NTAP, they were more waiting for us. And so obviously there if you -- if a site would not have been able to order ShockWave were it not for reimbursement then by definition that's going to be an increase.

We'll obviously be monitoring to see if there is an uplift that sort of same-store sales wherever the right analog is sort of higher reorders at that earlier sites because now they feel even less constrained in use at this juncture it's too early to say.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

OK. And, Doug, I'm going to try to sneak two in here. One is just on the long-term opportunity. Moderate to severe calcification you've said in the U.S., it's 20% to 30% of PCI cases.

What's your latest view on the peak penetration for IVL that would you be disappointed if it weren't a third of you of the moderate to severe cases and -- I'll stop that I just want to add one quick one on the pipeline after that.

Doug Godshall -- President and Chief Executive Officer

Yeah. So almost everybody -- every physician we speak to feels, first of all, there's a unanimous view that calcium is becoming an increasing percentage of the patients they treat. So while we say 30% calcified moderate and severe combined hit it. I think the next time we adjust our TAM it could very well be because we have data that shows us that the percentage is actually higher than it used to be because certainly the physicians anecdotally feel that it is.

It kind of makes sense aging, diabetes are the two predictors and those are both high. In terms of severe calcium, the published data suggest that that's 15% so half of the 30. And that's also the number that most physicians land on as a -- that's the population that absolutely positively should get some sort of calcium modification. And only 5% pre-ShockWave, only 5% is in the US, a couple of 2% did in Europe.

And so we -- our ease of use predictability, reliability, safety, profile all the things that resonate with our physicians also as it's happening now. And we expect will happen in the future is increasing the percentage of the patients that are getting calcium modification versus just a plain stent durable in the stent. And so if a 15% is at least the number that, that ought to get modified your number would suggest that we would have 10% of the total PCI volume or a third of the total calcium. If that's the number you're asking certainly we are -- we don't sort of go into an account and say OK you do 500 PCI is, therefore, you 15% of those.

So 75 a year ought to have some sort of calcium modification. What we sort of don't do that math, it is certainly evident to us that the percentage of cases that are now getting treated in the U.S. is increasing in adults. At any stage, but as long C2 is now modifying patients more thoughtfully and able to treat them more clinically appropriately with ShockWaves.

So would I be disappointed with less than 10%? We're ambitious. So I would say I certainly hope we get at least of that number and I think ShockWave was because of its ease of use and safety has the ability to penetrate into the -- until the less severe population as well because there's essentially no downside to using our device.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's super helpful. Doug, just quickly on the pipeline. Based on your comments upfront does that mean we're not going to get kind of a fulsome pipeline update late this year, early next year that I think you'd been talking about. And just on that theme, just thoughts on additional products adding to the bag organic versus inorganic.

What are your latest thoughts? Thanks for taking the questions.

Doug Godshall -- President and Chief Executive Officer

Yeah. We're still mulling whether and what form we would do a pipeline update where. --we've talked about the first half of next year and that's still on our radar. What we don't want to do and don't plan to do is to put up a slide of a design that will hit the clinic in 2024, 2025 or whatever that we -- that is like just a prototype.

I think that's too much selling futures companies get in trouble when they go there. I think our current products and near-term products, which we will likely early next year be more comfortable saying here are the next things coming not everything but here. Here are the things coming in the near term and I think they're pretty exciting. And so more likely than not we'll share at least the next, but the next installments of the application of ShockWave and then thinking the early part of next year.

Still, what I was trying to clarify is that true of longer-term multi-year product portfolio cadence that some companies put out there we think that's wise for us to do, nor necessarily helpful to investors.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Inorganic -- I mean the non-IVL question. Sorry, Doug.

Doug Godshall -- President and Chief Executive Officer

So we're -- as you and I both did emanate for living for  I think both of those that have for five or six years. So we're not averse to finding things externally that are highly complementary to a challenge one would have it in a business like ours right now is what would be stimulative to growth given the growth that we see in front of us. Hard to find many things that would make sense as a sort of opportunity cost because if we spend time on something that you acquire then that's time you're not spending on your own on building your own business and building out your technology. So were -- we pay attention and if there's something that is just so obvious that it makes sense to us then then we'll think about doing something but that's not our -- that's obviously not our main focus.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Thanks, Doug.

Operator

Your next question comes from Cecilia Furlong from Morgan Stanley. Your line is open.

Cecilia Furlong -- Morgan Stanley -- Analyst

Hey. Good morning, and thank you for taking the questions. Doug, I wanted to start and just if you could provide a bit more detail in terms of personnel the trends you're seeing in accounts following initial coronary uptake in adoption. And really where you're able to gain traction where you hadn't previously.

Anything you've call out specifically relative to either ATK or BTK. Just anything along those lines would be helpful.

Doug Godshall -- President and Chief Executive Officer

Sure. So are our conversation structure for our field team is as I said in my prepared remarks endeavors to create a balanced selling approach where you can't -- we don't get as a territory manager you don't get totally absorbed selling C2 and then stop paying attention to peripheral. If you do that you will not, you're not -- you won't make as much money. So they've got to sell both peripheral and coronary.

And they've got to sell both S4 and M5 on the peripheral side to max out the compensation. And not that our team would ignore peripheral or the -- that they don't like selling peripheral it's just when you have a shiny new toy like C2 that everybody wants to talk about. There's a natural inclination to be distracted and spend less time on your peripheral business. So the way we've structured that has ensured that when you're in the hospital selling C2 and everyone's high fiving you because the case went so well.

You remember that there's a vascular surgeon down the hall who might have a case a tough iliac case and you ought to go check that out and see if you can help improve outcomes for that case. So we're quite encouraged that across the below-the-knee and above-the-knee segments that we have -- we sort of saw growth generally across the various ways that ShockWave gets used throughout the quarter. So it's not as if -- wow are our public heel business just went through the roof and that drove it. It was a widespread utilization increase across the hundreds of accounts where we sell.

We're cautiously optimistic that the goal of leveraging the sort of -- or the -- of our belief, not goal or belief that having a sales team selling both peripheral and coronary. And the obvious synergies of treating iliac for with large-bore access where the same doctor does coronaries. Or treating coronaries, for the same doctor who does the below-the-knee disease that our system is somewhat unique in the med device in that. We think we're stronger having one sales team sell both whereas most companies have had to split.

We don't see that any time in the future because we do think there is there a net positive to our personal business by virtue of being in the coronaries.

Cecilia Furlong -- Morgan Stanley -- Analyst

Great. Thank you. And if I could ask as well just on Japan. Could you just provide an update around your team buildout in the region ahead of approval and reimbursement? Just any additional near-term plans, you have related to kind of building out that team further.

Thank you.

Doug Godshall -- President and Chief Executive Officer

Yeah. I know -- Isaac you want to take this one. You're just you're in Suki's team.

Isaac Zacharias -- Chief Commercial Officer

Sure. Thanks, Cecilia. Yeah, we have a handful of people now on our team in Japan. As we kind of both work more -- as we work with the PMDA to facilitate the C2 to approval.

As we work with the MHLW to set the path forward for reimbursement and then starting to get some senior leadership and for sales and marketing. And so that's I think it's going per plan. And again, thinking should have hopefully will have PMDA approval in the first half of next year and then a six to nine-month cycle to get the reimbursement in place. And we want to be prepared we want as much education as we can.

And awareness to be out there for the product and then we'll go ahead and execute on the coronary launch next year.

Cecilia Furlong -- Morgan Stanley -- Analyst

Thank you for taking the questions.

Isaac Zacharias -- Chief Commercial Officer

Thank you.

Operator

Your next question comes from Rebecca Wang from SVB Leerink. Your line is open.

Rebecca Wang -- SVB Leerink -- Analyst

Hi guys. Congrats on a very strong quarter and just have a follow-up question on your margin profile. You said gross margin in the second half will be similar to Q2 and there's some margin expansion in 2022. So when we think about your longer-term margin profile as coronary a real growth to become a larger portion of the business.

Is it fair to think that your gross margin can approach 85% what you the high 80's range longer term. And then, the operating margin you expect to be profitable in Q4 ultimately what is the ultimate operating margin we should think of a long term. Thank you.

Doug Godshall -- President and Chief Executive Officer

So Dan and I will tag-team on this. Yeah. So we're investing this year not necessarily at the rate that we are growing our revenue line. But enough investment on the lab expansion, training equipment, all the stuff Dan describes that that'll keep us at we believe a stable gross margin through 2021.

We given -- we're at 82 and we think we'll get a point or two-step up out of our contract manufacturer as we move them out of there. Your sort of 84, 85 number is not out of the realm of possibility. Dan.

Dan Puckett -- Chief Financial Officer

Yeah. No, I agree Doug. On an operating margin long term, we are I'd like to say we're going to be above in the low 30's I mean high 20's is kind of where we're pretty confident in and I'm hoping will -- we'll get more leverage, but that's down the road. That's with all the manufacturing efficiencies and really cooking and going direct in a lot of countries.

So we expect big things and we're working toward that.

Rebecca Wang -- SVB Leerink -- Analyst

Thank you and a quick follow-up on China. Do you have? I know it's still early but do you have a rough timeline when do you expect China to contribute in revenue?

Doug Godshall -- President and Chief Executive Officer

So when we signed the agreement in the first quarter of this year we suggested that the first product the imported product. So we manufacture the JV imports and they sell attract customers. But we anticipated that it would be two to three years out and that the locally manufactured product was more like four to five. We've not rebuffed that time frame.

So you'd be looking at 2023 and 2024 for the imported product the team are -- our JV partner is certainly very aggressive very knowledgeable and are doing everything they can to pull those timelines in. But to some extent, you're subject to the CFDA.

Rebecca Wang -- SVB Leerink -- Analyst

All right. Perfect. Thank you.

Operator

There is no further question this time. You may continue

Doug Godshall -- President and Chief Executive Officer

All right. Thanks. Thank you, everyone. Look forward to speaking with many of you over the coming weeks and I do hope you get a chance to take some time and be ready for the back end of the year.

Thanks for your support. Speak soon.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Debbie Kaster -- Vice President, Investor Relations

Doug Godshall -- President and Chief Executive Officer

Dan Puckett -- Chief Financial Officer

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Isaac Zacharias -- Chief Commercial Officer

Adam Maeder -- Piper Sandler -- Analyst

Bill Plovanic -- Canaccord Genuity -- Analyst

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Cecilia Furlong -- Morgan Stanley -- Analyst

Rebecca Wang -- SVB Leerink -- Analyst

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