ShockWave Medical Inc – September 8, 2022

It is hardly a surprise that as people get old, health complications and disease become a far greater risk. Yet it may come as a shock to some, just how many people are impacted by one of the leading causes of death in the United States from as early as in their 40s. It is estimated that about half of Americans between ages 45 and 84 have atherosclerosis and don’t know it.

The disease is a common condition that develops when plaque builds up inside arteries. It develops slowly as cholesterol, fat, blood cells, and other substances in the blood form plaque, and when it progresses, calcium. When this plaque builds up, it causes arteries to narrow, reducing the supply of oxygen-rich blood to tissues of vital organs in the body.

While there are many treatments such as angioplasty and drug-coated balloons, bare metal and drug-eluting stents, many of them suffer from a range of complications from acute failure, damage to blood vessels, or even conversion to bypass surgery.

ShockWave Medical is changing all that with what it believes can become the safest, most effective means of addressing the growing challenge of cardiovascular calcification. ShockWave is aiming to establish a new standard of care for the treatment of atherosclerosis through the use of sonic pressure waves to break down calcified plaque. The system, known as intravascular lithotripsy (IVL) is a minimally invasive, easy-to-use, and safe way to significantly improve patient outcomes.

The ground-breaking technology has seen sales increase rapidly following the Center for Medicare Services recently authorizing reimbursement for the IVL treatment, as a result, the company is continuing to exceed and upgrade revenue guidance. Coupled with burgeoning penetration among U.S. hospitals, expansion into foreign markets, and the development of new product lines, ShockWave has an enormous potential market across several indications.

In 2007, two serial entrepreneurs, businessman Daniel Hawkins, and electrical engineer John Adams, who worked on early pacemakers, were working at a med-tech incubator. After brainstorming unmet medical needs and how they could be serviced through new technology, Hawkins began exploring kidney stones, learning about the difficulties of targeting stones with lithotripsy, and felt there had to be a better way.

Lithotripsy works by sending focused ultrasonic energy or shock waves that pass safely through the body’s soft tissue to break up denser kidney stones. After teaming up with Stanford cardiologist Todd Brenton, head of the school’s bio-design program and also an entrepreneur, the three-person team created a prototype that successfully could destroy eggshells, yet leave the membrane under the shell’s surface fully intact and undamaged. It was a perfect demonstration of the technology’s ability to safely pass through soft tissue while impacting hard calcium.

Firming up the data with additional testing on actual cadavers, the company soon attracted several experienced med-tech angel investors who provided the backing to complete necessary clinical testing. A few years and several successful clinical trials later, the technology overcame issues and progressed significantly, and in 2016, the company’s dream was realized when the FDA cleared the innovative technology.

In July 2019, ShockWave Medical started trading on the Nasdaq Global Market in October 2020 after raising almost $100 million from funds including Sofinnova Capital, Venrock Funds, and Fidelity.

Doug Godshall joined Shockwave as chief executive officer in 2017 to lead the company into U.S. commercialization and international expansion. This followed his most recent tenure as the CEO and a director of HeartWare, a leader in the ventricular assistance device market. He managed the organization from a pre-commercial phase to over $250 million in sales until it was acquired by Medtronic in 2016 for $1.1 billion. Prior to HeartWare, Doug held other executive and leadership positions at Boston Scientific Corporation, including President of the Vascular Surgery Division and VP of Business Development.

Also with a background at Boston Scientific, Keith D. Dawkins M.D. joined Shockwave in 2019 as chief medical officer. Prior to Shockwave, he served various roles at BSC including as global CMO and executive vice president. Dawkins was also a practicing interventional cardiologist for more than 20 years in the U.K. and has earned a series of clinical, research and academic distinctions, including a Post-Doctoral Research Fellowship at Stanford University as a Fulbright Scholar. He has been an author of more than 750 academic publications and presentations on a variety of cardiac topics.

ShockWave has adapted the use of lithotripsy to the cardiovascular field to create what can become the safest and most effective way of treating cardiovascular calcification. Lithotripsy has been used to successfully treat kidney stones, which are also deposits of hardened calcium, for over 30 years. By integrating lithotripsy into a device that resembles a standard angioplasty balloon catheter, physicians can prepare, deliver, and treat calcified lesions using a familiar form factor, and without disruption to their existing treatment workflows, making the system easy to learn, adopt, and use on a day-to-day basis.

ShockWave’s IVL system works by delivering shockwaves through the entire depth of the artery wall. It modifies calcium in the deeper, medial layer of the artery, where calcification close to the inner surface of the artery that is associated with obstruction and embolization occurs, and not just in the superficial, intimal layer, that is associated with stiffening. The shockwaves crack this calcium and enable the artery to expand at low pressures, thereby minimizing complications inherent to traditional balloon dilations, such as dissections or tears.

The differentiated catheters are cleared or approved for use in several countries and development programs are underway to vastly expand usage. ShockWave is currently selling various products for the treatment of Peripheral Artery Disease (PAD) and Coronary Artery Disease (CAD).

The company markets the IVL system via a team of 250 professionals to hospitals whose interventional cardiologists, radiologists, and vascular surgeons treat patients with PAD and CAD. It has established direct sales capability in the U.S., Germany, Austria, Switzerland, France, and the UK, while distributors also actively sell in over 50 countries across the globe.

ShockWave’s IVL generators and connector cables may be sold, rented, or loaned to hospital customers, while disposable catheters are sold or may be provided on a consignment basis where the hospital is charged once they are used in a clinical procedure.

Heart disease is the leading cause of death in the United States. Nearly 30 million Americans, or 8% of the population, suffer from diabetes, while over 40% are classified as obese. With both trends expected to rise, so too is a higher susceptibility to heart disease for many later in life.

For patients with CAD, it is estimated that over six million coronary intervention procedures will be performed globally in 2022, while a further 1.8 million interventions are performed annually to treat symptomatic occlusive PAD globally. The market opportunity for PAD and CAD essentially covers all interventional procedures performed to treat diseases where severe or moderate arterial calcium is present.

In addition, IVL is utilized in other endovascular procedures such as transcatheter aortic valve replacements (TAVR) and endovascular aortic aneurysm repair (EVAR) to treat arteries along the access route, where calcium can hinder the placement of large heart valves or endovascular grafts. The number of procedures and prevalence of severe or moderate calcium can vary by arterial segment, but the aggregate addressable market for IVL is estimated to be over $8.5 billion.

Minimizing complications is particularly important in coronary vessels, and current plaque modification devices carry significant safety risks and are inherently challenging to use. Since its inception, ShockWave has focused on generating clinical data to demonstrate the safety and effectiveness of its IVL technology. Studies have consistently shown low rates of complications regardless of which vessel was being studied.

In addition to gaining regulatory approvals or clearances, the data from its clinical studies have strengthened the company’s ability to drive the adoption of the technology across multiple therapies in existing and new market segments. Past studies have also guided optimal procedure techniques and informed the design of future products in development. Consequently, ShockWave continues to have ongoing clinical programs across several products and indications, which, if successful, would allow it to expand commercialization into new geographies and indications.

In 2021, ShockWave was engaged in several clinical trials aimed at securing various regulatory approvals including with the U.S. FDA and Japan’s PMDA. The studies covered a number of treatment indications across CAD and PAD, whilst a development program is also underway to explore the ability of IVL technology to directly treat calcified aortic valves to safely reduce the symptoms of and potentially delay or negate valve replacement treatment for aortic stenosis.

Since the Center for Medicare Services authorized reimbursement for ShockWave’s IVL treatments effective from July 1st, 2021, hospitals using ShockWave for above-the-knee treatments will receive insurance reimbursements at the same rate as the current standard of care, known as atherectomy. This approval not only provided an enormous increase to ShockWave’s competitive profile, but it also saw the company’s revenue surge.

ShockWave’s revenue for the second quarter of 2022, was $120.7 million, a 116% increase from $55.9 million in the same period of 2021. The growth was primarily driven by the launch of the coronary product, Shockwave C2, in the U.S. in February 2021, along with a continued recovery from the pandemic impact and increased adoption across the company’s suite of products.

Gross profit for the period also surged, coming in at $104.0 million compared to $46.0 million for the second quarter of 2021, as gross margins hit 86%, up from 82%. The increase in gross margin was primarily driven by product mix along with continued improvement in manufacturing productivity and process efficiencies.

While operating expenses of $74.4 million also increased significantly, up 61%, they were primarily driven by sales force expansion in the U.S. and higher headcount to support the growth of the business. As a result, net income for the period was $25.6 million, compared to a net loss of $0.4 million in the second quarter of 2021.

Looking ahead, Shockwave is projecting revenue for the full 2022 year to range from $465 million to $475 million, slightly below consensus estimates of $479 million, which represents 96% to 100% growth over the prior year. Furthermore, EPS consensus estimates are also expected to surge to $2.73 per share, up from a loss of $0.26 in 2021.

The medical device industry is intensely competitive, subject to rapid change, and significantly affected by new product introductions and other market activities of industry participants. ShockWave competes with a range of manufacturers and distributors of cardiovascular medical devices including Boston Scientific Corporation, Cardiovascular Systems Inc, Medtronic, and Philips. Many of which are large, well-capitalized companies with significantly greater market share and resources. However, ShockWave’s proprietary IVL technology competes primarily on the basis that products are designed to treat patients safely, easily, and effectively, with improved outcomes and procedural cost savings.

Aside from competition issues, given the strict regulatory environment, ShockWave’s ongoing success no doubt depends on its ability to continue to not only develop innovative and superior products, but secure the necessary industry approvals in relevant jurisdictions.

ShockWave’s simple, intuitive, easy-to-install, and easy-to-use system has quickly provided the company with a significant improvement in revenue and profit margins. Coupled with multiple product approvals and business expansion plans in multiple geographies, it appears the company is on a significant growth track.