Good afternoon, and welcome to Pulmonx second 1/4 2022 earnings conference call. At this time, all participants are in listen only mode. We'll be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Laine Morgan from the Gilmartin Group for a few introductory comments.
Good afternoon, and thank you for participating in today's call. Joining me from Pulmonx are Glen French, President and Chief Executive Officer, and Derrick Sung, Chief Financial Officer. Earlier today, Pulmonx released financial results for the 1/4 ended June 30, 2022. A copy of the press release is available on the company's website.
Before we begin, I'd like to remind you that management will make statements during 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 the expectations or predictions of future events, results or performance are Forward-Looking statements.
All Forward-Looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunities, guidance for revenue, gross margin and operating expenses, commercial expansion, and product pipeline development, are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these Forward-Looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on May 9, 2022.
This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August second, 2022. Pulmonx Corporation 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. With that, I will turn the call over to Glen.
Thanks, Laine. Good afternoon, everyone, and welcome to our second 1/4 2022 earnings call. Here with me is Derrick Sung, our Chief Financial Officer. In the second 1/4, we generated worldwide sales of $14 million, representing our highest quarterly revenue to date. We're pleased with our second 1/4 performance as we continued to see strong patient demand for our Zephyr Valve, improving end market dynamics, and the ability of our team to execute and manage our business in a fluid environment.
Our performance was driven by particularly strong results in the United States, where we achieved sales 18% higher than our previous record in the fourth 1/4 of last year as procedure volumes recovered from the winter COVID surge, despite continued pressures from hospital staffing shortages.
The momentum exiting the 1/4 leaves us confident in our ability to deliver on our full year 2022 revenue guidance of $55 million-$60 million, even in the face of ongoing macro uncertainties and incremental foreign exchange headwinds. Throughout the second 1/4, we continued to execute on our initiatives to expand our global commercial footprint.
In the United States, we added 18 new treating centers, bringing our total number to 248 and keeping us on track to meet our objective of establishing at least 280 trained Zephyr Valve centers in the U.S. by year-end. We also added 1 additional sales territory in the U.S. and 2 additional international sales territories, bringing our total U.S. and international sales territories to 55 and 36 respectively.
One of our primary goals is to educate both healthcare providers and patients about endobronchial valves being part of the standard of care for severe emphysema. In the second 1/4, we launched joint education campaigns with 2 leading lung advocacy organizations, the American Lung Association and the COPD Foundation. These collaborations will extend through 2022 and include educational materials for patients, physicians, nurses, and respiratory therapists, including accredited courses, videos, webinars, podcasts, and articles.
We have also expanded our healthcare provider education outreach at the local level with a focus on a selection of community physicians who manage large populations of COPD patients. Together with our physician collaborators, we continue to build on the clinical evidence for Zephyr Valve. In June, the first prospective study to assess cardiac function following bronchoscopic lung volume reduction with Zephyr Valve was published in the American Journal of Respiratory and Critical Care Medicine.
This study found that a reduction in lung hyperinflation using Zephyr Valve resulted in improvements in cardiac function such as preload, cardiac output, and heart muscle contractility, thus suggesting a role for Zephyr Valve in modifying the risk for heart failure in severe emphysema patients. Innovative clinical work such as this continues to advance the scientific evidence demonstrating the clinical value of endobronchial valves.
Turning to our longer term growth initiatives to expand our addressable market, we are excited about 2 upcoming data readouts associated with our AeriSeal clinical development program. As a reminder, we are developing AeriSeal to provide a solution for severe emphysema patients not currently eligible for Zephyr Valve due to the presence of a gap in the fissure separating lobes of the lungs, which results in collateral ventilation or airflow between the lobes. This collateral ventilation prevents a target lobe from deflating when Zephyr Valve are inserted.
AeriSeal is a polymeric foam that is delivered via a bronchoscope to seal the airways leading to the fissure gaps between the lobes of the lung, potentially enabling treatment of patients who were previously ineligible for valves due to collateral ventilation. Thus, we see AeriSeal as a potential way to increase the number of patients who are candidates for Zephyr Valve therapy.
We are looking forward to seeing the publication of data from a single center proof of concept Investigator-Led feasibility study from Australia that evaluated AeriSeal to eliminate collateral ventilation in the target lobe, and if successful, then followed up treatment of that lobe with Zephyr Valve. This manuscript was recently accepted and is expected to publish in the coming months. AeriSeal is also currently being studied in our CONVERT trial, a multicenter, multinational study which we are conducting in Europe.
We are also pleased that interim data from this trial has been accepted for a podium presentation at the upcoming European Respiratory Society International Congress in Barcelona, Spain, in September on the fourth. At this presentation, we expect to share data on an initial subset of CONVERT patients that will shed light on the preliminary conversion with AeriSeal of targeted patients with collateral ventilation.
This information should provide additional insight and proof of concept around the use of AeriSeal to expand Zephyr Valve to severe emphysema patients with collateral ventilation in a larger multicenter study. Learning from the CONVERT trial continues to inform the design of our U.S. IDE study, which we are discussing with FDA and expect to initiate sometime next year. Lastly, our initiative to expand geographically into the Japanese market remains on track.
We recently hired an experienced leader in Japan to drive our commercial efforts, and we are engaged in a constructive dialogue with the Japanese authorities following the submission of our regulatory application late last year. We continue to expect regulatory approval in Japan by the end of this year, followed by the establishment of reimbursement and subsequent commercial launch in the back 1/2 of 2023.
Again, we estimate Japan to be a billion-dollar opportunity, with approximately 100,000 patients in need of our Zephyr Valve treatment. In summary, I believe the record sales that we achieved in the second 1/4, along with the continued progress on our commercial and strategic initiatives, positions us well for continued growth through the remainder of the year and well into the future.
With that, I'll now turn the call over to Derrick to provide a more detailed review of our second 1/4 results.
Thank you, Glen, and good afternoon, everyone. Total worldwide revenue for the 3 months ended June 30, 2022, reached a new quarterly high of $14 million, a 14% increase from $12.2 million in the same period of the prior year and an increase of 19% on a constant currency basis. US revenue in the second 1/4 was $8.6 million, a 31% increase from $6.6 million during the prior year period. The record US sales reflected a recovery in procedure volumes following the winter COVID surge, as well as benefit from the increasing number of treating centers that we have been opening every 1/4.
International revenue in the second 1/4 of 2022 was $5.3 million, a 5% decrease from $5.6 million during the same period last year and an increase of 4% on a constant currency basis. International revenue benefited from solid procedure growth in our major markets, offset by a slower restart in some of our smaller markets, continued lockdowns in China, hospital staffing shortages, and negative impact from foreign currency exchange rates.
Gross margin for the second 1/4 of 2022 was 75% compared to 74% in the prior year period. The year-over-year expansion in gross margin was driven primarily by increasing production efficiencies. We expect gross margin to trend near 74% for the remainder of the year, as negative foreign exchange impact partially offsets continued gains in production efficiencies.
Total operating expenses for the second 1/4 of 2022 were $24.8 million, a 14% increase from $21.7 million in the second 1/4 of 2021. Non-Cash stock-based compensation expense was $4.2 million in the second 1/4 of 2022 and accounted for 64% of the increase in operating expense from the prior year. We continue to prudently manage our operating expenses to remain within our previously communicated guidance of $100-$105 million for the full year 2022, inclusive of approximately $16 million of stock-based compensation expense.
We remain committed to investing in growth while simultaneously managing towards cash flow break-even within the confines of the capital that we currently have on hand. R&D expenses for the second 1/4 of 2022 were $3.6 million compared to $3.5 million in the same period of the prior year.
The slight increase was primarily due to an increase in stock-based compensation expense. Sales, general and administrative expenses for the second 1/4 of 2022 were $21.2 million compared to $18.2 million in the second 1/4 of 2021. The increase was attributable to an increase in sales and marketing expenses as we expanded our commercial team and increased commercial activities, as well as an increase in stock-based compensation expense.
Net loss for the second 1/4 of 2022 was $14.6 million, or a loss of $0.40 per share, as compared to a net loss of $13 million or a loss of $0.36 per share for the same period of the prior year. An average weighted share count of 37 million shares was used to determine loss per share for the second 1/4 of 2022.
We ended June 30, 2022, with $166.8 million in cash equivalents and marketable securities, a decrease of $9.7 million from March 31, 2022. We expect to burn roughly $50 million in cash for the full year of 2022, and expect to see our annual cash burn decrease in subsequent years as we continue to grow sales and see increasing leverage throughout our business.
As I mentioned, we expect to reach cash flow break even in our current operations with the capital that we have on hand and are managing our business to maintain a cash runway of at least 3 years of forward cash burn until we turn cash flow positive. Finally, turning to our outlook for 2022. We now estimate foreign exchange rates will result in an approximate 5% headwind to global sales growth for the full year 2022.
Despite this incremental headwind and continued macro uncertainties, we remain confident in our ability to achieve full year 2022 revenue within our previously communicated range of $55-$60 million, keeping in mind that we do expect some level of summer seasonality and continued sequential growth throughout the year.
This represents 14%-24% year-over-year growth on a reported basis, and implies 19%-29% growth on a constant currency basis, up 2% from our previously implied constant currency growth expectations. With that, I'd like to thank you for your attention, and we will now open up the call for questions. Operator?
As a reminder, if you'd like to ask a question, please press star one one. Our first question comes from Cecilia Furlong with Morgan Stanley. Your line is open.
Great. Good afternoon, and thank you for taking the questions. I wanted to start just on the 1/4, but Glen or Derrick, if you could just talk through what you saw from an active account standpoint as the 1/4 progressed in the U.S., and then any commentary you could talk to just in terms of looking at single centers, some of your centers that had adopted Zephyr earlier, Pre-COVID or around COVID, but what you saw from just a volume ramp through the 1/4 and any color you could provide to just on kind of exit rates as you think about especially entering the summer months.
Sure. A few different things that you brought up there. With regard to active accounts, June was stronger than May and April, but the average across the period was 76, which was right where we had expected it was gonna be. That was a smack on what our expectations were. That was good. You had asked about some of the accounts that were up and running around when COVID hit, some of our stronger accounts. Is that where you were going? You wanted to know how they were doing?
Correct.
Got it.
More experience, have been in the field longer.
Yeah. What we saw, and it's actually kind of, I could go far afield with this, but basically accounts that are the more deeply experienced, sort of, more deeply engaged accounts, as you would expect, were the first ones to come back. We did see that. Many of those accounts were the ones that had an uninterrupted year prior to COVID hitting, and obviously all the accounts that started since the beginning of 2020 have been interrupted with COVID along the way.
The strongest are the most experienced and the most up to speed accounts, so they came back early. We also saw that actually remarkably in our international numbers when you looked at those. You know, we've got 60% of our business that's in the United States.
The other 40% obviously is outside the United States and 3 quarters of that falls into four countries. We sell product into 25+ different countries, but 90% of our business is in the U.S., Germany, France, U.K. and Austria. In the U.S. we grew on a constant currency basis 31% in the U.S. over prior year and 20% in those bigger markets. Combined, 27.3%. What we saw was that in that small 10% of our business was virtually where all of our shortfall was. I think it really reflects that idea that these smaller countries, smaller accounts.
Most cases without a direct sales organization are much slower to come back online, and we saw that in the smaller accounts in the United States as well. About 1/2 of our shortfall in that 10% of our business came from Asia, almost all from China, and the others came from smaller European markets.
Anyway, I went a little bit beyond what you were asking about, but I think it is important to note that those smaller accounts tend to come back less quickly than the bigger accounts. We definitely saw that in the US and across our top 5 markets, which all did quite well relative to our expectations. The last area that you asked about was summer and what we think about where we are.
We see a lot of nice things lining up. We don't really have perfect information on the summertime. It's been confounded by COVID a bit, and it's also been confounded by our just inherent growth across prior years and so forth. We feel good about the summer, particularly in the United States. We've always seen somewhat of a summer slowdown in Europe.
We won't see it in Australia, which is our fifth largest market, just 'cause seasonality puts that more around Christmas time. In any case, we will see a little bit of a slowdown in Europe, but we always see a really strong September at the end, and a late August rebound in Europe.
We expect to power our way through things in the United States.
Great. Thank you for the color on that, Glen. If I could follow up too, just in terms of kind of what you're seeing in the field today, just from a capacity standpoint, staffing constraints and how that factored into your back 1/2 guidance as we think about both the US and OUS, but sequential ramps and the ability to really be operating across the healthcare system at closer to full capacity.
Again, just really how you're thinking about contributions from some of your older sites versus more recent additions, especially as we think about the 3 Q to four Q sequential dynamic. Thank you for taking the question.
Sure. Well, capacity is an interesting thing because it used to be that it was a binary matter. You know, COVID would present, it would shut us down. Now what we're seeing, it's interesting, that blanket. You know, the impact of COVID on our business isn't related to the number of cases because there's tons of cases out there right now.
It was really impacted by if and how those patients would progress into the intensive care units. We're clearly seeing fewer and a much smaller proportion of patients that are in the hospital because of COVID finding their way into the ICU. So that constraint, which was literally like a light switch for our business, is not presenting itself in the same sort of way.
What it's revealing is that sort of big, heavy blanket's come off and now we're for the first time experiencing what we've heard from a lot of other companies with regard to staffing and so forth. There is a real, I think, capacity thing that hospitals are working their way out of.
As I said, I mean, I feel good about the way we've been able to power our way through a lot of that, given the diversity of our business, across various different markets and both in the U.S. and outside the United States. I think that's where my thinking is on capacity. I don't know, Derrick, if you have any thoughts on the question.
I think you said it well, and Cecilia, we factored in a bit. Oh, I'm sorry, I was on mute. I apologize. I was just going to say that we have incorporated the thinking around hospital staffing shortages into our guidance. That is incorporated into our Forward-Looking thinking for the remainder of the year.
Great. Thank you for taking the question.
Our next question comes from Travis Steed with BofA Securities. Your line is open.
Hey, thanks for taking the question. Derrick, just to put a little more specifics on the Q3 comment, said typical seasonality, but still quarter-over-quarter growth. I think the street did like $16 million. Just wanna make sure that's the right place to be for Q3. Curious how you think about the lower end versus the higher end of the guidance for 2022. What some of the puts and takes on that.
Yeah, that's a great question, Travis. You know, I would continue to think about modeling to the midpoint of our guidance. That's kind of how we think about it, moving forward. You know, if you do think about the midpoint of our guidance, our guidance implies $33 million in the back 1/2 of the year.
As you mentioned, I would weight that a bit more to Q4 than to Q3 because of that summer seasonality impact that we talked about. We would expect to see some modest sequential increase in sales on a 1/4-over-quarter basis between 2Q to 3Q.
I would weigh more heavily the bulk of that $33 million if you're modeling to the midpoint of our guidance towards the back 1/2 or towards the fourth 1/4 of the year.
Okay.
Hopefully that answers your question there.
No, that's helpful. We can follow up on what modest means post-call. I did look at like the 2023 street numbers. I realize you can't comment on it, you know, 2021, you grew revenue by $16 million. This year, the high end of the guide is $16 million or $12 million of growth. Obviously, those are 2 macro challenged years.
When you look at 2023, the street's at $30 million of revenue growth. I don't know if that's a reasonable way to think about the step-up in growth as the hospital environment and some of these challenges ease or, you know, if revenue dollars are more likely to be closer to historical levels.
Kind of without giving specifics, I'd love to kinda hear how you're thinking about the business on a little bit of a longer-term basis.
Yeah, it's a fair question, and we don't wanna get into 2023 guidance per se. You know, a couple of things that I would tell you that we're thinking about that I would have you think about. First off, certainly foreign exchange is a headwind for us, given that, you know, 40% of our business comes from outside the U.S.
And with the strengthening of the dollar, there's certainly uncertainty around where currency is going to move. We are seeing an increasing headwind from foreign exchange. Even where the dollar sits today versus where the dollar was at the beginning of the year when we gave our guidance, for example, you know, we're estimating a 2% greater impact, negative impact to sales from a year-over-year perspective.
That's about $1 million. You know, we're not gonna be in the business of trying to predict where exchange rates go, but certainly currently where the dollar sits is. That's gonna impact our future sales, you know, into next year if things don't move.
That's an additional headwind that has come up. You know, I think that what you talked about is really the other sort of lingering impact of COVID. We feel very good about the fact that in all of our major markets, the U.S. and our major international markets, you know, we're seeing a very nice recovery in procedure volumes.
you know, we're hoping that kind of the days of these complete procedure shutdowns due to ICU beds filling up are behind us. However, you know, I think the lingering effect from our perspective is these, you know, hospital staffing shortages and inability of staff to come in and the impact that that has on our productivity per account is the way we look at it or capacity of hospitals moving forward.
I think all that is something that we would consider and take you know carefully looking to the future. We'll have more visibility on that certainly as things play out through the remainder of this year.
I think all of that to me is, you know, sort of the 2 key areas of uncertainty that we're thinking about, both this year and into the future.
Okay. No, that's all fair. One quick Follow-Up on the cash flow breakeven. You said enough capital in hand 3 years forward. Curious what revenue level you think that'll happen at or kind of when you're expecting to hit breakeven.
Sure, sure. Again, I don't wanna get too specific on this, but you know, at a high level, I would say, you know, we would expect to get to cash flow breakeven sometime in the next few years, in the next 3-5 years. You know, again, rough numbers, you know, somewhere, you know, at an annualized run rate, I would say, you know, north of $150 million each. That's kind of at the high level, where we expect to reach cash flow breakeven within our current operations that we have.
All right. No, perfect. Great. Thanks for taking the questions.
Our next question comes from David Ko with Canaccord Genuity. Your line is open.
Hi, this is David on for Bill Plovanic. Thanks for taking my question and congrats on your 1/4. My first question is, what do you think has been the impact from the payers that were added in 2022 and the first 1/2 of this year? If you don't see an impact, how long does it take to flow through the system and see the benefits?
We get essentially all of our patients paid for. 75% of our patients are covered by the government. Yeah, this is, I'm talking about the U.S. When you're talking about payers, are you talking about private payers? Are you talking about reimbursement and outside the U.S.?
Private.
Private payers. Okay, so 25% of our business goes through private payers, and way over 90% of the time, we get it through, even in payers that have a negative coverage decision. Now, every major payer, with the exception of Blue Cross Blue Shield, is positive or neutral, which is to say they routinely pay for us.
Those that are part of the Blue Cross Blue Shield network, more than 2-1/3s of those have now flipped as individual plans, despite the association having a negative coverage decision. It's the biggest tree, and we're chopping it down limb by limb. We've made a lot of good progress on that front.
Even when somebody, you know, comes back and says, "We're not gonna cover this because we have a negative policy on this," you can protest, you can appeal that. What it requires is for you to present data, and then there's an independent physician who's not a part of Blue Cross Blue Shield, who comes in and reviews that package.
I don't know, I think we've, you know, we're essentially close to 100% on that because our data are very clear. We got four randomized controlled trials, have all been published. It's really the standard of care. We win that all the time. Why do we care about the private payers and where they stand? Because there's significant inefficiency.
It's like 3 months to go through the process I just described, as opposed to 2 or 3 weeks, if you've got a positive coverage decision. We're trying to, you know, reduce that resistance and. At the end of the day, the thing that's been remarkable is how patient the patients are. These patients are not going through a particular acute event.
They will be there tomorrow, and they're willing to fight to get the procedure and to go through the process. We do not have meaningful fallout during those extended processes, but it is. It'd be a lot more efficient if we can move them. It's, it is a small. Like I said, it's 25% of our business is private.
Blue Cross Blue Shield is the only company that's negative, and 2-1/3s of their individual plans, 2-1/3s of the covered lives under Blue Cross Blue Shield Association have already flipped to a positive position. They're full steam ahead in those accounts. It's a really small part of our business that we end up having to wait and work through.
Thank you for the clarification. I have one more question, if that's all right.
Sure.
How does the traction and utilization in your oldest accounts measure versus the newer ones? What is the timeframe for an account to reach maximum capacity? Thanks for taking my question.
Yeah. Thanks for the question. It's an element that we've been commenting on for some period of time now. Really the only pure group that we have was a relatively small group of accounts that were up and running for a year prior to COVID. Remember, we were on the market for 18 months from FDA approval to when COVID hit.
The first things that our sales reps did when we got approval was to go introduce themselves to these hospitals, because we don't sell a single thing to these hospitals until we showed up with the valves. We had to, you know, go through a process of negotiating terms and conditions and getting those hospitals up and running through the various committees and so forth.
We didn't have a ton of hospitals that had a year of experience at the time that COVID hit. It was a Double-Digit number, like 40-60 accounts or something like that. In that small group of established accounts that didn't get the light switch turned off in the first year, we had a certain rate of productivity, which was something on the order of 6 or 7 cases per 1/4.
We have been through the COVID phase, working in an environment where folks were coming in and going out based on the waves of COVID hitting, and have been, you know, as low as in the 3s on a quarterly basis, up into the 4s and so forth, and we're sort of digging our way out of that.
As I mentioned before, it's the most established accounts that got the strongest history that are the first ones to come back. Basically, everyone was down just a few months ago in the first 1/4. Those that popped back up were the more established accounts, many of which were the ones that were uninterrupted in the Pre-COVID phase.
Thank you, Glen. That's all I have.
Our next question comes from Larry Biegelsen with Wells Fargo. Your line is open.
Hey, guys. Thanks for taking the question. Glen, just a 2-part question on AeriSeal. I'm gonna ask it both upfront. The CONVERT interim results we're gonna get at ERS in September, how many patients are gonna be presented? What would you consider a good result? You said you're excited about presenting the data.
What makes you optimistic? You know, what changes have you made since earlier studies like, you know, the ASPIRE trial? This, you know, AeriSeal has been around for a long time. Kinda what makes you think, you know, you have something here? Thanks for taking the question.
We will report CONVERT at ERS. The CONVERT approach was first reported as a case study out of Australia. There was a single patient where this has been published, where the physician went in, identified that the patient was CV positive using Chartis, put in some AeriSeal, converted that patient, put in valves, and the patient behaved like somebody who was been CV negative.
That was encouraging. He set off to show in his site that he could do that in a larger group of patients, a Double-Digit number, a relatively small single center study. In the script earlier, we mentioned that that experience in that Double-Digit group of patients has been written up and is about to be published.
It's been accepted for publication, literally, just, you know, that normal delay between acceptance and when it shows up in print. We're not gonna. You know, it's essentially, think of that data as being embargoed until it gets published. So we have some visibility to that. We also, in the CONVERT trial, have tens of patients.
We're not gonna talk about the specifics of how many, but it's tens of patients that we're going to look at. We're gonna be talking primarily at ERS about can you take somebody who's CV positive and make them CV negative with AeriSeal. Because the second question doesn't matter, whether they're gonna behave the same way, valved or not, if you can't get by the first.
Now, you had asked what is a reasonable result. We queried, we asked that question of world thought leaders, and they came back and said, "If you could take 30, worst case, to 50% of CV positive patients that are good candidates for this procedure, and convert them, then that would be great. 50 would be wonderful and 30 would be acceptable." That gives you sort of the framework.
Anything north of 30 is acceptable and anything at or above 50 is wonderful. Those data will. I don't know when this publication is going to come out. If it pops up before ERS, you'll be able to see that. But that's in a smaller group than we'll report on at ERS.
A larger group, tens of people, will be reported at ERS with that fundamental question being the centerpiece. The other thing that they'll focus on is how well tolerated AeriSeal is. You had made reference to ASPIRE. ASPIRE was a trial that was executed by a company called Aeris Therapeutics. Aeris developed AeriSeal.
We purchased the technology from Aeris. They had commenced a study called ASPIRE. They didn't finish it because they ran out of money. When we were able to get a pretty good deal on that acquisition, and we have carried things forward. One of the observations at that time, and this was like a dozen years ago, was a question related to how well the patients tolerated the AeriSeal.
In that trial, roughly twice as much AeriSeal was instilled as in the current sort of approach. One might contrast and learn at ERS how patients behave when given, you know, 50% or less the volume of AeriSeal that they got in ASPIRE. There'll be a safety or tolerability question that'll also probably be answered at ERS.
Thank you very much. Eight area vice presidents.
Our next question comes from Rick Wise with Stifel. Your line is open.
Hi, this is Priya Malik on for Rick Wise. I'm just gonna go ahead and ask both my questions up front. During the first few weeks of earnings, we've seen a number of companies report and highlight that there's a seemingly higher pressure from hospital staff limitations and their ability to do procedures. To what extent has this impacted your productivity per account? And then how should we think about this impacting the 1/3 1/4, second 1/2 of 2022 and going into 2023? Thank you.
Got it. Yes. Has it impacted our productivity? Yes, it certainly has. It's just a reality. I mean, we have folks that are coming in, and they've got to go through pulmonary rehabilitation. They have to go through pulmonary function testing. They have to be run through other tests around the hospital. Then the procedure gets executed by a team of people.
If a significant number of people, or in some cases and not even a terribly significant number of people call in sick, then certain things get delayed or, you know, and they get pushed off in the future. We are definitely feeling that. We muscled our way through that. We didn't anticipate it.
Our hope was that if everything went well, we were gonna deliver in this second 1/4, roughly what we did in the fourth 1/4, you know, if everything seemed to go pretty well. Well, things didn't go as well as we had anticipated, and we were able to muscle our way into that zone that we had targeted. We're definitely seeing that right now.
I mean, I think that it's something that, you know, hospitals make money off of these procedures, whether they be surgical procedures or interventional procedures, and they're gonna do whatever they can to ensure that they have the capacity to do the procedures that are necessary. It's gonna take a little time. We're seeing in certain situations the situation improving for sure.
You know, we expected that to strengthen as we move across the year and certainly in 2023. I'm sure that the hospital systems that report like we're doing right now are gonna be commenting on staffing as well. We're very gratified that our patients are pushing hard and our physicians are trying to move things ahead. We can see the activity, the engagement by patients and the activity by our accounts that gives us a great deal of optimism as to what's ahead.
Great. Thank you.
Thank you.
Our next question comes from Joseph Downing with Piper Sandler. Your line is open.
Hey, guys. Congrats on the solid 1/4. This is Joe on for Jason Bednar today. The first one I have is on pricing. While it hasn't been a traditional lever we've discussed in the past for your business, are you able to comment on whether you have or plan to take pricing on Zephyr to offset any manufacturing or operating inflationary pressures? I got one more.
We have taken small amounts of pricing in the past. We'll probably be taking larger, you know, making somewhat larger price increases as we move forward. We've had great fortune with our supply chain, and we've got a very talented group that manages it.
We got out ahead of things in terms of making sure that we had the right inventories. We've got a good bit of product that's on the shelf. We've been able to manage pretty well in this environment. Yeah, we would expect that we'll have some price increases. I think that where we typically, I think, focus price increases in terms of greater magnitude is on new products.
When we have a line extension or a new version of something, we typically would see a, you know, new software package or something in a chart issue, typically bigger step up in pricing as well. Yeah, we would expect we'll exercise a little bit of that as we move forward here.
Great. Thanks, Glen. One more on competition. What are you seeing out there competitively with Spiration, and are you seeing Olympus helping develop the valve market in any meaningful way? Relatedly, are there any other earlier stage technologies that you would consider evaluating that, like AeriSeal, could help expand the addressable patient population you can treat? Thanks.
Yeah. Well, I'm always happy to have a competitor in the marketplace to sort of help you grow. Like, obviously, it's great to grow the size of a pie when you control a disproportionate share of that pie. We've been out in the market now, albeit during a challenging time, but we've been out for a while and not only in the U.S., but in Europe.
We're a difficult competitor for somebody else who's got a valve that's got a different design. You know, we've got a lot of data. We got, you know, four studies. All the data are consistent. We hit on all 3 endpoints across all four studies. You know, 12 shots on goal, 12 goals, and Olympus doesn't have that same data set.
We're continuing to do additional work. I'm not aware of them doing significant additional work either. Anyway, they've got a good product. It's, you know, it works in certain patients and but we continue to have what I believe is our share of the market, which depending on what country you're talking about, is somewhere between 70%-100% market share.
How are we doing? They're still in the game. I don't expect that to change. There's a place for them in the marketplace. I'm happy they're making noise. In terms of other technologies, there's nothing that I can see on the horizon that I think is going to be significantly competitive in the valve space.
Valves are reversible, which is great. You know, these patients are all, you know, 90%+ of the time they're former smokers. It's not uncommon that 3 years after you place a valve that some spot shows up on a future X-ray and you wanna go in and get at it.
You can go in with our valve and you can pull it out 3, 5 years later and go back behind it and go do what you wanna do. So I think valves are always gonna be First-Line therapy. Now, there are other technologies that are in development with the possible application in CV positive patients. Some have been studied before and have a very spotty record.
You know, we like the approach that we're taking with AeriSeal, where you're not permanently taking down massive chunks of geography, the way that some of the other technologies would be the case. You'd also referred to whether it be anything that would be complementary that's out there. Of course, in the interventional space, there's a number of different technologies that are being developed.
Some are further along than others, we continue to keep a close eye on those technologies. You know, what we have that is really hard to have is we have a global sales organization. 98% of our business is direct. We sell into 25 different plus markets. So we built this commercial front end.
It's very, very hard to get to where we are right now, where the commercial, you know, our global commercial team is paying for itself, certainly all of our sales reps around the world. It's just incredibly difficult for any younger company or smaller company, a single product company, to do what we've done. We see that as a leverageable asset. We keep a close eye on the other things that are coming forward that could be potentially complementary in the bag.
Thanks. I appreciate the insight.
Sure.
Our next question comes from Joanne Wuensch with Citi. Your line is open.
Good afternoon, and thank you for taking the question. Actually, the previous one just folds straight into this. You know, when I look at the OUS growth was up against a particularly tough comp, but I suspect that it masks certain pockets that are doing quite well and others that may not be so much.
Could you maybe pull that apart a little bit? Then my second question has to do with your global sales force. Can you talk about the seniority or the tenure of the individuals and the stability of that sales force? Thank you.
Looking outside, yeah, I mean, it's so outside the United States. United States is our biggest market, 60% of our business. 40% of our business is outside the United States. Three quarters of that business is in four countries, Germany, France, the U.K., and Australia. They're all $2 million-plus annualized, you know, markets, $2-$10 million kind of range.
They really did all our top 5, U.S., Germany, France, U.K. and Australia, all did well in the 1/4. As I mentioned, I think earlier, U.S. was up 31% on a constant, you know, over the second 1/4 of 2021. On a constant currency basis, those, Germany, France, U.K. and Australia were up 20%. That's 9ty percent of our business was up 27.3% over the prior period.
Where we have the biggest footprint, where we've got the greatest number of accounts, where we're up and running and we're leveraging, we've got marketing people there, we've got salespeople there, we're building our business. In that last 10% of our business, we were down on the order of 20%. About 1/2 of that miss was in Asia, almost all of which was in China.
Now, the balance of the other 1/2 is in a bunch of countries, smaller countries, where they don't, you know, they haven't taken the, you know, complete shutdown approach the way they have in certain Asian countries. Those smaller countries that underperformed in the second 1/4 are just slow coming back because there's not a team on the ground that's like goosing them to come back. They're gonna come back, so that's the good news.
I mean, I fully expect that's gonna happen in the back 1/2 of the year. Again, it's only 5% of our business, 1/2 of that last 10%. I don't expect Asia to come back this year. I don't expect China to come back this year, I should say, because that's the biggest part of the chunk for obvious reasons. They're just, you know, we do a little business there.
It's not like it's zero. But they're not doing what we. You know, China was growing compound annual growth, something on the order of 100% for a couple years, and then COVID hit and, you know, we got frozen pretty good there. Does that answer your question, Joanne?
Yes, thank you. There are no further questions. I'll turn the call back over to Glen French for any closing remarks.
Great. Well, thank you all for your questions and your interest in Pulmonx. We feel really good about the 1/4 that we just finished up and the foundation that we have to move ahead. I also wanted to take just a moment to ` my deep appreciation for the extraordinarily dedicated customers and employees who work every day in an effort to significantly improve the lives of patients with severe emphysema and COPD. Thank you all.
You may now disconnect. Everyone, you may now disconnect. Everyone, enjoy the rest of your day.