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Edited Transcript of ABMD earnings conference call or presentation 1-Aug-19 12:00pm GMT

Q1 2020 Abiomed Inc Earnings Call

Danvers Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Abiomed Inc earnings conference call or presentation Thursday, August 1, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ingrid Goldberg Ward

Abiomed, Inc. - Director of IR

* Michael R. Minogue

Abiomed, Inc. - Chairman, CEO & President

* Todd A. Trapp

Abiomed, Inc. - CFO & VP

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Conference Call Participants

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* Christopher Cook Cooley

Stephens Inc., Research Division - MD

* Christopher Thomas Pasquale

Guggenheim Securities, LLC, Research Division - Director and Senior Analyst

* Danielle Joy Antalffy

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* David Ryan Lewis

Morgan Stanley, Research Division - MD

* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Malgorzata Maria Kaczor

William Blair & Company L.L.C., Research Division - Research Analyst

* Matthew Oliver O'Brien

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Rajbir Singh Denhoy

Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q1 2020 Abiomed Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Ms. Ingrid Goldberg, Director of Investor Relations. Ma'am, you may begin.

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Ingrid Goldberg Ward, Abiomed, Inc. - Director of IR [2]

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Thank you. Good morning, and welcome to Abiomed's First Quarter of Fiscal 2020 Earnings Conference Call. This is Ingrid Goldberg, Director of Investor Relations for Abiomed. And I'm here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer; and Todd Trapp, Vice President and Chief Financial Officer.

The format for today's call will be as follows. First, Mike Minogue will discuss first quarter business and operational highlights. And then, Todd Trapp will review our financial results, which were outlined in today's press release. After that, we will open the call to your questions. Before we begin, I would like to remind everyone that our presentation today includes forward-looking statements as it relates to the discussion of our outlook. The company cautions investors that any forward-looking statements involve risks and uncertainties that are not guaranteed in the future. Actual results may differ materially from those expressed or implied in forward-looking statements due to a variety of factors. These factors are described under the forward-looking statements in our earnings press release and our most recent 10-K and 10-Q filed with the SEC. We do not undertake any obligation to update forward-looking statements. With that, let me turn our call to Abiomed's Chairman, President and Chief Executive Officer, Mike Minogue.

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [3]

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Thanks, Ingrid. Good morning, everyone. As we communicated on the last earnings call, we knew that we had some U.S. headwinds to address in Q1 following a poor performance in March due to external noise and a distraction in our internal focus. We acknowledge that the first half of fiscal '20 was going to be more challenging in part due to confusion on the Impella RP letter, tougher comps at 30% growth from prior year and the normal cath Lab summer slowdown.

In Q1, we implemented new training programs, organizational changes in distribution and launched external initiatives that will require time to drive more growth in the future. Therefore, our outlook for the fiscal year has been adjusted accordingly.

In the first quarter, Abiomed delivered $208 million of revenue, up 15% year-over-year. Operating margin for the quarter was 29.2%. Outside of the U.S., we continue to see strong performance with European revenue at 28% on a constant currency basis and Japan revenue of $8.5 million, up 227% year-over-year.

We are confident in our ultimate global adoption because we know our innovation improves clinical outcomes and patient quality of life. Abiomed is creating the field of heart recovery and this proven clinical value will ultimately transform the standard of care despite a few challenges along the way. Therefore, we continue to believe Impella adoption is a function of training, data and time. Over the last 5 years, the Impella product platform has been one of the fastest-growing technologies in the medical device field.

For today's call, I will cover 2 topics. First, I will provide an update on internal changes we've made in Q1. And second, I will discuss our progress on external initiatives. So first, on the internal changes. We have adjusted our U.S. strategy and distribution model in order to go wider into the community hospitals and deeper into existing sites by expanding the number of physicians with specialized training and education. In the Q4 call, we announced the creation of more U.S. regions, increasing territories and account managers. This will reduce the span of control and enable our field team to target distribution into areas with lower penetration, spending less time in the car and more time at hospital sites.

We feel this will help create more robust Impella programs, expand users at existing sites and leverage our hub and spoke network into the community. This is where inotropes and intra-aortic balloon pumps continue to be first line of therapy. Despite the evidence, that they are harmful and predictors of mortality when used before Impella. Additionally, we've expanded our education and training on Impella access, closure and ICU management for the next wave of physician users, which is our biggest obstacle in this group. To address this, we have hosted additional training courses and created new educational content for physicians, which I will highlight later. We also simultaneously launched our SmartAssist platform for the fiscal year, which we believe will make our team more productive, improve ease of use in the ICU and help expand patient utilization.

Now I'll transition to our external initiatives. We successfully closed out the Impella RP physician letter with the FDA. The updated FDA letter on the Impella RP was issued to health care providers on May 21, validating that the Impella RP heart pump is safe and effective for treatment of right heart failure. The FDA also identified a new category of salvage patients that have been in cardiogenic shock for more than 48 hours or 2 days due to right heart failure and acknowledged salvage patients will have lower survival rates.

Impella RP remains the most studied right-side device and is the only right side heart pump technology with FDA PMA approval. We welcome and acknowledge that this FDA approval requires a higher standard of data collection and transparency than other off-label products. We are continuing to expel remaining confusion on the Impella platform and note that this will take time. In Q1, Impella RP grew 18% year-over-year and was down 20% sequentially. We opened 23 U.S. sites compared to 50 sites the prior year, lowering the overall revenue by $1.3 million.

Now for the most important and positive update for the quarter. In May, at the 2019 Society for Cardiovascular Angiography and Interventions conference or SCAI, the latest National Cardiogenic Shock Initiative or NCSI, clinical data was presented and simultaneously published in Catheterizations and Cardiovascular Interventions, CCI. The clinical data from NCSI investigators was presented during late-breaking scientific sessions by Dr. Bill O'Neill and was followed by further in-depth presentation and discussion at our Abiomed sponsored session. A link to the NCSI presentation is included in our press release. Similar to all prior cardiogenic shock studies, the data prospectively revealed that when placing the Impella heart pump pre-PCI, 171 consecutive AMI cardiogenic shock patients from 35 sites demonstrated 72% survival with 98% native heart recovery at discharge. As a reminder, this compares to the 50% mortality rate that cardiogenic shock patients have experienced for the last 20 years without Impella. This steady, yet again, demonstrates that a protocol-based approach to increasing survival rates in cardiogenic shock is reproducible in academic and community hospitals across the U.S.

I would like to share a recent patient story. Last January, [Soma Ambadapudi,] 49 years old, began experiencing severe chest pain while running the Houston half Marathon with his daughter. Mid-race, [Soma] collapsed and the EMTs were called. He was in cardiogenic shock. Soma received CPR and was shocked several times on the way to Memorial Hermann-Texas Medical Center. At this point, Dr. Prakash Balan immediately placed the Impella CP before stenting [Soma's] 99% blocked LAD artery. After 5 days of Impella support and unloading therapy, the Impella was removed. Today, 7 months later, Soma's heart function has returned to normal with an EF of 55%. He's back at work and living an active life with his family. He and UnitedHealthcare, his private insurance will now not spend over $1 million in future hospital charges by avoiding the cascades of the most invasive and expensive treatments that would have continued for the duration of his life, had his heart not recovered. Also at the SCAI meeting, 4 of the 6 PCI live cases incorporated Impella support and successfully demonstrated the new SmartAssist features including peak flows above 4 liters per minute and metrics on the console to assist in weaning the patient post-procedure. In order to address a primary obstacle for growth, we held one of our largest events on Impella insertion access and closure at SCAI with more than 120 physicians in attendance.

Simultaneously, SCAI released and highlighted an interactive, physician-initiated, access and closure online training manual with videos to simplify techniques and best practices. This online tool exists on the SCAI website where it's been well received by the clinical community and has already surpassed 7,500 hits and downloads.

We recognize that access and closure remains a key area of focus, and we are taking action to train away these concerns. In the future, we will also innovate to minimize this concern with our expandable 10-French sheath for Impella CP and our new product, the Impella ECP 9-French pump. At SCAI, presentations were also given by physician experts on the STEMI DTU study, the Inova shock protocol and potential for reduction of acute kidney injury or AKI, with Impella used during high-risk PCI.

Today, we're announcing a cVAD Study publication in Catheterization & Cardiovascular Interventions on Impella's reduction of AKI, validating previous publications which you will find summarized in our quarterly slides. The paper evaluates 223 consecutive patients from our cVAD Study and demonstrates a 78% lower AKI rate, relative to the expected rate in this patient population. Specifically, AKI rates in these Impella patients were 4.9% compared to the 21.9% predicted rate. It is exciting to see new data around the potential for Impella to reduce the risk of AKI, which remains a critical problem for heart failure patients undergoing PCI, TAVR and CABG. Patients with AKI are estimated to have a 10% in-hospital mortality, and if escalation to dialysis is required, the in-hospital mortality increases threefold to 34%.

In conclusion, we are confident in our technology, people, and our ability to improve outcomes. Today, there is no other products like Impella and no other FDA approvals for this patient population. As a company, we remain financially prudent and profitable with $527 million in cash, no debt and an IP platform that now encompasses over 700 patents with nearly 600 pending.

We believe that Impella adoption is a function of training, data and time, and we remain dedicated to our mission and improving the standard of care. I want to thank our investors for their support over the years. I also want to recognize our customers and employees for creating the field of heart recovery. I will now turn the call over to our CFO.

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [4]

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Thanks, Mike, and good morning, everyone. In the first quarter, we delivered revenue of $208 million, an increase of 15% on a reported basis versus a tough comparison of 36% growth in Q1 of last year. By region, U.S. revenue grew 11% to $175 million, driven by a 13% increase in patient utilization. Outside the U.S., revenue was $32 million, up 50% on a constant currency driven by strength in both Europe and Japan.

In the U.S., at the end of our fiscal Q1, the Impella 2.5 has been placed at 1,237 sites and Impella CP is at 1,387 sites. The Impella 5.0 is now in 605 sites, and the RP is in 469 sites out of the potential 1,000-plus heart hospitals. We opened up fewer sites in Q1 than historically, as we prioritized patient utilization and physician training at our existing sites. Reorder performance in the quarter was solid with a rate slightly above 100% consistent with Q4. Average combined inventory at the hospitals for the Impella 2.5 and CP was 4.4 units per site, again, consistent with the inventory levels we saw last quarter. We highlighted on our last call that March was a soft month for Impella utilization, specifically for high-risk PCI, and we mentioned that the April patient growth rate showed improvement over March. U.S. patient growth in April was 17%, however, we were not able to sustain this rate of growth in the summer slowdown in June.

Outside of the U.S., we are seeing continued growth in Impella adoption. In Q1, our European revenue increased 28% in local currency due to higher patient utilization in Germany and further adoption in other countries like Switzerland, Austria, France and Italy. We saw solid high-risk PCI growth in Germany, up 35% likely fueled by a publication in the Journal of Interventional Cardiology by Dr. Burzotta from Italy, of 86 complex high-risk patients who received an Impella supported Protected PCI.

The study found that 6 months after Protected PCI, the number of patients with less ventricular ejection fraction greater than or equal to 35% increased by 205% from 22% to 67% of the patients, consistent with our findings in PROTECT II. Additionally, the controlled roll-out in Japan continues to gain traction, as we generated $8.5 million of sales in the quarter due to patient utilization and new sites.

In Q1, we opened 22 sites and are now in 82 hospitals with 126 approved by the government. We successfully treated our first Japanese patient with our limited rollout of the Impella CP, and we expect to begin the product launch in the second half of fiscal year.

We also received PMDA approval for Impella Connect and look forward to bringing this new technology to Japan. Moving forward, gross margin was 82.1% in the quarter compared to 82.9% in the prior year. The year-over-year variance was driven by SmartAssist launch and geographical sales mix.

In the quarter, R&D expense totaled $24 million, an increase of 12% from the prior year driven by investment in new product development. This includes the Impella 5.5, which is CE marked and in limited market release in Germany, our expandable sheath, which had a positive first-in-man clinical experience in 15 patients outside the U.S., and our ongoing work around Impella ECP, a low-profile expandable 9-French pump. These ongoing investments should result in sustainable growth rates in the future.

SG&A expense for the quarter totaled $86 million, 6% higher versus prior year. The increase was due to the investment in our global commercial team and training. We also had lower incentive comp in the quarter as compared to last year. In Q1, operating income grew 30% to $61 million, translating to an operating margin of 29.2%. Margins expanded 320 basis points due to higher volume, lower incentive compensation and timing on R&D project spend with some shifting into Q2. GAAP net income for the quarter was $89 million or $1.93 per diluted share versus $1.95 in Q1 of '19. Net income decreased 1% driven by our tax rate, which was positively impacted last year due to excess tax benefits associated with our equity compensation.

We also booked a $40 million pretax gain in the quarter for our investment in Shockwave. Excluding the impact of excess tax benefits and the Shockwave gain, EPS grew 28% year-over-year.

In the first quarter, we generated $65 million of operating cash flow, an increase of 39% versus prior year. As you know, Q1 is typically a slower quarter on cash due our seasonality and incentive compensation payouts. Our balance sheet remains debt-free, and we ended the quarter with $527 million of cash in marketable securities.

Today, we also announce a $200 million share buyback program. This new program is a result of our proven ability to generate strong, consistent operating cash flow and our conviction of Abiomed's long-term outlook. The share buyback program is in addition to our ongoing practice of using cash to cover withholding taxes on vested employee restricted share units, of which we spent over $100 million in the last 18 months.

With that said, our #1 deployment priority continues to be investment in our internal growth programs and distribution, which we believe will generate higher returns for the shareholders over time.

Before turning to our update on full year guidance, I'd like to remind investors of the seasonality of our fiscal year. Q2 is typically a slow quarter for cardiovascular devices due to the summertime slowdown in the cath lab and physician vacations. As a result, and like years prior, we expect Q2 revenue to be slightly down versus Q1.

Given our performance in the first quarter and what we have forecasted in Q2, we are revising our revenue guidance and now expect to be in the range of 15% to 20% for the fiscal year.

We also expect operating margins to be in the range of 28% to 30% for the year. As Mike mentioned, we made progress on our actions that were discussed in the last earnings call but understand that it'll take some time to make the adjustments that we feel will better the position of the company for the longer term. So in summary, we remain confident in our investment thesis with new products, new indications, in new countries on the horizon, we believe we have a path to long-term sustainable growth. Coupled with our strong profitability and robust balance sheet, Abiomed is well-positioned for the future. Operator, please now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Danielle Antalffy from SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [2]

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Mike, I just wanted to touch on whether this could -- so I appreciate that some of this is execution, but it feels like maybe given the time that it's taking to drive a recovery, we're at a different phase of the adoption curve, a little more push versus pull? And I'm wondering if: a, you would characterize it like that? And then secondarily, what does that mean for the sustainable growth rate going forward? Do you feel confident that the internal initiatives and external initiatives that you talked about are going to allow you to realize the full value of TAM here?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [3]

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Thanks, Danielle, for the question. The -- we are at a different phase. So where I would characterize is we are now moving our way through the early majority. And so if you look at the numbers, 85% of our patients come from 50% of our accounts. And those accounts are driven by the physicians. So the other half of our installed base are not utilizing Impella the way they could with the best practices. It also means that because they're using inotropes and intra-aortic balloons, they're getting outcomes in shock and other areas that have been consistently in the 50% survival range. The big concern that we have with this next phase of physicians, whether they're at existing centers that we're already at or whereas we go into the community is access and closure. So you're seeing an intense focus now on the access, meaning putting the Impella in and then closing the 14-French hole. And so we're doing that with education. In the PROTECT II study, we have data showing the vascular complications were numerically the same between Impella and the balloon. We're doing it with clinical workshops and hands-on, events like we did at SCAI. And probably, the most important educational tool we have now that's been validated and is on the SCAI website is our access closure manual with videos. It was a physician-initiated educational program. And again, it is now online, and it was presented and it's utilized by the SCAI society, which is the interventional cardiology group. So that phase that we're at is exactly -- they have a bit of a different learning curve. And as we're going back out into the communities, we've shown that if folks follow the NCSI protocol, which several of those hospitals are in the communities, they can also duplicate those outstanding outcomes. So that's what we're focused on. And again, if I put it into the formula, it's training, data and time, the access closure is really the big concern you'll find as you do your surveys. Now when we get into the ICU, that has to do a little bit with the patient management, and we believe SmartAssist is a big key for that. Because it allows us to have information right on the console, know where the pump is and then if alarms go off people have support on-site, on-call and at our Impella Connect centers, it's real time being monitored. For the data component, I also think we've had a recent batch of incredibly positive papers, maybe so much that they're getting watered down because they're all coming together. But the first is the SCAI paper, I mean this is a drastic change in survival compared to the historic norms of 50%. And again, 98% have recovery, that's cost-effective as well as it's what the patient wants. The Inova publication again showed a different unit, a different hospital system that followed their own protocols. But again, utilizing Impella early, they were also able to move survival from 44% to 82%. The Burzotta paper, which is actually likely one of the reasons we're seeing an increase in high-risk PCI in Europe, again, shows what PROTECT II, our FDA study showed that when you do a complete revascularization, these patients see a permanent improvement in their EF. and then as of today, announcing from our cVAD study, that's prospective and it's where we also do our FDA post-approval studies that were able to minimize the rate of AKI. So all those things together, the training and the data, and as we've mentioned today, it will require a little more time to get to that next phase of users.

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Operator [4]

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Our next question comes from Chris Pasquale from Guggenheim.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [5]

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Todd mentioned that the early momentum you saw in April really wasn't sustained over the course of the quarter. And it sounded like you're attributing that to seasonal weakness but that would have been true in the year-ago period as well. So I'm curious, at this point, what drives your confidence that the RP letter is still the best explanation for the slowdown we saw in March? And if so, then why haven't just the passage of time and the updated communication driven a more immediate rebound?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [6]

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So Chris, it is accurate and that the seasonal issue is true in both cases. However, the amount of organizational change and some of the external noise that was out there makes it more difficult to update folks and to drive that benefit that we did see in April. The second part of your question is, the confidence we have and the RP effect is that the RP letter did come out, unfortunately, the process of physician letters from the FDA is they still come out with the same headline. And it wasn't until the very end of the update that it talked about the safe and effective and closed it out. So even in the update that went out, there was a little bit of confusion on how it hits the web and there was a few media sources that again misinterpreted it. The second thing is that there's a lot of -- the initial noise doesn't necessarily get clarified. So we are making progress, that's why the SCAI meeting was very important for us to have all that information there. And we did talk about it. I also think that some of these things require just a consistent period of time before people understand the context of what is a salvage patient and why are protocols so important? So we'll continue to do that. But again, we said RP letter was the biggest driver of the external noise, there was other noise that's happening around us that things do with either staging or administrative changes or just perception that's out there on the product. And so we continue to work through those as well by improving the product and also getting out the information on the clinical data.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [7]

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And Mike, the distribution changes that you made, are those now in place? Or is that a work in progress?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [8]

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It's both. So -- because we're expanding managing roles and because we're adding more heads, we haven't been able to fill all of those yet. But from the infrastructure and from the strategy, we know that when we go into these community hospitals that are somewhat large, there's tremendous upside because they, again, tend to be the biggest users of inotropes and ballon pumps. So we can customize the distribution in those markets. And then from a strategy perspective, we really want to incorporate the hub and spoke broader, so that those sites that will set up their own systems of care have the option to transfer those patients, especially centers that do the expertise of the ICU management and biventricular support. Even at existing sites, we have to get deeper so that we always have the physicians on-call and we have the heart team approach. So for that, we're going to specialize training now around programs. So whether it's a high-risk Protected PCI program or whether it's a shock protocol, we're going to have to come out a little bit different for places that the physicians may have essentially required more handholding or have just a bigger concern about access and closure. And I think as you all survey users, probably the number one thing you'll hear from folks that -- if they're not using it, is there -- they're still just concerned with access closure. What we also remind people is, with the right training and what we have that the catheter French is 14 at the -- French at the head, but the catheter itself is 9-French. So we look at the STEMI DTU study in the 50 patients, we only had 2 that had vascular complications and both of those were at explant which is, again, a heart attack patients and we probably shouldn't have issues at explant as the patient's more stable. So those are things we're going to do with education. But we definitely have hit a next wave of users that really are concerned about access and closure.

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Operator [9]

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Our next question comes from Margaret Kaczor from William Blair.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [10]

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First one from me, may be is just walking through kind of this new wider sales strategy focused on community hospitals versus going deeper into existing accounts. And just wanted to pick away at that in terms of how much of this was always in the plan? Even last quarter? Maybe how should we assume for a new site adds start to trend throughout this year? And really how quickly can you get some of these new sites to ramp?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [11]

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So Margaret, the 100 of the top U.S. heart hospitals in the country, I think 99 have Impella, it might even be a 100 now. So we've done well at the hubs. For the most part, the hubs still have upside because we have escalation of patients, we have more patients that are not getting high-risk PCI. And then we have the community hospitals, our spokes. And so I think the evolution if you look at the number I provided on 85% of the patients coming from 50%, that means the other 50% are actually not utilizing the technology, even though they have the same type of clinical challenges for high-risk PCI and for shock. We have best practice protocols. We have techniques and publications showing that you can get better outcomes for high-risk PCI and for cardiogenic shock. So there's no reason now that centers, that the other 50% should not be utilizing Impella. And there's also extensive clinical data on inotropes and intra-aortic balloon pumps documenting that they're in some cases harmful and when used before Impella, are a statistical predictor of death. So we have to now evolve a little bit more so that when we go into the community hospitals, we really focus on the access closure training. We also give them the support they need on-site. We give them the support in the ICU, and as we set up the network of hub and spoke, if they have a patient that is too complicated or requires biventricular support, they feel comfortable and they have the option to then transfer that patient to the hub, to the center. And so I think we've evolved where we've done pretty well with the hubs. We're moving to phase 2 to get the next wave of the late majority and they're really -- those physicians are out in the community at those hospitals and we need to do a better job there.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [12]

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Okay. And then just as a follow up maybe on guidance. If we kind of take Todd's comments that next quarter will be, maybe, down seasonally just a bit, and apply that into the model for this quarter, essentially starts to imply a kind of a 14% growth for the rest of the year, I think for the U.S., and correct me if my math is wrong on that. But how much of that is really going to be driven by comps getting easier, going into the fourth quarter and some of these initiatives really taking off in the fourth quarter relative to same steady progression throughout the year?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [13]

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So Margaret, we're giving you full transparency of the numbers, that's why we've provided April, last quarter's call and giving you the details this quarter. We obviously feel comfortable about what we're seeing outside the U.S., and Japan is obviously a great opportunity for us to have sustainable growth for many years. The reason we're so focused on that next phase in the U.S. is because we expect to get back a reacceleration of growth in the future. We do see a little bit of adjustment for this fiscal year. But with the training that we're doing with the new clinical data, we expect to return to stronger growth with some of these new products, new indications, existing education. And then, obviously, we've got the rest of the world, the new geographies outside of the U.S., Germany and Japan longer term. So we'll give transparency and you'll see what we're doing each quarter along the way. But right now, what we're really focused on is improving outcomes and remember that the way you become a standard of care, the way you drive true adoption is you just have to continue to improve outcomes for patients and make it cost-effective. And the one thing on this call and the one thing of all these new publications is they consistently reiterate that we're able to get better outcomes for patients utilizing the Impella technology.

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Operator [14]

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Our next question comes from Raj Denhoy from Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [15]

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Maybe, Mike, I can ask you. I think one of the things that's been troubling about this slowdown that you're in right now is that when one thinks about the market sizes, we've always assumed for Impella 200,000-plus in United States alone. You're still less than 15% penetrated in that. So I guess what -- the question is really, what gives you the confidence that the things you've identified, whether it's expanding the sales force, this issue with access and closure are truly the pushbacks, right? Is there any other issues that maybe you're contemplating that might be behind the slowdown that potentially could be protracted here and extend even longer than maybe we're assuming?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [16]

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So Raj, that's a good question, and something we obviously have analyzed. So the first point, I'd say is, up until March, Impella's been one of the fastest-growing medical device products for about 5 years. So that's a signal that the market is there. Number 2 is, we still have exclusively the FDA labels for high-risk PCI and shock. So we're safe and effective and CMS says, we're reasonable and necessary. And so those are things that come first before you get the mass production and that becomes a standard of care. And then as I travel around the field, unfortunately, I see a lot of centers where they are not utilizing the Impella technology or following best practices or physicians are either turning down these patients completely or trying to get in and out, and the numbers show that.

So as you look at what's the number one killer in the U.S., it's coronary artery disease. And the numbers are huge. And when you talk to physicians or even you look at your market sizes, there's a lot of great technology out there, impacting the plumbing or the electricity or the valves, but in the end, coronary disease is your -- it means that you have to treat the coronary arteries. And there's 15 million people in the U.S. just alone with it. It causes 900,000 deaths. The advisory board put out a stat that high-risk procedures are projected to grow 47% over the next 25 years. This is the only area of growth for PCI. And remember that you die of organ failure, which means the pump stops. And so that's why this is the highest mortality patient population. It's also why these patients are turned down treatment in the cath lab and surgical suite.

So while we go through this phase, it's also important to remember the level of growth we've had, the complexity of these patients and how sick they are. And what we've put out is our current addressable market, not the total addressable but the current addressable market because we know that there is 700,000 people in the U.S. that have Class III, Class IV with coronary artery disease and low EF. Many of those are also at risk of AKI. And so we've narrowed it down to the 121 for high-risk PCI on a label that we exclusively have. High-risk PCI in itself is a first of its kind indication for Impella. And that there's additional data showing 300,000-plus patients have the ischemia and are undiagnosed. And then of the 100,000 shock patients, these are patients that are already in the hospital today. And unfortunately, there's still probably 40,000, 50,000 intra-aortic balloon pumps getting used in the U.S., and there's over 100,000 patients getting inotropes every year in the U.S. So unfortunately, this is still a clinical crisis, and one of the biggest problems at hospitals. And if you even look at the latest study from Europe on just SHOCK-CULPRIT, the recent one showed that they had 50% survival in shock, without Impella used up front where they just didn't do anything until after patients had already -- had lactates above 18 and were in profound shock. So we do feel confident. The numbers in the U.S. and the numbers outside the U.S. are incredibly conservative. And again unfortunately, you do see that high-risk PCI unless you get completely revasc has poorer outcomes. And for shock, unless you have a strategy to not only increase survival and drive for heart recovery, those patients have poor outcomes.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [17]

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No, that's helpful. Maybe I could ask -- kind of a bit of a follow-up but maybe for Todd. When you think about the new guidance of 15% to 20% for the year. How should we think about the second, third and fourth quarters? I mean, are you going to be towards the low end of that and then accelerate as you move through the year? Or just really, how should we even think about this current quarter, the second quarter?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [18]

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Yes, well -- thanks, Raj. I said in my opening remarks that typically Q2 is slightly down from Q1. So you can do the math, kind of, the year-over-year growth rate there. And then we do expect to see growth pickup in the second half of the year. Part of it is because we have easier comps. As you recall last year, second half grew a lot less than the first half. And then we have some of the new products like SmartAssist launch, which should gain traction and then some of the changes we made on the U.S. distribution structure, again, reducing the span of control to help really drive Impella adoption wider and deeper in some of that outside the U.S. performance primarily Germany and Japan. So I do think growth will pick up in the second half of the year based on those initiatives.

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Operator [19]

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Our next question comes from Matthew O'Brien with Piper Jaffray.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [20]

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Just real quick one upfront or two parts upfront. The proposed reimbursement changes are going to go final here in a couple of weeks. Are those incorporated? Or any kind of pressure there incorporated in guidance for the back half? And then Todd, I think the utilization rate of U.S. Impella was actually higher than the actual growth rate. Was there a little bit of pricing pressure in the quarter? Then I have one follow up.

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [21]

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So I'll take the U.S. patient utilization. So yes, utilization was up 13% in the U.S. Our revenue growth rate was up 11%. The big driver there is that we opened up fewer sites in the quarter. So if you went back and looked at the average sites we opened up the last 4 quarters was roughly 120 sites. We opened up 62 sites in the quarter. And that impacted our revenue on a ballpark of about $3 million, which translates to about 2% revenue growth. So it was really just the lower site openings in Q1.

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [22]

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And Matt, this is Mike. So on the question, CMS update will be coming out, the guidance does take that into account. And as we've communicated in the past, we just always want to make sure that CMS has the accurate hospital charges based on all the changes that have been made in DRG 215 over the last 3 years.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [23]

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Okay. That's helpful. And then the follow-up question's on the business going forward. Japan's doing really well. Europe's still growing nicely. It seems like there's a little lull right now in the U.S., which is fixable. But I think what a lot of investors are trying to get their minds around is, historically, you talked about 25% to 30% top line growth. Are you guys more of, kind of, a 15% to 20% consistent top line grower over a multiyear period going forward?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [24]

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So Matt, we've only given the forecast for this fiscal year. But we do expect to go back to be a better -- one of the better growing medtech companies. Obviously, the law of the numbers, we've been getting bigger over the last 5 years. But again, I think that we now have half of our population that has incredible upside. We've essentially got in a critical mass. We're in the all heart hospitals, but what we need to do is get with more physicians at those centers, and at those community hospitals we need to establish programs, not one-off users. And so that's what you're going to start to see a little bit of a shift, which means that there is upside. And then longer term, we do have the Impella 5.5. We do have some of the improvements coming on the expandable sheaths for the Impella CP, which will innovate away the concerns of access closure. And then we have also new geographies along with the new publications and new studies that would be entirely new population. So that's what we're focused on. We, again, always try to adapt and execute and be very efficient in both being a top grower but also a disciplined business that delivers an ever-improving net income.

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Operator [25]

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Our next question comes from Jayson Bedford from Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [26]

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Just a couple of quick ones. Just on the U.S. growth. Is the slowdown widespread across your entire customer base? Or you're seeing slower growth on a specific segment of the user base? You've mentioned community hospitals a few times. I'm just curious if there's a trend here from a user standpoint?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [27]

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Jayson, that's a good question. As again, as you imagine, since we collect data on nearly every commercial patient by hospital, by name, we can review that weekly, daily and we do. It is not widespread. It's essentially around 25% of -- in pockets, where they're flat to slightly down. And then the other part of the country has -- continues to see the kind of growth rates that we've been putting up historically. So we've got ways to address the areas that are down, some of those areas are better alignment for the distribution. Some are more heads and some have had potentially open spaces or turnover or physicians have relocated that have been bigger champions for us. So that's where we're really focused on. And to simplify it, it's an organizational design that allows us to go into those pockets and build the programs themselves.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [28]

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Okay. That's helpful. And then just secondly, did you mention growth in high-risk PCI in shock? I apologize if I missed it.

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [29]

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Yes. We did. So growth in high-risk PCI in the quarter was 12% and for shock it was 14%.

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Operator [30]

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Our next question comes from David Lewis from Morgan Stanley.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [31]

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Just a couple of questions. Mike, just first off. PCI was weaker last quarter, shock was much weaker this quarter. And these businesses have similar commercial channels but very different end markets. So any thoughts on why we've seen, kind of, weakness in both in these last 2 quarters?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [32]

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Yes. So David, so I would go through and analyze both the quarter, but I'd I also look at it by month. So in the Q4, we saw March fall down primarily on high-risk PCI, not necessarily in shock. And then in April, we saw a rebound of 17% overall, but we saw 16% for high-risk PCI growth and 20% for shock. So that April looked like we had adjusted enough to see already an immediate impact. But again, as we got into the summer months, even though it's consistently year-over-year with the changes with some of the noise, it didn't hold up in June and so that's one of the things we're looking at.

And if I look at Q4 to go back to where we were, again, you were still seeing pretty -- much higher January and February months relative to high-risk PCI and shock themselves. And so I think that's the learning curve for us is understanding where were we down? Why were we down? Because we do have areas that [haven't been --] very significant growth in high-risk PCI around the U.S. And what's interesting is with the Dr. Burzotta paper from Europe, we're seeing a nice lift in high-risk PCI in Germany, which historically had been more of a shock market for us. So -- and then, of course, we've got -- always have pockets of extreme growth in new areas where we've invested. So those are the things we're looking at, kind of measuring where that territory is relative to the adoption curve. But we're doing exactly the analysis that you're talking about.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [33]

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Okay. And just a follow-up, then a quick one for Todd. Just my follow up for you Mike is just, that dynamic of large center traction getting more challenging. Are you seeing that equally in PCI and shock? And then for Todd, to deliver the top end of the guidance, our math is sort of momentum stability at the top-end. So the real question is, you talked about April trends. How did July trend?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [34]

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Yes. I mean, David, we're not going to start giving out monthly revenue by high-risk PCI and cardiogenic shock. I will tell you that we factored in the guidance of 15% to 20% based on how we exited Q1 and in what we've seen so far in July.

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Operator [35]

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Our next question comes from Chris Cooley from Stephens.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [36]

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Just 2 quick ones from me at this point. Maybe either for Mike or Todd. Is -- does the increased focus on the community hospitals here in the United States any way shape or fashion alter your views on continued geographic expansion outside of your primary markets in Germany and Japan? And then just as a follow-up. I'll just ask them both here in succession. I'm curious Mike, you're talking about growing utilization in community hospitals and the focus there really being on education. But there's always been a very large clinical body of evidence in support of Impella utilization. So I'm curious if you think it's really an education focus here? Or is it an economic understanding both from an episodic standpoint of the procedure but also, maybe, from a continuum perspective at that community hospital level? And as a result, if its the latter, does that really mean that we need to see DRG 215 in it's revised or whatever it may be rate of reimbursement first before you can really make a big push there that's sustainable?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [37]

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So Chris, a lot of questions there. I'll do my best to hit all of them. And I'll ask for clarification if I miss it. The first one is the increased focus on the community hospitals and how does that affect outside the U.S.? The answer is, it always has and it was part of our planning process. Since we have this infrastructure in the United States that allows us to provide this support in the ICU, on phone and now with Impella Connect. It allowed us to see the importance of protocols but also the importance of us being able to touch them even over the phone. And because we know from our internal data that we have an impact and we improve outcomes in the IQ database. As we've been waiting to plant the seeds and go around the world, one of the keys to that success is establishing training centers in the countries. And then bringing something like SmartAssist onto the console itself. So every time a patient is being supported, the console itself with the optical sensor and the information lets the physician and the nurses know where the pump is, how it's doing and how it's working with the heart. And also most important, it allows us to wean appropriately. So SmartAssist really does make the management, the implantation much easier. And then what you're seeing in the next phase of this, is we bring Impella Connect over the top, which is a real-time monitoring online. And so we announced today that we received Impella Connect approval in Japan. And you're going to see us roll it out in Japan so that countries like Japan, where we have a smaller number or other countries that we launch into will be utilizing Impella Connect to monitor their patients real-time, to capture data, to give benchmark analysis back to the hospital so they can continue to improve their outcomes and also make ourselves more productive in the training process. At a high level, what that means is, instead of selling a product or focusing on a one patient at a time or procedure, we're really going to establish programs where people are getting a feedback loop on their outcomes, and we're looking at some of the best practices whether is high-risk PCI or shock. So that's the first part of your question.

Your second question had to do with the education level based on the quality of the data, and you mentioned that -- it wasn't an economic means, so are we waiting for the DRG 215? So what I would say for that is, Impella, first of all, if you recover somebody's heart and you increase survival, you're talking about one of the most cost-effective applications in medtech. So sending [Soma,] our patient home with their own heart, that's UnitedHealthcare. That's a million-dollar patient in hospital charges in the next 6 to 12 months. So it such an important thing to be cost-effective. But in our case, this is life or death. And the quality of life measurement from CMS, again, is reasonable and necessary. On the regulatory side, there's also a mandated protection or liability in treating shock patients because of their risk factor. The FDA safe and effective label allows our hospitals and our physicians to know that a regulatory body has validated this technology and that to me is one of the most important components of our data. However, we continue to need to do more publications, more studies and in the space of science, you can never have enough studies. And there's always room for improvement and there's always room for more exploratory investigations. And that's where we are. A lot of times, investors, after reading all the clinical papers will say to me, how can it take so long, this is obviously the clinical data is very positive. And sometimes I remind them that they've already now read more information and more clinical papers that many of the physicians just because the burden of work that's on the physicians, the lack of time they have in order to just do research and study because they're so deep and they've got so many different specialties. And so a lot of times we just have to continue to take the summaries of our studies and simplify them. And today, I'd say that there's many people that still are not aware of all the details even from our FDA studies such as PROTECT II or some of the NCSI data. And so that's up to us to do a better job.

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Operator [38]

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And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Mike Minogue for any closing remarks.

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [39]

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Thank you, everyone, for your time today. We appreciate the questions, and if you have any follow up, please feel free to reach out to us directly. Have a great day.

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Operator [40]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.