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Edited Transcript of ABMD earnings conference call or presentation 31-Oct-19 12:00pm GMT

Q2 2020 Abiomed Inc Earnings Call

Danvers Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Abiomed Inc earnings conference call or presentation Thursday, October 31, 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 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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Ladies and gentlemen, thank you for standing by, and welcome to the Abiomed Second Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ingrid Goldberg, Director of Investor Relations. Thank you. Please go ahead, ma'am.

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

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Good morning, and welcome to Abiomed's Second quarter of Fiscal 2020 Earnings Conference Call. This is Ingrid Goldberg, Director of Investor Relations for Abiomed. 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 second 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'll 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 in 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. In the second quarter, Abiomed delivered $205 million of revenue, up 13% year-over-year, with an operating margin of 29.4%, driven by continued strength in cardiogenic shock and overall growth in Germany and Japan. We executed on U.S. distribution initiatives, our FDA post-approval studies and received FDA approval for Impella 5.5. We are pleased that this quarter, we released data demonstrating our best clinical outcomes overall for a high-risk PCI, cardiogenic shock and right heart failure by utilizing our training and best practices. In the United States, while cardiogenic shock was solid with 22% growth, high-risk PCI was light at 5%. And we are now leveraging the PROTECT III data to drive utilization.

Our innovation and our ability to improve clinical outcomes remain the driver for Impella adoption through a function of training, data and time. For today's call, we will provide an update on the following: First, we will discuss the progress that we have made around U.S. commercial organization; second, we will highlight positive new clinical data for high-risk PCI, cardiogenic shock and right heart failure; and third, we will discuss our recent FDA approval of the Impella 5.5 with SmartAssist and plans for the U.S. launch.

So I'll start with our U.S. commercial organization. On the last earnings call, we discussed the adjustments we are making to our U.S. distribution model and the creation of more regional leadership positions to go deeper with customer relationships and implement our strategy. We are pleased to announce that with a healthy balance of internal promotions and external hiring, all zone general managers and regional directors are now in place. We also have expanded roles for frontline sales and clinical managers and approximately 80% are now in place. These new field leaders will face the normal learning curve and be responsible for building active Impella programs, expanding users at existing sites and leveraging our hub-and-spoke network.

Turning to new clinical data for both high-risk PCI and cardiogenic shock, multiple positive data sets were released at TCT highlighting optimal treatment pathways with Impella that enable complete revascularization and improve patient outcomes. On the 1st day of TCT, Dr. Jeff Popma, from Beth Israel, discussed data from the PROTECT III study, which is our ongoing prospective single-arm FDA post-approval study for high-risk PCI. PROTECT III followed the PROTECT II randomized controlled trial and included 898 patients enrolled at 45 U.S. sites. Comprising more complex and high-risk patients, PROTECT III demonstrated improved outcomes and lower MACE at 90 days. Patients in PROTECT III were statistically older, at 71, more often women received longer support and had more complex procedures with more vessels treated relative to PROTECT II. Yet the 90-day MACE rate in PROTECT III was lower with 17% MACE versus PROTECT II's control arm at 31% and the Impella 2.5 arm at 22%. The PROTECT series is now the largest data set in the world for hemodynamic-assisted high-risk PCI and spans 13 years of clinical practice.

Replays of both the physician breakfasts and annual TCT Investor event are available on our website and at protectedpci.com. Our studies and real-world experience continue to demonstrate that Impella-assisted PCI can enable better outcomes for patients like Jim Hoke. Jim, a 67-year-old grandfather, struggled with such extreme weakness and fatigue that he could barely walk from the parking lot to the field for his grandson's Little League games. He went to Spectrum Health in Grand Rapids, Michigan, where a diagnostic catheterization revealed severe blockages and poor heart function with an ejection fraction of 25%. Jim was referred to the Advanced Heart Failure Clinic, where he was identified by the heart team as an appropriate candidate for Protected PCI. Covered by CMS, Dr. David Wohns and Dr. Kevin Wolschleger implanted the Impella 2.5 heart pump to support Jim's weak heart, while they placed multiple stents. Jim was discharged home one day later, and within 2 months, his heart function had returned to near normal with an EF of 55%. Today, Jim feels better than he has in years, attended our summer headquarters event at Abiomed, and now climbs to the top of the stands to cheer on his grandchildren. This is the true benefit of Protected PCI and complete revascularization.

Turning to cardiogenic shock. Updated data from the National Cardiogenic Shock Initiative was also presented at TCT, showing 250 consecutive patients from 49 sites demonstrating survival of 72% at discharge with 98% receiving or having native heart recovery. This compares to the historic rates of 50% survival without heart recovery as noted in the earnings slides posted today. Based on learnings from the IQ database, NCSI, Cardiogenic Shock Working Group and the cVAD Study, investigators are now instituting additional escalation protocols for left and right heart support that will be applied in the cath lab immediately after an Impella-supported PCI. This new escalation protocol allows physicians to identify and reduce future risk factors responsible for patient mortality within 72 hours of cardiogenic shock. We also recently announced with a press release that Impella RP post-approval outcomes now match the preapproval study for patients meeting the FDA study protocol.

Additionally, this quarter, Abiomed announced a procedural outcomes data on the first 1,000 patients treated in Japan. Protocols in Japan were developed based on best practices learned from patients treated in the U.S. and Europe. Today, initial outcomes in Japan mimic that of top U.S. hospitals with 87% survival to Impella explant with 97% heart recovery in the AMI cardiogenic shock population. It is rewarding to see the profound impact of Impella on patient survival and heart recovery across the globe.

Moving to our product portfolio. We would like to briefly touch on the significant milestones that we have achieved during the quarter. We continued the commercial launch of our SmartAssist platform, which improves ease of use for patient management and has weaning algorithms to optimize survival and native heart recovery. Impella CP with SmartAssist is now being used in 328 of our 1,401 CP sites. Additionally, we received FDA approval, PMA approval for Impella 5.5 with SmartAssist. Impella 5.5 provides a minimally invasive, forward flow, fully unloading heart pump to treat shock patients with acute or chronic heart failure and fills a significant clinical gap for a growing heart failure population. Designed for heart surgeons, the 5.5 is indicated for the treatment of all forms of cardiogenic shock and delivers peak flows greater than 6 liters per minute. 45% shorter and thinner than the Impella 5.0, the 5.5 is approved for up to 14 and 30 days in the U.S. and Europe, respectively.

We are excited to announce today that we've introduced the Impella 5.5 in the U.S. through a limited market release with over 10 patients treated in October at some of the best heart hospitals in the world, Cedars-Sinai in LA, Cleveland Clinic, and Hackensack hospitals. I believe this product is a breakthrough for heart failure.

In conclusion, we have made progress on our key initiatives, but we still have more work to do. We are a stronger and more advanced company today than ever before. We have just announced our best clinical outcomes across all indications, and our innovation continues to improve and expand to optimize native heart recovery with SmartAssist. The last 6 months have driven us to adapt to the external noise and focus on internal execution. We will regain our momentum based on our flywheel of innovation and improving clinical outcomes.

I personally have never been more confident that Impella will become the global standard of care for high-risk PCI, cardiogenic shock, STEMI and heart failure. I would like to thank our employees and customers who put patients first every day and our shareholders for their continued support.

I will now turn the call over to Todd.

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

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Thanks, Mike, and good morning, everyone. In the quarter, we delivered revenue of $205 million, an increase of 13% on a reported basis versus a tough comparison of 37% growth in Q2 of last year. By region, U.S. revenue grew 9% to $172 million driven by a 14% increase in patient utilization. In the quarter, we opened 62 sites compared to 135 last year, which impacted U.S. sales by $3 million or approximately 2 points of growth. Outside the U.S., revenue totaled $33 million, up 43% on a constant currency driven by continued strength in both Europe and Japan.

In the U.S., at the end of our fiscal Q2, the Impella 2.5 and CP are in 1,401 sites. The Impella 5.0 has been placed in 624 sites, while the RP is currently in 498 sites. The number of site openings in Q2 was the same as Q1, as we continue to prioritize patient utilization and physician training at our existing sites.

Q2 reorder performance was solid with the rate slightly above 100%. Average combined inventory at the hospitals for the Impella 2.5 and CP was approximately 4.5 units per site, again, consistent with the inventory levels we saw last quarter. Outside the U.S., we continued to see strong growth in Impella adoption. In Q2, our European revenue increased 27% in local currency due to higher patient utilization in Germany in both high-risk PCI and cardiogenic shock and further adoption in other countries like Switzerland, Austria and Italy.

Additionally, the controlled rollout in Japan continues to gain traction as we generated $9.6 million of sales in the quarter due to new sites and patient utilization. We opened 17 sites in Q2 and now are in approximately 100 hospitals, with 135 hospitals currently approved by the government. It is worth noting that we do expect to open fewer sites in the second half of the year as the team closes out the post-approval study and prioritizes a broader CP launch, which will require additional training at existing sites.

Moving to key financial metrics. Gross margin was 83% in the quarter compared to 83.6% in the prior year. The year-over-year variance was driven by the SmartAssist launch and sales mix, which more than offset plant productivity. We introduced SmartAssist at approximately 180 sites in the quarter, and we continue to receive very positive feedback from our customers on this new technology.

In the quarter, R&D expense totaled $24 million, an increase of 6% from the prior year driven by our ongoing investments in clinical research, including STEMI, and our post-approval studies in the U.S. and in Japan. We also continue to fund our pipeline of products, such as the expandable sheaths, and Impella ECP, a true 9-French expandable pump ideal for high-risk PCI procedures.

SG&A expense for the second quarter totaled $86 million, 9% higher versus prior year. The lift was driven by the investment in our global commercial team, incremental physician training and marketing programs. We expect more investment in SG&A in the second half of the year as the commercial team continues to grow, and we provide additional U.S. field training for all zones in early November.

In the quarter, operating income grew 20% to $60 million translating to an operating margin of 29.4%. Margins expanded 170 basis points due to higher volume, productivity and timing related to some R&D spend, which shifted into the second half of the year. We delivered strong margins while making what we believe are the necessary growth investments. This highlights the benefits and leverage of our business model.

GAAP net income for the quarter was $13 million or $0.28 per diluted share versus $1.09 in Q2 of '19. The year-over-year variance was primarily driven by a mark-to-market adjustment on our Shockwave investment, which equated to an after-tax noncash charge of $35 million or $0.75 per diluted share in the quarter. Our tax rate for Q2 was 24.7% versus 3.3% in the prior year due to $13 million of excess tax benefits in last year's reported rate compared to only $500,000 in the current quarter. Excluding the impact from Shockwave and excess tax benefits, earnings per share grew 27% year-over-year. We also had another strong quarter on cash as we generated $74 million of operating cash flow, an increase of 23% from the prior year.

The balance sheet remains debt-free. And we ended the quarter with $551 million of cash in marketable securities.

In Q2, we bought back roughly $35 million of stock in the open market under our share repurchase program. However, our number one capital deployment priority continues to be investment in our internal growth programs, which we believe will generate higher returns for the shareholders over time. Based on our performance in the first half of the year and our projections for the next 6 months, we are maintaining a revenue guidance of 15% to 20%. That said, we acknowledge that the strategic actions we are implementing will take time and, therefore, are anticipating being towards the lower end of that range. Additionally, we are maintaining operating margin guidance of 28% to 30% for the fiscal year.

So in summary, we are confident in our overall strategy in both the technical and clinical advantages of Impella. There is no other product like Impella, and no other FDA approvals for this patient population. We continue to see improved patient outcomes and build powerful clinical data, like PROTECT III and NCSI. With new products, new indications and new countries on horizon, along with our strong IP portfolio of over 715 patents and 620 pending, we have a path to sustainable growth. Coupled with our profitability and strong balance sheet, Abiomed is well positioned for today and 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) Our first question comes from Raj Denhoy with Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [2]

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I wonder if, maybe, I could just start with a point of clarification. You guys used to break out, I think, U.S. Impella sales separately out of the total U.S. number. I am not sure you if you gave that in the scripted remarks, I don't think it was in the press release. So can you give us the total U.S. Impella sales?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [3]

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Sure. Raj, in the quarter, Impella revenue was for the U.S. $164 million and service was about $7.8 million.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [4]

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Okay, perfect. I guess, the other question is just on the outlook here because, I guess, you guys have kept guidance the same, the low end of the range of 15% to 20%, but it still does imply a little bit of a pickup in the back half of the year. And when we think about sort of last couple of quarters and I guess we've sort of now come to maybe believe this narrative that it's just sort of difficult to get additional doctors to use the technology, additional cardiologists, particularly in PCI, it seems with the 5% you reported this quarter. And so I guess, the question is around the confidence you have that what you're doing is going to accelerate that growth profile? And whether it might be something little more deep in terms of needing additional clinical data or other things to get more cardiologists onboard to using Impella?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [5]

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So, Raj, we had a stronger quarter for cardiogenic shock. And in the past, we have seen a seesaw effect, but not to this extreme. But what we've learned over the last 2 quarters and starting in March is that we need to have high-risk PCI programs at hospitals that are identifying and recruiting patients in the community that either have advanced coronary disease or turned down for surgery. And as a result, we've had individual users and champions that do multiple types of patients, but we haven't been able to get deep enough for the high-risk programs so that when that person is either doing another procedure or is not in attendance, other physicians will either choose to treat the patient with Protected PCI or not turn the patient down or try to get in and out.

One of the benefits of watching the development of the heart team with TAVR is really looked at the lessons learned on how they've developed a program so that physicians are deep in the hospital, there is a funnel and a system in place to identify back then all the 80-year-olds that have aortic stenosis. And then get them referred in to the different hospitals. In our case, we want to leverage the same approach. The majority of our patients are much younger, so on average they are 69 years old, but we really got to have a program versus individual physicians.

And there is 2 types of physicians. Those physicians that are comfortable with TAVR, so the access closure is not an issue. And then we do also acknowledge that there is a next wave of physicians that require a little more training and education around access and closure. And there are those that are just dedicated to Protected PCI. So those 3 buckets are where we're working. There's a little bit of different messaging. But the best thing we have right now that gives us this confidence, as you mentioned, is the PROTECT III data. And I think the opportunity of PROTECT III is, first, to tell the story, that in PROTECT II Impella lowered major adverse events; second is that Impella lowered MACE. It also showed from discharge to 90 days, a statistical difference in those irreversible endpoints of death, stroke, MI and repeat procedures. And in PROTECT III, we continue to show that we can treat a sicker patient population many that have no other options, and what we see is positive outcomes and most important, these patients having an improvement in their EF, which gives them that quality of life that they are entitled to and that should be the ultimate goal of Protected PCI.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [6]

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No, it's helpful. And maybe just as a follow-up, and I don't know even though if there's appropriate answer to this, but when you think about that group of cardiologists who maybe are as comfortable using the Impella, this next wave of adopters, the best way to put it, is there a way to characterize what is the major push back? Is it the difficulty in using the Impella access and closure as you've described? Or is it something deeper? Maybe it's data or belief in that technology. Is there any way that you can maybe parse out what the biggest pushbacks are in additional adoption?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [7]

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There is, and I think there's no one-off for any one item. But -- so for the doctors that are comfortable with TAVR and access of large bore, their focus is time management, prioritization and making sure they have PCI time as well as TAVR time. For the next wave of user that's doing PCI, they're not comfortable with access closure. The biggest push back for them is the fear of vascular complications and bleeding. And the way we approach them is starting with education. In the PROTECT II data set, so the FDA study, Impella had numerically the same vascular complications as the intraaortic balloon pump and both had 0% damage to the aortic valve. And so that's in an FDA audited data set. So we start with the training.

What we've also demonstrated and continue to publish is from the original PROTECT II to now, we've been further able to reduce bleeding. And if you look at PROTECT II, the initial bleeding rates in balloon pump studies has been 4% to 14%, whether it's elective or high-risk PCI. And what's happened with the Impella is that in 2008, we started at 11% for PROTECT II, but by the end of the PROTECT II study, we were in the 7% range. With the STEMI DTU recent study, so this is a population of patients that are having a heart attack and they are being rushed, we had at 6%. But we really believe that on the elective cases with training and education, we can be at or below what the intraaortic balloon pump was in the PROTECT II study in 2008. So as we start to train and go through access closure different techniques and we have an online tutorial manual that's on the Interventional Cardiology Society website, called SCAI, we're now getting into looking at the risk of bleeding in actions or the concern of fear of it versus the benefits of being able to do complete revascularization.

And we feel very confident that the results in education and training is really going to end up with outcomes similar to the way TAVR has brought down their bleeding outcomes. Our difference is, we have a 9-French catheter in it, a 14-French motorhead for the CP, whereas the TAVR is started at 21 and is 14-French, all the way through. So we think we are going to get as good or better. It gets a little more complicated when patients go to the ICU, and so that's the other part of our training. But in the end, we think we can train that fear way. We can educate that fear way, and long-term we plan to innovate that away with the expandable sheath and the Impella ECP. But one final point on the challenges of going through this is, the benefit of Impella is it's a unique one of a kind technology that's supported by our 600-plus patents and 600-plus patents pending. We do have an exclusive and first of its kind indemnification for high-risk PCI, so that's the benefit. The negative is, we're the only ones truly creating the Protected PCI market, truly talking about the benefits of complete revascularization for a population that probably have to not get to the cath lab today, whereas in shock it's more intuitive and there is many pharma and medtech companies around both STEMI and cardiogenic shock, whereas Protected PCI, we have to create a TAVR like market individually as a single company.

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Operator [8]

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And our next question comes from Jayson Bedford with Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [9]

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Just a few quick questions here. I want to ask about pricing. And I'm bringing it up just from the standpoint of it looks like usage growth up 14%, which was quite strong, and I realize there is a comp issue here with fewer new hospitals added. But I am just trying to put that 14% with what looks like about 8% U.S. Impella growth?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [10]

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Jayson, this is Todd. I'll take that one. So as I mentioned in my prepared remarks in the opening on what sites, and we've opened up 73 fewer sites, which, again, impacted sales by about $3 million or 2% versus prior year. The other headwind that we had in the quarter was slightly a lower reorder rate versus prior year. So in Q2 of '19, we had a reorder rate of about 103%. In this quarter, it was still a healthy 101%. And where we have seen slightly lower reorder rate was really in the Impella 2.5 and that makes sense kind of given where we are transitioning to CP with SmartAssist at some of these sites. So, again, as an organization, I mean, we're focused on that patient utilization number, that 14% in the quarter, again, which was about 1 point ahead of where we were last quarter.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [11]

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Okay. That's helpful. And maybe a broader question, has there been any change in the breadth of growth in the U.S. more specifically large versus small centers, new versus more established centers, and have you seen an impact from the broader sales distribution?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [12]

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Jayson, one of the things we've seen is that we do have some centers that have big programs. And they do -- they have high demand focus and they do a lot of everything. So whether it's high-risk PCI or structural heart, they move back and forth. And so, for an example, after we had an expanded FDA label on high-risk PCI, we did see a bit of a bolus of high-risk PCI, and TAVR has seen a little bit of a bolus last 2 quarters on the anticipated approval, and then approval of the low-risk patients. And what we hear is that physicians want to capture kind of the bolus of patients in their community ahead of other hospitals that would also apply to mitral valve and WATCHMAN. So what we need to do is identify whether they're big or small, we need to train a deeper bench of physicians that essentially prioritize and specialize in high-risk PCI programs alone, and they're out there.

So for example, some of these other physicians that are in that bench, they want to get trained, they want to get comfortable with the access and the closure, and they're not necessarily going to be TAVR operators. And their core skill set is really around PCI. And as we're identifying those, we're linking that to a current study we have called RESTORE EF, and that's a single arm study that's underway and it's with expert PCI physicians. And what we want to do is, it continued to validate these best practices in the real-world and, again, show benefits of improvement in EF, which has been demonstrated in all of our FDA studies.

To our knowledge, if you look at stenting or angioplasty studies with the FDA, you don't see a permanent improvement in ejection fraction or this quality of life for these patients historically. You do see symptomatic relief, relief of pain in the chest. But with an Impella-supported PCI to be able to achieve an improvement in EF gives that quality of life that these patients are looking for, and it's why open heart surgery with CABG has been the gold standard because you do establish complete revascularization and these patients also see an improvement in EF.

So as we continue to work with these RESTORE EF centers, these physicians that are utilizing the best practices, they're almost an analogy or they're much like the NCSI investigators that are utilizing the best practices for cardiogenic shock. And we're going to continue to leverage the RESTORE EF physicians to put out case studies and share their best practices for other physicians that want to get more hands-on and more online training.

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Operator [13]

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Our next question comes from Chris Pasquale with Guggenheim.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [14]

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Mike, I'm curious whether, at this point, do you have any sense of the impact SmartAssist is having on the business? And if you look at the sites where it's being introduced, is it impacting utilization of those sites? It's a tool that I would think would lead to more ubiquitous use of Impella at sites that are adopting it. So I'm just curious if you're seeing any of that.

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [15]

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So, Chris, there is an impact. So number one, it is positive. The ease of use is there. The physicians are now -- they now get information on weaning, and the ICU nurses as well as the heart failure community in the ICU gets to really understand what's happening to the patient, and that's a positive. We do see somewhat of an increase in utilization with it. It's too soon to tell if it's sustainable, but part of it is, is when they get a new technology they were going to our top sites, first, that are already some of our bigger growers.

Now, there is a downside to it, which is maybe that it does require a lot of time and energy and coordination because we've got to take the consoles back, then we've got to train the techs, we've got to train the ICU. It is a bit of a distraction and it's worth it because we believe we're going to get better outcomes and more adoption, but it has been a bit of prioritization that we have to manage as a company. And then the second component on the complexity is this hub-and-spoke network that we continue to try to maintain and leverage. So for example, if patients are out in the spoke hospitals, and the patient is then sent to the hub, we have to make sure that both sides have the new SmartAssist, the new consoles and are trained appropriately. So that's been a bit of a challenge for us, but that's also why the new heads, the more management in the field that what I'd call rightsizing our distribution allows us to kind of anticipate that and manage it a little better.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [16]

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That's helpful. And then just 2 updates on the clinical pipeline front. If you could give us any update on where the STEMI trial stands, how that's going? If you think the original time line there is still reasonable? And I'm just curious ECP has been sort of just over the horizon for a while now. When do you think you'll get into first-in-man there?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [17]

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Sure. So 2 things. We anticipate our first-in-man STEMI patient, what I would say, is this month, in the next probably 3 weeks. We've had a lot of great progress. We've got a good executive committee of physicians, there's tremendous excitement, and we'll give further updates on that in the future. That would be one of the subjects of our upcoming Investor Day that we'll have likely in April, May, which we'll announce that in the future.

And on ECP, we feel confident. We're making good progress there, and we expect to have our first-in-man by the end of our fiscal year, in the March timeframe. I'd reiterate that is a game-changing product because it's a 9-French all the way through and it's ideal for high-risk PCI. And as all of you have surveyed many times, many customers, you know that people are little intimidated with the larger motorhead even though the Impella has a 9-French catheter. But when you talk to physicians about a 9-French all the way through the pump, you'll hear immediate positive responses talk about adoption and really that's the second half of the market that we'll get to as well.

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Operator [18]

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Our next question comes from Danielle Antalffy with SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [19]

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Mike, just wanted to follow up on the SmartAssist contribution, and just curious how we should be thinking about that as we look at our models going forward? I mean, it sounds like that will be a growing contributor? I assume that would have been in the service other revenue now included in Impella. So just trying to think about how to think of those 2 separate lines as we go forward?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [20]

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Sure, Danielle. SmartAssist is not being charged for. Our inherent belief is it will allow us to get better outcomes, it will make the management of the patient easier and that will help us drive more adoption. Clinically, why it's so important is because when a patient is on SmartAssist, we're able to look at the pressure in the left ventricle. We're able to understand and, in the future, potentially predict some right heart failure, so we're going to integrate some of those algorithms. And essentially it gives the physicians, for the first time, real-time information about managing a patient. So although we're not in the majority of all our sites yet, we think that as that rolls out, it has an overall positive impact. But there is some hiccups and there is some challenges with rolling this out while we are focusing on growth, but we're going to continue to try to take big chunks out of it each quarter.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [21]

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Understood. Okay, so it's not actually you're not generating revenue from that, that's helpful. And then, one really quick question, well, actually might not be so quick. But just curious how the conversations you're having with the sort of next wave of adopters that are skeptical about the data. How is that conversation going? How much do you need to show them to bring them over the fence and get them to be believers? Is that a matter of just like, "Hey, we'll hold your hand while you try this," and getting them comfortable with the device itself, and that gets them more comfortable as the data. Can you talk a little bit about how those dynamics are working as you approach these sort of -- this next wave of physicians that have been using it, but not as much as they could or should?

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

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Sure. So I think the first part of the conversation talks about the patient population that's in the cath lab today and how they could potentially do a better procedure. And the second part of the conversation is the patients that are out there that they don't get that they could potentially treat in the cath lab, those surgical turned down patients. So for the first part, about the quality metrics and how they can improve, is we put some information out in collaboration with some of the different groups and research firms that are -- that show some of these areas of improvement. So for example, for all of PCI, for patients that get triple vessel disease, only 55% get complete revascularization. That means 45% of the patients get incomplete revascularization. And if you get incomplete revascularization, you actually don't get the benefit of the PCI, you likely won't see an improvement in their EF. And with complete revascularization, and this is published and well accepted in meta-analysis, you see a 30% to 50% reduction in MACE. In the PROTECT II, with Dr. Popma, we recently published and released the data showing exactly that, that if you've got complete revascularization, you had a much better outcome rather than the control arm. So that's the number one goal of doing high-risk PCI.

The second is about 14% of patients in the U.S. are staged. And some of them are staged for the right reasons, some of them though -- they're staging them because they're worried about either too much contrast or the patient stability on the cath lab table. And unfortunately, many of the staged patients don't come back for a second procedure. So the goal of RESTORE EF of our top physicians utilizing the best practices is they're really focused now doing really complete revascularization in a single setting.

Now you have the real concern about acute kidney injury, which is a significant problem for PCI, TAVR and CABG, and it's about 7% to 10% of all these patients -- or for PCI get AKI, but for the high-risk PCI population, it's around 50%. So we've got very compelling information and data and there's a sub-study in the PROTECT III data further demonstrating the ability of Impella to reduce AKI for these patients.

And then last, we talk about, and this is clearly demonstrated in the PROTECT II study is the quality metric of readmissions. And in all PCI cases, you'll see anywhere from 12% readmission rate for PCI at 30 days and up to 25% at 6 months. So there's tremendous room for improvement for high-risk PCI. And so what we're trying to do with physicians is look at their benchmark data at their centers and look at ways that we can improve that. And then on the second population that's out there, there's a tremendous number of patients that have advanced coronary disease. There was an article or publication in JAMA yesterday and there was an in The Wall Street Journal demonstrating that for the first time they're acknowledging that from 2011 to 2017, there's an increase in heart failure, there's an increase in mortality in heart failure, and there's an increase in mortality in heart failure for people that are aged 45 to 65. So this means the curve is now sloping back up and heart failure remains the number one killer. And if we're going to treat these patients, we believe you treat them by doing complete revascularization with PROTECT II PCI or you try to keep them alive and recover their heart muscle if they're in cardiogenic shock. And in the case of heart failure, with tools like the Impella 5.5 or the study like the STEMI, we think we can prevent people from going into heart failure in the future. So that's the gist of the conversation.

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Operator [23]

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And our next question comes from Margaret Kaczor with William Blair.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [24]

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For me, the first one for me and it's kind of got 2 -- it's got 2 pieces to it. First, it sounds like you're really identifying these in a market for PROTECT II PCI and you're trying to address them, so granted it might take a little bit of time for those investments to come to fruition. So maybe the first question is, does guidance assume that high-risk PCI growth improves this year and can it return to that double-digit growth? And then second and from operational level, how are you incentivizing the organization to double down on trading for that second category of docs that you mentioned, when it seems like shock is actually reaccelerating pretty nicely right now? Does that group maybe require more time or is it just education training dollars on your part?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [25]

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Margaret, the inherent belief about the growth returning in high-risk PCI is purely based on the clinical need and the massive population. There is at least a 121,000 high-risk PCI patients today that have an opportunity to get better care, get treated with a cath lab with Impella. And the indication itself for high-risk PCI is a first of its kind and it also is based on our FDA approval, and our technology is the only FDA-approved device for high-risk PCI. And then there's an additional 300,000-plus patients that are either turned down for surgery or don't want to have surgery and can get a benefit of Protected PCI. So those numbers are very large. And if you look at any data sets or you talk to any physicians, there is general acceptance that coronary artery disease is still the number one killer. Even in TAVR, there's papers demonstrating that if you do TAVR on a patient, but if you leave ischemic disease or blocked coronary arteries, you also have a higher mortality at 1 year versus if you treat that patient and you treat them to get complete revascularization.

And then the second component is just going through and looking at the quality metrics of readmissions. What's unique about the PROTECT II study was that it's the first time we looked at outcomes at 90 days and not at discharge. And these physicians want better outcomes for their patients, the referring physicians want better outcomes. And so looking at the success rate of getting off the table is really not the end goal. The end goal is that 90 days later, that patient is home and feeling better after having a minimally-invasive procedure to address their heart failure symptoms. So I think, organizationally, those are the things we're going to lead with the training data and time. And then from an incentive or program or access, that next wave, we are stepping up our training and education, we'll be doing more online and we'll be doing more tutorials and proctoring in the future at sites that have dedicated programs.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [26]

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Okay. Great. And then in terms of the expandable sheaths, can you guys give us an update on timing and the regulatory process on that? And when that does launch, can it take a little bit of time to train folks or pretty straightforward?

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

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We've done 16 patients outside the U.S. We're working on that time line right now. But to remind everyone, it's a 510(k), so the regulatory process is a lot shorter. And it's going to be utilized with the already FDA PMA-approved device, and we're planning to bring it to the market in the optimal timeframe to ensure that we get great outcomes.

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Operator [28]

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And our next question comes from David Lewis with Morgan Stanley.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [29]

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Just 2 for me. Mike, I appreciate the U.S. revenue growth was slower than patient growth, and I know I appreciate your commentary around the drivers there. But I do want to follow up on the commentary about lower reorder rate. Can you just kind of walk through in the U.S. what are some of those factors that are impacting lower reorder rate? And then I had a quick product follow-up.

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [30]

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Yes, David, this is Todd. Thanks for the question. I think when it's all said and done, if I look at the products and the reorder rate by products, I mean, the one that jumps out is really the 2.5 and that's slightly above -- or below 100% as we stand here today. And again, the big driver of that is just when we're rolling out SmartAssist at some of these sites, I mean, they're just -- they're waiting the CPs, just a much better pumps. So we're seeing a little bit of a lower reorder rate on the 2.5. Again, it's still a healthy overall over 100%. So some of it's just a little bit of timing at this point in time.

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

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Okay. But you're comfortable with the level of inventory that's in the U.S. channel right now?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [32]

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Yes.

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

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Okay. And Mike, post-TCT and frankly for last 6 months, you've been very focused on reducing barriers to access and reducing bleeding, and thanks for the ECP update. You've also talked continuously about the expandable sheath. And I kind of thought that was a product that comes out before the ECP. What is the time line for getting the expandable sheath into the U.S. market?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [34]

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So David, the expandable sheath is a 510(k). We've done 16 patients. I'm not -- I haven't given the exact time. It's going to be as soon as possible. And it will be out before the ECP in the U.S. and it will be first in Europe, and then will come to the states. It's likely not as challenging for Impella 2.5. We just want to make sure we get it right for the Impella CP because we want people to have the option also to close the CP at a 9-French -- with a 9-French device. So that's our goal, that's what we're working on, and we feel relatively confident that, that will be on the market as soon as possible.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [35]

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And next year -- is this fiscal '20, a possibility for the U.S. for that product?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [36]

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Yes, the goal is to have something in Europe next year for sure. And the goal is to have a portion of a limited rollout, limited release in the end of next fiscal year in the U.S.

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Operator [37]

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And 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 [38]

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The quarter I think was pretty good versus, I think, some people were thinking about reiterating guidance and kind of pushing everybody to the low end of the range. I think it's also going to be welcomed by investors, but it does -- it is kind of a steep back half ramp sequentially. So I would love it if you could just deconstruct a little bit? It might be met with a little bit of skepticism just because it is so big sequentially. The last time you did this kind of sequential growth in the back half of the year was coming off of the national CSI registry out of TCT and called the action. So you're seeing about $20 million sequential increase in Q3, Q4, just for easy math, and that's what we saw back in fiscal '18. So how do people get comfort that you're going to be able to deliver that type of performance? Is it PROTECT III? Is it 5.5, RP getting better at the same time as you're still building out the sales force in that group?

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Todd A. Trapp, Abiomed, Inc. - CFO & VP [39]

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So thanks, Matt. Good question. This is Todd. I'll jump in. So, again, our range does imply some improvement in the second half of the year. And first, we have, I would say, that normal seasonality where we have done typically 54%, 55% of the year in the second half. And then as we mentioned on the call, we have some new product launches and investments that should drive some lift in the second half. So SmartAssist, which is the largest product launch yet for Abiomed, we did -- we received the FDA PMA approval in September for the 5.5. So we have that limited market release in the second half. So we expect to see some lift from some of these new product introductions. And then, quite frankly, some of the investments that we're making in the U.S. distribution structure around field leadership team should start yielding benefits in Q4 and beyond. So one of the things to just mention is, we do have some easier comps. I mean, last year, in the first half, we grew 37%, and in the second half it was 24%. And really the comps get easier in the fourth quarter. So I think it's a combination of all those things where we firmly believe that why we guided towards maintaining the 15% to 20%, but guided towards the low end of the range.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [40]

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Okay. Okay. And then the follow-up question would be just in Japan. You got the first 1,000 patients treated with Impella. I'd love to hear just a little bit about the results that were really good. The performance in Japan has been really good, but what can that data do for you to just continue to see really strong performance out of Japan for the next maybe couple of years?

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [41]

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Thanks for the question, Matt. We have been very focused in Japan to think about this for the next 10-plus years. Japan does not necessarily utilize heart transplants. Culturally, they're opposed to sternotomies and heart transplant concept. They do them, but at extremely small number. And the country of Japan matches our focus around recovering hearts and saving lives. So as we've rolled out and really focused on the training and the execution and utilizing the best practices from NCSI and Europe, we're very pleased to see that for AMI cardiogenic shock, the survival to explant matches our top sites in the U.S., and most important, the majority of all these patients, more than 90%, are able to go home with their native heart.

So as we establish heart recovery as a standard of care in Japan, with the CP now being launched, we really have the ability to transform the focus. In Japan, the intraaortic balloon pump is also a Class III indication, which means it's harmful and not recommended to be used. So they've already implemented and analyzed the data that's out there for the last 40 years. And so they're moving forward with Impella, and we're very pleased. And what it means is that the second largest market in medtech in the world will become our second largest medtech market, and it will likely also help us drive more success throughout Asia. So I do -- I'm really proud of what that team has done. We've got some great champions with the physicians there, and we expect to see a plethora of clinical publications and further validation of heart recovery.

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Operator [42]

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Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Michael Minogue for any closing remarks.

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Michael R. Minogue, Abiomed, Inc. - Chairman, CEO & President [43]

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Great. Thanks, everyone, for your time today. We'll be available to talk. But just to close out, we feel good about the positive new clinical data, our new innovation, our progress on the U.S. distribution, our global growth in shock as well as our growth in Europe and Japan. We'll continue to focus on adapting and executing, and we appreciate your support. Have a great day.

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Operator [44]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.