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Edited Transcript of ABMD earnings conference call or presentation 1-Nov-18 12:00pm GMT

Q2 2019 Abiomed Inc Earnings Call

Danvers Dec 5, 2018 (Thomson StreetEvents) -- Edited Transcript of Abiomed Inc earnings conference call or presentation Thursday, November 1, 2018 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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* Bruce M. Nudell

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Christopher Thomas Pasquale

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

* Danielle Joy Antalffy

Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices

* Isaac Ro

Goldman Sachs Group Inc., Research Division - VP

* Jaypreet Singh Chadha

Morgan Stanley, Research Division - Research Associate

* 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 Q2 Fiscal Year 2019 Abiomed Inc. 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. Please go ahead.

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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 Second Quarter of Fiscal 2019 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 strategic highlights from the second fiscal quarter and then turn to our key operational and strategic objectives; next, Todd Trapp will provide details on financial results outlined in today's press release. We'll then open the call to your questions.

Before we begin, I would like to remind everyone that this presentation includes forward-looking statements about the company's progress relating to clinical, regulatory and commercial matters as well as government regulation, litigation matters, capital and other expenditures and financial performance. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these risks and uncertainties appears under the heading Forward-Looking Statements in the press release we issued this morning and our annual report on Form 10-K for the year ended March 31, 2018. The forward-looking statements in this presentation speak only as of the date of this presentation, and we undertake no obligation to update or revise any of these statements.

Thank you for joining us. I'm now pleased to introduce 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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Thank you, Ingrid. Good morning, everyone. In Q2, Abiomed delivered another strong quarter, with revenue of $182 million, up 37% year-over-year and an operating margin of 27.7%. U.S. patient utilization increased 30% in Protected PCI and cardiogenic shock. On a constant currency basis, European revenue increased 38%, while German revenue was up 33%. In Japan, our business continues to perform very well, delivering $4.1 million in revenue, with 35 hospitals trained and 83 hospitals approved by the government.

Abiomed is positioned for sustainable growth and building the field of heart recovery with disciplined execution. We have established a strong foundation with our innovation, technology, balance sheet and intellectual property portfolio. As a result, we're following our Impella adoption formula of training, data and time.

It was highly evident at TCT that Abiomed is improving training and education with SmartAssist, Impella Connect and with clinical data presented from the IQ, Impella Quality Assurance Database, cVAD and NCSI. We're also significantly investing in our products and analyzing real-time clinical data to identify best practices for weaning within hospital protocols. And we continue to collaborate on education with physician-led initiatives, like NCSI, TEACH and CHIP.

For today's call, I will highlight continued validation of Impella hemodynamic support with best practices for patients in cardiogenic shock and the new data on the potential to reduce the risk of AKI, acute kidney injury, for high-risk PCI procedures.

The best validation of the Impella therapy starts with the story of patients like Libby McKean. Libby, a 52-year-old woman from Ohio, suffered a heart attack while driving and crashed into a cornfield near her home. Her in-car emergency system notified first responders of the crash, and upon arrival, EMTs worked to resuscitate Libby with defibrillization and CPR as they rushed her to Lima Memorial Hospital in Lima, Ohio.

Dr. Zane Dean, an interventional cardiologist, quickly identified cardiogenic shock and an emergent need for hemodynamic support. He inserted the Impella CP to stabilize Libby in the cath lab, while placing stents to restore coronary blood flow. Libby remained on Impella support for 2 days and was successfully weaned off of the device.

Libby was discharged home after 10 days with her native heart and with a near-normal ejection fraction of approximately 50% to 55%. This is another example of an unresponsive patient in cardiogenic shock and stresses the benefit of shock protocols to improve outcomes.

This is another example of both survival and native heart recovery and the impact to the patient's quality of life and cost effectiveness. Libby avoided the cascade of the most invasive and expensive products and procedures in cardiovascular care.

At the TC Conference in September, there were multiple new clinical data sets and presentations around Impella and unloading therapy. Following last year's physician-led cardiogenic shock call to arms, Dr. Bill O'Neill presented updated results from 104 patients in the National Cardiogenic Shock Initiative, NCSI.

After more than 20 years of stagnant shock survival rates at roughly 50%, NCSI has now demonstrated a survival of 77% with 99% of survivors discharged home with their native heart. More than 56 U.S. hospitals have now joined the NCSI initiative and momentum continues to grow. The importance of Impella and treatment protocols for shock patients was further validated with the presentation on the main stage at TCT, with new clinical data from the Impella Quality Assurance IQ commercial database. This analysis of 11,566 patients at all hospitals revealed that our efforts with training and data have improved mean survival rates across the nation from 51% to 63%, and the numbers of centers achieving survival rates greater than 70% has increased from 25% to 39% with utilization of best practice protocols.

This October, a new paper titled Cardiac Shock Care Centers was published in JACC and reiterated the need for AMI shock protocols. The publication references multiple studies, including NCSI and IQ and outlines a suggested shock care algorithm, stating that the rapid initiation of mechanical circulatory support is paramount.

This paper also addresses the IABP, intra-aortic balloon pump, stating that multiple trials have shown no survival benefit from the device and states that it is not recommended per their evidence-based shock care pathway algorithm. As a reminder, the intra-aortic balloon pump is Class III or considered harmful for cardiogenic shock in European and Japanese guidelines.

Additionally, there is growing physician awareness of Impella's ability to protect against acute kidney injury, AKI. On our year-end call in May, we highlighted a clinical paper published in Circulation, showing the use of Impella for high-risk PCI patients and a significant reduction in the risk of AKI and need for a dialysis.

Two additional studies by Westenfeld at Heinrich Heine University in Düsseldorf, Germany have replicated these results of AKI risk reduction with Impella support. These results also reinforce the Protect II RCT FDA study and match what we currently observe in our cVAD study. AKI remains a critical clinical challenge for heart failure patients and procedures such as PCI, CABG and TAVR.

Before closing, I would like to remind all investors that the STEMI DTU FDA safety and feasibility study will be presented in the late-breaking clinical trials at 10 a.m. Central Standard Time on November 11 at the American Heart Association scientific sessions in Chicago. Since we recognize that many of our investors will not be attending, Abiomed will host a short call for investors on Monday, November 12 at 8 a.m. Eastern Standard Time.

In summary, we are executing our plan for sustainable growth, while helping to improve patient outcomes, focused on native heart recovery. Abiomed is concentrating on execution, with 10% penetration of U.S. patients with critical clinical need today for high-risk PCI and cardiogenic shock. It is also rewarding to see physician-led initiatives, aligning treatment goals and care pathways to improve patient outcomes.

We are confident in our future with Impella growth opportunities of several hundred thousand patients, with new and existing indications, new products and new geographies. No other company provides approved percutaneous heart pumps that unload the left and right ventricle and protect and recover heart muscle for elective, urgent and emergent patients. I am proud of our employees and appreciate their dedication to recovering hearts and saving lives, and I'm thankful to our customers and our shareholders for their continued support.

I will now turn the call over to Todd Trapp, 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 second quarter, we delivered revenue of $182 million, an increase of $49 million or 37% versus last year, with solid performance across all geographies. U.S. revenue rose 33% to $158 million, driven by a 29% increase in overall patient utilization.

Outside the U.S., revenue was $24 million, up 67% versus last year due to the commercial launch in Japan and continued strength in Europe, which saw revenues increase 38% on a constant currency. We continue to be pleased with our controlled rollout in Japan, where revenue totaled $4.1 million for the quarter, as we opened up 14 new sites.

In the U.S., at the end of our fiscal Q2, the Impella 2.5 and CP have been placed at approximately 1,250 sites, while the Impella 5.0 and RP are at 559 and 368 sites, respectively. Reorder performance in the quarter was also strong, with a rate slightly above 100%, consistent with the prior quarter. Average combined inventory at the hospitals for the Impella 2.5 and CP rose slightly from 4.0 to 4.2 units per site during the quarter as higher volume hospitals carried more inventory to support their cases.

In the second quarter, gross margin was 83.6%, relatively similar to last year. The benefit from higher volume was offset by manufacturing investments, such as direct labor hires to support our future growth. R&D expense for the quarter totaled $23 million, up 17% versus prior year. The increase was driven by investments for new products such as SmartAssist, the Impella 5.5, ECP and BTR as well as for data collection related to our cVAD study. These investments will lay the groundwork for improving clinical outcomes and sustaining long-term growth.

SG&A expense for the second quarter was $79 million, up 31% versus prior year. The increase was due to expansion of our commercial team, additional marketing and training programs, higher incentive compensation and support of our Japanese launch. We will continue to make these growth investments as we are still in the early stages of market penetration in our top 3 targeted countries of the U.S., Germany and Japan.

In the second quarter, we delivered $50 million of operating income, an increase of 59% versus prior year. This translated into an operating margin of 27.7%, a Q2 record for the company. Our margin expanded 380 basis points over prior year due to higher volume, which more than offset our investments.

GAAP net income for the quarter was $50 million or $1.09 per diluted share, up 104% versus Q2 of '18. In the quarter, the company saw a benefit of approximately $13 million or $0.28 per share from excess tax benefits related to share-based compensation awards. Normalizing the impact from excess tax benefits, EPS increased 84% versus Q2 of '18, mainly driven by strong operations and a lower effective tax rate.

Our balance sheet remains debt-free, and we ended the quarter with $410 million of cash and marketable securities. Our top priority for cash remains to support organic growth initiatives and to continue to build our intellectual property advantage.

Turning to guidance. Given our execution and a strong first half performance, we are, again, raising the low end of our full year revenue guidance by $10 million to a new range of $765 million to $770 million, up 29% to 30% for the year.

The previous guidance, post Q1, was $755 million to $770 million, up 27% to 30% for the year. We expect to see solid growth in the second half, even as we start to lap some challenging comps, and we continue to train our field team at headquarters or within the region on existing and new products, expanded indications and updated clinical papers.

So in summary, we continue to execute across all markets and geographies, while making the necessary investments to support our growth objectives. We are well positioned to deliver our plan for 2019 and beyond.

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 Chris Pasquale from Guggenheim.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [2]

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Congrats on another strong quarter. A couple questions. I want to start with guidance because I'm sure this is something that people will be interested in. A very strong first half of the year, the guidance implies a slowdown in the back half of the year. Other than tougher comps, which you certainly have, is there anything else you point to that could be a headwind for you over the next couple quarters?

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

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Yes, Chris, this is Todd. So listen, I don't want to get ahead of ourselves right now. We completed the first 6 months, so we still have a ways to go. I think consistent with past practices, we took up the low end of the range at the end of Q1 by $15 million. We, again, raised the low end of the range for the second time at the end of Q2 by another $10 million, again, in line with past practices. So we do have some new hires in the field that we'll continue to train either at headquarters or within the region on our new products like SmartAssist, new indications and new clinical publications.

As you mentioned, I do think it is worth noting that we do have some tougher comps as we head into the second half of the year. But listen, at the end of the day, if we hit the top end of our guidance range, this will be the fourth consecutive year of 30-plus percent top line growth. And I don't think there's too many companies out there that have demonstrated this type of consistent performance. So again, we'll continue to grow at a pace that we think is sustainable, and our goal is to remain one of the fastest-growing, most profitable medtech companies in the market. So we'll revisit the guidance at the end of Q3, and we'll adjust if necessary.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [4]

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That's helpful. And then, Mike, I'm curious how you're thinking about the opportunity for Impella in renal protection. You mentioned that this is something that's a concern for a lot of Protected PCI patients. Do you see this as another reason to use the pump in those Protected PCI procedures and something that can help you drive penetration there? Or is this a distinct indication, a distinct population that could actually be TAM expanding for you guys?

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

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I think all of the above, Chris. For patients that have heart failure or advanced coronary disease, there is a correlation and link directly to heart failure with renal failure. If you look at the Protect II data, the randomized arm of Impella has significantly more contrast, but had numerically lower renal failure than the intra-aortic balloon pump arm. And what you've seen prior to that is all studies show a direct correlation, more contrast yields to more renal failure.

In the Mehran score, which is a accepted predictive risk score for AKI, the use of an intra-aortic balloon pump actually adds to the risk, adds points, because of where it is positioned in the descending aorta as well its requirement of perfect timing. And with the Impella, we continue to see the -- some additional benefits of unloading but also in increasing urine production. Some physicians actually would call Impella a urine pump, and so we're going to continue to study it.

We have RCT FDA data in Protect II. We have data from our cVAD study that was presented at TCT, showing, again, the predicted AKI rate is significantly cut and reduced with the use of Impella, both 2.5 and CP, and there's some interesting papers that are coming out of Europe by Westenfeld, which I commented on in my prepared remarks, showing that the use of Impella, again, significantly reduces the expected rate per the Mehran score and also 1 study that showed the use of ECMO significantly increased AKI.

So there will be more studies to come, and we plan to see this continue to expand over the next 10 years because this is a significant problem in use of contrast for PCI. It is a significant problem for TAVR. I believe the TAVR AKI rate is around 25% to 30%, again, because there's a correlation with heart failure, and it's definitely a problem with CABG. So a great opportunity for us, and we're going to maintain studies and continue to publish on AKI for a long time.

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Operator [6]

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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 [7]

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I wanted to ask about Japan. You've done, it looks like near $7 million in Japan in the first half of the year. I thought the guidance, at least to start the year, was around $10 million. So I'm just wondering if there's an updated number there. And then maybe if you can talk about resource allocation in Japan. Just wondering if you've accelerated your efforts there.

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [8]

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Yes, Jayson, this is Todd. So listen, our business in Japan continues to perform very well. We delivered, as you mentioned, $4.1 million in revenue in the quarter, and we're now ahead of our schedule and have 35 hospitals opened up. We opened up 14 again in the quarter. So our initial guidance for Japan had a revenue of about $10 million. Right now we're upgrading that to $14 million and going from 44 sites that we project at the beginning of the year to 50 today.

As it relates to the resources in Japan, we continue to hire. Currently today, we have close to 50 headcounts in Japan, mostly on the commercial side, and we're going to continue to make the necessary investments there to drive the sustainable, long-term growth in that country.

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

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And just as a quick follow up. TCT, just related to the calendar shift from the December quarter to the September quarter, did that have any impact in the quarter? And should we see a little bit of a bump next quarter because of that?

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

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Jayson, we -- in the past, including last year, there's usually some minor impact. It's hard to quantify because we're a little bit more spread out. But we actually are taking advantage of TCT being in September, and we've been doing training in October with all the new hires, clinical salespeople. And we've been doing training regionally and we've been doing training at headquarters, and that's something you'll continue to see as we go.

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Operator [11]

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Our next question comes from Bruce Nudell from SunTrust.

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Bruce M. Nudell, SunTrust Robinson Humphrey, Inc., Research Division - MD [12]

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Mike, we looked at the cardiogenic shock indication expansion. It looks significant, especially because of the inclusion of cardiomyopathy. Could you kind of scale that and maybe just discuss more broadly, once you have that on label, can you use the registries for evidence development in acute [cison] decompensated heart failure more generally outside of PCI and cardiogenic shock? And which products might really come to play in that ACDHF population, given the richness of your pipeline?

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

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Bruce, thanks for the question. So first, let me frame it with the amount of data that we have coming in. We have the IQ Database, which is nearly 95% of our commercial patients where we get outcomes to X plant, and we also collect high-level data, and we're expanding that to be able to analyze protocols for both, basically high-risk PCI and then shock, whether it's from AMI or cardiomyopathy. So we've got a plethora of data coming in. We then have the cVAD and you used the term registry, used to be called the cVAD registry study. We actually dropped the word registry at TCT because we've converted now -- the cVAD study is a prospective IRB-approved study, ongoing at a select number of centers for all patients, all indications and all products, and that allows us then to look at both unique uses in collect data and potentially allow us to expand our label. And we've embedded 5 post-market studies inside the cVAD study, and we'll continue those studies indefinitely.

And so this gives us basically the world's largest database of patients that are having heart failure that need hemodynamic support. And we think that the current product, the Impella 5.5, which is approved in Europe, is really going to be a great product to look at those patients that may want to ambulate, do have the ability to wean off, come off inotropes. And the algorithms we're now developing on the console and with the fiber-optic sensor is we can see what's happening as you wean the pump down, because it's a forward flow pump, you introduce pulsatility. And as you wean it down, you can see on the console if the left ventricle has the ability to recover. Because if you're taking the pump down and you see the cardiac output maintain or go up, you know the heart can reload.

And because we now have Impella Connect with the fiber-optic sensor, we're able to real-time monitor those patients, and that will give us the ability as these patients -- as we develop more protocols and algorithms allow these patients a little bit longer time and being placed through the axillary artery, they can be mobile, ambulate, walk around. And we're really going to then develop these protocols around weaning patients, which is not something you can do with implantable VADs because of the way they're implanted and how they core out the ventricle.

So we are very excited. The target population that we're focused on for those advanced studies in the future will be around cardiomyopathy shock and will continue to look at patients that may be more Class III, that are not interested in a transplant or are not yet sick enough. And what we'll try to do is get them back to baseline and match it with adjunctive therapies in the future, new drugs or stem cells or immunosuppression therapy. So it's going to have a long runway. And again, the innovation of this platform is it allows us to unload the ventricle, reduce the work, increase coronary flow and profuse the rest of the body and support the end organs, especially the kidneys.

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Bruce M. Nudell, SunTrust Robinson Humphrey, Inc., Research Division - MD [14]

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And just to follow-up. With regards to the indication expansion that you already have for cardiomyopathy, postpartum myocarditis and postsurgical cardiogenic shock, how many patients did that add to the 100,000 cardiogenic shock patients you were talking about?

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

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We will be updating what we call the TAM in the near future, but what we have asked to do and have communicated to the investors is we recognize that with the expansion of the labels, both for high-risk PCI and cardiomyopathy and other forms of shock, we want to maintain the focus on the patients that currently have a critical need, that are in the hospital today or are being bounced around the hospitals. And we believe we'll get 100% of that 231,000 patients. And then in the future, we'll update with some of these new numbers on the expansion with the labels and with the new products.

But just one of the expansions that's public record and published is we use the number of 121 for high-risk PCI, but there's a publication on these high-risk indicated patients, which have identified in the U.S. alone another 300,000-plus patients that could be potential candidates for high-risk PCI but they are not getting referred in or diagnosed with ischemic disease. So if you give us a little time, we'll be updating in the future.

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Operator [16]

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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 [17]

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Wonder if I could maybe ask a little bit about international, outside of Germany and Japan. What is the plan at this point to potentially target new markets, open up new geographies? When might we see some new countries for you guys?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [18]

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Raj, what we've been talking about the last few quarters is planting seeds outside of U.S., Germany and Japan. Those are the top 3 markets in the world for medtech. And if we can establish Impella as the standard of care there, it has a great influence and allows us to spread to these other countries. What we look for is the physician societies with the government to recognize that Impella is a new therapy, that it's an unloading therapy, and it has the ability to enable native heart recovery. That's been done and that's been accepted in the U.S., in Germany and in Japan, and we'll continue to make sure that we can improve the efforts. And in some of these countries, we launch with our best practice protocols.

As we start to go into these -- this next range of countries out there, we do that with the newer technology. We'll look to have the Impella Connect as a standard in the future. So as places are expanding, we'll be able to monitor those patients and ensure the protocols and the treatment matches what we see in the U.S., Germany and Japan. And we'll be able to continue to publish and collect data around native heart recovery.

In other countries, transplants or implantable LVADs are not an option, and recovery always remains the most cost-effective solution, and that's where we continue to invest in the training and education. And so from a distribution and investment perspective, we now have an organization that's dedicated to developing and planting these seeds. As we've announced, we have cases and patients being done in Australia and India and several other countries, but we're going to do it under our current plan, which is to get a commitment from, again, the countries on what Impella is and what heart recovery therapy can enable. And by doing that, we'll invest go direct, so we can ensure we get the best outcomes in the ICU.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [19]

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All right. That's helpful. And as a bit of a related question, when one thinks about the shock market in particular, and with the data that's being presented from the IQ Database and NCSI and the presentation and the publications as well as the data suggesting that intra-aortic balloon pumps simply don't work, when one thinks about shock, what do you think the main deterrent or still pushback in terms of the acceptance of that, the adoption of that broadly, not just geographically, but even in the United States penetration is still relatively low?

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

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That's a great question, but I -- when I look at the theories of the log, diffusion of innovation, we're following what other companies have been through. In healthcare, you've got the regulatory and the clinical barriers, but what's been shown to be the #1 driver of adoption is really getting the FDA approval and getting some guideline attention. And so this paper I referenced in JACC that's the Cardiac Shock Care Centers, is really a fantastic paper because it's going through and outlining the limitations of the outcomes over the last 20 years. And in U.S. hospitals today, sites that are getting 50% survival are matching what's been done over the last 20 years. And the sites that have adopted these best practice protocols, they can get upwards of 70% survival, but, most important, nearly all of these patients recover the native heart. They are discharged home with their own heart with the quality of life that is acceptable.

And in other prior studies, even a 50% metric or number that's thrown out, there's no mention of whether the patients are in hospice care or die 6 months later or Class IV heart failure patients. So this is also why the STEMI education is so important, because if you look at STEMI patients that don't go into shock, that live, again, 70% of them are in heart failure within 5 years. And I think the -- in Europe and with -- in Germany and Japan, the intra-aortic balloon pump is already deemed Class III, and this recent paper and some of the momentum we're seeing from NCSI is really highlighting the fact that 50% survival for shock patients is unacceptable, and we can do better. And it's really been physician-led, and it's great to see this paper.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [21]

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I guess, the kind of maybe the kernel of the question, right, is that the growth has been tremendous, right, in shock. But do you think there is going to be an inflection at some point? Will all of this, at some point, make it simply unsupportable for a shock center to not have the Impella and to use it? Or do you think we'll continue to see this very kind of more linear, but still very, very good growth?

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

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Raj, we always want to go as fast as the adoption as we can by maintaining and improving outcome, so that's the challenge. But we have been growing shock faster than our other indications, and Impella is one of the fastest-growing products. So it's -- from a comparative basis, it's already one of the fastest growing. But you have to grow as fast as you can while you improve outcomes. And in treating these patients that have, again, the highest mortality likely in the hospital, we also have to go at a pace that allows us to improve the outcome. So it's sustainable growth, and you have to be careful to invest in the training, but not get ahead of yourself and get some bad outcomes because of access or things like that. So it's a pace that we're going at that's controlled, but it's also something that we're pushing adoption as fast as we can.

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Operator [23]

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Our next question comes from Isaac Ro from Goldman Sachs.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [24]

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Mike, just hoping you could expand a little bit more on the prepared comments regarding the STEMI program? Just you mentioned there's going to be I think a call following the data at AHA. Can you give us a sense of the extent to which you're going to address next steps in that program both in terms of time line as well as incremental cost? I appreciate the view there.

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

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Thanks for the question, Isaac. We have to be somewhat careful to maintain the integrity of the presentation, but at the presentation, you'll see the results of the safety and feasibility study. And on the call, we'll give you an update of what our plans are on next steps. I would also give some investors if they're interested in doing a little background reading, there is, again, a paper we highlighted out of JACC, that's Left Ventricular Unloading Before Reperfusion Promotes Functional Recovery After Acute Myocardial Infarction, and Esposito is the first author.

Again, it talks about what's happening to these patients with reperfusion injury, and there's another great paper from The New England Journal of Medicine in 2007 by Derek Yellon, which gives the mechanisms of the disease of myocardial reperfusion injury. So that reperfusion injury has been around a long time. It's well accepted. And what's happening is that, while opening up the blocked coronary within 90 minutes has improved survival, we're really studying the effect of what happens after survival, what's happening with the myocardium, and is there a better way to enhance and augment better survival with reduction of infarct. So we're excited for that presentation, and you'll hear a lot more details at that meeting and on the call on Monday.

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Isaac Ro, Goldman Sachs Group Inc., Research Division - VP [26]

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And then just a follow up for Todd. You've been in the chair now I think a little over 6 months or so. And if I think about the update to the full year guidance, I'm curious if now you've kind of had time to get comfortable, if it made sense to evolve how you guys think about forecasting and how you guys think about managing expectations? Because you guys obviously, as you pointed out, had a long-standing view of delivering sustainable, high growth and that seemed pretty successful. I'm curious underneath the guidance, to the extent your process has evolved, what's changed, if anything, in terms of how you approach the guidance under your tenure?

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [27]

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Yes. I mean, I think the playbook is obviously working, and I think we're going to continue to be consistent with our approach on looking at guidance in Q1 and Q2 and typically raising the low end of the range, and then reassessing this at the end of Q3, Isaac. I mean, I think, it's prudent. Again, it's the playbook is working, and I think that's the process that we're going to continue to follow for the foreseeable future.

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [28]

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Isaac, if I can add onto that. What our focus is, is we feel that, as a company, we want to be best in class in growth. And as we're growing, we're improving outcomes for patients, but we're also improving the operating margin. And our focus is really to be the standard of care for the next 10-plus years. This is a new platform. There's no other pump that unloads the left ventricle and both protects and recovers the myocardium. So we want to grow as fast as we can, while sustaining and improving our outcomes for our patients and establishing this as the recognized standard of care worldwide.

Today, we're only in 10% of the patients in the U.S. for 2 of our indications. We have a whole new product offering. We have an expansion of indications and labels, and then we have to do that all over the world. So we -- again, we have a pace that is fast, but it's also, again, focused on improving outcomes to maintain that standard of care mindset.

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Operator [29]

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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 [30]

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So number 1, maybe we can focus a little bit about on high-risk PCI Protected PCI. And the growth seemed to accelerate a little bit this quarter. Anything that you guys can attribute that to? Is it the latest indication expansion versus Impella Connect training, coordinator effort, anything of the sort?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [31]

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Margaret, it's a good question, and we have just really some great things happening around the clinical data sets, whether it's AKI for high-risk PCI or multiple things for shock that was released at the end of September at TCT. So the JACC paper, the IQ Database, NCSI data. We have mentioned in the past that there is a bit of a seesaw effect between our people, because it's the same team that educates and supports all the indications. So we just have to remain balanced. And as a company, we're focused on total applications, total utilization growth. But we break it out for transparency. But the 2 complement each other.

And I think if you look back at the prior quarters and prior year, it is a very strong Protected PCI quarter, but we expect both to be strong and both to continue for a long time.

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Malgorzata Maria Kaczor, William Blair & Company L.L.C., Research Division - Research Analyst [32]

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Okay. And then in terms of the RP, anything that you guys can provide in terms of the rollout to date? It seems like you're getting a lot of demand the last few times we've talked in terms of training. So maybe has training been more difficult than you expected, in line or better? And then have you begun any kind of a push into the pipeline opportunity? And what would it take for you to do so?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [33]

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Margaret, there's a lot of interest in the RP because there's no other product like it. The challenge is there's no other product like it. So it's the venous vein, and interventional cardiologists are not used to necessarily placing devices in the right side compared to the left side. So that's a bit of a training issue. And then we have multiple patients in the RP. You have patients that are failing or struggling after an implantable LVAD or they can't come off-pump after transplant, all the way to patients that have RV infarcts or severe shock with biventricular failure. So again, it's about embedding the training and the timing and the protocols into what we're doing, but we feel that, that product is critical to improving the outcomes, especially around shock.

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Operator [34]

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

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [35]

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Just for starters, on the new site number, I think that went up about 50 in the U.S. from Q1 to Q2 here. And I know there was a lot of training that was going on last quarter. So is it attributable to all that training that was going on? Or was there something else that's driving that number so much higher, especially on the 2.5 site because that's a lot higher than we've seen over the last several quarters?

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [36]

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So actually, Matt, if you look at it, we opened up, to your point, about 50 sites in the U.S. And if you went back to last couple quarters, I mean, I think it's been fairly consistent at that level. So I don't think there was anything abnormal here. Probably a little bit less actually on the 5.0. 5.0, we opened up about 19 sites versus Q1 was closer to 24. So I think overall the sites that we opened up has been pretty consistent over the last couple quarters.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [37]

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Okay. No, I see 50. I mean we didn't have the exact numbers on Q1, but I see 50 in Q2 here for CP and 28 last quarter, 38; before that, 21. So it just seems like a little bit higher so...

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [38]

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That's consistent with what we saw in Q1, a little -- maybe slightly higher, but overall fairly consistent.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [39]

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Okay. And then, Todd, just sticking with you. As far as the operating margin guidance goes, understand you guys are still investing heavily in R&D and SG&A. But the number in the quarter was better than we were modeling. It's getting towards already the range that you've provided for the year on the low end. So is it reasonable to think that the -- that -- what we should be anticipating for that metric here in '19 is probably something towards the mid- to high end of that range?

And then as we think about things going forward, I mean, you should be doing, I don't know, around 200 basis points of improvement or just under in that metric this year. Is that something kind of the level we should be expecting? Or maybe 150 bps per year, something along those lines?

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [40]

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Yes. Well, I'm not ready to give guidance for next year at this point in time. But I would tell you, I feel very confident in our ability to deliver within that 20% to 30% range for the quarter -- I mean for the year. And, Matt, it's all about finding -- excuse me, the right balance between short-term margin performance and investing in longer-term growth initiatives.

And I think 1 of the great things about Abiomed is that our business model allows us to do both, right? We're able to grow faster than most and drive significant margin expansion, while continuing to reinvest back in the business. And so I think the seasonality of the business, we're going to drive more sales in the second half of the year. And again, I'm confident that we'll be in that 20% to 30% range for the year, which again is going to be up anywhere between 150 to 300 basis points year-over-year.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [41]

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Got it. And last real quick 1. Just the average inventory per site has been moving up nicely. Is there an upward balance to that metric specifically?

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [42]

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I don't think so. I mean I think it's been moving up slightly every quarter as hospitals carry more inventory to support their caseload. And it's something that we watch. But I think it'll inch up kind of similar to how it's done in the past couple quarters.

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Operator [43]

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Our next question comes from Danielle Antalffy from Leerink Partners.

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Danielle Joy Antalffy, Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices [44]

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Mike, you guys had laid out back in, I think, it was in August of 2015 when you had your Analyst Meeting, sort of, a long-term target or aspiration for $1 billion in sales by fiscal 2021. And it feels like at this point, I mean you guys are tracking at least a year ahead of that. And I was wondering if you -- I appreciate that you're going to update the -- us on the TAM at some point. But if you could talk a little bit about how you're thinking about those aspirations. And is it possible that you could achieve that much sooner than you guys had expected back in 2015?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [45]

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Danielle, thanks for the question on our vision statement. Again, vision statement, I feel like Jerry Maguire. It's a vision statement. But we feel very good about it. We feel good about the revenue side. We feel good about the products to remind all the investors that did not include any of these new products or indications. They were out -- they were clearly outlined out of it. And we are also ahead of schedule on our operating margin percent. So over time, you'll see us update it again, but we're kind of at the halfway mark now and like where we are and like the focus.

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Danielle Joy Antalffy, Leerink Partners LLC, Research Division - MD, Medical Supplies and Devices [46]

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Okay. Appreciate that. And then as it relates to the STEMI data that we're going to see, the feasibility and safety study at AHA, can you talk about what expectation should be as it relates to the impact of that data? Obviously, it's going to inform as pivotal. But beyond that, I mean, is it possible that we could see -- it could be so positive that it impacts the way physicians practice even before you move to pivotal and get a STEMI indication? Or is it just too small? And we're not going to necessarily see anything that could be practice changing out of the feasibility study specifically?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [47]

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Thanks, Danielle. We will talk about it at AHA, and we will talk about it on the call. We can't comment on that now. But to be clear, we are not endorsing this application. These patients today have STEMI. They're not having heart attacks. They're not in shock. And the intent of this study was to enable us to go do a feasibility study -- sorry, a pivotal study to go get that level of data and standard of care information that we need to order a change of practice. So we have a ways to go. We still have to do a pivotal to get to that step, and we're looking forward to giving all those details out in Chicago and on the call on that day.

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Operator [48]

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Our next question comes from David Lewis from Morgan Stanley.

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Jaypreet Singh Chadha, Morgan Stanley, Research Division - Research Associate [49]

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This is Jay Chadha on for David. Congrats on the quarter. Todd, 1 quick 1 for you. Gross margins were a little higher-than-expected in the quarter. You mentioned manufacturing. So as you think about -- as you continue to invest in manufacturing, how should we think about the manufacturing benefit relative to any kind of price mix headwinds and the path forward for gross margins?

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Todd A. Trapp, ABIOMED, Inc. - CFO & VP [50]

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Yes. So if you think about our gross margins, we're 83.6%, in line with prior year, and we did make the necessary investments in operators and tooling and fixtures as it relate to the CP optical line. We did also have a little bit of unfavorable sales mix in the quarter as we sold more CPs and RPs. I think one thing in the quarter that's important to note, we did build about 6 million more of inventory to really support our second half ramp. So even with, like I said, a flat GM, we're able to drive margin expansions up over 380 basis points. And we'll continue to make the manufacturing investments in this area to help drive our future growth. And I think the 83.5% range is probably somewhere -- it's probably a good place to model going forward based on what we see today.

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Jaypreet Singh Chadha, Morgan Stanley, Research Division - Research Associate [51]

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Okay, that's clear. And Mike, one quick one for you. As you progress forward the first-in-man for ECP, can you talk about -- any kind of enthusiasm you're hearing from the community, especially with regard to the lower French size? And how much of a driver you think that could be for utilization, especially with less experienced interventionalists?

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Michael R. Minogue, ABIOMED, Inc. - Chairman, CEO & President [52]

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Sure. That's a great question. If you look at the late majority, the late majority's #1 concern is access, 14 French hole or a 12 French hole. And so we approach that concern with education, and we point out that TAVR started at 22, and is now 14, and it's a skill set that many of them have and they've overcome it. We point out that in Protect II, the intra-aortic balloon pump had numerically higher vascular complications than the Impella, and the Impella showed continued improvement throughout the study. And because of this experience and TAVR, access and closure technologies have advanced and continued to improve our outcomes. You'll see from the data presented at AHA what happens in an updated study with patients that are somewhat unstable with heart attacks and how they -- how safe and feasible that is with Impella.

And we do have some new technology that has to do with expandable sheets for the CP. And remember, the CP has a 9 French catheter, and that's really the driver of leg ischemia. It's not necessarily the hole. So outside of all the education and everything we're doing, it's a very simple discussion with interventional cardiologists, if he can have a 9 French 4 liter pump to help them do Protected PCI.

So there is great interest, excitement and demand. We do think it's -- it will be ideal for Protected PCI, and we think the CP will be ideal for shock patients because its ability to have a motor onboard, produce the truest flow, measure cardiac power and output and help wean the patient off. And then, of course, we think the 5.5 will really be a tremendous pump for patients that want to get up and walk around to have full flow and have the ability to wean off, especially those cardiomyopathy shock patients. So lots to come, but the ECP is a breakthrough product, and we're so excited to get to our first-in-man.

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Operator [53]

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And I am showing no further questions from our phone line. 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 [54]

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Great. Thanks, everyone, for your time. If you have any follow-up questions, please feel free to reach out. And we look forward to seeing those that are attending AHA in Chicago. Thanks again, and have a great day.

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Operator [55]

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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.