ABIOMED Inc (ABMD) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Abiomed Inc. earnings conference call. My name is Heather and I will be your coordinator for today.

At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions.). As a reminder this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Ms. Aimee Maillett, Corporate Communications Department. Please proceed.

Good morning and welcome to Abiomed's first quarter of fiscal 2010 earnings conference call. This is Aimee Maillett of Abiomed's Corporate Communications Department. I am here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer and Bob Bowen, Vice President and Chief Financial Officer.

The format for today's call will be as follows -- first, Mike will provide you with strategic highlights of the first quarter. Next, Bob will provide details from the financial results outlined in today's press release and we will then open up the call for your questions.

Before we begin discussing the first quarter, it is necessary to remind you that during the course of this call, we will be making forward-looking statements including statements regarding future financial performance, product development efforts, Abiomed's strategic operational initiatives, market response to our new products, our progress towards commercial growth and future opportunities.

Abiomed's actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including uncertainties associated with development, testing and related regulatory approvals; competition; technological changes; anticipated future losses; complex manufacturing, high-quality requirements; dependence on limited sources of supply; government regulation; future capital needs; and other risks detailed in our SEC filings.

Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of today's conference call. The Company undertakes no obligation to publicly release the results of the date -- of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date of this conference call or to reflect the occurrence of unanticipated events.

Lastly, comparative references made financially in this call to revenue, expenses, gross margin, or other increases or decreases will be indicated by references to first quarter of fiscal 2010 as compared to the first quarter of fiscal 2009. Or first quarter of fiscal 2010 as compared to the prior fourth quarter of fiscal 2009.

I am now pleased to introduce Mike Minogue, Abiomed Chairman, President and Chief Executive Officer.

Good morning, everyone. This was our best Q1 for multiple reasons, including a record number of patients supported and $19.9 million in revenue -- an increase of 21% in revenue year-over-year with gross margins up 9 points to 75%.

On today's call, I will highlight Q1 performance and elaborate on our key fiscal year goal of increasing Impella utilization and clinical usefulness.

Impella US revenue totaled $11 million, up 144% year-over-year and up 11% sequentially from Q4. In Q1, we scaled back somewhat from opening new sites to aid in training the team and targeting our lead accounts. This is significant because we sequentially grew revenue, despite opening 19 fewer Impella 2.5 hospitals in Q1 as compared to Q4 and maintaining a 2.7 unit stocking order. This usually translates to immediate customer reorder on the first patient use.

We supported approximately 341 US patients with Impella 2.5, 50 or LD under the 510(k) clearance, up 31% sequentially from approximately 261 patients treated in the fourth quarter of fiscal 2009. As a learning organization, we continue to identify our limitations and have adapted to increase our average Impella patient weekly rate for the last four quarters from eight to 12 to 20 to 26 Impella patients per week respectively.

Existing customer reorders of Impella 2.5 commercial disposable grew 31% sequentially and represented 68% of total Impella 2.5 commercial revenue, compared to 54% in the prior quarter. US reorder revenue over the last four quarters has grown from $2 million in Q2 of last year to $3 million to $4.9 million in Q4 to $6.4 million in Q1. However we are still catching up with our growing installed base and have not achieved full productivity of the field team based on their tenure.

At the end of Q1, approximately half of our US field team had been employed by Abiomed for three quarters or less. The stimulating part of this story is that we are only capturing less than 1% of quarterly intra-aortic balloon pump usage and have potentially another 1,000 hospitals that may purchase Impella.

This past year represents the seeding of our future opportunity and not the zenith of our success. We continue to make progress on Protect II. Approximately 100 hospitals are participating in this study and 39 patients were enrolled during the quarter for a total of 262 patients completed in the Protect II study or 40% of the 654 patients required.

The legacy business was down $2.7 million or 25% from prior year and down $0.5 million or 6% from Q4. We believe the legacy decline is based on our planned shift in field focus to cardiology, and build focus to cardiology, the surgery console sales challenge capital sales challenge in hospitals and the age of the legacy portfolio with BVS.

This quarter marks the crossing of triple digit growth from Impella usage, outpacing the decline in our legacy business to still net an increase of 21% for total revenue. However, in Q1, we reinvigorated the customer surgery segment by successfully executing on our first US Impella 5.0 patient, our first home discharge AB portable patient, and our first commercial AbioCor patient.

On our strategy moving forward to increased utilization, we are engaged in driving two initiatives. Number one is improving our internal and external training program, and number two is supporting interventional cardiologists peer education on the physiology and science of Impella.

Improving our customer and internal field training program is critical to achieve the productivity of our field employees; and this eventually leads to independent usage by our customers.

In April, we dedicated a full week with the entire field organization on product and clinical training and have augmented our hands-on training with weekly conference calls, followed by testing online for individual field employees. Expertise with Impella expands the opportunity for usage. In Q1 the growing range of applications demonstrates the usefulness of a [hemo] dynamic support with safe and easy-to-use percutaneous heart pump.

We remain confident in the role of Impella for high-risk PCI and can confirm the trend that several high-risk Impella PCI patients are being turned away by heart surgeons based on their mortality and morbidity risks. In other cases, patients have opted out of surgery for the Impella-supported PCI procedure.

In Q2 fiscal year 2009, our first 510(k) quarter, 76% of the usage was for high-risk PCI. At the end of this past Q1 fiscal year 2010, the number of high-risk PCI cases has grown 161%, but is now only 59% of all applications. In Q1, our customers reported that 41% of Impella patients were for applications other than high-risk PCI, such as AMI or heart attack, cardiogenic shock, cardiomyopathy, myocarditis, failure to wean from surgery, off pump surgery, failed transplant, postpartum cardiomyopathy, EP ablation, and other various hemodynamic issues.

The significance of this metric is that we believe utilization will accelerate over time as more sites become independent in treating emergency patients. Our goal with Protect II has always been to have formal documentation to change the PCI guidelines and influence late adopters for one single application for Impella 2.5.

Our second initiative driving utilization is supporting interventional cardiologists' peer education on the physiology and science of Impella. This has gained momentum. The Impella technology is exclusive and patented and unlike anything interventional cardiologists have used in the past.

As a result, this science, in many ways, is a new subject. Based on the work by many of the early adopters and thought leaders with Impella experience, there is growing acceptance of the physiology and the science of unloading the left ventricle of the heart to increase oxygen supply, decrease oxygen demand and increase cardiac output.

These bellwether physicians are responsible for the following articles, white papers, and/or case studies that have recently been published or presented. Such as taking a holistic view written by Doctor Brijeshwar Maini of Pinnacle Health published in the Cath-Lab Digest in 2009; Impella 2.5 white paper written by Doctors Weber and [Reis] published in the Journal of Cardiovascular Translational Research in June 2009; Impella 2.5 Support During PTCA written by Doctor Suresh Mulukutla from UPMC published in Cath Lab Digest in July 2009; Percutaneous VADs Help Failing Hearts Recover with Doctor Hari Naidu, an editorial article in Diagnostic and Invasive Cardiology in July 2009; The Role of Impella 2.5 in Stabilizing Diastolic Aortic Pressure To Avert Acute Hemodynamic Collapse written by Doctor Neeraj Jolly from University of Chicago, published in the Journal of Invasive Cardiology in July 2009. Additionally five more cases are pending publication in August and September.

We are prepared for TCT this September and will have multiple events highlighting Impella taught by the cardiology leaders in the field. They will define the concepts of the technology and present provocative Impella case studies.

At TCT we will also have a landmark presentation called US Pella. This is the first registry presentation on US commercial Impella experience with 20 hospitals and over 100 patients. The Euro Pella, a European 10-hospital multicenter study with 144 patients was presented at PCR in May and will be published in the Journal of American College of Cardiology in the future. We expect to exceed 1,000 Impella US commercial patients by TCT.

A recent string of healthcare stories appeared in the USA Today on July 10 which disclosed Medicare double-digit in-hospital mortality rates for heart attack patients and high readmission rates within 30 days of discharge. From the perspective of physician peer education and media awareness, successful Impella patients stories continue to make the news and several have been posted on YouTube.

It is this experience in academic and community hospitals that continues to create physician advocates and drive additional product demand. The demand was clearly demonstrated with the initial ramp of 276 hospitals having purchased Impella within one year of the 510(k) during a very difficult economic environment for hospitals. As of the end of Q1, 100% of the top 20 heart hospitals per US News and World Reports have purchased Impella.

In summary, Abiomed has achieved significant success in creating breakthrough products, navigating the regulatory path and now launching into the US market. We continue to grow Impella utilization and reorder revenue, have offset the weakness in our legacy business and reinvigorated the surgery customer segment with new products.

Impella training continues to improve for our customers and our field team gains more experience each week. Peer education moves forward as our key opinion leaders at the hospitals are enthusiastic about the new physiology of Impella and what it means for their patients.

At Abiomed, we are excited about the future and confident that our growing commercial reach and momentum will be felt at TCT, the largest interventional cardiology meeting in the world.

I will now turn the call over to our CFO, Bob Bowen.

Thanks, Mike, and good morning everyone. Today I plan to comment on our first quarter fiscal year 2010 financial results, and will be making comparisons to the prior year as well as to the prior sequential quarter.

Before I get started, I would like to refer you to the Safe Harbor language noted at the outset of the call as well as the risks and uncertainties noted in our SEC filings, particularly our most recently filed 10K.

As noted in this morning's press release, we continued to execute on the US commercial launch of Impella 2.5. Most notable was the 31% sequential quarter growth in patient utilization with 341 patients treated with Impella during the first fiscal quarter compared to 261 during the fourth.

Increasing patient utilization drove existing customer Impella 2.5 disposable reorder revenue to $6.4 million from $4.9 million in the prior sequential quarter, also a 31% increase. The $6.4 million existing customer Impella 2.5 disposable reorder revenue was the largest component of the total US Impella revenue of $11 million, which increased 11% sequentially and 144% from the prior year as a result of the 510(k) clearance in June 2008.

The balance of $4.6 million was made up of four elements. The first is the initial Impella 2.5 stocking revenue for newly opened hospital sites which was sequentially lower as we opened 47 Impella 2.5 sites in Q1 compared to 66 in Q4 as we continue to focus on sales force training, customer training and utilitization at existing sites.

The second is revenue associated with Impella [5.0] and LD which we launched following approval in April.

The third is clinical trial revenue which was sequentially lower, but also represents a relatively small percentage of total Impella revenues. And the fourth is Impella console revenue, which is also a relatively small percent of overall US Impella revenues as most consoles have historically been placed on a no-charge basis.

Worldwide Impella revenue was $12 million, up 107% compared to revenue of $5.8 million in the prior year. Legacy revenues or non-Impella revenues were $2.7 million or 25% lower than last year and $0.5 million or 6. -- 6% lower in the fourth quarter of fiscal 2009.

Despite a softer legacy business and lower clinical trial revenues, total revenues grew 21% from last year to $19.9 million and were up sequentially as well. It is notable that this is only the second time in the past six years that our revenues have been higher in Q1 than the previous Q4, as the norm for our business has been for Q4 to be the strongest quarter, Q1 to be weaker and for Q2 to reflect the summer slowdown due to vacations.

Gross profit percent for the quarter at 75% was up 9 points from the prior year and 3 points from the prior quarter, largely due to a better revenue mix with higher percentage of domestic Impella disposable revenues and fewer no-charge console placements. R&D expenses of $6 million decreased from $6.1 million and from $7.1 million in the prior year and prior sequential quarter respectively.

Clinical trial expense in Q1 fiscal '10 was $1.5 million compared to $1.1 million in the prior year and $2.4 million in the prior sequential quarter.

As Mike mentioned, 39 patients were enrolled in the Protect II study during the quarter, bringing the total enrolled today to 262 patients or 40% of the 654 patients required.

SG&A costs of $16 million were up from $13.5 million in the prior year and up from $14.7 million in the fourth quarter. The increases are largely due to the expansion of our domestic commercial organization in support of the commercial launch of the Impella platform, with much of our effort focused on customer and sales force training and patient support.

The GAAP net loss for the quarter was $7.8 million or a loss of $0.21 per share, an improvement from a GAAP net loss of $9.1 million or a loss of $0.28 per share in Q1 fiscal '09. To assist investors, we provide non-GAAP net loss and net loss per share information as defined and detailed in our press release issued today. These non-GAAP measures excludes stock-based compensation and amortization of intangibles.

The non-GAAP net loss for the quarter was $5.7 million or a loss of $0.16 per share, an improvement from a non-GAAP net loss of $7 million or a loss of $0.21 per share in the first quarter of fiscal '09.

Turning to the balance sheet, inventory and accounts receivable balances were both somewhat lower at quarter end than at the start of fiscal 2010. We have a continuing focus on inventory management and have not seen any substantive change in customer payment behavior as a result of a generally weak economy. The increase in goodwill, which is recorded on the books of our German subsidiary, was related to the final Impella milestone payment of $5.6 million which was triggered by the April 510(k) clearance of Impella 5.0 and to the translation effects of a stronger euro at quarter end than at the start of the year.

We ended the Q1 fiscal 2010 with cash, cash equivalents and short- and long-term marketable securities of $54.5 million compared to $60.9 million at March 31 -- a change of $6.4 million. And we believe this funding level is sufficient to get us to cash flow breakeven.

Included in the $6.4 million was a $1.75 million cash payment related to the cash portion of the [file] milestone payment to former shareholders of Impella Cardiosystems AG as a result of the Impella 5.0 510(k) clearance. The $6.4 million also included the annual fiscal year 2009 incentive payments of $2.9 million paid during Q1 fiscal year '010.

Excluding these two items, the cash change for the quarter would have been under $2 million.

Looking forward, and as noted previously, the second quarter tends to be our weakest. Last year, the second fiscal quarter was strong due to the Impella commercial launch, and initial site stocking revenues of Impella 2.5. In the two previous years, the second quarter was sequentially lower which was likely due to slowdowns in scheduled procedures during the summer months.

Lastly as noted in our press release, we believe we are on track with our plans for the full fiscal year 2010; and we are reaffirming total year revenue guidance in the range of $86 million to $91 million.

Operator, we will now open the call for questions.

(Operator Instructions.) Greg Simpson with Stifel Nicolaus.

Hello, good morning. Let me focus on, obviously, Impella. I have a series of questions. You know when I first saw the overall revenue number I just thought it was kind of okay. If I look at some of the details, though, and some of the percentages you went over it looks quite a bit more encouraging.

It's early in the morning, it's the end of earnings season, I'm simpleminded to start with. Can you maybe put a little more detail around -- you've got the 31% increase, sequential increase in procedures and a 31% increase in existing customer reorders. Does that tell us that essentially everybody is re-ordering as these devices are used? I know it's quite not that simple, but could you maybe give us a little more detail on that?

Yes, Greg. I don't know if I would say every -- we have got 80% of the sites that have had their product for more than four weeks are using, and those that are using are reordering. I think that's the way we would see it.

And as they, as the time goes by and our local people are focused on physician training, education, as we train our field sales force themselves, they tend to do more patients as each month goes by. So those that have had the product the longest tend to do more procedures as they become more comfortable with the technology; and we continue to see a fairly substantial increase in the number of sites that have done five or more cases.

Bob, then to follow up, can you maybe give us -- I don't know if that 80% number would be the same -- but the number of training centers out of that 276 that have reordered the product? Is that a number you have got handy or can provide?

I don't have it handy but it's -- it's a very high percentage. The initial site stocking order for -- has been around 2.7 to 3 for virtually all sites for the last three quarters.

And so, for the most part to the extent that the procedure is done, a reorder comes in and they come in generally in onesies and twosies throughout the quarter, as the patients were treated. The actual reorder rate was again over 80% of the patients treated.

So I would say generally that as patients are treated, customers are reordering.

Right. Okay. Very good. Then I will combine these two questions into one actually. Can you give a sense what percentage of the train to Impella centers have reached that so-called independent stage and are you defining that by when they get to that kind of five procedure level?

Then the second part of that would be -- you kind of addressed it, but are you seeing that increase, increased utilization at those centers when they get to the five level? Is five the breaking point that utilization really takes the jump?

I would answer that question, I guess, two ways. Number one is as they get more experience, you are starting to see more applications beyond high-risk PCI. So this quarter, high-risk PCI applications continue to grow, but now it is 59% of the usage. So that has to do with their level of expertise and confidence.

And the second point on that is we have a little over 60 patients that have exceeded five and some -- many of those have exceeded 10. It is really about a comfort level of having us there -- for, as we said, we are now training additional physicians. So we used to attract first-time use and then we attract first-time physician, use, and now we are getting into all of those details because there's multiple interventional cardiologists at those sites.

And the last component of that really has to do with how well we can get them thinking about this upfront. Whether it is a heart attack patient or if it's a high-risk PCI and we are willing to be there for those patients. We have the resources and in some cases, having our presence there helps our own company get trained and you will usually see today two to three Abiomed people for each case that's scheduled because we are also helping to get our own people trained and get them hands-on experience.

Got you. Okay. Final question for me and then I will get back in line.

Protect II based on the rate, it's right in line with what you had suggested last quarter. But it looks like then we should get the midterm look at the data sometime during the calendar fourth quarter. Can you maybe give us a sense how exactly will that work? And is that something that you will announce when that takes place or only if there's any implications to it?

We have probably around 65 patients remaining to get to the interim and then there's the 30-day follow-up from that component of the last set of patients. It does put us around the Q4 timeframe.

We see the interim as a nonevent. But if something is material we will disclose it and we plan to continue to move it forward.

Okay. Great. That's it. Thanks.

[Tim Lee] with Piper Jaffray.

Mike, you just mentioned that you've got multiple reps right now. Oftentimes that -- at a case getting trained, as we look at your current sales infrastructure, what percentage of your sales force is certified to oversee a case and what could that number be in Q2, Q3, and Q4? Just given your [creating] time line that you see for your employees?

At the beginning of the quarter about half of our employees in the field which includes cross-trained nurses, the cardiology specialists and also now the sales reps were Abiomed-certified to support cases. We have spent a lot of time over the last couple of months. We are probably in the range now between 70 to 80% and we are going to continue to incrementally add folks each quarter.

And again, just trying to get a sense of when should we start to see some greater leverage? When, by Q4 instead of two, three employees for sales reps per case would it be down to one at that point? Or -- I am just trying to get a sense of that progression.

I think the progression has to do with the productivity of the individuals, depending on what their experience level is. If they are coming from a cath lab, they've also worked in industry and they have some experience with circulatory support, then they have a quicker ramp. If sales -- based on the sales reps if they have a clinical background versus a sales background, that also aids in a quicker ramp-up.

So what I would say, Tim, is it's probably by the end of the year when you start to see on a uniform level, but we are still seeing benefits now with the training and being present with our customers. So we don't plan to necessarily pull folks away from those accounts. We want to reengage them.

We want to use the opportunity to learn more about the product. And as you have seen, they've continued to use it outside of just high-risk PCI.

Again I missed that number if you did give it. What was that -- like in terms of the indication for [use in] -- what percentage were for IMI and what percentage were for high risk by your estimate during the quarter?

Sure. So for the whole quarter it was 59% was for high-risk PCI and 41% was for all other and the biggest component of the all other is AMI and cardiogenic shock.

And one last one here before I jump back in the queue. This status on Recover II, any patients here this quarter and how should we think about that here over the next couple of quarters? Thank you.

We currently have over 150 patients in our internal database for AMI cardiogenic shock with Impella 2.5. We are looking at other options for the study. Whether or not we will continue to randomize this or go to something along the lines of more of a registry, the study itself has issues with getting patient consent. The window of implanting the device and some ethical questions [or] cardiogenic shock.

So we are evaluating that and we are going to continue to update as each quarter goes.

Great. Thank you.

Bob Hopkins with Bank of America.

Thanks. Good morning. So a couple of quick procedure questions. I'm sorry if I missed some of these. But was the ASP from Impella in the US fairly steady at around 22,000?

Yes.

And I was wondering if you could just walk me through again kind of a breakdown, so I think you said total US Impella revenues were $11 million. And I don't think you gave the exact number as per the trial number. Was the trial number around $0.5 million in the quarter?

In that range.

Okay and then there were no -- were there any 5.0 sales in the quarter?

Yes there were.

And what was that contribution?

We haven't disclosed the specific 5.0 revenues.

But obviously it was fairly minor given the timing of the approval, correct?

Correct.

Now just two more important questions, I think.

Mike, can you just talk a little more about TCT? I know you mentioned some of the things that are going on there, but can you reiterate how visible you think the product will be at TCT? What are the exact presentations? What would you point us to as the most critical, most important and then, also from the bigger picture perspective, is there any update that you think is worth talking about in terms of the reimbursement picture for Impella right now? Any changes on the horizon that you can envision in terms of a code specifically for Impella or anything like that? Thank you so much.

So the first -- two questions there, the first on TCT. I think what you'll see is the US Pella is going to be the first registry presentation.

That will be at TCT. That will be over 100 patients and from 20 centers. And I think it is going to be a good view of the safety and the ease of use and some of the other parameters that mirror what you have seen from Euro Pella, which was the 10 center, 144 patient registry from Europe.

So we think this is a big deal. This is the first commercial use summary for these patients. And as I've mentioned by TCT, we will have likely exceeded over 1,000 US commercial patients on the Impella 2.5.

We do plan to have a formal event on Tuesday night at TCT in San Francisco, where we will have some of these thought leaders going through both the science, going through cases and talking about other applications such as AMI. We are going to have a Wednesday morning breakfast case review where a lot of the top [intervents] cardiologist will be selecting and picking their toughest cases and presenting to the group.

And we will also have another event on Friday morning for fellows for the best cases of Impella. So that will be the formal component of it.

We do expect to see live cases. And we also expect to have other talks that will be in the show itself that will have to do with other components of Impella applications.

Great. Thanks.

On the reimbursement side, the new DRG codes are out. So the -- and what affects us is primarily has stayed flat or up 5%. So DRG's 1 and 215 are up and DRG 216 is up, I believe, 1%. So there's really going to be no changes for a full another year and then with the following year comes there will be proposals for changes, the comment period. And that will be looked at again.

But on the horizon we do not seek any changes to any of the DRG structures for any and all of our products.

Thanks so much.

Sean Lavin with Lazard.

Hello Mike. Congratulations on the increasing Impella adoption.

Thank you, Sean.

Sure. I just wanted to follow up the bits on Bob's questions on ASP's. When we look at 31% sequential Impella use, it looks very strong, but when we look at the revenue it was up about 7%. Is anything going on with ASPs or is this simply due to stocking? Or is something else going on here you can talk about?

Yes. I think this is as simple as we opened up less centers, 19 less centers. And I think you are getting some of the other information a bit confused.

So if you look at the sequential growth in patients and if you look at the sequential growth and reordered revenue they match up pretty closely. You have to really take out the fact that we did open up 19 centers which on average order 2.7 units and then you will end up in that range.

That's good to hear. I just wanted to make sure. And the second question is on your international revenue. It was slightly lighter than we would have looked for. Is there anything here or is this just lumpy early product sales, or how do you think about that?

That's a good question. In Europe, we have always really been Germany. That has been our primary direct sales team and parts of the Netherlands. With the exception of that what we have really tried to do is pick now where we want to engage.

We want to conserve our cash, focus our resources and, in countries where we've had distributors or not had the ability to support the positions to get a formal training program running, we are really addressing whether or not we want to be in that market currently. Because our big focus right now is the United States.

So what you are seeing a little bit is a pruning of some of the distributors and pulling out of certain countries where we were never all the way in. And we just want to make a commitment that if we are going to enter a market, they've got to have the right infrastructure, the demand and the potential for reimbursement that matches what we think Impella is worth.

My last question is as we think about SG&A for the year, is the first quarter a reasonable guideline to go with or how should we think about going forward?

Yes. I think the first quarter is a reasonable guideline for the year. You know we were pretty fully staffed during the first quarter and we may have some selected additions in the field in certain territories through the year, but I think it's probably a pretty good guideline.

That's all I have. Thank you very much and congratulations on the quarter.

David Lewis with Morgan Stanley.

Good morning. Mike, so a lot of things are moving around here, international revenue, obviously box sales, stocking orders. If I look at last quarter and I simply take in quarter utilization by the revenue, I get 51% last quarter. This quarter I think I'm coming up with 63%.

I know my math is a little crude here, but what is the right ratio of in quarterly utilization revenue to total revenue? And should we see this rate climb to 75% throughout the balance of the year? Is 60, 65% the right metric? I know there are a lot of moving parts here, but I think it would help us understand how you expect this business to develop here over the course of the next three to four quarters.

I think the guideline is it should be above 50% and it should begin continuing to creep higher than that as it's done this quarter as the installed base gets bigger, and utilization in the training gets better. And over time we are going to continue to add sites, but not as aggressively as we have been in the past.

Fair enough. If we think about the mix in the -- of the actual procedures, or indications, which we found very helpful, the 59% high-risk PCI -- and it sounds like AMI CGS is probably something around 15, 20%. Is that close?

It is in the range, yes.

So if you think about go back six months and you think about 59% for highest PCI and 15 to 18% let's say for MIA for CGS, which one of those numbers surprises you for in terms of your procedural mix?

I don't know if they surprise us. I think we predicted this at the start is that the normal trend goes from high-risk PCI because it's a prophylactic use and a perfect training ground. And then over time you really start to expand to AMI cardiogenic shock.

If you were to poll interventional cardiologists and you just look at this Medicare statistic release in July with 15% mortality rates for Medicare patients, you'll see that they all agree there's a great role for Impella and there's a lot of uniform support for this. At TCT, we are really going to get into the science of why unloading the heart helps to protect heart muscle and what are the benefits of it in protecting other organs and I think that is going to continue to expand over time.

So if I -- if in six months from now or 12 months from now if I use a baseline of 60% high-risk PCI and 15% AMI for CGS, what is that going to look like in a year? Given how you are moving into smaller centers, but obviously you are getting deeper and deeper into large academics?

That's a good question, but I guess the answer is, it is relative. We think that the high-risk PCI cases are now starting to grow and getting to even a riskier patient portfolio than what potentially was done in the past. So that is one component of it.

We do expect to see consistent growth on both of them and then, depending on when you are talking about triple digit growth per application, it just depends on which one continues to outpace the other. I would say though, for the next year, year and a half I do expect still high-risk PCI to be the number one driver because of the learning curve. And as we are opening new centers, this is how they start to utilize the technology.

And just a last question for Bob. Impella revenue as a percent of total sales kind of continues to be flat or creep up a little bit and pricing seems relatively stable. I was a little surprised by gross margins in the quarter for that reason.

Is there something I am missing or are there manufacturing variances? Given what you talked about in terms of inventories I would expect gross margins to begin to tick up here, somewhat meaningfully here throughout the balance of the year. Is there something I'm not doing correctly?

You are looking forward as opposed to comparisons to -- I mean, we are up 9 points from last year and up 3 points from the prior quarter. So they have begun to tick up and there is no doubt that as the Impella disposables become a greater piece of our overall business, there is upward opportunity in the gross margin rate.

But I think for the next few quarters, we indicated on our last call that we would be around 75% plus or minus a point and we are not going to move off of that. That specific guidance, but I think I would agree that there is upward opportunity.

Okay. Thank you very much.

Duane Nash with Wedbush.

Good morning. I'm wondering how we should look at the current quarter? On one hand you mentioned that Q2 is typically relatively light. On the other hand you also pointed out that this Q1 was higher than Q4 which is unusual.

And does that suggest that Q2 might also be somewhat unusual in being up? Or is there anything you can say on that?

I think what I was trying to say is that we were delighted that Q1 grew sequentially from Q4 because it hasn't been the pattern of the business. And as you know the business has shifted from the surgical suite to the Cath Lab. But we'd also look at the historical perspective of the Company. And we would expect that in the cath lab, procedures will be down during during the summer months as a result of vacations and largely because most of the usage is unscheduled procedures as opposed to emergent ones.

So take those two things together, but that's kind of how we see it right now. We are anticipating that we could have some softness in the second quarter as a result of that.

Great. Thanks very much.

(Operator Instructions.) [Eric Schneider] with UBS.

This is actually Mike for Eric. I'm wondering on Impella -- how actively are you promoting usage in areas outside of high-risk PCI versus doctors just naturally becoming more comfortable with the procedure or with the device?

Well, we do not promote Impella for any application. We promote Impella for usage for hemodynamic support and then the physicians decide and utilize that.

So one good example of that is EP, which is not something that we were initially involved in. And in one of the centers where they had very good experience in usage, they started utilizing the technology and they reported it back to us.

So that is kind of the weight we see this transitioning. And we also have surgeons that are using Impella as well for either failure to wean [or] off pump surgery.

Great and then on the surgical site, it seems like you made some good progress in the quarter. Strategically, how would you say the suite of surgical products are relative to the 2.5?

Well, the main driver for the Company and for our focus is really the Impella 2.5 in the cath lab. That is where high-risk PCI happens. That is where heart attack patients are sent to initially. And over time we see a bit of a hybrid lab, these cross labs. These patients that are going in and having a hybrid procedure with some minimally invasive surgery with revascularization and PCI moving forward.

And I really think that as the trends evolve Impella really becomes a platform whether you are in the cath lab or at the surgery suite. But also based on the pure numbers, the cath lab has the highest volume and that is our priority.

Great. Thank you so much.

As there are no further questions at this time. I would like to turn the call back over to management for closing remarks.

Thank you for your time today. If you have any follow-up questions, please feel free to reach out to Bob and I and will see you all at TCT.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.