ABIOMED Inc (ABMD) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q1 2011 Abiomed earnings conference call. My name is Steve, and I'll be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn conference over to your host for today, Ms. Aimee Maillett. Please proceed, maam.

Good morning, and welcome to Abiomed's first quarter of fiscal 2011 earnings conference call. This is Aimee Maillett of Abiomed's Corporate Communications department. I'm here with Mike Minogue, Abiomed 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 of 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 initiative, 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 approval, competition, technological changes, anticipated future losses, complex manufacturers' high quality requirements, the time (inaudible) unlimited 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 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 2011 as compared to the first quarter of fiscal 2010, or first quarter of fiscal 2011 as compared to the prior fourth quarter of fiscal 2010.

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

Thank you, Aimee. Good morning, everyone.

Q1 was highlighted by continued growth of the Impella commercial platform, strong enrollment in the Protect II trial, and positive operational performance. Our strategy is moving forward, as we go deeper at existing US Impella sites training users to independence and expanding applications while amassing an extensive body of clinical evidence for hemodynamic support in heart muscle recovery. Worldwide Impella revenue totaled $16.6 million up 38% over the prior year, including total US commercial Impella revenues of $15. 5 million, up 48%. And 88% of US commercial revenues were from Impella reorders totaling $13.7 million, up 114%. We maintained our strategy to open fewer Impella 2.5 new sites in Q1, resulting in 24 sites versus 47 from the prior year. Total company revenue,including the non-Impella business, was $22 million, up 11% compared to last year.

On today's call we will highlight year-over-year progress on three of our four corporate fiscal year 2011 goals. So first on goal number one, of increasing Impella utilization through expanding users, applications, and independent usage. In Q1 we supported 595 Impella patients, up 74% year-over-year, plus 49 PROTECT II patients. All of the usage trends increased, including high risk PCI by 69%, AMI by 146%, and EP by 700%. Sequentially over Q4, total commercial utilization increased by 9%, not including the P II patients. Approximately half of the 437 US Impella hospitals have supported five or more Impella patients, and we believe this qualifies them for independent usage. Last year, only 61 sites met this criteria compared to 206 in Q1. And last, approximately one in four of Impella implantations were done independently in Q1, as compared to one in ten last year. Based on the growing independent usage, it is likely we are not able to count every patient.

Our second goal of advancing the education of the science and the benefits of heart muscle recovery made progress. We supported six major shows, sponsored 15 training events, and conducted face-to-face training for a week with our entire field team. At PCR in Europe, the second largest interventional cardiology, leading physicians presented the results of the US registry, called USpella, on 251 patients and taught the physiology and benefits of unloading the heart with Impella. These presentations are currently on the PCR website. The USpella registry incorporates an extremely sick patient population, with more than half of the PCI patients being turned down for surgery. These data revealed very low adverse event rates for high risk PCI.

For Impella supported PCI treatment effects, on average, patients displayed an increase of 16% in their rejection fraction, which translates to a 29% relative reduction in ICD requirements. Additionally, 62% of the New York Heart Association Class IV patients improved their classification by at least one level -- 62%. This is important because New York Heart Association Class IV patients have the poorest condition, and are unable to carry out any physical activity without discomfort, and suffer from symptoms of cardiac insufficiency at rest. In simple terms, these are patients in a hospital bed with limited options. We believe that Impella support during PCI for high risk patients provides the best opportunity to perform a safe, minimally invasive, and complete revascularization. From a hospital charge perspective, PCI on average costs $48,000, as compared to surgery at $100,000, and avoiding an ICD saves an additional $105,000 hospital charge.

Pertaining to acute myocardial infarction, or AMI, cardiogenic shock patients in Uspella, approximately 85% of these patients were failing conventional therapies, including the intra-aortic balloon. Upon transition to Impella 2.5, these patients exhibited a significant increase of 120% in cardiac power output, or CPO, CPO is the product of flow and pressure, and represents the work of the heart and pump together. CPO has proven to be the number one correlate to mortality for AMI cardiogenic shock patients, as published by Fink in the shock trial in JACC in 2004, and more recently, by Torgersen, in Critical Care in 2009. This 120% increase in CPO from 0.5 watts on the intra-aortic balloon to 1.1 watts on the Impella is estimated to reduce the risk of in-hospital mortality from 60% to 30%, based on the Fink study. The shock trial study is the foundation for the AHA ACC guidelines on AMI.

To summarize the registry data, Impella provides better hemodynamic support compared to the intra-aortic balloon, and is not dependent on dangerous [unatropic] drugs or perfect timing of the heart. Again, from a hospital charge perspective, recovering heart muscle and discharging heart attack patients with their native heart potentially saves over $500,000 in the short term, and over $1.5 million in the long term. On publications, there were seven papers or abstracts in Q1 on our technology. Many new papers are pending, and at TCT in September we will provide another update to the USpella, targeting 350 patients at hospitals collecting data under IRB.

And last, on our fourth goal of driving operational excellence in product quality and customer satisfaction, we executed. Gross margin for the quarter was 76%, while cash burn was the result from our yearly employee incentive plan. Additionally, our dedicated resources in our Protect II trial yielded our second best enrollment ,quarter to date. On the manufacturing side, we have significantly ramped up our production capability, while improving our yields to our record best for the quarter. And last we engineered and manufactured our Impella RP, our percutaneous right-side device, and expect to support our first patient this quarter.

In summary, our mission is to provide breakthrough heart support technologies for high-risk patients, in order to enable safer revascularization, heart muscle recovery, and cost effective patient care. We define heart muscle recovery an as improvement of the heart muscle function that enables a patient to sustain quality of life at home. The more we train our users and publish our results, the more confident we become that Impella will revolutionize hemodynamic support for high-risk patients on multiple applications in the Cath lab, EP lab and surgery suite. This is why we are the exclusive heart muscle recovery company and are excited for the TCT conference in September.

I will now turn the call over to Bob Bowen.

Thanks, Mike. Good morning, everyone.

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. I would also like to bring your attention to the GAAP, non-GAAP reconciliation that we provided in the earnings press release, which is intended to aid investor understanding of our financial results.

Mike has pretty much covered many of the revenue highlights so I'm going to briefly focus on providing a little more detail on the P&L and balance sheet. Gross margin percent for the quarter was 76% compared to 74.5% in the year ago period, representing a 150 basis point improvement, due to a higher mix of Impella disposables and fewer console placements. Our strategy for the past two quarters has been one of going deeper at existing sites, and this has yielded increased independent usage. In Q1 fiscal 2011 in the US, we opened 24 new Impella 2.5 sites compared to 47 new site in the prior year and, as a result placed fewer consoles and had approximately half the initial stocking order revenue.

R&D expenses of $6.7 million compared to $6 million in the prior year. Our R&D expenses are largely focused on continued development of the Impella platform, the Protect II clinical trial, the USpella registry, and other clinical study efforts. The year-over-year R&D expense increase was primarily due to higher Impella-related clinical trial expenses, which were $2.5 million in the most recent quarter and $1.5 million in the year ago period. In Q1 fiscal 2011, 49 patients were enrolled in the Protect II study, compared to 37 in the prior year and 27 in the prior sequential quarter. Our strategy to reduce the number of Protect II participating sites, combined with the dedicated resources assigned to the trial, yielded an increase in enrollment in the most recent quarter, and may have had an unfavorable effect on revenues compared to prior periods, as some of these PROTECT II patients were randomized to the IAB and others might have been commercial Impella patients.

Selling general and administrative costs of $15.7 million included a $0.8 million accrual for the estimated cost exit the lease of our Athlone, Ireland facility. Excluding this accrual, SG&A costs of $14.9 million in Q1 fiscal 2011 compared to $16 million in the prior year. SG&A expense was lower in Europe, reflecting our core commercial focus on the US market opportunity. In Europe, our strategy has been to scale back and focus on targeted direct accounts, largely in Germany, France and the Netherlands, for clinical studies and first-in-man experience. Additionally, we have reduced the number of distributor markets. As a result of these restructuring activities, legacy product revenues were lower.

In other income, we recorded a gain of $239,000 from the sale of an additional 100,000 shares of WorldHeart stock. To date, we have realized proceeds of $6.9 million on our original $5 million investment in WorldHeart.

The GAAP net loss for Q1 fiscal 2011 was $6 million, or $0.16 per share, compared to last year's GAAP net loss of $7.8 million, or $0.21 per share. The non-GAAP net loss for Q1 fiscal 2011, as defined in our press release, was $3.7 million, or $0.10 per share, compared to a non-GAAP net loss in the prior year of $5.9 million, or a loss of (inaudible) per share.

Turning to the balance sheet, we continue to do a very effective job managing our inventory and accounts receivable balances. Inventory as a percent of quarterly revenue was 34% this quarter, compared to 74% in the prior year, and accounts receivable as a percent of quarterly revenue was 57%, compared to 73% in the prior year. We ended fiscal Q1 with cash, cash equivalents, and short-term marketable securities of $54.9 million, compared to $58.3 million at March 31. The change represented a usage of $3.4 million, which was largely due to $3.6 million of annual incentive compensation payments made to nearly all employees, partially offset by $0.2 million of proceeds from the sale of WorldHeart stock. All other business activities were essentially cash neutral.

Overall, in fiscal Q1 2011, we were at the top end of our total year revenue growth plans of approximately 9% to 11%, provided on the Q4 earnings conference call. Worldwide Impella revenues were up 38%, and exceeded the 25% to 30% annual growth rate we guided to on the last conference call, while the Q1 dip in non-Impella revenues slightly exceeded the 25% to 30% dip we had anticipated. We expect a seasonal summer slow down in our fiscal Q2 and, combined with TCT in September, we expect to see flat to lower sequential revenues in fiscal Q2, but growth on a year-over-year basis. We anticipate a strong post-TCT second half, and we are reaffirming our total year revenue guidance, provided on the last call, of revenues in the range of $93 million to $95 million.

In summary, the business is very well positioned for a solid year, with strong cash -- with a strong cash balance, growing patient utilization, with US Impella reorders up 114% in Q1, higher gross profit rates, a disciplined operating expense style, expanding applications and a growing body of clinical evidence of the benefits of hemodynamic support.

We will now open the call to questions.

(Operator Instructions). And your first question comes from the line of Tim Lee with Piper Jaffray.

Hello, guys. Good morning, and thanks for taking the question.

In terms of your comments on growing utilization, could you give us some hard quantitative numbers what you're seeing in terms of center utilization, either at new centers, on a sequential basis, or any type of parameters -- any hard parameters you could provide on that front, please.

Tim, this is Mike.

We gave the percentage increase specifically to the different types of applications, so obviously the number is growing overall. We're seeing a further increase in more of the emergency use, like AMI. We're also seeing the EP application starting to grow. From a perspective of a profile of the users, our top users are doing 10 to 12 patients per quarter.

And, in terms of the less active users, are they going up in utilization? Again, just any type of -- are you going from one a month to three a month, or any type of -- at least how we're calculating the utilization rates, we're seeing flat sequential numbers, so I'm trying to figure out -- from our calculation standpoint, what we're missing.

So if you do the analysis and you look at total patients per quarter times total sites, and the way we look at it is the number of sites at the start of the quarter, it is increasing. So for the last four quarters it was 1.22, 1.3, 1.39 and in Q1 it was 1.44.

Got it.

Even on those specific objectives, they're all increasing. And it really comes down to data and training, and we're confident that both are moving forward. And in very simple terms, the more they use, the more they use. So they started prophylactic use, they expand to emergency. We're starting to see EP physicians get involved. We're starting to see some AMI-type of applications, and we're continuing to see other usage that we continue to publish.

Got it. Very helpful. Thank you.

In terms of the Protect II -- strong uptick here in terms of the enrollment rate. Was that isolated in a handful of centers, or did you see a broad increase? Just any qualitative comments there would be appreciated.

Sure. So on the Protect II, to kind of summarize the progress, it's more dedicated Abiomed people with less trial sites. So we've reached a maximum of 110 sites, and we have scaled back now to 45 sites. And it's across the board, those 40 sites -- 45 sites are enrolling more patients.

Got it. Thank you very much. I'll get back in queue.

We do expect to maintain our prior forecast of 30 to 40 patients per quarter. The summer does have a slow down, but we still expect to be within that 30 or 40 range this summer for Protect II enrollment.

Thank you.

An your next question comes from the line of Duane Nash with Wedbush Securities.

Hello. Good morning. This is Akiva Felt in for Duane.

Regarding the Protect II enrollment, Bob, can you explain a little bit more on how the increased enrollment in Protect II could have a negative impact on revenues?

Well, about half of the patients are randomized to the balloon. So they're not using the Impella as part of the trial protocol.

Right.

And then the folks that use the trial catheters -- it is a trial catheter, as opposed to a commercial catheter, and the commercial reorders tend to happen more rapidly than the trial reorders.

And it's not included in the commercial Impella revenue.

So, should we think that half the patients enrolled -- assuming the randomization is one to one -- would have received Impella, instead of a balloon pump?

I think it's that half are randomized to a balloon pump and the other half are not counted our commercial revenue. So on the numbers that we talked about for US commercial, Impella revenue does not include P2 revenue, you'd only see that difference in when you look at the worldwide Impella revenues.

Okay, that's helpful. Thanks.

And your next question comes from the line of Josh Jennings with Jefferies and Company.

Hello. Good morning, gentlemen. Thanks for taking the question.

I guess, first, just in terms of the right-sided Impella that you guy have now manufactured, I was wondering if you could just -- it seems like an exciting opportunity -- growth opportunity, especially. Can you just sort of outline -- I know you went over this at the Investor Day, but can you outline your path to commercialization and the market opportunity there?

Sure, Josh.

So,on the Impella RP, it's a percutaneous right-side device. It will be inserted through the venous approach and it will pump up to around four liters per minute. The idea for the commercial is to collect patient data outside the United States for patients that are suffering from right-side failure, or from acute onchronic right-side failure, or failed transplant, or right-side failure post implantation of a left ventricular assist device. If you go out and poll interventional cardiologists, heart failure cardiologists and heart surgeons, you'll hear lots of excitement and demand for a subset of the patients that they treat. And then, within the United States, we will pursue the most efficient path to receive approval for US support.

Any time lines in terms of official commercialization of the right-side Impella, or is it the Impella RP?

Not at this time. No, not at this time.

All right.

And then, just in terms of your independent usage metric, looks like you had a nice ramp year-over-year. Half of your volume has been on the independent side, and another important metric. Can you talk about your expectations for that ramp throughout the back half the year? Are you expecting to continue to have that independent usage escalate to the level that it has over the past three quarters?

Sure.

So Josh, we gave two stats. So the first stat is about half of our centers have done more than five patients, which we consider them now independent capable. So that's the criteria, going from 61 to 206. We also have actually reported one in four, or 25%, of the implantations were done independently, meaning our people were not there. The difference between those two is, in some case we will be there because the resources are there, we want to be there to train another doctor or another tech. We now have our support people that will potentially stay in the control room while they put in the device, to make sure that they are independent and certified. And those today are still being counted as supported cases. And over time, we expect essentially all the users to be able to insert Impella independently. And, with the changes to the quick set-up kit, going from 11 minutes to a 2.5 minute set up time, it's really changed the frame of mind for these users, and I believe all of them know that independence is just a matter of doing a couple patients.

Great.

I know your strategic initiative is to scale back on the international side, and just looking at publishing clinical data in those select accounts. Can you just talk about any pent up demand in Europe? With the USpella and USpella registry in terms of your accounts there, and in terms of pent up demand, is that developing in Europe and how do you foresee international expansion coming, is that sort of a two year process, or when do you start investing in Europe?

So as we look at the mission in Europe, it's a dedication to selected sites that are involved in publications or first-in-man studies. Currently in Europe, at selected sites, we have studies going on for AMI, we have studies going on for acute onchronic heart failure, we have studies going on for the right-side device, and we have studies spending for other types of technologies and applications. From our perspective, as a Company focus, it's really about the United States currently . And I believe the more that we get with the registry, the more evidence we'll have for Europe, as to your point. The challenge we have in Europe is that we don't have reimbursement in most of the countries, which makes it very challenging. And we see the next big market for us to really be the Japanese market, where there has been expressed interest to bring Impella to help, specifically the heart attack patients recover heart muscle, because they have a very limited options, with really not having a transplant program and the smaller size not being really a great option for implantable

In terms of reimbursement environment internationally, or in Europe specifically, what can sort of get you guy there, in terms of having positive reimbursement decisions? Or is that a path you're holding off on, until you get more clinical data and grow the US market?

I think we're holding off. The path isn't expensive, it's just a time-based effort, where you have to go in and go through the process and go through each government agency. And at this point, we're more focused on the clinical studies, the US market, and the future of Japan.

Last question. In terms of Protect II, any update on the interim analysis, in terms of time lines when that will be done, or whether it is done or not? Thanks a lot, guys.

Sure. So the last call we mentioned that we think the interim process will get collected and completed in the September time frame. It's probably going to be more likely in the October time frame. And again, our assumption is that we will continue to move forward on the study, as most trials do after an interim look, and we've always reserved the right, if we wanted to increase the size of the study by a little bit, that'll be up to us. But, there's no changes in the process, and no changes in our position of the interim.

(Operator Instructions).

And your next question comes from the line of David Lewis with Morgan Stanley.

Good morning.

Good morning, David.

ust a couple quick financial questions. Just given utilization and manufacturing improvements in the quarter, I was wondering if you give us a sense of relative gross margins between Impella and the core business. And, if you don't have that, just give us a sense of -- given the varying trends, obviously in these two segments -- where the operating contribution currently sit with Impella and the core business. And I'm most interested in whether the core business is profitable or not profitable.

Okay, David.

I think, to get to your last question -- piece of your question first. You know, we haven't done a detailed analysis, but my sense is that the non-Impella business is profitable, because we just don't have a lot of resources assigned to it. Most of the resources are dedicated to the Impella side of the house. So, even though the non-Impella business is smaller than it had been, I still think it provides a positive contribution.

And on the gross margin side, the non-Impella products have high gross margins and the disposables -- all the disposables have fairly high gross margins. And the increase in our gross margin rate, I think, was more attributable to the absence of console placements than to the variance in gross profit rates between the non-Impella and the Impella disposables.

Okay. Helpful.

Mike, just thinking about the business. At the analysts' day and very consistent, the Company has talked about Impella opportunity as a $2 billion opportunity. If you think about revenue in the quarter, and I annualized that, I get sort of two to three percent market share, from the perspective of just Impella disposables. But then we think about your market share in large cath labs in the US, and it's actually dramatically higher. You're virtually in every large center in the US. So, I'm trying to understand, how do you work to close that gap? Is it simply more rep's? Do you think the existing clinical data in the environment right now is enough to support a larger penetration than two to three percent? And, is it disconnect in the markets, or physicians don't understand? I wonder if you could help me understand those two dynamics, between high penetration in the labs and low penetration on the utilization.

Sure, David.

First of all, we have kind of a hybrid launch that we discussed at the investor day. We have a 510(k), and we are tracking at or above the trends of 510(k) revenue growth. But it's not a PMA, which puts the clinical information before and then you see more of that hockey stick ramp. With a 510(k) you're really going through the data as the products is out there. So, as of today, I believe we have an extensive amount of clinical data, more so than the majority 510(k)s, and we also believe that we have the ability to get in guidelines with kind of a soft recommendation with a level B or level C evidence. And so that's the process.

We're going to continue to publish more data, so this is really a training and data story. And when you start talking about penetrating the labs, we're still talking about two going to four physicians rather than ten plus. And intra-aortic balloon pumps are in essentially all of the heart centers, and then most of all the cath lab only hospitals. Whereas, we're in 38% of the heart hospitals. I think what folks might be missing is that if we can convert just 20% of the intra-aortic balloon market in the US alone, this is over $400 million in revenues, with very strong gross margin and with a reorder, annuity-style revenue stream.

So that's what our focus is. And I agree with you, we do need some more data and that's why we're doing the studies and outlined at the Investor Day three to four new studies on everything from AMI to acute onchronic to EP.

And, Mike, is it safe to assume that between now and, obviously pivotal PMA data, the most important driver of revenue reacceleration, or the current revenue rate, is going to be tied to reps -- increased reps?

Well, I think we have a foundation right now for our reps, and we also see that there is a bit of a learning curve. So we do have a lot of new reps. We also see, as the trend of independence grows, that that helps free up some of the resources we have in the field today. And we've consistently said that we're going to add two to four people per quarter in the field, and we have the ability to ramp that up as time permits.

From a perspective of the size of the distribution, I think that right now it still comes back to training and data. And we are going to continue to focus on those with the existing resources we have. But if you think about the ability to capture the wealth creation of a new standard of care, there is no other technology like Impella and there's nothing on the horizon. So we are not going to limit our investment in the distribution, should we see that we need more people.

Okay. Thank you very much.

And you have a follow up question from the line of Tim Lee with Piper Jaffray.

Hello. Thanks for taking the follow-up.

Just on the clinical side, any update on either Mini One or [Empres], just in terms of where we stand in terms of getting patients --getting that study, particularly Mini One, up and running?

Both are in process. There's no additional update from the last investor meeting.

Okay. Thank you.

And that concludes the Q&A portion of today's presentation. I would now like to turn the call back over to Abiomed CEO, Mike Minogue

Thank you, everyone, for your time today, and I hope to see many of you at TCT. We will have morning sessions every day, Thursday, Friday, and Saturday, as well as presentations as part of the program, with the potential for several live cases. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.