ABIOMED Inc (ABMD) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2010 Abiomed, Incorporated earnings conference call. My name is Katina and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Miss Aimee Maillett with the corporate communications department. Please proceed.

Good morning, and welcome to Abiomed's second 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 second 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 second 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 approval, 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 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 second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010, or second quarter of fiscal 2011 as compared to the prior first quarter of fiscal 2011.

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

Thank you, Aimee. Good morning, everyone. The second quarter of fiscal 2011 was outstanding. It was highlighted by the release of the U.S. Impella results at TCT in September, record revenues and number of patients supported and positive operational performance.

Despite the industry summer slowdown, Q2 confirmed that our momentum is growing both year-over-year and sequentially on revenue, patients, and clinical evidence.

In summary, the Company executed and had our best quarter in our 29-year history. Specifically, we had our best ever, or first ever, results on total revenue of $23.4 million, up 17%; worldwide Impella revenue of $17.6 million, up 33%; US Impella commercial reorders of $13.7 million, up 108%; U.S. Impella commercial patients of 597, up 77%; the highest independent Impella implantations of almost one in three; the first ever heart recovery hospital partner with Pinnacle Health System in Pennsylvania; and last, the first ever patient supported with our Impella RP for the right side.

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.

In Q1 we supported 597 Impella patients, plus 39 PROTECT II patients. All of the patient usage trends increased year-over-year, including high-risk PCI by 55%, AMI by 170% and all other applications by 76%. Of the total reported cases, the mix is comprised of 55% high risk PCI patients, 25% AMI patients and 20% all other patients. Based on the positive independent usage trend, it is likely there are patients that are receiving Impella and not included in our count.

Our second goal of advancing the education of the science and benefits of heart muscle recovery made progress. We had a landmark TCT, because the USPella Registry was well received and we had three successful live cases. The USPella Registry for high-risk PCI incorporates and extremely sick patient population, which includes new patients for the cath lab. For example, more than half are New York Heart Association Class III or IV, turned down for surgery, had prior heart attack, or have diabetes.

We believe Impella support during high-risk PCI allows for better outcomes and cost-effective treatment and the registry data reinforces our position. Over 500 customer have seen the USPella data presented in person or on webcasts by the physician committee leading the registry and the formal paper has been submitted.

For prophylactic Impella-supported PCI, on average patients displayed a baseline increase of 17% in their ejection fraction, or EF, and 61% of the New York Heart Association Class IV patients improved their heart classification post treatment by at least one category.

There is a recent publication in CRM titled, "Low Ejection Fraction Documented During Cardiac Catheterization Is Significantly Associated With Long-term All-Cause Mortality" by Movahed and it includes almost 2,000 patients. This study estimated three to four million people have coronary artery disease with decreased EF and the number is increasing by 400,000 cases per year.

From a hospital charge perspective, PCI on average costs $48,000 as compared to surgery at $100,000 and avoiding an ICD because of an EF improvement saved an additional $105,000 in a hospital charge.

Now, turning to an acute myocardial infarction, or AMI, cardiogenic shock and USPella approximately 42% of these patients were already failing conventional therapies, including the intraaortic balloon. To recapitulate what was reported in the USPella Registry, Impella provided better hemodynamic support compared to the IAB and Impella is not dependent on dangerous anatropic drugs or perfect timing with the heart.

Patients, on average, improved their baseline EF by 19% and 90% of the survivors recovered their heart muscle function. What was most illuminating was the significant reduction of the 30-day mortality from 56% down to 23% for patients that had Impellas inserted before the PCI. Furthermore, the impact of the Quick Set-up Kit was evident in that the percentage of patients that had Impella inserted before PCI nearly doubled from the update at last year's TCT.

Again, from a hospital charge perspective, recovering heart muscle and discharging heart attack patients, with their native functioning heart, immediately improves patient quality of life and potentially saves over 500,000 in the short-term and over 1.5 million in the long-term.

And last, on our goal number four of driving operational excellence in product quality and customer satisfaction, we continue to excel. Gross margin for the quarter was 77%, partially driven by our best recorded Impella manufacturing yields, with the highest volume ever produced year-to-date.

On customer satisfaction, we supported a record number of patients, had our highest independent usage to date and scored our best on Impella quality metrics and performance due to new product enhancements and training protocols. We also remained disciplined on our budget and prioritization of the Impella U.S. field support.

In conclusion, by the year 2020, greater than 40% of the population in Japan and the United States will be age 45 and over and prime candidates for heart attacks and high-risk complex PCI and EP procedures. The public and managed care providers will gravitate towards the most minimally invasive treatments, with heart recovery options.

Abiomed's mission is to provide breakthrough heart support technologies for all high-risk patients in order to enable safer treatment and better outcomes for heart muscle recovery and cost-effective patient care. Abiomed's vision is to revolutionize hemodynamic support on multiple applications in the cath lab, EP lab, hybrid lab and surgery suite.

Recently, a physician referred to Impella as "the iPod of heart pumps". I thought that summed it up well, because Impella is a platform technology that enables an exclusive capability that is easy to use, allowing more people to reap the benefits. This is why we are the exclusive heart muscle recovery company and with only approximately 4.0% of the IAB conversion in quantity, we already ship more heart pumps in the U.S. than any other company.

In the second half of our current fiscal year, we will celebrate our 400,000th U.S. Impella patients and 500th U.S. hospital. The most exciting part is that we are just beginning to see the opportunity and I am proud to report to the shareholders that our Company is very confident in our future.

I will now turn the call over to Bob.

Thanks, Mike and 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 10-K. I would also like to bring to your attention 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 the revenue highlights, so I'm going to briefly focus on providing a little more detail on the P&L and balance sheet and then move to Q&A.

Gross margin percent for the quarter was 77%, compared to 73% in the year-ago period, representing a 400-basis point improvement due primarily to a higher portion of revenues from Impella disposables, higher production yields, and a smaller number of Impella console placements.

In Q2 fiscal '11, consistent with our stated strategy, we opened 27 new U.S. Impella 2.5 sites compared to 50 new sites in the prior year. As a result, we placed fewer Impella consoles and had less than half the initial stocking order revenue, which was more than made up by reorder revenue growth of 108% to $13.7 million from $6.6 million.

Impella U.S. commercial reorder revenue growth of 108% outpaced Impella patient growth of 77% as the higher priced Impella 5.0 and LD reorders represented a greater portion of U.S. Impella commercial reorder revenue in Q2 fiscal '11, compared to Q2 fiscal '10, the first full quarter following Impella 5.0 and LD FDA clearance.

R&D expenses of $6.6 million were slightly below the $6.8 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 and regulatory efforts. Impella product development expenses were lower and clinical trial expenses were $2.5 million in the most recent quarter and $1.9 million in the year ago period.

Selling, general and administrative costs were $14.1 million, compared to $14.8 million in the prior year. SG&A expense was lower in Europe, reflecting our core commercial focus on the U.S. 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, SG&A related stock compensation expense was lower, year-over-year.

In other income, we recorded a gain of $217,000 from the sale of our remaining holdings of WorldHeart stock. We have completely liquidated our investment in WorldHeart and we realized total proceeds of $7.2 million on our original $5.0 million investment in WorldHeart.

The GAAP net loss for Q2 fiscal '11 was $3.2 million, a 58% improvement compared to last year's GAAP net loss of $7.7 million. On a per-share basis, the Q2 fiscal '11 GAAP net loss per share was $0.09 compared to a loss of $0.21 in the prior year. The non-GAAP net loss for Q2 fiscal '11, as defined in our press release, was $1.7 million, a 69% improvement compared to a non-GAAP net loss in the prior year of $5.4 million. On a per share basis, the Q2 fiscal '11 non-GAAP net loss per share was $0.05 compared to a loss of $0.14 per share in the prior year.

Turning to the balance sheet, we continue to do a very effective job managing our working capital. Inventory turnover was 2.3 this quarter, a 77% improvement from 1.3 in the prior year and day sales outstanding were 59 compared to 65 in the prior year.

We ended fiscal Q2 with cash, cash equivalents and short-term marketable securities of $54.1 million compared to $54.9 million at June 30, 2010. The change represented a usage of $0.8 million, including $0.2 million of proceeds from the sale of WorldHeart stock. We have $54.1 million of cash, cash equivalents and short-term marketable securities with no debt. We are very close to reaching a defining milestone for Abiomed and we are making excellent progress towards our goal of cash neutrality or better.

Turning to full year revenue guidance, we are very pleased with the performance of the business during the second fiscal quarter and we are particularly pleased to have achieved sequential revenue growth during what is a seasonally slower summer quarter. Impella grew sequentially both in and outside of the U.S.

Following a very successful TCT, we are more confident than ever that Impella will at least continue this momentum, with our continued focus on data and training to independence at existing accounts. We previously indicated that we expected Impella to grow 25% to 30% for the full year. We now believe Impella will grow, for the full year, at the upper end of that range.

Revenues from our non-Impella products and service showed sequential improvement in Q2 as compared to Q1. However, we expect to see continue cannibalization of the legacy products, from Impella 5.0 and LD in the surgery suite. Even though we continue to believe that the AB5000 will be a successful niche surgery suite product.

We previously indicated that our non-Impella revenues would decline in the 25% to 30% range. We now believe non-Impella revenues will decline nearer the 25% side of the range. Taken together, we are increasing the top end of our total year revenue guidance and we now believe that total year revenues will be in the range of $93 million to $97 million, as compared to the $93 million to $95 million range provided previously.

We will now open the call to questions.

Thank you. (Operator Instructions) Tim Lee, Piper Jaffray

Hi guys, good morning and thanks for taking the question. Just first, if you could just touch on PROTECT II? Have the investigators, have they had their interim look and has anything come out of that or just business as usual or just any color you could provide on that front, please?

Sure, Tim. So the way it works is the CRO is supplying information to the DSMB and I believe that's been ongoing. It would likely -- the process will likely continue to probably till the end of December and as we've consistently stated in the past, we expect to move forward and continue the existing study.

I think on the last call I think you had stated that you always reserve the right to add to the number of patients for that study. Is that the expectations here at this point or the expectation is to maintain your current patient count?

We expect to move forward with the existing study right now.

Okay, thank you and just one follow-up on the P&L. I mean, you have very strong gross margins. You had mentioned you had some positive yields. I mean, is that a temporary positive variance or is that a sustained positive variance that we could see gross margins maintained at this level or even higher?

Yes, hi Tim, its Bob. Yes. We were very pleased with the results this quarter and I think we generally don't forecast our gross margin rates, but we don't see why the business would not generally continue to perform at around this level.

Great. Thank you. I'll jump back in queue.

Thanks, Tim.

[Marie Sebold], Lazard Capital Markets

Hi, this is Marie Sebold in for Sean. Thanks for taking the questions and congrats on the strong top-line results. I had a couple questions regarding procedures and hospital placements. The 27 hospital placements in the quarter was higher that we had expected and I wondered if you see hospital placements tracking higher than you'd expected for the year?

Marie, what we have said at the start of the year was going to try and keep the range in the 20s and we are going to continue to maintain our go-deeper on existing account focus for the remaining of the fiscal year.

Okay. All right. That's helpful. And then on procedures, the 597 procedures that you had in the quarter was just slightly higher than last quarter, though it is still high, despite more hospital placements. Can you give us anymore color on how penetration is progressing at your existing accounts?

Sure. So the question on the question on the utilization over sequentially is, in this quarter, it's a summer quarter. So its very slow in the cath labs, plus we had TCT within September, so that was -- that obviously takes time and energy away from the cath labs and the physicians that are out there.

That being said, PCI volumes do slow, but it was offset by the 170% increase year-over-year in AMI and the 76% increase in all other. So, as these emergency patients and as independent usage ramps up, that's why we're able to somewhat grow sequentially in the summer quarter as compared to our Q1. And then, on a raw number, if you look at the growth of independent usage from a penetration perspective, the raw number of patients that were actually treated with Impella without Abiomed's onsite support grew 217%.

Ah, okay.

Yes. The other thing I would add to that is there's a fairly good uptick in that metric in this summer quarter compared to last summer quarter, which I think probably is the better way to look at it since the summer is seasonably slow.

Okay, understood. Thanks. That's so helpful.

Duane Nash, Wedbush Securities

Sure. Good morning and thanks for taking the questions. Mike, I believe you mentioned during your prepared remarks something about a one-third usage of Impella devices. I was hoping you might elaborate on what that meant.

Sure, so of all the patients supported the actual number is 28% of the patients that received Impella did so without Abiomed's onsite support, so that's an independent usage. And once we got closer to the end of quarter it was ranging in the one out of every three Impellas was put in independently at hospitals.

Any thought on where that may track in the near-term?

Well, the trend is where we keep moving up several percentage points per quarter and I think that's what we expect to continue.

And is there a breakdown for this as far as high risk or I assume you probably had less people there for the acute MI and more frequently for the high risk because those are scheduled. Is that fair?

That's correct, Duane. So, as you look at utilization for hemodynamics, the majority of patients are emergency patients and that's where independence is very important if we want to get to the AMI patient population. And as I mentioned in my comments, if you look at the registry data, the amount of patients that had Impella put in before the PCI nearly doubled from last year's TCT, showing that the Quick Set-Up Kit is having an impact, both in when they place it, but how they place it without support.

Great. Thanks very much and congratulations on the quarter.

Thanks, Duane.

Bob Hopkins, Bank of America

Good morning, can you hear me okay?

We can, Bob, good morning.

Oh great. So just a quick question, actually, on the base businesses and I know you've given some specific guidance to that. But I was just wondering if you could comment as we think about modeling your Company a little longer-term, is something in the neighborhood of $5.0 million to $7.0 million per quarter a decent way to think about where the base business will bottom out?

I think I would probably be more toward the lower end of that range. $5.0 million to $6.0 million is probably how I would model it.

Okay and then --.

Bob, this is Mike, just a comment on that. If you think about how we look at the patient population, there will be patients that are treated in surgery in the future and we will continue to support our surgical customers. Its just the mix may change from BVS to the Impella 5.0 or the Impella RP and ultimately we believe that the surgery business will be greater than it is today, based on some of these new products.

Right. No, I understand. I mean, we want to see Impella keep growing. But I'm just wondering, from just a pure modeling perspective, at what point you guys are comfortable with that bottoming, but that was helpful. And just a quick question on the quarter and TCT. I was just wondering, do you guys have any kind of specific sense as the number of implants that perhaps didn't happen in the quarter because of TCT? Or is that not a number that you have a good handle on?

Well, the easy estimate is what is our weekly run rate and we saw a decline in the weekly run rate during TCT because we had a lot of our customers there and we had a lot of our people there. So that's just the way we look at off weeks.

No, I understand. But is there a specific number you'd be willing to share and I realize we're just kind of getting in the weeds here, but just wondering if you had a number handy?

At a high level, take the number of patients, divide it by 13 fiscal weeks and then take a portion of that off. I'd just count it down.

Okay. All right. Thanks so much.

Thanks, Bob.

(Operator Instructions) David Lewis, Morgan Stanley

Good morning.

Hi David.

Mike, a quick question here on ASPs and I'm assuming this may be because international revenue in the quarter was a little higher than we were looking for, but ASPs looked to be down sequentially, about 4.0% or 5.0%. Can you just talk about you U.S. and global ASPs for Impella?

Yes. Our ASPs are not down, so I'll turn the result of the answer to Bob.

Yes. Our ASPs have been consistently in a very, very close range. Our average ASP for the 2.5 is about 22.5 and for the 5.0 is 27 to 28. So we track that and I don't think the change in ASP has had any substantive impact on the business.

Okay, very helpful. And Mike, your comments on kind of unsupported procedures probably approaching 32% at the end of the quarter. I'm just looking at your SG&A number, which came in much lower than we were expecting. As you think about these unsupported procedures, I imagine that's freeing up some capacity on technical training reps. What are you doing with those reps? Are you still supporting those accounts? Have you shifted those to new customers or are you focusing them on existing accounts where utilization is sort of below what you'd like?

So, David, that's a great question and this is what we've talked about in the past, is we're trying to really increase our commercial productivity, specifically in the U.S. That's our third corporate goal and we're doing exactly what you commented there. As they get freed up they can go to other centers or are they can train more physicians at existing centers. So where we may have two to three docs using, we want to now get to five to six so that we always have somebody who's on call, who is able to utilize Impella for those emergency patients.

Okay and then, Bob, in the past you've shared sort of what is the level of cash and GAAP profitability. I wonder if you'd share with us, given the SG&A trends in the quarter, has that view changed or do you believe you are timing to profitability has moved up perhaps a quarter or two?

Yes. We're not going to change that view, David. We've said $25 million to $27 million is where we would be on a quarterly basis, consistently cash flow neutral.

Okay. Thank you very much.

Ladies and gentlemen, that concludes the question and answer session for today's call. I would now like to turn the call back to Mr. Mike Minogue for closing remarks.

Thank you, everyone, for your time today and I look forward to seeing many at the upcoming conferences. Have a great day.

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