ABIOMED Inc (ABMD) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2012 Abiomed, Incorporated earnings conference call. My name is Larry and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to your host for today, Ms. Aimee Maillett, Mr. Mike Minogue, and Mr. Robert Bowen. Please proceed.

Thank you. Good morning and welcome to Abiomed's second quarter of fiscal 2012 earnings conference call. This is Aimee Maillett of Abiomed's Corporate Communications Department. I'm 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 for the second quarter. Next, Bob will provide details in the financial results outlined in today's press release. 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 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 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.

We will be referring to some non-GAAP financial items on this call. I would encourage everyone to refer to today's earnings release for a full reconciliation of non-GAAP items to the GAAP equivalent.

Lastly, comparative references on this to call to increases or decreases in revenue, expenses, gross margin, or other financial measures relate to the second quarter of fiscal 2012 as compared to the second quarter of fiscal 2011.

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

Thank you, Amy. Good morning, everyone. We were proud to report the best quarter in Company history with 26% growth in total revenue at $29.5 million and 40% growth in Impella revenue driven by record patient supported. These results are especially impressive in light of the summer season slow down and that we have not yet presented at TCT. Additional best ever Company results are also reported this quarter on Impella revenue, Impella reorder revenue, GAAP and non-GAAP net income, and gross margin. I thank and congratulate the entire team for their results.

Today, I would like to highlight the quarter relative to our four corporate goals. So first on goal number one, advancing Impella utilization by focusing on patient outcomes for procedures requiring prophylactic and emergency hemodynamic support. The breakdown of reported usage was 52% for high risk PCI, 29% for AMI cardiogenic shock, 5% for EP, and 14% for all other applications. Both prophylactic and emergency usage grew double digit sequentially and year-over-year with record new highs on patients supported. Next week, we attend our most significant customer meeting at TCT and disclose insightful new data from PROTECT II on the appropriateness and quality of the PCI procedure for this high-risk patient population. Additionally, there were ten articles published on Impella in Q2 and over 20 presentations are scheduled for TCT.

Our second goal is quantifying the cost benefits and quality of life gains with hard muscle recovery for patients requiring prophylactic and emergency hemodynamic support. Abiomed has a unique story to communicate to all providers and payers, and has amassed a compelling body of clinical and economic evidence. In PROTECT II, the economic study revealed that the Impella patients already had lower hospital charges at 90 days driven by a 47% reduction in repeat revascularization and 67% lower charges per readmission as compared to the intra-aortic balloon pump. The incremental cost effectiveness ratio, or ICER score, for Impella in PROTECT II will be announced at TCT and allows for comparison to other therapies.

From a quality of life perspective, both PROTECT I and the US Pella registry have already reported an increased ejection fraction and improved New York Heart Association Status for Impella supported PCI patients. This PCI treatment option represents a new minimally invasive alternative for many of these high risk, chronic heart failure patients not being treated today in the cath lab.

Relative to emergency acute heart failure patients, we are confident that recovering heart muscle saves money, provides the maximum quality of life for the patient, and ranks as one of the most cost effective treatments in the industry. A past article in Health Policy Outlook stated that heart failure has become common in our rapidly aging population, partly as a byproduct of increased survival rates from heart attacks. Data collected by Pinnacle Health System revealed Impella patients had reduced ICU times, length of stay, and readmissions as compared to prior standard of care. Heart recovery from acute events like heart attacks and viruses eliminates more invasive and expensive treatment such as ICDs, open-heart surgery, implantable LVADs, heart transplants, and immunosuppressant drugs. Without recovery, these patients can accumulate over $1 million in hospital charges within one year, and more importantly, the quality of the remainder of their lives will be compromised as they escalate to the next therapy.

What makes Abiomed so unique is that our Impella patients represent a new paradigm of cost effective treatment that directly correlates with the patient's quality of life.

Our third goal is maximizing the productivity of our commercial organization. Our go deeper strategy in the US is working and we expect to leverage our productivity as our field tenure in independent usage increases. On our commercial investment, we continue to add two to four people in the US per quarter to enhance our customer training and support programs. Our service business grew 36% and achieved a new record in revenue of our quarter as we service our consoles in over 500 US hospitals with a mix of multiyear service agreements and hourly-billed service.

Our fourth and final goal is driving operational excellence and customer service. We are hitting our stride with our sales growth and gross margin rates, ability to be profitable and generate cash, expansion of the Impella platform, and summary of clinical and economic data. The new introductions of the AIC console and Impella RP are creating customer excitement. The AIC console has been instrumental in expanding the comfort level for our users, especially the techs and nurses. Based on our initial experience with the Impella RP, this right-sided percutaneous device truly has the ability to be used prophylactic ally as well as emergently to save lives.

We conservatively estimate a potential future US market of over 10,000 patients and over $100 million in annual revenue. As we evaluate other markets outside the US, Japan presents a major opportunity for Impella based on the Japanese mortality rate from heart attacks and lack of transplant availability. As we announced last quarter, we filed for a formal Impella submission to the PMDA and will give updates on the regulatory timeline in the future.

In summary, these are exciting times for Abiomed. We are executing on our aggressive revenue forecast of 20% plus growth. What should really garner investor attention is the level of clinical evidence already accumulated and how early we are in the adoption curve for hundreds of thousands of patients already in the hospital suffering from hemodynamic instability. By just converting two out of every five intra-aortic balloon pump patients in the US alone equates to a reorder business of greater than $1 billion in revenue. We believe that the potential market is bigger because Impella can also provide hemodynamic support to patients not receiving the intra-aortic balloon pump today.

As a Company, we lead in innovation and technology and will be announcing updates at our investor day scheduled for December 9th in New York City. We will reveal more of our pipeline and illustrate our ability to create organic growth with breakthrough products in our core competency of pumping blood and recovering hearts. As always, Abiomed is highly motivated to help thousands of patients and create significant shareholder value. The new data and products being announced at the upcoming meetings will elucidate why we believe Abiomed is poised to transform the standard of care for heart failure patients requiring hemodynamic support.

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

Thank you, 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 10-K. I would also like to bring to your attention the GAAP non-GAAP reconciliation that we have provided in the earnings press release, which is intended to aid investor understanding of our financial results.

As noted by Mike, we posted another strong quarter of revenue growth, up 26% from last year to $29.5 million, which for the second quarter in a row was above our 20% to 24% guided range for the year and included strong growth in both the US, up 25% to $27.3 million, and outside the US, up 38% to $2.2 million. Worldwide Impella revenues totaled $24.8 million, up 40% from the prior year, largely driven by increased Impella 2.5 utilization in the cath lab.

Gross margin for the quarter was also strong at 81.2% compared to 76.9% in the year ago period and above our guided range of 78% to 80%. The improvement was primarily due to a higher portion of revenues from Impella disposables, higher unit production volumes, which leveraged the fixed portion of our manufacturing costs, favorable yields. Our plans call for the addition of manufacturing operators in the second half to support future volume growth and preparation for the addition to the manufacturing mix of the Impella RP and two other products we will disclose later this year. We expect our gross margin to be in the 78% to 80% range in the second half.

R&D expenses of $6.4 million compared to $6.6 million in the prior year. Clinical trial expenses totaled $1.4 million in the most recent quarter, compared to $2.5 million in the prior year. The decrease was due to the winding down of the PROTECT II trial. The remaining R&D expenses associated with new product development totaled $5 million compared to $4.1 million in the prior year. The increase was largely due to higher testing expenses and material purchases associated with new product development initiatives. R&D expenses totaled $13.8 million in the first half and we currently expect R&D expenses of approximately $14 million in the second half. Second half product development activities will include first demand and other initial market entry activities for the Impella Right Side and two products we will disclose later this year.

Selling, general, and administrative costs were $16.3 million, up 16% compared to $14.1 million in the prior year as a result of the continued build out of our US commercial organization. We currently expect SG&A expenses to approximate the fourth quarter actual of $18.2 million in each of the next two quarters to support the TCT, AHA, and ACC events, as well as other regional end user educational and training initiatives related to the continued growth of Impella.

GAAP net income for Q2 was $0.6 million or $0.02 per share, a major milestone and Abiomed record compared to a GAAP net loss of $3.2 million or a loss of $0.09 per share in the prior year. We achieved that profitability ahead of schedule. We attribute this to our disciplined and detailed financial processes, which include weekly reviews of updates towards our quarterly objectives by the full management team. We also believe we have a healthy and balanced approach to making tradeoffs between investing in new product initiatives, clinical efforts, marketing or commercial expansion, and earnings. We continue to expect to be -- we currently expect to be approximately at break even or slightly better in fiscal Q3.

In the third quarter, we are making a meaningful investment at TCT, which is the primary trade event for interventional cardiology, and in other regional events that we believe will carry into the future and act as a catalyst for our growth. Our current plans call for a profitable fiscal Q4. The non-GAAP net income as described in our press release, was 3.4 million in fiscal Q2 compared to a los of $0.9 million in the prior year.

Looking at the balance sheet, accounts receivable and inventory performance both improved with days sales outstanding of 48 days compared to 59 days in the prior year and inventory turnover of 2.9 turns compared to 2.3 turns in the prior year. We ended the quarter with cash, cash equivalents, and short-term marketable securities of $60.8 million compared to $59.1 million at June 30th and $60.3 million at the start of the fiscal year. Notably, we generated $2.3 million of cash from operating activities during Q2. Based on our current plans, we would expect to see an increase in cash, cash equivalence, and short-term marketable securities in each of the next two quarters. As a reminder, we have no debt and as of March 31, 2011 we had a federal net operating loss carry forward of approximately $183 million and a federal research and development credit carry forward of approximately $9.3 million.

Turning to guidance, full year revenue guidance of fiscal year 2012 as noted net income our press release, continues to be in the range of $120 million to $125 million representing a growth rate of 20% to 24%. Year-to-date, Impella revenue is up 37% compared to the Impella range we guided to since the outset of the year of 30% to 35%. All other revenues were 11% lower on a year-to-date basis compared to our guided range of a decline of approximately 25% lower for the year. We believe the new Impella clinical and cost effectiveness data to be presented at TCT next week will act as an additional catalyst for Impella growth.

We will now open the call to questions.

(Operator Instructions) Your first question comes from the line of Brooks West of Piper Jaffray. Please proceed.

Hi, thanks for taking the question. I wanted to follow-up on Bob's last statement and just explore a little bit more the dynamics or your expectations around the TCT data. You guys got a pretty decent utilization bump after the ACC data presentation. Can you expand a little bit more on what kind of impact you think the TCT data will have in the field and maybe the timing of when we might see that come through on the revenue line?

So Brooks, there's two points to that. So the first is that TCT is the real release of the PROTECT II clinical data. We had to complete the core lab analysis and some of the economic data for the incremental cost effectiveness score. So it will also allow the thought leaders in the field to communicate the complete story to our actual interventional cardiologist customers. So we do think it will be a catalyst.

The second component of presenting this new data on the quality and the appropriateness of the PCI will be also the range of publications that will be forthcoming. So the executive committee already has a manuscript in process, but you can imagine this is the first study ever of its kind on the sickest PCI population ever studied with this type of scientific rigor. So there will be a series of publications that will be forthright and we're excited for folks to see both the clinical data as well as the cost effectiveness data.

Great, and just to follow-up on that, Mike, if I could. You had pulled I think your sales guys out of the field a little bit earlier in the ear. Are you going to have to do that again? Can you handle that at TCT and then just a general comment on how the downturn in PCI volumes we've seen this summer might be impacting the business going forward?

So there's two things. Yes, we will be pulling part of the field out for TCT. We'll also be pulling them out for AHA, which we will also attend and have publications or presentations there. This is the normal cost of business. We do have the increase of independent use and we also have a call line center, but certainly it makes some impact. On the second part of the question, remind me again.

Oh, I'm sorry, the declining PCI, Brooks. We are so early in the adoption curve for high risk PCI. So some of these patients are potential transition patients from a balloon pump to nothing. Some of these other patients are folks that have been turned down by surgery that now have another alternative. If you look at the PROTECT II data, about 60% of the patients were turned down by surgery. So I think this also represents new patients to the cath lab.

Our next question comes from the line of Greg Simpson of Wunderlich. Please proceed.

Thanks and congratulations, guys. That's a fantastic quarter across the board. First of all, on utilization, a big jump on utilization and I'm curious if you can give us maybe a little more detail. What have you seen with respect to usage trends and specifically what I'm looking for is you guys had suggested, obviously there was a lot of angst about your full year guidance and the second half acceleration and all that stuff. So it implied a big second half acceleration, which is normal, but you guys had suggested that PROTECT II would serve as a catalyst in the second half of the year. Are we seeing that already? Is it kicking in early or is there something else in terms of utilization trends that maybe contributed to the strong performance in the quarter?

So Greg, the numbers suggest that there is an impact here. The increase was very positive. It was sequential growth, double digit year-over-year growth, double digit for both prophylactic and emergency use. We are confident in our forecast. That's why we did a 20% plus because we know our product, we know the clinical data, and we know our customers, and historically our Company has done 45% of the revenue in the first half and 55% of the revenue in the second half. So on a straight model, 45% of our forecast would be at $54 million in the first half and we're now at 57%. So we're confident in the second half and the numbers show that there is an impact, but we think there will be even a stronger impact with the release of the new data here at TCT and AHA.

Okay, great. Thanks Mike. Mike or Bob, two questions for you. First of all, you said that the reorder rates were at a record. They were 90% last quarter. Can you maybe give us the numbers for this quarter?

The reorder rates actually were higher as a percent of the overall Impella revenues this quarter. We opened 22 sites this quarter as opposed to 27 in the prior year. So the revenues from new site openings were actually down a little bit. So clearly the reorder piece of the equation is what's driving the top line.

Okay, do you have the number handy or do you not want to give it?

I don't have the number handy.

Okay, I'll follow-up with you. That's not a big deal. Then on gross margins, Bob, obviously a really strong performance. You commented on the next couple of quarters. Two things, one, and again maybe I missed it but why would we see a drop back in the next couple of quarters and then I guess more importantly what's kind of the -- where can these go longer term? If you're already at 81% and you're still at what we all think are very modest volumes?

I think for the first six months, Greg, we're at 79.9% gross margin rates and as I mentioned in my script, we do have plans for -- to begin adding some operators to support volume growth during the second half. They take time to get up to speed. It's a three to six month training process so we don't have the same level productivity form the new people as we do from the old. We're additionally going to be making some expenditures to get ready for adding the new products to the manufacturing mix and that's a fairly significant undertaking as well.

So I sort of expect the gross margin rates for the year to be kind of where they've been for the first half.

Then Mike, again, in light of the very strong performance can you maybe just talk about, maybe freewheel this one, what really caught you off guard or surprised you in the quarter? Obviously, I would imply a positive surprise but anything you saw that really caught you off guard and pleasantly surprised you?

Well, I think when you prepare your plan and you execute you're not surprised, but clearly the having these kind of results in the summer quarter when potentially PCI volumes are down a little bit shows you the resiliency of the Impella platform. If you take Impella as a product and you evaluate it in the industry based on its growth rate first half is 37%. Gross margins are obviously greater than 80%. The uniqueness of the way it works and its IP and it's probably one of the most successful platforms in the whole industry. So we're just going to keep executing on our plan.

All right. I'll get back in line but one previous follow-up to the previous question about declining cath lab volumes. Some of the talks I've had with people around the industry and maybe this is kind of what you implied in your answer, but I get a sense of maybe a little greater willingness with overall volumes down, maybe a greater willingness to treat high-risk patients and use Impella. Is that a factor here?

It certainly can be, but I haven't seen -- it's just anecdotal feedback we've seen, but that could be the case.

All right. Thanks again.

Our next question comes from the line of Anthony Petrone of Jefferies. Please proceed.

Gentlemen, congratulations on the quarter. Just to go into what it seems to be the acceleration in the quarter for Impella, if you kind of look at it in three buckets and if you can clarify, the sales force shift focus to deep utilization into your existing accounts. You had some medical meetings last quarter that seemed to kind of distract the effort. Then you're noticing this migration for early PCI cases and folks that just were not able to be treated. Of those three, what do you think was the most significant factor in the quarter that drove Impella?

Well, Anthony, it's all of the above. As I stated, the prophylactic use and the emergency use grew double digits sequentially and double digit year-over-year. We're also seeing several publications growing on the EP application and as of now that's our third largest. So it's just nice to see that essentially all the applications are growing and that's what we keep talking about. This is really an execution of training and data. So better training for our customers, moving them to independent use, data on specific applications and usage, and I guess the one added thing is time.

So essentially it's just going to continue to take time as we're entering into this big adoption curve. But in the end, the better product wins and that's what we believe we have.

Sure, I guess a related topic would be reimbursement. I guess one on any local carrier decisions or discussions that may be ongoing for 1 and 2, I think there's a -- CIGNA has a review date in mid-December for Impella. I don't know if there's any discussions on the private payer side as well just how that's trending, an update. That would be helpful. Thanks.

Sure, on the reimbursement I think that's one of the core competencies of the Company and we have the advantage that when you recover muscle or improve the muscle function it's always going to correlate with the best quality of life for the lowest cost. There has been some updates on the reimbursement side and from a trend perspective, the hospitals are continuing to show that Impella does reduce things that are negative to them such as ICU time or readmissions. And there have been a couple of updates for CMS that have validated essentially the positive decisions. So some more centers in other places have expanded the coverage specifically to list Impella as was done in New England.

But we feel positive on our story because we have the data both from the prophylactic side and we also have data as well now on the emergency side.

And your comments are both on the public and private side. Those trends seem to be moving in the right direction from both angles. Is that correct?

Correct. There's always one or two places in regions where you can have some insurers where have to go through the process and essentially what happens is the physicians talk to them about the cost of cabbage versus the PCI and essentially if they need support, we provide the clinical or economic data. But that continues to move forward and we feel very positive about our position on reimbursement.

Three quick ones. I'll just rattle them off here. Any updates on Japan, for one? Any updates on the FDA warning letter for two? And Bob, I don't know if you gave this, but the Impella console placements in the quarter. I don't know if you're still giving that data but that would be helpful. Thanks again and congratulations.

So on Japan, real fast, we have great support there and we're going to give updates on that later. Those discussions are ongoing. On the warning letter, I believe we've resolved the issues and taken the feedback from the FDA and are working that into our operating mechanism. As I announced last quarter, we will retain our mission tagline or recovering hearts and saving lives. On the AIC, we continue to upgrade our higher volume users every quarter. So we upgraded ten existing customers last quarter to the new AIC console.

Great, thanks.

We placed just under 100 Impella consoles worldwide in the quarter. That included both consoles that were placed at new sites that were opened as well as consoles that we placed at key customers and with the new automated Impella console as a replacement to the console that had previously been there.

(Operator Instructions) Our next question comes from the line of David Lewis with Morgan Stanley. Please proceed.

Hi, guys. This is Bill Carlyle in for David. So first looking at operating expenses, particularly SG&A came in a little bit below where our estimates were. Given your guidance for the back half of the year to be in line with Q1, what really drove the reduction here in 2Q about $2 million below that level?

Well, it's the summer quarter and we generally have fewer external events during the summer than in the balance of the year. The first quarter there was TCT, and Sky, and PCR as well as other regional events that we put on. We will be going into that mode in our fiscal Q3 and we've already held some regional events and we'll have TCT coming up and we'll follow with that.

So really a function of I guess trades shows more than anything else.

And it's all the natural build out of the commercial organization, the field.

Then on a different topic, you guys have mentioned a couple of times the go deeper strategy. As awareness peaks around TCT and more enthusiasm comes about due to the Impella data, would you expect to increase the rate of your center adds going forward? Or should we expect things to really maintain at their current level?

Bill, you should expect us to maintain at the current level. We still have a lot of innings to go. We will get to the additional 500 plus hospitals that don't have Impella over time, and we expect that as more independent use and the field tenure grow we'll get even more productivity out of the team. But for now, for the next two quarters that's what you should expect.

Great. Thank you.

Our next question comes from the line of Larry Neibor of Baird. Please proceed.

Thanks. Good morning, guys. As you go deeper into each existing account and increase utilization, what's been the impact on independent use versus use when one of your people is present?

Larry, the independent use remains about one out of every three Impellas is put in independently that we can track. Obviously, we found out after the last quarter in our audit we were missing some of these. So it's likely a little bit higher than that. The second component of that is we are supporting it at sites that are currently independent, provided we want to be there for a new application, or a new tech, or a new physician. So it's a combination of there are sites that are independent that we still attend and there are sites that are independent, treating emergency patients that obviously we're not there for.

Thank you.

Next, we have a follow-up question coming from the line of Greg Simpsons of Wunderlich. Please proceed.

Thanks. Good morning, guys. Bob, for you probably, on R&D you gave the breakdown. We're starting to see the drop off in clinical trial related expenses. Can you maybe, I know you gave us the kind of the guidance on the next couple of quarters. Can you maybe talk about what we should expect in R&D going forward with respect, without giving us too much on these new products just yet. But are these things close to the finish line? Are -- is one just going to go into trials? How should we think about R&D as we kind of look beyond the next quarter or two?

Well, I mean we haven't begun to talk about fiscal year '13 yet, but for the next quarter we expect it to be about $14 million, for the next two quarters in total about $14 million with probably more emphasis on Q3 than Q4, assuming things unfold the way we expect them to. So Q3 and Q4 are going to look pretty much like Q1 and Q2 in that order.

Then Mike, I know you're going to probably defer answering this given all the stuff you guys have coming up, but I have to ask it. Any chance we could see revenues in the back half of this fiscal year from new product related sales?

Greg, we'll give an update on the new products when we talk about the new products at the upcoming investor meeting.

Fair enough. Thank you.

With no further questions. I would like to turn the call back over to Mike Minogue, Chairman, President, and Chief Executive Officer.

Thank you. Thank you everyone for your time today and I look forward to seeing many of you at TCT and AHA, and again, I'd like to congratulate and recognize all the efforts of the folks in the Company. We appreciate your work and we are proud of our quarter. Have a great week.

Ladies and gentlemen, that concludes today's conference. Thank you very much for your participation. You may disconnect at this time. Have a great day.