ABIOMED Inc (ABMD) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Abiomed fourth quarter fiscal 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Ms. Susie Lisa, Senior Director, Investor Relations and Corporate Development. Please go ahead.

Thanks, Allie. Good morning, everyone, and welcome to Abiomed's fourth quarter fiscal 2012 earnings conference call. I'm Susie Lisa, and 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 fourth quarter and full year. Next, Bob will provide details on the financial results, and our new fiscal 2013 guidance outlined in today's press release, and then we will open up the call for your questions.

Before we begin discussing the fourth quarter and full fiscal year, it's necessary to remind you that during the course of this call we will be making forward-looking statements, including statements regarding the development of Abiomed's existing and new products, the Company's progress toward commercial growth, future opportunities, and expected regulatory approvals. Abiomed's actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including multiple risks and challenges detailed in the Company's filings with the Securities and Exchange Commission, including the Annual Reports filed on Form 10-K, and most recently filed Quarterly Report on Form 10-Q.

Listeners are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this 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, expense, gross margins, or other increases or decreases will be indicated by references to fourth quarter fiscal 2012 as compared to fourth quarter fiscal 2011, or fourth quarter fiscal '12 as compared to the prior third quarter of fiscal 2012. I'm now pleased to introduce Mike Minogue, Abiomed's Chairman, President, and Chief Executive Officer.

Thank you, Susie. Good morning, everyone. We are happy to report the best quarter in Company history, with 31% growth in total revenue at $37.3 million, and 43% growth in Impella revenue. We believe our revenue ramp indicates Impella is poised to become the new standard of care for percutaneous circulatory support with established CMS DRG reimbursement, Impella guideline inclusion, and pending dedicated CPT codes. The record patient count and net growth this quarter was likely the result of the updated [ACC-AHI-SCAI] PCI guidelines, and the TCT clinical and cost effectiveness data in November.

The Company closed strong in Q4, exceeded our yearly revenue guidance, thus establishing Abiomed as one of the fastest growing profitable medical device companies. For the full fiscal year, the Company achieved GAAP profitability at $126 million in revenue, and demonstrated the leverage of our business model. Impella is now at an annual run rate of well over $100 million, and grew greater than 30% year over year for the tenth straight quarter. Over the next several years, our focus on reorder revenue and patient utilization will position Abiomed to be a best-in-class company for revenue growth and operating margin. I personally want to thank and congratulate the entire team for our best ever quarterly and yearly performance.

Today, I would also like to highlight the quarter relative to our four fiscal '12 corporate goals. So first, on goal number one, advancing Impella utilization by focusing on patients requiring hemodynamic support. The break down of reported usage was 54% for prophylactic, 26% for emergency, and 20% for all other applications. Both prophylactic and emergency usage again grew double digits sequentially and year over year, with record new highs on patients supported. Additionally, there were 10 peer reviewed manuscripts published on Impella in Q4, and over 30 in the fiscal year, which included our US Impella registry, and RECOVER I Impella 5.0 FDA study. Abiomed continues to gain mind share, with multiple posters, abstracts, and presentations at the STS and ACC medical meetings. The overall publication road map has been established for the upcoming year around PROTECT II, the US Impella registry, and several other papers, including the cost effectiveness studies. The first of a series of PROTECT II papers was submitted in early February, and is currently in the peer review process. We expect a tidal wave of peer review papers over the next two years on all our products.

Our second goal is quantifying the cost benefits and quality of life gains for patients requiring prophylactic and emergency hemodynamic support. Our focus and goal for patient recovery resonates with the payers and providers because of the focus on the quality of life metrics, hospital penalties on readmissions, and tracking to 90 days from hospital discharge. Starting this January, CMS will withhold 1% of all hospital DRGs as a national incentive pool to reward the hospitals with the best quality scores on three specific patient categories; heart failure, AMI, and pneumonia. This will increase to 2% and 3% in the years 2014 and 2015, respectively. These three indications were selected because they contribute the most to hospital readmissions and overall frequency of care. For example, if a patient returns to the hospital within 30 days of discharge for repeat revascularization after PCI or an AMI, the hospital will not receive any additional reimbursement for that patient. If the patient returns within 90 days post discharge for any issues related to heart failure, AMI, or pneumonia, this will negatively impact the hospital quality rankings, and thus reduce all of their DRGs.

This is the exact opposite incentive plan of the prior coverage policy, where hospitals were reimbursed for readmissions and repeat revascularizations. This is the new reimbursement paradigm shift that will galvanize the industry. We believe that success for hospitals will correlate with the optimal quality of care provided for their treatment of heart failure and AMI patients. Our products have demonstrated the ability to influence these metrics. For example, PROTECT II revealed that the Impella arm, compared to the intra-aortic balloon pump, had a 56% reduction in major adverse events from discharge, had half the rate of repeat revascularization at 90 days, and cost 67% less per patient per readmission. In an abstract at ACC, PinnacleHealth System in Pennsylvania recently reported a reduction of hospital length of stay and readmissions for emergency patients supported by Impella.

From a quality of life perspective, PROTECT I, PROTECT II, RECOVER I, MACH II, and the Europella and US Pella registry publications have all reported a significant increase in ejection fraction, or heart pumping power at 90 days, and an improved New York Heart Association status for patients supported with Impella. This increase in EF, or ejection fraction, can eliminate the need for placing an ICD post-30 days from hospital discharge, as per the current [ACC-AHA-ICD] guidelines. In summary, we have amassed a compelling collection of clinical and economic data around the use of Impella. This documentation includes 100-plus Impella publications, cost effective analysis, recent inclusion in the guidelines, physician and society support, and quality of life improvements. We believe this body of evidence is likely why CMS, the Advisory Board, and most recently, Health Net reimbursed hospitals consider the technology medically necessary for circulatory support.

Our third goal is maximizing the productivity of our commercial organization. We achieved significant revenue growth, and our go deeper strategy is working, with broad based growth across all regions and indications. We plan to continue to add four-plus US field employees per quarter moving forward. The outstanding results reveal a productive organization with a growing service business of thousands of consoles. Our fourth and final goal is driving operational excellence and customer service. We are executing our tactical plans across all departments. The research, engineering, manufacturing, and commercial teams have delivered on all existing and new products, generating support for over 8,000 US Impella patients, and providing three new first-in-man patient experiences outside of the United States with Impella cVAD, Impella RP, and Symphony. There is huge clinical need for these products, and the customer demand is strong, since the patients have very limited options.

We also receive extremely positive feedback on the ease of use on our new AIC console, and the product portfolio continues to improve and expand to new applications. Financially, the Company continues to strengthen its cash position and maintain strong growth, gross margin, and profitability while incurring no debt. In summary, we are achieving our record results in a challenging economic and regulatory environment, and simultaneously increasing our product portfolio while advancing our development and opportunity in Japan. We believe that the best part of our story is that we are just getting started in delivering on the promise of our strategic plan. Abiomed is highly motivated to help thousands of patients and create significant shareholder value. Overall, we are confident in our future, and appreciate the support from our stakeholders. I will now turn the call over to Bob Bowen, our CFO.

Thank you, 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 have provided in the earnings press release, which is intended to aid investor understanding of our financial results. Overall, fiscal fourth quarter revenue was up 31% from last year to $37.3 million, as a result of strong growth in the utilization of Impella. For the full fiscal year, revenue grew 25%, to $126.4 million, from $101.2 million in the prior year. Worldwide Impella revenue totaled $32.3 million, up 43% from $22.6 million in the prior year, which is the highest Impella growth rate in the past eight quarters. For the full fiscal year, worldwide Impella grew 37%, to $106.9 million, from $78.2 million in the prior year.

Our monitoring of hospital Impella 2.5 field inventory levels continues to indicate that hospitals are tightly managing unit inventory levels, and largely relying on Abiomed for speedy replenishment. Average Impella 2.5 inventory levels at US sites remained at the prior quarter level of 2.2 catheters per site, with a median of 2 units, and for the second quarter in a row, reported patient use was slightly higher than reorder levels. Approximately 7% of our sites carry 4 to 5 units in inventory, and tend to be our highest users. Gross margin for the quarter at 81.8% was again above our guided range of 78% to 80%, and compared to 79.5% in the year-ago period. Gross margin rates improved due to a higher portion of revenues from Impella disposables, higher unit production volumes, which leveraged the fixed portion of our manufacturing costs, and fewer console placements. As of the end of the quarter, approximately 30% of US Impella 2.5 sites have received and are benefiting from the ease of use of the new Automated Impella Controller, reflecting the continued strong customer demand to incorporate the latest Impella technology and platform.

Total R&D expense of $7.2 million compared to $6.8 million in the prior year. Clinical trial expense, a component of the total R&D expense was $0.4 million in the most recent quarter, compared to $1.7 million in the prior year. The decrease was due to the winding down of the PROTECT II trial. The remaining R&D expense associated with sustaining engineering and new product development totaled $6.8 million, compared to $5.1 million in the prior year. The increase was due to the product development and-or market entry initiatives associated with Symphony, Impella cVAD, and Impella RP. Selling, general, and administrative costs were $20 million, compared to $16.9 million in the prior year, as a result of the continued build-out of our US commercial organization, along with marketing and customer training related initiatives. Total operating expenses for fiscal Q4 were $27.6 million, compared to $24.1 million in the prior year, or up 15% on a 31% revenue increase, which reflects the strong leverage of our business model.

We have now had three quarters in a row with positive income from operations. In Q4, income from operations totaled $2.9 million, or 7.8% of revenue, compared to an operating loss of $1.4 million in the prior year. GAAP net income for Q4 fiscal '12 was $2.6 million, or $0.06 per diluted share, compared to a GAAP net loss of $1.8 million, or a loss of $0.05 per basic and diluted share in the prior year. For the full fiscal year, we generated a record, and first time ever positive $1.5 million of income from operations. GAAP net income for the full fiscal year also totaled $1.5 million, or $0.04 per diluted share, compared to a loss of $11.8 million in the prior year, or a loss of $0.32 per share.

Looking at the balance sheet, accounts receivable of $20.5 million equated to day sales outstanding of 50 days, up 1 day from 49 days in the prior year, and inventory of $11.1 million turned at 2.6 turns, compared to 2.9 turns in the prior year. It should be noted that we have expanded an initiative to increase safety stocks for selected finished products and raw components, which is likely to unfold over the next several quarters, but we do not expect it to represent a material increase in our inventory levels. We ended the quarter with cash, cash equivalents, and short-term marketable securities of $77.2 million, up $7.6 million from $69.6 million at the start of the quarter, and up $16.9 million from the start of the fiscal year. Notably, net cash provided by operating activities less capital expenditures totaled $5 million in fiscal Q4, with the balance of our cash increase coming largely from stock option exercises.

For the full fiscal year, net cash provided by operating activities less capital expenditures was positive at $1.8 million. It has taken a lot of years to get to this point. This is a remarkable achievement for the team, and we fully expect to continue to generate cash on a go-forward basis. We have a very sound cash position, and as a reminder, we have no debt, and as of the start of the year, 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, as reported in our most recent 10-K filing.

Turning to guidance, full year revenue guidance for fiscal 2013, as noted in our press release, is in the range of $152 million to $157 million, representing an annual growth rate of 20% to 24%. We expect to see strong, 30% Impella growth, driven by increased utilization, largely of the Impella 2.5, and we expect a continued decline in legacy product revenue, including a likely end of life for the BBS blood pump. The cVAD introduction in Europe, and in the USA when available for sale, will be controlled launches at selected sites with the new AIC console, and this is incorporated in our guidance. Also incorporated in our guidance is the expectation that there will be no meaningful revenue from the Impella RP or Symphony in this fiscal year.

Consistent with prior years and the seasonal pattern of our business, we expect to see 45% to 50% of total year revenue in the first half, and 50% to 55% of total year revenue in the second half. We anticipate flat to slightly higher sequential revenue in the first fiscal quarter, in part due to a variety of internal field training sessions, medical meetings, and customer training symposiums. All of these initiatives are critical to our growth, but will take away from customer face time. We plan to continue to invest in what we believe is a very attractive growth opportunity, and leverage the P&L over time.

For the full fiscal year, we expect that operating margins will likely be in the range of 8% to 10%, but could vary outside that range in any individual quarter. We believe our track record clearly demonstrates that, over time, we will become a best-in-class revenue growth and operating margin medical device business. More specifically, in the next four to five years, we believe we can be generating operating profits in excess of 20% of revenues. We will now open the call to questions. Operator, would you please open the line?

(Operator Instructions) Our first question comes from Brooks West of Piper Jaffrey. Please go ahead.

Good morning. Can you hear me?

Good morning, Brooks.

Great. Thanks for taking the questions. A couple things. On the guidance, you said cVAD was in the guidance, RP not in the guidance. Can you tease out expectations of timing of cVAD, and kind of how we should think about contribution of cVAD for the year?

Yes, sure, Brooks. Well, as I mentioned in my remarks, we plan this to be a controlled release. We do have cVAD approval of CE mark in Europe, and we will be beginning a controlled roll-out in Europe. And we expect to get FDA approval later in the year in the US, and again, it's going to be a controlled, step-by-step rollout. We really have to get a little bit further into the year before we get sufficient visibility to understand exactly how hospitals are going to individually behave relative to the adoption of cVAD. We do expect it to be a product that is more focused at the emergent patient. But we're not quite sure exactly how hospitals are going to respond, relative to whether or not they will put two cVADs, for example, on the shelf, in addition to the two they might have for the Impella 2.5, or whether they will maintain the current quantities, but just adjust the mix. So that's something we're going to have to monitor over time.

Okay. And then let me maybe ask that question a different way. Should we look at cVAD as upside to guidance? Is there risk to the guidance range you've given if you don't have a timely cVAD? I'm just trying to test around kind of confidence in the base Impella business being able to achieve the guidance you've laid out.

We do not think there is risk to the guidance, based on the cVAD adoption and roll-out.

Okay. Thanks. And then on gross margins, you gave operating margin thoughts. How should we think about gross margins trending for the year?

Well we've been over 80% for three quarters. I think 79% to 81% is probably a reasonable range. It's going to depend upon, to some extent, the pace at which we place the AIC consoles at those sites that don't have it. But other than that, I would expect it to be pretty much within that range.

Okay, and then two more quick ones, if I could. Just Mike, timing on PROTECT II publication or publications, and then you guys have almost $80 million in cash now. Kind of thoughts on what you might do with that cash going forward. Thanks.

So we like our cash position, to answer that question. And on the P II, as I said in the call, it was submitted, and it's in the peer review process. So we're diligently working back and forth with any clarification or questions.

Great. So no other thoughts on, other than you like the cash?

We like the cash.

All right, thanks guys. Congratulations.

Thanks.

Our next question comes from Greg Simpson of Wunderlich. Please go ahead.

Thanks. Good morning, guys, and congratulations on a great quarter.

Thanks.

Mike, can I start off kind of anecdotally? You alluded to it in your prepared remarks, but since November, can you walk us through what you've seen in terms of Impella market dynamics? Were the combined effects of everything that took place in November, you guys obviously had an incredibly busy TCT, were the combined effects of that in terms of Impella interest, utilization, was it a little bit like flipping a switch? Because we've really seen a big jump in the numbers, obviously, coming out of that.

Sure, Greg. So I think we've seen, if you look sequentially, we've actually started to see the jump in the prior two quarters, because as I said in the call, we've had sequential growth, double digit sequential growth the last two quarters. This is the third quarter. So what we think is going on is the guidelines is a significant catalyst, because it becomes almost a binary effect. And as we believe our intention is to become the standard of care for circulatory support, you need to standardize processes, and that is a DRG for hospitals to be in the guidelines, and then also to get a CPT code, which is in the works. Aside from where do guidelines go from here, we think that the additional publications that are coming are going to augment the strength of them relative to Impella.

And what's also not noted in the guidelines is what's also going on in healthcare, which is that cost effectiveness is becoming a primary driver in adoption. And whether you're looking at a patient that receives Impella for prophylactic use, and in the PROTECT II, the ICER score, incremental cost effectiveness ratio score, was 39,000, which puts it in a best-in-class scenario in below dialysis, and if you go look at the emergency patients, you actually can see an improvement in quality of life, and in many cases, a reduction of costs for that improvement in quality. So I think all of the factors are coming together. We're still doing our homework, and we still have to execute each quarter, but we feel very confident that we're on the right path to become the standard of care.

On the emergent side, with respect to cost effectiveness data, can you maybe give us a little better sense of when we might see that?

So some of these abstracts have been presented at medical meetings like ACC, or some of the economic forums. PinnacleHealth System has released a couple abstracts for emergency patients, and they also presented a poster at ACC. And what they show is a reduction of length of stay, a reduction of ICU time, and a reduction of readmissions for emergency patients treated with Impella as compared to the control arm. So there's multiple publications coming on that that will be happening over this calendar year, and if you think about what it means for these patients, they are not coming back, in many cases, to get an ICD. And if their EF is high enough, they can go back to more of a normal life, and not have to have the invasiveness of that cascade of surgeries, and potentially a transplant.

Okay. And then next question, I'll combine two into one. Can you talk about, we saw the big jump in obviously, prophylactic use which was obviously a big driver here in the quarter. Can you talk about that, and then also maybe include kind of where you stand in terms of independent usage?

So independent usage is about, still, it's about 30%, one out of every three. I think one of the things that's significant in the new ACC-AHA guidelines is, for the first time, they created a recommendation for a Class 2B for percutaneous hemodynamic support devices, and to quote the recommendation, elective insertion of an appropriate hemodynamic support device as an adjunct to PCI may be reasonable in carefully selected high-risk patients. So this is the first time this has been added to the guidelines, and it shows that the patients are looking at, as shown in PROTECT II, 60% of them are turned down for surgery. They have heart failure. So this is in many cases a (gap in audio) Some of these patients might be converted from the cath lab wherein the past maybe they were an intra-aortic balloon bum pump but some of the patients are new to the cath lab because they have more significant hemodynamic support.

Just one more and I'll get back in line. With respect to the AIC console I think you mentioned in about 30% of the accounts now, I get rave reviews on that. Its obviously had a nice impact on utilization. Are there any gating factors there on your ability to get that out to the rest of your accounts or can you maybe go a little deeper on kind of what the plan is to push that out to the rest of your users?

So what we're doing, Greg, prioritizing the highest volume users and we're asking folks to sign service contracts longer term to get the latest software package so on the AIC, we just released another new software package which is the auto flow capability. So rather than just selecting what level -- P8, P3 -- on the screen what you want you actually select the flow and it will optimize the motor speed to match the flow that the physician is trying to manage for the patient. As far as the gating factor, we can ramp it up or down a little bit. What we've chosen to do is match it in number, just similar to what we're doing with new sites. We have to retrain those sites, but many of them, their users are ready, so it's just a different level of training, and the console is very intuitive. And then longer term, the catalyst for all sites to have the AIC is based on the new platform, the Impella cVAD, and the Impella RP only will run on the new AIC console.

Okay, fantastic. I'll get back in line. Congratulations, again, on a great quarter.

Thanks, Greg.

Our next question comes from Raj Denhoy of Jefferies. Please go ahead.

Hi, good morning guys.

Good morning, Raj.

I wonder if I could ask some broad questions on reimbursement. As I'm sure you know, there's always conjecture as to what's going to happen on that front. So I guess a couple specific questions. Are you aware of any potential reconsiderations at any of the regional Medicare carriers at this point?

No.

Okay.

So there's been a lot of misinformation regarding reimbursement, and so maybe we should kind of use this as an opportunity to kind of overview everything. Recently, there's been updates from CMS with NHIC last summer, NURIDIAN, and also Palmetto in September. And we have heard of no other regions considering an update, or even a proposed update. And so we feel comfortable if there were another review, meaning that if someone were to put out a local coverage decision -- one, it would be public; two, there would be a 90 day review period, similar to HNIC last Summer; and then if we did have another review, we would have all of the support and the data from the NHIC, we would have all of the new studies, the guidelines, and we feel very confident that a similar outcome would be reached. But most important, in summarizing, we do not know of or believe there will be any proposed negative LCD coverage decisions coming.

Okay, and then I guess second to that vein, on the private side, there's obviously all these questions about what the private payers are doing, in terms of how they view Impella. Has there been any change on that front, as well, or even any further enforcement of perhaps them looking at this as experimental, or deciding to change that?

Sure. So last week, I believe Health Net, which is a commercial carrier that has a total of 4 million patients, and tracks around 1.5 million lives relative to circulatory support, came out and were the first commercial payer to conduct a full technology assessment. And the result was a positive national coverage decision for, in general, for percutaneous LVADs, but incorporates Impella. And what's interesting is the coverage policy language closely echoes that of the ACC-AHA guidelines.

Okay, good. I feel like I'm playing the straight man, here, a little bit, but I guess the last one, as well, on the CPT code. Again, lots of conjecture on what's going to happen there. Do you have any visibility on the process, or what the ultimate outcome of that CPT code will be?

So the AMA directs the kind of CPT code, and they get that from the societies. And so in February, the AMA voted to create a CPT code for Impella, or percutaneous LVADs. We feel that this will be announced, probably, October, November. This is a society and physician process, but we think it will be in the range of 600 to 1,000. And what folks should remember is that the range we're talking about, and the way CPT codes work, is you have an implant, an ex-plant, and repositioning. But most important, regardless of the CPT code rate, we're confident it will simplify the administrative burden for physicians to bill for Impella. So it's a good thing to get a dedicated CPT code. Again, companies can't put themselves in for it. That has to be driven by the societies and AMA, and we're glad to have their support, and we're very happy that in February they voted to upgrade Impella from a Category 3 to a Category 1 designation. And so what they're doing, now, behind the scenes is they are coming up with the amount for the codes based on the time and the skill and the risk of a patient and the physician to kind of perform a certain procedure. So that's in process, and more will follow. But again, we feel very good in our position relative to our future CPT code.

So I mean just summarizing, broadly speaking, it sounds like you don't seem to have much concern about what's happening on the reimbursement front. If anything, it sounds like you might even be confident about things kind of moving in your direction.

Well, I guess I haven't ever seen an example where a company getting a CPT code is a negative, and I feel that we're in a great position because of all our data, and we do expect the CPT code to be a positive catalyst for the Company.

Okay, fair enough.

Remember, if you just think of how an unlisted code works today, it requires every single patient to be tracked. There's additional data that has to be collected. They don't necessarily have to pay for that unlisted CPT code, and when they do pay, it takes a lot longer, and it requires a lot more burden to our physician, versus just having a standardization of a CPT code. And again, back to our mantra of becoming the standard of care, or the new standard of care, you need to have a standard CPT code for that process, and that's why we're excited about it.

It's fair enough. Maybe I'll ask a couple other areas as well. You know a couple product questions. The cVAD, has that been launched in Europe at this point, or are you still in the process of launching it in Europe?

It has already been launched at the strategic sites, and we've already done a bunch of patients. PCR is this week, so the team is there, and there will be lots of presentations and excitement driven in Europe around the Impella cVAD.

And in sites that have access to it, have you seen, I guess the question is, what's the proportion of cVAD versus the 2.5? Are you seeing them moving in one direction or the other?

Conceptually, what we think is going to happen is that there will be a prophylactic usage device of preference, and there will be an emergency device of preference. And then we'll let the physicians come up with their own protocols to decide which one they prefer.

And is there a price difference between the two devices?

There will be a slight price difference. On the cVAD, it will be a little bit higher.

And then just one last one on the AIC rollout. In centers that have the new console, have you seen any change in the demand at those sites, or the use of the Impella at the sites that have the new console?

We do to some extent, but since we've prioritized our top sites, they're usually the busier folks, in general. Where we really definitely say there's a difference is the techs and nurses find it a lot more enjoyable to turn on, and to manage the patients. And so you can't underestimate the comfort level of the ease of use for those people.

Great. Thank you very much.

Thanks, Raj.

Our next question comes from Bob Hopkins of Bank of America. Please go ahead.

So just a quick question, and it's really a top-down question, and it comes as a result of the great success that you're having. Can you just remind us of kind of your market opportunity when you look at PCI, AMI, and other indications. Is what you're seeing in the marketplace mostly a replacement for intra-aortic balloon cases, or are you starting to work beyond just replacing intra-aortic balloon cases, and if you have these data, and you might not, and I appreciate that, just remind us how many intra-aortic balloon pumps you think are being put in today? I just want to get kind of a recap on what you think the real size of your market opportunity is, now that you're having such strong success here in the launch.

So on a penetration rate, we're in the single digits. From a purely numbers perspective, there's about 120,000 intra-aortic balloon pumps used a year in the United States. So simple math, if you get half of those patients, that's over $1 billion in revenue. However, we don't look at that patient population relative to that technology in general, because we have multiple products for right side, left side. What our bigger picture is is there's hundreds of thousands of patients in the hospital today already being treated that have hemodynamic instability. And what we want to do is provide the true pumping function, either for the right side or the left side, or even a little bit of a longer-term support, such as the Symphony, and approach this as a higher perspective of enabling minimally invasive procedures to encourage treatment that's cost effective, with the goal to promote heart recovery for all our products.

I understand that. I was just segmenting, starting with just Impella as it exists today, and understanding you've got more opportunities ahead of you. So you still think there's about 120,000. So I guess my question is, when your guys are in the cath lab, do you find that, again, it's mostly being used in a case where they would have otherwise used an intra-aortic balloon pump, or are you starting to see a shift in mentality, cases where they previously might not have used a balloon pump, a doctor who has an intra-aortic or whatever, where you are now getting those kinds of cases, too? Because obviously, when you look at high-risk PCI, balloon pumps aren't penetrating that market opportunity fully. And I'm just trying to get a sense, are you seeing penetration beyond just a debate over intra-aortic balloon pump versus Impella?

The answer is yes, Bob. And so I think that's the important point, is that I don't think long-term physicians are thinking about an Impella versus a balloon pump. What we see a lot of is patients that are being turned down for surgery, that in the past may not have come to the cath lab, being treated, now, with Impella support, partial circulatory support. And the data exists in documents that, both in PROTECT II, 64% of the patients were turned down for surgery. And the fact that they ended up in surgery, they were already by-passed in the past, where they could have had a balloon pump in the cath lab. And then in our register, we also see similar numbers, where the patients are being turned down. And I think one of the positives of what's happening in the industry, with this heart team approach, is surgeons are salaried by a hospital. Their adverse event rates are on the website, and they are not really trying to do all comers anymore. So they really have a collaborative effort, and where they see an opportunity for patients to have a minimally invasive procedure, in many cases, they'll refer that patient to the cath lab with Impella support.

That's great. Thanks very much. Congrats.

Thanks, Bob.

Our next question comes from David Lewis of Morgan Stanley. Please go ahead.

Good morning, guys. This is [Bill Carlisle] on for David.

Hi, Bill.

So first wanted to ask about the Impella inventory levels. You mentioned it being on average 2.2 units per center, which was in line with last quarter. But I guess for perspective, how does that compare to, say, the year-ago levels?

Yes, Bill. We implemented our inventory monitoring system, basically, during last fiscal year. So I think, in general, the inventory levels are probably at or below where they were at the start of the year. But we don't have precise data, so I can't give you the exact quarter-over-quarter set of numbers. But I would not expect it to be substantively different, because I think the reality is this is an expensive device for hospitals to carry, and we're not going to find situations where they are carrying inventories that they believe are excess to their need.

Okay, that's fair enough. And then wanted to follow up a little bit on guidance. As far as center adds, what are you assuming as far as the pace goes through 2013? Will it stay somewhat in line with the 25, 26 centers per quarter, or should we expect that to accelerate?

We're staying with that strategy.

And last question on Japan, and the launch there. Should we expect it to be somewhat measured, similar to how you're describing cVAD, or with the early demand that you're getting from Japan, should we expect a more accelerated launch?

Bill, this is Mike. We expect to be measured. We expect to have it approved in the second half of calendar 2013. Reimbursement should follow 6 to 12 months after, but what we expect is a much faster up-take, based on more clinical data, and also the specific demand in Japan, where they have a high smoking population, they have a higher death rate from AMI, and they really don't have anything if the patient doesn't necessarily recover the heart muscle. If you look also at Japan, it's 80% IVUS use. They do a lot of complicated things in the cath lab with CTOs, and we think that we will have a much quicker up-take, because of this support from the societies in general.

All right, thanks a lot.

Thanks, Bill.

Our next question is a follow-up from Greg Simpson of Wunderlich. Please go ahead.

Yes, thank you. Bob, first of all, a question for you on guidance. I'm not trying to throw a trick out here at you, but last year, obviously, you guys, I think, were certainly justified, obviously, at the end of the day, because you came in above your original guidance. But obviously, I know you were frustrated, because you had to spend the first six months of the fiscal year defending charges that the guidance was too aggressive. I'm curious, again, not trying to suggest you low-balled guidance by any means, but I'm curious how much that influenced your decision on the guidance front. Did you tend to lean towards conservatism, given that experience last year?

I think, Greg, the way I would answer that is that we're confident with the guidance that we've provided, and we also tend to learn our lessons. So we take what we hear and absorb it, and factor it into our thinking, and we feel very good about the guidance we've provided today.

Okay, sounds good. And then Mike, on private insurers, my sense is that you guys are maybe stepping up, and you're getting a little more proactive, that you've got such a strong case that you're being a little more proactive. I know it's not a big percentage of Impella procedures, but you guys seem to be a little more proactive on going after them. Is that a correct characterization?

That is, Greg. Given that 75% of our patients are Medicare, the priority for us has really been on that market. But now that things are moving along, we are taking a more active approach, and we're reaching out to start these technology reviews with the commercial carriers. And now, with what we have, is that all of the publications, the guidelines, the pending CPT code, and most importantly for them, is the cost effectiveness data, is really compiling a nice packet to submit, and to meet with their medical directors.

Okay, great. And then Bob, just one follow-up for you. If it's in the press release I apologize, I kind of stopped reading at 37.3. Can you give us a break down on revenues a little bit, US versus OUS Impella revenues, and then also, can you break out the legacy stuff, the BVS and AB, and the service revenues?

Yes, sure. US revenues were $35 million. The service revenues were $2.2 million, up 15%. The other products, BVS, AB were 2.8 million, down 23%.

Okay, great. And then ask for a little more of a break down. Can you just break down the overall Impella number between US and international?

The US Impella was $29.8 million, and outside the US was $2.4 million.

Okay, wonderful. Thanks very much.

I'm showing no further questions at this time. I'd like to turn the conference over to Mr. Mike Minogue for any closing remarks.

Just want to thank everyone for their time today. If there's any follow-up questions, please feel free to call in. Have a great day.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.