ABIOMED Inc (ABMD) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Abiomed First Quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will be conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

I would now like to turn the call over to Susie Lisa. Ma'am, you may begin.

Thank you. Good morning everyone and welcome to Abiomed's first quarter of fiscal 2013 earnings conference call. I'm Susie Lisa, Senior Director of Investor Relations and Corporate Development for Abiomed, 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 discuss strategic highlights from the quarter against the framework of our key operational and strategic objectives for fiscal 2013. Bob will then review the financial results for the quarter and provide an update on guidance for the year. We will then open the call to your questions.

Before turning the call over to Mike, I want to remind you that during the course of today's conference call and the question and answer session that follows we may make projections or other forward-looking statements that are subject to the second half provisions of securities laws regarding future events or the financial performance of the Company. We caution you that these statements are only predictions and that actual results may differ materially. We also alert you to the risks contained in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on form 10-K and 10-Q. We do not undertake any obligation to update or correct any forward-looking statements.

And with that, I'll turn the call over to Mike.

Thank you, Susie. Good morning, everyone. We are happy to report the best quarter in Company history with 42% growth in total revenue at $38.8 million and 56% growth in Impella revenue. We believe our sustained revenue ramp and US Impella growth of 61% indicates Impella is becoming the new standard of care in the US for percutaneous circulatory support.

The record results and sequential revenue growth this Q1 elucidates the importance of the updated ACC, AHA, PCI guidelines, the TCT and ACT clinical and cost effectiveness data, and the publication of the US Impella Registry. Impella is now at an annual run rate of approximately $140 million and has grown greater than 30% year-over-year for the 11th straight quarter. The Company is off to a fast start this fiscal year, solidifying our position in the industry as one of the fastest growing, profitable medical device companies. I personally want to thank and congratulate the entire team for our best ever results.

Today, I would like to highlight the quarter relative to our four fiscal '13 corporate goals. So first on goal number one, achieving sequential revenue growth every quarter by maximizing the productivity of our commercial organization. This goal of sequential quarterly growth alone makes Abiomed a unique Company. We achieved this goal despite the reduced customer face time in Q1 compared to Q4, due to our annual headquarters training for the field team, numerous clinical meetings, and employee management reviews. We are expecting a challenge to this goal in Q2 after four straight quarters of large sequential growth, entering into our summer quarter where cath labs significantly slow down.

The breakdown of reported usage was 50% for prophylactic, 37% for combined emergency support, and 13% for all other applications. All grew double-digit year-over-year. Additionally, we believe that the steady flow of peer-reviewed publications and physician training are key drivers of our growth. In Q1, there were eight relevant peer reviewed manuscripts published on Impella and we had over ten events interacting with over 500 physicians.

The first of a series of PROTECT II papers was submitted in early February and we are confident in its publication this fiscal year. Additional PROTECT II papers on pre-specified end points are already in process.

Our second goal is quantifying and publishing the cost effectiveness and quality of life gains for Impella patients requiring hemodynamic support. Healthcare reform prioritizes quality of life metrics and penalizes hospitals for patient readmissions within 90 days from discharge. This is the exact opposite incentive plan of the prior coverage policy where hospitals were reimbursed for readmissions, staged PCI procedures, and repeat revascularizations. And our products have demonstrated the ability to positively influence these metrics.

For example, PROTECT II in conjunction with the economic study revealed that the Impella arm at 90 days had a 56% reduction in major adverse events from discharge, had half the rate of repeat revascularization, and had 67% less per readmission in hospital charges. The PROTECT II cost effectiveness or ICER study will be submitted for publication in September.

From a quality of life perspective, the peer reviewed publications of PROTECT I and RECOVER I FDA studies, MACH II, Euro Pella, and the US Pella have all reported Impella patients had a significant increase in ejection fraction at 90 days and/or improved New York Heart Association status. Additionally, this year several institutions are submitting publications on cost effectiveness of Impella usage with emergency patients. We continue to believe that this utilization of our technology is one of the most cost effective paradigms in the medical device field because of the potential to reduce costs while improving quality.

Impella patient, [Jara Heron], a mother of six, pictured in our annual report released last month, represents one of hundreds of success stories in both clinical and economic terms.

Our third goal is executing on our clinical and regulatory processes in order to provide patient access to new heart recovery products. In Q1, Abiomed received a European CE mark and Canadian approval for our Impella cVAD, a higher flow, percutaneous Impella heart pump. We had a successful evaluation with dedicated resources on site for the first 30 Impella cVAD patients in Europe. This concentrated effort will generate rapid data collection, new clinical abstracts, and enhance the future training and performance of the product. The lessons learned will be incorporated into our Impella cVAD US controlled launch, anticipated in September.

In Europe, we provided the pumps at no charge, lowering our revenue for the quarter, but demonstrating the role Europe serves for Abiomed related to both clinical publications and first demand experiences. This European evaluation model will remain in place with the expansion of Impella RP and Symphony products.

Turning to Japan, we continue to make progress and reiterate our forecast to enter the Japanese market in the end of calendar year 2013 with reimbursement to follow within six to 12 months. We are motivated to treat more global patients and provide treatment options and access to new heart recovery products.

Our fourth and final goal is driving operational excellence and customer service. We are approaching 700 US hospitals and are growing a solid service business in our install base. As a result of our growth, we continue to enhance the training programs, advance the hemodynamic physician workshops, and add resources around onsite support and our 24 by 7 call center. The new [AIP] console, which is currently at 40% of our US install base has significantly improved ease of us. The new auto-flow software installed at 50% of our AIP sites received consistent praise for its automated patient flow setting, allowing for ramp and weaning algorithms.

Our manufacturing and supply chain team has risen to the challenge of producing more Impella pumps and more types of pumps, while maintaining stable yields and increasing our finished goods inventory. We have also completed the additional Impella line in Danvers, Massachusetts for future flexibility. Financially, the Company continues to strengthen its cash position through our new record high, maintain strong growth and gross margin, and increase profitability while incurring no debt.

In summary, we reached a new record result in Q1 and are succeeding because of our single mindedness around achieving positive patient outcomes. Today and in the future, Abiomed offers innovative solutions to hundreds of thousands of patients that have a clinical need for percutaneous hemodynamic support. Our Company mission to recover hearts and save lives is unique in the field of heart failure and why we are confident in the future. Thank you all our stakeholders for your support.

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.

As noted in our earnings release, fiscal first quarter revenue of $38.8 million was up 42% from last year as a result of strong US Impella revenue growth, which was up 61% due to increased utilization. With regard to field inventory levels, which I have reported on during past calls, the average Impella 2.5 inventory level at hospitals in the US was essentially unchanged from last quarter at 2.2 catheters per site. Worldwide Impella revenue totaled $34.7 million, up 56% from $22.2 million in the prior year. This was the highest year-over-year Impella quarterly growth rate in the past ten quarters.

Impella revenue outside the US was slightly lower on a year-over-year basis and sequentially. Our cVAD market entry program in Europe included providing cVAD product at no charge to a select number of sites in order to secure faster clinical feedback as we prepare for a full commercial launch in Europe. This reduced European revenue in fiscal Q1 and we expect this will have some continuing effect on fiscal Q2 European revenue as well. Our near term primary focus in Europe continues to be around first demand efforts and clinical publications.

Gross margin for the quarter was 80.9% compared to 78.5% in the year ago period. Gross margin rate improved due to a higher portion of revenue from Impella disposables and higher unit production volumes, partially offset by higher console placements. We placed 164 consoles worldwide this quarter compared to 126 in the prior year, as we opened 34 new Impella 2.5 sites in the US compared to 25 in the prior year and upgraded a number of existing accounts to the AIC. As of the end of the quarter, approximately 40% of the US Impella 2.5 sites have received the new automated Impella controller, compared to 30% in the prior sequential quarter.

Total operating expense for fiscal Q1 was $27.8 million compared to $25.9 million in the prior year or up 7% on a 42% revenue increase, which reflects the strong leverage of our business model. In Q1, income from operations totaled $3.6 million or 9.2% of revenue compared to an operating loss of $4.4 million in the prior year. GAAP net income was $3.1 million or $0.08 per diluted share compared to a GAAP net loss of $4.6 million or a loss of $0.12 per basic and diluted share in the prior year. As a reminder, at the state of the year we had a US federal net operating loss carry-forward of approximately $191 million.

Looking at the balance sheet, accounts receivable of $18.3 million equated to days sales outstanding of 43 days, down five days from 48 days in the prior year, and inventory of 12.5 million turned at 2.5 turns compared to 3 turns in the prior year. As noted on last quarter's earnings call, we began an initiative to increase safety stocks for select finished products and raw components, which through the end of the first fiscal quarter is largely complete other than for Impella cVAD. The cash and short-term marketable securities position improved $4 million to $81.2 million. Notably, $3.8 million of the $4 million generated in fiscal Q1 was generated from operations net of capital expenditures. And as a reminder, we have no debt.

Turning to guidance, full year revenue guidance for fiscal 2013, as noted in our press release, was increased from a range of $152 million to $157 million to the range of $155 million to $157 million, representing an annual growth rate of 23% to 24%. We expect to see Impella growth up greater than 30%, driven by increased utilization as our primary focus continues to be on going deeper at existing sites. For fiscal Q2, we are anticipating the normal summer slowdown in the cath lab in the US and continuing economic challenges in Europe, along with the summer slowdown. In Europe, and when available in the US, we anticipate a controlled rollout of the Impella cVAD with a focus on clinical outcomes.

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 had a better than expected fiscal Q1 and a great start to the new fiscal year.

We will now open the call to questions.

(Operator Instructions) Our first question is from Brooks West with Piper Jaffray. You may begin.

Morning. Thanks for taking the question. Mike, I wonder if you would frame the Japan opportunity in a little bit greater detail and also talk about, is that a market that you would go direct, go distributor, a mix of those two things. Any thoughts there would be helpful.

Sure. So we expect, as I mentioned, approval by the end of the 2013 year with reimbursement to follow within six to 12 months. There are multiple steps that are ongoing that give us confidence around the guidance. Overall, we think this is a big opportunity because of the high IVUS rate and complex PCI procedures. They have no real transplant programs. They're a smaller population and there's already a use of 25,000 intra-aortic balloon pumps and around 10,000 ECMO circuits that are used.

What we're likely to do as we're getting closer is to do a hybrid model where we have some direct employees in-house, which we currently have two direct Japanese employees, to identify and continue to work with the leading sites and the leading interventional cardiologists for training centers and then augment those training centers and the rest of the coverage outside of the main sites with a distributor.

That's helpful. And then let me ask a follow-up. Just again, checking your thought process. You opened up 34 new sites in the quarter. Talk again about balancing new sites versus penetrating existing sites and where are you on your sales and field support staff? Do you feel like you're adequately covered for the growth there? Thanks.

So the second part of your question first is that we've now broken that 100 person mark for people in the US field team. We're continuing to add four to six people per quarter. Relative to the number of new sites, we still prefer to be in the 25 to 30 range, but we are experiencing significant demand for the Impella consoles and we continue each quarter to have sites that are willing to pay for the consoles to secure their slot.

When you look at our current franchise account number, it's around 35 in the US. So we're still talking about one per site or one per franchise per quarter, which we think we can handle. And then in the Q1-Q2 timeframe, with the seasonality slow down, we should be able to maintain more quality on the training.

The one last component of training is as we swap out the old consoles for the new consoles, we still have to update those folks just on the new user interface.

Appreciate it. Thank you.

Thank you, and our next question is from Greg Simpson with Wunderlich Securities. You may begin.

Great quarter and the execution here has just been fantastic. So a bunch of questions. I may have to circle back. But Mike, first of all, could you repeat the comments you made about US cVAD launch? It's earnings season so I'm a little dimwitted or more so than usual. Did you say something about controlled launch in the US in September? Did you give us an update there?

Great, what we're anticipating, as we've said, is we expect to have a controlled launch of the Impella cVAD in the September timeframe in the US, and we do have lessons learned from the European experience. But we'll also, as I started, it will be a controlled launch because we will focus on quality over quantity, and also the Impella cVAD only runs the new AIC console.

Did I miss something? Are you telling us something about the FDA approval process?

Well, we've consistently said that we believe we're going to have the Impella cVAD cleared by the end of the summer.

All right, thank you. Secondly, did you guys reclassify the usage of Impella? It sounds like you gave it a little bit differently and the way you presented it, I guess the question is, is emergent use of Impella really taking off? Because that number was certainly much bigger than it has been.

Yes, we did combine so in my comments we did combine all emergency use. So we now call it 37% for combined emergency use. Prior to that, we were only really picking on one subset of patients that required support and what we believe is more accurate is to classify those that require emergency support whether they're in the cath lab or the surgery suite.

Okay. If you had to look at this quarter, and obviously phenomenal Impella strength, especially in light of the seasonality inherent in the quarter, I know the answer is going to be that all categories were growing, but is there one that really specifically drove the elevated growth?

Well, some of the numbers are bigger in the different categories, but they all grew double-digit year-over-year.

Okay, and then obviously the guidelines to bring more doctors under the tent. Are you -- I guess the pace of adoption, the pace of increased utilization, are you seeing maybe a quicker pace as new guys come in and begin to use the technology? Are you seeing a faster uptake?

Well, we're certainly seeing growth. So I think it's probably a combination of the guidelines, the AIC console, some of our newer publications, and some of the cost effectiveness data. So we've consistently built a plan around improving training and data. And so the training is getting easier. We're adding more people. We're enhancing our call center and then the data is continuing to be both the clinical publications as well as the guidelines.

Great and just one last one. I apologize for all the questions, but Bob, on cVAD in Europe, is there any way to quantify how much of a lost revenue impact, if you will, resulted from giving them away free? And then, did that -- how do you account for that? Did that impact all gross margins?

I mean it's probably in the $300,000 to $400,000 range, Greg, of lost revenue, and the actual cost of those units that we provided at no charge went into our market entry kind of expense line, which is in the R&D bucket.

All right, great. Thank you very much, guys.

Thank you. Our next question is from Anthony Petrone with Jefferies. You may begin.

Good morning and congratulations on the quarter. Mike, in prior quarters you actually gave the breakout of EP volumes. I'm just wondering if there's an update there, if you can provide that number?

Sure. So in the all other bucket, that's where we put it based on its size, it's probably 7% out of the 13%. It is growing. We just didn't break it out.

Sure, no problem. And just looking at the actual 34 sites added and sort of even usage per site, by my math that went up as well and you added 34 sites this quarter. If I look back historically, that's a larger number. So I'm wondering just on adding new sites, for one, what was more of the impact there? Was that specifically sales related or just a combination of everything you mentioned earlier? And then on the actual utilization per site, can you also break out the delta between your high users and your more moderate users? Is that sort of converging or are the higher users just sort of increasing at a faster rate?

So as I commented, we think based on the demand that's out there for the Impella consoles, we can handle up to 35, but we are not trying to pursue a large number. And what we're seeing is a steady flow of purchasing of the consoles throughout the quarter. So it enables us to kind of spread the training protocol each month.

The second question you were asking -- could you clarify what you're looking for?

Sure. Basically, the delta between your heaviest users of Impella per month and sort of the more moderate users, is that closing or is still heavily weighted toward your top 20% of users?

Actually, what we saw this quarter, Anthony, is I guess I would call it the mid to upper-mid tier of users had the largest increase in utilization relative to last quarter. So the highest users continue to use at rates similar to where they were and the two tiers below that increased their usage.

Okay, and is that at all correlated to sort of independent users. If you have an update on how many sites are actually independent and how many are being accompanied by an Abiomed rep.

So the rate is still around 1 out of 3 Impellas is put in independently, but more than half of our sites are independent. What's happening is we still attend many of the cases to either train an additional doctor, tech, or own internal people. And we'll continue to kind of drive that over time, but we also want to make sure that again, it's quality over quantity, that we're training as many folks and going as deep as we can to each account.

And the last one from me, I'll get back in, is just the customary reimbursement questions, Mike. So one, can you just provide -- I know last quarter you actually mentioned the Company would be a little bit more proactive on the private side. So any update there? And just how you're thinking about the potential for a CET code next year, and anything you can share on the reimbursement front. Thanks.

Sure, Anthony. I guess overall on reimbursement I'd say that we've had established reimbursement that's been in place since 2008 and we've had success, I believe, based on our clinical and economic data. And the proof of that was both NHIC ruling last summer, as well as Impella being incorporated into the ATC AHA guidelines in November. Our dedicated team is in dialogue with CMS through the national and regional payers. We don't know of any specific changes that are pending. Yesterday, CMS updated the IP PS status and there's no change to any of our DRGs or our classification. And we also said, if there's additional reviews, it's a public notice. So it's a 60 to 90 day period. So everyone will know about it and we're confident we'll end up with a similar positive outcome as happened in the past. And even today, we have more publications and inclusion into the guidelines that we didn't have over prior ones.

Relative to your CPT question, we again believe that this will happen. The codes will be announced the end of the month and the dollar amount should be announced in the October timeframe and we think they'll take effect January 1st. And we expect the range to be, for implant, and explant, and repositioning, to be in the range of $600 to $1,000, which is not that different than other technologies and it's much lower than other hemodynamic support devices like surgical -- for our [corporeal] VADs or ECMO.

You're last question, on the commercial carriers we are starting to approach some. There was an update by Humana earlier this month. Humana is an account that had a prior note coverage policy on anything with Impella. Interestingly, they did not do a formal tech review. They just did an update to it on their own and the new policy does cover patients that have -- need emergency support. So that's good. And they basically will allow us to go back in and talk about other publications and applications for prophylactic use. In their update, they did not include the -- an update, their guidelines, and they did not again do a technology review or look at our latest publications. The only one that's done that, that we've done that technical review with is the Health Net, which did full coverage and their coverage matches essentially the ACC AHA guidelines in terms of covering both prophylactic and emergency patients.

Perfect. Thanks again.

(Operator Instructions) Our next question is from David Lewis with Morgan Stanley. You may begin.

Good morning, everyone. It's Steve Beuchaw here for David. I wonder if you could give us an update on any of the new Impella modality efforts, any of the work that you're doing on new clinical studies. A couple of indications there. Didn't hear an update in the prepared remarks.

Steve, what specifically would you like, relative to the registry or future publications?

Future publications.

So on future publications, we've got a series of PROTECT II papers. So the main publication has been submitted and is in the peer review process. There are other studies that are being completed now with the executive steering committee that are around the pre-specified end points, such as atherectomy, no atherectomy, STS scores, triple vessel disease, and the enroll in learning curve. And on the US Pella registry, it was published and in the beginning of Q1. And we will continue to add more sites to the registry data both for Europe and for US to continue to publish on multiple applications.

And on the AMI trial, is there -- or should we not expect any progress update there?

So on the AMI study, the mini-study, what we want to do is we're looking at the protocol in place and we would like to, at some point, look to expand it to also incorporate the Impella cVAD. So we haven't made any official changes and we're still monitoring what the current study looks like.

Okay, great and then Bob, a question on gross margins. They stepped down a bit sequentially. I wonder if you could quantify the impact on gross margins from the higher console placements in the quarter? And should we still be looking for flattish gross margins with a ramp into the first quarter?

The biggest effect on gross margins is the number of console placements. As I mentioned, we placed 164 worldwide in the most recent quarter. In the prior sequential quarter, we placed 111. So it was up dramatically and that's largely what affected the sequential decline in GM rates. And we plan, and I think we've guided our gross margin rates to be around 80% to 81% and we monitor the upgrade cycle in order to try to manage to that number.

Thanks so much everyone.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mike Minogue for closing remarks.

Thank you everyone for your time today. If you have any follow-up questions, please let us know. We'd also like to announce that at TCT, we will have an analyst and investor breakfast on Thursday, October 25th and it will be between 7 am and 9 am at the Lowe's Hotel. Look forward to seeing everyone. Thanks again for your time.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.