ABIOMED Inc (ABMD) 2017 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Abiomed, Inc., Q3 2017 earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Ingrid Goldberg, Director of Investor Relations. Please go ahead.

Good morning, and welcome to Abiomed's third-quarter FY17 earnings conference call. This is Ingrid Goldberg, Director of Investor Relations for Abiomed. And I'm here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer; and Mike Tomsicek, Vice President and Chief Financial Officer. The format for today's call will be as follows. First, Mike Minogue will discuss strategic highlights from the third fiscal quarter and then turn to our key operational and strategic objectives. Next, Mike Tomsicek will provide details on the financial results outlined in today's press release. We will then open the call for your questions.

Before we begin, we would like to remind everyone that this presentation includes forward-looking statements about the Company's progress, including clinical, regulatory and commercial matters, as well as government regulation, litigation matters, capital and other expenditures, and financial performance. Each forward-looking statement contained in this presentation is subject to the risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these risks and uncertainties appears under the heading Forward-Looking Statements in the press release we issued this morning, our annual report on Form 10-K for the year ended March 31, 2016. The forward-looking statements in this presentation speak only to the date of this presentation, and we undertake no obligation to update or revise any of these statements.

Thank you for joining us. I'm now pleased to introduce Abiomed's Chairman, President and Chief Executive Officer, Mike Minogue.

Thank you, Ingrid. Good morning, everyone.

In Q3 Abiomed advanced our corporate goals and delivered our best ever quarterly results with $114.7 million in revenue. This was the largest sequential revenue lift in Company history, and represents 34% in overall revenue growth year over year. US patient utilization also set patient records in both protected PCI and emergent support, up 34% and 36% respectively. We have dedicated CMS Impella reimbursement, are in 1,119 US hospitals, and today we have supported more than 45,000 patients, more than any other heart pump in history. We are referenced in seven clinical guidelines, have published over 350 cogent clinical papers, and currently have 264 patents and 237 patents pending. Additionally, this quarter closed with $259 million in cash. Abiomed has no debt, and continues to be one of the fastest-growing GAAP-profitable medical technology companies.

For today's call I will highlight two topics. First, growing the utilization and protected PCI and emergent indications. And second, elaborating on Impella's ability to be effectively utilized in our hub and spoke model in creating a new field of heart recovery in your community.

First on our indications. After the slower summer quarter, the protected PCI indication returned to a robust 34% year-over-year growth, validating the population and continued need for Impella in this indication. Additionally, the emergent AMI CF cardiogenic shock indication grew 36% year over year.

The key to our long-term success and sustainable growth lies in our ability to identify the elective and emergent patients, and help hospitals improve their clinical outcomes while lowering their costs. Most often the cause of the problem for these patients is coronary artery disease and heart failure. Coronary artery disease is the number one cause of death in the United States. This results in approximately 900,000, or 1 in every 3 deaths, each year due to blockages in the coronary arteries, causing the restriction of blood flow and oxygen to the heart muscle. These are significant clinical problems that occur over time for elective patients or emergently for AMI shock patients.

It is important to understand this distinction. Hemodynamic support with Impella enables a patient to undergo a PCI procedure because it assists the pumping function and maintains stability for the patients we cart, helping physicians focus on complete revascularization. Complete revascularization in PCI is proven to maximize the patient's outcome. Nearly 700,000 of the Class III and Class IV patients in the US have significant coronary artery disease and poor heart ejection fraction. Abiomed's goal is to help prepare these appropriate PCI patients with an experienced interventional cardiologist at a heart hospital in their community. We believe that 121,000 patients today will benefit from protected PCI, and 100,000 emergency patients should receive Impella heart pump support during their existing admission for hemodynamic instability.

Well over 100,000 emergency patients are treated in the hospital with inotropic drugs, and escalating doses are proven to increase mortality rates. Overall we estimate a penetration rate of only 7% today of the total 221,000 appropriate patients. This high-risk PCI population exists in every community, and we are uniquely qualified to help educate the physicians and identify patients not offered treatment or denied open-heart surgery. While many large companies are engaged in this exact process of identification and education for percutaneous valve candidates, we are now one of several CHIP companies engaging in CHIP education. CHIP stands for Complex High-Risk Indicated Patients. So we're working within the community of other companies, as well as the physician groups to educate and identify these high-risk patients. To note, these high-risk PCI patients are on average 69 years old and about 12 years younger than the current percutaneous valve population. Beyond high-risk PCI, Abiomed supports multiple types of urgent and emergent patients, with the majority younger than 65 years old.

This leads to our second topic of building a new field of heart recovery by educating physicians and patients at all levels of the hospital through our hub and spoke model. There are some hospitals in your area that are specialists in high-risk PCI and recovering heart muscle. Alternatively, there are other hospitals that are generalists and using Impella for primarily emergency patients. The way these hospitals work and work together are keys to maximizing outcomes, because it allows for patients to transfer between sites with the most expertise and best-trained physicians and nurses when necessary.

Because Abiomed is committed to improving outcomes, we track nearly every patient that receives an Impella. Our field team is unique because they are supporting the hospitals to identify and implement best practices around protected PCI and heart recovery. Our team and call center provide full-service and 24x7 support as hospitals learn and work towards independence. We are leveraging our Impella quality assurance database and real-world C-VAD registry to optimize patient care and publish clinical results. Our dedicated team of Abiomed employees puts patients first in everything we do, and our customers recognize this dedication.

Before closing, I will tell you a recent story of a nine-year-old girl from New York. This little girl had a cardiac arrest after being brought to the hospital in November. Although not currently an approved use of Impella because of her age, the treating physician decided that it was in the patient's best interests to implant the Impella 2.5 with hopes of keeping her stable during transport out of state to a Children's Hospital. We have learned from our IQ database the importance of unloading early for hemodynamic stability. From implant of Impella in New York to her admission ultrasound at the Children's Hospital, her ejection fraction, or EF, improved from 10% to 30%. The doctor made the decision to leave Impella in overnight, and the patient was weaned from inotropes. We have learned from our C-VAD registry the importance of reducing inotropes to help rest the heart.

The patient then went to the cath lab for a work-up and biopsies the next day. There they found the patient's left main, the main artery of the heart, was occluded, and the next morning the patient went for surgery. After surgery the doctor told the Abiomed representative that helped support the patient that the patient's heart function had returned to normal. This little girl went home to her family with her native heart. This story motivates our Company and physicians to focus on recovery of the heart with unloading therapy, and demonstrates why it is one of the most cost-effective solutions in the medical technology industry. We have learned and published that recovering the native heart promotes quality of life for patients and avoids a cascade of the most expensive and invasive treatments and surgeries.

In summary, these are the best of times for Abiomed because the high-risk patient population has been validated, and only now with our regulatory approvals can we educate and train our customers to improve the standard of care through hemodynamic support. We began building this field of heart recovery less than one year ago. And in the medical technology industry, history demonstrates the impact of FDA approvals on adoption. We are excited for this opportunity not just this year, but for the next 10 years. We have short-term, mid-term, and long-term growth opportunities in existing and new indications, products, and geographies. Abiomed is financially secure and operationally prepared to continue our mission to recover hearts and save lives.

I want to thank the team for their dedication to our patients and customers, and our investors for their support. I will now turn the call over to Mike Tomsicek, our Chief Financial Officer. Mike?

Thanks, Mike. Good morning, everyone.

Today I would like to share details on our financial results posted in the third quarter of FY17. As mentioned, we posted record quarter reported revenue growth and advanced both protected PCI and shock PMA adoption. Fiscal third-quarter revenue increased 34% to $114.7 million. US Impella revenue rose 34% to $100.3 million, driven by a 32% increase in patient utilization. Outside the US, Impella revenue totaled $8.9 million and was up 47%, predominantly as a result of our investments in and focus on Germany, where the US dollar revenues rose 80% versus last year. Additionally, worldwide service revenue of $4.8 million was up 20%.

In the United States, as of the end of the third fiscal quarter, the Impella 2.5 has been placed at 1,119 of approximately 1,400 targeted hospital sites for a penetration rate of 80%. Impella CP has been placed at 972 hospital sites for a penetration rate of 69% of total hospitals. Impella 5.0 has been placed at 442 sites for a penetration rate of 32%. Impella RP has been placed at 120 sites for a penetration rate of 9%. Reorder performance was strong in Q3, with US reorders at $95.1 million and growing 37% versus prior year. And our reorder rate was approximately 100%. Average combined Impella 2.5 and Impella CP inventory at hospital sites was 3.3 units per site, up slightly versus 3.2 in the prior quarter and 2.9 units in the prior year. This slight increase was driven by heavier use of Impella at existing sites, necessitating more pumps on hand to maintain service levels.

Gross margin for the quarter was 83.4%, compared to 85.1% in the same period of the prior year. Gross margins reflect a positive development, namely the addition of new capacity and production lines. All else held equal, these new lines will become more efficient as they are more fully utilized.

The strength of our balance sheet has allowed us to invest in manufacturing to stay ahead of not just present demand, but also prepare for future growth. R&D expense for the third fiscal quarter totaled $16.4 million, and was approximately 14.3% of revenue. The bulk of the spend comes from investments in new products, product enhancements, and new manufacturing processes that further capacity and efficiency. SG&A expense for the third fiscal quarter totaled $53.9 million, up 29% from the prior year. Our plans for FY17 include continued investment in our industry-leading field team. We expect hiring at a pace of up to 10 additional field employees per quarter. The addition of clinical and commercially focused staff allows us to go deeper in existing accounts and support the use of Impella in our hub and spoke model.

Operating income for the third fiscal quarter was $25.4 million, or 22.2% of revenue, compared to $17.5 million, or 20.4% in the prior year. GAAP net income for the quarter was $15.4 million, or $0.34 per diluted share, up from GAAP net income of $10.6 million, or $0.23 per diluted share for the prior-year period. The balance sheet remains debt free, and we ended the quarter with cash and marketable securities growing $22 million to a balance of just over $259 million. Our top priority for use of cash is to support our organic growth and to continue to build our substantial advantage in intellectual property. The Company has approximately $38 million in net deferred tax assets, primarily due to NOLs.

Turning to guidance. We are increasing the lower end of our FY17 revenue guidance, with the new range being $440 million to $445 million, an increase in revenue of 34% to 35% from the prior year. This compares to the prior increased forecast of $435 million to $445 million. Looking at Q4 of 2017 alone, we project revenue will be around $122 million for the quarter. Turning to operating margin percentage, we are reaffirming our total year operating margin guidance in the range of 18% to 20%. We expect our investments during FY17 in manufacturing and distribution will lay the groundwork for long-term growth.

Our guidance for revenue and operating margin, as well as our plans for investments in the business, always revolve around strategic and sustainable growth. Abiomed's growth has been at the very top end of the med tech space, and this is a result of our focus on patients and caregivers and quality outcomes. We believe this focus and the tireless pursuit of heart recovery will allow us to maintain industry-leading growth for years to come. With that, my comments on Abiomed's third quarter financials are complete. Operator, will you please now open the lines for questions?

(Operator Instructions)

Chris Cooley, Stephens.

Good morning, and congratulations to you and the Abiomed team on the record quarter. Great results. Just two questions from me, if I may.

First Mike, you had a phenomenal quarter, record growth. Seen a strong uptick once again in projected PCI.

Help us think a little bit about how you bend the adoption curve a little bit? I know you're making continued investments in the sales and marketing infrastructure; you're leading with clinicals. Basically, how do you keep pace with this type of growth as you try to drive greater penetration across the hospital network?

And then as a quick follow-up earlier this week the MedTech questions were actually published. Would really appreciate hearing your thoughts on going forward what this may or may not imply to products that are in the pipeline. Obviously doesn't affect your existing portfolio that is commercial, but just trying to get a better read on how you see that directionally. Thanks.

Thanks, Chris. I will answer both questions.

First on your question about bending the adoption curve and keeping pace. What we've talked about is that we are investing in education as well as training, and we're putting that into a couple of buckets.

First is on the physician education, the peer-to-peer lectures, and that is coming through local community types of programs, as well as nationally recognized society groups. We also are continuing to publish on average 15 to 20 a quarter. We have clinical dossiers that are out there, but we also have a lot of clinical information around quality of life, benefits to the patient, reduction of cost, reduction of readmission.

The third is a bit of a patient awareness campaign. We are doing our best to work with the physician groups, the program such as CHIP that are being driven by the interventionalist cardiology community, as well as the heart team groups.

And trying to drive more awareness in the community and piggyback on the outstanding work that Edwards has done to identify those patients in the community that are turned down for surgery. In their case it's for the aortic valve. In our case it's for PCI and revascularization. It always comes down into the bucket that we call training, data and time.

And then specifically we track certain things within a quarter. To give you some numbers, we had 100 speaker programs in Q3. We had 28 courses across the board, and that was over 1,000 customers and that can include nurses and techs.

We had TTT in the quarter, which had four live cases and two symposiums. We have a speaker certification process. And we also have the heart team certification around the RP that was over 40 physicians. We have been training Fellows, and train more than 100 Fellows on average each quarter.

We are hitting over 1,000 people. We are really trying to focus on the people that see this as a new field and want to develop a protected PCI program, as well as have a hub and spoke model to treat the AMI cardiac shock patients.

So moving to your second question on the MedTech. For better background for everyone they recently announced a general meeting to discuss future study endpoints. If you go to their website, and I will read off their website, the MedTech panel will examine what health outcomes in studies in heart failure treatment technologies should be of interest to CMS?

Overall we believe that these are great questions, such as improving EF, improving quality of life, looking at patient preference. In fact, when you look at what we're doing for high-risk PCI and native heart recovery, those are endpoints that already look at those things. We are excited for a focus in general on a high level around heart failure and quality of life outcomes.

This meeting is coming up in March. Again, it is not specific to any product or any company.

To give you one final opinion, they are asking for questions. One of the questions that they are asking from the panel is looking at endpoints around clinical studies for heart failure treatment, and it's specifically calls out cardiac remodeling as well as ejection fraction.

As we know, when Impella was used in Protect Two, we saw a significant improvement in ejection fraction for these patients. That is been shown in all of our studies, Protect One, Protect Two, and registry publication.

For cardiac remodeling, to some extent the science of hemodynamic structure volume loops in some of our newer products are going to also look at cardiac remodeling, as well, for heart failure. We think it's good that there is more emphasis on these types of approaches.

And the reason that I think everyone is seeing that is because heart failure, and specifically coronary artery disease, remains the number one killer. And the system really has to find a way to improve outcomes for these patients.

Thanks and congratulations again on the great quarter.

Raj Denhoy, Jefferies.

Good morning. Wonder if I maybe could start with a higher level question. With the business the last few years now, a couple of years now, you're performing at a pretty high level.

When you think about the future going forward in the next several years and the challenges you outlined today about having to identify patients and work with hospitals and improving profitability and all these sorts of things, in your mind what is a sustainable revenue growth rate for this Company?

Is it something in the 35%-plus range, or something closer to 30%? I'm just trying to gauge where you're comfortable with us modeling going forward.

Two summers ago we gave our 2020 vision, and to be clear that was not guidance. We thought it would provide insight, what we call our blueprint to $1 billion in the US market.

So far we have beaten the average growth implied in that model, which is reduced now to a five-year growth rate of around -- a CAGR of around 30%. We really don't want anyone fixating on this as guidance. We want to clarify that this is a vision. A vision is what you see ahead and guidance is what we commit to for the next 12 months. Our fiscal quarter is -- we're in. On the next earnings call we will give you that range for the next fiscal year.

But to come back to the philosophy question, we believe that we'll maintain a pace that will put us in this classification as one of the fastest growing GAAP profitable medical technologies for many years to come. If the vision means that we hit the $1 billion with some added indications of new products or with a few more months, so be it.

We also plan to continue to grow beyond the $1 billion in the US because we do have these new indications and new products and new geographies to go. Without giving you a formal number for the next year, the numbers are bigger but we, again, see a path for years to come to be one of the top growers.

Right. That initial vision that you laid back out in 2015, and granted you've exceeded it the last couple years. There's nothing that you see from this point for that would deviate from that, or anything that you are doing in a sense that wouldn't allow you to hit that? Because a lot of it is driven by things that you do in terms of adding sales reps and capacity and all these sorts of things. You, in a sense, are still building to that, I guess, is the way to ask the question.

We are. I think the important point is what you're saying, is that only now have we had the FDA approvals. And if you look historically at med tech, that FDA approval really helps to be a driver for adoption. We don't expected be linear, as we've talked about.

There are different types of approaches, whether you're doing elective patients, which is where you're bringing these patients into the cath lab that may not be treated versus on the patient population that's emergent, they're in the hospital being treated. One of the things that we've talked about is the size of the population. We are very conservative, and what we are talking about is still the number one killer. You can find reports that say there is 4 million Americans with coronary artery disease.

The reason we narrowed it down to Class III and Class IV is because these are people that are already suffering from poor quality of life. A Class IV patient is in the hospital and can't really move out of a bed, and of that population about 60% have both coronary artery disease and low EF.

We are really focused on trying to identify that population. Being that this is a new treatment option, we are working with things like CHIP and the physician societies. But we're also watching and learning from what the percutaneous valve physicians and companies have done. They been a great role model for us to piggyback on.

Helpful. Maybe just one update. I think this year, this calendar year, we're expecting several clinical advances, things like ECP55 moving in the clinic, the RP IDE beginning. Is there any update you can give us on timing of those clinical events at this point?

On the RP, we have completed our post-market study as we've talked about. We will be submitting at the very start of this coming fiscal year with the intent to convert the humanitarian device exemption approval to a TMA. Once we have a TMA approval then we will more broadly launch the RP.

Relative to the new products, the ECP, which is a nine-french, 3.5 liter Impella pump that's ideal for protected PCI, we expect to be in our first in-man patients outside the US next year around this year or a little earlier than this time. We also expect to be in our first in-man outside the US for the Impella 55, which we're targeting as a three- to five-month Impella pump that does 5.5 liters of flow and really will allow for a minimally invasive VAD, which would be axillary implanted similar to what we do with the 5.0 today. That'll have a great opportunity to treat some of these patients that may be more chronic Class III that need the support to remodel and to also perfuse the organs, and bring these patients back to baseline. We're excited for both of those new products.

Great. Thank you.

Chris Pasquale, Guggenheim.

Congrats on the quarter, guys. One question on the Japanese opportunity and then one on the US. Your Japanese labeling is for the treatment of acute heart failure, which seems most analogous to the shock indication. Could you clarify whether you need to work on a high-risk PCI indication there as well, or do you think the initial labeling really gives you access to both patient groups?

Just as an update, Chris. The approval happened and we are waiting on the reimbursement approval. We do have, as you mentioned, we have an acute style approach. So that really is urgent and emergent.

Some of the patients that are in heart failure that when you try to treat them in the cath lab or just put them on their back, they will go into a urgent or emergent type of heart failure. What we may be doing over time is either collecting a subset, because we're collecting data on every patient in Japan, or we may do another subset study specifically to call out more of the elective population.

In Japan they are very focused on native heart recovery. They do a lot of minimally invasive cases. Some of these patients that historically would be elective are going to require that support because the type of complexity they are going to do, that these patients will become urgent or emergent during the procedure.

The example of this young woman that we talked about, that is something that was most likely Kawasaki Disease. In Asia there's other types of heart problems, whether it's viral, that they have a much higher population that have these types of approaches and viruses. What we're really going to focus on, the emergency and emergent population first. And then we'll work our way into developing more of the elective type approaches. Again, this population already does the most complicated procedures that put these elective cases -- or put these elective patients into that hemodynamic instability during the procedure.

Thanks, that's helpful. Turning to the US, can you talk a little bit about the recent reimbursement increase there and what impact you think it's going to on the business now that some time has passed and we have maybe the chance to talk with some hospitals about how this is going to change their view on Impella, or how they intend to utilize hemodynamic support going forward with the economics changing here? Any early insights?

Chris, we do not think everyone knows about the new reimbursement. To clarify for everyone on the call, we used to be in DRG 216 to 221. And it was more complicated in that it wasn't a dedicated bucket for percutaneous heart pumps.

Now that there is a dedicated heart pump for percutaneous support, which is now DDR 215, it creates a classification. What we have seen is that when the hospitals understand that is this category now, we see them investing more resources now in protected PCI or in shock protocols because, in some extent, it's been validated by both the FDA indications and PMA approvals, as well as the CMS recognition that this is its own classification, similar to the way percutaneous valves moved from DRG 216 out to their own DRG.

The one thing I do want to point out, though, is we are taking the initiative to differentiate the reimbursement. And we are advocates to meet the intent of CMS, which is that CMS recognize the allocation of resources between patients that are treated only in the cath lab versus a patient that gets continued treatment and support with Impella in the ICU.

Again, we think this matches the intent that CMS outlined to recognize that there are additional resources to support a hemodynamically unstable patient in the ICU for multiple days, and this is validated by our FDA approval for shock, compared to a two- to three-hour elective high-risk procedure in the cath lab. What that means is, as a Company we are advocating and educating our customers to code for DRG 216 for a cath lab only support and DRG 215 for Impella therapy into the ICU.

What that means for the Impella patient is that the physician can make the best decision, depending on the hemodynamic stability during or after a procedure. Again, the CMS has already put in place a transfer code that is very helpful for our hub and spoke model, which means that if a patient is transferred from one hospital to the other, the receiving hospital maps the DRG 268. This eliminates the perverse incentive of transfer that existed, and allows for the best hospital to specialize on recovering the patient like the example we gave in my script of the nine-year-old girl.

I think, if you don't mind, let me follow-up on that because I think it's an important point. Something we've heard as a potential problem down the road would be CMS bifurcating the code and pointing to lower reimbursement for PCS. You're saying even though technically all Impella cases could fall under 215 today, you guys are steering hospitals to 216 for cath lab only procedures?

Correct. We're steering them to what they were getting before the change for high-risk PCI. We are advocating to CMS formally that we support and think this matches their intent.

But again, it allows for us to really focus on the different types of patients, which is something we've talked about. You have a patient that is elective that requires certain types of support and resources.

In the FDA Protect II we tracked the economics and costs, and showed that these patients had a $180,000 on average hospital charge. It is cost effective to use Impella for protected PCI, mainly because we reduce the [maze] out of the hospital and we cut the repeat readmission rate in half compared to the control arm.

When you move over into the shock patients, these patients do require multiple days of support. We now have an FDA indication that matches multiple days of support. Must importantly, that if you can recover these patients you will save more costs than probably any other example you can point to a medical technology.

That's the intent. The intent is to either enable a procedure to do a better job with the DRG 216, which is what they always had, or identify additional resources so hospitals have the ability to treat these patients that are in shock or transfer them to a specialized center to get the best outcome.

Great. Thanks, Mike.

Ben Andrews, William Blair.

Good morning, and thanks for taking the questions. I guess the first one is for Mike T. If we think about the gross margin in the quarter, can you break down a little bit for us how much of that was absorption of the new lines, and was there any kind of console placement dynamic that we've seen in the past that moved that around? And how quickly might that gross margin recover as you do absorb that new capacity?

Thanks for the question. It is not attributable to a mix disadvantage when you look at this quarter versus the same quarter a year ago. Our mix in consoles were really essentially dead on.

This is about efficiency loading and yield. I am confident that it will steadily improve over time.

We don't need it to flip overnight. We have more capacity now. We've invested more clean room and more lines. If it takes us a while to absorb that whole capacity, we are completely fine with it. As we've said, we are investing in readiness, flexible readiness for any kind of future demand or demands on where we need to make things and we are happy with the situation we are in.

Okay. Does it take a year, Mike, to get back to where you were or longer?

Again, we have put capacity online that will make us flexible to wherever we need to make things. If that costs us a little bit to have that capacity in place, we're fine. I think we will see a steady track of improvement on that gross margin number.

Fair enough. I had to try to pin you down. As you think about the puts and takes operating margin as we grow through calendar 2017, you stuck with the guidance of 18% to 20%. You're well above it this quarter. Looked like R&D was a little bit lower and offset gross margin, and SG&A as well. Should we be thinking about a couple hundred basis points of operation margin expansion structurally per year for the Company, or do you target a different number now that you've had a little bit of a reset on the gross margin?

Again, I would like to give some of that clarity after we work our way through the budgeting process. We have the ability to generate good leverage, we have the ability to generate great leverage.

We'll make decisions based on sustainability in the business. We'll look hard at technological improvements that could benefit users and improve outcomes through our budgeting process.

We've traditionally said that we think it's good and efficient for the business to be targeting leverage, steady leverage in the number. It keeps us on our game and forces us to invest in the most impactful projects and processes for improving the business. And again, this all leads towards this vision of the 30% operating margin business at the tail end of our vision.

Fair enough. Last for me is in Europe, obviously, your business is pretty concentrated today. What do you think the next couple of countries are, Mike, that you can launch into successfully? What sort of engagement do you have or do you need to have with the national organizations there to drive meaningful revenue growth?

Ben, we're still focused on US, Germany and launching in Japan. We still have a lot of room for growth in those markets.

In the US it is 221,000 patients potential, in Japan it is 50,000, and in Germany it is 25,000. What we will need to see is beyond just the centers that work with us at hospitals and are doing research is a commitment, both with reimbursement as well as the ability to set up hub and spoke models, to address the cardiogenic shock problem.

And what we have already started to see is physicians from Germany come to the US to spend time at hospitals that are doing a cardiogenic shock initiative, which is basically their network and with our integration of hub and spoke. And we are trying to put those models in place in Germany, as well.

Great. Thank you.

Jayson Bedford, Raymond James.

Good morning. Thanks for taking the questions. I apologize if I am asking a repeat question, jumped on a couple of calls.

I guess with the breadth of PMA indications right now, are you seeing more physicians within existing centers using Impella? And if so, is there any way you can quantify that dynamic?

It is difficult to quantify that across our user base, but the answer is yes. One of the strongest drivers of growth for us is the addition of physicians using the technology at existing sites.

That is a goal of ours, and that is a goal of protocol, that the success of the program is independent on an individual doctors. But patients will get consistent care whenever they present. That is important, but it is not the exclusive source of our growth. It is difficult to quantify or attribute the growth to different sources because every quarter we talk about the sites that we have added that we didn't have before, and those are great because they drive growth next year.

I will also assure you that our biggest centers continue to increase their pump usage through better patient identification methodologies, through alliances they have to drive referrals from centers that can't handle the highest-risk patients. We are really growing on all those levels. That addition of physicians and mid-tier accounts is a super important driver for us.

I guess with a more formal marketing push following the cardiogenic shock PMA label, I'm wondering what have you learn that maybe different than what you initially thought entering the year? And then obviously you have a lot of different marketing initiatives out there. What do you think of the top couple here that will drive deeper penetration into that shock patient base? Thanks.

Jayson, what we have learned is there is different needs for training, data and time for protected PCI as compared to emergency patients. For protected PCI, it's identifying the physicians with the expertise and the interest in developing a protected PCI program.

We expect this to be our specialized sites, and we are partnered with those physicians similar to the way the top centers put in perc valves. We have a model like that for the protected PCI, our top users, our top sites.

For the model for training data in time on shock, it is more broadly spread out because you have many patients showing up at multiple different heart hospitals and you need to ensure that the heart team understands what's the steps, what are the protocols to achieve heart recovery for these patients. You may go outside of an interventional cardiologists. You could be with a heart failure specialist, you could be with heart surgeon.

And that's why the launch of the Impella RP and bringing that team together has been really helpful for our Company. What we said at the beginning of the year for this reason was that we did not anticipate seeing the impact of the shock protocol and the FDA approval the way we did for high-risk PCI, because this requires a lot of other parties. And we said it would take the second half of the year and into the next five years as it develops.

But the exciting thing of it all is one program drives the other. And as we strengthen and bring the things together with protocols, we continue to get more awareness with both the physician groups and patients that this is a new therapy, and that heart recovery should be the goal for these patients.

Thanks, Mike. That is helpful.

Danielle Antalffy, Leerink and Partners.

Thanks so much. Good morning guys, and thanks for taking the question. Mike or Mike, as you look at the growth trajectory for high-risk PCI in cardiogenic shock, Mike Minogue, thanks so much for all the detail there. That was actually really helpful.

Is it true to think about these patient populations as cardiogenic shock patients are a little more, I don't know if volatile's the right word, but you have less control over those patients coming in and getting treated versus the electives. And hence the commentary you provided about it's really about high-risk PCI providing the foundation for long-term growth. Is that the right way to think about it?

And then secondarily to that, as we think about the allocation of resources internally to the two different indications, because they are two different training -- they require two different types of training, et cetera. Is it balanced, or will you focus more on one versus the other? Now that you have been indications of PMA approved, how do we think about the long-term growth trajectory for each of them?

Danielle, let me try to answer that question. The first part is correct, your assumption they are different relative to control and allocation, which is why I kind of refer to the protected PCI.

The work we are doing is more like farming. We are out with the physicians, we're educating, we're providing clinical analysis and publications around these type of patients. We're partnering with the educators, the experts in protected PCI physicians.

That is really the farming nature of what we are doing. You are preparing, you're growing and you're building the foundation of your business.

From the shock patient perspective, it's more like hunting. You could have three patients show up in the same day at the same hospital, or they could be spread out in one territory. That's why having a protocol in place and having the people trained that they know what they're doing relative to the steps to get the best outcome, such as putting the Impella in to stabilize a patient early is one of the things we've seen in our observational database as well as in the C-VAD registry.

What we're always trying to do is bring the protocols in place so that we can move our customers to independent use, but help them along the way develop best practices. That is way it looks.

Then the second part of your question was around allocation and heads. What you saw for the last 12 months we've added 60 people in the US, which is beyond just salespeople. It's a lot of clinical people. And that was in anticipation of having more training for nurses, more time in the ICU.

We have also increased our call center so that these trained nurses can call in and talk to people at midnight and we can track and see how these patients are doing. It's all to transition over time to independent use.

Because these patients can be emergent where we're not going to be there, we've used both indications to get them comfortable to be able to put the device in by themselves, which most of them can all do today, but really the complexity of managing the patient in the ICU because you're talking about different groups, different types of physicians as well as the nursing staff. That's what we're doing over time, and that's why ease-of-use is important and we continue to work on components.

One quick example is in Europe today we are starting to use the optical sensor. What the optical sensor does is it allows the user in the ICU to know the exact location relative to the aortic valve of the Impella pump without requiring an echo from ultrasound or going back to the cath lab for a fluoral image.

That also will save about 15 to 20 seconds in set up. What we're always trying to do is make this procedure, this process as easy as it can be so that the physician and nurses can focus on recovery and not focus on managing the device.

Right. That makes a lot of sense. Then just following up on this quality assurance initiative, you mentioned protocols.

Are there any metrics you can give as far as how many of your existing centers are you in protocol already? Just trying to get a sense of any existing centers, how much opportunity there is still, because I think that's a real meaningful opportunity that might be under-appreciated, just getting into the protocols.

So I will give what we believe is our opinion of it. On high-risk PCI, probably more than half have protocols around protected PCI because these people have been doing this for a long time.

They are the leader in the space. They are published. That's what they do as a business. They are out in the community and driving that protocol on their own, even before we got the PMA approval.

For shock it gets a little more complicated, because you do have different groups. As a general rule if somebody has an RP, which means the heart team has been engaged and understand left- and right-side failure, which is around 120 sites in the US, so around 10%, those sites we'd feel very comfortable saying they have a protocol that is transparent and uniform.

Outside of that there are sites and physicians that have types of protocols, but what I wouldn't say is it is uniformly accepted between all the different departments. We have a lot of work to do, but also a lot of opportunity as these protocols grow to more of our users.

Sure. That's great. Thank you so much.

Brooks West, Piper Jaffray.

Good morning. Can you hear me?

We can, Brooks. How are you?

Great. Good. Thanks, Mike. I apologize, I've been jumping around on calls. I had two.

The first, and Mike, maybe you'd disagree with this. It seems like when you've got the shock label there was a big shift within the field for us to come in and train behind that. Maybe that caused a little bit of a disruption, or lesser focus is on the elective side of the business.

I am just wondering if you are through your initial training emphasis, and if the focus is back to being maybe a little bit more balanced within the field? That's question number one.

Question number two is, on the elective side, obviously big opportunity to continue to detail the interventionalists. I'm wondering how the message is resonating with the referring cardiologist who is maybe sitting on a lot of these patients, maintaining them with drug protocol instead of referring them through for an elective PCI procedure? Thanks.

Brooks, it's always good when I can agree with you. I agree with you on your first part of the question, that we did get distracted in Q2 in doing training. That was the first time we've had full approval from the FDA.

So we were able to train our people on our education material, as well as train customers. What also compounded a little bit of the slowness was that December was really slow in the cath labs for elective PCI.

It does appear that it did come back. You saw the strong growth of 34%, and 50% of our patients in Q3 were protected PCIs. Certainly the numbers match what we're both talking about and agree on.

On the second part, it is a less of a number-based answer. The referring cardiologists in some cases have had a preference for optical medical management.

There was a paper that came out a while ago, years and years ago, but a follow-up came out. It's called Stitches. It is the Stitch trial.

What it showed that revascularization through open heart surgery CABG actually had better outcomes than optical medical management. That is bringing more patients back now to the referring physicians to start looking at whether or not they can have revascularization.

If they are referred to for surgery and turned down, that's where we want to see that the opportunity of protected PCI can be considered. Again, to point out how important the Protect II study is in this regard is, it showed a permanent improvement in a patient's ejection fraction at 90 days, and an improvement in ejection fraction with stenting or PCI hasn't been the routine that is been shown in FDA studies; it's always been symptomatic relief, less chest pain.

In our Protect I/Protect II, in all our Registry publications we are able to show an improvement in EF. It is a relatively minimally invasive procedure. And you don't have to have to have a sternotomy. If you are 65 and above, it is something that can be another alternative for people that have coronary artery disease.

We think that will continue over time. One of the best things that happens to us is when these referring physicians send one of these patients into a specialized protected PCI center, and they see the patient come back within a short period of time with an improved outcome, an improved quality of life and more active lifestyle it tends to bring new referrals into the system.

That's really helpful, Mike. Maybe you'll let me sneak one more in. On the political environment. A lot of talk about repealing ACA and changes.

I'm wondering if you are sensing anything as you talked to hospital administrators. Any change in behavior, apprehension on adopting new technology, capital equipment? Just wondering which you're seeing?

I think we are excited to see the potential permanent repeal of the medical device tax. That was tax policy not really around health care policy. I think that's going to be helpful.

The second part of it is, I don't think we're going to see a change for people looking at value. That will continue because we need it to continue. Therefore the focus on aligning with improving outcomes in the hospital, reduction of length of stay, reduction of time in the ICU, reduction of readmission and improvement in quality of life are all things that we are focused on, and I think that will continue as is.

We are excited that there is more interest in this, including talking about bundling AMI. AMI patients are driving part of the epidemic of heart failure, because more live through the procedure but many become -- about 70% become heart failure patients within five years.

One of the challenges we see is cardiogenic shock is not identified early. I think with things like focusing on AMI or bundling, we're going to see earlier identification of cardiogenic shock patients, which helps us improve outcomes for recovery.

I'm showing no further questions. I would like to turn the call back over to Michael Minogue for any further remarks.

Thank you everyone for your time today. If there's any follow-up questions, please feel free to call in. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone have a great day.