ABIOMED Inc (ABMD) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Abiomed Q1 Fiscal Year 2018 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ingrid Goldberg, Director of Investor Relations. Ma'am, you may begin.

Thank you. Good morning, and welcome to Abiomed's First Quarter of Fiscal 2018 Earnings Conference Call. This is Ingrid Goldberg, Director of Investor Relations for Abiomed. And I am 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 first 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, I would like to remind everyone that this presentation includes forward-looking statements about the company's progress related to 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, and our annual report on Form 10-K for the year ended March 31, 2017. 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 am now pleased to introduce Abiomed's Chairman, President and Chief Executive Officer, Mike Minogue.

Thank you, Ingrid. Good morning, everyone. In Q1, Abiomed achieved our best ever quarterly revenue results of $132.5 million, representing growth of 29% from what is likely our toughest quarter comp for fiscal year '18.

Our continued execution validates Abiomed as one of the fastest-growing med tech companies, with increasing GAAP profitability and no debt.

Q1 has positioned Abiomed for success this fiscal year. And we also achieved our best ever operating margin of 25%.

US and German revenue growth continue to be strong, and we are pleased to announce expanded reimbursement in Germany. We have also been notified by MHLW of Japanese reimbursement for Impella, allowing our introduction to the world's second-largest medical device market.

I am proud of the team's ability to consistently achieve our strategic initiatives and execute on our tactical plan, as Abiomed builds the field of heart recovery.

For today's call, I would like to cover two topics. First, Impella utilization and our latest initiatives to improve adoption for Protected PCI and emergency support. Second, a regulatory update on our Japan launch.

This quarter, US patient utilization increased by 27%, and was driven by continued growth in the Protected PCI and emergent patient populations which grew 30% and 25%, respectively. June set an all-time record for total Protected PCI patients and second highest, which is impressive going into the summer quarter.

On a year-over-year basis, we are now comparing to last year's exceptional growth number from the updated approval of cardiogenic shock. In Europe, revenue increased by 53%, predominantly driven by Germany where Impella utilization increased by 62%. Our progress in Germany was driven by continued adoption of Protected PCI and newly expanded reimbursement on Impella CP and Impella RP.

We believe each year the majority of US-eligible and appropriate patients, estimated at 121,000 high-risk PCI and 100,000 emergency support patients, still remain unaware of these therapies and are not treated with Impella for hemodynamic support.

At Abiomed, we have consistently communicated to our investors that Impella adoption is a function of training, data and time. Therefore, we have made significant investments in training and data, and time is on the side of minimally invasive technologies.

As a result, we have recently opened our new Danvers on-site training facility called the Abiomed Heart Recovery institute. The institute enables us to host and train more physicians and nurses than ever before, to learn from our Abiomed staff and physician faculty. Including both our field and headquarter's training, this quarter, Abiomed touched ever 800 physicians and nurses in educational programs, speaker series and symposiums, and nearly 100 visited our Abiomed Institute.

We also conducted training for the entire commercial field team in Q1 in Boston, and completed 16 employee training courses at our institute.

We are dedicating resources to education, training and to assisting hospitals to more formally establish Protected PCI programs and hospital shock teams complete with best practice protocols to improve patient outcomes.

Some heart hospitals are now identifying and staffing a hospital resource to serve as a Protected PCI coordinator similar to TAVR. In the future, these coordinators will streamline the identification and treatment plans for high-risk PCI patients, easing the administrative burden for intervention cardiologists and working to build patient outreach and referral programs for their hospital.

Coronary artery disease with heart failure is the number one cause of death in the US, and accounts for one in three overall deaths. This population is growing, and ages are relatively young for Protected PCI, with an average of 69 years old and much younger for emergency support patients. Based on our last quarter US patient run rate, today we estimate an 8% penetration rate of the potential 221,000 appropriate patients, many of which are already in the hospital.

Our 2017 Annual Report highlights one of our Protected PCI patients named Brad, who led a normal life but had a family history of heart failure. Last year, Brad, at age 69, visited his local cardiologist with worsening symptoms, shortness of breath and was too weak to perform routine activities. After being turned down for surgery, he was confined to his living room and routinely slept on his couch. Brad was later identified by a hospital team as a candidate for Impella-supported high-risk PCI, what we call Protected PCI.

An expert cardiologist performed the procedure, placing multiple stents with the goal of complete revascularization. Post treatment, Brad has been able to regain his quality of life, regularly exercise and enjoy time traveling to see his family.

This is a patient story that highlights a percutaneous, cost-effective, minimally invasive procedure and an alternative option to living with heart failure as a result of advanced coronary artery disease.

Clinical data has proven that complete revascularization is the best option for PCI patients. And Abiomed is uniquely qualified with exclusive FDA approvals to help educate the field on new treatments and therapies enabled by Impella.

Because we are the only company focused entirely on heart muscle recovery, this past quarter we hosted 19 Impella patients in Washington, DC, to tell their stories to their congressional representatives.

We also announced a new publication in the Journal of Interventional Cardiology for emergency patients with acute myocardial infarction complicated by cardiogenic shock undergoing PCI on the left main coronary artery, sometimes referred to as the mother of all widow makers.

This specific population carries a mortality rate of over 80% because this artery is the main source of oxygen and blood to the left ventricle of the heart. The study was a peer-reviewed retrospective piece from 19 US cVAD Registry sites on hemodynamic support with Impella 2.5, and analyzed 36 patients.

The results revealed that the initiation of Impella prior to the start of the PCI, is associated with significant survival benefits, increasing survival to 55% as compared to 19% post-PCI Impella implantation.

This study is yet another validation adding to the growing body of real-world clinical evidence, representing thousands of patients that supports early placement of Impella in cardiogenic shock and the critical goal of survival with native heart recovery.

Moving to Japan, we have just received notification from MHLW on reimbursement and the completion of the Hospital Guidance Document by 10 physician societies. Reimbursement in Japan commences this September, and given the past exchange rate is estimated to be $24,000, equivalent to our Impella sales price in the US.

Our approval and reimbursement in Japan marks a significant milestone for our company. And we commend the dedication of the Japanese physicians and regulatory body as well as their employees, in seeking out new treatment options to improve patient outcomes, quality of life and enable cost-effective solutions such as heart recovery.

We expect our first Japanese patient in September, and are reiterating our controlled launch at 10 hospitals by the end of this fiscal year in March.

In closing, Abiomed's culture puts patients first, and this motivates our employees to adapt and execute to achieve our aggressive goal to become the recognized new standard of care for hemodynamic support. We take great satisfaction in both helping patients return home to their families with their native hearts and the discipline in our operating procedures to deliver best-in-class innovation, growth rates, gross margins, increasing profitability as well as consistent global regulatory and reimbursement approvals.

Time is on our side, as the growing epidemic of heart failure impacts hundreds of thousands of patients that need new percutaneous alternatives that cost-effectively improve quality of life with minimally invasive treatments.

I would like to thank our employees for their hard work and dedication, and thank our investors for their support.

I will now turn the call over to Mike Tomsicek, our Chief Financial Officer.

Thanks, Mike, and good morning, everyone. Today I'd like to share details on the strong growth we achieved in both revenues and margins during the first quarter of our fiscal year 2018.

Fiscal first quarter revenue increased 29% to $132.5 million. US Impella revenue rose 28% to $114.7 million, driven by a 27% increase in patient utilization. Outside the United States, Impella revenue totaled $12.5 million and was up 53%, predominantly from our focus on Germany where revenues increased 62% versus last year. Additionally, worldwide service revenue of $5.2 million was up 16%.

In the United States, as of the end of the first fiscal quarter, the Impella 2.5 had been placed at 1,154 of approximately 1,400 targeted hospital sites, for a penetration rate of 82%. Impella CP has been placed at 1,062 hospital sites, for a penetration rate of 76% of total hospitals. Impella 5.0 has been placed at 472 sites, for a penetration rate of 34% of hospitals. And Impella RP has been placed at 142 sites, for a penetration rate of 10% of total hospitals.

Reorder performance was strong for Q1, with US reorders at $108.7 million and growing 28% versus prior year. And the reorder rate was approximately 100%.

Average combined Impella 2.5 and Impella CP inventory at hospital sites, rose slightly to 3.6 units per site versus 3.4 in the prior quarter and versus 3.0 units per site in the prior year. Our busier sites carry more inventory, as each pump must have a backup, and in this way higher patient volumes drive higher inventory. For example, sites with 2 patients under support would be required to have 2 additional pumps on hand.

Gross margin for the quarter was 83.5% compared to 85.4% in the same period of the prior year. The introduction of new manufacturing lines and the rollout of third generation Impella CP with higher flow and ease of use, created a modest increase in manufacturing costs.

R&D expense for the first fiscal quarter totaled $16.9 million and was approximately 12.8% of revenue. The bulk of the spending comes from investments in new products and product enhancements that further capacity and efficiency, as well as research costs from our STEMI DTU FDA feasibility study and cVAD Registry.

SG&A expense for the first fiscal quarter totaled $60.6 million, up 18.8% from the prior year.

Our plans for fiscal 2018 include continued investment in our industry-leading field team, and we expect to maintain our hiring pace of up to 10 additional US field employees per quarter during the balance of the fiscal year '18. 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 first fiscal quarter was $33.1 million or 25% of revenue compared to $21.2 million or 20.6% of revenue in the prior year. 25% is a record high operating margin for Abiomed, and confirms the leverage in our model.

We are working hard to invest in our training and communication of our clinical data for existing products with exclusive FDA indications. While reaching more patients and growing revenue, our exciting growth opportunities incorporate existing Impella pumps and consoles, and, therefore, the leverage, particularly in R&D and administration, is substantial.

GAAP net income for the quarter was $37.4 million or $0.82 per diluted share, compared to GAAP net income of $12.9 million or $0.29 per diluted share for the prior year period.

First quarter fiscal 2018 GAAP net income benefited from the adoption of a new accounting standard which required that $16.8 million or $0.37 per share of excess tax benefit related to employee share-based compensation awards be reported as a benefit to income tax expense. Excess tax benefits have, in addition, increased the deferred tax assets on our balance sheet to $113 million, primarily due to recognizing NOLs.

Under this new standard, excess tax benefits and deficiencies associated with employee share-based compensation are recorded directly to income tax expense or benefit and are reflected fully on the balance sheet as they occur. This standard does not impact Abiomed's operating income or cash tax paid, but resulted in a positive impact on net income, our tax provision and earnings per share this quarter.

We expect excess tax benefits to have the largest impact on the first quarter and will likely see substantially smaller adjustments in the final three quarters because stock compensation vests in Q1.

The balance sheet remains debt free, and we ended the quarter with cash and marketable securities growing $12 million to a balance of $289 million. Abiomed utilized $17 million in cash to reduce dilution from stock compensation maturity during the first quarter.

Our standard practice of paying withholding tax using cash instead of settling shares in the market means that more than 40% of RSUs we issue are returned to treasury and are, therefore, non-dilutive.

Our top priority for use of cash is to support our organic growth and to continue to build our substantial advantage in intellectual property.

Turning to guidance, we are increasing the low end of our fiscal year 2018 revenue guidance to $560 million to $575 million, an increase in revenue of 26% to 29% from the prior year. This is compared to $555 million to $575 million guidance issued last quarter, which reflected 25% to 29% growth in revenue.

For Q2, the sequentially slower summer quarter, we are planning for revenue to be just below Q1 levels. We are maintaining our fiscal year 2018 guidance for GAAP operating margins for now, in the range of 22% to 24%.

Abiomed looks forward to continued execution in the balance of our fiscal 2018. We have important tasks in front of us as we further penetrate Protected PCI and cardiogenic shock markets, rollout Impella in the Japanese market starting in September and launch RP with anticipated [full] PMA approval in October.

Abiomed will continue its pursuit of industry-leading innovation, growth and execution.

Operator, would you please open the lines for questions?

(Operator Instructions) Matthew O'Brien with Piper Jaffray Companies, Research Division.

Just to start off with on Japan, would love it if you could provide a little bit more context about the reimbursement rate that you were able to get there versus your expectations. And then, how do we think about the pricing dynamic and profitability of your products as you enter that market?

This is Mike Minogue. The pricing based on the blended average of the conversion rate is around $24,000, which is what we are priced around on an average of all three products in the US. We have been saying we're looking for a slight premium. That's what our expectation was. It is a slight premium, but it's pretty close. Currently in Japan, there's a lot of rigor and pushback on a lot of pharma and med tech companies. So essentially getting the number that we got allows us to launch. And relative to our profitability model, that'll depend on as we get to years two and three and how fast we ramp up both number of new sites as well as patients. But we feel very confident that we'll achieve that quickly in a model that leverages the install base razor-razorblade model that we've done in other places. And as a reminder, in the US, we achieved GAAP profitability at $126 million in revenue. So we have a good model. And our intent is to set this as a foundation and then bring in the CP, the RP, the 5.5, and further expand into other types of indications as well as other types of chronic patients. The opportunity in Japan, we think is at least 50,000 potential patients. And we also know that it's the second largest med tech market. And specifically, they have a focus on percutaneous treatment and they are very interested in ideas and solutions around heart recovery.

Fair enough. And then for Mike T. On the gross margin side, just to be clear, and I didn't quite catch the impact that you mentioned in the quarter. But it dipped down a little bit here. I think there's some facility overhead absorption that's going on. Just in terms of what were those impacts in the quarter, and how should we think about that metric trending throughout the rest of fiscal '18?

Yes. I think gross margins are typical of what we should see going forward. We talked about the introduction of third-generation CP, a newer process that now is performing as efficiently as existing products. We have additional capacity inserted in the system, which needs to be sort of distributed over our total production. And our product mix is a little bit different than we had in some past quarters. Even the increase in demand from Europe, where prices are a little bit lower has an impact. So all of those issues were represented in this quarter's gross margin percentage.

Okay. And just to be clear on one other thing on the Japan side, Mike. The $24,000 reimbursement rate, is that how much you're going to charge in Japan roughly or is it going to be slightly below that? Is it going to be $20,000, $22,000, something along those lines?

We'll charge $24,000. There is a dealer fee that will come out of that. But we also plan to charge as we do in other parts of the world for our consoles.

Our next question comes from the line of Chris Pasquale of Guggenheim Securities, LLC, Research Division.

Mike, can you give us any color on how your conversations with CMS have gone since the proposed inpatient rule came out back in April, and how you think the rate for DRG 215 is going to look when we see that final rule in the next couple of weeks?

Yes. Chris, we had the opportunity to contribute input during the open comment period, and we did. We feel that we've made our points with them, and we're planning for the status not to change, with the hope that there'll be some adjustment to the reduction in DRG 215 which was proposed at 35%. And just to kind of ground everyone, this is the first time we've ever had a year where we had full FDA approvals, exclusive safe and effective for high-risk PCI and shock, and full reimbursement standardization as reasonable and necessary for cath lab only, ICU, biventricular, as well as transfer. And prior to any of these new updates, our DRG was primarily 216, which will remain unchanged at 70,000. However, going into this year, we now have 216 at 70, 215 at 77. So it's much higher than 216. As well as biventricular at 110 -- or I'm sorry -- at 170. So if we blend the average of now the new DRG codes, the average is around 110,000. And we are treating very sick patients. And the way it works is an efficient hospital can break even or make a little bit of money. So as we move forward, getting better outcomes for these patients translates to better margins for the hospital and better results for the patient. So it also gives us an incentive to really go in and partner with them to improve clinical outcomes across the board.

Thanks. And then just a couple questions on some of the new launches you have here coming up. So on Japan, what sales resources do you have on the ground today? And how are you thinking about that build out? Where would you like to be, say 6 months, 1 year from now? And then what does an RP launch actually look like once you have that approval? Obviously that product is commercially available today in a very limited capacity. What do you need to do to take advantage of that PMA once you have it in place?

So I'll start with Japan and then get to RP. So in Japan, we have 20-plus employees in Tokyo. I'll be flying out on Sunday. And we're getting ready to launch and do our first patient in September. We have executives and clinical people from the company scheduled now to rotate every month, so that we're ensuring we've got the rigor and the training, as well as we're going to be using certain physician and faculty members that are the experts in the field, to help us with proctoring both the surgeons and the intervention cardiologist. We've already identified the resources to support the 10 hospitals, and we have enough to do that. And then incrementally, as we grow, we can add more people to it. And instead of a person having one account to support, they can have 2 to 3. And as we develop these first 10 sites and transition them to be training centers, that'll allow us to have this hub-and-spoke support as well as just maintain the quality of our training. And if you consider that process, you can kind of see what we've done in the US with RP. There's a lot of similarities. In the RP today, we have approximately 130 sites. They're the early users. They represent in the local regions those specialty hospitals. And as we anticipate PMA approval in October, we're going to be opening more centers per quarter than we have, as well as in prior quarters. And that does two things. Number one, the orders can be more predictable because we no longer require an IRB at the hospital, which sometime can take 3 to 6 months. And it allows us to move forward and have a network in place where the new sites can manage the patient in the ICU or if they feel more comfortable transferring to a specialty center for tough cases, they'll have that network and resource as well. And again, our overall goal with any of these new technologies is to turn them into the recognized standard of care. So getting great outcomes and collecting data for publications is critical to our long-term success.

Our next question comes from the line of Anthony Petrone of Jefferies LLC, Research Division.

Maybe a couple questions on US, and then I'll follow up with Japan. So, Mike, on US, can you give us an update on just center volumes, sort of what the range is for center utilization at the low end, high end, and then maybe average catheter utilization? And then the follow-up there would be, you mentioned the Protected PCI coordinator. I'm just wondering what the impact of having those folks on site could be? I mean, how much of an uptick could you expect in terms of volumes at centers where a coordinator gets up and running?

Anthony, the first part of your question is top centers do anywhere from 30 to 40-plus per quarter, and that depends on the season and the cycle. We do have seasonality. As I mentioned, we had a record high ever month in June for Protected PCI. We have been training and identifying this coordinator role for the last several months. So there could be some signal there in that focus. We also have an online website that can network both physicians and patients, and patients can find their local hospital. We've even piloted some regional advertisement or hospitals have piloted regional advertisement. Overall, June was the second highest month ever for overall Impella use, which June starts summer. So we feel good about that. And as far as the way you think about the breakout, it's pretty much all the sites, all the segments of the sites are growing. It's not one group. It's not one region. And the reason that, that evolves is because it's built on Protected PCI, then it expands into more the emergency patients, and then collectively the heart team starts to expand other uses, whether it's the 5.0, or the RP or biventricular support. So that's kind of the model. What should encourage you that encourages us is our top sites are the sites that have had the technology the longest. So it does come back to our formula for training, data and time. And the longer the time goes on, the more experience they get, the more independence they get. That's what tends to be one of the key factors in our top using sites.

That's helpful. And then maybe the same question on Japan. I mean, how do you think the centers, the initial 10 centers will stack up to your high-volume centers in the US? And maybe what do you think the average catheter utilization will be in Japan a couple years from now? Thanks again.

Well, I think they're going to stack up well compared to when we started in the US or Germany, because we've learned a lot of lessons. The product is better and our training material is improved. Japan definitely has a critical need for heart recovery because they do not really have the option of transplant. They are opposed in many cases to the sternotomy process itself, or sawing open the chest. And they really have advanced science and research around hemodynamic science as well as stem cell and myocardial repair. So we think we'll be in a good position. However, the mistake many people make at times is to try to go too quick and risk poor outcomes. And we do see ourselves as being the standard of care for the next 10-plus years in Japan. We're trying to replace the intra-aortic balloon pump which has had a 40-year run there. And so we want to make sure that we grow appropriately and it's sustainable and, most important, we get great outcomes for patients that we can publish and show the cost benefits to the government.

Our next question comes from the line of Margaret Kaczor of William Blair & Company L.L.C., Research Division.

First one for me is the new Danvers training facility, it sounds like you guys actually had a fair amount of traffic pretty early on. I'm curious if you can share any trends that you've noticed. Were you able to see more attendance from new hospital accounts or lower utilization accounts that are may be looking to use more Impella? Is that where you're going to train on RP? And then finally, is that one of the reasons that you think you did see stronger utilization in June in Protected PCI?

Thanks for the question. We do have kind of this home-base now for our programs, which is the Heart Recovery Institute. We did train over 800 customers in the quarter. That includes nurses. We had about 100 back at headquarters. And I guess I would say there's two things that are really the important drivers. The first is that there's now becoming more awareness that complete revascularization is the ultimate goal, and that you don't necessarily have to stage patients in order to do that, and enable that complete revascularization. As we've mentioned in the past, to our research and knowledge, PROTECT I and PROTECT II are the only FDA studies that have shown a permanent improvement in ejection fraction that can translate to better quality of life that have shown a permanent improvement in ejection fraction for angioplasty patients. So what that means is that, that is matching or trying to do what the surgeons have done for years, which is by opening up the chest and do a CABG, they get complete revascularization with the CABG procedure, but it comes at a cost of being so invasive. And for many of our patients, they're too risky to undergo a sternotomy and CABG. So we can potentially help interventional cardiologists treat patients with no alternatives like Brad, and have a permanent improvement in ejection fraction, which can translate, again, to better quality of life such as Brad's case. So this is a huge new opportunity and a brand new patient population alternative, similar to the way that TAVR was when it got started. And that's why the coordinator approach and finding those patients in the community is so important. The second thing about the training center is it allows us to really talk to people now about what we consider the science of unloading. And many see this as the next frontier or the next, next thing, where we can really summarize the 300-plus publications, the science around hemodynamics and pressure volume loops, and start talking about things that are beyond just pumping blood, things around cardio protection of genes, reduction of wall tension, science around collateral flow and what's the impact of that. And then, as we grow this, we can really apply it now in the science both to acute and chronic patients. And that's why some of the new products are coming, like the 5.5 and BTR, to further bring that benefit of unloading to a patient that may have chronic heart failure. So it's an exciting time for us. And again, having this ability to train people in the field but also at headquarters, I think is going to really accelerate the knowledge base with our customers.

Okay. And then in terms of the DTC commercials and some of the local advertising that you guys have put through, whether on the website or so on, can you share any kind of initial feedback or pull-through that you've seen from piloting some of these investments out into these geographies? Can you break it down by volume growth where that advertising has occurred? Or is that something you've done at all? And then what gets you to invest maybe more aggressively on some of these new efforts?

The first answer would be that it's too soon to tell. There is some noise in the data. And we've selected sites and areas where in many cases we have usage. Overall, our analysis suggests that it does have an impact. But it also is being used to provide a funnel and a network so that our best sites that are already out marketing, it helps bring them more patients. Now, going direct to patients or direct to consumers is a sensitive subject with certain physicians and societies. So we have to do it in a thoughtful way. We've had physicians review the messaging. We've had input on the things that we've done. And the main point of this is providing them support to augment what they're already doing. So we're not going into areas where there aren't already Protected PCI programs and hospital engagement. That's not our role. But for areas where we have champions and we know we get good outcomes, we like to complement what they're doing. And so it's hard to credit the success or the growth based on what we're doing, and I see it more as a supportive role into what our best sites are doing.

Our next question comes from the line of Danielle Antalffy with Leerink Partners LLC, Research Division.

I wanted to bounce something off you, Mike Minogue, and see what you thought about this. I've been talking to some doctors, and both are high-volume -- or 2 docs that I spoke to, high-volume Impella users. And they mention that, you know, they're a little bit older. They mention that the younger physicians at their centers literally, and I'm quoting these doctors right now, literally cannot do a high-risk PCI without an Impella; whereas, it seems like the older physicians that have been around longer stratify more the high-risk PCI patient population and some they do without hemodynamic support or just use a balloon pump. So that, to me, is a very positive potential tailwind. I'm just wondering if that is a trend you guys are seeing broadly. And I guess it's coming from fellows being trained on Impellas in school during their education. I'm just wondering if you can comment on that. Is that something that you guys are seeing?

Danielle, we are seeing that, but it's not because of inexperience. I think it's because of prudence. And what the younger generation knows is that all the patients they treat will be significantly more complex and sicker than what their teachers taught 20 years ago. Most of our patients you could make an argument weren't treated 20 years ago. In fact, when we did the Protected PCI, the first study, the patients ended up in the cath lab because they'd already been passed up and not considered for the cath lab to begin with. So the second piece of that is that if you just look at general PCI, in general, PCI only has complete revascularization 65% to 70% of the time even without severe complex high-risk patients and poor ejection fraction. So the idea that you can get in and out quickly is not necessarily going to deliver the results of complete revascularization. It does take time. And there are papers showing there's a certain inflation time of the stenting balloon in order to position the stent appropriately. And in many cases, these patients without hemodynamic support can crash within 30 seconds or less during the inflation of a balloon. Some other areas where people try to compensate for this is they stage the patient. So now you have a 75-year-old having 2 femoral sticks and 2 procedures within 90 days, which is also exposing them to more adverse events and risk, and obviously increases the cost to the system itself. So we feel very confident in that in order to do the best job it helps to have hemodynamic support. But if I go back to who are the most complex operators in the world, Dr. Bill O'Neill, Antonio Colombo, Dr. Jeff Moses, if you go to the people that really have made their living and have become the high-risk PCI users, they're the ones that also use Impella support, because they are confident that they can do more and get better results by having the stability of hemodynamic support while they can focus on the coronary and the patient themselves.

That's very helpful. And then just a follow-up on that, Mike. As far as high-risk PCI procedure volumes growth, I mean, because of that, how have you seen high-risk PCI volume growth change over the last few years? I imagine it's accelerating or at least certainly growing faster than the overall PCI market. Is that fair?

Well, we are growing faster than the overall PCI market. If you read the different surveys and trends, what's growing fastest for PCI is high-risk PCI, atherectomy and STEMI shock population, all of which that's our sweet spot. And so those are the areas where it is growing. We do think that having a record Protected PCI month of June is a good sign. And we know that while we're increasing our percent penetration, we know there's a lot more patients that we need to get to the cath lab to get treated. And telling the stories like Brad and people seeing his outcome is very helpful. We have many patients like Brad, of which many are considered for LVADs or transplants and things that are a lot more invasive. And the fact that they continued to search or declined to have those other options, they ended up getting what is considered a very good solution that's minimally invasive and today they have a improved quality of life.

Right. And last question for you. If we look into the next fiscal year, I'm not asking you to give guidance, but just trying to think at a very high level. In fiscal '19, you're going to have Japan coming on line probably in a more meaningful way. And you'll have potentially an RP, full RP approval. So I'm just wondering if we should view the next fiscal year as a potential top-line growth acceleration year? Or is this more a growth -- are these drivers more growth sustaining versus accelerating? Thanks so much.

Danielle, we have both growth drivers and sustaining opportunities and catalysts in the second half and for the next five years. One of the reasons we raised the lower end of our guidance is because we feel confident in that. And if you think about what's coming, you've got the impact of these Protected PCI coordinators. So these are hospital resources. And now that we have both FDA approval and CMS standardized payment, hospitals can put a program around it. And again, June was our best ever Protected PCI month. We have the expected PMA approval of RP, which is not just going to impact the US, it's going to be launched in Germany. And in Germany, we received new reimbursement for it. And then we also have just a ramping up of our own people, the new hires and the training. And then, as I've mentioned, the longer the sites have Impella, the more we see them growing on a consistent basis. So we feel very confident. And we have some other catalysts to come on top of that with new products, which we'll have first (inaudible) ECP this year in Europe as well as the 5.5 pump, which I think has got a tremendous opportunity in treating these Class III chronic heart failure patients as well.

Our next question comes from the line of Chris Cooley of Stephens Inc., Research Division.

Congratulations on the record results. Mike, if maybe I could start just one with you and then maybe one quick follow-up for Mike T. Could you update us on the DTU feasibility study here this morning? I know enrollment just had gotten kicked off at the time of the last call. But just maybe any color there that you could provide. And similarly, I think Opsens as well launched here in the last quarter in Germany. Just maybe some initial clinical feedback, or I should say physician feedback there on that launch? And then I could follow up with Mike.

Chris, thanks for the question. First on the DTU study. What this is, is just to remind everyone is, we will be testing the hypothesis that by unloading the left ventricle for a STEMI patient that is not in cardiogenic shock, we believe the feasibility is to test the benefit of reducing the size of the infarct. By preconditioning the myocardium, we think we can reduce the reperfusion injury. And so that's what the thesis of the study is. And we're doing a feasibility now. Again, we did announce the first patient has enrolled. But after that, we tend not to announce updates on feasibility FDA studies. We have done more than one. We have opened a few centers. Ultimately, we'll get to 15 centers. And IRB processes tend to be the longest lead time in getting new sites up and running. And we're not halfway there of getting the sites enrolled. So that's moving along. On the optical sensor, again, this is a new technology on the CP that allows the user to know exactly where the pump is in relation to where the aortic valve is. It'll help in the ICU management ease of use. It will shorten the setup time and it will allow us in the future to have more smart pumping and being able to look at things like cardiac power output and other parameters that help us wean the patient off and manage the patient to improve outcomes. So both are technology that's moving forward. And to remind everyone, that the feasibility study for the STEMI population is with an existing approved FDA product. So it's really just a new indication. Whereas, the optical sensor is CE marked approved in Europe, and that technology will be coming to the US next year.

Okay, super. Thanks. And maybe just conceptually for Mike T. You're now in roughly 3/4 of the targeted facilities with the CP and the 2.5, and you're seeing 100% reorder rates now pretty consistently over the last several quarters. I'm just interested, when you think about managing the operating expenses, you guys do a great job of that. That was I think approximately 19% versus sales growth in the quarter. But does the US infrastructure over time achieve greater leverage? Are there opportunities there to maybe shift resources to drive better growth and at the same time continue to see upside to the margin profile over time? And maybe as an aside to that. Could you just remind us how much infrastructure you've been carrying in Japan that's been being absorbed? I know you mentioned, I think earlier on a prior question that you had, I think it was approximately 20-plus employees. But how long they've been in the P&L. I'm just trying to think about how much of that is burdening when we look at the 25% margin you hit in the quarter. Thanks much.

I'll start with the operating margin trend, and then I'll answer the Japan question. As mentioned, we had record operating margin performance this quarter at 25%. And R&D and administrative leverage were really the drivers for those. We'll continue our investment in the commercial team, adding up to 10 people. We talked a little bit about direct-to-consumer. We have different marketing and training methodologies. We expect the leverage in commercial to be a little bit later. But you are correct, the opportunities for leverage, as Mike Minogue had said, come as we've had sites on longer. And as more physicians are trained in those sites, the independence, in time, has a tendency to grow. But we're focused on getting the message out now and getting all of our patients treated. We're in the early innings. So it's easy to justify commercial spend expansion right now. But our goal to get to 30% margins and beyond, is well communicated and has been in place for some time and we're very pleased with the progress. From a Japan standpoint, we've talked about up to $10 million worth of expenditures at the pace that we're at right now, and that's what we expect. It'll certainly go up as we add more sites. And we'll focus on giving excellent support and establishing 10 very effective training centers in Japan during the next 12 months.

Our next question comes from the line of Jayson Bedford of Raymond James & Associates, Inc., Research Division.

Just a few, maybe just to follow up on the last question. Are you seeing more independent use? Meaning Impella use without an Abiomed rep in the room.

Jayson, thanks for the question. We are still around 1/3 what we consider independent. And on a strict definition, there is more independence because we'll show up to visit the patient in the ICU. We are a full-service company and we've got 24-by-7 online support as well, or call support. However, we use the time there at sites where they are independent, to bring in our own people, more techs, more physicians or proctor more physicians. So we tend to use that. It's clear to us that the vast majority of all our sites do not need us there for Protected PCI, which is why when we pull everyone out of the field in Q1 that sometimes can have a bigger impact on the emergency patients than it does on Protected PCI. But we really believe that the partnering in the ICU and providing that extra value can help the 5% to 10% of the sickest patients in the hospital get better outcomes. And many of that profile of patients can cost up to 30%, 35% of all the cost to the hospital. So we tend to partner with them so that we can collect data, so we can look for best practices and provide really a consultant role to reduce their costs.

Okay. That's helpful. Also a follow-on. Mike, you mentioned the record month in June for Protected PCI. Is there something that you can identify that you did to lead to that strength in June?

Jayson, as we've talked in the past, we break out the patients each quarter for visibility, and there is this bit of a seesaw effect. And if we focus on one over the other, it tends to have that seesaw effect. So I think in Q1, we were zeroed in on Protected PCI. We knew we had the three months where the physicians weren't on vacation and there was a lot of treatment going on. We put energy into some of the education and training and ramping up coordinators or identifying coordinators. And I think that you're going to continue to see that grow as we get more patients into the cath lab.

Okay. You also mentioned the expanded reimbursement in Germany. I think you mentioned CP and RP. Is that the extent of the expanded reimbursement? Or is there something broader to it?

There's two things. Protected PCI is growing now in Germany; whereas, before, it was primarily an emergency market. Where around 30%, 35% in any given month now have Protected PCI. And then also, RP is brand new, and it was priced at a point similar to what we price in the states. And CP was differentiated between -- of the Impella 2.5 as a higher flow device. So Germany has a different system in reimbursement that it sets a price point and then each region negotiates. But we're pleased to see that, that is starting to happen in our busiest regions and sectors.

Are there any big regions in Germany that are not covering the procedure?

There are. We're not all the way through the country. We probably have 70% that have what we'd consider appropriate systematic payment. And we continue to work with them. But by having the improvement in CP and the duly created RP, I think that adds a little bit more support for the local teams to work with their hospitals.

Okay. And then maybe last one for me. Are you seeing an impact from the Detroit Cardiogenic Shock Initiative? Meaning, have these data generated interest from other geographies? And is there any way to kind of quantify the level of interest?

Yes, I think that it is. Number one is, it sets the high bar for all the cities and all the hospitals to say, "These are our outcomes." When you're talking about having a 70% survival rate in cardiogenic shock, that's impressive because these are some of the sickest cardiovascular patients in the entire hospital. And it also shows that if you follow a protocol, you cannot only improve survival, but you can achieve native heart recovery, which is very different than measuring survival and then go on to the most invasive and expensive procedures for the patient's remainder of their life. So I think that, that sets the high bar. We are seeing cities having these discussions. Not all the cities have hospitals and physicians that want to collaborate. And that's why our real focus is around getting protocols and collecting data in both the IQ database as well as the cVAD Registry. And then it's up to the hospitals if they want to join the initiative of Detroit CSI, which is driven really by the customer base. And it's very similar to the way door to balloon time spread years ago with the angioplasty balloon. And we feel confident that this momentum will continue to ramp. And what we think will happen is the majority of our cVAD Registry sites will also adopt this protocol so that we can collect it on a more formal basis.

And our next question comes from the line of David Lewis of Morgan Stanley, Research Division. (Operator Instructions)

This is actually Scott Lange in for David. Just one question for me, Mike; most of mine have been answered. I'm just trying to reconcile your annual sales guidance and the $5 million raise at the low end and the unchanged high end. By my math, you beat the quarter by roughly $2 million versus consensus. And if I kind of treat the strong Germany performance, and I kind of run that through the rest of the year, I got maybe another incremental $5 million in sales. So is guidance conservative given the expected seasonality in the second fiscal quarter? Or are you saying that US market penetration rate increases in the rest of the year will be more gradual than the rate that we saw in the first quarter? Thank you.

Yes. I'm looking at the patterns of the year when issuing the guidance. And Q2 is always a seasonally slower summer quarter for us. And as mentioned on the call, with Q2 revenue slightly under Q1, which still translates to top-line guidance, if you use the historical 46%/54% first-half/second-half split between seen in the business, that would still translate to the top end of guidance. So on that basis, we've issued the sort of clarity on guidance and raised the low end because of our confidence of what we've seen. But we'll leave it at the $560 million to $575 million for now.

Got it. Thank you very much.

Just to add to that, Scott. It's the first quarter, so we've got three more quarters to go and we're just focused on executing.

And we are out of time. I would like to turn the conference back over to Michael Minogue, Chief Executive Officer, for closing remarks.

Thank you everyone for your time today. As always, if you have any follow-up questions, please reach out to us directly. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.