Abiomed, Inc.
Q1 2019 Earnings Call Transcript

Published: 2 May 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2019 Abiomed Earnings Conference Call. . As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ingrid Goldberg, Director of Investor Relations. You may begin.

[Ingrid Ward:]

Good morning, and welcome to Abiomed's Fourth Quarter Fiscal 2019 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 Todd Trapp, Vice President and Chief Financial Officer. The format for today's call will be as follows

[Michael Minogue:]

Thank you, Ingrid, and good morning, everyone. By now you've seen our press release, and I want to begin by recognizing that our performance in Q4 did not meet our expectations. I take full responsibility for our disappointing performance given a soft March. And I will discuss momentarily the changes and plan of action we have already initiated to correct the course. In the quarter, we generated $207 million in revenue, up 19%. We had anticipated a tough comparison given the 40% growth in the prior year period, but our results were short of our goal of 25% growth or $218 million. Operating margins for Q4 were strong and expanded to 31.6%. For the full fiscal year, revenue of $769 million increased 30% versus the fiscal year 2018. Additionally, operating margins increased to 29.2%. In fiscal '19, we remain one of the fastest-growing GAAP profitable medical device companies. Abiomed has a long and proven track record of execution, posting over 20% in organic revenue growth for 18 consecutive quarters or 4.5 years while significantly expanding full year operating margins from 12.5% to 29.2%. During this time, we also invested nearly $1 billion in innovation, clinical research and distribution. We remain confident in our business and our short to long-term outlook. We're confirming that our investment thesis remains fully intact. For today's call, I will cover 3 topics

[Todd Trapp:]

Thanks, Mike, and good morning, everyone. As Mike mentioned at the beginning of the call, we delivered revenue of $207 million in the quarter, an increase of 20% on a constant currency basis versus the tough comparison of 40% growth last year. By region, U.S. revenue grew 16% to $177 million driven by a 14% increase in patient utilization. U.S. patient utilization was impacted by a soft March primarily in high-risk PCI. Outside the U.S., revenue totaled $30 million, up 45% on a constant currency basis, which was driven by strength in Europe and our controlled rollout in Japan. In the U.S, at the end of our fiscal Q4, the Impella 2.5 and CP have been placed at 1,234 and 1,362 sites, respectively. The Impella 5.0 has been placed at 594 sites, while the RP is at 446 sites in total. Reorder performance in the quarter was also strong with the rate slightly above 100%, consistent with Q3. Average combined inventory at the hospitals for the Impella 2.5 and CP was 4.3 units per site, again, consistent with the inventory levels we saw in Q3. Outside the U.S, we are seeing continued growth in Impella adoption. In Q4, our European revenue increased 30% in local currency due to higher patient utilization in Germany and greater adoption in other countries like Switzerland, Italy and France. Our performance in Japan continues to be in line with our high expectations. We opened up 12 new sites in the quarter, ending the year with 59 sites and delivered $5.4 million of revenue in the quarter. Moving forward, gross margins for Q4 was 83.2%, up 50 basis points compared to 82.7% in the prior year. The increase was driven by higher volume, which more than offset manufacturing investments and sales mix. In the fourth quarter, R&D expense totaled $26 million, an increase of 20% from the prior year as we continue to invest in new product development for the Impella 5.5, the expandable sheet and Impella ECP. We are also investing in clinical data collection study using our cVAD Study. This ongoing prospective FDA audited study helps us validate best practices in both high-risk PCI and cardiogenic shock. These R&D investments will help drive future growth for the company. SG&A expense for the fourth quarter totaled $81 million, up 8% versus prior year. The increase was due to an expansion of our commercial team and support of our Japanese launch. In the quarter, operating income grew 37% to $65 million, translating to an operating margin of 31.6%, a new record for the company. Margins expanded 430 basis points due to higher volume, our continued operating discipline and a onetime settlement which occurred in the prior year. The margin performance confirms the leverage and sustainability of our business model. GAAP net income for the quarter was $74 million or $1.60 per diluted share versus $0.80 in Q4 '18. Net income increased 100% driven by strong operating performance in our mark-to-market investment in Shockwave and a lower effective tax rate. Shockwave impacted our reported EPS by $0.51 this quarter.

[Operator:]

. And our first question comes from Danielle Antalffy from SVB Leerink.

[Danielle Antalffy:]

Mike, I know you gave a lot of airtime to explaining what happened in March, but I guess, if I could, it actually looks like RP had a relatively decent uptick sequentially. And our text weren't really indicating that there was going to be any impact on the left side, so -- to the left side business because you have a relatively concentrated user base. So I guess my question is if you could just dig a little deeper on was this an execution issue on your guys part? And were these like low volume users? Any color you can give on where the impact really was would be helpful.

[Michael Minogue:]

So Danielle, your checks are partially correct because we did not see as significant of an impact on RP. Now the patients were not up with a very strong patient month in January, and the patients recovered for RP in February and March. But the focus drove us to have a record quarter on Impella RP revenue, as I mentioned. For 5.0 in the surgical side, we also set a record, but we did see a drop in our shock indications around cardiomyopathy, something along the area -- more of the heart failure patients, so we put focus on that. But what happens to your point is a little bit of an internal focus is that took our eye off the ball of -- for Protected PCI. And if there is confusion on safety, and to remind those folks that hasn't seen the FDA letter, we understand why it was done. It was our data that we have been providing to the FDA on the importance of protocols. However, the FDA letter to the physicians, which was a press release and tweeted out, ended after saying why they thought that -- it could still be used with risk-benefit, and then that exclusive FDA approval is still ended with "It's important to note that the Impella RP postapproval study and FDA's evaluation into this issue are ongoing. We do not know the root cause for the high mortality, and the results are not adjusted for potential cofounders." So it's still out there a little bit, and that confusion, if there is anything with safety, would impact patients that they might use the device selectively. So that is why Protected PCI is the one where they might hold off. We do think what you look at for the -- for March, which is a frustrating thing because March set a record of the most patients we've ever done in company history, but it wasn't the increase we expected, and it was because the growth on Protected PCI really slowed. And because that hit in March, we made changes and we disclosed today that we have seen improvement in Protected PCI in April. We have seen an improvement overall in April. It's not where we wanted to get to yet, and then so that's why we're being prudent. You see that the forecast is 6% lower than what we had anticipated for Q4, so 19% versus 25%. And you'll see that next year's guidance is 17% to 23%, about 6% lower from the midpoint of what we probably would've done. And that's why we'll give a formal update and forecast at the end of Q1.

[Danielle Antalffy:]

Okay. That's helpful. And thank you very much by the way for providing the commentary on April growth. That's helpful. Just curious on whether you can give, even if it's anecdotal, something around what gives you confidence that things are improving, and this isn't sort of a break in the story for whatever reason here. Whether it's just talking to physicians and where you think you are in the process of reeducating physicians here. Is it a center by center situation where you have to go in and reeducate these guys? And, I don't know, any color you can give on where you are in the process and what gives you confidence beyond the fact that April has started to improve.

[Michael Minogue:]

Danielle, the thing that gives me the most confidence is our products are continuing to improve outcomes. Our products are continuing to increase ejection fractions with high-risk PCI. Our products are continuing to increase survival with native heart recovery for shock patients. This is not 1 less day in the ICU. So everything we've been focused on as a company to improve outcomes only gets better, and we've had two press releases that have highlighted new information for showing that it validates 5 to 10 plus prior studies, which includes FDA studies as well as our cVAD registry to continue to reinforce that. The second thing is I have been in the field extensively. I attended in February, Medical Meeting CRT in DC. I attended ACC in Florida. I attended ISHLT, that was in Florida. ACC was in New Orleans. I have been on the road in 5 states. And what I hear is that there's great interest. They are seeing the improvement in outcomes. They are putting protocols in place and duplicating what's happening at NCSI and what's happening in Inova, but there was always questions about concern on the FDA letter. Was it RP only? Is it the whole Impella platform? Should they be concerned about something else? And so that was a bit concerning, but I also know that what they're -- what they're continuing to use -- and again, we see the lift in April. But we really want to leverage and utilize the final letter that will come from the FDA, which we expect to see this Q1.

[Operator:]

And our next question comes from Bruce Nudell from SunTrust.

[Bruce Nudell:]

Mike, I have two brief questions. One is clearly evidence development in elective high-risk PCI is a key commercial imperative for the company. Is there a better way where you thought about a way to kind of package everything and just make that convincing statement to doctors? And my second question pertains to the proposed rule. Do you suspect that when the dust settles that reimbursement will be around cost? And that the ultimate reimbursement level won't be a hindrance to adoption with adoption really being driven by perceived clinical imperatives?

[Michael Minogue:]

So Bruce, let me make sure I answer the question. You have 2 questions. So one is on elective, the other is on reimbursement. So on the elective population, we have an FDA randomized controlled trial that shows that complete revascularization with Impella increases the ejection fraction and the quality of life for the patient at 90 days post study. That is one of the few and, to our knowledge, only angioplasty PCI study that shows a permanent improvement in heart function for patients. When you have open heart surgery and you have CABG, they utilize a vein so they do get complete revascularization, so you do see an improvement in the ejection fraction, which is why that has been the gold standard. However, at a certain point, the patients either turn down for surgery because of the risk factor or they don't want to have a sternotomy process. So everything we have from PROTECT I, PROTECT II, this new paper from Burzotta as well as all the information that's in the cVAD consistently show and match the history of PCI that the best outcomes from -- come from complete revascularization. We do see it as signal and we do see in our studies that unloading with Impella reduces acute kidney injury. And therefore, what we end up with is a better outcome for our patient. And if you target which patient is that most appropriate, we think that that's a 70-year-old and above, which is what -- was the average age for the patients in PROTECT II. And we continue to compare the data from PROTECT II to our data in cVAD to show that patients are doing more complete revascularization and leaving less ischemia. So that's very positive. I don't think that the level of evidence has an area where we -- you don't see a benefit of doing complete revascularization as well as the fact that the Impella is safe and effective for these patients. Your second question was on reimbursement. So the reimbursement would not have an effect on high-risk PCI because what we have now is a system of payment for Impella under DRG 215. So the hospital charges end up determining the reimbursement. So if you have higher hospital charges, you get higher reimbursement. What we've done now over that last 2 years, as the system catches up with the database, is you have a little bit of more patients that are high-risk PCI, which tend to have a little bit of a lower hospital charge than the patients that have cardiogenic shock. In the cases of cardiogenic shock, if they do lose money and there's -- there will be outlier payments for those hospitals, and it almost hedges itself, so if it goes too low, the following year, when they go back and measure cycling 18 to 24 months back, you'll see that reimbursement go higher. However, what's a little bit of a confusion, I think, out there is that Impella now has a complete system of reimbursement. The system is set up so that you have Impella for 215 for either elective or shock when it's one pump, either left or right. You have DRG 1 when you have biventricular Impella, which is in the case of Dr. Eladasari, he's a biventricular patient. He is now home with his own heart. He didn't have more surgeries. He didn't get an LVAD. He doesn't have to go through a transplant, and he's back at work. So that -- he's had savings of probably up to $1 million over 12 months with the best quality of life he could've hoped for with an ejection fraction at normal 55%. They also have the ability for patients to be treated in one outlying center and now transferred to the heart recovery specialty center. So that's a different DRG, that's 268. So the system is in place. The systems have been placed to improve outcomes and lower cost. And again, Abiomed has a lot of clinical data around cost effectiveness to demonstrate that in the case of shock, keeping someone alive and recovering the heart is probably the most cost-effective application in all of CMS. If it's not the most cost-effective, it has to be one of the top percentage of those patients.

[Operator:]

And our next question comes from Chris Pasquale from Guggenheim.

[Christopher Pasquale:]

A couple of quick ones on the quarter here, and I just wanted to clarify something on STEMI. For the quarter, Mike, you talked about Protected PCI volume being particularly impacted. But based on the revenue breakdown in the release, it doesn't really look like the growth rates were that different. So could you just provide some more clarity there?

[Michael Minogue:]

Sure. So STEMI is the study. We don't actually -- we don't treat STEMI patients. And it wasn't necessarily for the quarter. In the month of March, our expectation at the -- in March, the last month of the fiscal year, is we always see a ramp. What happened this March is we saw the growth slow significantly only on Protected PCI. There was other impacts and things that we've already mentioned, but Protected PCI in the month of March had slow growth. That being said, and the frustrating part is March still was our top patient month in the history of Impella, but that was driven more by the shock patients. And the drop in growth in the Protected PCI was kind of a hole in the bucket that took the March number down.

[Christopher Pasquale:]

Okay. We can follow up off line on that. The changes that you talked about sound like they deal mostly with reconfiguring the sales force. So if this is really just a short-term communication and customer education issue, then why is that the right response? The prior distribution system seemed to be working quite well for you guys until very recently.

[Michael Minogue:]

Well, we didn't reconfigure, Chris, we added and enhanced and expanded. So we've added 2 new regions so that we can have more focus and go deeper into those accounts. And with the new region leaders, you give them more territory manner, so that's adding more of what we've been doing. And we will stay laser focused on both high-risk PCI and cardiogenic shock. We did add more MDs to do more training and education around these best practices and protocols because they do improve outcomes for patients. That's been documented several times. And we have expanded our distribution channel that calls on heart surgeons and the heart team because we have some momentum on 5.0, RP. And we are preparing for the future 5.5 launch. And to your question is we have seen an impact in April. As we've mentioned, April results and specifically around Protected PCI have shown improvement, but we still have to remain focused on eliminating any of the confusion out there. Another thing we will leverage, and a big component of transitioning, is to get the final resolution letter from the FDA, which we do expect to get in Q1.

[Christopher Pasquale:]

And then just lastly, on STEMI. The 3 to 4 year time line, is that just to complete enrollment? Or does that include the two year follow-up? And if it is just for enrollment, why so long?

[Michael Minogue:]

So on the STEMI study, it's a 3 to 4 year study. And with that information, we will submit for a FDA approval for the indication if the successful -- if the study is successful. Obviously, we have to achieve our primary endpoint. We also think that the gold standard of a study, and if we want to have a class 1 recommendation that can be applied and change and transform the standard of care worldwide, we'll want to follow these patients out to 2 years around things around heart failure, quality of life and cost-effectiveness. And if we do that, that will give us more leverage to drive a change globally. There's over 4 million STEMI heart attacks outside the United States, and the standard of care that we're trying to augment, not eliminate, is door-to-balloon time, which in the cardiovascular space, is the most adhered to protocol in measurement and metric applied in every cardiac hospital around the world.

[Operator:]

And we'll take our next question from Raj Denhoy from Jefferies.

[Rajbir Denhoy:]

I also want to say welcome back, Ingrid. Good to have you back. So Mike, maybe I could just start on the RP issue again. It's a little incongruous that RP was up sequentially in the quarter and yet you saw this fall off in PCI on the left side. I'm curious if maybe you could just offer a little bit more in terms of why RP would grow but PCI would fall given that the letter was on RP that kind of precipitated all of this?

[Michael Minogue:]

So Raj, there's two things. So first is there's a seesaw effect that we've had for years, which is, if we have too much focus on high-risk PCI, sometimes it affects shock. If we have too much focus on shock, sometimes it affects high-risk PCI. So as I mentioned in my prepared remarks, there are other things that fell into the quarter but it all happened, and the biggest hit was in the month of March. So by putting focus on RP and shock, we ended up being -- doing the seesaw effect away a little bit from Protected PCI as we close the year. There are other things that were going on in the quarter. There was some cath lab slowdown. If you look at the numbers by Boston Scientific or Edwards in their cath labs, so it appears as the cath lab's were a little slower. In the past, that didn't have the same effect on us because it gave us more cath lab interest in time to do high-risk PCI patients. But again, in March itself, we did see the impact. And now if you are a physician and you do have any concern, you're less likely to use Impella on a elective case than you would on an emergent case. In the FDA physician -- letter to the physician professionals, it does mention that they should continue to use the Impella based on the risk-benefit. But an elective patient doesn't have the same level of risk, and so I do think it's -- as I mentioned, it's both internal and external. Internally, we were more focused on shock. We did see the improvement in overall RP revenue. We did not see the lift in patients that in February and in March compared to what we saw in January, so we had stronger patient growth in January for RP. But we did see the focus return a higher revenue number. We also saw a little bit of lift on 5.0, but we saw a little bit of a drop on our cardiomyopathy type of shock patients. So it's -- again, it's back to the seesaw effect. It really comes down to our focus in execution. And for that, we've got to do better.

[Rajbir Denhoy:]

Okay. That's fair. Maybe just a couple of other ones too. So Japan, you noted the increase in sites there. The revenue there was -- that $5.4 million, I think, was flat on last quarter. And so I'm curious if there's anything behind that. It was stocking last quarter, anything that might have driven it to be -- buy down what it was last quarter?

[Michael Minogue:]

I think it's -- we got a little ahead of ourselves in Q3 and Q4, so we just want to continue to maintain the focus so we get good outcomes. We're excited to have the CP approved. It's a more powerful pump. We will launch it in a controlled manner because it is more powerful, and it has a bit of a larger femoral access hole. But we're also working forward to get Impella Connect as fast as we can into Japan, which we should have this year, so we'll be able to remotely monitor real-time these patients. What we're also going to -- what's going to happen in the U.S. is we already have Impella Connect at pilot hospitals. We'll continue to add that with SmartAssist, which is the software on the console that gives us the ability to see how the patient is doing, look at pressures in the left ventricle, look at cardiac output and cardiac power. This gives the Impella the opportunity to really wean a patient and look at contractility of the native heart, something that has never been a potential or capability of any VAD in the history of VAD. So being able to wean someone's heart back will give them the maximum opportunity to not only stay alive but also go home with their own heart.

[Rajbir Denhoy:]

Great. Great. And then just one for Todd on just the guidance. So the 17% to 23%, just -- you gave some commentary, I appreciate, on the cadence of that over the course of the year. But in terms of growth rates given the way the comps were last year and given this issue that hit you guys last quarter, should we really think about the -- maybe first quarter or the first part of the year being closer or below that 17% range? And then maybe ramping to above it by the end of the year?

[Todd Trapp:]

Yes. Raj, I think it's a great question. And if you remember last year, the way the profile played out over fiscal year '19, our growth rates were 36%, 37% in the first half and then 30% and then 20% in Q4. So I think the way, from a modeling standpoint, probably towards the low end of that range in the first and second quarter and then ramping up in Q3 and Q4.

[Operator:]

Our next question comes from Margaret Kaczor from William Blair.

[Malgorzata Kaczor:]

So first up, I just wanted to tag a little bit more on the guidance question. You mentioned it will take at least one more quarter before hitting normalization. So should we expect both Q1 and Q2 to see a little bit of this impact? And as you guys look at kind of the low end of the guidance, does that assume improvement later in the year? Average is what the high end assumes.

[Todd Trapp:]

Yes. So Margaret, I would say that's the truth. Right now, we would say the first half of this year, we would say just some of the noise that we saw coming exiting out of March would continue at least into Q1, maybe a little bit in Q2. And then in the second half of the year, we have -- some of the things that we're working on right now is we're going to be launching Impella Connect in the May time frame. That should obviously take some hold in the second half of the year as well as the launch of 5.5 towards the end of -- in Q4 and towards the end of the year. And so I think that's the reason why we think from a linearity standpoint, Q1, Q2 probably closer to the low end of the range and then ramping up in the second half of the year.

[Malgorzata Kaczor:]

And then for folks that you were able to speak with in the quarter, you guys referenced seeing a little bit of that confusion. For those that you did reach out to, were you able to see those volumes normalize in April? Or is this account still requiring a little bit more time and need that FDA closing letter? And I think again, Danielle may have asked at the beginning, but how many of those customer were you able to reach out to at this point?

[Michael Minogue:]

Margaret, the issue is that we didn't know the folks that had concern until it was too late in March. So it's not the -- it is not the majority of people, and that's what we've been working on and focusing on since February. That was the focus we put out in getting the word out on RP and both in cardiogenic shock. And again if patients who get RP are also in cardiogenic shock, there is subset either of right side failure or they're biventricular. So that population is what we're driving and we're communicating on. The -- what happened though is in March itself, the Protected PCI business slowed to a very low level, the growth-wise. And once we figured out that the sites that conveyed their concern, the month of March was over. And that's why we put actions in place, analyzed it, and we're tracking it daily and weekly. And that's why we're disclosing today that April Protected PCI is up. It's not exactly where we want it yet but it is up from March and that the peers are making progress. We've already made a bunch of the other changes in place, and we feel confident that the technology, the innovation and the improving outcomes are -- there are the most important things if you want to continue to drive growth to be the standard of care. And we didn't hear from anyone, and you haven't seen any papers or publications that that's not happening. And into contrary is the papers continue to reinforce the ability to get better outcomes for patients if you followed protocol or you use hemodynamic support to get complete revascularization. And that's what gives us the most confidence. And obviously, we have a very good relationship with the FDA. We are the only one's tracking these patients, so that's the irony of this situation. We track our commercial patients. We track our -- we have an ongoing postapproval study in the cVAD, and we're going to continue to track that because we believe the product itself with the process helps improve outcomes for patients, and so we just have to continue to get good outcomes at hospitals. We did not hear people tell us that they saw bad outcomes or they were concerned. They just were worried that, based on that letter, based on the surveys that they may have been called on, they were worried there was something else that was going on. And we're trying to reiterate to them that we are seeing an improvement in outcomes. The innovation continues to improve. And again, we'll -- we definitely will leverage the final letter from the FDA stating that the device is safe and effective and encouraging all customers to look for early identification of right side failure.

[Malgorzata Kaczor:]

Good. And then just one more for me. In terms of the sales and support team structured today is it looks like -- is this something that you guys are concerned making a change on that in the future? And maybe if you could review for us how you do customer training and clinical support? Finally, and how the scene might look differently maybe in a year or two?

[Michael Minogue:]

So Margaret, we're not changing. We're expanding and enforcing and reinforcing. So adding more MDs, we're doing more courses back here at headquarters, we're doing more meetings out in the field. We continue to have the mobile learning lab traveling around the country. We're sponsoring more sessions before and after meetings. And what the big concern is when you look at where we are now is it's access closure, and those are things we can train, we can educate and that we can work on, along with our technology in the future. But those are things we're continuing to drive because we want as many patients to get Impella that can get it, whether it's it put in through the femoral artery or put in with the use of Shockwave for the femoral artery or whether they do it percutaneous to the axial artery or surgically through the axial artery. So that's a lot of the training we're doing. But adding the new physicians and the new indications is really to just do more of what we've been doing and make it more effective.

[Operator:]

Our next question comes from David Lewis from Morgan Stanley.

[David Lewis:]

Just a couple of questions. Mike, I just want to come back to 2020 guidance and sort of give a sense for investors on how risk-adjusted the number is. So I'm just sort of curious how should investors think about RP trends for 2020? And then specifically as it relates to high-risk PCI and emergent, does the guidance assume you get back to, let's say, third quarter-like trends for emergent and PCI. And if so, sort of when do you think that occurs? Or is it sort of more significantly risk-adjusted, assuming you don't get back to those levels for a variety of different reasons?

[Michael Minogue:]

So David, thanks for the question. In Q4, we had anticipated a tough comp. So we had 40% growth the prior year, so we had driven for a 25% growth number. And we missed it by 6%, so we did 19%. The reason we missed it is because in March, we had very slow growth in high-risk PCI. Now if we look forward into next year, what we've done is we've adjusted what would have been our normal approval of 24 to 28 range. And we've moved it down at the midpoint 6% to 20%, which is then 17% to 23%. So we're being transparent about what we've done. We've moved things down 6%. We are seeing an improvement in April. We will give another, either reaffirm this guidance or a new guidance at the end of Q1, and we're doing everything we outlined to improve the training, the perception. And also we're working with the FDA to hopefully get the progress and get the letter out closing the RP position letter. So those are the things we're working on. And that is, I would say, the risk adjustment per your question. It is taking what happened in Q4 and just moving it into Q1.

[David Lewis:]

Okay. Very helpful. And then just thinking about profitability for 2020, maybe Todd. Besides the incremental R&D expense that you had -- you specified, what are the sort of the other factors for 2020? Is it simply just higher R&D and slightly slower sales growth? Or are there incremental cost tied to some of these reinvestments or market stabilization issues that Mike talked about here in the first or second quarter? And as you think about profitability now for 2020, how should we now think about the trend line on sort of go-forward basis? After 2020, do we get back to that regular steady cadence of margin expansion? Or do you see these reinvestments you're talking about from an R&D perspective extend to beyond 2020?

[Todd Trapp:]

Yes. Good question, David. And I'll start off by saying we do expect to expand margins this year. Okay? But from an investment standpoint, let me just walk you through a few of them this -- in fiscal year '20. As Mike mentioned, we are looking to add more heads to the organization this year, somewhere in the 250 range, especially in the sales and marketing area. And we're expanding the surgical distribution team. We're adding 2 new regions, as Mike mentioned, which really allows us to go deeper at the sites with the interventional cardiologists, and we also brought in 4 new MDs to assist in the educational efforts. We also have a significant carryover from headcount additions that we made last year, so we -- our headcount increased 220 heads last year. We're rolling out CP optical with SmartAssist, and that's a company with higher material cost and really cost to upgrade the hardware and software on our AICs. With that said, we'll see a little bit of pressure on our gross margin, but we're able to leverage OpEx to drive margin expansion in this year. We are also making a little bit more SG&A investments in Japan as we scale up the business. And we have more clinical cost around STEMI DTU, DanGer and cVAD. So I'd say it's a little bit of a heavier investment for this year, but we do expect to see margin expansion. And again, at the midpoint of a range, we'll be at 30% operating margin business on a GAAP-reporting basis.

[Operator:]

And our next question comes from Matthew O'Brien from Piper Jaffray.

[Matthew O'Brien:]

Welcome back, Ingrid, as well. I guess the one thing that people are kind of scratching their heads at a little bit this morning is this commentary that you may provide new guidance at the end of Q1. Is that -- would that be on all metrics? Or just the top line metrics? And it could go up, it could go down. I mean, how do we think about that?

[Michael Minogue:]

So Matt, we think it's prudent to be transparent and candid. We did not have the March in high-risk PCI that we expected to have. So we're letting people know what we've adjusted. It's a 6% adjustment off of what we thought would happen in Q4 for next year. We are disclosing today, which we don't normally do, April, so you get a feel of we are seeing some progress. And at the end of Q1, we will either reaffirm that number or we'll adjust it but we want people to understand the logic of why we moved our fiscal year guidance down likely 6% from -- because of the miss we had in Q4 of 6% on what we had anticipated between 25% growth and 19% growth.

[Matthew O'Brien:]

Okay. Fair enough, Mike. And then just two more for me, and I'll them both together. There's been a lot of focus on Protected PCI and how that came up short, but you've been talking about how shock did well. Can you just give us some sense for what happened with shock specifically in the quarter? And the comfort level and outlook for that business? And then second question is, again, I think the shock here is the guidance for the year being 20%, and you've been doing 30% plus for several years. No, you can't do that forever, but is this kind of the new norm we should think about for Abiomed on the top line going forward?

[Michael Minogue:]

So to be clear, the numbers are not where we wanted them across the board, which also includes shock. We did have a specific issue in March around Protected PCI. I don't think the new normal is what happened in March, and I think what's happening in April is we're seeing some progress over that. But we also know that we've got more information. We've got better technology that is exclusive FDA approvals. The population is growing. There is a lot of energy around shock overall. And there's still a lot of balloon pumps and inotropes used on patients that never even get Impella. So we have to stay focused on both shock but also high-risk PCI. High-risk PCI requires us to get referrals in from the communities similar to TAVR. And for that, we just need to continue to ensure our customers have a lot of belief in the quality and safety of our products, and we have to continue to help them improve outcomes. So that's the focus. It's patient at a time. But we also work it down through the regulatory, through the formal studies and ensuring that we're listening to our customers and provide them the support they need to get good outcomes.

[Operator:]

And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Mike Minogue for any closing remarks.

[Michael Minogue:]

Thanks. So I want to thank all the investors on the call for your interest. We will be working hard to move forward. And if there are any other specific questions, we're happy to take them one-on-one, and we'll be around today and next week to clarify any questions or components of the call. Thanks for your time. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.