Abiomed, Inc.
Q3 2019 Earnings Call Transcript

Published: 31 Jan 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q3 2019 Abiomed Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Todd Trapp, Vice President, Chief Financial Officer. Sir, you may begin.

[Todd Trapp:]

Thank you, Crystal, and good morning everyone, and welcome to Abiomed's third quarter fiscal 2019 earnings conference call. This is Todd Trapp, Vice President and Chief Financial Officer for Abiomed and here with me is Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer. The format for today's call will be as follows

[Mike Minogue:]

Thank you, Todd, and good morning, everyone. This quarter Abiomed celebrated a historic milestone as we treated more than 100,000 patients in the U.S., Europe and Japan. We have invested well over $0.5 billion in research and compiled 20 years of Impella development to create the technology for the field of heart recovery with 597 patents and 442 patents pending. We are impacting more patients than ever before due to our commitment to sustainable growth while improving clinical outcomes. In Q3, our disciplined approach delivered our best ever quarterly results with $201 million in revenue, up 30% year-over-year and a record 31.1% operating margin. We have strong growth and execution in our three key countries, U.S., Germany and Japan. Abiomed remains one of the fastest growing GAAP profitable med-tech companies and maintains a stellar balance sheet with $458 million in cash and no debt. This allows us to remain focused on our mission of recovering hearts and saving lives while we continue to invest in innovation. On this call, I will highlight our successful launch in Japan and our expanding 24x7 capabilities in the United States to improve patient outcomes for clinical -- for today's clinical crisis. So, first on Impella adoption in Japan. Japan had another strong quarter, delivering $5.4 million in revenue and we continue to maintain the rigor around training and education. In Q3, we opened 13 sites, bringing our total to 48 Impella hospitals out of the 103 already approved by the government physician committee. We now have 1% penetration of the 50,000 potential patients. Japan is an ideal match with our mission of recovering hearts and saving lives because there's a cultural aversion to heart transplants and open chest procedures with a strong desire for native heart recovery. The Impella launch is going well in both clinical outcomes and revenue. I returned from Japan on Monday night where I enjoyed my time with the physicians and our field team. It was rewarding to see firsthand the impact Impella can have on patients in cardiogenic shock, and hear the interest from physicians on the science of unloading the heart. On January 15th, we hosted a press conference in Tokyo with Dr. Ju Nakada [ph] and Dr. Yoshiki Sawa. They discussed the benefits of heart recovery with Impella and highlighted the recovery story of the Mr. Rydel Temawankai [ph]. A professional fisherman, who had 28 years old survived cardiogenic shock from myocarditis and went home with his own heart. He is a perfect example of the quality of life benefits and cost savings of heart recovery in Japan. As previously stated, Abiomed is focused on launching our Japanese business in a controlled manner with comprehensive field training to ensure we achieve the best patient outcomes. We're excited about the progress to-date, but have a lot more to do in order to become the standard-of-care in Japan. Additionally, we are investing in the commercial distribution to prepare for the expansion of products in the short and mid-term such as Impella CP, Impella Connect, Impella 5.5 and Impella RP. Our second highlight for today's call is our expanding 24x7 capabilities to improve patient outcomes for a clinical crisis. Today, heart failure is a clinical crisis in the United States with 47% of women and 36% of men over 45 years old dying within five years of their first heart attack. In addition, cardiogenic shock carries one of the highest mortality rates in healthcare. The mortality rate for cardiogenic shock has been 50% for the last 20 years without Impella. Abiomed is investing to improve clinical outcomes around both survival and native heart recovery with on-site and on-call support 24x7 and tracking outcomes on nearly all commercial patients. No other company in this space provides this level of support to help improve patient outcomes. Our new technology called Impella Connect, launched at 36 U.S. hospitals, provides real-time, in the cloud, live monitoring to patients on Impella support. This allows Abiomed to provide a new level of exclusive support and offers our customers another tool to deliver better outcomes for patients. And, today, we are proud to announce that Impella Connect has received CE Mark approval in Europe. On the clinical research side, we are utilizing both Impella Quality database and the cVAD study to complement or six FDAs studies and conduct extensive post-market surveillance to identify and validate best practices. In total, we now have IQ clinical data in the U.S. from over 90,000 patients at more than 1,300 sites. Best practices identified within the IQ database are further validated in our cVAD study. The cVAD study is in IRB-approved, prospective and audited study utilizing FDA definitions on more than 5,000 patients. For your reference, we included two summary slides on the IQ, cVAD and Impella Connect in our quarterly update. Abiomed's clinical experience and research has stimulated a collaboration on education and led to physician-driven initiatives such as the National Cardiogenic Shock Initiative or NCSI. NCSI continues to improve awareness of the benefits of a shock protocol of best practices, which includes inserting Impella before PCI to unload the heart, stabilizing the patient and minimizing inotropic therapy. NCSI has now expanded to 63 hospitals and is having an impact on patient survival with native heart recovery. A recent patient story shows the life-changing power of best practice protocols. Todd Wasser, [ph] a 41-year old man from Rockwall, Texas, suddenly collapsed at home. His girlfriend, a nurse, immediately began CPR. While in cardiac arrest, Todd received multiple defibrillator shocks by paramedics in route to local hospital and was life lighted to Presbyterian Hospital in Dallas. Todd was in cardiogenic shock with organ failure due to 90% blockage of his major coronary arteries and had an ejection fraction of only 10%. In the cath lab, Dr. James Park and his team followed the NCSI protocol as a new participating hospital and immediately implanted the Impella CP pump to support his heart before they placed multiple stents. After two full days on Impella support, Todd's heart recovered enough to explant the Impella COMPARED, and he was discharged to home six days letter to spend Christmas with his family. Todd’s story highlights how protocols with Impella’s support before PCI can optimize and achieve the ultimate goal of survival and native heart recovery. Before concluding, I would like to remind those who missed our recent investor presentation at JP Morgan that we have posted our presentation with automatic slide advance and animations on the Investors section of our website and included a link in our quarter's press release. The presentation includes further details into our pipeline of new products and the science around our pending pivotal FDA STEMI DTU study. In summary, we are proud of our 100,000-patient milestone. And we will continue to grow the fields of heart recovery and improve patient outcomes by partnering with our customers to use real world studies to identify and validate best practice protocols. Abiomed remains focused on our disciplined execution and sustainable growth, so that even more patients around the world can benefit from heart recovery. I want to thank our employees and customers who put patients first every day, or as we say in Japan, kan ja-san Dai-ichi. I would like to thank our shareholders for their continued support as well. I will now turn the call back over to Todd Trapp.

[Todd Trapp:]

Thank you, Mike. As Mike mentioned, we delivered another record quarter with 30% top line growth and a 31% operating margin. Revenue in the third quarter was $201 million, an increase of $47 million or 30% versus last year with solid performance across all geographies. This represents the 17th consecutive quarter of greater than 25% revenue growth for Abiomed. In the U.S., revenue rose 27% to $173 million, driven by a 24% increase in overall patient utilization. Outside the U.S., revenue was $28 million, up 59% versus prior year due to strength in both Germany and Japan. On a constant currency basis, Germany saw revenues increased 41% due to patient utilization. And we continue to be very pleased with our controlled rollout in Japan as we opened 13 sites and delivered $5.4 million of revenue in the quarter. In the U.S., at the end of our fiscal Q3, the Impella 2.5 and CP have been placed at approximately 1,300 sites. The Impella 5.0 has been placed at 578 sites, while the RP is now at roughly 400 sites in total. Reorder performance in Q3 was also strong, with the rate slightly above 100%, consistent with the prior quarter. Average combined inventory at the hospitals for the Impella 2.5 and CP rose slightly from 4.2 to 4.3 units per site during the quarter, as higher volume hospitals carried more inventory to support their cases. In the third quarter, gross margin was 83%, down 80 basis points versus last year due to sales mix and manufacturing investments, primarily more operators to support our sales growth in both Danvers and Aachen. R&D expense in the quarter totaled $24 million, up 36% versus Q3 of last year. The variance was driven by new product development for the Impella 5.5 and Impella ECP, as well as for data collection related to our ongoing prospective cVAD study. These investments will lay the groundwork for improving clinical outcomes and sustained long-term growth. SG&A expense was $80 million in the quarter, up 20% versus prior year. The increase was due to expansion of our commercial team, additional marketing programs, higher incentive compensation in support of our Japanese launch. In the third quarter, we delivered $62 million of operating income, an increase of 39% versus prior year. This translated into an operating margin of 31.1%, a new record for the Company. Our margin expanded 200 basis points over prior year due to higher volume, which more than offset our growth investments. GAAP net income for the quarter increased 235% to $45 million or $0.97 per diluted share. The year-over-year increase was due to strong operating performance and a lower effective tax rate. As a reminder, third quarter fiscal 2018 net income included a tax charge of $22 million or $0.48 per share, as a result of the U.S. tax reform. Normalizing for this adjustment, EPS increased 26% in the quarter. Our balance sheet remains debt free, and we ended the quarter with $458 million of cash and marketable securities. Our top priority for cash is to support organic growth initiatives and to continue to build on our intellectual property advantage. Now, turning to guidance. We have increased our fiscal year 2019 revenue guidance to $780 million, an increase of approximately 31% from the prior year. This compares to our prior fiscal 2019 guidance range of $765 million to $770 million, an increase of 29% to 30%. This guidance projects Q4 revenue to be approximately $218 [ph] million, up 25% off a tough comparison where in the prior year, we reported 40% growth. We also expect 2019 full-year operating margin to be in the 29% to 29.5% range compared to our prior guide of 28% to 30%. In summary, Abiomed had another record quarter. Our razor-razorblade business model enables us to recover hearts and save people's lives as we deliver top tier revenue growth, greater than 80% gross margins, and an operating margin now approaching 30%. Keep in mind that the 30% was a five-year operating margin targets that we communicated 3.5 years ago. So, we're ahead of that projection, and we will continue to drive for best-in-class performance. What makes Abiomed really unique is that we've been able to deliver consistent top tier financial results while at the same time making significant strategic investments in the business. We're investing in new products and enhancements like SmartAssist, Impella Connect, Impella 5.5 and Impella ECP. We're focused on clinical research and potential new indications like STEMI. We've expanded our manufacturing capacity in both Danvers and Aachen to support future demand. And we also continued to add to our industry-leading commercial team and provide education and 24x7 hospitals support, all with the focus on improving patient outcomes. It is a great time to be at Abiomed, and we are very proud of what we're able to accomplish for our patients. Operator, please now open the line for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Chris Pasquale from Guggenheim. Your line is open.

[Chris Pasquale:]

Thanks and congrats on another strong quarter, guys. Mike, I wanted to start with some of the new technology you guys are rolling out. Can you talk about the early experience with Impella Connect in the U.S.? How that changes? How hospitals use Impella? When they have access to that that 24x7 support? And maybe what the plans are to expand that limited launched to more of a full rollout?

[Mike Minogue:]

Sure. Chris, thanks for the question. The Impella Connect is a new tool. And for everyone's benefit, it allows us to use a one-way video transmission out of the hospital, utilizing their WiFi system. So, it's HIPAA compliant and it’s secure. And it replicates on whatever tool that you're visualizing, whether it's an iPad or your phone to console of the patient on support. So, it's real time as if you were standing in the ICU room, looking at the console. The second thing is that you're not able to make any changes, and it is secure. So, it does allow for the productivity, but also the security of the patient. Now, the way we've used it is to ensure that the device is being used correctly, that we can see alarms, we can use it for training. If at any moment, there's an alarm that goes off, you can have it setup that you can get a text or an email that the critical alarm has gone off. If anything is changed bedside, the flow rates, it records it. So, you can go back and look at when and how the flow rates were changed. And in combination with the new software that's on the consoles, the SmartAssist, it gives us the ability to start looking at algorithms to see how the patient’s doing with the intent to wean people off. So, if you combine the SmartAssist capability, look at pressures in their ventricle and cardiac output, cardiac power, you now have really a navigation set of tools that you didn't have before. And I equate it to flying a plane and landing the plane. And what you want to do is you want to maintain the proper hemodynamics, the optimal unloading. But then, if you have the ability to reload a patient and you can only do that with an Impella forward flow pump, because you're not bypassing the heart, that's where we believe we can increase recovery, whether it's for an acute patient or acute on chronic. And I draw the investors’ attention to a paper that came out last quarter in ASAIO in the journal by Richard Chang is the first author, and it talks about how at Cedars hospital in LA, they're utilizing the 5.0 to take severely decompensated shock patients and basically salvage them back either to baseline recovery or onto a bridge or either durable LVAD or cardiac transplantation. So, there's a lot of information that's going to be coming out of the consoles itself. But then, Impella Connect gives real time ability for everyone to see it. To give one last practical example is, there are times where on weekends or late nights, some of the nurses on the call are not necessarily certified experts in managing these patients. And as a routine procedure, they'll sometimes change sheet or shift to patients. And when that happens, you have the ability to shift and move the Impella pump. So, a couple of months ago, on a Friday night at 10

[Chris Pasquale:]

And can you just remind us about the economics of this for you guys, so that there's an investment in service and support on year-end. Our customers paying for this as a subscription, is it something you're providing to them for free to drive utilization of pumps?

[Mike Minogue:]

So, this specific part of SmartAssist which gives you all the information and the algorithms on the console, that's provided at no cost, that's part of our service contract. For the Impella Connect 24x7, we have a pilot phase of sites that are receiving it and giving us input. Once we hit a certain number, around 100 sites in the U.S., we will be looking at some type of service model, software model where we’ll tier the pricing based on the outcomes and productivity of their team versus the amount of requirement that we're utilizing. So, we'll have some type of shared expense. But again, the main intent is to improve outcomes for these patients in the ICU. And just to remind all our investors, these are the sickest patients in the hospital. And when you can recover someone, they'll likely leave the hospital earlier with better outcomes; they’ll have less readmissions. And these are also some of the most costly patients in the system. So, improving outcomes has a financial benefit for the hospital. And just having the ability to see and monitor patients real time essentially improves the hospital, employee productivity and certainly improves our productivity as well.

[Chris Pasquale:]

Thanks, Mike.

[Operator:]

Thank you. Our next question comes from Jayson Bedford from Raymond James. Your line is open.

[Jayson Bedford:]

Good morning and thanks for taking the questions. Just a couple on Japan. It seems like Japan is tracking ahead of your initial expectations. Just wondering if you have an updated number as to what you think revenue can be from Japan in ‘19?

[Todd Trapp:]

Sure, Jayson. I appreciate the question. So, our original guidance in Japan was about $10 million of revenue. So, year-to-date right now after the $5.4 million in Q3, they're just shy of about $12 million. And so, we're forecasting right now for fiscal year 2019 for Japan to be somewhere in that $17 million to $18 million range for the year.

[Jayson Bedford:]

Okay. And just as a follow-up to that. Mike, are you accelerating your efforts there? I realize that it's a controlled launch. But, from a headcount perspective, are you adding more resources, given the momentum?

[Mike Minogue:]

We are, and we're also preparing for some of the new products that I have talked about. So, Impella CP, Impella Connect, Impella RP and then after that Impella 5.5. So, we plan to be the standard of care in Japan for the next 10 plus years. To remind our investors, last April, the intra-aortic balloon pump was deemed Class III for cardiogenic shock, which means it's harmful and not to be used. And we have a lot of growing momentum, because in Japan recovery is the ideal alternative and option, and it also has a significant cost savings for the system.

[Jayson Bedford:]

And just I'll ask one more and then drop. Do you expect any new countries to come on in fiscal ‘20?

[Mike Minogue:]

We currently have been seeing new countries. So, we have patients being done in Australia and India, other parts of Europe. Italy is a dedicated distributor that's been going well. But, we also are very-discipline that we need to see a commitment from the government along with the physician societies that they recognize Impella is a new unloading therapy for to focus on heart recovery. And what that means is it's identified as its own DRG. And that's what's happened in the U.S., Germany and Japan. And we want to maintain that, so all our patients in the future can get the care required, we can build out the infrastructure and our recovery can become the standard-of-care.

[Operator:]

Our next question comes from Bruce Nudell from SunTrust. Your line is open.

[Bruce Nudell:]

I had a couple trial design questions. With regards to the DTU trial, could you comment briefly about the enrollment criteria to ensure that kind of heart attack size or the infarct size will be big enough? And also, any point estimate for expected in infarct sizes and treatment and control arms? And then, secondly, with regards to evidence development in AKI prevention and high-risk PCI. Any initial thoughts about how you might use the cVAD registry to get approved statement that Impella is in fact protective of the kidneys during high-risk PCI?

[Mike Minogue:]

Sure. So, Bruce, thanks for the question. I'll try to summarize it. Obviously, we can have follow-up as well. First, on the trial design, we spent a lot of time at JP Morgan talking about the results from the STEMI study. We're very pleased that we've shown that it’s safe and feasible to delay for 30 minutes, the reperfusion, while you unload. And we've met the endpoints and we're moving on to the pivotal. As of this moment, we do not have confirmation on the primary endpoint and details of the sample size, clearly because not the government shutdown, but because of the storms in DC where we're meeting again with the FDA next week. So, we're happy to give kind of our overall concept of what we believe, but we can't commit to anything yet because we don't have formal confirmation. So, as we stated at JP Morgan, we're happy that the pilot revealed that it's feasible, but also showed signal that the Impella unloading has a potential to reduce your infarct size as compared to area at risk. We used a greater than for 4 ST sum in the study, and you see that same trend in that, but you only had a handful of patients that were at 4; the majority were there 5 or 6. But to remind everyone, we actually had a p-value, when the ST sum was 6 or greater. So, that's pretty impressive for only 50 patients. We still believe that infarct size measurement at 3 to 5 days with an MRI is the gold standard, and just this reduction of infarct size or an infarct there likely leads to heart failure in the long term. So, our intent for this study will be to have a shorter term endpoint around the infarct size and a longer term endpoint would follow up on a clinical heart failure measurement. This study will answer important questions. Go ahead, if you have a follow-up.

[Bruce Nudell:]

Yes. The only other question then was just about the PROTECT, AKI prevention, any idea for evidence at all there?

[Mike Minogue:]

Sure. So, on the AKI, we actually have data from PROTECT II, the RCT that we conducted back in 2012. And PROTECT II showed for the first time that you could decouple the amount of contrast to renal failure. So, the Impella arm had more, statistically more contrast and had numerically lower renal failure. And women actually had more AKI than men. So, we're doing analysis on that as well. We do currently have multiple studies that have been done in Europe and the U.S. And we presented data that will be published using the cVAD registry, demonstrating the continued reduction of AKI and showing a little bit of a benefit to the higher flow CP in reducing AKI compared to the Impella 2.5. So, there’ll be more science coming on that this year; there’ll be more publications; there’ll also be some more studies as well. It does appear that there is a connection between unloading the heart; there appears to be a hormonal connection between the kidneys and the production of urine. And for a long period of time, many physicians used to refer to Impella as a urine pump and will continue to publish that. But we believe that AKI acute kidney injury is an Achilles’ Heel, is a problem for all PCI for CABG as well as for TAVR, and there'll be tremendous amount of science on this rolling out in the future.

[Bruce Nudell:]

Thanks so much.

[Operator:]

Thank you. Our next question comes from Isaac Ro from Goldman Sachs. Your line is open.

[Isaac Ro:]

Good morning, guys. Thanks for taking the question. So, I wanted to start with the expense side actually. The operating leverage came in a little better than we expected. Just trying to think through some of the things that might have gone right there, and if you could kind of help us frame out what you're assuming for the rest of the year, sequentially on any kind of unusual expense items, and help us kind of going through operating leverage?

[Todd Trapp:]

Sure. Thanks, Isaac, for the question. So, I think, what drove margins in the quarter, I mean, 31%, which were record for the Company and it’s the first time we broke the 30% barrier. The 200 basis points of margin improvement was really driven by the higher volume, which offset some of our growth investments in the quarter. So, we continued to invest a good portion of our heads that we added, were on the manufacturing side, operators in both Danvers and Aachen to really to support our top line growth. We also continue to add to our commercial team in the quarter as well. In Q3, we spent a little bit more on R&D to support some of the new product pipelines, like the 5.5 and expandable sheath. And as I mentioned, these investments will continue to lay the groundwork for this longer term growth of the business. As I look at Q4, and as you know, we don't give formal quarterly guidance, but I guess some of the puts and takes I would say is we will have higher revenue in Q4 versus Q3 as we do typically do on our business. In Q4, we do have higher payroll taxes, primarily social security as the calendar year begins and the clock on those taxes reset. We are going to continue to roll out Impella Connect and CP optical. And that will be -- put a little bit of pressure on our gross margins. But obviously, it’s something we're really excited about to roll out that technology. I think in Q4, we also forecast to spend a little bit more on R&D primarily around third project party spend, again to support some of our projects like the 5.5 and ECP and expandable sheath. And I think in Q4, we’ll also continue to add to our commercial team at a similar level in Q3. So, I expect to see some nice margin expansion year-over-year. If you think about how we progressed during the course of the year, in Q1, we started off with 26% operating margins; Q2, we moved up to 27.7%; 31% at Q3; and will be a little bit north of that in Q4. So, exiting the year at the right rate.

[Isaac Ro:]

Great. If I could just as for a quick follow-up on key pipeline events. Just 5.5, when that comes to U.S.; ECP first in men; and then what comes next is STEMI? That would be great. Thank you.

[Mike Minogue:]

Sure. Isaac, this is Mike. The 5.5 is approved in Europe. We're doing patients now under a limited launch. As we said, we expect to have the 5.5 as a supplement to the 5.0 by the end of this coming calendar year. For ECP, we expect to do our first in man this year as well. And for the STEMI study, we expect to start this year. We just need to make sure that we get everything organized, get the final confirmation from the FDA, and then roll it out with the proper site selection. But, we're really excited. We have some additional products and other indications we're working on top of all of that.

[Operator:]

Our next question comes from Raj Denhoy from Jefferies. Your line is open.

[Raj Denhoy:]

I wondered if I could just follow up on a couple of things. So, on the STEMI trial, have you confirmed that it's going to be a two-arm study as opposed to a three-arm study at this point that there won’t just be an Impella and immediate arm in the trial?

[Mike Minogue:]

Yes. As far as 100% confirmation, we feel very strong that that's probably -- that's what we're recommending that’s what the discussion is. To remind everyone, we did a pilot, so that we can firm and measure out the specific differences of the 30-minute delay, because the Impella was in both arms, was in both -- in the patients during the PCI and after the PCI. Really what we're trying to show is that this 30-minute preconditioning has the ability to activate a cardio protective program that the hypothesis was from animals would reduce the reperfusion injury. We believe that we've confirmed that. We've shown that not only is there not harm done to the patient, there appears to be a benefit when the ST sum is 6 or greater, and that was the intent. So, now moving forward, we're going to do standard-of-care, which is just a door-to-unload, which is -- I mean, sorry, door-to-balloon, which is today's standard of the angioplasty balloons opening up. And so we're going to be comparing plumbing only to a heart pump with plumbing. And that's what we're excited about.

[Raj Denhoy:]

And then just, because I'm pretty saw over the quarter, the PHP trial restarted the Abbott trial. Any thoughts on that trial, any of the updates that were provided, have you heard anything from the field yet in terms of physician interest in that trial? So, any thoughts would be helpful.

[Mike Minogue:]

Sure. I mean, Abbott, we’ll let Abbott give you all the details of their own study. But we like the added support and focus on recruiting high-risk PCI patients that have advanced coronary disease. As we’ve said, they're a good company and they've got a large platform for education, and they create a lot of clinical awareness. We all agree there's an unmet need for patients that are high-risk that are turned down for surgery. We've referenced to publications that show the majority of these patients never make it to the cath lab or get referred in. And there's one paper estimating it's over 300,000 patients per year in the U.S. alone. That being said, it's still a 13.8 French catheter. They did have to stop the study. We're very confident in our innovation and our IP, and we have a 20-year head start. So, we look forward to having them join along. And the CMO of Abbott is a great guy and he used to be a customer. So, we wish them the best of luck.

[Raj Denhoy:]

Great. And just maybe one last one. I think, you had alluded to earlier that you might be doing an analyst meeting later this year, sort of give us some updates in terms of your assumptions for market size and the like. Is that still the plan for later this year?

[Mike Minogue:]

That is, Raj. And essentially, we work on behalf of our investors and our analysts. And so, there's a lot of new information coming on the STEMI, on the 5.5, on some of the other capabilities we have, and then also updating the total addressable market versus our current addressable market. So, we do plan to do that this calendar year. We want to get a couple of these other milestones behind us. So, we can give more detail and have Investor Day of substance, which means, its’ probably later this calendar year.

[Raj Denhoy:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Margaret Kaczor from William Blair. Your line is open.

[Margaret Kaczor:]

Hey, good morning, thanks for taking the question. First off, I wanted to follow up on the Impella Connect in the U.S. You kind of referenced to 100 sites that you're trying to get to initially. Is there a backlog of demand where the hospitals or clinicians are asking for this in the hospital right now that you guys can continue to launch into? And then, are the hospitals used to that shared expense model that you described, kind of what’s been the feedback so far from those you have described it to?

[Mike Minogue:]

So, Margaret, that's a good question. So, the first component of it is, there's definitely an amazing cool factor that the physicians, when they have their phone in their hand and they can see this and they can look at the way the patient was tracked or monitored or any change in the night, I mean that that element of technology is -- it doesn't exist anywhere else. The second thing is on top of the fact that they can see the console, we put new tools on the console itself, things around cardiac power output, cardiac output, looking at pressures and the left ventricle, things that they also haven't had the ability to monitor and understand. And so, we're giving them the ability to see how the heart’s doing, the contractility and what's happening with the goal of weaning the patient off. So, that part is in conjunction. And then, from a demand, I think that the people that are focused on the outcomes or people that are putting the best practice protocols in place, this is where the evolution is going to go. Because if you can manage these patients properly, it's not necessarily just one less day in the ICU, it's life or death. And it means that patients may go home alive with their own heart. So, these are massive changes in the outcomes to the patients. These are huge benefits to the patients and their families. And I think that doesn't sink in at times is the fact that we're managing people that have the highest mortality risk in the hospital, and we're giving them 24x7 information to save the patient's life and transform the standard of care. These physicians and nurses have watched these patients die for 20 years or watch them to go on to more invasive, more expensive procedures. So, the demand out there is a sincere expectation and a quest to improve the standard of care. So, we're giving them these tools. As far as the shared revenue, the model, I think that you have to prove that out, which is why we're going to pilot it at the certain sites. But certainly, having this information is going to have a difference. And what we're looking at doing is rewarding the sites that have the protocols that have the expertise. And we understand other sites may require a little bit more handholding and more intense support from us 24x7, which includes coming to the ICU. But because of that that will be over time to wean them back, to get their hospital up and get their hospital to where these other best practice hospitals are that are achieving the 70% and 80% survival rates with 95% plus native heart recovery. So, that's the model, and we're super excited about it.

[Margaret Kaczor:]

Okay. That's great. And in terms of the P&L, just to kind of hit on two things. So, you mentioned hitting kind of the prior long-term guidance. I assume we'll get an update on that at the Analyst Day. But, Todd or Mike, as you guys look at your P&L and you're go to market strategy, how do you -- or who do you view as your top peers for operating margin longer term?

[Todd Trapp:]

The company that we typically benchmark ourselves would be Intuitive. It's one of the companies that has best-in-class revenue, as well as margin. So, that’s a company that we kind of model ourselves at here as well. So, again, based on where we're sitting right now, I mean, for us, it’s as always trying to find that focus between really that short-term margins and that longer term growth initiatives. And I think that's one of the great things about our business models that we can do both, right? We can grow top-line faster than most and we can drive further margin expansion while continuing to invest back into business. And that's what we're going to do. I mean, if you think about where we were just few years back in 2015, we’re a 12.5% margin business. Over that time period, we spent close to $300 million of R&D and now we're approaching 30%, and we're not done yet. And so, we're going to strive to be best-in-class on both the top-line as well as on the bottom-line, Margaret.

[Operator:]

Our next question comes from David Lewis from Morgan Stanley. Your line is open.

[David Lewis:]

Just a couple of quick knits for Todd and then one strategic for Mike. Just on the financial side, Todd, I just want to confirm this number in the deck. The 95 CP -- I'm sorry 2.5 placements this quarter, it seems like a very big number. I want to make sure I have that right. What drove that particular number? And just the R&D spend that was the real disconnect on margin math this quarter. That R&D number continues to scale. Where is that incremental investment going? And then, I have one strategic for Mike.

[Todd Trapp:]

David, can you just repeat your first question on the sites?

[David Lewis:]

Sure. I think, in the deck -- on 2.5 site number, that looks like a very big number. I just want to understand what the drivers of that incremental 2.5 site add was in the quarter?

[Mike Minogue:]

So, if you're doing new sites, David, we did 104 new sites, 40 of which were CP and that compares to 101 total sites prior year. So, the breakdown of new sites for 2.5, CP, 5.0 and RP went from 101 to 104. Is that the number you're referring to?

[David Lewis:]

Pretty consistent, we had a different number. So, we'll come take that offline. And then -- that's helpful. And then, Todd, just R&D, R&D investment continued to scale the last three quarters. Where is that -- that $7 million, I think up year-on-year, where's the incremental investment going?

[Todd Trapp:]

It's going in the pipeline of our new products, like the Impella 5.5, Impella ECP and expandable sheath. As well as, we continue to build out our cVAD study in IQ database. And as you know, that data has been a great foundation for us to attain expanded indications for our product. So, I would say between the products as well as our ability to build out our cVAD study and IQ database.

[David Lewis:]

And then, on the -- just outlook for 2020, Mike, as we think about the growth. Could you just give us a sense of where you're thinking about sort of geographic growth? Obviously, the U.S. coming off harder comps international; it could scale with new countries and Japan is ramping. Just give us a flavor for sort of drivers of geographic growth next year, as well as new product growth? Thank you.

[Mike Minogue:]

So, David, relative to your question on geographic, I think, what you'll see is continue to be maintained focus in the U.S. and Germany. Potentially based on some additional reimbursement in countries in Germany, we could expand potentially a little bit more resources in France or the UK or other parts of Europe. We also expect to now move a little bit faster, and what I would consider in Japan to be the full launch. We've had kind of this limited launch to ensure we get the infrastructure. So, you'll see us try to ramp it a little bit faster in Japan. We always give each quarter the number of sites that are already approved. So, we're only at 48 but 103 sites are ready and approved by the government. So, where we could pick that up, we could be twice the rate now there, and that's going to go to 350 hospitals. But, there's certainly more hospitals than the 350, and the balloon pumps are at more than 350 hospitals in Japan. So, we’ll really see a push in Japan. And we’ll continue to build out and plant seeds around the rest of Asia for areas that are focused on heart recovery, and just more execution, more discipline. The new tool of the Impella Connect really gives us the ability to audit and check as we open new countries, to be able to ensure that they're managing the patients the way we want them managed, and that they're utilizing the best practices. And I think the Impella Connect gives us a little bit more flexibility to experiment and audit in some of these countries that before might have been hesitant to launch them.

[Operator:]

Thank you. And our next question comes from Danielle Antalffy from Leerink. Your line is open.

[Danielle Antalffy:]

Todd, first question for you on the Q4 guidance. I appreciate that it's a tough year-over-year comparable. But, it feels like momentum is actually accelerating or at the very least, stable. Can you remind us what drove strength in the Q4 last year, and the puts and takes of guidance this year, given that you're clearly doing better in Japan? Can you talk a little bit about why you're expecting the step down in growth beyond the fact that it's a tough comp?

[Todd Trapp:]

Yes. Well, I mean, listen, consistent with past practices, in Q3, we took up the reign for the third time this year; it was $15 million off the low end and $10 million off the high end. And so, again, we're focusing on $780 million for the year, up 31%. But Danielle, it does come down to really big -- bigger numbers and tough comps. I mean, as you mentioned, last year in Q4, we grew 40% from a top line perspective. And so, we are lapping some really difficult course. And so, we're going to continue to grow at a pace that we think is sustainable with a focus on patient outcomes. And again, as Mike mentioned, our goal remains to be one of the fastest growing, most profitable med-tech companies in the market. And so, I think it's more comps than anything else.

[Danielle Antalffy:]

And just from a cash perspective, Mike, I appreciate you said the focus is investing organically into the business, but you continue to generate strong cash flow; you’re now at over $450 million in cash, no doubt. At what point do you start to deploy capital elsewhere? Because it feels like you're generating cash faster than you can spend it. So, just curious how to think about your view over the next few years on deploying that capital. Thanks so much.

[Mike Minogue:]

Danielle, we're very-focused on our organic growth and our execution. We like having a very big cash position that allows us to continue and invest in innovation as well as create a stronger IP position, and we plan to continue to enforce our IP position. We are placing investments on things that are adjacent. So the -- we placed $15 million in Shockwave. I think it's clever technology that helps people with vascular disease and allows us to potentially place more Impellas to the femoral arteries. We've also made upwards of $30 million, $40 million in other investments, and new technologies that might be 5 to 7 years out that have a fit into what we're doing or our patient path. And we'll continue to be selective in investment areas where we see a benefit where we can leverage our core competency of recovering hearts and saving lives.

[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.

[Mike Minogue:]

Great. I want to thank everyone for their time today. And if you have any follow-up questions, please feel free to reach out. Have a great day.

[Operator:]

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