Abiomed, Inc.
Q4 2014 Earnings Call Transcript

Published: 1 May 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Abiomed Fourth Quarter 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 be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I'll now introduce your host for today's conference, Aimee Genzler, Manager of Corporate Communications. You may begin.

[Aimee Genzler:]

Thank you. Thanks everyone for joining us for the Abiomed fourth quarter fiscal 2014 conference call. I'm Aimee Genzler, Manager of Corporate Communications, and I'm joined today by Mike Minogue, Chairman, President and CEO; and Bob Bowen, Chief Financial Officer of Abiomed. The format for today's call will be as follows. First, Mike will provide you with strategic highlights for the fourth quarter. Next, Bob will provide details on the financial results outlined in today's press release. And we will then open up the call for your questions. Before we begin discussing the fourth quarter fiscal 2014 results, it is necessary to remind you that during the course of this call, we will be making forward-looking statements, including statements regarding development of Abiomed's existing and new products, the company's progress towards commercial growth and future opportunities and expected regulatory approval. The company's actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including uncertainties associated with development, testing and related regulatory approvals, including the potential for future losses, complex manufacturing, high quality requirements, dependence on limited sources of supply, competition, technological change, government regulation, litigation matters, future capital needs and uncertainty of additional financing and other risks and challenges detailed in the company's filings with the Securities and Exchange Commission, including the most recently filed annual report on Form 10-K and quarterly report on Form 10-Q. Listeners are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of the conference call. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date of this release or to reflect the occurrence of unanticipated events. Also, we remind our participants that the products discussed on this call, including the Impella 2.5, Impella 5.0 and Impella CP are 510(k) cleared for partial to full regulatory support for periods less than six hours and during clinical procedures that do not require cardiopulmonary bypass. Other products discussed, including the Impella RP, Symphony and Impella pediatric are currently investigational devices and are limited to investigational use. Finally, comparative references made financially in this call to revenue, expenses, gross margin or other increases or decreases will be indicated by references to fourth quarter of fiscal 2014 as compared to the fourth quarter of fiscal 2013 or fourth quarter of fiscal 2014 as compared to the third quarter of fiscal 2014. I'm now pleased to introduce Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer.

[Mike Minogue:]

Thank you, Aimee. Good morning, everyone. Abiomed delivered another strong quarter with 15% increase in total revenue of $50.4 million, driven by record patient utilization and 200% growth in Impella CP patients. Impella utilization was also robust with the highest number of reported patients treated in a month, week and day. We've grown topline revenue double-digits for 18 straight quarters, supported over 19,000 US patients, maintained profitability and generated $118 million in cash without incurring debt. Impella is now the most widely used heart pump in the United States, with approved and standardized DRG and CPT codes for hospital and physician reimbursement for Medicare and major commercial insurers. Impella is in approximately 859 US hospitals with over 2,000 physicians trained. For the full fiscal year, Abiomed had solid Impella growth of 19% with overall revenue of $183.6 million and set new records for patients supported and quantity of clinical publications. On the regulatory side, we completed our Impella 2.5 PMA submission and our Impella RP FDA trial. We are proud of our execution this fiscal year and grateful to our stakeholders. On today's call, we will cover two of our four corporate goals, so we can devote the majority of time discussing our specific progress on our US regulatory goals. So starting with our second goal, achieving significant patient and revenue growth. Patient growth was 15% year-over-year and increased double-digits sequentially. As a percentage of total case mix, prophylactic support and emergency support each represented 44%, with the remaining 12% distributed in the all other categories of total usage. To be clear, all Impella prophylactic and emergency procedures are considered high risk, because our patients have poor hemodynamics and require complex treatment. Impella CP is in the sweet spot of addressing the clinical needs of our physicians and it now accounts for approximately half of our patients. Over the last several months, we have had 28 Impella publications on both the clinical and cost effectiveness data. One important recent publication

[Bob Bowen:]

Thank you, Mike, and good morning, everyone. As noted in this morning's full earnings release, fiscal fourth quarter revenue was $50.4 million, an increase of 15% from $43.7 million in the prior year. Worldwide Impella product revenue grew 17% to $46.1 million off of a difficult prior-year comparable of $39.3 million. The components of fiscal fourth quarter worldwide Impella revenue include

[Operator:]

(Operator Instructions) Our first question comes from Matthew O'Brien of William Blair.

[Matthew O'Brien:]

I was hoping we could start off with the prophylactic performance in the quarter. Mike, it was 44% in total sales of the units. And it seems to be even though the number of hospitals continues to grow, kind of stabilized at about this 950, 960 unit number. Can you just give us a little bit more color as to why we've seen that taper off here somewhat and then maybe next inflection points we should expect?

[Mike Minogue:]

So starting off with the mix, as we said, was 44%, 44% and 12%. And on the prophylactic support, it was up high single-digits, 5% to 7% over the prior year and it was up as well a little more sequentially as well. The growth in the emergency population was in the mid-20% range. And in the all other, it was in the high-20% range. But we want to point out that it's not necessarily really a binary definition between a prophylactic and an emergency patient or all other. Some of our patients have extremely poor heart function and putting them on a table for procedure when they lay flat, they can potentially go into active heart failure. So we break it out as best we can, so that you can see the mix of that elective type of approach versus the emergency. But as you've seen, they're all growing together double-digit. And sequentially, they grew double-digit as well.

[Matthew O'Brien:]

And then heading into guidance, the first look at it was a bit below what we were thinking. But digging in a little bit more, it seems like there were some things that were kind of tailwinds for fiscal 2014, be it a little bit higher inventory levels at your hospitals and then some CP benefit as well. When we look at actual just patient number and volume growth there, is it fair to say that growth of that metric should be pretty similar in fiscal 2015 as far as what we saw in 2014?

[Mike Minogue:]

Our guidance is our guidance. And we don't necessarily want people to get ahead of us and we want to have an execution where we can deliver in the $205 million to $212 million range. That being said, our big focus really is on the Impella PMA approval, the Impella RP HDE approval and the Japan approval. And in that guidance, you don't have any revenues or any type of benefit associated within that fiscal year. So those come along obviously that would be upside. And then back on the growth rate, what you're seeing is that the Impella CP is an accelerator or a catalyst. And what we've tracked internally is when the sites receive that, their overall volume on average goes up. So it drives more utilization. And if you think about our entire installed base, there's probably 1,300 potential accounts. So we've got a long way to go for just the 2.5, where we're at today in the mid-800s. We've got even longer way to go with the CP and then the RP, as well as 5.0. So we're going to continue to have a focus on going deeper. That's why we limit the amount of new sites we open as well as how many sites can get CP. And we'll do the similar approach with the RP in the US.

[Matthew O'Brien:]

And then just one more for me if that's okay. You mentioned Japan. I just want to make sure that generally speaking, we're still kind of on track for a summer approval there, not necessarily reimbursement, but just still on track for that approval?

[Mike Minogue:]

We're still on track for late summer and reimbursement to follow within six to nine months.

[Operator:]

Our next question comes from Danielle Antalffy of Leerink Partners.

[Danielle Antalffy:]

One of the questions has been what's the high-risk patient population. What do we have coming down the pipeline from a data perspective that could help better define that market?

[Mike Minogue:]

So, Danielle, I'll make sure I understand the question. You are asking what data publications are coming out around what is the definition of a high-risk patient versus an emergency patient?

[Danielle Antalffy:]

Exactly, because one of the pieces of feedback that I get from physicians is that it's tough to figure out who is a high-risk patient and who is appropriate for an Impella. So I know we had talked in the past about a white paper that could be coming. So just wondering if you could comment on that.

[Mike Minogue:]

Sure. So we've had extensive publications on the PROTECT II study. So we have the first version, which covered everything, the PROTECT II in circ. Since then, we've had a learning curve paper on PROTECT II. We've had the atherectomy paper on PROTECT II. We've had PROTECT II, where we've just used the current definition of the FDA uses for a higher rate of MI 8x. And in all of those, you see statistical benefit at 90 days. The way we would define high-risk PCI is the way the FDA has run or accepted the PROTECT II study or PROTECT I study, which is lower EF, which the cut-off point would be 35% relative, whether it's triple-vessel disease or unprotected left main with some type of complex treatment. Also in that protocol, those are the hemodynamics and the anatomy, but what we also ask is the physicians have to believe that the patient requires hemodynamic support. So that would be the third caveat. And that population, if you look at what the balloon pump has seen in usages, around 25,000 patients a year. But we believe there is another population of patients that today or in the past were not treated in the cath lab and many today are turned down by surgeons, because the risks were from STS or SYNTAX is very high. And one thing that we've been looking at is if you look at the SYNTAX study, which was done years ago to define patients that should get a PCI as compared to CABG, patients that were turned down for surgery were put in the SYNTAX PCI registry. So again, these are patients 100% were turned down for surgery and they're listed and they're noted in the PCI SYNTAX registry. And those patients actually are not as complex as our PROTECT II patients. And we have those broken out based whether you look at rate of heart failure or diabetes or prior heart attack. They are not as sick. And what we believe happens in the future, similar to these other technologies, is that there is going to be a population that we can enable in minimally-invasive procedure that potentially the surgeons feel are not appropriate or they prefer not to treat them with a sternotomy and an open heart. So there'll be more to follow on that. But you can imagine that there is difficulty collecting data and predicting a population that doesn't get treatment today. But generally speaking, there is a large class of patients in Class III, Class IV that have complex disease that have poor hemodynamics and are being turned down from surgery. And just one last point on that. We're also tracking trends and if you read some of the reports up to 2013, the trends on PCI are significantly down with exception of patients that are getting PCI for triple-vessel disease or have low EF or getting atherectomy and have low EF. So that's a population we're going for. And this is a population of patients that likely in the past had limited treatment options.

[Danielle Antalffy:]

And one follow-up question if I could. You have a competitor that's going to start enrolling a CE Mark trial and then a US trial at some point before year-end. Just wondering how we should think about the impact to 2015 sales growth guidance and what you guys have maybe included in that guidance for the competitor trial.

[Mike Minogue:]

So the competitor is a good company and makes very nice heart pumps that help a lot of patients live and get to a transplant. So we wish them the luck on any technology that helps patients. But just to point out, we get thousands of patients before we ever did our first patient in the US. And we have eight years of clinical research. So there is a strength of having all this information. And now this segment of category will require a PMA. But we don't have anything in there for 2015, because this is a long regulatory process and we wish them luck, but know that we'll require a lot longer than fiscal 2015 in order to bring that product into a commercial package.

[Operator:]

Our next question comes from David Lewis of Morgan Stanley.

[Unidentified Analyst:]

It is actually James in for David. Mike, a follow-up question on the 515 process. You mentioned earlier in the call you expect the future PMA indication to broadly encompass the function of temporary support. In our prior conversations, we understood that initially perhaps the FDA would draw a distinction between high-risk PCI versus shock. Is that still your expectation?

[Mike Minogue:]

That is our expectation. We're not proposing to get AMI shock. However, we are proposing a type of bail out or emergency support. And when you get into something like shock, now you're talking about bridge to recovery type of approach, and we will be in discussion with the FDA about using our registry to collect data to reinforce our current submission, but also use it to collect data on smaller populations that are difficult to study with the hope that we can expand our indications. But remember that our patients that are getting hemodynamic support for PCI whether they got there through either a prophylactic or emergency nature, what we're providing is temporary support to enable the procedure.

[Unidentified Analyst:]

And to the extent that you get a label that does not initially include shock, I mean do you think that creates any marketing or messaging challenges to physicians relative to the current use in those types of procedures?

[Mike Minogue:]

We have a 510(k) labeled today just for six hours of use to have a PMA would is really showing that you have reasonable assurance of safety and effectiveness. And again, it's for hemodynamics for procedures, not necessarily shock. We don't have that today at all. And again to point out that the practice of medicine under the 515 is all of these products are already on the market. We've been on the market for six years. So in the practice of medicine and how things are paid for, they do get very specific indications and that's what we've been evaluated for and that's where we're already currently in the guidelines.

[Operator:]

Our next question comes from Anthony Petrone of Jefferies Group.

[Anthony Petrone:]

Mike, maybe you could touch on Germany a little bit. That's been a source of strength for Impella post-shock and maybe just the latest trends in Germany? Are you still seeing share gains from intra-aortic balloon pump in that market?

[Mike Minogue:]

Europe and Germany continue to be strong. And again, we want to compliment the FDA support and speed in our Impella RP study, allowed us to actually transition from doing the European study to moving directly into the US, collecting data under the US study and then using that data to submit for the CE Mark. So we're going to be again very diligent in how we roll the Impella RP out. But certainly Germany would be one of the places that we go to first to start implementing the protocol around Impella RP utilization.

[Anthony Petrone:]

Maybe to stay on RP for a moment, can you maybe give us a look at what the US market potentially looks like in terms of uptake across the existing hospital customer base that you have and then maybe your expectations for utilization of that catheter? I assume it would be significantly lower than the 2.5 and CP, but maybe just a little bit of color around that, that would be helpful.

[Mike Minogue:]

So we don't have it in the current numbers, but we do expect to have it at the end of our fiscal year. As far as the demand for it, I'd encourage everyone to do their surveys. Of the 865 hospitals or 859 hospitals in the US, nearly all want it and will likely order it right away. And as far as utilization, I think what we're going to propose is under the HDE we have two different discrete populations, some that are post-LVAD and some that are just right-side failure, biventricular failure. So we'll approach those in kind. But our long-term goal is to collect data and submit to the FDA, so we can have a bridge to recovery biventricular PMA approval. That way, you can use any Impella device in the left side and the RP on the right and you can do biventricular or left or right only. So that's also something we're going to be continuing to collect data on and work with the FDA for that expansion.

[Anthony Petrone:]

What would be the timing on that expansion just maybe to follow-up there?

[Mike Minogue:]

Our goal right now is get the HDE approved. And then in there, you have two discrete populations for the RP. There was cohorts in the HDE study. We'll give more details out of it further out. But we are already planning to collect the RP data as well in our registry post-approval.

[Anthony Petrone:]

Last one for me is just on Japan. I know it's not in numbers here. But maybe expenses early on and sort of entering that market, are you going to be incurring expenses this year ahead of the launch? And then as you look at the market, maybe just a review again of the initial target sites you're going after and your expected utilization in that market as well?

[Bob Bowen:]

Yes, we have $3 million to $4 million set aside in our plan for this year, some of which is currently ongoing, but most of which is we expect to occur in the second half of the year. And these are pre-revenue startup costs with regard to getting our infrastructure in place and along with clinical personnel and maybe training of clinical personnel. We're also at early stage of doing some training at the physician level. And we plan to open initially 10 to 20 sites that will be across the country. Key sites for us that will be training sites for us and we will serve those on a direct basis and then subsequently use a partner for servicing the remainder of the cath labs in Japan.

[Mike Minogue:]

And then just on the execution again, we plan to have a hybrid model in Japan, where we have a direct team covering the top 15 to 20 sites. And then we'll partner with a strategic to cover the rest of Japan.

[Operator:]

Our next question comes from Jan Wald of Benchmark.

[Erica Layon:]

This is actually Erica in for Jan. Just have two quick questions for you. The first is on the timeframe for the 515, is the panel within that 12 to 14 months, or do you expect that to be after that 12 to 14 month period?

[Mike Minogue:]

We expect the panel within that 12 to 14 month. But as we said, it's hard to predict, since this is the first of its kind type of approach.

[Erica Layon:]

And then the second question is about the HHS investigation. Is that something that's related more around the Massachusetts laws, where it's inappropriate to buy someone a coffee, or is this on a more national basis just coming out of the Boston office?

[Mike Minogue:]

It's more national, but we received a subpoena late Friday. So as we're investigating this, it's been fairly discreet set of materials for a fairly limited period of time. However, we believe our physician reimbursement policy has been and is compliant. And so we have to be prepared for this type of business in this regulatory world and we are. And just as a point, in the future, the Sunshine Act, this type of data will be posted on the website for all companies. So we'll cooperate and move on.

[Operator:]

Our next question comes from Jason Bedford of Raymond James.

[Unidentified Analyst:]

Hi. This is Mike calling in for Jason. Just first on the 2.5 PMA process, once you get approval, do you expect to see a change in practice patterns in terms of utilization? And then a follow-up to that, do you expect to change your marketing strategy at all in terms of aggressiveness with doctors?

[Mike Minogue:]

So, Mike, we sell very clinically today. And that's why you see the amount of publications that we have. And what I do think it'll make it a little easier for us to market. We're uber-conservative today, because our focus is really just to get to the PMA and move on. And I think it will allow us a little bit more freedom. But from a general sense, I don't think you'll see a change in our kind of policy of how we interact with physicians or the hospitals.

[Unidentified Analyst:]

And then I'm sorry if I missed this, but when we look at the 2015 guidance, I was hoping you can give us an idea of what some of the underlying assumptions were for Impella sales growth both US and OUS and then what sort of rate of new center adds we should be assuming?

[Mike Minogue:]

I think essentially right now, the business is largely Impella business. I think most of the service revenues come from the AIC consoles, which are Impella controllers. And the only non-Impella piece of the business is the AB5000, which is about 3% of the overall. So I think you can think of the guidance to be basically Impella-based guidance. We haven't specifically split out OUS from US. So we are expected to continue to see strong growth out of OUS, and we would expect to open about the same number of Impella 2.5 sites as we have in each of the last three years. So that's somewhere around 110 or so sites. And we would expect to continue to see the existing sites for the Impella CP at about the same rate as we did in the most previous yer. So it's probably going to be around 240 to 260 sites.

[Operator:]

I'm not showing any further questions in queue. I'd like to turn the call back over to Mike Minogue for any further remark.

[Mike Minogue:]

Thank you. So just to remind our investors, our goal is to become the new standard of care for percutaneous circulatory support. We believe we're on track. And we look forward to another record year. Thanks for your support.

[Operator:]

Ladies and gentlemen, thanks for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.