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Abiomed, Inc. (NASDAQ:ABMD)

F3Q13 Earnings Conference Call

February 6, 2013 08:00 AM ET

Executives

Susie Lisa - Senior Director, Investor Relations and Corporate Development

Michael Minogue - Chief Executive Officer, President & Chairman of the Board

Robert Bowen - Vice President and Chief Financial Officer

Analysts

Brooks West - Piper Jaffray

Greg Simpson - Wunderlich Securities

Jayson Bedford - Raymond James & Associates

Raj Denhoy - Jefferies & Company

Steve Beuchaw - Morgan Stanley

Charles Croson - Sidoti & Company

Bob Hopkins - Bank of America

Operator

Good day, ladies and gentlemen, and welcome to the Abiomed, Inc. Third Quarter 2013 Earnings 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 is being recorded.

I would now turn the call over to your host, Susie Lisa, Senior Director, Investor Relations and Corporate Development. Please go ahead.

Susie Lisa

Thanks Stephanie, and thanks everyone for joining us for the Abiomed’s third quarter fiscal 2013 conference call. As we said, I am Susie Lisa, Senior Director, Investor Relations and Corporate Development, and I am 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 third quarter. Next, Bob will provide details on the financial results outlined in today’s release, and then we will open up the call for your questions.

Before we begin discussing the third quarter fiscal 2013 results, it’s 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 toward commercial growth and future opportunities and expected regulatory approvals.

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 this 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.

Lastly, compared to references made financially in this call to revenue expenses, gross margin or other increases or decreases will be indicated by references to third quarter fiscal 2013 as compared to the third quarter of fiscal 2012 or third quarter fiscal 2013 as compared to the prior second quarter of fiscal 2013.

I will now please introduce Mike Minogue, Abiomed’s Chairman, President and Chief Executive Officer.

Michael Minogue

Thank you, Susie. Good morning everyone. We are proud to report another strong quarter in which we supported a record number of Impella patients. Abiomed grew 19% year-over-year in total revenue to $38.3 million and set Impella usage record within the quarter for the highest month, highest week, and highest day.

Our momentum continued to grow in spite of the recent challenges. This quarter, we maintained our adapt and execute mindset, and I appreciate the resiliency demonstrated by the team and the loyalty of our customers. Today, I will focus on our first three corporate goals, and Bob will cover the fourth goal.

The goal number one is revenue growth. This quarter, Abiomed achieved sequential revenue growth and year-over-year double-digit growth, driven by strong Impella usage. We have now grown sequentially in spite of the last six quarters and achieved year-over-year double-digit growth for 13 straight quarters. With record patient utilization both prophylactic and emergency increase and represented 47% and 40% respectively of total usage.

Abiomed now has a U.S. sales team of over 100 employees and approximately one out of every three Impellas is implanted independently. Our dedicated on-site sales team, and expanded 24/7 call center support have become a key selling point and core competencies for our company. We consistently scored high marks in independent surveys for customer service.

The number two goal is focused on our publications. There were 14 publications regarding Impella within the quarter, such as an EP study called (inaudible) in circulation, arrhythmia and electrophysiology, the U.S. Impella registry, and PCI, the European Impella cost affecting the study and the Journal of Medical Economics, and of course, PROTECT II in circulation. We believe that many of these new publications will strengthen the literature around medical society guidelines and Impella is now incorporated into three different guidelines.

Specifically, Impella is now listed in the 2011 ACC/AHA/SCAI guidelines for PCI, the 2012 AHA guidelines for the use of mechanical circulatory support, and the 2013 ACC/AHA guidelines for the management of semi. The number three goal is around executing on our clinical and regulatory processes. This has been a busy quarter relative to our U.S. Impella CP limited product release. We supported over 200 Impella CP patients and our customers are excited to have the additional hemodynamic support delivered on a 9 French catheter with the same speed of insertion and ease-of-use as the Impella 2.5.

On the topic of 515 FDA panel meeting held in December, it was recommended that Impella remain as a Class III device and that all existing and future temporary ventricular assist devices will require PMA. The overall process will take time before the issuance of the final rule that determines the device’s classification.

In the meantime, all of the products in the categories remain on market under the current 510(k) indications. Since the December panel meeting, we have had multiple conversations with the FDA and have recently submitted an extensive briefing document, outlining the totality of the Impella data to demonstrate safety and effectiveness. This document is based on the outline presented Abiomed slide at the 515 panel meeting, which is available as an exhibit to the 8-K we filed with the SEC on December 7th, 2012. The summary includes 262 patients under FDA IDE approved protocol, 685 patients that meet the FDA clinical evidence requirements, including the Impella registry and also references 201 publications, covering 1,877 patients.

It is important to note this library of clinical evidence required seven years of studies and a $30 million investment by Abiomed. Additionally, with over 12,000 U.S. patients supported to date, Impella maintains a low adverse event rate relative to the MDR rate listed by the FDA.

From a hemodynamic perspective, there is extensive clinical literature demonstrating that Impella provides significantly more hemodynamic support than the pump [ph]. Since the 510(k) clearance in 2008, Impella has become the most widely-used heart pump in the United States. We have been encouraged by the FDA to submit a formal PMA and we hope to gain additional clarity as to the agency’s expectations for the submission after our meeting with them later this quarter.

Abiomed is also taking action to gain additional HDE regulatory approval for our devices. If you recall that the FDA humanitarian device exemption approval is for specific patient populations of up to 4,000 patients per year. These submissions will include prior FDA Impella studies and may require small future studies for registry clinical data analysis.

Our product portfolio continues to expand as well. For our new Impella RP U.S. study, we are ahead of our original guidance, thanks to a rapid FDA review and approval of the IDE protocol. We have already conducted our kick-off meeting with a clinical site and two RP approved are actively screening for patients.

To remind everyone, this will be a 30-patient study across 10 sites for an HDE submission in patients suffering from right heart failure with multiple applications. There is a critical clinical need for right heart support. Outside the U.S., our physicians have told us that this product has already saved lives. The Impella CP product and the Impella RP when approved will provide a new level of bi-ventricular support that can be administered percutaneously, a first in the history of heart pumps.

In summary, our company culture is motivated by our ability to impact the lives of our patients and support our customers. Abiomed has become stronger after every quarter and every challenge, and we are executing our tactical plans. Our company has evolved into a resilient commercial organization that is profitable, debt-free and expanding the number of exclusive regulatory approvals, breakthrough innovative products and geographical reach. We believe that the demand for Impella platform has never been greater because there is a new level of awareness among interventional cardiologists for hemodynamic-supported procedure.

This is due to many factors, including number one, recent cardiology trends around appropriate use criteria for patient selection. Number two, scrutiny around length of stay and hospital re-admissions, number three, new updated guidelines, and number four, a dedicated Impella CPT code.

Our clinical and economic evidence continues to build along with our financial strength as we again approached $90 million in cash, after completing our $15 million [ph] share repurchase plan. Ultimately, the most important factor to our customers is improving patient outcomes, and that is what we believe has been a key to our sustained growth for the last three years. This fourth quarter, we will remain on track to close out another record year and record quarter on almost every major metric.

We are very confident in our future and believe these are the days and ways to become the new standard of care for percutaneous hemodynamic support. Thank you to all of our stakeholders for your investment in our company.

I will now turn the call over to Bob Bowen, our CFO.

Robert Bowen

Thank you, Mike, and good morning everyone. Before I get started, I would like to refer you to the Safe Harbor language noted at the outset of the call as well as the risks and uncertainties noted in our SEC filings, particularly our most recently filed 10-K and 10-Q. As noted by Mike, I will focus on our fourth corporate goal, which is operational excellence.

Fiscal third quarter revenue of $38.3 million was up $6.1 million or 19% from last year, driven by $6.7 million or 30% increase in Impella reorder revenue, including the Impella CP. The reorder revenue was largely driven by a 26% increase in reported patient utilization. As previously stated, we likely do not have this ability to all-patient use given our customer’s increased comfort with independent use.

Revenues from initial site purchases of Impella 2.5 were $1.1 million lower than the prior year, as 23 new sites purchased the Impella 2.5 in fiscal Q3 versus 37 new sites in the prior year, due in part to our focus on the Impella CP limited launch. All other revenue from U.S. legacy products, Europe, rest of world service and funded R&D was up $0.5 million.

During the quarter, we added Impella CP to 34 existing Impella 2.5 sites, bringing the total Impella CP site count to 46 as of the close of the quarter. Impella CP represented approximately 10% of overall reported U.S. patient usage during the quarter. We are also watching these sites closely for usage and inventory patterns to help us understand how sites might adjust or re-mix inventory levels with the addition of the Impella CP.

As of December 31, the addition of the Impella CP at these 46 sites resulted in a 33 unit increase in total Impella site unit inventory or slightly less than one per site, thus it seems at this early stage that the addition of Impella CP to the site mix results in inventory accounting level of one additional Impella unit.

The overall average hospital-owned Impella 2.5 CP inventory level was consistent with prior quarters at approximately 2.2 catheters per site. We may see this in just overtime as more sites at Impella CP and as overall Impella usage increases. But for several quarters, average site inventory levels have not changed much.

In summary, our momentum continued and our commercial organization remained focused in spite of some headwinds during the quarter, including the destruction in the north-east from Hurricane Sandy. Despite these headwinds, patient usage grew sequentially and year-over-year in all four of our U.S. regions.

The gross margin rate for the quarter was 78.7% compared to 80.5% in the year-ago period. Gross margin rates were slightly lower than in past quarters due to placement of AIC upgrades, as well as cost related to capacity expansions and to support future demand for Impella products and initial startup costs related to the addition of the Impella CP. An additional, 149 AIC consoles were placed worldwide and as of the end of the quarter, approximately 50% of the U.S. Impella 2.5 sites have received the new AIC Console, which is required operate the Impella CP.

Total operating expense in the fiscal third quarter was $27.2 million compared to $23.7 million in the prior year, or up 15% due mostly to increased personnel and related cost largely related to the continued build out of the commercial organization. And 1 million of outside legal cost related to the DOJ investigation.

In the third fiscal quarter, income from operations totaled $2.9 million, or 7.6% of revenue, including 1 million of outside legal cost related to the DOJ investigation, compared to $2.2 million, or 6.8% of revenue in the prior year. On a year-to-date basis, income from operations was $12.4 million or 10.8% of revenue, compared to an operating loss of $1.4 million in the prior year.

As noted on the last earnings call, we expect second half operating expense levels to be higher than the first half of fiscal 2013, and at this stage of our development, our plans are to continue to invest to support top line growth, given the opportunities we see. We are very much on track to achieve our targeted operating margin rate for the year of 8% to 10%, and as noted on prior calls, we may fall outside that range in any given quarter.

GAAP net income for the fiscal third quarter was $2.7 million, or $0.07 per diluted share, compared to GAAP net income of $2.9 million, or $0.07 per diluted share in the prior year. This is our sixth straight quarter of GAAP profitability and usual items affecting GAAP net income in the quarter were outside legal cost related to the DOJ investigation of approximately 1 million which reduced diluted EPS by approximately $0.02 in the quarter.

Conversely, last year we received a $1 million settlement in the third fiscal quarter, which increased diluted EPS by approximately $0.02 per share. Year-to-gain state GAAP net income of $11.3 million or $0.27 per share, compared to a loss in the prior year of a 1.1 million.

As a reminder, at the start of the year, we had U.S. federal net operating loss carry-forward of approximately $190 million, which are fully reserved for accounting purposes. These federal NOLs begin to expire in 2018 and span to 2031.

The balance sheet remains in excellent shape. Accounts receivable of $19.9 million equated to 52% of quarterly revenue, or 48 days sales outstanding, compared to DSO of 49 days in the prior year. Inventory of $15 million equated to 39% of quarterly revenue, and turned at 2.4 turns compared to 2.6 turns in the prior year.

We have explicitly increased Impella disposable and Console inventory levels during the year with the addition of Impella CP, as well as a planned effort to increase safety stock levels and maintain safety stocks at our Aachen, Germany and Danvers, Massachusetts facilities for risk mitigation purposes.

We are fortunate to have the financial flexibility to take these precautionary actions. We ended the quarter with cash and short term marketable securities of 85.7 million. During the quarter we generated cash of $7.7 million from operating activities, used a $0.5 million for capital expenditures and used $10.7 million to repurchase $800,000 shares of stock.

On a fiscal year-to-date basis, we have generated cash of $18.8 million from operating activities use $2.1 for CapEx and used $10.7 to repurchase 800,000 shares of stock. As a reminder we have no debt. Please note that we completed our $15 million stock repurchase program in January with the purchase of an addition of $323,000 shares of stock for a total cost of $4.4 million.

Turning to guidance, we are pleased with our performance to the first nine months of the fiscal year and the team really delivered throughout third quarter. We are maintaining our full year revenue guidance for fiscal 2013 in the range of $155 to $157 million representing an expected annual growth rate of 23% to 24% with Impella growth greater than 30%.

Operator, we will now turn the call open for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Brooks West from Piper Jaffray, your line is open.

Brooks West - Piper Jaffray

Thanks, can you hear me?

Michael Minogue

Yes, I can.

Brooks West - Piper Jaffray

Good morning, I’ve got a handful of questions. Let me start Mike, did you provide an update on the DOJ investigation and expected timeline there?

Michael Minogue

We did not provide as an update, essentially nothing has changed and we’re cooperating and have been providing information to them.

Brooks West - Piper Jaffray

Okay, and can you narrow what they’re interested in at all for us, or still kind of ambiguous there?

Michael Minogue

It’s still ambiguous and again after the last earnings call, we also maintained that we are in compliance with the FDA.

Brooks West - Piper Jaffray

Okay, let me switch to Impella, 21% global growth in the quarter, your guiding to 30% growth for the year, more than 30% growth, so by my math, that implies about $38 million or more in Impella revenue in fiscal Q4, but more importantly about an 18% growth rate, given the strong start you had to the year. And I’m wondering, is that growth rates kind of a high team’s growth rate? Is that a level we should think about as we give Impella growth going forward? Is that a good kind of place to set expectations?

Michael Minogue

Brooks, we think we are going to grow more than 30% this year the back end of the year comps are more challenging from the front end of the year comps, and we’ll give guidance for next year on our next call. But I think it’s not unreasonable to expect that we’re going to see sort of a potentially a similar pattern, because the growth that we secure here in the back half of this year is going to flow into the front half of next year, so the growth rates are going to naturally increase.

Brooks West - Piper Jaffray

Okay, two more Mike, we all know PCI volumes have been coming down, I wonder if you could comment just on where you feel you are in terms of penetrating your potential Impella market and how do you feel procedure volumes have impacted that and I just have one last one on gross margins.

Robert Bowen

Sure. Brooks, the overall PCI volumes are coming down and that is based on the scrutiny of the appropriate use criteria and when you look at that criteria, there is significantly the highest form of appropriateness comes to the patients that require the most, the most complex, the most severe and it is also the way that CPT codes have been aligned. So, the sicker the patient, the more appropriate and the physicians are being reimbursed for that. What would also mean is that there are several physicians that are now growing, they practice around the complexity of PCI and they are looking to incorporate a hemodynamic strategy into that platform.

Brooks West - Piper Jaffray

Do you still feel like your penetration is going up?

Robert Bowen

We feel like our penetration is going up. We also believe that there are more patients coming to the Cath Lab in general today that are a lot sicker than the past and many of these patients are being turned down by the surgeons because they are not looking to do all comers anymore, there is a hard team approach and the rates for the surgeons are listed online. So, there is a lot of collaboration and what we are starting to see is that you can have a benefit of DTR for patients in the past might have turned down by the heart surgeons.

Brooks West - Piper Jaffray

Thanks. And then last one Bob on gross margins understand there is some startup cost this quarter, should we look for that to pop back up to more traditional greater than 80% or how should we think about gross margins?

Robert Bowen

I am not sure I would suggest that it is going to pop back up, I think it will return to prior levels with really the wild card being I think how quickly we choose to place AICs at the remaining existing sites, but from an operating standpoint in the manufacturing area I think we’ll return to normal levels.

Brooks West - Piper Jaffray

Great, thanks guys.

Operator

Our next question comes from Greg Simpson from Wunderlich Securities, your line is open.

Greg Simpson - Wunderlich Securities

Okay, thanks and good morning everyone. Michael, me focused first on CP, my talks with doctors indicate a very high level of interest and seems that is starting to show up in your numbers. Can you maybe give us a little more indication from you what you are seeing in the field and then kind of the plans for the broader roll out as we move into 2013?

Robert Bowen

Sure Greg, as you’ve said in your question that there is strong demand, they do like the fact that they can get more flow and essentially to have yielding the same insertion time, in some cases the same introducer and we just have been getting very positive feedback overall in the technology. And what we are going to do this quarter is now go to our broader base of folks that have the AIC, that have more extensive experience and continue to get them comfortable with the technology and get them to independent use.

Greg Simpson - Wunderlich Securities

Can you maybe give us the sense? I know there is a little bit of training involved, but how much of the time sink is that for the sale guys in the very early going?

Robert Bowen

Well I think it is a little bit of a time sink, but it is also well invested time and as far as what we’ve done is will continue to expand our clinical team, our training organization field and we’d essentially triple the size of our call center, so that we are able to respond quickly and help with more support.

Greg Simpson - Wunderlich Securities

Okay, the feedback I get on the product is great. I am curious if – I know it is early, but you give us a read on maybe how the usage specific to the CP kind of breaks down, is that in fact – again I realize very limited usage, but is that in fact being focused more on the emergent use as supposed to prophylactic or is it a mix?

Robert Bowen

I think the way we are approaching the market it is we’re giving them an Impella pump and then they can choose the flow rates that they like and that can be based on the size of the patient, the complexity of the case and the flow rates that they want. There is a slight price difference and what you are saying in the breakdown is certainly what the little bit of a bump up in our emergency use this past quarter, but I think again our strategy is not necessarily to have just one product at all, it should give the full flexibility to the physician to choose the flow, to choose the price point. I also think that some of the benefits on the emergency side have to do with some of the recent publications around the intra-aortic balloon pump and I think people are just more open to hemodynamic support and deciding when they need to get more than 2.5 liters per minute when 2.5 liters is appropriate.

Greg Simpson - Wunderlich Securities

Okay, thanks. And to kind of have that lead into follow up on gross margin, Bob, you mentioned obviously the recovery in gross margin of the pop back whatever you want to call in gross margin dependent part on the pace of a place in the AICs. Is there any additional pressure on you guys since you have to have the AIC for the CP, are you getting more demand for the AIC or people pushing you little harder to get it?

Michael Minogue

I think the AIC is just a great Console and it automates a lot other steps and it fundamentally changes the way people think about the procedure, so I think ultimately all sites are going to wide and we just are feathering out the upgrade process over time. So, yes there is a lot of demand for it and we would expect over time that all sites would get it.

Greg Simpson - Wunderlich Securities

Okay, one final question if I could, Mike, on Japan, it is coming up last in the shop list of you lately, can you give us an update there? I am curious about the visibility you have on the process and maybe just kind of refresh us. I know you’ve suggested before the yearend calendar ’13. How much visibility do you have on that obviously at the significant market opportunity for U.S.?

Michael Minogue

Sure, we will give that visibility to it, we maintain our guidance to the end of the calendar year 2013 for the approval with the reimbursement, potentially to be approved within 6 to 12 months of that date.

Greg Simpson - Wunderlich Securities

Okay, thanks very much.

Operator

Our next question comes from Jayson Bedford from Raymond James, your line is open.

Jayson Bedford - Raymond James & Associates

Thanks and good morning. Just a couple of quickies. There was certainly a lot of noise in the third quarter, whether it would be the 515, the DOJ, do you think that impacted usage in the field? Meaning, are customers for some reason more hesitant to use the technology in anyway?

Michael Minogue

Jayson, I think that there definitely was noise. For the most part, our average user and physician is not tied into that noise, certainly some folks may hear about it and track more of the information. We said that we had our best month in history and that actually was in October. We said we had our best week ever and that was actually in December. And we had tied for our best day ever and that also was within the quarter as well. So, I think that a lot of this has to do with the distraction of management and our focus and very proud of the field team for the way they executed. The most important factor to customers again is just improving patient outcomes, so I think in their grand scheme they are really again focused on using the technology because they believe it’s the right thing for their patients. From a management perspective, we are back on track, we are excited for the fourth quarter and we are moving forward.

Jayson Bedford - Raymond James & Associates

I know it was touched on earlier, but on the CP launch, from what you have seen so far, do you think it’s expanding the market? Meaning, those centers who are using CP right now, are they using it more than they did with the 2.5?

Michael Minogue

What I think it is is that there is just an acknowledgement for those of you who have done the surveys (inaudible) for the comment that they wanted more than 2.5. There is an acknowledgement with some of the users that they had asked for higher flow and they believe that they needed it for certain patients and now they have it. So, ultimately that likely helps the penetration rate. Again, people to think about (inaudible) support for a broad range of patients.

Jayson Bedford - Raymond James & Associates

And then last one from me and then I’ll get back in queue. You mentioned that you will meet with the FDA, I think later this quarter. When do you think you will know which path you are going down? Meaning, whether or not the FDA will allow you to use existing data for the PMA?

Michael Minogue

Well, I think the 515 to the PMA process is really looking at the totality of the data and kind of as I outlined, we have a tremendous amount of patients under FDA protocol, and we have an ongoing registry and we feel confident that the FDA is going to look at the totality of the data. There also were comments at the panel meeting itself that some companies may not have to do another study or may have the ability to use what they have. So, we feel good about where we are. We have a good relationship with the FDA and their interest is again to keep the best technology out there to help patients and we feel good about the process moving forward.

Jayson Bedford - Raymond James & Associates

Thanks.

Michael Minogue

Thanks, Jayson.

Operator

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

Raj Denhoy - Jefferies & Company

Hi, good morning. What if I could ask a bit about that submission you did to the FDA of the totality of the data that you have to date? I am curious what’s in that that might be new that the FDA has not yet considered through the review of the product thus far?

Michael Minogue

The outline of it if you go look at the slide that we presented at the panel meeting that we posted in our 8-K that was December 7, you will see the outline of it. There is 262 patients that were included in the FDA studies and that also includes patients that have had failure – trouble coming out of the Heart-Lung machine that’s to recover one. It also includes the publications of both registries, the European registry and the US registry which they have never reviewed and they did review in the panel meeting, it was omitted. And then also, it’s just there is so many publications each quarter, we are averaging about 15 publications per quarter, that were also not included and we have four pending publications, both upcoming on the US registry as well as more on the PROTECT II, so we are able to share a little bit more insight on those things. That was mentioned briefly at the panel meeting by Dr. Palmer [ph]. And then last is just the guidelines continue to be updated and many of those guidelines are incorporated, Impella don’t include the latest things and almost comprehensive publications.

Raj Denhoy - Jefferies & Company

Right. Just to clear, my understanding is so the back one of it is to PROTECT II and I guess there is a couple of other FDA approved studies as well. There has been some publications on the registry data to date. I guess you sort of take on it though the FDA is not fully considered all of this? Because, I imagine a lot of the follow-on studies and the smaller studies really aren’t sort of class one data, so you are suggesting that there is a lot of data but the FDA still needs to consider or perhaps consider differently before they make their final decision?

Michael Minogue

Well, Raj, they have never done a review for the PROTECT II or all these other publications under a PMA type approach because we have a 510(k) clearance. They have done reviews from the data back from when we did the 510(k) and they incorporated in to PROTECT I and some other registry data, or some of the publications of Europe but we have never actually gone in and submitted a packet for this totality of the data. So this will be an entirely new submission and a 515 panel wasn’t specific to Impella, again with the category even when they did spend a lot of time talking about PROTECT II that the panel was really recommending for both all existing and all future technologies.

Raj Denhoy - Jefferies & Company

Okay, that’s fair. You mentioned obviously the CPT code came in place this year, have you seen any change in terms of (inaudible) or anything once that code was put in place on Jan 1?

Michael Minogue

Well, we did comment about the quarter, within the quarter, but what we maintain is that having a dedicated CPT code standardizes the process and it’s a lot easier for folks to do that versus listed code which they may get paid or maybe denied and if they are denied they may resubmit. They have to fill in a lot of paper work per patient. Again, just from an audit perspective is having a dedicated or having dedicated CPT codes simplifies the process. Raj, I go back to the other comment about what interventional cardiologists are looking for is really standardization, they want to practice medicine on appropriate patients and they want to have a standardized approach on the technology that they use. So overall I think that’s very positive.

Raj Denhoy - Jefferies & Company

Okay, and then just also on reimbursement, now that we are sort of in this 515, sort of the post 515 process and we are waiting to hear what the FDA is going to do here. What are your thoughts on how reimbursement might play out going forward? If the FDA asks you to do initial trial and if this period lingers on and there remains questions about the FDA stance on approval for high-risk PCI. What are your thoughts on what the carriers may do, particularly the regional carriers in terms of getting to reimburse for that indication?

Michael Minogue

Yes, so the 515 panel basically says that this category should be a PMA. They didn’t vote or even comment anyway on the technology of Impella itself. I encourage all of the folks to go back and read the conclusion statements of the publication of the European registry or the US Impella registry, or even the PROTECT I and PROTECT II conclusion statements which was talked about safety, feasibility, (inaudible) support. So, I think that that’s the important thing to consider.

We recently met with the CMS as we do our yearly updates of what we are doing and we maintain as we released in our 8-K that we do not believe that there will be a national coverage decision this year on Impella. However, we did have one. We would be confident in the outcome based on our current clinical data and also the history with the NHIC and the fact that all the regional carriers are covering it today. As well as the fact that we recently got approval of a dedicated CPT code which is again a two-year process that the society submits to AMA and AMA gets approval from CMS.

So, in our opinion being put on the list with the balloon pump for a potential maybe more caused by the recent information in publications around the intra-aortic balloon pump rather than Impella. So, again, we are just going to continue to update them about all our publications, letting them know that we are now in guidelines and also showing them all the new publications, so that as we move forward our physicians have the ability to utilize our technology.

Raj Denhoy - Jefferies & Company

Okay. And then just some housekeeping, did you say the split was 47% high-risk PCI and 44% MI in the quarter in terms of Impella utilization?

Michael Minogue

It was 47% for prophylactic and 40% for emergency.

Raj Denhoy - Jefferies & Company

40%. Okay, thank you.

Operator

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

Steve Beuchaw - Morgan Stanley

Good morning, hi, it’s Steve Beuchaw from Morgan Stanley here for David Lewis.

Michael Minogue

Good morning, Steve.

Steve Beuchaw - Morgan Stanley

I apologize if there is any feedback on the line, I don’t know if you are getting that. So, Bob, I wanted to follow-up first on a comment that you made earlier in the Q&A. It sounds like you feel comfortable with a case for topline reacceleration beyond and implied let’s call it 10% or 12% revenue growth in the fourth quarter. It seems like it’s easy enough to get there. If we say utilization trends back up toward 1.9, 2.0, we keep adding 20 centers per quarter, is that the right way to think about this going forward and are there any other leverage we should be thinking about to give you that confidence, the reacceleration of revenue growth?

Robert Bowen

I think that’s right when you think about them. We’ll add probably at least 20 centers, Impella 2.5 centers per quarter. We expect utilization to continue to grow. As we move into the first half – I look at the growth rate on an annual basis and I find that to be more meaningful, myself and the quarterly growth rates because there is some seasonality in the business -- there has been historically and we will see – probably expect reacceleration of growth rate in the first half of next year. To the extent the comps are more difficult in the second half it could be again in the second half of next year to see what our planning shows as we work through that in the next couple of months. But, I think that just seems to be the nature of the business. So, the overall growth rate I think is – the annual growth rate is what’s most important to me.

Steve Beuchaw - Morgan Stanley

Thanks, Bob. One on the DOJ process, just a clarification, is it correct to have the view that any sort of changes to marketing or any retraining that these are all completed at this point so that to the extend there might have been any disruption in the field sales force that’s all behind this?

Michael Minogue

Steve, this is Mike. As we said at the last call, we believe that our processes have been compliant for some time and we will continue to focus on maintaining that record around what we do, including using the FDA as an extension of our marketing team as we do new materials and projects we will incorporate them in that approval process from the start.

Steve Beuchaw - Morgan Stanley

Alright, thanks. One last one, on the 515 process, just a clarification, in the comments that you have made here on the call, have you been really focusing on the shock indication or is this inclusive of high-risk PCI, or are these processes you are running in parallel? Thanks so much everyone.

Michael Minogue

So, I think what our strategy is to incorporate the totality of the data. We have extensive amount of information on PROTECT II and PROTECT I which is more on the prophylactic use, but we are certainly working with the FDA on other ways to explore indications and that can be through the HDE, national registry, or another study that they like us to conduct on top of what we are already submitting for. So we will continue to update you all as that process evolves.

Steve Beuchaw - Morgan Stanley

Great, thanks everyone.

Michael Minogue

Thanks, Steve.

Operator

(Operator Instructions) Our next question comes from Charles Croson from Sidoti & Company, your line is open.

Charles Croson - Sidoti & Company

Hi, guys, thanks for taking the questions. Just a couple of quick ones as most of mine have been answered. Mike, can you talk about the confidence with the entity, I know, it might be a little bit tough, so can you comment on that. Do you think that with the data you have that would at least, let’s say that we are in the early stages of that process, even being a possibility. Do you think that it would look something somewhat similar to what the LCDs look like right now? Given the data you guys have, do you think that will be the outcome you would probably get?

Michael Minogue

That’s what we believe. If you remember, the NHIC decision was made before the 2011 guidelines and additionally these last two that I mentioned on the call, it was before the publication of the US cover and the publication of PROTECT II and we have more publications now coming that are going deeper into whether it’s a subset of the predefined subsets that were in PROTECT II or just were analysis of the U.S. Impella registry. So, whether or not we go through it, they will determine. I don’t think we meet the criteria, because our numbers are small, but being now in three guidelines we have the amount of data that we have, it puts us in a tier of our own as the 510(k) and actually puts us in many cases is we have more data than many PMAs that are out there on the market today. So, we are focused on moving the technology forward, and we will work with TMS on whether or not they want to do it on a local basis or national basis, but it doesn’t change our strategy to publish both the clinical data as well as the cost-effectiveness data moving forward.

Charles Croson - Sidoti & Company

Okay, that’s helpful. And Bob, question for you, I think you quoted the sales reps are now just above 100. What’s the plan in adding more reps as we go through fiscal ’14?

Robert Bowen

So, the foreseeable future, we will continue to add four to six heads in the field per quarter.

Charles Croson - Sidoti & Company

Okay, all right. And then, just one last question, I think you touched upon it, Mike, just briefly –

The warning letters that are still outstanding with the FDA, I know you said you are in compliance and you did some good details the last time we had met. Anything further to add to that?

Michael Minogue

These letters stay open for a period of time and we just have to continue to establish the credibility and work with the FDA and overtime, we will work forward to have that letter closed down.

Charles Croson - Sidoti & Company

Okay, all right. Thanks. That’s all I had.

Michael Minogue

Thanks.

Operator

Our next question comes from Bob Hopkins from Bank of America. Your line is open.

Bob Hopkins - Bank of America

Hi, good morning, can you hear me okay?

Michael Minogue

We can, Bob, good morning.

Hopkins - Bank of America

Great, good morning. So, just a couple of quick ones. First, can you talk about Impella pricing this quarter? Are there any changes that are worth pointing out, and then going forward, as you look to next year, what your expectations are for prices, a reasonable way to model maybe low-single digit price declines or do you think you can maintain price?

Michael Minogue

So, Bob, our strategy would be introduction of the Impella CP, which we have introduced at ASP of 25,000. Here’s to test some – have some slight, a gap between the CP and the 2.5. For those sites to get the CP, the overall objective of maintaining the ASP that we had previously. And this quarter versus last year, the domestic catheter ASPs were within $0.04 of each other. So, we didn’t see any change in ASP this year versus last on a year-to-date basis, but also very close. And so, that’s what we are intending to execute going forward.

Bob Hopkins - Bank of America

Great, and then just one other, in terms of the Impella revenue number in the quarter, I was wondering can you guesstimate as to much Sandy might have hit you, and is there anything else in the quarter, either positive or negative that impacted that number in your view?

Michael Minogue

Well, we did see – without getting into the specific numbers, in the north New Jersey area, we did see a noticeable reduction in patient use during the quarter, which has now started to ameliorate. And I think that – so there was certainly disruption in the north-east, both from a site standpoint, some hospitals were closed as you may well know. And our people, some of them, their homes had some significant damage, they couldn’t get gasoline for their cars. And so, there was clearly the north-east disruption. And so, we are particularly pleased to see it, despite that they still managed to grow sequentially.

Bob Hopkins - Bank of America

Was it more than a couple of million dollars or was it less than that?

Michael Minogue

It was less than a couple of million dollars.

Bob Hopkins - Bank of America

All right. Thank you very much.

Operator

I am showing no further questions at this time. I will now turn the call back over to Mike Minogue for closing remarks.

Michael Minogue

Thank you everyone for your time today and thank you for your support. If you have any follow-on questions, feel free to reach out to us and have a great day.

Operator

Thank you ladies and gentlemen, it does conclude today’s conference. You may all disconnect and have a wonderful day.

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