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Abiomed, Inc. (NASDAQ:ABMD)

Q3 2009 Earnings Call Transcript

February 05, 2009 at 8:00 am ET

Executives

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

Robert Bowen - Chief Financial Officer

Aimee Maillett - Corporate Communications Department

Analysts

Greg Simpson - Stifel Nicolaus & Company, Inc.

Bob Hopkins - Banc of America Securities

Erik Schneider - UBS

David Lewis - Morgan Stanley

Sean Lavin - Lazard Capital Markets

Duane Nash - Pacific Growth Equities

Brian Kennedy - Jefferies and Company

Operator

Good day ladies and gentlemen and welcome to the third quarter 2009 Abiomed Inc. earnings conference call. My name is Christine and I will be your operator for today.

(Operator Instructions) I would now like to turn the call over to Ms. Aimee Maillett of the Corporate Communications Department. Please proceed ma’am.

Aimee Maillett

Thank you. Good morning and welcome to Abiomed's third quarter 2009 earnings conference call. This is Aimee Maillett of Abiomed’s Corporate Communications Department. I am here with Michael Minogue, Abiomed Chairman, President and Chief Executive Officer as well as Bob Bowen, our Chief Financial Officer.

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 press release, and we will then open up the call for your questions.

Before we begin discussing the third quarter, it is necessary to remind you that during the course of this call, we will be making forward-looking statements including statements regarding future financial performance, product development efforts, Abiomed's strategic operational initiatives, market response to our new products, our progress towards commercial growth, and future opportunities. Abiomed'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, competition, technological changes, anticipated future losses, complex manufacturing, high quality requirements, dependence on limited sources of supply, government regulation, future capital needs, and other risks detailed in our SEC filings.

Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of today's 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 conference call or to reflect the occurrence of unanticipated events.

Lastly, comparative references made financially in this call to revenue, expenses, gross margin, or other increases or decreases will be indicated by references to third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 or third quarter of fiscal 2009 as compared to the prior second quarter of fiscal 2009.

I am now pleased to introduce Mike Minogue, Abiomed Chairman, President and Chief Executive Officer.

Michael R. Minogue

Thanks Aimee. Good morning everyone and thank you for joining our call today.

In Q3 we continue to prioritize and execute on our four corporate goals of launching Impella 2.5, increasing Impella manufacturing capacity, driving to profitability and growing revenues greater than 25%. Today I will review the status of Impella relative to our first corporate goal as well as provide an update on our steps to drive to profitability and grow revenues greater than 25%. In regard to our Impella launch, there are four main points I will discuss in detail.

Number one, the Impella launch is underway with the 510(k) clearance and we are focused on maximizing revenue, increasing our cash burn and driving to profitability as we continue to grow the US field of distribution.

Number two, scientific evidence from publications has already validated that Impella is superior to an intra-aortic balloon pump or IABP with regard to increasing cardiac output and cardiac power. With 163 of the top heart hospitals having purchased Impella 2.5 in the last six months, the customer demand indicates market acceptance and clinical validation.

Number three, the goal of Protect II clinical trial is to demonstrate clinical superiority over the IABP for high-risk PCI population. This can be done by hitting the composite endpoint and/or by showing individual benefits on most critical endpoints like mortality, MI, stroke or renal dysfunction. Our goal for this study on our commercially cleared Impella 2.5 product is success on the endpoints, not speed of completion. We are also very confident in our assumptions for major adverse event rates for high-risk PCI and protective for the intra-aortic balloon pump.

Number four, the goal of Recover II and Impress is to demonstrate clinical superiority over in IABP for PCI post MI. However, we believe that the Impella provides a new treatment paradigm to help recover heart muscle for heart attack patients.

So now more detail. Number one, the Impella launch is underway and we are focused on maximizing the revenue. The majority of our revenues since 510(k) clearance has been and will be under general use for Impella. Our quarter of $17.3 million in revenue was based on strong Impella sales of 112% growth at $8.9 million and legacy sales dropping 29% to $8.4 million, down $3.4 million compared to the third fiscal quarter 2008.

We normally see a ramp in our end of quarter console legacy sales especially for the December quarter which did not happen this quarter. Based on today’s financial environment, we did see more scrutiny across the board as hospitals look to conserve cash versus using end of year funds for non-budgeted items. All hospitals are being more conservative with their cash but Impella sales were less impacted based on our ability to place consoles with an incremental disposable order. Our average new order for a new account continued this quarter at four Impella 2.5 units. The Impella commercial revenue recorded during the third fiscal quarter 2009 was $7.3 million in sales. Again that is the US commercial revenue, of which $6.7 million was for sales of the Impella 2.5 device sold under 510(k) clearance and $0.6 million sold under their Protect II and Recover II.

The Impella revenues for general use for the US sequentially increased over Q2 which is our first full quarter with 510(k). In Q2 we sold $6.2 million with 108 hospitals and in Q3 we sold $6.7 million and opened 55 hospitals for general use of Impella 2.5. We believe this is significant because Q2 had pent up demand after the June 510(k) and we opened fewer hospitals in Q3. Our trial revenue is now a small part of our top line revenue transitioning from $2.6 million in Q2 to $0.6 million in Q3. We additionally relabeled trial units to general use over both Q2 and Q3. We believe that our growth will continue in both utilization and new accounts and look to optimize the mix.

As of the end of the quarter, 163 US hospitals have purchased Impella for general use and over 260 patients have been supported in the US alone. We likely cannot account for every single patient within a small period of time but we are confident that it is over 260 patients.

We have substantially exceeded our fiscal year corporate goal to penetrate 100 hospitals supporting 100 patients with Impella. This ramp has stretched our capacity as we have trained new hospitals at nearly two times the expected rate for the last two quarters. Impella 2.5 is a new technology new to an Abiomed customer in interventional cardiology and requires training of the support staff.

We have achieved this milestone with a newly expanded sales and clinical team while managing our four clinical trials and supporting our legacy business in the heart surgery. By any measure, we believe that having 163 Impella accounts at the end of Q3 is a solid indicator of the customer interest and a sign of the clinical conversion underway with the 510(k).

This successful penetration into the top leading US hospitals has happened in spite of today’s economic climate. We have also learned some lessons over the last two quarters on utilization. Utilization is a function of several factors such as the amount of time the Impella specialist can dedicate to the site after completion of the training, the hospital’s ability to identify different types of eligible patients from prophylactic use to emergency support and the physician and staff’s comfort level in trying new technology in general. As reported, hospital experience for the last two quarters with Impella ranges from one day to six months of technology onsite.

Today 60% of our accounts have done one or more patients as compared to 40% last quarter. Last quarter reported that 21 out of the 108 accounts or 20% of our hospitals have supported two or more patients and as of the end of Q3, 62 out of the 163 or 38% have supported 2 or more patients. We have tripled the number of users that have supported 2 or more Impella patients. We have also moved from 8 to 16 or 10% of our hospitals that have supported 5 or more patients with Impella. The number of patients supported by anyone of our users is from 0 to 17 patients for general use.

Typically Impella 2.5 is used in the cath lab with 91% taking place in the cath lab and 9% of Impella usage in the surgery suite this quarter. Seventy one percent of Impella 2.5 cases have been used to support high-risk PCI and 15% of the cases have been used for AMI or heart attack or cardiogenic shock post AMI. The remaining 14% of the Impella 2.5 cases have been used for other indications involving hemodynamic support. In regards to hospital inventory, we recommend that each site has a minimum of two Impella 2.5s on the shelf for emergency use or back up and this seems to be acceptable with the accounts based on the reorder patterns.

Our success at capturing 163 accounts over the last two quarters meant we were not able to be present in the cath labs after initial training. We are gapping and adding more Impella specialists in the US and expanding the clinical support team with per-diem ads from advanced customers with experience.

We have also enhanced the sales representative role to include hands-on training with the Impella specialist and certifying them to provide patient support in the cath lab. Many have a background that enables this capability and if this effectively adds to our focus to drive utilization at the site that have purchased.

In regard to the economic environment, we are working with each hospital to meet their needs if they are committed to starting a program with Impella. The high-risk PCI population is ideal to manage the patient, certify the customer and create the environment for positive outcomes. Overall, our utilization continues to grow and expand as centers gain more experience and incorporate Impella into treating unscheduled heart attack patients or chronic patients admitting to the ER. Remember that in each of these hospitals, there might be one cardiologist who is now trained on Impella but there is a potential to train another 20 to 30 interventional cardiologist at the same site.

We now have over 70 US field or clinical specialists in the US and have added over 10 people alone in January. We know that we need the presence of an Impella specialist in the labs to drive that first patient usage. There is a positive trend for those that have used Impella to expand additional applications beyond just high-risk PCI. Based on the additional Impella specialist added in the field, the positive utilization trend has continued in January and we have continued to reduce the amount of hospitals without experience weekly.

Number two, scientific evidence from publications have already validated that Impella is superior to an IABP with regard to increasing cardiac output and cardiac power. We are continuing to pursue more studies to establish an undisputable clinical argument beyond what currently exists in the literature for multiple applications. This will be helpful to convince late adaptors as well as to support expanded applications. We see Impella applications beyond just reducing mortality. We see it as a new therapy for recovering or protecting heart muscle. We also see it beyond the applications for just an intra-aortic balloon pump.

The Protect II study represents one of the four main interests for the Impella 2.5. These four main interests and their associated clinical studies initiatives are: Prophylactic use for high-risk PCI, the corresponding studies are the Europella and the Protect I which are both published and the Protect II in process. We believe this total population represents 30,000 to 60,000 patients per year in the US alone. Number two is emergency usage for AMI post PCI. The corresponding studies are MACH 2 which is published as well as Recover II and Impress in Europe as well as our internal database. We believe this total population represents 50,000 to 100,000 patients per year in the US based on approximately 865,000 hospital admissions for AMI or heart attack. We have already collected survival data on over 50 US AMI cardiogenic shock patients under Impella general use.

Therapeutic support for acutely decompensating patient that has chronic heart failure is our third main interest and these patients are admitting to the hospital where they are acutely decompensating. The corresponding studies will be based on a protocol called recompensate and we will also be incorporating case studies with imaging technologies from SPEC, to PET to MRI to visualize the impact of Impella 2.5 on the heart muscle. These studies will not be conducted through the FDA and will be conducted with academic hospitals with independent IRB approvals. The fourth main interest is surgery support with Impella for either off-pump or minimally invasive heart surgery or support before or after open heart surgery. We are currently submitting abstracts and case studies from individual centers. This becomes a platform for new techniques where the surgeons wish to avoid the sternotomy or the heart lung machine for a risky population such as an off-pump CABG of an elderly patient.

Moving on to our third point, the goal of Protect II is to demonstrate superiority over an intra-aortic balloon pump for high-risk PCI and this can be done in multiple ways from hitting the endpoints to showing benefits on the most critical end points like mortality, MI, stroke, or renal dysfunction. As of the end of Q3, 85 hospitals are ready to enroll patients in Protect II with 28% or 180 patients completed from 49 hospitals. An additional 18 hospitals have received IRB approval but are not yet ready to enroll. These are the net numbers after some hospitals have decided to depart from the study and move strictly to general use.

We will likely not pursue any new hospitals for Protect II and maintain a focus on what we have today with the approximately hundred centers. The goal of Protect II is to hit our endpoint. To this measure, we have implemented additional steps for Protect II that may further improve our outcomes while potentially reducing the speed of completion such as allowing hospitals to drop out of the study for general use, relabeling Impella trial catheters to general use and requiring a two-patient minimum general use experience for high-risk PCI before enrolling patients in the study.

As noted on our last call, we have a few centers that have dropped out of Protect II or will be dropping out because they feel uncomfortable randomizing to an intra-aortic balloon pump now that Impella is commercially available, and they feel Impella is more effective for their patients.

Abiomed’s goal is to identify any concerns at any hospital and to assure physicians can treat their patients inside or outside of the trial. Today we allow for any account that has ethical concerns or just a desire to treat patients with Impella to drop out of the study. As of the end of December, 11 hospitals have dropped out of the study that had IRB approval or were ready to enroll and 70 hospitals have dropped out of the study that initially signed up and had not yet completed the IRB process.

Another control measure we implemented was to ensure that physicians at enrolling centers had completed two general use procedures with Impella before doing the first trial patient. As a result of both of these changes over the last two quarters, we have converted and relabeled 94 trial catheters at 36 hospitals to general use under 510(k). These hospitals had purchased trial catheters over the past year for the trial and are using the product commercially at a faster pace than the inclusion criteria allows for Protect II.

Seventy percent of this relabeling occurred in our second quarter. As part of our trial process, we apply a strict interpretation of the inclusion criteria based on ejection fraction or EF. For example, as disclosed in past calls, the majority of our patients today have had triple vessel disease which translates to a majority of our patients in Protect II having an EF of 30% or less. Additionally, each enrolling PI has the ability to not enroll a patient that meets the criteria if they feel based on their experience that the patient does not need any support. For example, a younger healthy patient with an unprotected left main and EF of 35% could be excluded if the physician felt that an intra-aortic balloon pump alone was not needed. Overall we are very confident in the assumptions for the major adverse events rates for Protect II and specifically for the intra-aortic balloon pump.

At the TCT in October, our primary investigator Dr. Bill O’Neill stated at the TCT symposium that our initial aggregate major adverse event rates after 20% of the trial completion are tracking inline with this expectation. So as a combined number, we are enrolling the patient profile desired and seeing expected adverse event rates to date. We are confident based on our prior IABP publications that these rates or higher will continue in the trial. Based on the review of the literature for high-risk PCI, you will find that more than 50% of the patients reported have an EF of greater that 35 %. Our trial’s success depends on site experience and treating patients that meet our defined inclusion criteria based on an EF of 35% or less for unprotected left main or an EF of 30% or less for triple vessel disease.

This EF criteria is something we have controlled in the screening and enrollment of the trial. Protect I was the first high-risk PCI study on patients that all had a reported EF of 35% or less and included a 30 day major adverse event report with non Q-wave MI and renal dysfunction. Based on our Protect II major adverse event protocol, Protect I ranged between 10% and 20% major adverse events rate.

We are adding new patients to the cath lab that are in the past were deemed too risky with most being turned down by both cardiologist and/or heart surgeons. As our general population ages with comorbidities, Impella provides a new cost effective option for PCI. One important conclusion in the publication from Protect I was that these patients had higher sustained EF or ejection fraction after the PCI procedure by several points.

In the past, to our knowledge, this has never been demonstrated. Our Protect II study will be the first multi-center randomized prospective study of intra-aortic balloon pumps and Impella on a defined high-risk PCI population validated by the FDA at 30 days post PCI measuring 10 selected adverse events.

We believe that this high-risk PCI IABP population will reveal a mortality rate alone that exceeds any other in the cath lab for a defined high-risk population of patients. And as already stated, we believe it will be in the range from 8% to 20% per site depending on the severity of their patient mix and experience. By any measure an 8% mortality rate alone demonstrates room for improvement before you even measure MI, stroke, hypotension or renal dysfunction, all of which increases length of stay at the hospital, cause and effects patient outcomes.

The Europella registry study included 144 high-risk Impella PCI patients treated at 10 high volume tertiary angioplasty centers in Europe. The results of the study showed excellent safety profile for Impella within in-hospital and 30 day mortality of 4.7% and 5.5% respectively. The abstract of the study was published in the October issue of the American Journal of Cardiology.

Overall, our reasoning for Protect II is based on our insight into the field of circulatory support and the knowledge of our physician team of investigators around high-risk PCI. As a team, we have done a comprehensive review of all high-risk PCI procedures with and without IABP support as well as other technologies. We are studying true high-risk patients for the profile of the design study.

Point number four, the goal of Recover II and Impress is to demonstrate clinical superiority over an IABP for PCI post AMI. However we believe that Impella 2.5 provides a new treatment paradigm to help recover heart muscle for heart attack patients with the insertion of Impella before or after revascularization.

Today this treatment is commonly referred to as door-to-balloon time and they are referring to the angioplasty balloon. This represents the revolutionary application because it can potentially help patients who survive the heart attack but develop congestive heart failure as a result of the damage to the heart muscle. We believe Impella can be used to enhance this treatment paradigm. The American Heart Association reports that even if you survive a heart attack on average, the patient loses fifteen years of remaining life.

We are now just getting started with one patient in Recover and four patients in Impress. These studies require Impella experience and will include unscheduled emergency patients. For this reason, hospitals in both studies are required to have performed a minimum level of cases with Impella supporting high-risk PCI. We are confident that Impella will provide clinical benefit because it increases cardiac output and cardiac power which has been statistically proven to be the number one correlate to in-hospital mortality for these patients. Additionally prior publications such as the MACH 2 and ISAR both showed Impella benefits over an intra-aortic balloon pump on ejection fraction and cardiac output respectively.

In the European Heart Journal in January 2009, there is an important new publication called “A Systematic Review and Meta-analysis of Intra-Aortic Balloon Pump Therapy in ST Elevation Myocardial Infarction - Should we change the guidelines, by Dr. Henriquez, on all relevant past papers with intra-aortic balloon pumps for PCI post AMI.” This paper identified 804 related articles on AMI and intra-aortic balloon pump usage and narrowed the final meta-analysis to 16 papers with 1,410 patients chosen for AMI treatment with and without intra-aortic balloon pumps, the most relevant heart attack population.

The analysis revealed that the intra-aortic balloon pump showed no statistical benefit in mortality or left ventricle function. However, the intra-aortic balloon pump arm did show a statistical increase in the risk of stroke, again in the risk of stroke and bleeding over the arm with no intra-aortic balloon pump support. This IABP AMI PCI application is recommended by the European Society of Cardiology as well as ACC and AHA. This is the number one use of balloons, intra-aortic balloon pumps, in the US with approximately 28,000 procedures per year.

Again this meta-analysis showed the balloon had no statistical benefit in mortality or left ventricle function but it increased the risk of stroke and bleeding and this application is recommended by the societies and is the number one use for intra-aortic balloon pumps.

The Physician Editorial Review commented the following and I quote, “Despite the high class recommendation, the rate of IABP used in cardiogenic shock patients is only 20% to 30% as an international average. Assuming a 5% to 8% incident of cardiogenic shock of all hospitalized acute myocardial infarction, this translates to 40,000 to 50,000 cases per year in the US and 60,000 to 70,000 cases in Europe. Thus all together, 70,000 to 96,000 cardiogenic shock patients per year do not receive the IABP although it is recommended by guidelines. This is mainly influenced by reimbursement policies and by the fact that many cardiologist believe there is little evidence from randomized controlled clinical trials for the clinical benefit of an IABP in cardiogenic shock. The principal reason for the lack of evidence is that the IABP was introduced prior to the strong regulations by the regulating authorities namely the FDA which happened in 1976. In the absence of such requirements, studies to demonstrate the safety and clinical utility of an assist device are typically not performed because they are very costly and after introduction such as the study is difficult to perform because any negative result might be thought to jeopardize the current profit arising from this product despite the overwhelming potential.”

So as a summary, the intra-aortic balloon pump has been out for over 30 years primarily driven by one company which failed to do a very elaborate study as we are doing now with Impella.

As a company, Abiomed understands the IABP technology in depth as proven by the fact that we make one and hold patents in the space. This is why we are confident that our Impella technology combines the proven science of a ventricle assist device deployed with the ease and safety of a catheter. For Abiomed, measuring mortality is just the first step. Saving heart muscle is the key to improving treatment and making Impella the standard of care.

Finally, I would like to discuss our corporate goals to drive to profitability and growing revenue greater than 25%. Year to date, Abiomed has grown 29% in revenue. The Impella 2.5 has already become the growth driver for our business however we have a legacy business with strong clinical results, reimbursement, gross margins and exclusive regulatory approvals. In the long run, we believe the Impella 2.5 as well as the 5.0 Impella right side percutaneous catheter and the Impella pediatric catheter will likely be available at all advance cardiology hospitals.

In comparison, we will focus the Legacy products on selected advanced heart surgery suite that desire a heart recovery strategy for profound shock patients and in some cases, after Impella support. Impella continues to grow at a pace that requires dedication of our resources for both new accounts and existing utilization. Over time, we will strengthen our legacy focus and feel that the new products in the US such as the Impella 5.0 and AB portable driver will fuel this success. Until these new surgery products are FDA approved, we will prioritize the Impella 2.5 launch. The FDA regulatory milestones will guide the timing of our surgery redeployment.

We continue to maintain solid gross margin of 74% across the entire Company on all of the products and the portfolio. We reduced our effective cash burn rate to approximately $2.5 million for this quarter and at this burn rate, we would have over six years of cash available.

Abiomed ended the quarter with $63 million in cash and no debt as well as a $90 million NOL or net operating loss credit to potentially apply to future profits. Our strategy has been to grow our field distribution along with our revenue and focus on the cath labs. The majority of our new hires have cath lab experience and established relationships with interventional cardiologists. Our specific goal has been to optimize our revenue, cash burn, trial support and patient outcomes. We believe this strategy to be prudent and a key reason we have significantly reduced our cash burn rate as well as move closer to our goal of profitability.

Abiomed has a strong pipeline of known new products that are platform driven with the majority of the R&D dollars behind them. This story is about execution to penetrate every cath lab with the Impella platform and selected high volume surgery suites with AB5000. This recovery technology is exciting for multiple reasons already stated and because it represents one of the best opportunities to reduce healthcare cost to one of the most expensive patients in the system while improving the quality of life for the patient.

In our opinion, the future of healthcare reimbursement will be based on comparative effectiveness to improve quality of life and avoid cause, not just delay them. This is the essence of Impella and heart recovery. As a patient, what technology would you want for a high-risk PCI or a PCI after a serious heart attack? One of the leaders of a top ranked national heart program recently flew a family member into his hospital for a high-risk PCI supported with Impella.

In closing, today the Company is financially stronger than any other time in our 27 year history as we enter the worst economic crisis since the Great Depression. Our management team understands our obligation to our patients, customers, shareholders and employees. We are focused on the execution of our short-term goals and motivated by our mission to promote heart recovery and eliminate in-hospital deaths from heart attacks and high-risk PCI.

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

Bob Bowen

Thanks Mike and good morning everyone.

If you would please turn to our financial statement attached to our press release, I will provide some details on our financial results for the quarter.

Overall, revenues of $17.3 million were up 8% from the prior year. Revenues of Impella disposables and consoles totaled $8.9 million and were up $4.7 million or a 112%. Impella disposable revenues represented approximately 98% of total Impella revenues which reflects our commercial focus on increasing utilization and demand for disposable products by providing consoles to new sites at little or no cost. We expect these console placements to decrease as the number of hospitals utilizing the Impella products increases. Impella revenues represented 51% of total revenues in Q3 versus 53% in Q2 and 26% in Q3 fiscal 2008. Non-Impella revenues totaled $8.2 million and were $3.4 million or 29 % lower than the prior year.

Gross profit percent for the fiscal third quarter was 74% near the upper end of our expected range of 70% to 75%, but slightly lower than the prior quarter and the prior year. The gross margin rate will vary due to product mix, production volume and the console placement programs. In addition, we recorded an inventory reserve of approximately $250,000 in Q3 related to the AbioCor product line to bring AbioCor inventory levels to what we believe is the core operating level. That charge resulted in about one point of reduced margin rate.

R&D expenses totaled $5.2 million versus $6.9 million in fiscal Q3 2008. The decrease was due to higher material spend levels in the prior year for AbioCor and the Portable Driver. Clinical trial cost in Q3 2009 totaled $1.3 million compared to $1.1 million in the prior year. On a sequential basis, R&D spend was $1.7 million lower largely due to clinical trial spend in fiscal Q3 2009 of $1.3 million compared to the $2.3 million spent in fiscal Q2 2009.

SG&A expenses totaled $13.2 million in fiscal Q3 down from $13.5 million in the prior year and $13.9 million in the prior sequential quarter. Reflecting a global focus to control spend levels and move toward profitability while we continue to build and enhance our commercial and distribution capability. I would like to emphasize that we are not reducing our field sales and distribution resources. Quite the contrary, we have added resources and have continued to add clinical resources during the fourth quarter of this year.

The net loss for fiscal Q3 on a GAAP basis was $7.7 million or $0.21 per share compared to a net loss of $8.3 million or 26% per share in the prior year. Stock compensation expense in Q3 totaled $1.9 million compared to $1.4 million in Q3 2008. Both periods included $.4 million of intangibles amortization. Excluding these charges the non-GAAP or adjusted net loss for the third quarter fiscal 2009 was approximately $5.4 million or $0.15 per share compared to $6.5 million or $0.20 per share in Q3 2008. Please note that these non-GAAP net loss or per share amounts for Q3 2009 include a loss on the Columbia fund investment portfolio of $1.9 million partially offset by a gain on the sale of WorldHeart stock of $0.3 million for a net of $1.6 million.

For fiscal 2009 year to date, the GAAP net loss was $23.1 million or $0.67 per share compared to $26 million of $0.80 per share for the same period in the prior year of fiscal 2008.

Turning to the balance sheet, we ended the quarter with $63.8 million of cash and short term marketable securities. For the quarter, net cash used for operating activities was $2.5 million which included a $1.9 million write-down of the Columbia fund investments. The accounts receivable balance of $14.2 million is only slightly higher than the $14.1 million at the start of the fiscal year. The AR as a percent of quarterly revenues was 82% up slightly from the previous sequential quarter but lower than Q1 2009. The fluctuation is largely due to the timing of shipments and we see no material change in the AR aging over the past four quarters. Inventories of $17.8 million were up slightly from the start of the fiscal year but are lower than each of the past two quarters including a decrease of $1 million from September 30th 2008.

We will now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Greg Simpson - Stifel Nicolaus.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Mike, I would like to start with the commercial side of the Impella ramp. My understanding what you are saying correctly is that I understand the need to have support people in the centers especially in the early going. Are you basically thinking you guys are stretched thin? Is that a result of the number of centers that are interested here? How does that dynamic kind of play out here over the next few quarters? I mean we are all going to be trying to gauge and reset our Impella ramp. I am trying to figure out how this plays in as you expand the number of people.

Michael R. Minogue

So Greg as I explained sequentially the general revenue in the US for Impella went up 8% inspite of the fact that we opened half of the number of accounts we opened in Q2. The difference is that the trial revenue is declining. We did relabel some trial catheters also into for commercial use and what we found is that our centers want the Impella person there as they do their first essentially five patients beyond just the training. When they get to that comfort level, that is the one physician in the support staff, we also have the ability then to get other interventional cardiologists trained at the same center and there are positive trends, as once we get them using, they use it more and they expand to other applications.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay. And on the relabeling Bob can you maybe quantify that a little bit, maybe give us a little better feel for how that affects, we are just looking very short term here on the revenue ramps, we try to get our hands around this. Can you maybe just explain that in terms of the number of units or something along those lines?

Bob Bowen

Over the last two quarters it was 94 units and the units average ASP is $20,000 to $25,000. So you can think of that as a movement from trial catheters into general use that gave the hospitals incremental inventory levels in general use for utilization needs that otherwise might have been satisfied with new orders.

Michael R. Minogue

We also disclose Greg that 70% of those relabels happened in Q2.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Got you. Okay.

And then on the topic of cutting back on the number of centers in Protect II, if I understand you correctly, will that help you enroll faster because you are going to be able to focus on a smaller number of centers? Is that the goal behind it or just the centers that were kind of at the back of the line where they just figured they just moved on the commercial utilization and pass on the trial? Can you give us a little better feel? Did you guys have discussions with the centers and just mutually agree that they would step out of the trial. Can you just go into that a little bit again, whether that, given the ability to focus your attention a little bit more, will that maybe have an accelerating effect on the trial itself?

Michael R. Minogue

We are not saying it is going to have an accelerating effect, it could have the opposite of that but what we talked about was that we have had centers that for ethical reasons no longer want to randomize now that 510(k) is commercially approved. We also have centers that just want to use the Impella, they do not want to be in the study anymore, and they want to transition to general usage. And since the goal of the study is to help drive conversion, to late adopters of centers that are ready to convert now and start using Impella, then we allow them to do that and frankly we can encourage it provided they are going to use the Impella for these high-risk patients or AMI patients.

We also believe that with the number we have, we have a good set of very experienced users who are committed to the study and we are going to be able to continue to move forward with them at a pace that we can then focus those resources rather than trying to focus resources for all of our general use accounts as well as 150 clinical trial centers and we are going to bring a little bit more focus to it as well.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Right okay, got you. And last question, then I will get back in line. On the centers that dropped out in general, have they been trained and do they have access commercially or does them dropping out of the clinical trial have any impact on them getting trained? If they are just going to be commercial centers, does that enhance their ability to get trained quicker?

Michael R. Minogue

Either they have been trained already in the study and they have dropped out which means they would have likely already had commercial product and been using or they were going through the IRB process and that was just part of what they were going through the purchase and now that they are going to drop out of the IRB, the purchase order is not as complicated and essentially now we are going to go in and train them.

Operator

Your next question comes from the line of Bob Hopkins - Banc of America.

Bob Hopkins - Banc of America Securities

You guys talked about a whole bunch of things on the call. I was wondering if you could just kind of just give us your best opinion at this point as when you think trial enrollment will be complete. You said last quarter you might be willing to do that on this call.

Michael R. Minogue

Last quarter we did say we might be able to do it this call or the next quarter. At this point based on what we are doing and the fact that we are narrowing the number, we are not prepared today to give an estimate and that has been consistent since the beginning of the trial.

Bob Hopkins - Banc of America Securities

Is it pretty fair to say though that it is highly unlikely to be a 2009 event that you complete enrollment, I mean that is sort of obvious with the numbers.

Michael R. Minogue

We have not given any forecast but that would be unlikely based on the numbers.

Bob Hopkins - Banc of America Securities

Right. And then I am curious about the folks who have dropped out, the 11 that you mentioned and then the 70 in two separate categories. Are those all dropping out for ethical reasons or reasons that they want to use Impella or some of those for whatever reason not happy with the device are dropping out for other reasons?

Michael R. Minogue

To my knowledge, it is either ethical reasons or they just essentially want to use Impella and not be in the study. We have not had people that have said, “We do not believe in the technology at all and we want to drop out of the study and we do not want to use it commercially.”

Bob Hopkins - Banc of America Securities

Okay. And then you mentioned again as you did last quarter that you are comfortable that the trial will be positive or that it will turn in the right direction and either could be a positive for the Company and you are making some slight changes to protocol. I just want to be sure what you mean by those comments, what do you think is the highest probability outcome? A positive trial or a trial that trends in the right direction and is still considered a success?

Michael R. Minogue

I have not changed our position at all so I will clarify that point Bob because we do believe we are going to hit the endpoint. We also know that based on the endpoint which we have chosen, the feedback we have gotten from physicians is if we show a difference in death or MI or kidney dysfunction or stroke, those are pretty strong indicators that will drive acceptance from their peers. But we are trying to do both and that is why we have a composite endpoint.

Bob Hopkins - Banc of America Securities

Okay. And then one other thing I just want to get your thoughts on. You have enrolled 180 patients. It is one to one randomization so I guess around 90 pumps have actually been implanted. And yet the Impella revenue that you have recorded would imply that you have sold 250 to 260 of those devices. So it says that well over half of those devices that you have sold are still on shelves. Could you just talk through that dynamic and is my analysis correct and will that work its way through as we go forward?

Michael R. Minogue

Well I think that the relabeling of 94 catheters has already been done in Q2 and is past Q3. And for the other centers if they are continuing in their plan to be in the enrollment, then I do not see that as an issue working through the numbers.

Bob Hopkins - Banc of America Securities

Okay.

Michael R. Minogue

If the center though drops out we can quickly and easily, now that the product is approved, they have the option as well to use it for 510(k).

Bob Hopkins - Banc of America Securities

Okay. And one last question is on cash. You mentioned you could at this rate go another six years without raising cash. I am just curious as to what your projections of how much cash you will have on the balance sheet when the trial is complete.

Michael R. Minogue

Bob, as you know we only give one year out guidance which ends in March, but we are very confident where we are at right now in our cash position as well as our revenue ramp and we will be giving the forecast for next year on the following quarter’s call.

Operator

Your next question comes from the line of Erik Schneider - UBS.

Erik Schneider - UBS

First question is related to the additional central rule out criteria for Protect II that you described around the investigator believes that the patient needs ventricular support. First, has that always been in place? And if it has not, when was it instituted? If it has, what proportion of patients otherwise screened was determined by the investigators not to need ventricular support?

Michael R. Minogue

Eric, I want to make sure I understand your question. Can you…

Erik Schneider - UBS

Sure. The first part is, has the criteria where the investigator determines that a patient that otherwise meets all of the rule in and out criteria for Protect II, but they choose not to include them because they do not believe they need ventricular support, has that always been in place or is that new?

Michael R. Minogue

That has always been in place and that has been reinforced in general. That also was looked at and evaluated in the Protect I; those patients were also deemed to be either supported with balloon or with tandem heart for the majority of those patients. So yes that has always been in place.

Erik Schneider - UBS

And do you know what proportion of patients who meet the inclusion/exclusion criteria and otherwise would have been included have been deemed not in need of ventricular support by the investigators. Is it half of these people?

Michael R. Minogue

No, it is not a large number but it is really that young healthy patients that has unprotected left main without prior history and an EF of 35% and there is a couple of amount there. Some of them may end up going into the study for if they are going to do a complicated therapy like rotor blade or something with it. However, the rest of them as we said, the majority of the patients in Protect II have triple vessel disease.

Erik Schneider - UBS

And I think you were previously describing if we go back to the commercial launch of Impella that the trial sales in training was really sort of a thin wedge to introduce people and to ensure that you got trial enrollment and now it sounds like you are flipping that around too so that they should do the first couple of units commercially before doing trial. Does this suggest that there was a training issue that either people did not want to wait to get trained or could not be trained in time or that there was some difficulty with their initial placements in the trial?

Michael R. Minogue

I think it is just a general best practice we learned from Europe so on the feasibility studies that have been done, that is one of the experience centers did not have essentially user mistakes. And when we started going to the Impress which is the European AMI study, the PI thought it would be important that the centers had experience when they were doing their AMI patients which tend to be at later hours rather than doing their first patient under an emergency situation. And now that we have the 510(k), we thought it was also a nice prudent ad to have centers get some general experience before they enroll their first patient in Protect II.

But the point is we think Impella is very easy to use and if you look at Protect I, those patients for the most part with only 20 patients was the first time use for most of those centers and we still had the positive results. We just think that, now that we have the 510(k), it is a nice benefit for them to have that capability.

Erik Schneider - UBS

Did you mention the number of the 163 centers that had done a commercial patient so far?

Michael R. Minogue

Sixty percent have done one or more and we have done over 260 patients since the 510(k).

Erik Schneider - UBS

And one last one on the relabeling that went on. Is the sale revenue that was reported, is that adjusted for those relabeling or do we need to reduce the reported in trial sales revenue to account for the fact that those units were subsequently relabeled to commercial use?

Bob Bowen

I do not think there is any requirement to change the revenue on which the period on which it was recorded.

Erik Schneider - UBS

I am asking about a GAAP requirement from our perspective to figure out how many units or used/stock under either trial or commercial.

Michael R. Minogue

They are relabeled now so they will be used for general use.

Operator

Your next question comes from the line of David Lewis - Morgan Stanley.

David Lewis - Morgan Stanley

Mike just a question coming back to this issue of utilization. Last quarter we talked in a pretty detailed fashion about utilization on the call. So, now that we have had this reclassification, it seems like last quarter when you talked about trial or 510(k) commercialization, you had about $8.8 million of US revenue. This quarter it is about $7.3 million of US revenue. So are you saying definitively that next quarter US Impella revenue is going to be up?

Michael R. Minogue

David can you repeat that. Your question is, are we saying Impella revenue in the US for general use will be up or total revenue?

David Lewis - Morgan Stanley

Total revenue. I was thinking, obviously the reclassification, what people really want to know here, now that the trial has reached steady state, how is the commercialization? Is it going to get [cross talking] at 7.3?

Michael R. Minogue

Yes, so I understand the question, so obviously, we do not give guidance within the quarter for the specific and we certainly do not guarantee the revenue but as a general rule, we believe that we had sequential growth from Q2 to Q3 for Impella commercial use and we believe that the trend will continue and we will have sequential growth of Impella commercial revenue for the next quarter but that is not a forecast.

David Lewis - Morgan Stanley

Okay, and just not to push you here but what you are implicitly saying is you have reached a steady state with your clinical trial business in the US. So regardless of these areas’ reclassifications, you had a bolus of demand, selling out of inventory and given the underlying trend of utilization, you do expect that business to be up sequentially.

Michael R. Minogue

That is our belief and just again to summarize we did see it sequentially go up again this quarter even in light of the fact with the economy, with the relabeling and with the opening of 55 centers which is half of the prior quarter, we did see a sequential growth which we think is a very positive trend.

David Lewis - Morgan Stanley

Okay. So just thinking of that idea, if you basically believe you are going to be running from a $32 million US business for Impella in the first two quarters of commercialization and you have 6 years of cash, this and some of the things we are hearing on this call suggest that you are not frankly spending enough on sales and marketing, that you do not have enough people in the cath lab to train?

Michael R. Minogue

It is a good question and what was reiterated by Bob and myself is that the spending you are seeing being reduced is on R&D products that have already been the bulk of the spend on them is done, some manufacturing expenses, some marketing expenses that are not related to the Impella US launch, operational expenses, general overhead expenses and with the exception of that, we are increasing all the spend levels for anything that has to do with the Impella US launch whether that is the commercialization of it or the trial.

As I stated on last quarter, we had added a significant amount of people into the field. We now have over 70 people in the US, we have added more than 10 people in January and on a comparative basis, compared to a balloon pump, we are much larger now then the distribution by the companies that sell in short of balloon pumps.

So I think that we have a very large sales force, we have a while ago that it will be more important to have clinical Impella specialists before sales so that tended to be a true assumption. The fact that we have overshot the centers that we have ramped up is a proof to that and really it is about getting this Impella specialist that come in to Abiomed with relationships and they understand the cath lab, getting them trained. They are also bringing in who are using per-diem folks and also we are using the sales force now that as we transition more of a focus to them on Impella for utilization, they get signed off and we will be doing patient support as well in the cath lab.

I think we have a very big distribution, I think it is going to continue to grow with revenues and I think that is the right way to do it in today’s economic environment, but I do not feel that we are understaffing the US field in anyway, in fact I think we have continued to accelerate over the last six months specifically.

David Lewis - Morgan Stanley

Okay. And just on trial tightening, we had a lot of people who were sort of pending IRB approval but sort of dropped out. So they really were not in the trial. Just maybe walk me through again the dynamics around that; was this the provision that you are going to require them to do two devices. Was this simply given the economic environment they could not afford to participate in this trial or was it simply pent up demand a lot of people that showed interest and they realized that if they really want to be in this trial, they could get access to Impella 2 or 510(k). But it is a significant number of people who really were in this trial with the sort of same interest. I think it is important to really flush out who these individuals are and what happened.

Michael R. Minogue

Sure. So there are two components to that. The first group is the one that were already in or already had IRB that dropped because they are now ready to treat patients with Impella, they have experience and they do not think it is a balloon to provide the support they need for their high-risk patients. So that is one class. The second class of the 70 are kind of that second tier group that does do studies but they are not pure academic centers.

The interest level at these centers was based on their desire to bring Impella into their institution and to have the ability to at least offer it on a randomized basis to their patients. Now that the product has commercial approval, their main interest is to treat their patients with Impella as it move forward in today’s economy or just in general on the way their hospital operates to move into the commercialization.

Operator

Your next question comes from the line of Sean Lavin - Lazard Capital Markets.

Sean Lavin - Lazard Capital Markets

You answered most of my questions but I have one. I wanted to talk about the trial revenue in the quarter. When we looked at it with 18 additional centers, we would have thought the revenue may have been a little higher than it was. Am I correct that new sites do order 5 devices or could you talk a little bit about where that revenue came from or that number?

Michael R. Minogue

Let me go through the numbers with you again just make sure we are clear on. So there are 85 hospitals that are enrolling and so they are using, they have purchased, there are 18 who have submitted but they do not have approval yet for the studies. So there are no purchases of those 18 into that $0.6 million.

Sean Lavin - Lazard Capital Markets

Okay. So in September there were how many centers enrolling?

Michael R. Minogue

Yes, so there are centers that can enroll and there centers that have done a patient. So there are 85 centers at the end of December that are now able to enroll patients. And they are trained and they are up and running and they are screening. Of those 85, 49 hospitals have completed patients one or more to total 180 patients. There are another 18 hospitals that have submitted to the IRB that do not yet have approval so they have not purchased any trial catheters.

Sean Lavin - Lazard Capital Markets

I guess on September 30th there were 67 centers that were open to enroll; now there are 18 more. We do not know that those 18 have bought any devices.

Michael R. Minogue

For that difference, some of those may have bought one and they may have general use and that might be, essentially that is what they are using now.

Operator

Your next question comes from the line of Duane Nash - Pacific Growth Equities.

Duane Nash - Pacific Growth Equities

Two quick questions. The first one is, earlier in the call you mentioned a number of 260 patients supported, I was wondering what that referred to? I missed that unfortunately.

Michael R. Minogue

Sure. So we have done over 260 patients in the US under general use for the last 6 months. We are not likely counting every single patient that has been done, but we know we have done over 260. There are certain centers now that are operating on their own that we go back to when we are trying to make sure that we capture every single patient for our internal database.

Duane Nash - Pacific Growth Equities

Understood. And second question which might be a little harder is the issue of the hospitals dropping out. I am just wondering exactly how that works with the hospital. One concern that someone might have is that as these hospitals tend to get more experienced with Impella and see that it actually works versus the balloon pump, that a large portion of them might want to drop out. Is there a way to gauge how committed a hospital will be to completing the study?

Michael R. Minogue

That is good question and there is a way to do it and one of the reasons that we are now staying through our current levels is because the bulk of the folks that have been in this study now have used it commercially and those that had an ethical question because they have used Impella and had success, they are transitioning now and they are just going to use it commercially. Others believe in the technology but are committed to continuing with the enrollment of the patients and that is based on the fact that they made a very personal decision. So that is up to them and the steering committee has discussions with them and we feel confident that that bulk of the group that left is committed to completing the study and those folks that were not yet completed with their IRB that dropped out, they potentially are dropping out because they are not really interested in the academic side of it. They want the Impella technology at their center; they are comfortable with the way it works and they want to move forward and use it commercially on all their patients.

Operator

Your next question comes from the line of Brian Kennedy - Jefferies and Company.

Brian Kennedy - Jefferies and Company

Thanks. Can I go back to the difference in Protect II center base between last quarter and this quarter? Last quarter we had 187 sites in total expressing interest either enrolling with IRB approval or awaiting IRB approval. This quarter as I calculated, we have about 103. Can you just walk through where that delta went? Obviously I see the 63 different centers that have purchased. Do we assume that the delta between the 84 and the 63 are awaiting or about to purchase? Is that the proper way to look at it?

Michael R. Minogue

Close. So Brian, it is 85 are enrolling, so we break it into those that are enrolling, so 85 are enrolling and 18 hospitals are pending the IRB approval and they are still moving forward. All the rest essentially are now no longer in the study or dropping out of the study.

Brian Kennedy - Jefferies and Company

Okay and if I would look at the 187 from last quarter and the new 85 plus 18, I get 103 so a delta of 84. Do I assume that the 84 has migrated to the 510(k) channel and if so…[Cross talking]

Michael R. Minogue

So 11 plus the 70 is 81 and there is an incremental three that were between the different quarters by the time we reported to the drop out.

Brian Kennedy - Jefferies and Company

Okay and in terms of the difference on the 510(k) progress front, you reported a 163 have purchased this quarter and 100 last quarter so a delta of 63, so the difference between the 84 and the 63 is centers that are interested in purchasing in the 510(k) channel but just have not purchased. Is that the right way to look at it?

Michael R. Minogue

Brian it is not a one to one but just like what you said, it is 108 had purchased in Q2, 55 more purchased in Q3 bringing the total to 163, so it is not a one to one of the 11 and the 70. In fact some of the 11 already have the product and some of the 70 also already have the product. They purchased it initially under general use as well and now they are dropping out of study so that is why it is not a one to one. Just for clarification.

Brian Kennedy - Jefferies and Company

Okay. And then again on the 510(k) side, with classification, should we look at last quarter’s $6.2 million as the appropriate base? Should that number be higher if we reclassify?

Michael R. Minogue

Say that again Brian again please.

Brian Kennedy - Jefferies and Company

With the $6.2 million last quarter in the reclassification, is that the appropriate base to start from for 510(k) sales or would the reclassification drive that number higher.

Michael R. Minogue

Well, the way we look at it is we relabeled so they can use it for 510(k) so that is on top of it so this Q3 you would say the base was $6.7.

Brian Kennedy - Jefferies and Company

Right, okay. And then just lastly, is there anything you can tell us about 510(k) usage by indication and has there been any change there that you have noticed, I mean you cited the device efficacy in AMI, shock. Are you seeing that trend up in 510(k)?

Michael R. Minogue

Yes Brian that is a good question and part of the trend we like to see is that we started with the 76% to 77% high-risk PCI, it is coming down and we are seeing it expand now into AMI patients. As I have mentioned, we have done over 50 AMI patients that we have tracked and looked at survival data as well as we are seeing acutely decompensated patients, we are seeing some off-pump cases in surgery and lots of other creative ways. So that is part of why we believe the application will continue to grow. But as I mentioned the high-risk PCI is really the right environment to get good patient outcomes, be scheduled to be there, get the physician and the staff comfortable with the technology and that also mirrors what we saw in Europe.

Brian Kennedy - Jefferies and Company

Okay so projecting forward, do you think it is going to remain close to that 75 % high-risk PCI, 25% other ratio?

Michael R. Minogue

Well I think it also depends on how fast everything grows but I think that the trend should be high-risk PCI as we roll the technology out and people get trained. There is a very large number of high-risk PCI patients that we believe can benefit from Impella. We also know there is a very large number potentially even a greater number for AMI patients and we also know there is these acutely decompensated chronic patients that are also a relatively large number. Again if you just take balloon pump usage for AMI and high-risk PCI, that is about 60,000 a year in the US.

Operator

Due to the time, we can take no more questions. I would like to turn the call back over to Mr. Mike Minogue. Please proceed.

Michael R. Minogue

Thank you everyone for your time and if you have follow up questions, please feel free to give us a call. Have a great day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.

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Source: Abiomed, Inc. Q3 2009 Earnings Call Transcript
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