Abiomed's CEO Discusses F2Q2014 Results - Earnings Call Transcript

Nov. 6.13 | About: ABIOMED, Inc. (ABMD)

Abiomed, Inc. (NASDAQ:ABMD)

F2Q2014 Results Earnings Call

November 06, 2013, 08:00 AM ET

Executives

Susie Lisa - Senior Director, IR and Corporate Development.

Michael R. Minogue - Chairman, President and Chief Executive Officer

Robert L Bowen - Chief Financial Officer

Analysts

Raj Denhoy - Jefferies and Company

Matthew O'Brien - William Blair and Company

David Lewis - Morgan Stanley

Brooks West – Pipe Jaffray

Operator

Good day, ladies and gentlemen, and welcome to the Abiomed Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference is being recorded.

I will now turn the call over to Susie Lisa, please go ahead.

Susie Lisa

Thanks, Stephanie, and thanks everyone for joining us for the Abiomed second quarter fiscal 2014 conference call.

I am joined 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 second 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 second quarter fiscal 2014 results, it is necessary to remind you that during the course of this call we will be making forward-looking statements, including statements regarding development of Abiomed’s existing and new products, the company’s progress toward commercial growth and future opportunities and expected regulatory approval.

The company’s actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including uncertainties associated with development, testing and related regulatory approvals, including the potential for future losses, complex manufacturing, high quality requirements, dependence on limited sources of supply, competition, technological change, government regulation, litigation matters, future capital needs and uncertainty of additional financing and other risks and challenges detailed in the company's filings with the Securities and Exchange Commission, including the most recently filed Annual Report on Form 10-K and quarterly report on Form 10-Q.

Listeners are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of 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, comparative references made financially in this call to revenue, expenses, gross margin or other increases or decreases will be indicated by references to second quarter of fiscal 2014, as compared to the second quarter of fiscal 2013 or second quarter fiscal 2014 as compared to the first quarter of fiscal 2014.

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

Michael R. Minogue

Thanks, Susie. Good morning everyone. Abiomed executed and delivered a solid second quarter with 19% increase in total revenue to $44.3 million and a 23% increase in Impella revenue to $40.2 million. Abiomed achieved many new quarterly records on Impella utilization, including most overall patients, most prophylactic patients and most emergent patients.

The quarter also witnessed the highest reported patients treated in a month, week and day in company history. Physician awareness of the clinical need for percutaneous circulatory support and the Impella platform continues gain momentum. Last week we attended our most important medical meeting called TCT. It was self evident from the 2.5 plus Impella talks and two live cases that hemodynamic support is now a global standard of care for advanced catherization labs.

Our impression from TCT were that the field of cardiology is evolving toward the treatment of more complex patients with minimally invasive procedures while the caregivers increasingly recognize the benefits of more complete revascularization, improved quality of life and cost effectiveness.

From a long-term perspective Abiomed is focused on transforming the company by achieving our regulatory approvals in Japan and U.S. and advancing the FDA study on the Impella RP. On today’s call we’ll cover three of our four fiscal year goals and provide specific updates relative to our progress.

Starting with our second goal, achieving significant patient and revenue growth. We have now grown double-digits for 16 straight quarters. This quarter patient utilization achieved a new peak. As a percentage of total case mix prophylactic and emergency circulatory support represented 49% and 40% respectively with 11% in the all other categories of total usage.

We continue to preserve our discipline to limit quarterly new site openings and maintain low customer inventory levels. Our third goal is supporting the medical community to publish manuscripts on hemodynamic support, patient outcomes and cost effectiveness.

One abstract of critical importance was the recently published consensus paper by the Society of the Angiography and Intervention or SAI. On the new definition of clinically revenant fair procedural myocardial infarction or MI. This publication from the leading experts in cardiology finds periprocedural MI as 10 times the upper limit normal for CKMD release. As another data point the largest current FDA PCI study today applies a 10 times definition as compared to the 2007 FDA standard of three times used in the PROTECT II.

A recent publication entitled Impact of Hemodynamic Support with Impella 2.5 versus the intra-aortic balloon pump and prognostically important clinical outcomes in patients undergoing high risk percutaneous coronary intervention from the PROTECT II randomized trial considers a post talk analysis of PROTECT II applying in eight times periprocedural MI or the clinically relevant MI definition from the consensus paper. The analysis revealed that the primary composite end point of MAE, major adverse event was achieved per protocol at both 30 and 90 days and MACE analysis also showed significance at 90 days.

This is noteworthy because the new definition of MI appears to minimize the [arterectomy] confounding variable which triggered the three times periprocedural end point in the PROTECT II study. We encourage all investors to read both publications.

There have been 16 articles recently published referencing Impella. One of these articles is the cost effectiveness analysis of the use of Impella in percutaneous VAD compared to surgical alternatives in the EMERGENT study. This is an incremental cost effectiveness ratio or ICER score for PVAD in emergency patients. This analysis which considered 1,188 med par Medicare claims from 2010 to 2011 showed Impella has a dominant cost effectiveness profile in which the new technology provides both better outcomes and lower total cost of care. This article is currently available in abstract form on PubMed and is the fourth cost effectiveness article published on Impella over the past six months.

Impella is now incorporated into five different guidelines and has government and society approved payments for both hospitals and physicians. We believe our focus on clinical publications along with cost effectiveness data differentiates Impella as a critically needed technology.

Our fourth and final goal is executing on our clinical and regulatory processes in order to achieve approvals in Japan and the United States. We are on schedule for a modular Impella PMA submission. To remind everyone a modular submission is a summarized by a PMA shell which outlines the modules, provide the table of contents in plan for submission and identifies information necessary to support the filing and approval of a specific class three product.

Last quarter the FDA formally approved our PMA shell which outlined the components of pre-clinical and testing, manufacturing and quality in clinical data. The FDA reviews each module within 90 days of submission. We have now submitted four of the five modules for the Impella 515 submission.

The remaining clinical module is plan for a February submission to allow for the review of existing submissions and ongoing FDA input into our clinical white paper. The FDA has already reviewed and provided written feedback on our clinical summary. The Impella PMA filed as part of the 515 process provides the FDA access to five years of real world U.S. clinical experience and medical device reporting MDR safety records.

With over 16,000 U.S. patients supported domestically Impella is now the most widely used ventricular assist heart pump that has been cleared or approved by the FDA. Until the 515 process is completed ABIOMED will operate under the existing 510(k) clearances.

Now I’d like to provide an update on our Impella RP study to support the Humanitarian Device Exemption or HDE submission. While FDA support has been outstanding the hospital IRV process has proven to be slower than expected. However even with only half of the 15 clinical sites approved we have already enrolled more than 50% of the 30 patients required.

Today we are also announcing an accelerated forecast of February 2015 for the Impella RP FDA approval. We believe based on physician feedback that this product will be a requirement for every major heart hospital program and will be immediately integrated with the same console, hospital and physician network. To remind our investors there is no other product like the Impella RP and for the first time it enables Percutaneous, bioventricular Impella support. Additionally our Impella RP patent portfolio continues to progress.

We are also excited to have Impella Japanese approval by the end of the fiscal year with reimbursement approval to follow in six to twelve months. And the hybrid distribution strategy is anchored on our ability as a company to complete the regulatory approvals independently, manage and support the top 20 heart hospitals and key opinion leaders and provide training to our strategic partner to cover Japan and potentially the rest of Asia.

We are currently reviewing the responses from potential partners to our RFP and we’ll make a selection next year. Since this is a unique life supporting technology we always approach new markets with a methodical process to ensure discipline and rigor in the entire launch in patient management experience. Japan will serve as the foundation of our Asian expansion and we are excited by the opportunity to recover hearts and stabilize in this new region.

In summary ABIOMED is on track to transform into a PMA and PMDA company, set new records in patient utilization and achieve our fiscal year revenue guidance. We believe our multiple regulatory approvals will provide a significant long term strategic benefit for validating our quest to become the new standard of care for percutaneous circulatory support.

In the future we believe the strength of our intellectual property combined with organic growth opportunities from new clinical indications, new geographies and new products will create long term shareholder value and help tens of thousands of patients worldwide. Look forward to another record year and thank all our stakeholders for their support.

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

Robert L. 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 in this morning's full earnings release fiscal second quarter revenue was a record $44.3 million and increased $6.9 million or 19% from the prior year. Worldwide Impella product revenue grew $7.4 million or 23% to $40.2 million from $32.8 million in the prior year with reported patient use in the U.S. up 24%.

Service revenue grew 13% to $2.6 million from $2.3 million in the prior year, and legacy product revenue decreased by $700,000 million to $1.5 million. An additional 30 new Impella 2.5 sites were opened yielding $2.4 million in revenue, equal to last year’s new Impella 2.5 site openings of 30 sites which also totaled $2.4 million in revenue. An additional 65 hospitals purchased Impella CP bringing the total Impella CP sites to 237 or approximately 29% of the overall installed base of 805 U.S. Impella 2.5 customer sites.

Impella CP represented approximately 35% of overall reported patient usage during the quarter, compared to approximately 30% in the prior sequential quarter, reflecting continued strong demand for this higher flow device.

U.S. Impella unit reorders were approximately 92% of reported patient use, similar to what we have experienced in each of the past two quarters, reflecting the continued rollout of the Impella CP and related hospital adjustments being made to Impella 2.5 unit inventory carrying levels in anticipation of or after receiving the first stocking shipment of Impella CP.

Average Impella 2.5 and CP site inventory levels remain lean and together were unchanged from the prior two quarters at an average of 2.4 units per site. The gross margin rate for the quarter was 79.6% compared to 80.8% in the year-ago period. Our gross margin rates are sensitive to the number of console placements in the quarter for new site openings, expanded use needs or AIC upgrades. During fiscal Q2, we placed a 172 Impella consoles compared to 114 in the prior year.

R&D expense of $7.7 million grew $1.8 million compared to the prior year, largely due to expenditures to support regulatory filings in the U.S. and Japan as well as ongoing product development and clinical initiatives.

SG&A expense of $26.2 million grew $7.8 compared to the prior year. The increase comprised of basically three items. We have invested an incremental $4.1 million in the expansion of the U.S. sales, marketing and customer support center to maximize customer satisfaction and the patient management experience.

Over the past year we increased the number of field regions from four to five and launched the 24x7 customer support center. The size of the U.S. field team is approaching 140 field employees and we now check 100% of the ICU patients to the customer support center. We believe this service strengthens our relationships with customers and helps improve patient outcomes.

In addition, we incurred $1.9 million of outside legal expense related largely to document submission to comply with the Department of Justice subpoena. There has been no change in the scope of the DoJ subpoena and we expect to complete the requested document submission phase by the end of fiscal 2013. And we incurred $700,000 of medical device tax expense for which there was no counterpart in the prior year.

GAAP net income for the fiscal first quarter was $1.1 million or $0.03 per diluted share, including $1.9 million of DoJ related legal expense and $2.8 million of stock compensation expense. This compared to GAAP net income in the prior year of $5.5 million including $2.3 million of stock compensation expense.

The balance sheet remains in excellent shape and we continue to prudently manage working capital which is reflected in the growing cash position. We ended the quarter with cash, short and long term marketable securities of nearly $97 million and we have no debt.

Turning to guidance as noted in our press release we are reiterating our full revenue year guidance in the range of $180 million to $185 million. Impella growth expected to be approximately 20% for the year. Historically we have realized 45% to 50% of revenues in the first half of the year and the midpoint of that range this year would place us just above the midpoint of our revenue guidance for the year.

Also as indicated on our last call we believe income from operations for the year excluding any one-time charges will be in the range of breakeven to 5%. We will now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Raj Denhoy with Jefferies. Your line is open.

Raj Denhoy - Jefferies and Company

Good morning. If I could ask a little bit about the -- and obviously nice recovery in the U.S. business in the quarter. Couple of things there are, it sounds like inventory levels has sort of stabilized and I think you noted it was about 2.4 per site. I guess I am curious, what you think about that number, is that the correct number you expect going forward, do you think there could be some adding back to that or is that the right number per sensor?

Michael R. Minogue

I believe it is the right number Raj, if you think about our offering when we start a site they usually two consoles and three pumps and they can start with the mix-up of the pumps but if you have one patient on you always want an emergency back-up and if you have another patient that comes in the door or over the weekend we think that the right approach is to have three.

What usually happens is one usage is one reorder and what we are also starting to see is that our busier centers or higher centers tend to go up a little higher into the four to five range so they have that back up for two patients.

Raj Denhoy - Jefferies and Company

Okay, but that 2.4, 2.5 is kind of right number we should think about going forward?

Michael R. Minogue

Yes.

Raj Denhoy - Jefferies and Company

And then just on the CP penetration, there was 35% of usage in the quarter from 30% last quarter, can you remind us of the ASP difference between those two pumps and how much of a benefit that’s been and will continue to be for you?

Michael R. Minogue

Raj, the CP is -- the ASP is 25,000 and for those sites that have the CP the two five price gets reduced to 20,000. And the ASP, the U.S. ASP for catheters in total was up really just under 1% year-over-year despite improvement in average capital pricing in the U.S. year-over-year.

Raj Denhoy - Jefferies and Company

Okay, that’s great. Just on the PMA shell the 515 process I am curious you didn’t tell like there any major update there, were there any are we still marching along as you described it in terms of FDA being comfortable with everything you've submitted and what the structure of the 515 submission at this point?

Michael R. Minogue

Correct.

Raj Denhoy - Jefferies and Company

Okay, very good. Thank you.

Operator

Our next question comes from Matt O'Brien with William Blair. Your line is open.

Matthew O'Brien - William Blair and Company

Good morning, thanks for taking the questions. Was hoping start up on CP up to 35% penetration at this point. How should we think about where that can go to over time, is that going to mirror pretty much emerging cases and whatever penetration -- the number of emerging cases that you are selling into or do you think that you can penetrate into prophylactic and other beyond kind of that 40% range of emergent cases right now?

Michael R. Minogue

I mean what we are trying to do is give options to our customers. Certainly the patients that require higher flow if they are more emergent or larger size the preference is for the CP. While there are some physicians that are looking more for the elective support for normal size patient and it might be a little more cost conscious and they will remain -- they will try it out but they also will continue to use 2.5 in selective cases.

It would not surprise us if this trend grows to be upwards of 50% but we think that all three products will continue to be used based on the preference of the physician.

Matthew O'Brien - William Blair and Company

Okay, very helpful. And then on the prophylactic side there is very strong growth this quarter off a pretty challenging comparison, do you think we are starting to see the impact somewhat of the [Shock 2] data here in the U.S.?

Michael R. Minogue

I think there is a combination of things going and a little bit of this I think you probably saw a TTT. One of the components of the Shock 2 study was it shows that the historic balloon pump was not a hemodynamic device and I think what people are realizing is that when they’re looking for flow they’re really going to be looking at things that deliver more sustainable levels whether it's Impella, ECMO or surgical VAD. The other trend and continuing positive news that we have that the Europe continues to grow and specifically in Germany which was the primary area of the Shock 2 study our growth is up triple digits, so almost three times.

So that’s a great factor but it's also combined with our own data, our own cost effective data, the AIC Council and the CT. So the story we have always said is summarize as training and data and so we continue to execute on our end to make training better and produce more valuable data to the physicians.

Matthew O'Brien - William Blair and Company

Okay. And last one from me, on the RP side you’re providing timing but I think is a bit ahead of what we’re expecting but how should we think about roll of that device once you get approval, specifically anything you carry to share on pricing and the number of centers you are thinking about initially maybe first six to 12 months.

Michael R. Minogue

Sure, so the pricing is going to be in the 25 range in the 20 range, as far as roll out one of the benefits of our business model is of this razor is our best sites that are utilizing Impella today that have a platform, have the nurses trained, the physicians train we’ll target the best users, the biggest most experienced users and we’ll integrate the Impella RP right into those programs. Again it runs off the same console and we’ll work our way through our top hospital programs to the rest of the installed base.

So from a numbers perspective it will probably look and feel very similar to the way we’re doing with the CP and again it gives us a real opportunity to build stronger relationships with the hospital, group and just train more about how to get best outcomes.

Matthew O'Brien - William Blair and Company

Got it, thank you.

Operator

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

David Lewis - Morgan Stanley

Good morning. Just a quick follow up on the RP question. So we take your total number of centers is it safe to assume we take a certain percentage of those centers that are your higher volume users and just assume that everyone of those individuals has one or two RPs on the shelf?

Michael R. Minogue

Most likely yes.

David Lewis - Morgan Stanley

Okay. And then your pricing strategy Mike help me understand that, because we think about HTs as being smaller volume opportunities but obviously you mentioned the pricing is going to be more like to be 2.5 and obviously 5.0 and maybe just walk us through strategically why you price that product where you intend to?

Michael R. Minogue

Well, we are more than a year away to commercial pricing that’s our current guidance but the logic behind that is we don't want to limit the opportunity for a patient to receive right side support which could be the difference between having heart failure or recovering, we want to make it so that it allows the physician to have flexibility. And whether it's used in post LVAD or transplant we just want to have a physician where we can support patients and it's cost effective.

David Lewis - Morgan Stanley

Okay. Very clear and then Mike just on Japan can you give us really a sense of how you see that market and either PCI and MI shock in Japan relative to the U.S. opportunity?

Michael R. Minogue

Sure. So there is about 25,000 balloon pumps used a year in Japan a majority of those are for emergent patients. There is also around 10,000 ECMO pumps used. They called it PCPS there. Those are for all emergency patients and in Japan they don’t necessarily have a prophylactic versus emergent they have many patients that have severe heart failure and when you put them on the table during the procedure they go into heart failure. They go into cardiogenic shock.

But in that country they really have a cultural issue that they don’t prefer to have surgery they don’t like sternomies they really aren't any transplants available and they have high smoking population. So the big target for us is going to be those having heart attack that are suffering damage or in shock and we believe that our tag line of recovering heart and saving lives and our product portfolio and mission is really custom made for the Japanese market.

David Lewis - Morgan Stanley

And then Bob just one last quick one, just on cash I mean obviously cash is kind of moving past or about to move past that $100 million mark, your views around cash as you head into next year changed at all about using that cash whether there are incremental strategic opportunities I’m not sure buybacks make a lot of sense but the cash is now becoming a not immaterial part of your market cap and I wonder is it simply a cushion or others ways you should use that cash for shareholders. Thank you.

Robert L. Bowen

Yeah David I think it’s partially a cushion and I think we partially will look at single-digit type of technology acquisitions to strengthen our product portfolio and our intellectual property.

David Lewis - Morgan Stanley

Great, thank you very much.

Michael R. Minogue

Thanks David.

Operator

Our next question comes from Brooks West from Piper Jaffray. Your line is open.

Brooks West – Pipe Jaffray

Thanks and thanks for taking the questions. Bob you said CP 35% usage in the quarter, what was it as a percentage of revenue and then could you also give the breakout for 2.5 and 5.0?

Robert L Bowen

I am going to have to look that up, Brooks so let me see if I can get it. Don't have it right now.

Brooks West – Pipe Jaffray

Let me ask another one and maybe you can come back to me on that. Mike, want to ask you question on the dispersion of volume in high risk PCI. You talked about the emergence of kind of centers of excellence. Are you seeing concentration or consolidation of procedure volumes in high risk PCI kind of emerge in the United States?

Michael R. Minogue

Specifically to individual hospitals?

Brooks West – Pipe Jaffray

Well I am thinking about practices whether it's a hospital or whether it's a guy within a practice who is really going to pick on these procedures and you are seeing actually a concentration of those volumes?

Michael R. Minogue

What we are seeing Brooks is as PCI volumes start to decline in certain areas there are other physicians that are choosing to kind of go out and create a market in the community as the advanced heart failure interventional cardiologist. So that means that whether they are doing the riskiest patients, the most complex procedures, hemodynamic or just on call to emerging patients, they really are going out and kind of coming back that type of high procedure high risk person in the community.

So we see that in individual basis but as that grows then you start to see some of the other physicians in that group also become familiar with the technology whether it’s in the EP lab or whether they are just on call for a week they understand the benefits of Impella.

Brooks West – Pipe Jaffray

Thanks. And then maybe one more while Bob is getting those numbers. You mentioned you had feedback from FDA on your submitted clinical summary. Can you speak to that feedback at all?

Michael R. Minogue

Not currently but it’s essentially it’s working off of the shell and it’s talking about specific studies to the totality of the data to also looking at 16,000 U.S. patients and filing all the safety reports as well.

Brooks West – Pipe Jaffray

Okay, thanks so much.

Michael R. Minogue

Thanks Brooks.

Robert L Bowen

So Brooks of the U.S. Impella revenue 2.5 is approximately 50%, CP is approximately 40% and 5.0 is approximately 10%. Okay? Lisa.

Susie Lisa

Can we go to the next question please Stephanie?

Operator

Sure. Our next question comes from Jayson Bedford with Raymond James. Your line is open.

Jayson Bedford – Raymond James

Hi, good morning and thanks for taking the question. Your international business looks like it picked up the last couple of quarters. You mentioned the triple digit growth in Germany may be stemming from the shock trial but what else you are doing differently in Europe to kind of pick up the pace of growth there?

Michael R. Minogue

So Jayson that’s a good question. What we seeing are focus in Europe to be around is the best heart hospitals, the physicians that are publishing on human lung support as well as first in man. We have learnt some lessons on the training side. So we think we just do a better job of training across the board. Many of those lessons are things we have implemented here in the United States.

The second is we have added enough heads, that we can be at hospitals, we can have a better reach especially into Germany. And then third is the clinical data and the cost-effectiveness data is just -- it’s becoming apparent. I mean we had 16 publications in the last four to five months. You were at the show at TCT. It’s just becoming apparent that physicians are looking for a way to provide human life support in the cath lab and we are getting the benefit of all the years of the work in the clinical data.

Jayson Bedford – Raymond James

Has the reimbursement changed at all? It sounds like simply you are adding more resources but has reimbursement change to make it a little easier to sell into that market?

Michael R. Minogue

We’re in the process of trying to improve the reimbursement in Germany but it really hasn’t changed and we did receive reimbursement in Netherlands which was announced I think two quarters ago. With exception of that is just it’s really just better execution and more people.

Jayson Bedford – Raymond James

And then just looking at practice patterns with the CP here when you look at the 240 some odd centers that you have using CP are you seeing both folks use the CP more than the they did the 2.5 or is it similar?

Michael R. Minogue

What we’re seeing is that the CP sites as an aggregate have an increased usage rate.

Jayson Bedford – Raymond James

Okay. And then finally for me on the regulatory side, if a panel was required when would you find out?

Michael R. Minogue

We always conservatively assume we’re going to have panel. It’s really will be up to the FDA and we probably won’t know until sometime next year.

Jayson Bedford – Raymond James

Okay. Thank you.

Michael R. Minogue

Thanks, Jason.

Operator

(Operator Instructions). Our next question comes from [Jane Walls] with Benchmark. Your line is open.

Unidentified Analyst

Good morning everyone. Just a couple of questions, more follow up than anything. In terms of the PCI procedure rate how do you see that I guess in terms of the PCIs and in particular high risk PCI, is it growing, is it shrinking is it enough [inaudible] or how does the market look?

Michael R. Minogue

As far as question on PCI market I think folks have seen from other companies that the PCI overall volume is going down but there is a very important guidance document out there called appropriate use criteria and if the investors haven’t seen it we’re happy to share it but it’s also something that they can research. And what is doing is it saying that the most appropriate patients or the appropriate patients is in the top right hand of the metrics they have, are really those that have double or triple vessel and tend to be those Class III-Class IV patients where there is somewhat of the benefit.

And for us, our patients from PROTECT II and some of our emergency patients tend to be in that appropriate range. So I think it’s why we believe that the standard of care for hemodynamic support would become more important because the average center is seeing a more complex and a more sick patients than they may have seen in prior years where they did may be single stents or bread and butter type of procedure.

So we think that, that will continue and what’s also important is to look at the benefit of treating these patients is there an ability for them to improve ejection fraction, is there an ability for them to not have to go on to an ICD and those are some of the other things that you are continuing to see out of our publications for both elective and emergent use.

Unidentified Analyst

Okay. Thanks and in terms of the RP HDE could you size the population for me that would received that and are you going to -- I guess over time do you think you are going to approach the upper limit of HDE. I am wondering where to look at that in terms of patient opportunity.

Michael R. Minogue

Sure so an HDE is a humanitarian device exemption it requires a safety and probable benefit and it’s for population of 4,000 or less a year. In our study we are doing patients that are post LVAD or failed transplant which is less than 4,000 population and we’re also doing patients that have isolated right side failure or cardiogenic shock and bi-ventricular failure and that’s also a less than 4,000 population.

And over time as we continue to grow we may decide to incorporate into a bi-ventricular study under a bridge to recovery label like we have with AB5000 or BVS we’ll be able to grow it as we can provide more indications and proof of those benefits to the FDA.

Unidentified Analyst

You think it will be under HDEs or...?

Michael R. Minogue

Yeah I absolutely we feel very confident with the HDE approach. We know that the FDA been supportive. We also have disclosed that we consistently get these compassionate use request and what we’re trying to do is move through this HDE study as quick as possible so that we can get this technology out for the sites that are going to need this for patients that have that HDE concern.

Unidentified Analyst

I guess my last question is you mentioned that you are moving into Japan and that’s going to be the foundation of your Asian expansion. Could you talk a little bit about what you see as your expansion strategy into Asia?

Michael R. Minogue

Sure so we think Japan is a tremendous opportunity. We expect it to have faster uptick. It's a culture that really embraces innovative technology in the cath lab, If you look at IBIS it's the highest use in the world 80%, there is a focus on hemodynamic we did disclose that the physician societies approached Abiomed. MHLW is giving us somewhat of an expedited review and listed us as a critically needed technology.

And we want to use that as a foundation in Asia to have our training centers, our top 15 to 20 training centers and then we will partner with another strategy to cover the rest of the country. The interesting fact is that there is more cath labs in Japan then the United States. And what we want to do is do very well get great outcomes and have a Japanese registry publication, but then we’ll quickly once we’ve established our standards and training there we’ll move into China which we expect to be treating patients within the next 18 to 24 months.

We have also a lot of interest in India, which will be leveraging some of our U.S. physicians to spend time there to set training centers in India and then we’ll continue to expand into the rest of the region such as Taiwan, Korea and other countries that will come along.

Unidentified Analyst

Thanks a lot and congratulations in the quarter.

Michael R. Minogue

Thank you for your questions.

Operator

Our next question comes from James [Turvolator] with Wunderlich Securities. Your line is open.

Unidentified Analyst

Yeah, hey guys can you hear me?

Michael R. Minogue

We can James good morning.

Unidentified Analyst

And good morning thanks for taking my questions. Congratulations on a nice quarter. Real quickly most of my questions have been answered but I wanted to go back more specifically to just the distribution strategy in Japan. It seems like you are going to use a partner or distributor but you are also going to go direct. So could you give a range on what that direct sales force look like? And I think we have the procedure numbers for Japan but how many facilities would you want to cover with that direct sales force?

Michael R. Minogue

Thanks for the question James our strategy is to have the top 20 centers and the top 20 key opinion leaders. We already have a Japanese Advisory Board in place. We have some direct heads that are in the country and some of the managers in the staff spend couple of weeks there every quarter too.

So we are starting to get really focused because if you have the top 20 centers and if you have the key opinion leaders again our goal is to become the global standard of care for percutaneous circulatory support. And we think this is a great market for us to penetrate.

Unidentified Analyst

Excellent and my last question and my last question and this was previously discussed. As we move from ICD 9 to ICD 10 do you have any additional comments on any potential changes to reimbursement rates here in the United States?

Michael R. Minogue

And so that’s a good question especially after the recent remapping that’s occurred. So just to be clear on the ICD 10 update to the 9 the code was remapped because the ICD 10 DRG mapping did not match the ICD 9 DRG mapping which it's suppose to do from a process perspective. And we do not believe there will be any changes currently to our DRG.

CMS has stated that the process of the ICD 9 to ICD 10 is also not meant to do any difference or change the mapping of the DRG so everything stays status quo. And if there were a change or request for change for DRG that would happen next year there will be a comment period and it won’t take effect till the following year.

So we feel very good about where we are and just to remember that DRG’s are put into buckets based on the severity of the patients, the complexity of the patient and the hospital charges of the patient and as our population gets more emergent and as our patients get more severe it tends to move us into that higher hospital charge patient population. And then just one last point.

If you can pair Impella to other Hemodynamic technologies that are out there whether it's the surgical VADs or ECMO the reimbursement is one third to one quarter or in many cases is inferior to flow that you can get with the Impella.

So we’ll continue to work with CMS and we’ll continue to publish cost effectiveness papers and show that clinical benefit as well.

Unidentified Analyst

Excellent thanks for taking my questions and congratulations on a nice quarter, thanks.

Michael R. Minogue

Thanks James.

Operator

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

Michael R. Minogue

Thank you everyone for your time today. If you have any follow-up questions please feel free to reach out directly. Have a great day.

Operator

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

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