Abiomed CEO Discusses Q2 2011 Results - Earnings Call Transcript

| About: ABIOMED, Inc. (ABMD)

Abiomed Inc. (NASDAQ:ABMD)

Q2 2011 Earnings Call

November 4, 2010 8:00 AM ET

Executives

Aimee Maillett – Investor Relations

Mike Minogue – Chairman, President and CEO

Bob Bowen – Vice President and CFO

Analysts

Tim Lee – Piper Jaffray

Marie – Lazard Capital Markets

Duane Nash – Wedbush Securities

Bob Hopkins – Bank of America

David Lewis – Morgan Stanley

Operator

Good day, ladies and gentlemen and welcome to the Second Quarter 2011 Abiomed Incorporated Earnings Conference Call. My name is [Kietena] and I’ll be your co-ordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this presentation. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Ms. Aimee Maillett with the Corporate Communications Department. Please proceed.

Aimee Maillett

Good morning. And welcome to Abiomed’s second quarter of fiscal 2011 earnings conference call. This is Aimee Maillett of Abiomed’s Corporate Communications Department. I’m here with Mike Minogue, Abiomed’s Chairman, President and Chief Executive Officer, and Bob Bowen, Vice President and Chief Financial Officer.

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, 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 second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010 or second quarter of fiscal 2011 as compared to the prior first quarter of fiscal 2011.

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

Mike Minogue

Thank you, Aimee. Good morning, everyone. The second quarter of fiscal 2011 was outstanding. It was highlighted by the release of the USpella results at TCT in September, record revenues and number of patients supported and positive operational performance. Despite the industry summer slowdown, Q2 confirmed that our momentum is growing both year-over-year and sequentially, on revenue, patients and clinical evidence.

In summary, the company executed and had our best quarter in our 29-year history, specifically, we had our best ever or first ever results on total revenue of $23.4 million, up 17%, worldwide Impella revenue of $17.6 million, up 33%, U.S. Impella commercial reorders of $13.7 million, up 108%, U.S. Impella commercial patients of 597, up 77%, the highest independent Impella implantations of almost one in three, the first ever heart recovery hospital partner with PinnacleHealth system in Pennsylvania and last, the first ever patient supported with our Impella RP for the right side.

On today’s call, we will highlight year-over-year progress on three of our four corporate fiscal year 2011 goals. So first on goal number one of increasing Impella utilization. In Q1, we supported 597 Impella patients plus 39 Protect II patients. All the patient usage trends increased year-over-year including high-risk PCI by 55%, AMI by 170% and all other applications by 76%.

Of the total reported cases, the mix is comprised of 55% high-risk PCI patients, 25% AMI patients and 20% all other patients. Based on the positive independent usage trend, it is likely there are patients that are receiving Impella and not included in our account.

Our second goal of advancing the education of the science and benefits of heart muscle recovery made progress. We had a landmark TCT because the USpella registry was well received. And we had three successful live cases. The USpella registry for high-risk PCI incorporates an extremely sick patient population, which includes new patients for the cath lab.

For example, more than half are New York Heart Association Class III or IV, turned down for surgery, had prior heart attack or have diabetes. We believe Impella support during high-risk PCI allows for better outcomes and cost effective treatment and the registry data reinforces our position. Over 500 customers have seen the USpella data presented in person or on webcast by the physician committee leading the registry and the formal paper has been submitted.

For prophylactic Impella supported PCI, on average patients displayed a baseline increase of 17% in their ejection fraction or EF and 61% of the New York Heart Association Class IV patients improved their heart classification post treatment by at least one category. There is a recent publication in CRM titled low ejection fraction documented during cardiac catheterization is significantly associated with long-term all-cause mortality Abiomed had. And it includes almost 2000 patients.

This study estimated 3 to 4 million people have coronary artery disease with decreased EF and the number is increasing by 400,000 cases per year. From a hospital charge perspective, PCI on average cost $48,000 as compared to surgery at $100,000 and avoiding an ICD because of an EF improvement saves an additional $105,000 in the hospital charge.

Now, turning to an acute myocardial infarction or AMI cardiogenic shock in USpella, approximately 42% of these patients were already failing conventional therapies including the intra-aortic balloon. To recapitulate what was reported in the USpella registry, Impella provided better hemodynamic support compared to the IAB and Impella is not dependent on dangerous inotropic drugs or perfect timing with the heart.

Patients on average improved their baseline EF by 19% and 90% of the survivors recovered their heart muscle functions. What was most illuminating was the significant reduction of the 30-day mortality from 56% down to 23% for patients that had Impellas inserted before the PCI. Furthermore, the impact of the quick setup kit was evident in that the percentage of patients that had Impella inserted before PCI, nearly doubled from the update at last year’s TCT. Again from a hospital charge perspective, recovering heart muscles and discharging heart attack patients with their native functioning heart, immediately improves patient quality of life and potentially saves over 500,000 in the short term and over $1.5 million in the long-term.

And last, on our goal number four of driving operational excellence in product quality and customer satisfaction, we continue to excel. Gross margin for the quarter was 77%, partially driven by our best recorded Impella manufacturing yields with the highest volume ever produced year-to-date.

On customer satisfaction, we supported a record number of patients at our highest independent usage to-date and scored our best on Impella quality metrics and performance due to the new product enhancements and training protocols. We also remain disciplined on our budget and prioritization of the Impella U.S. field support.

In conclusion, by the year 2020, greater than 40% of the population in Japan and the United States will be aged 45 and over and prime candidates for heart attacks and high-risk complex PCI and EP procedures.

The public and managed care providers will gravitate towards the most minimally invasive treatment with heart recovery options. Abiomed’s mission is to provide breakthrough heart support technologies for all high-risk patients in order to enable safer treatment and better outcomes for heart muscle recovery and cost effective patient care.

Abiomed’s vision is to revolutionize hemodynamic support on multiple applications in the cath lab, EP lab, hybrid lab and surgery suite.

Recently, a physician referred to Impella as the iPod of heart pumps. I thought that sums it up well, because Impella is a platform technology that enables an exclusive capability that is easy to use, allowing more people to reap the benefits. This is why we are the exclusive heart muscle recovery company and with only approximately 4% of the IAB conversion in quantity, we already shipped more heart pumps in the U.S. than any other company.

In the second half of our current fiscal year, we will celebrate our 4000 U.S. Impella patient and 500 U.S. hospital. The most exciting part is that we are just beginning to see the opportunity and I’m proud to report to the shareholders that our company is very confident in our future.

I will now turn the call over to Bob.

Bob Bowen

Thanks, 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.

I would also like to bring to your attention the GAAP, non-GAAP reconciliation that we provided in the earnings press release, which is intended to aid investor understanding of our financial results.

Mike has pretty much covered the revenue highlights. So I am going to briefly focus on providing a little more detail on the P&L and balance sheet and then move to Q&A.

Gross margin percent for the quarter was 77% compared to 73% in the year-ago period, representing a 400 basis point improvement due primarily to a higher portion of revenues from Impella disposables, higher production yields and a smaller number of Impella console placements.

In Q2 fiscal ‘11, consistent with our stated strategy, we opened 27 new U.S. Impella 2.5 sites compared to 50 new sites in the prior year. As a result, we placed fewer Impella consoles and had less than half the initial stocking order revenue which was more than made up by reorder revenue growth of 108% to $13.7 million from $6.6 million.

Impella U.S. commercial reorder revenue growth of 108% outpaced Impella patient growth of 77%, as the higher priced Impella 5.0 and LD reorders represented a greater portion of U.S. Impella commercial reorder revenue in Q2 fiscal ‘11 compared to Q2 fiscal ‘10, the first full quarter following Impella 5.0 and LD FDA clearance.

R&D expenses of $6.6 million was slightly below the $6.8 million in the prior year. Our R&D expenses are largely focused on continued development of the Impella platform, the Protect II clinical trial, the USpella registry and other clinical study and regulatory efforts.

Impella product development expenses were lower and clinical trial expenses were $2.5 million in the most recent quarter and $1.9 million in the year ago period.

Selling, general and administrative costs were $14.1 million compared to $14.8 million in the prior year. SG&A expense was lower in Europe reflecting our core commercial focus on U.S. market opportunity.

In Europe our strategy has been to scale back and focus on targeted direct accounts largely in Germany, France and the Netherlands for clinical studies and first in man experience. Additionally, SG&A related stock compensation expense was lower year-over-year.

In other income, we recorded a gain of 217,000 from the sale of our remaining holdings of World Heart Stock. We have completely liquidated our investment in World Heart and we realized total proceeds of $7.2 million on our original $5 million investment in World Heart.

The GAAP net loss for Q2 fiscal ‘011 was $3.2 million, a 58% improvement, compared to last year’s GAAP net loss of $7.7 million. On a per share basis, the Q2 fiscal ‘011 GAAP net loss per share was $0.09, compared to a loss of $0.21 in the prior year.

The non-GAAP net loss for Q2 fiscal ‘011, as defined in our press release, was $1.7 million, a 69% improvement, compared to a non-GAAP net loss in the prior year of $5.4 million. On a per share basis, the Q2 fiscal ‘011 non-GAAP net loss per share was $0.05, compared to a loss of $0.14 per share in the prior year.

Turning to the balance sheet, we continue to do a very effective job managing our working capital. Inventory turnover was 2.3 this quarter, a 77% improvement from 1.3 in the prior year and day sales outstanding were 59, compared to 65 in the prior year.

We ended fiscal Q2 with cash, cash equivalents and short-term marketable securities of $54.1 million, compared to $54.9 million at June, 30, 2010. The change represented a usage of $0.8 million, including $0.2 of proceeds from the sale of World Heart Stock.

We have $54.1 million of cash, cash equivalents and short-term marketable securities with no debt. We are very close to reaching a defining milestone for Abiomed. And we are making excellent progress towards our goal of cash neutrality or better.

Turning to full year revenue guidance, we are very pleased with the performance of the business during the second fiscal quarter and we are particularly pleased to have achieved sequential revenue growth, during what is a seasonally slower summer quarter.

Impella grew sequentially both in and outside of the U.S. Following a very successful TCT, we are more confident than ever that Impella will at least continue this momentum with our continued focus on data and training to independents at existing accounts.

We previously indicated that we expected Impella to grow 25% to 30% for the full year. We now believe Impella will grow for the full year at the upper end of that range.

Revenues from our non Impella products and service showed sequential improvement in Q2 as compared to Q1. However, we expect to see continued cannibalization of the legacy products from Impella 5.0 and LD in the surgery suite.

Even though we continue to believe that the 85,000 will be a successful niche surgery suite product. We’ve previously indicated that our non Impella revenues would decline in the 25% to 30% range. We now believe non Impella revenues will decline near the 25% side of the range.

Taking together, we are increasing the top end of our total year revenue guidance and we now believe that total year revenues will be in the range of $93 million to $97 million as compared to the $93 million to $95 million range provided previously.

We will now open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Tim Lee representing Piper Jaffray. Please proceed.

Tim Lee – Piper Jaffray

Hi, guys. Good morning and thanks for taking the question. Just first, if you can just touch on Protect II, has the investigators, have they had their interim look, anything come out of that or just business as usual or just any color you could provide on that front please?

Mike Minogue

Sure, Tim. So the way it works is, the CRO is supplying information to the DSMB and I believe that’s been ongoing. It will likely -- the process will likely continue to -- just probably till the end of December. And as we’ve consistently stated in the past, we expect to move forward and continue the existing study.

Tim Lee – Piper Jaffray

Now, I think on the last call I think you had stated that you always reserve the right to add to the number of patients for that study. Is that the expectations there at this point or are there expectations to maintain your current patient count?

Mike Minogue

We expect to move forward with the existing study right now.

Tim Lee – Piper Jaffray

Okay. And just one follow-up on the P&L, I mean, you have very strong gross margins, you’d mentioned you had some positive yields, I mean is that a temporary positive variance or is that a sustained positive variance that we could see gross margins maintained at this level or even higher?

Bob Bowen

Yeah. Hi Tim. It’s Bob. We were very pleased with the results this quarter and I think we generally don’t forecast our gross margin rates. But we don’t see why the business would not generally continue to perform at around this level.

Tim Lee – Piper Jaffray

Great. Thanks. I’ll jump back in queue.

Bob Bowen

Thanks, Tim.

Operator

Your next question comes from the line of Sean Lavin representing Lazard Capital Markets. Please proceed.

Marie – Lazard Capital Markets

Hi, this is Marie [Sybelline] for Sean. Thanks for taking the questions and congrats on the strong top-line results. I had a couple of questions regarding procedures in heart replacements, the 27 heart replacements in the quarter was higher than we had expected. And I wondered if you see heart replacements tracking higher than you had expected for the year?

Mike Minogue

Marie what we had said at the start of the year was going to try and keep the range in the 20s, and we are going to continue to maintain our go-deeper on existing account focus for the remaining of the fiscal year.

Marie – Lazard Capital Markets

Okay. All right. That’s helpful. And then on procedures, the 597 procedures you have in the quarter was just slightly higher than last quarter though it is still high, despite more heart replacements. Can you give us any more color on how penetration is progressing at your existing accounts?

Mike Minogue

Sure, so the question on the utilization over sequentially in this quarter to summer quarter, so it’s very slow in the cath labs, plus we had TCT within September. So that was -- that obviously takes time and energy away from the cath labs and the physicians that are out there.

That being said, PCI volumes do slow, but it was offset by the 170% increase year-over-year in AMI and the 76% increase in all others. So, as these emergency patients and as independent usage ramps up, that’s why we are able to somewhat grow sequentially in the summer quarter as compared to our Q1.

And then on a raw number, if you look at the growth of independent usage from a penetration perspective, the raw number of patients that were actually treated with Impella without Abiomed onsite support grew at 217%.

Marie – Lazard Capital Markets

Okay.

Mike Minogue

Yeah. The other thing I would add to that is, there is a fairly good uptick in that metric in this summer quarter compared to last summer quarter, which I think probably is the better way to look at it since the summer is seasonably slow.

Marie – Lazard Capital Markets

Okay. Understood. Thanks that’s so helpful.

Operator

Your next question comes from the line of Duane Nash representing Wedbush Securities. Please proceed.

Duane Nash – Wedbush Securities

Sure. Good morning and thanks for taking the questions. Mike, I believe you mentioned during your prepared remarks something about a one-third usage of Impella devices. I was hoping you might elaborate on what that meant?

Mike Minogue

Sure, so. Of all the patients supported, the actual number is 28% of the patients that received Impella did so without Abiomed’s onsite support. So, that’s an independent usage. And, as we got closer to the end of the quarter it was ranging in the one out of every three Impellas was put in independently at hospitals.

Duane Nash – Wedbush Securities

Any thought on where that may track in the near-term?

Mike Minogue

Well the trends is, we’re – we keep moving up several percentage points per quarter, and I think that’s what we expect to continue.

Duane Nash – Wedbush Securities

And, is there a breakdown for this as far as, high-risk or I assume you probably have less people there for the acute MI and more frequently for the high-risk, because those are scheduled, is that fair?

Mike Minogue

That’s correct Duane. So, as you look at utilization for hemodynamics, the majority of patients are emergency patients. And that’s where independence is very important if we want to get to the AMI patient population. And as I mentioned in my comments, if you look at the registry data, the amount of patients that had Impella put in before the PCI nearly doubled from last year’s TCT showing that the quick set up kit is having any impact both in when they place it but how they place it without support.

Duane Nash – Wedbush Securities

Great. Well, thanks very much and congratulations on the quarter.

Mike Minogue

Thanks, Duane.

Operator

Your next question comes from the line of Bob Hopkins representing Bank of America. Please proceed.

Bob Hopkins – Bank of America

Hi. Good morning. Can you hear me okay?

Bob Bowen

We can, Bob.

Bob Hopkins – Bank of America

Oh great. So, just a quick question actually on the base businesses, I know you’ve given some specific guidance to that, but I was just wondering if you could comment as we think about modeling your company a little longer term, is something in the neighborhood of $5 million to $7 million per quarter, a decent way to think about where the base business will bottom out?

Bob Bowen

I think I would probably be more towards the lower end of that range $5 million to $6 million is probably how I would model it.

Bob Hopkins – Bank of America

Okay. And I hear --

Mike Minogue

This is Mike. Just a comment on that is we think about how we look at the patient population. There will be patients that are treated in surgery in the future, and we will continue to support our surgical customers, just the mix may change from BVS to the Impella 5.0 or the Impella RP and ultimately we believe that the surgery business will be greater than it is today based on some of these new products.

Bob Hopkins – Bank of America

Right. I understand, I mean, we want to see Impella keep growing but I am just wondering from just -- to your modeling perspective, at what point you guys are comfortable with that bottoming, but that was helpful. And just a quick question on the quarter in TCT, I was just wondering do you guys have any kind of specific sense as to the number of implants that perhaps didn’t happen in the quarter because of TCT or is that not a number that you have a good handle on?

Mike Minogue

Well, the easy estimate is what is our weekly run rate, and we saw a decline in the weekly run rate during TCT because we had a lot of our customers there, and we had a lot of our people there. So, that’s just the way we look at off weeks.

Bob Hopkins – Bank of America

No, I understand, but is there a specific number you would be willing to share, and I realized we are just kind of getting in the weeds here, but just wondering if you had a number handy?

Mike Minogue

Sure, at a high level take the number of patients divided by 13 fiscal weeks and then take a portion of that off by discounting it down.

Bob Hopkins – Bank of America

Okay. All right. Thanks so much.

Mike Minogue

Thanks, Bob.

Operator

(Operator Instructions) Your next question comes from the line of David Lewis representing Morgan Stanley. Please proceed.

David Lewis – Morgan Stanley

Good morning.

Mike Minogue

Hi, David.

David Lewis – Morgan Stanley

Mike, a quick question here on ASPs. I’m assuming this maybe because your international revenue in the quarter was a little higher than we are looking for, but ASPs looked to be down sequentially about 4% or 5%. Can you just talk about your U.S. and global ASPs for Impella?

Mike Minogue

Yeah. Our ASPs are not down. So, I’ll turn the rest of the answer over to Bob.

Bob Bowen

Yeah. Our ASPs have been consistently in a very, very close range. Our average ASP for the two, for the 2.5 is about 22.5 and for the 5.0 is 27 to 28. So, we track that and I don’t see, I don’t think the change in ASP has had us any substantive impact on the business.

David Lewis – Morgan Stanley

Okay. Very helpful. And then, Mike your comments on your kind of unsupported procedures probably approaching 32% at the end of the quarter. I am just looking at your SG&A number which just came in much lower than we were expecting. As you think about these unsupported procedures, I’m imagining that’s putting up some capacity on technical training reps. What are you doing with those reps? Are you still supporting those accounts, have you shifted those to new customers, or are you focusing them on existing accounts for utilization is sort of below which you would like?

Mike Minogue

So David, this is a great question and this is what we’ve talked about in the past as we are trying to really increase our commercial productivity specifically in the U.S., that’s our third corporate goal, and we’re doing exactly what we’ve commented there as they get freed up they can go to other centers or they can train more physicians at existing centers. So where we may have two to three docs using, we want to now get to five to six, so that we always have somebody whose is on call, who is able to utilize Impella for those emergency patients.

David Lewis – Morgan Stanley

Okay. And then Bob, in the past six years, sort of, what is the level of cash and GAAP profitability. I wonder if you could share with us given the SG&A trends in the quarter, has that view changed or do you believe your timing to profitability has moved up perhaps a quarter or two?

Bob Bowen

Yeah. We’re going to change that view David. We said $25 to $27 million is where we would be on a quarterly basis consistently cash flow neutral.

David Lewis – Morgan Stanley

Okay. Thank you very much.

Operator

Ladies and gentlemen, that concludes the question and answer session for today’s call. I will now like to turn the call back to Mr. Mike Minogue for closing remarks.

Mike Minogue

Thank you everyone for your time today and I look forward to seeing many of the upcoming conferences. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect. Good day.

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