ABIOMED's (ABMD) CEO Michael Minogue on Q1 2017 Results - Earnings Call Transcript

| About: ABIOMED, Inc. (ABMD)

ABIOMED, Inc. (NASDAQ:ABMD)

Q1 2017 Earnings Conference Call

July 28, 2016 8:00 AM ET

Executives

Ingrid Goldberg – Director, Investor Relations

Michael Minogue – Chairman, President & Chief Executive Officer

Michael Tomsicek – Chief Financial Officer & Vice President

Analysts

Chris Cooley – Stephens

Anthony Petrone – Jefferies

Ben Andrew – William Blair & Co.

Danielle Antalffy – Leerink Partners

Jayson Bedford – Raymond James & Associates, Inc.

Jan Wald – The Benchmark Co.

Matthew Bacso – Piper Jaffray & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Abiomed Incorporated First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Ingrid Goldberg, Director of Investor Relations. Ma'am, you may begin.

Ingrid Goldberg

Thank you. Good morning and welcome to Abiomed's first quarter of fiscal 2017 earnings conference call. This is Ingrid Goldberg, Director of Investor Relations for Abiomed, and I'm here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer; and Mike Tomsicek, Vice President and Chief Financial Officer.

The format for today's call will be as follows. First, Mike Minogue will discuss strategic highlights from the first fiscal quarter and then turn to our key operational and strategic objectives. Next, Mike Tomsicek will provide details on the financial results outlined in today's press release. We will then open the call for your questions.

Before we begin, I would like to remind everyone that this presentation includes forward-looking statements about the company's progress relating to clinical, regulatory and commercial matters, as well as government regulations, litigation matters, capital and other expenditures, and financial performance. Each forward-looking statement contained in this presentation is subject to the risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these risks and uncertainties appears under the heading Forward-Looking Statements in the press release we issued this morning and our Annual Report on Form 10-K for the year ended March 31, 2016. The forward-looking statements in this presentation speak only as of the date of this presentation, and we undertake no obligation to update or revise any of these statements.

Thank you for joining us. I'm now pleased to introduce Abiomed's Chairman, President and Chief Executive Officer, Mike Minogue.

Michael Minogue

Thank you, Ingrid. Good morning, everyone. In Q1, Abiomed achieved our best quarterly revenue results of $103 million and received FDA approval for Impella heart pumps for cardiogenic shock and post-surgery shock. On a year-over-year basis, revenue grew 40%.

This quarter's revenue represents our largest first quarter sequential lift of $9 million, and our third largest sequential lift in company history. We have accumulated four FDA approvals, $223 million in cash, 365 clinical publications, and 237 patents, with an additional 210 pending. Our continuous execution validates Abiomed as one of the fastest-growing, profitable medical technology companies.

For today's call, we would like to highlight our significant execution in both the emergent and Protected PCI indications, and discuss the continued progress on our Japan initiative.

Our robust growth was driven by U.S. records for both Protected PCI and emergent patients. Impella is now recognized by multiple medical guidelines and regulatory bodies worldwide, and the recent FDA approval is another validation. Germany is our focus in Europe, and our investments in distribution yielded a doubling of the business in both patients and revenue in Q1.

Cardiogenic shock is a growing indication that affects multiple age groups and represents one of the highest mortality risks for patients in the hospital. Per the FDA approval, Impella as a hemodynamic therapy is the only safe and effective percutaneous circulatory support device for this indication.

We believe the ability to allow for native heart recovery is the secret sauce of our innovation, and we are the heart recovery company. Heart recovery in this population provides one of the most cost-effective solutions in medical technology, and is the ideal option for a patient. In the first quarter with AMI cardiogenic shock indication, the U.S. emergent population grew 55% year-over-year.

Additionally, we continue to set new records for utilization on Protected PCI indication, which grew 38% year-over-year and was up sequentially from Q4. However, many high-risk heart failure patients remain unaware of this new treatment option for revascularization of the coronary arteries in the cath lab. Our ProtectedPCI.com website and educational efforts are focused on physicians, referring physicians and patients, to help identify and treat this patient population.

I would like to mention and provide details on a very important recent study called STITCHES, published in the New England Journal of Medicine in April. This study compared the relative benefits to patients treated with either revascularization through CABG surgery, coronary artery bypass graft surgery, or optical medical management with drug therapy.

The study demonstrated significantly lower mortality and improved outcomes associated with revascularization. These patients had low ejection fraction, coronary artery disease, and were surgically amenable for CABG. We believe the results of this study are significant to our business, because many high-risk heart failure patients are turned down or not considered for surgery due to poor ejection fraction, complex anatomy, or prior surgical risk factors. Therefore, our Protected PCI with Impella may serve as the only appropriate treatment option if these patients need a complete revascularization.

We believe this New England Journal of Medicine publication, along with others, demonstrates the necessity and the benefit of complete revascularization for heart failure patients with advanced coronary artery disease.

Moving to Japan. We are reiterating our forecast for PMDA approval this summer, and we now expect MHLW reimbursement approval in the second half of the fiscal year. As previously guided, we do not expect material revenue this fiscal year, given our controlled rollout. We are planning to open 10 hospitals by the fiscal year-end, and investment continues as we build our local team in anticipation of the launch. We may support cases before reimbursement to establish training protocols and best practices.

To-date, we have 14 Japanese employees based in Japan, including our country President and our finance and regulatory leaders. We have selected our headquarters and training location in Tokyo, and we'll continue to hire our sales and clinical representatives throughout the year. We are conducting Japanese physician training and education in the United States and in Japan each quarter. We believe the Japanese medical community will embrace the Impella platform, the hemodynamic science and, most importantly, the heart recovery concept.

To note, Japan is the second largest medical device market in the world and culturally prefers the PCI option for revascularization and does not broadly utilize the sternotomy approach or heart transplant alternatives. Studies on heart recovery and hemodynamic science have been published and understood by Japanese scientists for decades.

In conclusion, Abiomed is creating a new era of medicine focused on the field of heart recovery and offering new treatment paradigms for high-risk heart failure patients. With an estimated 6% U.S. Impella penetration rate, we are prepared for continued growth within the protected PCI and emergent indications.

Outside the U.S., we stand ready to transform the standard of care for patients in Germany, Japan, and beyond. We are the leaders in the field and are managing this transformation with great care to ensure we have appropriate use, improved patient outcomes and provide cost-effective care.

We are financially secure and operationally prepared to continue our mission to recover hearts and save lives. I want to thank the team for their dedication to our patients and customers, and thank our investors for their support.

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

Michael Tomsicek

Thanks, Mike, and good morning, everyone. Today, I'd like to share details on the impressive results we posted in the first quarter of fiscal year 2017. The adoption of our Impella technology continues to expand. We've continued investing in our infrastructure, and we are committed to getting our technology in the skilled hands of caregivers around the world.

Fiscal first quarter revenue increased 40% to a record $103 million. U.S. Impella revenue rose 41% to a record $89.6 million, driven by a 40% increase in patient utilization. Protected PCI and emergent patients were the foundation of our growth in the quarter, representing year-over-year growth of 38% and 55%, respectively.

Outside the United States, Impella revenue totaled $8.2 million and was up 58% on a constant currency basis, predominantly as a result of our investments in and focus on Germany. Worldwide service revenue of $4.5 million was up 7%.

As of the end of the first fiscal quarter, the Impella 2.5 has been placed at 1,066 of approximately 1,400 targeted hospital sites for a penetration rate of 76%. Impella CP has been placed at 861 hospital sites for a penetration rate of 62% of total hospital. Impella 5.0 has been placed at 415 sites for a penetration rate of 30%. Impella RP has been added to nine hospitals, bringing the total number to 89 sites for a penetration of 6%.

Our approach of gating the rollout of RP continues, with focus on rigorous training, publications, and sharing of best practices to create training centers that will support eventual full launch of this critical technology.

Reorder performance in the quarter was strong, with U.S. reorders at $85 million and growing 46% versus prior year, and our reorder rate was around 100%. Average combined Impella 2.5 and Impella CP inventory at hospital sites was 3.04 units per site, up slightly versus 2.88 in the prior quarter and versus 2.71 units in the prior year. This slight increase is driven by heavier use of Impella at existing sites, necessitating more pumps on hand to maintain service level where multiple Impella procedures can occur in a single day.

Abiomed is maintaining its system where customers stock pumps for immediate use and rely on rapid replenishment direct from Abiomed.

Gross margin for the quarter increased to 85.4% compared to 85.1% in the same period of the prior year. As in recent quarters, margins were helped by favorable euro exchange rate and strong product volume and yields during the quarter. R&D expense for the first fiscal quarter totaled $15.7 million and was approximately 15% of revenue.

The bulk of the increase comes from investments in product enhancements, costs associated with the global cVAD registry, investments in new manufacturing processes that will further capacity and efficiency, in addition to new product development.

SG&A expense for the first fiscal quarter totaled $51 million, up 37% from the prior year. Most notable here is the expansion of our U.S. commercial team, where 25 employees were added this quarter, bringing the total to around 240 professional. The majority of the hires were clinical educators, who help support applications in the field.

Our plans for fiscal 2017 include continued investment in this industry-leading field team. And we will keep hiring at an expected pace of 10 additional employees per quarter. The addition of clinical and commercially focused staff allows us to go deeper in existing accounts and support the use of Impella for all appropriate PCI and AMI shock patients.

Operating profit for the first fiscal quarter was $21.2 million or 20.6% of revenue, compared to $15 million or 20.4% of revenue in the prior year. GAAP net income for the quarter was $12.9 million or $0.29 per diluted share, compared to GAAP net income of $8.9 million or $0.20 per diluted share for the prior year period.

The balance sheet remains debt free, and we ended the quarter with cash and marketable securities growing $10.1 million to a balance of $223.2 million. Our top priority for use of cash is to support our organic growth and to continue to build our substantial advantage in intellectual property. The company has approximately $50 million in net deferred tax assets, primarily due to NOLs.

Turning to guidance, in our last earnings call, we established revenue guidance in the range of $430 million to $445 million for growth of 30% to 35%. Based on first quarter's positive results, we are raising the guidance low end to $435 million, but we will leave the top end unchanged at $445 million as we are only one quarter into our fiscal year. Our new $435 million to $445 million range indicates growth of 32% to 35%.

I would also like to remind investors of the seasonality of our fiscal year revenues, reiterating the perspectives I shared in April. In Q1, our field was impacted by annual training and vacation, but still posted the largest-ever sequential growth for a Q1 versus Q4. Q2 is a seasonally slow quarter for cardiovascular devices due to summertime slowdown in the cath lab and physician vacation, with historically little or no growth versus Q1.

We expect this pattern to apply again this year. In Q3, we typically see a significant sequential lift based on the increased hospital activity and physician engagement. In Q4, our March quarter, we have our best results as we end our fiscal year.

Turning to operating margin percentage, Q1 results were in line, and we are reaffirming our total year operating margin guidance in a range of 18% to 20%. Last year, operating margins were lowest in Q2 at around 16%, and we expect that pattern to repeat this year.

Our investments during fiscal 2017 in manufacturing and distribution will lay the groundwork for long-term growth. And our 18% to 20% guidance for 2017 delivers flat to slightly improved margins versus last year.

With that, my comments on Abiomed's first quarter financials are complete. We are most pleased with our financial progress, and well positioned for success this year and for the future.

Operator, would you please now open the line for questions? [Operator Instructions]

Question-and-Answer Session

Operator

Our first question comes from the line of Chris Cooley with Stephens. Your line is open.

Chris Cooley

Good morning and thank you for taking the questions. Just two for me, and I'll get in queue. First, Mike, maybe you'd like to address CMS's announcement earlier in the week regarding bundled payments, just generally how you see that affecting or positively or negatively the adoption of Impella here in the United States?

And then, secondly, just really interested in Japan, if you could give us some metrics around maybe expectations for the number of surgeons trained, the ultimate size of that hybrid sales force, I think you still continue to plan to have in that market. Just trying to think about, as we go forward, what it's going to take to cultivate that opportunity and how to stage the growth in that segment as you commercialize it. Thanks.

Michael Minogue

Good morning, Chris. So, to your first question on the CMS, for the background [indiscernible] they're proposing a bundled rule for heart attack patients, among some other [indiscernible] similar to what they've done in orthopedics. We are very supportive of this concept. We think it's the right way to measure success. And it's also well aligned with our data. But to be clear, Impella has its own DRG.

And so, Impella DRG payments are not included in the pilot by Medicare. However, it directly aligns with our clinical and economic benefits of Impella's setting. Let me explain why. The bundles are focused on outcomes related to length of stay, readmissions, and then survival out to 30 and 90 days.

When hospitals are measured on outcomes beyond discharge, which we have data showing the benefits in both the Protected PCI with PROTECT II, as well as the emergency patients, we think it favors the use of better technology during the treatment, because you see that effect as you go out longer from discharge out to 90 days. And in our case, when a patient goes into shock, which is a different indication and also triggers, the Impella DRG, that's where we see some of the greatest benefits.

Now, part of the reason we are supportive of this is, the growing epidemic of heart failure today is based on the increased survival of heart attack patients and potentially the loss of heart muscle, which is – that's called the infarct. And the AHA, American Heart Association, statistics are, and have been for several years, that patients surviving their very first heart attack will likely develop heart failure within five years. And 46% of women and 36% of men will die within five years.

We also know that heart failure is significantly hard on the cost, and very hard on the patient's quality of life. So, we think it's the right focus. And one of the programs we're going to be doing moving forward is partnering with hospitals to develop protocols to get better outcomes and reduce length of stay, reduce readmissions, and also reduce costs for the AMI shock patients. So, we're excited about it and will be collaborating with the hospitals to give them more education and partner with them on protocols.

The second – your second question, on Japan, our focus right now is building the infrastructure and targeting the first 200 hospitals. But in this fiscal year, we're going to ramp up 10 sites, which will be kind of our training centers. We'll have incremental heads in where we locate the clinical and the account managers. And just like we've done in the United States, as things continue to grow and we teach the sites to work with and without us there, we'll continue to add more distribution as we add more accounts.

Chris Cooley

Thank you, and congratulations on a great quarter.

Michael Minogue

Thanks, Chris.

Operator

Our next question comes from the line of Anthony Petrone with Jefferies. Your line is open.

Anthony Petrone

Thanks and good morning. Congrats on another great quarter. Maybe to start just on the number of new hospital sites and to get an update on actually how many of the existing PCI hospitals are trained on Impella. And so, the jump sequentially was higher than we expected. I mean, how much of that was directly shock related? And again, how many of the existing PCI hospital sites are trained now on shock?

Michael Minogue

Anthony, most of these hospitals that have our technology are trained, but what we haven't been able to do is partner with them on protocol development, review the data that we track as far as how they're doing relative to their peers, based on their individual protocols, and really go deeper into the nursing staff and the heart team approach that, without the PMA approval, we've been somewhat limited.

As far as opening new sites, we actually open less sites this quarter than last year this quarter, if you add the 2.5 and the CP and even the RP. So, the – we actually had lower revenues from putting things on the shelf, which is also why this – having this sequential growth is so significant because of the impact of just the patient support and the amount of patients that we treated this quarter.

But I think as we go forward, it's really about making sure that we don't just ship them the product. It's that they understand the flow, the process, and the best practices in order to maximize outcomes, which, if they do maximize outcomes, the patient will leave the hospital sooner. They'll come back less often. They'll have better quality of life. And they'll reduce cost. And that's really what we're focused on.

Anthony Petrone

No, it's helpful. And maybe to shift gears to OUS, certainly, the number sequentially and year-over-year jumped out as being ahead of our expectations. The company's been in Germany for quite a while. So, I'm just wondering if you can give a little bit more color on why this quarter saw really a breakout in OUS Impella revenues.

Michael Minogue

We've had – for the last three quarters, we've had some really strong growth in Germany. We've been talking to you all for the last year that we're really going to start putting more focus in Germany, building out the distribution. We've made some progress on reimbursement. And it's great to see that the model works similar to the United States. And revenue was up 117% in Germany, but patients was up – it was up also 100%.

And we think there's a great opportunity in that market, one, because they are starting to embrace the concept of Protected PCI. But two, in Germany, the use of an intra-aortic balloon pump for cardiogenic shock is a Class III indication, which means it's designated as harmful and is not recommended to be used. So, we're very excited to continue to make Impella the standard of care in Germany. And we think that will resonate with the rest of Europe.

Anthony Petrone

And then, last one for me, and I'll jump back in, Mike, is just an update on STEMI – the STEMI population and the potential for native heart recovery indication. We spoke about that at our conference. Just wondering if you can give us an update quickly again on the market opportunity there, but also what has to be done from a clinical and regulatory standpoint in order to realize that opportunity.

Michael Minogue

Absolutely, Anthony. The question on STEMI is the belief that similar to what I mentioned before in AMI that the cause of this heart failure epidemic is that people survive the heart attack but lose heart muscle in the process, partly due to something called reperfusion injury. And what reperfusion injury does is the treatment itself of opening up the coronaries has a detrimental effect to the heart muscle downstream, causing a more – a larger infarct. It could potentially be, half the dead muscle could be due to the reperfusion injury.

And there is a concept and a belief that's been studied through animals and some of the real world evidence on the pressure-volume loops of how Impella works that suggests that we can reduce the size of the infarcts by unloading the left ventricle, reducing the work and the oxygen demand on the myocardium.

There is a group of physicians that have studied this for the last 20 years. Some of those physicians are also in Japan. In Europe, at the ESC, which is one of the largest medical meetings – heart medical meetings in the world, there'll be a user group that will – called [indiscernible] that will be talking about this specific application.

And we've started to discuss the concept with the FDA to look at a pilot study. And we believe we'll be in a pilot study for this STEMI population, which we think in the United States represents another 200,000 patients, again, that are not in cardiogenic shock. And we expect to start this pilot by the end of our fiscal year.

Anthony Petrone

Thank you.

Operator

Thank you. Our next question comes from the line of Ben Andrew with William Blair. Your line is open.

Ben Andrew

Good morning. Michael, we've talked a bit with you recently about kind of the expected ramp of shock. You've encouraged us to be conservative. The 55% number there looks compelling coming out of the blocks. How should we look at the cadence for that over the course of the year, given kind of the early success?

Michael Minogue

Ben, I would reiterate what we've said in the past about we think the big impact for the PMA approval for shock will be in the second half and for the next five plus years. Just remember that the shock training and indication and the ICU time is a lot more complicated. There's a lot more people to engage with. And that's going to take time.

The second component is we have to pull everyone out of their field to train both nationally and regionally. And by doing that, it also impacts our support out there for things like Protected PCI or even being there in the ICU. So, sometimes you have to go slower to go faster. And we are looking at this as a 10-year process. And we're replacing a technology, such as intra-aortic balloon pumps, that's been around for 40-plus years.

So, we want to make sure that we maintain training, we get the best protocols in place, and we get the best outcomes. And nearly every patient that goes on Impella today, we collect data around. So, it gives us a tremendous tool to analyze to go back to sites and really help them improve their outcomes.

Ben Andrew

Okay, thanks for that. And then, what sort of feedback have you gotten from physicians about how to extrapolate the CABG results with STICHES over to high-risk PCI? And obviously, there's a big difference as you well know between CABG and PCI. Maybe directionally, there's help there that medical management isn't great, but does that truly help you drive adoption of Impella?

Michael Minogue

Ben, I think it does help us drive indirect adoption because if you're 70 years old or older, or you've had a prior open-heart surgery CABG, there's a lot of complexity in deciding to have revascularization done through sternotomy versus having it done in a one-day procedure in the cath lab. If you look at the comparisons of the outcomes, the benefit of complete revascularization demonstrates an improvement in ejection fraction.

In the PROTECT II study, to our knowledge, it's the only PCI angioplasty study ever done with the FDA that showed a permanent improvement in ejection fraction. And we believe that's because the physicians were able to get complete revascularization, which is what you get when you do a CABG with the vein. And you can get complete revascularization because the Impella provides the [indiscernible] support in order to do longer inflations, be more thorough, and place additional stents as required, and also allow you to use contrast.

So, we are very excited and we think it's a fit because it shows the benefit there of revascularization, can be done either at cath lab or surgical suite. But there's many patients today that just don't get the opportunity for that treatment.

Ben Andrew

Okay. And then, finally – thank you. Finally for me for Mike T., anything about expenses in the quarter that were unusual one way or the other that would lead us to – or timing kind of for Q2, Q3 that help us to build the model towards that 18% to 20% guidance given the beat? Thanks.

Michael Tomsicek

I think nothing's surprising within the quarter. I'll just draw your attention again to the comments that I made around our Q2 of last year connected with the summer period being slower from a revenue standpoint. In our forward-looking investment, we've had – last year, we had operating margins around 16% in the second quarter and I expect something similar to that again this year. And the sort of the combination of that, our performance from first quarter and then higher revenue in the second half of the year lands us in that guidance range of 18% to 20% that we're targeting.

Ben Andrew

Great, thank you.

Operator

Our next question comes from the line of Danielle Antalffy with Leerink Partners. Your line is open.

Danielle Antalffy

Thanks so much. Good morning, everyone, and congrats on yet another great quarter. Mike, just going back to the international performance, I mean, very strong performance relative to what we were modeling, and this is even with a competitive launch. So, wondering if you could give some color on what you're seeing out in the marketplace from that competitor. Clearly, I think it seems safe to say you're not seeing much of an impact, but any qualitative commentary you could provide would be helpful.

Michael Minogue

Thank you, Danielle, for the question. To our knowledge, over one year has passed since the Thoratec PHP received the CE Mark, and there's still no launch. We think that they have helped create more awareness, which has been a great thing, and we look forward to competing on the specs and on the usage of that technology when they actually sell it to customers.

Danielle Antalffy

Interesting. Okay, thank you. And, Mike, we had visited you earlier this year, and one of the things we did while up there was learn about some of the training activities. And I was wondering if you could also provide some qualitative or quantitative commentary on training activities through the quarter, specifically with the CP launch now, maybe some color on how many physicians you guys had at training activities or at your own facility, what have you?

Michael Minogue

Sure. The training now has become nonstop in regions nationally and globally. So this month alone, we have training going on in Japan. We had Japanese physicians being trained in California. We have regional training in at least half of our U.S. regions.

And then we also have the Mobile Learning Lab, which is the 18-wheel truck which drives around nonstop, and Monday through Friday is at a hospital where they have the simulators, they have the 3D anatomy models, and it's there to help ease-of-use training, let people put in pumps either in the model itself or in the simulator. And then we also have now educational slide decks and protocol analysis that we can work with the hospitals that we didn't have the opportunity before.

One of the reasons you see a large increase in the clinical infrastructure is, we're bullish on the second half of the year relative to supporting patients, but we also want to teach our customers to fish rather than fish for them, and that takes time and energy. But we're very excited to have this FDA approval, because this space is in drastic need of education and focus on the protocols themselves that deliver the best outcomes.

Danielle Antalffy

And was your training more skewed towards the shock indications and CP this past quarter, or is that still yet to happen? Is that why you expect the strength really in the second half versus this quarter?

Michael Minogue

It's a combination, Danielle, but we've had approval for the Protected PCI for a year. So we did that – a lot more of that in the first year, and now we're trying to catch up. In general, some of the training is just overall ease of use and understanding how the technology works, and that applies to both indications.

Danielle Antalffy

Got it. Thank you so much.

Michael Minogue

Thanks for the question.

Operator

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

Jayson Bedford

Hi.

Michael Minogue

Good morning, Jayson.

Jayson Bedford

Good morning, Mike. Congrats on the growth and the progress.

Michael Minogue

Thank you.

Jayson Bedford

Just a couple of questions. We can see the bump in hospitals, and you mentioned going deeper into existing accounts. But do you think the shock PMA has brought on new physicians using the device, and is there any way to kind of frame that dynamic?

Michael Minogue

Jayson, that's a very good question, because the answer is yes. And it opens us up to more of a heart team approach, so where we can talk to heart failure physicians, surgeons, and all those that are surrounded in the emergency room to transition from either the cath lab or the ICU.

The other reason it's important is because our Impella RP launch really focuses on this heart team. And by having the shock indication, now we have the ability to also educate them on profound shock, which sometimes leads to biventricular failure. And we have the ability now, with Impella, and we have the indications ,to support the left side of the heart with Impella, but also now the right side of the heart.

And so we think, as time goes on, this heart team approach is really what is going to be the most important factor in our success. And even when we look at what drives Protected PCI, it's getting to that larger referring physician group that's out in the community and having those heart failure physicians identify that patient that's in hospice care who are being turned down for surgery that has low ejection fraction and has the benefit – can be – have a benefit from revascularization through Protected PCI.

Jayson Bedford

Okay. That's helpful. And I realized that the training involved with the shock indication, but are you seeing any change in independent use, meaning procedures performed without an Abiomed representative in the suite? Are you seeing any change in that mix?

Michael Minogue

The mix is still about the same and it depends on our definition of what independent. Most patients that are emergency will probably have the device put in before someone can actually be there, and then we'll show up after the doctor will check in in the ICU in person, and then we also have the call center that will follow up.

Our internal data suggest that we get better outcomes, better survival and better recovery when someone from our company is there at some – in some path of that, and we're going to be utilizing that data with hospitals to understand why that is and what protocols get done when we're there and what doesn't happen when we're not there,

But I think over time, you'll see Protected PCI as something that can be done independently. And you'll see that our independent use, as far as being there put it in, will continue to go up but we want to maintain – in the ICU, we want to maintain that training, that rigor to ensure we get the best outcomes for certainly the next couple years because this is a whole new science and recovering hearts is a new concept and we want to make sure that we really partner with the hospitals to demonstrate the outcomes.

Jayson Bedford

Fair enough. Thanks, Mike. I'll jump back in queue.

Michael Minogue

Thank you, Jayson.

Operator

Our next question comes from the line of Jan Wald with Benchmark. Your line is open.

Jan Wald

Good morning, everyone. Congratulations on a great quarter. I really only have one question left, and it may have been asked a couple times before, but I wanted to ask it maybe a different way. If you look at the number of hospitals you're in, especially for the Impella 2.5 you're in about 76% of the hospitals, and yet about 6% of the patient population has been penetrated. Is that because of patient or is that because of referrals? Is it because you have an opportunity to go deeper into the hospitals that you're already in? So I was just wondering, because one might think that there's a disconnect there but probably there isn't, and I guess I was just wondering what your thoughts were about that.

Michael Minogue

Jan, can I clarify your question, please, relative to the penetration rate of the potential sites CP versus Impella 2.5? Could you clarify that specific question?

Jan Wald

Oh, I didn't mean to make a distinction between the penetration rates of the two. I was just saying that, for example, the Impella 2.5 has penetrated about 76% of the hospitals. And so that's a pretty high penetration rate for hospitals, and yet only 6% of the patient population has been penetrated. So you're in a bunch of hospitals, but the patient population penetration is low. And so...

Michael Minogue

Okay, thank you. Thank you. I understand the question now. So this is a concept where you have to get into the hospitals to start with one indication. And then once you're in there with one indication, then you continue to expand to newer indications. One of the strengths of our product portfolio is that our existing devices can expand now into new indications. So the same products we have can go to new indications.

However, until the FDA gives you approval, PMA approval, safe and effective, you're very limited on how you can expand and how you can talk about that indication, the specific clinical data, the benefits and the cost-effectiveness.

So, in the grand scheme, even though we were cleared in 2008, we haven't had full regulatory approval until last April because the package on hemodynamics applies to prophylactic patients with Protected PCI, as well as emergency patients with cardiogenic shock and post-surgery shock. And now that we have these approvals, you're seeing the acceleration.

Part of the reason, now if I break out the 6% penetration, there's approximately 121,000 patients for Protected PCI. We're penetrating a much higher portion of those that are already in the cath lab. Our best sites no longer use intra-aortic balloon pumps anymore. And what that means is the rest of the patients that are out in the community that are being turned down for surgery are not getting the opportunity.

So we need to continue to educate and market and get the word out to those patients that think they don't have any other alternatives but have advanced coronary artery disease, and that does take time and energy. And we're doing that similar to the way the percutaneous valve companies are bringing these patients out of hospice to be treated in the cath lab.

And then the second element, on the shock patients, they are in the hospital already. Many of them are in the ICU. They're already being treated with inotropic therapy or intra-aortic balloon pumps. And now we have the license to go educate the physicians and convert. The fact that we've grown this much is really just a testament to the dedication of the clinical team as well as the physicians, and they definitely are seeking new ways to treat this population because the outcomes today in a hospital are poor. And a cardiogenic shock patient has the highest mortality rate or one of the highest mortality rates of any patient in the hospital.

And most important is, if you can not only keep the patient alive but send them home with their own heart, it improves their quality of life and probably have some of the best cost savings of any innovation in med-tech.

So just the key to your question is it's really new indications, it's new geographies and it's new products is what we're focused on now over the next 10 years.

Jan Wald

Okay. Thank you very much. And again, congratulations on the quarter.

Michael Minogue

Thank you, Jan.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Brooks West with Piper Jaffray. Your line is open.

Matthew Bacso

Hi. Can you guys hear me?

Michael Minogue

We can, Brooks. Good morning.

Matthew Bacso

This is Matt in for Brooks today.

Michael Minogue

Hey, Matt.

Matthew Bacso

Hi. So I noticed that R&D spend increased sequentially roughly 10%, which was in line with the revenue. Can you guys maybe talk about your R&D initiatives going throughout the year and maybe, sort of, is that expected to grow in line with revenues throughout the year?

Michael Tomsicek

Yeah. I do expect it to continue to grow in line with revenue. I would point to sort of three major items with respect to R&D. I mean, there are multiple. But we continue to build our registry data that's been the foundation in the past of our gaining indications and will be the foundation in the future for supporting new uses of the product.

We're investing in efficiency and reproducibility of quality and manufacturing. We're growing our manufacturing rapidly to keep investing in new and better ways to manufacture the product consistently and with quality. And we've talked in the past about a number of new products, more innovative products to bring the number of products that we offer to the market to five product lines, six product lines in the future to address new indications and bring out new performance features. And those kinds of investments will be the foundation of future years' growth. So those types of investments will continue in R&D through the end of the year.

Matthew Bacso

Great. And then I apologize if somebody had already asked this question, but you mentioned hiring clinical educators to go deeper into accounts. Can you maybe provide an example of a few accounts you guys are seeing the sort of significant jump in inventory per hospital as a result of these hires?

Michael Tomsicek

Well, I think that the growth in inventory in hospitals has not been significant. It's been modest and that growth has been in line with the increased use in certain hospitals. So when a hospital gets to the point where multiple procedures with Impella are going to be done in a single day, that increases the amount of number of pumps that need to be in that hospital to support those procedures and to have a backup for the pump. And when there's multiple procedures in a day, there's no way to replenish that customer within the day, whereas we can replenish them overnight.

So what I pointed to is that amount of use, the increase in the number of doctors using the product is leading to modest increases in inventory at certain sites, but inventory at site is growing more slowly than usage, but it is growing based on increasing intra-day use.

Matthew Bacso

Great. Thank you.

Operator

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Minogue for closing remarks.

Michael Minogue

Well, thank you, everyone, for your time today. Have a great week.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.

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