Abiomed Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 3, 2022

Key Takeaways

  • Record quarterly revenue of $261 M, up 14% year-over-year (constant currency), driven by 10% growth in US and 35% in Japan patient utilization, and a 25% operating margin.
  • Abiomed raised full-year FY22 revenue guidance to $1.025–1.030 B, projecting Q4 revenue of $263–268 M and a non-GAAP operating margin of 24–25%.
  • Innovation milestones include Japanese approval of the Impella 5.5 with SmartAssist, FDA Category B designation for the Impella ECP, IDE approval for the BTR home-use device, and positive early Precardia feasibility data.
  • ECMO limited market release treated 61 patients with 71% survival but is on hold due to a voluntary recall of console electronics pending FDA review.
  • COVID-19 resurgence and hospital labor shortages, driven by the Omicron wave, created procedural headwinds in January despite Q3 improvements.
AI Generated. May Contain Errors.
Earnings Conference Call
Abiomed Q3 2022
00:00 / 00:00

There are 13 speakers on the call.

Operator

Hello, and welcome to the Abiomed FY 'twenty two Q3 Earnings Call. My name is Katie, and I'll be coordinating your call today. I will now hand over to your host, Nicole Naf to begin. Nicole, please go ahead.

Speaker 1

Good morning, and welcome to Abiomed's 3rd quarter Fiscal 2022 Earnings Conference Call. This is Nicole Nath, Manager, Investor Relations. And I'm here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer and Todd Trapp, Vice President and Chief Financial Officer. The format for today's call will be as follows: 1st, Mike will discuss Q3 business and operational highlights and then Todd will review our financial results, which were outlined in this morning's press release.

Speaker 2

After that, we will open

Speaker 1

the call to your questions. During the call, we will discuss certain financial information on a non GAAP basis. This non GAAP information is provided to enhance your overall understanding of our current financial performance. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Reconciliation between GAAP and non GAAP results are presented in the tables accompanying our earnings release.

Speaker 1

Finally, I would like to remind everyone that today's call includes forward looking statements. The company cautions investors that any forward looking statements involve risks and uncertainties and are not guaranteed in the future. Actual results may differ materially due to a variety of factors identified in our earnings press release and our most recent 10 ks and 10 Q filed with the SEC. We do not undertake any obligation to update forward looking statements. With that, let me turn the call over to Abiomed's Chairman, President and Chief Executive Officer, Mike Monoak.

Speaker 3

Thanks, Nicole, and good morning, everyone. Abiomed delivered record revenue of $261,000,000 in the quarter, up 14% year over year in constant currency. Despite its lower start in October due to the COVID resurgence and hospital labor shortages, Abiomed achieved direct revenue. These results were driven by patient utilization records in both the U. S.

Speaker 3

And Japan, up 10% and 35% year over year, respectively. Even with the headwinds, our Abiomed 2.0 playbook allowed us to adapt and execute, grow sequentially and support the most patients ever in a quarter. These results would not have been possible without the dedication of our customers and employees supporting critically ill patients 20 fourseven on-site, online and in the cloud with Impella Connect. From a financial perspective, we achieved a 25 Operating margin while investing $41,000,000 in research and development as we remain fanatical and focused on creating breakthrough technologies, Advancing clinical research and guidelines and improving real world outcomes by supporting hospitals with a premier clinical Team, and our long term outlook is robust and strengthened by our balance sheet with $932,000,000 in cash and 0 debt With over 1300 patents and over 1300 patent spending. On today's call, I will highlight how we are executing our Abiomed 2.0 playbook in the current COVID environment and provide updates on our patented breakthrough technologies.

Speaker 3

Abiomed 2.0 is helping our hospital partners by supporting their staff to improve patient outcomes for many of the sickest heart and lung patients. Our company provides a unique and exclusive service with a premier clinical field team, educating, training and supporting hospitals 20 fourseven. This support is even more critical as hospitals today struggle with labor shortages. COVID impact or reinfection rates and ICU capacity, all impacting procedural volume. For protected PCI today, the majority of our patients transitioned to the non ICU unit After the procedure.

Speaker 3

This compares to a majority of our past high risk PCI patients Before COVID that routinely went to the ICU post procedure. To improve physician access and closure outcomes, Our single access procedure for protected PCI has grown with education and training. In Q3, 55 percent of our high risk PCI patients received single access and strong clinical signal now exists For lower bleeding rates and quicker recovery. This 55% single access, so a single hole for both the PCI procedure and the Impella, Compares to 4% of our high risk PCI patients with single access before COVID. These new high risk protocols help open beds in the ICU for emergency shock patients who tend to be younger And higher priority for treatment.

Speaker 3

Our ability to share Impella and cardiogenic shock best practices Has improved real world outcomes validated in multiple studies from the U. S, Japan, Italy and Germany. Recently, a cardiogenic shock 24 hospital multicenter U. S. Observational study published in JACC Demonstrated that centers with shock teams were more likely to obtain invasive hemodynamics, use advanced types of mechanical circulatory support like Impella and less IABP, resulting in lower risk adjusted mortality for patients.

Speaker 3

Our hub and spoke strategy continues to demonstrate that community spoke hospitals are growing their Impella patient volume. This shift to treatment in outlying centers allows scheduling availability and flexibility for referring physicians and patients When large transplant hospitals get overwhelmed with COVID patients. As a result, we've seen community volume growth both sequentially and year over year. COVID has also accelerated the rollout of Impella Connect, Our remote monitoring technology. Today, this technology is now available in 1564 hospitals worldwide And approximately 90% of weekly U.

Speaker 3

S. Patients are monitored in the cloud. This allows our field team to support our patients 20 fourseven Even with COVID hospital restrictions and labor shortages, which helps ease patient management and optimize care in the ICU. In addition, we adapted our business model to include more online training and education by launching our password protected user community called CAMP PCI. CAMP is an online and interactive education and training endeavor that hosts live cases, allows for confidential user interaction And has a dedicated clinical research community for our STEMI DTU and PROTECT4 studies.

Speaker 3

Camp PCI is led by a faculty of experts in the field of cardiology, creating a virtual platform for experts to share live cases, Best practices and techniques. For ICU nurses and cath and surgery technologists, In addition to on-site training and education, we offer online training modules and credits at our Abiomed Academy Heart Recovery website. Now turning to our innovation update. The Impella 5.5 with SmartAssist received Japanese PMDA approval. We are excited to bring this game changing technology to Japan, a country where we recently hit our 5000th patient milestone.

Speaker 3

Culturally, the Japanese are averse to heart transplants and invasive sternonomies. This makes Japan ideal for Impella 5.5, given the pump's ability to provide minimally invasive, longer term unloading heart support, Enabling native heart recovery. We expect this first Japanese Impella 5.5 patient to be treated this spring. The Impella ECP received Category B status from the FDA and we established our pivotal protocol. We also received FDA approval for the Impella BTR early feasibility IDE study, clearing the way for their first patient in the world.

Speaker 3

The Impella BTR will provide patients a home discharge option with over 1 year on full hemodynamic support at up to 5 hospitals And supported by Impella BTR for up to 28 days. The first Impella BTR patient is expected to be treated in March For April this year in the U. S. Abiomed has also entered the ECMO space with our innovative breed technology. During our initial limited market release and study, we have treated 61 patients, have a 71% survival for respiratory failure And I've logged 873 patient days.

Speaker 3

The average duration of use is 14 days and 80% of patients have been for VV ECMO, A majority with COVID complications. We've worked closely with these leading hospitals to provide support, gather feedback And learn best practices on every patient. In general, we are pleased with overall survival, blood compatibility, Durability of the pump lung unit, hemodynamic flow rates and ease of patient ambulation. Based on our early patient study and analysis, we've identified areas of improvement around electronics of the console And have implemented a voluntary recall at our 7 hospitals. Until this field corrective action is completed, We are not expanding our number of patients or new centers.

Speaker 3

The console upgrades may require a 510 clearance, and so we're working with the FDA on the next steps. We also announced the successful results of the 1st in human early feasibility study of the precardia system published in Circulation Heart Failure. The multicenter prospective single arm study examined 30 patients with acutely decompensating heart failure or ADHF Who were assigned pre Cardiotherapy for 12 or 24 hours. The study met its safety and feasibility endpoints And documents that Precardia's system can rapidly reduce cardiac filling pressures and augment urine output by intermittently This product has also been awarded Category B designation by the FDA. This technology may enable the heart and kidneys to work more effectively, potentially providing therapy for patients non responsive to diuretics, Estimated to be approximately 300,000 of the 1,000,000 U.

Speaker 3

S. ADHF admissions per year. We summarized all of these studies for our shareholders and posted on our quarterly slide deck. Our leading in innovation and technology principle to be smaller, smarter and more connected remains a cornerstone of our sustainable success. At the JPMorgan Healthcare Conference, I gave more detail about our innovation and the presentation is available on our investor website.

Speaker 3

Before concluding, I'd like to highlight a patient story. John Kapolosis, 85, is a husband, Father and retired attorney from Jacksonville, Florida. John previously had mitral valve replacement, but was living an active lifestyle and enjoying retirement. When John began experiencing shortness of breath and intermittent chest pain in August 2021, he went to see his cardiologist who diagnosed John with heart failure. Tess also revealed multi vessel disease and a lesion in his left anterior descending artery.

Speaker 3

John was evaluated for CABG or open heart surgery, but due to his age and previous surgery was deemed too high risk for another Surgery. John was referred to Doctor. Sam or Garrus, who identified John as a candidate for a protected PCI procedure with Impella. Doctor. Garris inserted the Impella heart pump pre PCI to provide hemodynamic support while placing stents and performing a complete revascularization.

Speaker 3

The Impella heart pump was removed in the cath lab and John was transferred to the CCU unit for overnight observation. John left the hospital the following morning and was home in time for lunch. Today, John has a normal heart function and feels better than he has in years. He and his wife Anne plan to travel, resume their passion for guarding and spend time with their 6 grandchildren. In conclusion, our focus on extending our lead in innovation, advancing clinical evidence And building a premier commercial team enables the pursuit of becoming the global standard of care for hemodynamic support.

Speaker 3

We are now in the final stretch of our fiscal year 2022. As we cross the $1,000,000,000 revenue threshold, We know it is our commitment to patients first that has inspired our innovation, improved our outcomes and led to our success. I'd like to thank our employees, customers and shareholders for their continued support. I will now turn the call over to Todd.

Speaker 4

Thanks, Mike. In Q3, we delivered record revenue of $261,000,000 up 13% on a reported basis And 14% in constant currency versus prior year with double digit growth across all geographies. As Mike mentioned, we saw month over month improvement within the quarter and set a global monthly revenue record in December. In the U. S, revenue grew 12% to $212,000,000 This performance Was driven by 10% growth in patient utilization and favorable sales mix.

Speaker 4

We saw strength Across our broad based portfolio with Impella CP up 9%, Impella RP up 15% And Impella 5.5 up 65% in the quarter. As we discussed on our last earnings call, Some of the headwinds we encountered in the summer, specifically the impact of the Delta variant and hospital labor shortages Continued into October, which put pressure on procedural volumes. However, we executed our playbook And saw a recovery in patient utilization in the last 2 months of the quarter, while continuing to face ongoing hospital labor shortages And the emergence of the Omicron variant. Our execution led to a quarterly record for patients And a monthly revenue record in December. In the U.

Speaker 4

S, at the end of the quarter, The Impella CP has reached 1567 sites. The Impella 5.0 is in 6 66 sites, While the Impella 5.5 with SmartAssist is now in 3 49 sites, up 43 sites versus the prior quarter. Finally, the Impella RP is in 6 50 sites. As a reminder to investors, details of our product installed base are summarized in our quarterly slide deck. In the quarter, the U.

Speaker 4

S. Reorder rate was 103%, slightly below prior year. Average combined inventory at the hospitals for the Impella 2.5 and CP was approximately 4.8 units per site, Flat with the inventory levels we saw last quarter. Outside the U. S, revenue was 49,000,000 Up 22% in constant currency versus prior year due to strength in both Europe and Japan.

Speaker 4

In Europe, we generated $32,000,000 of revenue, up 18% in constant currency versus prior year. This growth was driven by strong performance in Italy, Spain, Belgium and the Middle East, which more than offset Softer conditions in Germany due to COVID and ongoing nursing shortages. Our European business also continued To see a positive benefit from sales mix as we fully transition to Impella CP with SmartAssist And begin to launch Impella 5.5 in Germany. In Japan, we delivered a record revenue quarter of 14,000,000 Up 27% year over year in constant currency, driven by strong Impella adoption. Patient utilization increased 35% versus prior year.

Speaker 4

In the quarter, we opened 7 new sites, Bringing our total to 187

Speaker 5

out of

Speaker 4

a potential 350 hospitals. Japan saw COVID cases significantly decline in Q3 after the surge in August around the Summer Olympics. However, in January, we saw Omicron cases escalate to record levels in Japan. In the Q3, gross margin was 81.8%, down 50 basis points versus last year Due to manufacturing investment, primarily more operators in both Danvers and Aachen to support our sales growth. R and D expense for the quarter totaled $41,000,000 up 24% versus Q3 of last year, Driven by accelerated investments and breakthrough technologies like Impella ECP and Pre Cardia And randomized controlled trials such as STEMI DTU and PROTECT4.

Speaker 4

SG and A expense was $108,000,000 in the quarter, up 25% versus prior year. The year over year increase was driven by headcount additions to our commercial team, our direct to patient initiative and higher spend on education Customer training. In the 3rd quarter, non GAAP operating income was $65,000,000 Down 9% versus prior year, translating to an operating margin of 24.9%. As we said at the beginning of our fiscal year, we are all in on investments in innovation, Clinical research and building a premier distribution team as we pursue our goal of becoming the global standard of care for hemodynamic support. Non GAAP net income for the quarter was $52,000,000 or $1.13 per diluted share Versus $0.54 or $1.17 in Q3 of 'twenty one.

Speaker 4

The year over year variance Was driven by accelerated growth investments, which offset a favorable tax rate. In the quarter, we generated a record $90,000,000 of operating cash flow and ended December with $932,000,000 of cash And marketable securities. Our top priority for cash remains supporting organic growth initiatives And strengthening our intellectual property advantage. Now turning to our guidance. Despite the rise in Omicron and ongoing hospital labor shortages, given our performance in Q3, We have increased the lower end of our fiscal year 'twenty two revenue guidance to 1.025000000000 to $1,030,000,000 representing 21% to 22% growth versus prior year.

Speaker 4

This guidance projects Q4 revenue to be in the range of 263,000,000 To $268,000,000 up 9% to 11% versus a tougher comp last year. As a reminder, Abiomed reported 17% growth in Q4 of the prior year During the COVID pandemic, this range assumes improvement in patient utilization in hospital capacity In February March, consistent with the trends that we have seen throughout the pandemic, We expect non GAAP operating margin to be in the range of 24% to 25%, consistent with our prior quarter guidance. In summary, we delivered a record quarter And are executing on our Abiomed 2.0 playbook. We are investing in innovation focused on clinical research And continue to add to our industry leading commercial team, which we believe will drive long term sustainable growth. As we enter the Q4 of our fiscal year 'twenty two, we are optimistic about our ability to continue to reach our goals as we create the new field of heart recovery.

Speaker 4

Operator, please now open the line for questions.

Operator

Thank We take our first question from Margaret Kaczor from William Blair. Margaret, please go ahead.

Speaker 6

Hi, everyone. This is Brandon. Thanks for taking the question. If I could just start first on guidance. Todd, maybe just to follow-up on the updated guidance.

Speaker 6

Can you just talk a little bit about what gets you to the high end of the range and the low end of the range? I appreciate kind of Assuming a little bit of an improvement in COVID, is that the one main factor that we want to keep in mind here? Is there anything else that gets us to the high and the low end of the range?

Speaker 4

Yes. Thank you for the question. I would say at the low end of the range, the 263, we assume some sequential improvement in February March, But more of that bolus of patients coming in probably towards more March and maybe even into early April, where I think the high end of a range, the 268, Which is again a 3% sequential improvement is that we see some of that softness that we've encountered in January come back more in that February timeframe. And so that's really the high end of 263 versus the 268. And again, just again a reminder that I mentioned in my prepared remarks, we were coming off of More of a challenging comp with Q4 last year being up 17%, but that's kind of how we look at

Speaker 6

it from the low end

Speaker 4

of the range to the high end of the range.

Speaker 6

Got it. And then the international update on the guideline changes are really encouraging And curious if that changes or open any opens any new doors for you in the international markets, especially in Europe. I think when we've Talked in the past, maybe some of those it seems like you guys have been making some investments in trying to open market access in those international markets. So Curious if you guys could update us on maybe what new European markets might be next? What kind of timelines are we looking at?

Speaker 6

And what efforts are going on there To open up new markets. Thanks.

Speaker 3

Thanks Brandon for the question. This is Mike. We have been planting seeds All around Europe and parts of Asia. And although Germany got hit with Omicron and also had some labor shortages, We had record patients and revenue in Italy, Benelux, Spain and some of the other European countries. So we're seeing strong growth there And we continue to plant seeds around Asia.

Speaker 3

Obviously, Japan is very important to us, but you also saw that we got the Impella 5.5 approved in So that's key. And again, what also allows us to have the quality control as we insist wherever we go, we want Impella Connect. So Anywhere in the world, these patients will be in the cloud. We'll be able to monitor them in the ICU along with the hospitals and the physicians.

Speaker 6

Great. Thank you.

Operator

Next, we have a question from Matt O'Brien from Piper Sandler. Please go ahead.

Speaker 7

Hey, good morning, guys. This is Drew on for Med and thanks for taking the questions. I know you're still in your fiscal Q4 here. You're Probably not provided guidance for 'twenty three today, but you're making a ton of investments into the business. Just wondering what your general comfort level Is with where the street is on for fiscal 2023, especially on the margin side with some of those investments and some of the macro headwinds out there.

Speaker 7

Anything you want to call out as far as models go?

Speaker 3

Yes. As you said in the question that we really can't comment yet on fiscal 23, but we will give that on the next earnings call. But innovation drives growth and we've been we have 3 Breakthrough designated products, we have 2 ongoing studies to drive Class 1. And we also have more penetration for iris PCI, Which is over 400,000 potential patients shocked in the U. S.

Speaker 3

Loans over 200,000 patients. The STEMI DTU is targeting a 4,000,000 patient population worldwide, which we don't treat today. Precardia gives us another 300,000 patients just in the U. S. And so we have to continue to grow the innovation.

Speaker 3

We have to continue to strengthen our clinical research And also with the goal of getting Class 1 requirements for high risk PCI, cardiogenic shock and semi DQ, which A Class 1 guideline essentially means that it drives and requests that not only did the hospitals should treat the patient that way, but the government We usually compensate for it. And last is we have built a premier field clinical team, connected real time in the cloud with Impella Connect and we're using all that data to process artificial intelligence algorithms that help us see how the patient is going to do, protect right heart failure And measure hemodynamics from the pump itself. So we feel very confident. As we've always said, one of our goals is to be one of the fastest growing, most profitable medical device companies in the industry.

Speaker 7

Okay. Very, very helpful. Thank you. And then just on 5.5, it looks like you're still around halfway through the 5.0 conversion process here in the Maybe you could just give us an update on how utilization is trending in those accounts, just what the playbook is as far as addressing new surgical accounts Once you get through that conversion. And then just how do we think about Japan from a revenue acceleration perspective?

Speaker 7

Thank you.

Speaker 4

Yes, I mean, you're right in terms of the penetration where we are in the U. S. On the 5.0, we're in over 6 66 sites and we're in about half of that right now for 5.5. So we got a long runway of growth ahead of us. When I look at the Fivefive itself, most of the performance in the quarter was really driven by patients as opposed to more site openings.

Speaker 4

Our patient growth For 55 in the quarter was over 70%. So we continue to see really the growth in the 5.5 being driven by patient utilization Versus necessarily site openings. And your second question with regard to Japan, we expect to do our first patient in 5.5 in Japan sometime Fiscal year 'twenty three and again we're going to go slow and steady, train, educate and just get the best possible outcomes. We're very excited to bring that pump to Japan. We think it's going to we're going to be the standard of care there for the next 10 years, but we're going to follow the playbook that we've always followed, go slow, Train, educate, get great outcomes and then we'll go from there.

Speaker 3

So this is Mike. And I attended a heart failure conference this week in New York City. And there was hundreds of people in person and online. And it's become very clear that for this Chronic heart failure patient population, there's really nothing between these inotropic drugs And in implantable invasive either LVAD or transplant. And what I think the Communities looking for is a longer term, minimally invasive, weanable heart pump that you don't have to core out the apex of the heart.

Speaker 3

And with Impella, it's a forward flow pump. So as it works, it works with the heart. And as you start to try to wean the heart back, as you lower the Impella flow, The left ventricle pumps with it itself. So you still get the pulsatility. It's training your heart to come back.

Speaker 3

We have sensors on the pump, so we can see The pressure in the left ventricle, which is also helpful for the physicians. So you have an Optimize science now to get the weaning protocol right. Because if you get it right, you can potentially return the patient back to a baseline heart function. And while the Impella is running, you're able to help the kidneys produce urine and come off the inotrope drugs completely, which are somewhat toxic to the system. So This is an entirely new treatment therapy.

Speaker 3

The 5.0 did not run as long. It was not as small or as powerful. It didn't have sensors And it didn't have the ability to use the SmartAssist software programs itself. So you're going to see what we believe will be the Impella 5.5 at every single Transplant center in the world and you'll see it at every single heart surgery center in the world that does advanced surgery on high risk patients. And as a reminder, last year in the United States, the surgical society made the intra aortic balloon pump a Class III or harmful For patients that have post cardiomy cardiogenic shock, so they can't come off the heart lung machine.

Speaker 3

And you're also seeing the Impella used for those patients as well, Specifically around the shock and again, given them the ability to get up and walk around. So we're very excited about it. We're excited to have the product approved in Japan. And there's another longer term version of this same technique coming with the Impella BTR pump bridge to recovery that will now be a pure VAD Through the axillary artery will allow the patient to go home and still be monitored in the cloud and to help that patient again get their heart back to baseline. There is no other product in the world like Impella 5.5.

Speaker 5

Thank you.

Operator

The next question comes from Chris Cooley from Stephens. Please go ahead.

Speaker 8

Good morning and thanks for taking the questions and congrats on the record quarter. If I may just, I'd like to actually go back up and focus a little bit more on the Mike or Todd, if you could just elaborate a little bit more first on the ECMO data that you shared, Pretty encouraging there on the 71% survival rate. I just want to clarify though, you think that the Electronic changes you identified, I'm assuming these are ease of use. Could you maybe just elaborate a little bit more there and why you think that would Maybe lead that to be a refiling requirement with the agency and what that could do to timelines? And I have a quick follow-up.

Speaker 3

Sure, Chris. So thanks for the question. For those that don't know, the ECMO product has been around in general for more than 25 years. They were grandfathered in by the FDA and ECMO was approved as a heart and lung machine for less than 6 hours. So while it took us over 10 years and over $100,000,000 to get the approval for shock on Impella, it's a 90 day 510 submission, when we did that we got clearance, but we're treating the ECMO product as if it was a PMA product like Impella.

Speaker 3

So for the first 61 patients, we were present at every single patient. We are tracking the data and we found with the console itself, Nothing to do with the outcomes or the blood contacting or the most important component of our product is the pump lung unit, which is allows the patient To get up and walk around, on the electronics and circuit, we want to ensure the reliability is there And we're going to upgrade some of those components. And so what we're going to do is with the FDA, if we have Submit for the testing of that through the 510 that will be a resubmission for the console. If it's a note to file, we'll do that. But again, we think that this technology should be a PMA.

Speaker 3

We report things in our bedside that we know some of the other ECMO companies do not report because we are Do not report because we are present even with all of their pumps when they do Actella and we want to make sure that this is the best product, Especially around ambulating the patient and also around VV ECMO because we see the benefit of that in working with Echela. So We're again confident and pleased with our clinical outcomes. But as a company that has thousands of consoles all over the world, There's a certain level of reliability that we want to see and so that's why we're bringing it back. We also recognize there's an ethical bar here since many companies do have ECMO products already out So, Barr here, since many companies do have ECMO products already out there that are doing the job for the patients, We want to make sure that our product is as to the standards like Impella and that's what we're working on. So it may not be a 5.0 8 clearance.

Speaker 3

It may be a note to file, but we're going to be cautious. But we're committed to being the innovative leaders in ECMO or especially around Echepela. And recently there were some presentations at another online virtual conference, which reiterate again the benefits of ECCPELA. So the combination of heart And oxygen support over ECMO only, not just on survival, but also it significantly increases the chance that the native heart can recover Compared to just an ECMO only loop, which tends to pump against the heart.

Speaker 8

I appreciate the additional color there, Mike. Thanks for clarifying that. And then just lastly for me on the innovation front, the company has been Historically quite successful. When we think about deploying cash and investing in early stage technology, I can think of 1 publicly traded company that's done extremely well for you. Just curious as you talk about continued investment in innovation, very robust pipeline obviously with ECMO, pre cardiac, etcetera.

Speaker 8

But Should we expect to see additional investments there in the private portfolio? Or are there opportunities there now that are presenting themselves that you could Augment the existing either IT capabilities or alternatively just the channel there for heart recovery That we should be thinking about here from an investment perspective going forward.

Speaker 9

Thanks again.

Speaker 4

Hi, Chris. This is Todd. So I'll take that one. I think when we look at our deployment strategy for the cash, I think we continue to assess what's the right strategy and we look at several factors including Our cash balance and what are some of the investment options that are out there as well as overall market conditions. And I think what's great about Abiomed is that we have A strong balance sheet that really allows us to fund both internal and external opportunities.

Speaker 4

With that said, I still think our top priority remains investment Just in our organic growth opportunities, given the amount of opportunities we have within our four walls. With that said, we'll continue to look To augment organic growth as we look to invest in some new technologies really around our core competencies. And so I think M and A is part of our strategy, especially investments in early stage companies. And if you look at last quarter, we have over $100,000,000 of investments on our balance sheet. And so Again, we'll continue to look for differentiated technologies that can increase Impella utilization and improve patient outcomes.

Speaker 4

And Again, looking at the technology that can bring additional value to our patients, really in the cath lab, in the ICU or the CCU. But we'll remain disciplined on our approach and

Speaker 10

Stay close to our core.

Speaker 8

Thank you.

Speaker 5

Thanks, Chris.

Operator

The next question comes from Chris Pasquale from Guggenheim. Please go ahead.

Speaker 10

Thanks. Mike, a record December makes you guys a bit of a positive outlier across the sector there, but it sounds like From Todd's comments that January was weaker for you, like it was for most medtech companies. Could you just talk a little bit about what you've seen over the past month And how is the impact compares to prior COVID waves we've gone through?

Speaker 3

Sure, Chris. So the we're giving a little color on January. We did have a record in December and we think it is a little bit of the The Abiomed 2.0 playbook, right. So we were able to be there in the cloud. The hospitals do allow The Abiomed representatives in though, so we're a little bit unique from that perspective.

Speaker 3

But the fact that we can be monitoring patients with phone support And Impella Connect is also helpful. We did adapt and find ways at hospitals not to have to put all our high risk PCI patients in the CC or the ICU This is the CCU or step down or a hybrid and that does give focus and the hospitals are now prioritizing the resources, the labor shortages Into the patients that are the emergency patients at the ICU that are priority in treatment that tends to be some of our younger shock patients. So that's what happened in December. In January, the numbers and everyone can see the news, you saw that Omicron set new records in December going Into January and it wasn't so much just the COVID, it's the Omicron impacted with the labor shortages also impacted the nurses and doctors that are still there. And so that caused a little bit of some pullback on some of these procedural issues around either cath lab or surgical suite.

Speaker 3

It's not to the level it was in October relative to year over year. It's we're a little more comfortable year over year, but we've also Nice that sequentially, it did impact a little bit in January, but we do feel confident in Q4. We feel very Confident in the final quarter of the fiscal year, especially for February March. And we also think that The model is working with and without COVID, with and without the resurgence. We're able to provide a solution for hospitals to treat their sickest patients, To support them in the cath lab and the surgical suite and also most important to help support the nurses and physicians and train people on-site or online.

Speaker 3

So we feel very confident in Q4.

Speaker 10

Great. And then thanks for including the clinical slide in the It's helpful to have all the information in one piece, one place rather. I don't think I heard an update on the timing of first in human implants with ECP. When do you expect those to begin?

Speaker 3

Did you say ECP, Chris?

Speaker 5

Yes, I'm sorry.

Speaker 3

Yes. So obviously, we did do the first in man already. We've Over 25 patients already, we are locking in our or we have locked in the pivotal protocol. We expect to do our first patients in that protocol in March April this March April.

Speaker 6

So a

Speaker 3

lot of stuff going on. It's we did that side for you. The benefit of having all this new innovation and these studies is exciting And it's growth for the future. The downside is it's likely very tough and confusing. So we'll continue on every quarter, this tracking slide.

Speaker 3

And if you haven't seen it Investors, it covers everything, study detail, patient enrollment, total sites and status. We'll update this slide every quarter for our investors To make it easy for you to track and see all the new products and the studies.

Operator

We have our next question from Marie Thibault from PDIG. Please go ahead.

Speaker 11

Hi, good morning and thanks for taking the questions and congrats on a very nice quarter. I wanted

Operator

to ask one here, perhaps I missed it

Speaker 11

in the commentary, but we're Hearing from some of your peers across the med tech sector about heightened pressure on the supply chain inflation, hiring costs, And I wanted to hear a little bit about how Abiomed has been managing through some of that.

Speaker 4

Thanks, Marie, for the question. So I think when you look at it from an inflation perspective, just a reminder to investors, We do not have a high material content as a percentage of our COGS compared to some of our other peers. Like everyone else, we are seeing pressure on price increases, mostly I would say in the electronic side or on the logistics side. And I think overall, the team He's doing a nice job looking to negotiate some of the increases away. So we've certain cases we've locked in prices for up to a year.

Speaker 4

And In other areas, we're looking to really pre buy some of our rods and some of our components really before some of the price increases go into effect. We're also being proactive just looking at how we can reduce, for example, intercompany shipments and obviously be proactive to bid out to some of the other international freight carriers. So I think the procurement team is doing a nice job. They're working aggressively to minimize some of this inflationary pressure, but it's there. We're also seeing some pressure on wage inflation, but I think we've taken that into consideration for our operating margin guide for the year of 24% to 25%.

Speaker 11

Okay. That's great. Very helpful, Todd. And maybe a related question here. You mentioned there is so much going on in the You have a lot of clinical trials about to start or ongoing.

Speaker 11

I'm wondering if you're needing to hire up a lot of new staff Either in sales or R and D and whether there are efforts you're making beyond IntelliConnect, beyond the shift toward a single access Procedure to help customers with the staffing shortage they're facing. Our diligence So this being a continuing problem even beyond the pandemic. I'm curious if there are larger shifts you're sort of making within the business or investments to Helpful customer. Thank you.

Speaker 3

So Maria, I think I got the question.

Speaker 6

There was a

Speaker 3

little bit of noise or static on the line there. But the question is, Are we doing more and is there other things we can do for the hospitals to help them out? And the way I would answer that is you have labor shortages, which We identified in the last earnings call. You also have the spread of COVID, which impacted more of those people that are remaining. And what that means for Abiomed is you might have some less experienced or turnover nurses or traveling nurses.

Speaker 3

So we do still provide with COVID with restrictions. Hospitals let us in because we are providing this training. We are bedside. And so we are continuing to train nurses and physicians and cath lab techs on-site. We then have the ability for both physicians, nurses and techs To log into a virtual platform and they can get credits and we can train them.

Speaker 3

And then we also have a per diem bullpen of Employees that we hire that they get super training. So that it also allows us to as we add places and add more people, we get qualified Per diems. But while those per diems are out there in the community, they are a little bit more of subject matter experts. So we're doing all those things, but there's again, We're just trying to engineer in as much as we can ease of use. And that's what SmartAssist does.

Speaker 3

That's what ECP will be for access closure. For 5.5 having the sensors and these are the things that make it easier for you to manage that patient in the ICU. If you have a patient that can get up and walk around, that's an easier patient to manage. So that's our 5.5. Even with our ECMO product, It doesn't require the same amount of nurses to help get a patient up and walk around.

Speaker 3

We have a built in oxygenating concentrator, so you don't have that big tank along with it. And everything we're doing again around smarter, smaller, more connected is to just make the learning curve easier on everyone, The patient management experience more positive and it usually ends up with improved outcomes as a result.

Speaker 1

Very good. Thank you for your detail.

Operator

Our next question is from Jayson Bedford from Raymond James. Please go ahead.

Speaker 9

Good morning. And I'll also give thanks for the pipeline slide there. It's helpful. Wanted to ask about your the quarter here in terms of last call you talked about a Portion of your sites that didn't grow, did those laggards improve in

Speaker 6

the quarter? And maybe you

Speaker 9

can just comment on utilization Across the customer base in the U. S?

Speaker 3

Sure, Jason. Thanks for the question. This quarter 84% Of the regions grew. 100% of the West region. So we divide the country up into East and West.

Speaker 3

So the Omicron really impacted more the East Coast. And again, The West Coast, 100 percent all grew year over year, so they were less impacted. We saw strong overall growth in shock, so that was up 14% year over year and high risk PCI was up 5% year over year. It was mostly down or lower in the East Coast, Which did not and which had a bigger impact of Omicron. And then for the overall, what we continue to see whether it's In the east or the west is a positive trend that our small and medium sized customers are doing more at their facility.

Speaker 3

It gives more flexibility. So if a patient doesn't want to drive into the city to the transplant center, which might be that COVID hub, They can do the procedure there, whether it's high risk PCI or if it's a shock patient, they can put an Impella device in that patient, stabilize that patient And then transfer that patient if there's a bed available to the ICU at the transplant hospital. So we've learned a lot about how to interact And how to move patients around. And if I look at the last quarter, which you're talking about to this quarter, there's 2 territories that were down that we highlighted. And one is in Texas and the other one was in the Midwest and both of those returned and had strong growth.

Speaker 3

So the answer is yes. And that's one of the benefits that we're able to track in some of these high risk patients. We do try to track them and schedule them in advance. And if they don't get treated, they're still in the system. And so we're glad to see that they're able to ramp back up in these Areas and treat those patients.

Speaker 9

Okay. That's helpful, Mike. And just On a similar vein, in terms of getting back to normal, what do you think the rate limiting factor here is on your growth? Meaning the bigger concern demands to simply reluctance of folks coming into the hospital? Or is it more The staffing dynamic issue that's impacting growth.

Speaker 3

Jason, I think that the normal process is going to continue to drive our Growth. And so the normal process will be these flare ups, these, the anxiety. Unfortunately, what's happened with people waiting longer Is they tend to be sicker when they show up at the hospital, whether it's high risk PCI or whether it's a certain patient population turned down for CABG. So they maybe they're going to get a high risk PCI. The resistance to do staging now, which staging was a big part of PCI, meaning that they Get a procedure done and they come back 45 days later and get another one.

Speaker 3

So that becomes that's positive for Pella in that they will try to do everything in one procedure. So there's and then on the shock side, I think the shock protocols Are going to continue to grow. For the lung problems, we expect VV ECMO to continue to be A standard use of care for COVID complications. And of course, we have emergency use authorizations for COVID with our right side device And our Ectela combination usage. So we're the new normal is that Abiomed treats the heart, the lung and the kidneys, Whether it's from the AMI or whether it's from COVID, we help save the sickest of both populations.

Speaker 9

Okay. But Mike, it doesn't sound like hospital staffing dynamics are impacting your growth at all. Is that fair?

Speaker 3

Well, Jason, you can always have more growth, but the hospital staffing will slow us down. So in the examples of what I talked about is That 84% of the reason it grew. The other 16%, they might have not had enough cath lab techs or enough surgical techs or ICU nurses. So it likely impacted us more on high risk PCI, less on shock. But over time, We become part of the partnership with the hospital and they depend on us and we depend on them to work together to optimize the outcomes, Whether it is shock or whether it is high risk PCI, I don't think that's going to change in the short term.

Speaker 3

And I think companies that can offer this kind of 20 fourseven service Are going to be welcomed in and I think that's part of our business model.

Speaker 6

Okay. That's helpful. Thanks, Mike.

Operator

The next question comes from Danielle Antalffy from SVB Leerink. Please go ahead.

Speaker 2

Hey, good morning, everyone, and congrats on a really good quarter in a tough earnings season. Mike, just a question for you and then Todd, I have a follow-up for you. 5.5 continues to Our expectations and you're clearly getting strong adoption there. I'm just curious if you're seeing any sort of increased receptivity on the Impella 25 and CP side of things in the interventional cardiology community, where 5.5 is being adopted, thinking of sort of a halo effect When the cardiac surgeons are adopting 5.5, it's getting interventional cardiologists on board or is that too much of a stretch to make?

Speaker 3

Danielle, it definitely helps. So I'd encourage all the investors if they want to truly understand the 5.5 and how it's changed The practice in surgery and for the heart team is on our investor website. There's a presentation by Doctor. Ed Soltes, who chairs surgery at Cleveland Clinic. And you can kind of see the hybrid between sometimes these patients decompensate, they are heart failure patients, they're not having their First heart attack, they have some worn out hearts.

Speaker 3

And after they put the Impella 5.5 in, now they have options and therapies that they can utilize, Whether it's some patients are sent to the EP lab for VT ablation, some go on for open heart surgery and some go to the cath lab and have PCI depending on the protocol there. And that heart team mindset is where there is this benefit because you're giving the heart surgeons a tool They didn't have before. You don't have to commit somebody to a transplant. And it's very clear that when we have this kind of innovation, All the surgical departments at the transplant centers are working with us now and therefore in the hub and spoke model, it gives us the ability to really Partner, whether referring in a cath lab patient to that center or surgical patient, it strengthens our relationship. So I think it's just great to have this innovation, But you hear us talk about the heart team now and what most people are starting to understand is there's 2 types of shock patients.

Speaker 3

One is the acute AMI shots. So someone has a heart attack, that's their first symptom. The other is a chronic heart, which is worn out over time That needs therapy. Sometimes that therapy is protected PCI, sometimes that therapy is CABG or other items. And it really does give now more options to the entire And that's the benefit.

Speaker 2

Got it. Okay. Thank you for that. And then Todd, this question is probably for you and I appreciate this I was already asked around how to think about 2023. But just looking at numbers, your CAGR Taking the midpoint of your 2022 guidance range versus fiscal 2019 is about 10%, but looks like The Street is assuming a bit of an acceleration to the mid teens ish range for fiscal 2023.

Speaker 2

And I guess I'm just trying to I know you're not going to give guidance here, but just qualitatively, is there a reason to believe on presumably less Easy comps, maybe even a little bit tougher comps just given how growth has progressed through COVID in fiscal 2023. Is it fair to assume growth can accelerate off of the last 3 years CAGR or is that maybe a little bit too optimistic?

Speaker 4

Well, Danielle, I'd love to answer that question. But again, as Mike mentioned, we will provide full year guidance On our earnings call in April, but when I look at the large opportunity you have with us in terms of some of the catalysts for next year and growth drivers I can point to it. Again, I come back to Impella 5.5, right. We're still again in only half the sites where we have Impella 5.0. We have Yes, RP with IJ, we got ECP, we got obviously OUS growth.

Speaker 4

So I think we have a lot of catalysts. We have breathe. We have a lot of catalysts either products or new geographies really to get into As I think about next fiscal year, and I think some of the headwinds that we have we faced this year with regard to Delta and Omicron are going to subside as we get into next year. And so And also the investments we've made. We've added a lot to our commercial team, probably heads are up 70 heads year over year, the direct to patient initiative That we undergo.

Speaker 4

So I just feel like we have a lot of catalysts, stoked in the fire to help drive growth next year. And again, we'll provide a more formal guidance In April, after our Q4 earnings call.

Speaker 2

Got it. No, that was a helpful way to frame it. Thank you for that, Ted. Thanks, guys.

Speaker 4

Thanks, Daniel.

Operator

We have a question from Cecilia Furlong from Morgan Cecilia, your line is now open.

Speaker 12

Great. Good morning and thank you for taking the questions. I wanted to ask just on your comment Around 55% of single access high risk PCI. Just where do you think or think about that going in a post COVID world And somewhat tied in with that too, but just XR sheet for CP, any updates around your expectations for LMR? Thank you.

Speaker 3

Thanks, Cecilia, for the question. It will continue to go up because it's a superior technique on the Impella CP. As I said, we're collecting the data, but we have strong signal that it's better clinically, it lowers bleeding and has faster recovery. We also have improvements coming to our sheet. There's going to be 2 improvements coming for 2 different options that we'll be Able to capitalize on reducing the French size of the hole, making the single access part of that design And also having a solution for the patient to go the ICU where you don't have to peel away a sheet.

Speaker 3

Longer term, That will be incredibly helpful. However, the Impella ECP is the easy button for high risk PCI. It's a 9 French pump going in and coming out. And we see the Impella CP as the ideal pump for AMI cardiogenic shock patient that gets treated in the cath lab and goes to the ICU for 4 days And you're really focused on winning them back. So we feel very good about the XR sheath as well as a Single accessing and buying the 2 is going to help alleviate some of those concerns for those late adopters that are concerned with closing a 14 Printerch hole.

Speaker 12

Great. Thank you. And if I could just follow-up on Japan, the strength you saw in the quarter utilization at 35%. Can you just speak to kind of what you saw in the quarter specifically, how much of that was? And if any kind of COVID backlog coming back in?

Speaker 12

And as you look out Ahead of 5.5 and factoring 5.5 in the back of the calendar year, how you think about just the ramp in adoption Overall in Japan. And thank you for taking the

Speaker 4

questions. Yes, Cecilia, I'll answer the first one about Japan. In terms of the both the patients, I would say most of it's come just from a reorder rate. So our patient growth in Japan has been north of 30% For the last several quarters, so again, I think this quarter up 35%. Again, it's mostly reordering from a revenue standpoint.

Speaker 4

Also, we opened up A fewer sites, but I don't think any of that revenue is really coming in from a bulk of patients. And then as I mentioned earlier, the 5.5, we're going to go slow and steady, Probably not a big growth driver for us next fiscal year because again, we're going to go enroll certain sites. We're going to educate the physicians, train, Okay. Great outcomes and continue to roll off thereafter. So it's the playbook we follow and we're going to continue to follow in Japan with the 5.5 launch for SmartAssist.

Operator

Our next question comes from Imran Zafar from Deutsche Bank. Please go ahead.

Speaker 6

Hi, good morning. Thank you very much

Speaker 5

for taking my question. I wanted to ask a couple of follow ups on 5.5. First, I guess, staying in Japan for a second. Are you going to be pursuing separate reimbursement 455 or are you just simply going to be using what's the existing codes for Impella there? I guess my question is, are you going to be getting Premium reimbursement ultimately for 5.5.

Speaker 3

Imran, we are working with MHLW now and Pursuing a add on payment, and specifically looking at and creating an opportunity to identify the potential of native heart recovery. In Japan today, they do have incredibly high reimbursement for stem cells and you'll also likely see some of the patients that are getting stem cells Be combined with the therapy with the Impella unloading as well.

Speaker 5

Okay. Thanks. And then in terms of U. S. 5.5 launch, can you talk a little bit more about what's driving the patient growth and how much is coming from Just displacement of 5.0 versus conversion of here to 4 LVAD cases and Maybe also just remind us how big the VTT population is in the U.

Speaker 5

S? Thanks.

Speaker 3

It is growing and it's grown over 100%. 5.5 has grown over 100% in spite of COVID. It runs longer, it's smaller, it's easier to put in, it's more powerful, it gives information with SmartAssist And it allows the shock patients that have decompensated to be able to stabilize them, get them off of their inotropes, get them up walking around Riding a bike or getting ready for rehab. And again, I would reiterate, there's a great presentation on the investor website from last year by Doctor. Ed Soltes Cleveland Clinic.

Speaker 3

And you can kind of see how it's become the way they stabilize these chronic patients. And with regard to transplant, that actually has been growing in spite of the fact that it doesn't have actually the premium Position as a status 2. So ECMO and Centra Mag devices are status 1, so they get their earlier implant And the balloon pump is status 2. So when Impella patients get transplanted with the Impella 5.5, they're getting it through status Which means they're sicker, but the average wait time in the U. S.

Speaker 3

For transplants is now around 3 to 4 weeks. And so whether they get transplanted or whether they get back to base This is a different option. If you choose ECMO, basically you have the patient on their back, you have adverse events, inflammatory and risk Stroke, these are all documented, and the patients really aren't getting up and moving around. So you're taking a transplanted heart, a precious item with only 2,000 a year in the U. S.

Speaker 3

And you're potentially giving it to a patient that might have a lower success rate. And for implantable devices, they are down because they are status 3 and that is a great product and a blessing for people that are going to have very long wait Times are looking to live out more years through Destination Therapy. So again, I think what you're going to see over time is That all the transplant centers will be reliant on the Impella 5.5 and most important start to think about native heart TAVR you're getting the patient back to baseline compared to the options they have today.

Speaker 5

Okay, great. And just one last one. There was a new retrospective study published in the last few days. Sort of implicating a higher mortality rate with Impella versus A little bit reminiscent of the DERVA study we saw in JAMA a couple of years ago. Obviously, not something we've seen in SON Protect 2.

Speaker 5

But I just I guess my question is, is there any acute risk of some volume impact? Maybe you can answer that by reminding us if there was any such impact after the DERUVAP paper was published a couple of years ago. Thanks.

Speaker 3

Sure. So the Druva paper actually is when you go into the details that reinforces our best practices. The Druva paper is actually balloon pump patients that are less sick that do not get escalated to ECMO or to Impella Compared to balloon pump patients that get escalated to Impella and Impella patients that get it before, during or after. So It's not a balloon pump to Impella comparison. When we look at that same period, we see statistically higher survival where you put the Impella in before.

Speaker 3

We bought the NCDR data for 2018 2019 because those are the only years they actually had the Impella data. The original Druva paper factually doesn't have whether or not it's only a balloon pump or Impella or Expella. And so that also reiterates That the Impella put in before the PCI has higher survival. So there is some noise out there, but even the noise agrees Our best practices and that's why the leaders in this space published their actual data and are in the studies.

Speaker 5

Perfect. Thank you very much.

Operator

I can confirm we have no Further questions, I'll hand it back to our speaker team for any closing remarks.

Speaker 3

We just want to thank everyone for the time today. Stay safe. And if you have follow-up questions, feel free to reach out. Have a great day.

Operator

This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

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