Q2 2020 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly police continuing to standby. Thank you for your patience.

Matt.

<unk> 2020 earnings conference call.

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Oh, notwithstanding the converts over your speaker today.

Great Goldberg director of Investor Relations. Thank you. Please go ahead of it.

Good morning.

And welcome to Abbey Mad second quarter fiscal 2020 earnings conference call.

This is Ingrid Goldberg director of Investor Relations for Abbey amid I'm here with my keynote elements Chairman, President and Chief Executive Officer, Anti Trust, Vice President and Chief Financial Officer.

The format for todays call will be a solid.

First Mike when I will discuss second quarter business and operational highlights and then Todd trap review, our financial results, which were outlined in today's press release after that well open the call to your question.

Before we begin I would like to remind everyone that our presentation. Today includes forward looking statements as it relates to discussion of our outlook.

If somebody cautions investors any forward looking statements involve risks and uncertainties that are not guarantees of future.

Actual results may differ materially from those expressed or implied in forward looking statements due to a variety of factors. These factors are described in the fall under the forward looking statements in our earnings press release and in our most recent 10-K in 10-Q filed with the FCC, we've not undertake any obligation to update forward looking statements.

With that let me turn our call to adding that's chairman President and Chief Executive Officer, Mike Minogue, Thanks, and good morning, everyone.

In the second quarter, Abema delivered 205 million of revenue up 13% year over year with an operating margin of 29.4% driven by continued strength in cardiogenic shock and overall growth in Germany and Japan.

We executed on U.S. distribution initiatives are F.D.A. post approval studies and received FDA approval for Impella 5.5, we're pleased that this quarter, we release data demonstrating our best clinical outcomes overall for high risk PCI.

Cardiogenic shock and right heart failure by utilizing our training and best practices in the United States, while cardio cardiogenic shock were solid with 22% growth high risk PCI was light at 5% and we're now leveraging the protect three data to drive utilization.

Our innovation and our ability to improve clinical outcomes remains the driver for impella adoption through a function of training data and time.

For today's call, we will provide an update on the following first we will discuss the progress that we have made around U.S. commercial organization.

Second we will highlight positive new clinical data for high risk PCI cardiogenic shock and right heart failure and third we will discuss our recent FDA approval of the Impella 5.5 would smartest says and plans for the U.S. launch.

So I'll start with our U.S. commercial organization.

On the last earnings call, we discussed the adjustments, we're making sure U.S. distribution model and the creation of more regional leadership positions to go deeper with customer relationships and implement our strategy.

We're pleased to announce that with a healthy balance of internal promotions and external hiring all zone general managers and regional directors are now in place.

We also have expanded roles for frontline sales and clinical managers and approximately 80% are now in place.

These new field leaders will face the normal learning curve and be responsible for building active impella programs expanding users at existing sites and leveraging our hub and spoke network.

Turning to new clinical data for both high risk PCI and cardiogenic shock multiple positive data sets were released at TCT, highlighting optimal treatment pathways with impella that enable complete revascularization and improve patient outcomes.

On the first day of TC G Dr., Jeff <unk> from Beth Israel discussed data from the protect three study, which is our ongoing prospective single arm F.D.A. post approval study for high risk PCI.

[noise] protect three followed the protect two randomized controlled trial.

And included 898 patients enrolled at 45 U.S. sites.

Comprising more complex and high risk patients.

<unk> three demonstrated improved outcomes and lower mace at 90 days.

Patients and protect three were statistically older at 71.

More often women.

Received longer support and had more complex procedures with more vessels treated relative to protect too.

Yes, the 90 day mace rate in protect three was lower with 17% mace versus protect choose control arm at 31% and the Impella 2.5 arm at 22%.

The protect series is now the largest data set in the world for hemodynamic assisted high risk PCI and spans 13 years of clinical practice.

Replays of both the physician breakfast and annual TCT Investor event are available on our website.

And that protected PCI dot com.

Our studies and real World experience continued to demonstrate that Impella assisted P.C. I can enable better outcomes for patients like Jim spoke.

Jim 67 year old grandfather struggled with such extreme weakness and fatigue that he could barely walk from the parking lot to the field for his grandsons literally games.

He went to spectrum health in Grand Rapids, Michigan, where a diagnostic catheterizations revealed severe blockages and poor heart function within ejection fraction of 25%.

Jim was referred to the advanced heart failure clinic, where he was identified by the heart team as an appropriate candidate for protected PCI.

Covered by CMS Dr. David ones.

Dr., Kevin Wash legere implanted the Impella 2.5 heart pump to support Jim's week card, while they place multiple stance.

Jim was discharged to home one day later.

And within two months his heart function had returned to near normal with an f. a 55%.

Today, Jim feels better than he has in years.

Attended our summer headquarters event that Abbvie Mad.

And now climbs to the top of the stands to cheer on his grandchildren.

This is the true benefit of protected PCI and complete Revascularization.

Turning to cardiogenic shock updated data from the National Cardiogenic Shock initiative was also presented at TCT, showing 250 consecutive patients from 49 sites demonstrating survival of 72% at discharge with 98% receiving.

We're having native heart recovery.

This compares to the historic rates, a 50% survival.

Without heart recovery.

As noted in their earnings slides posted today.

Based on learnings from the I Q database and Cxi Cardiogenic shock working group and the C. Bad study investigators are now instituting additional escalation protocols for left and right heart support.

That will be applied in the Cath lab immediately after in Impella supported PCI.

This new escalation protocol allows physicians to identify and reduce future risk factors responsible for patient mortality within 72 hours of cardiogenic shock.

We also recently announced with the press release that Impella RP post approval outcomes now matched the pre approval study for patients meeting the FDIC study protocol.

Additionally, this quarter albumin announced the procedural outcomes data on the first 1000 patients treated in Japan.

Protocols in Japan were developed based on best practices learn from patients treated in the U.S. and Europe .

Today initial outcomes in Japan, mimic that up top U.S. hospitals, with 87% survival to Impella X plant with 97% heart recovery in the M.I. cardiogenic shock population.

It is rewarding to see the profound impact of Impella on patient survival and heart recovery across the globe.

Moving to our product portfolio, we'd like to briefly touch on a significant milestones that we've achieved during the quarter.

We continued the commercial launch of our smartest this platform, which improves ease of use for patient management and has weaning algorithms to optimize survival and native heart recovery.

Impella CP with smartest says is now being used in 328 of our 1401 CP sites.

Additionally, we received FDA approval PMA approval for Impella 5.5 would smart assist.

Impella 5.5 provides a minimally invasive.

Forward flow fully unloading heart pump to treat shock patients with acute or chronic heart failure and fills a significant clinical gap for a growing heart failure population.

Designed for heart Surgeons, the 5.5 indicated for the treatment of all forms of cardiogenic shock and delivers peak flows greater than six liters per minute.

[noise], 45% shorter and thinner than the Impella five though the 5.5 is approved for up to 14 and 30 days in the U.S. and Europe , respectively.

We're excited to announce today that Weve introduced the Impella 5.5 in the U.S. through a limited market release with over 10 patients treated in October at some of the best part hospitals in the World Cedars Sinai in L.A. Cleveland Clinic.

And Hackensack hospitals.

I believe this product is a breakthrough for heart failure.

In conclusion.

We've made progress under key initiatives, but we still have more work to do.

We are a stronger and more advanced company today than ever before.

We've just announced our best clinical outcomes across all indications and our innovation continues to improve and expand to optimize native heart recovery with smart assessed.

The last six months have driven us to adapt to the external noise and focus on internal execution.

We will regain our momentum based on our flywheel of innovation and improving clinical outcomes.

I personally have never been more confident that impella will become the global standard of care for high risk PCI.

Cardiogenic shock STEMI and heart failure.

I'd like to thank our employees and customers who put patients first every day.

And our shareholders for their continued support.

I will now turn the call over to Todd.

Thanks, Mike and good morning, everyone.

In the quarter, we delivered revenue of 205 million, an increase of 13% on reported basis versus a tough comparison of 37% growth in Q2 of last year.

By region U.S. revenue grew 9% to 172 million driven by a 14% increase inpatient utilization.

In the quarter, we opened 62 sites compared to 135 last year, which impacted us sales by 3 million were approximately two points of growth.

Outside the U.S. revenue totaled 33 million up 43% on constant currency driven by continued strength in both Europe and Japan.

In the U.S. at the end of our fiscal Q2, the Impella two five and CP are in 1401 sites.

The Impella five BOE has been placed in 624 sites, while the RP is currently in 498 sites.

The number of site openings in Q2 was the same as Q1 as we continue to prioritize patient utilization in physician training at our existing sites.

Q2, reorder performance was solid with a rate slightly above 100%.

Average combined inventory at the hospitals for the Impella two five and CP was approximately 4.5 units per site again consistent with the inventory levels, we saw last quarter.

Outside the U.S., we continued you'd see strong growth and impella adoption.

In Q2, our European revenue increased 27% in local currency top due to higher patient utilization in Germany in both high risk PCI and cardiogenic shock and further adoption in other countries like Switzerland, Austria, Italy.

Additionally, the controlled rollout in Japan continues to gain traction as we generated 9.6 million of sales in the quarter due to new sites inpatient utilization.

We opened 17 sites in Q2, and now aren't approximately 100 hospitals with 135 hospitals currently approved by the government.

It is worth noting that we do expect open fewer sites in the second half of the year as the team closes out the post approval study and prioritize is a broader CP launch, which will require additional training at existing sites.

Moving to key financial metrics gross margin was 83% in the quarter compared to 83.6% in the prior year.

The year over year variance was driven by the smartest this launch and sales mix, which more than offset plant productivity.

We introduced smart assist at approximately 180 sites in the quarter and we continue to received very positive feedback from our customers on this new technology.

In the quarter R&D expense totaled 24 million, an increase of 6% from the prior year driven by our ongoing investments in clinical research, including STEMI.

And our post approval studies in the U.S. and in Japan.

We also continued to fund our pipeline of products, such as expandable chief and Impella Sep a true nine French expandable pump ideal for high risk PCI procedures.

SGN expense, the second quarter totaled 86 million, 9% higher versus prior year.

The lift was driven by the investment in our global commercial team incremental physician training and marketing programs.

We expect more investment in X gene a in the second half of the year as the commercial team continues to grow and we provide additional U.S. field training for all zones in early November .

In the quarter operating income grew 20% to 60 million translating to an operating margin of 29.4%.

Margins expanded 170 basis points due to higher volume productivity and timing related to some R&D spend which shifted into the second half of the year.

We delivered strong margins, while making what we believe our the necessary growth investments.

This highlights the benefits and leverage of our business model.

GAAP net income for the quarter was 13 million or 28 cents per diluted share versus a dollar nine in Q2 of 19.

The year over year variance was primarily driven by a mark to market adjustment on our Shockwave investment, which equated to an after tax non cash charge of 35 million.

Or 75 cents per diluted share in the quarter.

Our tax rate for Q2 was 24.7% versus 3.3% in the prior year due to 13 million of excess tax benefits in last year's reported rate compared to only 500000 in the current quarter.

Excluding the impact from Shockwave in excess tax benefits earnings per share grew 27% year over year.

We also had another strong quarter on cash as we generated 74 million of operating cash flow an increase of 23% from the prior year.

The balance sheet remains debt free and we ended the quarter with 551 million of cash and marketable securities.

In Q2, we bought back roughly 35 million of stock in the open market under our share repurchase program. However, our number one capital deployment priority continues to be investment and our internal growth programs, which we believe will generate higher returns for the shareholders over time.

Based on our performance in the first half of the year Anna projections for the next six months, we're maintaining our revenue guidance of 15% to 20%.

That said, we acknowledge that the strategic actions. We are implementing will take time, and therefore are anticipating being towards the lower end of that range.

Additionally, we are maintaining operating margin guidance of 28% to 30% for the fiscal year.

So in summary, we are confident in our overall strategy and both the technical and clinical advantages of Impella. There is no other product like Impella and no other FDA approvals for this patient population.

We continue to see improved patient outcomes and build powerful clinical data like protect three and see ESI.

With new products, new indications in new countries on the horizon, our along with our strong IP portfolio of over 715 patents and 620 pending we have a path to sustainable growth.

Coupled with our profitability and strong balance sheet Abby met is well positioned for today and the future.

Operator, please now open the line for questions.

As a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound key please stand by what we compile the Q and a roster.

Our first question comes from Raj Denhoy with Jefferies. Your line is known.

Hi, good morning.

I Wonder if maybe I could just start with the point of clarification or you guys used to breakout I think U.S. impella cells separately out of a total U.S. number I'm not sure. If you gave that in the scripted remarks I don't think it was in the press release. So can you give us the total U.S. impella sales.

Sure Raj and in the quarter.

Impella revenue was.

For the US 164 million and service was about 7.8 million.

Okay perfect.

You know I guess the other question is just on the the outlook here because.

I guess you guys have kept guidance. The same you know the low end of the range of 15 to 20, but it's still does imply a little bit of a pickup in the back half of the year and when we think about sort of last couple of quarters and I guess, we've sort of now come to.

You know maybe believe this narrative that is just sort of difficult to get additional doctors to use the technology additional cardiologist, particularly MPCI teams with the 5% you've reported this quarter. So I guess the question is around the confidence you have that that what you're doing is going to accelerate that growth profile and whether it might be something a little more deep in terms of needing additional clear.

Nickel data or other things to get more cardiologist onboard to using impella.

Ross. Thanks for the question, we had a stronger quarter for cardiogenic shock.

And in the past, we have seen as seesaw effect, but not to this extreme but what we've learned over the last two quarters and starting in March is that we need to have high risk PCI programs at hospitals that are identifying recruiting patients.

In the community that are either have advanced coronary disease or turned down for surgery and as a results. We've had individual users and champions that do multiple types of patients, but we haven't been able to get deep enough for the high risk pro pro programs. So that when that person is either doing another procedure or not.

The attendance other physicians will either choose to treat the permits to patient with protected PCI or not turned the patient down or try to get in and out.

The one of the benefits of watching the development of the heart team whatever is really looked at the lessons learned on how they've developed a program. So the physicians are deepening in the hospital. There is a funnel into system in place to identify back then all the 80 roles that have aortic stenosis and then get.

Im referred into the different hospitals in our case, we want to leverage the same approach the majority of our patients or much younger so on average their 69 years old, but we really got to have a program versus individual physicians and there's two types of physicians are those positions that are comfortable whatever so the access closure is not an issue.

And then we do also acknowledge that there is a next wave of physicians that require little more training and education around access and closure.

There are those that are just dedicated to protected PCI. So those three buckets or where were working there is a little bit of different messaging, but the best thing. We have right now that gives us confidence as you mentioned is that protect three data and I think the the opportunity to protect three is first to tell the story that in protect to Impella lowered made major.

Versus events second is that Impella lowered mace. It also they showed from discharged to 90 days.

A statistical difference in those irreversible endpoints of death stroke am I and repeat procedures.

And then protect three we continue to show that we can treat the sicker patient population many that have no other options and what we see is positive outcomes and most important these patients have an improvement in their ETF, which gives them that quality of life that they're entitled to and that should be the ultimate goal of protected PCI.

That's helpful and maybe just as a follow up and I don't even know theres appropriate answer this but when you think about that that group of cardiologist, who maybe aren't as comfortable using the impella.

This next wave of adopters, if that's right way to put it.

Is there way to characterize what what is the major pushback. If it is it the difficulty in using the Impella axis enclosures, you've described it or is it something deeper maybe its data or or belief in the technology.

Is there any way that you can maybe parse out what what the biggest push backs are in additional adoption.

There is and I think.

Theres Theres no one off for any one item, but so for the doctors that are comfortable with caliber and access large bore.

Their focus is time management privatization and making sure they have PCI time as well as to every time.

For the next wave of user that's doing PCIA, there and they they're not comfortable with Accessclosure. The biggest pushed back for them is the fear of vascular complications and bleeding and the way we approach them is starting with education in the protect two data sets. So the FDIC study Impella had numerically the.

Same vascular complications as intra aortic balloon pump and both had zero percent damage the Arctic valve and so thats in an F. day audited data set so we start with the trading what we've also demonstrated and continue to publish is from the original protect two to now we've been further able to reduce bleeding and.

If you if you look at protect to the initial bleeding rates in balloon pumps studies has been 4% to 14%, whether its elective or high risk PCI.

And what's happened with the Impella is that in 2008, we started at 11% for protect too but by the end of the protect you study we were in the 7% range with this STEMI D to you recent study. So this is a population of patients that are having a heart attack and Theyre being rush, we had a 6%, but we really build.

Leave that on the elective cases with training and education, we can be at or below what the insurer to gloom pump was in their protect II study in 2008, so as we as we start to training go through Accessclosure different techniques and we have an online tutorial manual that on the interventional Cardiologists Society website called <unk>.

Hi.

We're now getting into looking at the risk of bleeding in that sense or the concern or fear of it versus the benefits of being able to do complete revascularization and we feel very confident that the results in education and training.

There is really going to end up with outcomes similar to the way to ever has brought down there bleeding outcomes. Our differences we have a nine French catheter and that 14, French motor head for the CP, whereas the TAVR is started at 21 is 14 French all the way through so we think we're going to get as good or better it gets a little more complicated when.

Patients go to the I see you and so that's the other that's the other part of our training, but in the end. We think we can train that fear away. We can educate that fairway and long term, we plan to innovate that away with the expandable sheath and the Impella Sep, but one final point on on the challenges of going through this is the benefit of in.

Pella is it's a unique one of a kind.

Technology, that's supported by our 600, plus patents and 600 plus patents pending.

We do have an exclusive and first of its kind indication for high risk PCI. So thats the benefit the negative is where the only ones truly creating the protected PCI market truly talking about the benefits of complete revascularization for for a population that probably half do not get to the cath lab today, whereas in shock its.

More intuitive and Theres, many farm and Medtech companies around both STEMI and cardiogenic shock, whereas protected PCI, we have to create a TAVR like market individually as as a single company.

No. It's very helpful. Thank you.

Thank you and our next question comes from Jason Bedford with Raymond James Your line is now.

Good morning, just a few quick questions here.

I wanted to ask about pricing and they bring it up just from the standpoint of it looked like usage growth of 14%, which was it was quite strong and I realize there's a comp issue here with fewer new hospitals added, but I'm just trying to put that 14% with what looks like about 8% U.S. impella growth.

Got it.

Hi, Jason This is Todd I'll I'll take that one so as I as I mentioned in my prepared remarks, the opening unless sites and we open up 73 fewer sites, which again impacted sales by about 3 million or 2% versus prior year. The other headwind that we had in the quarter was slightly lower re order rate versus prior year.

So in Q2 of 19, we had a reorder rate of about 103% in this quarter. It was still a healthy hundred 1% and where we have seen slightly lower reorder rate was really in the impella two five and that makes sense kind of given where we are transitioning to CP with smarter sits at some of these sites.

So again as an organization I mean, we're focused on you know that patient utilization number that 14% in the quarter again, which was about one point ahead of where we were last quarter.

Okay. That's helpful.

And then maybe a broader question has there been any change in the breadth of growth in the U.S. more specifically large versus small centers new versus more established centers and have you seen an impact from.

The broader sales distribution.

Jason what are the things we've seen is that we do have some.

Some centers that have big programs and they do they have high demand focus and they do they do a lot of everything so whether its high risk PCI or structural heart, they move back and forth and so for an example, after we had an expanded FDA label on high risk.

We did see a bit of a bolus of high risk PCI.

And to ever seen a little bit of a bolus last two quarters on on the anticipated approval and then approval of the low risk patients and what what we hear is of physicians want to capture kind of the bolus of patients in their community ahead of other hospitals that would also apply the mitral valve and watchman.

So what we need to do is identify whether they're bigger small.

We need to train a deeper bench of physicians that essentially prioritize and specialized in high risk PCI programs alone and they're out there.

So so for example, some other some of these other physicians that are in that bench. They want to get trained they want to get comfortable with the access in the closure and they're not necessarily going to be TAVR operators and their core skill set is really around.

PCIA and as we're identifying those were linking that to a current study we have called restore yep.

And that's a single arm.

Study, that's underway and is with expert PCIA physicians and what we want to do is it continue to validate these best practices in the real World and again show benefits of improvement in the ETF, which has been demonstrated in all of our FDIC studies.

It to our knowledge, if you look at stenting or angioplasty studies with the FDA you don't see a permanent improvement in each action fraction or these quality of life for these patients historically, you do see symptomatic relief relief of pain in the chest.

But with an impeller supported BPCI to be able to achieve an improvement in the f. gives that quality of life that these patients are looking for and it's why open heart surgery with cabbage has been the gold standard because you do established complete Revascularization is also see an improvement in the yes. So as we continue to.

Work with these restore F centers. These physicians that are utilizing the best practices, there almost an analogy or they're much like the NCS I investigators that are utilizing the best practices for cardiogenic shock and working continue to leverage the story of physicians to put out case studies.

In share their best practices for other physicians that want to get more hands on and more online training.

Okay. That's helpful. Michael keep it to two and jump back in the Q.

Thanks, Susan.

Thank you. Our next question comes from Chris Pasquale with Guggenheim. Your line is now open.

Thanks, Good morning, guys, Mike I'm curious whether you at this point you have any sense of the impact smartest is having on the business and if you look at the sites, where it's being introduced is it impacting utilization at those sites. It's a tool that I would think would lead to more ubiquitous use of impella sites that are adopting us I'm just curious if you're seeing.

In any of that.

So Chris there isn't impact so number one it is positive the ease of use is there.

The physicians.

Our are now has now get information on winning and the ice you nurses as well as the heart failure community in the eyes, you get to really understand what's happening to patient and that's that's a positive we do see a somewhat of an increase in utilization with it.

It's too soon to tell if it's sustainable but part of it is is when they get a new technology. They were there we're going to our top sites first of the already some of our bigger growers now there is a downside to it which is maybe that it does require allied of time and energy and coordination because we've got to take the console is back.

We've got to train the tax we've got to train. The IC you. It is a bit of a distraction and.

It's worth it because we believe we're going to get better outcomes and more adoption, but it has been a bit of a prioritization that we have to manage as as a company and then the second component on the complexity is this hub and spoke network that we continue to try to maintain and leverage. So for example, if.

Patients are out in the spoke hospitals and the patients then sent to.

The hub, we have to make sure that both sites have the new smart assist the new consoles and are trained appropriately. So that's been a bit of a bit of a challenge for us, but that's also why the new heads to.

More management in the field and what I'd call Rightsizing, our distribution allows us to kind of anticipate that manage it a little better.

Thanks, that's helpful and.

And then just to two updates on the clinical pipeline front, if you could give us a any update on where the stemming trial stands how thats going if you think the original timeline there is still reasonable and just curious sep has been.

So just over the horizon for a while now when you think you'll get into first demand there. Thank you.

Sure. So two things we anticipate our first in man STEMI patients what I would say is this month.

In the next probably three weeks, we've had a lot of great progress. We've got a good executive committee of physicians, there just tremendous excitement and we will give further updates on that in the future.

That would be one of the subjects of our upcoming Investor day that we'll have a likely in April may, which we'll announce that in the future and on Sep, we feel confident we're making good progress there and we expect to have our first demand by the end of our fiscal year in the March timeframe.

To reiterate that is a game changing product because it's a nine French all the way through and is ideal for high risk PCI and as all of you have surveyed many times. Many customers you know that people are a little intimidated with the larger motorhead, even though the impella has a nine French catheter, but when you talk to physicians about a nine.

French all the way through pump.

You will hear immediate positive responses.

Talk about adoption and really that's the that's the second half of the market that will get too as well.

Thanks.

Thank you. Our next question comes from Danielle Antalffy SVB Leerink. Your line is note.

Hi, good afternoon, I'm sorry, good morning.

Thanks, Thanks for taking my question I'm like just wanted to follow up on the smartest contribution and just curious how we should be thinking about that is when you look at our models going forward I mean, it sounds like that will be.

Growing contributor I assume that when it then in the service other revenue now included Impella. So just trying to think about how to think of those two separate lines as we as we go forward.

Sure denote smartest this is not being charged for.

Our inherited belief is it will allow us to get better outcomes that will make the management of the patient easier and that will help us drive more adoption clinically why it's so important is because when a patient is on smart assessed we're able to look at the pressure in their left ventricle, we're able to understand.

And in the future potentially predict some right heart failure. So we're going to integrate some of those algorithms and essentially it gives the physicians for the first time real time information about managing a patient so.

Although we're not in the majority of all their sites, yet we think thats as as that rolls out. It has an overall positive impact, but there is some hick ups and there is some challenges with.

Rolling this out why we're focusing on growth, but we're going to continue to try to take big chunks out of it each quarter understood. Okay. So so it's not actually you're not generating revenue from that that's helpful. And then one we've really quick question will actually might not be so quick but just curious how the conversations you're having with is sort of next leaves and adopters.

That are skeptical about the data how how is that conversation going how much do you need to show them to tip bring them over the fence and get them to be a believers that a matter of just like hey, well hold your hand, while you try this and getting them comfortable with it the device itself and that gets that mark.

That's a date I can you talk a little bit about how those dynamics are working as you approach. These sort of the snack sleeve of physicians I've been using it but not as much as they cut or shed. Thanks. So much.

Sure. So I think the first part of the conversation talks about the patient population that's in the Cath lab today and how they could potentially do a better procedure and the second part of the conversation is the patients that are out there that they don't get that they could potentially treat in the cath lab, the surgical turndown patient self.

For the first part about the quality metrics and how they can improve as we put some information out in collaboration with some of the different groups and research firms that better that shows some of these areas improvement. So for example for all of FPI for patients they get triple vessel disease only 55%.

Yet complete revascularization that means 45% of the patients get in complete Revascularization and if you get in complete Revascularization you actually don't get the benefit of the PCI you likely won't see an improvement in their F and with complete Revascularization and this is published and well accepted admitted analysis you see a third.

To 50% reduction in mace in the protect too with Dr. PAMA, we recently.

Published and released the data showing exactly that that if you got complete Revascularization you had a much better outcome.

That rather than the control arm. So thats the number one goal of doing high risk PCI. The second is about 14% of patients in the U.S. are staged and some of them are staged for the right reasons some of them, though they're staging and because they are worried about either too much contrast, or that pace and stability on the cath lab table and unfortunately many of this.

Page patients don't come back for a second procedure. So the goal of restore E. F of R. Chop physicians utilizing the best practices is there really focus now on doing complete revascularization in a single settings.

Now you have the real concern about acute kidney injury, which is a significant problem for PCI tavern, and cabbage and it's about 7% to 10% of all these patients or for PC get 8-K, but for the high risk PCI population is around 50%. So we've got very compelling in for.

Emission and data and as a sub study in their protect three data further demonstrating the ability of impella to reduce AK I for these patients and then last we talk about and this is clearly demonstrated that protect to study is the quality metric of Readmissions and in all PCIA cases, you will see you will see.

Anywhere from 12% readmission rate for PCIA at 30 days and up to 25% at six months. So there's there's tremendous room for improvement for high risk PCI and so what we're trying to do with physicians is look at their benchmark data at their centers and look at ways that we can improve that and on the second population.

That's out there there's a tremendous number of patients that have advanced coronary disease. There was an article or a publication and Jammie yesterday and there was an article in the Wall Street Journal demonstrating that for the first time. They are acknowledging that from 2011 into 2017, there's an increase in heart failure. There is an increase in mortality in heart failure and there is.

An increase in mortality in hard for people that are aged 45 to 65. So this is that means the curve is now sloping back up and heart failure remains the number one killer and if we're going to treat these patients. We believe you treat and by doing complete revascularization with protected PCI or you try to keep them alive and Rick.

Cover their heart muscle if they're in cardiogenic shock and in the case of heart failure with tools like the Impella five five or the study like this STEMI. We think we can prevent people from going into heart failure in the future.

So thats the just to the conversation. Thank you so much.

Thank you and our next question comes from Margaret Kessler with William Blair. Your line is an open.

Hey, good morning, guys. Thanks for taking my question.

Yes.

The first one for me and it's kind of got to too.

Got two pieces to it at first it sounds like you're really identifying the needs of the market for protected PCI and you're trying to address them.

So granted it might take a little bit at time to those investments come to fruition. So that maybe the first question is does guidance assume that hurts PC AD growth improvements here in Canada re return to that double digit growth and then second from an operational level and how are you incentivizing the already the organization to double down on trading for that.

Category of Doc adds that you mentioned.

When it seems like shock is actually Reaccelerating pretty nicely right now does that group maybe required more time or is it just education and training dollars on your part thanks.

But the the inherent belief about the growth returning in high risk PCI is purely based on the clinical need and the massive population.

There is it theres at least a 121000 high risk PCI patients today that havent opportunities to get better care get treated with the Cath lab with Impella.

In the indication itself for high risk PCI is a first of its kind and it also is based on our FDA approval and our technology is the only FDA approved device for high risk PCI.

And then Theres, an additional 300000 plus patients that are either turned down for surgery or don't want to have surgery and can get a benefit of protected PCI. So those numbers are very large and if you look at any data sets or you talked any physicians. There is general acceptance that coronary artery disease is still the number one killer even in cash.

Theres papers, demonstrating that if you do it if you do TAVR on a patient that but if you leave.

Scheme disease or blocked coronary arteries, you also have a higher mortality at one year versus if you treat that patient and you treat them to get complete Revascularization and then the second component is.

Just going through and looking at the quality metrics of Readmissions, what's unique about that protect II study was that's the first time, we looked at outcomes at 90 days and not a discharge and these physicians want better outcomes for their patients the referring physicians want better outcomes and so looking at the success rate of getting off the table is really not the end.

Goal. The end goal is at 90 days later that patients home and feeling better after having a minimally invasive procedure to to address their heart failure symptoms. So I think organizationally that those are the things were going to lead with the training data in time, and then from a in incentive or program or access that next wave we artist.

Wrapping up our training and education will be doing more online and we'll be doing more tutorials and proctoring in the future at sites at that have dedicated programs.

Okay, Great and then in terms of the expandable sheet can you guys give us an update on timing in the regulatory process on that that and then when that does launch is going to take a little bit of time to train folks here pretty straightforward. Thanks guys.

We've done.

We've done 16 patients outside the U.S., we're working on that timeline right now but to remind everyone. It's a 510 k. So the regulatory process is a lot shorter and it's it's going to be utilized with the already have FDA PMA approved device and we're planning to bring into the market in the optimal timeframe to ensure that.

We get great outcomes.

Thanks, guys.

Thank you and our next question comes from David Lewis with Morgan Stanley . Your line is now open.

Hi, Good morning, just two for me.

Mike I appreciate the U.S. revenue growth was slower than patient growth and I know I. Appreciate your commentary around the drivers there, but you're going to follow up on the commentary about lower reorder rate can you kind of walk through in the U.S. What are some of those factors that are impacting lower out reorder rate and then I had a quick product follow up.

Yes, David This is Todd. Thanks, a question I think when it's all said and done if I look at the products in the order reorder rate by products I mean, the one that jumps out as really the two five and that's slightly above or below a 100% as we as we stand here today and again the big driver that is just one we're rolling out smartassist.

At some of these sites I mean, they're just they're waiting to see piece of it just a much better pump. So we're seeing a little bit of a lower reorder rate on the two five again, it's still a healthy.

Overall over 100% so some of its just a little bit of timing at this point in time.

But you're comfortable the level of inventory that's in the U.S. channel right now.

Yes, Okay, and then Mike.

Most TCT and frankly for the last six months, you've been very focused on.

Reducing barriers to access and reducing bleeding and thanks for the CP update you've also talked continuously about the expandable sheath.

I thought that was a project comes out before the CP what does the timeline for getting the expanded will shift into the U.S. market. Thanks, so much.

So David the expandable sheath is a 510 k. we've done we've done 16 patients I'm not I havent given the exact time, it's going to be as soon as possible and it will be out before the CP in the U.S. and it'll be first in Europe , and then we will come to the states, it's likely not as challenging.

For the Impella 2.5.

We just want to make sure we get it right for the Impella CP, because we want people have the option also to close.

The CP at a nine French with nine French device. So that's our goal. That's we're working on and we feel relatively confident that that will be on the market as soon as possible.

Next year is this fiscal 2000 possibility for the you asked for that product. Yeah. The goal is to have something in Europe next year for sure and the goal is to have a portion of a limited rollout limited release in the end of next fiscal year.

Thank you and our next question comes from Matthew O'brien with Piper Jaffray. Your line is note.

Thanks for taking my questions.

The corner I think was pretty good versus I think some people we're thinking about.

Welcome by investors, but it does it is kind of his deep back half ramp sequentially.

So I would love it if you could just deconstruct the little bit.

Might be met with a little bit of skepticism just because it is so big sequentially. The last time you did this kind of sequential growth in the back half of the year was coming off of the national.

Hi registry out at TCT, and the called call to action, So you're seeing about $20 million sequential increase.

Q4, just for easy math and Thats, what we saw Bakken.

Fiscal 18, so how does how do people get comfort that youre going to be able to deliver that type of performances and protect three is by five RP getting better.

At the same time as you're still building out the salesforce and and in that group.

So thanks, Matt. Good question. This is Todd ill jump in so again a range does imply some improvement in the second half of the year and first we have I would say that normal seasonality, where we've done typically 54, 55% of the year in the second half and then as we mentioned on the call we have some new product launches and invest.

Just to mention is we do have some easier comps I mean last year in the first half we grew 37% in the second half it was 24% and really the comps get easier in the in the fourth quarter. So I think it's a combination of all those things where we firmly believe that.

Why we guided towards you'll maintain the 15% to 20%, but guided towards the low end of the range.

Okay. Okay and then the follow up question would be just in Japan, you know you've got the first thousand patients treated with Impella.

I love to hear in just a little bit about results there were really good.

The performance in Japan has been really good but what can that due to do for you to just continue to see really strong performance out of Japan for the next maybe couple of years.

Thanks for the question, Matt we've been very.

Our focus around recovering hearts and saving lives. So as we've rolled out and really focused on the training and the execution and utilizing the best practices from NCS I and in Europe .

With this with the CP now being launched we really have the ability to transform.

The focus.

In Japan, the insurance balloon pump is also a class three indication, which means it's harmful and not recommended to be used so they've already implemented and analyze the data that's out there for the last 40 years and so they are moving forward with Impella and we're very pleased and what it means is that the second largest market and medtech in the world.

We will become our second largest medtech market.

And we'll likely also help us drive more success throughout Asia. So.

I do I'm really proud of what that team has done we've got some great champions with the physicians, there and we expect to see.

A plethora clinical publications and further validation of heart recovery.

Got it thank you.

Thanks, Matt.

Thank you I'm not showing any further questions at this time I would now like turn the call back over Michael Minogue for any closing remarks.

Great. Thanks, everyone for your time today will be available to talk but just to close out we feel.

Good about the positive new clinical data, our new innovation, our progress on the U.S. distribution, our global growth in shock as well as our growth in Europe , and Japan will continue to focus on adapting and executing and we preach appreciate your support upgrades.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.