Abiomed Q2 2022 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter 2022 Abiomed Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Nicole Nath, Manager of Investor Relations. Please go ahead.

[Nicole Nath, Manager of Investor Relations at Abiomed]

Good morning, and welcome to Abiomed's Second 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: First, Mike will discuss second quarter business and operational highlights, and then Todd will review our financial results, which were outlined in this morning's press release. After that, we will open 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. Reconciliations between GAAP and non-GAAP results are presented in the tables accompanying our earnings release.

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-K 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 Minogue.

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Thanks, Nicole. Good morning, everyone. During the second quarter, we made progress on advancing our innovation, expanding clinical evidence and leveraging our premier commercial field team in a challenging environment with COVID and hospital staffing shortages. In Q2, Abiomed delivered $248 million of revenue, up 18% year-over-year, driven by 16% growth in the U.S. and record revenues in Europe and Japan, up 24% and 19%, respectively. The growth was driven by higher patient utilization and continued strength in our U.S. surgical business. We believe Delta and hospital labor shortages had regional impacts beginning in August and continuing into September. As a result, only 75% of our U.S. regions grew year-over-year. For the 25% of the regions negatively impacted, we believe, based on prior experience, we will see recovery in those regions in the future. In Q2, the shortage of hospital staff, especially nursing, was a new dynamic that we had not experienced during the COVID pandemic.

As a result, the Q2 revenue missed our internal July expectations. Overall, hospitals today are managing the treatment of the pandemic better, but Impella usage in the cath lab is still impacted by ICU capacity limitations. Hospital staffing shortages in the U.S. caused some health systems to reduce cardiac procedures or temporarily close facilities. Despite these headwinds faced within the quarter, the majority of U.S. regions remained resilient and recorded growth. In Q2, we adapted within the quarter, by leveraging our Abiomed 2.0 playbook, which included monitoring specific trends on new COVID cases and hospital ICU capacity. This gave us the ability to adapt quickly to support high-risk or emergent patients, assist in patient transfer from spoke to hub, or support the ICU and patient with an Abiomed representative bedside or on the phone with Impella Connect.

Operationally, we achieved a 24% operating margin while investing a record level of $41 million in research and development to continue to advance our pipeline of life-saving devices. Our balance sheet remains robust with $862 million in cash and 0 debt, and our patent portfolio continues to gain strength with 1,297 patents and over 1,100 patents pending. We believe Abiomed has one of the strongest IP portfolios in the medical device industry, and we will add to it as we continue to innovate. On today's call, I will highlight advances in innovation, progress on regulatory approvals, and how Abiomed's premier field team is providing heart hospital teams breakthrough technology, landmark clinical studies and 24/7 support during a challenging time. At Abiomed, leading in technology and innovation is one of our four principles. During the quarter, we celebrated the twoi-year anniversary of the FDA PMA approval for the Impella 5.5 with SmartAssist. This is our minimally invasive forward flow, fully unloading heart pump designed for heart surgeons with direct or axillary implantation in less than 60 minutes. This game-changing technology has enabled minimally invasive implantation with ambulation for more than 3,000 patients in the U.S. and has achieved greater than a 70% survival in a very sick, cardiogenic shock patient population.

As a result, in Q2, U.S. Surgical revenue grew 60% year-over-year. Today, Impella 5.5 is in 27% of U.S. heart hospitals or 306 of the 1,113 hospitals. Furthermore, we are eager to bring this technology to Japan, and have already applied for PMDA approval. We believe the Japanese market is ideal for Impella 5.5 given its ability to provide minimally invasive, longer-term, unloading support, enabling native heart recovery in a country culturally averse to heart transplants and invasive sternotomies. We expect to receive Japanese PMDA approval for Impella 5.5 by this April 2022. In Q2, we also expanded our Abiomed Breethe OXY-1 System to a total of seven U.S. sites and have treated 53 patients, which concludes Phase II of our pilot site product launch. The clinical feedback, primarily from heart surgeons on this compact cardiopulmonary bypass system, has been positive based on the ease of use with a simple, intuitive interface and the light portable design allowing for patient ambulation. We will continue introducing this device at a measured pace and bring our disciplined approach to clinical data and innovation to the ECMO space. On the regulatory front, we achieved multiple milestones. First, we launched Impella RP with SmartAssist at four sites and treated patients within the quarter.

This smart pump is the next generation of our FDA-approved right heart device with a sensor and exclusive weaning capability. We also continue to make progress on the Impella RP with insertion through the internal jugular vein or IJ in the neck, as compared to the femoral vein in the leg. This is the preferred placement for heart surgeon -- heart surgeons and allows for early patient ambulation. We expect to file an Impella RP PMA supplement at the end of the fiscal year. Second, in August, the FDA granted breakthrough device designation to Impella ECP. This designation means the FDA will prioritize Impella's ECP regulatory review processes including design iterations, clinical study protocols and PMA application. To date, we have enrolled 26 patients in the pilot EFS study at four hospitals. Based on the interaction with the FDA, we believe the high-risk PCI pivotal study will require a single arm with up to 225 Impella ECP patients at approximately 30 sites. We expect to lock in these details this quarter and enroll our first pivotal ECP patient in March and April, around the same time as our first Impella BTR patient in our FDA early feasibility study.

Moving to my last highlight, Abiomed's premier commercial team has positioned us as the leading heart recovery company, validated with our breakthrough technology landmark clinical studies, and 24/7 clinical support. We are also actively engaging the referring community with our direct-to-patient initiative and hub-and-spoke model to bring awareness and treatment options to this underserved cardiac disease, high-risk patient population. Our Impella Connect remote monitoring and 24/7 support has been valuable to the healthcare providers during the COVID-19 resurgence and nurse labor shortages, because we assist with patient management as ICUs become strained. Impella Connect software is now live at more than 85% of our U.S. sites, allowing for the majority of our U.S. patients on support to be monitored in the cloud by the field, the call center or the customer. Outside of the U.S., our Impella Connect software is now live at 37% of our Japanese sites and 14% of our European sites. Today, no other company in this space offers this level of support and expertise. Before I share a patient story, I want to remind listeners that 15 million Americans live with cardiac disease and it is the number 1 cause of death in the U.S. with 875,000 deaths per year. Additionally, cardiovascular disease remains the leading cause of death in women. Now our Impella patient Frannie Argulis, 61, is a mother, grandmother and nursing supervisor from Henrico, Virginia. Earlier in the year, Frannie experienced jaw pain then collapsed at home.

Frannie's husband called 911 and the paramedics transported her to where she works at St. Mary's Hospital in Richmond, Virginia. The cardiologists remove blood clots in the cath lab and placed a stent in Frannie's right coronary artery. During the procedure, she went into cardiogenic shock and the cardiologists, Dr. Darren Appleton and Dr. Peter Rowe inserted the Impella CP with SmartAssist to support her left ventricle. While on support, SmartAssist technology triggered suction alarms, alerting physicians to check for right heart failure. Further testing confirmed right ventricular failure and the physicians inserted Impella RP to provide biventricular support. After one day, Frannie's left ventricle function improved and Impella CP was removed. seven days later, Impella RP was weaned and removed and three days later, Frannie returned home. Today, Frannie has normal heart function with an EF of 55% and is back to work as a nursing supervisor and living an active lifestyle with her grandchildren.

As a heart recovery patient, her insurer, Medical Mutual, will avoid paying for the most expensive and invasive lifetime procedures that come with LVADs and heart transplant. In conclusion, in Q2, we made progress on product innovation and regulatory milestones, while leveraging our commercial field team and the Abiomed 2.0 playbook in a challenging environment. Abiomed remains focused on disciplined execution and sustainable growth as we continue to pursue our goal of becoming the global standard of care to recover hearts and save lives. To our employees and customers, you are the best in the industry. Thank you for your dedication and commitment to putting patients first. And to our shareholders, thank you for your continued support.

I will now turn the call over to Todd.

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

Thanks, Mike, and good morning, everyone. In the quarter, we delivered revenue of $248 million, an increase of 18% versus prior year. Despite the challenges of the Delta variant and hospital labor shortages, we delivered double-digit growth across all geographies with record revenues in Europe and Japan. By region, the U.S. reported revenue of $200 million, up 16% versus prior year, driven by higher patient utilization and continued strength in our Surgical business. U.S. patient utilization increased 8% year-over-year, with growth in high-risk PCI and double-digit growth in cardiogenic shock. As Mike mentioned, we believe Delta and labor shortages had a more significant impact on patient utilization within the quarter, which caused us to miss our internal goal. We will continue to leverage our Abiomed 2.0 playbook to adapt in this environment and assist the hospital's ICUs. Our product penetration continues to drive adoption and revenue growth. As a reminder to investors, all of the following details on product installed base is summarized in our quarterly slide deck. In the U.S., at the end of September, the Impella 2.5 and CP have reached 1,549 sites.

The Impella 5.0 has been placed in 666 sites, and the Impella 5.5 with SmartAssist is now in 306 sites, up 49 sites versus prior quarter. The full market release of the Impella 5.5 with SmartAssist continues to perform well, with U.S. revenue growing 116% year-over-year. Finally, the Impella RP is in 634 sites. In the quarter, the reorder rate was 102%, slightly above prior year. Average combined inventory at the hospitals for the Impella 2.5 and CP was approximately 4.8 units per site, slightly above the inventory levels we saw last quarter. We continue to see a favorable impact on revenue from sales mix in the U.S., resulting in about four points of growth. Outside the U.S., we delivered record revenue of $48 million, up 27% year-over-year. Our European revenue increased 28% to $33 million versus prior year, driven by higher patient utilization, sales mix and timing of orders. However, Germany was slightly impacted by extended physician vacations, combined with nursing shortages in select areas. Despite these headwinds, our European business delivered record revenue in our second quarter. In Japan, we also delivered a record revenue quarter of $12 million, up 19% year-over-year. Impella utilization remained strong, up 33% versus prior year despite headwinds from a COVID resurgence in the Summer Olympics.

Within the quarter, we opened nine new sites, bringing our total sites to 180 out of a potential 350 hospitals. Moving to key financial metrics. Gross margin was 82.3% in the quarter compared to 81.5% in the prior year. The year-over-year variance was driven by sales mix and higher production volumes. In the second quarter, R&D expense totaled $41 million, an increase of 34% versus prior year. Year-over-year growth was driven by investments in small board devices like Impella ECP and XR Sheath. Future heart failure technologies such as preCARDIA and Impella BTR and STEMI DTU and PROTECT IV randomized controlled trials. SG&A expense for the second quarter totaled $103 million, up 30% versus prior year, driven by investments in our direct-to-patient initiative, customer training and additions to our premier distribution team. In the quarter, non-GAAP operating income was $60 million, down 1% versus prior year, translating to an operating margin of 24.4%. This reflects growth investments tied to our continued focus on extending our lead with innovation, advancing clinical evidence and further enhancing our distribution team. Non-GAAP net income for the quarter was $47 million or $1.03 per diluted share versus $46 million or $1.01 in Q2 of '21. The year-over-year improvement was driven by higher interest income and a lower effective tax rate.

We had another solid quarter on cash, as we generated $61 million of operating cash flow. Our balance sheet is robust as we ended the quarter with $862 million of cash in marketable securities. Now turning to our outlook. With the impact of the pandemic and new challenges with hospital staffing shortages, uncertain conditions remain. In order to provide full transparency to our investors, we want to give insight on our revenue expectations for the second half of the year. The Delta variant and hospital labor shortages in the U.S. impacted August, September and continues to put pressure on Impella procedural volumes in October. Abiomed started the fiscal year with a range of $990 million to $1.03 billion with growth of 17% to 22% versus the prior year. After a record Q1 and a solid July, we upgraded our guidance to $1.03 billion to $1.05 billion, with growth of 22% to 24%. Given our current visibility to October, which appears to be trending towards approximately high single-digit revenue growth year-over-year, we expect Q3 global revenue to be slightly up from Q2. This assumes some improvement in Delta rates and hospital staffing in November and December.

We now expect fiscal year '22 revenue to be in the range of $1.01 billion to $1.03 billion, an increase of 19% to 22% versus prior year and slightly above our original fiscal year '22 guidance. We expect non-GAAP operating margin to be in the range of 24% to 25%. In summary, while we navigate through the uncertainties, we remain focused on investing in innovation and clinical research and operational execution to achieve our fiscal year '22 goals. We remain confident in the long-term outlook for Abiomed as we continue to improve outcomes, recover hearts and save lives.

Operator, please now open the line for questions.

Questions and Answers

[Operator]

And our first question comes from Anthony Petrone from Jefferies. Your line is open.

[Anthony Petrone, Analyst at Jefferies Financial Group]

Thanks and good morning everyone. I have a couple of questions. The first will be just on shortages and guidance, and we're hearing this on a couple of calls this quarter. And just wondering for Impella sites specifically how pervasive nursing shortages are in the ICUs, again, at the Impella sites? And then when you look at the 3Q shortfall and the $20 million downward revision of guidance, is there a way to maybe splice between the Delta headwinds in 3Q and into the next couple of quarters? What's allocated toward Delta and what's allocated toward nursing shortages? And we'll have a couple of follow-ups on the pipeline. Thanks.

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Anthony, thanks for the call. It's a good question. It's something that we track. As we said in the call here, 75% of our U.S. sites grew. So we have a playbook to adapt to Delta. What was new is a little bit of the shortages of staffing. So the procedures want to be done. The physicians are engaged, but they don't have the surgical techs or the cath lab techs or ICU capacity that limits use. So that impacted about 25%. If we look at our -- just the same metric for cardiogenic shock, 83% of our regions grew. So we're a little more resilient and that plays to our ability to be relevant and help the patients and also help the ICU and the nurses there with training, with support, with online CMEs and anything else that we can do bedside. If I think about the next part of the year, I think we've got the Delta variant somewhat managed as the hospitals know how to do this better.

They're just assuming they're going to continue to have beds allocated for Delta. And don't forget that we treat some of those most severe sick Delta patients with our emergency use authorization for the RP or ECMO, V-V ECMO, which is the majority of our Breethe patients or ECpella. So we're still there providing support. On the shortages, I think what's going to happen is it's going to be incremental. They're going to continue to prioritize the sickest of the sick patients, which is some of -- or most of our patients. And I think the hospitals are resilient, but they're going to need help. And that's where the Abiomed field team, Impella Connect, IQ database, and the training as well as the networking between the hub and spoke and transfer will be helpful.

[Anthony Petrone, Analyst at Jefferies Financial Group]

A quick follow-up there, Mike, would be if you have -- using your crystal ball and what you guys see, I mean how deep into 2022 do you think the nursing shortage issue will last? And what do you think the fix will be? And just quickly on the pipeline, any expectations just for timing on the launch of XR Sheath on CP specifically into calendar '22 and what should we be watching for into next year for the transition of ECP from early feasibility to the pivotal study?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Sure, Anthony. So remember, the -- it's the Delta variant with ICU capacity and the nursing shortages. So that's currently impacting less than 20% of our hospitals and we do think that comes back, and we have seen that come back. So I think as time goes on, that will get minimized. I also think it's an opportunity for Abiomed, because of our field team, our clinical expertise, our bedside support, call center and Impella Connect, that we can help augment what they're doing and assist them in that shortage. And I think it's going to get better. And I think hospitals are more resilient now. So we see this as something that will allow us to continue to grow, and we're well positioned as they continue to train new nurses and we'll probably part of that process.

On the XR Sheath, nothing has changed relative to our prior. As you heard on the call, we have a list of new products and new approvals. So we're trying to prioritize for the call here, what are the biggest ones or the most important ones and ones that are happening in the next six months. So ECP is a great progress.

I think it's ahead of schedule from everything we've been stating. We announced today that we expect to have the 5.5 approved in Japan by April, which is -- hadn't been commented on. And I think the 5.5 is going to be a breakthrough product in Japan, because of the culture there and the aversion to sternotomies and heart transplant. The BTR pump is there's -- it's a minimally invasive dischargeable LVAD. There's nothing like it in the world. It's what physicians and surgeons have wanted for 10 years. And we expect to be doing patients first in man here in the U.S. through the early feasibility in March and April. We haven't commented about the PreCARDIA, but that continues with the EFS, and we're looking forward to going to Phase III on the ECMO.

So with all of that technology, we have to continue to execute, control what we control. And it just points to the fact that we are the leaders now for the heart team. Essentially, every single heart team out there is working with Abiomed on a product, in the cath lab, the surgical suite or the ICU or in the cloud. And we have the landmark clinical studies to back up the data as well. So we're excited for that. And I think we're going to continue to see more momentum. And whatever happens in the future, we'll be well positioned and will support our hospitals.

[Anthony Petrone, Analyst at Jefferies Financial Group]

Thanks, again.

[Operator]

Thank you. Our next question comes from Margaret Kaczor from William Blair. Your line is open.

[Margaret Kaczor, Analyst at William Blair]

Hey good morning everyone. Thanks for taking the questions. I was hoping to go first into a little bit more detail on how October looks. It sounded like things maybe were improving, and then based on the Q3 comments, you're sort of expecting something similar for the full quarter, but not necessarily improving from what you guys are seeing in October. So is that the right read? Or there's some comps that we're maybe not anticipating? And then what does that imply for the implied fiscal fourth quarter outlook with kind of those similar dynamics that you referenced?

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

So Margaret, this is Todd. Thanks for the question. I think it was -- your read is right. I mean we -- in my prepared remarks, we said that October was up mid-single digits from a growth perspective. Obviously, for us to be slightly up from Q2 into Q3, we're somewhere in that 7%, 8% top line growth. So we do expect to see it improve a little bit from October as we get into November and December, and that's what we're hearing from our field team. We think some of the headwinds from Delta sort of subside over the next two months, but that's the expectation as we get into Q3. And as I look at Q4, when we look at the low end of the range, I think we assume that as the business continues to recover, and we see a modest or gradual lift from Q3 to Q4. Again, as Delta cases improve and hospitals are able to manage -- I'd say, manage better their labor shortages, which are reducing some of the limitations on the ICU capacity. So I think your read is right. And again, we're just trying to be as transparent and provide investors with what we're seeing so far in the month of October.

[Margaret Kaczor, Analyst at William Blair]

Okay. Now that's useful. And then just as a follow-up, I wanted to talk a little bit about 5.5 launching in Japan and then the Breethe launches as well, because that does seem to be moving nicely. So any, I guess, first on Breethe any additional details on the rollout so far, any surprises or something that potentially could accelerate that launch. And then in Japan for that 5.5, could it be as material there as it is in the U.S., both from a pricing and demand perspective?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Thanks, Margaret. Those are the questions that our engineering and clinical team are both working on. So starting with Breethe, we have been tracking all the patients. The ECMO space is interesting, because it does not require any clinical data. It's a 510(k) clearance only. And so we are approaching that space as a PMA company. We're looking and collecting the data as a PMA company. We're looking for best practices. What we recently did in Europe is we did our first patient under an ECpella software, where we're combining the software so you can optimize and the systems talk to each other and you can wean that patient, and know what's happening as you unload the heart and also perfuse and oxygenate the body. So there's some really amazing things that we're going to be able to do currently and also some things we're going to do in the future with AI.

Also, what we're starting to work on, we've done our first patient where we have Impella Connect running from a helicopter and a lot of ambulances are starting to connect with WiFi. So we're putting Impella Connect on the ECMO device. So whether you're ECMO only Impella or ECpella, we'll be able to transmit that data into the cloud. And whether the person is being -- is at a hospital or being transferred on an ambulance or in a helicopter, that will be an exclusive feature. And we're excited to bring all this innovation and knowledge and clinical expertise to that space. For the 5.5, it's just -- it is a breakthrough product. I mean you have the ability to have a full VAD. So I've been in this space 18 years. And what the heart surgeons always wanted was a minimally invasive weanable VAD. And with the Impella, you get that. And the fact that it's forward flow means that as the pump is working, it's resting the heart. But as you want to reload the heart, as you turn it down, it allows the heart to naturally start to pump with sensors on the device that we can see how the heart is recovering. And it's really revolutionary, because it's -- all the other VADs and ECMO devices are essentially dumb devices. You put them in and you really don't have any way of knowing how the heart is doing.

And what's most important for these patients is you get survival with native heart recovery, because survival is the low bar. And even if you survive, many of these papers don't even give heart recovery numbers and these patients end up in hospice care or maybe even those that are lucky, they can get a transplant. So the amount of information we're doing around recovery will be accelerated in Japan where they believe in stem cell. They've been -- they've had advanced publications in science of hemodynamic unloading and pressure volume loops. And we think it will be material, be a revolutionary treatment and it will be in a country that really focuses on heart recovery more than anything else, and we're super excited to bring that product to Japan.

[Margaret Kaczor, Analyst at William Blair]

Great. Thanks guys.

[Operator]

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

[Chris Pasquale, Analyst at Guggenheim]

Thanks. Good morning guys. Mike, if I look back at the good old days, before we had all this macro volatility, your second quarter tends to be about flat sequentially, plus or minus a couple of million dollars. So I'm a little surprised to hear that this quarter's result was significantly below what you were thinking. Can you break down the $20 million guidance reduction between this quarter's shortfall as you saw it and how much you're taking out of the back half of the year?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Sure, Chris. And you're right. That is something we look at. And if you're looking at the numbers on the guidance, our normal 47%-53% puts us at a higher range. If you look at our guidance, we're essentially back to where we started the fiscal year, but we've lowered -- or we've increased the lower end of the range. So we started the fiscal year with 17% to 22%. We upgraded it to 22% to 24% after Q1, which was incredibly strong. And we had great momentum. We -- the playbook was working. We hadn't yet seen a little bit of the August impact, starting with maybe some extended vacations, Delta ramp and then also shortages that are out there in staff. So I think what happened is in July, it hit in August.

August was a little bit down and that carried into September. You're also right that we usually do see the summer quarter dip a little bit. Usually, that dip is in patients, where we go a little down or flat. But we tend to open more centers, do more training. And we do have a lot of new products that we're opening in -- that we've already mentioned. So that's where we expected to see a higher number than we achieved. It is the third highest quarter we've ever done in revenue and patients, but we thought we were going to do better. And I think what we're trying to give you transparency to is that the model of the 47% to 53% is just probably not going to be a perfect model this year, because of not just COVID, but some of the shortages. But as we're working through the shortages and as I think the hospitals are responding, I think we're going to end up getting back to where we were in the good old days and have just an incredible strong second half of the fiscal year.

[Chris Pasquale, Analyst at Guggenheim]

Okay. That's helpful. And then you mentioned that Impella is used to actually treat some of these COVID patients. It would be helpful to understand a little better how material a factor that is particularly in a quarter like this where we saw a surge in COVID cases. Can you quantify at all how much do you think that contributed in the second quarter?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Chris, we track every patient and all the trends. Unfortunately, the patients that we treat are really sick. So that's bad for the patient and the hospital, but what that does is that starts to take the beds and an extended stay will take out a lot of our Protected PCI patient availability. And that's where the hub and spoke and moving patients around is helpful. So if something happens in the spoke hospital, we might help with getting that patient transferred to a bigger hub hospital. What we also saw, when we track small, medium and large hospitals, is the trend in September was the medium hospitals tended to be more impacted. And while we saw the growth happen year-over-year and especially in shock, those medium-sized users of ours were impacted a little more. Maybe they weren't as resilient with their protocols or maybe they were more impacted by the nursing shortages or the facilities were minimized, but I think as we look at the total picture, the cardiogenic shock patients, whether they have COVID or not, that's what's happening.

And when you think of myocarditis shock or COVID, you're talking about problems with the lungs, the heart and the kidneys, and that's what our products are designed to do, and that's what our products are FDA approved for. So we continue to look at this as just a broader heart failure population and specifically to COVID, you've seen the majority of these patients getting ECMO where they do V-V ECMO, where it's pure oxygenation, not necessarily heart support. But that's a great question.

[Chris Pasquale, Analyst at Guggenheim]

Okay. So I guess what I'm hearing is maybe at the margin that's offsetting some of the lost volume that's being squeezed out by the capacity constraints, but net-net, it's still a headwind overall?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Correct.

[Chris Pasquale, Analyst at Guggenheim]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Matthew O'Brien from Piper Sandler. Your line is open.

[Matthew O'Brien, Analyst at Piper Sandler Companies]

Good morning. Thanks for taking the questions. Sorry to keep going on the guidance side of things. But I wanted to tease out this $20 million reduction from Q1 to Q2. I think you had said last quarter, the bottom end of the range is what you expected, if COVID was uneven, so that's about $10 million of the $20 million. I'm sure COVID is probably a little bit worse than you expected here in the quarter and likely for the rest of the year. So it seems like the $20 million reduction, maybe, I don't know, $12 million of that is COVID related, maybe somewhere in the $5 million to $10 million range is staffing shortage related for the back half of the year. So is that a reasonable assessment of what's kind of going on here? And then with this kind of $5 million to $10 million for half of the year impact from a shortage perspective, are hospitals able to adjust here heading into fiscal '23 to offset what's a $10 million to $20 million headwind on the staffing shortage side? I'm sorry for the long question.

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

Yes, Matt, let me -- there's a lot of questions. So let me just kind of walk you through again the rationale and I tried to lay it out during the script with regard to the earnings. But again, as you said here and we got through our first quarter, right? Our first quarter was a record quarter for Abiomed on both revenue as well as patients, right? And then we got into July, and we had, I would say, a really solid July, both from a normal seasonality perspective, and expectations on both revenue and patients. And so if you just look at our annualized, our Q1 performance, at that time, you get to over $1.01 billion. And then as Mike mentioned, right, we typically have normal seasonality, right? So it's typically 47% first half, 53% second half, and that came into our process. So after the first four months, of the year, we felt actually really good about the revised range of $1.03 to $1.05 at that time. And then the Delta surge impacted us in the month of August. And it really hit some of our larger markets, i.e., Florida and Texas as well as some of the other regions in the Southeast. And then what was new for us in August was this dynamic of hospital labor shortages.

And so we did not encounter that headwind in the previous pandemic -- in a previous pandemic. And so I think the labor shortages are temporary, but they have been putting more pressure on procedural volumes across the U.S. And I think these two headwinds, as I mentioned, really impacted August and September performance and caused us to miss our internal forecast by, I'd say, that $5 million to $7 million range. With that said, we did still deliver 18% growth versus prior year. And as a reminder, we did have positive growth in Q2 quarter of last year. So I think it was -- we thought it was prudent to really update our guidance at this point of time to $1.01 billion to $1.03 billion, which again was slightly above our initial guidance. And again, all we're trying to do is be as transparent with you as we can during these uneven times.

[Matthew O'Brien, Analyst at Piper Sandler Companies]

Okay. And then, Mike, on the pipeline side of things, with all these headwinds on the COVID side and staffing shortages, is there any potential impact to being able to enroll studies or get anything done as far as the pipeline goes? And then on ECP, is that something you're talking about 225 patients. Is that something you can enroll in 12 to 18 months? Or is it going to take a little bit longer than that?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

So Matt, great questions, a lot of questions. Let me start with our customers and our trialists are totally passionate and committed to these studies. And while other companies are not doing studies or put them on pause, we have multiple RCTs and post-approval studies running. So we did do 18 patients on PROTECT IV. We now have -- I'm going to give you up-to-date numbers. We have 24 randomized patients in P4. We have 28 in the registry for that protocol, and we have 18 sites that are fully enrolling up and running. So that's pretty impressive in the quarter with everything we just went through on Delta and shortages. On STEMI, we are -- we did it over 10 patients in the quarter. We have 36 sites that are enrolling, and we're at 99 patients. We're going to have a 100-patient recognition here, and that continues to move. So we're excited about that. The last component of your question, I believe, was the ECP. And we are going to make it a priority. We're going to -- with the sites that are there.

We're going to have them enroll and the fact that we'll have a nine French device, means the peripheral vascular disease and many of these other things that might cause certain challenges, it will cast a wide net and we're going to ask the centers that are in that study to prioritize and to go efficiently, but there is tremendous demand and excitement for that product as well. So the one thing, regardless of what's happening, our job is to continue to adapt and execute. We have taken advantage of the internal things we can control whether it's innovation or the clinical research, and we feel that nothing stops innovation. So as we continue to innovate and improve outcomes for patients, we're incredibly confident in the time lines that are out there for new products in these clinical studies.

[Matthew O'Brien, Analyst at Piper Sandler Companies]

Great. Thank you.

[Operator]

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

[Danielle Antalffy, Analyst at SVB Leerink]

Hi good morning everyone. Thanks so much for taking the question. Mike and Todd, with these hospital labor shortages, just giving it some thought. I mean I feel like now is the time more than ever that you guys are able to leverage Impella Connect and the capabilities there. And I'm just wondering if you're seeing any incremental traction or adoption. I know it's a net negative, COVID is a net negative, but incremental adoption because of your Impella Connect capabilities, and the hospital labor shortages, which do feel like that's not easy fix and Impella Connect offers a very good solution. Anything you can say qualitatively around that would be great.

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Danielle, thanks for the question. I think your -- it's a very insightful question, because you're recognizing what we've been investing in is to provide a level of support that doesn't exist in the industry, whether it's bedside or in the cloud or capturing the data, or even training nurses. So as the nurses that are coming into the ICU, they're newer, we can work with them, we can do hands-on training, they can go online and do CME training, and we can coordinate specialized care. So we continue to do that. I just want to be clear, though, that the Delta variant had the massive impact and what made it more complicated for us and the playbook was the labor shortages that did not impact 75% of our sites.

The impact was more of 25% of our sites. And for shock, it impacted less than that 17%. So I think that what we're doing is we're whittling away at it, and we're trying to minimize it with exactly what you're talking about with our bedside support, with our SmartAssist. It makes managing the patient easier with Impella Connect, putting that in the cloud, so that our experts, our nurses, our call center and our local people as well as the physicians can review that patient without being bedside and then quantitatively put numbers on it and track it. So I think all the things that you -- we've mentioned and you're pointing to, that does give us an advantage and allows the hospital to benefit from our services, and that's where this network approach, our ability to have the premier field team is really coming into play, and I think will continue to help us drive positive growth.

[Danielle Antalffy, Analyst at SVB Leerink]

Thanks for that. And one quick follow-up on the BTR. That's really great news and a big step forward. I know it's very early, you're just talking about first-in-man, but this feels like something that could get breakthrough designation. So what should we be thinking as far as time to potential commercialization? I mean, are we still talking five-plus years away? Or could it be sooner than that?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Danielle, the way we look at the early feasibility studies is it brings a technology into the U.S. years ahead of what it would have done in the old days. And we really want to credit the FDA for this really innovative and amazing program. It's actually transformed the medical device field. And what that also means to us is you can come in, and we will be applying for breakthrough for the BTR pump as well, which is similar to the ECP is it allows the FDA to prioritize, to put resources, to be flexible and to have a faster cycle, but allows you to enter in almost in like a prelaunch. And again, on all of these studies, as you get into the pivotals, you are -- it's a controlled study, but you are generating revenue. The hospitals are getting DRG payment.

And in our own space, this is kind of how we launch anyhow. We go slow and steady, because it's so important to learn to get great outcomes. And I kind of see it as somewhat of as a preclinical launch, but it puts this technology into the hands of these U.S. physicians, and it really helps drive this heart team approach. And as you can see from our portfolio, you now have products for the cath lab, surgical suite, EP lab and of course, the ICU, all running in the cloud. And I think that just is a great advantage for us to bring technology earlier into the U.S.

[Danielle Antalffy, Analyst at SVB Leerink]

Thank you.

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Thanks, Danielle.

[Operator]

Thank you. Our next question comes from Pito Chickering from Deutsche Bank. Your line is open.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, guys. Good morning. Thanks for taking the questions. So one more guidance question here, and I do apologize, but focusing just on ICU capacity, hasn't that been getting better in October versus August and September. And why are you not seeing more improvement in October? And also what are you assuming around ICU capacity changing for November, December versus October?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Yes, Pito, it's a good question. Thanks for it. I think obviously, we're tracking ICU capacity by city, by state, by hospital. And I think we are seeing improvement in a lot of areas over -- since what we saw in September heading into October. With that said, if you look at some of the states like Carolina -- the Carolinas, if you look at their ICU capacity over the last six, seven, eight days, they've gotten worse. And so I think this is going to be a lot of these areas where you're going to see areas like North Florida, Texas. Obviously, we've seen improvement in those metrics in the month of September as we get into October, but you see some other flare ups and like I said, Carolinas, some areas in Northern New England that are just continue to pop up. So overall, I'd say it's getting better. But we continue to believe that you'll see these hotspots pick up, especially as people move inside during the winter months and it might move up the coast a little bit. But again, it's something we're tracking every single day.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Fair enough. For Impella growth going forward, we've seen a lot of hospitals start to use ECMO due to COVID that previously didn't use it. Do you think as hospitals become more use to mechanical support, that will help drive Impella adoption? And have you already begun seeing that?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Pito, that is something we track. And again, we've done over 15,000 patients with ECpella over the years, and now we have our own ECMO products. So that trend will continue, but that trend works both ways. One is a physician that's struggling with a 14 French hole just on the Impella, which is a 9-French catheter. That's something that ECMO is 17 to 19 French large tubes all the way through. So there's definitely an intimidation and an issue there with bleeding in ECMO, that's in the literature as well as inflammatory response and risk of stroke. Relative to the overall process, I think it's good, because people are learning about mechanical circulatory support. People are thinking quicker about how do I get to that support. There's been a publication that talks about the centers that have shock teams. They do a better job of getting better outcomes.

They technically talked about it, they use less and what they mean less is, they're using less probably escalation of inotropes and just balloon pumps, and they're moving quicker to the best practices of pre PCI in shock or escalating, looking for right heart failure or using ECMO or ECpella where you need oxygenation. So I think that's all been very positive. And again, on COVID, the majority of those patients are V-V ECMO. And so I think there's also some education that's been happening around just the oxygenation and the need for oxygenation versus cardiac support. So it's all been positive. And again, we continue to do everything we can to support patients, whether they have lung problems or heart problems.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thanks so much.

[Operator]

Thank you. Our next question comes from Jayson Bedford from Raymond James. Your line is open.

[Pavan Sabin, Analyst at Raymond James]

Hi. This is Pavan Sabin for Jayson Bedford. I had a quick question about -- so in the U.S., revenue grew 16%, but the patient usage trailed, growing only 8%. I think Todd mentioned about 400 points of that is from mix. But is there any other dynamic playing into that discrepancy between revenue growth and patient utilization?

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

Yes. I can walk you through the high-level walk. So you're right, patients we're up 8% in the quarter. We did see about four points of favorable sales mix. So again, that's just the transition from Impella 5.0 to Impella 5.5 with SmartAssist as well as the continued switch from Impella 2.5 to CP, where we have higher average selling prices. So that's about four points of, I would say, top line growth. We did see a slightly higher reorder rate in the quarter, 101 versus 102, that's probably a point or 2. And then we had some higher deals in the quarter from a year-over-year perspective, and that would probably be another one point or 2. So that's really the walk from patients to revenue in the U.S.

[Pavan Sabin, Analyst at Raymond James]

Got it. Do you guys mind providing that for Europe as well, because I think we're seeing a similar dynamic there as well?

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

Yes. So in Europe, I would say it's a couple of things. It's -- again, we had some pretty solid growth in patients. We are seeing a little bit of a higher reorder rate in Europe, as a result, it's pretty lumpy. It goes from -- one quarter could be 94%. This quarter was a little over 100%. And so I would say it's reorder rates as well as we are seeing a benefit of some favorable sales mix over in Europe as well as we transition from CPC seven to CPC eight with SmartAssist, we are seeing a little bit of a price increase as well there. So a little bit of the same dynamic that we saw in U.S. we're seeing in Europe.

[Pavan Sabin, Analyst at Raymond James]

That's helpful. You guys -- obviously, you guys have a plan to launch 5.5 in Japan. In terms of additional international expansion, is there a time line on 5.5 in Europe or any other new geographies you guys are targeting?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

So 5.5 launched in Europe. So that is in Europe already. We are looking and bringing other technology to the rest of the world, which would be the RP with SmartAssist, our ECMO product and those geographies continue to grow.

[Pavan Sabin, Analyst at Raymond James]

Thanks. That's helpful. And finally, with the XR Sheath 2.5. You guys launched about two quarters ago. How has that been doing? Have you guys seen any impact on volumes from that?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

We commented on the last quarter that 51% of our high-risk PCI cases are now being done with a single access. So they do the procedure with the Impella and the PCI in the same femoral artery. That has been the preference. Our best users, our largest users, also want the Impella CP. They want the higher flow and the sensor capability. And they also want the option to be able to wean the patient either in the cath lab or in the ICU. So the focus right now is making the XR Sheath more compatible with single access and primarily for the Impella CP.

[Pavan Sabin, Analyst at Raymond James]

Okay. Thank you. And finally, this might be way too early for this, but is there any way you guys can frame the BTR market opportunity in terms of new patient population or additional TAM?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Sure. I mean we've talked about an additional 100,000 patients that we are looking to support as a combination between Impella 5.5 and Impella BTR. And that is a very conservative number out of the 1.6 million Class III and 400,000 Class IV patients that are looking to have the ability to feel better and also potentially get better. And that's a subset of what we would call the acute on chronic heart failure patients. Those are also the patients that are, I think, the second highest admission into the hospital. To some extent, we're going to start treating those patients earlier with preCARDIA, which is a preload reduction device that can be put in, in the ICU with the heart failure cardiologists.

And for those that get worse, they may go on to 5.5. And for those that are just going to require longer-term support, the Impella BTR is not FDA approved, but that is the intent to go through the study to then utilize this technology for those patients as well. The LVAD technology is vastly improved over the years. However, it still requires a sternotomy and coring out of the left ventricle, and it doesn't provide forward flow. So in some cases, the valves are sewn shut. And what we're trying to do is give that patient and that physician full support with a minimally invasive axillary implant through the shoulder, allow the patient to get up and walk around and it buys them many options of recovery and other therapies that they can utilize.

[Pavan Sabin, Analyst at Raymond James]

Thanks guys. That's all from me.

[Operator]

Thank you. Our next question comes from Marie Thibault from BTIG. Your line is open.

[Marie Thibault, Analyst at BTIG Research]

Hi, good morning and thank you for taking the questions. I wanted to highlight a question here on 5.5. It certainly seem like a bright in the fiscal second quarter as it has for a few quarters now. And I wanted to try to see if you could parse out for us how much of a contribution that made to sort of the overall U.S. patient usage in the quarter? And whether there were any differences in dynamics between 5.5 usage and some of the CP usage as far as kind of COVID and nursing shortages?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Sure, Marie. So just at a high level, the 5.5 individually grew 116% year-over-year and it was up 7% quarter-over-quarter. The entire surgical business, the 5.0, 5.5 grew 60%. We also had some growth in the Impella RP. And what your -- what the impact that it's having is we're becoming quite frankly, a preferred provider for heart surgeons, especially at the top center, Cedars, Northwestern, Cleveland Clinic, Hackensack as you go around the country. And we're not necessarily looking at it as a single product. We're looking at it as a way to solidify our partnership with the hospital and bringing the heart team together, because those surgeons also do high-risk CABG, where they potentially need support. And those surgeons in some cases, turn down patients that then get referred over for PCI. One example is at Cleveland Clinic in their protocol, if you're an acute on chronic patient, so the patients I just talked about, you have worn out heart, you have advanced coronary disease and you decompensate.

At that facility, they're likely going to stabilize you with a 5.5, then they're going to do an evaluation of what treatment they're going to do. And some of those patients go to the cath lab with the 5.5, some of those patients go to the EP lab with the 5.5 and some of those patients go on to CABG. And so it's really designing a protocol that allows for the ability to stabilize the patient, protect the heart and the kidneys, and then bring whatever treatment adjunctive therapies that's in the best interest of that patient. Todd could comment if he wants to make a point on the breakout on the numbers.

[Todd A. Trapp, Vice President and Chief Financial Officer at Abiomed]

Yes, Marie, in terms of -- if you look at the U.S. surgical business, it represents about 18% of our revenue today. And of that, 5.5 is 92% of that makeup. So if you look at our growth in the quarter, I would say it's a combination of also opening new sites, but we're also treating 27% to 30% more on patients year-over-year.

[Marie Thibault, Analyst at BTIG Research]

That's really helpful detail. And then my second question here. We certainly heard a lot of other med tech companies talk about concerns about the supply chain, higher input cost inflation. Would love to hear what Abiomed is seeing and whether that's been baked into the margin outlook in some way?

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Marie, thanks for that question. I want to complement our manufacturing and ops team for the resiliency. As you know, we have redundancy. We make the product here in Massachusetts and in Aachen, Germany. We're very focused on it, like everyone else, but the team continues to execute, but it's something that we monitor and pay close attention to. So I think what you're hearing from us is transparency in the quarter, but confidence in our innovation and our ability to continue to manufacture and supply our products.

[Marie Thibault, Analyst at BTIG Research]

Very helpful. Thank you.

[Operator]

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mike Minogue for any closing remarks.

[Michael R. Minogue, Chairman, President and Chief Executive Office at Abiomed]

Well, thank you, everyone, for your time today. And if you have any follow-up questions, we look forward to talking with you. Have a great day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Nicole Nath, Manager of Investor Relations
• Michael R. Minogue, Chairman, President and Chief Executive Office
• Todd A. Trapp, Vice President and Chief Financial Officer

Analysts

• Anthony Petrone, Jefferies Financial Group Inc.
• Margaret Kaczor, William Blair
• Chris Pasquale, Guggenheim
• Matthew O'Brien, Piper Sandler Companies
• Danielle Antalffy, SVB Leerink
• Pito Chickering, Deutsche Bank Aktiengesellschaft
• Pavan Sabin, Raymond James
• Marie Thibault, BTIG Research