ABIOMED Inc (ABMD) 2005 Q2 法說會逐字稿

At this time I would like to welcome everyone to the ABIOMED fiscal second quarter results conference call. (OPERATOR INSTRUCTIONS). Mr. Jimenez, you may begin your conference.

Good morning, and welcome to ABIOMED's investors' conference. But this is Javier Jimenez, Vice President of Operations. I'm here this morning with Mike Minogue, ABIOMED's President and Chief Executive Officer. Also with us today are Dr. Robert Kung, Chief Scientific Officer, Christopher McDonald, Senior Vice President of Global Sales, and Frank Menzler, General Manager for our European Operations.

The format for today's call will be as follows. First Mike will provide you with an overview of significant current developments and future plans. I will then provide a summary of the financial results for our fiscal second quarter of 2005 ended September 30, and then we will open the call for questions.

I would like to highlight that today we will be having a slide show that you can all access through the Internet. You can log into our website, abiomed.com, and click on the first link in the center of our home page. When you click in there you have to enter some information, your email address and some brief information. And then you'll get a pop-up window for a quick download to be able to access the presentation. Make sure you click yes on that pop-up window, so you have access to the presentation. If you have any questions, we have made a phone number available for you guys. It is 978-646-1554, and we have someone ready to help you.

First though it's necessary to remind you that during the course of this conference we will be making forward-looking statements, including statements regarding future financial performance, product development efforts, ABIOMED's strategic operational initiative and market response to our new products. ABIOMED's actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including uncertainties associated with development, testing and related regulatory approvals, competition, technological change, future capital needs, and other risks detailed in the Company's filings with the Securities and Exchange Commission.

Investors are cautioned not to place undue reliance on any forward-looking statement, which speak only as of the date of this release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date of this conference or to reflect the occurrence of unanticipated events.

Now I'm pleased to introduce Michael Minogue.

Good morning everyone. Thank you for joining us today. And please insure that if you have any questions or you cannot get to the slides, please call that number and follow through.

I would like to move to slide number two. And we have a special -- we have special guests here today. And I was going to turn it over, before I do Matt is somebody who was around 14 -- 14 and a half at the time. He suffered from myocarditis. His parents are here. He needed bypass support. And after being on the BVS for six days I am proud to say -- and I am honored to be here with him and look at him and see no wires and know that he has his own heart. So he is a tremendous young man. We had dinner last night. He is now making the most of his time. And I just wanted to turn it over to have him talk to the group, as well as his mother, Robin. Thank you, Matt.

ABIOMED has asked me to come here today and tell you a little bit about my experience two years ago. I had a virus that attacked my heart. I hadn't been feeling well for a few days and my mom took me to the doctor. I remember going to a local hospital and couldn't even find my pulse. I was very cold to the touch. They ended up taking me to the emergency room. And I couldn't breathe because my lines were filling with fluid.

I remember trying to tell the nurse I couldn't breathe. And she didn't believe me, so I punched her really hard. So I said, listen, I can't breathe. She paid attention to me after that. And the doctor started running towards me. That is the last thing I remember until a month later. Doctors told me that without a BVS I wouldn't have survived that first night. I have advice for others who go through with this to never give up. And to ABIOMED, thank you for making BVS, because I know that is what saved me. My mom is also going to say a few words.

Thanks. And I just wanted to say that this virus that attacked his heart was very sudden. It was over just a couple days, with flu-like symptoms. He couldn't even get dressed when we started to take him to the doctor after a few days. And when they did rush him to -- actually fly him by helicopter to MUSC, they were able to diagnose and put him on the BVS, which is the only thing and the only reason that he is here, because 15 minutes later he would not be here to tell his story at all.

And I'm just grateful that the technology was there to save his life, and to send him back home with his own heart. We look forward to his life. And his heart is back to normal. And these and all medications should stop probably within the next month. I would just like to say thanks.

Thanks for coming in. For those on the call at 1:00 today we're going to have a Company presentation. And Matt and his family are going to tell their stories so that the people understand. And part of our culture that David Letterman started here as well for the AbioCor is we're focused on saving lives. So thanks again for coming in and talking to our investors. I appreciate it.

Now we will go to the next slide. We can talk to you a little bit about what has happened in the second quarter.

In Q2 we had the best quarter in the history of the Company. It was profitable for 2 cents and approximately $.5 million. And we grew the business on the topline revenues 95 percent from 5.3 million to 10.4. So it was a great quarter, but one that we know we're not yet satisfied, because we have a long way to go as I am going to show you.

The EV platform growth actually grew 129 percent over last quarter. The BVS revenue, again the BVS, the backbone of our revenue in the Company, grew 20 percent year-over-year, and a total of 40 percent revenue growth over the last quarter. We have strong cash position at 43.5 million. And year-to-date we are at a growth of 71 percent. So it was a great quarter and I want to congratulate the team.

Now in Q3 we have -- for your convenience we have two sell side analysts, Jolene (ph) of Southwest Securities, as well as Greg Simson. And so we put on what they have produced. Now they may change it after today's call, but you'll see that they had us at a breakeven analysis. And specifically what we are focused on Q3, and I'm going to try and be as specific today as I can in both the mix and our forecast, because I think it is very important to communicate.

And I again do not want to frustrate you all. So there will be certain things we are going to give you and there are certain things we won't be able to give you, partly because the market is moving so fast and the growth rate is so high that we really don't think we can make predictions yet. And we want to make sure that we're performing to our goals.

So again the goal of profitability in Q3, the goal is profitability again in Q4, and the goal is profitability for the year. Prior to this the only thing that had been stated by the Company was the goal was to have a profitable quarter some time this year. So obviously we have made some aggressive changes to that goal.

We are expanding our distribution. We're making several inroads in Canada, Latin America, Europe. And Frank has joined us here today. He has an incredible background and a lot of contacts. And I have all the confidence in the world in the existing established team over there, as well as our installed base customers. As you have seen from the press releases, we have already had our first 85,000 recovery.

We are also expanding our portfolio. And we have completed a process over the last six months to really look at a market analysis. We spent 120 million here at the Company for R&D. And we have 77 patents, but we have hundreds of trade secrets. So we're going to ensure we build products that fit into our core competency, but there's also going to be license opportunities for technology, such as our dental business that we don't want to enter, because it is outside of what we consider the core business. But we're going to continue to do that process every year. And we're very confident in the team that we brought in, as well as the established and existing team of scientists here, which I think are second to none.

And then last for this quarter is as of Friday night a new Web site was launched for abiomed.com. It is very focused on a commercial piece of our recovery side. One of the things we have found as we look at our installed base is we need to get rid of variance across the board, and we need to move the mean higher. We have several centers that have extremely high survival rates, and we have others that lower. And it really comes down to patient education, cardiologist awareness and surgeons having the flexibility they need to put the patient and give them the longest time for recovery that they see is in the best interest of the patient.

So that was slide 3. We're now going to move to slide 4. And just kind of get grounded on what is out there and how do you see the segments themselves. Let's start at the top left of the VAD technology segment -- the top left -- external assists.

This means that the pump is outside your body, and you're putting cannula or tubes to your heart. So what you're doing is the pump outside your body does the work for your heart which allows it to rest. And if you can allow the heart to rest it can recover the cells, just like in Matt's case when he had myocarditis. And the important thing is here is that you're letting the heart recover. The patient in Sweden had -- and they said 100 percent mortality rate, but he got the devices in time that allowed his heart to recover. So he is now at home with his own heart.

Now the other side of it is that risk, and a lot of times, and we know from our database as well as our other vendors' databases, about 50 percent of the time people need support on both sides of the heart. That is very important and drives us as well as with the AbioCor that certain people are going to require support on both sides of their heart.

So if you're going to have the choice of implanting two large devices inside them or putting the pumps outside to give them a chance to recovery, we believe it is always going to be in the best option to have minimally-invasive and the least amount of risk to bleeding and infection inside the body to give the patient a chance to recover.

ABIOMED is currently only approved for BTR, however, we will in time -- we do plan on expanding that indication.

The next one is the implantable assist. And this is really for folks that are looking for some longer-term support. It is implantable because the goal is here they're going to have it for a longer period of time. However, once you open the patient up, you are increasing your chances of bleeding and infection. And for these types of people that have extremely long waits, this is the best option for them. And again I would like to complement all the companies that are out there, including World Heart and Thoratec for all their advance work, support and education they have done to really give people in this segment a fighting chance to live long enough to get a transplant.

And then last there is the total replacement. And really the AbioCor, and this is where our patents and our strength -- We are the only company that has a totally artificial heart. We are committed to AbioCor I, and we're absolutely committed to AbioCor II. The challenge with AbioCor I will be on the patient's size. And we believe that AbioCor II, which will fit approximately -- instead of 50 percent of the male population, should fit around 90 percent of the male population. And again it provides by bi-VAD support.

And what makes the AbioCor different is that it is the only self-contained fully implantable heart. It doesn't have wires. It operates on a battery. And it really gives a patient the opportunity to be mobile and have a good quality of life. The HDE is under review by the FDA. Everything is on track. And we're very optimistic, and what we have said is we expect to get approval at the end of our fiscal year.

Now the other one at the bottom you'll notice is the CardioWest artificial heart. And I think this is a great device. And I think Dr. Copeland has done a really nice job of educating and making everyone aware that certain people out there need support on both sides of their heart. And essentially what this is is it is identical to the same concept that people need support. And now you have the choice whether you implant the device for support, or if you keep the pumps outside the body.

So our solution for those that would want support for recovery would be AB5000. And our console is about the quarter of the size of the Cardio West console. And we believe that both play a major part in the functioning and the support of the organ. And it is up to the physicians to make the choice. But we're very glad to see that they are progressing and moving forward as well.

Now if we move to the next slide, slide number 5. And this really goes back now into the external assist market. This is the bridge to recovery. Now I have a third party study here from 2004, Health Research International, and they have said that the annual potential case load and then their production for how many patients they see this year. Again we operate on a different fiscal year that goes to March. This is based on the calendar year.

And what they have said on the top left is there are over 400,000 open heart procedures in the U.S. And by the way there is more than that outside of the U.S. So just a give you a very U.S. specific study, outside of the U.S. would be actually about that or a little greater. And about 7,500 of those patients will suffer from cardiogenic shock, and that is following procedures. And this really is at the core of our business. This is why 47 of the top 50 heart hospitals in the U.S. News and World Report have our systems today, either the BVS console or the AB5000 console.

And we've really have penetrated this market, but only at about 11 percent. And there has been some limitations to the BVS console, one of which was getting the patient up and moving, which the AB5000 console gives that capability. The other is having a little bit of a longer-term device, and that is what the AB5000 will give them. So we think it is great match to grow our core business.

On the right side you'll see that there is 865,000 AMIs per year, or heart attacks. Of that there is around 51,000 potential patients. And today they're projecting that we will only get around 140 of those bridge to recovery patients, which is less than 1 percent. And really our competitor here isn't any of the names that you know. It really has to do with educating cardiologists so they understand that they do a great job of opening up the plumbing, but if the pump breaks, then you need a longer-term support device to help the patient recover. And that is really where the AB5000 and the BVS come.

Today the options of this is in some cases they will use an interaortic balloon pump, however, that does not allow enough flow for recovery in many of the patients. So we look at the core business and we just think it has tremendous opportunity for growth. And as they have stated in their overall summary, they believe that there are approximately 60,000 patients a year just in the U.S. that can benefit from receiving this type of bridge to recovery technology.

So let's move to slide 6 and see how it looks out of in the field. You'll see there is the HUB and Spoke model that we have in the U.S. And what that means in the case here, it is an example of Cleveland clinic -- is Cleveland Clinic serves as the hub, but there's a lot of great open heart centers that surround it. And if someone has a heart attack, or in the case of Matthew, myocarditis, where time is tissue, and the faster you can get them to that is going to give the capability to whether they go home with their own heart, that is why this is so important.

Now there is 800 open heart centers. And we believe everyone of them is a potential candidate for our technology. And there is 100 transplant centers. And we of course believe, and that has been our core business as well, that they understand the benefit both of the bridge to recovery market and of reversing and protecting the organs.

So just a summary on the advantages we have, is closed chest transition. And what that means is if somebody ends up at one of the local spokes and wants the capability or option to move to the AB5000 new ventricle for a little bit of a longer-term device, you can do that without opening up the chest, cracking your chest, which is in the best interests of the patient. It avoids bleeding. It saves on cost, and it is much more productive for the hospital. So we're very excited about this. And let's look at a little specific example.

So let's assume that somebody has come in with a heart attack or myocarditis or is at a hospital and has PCCS. And what happens is you can open the patient up. You can put in the tubes. So you're not putting in devices into the abdomen, you're putting tubes specifically to the heart to get the tubes outside to allow the pump to do the work. And in this case the BVS5000. In our database most people have been on this device for around five days. And some of those people will recover in that time frame and will go home with their own heart, which would be explanted. And an explant is a minor or shorter surgery where they are just removing the cannula itself.

If the patient hasn't recovered at five days and has failed to wean, you have the capability as the hospital to switch them to a longer term device. And if you're on the AB5000 console, you can get the patient up, walking, moving, get them outside to enjoy the fresh air. And again it provides both one side as well as bi-VAD support with both of these devices.

And these devices can continually -- we've had patients on the units for over 50 days and counting. We've had them bench tested in their engineering labs. They are beyond a year. And if you really look at it and you cut it, an AbioCor in half, it looks like half of the ventricle itself. So we believe that recovery is always going to be the best option. And the biggest obstacles we have seen in recovery are bleeding and infection. And obviously if you can avoid another surgery, if you can avoid putting large devices inside the abdomen, you're going to get your best results to avoid bleeding and infection.

So we're pretty excited. And we think there is going to be great success and more people that are going to be going home as we are going to show you with their own hearts.

Next to slide please. But you know this is not a new phenomenon. This has been out there for a while. And as you see in slide 8 by a recent study at ACIO (ph), the role of the ABIOMED BVS 5000 device, again this is just on the BVS, you'll see that 41 percent of the patients recovered on the BVS. So 29 out of 71. And they operate there with the HUB and Spoke model, where Colombian is the hub. And this is a tremendous study, because you'll notice on the bottom they recommend VAT insertion earlier in patients with PCCS because implantation of a mechanical device earlier in the process is associated with improved survival.

Now remember, recovery means you go home with your own heart. Now other companies do a nice job and are focused on getting their patient to a transplant, or giving them another year or so. But our focus on recovery is sending them home with their own hearts, and this is really important.

Next slide please. If we look at the whole database, and the way we calculate recovery is you go home with your own hear, what survival means is you go home with your own heart, meaning you've recovered, or you have been successfully transplanted and gone beyond 30 days. It does not include patients that have gone on to other destination therapy devices, because we're more focused now on the survival either sending them home with their own heart or getting them a transplant.

And when you study statistics, you want to move the mean higher, and you want to reduce variation. And that is really what we're going to be focused on on our education. That is why we have tripled our support staff for our nursing and perfusionists. That is why he we're going to a new website with education online. And you will see that our top 25 centers have a 74 percent survival rate. And our top 400 centers have a 46 percent survival rate.

And what we did is we eliminated any centers that only done one patient. So if they had one patient and they survived, we wanted to make sure that they have done at least two patients. So had we done the entire -- all patients it would be higher.

Now this comes from our own clinical data registry of greater than 2,200 patients. Now it is a voluntary registry. So we don't have all the patients we have done since '93, only the ones where the centers has provided the information. And what we have started to do in the analysis is identify the best practice sharing. So if you look on the right side at all patients on survival, you'll see in in the case of myocarditis 45 percent of those people can be -- can survive if put on our devices. If you look at cardiomyopathy, 35 percent. And this is really important because that is -- that includes all the averages, but if you notice on the bottom, if you go to our top 20 percent of the installed base, their average of all patients is 57 percent for all indications.

So we're absolutely committed to teaching as well as being taught by our customers and how to get better. How to build products that are easier to use and more reliable. And we have already realized that there are certain things that help patients such as avoiding bleeding. Or in the case of one of our best centers, they assume that most patients require bi-VAD support. And that is pretty much one of the reasons that they do not get surprised by a right side failure, which happens in some cases as well.

Let's go to the 10th slide. And this also has to do with a misperception that has been out there that if someone is going to recover, you'll pretty much know within the first five days. And we now have over thousands of patients that we can statistically look at on our BVS and realize that 51 percent of our BVS patients, so over 2,000 patients over the last 10 years, these patients have recovered after five days.

If you look now at the AB5000. You'll see that in many cases this is a sicker populations or they have been transitioned from a BVS. But you'll notice that the length of stay on the AB5000 now is 17 days. And we have had several people go beyond 50 days, as I have stated. We've even had, and I mentioned it on the last call, a woman who they realized she had recovered during her transplant surgery. And she had been on the AB5000 and transitioned from the BVS for a total of 15 days. She is now at home with her own heart. And that is the best option for all of them.

If you look at the top 25 percent of the transplant centers in the United States, the average wait is 43 days. So what we believe is we want all patients to have the maximum amount of time for their heart to recovery.

And in summary, if you go to the last slide, slide 11, the formula looks as follows. Recovery is a function of reducing the time on the implant. And we feel the model of the HUB and Spoke really gives you that capability with two options for ventricles, very cost-effective, either the BVS or the AB5000. We think it is maximizing the time on the VAD, and now the AB ventricle can go a longer-term and allows the patients to get up and walk around and use the new console as a walker as support.

And then last is reducing bleeding and infection. And we believe that the transition between the BVS to AB5000, which can be done in less than 10 minutes without physically touching the patient, and the fact that you're not implanting other devices inside the anatomy gives you the best options and reduces bleeding and infection. And that is why we believe you've got the right formula. And that is why we are 100 percent focused both on the recovery market and as been discussed long before I got here and will be continued, the destination therapy where you can provide a solution that is bridged to ABIOMED.

Whether people can recover, or whether they need a longer-term device such as the AbioCor, in the future upon FDA approval we believe that we're going to provide the best circulatory care for the market today.

I'm now going to turn it back over to Javier.

Financial highlights of the second quarter of fiscal 2005 as detailed in our press release earlier this morning include the following. Revenues for the quarter ended September 30, 2004 were 10.4 million, 95 percent above the 5.3 million reported for the quarter ended September 30, 2003. Sales of the new AB5000 system represented the largest portion of increase. BVS 5000 revenues also increase significantly.

International sales for the quarter accounted for 5 percent of total product revenue as compared to 12 percent for the same period last year. During the quarter ended September 30, 2004 we showed a net profit of $.5 million or 2 cents per share. This compares to a loss of 2.8 million or 13 cents per share for the three months ended September 30, 2003.

Our higher product revenues during the recent quarter contributed to our first profitable quarter in the past 8 fiscal years and first profitable quarter based on product revenues in the Company's history.

Cost of product revenues as a percentage of product revenues was 23 percent in the three months ended September 30, 2004, compared to 27 percent in the three months ending September 30, 2003.

Research and development expense was 3.4 million in the three months ended September 30, 2004 compared to 3.6 million in the corresponding three months of 2003, a reduction of $200,000 or 4 percent. Research and development expenses during the quarter consisted of continued clinical and development efforts related to the AbioCor, the AbioCor II and our continued efforts to enhance and expand the existing BVS and new AB5000 product offering.

Selling, general and administrative expenses increased by 1.1 million or 34 percent to 4.3 million in the three months ended September 30, 2004 from 3.2 million in the three months ended September 30, 2003. The increase is the result of higher selling and marketing expenses as we focus more resources on expanding commercial development of our new and existing products.

We spend more on headcount, including sales and clinical personnel, trade shows and marketing materials than during the same quarter of the prior year. Commissions expense expenses also increased as a result of higher revenues. We also continue to incur additional cost for recruiting and relocating senior additions to our management team.

Liquidity and capital resources. We have supported our operations primarily with net revenues from sales of our BVS and AB5000 circulatory assist product line, government contracts and proceeds from our equity financing. As of September 30, 2004 our cash, cash equivalents, short-term marketable securities and long-term investments totaled 43.5 million.

During the six months ended September 30, 2004 cash used by operating activities was 4.4 million, 24 percent less than the 5.8 million used by operating -- by operations in the six months ending September 30, 2003. We increased inventory by 1.9 million as of September 30, 2004 in anticipation of new AB5000 sales. And our receivables increased by $800,000 as a result of our higher revenues. Both of these items offset a portion of the improvement in operating cash flow resulting from the lower net loss.

Net cash consumption from all activities, as determined by the net change in cash, short-term marketable securities and long-term investments was $2 million for the six months ended September 30, 2004 compared to 5.7 million consumed for the six months ended September 30, 2003.

During the six months ended September 30, 2004 the Company benefited from $2.8 million in cash proceeds as a result of employee stock option exercise and employee participation in the Company's stock purchase plan.

This concludes our compared comments for this morning. And we will now open the call up for questions.

Operator: (OPERATOR INSTRUCTIONS). Greg Simson with Stifel Nicolaus.

A couple of questions for you. First of all. I don't know if it was the last conference call or the one before, you gave a bit of a breakdown on the AB5000 with respect to the number of centers and the number of units. Could you guys go over that again this quarter?

Okay. We have about 68 consoles right now and about 55 to 60 centers active right now with the AB5000 platform.

Okay, great. And then is it too early, given the approval of the ventricle, is it too early to get any kind of sense of what kind of usage that say the first centers that had the system, what kind of usage we're seeing out of those centers?

That's a good question. I think it depends on if they are a Hub, meaning a transplant center center or if they are a spoke where it is predicting AMIs and that sort of thing. So I think it is is a little bit unpredictable at this point to build the model.

Mike, is it safe to say though, and this may be a silly question, is it safe to say that the usage on AB5000 that you're seeing in the very early stages is certainly better than what has been traditional with the BVS?

Absolutely. That is why if you look at the growth rates, these are the highest growth rates both from quarter to quarter and year-over-year in the last 10 plus years, if ever, except for maybe in the beginning years of the growth of the BVS when it started.

Okay. But I don't -- the actual use of the disposable, that is still a safe statement?

Yes. In the other piece of that is we're just getting started penetrating our installed base. Remember there's 800 open heart centers, and probably around half -- or a little more than half of those already have our BVS today. So we are actively out there trying to upgrade those folks. And it is similar with most of the transplant centers over 90 percent of them already have our BVS console today. So we are now there giving them two options of one console with two ventricles. So we believe that you're going to see usage, but you're also going to see penetration.

Next question on the bridge to recovery. This is -- penetrating this market has been something that has been talked about at this Company for a long time. And I am curious -- you kind of covered it certainly with the much greater educational effort. But why is this different? Is it just paying more attention to educating the doctors, or is it the significantly greater amount of data that you have put together?

One, I would say that I think everyone here would say that we haven't really focused on it, because we have been and will continue to be completely committed to the AbioCor. So the BVS was a good product, but it had some limitations if you look at the customer surveys.

The first is that the patient is going to get up and walk and move around, which is very important for recovery. You want to get the fluid away from the lungs. The second piece is if the patient was going to go a longer-term device such as 30 days, they were constantly looking and checking and potentially swapping out the BVS console -- I mean the BVS blood pump. So the capability now it is once you stabilize the patient you have the option to switch to the ventricle and to get the patient up and moving, and that has really been what has been missing as far as seeing that continued growth on the BVS itself.

If you look at the resources and what we spent, we had basically five clinical staff last year covering the U.S. and they were spread way too thin. When you're in a market where you're educating and in many cases not having a competitor in those open-heart centers that we really need to get out and educated ourselves. Then if you just look outside the U.S., you know just in this room alone if I allowed everyone to talk, you would have a Spanish accent, a French accent and a German accent. So we're completely focused on being global. The team is global, and outside the U.S. market, there is even a greater demand for a cost-effective technology, and that is what the BVS gives people the capability to establish a program, and then the ventricle gives them the capability to take them to a little bit of a longer-term for recovery.

Okay. Great. And final question for now. Mike, is the fact that you guys obtained profitability well ahead of schedule, does that speed up your thoughts or your plans with respect to the possible acquisitions.

I have never changed my thoughts on acquisitions based on the profitability or not. We will continue to look at all options that are in the best interest in the long-term and short-term of the Company. I have a lot of confidence in this team, and we are going to continue to grow our core business and we are going to continue to be profitable based on our core business itself.

David Gruber (ph). Earthis Capital (ph).

A couple of questions. One is your gross margins were stellar. 77 percent is far higher than we forecast. Could you give us a little direction in that regard? The assumption we've made is that consoles are less profitable or capital equipment is less profitable than disposables, and yet your gross margins are up there. So maybe you could give us a little commentary in that regard?

Well, I can tell you that the rate of disposables, of the ratio disposables to the rest of the revenue was 81 percent in this quarter, slightly 2 points up from the prior quarter. And then also the mix of the AB ventricle was higher than in prior quarters, so that is what drove the gross margins up.

From a forecasting standpoint, we assumed a certain rate of decline. What should we assume over the next 12 to 18 months as your mix changes?

Again, the fair assumption would be to maintain the current, the one that we saw in this quarter or slightly better if we continue to penetrate with the AB5000 platform. I would say for the next two quarters we took 12 to 18 months and with the potential intervention introduction of the AbioCor, that would throw a little bit of change into the ongoing gross margins.

And, Mike, is the intent to spend the extra gross margin to accelerate topline growth over time?

The intent is to invest in the core competency product portfolio to expand the portfolio. Obviously topline is going to drive that, but we are also going to enter into markets with margins. So I think it's going to be a combination.

And then the last question is, Mike, could you comment or quantify for us the opportunities to extend the BVS 5000 into your intra-aortic balloon pump market downstream and then upwards into the VAD market? Really my question goes to, how many patients are getting IAPPs (ph) inappropriately that should be getting BVS? And then looking at the other end, how many patients are getting VAD when they really shouldn't be? They should be getting the AB5000.

That is a great question, David. If you look at and we have different studies, you will see studies that say there is 50,000 intra-aortic balloon pumps. In the U.S. you will see some studies that say there is 100,000 in the U.S.. And interesting enough, you will also see reports that say, there is actually -- a higher percentage of them are actually done in the operating room rather than the cath lab.

That is very important because in the operating room that is really where we are there, and these are people who are more likely to open up the chest to put the cannula in. So we believe that -- we cannot give you an exact number -- but we believe and the studies are there that an intra-aortic balloon pump will not protect the organs from failing if that is going to happen because of their low flows. It made delay it somewhat, but it does not provide the support necessary for the heart to recovery.

Now on the side of the VADs, if I go back to the case of the woman in Florida who was put on two BVS systems, in the old-style of the protocol, they would have transferred her to a transplant center. They would have opened up her chest. They would have put another device inside of her, or even another device outside. But they would have had to open up her chest to replace the cannula for another vendor's cannula.

In doing that process, you are injecting risk with bleeding, with infection, as well as every time a patient is on the table, there is a chance of mortality from another surgery. And you cannot sit here today and measure what number of patients would have recovered had not going through that process that then went on to get a transplant.

Remember if you are that woman and you are 34 and you have a seven and a four-year-old and someone tells you that your chances of living another 10 years are 50 percent, those are not the kind of chances that her daughters would like and we want her to live to as old as she can. And recovering the heart gives her that capability.

Thanks. I will get in queue.

Robert Larson. Defiance Management.

Is there any way you could elaborate on the time lines and potential volumes for the BTR market with both the BV and AB5000? Could you possibly use the original ramp of the BVS as some kind a comparison or baseline?

I mean if there really is potential for 1000 consoles and thousands of patients to receive this therapy, is there any way you could give us some kind of broad range of a timeline on that and how the ramp could occur if it is successful?

Robert, that is a great question, and again we were trying to overcommunicate and give you as much information as we can. However, because the growth rates and because the acceptance and because we are also adding so much distribution outside of the U.S., I think we have got to continue to focus on a broadband is what I have stated that the two analysts had given us, both Jocelyn (ph) and Greg, which had stated 10.4 million and 11 million for this quarter. And what we have said is that our goal is to be profitable for this quarter and that those are reasonable.

Six months ago those estimates did not exist either in the minds of the people or in the minds of shareholders, not just because they were not following the company at the time. As you point out, it is great to have the problem of having the market moving so fast to adopt these new technologies, but it would be great if you could at some point set out some kind of roadmap for penetration and utilization (multiple speakers) to get the consoles in?

It is his like you said, Robert, we did not have sell-side analysts prior. We do now. That is why I have included it in this presentation. We will continue to give you more information, but we want it to be credible. And as I have stated on the very first call that you and I and the question you have is we think it is really important that we put numbers up, we get results and we don't mislead anyone in any way. We are focused on numbers and growth, and that is where we're going to give you as best guidance as we can and unfortunately because of what is happening in the transition and the distribution outside the U.S., we cannot sit here and give you an extremely credible prediction ye unfortunately.

Are there any limits on manufacturing or components or any kind of other type manufacturing situations that might cause the ramp to be slowed by any particular issues? Or if this really an explosive adoption by the marketplace, could you satisfy the demand or --?

We currently based on the next two quarters and what we are forecasting and we update our forecast routinely now -- we are confident we can provide and we do have some -- we have built some access in anticipation of the ramp, and we feel very confident for the next two quarters we are going to be able to meet the demand.

Jocelyn Ferdak (ph). Southwest Securities.

I was just wondering if we could get a little bit of clarification on the BVS 5000 revenues and why they increased so strongly in the quarter?

The major factor is the acceptance of the price increase that we introduced in the middle of the first quarter. That price increase has been catching on and we have seen the effects of that.

Do you have any comments on the actual -- I assume that these are mostly related to the pumps themselves. So do you have any unit volumes ideas you can give us, any guidance on that?

Not on the unit per se in terms of the pumps versus purchased the ventricles, but as a guidance we pretty much sold the same amount of dollars on our BVS product and our AB5000 product. And again I would like to reiterate that the disposable rate increased versus last quarter -- 81 percent of the revenue.

So the revenue was equally split between BVS pumps and AB5000 pumps?

Not just the pumps, the total product.

The total product. But there were not many BVS consoles units in this quarter, right?

Correct.

So essentially all of the BVS revenue is the BVS pumps?

There were a few consoles in the quarter but yes, mostly pumps.

Randy Huff (ph). Lion's Share Financial (ph).

Congratulations on a stellar quarter. Let me take you back to a couple of questions earlier. You mentioned opening the chest and the disadvantages to the BVS and ticked off a number of those disadvantages. You've got plenty on the plate right now admittedly, lots of opportunities, but I would like to just take a view towards the feasibility of temporary assist devices that could be inserted without cracking the chest. Have you looked with any great effort into that and evaluated the feasibility?

Sure, that is a good point. Just to clarify your question to the other folks is, when you start with the BVS, you open up the patient and you put the cannula in, and then when you make a decision to go the AB5000, you're refusing the same cannula so you don't open up the chest. We believe that there's going to be even more advantages moving forward in two phases.

The first phase is we want to be able to remove the cannula minimally invasive. So that is a project that we're going to be looking at and focused on. So that if someone recovers, they have only had one surgery, and that is what we will focus on -- making it as least invasive as we can without having to open the chest again.

The second is no surprise, and every vendor that is out there is looking for other alternatives to be able to do a more minimally invasive placement of the cannula or any surgery whether it is valves, etc.. And we're going to continue to evaluate that technology that is out there whether it is robotics or any of the different ideas that folks are talking about. We will continue to look at that because we believe long-term that will help in driving more folks that are doing the intra-aortic balloon pump that gives them the flexibility not to have to open up the chest several times.

But in your time in the medical device industry, especially with respect to cardiac care, are you at a point where you can make a judgment as to whether or not we will get there, especially in the latter case, the implantation of the cannula initially? Is it feasible?

I cannot make any case or predication on being able to do it minimally invasive with the cannula, although everyone is working on minimally invasive techniques, which I think we will benefit from. I think that shorter term over the next couple of years you will see something that gives you the capability to be less invasive to remove the cannula itself, but that will take some time and we still have lots of work to do.

And my second question again goes back to a comment made earlier. You talked about a left or right VAD being half of the AbioCor. What is your position on a product that is similar to the existing LVADs that are implantable and longer-term in nature with respect to a product offering at ABIOMED?

Sure. We are looking and evaluating and it has been stated prior to me joining that we are going to evaluate that technology. If you look at the market today, if 50 percent or more require something that supports both sides of the heart, and if our device is the only one that does not have wires coming through the skin so it's going to have the best for infection and the best for quality of life, then you're not tied to a big console or wires, then we believe that AbioCor 1 and AbioCor 2 will be able to serve a large piece of that population that require longer-term support.

There is also studies that are out there that indicate that even if you screen and select on left side support of patients, what can potentially happen is that can cause over time right side failure. So we are also looking at those studies to evaluate whether that makes the right sense.

We will make an educated decision. We've got the best engineers and scientists in-house that understand circulatory care. If we decide to do something, you can be sure that we will do it with leapfrog technology and already knowing that we have the capability to power pumps through the skin with and avoid wires completely.

Thank you. Final comment is a compliment actually. Let me say how much I appreciate and I know my clients as well appreciate the effort that is going into communicating with the street since you came onboard. This whole format today, the upgraded web page, your personal communication is excellent, and we encourage you to continue that.

Thank you.

David Gruber. Earthis Capital.

Could you just give us an update on the international plans here? Because sales are pretty light in the grand scheme of things?

Sure. If we look at Latin America, we have had extremely low-volume coming from Latin America over the last three years. Extremely low. And now that we have the capability of doctors that have been trained in the U.S., we can use the BVS trade in and start Latin America using the hub-and-spoke model with the BVS to get the blood pumps. And we're really excited about Latin America. And I would say that you are probably going to see more done in Latin America this year that has been done over the last three years in all of Latin America.

If you look at Canada, we have got a great team there. We think we will be closing some orders shortly on the AB5000. If you look at Germany and if you look at Frank, who is our new General Manager who is here today, has a tremendous background network, we have a large installed base there. The AB5000 has been launched there. We have had great success. And again in Europe in my career, Europe focuses on great research and cost-effective. And those are the two things that our company brings to the table. Cost-effective in that if you want to see if the patient can recover, you can start with the BVS ventricle, and then if they are going to go a longer period of time, you will be able to switch them. That is really important because in certain countries, in Greece or in Spain where you have reimbursement or in the case of Spain where the average wait time is two weeks to a transplant, why would you want to have anything put in if you can just be put on a longer-term device before you get your heart. So we're really excited.

In China, Chris MacDonald had just gotten back from 10 days overseas in China. We believe there is a great opportunity there. We have had some patients that have been successfully weaned on the BVS, and we are very focused on it. And then in the Middle East, we are using our contacts with our distributors as well, as the education of the hub-and-spoke, to set up great centers over there so that people can be transported from one country to another and protect their organs on both our BVS and our AB5000 platform.

Greg Simson. Stifel Nicolaus.

One question on the AbioCor. Can you update us on the progress and maybe the costs involved with the change that needed to be made to the device after the study you did after patient 13 died?

Sure. I'm actually going to turn that question over to Bob.

Yes. Just as an update, as you all know that we found out through a series of intensive analysis that the system failed because of an overstressed situation, and that is due to a combination of two factors, one of which had to do with the unique anatomy of our patient, our patient number 13. And due to that fact, there were occasions were the device was under a low flow situation.

And secondly, the system had a narrow range of operation, controlling the left flow and the right flow, and we call it a shutter. And these two conditions drove us to find a stable operation for that patient, and in so doing the operating conditions of the pump was under a high stress regime and that actually resulted in a early failure.

But in the process of analysis we took all the data that we have from the patient, from the point of view of CT Data (ph) and also device data that comes on a streaming basis actually through ABIOMED. We get a lot of minute information, and from all of those is how we came up with understanding because of the particular failure.

Now for this -- by the way ended up being a pretty unique situation where the device, for example, we definitely can screen that device, this type of a device out, and it hasn't actually -- this particular one is really only one of many that -- one of a few that we have seen with this kind of a condition. And from a patient point of view, if we see another patient with these kind of unique anatomies, there are two choices. One, you either don't do the patient, or re there are ways of managing it from the surgical point of view to provide the appropriate connection to the device.

One of the positive things that came out of this patient is obviously the fact that he had five months of good life without any complications of strokes, and this is something that we were keeping tab of, and it was a very positive outcome from that point of view. And we are pretty much on track with the AB as Mike had mentioned earlier. So, thank you.

Just one other question on the cost of the device. It is a minor minor cost because what we're going to be doing is we are not going to be selecting those type of shutters on the systems and we know in advance -- and we knew in advance that it had this capability. We had never seen a combination affect a patient this way. So we are just not going to use those shutter characteristics moving forward.

Okay, great. Thank you.

William Frain. UBS.

Great job. I know this on the back burner, but while you're talking about international, I started thinking about the fact that Japan approved the BVS about two years ago, and I was just wondering what kind of progress we are making there?

We're seeing encouraging results from our Japanese distributor. They are actually coming into town this week to meet with us on Thursday. They are aggressively now going after our regulatory approvals on the AB5000 and the AB ventricle which they feel is really going to take them to the next level in providing certainly the support and the (inaudible) technologies to their customers.

They continue to be bullish on their original forecast for this year, and we are very encouraged with the original response that we have gotten from them thus far, although there is a lot more work to do. So we will be sitting down with them this week and spending more time in detail. But I think that Japan, and also as Mike mentioned China, has tremendous growth opportunities for us.

Thank you very much.

Robert Larson. Defiance Management.

It is Steve Epstein with Defiance. Could you update us on the status of the AB5000 BTT submission versus transplant?

Bob, do you want to take that? The BTT status for AB5000.

As you know, the AB5000 is approved for the short-term recovery type indications, and the BTT part of it comes into play when you have patients on support that are potentially recoverable. And at some point in time, if all the organs recover and the only organ that does not recover is the heart, then obviously the clinicians are going to consider such a patient for bridge to transplant. So that is sort of a standard course of clinical assessment and treatment.

Obviously once we get enough information that is something that can be potentially in the future use for expanded indications. But it would require obviously FDA approval.

Could you just comment on where -- how long it would take to get that data and what a likely timeline would be?

At this point in time, I think it's a little bit premature to speculate on how many patients, because a lot of it has to do with how well -- if the outcomes are great as far as transplants are concerned, obviously we will gather enough information and have to submit them. But again it really depends upon the type of outcome.

And if I could just add to the indication, we have had patients that have been on for bridge to recovery that have gone on for a transplant, so we have had that happen.

If you remember back when the BVS started, there was actually patients that was using that as a recovery means before they were transplanted. And what is important is that you allow patients the maximum amount of time for recovery. So the way we look at it is, if the patient has a chance to recover, we can provide long-term support -- a longer-term support for that patient to give them the opportunity to recover as the first choice rather than the second choice.

Second, if you look at the global market, recognize that we do have centers outside of the U.S. today that they don't have this distinction between bridge to transplant and bridge to recovery. They are providing the duration of support, and that is what they are doing. And if you look from a reimbursement side, DRG 525 is the exact same for bridge to recovery as it is for bridge to transplant. The only difference is whether you put a pump inside the patient or outside the patient. So everything really remains up to the physician to make that decision in the best interests of recovery.

Philip Harris. A.G. Edwards.

In regard to the AbioCor, could you give some indication as to how many centers are now qualified to do implants, and at what rate the number could be expanded and how that would affect the likely volume of implants of the AbioCor?

Sure. The focus here for the AbioCor 1 is to have -- currently we have about eight centers that were in the original clinical trial. We are expanding now as we speak to find the AbioCor centers with the intent that you're going to have 800 open-heart centers, you're going to have 100 transplant centers, and you will start at probably 10 and then ramp up to around 20 AbioCor centers where people will be sent for -- those type of patients will be sent to those centers.

We cannot disclose at this time who we're talking to, but we are talking to a lot of our best customers that are using our BVS and our AB5000. And what we plan on doing is those centers that are the AbioCor centers will also be the centers that we are utilizing in the clinicals for the AbioCor 2 once we move forward on that product as well.

At this time, there are no further questions. Mr. Jimenez, are there any closing remarks?

Yes, real fast. Two things. I would like to thank the entire team, and I would like to thank all the investors who have been here supporting this Company. After having dinner with Matthew and his parents last night and after meeting several patients across the world, when you know that somebody is alive today with their own heart because of the technology that this Company has made, it really makes you feel special, it makes you work harder and makes you know that you're providing a service to all people all over the world.

The second thing is, if you have a great team, which this is a great team, and you have great products, you are going to get great results. And that is going to continue what we are focused on as results.

I know there's going to be some of you who would like copies of this presentation. I will be out with Javier over the next two months doing roadshows, but we are going to leave this slide presentation with comments up for a certain period of time, and then once we take it down, we will select some of these slides that you have seen and we will leave them up on our new Web site. Feel free to contact us or send us comments on the Web site, and again thanks for your continued support and we look forward to talking to you next quarter.

This concludes today's ABIOMED conference call. You may now disconnect.

Thank you.