ABIOMED Inc (ABMD) 2005 Q4 法說會逐字稿

Good morning. And welcome to the ABIOMED fiscal 2005 conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Javier Jimenez. Sir, you may begin.

Thank you. Good morning and welcome to ABIOMED's investors conference. This is Javier Jimenez, Vice President of Operations. I'm here this morning with Michael Minogue, ABIOMED's President and Chief Executive Officer. Also with us today are our Chief Scientific Officer, Dr. Robert Kung, and Christopher Macdonald, Senior Vice President of Sales. The format of today's call will be as follows -- First, Mike will provide you with an extensive overview of significant current developments and future plans, and then we will open the call for questions.

First, though, it is 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 operations and initiatives, 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 statements which speak only as of the date of this conference call. ABIOMED 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. In addition, today we will be discussing the Impella products and the AbioCor and we would like to note that none of these products have [inaudible] yet. We are going to be pursuing that part in the future. I'm pleased to introduce now, Michael Minogue.

Thank you, Javier. To start, I will give you a brief overview for our discussion today. First, I will cover the 2005 accomplishments. Second, updates on our fourth quarter performance. Third, the fiscal year '06 goals. And fourth and final, an update on Impella. But before we begin, I'd like to share two patient's stories.

The first is Phil Stoeffer [ph] who is a 54-year-old male, a father of two, walked into his community hospital with complaints of chest pain. He was diagnosed with a heart attack and went into cardiac arrest twice while in the Emergency Room. He remained in cardiogenic shock and was transferred to Columbia University's New York Presbyterian hospital. After 48 hours of support on an intra-aortic balloon pump and inotropic drugs, Mr. Stoeffer was taken to the operating room and placed on biventricles AB5000 support. Following 20 days of support with AB5000, he received a coronary artery bypass graft while his heart was supported on the AB5000. Following the surgery, the AB5000 ventricle was explanted. After a few weeks of rest, and rehabilitation, Mr. Stoeffer was discharged home to his family with his natural heart.

The next is a 37-year-old mother of two, she was admitted to Indiana Heart Hospital with complaints of severe shortness of breath. Over the following four days, she received exams in a cath lab and echocardiogram lab and was given an intra-aortic balloon pump. It was felt at that time that she was suffering from viral myocarditis and her death was imminent. She was then placed on ABIOMED AB5000 BiVAD support. The BiVAD support was explanted 14 days later, she is at home today with her own heart, enjoying life with her family. This physician group has 100% survival for the five patients they've treated with the AB5000.

I would now move into the first section of our overview of the 2005 accomplishments, and we'll use our stated goals and Company mission as an outline. For our fiscal year '05 goals, Number 1 -- AB5000 launch and commercial success. We had given guidance of double-digit growth for ABIOMED in 2005 and we accomplished this goal with 48% growth. The AB5000 program grew 2X in '05 and over 100 consoles are now in over 80 hospitals in nine countries. Four out of the top five U.S. News and World Report surgery centers have purchased two or more AB5000 consoles.

We feel that we've just begun to sell and publish the outstanding results, with improvement on recovery and survival over historical rates. We have submitted papers and started 10 centers on an optimized protocol for future publications. Every center that performs open-heart surgery or accepts heart attack patients is a potential customer. Which means we have thousands of global customers.

Number 2 -- AbioCor HDE approval. We were unable to complete this milestone last year. However, we are very excited to present the FDA panel on June 23rd. We believe this will provide ABIOMED with vast media exposure and generate interest with our customers, as well as the general public. This will also give us a definitive time frame for the decision in June.

Number 3 -- AbioCor II implants in the lab. We successfully completed AbioCor II animal implants this year and have completed steps in the product development cycle. We are now collecting data in the engineering lab.

Number 4 -- Become profitable in a quarter with the exception of an acquisition. We were profitable in Q2, cash positive in Q3, and made a strategic acquisition of Impella with due diligence in Q4. The legacy or core business of ABIOMED will become profitable as a P&L in fiscal year '06. This is marks a key accomplishment in the Company's transition from an R&D shop to a commercial engineering leader. We also invested a significant amount of our R&D budget into new products for circulatory care that will be introduced into the market in the next 12 to 18 month.

Now I'll cover our accomplishments based on the Company's mission, saving lives. We've helped change the standard of care for measuring success by mortality to measuring success by natural heart recovery. Leading in technology and innovation, we continue to develop our pipeline through R&D efforts and acquisitions, our newest product, the AB5000 is the market leader in recovery.

Growing shareholder value. We had double-digit growth and gross margins above 75% for the year. We're aggressively expanding our product portfolio with technologies that are important for our customer continuum including cardiologists and cardiac surgeons. I want to ensure all investors that we are positioning the Company to be the market leader in circulatory care, and that our strategy has both short and long-term plays. Our objective is and will continue to be delivering sustainable growth in sales and earnings. By investing in technology now, we are mitigating risks for our shareholders on any single product, allowing us to enter into new markets and recruit top sales and leadership talent.

Having a winning culture. We have conducted employee surveys, 360 reviews, community service involvement, regular team building events, Company celebrations with recovery patients, and rewarded our top talent. We've eliminated our bottom performers, implemented a global mind-set, provided a two-day leadership course for all managers and top individual contributors, and instituted an honor code.

Overall, we are proud of our performance in 2005, but not satisfied. As you can see from the results, we have penetrated and continue to show consistent growth in the bridge-to-recovery market. We've also made inroads on distribution in international markets. In the fourth quarter, which is our first full quarter of offering support contracts, one-third of new AB5000 console customers purchased a support program at point of sale. This represents new revenue growth for ABIOMED and recognition of the value-added services we can provide to our customers to improve clinical outcomes and reimbursement.

Survival on the AB5000 at our top 10 centers is at 81% for all indications. 81%. With respect to myocarditis, and heart attack cardiogenic shock, the overall survival rate is 50%. We anticipate even greater improvement in survival rates as more centers adopt a protocol of implanting the AB5000 within 24 hours of post-cardiogenic shock. Overall, our clinical outcomes are improving and more non-transplant centers are purchasing the AB5000 console.

I'd now like to move into the second portion of our call, our fourth quarter performance highlights are as follows -- The first is compared to Q4 of last year, fiscal year '04, again, Q4 of fiscal year '04, the consoles grew 52%. The ventricles, both BVS and AB5000 grew 51%. The service business grew over 50% and we have over $500,000 of service revenue in the backlog. 16% of our consoles are on service contracts. Europe and Asia grew 200% reaching all-time highs in revenues, but we're just getting started. Overall, this was a record high quarter in the history of ABIOMED with 25% growth over last year.

Now, I'd like to compare the results to Q3 fiscal year '05, or last quarter. We gave guidance of sequential growth with breakeven earnings per share. BVS pumps grew 10%, and it was the highest number of pumps since the price increase in Q1. AB ventricles grew 27% and it was the highest number of units shipped for the fiscal year. Europe and Asia grew 24%. We incurred a loss of 220,000 or $0.01 per share. The miss for the breakeven operation was mainly driven by nonrecurring costs incurred during the due diligence of the Impella acquisition and additional costs associated with Sarbanes-Oxley 404 compliance.

As I stated in our last earnings call, our biggest challenge surrounds recruiting top global talent for the sales ranks. We've ramped up the search with three-plus dedicated agencies, as well as the Company incentives for direct hires. We've seen our newly-expanded product line with Impella increase excitement from potential sales hires. Unfortunately, we missed our target of having 15 U.S. sales reps in place in Q4. We achieved the Q4 results, record results, with four open territories, as well as six sales reps with an average tenure of 7 months.

During this process we've identified two superb sales managers for the U.S., Jim Dillon and Jeff Heldorn [ph]. Combined, they have 29 years of medical device sales and sales management experience, in cardiology and cardiac surgery from companies like Datascope, Perclose and Braun Cardiovascular. In addition, we've recently added two more sales representatives in critical markets. Our goal is to create a team specialized on the patient's clinical needs in order to bridge the gap between cardiologists and surgeons.

Globally, our distribution has continued to grow as we've added new sales heads and distributors. We've also submitted the AB5000 for government approval in China and Japan. Two years ago, we only offered one console and one VAD in Europe. Today we sell three consoles and five disposable products.

Now, I will move into the third portion of the call, our goals for fiscal year '06, which started in April. Number 1 -- Profitability of the ABIOMED core legacy business, which includes the AB5000, BVS and service revenue.

Number 2 -- AbioCor HDE approval and completion of the AbioCor selection process for 10 to 15 centers worldwide.

Number 3 -- Improved recovery rates and survival for cardiogenic shock patients and reduced variability across centers with optimized protocols.

And Number 4, position for U.S. commercial success with regulatory progress for all new products.

Per our specific guidance, on the core legacy business, we expect 48 to 52 million for the fiscal year '06 representing 26 to 36% growth over fiscal year '05. This is dependent primarily on quickly expanding and filling sales territories. We expect Q1 revenue to be lower than Q4, following our historical business cycle, with an estimate of 9.2 for 20% growth over Q1 of fiscal year '05. For Impella, we expect sales of 4 million for the year, and 600,000 in Q1. Overall, as a combined business, Q1 is estimated to be in the high 9's and the year at over $50 million.

Current plans for R&D are to spend approximately 24 million on completing the Impella products, and adding more ABIOMED core products. One quarter of our spending or 6 million will be on Impella, and we now have over 120 patents or patents pending in our ABIOMED portfolio. Based on the new product investment spending, expansion of sales representatives and focus on U.S. FDA trials, we expect the Company to have a loss of 10 to 14 million for fiscal year '06. With approximately 44 million in cash, we continue to have a solid foundation for growth. We are confident that our strategy will allow us to capitalize on our current opportunities today and provide a platform for success, as we add new products for the cath lab and surgery suites, pending FDA approval.

We do expect to return to profitability following FDA approvals and anticipate sustained profitability each year moving forward with a significant top-line growth. This has been our consistent strategy of transitioning to a quality leader in circulatory care with a continuum of products. In addition to these new products, our revenue-generating sources have expanded to three areas -- Capital equipment, or the consoles, disposables, or the VADs, and support agreements.

ABIOMED is transitioning from a company with one product and the AbioCor, pending FDA approval, to a company with a portfolio of 10-plus products in circulatory care covered by our 120-plus patents. Obviously, we cannot define the exact timing of the FDA decisions or progress, but we will explain the milestones and processes in detail each quarter.

Finally, moving to the fourth and final portion of our call, I will give you an overview of the Impella acquisition. Last week the leadership team met in Germany to complete the operating procedures, budget and organizational realignment for the new ABIOMED. We also attended the PCR Cardiology show in Paris and the Impella user's meeting. There was great interest from many cardiologists and distributors. During the users' meeting, the cardiologists described the Impella 2.5 product as a safety net for high-risk angioplasty or stenting of patients, and they recommended it as the first step in the cath lab for AMI shock patients. Again, the Impella products are percutaneous VADs that can be inserted in the cath lab.

Some specific updates on the Impella European results are as follows -- Impella products are now in 70 centers and 11 countries. 432 total patients have been supported by the Impella products. 172 patients have been supported in the cath lab, this is significant because the cath lab product was introduced only in November of last year. The Protect 2.5, which is the cath lab product, has been used 62% of the time for high-risk angioplasty in stenting, and for those patients, 94% have been successfully weaned. 94%. To define the market in the U.S., approximately 1 million procedures are performed in the cath lab with 5 to 10% determined as high risk. This equals 50,000 to 100,000 patients annually. It should be noted that there are about 100,000 intra-aortic balloon pumps used in the U.S. annually.

In the U.S., approximately 865,000 people suffer from heart attacks, 7 to 10% of those patients go into cardiogenic shock. This represents over 60,000 patients who can potentially be supported with the continuum of ABIOMED products. Currently less than 1% receive our AB VAD today, even though we are the only VAD product with FDA approval for heart attack shock. For the rest of the world, based on the populations, the numbers are even greater and heart failure remains the Number 1 killer with the highest cost to the provider.

This summer, the U.S. trials will be likely underway for the Impella Protect 2.5, and the Impella Recover 5.0. There are seven centers participating in the 5.0 IDE and 5 centers for the 2.5, which is currently in the IDE submittal process. All of these centers are ranked in the top 25 cardiac programs in the United States.

Please come visit our headquarters August 10th for the annual shareholders meeting to meet some recovery patients, the rest of the ABIOMED team and see all of our new Impella products firsthand. In summary, I would like to thank the entire team for the most rewarding and exciting year in my career, and tell you how confident I am in our future. Our toughest competitor remains ourselves, and execution is the key to rapid and sustainable growth. Impella and ABIOMED have now brought together the best technologies to accomplish our goals.

This concludes our prepared comments for this morning and I will now open the call up to questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Greg Simpson of Stifel Nicolaus. Please pose your question, sir.

Thanks. Good morning, guys. My question, first of all on the guidance for 2006, specific to R&D, and then the overall guidance. It's a big jump in R&D obviously, some of it related to Impella, but it sounds like a pretty significant amount aimed at some of the ABIOMED-specific products that are in the works. Can you give us some sense of the number of products, the timing of products, other than the stuff that's already on the table that we know about, obviously the AbioCor II. But other things that might be in the pipeline. I understand you are not going to be willing to discuss what those are at this point, but can you give us some sense of the significance of the pipeline as it stands right now?

Sure. So to reiterate, three-quarters of our R&D spend is for ABIOMED core products, and they will be in the circulatory care space, which means they'll be in the cath lab or the surgery suite. From a pipeline of what you currently know, we will essentially have four to five more new products in addition to what we've been referring to, and they will put us in markets that, in this space, that will equal up to -- approximately up to $1 billion in 2007, 2008. So that's what we're positioning for. Today we've been really playing with the BVS and transitioning to the AB. The market is a very large market if you look at the different reports. However, the actual dollars that have been spent in the recovery field have been along the lines of 50 million because we haven't had competitors co-develop it.

So we believe that by doing the acquisitions, by having Impella, by entering the cath lab, we'll be able to tap into the really how big that market is, which is several hundred million, and in addition, it will put us into different other roles with these type of patients whether they're acute or chronic, that puts us into a $1 billion market by 2008.

Okay. So when you refer in the press release to new products over the next 12 to 18 months, that's the time frame we're looking at for these additional four to five products?

Correct. And that also requires regulatory approvals, some will start outside the United States, but that is correct.

Okay. And when might we get some insight into what these are? Not to put you on the spot.

Yes. Greg, I think what we're going to do is, we're going to continue to develop the different platforms, and probably every six months we'll give an update, introducing some of the new products moving forward.

Okay. Fair enough. Then your overall guidance for fiscal 2006, the overall loss you stated, but then am I correct, did I hear you correct that basically fiscal 2007 beyond you expect profitability?

Yes, that's a good question and it's based on two things. Number 1, profitability comes obviously with the FDA approvals on the Impella products. That's a big driver. We cannot predict 100% the FDA processor timing, and based on that information, we can't predict things that we don't know or we can't control. If we do get those -- if we do get and we anticipate the FDA approvals, then that's the way you should look at it is, pending FDA approvals, we become profitable. And then based on likelihood from a timing perspective, I would say that you're in the ballpark of that fiscal year.

Okay. Then is it fair to ask you what your best guess is for, maybe use a window, but what the timing might be? Again, not to try to put you on the spot, but just what the of timing window might be for the FDA approval on the Impella products.

Sure. We, as a Company, want to focus on moving through quickly so that we have FDA approval within the 18-month window.

On both?

On both.

Okay. Okay. Final question, I'll get back in line. The sales in the fourth quarter, you gave us enough information to back into most, but can you ballpark the AB5000 console sales? You gave kind of an overall hardware unit growth rate, but were console sales up, down, sequentially from third quarter?

It was essentially similar to Q3 on console.

All right, great. Okay, thanks.

Thank you. Our next question comes from Mr. Jayson Bedford from Adams Harkness. Sir, please pose your question.

Hi, good morning, guys.

Hey, Jayson.

A few quick questions, just a clarification on the guidance for fiscal '06. 48 to 52, that's the base business, and then you've got an additional 4 million from Impella on top of that. Is that correct?

Yes --.

Or is the 4 million assumed in the 48 to 52?

No, that's on top. Basically the legacy business is 48 to 52, and depending on the sales ramp-up, then there's additional 4 million for the Impella products out of Europe.

Okay, great. Then what's factored into that guidance with respect to AbioCor?

Essentially, we have very little for AbioCor in that guidance. Less than 10 patients.

Less than 10 patients, okay. With the outcome of the FDA panel meeting and subsequent decision by the FDA, would that have any impact on the guidance?

Well, what we've said all along is that we're going to have a very controlled rollout for the AbioCor to make sure that the patient clinical experience is successful, as well as positioning the AbioCor II for long-term success.

Okay. And then just with respect to the sales force, what are your goals for fiscal '06 in terms of net sales force additions?

We're looking to increase the sales force by probably another 50 to 100% as we add in new products. In the U.S., and significant investment in Europe.

Okay. And so I'm not sure if you classified the AbioCor as a new product this year, but in terms of adding sales people in the U.S. this year, is there a set number you're looking for?

There is. Let's go through, today as we have about 11 to 12 reps, we've just added two more, we've added two U.S. VP of Sales leaders, and we're going to be pretty much adding heads every quarter as we find the right territory and right person. The reason being is, if you look at our model, we're actually selling more of our boxes to the open heart centers verses the transplant centers, and it's a simple reason, because there's about an eight-to-one ratio of open heart centers to transplant centers.

So we have literally thousands of customers today that can purchase the AB5000, and as we look at our model, that significant revenue, if you assume that each center would pretty much need two boxes, because they'd need one if the patient's on, and they'd want another one in case they have an emergency. And then obviously for BiVAD patients, that's two VADs or BVS VADs, so that's significant disposable revenue, plus we have the model where we're going to be signing service contracts on these boxes, which will generate 18,000 per year per box.

So really the reason we're ramping up is because we want to be out and selling to every open heart center, and we -- it's not going to happen where you sell 1,000 boxes in one year, but our intent here is that several thousand customers are out there that should buy our box and have a clinical need for the AB5000 system.

Okay. That's fair. Just with respect to the fourth quarter relative to the third quarter, I guess, sequentially, was pricing impacted at all? Have you seen any type of price degradation at all?

Pricing's been pretty consistent across the board for the last few quarters.

Okay. And then in terms of usage, when you're looking at AB5000, are you seeing hospitals use the actual AB5000 ventricle or hospitals tending to use the BVS blood pump? How's the ratio in terms of the AB5000 console?

The usage is still primarily from the core business, which is the BVS. And again, it's because there's hundreds of BVS consoles out there and there's a lot more open heart centers. But what was interesting in Q4 is we had the highest BVS sales that we've had all year since the price increase, and the highest AB5000 sales under ventricles. So the distribution is starting to make progress, and you have to remember that not only did we add people, we had territories that haven't been covered in three years, which was essentially west of the Mississippi.

So we're seeing a lot of different centers now that are getting involved and are starting to reorder and use the BVS, and using their old console, and we think that's the right trend as we then transition them to the new console. But we still expect to sell the BVS. It still is the most cost-effective best device and only device approved for the FDA cardiac heart attack shock. And remember you can switch from the BVS to the AB without touching the patient, having a closed chest transition in less than 10 minutes.

Okay. And then I guess just lastly, with respect to the Impella acquisition, has the strategy changed in terms of educating cardiologists? Now that Impella is on board in terms of from now until Impella actually -- you introduced the first Impella product in the U.S., how are you going to address and educate these cardiologists?

I don't think the strategies changed, I think it's been enhanced. Because prior we've been saying the same message, that the biggest growth area for our AB5000 is heart attack shock patients. And as a little company and not having any competitors really in this space, we would have to educate everyone just on our own data, but the patient owner would still be the surgeon and would still be dependent, getting the cardiologist to send the patients over to the operating room.

We actually have started a protocol at 10 centers that are focussed on putting in the protocol for AMI shock, which recommends putting the VAD in within 24 hours post cardiogenic shock, and in order to have been in that protocol, one of those 10 groups, it was sponsored by both the cardiologists and the surgeons. What Impella immediately brings to the table is interest from cardiologists in all the cath labs, in all open heart centers that want to understand and want to attack this cardiogenic shock problem, because it's still today 50% of the people that have cardiogenic shock die, and if we have a protocol in place, we believe that we can change that focus so that majority of these patients not only live, but get to go home with their own heart.

Okay, great. That's it for me. Thanks, guys.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from David Zimbalist from Natexis Bleichroeder. Sir, please pose your question.

Thank you. A couple of questions. First, as it relates to your service product offering, are you actually charging service for your BVS consoles now as well, or is this just something that you are rolling out as you place AB5000 pumps -- or AB5000 consoles?

We are charging service contracts on our BVS, and we do have some signed, but it's a small number. But we do offer that as well. The majority of the reason that people are signing up, whether it's BVS or AB5000, is they get best practice protocol sharing where we go in and we basically roll out the data we have from the 10 years of our database on recovery, as well as specifics to the indication, expectations of how long it will take for the patient to recover, as well as giving them support to put together packets to help for reimbursement, whether they're dealing with CMS or insurance companies.

Okay. And your press release indicated you had a backlog in the -- as it related to the service contracts?

Correct. We have over $500,000 in service contract revenue on our consoles that have been signed. That's not included in the Q4 or fiscal year '04.

And that is recognized as the -- over the time of the contract, so this is the $0.5 million that rolls in over the course of 2006?

Correct. We're taking the revenue quarterly as the contract continues.

But David, this is Javier, some of those contracts are two, three years, so it's not all going to come in the next 12 months.

Okay. And your entire service -- at this point, your service revenues would come entirely from that or are there other service contracts that are in place from before or that are different than these best practice protocol sharing, et cetera?

Correct. There's two things. First is, we do have a service business that's hourly billed, and so we did generate a significant increase this year in service revenue, it was over 50%. The second piece of that is the service revenue contracts or support agreements which is additional revenue that will generate this year. And to give you an example on the AB5000, that system is based on a software platform. So those people with service contracts are now getting the latest release, software upgrade at their facility, at no additional charge. For those folks that do not have a service contract, they have the option to purchase the new options and the features.

All right. When you come up with an upgrade, what kind of price would that entail, if you didn't have a contract?

It could range based on the feature, but anywhere from $5,000 to $10,000 per feature.

Okay. All right. So that's fair. Your gross margins, the second half were a little bit lighter than in the first half of the year, could you talk a little bit about what that mixed component is, how much of that has to do with geographic mix and the like?

Yes, there was definitely a component on geographic metrics, you noticed the last quarter we had 10% of international sales. So that took that into consideration. And then also in the last -- in the second half of the year, we also had the mix of consoles to disposables was higher.

Okay. And then could you quantify the amount of spending you were doing on Sarbanes-Oxley in terms of the compliance project relative to what you'd expect your ongoing compliance costs to be, particularly as it relates to fourth quarter, the spending step-up in SG&A was fairly steep.

Yes, I mean, the fourth quarter was our last quarter for compliance on the project, so we definitely stepped up on the efforts there. And for the total year, the component for Sarbanes-Oxley was probably between $500,000 and $700,000, a big component of that was in the fourth quarter.

So from an SG&A perspective, should we see your dollars spending on SG&A actually decline sequentially into the beginning of fiscal '06? What should we be looking at?

That component, definitely the Sarbanes-Oxley component should go away. But we're continuing to invest in the sales organization, and those folks can come into place, those costs will ramp up, so --

Okay. I did get on the call late, so did you talk about how many sales people you have in place today, how many open territories you've filled?

Yes, we had four open territories in Q4. However, we added two new U.S. sales VP's, and we've added two new sales people that will be starting this coming quarter.

That fills those four open slots out?

No. So we still have four -- we still have two of the four open, but what we're essentially going to be doing is adding more heads each quarter of the year as we find talented sales people. So we're going to grow, continue to grow the sales force in the United States by 50 to 100% this year, because we do have 1,000 customers out there that we want to penetrate with the AB5000 console.

What percentage of your current installed base of consoles today, so both the BVS, AB5000, all in, how many of those are being seen by a salesperson today? How many accounts do you actually, of the 1,000, do you actually have a call point today? From the now, what --

You mean -- are you asking how many accounts does each sales rep have?

On average, that would -- yes, roughly speaking. If you have an installed base of 1,000 systems, obviously many of those are more recent, or include the AB5000, but of that 1,000 accounts, can you talk a little bit about how far penetrated you are into those accounts versus the ones that have been --

Not penetrated at all, not going to give you the specifics per the reps, but essentially if you figure if there's about 1,000 customers out there, we have 12 reps today. So you can do the math, about 100 of those are transplant centers. In addition, we didn't cover west of the Mississippi, so we have new reps coming in, calling on accounts for the first time that we haven't covered. So penetration is not good at all. 73%, it's in the press release, of all the boxes we sold this year, this past year, went to open heart centers, not transplant centers. But we've also penetrated, we got four out of the top five, and the fifth one, it is in legal.

There's a great need out there, but this is the benefit of selling to all centers that do open heart. And what we now have as a model is whether you're in the cath lab or the operating room, if you're at a center that does open heart or accepts AMI or heart attack patients, you have a need for our device, you have a need for our console, and then specific to AMI, we have the only VAD that is approved by the FDA for these type of patients. So any other use of this is off label and it can't be billed correctly by the hospital to CMS.

Two more quick questions. First, for those accounts that have an AB5000 console, is your mix running three BVS units for every one AB5000 unit? And the last question, just on your R&D, can you talk a little bit about how much of that's Impella and a little bit of the timing of your targets for enrolling in the U.S. clinical trials and milestones for that process?

Sure, we covered that. It's a quarter of our dollars is going to Impella, so 6 million. And then the additional dollars that we're spending is for the core ABIOMED platform, whether it's acute or chronic in circulatory care. And again, we have lots of patents to enter multiple spaces here in this market.

As far as the timing, what we've said is our goal is we want to have the Impella products as a goal to be approved following the regulatory process within 18 months.

And where are you at in the clinical trials with Impella today?

Sure. The IDE for the 5.0 has centers, seven centers that we've already started doing the pilot, so now we'll be moving to the pivotal, and we're in the submittal process for the 2.5, the smaller pure cath lab product, we're in the process now, and we have five centers signed up and we anticipate, pending approval, to start this summer for that product as well.

And still by 18 months you'd expect to actually have that all the way through clinical trials, registration and approval?

That is our goal, but as we stated, we cannot predict the FDA timing or process so that we'll commit that we're going to give quarterly updates on where we are in the process, because the IDE hasn't been granted on the 2.5, we actually don't know yet the number of patients that will be required. As we get more details on that, we'll communicate that each quarter.

And the number of patients required to the 5.0 trial?

The number of patients on the 5.0 trial right now is still pending submission of the pilot results.

Okay. But no guesstimate?

Not at this time.

Okay. And then the AB to BVS ratio for those folks who have the both options?

I think it depends, but I'd say that your ratio of three-to-one is probably an estimate. We expect that to continue to transition. We see most transplant centers in general moving all to the AB5000. We see some open heart centers moving to the AB5000 ventricle. However, we also see it based on the indication and the patient age. If it's a patient who's myocarditis and they're young, we usually see them immediately going to the AB5000 ventricle. Because myocarditis takes three to four weeks, and you just want to assume that that's what you're going to do. However, if you have a patient who is CMS, who is at 62 or 80 hours post cardiogenic shock, some centers will start with the BVS to see if the patient will progress, and then they have the option to switch. So I think it's going to continue to transition based on the education and the indication.

Okay. Great. Thank you.

Thanks, David.

Thank you. Your next question comes from Karen Rosebrummer from Shaker Investments. Please pose your question.

Yes, can you help me understand your goal for profitability of the core business? Is that including everything except Impella?

It is including everything except Impella on the BVS, the AB, the heads that would be dedicated to that, plus the R&D spend for those products.

Okay. So the increase in R&D is included in that profitability -- the increase in R&D for the three-quarters' worth?

The increase in R&D for that platform of products of an upgrade to it, or a product that runs off of it, yes, it is. If it is a new product, then it is not included. If you look at our balance sheet for this past fiscal year, you can see that had we not moved anything or developed new products, we would be moving into profitability. In addition, we are spending approximately 24 million in R&D, and we're projecting a $10 to $14 million loss. So you can see that the significant reason of our loss is we're investing in some new platforms to enter the market. But we want to make the transition, so once we move into profitability, we maintain it, we sustain it, and we see rapid and high top-line growth.

Okay. I guess what I'm trying to figure out is, if Impella is bringing you 4 million in revenue, you're putting 6 million in R&D into that, that would be a loss of 2 million. So I've got 8 to 12 million in spending. And I'm trying to understand, that's not just all for Impella, some of that is for development of other new products?

Correct. But also, we are adding more heads where we can sell Impella, that is a cost. So in Europe and Asia, we will be selling the Impella products and ramping up distribution there as well.

Okay. Thank you.

Thanks, Karen.

Thank you. Your next question is coming from Mr. Robert Marson of Defiance Asset Management. Please pose your question, sir.

A comment on the success of the AbioCor family of products and your abilities to meet your longer term financial goals, now that you've had almost -- or six or so quarters at the Company, can you talk about the long-term financial objectives you published in your annual report from 2004? Thank you.

I think you're referring to the goal for seven years that we've talked about; is that correct, Robert?

Yes, that's correct.

The goal that we've set and confirmed is we had set a target for our Company that within seven years or at seven years to be at 500 million in revenues, and we stated that we would do that with organic growth, with developing new products based on some patents we have today, as well as acquisitions. So what we're doing today with Impella, what we're doing in investing the 24 million in R&D, puts us on track for that ultimate goal to be at 500 million in seven years, and to become a profitable business. So I would confirm that forecast today, and tell you that everything that we're doing is with that goal in time -- in mind.

Does that include any kind of commercial level of revenue from the AbioCor family, I or II? How would you bring AbioCor II to market?

Sure.

I'm sure you'll have some modest success with AbioCor I.

That's a great comment. It always includes and does include the AbioCor. What our plan is for the AbioCor I, again, the goal of the AbioCor I is it's an 18 to 24-month device, and the challenge is the size. And what we expect and what we're planning for is a controlled rollout so that those people that the device fits has a successful transition and can get the benefits of the AbioCor itself. We also expect that the AbioCor II has a goal of five years and it will cost less to manufacture, and, therefore, we think that will be the device that we will ramp up our manufacturing capability and expand from the 10 to the 15 centers to triple that number as we train people. But what we want to make sure is that we don't have centers that sign up and do one to two patients and then do not have the support staff to have more than that in the facility or have a network to provide support as these patients are discharged home.

So we want to make sure that it's very successful, but again, as I break out the revenues, you should think of the acquisition of Impella; you should think about the organic growth of the AB platform, whether it's the ventricle, the BVS or just the console; you should think about the service revenue stream; and you should think about the AbioCor itself; and you should also consider there will be new products entering into the circulatory space that we're going to be developing.

Those new products are a pleasant surprise over a three or four-year period, obviously, having $1 billion of new potential market to address, however, the short-term cost is not insignificant relative to where current expectations are. I'd strongly encourage you to be as open as possible without giving away trade secrets of the markets, you can address the products and why you think the commercial success is worth the investment.

I will take that advice, Robert.

Thank you very much.

Thank you. Your next question comes from Mr. Randy Hogue from Lion's Share. Please pose your question.

Good morning, fellows. Most of my questions have been answered, but I do have one for Bob Kung, perhaps he can answer it, and that is the AbioCor II had as a target, as far as durability, a five-year device. Would you comment on that, on what it looks like on the AbioCor II as far as your bench testing at this point? And then a related question with respect to the AB5000. You had indicated in the past that the pumps had been on the bench for considerable amount of time, I believe it was approaching two years. How are we doing on that, as well?

Hi, Randy, how are you?

I'm well, thank you, Bob.

Good. As far as the AbioCor II is concerned, the reason that we think that five years is achievable, because this drive unit that we're using, which was the original Penn State technology, really had over almost two decades of experience, and it's a very simple drive and because of its simplicity, we're pretty sure that the five years can be accomplished. We have devices that actually, they are not formal tests, but that's gone more than two years. So that's pretty confident, I think, technology that we're going into. Now, as far as the AB5000 is concerned, I -- what -- can you restate your question again?

Yes, I guess I could answer it, it's not two years, Randy, it's over one year. And again, the AB5000 ventricle is half of the AbioCor, and we've been updating as we go, so it's been -- it's now over a year they've been running. It has the capability to run nonstop. In addition, the console itself is tested as part of the ventricle, and the mean time between failure on the AB5000 console is 15 months, and that's without any maintenance. Obviously, we do maintenance once a year so we have great reliability and confidence in that device.

Okay, thank you very much.

Thank you. Your next question comes from Mr. William Frain from UBS. Sir, please pose your question.

Good morning, Mike and everybody. Apparently somebody doesn't like what [audio difficulties] stock all the way down to $9.57, but that's not my question. On current prices that you're getting for the Impella in Europe, for gross margins, Mike?

The pricing we're getting in Europe today, it's a mix between distributors in different countries, but on the -- are you talking the Impella --?

Yes, the Impella product, I'm sorry, the 2.5 --.

The 2.5 is ranging from about 2.5 to 3,000 Euros, and the5.0 is ranging from 4,000 to 7,000 Euros, depending on what place. And then just to comment, Bill, on your comment on the stock, there's only 52,000 shares have been traded and 20,000 were traded before we started the call. So, I wouldn't worry too much about the volume.

No, while you're talking, it's 105,000 shares now, that's not my question, I was just wondering about the gross margins on Impella at current prices. The gross margins?

Yes. The gross margins are basically in line with the ABIOMED, they're above 70%.

Thank you very much.

Also, Bill, we haven't priced yet the -- we haven't priced them yet in the United States, but you can assume that the pricing in Europe will be less than what we will charge the United States, so we should have even higher gross margins.

Thank you very much.

Thank you. Your next question comes from Greg Simpson from Stifel Nicolaus. Sir, please post your question.

Thanks. Yes, Mike, a follow-up to my previous questions and actually a comment Robert made. The four to five new products that you mentioned in the pipeline, it sounds like based on the R&D dollars you're talking about spending, it sounds like that's four to five new stand-alone products and not enhancements to the AB5000 product line; is that a fair comment?

It will be a combination, Greg. So some could be a disposable, some could be a console, some could be a stand-alone brand new product. So it's a complete mix. All of them are in the circulatory care space, and again we have patents from everything from our VAD implantable, or external, a wrap for the heart, we have multiple patents on our TET system, and that's the benefit of the portfolio we have. We have the capability to protect what we create with our patents and have the expertise to be able to create these new technologies.

Okay. And finally, then, of those new products, any of those -- you gave us a time frame to look for them, but any of those included in your '06 revenue guidance?

No, they're not.

Not, okay. Okay. Thanks.

Thank you. Your next question comes from Mr. David Zimbalist from Natexis Bleichroeder. Please pose your question, sir.

One quick question, the status on the AB5000 pursuing a bridge-to-transplant indication?

It's a good question. We do plan in the future to be looking at that indication, and we're collecting the data as we speak.

Second question, with several new products in the pipeline for next year with the Impella acquisition on your plate, as well as potentially rolling out the AbioCor I, can you talk a little bit about your appetite for additional acquisitions, product acquisitions, company acquisitions, and sort of what hurdles they would have to overcome in order to be considered, given all of what's on your plate today?

That's a great question. From an acquisition perspective, we're going to continue to look at the market and see if there is an accretive investment or if there is a strategic investment that does not add significant expenses, and falls right into what we see as our sweet spot of circulatory care that our sales force can capitalize on their relationships, and specifically, it would be in the cath lab or the surgery suite.

Okay. And given that Impella, again, just going back to Impella, that it's sort of a new space for you to address in the cath lab, to what extent are your sales people today starting to build those relationships within the open heart centers, and what do you think it's going to take as we get closer to Impella reaching the U.S. market?

We have it already started as of this past year to develop and start to call on cardiologists through our network of the surgeons to have specific AMI trials. We've recruited -- some of our salespeople have come from the cath lab itself or have been in both cath lab and the operating rooms, and our two new U.S. VP's that are the sales leaders have backgrounds in both the cath lab as well as the surgery suite.

From a perspective of what we have to do, as the Impella product immediately brings us the portfolio that the cardiologists are coming to us asking questions, and if you think about where we're doing these trials for the 2.5, it's essentially some of the leading individuals as well as the leading centers. For instance on the the 2.5, it's Brigham and Women, it's Columbia with Marty Leon, it's Texas Heart, it's Washington Hospital, and it's William Beaumont with the lead cardiologists. So we immediately have the capability to talk to the folks that are publishing or lecturing, are involved at the shows, whether that's TCT or ACC or PCR and we have submitted papers on pure recovery itself that will be presented at those shows in the future.

Including this year's TCT?

Yes.

Okay. Thank you.

Thank you. Your next question comes from Harish Iar from Dawson James. Please pose your question.

Thank you. Most of my questions have been answered, but just two. One, you mentioned I think early in the call, the growth rates of the BVS and the AB pumps, I was wondering if you can repeat that. And second question, how do you see the relationship between the BVS pump and the Impella products, they're both more kind of shorter term, or shorter duration support devices? Or do you just see them as one in the OR and one in the cath lab kind of situation?

Harish, let me start off with the first portion, you asked about the growth of the pumps?

Right. I think you mentioned some numbers from --

Let me go through. So as compared to last quarter, Q3, BVS grew 10% and AB ventricles grew 27%.

These are units or dollars?

In dollars. But the -- and so from a BVS perspective, it was the highest amount BVS shipments since Q1, but Q1 we had the lower price in place and we raised pricing at the end of Q1. So it's the highest with the new pricing. And then for the ventricles, it was the highest for the year.

Second, your question was the positioning of the Impella products for the -- versus BVS, and I think what you need to look at is it's by indication, and so if a patient is in the cath lab already, and is there because they're having a heart attack and they're in cardiogenic shock and they're having stents, that should be the first line of defense that they try to use the Impella products earlier to avoid or support the patient from cardiogenic shock. If the patient is having an operation done and is having open-heart surgery and is going to require BiVAD support, there's no other way you can provide BiVAD support with the exception of the BVS and AB5000 for our specific products. So you have a nice range here.

So if you have a patient that you can avoid cardiogenic shock in the cath lab, then they don't have to move on to a more invasive procedure. However, once they get to around the 24-hour mark and they are in cardiogenic shock, it's likely, and what we recommend as a protocol, because we've seen papers that show this, your highest survival and recovery comes from earlier intervention with BiVAD support, that's where they would use the BVS or AB5000. And again, the BVS can be the first step and you can always switch to the AB without another procedure.

If we think about the funnel itself, we believe that the Impella products will bring more of the patients over that are AMI because today we get less than 1% of them. And if you think about what happened when we introduced AB5000, for every four AB5000 customers, one started on the BVS. And we think it will be -- it will also be similar in this case that it will be a continuum for patients, whether they're in cardiogenic shock hour one, or if they're cardiogenic shock hour 90, we will have a product that can provide that support.

Thank you.

Thank you. Our last question --

If I could just comment one more thing, that I want to make sure that the cath lab itself has a million procedures, and for high risk angioplasty, these are patients that we never saw before that were outside of our portfolio of patients. And as new technology evolves in the cath lab, people will continue to want to put in more stents or do high risk and that could be from the stents itself or it could be percutaneous valve repair. For that reason alone, that's a huge number with a million procedures a year just in the U.S., 5 to 10% are being used for that purpose, for high risk, and for those patients that of all the 2.5's, the percutaneous pumps that have been used, 62% have of those been used for the angioplasty patients and 94%, 9-4, have been successfully weaned. So this is a brand-new portfolio of patients that we're going to see. And just to remind everyone, that's for the whole BTR market on an average year based on the third-party reports and our own reports, you're talking about less than 1,000 patients globally that we see today.

Thank you, sir. Our last question is coming from Mr. Robert Marson from Defiance Asset Management. Sir, please pose your question.

Thanks for the follow-up, guys. Mike, did you study the ramp of the BVS as far as the console placements over the few-year period it occurred? And you've done a good job with 100 of the AB5000 consoles out there, if you were to achieve your goals, you put a slide up at a conference saying you have the potential to ship to 1,000 or more open heart hospitals with one to two units, how would that ramp occur, if you've at all modeled it off of the BVS ramp? Thank you.

Sure. So what we did, Robert, is we looked at the BVS and we looked at the 10 years and we concluded some of the limitations, and in fact, the product has been extremely successful by any measurement, with basically, 1,000 BVS systems have been shipped out there worldwide, even though we haven't had a dedicated global distribution, or even covered the majority of the United States for the last three years. The reason that we saw the limit where it didn't continue, and this is where the AB5000 came in, is they wanted the capability to do short and long-term support, which now you can do with the BVS and AB, they wanted the capability for the patient to be able to walk around, which now you can do with the AB, and they wanted lower adverse events, which the AB5000 has the lowest adverse events for external pumps in this -- with this FDA label. So that's the first piece.

The second piece was the right distribution. So we met the clinical need. And the right distribution comes about in doing what you're hearing the plan is, is our sales people today have way too many open heart centers and transplant centers. Again, if you just do the math, 12 into 1,000.

Yes.

There's no possible way they can cover those. So that's why we're going to be ramping up the sales force, we're going to be at publishing more statistics, and using our database to create centers of excellence that can show that if you show up with a hospital and you have myocarditis or you have a heart attack, this is the best treatment and the best chances you have to recover your heart. And also, working with reimbursement, CMS, and working with the insurance companies so they understand that there's actually a cost benefit as you recover the hearts as well.

I guess what I'm asking, is how did the BVS ramp up to 800 or 1,000 units? What was the distribution model? Were there double or triple the sales people inside ABIOMED then or was there some kind of joint venture with external partners or distribution partners? And how could you use that experience from that particular ramp to accelerate this? Because if you want to place 1,000s of these consoles over the globe over the next five years, you have to start selling a hell of a lot more than 25 or 30 a quarter. There has to be years where you place three, four, 500, which means you're going to have to start placing 75 a quarter, I would think, or 100 a quarter at some point a couple years down the road. How do you get to that level of distribution? And how did the BVS get there to begin with?

Well, the BVS got there over 12 years, 10 to 12 years. So we don't want to, obviously, take 10 to 12 years. The second thing is, the sales force was a collection of distribution outside of the U.S. So to go back to your question, though, is the Number 1 obstacle, if you break it out, is having the heads out there, addressing the clinical need and publishing to prove it, and aligning the reimbursement appropriately for the hospitals. Those are all the three things we're doing, Robert, in order to penetrate with our goal of penetrating this in less than seven years. And I would agree with you that we need to be selling more boxes to the open heart centers, and that's why we're essentially adding to the U.S. sales force and increasing, continuing to increase the sales force this year.

Okay, thank you.

Thank you. We're showing no further questions at this time. I'd like to turn the floor back over to Mr. Michael Minogue for any closing statements or comments. Sir, the floor is yours.

Great. Thank you all for calling in. I look forward to talking with you. We'll be out on the road for the next two months and obviously preparing for the June 23rd HDE meeting. Again, August 10th is our able shareholders' meeting which we will do here at headquarters. We'd like all of you to come so you can meet the team, meet some of the recovery patients, and see the Impella products. If there's any further questions, please feel free to call in. And thanks again for your time today.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

Thank you.