ABIOMED Inc (ABMD) 2006 Q1 法說會逐字稿

Good day and welcome, everyone to the ABIOMED first-quarter fiscal year 2006 earnings results conference call. This call is being recorded. With us today is the Chairman, Chief Executive Officer and President, Mr. Michael Minogue and the Vice President of Operations, Mr. Javier Jimenez. At this time for opening remarks, I'd like to go ahead and turn the call over to Mr. Javier Jimenez. Please go ahead, sir.

Thank you. Good morning and welcome to ABIOMED's investor conference. This is Javier Jimenez, Vice President of Operations. I'm here this morning with Michael Minogue, ABIOMED's Chairman, President and Chief Executive Officer. Also with us today is our Chief Scientific Officer, Dr. Robert Kung, and Dr. Karim Benali, Vice President Business Development. The format for today's call will be as follows. First, Mike will provide you with an extensive overview of significant current developments and future plans. I will then provide a very brief summary of the financial results for fiscal first quarter 2006 ended June 30th. Finally, 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, drug development efforts, ABIOMED's strategic operation 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 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 an anticipated event. In addition, today, we will be discussing the Impella products and the AbioCor. We would like to note that these products are not FDA approved. We're in the process of pursuing that path. Now I'm pleased to introduce Michael Minogue.

Thank you, Javier. To start, I would like to give you a brief overview for our discussion today. First, I will cover Q1 accomplishments and trends; second, updates on the Impella integration and third, an update on our regulatory progress. But before we begin, I'd like to share one important story about a patient. Recently, a 73-year-old man was referred to the cath lab at the University Hospital in Amsterdam with a high-risk left main coronary artery stenosis. This lesion was blocking roughly 75% of the major vessel that supplies blood to the heart. Such high-risk, high morbidity patients are usually referred to the surgical suite to be put on a heart lung machine in order to open up their chest via sternotomy and perform a CABG.

In the past, his risk level, based on his age and location of the lesion, would have made angioplasty too risky. One reason angioplasty has grown rapidly is because placing a stent in the cath lab reduces patient recovery time because it is less invasive. By inserting the Impella Protect 2.5, the interventional cardiologist was able to have a safety net for the high-risk angioplasty needed to insert the stent. In this case, the stenting balloon caused the vessel to disect with a total occlusion stopping the flow of blood to the heart. Without the Impella 2.5, this would have been a life-threatening crisis. However, the Impella 2.5 device provided continual blood flow to the heart and allowed the physician to take his time inserting several stents in total.

The patient was awake, stable and experienced only an occasional moderate chest pain in the 40 minutes it took for the entire procedure. He was discharged without having to have his chest opened, without having to stay in the hospital for eight plus days and without needing a month to recover.

In the United States today, there are one million angioplasty procedures per year with 5 to 10% being high risk. Over time, with the aging baby boomer population, this high-risk percentage will likely increase until year 2020.

ABIOMED is the heart recovery company and with Impella we have leadership technology that will potentially save lives by saving the heart in the cath lab and the surgery suite. Now I would like to update everyone on the Q1 accomplishments and trends. Our AB5000 products are now in 27 out of the updated 119 transplant centers, or 23% of the transplant centers. We are in 44 of the 867 non transplant centers, or 5% of the non transplant centers. As you can see, there is a great opportunity for increased market penetration especially in non transplant centers. Since last year Q1, we have more than doubled our AB5000 users in both the transplant centers and non transplant centers.

On the reimbursement front, we are happy to report that the new and final changes published by CMS this week for fiscal year '06 reimbursement effective October 1, 2005 allow for our devices, which are the only FDA approved devices for all recovery indications to now map to DRG 103 when a patient recovers at the hospital. This is one of the highest paying DRGs and is roughly as 70% increase to our reimbursement under DRG 525. These changes in DRG assignment remove a financial challenge for hospitals to support a patient, a CMS patient, for up to 30 days to allow for an increased likelihood of recovery.

We have a paper that will be presented in October at TCT validating the need for extended support to maximize the patient's recovery opportunity. We expect this change to increase the availability of our products in the future primarily at the 867 non transplant centers as well as the 119 transplant centers. This will also encourage earlier access to our lifesaving AB5000 technology. In addition, the CMS update included an increase in DRG 525 of 4.1%, which is the standard for external VADs.

The reimbursement range, keeping in mind significant variability for geographic area and type of facility, are now 100 to 160,000 for DRG 103 and 60 to $100,000 for DRG 525. However, it should be noted that the majority of recovery patients today are covered by insurance companies which reimburse some multiple of cost. Our support agreements provide extensive analysis for customers on both best practices for improvement in outcomes and reimbursement policies.

Per our latest clinical review, 75% of myocarditis survivors recover their heart and 64% of heart attack cardiogenic shock survivors recover their own heart, which would put them in the DRG 103 category. Additionally, survival rates are increasing over the last 50 patients on all indications and this is very important for future utilization and mind share with the cardiologists who refer their patients for the AB5000 VAD.

The following numbers are compared to Q1 of fiscal year '05, last year. The AV Ventricles grew 111% on dollars and 107% on units. This quarter had the highest patient utilization for the AB5000 and had the highest number of ABVADs ordered by our spoke or non transplant accounts. BVS blood pumps were down 27% on units and 7% on dollars. However, it should be noted that last year, we had a 45% lower average sales price on BVS and a 75% lower price on reorders that were included in the units and that program was terminated. The majority of the price increases occurred in Q2 for BVS.

AB5000 consoles are now comprised of sales and paid rental agreements averaging 7 K. to 10,000 a month. We have seen wide acceptance of this demo program for customers sights seeing patients in need and are looking to use our technology but have not yet included it in their hospital capital budgets. In addition, the rentals have increased utilization among existing customer sites looking to add more consoles to their recovery programs. This has been especially important as we have new salespeople on board who may not yet have the relationships to navigate the capital budgeting process.

Additionally, several territories remain open and the rentals provide easier access to the AB technology from telesale leads at non transplant centers. With two quarters of tracking, the support agreements grew over 81% and we have close to one million of backlog sales maturing over the term of the contracts. This revenue is not reflected in the quarter's numbers. This represents a new revenue opportunity for ABIOMED and reflects the value would bring to customers in both reimbursement and support services.

Europe ABIOMED sales increased 135% on combined ABIOMED and Impella products reaching all-time highs in revenue for Impella and second all-time highs for ABIOMED following last Q4.

Overall, this was a record first quarter in the history of ABIOMED. As I stated in our last earnings call, our biggest challenge surrounds recruiting top global talent for the sales ranks. We have seen our newly expanded product line with Impella increase excitement from potential sales hires. We're very confident in our two U.S. sales leaders, Jim Dillon and Geoff Heldoorn, who have extensive relationships in the industry in both the cath lab and surgery to suite. We achieved the Q1 results with nine sales reps in the U.S. having a short tenure with ABIOMED and six open territories. Since the last week of Q1, we have added four new U.S. sales representatives and our current sales team now consists of 12 reps. Our goal is to continue to add two to four additional hires per quarter. We have also doubled our U.S. clinical sales team in the last year bringing this dedicated team from five to a total of 10 representatives with nursing backgrounds.

We have aligned 22 U.S. field personnel under Jim and Jeff for integration between these two functions of sales and clinical support. Our goal is to continue to build a team specialized on the patient's clinical needs in order to improve utilization and clinical outcomes. Based on the recent CMS ruling that rewards outcomes, we feel we are well positioned to recover hearts.

Moving to the second portion of our call, I will give you an overview of the Impella integration. Last week in Europe, I watched a procedure performed by a cardiologist using the Impella Protect 2.5. The cardiologist finds it easy to position and plans to use it on his high-risk angioplasty procedures. Another benefit both he and the surgeon discussed was their opinion that the device has the capability to remain in the patient to support an off pump CABG procedure should that option be selected from the cath lab. 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; integration of the three year roadmap between ABIOMED and Impella, regular senior management meetings and communications and integration with IT and manufacturing. We now have seven Impella employees green-belt trained in Six Sigma as well as 25 ABIOMED employees. In addition, we're providing language classes in English and German, have started an integration newsletter in English and German and individual e-mailed buddies have been set up for functional areas. We have also completed cross training of our clinical teams and this has been extremely helpful in Europe for the ABIOMED business.

In Europe, we have continued to add more direct sales representatives in the major markets. We are also working to expand the distribution of Impella products outside of Europe. Specifically, there are more than 20 countries that accept CE Mark on all three Impella products; 2.5, the 5.0 and the R&D, which is implantable right side VAD. The top three Impella opportunities were exploring are distribution agreements in China, Brazil and Israel.

We would like now to give a regulatory update on all our products in the last portion of my comments. Regulatory update. In the U.S., we're currently reviewing information the FDA requested for the Impella Protect 2.5 IDE submission. For the 5.0 products, we have enrolled 11 patients in the safety trial. We are reviewing the results with the FDA and plan to submit analysis later this month for both the Impella 2.5 and 5.0. If approved, we can move forward in patients at selected centers in our Q3.

The sites for the Impella 5.0, Washington Hospital Center, Mass General, Columbia Presbyterian, Baylor Methodist, University of Chicago, Texas Heart and Hershey Medical Center. The sites selected for the 2.5, Brigham and Women, Columbia Presbyterian, Texas Heart, Washington Hospital Center and William Beaumont. It should be noted that we will be at TCT and there will be other information presented on Impella at TCT. Pending U.S. sites, we will be announcing more details later should we expand.

The Impella products are being widely used in Europe. I would like to comment that we have done over 450 patients. Impella itself had more than 45 million invested in it prior to our acquisition and the manufacturing facilities have wrapped up. On the AbioCor, as many of you know, June's FDA panel on the AbioCor HDE submission was somewhat open-ended. We recently met with them in D.C. and discussed the anti-coagulation and quality of life data we are providing. As we continue to submit additional data, we're also moving foward designing AbioCor sites outside of the US. Based on the FDA's tentative timeline, we could expect a decision by the end of September.

Now I would like to announce plans for a future new product for the U.S. market and plans for a future upgrade to our existing products pending regulatory approvals. We are excited to announce our plans to submit the small axial implantable right side Impella pump for an IDE later this year. To date, more than 40 patients have been implanted with this device in Europe. Our surgeons are very interested in this technology and to have a small axial pump that can offset the right side failure that occurs in approximately 30% of LVAD patients. This technology you will be able to see at the annual shareholders meeting next week.

Additionally, we will be providing more information on our product for minimally invasive annula (ph). To make it easy to implant and explant the AB5000 and BVS we want to have minimally invasive cannula so that we can have a minimally invasive extraction off pump and we have been working on developing this technology for the cannula for the last 12 months. We have completed animal studies at multiple centers and have received feedback from over 20 surgeons. We have collaborated with different U.S. institutions, including Robert Wood Johnson, Jewish Hospital and others. The benefit to the patient is that it is safer, quicker and saves money by avoiding the heart lung machine and it should improve the positioning of the cannula by a less experienced surgeon. This is critical to providing our technology at all open heart centers to provide for earlier implant of the VAD, which has been shown to increase recovery. We plan to submit a PMA supplement to the FDA in Q3 and have the first patient done in Europe in Q4 for this product and expect to get FDA approval three months after submission.

Please come visit our headquarters August 10th for the shareholder meeting to meet some of our recovery patients, the rest of the ABIOMED team and see all of our new Impella and ABIOMED products firsthand. We will have presentations by the ABIOMED leadership, physicians and show videos on some case studies.

In summary, our forecast for the next quarter is sequential growth over last year Q2, which was 10.4. The pilot rental program is new and potentially defers revenue with the opportunity of higher utilization. We will continue to evaluate the program on an ongoing basis. ABIOMED has a combination of FDA approved and reimbursable products that will continue to grow with high margins as our global sales team ramps up. We continue to strengthen the company and added 18 new hires in Q1 in QA, marketing, public relations, legal and more. We have also eliminated the bottom 10% of our lowest performers over the last 12 months and will continue to focus on retaining, recruiting and developing the best talent in the industry.

As our company matures we will be able to capitalize on all existing products as well as new products pending FDA approvals. We are well positioned to save lives, lead in technology and innovation, grow shareholder value and have a winning culture. Now I would like to turn the call back to Javier who will provide a brief summary of the financial results.

Thank you. Financial results for fiscal first quarter ended June 30, 2005 as reflected on our press release this morning include revenues increased by one million, or 13%, from 10.4 million fiscal first quarter 2004 to 8.4 million in fiscal first quarter 2006 -- from fiscal 2005 to 2006. This is the highest revenue ever in a first quarter and reflects the growth on AB5000 ventricles and the record revenue in our European operations.

Cost of product revenues as a percentage of product revenue was 28% for fiscal first quarter 2006 from 24% in the same period last year. The difference in product margins is primarily due to the consolidation of Impella products into the total results. Research and developing expenses increased by 900,000 from 3.3 million fiscal first quarter 2005 to 4.2 million in fiscal first quarter 2006. The change reflects ABIOMED continued investment in new products and platforms, (indiscernible) to be introduced into the market in the next 24 months plus the additional research and development associated with Impella operations. There was an expensing process in research and development. It was a 12.4 million write-off for the fair value of purchase in process research and development resulting from the acquisition of Impella.

Selling general and administrative expenses increased by 2.4 million, or 49%, from 4.9 million in the first fiscal quarter last year to 7.3 million in the first fiscal quarter ended June 30, 2005. The increase is correlated to the higher volume in dollar revenue with the expansion of sales and marketing activities. There were additional expenses related to the Impella operations and acquisition. The net loss for the quarter on a GAAP basis was 17.6 million, or $0.73 per share, excluding the 12.4 million attributable to the non-cash research and development expense associated with Impella acquisition, the loss on a non-GAAP basis was 5.2 million or $0.22 per share.

For liquidity on capital resources as of June 30, 2005, our cash, cash equivalents, short-term marketable securities and long-term investments totaled 39.2 million, down 4.4 million from 43.6 million as of March 31, 2005. Cash consumption during the quarter includes approximately 1.7 million use of (indiscernible) of the closing price for Impella acquisition. This concludes our prepared comments for this morning. We would like to now open the call for questions. Operator, please, if you can proceed.

(OPERATOR INSTRUCTIONS). Greg Simpson of Stifle Nicolaus.

Good morning, guys. A couple of quick questions for you. First of all on the rental agreements, is there any way to quantify what the impact was on first-quarter revenues? Obviously, it enhances the outlook for disposable usage and disposable revenue growth. Is there any way to quantify the impact, what you were penalized maybe on the revenue side with respect to what would have been box sales?

That a good question, Greg. What we said was on average it's a 7 to $10,000 a month price and what we could tell you is that there is double-digit numbers of rentals.

Okay. Had you not, and this might call for speculation on your part, had you not introduced this program, would boxed placement, boxed sales have been pretty standard with the run rate you have been on here lately?

If you include where we would end up with the rentals and sales, you are in the range of where we have been the last three quarters. What we have done in the quarter, we can't guarantee a rental is not accountable and nothing is 100% that it will transfer. Our history shows that when we have done these in the past, utilization goes up and folks tend to purchase the systems after several months. Just as a comparison, we sell the box for 95 K. Most of our customers have BVS so it's a 20 K. trade-in. If you think about a couple of months on rental, you are close to that price and then utilization, one BiVAD patient represents $80,000 in disposable revenue.

Great. Secondly, on the reclassification in DRG 103, the way I'm understanding -- is there any way to quantify of your AB5000 ventricle units used now, is there any way to classify what percentage of those units would now fall under 103? I guess another way to ask it -- there is no delineation -- Does the patient -- doesn't have to be on support for any specific length of time, right, as long as the patient successfully recovers? It doesn't matter if the support is provided for two days or 30 days?

Correct. To give an overview of the breakthrough that the papers are submitting, the BVS was the recovery standard and we'd recommend a 5 to 10 day duration for that device. So in the past, people used to think if you don't recover in the first 5 to 10 days, you're not going to recover. When we have done the analysis, even on the BVS, we saw that more than 50% of our patients required more than five days. Now we have the AB5000, that has higher flows, patients can get up and walk around and it has the lowest adverse events on the market. Additionally, both devices have full indication approval for recovery. We started seeing people recover at week two, week three, week four. In fact, if you made it past the first week, the slope of recovery increased till around the end of week four and we also saw kidneys recover. So there is still going to be the same population and as you saw from the annual report, some folks, depending on the indication whether it's the postcardiotomy cardiogenic shock, they can't come off the heart lung machine, to myocarditis and AMI, which tends to take a little longer. It's just based on them recovering. There's no time frame associated with it.

So if a patient recovers tat at day six or day 30, they then qualify for DRG 103. The other challenge here is we have an incentive as well as the hospitals have an incentive that's been aligned, which I think it's a breakthrough and I applaud the government and CMS for the decision, that as we drive earlier implantation, less bleeding, faster time to the VAD, reduction of bleeding and infection, it will help utilization. It will help outcomes and it will transition more of our patients into the DRG 103 bucket. For instance, on myocarditis, based on the latest review of our database for all the patients we have done, for those that covered, 75% from myocarditis survivors, 75% recovered their hearts. So they would be DRG 103 and for the heart attack cardiogenic shock survivors, 64% of those have recovered their heart. So they would be DRG 103. The reason this is even more important is because we have a population of best practice users. So for instance, Mark Anderson at Robert Wood Johnson, his program of doing 115 patients has high survival rates but also high recovery, is our best centers will be reimbursed per their performance and it gives us all an incentive in what we provide in our support agreements to come in and share best practices for all the centers.

Well, you guys have been involved, obviously, in a pretty heavy-duty education process on recovery. I mean does this make it dramatically easier for you?

I think it makes it a lot easier. I think the fact that CMS has, if you read the details, has accepted the data that we have given them. I think is a very positive sign. I think also that most people don't understand insurance companies, even some places at the hospitals. Most of all our recovery patients -- our recovery patients, about 70, 75%, are insurance and they are covered anyhow. But what most people tend to focus on and play everything together is just on what CMS. So some people may not understand that they can actually make money and save someone's heart at the same time. Now that is possible and what CMS does is it makes it very clear for everyone to understand how the system works.

Last question, on the right side axial pump that you discussed, can you give us some sense of what the regulatory time frame might be or what the benchmarks -- timing for the benchmarks?

Sure. What we're going to do on that device -- again, we have patient data already from Europe. We will be providing more details on that at the next one. We have so many other trials and things happening with the 2.5 and 5.0 that there is still a lot of work to be done and how we're going to position it. So I would like to defer those details until the next call or we could do a specific call on that as we get closer.

David Zimbalist of Natexis Bleichroeder.

This is actually Mike Duncan for David. On SG&A, last year you had about one million in relocation expenses. Excluding that amount, SG&A was up about 87% versus sales of 14%. Could you kind of explain where the difference is that is not related directly to sales, particularly if you could break out Impella? That would be helpful.

We're not planning to break Impella from ABIOMED for now. On an overall basis, the difference in the SG&A was also when we were increasing the sales and marketing efforts and the sales team was seeing a number of recruiting fees. There was a differential versus last year. So it wasn't so much reloc but recruiting. Then we had some additional expenses correlating with Impella acquisition proper that wouldn't be able to be capitalized and then additional Sarbanes-Oxley expenses that were incurred during the calendar Q1 even though it was to meet compliance for the March 31st fiscal year.

So that is three items basically; recruiting, Impella and then extra Sarbanes-Oxley. That's correct?

Yes.

Then in terms of the guidance for the second half of the year, I sort of estimate that you had to do kind of 35% on average for each quarter to sort of hit the low range of guidance. Do you think that is still kind of possible with the new products?

The new products in Europe we're selling -- the new products in the U.S. for Impella are likely not to have an impact on the revenue. I think the bigger concern or the question is of how much will utilization increase and how much will we expand the pilot rental program. Right now, with only one quarter, the answer would be we're going to wait-and-see how we do in Q2 and how open and how much the pilot program grows in the box sales.

So the guidance is reconfirmed or you're still waiting for the pilot program to kind of play itself out?

We're basically waiting for the pilot program to play itself out and we will update, after two quarters, we will update the formal or confirm it again at the end of this coming quarter.

Did you give a backlog number for the pilot program?

We did not. The backlog number we gave was a signed support agreement to revenue that hits on terms that it breaks out of a twelve-month to three-year revenue rec.

Then you said you aren't breaking out sales up Impella. Is that correct?

Correct.

Thank you.

Just one point on that. The sales on Impella do not include the whole quarter because the transaction having completed. So it's basically about 66% of the quarter of Impella sales. There were sales prior to our formal acquisition that are not included in our revenue.

Harish Iar (ph) of Dawson James Securities.

One question. I guess historically you have had the conversion rate from a patient who goes on the BVS to the AB has been kind of like 4 to 1, I'm sorry -- yes, I think 4 to 1. Is that still the same or are you seeing some shift to just going directly to the AB?

I think it's similar in the number but the shift we're starting to see is more open heart centers are starting to go quicker to the AB and they are doing it for the specific indications of AMI, cardiogenic shock, as well as myocarditis. The reason that is is because these are -- usually they are younger, healthier patients that they'll want to get up and walk around, which improves the chances of recovery, and it has been shown that for those indications it usually takes longer than ten days. Plus the device has the lowest adverse events, AB5000 has the lowest adverse events on the market of any external VAD in bleeding and infection or neurological dysfunction.

Just another follow up. Can you give the breakout between I guess kind of a percent of revenue between the AB and the BVS?

What we have been giving out in the past to stay consistent is the difference between the disposable and the -- So we can give you that but we haven't broken out the different platforms. And part of the reason is it would be probably more confusing because, remember, the AB5000 console also runs the BVS blood pump as well.

Karen Morose Bremner (ph) of Shaker Investments.

I was wondering, first of all, can you give us the share count?

It's about 24 million, let us get the right number.

In the past when you gave guidance, you gave us some guidance for what you were expecting the Impella acquisition to add. But you're not going to break out the revenue from that?

What we gave in the beginning of the year was that we expected to see 4 million in total Impella sales.

I believe you also said you were expecting 600,000 in the first quarter.

Correct.

Can you give us any idea if you are in that ballpark?

I can give you that we're in the ballpark moving forward. I'm confirming that that is correct for the last quarter. Moving forward, we won't break it out and then again, just to reiterate, that in the revenue numbers, the first basically six weeks of this quarter are not included in our results.

The revenue came in quite a bit lower than I had been expecting and that I had recorded your guidance previously having been. Can you help me understand what has happened there?

I think that the first high-level one is not selling the box versus putting on a rental. Potentially it did delay or defer some revenue provided that the device is purchased. So that is a big piece of it. If you have double-digit numbers of devices on rentals, if you take that number and apply it to pure sales, there is the difference in this quarter's revenue recognition or a portion of it. The BVS is down somewhat, not significantly, but the AB5000 is significantly up, which we think is the right pattern and trend we want. Also the -- again, the challenge of having open territories means that the BVS itself as well as the box sales requires people to be out there working with the open heart centers and driving business.

So the main difference versus your guidance for the quarter would be the rentals?

The majority of the difference is, yes, rentals.

To answer the first question regarding the shares. Right now they're at 26.3 million shares. If you want to back it into the EPS calculation for the average, it is about 24.1.

William Frane (ph) of UBS.

See you next week. Just a question, when do you expect the FDA meeting on the AbioCor and how are you doing on the questions that they asked again?

We actually have already gone and met with the FDA post panel. We were down there a couple of weeks back. We reviewed some of our preliminary data and we are continuing to provide them data. Just to clarify, a lot of people have a perception that the panel voted against approval. There was eight official votes in the day; seven out of the eight were positive towards ABIOMED. In fact, the vote to not approve the device failed and there was approval on a panel vote to approve the device with some restrictions and then what couldn't be decided was the number on the registry and the anti-coagulation protocol. Then in the end, when they just did a straight approval without any contingencies, that failed but almost past itself at 7 6 1. So based on the timing, they are supposed to have a decision to us by the end of September. However based on this as an HDE, those are only guidelines with the dates. It could be longer; it could be shorter.

Thank you and again, see you next week.

(OPERATOR INSTRUCTIONS). We do have a follow-up question from Mr. Zimbalist from Natexis Bleichroeder.

One last question, are you guys still confident about profitability in 2007 and is that for a single quarter or for the full year?

That's a great question, Mike. We have formally not given any guidance on fiscal year '07. What we stated was that we expect to become a profitable company and maintain and grow both in the top line and bottom line upon FDA approvals. Officially, we haven't given any guidance yet for fiscal year '07 and we will do so as we get closer.

Greg Simpson of Stifle Nicolaus.

Two questions actually. Mike, first of all, just so I'm clear, when you talk about the FDA decision by the end of September, it's specifically what decision are we talking about? Based on the date that you submitted on anti-coagulation protocols and could this be an approval decision or whether the date you have submitted at this point is sufficient to make a decision?

That's a good question so let me clarify. It's basically a decision whether they approve or deny the HDE request. Then there can be versions of that that they can say we approve it but we would like this, etc.

So technically, they can come back and say we approve your HDE and then yet you still have to work out the specifics of the conditions.

Yes and actually to note that in the packet, what we presented to the panel and the FDA, already had the conditions that many of these things that were requested, such as it was at a limited 10 centers in the U.S., that there would be an anti-coagulation protocol, that we would have an expert sharing and communicating with all the centers. So much of this already was in the plan itself.

And then next, and Javier, if you covered this, I apologize, when you were giving us some numbers. For Q2, given some of the kind of moving parts with respect to the revenue line because of the rental policy and then obviously last year you saw the kind of soft first quarter on a seasonal basis and then a 40% sequential jump. What kind of guidance are you willing to give, anything for Q2?

What we said for this quarter is sequential growth over last Q2. Last Q2 was 10.4 million. What we said also is that we're going to monitor -- there is obviously an impact to revenue recognition if something is rented versus transferred. I would like to note that Q2 last year was a 100% increase over the prior year and normally in this space, the summer months are kind of the slower months based on scheduling for surgeries, open hearts, etc. So to confirm what we have said, sequential growth over last Q2, which was 10.4 million.

Dave Ennis (ph) of UBS.

Mike, could you walk me through the rental transaction if in fact the hospital that rents the equipment from you then decides to purchase it? Is it a reduction in the price versus what they rented it for or is that something that you all keep and then the pricing is as if they had not rented the equipment?

That's a great question. So it's a little bit of a combination and it's a little bit of their utilization. Majority of we will give some credit, whether it is dollar-to-dollar is not necessarily the case but we will give some credit to folks who have rented it for a certain period of months up and to a certain amount to give them some incentive to purchase it.

What we're starting to see is not only more centers at the open heart centers but we are also starting to see many of the transplant centers now instead of having just two of these devices, having two and renting additional units as well to do more patients. We have done the analysis and we have talked to a lot of our users with territories where you haven't covered. A lot of times in hospitals you have to enter into the budget process a year prior. So when a patient has an event or needs help, this is what many have found to be the best way for them to treat the patient but also bring the technology into the center.

So they call you on the fly and get a machine delivered?

Correct.

And then they just rent it from you?

Yes. In some cases, it's that but the majority of it is they know the patients are there. It's a matter of going to them and saying hey this is how we can treat some of those patients and if we can do it under this support agreement. And there is also two types of patients, right? You have the ones that are at the open heart centers and you have the transplant centers. Sometimes patients show up at the transplant center with our device already implanted in them and in the case of a BVS, a hospital doesn't have to take the patient back into the operating room, crack their chest, take out our small cannulas, core the ventricle, put in a different cannula and then connect them to a large device that they can't walk around with. And that's the benefit of the AB5000 console. We can actually switch from the BVS to the AB5000 with a closed chest transition. That's much better for the patient.

So there are actually patients that end up at a transplant center that doesn't have one of your machines?

It could happen, yes. So the option would be for a device -- a surgery for another device that is not specialized for recovery versus a smooth transition without surgery, which also will reduce bleeding, reduce infection and potentially help that person recover.

Randy Hugh (ph) of Lion's Share Financial.

Good morning, fellas and I appreciate you taking my question. Mike, let me take you back to the start of the AB5000 project. I believe that you had in the initial controlled rollout some 10 to 20 hospitals. What was the number? Was it 10 or was it 20?

I think it was about 15 to 20, Randy. You're taking me back to a time when I wasn't here. That's why I'm asking Bob.

Let's say 10. It doesn't matter. The question will be self-evident here when I ask it. They have had, brought prior to the official rollout, they had some several months of training and opportunity to come up to speed on the application of the AB5000 ventricle and get a feel for the proper way to insert it, etc. etc. Then the official start date of the whole rollout was I think March of last year. So we have gone one full year with some number of hospitals, be it 10, 15 or 20, who have had at least a full year of operation. Can you comment, Mike, on a general platform from that database from that experience from which one could extrapolate, give us some idea of the reuse rate of pumps as they have gone up the learning curve and had a full year of experience?

Let me start with kind of the high level. Since last year Q1, we have more than doubled our users in transplant centers as well as open heart centers, more than doubled. And there is still a long way to go. Per what the usage rate is, it is really one of those it depends. And it depends based on if it is a transplant center or if it's an open heart center. It depends on how aggressive and the partnership between the cardiologist and the surgeons. We have some open heart centers that are active and do more a year than some of the transplant centers. So it is really a mix of them getting comfortable with the technology and that is why we are pushing forward to integrate the clinical team with a sales team so that we can start kind of building the programs. Conceptually, transplant centers see more patients because they are funneled there from all the other open heart centers.

All right. You had given some discussion in the past -- it's kind of a tangential question here about gathering data from all this initial rollout and being able to substantiate scientifically statistically what you have been talking to us about here in several of your public presentations with regard to the success rates and weaning people out of the hospital with their natural hearts when they came in and had a 50% chance of crashing after cardiogenic shock. How are you doing the process of gathering that data? Is it substantiating these claims that you have made in your various presentations like the one you made yesterday at Adam Harkness and if so, when would you be thinking that might become reduced to a writing and published?

October, at TCT, we will be presenting a specific paper on recovery and we have other papers that will be submitted. Plus just to reiterate, to go to CMS, you have to have data and we used an independent auditor as well to document what we have and we do have lots of other studies. If Dr. Karim Benali would like to comment on some of the other studies or things we're looking at, I'd be happy to open it up to him.

Thanks for the question. Actually we have, as Mike has mentioned, the study accepted that have been rolled from more than 21 centers in the U.S. on the AMI post cardiogenic shock patients and the results are really compelling and the publication actually has been accepted for the TCT presentation. As we move forward, we're going to have more and more studies and actually we submitted two other abstracts last week for two coming international shows and we're going to submit more as we move down the road. So as we're getting more data and getting more information, we're going to get more and more (indiscernible) on how the new AB technology is used and what is for all the added value from the clinical point of view.

It sounds to me like, but I have been fooled on this before if could ask just one last question, that this data seems so compelling that clinicians would almost be considered negligent if they didn't use it. Is that overstating the case with respect to the results or would you expect this would be of such a case, compelling case, to cardiologists, etc. that their adoption rates would be greatly accelerated over some lesser impressive results?

Randy, my lawyer is in the room. So if I were to even try to answer your question I think she would knock me out. So what I can say is that we're confident in our data. CMS has just, if you read the write up on it, they have seen our data. We had it audited and documented by the Lewin Group which is a very respected group that is out there and is used by several companies and they would not basically decide to pay a higher rate unless they believe that recovery was an option and didn't have data. Obviously, you'll wait and you'll see more information at TCT. But if you just look at what we have already presented, we do have on video and we have that presentation available what Dr. Karim Benali presented in San Fran months ago. It's a very compelling story and it already shows huge improvements in recovery rates.

Harish Iar. Another follow-up, please go ahead.

Mike, just one follow-up. On the rental program, when did you start that during the quarter?

We basically started it in April.

Jeff Neill (ph) of Bear Stearns & Company.

Good morning. My question relates to the rental. First of all, is there a term limit on the rental agreement or is it renewable on a monthly basis?

They are month-to-month. They are all a little different but essentially they are month-to-month.

With the new data that has been released by the new DRG code, how do you expect that to play on the rental program? Will that tend to accelerate rentals in your opinion or accelerate conversions or does it have any impact at all?

Jeff, it's a fair question and the answer is we don't know yet. We just got the approval. What we do know is that there was a big push by many users to start focusing on recovery, especially at the open heart centers. If you look at the data last quarter, we had more patients use than ever before in AB and we actually had more open heart centers buy the ventricles. So it could accelerate the rentals with utilization. It could accelerate straight sale of the box itself depending on their budget. But regardless of that, it certainly should help us continue to expand and put two of these boxes at every center, two or more these boxes, at every center that does open heart surgery. It also could encourage some of the centers that have already bought two or three to also want to rent because if they leave a patient on longer to recover that means they need another box available for another patient.

Mr. Minogue, at this time, there are no further questions. Please continue.

Great. I'd just like to thank everyone for the call and again I hope to see all of you next week at our annual shareholders meeting August 10th. If you have any further questions or concerns, feel free to follow up with us and we will get back to you this week.

Ladies and gentlemen, this concludes the ABIOMED conference call. You may now disconnect. Thank you and have a pleasant day.