ABIOMED Inc (ABMD) 2006 Q2 法說會逐字稿

Good day and welcome, everyone to the ABIOMED second quarter fiscal 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 Vice President of Operations, Mr. Javier Jimenez. At this time for opening remarks I would like to turn the call over to Javier Jimenez. Please go ahead, sir.

Thank you. Welcome to ABIOMED investor conference call. 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 of Product Development.

The format for today's call will be as follows: First Mike will provide you with an overview of significant current developments and future plans. I'll then provide a brief summary of the financial results for our fiscal second quarter 2006 ended September 30th, and 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 make forward-looking statements including statements regarding future financial performance, product development, ABIOMED strategical operation 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 risk detail in the Company's filing with the Securities and Exchange Commission.

Investors are cautioned not to place undo reliance on forward-looking statements which speak only as of the day 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 day 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, and we would like to note that these products are not FDA approved and are not yet available for sale in the United States. We are in the process of pursuing that path.

Now I'm pleased to introduce Michael Minogue.

Morning, everyone. Thank you for taking the time to join us today. To start I'll give you a brief overview for our discussion focused on four key areas. First, I will cover ABIOMED's growing distribution. Second, I will discuss the customer economics and marketing advantages of a heart recovery for all open heart centers. Third, I will explain the increasing awareness of recovery as the best option for patients and acute heart failure. And fourth, I will provide an update on ABIOMED's growing product portfolio.

My first update is on growing global distribution. As previously stated in quarterly conference calls, recruiting top sales talent from within the industry had proven to be a challenge, however, we have now seen the results of our past global efforts. In the U.S. we have met our goal by hiring new sales reps for the last two quarters and each with a proven record of success.

We also added two new clinical specialists with strong backgrounds in cardiology as well as cardiac surgery. In Europe we have hired three sales representatives and one clinical specialist. We pursuing every major country with direct or distributor models and we established a presence in four new countries including Bulgaria, Chile, the Czech Republic and France.

Recently we were awarded new regulatory approvals for the BVS in China and the AB5000 from Health Canada which was immediately used for patient support. Also of note, we have seen deeper penetration in the Japanese market with our BVS technology. This past quarter three of our senior executives met with customers and distributors at the international society for rotary blood pumps in Japan.

Thorsten Siess, our Chief Technology Officer, presented to 450 surgeons and cardiologists on the Impella Purcutaneous VADs for hemodynamic stabilization and the AB5000 for longer term support. It was a great symposium that generated huge interest and we're very excited about our future in Japan. We began our AB5000 console rental program in Q1, and we continue to add new customers to our installed base. To date, 60% of Q1 rentals converted to ownership of the consoles and the remaining customers are still renting or working toward ownership agreements.

In Q2 we signed more rental contracts than in Q1 and we will continue this program moving forward. This program was designed to assist our new sales team ramp-up. It also allows hospitals to offer ABIOMED's life-saving technology while they go through their capital budget approval process.

In summary at 10.9 million in revenues, we exceeded the analysts expectations of 10.6 to 10.8, and we beat the estimates of our loss from the consensus of $0.16 a share to what we reported of $0.11 per share. I mentioned this only because I have been informed that there's a problem on the web financial pages for the numbers, and we did this while maintaining our gross product margins of 77%.

However, we are not satisfied with our growth, but we are encouraged with our progress on hiring sales representatives, and as I previously stated felt this was our biggest challenge over the last six quarters. We have 16 sales reps and 12 clinical consultants in the U.S. It will take some time to maximize their productivity per sales rep, however, the U.S. integration of the sales and clinical teams under two east and west vice presidents has also helped create selling teams with clinical depth.

My second update is on the customer economics of recovery. ABIOMED is focused on recovery to best preserve a patient's quality of life and also to education customers on the economic and marketing advantages of recovery. The centers for Medicare and Medicaid Services, CMS, updated reimbursement guidelines for the successful recovery of the native heart with an external ventricle assist device. This became effective October 1, 2005 and will provide a 70% increase in reimbursement for hospitals.

Recovery of the native heart is beneficial for the U.S. health system as well. A heart transplant with immunosuppression drug therapy or a destination therapy device is five times the cost it Medicare than recovery itself. Regarding quality of life, one's own heart will always exceed a heart transplant or destination therapy VAD.

Many of our patients are less than 50 years old and a transplant's ten-year, 50% success rate is not encouraging nor is the impact of immunosuppression drugs. In the case of implantable LVAD devices, the results are much worse and the studies still show that approximately one in three suffer right side failure.

Overall we think the next generation BTT and destination therapy devices are showing great improvements and potential for chronic heart failure patients and we applaud their success. However, ABIOMED is committed to giving every acute heart failure patient a chance at preserving their own heart and quality of life.

We continue to find that many transplant centers think of heart transplant as the first and likely outcome even on acute events such as myocarditis and AMI cardiogenic shock. There is growing awareness and excitement because as our data has shown, the most likely outcome for acute heart failure survivors on the AB5000 is recovery. We will continue to publish more data on these results.

Additionally, the reduction of mortality and improvement outcomes in recovery can help hospitals position their program as the leaders in their market. This is one reason that all of the top five U.S. News and World Report ranked heart hospitals have now purchased two or more AB5000 hospitals. These esteemed hospitals are Cleveland Clinic, The Mayo Clinic, John Hopkins, Duke University, and Mass General.

My third update is on recovery awareness. Our recovery story reached a large audience this week in an in-depth USA Today article on Monday. The piece focused on an AMI cardiogenic shock patient, Phil Stauffer, who was able to recover his heart on the AB5000 after 20 days of circulatory support.

The article also highlighted the data presented at TCT, the Transcatheter Cardiovascular Therapeutic show by Dr. Mark Anderson of Robert Wood Johnson University in New Jersey. As you may know, this is the largest forum for interventional cardiologists. The AMI TCT paper was a multi-center study of almost 50 patients with AMI cardiogenic shock having the likely mortality rate of greater than 90%. It found that 42% were able to survive and 67% of the survivors were able to recover the natural function of their heart after an average of 31 days on AB5000 circulatory support.

These results represent a clear breakthrough on their treatment of AMI cardiogenic shock, a clinical crisis that has not shown clear advantages over ten years. These results include patients outside of published protocols of insertion of an ABIOMED VAD within 24 hours of cardiogenic shock. Specifically, the average was 46 hours. Based on benchmarking, we see time to VAD of 24 hours or less, time on VAD of 31 days as average, and the reduction of bleeding has key factors to success. We believe there is potential for better outcomes in the future based on these protocols.

It is important to remember that our AB and BVS VADs and Cannulae are designed to recover the heart while supporting the organs. This data was presented at the European Association for Cardiothoracic Surgery in Barcelona in Spain. Momentum is growing for recovery, more patients were supported this quarter on AB5000 ventricles than in any other previous quarter.

Also this quarter, we continue the longest usage of the AB5000 on a patient in Europe. As of today the patient has been on support for 259 days and will continue until transplantation. AB5000 consoles increased 27% on units and 17% on revenue versus second quarter of the fiscal year 2005. Additionally, ABIOMED disposable VAD units shipped increased 21% year-over-year on a consolidated basis and totaling more than 500 units. Specifically, 10% growth on AB-BVS disposable units and 102% on Impella units.

Now I'd like to discuss the fourth and final update on our growing product portfolio of devices designed to address the clinical spectrum from the cath lab to the surgical suite. Many of our new products are breakthrough technologies that do not have comparisons or trials to follow such as stents, pacemakers or implantable LVADs. This creates a regulatory process challenge as was acknowledged at a forum at TCT.

We have been working and we have experience with approximately 500 European patients we like to utilize for data collection. Unfortunately, we are unable to give specifics on more detail today based on parallel path discussions for design and analysis and questions that we still need to respond to the FDA.

In the U.S. we are continuing to review the information, the FDA requested for the Impella Protect 2.5 IDE submission. For the 5.0 we have enrolled eleven patients in the safety trial. We have reviewed results with the FDA and are still providing additional data. We are appreciative of the FDA's support and confident in the process. We will provide more details upon resolution of this discussion. We believe the time is well spent to explore and design the proper trial in conjunction with the existing patient data.

Since the FDA panel on the HDE submission for the AbioCor in June, we have been in ongoing communication with the FDA team to remind everyone the panel had concerns over anti-coagulation and quality of life. The panel voted not to deny nor approve the AbioCor but did discuss the conditions for approval. The AbioCor is a technology advancement that no other company in the world has achieved even though many have tried. As the FDA completes its process we are preparing our plans for the completion of AbioCor I and II.

Based on last year's 48% growth and market feedback, I underestimated the impact of open territories in sales recruitment. This clearly has affected our revenue performance. Due to the rental program for AB5000 consoles and time frame for integration and ramp-up with a new sales team, ABIOMED is adjusting fiscal year '06 revenue guidance from 52 to the 56 range, to the low 40s.

As was discussed we said that we would give an update following this quarter. The Company continues to forecast sequential quarterly growth year-over-year for Q3 and Q4 fiscal year '06. ABIOMED anticipates a loss estimate of 14 to 19 million excluding 13.3 million of in process R&D expense. As we continue our planned R&D investment in new platforms and the approval path for the Impella products in the U.S.

In summary, ABIOMED is the heart recovery company shipping more VADs and calling on more heart centers per quarter than any other company in circulatory care. This quarter we made significant progress in four key areas. Number one, growing our global distribution which is needed to call on the 3,000 plus open heart centers world wide. Number two, teaching customers recovery economics which help hospitals justify the investment in both consoles and VADs. Number three, creating recovery awareness which drives utilization and patient awareness. And last, number four, building our portfolio which gives us more productivity per sales representative and increases top line growth for high margin products.

This is an exciting time to be at ABIOMED and an exciting time for our patients and customers and our investors. We are focused on daily execution to achieve even more.

Now I'll turn it back to Javier.

Thank you, Mike. Financial results for fiscal second quarter ended September 30, 2005 as reflected on our press release this morning include, product revenues for the second fiscal quarter ended September 30, 2005 were 10.8 million or a 3.7 increase over 10.4 million reported for the second fiscal quarter ended September 30, 2004. The increase is primarily the result of the addition of the Impella product revenues.

While revenues from the AB5000 and BVS circulatory assist products are at the same levels as the prior year. Unit-wide AB ventricles were flat with BVS pumps up 13% driven by international growth. Disposables made up 80% of total product revenue for ABIOMED legacy products.

On a consolidated basis we sold over 500 pumps this quarter with AB legacy pumps in the mid-400s. International sales including sales from our international subsidiaries ABIOMED BV and Impella for fiscal 2006 accounted for total growth revenue ended September 30, 2005 and 2004 respectively.

Cost of product revenues as a percentage of product revenue was 22.8% for the quarter ended September 30, 2005 versus 23.4% in the same period of the prior year. We expect product margins to remain at or slightly above these levels as the sales and manufacturing volume of Impella devices continue to increase.

Research and development expenses increased by 1.3 million or 36.6% to 4.7 million in the three months ended September 30, 2005 from 3.4 million in the three months ended September 30, 2004. The increase relates to our substantial efforts to explore new technologies and to bring new products to market in the next 24 months. These efforts include the additional research and development efforts on Impella and expenses related to efforts to speak regulatory approval for several Impella devices in the U.S.

General and administrative expenses increased by 2.5 million or 58.7% to 6.8 million in the three months ended September 30, 2005 from 4.3 million in the three months ended September 30, 2004. The increase is primarily due to the expansion of the sales and marketing organization including additional sales representatives and clinical specialists in the U.S. and Europe, and to the inclusion of Impella's expenses during the current fiscal year.

We also incur additional legal and related expenses related directly with Impella acquisition during the three months ended September 30, 2005. During the quarter ended September 30, 2005, the Company had a net loss of 2.8 million or $0.11 per share. This compares to a net profit of $500,000 or $0.02 per share for the three months ended September 30, 2004.

We have supported our operations primarily with net revenues from our sales of our BVS and AB5000 circulatory assist products, government contracts and pursuits from our equity financing. As of September 30, 2005 our cash, cash equivalents and investments total 35.7 million, a decrease of 8 million from the 43.6 million in cash and investments as of March 31, 2005.

Now we would like to open the call for questions.

[OPERATOR INSTRUCTIONS] We'll go first to Greg Simpson with Stifel Nicolaus.

Thanks. Good morning, everyone. Javier, if I can get this, I'm not writing this quick in my old age, the sales breakdown specifically the information you gave for BVS and AB5000, unclear whether the growth rates in the numbers you gave were for pumps or for total revenues. Can you go over that one more time?

Yes. It was for pumps. So I was talking about the units. I said the AV ventricles were flat with BVS up 13%.

On a year-over-over basis.

Yes. And on a combined basis in the mid-400s in terms of units.

Great. Secondly, I realize it's probably still too early to go into this get your opinion, first quarter rentals turned into purchases. As we try to model the impact of the rental program, is this a reasonable number with one quarter lag. Should we assume the vast majority of these rentals eventually turn into purchases. Is there any help you can give us on that front? Or is it still too early?

Greg, this is Mike. We have two quarters under our belt and technically only one quarter of following the rental program, so the initial results are very good if you can consider 60% and others renting or looking and a nice mix between open heart centers and transplant centers. And that's really the model we're going to figure out, will one or the other move quicker.

As far as the general sense, what we have found is, once a center has an opportunity whether open heart center or transplant center, and they use the AB5000 console on the BVS or AB, there's a lot of new benefits for them both from the marketing perspective and also from the reimbursement and we think that's why it's so high. At the end of this quarter we'll be able to have two quarters to better see what happened in the rentals in Q2 and how often and how quickly did they convert as well.

Great. If I could ask a follow-up on the overall sales guidance and the breakdown of that and get back in line. First of all in the sales guidance, do you make the assumption you saw growth in BVS and flat in AB5000 with the that reimbursement coming online? Do you expect the shift there to go toward AB5000 ventricles and away from the BVS going forward?

I think it depends if it's an open heart or transplant center and it depends on how sophisticated they are if they've used the BVS consistently or haven't used it as much. If you look at the reimbursement story, clearly an advantage for hospitals from a marketing and economic perspective to recover the heart itself. We expect long-term that the transition of more people moving to AB from the BVS, we just don't know how fast that will happen.

Right. And then in your full year guidance, A, are there any AbioCor units still in there, you mentioned there were at least a few in your previous guidance. And is the 4 million given now basically a quarter and a half of experience with Impella and the attention at TCT, is that 4 million or so for Impella still kind of where we want to be?

First of all question on the AbioCor, we did not have any revenue in our model for the AbioCor for this year. I don't think we've ever had that in there internally. On the Impella, the range of last year it was 2 million so 4 million would be a 2X growth. Will it be 2X? That's a question we are driving for.

As you can see, and for those that were at TCT, there's huge demand on it. I think the challenge of that will be as we progress on the FDA trials because we'll be using those in the United States and we will be generating some revenue during that trial period.

Okay. Thanks. I'll get back in line.

Thank you. We'll go next to Mike Duncan with Natexis Bleichroeder.

Hi, thanks for taking the questions. Looks like you made some hiring progress in Europe. Can you talk about the European sales and where you see those going as a percent of total?

Two things. We have made progress in Europe and our percentage of European -- or our percentage of international sales we think will continue to go up versus the rest of the Company but we expect the U.S. market to continue to grow as well.

As far as the percentage-wise I don't think we can give you an estimate today. We are seeing the European trend based on hiring of new sales people in many of these countries that we talked about both Impella didn't have anyone covering them in the past and in some cases, ABIOMED didn't have, necessarily, someone in those countries.

Great. And on Impella, looks like it contributed 750K in sales. Is that a correct number?

A little less than that.

Okay. How has it been forming versus your expectations of it for sales?

The Impella has been performing very well, there's three things you look at. One is the revenue and the other is the clinical publications and the last would be the customer excitement and all of those we've been doing very well on. For those that were at the TCT, we had three live cases, we have huge interest in the United States to start the trial, and in Europe we have a lot of top users publishing papers on it and using the Impella products successfully. And as proof of that we have done nearly 500 patients on Impella technology in Europe alone.

And sounds like you're having regulatory challenges getting that trial going in the U.S. Would you be willing to give a best-case-scenario for an approval date for Impella 2.5 in the U.S.? Or too early to say?

I just would always err to the side of never to forecast during an FDA process. Because there's certain things we can control, certain things we don't control. We have a great working relationship with the FDA. They're a world class team and we want to be sensitive to the fact that we're investigating a couple different avenues and we're going to hold off commenting until it's been resolved.

Okay, fair enough. And then on console placements, it the increase more due to new sales reps going into new territories or more due to seasoned reps who are finally making progress in the territories they've been in?

That's a great question, Mike. Just to give you a feel, we have made progress on our sales hires but if you think about the last two quarters, we've had eight new people join and of the eight people, all four in each quarter came at the end of the quarters. What we have started to see, the folks that have joined us, new folks that are approaching their ninth and tenth months from last year starting to see significant progress and make penetration into areas either where we weren't before or where we didn't have a good penetration before.

Okay. And one final question, on the rental program, can you talk about pricing? Particularly has pricing been similar to what you mentioned last quarter or has that changed at all?

Exactly it's the same. A range of 7-10,000 per month on the rental program itself.

And when people actually convert to a sale, are they paying full price or paying more?

We basically work with them depending on how much utilization they've done and potentially some credit for the rentals if they convert and they've had usage.

Okay. Thank you very much.

Thanks, Mike.

We'll go next to Jayson Bedford with Adams Harkness.

Hi, good morning. Just a few quick questions for you. First, maybe I misheard you, Javier. The Impella contribution, I thought you said 15% of revenue. Did I mishear you?

That was international combined. ABIOMED BV, or international sales in Asia and Canada for AB5000 and BVS and Impella.

Okay. And you didn't give out an Impella percentage?

No, I did not.

Okay. And then I guess when we look at AB disposables, it was flat year-over-year. Why is that? It's been a driver the past few quarters, why has that growth slowed?

That's a good question. The BVS units themselves were still out at new centers. In regards to the AB ventricle, it could be a couple of things. One of which is we have many open territories whereas a year ago some of these territories and these users weren't open and some of these territories have stayed open.

Number two, we think that it's, it's a matter of in this case there's never a prediction of when a person has cardiogenic shock, or myocarditis and it tends to be a little bit of a cycle that you can't model based on what happens with the patients out there.

Okay. That's fair. When we look at the number of customers participating in the rental program, any metrics you can give us, you talked in the press release about more customers participating in the rental program. Is there a percentage you can associate that or some raw numbers you can give us?

Yes. Last quarter double digits and I'll tell you less than 20 and same in this quarter as well but there was more in Q2 than Q1.

And when we look at, I think you mentioned for the AB5000 consoles were up 27% year-over-year. Is this units sold last quarter versus units on this rental program this quarter? Is that how you look at that?

No, we sold in Q2, this past quarter, 27% more units than we did in Q2 of last year plus the rentals on top of that. So we did more this quarter in boxes than we did last Q2 and we also did rentals.

Okay. That's helpful. And then when you look at the reimbursement increase, what impact to you think that increase will have on the market? Do you think it's going to accelerate usage or does not now give you some flexibility in terms of pricing?

I think it helps usage and if you look at our model and you look at the recovery-type patients, you're talking about AMI patients so it's not something that you can go to one transplant center and they do a high volume.

Heart attacks happen everywhere and every open heart center out there has these cardiogenic shock patients coming out of the cath lab. Every open heart center out there has 5 to 10 maybe a little more, maybe a little less myocarditis patients and every open heart center out there has about 5 to 10 to 15 post cardiotomy cardiogenic shock patients per year.

You add that all up, you end up in ranges of 20 to 40 patients per open heart center and there's about a thousand of them versus the hundred transplant centers. What that means is we have to get out to all these open heart centers and we have go through the scientific publication, which we showed at TCT, we have to create awareness with the general public which is what a "USA Today" article does where it lets people know there are options. You need to line up your reimbursement, which we've done and it starts October 1, and you have to have the sales heads to go out there and call on the thousand open heart centers not just transplant centers.

So I think it's going to have a nice impact because it helps one other objection that we can go to these open heart centers that see these patients, show them the data and say they can do this program, they can not only help the patients but they can potentially get reimbursed for it as well as they can use it as a marketing advantage of why you have to have this technology to reduce mortality.

Okay. Do you plan on increasing prices?

We do in the plan on increasing pricing.

And then finally looking at your us distribution 16 sales folks now, where does that go? Is it still on track per quarter here?

What we said our goal was to do 2-4 a quarter for this year and for two quarters we've done the upper end of the range so we've done eight. So over the next two quarters we're going to continue to selectively add sales people in selected centers. It will be on the lower end of the range so 1 to 2 to 3 per quarter.

Thank you. We'll go next to Alex Arrow with Lazard Capital Management.

Thanks. Mike, if I could ask you a question about Impella and BVS AB platform. Since you see that happening in Europe as Impella is growing and draw conclusions on what that will look like once we have Impella in the U.S. Is it fair to say there is overlap in the patient population such that some of the growth of Impella could come at the expense of BVS and AB. I know Impella can be used as bridge to recovery in a patient who has not had surgery or perhaps also in some patients who are recovering after cardiotomy and so that might be somewhat of an overlap of BVS and AB. Perhaps we're not correctly characterizing whether there's any overlap or not. Could you just comment on whether some of that growth might effect the business of AB and BVS?

Sure, a great question. The AMI cardiogenic shock patients today we do get success with them. However, we get such a small percentage of them today. If you look at the U.S. numbers, we're getting 1% or less of the patients in AMI shock with BVS or AB.

So, it's not a matter of the Impella is going to eat into that percentage, it's that the Impella is going to start awareness of recovery with these patients which there are thousands of them in the cath lab itself. And either it's going to avoid the cardiogenic shock or the patients with the protocol will understand the synergy that once the right side has a problem or once you're going to need longer term support you can no longer depend on doing it on a percutaneous route and that's where you would then move into the Bi-VAD support for high flows.

If you kind of model the market you have a patient that's not yet in trouble and this is what we're seeing in Europe, the high risk angioplasty, the AMI, and then you cross the path of when someone has been in cardiogenic shock for more than 24 hours and that's where you'll see the BVS and the AB5000. The reality is there are so many more patients that we get to even on post cardiotomy, cardiogenic shock as I pointed out before, we get 12% and that's been the core business but you have to have the distribution out there in order to get that because you need to work through every open heart center rather than just get 20 transplant centers to do high volumes. That's not the way the market works.

The overall synergy and the way we see it in Europe, is it's a nice story and doing publications just like at TCT, you want to educate the interventional cardiologists what a cardiogenic shock person and patient looks like. And if the goal is to send them home with their own heart, there is a tool and an application for the patients depending on where they are in that path.

For those patients who are post cardiotomy, if they start decompensating, that might be an Impella patient if an interventional cardiologist gets involved, or is that type of patient also potentially going to be opened up again if you need a higher flow? Are there flows that even the Impella 5.0 can't do and you need the BVS or AB for?

Let me clarify, the post cardiotomy cardiogenic shock patients or in the operating room for the majority of these patients we're seeing, they can't come off the heart lung machine. And so for that they would have the potential to use a BVS or a balloon pump and inotropes, and a lot of those are today, not BVS patients. Those are balloon pump patients with inotropes. That clearly is going to be an opportunity for the Impella 2.5 or 5.0 if they wanted to do a cutdown. And just on average in the U.S., there's about 100,000 interaortic balloon pumps done a year in the U.S., probably about 160,000 internationally. And inotropes have effects, bad effects on the ventricle itself.

Clearly that's a new market for us and that would be with the 2.5. But if you look at the data from AMI, once these patients are in shock for such a long period of time, you'll notice that many of them suffer right side failure, which by itself an AMI shock doesn't have a right side failure, but once they get into a problem then they'll need that support and that's where you'd have to go to a Bi-VAD such as the BVS or AB5000.

Thank you.

We'll go next to Randy Howe [ph] with Lion's Share Financial.

Good afternoon, fellas. Mike, let me take you back to the challenges you face with the usage rate of the AB5000 pumps. We've clearly got a significant market out there in terms of number of potential cases in the U.S. alone. We clearly have a superior device as evidenced by your recent TCT presentation from Dr. Anderson. Help us understand more than you commented on already, if you would.

What challenges do you face with respect to getting the doctors on board to using this device given the significant number of people who otherwise die? And with that in mind, why you would forecast flat pump sales over the next two quarters given by the end of that period you've been out there with the AB5000 for, in many cases at least a year and in many cases two years, which seem intuitively the usage rate might be implied by the data and all that to ramp faster than what you're forecasting?

That's a very fair point, Randy. I think the challenge is nothing moves immediately and if you are a big company like a Medtronic or Boston Scientific or General Electric you have a marketing machine and creating presence. When you are a company that's of our size you're doing everything with scientific publications, best practice protocols and as much as you can with the media.

However, again, this is not going to give us a big number at five centers. We have to be and have a presence at the 1,000 open heart centers and those have folks that have a history either the patients died, because if you look at the results most of these patients in the past have died or they haven't used the BVS and so we have to convert them. And without having a sales force that is out there that knows all their customers already that has all these publications it takes time.

Unfortunately, it's more time than we'd like and as you saw in the USA Today article it's talking about the fact that several centers don't do this and many of these patients are going to die. What we have to do is stay on track and go through each of the programs, the scientific publications which we continue to do and a big part of that is educating interventional cardiologists.

They own the patient. They own that patient in the cath lab. Unless a myocarditis patient or an AMI shock patient has an awareness with a cardiologist which historically this company hasn't called on they don't understand that recovery using a VAD is now a new option. Because in the past VADs were used for destination therapy and what they are used to.

Fair enough, Mike. And it tracks pretty much with what we assume. I don't know that you gave us a number. I think in the past you said you had AB5000 consoles in 80 to 100 centers. Could you give us an update on that number, how many boxes, forget boxes, how many centers do you have a box in?

We haven't given that number out. We've given it two quarters ago, we're in the hundreds of boxes. But we have given out that in the transplant centers today we're at 26%. Remember many of these that can buy multiple units, consoles and in the open heart centers we're at 6% today and that does not include rentals. That's the pure purchase.

So 6% of the 1,000 number?

6% of the 866. Those are open heart centers and 26% of the 119 transplant centers.

Great. I'm in Jeff Neil's office right now and he's here with me and has a question.

This is Jeff Neil from Bear Stearns. Excuse my voice. Two questions. Of the 16 U.S. sales people and 12 clinical specialists, what's the average ABIOMED experience?

You mean?

Length of service now.

What's the tenure?

Yes.

So we had eight reps less than four months. We have four reps that have been here longer and we have the other mix between six to twelve months.

Any of the new reps you've hired, of all the new reps, are they still with the company?

One is not with the company. And the reps that we target were two things, one, they have to have a track record of top sales in the different companies they've been at. Two, looking for experience in cardiology, interventional cardiology and/or surgery or both and that's the model. What we're looking to do is hire people in markets that will ramp them up on the technology but we don't want to relocate them and we want to use folks that have existing relationships with those open heart centers today so that they're going back into surgeons they've worked with in the past.

That makes for a narrow candidate field.

It does and why we've had a little bit of a challenge. Because if you think about the VAD space in general, there really hasn't been a lot of other companies, and the other VAD companies that are out there have smaller sales forces because they primarily call just on the transplant centers. However, if you enlarge it to the data scopes and to the other companies that are out there, then you start to see a mix of both the surgery and the cath lab.

Question on the conversion rate of rentals to purchases, the 60% number that's been talked about. Can you expand with regards to of the units converted, what has been the usage rate? And has the conversion decision been driven by the usage rate?

Yes, I think there's a fair question. That's an analysis we're not comfortable disclosing yet. What we will tell you is the low hanging fruit has been the transplant centers so the majority of the rentals are going to centers that are new with them or a second or third unit. And the open heart centers are also ones that we're looking to increase. Some of those today are more comfortable with BVS rather than the new ventricle.

Why would that be?

Because that's what they're used to using. The open heart centers have historically only used the BVS.

Once a unit is placed, is there a requirement on your sales person to provide follow-up training and education?

Yes, there is. As far as we do animal labs where we do these implants, and I believe that in the last six months we've done more animal labs than the last two plus years.

Mike, is it your goal to continue to ramp the sales force from these levels of 16?

It is. But at this point -- before we had just massive open territories we were not covering open heart centers, not covering transplant centers, now we'll add in cities where we see the potential for bigger growth.

Last question regarding cash burn. I think the number was roughly $8 million since the end of the fiscal year, so for the first two quarters, roughly $8 million. Do you expect that number to remain relatively stable?

Some of the $8 million was related to the Impella acquisition as part of the agreement there was about $1.5, I believe, million that was part of the considerations of the closing. As we increase our revenue and move forward with the commercialization of Impella in Europe we expect the rate to lower on a quarter-over-quarter basis.

Actually I do have one last question related to the Impella trial. You said you have presently I believe eleven patients enrolled?

We've done eleven patients already and that was for the safety pilot on the 5.0.

And what would be, is there a target number of patients to complete a study, or how do you expect the study to evolve?

Jeff, we don't mean to frustrate anyone and cannot and will not disclose that information now until we know where we end up on the trial. The moment we know what the outcome, what the number is we'll let the market know as well as we're going to encourage the investors to talk with some of our trial centers on how the trials are going.

Thank you very much.

Hope you feel better, Jeff.

Thank you.

We'll go next to Harish Iar [ph] with Dawson James.

Looking outside the U.S., can you comment on the installed base of consoles or base of consoles this quarter?

Traditionally we haven't been giving the numbers. On total revenue 15% on a combined basis and split between disposables and capital equipment is in the 80/20%. That will give you an idea.

That helps. Mike--

We mentioned in the call already we are going into new countries that have large markets we haven't been in the past. France is one example of that we'll continue to do that.

Mike you commented earlier that with the new sales reps, you know, it takes around nine months to come up to speed. Is that a good ballpark?

That's our best estimate right now based on this last quarter we saw some representatives who have been in the territories around nine months starting to make progress.

Thank you.

We'll take a follow-up from Mike Duncan with Natexis Bleichroeder.

This is actually David Zimbalist calling. In terms of just your existing cardiac surgery access patients, the failure to ween cardiogenic shock patients, give us a sense of what kind of penetration in that market today and where you think it might go?

Sure. Welcome back, David. We think that that market based on health research international reports and some of the other ones we think it's around 2% of the 400,000 open heart surgeries that are done which means that it's around 7500 patients a year in the United States alone.

We think we get probably around 10% of those patients per year and have historically for the last five years. We think there's lots of room and many of these it was touched on before, many of these patients end up having trouble and they'll end up going on to a balloon pump and inotropes over to the ICU and then come back for potentially implantation of the BVS or AB.

Okay. And in the context of your existing BVS centers, folks who have BVS in the U.S., what percentage of those are converted to AB5000 or have some use of AB5000.

What percentage of the consoles have been converted to AB?

Also those who have BVS today or had BVS historically in house, what percentage of those actually have used an AB5000 as well?

Good point. You cannot use the AB5000 ventricle unless you have the AB5000 console. If we go to the transplant centers out of 90% plus of the transplant centers historically had the BVS today. 26% have transition to the AB platform, AB5000 console. The top five all have purchased two or more of the new box, AB5000 box.

On the open heart centers the 866 we have only 6% have transitioned to the AB5000 console as of now. Remember some of them what -- may still use the BVS and/or the ventricle but use it with the new console that drives both.

So a lot of room for you to work on converting your existing cardiac surgery centers who do see cardiogenic shock patients in surgery use the AB5000 as well.

And we touched on that point a bit that that alone is why we need to be at the 1,000 open heart centers in order to have penetration as the primary and big opportunity for post cardiotomy cardiogenic shock is centers still see these patients and the new console gives the capability for shorter or longer term support and it actually, as we can document now, has the best recovery and the only FDA approved indication for all recovery as well as now as of October 1st, we've got the new reimbursement for CMS for recovery.

Thank you.

We'll take a follow-up from Greg Simpson with Stifel Nicolaus.

Thank you. Okay, Mike, first of all I've gone through my notes from the past conference call and I can't find it so I apologize. You made mention of less invasive Cannulae for the AB5000. Can you give us an update there, where is that at, and coming on TCT, one of the things that stuck out, a less invasive way of putting a patient on AB5000 was important and I'm curious if we can get an update.

Sure, I'll just give you a quick overview and then I'll turn it over to Dr. Karim Benali to give a quick update on it. The reason we want it in the case of recovery, if you have a patient on the heart lung machine in the operating room, where you are putting them on a device but all these myocarditis or AMI patients that are coming from the cath lab, you don't want to have to put them on the heart lung machine to put in the device. So today it's not required to have to do that. And then the second reason is recovery does take a longer period of time then after 30 days you want the option that you don't have to go back in. So we are working through the regulatory process so -- if you choose not to, you don't have to do a sternonomy to remove the Cannulae for recovery. And with that I'll turn it over to Dr. Karim Benali.

Thanks, Mike. Just to comment on the minimum invasive Cannulae. Actually what we have done several animals what we call acute animals as well as the chronic animals with several surgeons. The feedback has been more than positive and what we are trying to do now is to move forward and try to plan for the first patient implant and probably we're going to communicate a date later, but that's our next target.

The results have been encouraging and we think that will summarize the procedure. It's going to limit the bleeding events and also as Mike mentioned, you can implant and explant being less invasive to the patient and also without having the need for the heart lung machine.

Is it safe to say this is my take coming away from TCT, that seems like the thing that could push some of these guys over the edge and you make it easier to put patients on this. Can I put it them to give us some guess as to regulatory approval?

And what you're drawing on is correct. We want to get to open heart centers that don't have a history of doing this. We need to make the whole Cannulae insertion process easy to do. You don't want to have to require the heart lung machine, you don't want to core the ventricle. And that's why we're going through the process. Now it's not a formal, with your not going to give you a formal time frame but the process itself is a supplement.

Great. And then a softball for you, my sense coming out of TCT, actually a two parter. Follow up on Jason's question with respect to the greater than expected mix of consoles in the quarter.

Can you give us maybe anecdotal feedback with respect to interest level incoming calls, whatever, following the reimbursement decision that occurred I guess it was midway through the quarter and didn't take effect until after the quarter. Also TCT. While Impella is the star of the show there for you, a lot of good exposure on the AB5000. I'm curious from an anecdotal standpoint how that advanced the cause.

If you look at the timing of TCT, the awareness there were compelling presentations that were done both by Mark Anderson but also by Don Bame [ph] talking about the paradigm shift that VADs can be used for recovery. So VADs in a sense are self therapy except there's no self therapy that's required from outside the body, your body can do it on its own and that's the first step of having these patients recover.

On top of that the USA Today article that specifically referred to this trial and lays it out that the USA Today creates that awareness so you need to have a multiprong approach. You need to have the public awareness, the scientific publications and the reimbursement. So we are excited and this is the first quarter where we are putting together those things plus the new sales team that we're going to keep training to start growing the number. Overall TCT was an fantastic show for us and from a perspective of interest calling on intervention cardiologists it opens up a whole new front on recovery itself.

Thanks, guys.

We'll go next to Karen Ross-Bremner [ph] with Shaker Investments.

Sorry if you answered this previously. The disposable VADs you said were up 20% on a unit basis?

Yes.

And did you give a number on a revenue basis?

Well, yes. We were saying it was flat.

Flat. Thank you.

One last call.

We'll take our last question from Randy Howe with Lion's Share Financial.

Just a follow-up duck-tailing with Greg Simpson's line of questioning, with respect to the level of excitement at the TCT, could you give a little more fleshing out of the trial results and the AMI shock study reflected in the USA Today article, with respect to the average time to implantation.

Is it the case that with those 50 people referenced in the study in the USA Today article that average elapsed time from onset of shock after AMI to the insertion was 45 hours? And can you give us an idea of the range in less than 24 hours over that population?

Very clinical question, Randy. And happy to answer it and obviously if there's more detail that anyone would like on the call I have a follow-up call clinically with Dr. Karim Benali and some of the doctors who did it.

The protocol itself is based on prior studies done on the BVS. The range between the average was 45.6 hours and we did throw out one outwire. There was a patient on there that was over 100 or actually 308 hours. We threw that out as an outwire because that would have made it higher than the 46 hours. We are starting to see now the trend of that becoming lower but still not within the window and we believe that it's based on prior studies one from Lou Samuels that showed the majority of the death of these people is multiple organ failure and on his protocol for PCCS, that he could support 80% of those if they were put on support within 24 hours. Those that were not they had mortality rates on 80% of them died of multiorgan failure. This is a study that's been known and reinforced by the AB5000 AMI data.

Okay. That's an important point, Mike, that wasn't reflected in the article. In that population of 50 people if you took a subset of that and ones implanted in less than 24 hours the rate was remarkably higher than the average across the 50.

And the important thing on this is we're still getting the patients too late. One thing that can't really come out until you look at all the data itself and Dr. Karim Benali has gone through this, is that there's so many things that these patients have against them. They're on inotropes, the have balloon pumps, liver issues, kidney issues, having problems staying alive and the majority of them are on CPR and on CPR more than 20 minutes.

These people are at death's door and the important thing is you can take more than a 90% mortality rate when we asked the surgeons to look at this, they all basically say these are the folks as it said in the article, they are dead without this and are able to keep half of them alive and send 2/3 of them home with their own heart. So this is the start but this is not the best practice protocol. If you go to centers like where Mark Anderson is and where he is today, much better results than that already and that's why we need to teach the rest of the thousand open heart centers.

Do you anticipate a challenge shifting that paradigm to the under 24 hour process? You think the date is compelling to get people it move that way sooner?

Of course, it's a challenge. If you think about AMI challenge, a lot of them in the cath lab and cardiologists following their treatment path. That's why the Impella brings such synergy and that's why we're at shows like TCT and that's why we're publishing on recovery itself.

Good answer.

Thanks, Randy.

That concludes the question-and-answer session. I'd like to turn the conference back over for additional or closing remarks.

Thanks. I want to thank everyone for their time and I will be in New York City and Philadelphia area over the next two weeks seeing investors as well. Any other questions or technical component that is you require please feel free to call in and we'll talk to you next quarter.

Thank you. That concludes today's conference and you may now disconnect.