ABIOMED Inc (ABMD) 2006 Q3 法說會逐字稿

Good day, everyone and welcome to the ABIOMED Q3 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; the Vice President of Operations, Mr. Javier Jimenez; and Chief Financial Officer, Dan Sutherby.

At this time for opening remarks and introductions, I’d like to turn the call over to the Chief Financial Officer, Mr. Dan Sutherby. Please go ahead.

Good morning and welcome to ABIOMED’s third fiscal quarter earnings conference call. This is Dan Sutherby, Chief Financial Officer. I’m here this morning with Mike Minogue, ABIOMED’s Chairman, President and CEO. And also with us today is our Chief Scientific Officer, Dr. Robert Kung; Chief Medical Officer Dr. Karim Benali and Javier Jimenez, Vice President of Operations.

The format for today’s call will be as follows. First, Mike will provide you with some strategic and operational highlights for the quarter. I will then provide a summary of the financial results for the quarter and then we will open the cal for your questions.

Before we begin discussing Q3, it is necessary to remind you that during the course of this call we will be making forward-looking statements, including statements regarding future financial performance, product development efforts, ABIOMED’s strategic operational 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 our SEC filings.

Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of today’s 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 call or to reflect the occurrence of an anticipated events. In addition, today we’ll be discussing our IMPELLA product and 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.

I am now pleased to introduce Mike Minogue.

Thanks, Dan. Good morning and thank you for taking the time to join us today Before the Q&A session, I’d like to cover four areas of interest -- global distribution, recovery awareness, operational improvements and new members of our team.

First, on our global distribution, we continue to make progress. Since the last call we’ve added two new sales reps in the United States. This brings our total sales and clinical team to 30 professionals in the U.S. and 10 in Europe. This does not include our service engineers. We have now more than doubled our coverage over the last two years.

In order to provide some insight to our ramp up on sales, our median tenure for a sales representative is less than six months. However, our clinical team has a median tenure of over one year and has continued to improve survival and recovery outcomes.

As a result, we are investing heavily in quarterly face-to-face training sessions with both sales and clinical teams at hospital sites with physicians. I’m very pleased with the level of talent we are recruiting and feel confident in their ability to impact our Company in the future.

Last quarter, we continued to deploy a significant amount of AB5000 consoles into heart hospitals. We sold over 500 VADs as well, between the legacy business and IMPELLA. We’ve also recently started to support patients in France with IMPELLA. This represents the second biggest assist market in Europe, second behind Germany.

In Germany, we just received today the highest approval level available from reimbursement authority for our IMPELLA Pump System. This now allows us to go to the hospitals and allows the hospitals to be reimbursed from the insurance companies. Our local presence in Auchen gives us a unique advantage for continued growth in Germany with the full ABIOMED product line. We will be issuing a press release with more details.

This quarter we sold more consoles to U.S. open heart centers than transplant centers and half were new users, but we continued to penetrate both. The new AB5000 console is now in one of three transplant centers. This quarter one in four transplant centers in the U.S. ordered at least one AB5000 ventricle. The AB5000 console is now in 39 of 119 transplant centers or 33%, and 57 of 867 open heart centers or 7.0%.

Our goal is to have the strongest sales and clinical organization in the world for preferred support, both in the cath lab and the surgery suite and with the cardiologists and the surgeons. We believe the ramp up time for our sales force is 10 to 12 months per rep, so we like the trends and the talent of our recruits.

Next, regarding our recovery awareness campaign, we’ve made progress within several areas. And as a reminder, the new CMS DRG 103 guideline took effect October 1st and they encourage recovery of the native heart with our external BVS as well as AB5000 VADs.

The change provides a 70% increase in reimbursement for hospitals, for an average of $140,000. Many centers are still learning about this change, but all centers can establish programs for AMI cardiogenic shock focused on recovery, not transplant, which is what DRG 103 is.

This new ruling validates our strategy and it acknowledges that recovery is not only best for the patient, but it’s best at lowering the cost of overall systems. To remind everyone, there are only 2200 transplants a year, so most patients never get the option of a new heart and live with long-term disabilities and ongoing operations with less than optimal options. In our audited database report, even with all indications and including longer times to VAD, the most [inaudible] likely outcome for AB5000 survivors is recovery.

During Q3, there were numerous AB5000 recovery stories with a written report and TV coverage. For instance, we had stories in Rochester, New York; Philadelphia; Atlanta; Flint, Michigan; Saginaw, Michigan and Salt Lake City, Utah. We were covered by local news, with ABC, NBC, FOX, and cable affiliates.

In Europe, at the Berlin symposium on the [mechanical circulatory] support, two leading surgeons presented on both IMPELLA and AB5000 technology, Dr. [Bart Mains] from Leuven, Belgium and [Dr. Banzie Cool] from Lund, Sweden. They presented their protocols for recovery of cardiogenic shock patients. We have studies underway in Europe to address the benefit of reducing the infarct size following an acute event and we’re going to disclose more information as the papers are completed.

Beyond statistics, we can talk about the lives we saved. I’d like to share a quick story of a 60-year-old woman in Denmark, in excellent health, who on New Year’s Eve thought she was coming down with the flu. A few days later, when her conditions were quite severe, she went to the hospital in Copenhagen and was diagnosed with myocarditis.

Her heart was functioning at about 20%, so her cardiologist implanted the IMPELLA 2.5. The IMPELLA performed to the point that her heart was able to increase its function dramatically and after five days of support, she recovered. She’s now at home with her own heart.

Next I’d like to cover and highlight some of our operational improvements and the processes we’ve been implementing. During the quarter the Company completed productivity initiatives that are expected to generate approximately $1.0 million of annual cost savings to be reinvested in the Company’s global distribution.

We drove solid increases in manufacturing yield. We have implemented Six Sigma and quality training focused initially on engineering, manufacturing and customer service and this included the IMPELLA engineering teams as well. ABIOMED currently has 173 employees trained on Six Sigma, with 80 Green Belts and 9 Black Belts or Master Black Belts.

To streamline our European operations, we’ve consolidated our European headquarters in Germany and it includes now service and all ABIOMED European employees. This eliminated our Netherlands facility.

This quarter we completed the planning for our global ERP system and that’s going to be implemented over the next several quarter to improve our day-to-day operations and analysis. We are preparing for the continued expansion of our product portfolio.

The FDA process will be critical for our forecast of profitability and as a result, we have added significant resources dedicated to the analysis, data collection, and trial design. We’ve engaged several physician and regulatory experts for each trial and path.

I will not disclose any new details on the trials. However, as our annual report showed, we plan to start the pilot and pivotal for IMPELLA 2.5 and 5.0 in calendar year 2006. As you know, we’re able to generate revenue during the trial.

We continue to work parallel paths and hope to utilize our European patient data. However, it’s never prudent to commit to regulatory timelines and we reiterate these guidelines for your benefit, only to demonstrate how we are structuring our internal resources.

In my last area of discussion, I would like to comment on the addition of our CFO, Dan Sutherby, as well as two Board members. First, Dan, and he completes my senior management team, and he comes to ABIOMED from PerkinElmer. He has all the core competencies and experiences that will enhance our Company and he’s already proven to be a great asset. I’m very proud to have inherited and recruited my talented staff and welcome all investors to visit the Danvers headquarters and meet the team.

We have also strengthened our already accomplished Board. In Q3, we added two more exceptional leaders, Lou Lataif, the Dean of the Boston University School of Management and Ron Dollens, formerly CEO and President of Guidant. We are pleased to have their collective expertise.

In summary, this fourth quarter completes my second year with ABIOMED. I now have my leadership team and Board in place and the global distribution is growing. We are the market-leader in heart assist technology. We have the largest installed base with exclusive recovery indications, and improving reimbursement and clinical outcomes. We have now established the core business as a platform for growth.

In the future we will be introducing IMPELLA, breakthrough catheter-based products, into the U.S. market, pending FDA approvals and pending FDA approval, the AbioCor Total Artificial Heart could become a reality for patients without any other options.

Over the last two years we have increased gross margins, increased revenue, increased reimbursement, improved patient outcomes and recreated our global distribution, all the while acquiring what is the most exciting catheter-based VAD technology in the world, IMPELLA.

I’d like to close by thanking the investors for their support and by stating that my optimism for the future of ABIOMED has never been stronger.

Now I’d like to turn the call back to Dan.

Thanks, Mike. First of all, I would like to say that I’m very excited to be ABIOMED and believe the Company has strong growth prospects. From the acquisition of IMPELLA cardio systems to ABIOMED’s product pipeline and its focus and expansion in sales and distribution, it’s an exciting time for the Company. I’m proud to be a part of the team.

I would now like to provide you with some details on our financial results for our third fiscal quarter of 2006. First of all, whenever I refer to a number going up or down, I am referring to the increase in that figure in fiscal Q3 of 2005 compared to the third fiscal quarter of 2005, unless I indicate otherwise.

Turning to revenues, revenues for the third fiscal quarter ended December 31, 2005 were $10.5 million and were up 10% compared to the same period of 2005. The increase is due primarily to the inclusion of IMPELLA product revenues, growth from our AB5000 platform and an increase in service revenues, while BVS circulatory assist product revenues were at roughly the same levels as the third quarter of 2005. Q3 2006 revenue from consumables, rentals and service, comprised about 87% of our third fiscal quarter revenues.

Turning to gross margins, Q3 2006 gross margins were 71%, compared to 74% in Q3 of 2005. The decrease in gross margin year-over-year is due primarily to a non-cash charge of $269,000 for an inventory write-off during the quarter, as you saw on the Q3 statement of operations we attached to our press release. And this resulted in a negative impact to gross margin in Q3 of approximately 250 BP.

Gross margin in Q3 of 2006 for the Company’s legacy BVS and AB5000 product line was approximately 76%. Gross margin for the total Company, for the nine-months ended December 31, 2005, was 74%. We expect gross margins to be approximately in the mid-70’s percentage level for the fourth quarter of FY06.

I will now discuss our R&D expenses for the quarter. R&D expenses increased by $1.2 million to $4.6 million for Q3 ‘06. The increase relates to our substantial efforts to explore new technologies and to bring new products to market. These efforts include the additional R&D efforts at IMPELLA and expenses related to our efforts to seek regulatory approval for several IMPELLA devices in the United States.

To give you some perspective on ABIOMED’s overall R&D investment dollar mix, back in FY03 roughly 85% of our R&D dollars were devoted to the AbioCor artificial heart. Today, roughly 70% of our R&D dollars are invested in new products, our recovery VAD platform, our breakthrough IMPELLA technologies and other new products.

Greater than 50% of our Q3 ‘06 revenues was derived from new products or programs launched since the beginning of FY04. Our R&D strategy and investments are focused on the highest growth potential investments that diversify our portfolio of recovery capabilities and that continue to person ABIOMED as the global leader in circulatory care.

Turning to SG&A expenses, SG&A expenses increased by $3.4 million to $7.6 million in the three months ended December 31, 2005. The increase is primarily due to our expansion of the sales, clinical, and marketing organizations, as Mike discussed, and also due to the inclusion of IMPELLA’s expenses during the quarter.

On a net basis, during the quarter ended December 31, 2005 the Company recorded a net loss of $4.4 million or $0.17 per share. This compares to a net loss of $200,000 or $0.01 per share for the three months ended December 31, 2004. As I mentioned, R&D and SG&A investments in Q3 of this year, in total, increased by $4.6 million compared to the same period of 2005.

On liquidity and capital resources, through Q3 of ‘06 we have supported our operations primarily with net revenues from our core business, including our BVS and AB5000 circulatory assist product line and proceeds from our equity financing. As of December 31, 2005, our cash and investments totaled $32 million, a burn of $3.7 million from the level of cash and investments at September 31, 2005.

In summary, we feel good about our strategic progress through Q3. We have made significant investments in growth through our global distribution and R&D initiatives and our strategy and organizational priorities are committed to driving continued momentum in recovery awareness to improve patient care.

I will now open the call to your questions.

[Operator Instructions] David Zimbalist with Natexis Bleichroeder.

Hi, thank you very much. I wanted to find a little bit about when you started these quarterly face-to-face meetings, how new they are and since they’ve been around, are you seeing any traction from them yet?

David, we started them a year ago, but a year ago we didn’t have as many people. So the two sales leaders that started, [Jim Dillon and Jeff Heldorn], have put together training programs every quarter. But now they’ve been enhanced because we have headquarters meetings or sites where we go through the products and go through everything specifically. We bring in physicians to present.

But we also have a unique program that we have kind of a sales and clinical boot camp where the folks go to an actual hospital site with no more than five in the group. They spend a day in the ICU, a day in the cath lab and a day in the surgery suite and most of the people we’re recruiting in sales either have experience in the cath lab or the surgery suite or a combination of both. And that way they’re able to customize that if they’re strong in one area or the other, they’re able to learn it.

So, an example is our existing, some of the original folks, had more experience in surgery and with the expansion of our product portfolio we also want to make sure they’re comfortable in the cath lab.

Okay, one follow-up on that. You got a lot of visibility or a good bit of visibility at TCT, overall on IMPELLA, but also just as awareness of ABIOMED as a recovery story. Any spill over from that that you’re starting to see into the hospitals that you’ve been targeting, or is it cath lab versus surgical suite so very little leverage?

I think we are starting to see it and one of the trends I mentioned is this quarter we sold more boxes to open heart centers than transplant centers. But we sold into both, because the open heart centers are now understanding the reimbursement story, looking at the clinical data that they want to see from TCT. And they’re now looking at starting recovery programs by themselves.

It takes time. You have to put in the budget, etc, but we are starting to see the interest. Half of the new open heart centers that we did penetrate were first-time users, so they didn’t even have a BVS. They’re one of the -- we’ve always said that BVS is in about half of all open heart centers, so we’re starting to see new users as well, which is a great benefit.

Okay and how much of that has been spill over from the expanded sales force, you could actually go after these hospitals?

I mean, I’d say a good percentage, because many of these accounts haven’t been called on in quite a while.

Okay, next question. Could you talk a little bit about the rental program, how it’s doing relevant to prior quarters and is it something you’re likely to keep as a full-blown program or if it’s really still the idea to keep it to selected accounts?

Sure. So, in Q1 we said, last quarter, that 60% converted in Q2. Some of those returned, some are still renting and one more converted. In Q2, the rentals this quarter, 40% converted and we still have some that are renting and some that have come back. So those are pretty high rates, if you were to look at any kind of models.

We’re also seeing the utilization, so we plan on having it continue. This past quarter we did slightly more than we did the prior two quarters. And it does allow people that haven’t a year ago put in their capital budget the expense but want to use the technology and have a disposable budget, to be able to get them using it, get the program started and get them trained.

Okay and are you seeing this -- has utilization under the rental program about the same or better or worse than what you’ve seen? As somebody who gets the rental, is their utilization either increased or, if it’s a brand new account, does it run at better levels than an average account that owns for a while?

I think, I mean, first high level is if they didn’t have it, so obviously their utilization is going to up. A lot of times they’re renting because they have a patient and so that’s why we’re giving them the capability. So, from those two reasons the answer obviously is it would absolutely increase utilization or else we wouldn’t do it.

Okay. Geographically, how constrained are you with the rental program, because you’ve got to be able to move boxes pretty quickly?

We’re not at all. We have a very tenured, established service team. We have demos in the field that we move around as well and it’s part of what they manage.

Okay, great. I’ll get back in line.

Thanks, David.

Greg Simpson with Stifel Nicolaus & Co.

Okay. Good morning, guys. Dan, welcome to the show.

Thank you.

A couple question, first of all on the revenue breakdown. Any chance -- you gave us some kind of general guidance, I guess, especially with respect to BVS being flat. But anything on the AB5000 side, maybe incremental in nature, either on a year-over-year basis or a sequential basis, with respect to either disposable usage or box placements that can help us in our modeling?

Yes. First of all, this is Dan, I’ll just say for the quarter. About 90% of the revenue for the quarter was let’s call it non-console revenues, or more specifically, disposables, service and rentals. So we feel pretty good about that.

Service did well. It is a low base, but of course it is a program that we’ve invested in recently and we’ll continue to do so going forward. Service was up over 20% in the quarter, again off a low base, but we feel good about that momentum.

And relative to AB and some of the other areas, I’ll turn it over to Mike for some continued penetration on that.

Okay.

Yes and I think, as we’ve seen, as we ramped up the sales force it’s really focused initially on the U.S. and I think the trends are good for ventricles and we want to see them better. But you’re also seeing, from the fact that we’re now generating more than 50% of the revenue, coming from new programs and that’s the way you want to see it.

Okay. Are you hesitant to give additional color on AB ventricle usage?

Yes. We’re going, at this point, start to give disposable numbers and revenues and breakouts, because there’re lots of products, and rather than just drill into one product we’re driving for the top line.

Okay, got you - another modeling question on R&D and SG&A, Dan. Any guidance going forward? If I look at the third quarter results, while I had a big increase in R&D built in, you came in below that, but it kind of neutralized, it kind of offset because you came in higher on SG&A. Any way to give us guidance, going forward?

Yes. I mean, obviously I think the R&D levels will probably trend pretty similarly going forward. I mean, SG&A will be predicated on the demand we see on the top line, as we continue to add sales and clinical folks in the field.

As Mike has mentioned in the past, we’re committed to continue to add and feel excited about the market opportunities, but I think that’s a lever that we do have. So I think the trajectory of the sales line, I’ll call it SG&A, will be predicated on the growth of the top line. So, I would say, looking fairly consistent, going forward, with what you saw in Q3.

Okay, great. Next on the FDA, Mike, you’re not going to touch this, but as it relates to the FDA. I mean, it’s easy for me to sit here and say the FDA appears overly cautious and almost paralyzed these days, based on all the issues that have cropped up over the past year or so.

Can you just give us a sense of your dealings with them as it relates to both the AbioCor and IMPELLA and are you satisfied with kind of what’s going on? I’m sure you would prefer to have had action already on both of those, but can you just give us your sense on just your interaction with the FDA?

Yes. We have a very good relationship with the FDA. The Company has been around for 20 years and Bob’s reputation and the integrity of the Company is well known, as they stated at the panel meeting. We want to make sure that we design each trial and path that gives us the optimal efficiency for both patient data as well as indications.

So we’ve gone and we have built up our own internal team, added people. We have brought in several of the physician experts. We have contracted with many of the regulatory experts that are independent groups as well and we have basically a weekly rhythm for all the different products.

So, if you can imagine, with five-plus products going through the FDA, we’re in constant communication with them. The thing that we want to reiterate is we said, in the annual report and we haven’t changed it, that in 2006 calendar year we expect to be in the pilot for the 2.5 and the pivotal for the 5.0 and we can generate revenue during these trials.

And as it relates to IMPELLA, and you touched on it, about the ability to use European data, you obviously hope you can. Obviously that’s been discussed with the FDA. Do you feel confident or will you comment on that? Do you feel confident you’ll be able to use your European data?

I feel confident that the FDA is going to look at all the data and validate the technology. Whether that means they use European data or not I can’t comment on that.

Okay. I’ve got more, but I’ll get back in line.

Jayson Bedford with Canaccord Adams.

Good morning, guys, a few quick questions. Last quarter you gave us disposable VAD growth and I think it was at least up 10% on the BVS and AB5000. Wondering if you can give us a similar number this quarter, on a year-over-year basis?

Jayson, let me see. It’s Javier. The total disposable growth year-over-year was 4.0% on units.

On units?

On dollars, sorry, on dollars.

Okay and does that include both BVS and AB or are you including IMPELLA in that 4.0% growth number?

It includes everything.

Okay and then in the press release you mentioned that greater than 50% of sales were from new products, programs launched since the beginning of FY04. Does that include IMPELLA as well as AB5000 and is that the service program as well?

Yes.

Okay, all three. Do you care to comment on IMPELLA sales in the quarter?

No. We’re not going to break out individually the different groups.

Okay. I know you added two sales folks in the quarter. How many does that bring us to right now?

Today it brings us, in the United States, to 18 sales reps and 12 nurses and then we also have 2 managers that we’re not including in the 18.

Okay, great. Did the new reimbursement for DRG 103 have an impact in the quarter? And then maybe can you talk about some of the programs or initiatives you’ve launched to educate centers regarding the new reimbursement?

Sure. I mentioned it in my script, but it does create awareness, but there’s many centers that don’t track these individual DRG’s, so some are learning about it for the first time and when we can get them to learn about it and explain the technology, that creates the opportunity.

So what we’re doing is two-fold. One is the sales team has their presentation packet that they’re able to go in an give both the financial information, pro forma, and then also clinical data and presentations so that you have a packet for the sales side as well as the administrative side. The second thing we’re doing is we’re working on a media and patient campaign so that we can give packets to those folks that are out there utilizing this, to create the awareness in larger markets.

And if you noticed all the different names that I read off, you can imagine that Saginaw, Michigan is advertising on the news. It’s talking about the technology and it becomes a marketing edge for them, that they have this technology so they can have reduced mortality in the cases of cardiogenic shock. And that’s the trend we want to see.

And then last, we’ve dedicated kind of a S.W.A.T. team across the United States of folks who are experts, either from the clinical side or from the reimbursement and marketing side. Where they’ll go into different centers, once we know they’re committed and they want to have a partnership with us and we’ll look at all their clinical protocols. We’ll look at their financials. We’ll look at how they’re billing and we’ll help them come up with a plan to increase outcomes, as well as generate revenue.

Okay, great and Mike, do you think it had an impact in the quarter or is it going to take a few quarters to really see an impact on changing of usage patterns?

Yes, I don’t think CMS changes unless it’s a stent and there are 10 companies investing $20 million to advertise ever takes effect short-term. We’re a small company. We have all new salespeople. We have open heart centers that haven’t had an ABIOMED representative call on in quite a long time. So we have to first come back, introduce ourselves, then talk about the opportunity and build that relationship, so it takes time.

Okay, great and then the last question and I’ll get back in queue. Can you comment on the structure of the IMPELLA trial, the 5.0 pivotal trial in terms of potentially number of centers, number of patients?

Yes. The 5.0 trial, we did the pilot. There was 11 patients and the main centers were Texas Heart, Mass General and Columbia and so that’s where we’re at now. We’re evaluating that information to then decide if we’re going to add or change and put more centers in that.

Okay, thank you.

Jayson?

Yes.

This is Javier. On your question I just wanted to clarify that when you’re saying that IMPELLA number is there, I’m talking with IMPELLA numbers in both years, so I’m doing apples to apples.

Okay.

Okay? So, because when we’re talking the 10% revenue growth for the Company, IMPELLA was in last year, but on the disposables revenue I’m giving you the operational view of apples to apples, including IMPELLA last year as well.

Okay. Thank you.

Harish Aiyar with Dawson James.

Thank you. Good morning. Just on the sales team, what are your targets for I guess the next year? You said you had roughly, what, 32 or 30 excluding the managers?

What we had said in the past was that the goal was to add two to four a quarter, globally, and what we still have to do is we have to continue to build up Europe. And in the United States, we are still going to add people as we find exceptional candidates in big markets.

So if we have a market and we have a representative that has three major areas that are growing and we find the right candidate in a certain city that has great relationships, experience, etc, we will then be able to select that person and put them in that area and then re-cut up the distribution. So that’s kind of our goal.

So I’d say that we’re, now, instead of saying two to four a quarter we’re probably more aligned to have one to two a quarter, but we’re going to do it as we find the best candidates.

Great and one other question. Can you just comment on or give some insight onto the writedown, the inventory writedown, and what that relates to specifically?

Yes. This is Dan. As I mentioned, we included that as a line item to give good transparency for quarterly results - $269,000, primarily European-based. And I think it really relates to, as we continue to look at all of our product lines and look at growth opportunities, we continue to shift the investment and shift the product lines.

So that was basically mostly Europe, but again a fairly small amount, but given the low base in the quarter it did have a 250-BP impact on margins, but nothing drastic. It’s just, again, a continual evolution of where are we, where we need to go and where are we shifting investments going forward.

Great. Thank you, that’s it.

Alex Arrow with Lazard Capital Markets.

Thanks. I could start with the IMPELLA pivotal trial. Are you able or willing to comment on what the end points, the indications, what the control group will be, that part of the trial? I know you already commented on the structure and the number of sites.

Alex, a great question. We are looking at several designs and we’re pursuing a couple parallel paths and until we have it confirmed we cannot comment on it, but I understand why you’d want to know.

Okay and have you said what the timeframe might be for when that trial might start?

I reiterated that, what we’ve said in the past, we’re confirming is calendar year 2006 for the 2.5.

Okay. On the indication for post-MI cardiogenic shock, I know that has been mentioned as an indication for IMPELLA. Your comment about Saginaw, Michigan I think made it sound like that indication can also be served with your external pump business, the AB5000. Am I understanding that right, is that also addressable by the external pump?

Well, the external pump is what has been published the most on and has proven to be successful and to have the highest recovery as well as survival rates with the AB5000. That the TCT paper.

Specifically for the post-MI cardiogenic shock?

Exactly, because many of these patients, just to give you a heads up, on the TCT paper there were 50 patients at 21 centers. They were extremely sick. They were much sicker than the shock trial patients.

I’m going on memory, but 89% had inotropes; 52% had CPR on an average of 20 minutes, so essentially half of them were dead; 90% or 80% had intraaortic balloon pumps. More than 60% were intubated and they were in cardiogenic shock for an average of 46 hours before they got it implanted and our protocol is less than 24 hrs.

So, if you took all of those indications, your mortality rate would be greater than 90%; in some cases, many physicians would say these are dead patients. And for those patients, half of them, because they were so sick and their organs had started to fail, they required support on both sides and that’s why the AB, the BiVAD is the approach.

And if you’re going to do BiVAD for recovery, you don’t want to have all that excessive bleeding and do a four-hour-plus invasive procedure. You want to do a short, quick implantation, less than an hour. You technically don’t have to use the heart-lung machine if you don’t want to and you’re able to get these pumps in and get immediate flows on right and left side.

And the results of this study was that 42% survived and were discharged and of those that survived, 67% recovered their heart and went home and were able to maintain the same cardiac index they had while the VAD was in. And another 29% were successfully transplanted, so we’re able to keep many of the organs intact.

And if you look at the studies that are out there, if you have a patient that has two organs fail mortality is 80%. If you have a patient that has three organs fail, mortality is 100%.

All right, well thank you. On your distribution, you’d said in previous call you had a distribution challenge and that had led you to change guidance at one point and now you’ve updated us on the number of sales reps. Can you say, is the distribution challenge completely over? How converted are you, completely, to direct versus how much of your sales still happen through distribution channels, through distributors?

Well, almost all of our sales are -- well, in the U.S. they’re all direct. In Europe, the major countries are direct, with the exception of some of the distributors that have a very strong presence and act more like partners than distributors. But the majority of all our revenue is direct and the majority of it is all in the United States, 89% in this quarter, I believe, was U.S.

What was the issue before with the distributors that had to be fixed?

Yes, it wasn’t distributors. I think it was distribution and I don’t believe we’ve commented that we had a problem with distributors.

But you had to -- you lowered your guidance, I think it was two quarters ago?

Yes, Alex. That was based on getting our distribution ramped up. We were trying to recruit two to four and it took us probably two to three quarters before we were able to get traction to get the quality of reps that we were looking for, from well known companies.

So, if you look now at the last three quarters, we’ve successfully added four, two quarters in a row, and this past quarter two more. So we’re seeing great potential and they’re really good reps, but as I already stated, the median tenure is less than six months. So we’re going to keep adding, but right now it’s a matter of getting these reps and getting them trained.

Okay, great. The rental program, have you disclosed how much per month it cost to rent [inaudible - multiple speakers]?

Yes we have. It’s approximately $7,000 to $10,000 per month.

Okay, great. On IMPELLA, again, comparing that to the Tandem Heart, do you see the tandem heart as any kind of real competition for it and if so, what’s the main advantage IMPELLA has over Tandem Heart?

I think the Tandem Heart is a very good product. I wish them the best of success. I think they’re doing a nice job of educating interventional cardiologists that there’s a way to have support in the cath lab.

As far as a comparison, I would say that what that pump does, functionally, is very good, because it’s restoring flows and it does it without doing a sternotomy. However, that pump has large cannulae and the way they go in is they go to the right side of the heart, in the atria, they puncture, they do a septal puncture across into the left atria. They pull the blood back out, they put it back through a pump and they pump it back in through the cannulae.

So functionality, it works well but it takes a long time. We’ve talked to their users and there are some challenges with that as well and the risk of making a hole in the heart and it can take anywhere from 45 minutes to an hour and a half to actually get it set up and in.

For those that have seen the presentation, once our pump is primed - which is less than 10 minutes and it’s essentially the guidewire is in place - it takes a minute to put in the IMPELLA 2.5. You’re able to get it directly -- you go in the femoral and you do a direct access into the left ventricle for the pump and now you’re unloading from the actual ventricle itself. Which is where we think unloading and recovery works best.

So, again, I think it’s a nice concept and I’m glad that someone else is out there educating interventional cardiologists to help us spread our marketing dollars appropriately and we’re both going to be aggressively pursuing this path. Because this isn’t a matter of trying to keep your slice of the pie, this is a matter of the pie is huge and it’s just going to take a lot of companies to get at it and grow it.

Yes. Okay, thanks for that and then two quick quantitative questions. The AB5000 installed base you mentioned, 39 and 57 in the transplant and heart centers, you said as of now. Does that mean as of today or does that mean as of the close of the quarter, December 31st?

It was at the close of the quarter. But I will volunteer that we have over 150 AB5000 consoles sold - and that doesn’t include any of the rentals or demos - globally.

And I’m sorry, that over 150, is that of today?

As of the end of the last quarter.

Okay and then last, the German reimbursement you were mentioning, for potential for that to happen for IMPELLA, how much do you think that hospitals could get reimbursed for that or do you know at this point?

Well, we’ll do a press release and we’ll give you more details, but it was one of those things that we got notified today. We wanted to make sure it is out there, but it’s very significant, so we’re going to make sure that we give details to it in a press release.

But again, if you can imagine, we haven’t been able to do any IMPELLA product in France. We just got that approved to use the product. And in Germany, where IMPELLA has been there, we haven’t had approval for reimbursement and Europe, it’s very important for reimbursement. They’re very cost-constrained, and this is a great opportunity for you.

Okay, thanks, Mike.

Thanks, Alex.

[Randy Huff] of Lion’s Share Financial.

Thank you and good morning, fellows. Let me just go back to a question that Greg Simpson asked and see if your response with respect to the FDA applies both to the AbioCor. You seemed to answer the question in terms of the IMPELLA project. But could you comment more specifically - perhaps Bob Kung could - on where we are and why things seem to be taking longer than predicted to GE the AbioCor I into the clinic?

Randy, I’d agree with you that things have taken longer than we expected and which is also why in my comments before of it’s not prudent to forecast when we’ll get a decision. We continue to work with them.

We have been working with them since the June meeting. They want to make sure that we’ve addressed the concern, which is the panel they had, on anticoagulation and quality of life. And they will give us an answer when they are ready to give us an answer and we have resolved to their benefit those questions.

Just to remind everyone, because there’s still a misperception out there that the panel denied us, the panel did not deny approval nor did it give approval. There were eight votes in the day. What a panel does is it gives guidance to the FDA and there were several votes in the day, including a vote that was approved, that to grant an HDE, but with contingencies on our patient data registry, as well as an anticoagulation protocol.

All right. Thank you for that. And my second question has to do with the 7.0% penetration in the open heart centers. Mike, where would you think we would be, what would you give for guidance if asked the number of hospitals that you would be in open heart centers a year from now, when we’re having this conversation a year from now?

Because, on the other hand, 7.0% says we have a long way to go and there’s great opportunity and the other side of the argument is we haven’t done very well and are only in 7.0%. So, as a metric, are you in a position to tell us where you guys would like to be and what would be reasonable metric, objective, for penetration in that segment a year from now?

Randy, you always have good questions and you always do your homework. We are not going to forecast anything yet, but obviously the simple answer is more and that’s why we are driving this.

And I will give you one anecdote that we had a new sales rep start and within a short period of time he cold-called on an open heart facility that never had BVS, provided the data to them, explained the financials. We had a follow-up, some meetings and justification on the clinical results and that center then purchased an AB5000 in a short period of time.

So, I mean, that is the opportunity and then our concept is what do you do at a hospital if you do open heart surgery if you don’t have an AB5000. In fact, everyone on the call, does your hospital have an AB5000? Because if you’re going to get surgery and you can’t come off the heart-lung machine, if they’re going to put a bridge to transplant device in you, you’re likely going to get a transplant.

If you look at our data registry we’ve shown is for those that live, 86% today that get AB5000, that have post-cardiotomy cardiogenic shock, 86% recover their heart. And if somebody has a heart attach and 7.0% still today go into cardiogenic shock, what are you going to do for these patients?

In that TCT paper there’s now 21 people out of 50 that are alive because that center had AB5000. And if somebody has myocarditis, what is the hospital going to treat you with if they want not only have the goal of survival, but, more importantly, recovery of your own heart.

So that gives you the concept of how we feel. We are the only company with the all-recovery indication approval and we have the best results on the market. So that’s what I expect my sales team to do and that’s going to be our goal.

All right. Well, I can promise you this - if you give me a list within 50 miles around Atlanta, that hospitals that don’t have it, I’ll call and find out why.

Well, we don’t have -- we hired a new salesperson down there, but we’ll keep you in mind if you’re willing to relocate.

Probably not. My last question has to do with AB5000 in Europe. We’ve beefed up the sales force over there and my impression or my understanding is that German open heart centers and perhaps France as well, but generally in Europe are more inclined to use leading edge technology in their clinical experience. What’s going on with the AB5000 penetration in Europe? Could you give any insights there?

The new hires that we’ve gotten and that we integrated were primarily more from the IMPELLA side. Now we did have a presence, because we had kind of a senior clinical person that worked around and sold, but I’d say that we’re continuing to make progress. But the most, the biggest challenge in Europe is usually based around the reimbursement.

We are seeing, if you pick Europe apart and you take out Germany, you’re seeing new patients in Spain and in Greece and we’re also starting to see patients in many of these other countries, as well as we hope to be in France.

And so if you were to just give us a feel for the opportunity in Europe with respect to AB5000, are you at a point where you can get excited about the potential for ventricles there as well as the U.S. or?

Yes. I mean, that’s a good question and to tell you where we are in the ramp up curve here, these are all new people and so these have probably the smallest amount of tenure. But here’s what we are excited about. We have IMPELLA interventional cardiologists or surgeons that love IMPELLA, they’ve worked with it, and now we talk to them about, well, what happens if they still need support on both sides and longer.

And so, in the example of Leuven Hospital, Dr. Bart Mains, they were IMPELLA users and now they’re an AB5000 user and have the capability to go to the longer support for recovery or the IMPELLA without doing a sternotomy. And if you go to Dr. Banzie Cool in Lund, Sweden, he had AB5000. He was one of our users, but now he’s excited and they’re also using the IMPELLA. And when both presented, there’s obviously a flow, and Dr. Mains’ ending slide says, “This is the way we treat cardiogenic shock - intraaortic balloon pump, IMPELLA, AB5000”.

And that’s what we’re trying to do. It’s not just the selling a product. We’re trying to sell now the portfolio to be able to treat a pre-shock patient as well as shock patient and actually even a high-risk PCI patient and to have that path all the way where you have different products from ABIOMED.

All right and then finally, on the R&D side, and I’ll get off. You gave some -- clearly on the financial side, R&D has been beefed up to take some of the ideas and prototypes that you’ve built over the years and bring them to commercial realization. Are you ready, at this point, to give us any kind of insight into the types of things that are being developed, if not more specific than that?

What I can give you is a breakout. A year ago we said that we had spent 20 to 30% for new products and what we’ve said on this call, as Dan commented, is we’re still spending around 20 to 30% on new products not related to IMPELLA, AB or AbioCor.

We have so many new products that have already gone through the FDA and we will give more updates on these new products as we go through time and get closer to commercialization.

When you say, “have already gone to the FDA”, what do you mean specifically about that, that they’re involved in setting up trials?

No, no, no. I’m talking about the existing five products, the 2.5, the 5.0, the IMPELLA RD, the AbioCor I.

Oh, okay, okay.

And the minimally invasive cannula, which I could give an update. We’re submitting for a PMA supplement and it’s a real-time approval process and we will announce that once it’s ready. What the minimally invasive cannula does, it’s a very easy kit and we already have all open heart centers putting in our pump, but we want to make it easy for anyone who’s never done it before.

It’s a connector kit that allows them to basically do the implant off pump and if they want, in the future, to be able to remove the cannula from the AB5000 without having to do another sternotomy, as well as off pump. So, we think it’s going to be better for recovery and if recovery takes up to 30 days, you don’t necessarily want to have to do another sternotomy for that patient. It gives you another option.

All right. Have you given any timeline on these still unrevealed products that you’ve been working on? Are we looking for things coming out in calendar ‘06, for example?

We have not given any guidelines on anything.

Okay. Thank you.

Jeff Neal with Bear Stearns.

Good morning, gentlemen. I just had one question. Dan, you referenced, I believe in the revenue breakdown - I just wanted to make sure I have this figure right - that 87% of the quarter’s revenues came from VAD sales and basically repeatable items. Is that correct?

Yes. I termed it basically disposables and service, but you’re right.

Okay, disposables and service. Thank you.

Yes.

David Zimbalist with Natexis Bleichroeder.

Hi, thanks. First question, did the writedown come from IMPELLA product or from ABIOMED? Like --

IMPELLA, primarily IMPELLA.

Okay.

So, David, you think about we buy IMPELLA in the first quarter of the fiscal year and you integrate the businesses, you reassess the product pipeline, the portfolio. All kinds of integration activities and decisions occur and I would attribute that right down to, as I mentioned, just the continued shift of investments and which would include R&D, inventory, etc.

Okay, that’s fine. Excluding that, what kind of was the loss contribution from IMPELLA in the quarter?

I don’t think we’re going to get into specific IMPELLA financials, as Mike mentioned. You know we’re a combined global business and focused on global consolidated top line growth among other things, so.

All right. Well one metric you did give, some information on the about 500 units or over 500 units on your VAD sales, including the AB5000, BVS and IMPELLA. Similar to last quarter or maybe better than last quarter, but still in that same range. Was the mix any different than last quarter, between the three?

They’re similar, David. We actually didn’t get into the exact number because we’re still looking at the dollar amount, but they’re similar.

Okay, in units they’re similar?

Yes.

Okay and the approval for reimbursement in Germany. When you originally gave some guidance for your expectations for IMPELLA for an annual basis, was that reimbursement figured into your outlook and if so, is this about the right time for it?

Yes and when IMPELLA started, there was a clause that they had petitioned for that said that the technology could be used and they had the option to submit for reimbursement, but there was no guarantee or even a process for them to get reimbursed.

What this does is this gives them now the process to bill the insurance companies, which they didn’t have before, and we’re going to give you all those details in a press release. I will tell you the reason we added it to the script. Because we think it’s extremely important and it’s a huge win for us and we’re going to give you everything in the press release.

Okay. But it was part of your forecast and was assuming that you were going to get this kind of opportunity being paid for it?

It was, absolutely.

Okay and then finally, you’ve put a lot of investments in place in your sales force programs, marketing materials, marketing efforts and whatnot. At what point do we have to see sales opportunities, sales growth start to reflect the fact that your sales force is twice as large? Your marketing efforts, your clinical data is all there to support it - before you start to step back and evaluate if it’s not working, to reorient them somehow. Is this something we should see even in the next fiscal quarter or is this something we’re looking at sort of over the course of FY07?

It’s a great question and if we were a one-trick pony company, that’s exactly the evolution we should be doing. What you’re seeing is we’re ramping up our sales team so that when we do get into the bulk of the five new products that we’re pending FDA approvals on, provided we get FDA approval, now the salesperson instead of having basically the AB5000 and then the console and the VAD, they’re now going to have a bag of products.

So we want to get people ramped up now. We want to get them trained on all the technology. We want to build the relationships with the surgeons and cardiologists and we also want to build relationships with the purchasing agents. So that’s why we’re investing now and the question you have is not really just on the AB5000, but it’s on all the new products that were coming.

And again, we’re spending a little over $20 million in R&D. We’re doing that for a reason, so we’re doing both preparing the products to come to market and preparing an actual global distribution for when it transitions.

Right. I understand. But even on your own forecast for IMPELLA, you’re talking about within 18 to 24 months getting you onto the U.S. market. Even within that time frame, we’re talking about a calendar 2007 type of introduction.

Is there a point during 2006 where if the sales level doesn’t start to rise above the $10 to $11 million range you’ve been in for many of the past five quarters, that you start to say that something is off, is it pricing, is the clinical data differently compelling, are you targeting the right people? At what point would it cause you to reevaluate?

Exactly what you just said. If we didn’t see any benefits, then we would reevaluate. But you have to also remember during the trial phase and when we start into the trials, pending approval of 2.5, 5.0, the right side, that requires salespeople. Because we are generating revenue and whether you’re in a pilot, which is five to 10 centers or a pivotal that can be 20 to 40 centers, that also requires salespeople.

So, we have to build up the sales force now and even though we’re building up, it’s still a small number when you consider 18 sales reps in the United States but there’s 1,000 accounts. So it’s really now about getting the new products out. But back to your point, if we don’t see it, then we will evaluate it and that’s what we do every quarter.

Okay, great. That was actually very helpful. Thank you.

Greg Simpson with Stifel Nicolaus.

Okay, thanks, yes, just one question, Mike. I normally wouldn’t necessarily ask a question about this, but the addition of Ron Dollens to the Board of Directors, obviously kind of eye catching and impressive. Is there a story there? Is this an area he was very interested in? Did you have an existing relationship with him and how do you kind of envision his role? Could it go beyond just kind of the traditional board member role?

Well, Greg, I’m glad someone asked the question, because I’m still extremely happy and so excited that both Ron and Lou have joined our Board. They’re both outstanding leaders. A little bit of the history is Eli Lilly used to own a piece of ABIOMED.

So there was just basically a casual relationship between the ABIOMED folks and Ron and Guidant actually put, I believe, the first $10 million into IMPELLA when it was first started in Europe and then there was a death of the CEO. Guidant had other products that were booming and that company got away from them and ended up with the venture capitalists ATI that we bought the company from.

And essentially, what it was is a casual relationship. I pursued him and spent the time to get to know him and allow him to see what all our products were doing and focused not only just the AbioCor but on recovery. And I had him come here and meet with the team and look at our products.

So, again, we couldn’t be more excited to have him. We think he’s one of the most significant leaders in the entire space and he’s already made an impact and he’s been very helpful and again, thanks for asking the question.

Okay. Thanks for the answer.

Alex Arrow with Lazard Capital Markets.

Thanks, just on the pricing strategy of IMPELLA. I know you haven’t decided that yet, but do you envision that being less than, equal to, or greater than the price on the intraaortic balloon pump?

Well let me give you the estimate first of where we think we’re going to try and position in the United States, for both the 2.5 and the 5.0. Our estimate today, as we’re about to enter the market, is we believe anywhere from $7,000 to $12,000. So that’s where we’re hoping to get. Obviously $7,000 is in the 2.5 range.

The cost of balloon pumps today - so if you go global market for intraaortic balloon pump, it’s around $180 million. Datascope has 80% share, Arrow has 20% share and they charge anywhere from $750 to $1000, depending on the size of the French and the fiberoptics, plus they charge usually for the console.

Now that, in itself is a low price, but the way balloon pumps work is they’re perfusing the heart but they’re not pumping the blood. So, in order to get the left ventricle to continue to pump the blood so the organs don’t fail, they administer inotropes. Inotropes, as you know, being a trained doctor, are very harmful and if you look at the statistics that are published, a patient that has had three inotropes has an 80% mortality.

So, by itself a balloon isn’t bad, but you can’t compare a balloon to an IMPELLA. Because what the IMPELLA does is it unloads the ventricle, perfuses the organs and the heart, which we have shown on animals as well as patient studies and it protects or it helps the patient to increase the flow and again, a balloon does not do that.

Yes. Okay. All right. Thanks. And what did you say the IMPELLA console is going to cost?

We haven’t given a price yet for the IMPELLA console.

But it’s not like you’re going to place it for free in order to get the disposables? You are going to charge for the console?

We haven’t disclosed that. In Europe today we sell the console, in certain cases, where they are a high user and they buy and use a lot. Then they have the option to transition the ownership of a console. We’re going to be flexible and we haven’t yet given those details.

Okay. Thanks.

Thanks, Alex.

Harish Aiyar with Dawson James.

Thank you, one other question regarding the IMPELLA in Europe. Can you talk about the number of sites that are using the products this quarter versus last quarter?

We don’t have that information. What we had said two quarters ago was there are over 70 centers with IMPELLA, but we’re not, at this time, prepared to disclose that or have that information.

Great. Thank you.

Bill Frain with UBS Warburg.

Good morning, everybody. Just curious what’s going on with Asia and South America, Mike?

Asia is up a little bit from the year-over-year. What we’ve done since we started two years ago is reevaluate and we’re basically breaking it up into a couple markets. So, starting with Japan, we had a distributor there and we’re also looking at how we’re going to enter with Japan for both the AB5000 and the IMPELLA approvals. We see Japan as a very big market and we have the same distributor today that we’ve had in the past two years.

The next one we’re extremely focused on is China and we’ve been talking to them about all of our products. We have a distributor that’s done extremely well for us and we’re building that relationship and we’ve already started cross-training surgeons in the United States at some of our training centers, around all of our recovery products including IMPELLA.

The rest of the world and the Middle East, we have very little business. We’re looking for new distribution there and right now we have separate team that’s just trying to sign individual new distributors in every country that accepts CE Mark. Because the 2.5 and the 5.0 with CE Mark can be sold in many countries and so we’re going right down the list on every other country that can take that, to see if we can start selling.

Thank you.

Jeff Neal with Bear Stearns.

Yes, first of all I too wanted to offer my congratulations on securing Dollens to the Board. I think that’s a significant addition. I wanted to make sure my understanding was correct with regards to the trials for IMPELLA here in the U.S. My impression is that once approved to move forward with the trials the enrollment period would be relatively short; the data collection period would be relatively short as well. Am I correct in that?

I don’t know what your definition of relatively short, but if you say, depending on what’s the patient path, if you look at numbers, there’s a lot of AMI patients and there’s a lot of high-risk PCI. So it’s a different flow and dynamic than it is in the surgery suite with patients who are like destination therapy or bridge to transplant.

Well let me be more specific then. Enrollment, data collection might occur over a three to four month period.

It’s a good question, but that’s getting into specifics of the trial design, which we haven’t commented on yet.

Okay. Thanks a lot.

Thanks.

Stanley Young, a private investor.

Yes. I’d like to ask a question. I’m a newcomer to the Company as of now, although 15 years ago I was involved. Is there any relationship, has there been any meetings with Boston Scientific?

Well, Stanley, we can’t comment on any business transactions or any other meetings good or bad and that is our standard policy. But I appreciate you begin an investor and I appreciate you calling in and listening.

Okay. Thank you.

And there are no other questions standing by at this time. I’ll turn the conference back over to management for any additional or closing comments.

Great. I just want to thank everyone for their support. It’s been a great experience for me to come to ABIOMED. We’re excited for the future and again, we are focused on our strategy that recovery is the best option and we have a lot of steps that we have to continue to improve on. But we will give you every update each quarter, as much as we can, and thank you again.

Once again, ladies and gentlemen, that concludes today’s call. Thank you for your participation. You may disconnect at this time. 1