ABIOMED Inc (ABMD) 2007 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the second quarter 2007 ABIOMED Inc. earnings conference call. My name is Lisa, and I will be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question and answer session toward the end of this conference. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Ms. Liza Heapes. Please proceed ma'am.

Thank you. Good evening and welcome to ABIOMED's fiscal second quarter of 2007 earnings conference call. This is Liza Heapes of ABIOMED's corporate communications department. I'm here with Mike Minogue, ABIOMED's Chairman, President and CEO; and Dan Sutherby, our Chief Financial Officer.

The format for the call will be as follows; first Mike will provide you with strategic and operational highlights for the quarter; Dan will then provide a summary of the financial results for the quarter, and then we will open the call for your questions.

Before we begin discussing Q2, 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 approval, 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 revision 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 unanticipated events.

In addition today we will be discussing our Impella products; the Impella 2.5 and 5.0 are in investigational devices approved in the U.S. for investigational use only. Our other Impella products are not FDA approved, and are not yet for sale in the United States. I'm now pleased to introduce Mike Minogue.

Thanks Liza and good evening everyone, and thank you for taking the time to join us today. I apologize, I have a bit of a cold, and it's quite possible that one of you on the call that I've been seeing at the shows has given it to me. So I'll do the best I can to speak accurately.

We continue to make progress toward our strategic goals of providing worldwide acute heart failure patient population with advanced circulatory support from the cath lab to the surgery suite. For our Q2 fiscal year '07, revenues were $10.9 million with year-to-date revenue of $23.9 million. This is the result of a strong Q1 with a 55% growth, and a slow summer, Q2, with declining BVS sales.

We continue to generate positive momentum with the AB5000 sales and publications for recovery. The AB5000 disposal revenue ventricle grew by double digits, with total revenue from the product system increasing 31%. We had the highest number of patients ever supported worldwide on our AB5000 technology this past quarter as well.

Additionally AB5000 console sales were up 83% in revenue worldwide, and greater than 100% in the U.S., even as we continued to rent a double-digit amount of AB5000 consoles. We are expanding beyond post cardiotomy cardiogenic shock patients, or for those that don't look at it that way, it's patients that are unable to wean from a heart/lung machine in the surgery suite.

We're focused on patients in acute myocardial infarction with cardiogenic shock or myocarditis patients, it's a much larger number and they're usually coming from the cath lab. We remain focused on our goal of growing our revenues by double digits and at halftime we are up approximately 23% compared to revenue of $19.4 million in the first six months of fiscal 2006.

Now I'd like to address our other three corporate goals. One, increasing our global distribution; two, establishing heart recovery as a standard of care for acute events; and three, expanding our product portfolio by making regulatory progress.

First on our global distribution, we continue to invest in our sales, clinical and marketing teams, to provide world class best practice sharing to our customers and their patients. We are continuing to add new sales and clinical field personnel at a rate of two to four per quarter for this fiscal year, four again were added last quarter, and ABIOMED sales and clinical teams made good progress increasing our penetration rates in the U.S. open heart and transplant centers this quarter.

We have new distributor agreements in Thailand for the AB and Impella, and we sold our first Impella products in Mexico. We will continue to expand global sales and distribution because acute heart failure impacts over 3 million people worldwide every year, with well over 1 million in the United States alone.

This brings me to our second goal of establishing heart recovery as a standard of care for all acute heart failure events. Every expert in the field agrees that heart recovery is best for the patient, the payer and the provider, and we see evidence that the focus is shifting from destination therapy to acute recovery, due to the limitations of all device technology available today.

We continue to make progress on three fronts, based on financials, clinical evidence and customer relationships with expanding distribution. First on financial, we hosted a web cast on September 7 with the Deputy Director of CMS Acute Care Division that educated administrators on increases in CMS reimbursement, and how to incorporate them into a VAD recovery program. The web cast is available online on our website, ABIOMED.com. We are planning another call this quarter to share hospital best practices in order to improve recovery outcomes worldwide.

But the most effective way to establish a new standard of care is to utilize evidence based medicine. We're continually writing and submitting papers on our technology, and we held an Impella user update at the start of the TCT show, and had a strong presence at TCT with three posters and three live presentations.

The first presentation was on the Impella product platform, and European experience, by Dr. Bart Means from [Luvene]; the second presentation was on the Impella 25 pilot study, by Dr. Bill O'Neil, our PI in the states; and the third presentation was on our AB5000 for AMI cardiogenic shock patients, by Dr. Mark Anderson of Robert Wood Johnson.

The AMI study of 100 patients at 42 U.S. hospitals is the largest reported experience in AMI cardiogenic shock patients supports with VADS. The AMI study updated the first 50 patients presented last year with the next 50. And to remind everyone, there are no outliers or best practice selection. These AB patients are sicker than those in the shock trial, and the shock trial was a landmark study in 2000 that changed the standard of care for AMI patients, or heart attack patients, shifting treatment from medical management, which was drugs, to revascularization, or stents, or a cabbage.

Our AB surviving patients were sicker than those who died in the shock trial in every major category, specifically cardiac index, aortic systolic pressure, central venous pressure and pulmonary arterial pressure. The net was that patients in this condition all died in the shock trial, yet 40% of those treated with the AV5000 VAD lived, and approximately two-thirds of survivors recovered their native hearts.

Some patients had been in cardiogenic shock for more than three days, and approximately half had CPR before implantation of the AV5000. So these results reflect real world experience, and were not selected merely because of best practice hospitals.

If we compare these results to real world statistics of 35,000 heart attack cardiogenic deaths each year in the United States, the AV5000 could potentially save approximately 40% of them. That means that 14,000 U.S. patients per year, and approximately two-thirds, or 8,400 of them, would maintain the use of their native heart. The remaining survivors would be able to be evaluated for a transplant without requiring another sternotomy and four hours plus of surgery utilizing a heart/lung machine.

To remind everyone, the AV5000 can be implanted in 45 to 30 minutes, without the need of risking the adverse events associated with the heart/lung machine. A study from Cologne in 1999 in the European Dialysis and Transplantation Association, demonstrated a linear relationship between the heart/lung machine time and development of kidney failures. Clearly this is not something you want to expose acute patients to.

Additionally, our TCT 2000 abstract demonstrated the optimal acute recovery time of 30 days with a P value of less than .0001. If transplant is required, another comprehensive transplant study by Gami in the thoracic cardiac surgery publication 2004 showed 30 to 44 days as the optimal time for VAD support prior to a transplant. So to remind again, 30 days is the most optimal time to see if a patient can recover, and 30 to 44 days is the most optimal time to be on a VAD before a transplant.

And it was optimal in that the 30 to 44 day window produced the highest survival post transplant, at 93% for one year, as compared to greater than six months of VAD support at 76% survival for one year post transplant. That is a difference of 17% in mortality at one year. This multicenter study included 466 VAD patients that went on to heart transplantation. Just to remind everyone as well, there's only approximately 2,200 transplants per year.

The AB5000 has the engineering capability to support a patient beyond one year, which allows for multiple options. AB5000 continues to gain momentum as the best external VAD in the industry based on high pulsatile flows, ability to inspect the blood and the valves, the flexibility to switch it, the lowest adverse events, and most important, it is the best results for acute heart recovery as well as exclusive indication approvals for heart recovery.

At the European Association for Cardiothoracic Surgery in Stockholm, our presence included the European users meeting on both Impella and AB, and a heart recovery symposium within the EACTS program. Other important meetings for us this quarter included the International Society of Rotary Blood Pumps, where we had six presentations on Impella, and also the Heart Failure Society of American meeting, which also had presentations on Impella.

In addition, this quarter we held nine hands on training sessions across the U.S. for cardiovascular surgeons to begin using our technology. Our continued recovery success can be highlighted with the recent selection and award ceremony for the Medical University of South Carolina as one of our ABIOMED centers of excellence.

These hospitals have the best recovery outcomes in the country, and are our partners as we train new surgeons and staff. MUSC has an AB5000 recovery rate of 43% and a 78 total survival rate, which is outstanding. They also currently have a 100% recovery rate for AMI, cardiogenic shock, and myocarditis.

Our other centers of excellence AB5000 recovery rates include Lankenau Hospital in PA, with a 54% rate, that's Dr. Lou Samuels; Robert Wood Johnson Hospital under Dr. Mark Anderson, which has a 45% recovery rate. And Dr. Anderson has done more than 140 VBS and AB5000 patients at multiple centers, and maintained greater than a 40% recovery rate. Mayo Clinic in Rochester has a 50% recovery rate; and Duke University, with the AB5000, has a 50% recovery rate.

Survival for all these ABIOMED partners is obviously higher than recovery alone, but without recovery survival merely depends on transplantation. At some transplant centers that lack acute recovery protocols, recovery is below 5%, so survival depends solely on transplantation, or approximately 12 months on an implantable device before transplantation or death.

These hospitals that are best centers serve as training sites and are examples of how established hospital protocols can improve patient outcomes. The old paradigm of care equated success to survival, and that's with a transplant. Our new standard of care sites focus on reduction of infarcts, reducing the mortality and increasing heart recovery.

This is a journey that will take time, but one we know we will accomplish, and our patients are what drive us here. So I'd like to share one story of a 21-year-old college student in Indiana, named Melissa Moser. Melissa kept losing consciousness while getting ready for class, and her roommate heard her and called 911. Melissa was taken to Lutheran Hospital in Fort Wayne Indiana, where they discovered a pulmonary embolism that led to right heart failure.

She was put on the AB5000 for right side support, and after four days of support her heart function recovered and the device was explanted. She graduated college just a month later, got married, and we recently reunited her with the dedicated hospital staff who cared for her. Her story highlights our important focus, providing native heart recovery to patients suffering from acute heart failure, and sending them home to live full, productive lives, without the destination therapy VAD to transplantation ordeal.

Next I'd like to cover our goal of expanding our product portfolio by making regulatory progress. With the landmark decision from the FDA approving the AbioCor implantable replacement heart under HDE, we now have an opportunity to treat chronic heart failure patients who are not candidates for transplant, and who have run out of treatment options.

This technology is the culmination of 25 years of research and development and many of it was started by the NIGH. And to give everyone an idea of what an achievement this is, in 1964 when the government started working on it, I was not born. So I happen to be here as we begin the journey of moving forward and developing this technology, and I'd like to quote two people.

Dr. Daniel Schultz, the Director of Center for Devices at the FDA, who said that "The AbioCor represents a significant advance in artificial heart technology, and holds promise for critically ill heart patients who are not candidates for heart transplant, due to age or other medical conditions."

And Dr. Elizabeth Nabel, at the NHLBI, said, "The national heart, lung and blood institute is proud to have supported the research which led to this development. It represents a major technology advance and will benefit people in critical need." This approval was certainly a highlight during our Q2.

We also continued to make progress with the Impella 2.5 and 5.0 pilot studies in the U.S., all seven Impella 2.5 pilot centers have approved IRVs and six of the seven Impella 5.0 sites are approved as well. For the Impella 2.5 pilot, this marks the first time a VAD has had prophylactic use.

In Q2, we started enrolling high-risk angioplasty patients with the Impella 2.5 and in Europe we have now treated more than 800 patients with Impella pumps. We believe that the Impella products will change the standard of care in the cath lab and drive growth for ABIOMED.

We would like to explain now our trial status and market strategy. We chose to focus on high-risk angioplasty in the Impella 2.5 trial to demonstrate prophylactic use with little to no adverse events.

This experience is similar to our European experience and is well documented, most recently with Dr. Enriques, American Journal of Cardiology publication in April 2006 on 19 high-risk angioplasty patients. Dr. Enriques, at the Amsterdam Medical Center is one of our seven Impella 2.5 pilot study sites, even though he is from Europe.

Based on our strategy, prior analysis and current situation, we are planning to file, in our current fiscal Q4, or February-March, an Impella 2.5 submission seeking a 510K clearance. For those that are unfamiliar with the 510K process, it allows for approval of technology, demonstrating substantial equivalence to prior approved products. While we will not discuss the specifics of the comparison or label, we believe the submission will be cleared, based on existing technology available today.

While there are no guarantees regarding whether we will be 510K cleared by the FDA, these submissions typically have a 90 to 100 day review process, if the FDA poses few or no additional questions. If we receive 510K clearance, ABIOMED would still have the option to conduct post-market pivotal studies pending successful completion of our pilot studies. These potential studies would be for expanded indications for clinical use such as, but not limited to, study of the Impella 2.5 or 5.0 as treatment to reduce the size of an infarct post-AMI, and/or usage of Impella with AMI Cardiogenic shock patients. We hope this update explains why we designed our pilot trial as we did.

While it is not prudent to predict FDA outcomes, this option, subject to FDA approval, may allow commercial sales of Impella 2.5 in the United States for the second half of our fiscal year 2008. As a reminder, we end in March.

ABIOMED believes we have an obligation to bring this profound, lifesaving, cath lab technology to the United States with the least burdensome path.

Impella will immediately impact the way patients are treated and we continue to receive calls from U.S. medical centers, requesting it for use for patients in need. If we are denied 510K clearance, our PMA strategy will continue with multiple pivotal centers as we have outlined in prior earnings calls.

Our regulatory progress continues to move forward, especially over the last several months, with approvals for the AbioCor, our off-pump Cannula and progress with our Impella trials and IRBs. We plan to add more submissions in the future, as we add new products into the portfolio.

In summary, I want to thank the whole team for an exciting quarter, for a good first half and we've made solid progress on our strategic goals. We recognize the challenge ahead and we're committed to execution.

I'd now like to turn the call over to Dan.

Thanks, Mike. If you would please turn to the P&L attached to our press release, I'll provide some details on our results for our second quarter of fiscal 2007.

First of all, whenever I refer to a number, going up or down, I'm referring to the increase or decrease in that figure in the fiscal second quarter of 2007, compared to the fiscal second quarter of 2006, unless I indicate otherwise.

First to revenues, revenues for the second fiscal quarter, ended September 30th, 2006, were $10.9 million, roughly flat with the second quarter of fiscal 2006. From a product line perspective, decreases from BBS revenues offset growth during the quarter from Impella and AB5000.

On the Impella growth during Q2, while not a significant contribution in total dollars, revenues from Impella were up 75%. AB5000 revenues were up 31%. However, BBS was down 37%.

Total Console revenues, meaning Console revenue from Impella and AB5000, were up 85%. Disposables revenue, in total, was down 12% during the quarter, due to the effects of the decline in BBS revenue, as I mentioned. If you exclude BBS, disposables revenue during the quarter was up 15%.

During fiscal Q2, gross revenue of approximately $400,000 from the U.S. pilot trials for the Impella 2.5 and 5.0, was deferred as of quarter end. Certain trial expenses, of approximately $200,000 were offset against the deferred revenue during fiscal Q2.

Fiscal Q2 revenue from disposables, service and training, meaning the non-capital related revenue, represented approximately 78% of total revenue for the quarter.

Summarizing revenues for the first half of our fiscal year, for the first six months of fiscal '07, our revenues of $24 million were up 23%. For the first six months of fiscal 2007, revenue from AB5000 is up 78%. Impella is up 67% and BVS revenue is down 18%.

Turning now to gross margins, our fiscal Q2 '07 gross margins were 73%, as our favorable revenue mix of disposables generates very strong gross margins. We continue to evaluate outsourcing opportunities and other manufacturing process improvements to increase yield and lower our overall cost base, and maximize the leverage of future revenue growth.

On research and development expenses for the quarter, R&D expenses were $5.3 million, up roughly $1 million compared to the same period of fiscal '06. R&D expense for the fiscal second quarter of 2007, includes stock option expense of approximately $400,000. We continue to invest in new products to broaden our product portfolio and our full-year fiscal '07 forecast for R&D, has approximately 30% of our R&D dollars focused on new products.

Now to discuss SG&A expenses, during fiscal Q2 '07, we continued to execute well on our plans to increase global distribution. SG&A expenses for fiscal Q2 '07 were $11 million compared to $6.8 million for Q2 of fiscal '06.

The SG&A expenses for Q2 '07, included stock option expense of $1.1 million and also included costs associated with our increased investments in global distribution, our healthcare solutions and re-branding initiatives. And during the quarter, we went live on a new SAP System and our SG&A expenses, in Q2 of '07 and in the first six months of fiscal '07, include these investments in the SAP System.

Intangibles amortization for Q2 was $500,000 and relates to the intangibles resulting from the Impella acquisition. For the net loss for the period in Q2 '07, the company reported a net loss of $8.7 million, or $0.33 per share. This net loss includes stock option expense of $1.6 million or $0.06 per share.

Turning to the balance sheet, on liquidity in capital resources, as of September 30th, 2006, our cash, cash equivalents and investments totaled approximately $22 million. Our estimated quarterly cash utilization, going forward, is expected to be approximately $3 million per quarter. We believe we have sufficient liquidity to fund operations and invest in our growth platforms.

We recently filed a shelf registration that is now effective and provides collectibility to issue up to 7.5 million shares. In summary, we believe our progress for the first half of fiscal 2007, with revenue growth of 23% and our focused strategy, going forward; to build our global distribution and continue to invest in new products, position ABIOMED for long-term growth that we believe will translate into enhanced shareholder value.

I will now open the call to your questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Clay Wilson, with Needham. Please proceed.

Thanks for taking my call; I appreciate it. I was wondering if, perhaps, you could talk - speak a little bit about guidance going forward. As I recall - on the last conference call, I think it was - you were looking at, I guess, total annual revenues and I was wondering if that guidance has changed. And also, if you could speak a little bit about next quarter, any thoughts about that.

I mean, one of the questions clearly is this - with the BVS AB situation, will that be an ongoing situation that we should anticipate? I wonder if you have any commentary on that.

Sure Clay. First of all, our guidance we had given for the year was in the $49 million to $52 million range. After Q1, we thought that it was more towards the $52 million. We have not changed our guidance for the year. And, as far as next quarter, the only quarterly guidance we've given is sequential growth, quarter-over-quarter, and we're still planning on looking at that rate for the rest of the year.

As far as the specific question, we haven't given any guidance outside of this fiscal year. But clearly, the BVS product is 14 years old. We have multiple products that will be coming into the market. And if you define what the BVS product had been for, historically it was post-cardiotomy - cardiogenic shock patients. So, patients that were having trouble coming off the heart/lung machine.

We believe, as we've done the trial, that patients that are now going to struggle off of the heart/lung machine, that an Impella 5.0, or even an Impella 2.5, would be used more routinely. And, that market has continued to decline and we also believe that it's going to be addressed more appropriately with a device that you can put in and you can remove without having to make a commitment of a [strononomy].

However, if a patient does go into profound cardiogenic shock, such as what you'll see from an AMI, or myocarditis, this market requires longer-term support so, up to 30 days. And if they don't recover, you want the option to support them on to, potentially, a transplant or other option. And the AB5000 can do that. It has high flows. It's pulsatile; the patient can get up and walk. The patient gets the fluid away from the lungs. And, it's got the lowest adverse events.

So, that is the device. And, what we're seeing is, the [transfer] centers convert completely to AB and getting the new Console itself, which will still drive the BVS. And, some folks have reserved the right of the BVS for a patient that comes in and they're not sure that the patient hasn't had something happen, the cerebral injury. And so what they'll do is they may put that on for 24 hours to see if the patient wakes up. And then, if that's the case, they can switch.

But, our protocol for the highest recovery is really driven by using the right tool. So, if you think about Impella it's more reduction of infarct, or pre-shocked, and obviously, this is outside of the United States. And then, with our trial in Impella, we're proposing the use from the cath lab of high risk, too, as I discussed in the 5.0. And then, really profound shock becomes the AB5000 with extended support.

So, I - I guess one thought, along those lines. You know, if there's very strong evidence based medicine on this, and I guess one of the thoughts in my mind is gee you know if the BVS is really trailing down maybe a little bit faster than originally anticipated, you'd almost think that the AB5000 would, I guess, more than compensate for that. I don't know if I'm asking the question clearly here.

Well the BVS last quarter was slightly up, in this past quarter it was down. So it is one quarter, we are going to continue to look at our installed base, but we do expect growth for patients indications versus specifically products. So we do expect AMI growth, we do expect growth from the cath lab for more prophylactic use on Impella, and I think that we're looking at the whole circulatory care support, we're not looking at BVS to AB transition. And that may occur for the next few quarters, but obviously with our portfolio and our new products, we're not going to be dependent on one type of patient and one product alone.

Okay, and may I also ask about the S&GA, which is, of course substantially higher. I know you did very good job of explaining I guess the number of factors there, but could you give us some thought on that, going forward, is that going to continue to be kind of at levels, growth levels like this, or levels like this, or any thoughts about SG&A going forward?

Sure, Clay this is Dan. To Mike's earlier points on our guidance on our prior call, we had said that SG&A we believed for the full year would be between $33 million and $36 million. That excludes stock option expense. So I think if you look at the six month results for SG&A, of $20 million on the income statement attached to the release, not that we're saying you should double it, but analytically if you doubled it you'd be at $40 million for the year.

That would include about $4 million, give or take, of stock option expense. So we believe we're tracking thus far through the year to our original guidance, again at this point in the fiscal year. And again Clay, sorry to interrupt, the original guidance assumed that we would add two to four sales and clinical individuals per quarter.

Okay, and then the other thing is, I guess of course there's a substantial change in the Impella now that you're going for the 510K. And could you perhaps give a little, is the rationale for going directly for the 510K and then continuing on for the PMA, I mean is it just to get out on the market quicker? I suppose that does make sense. But what changed this whole sort of view on the 510K PMA situation?

Well Clay, I mean obviously we've been looking at this strategy for a long period of time. We selected a trial for the 25 to have a prophylactic use and up until doing some of these patients, and continuing to do our homework, we wanted to show that we had results similar to what we were having in Europe specific to adverse events.

And again, its led us along the path to think that we're able to do this, based on the reason a 510K is there, and its also encouraged by the FDA to follow the least burdensome path as long as you have your engineering, your data and it's always a benefit to have clinical data.

Clearly we have a lot of clinical data in Europe and publications that are peer reviewed, but we wanted to also have that experience in the United States.

So the 2.5 you're going after the prophylactic use in the 510K, and for the 5.0 and for -- well you'd be going after more the acute shock type uses?

Well the way you go in your pilot is not necessarily how you would do you pivotal. And so what we haven't said is yet specifically we have a range of patients and a range of indications and labels we can go for in the pivotal. But under a 510K it gives the sites the capability to use the device and to use it in its appropriate means. But as I said, today we're not going to break down into what the predicate device and what the labels will be.

But based on our analysis, we believe that that is a very good way to enter the U.S. market, to build user awareness and experience, and we also can continue to go after labels that technology today has been unable to attain.

And just to comment again, back to your question before, this is why it's not a one specific product, this is why we've been investing. Your comment was, "Well if BVS is down, will AB be up?" When we started with the AB5000 for every four patients that got AB, one out of the four started on BVS. And we believe that we see a very small number, less than probably 2% of all these AMI shock patients to AB. We believe that the Impella will also allow us to educate cardiologists between cardiogenic shock and profound cardiogenic shock.

And to your comments about increases, as I stated that in the U.S. alone, AB5000 console sales this quarter increased again in revenue over 100%. So we have to sell the razor to get the new razorblade. Plus we've done more AB patients this quarter than we've done before.

So that's the trend we're looking for, and we also see now getting directly into the cath lab with these patients when it occurs, knowing that we get very few of them today in the surgery suite, directly to the AB5000.

Okay I'll get in queue, but I just had one last part here. With the 5.0 on the pilot trial, what is the study there? That is not prophylactic use?

That study is essentially a patient that is on the heart/lung machine that is not in cardiogenic shock but has trouble, or potentially needs support, being weaned off of it. Today they would likely receive an intraortic balloon pump and inatropes, and that's the target patient we're going after with the Impella 5.0.

In the pilot trial.

In the pilot trial.

Later on you'll tell us about the pivotal trials, what indications you're going after.

Correct.

Thanks, I'll get back in queue.

Thank you Clay.

Your next question comes from the line of Harish Aiyar with Dawson James; please proceed.

Thank you. Just the addition to the sales force, they were all in the U.S.?

That number was all in the U.S., correct.

Great. And you mentioned, just going back to the drop off in the BVS, those patients who, I guess would have gotten the BVS, are they going to some other product, or are they just going to the AB? Or exactly, I guess, what's happening? Or is this just kind of a stocking issue, just because somebody orders a product it doesn't mean that they use it today.

The BVS has been out so long that we are pretty much unable to track every patient, because many centers are very used to it, and they don't usually call. Whereas the AB we kind of almost touch, or try to touch, every patient. So we're really not sure if it's just restocking. Again, we have a huge install base out there in open heart centers, and if they don't restock then it eventually hits our run rate.

And just a point, just a clarification. I thought you said this, but the percentage number that you gave for the AB, BVS and Impella, an increase of 31%, a decrease of 37%, an increase of 71%, that's disposables and consoles, or disposables alone?

This is Dan, Harish. Yes, that's total product platform revenues, and that would include consoles and disposables, as applicable, for either BVS, AB or Impella, correct.

Okay, great. Thank you. I'll get back in queue.

Your next question comes from Randy Huff with ProEquities; please proceed.

Hello fellas, and congratulations on the milestones and progress you've made this quarter. Mike you need to come down and spend a week in Atlanta, you'll get rid of the cold.

I'd like to Randy.

On the sales force, I missed the number, would you help me with that? The increase that the fellow just asked about in the U.S.

We added another four field representatives in the U.S., that's either sales or clinical, or a combination. So it was a combo of four people, again in the U.S.

Giving a total in the U.S. of?

Total sales in clinical as of the end of this quarter Randy, would be 39.

Great. And a year ago you were somewhere probably half that amount.

That's exactly right. It's up, the 39 is up just about 50% year-over-year.

Okay, and realizing that you had, throughout this whole rebuilding process in the sales and clinical support segment of the business, of picking only the best of the best, I'm still puzzled, and maybe you can help clear the fog a little bit as to why there isn't even a faster adoption rate for AB5000 usage, especially in light of what I think is the profound report you gave earlier Mike, with respect to the overwhelming clinical results in favor of intervention with the AB5000.

Well I think that's a valid question, but I think you have to apply it to the market and the customer you're dealing with. So we have seen that we're having increased usage per quarter. We have seen the top centers, now 16 of the top 20, or maybe even more, have purchased the AB, and we're penetrating all transplant centers and open heart centers.

The flip side of that is, heart surgeons, and especially transplant centers, are not known for being fast adopters, whereas interventional cardiologists are well known for that. So anyone that's been to a heart transplantation or [inaudible] show can recognize the small numbers. And obviously then if you spend any time at an interventional cardiology show, such as TCT or PCR, you can see the amount and the pace.

So I think you have to do both, and again to change the standard of care you have to publish and continue to publish. You have to educate and drive financial incentives. The fact that CMS has, again for the second year, affirmed approval of recovery and has actually joined one of our calls shows that they agree and they believe in recovery as the best outcome.

And the last is our relationships, and that comes with our sales people and our clinical people getting out there, building that credibility and trust, and reviewing the clinical and the financial data. And I think we are making progress, but we're going to continue, and there's no shortcut in this business.

It's just a puzzlement to me. Could you give us, that's a great answer, would you give me some idea, maybe one or two examples just quickly, of when someone -- you know you make your best case, you analyze the patient's historical data, you see where there could be a great clinical improvement at a given prospect, and yet they say no.

What's the typical reason for saying no? Is it, "I want to see more data," or just what?

Well I think one of the concerns people will say is that they can't discharge the patient if they can't recover. So if they put a transplant device on the person, they don't recover, therefore they can discharge them, and when they bring them back for a transplant they get paid again. I know it sounds kind of a crazy logic, because you're talking about someone's life and heart, but it still is something that people say.

And as it turns out, if you look at all the publications and statistics on transplant VADS they have less than a 5% recovery rate, which is why they don't have approval from the FDA for recovery. And that's a matter of us getting out and educating people. Because for us, at our good centers they have higher recovery rates, and the most likely outcome for the survivors is, even in the real world, is recovery, which means they are being discharged with their own heart.

And when you send somebody home with 40 pounds of a console with tubes coming out of them, or whatever the case, and you bring them back eight months later and you transplant them, and then they have immunosuppression drugs and a 50% chance to make it 10 years. I mean that's a significant problem, a significant cost, and it's also why recovery, in the end, is most cost effective, and we'll win.

Okay.

I can give you a positive story. Once we have these centers that have advocates, and they see patients recover, it spreads. That's why we have now probably over 20 media clips from all over the country of regular open heart centers that have recovered somebody's heart, having a celebration of life. And that's how it spreads, and it continues to spread.

Great. I think at the end of last quarter, Mike, your penetration into the total hospital community, the transplant centers and the open heart centers, was something like, correct me if I'm wrong, 18%, 15% to 18%.

This is Dan, Randy, I'll tell you what it is now at Q2 '07. Through Q2 '07 on the transplant centers, we're in about 46%, and on the open heart centers we're in about 13%. So overall, as of Q2, we're in about 17%. And that is up from last quarter sequentially.

Yes, I thought the number was lower. Okay, great. The next question, Mike, is kind of a probably an outlier here. But in your acquisition terms, with respect to the Impella product line, one of the milestones that was part of the deal was a stock price in the 20 trading days prior to the, I think it was the 10th of November of 2006 being 18 months after the closing. That there would be an extra payment made if the stock was between $15 and $18 on average over those 20 days.

It doesn't appear it's going to make that unless we're at 30 or something for the next few days, which is unlikely. Could you give us a comment on how that segment of it is going to play out, if I have that data correct.

Sure Randy. Two things; one, you're going to have to get in the queue after this, or the other guys are going to get mad at you. And two, it ends on November 10, so if the 20 day moving average isn't at least 15, there's no additional payment for that milestone and it goes away.

Okay. Thanks, I'm back in the queue.

Thanks, Randy.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of David Zimbalist, with Natexis. Please proceed.

Hi, David.

Hi, how're you?

Good.

So, the - can you remind us if the BVS was approved through a 510K, or through a PMA?

PMA, 1992.

Great. Second, this - is there any way for you to track your BVS active installed base on the basis of service contracts? I believe, at one point, if I recall, you were going to try to go back to accounts that had a BVS that hadn't been serviced and go back and say we'll service you now, but there's a service contract. I'm wondering if there is any way to track the activity of your installed base, based on that.

Well, we're trying to track them all, so that we can upgrade them all. However, with a new sales team and you're talking about 1,000 centers, we probably don't get to all of them. But, we are out trying to - and we did have - we did, as well, try and have people buy packages for servicing. And then, also encourage them to upgrade to the AB; and that's what we're in process of doing now.

But you haven't reached all the centers? It's not like you're -?

We have a list of all the centers, but I would say we don't have that network and those relationships yet that I could tell you we know every single center.

Okay, second, any willingness to share, roughly, the number of rentals that you were active in the quarter?

Double-digit, similar to our other trends. And when we've said double-digit in the past, we said greater than 10, less than 20.

Okay, and that's at some point - what about conversion of rentals from prior periods, the sales?

That's a good question, because we stopped giving those conversions. What we also stopped doing is, if someone rented in the quarter, and then, in the quarter that they rented, they bought it; we didn't count that as a rental. So, these rentals are only people that rented in the quarter and did not convert. And they're either still renting or they stopped renting.

Okay, but - but you are actually still doing conversions of active rentals?

Absolutely.

Even if they flip over from one quarter to another?

Correct, and that's not included in that rental number. If it converts in the quarter, it's just a sale.

Okay, all right. All right, that's very helpful.

So, are there - what areas of the country do you still feel you have substantial under penetration of, in terms of your sales force and sales coverage? And, to the extent that you - where you have coverage, what kind of metrics are you using to track the sales force? Because, it sounds like a lot of their effort is on detailing surgeons, cardiologists, referring centers that - about the need to get a BVS or AB5000, some sort of support on earlier rather than later, in order to get the recovery rates up as high as possible?

Well, if I was measuring Wall Street, I'd say we're under penetrated in New York City with the analysts and the investors. If I was saying customers, I think it all depends, David. There's no magic. It all depends on how long the rep's been with us and what their contacts are; what their relationships are.

I will tell you, because we've said in the past, that three years ago, we didn't cover part of the west coast at all. And so, we've rebuilt the west. And, we brought in very good sales people and clinical people that have existing relationships. But there is a learning curve here. This is a unique space and we think it's approximately a 12-month ramp up, which is frankly - right now, we're probably around getting the average of around one year for our sales reps, when you exclude the two long-term sales people.

Okay, great. And, to the extent that you do, just as a contingency, if you are, you know, are denied the 510K route for the Impella, is the 510K for - two 510Ks, one for the 5.0, one for the 2.5?

We've only disclosed that the plan is for the 2.5.

Okay. So, if the 2.5 is denied and you need to ramp up the clinical trial, are there other expense areas that you - that you would look to, to stabilize or offset? Or, would you expect, at that point, to do some sort of financing?

With or without 510K clearance, we still have the potential - and are very open to - the option to continue a pivotal trial on the 2.5, to go for a specific label.

Okay, you know - [two people talking].

This is just of a, you know, this is not excluding any of the pivotal studies on any other products.

Okay, and your - and your sense that you have sufficient operating - sufficient cash to reach profitability on the operations, is, you know, independent of a 510K approval, where you can start to sell the product, vs. not?

David, this is Dan. As I mentioned, we have $22 million of cash, as of the end of fiscal Q2. And our expected burn, per quarter, is approximately $3 million per quarter. So, we do believe we have sufficient cash to fund the growth initiatives that we've outlined on various calls. And as I said, we have now the effective S3 shelf registration that is now effective.

So, that gives us choices as well, going forward.

Okay. All right, fair enough. And, thank you.

Your next question is a follow up from the line of Clay Wilson, with Needham. Please proceed.

Yes, thanks a lot. I was wondering if you could also mention, and forgive me if you've mentioned this, but, with regard to the pilot trials for 5.0 and 2.5 as they are now, about how many patients have been recruited into each?

The pilot for each of them is 20 patients, David. And, we have not disclosed where we're at on either trial.

Okay. Could you tell us, do you think it's proceeding to plan, or, maybe slower, or faster than plan? Any thoughts on that?

Clay, we haven't commented, one way or the other.

Okay, and then, the only other thing, just a housekeeping matter; you mentioned the $49 million to $52 million, which was the original guidance. And then, you know, you'd sort of shifted to kind of focus a little bit more towards the upper edge. Would you say now, we should not necessarily focus on the upper edge of that? Is that fair to say? Or am I misunderstanding?

Well, I think we're in the range and again, I still think that we're on the upper end of that range.

Okay, thank you very much.

This concludes the question and answer session of the presentation. I would now like to turn the conference back to Mr. Michael Minogue.

Thank you everyone for your time tonight and we will talk to you at your convenience. Have a good night.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect; good day.