ABIOMED Inc (ABMD) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your third quarter 2007 ABIOMED earnings conference call. [OPERATOR INSTRUCTIONS] At this time I'll turn the call over to your host, Ms. Liza Heapes.

Good morning and welcome to ABIOMED's fiscal third quarter 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 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 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 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 unanticipated events.

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

Thanks, Liza. Good morning and thank you for taking the time to join us today. We continue to make progress towards our strategic goals of providing worldwide acute heart failure patient population with advanced circulatory support technology and we made great strides towards bringing new product developments to market. Since 2002 when we had only one disposable product, we have grown to a portfolio of nine global disposable products on three platforms -- nine global disposable products on three platform. Six of the products are not yet approved by the FDA.

We are investing our distribution, especially in the U.S., in anticipation of these new product launches. Based on today's product portfolio, Q3 fiscal year '07 revenues increased to $12.9 million, up 23%. We continue to generate positive momentum with our AB5000 sales and publications for recovery. As we transition to our newer product platforms, we have the capability to treat more patients. Additionally, this new product mix will drive margin growth. The Impella and the IPulse opportunity creates new customers and will expand the role of the AB5000, which has done well as an individual product over the last two years.

Total revenue from the AB5000 product system, which includes disposable ventricles and consoles increased 59%. And looking at the first nine months of fiscal 2007, revenue from AB5000 consoles was up 122%. We had the highest number of AB5000 ventricles sold in a quarter and the third consecutive quarter of the most patients ever supported worldwide with our life-saving AB5000 technology. In Q3, we also saw the most AB5000 console rentals in a quarter. Again, the rental program is based on using it each month in that quarter. As we look at the paradigm shift for recovery, ABIOMED will treat preshock patients immediately in the cath lab and support profound shock patients in the surgery suite. As I have stated, we are expanding beyond the postcardiotomy cardiogenic shock patients, or patients that are unable to wean from the heart lung machine in the operating room. We are focused on patients that are high-risk angioplasty, heart attack, AMI, or acute myocardial infarction cardiogenic shock, and myocarditis. This is a much larger population of patients and they are usually located in or coming from the cath lab.

There are over 1 million heart attacks in the U.S. each year with roughly 7% or 70,000 patients developing the dangerous condition of cardiogenic shock, which carries a 50% mortality rate at six months. This focus on the acute population of patients is a reason for our corporate goal of double digit revenue growth for fiscal year 2007. We expect our growth to increase upon FDA regulatory approvals as well.

Now I would like to address our three other corporate goals for 2007. Number one, increasing global distribution; number two, establishing heart recovery as the standard of care for acute events; and number three, expanding our product portfolio and making regulatory progress. First, on our 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. Our goal has been to add two to four new sales and clinical field personnel per quarter for fiscal 2007. During Q3, we added two U.S. sales reps and four field-based cath lab experts for our Impella and balloon pump ramp-up. In addition, we recently, added six sales and clinical hires in Europe. This brings us to a total of 12 field adds for this time period.

This quarter, along with treating our first Impella 2.5 and 5.0 patients in France, we installed the Impella system in Chile and signed an expanded distribution agreement in Japan for the cath lab products. We will continue to grow our global sales and distribution because acute heart failure impacts over 3 million people worldwide each year.

This brings me to our second gold of establishing heart recovery as the standard of care for all acute heart failure events, specifically heart attacks. Experts in the field agree that heart recovery is the best for the patient, for the payer, and for the provider. We continue to see evidence that the focus is shifting to acute recovery due to publications and case studies on recovery with Impella and the AB5000. We recently hosted a webcast on best practices using ventricle assist devices for heart recovery. Presenters included Dr. Jack Crumbly, from the Medical University of South Carolina, Elena Gosh, the VAD Nurse Practitioner at Lankenau, and Dr. Dan Raess from Indiana Heart, who is now an ABIOMED employee. We also incorporated protocols designed by Dr. Mark Anderson, of Robert Wood Johnson.

These four centers are achieving recovery rates with the AB5000 of greater than 50% of their 63 acute patients suffering from AMI cardiogenic shock, myomarocarditis, and post-cardiotomy cardiogenic shock. The survival rate is higher, but it depends on a transplant which has certain quality of life issues which we have previously discussed. We're very encouraged by their enthusiasm to share their learning and their new studies with existing and future customers. In addition, this quarter we held 11 hands on training sessions across the U.S. for cardiovascular surgeons to begin using our technology.

We recently just came back from a successful STS or Society of Thoracic Surgeon meeting in San Diego. During our symposium, Dr. Simon Dixon, an interventional cardiologist from William Beaumont presented on using the Impella for high-risk angioplasty; Dr. Robert Cormos, from University of Pittsburgh presented on the paradigm shift using VAD 4 recovery; Dr. Eric Wasserburg from Europe presented his protocols for using the Impella and the AB5000; and Dr. Mark Anderson from Robert Wood Johnson presented the AMI cardiogenic shock findings with our AB5000 TCT abstract. This 100-patient study remains the most indepth analysis of AMI cardiogenic shock with VADS that exists today. The AB5000 continues to gain momentum as the best recovery VAD in the industry based on high pulsatile flows, the ability to ambulate the patient, and the flexibility for biVAD support. For this reason, we have created the STS, Dr. Jerry Austin award, for centers that excel on recovery of the native heart. More details will be announced on this award in the future.

Next I would like to cover our third goal of expanding our product portfolio and making regulatory progress. Our recently-approved intra-aortic balloon product and if approved by the FDA, our Impella products, will expand our potential target customer base, adding approximately 1,750 hospitals with cath labs to the 1,000 heart hospitals for surgery. From a physician perspective, this adds in the U.S. alone 14,000 interventional cardiologists in addition to the 2200 heart surgeons we call on today. From a procedure perspective, this adds 1.2 million angioplasty procedures to our 660,000 open heart surgeries. We believe that every hospital will benefit from our Impella and IPulse platforms and have published protocols utilizing our technologies that increase heart recovery and decrease mortality.

This is why it's been a busy year on the regulatory front and with our intra-aortic balloon in particular. The AB is now in half of all transplant centers and 15% of all open heart centers. We hope the introduction of IPulse and Impella in combination with our expanded distribution will provide life-saving technologies to not only top centers in the world which have purchased AB5000 today, but for all open heart centers that treat and care for high risk angioplasty and heart attack patients. It's been a busy quarter with the FDA clearance of our balloon, its subsequent CE Mark approval, and the first patient supported in Europe. To give an example of why this is significant, in the last three years ABIOMED created an intra-aortic balloon with great performance that is driven by a console the same size as the dedicated balloon console, but that can also drive our AB5000 and BVS VADS.

In order to do this, our engineers wrote over 135,000 lines of code, performed over 1,000 individual tests, and created over 400 engineering drawings during this process. The intra-aortic balloon extends ABIOMED's clinical and market reach further upstream in acute patient care, including direct usage in the intensive care unit and it complements our products in the cath lab and our surgery suite. ABIOMED has a clear opportunity to enter the intra-aortic balloon space as the only company that can provide a continuum of treatment options for patients in acute heart failure, whether they need minimal, moderate, or full bi ventricular support with upwards of six liters of pulsatile flow. We also recently announced our developments toward a pediatric pump based on our Impella 2.5. We will pursue the CE Mark approval of this technology and in the U.S. approval under a humanitarian device exemption as we did with the AbioCor.

In regard to the AbioCor, as many of you know, the AbioCor recently received a favorable recommendation by a Medicare reimbursement advisory panel with final coverage decision expected this summer. We also continue to make progress with the Impella 2.5 and 5.0 pilot studies in the U.S. We have completed our submission to the FDA seeking 510K clearance of the Impella 2.5, but, however, there are no guarantees regarding whether the 510K clearance will be achieved by the FDA. ABIOMED believes we have an obligation to bring this profound life-saving cath lab technology to the United States with the least burdensome path. Impella will immediately impact the way patients are treated in the cath lab and we continue to see receive calls from U.S. medical centers requesting its use for patients in need.

If we receive 510K clearance, ABIOMED will still conduct post market pivotal studies for potential PMA approval for expanded indications for clinical use. Such as, but not limited to the study of the Impella 2.5 or 5.0 as a treatment to reduce or limit the size of infarct post-MAI and/or reduction of mortality with AMI cardiogenic shock patients. We plan to add more submissions in the future as we add new products into the portfolio.

In summary, this has been a great quarter for our progress on our strategic goals of expanding our global distribution, establishing recovery as a standard of care, and expanding our product portfolio and making regulatory progress. ABIOMED is creating momentum on a number of fronts and we are committed to executing on our plan for our stakeholders. I am very proud of the team for their performance, and I would now like to turn the call over to Dan Sutherby.

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 third 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 third quarter of 2007 compared to the fiscal third quarter of 2006, unless I indicate otherwise.

First to revenues, revenues for the third fiscal quarter ended December 31, 2006, were $12.9 million, up 23% compared to the third quarter of fiscal 2006. From a product line perspective, AB5000 revenues increased 59% and Impella was up 150%, and these increases offset a decline in BVS revenues of 31% during the quarter. Excluding BVS, revenues for the quarter were up approximately 63%. For the third fiscal quarter of '07, total console revenues increased approximately 50% and disposables, service, and other revenues were up approximately 20%. If you exclude BVS disposables for the quarter, the aggregate disposables from AB and Impella were up approximately 80%. Fiscal third quarter revenue from disposables, service, and other, meaning the nonconsole revenue, represented approximately 85% of total revenue for the period, which continues to drive strong gross margins.

Summarizing revenues for the first nine months of fiscal '07, our revenues were $37 million, up 23%. Through the first nine months of fiscal '07, revenue from AB5000 was up approximately 64% and Impella increased approximately 80%, offsetting BVS revenue declines of about 23%. Excluding BVS, revenue for the first nine months of our fiscal '07 was up approximately 60%.

Turning to gross margins, our fiscal Q3 '07 gross margins were 78%, as our favorable mix of disposable revenue comprising 85% of total revenue for the period generated strong gross margins, as I mentioned. Continuing down the income statement, R&D expenses for the quarter were $5.6 million, up roughly $1.4 million from Q3 of fiscal '06. The R&D expense for the third fiscal quarter of 2007 includes stock option expense of approximately $400,000. Over 60% of our R&D investments this quarter were on Impella and new products. We continue to investment in new products to broaden our product portfolio, and as Mike mentioned, we are seeing solid results from these investments with our recent product announcements and strong product pipeline.

Now to discuss SG&A expenses, during the quarter, SG&A expenses were $10.9 million compared to $7.4 million for the third quarter of fiscal '06, reflecting our investments in our global distribution initiatives to execute on our strategy of establishing recovery as the standard of care and build a global distribution platform for AB5000, Impella, and our new products as they come to market. SG&A expenses for this quarter included stock option expense of approximately $1 million. For the net loss for the period this quarter, the Company reported a net loss of $6.7 million or $0.25 per share comparing to a net loss for Q3 of fiscal '06 of $4.5 million or $0.17 per share. The the net loss for this quarter includes total stock option expense of $1.4 million or $0.05 per share.

Turning to liquidity and capital resources, as of the end of this quarter, our cash, equivalents, and investments totalled approximately $17 million. We believe we have sufficient liquidity to fund operations and invest in our growth platforms as we close fiscal 2007 and enter the start of fiscal 2008. As I mentioned last quarter, our shelf registration is effective and provides flexibility to issue up to 7.5 million shares. In summary, we believe our progress through the first nine months of fiscal '07 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] We'll take our first question from Greg Simpson from Stifel Nicolaus.

A couple of questions. Obviously you covered a whole lot there. In no particular order, first of all, a question about the IPulse, and a question for both of you, as it relates to the U.S. market with the knowledge that that product is coming. I'm curious how do you expect that to impact sales over the next couple of quarters? Are accounts going to hold back and wait, is that going to cause more product rentals in the short-term? And knowing you guys, I'm assuming you have already got a strategy to deal with that, can you just walk us through that?

Sure, Greg, it's a great question and we got approval quickly on the balloon, but again not on the supplement for the consoles. So that is why there is the delay. The balloon is approved, the combination console, we expect to have the supplement approved by the summer. The second point, will centers potentially delay? I'm sure there will be some that may want to delay, but if you think of the mind-set, we've penetrated half of all the transplant centers after two years, so very good penetration, but we're only in 15% of all the open heart centers, which is about 900. And they all have a need to have a recovery device, and we're the only FDA-approved recovery device for all indications on the market.

But what we found is many of these centers can have 5 to 15 dedicated intra-aortic balloon consoles, and so they still need one or two, and where we see centers that maybe would get one, they may want their second or third or fourth to be the IPulse. So it's not so much that they won't have a need for a VAD, they'll still have a requirement for a VAD, but they may want the flexibility of more IPulses. For those unique ones where they are definitely looking for that, we will provide a solution for them which could be leasing, which could be an option to upgrade, we'll have multiple options laid out for customers for that specific reason.

Okay, great. Next question, Mike, on the Impella 5.0, it was pretty clear, obviously, last weekend in San Diego the surgeons are obviously very aware and excited about the Impella 2.5, even though it's not a device for them. I'm just curious on your thoughts on the awareness and excitement over the 2.5 could actually help you drive usage eventually with the 5.0. Could you just give us an update on maybe the timing on the 5.0 and where you see that going?

Sure. The 2.5, we still think will be a device that some of the surgeons will use as well. In Europe we see the trend where they start with the 5.0, but some will feel more comfortable. Remember there are about 40% of all intra-aortic balloons are put in in the surgery suite or in the ICU. SO the surgeons would have the capability to use both. The reason they're most excited about the 5.0 is because when a surgeon sees a patient, they're usually more -- in more profound shock than a patient in preshock in the cath lab. So while a cardiologist may be able to use a Impella 2.5 and that is potentially enough to help the patient stabilize or recover, the surgeons may want to use that for patients that they're doing high-risk surgery on. Overall, I think that most of the patients today, the challenge is that they don't make it to the surgery suite.

So Impella in the cath lab, I think, is going to drive more Impella 5.0 patients across because they'll understand the protocol, as well as for a profound shock patient who is suffering from both sides of the heart failing and has extremely low ejection fraction, the AB5000 is the device that will not only give them the best chance of staying alive, but also give them the best chance of recovering their heart. The one presentation by a Dr. Eric Wassenburg was very interesting in Europe because he's a person who's been using the different protocols from the 2.5 to the 5.0 to the AB5000. That is -- I think each surgeon is interested in all the products and what we have to now is define where you use each device based on where the patients at in shock.

Okay, great. Thanks. Actually, to follow-up on that, actually a modeling question in a sense with respect to Impella. It looks like the revenues -- you gave us more information here on the call as opposed to what was in the press release, but it looks like revenues maybe started to break out a little bit as you grew the sales force over. There I'm curious, maybe Dan, is there any way to talk you into giving us a little more information on Impella, something along the lines of maybe could you break down what the percentage of Impella revenues were, disposables versus consoles in the third quarter and the year-ago quarter?

Yes, well, I don't know if we have to break it out, but the numbers that Dan gave show you that it is extremely high growth for the quarter.

Yes, Impella, Greg, as I mentioned for this quarter Impella is up about 150%.

Right. Could you break it down, Dan, you guys gave some information in the press release with respect to disposables. I was wondering if we could get just a percentage of the X amount of Impella revenues in the quarter, how much were disposable, and how much were console-driven? This is always a challenge to model.

Sure, Greg, we won't give a specific, but we do give as a company break down, 70, 80% of our revenue is disposables.

It is fair to say then that Impella might be in that range?

Total revenue to Mike's 's point for the quarter 85% was non console revenue, as I mentioned.

Okay, I'll work with that.

We'll take our next question from Alex Arrow, Lazard Capital Markets. Please proceed.

Thank you, good morning. On the 510K progress, Mike, I know you may not be willing to give us anything more, but maybe I could try to ask specifically about what the next catalyst is that we're likely to hear about on whether Impella goes the 510K route. And did you also -- did you confirm that you have submitted the 510K?

Yes, Alex, we have submitted our application to the FDA for 510K clearance of the Impella 2.5.

Okay, did you say that previously, or is this the first call that you confirmed that you submitted that?

This is the first call. At the last call we had, we gave the announcement that we had planned to file for a 510K clearance in our Q4, which was, obviously, for everyone, the January through March time frame. So that was back in November. So today we're announcing that we have completed the submission and it is at the FDA.

Okay. So it's a little ahead of schedule, it happened sometime between the last call and now, would it be fair to say that 90 days from the submission we would hear something about that?

It is a shorter time frame, and the 90-day period is when they have the application. So usually you can see 90 up to 180 days. The reason for that is if they send back a list of questions, that's when the clock stops. So the 90 days doesn't include the time it takes for companies to respond. And some of those questions may require additional studies or additional data, et cetera. And then when that information is returned to the FDA, then the clock starts again on the 90 day, but it's not a straight 90-day time frame.

Okay. So if the clock stops because you get the questions, are you going to be announcing that publicly, or we just going to have to wait until the day it's approved?

The policy we've had in the past is really to announce -- what we plan to do is announce the approval -- or, I'm sorry, the clearance or nonclearance.

Okay. And the PMA is proceeding in parallel in an unchanged fashion?

Correct.

Are you offering any comments about the progress of that or the eventual -- assuming -- if the PMA ends up being the route that you go, what the U.S. launch time line is looking like in that case?

We haven't updated on the launch, but we did talk about at the symposium, the goal is to complete the Impella 2.5 trial or the pilot trial within the next two months, and then we haven't given any specifics on the 5.0.

Okay. But somewhere around the end of calendar '08 as a U.S. launch for the 2.5, does that still seem reasonable if you go with the PMA?

We haven't commented on that, Alex. It really depends on what the pivotal study will look like, and when we announce the pivotal study, we will give more updates on the timing with the pivotal study. Because it depends on what label and how many patients we'll have to study to prove that indication.

Okay. Let me shift onto your sales force. In the past you have given us some comments about the buildout, and at the STS meeting, it seemed like there were some new folks there recently joined. Can you give us an update on how -- what the head count is and anything about the composition as far as taking them, perhaps hiring them from competitors or how much better and bigger the sales force has gotten?

Well, we put in the press release that we added 12 people to the field this past quarter, so our goal has been to put two to four field people each quarter, this quarter it was 12, so we were pretty successful. We made a lot of progress in Europe, which is we haven't had really a big direct sales team. So today we have the biggest sales team we've had ever in Europe collectively between either ABIOMED or the original Impella. Specifically in France and Germany, we've built our team there and our offices.

And in the U.S., to your question, we have added a lot of new people. They are coming from very good companies where they have a track record of success and they either have experience in the surgery suite or the cath lab or a combination of both. In the U.S. today, we have over 50 people and in Europe now, we have over 20 people. And that does not include any of the distributor sales.

But you're including both reps and sales management in those numbers?

That's actually just sales. That's not including the sales managers.

Those are quota-carrying reps though, those numbers?

Yes, those are the reps that have direct quotas.

Great. My last question line, I'll go into the percentage growth figures you gave. Just to be able to triangulate into dollars, AB5000 up 59%, and Impella 150, and together they were up 63%. I think by using those three numbers together we can get the actual dollar figures, unless that 63% also includes anything else like services or warranties or anything like that?

Yes, it does not, Alex.

Okay. So it's just the AB5000 and the Impella together were up 63% year-over-year?

Actually, up about 80%.

Oh, up 80? What was the 63, then?

63 was if you take total quarterly revenues this quarter and exclude BVS, total revenues would then be up a little over 60%.

Okay, so the difference between the 80 and the 63 is anything besides--?

It's purely stripping out BVS.

Okay, but if you strip out BVS, you're left with AB5000 and Impella. What else is there?

There's a little base on service and some training and a little NIH grant money, but very small.

Those little things make the difference between the 80 and the 63?

Correct.

Okay, thank you.

We'll take our next question from Clay Wilson of Needham. Please proceed.

Yes. Thanks for taking my questions and congratulations. I just wanted to ask, the gross margins were clearly because of the shift to disposables. That made a big improvement. But could you comment as to with a your expectations would be on gross margins going forward? And I could even expand that. The R&D and SG&A changed a little bit as well. Do you have any thoughts about those three things going forward, any sort of guidance or patterns that you would expect?

Clay, this is Dan Sutherby. The target gross margin, as was said, is roughly 75%. You are correct that the 78% was quite strong. Continues to be driven higher by our shift towards more disposables. As I mentioned, disposables comprised about 85% of total revenues for the quarter and as you appropriately mentioned, AB5000 and the Impella volume drives very nice leverage. So we've basically targeted about 75% as a target. What were your questions, Clay, on?

Yes, just, also was wondering, same kind of thing as far as a thought process going forward on R&D and SG&A?

What we said at the beginning of fiscal '07 is that our total year R&D guidance would be approximately 16 to $20 million. And you can see through nine months, we're probably trending towards the higher end of that range that we gave. For SG&A at the beginning of the year, we said we expect to hire 2 to 4 sales and clinical folks per quarter. Of course, this quarter, as Mike mentioned, we hired 12. But the original guidance for SG&A was about 33 to $36 million in total for the year. So we've disclosed the nine months SG&A in the P&L, which you can see is above $31 million. So we'll probably track slightly higher than that.

All right. Thank you. And also, I was wondering if you could make a commentary on the IAB and how you're competing in the terms of the data scope and aeromarkets and how that's going?

Well, don't have the product out yet in the U.S., Clay. Both Aero and Datascope are very good companies. Their focus is really on the balloon itself, whereas the balloon has a role, but we believe that the Impella with 2.5 liters of flow is far superior for a patient that requires more support than an enhancement of the heart with a balloon, which is essentially 0.5 to 0.8 liters of enhancement. The other issue is we're really trying to have the whole portfolio. So if a patient ends up on a different balloon, our goal is to treat them with the Impella and then for those in profound shock, to go to the bigger VAD. So we're not necessarily trying to compete with them on their individual balloons.

All right. Then the last, with regard to the pilot trial, you had the 20-patient pilot trial and you've submitted the 510K. Is it still open, the pilot trial, or did you submit all those 20 patients in the 510K? Is that information you can provide us?

Sure. We do not have to -- technically, you don't need patient data for a 510K; however it helps. We did submit, and we did submit with some patient data; however we have not announced the completion of the 2.5 pilot and we will announce that upon completion, which I said, we expect to do in the next two months.

Thanks a lot. Appreciate it.

And we'll take our next question from Harish Aiyar of Dawson James. Please proceed.

On the sales front, you had targeted adding two to four reps. Would the significant add this quarter -- is the plan to still add two to four for fourth quarter and beyond?

Harish, we haven't given the specific number, but we have directionally said that we do plan to continue to add field people next year, whether that's a mix between cath lab experts and salespeople, it will be a mix. And we'll give more of those details at the following quarter. But we will definitely continue to add directionally globally for the next fiscal year as well.

Okay. Just on -- just maybe a general question on the AB and BVS. Are you seeing any change in the use of BIVAD support as the AB gets kind of used more out in the field?

That's a good clinical question because what we see is centers that use the BIVAD support, the sites that I mentioned to you that have greater than a 50% recovery, they do believe that patients in profound shock need BIVAD support, so that's part of the protocol. It's been half, and then in general it's been about half have gotten BIVAD support, and it's been able to -- many of them have maintained that level. But we do believe based on the protocol that it probably should be higher than half. Because you see patients that die because they have right side failure, or when you enhance the left side, the right side is unable to keep up so you can have immediate profusion to all the organs.

Lastly with regards to Impella in Europe, I think you've given some of these numbers in the past, but can you tell us how many centers are kind of using Impella in Europe, or a rough number, maybe?

Yes, we've said in the past it was 70 centers. I believe today, it's over 90 centers directionally, but we haven't given specifically the exact number. But it continues to grow as we put our distribution and go into more countries.

Great. Thanks. Congrats on the quarter.

Thanks, Harish.

We'll take our next question from Matthew Scalo of Canaccord Adams.

Hi, guys. You mentioned that you added four cath lab specialists in the quarter. Could you just tell me what the size of that specialty group is and what your plans are as far as covering the 1700 cath labs in the U.S., please?

Sure. We have today in the U.S., we have over 17 clinical people that are more surgery-based, but also have balloon experience and working in the ICU. And we've taken a core group of them and we've cross trained them for Impella 2.5 and 5.0. As we said, we added four and we're going to continue to add into the Company strategically and with a geography location of the big cities that have cath lab utilization. So that we have a model in the future that a salesperson has a cath lab expert who will do the training and we'll have a surgery suite expert, because many of these patients after they leave the cath lab they require the ICU type of treatment, understanding anticoagulation, all the things that the Company has a core competency in. We will have a mix so we will cover clinically both conditions and then each of the different groups will be cross trained for the balloon and for the other product.

Okay. So can we assume, I guess, a 50/50 split between the surgery suite and the cath lab then?

Long-term, you can assume there'll be as many if not more in the cath lab, basically because of the numbers of the hospitals and the utilization of devices in the cath lab.

Okay. As far as just the European reps, it did seem like you took a major leap forward as far as moving from 14 to over 20 in a quarter. Was this an opportunistic hire of a group away from someone else, or was it just one off at calendar year end?

Well, it was six directly into Germany. So they came from a couple different places. Some were from Datascope, some were from other companies like Medtronic and Guidant and things like that. Plus there have been a recruitment of many of the clinical quarters people as well.

Okay. And just last question as far as timing for an AbioCor and getting centers up and trained, are we still looking at first implants maybe this summer?

That is the timing, Matt. We expect to be doing our implantations this summer, and for the centers that are signed up, they will be part of the process to get trained and the first patients will be done at Jewish Hospital. The newly assigned groups that be will be the primary leaders for AbioCor at the other centers will be at that and participate in that outcome.

Okay, thanks, guys.

Thanks, Matt.

We'll take our next question from Vivian Wohl of Federated Kaufman Fund. Please proceed.

Thanks. I've got a couple of questions. I'm wondering in Europe when you expect to complete the ISAR shock trial?

Say again, Vivian?

There's the ISAR shock trial listed on the clinical trials.gov website, and I was just wondering, that was slated to enroll 26 patients comparing the 2.5 Impella to a traditional balloon pump and I'm wondering if that is still underway and when we might expect to see results from that?

Sure. So Vivian, we announced at the last earnings call, which was in November, that we did have studies underway to look at a reduction of infarct. And you can do that study between comparing an Impella 2.5 to a balloon, or you can also do it to just drugs, medical management, which is still the norm for most of these patients. We have a couple centers that have started doing this, so that's not the only center and that's not the only one that is in process. At this time, we're not -- we have not published that, so we're still in the process now of collecting the data for the different papers and submitting it to different journals. We have not disclosed any of those details to date.

But in Europe, that's just a single center study. Is there a multi-center study overseas as well?

Yes, there's actually a couple different ones going. There's a couple single centers and then some of the single centers, we're going to use the data to do a bigger multicenter study. What we're doing is looking at the protocols on what make sense. There is a little bit complexity here, because you're not going to delay treatment of these patients. Door to balloon time means that you're looking to restore vascularization within 90 minutes, so you're not going to delay these patients by doing an MR or CT, so if you -- I believe we're going to have to study randomized to both drugs as well as to an intra-aortic balloon, and then after, we're looking at how do you measure a reduction of infarct. Will that be done with an MR, will it be done with nuc med, or will it be done with measuring injection fraction. So there's all these different publications are being looked at and reviewed, because we're also going to take them into account when we look at the U.S. study, which is why we're doing some feasibility studies in Europe as well.

Okay. Then, just on the expense side, what can we look forward to going forward? The R&D is running at a healthy clip, but if you look at expanding the clinical trial activity, what should we be looking for in this March quarter and the June quarter? And the same for SG&A, I'm not sure how much of the sales force expansion took place during the December quarter, how much of that is new this quarter?

Sure, Vivian. This is Dan. On your R&D question, as I mentioned to Clay Wilson earlier on the call. Our full-year guidance initially was 15 to 20 million -- 16 to 20 million, excuse me, for the full year. The nine months number of 16 million includes a little bit of option expense, but we're tracking roughly to the $20 million. Beyond the March quarter, we have not given guidance for fiscal '08, so it's difficult for me to comment beyond the March quarter. And on the SG&A question, the original guidance for the year was 33 to $36 million. That excludes stock option expense. And as you can see in the income statement we've presented today, the nine months SG&A is $31 million. That includes about, I'd say, $3 million or so of stock option expense. So we'll probably track to the $36 million or slightly higher to that based on the more recent adds Mike mentioned in this quarter. Unfortunately, beyond the March quarter, we haven't given fiscal '08 guidance to date.

So 28 for the nine months plus, let's say, another 11--?

Well, keep in mind the 11 for the quarter that I think you're referring to on SG&A includes about $1 million of option expense. So if you strip that out, you'd get about $9 million for this quarter of pure SG&A. Compared to 28 nine months SG&A--.

28, 9 is 37. So then you're--.

As I say, we guided 33 to 36, we'll probably be at slightly higher than 36 right now.

Okay. Thank you.

We'll take our next question from Amy Stevens of Susquehanna.

Thank you. Congratulations on the quarter. I think most of my questions are answered at this point, but I had a few extra, just actually following up on what Vivian was asking. So the 9 million for this most recent quarter is reflective of the additions that you talked about to the sales force, or is there incremental increase beyond that? Did a lot of those additions not fully hit this quarter? I guess that's the first one?

This is Dan. So the $9 million for the quarter excludes $1 million of stock option expense. It does include the impact of the hires Mike mentioned, but because they were hired in the quarter you won't see--.

Partial affect.

-- full-quarter impact.

That's helpful. Thank you. And then -- next, in terms of your pediatric circulatory support program, you mentioned you'd be seeking a humanitarian device exemption. Could you just give a little color on what the time frame then would look like? How you would expect that to progress time-wise?

Sure, Amy. This is Mike. There are products today that are used on a case-by-case basis and so the humanitarian device exemption process would start with patients in Europe first and then under the CE Mark and then following that, we would be using that data to enter into the U.S. market. Just to give a little color on what the product would do is there's several of these infants where they're too small for -- they're too small for VADS that are out today and you're trying to get them another 2, 2.5 weeks because without any support, they're going to die. And what a lot of times they'll do with these patients is they'll do EKMO, but EKMO has some detrimental affects on the infant after a period of time as well.

What this device is designed to do, initially, we still thought that you would would do a sternotomy on the infant and place the device. It will run in a pulsatile mode with about 120 beats a minute, which should give support that the infant would need. Then as we continue to design it and work with some of the experts in the field, many suggested and felt that the device would be able to implanted using the carotid. So you would not have to do a sternotomy. Which -- and if you're still trying to keep somebody alive less is best and that's the way the device will operate.

This one is really not going to be a forecast for you to say, here is when we will have HD. It's going to be a very methodical process where we'll start using the device in the United States on a case by case to continue to support these infants and then as that progresses, we'll be able to give a detail on the humanitarian device exemption. And just again, humanitarian device exemptions can be approved without any clinical data, but we expect to have clinical data from Europe and then also incrementally on the U.S. case by case needs.

Okay. In terms of the overall sort of incidence of the cases where you might need this extension, a couple-week extension, do you -- can you give me a sense of how big that market is or is this just really to maintain thought leadership and how you think about that?

Yes. What we think about is this is going to help many hospitals and many centers have pretty aggressive and advanced child care. The infants always tend to be one that today they have a lot of limitations. So in a way, it will allow many centers to buy our console to get used to it. This console also runs the 5.0, the 2.5 and the implantable Impella. So it will allow us to enter in -- with again another reason to get more of our consoles in place. And in the end, I think it will help create awareness, as you say, for our company but also as the leader in circulatory care?

Okay, okay. Then finally, I was just wondering if all this increased scrutiny into the extent of the use of stents and whether or not there was going to be any -- if you thought over time there would be any impact on the usage of your products or the growth of certain cardiovascular treatments given concerns over increased health care costs, all of that. And then again, increased scrutiny into, in particular, how cardiologists are using some of the more invasive treatments?

That's a good question, Amy. I can't make a prediction, but what can I point to specifically is a drug-eluting stent does increase the chance of a thrombos event, then that means that that patient population will end up in the cath lab most likely, and for those patients, that's exactly what the Impella is designed to do. It's designed to reduce the workload, reduce the oxygen consumption to keep that infarct from growing and potentially keeping that patient from having a cardiogenic shock. So I do think if that turns our to be a reality, our Impella 2.5 will be a -- will definitely support and help these patients.

The second side of it is what people are also seeing is less is more, and the less you can do to somebody's heart for recovery, whether it's a stent or no stent, that's going to be in their best interest. Whereas people believe today, they talk about door to balloon time and what they're talking about is the angioplasty balloon. We believe and this is something that will be up to us to publish on and to make our argument, but we believe in the future there's a likely argument to be made door to Impella time. Because what you're really trying to do is to protect the muscle and assess whether the collateral blood flow is enough for that area for it to recover itself. And that's what Vivian was talking about. We're really looking at these studies that talk about reduction of infarct and recovering and repairing the muscle. And so I do think that it will have a positive affect, but I think it's the effect of basically looking at how you want to treat these patients and what kind of quality of life they're going to have.

That's very helpful. Thank you very much.

Thank you, Amy.

And we'll take our next question from [Randy Heel] of [Pro Equities].

Hello, fellows. Congratulations on a great quarter.

Thanks, Randy.

A couple of items. Mike, I guess two quarters back I asked the question concerning the clinical experience in Europe with the Impella 2.5, principally, but I guess it could extend to the 5.0. Could you give us an update on that as far as undesirable -- rate of undesirable events or just how docs are receiving it in terms of how the device is billed versus the clinical experience?

Not sure I understand the question, but I can give you an update that we have done, since Impella has been around, there's been over a thousand Impellas now done on patients. We have several publications, there's over 20 peer-reviewed publications. The most recent publication on high-risk angioplasty was from Dr. Jose Enriques that showed no adverse events, patients were supported, there was no regurgitation, there was no valve damage, and we do track that and publish as much as we can.

I think that the response in Europe is going well and I think that if you look at our model, things have been studied in Europe such as high-risk angioplasty, that's what we're doing here in the United States for the pilot, but in Europe now, we're moving beyond that application, which is prophylactic, Randy. So for the FDA to allow us to enter a high-risk angioplasty with the prophylactic use of the Impella speaks to the ease of use and also to the data we have, because that's the first time a VAD has ever been used prophylactically in the history of devices. So we believe it's a very good device and now we're looking in Europe at reduction or limitation of infarct and as we get that data, that will help us be smarter in how we design and look at our studies in the United States.

No, that's exactly what I was looking for, Mike. Thank you. And, so I guess, inferentially, we could say that you probably could achieve similar results over here in the pilot trial. There'd be no reason to expect anything dramatically different?

Well, we have a lot of experience with high-risk angioplasty, and one of the centers that just published on 19 patients is one of the seven centers in the trial for the U.S.

On another topic, I don't believe I heard you mention in your opening remarks or anywhere subsequent the status of the preclinical work on the AbioCor II, could you comment on that?

There hasn't been any change in the AbioCor II status with the exception that we continue to do animals, we continue to look at the engineering reliability data, so we're collecting that data to prepare for our next steps. The centers that sign up that are AbioCor I centers will also be the AbioCor II centers, so that will help us from a training and many of those centers that are AbioCor I will be conducting much of the animal work on AbioCor II as well.

Have you given us a time line on AbioCor II in terms of when you think you'll enter the clinic with it or at least submit the IDE?

Yes. We haven't given a time line specifically, Randy, because with the approval of the HDE on the AbioCor I, we have a couple options, and we have not yet committed to any of those options. So the AbioCor II could be a straight IDE under a bridge to transplant destination therapy trial, it potentially could be a supplement for the humanitarian device exemption, because you could make the argument that the pusher plate and the size is smaller, but the platform, the material, the blood to contact surface is the same, and then you have anything in between there. So that's really why we're not giving any specific guidelines yet because we haven't made a formal decision or announcement on what the path will be for AbioCor II.

Okay, thank you, Mike. Fair enough. Lastly, comment, if you would, on the drop, the two quarters in a row, I believe, rather surprising drop in BVS usage rates. Is this a transition to a better-quality -- well, more efficacious product in the form of the AB5000, better clinical experience overall between the docs and the patients, or just how do you view it in.

That's a good question, Randy. The AB5000 has the highest recovery rates, has the highest flows, has the lowest adverse events and it's an improvement of the BVS as far as performance. That being said, the BVS is 14 years old and the BVS still has the highest recovery rates with exception of AB5000 on the market because it's pulsatile. You're reusing the same cannula so centers that want to use the same cannula can go from BVS to AB without doing surgery. But I think it's all a matter of we need to get more consoles out there. Until that happens, we still have a much bigger installed base of BVS consoles, so centers are still ordering BVS. That's why the IPulse and being able to get our AB console at every center will give us the capability. We also know from our own protocols that there's preshock patients and profound shock patients. And if somebody is in preshock, then you likely don't want to do a heart lung machine a sternotomy and you don't necessarily need BIVAD support, so an Impella fits that opportunity and Impella will be able to support these patients without going that next step of the sternotomy and the hours. However, if patient does go into profound shock, then they are looking at a sternotomy, but with the AB5000, it can be put in with less than an hour, BIVAD, it does not require the heart-lung machine, and with our new cannula the physician will have the option to remove it without doing a second sternotomy.

That's the way we see the market evolving. We just still have a lot of people ordering BVS, and it's to the credit of the product that it's still one of the most successful VADS ever created and people are comfortable with it. And they can just continue to order it rather than switch to the AB.

Okay. Thanks, Mike. And again, congratulations on a great quarter.

Thanks, Randy.

All right.

We'll take our next question from David Zimbalist of Natexis.

Thanks very much. This has been a very thorough call, I appreciate it. Could you tell us a little bit about the O-U.S. split in revenues this quarter versus last year, this quarter versus last year's quarter?

This is Dan. I can tell you for this quarter this U.S. was up about 20%, Europe was up about 20, 25%, and rest of world, although a small base important strategically for us, rest of world was up about 50%.

Pretty even, then in the U.S. and Europe. Okay, thanks. Second, the BVS has been falling at a steady rate. The AB5000 performance is clearly making up the difference. Given the different pricing between the two devices, I imagine the utilization -- the number of VADS of BVS VADS is not fully replaced by the number of AB5000 ventricles that are placed. Could you talk a little bit about where those patients are going and what alternatives they're being put on? Is it intra-aortic balloon pumps, is it other VADS, and if that's market share, you expect the IPulse to be able to help you regain?

David, I don't think you understand the number we gave. So let me make sure we clarify your question. The revenue is going up, obviously. And the BVS, as far as utilization, it's a difference between people ordering BVS and people using BVS. So those are two different numbers. And so as we go to more centers and we sell more AB, regardless of patients being used, as we go and we sell more AB consoles and more AB ventricles, then statistically the BVS number would have to go down. And then based on that, you look at where we're most likely to convert the users and now you're at open heart centers, which about half have BVS. So you have half that are not ordering anything from us, and the other half, we are trying to convert them to go to the AB5000 so they can treat these AMI patients, or these [Inaudible] patients, which many of them are coming from the cath lab. What you're left with is the post-cardiotomy cardiogenic shock which is a very small population and that's essentially what the device had been used for in the past. So I don't think it's a matter of a market share, it's we're actually treating and seeing more patients and we're trying to get to the millions of patients rather than the 5 to 8,000 post-cardiotomy cardiogenic shock patients. So the pie is much bigger and it's not a market share of post-cardiotomy cardiogenic shock.

Okay, that's fair. Has there been a change in the time you're seeing patients stay on circulatory support as you shifted to the AB5000?

There is absolutely. And part of this is because we've shown with significant P values from the TCT abstract that recovery does not happen within five days for all people. And, in fact, the optimal period of support for a patient to be on a VAD to recover is up to 30 days. And in the abstract for TCT, we showed that some of these patients, and again in that abstract, there's no outliers, it's patient 1 through 100 at over 40 centers. We did see patients that were moved to a transplant within the first week or so or moved to an implantable device within the first week or so. What we're trying to show as a protocol is that all patients deserve an opportunity to recover, and by putting them through another surgery, whether it's a transplantation or a destination therapy device, you potentially reduce or eliminate their chance of recovery.

And if you also look at the studies out there for the best success of a patient being alive at one year post transplant after they've been supported with a VAD, so what's the optimal time of being supported with a VAD if you get a transplant, it's actually 30 to 44 days. There's a good correlation there between the support you need and the support that gets you the best opportunity for success in a transplant. Some of the worst are when you've been on a VAD for more than six months or if you're switched to it within the first two weeks because of the status of these patients. Everything we're saying can be completely backed up with the P value and with the publication, which is why recovery is growing, because more people are becoming aware of this science.

Okay. On the Impella 2.5 510K, can you talk about talk a little bit about what you were using as your predicate device and what the label would imply as a result?

David, as you know, we said we were not going to discuss what the predicate device is. One of the things we think is our core competency is the way we work with the FDA, how we look at the data, and so at this time, we are not giving that information.

Okay. Okay. On the financial front, the SG&A sequentially was essentially flat despite the fact that you added so many salespeople and clinical support people in the quarter. Can you talk a little bit about what was the switch between the two quarters in terms of periodic expenses in the prior quarter or whatnot to keep the financial level flat?

David, this is Dan. As I mentioned to an earlier caller, on the Q3 fiscal '07 number of 10.9, that does include some stock option expense, and the hires that Mike mentioned, the 12, occurred during the quarter, so of course you're not seeing the full impact of that. Relative to some expenses we had earlier in fiscal '07 that, let's say, may not occur going forward, you'll recall on prior calls we mentioned that we implemented SAP and we went live in July of '06. So that certainly incurred some expenses, let's say, in quarters prior to fiscal Q3 versus this quarter and going forward. And as I mentioned, the original guidance for SG&A was 33 to $36 million, excluding stock option expenses and we'll probably be slightly north of that given the accelerated hires that we talked about this quarter.

Okay. All right. Then second, you have an accrual for acquisition costs on the balance sheet that wasn't there before. Can you talk a little bit about what it's from and if the payment terms are all cash for that when it comes due, or if it is something that allows for stock.

Sure. As we disclosed in our prior 10-Ks and 10-Qs in connection with the Impella acquisition, there were some milestones that linked to certain events would trigger incremental consideration for Impella. The one that you're referencing was, there was an incremental milestone whereby if we hit cumulative 1,000 units of disposables from Impella from the date of the acquisition through December 31, '07, it would trigger additional consideration of $5.6 million, but the consideration as per the terms of the agreement could be paid in cash or stock or a combination at our discretion. And so what you see this quarter is because we disclosed last quarter in our Q, we expected to trigger it this quarter, which we in fact did. You're seeing an increase to goodwill of the $5.6 million and an increase to a reliability for $5.6 million and we will expect to satisfy that obligation with stock. And that actually will be satisfied this fourth fiscal quarter.

That will be our last question today. I'll turn the call back over to management for closing remarks.

Great. Thank you, everyone, for your time today. It's been a long call. If there are any other questions or issues you have, please feel free to use the normal channels and everyone have a great week. Thank you.

Ladies and gentlemen, thank you for joining us on the call today. You may now disconnect your phone lines.