ABIOMED Inc (ABMD) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q4 2007 Abiomed Inc. earnings conference call. My name is Antoine and I will be your operator today. At this time, all participants are in listen-only mode. We will conduct 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 call over to Liza Heapes. Please proceed, ma'am.

Good day and welcome to Abiomed's fiscal fourth quarter of 2007 earnings conference call. This is Liza Heapes of Abiomed's Corporate Communications department. I am 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 year and then we will open the call for your questions.

Before we begin, 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 FDA approved and are not yet available for sale in the United States. The AbioCor 2 and the iPulse Console are not available for sale in the United States.

I am now pleased to introduce Mike Minogue.

Thanks, Liza. Good morning, everyone and thank you for taking the time to join us today. At the beginning of our fiscal 2007, we established four strategic goals and gave revenue guidance of double-digit growth in the range of $49 million to $52 million, which we later guided to the higher end range of $52 million. We achieved approximately $51 million in revenue, which represents a growth rate of 16% and we met or exceeded our strategic goals in fiscal '07.

Specifically on each of the strategic goals for fiscal 2007, we increased our global distribution now in excess of 60 direct sales and clinical representatives, which is up 40% from the end of prior fiscal year. We are now selling our recovery technologies in 40 countries. Our distribution will continue to expand to support our US pivotal studies and we believe every cath lab and surgery suite is a potential customer for our Impella and iPulse platforms.

We have significantly increased our customer base and the addressable market opportunities by adding 14,000 interventional cardiologists performing over one million angioplasty procedures in the US alone. This field team will allow Abiomed to touch the patient earlier in the process and directly in the cath lab, as well as transition to the surgery suite for profound cardiogenic shock.

Our second goal to establish heart recovery as the standard of care has evolved into heart recovery as the desired outcome for acute events. Progress on this goal during fiscal 2007 can be confirmed at every major heart failure meeting or media event regardless of whether the event is related to cardiology or surgery. Whether it is support during high-risk angioplasty or salvaging the myocardium post-AMI, heart recovery is the goal that physicians are now talking about.

For instance, as a company, we believe Abiomed can eliminate the leading cause of in-hospital mortality, which is death from AMI. New quality measurements are key to hospital marketing, reimbursement and rankings and Abiomed offers unique solutions. Even our transplant device competitors are talking about recovery. We all realize that it is the biggest opportunity and that the best option for patients is to go home with their own heart untethered from wires, batteries or anti-coagulation therapy.

We have helped drive this trend with our focus on evidence-based medicine. We have published and presented data on our acute recovery results worldwide from high-risk angioplasty, to AMI cardiogenic shock, to myocarditis, to postcardiotomy, cardiogenic shock.

There were also several presentations on our technologies at the recent ACC, STS and ISHLT conferences. They included multiple presentations on Impella 2.5, Impella 5.0, the AB5000, the new intra-aortic balloon, the iPulse combination console platform and the AbioCor totally implantable artificial heart.

We conducted a European user meeting in Italy in late April with over 100 attendees. The expert panel discussed in detail the protocols of treating high-risk angioplasty and pre and profound cardiogenic shock patients. Several experts presented their data with intra-aortic balloons, Impella and the AB5000.

During this user meeting, we held a conference call discussing the completed enrollment for the pilot study of the Impella 2.5 in the US consisting of 20 patients at seven hospitals. Dr. Jose Henriques from the Academic Medical Center in Amsterdam discussed his ACC study on 20 patients who were admitted for AMI with hemodynamic instability, had the necessary procedure to reopen the blocked artery and then receive the Impella 2.5 or standard routine care, including the intra-aortic balloon pump for a few days.

The results showed that the patient supported by the Impella 2.5 technology had significantly improved cardiac function as compared with the optical medical management with an intra-aortic balloon.

Also on this call was Dr. Bill O'Neill. He is our principal investigator and he gave his general observations on the Impella 2.5 pilot experience. Additionally, Dr. Karim Benali from Abiomed commented on the results of the European multicenter study on 109 Impella patients presented at ACC. The study documented the Impella 2.5 device to be safe and easy to use. To note, of the 109 patients, none of the patients had interprocedural death, stroke, aortic valve injury or device malfunction.

The Impella has the lowest hemolysis rate of all VADs and the rate is not clinically relevant within a 24-hour period. We will have more presentations at PCR this month in Spain and Dr. Thorsten Siess of Abiomed will be presenting at our Impella pediatric device this weekend at the Pediatric Mechanical Circulatory Support Systems meeting in Pennsylvania.

Our third goal of expanding our product portfolio by working through the regulatory process was very successful. Last year, we introduced four new products. We received FDA approvals on IDE pilot trials for Impella 2.5 and 5.0. We also received FDA approvals on the integrated cannula system, the intra-aortic balloon and the AbioCor. We also submitted for product supplement approvals on the iPulse Console, the AbioCor and applied for 510(k) clearance on the Impella 2.5.

Our company has a growing portfolio based on our greater than $150 million in R&D spent to date and our 110 patents or patents pending. We have also made regulatory progress outside the United States with Impella approvals and/or treating first-ever patients in Australia, India, Mexico, Canada, France, and Russia. We are awaiting on approvals in Brazil, China and Japan. Abiomed is growing globally and the Impella has now been used to support over 1000 patients worldwide with over 30 peer reviewed publications.

Our last goal was to grow revenue by double digits, which we achieved with our 16% growth rate, driven primarily by US AB5000 sales. The AB5000 is now in half of all US transplant centers and approximately 17% of the 900 open heart hospitals. Q4 2007 was the fifth consecutive record quarter for the number of patients supported by AB5000 worldwide and a record number of AB5000 ventricles were shipped during the quarter.

We also shipped in Q4 our highest number of disposables, not including our intra-aortic balloons, with our highest gross margin to date at 80%. Our high Q4 Impella disposable sales growth rate of 140%, primarily driven by Europe with limited distribution and reimbursement, and this presents an exciting opportunity upon US Impella introduction later this calendar year via pivotal studies and/or 510(k).

We are pleased with our progress through fiscal 2007 and believe our extensive portfolio of products and strategy for the future position us well for growth. The opportunity Abiomed has ahead was created by the exceptional efforts of our global teams and I am very proud of our people and our products that truly save lives.

Moving forward, our forecast for fiscal '08 and strategic goals are as follows. Our guidance is to grow greater than 20% in revenues or greater than $61 million with the majority of this forecasted growth coming in the second half of the fiscal year. Our forecasted revenue in the first and second quarters of fiscal 2008 is expected to be roughly at the level of Q4 of fiscal 2007.

This fiscal 2008 revenue forecast does not include a revenue projection with a 510(k) clearance. We plan to update the forecast, get the 510(k) clearances granted, which we believe is likely based on the review process and available data. However, we cannot guarantee a 510(k) clearance.

Turning now to our strategic goals for fiscal year '08. They are establishing heart recovery as the desired goal for all acute cardiac events; number two, expanding our product portfolio and making regulatory progress; and number three, growing revenue greater than 20%.

Fiscal year '08 has great potential based on all the new products and the momentum of our field support teams ramping up. For instance, we are expecting to transition from our pilot trials to the pivotal trials for both the Impella 2.5 and 5.0. This will greatly increase the number of centers and the patients in the US alone. As with the pilot trial arms for Impella, we can generate revenue from the products.

We are also anticipating our iPulse Console supplement approval this summer, allowing for a full launch in the US of an exclusive console that drives an intra-aortic balloon, BVS and the AB5000. We believe this will allow us to further penetrate all heart hospitals and have another offering to the 1700 hospitals with cath labs.

The iPulse platform provides our customers added flexibility in allocating console resources between the surgery suite and the cath lab. A significant portion of intra-aortic balloons are used in the surgery suite and we believe adoption of our iPulse Console will increase utilization of our AB5000 ventricles.

Additionally, we are awaiting the AbioCor supplement approval later this summer, which includes several improvements on the system. We will also launch our new products in the future. We are working with the FDA now on our Impella 2.5 pivotal design, as well as providing more clinical data for the 510(k) submission. We have continued to publish data on the Impella showing the clinical benefits and ease of use. The FDA approved its prophylactic use in the Impella 2.5 pilot trial for high-risk angioplasty procedures.

We are preparing for global and dynamic growth. Most recently, we were pleased to have Paul Krell join Abiomed in our fourth fiscal quarter to lead our growth initiatives and business in Europe. Paul is based in our European headquarters in Aachen, Germany. Also Dave Weber recently joined us as Abiomed's new Chief Operating Officer. David has extensive operational and scientific experience. Both Paul and David are valuable additions to our team and will help Abiomed capitalize on our global opportunity.

Fiscal year 2007 was a busy year for us and we were pleased with our progress, but also recognize that we need to continue to execute on several objectives for our shareholders. This is our focus. We have recently completed a successful follow-on and appreciate the support of our investors providing Abiomed with the cash required to move forward.

In summary, this has been a rewarding three years for the Company and for me personally. Through vision, strategy, execution and sweat, Abiomed has transitioned to become the undisputed leader in circulatory care for heart recovery and we are now well-positioned with the complete continuum of products from the cath lab to the ICU to the surgery suite.

Our products are either best in their class, have exclusive patents or maintain exclusive regulatory approvals and our margins validate our perceived value. We essentially have doubled the revenue in the last three years based primarily on the AB5000, quadrupled the number of products and increased our gross margin each quarter. The excitement is evident for the US launch of Impella, the iPulse and the AbioCor. Abiomed is creating momentum on a number of fronts and we are committed to executing on our plan for our shareholders.

I want to thank our investors for their support in our mission to recover hearts, leading technology and innovation, grow shareholder value and create a winning culture. We have built a great opportunity that will become a reality with our execution. In my opinion, the best is yet to come. I will now turn the call over to Dan.

Thanks, Mike. If you would please turn to the P&L attached to our press release, I will provide some details on our financial results. First to revenues, revenues for the fourth fiscal quarter were $13.9 million, up 1% compared to the fourth quarter of fiscal 2006.

Providing some details on the revenue mix for fiscal Q4, total revenue from disposables grew approximately 10%. Impella disposables in Q4 grew 140%. AB5000 disposables increased 15% and BVS decreased 19%. Total console revenue for Q4 decreased 36% for the period. The fiscal Q4 console revenue declined, although a relatively low base for the quarter, was due primarily to lower AB5000 console revenue. Rentals for the quarter were double digits again and our revenue for rentals was up 125% for Q4.

Summarizing revenue for the full fiscal year 2007, revenues of approximately $51 million increased 16% over fiscal 2006. Total console revenue for fiscal year 2007 was up 41% due to strong AB5000 console revenue growth for the full year and disposables grew 11% as Impella and AB5000 disposables growth was partially offset by lower BVS revenue for the year. Relative to productlines revenue for fiscal year '07, Impella revenues grew 87%, AB5000 was up 38% and BVS was down 22%.

Turning to gross margins, our fiscal Q4 gross margins were 80% as our favorable mix of disposables revenue and disposables growth continues to generate strong gross margins. Continuing down the income statement, our fiscal Q4 '07 R&D expenses were $6 million, up roughly $1.8 million from Q4 of fiscal '06. R&D expense for the fourth fiscal quarter of '07 includes stock option expense of approximately $400,000 and roughly 60% of our R&D investments in Q4 were on Impella and new products.

Now to discuss SG&A expenses. For fiscal Q4, SG&A expenses were $11.1 million compared to $9.4 million for Q4 of last fiscal year and this reflects our investments in our global distribution to execute on our strategy of establishing heart recovery as the standard of care. SG&A expenses for the fourth fiscal quarter included stock option expense of approximately $700,000.

The net loss for Q4 of fiscal '07 was $6.3 million or $0.22 per share compared to a net loss for Q4 of fiscal '06 of $3.7 million or $0.14 per share. The net loss for fiscal Q4 '07 includes stock option expense of approximately $1.1 million or $0.04 per share.

For fiscal year 2007, the forecasted net loss was $17 million to $20 million and our actual loss for fiscal '07 was $28 million and included $1.6 million of intangibles amortization, an in-process R&D charge of $800,000 and stock option expense of approximately $6 million. We exceeded our forecasted investment in our global distribution during fiscal 2007, which was the primary reason for the higher loss compared to our forecasted loss for the year.

If you would now turn to the balance sheet. On liquidity and capital resources as of March 31, 2007, our cash, cash equivalents and investments totaled approximately $75 million. The cash burn for the full fiscal year 2007 was $19 million and during our fiscal Q4, we received net proceeds of $64 million from our follow-on offering. The cash burn in fiscal Q4 exceeded our historical quarterly burn rate due to an inventory build and increased legal and professional fees. We believe our $75 million of cash and investments provide sufficient liquidity to fund operations and invest in our growth platforms for fiscal 2008.

We will now open the call to your questions.

(OPERATOR INSTRUCTIONS). David Lewis, Morgan Stanley.

Good morning. Mike or Dan, I wanted to kind of talk about AB5000. I guess, first of all, on box consoles, where they came in here for the quarter, was there any implication in the channel with your customers as it relates to when iPulse is going to get launched? Are you seeing any effect in the channel as to the pending launch of iPulse? It's a little early for that, but was that a factor in the quarter?

Hi, David. I think there was a couple things. One is we didn't execute on some of the sales that we had planned for the AB as its own console. I do think there is the fact that people do know there is another console coming and we continue to rent double-digit boxes and you also saw that our rental revenue per box was up about 140% this quarter over the prior year quarter. So I think it is a combination. What we are going to be doing moving forward is starting to look at people who want to plan on a transition from the AB to the iPulse and look at how we can offer that moving forward.

Okay. And then we have been working under the assumption that a lot of the growth here for the AB ventricle has been a mix shift of sorts. What is the dynamic or how is it possible for AB ventricle growth of 15% and then BVS declines of 19%? We haven't seen a dynamic like that in the last couple quarters. Was there something specific in this quarter that would have driven that dynamic where AB ventricle growth was not dramatically in excess of BVS decline?

I can't comment on the numbers. The numbers are what they are. I think though if you look at the AB ventricles, it is the most we have ever shipped and it is the most patients we have done. So I think it is just -- it is continuing to grow. But you also have to understand that there is hundreds and hundreds of BVS consoles that are out there. There are over 800 that are out there and so they just have utilization and a bigger installed base and that is why we need to transition all the BVS accounts to the iPulse.

Okay. A couple more questions. I guess, first of all, I think you gave year-over-year growth for Impella. Dan, do you have a sequential growth number for Impella?

I don't have that. I will have to get that to you. I don't have that available.

Okay. And then just roughly, of that growth from Impella that we saw either year over year or sequentially, how much of it do you think was contributed by Germany?

Well, we are selling Impella obviously outside the US and we're in the pilot trial, so the majority of the growth would be Europe.

Okay. That's helpful. And then Mike, I know you haven't talked about the structure of the PMA pivotal, but you are as saying in guidance that there is some component of this growth or top 20% back-half loaded that is probably tied to the trial. I am just wondering do you have a good sense now of the size of that trial, which is giving you some comfortability in terms of the amount of revenue that can contribute to your guidance for the year?

David, we are in discussion with them now, so it would be -- it wouldn't be prudent for me to comment on [what] the trial because the FDA has not given us a confirmation. You could see different arms of the trial looking at different things and then remember there is a 2.5 trial and a 5.0 trial, so you could have multiple centers, 15 to 30, in both the 2.5 and the 5.0 and then you could have multiple studies in either one of those.

So as long as we are looking at a patient indication, the goal is that we provide data in an FDA trial that can be then incorporated to standards of societies globally, specifically Europe and the United States. But I am comfortable that we will progress and we will have basically a positive effect on our revenue and margin in these trials.

Okay. Thank you very much.

Alex Arrow, Lazard Capital Markets.

Hi, Mike. Hi, Dan. Starting with the iPulse, you mentioned a bit about the competitive environment. Can you give us what you are hearing as far as what the iPulse will be competing on other than just being able to have a device in that category? I mean what features of it would distinguish it from the two other leaders in balloon pumps?

Sure. So if you take the iPulse itself and you compare the console and the balloon to the other two competitors, we are very confident that this device has the best inflate/deflate time, has the best abrasion resistance and has the most accurate triggering. So those are the things that the other two companies compete on and market against each other and then the other factors -- we will be extremely cost competitive and our device also runs two other VADs and is a platform for other products in the future.

Then if you compare the AB5000 function on the iPulse and compare that to the other consoles that are bedside drivers for VADs, the iPulse as a VAD product basically has the lowest weight, the highest reliability, is upgradable, can be transported and again is the best in class as a console for VADs itself.

So if you put the two together, now you have a cost-effective device that you can support patients from the cath lab to the surgery suite and outside the United States, the device is used formally as a transplant device and in the United States for patients that don't recover, they can go onto a transplant and we have collected that data as well.

Of those features that you just mentioned, the best triggering feature seems to be the one that they compete with each other on as opposed to best inflation or deflation time or the other things. Can you specifically say what gives you the confidence that you will have the best triggering?

Sure. In order to get 510(k) clearance, we have to test our balloon on their console and their balloon on our console and specifically in triggering based on the test, we ranked number one, Datascope ranked number two and Arrow ranked number three.

In regard to abrasion resistance, remember the material we are using is proprietary and it is similar to our AbioCor and valve, so this is material that is designed to go a long time and the standard for balloons is to go beyond five million cycles. Our devices went to eight million cycles and we basically then turned it off and it would have continued to go. So we also know that our abrasion resistance is the best.

And as far as the inflate/deflate, we have tested their console and their balloons and our device performs best in inflate and deflate, which also should measure to some level best perfusion. But if you look at all the data out there on balloons, ours or theirs, you will see a range of enhancement between 0.2 liters a minute to 0.5 liters a minute.

In fact, Professor [Seifert's] paper at ACC measured a balloon enhancement at 0.2 liters as compared to an Impella at 2.5. So we think that the market will transition for high-risk angioplasty and AMI rather than start with balloons and inotropes, people will start with Impella. But in cases where you want to be in the ICU before a surgery or after a surgery and place a balloon, that is where our device can be used and that is where balloons I think will be used in the future.

Okay. Does having a balloon pump now of your own give you any advantage in the predicate device discussion you are having for the Impella 510(k) application? Are you able to refer to your own balloon as a predicate device in a way that gives you some leg up with the FDA versus having to compare to other people's balloons?

We can't comment on what their predicate device is, but the fact that we got a 510(k) approval tells you and the rest of the investors we know how to get a 510(k) approval.

Well, for the iPulse, but I mean the 510(k) for the Impella -- as of last quarter and then the call you had with the docs recently, you said that that topic was something you were going to not comment on then and I guess it seems that you are implying that next quarter you would be giving us a little bit more of an update on how the 510(k) was going or what the predicate device was.

Sure. Well, we are not going to comment on what the predicate device or devices are. We have said that. And I did say in the comments and I will repeat, we are providing the clinical data from the pilot, which is completed, to the FDA specifically for the pivotal, but also for the pilot.

So if you follow the 510(k) path and you looked at the comments that we made where there was a question on could new characteristics affect safety and effectiveness, you will see there is two ways to go with a yes or no and both then give you the option. One is descriptive characteristics to measure. The other is are accepted scientific measures of methods available for accessing effects. So we are going to be providing our clinical data as part of the 510(k) process as well.

Okay. And can you or have you said anything about the timing of the start of the pivotal trial?

The pivotal trial is -- what we have said is late summer, so it is August or beginning of September and we are still exactly on the same forecast for if and when we get a 510(k) approval, which we had initially said would be September through March of this fiscal year.

Okay. And as far as the pivotal trial, which of course with the PMA, will you comment on whether that is going to be high-risk angioplasty versus post MI shock and whether it is 2.5 or 5.0?

It's a good question. We are currently evaluating multiple avenues and we likely would have a different strategy if we have a 510(k) and so we are going to be evaluating both of those decisions by the FDA in our design of our pivotal trial. If we were to get a 510(k) clearance then what that would mean is that we would then have the use of the device. So it could be used, you just wouldn't be able to say it is best at an indication and so that is why the PMA will move forward regardless of the 510(k) clearance or decision because we want to go after an indication.

Okay. On the AbioCor, this is about the time when you said that you would have had the training of the sites done, so I suppose the June quarter is when you might have the first AbioCor as being put in under your approval. Is that a fair statement?

Yes, what we said is summertime. We did submit months ago another supplement for the AbioCor. That has improvements to reliability in batteries and software. So this, as we have said all along on the AbioCor, this is not something we are going to rush to market. We are selecting those centers and we are -- we can't move forward until the formal supplement has been approved and so those two things are being aligned, which it's really going to be our option.

The first patient is likely going to be done at Jewish Hospital and the other centers are going to be participating and trained at that. So it can be anywhere from August to October and again this is not one that is something that we are going to rush. It is more important for us to have the right patient selection and the right patient management so that all these patients go home.

What was the reason the supplement was needed?

We had made -- we have been working on the device since the panel -- the panel meeting between the decision was 18 months, so we have been investing and making improvements to it and so we made the decision a while back that we would keep working on it and submit supplements so that the next time we did an AbioCor patient, it would be the most up-to-date and best AbioCor we have ever built.

Is there a material difference you can share with us in terms of either longevity or any future of the device?

There is differences, but not design differences because that would then require a different discussion with the FDA, but there has been supplement improvements on the software. There has been things improved on the reliability on the batteries and we do believe that we are making progress on our goal to have the device at an 18 to 24 month longevity and that is due to some work we have been doing on the bearings.

Okay. So once the supplement is approved, is the training going to be already completed at that point so that very day you could start or do you still have to train (inaudible)?

Well, Jewish did seven of the -- seven of the 14 patients, so they are going to do the first centers and we are going to have a couple meetings between now and then with the smaller groups and we are in constant communication with Jewish Hospital and the doctors down there so that really what is going to start happening this summer is we are going to start looking for the patients. There was another patient that had been selected. Unfortunately, we did not have the right timing and that patient has since passed.

Okay. Last question. On the nice gross margin bump that you had, the disposable mix that created that 80% gross margin, was the benefit more from the Impella disposables in Europe or was it the AB5000 disposables? Which was the one that outperformed to result in the better gross margins?

Alex, this is Dan. You are right. I mean disposables are over 85% of our mix for the quarter. I would say it is all disposables, but primarily Impella.

Okay. Thank you.

Thanks, Alex.

Kathleen McGrath, Stifel Nicolaus.

Hi, guys. I am calling in for Greg today. Basically assuming a FDA approval later this year on the Impella, how quickly do you plan to launch the product after the approval?

Yes, if it is a 510(k), it's 510(k) is cleared. So it would be 510(k) clearance and that would be our September through March timeframe and with the approval, we would then essentially be launching with priority shipments and training going to the pivotal centers that we are selecting now.

Okay. And then is the continued buildup in the salesforce being done with the expectation of the late '07 approval?

We basically have been building up our clinical team and sales team just to match the demand we are going to have in our pivotals between 2.5 and the 5.0 and we will continue now to add optimally for each of the different cities where we are adding pivotals.

Okay. And then I am not sure I really expect an answer on this one, but I will go ahead and ask it. Your 2008 guidance doesn't include the approval. If you did get the approval, can you shed any light on what the revenue impact or revenue ramp would be?

It would be better.

Okay. That's all you can provide?

Well, the minimum we have said is we are going to grow greater than 20%. If you just forget the 510(k) clearance, you have got the iPulse, you've got the AbioCor, you have got all these things happening coming late summer and so we are going to have a very exciting year and we are going to have a very exciting second half of the year.

All right. Great. Thanks. That's all I have.

Thanks, Kathleen.

Amy Stevens, SIG.

Yes. Hello?

Yes. Hi, Amy.

Just a few quick questions. First, just maybe following up on the prior question since we are on it. If you do not get the 510(k), what costs might be delayed? I mean should we be thinking about the lower line items differently in that context?

I'm not sure I understand the question, but if you are saying are we --?

I mean your projections are such that you are assuming you don't get the 510(k) clearance. If you don't -- so then essentially the cost items would -- associated with launch of that product -- would need to go up in terms of what we are modeling for the rest of the year if you got it. Is that right?

Let me kind of just comment on what you said. We are planning to grow -- our forecast is we will grow greater than 20% and we do think we will get 510(k) clearance. However, we can't guarantee it. So that is the base. So you have a business that is growing at greater than 20% at a minimum with gross margins that are greater than 75% and what we are going to do is balance all the new approvals we are getting and we are going to add selectively now our SG&A costs if that is what your question is because we have really built up a nice field team that we can start training and get ready just alone to manage the pivotals on both the Impella 2.5 and 5.0 and then with more of approvals such as the 510(k) clearance, we'd have to continue to ramp up and add as well.

That is kind of what I am trying to get at. I mean how different would that ramp look say in Q3?

Yes, you would see an accelerated -- you would definitely see an accelerated ramp, but what we are trying to do is balance --.

And are you looking at 10% greater hiring or is there a quantification you can --?

Well, we haven't really given out any of that detail and it is also based on the revenue projection when we give that if we were to get a 510(k) clearance what the increase is and then we would tell you what the increase is in the SG&A costs. So as of now, this is the base business and I think that answers your question.

That does. That does. Thank you. Now in terms of your discussions with FDA on 510(k) and I know you are not saying much, we talked about the clock stopping as you are responding to questions and the back and forth. I mean is the clock ticking right now?

Well, we are in discussions with them right now and so --.

I mean if you are responding to questions actively then the clock is not ticking in terms of the 90 days.

Correct. So from a formal perspective, the clock is -- the clock is not ticking because we are coming back to them and meeting with them on our clinical data.

Okay. Thanks. That is what I was interested in. Okay. And then the last thing I just wanted to better understand a little bit is in terms of the Impella 2.5 and how it might be used in the acute setting for an AMI. You mentioned -- some of the pilot trial data or discussion implied that perhaps a decision with regard to which patients might receive treatment would depend on the potential size or position of infarcts of the infarction or potential infarction.

Yes, the anterior infarct is the main --.

Right. Exactly. So if it were a large anterior infarct, perhaps that person would receive it versus there might not be such a great differential if it were smaller elsewhere. Is that --?

Well, there is a couple things to still be challenged and explored and what the common practice today is that opening up the vessel or revascularization is seen as the imminent thing to do, the standard and I think that there has been a line and a level of success that interventional cardiologists have gotten to with doing that.

What we think will happen is, first, we will talk about salvaging the muscle even with revascularization and then potentially instead of door to balloon time, which is the angioplasty balloon, we believe that there will be those that challenge and study kind of a door to Impella time and then go ahead and proceed in doing the angioplasty and whether or not they need to place a stent.

Right, right. I mean revascularization would always be the standard in some sense because that is what is going to determine salvaging the muscle, right?

Well, that's --.

That's what -- it's not --.

That's not necessarily the case because what a lot of surgeons will tell you is these patients -- there is collateral blood flow and some of these patients that end up in surgery, there still is blood getting to the area. However, the premise is that there is not enough blood for the -- there is not enough oxygen in blood for the muscle to keep pumping, but it is enough for it to stay alive and so we have shown that in our animal studies in Europe on Impella and that is in our corporate presentation showing the difference in the infarct size where you have revascularization without a pump and with a pump and it is a major difference in that you are able to salvage the muscle and then Dr. Jose Henriques' paper is the first in man proof.

It's a small study, but it is a feasibility and it showed an improvement in injection fraction on the patients that got Impella at three days of nine ejection fraction points and 120 days of 13 ejection fraction points. That is greater than any publication we have seen on post AMI patients treated with muscular cell or stem cells.

Great. Thank you. Thank you very much.

Thanks, Amy.

(OPERATOR INSTRUCTIONS). [Randy Ho], [Thor Equities].

Hello, fellows and congratulations on a great year moving the ball forward here. Let me follow up real quick on the question from Alex Arrow concerning the AbioCor since we were talking about it. Can you give us a quick update on the status of the AbioCor 2, any kind of a timeline there, Mike?

The AbioCor 2, Randy, as you know, we have done animals. It is in the engineering labs today. We are very confident this device will run beyond two years with a goal of five years based on the pusher plate. We are still -- have the science to resolve -- it's a passive fill and it is also 35% smaller and it has an air compliance chamber.

So based on all those things, we are confident that this device will be a longer-term total artificial heart and based on our status with the AbioCor 1, we will make a determination whether or not this product becomes a PMA, meaning that we submit for bridge to transplant or destination therapy or potentially just a supplement to the AbioCor 1. So that process is still underway and until we have ramped up and are moving forward on the AbioCor 1, we are not going to make a commitment either way with the exception of saying that it is the second phase of our total artificial heart launch.

Okay. So you are saying, Mike, so I understand you that the science part of this or the engineering part of the AbioCor 2's development is secondary to the timing of the introduction of AbioCor 2, vis-a-vis AbioCor 1?

Randy, what I am saying is it's really a regulatory strategy at this point. We have been working on it and we will continue to work on it from an engineering perspective and we do think it will be an advance. But right now, really we want to focus on the product that we have approved and we want to find the right patients and so the trade-off is going to be a larger patient for the AbioCor 1, but we want to make sure that the AbioCor 1 is very successful and again we want to get patients to go home.

Okay, great. Next question -- seeing how you have evolved your R&D product pipeline, which to some degree necessitated a new console in the form of the iPulse, I am wondering -- it is a case that the iPulse will not run the Impella productline, the 2.5 and 5.0. Is that correct?

That is correct and it is not a matter of that we couldn't have it run. We chose not to because we think there is a benefit of having multiple platforms. So multiple razors and razor blades because every time one patient is on, you wouldn't be able to utilize it and we think Impella being small, being a breakthrough, there is going to be lots of patients going on this device whether it is high-risk angioplasty or AMI. With our AB5000 now being a longer-term device and showing papers and p values that suggest that for full recovery of not just the heart, but the other organs, requires an optimal of 30 days on support. That would be 30 days that that device is unable to support any other patients. So we think it is the right strategy and that is why we think every heart hospital or cath lab is going to need both Impella consoles as well as the iPulse.

All right. Have you discussed a price range on the console for the Impella line?

We have. It is going -- projected to be around $50,000 in the United States.

Okay. And then R&D expenses, I vaguely remember, Mike, a couple of years ago when you announced that you were going to step up R&D to develop all of these derivative technologies from all that has been done in the past with the AbioCor. Can you give us any feel for when we may level out in R&D expenses now that these efforts of the past few years are producing the fruit that they average there? Well, I will stop there. Any leveling out in the future?

Yes, this year, we are going to level out or start to go down and then as we grow our revenues, you may see it go back up again, but at a much smaller percentage than what we have been spending in the past. We spent this money over the last three years, Randy, to build out the portfolio. We still have some new products that we haven't told the world about, which will be coming out as well, but now really it is about execution, getting the regulatory approvals and getting the technology all over the world.

Well, that's the answer I wanted to hear. That makes perfect sense. You have done a heck of an effort in getting these things out the door. And then the last comment -- I went to your website, Mike, and listened to the full range of presentations that were made across the different products and studies that you have done with your various products. I was especially impressed with Dr. Anderson's support of the AB5000 and I would just like to hear your thoughts on the experience that he has had on the one hand, which has been outstanding in saving people that come in in AMI shock and what appears to be a lack of immediate receptivity on the part of general practitioners.

Well, I think it is a matter of focus. So somebody can be an expert at destination therapy VADs or bridge to transplant and that doesn't make them an expert in recovery and Mark is one of the world's experts in recovery. He has done more patients than most any other docs have specifically for acute. He's got some of the highest publications. He has got the best protocols and he is a leader in the field. Not to say he does do transplant and he is a transplant surgeon, but he has said and he has learned -- he says things that years ago they transplanted people that today they recover and that is what his mission is and that is what our mission is and so I think he is a thought leader, as well as other folks like Dr. Lou Samuels and there is a growing number of them now that are out there.

Our competition on the transplant side, they are really doing a great job of building better destination therapy devices. There is plenty of them out there and I think they are a great advance to the field and they are helping a lot of people, but from an engineering perspective to design a technology for recovery means you are doing it for a different route. So you don't want to go on the heart lung machine. You don't want to have to have a major surgery and if they are in pre-shock or profound shock, it requires then even differences whether it is Impella or AB5000.

We've really learned a lot from Mark and we are learning a lot from the folks in Europe using Impella and what we are seeing is there is a time and a place where a patient needs to get transitioned, so you can still keep them alive and still recover their heart and just because they are in profound shock, it doesn't mean you have to give up that option.

Yes. Well, it sounds like you are really establishing a continuum of care that will lock this all up. I think if I understand your strategy, that is pretty much it, is it not?

Well, we want to support the patients the moment they hit the hospital whether they go to the cath lab or surgery suite.

Okay. Great. Thanks, Mike.

Thanks, Randy.

Harish Aiyar, Dawson James.

Hi, thanks. Hi, guys. One question -- Impella clearly -- I mean it was a good quarter for Impella in Europe. Can you comment on the reimbursement landscape in Europe and how that has kind of changed over the last maybe couple of quarters and kind of where you see it going maybe through FY '08?

Sure. That's a very good question. Thank you for asking it. Germany, we did get approval. We got approval from the government and then what is required is each of the hospitals go and reimburse individually, so that is up and running. Now it is not -- it takes time, but it is not as if it is the US DRG system where they make the decision on October 1, everything happens, but it is there and it is up to the hospitals now to negotiate.

We just recently got reimbursement in Italy, which is a big deal. We have been working on that as well for multiple years and we talked about that when we were at our user meeting and we have done our first patients in France, which is also a big market, specifically in cardiology. We have done our first patients, which is part of the requirement for you to get approval, but also to get reimbursement. And then other countries -- there are individual ones. We do have some reimbursement or it is still being paid out of pocket and we are now trying to selectively decide whether or not we are direct in the country or we have the right distributor partner.

Great. Thanks.

Tom Laird, Mulholland Capital.

Yes, hi. Thank you for taking my call. I just wanted to understand the Impella market a little better if we could. Is it correct to say that the target US market is for high-risk angioplasty, the first target US market and that would be the 2.5 size and that that market is on the order of 100,000 balloons that are used today that you would hope to convert over as the standard of care, first-line standard of care to the Impella? And could you describe a little bit what that market size is in the US and also what it is in Europe that you just talked about? Thank you.

Sure, Tom. So first, if you look at the largest utilization on Impella 2.5, it is for high-risk angioplasty and as we have seen in Europe, it starts there, it is scheduled, they get comfortable with the technology and then it transitions where they start to do patients in hemodynamic instabilities, such as AMI or myocarditis.

In the United States depending on who you talk to or what report, you will see versions of high-risk angioplasty, which can be determined by the age, greater than 60, greater than 65, could be by unprotected left main, so the main vessel to the heart has got to be ballooned or it could be just complicated or prior history. So of the angioplasties, which is a little over a million a year, that means it is 50,000 to 100,000 patients that are high risk.

Also on intra-aortic balloon, which is 160,000 of them also worldwide, the number one utilization, I think it is 41%, is for high-risk angioplasty. So we do believe that that is the first penetration. That is where people get comfortable and that is where something along the lines of a 510(k) approval would play because you are talking about these devices being in a patient for -- less than an hour, the procedure is done and the patients are discharged the next day. And I do think that is a great opportunity for the Company.

If you look at in the US, our average sales price expected now is going to be $15,000 per disposable on the 2.5. So you are looking at a very large market with very strong gross margins. As time goes on and the doctors get comfortable with the fact that the pump is truly pumping 2.5 liters and this is not a drug and there is no placebo effect, you turn it on, you see what happens to the hemodynamics, then they start to get comfortable moving it towards these AMI patients or patients at risk.

I do think that is also now the next generation and you are seeing in Europe that is the next period of growth and you are also seeing now the publications follow suit such as the two that we presented at ACC. So initially European publications were showing it safe and easy and that was on high-risk angioplasty and now our publications are really talking about improvements for AMI patients.

We also saw in the trial in the discussion with the FDA that there was a class of patients that the surgeons wouldn't touch and the cardiologists wouldn't do angioplasty on whether it is triple vessel disease or age and now that population also has as an avenue to go to the cath lab.

To give you an example, our first patient at William Beaumont was one of these patient who -- David was a tentative transplant and the surgeons were not willing to touch him. He had had multiple surgeries and he was done with the Impella. This gentleman had trouble going to his mailbox and back without being out of breath and having to take a nap for the rest of the day and just last week at our kickoff meeting, he came in and met with our people and I played nine holes of golf with him and he beat me and he is doing well and he has got his quality of life back.

So I think there is going to be this aging population, this prior stent, all these patients that have gotten here because of all this other technology are now going to need the Impella to get to the next phase of their life or get their quality of life back.

Can I follow up on a couple of areas? First, is that a very material population, the last one you spoke about?

I think there will be a gray area of what cardiologists consider high risk. So with the legal liability in the states, you don't want to have a high mortality rate and if you look at all the rural accounts, what is high risk to them could be routine to a center that specializes in it like some of our trial centers. So I think it is going to be -- the concept is really not can you do the patient without Impella. It is a matter of prudence.

So the example is if you wear your seatbelt and you don't get in an accident, was it a mistake to wear your seatbelt and I think that is where they are going to be able to take their time to have better stent placement, better evaluation and I think Impella because it is safe and easy is going to add a value to more difficult angioplasty cases.

Okay. One last follow-up. Given the cost, the upfront capital costs for the hospital, the 50,000 in the incremental consumable costs and also your experience as far as early adoption in Europe, can you give us -- and also the training -- I guess is this going to take a lot of proctoring on the part of -- on your part to establish this in the market? Can you give us your sense of what kind of adoption rate or penetration rate and marketshares might be realistic in this first couple of years? I know it is a pretty general question, pretty wild.

Let me answer part of that and then I am not going to give you a projection yet on marketshare because that is dependent on the trials and the 510(k). But specifically on training, we do plan and that is why our SG&A costs are high this year because we want to get ahead of the curve and be ready to support the pivotal and potentially the 510(k) and what we are going to do is because of this high-risk angioplasty is we will schedule potentially a two-week on-site person that while we are there training, they are also doing patients to get them comfortable. And we are going to put a major focus. We did learn some lessons in Europe on this.

As far as the utilization of the Impella versus an intra-aortic balloon and again we make a balloon, some of the physicians have commented this is easier to place than a balloon because you are not worried about the positioning. The device tells you if it is in correctly versus a balloon. If it is not in correctly then you could block the blood flow to the other organs.

On a perspective of timing, if a balloon does not open or close at the right time, it can be a very -- it can have a very serious negative effect on the profusion of the organs. Whereas the Impella with arrhythmias or heartbeat change, it continues to pump and so it is actually safer to leave on a patient and you don't have to worry about that management.

The reason balloons are used is because they have been around for over 10 years so people are comfortable with them, but again I hear from people once they get comfortable with Impella that it is easier to place and easier to monitor than an intra-aortic balloon pump.

Thank you.

There are no further questions in queue at this time. I would now like to turn the call back over to Michael Minogue for closing remarks.

Great. I want to thank everyone for their support. This is going to be an exciting year and as always, if you have any follow-up questions or you care to come visit and have more detailed analysis of some of the new products, please let us know. And everyone have a great day.

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