ABIOMED Inc (ABMD) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first-quarter 2008 Abiomed earnings conference call. My name is Carol and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards 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 Ms. Liza Heapes. Please proceed, ma'am.

Good morning and welcome to Abiomed's fiscal first quarter of 2008 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 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, market response to our new products, our progress towards commercial growth and future opportunities.

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, anticipated future losses, complex manufacturing, high-quality requirements, dependence on limited sources of supply, government regulation, 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 conference call. 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.

Comparative references made in this call to revenue, gross margin or other increases/decreases refer to the first quarter of fiscal 2008 as compared to the first quarter of fiscal 2007. In addition, today, we will be discussing our Impella, iPulse and AbioCor 2 products that are not FDA approved. I am now pleased to introduce Mike Minogue.

Thanks, Liza. Good morning, everyone and thank you for taking the time to join us today. We are pleased to report that our revenue level this quarter of $14.1 million was a record for the Company. We demonstrated good momentum this quarter on a number of fronts and are pleased with many all-time highs, such as record total Impella revenue up 157% and record Impella Console revenue, record number of AB5000 ventricles shipped in a quarter and the sixth consecutive record quarter for the number of patients supported on the AB5000, record number of total ventriclular assist device units shipped of 629, Impella disposable revenues grew 117%, AB5000 revenue increased 23% and BVS disposables declined 26%.

While we were pleased with the many records delivered this quarter, we are even more excited about the opportunities we have ahead given the number of products we have submitted for regulatory approvals. The outcome of our US regulatory milestones, including 510(k), PMA studies and supplement approvals will have a significant impact on our addressable markets and specifically US growth. This phase represents a key inflection point to execute on our strategy of a complete, acute recovery product portfolio from the cath lab to the ICU to the surgery suite. To get to this position represents a tremendous achievement and an opportunity for the Company. This will be my focus for today's earnings call and it will be very detailed.

We are working to obtain the following approvals. Number one, 510(k) clearance on the Impella 2.5; number two, IDE approval to start the pivotal study on the Impella 2.5; number three, completion of the Impella 5.0 pilot trial; number four, PMA supplement approval on our unique iPulse combination IABP VAD console; number five, HDE supplement approval on AbioCor and last, number six, new submissions based on new products in the pipeline that will fuel our growth as the circulatory care leader.

Given the number of products that we currently have under FDA review, I would like to provide you with a clear summary of the programs and processes to date. Please understand that we cannot guarantee FDA approvals or clearances on any of our products under FDA review. However, we work diligently to provide the FDA with all required information and remain very optimistic about all of our submissions.

First on Impella, which we believe represents one of today's most exciting technologies entering the cath lab and the surgery suite. Our primary strategic plan for regulatory approval has consistently been a PMA path through pilot and then to pivotal trials. We received FDA approval with reimbursement classification to begin the pilot study for high-risk angioplasty in May 2006. This was the first time that a VAD was approved by the FDA for prophylactic use in a PMA trial. We have significant Impella studies from Europe demonstrating the ease of use and performance derived from over 1000 patients on the Impella platform.

Last November 2006, we also announced that in parallel with the PMA path, we would pursue 510(k) clearance for the Impella 2.5. We anticipated several rounds of questions and forecasted a potential 510(k) clearance timeline of September 2007 to March 2008. We have not changed this forecast at any time and we have not changed our forecast that we believe we will get 510(k) clearance. However, we aren't able to guarantee it based on the FDA.

In Q4 fiscal year 2007, we indicated that the 510(k) was submitted and we disclosed the FDA's questions on the submission in March. Today, we are announcing that we have submitted a detailed response to the 510(k) questions from the FDA. It is important to note that this response is based on face-to-face review of their questions in the additional information letter. In essence, the clock is ticking.

In connection with the 510(k) clearance process, we provided the FDA with a report on the 20 patients treated in the pilot study. The data we collected was favorable as we discussed on the conference call in April with our PI, Dr. Bill O'Neill and Dr. Jose Henriques, our most published European user and pilot center.

In parallel with the 510(k) submission, we have recently submitted this pilot study data and pivotal trial protocol to the FDA for approval to begin the pivotal or final phase of this study. We plan to hold a dedicated call on the parameters of the pivotal trial once we receive final approval from the FDA. We anticipate that the pivotal trial study will begin in the September/October timeframe. There may be multiple studies per product based on the indications for use.

We have extensively researched and analyzed past studies on high-risk angioplasty, hemodynamic support, indications and correlations to mortality from cardiogenic shock, reduction of infarct and overall mortality from cardiogenic shock. In addition, the Company has extensive expertise in cardiac diagnostic imaging, including SPECT, PET, CT and MRI.

Many investors are unaware that we are and will be generating revenue from the US Impella clinical trials. The Impella 2.5 is being reimbursed by CMS in the pilot trial under DRG 104. We are charging $15,000 per Impella 2.5 pump and charging a console price depending on volume.

The 510(k) path is upside to our financial guidance for the year of greater than 20% revenue growth and we plan to continue on the PMA path for a clinical indication of superiority. We believe a PMA approval would lay the foundation for Impella to become the standard of care and will enhance global adoption. We will also be announcing more details of our Impella multicenter European study that will start in our Q3 and the pending Japanese clinical trial.

On the Impella 5.0 FDA process, we continue to work through the pilot study for up to 20 patients who have been weaned from heart lung machines, but require some added support. This study in basic terms is enrolling those patients who typically need more than just an intra-aortic balloon pump, but are not yet in profound cardiogenic shock requiring the BVS or AB5000.

Approximately 1% of the 600,000 U.S. open heart surgery patients fail to wean off the heart lung machine and that has been the primary role of the BVS over the last 15 years. However, we hear from heart surgeons that approximately 5% to 10% of these surgery patients struggle coming off of the heart lung machine and likely receive an intra-aortic balloon pump and inotropes. In fact, the survey data shows that in the United States approximately 30,000 to 40,000 intra-aortic balloon pumps are used for this type of application.

We believe the Impella will become the ideal technology for these high-risk surgery patients, as well as for off-pump procedures and new minimally invasive applications. The pump can be inserted before the patient crashes on the operating table in the surgery suite. Impella allows the heart to be unloaded quickly without requiring the additional trauma of a conventional VAD implantation and it also provides easy explantation for quicker recovery.

If the patient declines to profound cardiogenic shock and requires more time for recovery, both the BVS and AB5000 have proven positive recovery rates and FDA approval for use. The benefit of the AB5000 would allow the patient to have pulsatile, biVAD support for longer duration, lower anti-coagulation than conventional VADs and the ability to walk around.

Additionally, the AB5000 has reliability data showing greater than one year of performance. So in the absence of recovery, the patient has time and other options. As we have documented in our TCT abstracts, the optimal support for acute recovery of profound shock is 30 days on support. Independent studies have also demonstrated that the best results for a VAD pre-transplant occurs when the patient has been supported for 30 to 44 days before their transplant.

For these reasons, we are confident that our Impella adds synergy to the AB5000 platform and overall revenue growth. In the case of AMI or heart attacks, many patients will start in the cath lab, get transitioned to the ICU and then a small number of profound cardiogenic shock patients make it to the surgery suite for recovery VADs today. Our new recovery strategy will have products, protocols and people all along the way.

To help Abiomed upgrade all BVS centers and add AB5000 VADs to all open heart hospitals, we have added the intra-aortic balloon to our product line and developed our iPulse Combination Console, which adds the IABP to our AB console. The IABP, or intra-aortic balloon pump, is today's standard of care for circulatory support and 90% of our AB patients start on an intra-aortic balloon.

In early July, we responded to questions from the FDA on the iPulse Combination Console in connection with our request to have the console approved under a PMA supplement. The intra-aortic balloon disposable is already 510(k) cleared. We expect the iPulse will be available in the US sometime in the September/October timeframe. We believe our IABP offering and integrated iPulse Console provide an opportunity to specifically accelerate our AB5000 penetration in the US.

We also believe our US customers see this combination console as a more cost-effective option than the standalone balloon console or standalone VAD console. Outside the US, this cost-effective platform provides for everything from high-risk angioplasty with intra-aortic balloon pumps to bridge to recovery or bridge to transplant with AB5000. We will leverage our installed base in the ICU and surgery suite where roughly 40% of the intra-aortic balloons are inserted. More specifically, 40,000 intra-aortic balloons in the United States.

Our intra-aortic balloon technology and iPulse Console will compete on performance and price. Included in our testing and data results that we provided to the FDA, it was determined that our intra-aortic balloon system has the best certified performance on triggering abrasion resistance or wear and inflate/deflate time. To note, these are the key specs as established by the two current competitors.

The AB standalone console has already been successful. It has been sold to 50% of all US transplant centers and 20% of all open heart centers in 2.5 years. There is still several hundred -- over 300 BVS consoles out there at these open heart hospitals as well. Intra-aortic balloon pumps will likely remain a key tool in the intensive care unit for pre and post-surgery. However, in the case of high-risk angioplasty and heart attacks, the intra-aortic balloon limitations are well-documented. We believe our Impella products are the future because they actively unload the left ventricle, which is critical to salvaging and protecting heart muscle.

We are pleased with our progress on the submissions and have further pending submissions on the Impella Pediatric, the Impella Implantable and more new products that we have not yet announced.

Turning to the AbioCor, we expect to enter the market following approval of the supplement we have submitted on our humanitarian device exemption or HDE. We expect to submit responses this month to the FDA's recent questions and are targeting mid to late fall for the first patient supported on the technology. We are targeting three to five hospitals with the clinical expertise and long-term dedication to the technology and we plan to charge $250,000 per device. We are pursuing multiple options with CMS to allow for reimbursement at limited centers of excellence. As we have stated, this will be a controlled rollout to ensure success for the patient, the hospital, the physicians and Abiomed.

A quick note on CMS. We are excited about CMS' continued focus on the acute heart failure patients and we believe the recent new changes just announced will have a positive impact on all of our recovery products. Last week, CMS announced changes in inpatient hospital reimbursement for Medicare patients effective October 1.

One of the most significant updates is the introduction of new DRGs with payments related to how sick a patient is, known as severity of illness. Although the impact by patient will vary, CMS is reimbursing at a higher amount for patients who experience major complications or events, including heart attack, also known as acute myocardial infarction.

As many of you know, this is one of Abiomed's target patient populations and the hospitals will now be reimbursed at an average of 22% higher than in the past with successful recovery. The new MS-DRG 1, which was DRG 103, is now Medicare's highest paying DRG. Once again, the new MS-DRG 1, which was DRG 103, is now Medicare's highest paying DRG. Impella 2.5 will likely see a similar increase of 12% moving from DRG 104 to DRG 216 and we should be seeing this during our trials and potential 510(k) clearance.

With so much on the horizon and so many products under regulatory review, we are focused on execution and the enhancement of all of our operational infrastructure and processes. On our manufacturing initiatives, we've started enhancing our expectations, as well as our performance. We have started enhancing the Impella manufacturing capacity to prepare for the expected demand, including extended shifts. This is a tremendous opportunity for Abiomed as every 10,000 Impellas sold in the US equals $150 million in revenue with very strong gross margins.

We have initiated lean manufacturing processes in our German and Massachusetts manufacturing plants and we have also conducted a mock Impella FDA inspection in our German facilities. As we ramp up for our US growth, training new and existing customers on our breakthrough technologies is a key priority. With this in mind, we have been adding top talent from the cath lab to our field based clinical experts.

Several new Abiomed cath lab specialists are finishing their intensive training process and will be working with the clinical trial sites immediately on our Impella and balloon technologies. We are also focused on cross-training our surgical teams on the new cath lab technologies. Through the breadth of clinical expertise, we can now optimize patient care and better serve our customers from the cath lab to the intensive care unit to the surgery suite.

I am proud of the entire team and I am really confident in our leadership position. Every employee of Abiomed is working diligently on some aspect of broadening our product portfolio, increasing our global distribution, publishing our clinical data, generating sustainable revenue growth and attaining regulatory approvals. With a significant number of regulatory submissions in process, I believe that we are now approaching an exciting inflection point in our Company's history. I will now turn the call over to Dan.

Thanks, Mike and good morning, everyone. 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, on our product mix for the quarter, total disposables, service and other revenue, meaning the non-console revenue, comprised approximately 86% of revenue for the quarter. This drove strong gross margins of 75% in fiscal Q1 2008 and this is up 200 basis points over the first quarter of fiscal '07.

Included in cost of goods sold during this fiscal Q1 were approximately $800,000 of expenses related to our strategic capacity ramp-up for Impella, iPulse and AbioCor as we plan for the respective US regulatory approvals and product launches expected later in fiscal '08. These costs were not absorbed into inventory per GAAP and negatively impacted gross margin in the first quarter by approximately 600 basis points.

Continuing down the income statement, our fiscal Q1 '08 research and development expenses were $5.5 million, roughly at the same level of the first quarter of fiscal Q1 '07. R&D expense for the first fiscal quarter of 2008 included stock option expense of approximately $400,000.

Now to discuss SG&A expenses. Fiscal Q1 '08 SG&A expenses were $12.4 million compared to $9.4 million for Q1 of fiscal '07 reflecting our investments in our global distribution. SG&A expenses for the first fiscal quarter of '08 included stock option expense of approximately $1.3 million.

The next line on the income statement reflects an arbitration decision reached this quarter that we filed on Form 8-K in fiscal Q1. As outlined on the income statement, $504,000 of the award recorded as an expense this quarter represents amounts owed for reimbursement of legal and other costs and will be paid in fiscal Q2.

You can see the next line on the income statement as an expense of $728,000 representing the fair value of approximately 65,000 warrants awarded in the arbitration that were not previously expensed. The expense related to the warrants should be noted as a non-cash charge.

The net loss for fiscal Q1 of '08 was approximately $8.3 million or $0.26 per share compare to a net loss for Q1 of fiscal '07 of $6.1 million or $0.23 per share. The net loss for fiscal Q1 of '08 includes expenses of $1.2 million or $0.04 per share related to the arbitration award; $1.7 million or $0.05 per share related to stock option expense and $400,000 related to intangibles amortization from the Impella acquisition. Excluding the $3.3 million aggregate effect of these items, the net loss for fiscal Q1 '08 was approximately $5 million or approximately $0.15 per share.

If you would now turn to the balance sheet, as of June 30, 2007, our cash and cash equivalents totaled approximately $63 million. Our fiscal Q1 '08 cash outflows included $1.7 million related to fiscal 2007 annual bonuses that were paid this quarter. During this quarter, we also invested approximately $2.7 million related to capacity ramp-up and inventory build during this quarter related to our Impella, iPulse and AbioCor platforms in advance of pending regulatory approvals and respective product launches later this fiscal year.

You will note accounts receivable increased by $3 million during fiscal Q1, however, since June 30, we have collected approximately $7 million of the $13.8 million total accounts receivable balance that was outstanding at June 30 and we are confident that the remaining net receivables are collectible.

Also in Q1, we paid legal defense costs in connection with the arbitration decision that I discussed earlier.

We believe our cash at the end of the quarter provides sufficient liquidity to fund operations and invest in our growth platforms. Based on our guidance for fiscal 2008 and subject to the timing of various regulatory approvals and the related timing of product launches expected later this fiscal year, we expect to end fiscal year '08 with cash conservatively north of $40 million.

We will now open the call to your questions.

(OPERATOR INSTRUCTIONS). David Lewis, Morgan Stanley.

Good morning and Mike, thanks for all the detail. Mike, I was wondering if you could help us on -- you said the submission was first quarter, first fiscal quarter, so is it safe to assume the submission was in June and has there been any conversations with the FDA post-submission or resubmission?

Let me clarify. Remember, our fiscal year ends in March, David, so I will go back. In November, we announced that we plan to submit for a 510(k) clearance and we had said that we would plan on doing that in our Q4, which was the January to March. We ended up submitting a little early, so we ended up submitting it in December. We got the questions back that we disclosed during the follow-on and we had a face-to-face meeting with them. We provided a report based on the pilot, which I disclosed at the last earnings call and we have resubmitted the packet the first week of July.

Okay, first week of July. Thank you. And you have not spoken to the FDA since the first week of July?

We are not disclosing or we haven't had any official correspondence, no.

Okay. That's helpful.

David, we speak to the FDA on a weekly basis based on the list of the six items, so of course we're speaking with the FDA, but it is on all the products that we have.

Okay. And then, Mike, there was obviously sequentially some nice progress on AB ventricles. Console sales seem to be still depressed largely because I imagine the iPulse pending launch. Can you talk about what you are seeing in the channel as it relates to demand as we enter into a two month period before the iPulse launch?

Yes, I think the iPulse -- if we were submitting just for the balloon itself with 510(k) clearance, we would be out there selling now, but because it is running off a combination console, a supplement approval on a PMA device is actually a six month timeframe, so that is why we got the approval on the balloon in December, but we are waiting for the supplement.

As I go out and I look at two things for the demand, one is the AB5000 is a very good device. It has very good recovery. In fact, it has got the highest publication recovery results. It is very positive in reimbursement as it is now in the highest paying reimbursement. It is really -- it is a great product.

When you put an intra-aortic balloon pump on it, you make it cost effective so that every single center that has an open heart or a surgery program has the capability because they do use balloons quite often, but balloons I think are becoming a bit of -- a bit of a commodity in that it is about price. Based on the limitations of balloons that have been out there for more than 15 years, all the publications show they do not unload the ventricle.

So while they enhance some blood flow and that will continue to be utilized in pre and post-surgery, that is where we think it is going to happen and that is exactly where the iPulse will be sitting with the capability to run the AB5000. The demand and what we have talked to people about, David, is that they think it is a very good option.

A lot of times for balloon pump companies, they go in and they swap out six or eight boxes, depending on how big they are, and now they can basically budget and set aside a program so they can have at a minimum of two iPulses to use as balloons and also to have the capability for these profound shock patients.

So let me give you one quick example. If you think about -- if you are an open heart hospital and you look at all the new technology that is coming, many of the cardiologists want Impella and so they are putting in plans and we're talking to them, but on the surgery side, as Impella goes in, I think it is going to drive more patients across the gap between cardiology and surgery because there are these profound shock patients that will require AB and by having a balloon on it that also gives them a way to go to administration and budget and instead of getting entirely swapping out their balloon consoles, they are going to get two iPulses.

And if you look at our success at transplant centers, half of the transplant centers in 2.5 years have already bought multiple consoles for the AB, but now we are really trying to get to all the single open heart hospitals and I am very confident in both the performance of our balloon, the price point which we will set it at, but also to give people that full continuum now from Impella in the cath lab to the iPulse in the ICU and surgery suite.

Okay. That's very helpful. And just two more quick ones. Dan, I guess the first one in the quarter there was a significant ramp-up in manufacturing and sales. Can you update us on where we are in salesforce in terms of rep number?

Sure. On a global basis, David, at the end of fiscal Q1 in total, we were north of 60 reps and again, that's sales and clinical and that is up over 30% from a year ago.

Okay, thank you. And then Mike, in the last quarter here, we've seen -- you had your European symposium overseas, as well as you have a new general manager and the number for Europe obviously was strong yet again in triple digit growth. So can you just talk about trends you are seeing in Europe off the last three months?

Sure, David. I was just there two weeks ago. There is tremendous energy and we did mention that we are going to move forward for another trial. Now these are paying trials, so they are studies, but we have a lot of good information and we have documented everything now from high-risk angioplasty to feasibility studies on improvement in injection fraction.

With the iPulse now there, it also is being placed in these package deals where you have centers that need the profound shock and the pre-shock solutions and we are seeing momentum as well on our iPulse and our utilization of the balloons. So we're real confident that the new general manager there has brought a lot of the organizational and process focus that was not there prior and we have actually never had a true general manager in Europe in three years and so he is doing a great job. The results already show it, but I think the best is yet to come.

Great. Well, thank you very much.

Greg Simpson, Stifle Nicolaus.

Okay. Thanks. Good morning, guys. Well, David literally went down my list of questions, so I am not sure how he got in my office, but let me dance around a little bit here. Mike, first on the salesforce, can you talk about what the plans are going forward? You have added a lot of people obviously in anticipation, especially of Impella. Have hiring plans or expansion plans changed at all compared to what you've normally kind of suggested?

Two years ago, Greg, we gave as one of the goals that we update every quarter was to grow our field team and add two to four a quarter. In the last half of last fiscal year, we had greater than 10 each quarter. This year, that is not one of our goals. Meaning that we haven't specifically targeted it. So what we are now doing is adding as the opportunity and as the [spite] would recommend. So if we have a center, we're going to have a bunch of pivotals or in anticipation of a 510(k) clearance, we want to make sure that in all the major cities with all the top number of cath labs and procedures that those are covered.

On the clinical side, we have also been ramping up, adding the infrastructure there because we think that that is also as important if not more important. So once we roll out Impella, we have to make sure they are trained, they get a good result and they are doing patients while someone is there to get them off to a good start.

So that is really what we shifted a little bit more now to is these cath lab clinical folks, cross-training our surgery team and now we are selectively adding sales reps. But I believe that the demand initially -- we have a pretty good feel of that and then we will add reps incrementally.

So the good news is we have made this investment a year ago. The reason we did that is because we do see about a 9 to 12 month ramp-up period for the new reps to really learn this technology. It is unique and if they work for a cath lab company or surgery suite company, they don't really have the entire skill set and so that is why we added them over a year ago.

Okay. And then a couple of questions kind of related on Impella. If theoretically the approval came on September 1 and I am not predicting that, I'm just saying if it came on September 1, A) how quickly would you be able to get it out into the field? Secondly, given where the salesforce is right now, do you feel good about your ability -- I mean you are far enough along in building the salesforce that you are ready to run with it and then third question on that is for Dan, once you get the approval in place will you then seek to update your full-year revenue guidance to include the potential Impella revenues?

Sure. So first of all on the guidance, we said this year's guidance is greater than 20% and that does not include a 510(k). The reason we did that is it depends on when we get the 510(k) to the revenue, whether it happened in September or in February. So that will come officially once we officially hear word.

To your question before about could we run right away, I think there's three sections of that and three things we've started focusing on if we did have it, as you say, September 1. First is our manufacturing. We have been working on it. We are continuing to work on it and that is really going to be the ability and how much we can make, how quickly we can make it and how we can ship it.

As we are ramping that up, which we have already started doing, now you have got to have the clinical people to be able to do the training because we want to get great results and in this timeframe is really the pivotal timeframe along with the potential 510(k) timeframe. So we may even have to prioritize, but that is why the critical element of this now becomes the manufacturing over to the clinical team.

I think the third piece of it would be the sales and as I have already stated, we are going to add incrementally. But I think the demand is there and we have already been working with a lot of centers, so we have an Excel spreadsheet list of all the folks that have interest in both acquiring it, but also interest in being in the pivotal study as well.

On the training -- for the guys that are obviously going to use this, my impression is it's a very low learning curve?

I personally think it is not a difficult system to place. I do think though that it is a new console and people have been using balloons for 15 years, so they are used to those consoles. However, I have heard from other folks that when they put an Impella in that they state that it is easier to put in than a balloon.

A balloon, you have to have the right size because you are choosing three sizes, you are trying to decide the size of the patient. Then you have to make sure it is positioned correctly and then if the timing is off, it could have really a detrimental affect on the patient. Whereas Impella goes in, one-size-fits-all and it keeps pumping whether they have an arrhythmia or any timing or skip a beat, it just keeps pumping. So I think it is just a natural learning curve as compared to something that has been out there for over 10 years. I do think it is pretty easy to put in as well.

Okay, great. One final question then on iPulse. You kind of alluded to it I think in your prepared remarks. Given the near-term approval and launch of that product, that clearly I would suspect as affected AB5000 console placements. Is there a bolus of orders here that is probably likely once the iPulse is on the market?

Well, let's just say that we have seen a decline for the last two quarters in our AB pure console sales and we have seen an increasing utilization and an increase in ventricle sales. So clearly the technology works, but I think that transition will occur and I think we are going to get back some of what we have lost over the last two quarters.

Okay. All right. Great. Thanks.

(OPERATOR INSTRUCTIONS). Amy Stevens, SIG.

Yes, thank you, Mike. A quick question on the reference you made to the CMS decision and the DRG codes. You mentioned how the reimbursement would change for the hospital and then mentioned that you have sort of an expectation that the same thing will happen with regard to your device. What will be the incremental news flow in terms of timing? When would we expect to actually have confirmation that in fact that 12% or whatever you end up seeing that materialize?

Well, officially October 1 is where it is rolled out and then you get confirmation as folks are being paid, but right now based on what we have analyzed and what the consultants are telling us, that is where these payment plans will end up. So I will just reiterate again, Amy. So DRG 104, which was the Impella, is likely going to be going into either DRG 216 or 217 and so that either puts it in a approximately 12% increase of where it is today or potentially flat to 5% decrease from where it is today. But if someone is in a heart attack or AMI, they are specifically going into DRG 216, which is now 12% higher than where it was under DRG 104.

If you look at our AB and BVS technology and you talk about a patient who is going to recover, you are now talking about the highest paying DRG. So our patients that go into profound cardiogenic shock, whether it is BVS or AB5000, are now going to be under DRG 1, which is 22% higher than what it was under DRG 103, which we used to give as an average of 130 to 140 range for DRG 103, which is now going to be in the 150 to 160 range under DRG 1. And we do think that this is correct, that formal validation comes officially once the hospitals bill and they are paid by CMS, but this is how all the plans and all the consultants are saying things are going to align.

Okay. All right. Thank you.

So it is great news on our technology, but specifically it is great news that CMS is recognizing that these acute patients or these acute events have the potential for a benefit if they are treated versus the downside is many of them -- they have high mortality rates. So our focus on our technology is really their focus now and they are paying for performance on that.

Is the increase in reimbursement intended to incentivize them in terms of whether it is time -- the time lapsed before they get some sort of circulatory support? I mean does it support your underlying theme I guess?

Specifically, when we first -- which is now three years ago -- when we first went to them and explained recovery, they moved the recovery implant/explant from DRG 525 to 103 because we had the data audited by a third-party group and we had several expert doctors present to them and show data showing that recovery does happen, it is more likely, but it can take up to 30 days on support and for that, it puts it in a higher-paying DRG. They essentially have validated that every year by increasing or maintaining that decision. So in fact, it does save them a lot of money because if you think about a patient who has a heart attack and let's say they get into trouble and then now their heart -- they have a huge infarct and they are going to have to get a transplant and potentially they might put in an implantable to send him home, they have to pay for that. Then they bring them back and they transplant them, then they have to pay for that. Then the patient is on immunosuppressive drugs and within five to 10 years, the patient is still back likely for another transplant. So it does save money and usually the best technology and care will save the government money, so they try to put an incentive out there.

As far as this new change occurred, it is not specific to any one company. It is the philosophy that these acute patients or the severity of illness should be recognized so the hospitals can use the proper technology to treat the most severe patients.

Okay. Okay. And back to your comments on how the pivotal studies may end up sort of overlapping with what the timing would be for a potential launch in the fall if you haven't heard any decision and you have got manufacturing going on either for a launch or for the pivotal study, how will you piece out -- how will you manage through that situation?

Amy, I don't understand the question.

Okay, okay. If you haven't had a decision by -- or I guess if you have had a decision and you get a decision in September that is positive and then you I guess are in a position to launch, but you said that that would then run into the timeframe that you would be conducting pivotal studies as well and that that might be challenging from a manufacturing perspective.

Okay. I understand the question. What we would likely do is prioritize the pivotal studies over the centers that are purchasing under a 510(k) clearance.

Okay. You would prioritize the pivotal studies?

Correct.

Okay. All right. So that's it. Thank you.

There are no additional questions at this time. I would now like to turn the call back over to Mike Minogue for closing remarks.

Well, thanks, everyone. We appreciate all the support of our investors. We are very confident in our future and we look forward to providing you more updates in the future.

Thank you for joining in today's conference. You may now disconnect and have a great day.