ABIOMED Inc (ABMD) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Abiomed, Inc. earnings conference call. My name is Lacey and I will be your operator for today's call. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to our host, Mr. Dan Sutherby, Chief Financial Officer. Please precede, sir.

Good morning and welcome to Abiomed's fiscal second quarter of 2008 earnings conference call. This is Dan Sutherby, Abiomed's Chief Financial Officer. I'm here with Mike Minogue, Abiomed's Chairman, President and Chief Executive Officer, and Dave Weber, our Chief Operating Officer.

The format for the call will be as follows. First Mike will provide you with strategic highlights for the quarter. Dave will then provide an operational update. I'll provide a summary of the financial results and then we'll 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 financially in this call to revenue, gross margin, or other increases or decreases refer to second quarter of fiscal 2008 as compared to the second quarter of fiscal 2007. In addition, today we will be discussing our Impella, iPulse and AbioCor products that are not FDA approved.

I am now pleased to introduce Mike Minogue.

Morning, everyone, and thank you for taking the time to join us. Let's jump right into the three topics for today. The first will be on Q2 results, the second on regulatory status, and the last on our strategy for clinical studies.

First on Q2 performance, revenue was up 5% to $11.4 million, customer orders of $1.6 million for Impella 2.5 pivotal trial and AbioCor are not included in fiscal Q2 revenue, and Impella disposable revenue was up 140%. Based on the lack of U.S. regulatory approvals in Q2, the revenue was what we expected. Our main growth will come from Impella and iPulse sales in the U.S.

As a future reference, the cath labs are slower in the summer months, especially in Europe, and we see future trends with the summer Q2 being our lowest sales quarter for the fiscal year. However, we only give yearly guidance. Overall, we are excited and prepared to enter the U.S. market with our strategic platforms of Impella and iPulse when we receive FDA approvals.

As we stated at the start of the fiscal year, the revenue ramp in the U.S. is dependent upon regulatory approvals and would be second-half loaded.

Our second topic is on regulatory status. It is important to note that we cannot guarantee or predict with any certainty the FDA timelines because the expected FDA MDUFA time frames serve only as a guideline. MDUFA stands for the Medical Devices User Fee and Modernization Act of 2002. For example, in Impella 510(k), it's clearly beyond the 90-day target, and we did not expect the iPulse supplement to require this duration of time since the balloon component was cleared last December. Based on our FDA experience, we anticipated several rounds of questions for the Impella 510(k) process and forecasted a potential 510(k) timeline of September 2007 to March 2008. We are now one year from the announcement of the Impella 510(k) strategy and we have not changed this forecast at any time.

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. We recently disclosed that we received four main questions back from the FDA on our second submission. Two questions were on labeling, one was on bench testing, and the last was a request for an updated clinical data since the submission more than 100 days ago. We have detailed analysis of 26 patients from the U.S. pilot study and several patients from European abstracts. We will be responding shortly to the FDA on their questions.

While there are no guarantees for the 510(k) clearance, current informal FDA feedback is that the Impella 2.5 is on the substantial equivalent path -- or SE -- and that the device does not pose any new questions as compared to the predicate devices. This has been an extensive review by the agency. We remain committed to completing the PMA path to potentially demonstrate Impella's superiority over the standard-of-care treatment or of high-risk PCI and AMI. We are very confident in the performance of the device, as demonstrated in several studies around the world. As those at TCT meeting heard, the first 20 patients in the U.S. under the PROTECT-1 study verified outstanding prophylactic results.

Pertaining to our rationale of the PMA path, we believe a PMA approval would lay the foundation for Impella to become the global standard of care. Abiomed received approval in late fiscal Q2 2008 for one of our two submissions for the pivotal study with the Impella 2.5. The high-risk PCI pivotal study approval is for the Impella 2.5 add up to 150 hospitals. Based on the timing of the pivotal study centers investigational review board processes and training requirements, new pivotal study center purchases from fiscal Q2 were deferred. We have had strong demand in the U.S. from hospitals to join the study. We have now started the Impella 2.5 PROTECT-2 pivotal trial for high-risk PCI following a very successful TCT conference.

Abiomed is still waiting for FDA approval for its Impella 2.5 acute myocardial infarction shock pivotal trial. This is expected sometime in the quarter ended December 31st, 2007. This study will resemble the feasibility study that Dr. Jose Henriques from Academic Medical Center presented at ACC. We do plan to have a dedicated call for all these trials in details on primary and secondary end points upon the U.S. AMI study approval. We will not go into details today on those studies for that reason.

Also at TCT, we introduced the Impella percutaneous right-side [VAD] that can deliver more than four liters of flow. This device will serve a range of patients and be utilized by both cardiologists and surgeons. Many LVAD patients need temporary support on the right side. Additionally transplant patients require right-side support, and for profound AMI cardiogenic shock patients, several require BiVAD support. We will explore more applications with our users and we have found a significant clinical need for the right side heart failure. And to note, all these Impella products run off of the same console.

On the Impella 5.0 FDA process, we continue to work through the pilot study for up to 20 surgery patients who have been weaned from heart-lung machines but require some added support. Approximately 1% of the U.S. open heart surgery patients fail to wean off the heart-lung machine, and that's been the primary role of the BVS over the last 15 years. However, we hear from heart surgeons that approximately 5% to 10% of the surgery patients struggle coming off the heart-lung machine and likely receive an intra-aortic balloon pump and inotropes. U.S. survey data shows there's approximately 30,000 intra-aortic balloon pumps used in the surgery suite. 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. We expect to close out the 5.0 pilot this fiscal year and expand our inclusion criteria into the pivotal for pre and moderate cardiogenic shock. Our pilot study to date shows promising results for a patient population with high mortality rates.

To help Abiomed upgrade all BVS centers and add AB5000 ventricles to all of the 900 open heart hospitals in the U.S., we added the intra-aortic balloon pump to our product line and developed and iPulse combination console, which adds the balloon to the AB console. 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 IABP is already 510(k) cleared. We expect the iPulse will be available in the U.S. sometime in late Q3 -- or December. We believe our IABP offering and integrated iPulse console provide an opportunity to specifically accelerate our AB5000 ventricle penetration in the U.S. to all centers. We've already sold the AB5000 consoles to more than 50% of the 100 transplant centers and more than 20% of the approximately 900 open heart hospitals after three years in the market. However, since December, our U.S. customers have anticipated the iPulse launch once we announced the 510(k) approval, or clearance, for our balloon.

Turning to the AbioCor, we expect to enter the market following the approval of the supplement we've submitted on our humanitarian device exemption, or HDE. We submitted our response in September through the FDA's recent questions and are targeting Q4 for the first patient supported on the technology. We've selected five U.S. hospitals with the clinical expertise and long-term dedication to the technology. We are charging $250,000 per device. We now have $1 million in backlog orders for the AbioCor. As we have stated, this will be a controlled rollout to ensure success for the patient, hospital, physicians and Abiomed. So in summary, on the regulatory path in the U.S., we working to obtain the following. One, 510(k) clearance on Impella 2.5; two, IDE approval to start the AMI pivotal study on the Impella 2.5; three, completion of the Impella 5.0 pilot trial and design of the pivotal; four, PMA supplement approval on our unique iPulse combination balloon and VAD and console; five, HDE supplement approval on the AbioCor; and six, new studies, such as the Impella implantable, Impella right side percutaneous pump and the Impella pediatric. However, we have chosen to delay some new IDE requests until the current submissions are completed. We worked diligently to provide the FDA with all required information and remain very optimistic about all of our submissions, regardless of the time delays.

We are also pleased with the new changes with CMS reimbursement for all of our products, and conducted a Web cast for our users in Q2 on all applicable DRGs, which are focused on severity of illness. Our heart recovery products ultimately save lives and money to the health care system. Today, heart failure remains the leading medical cause of death and cost to the health care system in all developed countries.

The last topic to discuss revolves around evidence-based medicine and clinical studies. For those that have been to our headquarters and seen our banner, we believe in the mantra "publish or perish." At TCT, the energy and the interest around Impella was evident at our symposium and booth. The future treatment of patients in the cath lab will have to address the heart muscle and pumping of blood to the organs. The adverse events alone from a drug-eluding stent create the need for an Impella in every cath lab. As medical devices have revealed in 2006, the growth for devices in the cath lab generated $3 billion in U.S. stent sales and $4 billion in pacemaker ICD sales. Impella now represents a new frontier and an opportunity in the cath lab because of the known limitations with stents and ICDs and their inability to actually pump blood.

The key to our growth is to demonstrate the clinical benefits of unloading the ventricles and protecting the heart muscle. The science of VADs and unloading is established, but the past technology has been too invasive. Impella brings a new mindset to the cardiologists in the cath lab. For this reason, we will launch several global studies to identify the benefits of Impella as compared to the standard of care for several indications. Today I wanted to provide a quick summary on the priorities and strategy for such studies. We believe there are different roles for Impella, from prophylactic or protective use, such as on high-risk PCI patients, or to support use for hemodynamically challenged patients which an AMI post-interior farct. These patients are currently served by nothing, or balloons with drugs, or surgery VADs. The high-risk PCI and AMI support represents over 40,000 intra-aortic balloon pumps used per year in the U.S. alone, or greater than a $600 million yearly opportunity for Abiomed with very strong gross margins.

This is a conversion story to a new standard of care and brings the potential new patients to our company, as well. Therefore, we're conducting three studies in parallel -- the PMA-approved high-risk study we've announced, the PMA-pending AMI study, and the in-process [IMPRESS] trial led by Dr. Jose Henriques from the Academic Medical Center in Amsterdam. [IMPRESS] stands for "Impella Versus Intra-Aortic Balloon Pump Reduces Infarct Size in STEMI Patients Treated with Primary PCI." This European study will be a randomized multicenter study testing the feasibility results for MACH 2 that was presented at TCT. This study -- the Mach 2 -- showed conclusive evidence that Impella improved the injection fraction of the AMI patients at a greater rate than the standard of care.

Another feasibility non-US. Impella study of interest involves treating the chronic patients who acutely decompensate. These patients admit to the hospital and require expensive and severe drugs with potentially an intra-aortic balloon pump. They are usually treated for several days. These patients are in trouble because of multiple reasons, from diet to medication to activity. They are likely too healthy for a VAD, but require some temporary support. We will study the impact of the Impella therapy to restore hemodynamic stability and unload the left ventricle. Heart surgeons always talk about the importance of earlier support for class III chronic patients, and the need to select and validate which patients will benefit from a VAD. We think this first Impella therapy will play an important role in reverse modeling with a struggling heart and VAD selection.

In conclusion, I am proud of the entire team. I'm confident in our strategic position to protect and recover hearts in every cath lab, while growing revenues and shareholder value. Over the last three years, heart recovery has become the goal for the treatment of acute and chronic patients, and will always deliver the highest quality of life for the lowest cost to the health care system. The opportunity is here and we're now an execution story. Our employees will meet the new challenges ahead and the new Abiomed story will expand to all cath labs for new patients that need help with their heart muscle.

I will now turn the call over to Dave Weber, our Chief Operating Officer, to give a brief overview of our investment over the last few quarters in Impella operations and manufacturing. Dave?

Thanks, Mike, and good morning, everyone. Having joined Abiomed seven months ago as COO, my primary role has been to ensure that we execute on the right product design with the right quality and in sufficient quality to capitalize on our Impella opportunity.

The first priority has been to ramp up the Impella manufacturing capacity in our German facility. Our Phase I goal is to increase this capacity by a factor of 10 by July of 2008. Now, in order to do this, we're investing an additional $4.8 million in the facility to add 70 production operators, and we're also making a number of improvements to the tooling, the layout and the efficiency of the Impella production floor.

Six months ago, we were operating one production shift with nine production operators and were building multiple Impella product configurations, including the 5.0 and the implantable. Today we're focused on the Impella 2.5. We've expanded to two production shifts, increased the number of production resources by a factor of two, increased capacity by a factor of two and a half, and we remain on track with our plan from the perspective of both timing and budget, to get to a 10X capacity increase by mid 2008.

For further capacity increases beyond July of '08, we've begun the process of developing Impella subassembly capabilities in our U.S. production facility to supplement German production and ultimately increase capacity by an additional 30% to 50%. The health of our supply chain has also continued to improve throughout the process. The Impella 2.5 pump itself is made up of 30 components. In the last six months, we've secured multiple suppliers and increased stocking levels on 23 of these components, and we continue to improve this position on a weekly basis.

Particularly in preparation for a U.S. rollout, we've conducted a mock FDA audit of our German facility and we've realigned our product development engineering and materials management resources to localize leadership of these functions, and our support in the U.S. of clinical representatives is now up to 31.

For the longer term, we're progressing on a plan to develop a new higher volume Impella manufacturing facility that will ultimately be able to scale up to 100 times our original capacity. We're currently in the site selection phase and expect to make a decision later in this fiscal year.

And with that, I'll turn the call over to Dan Sutherby.

Thanks, Dave. If you would please turn to the P&L attached to our press release, I'll provide some details on our financial results for the quarter.

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 fiscal Q2. This continues to drive strong gross margins, which were 75% in fiscal Q2, up 200 basis points over the second quarter of fiscal '07.

Included in cost of goods sold during fiscal Q2 of '08 were approximately $600,000 of expenses related to our strategic capacity ramp up for Impella, iPulse and AbioCor as we plan for the respective regulatory approvals and product launches. These costs were not absorbed into inventory and negatively impacted gross margin this quarter by approximately 500 basis points.

Continuing down the income statement, our fiscal Q2 R&D expenses were $5.8 million, up slightly compared to the second quarter of fiscal Q2 '07. R&D expense for the second quarter of fiscal '08 included stock option expense of approximately $300,000.

Now to discuss SG&A expenses, fiscal Q2 '08 SG&A was $12.3 million compared to $11 million for Q2 of fiscal '07, reflecting our investments in our global distribution and our cath lab clinical experts. SG&A expense for the second quarter of fiscal '08 included stock option expense of approximately $900,000.

The net loss for fiscal Q2 '08 was approximately $9.4 million, or $0.29 per share, compared to a net loss for Q2 of fiscal '07 of $8.7 million, or $0.33 per share. The net loss for fiscal Q2 '08 includes $1.3 million, or $0.04 per share, related to stock option expense, and $400,000 related to intangibles amortization. Excluding the $1.7 million aggregate effect of these items, the net loss for fiscal Q2 '08 was approximately $7.7 million, or approximately $0.24 per share.

If you would now turn to the balance sheet, as of September 30th, '07, our cash and cash equivalents totaled approximately $60 million compared to $63 million at the end of fiscal Q1. During Q2, we invested approximately $2 million related to inventory buildup during the quarter

We will now open the call to your questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Greg Simpson with Stifel Nicolaus. Please proceed.

Okay, thanks. Good morning, guys. Question first Mike, you talked about the issues on the revenue side of the quarter and when you had previously given the full-year guidance, you had suggested kind of a flattish first half relative to the fourth quarter of last fiscal year. Did the guidance at that time and kind of the ramp of revenue assume the deferred Impella and AbioCor revenue or is there any way to track that at that point?

Sure, Greg. We did give guidance that it would be a smaller first half. Summer months are typically the smallest, especially since we now call on cath lab and in Europe. However, as we did state, we thought we would have more of these approvals for the AMI pivotal, as well as the supplement on the iPulse, and so that delay was not in the Q2, and you can see it somewhat represented in the 1.6 million in orders. Also with that is a supplement approval on the AbioCor. However, if you look at kind of the process for a approval of a PMA study, usually the IRB takes anywhere from 30 to 60 days, so even getting it the last week of August left us very little time for one of the studies and we had been expecting both of the studies earlier in the quarter for Impella.

Okay. And then Dan, will that deferred revenue then be booked in the third quarter?

It was deferred due to some -- the timing of training and of course the IRB requirements for the pivotal, so depending on the conclusion of the IRB and the training, we'll record the revenue in that respective quarter, Greg.

For Impella.

For Impella. The AbioCor has to do with when we're shipping those devices.

Right, right. And then on iPulse, it really just comes down to a timing issue? I mean, are there -- with a PMA supplement of a product of this nature, are there any issues that you're aware of? I know you've responded to questions, you talked about that, but is this simply just a timing issue reflecting kind of the lingering effects of that summer backlog at the FDA?

Sure. It's a bit of a complex situation because no one has a combination console. And so the balloons had -- this console's just driven. Our intra-aortic balloon pump would have been cleared with the balloon, but because our console runs PMA-approved devices, such as the BVS and AB5000, that requires a six-month check, as well as lots of other studies that would not be required under a 510(k) clearance. So there's a benefit of having a combination console, but there's also a cost from a regulatory perspective. We today know of no obstacles that will cause a further delay. It really comes down to backlog at the FDA and how much information they have during the summer months.

Okay. And in discussing the impact of the timing of the iPulse approval, I mean, any way to quantify what the backlog might be a once we see the approval clear?

It's a good question, Greg. However, based on the regulatory guidelines, we are not able to talk or market any technology until you have a regulatory approval. So essentially, people know about it, but we're not able to prebook orders and we've been very safe in staying away from prelaunching a product until we get that approval.

But I guess what I'm asking is in terms of fall-off in the AB5000 console orders, any way to kind of quantify, even in a general way?

Well, I don't know how we would quantify that. I do know that we've penetrated with the AB Console more than half of the transplant centers, and for those that haven't upgraded, most of them also have BVS. And really what we want to do is get to all the open heart hospitals, which we're now at more than 20% of them, but the cost effective solution for them is they have balloons and they're looking to set up a recovery program, so the iPulse really is a better fit for them at an open heart hospital so they can have an iPulse in ICU and the surgery suite.

Okay. And a follow-up on Impella. You guys played this very close to the vest on the approval process. Those were probably the most optimistic comments I've heard you guys make. It was clear at TCT that the interest level in the device is obviously very high. I know it's early but can you maybe give us any kind of update in terms of -- as of today, not at the end of the quarter -- the number of centers that have successfully navigated the IRB process. And then maybe a question that you can answer a little more clearly -- do you intend to go to all 150 centers in the trial?

Sure, two questions. It's very difficult for a hospital to get the packet, review it, submit it to IRB and have everything done within 30 days, so 600,000 was deferred into this quarter for Impella, but the majority of all the packets that went out and the IRBs did not happen until this existing quarter. And we do plan to go to 150 centers for the PCI. Remember we'll have an AMI study coming as well because we think it's a great way to enter into the market, to ensure proper training and protocols. And the high-risk angioplasty patient is really the way we want our customers to learn about its use. And after using one device, they have the experience and many of them tell us the device is easier to put in than a balloon and they see the power of unloading the ventricle when they balloon the LAD. So I think it's a great way for us to enter the U.S. market.

Okay, final question then on the comments on Impella manufacturing, the long-term plan, and the new facility. Can you put brackets around the timing of the new facility and the 100X increase in capacity?

Yes, we're not going to give the exact brackets of when it's going to open. We are going to make a decision by the end of the fiscal year and then at that point, we'll give more of those details.

Okay, fair enough. All right, thanks. That's all I have.

And our next question comes from the line of Bob Hopkins with Lehman Brothers. Please proceed.

Hi. I'm sorry if this has been asked, but I just wanted to ask a quick question about your comments in your press release around Impella and the FDA. Should we take your comments to mean that you've received a verbal confirmation from FDA that this is a 510(k) process and not a PMA process? Is that the right interpretation?

The current informal feedback -- so in discussions with the FDA -- is that the Impella 2.5 is on the substantial equivalent path and that there is no new question posed as compared to the predicate devices. And so that has been discussed verbally and that is the feedback from the FDA at this time.

So again, is that basically verbal confirmation that this is a 510(k) process or can't we go that far?

Well, nothing is finding until you have a letter from the FDA, so there's no confirmation based on verbal or not verbal. We do not have approval, or clearance I should say. We do not have the clearance and have that in writing from them at this time. So that's the current feedback from them that we've talked about in our meetings.

Okay. Thank you very much.

Thanks, Bob.

Our next question comes from the line of Alex Arrow with Lazard Capital Markets. Please proceed.

Hi, Mike. Following up on Greg's question about the AB5000, if some of your customers during the September quarter were holding off on AB5000 purchases because they were waiting for the iPulse combination console, first of all, do you think some of them -- did that affect your revenue for AB5000s, sort of that waiting effect? And how much more AB5000 revenue would you have generated if there hadn't been customers sort of waiting for the iPulse?

I guess there's two parts to that question, Alex. The first is if you look at AB5000, the disposable revenue grew 20%, so that's a positive sign that the centers that purchased the AB are using it and the sales of it grew 20%. However, if you think about the next tier of products and the customers we really want to target, it's all the open heart hospitals. And for those hospitals, it is tougher for them to justify buying a box that only does a VAD or a box that only does a balloon. And with our reimbursement story and setting up a recovery strategy (technical difficulty) get an iPulse. So some of it has to do with the current users and then some of it has to do with the strategy and why we made the iPulse to penetrate all the open hospitals.

So you have to figure there's more than 600 hospitals out there -- open heart hospitals, not transplant centers -- that do not have AB consoles or the iPulse, although a couple of hundred of them have BVS. So that's really part of the strategy. And they all know that we have an iPulse coming. Our sales people know about it and so we're going to be trying to position it.

If you think about had we had the iPulse, you should remember that when we sell a new box, folks are buying AB ventricles, as well, to get the new program started so that 20% growth really just has to do with those that already have the AB console. You could see that there would be a significantly higher growth in the ventricle sales if we were also selling new boxes at new programs.

During the September quarter, did you hear back from some of your sales reps that said, "I would have closed this deal on an AB5000 except the customer heard about the iPulse and says that they want to hold off"? Did that specific feedback come back from the field?

Well, I mean, we personally have made a decision that the strategy for the open heart hospitals -- and we understand the market after three years of selling AB -- is that that is more of a cost effective solution for them. We can't go to people and start selling the iPulse until we have the regulatory approvals, but we certainly have heard from people that it would be easier to justify an acquisition for something that's a balloon and a VAD, and that's what we're anticipating.

Okay, and it sounds like since it's the more cost effective solution, you've decided that the iPulse console is going to sell for less than the AB5000. Can you comment on what your anticipated selling price is?

Well, I think the price of the console is going to be similar to that of the AB5000. However, for folks that are sitting up new programs and that have certain commitments for utilization, then we're flexible as far as putting a box there, provided they're utilizing it with some type of consignment and then transfer of that upon a certain revenue target.

Does the AB5000 still has some capabilities that the iPulse doesn't have for powering the regular AB disposables?

No, it does not. So the outright sales price of the AB is going to be similar to that of the iPulse and the AB5000 does just the BVS and AB, but the iPulse does exactly the same thing for the BVS and AB. And in Europe, we've had VAD patients on the iPulse.

Okay, so that's a little confusing because if the iPulse does everything that the AB driver does, plus it also powers the balloon pump and it's the same price, everyone is going to want an iPulse instead of an AB. Is that correct?

We believe in the open heart hospitals and we do believe that that's going to be the case. And you also, Alex, should consider that the sale of ventricles at $40,000 to $45,000 a piece provides a great revenue opportunity. So we're really trying to focus on those sales and patient utilization and programs rather than trying to just focus on the capital side of the business. And I think it's also helpful in this strategy when you have sales teams that have multiple opportunities that this is the best way to optimize their time to set up full recovery programs at heart hospitals, where you can have Impella in the cath lab and iPulse in the surgery street.

I think balloons will continue in the future, but I think their use will be somewhat restricted to pre and post heart surgery. And outside of the U.S., you have to understand the iPulse does lots of things from the balloon with high-risk angioplasty to bridge to recovery with our ventricles to even potentially bridge to transplant outside the U.S.

Okay, but as far as your console business, as soon as you launch the iPulse console, you can retire the AB5000, right? I mean, there's no reason to buy an AB5000 anymore once the iPulse is available.

Our plan is to take the existing products we have for the AB5000 consoles and continue to sell them as backup to centers that want backup for their VADs or are setting up a new program and then also use the outside of the U.S. to continue to grow the ventricle business. But that's a correct assumption.

Okay. Thank you. And then you mentioned 1 million backup orders for the AbioCor. Is that because of the HDE supplement that you're waiting for that you're not fulfilling those orders yet? Did you say what clinical capabilities for the AbioCor the HDE supplement provides?

Could you clarify that, Alex?

If the AbioCor has the HDE but not this HDE supplement that you're waiting for, is there some capability of the device that the HDE supplement is for that you're at liberty to tell us?

Sure. I mean, we've made changes to the device while we were waiting on the HDE approval. It was 18 months from the panel 'til the approval and we kept investing in the software, batteries, some algorithms, basic components to the device itself that do not require a new review but that are supplements. And so that's what we submitted, and that way, when we go to the next patients, it will have the newer version of the AbioCor. And we expect to do that sometime in our fiscal Q4.

Okay, but these are important enough that you've voluntarily postponed sales for the AbioCor. This 1 million would be the first four units, I guess, of the AbioCor that you've sold, right?

Right. Yes. That is correct.

Okay. And do you have guidance for when you expect to receive the supplement and when we should assume when that 1 million revenue will hit?

Yes, we do think we're going to get the supplement back here, as I stated, in the next fiscal quarter.

Okay, thanks. And then two final question, if I could. You said the capacity was going up by a factor of ten for Impella. Can you specify what capacity is before and what it will be 10 times?

We haven't given the exact number because it's been scaling up for the last year. We've been vesting. And then from a perspective of the overall capacity, we've shifted some of the resources to really Impella 2.5. So in the past, they were making the Impella implantables, the 5.0s and multiple other products, so we've also put a priority specifically to the Impella 2.5.

As a dollar amount of total production, once the capacity increase is complete, ca you tell us how much you capacity will be at that point?

We will when we get further down the road, but to give you an example, 80% of the resources in dollars are now going to the Impella 2.5 production. It used to be approximately 40% to, at tops, 50%.

Okay. All right. And then last question, I promise. On the three clerical trials, can you tell us what the primary end point is of the prophylactic trial, the AMI trial and the [IMPRESS] trial?

Yes, Alex, we're going to have a dedicated call just for that trial and we're going to do that for both the high-risk PCI, as well as for the AMI, and then also the IMPRESS trial in detail, but it's a composite study.

Okay, so you have not disclosed what the primary end point is, even on the trial that's already going? The prophylactic high-risk PCI?

We have not publicly disclosed it.

Okay. All right, thank you.

And our next question comes from the line of [Ryan Chu] Morgan Stanley. Please proceed.

Good morning, guys. It's actually David. Couple of quick questions. Mike, I know disposables are linked, in some respect, to the box placements, but I guess the question I have for you is were you happy with disposable growth in the quarter and are there any competitive implications for why disposable growth, per se, would have been underwhelming?

Well, the total number of units shipped was 483 units. That's 8% higher than last year, but the -- when you break out into the trends, the BVS did decline -- and we've seen that declining -- but the AB increased 20%. As far as competitive, I think that there's always the chance of competitive nature, but what we're seeing is really the BVS at the centers that are the open heart hospitals that have had BVS that we have end-of-life older version of the BVS -- not all the versions of it -- as well as folks do understand there's a new console coming and some of them are not reordering BVSs.

As far as AB is concerned, again, the disposable revenue of 20% up for existing users could always be higher, but I certainly think that the AB results continue to grow and I feel confident that that product, the AB Ventricle, will continue to expand to other applications and we're getting very good results on it.

And the BVS decline in the quarter was what again?

10%. David, this is Dan.

10%?

Yes.

Okay, thank you. And then Mike, the 1.6 million of deferred revenue tied to Impella, was that an end-of-quarter number and can you sort of update us in terms of what that number appears to be tracking towards -- on a relative or absolute basis, whatever you can provide -- heading into this quarter?

Well, there's 600 that is most likely going to transfer this quarter for the Impella. The majority of folks did not have the packets and the IRBs in the quarter itself. Since that time, we've been doing -- we've been going through all the IRBs. Most of the IRBs essentially are hitting October/November.

Okay. And in terms of the IDE request, you mentioned you delayed a few requests for additional IDEs. Is this simply allowing the FDA and the group you're working with to catch up?

Well, we certainly are keeping them busy, and in our space, they have, I think, more requests from us than all the other folks combined. And then this group is a smaller group that's kind of a niche group for the niche market of VADs and they also are pulled -- at any moment in time, some of them are pulled to support the bigger trials, such as stents and things of that nature. And it was the summer where people had vacations and there were several shows including TCT.

Okay. Fair enough. And I know you've kind of resisted giving -- you've given some nice relative metrics on Impella production, you're resisting giving absolute numbers. Let me ask the question a different way. Given David's comments, with where production is today, do you have the capacity to support both the PMA study and the commercial launch in line with your expectations, whatever those may be?

It's a great question and on the PMA, we do, and we're there. On the 510(k), the answer is it's relative to how fast the ramp is. So the reason that I'm being a little bit coy is because obviously if I give you those numbers, then I'm making a forecast for projections on the 510(k), which I'm sure you understand.

Okay. Well, thank you very much.

Thanks.

And our next question comes from the line of Bruce Nudell with UBS. Please proceed.

Hi, Mike. We've looked at some, and found some, ventricular support devices that were 510(k). They don't exactly look like Impella. Could you just generally comment on the extent to which -- you know, the worldwide experience of Impella to date, as well as the kind of plausibility of the idea behind Impella has influenced the FDA or not influenced the FDA in their decision-making?

Bruce, so the question is -- to make sure I understand it -- that what impact does all the trial and the publications from outside the U.S. have on the FDA?

Yes, in terms of just if the predicate device doesn't exactly look like Impella, to what extend has the cumulative body of evidence influenced the FDA, just in a qualitative sense.

Sure. So if you think about a 510(k) process, it's essentially a process map. They have it on their website. And what you do is you enter this process map and you answer a series of questions that have to do with indications. "Is it the same use as a substantial equivalent?"

When you get, in theory, to the question that is box number six, which says, "Could the new characteristics affect safety or effectiveness," then you actually have the opportunity to answer that yes or no. And then there's either descriptive characteristics precise enough to ensure equivalence or you're actually allowed, on another path, "Do accepted except scientific methods exist for assessing effects of the new characteristics?" And then "Is performance data available?"

So when this was written -- when 510(k) was written and part of the rationale was that they would encourage the agency to review any and all clinical data. So any and all clinical data that any company has will allow you to answer either the theoretical question, "Is there a new question," or to allow you to respond to the specific request or concerns that they would have.

In our case, we do have now the 26 patients from the U.S., which we've added six since the submission so we're adding those in, as well as we have papers and abstracts that we're collecting the data from Europe itself. And I do think it plays into the process map and it allows you flexibility to have different sides of the process map for a 510(k).

But with that being said, you do not need any clinical data for a 510(k). In fact, there are several technologies out there today that are approved without any clinical data, and our balloon pump itself that we submitted that was cleared within 90 days did not have any clinical data.

I guess just more specifically though, if a device -- you know, if the generic objective of the device is to improve -- unload the heart and improve cardiac output, but it achieves it in a slightly different way, is that where having data actually helps you to show substantial equivalence to the predicate device?

It could, and the reason, Bruce, is it's a theoretical question if you're saying does it affect safety. Because the question you're trying to say is, "Does the device have the same technology characteristics?" And when you get into that area, then you're looking to see if there's safety. And if there is potentially a different question, then you are allowed to use clinical data, as you said.

Thanks so much.

And our next question comes from the line of Amy Stevens with Susquehanna Financial. Please proceed.

Yes. Good morning. Thanks for taking the question. I think pretty much most of my questions have been answered, but just one more thing. You mentioned that -- and maybe I misunderstood this, but with regard to the 5000 that perhaps there were some customers where, if their volume needs were such that they might need to order, say, right now and couldn't wait in order to get the iPulse, that you might, in that case, make some kind of arrangement with them whereby they could have something to work with for whatever volume needs they have, but then have the option of buying the iPulse at the time of the approval. Did I understand that correctly?

Amy, we're really not trying to promote an iPulse launch until we get the regulatory approvals, so we're being conservative. We know it's a short-term impact to the quarter, but we're really thinking long term. The strategy and the launch for the U.S. is really going to be about Impella and iPulse, and we're not going to put the resources or the focus around it until we have that regulatory approval.

Okay, that's understood. I mean, has there been any sales of 5000 in quarter that -- I guess what you're saying is hospitals do have the option of purchasing where they can defer the final purchase of the console by making it tied to certain revenue projections for the console, I guess, and if it doesn't meet that, then they don't follow through with the final purchase of that console. Is that the case?

You're talking for the AB?

Yes.

That is the case, so we still have rentals and we also have folks that will place the box for a commitment on utilization and they'll buy the ventricles. And at a certain point, if they hit that target, we'll transfer title or they'll continue to pay a monthly rental.

So -- and those would have been booked as 5000 sales or rentals, just as you normally would this quarter, right?

Exactly. We've had a rental policy in place now for over six quarters and the ventricles -- it's a sale of the ventricles, so we'd basically hold the title for the AB but we would be collecting rental revenue.

Okay. And in terms of rental revenue for the quarter -- I know you don't really break that out specifically. Can we compare that either sequentially or year over year?

Yes, it's been since we've launched the rental program, it's always been double-digit rentals per quarter. It again was double-digit rentals this past quarter, and the revenue growth from the rentals was up 13% over the prior quarter. So the rental program is continuing to grow.

But it was basically in line? It was not a bump up that might reflect people making an election to wait until you have the approval?

It's what's expected. In the prior quarters before the announcement of the iPulse, what we saw was probably a little bit higher rentals in the double digit. However, we did see a big conversion. We for a period of time had a 50% conversion of those -- more than a 50% conversion of those rental programs within two quarters of the start of the rental program.

Today obviously it's not as high and we're not being as aggressive in pursuing that because, for the case of open heart hospitals, we personally do think that the better solution for them long term is going to be the iPulse.

So your conversion rate for the quarter then is down then relative to what it's been or?

It's down as compared to the trend prior to the announcement of the iPulse.

Okay. Thank you. That's it. Appreciate it.

And our next question comes from the line of Greg Simpson with Stifel Nicolaus. Please proceed.

Thanks, guys. Just a couple of follow-ups. Mike, no change in the full-year guidance so that obviously speaks to a timing issue more than anything, but I want to confirm that the old guidance did not include the potential impact of the 510(k) approval of the 2.5. Is that still the case?

Correct. Our guidance does not include a 510(k). The reason we excluded the 510(k) from our forecast, as we said, was that we could not predict when it would happen within the year -- September to March. And again, for everyone, our fiscal year ends in March and obviously it would have a different impact whether or not we got it in September versus March.

Right, Okay. And then secondly, we really haven't heard anything on the AbioCors we talked about. Is there any update you can give on the AbioCor II?

There's really no update on the AbioCor II. We're moving along with it in -- we've done animals, we're doing the bench testing. We do feel confident that the device will be a much longer duration device based on the pusher plate. And what we really want to see is the validation of the technology with the AbioCor I. Those same centers that are going to be performing the AbioCor I will also be the centers that start getting the AbioCor II. We think that it's best to have a smaller group to focus our resources on it, as well as theirs, and getting the right patient selection and patient management so we get great results.

You have to remember that when we did this trial -- it was back in 2001 -- the patient population in the control group lived two weeks, on average, in the hospital with every drug and technology they had. They didn't get AbioCor. And we think that the market has gotten -- and the industry has really improved on anticoagulation, on VAD therapy, on patient selection, on right side failure, and we are confident that in the right patient population, we're going to get patients to be able to live longer. Because in the first trial, the patients, really very few of them could live as long as the duration of the device, but since the panel meeting, we've been doing work to try and get the device really to an 18- to 24-month device for consistent results for a patient population that has less than 30 days to live.

Okay, all right. Thanks very much.

This concludes the question and answer session. I would now like to turn the call over to Michael Minogue for closing remarks.

Great. Thanks everyone for your time today. We are focused on our mission to recover hearts, lead in technology innovation, grow shareholder value and create a winning culture.

As always, Dan and I will be open to questions following the call. Have a great day.

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