ABIOMED Inc (ABMD) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Abiomed, Inc. earnings conference call. My name is Nikeda, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will facilitate a question and answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded for replay purposes.

I would now like to introduce your host for today's call, Mr. Daniel Sutherby, CFO. Please proceed, sir.

Good morning and welcome to Abiomed's first quarter of 2009 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. The format for today's call will be as follows -- first, Mike will provide you with strategic highlights for the quarter and then I'll provide some details on the financial results outlined in today's press release 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 approvals, competition, technological changes, 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. Lastly, comparative references made financially in this call to revenue, expenses, gross margin, or other increases or decreases refer to first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. I am now pleased to introduce Mike Minogue.

Good morning, everyone. It has been very busy since our Impella 2.5 510(k) announcement in June. We have made significant progress on two of our fiscal year '09 corporate goals, our Impella US launch and clinical trial and increasing manufacturing capacity. These goals drive our priorities for execution. We recently conducted an investor call on our results of manufacturing capacity in Germany and announced our Ireland expansion.

So today I will focus more on the discussion of our first corporate goal and give more insight into our strategy on the distribution and trials. In Q1 total revenue for Impella was up 228%, totaling $5.9 million in sales worldwide. We exceeded our internal plan in Q1 for Impella, with less than 30 days of commercial sales. We are seeing great demand for Impella in the US, requiring focused company resources in both the trial environment and for commercial use. However, one consequence of this shift in focus was a 15% decline in our legacy business to $10.5 million. Our AB5000 VAD utilization was approximately flat to the prior quarter.

Our number one goal is launching Impella 2.5. This includes US clinical trial execution on Protect II and Recover II, and providing Impella support to patients at over 100 US hospitals. We're off to a great start on this goal.

So let's discuss the status of our Impella launch in the US. As of yesterday the status of Impella in the US is as follows -- for the Protect II high-risk PCI study we continue to see the interest growing beyond the 150 hospitals allocated by the FDA, even though the summer months always have the lowest activity and volume for PCI for the year. We have 187 hospitals pursuing this study with 55 hospitals ready for enrollment of patients, 36 with IRB approval but not yet enrolling and 96 having submitted to the IRB or submission pending. We have completed 107 patients from 28 hospitals where 16% of the 654 patients required. We continue to make progress on Recover II, the AMI-PCI study. 53 hospitals are pursuing this study. No hospitals are enrolling patients yet, but four have IRB approval and 49 have submitted to the IRB where submission is pending. Most of the hospitals are already trained on Impella 2.5 because of the in-process Protect II study.

On June 2nd, we announced the initial start of US commercial sales and use of the Impella 2.5 under 510(k) clearance. As of yesterday, 56 hospitals have acquired the Impella technology for general use. This represents a penetration rate of 3% of the 1,700 US hospitals with cath labs since June 2nd. We now have a total of 86 hospitals with Impella in the trial or with 510(k) or both. We are quickly closing in on our fiscal year '09 corporate goal of 100 US hospitals. Overall, Q1 continued to demonstrate the strong market demand for Impella by both cardiologists and surgeons. Q1 was a demanding quarter that stretched our US field resources and forced us to prioritize our actions due to the four active US clinical trials and launching of the Impella commercial product and iPulse.

The four trials are Protect II and Recover II, each at up to 150 hospitals, Impella 5.0 pilot study at up to 16 sites and the AB5000 portable driver study at up to 20 sites. Over a year ago we prepared the Company for Phase I of this US Impella launch by prioritizing the creation of our clinical team with cath lab expertise. We started our fiscal Q1 with the plan of 32 clinical consultants and 20 sales representatives. We felt the initial Impella demand and trial execution could be most limited by the capacity of our clinical support and training. Many cath labs have 20 to 40 interventional cardiologists performing high-volume procedures. We did anticipate the extensive tasks required for the ramp-up of each enrolling hospital in Protect II and Recover II, but now we are focused also on supporting positive patient outcomes for the general usage under the 510(k) outside of these studies. We adapted our distribution this July to address this challenge by integrating our sales and our clinical teams into four region managers to allow for more flexibility and speed in decision-making and execution. Impella is our priority.

All of our 32 US clinical representatives are trained on Impella and have had significant cath lab experience based on our hiring over the last 12 to 18 months. We have now dedicated approximately half of our clinical representatives entirely on Impella at selected high-user accounts and they will be compensated for driving positive utilization. We plan to expand this role as each territory grows. The remaining clinical consultants have been cross-trained on both Impella and the legacy products. These changes have been welcomed by the field organization and bring more focus to their daily objectives. To keep on pace with our internal territory penetration targets for Impella and iPulse, we will add 10 new sales representatives this fiscal year to bring the total to 30. The sales representatives will be responsible for growing the install base of consoles and owning the account from the cath lab to the surgery suite at all heart hospitals. This is a hybrid distribution model based on the analysis of other successful disposable cath lab and EP companies, as well as companies with capital equipment sales into the cath lab.

In Q1 we placed 38 legacy consoles between AB and iPulse with a combination of deployment contracts and straight capital sales. 15 US customers now have iPulse consoles, with half being open heart hospitals, and there are 11 in Europe. 74 transplant hospitals and 229 open-heart hospitals have already purchased the AB5000 console. 74 transplant centers and 229 open heart hospitals have already purchased the AB5000 console. We believe the added intra-aortic balloon pump capability on the iPulse will help increase our penetration rate with the remaining 638 nontransplant open-heart hospitals. Based on the Impella demand in Q1, we had a limited focus on our legacy business with our current field resources. The legacy strategy is solid but the execution was limited in Q1. In time, we believe Impella will create more awareness in the cath lab for these cardiogenic shock patients suffering failure on both sides of their heart, increasing referrals for the AB5000.

From a regulatory perspective, the AB5000 and BVS are the only products approved by the FDA for all heart recovery acute events and, based on the recent CMS clarification, the only VAD eligible for DRG 1 for heart recovery. This is the highest paying DRG in the country with an average payment of $171,000.

Switching topics to our clinical studies I would like to clarify some points on Protect II. To remind everyone, the Impella system is an active unloading catheter that can provide up to 2.5 leaders per minute of flow to the peripheral circulation. The purpose of the pump is to do the work for the heart for up to 2.5 liters, which reduces the oxygen consumption and work load on the muscle. This is the unique value of Impella because it increases coronary profusion like an intra-aortic balloon pump and reduces the pressure volume characteristics like a VAD. This is scientifically proven and well documented in peer-reviewed papers. Additionally, Impella does not require a stable heart rhythm and its function is independent from the heart cycle unlike an intra-aortic balloon pump.

The trial is designed to show superiority over a balloon pump after 30 days post-PCI or at discharge, whichever is longer. We expect to see a lower rate of periprocedural adverse events in the Impella group as compared to the intra-aortic balloon pump group with a composite end point of 10 elements, well beyond classic mace of two for cerebral and cardiac. The assumptions for our hypotheses are -- the proportion of major adverse events in the IABP group will be at least 30% based on published papers and unpublished data from some of the high-volume US centers. And, the proportion of major adverse events in the Impella group will be 20% based on our Impella European experience and our US pilot safety study, resulting in a treatment effect of 33% or a net reduction of 10 percentage points. Therefore, for the overall Protect II study, we anticipate a higher major adverse event rate than reported in the past literature for high-risk PCI with an intra-aortic balloon pump.

Protect II is the largest and first randomized, prospective trial for high-risk PCI. We believe Impella will show a benefit on the primary composite end point because almost all past PCI studies were retrospective, not prospective, from single centers, absent of a strict definition of high-risk PCI, specifically based on ejection fraction, adverse events and death were measured in hospital not post 30 days PCI. And, based on some past publications, we also do not know what patients did not get treated with PCI based on poor stability before or during their procedure. If you compare our Protect II patient inclusion criteria to prior studies, you can confirm that this population is sicker than previously studied patient populations for high-risk PCI.

We will also individually measure each of the 10 elements of the composite end point. For example, we believe the highest benefit to be the reduction of death as Impella better prevents hemodynamic collapse and provides better end organ profusion. However, we will measure all other nine elements. Additionally, we will be able to compare death for the proportion of patients with MI, or myocardial infarction. The past studies limited MI to Q wave MI as opposed to lower levels of troponins or CKMB for MI as defined in our study. This is a much more conservative and accurate way to measure MI.

For acute renal dysfunction, which has not been reported in the literature as a classic major adverse event, we define conservatively as two times baseline value of serum creatine. Our Protect II study also defines a more conservative definition of hypotension, stroke, and angiographic failure than prior literature. The article by Keelan in the "American Journal of Cardiology" in 2003, identifies 1,458 reported PCI procedures. For patients with low ejection fraction as defined by less than 40%, they had an in-hospital death, an MI rate of 6%, and at one year of 18%. 75% had multi-vessel disease. The Protect II patients are sicker and all will have an EF of less than 35% and approximately 70%-plus will have an EF of less than 30% based on our triple vessel disease inclusion criteria. Unprotected left main procedures remain a challenge and the intra-aortic balloon pump prophylactic usage has trended up since 1997 according to the intra-aortic balloon pump data registries reported in the "European Heart Journal" in October of 2003, as well as the public records report from two of the intra-aortic balloon pump companies.

Two additional studies by Lee and Price in the "Journal of American College of Cardiology," volume 47 in 2006, validate higher follow-up mace for PCI when measuring beyond in-hospital stay. For example, both reported in-hospital mace of 2% and 10% but follow up mace of 17% and 44% respectively. Again, for the Protect II, we are measuring an additional eight elements for the composite end point at 30 days post-PCI. We will continue down the PMA path because we believe that it will lay the immediate foundation for Impella to become the global standard of care in the cath lab for all high-risk PCI and AMI procedures, as compared to the intra-aortic balloon pump which only has a 510(k) and limiting supporting publications for effectiveness. We believe that the role of the intra-aortic balloon pump will be pre- and post-surgery, which is why we're marking a very cost effective balloon for the surgeon under the iPulse product platform.

In conclusion, Q1 allowed us a 30-day window of experience with Impella 510(k) and we've capitalized on the opportunity and utilized the lessons learned on the US field distribution to make Abiomed more successful. We are confident in our clinical studies and hope today's update provided more insight into the composite end point. We are confident in the demand for Impella and its positive potential reimbursement value to the hospital. We expect earlier achievement of our fiscal year goal of supporting patients with Impella at over 100 US hospitals within Q2. This is an exciting time for our Company as we offer every cath lab and interventional cardiologist a new treatment paradigm for patients. I'll now turn the call over to Dan Sutherby, our CFO.

Thanks, Mike. If you would please turn to the financials attached to our press release I'll provide some details on our financial results for the quarter. For revenues we provided details in our release today on Q1 revenue for Impella and our legacy products, and I would like to point out that Impella disposables revenue comprised approximately 34% of total revenue for the quarter and increased 323% compared to the first quarter of fiscal 2008.

On cost of goods sold for the quarter, I would like to provide some details on the effect of the accounting treatment related to our AB5000, iPulse and Impella console placement programs during fiscal Q1. We implemented certain Impella console placement programs during the quarter to generate future disposable revenue.

For the US Impella pivotal studies during fiscal Q1 '09, 38 Impella consoles were placed on consignment with the expectation that the respective hospitals will purchase a minimum amount of future disposables and participate in the pivotal studies. Eight consoles for Impella 2.5 commercial use for 510(k) were placed on consignment with the expectation that the respective hospitals will purchase a minimum amount of disposables within a given period of time. If these expectations for future disposable orders are not met within the given time frames, the Company has the right to take back the Impella consoles. If these consoles are sold in future periods they will generate gross margins given that we have incurred the cost of goods sold in this fiscal Q1.

In addition to the Impella console placement programs this quarter, eight AB5000 consoles transferred title during fiscal Q1 based on prior consignment and disposable utilization agreements with the hospitals. Four AB5000 consoles were consigned with the expectations for future disposable revenue. And, finally, we incurred one-time charges in Q1 based on title transfers of 12 iPulse consoles associated with Evergreen programs related to our AB5000 console.

For these AB5000, iPulse and Impella console placement programs, the accounting requires that we record the cost of goods sold for the placed consoles in the quarter of placement. And, therefore, we incurred cost of goods sold in this fiscal Q1 2009.

It is important to point out that we implemented these programs to generate future Impella and AB5000 disposable revenue at strong gross margins. Overall, our disposables generate gross margins of approximately 80% or higher. The effect of these 70 console placements during Q1 negatively impacted gross margin for the first quarter by approximately 8 gross margin points. The GAAP gross margin for the first quarter was 66%, however, excluding the effect this quarter of the console placement programs I have discussed, gross margins were approximately 74% for the quarter. We also incurred Impella capacity ramp-up costs in Germany that were not absorbed into inventory under accounting rules and also negatively impacted Q1 gross margins. We expect these Impella capacity ramp-up costs to diminish as we increase capacity at our German facility over the balance of fiscal 2009.

We plan to continue console placement programs for our two Impella US pivotal studies, however, going forward in fiscal 2009, we plan to generate Impella console revenue at a list price of $50,000 per unit for hospitals ordering Impella 2.5 disposables for commercial use, meaning under 510(k) clearance. As we generate Impella and AB5000 disposable revenue from these Q1 console placement programs going forward in fiscal 2009, and as we drive overall revenue growth in the remaining quarters of fiscal 2009 to achieve our full-year revenue guidance of $75 million to $80 million, we currently believe we can generate full fiscal year 2009 gross margins of approximately 75%, subject to the level of future console placements, hospital utilization, overall revenue levels, both for the quarters and the full fiscal year, and also subject to overall revenue mix.

Continuing down the income statement, research and development, or R&D, expenses for the quarter, were $6.1 million, up approximately $600,000 compared to the first quarter of fiscal 2008. Sequentially, R&D expenses for the quarter were down $600,000 compared to our most recent quarter ended March 31st, 2008. I will point out R&D expense for this quarter included Impella trial costs of approximately $1 million. And R&D expense for the quarter also included stock option expense of approximately $400,000.

Now, to discuss SG&A expenses. SG&A expenses for the quarter included stock option expense of approximately $1.2 million and SG&A expenses in total were $13.5 million compared to $12.4 million for fiscal Q1 of 2008, reflecting our strategic investments in our distribution. Sequentially, SG&A expenses for the quarter were down $900,000 compared to our most recent quarter ended March 31st, 2008, reflecting progress on our focus globally to control and reduce variable expenses through budget discipline across all functions.

The net loss for Q1 of fiscal 2009 was $9.1 million, or $0.28 per share, however, included stock option expense of $1.7 million and intangibles amortization of $400,000. Excluding these $2.1 million of noncash charges, the nonGAAP or adjusted net loss for this quarter was approximately $7 million or $0.21 per share. The sequential decreases this quarter of R&D and SG&A that I mentioned aggregated approximately $1.5 million for the quarter and offset the $1.4 million of costs of goods sold we incurred during the quarter for our console placement programs that I discussed. Our GAAP net loss for the first fiscal quarter of last year, fiscal 2008, was $8.3 million, or $0.26 per share, and included stock option expense of $1.7 million and $400,000 of intangibles amortization.

If you would now turn to the balance sheet. As of June 30th, 2008, our cash, cash equivalents and investments totaled approximately $29 million compared to approximately $39 million at the end of fiscal 2008. During this quarter and included in the cash burn for the quarter, we paid approximately $3 million associated with items accrued at March 31st, 2008, related to fiscal year 2008 annual accruals that are paid typically in Q1 of each year including our fiscal '08 annual bonus payments to employees made in June of calendar 2008. As you can see in the balance sheet attached to our press release, we also had a $2.3 million reduction in accounts payable in Q1 due to timing in the effect of the accounts payable accrued typically at year-end fiscal 2008.

During the quarter, working capital utilized approximately $5 million of cash. We held accounts receivable flat with strong collections and built inventory during the quarter by approximately $3 million primarily related to our Impella 2.5 capacity expansion as we continue to see strong demand in the US from our ongoing two US pivotal studies and also since our June '08 510(k) clearance for our Impella 2.5. Based on our revenue guidance of approximately $75 million to $80 million for our full-year fiscal 2009, we believe that we have sufficient cash and investments to fund our operations for our fiscal year 2009. During the quarter ended June 30th, 2008, we also secured a $20 million revolver line of credit facility with Bank of America. We had no borrowings outstanding under this facility at June 30, 2008, and have no borrowings outstanding on this revolver as of today. We will now open the call to your questions.

(OPERATOR INSTRUCTIONS) Questions will be taken in the order received. (OPERATOR INSTRUCTIONS) And please stand by for your first question. And our first question comes from the line of Greg Simpson of Stifel Nicolaus. Please proceed.

Okay. Thanks, good morning, guys. First of all, question on the -- let me just focus on the Protect II trial. Hard to predict enrollment obviously. Last quarter it was -- it looked awfully rapid. I don't want to call it disappointing because it is so difficult to predict. The number of centers is clearly positive. Mike, how should we think about this, and realize you have summer months at work here, with the interest level on the center side? Can you just kind of talk us through this in a general sense in terms of the acceleration we might see in the second half?

Sure, so, Greg, the summer months, June, July and August are always the slowest months for scheduled PCI. So this is clear, as well as referrals. However, if you look at what we did from the processing, we're now well beyond 150 centers, and that number is significant increase in what we announced on the last call. So the recruitment process is continuing to accelerate. I think it is moving at a very fast pace, especially during the summer months. And from a ramp-up respective, we gave you a specific number but there is 55 centers now enrolling but not all 55 did the 107 patients. I think you will continue to see that number.

But I would say the overall number is moving pretty quickly and the most important numbers we're well beyond 150 centers, so we have centers out now that are almost competing to be one of the 150 centers. So the demand is very good, the interest is very good. And as you also can see, that several of these centers, either before they have the official enrollment approval, or after, they're buying the commercial products right away. So that is another great sign.

Got you. Okay. Then let me shift to the core business a little bit. A couple of depressing factors in the first half of the year, and really in the first quarter of the fiscal year. Would the expectation be that we see an acceleration in the core business? I realize the focus is clearly on Impella. Would we see some degree of acceleration in the core business or the base business in the the second half of the fiscal year?

Greg, that is a good question. It comes down to priority and focus. So the AB business, we're transitioning from the older console to the new iPulse. That is a product that we have to go in and do capital sales and sell and build those relationships and open-heart hospitals. Whereas the Impella is pulling us in and we also have the trial time. So it's a priority for the sales people. I believe the opportunity will continue and I do believe that Impella utilization will help drive more awareness for these AMI profound shocked patients.

So I'm not as concerned partly because this is a self-inflicted decline, and I do think that the interest level and the strategy of putting the balloon on a console is going to be very helpful. Also, one of the things that we heard feedback from for the past several years is that people wanted the option to be able to discharge the AB patient, especially at the transplant centers. And now with the AB5000 portable drivers, 20 centers will be able to do that and will also have the ability to start selling the portable console outside of the United States. So I think that also will help increase the enrollment for AB.

Okay. Great. Just two more here, if I could. If I could jump back to Impella. Seeing the number of centers that had 187 is interesting. I'm curious, did you see a pick up in the number of centers wanting to participate in the trial following the announcement of the 510(k) approval?

I think the pick up was pretty steady before the announcement and then after the announcement. That is a significant jump from the last call we had.

Okay. And then finally you had hinted in past calls that you were holding back on new product submissions to the FDA until you got Impella cleared. You got plenty on your plate, so I'm not trying to raise the bar here on you, but what should we think of in terms of new products, when might we see some of these submissions and in a general sense will most will revolve around the Impella franchise?

Most will revolve around the Impella franchise. Right now we want to get the AMI study up and running, we want to get the portable up and running, and then we have announced and we have the right side percutaneous that we'll give further updates in the future as well as Impella pediatric and all of those disposable Impella products, they run off the one console. In regard to the legacy business, the balloon is ready to go. It's approved, the console. And even though we don't have the revenue to show it this quarter, we did place 38 more legacy boxes out there in the US and we plan to continue to leverage the sale of the iPulse with the sale of Impella at these open-heart hospitals. So from an overall clinical perspective, they're somewhat related because you're going to have studies going on in the cath labs and then you'll have some studies going on with the portable at the transplant centers, and so that should continue.

Okay. Thanks, Mike. Quick one for Dan, before I let you go. Cash burn, you had mentioned on the last call that we would see kind of a heightened cash burn in the first part of the year and decreasing pretty significantly in the back half of the fiscal year, is that still kind of the outlook?

Well, Greg, cash burn certainly is driven by top line revenue growth. I think what you saw in fiscal Q4 '08, if you strip out the WorldHeart outlay, the burn was about $4 million at a $17 million revenue level. Excluding some of the fiscal '08 payments this Q1, the burn rate was fairly similar at a $16 million revenue rate. As you mentioned in link to our guidance for the year, the revenue, if we were to achieve which was confirmed today our $75 million to $80 million of revenue, the back half of the year revenue certainly grows beyond its current rate in which case I would expect the burn rate to decrease below its current levels. So you are correct.

Okay. Thanks very much, guys.

Our next question comes from the line of Bob Hopkins of Banc of America. Please proceed.

Bob, are you there?

Our next question comes from the line of David Lewis of Morgan Stanley. Please proceed.

Good morning. Can you hear me?

Yes, we can hear you, David.

Okay. Good. Didn't know after what happened to Bob. Couple of quick questions, Mike. On the 56 centers you talked about through the 510(k) clearance process and not true the trial, can you kind of give us a sense of the buying patterns across those customers? I think you talked about clinical trial sites have been extending consignment term if they buy five or 10 units. Is there a material difference and what you're seeing on purchasing patterns from the clinical trial sides versus the commercial sides?

Let me make sure I understand your question. Your asking for the commercial sales.

That's correct. And the 56 you chose to break out. Just trying to get the dynamics around those.

Sure. Sure. So the 56 can be broken up into three subsets. You have Impella commercial use only. And then you have folks that are in the trial and up and running that bought commercial use. And then folks that are pending that are buying commercial before they have that approval. So I would say the majority of those are folks that already are in the study, either approved or not approved. And then there is another percentage of folks just buying the commercial product that they're not interested in the trial, more of the rural account that does cath labs.

Okay. So what percent of the 56 are in the clinical study?

We haven't broken that out, but 56 centers have commercial usage. So 56 centers today can use it and are using it for general hemodynamic instability.

Okay. And we've got this from diligence, you are trying to be regimented with the customers in terms of breaking what is commercial and not commercial. Maybe just walk me through your strategy for doing that and have you seen differences in utilization between the commercial side and the clinical side?

We have, because the clinical side, those folks are already trained and they have been enrolling and gone through a very rigid didactic lecture series and also as part of the certification we're there for the first two patients for the trial. So we've seen some centers in their clinical trial and they've immediately purchased and they've used more than once on patients that are either outside of the high-risk PCI, or potentially AMI patients that are suffering from hemodynamic instability and they're able to use that. They do plan to be an AMI study, but these patients, they came in at 1:00 AM and came in over the weekend and they needed some support for up to six hours.

Okay. Can you give us a sense of total Impella revenue, what percent has gone through the clinical trial and what percent has gone through commercial?

Yes, so as far as the breakout, the majority of the quarter revenue was for the clinical trial, and that's partly because we had less than 30 days. But it still was probably close to an estimate of about a third of the revenue came from 510(k) for the quarter from the month of June.

Okay. That's helpful. Mike, just on the core business here, for the last six quarters I know there was seasonality and cyclical issues and Abiomed issue that resulted in a sequential decline, but if you look at a six-quarter trend line, the core businesses isn't particularly strong, I think it would be helpful if we sort of talk about what you think that core business can grow at and go-forward basis. Is this a flat? Is this a 5% grower, or is this a 10% grower? So we can just move and focus on the growth aspects of the business.

Sure, so based on the current focus we have and the current resources we're not pushing the probably the envelope as much as we can on the iPulse. We will get to it. It is a secondary priority. However, we are going to have a focus at the centers that are there today that have been using and have a history and have been getting great recovery rates, so we'll continue to give them full support. I would say it is probably a single-digit growth rate business for now, and I would expect as the Impella starts to ramp up and we start to get the programs in place, I would anticipate it to see some increase in that business as we get more of the referral patterns for these profound AMI patients that have right-side failure. That's probably not going to happen within the next six months.

However, if I look at what we've done up until now, you would consider that over 300 accounts today have purchased the AB5000, and they did that without the ability to discharge patients and without the ability to run intra-aortic balloon pump. So I think we'll see further penetration into the open heart hospitals, but quite frankly it is not on the priority list right now, versus servicing and training our existing Impella centers and ensuring our existing AB5000 users are getting the support they need to treat profound shock.

Great. That's very helpful. And then just two quick financial questions here. First, Dan, your gross margin guidance of 75% came with a laundry list of disclosures. Just to kind of try to simplify this, given where you are in the clinical trial in terms of getting the X number of centers up and running, I'm sort of assuming you're willing to do more consignment work with those centers and majority of the issue is Impella. So is a lot of that box pressure behind us and that gives you visibility to get you back to 75% or are we going to see prolonged effect for at least another quarter?

David, a lot of the the box pressure is behind us largely related to AB5000 and iPulse that I talked about. I talked about 12 iPulse boxes that are fairly costly at standard that are behind us. A large number of the Impella centers we did incur this quarter. As I mentioned, we do expect the Impella pivotal studies to continue to some degree. We'll see it at some level going forward as we continue to ramp up the US pivotal studies, but we have had a big chunk of it behind us this quarter.

Okay. And, lastly, restricted cash, Dan, appeared on the balance sheet for the first quarter this time. Can you walk us through why there is restricted cash on the balance sheet?

Sure. So I mentioned we entered into a revolver, $20 million revolver with Banc of America and it's collateralized by our investments in the Columbia fund at Banc of America, and based on the way the revolver agreement was structured, given that it is collateralizing the revolver, although we have no borrowings outstanding currently on the revolver, the technical accounting reporting of it requires that we call it restricted.

I'm sorry. I don't want to belabor this, we can take this after the call, but the cash that you have, the asset is collateralizing the revolver, so you're restricting up all of the collateralized cash. So how are the economics going to work on a go forward basis. Are you going to draw down on the revolver? What's going to be the impact of the restricted cash?

If we draw down on the revolver it basically whatever we draw dollar for dollar lessens the collateralized base. As redemptions occur from the Columbia fund, it will pay down the revolver.

Okay. I'm assuming over time as your receivables grow, you would look not to have a restricted collateralized portion of the revolver and you'd try to float it through receivables line.

That is a great point. We're evaluating lots of financing alternative. That is one of them. Our receivables are very high quality, as you've seen in the 10Qs and the 10Ks. We have minimal to no write-offs and only a couple hundred thousand dollars of reserves. So very good receivables and that provides good, to your point, added collateral for potential future financing alternatives.

Okay. Thank you very much.

Our next question comes from the line of Bob Hopkins of Banc of America. Please proceed.

Hey, guys. Thanks, can you hear me, sorry about that?

We can hear you, Bob

Great. Just two quick questions, really. First, just want to make sure I understand what went on in the quarter in terms of enrollment in the trial. You said 107 patients have come from 28 hospitals. Is that correct?

Correct.

And then you have 55 that are ready for enrollment, and so what's the difference between the 55 and the 28?

Some of these 55 are brand new and haven't done any patients.

Okay.

So to get to 107 patients 28 hospitals have enrolled to get there. But as of today, 55 centers are ready for enrollment.

Okay. And in terms of enrolling today, is it a number greater than the 28?

No, it's actually it's as of yesterday, 28 hospitals have done 107 patients.

As of yesterday. Okay. And then --

That have signed up recently and have not yet done their first patient.

Okay. So as we look at the trends, looks like you should be able to complete enrollment sometime in the first quarter of 2009. Is that roughly the way you're thinking about it?

No, Bob, we're not thinking about it in any other way than it's going to happen as fast as we can get the 150 centers, because as you can see, based on the numbers, with 28 hospitals we've done 107. When we get to 150 centers it's going to further accelerate. So that's why we have decided, rather than give you such an open range projection, each quarter will give you the specifics so you can see as we see. And as we get closer and more comfortable with the trends, then we'll give you a more accurate forecast.

Okay. Fair enough. And then the only other question I had for now is just do you guys think that you have the cash liquidity to take you through to the profitability and is the potential you need to raise more capital to get there?

That is a good question. The way we look at it is one year out and based on our goals. So that we believe today we have enough to make it through our fiscal year to see the Impella ramp continue to grow at a very rapid pace, and we also have other options if we choose to decide.

Okay. And then, you mean roughly at the end of this fiscal year where do you think the cash position will be?

Bob, good morning, it is Dan. I gave a little bit of color earlier, I'm not sure if you heard it. The burn in fiscal Q4 '08 stripping out WorldHeart was about $7 million out of $17.5 million revenue level. The burn this quarter, X the one-time outlays in Q1, was about $7 million, that is $16.4 million revenue level. As revenue ramps to achieve our guidance, again, I would expect to see that burn directionally go down. So I would say somewhere in the mid-teens, but again subject to revenue and the timing of quarterly revenue. But, as Mike mentioned, we do believe we have sufficient cash and investments and other financing alternatives, including the revolver that I mentioned to fund our growth for the balance of fiscal 2009.

Great. Thanks, guys.

Our next question comes from the line of Assaf Guterman from Lazard Capital Markets. Please proceed.

Hey, guys. Good morning.

Morning.

Going back to the 56 hospitals you talked about, 56 hospitals purchasing Impella on a commercial basis, can you talk a little bit about the purchasing pattern, on average how many disposable units those hospitals purchased?

It could be anywhere from two to five, Assaf.

Two to five. Okay. And now, the 86 number, the 86 number, the total number of 86 hospitals that purchased the Impella, I guess the 30 hospitals differential has to do with centers that are only participating in the clinical trial?

Correct.

Okay. And is it safe to assume that those 30 hospitals purchased at least five units per hospital?

Yes. For the clinicals. So the majority of the 86 are the folks that have both clinical trial and general use.

Okay.

The next would be those that are clinical trial only. And the next would be basically just general use.

Okay. So the general use group is the only group that has purchased less than five, or it could purchase in theory less than five. Is that a correct statement?

Correct.

All right. Now, could you talk about your expectations for future disposable sales for those centers in which you see consoles on consignment. What exactly is the minimum that you require or expect in order to not to charge them for the console eventually?

The requirement is that it would be 10 consoles. I'm sorry, 10 disposables at $20,000 per piece. So $200,000, and that for the clinical trials that's the expectation within a reasonable period of time, as well as that they're continuing in the trial. And if they don't continue in the trial, and they don't use the devices, then we have the option to return the consoles. For the clinical -- or for the general use, only, it's a mix, but we are selling the consoles. We have a promotion out for $50,000 for two, individually they're $50,000, but the promotion is $50,000 for two consoles and then they can buy a minimum amount. They can buy two disposables.

Okay. All right. Now, the last question has to do with the Protect II enrollment rate. And last quarter I think you had 31 centers open for enrollment and 70 centers with an IRB submission that was granted, but not overall 70 centers are IRB submission granted. This quarter the number of centers that opened for enrollment went up from 31 to 55, which basically leaves about 15 centers that already had IRB submission granted back in May, but still not open for enrollment. Will you talk a little bit about the reason for that? Is there a trend that some hospitals are choosing not to participate in the trial after getting the IRB submission granted, or is there any other factors that I'm not aware of?

No, I think it's you have to consider that hospitals have a standard process. One is the investigational review board. The other is then getting it through purchasing, and then it is getting them trained. So between the time they get the IRB approval, they still have to get the purchasing agents to issue it and then from that we have to go in and train the centers. So as you see, 55 are currently enrolling and 36 have approval.

So that's just between now and then, it's getting the purchase order and getting them trained. And then 96 we consolidated versus what we broke out last time, because it's really a gray area between those that have submitted and those that are pending submission. They're really so close that they're all in the same process. So whether they've already submitted it and the IRB is in three weeks, or they are submitting it and it's two weeks from now, it's really the same group now. So that's why we consolidated it, and that is the sum of 96 hospitals that are in that process. So we are going to run over. We're going to end up having to turn away certain centers because today there is 187 and today we only have slots for 150.

I see. Okay. Thank you.

Our next question comes from Eric Schneider of UBS. Please proceed.

Good morning. On the last item you were talking about, Mike, I wanted to confirm, when you say the number of hospitals submitted for IRB approval that is 96 in addition to the 36 that have received it and are enrolling in the 55, so does that mean all 187 that have signed NDAs have submitted for IRB, just clarify that for me.

Sure, 187 centers are signed up and in pursuit.

Okay.

Of the 187, 55 are enrolling. They're approved, trained and enrolling. 36 have the IRB approval and they're not enrolling yet based on either the final training or the purchase order or whatever the case is. 96 have submitted or the submission is pending for the IRB. So that is in addition.

Okay.

And if you add them up you'll get to the 187.

And when you were talking about the clinical consultants versus reps before. I missed it if you clarified it, but did you say that you determined or did you determine that clinical consultants aren't actually the bottleneck in terms of getting centers trained and either for commercial use or for enrolling in the trial?

In Q1 they were not a bottleneck because we had the resources allocated and we've been focussed on the clinical trial. This quarter, though, we have a new challenge which is the general usage, so we have those centers that are bought for general use, and we want to make sure that for those we also get the folks up and running and trained. And if you're a center not already in the clinical trial, we have to make sure they get the training there, so that they're also going to grow and utilize the device outside of the trial. So that's now why we focused that group and pulled and dedicated them specifically to Impella, because that will be a new task that we have to manage.

Okay. So how are you going to prioritize those two, given -- on any given day if they have to choose between a commercial center and a trial center, are they going to go to a trial center?

So let me walk you through that. That is part of the reason we made the changes. We took the teams and we now have four regions and we have hired and have four region managers. Those region managers understand and know their territory. They also have revenue targets. So it's up to them as well as the clinical director in the region to prioritize, and if people have to cross territories, or the cross-trained people have to support Impella as well, they will be doing that.

That is why we made the organizational change. As a concept we will prioritize clinical trial centers with general usage to make sure they're able and up and running. And then there will be clinical trial centers and then it will be the general use centers. The reason we made these changes to give us the most flexibility within the region to maximize the number of centers utilizing and getting trained each week.

Okay. And then finally Dan said that you're looking at $50,000 per unit for commercial console placements. But you said that you're doing basically a two-for-one deal on consoles. Is that still going for the next quarter or the quarters for the rest of this year? Is that two consoles for $50,000 or one? Just so I have a better sense of how we should be booking cost of goods.

Sure, so as of now we have a promotion in the place in the US that is two consoles for $50,000. It is in place and will replain in place this quarter. As we get to a certain level of supply and demand restrictions, we'll probably move it back to $50,000 per box. I do not project that will happen for the next two quarters. We're going to maximize trying to get as many boxes in place as fast as we can.

Mike, hi. This is Bruce. Sorry to tag-team you. As you know, we had written something about the design of Protect II and the key question facing you guys, and maybe one of the reasons that enrollment is proceeding at a moderate pace, is that you basically have to ensure the patients are sick enough. Could you just comment what safeguards you have to ensure that, patients of sufficient severity are in there to hit your mace rates and also could you make a more general prognostication about if this is the, let's say, the sickest 1% of patients who receive angioplasty, does that have any impact on a long-term usage of the product, or do you feel that they'll just be diffusion beyond that very sickest group of patients? Thank so much.

Karim, would you like to take that question? Okay. So, Karim, must have dropped off. Bruce, a couple of things to your question. First of all, this is not a completely blinded study, because our folks are there, are supporting the patients, and we are tracking -- as we do the enrollment, we are tracking to ensure that they meet the inclusion criteria. We are utilizing independent CRO group from Harvard, as well as we have a data safety monitoring board that is also overlooking the data. From a perspective of communication, we have weekly to monthly calls with the PIs. We have weekly to monthly calls with the coordinators for the cath lab, as well as we give up updates and discuss specifically this question to ensure that these patients are sick enough.

One of the benefits we've seen now with the 510(k) is I think you would look at our definition of high-risk PCI as probably one of the most critical and severe populations as compared to what has been referred to as high-risk PCI. If you look at the yearly numbers on intra-aortic balloon pumps, the estimate is there is 23,000 intra-aortic balloon pumps used for high risk PCI. Clearly those -- that number of patients goes outside the window of our very strict inclusion criteria, however, with the usage under the 510(k), we have seen centers as they're screening patients and for whatever reason, if the patient's EF moves up two percentage points or something and they are now outside of the trial, they already started moving forward and using the Impella under 510(k) for prophylactic use.

So we're confident that the metrics and the measurements are in place. We are depending on our lead PI. We are depending on the CRO group. We are utilizing the DSMB. And again we are in every center and in there for the first two patients to ensure they're well trained.

So, Mike, just to kind of put it in kind of scaling the opportunity, the trial population is about in terms of along the continuum of severity. The targeted trial population is the worst, the sickest 1%. But where do you think -- or whatever the number is that you might think it would be. And where do you think the commercial opportunity is in terms of the percent of total PCIs?

What I would look at is that there is 5% to 10% of high-risk PCI that's deemed or that's deemed high risk. Today for sure it's at least $23,000 a year, because that is what intra-aortic balloon pumps are used for. And the way I would look at doing this procedure is, that for the first time you have a safety net which is the Impella. You can also take your time to do the procedure to place the stent correctly which also helps the long-term outcome and I think you have the ability to reduce mortality in the cath lab for these patients because of the support from the Impella itself, which is highly scrutinized, as you know.

Moving forward, as people get more comfortable with the technology, I believe that they'll see this as a safer way to do their procedure, and because of the safety profile on Impella, it will be accepted as a prophylactic-use device. So to answer your question in summary, we believe it's anywhere between $23,000 to $60,000 per year in the United States for high-risk PCI utilizing Impella.

And do you think that with that level of let's say $50,000, that the -- that you can maintain that $55,000, $60,000 reimbursement price point?

We do, because as you look at VADs in general, and Impella is a Vad, it is essentially the lowest cost VAD that has the lowest amount of cost. You don't have to crack the chest. You don't have the long ICU stays. And it is actually is the lowest reimbursed VAD on the market as well. If you look at the positionings of the other VADs, they're significantly higher all the way up to DRG1. So as we evaluate the cost benefit to the center and to CMS, you'll have the ability to treat a patient for less cost to the system, to discharge them, and many patients are discharged the next day, and it should also improve their quality of life.

So, but you think payers will still reimburse at $55,000, $60,000 with a one-day length of stay?

Well, there will other procedures and things that are done under that DRG, however the alternative to that for these patients would be potentially open-heart surgery, having a sternotomy and having a three to four-week stay in the hospital which, is quite significant.

Thanks so much.

Ladies and gentlemen, we have reached our allotted time for today's Q&A session. I will now hand the call over to Michael Minogue for closing remarks.

Great. Thank you very much. We look forward to updating you on our next call and we will talk to you soon.

Thank you for your participation in today's conference. This concludes the presentation. You may disconnect. Have a great day.