ABIOMED Inc (ABMD) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter 2009 Abiomed Incorporated earnings conference call. My name is Heather, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session toward the end of today's conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I'd like to turn the presentation over to your host for today's conference, Ms. Aimee Maillett. Please proceed.

Thank you, Heather. Good morning, and welcome to Abiomed's fourth quarter of fiscal 2009 earnings conference call. This is Aimee Maillett of Abiomed's Corporate Communications Department. I'm here with Mike Minogue, Abiomed Chairman, President and Chief Executive Officer, and Bob Bowen, our Chief Financial Officer. The format for today's call will be as follows -- first, Mike will provide you with strategic highlights for the fourth quarter. Next, Bob will provide details and the financial results outlined in the press release, and we will then open up the call for your questions.

Before we begin discussing the fourth quarter, 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 toward 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 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 revision 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 will be indicated by references to fourth quarter of fiscal 2009 as compared to the fourth quarter of fiscal 2008 or fourth quarter of fiscal 2009 as compared to the prior third quarter of fiscal 2009. I'm now pleased to introduce Mike Minogue, Abiomed Chairman, President, and Chief Executive Officer.

Thanks, Aimee. Good morning, everyone. This Q4 has been an exciting quarter for Abiomed. We successfully converted Impella customer demand into patients supported. Our strong utilization drove record Impella global revenue up 124% to $11.2 million. Impella US revenue in Q4 totaled $9.9 million of which $9.1 million was for sales of Impella 2.5 under 510(k) clearance, up 36% sequentially compared to the revenue of $6.7 million for the third quarter of fiscal 2009. On utilization, 261 US patients were treated with Impella 2.5 during the fourth quarter of fiscal 2009. We supported more patients in Q4 than the prior seven months combined. This was up 63% sequentially from 160 patients in Q3 and up 161% from 100 patients in Q2. We've posted slides on our website with details of usage and revenue for the last three quarters. The full fiscal year 2009, worldwide Impella revenue was $36.4 million up 196%. I am proud of the entire team for this outstanding achievement from the regulatory clearance in June to the manufacturing ramp to the sales and clinical execution to support over 500 patients. This growth was the result of our significant shift in our resources to the interventional cardiology segment.

Total Company revenue for the 12 months ended March 31, 2009, was $73.2 million, up 24% compared to the revenue of $58.9 million for the full year fiscal 2008. Our number one corporate goal for the fiscal year was success in the Impella commercial launch. We set out to reach placement of Impella 2.5 in 100 hospitals with 100 patients supported. This goal was quickly surpassed. We ended the year with Impella at 229 hospitals, serving 521 patients. In addition, we created a strong US field team, reduced our quarterly cash burn, and raised additional capital in August to secure the resources to execute this major product launch.

We strengthened our cash position to support the final drive to Company profitability. Along the way this year, we managed four FDI clinical trials. Our regulatory work resulted in PMA approval of the AB portable driver, as well as 510(k) clearance of our Impella 2.5, Impella 5.0, and Impella LD. Our FDA clearances and approvals demonstrate our ability to create breakthrough heart support technologies and our credibility to effectively execute on the regulatory path. It is warranted to recognize the FDA for their dedication and commitment to patient safety while ensuring companies can provide science and clinical data in the process.

We have moved from one disposable, end console product in the US in 2004 to seven disposables with four consoles in 2009, and now, all approved and cleared -- or cleared for US sales. We have completely transitioned the US field distribution from a small heart surgery transplant team to a much larger, cardiology-based sales and clinical group with extensive depth. There are over 1000 hospitals that use the intra-aortic balloon pump, and there are over 120,000 units used per year in the US alone, so we are just getting started. This opportunity is why we have shifted our resources and field employee profile to focus on interventional cardiology. We now move forward with more intensity to achieve even more. With that in mind, on today's call, I will lay out three key updates to keep this momentum moving forward. We will cover number one, the Protect II study, number two, Impella utilization, and number three, the surgery business outlook.

So number one, the Protect II study. A total of 95 hospitals are participating in the Protect II study, and 43 patients were enrolled in Q4 for a total of 223 patients completed. We've reached 34% of the 654 patients required. This trial will take time. The complexity of having a 510(k) and active FDA trial makes randomization and general referrals more difficult. Currently, approximately 85% of the hospitals participating in Protect II are using Impella under general use. We continue to work with the steering committee to address these concerns.

For these reasons, we have never forecasted the completion date for Protect II until today. Based on our current run rate of 30 to 40 patients per quarter, it will likely take 12 to 14 more quarters, or three years to complete the study at the end of calendar 2001 to the start of 2012. This is our best projection based on three quarterly data points. We remain confident in the outcome of Protect II. Scientific evidence, referenced on our website slides, has validated that increase in cardiac output and cardiac power reduces mortality for unstable hemodynamic patients. The commercial launch to drive Impella adoption began with the 510(k) clearance, and the FDA studies are intended to establish a way to formally change the cardiology guidelines.

Number two, Impella utilization. My second point has to do with our progress on increasing clinical utilization on Impella 2.5. In Q4, over 50% of total Impella 2.5 510(k) revenue was from reorders. Reorder rates exceeded 80% of patient utilization. This was achieved even with the strong commercial sales of Impella 2.5 at 66 new hospitals with an average order of three units versus four units for Q2 and Q3. We expect that most new hospitals from Q4 will be reordering after the first patient. We now consistently see hospitals maintaining two to three units on the shelf for patient support. As a general rule, they want one patient unit with a back-up catheter and one for a potential new emergency patient.

With our original new sales to 163 hospitals in the first two quarters, our clinical support structure could not keep up with the customer demand for on-site patient support. Our customers want our presence for at least the first five patients. These patients are sicker, and the advanced science of circulatory support is somewhat new to the interventional cardiologist, especially for high-risk PCI and AMI. We also have three groups of individuals to train in each account, the interventional cardiologist, the cath lab tech, and the ICU nurse.

Moving forward, we have significantly added to our distribution in the US and aligned the roles and responsibilities to drive patient support while optimizing training. The US field team is finding their stride with all of the new people forming into a winning team. These new US recruits in both sales and clinical support have deep relationships with cardiologists and extensive expertise in the cath lab.

The promise of Impella remains the key to attracting top cardiology talent. Customer satisfaction and adoption continues to grow with every patient supported. We have now built a US team of 30 salespeople, primarily focused on the cath lab. 25 Impella clinical specialists focused on high volume cath labs, and 14 cross-trained nurses supporting both surgery and cath lab patients. We've also enhanced our hospital on-site support by training and certifying our sales reps for patient cases. We've hired an additional 10 on-call, per diem clinical consultants that we have trained on Impella or that are super users at sites. We will continue to optimize the number of hospitals per zone based on the progress of creating hospitals with five or more patients which we believe become self-sustaining Impella users.

At the end of Q4, 17% or 38 hospitals, have now treated five or more patients, and this number has more than doubled since last quarter. For hospitals that have had Impella for more than four weeks, approximately 80% are using, and the gap remains with the centers that need additional training and on-site patient support. Overall, we feel confident in our approach, and we are pleased with the additional 26 people added over the last two quarters. Including marketing, we now have a combined total of 85 people in the US. We will continue to add to this team as warranted by Impella demand and patient utilization.

Point number three, the surgery business outlook. My last point is that our legacy, or surgery business, needs a re-energized sales approach at the approximately 80 main transplant and VAD hospitals. As a result of the AB portable approval and 510(k) clearance on the Impella LD and 5.0, we now have the portfolio to reengage our original customer base of heart surgery. We believe there is significant demand for all three new products at the large heart transplant programs. Moving forward, we are creating a right-sized, dedicated channel covering this segment and working with the cath lab team from Abiomed for patient identification of acute cardiogenic shock or biventricular failure. Over time, we expect our surgery business to regain a growth trajectory as the new products gain momentum, and we see overall synergy with our distribution.

In summary, growing shareholder value is the key Company goal for the year. We believe the Impella platform will be a critical part of patient care in the future because patients are getting older and riskier as a population, and the need exists for hemodynamic support. In emergency care, heart attacks remain one of the leading causes of in-hospital mortality, and cardiogenic shock still carries a patient mortality rate of greater than 50%. According to the American Heart Association, 2008 Statement of Principles for Healthcare Reform, there was 1.5 million heart attacks totaling $31 billion in hospital charges and causing 452,000 deaths in the US. According to womenheart.org, more than 120,000 women die in the hospital from a heart attack every year.

As a result of last year's execution, our Company has never been financially stronger and had such customer demand for our product portfolio. Heart attacks, high-risk heart procedures, and salvaging heart muscle will remain a challenge for the years to come, and heart recovery is the most cost-effective treatment for these patients. The time for Impella and heart recovery is now, and Abiomed moves forward with great confidence in our future. I will now turn the call over to our CFO, Bob Bowen.

Thanks, Mike. Good morning, everyone. Today, I plan to make selected comments on the fourth quarter and fiscal year 2009 and provide our outlook for fiscal year 2010. I will be making selected comparisons to the prior year as well as to the prior sequential quarter. Before I get started, I would like to refer you to the Safe Harbor language noted at the outset of the call, as well as the risks and uncertainties noted in our SEC filings, particularly our most recently filed 10-K as updated by our most recently filed 10-Q.

During the fourth quarter, as noted by Mike, over 50% of the total Impella 2.5 commercial revenue of $9.1 million was attributable to reorders. With the balance being attributable to initial site opening stocking orders. On a unit basis, the reorder rates, which are driven by the number of patients treated with Impella 2.5, totaled more than 80% of patients treated. Reorders generally come at a level of one or two units per reorder and occur fairly evenly throughout the quarter. On average, sites have approximately three commercial Impella 2.5 disposables on the shelf as of the end of Q4. The non-Impella worldwide revenue, what we refer to as our legacy business, totaled $8.4 million for the quarter. And although lower than the fourth quarter of the prior year, it was essentially equal to the third quarter of fiscal 2009. For the past three quarters, most of our focus has been on the Impella 2.5 commercial launch, and this has affected the revenue levels of the legacy business.

Gross profit percent for the quarter was 72%. About equal to the prior year, but two points lower than the third quarter fiscal 2009. We placed more Impella 2.5 consoles at essentially no charge during Q4 as compared to Q3 fiscal 2009. In addition, production volumes were lower in Q4 as compared to Q3. We have been focusing efforts at running the business with lower inventory levels and have become comfortable with reducing safety stock levels in certain product areas. Inventory levels were $14.8 million at the end of the quarter, compared with $17.8 million at the beginning of the quarter.

Looking forward, we are targeting gross profit percent in the mid-70%, plus or minus 1%. R & D expenses of $7.1 million increased from $6.7 million and $5.2 million in the prior year and prior sequential quarter respectively. Compared to the prior sequential quarter, costs for the Protect II and Recovery II clinical trials were both higher, as was spending on core R & D projects, including those related to Impella product enhancements, as well as other product development projects. Our expectation is that on average, the fourth quarter level of R&D spend will continue through 2010 to support current product development and clinical trial efforts.

Selling, general, and administrative costs of $14.7 million for the quarter were up slightly from $14.4 million in the prior year and up $1.5 million from the third quarter of fiscal 2009. The sequential increase was largely due to buildout of our domestic commercial organization during the quarter and start-up costs in our Athlone, Ireland facility. For the full fiscal year 2009, SG&A expenses were 76% of revenues, and we anticipate the SG&A costs will maintain this relationship to revenues through fiscal 2010.

The GAAP net loss for the quarter was $8.5 million, or a loss of $0.23 per fully diluted share. An improvement from a GAAP net loss of $15 million or a loss of $0.46 per fully diluted share in the fourth quarter of fiscal '08. For the full fiscal year 2009, the GAAP net loss was $31.6 million, or a loss of $0.91 per fully diluted share, an improvement from a GAAP net loss of $40.9 million, or a loss of $1.26 per fully diluted share for the full fiscal year 2008. To assist investors we provide non-GAAP net loss and net loss per share information as defined and detailed in our press release originally issued on May 12, 2009. These non-GAAP measures exclude stock based compensation, amortization of intangibles, and selected other items which for the respective periods included a non-cash charge for the change in value of the companies note receivable from World Heart Corporation and a litigation settlement. The non-GAAP net loss for the quarter was $6.3 million, or a loss of $0.17 per fully diluted share, an improvement from a non-GAAP net loss of $7.9 million or a loss of $0.24 per fully diluted share in the fourth quarter of fiscal '08. For the full fiscal year, the non-GAAP net loss was $21.2 million, or $.61 per fully diluted share, an improvement from a non-GAAP net loss of $27.7 million or $0.85 per fully diluted share in the prior year.

We ended fiscal year 2009 with cash, cash equivalents, and short and long-term marketable securities of $60.9 million, compared to $63.8 million at December 31, 2008. And we believe this funding level is sufficient to get us to cash flow breakeven. We do expect to have a higher cash usage in the first fiscal quarter of 2010, as compared to each of the last two quarters, due to annual bonus payments and a $1.75 million cash payment associated with the cash portion of the final milestone payment to former shareholders of Impella Cardiosystems AG, as a result of the Impella 5.0 510(k) approval. The first quarter cash usage is expected to be in the $5 million to $8 million range.

I would now like to take a few moments to walk through our revenue guidance for fiscal 2010. Our primary focus for fiscal 2010 will be the Impella 2.5 commercial launch, utilization, and adoption in the US. Over the past few months, we have put in place a very capable field sales and clinical organization, most of whom have strong backgrounds in the cath lab. However, we still have to provide the Impella product training and clinical scientific knowledge to this relatively new workforce, and it can take about six months before new clinical field resource can be at 100% capacity in terms of clinical knowledge and procedure support. To support this new field sales and clinical organization, we are enhancing our internal training programs and requiring our field sales organization to become certified to support cases as well. We expect our worldwide Impella revenues to grow in the range of 50% to 60% from a base of $36.4 million in fiscal 2009. We believe our US Impella revenues will grow at a faster pace than those outside the US and will represent 85% to 90% of worldwide Impella revenues. Within the US, we believe the Impella 2.5 commercial use revenues will represent approximately 90% of total US Impella revenues, driven by patient utilization, as our opening of new site strategy will come secondary to ensuring we are providing training and clinical support to the current install base of customers.

We expect trial-related revenues will decrease from approximately $6.5 million in fiscal 2009 to about one third of that amount in fiscal 2010. The Impella 5.0 launch will make up the balance, and we are planning for a controlled rollout targeted at selected heart transplant centers. We anticipate that our legacy business, which is largely comprised of the BVS blood pump and AB5000 ventricle will at best be flat and more likely to soften from the second half 2009 run rate. The BVS blood pump was initially introduced in 1992, and revenues have been declining for some time. With the introduction of the Impella 5.0, there may be some cannibalization of both the BVS blood pump and AB5000 ventricle, although we do believe the AB5000 will be a contributing product as we move forward with the transition of the introduction of the portable console and Impella 5.0 launch.

Lastly, I would like to remind investors that the summer months tend to be slowest from a schedule procedure standpoint in both the US and Europe. This, combined with the newness of our commercial organization, leads us to believe that revenues are likely to be softest in the second quarter and generally higher in the second half of the fiscal year relative to the first half. Taken together, we believe our overall revenue growth for fiscal 2010 will be in the range of 17% to 25%, or $86 million to $91 million. We would now like to open the call to questions.

Thank you. (Operator Instructions) Your first question is from the line of Greg Simpson with Stifel Nicolaus. Please proceed.

Thanks, good morning. Bob, without the quick mind required to do the math on the Impella side, can you maybe break out the expected contribution in some form for Impella 5.0 and LD in that guidance?

It's in the 4% range of the total Impella revenues.

Got you. Okay that's good enough. Thank you. And then, Michael, on the Impella usage -- on the centers, the talk about going back to last quarter as well with the discussion about how centers really need a little handholding to get past that five procedure mark. Can you talk about maybe in a little more clarity or detail, the experience at the centers that have passed that level of usage? And do you see an uptake in the usage at that point once they get comfortable with the device?

Greg, the question around utilization is a couple points. So the first is, that we hear very positive comments when they are using it whether it's a high-risk PCI or an AMI. But essentially, the first couple patients are high-risk PCI because they're scheduled. At the completion of those studies, we do hear comments, to quote a couple, 'I'm a believer, I could have never done that patient without Impella', 'that little pump pumps', and very positive feedback. The second transition that occurs when they start to do patients that are more emergent cases, whether it's a heart attack or an acutely decompensated chronic patient, they tend to see the benefits of increasing cardiac power for both the kidneys or even supporting the patient while they're doing the procedure. If you look at what happens after that, and I think then in the script I commented this. Over the prior quarter, we've more than doubled the number of centers that have done five or more. We do tend to see an acceleration. I believe the number one user individual has broken 30 patients. And what happens is the other physicians and the techs get more comfortable with the technology, and they start to expand it to other applications. So the overall primary applications as they start to summarize is high-risk PCI, then AMI. We are still seeing some off-pump [cabbage] in surgery applications, and we're now even seeing a couple procedures under EP where they put Impella into support these low EF patients.

Just to follow-up on that then. Could you maybe break down the usage in the fourth quarter, high-risk PCI versus say AMI?

It's still around 70%, our high-risk PCI. But we to-date have over 100 patients in our AMI registry for general use.

Okay, thanks. I'll jump back in line.

Your next question is from the line of Tim Lee with Piper Jaffray. Please proceed.

Hello. Good morning. Thanks for taking the question. In terms of -- has the incentive compensation plan for senior management been set yet for fiscal 2010? And if it has, is there a revenue growth component tied to it?

For our compensation throughout the Company, we always have a revenue-based multiplier, whether it's a sales rep or clinical person all the way up to senior management. And just, do you care to characterize the thresholds for fiscal 2010? Are they in line with the 17% to 25% growth that you just laid out? Or are your benchmarks higher than that? Well, we would only comment on what we have laid out for our guidance, and they should be similar.

Okay, thank you. And then in terms of the headcount for your field salesforce, is there further expansion on that? I'm assuming the current staffing is for the current revenue levels so we should see further expansion as we get into the back half of this fiscal year. Would that be the right way to think about it?

Tim, what we're planning to do is two things. Number one is, selectively add in areas where we have growth-specific sections. So if an area of the country is continuing to grow at a faster pace, we'll add there. We also are adding to the resources by having the sales reps be certified so they can do patient support. And we also have a bullpen of these per diem consultants which have experience. And if it fluctuates in certain areas, we can always transition them to full-time employees, and they are already trained. And then one last point is, as centers get more self-sustaining, we expect then that they will require less on-hand support.

And then just one last one, if I may, and I apologize if you answered it. Just on the Recover II. Since you have now provided us with a timeline for Protect II -- care to give us a sense of where Recover II can go? And just any plans on that side? Thank you.

Sure. So Tim, on the Recover II which is the FDA study for AMI, we are having a smaller subset of centers getting ready for that study. As far as general use goes, we've already got now 100 in the US. So it's a good way to look at the centers that have the ability to put the Impella in at all hours of the day and also have the support in the ICU. As we move forward, we're going to continue to have a very focused approach to the centers that are enrolling and make sure that they have been certified to be self-sufficient without us having a person there.

But just in terms of the protocol -- in terms of getting patients to sign off -- given how it's laid out right now, is it practical to think that we won't get any type of uptick in enrollment in Recover II? And is it even necessary given the fact that you are collecting data from a registry standpoint?

Well, Tim, we're going to keep our options open, but certainly by having the registry, we know the patients are there, and those are centers that can be good sites for the Recover II study. And that's what we're going to continue to monitor each quarter.

Great. Thank you very much.

Thank you.

Your next question is from the line of Duane Nash with Wedbush Morgan. Please proceed.

Good morning, Mike.

Good morning, Duane.

I misheard Protect II. Could you say when you predict completion of that study?

Sure. So we predicted based on the current rate of 30 to 40 patients per quarter. It's going to take another 12 to 14 more quarters, which brings you to the end of calendar 2011 to the very beginning of 2012.

Great. And could you talk a little bit more about the registry that you're putting together, and what uses that might have? As a follow-up to Tim's question on this?

Sure. So the registry data, what we're trying to do is collect information on every single patient with the approval obviously of our customers. And similar to the abstract we presented in Europe, called [Eurapela], which was a multi-center, high-risk PCI study of 144 patients. We are now currently collecting that data to get that published for the US -- general use for high-risk PCI. And we're also collecting the data for an AMI patient registry so we can take that information and go out and reference that with the goal to get that published as well as use any and all of that information with the FDA.

Are any of these publications coming out in the near-term?

We are essentially looking to have these publications throughout the year, but it's likely going to happen in the second half of the year.

And regarding the Impella 5.0, have you made a decision whether you're going to pursue a full study with that? Or perhaps instead use a registry, or is it still open? Well right now, we're officially still in the study for the pilot phase, and we're going to continue to collect more patients. And after that, we will basically evaluate whether we continue to a pivotal or just move it forward with a data registry. Great. Thank you very much.

Thank you, Duane.

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

Good morning.

Good morning, David.

Can you give us a sense of the patients that have been done -- obviously, this is a very dramatic quarter. I think you said procedures in the quarter equaled the last seven months. Just give a sense, when you're talking to reps, the mix between procedures being used for high-risk PCI, CGS, and AMI?

So the question on the breakout is, about 70% are high risk PCI, and that works well with their schedule and our schedule. So we're able to pick a day during the week where that center may have one or two high-risk PCI patients, and then we will send our clinical people there. And since we have a lot of new folks, it's very likely that a new clinical person will be with them, or maybe even the sales reps. So they get the experience as well. So this helps them, and this helps us. And then over time, as they get more comfortable, they start to treat these heart attack patients. And we have had patients either for high-risk PCI and heart attack, where the centers have done the patients with just phone support of one of our clinical people on-site. Or maybe one of our clinical people show up after the fact and check in on the ICU and nursing staff.

So Mike, if that's 70% high-risk, 20% AMI, and 10% CGS -- or maybe that's 5% CGS? What do you think those percentages are at the end of the year?

I think the numbers grow very big. So you're going to keep seeing the biggest percentage to be high-risk PCI, because that's the learning curve. Long-term -- at some point, it's going to transition because there is more intra-aortic balloon pumps used a year for heart attack patients than high-risk PCI. It's only about 2,000 more a year, but the potential of both is very large. The high-risk PCI is just the optimal application for both the Abiomed team and the hospital to get good patient outcomes and feel comfortable with the training.

Okay, and a few questions here on salesforce. I guess first of all, Mike, what is the appropriate revenue per rep metric that you think is -- as steady state business? Is it $1 million per rep, $2 million per rep? What's the right number?

David, we don't give out the per rep number, but what we do have is the database that shows exactly how many cath labs are in the territory. What's their volume mix between angioplasty, AMI, and other applications including surgery. And then, what we do is apply a growth rate depending on what its historically been.

And then Mike, in terms of training here. You basically said that it takes about five procedures to get the average physician comfortable. That's actually lower than what we've seen in other emerging technologies which is a good thing suggesting this technology is not as difficult to train on. So maybe walk us through what are some of the other barriers that are happening in the cath lab because it doesn't seem to be training or comfortability with the device. What are some of the other barriers?

So David, the device itself when it first started in the States, we were seeing around a 14 to 15 minute set-up time. Now we're around 11 minutes, and we have our fastest centers doing it in around six to seven minutes. What they have learned is that, usually, you have two processes. You have prepping the leg itself which can be done by the interventional cardiologist, and then you also have the tech who is pushing the buttons. What we are going to do in the future is we're going to shorten the steps. We're going to improve the processes of pushing the buttons -- the software. We have a newer introducer. We have better guide wires. All of the little things that we can do on the technology side. But we have also learned that there's a lot of steps that customers have taught us that can also help shorten the time. So that's the first component of it when you're treating an AMI patient. For the high-risk procedure, when they're just putting it in, it's not a difficult process for interventional cardiologists to put the Impella in. In fact, it's much easier than what they're doing when they have to go through and navigate into the coronaries. Because you're just going over a guide wire, and the device naturally crosses the -- with the pigtail catheter -- crosses the valve and sits in the left ventricle. So that part is pretty easy. What is a little different though is that they have to learn to push new buttons. Many have been using a balloon pump for 30 years. So they have -- they're used to it. But as we also would look, that is 30-year old technology that they're still using. So there just is that natural learning curve in the process. The last component of it is, these are sick patients, whether they're high-risk PCI or whether folks are having a heart attack. So physicians are just nervous about having any delay in treating them, and that's just a comfort level.

Okay, and last question, and I'll jump back in queue. Just thinking about the surgical business here. I appreciate it has not been a focus for the business, but I still have -- my quick math suggests that the core business or non-Impella business is still going to be down about $5 million into this year. And I know you're talking about BVS, but can you just give us more granularity there? It seems the issues have to be affecting the AB5000 ventricle? Or a much more Draconian view on what equipment is going to be this year? Because -- or, if it is BVS, what has specifically changed in the competitive landscape last year that has made that business weaker? Thank you.

So really we've been talking about legacy and Impella -- and really when you look forward, you really should consider cardiology and surgery revenues. The BVS product is 17 years old. It was approved by the FDA in 1992. And it's still today, with the exception of the AB5000, the only ventricle assist device that has approval for all heart recovery indications. We do expect to see some cannibalization of that with the Impella 5.0. We've seen a little bit with the 2.5. And on the AB5000, that's a higher flow device that can essentially take over the left and the right side of the heart. But what physicians wanted at the high-end transplant centers is more reliability and more mobility, lighter weight, quiet, and with the potential to discharge with those in the studies and what they're doing. So I think as far as the competitive landscape, there probably was some competitive landscape at the high-end transplant centers. Whether it was different products or other treatments. Whether it's ECHMO or drugs or other types of cannula systems. But for the most part, it's really about not being there and driving as much with the presence on the AB5000, which has caused more of the delay or the drop in the revenue. We expected BVS to decline, and AB5000 has been paying the bills for the last four years. It wasn't until the first quarter of a 510(k) clearance on Impella, that we saw a decline in AB5000. And we've seen it since we've had the 510(k). We do expect to reengage, and we do expect that once the bleeding stops, we'll start to see a growth trajectory in our surgery revenue, not necessarily our legacy revenue.

Okay, thank you very much.

Your next question comes from the line of Bob Hopkins with Banc of America-Merrill Lynch. Please proceed.

Hello. Thank you, and good morning.

Good morning.

Mike, I just wanted to ask a question about resources. Because it seems if you look at the challenges that the Company faces, either in terms of enrolling these clinical trials or really ramping on the commercial side, that to a large degree it's really a matter of resources. So I guess my question is, would you ever consider partnering or getting some help from a larger Company from a salesforce distribution perspective to really ramp this trial and ramp this commercial product?

Bob, that's a good question, and obviously something we've evaluated along the lines over the last couple of years. What we found is that this is a new science, and it cannot be presented and sold as a commodity with an upside commission. So what we've chosen to do is try and recruit the best sales reps from those companies that have existing relationships and teach them about the Impella science. So that they can really own and run their franchise and their territory, and that will help drive the connection with our customers to expand this into a franchise product.

So in other words, the probabilities of you partnering with somebody is pretty small at this point in your opinion? You're choosing a different path in other words?

Currently, we're choosing a different path because that's how we think we can maximize the shareholder value as well as the revenue opportunity. In my prior life, I came from one of those big companies, and what tends to happen is you get the product flavor of the year where different companies roll in their products. You get some attention from them based on SPIFs. But over the long term, you really don't build that core competency or the connection with customers. In the space that we're in, we are the -- really the science of circulatory support in the cath lab, and we're able to take this niche science that's been out there at a very small number of heart transplant centers and bring it into a new customer called the interventional cardiologist, which really is on the cusp of new treatments -- new paradigms. And if we educate them, we believe that Impella can become the backbone or the safety net of the cath lab.

Okay. And then to the next topic for me, is just on the assumptions around the Protect II trial. And when you'll finish enrolling that. Because it seems like you're at 43 this quarter, but you just brought out a lot of new centers. And yet, the assumptions you are making in terms of enrollment per quarter going forward is below the current run rate that you have today. So I'm just curious as to why you're being that conservative in your assumptions? Because again, it doesn't look like it's assuming any number of increase in enrollment per center. Or any increase in number of centers beyond what you have right now.

That's a good point, Bob. We only have three quarterly data points from when we've had the 510(k). And our run rate was certainly higher before we had the 510(k) on a smaller number of centers. So that's very valid. Now that the product is commercially available, there is a challenge with getting patients in the study. One, because there is a very strict inclusion criteria, and two, there is ethical questions and considerations -- whether or not the referring doc will allow the primary [vescary] to randomize the patient. Or if the patient will accept being randomized. And so that is a bit of a challenge, and that's what we have to work through. To me, that is the biggest gating factor.

I realize the history, but you did 43 last quarter, and you are saying that going forward it is going to be 30 to 40 per quarter despite the fact that you just added 45 new centers. It just seems like it -- just curious as to whether or not -- how much conservatism is built into that? Or if things are not going to improve from this pace?

Well, I would set the expectations that it is going to take a long period of time. And, partly because of reasons we have already stated.

Okay. But you do anticipate finishing enrolling this trial?

We do plan and have laid out the resources to finish the study.

Okay. And then last question for me is just a simple modeling one. For the guidance as you provided for this year, do you assume any degradation in the ASP for Impella? Or are you still assuming that [20,000 to 22,000]?

We expect to see the same.

Okay, thank you very much.

Thanks, Bob.

And your next question comes from the line of Erik Schneider with UBS. Please proceed.

Good morning. Just another question with respect to Protect II. I think there is an interim analysis planned? I just want to see if that's purely a futility analysis, or if it will be broader? And if you intend to provide the results of that analysis when it's done?

Erik, for us the interim analysis is a non-event. We assume that things will move forward. To our knowledge, the steering committee and the Data and Safety Monitoring Board plan to do the normal analysis they would do which would include the futility analysis, mortality rates, and any other things that they would find necessary. But again, we do not expect any change in the process. If they were to disclose to us something that would be material, we would then disclose it to the markets. The one thing I would reiterate back to Protect II, is that we do remain confident in the outcome of this study based on our science as well as prior studies that have been done in the past in Europe and what we've seen in the United States.

Okay, but you don't anticipate or expect to put out something that gives the information of what the stats for the patients that have been enrolled to this point?

As of now, that is not the plan.

Okay. And then just one quick one with respect to the revenue guidance. In taking a quick look at the estimates for the analysts out there. Your guidance range is significantly narrower than the estimates that we had collectively put together. So the question to you on that is, how confident are you in that? Outside of the regular disclaimers, what are your expectations? Or where you could underperform that? What are key risks and opportunities in your mind?

Well, I certainly think if you look at the growth rates and the margin, there's not a lot of companies that are putting up those kind of projections for next year, especially in today's economy. So I think, number one, there is a sign of the strength and the interest level of our current products. And that being said, it is a tough economy. We do expect to see another six-month delay in ramping up the full productivity of the US team. And there's just a learning curve of our customers. So that is our best estimate. Long-term, we are very confident that there are 1,000 plus hospitals that will ultimately work to get Impella. And we think there are over 60,000 patients just in the cath lab alone that our technology can support.

Okay, and do you think at this point that the economy has helped or hurt the Impella business?

I think the economy has hurt every business as far as I'm concerned. If you look at our Impella business, it was less susceptible because of our model of putting the boxes in there for those disposables. If you look at last year on the legacy business, it absolutely did affect us at the end of all of the quarters, specifically at the end of the December quarter where usually there are funds that are freed up to buy our consoles -- our AB console. That just didn't happen this year. And any products that have capital equipment tend to go through four new committee levels, and it's not as easy to get them through. Even for technology that there's a clinical need and reimbursement. So overall it has probably slowed our already fast growth rate on Impella -- getting to 229 hospitals, and it definitely impacted our AB5000 business.

Thank you.

Thank you, Erik.

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

Yes, thanks. Just a couple follow-ups. First of all, Mike, on Protect II. Any update? You're expressing confidence still in the outcome, obviously, but any new update in terms of event rates? Have you seen anymore data or gotten any better sense of event rates in the trial?

At TCT, our PI, Dr. Bill O'Neill announced at the symposium that the -- in aggregate -- the severe adverse event rate was tracking around 25% for both arms. So that was tied directly at the center of our assumptions for 20% for Impella and 30% for the balloon pump. So as of 20% through, it was right on. At the interim amount or interim mark, the DSMB and steering committee may have those numbers, and if they do provide that to us, we will disclose those numbers as well. Great. And then a quick question. Bob, on R&D and the expectation that the spend level stays at the same level, given that you surprised the street a little bit with the two recent approvals. Is there any more color you can provide on the makeup of R&D? I know you've mentioned the trial expenses and things like that, but I think we had probably all figured that in. Did the registries play into this? It seems like an increased focus or emphasis on registries. But anything more you can say on what's going on in the R&D pipeline?

Well, Greg, it is mostly the continuing costs for Protect II and Recover II. And the registries do add to that number, and there are initiatives underway that Mike referred to to enhance the Impella product development -- product platform as well as some other product development initiatives that we have not yet disclosed.

And Greg on that note, we have announced in the past we will have an Impella right side percutaneous device, and the expectation we'll be in our first patients in the second half of this fiscal year in Europe. The Impella pediatric device will follow that, and we're going to do it step by step.

Any of the R&D related to specific enhancements to the current 2.5?

The majority of our engineering time and our resources are still specifically focused on Impella 2.5. Our goal is to make that device even easier to put in, even quicker. And we have a team that their whole -- what their role is is to do sustaining improvements into the product. So that's part of the reason that we're not looking at other items, and from an overall sense is the R&D projects are really about the ones that you already know of and making them better. We do not have extensive amount of things we're working on in the back, although we do have one or two new items which we think will be nice add-ons to our portfolio.

Okay. Thanks very much.

As there are no further questions in the queue at this time, I'd like to turn the call back over to Mr. Michael Minogue for closing remarks.

Thank you, everyone, for your time today and your support. Have a great week.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.