Nuwellis Inc (NUWE) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Sunshine Heart second-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded.

Before we get started I would like to remark briefly about forward-looking statements in today's prepared remarks. Except for historical information mentioned during the conference call statements made by the management of Sunshine Heart are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks and uncertainties that are based on managements' beliefs, assumptions, expectations and information currently available to management. Those risks include but are not limited to risks associated with the possibility that the Company's clinical studies do not meet their enrollment goals, meet their endpoints or otherwise fail, that regulatory authorities do not accept the Company's application or approve the marketing of the C-Pulse system, the possibility that the Company may be unable to raise the funds necessary for the development and commercialization of its products, that the Company may not be able to commercialize it products successfully in the EU and other risk factors described under the caption risk factors and elsewhere in the Company's filings with the Securities and Exchange Commission.

By providing this information the Company undertakes no obligation to update or revise any projections or forward-looking statements whether as a result of new information, new developments or otherwise. You should review the cautionary statements and discussion of risk factors included in the Company's press release issued today, the Company's latest 10-K, subsequent reports as well as its other filings with the Securities and Exchange Commission under the titles risk factors or cautionary statements related to forward-looking statements. For additional discussion of risk factors that could cause actual results to differ materially from management's current expectations and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated by reference in this call and are readily available on the Company's website at www.sunshineheart.com.

During this call management will also discussed non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included in the Company's earnings press release and supplemental information. In addition a replay of the call is provided through a link on the investor relations section of the Company's website.

With that said I would now like to turn the call over to Dave Rosa, Sunshine Heart's President and Chief Executive Officer. Please go ahead, sir.

Thanks, operator. Good morning everyone and thank you for attending Sunshine Heart's second-quarter 2015 results teleconference.

With me today are Claudia Drayton, Sunshine Heart's Chief Financial Officer; Molly Wade, Vice President of Worldwide Patient Recruitment; and Jim Georgakopoulos, Chief Scientific Officer.

The past quarter represented an important period for the Company's growth, anchored by the FDA granting approval to resume enrollment in the COUNTER HF pivotal study. I'm extremely proud of our entire team for not only resolving the matter with the agency expeditiously but for the manner in which sites are being reactivated. On top of this the team has made substantial advancements with the C-Pulse technology in key research and product development areas which I'll touch upon a little later in my prepared remarks.

Of course receiving approval from the FDA to resume enrollment in the COUNTER HF clinical study was vital to enabling the Company to get back on track and clearly this was the most important highlight for the quarter. As many of you know the study was temporarily paused this past March after we communicated to the FDA that four deaths had occurred in the treatment arm of the study. As expected the deaths were independently adjudicated as not being device- or therapy-related and soon thereafter the FDA granted approval on May 26 to resume patient enrollment into the study.

It's important to note that in advance of receiving this notification from the agency we were proactively preparing for approval. We organized a COUNTER HF Study Investigator Meeting on May 7 to 8 to ensure site reactivation would be in a position to ramp up quickly upon FDA approval to resume the study. I was extremely pleased with center participation in this forum as 25 centers were represented.

Moreover there was a high level of enthusiasm among attending physicians and clinicians. We plan on posting a video on our website from sessions held at the meeting to provide investors and the general public a sense for the content of this meeting.

With respect to COUNTER HF, all sites have submitted the required documentation for IRB approval. Seven sites were activated during the second quarter and a total of 15 sites out of 27 have been activated to date. Three patients have been enrolled in COUNTER HF since the study resumed and we expect all the remaining sites to be online by the end of August as previously discussed.

We are pleased with the momentum we are generating and expect it to translate in replenishing the pipeline of patients we had generated prior to the pause. This enthusiasm has been bolstered by much of the research that Jim Georgakopoulos has been spearheading which we will discuss later.

Also as part of our study protocol moving forward, I'm very pleased with our newly formed Physician Subject Selection Committee which has been put in place to review the profiles of potential study participants. The Committee recently met to evaluate these potential patients and the process went extremely well.

It was smooth, efficient and expeditious. We are now well-positioned to execute on the COUNTER HF study and I look forward to updating the market on progress in the quarters to come.

In terms of the European-based OPTIONS heart failure study we implanted our 15th patient which was the first referred by Professor Huseyin Ince. Professor Ince is head of the cardiology department at two Vivantes clinics in Berlin.

I'd like to now spend a few moments addressing an important underlying goal of Sunshine Heart which is to ensure that the full potential of the C-Pulse technology platform is realized. We are committed to exploring possible advancements and to this end the second quarter was marked by substantial progress toward laying the groundwork to advance the fully implantable system as well as exploring the breadth of C-Pulse's applicable for other indications.

During the quarter, clinical data was obtained from the OPTIONS HF patients in collaboration with Professor Seger's lab at the University of Ghent in Belgium to quantify the effects of C-Pulse on arterial stiffness. This is a first of its kind study employing non-invasive measurements of pressure and flow in the ascending aorta to quantify the unloading effects of C-Pulse which may be mediated by relaxing the muscle in the walls of blood vessels and the peripheral circulation.

These unique observations may be due to neuromodulation effects of C-Pulse where compression of the ascending aorta may lead to signals being sent to the brain resulting in alteration of sympathetic nerve activity to the blood vessels, kidney and heart. We plan to initiate physician studies to directly measure sympathetic nerve activity during device on and off phases.

We are also preparing to explore C-Pulse as a solution for pulmonary artery hypertension. Preclinical studies evaluating the effects of C-Pulse for pulmonary artery hypertension are also planned to begin in the third quarter at the University of Louisville.

Initial observations have indicated counterpulsation of the pulmonary artery may lead to relaxation of the pulmonary blood vessels. Physician feedback indicates that this is possibly related to release of nitric oxide. The studies will be designed to measure hemodynamic and hormonal mechanisms.

We continue to make solid progress with the development of our fully implantable system. Chronic animal trials are expected to occur in the latter half of 2015 and a plan has been developed for a first-in-man evaluation which is expected to occur outside of the US during the third quarter of 2016.

I would also like to emphasize our ongoing commitment to presenting data at medical conferences. In April we participated at ISHLT where Dr. Mark Slaughter presented C-Pulse system extra-aortic counterpulsation for heart failure, driveline infections and management.

In May Dr. William Abraham attended the Heart Rhythm Society Meeting and presented clinical experience with the C-Pulse extra-aortic counterpulsation system in patients previously treated with optimal medical therapy and CRT. And in June we were represented at ASAIO where Dr. William Cohn presented development and chronic in vivo testing of fully implantable extra-aortic counterpulsation device.

In addition two papers were submitted to the AHA by Dr. Sanjeev Aggarwal and Dr. Eduardo Rame for presentation: AR reduced heart failure readmission rates, clinical experience with the C-Pulse extra aortic counterpulsation system by Dr. Sanjeev Aggarwal; Arterial and cardiac hemodynamics in advanced heart failure patients implanted with the C-Pulse counterpulsation device, implications for myocardial recovery by Dr. Eduardo Rame.

Now before turning the call over to our CFO and in light of numerous questions we have received I'd like to briefly comment on St. Jude's potential acquisition of Thoratec for roughly $3.4 billion. In the event the merger consummates this may impact us as Thoratec is a shareholder of Sunshine Heart with Board observation rights. And if the transaction comes to fruition St. Jude will carry over the rights of Thoratec under the terms of the observation rights agreement.

Clearly and regardless of the outcome this M&A scenario speaks to the inherent value of game-changing therapies to treat heart failure. And C-Pulse certainly belongs in this category as it is one of the few assets remaining in this segment.

I will now turn the call over to Claudia Drayton who will provide an update on the second-quarter financials.

Thanks, Dave. Good morning everyone.

This morning we released our interim unaudited financial results for the second quarter of 2015. I will walk you through a few of the financial highlights.

As we reported before our revenue to date has been generated by sales of the C-Pulse system to hospitals and clinics in conjunction with our US clinical study. We did not record any revenue during the second quarter of 2015 or 2014.

In the second quarter of 2015 there were no enrollments into the study as we worked to resume enrollment after the FDA approval to resume the study in May 2015. In the second quarter of 2014 the Company did not record any revenue because the implants performed did not qualify for reimbursement.

For the six months ended June 30, 2015 our results include revenue of $59,000, the same amount for the same period in 2014. As we have stated before we have obtained reimbursement for some but not all of our implant procedures because some private insurance companies and certain governmental institutions have a non-coverage policy for experimental or investigational procedures.

Since all activities are conducted under clinical studies in both the United States and Europe we will record all costs associated with our devices directly to research and development expense as incurred. We expect to continue to do so until such time as we begin producing devices for commercial sales in either Europe or the US.

Operating expenses on a GAAP bases in the second quarter of 2015 totaled $6.3 million compared to $6.7 million in the second quarter of 2014. Equity compensation expense included in operating expenses totaled $0.7 million for the second quarter of 2015 and $0.8 million for the comparable period in 2014. Excluding equity compensation expense, non-GAAP operating expenses totaled $5.6 million and $5.9 million for the three months ended June 30, 2015 and 2014 respectively.

The decrease in operating expenses during the second quarter of 2015 is a result of decreased spending in the COUNTER HF clinical study as a result of the clinical study pause that was announced in March 2015. We received FDA approval to resume enrollment in the study in May 2015 and are currently in the process of reactivating clinical sites and restarting patient enrollment in the study.

Operating expenses on a GAAP bases for the six months ended June 30, 2015 were $13.4 million compared to $13.1 million in the same period 2014. Equity compensation expense included in operating expenses during the first half of 2015 totaled $1.6 million compared to $1.5 million during the same period of 2014.

Excluding equity compensation expense, non-GAAP operating expenses totaled $11.8 million and $11.6 million for the six months ended June 30, 2015 and 2014 respectively. The slight increase over the prior year is primarily attributable to increased development expenses associated with our fully implantable system offset by decreased clinical research expenses related to the pause of our US pivotal study as we mentioned before.

Any fluctuations in equity compensation expense is attributed to the timing and structure of equity awards granted during the period as well as to fluctuations in our stock price. We expect equity compensation expense to continue to fluctuate based upon these factors.

Net loss in the second quarter of 2015 was $6.4 million, or $0.35 share compared to $6.4 million or $0.38 per share in the second quarter of 2014. Excluding equity compensation expense second-quarter 2015 and 2014 net non-GAAP losses totaled $5.7 million, or $0.31 per share and $5.6 million or $0.33 per share respectively.

Net loss in the six months ended June 30, 2015 was $13.4 million, or $0.75 per share compared to $12.7 million or $0.75 per share in the six months ended June 30, 2014. Excluding equity compensation expense, net non-GAAP losses for the six months ended June 30, 2015 and 2014 total $11.9 million, or $0.66 per share and $11.2 million or $0.67 per share respectively.

Cash used in operating activities totaled $12.8 million for the six months ended June 30, 2015 compared to $11.9 million for the same period of 2014 with the increase driven primarily by higher research and development expenses as well as interest expense on outstanding debt. During the second quarter of 2015 we exercised the right to borrow an additional $2 million under our existing debt facility with Silicon Valley Bank.

The second tranche became available when the FDA granted us approval to conduct an interim analysis of our COUNTER HF study. During the second quarter we made limited use of our existing at the market facility and sold approximately $200,000 of stock.

During the first six months of 2015 we received net proceeds from financing activities of $15.1 million as follows: $7.1 million from the sale of common shares under our existing ATM facility and $8 million from borrowings under the $10 million debt facility with Silicon Valley Bank. We had $33.4 million in cash and cash equivalents on June 30, 2015 compared to $31.3 million at December 31, 2014.

Going forward for the remainder of 2015 we expect to see modest albeit growing revenues in the US as we continue to grow patient enrollment into the trial. As we have previously stated we have not modeled any revenue from implants in Europe in 2015. We expect to submit for reimbursement in Germany again but we have not modeled any reimbursement in 2016 or any future projections at this point.

We expect our quarterly operating expenses and cash burn will be at the same or higher levels to comparable periods last year as we continue to support our studies in the US and Europe and continue to invest in our fully implantable system. Finally, during the remainder of 2015 we may selectively use our equity ATM facility when and if we deem appropriate.

I will now turn the call back over to Dave.

Thanks, Claudia. This concludes our prepared remarks. We can now commence the Q&A portion of the call.

(Operator Instructions) Josh Jennings, Cowen and Company.

Hi, good morning and nice to see the trial getting back up and running and enrolling. Dave, just a question for you first just in terms of the pipeline that you had developed that had been nicely built out prior to the stoppage of the enrollment back in early in March I believe, can you just talk about where those patients are and are any of them potentially coming back in and eligible as potential targets at some of these centers?

The short answer is yes. Some of them are coming back but I was just recently on the road meeting with some sites that were waiting to be activated.

And the comment when I asked them questions about some of the patients that they had previously in the pipeline where everything from we had patient deaths to patients being implanted with LVADs, to yes patients are still in the midst.

And maybe Molly can add a little bit more light to that. But Josh in short literally when we put out the release I think it was July 23 so about seven, eight business days ago we had in the low 40s in the pipeline and a few days later it was in the low 50s and I think as of this morning it's a little over 60. And we've also you may have noticed that we had been discussing 25 centers in the past.

Now we're referring to 27 as we're bringing on some new centers as well. So things at least in terms of reactivation even as of today we may get another couple sites up and running but I think we should be in great shape by the end of this month.

Molly, do you have any other comments about pipeline?

Good morning, Josh, this is Molly. No, I think Dave is absolutely correct. We have a very growing -- our pipeline is growing very rapidly.

We're up to mid-60s right now. And as you pointed out there were a number of patients that were being evaluated prior to the pause and there still are a number of patients that are in the mix. So we fully expect as we get those centers activated here in the next week or so that we'll be able to take advantage of those patients who have been waiting.

Great. And just on the OPTIONS HF trial, Dave, in Europe another enrollment in the quarter, can you talk about how we should think about the pace of enrollment and what are some of the hurdles? And then also when can we get some clinical progress updates on some of the patients that have the C-Pulse implanted as we roll through the second half this year?

Yes, so we actually had a fair number of patients that presented themselves in Q2 for the trial. And I'll let Molly maybe go into a little bit more specifics about why a number of them dropped out.

But the other challenge that we had was during the pause that was reports coming back from our people in Europe that there was a company out there that had gone to our centers in Germany and communicated that the FDA was not going to allow us to resume enrollment. So obviously those reports were not true but it did I think it did cause some of the centers to sit and wait at least until they had received more information that the FDA was going to allow us to continue the trial.

So Molly do you want to go into the patients that we had that fell out?

Sure. As Dave mentioned we evaluated six patients for potentially implant in Q2. Four of the patients screen failed for various reasons including calcification on the ascending aorta and one patient decompensated and will be reevaluated for implant in Q3.

As Dave mentioned we did also have some competitors spreading some misinformation. So now that we have gotten the green light from FDA we've been communicating very rapidly with our centers in Europe. And they are now actively screening and we currently have about five to six patients under review for Q3.

And the second part of your question was when do we think that we'll be able to communicate some data on the OPTIONS HF patients. Jim Georgakopoulos has been also collecting some additional data and I will pass this one over to him.

Good morning, it's a real pleasure for me to join the call today. We just finished, we just completed a study in some of the OPTIONS HF patients based on initial data we had seen during programming sessions on the COUNTER HF patients, and I can go into that later if it's needed. But we just completed collecting data in five or six patients which entailed non-invasive pressure measurements.

We had an echo machine available so we were able to obtain flow measurements from the aortic group and from the carotid artery which was really a first for this type of device. And combining those measurements we were able to fully characterize the effect of the device on the arterial system both on the proximal aorta and in the periphery of the system which I think is a novel observation. We plan on submitting that as a full manuscript in the fall in collaboration with the Seger's lab in Ghent.

So when do you think that might be able to be publicly communicated?

Once we submit the manuscript I would assume probably one of the higher profile journals we should hear back a couple of months after that. So maybe late November, mid-December.

So late second half, Josh. And we do plan on getting an update on just the data that we've been collecting, the normal primary end points and targeting one of the upcoming sessions for presentation.

Okay, my last question just on the fully implantable system it sounds like you're experiencing some nice progress and implants for first-in-man. And I know it's still early but any other potential color around the ultimate regulatory path for the fully implantable system?

Would that have to be another full ID trial or could there potentially be a supplemental PMA route? Thanks a lot.

Yes, we met with the FDA about six months ago. And the short answer is the purpose of the meeting was to get some guidance from them regarding what they were looking for from us in terms of preclinical data.

So the meeting was very productive. Obviously our goal is to not have to do a second efficacy study. But those discussions are really premature until and rightly so until we're able to go back to the FDA and agree on some preclinical protocols as well as obviously gather some of the data that they requested.

So maybe six months from now we'll have an update on where we are with that. But at this time it's still too early to be able to answer definitively what direction that will go.

Understood. Thanks a lot.

Thomas Gunderson, Piper Jaffray.

Hi, good morning, this is actually Kyle on for Tom. Following up on the previous question on the COUNTER HF trial and the pipeline of patients in queue, are there many competing trials both drugs or devices at your hospitals for class III or early class IV patients that could interfere with enrollment in the study?

Good morning, Kyle, this is Molly. To your question there are a few studies that are out there but we really don't believe that there are any trials out there that offer the characteristics that the C-Pulse system does.

So when I've spoken with a lot of positions the bottom line is they feel like this therapy has a chance to potentially halt the progression of heart failure, improve patients' quality of life and reduce hospitalizations. So although there are a few competing trials we really feel like we are a therapy that can address patients who have CRT.

We really feel like we fit with any other therapies or drugs that are out there. So we aren't seeing that much competition. For the centers that do have some competing trials we actually work with the coordinator to go through their screen fail logs and see if we can actually take that to our advantage and bring those patients into the C-Pulse study.

And the other piece of this is many of the trials Molly's referring to and ones that we've seen have been more in the gene therapy space. So recently there were two technologies, one MYDICAR which was Celladon's and another I think it's pronounced Bellerophon but that recently failed its end point.

So some of these studies, these two companies' trials are over now and which should open up more patients for us. But it is not necessarily a one to one comparison between the type of trial or between the type of patients they are looking for and the type that we are.

Okay. And do you anticipate your screened enroll rate changing materially with the modified screening criteria and the new Physicians Subject Selection Committee compared to before?

I hope not. We've only had one meeting but if there's any indication from that meeting, no, I seriously doubt that we should expect to see that number change with any significance.

Our biggest challenge has been used to be getting patients in. Now we get patients in and as I've said in previous quarters we just need to increase the percentage of patients who are willing to enroll in the trial. And I know Molly's team has been very busy working with sites as well as Dr. Abraham in cases to really work with some of the physicians in their presentation of the therapy to patients.

In the past we might have a coordinator of one of the physicians speaking to the patient about it. And our hit rates were about one out of every five patients and we really want to get one out of every three patients.

And recently a few things that have been done is Dr. Abraham has counseled some of the sites, some of the PIs at some of the centers as well as our encouragement of the centers to use really a team approach. So that it's not just the coordinator or not just the physician it's a group that's actually discussing the trial with a patient, hopefully in an effort to be able to improve those hit rates.

Okay, thanks. And then lastly having received status 4 for a German reimbursement you will be able to submit again for a status 1. It sounds like that's still the plan.

Could you talk a bit about the game plan now and how you'll approach the application this time around? Thank you.

Yes, it's a good question. Our head of reimbursement and myself attended a European reimbursement meeting a little over a month ago because things are changing in Europe with respect to reimbursement of devices.

And in Germany in particular obviously we were interested to hear what some of the changes may be which really don't start until 2016. But there were a few reimbursement experts from Germany that we spoke to and in the end we actually wound up hiring one of those representatives this year.

And in short we may employ it a different strategy. That's what this person is working on for us right now.

So I don't have an answer as to if we're going to go the NUV process or not. It may wind up being that way but there may be another approach whereas we wouldn't have to apply for an NUV, under the NUV process and potentially use an existing code. But more on that later when we have a more definitive proposal back from this consultant.

Jason Mills, Canaccord.

Thanks Dave for taking the question. A lot of things have already been asked but let me dive into a few things in a little bit more detail.

Obviously been a lot in the US trial that's gone on over the last year or so with I remember on one of these calls we talked about inotropic dependent patients and trying to remove that hurdle. And that has been done with the interim analysis now as part of the trial.

You had the pause, you were able to overcome that. I'm just wondering about the energy at your sites and their development of the referrals. You mentioned that you're getting the referrals, then you're trying to improve your screen ratio.

I'm just wondering generally about the energy at your sites and where and what do you think will drive sort of an inflection point where we start to see a real sort of surprising uptick month to month, surprising base relative to the current trend rates in terms of enrollment? And what will drive that and when do you think that will occur conservatively?

So the first part of the question in terms of given this pause where are sites at, I personally wasn't convinced that we should have an investigator meeting in May while we were paused. Because I was just thinking that many of these sites given that we're on pause, I mean their thought process is that the FDA may never allow this Company no matter what they're saying to recommence enrollment.

And Molly convinced me I was wrong. And she turned out to be right.

So having 25 centers there while a company is in a clinical pause, I mean our PI said to me they were actually shocked that the attendance and enthusiasm was as great as it was. And it is one of the reasons why I want to post some of the information from the sessions on the web because I think you'll come away with the same conclusion.

And maybe since Molly is out there on a daily basis, maybe you can provide a little but more color on feedback from the sites. But again I think in the end Jason it all comes down to are they -- did they all come back to be reactivated? The answer is yes.

Do we have patients in the pipeline? The answer is yes. But Molly, why don't you provide a little bit more color?

Good morning Jason. To Dave's point I can say with absolute certainty we have a group of extremely enthusiastic sites, including some of our newly invited sites who are doing database searches to tell us how many patients they could have to enroll into the study.

So physicians are desperately looking for an answer to that very challenging heart failure population and I think C-Pulse could be the answer they're looking for. So to better sum that up there's been a great partnership between Sunshine Heart and the sites. As I've been out I've been told on numerous occasions that the sites really appreciated the Company's transparency during the pause and that they believe the new protocol revisions will ensure we are enrolling the intended population and that they are eager to get started.

And in terms of this quarter obviously we won't, by the end of the quarter we'll have all the sites set up. We'll have a great pipeline of patients. If we're able to get -- if we stay at the current one out of every five we should be back to just about where we were before we stopped or before we had to pause enrollment.

So I think thereafter we should start seeing a nice increase in patients where you guys are thinking wow, this is really starting to take traction which I felt we had right prior to the pause. So with the inclusion of some additional centers I think at the end of Q1 we had 23 activated sites. By the end of August barring anything we will have 27.

So I think there's -- and the newer sites that we're bringing on I know Molly is even more optimistic about their ability to enroll patients.

I'm out traveling talking to these guys they feel that they've got a nice population of patients. So you get 100 patients and you're doing one out of every five you wind up with 20. You do one out of every three and obviously things really start to roll.

And I think we'll have an increasing pipeline. And hopefully with some of the changes that we've made I really expect to see those numbers increase as well for enrollments.

Thank you for that. That's great color Dave and Molly thank you.

And then just as we think about the longer-term you've answered some of the questions on the fully implantable which I had. We'll track that, that's exciting. But what I found interesting as well albeit sort of maybe less front of mind in investors' minds was the preclinical work that Dr. Slaughter did at the Jewish Hospital in Louisville.

I'm wondering if you could give us a quick tutorial on what you're seeing, what he's seeing with respect to C-Pulse's treatment of pulmonary artery hypertension which is a huge market opportunity? And I'm just wondering how you see that early playing out in terms of studying C-Pulse for that very deleterious indication?

Yes, so let me start off and then I will pass it over to Jim to get into more specifics. In short, the testing is starting this quarter and I believe Jim, it's this month isn't it?

It's first week of September.

First week in September. So in about a month they will start that. There's been a fair amount of published information on manipulation of the pulmonary artery and the effect that it may have on pulmonary hypertension.

We filed IP in the space to really protect the concept. But what we finalized was the protocol, the plan for preclinical testing with Dr. Slaughter. And Jim can go into a little bit more specifics about what we're going to be evaluating.

Hi, good morning, Jason. We went through the last couple of months putting a fairly detailed protocol together.

Part of the I wouldn't say delay but doing large animal studies in pulmonary hypertension because some of these studies are going to be chronic studies. And animal ethics committees right now are very hesitant and scrutinize these protocols very carefully. As you know the pulmonary hypertension models are rather extreme.

But the protocol involves basically three stages. One was just putting our balloon on the pulmonary artery itself which as you may know in pulmonary hypertension this is where a lot of the load on the right ventricle is. So being able to just counterpulsate offering an unloading effect may have benefits there.

The other one is and one that may not be really appreciated is when you counterpulsate on the pulmonary artery you also affect pressures and flows downstream of there which is basically the left atrium and the left ventricle. Part of the problem in pulmonary hypertension patients is that the left ventricle doesn't get enough blood. So it's not only unloading but we're also pushing blood forward into the left ventricle.

And the third aspect is actually looking at what's happening to coronary perfusion of the right ventricle as well while we're counterpulsating. Again very similar to what we do on the left side but a lot of the issues in pulmonary hypertension patients is the underlying ischemia and the extra load that is placed on the right ventricle.

That's interesting. And Dave, just following up on that, could or has the C-Pulse been used in conjunction with an LVAD in a very sick left ventricle?

Given what you're finding it does to the right ventricle, talk about the potential, I mean you've talked about the potential obviously for a sustainable device for class III ambulatory. But as a combo device to treat a relatively high incidence of right heart failure in LVAD patients?

Go ahead, Jim.

Yes, that's obviously a key indication is doing a combo device. As you know many patients on LVAD develop right heart failure or not even right heart failure but RV dysfunction to the point that makes the LVAD not as efficient as it could be. And of course as we're thinking down the road here in the pipeline if we do have a fully implantable system the heart failure preserved ejection fraction market which a lot of those patients suffer from pulmonary hypertension problems may become an option for us as well.

Fantastic. I will get back. Thank you.

Steven Lichtman, Oppenheimer.

Thank you. Good morning.

Dave, you mentioned Germany. When do you anticipate getting some more visibility on the pathway there? And any other countries that we could look for perhaps coming online in the foreseeable future?

Steve, we're expecting in the next two to three weeks to get a recommendation back from the consultant that we've hired. So that's pretty much the timeline there. Right now we're really focused on Germany.

That's where really the bulk of all of our cases are being done. That's really where we've got the most support. And that's really where we feel the greatest opportunity is for our technology in Europe.

So we'll start there. We're established there, most of our centers are there and then once we get traction there we'll start to expand from there. But I would assume that in the next few weeks we'll have an answer back as to the path we're going to take.

Got it, okay, great. Then relative to the fully implantable program, obviously the biggest component is TET but I was wondering if you could provide some color on the other enhancements you're looking to make in terms of the wearable components and the smaller implant and some of the potential benefits to patients of those?

Yes, obviously the biggest benefit is going to be the elimination of the driveline. To be able to provide -- to be able to have an assist device that doesn't require any breach of the skin you're able to eliminate the whole issue of exit site infections which is a big issue from a quality-of-life standpoint.

And we strongly believe that with a fully implantable system even patient willingness or patient interest in the therapy, I believe and I've heard this in the field would skyrocket. So I think it eliminates the biggest hurdle for us.

As far as the wearables concept we're not there in terms of developing those. But there's been a number of discussions about putting the external sensor into an article of clothing versus just having tape it to the skin.

We're obviously in a position where we're trying to get this into our first human experiences. And I think once we demonstrate that this works the way we think it will work then I think we can focus more of our efforts on more of the enhancements for patients. But just being able to eliminate that external line from a quality-of-life standpoint is going to be probably the biggest enhancement that anyone with a circulatory assist device could offer.

Sure. And lastly, obviously you mentioned you're targeting first-in-man third quarter of next year. I apologize if I missed this, but will we get any updates on animal results over the next 12 months or so?

Yes, you will get them this year. What we said was we're going to be starting chronic animal studies with the full system, it's either going to be late third quarter, early fourth quarter. But they are 90 days studies so we'll be providing updates as we get additional data from those evaluations.

The good news is in talking to our partners that are working with us in the development of this we feel very confident that this is going to happen in the timeframe that we expect it to happen. And that it's going to have a major impact once we're able to get this out into the field.

Great, thanks Dave.

Suraj Kalia, Northland Securities.

Good morning, everyone. So Dave and Molly, first question for you all, the mid-60s amount of patients in the funnel, Dave I heard one in five, one in three in terms of enrollment.

I guess a lot of questions have been asked on the call. So what I'm trying to understand is at this stage of the game what moves the needle from one in five to one in three to one in two and how does this stack up to other heart failure device enrollment versus randomization at this stage of the game?

Yes, so keep in mind you're talking Molly said today it was in the mid-60s. You're talking about 15 centers out of 27 centers that are activated. So while we had encouraged a number of these centers to screen patients so that they would obviously have a pipeline already in place not all of them were willing to do that.

They've got other studies that they're managing. So those numbers I expect to grow as we get more and more sites on board.

My opinion in discussions with Bill Abraham and Dr. Camacho it is being able to improve the hit rate for patients willing to participate in the study. And in the beginning it was all about filling the funnel and creating awareness and I feel that at least at the site levels we've done that.

Now it's a question of being able to get these patients to agree to be willing to participate in the study and we don't present the therapy to the patients. It's the clinicians and the physicians that do that.

And Suraj it comes down to at times we have sites that we have one center in particular that's had I think 11 of 13 patients that they've enrolled and other sites or another center that was 0 out of 10, 0 out of 12. So what's the difference?

It's the same therapy. It's the same information that both sites have. It's the presentation of the therapy.

And that's really what Dr. Abraham we've identified some of those sites that have struggled to get patients to agree. Dr. Abraham has talked to some of the PIs at the centers. We have seen some improvements.

Time will tell if that's going to be if they're going to be consistent or not. But that's what's going to move the needle, ensuring that these positions are presenting it in a manner that is attractive enough for a patient to want to move forward.

So that's the short answer with respect to that. Anything you want to add Molly?

I think the only two points I would add to it is for these patients who have been under the care of a heart failure physician or a nurse practitioner for a number of years there's a trust that's built with that provider. And we have to realize that with the C-Pulse system this isn't a stent study, this so we've really worked hard to say after you talk to them about being a participant in the C-Pulse study to stay with them and answer all of their questions as we go through the consent process versus turning that over to a research coordinator whom the patient has never seen before. And we feel like making that a team approach to consent where it is the provider who has been managing the patient's heart failure along with the clinical coordinator has improved our rate of consent.

The other big thing I think that's helped is we've worked with what we call a patient ambassador. So it was a patient who had a very good experience in our feasibility trial, the patient was weaned off therapy. But he knows what it's like to live with the device and often patients ask the question well how will this be with the driveline they have questions about the system?

And we've been able to work with the center to have a patient-to-patient conversation that's moderated by the PIs at those studies. So that's been very efficient as well.

And then Suraj, how does this compare to other trials? I don't think you can compare it to gene therapy trials where they are injecting genes into the coronaries.

But the only other recent study that was attempted was Thoratec. And obviously Thoratec is no longer conducting the Revive-IT in its current form. They went through a number of patients that they screened and tried to enroll.

I think in the end they said they actually had one patient that was part of the study. So it obviously the trial was halted and they started before us. So what we're talking about here is market development.

We don't have a cooler widget for an existing market. We're creating a market in a space that doesn't really have any good solutions.

So that's the only other study that I can really speak to. And I don't think you can compare it to a diagnostic device like the CardioMEMS device that St. Jude has. So there's not a lot of comparables in here and the only one was obviously is no longer conducting that study.

Fair enough. Dave, not sure if I missed any commentary you made. What is the current status of the C-Pulse patients in Europe, the four or five patients that were weaned off?

Can you give us some color on their hemodynamic, their cardiac output or their functional status and whether they are still on, off? Any color would be great.

Yes, Suraj, so on the OPTIONS patients there is only one that we refer to. We're not allowing in OPTIONS or in the pivotal study, the weaning, we're not allowing weaning of patients because obviously that could impact our primary endpoint of rehospitalization due to worsening heart failure.

And so the one patient that was weaned in OPTIONS this was a gentleman that had colon cancer, throat cancer, he was undergoing chemo, radiation and we requested that the device be turned off because we weren't sure what if any impact it would have on the balloon or any of the implantables. And I know that the gentleman was pretty ill with respect to his cancer, but Molly do you know where he is at this point?

Yes, he is still terminal at this point. But he's actually feeling really well and the patient had actually asked to keep the device on because he was feeling so good with it. And so it was really a decision that his provider had made.

Dave, I was asking about the feasibility study, not the OPTIONS HF. Are those patients still off or any color would be great?

Yes, so none -- we don't evaluate hemodynamics I think it's after the first year. It's just a follow-up. And in short none of the patients have had to go back on therapy but as far as any other hemodynamic information or objective measurements we do not collect that or we did not collect that after 12 months.

Fair enough. One final question, Dave, for you or for Jim, and forgive me if this sounds pedantic for this call so I'd be more than happy to take it off-line.

Dave, it seems like you all are building a body of evidence again to either quantify the mechanism of action or eventually tie it into functional outcomes, clinical outcomes, however you want to do it. And again I'm very curious about this whole effort for measuring activity of the sympathetic nervous system, what's going on in the peripheral activity.

I guess can you give us some color on what you will have seen with intra-aortic counterpulsation, how you are applying it to extra-aortic what you guys are doing, what's the current body of evidence and what leads you all to believe you know what we need to go down this route, invest more because this will eventually help us get to this point? Thank you for taking the questions.

Hi, Suraj. Yes, that was -- it came about from the initial programming of the patients here in COUNTER HF and we took some devices out to record our non-invasive pulse waveforms. What we observed was we observed a typical unloading effect, this pre-systolic dip that is associated with counterpulsation. But then what was really striking to us was that very late during ejection when we looked at the waveform that load seemed to be reduced as well.

So this was one that the balloon had fully expanded there was still something going on in the peripheral arterial system that we believed is due to activation of some type of neural reflex. And the obvious target for us obviously was our high-pressure aortic baroreceptors on the ascending aorta and the aortic arch, exactly where we are putting the balloon.

So we have studies now, this is what drove the OPTIONS study in those patients to fully characterize this peripheral effect. But we're now also partnering with sites. Many physicians when they hear this are obviously interested in starting their own studies at their centers where we're actually going to measure sympathetic nerve traffic through muscle sympathetic nerve activity reporting which involves putting electrodes in peripheral nerves.

And the unique advantage of the device is we can turn it on and off and do direct comparisons immediately. There have been, historically there have been a couple of reports with the intra-aortic balloon pump where if it's placed high enough up in the aorta, people have described this, at the time it wasn't baroreceptors but they called it some type of neural reflex and they tried to block it with beta blockers which they pretty much did for the most part.

So we're very excited that there may be this other component rather than just a mechanical and hemodynamic effect. As you know there's a lot of effort in developing devices, a lot of money from the NIH now is being put into neuromodulation devices and I think this really provides a chronic basis for any therapy in heart failure. Many other medications now basically target some component of the sympathetic nervous system.

And I don't think it's been attempted with intra-aortic balloon plasty because they are not outside the aorta, the ascending aorta anyway.

Correct.

Thank you.

(Operator Instructions) Jan Wald, Benchmark Company.

Thank you. Good morning everyone and congratulations on the progress. Really most of my questions have if not almost all my questions have been asked but maybe going back just a couple of real quick ones.

Going back to the enrollment rate, the one to five to one to three, what are the options that these patients are considering when they're considering going into your trial or having some other therapeutic option? What's driving them to perhaps not go into the trial versus doing something else?

Yes, thanks for the question, Jan. In short it's usually the decision that the patient makes is or the choice they have is to do nothing, to wait until they get sicker to require an LVAD or to move forward with our device.

And if you go back and you take a poll of cardiac surgeons to a greater extent, maybe to a lesser extent heart failure cardiologist, the theme that I've heard from day one is that patients don't think they need and LVAD. And there was a publication a few years ago out of INTERMACS that said, and I don't know what the numbers are today, but at least a few years ago the report showed that 80% of all the patients that received an LVAD were done on an emergent basis.

So what that told me was these patients weren't coming in and electively choosing to have an LVAD, they were definitely sick, they were at a position where they had to make a decision and they were opting to do that. I still hear those same stories today that patients don't think that they're sick enough to require a device like that and it's because the medical community probably hasn't done a good enough job of explaining to patients that heart failure is progressive and the high mortality rate is associated with it.

The comments that you hear are, gosh, from patients, well so I'm just getting tired I can't do as much, I'm getting older, maybe that's normal. So it's the same issue that I believe based on feedback that LVADs have.

So it's not like they're opting to pick another therapy or that they think it's more attractive to wind up getting an LVAD, but what's the less invasive thing to do? It's to do nothing, it's to continue to take medications because at least you know where you are.

And to Dave's point -- this is Molly. We have experience where patients felt like they didn't want to do anything, they declined the study but we've continued to follow them and as their disease progressed they've actually enrolled into the study. So those patients that may decline now we're going to keep an eye on and potentially bring back for reevaluation and speak to them again about participating.

Thank you. That was very helpful.

I may have missed this but it seems like you're going to have your centers on the COUNTER HF trial, you're going to have your centers up by the end of August. Do you have any sense of what the endpoint is going to be for enrollment and for when you might be able to submit any kind of update on that?

I'm sorry, I wasn't sure I understood the question. Are you talking about what specifically were you referring to?

I'm sorry, your pivotal trial in the US, do you have a sense now for when you might be able to complete that study and submit to the FDA?

Yes, so really the next big data point for us is the interim analysis which we think that we'll have enough patients for the interim analysis late next year. We've previously communicated that by end of 2016 we would expect to have enrolled enough patients to do that.

Now we want to be conservative with this because this trial obviously, getting class III heart failure patients to enroll has taken us longer than what our original schedules had shown. That being said, we feel a lot of the obstacles are behind us and the piece moving forward is really to get these patients the pipeline of patients we have to agree to do this.

As we add more centers those numbers could change, it could get better. But I'm really encouraged, I know Molly is, I know her team is based on what we're seeing. But that's more or less what we've modeled into our plan as a major inflection point.

Okay and one last short one I hope. In terms of the fully implantable device, what steps do you have to go through now to get to the first-in-man? Is the design frozen or are you just starting manufacturing runs?

What's happening now? What do you need to do?

Yes, the design is not frozen. We have the Company, we're not manufacturing the technology so our vendors are doing that. And really the next steps are to put it in animals for to evaluate over a 90-day periods.

So I don't know if today they are manufacturing those pumps but I'm assuming that they will be in the near-term. And once we're able to keep them in patients for that period of time -- patients, sorry, animals for that period of time we will have a much better idea of performance and what if any changes that need to be made from a design standpoint.

But at this point we're pretty darn encouraged with what we're seeing from what we've done already and expect that we'll be tweaking things between now and the first-in-man.

Thank you very much and congratulations again on the progress.

I am showing no further questions. I would now like to turn the call back to Dave Rosa for any further remarks.

I just want to thank everyone for their participation, their questions on the call today and look forward to providing more updates as appropriate.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.