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HeartWare International Inc. (NASDAQ:HTWR)

Q4 2012 Earnings Call

February 27, 2013 8:30 am ET

Executives

Douglas Godshall – Chief Executive Officer

Peter McAree – Chief Financial Officer

Chris Taylor – Vice President, Investor Relations

Analysts

Rajeev Jashnani – UBS

Mike Weinstein – JP Morgan

Bruce Nudell – Credit Suisse

Jason Mills – Canaccord Genuity

Danielle Antalffy – Leerink Swann

Jason Bedford – Raymond James

Mimi Pham – ABR Healthco

Larry Beigelsen – Wells Fargo

Dan Sollof – Barclays

Operator

Ladies and gentlemen, thank you for standing by and welcome to the HeartWare 2012 Fourth Quarter and Year-End Results conference call. During today’s presentation, all parties will be in a listen-only mode. Later we will conduct the question and answer session. If you have a question, please press the star followed by the one. You may withdraw your question by pressing the star followed by the two, and if you are using speaker equipment, please lift the handset before making your selection.

At this time, I would like to turn the call over to HeartWare Management. Please go ahead.

Chris Taylor

Thank you, Operator, and thank you all for joining us for the HeartWare International conference call and webcast to review results for the fourth quarter of 2012.

During the course of this conference call, the company will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, development pipeline and business trends. These statements are neither promises nor guarantees but involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A detailed discussion of the risks and uncertainties that affect the company’s business and qualify the forward-looking statements made on this call is contained within HeartWare’s filings with the SEC, particularly under the heading Risk Factors described in the company’s annual report on Form 10-K and contained within other filings that the company makes from time to time with the SEC. Copies of HeartWare SEC filings and the news release for this earnings call are available from the SEC or by clicking on Investor Relations within the HeartWare website. Any forward-looking statements are based on judgment, assumptions, estimates and other factors that are subject to change and therefore these statements speak only as of the date they are given. The company does not undertake an obligation to update any forward-looking statements.

Participating on our call today are HeartWare’s CEO and President, Doug Godshall, and Chief Financial Officer, Peter McAree. Each will provide commentary on the company’s fourth quarter financial results as well as a corporate update. Those prepared comments will be followed by a Q&A session.

And now I’d like to turn the call over to Doug Godshall. Good morning, Doug.

Doug Godshall

Thanks, Chris. It’s a pleasure to be speaking with you this morning to review results from the fourth quarter of 2012, during which our HVAD system received FDA approval and we commenced our commercial launch in the United States. I’d like to make a few opening remarks and then turn the call over to Peter to put our fourth quarter results into context.

Our revenue for the quarter came in at 32.7 million, slightly exceeding our preliminary revenue announced in early January and representing a 42% increase over the fourth quarter of 2011. In the U.S., our team moved swiftly to ensure that our 50 clinical trial sites had commercially labeled devices on their shelves within weeks of FDA approval. That effort enabled a strong second half of the quarter and contributed to a 60% increase in U.S. revenues during the fourth quarter of 2012 over the fourth quarter of 2011. During the quarter, we sold a record 445 HeartWare systems globally, 35% more than the 256 units we sold during the third quarter of 2012. Total revenues for the full fiscal year of 2012 crossed the $100 million threshold, coming in at approximately 111 million.

Looking at a couple of launch metrics at this three-month mark post-approval, we have trained 18 new U.S. sites since approval and two more sites are being trained later this week. So combined with our clinical trial sites, we are well ahead of our goal, which was to have 75 sites trained in the first six months post-approval. We are truly grateful for the enthusiasm we have seen from surgeons, cardiologists and VAD coordinators alike to help us establish such a robust momentum in our U.S. commercial launch so quickly. Our mission is to help U.S. physicians understand that they can rely on the HVAD as an essential part of their treatment portfolio just as their colleagues in international markets have done over the past four years. I would like also to note that in the past couple of weeks, we attained the milestone of 3,000 patients implanted globally with a HeartWare ventricular assist system. Considering how few VADs ever get beyond dozens of implants, let alone hundreds, we recognize how fortunate we are to have such a strong physician champion base around the world and we commit ourselves daily to doing everything we can to ensure excellent patient outcomes with our device.

With those comments, I will turn the call to Peter to discuss our fourth quarter financials and I will come back later to provide you with additional thoughts. Peter?

Peter McAree

Thank you, Doug. We are pleased to report results for such an exciting quarter and to close the books on a decidedly positive 2012 fiscal year for HeartWare. As Doug noted, we achieved record revenue of 32.7 million in the fourth quarter on the strength of post-commercial launch revenues in the United States which resulted in 42% total revenue growth compared to the fourth quarter of 2011. On a full-year basis, we achieved revenue of 110.9 million in 2012, driven primarily by international revenue expansion which resulted in 34% total revenue growth compared to 2011. Currency fluctuations negatively total revenue growth by approximately 1 percentage point in the fourth quarter and 6 percentage points on a full-year basis in 2012 compared to 2011.

Going into greater detail on the fourth quarter, starting first with the U.S., we sold 134 systems resulting in U.S. revenue of 13.4 million in the fourth quarter of 2012, up 60% from 8.4 million in Q4 of 2011. In January, we provided a broad breakdown of the U.S. unit distribution as part of our discussion of preliminary revenue results for Q4. Today we confirm that of the 134 units sold in the U.S., 59 were sold commercially between approval on November 20 and the end of the year; another 51 were purchased by new sites or customers moving off consignment, and the remaining 24 units occurred prior to FDA approval, including completion of the final BTT CAP.

Internationally we sold 211 systems outside the U.S., resulting in fourth quarter international revenue of 19.3 million, representing an increase of 31% compared to international revenue of 14.7 million in the fourth quarter of 2011. As we noted previously, overall international unit sales declined approximately 1% sequentially from the third quarter of 2012; however, the number of HVAD special access cases in Canada alone accounted for 6 points of sequential decline, so excluding Canada international unit sales increased approximately 5% sequentially compared to the third quarter. This one example reinforces the notion that the VAD space is still quite young and from quarter to quarter we will see some lumpiness in utilization. On a full-year basis, our international revenue grew 53% in 2012 compared to 2011, and we continue to anticipate strong long-term international market growth with an expected range of 15 to 20% per year. As of December 31, we had a total of 106 hospital sites outside the U.S. and 56 active training sites in the U.S.

For the fourth quarter, gross margin was 59% compared to 52% in the third quarter. The introduction of commercial pricing provided a 3 point boost from higher ASPs during the fourth quarter; however, inventory adjustments and manufacturing variances offset the initial benefit of our U.S. commercial pricing by approximately 6 percentage points, which would have put overall gross margin in Q4 in the mid-50s, similar to where gross margins ended up on a full-year basis.

During the fourth quarter, we undertook a thorough review of inventory on hand, including IDE-labeled product which was held as customer sites on a consignment basis prior to PMA approval. In the course of rotating out the IDE product, we made selective decisions about whether product would be reworked or otherwise reserved as unsalable. Also as we discussed in last quarter’s earnings call, we expected continued unfavorable manufacturing variances in the fourth quarter and that the benefits of incremental production scale would not begin to accrue until we moved further into the year in 2013. Our gross margin was 54% on a full-year basis in 2012 and we’re confident that as the commercial rollout continues, we should see gross margin improve toward plus or minus 60% on a full-year basis in 2013.

Total operating expenses for the fourth quarter of 2012 were 35.4 million as compared to 30.8 million in the fourth quarter of 2011. In general, operating expenses are higher compared with the fourth quarter of 2011 as a result of increased R&D spending related to clinical trial costs and our rather robust pipeline of new products on the horizon, including MVAD, PAL, TETS, and Longhorn, to name a few. In addition, throughout 2012 we made steady investments in selling, general and administrative areas to scale up resources into an enhanced corporate infrastructure to support our rapid growth. I want to point out that we plan to account for the new 2.3% med device tax, which became effective in January, within selling, general and administrative expenses in our P&L in 2013.

On a sequential basis, research and development expenses increased by 800,000 to 22.2 million in the fourth quarter from 21.4 million in the third quarter of 2012. The increase was primarily related to project spending and a one-time development payment which we called out last quarter, partially offset by a decline in clinical trial costs. We anticipate that R&D expense will trend higher in 2013 due to advancement of our pipeline and initiation of new clinical trials.

Selling, general and administrative expenses decreased sequentially by 500,000 to 13.3 million in the fourth quarter of 2012 from 13.8 million in the third quarter. The $500,000 decrease was primarily due to a reduction in share-based compensation expense offset by various other expense increases. We expect SG&A expense to trend higher during 2013 as we make continued investments to maintain our momentum in the U.S. and to support ongoing growth and as a result of the med device tax.

During the fourth quarter, we recorded net other expense of 1.8 million comprised primarily of interest expense of 2.9 million related to our convertible notes offset by foreign exchange gains of approximately 1.1 million. The latter resulted from an increase in dollar equivalent values of foreign-denominated cash and receivable balances held during the fourth quarter.

Net loss for the fourth quarter of 2012 was 21.1 million or $1.46 per basic and diluted share as compared to a net loss of 21.6 million or $1.53 per basic and diluted share in the fourth quarter of 2011. There were approximately 14.5 million weighted average shares outstanding during the fourth quarter. As of December 31, we had approximately 103 million in cash and investments. We believe that our cash position enables us to invest confidently as we position ourselves for sustained growth and expanded global commercialization.

We are certainly proud of the momentum we’ve established in 2012. Before handing the call back to Doug, I want to point out that international sales grew rapidly over the first half of 2012 as a result of 26 new OUS sites that came on board in the first half of last year. As a result, OUS revenue growth comparisons will be challenged over the first half of 2013 and our international revenue growth is likely to be slanted more heavily to the back half of the year.

Thank you for your time this morning. I welcome your questions when we move back to Q&A, and I’ll now hand the call back to Doug.

Doug Godshall

Thanks, Peter. Before we open to questions, there are a couple of other items on which I’d like to briefly comment. I’m happy to report that the launch is proceeding quite well, as noted previously. We are seeing an encouraging expansion of the base of implanting centers and a rapid blurring of IDE versus non-IDE sites given how quickly several of the new centers have come up the curve. The VAD teams are also collectively going through the process of adjusting to having a choice for the first time, which some sites respond to immediately while others take a little time acclimating to. In the past two weeks, we have had two more of the 50 IDE sites conduct implants, bringing the total to 41 sites which have utilized the HVAD in treating their advanced heart failure patients. This count is up from 27 sites at year-end.

With nearly 70 U.S. sites today, on our way towards 100 or more trained commercial sites by the year end, we do envision growing our team commensurately to ensure we provide the best possible service for our customers. We anticipate having roughly 50 people in the field by the end of the year and this increased capacity will also be leveraged to support the MVAD clinical trials in the U.S. As we look to expand the market for VADs generally and the HVAD specifically, one opportunity that has clearly presented itself is to branch into new patient groups which our device is well suited to address.

We are in the process of pursuing HDE status, or humanitarian exemption, for the HVAD for right heart support, which will likely follow with an HDE for pediatric use. In the meantime, these types of implants already occur from time to time through emergency or compassionate-type use. Interest among U.S. pediatric sites has been stronger than anticipated, and while our first preference is to have any potential pediatric implants conducted at adult hospitals where the experience and infrastructure is in place, we can’t force this and there may be more pediatric need than we anticipated as a couple of centers have already conducted multiple procedures.

Another recent development is an HVAD thoracotomy implant registry which is about to get underway with Dr. Anson Cheung of St. Paul’s Hospital in Vancouver and Dr. Ed McGee of Northwestern as the co-principal investigators. The data from this registry will be collected via Intermax which is currently in the process of adding new data fields to accommodate this implant technique since previous devices were generally too large to place via thoracotomy so there was no need to monitor a thoracotomy versus sternotomy implant approach. The principal investigators felt it important to track the thoracotomy patients separately to confirm that some of the expected benefits, like shorter hospital stay, decreased bleeding, reduced heart failure and the like proved to be true. We are delighted to see this coming together so quickly at the initiation of the clinical community.

Some thoracotomy implants have already taken place in the U.S. post-approval and several of our busier centers outside the U.S., either exclusively or nearly exclusively, implant in this fashion. We’ve also observed that some international centers are now extubating their HVAD patients in the OR, something that would have been hard to imagine a couple of years ago, and more importantly a trend that could lead to a very helpful reduction in resource intensity and associated costs of caring for our patients post-implant.

We are often asked about the line between bridge to transplant and destination therapy and the relative greyness or blackness of that line. Since there are so many factors physicians have to consider when treating these very sick patients and determine whether to list them now, list them later, or never list them, it is hard to articulate exactly where that line is and it appears to us that the line varies site-by-site and also changes over time.

On the subject of destination therapy, we are progressing in our discussions with the agency regarding an additional patient cohort. As we anticipated, changing the protocol to better monitor and manage mean arterial pressure and confirm the positive impact expected on outcomes requires a little more thinking than a simple CAP request would. We are more convinced than ever that the extra time spent negotiating a revised protocol is well worth it as our existing MAP data is so compelling that we are confident that the results from this new patient group will further support destination therapy approval.

As most of you know, CMS reopened the national coverage determination, or NCD, for VADs a few weeks ago. While their public notice requested comment regarding data supporting different patient types and site certification, we know there are also physicians and potentially a society or two that is going to ask CMS to consider adding the concept of bridge to decision so Medicare bridge to transplant patients would not have to be listed for transplant, which would harmonize with virtually all the private payors. Although one never knows exactly how a process like this will play out, on balance we don’t have any real concerns about any particularly negative outcome from the NCD, and in reality there may be an equal chance for an upside outcome.

The SHLT, or Society for Heart and Lung Transplant meeting is right around the corner and there will be several presentations highlighting the strong performance of the HVAD. One of particular interest is the presentation by Dr. Martin Struber of Leipzig University of data from a multi-center international registry called Revolve, which is analogous the post-approval study we are currently enrolling in the U.S. We look forward to this real world multi-center HVAD data set which will be the first of its kind.

International markets remain strong and we continue to be impressed by the expanding use of VADs both in established countries as well as in new markets. The first half of 2013 will be compared against the extraordinary market expansion we saw in the first half of 2012, as Peter noted, but we have little doubt that the strong growth that we’ve witnessed in the past four years since we were approved will continue over our planning horizon.

As Peter referenced, we did have an anomaly last quarter in Canada where sites have used the HVAD under a special access protocol. Regulatory requirements made it harder for the sites to carry inventory of the HVAD, and as a result we lost a dozen or so implants in the fourth quarter due to the higher logistical hurdle of getting HVAD on the shelf in time for cases with little advance notice. We anticipate HVAD approval in Canada later this year, perhaps as early as the summer.

With regard to MVAD, we initiated site training for the CE Mark approval study in November and we are very excited to move forward with this study. We recently expanded the study to 63 patients at nine centers, up from 50 patients at eight centers due to a near insistence by one of the top tier European centers that they be included in the study. Currently we are in the process of concluding verification testing, which is coming to closure nicely. We did experience a bit of a delivery delay by the vendor providing the touch screen display component on our new controller, which caused us to push the first implant into the May-June time frame.

Our other development projects continue on pace, although they are second in priority to commencing the MVAD clinical trial. TETS remains on track for preclinical studies with upgraded systems later this year, and we have some new enhancements we are experimenting with that could further improve reliability. The Longhorn configuration of the MVAD is in queue and we continue to refine production techniques and delivery concepts while we wait for confirmation that the MVAD platform on which Longhorn is based performs as well as we expect it to. Once we know for certain that the MVAD is a winner, the Longhorn will shift onto fast track for GLP testing.

The more time we spend in the market, and particularly now that we have three months under our belts in the U.S., the more convinced we are that with HVAD leading the way, our pipeline is remarkably well positioned to penetrate and expand the market for the next decade. In short, we have a tremendous opportunity that is starting to play out in front of us in the U.S., as it has internationally since 2009; yet we have so much to do if we want to avail ourselves of this opportunity. We have to ensure that the good clinical results that propelled us to leadership in Europe are replicated here in the U.S.

Thank you for your interest, and we would now like to open it to questions.

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator instructions]

Our first question is from the line of Rajeev Jashnani. Please go ahead.

Rajeev Jashnani – UBS

Hi, good morning guys. I was just wondering about the DT indication or the DT filing. Maybe you could give us your latest thinking, if you don’t mind, on kind of the regulatory strategy there in light of the fact that some patients brought (inaudible), how you expect that to play out; and then perhaps any updated thoughts on timing for the DT (inaudible). Thanks.

Doug Godshall

Yeah, thanks Rajeev. So for those who haven’t tracked it as closely, we started the DT trial with a pump with a smooth inflow cannula and then switched to a sintered inflow cannula about a third of the way or so through the trial, so the majority of the data is with sintered pumps. Given the initial protocol, the submission would—we’d be obligated, I think, to include all the patients but obviously we would analyze the data with and without sintering to the extent that there may be any differences. But certainly, we would want to have to benefit of the full sintered cohort and follow-up, last patient having been implanted in May of last year.

In terms of the additional patients in the CAP or the revised protocol that we’re working on right now, or negotiating with the agency right now, I’d love to give you a precise date as to when that’s going to happen. I’ve proven that it’s very difficult to predict exactly how long it takes the FDA to evaluate changes like this. The dialogue has been productive. I don’t anticipate that we’re going to be seeing—I’m pretty certain we will not be seeing the CAP approved this quarter, so we’re expecting it to be next quarter, and we do think that that’s going to be a very helpful set of data to supplement sintered and unsintered, the aggregate endurance data set because we saw such a high correlation in really both types of strokes with patients who had high mean arterial pressures and spikes in mean arterial pressures, and we saw that the nine sites that controlled pressures best had about 1/9th the incidence of hemorrhagic strokes relative to the rest of the sites. So we are encouraged that this concept seems to—the agency appears to be receptive to this concept of better blood pressure management and its potential to correlate with material improvements in supervascular incidents, which will then also obviously translate into improved efficacy outcomes if you also drive down the stroke incidence. So we’re pretty bullish about this revised protocol and the feedback we’re getting from the sites that both—the nine sites who had the best management techniques, as well as the other sites that we consulted on the protocol with. It looks like it will be a very sort of user-friendly, not particularly burdensome protocol change but will result in significant benefits for patients.

Rajeev Jashnani – UBS

Thanks, and maybe just one follow-up on the ex-U.S. performance. Just to clarify some of the comments there, maybe just a little bit more on what you’re looking for in terms of growth in the first half ex-U.S., just given how kind of remarkable the growth was in the first half of ’12. Is it flattish, double-digit? Any quantitative color would certainly be appreciated there. Thanks.

Doug Godshall

Yeah, maybe Peter and I will both answer that. I’d say—we don’t give guidance, obviously. I would say the wonderful thing about the, whatever it was, 276 units I think it was in the second quarter, is when you experience it, it was jaw-dropping; and part of it was just the huge wave of new countries and sites that came on and the benefit of some stocking inventory at those—I forget how many sites came on in the second quarter, but it was a bunch of centers. We had, like 20-some centers in the first half of the year, 26 I guess it was. So at each of those centers, that at least two units per center and stocking inventory, so that’s sort of 52 units that propped up or expanded our first half revenue line. We don’t anticipate that kind of site expansion bolus in the first half of this year, so that comp itself is a little bit challenging.

We do think that we’ll see double-digit growth for the year. I think in the second quarter it would be shocking to me if we saw double-digit growth in the second quarter versus second quarter prior, just because the comp is so gaudy and was inflated by incremental stocking.

Rajeev Jashnani – UBS

Great. Thanks so much, guys, and nice work on the U.S. launch.

Operator

Thank you. Our next question is from the line of Mike Weinstein with JP Morgan. Please go ahead.

Mike Weinstein – JP Morgan

Thanks, and Doug, I think we’re consistent relative to the 2Q model, for what it’s worth. A bunch of questions, Doug. The first one that kind of caught me in your commentary that I thought was interesting was you referred to the blurring of the IDE versus non-IDE sites, and I wanted you to expand on that a little bit. Maybe you can give us some flavor for the utilization you’re seeing in the IDE sites versus the new sites that have just recently been trained.

Doug Godshall

Sure. So first I’ll remind folks about what we have said historically about the IDE sites. So as a reminder, we had 50 sites and we’ve always—we had anticipated that when we launched, that there would be sort of a bell curve-like enthusiasm for the device. You have folks at one end of the bell curve who are evangelical in their passion for the HVAD, and that’s a handful of sites; and then on the other end of the bell curve you have sites that didn’t have the best outcome in the trial or only did one implant, so they are—you could sort of call them a site in our trial, but marginally. And at those sites, particularly if they had a bad outcome in one or two patients, you’d have to be reversing a negative versus starting from neutral, and those would take more work. And I think as we look at the remaining nine sites, probably four or five are those are ones where we’re still on a missionary effort to address concerns based on their limited and not overly positive experience in our trial.

So at 41 sites, we’ve probably got another three or four that had simply been a patient volume issue where they haven’t done many cases in any kind of VADs, bridge or DT, and that’s why they haven’t done an implant. One site is looking for a surgeon; another site merged with another hospital, et cetera, so they’re just sort of issues.

But for the rest of the bell curve, we were right, that the evangelical folks are evangelical and they love the device and want to use it in everybody possible. And in the middle, they are starting to incorporate it into their treatment continuum and they’ve got—the doctors are enthusiastic. They’ve got to make sure the VAD coordinators talk about the HVAD as one of the options, et cetera, and so it’s just a change of behavior that is rolling through the system, and we’re certainly encouraged by that.

What has been a pleasant surprise is some of the sites that were sort of on our target list, in the top 25, that hit the ground running, some as early as December, others have come on in January, one or two in February where the implant rate just picks up rapidly and they look more like those evangelical sites than they do like the other end of the bell curve. So not that we are seeking the path of least resistance, but it’s hard to turn away a site that does, whatever, four or five, six implants since approval that never did an implant in the IDE, and then sort of bang your head against the wall for a site that had a negative implant and doesn’t do much volume that was in your trial. So we’re making sure we attend to all customers, but certainly the sites that hit the ground running that weren’t in the IDE and are proving to be really high production customers are awfully appealing to us. Now, not all the new sites are that way, but a reasonable number of the new sites have been upside pleasant surprises for us.

Mike Weinstein – JP Morgan

There has been discussion on the street about the concept of trialing and that some centers will, because they don’t have experience, will want to trial HVAD. I think there’s some legitimacy to that, but I think the connotation of it, I think is misplaced. Can you just give us a sense for once a center does a—let’s say do a handful of implants, whether you’ve seen these centers that have done a handful and then stopped doing HVAD, or do they do a handful and then I assume from there, because of the ease of the implant, their utilization then increases?

Doug Godshall

So we’re still only 98 days in or 97 days in, or whatever it is, so I guess buyer beware that anything I say is a forward-looking statement. But I think the—I can look back at our international experience and we had expected when we launched that that would be the case – that they would try one, maybe two, wait six months, three months, some amount of time, see how the results were, and then use it more. We did not see that internationally, which was a surprise, and so we’re not expecting to see much of it in the U.S. I certainly think you’ll see some. You’ll see some where people feel like, you know, I want to use more than one device so I’ve got to use the HVAD to get sort of with the program with everybody else, but my whole team is used to the HeartMate II so I’ll put one in and see how it goes. I think it would be foolish for me to think that that wouldn’t happen. I think it will happen soon.

An interesting comment came from a new site last week that put the device in and it was one of those sort of perfect cases – tough patient, but it went really well, and after the doctor closed the chest he looked to our clinical specialist and he said, okay, what’s the catch? That was just way too easy. What am I missing here? So I do think that the acute experience of putting our device in is so attractive that provided you get a good outcome with that patient, and it’s not like you have 10 patients in a week. If you have a patient the next week and your first patient’s walking around the hospital, feeling great, and you still have a memory of how nice the implant was, that next patient might look a lot like an HVAD patient, even if you were thinking you were going to quote-unquote trial the device.

So certainly if people have had a bad experience in their first implant, as we saw even in our trial, that certainly creates a higher hurdle to jump over. So we want to make sure we get great outcomes, particularly in the first handful of cases, because then you have context if you do have a bad outcome later.

Mike Weinstein – JP Morgan

Okay, and last question and I’ll let some others jump in. Do you have any sense for how many sites will be participating in the thoracotomy registry? I know there’s a lot of interest in that.

Doug Godshall

So we’re finalizing—I mean, this is a physician-sponsored registry, although it’s interesting because it’s a real benefit of having Intermax. The database is already there, the docs don’t have to collect the data themselves. But they do want to have a consistent implant technique. Dr. Cheung developed the technique of left thoracotomy, tunneling up to the ascending aorta so you don’t have to do an anastomosis to the descending aorta, and that has really become the most used technique internationally and seems to have really gotten great outcomes. Certainly Dr. Cheung’s outcomes have been spectacular in Vancouver, despite all my commentary previously about special access.

So they are pulling together that process right now, the two of them – in fact, we’ll be getting together this weekend in Boston. You’ll have other sites do thoracotomy, but we want to make sure that we can track the sites that are using the right techniques and that these guys train to make sure that we can say, okay, these 50, 60, 70, 80 sites – whatever the number is going to be – are doing it the way we want to do it, so there is not noise in the data. We will also track not just thoracotomy and sternotomy. Intermax is also going to be tracking site of anastomosis, ascending or descending, because historically there is a perception that descending anastomosis has a higher stroke incidence. So we want to make sure that if sites are doing descending aorta, that we can pull that data out and either confirm or refute that historical perspective.

So we don’t know the number yet, and frankly it could be all comers, provided that we get them on board with Anson’s technique.

Mike Weinstein – JP Morgan

Got you. I’ll let some others jump in. Thanks, Doug.

Operator

Thank you. Our next question is from the line of Bruce Nudell with Credit Suisse. Please go ahead.

Bruce Nudell – Credit Suisse

Good morning, gentlemen. Thanks for taking the call. Doug, I have three questions and I’ll just blurt them out now. Firstly, it looks like the FDA has bought into this idea that blood pressure management is really going to be helpful with regards to hemorrhagic stroke, and I’m presuming there’s going to be some sort of landmark analysis. But will the dependence on the DT CAP effect the timing of submittal and approval in terms of you need to have X-months or X-years of experience in the DT CAP before you have a kind of complete data set?

Second question is now that you have a little clinical experience—or commercial experience, I should say, what does it feel like to you in terms of U.S. BTT share a year hence? And thirdly, given the burn rate of the company and the amount of cash, is another raise imminent or is there—what about the financing of fully exploiting the opportunity you have in the U.S.? Thanks.

Doug Godshall

So I hope I’m right that the FDA appears, I’ll use receptive versus bought-in, but we’re encouraged. I think it will be helpful that both our—assuming we get these patients with this new protocol or revised protocol and combined with our post-approval data set, which we anticipate will also have improved safety outcomes, I think those two data sets, we think will be helpful. Since I don’t know exactly when we’re going to get approved and therefore I don’t know exactly when we’re going to have some incremental data flowing from this new cohort, it’s hard for me to say when you’ll have enough. I mean, I think at six months—we can see the impact of better blood pressure management at six months, just as we look at the data from the nine sites that do it well versus the other sites. So if we had that, I think that would be very useful if we had enough patients to supplement the DT submission and we had 600 patients in a post-approval study with hopefully better outcomes.

So I do think that those, to the extent that we need supplemental safety data, I don’t know if it has us wait an extra three months or something to submit the full data set so that you have incremental supporting evidence of safety to complement the efficacy data. At this juncture, I don’t know because (a) I don’t know when we’re going to get this approved and I don’t know when we’re going to finish our post-approval study, although we are encouraged by the pick-up so far in the U.S. So it’s a little hard to say. I do think it will be useful to have supplemental data to add to our DT submission.

In terms of the commercial uptake, we’re not going to probably give guidance on share just yet—well, we’re not giving any guidance, which makes it really hard to give guidance on share. There is the sort of blurriness of what’s a bridge and what’s a DT. It’s interesting because it does seem to be interpreted differently site by site, and certainly some—I mean, I was at a site last week, the week before, they transplanted a 79-year-old in the morning before I got there. Now, other than former Vice President Cheney, there aren’t too many folks who think that people over 70 get transplanted, but then I went to another site last week and they had just transplanted a 75-year-old. So what I always thought was a really super-bright line of 70 years for bridge eligibility is maybe not such a bright line as I thought. But some sites have a super-bright line at 70 or 65, so it does seem to vary site by site. And what we don’t know yet because we are just getting into the market is how our presence changes the landscape of bridge versus DT, if it does at all. So we’re starting at zero share in last November and we’re looking forward to doing well, and we’re encouraged by the start that we had.

In terms of financing, we’re really happy we ended the year with over 100 million, and I’m really happy that I now have a management team that has a financial plan that Peter developed with them that really hones in on what the levers are that they can pull if we need to pull back on spending in one area because sales are coming in lower than we expect, then we know what levers to pull. In the past, it wasn’t as obvious to us, so we’re pretty comfortable with our position. Luckily there are not 30,000 cardiac surgeons that we have to go pursue. It’s a pretty focused group of folks, as I mentioned. We’re not looking to go from 30-some people in the field to 300-some people in the field. We’re looking to go from 30-some to 50-some, and so the scaling there is tolerable.

We’re still working through the bolus of finishing trials and starting trials, so the R&D spend remains certainly robust because we think the opportunity is spectacular, particularly as we see more from MVAD. So we don’t want to pull back on R&D because that is obviously what’s propelled us to this position and our pipeline has resonated so strongly with customers that we really can’t afford to shut it down; but nor do we have to, because I think we can afford to invest in it.

Bruce Nudell – Credit Suisse

I guess just a follow-up on your second response – relative to your going in expectations, how are you feeling about the potential for garnering share in the BTT, bridge decision indication?

Doug Godshall

So you know, it started the year—the launch started out very nicely. We are—there are a couple site that I expected to come on faster that didn’t, but there are also multiple sites that I had modest expectations for or no expectations for and they have done quite nicely. So a real challenge, because we’ve had people say, oh my God, you had X-percent share as of the end of the year, or do you think you have 100% bridge share at any sites? Well, if a site did two bridge implants in January and we got them both, then we had 100% bridge share at that site in January. But the flow of VAD patients is so much less regular than some other procedures that we’re accustomed to, or that folks are accustomed to like coronary interventions where share within a month or within a quarter is really measurable and meaningful, you have ebbs and flows of rather significant scale in the VAD world so you may have 100% share at a site in one month and no implants the next month. Well, what was your share in that month? It’s hard to calculate.

So over the long term, as we have witnessed sites internationally, seen the benefit of our system and learned how to use it in unique patient cohorts or through unique implant techniques, you see your share mature and at worst stabilize at a fairly healthy place. And I think it’s helpful that they are able to look at the destination patients and say, okay, I’m clearly going to keep using HeartMate II because HeartWare doesn’t have DT approval, so it’s not like I have to switch. I can use HeartWare for my BTT patients. Some sites will use us all the time, some sites won’t.

So it’s really hard to forecast right now because sites are in the adjustment mode. We certainly are—we’re cautiously optimistic based on the early launch that we’ll do well in the U.S., as we have internationally.

Bruce Nudell – Credit Suisse

Thanks so much.

Operator

Thank you. Our next question is from the line of Jason Mills with Canaccord Genuity. Please go ahead.

Jason Mills – Canaccord Genuity

Thanks Doug, Peter, Chris. Thanks for taking the questions. Congrats on a good quarter. A couple questions – one thing, Doug, that you mentioned in your prepared remarks that I thought was interesting was in the U.S. sites that obviously heretofore hadn’t had an alternative to Thoratec over several years – decades – now have one for the first time. You mentioned that that is something that has driven use at some sites. Could you expand on that a little bit? We’ve heard that as well, and I’m just wondering, that’s all fine and good initially, but obviously what you want to do is capture their business over the longer term. Could you just expand on that and sort of give us a few examples of where you’ve seen it most predominantly?

Doug Godshall

Yeah, so I think it can be both a positive and a hurdle in some sites. So you’ve got sites that are just so happy that—they are of the mindset that having two strong companies is substantially better for them and their patients than having one, and they will try really hard to make sure that we are a going concern and that they recognize that their role in that is to make sure that they use our device and they use the HeartMate II device. And that’s not my preferred way motivation – I’d rather them use our device because they think it’s going to do better for their patients. And I think they won’t keep using a device if it doesn’t do well for their patients, so it’s an obligation to get an good outcome, obviously.

Where it creates a hurdle is inertia. If you’ve got a site that has never used another device but HeartMate II and you have surgeons and cardiologists and VAD coordinators all just in a habit, you’ve got a—as one site described it to me, we just have to make the leap. We want to use your device, we were all in agreement that we were going to use your device, and yet the patient shows up middle of the night, emergent situation, you stabilize them, we put a HeartMate II in them because that’s just what we’re used to doing, and we need to stop doing that. So that’s where a little bit of time, attention and selling is required.

I’m encouraged that even at those sites, there is a we need to and we are going to make the leap, we just have to get there. So we’ve seen it play really both ways, probably equally both stimulative and restrictive. But thus far, we’re not seeing sites that are—and I’m sure we’re going to find them. Maybe we’re just avoiding them right now, but so far we’re not seeing site that are saying everything is so perfect with my current device, I’m not going to use yours.

Jason Mills – Canaccord Genuity

Okay, that’s very helpful. 2010, 2011 after HeartMate II approvals came through both for BTT and DT, the growth in the U.S. market was quite robust. It obviously accelerated and was probably at least 20%. This past year, obviously with you out of the market and the continued excess protocol for part of the year and commercial development was a little later than some expected, it seemed to have somewhat of an impact in overall U.S. market growth. It was probably down around 10%. Should we expect, as I think a lot of models do, mine included, for growth in the U.S. market to pick up a little bit here in 2013, or even over the next couple of years with your entrance? And could you just talk about what you see from overall U.S. market growth? Obviously you said you weren’t going to comment on your share right now – we’ll probably model that out ourselves. But just overall U.S. market growth as you see it, based on your experience with referral development, what you’re hearing from cardiologists, et cetera.

Doug Godshall

Yeah. I know I’ve said it to you, Jason, and I’ve probably said it to almost everybody else on this call, doctors are – and no offense to any doctors listening to this – they are terrible forecasters, so I’m always cautious both on their upside and downside forecasts to take it to heart. We do believe that having two companies is better than one for the long-term health of the market. We do believe that our entrance into Europe had a significant stimulative effect, although paucity of transplants was the most stimulative effect and maturation of VAD data generally was stimulative. I’m a little surprised that on several of my site visits, we are already engaging in market development discussions and I had kind of thought we were going to get punt that for the first six or nine months, but if somebody is planning to use our device a lot, one of our obligations is going to be to partner with them as they help educate the community, which is I think how they think of it versus market development. That’s really not of concern to them; it’s more practice development and education of referring community.

So we’re already started to spool up some of that market development and luckily we’ve got somebody on staff who is excellent. We don’t have a full team of market development folks, but nor do we plan on hiring a whole separate infrastructure of market development folks. I think we’re going to have targeted regional experts who will then partner with our territory managers to do market development activities.

So do we think we will stimulate growth in the U.S.? Yes. I know we’re going to stimulate it at least a little bit because our VADs in pediatrics weren’t being done. But on the other hand, it’s not like every other day we see one of those cases, so that will be a modest incremental, I don’t know, 5% of our patients kind of pick-up, which may be measurable in terms of overall market dynamic but not material. I think the bigger impact is just having a smaller, easier to use device, and we think things like thoracotomy could be really energizing and appealing to people like cardiologists – hey, you don’t have to do a sternotomy on this guy. Hey, I can maybe extubate them on the table. Those kinds of things, we think are going to resonate nicely with the referring physicians.

Jason Mills – Canaccord Genuity

That makes sense. Last question from me and I’ll get back in queue. Regarding MVAD, just your updated thoughts on regulatory timing, both in the international markets from a CE Mark approval standpoint, given there seems to be some discussions about how they’re going to approve devices over there. I’m not sure if that will have an impact. And then in the U.S., are you still expecting to start a trial at some point later this year? Thanks again, and great quarter.

Doug Godshall

Thanks. So obviously approval timing is always gated on when you have the data to submit for approval. We got approval for the HVAD with 25 patients. I am reasonably confident that we will not be able to submit on 25 patients in today’s day and age, so we’re probably going to have run the full trial, do the full six months follow-up on these 63 patients, and submit. So you’d have to model how long you think it would take to enroll, assuming we were getting started kind of mid-year this year. What’s an interesting dynamic if one thinks about enrolling a trial in ’06 and ’07, when we could barely make a single HVAD and when the market was about a quarter of the size internationally as it is today, supply should not be a problem for the trial on our side. We can make the MVAD – knock on wood – so far we can make the MVAD. Hopefully that continues. And our sites are so much busier now than they were when we were enrolling those trials that yes, you have more patients; on the other hand, there are a whole lot more patients that are going to be flowing into the system to enroll in the trial. So I don’t think a bigger trial actually means a substantially more protracted enrollment period.

We will want some international patients to submit to the FDA before we start the trial here. If we didn’t, then we’d be shoved into a feasibility bucket that would probably keep the patients in the hospital for longer and have all sorts of hooks in it that would be counterproductive and prolong the process, versus using international data as a feasibility component, and then we can start with pivotal here.

Do we think we will start this year? That again is a do we have data from international, (a); (b), is the FDA more brisk in review of this IDE, assuming we get the data in time to submit it and have the potential to implant patients this year? It’s certainly achievable. I wouldn’t bet my house on it, because that means I’m betting the house on regulatory processes, which I’d rather not do, having learned my lesson on that one. But I don’t—whether it’s end of this year, beginning of next year, U.S. will track international far more closely with the MVAD than with the HVAD, which took us two and a half years from the start of the MVAD trial before we started the U.S. trial. We’ll have no such gap this time around.

Jason Mills – Canaccord Genuity

Got it. And last one – sorry. MVAD, is it being done with a thoracotomy OUS, do you think?

Doug Godshall

Wow, that’s a really good question. It’s like you were eavesdropping on the other day.

Jason Mills – Canaccord Genuity

You caught me.

Doug Godshall

So the current protocol calls for a sternotomy. The problem we realized is—and the reason you would do a sternotomy is it’s the standard technique, you’re in complete control of the operating field, you can take your time, there’s no rush, et cetera. The problem is if we look at three, four—I think four of our centers in that trial don’t do sternotomy, or hardly ever do sternotomy anymore with HVAD. So to say we’re going to give you this pump that’s less than half the size of the HVAD but you’ve got to open the chest to put it in, which in their mind results in worse outcomes based on their own experience, you’re kind of—you’re eliminating one of the significant benefits of the MVAD. The back end profile of that pump is so small that your thoracotomy can be much smaller than it is with HVAD, et cetera.

So in all likelihood, we will be amending the protocol to permit sites that have thoracotomy experience with HVAD to do thoracotomy with MVAD. What we probably don’t want is I’ve never done a VAD by thoracotomy and I’m just going to start doing it with MVAD. So I think we’ll have a mix—my guess is we’ll have a mix of implant techniques with the ability to look at the data and actually maybe see within the trial, is there actually a difference between the thoracotomy and the sternotomy type placements, because not every doctor believes that thoracotomy is really better. Patients actually have more pain from a thoracotomy than they do from a sternotomy, but the incision is a whole lot smaller, blood product use is less, probably the effect on the right heart is less. So if you can deal with a little bit of pain where you split the ribs, you’d probably get a better outcome – probably. We’ll see. I think one of the real intriguing things about this registry is we’re finally actually going to have reasonably robust data set. It’s still a registry, but it’s going to be a pretty robust data set to look at.

Jason Mills – Canaccord Genuity

Thanks.

Operator

Thank you. Our next question is from the line of Danielle Antalffy with Leerink Swann. Please go ahead.

Danielle Antalffy – Leerink Swann

Good morning, guys. Thanks so much for taking the questions. So just a quick question on stocking and impact of stocking going forward. I know it’s tough to predict which sites will—I guess are we through the site shifting the consignments since you’ve already added the first 50 clinical trial sites, and then how do we think about the new sites coming on and potential to move to consignment? That’s my first question, and then I have a follow-up on international.

Doug Godshall

Yeah, I tried with one of our consignment sites last week to persuade them that they should switch from consignment, and they just sort of looked at me like, are you an idiot? Why would I do this? Okay, just thought I’d ask. So I think we’re done.

Danielle Antalffy – Leerink Swann

Okay, got it. And then on the international front, at our conference a few weeks ago, your competitor did present and noted that they were seeing themselves gain some traction in some sites internationally, the sort of western European sites, and even being very specific that they hadn’t had much traction before. I guess ex-Canada, how do we think about market share internationally? Are you seeing the same thing? Any comment there?

Doug Godshall

We’re pleased with our western European business, and you’re going to have—I try to step back and look at it on a general macro, are we equal or above in terms of utilization or our known share? You don’t always know because sites don’t always tell you what they’ve implanted, but particularly in some of our busier countries, we’ve got a pretty good idea when they are not using our device. So there have been some quarters where we are amazed at how—like gee, they’re at 90% HeartWare, and then the next quarter, oh oh, something went wrong – we’re at, like, 20%. So there is some quarterly variability and sometimes it’s a doctor is mad at us for some reason, and then we figure out how to make them un-mad at us and we go back to a normal 50/50 or 70/30, or whatever the normal split is.

So I’m not—we’re not familiar with, because we certainly heard those quotes that had our international guys scurrying around to try to figure out is it true or not, and we’re not seeing a deterioration of share in the sites where we have either stability or growth of share. And maybe we’re just missing it and Thoratec is seeing it, but we’re not seeing it.

Danielle Antalffy – Leerink Swann

Okay, no that’s helpful. And then lastly on the UNOS classification for BTT LVAD patients, we were hearing some speculation at the Society of Thoracic Surgeons in January that UNOS is looking at this and potentially—I don’t know if this is the right way to characterize it, but declassifying LVADs on the transplant priority list. If that were to happen—well number one, what’s your sense of whether that will happen? Number two, if that were to happen, how would that impact the bridge to transplant market and growth going forward?

Doug Godshall

Okay, so you must have been talking to somebody different at STS than I was. I didn’t hear that, which doesn’t mean it didn’t happen – I just might not have been there. Certainly what is happening in Europe, particularly in the biggest market, Germany, you don’t get a transplant unless you’re having a problem with your VAD. So it’s sort of VAD first, transplant to save a VAD patient, basically, if they are having complications, versus transplant and then if you just can’t survive to transplant, you get a VAD. It’s almost like they just presuppose you’re not going to live long enough to get the transplant, so we’ll put the VAD in you because the waiting times are so long.

Certainly when you get a VAD in, you can today in the U.S. automatically go to a higher status because you’re on a VAD; and yet I don’t believe that much of the utilization is to gain the waiting list, to get people up-regulated. I think it’s just you’re really sick, you need a transplant, you’re not going to make it so we’re going to put a VAD in you. And then you do move them up to a 1A if they’re having a problem with their pump or it’s been a long time on their pump or something.

So I don’t think VAD utilization for bridge is—and maybe doctors will tell me differently. I don’t think it is as a way of getting somebody moved up in priority. If they really need a heart, they can move them up in priority.

Danielle Antalffy – Leerink Swann

Okay, so in your view there should be no impact, regardless of what—no meaningful impact regardless of what UNOS does.

Doug Godshall

Yeah, right. So it’s a new thought that maybe I should have heard about and I hadn’t heard about, so I’m reacting to it off the top of my head. But I don’t think so.

Danielle Antalffy – Leerink Swann

Okay, thanks so much.

Operator

Thank you. Our next question is from the line of Jason Bedford with Raymond James. Please go ahead.

Jason Bedford – Raymond James

Good morning and thanks for taking the questions. I’ll be quick. I wanted to ask the trialing question a bit differently, and I know it’s early here. But are you seeing a consistency in repeat orders from most of the initial sites?

Doug Godshall

We’ve seen variability, not consistency. So some sites have used it just once, some many times; so I’d say there are more sites that have used it just once so far, which again it’s early days, than there are sites that have used it more than 10, for sure. But it’s a mix. You’ve got a lot of sites that are two, three, four, and then a reasonable number that have just implanted one since approval.

Jason Bedford – Raymond James

Okay. And I think I may know the answer to this, but any negative spillover from the field correction letter that went out a few weeks ago? Has that impacted demand at all?

Doug Godshall

We have not seen any spillover. Fortunately, it was a fairly minor field correction. We have never had a major one, although in devices it seems inevitable that you’re going to have them every now and then – hopefully not. But no, nothing from that correction.

Jason Bedford – Raymond James

Thanks. I’ll get back in queue.

Doug Godshall

Okay. See you next week, Jason.

Operator

Thank you. Our next question is from the line of Mimi Pham with ABR Healthco. Please go ahead.

Mimi Pham – ABR Healthco

Hi, good morning.

Doug Godshall

Hi Mimi. Welcome back.

Mimi Pham – ABR Healthco

Thanks, thanks. Just regarding the learning curve of your first 18 sites that weren’t part of your trial, any surprises in terms of aspects of HVAD being harder to implant than HeartMate II in any subset of patient anatomies?

Doug Godshall

No. I’ve never had anybody say it’s harder to put in. We have one or two docs in the U.S. who think it’s harder to take out at transplant. A lot of sites are wrapping—in fact, I’d say the majority of site are wrapping the pump in Gortex now to make it really simple to take out so it doesn’t get adhesions. It’s location in the pericardium, depending on where you put it—if you put it at the apex, you can end up with a little bit more adhesions. If you put it at the diaphragmatic surface, you get a fewer adhesions, so most people just to make the transplant simple just wrap it in a sheet of Gortex. So I know of one doctor who thinks it’s really hard to take out. They still put it in there, but hard to take out, and we’ve just got to convince them to wrap the pump.

Mimi Pham – ABR Healthco

Okay. And then in terms of your U.S. ASPs for the full-year 2013, do you expect it to be flat or a little higher than your fourth quarter ASP, given all your pricing strategies and a higher volume?

Doug Godshall

Yeah, so it should be higher because you’ve got a mix of some implants. So (a), you had the 20-some implants preapproval, 24 I think it was. A lot of that switch from consignment to purchase inventory was at IDE price. That was one of the reasons why the 20 or so sites switched, was because it was a one-time opportunity to lock in the lower price for those two units that were on your shelf, and then everything thereafter switched to commercial pricing. And so you’ve got nearly half of the pumps for the quarter—not half, maybe a third to 40% were sold at the $86,000 versus the 100-plus. And if you look at the math that Peter shared, I think it was about 100—almost exactly 100 average.

Mimi Pham – ABR Healthco

Okay, great. And then on the international front regarding your 15 to 20% international growth you expect, are there any key high volume centers that face any barriers to growth – for instance, any kind of cap on VAD implants from the government or their hospital?

Doug Godshall

No. I’d say Italy as a country is equal to a high volume center, even though it’s lots of little centers, and I think I saw yesterday that Berlusconi might be coming back or something – I don’t know what’s going on. So we watch Italy. It’s been a good market for us, not a huge market for us but it’s been a good market, so they have cut reimbursement twice now. It does not seem to have made the business go away, but it’s a country that of the countries where we have business, it’s makes us a little nervous. I think if it went away completely, it would be unhelpful; but I don’t think it would take you from a 15 to 20. It might take you from 15 to 18 or something for the market, or something like that.

Now you do have the Japan phenomenon that I think is going to be extremely helpful for the overall international market, just not particularly helpful for us for a while because we’re hoping to get our trial started in the not-too-distant future. But then you’ve got a prolonged regulatory process, as Thoratec witnessed, so I think it’s going to be really good for them, could stimulate overall market growth to the high end of our range. We’ll be on the outside looking in, unfortunately.

Mimi Pham – ABR Healthco

Okay, thank you so much.

Operator

Thank you. Our next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Beigelsen – Wells Fargo

Hey guys. Thanks for taking my question. Just to clarify Danielle’s stocking question earlier, I think about 14 new centers in the first quarter of 2013. Should we assume about 28 pumps for stocking in the first quarter?

Doug Godshall

Yeah. So I’m sorry if my—maybe I mis-listened. I thought she was talking about our trial sites only. Yes, as we add new sites in the U.S. or international, they will buy on average two systems—well almost always, they will buy two systems. So as we add sites and as we saw at the first half of last year internationally, you’ll have ebbs and flows of stocking impact. Thus far in the U.S. thankfully, we are not seeing an obligation to go to consignment, and that’s a real relief because as we’re learning more and more, tracking consignment is at best a nuisance, and nobody likes to get an invoice for something that they just can’t find on their shelf because they gave it to a patient and they didn’t track it adequately.

Larry Beigelsen – Wells Fargo

Got it. And then the Revolve study, I think that’s what you called it, Doug, the one that Dr. Struber will present, is that a randomized study or is it single arm with HVAD only? And I have just one follow-up.

Doug Godshall

Yeah, no it’s a study that, to Dr. Struber’s credit, when we first launched in Europe, he said you have to do a registry. People are going to want to know about you real world experience. So he set up a database and coordinated the sites to put their data in, and in the absence of Euromax or Imax or whatever registries are ultimately going to prevail in Europe to match Intermax, he’s been tracking his HVAD patients and multiple other centers’ HVAD patients, but not randomized, not other devices. Just HVADs.

Larry Beigelsen – Wells Fargo

I got it. And then lastly from me, Doug, a question I’m going to ask a little bit differently than other people have asked it. But the 59 commercial implants in Q4 was obviously quite strong. You got approved around Thanksgiving, so it was pretty much one full month – Q4. So if we think about three months in Q1 2013, three times 59, help us think about why it would be wrong just to triple that number for commercial implant in Q1, given that you’ve added sites. Or do you think you could do better than three times that, given that you’ve added more sites? I mean, that’s obviously how people are going to think about modeling, so maybe if you can help us think about what that 59 means for the beginning of this year. Thanks.

Doug Godshall

Yeah, sure. So we did see, as you will recall—and good to hear from you, Larry. We did see a surprisingly rapid implant uptake in that last week of November, so it really was sort of sixish weeks, not just a single month, so it’s not a—I’d be a little reluctant to do a tripling. We did come out of the gates rapidly, and I certainly don’t want to suggest that it was a bolus which we saw post-DT approval. It was not a scenario where certainly nobody could predict when we were going to get approved, because we sure as heck couldn’t predict when were going to get approved, so nobody was sort of waiting and stockpiling patients for us.

So I think the challenge is you do have sort of ebb and flow of patient volume and as yet, we don’t know exactly what the U.S. BTT patient flow is going to be. We’re sort of new to the U.S. I don’t know if December is a high month, then January is a low month or whatever. So there is, I think, throwing a cautionary little cup of water, I guess, on it is that yes, December was a really encouraging start. I think the long term is going to be really healthy for us, but I think doing the simple math of, well, you’ve added sites therefore we’ll do 3.3 times your number in December and that’s your first quarter, I’d be really uncomfortable suggesting that that would be a logical extrapolation of the December experience.

And Peter, I don’t know if you want to chime in in our non-guidance mode?

Peter McAree

In our non-guidance mode. So your math is possible, as Doug said. Not knowing what the cadence of uptake is just yet, it’s very hard for us to say. I think we’re going to need to see a full quarter play out to really—well, your question is about Q1, but I think Doug covered it pretty well. We really need to see the patient uptake.

Larry Beigelsen – Wells Fargo

Got it. Thanks for taking the questions, guys.

Operator

Thank you. Our next question is from the line of Matt Taylor from Barclays. Please go ahead.

Dan Sollof – Barclays

Hey, thanks very much guys. It’s Dan stepping in for Matt. I wanted to first follow up on pricing. I appreciate the comments about the U.S. Just wondering how that’s trending in Europe. Are you guys seeing that stable there, or any color there?

Doug Godshall

We’ve not really seen any notable price change site to site since our launch, really. It’s been stable. Our only issue is currency fluctuations. What we do see is as we expand beyond sort of core Europe, where we are direct, and move to distributor markets, obviously we need to make some money but so does our distributor, so we sell to them at a lower price generally than what we sell direct to customers in direct markets.

Dan Sollof – Barclays

All right, helpful. And then just a quick follow-up on the pipeline. I appreciate the comments on MVAD, but just curious – is there any update on the fully implantable in Europe? Are you guys on track to go first in man this year, or is that 2014?

Doug Godshall

Oh man, that would be so great to do it this year, but I would think physically impossible for us to go from where we are. If we want to actually follow any regulatory guide—any regulators, we would not be able to do it this year. So we’re still refining design. We’ve had some really nice progress with TETS, or fully implantable; but certainly not this year. We’ve not given a forecast for first in man. We like what we’re seeing, but probably—well, certainly not this year. I don’t know that next year is going to happen for fully implantable either, but we’ll provide an update as we—probably by the middle to back half of this year.

Dan Sollof – Barclays

All right, thanks, helpful. That’s it for me.

Doug Godshall

All right, and I’m sensitive to the fact that we’ve still got some folks on queue, but we’re also—as seems to be our habit, we seem to go long. So I think we’re going to wrap it there, and certainly for those who are still online, if you want to follow up directly with Chris, we’ll follow up one-on-one and let everybody sort of return to the market open, which is now 20 minutes in arrears.

So thanks everybody for your time and interest, and we certainly hope that we continue to have positive outcomes in the commercial setting to share and positive developments on our development front, and most importantly positive outcome for the patients. So thanks for your interest and attention, and we’ll speak to everybody soon.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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