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HeartWare International, Inc. (NASDAQ:HTWR)

Q1 2013 Earnings Call

April 29, 2013 05:00 p.m. ET

Executives

Chris Taylor – Vice President, Investor Relations

Douglas Godshall – Chief Executive Officer

Peter McAree – Chief Financial Officer

Analysts

Jason Mills – Canaccord Genuity

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the HeartWare 2013 First Quarter Results conference call. During today’s presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). The conference is being recorded today, April 29th 2013. And at this time I'd like to turn the conference over to the company. Thank you.

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 first quarter of 2013.

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's SEC filings and the news release for this earnings call are available online from the SEC or by clicking on Investor Relations on 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 our Chief Financial Officer, Peter McAree. Each will provide commentary on the company’s first quarter financial results as well as a corporate update. Those prepared comments will be followed by a question-and-answer session. Today we ask that those that ask questions please limit to one follow-up. Thank you. And now I’d like to turn the call over to Doug Godshall. Good afternoon, Doug.

Douglas Godshall

Thanks Chris. It's a pleasure to be speaking with you this afternoon to discuss financial results for the first quarter of 2013, the first full calendar quarter of the commercial launch of our HVAD system in the United States. We are coming off a very slow and productive week, last week at the 33rd Annual meeting of the International Society for Heart and Lung Transplantation in Montreal. It was HeartWare's strongest ISHLT to-date with more presentations about HVAD and MVAD than we have witnessed at any conference previously. And the various programs we hosted for surgeons and cardiologists in attendance were consistently oversubscribed. It's exciting to see our expanding global commercial footprint and to begin to see a sharing of experiences between our longer term international customers with sites in the U.S.

Perhaps the most important aspect of the ISHLT was to see how accepted VAD therapy has become generally. It is no longer one or two physicians postulating that VAD could be a leading therapy for their patients with advanced heart failure. It now seems to be taken as a given by a broad spectrum of ISHLT members. The society is realizing that it needs to incorporate mechanical circulatory support into its branch so it's perceived as much more than just a transplant society by the outside world. I will talk more about ISHLT after Peter walks through our results for the quarter but here are a couple of Q1 highlights.

As noted in our news release revenue for the first quarter came in at 49.2 million, representing an 87% increase over the first quarter of 2012. During the quarter we sold a record 482 HVADs, 40% more than the 345 units we sold during the fourth quarter of 2012. And as we look at the geographic breakdown of those unit sales we are pleased to report that 244 units were sold outside of the U.S., an increase from 211 in the fourth of last year. In the U.S. we have trained 27 new sites since approval, including a handful of pediatric sites which continue to express strong interest in and ask for a smaller device. As one pediatric cardiologist said to me once you send a child home and they go to school with their VAD you never want to go back to the days of keeping them in the hospital for six months while they wait for a transplant. That brings us to 77 sites trained which is ahead of plan and we have a good number of sites in queue for training in the next month or two.

We are truly grateful for the enthusiasm we have seen from surgeons, cardiologists and VAD co-coordinators alike as this is essential for both the early launch and to sustain momentum. And now I will turn the call over to Peter to discuss our first quarter financials.

Peter McAree

Thank you, Doug. We are pleased to report results for such an exciting quarter and to start 2013 on such a positive note. As Doug noted we achieved record revenue of 49.2 million in the first quarter on the strength of first commercial launch revenues in the United States which resulted in 87% total revenue growth compared to the first quarter of 2012. Going into greater detail on the first quarter starting first in the U.S., we sold 238 systems resulting in U.S. revenue of 26.2 million in the first quarter 2013, up more than 300% from 6.4% million in Q1 of 2012. We are often asked about the revenue in unit sales impact of new sites. We estimate that we had approximately 40 to 50 units sold in the U.S. during the first quarter resulting from 18 new sites which came on-board along with a handful of existing customers that moved away from consignment. This leaves slightly less than half of our original 50 IDE sites with some form consignment inventory on their shelves.

International revenue in the first quarter was 23.1 million representing an increase of 16% compared to international revenue of 19.9 million in the first quarter of 2012. We sold 244 systems outside the U.S., an increase from 224 systems in the first quarter of 2012 and compared to 211 systems in the fourth quarter of 2012. This equates to unit sales growth of approximately 9% on a quarter-over-quarter basis and approximately 15% sequentially over Q4. We noted in our last earnings call that we anticipated our international unit growth compared to 2012 would be more challenging over the first half of 2013 as a result of new relatively high volume international sites which came online over the first half of 2012. As of March 31st we had a total of 115 hospital sites outside the U.S. and 74 sites in the U.S.

On top of strong unit sales growth we experienced an 8% increase in average selling price overall compared to the fourth quarter of 2012 and a 15% increase in average selling price compared to the first quarter of 2012. These increases are due mainly to the impact of our commercial launch in the United States. As we previously stated we anticipate average selling prices of between 100,000 and 110,000 in the United States. In the first quarter our U.S. average selling price fell towards the high end of that range due to peripheral sales during the quarter. Over the remainder of the year we expect U.S. pricing to be close to the middle of that range. We anticipate that average selling prices related to international sales will be slightly above the overall average OUS sales average in 2012, which was approximately 90,000 per unit.

Similar to in the U.S. the mix of non-system sales had a positive influence on the first quarter internationally. For the first quarter gross margins were 52% compared to 59% in the first quarter of 2012. Gross margin improvement during the first quarter reflects primarily the impact of a full quarter of commercial pricing. Our gross margin percentage increased 13 percentage points compared to our gross margin percentage of 49% in the fourth quarter of 2012 due to a combination of factors including higher average selling price, the benefit of increased volume and as we mentioned on our Q4 call in February, reserves taken in the fourth quarter of 2012.

As previously discussed during the fourth quarter we had undertaken a review of inventory on hand including IDE product which had been held described on consignment and took reserves as appropriate. We are extremely encouraged that we got off to such a strong start from a gross margin perspective in the first quarter but we remain cautious with respect to the possibility of variability from quarter to quarter as we hone our forecasting and planning capabilities based upon our developing U.S. commercial experience. We remain confident that we should continue to see gross margins in the neighborhood of 50% on a full year basis in 2013 and are pleased that the first quarter reinforces this expectation.

Total operating expenses for the first quarter of 2013 were 38.6 million, up 5.9 million or 18% compared to first quarter of 2012 as a result of our ongoing commercial growth in spending with respect to R&D pipeline initiatives including MVAD, PAL, TETS, and Longhorn, to name a few. Total operating expenses increased approximately 9% on a sequential quarter basis compared to the fourth quarter 2012 broken down as follows: selling, general and administrative expenses increased by approximately 3.2 million to 15.5 million in the first quarter of 2013 from 13.3 million in the fourth quarter of 2012. The increases were employee costs which grew by approximately 1.8 million, including 500,000 from share-based payments, the new 2.3% med device excise tax which accounted for approximately 600,000 of the increase and travel related costs of approximately 500,000. We expect SG&A expense to trend higher during 2013 as we continue to make investments and maintain our momentum in our U.S. commercial launch and international growth and as a result of the med device tax.

Research and development expenses were relatively flat on a sequential quarter basis coming in at 22.1 million in the first quarter of 2013. As we mentioned on our last call Q4, 2012 included a one-time development expense which affected the quarterly trend comparisons. We expect R&D expense will trend higher in 2013 due to advancement of our pipeline and initiation of new clinical trials. During the first quarter we recorded net other expense of 4.8 million comprised primarily of interest expense of 3 million related to our convertible note and a 1.9 million foreign exchange loss as a result of unrealized losses on foreign denominated cash and accounts receivables balances.

Net loss for the first quarter of 2013 was 13.1 million or $0.87 per basic and diluted share as compared to a net loss of 18.8 million or $1.33 per basic and diluted share in the first quarter of 2012. There were approximately 14.9 million weighted average shares outstanding during the quarter. As a result of the new issuance the issuance of new shares in connection with the equity finance that we completed on March 12th, we project weighted average shares outstanding will be approximately 15.4 million and 16 million respectively in the second quarter and on a full year basis in 2013 for the purposes of computing earnings per share.

As of March 31st, we had approximately 229 million in cash and investments which includes net proceeds from our common stock offering in the quarter of 141 million. We believe that our cash position enables us to invest confidently as we position ourselves for sustained growth and expanded commercialization. We're certainly encouraged by the momentum thus far with the U.S. launch. We caution the investors that it's still quite early and that we will still need to see a couple of quarters play out before we would want to provide some additional thoughts with respect to our expectations. This comment is borne out of prudence rather than any absence of confidence. We are quite optimistic about our prospects but we don’t want our expectations to become inflated.

As one additional thought that we mentioned in the last quarter 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. Our plans were to add three to five international accounts each quarter during 2013. We're quite pleased to be offered such a quick start having added nine new international accounts during Q1. That said, our international growth comparisons may be challenged here in the first half of 2013.

Thanks for your time this evening I'd welcome your questions when we move back to Q&A. Doug back to you.

Doug Godshall

Thanks Peter. Before we open to questions there are a few other items which I would like to briefly comment. Based on our revenue number for the quarter and based on the pace of training for new sites we are quite pleased with the early start to our launch. I'm reluctant to use the word trajectory because, as Peter mentioned, I think we need to experience another few quarters to see what kind of trend lines we are truly on. Nonetheless, we are pleased with the reception we have received from many of the clinical trial sites and new centers in the U.S. With over 75 U.S. customers today we are nicely on our way towards the goal of 100 or more trained sites by year end.

As we expand our commercial base we do envision growing our team commensurately to ensure we provide the best possible services for our customers. We anticipate having roughly 50 people in the field by year-end and this increased capacity will also be leveraged to support the MVAD clinical trials in the U.S. Today our U.S. field force is roughly 35 which includes two people that have been moved into market development activity.

In order to leverage the substantial international experience with the HVAD, we were honored to host surgeons from 20 of the largest VAD centers around the world last month in Boston. The meeting allowed for sharing of experiences, innovative techniques and discussions of best practices, all intended to further enhance implant procedures, optimize patient care and improve patient outcome. Anecdotally one of the most interesting moments was listening to leading European surgeons describe thoracotomy implant techniques to U.S surgeons who expressed initial reservation about this technique. Then, to see a few weeks later that three of the surgeons have now conducted thoracotomy implants and expressed enthusiasm for the approach.

While on the topic of thoracotomy, we held meetings last week in Montreal to advance plans for the registry we discussed on our last earnings call. The registry was conceived because our investigators believed it important to track thoracotomy patients separately to confirm that some of the expected benefits like shorter hospital stay, decreased bleeding, reduced heart rate heart failure and the like prove to be true. The data from this registry will be collected by Intermax. And while we originally thought it would be preferable to have physicians lead and maintain this registry, we now believe it to be more efficient for the company to bear the burden of the administrative and logistical aspects of the study as sponsor. So we are in the process of preparing an IDE submission for this trial. Fortunately, we expect this to be a very cost effective study as it will draw on the existing Intermax platform. We are delighted to see such interest from the clinical community and look forward to this registry getting up and running in the next few months.

Back to the subject of the ISHLT, thoracotomy implant was also a topic of much discussion there and was one of the many compelling topics discussed over the week as a result of the European experience. An oral presentation from Dr. Anna Meyer of the Heart Center in Leipzig demonstrated in a single centered study that a patient receiving a HVAD pump via thoracotomy experienced outcomes at least as good as those patients receiving outcomes HVAD via sternotomy. In fact the thoracotomy patients spent an average of two days fewer in the ICU and 14 fewer days overall in the hospital. These positive results were echoed by the team from Hanover, Germany which demonstrated that thoracotomy placement resulted in shorter ICU stay, less bleeding, less liver impairment and improved survival versus their experience with certain sternotomy placements.

There were several other strong presentations highlighting the strong performance of the HVAD. Professor Martin Struber presented data from a multi-center international registry called Revolve which is analogous to the post-approval study we are currently enrolling in the U.S. It was the first real world multi-center HVAD dataset. The strong survival which mirrored both the international and the U.S. pivotal trials with a trend towards lower adverse events than those pivotal trials showed, was certainly well received by the audience and helps explains why our international customers view the HVAD so favorably.

Professor Michiel Morshuis from Bad Oeynhausen presented on his center's considerable experience with both the HVAD and HeartMate II. In his theories he observed similar outcomes between the devices with the caveat that the HVAD patients were sicker when implanted which generally suggest the outcome should have been worse for the HVAD. Professor Morshuis commented to me how surprised and encouraged he was to see that his outcomes were so similar to those in the Revolve registry which he felt was validating.

Of course one can't expect to go through a meeting with universally positive feedback but the one abstract which received outsized attention from Wall Street that being the Canadian experience seemed to have little impact on clinicians in attendance, as the patients were considerably sicker than in virtually any contemporary study, for example 31% of the Canadian patients for Intermax 1 known as crash and burn versus 5% in our U.S. trial. And the eye poppers are continuing to analyze their data prior to further presentation or publication. Despite the attention this abstract received, we are very excited by the level of interest in the HVAD and by the support of many of those sites in Canada as we anticipate regulatory approvals toward the middle of this year.

Overall the ISHLT was extremely positive for HeartWare and for VAD generally. It was great to hear speakers talking about how they were now going to monitor mean arterial pressures more closely and those with better results confirmed that they are already doing so. Our European customers already have four years of commercial experience with HVAD and a broader experience with different types of VADs which has enabled them to learn how to use our system most effectively which came through in their presentations. These sessions like our smaller more focused meetings, provide excellent opportunities for sharing of best practices between geographies and hopefully will result in a shortening of the learning curve here in the U.S. as we expand our presence.

One item that received some attention in recent weeks was an entry in the morgue database of an initial MDR reported about a patient who had a most unfortunate outcome after changing batteries on her controller. We completed our investigation and while the controller functioned properly when it was returned to us we suspect that the most likely cause of the event is an electrostatic discharge during battery replacement could have caused this to function improperly. Reconnecting the batteries or changing the controller was likely the result of the situation. As you know all electronic devices are susceptible to static electricity. We believe this may have happened one time previously although ESP is not something that can be proven definitively after the fact.

We note that both patients have uncommon underlying medical conditions which greatly increased the risk for mortality in event of any disruption in pump performance. We've communicated our finding to the FDA filed a final MDR and plan to update our instructions for use in patient manual so as to specifically warn about ESP and ways to reduce static electricity. Other companies do include ESP in their labeling so it certainly seems prudent for us to do as well. We have also advised the FDA that we intend to send a notification to our customers to remind them about the risk of ESP. We hope to hear from the FDA in coming days so we can update our documentation and send a communication to our customers.

On the subject of destination therapy we are progressing in our discussions with the agency regarding an additional patient cohort. When we made this decision to change the protocol to better monitor and manage mean arterial pressure and confirm the positive impact expected on outcomes we knew that it would require a little more thinking and time than a simple CAP request. Our existing MAP data is so compelling that we remain convinced that the extra time spent negotiating a revised protocol is well worth it. We are confident that the results from this enhanced protocol will have a positive impact on patient outcomes and further support DT approval. We have not heard anything in our discussions that decreases our expectation that we will receive an additional patient cohort for DT from the agency and remain hopeful that we can conclude these discussions this quarter. Obviously we do not dictate the process and as we learned last year predicting the timing of regulatory events is not easy to do.

One trial that receives little attention is our ongoing post-approval study. As a reminder this is a 1,200 patient study, 600 HVADs and 600 control patients followed through six months. Given our pace of sales this suggests we will likely be fully enrolled this year and this should create a very interesting and valuable data set for customers and regulators alike. It will also help us confirm that the training and education we have been doing around things like blood pressure management has had the desired effect. All the discussions on mean arterial pressure last week at the ISHLT gives us even greater confidence that people are embracing the importance of this risk factor and that it will prove out by an improved outcome in our commercial experience. Depending on the pace of enrollment and date of delivery by Intermax this could be the next new dataset that we are able to share publicly although we are just now getting visibility into the data flow from Intermax. So it's too soon to predict precisely when we will be able to present any of the data from this post-approval study.

International markets remain very strong and we continue to be impressed by the expanding use of VAD, 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, but we believe that the strong growth over the past four years since our European approval will continue over our planning horizon. We continue to receive approvals in new countries and anticipate a few new ones over the next six months. Today we have 116 international customers in 30 countries. In our experience new countries contribute at varying rates with the biggest shrink factor being whether or not payments is constrained. The observations from the ISHLT last week that VADs are the future of advanced stage heart failure seems to be resonating globally and we have added reimbursement staff to assist with countries outside Europe in hopes of minimizing the impact of payments.

Many of you attending ISHLT saw firsthand our working MVAD pump with our new PAL controller. PAL stands for peripherals for an active lifestyle and based on the feedback last week as well as patients that have kept to the new system this sleek user friendly design will help this new controller live up to its name. We are quite excited about the commencement of first human use of both MVAD and PAL. As we have mentioned for some time we are pursuing a CE Mark study as well as considering the potential to conduct first human cases at an OUS site that is not part of the CE Mark study. Assuming paperwork and regulatory processes come together we hope to conduct the first human case before the end of the second quarter. With regard to the CE Mark study for MVAD we have conducted site training and we are very pleased with the preparation that has taken place and look forward to the initiation of the study. We plan to enroll 63 patients at nine centers with six months follow-up post implant. We expect that study to commence during the summer time.

In short we have a tremendous opportunity that is starting to play out in the U.S. as it has internationally since 2009. We are delighted that we are well into our HVAD launch and to have an equally compelling opportunity with MVAD right around the corner. Our longer term projects such as Longhorn and TETS are making strong progress and with the expansion of the VAD market generally we feel we are very well positioned for the future. Many of you have enabled our success by investing in HeartWare and for that we are grateful.

That concludes our prepared remarks and we did like to open the phone lines to questions operator.

Question-and-Answer Session

Operator

Thank you sir. Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). Our first question is from the line of Jason Mills, Canaccord Genuity

Jason Mills - Canaccord Genuity

Hi, Doug. Thanks for taking the question. Congrats on a good quarter. Are you hearing me okay.

Douglas Godshall

Yeah.

Jason Mills - Canaccord Genuity

I will try to abide by the rules. So first the U.S. implant run rate, with six weeks in the fourth quarter it looks like from a quarterly perspective you are on a run rate in the mid-teens. Taking the midpoint of Peter's stocking units in the first quarter it looks like now it's right around 18% of what many of us estimate is the LVAD market in the U.S. in a quarter. I guess my question is you mentioned that you probably could need a couple more quarters to model it out and talk about it more, what do you think you need to do specifically to continue the trajectory sort of up into the right, from what seems to be sort of the 17%-18% share you have already at this point in time, is it thoracotomy training at existing sites and my guess my follow-up is thoracotomy training standard and new site training and how many of the current sites have received that training and are doing them. I suppose that's my two questions. I will get back in queue.

Douglas Godshall

Thanks Jason. So thoracotomy is not described in our current IFU. So doctors sort of teach each other, thoracotomy. We are -- one of the benefits of this registry is that assuming we get the kind of outcomes we would expect that we would then hopefully be able to convert that into a label expansion with thoracotomy specific data and thoracotomy specific implant technique. So that is certainly a valuable benefit or the ability to do thoracotomy is a valuable benefit of the smaller size of the HVAD but in no way do we feel we are dependent on thoracotomy for continued growth. I'd say what we are now in is a continued expansion into new centers mode and obviously expansion within centers. So we are encouraged that the vast majority of our IDE sites have now implanted with several -- a couple of those that are left as outliers now looking to schedule cases are already having scheduled cases on the book but by no means have we fully optimized our share in a meaningful percentage of the IDE centers. We are certainly encouraged that the sentiment that's being expressed is very positive and supportive at our IDE centers so we anticipate at those centers where we have not fully realized the BTT potential that we will continue to expand.

Our new center participation early on in the launch was quite strong and we continue to be encouraged by the contribution of centers that are outside of our IDE, our IDE site and we do feel that the extremely positive response we received at ISHLT will help to further stimulate growth both within centers and into new centers. So I'd say it's -- there's no single one thing, it's a blocking and tackling, reminding people of the value of the HVAD and exposing folks to it that have not been previously exposed.

Operator

Thank you. Our next question comes from the line of Mike Weinstein, JPMorgan. Please go ahead.

Michael Weinstein - JPMorgan

Thank you and good evening, first off Doug congratulations. (inaudible) It was just your first quarter but obviously very successful with the U.S. launch so congratulations. I want to probably start with one question which is more about qualitative nature and part of the question people are going to have in this quarter and as they continue to ramp is one of user experience. My question is, is there anything that you're seeing in the user experience that would lead you to believe that some of this early usage which is obviously coming at a much higher rate and what have been thinking any of this what you would call (inaudible) and that is there might be some centers that file that did say they don't like it and try not to use it.

Doug Godshall

Yeah I know there has speculation on trialing and I'm certain that there is probably some of that going on. And folks aren't going to say to me I'm just going to use it once because I feel I have to and I'll see how it goes. On the other hand, as we are now getting some traction in a couple of those sites that we have talked about the past that didn't have the greatest experience in our clinical trials, I do expect that they will do a case or two, see how it goes and if it goes well then they will probably start to realize why so many other people are so enthusiastic about the device.

And so I'd say as with any launch there is a mix you have the early adopters who either have such good results in the trials or use the device or such good results as soon as they start using it that they just keep rolling and you have other sites that are going to feel like they have to be a little bit more academic about the process and evaluate it if it goes well use it more regularly. I do think that one I'd say the one thing and we have talked about this before too, the one thing was we've learned in our launch is how different it was for American clinicians to actually have a choice. They don't see it so much having a choice when they are running a trial because they sort of talk about the academic nature of running a study. But when they truly have two devices approved for the same indication, it has taken some of them a little bit of adjusting, how do I present the two approved technologies to my patient? How do I help them make a choice? Do I have to make a choice? So people got into a habit over the past five years or whatever of one device, no choice and they never really had a choice of two really good devices for their VAD patients. So I think some of them take a little time in getting some refreshed experiences if they were in our IED trial and hadn't used a device in a while or getting experience as a new site.

Other centers don’t seem to be struggling with that as much but some it just has taken them a little bit of time getting used to and they certainly seem to be getting used to it. I think it caught them off guard because it had been so long coming and they hadn't really contemplated what life is going to be like post approval. So I'd say that's the closest thing I would say to trialing is more just trialing the top track or walking patients through here are the two devices how do we decide which patient gets what or how do we let the patient decide which one they want.

Michael Weinstein - JPMorgan

Right. And I guess we've done as you know ample of surveys, had lot of conversations with clinicians over the last few months and one thing we had is, we had a lot of interest because it's a new device for those who weren't involved in this trials. But we don't get the new interest and we're just going to use it once and then stop using it. If they use it and as long as something doesn't go wrong in that initial experience that they have bad outcome. If they had a bad outcome then they probably are not going to use it again. But assuming they don't have a bad outcome, we don't have anybody that says alright we used it once now we're going to stop using it. I guess it's the opposite we use it once that was actually a little bit easier to implant than we have been experiencing and I am probably going to use it more. Are we -- just want to make sure I am not missing anything that leads you believe that there was a bolus that came upfront here or might be transit today.

Douglas Godshall

What you described from your surveys is very similar to what we saw internationally. So the one I can make a broader generalization about our international experience because it is more than five months old. And that is that we rarely saw a try one and stop. We -- in virtually every instance internationally, eventually almost every site started using our device. I think definitely think of one that has still despite much effort and probably more effort than a site that does 12 a year deserve is -- I guess he's just a special challenge for us to try to crack the nut because he's the only one who has just stuck with his original device and not tried ours at all, but generally folks try it and then we evolve into some regular component of their use patterns. We would hope that, that happens in the U.S.

My experience in general and prior product launches is the U.S. trends up a little bit faster than international just because you have one language to one currency, one reimbursement system to set it up. Difference being here obviously DT, BTT, so there is -- it's not the same indication as our competitor. But at this juncture yes, we have not identified a bolus of patients that were waiting for us to get approved. We haven't seen anything that suggests to us that we have got some cliff that we are about to hit, where all that we -- everybody's trialed that's never going to go back to where they were before. Thanks Mike.

Operator

Thank you. Our next question is from the line of David Roman, Goldman Sachs.

David Roman - Goldman Sachs.

Hi, good evening and thank you for taking the question. Doug maybe you can just expand a little bit on your prior set of comments regarding different indications. I know that there were some discussions about the quarter about reopening the NCDA, potential look at sort of a less rigid set of indications for ventricular assist devices. Maybe we should give it your perspective on how you are seeing usage play out and then maybe any thoughts on how we should factor in the potential for changes in indications over the long term?

Douglas Godshall

Yeah, thanks David. So I'd say that if we were to dredge up comments we made some time last year, we probably would have said utilization rates as a percent of VADs at a center will likely be correlated with enthusiasm for the HVAD. And given that a lot of patients could currently go into either bucket, if private payors don't require the patients be listed and one can list patients in Medicare even if you are not sure if you are going to transplant them, so there are ways if you believe the HVAD is the best for your patient that you as a clinician can call somebody destination therapy or can call somebody bridge to transplant and stay well within all ethical and legal boundaries. And I'd say we -- I don't know exactly what the patient mix was at some of our centers last year, that are using our devices with greater regularity if they are swinging more patients into bridge than they did a year ago. I don't know because it's not like you take a patient now, you used to call him destination and now you call him bridge or her bridge. It's each patient is its own discrete decision for that physician and that transplant committee.

It's certainly encouraging when we see a meaningful percentage of patients pull our way because it suggests to us that physicians are probably getting good outcomes for their patients and certainly the best way to get them to start using our devices to get better outcomes. So we monitor very closely training and technique and make sure that we understand if sites are pleased with how their patients are faring.

In terms of the national coverage decision I think it would be a godsend for clinicians if CMS would just clean up the language around both indications, neither destination nor bridge really matches how they do things for destination, as opposed to failed medical optimal medical therapy for at least two weeks, I think it is and there are times when patients just come in and they are old and they are crashing and they need a VAD, they put a balloon pump in them and yes they have been on medical therapy for two weeks. So can I call them destination therapy if I -- the two weeks to add on, it might be two months actually it's a long time and so you are stuck in this quandary where it's clearly destination patients but the CMS language is out of step with reality and same with bridge. The last time you really want to tap a list of patients is right when put a VAD in because you know you are not going to transplant them in the next 30-60 days because you just did a bad implant.

So as much as it would be great to clean up those two definitions given that the CMS didn't ask about cleaning up the definitions and even though VATC and ISHLT both vigorously argued that the requirement for listing should no longer be part of the BTT requirement for CMS just as it is not for the private payors I think it would be just too good to be true to think CMS would open a new topic essentially for the national coverage decision that they had initially opened. But certainly a much better chance that it happens now, it has been put on the table by the ACC but the chance was sort of zero before. So I don't think it's a 50-50 chance now. But at least there is an opportunity and an opportunity to have a dialogue with CMS because two very influential societies both pushed for it.

David Roman - Goldman Sachs.

Okay, that's helpful. And maybe just one quick follow-up on the spending side, just want to make sure I understand what you are saying about sales reps and how that should factor in to SG&A for the balance of the year. I believe you said you were still in the process of hiring reps and we should expect sort of 50 by the end of this year and how does that factor into the discretionary spending to the balance of 2013.

Douglas Godshall

Yes, I said we are at about 35 inclusive of some market development folks. We work really fine on doing a lot of market development but are finding ourselves partnering much earlier than expected and we still have obviously a very small but excellent staff doing the work. We are also expanding into things like our medical affairs capabilities which didn't really exist not too long ago, which is in a way analogous to market development function. So we are rounding out our skillsets as well as expanding in the core sales and clinical specialists ranks. And maybe I will let Peter speak to the sort of financial ramifications of the G&A as with in sort of soft…

Peter McAree

Yeah, as we indicated on our last call we do expect the SG&A line will continue to grow and especially from a selling and marketing standpoint we haven't offered more guidance other than that, but compared to where we were this quarter, seeing it happening overall and you should expect continued expansion on top of that, topping out perhaps a few million higher as we exit the year but we will take a look at that down the road in terms of some more…

Operator

Thank you. Our next question comes from the line of Bruce Nudell with Credit Suisse.

Bruce Nudell - Credit Suisse

Good afternoon, Doug. Thanks for taking the question. At the ISHLT Dr. Struber I think showed like a 8% stroke rate per patient year, which is certainly seemingly in the target zone with very nickel split between HCVA and ICVA but he really didn't highlight what percent of the fall is really determined but it could be that he is very diligent of the split anyway. Could you kind of just close that loop as to what you think he's doing right. He's certainly a very reputable guy. And then my second question pertains to the BTT Cap which I think you are talking about, the post approval or rather post approval experience and you said that it was in of 600 with HVAD and I'm presuming it was Intermax controls. And I was wondering is that group enrolled and is there a good demarcation point where you can kind of do a landmark analysis pre and post blood pressure protocol change and whether or not when that might be available

Douglas Godshall

So I think Martin was a little reluctant to over-commit on blood pressure management I believe he was asked that question from the audience and he indicated that yes he does manage it very tightly. I think he was probably little reluctant to make claims for the rest of his -- of the contributors for the study. There are multiple centers who contributed patient data. Certainly as we have reviewed blood pressure control with our international clinician they not universally but nearly universally say well of course this is where we target blood pressures. They do tend to run INRs a little bit higher than in the U.S.

So that would be I mean a lot of people suspect that HCVA's are because of INR levels and that's incongruous with our observations internationally. And you also have a mixture of anti-platelet techniques amongst the centers that contributed to the Revolve registry. So it's also a little difficult to say well Martin uses one cocktail of anti-platelet and other centers use another. So it could well be that the blood pressure control is just a little bit tighter over there. He did not collect that data in his registry, so it's not going to be easy to extrapolate. I think it's in part that the international folks and those who contribute into those trials have had lots of experience with a lot of different devices. When we showed up there were five or six devices on the market most sites had used some collection of those devices and they had not gotten into a habit of only using one device.

So I think some of what we have encountered in the U.S. was a sort of unlearning of certain habits in recognition that different devices are different and setting pump speeds and flows and pressures is probably different device to device. And so I think that is probably a component of it just comfort of moving from one device to another and spend your whole time thinking about how to manage a device differently by the treating clinicians. In terms of the post approval study 600 treatment 600 control, it is all being enrolled from the day we got approved through the 600 patient. If you add up our numbers of implants from last quarter from the past two quarters it doesn't equal 600, that was extraordinary or even better. But we do anticipate we'll hit that 600 patient sometime this year obviously the faster we ramp the simple

What we had already done is had multiple communications with our investigators about blood pressure management prior to our approval. We have certainly discussed it with great regularity and trained on it post approval I was thrilled that ISHLT that it kept coming up when people were talking about HVAD. That tells me it has been well proliferated and integrated into peoples' thinking. If I rewound to last year it never would have come up. So there are certainly an enhanced awareness and hopefully more vigilant attention getting paid through. We certainly get that feedback through various reports that people are noticing, blood pressure.

One site said I had a patient in the hospital at 120 and I just would not let them leave until I can get it down. And that kind of messages is really encouraging so I think it's a good thing for the patient. And so in terms of a pre and post, really all of these patients in the first approval study are being enrolled following our recognition of mean arterial pressure management as an important technique as enhancing patient outcomes and a proliferation of that information to the sites. So there is not to having the patients in the first approval study to before and how did they do after. There are all being enrolled after which is one of the things that we are mostly excited about it as it will be a nice new fresh set of data following recognition of training on MAP control.

In terms of timing, we're just getting used to how the data close in Intermax. So we're starting to get reports but obviously there is going to be a data lag both in terms of data entry and data delivery to us. So we'll probably have a better sense in a couple of months as to when things start feel like they are coming together and whether we'll be able to pull out interim components of that data with sufficient follow up to the meaningful on may be the some of the patients or do we need to wait until full 600 patients have reached some follow up point. Certainly we're really looking forward to the data and if there is a way to get a good clean set out earlier that would be interest of both us and other clinicians as well as to the Street. Thanks for your questions Bruce.

Operator

Thank you. Next line is from the line of Rajeev Jashnani. Please go ahead.

Rajeev Jashnani- UBS

Hey thanks for taking the question. One just I guess first one kind of just housekeeping I know you mentioned 40 to 50 units just want to clarify if that was the stocking number And then secondly it certainly seems like the U.S. launch is off to a really good start here. And doesn't seem like any reasons to think why that won't continue to be the case. But I think really the only source of uncertainty that probably have is endurance I'm just wondering if you could share your perspective on that whether obviously there is some degree of uncertainty how you find that and you think about it what are some of the levers there to help mitigate that risk? Thanks

Peter McAree

So I'll start out on the first question Rajeev so we just get 40 to 50 units we are 18 sites on board We typically it's typical that site will purchase two units on coming on board one from one from back up unit. So that math or 26 or units there plus we had some of our existing IDE sites convert to in the quarter. That site is probably flowing down for us less than half of the sites now have some sort of consignment. So that does roughly the math in terms of how we get to the range of 40 to 50. It's hard to be more precise than that

Douglas Godshall

Yeah. And then in terms of endurance, as noted previously, we believe that we will be successful in reaching our primary end point. Although obviously there is still another year to go at follow up so lots could change but we believe we'll hit our primary end point. And yeah we also recognize that reaching your primary endpoint is necessary but not sufficient for approval. And so one of the things that we're most eager to see in this post approval data post approval study data is a confirmation of what we believe which is now that folks are attending the blood pressure. Are we going to have the kind of improvement in neurovascular events that folks like Martin Struber saw in Europe in that commercial setting.

We obviously expect that the rates will have improved now that we've learned and our clinicians have learned. And we also know that the agency while they are very busy and it's hard for them to work on all the things on their plate and move as quickly as we would like them to, they also have shown a remarkable willingness to consider new data sources as they did with us for centering for example. We see this first approval data set as both important for our current product and launch and approval but also as something that will be quite beneficial we believe to give the agency comfort in the area of neurologic events which clearly is an area where they have some anxiety. If we get the post approval, I mean the continued access, new patient cohort that we are expecting to receive that will be a further and valuable data set because that will be a more controlled and protocol driven set of data that will include a specific change to blood pressure management and inclusion of things like Doppler follow-up and maintenance of blood pressure. So while we think the first approval study would be extremely helpful, the double barrel or post approval study and hopefully with continued access cohort we would predict will ease any angst that the agency would have sometime late 2014 about a safety issue that (inaudible) had in 2012.

Obviously those are forward-looking. We haven't seen data from our post approval study and don't have a continued access cohort. We are relying on the fact that at sites that control blood pressure they have extremely low stroke rates and at sites where they have been more lazy to care about blood pressure, they don't have such low strokes. So there seems to be a super high connection correlation with very few other differences in clinical management beyond the rigor with which they manage blood pressure, which is why we are so optimistic that just as we seem to really discover and address the root causes of what happened are higher than desirable on premise rate that over a year ago we think we are in a similar situation I guess two years ago. We think we are in a similar situation of having discovered the root of the elevated stroke rate and we expect we are on a similar positive impact at reducing dose.

Operator

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

Danielle Antalffy - Leerink Swann

Hi, good afternoon, guys and congrats on great quarter.

Douglas Godshall

Thanks Danielle.

Danielle Antalffy - Leerink Swann

Just wanted to follow-up see if I can get more color on how market share are coming out in the quarter. Is it your sense that they are pretty evenly dispersed amongst the various centers or are there one or two or five outliers that are really skewing the sort of market share data in your view? Is it clinical trial centers that are adopting the HVAD very quickly very newer centers, any sense of sort of the separations of market share would be helpful.

Douglas Godshall

I did say as with so many things it's not that simple. So I'd say it's a range. You have got some sites that have been real pleasant surprises both trial sites and non-trial sites. You have got other sites that have done one implant since we were approved, some are in the four-five, ten implants, some more than that. Some because they have come on more recently haven't done many implants et cetera. So it's heterogeneous at this center. We I think the VAD market is eventually going to become a little less lumpy, which I think is a term people use to describe it. But we still see meaningful lumpiness even in sites that are using our device quite regularly they will go through two-three months and have hardly any VAD or they will only do one or two pure DT patients with no one that's going to be called bridge transplant and so we won't see activity there and yet levels of enthusiasm at the site is extraordinary high for each VAD.

So it is hard and narrow vendors like we have right now post approval to draw substantial conclusions and we certainly don't -- we don't go into the sites and start measuring market share in the January through March timeframe for example, we are much more focused on understanding whether we have addressed any needs that they have in terms of training, understand how they are selecting devices for their patients what we can do to help them educate their patients on the MVAD, they are having the HVAD platform. So we are, I'd say the goal obviously for us is to get as many sites as possible to be extraordinarily enthusiastic about HVAD because those are the sites that clearly seem to think of our device first for any patient decision that walks through their door. And that's the way we have achieved that internationally seems to be just get sites to start using it and overtime their enthusiasm tends to build. And so we are encouraged that so many sites have already gotten through that get it on the shelf and use it phase because we think it's a matter of time now before we start to breakthrough even at some of the lower earning sites to get them to ramp to utilization.

Danielle Antalffy - Leerink Swann

Okay, awesome. And just to follow up on that, if I could, and are there any sites, is it your sense right now are there any sites where HVAD holds majority market share and if so any conception about how many? Thanks so much.

Douglas Godshall

So again it's a little hard because we are starting to get to a point where you have got enough time under your belt at some centers to give you the -- to suggest that they are using our device preferentially and for more than half their patients. And my reluctance is there were a few sites where I felt that way and then they had a run of DT only type patients and certainly we worried that they didn't love us anymore and then they had another bridge patient in April and then maybe they love us again. So it's a little, nuance and because of the subjectivity of DT there is no blood test for destination therapy of bridge. So we don't -- you get a different reason for calling somebody bridge at two sites in the same city. Or DT at the same two sites in the same city. So it's an interesting challenge for their clinician, is exactly how do I think or how does my transplant community think of DT. And they don't tend to call us and say hey by the way I just put an LN2. I mean we get a lot of that information back but I think it's a little premature to say at X number of sites we are now market share leader for bridge and transplant and just like in Europe we don’t spend a whole lot of time measuring exact share by site. We are much more focused on expand the use of VAD, expanding the use of HVAD, specifically versus using that specific metric to determine whether we have been successful or not.

Operator

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

Mimi Pham - ABR HealthCo

Hi, just a follow-up on question from earlier. Do you find that you have to spend much time and effort over the past quarter to send in the -- data in your selling effort, or is it just not coming up, at first sight?

Douglas Godshall

I think it has been largely digested by the clinical community. Certainly it's well known by the medical community because we have, our other friend in the market make sure everybody is keenly aware of the data in there. So it invites the opportunity for us to have a dialogue about blood pressure management which is very helpful for us, frankly. Because it enables us to have a conservation and engage the cardiologist who are extremely influential in the U.S. and also the ones who tend to be much more closely integrated into the blood pressure management activity.

So I wouldn't say it never comes up, I am not -- I spend a lot of time on the field but I am not out on every sales call, so I don't know -- I can't tell you how often it comes up. But it tends to come up, it tends to get addressed and for the most part it is defused. I am sure there are physicians out there who prefer not to use our device right now because of that data. It does not seem like it's a vast majority of the clinicians however. I think they had imperfect enough outcomes with other devices that they recognize that our device is also imperfect. And most folks are actually encouraged that we were open about what we have learned and we are open about our efforts to improve the outcomes for their patients and get better and encourage that where we have a similar investigation and discovery for pump thrombus that we did something about it and things got better.

So it's a -- we would like all of our adverse events to get as close to zero as humanly possible and I think the stroke one is the one where we are working on now and once we get this done to the range what Dr. Struber showed in the U.S. and hopefully even below that then we will move on to the next one.

Mimi Pham - ABR HealthCo

Got it and then in terms of the -- your new international sites can you give us the split, new to VADs versus using other competitive devices at your centers

Douglas Godshall

I understand the question. I am -- maybe this is a good sign that we have now got a little too big for me to know that answer. A 1.5 year ago I probably would have known that answer. I actually don't know right now. Generally what we end up is about a 70% VAD center and 30% new VAD. I am just trying to remember some of the sites that we have this quarter up, roughly, I know some of them are already VAD centers, so it maybe that just that they are all pre-existing VAD centers, I just can't remember whether they all are. Sorry.

Operator

Thank you. The next question is from the line of Suraj Kalia from Northland Securities. Please go ahead.

Suraj Kalia - Northland Securities

Hi, Doug. So just in real terms you all have talked about the DT -- and given your IFQ and DTT escape math for 2085 milligrams of -- here's my question for you all is that is that a 85 the cut off threshold you are supposed to the FDA for your DT -- also? And subsequent to that has your global experience with the goals that Dr. Struber -- suggest to me that targeting these levels of DT of DT is the way to go? And if not why not?

Douglas Godshall

Yeah so the ISHLT's guidelines for VADs generally, not our VAD is now 80. They recently published that. It actually made us wonder, should we have gone to 80 instead of 85. We are pretty confident that based on our data that 85 is actually, gives us a little bit of a buffer, most of our data seems to be sort of 90 is the cut-off, but if we tell people to shoot for 90 then they will get to 95. So and 95 is probably okay. It's just as you keep sort of this 95 becomes a 100 and the 100 becomes a 110, then you are really in a high risk zone. So what we counsel is in our best practice target 85 or below. If you see somebody above 90 do something about it. So tweak their meds try to get them lower.

As I mentioned with Dr. Struber it's -- we didn't have this kind of granular mean arterial pressure data internationally and we didn't have as many patients in a controlled data base to mind. We have 600 some patients that we were able to run our multi -- analysis on, analysis on in the U.S. And we looked at like 36 different potential risk factors for stroke, some of which we would have predicted, this one would definitely come out like age. And were surprised that some risk factors that seemed obvious to us as likely correlated which did not correlate. Now if we have 6,000 patients I would expect we will see age start to come out as a greater risk for stroke because it is in every other analysis of stroke you end up with a greater risk as you get over. But it didn't in this dataset and we didn't have as large a set of patients in a data base that we controlled and that data base from Revolve was Martin Struber's data base. So we have not had the ability to mine and analyze the international data and whether we have the U.S. Anecdotally certainly the international folks when we've had them together and reviewed this data and talked about blood pressure control they say things like well of course. So it's not anathema to them and it's not -- there is an obviousness that hypertension increases risk of hemorrhagic stroke. And that's why ISHLT is suggesting broadly if you're using a VAD that it should be 80 or below

Suraj Kalia - Northland Securities

Fair enough. And Doug, one final question in terms I think so I heard pediatric sites coming online in the U.S. forgive me if I misheard that was I dropped off of my phone. So I guess if some of the sites did include pediatric usage how should I look upon that usage vis-à-vis the effectiveness not being established for patients with BSA less than I think it was 1.5 meter square or so in your IFUs and just from usage perspective is it clinicians driving it or it's actually pediatrics? Thank you for taking my questions

Douglas Godshall

Yeah we find ourselves in a challenging position with pediatrics just as we do with BiVADs and RVADs which is for those patient cohorts they are not indicated in our label. And so we are very much in -- we supply when to supply versus selling into those sites. It would be unethical for us to just sell them of that and not train them. So we -- if Children's Hospital in Boston says I've got this child who needs your pump and I have no alternative available for this patient, we will train them we will wherever possible we will make sure that an experienced preceptor from an adult hospital such as your hospitals make sure they are into see the case, that they help train the staff and support them.

It is not of this I'm sure a high volume of sales for us. It certainly highlight the one of the real benefits of having a small devices you can -- it has the ability to keep small humans alive which is probably the most gratifying thing we do when we hear about a success seven year old or 10 years old as the parent of one of those creatures should feel really good. And it's fun when your kids read stories in the newspaper about how their kids continue back to school. Not a core component of the marketing but we feel like it's part of our mission of do what we can and to do so in compliance with our label and which is why we're not targeting any of those sites and we're not targeting of that. Fortunately the device's unique nature has kept probably 100 BiVAD patients alive around the world and a similar number of kids. So it's kind of cool

Operator

Thank you. Next question is from the line of Matthew Taylor Barclays Capital. Please go ahead.

Matthew Taylor- Barclays Capital

Hey guys thanks for taking the question. So wanted to ask just one on the market in the U.S. did you feel like there was any real change in terms of the growth of the BCC market in the quarter. I guess if you back out your stocking number, it seems like there was may be a little bit more growth than we see. Do you think it was any extension higher average incentive rate because of the new product? And then I just want to make sure I understand your stocking comments is that net stocking and how should we model that going forward?

Douglas Godshall

Poor Peter he's like constantly trying to get our heads around how to think about stocking. So as he described earlier and I'll use last year as an example internationally we had this huge surge out of centers was 22nd in the first two quarters. So almost always in recent times we used to launch giving everybody consignment because we were just trying to get Once as we shifted into a physician pull versus company push or whatever it was and realized that having thousands of inventory locations around the planet was not in our best interest and sites were willing to pay for the device we started talking.

So generally what happens if a site has a patient they think they are ready to treat, they buy a couple of devices, they use one on a patient and they keep the second one on the shelf. More often than not they will reorder for the second one back on the shelf. So you're now has a stacking order of two net of sort of three total net two, two is left on the shelf. And the only way you would end up with only one is if they implant one and keep one on the shelf. At pediatric centers where the patient flow is much lower, that's probably a more likely outcome where you don't really need two systems. You always have to have a backup just in case something goes wrong and you have to do a pump exchange which not happen very often but it's unsafe to go down to a level of zero in the event of emergency.

So that's why I end up with a minimum of one or usually two in stocking and it's all one of the reasons why it's a little difficult to calculate because you don't always know if things have been unused or two on the shelf another one used did they reorder the one. So it's a little complex. And as we expand just as we saw internationally other than the last year stocking inventory went from sort of 10% of sales on a reasonable steady state in the first couple of years of our international launch and then it diminished to a much lower level because you are sort of calling those sales as a result of implants that our ways you are calling out sales as a result of stocking.

We certainly hope that the same things happen in the U.S. as our expansion to new centers as we get into our 80th, 90th, 100th center then the number of centers we add per quarter will start to diminish. And therefore the stocking effect will diminish as once we sort of hit that 100th 110th whatever we hit this year.

Matthew Taylor- Barclays Capital

Okay. And I just wanted to …

Douglas Godshall

And in terms of the bridge your first question. You want me to answer that

Matthew Taylor- Barclays Capital

Yeah

Douglas Godshall

If I can. I guess I don't know yet I don't know how well the other guys did yet. It seemed like a really healthy quarter for VADs globally. The feedback we got from the ISHLT was certainly long term incredibly promising but we didn't get the sense that it was just a busy quarter for us. My sense was January started slowly for the VAD market generally and then picked up over the course of the quarter. But I don't think we don't have visibility into the other implants such as so it's a little hard for me to suggest that as a shift over the bridge. As mentioned before I think I will say is particularly pleased with the outcomes that the patients are getting with HVAD. It seems likely those patients who have been described as grey zone or whatever couldn't suddenly look a lot more like an HVAD patient and a bridge patients than they might have a year ago when the HVAD was not available.

Operator

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

Jason Bedford – Raymond James

Thanks for sneaking me. Just a couple of quick ones. If we look at the U.S. market how much of the volume do you think has generated from the 77 centers are you're in currently I mean percent of the total of U.S. VAD volumes?

Douglas Godshall

Yeah so we've got to recognize we've got a few of those folks in there that are if you put them on a list of 160 or so VAD centers they will probably be number 150 or 151 or something like that because you don't see that many frankly there aren't that many cases of heart disease. So our best guess is sort of circa 65%-70%.

Jason Bedford – Raymond James

Okay, and then just a clarification, did you say the gross margin would stay around 60% for the year?

Peter McAree

I did say that statement. We started out very strong but we are still feeling it's very early to project for the full year on that basis of one.

Jason Bedford – Raymond James

And what would stop it from being north of what you did in the first quarter?

Peter McAree

It would be we are anticipating that demand will be there. And so we will increase production, increase cost. But yet we are in a new market in the United States. So to the extent that the demand might not be, that we might ramp production at a rate that outpaces demand. We want to factor, we are also new in the game, from a commercial standpoint so understanding return rates, warranty with service plans and things that are beyond sort of the strength forwards still in the current process little bit difficult to predict at this early stage. It's really only those matters of uncertainly.

The other factor and we think we have modeled it well, but our new -- we have two sites in Miami, like as I think as a lot of you know, and we are operating out of the old site right now getting a little tight. The new site has been approved for international production and very recently passed an FDA audit with no adverse entries which was really a great testament to the good work that our folks down there are doing. But we are also going to be going through a migration process and probably for some time having two sites both doing production which could create some wobble in gross margin, we will have a shutdown of old, shift to new, et cetera, so that right now the new sites, have two running going to suddenly throw a bunch more overhead on top which we aren't currently carrying because it currently isn't in product. Long term the new site is fantastic. Some of you have been there. It will do very well for us down the road but this year could burden us a little bit in the middle of the year.

Operator

Thank you. The next question is from the line of Charles Croson with Sidoti and Company. Please go ahead.

Charles Croson - Sidoti and Company

Hey, Doug and Peter, thanks for taking the question and congrats on a great quarter. Can you hear me okay?

Douglas Godshall

Yeah, thanks Charles.

Charles Croson - Sidoti and Company

So switching gears here a little bit, I wanted to address the centers here, I mean you are well on track to match the 100 centers for the year, even exceed that. I just want to get an idea what are the plans after that, is it just going back to centers, some of the high volume ones that may fall by the wayside, or is it kind of stop take a quick breadth and then continue to add more or is it just kind of a balance?

Douglas Godshall

It will be an interesting question that we will face. Certainly internationally we have continued to expand and to some extent we have expanded into new geographies on face that sites have the potential to grow in the future. So we have varying returns on our efforts internationally. Sometimes we go in and they do one and we don't see them again for a year. And even in cases where they promised us we will do like 18 cases next year and then for whatever reason it just doesn't happen. It's not usually because they aren't really sick patients that usually internationally it's usually more of the government decided, hey we don't want to pay for this. And you are back into a two-year type commitment to pay for you.

You obviously don't have that payment phenomenon, but I think we will have a similar question as we start getting to a 100-110 sites and we hit the back so to speak and you have got probably 15% of the VAD volume in 30% of the VAD sites. So we will likely be very selective as to which sites we would go to next. Certainly if it's another pediatric site to kind of share ethical obligation we will go in and teach them how to use our device. But it's not a great return other than it makes you feel good. The lower volume sites that one or two a year one would question whether they should be a VAD center at all, but as a new player, you probably run into a challenge back to that sort of trialing concept, it's hard for a site to evaluate a product that they use once every six months. So that may be a rate limiter as to, in some of the final smaller sites. On the other hand some of the really busy sites today were not doing VADs at all a couple of years ago. So in terms of being selective I think we will try assuming we have the good fortune of being north of 100, or 110, we will try to select the ones that we think are going to go from five a year to 15 a year. And try to move into those versus the ones that are going from five to three, or whatever the numbers are.

So I think some of them will just select for us. They will do such a little volume that they can't rationalize burdening themselves or their staff with learning a new play. And the other ones that have institutional conviction that they want to be a real VAD center they will also feel like hey to be a real VAD center we also have to offer the HVAD, because it has the versatility to treat a broader spectrum of our patients. And if the market grows as we anticipate it will there aren't going to be a lot of sites that are only doing one or two. You will probably start shifting to a minimum of 12 or 15 or whatever it is as the market expands I think the referral centers that are doing fewer implants will do more and the bigger centers even more than they are doing today.

Charles Croson - Sidoti and Company

Okay, thanks very much that's very helpful answer. Just one last quick one here, on Canadian approval, do you still see that as a possibility at the end of Q2 and then a quick one, follow-up on that one, the market size for Canada is that fair to assume it's about little less than one-tenth of the U.S. just kind of comparing population sizes.

Douglas Godshall

I would guess that it is closer to one, or about a 3%, 4% of the U.S. market, something like that, just trying to figure out, it's a little healthier than when we initially were going in under special access where we thought it was 20-30 VADs it's clearly much healthier than that, more sites doing VADs. I don't know that there are 100 VADs in Canada. Last year there were closer to 3,000 in the U.S. So it's not quite where I thought it would be, but it's pretty healthy for a market that is seen as very constrained. I mean just for an analog Germany very much larger population it's well over 600, but France with also very much larger population is looks like it's less than a 100, it's probably closer to 75. So Canada is actually doing reasonably well for a population of 25 million inhabitants or whatever the total in Canada is.

And so in terms of approval timing, I am just so wrong and so consistently -- how long regulator takes, we would be -- we would expect June is very realizable. But they don't call us to say well here's when we are going to approve you. So I would be pleased if it was June I would be shocked if it was August.

Operator

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

Larry Biegelsen - Wells Fargo Securities

Hey guys, congratulations on a great quarter, Doug. Thanks for fitting me in. A quick housekeeping question, compassionate use forms about 15, similar to last quarter.

Douglas Godshall

So you are throwing in peds and BiVADS into that.

Larry Biegelsen - Wells Fargo Securities

Last quarter, you said you were at 17 compassionate. Just trying to get some commercial up in plans.

Douglas Godshall

So since sites are able to sort of work on how they define a patient, it's hard to know how many patients are getting VADs and there could have been destinations, so to that extent that, that's a label for compassionate use I think it's no longer discernible from where we sit. And BiVADs peds, I don't know if we have the exact number of those in the past quarter. My sense is it's less than that number, this past quarter, but I just don't know definitely.

Larry Biegelsen - Wells Fargo Securities

Okay, that's fair. And then just one clinical question, Doug. Obviously the stroke rate in the Revolve study was quite impressive, but the thrombosis rate was relatively high. It was similar to what we though ISHLT in 2011, 9%, 0.09 per patient year in. And I guess when we talked to doctor Struber he thought that there was a tradeoff between anti-platelet therapy and stroke in thrombosis and he said that thrombosis isn't as bad as the stroke. So he is willing to have a little bit higher thrombosis rate from lower stroke rate. And I guess my question is and he explained that he has a unique anti-platelet regime and like a 100 milligrams of aspirin three times a week, something like that. And his patients were about 50% of those in Revolve. So I guess my question for you is why do you think someone as prominent as Dr. Struber kind of disagreed a little bit with you guys and is not completely bought into the mean arterial pressure and he thinks there is some interaction with anti-platelet therapy and stroke, thanks.

Douglas Godshall

He's getting such great results on the no logic event side and does control blood pressure well, that he's I think he's formed a hypothesis. These guys are smart free thinking individuals who often debate us vigorously. And results that Revolve data also included a lot of unsintered pumps. We have certainly seen a material decrease in pump thrombus post sintering. And I think that was also validated in the data in house and data which had a lower rate and a lower exchange rate for our device. In Revolve thankfully a lot of those patients were actually were able to be treated medically, which was certainly good to see and there is always a debate what's the best way to manage pump dysfunction. It was interesting there was a lot of talk about pump thombus at this meeting although very little of it about HVAD.

So it was sort of nice to see that it's recognized as a class effect risk not no, longer just sort of HVAD's the only one that has it, which obviously has never been true. And so I don't -- I would predict that as we continue to expand our utilization and particularly now that we are able to learn across a broader spectrum of sites in the U.S. with increasing experience that we will continue to look for ways and find ways to enhance the management of our patients whether it be further tweaking of anti-coagulation. I mean obviously none of, if all things being equal, if we can get rid of warfarin and aspirin, we would be thrilled. I just don't think you can go all the way there. And so I expect until one of us develops the perfect content we think MVAD moves closer than HVAD has and I think it will be a nice improvement.

We probably could potentially enable us to decrease anti-coagulation resident generally. We will keep titrating the sort of various dials, Blood pressure aspirin, warfarin, et cetera until we find a steady state and yes, after 13,000 implants people are still trying to find ways to optimally manage heart beat too. So if you have another 10,000 or so implants before we -- and that's probably not even going to have the full knowledge of the exact way, the perfect way to manage these because the patient's biologies are different and getting it perfect is just, is very difficult.

Operator

Thank you. Our next question is from the line of Steven Lichtman with Oppenheimer and Co. Please go ahead.

Steven Lichtman - Oppenheimer & Company

Thank you. Hi, guys. Just one question, Doug internationally obviously you have a tough comp but the number came in still solidly here in the first quarter. I know there were some geographies that snuck up on you last year being positive. But what are you seeing out there today internationally any new geographies that are picking up, is France picking up for you now, any color on sort of international further expansion would be helpful. Thanks.

Douglas Godshall

I am just trying to think on it. I think it was a reasonable quarter, broadly. It was not like we Egypt has come on strong and carried us for the quarter, which I think is impossible we have never done an implant in Egypt, but as an example. So I can't point to a single this geography did great, Germany did great for us in the first quarter and that's the largest market and for a quarter to do well, Germany has to do well because of the scale in our business and the scale in the market. France we have augmented our organization, had to make a change. It's -- it has France I think is the most interesting challenging country because it's -- as there are really no financial impediments in France and yet the way they manage the patients is so different that it has resulted in a series of small VAD centers and one sort of moderate size that -- and yet they could all be substantially larger, the country just has it's sort of hasn't caught fire for either of us in the use of lot of extra corporeal VADs still which is outside of France become increasingly uncommon.

One of these years, hopefully this is the year, France should really take off because the patients are there, the payment is there, it's the only country where utilization is not -- is unconstrained financially but is not going through the roof. Almost every other geography regardless of continent it's on seems to really expand utilization substantially, with payment which is why we are really encouraged that our new international reimbursement staff seems to be getting traction in some countries but we would not have necessarily so if those countries come on line it could be very positive for the VAD market.

Steven Lichtman - Oppenheimer & Company

Okay, great. Thanks for the color Doug.

Operator

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

Douglas Godshall

Mike may not have a follow-on. I think we lost Mike.

Operator

Okay, we will move on to our next question from Matthew O'Brien with William Blair and Company. Please go ahead.

Matthew O'Brien - William Blair

Good evening. Thanks for taking the question. So just curious on the U.S. launch and what you are seeing in the non-IDE centers right now from a patient perspective. Are you -- just generally speaking seeing more in the centers the patients initially than what we see in terms of market averages? And then eventually you get into more I don’t want to say straightforward, but I guess that's the only word I can think of straightforward implants from there.

Douglas Godshall

Yeah, so we sort of putting the peds into a standalone category that we had hoped that we were just going to steer any ped cases into an adult center. That has proven to be much harder than we expected. There is, the staff at ped centers they know how to manage kids, they do a phenomenal job and have zero interest aside from structural payment barriers for them sending to an adult hospital. But they tend to hold on to them and so we, more like we have to import the adult hospital into the Ped center to help them through training. And it's not like we have 12 pediatric centers or anything. So it's still just a small number. So in the rest of the 27 some odd that we have trained, I don’t think we are seeing a let me give this a shot on my worst possible patient and if it works than I will use it again, rather we tend to see say I didn't want to give you that patient as my first one because I want to really learn how to use the device, I didn't want to challenge the device. Now in centers that maybe had real challenging outcomes in a trial maybe that's the patient we are going to get is the really challenging case and if we do well as often is the case such as a at Bedouin House and where they give us their toughest patients. If we do well then that will likely go a long way towards getting them over the hump and making them passionate for the HVAD.

But at the new centers just as in the IDE centers I'd say it varies, it varies, the utilization varies based on volume at those centers, utilization varies based on volume of DT versus BTT. So as much as I love this sort of paint a broad brush and say they are all the same and they all use our device in a 100% of their bridge patients, that's now the case, so obviously that's our desire and so I don't think there is a single pattern that you could say at every new center. I would say that several new centers have been pleasant surprises in terms of how quickly they have incorporated the HVAD into their treatment algorithms and it's as if they have been using it for years and they sort of adjust quickly start using it right away, first cases went well and they don't then wait six months to see if those patients do well. They wait six days until the next patient shows up.

Operator

Thank you and our final question comes from the line of Brooks West with Piper Jaffray. Please go ahead.

Brooks West - Piper Jaffray

Thanks guys. It's getting late. So I will stick to one. Peter on ASP in the U.S., I just wanted to make sure I understood your commentary. You are saying that you are coming in Q1 at the high end of a $100,000 to $110,000 range that you expect to moderate kind of back to the middle of that range over the year, is that correct and just wanted to understand the dynamics of that.

Peter McAree

Yeah, what we don't do is what we report on an ASP basis so Brooks is the total revenues on top over pump units only. And what I was explaining is we were at the high end of that range because of the peripheral components of revenues that were included in the quarter. And overall what we have said about our pricing in U.S. is that our price depending upon who is purchasing, whether it's in the IDE site or a new site, our pricing range we estimate will be between 100 and 110 overall. So because of the components of peripherals in the quarter which was fairly high, we expect to see some risk back toward the middle of the range.

Brooks West - Piper Jaffray

Got it. Thank you.

Operator

Thank you. At this time I would like to turn the conference back over the company for any closing remarks.

Douglas Godshall

Thanks everybody and thanks everybody else and I just looked at my watch and I apologize that you are all late for dinner. So thanks for the attention and for hanging in there. I sort of lost track of time but glad we were able to get through everyone's question without the market open looming over us as we normally see in our calls. And we are certainly encouraged by the early progress we made as a company. We are flattered by the great feedback we have received from our customers and more importantly we are optimistic that as they continue to learn and we continue to learn that their patients will continue to see improving outcomes which will hopefully create the kind of virtuous cycle, good outcomes, beget good business just like we have seen internationally.

So thanks very much. Look forward to seeing many of you over the coming weeks and hopefully we will have more good news for you in the future. Thanks very much.

Operator

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

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