HeartWare International, Inc. Q1 2010 Earnings Call Transcript

HeartWare International, Inc. (NASDAQ:HTWR)

Q1 2010 Earnings Call Transcript

May 3, 2010 5:00 pm ET


Christopher Taylor – IR

Doug Godshall – Managing Director, CEO

David McIntyre – EVP, CFO and COO


Michael Weinstein – JP Morgan Chase

Jason Mills – Canaccord Adams

Timothy Lee – Piper Jaffray

Ben Forrest – Summer Street Advisors

Lennox Ketner – Bank of America

Douglas Tsao – Barclays Capital

Duane Nash – Wedbush Incorporated


Greetings and welcome to the HeartWare Inc., 2010 first quarter results conference call. At this time all participants are in listen only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) as a reminder, this conference is being recorded.

It is now my pleasure to introduce the company you may begin.

Christopher Taylor

Thank you, operator. And thank you all for joining us for the HeartWare international conference call and webcast to review the first quarter 2010 results. Before we get started, we have a few housekeeping items to cover.

Giving the course of this conference call, the company will make forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. A detailed discussion of the risks and uncertainties that affect the company's business and qualify the forward-looking statements made in this call is contained within HeartWare's filings with the SEC, particularly under the headings risk factors described in the company's annual report on form 10K and contained in other filings that the company which from time to time with the SEC.

Copies of HeartWare's SEC filings are available online from the SEC are by clicking on Investors Relations on HeartWare's website. Any projections or forward-looking statements are based on judgment, 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 any obligations to update any projections are forward-looking statements.

On our call today, HeartWare's CEO and President Doug Godshall and David McIntyre, the company's CFO and COO will each provide commentary on the company's first quarter results as well as corporate update. Those prepared comments will be followed by a question-and-answer session.

And now, I would like to turn the call over to Doug Godshall.

Doug Godshall

Thanks, Chris. Good afternoon everyone. We appreciate you joining us for our first quarter results conference call. During the first quarter 2010 HeartWare achieved significant clinical and regulatory milestones continue to drive, commercialization in Europe and advance our capabilities and capacities as we continue to move the company forward, in one of the fastest-growing segments of the medical device field.

While it has been just two months since our last call, a great deal has been accomplished by HeartWare team thus far in 2010. In the US, we concluded enrollment of our bridge-to-transplant study in February which was two months earlier than expected.

In total 140 patients at 30 US centers received our HVAD system under the IDE follow up for the last implanted patient is expected to be completed in late August. Our team will then finalize data analysis and make our PMA submission with the FDA by year-end.

This study, known as ADVANCE, is the largest bridge-to-transplant clinical trial conducted to date, and we are eager to see the results and share them with the clinical community. We expect to be able to share clinical data from the study shortly after following our submission with the FDA and are targeting a presentation at the Society of Thoracic Surgeons Annual Congress in January.

You’ll also recall that the FDA recently approved a 54 patient Continued Access Protocol or CAP for this ADVANCE trial on April 8th. Any of the 30 US site that implanted a patient in our BTT study can participate in the CAP, and we are pleased to note that the first three CAP patients were implanted last week.

In fact approximately one-third of the sites have already had or have scheduled their IRB meetings. So the pace has been brisk. Since many of you have asked us, let me add that, we intend to ask the FDA for additional patients beyond the initial 54, once we have depleted this initial cohort. And while we are hopeful that this will be viewed favorably by the FDA, there obviously can be no guarantee that our requests will be approved.

Another topic that is of interest is the status of our planned Destination Therapy trial in the US. We are – and what we expect is the final round of discussions with the FDA about the details of the study and at this time, second quarter approval seems likely. Once approval is received, we will then work diligently with our sites to commence implanting.

Internationally, we generated solid growth in the number of implants, approximately 30% higher than the fourth quarter. We also increased the number of HeartWare implant sites from 16 at year-end to 22 at present.

While in the subject of our international clinical experience, our Professor Martin Strueber of Hannover Medical School presented on the first 100 HVAD patients in international markets at the International Society of Heart and Lung Transplantation week ago in Chicago. This presentation was well received and the data showed 90% survival at the 180 day mark in both the first 50 clinical trial patients as well as the first 50 commercial patients. It is encouraging to see this survival number hold at high levels even as the patient pool is expanded to include sicker patients treated in the commercial cohort than were studied in the international trial.

It was also gratifying to see in this expanded data set that our international physicians appeared to be benefiting from increased experience with our device and this is obviously a trend that we hope to see replayed in the US as physicians become more familiar with our device.

In addition, an emergency theme that was echoed at the ISHLT Conference is that the future of the end stage heart failure will ultimately be treated predominantly by mechanical support and only occasionally by transplant. The global phenomenon of decreasing heart donors and increasing wait times for patients seems to have really taken hold over the past two years. And the change in turn at the ISHLT is an excellent reflection of these trends, and of the significant market opportunity before us.

HeartWare is in the midst of an important and challenging stage of our maturation of the company. In order to capitalize on the extraordinary market potential that we believe we have with the HVAD and our next generation MVAD platform, we must strengthen and expand our global reach. The strong results, we have generated in Europe during 2009 were driven by enthusiastic physician interest and yet was supported by only two European clinical specialists.

Obviously in order to continue to grow and manage our business, we needed to build our international infrastructure and customer support capabilities. And as such, during the first quarter we began to expand the team by recruiting three more clinical specialists and one sales professional, more than doubling the size of our commercial staff from three months ago.

The positive impact of these new recruits will begin to be felt over the coming months and we will continue to expand the team with 10 to 12 total personnel expected to be on the ground in Europe by year’s end. We also continue recruiting experienced professionals to key positions in R&D, Reimbursement, Marketing, Regulatory and Clinical Affairs.

All told, the first half of 2010 is very much about building a strong foundation for future growth. It is important to note, however that patient outcomes ranks as our first and foremost priority particularly during the early phase of commercialization, simply put, we remain more convinced than ever, the excellent outcomes during this launch and expansion phase will position us well for sustained global growth in 2011 and beyond.

Next, I would like to update you on the voluntary field action we commenced last week. We have mobilized our team to begin the process of upgrading controllers in the US, Europe and Australia. Our immediate priorities are scheduling patient visits at their centers, and ensuring that those sites, who are implanting this week or will be implanting soon have the upgraded controllers.

With a fairly concentrated customer base, we expect that the process can be completed in six to eight weeks. In fact, in just the first week, nearly one-third of the sites in the United States have already been fully upgraded. We are hopeful that the relatively minor nature of this field action and the fact that it is voluntary in nature will make it unobtrusive for our customers and will not have an impact on our implant rate.

Overall, we are proud to report that more than 400 patients have been implanted globally with HeartWare Ventricular Assist System. And the feedback, from our clinicians and the clinical results presented scientific meetings continue to be very positive.

We are buoyed by the strong market growth that was articulated last Thursday and we firmly believe that that technology is available today and the exciting breakthrough possibilities on the horizon will continue to dramatically expand the number of heart failure patients on mechanical support. I would now like to introduce David McIntyre, who will walk us through a summary of the financial results for the first quarter. David?

David McIntyre

Thank you, Doug. To summarize, first quarter revenue came in at $10.7 million, up substantially from $1.5 million in the first quarter of 2009 when we commenced our European commercialization efforts. Q1 revenues were slightly lower than Q4 revenues, due to cessation of US implanting and revenue approximately half of the way through the period as a result of the early completion of enrollment of our US bridge-to-transplant trial.

For the same reason, geographically, approximately 75% of first quarter revenues came from international sales with the remaining coming from the US bridge-to-transplant study prior to the conclusion of enrollment.

A high reliance on European denominated revenue in a context of a depreciating Euro during Q1, together with the lost opportunity to earn approximately $900,000 in the quarter through US bridge-to-transplant enrollment stopping at 140 patients, instead of the previously expected 150 patients, with a headline factors contributing to first quarter revenue of $10.7 million, notwithstanding that International implants were up17%, a 13% sorry.

As Doug mentioned gross margins for the first quarter of 2010 was 47%, up slightly from the 44% gross margin recorded in the fourth quarter. Notably, Q1 gross margins included approximately $400,000 of accrued one-time expenses associated with the recent controller repair and partial recall.

Gross margin for the first quarter was 51% prior to the inclusion of these extraordinary adjustment to cost of revenues. Total operating expenses for the 2010 first quarter were $9.3 million as compared to $7.7 million in the equivalent prior year period, which included $1.9 million of expenses related to the blocked Thoratec merger.

The increase in operating expenses is primarily attributable to a height in commercialization activities in Europe, additional expenditure on the company’s technology pipeline and increased headcount for specialist positions to make rising demand for our products and to sustain growth.

Net loss for the 2010 first quarter was $4.5 million or a loss of $0.35 per basic and diluted share compared to a net loss of $6.2 million or a loss of $0.70 per basic and diluted share in the 2009 period. Weighted average share counts were 13 million in Q1 of 2010 compared with 8.9 million shares in Q1 2009. We also closed the quarter with a strong balance sheet showing 103.9 million in cash and cash equivalents and some short-term investments.

Turning to inventory at March 31, 2010, we had $12 million in inventory, which is up from December 31, 2009, mainly due to increased purchasing of raw materials and growing production of finished goods, supporting our expansion of commercial sites and the US clinical trial sites where the devices are held on consignment.

By now HeartWare holds approximately $4.3 million in raw materials and $6.5 million in finished goods at March 31 with $3.3 million held on consignment by various clinical sites worldwide. Despite the cessation of implanting in the United States, we continued to increase production and this is reflected in the expanded finished goods balance as of the reporting date.

At quarter-end, accounts receivable had a balance of $7.9 million with strong collections being reflected in a modest decrease from the end of 2009 and noting that the vast proportion of our receivables are on the 60 days.

Turning back to revenue for a moment. Our first quarter results reflect the fact that our US revenue stopped once we completed enrollment in advance and we anticipate the second quarter results will be impacted by changes in our US trials. We are pleased that enrollment under the BTT CAP has already commenced, but it will take some time for the remainder of sites to obtain IRB approval and move forward and begin enrolling patients. And that is – thus it is probable that US-based revenue will be flat or down for Q2 depending on the outcome and timing of events with IRBs and with the FDA for Destination Therapy in the United States.

We do however fully anticipate that Q3 revenue will be substantially bolstered by meaningful and prolonged contributions from CAP and our DT trial.

Lastly I would like to mention that we appreciate the strong endorsement that our shareholders have provided our company, as evidenced by our increased capital base. Unlike the early days of HeartWare, we are now able to invest more fully in our pipeline opportunities, continue to make enhancements to our HVAD system, while beginning to staff our organization at commercial levels globally.

We were going to carefully choose by our treasury with a need to drive and improve our current technology and quickly introduce our MVAD pipeline and we look forward to continuing to communicate our progress in the coming periods. Doug?

Doug Godshall

Thanks, David. And before we move to questions, I wanted to reinforce a couple of points and review some other aspects of our business. As we indicated in our fourth quarter call, our revenue streams both internationally and domestically will be uneven throughout 2010 as David just reinforced a moment ago.

Until our new team members in Europe are able to expand our footprint to a substantially broader customer base, we are dependent on the small number of centers internationally with a result that any change in implant volume particularly at a larger centers will have a material impact plus they are more negative on our top line.

In the US ending one trial, we are gearing up for CAP and DT is both an extraordinary workload for the team and also results in irregular implant rates as each trial gathers momentum. Fortunately ours is not simply a near term story but one that we anticipate will play out successfully over the next several years.

Another topic, which we are often asked about, is data from the US trial. First of all, please remember that the trial still has four months until the last patients reaches their endpoint, so even if we could talk about the data the reality is that we have a lot of time yet to go and much data still to accumulate. Additionally, our control arm is being simultaneously enrolled by the NIH funded Interagency Registry for Mechanically Assisted Circulatory Support, which is also known as INTERMACS.

We presently have no visibility on any of the data in our INTERMACS control arm or the subset of patients that makes up our control arm, and will not have any such access until after our last patient reaches their endpoint at the end of August.

As a result, we will not know how we are fairing in comparison to the INTERMACS control arm until the fourth quarter of this year. The INTERMACS data has obviously benefited substantially from greater clinical experience with approved devices over time and as deeply enthusiastic as we and our investigators are about HVAD system, we simply do not have a window into INTERMACS comparator at this time.

What we do know, is that the level of interest that the trial has attracted to date is very encouraging and we are grateful for the hard work and input of some outstanding surgeons, cardiologists and their teams. Since, it is this feedback with our customers that will enable us to improve our system and drive improved clinical results over time.

Turning to international market, despite our limited resources we feel that the novel value and versatility of the HVAD has been strongly demonstrated by our early traction of approximately 200 implants at 22 sites during the first 12 months of our commercial history and we anticipate being in roughly 40 centers by year-end. There have also been a few published accounts and scientific presentations detailing the use of the HVAD in a broader spectrum of patients.

This includes the compassionate use of our device in several children, some as young as 12 and many patients for whom surgeons have implanted two HeartWare pumps providing biventricular support for both the left and right ventricles also known as Bi-VADs.

It is increasingly apparent that the small size and versatility of the HeartWare system enables physicians to tell many patients for whom there are no other viable alternatives. While we are presently unable to promote the use of the HVAD in this fashion, we are currently assessing the clinical and regulatory paths, which would enable us to best address the needs of the pediatric and biventricular failure populations.

Turning to our pipeline, while we remain committed to satisfying the growing demand for our HVAD product and capitalizing on the near-term opportunity, by leveraging our hybrid wearless and power suspension technology, we have developed a series of even smaller pumps the cornerstone version of which is known as the MVAD.

These new pumps are designed to be implanted through approaches that further reduce surgical complexity. Our goal is to constantly drive down the procedural invasiveness without impacting the efficacy of the device. As we believe that this will enable the market to grow into one that can meet the needs of tens of thousands of patients.

Also at the same ISHLT meeting, we mentioned earlier in Chicago Dr. Mark Slaughter, of University of Louisville presented positive MVAD preclinical data. In his presentation Dr. Slaughter reported that one of our designs a transapical version provided support for a 30 day period without complications.

In 12 bovine studies all MVAD pumps were successfully implanted by left thoracotomy, without sternotomy and without cardiopulmonary bypass. The MVAD demonstrated good hemodynamic performance and hemocompatibility in this test model. This study was just one of a largest theories of preclinical studies on various MVAD configurations. And we are extremely encouraged by the performance and outcomes to-date. All in all, we have conducted more than 50 animal studies in the various configurations and we are highly confident that we are well placed to advance this platform.

The current development work can be leveraged from all three platforms and therefore we are able to continue working in parallel, although we have now put one platform at the head of the list go to first-in-man studies.

With the additional capital raised this year and our growing revenue base, we have elected to invest in a broader array of technologies than we had – than previously comfortable pursuing, which means putting the MVAD and our next generation peripherals on to a more aggressive path.

In closing, we are fortunate to find ourselves in a position to help so many patients and to participate in what is shaping up to be a unique multi-year growth opportunity. As a company, we are delighted by a solid near-term results and are appreciably more focused on the long view.

With that, we would like to open the lines to take your questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from the line of Mike Weinstein with JP Morgan Chase. Please proceed with your question.

Michael Weinstein – JP Morgan Chase

Thank you, Doug, David, good afternoon. Let me start with Europe and I would just like – you talk a little about the – the continued progress in your opening of new site, I think at the year end, you were at 16 and now I think you said 22, and you the goal of getting to 40. Can you talk about the gating factors, as it ever relates to your internal resources at this point at opening new centers?

Doug Godshall

Sure, thanks for the question, Mike. Yeah, I would say that we – if you look back it at the end of last year, we – we ended the year with two full time, one part-time consultants and we – we used the fourth quarter of last quarter really to prove the model like can we build the business and will customers use our device, but it – it became quite apparent, when we took the calendar over in January that we just – we had become the bottleneck.

We were – our focus were so busy servicing the existing customers that we could barely find the capacity to add the many new sites that had expressed interest. And unfortunately you can’t just hire the first person you find on the street, so we have really spend the first quarter carefully selecting the next crop of higher, so we find ourselves now with – with an additional four, soon to be five additional focus on the ground, but they really didn’t start coming on board until late March into April, so they have really not had a chance to have an impact, but given that – given that the two folks that we had were servicing the existing base reasonably well, we think we are – we are well poised to start accelerating growth to more centers.

In terms of Europe growth in general, which I think was the second part of your question, the market is growing though not as robustly obviously as the US, we sit and look with envy at the US market, I wish we were in it today because it would really be fun. It’s a little more measured although, we think probably high-singles, low double-digit growth in aggregate and for us it’s really, we have to make sure that we are not because of any constraint of growth on our side by bringing on additional infrastructure on our side.

Michael Weinstein – JP Morgan Chase

With – where your capital position is today, you are obviously are in a better position than you were, three, four months ago, you have the ability to start to compete [ph] at more in the service side. Is that the principal gap, I know it’s A, combination of lack of historical experience that surgeons may have with you and B, the level of service at Thoratec that they had, is providing that you guys up until this point, at least really haven’t been able to provide?

Doug Godshall

Yeah. I think you could have – right on the head. We had a plan to methodically expand resources sort of slowly, over the course of the year. That thankfully, in early February we found ourselves in a much more comfortable financial position. So, we didn’t – we can’t spend like drunken sailors obviously but we are in a position where we can start to much more aggressively hire. And, it just takes a little time to find the right people that we feel comfortable growing the business with.

And, and so we are finding ourselves now in a position where we are able to start saying yes to some of the sites that have been contacting us over the past six to eight weeks, asking us to please come and do training with them because we now have the – the infrastructure to do so.

Michael Weinstein – JP Morgan Chase

Let me ask one question on the US, I know I just wanted to jump in here just, on the discussions with the FDA on the DT trial; can you give us a read at this point, on number of patients?

Doug Godshall

We – what we indicated in our public filings from the last quarter is that it could be up to 450 patients.

Michael Weinstein – JP Morgan Chase

All right.

Doug Godshall

We are still sort of in negotiation on the, I mean the primary discussion right now is really around statistical plan, so might be at 450, it might be, we are, we are sort of going back and forth regularly with the FDA to try to hopefully finalize the last bits and pieces of – of DT inclusive of and primarily around the statistical plan.

Michael Weinstein – JP Morgan Chase

Okay. I have some CAP questions but I’ll let some of the others jump in? Thanks.

Doug Godshall

Thanks Mike.


Thank you, our next question comes from the line of Jason Mills with Canaccord Adams. Please proceed with your question.

Jason MillsCanaccord Adams

Yeah, hi Doug and David, thanks for taking the question and congrats on the progress. First question, Doug, just sorry if I missed it, but did you give the total number of HVAD sold in the quarter?

Doug Godshall

We did not give the number of HVADs sold in the quarter. We are up internationally 13% we –

Jason Mills – Canaccord Adams

And we can do the math in the US right?

Doug Godshall

Yeah, you should be able to do the math in the US We ended – we ended with obviously the 140 patients, so it was 29 in the quarter in the US.

Jason Mills – Canaccord Adams

29 in the quarter in the US great and secondly just off of Mike’s question on the DT trial. It is going to – you are going to get approval when you get it obviously, but I’m just wondering, as you think about – as you think about the time you have now to work and talk to these centers that are showing significant interest and being a part of that trial, and as is our due diligence suggest you have no lack of interest. I’m wondering what we should think about once that trial does – the ideas are approved. How should we think about the ramp in terms of centers getting in higher via approval, perhaps that approval process once you get an IDE, the shorter given that you have this extra time, now that the FDA is working through this statistical plan?

And then the second part of the question is, once you get a couple of quarters into it, do you think we could look back at the HeartMate II DT trial as a proxy or do you think that perhaps you could see your trial a little faster given that you are not going to be comparing against a device in the XVE that the most people now agree was not as good as the current generation devices, but comparing against a device in HeartMate II that I think most of us will agree is a better device?

Doug Godshall

I’m so thankful that we are comparing against the HeartMate II first of all because it’s I think it’s really scientifically interesting for our customers to compare two good devices versus against the XVE which I think a lot of them really – really cringed when they had to randomize the patients to the XVE.

So I think it’s going to be really a fun trial for our customers which never hurts enrollment, a challenge to any trial is getting much momentum before you have an IDE number, IRBs don’t want to waste their time reviewing it, the lawyers of the hospitals are busy they don’t really want to review a contract that doesn’t have an IDE number.

So we are in a bit of a suspended animation right now where everybody says hurry up, hurry up, hurry up, but they can’t really do much until we have some letter from the FDA even the conditional approvals. I think we are sort of on pause, it will also be on average a little bit longer to get DT going than CAP simply because CAP is same trial, easy for the IRB to review and will fly through, they captured at least with only one IRB review.

On the flip side, an advantage that we have as a company over where we were a year and a half ago, we have already gone through negotiation with 35 of these centers, 30 of which did implant. And so we have some learning curve on sort of what it takes to get through a contract office, we have already worked through budgets; there is already inventory on the shelf et cetera.

So we have every expectation that we will pull side initiation forward considerably on DT relatively to what we saw in BTT, since in BTT, it took us about 16 months to get 30 centers, so much more protracted.

Your last part of your question I believe was enrollment rate relative to Thoratec, time will tell, it certainly is encouraging to see this huge flow of patients coming into the clinic that should accrue to our benefit both in lot of benefit both in CAP as well as DT, but it is a trial. Some patients are simply going to want an approved device and not one that, the uncertainty that comes with clinical trial.

So at this juncture we have not mulled out in part, just like to Mike’s question, how big is the trial, how many sites are we going to get. We are still a little bit in limbo with the FDA, as to exactly what the parameters are going to be at the trial?

Jason Mills – Canaccord Adams

Okay, that’s fair I also, just one more follow up and I’ll get back in queue, and let others jump in. Talk about what you heard at ISHLT, your – your perspective on what you heard at least, does it relates to the complications we still hear about with these next generation pumps, albeit the complication rates have come down and I think most folks are optimistic about where we are today and where we are going rather to worry where we were in terms of bleeding, the aortic insufficiency and the like.

I am wondering if you can give us some of your thoughts on what you heard and also relative to the HVAD. What you have seen commercially in Europe and how you think you may sort of compare out as you move forward as it relates to some of these conditions or complications, we continue to see? Thanks, Doug.

Doug Godshall

Sure. Yeah, I think – I think our friends in Pleasanton, made a good observation last week when they sort of described, the evolution of – of this – this clinical space, a couple of years ago all they wanted was a device that didn’t breakdown and kill patients.

And, and with HeartMate II we clearly – and now have that, the challenge was then, all right what, what’s the next problem that we would have to solve. And, you just needed, you need enough patients with different devices to understand what are the nuances of the technology? What are the nuances of continuous flow physiology generally? There may be some commonalties across all platforms and then there are probably differences between platforms.

And so I think with the numbers of implants that we are now able to see with HeartMate II, you can begin to see. Okay, we know what we need to work on and I think in our commercial experience in Europe, we are starting to get as we saw in the certain learning curve experience that Dr. Strueber presented, you learn as you go with what needs to be different, done differently with different devices, what nuances are in the implant technique, patient management et cetera.

That said, we don’t have, I think enough data yet either commercially and certainly don’t have our US trial data to be able to stand back and say, okay, now we have a sense of what specifically we should expect to see in terms of bleeding, infection et cetera with the HVAD relative to the alternatives.

I think we’ll start to get a better sense of that as towards the end of this year as we have several 100 patients to evaluate versus – versus our early sort of 400 patient-experience. I don’t know if that answers your...

Jason Mills – Canaccord Adams

That’s helpful. Doug, I will get back in queue. Thanks.


Thank you. Our next question comes from the line of Tim Lee with Piper Jaffray. Please proceed with your question.

Timothy Lee – Piper Jaffray

Hey guys, good afternoon. Thanks for taking the question. Just a couple of follow ups on the DT side, the DT trial you had noted this on the discussions were surrounding the statistical plant. Does your – are you proposing an interim look during your study, we are hearing some – hearing some rumblings on that front and I guess by eliminating interim look, wouldn’t that decrease the potential number of patients that you may need?

Doug Godshall

Thanks Tim. Yeah, we have the upside to our trial is that we have a good device to compare ourselves to and a device that doctors would be comfortable randomizing two seemingly two either [ph] arms and facing quite enthusiastic about the HVAD. But at this juncture, given sort of where we are in limbo, I think I would rather reserve comment about the specifics of our trials given that we don’t know how the FDA is going to react to our specific proposals. But we – but the fact that, that we are comparing. That’s a good device that isn’t going to have a 10% success rate like XVE.

It does require a thing a little more creatively about trial design and certainly and fortunately we have had a good collaboration with the FDA. You would always like to go faster. But I think in the end, we’ll have a good product, a good design and one that our clinicians will be excited about rolling in.

Timothy Lee – Piper Jaffray

Got it. And just follow up Jason’s question in terms of some of the complications. Are you now looking for Von Willebrand disease in the PTT study and would that be one of the metrics that are you looking for in the DT trial?

Doug Godshall

So – acquired Von Willebrand Syndrome for those who are listening and who don’t get to spend time in bad talks is they – is a bleeding disorder that – that has been a identified as a possible phenomenon related to – to some continuous blood pumps and our advisors generally think that will – quite Von Willebrands may have A, role in some of the GI bleeds in the like that one sees in the larger trials.

There is – there is an evolving school of thought that it is one of the factors, but not exclusively the fact – they are not the exclusive factor and so one of the things we want to see is – is first what does our data say – does it say that do we have a different kind of bleeding, we certainly do have some bleeds just like unfortunately not every patient does as well as we wish they would just like we need love all these patients to do well regardless of the technology that they are implanted with.

But I mean we are not actively evaluating Von Willebrands, it is not an secondary endpoint of our – of our trial and yet, we are keeping an keen eye to – to try to understand are there nuances to the adverse of run rates generally not just the bleeding rate.

Timothy Lee – Piper Jaffray

Got it. Then just one last one. Just Thoratec had some good number of share last week in terms of the roll out – and then in terms of the US DT market, just any thoughts on your front was it inline, what you are thinking? Is it market expanding faster than you had thought? Just any color would be appreciated? Thank you.

Doug Godshall

I forget what my first email said it is something like I am stunned. I knew it was really good, but it certainly exceeded my hopes and dreams in terms of the pervasiveness of the uptake, it seems like everybody was up everywhere, I was certainly hearing that rumbling, but honestly I was thinking kind of a 25% lift, not the eye popping lift that they saw. So I was as a – as somebody who is trying to be as (inaudible) responsible and I couldn’t be happier.

Timothy Lee – Piper Jaffray

Great. Thank you.


Thank you. Our next question comes from the line of Ben Forrest with Summer Street Advisors. Please proceed with your question.

Ben Forrest – Summer Street Advisors

Thanks for taking the question. I’m wondering with respect to your – with respect to the centers that you are now in. Could talk about the split that those centers have between HVAD pumps and HeartMate II pumps and are you seeing a difference between the smaller centers and the large centers?

Doug Godshall

Thanks for the question, Ben. Good to hear from you. So it’s – it varies center to center. I think, we spoke about in our last call that we anticipated smaller centers would be more likely to go with one or the other.

And we are seeing that trend a bit more, our smaller center is reluctant, if they are to go with say one pump one month and then a different pump three months later, it just puts a – it puts so much pressure on their staff to remember the different settings and requirements of different devices.

We have not concentrated on smaller centers to date in part because of that same infrastructure, challenges that I had mentioned earlier. If the smaller center requires the same amount of support then it’s not our – not a great decision on our part to go and divert resources that are still limited to those smaller centers.

I think now we will be in a position where that can be a larger part of our overall customer mix that we can contemplate some of the smaller centers because we will have to wherewithal support them.

At the largest centers which, there are three or four that we are in. I think it’s a mix. I think we are not seeing any decrease in the utilization of HeartWare at those centers. We do not have 100% of those centers either. So it’s, I think there are patients who they may think is – are better served with the HVAD and other patients that they feel would be better served with some other technology from another – from a number of other companies in some instances.

So it’s, I think we are getting to a point where, where we are delighted to see that after three, six, eight months of utilization, that no one is kicking us out the door and seem to be comfortable using the HVAD as an ongoing mix within their – within their site, but I don’t know that we are yet in a position to say, at these top four centers we will commit to ex-market share for the next six months to come, I think those centers seem to move back and forth a little too fluidly to really pin them down.

Ben Forrest – Summer Street Advisors

Great, thanks and then just one more. Is pricing a factor right now in the decisions, that these centers are making and do you expect it to be factor in the future?

Doug Godshall

I don’t get the impression that at the centers that we are in at this juncture are buying our device or not buying our device because of pricing. We are nearly on par, if not on par with Thoratec at most centers and there are some lower priced competitors at other centers and we seem to be successfully persuading those sites that there are reasons to go with a higher priced HVAD and so I don’t get the impression that in a life and death decision for the patients other than in sites that are so severely budget constrained that they simply can’t afford to pay a premium. I don’t get the impression that the doctors are comfortable buying on price.

Ben Forrest – Summer Street Advisors

Great, thank you.


Thank you. Our next question comes from the line of Lennox Ketner with Bank of America Corporation. Please proceed with your question.

Lennox Ketner – Bank of America

Hi guys, thank you so much for taking the question. It’s two quick ones, first in terms of OUS implants, it looks like I know you said OUS implants were up 13% sequentially but it looks like OUS revenues are roughly flat sequentially and it’s getting there from the in fact I think you said OUS revenues were 65% of the total last quarter and 75% this quarter. So I’m just wondering about the discrepancy there, is that purely driven by currency or were there any changes in terms of the ASPs on a constant currency basis?

Doug Godshall

It’s – it’s a there are a few factors that come into play and David can jump in and correct me if I, if I miss one.

Currency in this quarter was a lot less helpful than it was last year where it was incredibly beneficial for us. So, moving to becoming more heavily weighted towards Europe, it was – it was a quarter where that didn’t particularly help us.

We also in this quarter saw a very little to any stocking whereas last quarter as we indicated in last call nearly 10% of our revenues were – were stocking orders. This quarter virtually none of our revenue was as a result of stocking, so that – that those two factors had a great deal to do with – with the swing in Europe.

Lennox Ketner – Bank of America

Okay, and then just one follow-up. I know you said that the recent capital that you raised will allow you to put that (inaudible) in a more aggressive timeframe? What I’m sorry if I miss this but, what’s your expectation in terms of the timeframe actually in terms of when we could see in the beginning of a trial in humans?

Doug Godshall

We are – we are in the process of firming up our – our timeline to first-in-man, so at this juncture, we have not put out any – any date with specificity I can say that it will not be this year, just if I look at all of the verification and final animal testing that we are going to have to do, but now that we are – we are sort of locked in on a design that we – the design that we think will be bringing to clinic first, it gives us the firmer footing with which to build our project plan.

So we are excited, but it’s still little ways away.

Lennox Ketner – Bank of America

Okay. Thank you so much.


Thank you. Our next question comes from Douglas Tsao from Barclays Capital. Please proceed with your question.

Douglas Tsao – Barclays Capital

Hi, thanks for taking the question. Doug just following that quickly, analytics when will you make the final design decisions public to us, on the MVAD?

Doug Godshall

Yeah. Thanks, Doug. We are trying to decide when it’s really helpful for us to make that public. At this juncture internally, we know it’s where we are going. We don’t know that externally – providing external clarity on that is really all that helpful for us for a little while. So I think we would like to get a little bit further down the path, little bit closer to our clinical experience before we go public with which one is at the final list.

Douglas Tsao – Barclays Capital

Okay, great. And then just thinking about your – do you get the sense in the international market that there is a coalescing of – by physicians around the HeartMate II as well as the HVAD and that some of the smaller manufacturers are – not falling out of stage or but they are just simply losing traction?

Doug Godshall

Having – having been in this space now for almost four years. I always wondered if it was going to be a multi-company market, but how many can the – how many different devices would a hospital be comfortable having on their shelf?

Will it be like an ICD where there are sort of three primary players and then – and then maybe a couple of tertiary and I am still not sure, if it’s going to be sort of a HeartWare Thoratec story or – our multi-party story. If somebody else comes up with a really compelling clinical benefit that doctors really – really gravitate towards then – then others will – will come in.

It’s – it is a challenge for a center to learn different systems, so you have to have enough patient volume to justify learning three, four or five different systems and in Europe, there are only a couple of centers that are of that size and now I can tell you from experience, it’s not the easiest thing in the world to run a trial. So it takes a lot of money, takes a lot of effort. So it will be, I won’t say that nobody else is going to get through because I’m sure there will be others that will latch on to a really important clinical design. But at the end of the day, if it’s a multi-billion dollar space like I kind of think it will be then I can’t imagine that others won’t get through.

Douglas Tsao – Barclays Capital

Okay. And then just finally, just a question on the DT trial and how are you are thinking about adding new centers that did not participate in the bridge-to-transplant study especially given the fact obviously we have seen with the HeartMate II, great improvements as centers have become more experience? Do you have any concern that if you add a center that hasn’t used the HVAD and bridge trial but has been using HeartMate II that you could possibly be handicapping yourself?

Doug Godshall

We are encouraged so far by what we are seeing in Europe where we have been adding some new sites, six in the last quarter. I think that – something, there’s sort of a physician learning curve, but there is an underestimated company learning curve as well. I think we have got better capacity, better capabilities. We are smarter, we learned from both our international and our US experience, how to train, how to manage, how to help people understand the differences between HeartMate II and our system or other pumps, valve system.

And so I’m not all that concerned. We didn’t see a huge difference between new centers in our US trial and older centers in our US trial. But that said, we are not going to add centers that we have concerns about. Fortunately we have more centers that want in than we have space for.

So I think we’ll be able to be selective and who joins our trial and we will also be very – very thorough in our training here as we go. So I’m not – I’m not overly concerned both based on our capability that which is greater and as – and our experience to date.

Douglas Tsao – Barclays Capital

Okay, great. Thank you very much.


Thank you. Our next question is from the line of Duane Nash with Wedbush Incorporated. Please proceed with your question.

Duane Nash – Wedbush Incorporated

Sure, good afternoon and congratulations on the quarter.

Doug Godshall

Thanks, Duane.

Duane Nash – Wedbush Incorporated

Are any other data presentations planned for 2010 for example, is Dr. Strueber planning on any further updates of international data?

Doug Godshall

It’s a good question Duane. I’m trying to remember what else we have on the book. So, I think we have some smaller symposia and other presentations, I believe we have something tentatively scheduled for EX in the fall. But I’ll – just on top of my head I – mean we are sort of formulating the balance of the year plan much was – there was a great focus to try to get Dr. Strueber’s presentation, get the data done in time for that presentation, we had some suggestions from some folks that are probably on this call in fact that – there were aspects that – in that data presentation that they would like to see and other physicians would like to see, so we are – given that it’s a registry format that he was collecting the data and we’ll have to see if we can populate some additional fields, so we can further advance that data set, but at this juncture nothing specific on the doc yet.

Duane Nash – Wedbush Incorporated

Right and then David mentioned that Q3 will likely be boosted by having both the bridge CAP on the ways as well as the DT trial and I was wondering how much of that might be counteracted by the overall tendency of European centers to slow down in Q3?

Doug Godshall

Yeah, August is usually quiet. We were actually pleasantly surprised last August that’s really the month that started our – our growth surge last year. So we are I think – I think you would probably see a little bit of August that slides into September but these are pretty sick patients, you can’t just string them along indefinitely.

I know that – that Thoratec has indicated consistently that the fourth quarter is their strongest quarter. We are – I think we are still so young and small and pretty good as you are ramping the trial in the US your comparator in the third – in the second quarter going into third quarter is very little to any DT volume in the second quarter so whatever we got on third quarter will be materially higher than we – than we would see in the second quarter.

Duane Nash – Wedbush Incorporated

Great, well thanks very much.

Doug Godshall



Thank you. Ladies and gentlemen, I would now like to turn the conference back to Doug for any closing comments.

Doug Godshall

Yeah. Thanks very much. And I would like to thank everybody for their time and interest in the VAD space.

We are really delighted that our trials are now picking up momentum again in the US, clearly we are not the most patient company in the world, just waiting for these to get started, and it was driving us crazy, sort of sitting and waiting for patients.

So we are – it’s fun to be back on the offense in the US, so we are pleased to see CAP up and running. We can’t wait to get our DT trial commenced and hopefully the real positive interaction that we have had with the FDA will continue so that we – as we are hoping we see that helps trial approved here in the – here this quarter.

And we are confident that the infrastructure that we are building here particularly, internationally in the first and second quarters will bear fruit for the back half of 2010 and beyond as we intend to do our best to have a real meaningful impact in thousands of patient’s lives with our therapy as we – we help build this important mechanical support market.

So we look forward to updating you on our progress as we go along and as always delighted to see all of you at conferences here in the near future.

Thanks very much and thanks for your time.


This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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