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HeartWare International, Inc. (NASDAQ:HTWR)

Q1 2014 Earnings Conference Call

May 1, 2014 08:00 AM ET

Executives

Doug Godshall - President and CEO

Peter McAree - CFO

Chris Taylor - VP of Investor Relations

Analysts

Danielle Antalffy - Leerink Partners

Chris Pasquale - JP Morgan

Matthew Taylor - Barclays Capital

Jason Mills - Canaccord Genuity

Steven Lichtman - Oppenheimer & Co. Inc.

Lawrence Biegelsen - Wells Fargo Securities

Jason Bedford - Raymond James

Bruce Nudell - Credit Suisse

Kayla Crum - William Blair

David Roman - Goldman Sachs

Shagun Singh - CRT Capital Group

Operator

Greetings and welcome to the HeartWare International 2014 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now pleasure to introduce your host Chris Taylor, Vice President of Investor Relations. Thank you, sir. You may begin.

Chris Taylor

Thank you, operator, and thank you all for joining us for the HeartWare International conference call and Webcast to review the results for the first quarter of 2014. 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 in 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 of the Company makes from time to time with the SEC.

Copies of HeartWare's SEC filings and the news release for this results call are available online from the SEC or by clicking on Investor Relations on the HeartWare website. Any forward-looking statements that 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 HeartWare's CEO and President, Doug Godshall; and Chief Financial Officer, Peter McAree, each will provide commentary on the Company's fourth quarter financial results as well as a corporate update. Those prepared comments will be followed by a Q&A session. In the interest of time and with the goal of allowing as many of you to propose questions as possible, we respectfully ask you limit yourself to one question and one concise follow-up and then please feel free to return to the queue. Thanks very much.

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

Doug Godshall

Thanks, Chris, and good morning to everyone listening in. We are pleased to provide a review of our first quarter results for 2014, our strongest quarter reported to date. Our team generated sales of 665 HeartWare systems, more than 100 units higher than our previous record high of 549 units. And for the first time we surpassed 300 units in a quarter in both international and U.S markets, with 330 in the U.S and 352 internationally.

Overall, our $66.5 million in first quarter revenue represented a 35% increase over the first quarter of 2013 and a 25% increase sequentially from revenue of $53 million in the fourth quarter of 2013.

We expanded our global footprint to nearly 250 customers around the world with five new U.S customers and 12 new international customers. Interest in HeartWare’s portfolio continues to strengthen as demonstrated by growing momentum in our supplemental destination therapy study and the considerable interest in MVAD as we rapidly approach first human use.

The results are certainly gratifying and we’ve been honored by the support from leading surgeons and cardiologists. The business of life sustaining mechanical circulatory support is complex and we continue to strive to improve patient outcomes and enhance the performance of our system.

As you likely saw, we’ve initiated a voluntary field safety corrective action regarding batteries and power management. We are distributing information to assist patients and clinicians to monitor battery performance, recognize abnormal behaviors, and reinforce proper power management, particularly in the context of a battery that is no longer functioning properly.

We remained committed to making improvements that address reported product performance issues and communicating information that maybe helpful to our customers and their patients to ensure best possible outcomes. As we progress and now with well over 5,000 implants, a few of whom have been on the system for more than six years now, we will continue to learn more about how to make our system better and how to manage it better.

And with that, I’ll now turn the call to Peter for comments about the first quarter, and then I'll return to provide some additional perspective.

Peter McAree

Thank you, Doug. We're pleased to report another solid quarterly performance for the first quarter of 2014. As Doug mentioned, we hit a historic revenue high, having sold 665 HVAD systems during the quarter compared to 482 systems in the first quarter of 2013. And with 313 HVADs sold in the United States and 352 HVADs sold internationally during the quarter.

We posted worldwide revenue of $66.5 million in the first quarter, a 35% increase from $49.2 million in the first quarter of 2013, including 2 percentage points compared with currency exchanges.

U.S revenue during the first quarter was $33.8 million, which represents a 29% increase from $26.2 million in the first quarter of 2013 and a 30% increase compared to the fourth quarter of 2013. There were approximately 35 supplemental destination therapy trial units sold during the first quarter.

We ended the first quarter of 2014 with 101 sites in the United States, having added five new sites during Q1. It was nice to see a strong rebound in the U.S after the pause we observed in our VAD implant activity last November, followed by the NCD ruling issued by CMS.

Since we’re reporting before Thoratec this quarter, we don’t yet have had a clear picture of the trends in the market for Q1 and we can’t rule out the possibility that we received a temporary benefit as a result of carryover sales from Q4. As always we remind our investors that revenue results from quarter-to-quarter maybe subject to substantial variation.

International revenue during the first quarter was $32.7 million, a 42% increase from $23.1 million in the first quarter of 2013. These gains were primarily across Europe, including some markets that have not traditionally been our strongest. We ended the quarter with a total of 146 international customers, having added 12 sites in Q1.

We realized an improvement in gross margin percentage to 65.5% in the first quarter compared to 63.6% in the fourth quarter of 2013 and 61.9% in the first quarter of 2013. This progress is primarily the result of higher volumes and increased manufacturing throughout tied to increased revenue. We increased our warranty reserves during the quarter to account for the potential of increased returns related to our field action regarding batteries.

Operating expenses in the first quarter of 2014 increased to $60 million, compared to $53.3 million in the fourth quarter of 2013 and $38.6 million in the first quarter of 2013. You will see that we added a line to our income statement, which reflects an adjustment of $3.1 million to report the change in the estimated fair value of the contingent consideration liability related to future milestone payments that maybe payable over the next 10 years in connection with our acquisition of CircuLite.

The maximum amount of aggregate milestone payments could be up to $320 million based upon six specified performance milestones. As of March 31, 2014, the fair value of contingent consideration was estimated to be approximately $70 million. This liability will be adjusted each quarter for accretion related to passage of time and for changes in the probability of achieving each potential milestone as additional information becomes available.

SG&A expenses increased by approximately $1.2 million to $24.2 million in the first quarter from $23 million in the fourth quarter of 2013. Approximately $300,000 of this sequential increase was due to a net increase in restructuring and acquisition related expenses in Q1 compared to Q4. The remaining $900,000 increase included a full quarter of CircuLite expenses as well as increased employee costs, professional fees and all other expenses.

Research and development expense increased by approximately $2.3 million to $32.6 million in the first quarter from $30.3 million in the fourth quarter of 2013. The $2.3 million sequential increase incorporated a net $2.7 million net decrease in severance, impairment, and restructuring charges incorporated within the R&D line. Excluding these non-recurring charges, ongoing expenses increased by approximately $5 million on a sequential quarter basis. The majority of this increase was due to a full quarter of R&D spending which we observed from CircuLite.

The integration of CircuLite has gone quite well and our combined teams are off and running. The final step will be the transfer of manufacturing operations into our Miami Lake facility towards the end of the year. And just to recap, immediately following the transaction in the fourth quarter, we eliminated several overlapping senior management positions.

During the quarter just completed, we consolidated approximately 30 additional positions. We close the former Teaneck, New Jersey headquarters of CircuLite, which resulted in lease exit costs and abandoned fixed asset charges and we concluded certain supply agreements which concluded -- which resulted in termination costs. In total, we reported aggregate charges of $3.5 million related to these actions.

On our call -- on our last call, we estimated we’d achieve approximately $10 million of expense synergies compared to the annualized expense base of $28 million which we inherited from CircuLite. Thus far we’ve accomplished about $9 million of the annualized savings against the $10 million target.

Heading into the second quarter, this equates to a run rate of $4.75 million per quarter included in our operating expense base related to CircuLite. This spend level will continue through the end of the third quarter and comes down another $250,000 per quarter starting in Q4.

During the first quarter of 2014, we also completed the relocation of our Massachusetts headquarters to our new facility just across the Mass Pike from our previous Framingham location. This resulted in a charge for lease exit costs of $528,000 in the quarter.

Please refer to the non-GAAP reconciliation which appears in the tables, included with our earnings release in order to more fully understand each of these restructuring and acquisition related charges discussed in this commentary.

Net loss for the first quarter of 2014 was $19.4 million or $1.15 per share as compared to a net loss of $13 million or $0.80 per share in the first quarter of 2013 and down from $22 million sequentially from Q4, 2013. There were approximately 16.9 million weighted average shares outstanding during the first quarter.

On a non-GAAP basis, net loss per share for the first quarter of 2014 was $0.70 per basic and diluted share compared to a net loss of $0.87 per basic and diluted share in the first quarter of 2013. As of March 31st, we had approximately $181 million in cash and investments compared to $202 million at year-end. During the quarter, we utilized $17.3 million of cash for operations and approximately $3 million for capital expenditures primarily related to our Massachusetts headquarters.

Similar to 2013, our cash needs are typically greater in the first quarter compared to subsequent quarters due to annual incentive payments in working capital timing. We also had the added expenses of CircuLite for the first full quarter in Q1.

In summary, the financial results for the first quarter were solid. And while we always caution about variability on a quarter-to-quarter basis, it feels like we’re off to a good start for the year. Thanks for your time this morning. I welcome your questions when we move to Q&A. I'll give it back to Doug now.

Doug Godshall

Thanks, Peter. Before moving to questions, I’d like to add a little color to our commercial results, clinical trials and pipeline activities. We continue to be encouraged by the expansion of VAD therapy in international markets. Last year we added far more centers than we had expected and that momentum carried into this year with 12 new sites added in the first quarter.

While we do not expect this pace to continue, it does augur well for the year ahead to a fresh pace of customers to build upon. We continue to find an honor that when a new site wishes to initiative a VAD program, they chose to call us. In fact, about 30% of our new international sites in recent years have been new to VAD centers.

Enthusiasm for HVAD in international markets remain strong. This was reflected again last week at a cardiology conference in Mannheim, Germany where we hosted a symposium on HVAD. And the 130 seat room ended up being far too small to accommodate the number of cardiologists wishing to attend.

We continue to see substantial support for our pump in markets around the world and this is really a testament for the efforts of our team and more importantly the good outcomes our customers are seeing with HVAD.

Turning now to U.S., we’re certainly encouraged by the results during the first quarter. Based on our continued dialogue with leading players in the field, our perspective remains unchanged that the hot topics that received attention late last year wont have a lasting impact or particularly meaningful on the VAD space which we believe will continue to grow over the coming years.

The addition of five new centers in the U.S.; in the first quarter, is on track with our expectations that we will add approximately three to five new customers in the U.S per quarter.

Our team remains focused on being responsive to each of our existing customers, ensuring that they have the support and training needed to provide optimal patient outcomes. Adding new sites is important, but we’re confident that this will happen steadily over time as long as existing customers continue to share their reports of positive experience with the HVAD.

Also this past quarter, we held our first U.S VAD coordinator training session, two regional market development symposium and added two new U.S sales regions to better manage the increasing product demand and customer service requirements, created by our existing -- our expanding commercial presence.

Just to touch briefly on some of our ongoing clinical efforts. As anticipated, the enrollment in the supplemental cohort to our destination therapy trial began to pick up during the first quarter and more than 85 patients have been enrolled. Currently, 48 of the 50 eligible sites have received IRB approvals.

As a reminder, the second cohort of the trial evaluates how patients respond to an enhanced blood pressure management protocol. We’ve observed retrospectively the patients who have tighter blood pressure controls experience lower neurologic event rates. It is quite timely to see a publication in the annals of thoracic surgery by Dr. Jeff Teuteberg of the University of Pittsburgh Medical Center where the authors describe the impact of blood pressure on VAD patients and how lower pressures resulted in lower neurologic events in both HeartMate II and HVAD patients.

At the ISHLT meeting, Dr. Teuteberg also presented data from the HVAD transplant study where he showed the dramatic correlation between high blood pressure and neurologic events in that trial data set.

Our investigator meeting at ISHLT gave us confidence that the message is really starting to resonate and that this supplemental cohort will help change people’s habits. We were encouraged with how those sites that had not previously been as focused on blood pressure management with VAD patients have begun to embrace the concept.

We look forward to prospectively confirming the benefits of blood pressure management and feel that this study will have a major impact on how all VAD patients will be treated in the future.

During the first quarter, following a dialogue with the FDA about the path forward that would best support registration for destination therapy indication, we agree to elevate a secondary endpoint comparing HVAD patients’ performance to the comparator arm in a non-inferiority test instead of comparing to a performance goal. The new primary endpoint is survival at 12 months without incidence of pump exchange or neurologic injury which includes any stroke with a modified ranking score of greater than zero at 24 weeks post event, ATIA, or a spinal chord infarction.

The target performance for HVAD remains unchanged, but the adjustment did modestly expand our sample size since the comparison is now to an active arm versus a performance goal. This statistical analysis now calls for an HVAD arm of 310 patients, while the comparator arm will be now be a 155. The additional 30 odd patients will add about a month to enrollment, but the revised endpoint was clearly preferred, although not required by the agency.

Based on the recent presentation of data from our post-approval study and outcomes at sites employing enhanced blood pressure monitoring, gives us a high degree of confidence that this non-inferiority endpoint is attainable. In fact, we’re somewhat more optimistic about our chance of succeeding following this change.

While we’re on the topic of destination therapy, data from the original cohort in the endurance studies should be available for final analysis in calculation of the primary endpoint towards the end of this year. Once the two year follow-up period and analysis is complete, we’re targeting early 2015 for presentation of that data. Our PMA filing is anticipated to include endurance data as well as data from the supplemental cohort we’re enrolling today.

At ISHLT, Dr. Simon Maltais of Vanderbilt presented initial data regarding 308 VAD -- HVAD patients enrolled in our bridge-to-transplant post-approval study. The data showed that despite the fact that commercial patients were a bit sicker than the pivotal bridge-to-transplant trial clinical patients, six months survival remain high and adverse events were generally in line with earlier presentations and publications.

Perhaps the most interesting part of the presentation was that Dr. Maltais showed that commercial patients implanted in the second quarter of 2013 experienced an interesting improvement in outcomes relative to patients implanted during the first quarter of 2013. Our hope is that with greater experience, outcomes will continue to improve and we will be watching this closely as the post-approval study matures.

Enrollment has completed -- was completed late last year, and we expect that the final results of the study should be available for presentation and publication early next year. Besides advancing our existing clinical trials, we’re also moving forward with plans to expand the labeling for HVAD in new geographies and indications.

We’re pleased to report the first patient implant in our Japan trial. The study to evaluate the safety and efficacy of the HeartWare system for bridge-to-transplant calls for six patients to be enrolled at five sites. The primary endpoint of the trial is alive on the original device transplanted or explanted for recover at six months. Three of the five sites are screening for patients and the others are moving throughout the IRB approval process.

Given the growth of the VAD market in Japan, we’re quite pleased that the leading sites in this important market will have an opportunity to gain experience with the HVAD and move us forward in the regulatory process. A trial that is generating a great deal of interest in the U.S is our pending thoracotomy IDE. Currently our label describes HVAD implantation via median sternotomy rather than through the less invasive thoracotomy technique.

We received conditional approval to commence the thoracotomy study late last year and have been in the dialogue with the agency about finding ways to actually shrink the enrollment size we had proposed and potentially leverage other data sets such as existing INTERMACS data, to accelerate a label change.

The less invasive thoracotomy approach has been widely used by surgeons in Europe and some of the surgeons have been active in recent months, demonstrating the technique to their U.S colleagues. With the thoracotomy procedure, the surgeon makes a small incision in the ribs instead of performing a median sternotomy and fully opening the chest.

We’ve anecdotal evidence from physicians in the U.S and internationally that this less invasive approach reduces adverse events and decreases length of hospitalization, which helps explain the high level of enthusiasm we’re witnessing. In fact, the main message we took away from the ISHLT meeting overall is that the industry is moving towards minimally invasive VAD implantation, which by extension can be viewed as a move towards HeartWare.

Approximately 17% of our implants in the U.S in the first quarter were done by thoracotomy, similar to the fourth quarter of 2013. Based on our feedback, however, those who are performing thoracotomies and the wave of enthusiasm we observed at ISHLT from those who have not yet tried it, we believe that we will see another meaningful step up in the adoption of thoracotomy approach over the course of this year. And we fully anticipate that VAD therapy will bias towards this technique over the next couple of years.

Our BiVAD trial remains on track to commence this year and eagerly await feedback from our notified body, so we can move ahead with the international arm of the study. Lack of reimbursement for BiVADs has remained an issue for us in several countries, and we hope this study delivers the results that address the reimbursement hurdles and confirms the clinical benefits of using two HVADs and enabling these very sick patients to be discharged from the hospital. Despite a small number of BiVADs being used, this study receives an extraordinarily high degree of interest from our customers.

Turning now to our technology pipeline with MVAD first, we previously announced plans to submit the appropriate paperwork to facilitate first in human implants at a site in Canada. That process has started. The submission is in review and the site is screening for patients who would be well suited for the miniaturized MVAD device. Additionally, just this week the hospital team completed the final implant training session to ensure they’re prepared for the first in man implants and post op-system management.

While we can’t predict how long the regulatory review will take, the fact that every aspect of the MVAD system is entirely new suggest that we should expect to receive at least one round of questions over the next few weeks.

We are very excited about the prospects for demonstrating the attributes of the MVAD pump and PAL controller and the rave reviews from the team that attended the training session have us even more eager to see the system at work. At the same time we’re moving forward towards the initiation of our international MVAD CE Mark trial. This trial will be comprised of 63 patients at nine sites followed for six months.

Enthusiasm for this miniaturized device is higher than ever, particularly, given a dramatic improvements in shear stresses we’re witnessing preclinically with the enhanced impeller geometry. Many of you saw our new controller on display at ISHLT with the start of the MVAD clinical activity will come to introduction of our new PAL controller, which we think will be a major upgrade for VAD patients in terms of safety and ease of use.

The new controller is smaller, lighter and more user friendly featuring interactive touch screen display that is color coded and tell the patients how much battery power remains. PAL which is an acronym for Peripherals for an Active Lifestyle is designed to provide additional safety enhancements beyond current capabilities. Its snap-on batteries have the ability to be charged while running on an AC adapter. And the new cable will include coils which function as the shock absorber to reduce the pressure on the site where the drive line exists the body. Since trial met the exit site is often the proceeding event to an infection, the simplicity of this integrated system has consistently received positive reviews from patients and customers.

And lastly on the topic of CircuLite, we have been quite impressed with the enthusiastic response of cardiologists and surgeons to our initial involvement with the SYNERGY partial assist platform, which we add into our pipeline through the acquisition of CircuLite in December.

We had a very productive CircuLite users meeting at ISHLT, where we discussed enhancements that we are making to improve the stability of the inflow cannula and modifications to the pump itself. The European users were quite encouraged to see that we're making real design enhancements versus rushing back to the clinic. And they seemed to leave the meeting even more enthusiastic about the future potential of the CircuLite system.

Once we lock down all the testing of the enhanced pump and inflow cannula, we'll be able to have a conversation with the European regulators about how to return to market most efficiently, but with sufficient data to convince ourselves, our customers and regulators that we have resolved the legacy issues. Given test requirements regulatory timelines we expect to return to clinic next year.

We are also eager to commence a study of the SYNERGY endovascular system. This is an extremely promising, minimally invasive approach that involves the collaborative implantation of the device by an interventional cardiologist and surgeon in a hybrid cath lab setting, which we believe has the potential to expand the mechanical support market considerably.

This elegant system was approved to start feasibility studies, but we plan to wait until enhancements to the micro pump are complete, as improved pump performance will benefit both surgical and endovascular systems.

That concludes our prepared quarterly comments. We understand that there are few other companies reporting this morning, so we'll do our best to answer all your questions succinctly and move through the queue and try to be done by 9. So operator, at this time we can now open the call to questions.

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Danielle Antalffy with Leerink Partners. Please proceed with your question.

Danielle Antalffy - Leerink Partners

Thank you so much. Good morning, guys, and congrats on a great quarter. Doug, I was just hoping maybe you could give a little bit more color on bridge-to-transplant market dynamics. And number one, for what you’re seeing from a market share perspective. Number two, how much more run rate you have in adding centers? And, number three, whether you guys saw any impact from the late November New England Journal article?

Doug Godshall

Thanks, Danielle for the kind words. So bridge-to-transplant, we certainly see a meaningful upside still remaining both in terms of expansion within many of our existing sites as well as integration of new center as we described. We are primarily focused on ensuring outcomes -- great outcomes for patients at our current centers and helping to expand awareness of HVAD both within those centers and within the referral community for those centers so that we capture the as much of that opportunity as possible and we know that we will do so through the best outcomes.

But we also realize that adding new centers will be a -- has provided a meaningful boost for us internationally and will do the same for us in the U.S., we just want to make sure we do it in a fashion that ensures that it is a robust adoption add a new center versus just going to new centers simply to count the number of centers, is why we think sort of three to five per quarter is a likely integration number.

We still have several new large centers pending, some of the more recent center additions over the fourth and -- quarter last year and first quarter this year are quite meaningful in their scale. So we -- as we improve awareness and the familiarity with the HVAD at the centers, we expect them to contribute nicely this year.

So overall, we’re quite bullish about the bridge-to-transplant opportunity and certainly believe that as things like thoracotomy become commonplace that we will see more and more patients who seem like bridge-to-transplant patients for this clinicians. In terms of the fourth quarter noise, we’re -- as we said earlier we don’t believe that market would long-term be harmed by the noise from New England Journal. And that to the extent that there was a benefit to HeartWare as a result of this articles that was probably an offset to the changes from CMS or the clarification in CMS and then in terms of the NCD.

What we do in the VAD world is certainly challenging -- nobody's device is perfect. If our competitor had a perfect device, we’d have a hard time running our business and having such enthusiastic adoption of device. But likewise we certainly have opportunities to continue to find ways to improve outcomes for our patients and make our system better. So we’re -- I don't -- what I don’t know because we haven't seen results from the other company. I don’t know yet what the overall VAD market did, particularly in the U.S. I’m less -- it's a little harder for us to crystal ball that given that we're not on all the centers and we don’t have DT other than in our trial.

Danielle Antalffy - Leerink Partners

Okay. Thank you so much. That’s all I got. Thanks.

Doug Godshall

Thanks, Danielle.

Operator

Our next question comes from the line of Chris Pasquale with JP Morgan. Please proceed with your question.

Chris Pasquale - JP Morgan

Thanks and congratulations on the strong results. Doug, just to start off with MVAD, what’s your best guess at this point on the timing of first-in-man implants in Canada, and what steps really remain before you are ready to begin the European CE Mark study?

Doug Godshall

So the -- it's as we said, it’s a little hard to forecast exactly how long this special assess process takes speaking with the clinician who does special assess for a variety of different devices including the HVAD. It’s a little hard for him to forecast. He said sometimes it takes a couple of weeks and he is surprised they don’t ask questions and sometimes it takes four to six weeks and it all sort of depends on how many questions they have. It seems unlikely that given that we haven’t had questions yet, it seems unlikely that we won’t get some request for additional information, given that we have new controller, new battery charger, new pump, new tools, new sewing ring, et cetera. So its -- it seems more likely than not, that we will have at least one inquiry coming in from Canada, which makes it hard to know. Does that mean we’re going to get through in May, or is it going to be June? But certainly given the oohs and aahs that the surgical team had when they -- and cardiology team that had when they went to the training this week, they’re going to push as hard as they can to get this thing approved in Canada.

Chris Pasquale - JP Morgan

And then in Europe?

Doug Godshall

In Europe, yes, sorry. So we’re -- we needed a little bit more data for Europe than we needed for special access. So that’s being wrapped up currently. And so, within the next couple of months will be in a position to be submitting for our -- start of our CE Mark trial. And that then depends on competent authority review cycle and hence what will be a little different is that the package will be a bit more robust I guess than the -- and complete than some of the special access package, because it’s just a different submission process, and yet it still takes couple of months for that review. So it’s -- we won’t be starting implants in the second quarter in Europe.

Chris Pasquale - JP Morgan

Okay. And then can you talk a little bit more about what you think the thoracotomy trial will ultimately look like? It sounds like there might be a chance that you could leverage some European data to maybe speed up that process?

Doug Godshall

Yes, its -- I will tell you it’s an interesting – it’s interesting when the agency is trying to help convince you to be more efficient and shorten your -- and more creative in your approach. It’s encouraging, I’d say. So we got as you know sort of nearly 20% of our implants over the past six months have been done by a thoracotomy, so we had a growing body of evidence within INTERMACS through arguably support a presentation to the agency to modify the label. At the same time, we’d like to have an opportunity to run a study and have a prospective trained consistent approach, so that we have a common way of doing the implant and see if that data looks even better than the data that’s been generated by physicians learning on their own or learning from the peers. But if we’re able to do both, get an early label change by leveraging existing data sets and then run a trial thereafter, that’s not an unattractive way of both availing ourselves of an opportunity to really actively promote and train people on how to do thoracotomies which will likely result in even better outcomes, because we can share best practices that way as well as then capture a prospective trial run by a handful of -- or a few handfuls of centers and further enhance, hopefully the supporting evidence that thoracotomy does indeed reduce adverse events and improve outcomes.

Chris Pasquale - JP Morgan

Thanks.

Operator

Our next question comes from the line of Matt Taylor with Barclays. Please proceed with your question.

Matthew Taylor - Barclays Capital

Hi. Thanks for taking the questions. The first question is, I guess, just on the voluntary action that you’re taking today. Can you just clarify as to whether you expect that to have any material impact on your financial results?

Doug Godshall

We do not other than as Peter indicated, we’ve upped our reserves, because we assume that some patients will now say oh, I was trying to figure out why this battery that I had for a couple of years wasn’t charging as well? And so we anticipate that awareness will drive some increase in returns. And ultimately what we’ve -- the main purpose of the action was to ensure that patients were first reminded of what they were trained on when they received the implant, simple things like always have two power sources, don’t walk around with one battery attached, don’t detach both batteries at the same time -- the kind of behaviors that we’ve noticed have led to unfortunate outcomes for a few patients. And also given that as time goes on, we all know batteries will sometimes atrophy and we want to make sure its clear that patients understand how to identify a battery that needs to be taken out of service and not inadvertently sort of remove the wrong battery from their controller when that one is performing well and be able to identify the one that’s not. So we -- the vast majority of the time it’s pretty straightforward for the patients and they do so without any issue. And so we know that batteries are consumable and will continue to see some returns, we expect that because of the awareness we will see an escalation over the next month, few months then it will probably return back to a normal steady state.

Matthew Taylor - Barclays Capital

Okay, great. And then I just wanted to understand -- not taking anything away from a great result, how many pumps you think were driven by the expansion? You had a lot of new centers this quarter. I'm just trying to understand what the underlying growth was?

Doug Godshall

Yes. So about 17 centers globally and that’s not necessarily outline with what we see historically. Much to our surprise every quarter last year we were pleasantly surprised by the number of new sites we added internationally and our team there is just doing an exceptional job. We did see in terms of year-over-year growth first quarter last year we did have a meaningful step up in the number of U.S sites. So I think Q1 to Q1 I wouldn’t say that a new site had an inventory purchase biased this first quarter over last year’s first quarter.

Matthew Taylor - Barclays Capital

Okay. Thanks a lot for taking the questions.

Operator

Our next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed with your question.

Jason Mills - Canaccord Genuity

Thanks. Good morning Doug, Peter, Chris. Thanks for taking the question. Doug, I want to go back to one of Danielle’s questions on the U.S market, obviously with incomplete information given that Thoratec hasn’t reported yet. Just from your perspective perhaps you could help us out by giving us a sense for the share differential and share increase you're seeing. If you look at the dichotomy of your centers from the first 50 or sort of the HVAD clinical trial users that adopted the technology earlier and the second sort of 50, excluding what you added this quarter that were starting to come onboard, sort of second, third, and fourth quarters of last year. I’m assuming the former group is a higher share of HVAD in their centers than the latter, but I’m really interested in the speed with which they have come -- they have gone from zero to wherever they’re, and what that might suggest to you with respect to utilization increases there and at some of the new centers.

Doug Godshall

Okay. I’m just trying to think, because I will exclude the pediatrics since we’re about as close to a 100% of implantable VADs in those centers as you can get, but its also thankfully we don’t have a lot of kids with this kind of disease, so its not a bit number. Of the 50 trial sites, we continue to have a few in transition, ones who just maybe they just don’t like me, but they’re not particularly active HVAD implanters. Luckily it’s a very small number. At the rest of the 50, we had the early -- use the device a 100% of the time, sites some of whom you -- I’m sure you’re well aware of. I’d say we have continued to increase that percentage from a handful at the beginning of our launch to a higher percentage over time, drifting towards a HVAD as BTT device, at least BTT device of choice. So we continue to see sort of an quarterly basis a couple of sites of that first 50 shift over to preferentially going with HVAD.

Interestingly in some of our earliest adds a year-ago, those sites -- some of them actually immediately went 100 percentage VAD wherever possible. Now some of those they had experienced with the HVAD from trials, before they opened new centers or the like so, we benefited from experience, even though the site didn’t have experience.

And yet that, I’d say its more similar to the -- that the new 50 are more similar to the IDE 50 where the we had a few early rabid adapters and then the rest got the device on -- wanted to see how it works, tried it, didn’t really trial quote unquote the device, but they wanted to get enough experience to know okay, are my friends right? Does this device really work well? Does it work well in my hands? And how do I think about describing the two device options to my patients? And then only after you start getting results with our device which you believe are at least as good or better than the results that you get with the other device, do you start upping your percent utilization. So I’d say maybe we’re six month lag new sites versus IDE sites in terms of migration towards higher utilization and certainly we see that with some of the sites we’ve had in the fourth quarter where they’re -- I’d say they’re still in the many of them seem to be still in the dabbling phase, trying to figure out okay let me see how this works and how do I think about bridge versus DT, now that I have one device that has both indications and one that only has one. So I’d say that the percent penetration is probably higher at the IDE sites as one will predict and migrating -- hopefully migrating as we work with the new centers in the same direction with the newer centers.

Jason Mills - Canaccord Genuity

That’s helpful color, Doug, thanks. And then second question, and I'll get back in queue, is on the MVAD CE Mark. Once you work through the regulatory process, the regulatory body puts in front of you, how quickly do you think those 63 patients will enroll? And I guess as it relates to getting started with that trial, have you or what will be the process by which you will train those nine centers? How quickly will they be ready to go? I’m assuming they have been sort of pounding on your door for months and months, if not, in a few cases a year or longer to do this, but just curious with respect to the speed with which you can get things started and trained and going?

Doug Godshall

Yes, training should be very efficient. First of all, its not a lot of centers. So if a center in a country popped through by some stroke of luck four weeks after they get the submission package and they had a patient two days later, we could train them and have them ready. It’s not an exhaustive process. The centers have been trained before, but sadly it was a little while ago when we thought we were close. Happily we have a much more stable platform and a much better impeller now. In fact, anecdotally we just heard from one of the pathologists from a recent MVAD study, I saw a note this morning saying this based on his analysis its the best HeartWare study he has ever seen, inclusive of lots of HVADs and MVADs and everything. So it looks like we hit the mark with this new impeller.

So we’re -- we can be quite responsive in quick and thankfully we’re also -- compared to if you hearken back to when I first met you Jason in 2006, I think it was -- 2007 actually, we could barely make a single HVAD. Like we had struggled to make two a month and we’re now sort of 9 to 12 MVADS a week and its just so much more -- such an simple elegant little device that if we start the trial whatever months you pick and demand spikes rapidly and I’m avoiding your question on speed of enrollment, because I just don’t know. I don’t know how long will Germany come to, fit to approve it versus U.K. and versus Austria et cetera. So, a little bit is the lag to each country coming onboard and obviously German centers being the larger centers. The sooner Germany starts the faster we will enroll. On the other hand, what we aren’t going to allow is the rabbit enthusiasm that we anticipate. We aren’t going to allow that to violate inclusion, exclusion criteria and start harming our chances of approval by bringing in bad patients. So we will have a gatekeeper on patient enrollment and make sure that we screen each patient and ensure that they meet inclusion, exclusion criteria and before we get the MVAD because it's our fear that the device is so simple and elegant and attractive that there will be a temptation to expand the inclusion criteria beyond what is in the trial design.

Jason Mills - Canaccord Genuity

Okay, great. Thank you, Doug.

Operator

Our next question comes from the line of Steven Lichtman with Oppenheimer. Please proceed with your question.

Steven Lichtman - Oppenheimer & Co. Inc.

Thank you. Hi, guys, I just wanted to follow up on the strength in international. Obviously you mentioned that there were some regions that were stronger than you have seen historically. Obviously you added 12 sites, but beyond that can you put some more flesh on the bone in terms of what drove international this quarter?

Doug Godshall

Yes, I mean it's -- and Peter and I were just discussing this morning it's -- we’re encouraged that we are starting to see or continuing to see a diversification of our customer base and contribution where some quarters Germany really kicks in and drives our number and in other quarters it's sort of non-driven centers. And yet we don’t see this quarter happening to be one of those where Germany did really well, but they didn’t drive growth year-over-year. It was some core European markets where we have traditionally lagged a little bit in terms of our -- the strength of our organization which then led us to lag a little bit in terms of utilization and we have since upped the game in terms of the number and caliber of the folks we have on the ground and that’s now translating into -- directly translating into a greater utilization of our device relative to alternatives. And then outside of Europe we continue to be impressed by the number of centers in other countries that are realizing they don’t have good options for their patients who aren’t getting transplanted. And there seems to be fairly high correlation countries where there is “A” adequate reimbursement and “B” very long waiting times for transplant. Those countries really adopt that therapy robustly. And what is hard to predict is when centers say we have got reimbursement and we have got it lined up and then you sometimes don’t know is that reimbursement really going to stick. Now we’re getting better at that, we’re working more closely with governments and health technologies, assessment committees to ensure that when we go into a country we have the reasonable awareness. Do they have a budget for VADs and that’s it or do they have a budget for -- or they have payment for VADs on an ongoing basis. And our reimbursement team internationally is doing a really nice job of helping centers create VAD programs now.

Steven Lichtman - Oppenheimer & Co. Inc.

Okay, great. And then just one quick follow up on the letter from this morning, again it sounds like your communication to clinicians and physicians is not a change in how patients interact with their batteries, but simply a reminder of how they should handle the battery and also maybe some reminders on monitoring the battery as well. Is that sort of, how we should think about the letter overall?

Doug Godshall

It's primarily a reminder. It's also a clarification because it can get confusing that if you have a battery that appears to be “sort of normal” and the controller doesn’t want to switch to it because whatever it's got a bad cable or a bad pin or has simply -- has a cell that’s worn out. We wanted to make sure that patients were able to identify that even though they might think it is working well. If the controller doesn’t want to switch to that battery it's for a good reason, and to detach the battery they should remove from service and replace it with either an AC adapter or another battery. So, it's clarifying the ability for the patient to identify a battery that’s not working or not likely to work well for them. So, we felt as we looked at some of the complaint data and particularly the few patients who appeared to loose track of how to manage the system properly that it was imperative that we reinforced to the patients and reached directly all the way to the patient how to best manage the system. So, unfortunately we’re -- I think as long as we’re in the world of patients interacting with devices and the devices being interacting with the world around the patient, we’re going to have from time-to-time issues with electronics that our sites are certainly cognizant of that but we want to do everything we can to mitigate any potential patient problem and we felt that this was the best way to do it, and hopefully we by doing so we avoid any potential future confusion of the patients and adverse events to them.

Steven Lichtman - Oppenheimer & Co. Inc.

Makes sense. Thanks, Doug.

Doug Godshall

Thanks, Steve.

Operator

Our next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed with your question.

Lawrence Biegelsen - Wells Fargo Securities

Good morning, and thanks for taking the question.

Doug Godshall

Hello.

Lawrence Biegelsen - Wells Fargo Securities

Just one clarification, the Q4 supplemental DT implant, was it about 20 units. I think you said 35 HVADs this quarter?

Doug Godshall

Q4 was within …

Peter McAree

It was sub 10 -- well 9 I think was the number.

Lawrence Biegelsen - Wells Fargo Securities

Less than 10, okay. And then just back to the international market to follow-up on Steve’s question. I mean you are the market leader there especially outside of Japan. So, you have more visibility than you do in the U.S. And do you think, I mean it sounds like in your commentary you think that it was share gains and geographic expansion. I mean do you think that -- do you think you took share internationally and then what do you think the sustainability, I mean it's a big number you put up this quarter. Just kind of the outlook for 2014, and then I just had one follow-up.

Doug Godshall

I think we started the year suggesting that we felt that the market inclusive of us, the market would grow in the mid-teens internationally. And I don’t think we have seen anything that suggests otherwise where the vagaries of VAD market always gives us angst and now it's sort of guaranteeing okay well, this quarter is going to be better than that quarter and this quarter is going to be less good than that quarter. Last year second quarter was not as good as the first quarter. So, does that mean that the market is soft, did we not do well, and then we rebounded et cetera. So, with the caveat that, beware of bad lumpiness we do believe that the international market will continue to grow. I think that’s of better identifying the fact that for example in the first quarter half of our new centers were new VAD centers. So, six were shared and six were Greenfield. And that the more of those, you get the more confident you get that the market ought to be growing because it's not share gain it's incremental patient volume. In the markets where we have traditionally not been the leader and made encouraging strides in the first quarter, I mean those are predominantly I think greater support, upgrades in terms of the folks we’ve got interfacing with the customer and the recognition of the value that the HVAD brings to them. And so, we don’t think we’re going to get 12 centers per quarter. We think it will probably be more similar to the kind of 3 to 5 we see in the U.S. I’ll take 12 a quarter, but I’d love for my folks to prove me wrong. So that I don’t think is sustainable is what the 12 a quarter. We do believe that a continued double-digit growth is what we’re expecting at least internationally.

Lawrence Biegelsen - Wells Fargo Securities

That’s helpful. And then just on endurance, Doug is there any chance we could see the data at American Heart and I know it's still little early but your plan for top-line results when you know the data, what is your plan for releasing that and are you going to say more than we met or missed the primary endpoint, and I’ll drop. Thanks.

Doug Godshall

Yes, in discussion with our PI’s it's looking far more likely given when we will lock down the data or calculate the results, wait for any late primary endpoint movement as a result of some of the long-term follow-up that’s required for things like adjudication of major or minor stroke, it's far more. Our expectation is that it's an early next year kind of first quarter presentation not American Heart. The top line is something that we continue to discuss because to your -- I think embedded in your question is the question we ask ourselves, if you simply say pass/fail it's an incomplete story. And one has to be mindful first that you allow the PI’s to present their trials, since they’re the ones that do this and sign on to the trial and really it belongs to them. So you don’t want to disclose so much of the trial data that you have essentially give in the presentation. And on the other hand if you disclose too little are you actually providing proper context and disclosure to the street, because that’s really the audience that we would say yes or no on primary endpoints. So it's, at this juncture we don’t know what the calculation is. The final patient hasn’t reached follow-up and we have not done the calculation. And yet we are actively engaged with in that dialogue internally and with PI’s about, when would the formal presentation happen, and should there or should not, should there not be a description of pass/fail on primary endpoint in advance of the formal presentation. So, we’re still working that through.

Lawrence Biegelsen - Wells Fargo Securities

Thanks for taking the questions and congrats on a good quarter.

Doug Godshall

Thanks, Larry.

Operator

Our next question comes from the line of Jason Bedford with Raymond James. Please proceed with your question.

Jason Bedford - Raymond James

Good morning, thanks for taking the questions. Just a couple of quickies here, on the supplemental study, how many of the 48 centers that have IRB approval actually enrolled patients in the first quarter?

Doug Godshall

I actually don’t know that, sorry. I didn’t look at that.

Jason Bedford - Raymond James

That’s all right. I guess then, just on the DT submission, I may have heard this incorrectly, but you mentioned that you’ll submit both the endurance data and the supplemental data. Will the post approval data not be part of the submission?

Doug Godshall

Whenever you put a submission together you sort of, you give the FDA everything. So it will be in there and certainly the agency has demonstrated the fact that they recognize that yes, there are differences between Bridge and DT patients, but then again there aren’t really that many differences between Bridge and DT patients, so they will pull data from different sources into their consideration, and so they -- whether it is a formal component of the submission or not, the data will be in the submission and they will, if it's great it will be helpful to us. If it's neutral it will be neutral to us. Obviously we would like to avoid the other option.

Jason Bedford - Raymond James

Okay., I guess what I was getting at is, the interim data seemed good. It seemed like there was an improvement in the neurologic event rate, and I realize you’re upping the size of the supplemental trial. But I’m just wondering if the good post-approval data could help you accelerate the DT filing at all?

Doug Godshall

It's conceivable that one could but we would have to -- it's not sort of part of the formal plan. I think we would have to sit down with the agency and say, hey based on this data how would you feel about a subset of the supplemental cohort and the post-approval study and we aggregate all that and have a two part supplement to endurance. And I don’t know how they would respond. I mean I’m really amazed and impressed that they reached out to us and said, how about we be creative on thoracotomy? So, I am not going to count out the creativity on the agency side if we have data that they find compelling.

Jason Bedford - Raymond James

Fair enough. Thanks.

Operator

Our next question comes from the line of Bruce Nudell with Credit Suisse. Please proceed with your question.

Bruce Nudell - Credit Suisse

Good morning. Thanks for taking the question, Doug, some things on ISHLT. First of all there were positive trends in the PAS dataset that showed neurological events were trending downwards as the study went on. Secondly the Mount Sinai data showing blood pressure. To what extent do you believe those signals are robust? Also there was a kind of this data from UNOS that kind of looked like a red herring based on comments from the audience, if you could just comment on those things. And then I have a follow-up.

Doug Godshall

Yes, and it was good seeing you in Santiago, Bruce. I’ll start with UNOS. That was an uncomfortable presentation, because it was presented and for those who weren’t there after the presentation somebody from UNOS actually got up and explained the way the database works and the way the database works is a device is not identified until a patient is removed from the list. And they are removed from the list either by actually being removed which is less common or dying, sadly or being transplanted. And so it is, logical that over time assuming that the device is working the way we had seen traditionally in the way it was shown in Simon Maltais’s presentation of the PAS data. It is logical that early the UNOS data is going to look bad because early the patients don’t get transplanted, they are going to wait 9, 12, 15 months to get transplanted.

So, the primary reason that the device is going to be identified early is through dying, unfortunately. And so you’ll see an improvement in UNOS outcomes in a set of patients over time because over time more will be transplanted. And it was uncomfortable because I think there was, by the time the presenter understood the dataset it was the night -- the way the UNOS worked it was the night before he gave the presentation. And I think he was diplomatic and recognized from the podium that yes, there is some maybe issues with the way the data works that we’re understanding now but one of the co-authors didn’t necessarily agree, so it was a little bit awkward. And it certainly made sense to us then why the UNOS outcomes in our pre-approval trial would be less good than the outcomes we actually saw. And the reason would be that some of those patients are still on the pump so they haven't had a chance to be transplanted yet, and therefore until they get transplanted they’re sort of invisible. And the ones who die are visible. The ones who haven't died are not visible until they get transplanted. So, it made a lot of sense.

It was just a little bit awkward and to have a dataset that received. So a majority of the attention during that week as related to HeartWare turned out to be quite a red herring and unfortunately I felt -- I mean we like the docs involved in that study a lot and I felt kind of bad the way it turned out for them. In terms of the PAS and blood pressure anytime with our clinical staff and chief medical officer any time I suggest that somebody is not believing in blood pressure, they throw reams of data at me to show me that it really is the issue. And certainly when I listen to Jeff Teuteberg’s presentation and sat in the investigators meeting and listened to people for the first time at major centers really is working through the, okay so now that I am using a Doppler, or now that I am using a blood pressure cuff which I have never used despite the fact that they have 80 to 100 patients a year who get VADs. How should I be doing this and when do you do that and it was encouraging to see the investigators who have always done blood pressure management, sort of walk them through sort of the simplicity of doing it and the importance of doing it, so that I am -- we might be wrong but certainly the data keeps backing up to suggest that blood pressure is going to have a major impact on neurologic event rates if you get it under control. But there are just differences in the way our pump flows versus in an axial flow systems.

So there is, particularly, some of the outliers in terms of speeds and flows is relative to the median. So, I think we’re on the right track. So I think it's going to be sustainable and we’ll know a lot more a year from now once we’ve got outpatients in our DT supplemental cohort with where we have a prescribed, a process for managing and logging blood pressures and intervening. So, we’re crossing our fingers and we think there will be crossover from that study cohort into the real world Bridge cohort because why not do it for all your patients once you get comfortable with it.

Bruce Nudell - Credit Suisse

And my second question pertains to thoracotomy. Once again at ISHLT, the results were kind of surprising and that blood product use was down, but length of stay was not. Ventilator requirements were actually elevated and this -- really this is square with the anecdotal evidence that you’re reporting as long as the FDA’s willingness to consider an accelerated path to kind of get thoracotomy on the label. Could you just comment on that?

Doug Godshall

Yes, so for those who weren’t there in Dr. Maltais’s presentation on his thoracotomy HVAD patients versus his non-thoracotomy HVAD patients, so it was a -- I am not comparing a different device which he had presented that at STS and did show improvements relative to thoracotomy HVAD versus a different device. If you noticed from the audience, somebody who’s got a bit more HVAD experience and a similar amount of thoracotomy experience was sort of having a collegial discussion with Simon about, well you think your ventilator us is because you’re not actively managing pain for these patients and Simon said well yes, I don’t actually do that, it's my anesthesiologist who does that and that might make some sense.

So, if you have longer vent time it’s just because -- and everybody knows thoracotomy is more painful than sternotomy, and so if the patient is in pain you’re going to vent them longer and sedate them longer. So, on the other hand if you just manage the pain then what we see in international markets as well as the U.S. markets who do this is they’re actually extubating the patients sometimes on the table, sometimes the same night. Certainly by the next morning the folks are up and eating breakfast. So, I think that was encouraging on one hand, less blood product because I think that is something we see absolutely consistently across the board and it was actually a great argument for why as much as I like the idea of an earlier label change. I also really like the idea of writing some sort of a trial so we can share best practices early and have a more consistent response to a less invasive procedure which our hands are little bit tied because we’re not supposed to be selling thoracotomy right now.

Bruce Nudell - Credit Suisse

Thanks so much Doug.

Doug Godshall

Thank you, Bruce.

Operator

Our next question comes from the line of Matthew O'Brien with William Blair. Please proceed with your question.

Kayla Crum - William Blair

Hi, guys its Kayla in for Matt, thanks for taking our question. You mentioned a bit about the thoracotomy approach on the call and we’ve been hearing more about minimally invasive procedures and the enthusiasm there. Can you just touch on what you’ve been hearing about the subclavian approach and how the MVAD might enable this type of procedure. To us it just seems like this opportunity could offer a new leg of growth.

Doug Godshall

You’ve hit one of my favorites. Thank you for asking. So, I think and by the way I got the question on DT sites, so far 30 of the 50 have implanted, still working on how many in the first quarter but its 30 or 50 have implanted DT. So, what I like about subclavian is both -- it's intriguing but also it really shows the benefit of small device in the versatility of HVAD and potentially MVAD. So, for those who are less familiar the predominant technique for thoracotomy implants both in the U.S. and outside the U.S. is you make a small incision between the ribs you implant the pump you tunnel the outflow graft up to the ascending aorta, and you make another incision at the top of the chest so not a full sternotomy, but either a thoracotomy or a hemi-sternotomy, and then you connect the graft to the ascending aorta. Some centers in patients where they can’t tunnel up to the chest there’s too much adhesion or there’s some other reason why they can’t get the graft there, they’ll do a descending aorta, and Dr. Maltais has done a couple of those which he showed in his presentation. What has a growing interest starting in Oslo, Norway was the first implant and now some of the folks in Germany and Austria and places like that are doing more and more often is instead of connecting to the descending aorta, which makes most surgeons nervous based on experience they had with a different device that is still in clinical trials has been for several years, that is tunneling a graft up to the subclavian artery which is what feeds blood to the arm and is what the CircuLite system is anastomos to.

And it was that CircuLite experience that was what led (indiscernible) in Norway to try this technique several years ago. And so the interesting part of the subclavian artery is now you can tunnel up and do a superficial incision just above the pectoral muscle, so your overall invasiveness is further reduced to the extent that there’s any thromboembolic material coming out of the pump which obviously we hope is as close to zero as possible. But if it didn’t you would be sending it sort of into the arm and not up the ascending aorta past the carotid. And at least the feedback we’ve gotten from the folks who’ve gone over a dozen of these and there’s only a couple of those so far is they find that their patients actually recover even faster than their standard thoracotomy patients and their aortic valve functions immediately. The anesthesiologist actually can tell the difference just based on how quickly the patients come off and leave the OR. So we don’t have anything beyond anecdotal evidence that even works because we’re less than 50 total implants of this technique, but it's interesting that at our surgeon -- global surgeon advisory meeting we had in March.

Last year the Europeans were all speaking to the benefits of thoracotomy and the Americans thought they were crazy and then the Americans all went home and started doing thoracotomy’s. This time it was those same European saying, boy this subclavian thing is really interesting and here’s some of the benefits that I am seeing, and most of the Americans said are you crazy, why would you do that, and then several of the Americans went home and have subsequently done subclavian. So, the advocates for it would have cautioned us they want to kind of get 20 under their belt to make sure that it's not an anomaly before they start really pushing us to do things like run a study for subclavian. But it's certainly intriguing, and with MVAD you’re going to potentially have such a tiny incision for the implant of the MVAD and then if you also had a tiny incision for the anastomosis in a subclavian then you’re really getting towards a true “minimally-invasive” implant versus a less invasive implant.

Kayla Crum - William Blair

Okay, that’s helpful. And then, there was one debate regarding the need for pulsatility in the particular of these devices. Can you just touch on your latest thoughts there? Thanks.

Doug Godshall

Sure. And I apologize to everybody once again I didn’t stop in line like I said I would try. So we will have pulsatility in the MVAD. We have four settings off, sort of low, medium and high pulse depending on degree of native function either at the beginning of the implant or as the heart recovers. So, we will give the physician the ability to tailor the degree of pulse for the patient as appropriate. HVAD we have looked at integrating that same pulse algorithm into HVAD and certainly have the ability to do so. Unfortunately with the regulatory process you’d have to run a trial, et cetera, et cetera. And so we’re constantly struggling with whether it's sort of worth doing with MVAD looming. HVAD does anecdotally from what the doctor say, because of the sort of preload sensitivity of a centrifugal pump it does appear to have a little more pulsatility and enable the aortic valve to stay open even at somewhat higher flows. So, there’s a bit more seceding rhythm that they see with the centrifugal pump, but not something that we have seen any clinical relevance from. So it's nowhere near the kind of pulse that we’re going to have in qPulse that’s part of MVAD. That’s going to be a legitimate pulse that is very likely to translate into a different sort of experience for the capillary wedge which currently is going to see a steady force from continuous flow pumps. So we think qPulse has the potential to also augment the clinical benefit that we’re going to see with lower shear stresses, less invasive implant better washing all the little bennies that MVAD is going to bring. But no one can prove yet that pulsatility makes a difference for VAD patients. All things being equal we were created with pulses. So our view is, hey if we can create an artificial pulse that’s probably better than not having one.

Kayla Crum - William Blair

Okay, great. Thank you.

Operator

Our next question comes from the line of David Roman with Goldman Sachs. Please proceed with your question.

David Roman - Goldman Sachs

Thank you. Good morning. Just one quick general question on the market, as you see things evolving, there was the issue that was reported this morning on premature battery depletion. Your competitor had an issue with the controller last year. When we talk to physicians, at least the feedback we get is, these are just issues that are going to occur with such complicated devices and these are no option patients. As you sort of think about the market longer term, do you see the technology evolving such that these complications go down, and that that could ultimately actually accelerate adoption rates over time?

Doug Godshall

So, in terms of electronics as we look at -- if I just look at how robustly we are testing our PAL controller and batteries in the like. I am highly confident that in parallel with improving the performance of our existing peripheral equipment which we have -- we’re constantly working on, I am highly confident that we will see a step function improvement as we move to the PAL systems. If we know the reason just, the electronic design 2014 is just going to be more robust than the electronic designing components that of the device, but the core design came from 2006 when we first were implanting. So, I expect we’re going to see a step function improvement in reliability with PAL. Perhaps more importantly, however I think the user friendliness of PAL just blows people away. I mean that I almost had to try to force the team that did the MVAD training to tell me something good about the MVAD because they were so psyched about the PAL controller, particularly the support staff and cardiology team they just blows them away how cool and user friendly that system is. So, whether that is really going to expand the market, I don’t know. I think if you have the two stroke benefit of lower adverse events which we are hopeful to see with lower shear stresses in MVAD and a material upgrade and user friendliness, so it just feels like less of a nuisance to carry around the controller and a couple of batteries which is the current life of a VAD patient. You lower the resistance, sort of the patient will feel less odd and they will feel like there is less of a compromise to accepting a VAD. So, we certainly are hopeful that we see the kind of outcomes with MVAD that our preclinical modeling and studies would predict because I think that will create a meaningful market expansion downstream. But that was whole system not just the pump.

David Roman - Goldman Sachs

Okay, and maybe just a follow-up here, on the financials, given that your partner in crime they have 40-minute break here. If I look at the SG&A spending this quarter, you are generating quite a bit of leverage. If I just look at one metric, at the incremental SG&A spend per new dollar of revenue, it's like 7%. And I know you're probably not going to commit to a number on a longer-term basis. But conceptually can we think about these types of numbers for where your expense ratios can go over time?

Doug Peter McAree

So, comparing on a tremendous quarter it might throw us off a little bit. But we would see a gradual escalation over time with SG&A probably more so than R&D. R&D will flatten out SG&A, so as long as we are growing the top line we’ll continue to commit to an appropriate level of investment at the SG&A line to sustain and maintain that growth. So that’s sort of a non-answer to your question because we are explicitly guiding, but due to some reasonable proportion of SG&A growth, that will track proportionate to our revenue growth over time.

Operator

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

Brooks West - Piper Jaffray

Good morning guys, just one from me. Doug, I wanted to ask about your ability to continue to access the U.S. DT market really over the next couple of years here. You have the expanded -- I guess expanded protocol which it sounds like will now maybe enroll at the end of Q1 calendar ’15. Should we be thinking about your ability to maintain access to DT through either an MVAD study or a registry or something that would bridge the gap between VAD and a potential HVAD DT label?

Doug Godshall

Yes, certainly I’m hopeful that we on a Friday we implant our last HVAD DT patient and on a Monday we implant our first MVAD DT patient, that would be a perfect segue, and would suggest that there would be no logic to a continued access protocol for HVAD if all maps well. If we see a rapid acceleration of implants that exceeds our expectation’s and we somehow finish even earlier than we plan and if we’ve got a lag before MVAD starts then we would consider continued access although I think it would be hard to rationalize because it would be, by the time you negotiate the thing with the FDA and get it lined up you’re probably butting up against MVAD anyway. So, our expectation is that for the next couple of years we are participating in DT through trials followed by hopefully participating through approved indication, one for HVAD and then in a not too distant future thereafter for MVAD.

Brooks West - Piper Jaffray

Thanks so much.

Operator

Our next question comes from the line of Suraj Kalia with Northland Securities. Please proceed with your question.

Suraj Kalia - Northland Securities

Good morning, gentlemen, congrats on a nice quarter. Doug, forgive me, maybe I missed this, given the explanation, the increase in the sample size for the ENDURANCE study and the comparison now to HeartMate II what drove that and can you just give us some color on the change. I am trying to understand if this is the supplemental DT study is more of an adaptive study than we had earlier expected?

Doug Godshall

Yes, so it was -- when we received approval from the agency for the trial they had a series of additional considerations for us, not conditions. And one of them was without spelling it out explicitly was a clear sort of implication that we prefer head-to-head comparisons versus comparisons to performance goals which was the original endpoint. And it's logical, it maps more closely with the original arm of the trial of ENDURANCE was that it was a head-to-head comparison. So we thought about it for a reasonable amount of time to try to figure out okay, well this is a preference not a requirement. We have got a full approval. So do we add a few patients to satisfy their preference or do we just stick with it. And sort of when you say it out loud and realize okay, it maybe one month of enrollment, maybe a month and a half nothing meaningful and they quite obviously prefer it, well I would kind of rather do something that they prefer versus something that they don’t prefer. And if it doesn’t change how our -- so we have the same core assumption for what we think the HVAD will deliver. And under both of our scenarios we believe we would have -- we would successfully meet the endpoint which is different. One would straighten our logic events, and one our strokes and one is, stokes TIA and exchanges. It struck us that we don’t loose much. We did loose a little bit of a normal time and maybe we gained a lot by listening to the agency and not ignoring their council, I guess that’s how I would describe it. And so, we rolled that out to our investigators at our DT investigators meeting at ISHLT and there was basically a big yon, nobody really reacted negatively and much they just were hopeful that we would stop talking about things like endpoints and start talking more about managing blood pressure and how we are going to learn from each other to do that more effectively. So that was what dominated at this meeting. So, thanks for the question Suraj.

Operator

Our final question comes from the line of Shagun Singh with CRT Capital. Please proceed with your question.

Shagun Singh - CRT Capital Group

Thank you for taking the question. I wanted to touch on gross margins. Can you help us with the volume versus price impact for 2014? I know you had previously mentioned about 200 basis points just coming from volume alone and then from pricing. Is that still the case?

Peter McAree

Compared to a year-ago the increase overall was primarily with the volume overall, Shagun. ASP compared to Q4 had very marginal benefit, very slight compared to Q4, and I would say that the increase overall of the margin which went up roughly 190, 200 basis points was split evenly between manufacturing efficiencies and then volume cost improvement between, so it's split evenly between the two.

Shagun Singh - CRT Capital Group

And what about for the full-year 2014, how should we think about volume versus price going forward for the full-year?

Peter McAree

Yes, so as we continue to grow we’ll expect to see leverage come out of the gross margin line. And of course in this year, I guess one way to think of it is we’d like to think high 70s on the incremental difference that in revenues from quarter-to-quarter. You might see an impact of high 70% range as incremental contribution that might come from leverage, might be on way to think about it.

Shagun Singh - CRT Capital Group

Okay, great. And then just one follow-up on international, can you comment on pricing? It seems like it was down both year-over-year as well as sequentially and that will be all. Thank you.

Peter McAree

In any given quarter it should go and it's going to be a blend of various factors, the mix of distributor sales that might be in the equation, the mix of peripheral sales that’s in the equation, so it's hard to compare. In general our international pricing haven't been too far off I think that compared to year ago we were 2% lower in overall which again it's driven by many different factors, so it's including the factors I discussed.

Shagun Singh - CRT Capital Group

Okay. Thank you.

Doug Godshall

Thanks. And it's nice seeing many of you, Shagun you included at ISHLT. It's every year we say it and every year it becomes more true than the prior-year that, that meeting has really evolved into a VAD meeting where they talk about transplants every now and then versus a transplant meeting where VADs are sort of showed in the corner. And it's flattering to be included in that discussion now. I think there were 56 mentions of the HVAD at that conference and it's -- we have sort of grown up as the ISHLT has been growing up, and it's really flattering that so many commissions are interested and that you folks spent the time with us this morning. So thank you for your time and attention and I look forward to seeing you at conferences down the road.

Operator

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your line at this time. Thank you for your participation and have a wonderful day.

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