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Abiomed Inc. (NASDAQ:ABMD)

F3Q08 Earnings Call

February 7, 2008 8:00 am ET

Executives

Michael R. Minogue - Chairman, Chief Executive Officer and President

Daniel J. Sutherby - Chief Financial Officer

Dr. Karim Benali - Chief Medical Officer

Analysts

Greg Simpson - Stifel Nicolaus & Company, Inc.

David Lewis - Morgan Stanley

Bruce Nudell - UBS

[Shaun Amaude] - Lehman Brothers

Eric Schneider - UBS

Operator

Good day, ladies and gentlemen and welcome to the third quarter 2008 Abiomed Incorporated earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today, Mr. Dan Sutherby, Chief Financial Officer. Please proceed sir.

Daniel Sutherby

Good morning and welcome to Abiomed’s fiscal third quarter of 2008 earnings conference call. This is Dan Sutherby, Abiomed’s Chief Financial Officer. I am here with Mike Minogue, Abiomed’s Chairman, President and Chief Executive Officer and Dr. Karim Benali, our Chief Medical Officer. The format for the call will be as follows: first Mike will provide you with strategic highlights for the quarter, Karin will then provide a clinical and regulatory update, I’ll provide a summary of the financial results and then we’ll open the call for your questions.

Before we begin, it is necessary to remind you that during the course of this call, we will be making forward-looking statements, including statements regarding future financial performance, product development efforts Abiomed's strategic operational initiatives, market response to our new products, our progress towards commercial growth, and future opportunities and Abiomed’s actual results may differ materially from those anticipated in these forward-looking statements based upon a number of factors, including uncertainties associated with development, testing and related regulatory approvals, competition, technological change, anticipated future losses, complex manufacturing, high quality requirements, dependence on limited sources of supply, government regulation, future capital needs and other risks detailed in our filings. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of today’s conference call. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances that occur after the date of this conference call or to reflect the occurrence of unanticipated events. Comparative reference made today financially, in this call, to revenue, gross margin or other increases or decreases refer to third quarter of fiscal 2008, as compared to the third quarter of fiscal 2007. In addition, today we will be discussing our Impella products that are not yet FDA approved.

I am now pleased to introduce Mike Minogue.

Michael Minogue

Thanks, Dan. Good morning everyone. Thank you for taking the time to join us today. It has been a very productive quarter on several levels. So there are two topics for today’s call, Q3 financial results and we’re also going to do an extensive review of our trials and regulatory status on multiple products. So first, on Q3 performance, revenue was up 24% to 16 million, it’s the highest ever in the company history. Revenue in Europe and the US was the highest ever. Gross margins continue to be strong at 76% and Impella disposable revenue was up 192%. Excluding intra-aortic balloons, we shipped 676 disposables this quarter. So overall, the trends on sales, gross margin, regulatory approvals are positive. These results were achieved without 510(k) clearance on the Impella 2.5 and with one week of the iPulse PMA approval.

Our second topic is on our regulatory status and I would like to first summarize the many updates since last quarter. And after that, Dr. Karim Benali, our Chief Medical Officer, will give the descriptions of the primary and secondary endpoints of the current Impella 2.5 high-risk PCI study, the pending Impella 2.5 AMI study and also update you on the Impella 5.0 study.

So let me first summarize the US regulatory path since our last call and there are seven main updates: first on the Impella 2.5, 510(k) update, we’re working to resolve and complete the bench testing for our Impella 2.5 510k submission, as our January 24 press release stated, the three other questions from the FDA on labeling and clinical data have been resolved. While there are no guarantees for a 510k clearance, current and informal feedback is, from the FDA, that the Impella 2.5 is on a substantially equivalent path. Our timeline remains unchanged, with expectations of on or before March 31, 2008, for such a clearance. Second update is, today we announced that we’ve submitted, officially, for the IDE approval to start the Impella 2.5 AMI pivotal study, after much review on the protocol with the FDA and Dr. Benali will discuss this in more detail. On our Impella 5.0 we’re continuing on our 5.0 pilot study and have disclosed this month, at the Society of Thoracic Surgeons, very positive results for survival in this at risk patient population. Fourth, we announced our new AB portable driver and today we announced that we have submitted for ID approval to begin a US study for patient use and hospital discharge at 20 transplant hospitals for 30 patients. We also received approval from the FDA for the AB5000 VAD with one year reliability. In Europe this quarter we anticipate CE mark approval for the AB5000 portable console and we’re actively recruiting the initial hospitals now.

On our iPulse platform, we received PMA supplement approval on December 19, on our unique combination, intra-aortic balloon VAD console. On AbioCor we received HDE supplement approval January 24. We have selected four hospitals with the clinical expertise and long-term dedication to this technology: they are the John Hopkins Hospital in Baltimore, Maryland; Robert Wood Johnson University Hospital in New Brunswick, New Jersey, home of the

Giants; Texas Heart Institute at St Lukes Episcopal Hospital in Houston, Texas; and St Vincents Hospital in Indianapolis, Indiana. The device sells for 250,000 and we now have a $1.25 million backlog in orders. As we have stated in the past, this will be a very controlled roll out to ensure success for the patient, the caregivers, the hospital and Abiomed. CMS recently proposed reimbursing the hospital for the AbioCor procedure as did three other health insurance providers. We now have validation from both the FDA and CMS on this unique technology and we’re very pleased with our progress.

Number seven is relative to the new products and new US studies such as the Impella Implantable, the Impella right side percutaneous pump and the Impella pediatric and we will wait until our other submissions are completed before we move forward on these products. Pertaining to the rational of completing a PMA path, with the Impella 2.5, 510(k) clearance, we believe a PMA approval would lay the foundation for Impella to become the global standard of care in the cath lab for high-risk PCI and AMI, as compared with today’s standard of care, the balloon pump, which only has a 510(k).

Now I’d like to turn the call over to Dr. Benali.

Dr. Karim Benali

Thank you Mike and good morning everyone. As Mike mentioned, I would like to provide an update on the high risk PCI pivotal study with Impella 2.5, the pending AMI pivotal study with Impella 2.5 and finally, the Impella 2.5 pilot study.

Today interventional cardiologists are tackling more complex and higher risk cases during percutaneous coronary interventions or PCIs. Some solutions have been attempted to provide hemodynamic support during these high-risk PCI cases. For instance, if the left main coronary artery dissects during PCI the heart can stop and the outcome can be disastrous if the patient is not supported with a pump that can provide enough blood to the general circulation to maintain brain, kidney, heart and other organ perfusion. We believe that the Impella can help cardiologists improve patient outcomes for these high-risk patients.

Protect 1, the first US safety pilot trial, showed excellent results in terms of safety and ease of use of the technology. I would like to remind everyone that the safety results of the Protect 1 pilot study were presented last PCT in October 2007. The results were also accepted by the FDA, which allowed continued enrollment after the first 20 patients.

Dr. William O’Neill, a professor at the University of Miami, is a leader in the field of interventional cardiology; he is also an author of more than 600 publications. Dr. O’Neill is the principle investigator of the Project 1 and actually also Protect 2 trial. Dr. O’Neill stated, referring to the Impella 2.5, “this is by far the most exciting, impressive and effective hemodynamic support system I have ever seen and I think it is going to have a huge role in the cath lab”.

In Q3 we started patient enrollment in Protect 2 pivotal trial. Protect 2 is a randomized trial that is designed to assess the superiority of Impella 2.5 over the intra-aortic balloon pump. We have expanded the inclusion criteria to include patients with triple vessel disease and we have increased the number of hospitals from 8 to 150 for Protect 2. Therefore, we expect a higher enrollment rate at significantly more hospitals as compared to Protect 1. Patients that are enrolled in the Protect 2 trial present with poor cardiac function with an ejection fraction of 35% or less and are scheduled for an intervention on either the left remaining patent vessel or the left main coronary artery that supplies blood to more than 75% of the left heart, or the patient can present with poor cardiac function with an ejections fraction of 30% or less and triple vessel disease.

Based on the reduced rate the Natural Heart, Lung and Blood institute of the United States, referenced in the paper published in the American Journal of Cardiology in 2003, about 75% of patients with poor cardiac function have multi-vessel disease. For example, to date in Protect 2, about 70% of enrolled patients have triple vessel disease; 327 patients will be enrolled in each arm of the study for a total of 654, again 327 patients will be enrolled in each arm of the study for a total of 654 patients. To give some perspective on the numbers, each year market reports show about 23,000 intra-aortic balloon pumps are used for the highest PCI, in the United States.

The primary objective of the study is to demonstrate evidence that the prophylactic use of Impella 2.5 is safe and more effective in preventing major events, as compared to intra-aortic balloon pump in patients undergoing high-risk PCI. The primary endpoint will be a composite endpoint of major events assessed three days post PCI. These major events include death, myocardial infarction or heart attack, stroke, repeat intervention on the same vessel, need for cardiac or vascular surgical operation, and a Q3 node dysfunction, increasing aortic insufficiency, severe hypotension requiring immediate treatment, CPR or severe arrhythmia requiring emergent treatment and finally failure to eliminate or reduce significantly, the blockage in the targeted vessel. The outcome of the Impella arm would be compared to the control group treated with intra-aortic balloon pump, improvement of renal profusion and cardiac power output will be tested as secondary endpoints. We believe that the Impella will provide the bare profusion for the kidneys and bare cardiac power output as compared to intra-aortic balloon pump.

The cardiac power output is a combination of the cardiac output and the blood pressure and has been shown to be the best hemodynamic predictor for mortality, as demonstrated in Tours and Fibrillation in 2004 and 2007 [Finkay] and Mendoza in the Journal of American College of Cardiology and the American Heart Journal first activity.

We are very pleased to see the enthusiasm and the overwhelming positive response for the interventional cardiologist community with respect to Protect 2. We believe that Protect 2 will have better understanding of the risk profile and treatment pathways for this patient population. At the same time, it will help assess the role of the prophylactic and active circuitous support during these high-risk PCI procedures, as compared to the IBP standard of care guidelines recommended by the ACC and the AHA and published in the Journal of American College of Cardiology in circulation in 2006.

With respect to our second pivotal trial, we are pleased to announce that we have formally submitted the IDE for approval of the AMI study protocol, after multiple discussions and consultation with the FDA. Because the protocol is now under formal review with the FDA, we cannot confirm all the details of the submission and to their final acceptance. However, we would like to provide an overview of what we submitted for the trial design.

The objective of this study is to demonstrate the superiority in terms of safety and effectiveness of the Impella 2.5, as compared to the intra-aortic balloon pump in the treatment of patients undergoing PCI during a heart attack with hemodynamic instability. The study will include the about 192 patients in each arm for a total of 384 patients at up to 250 hospitals. Again, it’s 192 patients in each arm for a total of 384 patients at up to 150 hospitals. To give some perspective on the number, each year market reports show approximately 21,000 intra-aortic balloon pumps are used for AMI and another 18,000 are used for general hemodynamic instability.

We believe, based on our European experience, that Impella will assist the failing heart in pumping more blood to the heart, the brain and the kidneys during a heart attack, as compared to the intra-aortic balloon pump. At the same time, because of its enloading effect, it may reduce the oxygen consumption of the heart muscle during this ischemic period. As a result this may translate into better outcomes for the patients with the potential preservation of the heart muscle and reduction of the infarct site as suggested by the MAC II trial we recently conducted in Europe by Dr. Henriques from the Academic Medical Center in Amsterdam and presented at the last ACC conference in March 2007. Therefore, the primary endpoint will be the observation of the reduction in major adverse events in the Impella 2.5 through 30 days, as compared to the control group treated with the intra-aortic balloon pump; such events include death, reinfarction, stroke, target vessel revascularization, acute renal failure, acute hepatic failure, acute bolus ischemia, increase in aortic insufficiency or a need for major cardiovascular operation. Early unloading will have an impact on the time to recovery, inotropic dose usage, a reduction in infarct size as assessed by the improvement of cardiac function. Therefore, these parameters have been proposed as part of the secondary efficacy endpoint.

As we ramp up we will be able to more accurately predict the Institutional Review Board or IRB process, training and patient recruitment.

On both studies we will give further guidance in the future for completion time.

The process of improving the study protocol at each hospital usually takes about 60 to 120 days, which include the IRB approval process. To share more insight into the process, we have, as of today, eight centers actively enrolling a total of 31 centers with IRB approval, 25 centers are pending IRB approval for this quarter and 124 hospitals have signed nondisclosure agreements with the company to participate in the high-risk PCI trial. Again, 8 centers are actively enrolling, a total of 31 centers with IRB approval, in addition to that, 25 centers are pending IRB approval this quarter and a total of 124 hospitals that have signed nondisclosure agreements with the company to participate in the high-risk PCI trail.

Finally, I would like to give an update on the Recover I pilot study with the Impella 5.4. Last week, as Mike mentioned, the Society of Thoracic Surgery meeting in Florida, Dr. Bartley Griffith from the University of Maryland, who is also the national principle investigator of the trial, presented the preliminary results of the interim analysis, including the first 13 patients enrolled in the five-fold trial. As a reminder, the Recover I study aims to assess the safety and potential effectiveness of the Impella 5.4 in cardiac surgery. The patients have to present with cardiogenic shock or low cardiac output syndrome after separation from a heart-lung machine despite inotropic support. The preliminary results are very encouraging. Of the 13 patients that were enrolled at the time of the interim analysis, 10 of the 13 recovered and were discharged home with their own heart. Again, 10 out of the 13 recovered and were discharged home with their own heart, one is still in the hospital recovering and two patients expired. Although this is a preliminary analysis, 83% survival rate with heart recovery for all survivors is very positive. The expected mortality rate for this particular patient population using standard of care intra-aortic balloon pump, inotropes and sometimes surgical beds is 41% based on the validated [US corp] model. The preliminary results show, also, an excellent safety profile with low adverse events rates for the Impella 5.0 in the surgical scenes. The patients were supported for up to 7.8 days with an average flow of 4.3 liters per minute. The Impella 5.4 was easy to us, improved significantly the hemodynamics of the patients and enabled a reduction of inotropes usage. We remain confident that the Impella 5.4 will play a significant role in the care of acute patients in both cardiac surgery and in the cath lab.

In summary, we are very pleased with the clinical experience and the progress we have gained in the United States with the Impella Protect portfolio. The US results continue to confirm the European experience with over 1500 patients and over 40 publications on the Impella platform. We will continue to work with our key opinion leaders, our clinical partners, the FDA and other agencies, to offer the best solutions for our patients.

Thank you for your attention, and now I’d like to turn the call over to Dan Sutherby, our Chief Financial Officer. Dan?

Daniel Sutherby

Thanks, Karim. If you would please turn to the PNL attached to our press release, I’ll provide some details on our financial results for the fiscal third quarter.

First to revenues; on our product mix for the quarter, total disposables, service and other revenue, meaning the non console revenue, comprised approximately 85% of revenue for the quarter. This drove strong gross margins of 76% in fiscal Q3 ’08. Included in cost of goods sold during the third fiscal quarter of ’08 were approximately $600,000 of expenses related to our strategic capacity ramp up for Impella, iPulse and AbioCor, as we planned for these respective product launches and regulatory approvals. These costs were not absorbed into inventory per GAAP and negatively impacted out reported gross margin in this quarter by approximately 400 basis points.

Continuing down the income statement, our fiscal Q3 R&D or research and development expenses were 6.9 million, up 1.3 million, compared to the third fiscal quarter of 2007, reflecting our increase investments in new products and also includes site start up costs for our Impella pivotal trial. R&D expense for the third fiscal quarter of ’08 also included stock option expense of approximately $300,000.

Now to discuss selling, general and administrative or SG&A expenses. Fiscal Q3 ’08 SG&A expenses were 13.5 million, compared to 10.9 million for Q3 of fiscal ’07, reflecting our investments and our global distribution in cath lab clinical experts. Total sales and clinical head count globally was just over 70, up roughly 40% from a year ago. SG&A expenses for this quarter also included stock option expense of approximately $1 million.

Included in the P&L section entitled “other income other expenses” you can see we have a separate line item for the change in fair value of the WorldHeart note receivable in warrant. AS we outlined in our form 8-K, filed in December of 2007, we entered into a strategic investment with World Heart, whereby we issued a secured convertible note for $5 million that is convertible at out option into shares of WorldHeart. One million dollars of this loan was funded in cash during December 2007 and the remaining $4 million of cash was funded in January 2008. Under the agreement we received a warrant for the purchase of up to 3.4 million shares of WorldHeart common stock. Under derivative accounting, we mark-to-market the fair value of the conversion feature on the note receivable in warrant associated with the WorldHeart transaction. During the three months ended December 31, 2007, as you can see, we recorded a gain of $600,000 from this investment. In future quarters we expect to see increases or decreases in the fair value of these underlying instruments and therefore you should expect to see fluctuations in this particular line item of our P&L in future quarters. I would also remind you that this is a non-cash item.

The net loss for Q3 of fiscal 2008 was $8.3 million, or $0.26 per share, compared to a net loss of Q3 of fiscal 2007 of $6.7 million or $0.25 per share. The net loss for this quarter includes $1.4 million related to stock option expense and $400,000 related to intangibles amortization. Excluding the $1.8 million aggregate effect of these items, the net loss for fiscal Q3 ’08 was approximately $6.5 million or approximately $0.20 per share.

If you would now turn to the balance sheet; as of December 31, 2007, our cash and investments totaled approximately $50.5 million, compared to $59.5 million at the end of our fiscal Q2. During Q3 and included in the cash burn for the quarter, we invested approximately $3 million for capacity ramp up in inventory builds for Impella, we paid $2.5 million for a litigation settlement during the quarter and we paid $1 million for the first trounce of our investment in WorldHeart, as I discussed.

We will now open the call to your questions.

Question-and-Answer Session

Operator

Your first question comes from the line of Greg Simpson with Stifel Nicolaus. Please proceed.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Yes, good morning. Impressive quarter all the way around and certainly for a company that’s been fairly tight with information, I mean there was a lot of information given out today, so I appreciate that as well. First of all Dan, if I could, let’s dig into the quarter first, there is a lot of ground to cover here, but can you maybe help give us a little more detail with the iPulse approval coming very late in the quarter; can you give us some sense as to whether there were iPulse shipments, or some degree of color on that front and the same thing, I guess, in tandem with that, any balloons shipped in the quarter?

Daniel Sutherby

Sure Greg. We did receive the approval, as you mentioned, late December ’07. It is CE marked in Europe, as you probably know, so we actually shipped a hand full of units outside the US during the quarter. For the balloons, we did start shipping balloons, actually at a modest level, in our fiscal Q4 ’07 and continued to ship just north of 200 in fiscal Q3 of ’08.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, but any iPulse shipments in the US, in Q3?

Daniel Sutherby

We have some folks that are getting it, but we’re unable to get them trained and ship it and collect revenue for the quarter.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, thanks. That answered the question. Secondly, for either Mike or Karim, on the Impella 2.5 and the required bench testing to satisfy the FDA, any elaboration there, not specifically what they’re looking for, but any elaboration as to how detailed that might be?

Michael Minogue

You know, bench testing, historically, is looking at some of the reliability. We have actual clinical data, but they wanted us to do a bench test as compared to one of the predicate devices; and as we stated in the 8(NYSE:K), none of the predicate devices had actual patient clinical data. That’s more an apples to apples.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Right, okay thank you. And then, on the Impella AMI study, a lot of detail there on the potential for the number of patients and the number of centers; I’m curious, Mike, if you could give us some sense of how much overlap do you expect between a high risk PCI pivotal and the AMI trial in terms of centers?

Michael Minogue

Well we do expect some overlap. You’ll see that some of the centers will have both, however we do find there are certain centers that their primarily driven by angioplasty and they’ve got incredibly high volumes, versus some of the other centers which might be more, not so much of an academic center, but big systems where they pull in from six or seven other hospitals and they do more AMIs and that’s there primary focus. We like to do them in conjunction because it’s the same process you put Impella in and then you open up the vessel, but one patient is emergent and one is elective and scheduled and it’s a good way to train; and then if we look at the lessons learned from Europe, at Dr. Jose Henriques center at the Academic Medical Center in Amsterdam, he did patients, he did publish on high-risk PCI, his whole team is proficient and well trained and then they went and did a study, the Mock II, which we presented at ACC, which also will be published here soon, showing again, similar results that there is an improvement with the increased hemodynamic support. And now they have patients, that when they come in at 2:00 am, their facility is already trained on them, because they have done, also, high-risk patients. So it’s good to have both together, there will be some that are different though.

Greg Simpson - Stifel Nicolaus & Company, Inc.

On the overlapping centers, if I could ask a naïve question, how much overlap can you get on the IRB process and does that speed it up at all?

Michael Minogue

It’s a good point. It does help and it does speed it up as well.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Alright thanks. I’ll let others have a chance; I’ll get back in the line up.

Michael Minogue

And just a comment, there is as much interest in the AMI as there is with the high-risk PCI, both have great interest, because they are both issues that have been clinical dilemmas for the last ten plus years. If you look at cardiogenic shock and the results, you’ll see that really, not a lot of that has changed, as far as the mortality rates, in the last 15 years. Just a comment, one other clarification, there is no overlap in the patients. The high-risk patients are scheduled; AMI patients will be coming in with an active heart attack or AMI.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay and just one last follow up, actually, on Protect 2; you gave us a lot of information there on the status of the trial. At any point in the process, do you think you’ll give us some update on the number of patients? You know, you told us how many centers are currently enrolling, but will you give us some kind of update on the number of patients?

Michael Minogue

We may and that’s, you know, as we move forward, we’ll look to see what the folks are interested in and we’ll give as much information to be clear; that’s why today we’re disclosing the number of centers, the number of IRBs, the number of centers that have signed to participate etcetera and we’ll continue to update as we go.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, thanks very much.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley. Please proceed.

David Lewis - Morgan Stanley

Good morning, guys.

Michael Minogue

Good morning David.

David Lewis - Morgan Stanley

A few questions; I guess, Karin, just starting off on the clinical front, can you give us a sense of the rationale for going after a composite, or essentially on safety, versus other sort of binary endpoints on hemodynamic support, reduction in infarct size, or mortality proper? Just give us a sense of was that a just talking to collaborators and can you walk us through that?

Dr. Karim Benali

That’s a good question. You know when you look, for instance, at the high-risk PCI, those patients are at high risk, not only because of the lesion that they have, but because of the comorbidities that they have. For instance, someone that has like chronic kidney dysfunction will probably suffer, after the PCI, from the kidneys because of the contrast given, if he doesn’t have a good perfusion of the kidneys; so for that reason, we were looking at all the different impacts that the pump can have on the outcome of the patients that can be differed from the clinical point of view. I mean in discussion with the FDA, we come up with this composite endpoint that we believe is going to have an impact, just beyond the hemodynamic support, it will really have an impact on the outcome of the patient and those are the composite endpoints that we believe the pump will have an advantage over the intra-aortic balloon pump, to address the clinical needs.

Michael Minogue

Also David, the FDA will not accept the hemodynamic indicator as the primary, even though it’s the strongest correlate to mortality and that has been published, that’s why it’s secondary; and if it was as simple as hemodynamic support, you essentially, that we don’t really need to study, that’s been well documented. This is a pump and a balloon is an enhancement of blood flow in the descending aorta, so that’s why you’ll see it’s a secondary, not a primary.

David Lewis - Morgan Stanley

I guess my point is, I view this as positive, the route issue you have. You’re taking a, it’s a more powerful clinical message to the physician; you’re not taking any binary risk in a single endpoint essentially. Is that part of the strategy?

Dr. Karim Benali

No, I think, you know, it’s more in the clinical settings that matters. It’s really a combination of the different endpoints; it’s not only one binary effect on mortality. The patient probably may not die, but if the patient is kept in the hospital for an extended hospitalization or has other adverse event, you want to be able to capture that, because that has an impact on the health of the patient.

David Lewis - Morgan Stanley

Okay, and should we assume that the AMI trial is, generally speaking, going to roll slower than Protect 2 , given, maybe, issues with informed consent, given the emergent status of the patient? And can you give us an update on how long you’re thinking for Protect 2 enrollment?

Dr. Karim Benali

We haven’t given any guidance; we’re early in the process. We have expanded, considerably, the inclusion criteria to include three vessel disease for the high-risk PCI patients. We believe that the enrollment rate will be much higher than what we observed in the Protect 1, but we are early in the game, so we don’t have a good assessment of what that will be. We will be, in the future, able to communicate this when we have a more accurate assessment of the enrollment rate.

Michael Minogue

David, on the question of the AMI versus the high risk, I think it depends on the centers. Some centers are telling us they’ll enroll a lot quicker for the AMI, because that’s what they do, that’s their focus with the community and some centers are, selectively, they do a lot of PCIs and they have a lot of high risk and they think they’ll do that faster. So, we’re going to keep updating as we go, for that specific reason.

David Lewis - Morgan Stanley

Okay. Just a couple more here, I apologize; it sounds like there is a significant CapEx inventory build here, or separate issues, but maybe a combination of the two overseas. Can you give us a sense of, given that inventory build that you’re working on, where we are in terms of sales and marketing to push Impella upon potential approval and where we are in capacity?

Michael Minogue

As far as the distribution, you know we’ve given it, we have over 100 folks out there in Europe and the primary countries as well as the US and those are people that are trained. We also have a bull pen of people who are cath lab experts and our surgery nurses have all been cross trained as well. So, we feel like we have the potential now to, what we’ve been calling Phase I and last quarter we gave an update of our increased investment in the manufacturing facility and we haven’t disclosed any more than that. But, we are preparing for an increased amount of shipments, as well as having the people there to train them.

David Lewis - Morgan Stanley

Okay and just a last two-part question for Dan. R&D was higher in the quarter, obviously because the term of the trials were initiated, but you knew that was going to happen, so I’m wondering, did enrollments simply go faster than you were anticipating? And can you give us an Impella growth number x US sales?

Daniel Sutherby

First on the R&D David; I did mention we have some site start-up costs to get the sites rolling, whether it’s the IRB costs or other costs we incur to get them rolling. On a going forward basis, we do have some modest clinical reporting patient costs, so, as I mentioned, that did contribute to the R&D increase. On the Impella numbers, at this point we haven’t broken out the details of dollar revenue by product line. Keep in mind too, the R&D number increase also included R&D relative to the portable driver that we announced recently and certainly some final R&D costs on AbioCor that, of course, is now approved, as well as iPulse, which is now approved, so reflects the strategy to continue to invest in new products and broaden the portfolio.

Michael Minogue

As well as AbioCor, which is now approved.

David Lewis - Morgan Stanley

Okay, thank you very much.

Michael Minogue

Thanks David.

Operator

Your next question comes from the line of Bruce Nudell with UBS. Please proceed.

Bruce Nudell - UBS

Good morning guys, thanks for taking the question. My first question pertains to, what background rates of mace, as you’ve defined it; do you expect in the control arms of the Protect2 in the AMI trials?

Dr. Karim Benali

We haven’t really disclosed that particular number, but I mean, we are trying to plan for a relative difference between the Impella and the IBP to be 30% less in the Impella group. Again, this is not only mortality, this is the composite endpoint. When you take the average in the control group, we believe that the Impella will be 30% less mace or major adverse event, not necessarily the classical mace, the composite endpoint that we defined, so 230% less than the IBP in relative difference.

Bruce Nudell - UBS

Sure and when you designed that trial, how did you arrive at that calculation, what was the, kind of experience that drove it? I mean, what was the background set of studies that gave you that idea that you could beat it by that much?

Dr. Karim Benali

Yes, I mean it’s a very good question. Actually we based our assessment based on two different sources: one was based on what has been reported on different reduce rates for this study, the patient population based on the literature and number two, it’s really based on what we have observed in Europe on the Impella as well as what we have observed in the Protect I trial. So that, you know, got us to the assessment of what would be the expected major adverse event rate with the Impella group for Project II.

Bruce Nudell - UBS

And my final question…

Michael Minogue

This is Mike, you have to verify that. People think of mace as a classic, this is really major events as defined by the list of those that we gave out, that we specifically studied. We also had the benefit of, when we did the pilot, evaluating the mortality rates and the adverse events at the centers in the pilot on their current procedures with intra-aortic balloon pumps. So, we did look at what the current standard was and we did select those events that we though the Impella would improve on with its hemodynamic support.

Bruce Nudell - UBS

And Mike my final question is, you know I certainly hope that it goes the right way, but as a risk manager, when you look at it, what happens if this is strong trend and you don’t quite hit the endpoint. Do you think it has dire consequences with regards to falling in the most favorable reimbursement bucket?

Michael Minogue

Well there is two questions there Bruce, one is the reimbursement and the other is the clinical and I think our company has a core competency in both and we know that there are different approaches. However, if you look at the FDA, the way their measuring this as major events, if you look at CMS, what they look at is a cost analysis; and cost analysis can be anything from less stay in the hospital to mortality. The one thing that we know for sure, because it is published and it is a pump, is the Impella 2.5 pumps blood, actively unloads the heart, that’s published that we have that documented and is a pump you can put it on the loop; whereas the intra-aortic balloon pump merely enhances the blood flow and it relies on other elements like inotropes, which are known, they do have side effects and those are published as well. So there is more to this than just a balloon versus Impella. This is a complete paradigm shift in talking about unloading the heart and what that means when you improve the hemodynamic support, which again, has been documented that it increases blood flow back to the heart, it increases blood flow to the brain, it increases blood flow to the kidneys and all those have beneficial effects that we’re measuring and looking at in our major events.

Bruce Nudell - UBS

No sure, I mean it has rational. But, you don’t think just missing the endpoint could in any way jeopardize reimbursement, or do you think rather just a positive endpoint could ensure great reimbursement? How would you guide us to think about that?

Michael Minogue

Yes, I would say that the Impella is a VAD, a ventricle assist device that does not require to have a sternotomy or a heart-lung machine, it can be put in within minutes, it pumps blood, it actively enloads and it happens to be more cost effective, because you don’t have those other side effects and adverse events that you do when you go to heart surgery. And, the CMS system looks at costs. And I don’t think you can compare Impella to a balloon, just like you can’t compare a balloon to aspirin, they are different treatment paths. And, the way the CMS will evaluate it is based on the current standard of care as well as what the technology does.

Bruce Nudell - UBS

And just finally, if you’re successful, the PMA works well, convincing outcomes, does that actually have implications for any follow on Impella sort of products in terms of the regulatory path they have to take?

Michael Minogue

Bruce, I’m not sure I understand the question.

Bruce Nudell - UBS

In other words, if you get a PMA approval for Impella, does that raise the regulatory burden for any potential competitors?

Michael Minogue

I understand. So, if Impella has a PMA that means it would no longer be a 510(k) and that means that no one could use Impella as a predicate device in the future.

Bruce Nudell - UBS

Yes.

Michael Minogue

And just to also comment, intra-aortic balloon pumps, to your question about the PMA path, only have a 510(k) clearance and in all the studies, consistently, it does not show a reduction in mortality, but yet it is reimbursed and it is the standard of care and it is recommended guidelines for high-risk patients by ACC and AHA.

Bruce Nudell - UBS

Thanks so much. Sorry to take your time.

Michael Minogue

Thanks Bruce.

Operator

Your next question comes from the line of Shaun Amaude with Lehman Brothers. Please proceed.

[Shaun Amaude] -Lehman Brothers

Hi guys, this is Shaun Amaude filling in for Bob Hopkins at Lehman Brothers. How are you guys?

Michael Minogue

Good, morning Shaun.

[Shaun Amaude] - Lehman Brothers

Morning. Great quarter, congrats. Just a couple quick ones for you; in terms of trial timelines, I know that you haven’t really been able to break out enrollment rates, but any guidance on what we should be expecting about completion of these trials? How long, basically, are they going to take?

Michael Minogue

Shaun, we know why you want to know that and what we’ve said is, we’ve given you all of the insight into the number of centers, the enrollment rate, how many centers are looking at IRB approval this quarter, as well as the number of folks that have signed our NDA, which means they’re going through the process and continuing it, and we excluded folks that had signed and had then backed out for whatever reason. So, there are 124 hospitals that signed the NDA that are also pursuing this. Triple vessel disease does increase the ability for us to role and so far in Protect 2, 70% of the patients have triple vessel disease. So rather than give you kind of a more wide open range, what we thought we’d do is move further down the path and then start giving some visibility to the number of patients and where we’re at with the number of centers enrolled; and then we’ll be able to more accurately predict it. Just to also point out that, the 510(k) will allow us, 510(k) clearance you know, will allow us to have a commercial roll out and during the trials we also are generating revenue at the centers and they’re fully reimbursed. So, we understood your reason for the question, but just to reiterate, there is eight centers now enrolling, there is 31 centers that have IRB approval, there are 25 more centers that have pending IRB approval this quarter and there are 124 hospitals that are in the process now of going through the IRB approval and lining u p the protocols and that is just for the high-risk PCI, AMI is going to happen here shortly, or we hope it happens here shortly, as we stated, and that will then add to another study at each of these centers.

[Shaun Amaude] - Lehman Brothers

Now I understand it makes sense to, sort of, hold off on estimates about that sort of thing, until you have a little bit more enrollment data. I guess one more quick one. On terms of full year revenue guidance, I think you got it to a top-line growth of 20% and just looking at our numbers, you have to post a relatively big number in the fourth quarter to get to that; any modification on that guidance at this point?

Michael Minogue

So, we had given an update that what we had said before in the past was 20% or greater, so that’s 61 or more; and what happened in the first half is, the summer months were a little slower as we stated, but you’ll see that this quarter is at 16 million, so we did pick up, I think, some of that from Q2; it’s our highest quarter ever. And so, if we go into the range of 58 million to 62 million, that puts us in a window of 15% to 22% and historically, Q4 is our highest quarter, so if we did 16.6, that would put us at 58, so that would be a $600,000 increase from this quarter; and if we do anything higher than that, that puts us right back into the range which had been prior stated.

[Shaun Amaude] - Lehman Brothers

Right, right, makes sense. I mean it looks like you guys have had to do, looks like close to 20 million, 19.5 million to get all the way to a 20% for the full year.

Michael Minogue

Right.

[Shaun Amaude] - Lehman Brothers

Okay and then one more quick one. In terms of your Impella sales number for the third quarter, does it include 600,000 of deferred trial revenue from the second quarter, which is what we have been modeling?

Michael Minogue

It does and then you should assume that each quarter there is this lag of other revenue that is either the IRB or the process of the training will continue or that’s why we gave all those numbers. We’re trying to catch up every quarter with the numbers centers, some of it is administrative. We have certain centers that we have the purchase order process done, they don’t have the IRB approval. We have other centers where we have the IRB approval and now we’re working through the purchasing process.

Daniel Sutherby

Shaun, this is Dan. Just to add to that, that Impella number also includes sales of Impella in Europe and outside the United States as well.

[Shaun Amaude] - Lehman Brothers

Understood, understood. Okay, thanks a lot guys, great quarter.

Michael Minogue

Thanks Shaun.

Operator

Your next question comes from the line of Amy Stevens with Susquehanna Financial. Please proceed.

Operator

Your final question comes from the line of Eric Schneider with UBS.

Eric Schneider - UBS

Good morning guys.

Daniel Sutherby

Good morning Eric.

Eric Schneider - UBS

I hope you don’t mind getting two sets of questions from us here at UBS.

Michael Minogue

Not at all.

Eric Schneider - UBS

Oh, since we have a little bit different focus. Just on Impella, did you mention what the total revenue growth rate was? I know you mentioned both console and disposables, but did you mention total?

Daniel Sutherby

The Impella disposables grew 192%; the Impella platform grew 180%.

Eric Schneider - UBS

And I noticed on the WorldHeart investment, that you’d funded a million of it, but when that was originally announced, the expectation was that the funding would happen in early January. Is there something specific that’s missing to cause that not to happen or is that…?

Daniel Sutherby

No, that has happened already Eric.

Eric Schneider - UBS

That has happened? Okay.

Michael Minogue

Yes, so it was a million prior quarter and it is 4 million this quarter and that has happened.

Eric Schneider - UBS

Okay.

Daniel Sutherby

Four million in January, Eric, this is Dan. Four million was January ’08.

Eric Schneider - UBS

Okay, I just wanted to make sure that that actually did happen or if it didn’t that something, that there was a reason that it hadn’t. What are the, on average, I know it’s going to vary quite a bit, but the per site start-up costs for Protect 2?

Daniel Sutherby

Essentially it’s an IRB expense, which is a nominal expense, its a couple thousand dollars and then there’s a fee per patient for their patient data collection, which is somewhat minimal because the majority of the information that we are requesting back is standard of care today; but there does take a little time, so it’s not a significant amount.

Eric Schneider - UBS

Okay. And I think finally, on those trials, you said 70% of the people that are enrolling so far in Protect 2 are enrolling, or included as part of this triple vessel, EF less than or equal to 30. Is that indicative of the relative sizes of those populations, or does that just happen to be what the number is now?

Michael Minogue

What it shows is that there, you know, in the Protect 1 we didn’t have triple vessel disease. In Protect 2, now that we have triple vessel disease, so far 70% of the patients have been triple vessel and if you go out, Eric, and you look at all the literature where they are talking about low EF and you’ll find that approximately 70% to 75% of those patients have triple vessel disease. So, that’s really the most common and that’s why we think that will add to the enrollment rate and plus we went from eight centers to 150, so the two together are very helpful.

Eric Schneider - UBS

Okay and then finally just a follow up on the adjustment to the full year guidance. Coming out of the last quarter you were still at the greater than 20% for the year. What was it that slipped in this quarter, or that you’re concerned could slip in the next that would cause you to be at the low end of the range?

Michael Minogue

What the primary was, the iPulse took a little longer, so it was actually over the time frame of what the internal goal of the FDA was as far as responding to us on that, and then the second was the AMI trial, we had significant discussion back and forth on the trial design; that took longer based on the discussions and agreement of what the protocol and trial design would look like and so those are the two issues; but as far as moving forward, the iPulse is now approved and because we spent the time on the AMI discussions we think this will be relatively quick and we’ll move forward in a rolling. We didn’t necessarily change the part of the spread, because it was 61 or greater, so the range is now 58 to 62, so we’re within the window of plus or minus one million.

Eric Schneider - UBS

Right. The range certainly encompasses what you’d suggested before; I just wondered what it would take that was slipping or that you were concerned because stuff can get to the bottom, but I think you answered it so…

Michael Minogue

Correct.

Eric Schneider - UBS

Again, thank you for the responses and good luck with Impella.

Michael Minogue

Thank you.

Operator

We have a follow-up question from the line of Greg Simpson with Stifel Nicolaus. Please proceed.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Thank you, just a couple of quick ones guys; first of all on that topic, guidance, in specifically the fourth quarter. With the delay in iPulse can you give us any kind of fuzzy indication of what the iPulse backlog might look like in the fourth quarter? I mean there clearly should be some pent up demand, I’m wondering how significant it might be?

Michael Minogue

Greg, if you look today, you know in the past we were going to the transplant centers and more than 50% now have the AB5000 console. And if you go to the open heart hospitals today, more than, it’s about 23% have the AB5000 console, but there’s several hundred BVS consoles out there; so for the last four quarters we really have been waiting for the iPulse, because the iPulse is the most cost effective, optimal device for these open heart hospitals. So while we have penetrated the transplant centers, there is 100 of those, we really want to get to the 900 open heart hospitals, because we need the iPulse to get there and for those that have BVS, this is a natural trade in for that. So, now that the iPulse can run the BVS, if that’s what their comfortable with, the AB or the balloon and up until this point, you’re really not able to market or to promote anything that is not FDA approved. We are pretty by the book and we follow that parameter and now we’re going to be going out talking to all the open heart hospitals that have BVS about aggressive trade ins to get them up and running with the recovery program.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay. Can you give us any suggestion as to what the trade in policy might be here, or do you want to get that specific?

Michael Minogue

It would be a credit. It could be 10 to 15,000 and there are certain component parts and service credits that we could do; but the idea is really to get them up and running and using BVS and AB, primarily AB because it now has explained applications and based on the reimbursement, they have an incentive for the patients to recover their heart, but from a financial perspective, if they can implant and explant our canula, or our tubes for BVS or AV, they move to DRG 1, which is the highest paying DRG in the country. So, they now have a clinical incentive and they also have a financial incentive that every hospital should have a recovery program. And, our strategic plan is that every cath lab will have Impella and every ICU and surgery suite will have iPulse and we think that both are required to have a center of excellence to treat high-risk PCI patients as well as heart attack patients.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, Mike then, on the AMI trial, just to confirm what should, I guess, be obvious. In that trial will the Impella also be eligible for full reimbursement?

Michael Minogue

It is.

Greg Simpson - Stifel Nicolaus & Company, Inc.

It is, okay. And then last one, knowing that you’re a Giants fan, you’re CFO is a Patriots fan; he suggested to me yesterday that you have not gloated yet. Is that going to be the case or do you want to take an opportunity to do that now?

Michael Minogue

It’s a secret that I’m a Giants fan, but now it’s no longer and I’m going to be very careful starting my car tonight when I leave for home.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, thanks very much.

Michael Minogue

I refuse to gloat, I’m proud of the Giants though.

Greg Simpson - Stifel Nicolaus & Company, Inc.

Okay, thank you.

Operator

With no more further questions in the queue, I would like to turn the presentation back over to Mr. Michael Minogue, for closing remarks.

Michael Minogue

Thanks everyone, for your time today. You saw we’ve made a lot of great progress on the revenue, on our gross margins and very significantly, on our regulatory path and we look forward to our next update. Have a great day.

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