Artivion, Inc.
Q4 2007 Earnings Call Transcript

Published: 21 Feb 2008

[Operator:]

Greetings ladies and gentlemen, and welcome to the CryoLife Fourth Quarter and Year-End 2007 Financial 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 my pleasure to introduce your host Mr. Steve Anderson, President and Chief Executive Officer of CryoLife. Thank you. Mr. Anderson you may now begin.

[Steven Anderson:]

Good morning everyone. Welcome to CryoLife’s 2007 year-end conference call. This is Steve Anderson, the company CEO, and with me today is Ashley Lee, the company’s Executive VP, COO, and CFO. This morning we announced record revenues for 2007 of 94.8 million, a 17% increase from the 81.3 million we announced for fiscal year ’06. Net income for fiscal year ’07 was 7.2 million and $0.26 per diluted share compared to net income of 365,000 and a loss of $0.02 per diluted share for fiscal year 2006. Revenues for Q4 ’07 were 25.1 million, a 19% increase over Q4 ’06 when the company posted fourth quarter revenues of 21.1 million. Net income for Q4 ’07 was 2.6 million and $0.10 per diluted share compared to a net loss of $50,000 and $0.01 per diluted share in Q4 ’06. The fourth quarter was the fourth consecutive profitable quarter for CryoLife. It is apparent from these results that the strategic plan that management put into place during the last quarter of 2006 has resulted in a significant turnaround of the company’s operating results. Ashley will get into the details of the financial results for fiscal year ’07 and Q4 ’07 in a few minutes as well as discussing other financial matters. But before he does that, I would like to outline the agenda for today’s conference call. First, Ashley will go over the financial details of today’s press release. He will discuss the results for each segment of our business. He will pay particular attention to the significant improvement in our gross margins and net profits. I will discuss the organ preservation technology that we licensed recently from Trophic Solutions LLC, its development time table, the size of the market it address, and its strategic implications for the company. I will also discuss the market launch of the SynerGraft processed pulmonary human heart valve that was cleared for commercialization by the FDA on February 7th. The clearance of this technology is a significant milestone in the company’s history and should have a very positive effect on CryoLife’s business and the implantable heart valve market going forward. I will discuss the timetable for the submission of the 510(k) pre-market notification to the FDA for the SynerGraft processed aortic human heart valve. I will discuss the status for the (NYSE

[Ashley Lee:]

Thanks, Steve. To comply with the Safe Harbor requirements of the Private Securities Litigation Reform Act of 1995, I would like to make the following statements. Comments made in this call which look forward in time involve risk and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future. Additional information concerning risk and uncertainties is contained from time to time in the Company’s SEC filings including the “Risk Factors” section of our Form 10-K for the year ended December 31, 2006 and our Form 10-K for the year ended December 31, 2007, which we expect to file by the end of this week and in the press release that we released this morning. During this call, I will refer to certain non-GAAP financial measures. For a mathematical reconciliation of these measures to the most comfortable GAAP numbers, please see the schedules in our press release that was released this morning. A copy of this can be found on the Investor Relations page of our website at www.cryolife.com. This morning, we reported our results for the fourth quarter and the full year of 2007. Revenues for the fourth quarter of 2007 increased 19% to 25.1 million compared to 21.1 million in the fourth quarter of 2006. Excluding orthopaedic revenues of 522,000 and 1.9 million in the fourth quarter of 2007 and 2006 respectively, total revenues increased 28%. Net income in the fourth quarter of 2007 was 2.6 million and $0.10 per basic and fully diluted common share compared to a net loss of $50,000 and $0.01 for basic and fully diluted common share loss in the fourth quarter of 2006. Non-GAAP EPS was $0.11 per fully diluted share in the fourth quarter of 2007 compared to non-GAAP EPS of $0.02 in the fourth quarter of 2006. Revenues for the full year of 2007 increased to 17% to 94.8 million compared to 81.3 million in the full year of 2006. Excluding orthopaedic revenues of 4.2 million and 7.1 million for the full year 2007 and 2006 respectively, total revenues increased 22%. Net income in the full year of 2007 was 7.2 million and $0.26 per basic and fully diluted common share compared to net income of $365,000 and a net loss of $0.02 per basic and fully diluted common share in the full year of 2006. Non-GAAP EPS was $0.39 per fully diluted share for the full year of 2007 compared to non-GAAP loss per share of $0.02 in 2006. Tissue processing revenues in the fourth quarter of 2007 increased 27% to 13 million compared to 10.2 million in the fourth quarter of 2006. Tissue processing revenues in the full year of 2007 increased 22% to 49 million compared to 40.1 million in the full year of 2006. Tissue processing revenues increased primarily due to an increase in demand for the company’s cardiac and vascular processed tissues, the increased availability of these tissues due to improvements in procurement, and to a lesser extent price increases, partially offset by decreases in shipments of orthopedic tissue following the Company’s cessation of orthopedic tissue procurement and processing in January 2007. Cardiac revenues were 6.5 million for the fourth quarter of 2007 compared to 4.4 million in the fourth quarter of 2006, an increase of 47%. The increase in cardiac revenues was due to a 44% increase in cardiovascular unit shift, which increased revenues by approximately 38%, and an increase in average service fees which increased revenues by 8%, and the effect of foreign currency exchange which increased revenues by 1%. Cardiac revenues were 22.1 million for the full year of 2007 compared to 16 million in the full year of 2006, an increase of 38%. The increase in cardiac revenues was due to a 33% increase in cardiovascular unit shift which increased revenues by approximately 28% and then increase in average service fees which increased revenues by 10%. Vascular revenues were 5.9 million for the fourth quarter of 2007 compared to 3.9 million in the fourth quarter of 2006, an increase of 52%. The increase in vascular revenues was driven by 38% increase in vascular unit shift which increased vascular revenues by 41% and by fee increases which increased revenues by 11%. Vascular revenues were 22.7 million for the full-year of 2007 compared to 17 million in the full-year of 2006, an increase of 34%. The increase in vascular revenues was driven by a 19% increase in vascular unit shipments which increased revenues by 22% and by fee increases which increased revenue by 12%. Orthopedic revenues were $552,000 for the fourth quarter of 2007 compared to 1.9 million in the fourth quarter of 2006, a decrease of 71%. Orthopedic revenues were 4.2 million for the full year of 2007 compared to 7.1 million in the full year of 2006, a decrease of 41%. The decrease in orthopedic revenues for both periods is a result of a limited supply of orthopedic tissues available for shipment following the Company’s cessation of procuring and processing orthopedic tissues on January 1, 2007. BioGlue revenues were 11.5 million for the fourth quarter of 2007 compared to 10.5 million in the fourth quarter of 2006, an increase of 10%. The increase was primarily attributable to an increase in BioGlue average selling prices which increased revenues by 5%, a 4% increase in the amount of milliliters shift which increased revenues by 4% and the effect of foreign currency exchange which increased revenues by 1%. BioGlue revenues were 43.9 million for the full year of 2007 compared to 40 million in the full year of 2006, an increase of 10%. The increase was primarily attributable to an increase in BioGlue average selling prices which increased revenues by 6%, a 3% increase in the amount of milliliters shift which increased revenues by 3% and the effect of foreign currency exchange which increased revenues by 1%. Total products and tissue processing gross margins grew 64% in the fourth quarter of 2007 compared to 47% in the fourth quarter of 2006. Tissue processes in gross margins in the fourth quarter of 2007 were 44%.compared to 10% in the fourth quarter of 2006. Excluding a non-cash charge of 2.8 million related to the company’s exit from orthopaedic tissue processing, total non-GAAP product in tissue processing gross margins were 60% and non-GAAP tissue processing gross margins were 37% in the fourth quarter of2006. Total product in tissue processing gross margins were 62% in the full year of 2007 compared to 54% in the full year of 2006. Tissue processing gross margins in the full year of 2007 were 42% compared to 25% in the full year of 2006. Excluding a non-cash charge of 2.8 million related to the company’s exit from orthopaedic activities, total non-GAAP product in tissue processing gross margins were 57% and non-GAAP tissue processing gross margins with 32% for the full year of 2006. Tissue processing gross margins improved in 2007 compared to 2006 primarily as a result of price increases and a favorable product mix in 2007. General, administrative, and marketing expenses were 12.1 million in the fourth quarter of 2007 compared to 11.4 million in the fourth quarter of 2006. Non-GAAP general, administrative and marketing expenses in the fourth quarter of 2007 were 11.5 million compared to non-GAAP general, administrative and marketing expenses in the fourth quarter of 2006 of 10.7 million. General, administrative and marketing expenses were 46.5 million in the full year of 2007 compared to 41.5 million in the full year of 2006. Non-GAAP general, administrative and marketing expenses in the full year of 2007 were 43.6 million compared to non-GAAP general, administrative and marketing expenses in the full year of 2006 of 41.5 million. You should refer to our SEC filings for detailed discussions of factors affecting our results of operations including our Form 10-K that we plan to file by the end of this week. As of December 31, 2007 we had 17.4 million in cash, cash equivalents, and marketable securities of which 1.2 million was received from the US Department of Defense as advance funding for the development of Protein Hydrogel Technology for use on the battlefield. We used 4.5 million of cash on hand to pay of our acquired credit facility which expired on February 8th, 2008. We are currently exploring alternatives to replace our expired credit facility. Now, I will turn it back over to Steve.

[Steven Anderson:]

In early January, we announced the signing of an exclusive worldwide license agreement for the cold storage and organ transport technology developed by Trophic Solutions, LLC of Madison, Wisconsin. Early animal studies have indicated that this technology may be capable of storing kidneys in a viable state for six days rather than for three days using present technology. These studies also indicate that this technology may reduce or eliminate the need to artificially pump kidneys to keep them viable. If this technology is successful in reducing or eliminating the need to pump kidneys it will be highly cost effective for the organ procurement groups to utilize this new technology. The ability to preserve kidneys for up to six days rather than the current three days would be a significant advancement that could have a positive impact on the number of kidneys that are available for transplant not only in the United States but worldwide. The next step in the evaluation of this technology is for us to run a head to head comparison of the Trophic Solutions to the most commonly used UW Solution. This study as scheduled to begin in April of ’08 and we would be performed utilizing a big model. The study will run for approximately six months. In market studies available to the company the total world market for an organ transport solution is between $50 million and $65 million. With the United States market alone being $37 million to $48 million or 75%. At least as important as the market size are the potential strategic ramifications, if CryoLife is able to develop a superior organ transport solution to sell to the organ procurement organizations. If this technology is successful, CryoLife will be able to strengthen this relationship with the organ procurement organizations which provide us tissues and cells for preservation. This potential new technology means that many of the OPOs may become customers of ours where in the past, we were customers of theirs. In addition, the licensing and development of this technology is an example of CryoLife executing upon it’s strategic framework by exploring complementary technologies that can leverage its existing platform of services and products On February 7th, the FDA cleared our 510-K pre-market notification submission for the SynerGraft Processed Pulmonary Human Heart Valves. The SynerGraft Processed Pulmonary Valve is the first decellularized human heart valve cleared by the FDA. The company recently hosted a dinner for physicians who had implanted SynerGraft Processed Heart Valves in year passed. The purpose of this meeting was to bring these physicians up to date on the clinical outcomes data that the company submitted to the FDA. During the dinner Dr. John Brown, Chief of the section of Cardiothoracic Surgery of Indiana University, School of Medicine and Dr. John Fehrenbacher of the CorVasc MD's Surgical Group in the Indianapolis, Indiana reviewed their implant series of SynerGraft Processed Pulmonary Human Heart Valves for the dinner attendees. The release of the SynerGraft Pulmonary Valves is a significant event for the company, as well as for the patients who will be undergoing right ventricular outflow track reconstruction or pulmonary valve replacement as part of the Ross Procedure. Based on the retrospective data on 342 patients submitted to the FDA which had echocardiographic follow-up up to 6.5 years, these valves have shown excellent hemodynamic function and freedom from pulmonary insufficiency. Analysis of data showed a 95% freedom from explant at six years for patients undergoing right ventricular outflow tract reconstruction, while the Ross subgroup had a 98% freedom from explant at the six-year timeframe. In addition, the overall series of SynerGraft Processed Pulmonary Valves were shown to be 99% free from endocarditis at six years. In order to seek evidence for the potential and implied long-term benefits of the SynerGraft Process, CryoLife is planning a post clearance study per the request of the FDA. Data to be collected is expected to include long-term safety and hemodynamic function immune response and explant analysis. CryoLife believes that this information may help it ascertain whether the SynerGraft Process reduces the immunogenicity of the transplanted heart valve and whether the valve recellularizes with the recipients own cells. We began to process pulmonary heart valves using the SynerGraft Process on February 8. At present we have 90 SynerGraft Processed Pulmonary Valves that are in work in progress. There are 35 pediatric size valves and 55 adult size pulmonary valves in the work in process. Currently, we are processing the majority of pulmonary valves using SynerGraft Process. Because of the anticipated demand for these valves, we will be shipping them implanting surgeons for implant only. We will not be shipping them for hospital inventory purposes. The processing fees for these valves will be at a premium of approximately 35% higher than fees for processing standard valves. We expect that these higher processing fees for SynerGraft Processed Valves will be help the gross margins on our preserved cardiac tissue business. The company will be hosting a physician training seminar on the technology and use for SynerGraft Processed Pulmonary Heart Valve at the company’s learning center complex during the last week of March. Overtime, we expect to train 250 surgeons and their cardiologists on the clinical use and outcomes for SynerGraft process human valves with a focus on its use for right ventricular outflow tract reconstruction in pediatric patients. On April 24th through the 26th, the company will also host our annual aortic allograft symposium at the company learning center. This program will concentrate on the preservation technology and implant techniques for aortic human valves. In addition, this symposium will also emphasize the use of SynerGraft Processed Pulmonary Heart Valve when used as part of the Ross Procedure. With the clearance of the SynerGraft Processed Pulmonary Valves, our regulatory affairs department will now focus on the clearance of SynerGraft Processed Aortic Human Valves. We will be requesting a meeting with FDA regarding our 510K pre-market notification for the SynerGraft Processed Aortic Human Valves in the very near future. As everyone who follows the company knows, SynerGraft Processed is a technology platform that may be used on human as well as xenograft tissues. We are continuing our collaboration with the Yacoub Institute in the UK regarding the development of the SynerGraft Processed Xenograft Heart Valve and vascular graft. We have utilized the SynerGraft technology with a xenograft hemodialysis access graft with considerable success and have approximately 600 implants of the SynerGraft Processed AV axis graft in Europe. This technology may allow the implant of unfixed xenograft tissue in humans without immunosuppression therapy. The BioDisc spinal disc nucleus replacement CE mark approval process is still moving along although it is slow. We are unable to give guidance on the timeframe for approval of this product. The BioFoam surgical sealant project is just completing the pig studies that were designed to document Bio compatibility of the product and to show performance characteristics. We are in schedule to make our CE mark application for BioFoam sometime in the third quarter of this year. That concludes my comments and now I actually will return to give some guidance for rest of the year.

[Ashley Lee:]

Thanks Steve. The company’s GAAP revenues are composed of product and tissue processing revenues plus other revenues. With the recent clearance of our SynerGraft Processed Heart Valve, we now expect product and tissue processing revenues for the full year of 2008 to be between $101 million and $106 million. Other revenues for 2008 are estimated to be up to 1.8 million, primarily related to funding received from the Department of Defense in connection with the development of BioFoam. Tissue processing revenues are expected to be between 53 million and 56 million and BioGlue revenues are expected to be between 47 million and 49 million for the full year of 2008. Other implantable medical device revenues are expected to be approximately $1 million in 2008. We expect general, administrative and marketing expenses of between 48 million and 51 million and research and development expenses of between 6.5 million and 8.5 million for the full year of 2008. The research and development expectations include an estimate of up to 1.7 million to be funded by the US Department of Defense in connection with the development of BioFoam. Over the last couple of years, we have been releasing revenues a couple of weeks after the end of each quarter. Beginning with the first quarter results of 2008, we will no longer be releasing quarterly revenues prior to our quarterly earnings release. That concludes my comments, and I will turn it back over to Steve.

[Steven Anderson:]

At this time, I will open up the conference call for questions.

[Operator:]

Thank you. (Operator Instructions). Our first question is from Mark Mullikin – Piper Jaffray. Please proceed with your question.

[Mark Mullikin:]

Yes. Good Morning. Can you hear me. Okay.

[Steven Anderson:]

Yes. We can.

[Mark Mullikin:]

A couple of questions. First Steve, can you just give us an update on BioGlue in Japan. I am sorry, if I missed that in your prepared comment.

[Steven Anderson:]

No. I didn’t make a comment on that. We still are expecting that the BioGlue application in Japan will be approved towards the end of the first quarter. I am basing those comments on a meeting I had at the Society of Thoracic Surgeons in early January with our distributor from Japan and they still remain very positive that that product will be approved.

[Mark Mullikin:]

And what's the market potential there?

[Steven Anderson:]

We believe it’s the second largest surgical adhesive market in the world behind the United States which would place it in the $300, $400 million area.

[Mark Mullikin:]

And, will the pricing be similar to what it is in the US?

[Steven Anderson:]

Can you restate that? I didn’t…

[Mark Mullikin:]

Do you expect the pricing to be similar to the US market then for BioGlue?

[Steven Anderson:]

We haven’t established the price yet. So, I couldn’t respond to that.

[Mark Mullikin:]

Okay. And, then, just -- for Ashley, should we expect gross margins on processing and on BioGlue to move up from here or maybe to settle down a bit, they jumped pretty nicely sequentially in year-over-year and I’m just wondering if they are going to stay at that level?

[Ashley Lee:]

I think our BioGlue gross margins we expect to remain relatively constant. We certainly expect some upside from our tissue processing gross margins with the recent clearance of the SynerGraft(NYSE

[Mark Mullikin:]

And just to clarify actually, the 35% price premium, there is really no significant difference in the costs to process SynerGraft, is there?

[Ashley Lee:]

There is additional cost associated with it, but it’s not completely substantial. But there is additional cost associated with it.

[Mark Mullikin:]

Okay, very good. Thank you and nice quarter.

[Operator:]

(Operator Instruction). Our next question is from Raymond Myers of Emerging Growth Equities. Please proceed with your question.

[Raymond Myers:]

Thank you and congratulations to the whole team for seeing SynerGraft through approval.

[Steven Anderson:]

Thank you very much.

[Raymond Myers:]

Still a long road. We’ve been following it for a long time and you deserve a lot of credit foreseeing it through.

[Steven Anderson:]

That was a long ride.

[Raymond Myers:]

Yeah, probably about the longest I think anyone that we’ve seen anyway. But you made it.

[Steven Anderson:]

Yeah.

[Raymond Myers:]

What is driving the strong growth in the second half year of the vascular and cardiovascular business? We know that a lot of it comes from the regeneration technologies, business exchange and can you give us a little more clarity as to how much of that growth is organic, how much is it from RTI? And then probably most important, what should we look for in terms of further sequential improvements say from fourth quarter to first quarter and then going into 2008?

[Ashley Lee:]

Ray, this is Ashley. It’s somewhat difficult for us to exactly determine how much of our growth in the latter half of the year was due to RTI as opposed to our own organic growth and the reason is because we shared a lot of the comment on sources of tissue as well as customers hospitals. And so, it’s very difficult for us segregate out exactly the effect of RTI versus our own organic growth. Our business was growing nicely prior to the RTI transaction, but the RTI transaction certainly had a positive effect to the second half of the year as it relates to sequential growth for these tissues going forward and then into the first quarter of this year. We don’t give quarterly guidance. We give annual guidance on you know the top line, we’ve given that and we don’t give quarterly guidance.

[Raymond Myers:]

Okay. Let me shift over back to SynerGraft. Steve, you mentioned in your remarks you already have in process 90 valves. How soon can those valves be implanted into people?

[Steven Anderson:]

We think that the earliest implant is going to occur some time towards the end of March.

[Raymond Myers:]

Okay. That’s really soon. And how much do these valves retail for?

[Steven Anderson:]

We think that the pricing on that will be $14,500.

[Raymond Myers:]

And how soon you think it would take – how fast can you get 90 implants implanted?

[Steven Anderson:]

I think that’s really based upon the release dates when they come out of quarantine and when they are finished with the quality assurance process. We are expecting to be perfectly straightforward about it. I am expecting the product to be back-ordered almost immediately. I think there is going to be that kind of demand for it.

[Raymond Myers:]

And can you – from judging from the demand that you see now, can you sell essentially all the valves that you’ve been getting, all the pulmonary valves as SynerGraft right away? Or do you think there will be a transition period?

[Steven Anderson:]

There is going to be a transition period. But we do know that physicians have been holding some operations on patients in anticipation of the valve being approved, and so I think initially that there will be a real uptick in pulmonary valve replacement using the SynerGraft valve.

[Raymond Myers:]

That’s great.

[Steven Anderson:]

I am aware of one physician who has been in contact with me personally that has three or four patients that he has been watching very closely and holding back because he felt that they definitely needed to have our SynerGraft processed valve implanted in them.

[Raymond Myers:]

And so as I understand correctly, is it $14,000 price was the old price and now it’s 14 to 35…?

[Steven Anderson:]

Old price was $11,000 in round numbers and the new price will be 14,500.

[Raymond Myers:]

Okay. That’s great. And with the data that you submitted to the FDA on these 342 patients, this 99% three have endocarditis, 95% from explant, 98% explant with the Ross procedure. How does that compare with – there was no placebo control but what does that compare to – what did you compare it to?

[Steven Anderson:]

Well, you can go into the literature and compare it to what the explant rates would be for the standard pig valves and it’s considerably better product. You also have to keep in mind that if someone has an active case of endocarditis, the product of choice for implants is a human heart valve because they can be cleaned up easily with antibiotics – with systemic antibiotics whereas if you put a prosthetic valves and that has a synthetic sewing ring. It's a very hard to get a synthetic sewing ring to be cleaned up if it becomes contaminated with bacteria. So, most of the physicians know that and one of the big advantages of a human valve is that you can put it into an infected area and expect it to do very well.

[Raymond Myers:]

You mentioned that the majority of the valves you have in process are for adults. Does this – were you (inaudible) that you may be expanding your business into more adult patients from the pediatric?

[Steven Anderson:]

Well it just happens to be the size of the heart that has come in since February 8, but of course you can use it in both adult and pediatric reconstruction. It just happens to be the distribution of the heart valve size that we've received.

[Raymond Myers:]

But in the past, your business, if I remember correctly was primarily pediatrics correct?

[Steven Anderson:]

Yes, we focused on that.

[Raymond Myers:]

So, now that you have a product that has a distinct advantage in infected hearts, does that open a new avenue to the larger adult market?

[Steven Anderson:]

It will do that, yes.

[Raymond Myers:]

And that sounds intriguing. Thanks. Just a point for Ashley? The share count actually decline from third quarter to fourth quarter by my estimates, is that right?

[Ashley Lee:]

I don't have that data available in front of me right now Ray, but I can address that with you off line.

[Raymond Myers:]

Okay. And, how about the tax rate going into 2008 and 2009? What do we expect that to be?

[Ashley Lee:]

We're going to have to pay nominal amount of taxes during 2008, primarily related to some international taxes and an alternative minimum tax.

[Raymond Myers:]

Similar to '07?

[Ashley Lee:]

Similar to '07. We expect our tax rate during 2008 to be in the mid single digit range.

[Raymond Myers:]

And, when would you anticipate converting to a regular tax rate?

[Ashley Lee:]

Ray, we're still in the process of discussing those issues with our tax advisors. You know, we got some significant NOLs that are available to us and it’s really very complex issue that we are discussing with them. Our best guess right now is that it will be probably some time in 2009 before we get back to a more normalized tax rate, but we will probably have a little bit more guidance on that as we move throughout the year.

[Raymond Myers:]

And in the past your normalized tax rate was close to 30%. Is that because you had a lot of international sales?

[Ashley Lee:]

I think our taxes were probably a little bit higher than that, but then if you wanted to look at potentially effective rate moving forward, I think you should probably use something between like 35% and 40% under normal rate going forward.

[Raymond Myers:]

Okay. Great. And can we discuss the planned R&D – the increase in R&D including a clinical studies? I think Ashley has – no; Steve, you had mentioned you can’t talk about BioDisc guidance but we had planned possibly to do some clinical studies there. What clinical study expense do we expect in 2008?

[Steven Anderson:]

We are setting up – we’ve set up a pilot study of about a 150 additional patients for the BioDisc when that’s gets approved. All those clinics are in place, they have been in place for some time and we definitely will do that as soon as it gets approved. We also have an approval – the Trophic technology had an approval for pilot study prior to our acquiring the technology and so as soon as the pig trial is finished that I discussed then we’ll move into a small pilot study that we are estimating to be in the neighborhood of 150 patients for testing the Trophic organ transport solution. So that is in our budget also for this year.

[Raymond Myers:]

To start the 150 human patients?

[Steven Anderson:]

Yes.

[Raymond Myers:]

That will be good. How long will that study take?

[Steven Anderson:]

We think that the – getting a 150 kidneys transplanted will take four to six months. So, I think you should expect that we might begin that pilot study towards the end of calendar ’08 and it would run into the – probably run into the second quarter of ’09.

[Raymond Myers:]

And then you would be able to file in the second half of ’09? Is that the…?

[Steven Anderson:]

No, we also know from discussions we have had with the – the follow-up period for a kidney transport solution is one month. So, you don’t have a long follow-up period. In other words, the patients are either going to be putting out year end or they are not going to be putting out year end and that evaluation can be made quickly after the transplant.

[Raymond Myers:]

Right. And when would you expect to file for FDA approval process for this?

[Steven Anderson:]

It would probably be some time in the middle of ’09.

[Raymond Myers:]

And, this would be a PMA?

[Steven Anderson:]

I believe it’s actually 510-K, but it’s going to require clinicals.

[Raymond Myers:]

Alright. Mid 2009 and then would that be a 9-month to a year approval process? I am sure this is…

[Steven Anderson:]

I don’t know

[Raymond Myers:]

To be a short…?

[Steven Anderson:]

I am not going to comment on any of those.

[Raymond Myers:]

Yes, probably best. Okay. You mentioned the two factors that are advantageous to the Trophic products. Are we having the need for pumping and increasing the number of days that you could implant from 3 to 6?

[Steven Anderson:]

Yes.

[Raymond Myers:]

Are those necessarily – do they have to go together, or could you say well, we don’t need to pump, but we still have three days, or maybe we have 4 days and you don’t have to pump or if we do pump you can extend it to six days, is there some combination and middle ground that that is possible?

[Steven Anderson:]

Now the early testing of the product has shown that you can keep a kidney viable for six days without pumping. And, that is well documented in the papers that the inventors have published. The reason and that particular study was done head-to-head with what’s called a Belzer solution, which is a typical solution that is used when you are pumping kidneys. It’s different from the UW solution that is typically used for transporting kidneys over shorter timeframes. And, we wanted to have a head-to-head comparison between the Trophic solution and UW because UW is the solution that is used more frequently than Belzer, so that we can comment intelligently on how our product will relate to both pumping of kidneys and also the kidneys that are just cold storage and shipped that way.

[Raymond Myers:]

Increasing to 6 days from 3, how much can that expand the market?

[Steven Anderson:]

I don't know the answer to that question, but every transplant surgeon I have talked to about it uses only one word to describe the impact on his specialty and the word is “huge”.

[Raymond Myers:]

All right. Well, we'll take that. You’ve got a lot of data here potentially in the Trophic Solutions, a lot more data I believe in SynerGraft. When will that be and how that be available to investors and analysts to review?

[Steven Anderson:]

If you wish to have any information on the published data on Trophic, you can just call Investor Relations and they will copy the published papers and send them to you. And, can we do that with the data that we send to the FDA? I don’t know if that’s public or not. I am going to have to ask about that. I believe actually that there is a paper highlighting the results of the data that we sent to the FDA has been accepted for presentation at the Western Thoracic.

[Unconfirmed Company Representative:]

Has it been accepted?

[Steven Anderson:]

I believe it’s been accepted and if that’s the case then we could certainly make that available.

[Raymond Myers:]

Okay, that will be great. I’d love to see both of those. And, then finally perhaps the Western Thoracic conference or something would be a forum, but where can the analysts and investors see CryoLife present its products next? You had any scientific conferences?

[Steven Anderson:]

Well, the next scientific meeting that we will be going to is the AATS, American Association of Thoracic Surgery, and I believe that’s in April. But, you can check that out on our web site. If you click on to our web site there is a list of all the trade shows and medical convention that we're going to both in the United States and internationally.

[Raymond Myers:]

Al right. Well, I hope to see you all again soon. Thank you and congratulations again.

[Steven Anderson:]

Thank you.

[Operator:]

There are no further questions in queue at this time. I would like to turn the call back over to Mr. Anderson for closing comments.

[Steven Anderson:]

Okay. Thank you very much for joining us and we look forward to talking to you next quarter.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.