Good day ladies and gentlemen and welcome to Sunshine Heart's Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. Before we get started, I would like to remark briefly about forward-looking statements. Except for historical information mentioned during the conference call, statements made by the management of Sunshine Heart are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that are based on management’s beliefs, assumptions, expectations and information currently available to management. Those risks include, but are not limited to risks associated with the possibility that the company’s clinical studies do not meet their enrollment goals, meet their endpoints or otherwise fail, that the regulatory authorities do not accept the company’s application or approve the marketing of the C-Pulse System, the possibility that the company may be unable to raise the funds necessary for the development and commercialization of its products and the company may not be able to commercialize its products successfully in the EU, and other risk factors described under the caption "Risk Factors" and elsewhere in its filings with the Securities and Exchange Commission. By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new information, new developments or otherwise. You should review the cautionary statements and discussion of risk factors included in our press release issued today, our latest 10-K subsequent reports as well as our other filings with the Securities and Exchange Commission under the titles Risk Factors or cautionary statements related to forward-looking statements. For additional discussion of risk factors that could cause actual results to differ materially from our current expectations and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated by reference in this call and are readily available on our Web site at www.sunshineheart.com. With that said, I would now like to turn the call over to Dave Rosa, Sunshine Heart’s President and Chief Executive Officer.

Thanks, operator. Good morning, everyone and thank you for attending Sunshine Heart’s fourth quarter 2014 results teleconference. Before I get into more of my prepared statements, just a few things. One, Dr. Margarita Camacho, who was expecting to attend the call was called in the surgery and will not be attending. And second, I may come across a little bit muffled, my voice is not very good. So I apologize in advance if I cough in anybody's ear and I will try to get through this as quick as I can. On today's call we will address key Q4 2014 and year-end highlights across clinical, research and development and corporate fronts. In addition, there will be commentary on the COUNTER HF study pause and Dr. Bill Abraham, Co-principal Investigator of the COUNTER HF study will be made available during the Q&A portion to address questions regarding the study's current status and plan moving forward. Incidentally, for those of you who have not been able to review today's release, we have heard from the Clinical Events Committee or CEC that the two recent deaths associated with the COUNTER HF study have been adjudicated as non-device, nor procedure related. This means that the death of all four patients in the treatment arm of the COUNTER HF study have been ruled non-device and non-procedure related events. With me today also are Claudia Drayton, Sunshine Heart's Chief Financial Officer; Kimberly Oleson, Senior Vice President of Clinical Affairs; Molly Wade, Vice President of Worldwide Patient Recruitment and Marketing; and Deb Kridner, Executive Vice President of Regulatory Affairs and Quality. And as I just mentioned, Dr. Bill Abraham as well is participating over the phone. In addition to addressing the status of the COUNTER HF study, we will discuss a number of update regarding Q4 COUNTER…

Thanks, Dave. Good morning everyone. This morning we released our audited financial results for the fourth quarter and year-end December 31, 2014. I would walk you through a few of the financial highlights. The company's results for the three and 12-months ended December 31, 2014 includes reimbursement revenue of $177,000 and $295,000 respectively. A year ago we reported no revenue in the fourth quarter of 2013 and $59,000 for the year 2013. All reimbursement revenue is for implants billed under the COUNTER HF study. We are presently modeling approximately 30% of U.S. implants under the pivotal study to be eligible for reimbursement. As we progress through the study, we will continue to modify our model when appropriate based on experience. Since all activities are conducted under clinical studies in both the United States and Europe, we are recording all costs associated with our devices directly to research and development expense as incurred. We expect to continue to do so until such time as we begin producing devices for commercial sales either in Europe or the U.S. Operating expenses on a GAAP basis for the three and 12-months ended December 31, 2014 totaled $6.8 million and $26.1 million respectively as compared to $7 million and $22.9 million for the same period a year ago. Excluding compensation cost, equity compensation cost, non-GAAP operating expenses for the three and 12-months ended December 31, 2014 totaled $5.9 million and $23 million respectively compared to $5.3 million and $19.1 million in the same period a year ago. The increases over the prior year results -- sorry, the increases over the prior year period results from increased clinical research and infrastructure expenses related to the U.S. pivotal study and European post-market study and to increased development costs related to our full implantable device. Equity compensation cost…

Thanks, Claudia. This concludes our prepared remarks. And before I turn the call over to the moderator for the Q&A portion of the call, I would ask that the initial questions that anyone has for Dr. Abraham be asked first as he is on a fairly tight schedule right now. He is actually travelling and is kind enough to join us for the call. So if you could -- any questions that you have for Dr. Abraham, if you could ask those first so that we can let him go as soon as possible, that would be greatly appreciated. So moderator, will you commence the Q&A portion now for the call.

[Operator Instructions] Our first question comes from Josh Jennings from Cowen and Company. Your line is open, please go ahead.

Dr. Abraham, thanks for joining the call. It sounds like the interest level in terms of the patients being interested in enrolling in the trial has picked up with 100 patients expected in Q1. Can you just talk about some of the strategies that have been most successful over the last two to three quarters that have caused that increase? And then with the pause in the COUNTER HF trial, are centers still able to screen patients while enrollment has ceased.

Yes. Let me address the second question first, and the answer is yes. And as a matter of fact we encouraged investigators and coordinators on our conference calls with them and in some one to one conversations that we have had to continue to screen patients. We have, as you have noted, built great momentum around enrollment in the COUNTER HF study. Things have been going along very well and the ramp up in enrollment has been strong. We don’t want to lose any of that momentum. So what we have communicated is that this is a temporary pause. The protocol allows us to have a productive discussion with the FDA and eventually move forward. We hope the pause is relatively short. We have asked sites to continue to screen patients, to build their list, to have patients lined up so that when enrollment is restarted we don’t miss a beat here. In regard to those things that have helped us gain some momentum in enrollment, I think it's multi-factorial. As you know and I think as Dave and others have reported previously, the company has been very aggressive in providing support to centers to stimulate the enrollment, screening and enrollment activities. We have done a lot of things with coordinators and investigators, conference calls, other communications and so on and so forth. And then part of this is just the normal ramp up process as more sites are added and as sites get through the enrollment of their first or second patient and gain their own momentum.

Great. Just Dave mentioned that there is -- with the interim analysis look, there would be a set of more rigorous statistical analysis. Can you comment on what the statistical p value is going to be? And then I just have one quick follow up after that.

You know -- sorry, someone on the line wanted to comment?

No. I wanted to say, this might be a question that Kim can handle, Bill.

Okay. Go ahead, sorry.

Yes, good morning, Josh. This is Kim Oleson. So the question is what is the adjusted p value for the interim analysis. And in this particular case that adjusted p value is 0.001.

Okay. And then Dr. Abraham, just one last question. Looking at what we know now with four non-device related deaths in the study group, all-cause mortality as a secondary endpoint, but I mean how are you thinking about the rest of that secondary endpoint and what do you think the centers -- how are the centers responding to the CEC adjudicated for this all being non-device related and their comfort level? Thanks a lot.

Yes, sure. Well, I think the comfort level at sites has been good. I had spoken via conference call and personally with many of the investigators and I think heart failure folks understand what's going on here. First of all, the numbers are very small. As you have heard, none of the deaths in the treatment arm have been procedure or device related. These are the kind of things that happen in advanced heart failure patients. So small numbers early on, I think the general level of concern is low and these things are sometimes seen early on the clinical trials and in the long run even out. So at this point in time, my level of concern is low. I think the investigators likewise kind of get this. And there remains a high level of enthusiasm to get back to enrollment and get this study done.

Thank you. Our next question comes from Suraj Kalia from Northland Securities. Your line is open. Please go ahead.

So let me start, maybe Dr. Abraham or Dave can answer these questions. Dr. Abraham, you have had four non-device, non-procedure related deaths. What is the implications of these events in the interim analysis and also, I guess a follow up to that would be, we have not heard anything about the control arm. So am I justified in assuming there have been “no deaths” in the control arm and we just look at the treatment arm. I would love to get the thoughts on how you all are going to proceed in the interim analysis.

Yes, Kim can answer that question and Bill, you can chime in if you have anything else to add.

Hi, good morning, Suraj. This is Kim Oleson. So the question is, how do the four deaths affect the primary efficacy endpoint. And so I just want to clarify that the events that are adjudicated by the independent CEC as worsening heart failure event, those are the ones that contribute to the primary efficacy endpoint.

Kim, so for the interim analysis what you are saying is these events will not make, will not factor into the denominator?

They can but only those that are adjudicated as related to worsening heart failure. So let's just say if a patient died for other causes, so they had an accident, a car accident, that person would not contribute to the primary efficacy endpoint.

Fair enough. And, Kim, I think I heard you say that the p value for the interim analysis was 0.001. I get the p value but would you remind us again what's the null hypothesis for the primary trial and what delta the increased threshold -- when you look at vis-à-vis the null hypothesis, what are you trying to show, if at all, in the interim analysis?

So if I were to simplistically explain what we are doing for the interim analysis, the hypothesis for primary efficacy is based on a profile of looking through repeated events of worsening heart failure. We are assuming that the profile is the same between the C-Pulse arm and the control arm of the study. So with the interim analysis results in a p value that is less than 0.001, this means that the hypothesis of equality between these two treatment arms is less than one-tenth of a percent chance of being correct. So if the resultant p value is lower than 0.001, this means that we can demonstrate compelling efficacy at interim analysis. Did that answer your question?

Absolutely fair. And Dave finally, let's say April 16 comes and let's assume that the FDA does not make any major amendments or puts any amendments to the protocol on you guys. Would I be fair in saying that the patients who are in the funnel, the 100 or so whatever you all mentioned, would immediately come on line, or you think at least in terms of randomization or what not, or do you think there will be some time lag? I am just trying to think about the cadence of enrollment, especially with Q1, the latter part of Q1, Q2 so and so forth. Thank you for taking my questions.

We are going to obviously, initially, some of the patients that were enrolled that had not yet received the device who have been randomized, if they fall outside the 30 day window then they are going to have to go back into the funnel again. So with all those patients that were expected to be seen and half of them were supposed to be seen in the month of March alone. So I think half the patients, as long as they don’t get sicker or go on to another therapy, or don’t change their mind, they can be revisited moving forward. I think the big question is, whether or not the sites will have to go back to their IRBs. So without expecting the protocol change, Dr. Abraham and the rest of us feel pretty confident that the majority won't. And I think that’s a huge piece for us, more than can we get some of these patients back in the mix. I think the sites are enthusiastic enough that, yes, they want to get the patients back in the mix. But as long as you don’t change that protocol, which again we see no need to at this point, we should be in pretty good shape.

Thank you.

Yes. And let me just address one other thing that I think I heard and that was in regard to, I think, the comment that there were no deaths in the control arm. There in fact have been deaths in the control arm. Again, in advanced heart failure population we expect some mortality from a variety of causes. And there are deaths in the control arm as well. What we talk about are the deaths in the treatment arm because that's the rules specified in the protocol for taking this pause.

Thank you. And our next question comes from Tom Gunderson from Piper Jaffray. Your line is open. Please go ahead.

Just a quick follow up on that last comment, Dr. Abraham. Are you or anybody in the company able to tell us how many deaths in the control arm, or is that still under wraps?

Yes, I think I will let Dave or Kim handle that.

Good morning, Tom. This is Kim. We are not going to comment on the control arm.

Got it. Thanks. Back to you Dr. Abraham. You have been in a number of clinical trials. You have probably been on safety boards etcetera. Can you give us a little color about what happens when an adjudication takes place for a death in the active arm as this. Who is doing this? What's their background? What's their connection to the overall trial? Just a little bit more granularity if you could.

Sure, absolutely. And I have, Tom, as you know, I have served on a number of clinical event committees and data safety monitoring boards over the years. You know the goal here is to have this be as independent and as objective as a process as possible. So the folks who are engaged with these oversight committees are really independent of the study. And by that what I mean they are not investigators, they are not engaged, either not engaged as a site in this study or if they reside at a site they are not engaged at their site as an investigator in this study. We expect them to look at these events independently. They generally have a charter or a set of rules that they work by. But of course, ultimately, some degree of clinician judgment goes into their assessment of the events. And importantly, what they are asked to do is to review these events. One, to determine causality, what's the main cause of a hospitalization or a death, for example. And then secondarily to determine whether or not they are related to the investigational procedure or to the investigational device, or system. And as you heard earlier, the independent clinical events committee for COUNTER HF has determined that none of the four deaths in the treatment arm were either procedural or device related. So from that you might assume that they are related to other typical reasons why advanced heart failure patients die. I think that that provides a lot of reassurance that there is not a problem with the procedure or the investigational device being studied in the COUNTER HF trial. Again, as I mentioned earlier, investigators who are mostly heart failure clinicians and implanting cardiac surgeons, really kind of get that. And I guess the other part of your question which I should answer was, who are these people. These are heart failure specialists, cardiac surgeons. People who have expertise in the field and can recognize causality and relating this or non-relating this to investigational therapies.

Thank you. Our next question comes from Jan Wald from Benchmark. Your line is open, please go ahead.

Good morning, Dr. Abraham. I guess to ask you some questions. The new threshold that’s been given, the new statistical threshold. How do you feel about that? Is that a realistic goal for the trial?

What -- I am sorry -- I am not sure what's the threshold you are referring to?

The new statistical threshold, I am sorry, with the interim analysis. Is that a realistic goal or is that going to be tough to meet?

Yes. No, no, I get what you are saying. So interim analysis are by design very conservative. When you design a trial and derive a sample size, the expectation is that you have to go all the way to full enrollment to the full sample size to answer the question. Interim analysis are designed to be very conservative because in general we don’t like to, from a scientific clinical trial standpoint, we don't like to stop trials early because sometimes interim analysis or early results can be misleading unless the bar is set, for early stopping of a trial, is set very very high. So that’s why we require small p values in order to stop the test early. So the treatment effect would need to be substantially better than projected in the trial assumptions to stop the trial and this doesn't go just for COUNTER HF, this really is the case for trials in general. You want to have a rule that allows early stopping because it may become unethical to deny control patients the therapy if the effectiveness of the drug or device under study is overwhelmingly positive. On the other hand, you want to make sure you get the real answer, the right answer out of the trial. So you don't want to stop too soon if, for example, at some interim point there is an outcome that might be a borderline statistical significance. So this is very conventional for what's done in clinical trials in general.

Okay. And I guess one other question is, it sounds as if there is a bolus of patients already available on the clinical trial can get kicked off again. But is there a start up time? I mean are all the hospitals to your knowledge holding the groups together that were involved in the trials so that when the time comes, if they don't have to go to the IRB, like day two they are up and running on the trial?

Yes. I...

Molly, can answer that question.

Good morning, Jan. This is Molly Wade. To answer your question, the treatments in previously -- that we hosted three investigator calls last week. Dr. Bill Abraham and Dr. Margarita Camacho were on the call and all physician questions were answered. At this point we feel that there is nothing to suggest that our [indiscernible] to have any concern resuming enrollment and we feel this can happen very quickly.

Yes. I agree and would have said exactly the same thing. And while I won't name the trials I have had experience with, trials in the past that have had a pause like this. When the messaging is positive, when the investigators understand what's going on, that’s why communication is so important. And I think that Sunshine Heart has done a phenomenal job communicating in honest transparent way what the situation is. Investigators feel good about that. They line these patients up, they are ready to go. And I would expect that we would pick up where we left off.

Okay. And I have one last question. I don’t know if this is for you Doctor or for somebody at the company, but in the prepared remarks and in the press release, it talks about the fact that patients will be followed for 12 months and that the accrual of those patients is expected at the end of 2016. What does accrual mean in this case? Does it mean the total number of patients will be enrolled or does it mean enrolled and followed for the 12 months?

Kim can handle that question.

Hi, Jan, this is Kim. So the accrual which means, if you will, the randomization of those patients will be completed in the second half of 2016.

Okay. So that would mean follow up would end in the second half of 2017?

Yes, that’s correct.

Thank you. [Operator Instructions] And the next question comes from Jason Mills from Canaccord Genuity. Your line is open. Please go ahead.

This is actually Jeff filling in for Jason. Dr. Abraham, I was wondering if you could provide us with the screening to enrollment ratio of the most recent quarter and what best practices have been in place, or can be put in place to improve that ratio going forward.

Okay. Kim may actually be better prepared to talk about the ratio because I am not sure exactly what that is. Kim?

Actually Molly can discuss this.

Good morning, Jeff, this is Molly. As you heard, one of our initial challenges was creating market awareness of the C-Pulse System. Since then we have gained considerable traction and the centers continue to identify an increasing number of suitable candidates for enrollment. You asked about the screening rate. At this point, we see about a 20% screening rate or one in every 5 patients that are positioned with the physician through the patients will enroll. We have developed new material to aid physicians in discussing the potential benefits of the C-Pulse System to their patients. These materials are currently going through centers institutional review board. In addition Dr. Bill Abraham has been instrumental in speaking with centers who had difficulty enrolling their first patients. After Dr. Abraham spoke with two of the three centers, how he positions C-Pulse therapy to patients, two of those three centers enrolled their first patient in the following month. So we are confident that we are making a lot of progress on increasing that enrollment rate up from that 20%.

All right, great. Probably to go back to Dr. Abraham here. Doctor, I was wondering, you thoughts on the impact the fully implantable will have on patients in the long-term.

Yes. Well, of course it's something that I am very excited about. I think with devices that have external components and drive lines just as a clinician from a clinical perspective, we are certainly very excited about the possibility of eliminating the drive line and having a fully implantable system, believing that it may offer some additional safety or be more easily managed than devices with a drive line. You know drive lines by no means are show stoppers. We work with them all the time but there is an attractiveness to a fully implantable systems in works, excited about that possibility.

Thank you. Our next question comes from Steven Lichtman from Oppenheimer. Your line is open. Please go ahead.

Just a couple of follow ups. In terms of the 100 patients or so present at the OPTIONS enrolling. Can you just follow you with a little bit of details on what that means. What they have been through to this point, just to kind of get a sense of how far along they are in the process of potentially getting enrolled and implanted?

Yes, Steven. This is Molly. I think what we are planning in the clinical trial is that when patients are considering and implantable device it usually takes at least one visit. So these centers have been approached either by the coordinator or investigator to either come in and learn about the C-Pulse System or they are found in clinics because they need all of the -- look to meet all of the current inclusion/exclusion criteria. At that point the physician discusses the options to them. At that point in time we find most patients go home and discuss it with their family. And that’s why we see a lot of these additional materials that the patients can take home to make an educated decision, are warranted and are going through the IRBs. But as you can imagine with 100 patients roughly in queue, some of them are just coming in for first appointments and others as Dave referenced, had come in March, we expected to be a very big month because of the second or third visits for some of these patients.

And so they have all obviously passed the initial screening criteria?

That’s correct.

Okay, great. And then just in terms of folding in over the longer term, the smaller iteration of the C-Pulse and then the TET longer term. What do you think the process will be there in terms of working with the FDA in terms of getting that approved post the COUNTER HF study?

On CP2 we have had preliminary meetings with the FDA on January 15, more or less just to do some exploratory interaction with them regarding preclinical testing. So about right now we are engaged in conversations with the FDA. We are developing protocol and the device to get it to first [demand] [ph]. Does that answer your question?

Yes. And so in terms of just any sort of supplemental trial, would that likely need to look like post running the full trial for COUNTER HF?

We are still working on that strategy with the FDA. We do not have that defined.

Thank you. [Operator Instructions]

Okay. So any other questions before we allow Dr. Abraham to go back to the business at hand for him. All right. Dr. Abraham, thanks for joining the call. Thanks for making yourself available and have a good rest of the day.

You are welcome. Thank you.

I am showing no further questions at this time, sir

All right. Well, thanks everybody for participating on today's call and I look forward to, hopefully in one month, updating you that the FDA has allowed us to move forward. Thanks.