A growing population of elderly people as well as stressful
and unhealthy lifestyles have increased the incidence of heart
disease and heart failure. Yet the number of available heart
transplants in the U.S. has remained the same at about 2,000 per
year over the last seven years.
This has created a greater demand for medical devices that
help patients with heart failure live a longer life. And this is
whereThoratec (
THOR
) comes in.
The Pleasanton, Calif.-based medical device firm's main
product is HeartMate II, a miniaturized mechanical circulatory
support device that pumps oxygenated blood throughout the body
when the heart is too weak to pump blood on its own.
HeartMate II is implanted alongside a patient's heart and
takes over the pumping function of the left ventricle. It is
designed for patients who are in a severe stage of heart
failure.
The device has two primary uses. In 2008, the FDA approved it
for Bridge-to-Transplantation, or BTT, where it is implanted for
a short term while the patient is waiting for a heart
transplant.
In 2010, it also got approval for Destination Therapy, or DT,
a long-term solution for patients who do not qualify for a heart
transplant due to age or other circumstances. It is the only
FDA-approved device currently available for DT.
Promising Space
"I believe the heart-failure-device space to be one of the
most promising and attractive spaces for investors in the coming
decade-plus," said analyst Spencer Nam of ThinkEquity.
"For patients who are at the end stage with pretty severe
heart failure, there are really not a lot of options. The medical
therapy has proven to be fairly ineffective with a two-year
survival rate of about 7%," Nam said. "The other option is
gaining a heart transplant, and while it's a very effective way
of dealing with the problem, there is a problem with the supply
of healthy donor hearts."
When DT patients get a HeartMate II, their one- and two-year
survival rates jump to 73% and 63%. BTT patients can expect a 90%
and 85% survival rate at six months and one year, respectively.
Nam expects this number to grow as surgeons become better at
implanting the device. He estimates the late-stage heart-failure
population to be at 50,000 in the U.S. today.
"Based on 50,000 people, and if the device is $100,000 per
person, then just the patients alone today represent that the
total heart-failure market opportunity could be $5 billion in the
U.S. And then internationally, probably just as many if not more
candidates are out there right now," Nam said.
The number of HeartMate II implants shipped has increased from
506 in 2006 to 3,149 in 2011. The share of those being used for
DT has grown to 40% in 2011 from 20% in 2009.
"We've set a goal for the VAD (Ventricular Assist Device)
market to approach 10,000 implants by 2015, which would imply
strong upper-teens growth," said Gary Burbach, President and CEO
of Thoratec. "HeartMate II should drive that growth across a
broad range of geographies and in particular through development
of the Destination Therapy opportunity, where Thoratec is
investing heavily in efforts to increase awareness of this
important therapy."
Out of the 300 medical centers worldwide that are implanting
the device, about 30 are certified for DT implants. Nam expects
that number to grow by at least 10 to 15 centers in the U.S.,
steadily supporting the DT implant volume growth.
Massive Adoption
"HeartMate II may be at the threshold of a massive adoption
over the next several years," he writes in a report.
He expects the majority of the VAD market growth over the next
five years to come from the DT market as the BTT market in the
U.S. appears to be peaking.
In addition, while Thoratec is the only company with an
FDA-approved device for DT, there is more competition in the BTT
market. HeartWare International is its closest competitor in that
arena and is expected to receive FDA approval for BTT only this
year.
However, FDA approval for HeartWare devices in the DT arena is
only expected by 2015-16. This as well as Thoratec's first-mover
advantage give the company a solid position in the DT market
until then at least, believes Nam.
In addition to HeartMate II, Thoratec offers a few other VAD
devices and has several new developments in its pipeline.
"We're on track for a year-end launch of the Pocket
Controller, which should provide meaningful quality of life and
safety benefits for HeartMate II patients," said Burbach.
Pivotal Trials
"We're moving toward pivotal trials in 2013 for two major new
product platforms: HeartMate III, our next-generation chronic
VAD, and HeartMate PHP, a percutaneous (through the skin) device
to treat acute heart failure patients, which would represent a
new market opportunity for Thoratec. We're also actively
developing a fully implantable VAD system," he added.
International markets are another area of possible future
expansion. Historically, Western Europe was the primary foreign
market for Thoratec's devices.
"We've begun, however, to disseminate HeartMate II to a
broader cross-section of Europe, and later this year, we plan to
launch HeartMate II in Japan, which has a significantly
underserved advanced heart failure patient population. Over time,
we will focus more resources on emerging markets in Asia and
Latin America," said Burbach.
The company carries no debt and generates enough cash flow to
fuel its ongoing medical research and trials. Nam believes there
is a likelihood of Thoratec being acquired by a larger medical
device company in the cardiovascular space.
"The recent efforts by one of the key shareholders, advocating
Thoratec's board and management teams to put the company up for
sale, have rekindled the possibility of a buyout of the company
at a premium, in our view," writes Nam. He believes the takeout
value could be $50 to $60 per share.
Thoratec reports after the close Wednesday. Analysts tracked
by Thomson Reuters expect earnings of 45 cents a share, a 2%
increase over the year-ago quarter.