THOR

Thoratec Corporation (THOR)

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Thoratec Corporation (THOR)

31st Annual JPMorgan Healthcare Conference

January 07, 2013 11:00 am ET

Executives

Gerhard F. Burbach - Chief Executive Officer, President and Executive Director

Taylor C. Harris - Chief Financial Officer and Vice President

Analysts

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Presentation

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Okay, I think we're ready to get started. Welcome, everyone, to the 2013 JPMorgan Healthcare Conference. I'm Chris Pasquale, with the med tech team. And kicking it off this morning, we have Thoratec, and coming to the stage to present for them is the company's President and Chief Executive Officer, Gary Burbach. Gary?

Gerhard F. Burbach

Good morning. Thanks, Chris, and thanks to JPMorgan for having us here. We're certainly pleased to be kicking off the conference. And thanks to all of you for joining us here bright and early on Monday morning.

First, I'd point you to our risk statements that are contained in our 10-Ks and 10-Qs.

So I'd like to cover 3 topic areas: first, a brief overview of Thoratec, who are we; some of our financial results and goals looking forward; and then really focus on 2 -- our 2 primary business focus areas, chronic circulatory support and acute circulatory support.

So let me jump right in. If you look at the company in total, our mission has really been for some time and continues to be to drive the utilization of mechanical circulatory support, to be the leader in that space, and really continue to broaden the patient populations that we can bring these therapies to. Really broken into 2 distinct segments: chronic circulatory support and acute circulatory support. Chronic support has certainly been the primary focus area for us and the largest business opportunity, but I would like to also spend some time on the acute circulatory support area as well today.

In terms of chronic support. It's approaching a $600 million worldwide market. Thoratec has been the strong market share leader in that space. We can expect that to continue into the future. It is a space that's been growing in the upper teens, and we expect to see that continue into the future as well, as there is a very large unserved patient population. In the U.S. alone, there are about 50,000 to 100,000 patients that we believe can be served effectively with chronic circulatory support. As you can see, our objective in 2015 is to only have penetrated a population of 10,000 patients on a worldwide basis. So even with the growth that we're projecting for the next few years, it will still be, we believe, in the early stages of development and significant opportunity even as we look beyond that time period.

On the acute circulatory support side, there's really 2 segments there that we're focused on. One, surgical support where we have an existing strong market share position I'll talk to that later, that's about a $150 million market. We believe we'll see over 10% growth in that space over the next 5 years, so a significant growth opportunity in that surgical space. But an even more exciting opportunity, we believe, exists in the percutaneous support space where we have a new product that we're looking to bring into clinical trial during 2013, the HeartMate PHP, and again I'll touch on that a little bit later.

Looking at our historical financial performance. We're certainly very pleased with what we've seen over the course of the last 5 years. Here you can see, 2007 through 2011, over 30% revenue growth. And that's really driven both by international growth being very strong, as well as domestic growth. You can see, domestic continues to be very much the dominant segment in this chronic support space, but we see significant growth not only domestically but even more so internationally as we continue to penetrate a broader and broader range of markets internationally, and I'll talk about that in a little bit as well. And we've seen even stronger growth on the earnings side as we've driven that revenue growth into increasingly strong operating leverage, with almost 50% annual compounded growth in terms of earnings.

In 2012, we've continued to see very strong performance. While I'm not going to provide results for the full year, I thought it is important to mention that we did see solid momentum through yearend for both the HeartMate II as well as the CentriMag. So we're certainly pleased with what we saw for the full year in terms of revenue growth. The first 9 months, we have reported on that revenue growth of 16% overall, again driven by the HeartMate II and the CentriMag product lines. HeartMate II had 23% unit growth through the first 9 months. CentriMag had organic unit growth in the U.S. of 27%, so very strong utilization in terms of implants of both those platforms. Importantly, for the HeartMate II, that growth is being driven by Destination Therapy in the United States. That's really been our core focus, and that's approaching 50% of the utilization of that technology.

And very importantly, newer centers are becoming an increasingly important part of that franchise. So the newest group of centers, we refer them as the group 3 centers, had 60% growth through -- or over 60% growth through that first 9 months. And now -- and they now represent approximately 20% of our overall volume, and that percentage continues to grow, so we see a broadening of the platform of utilization. You can see here, 23 new centers through the first 9 months worldwide.

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