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Thoratec Corporation (THOR)

Q4 2012 Earnings Call

February 5, 2013 4:30 PM ET


Gerhard Burbach - President, Chief Executive Officer and Director

Taylor Harris - Vice President and Chief Financial Officer


Matt Taylor - Barclays

Larry Biegelsen - Wells Fargo

Brooks West - Piper Jaffray

Rajeev Jashnani - UBS

Jason Mills - Canaccord Genuity

Chris Pasquale - JPMorgan

David Roman - Goldman Sachs

Bob Hopkins - Bank of America

Steven Lichtman - Oppenheimer

Suraj Kalia - Northland Securities

Bruce Nudell - Credit Suisse

Danielle Antalffy - Leerink Swann



Good day, and welcome to the Thoratec Corporation earnings conference call. At this time, I would like to turn the conference over to Mr. Taylor Harris, please go ahead sir.

Taylor Harris

Good afternoon and thank you for joining us today. With me is Gary Burbach, President and Chief Executive Officer. Gary will discuss highlights from the fourth quarter and fiscal year 2012, and then turn to our key operational and strategic objectives for 2013. I will then review the financial results for the fourth quarter and discuss our financial guidance for 2013. We will then open the call to your questions.

Before turning the call over to Gary, I want to remind you that during the course of today's conference call and the question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events or the financial performance of the company.

We caution you that these statements are only predictions, and that actual results may differ materially. We also alert you to the risks contained in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on forms 10-K and 10-Q. We do not undertake any obligation to update or correct any forward-looking statements.

Gerhard Burbach

Thank you, Taylor, and good afternoon. Thoratec had an excellent year in 2012, capped off by a strong performance in the fourth quarter. For the year, HeartMate II unit volume increased 21% in the United States and 30% internationally. And there have now been over 13,000 patients implanted with this groundbreaking technology, including more than 5,500 on ongoing support.

CentriMag had a strong year as well and has now been implanted in over 10,000 patients. These figures highlight the breadth of experience supporting these two key products, and we truly believe that they are the most proven independable devices of their kind on the market.

As we reflect on 2012, we are pleased with the success of our market development efforts, which in particular have driven increased Destination Therapy utilization and international market expansion, and also with a number of key milestones that we achieved. For example: we ramped enrollment in a range of important post-market studies; received IDE approval from the FDA, to begin the REVIVE-IT study with HeartMate II; launched the Thoratec Connect platform; began offering a service known as Continuum, which manages peripheral accessories and driveline management supplies, following hospital discharge; initiated an evaluation phase for the Pocket Controller, outside of the United States; achieved approval of HeartMate II in Japan; and made strong progress to our pivotal studies of both HeartMate III and HeartMate PHP. Also 2012 was a solid year for Thoratec, setting the stage for continued strength and market leadership in 2013 and beyond.

With respect to our financial results for the fourth quarter, Thoratec generated revenues of $128.5 million, a 17% increase over revenues of $109.4 million in the fourth quarter of 2011. Overall, revenue growth was led by robust performance of the HeartMate II product line, which grew 18% year-over-year as well as 31% growth in the CentriMag product line. These gains in our core chronic and acute product lines were modestly offset by an 8% decline in sales of PVAD and IVAD.

In terms of geographic breakdown, we recorded revenues of $102 million in the United States versus $88.2 million in the prior year, an increase of 16%. While international revenues were $26.5 million versus $21.2 million a year ago, representing an increase of 25%. The year-over-year impact of foreign exchange was unfavorable by $0.8 million.

For the full year 2012, revenues were $491.7 million, above the high-end of our previously issued guidance and a 16% increase relative to revenues of $422.7 million in 2011. The HeartMate and CentriMag product lines drove growth for the full year at 19% and 39% respectively, offsetting a 33% decline in the PVAD and IVAD franchise, which represented less than 4% of total revenues in 2012.

In terms of geographic breakdown, we achieved growth of 15% in the U.S. and 21% internationally. Excluding the effects of foreign exchange, which was unfavorable by $4.6 million as well as acquisition-related revenue, year-over-year international revenue growth was 20%. As for the bottomline, we generated $1.83 in non-GAAP earnings per share, an increase of 17%, while we continue to make important investments in our market and product development initiatives.

Looking back on the full year, HeartMate II volume grew 23% worldwide to 3,858 units in 2012, including 21% growth in the U.S. and 30% outside the U.S. The strong growth highlights the success of our market development activities, including our referral initiatives within the larger cardiology community as well as our center development activities.

In the U.S., Destination Therapy has remained a clear growth driver. The latest public data from the INTERMACS registry shows that DT as a percentage of the total U.S. market has risen from 19% of implants prior to 2011, to 39% of implants in 2011, and to 45% in the first nine months of 2012. For HeartMate II specifically, we estimate that the DT indication currently represents close to 50% of U.S. volume.

We also continue to benefit in the U.S. from our efforts to develop the broad universe of VAD implanting centers, including smaller size transplant programs and open-heart centers or our group 3 centers. This group of over 70 centers, which adopted HeartMate II in 2009 and beyond, grew 30% in the fourth quarter and over 50% for the full year. And as of the fourth quarter, they represented approximately 20% of U.S. HeartMate II volume.

While these centers drove outsized growth during 2012, we also saw strong double-digit increases at the more established transplant programs. Looking forward, we anticipate that the DT indication will continue to drive growth across the spectrum of centers, but with an increasingly important contribution from smaller transplant and open-heart centers.

Turing to 2013, we have three primary goals. First, continuing to drive worldwide market growth, in both chronic and acute circulatory support. Second, solidifying HeartMate II's market leadership position through clinical differentiation and unrivaled breadth of support. And third, driving continued innovation within the MCS field, including advancing both HeartMate III and HeartMate PHP in the pivotal clinical trails.

In terms of market development for chronic MCS, we continue to execute on our core strategy, which incorporates five key elements: referral development; center expansion; clinical data generation and publication; continued improvements in clinical outcomes; and global expansion. We have focused significant effort on educating the referring cardiologist community, primarily through our market development field team and a full calendar of programs at the national and local levels.

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