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Thoratec Corp. (THOR)

Q2 2009 Earnings Call

August 05, 2009 4:30 pm ET


David Smith - EVP and CFO

Gary Burbach - President and CEO

Larry Cohen - President of our ITC Division


Suraj Kalia - SMH Capital

Taylor Harris - JPMorgan

Jason Mills - Canaccord Adams

Mimi Pham - JMP Securities

Tim Lee - Piper Jaffray

Rick Wise - Leerink Swann

Bob Hopkins - Bank of America

Joshua Zable - Natixis

Duane Nash - Wedbush

Jayson Bedford - Raymond James

Keay Nakae - Collins Stewart

Sean Lavin - Lazard

Greg Simpson - Stifel Nicolaus



Good day and welcome to the Thoratec Corporation Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Smith. Please go ahead sir.

David Smith

Thank you operator. Good afternoon, and thank you for joining us today. With me are Gary Burbach, President and Chief Executive Officer; and Larry Cohen, President of our ITC Division. Thoratec continued a strong performance in the second quarter of 2009 reflecting growing adoption of the HeartMate II both domestically and in the international markets. In addition, we continue to add new HeartMate II centers, made progress with our PMA for Destination Therapy for HeartMate II, and had a successful controlled launch of our new HeartMate external peripherals.

Also last week we announced the termination of the proposed acquisition of HeartWare, which we will discuss today. Following Gary's review of these and other key operational events during the quarter, I'll discuss the financial results for the quarter, as well as our updated guidance for 2009. We'll then open your call for questions.

As a reminder 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 filed 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.

Gary Burbach

Thank you, David, and good afternoon. To echo David's opening remarks, Thoratec had a very successful and productive second quarter with respect to product sales and the key elements of our growth strategy. During my comments today, I'll provide some color on our revenue growth, update you on our PMA submission for Destination Therapy, discuss some of the recent data publications and our market education programs and outline our perspectives on the HeartWare transaction.

Revenues for the quarter were $92.1 million, an 11% increase over revenues of $82.6 million in the second quarter a year ago. Our performance in the quarter brought total revenues for the first half of 2009 to $181.5 million, versus $147.1 million in the first half of 2008 or an increase of 23%. Cardiovascular division revenues in the second quarter of 2009 were $69.2 million versus $57.5 million a year ago or an increase of 20%. As a reminder, this quarter marks the first quarter in which we have comparables with respect to commercial sales of the HeartMate II for Bridge-to-Transplantation, as that launch began in April last year.

Excluding CentriMag, we sold 673 pumps in the quarter versus 599 pumps in the second quarter a year ago. As David mentioned, we experience strong growth in HeartMate II adoption in both the United States and Europe. I should also note that during the quarter, we surpass 3000 patients implanted with the HeartMate II. An important milestone that demonstrates the positive clinical impact and strong pace of adoption of the device.

For the first six months of 2009, cardiovascular division revenues were $133.9 million versus $97.7 million a year ago. Continuing the practice we started last year, we will provide six month revenues byproduct line. For the first half of 2009, HeartMate II and XVE product sales were $108.9 million, an increase of 58% over $69 million a year ago.

The year-over-year comparables reflect in part the fact that the commercial launch of the HeartMate II for Bridge-to-Transplantation did not occur until the second quarter of last year. At the same time, I can tell you that in the second quarter of 2009 our HeartMate product line sales growth was very strong. PVAD and IVAD product sales were $17.9 million versus $22 million a year ago, reflecting the continued cannibalization impact from the HeartMate II, particularly on the IVAD.

CentriMag sales were $5.7 million compared with sales of $5.4 million in the first half of 2008, while a graft sales of $1.4 million were consistent with those in the first half of 2008. For the first six months of 2009, revenues from pump sales were $104.2 million versus $74.7 million a year ago. While revenues from equipment and accessories were $28.3 million versus $21.7 million a year ago.

From a geographic breakout, North American cardiovascular division revenues were $112.2 million versus $76.4 million a year ago, while international revenues were $21.7 million versus $21.3 million a year ago. For the period, the impact of foreign exchange on revenues was an unfavorable $2.3 million versus the first six months of 2008.

One other thing to note about these results is that the cannibalization of the XVE by the HeartMate II following the end of randomization in the destination therapy trial has been even more dramatic than expected. In Q2 of this year, XVE sales were down by over 80% compared to the average for all of 2008.

As a result, we recorded a $4.3 million reserve for excess XVE inventory during the quarter. During our recent calls, we've spoken to the effect of the capital equipment environment and we continue to see no material impact on our core VAD business. However, as was the case in the first quarter, we do believe it is impacting our ITC equipment business, which we'll discuss in more detail shortly.

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