THOR

Thoratec Corporation (THOR)

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Thoratec (THOR)

Q4 2013 Earnings Call

February 04, 2014 4:30 pm ET

Executives

Neil Meyer

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

Taylor C. Harris - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

David H. Roman - Goldman Sachs Group Inc., Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Jason R. Mills - Canaccord Genuity, Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Steven M. Lichtman - Oppenheimer & Co. Inc., Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Danielle Antalffy - Leerink Swann LLC, Research Division

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

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Matthew Taylor - Barclays Capital, Research Division

Suraj Kalia - Northland Capital Markets, Research Division

Presentation

Operator

Good day, and welcome to the Thoratec Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Neil Meyer, Director of Investor Relations. Please go ahead, sir.

Neil Meyer

Good afternoon, and thank you for joining us today. With me is Gary Burbach, President and Chief Executive Officer; and Taylor Harris, Vice President and Chief Financial Officer. Gary will discuss highlights from the fourth quarter and full year 2013, and Taylor will review the financial results for the quarter, as well as our 2014 outlook. 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 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?

Gerhard F. Burbach

Thank you, Neil, and good afternoon. 2013 was an exciting and eventful year for Thoratec, highlighted by strong worldwide market growth for LVAD therapy, our successful launch of HeartMate II in Japan and robust revenue growth in our acute product line. We also reaped significant milestones with our pipeline opportunities that have positioned us to start pivotal clinical trials in the coming months for HeartMate III and HeartMate PHP. During my comments today, I will discuss our financial results for the fourth quarter and full year 2013, our market development strategies and an update on our product pipeline. Turning first to financial results for the fourth quarter, Thoratec generated revenues of $128.2 million, essentially unchanged compared with the fourth quarter of 2012. HeartMate II revenues increased 2% year-over-year, which was offset by a 4% decline in CentriMag revenues in continuation of the expected reduction in our legacy PVAD product line. In terms of geographic breakdown for the quarter, international revenues increased 7% compared with last year, driven by our Japanese launch, while U.S. revenues declined 2% due to competitive dynamics. Changes in foreign exchange favorably impacted overall revenue growth for the fourth quarter by 70 basis points. Earnings per share on a non-GAAP basis were $0.38, consistent with the fourth quarter of 2012.

For the full year 2013, worldwide revenues of $502.8 million increased 2% versus 2012. HeartMate II revenues increased 2% and CentriMag revenues grew 21%, partially offset by the decline in PVAD revenues of over $6 million. International growth of 23% in 2013 was particularly strong, while U.S. revenues declined 3% for the full year. Earnings on a non-GAAP basis for 2013 were $1.80 compared with $1.83 in 2012. We shipped a total of 1,020 chronic pumps during the fourth quarter, a decline of 4% compared with the fourth quarter of 2012, as growth in international volume was offset by a decline in U.S. units. Worldwide HeartMate II units declined 2% compared with the fourth quarter of 2012, with the remaining year-over-year decline in our chronic unit sales attributable to lower PVAD volumes. International HeartMate II units grew nearly 7% in the fourth quarter and 19% for the full year compared with prior-year periods, and was offset by declines in the U.S. Notably, full year HeartMate II unit volumes were flat on a worldwide basis compared with 2012 levels, despite the emergence of a significant new competitive launch in the U.S. throughout 2013. I would also note that the CMS national coverage decision covering Medicare reimbursement for LVAD therapy in the U.S. became effective in November. We did not observe any unusual patterns in HeartMate II volume throughout the fourth quarter that would suggest this MCD caused significant or disruptive changes at centers. Any broader impact from the MCD will depend, in large part, on private payer adoption, which is subject to periodic review cycles and individual plans.

CentriMag, our acute surgical product line, generated revenues of $11 million during the fourth quarter compared with $11.5 million during the prior-year period, while full year CentriMag revenue increased 21% to $43.3 million during 2013. The year-over-year decline during the fourth quarter was attributable primarily to lower nonpump revenue from initial capital purchases since we opened fewer new U.S. sites during the fourth quarter of 2013 compared with the prior year. However, underlying demand for CentriMag and PediMag pumps remain strong with a worldwide volume increase of 9% during the fourth quarter, highlighted by 12% international unit growth driven by strong performance in Germany and the United Kingdom. Moreover, we're actively pursuing an approval pathway for a 30-day indication for use in the U.S., along with exploring opportunities to successfully address the rapidly growing ECMO segment, both of which would expand the market opportunity for CentriMag going forward. Our strategic priorities for 2014 include continuing to broadened adoption of the therapy while establishing important drivers of growth in future years. Specifically, we expect our efforts to further penetrate the Destination Therapy end market in the U.S., and ongoing international expansion will support worldwide LVAD market growth. We will also drive increased adoption of CentriMag on a worldwide basis. And lastly, we will achieve critical milestones with respect to our product pipeline as we advance HeartMate III and HeartMate PHP in the clinical trials.

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