THOR

Thoratec Corporation (THOR)

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Thoratec (THOR)

Q2 2011 Earnings Call

August 03, 2011 4:30 pm ET

Executives

Roxanne Oulman - Interim Chief Financial Officer and Vice President of Finance

Gary Burbach - Chief Executive Officer, President and Executive Director

Taylor Harris -

Analysts

Duane Nash - Wedbush Securities Inc.

Jason Mills - Canaccord Genuity

Robert Hopkins

Jayson Bedford - Raymond James & Associates, Inc.

Larry Biegelsen - Wells Fargo Securities, LLC

Suraj Kalia - Rodman & Renshaw, LLC

Frederick Wise - Leerink Swann LLC

Thomas Gunderson - Piper Jaffray Companies

Bruce Nudell - Crédit Suisse AG

Rajeev Jashnani - UBS Investment Bank

Spencer Nam - Madison Williams and Company LLC

Christopher Pasquale - JP Morgan Chase & Co

Steven Lichtman - Oppenheimer & Co. Inc.

Presentation

Operator

Good day and welcome to the Thoratec Corporation's Second Quarter 2011 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Taylor Harris, Senior Director, Investor Relations and Business Development. Please go ahead.

Taylor Harris

Thanks, Melissa. Good afternoon and thank you for joining us today. With me are Gary Burbach, President and Chief Executive Officer; and Roxanne Oulman, the company's interim Chief Financial Officer. Gary will discuss key events since our last call, including the acquisition of the Medical business of Levitronix LLC or Levitronix Medical, which we announced today. And Roxanne will review the financial results for the quarter. 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 obligations to update or correct any forward-looking statements.

Gary?

Gary Burbach

Thank you, Taylor, and good afternoon, everyone. Thoratec had an excellent second quarter highlighted by double-digit revenue growth on both a sequential and year-over-year basis, reflecting strong market growth in the U.S. and abroad, ongoing momentum for HeartMate II in the Destination Therapy patient population and a solid competitive performance. We continue to benefit from the growing body of compelling long-term clinical data from the HeartMate II patient experience, as well as the impact of our market development initiatives on referral generation, capacity expansion of the existing centers and new center development.

In today's call, I will focus on 4 topics: first, the key factors driving our second quarter results; second, the highlights from our current market development efforts, which are facilitating these results; third, several important longer-term market and product development initiatives; and fourth, the acquisition of Levitronix Medical.

Beginning with our second quarter results. Thoratec generated revenues of $111.2 million, a 17% increase over revenues of $95.1 million in the second quarter of 2010 and a 12% sequential increase compared to the first quarter of 2011. We recorded revenues of $93 million in the United States versus $79.9 million in the prior year, a 16% increase. While international revenues were $18.2 million versus $15.2 million a year ago, a 20% increase or 13% excluding a favorable FX impact of $1.1 million versus the second quarter a year ago.

Note that we are now providing a geographic revenue breakdown for the U.S. on a standalone basis compared to our previous disclosure of North American results which included both the U.S. and Canada. We've made this change in order to conform our earnings calls to our required SEC disclosures and to provide enhanced visibility on performance in our largest geography. Today's press release provides corresponding revenue and pump unit information for the past 6 quarters.

Second quarter revenues from the HeartMate product line were $97.6 million versus $82.5 million a year ago, or an increase of 18%. Revenues from our Thoratec product line, the PVAD and IVAD, were $7.6 million versus $7.3 million a year ago, an increase of 4%. CentriMag sales grew 15% to $5.3 million compared to $4.6 million in the second quarter of 2010. Graft revenues were $700,000 compared to the second quarter a year ago, comparable to the second quarter a year ago.

Strong unit growth was the primary driver of our performance in the quarter. We sold 946 pumps in the quarter, an increase of 19% compared to 795 pumps in the second quarter a year ago and an increase of 10% sequentially compared to 859 pumps in the first quarter. This 19% increase in pump units was mirrored by solid year-over-year growth in pump revenue of 21%, while non-pump revenue grew a more modest 9%, due largely to the difficult comparisons we were facing against last year's upgrade cycle for HeartMate external peripherals.

Looking at the breakout of pump units by geography. We shipped 753 pumps in the U.S., an increase of 22% over 617 pumps a year ago and 193 internationally, an increase of 8% versus 178 a year ago. Looking specifically at HeartMate II, year-over-year unit growth was 21% in the U.S. and 20% in international markets.

We are certainly pleased with our financial results for the quarter, and we believe they reflect several important underlying dynamics. First, in the U.S. market, we are experiencing strong performance across a broad range of centers, driven by increased referral activity and continued investments in additional capacity by our centers. We believe that our market development efforts, from cardiology outreach to clinical support, are facilitating this positive momentum.

On a year-over-year basis, the fastest growth continues to come from midsized transplant centers and emerging open-heart centers. Interestingly though, if we look at our sequential performance versus the first quarter, it was our larger group 1 centers, those that participated in the HeartMate II clinical trial, that contributed the largest increase in pump units with a 17% sequential gain.

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