Thoratec's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Thoratec Corporation (THOR)

Q1 2012 Earnings Call

May 1, 2012 4:30 pm ET

Executives

Taylor Harris – Senior Director, Investor Relations and Business Development

Gerhard F. Burbach – President and Chief Executive Officer

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

Analysts

Robert A. Hopkins – Bank of America Corporation

Christopher Pasquale – JPMorgan

Steven Lichtman – Oppenheimer & Company

Rajeev Jashnani – UBS Securities Co., Ltd.

Jason Mills – Canaccord Genuity

Bruce Nudell – Credit Suisse

Thomas Gunderson – Piper Jaffray

Matt Taylor – Barclays Capital

Suraj Kalia – Rodman & Renshaw

Jayson Bedford – Raymond James

Spencer Nam – ThinkEquity LLC

Danielle Antalffy – Leerink Swann LLC

Lawrence H. Biegelsen – Wells Fargo Securities, LLC

David Roman – Goldman Sachs

Derek Winters – Wunderlich Securities Inc.

Presentation

Operator

Good day, and welcome to the Thoratec Corporation Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Taylor Harris. Please go ahead, sir.

Taylor Harris

Thanks Camille. 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 highlights from the first quarter of 2012 and then turn the call over to Roxanne, who will review the financial results for the quarter and provide an update on guidance for 2012. 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. Gary?

Gerhard F. Burbach

Thank you, Taylor, and good afternoon. Thoratec achieved a strong start to 2012 reflecting a healthy underlying market for LVAD therapy, particularly the destination therapy indication and continued progress in our worldwide market development and market leadership efforts for HeartMate II.

Our first quarter results highlighted by a 27% revenue increase were generated through strong performance across both HeartMate II and CentriMag, driven by all major segments of implanting centers in both the United States and Europe. But we don’t expect the same magnitude of growth to occur every quarter. We do believe that our first quarter results again point to a significant opportunity ahead in Destination Therapy. We remain firmly committed do investing in the development of this market as well as in our pipeline of exciting technologies to support strong growth from many years to come.

With respect to our financial results for the first quarter, Thoratec generated revenues of $126.8 million, a 27% increase over revenues of $99.5 million in the first quarter of 2011. In terms of geographic breakdown, we quarter revenues of $103.9 million in the U.S. versus $82.5 million in the prior year, an increase of 26%, while international revenues were $22.9 million versus $17 million a year-ago representing an increase of 35%.

Excluding the effects of foreign exchange, which was unfavorable by $0.5 million as well as acquisition related revenues, year-over-year international revenue growth was 23%. Earnings on a non-GAAP basis were $0.51 per share an increase of 50%. HeartMate revenues in the quarter were $111.7 million versus $87.3 million a year-ago, an increase of 28%. Strength in our HeartMate II franchise was balanced across all key geographies and I’ll provide more detail on the underlying drivers of this strength momentarily.

Revenues from our acute support line, which includes CentriMag and PediMag were $8.7 million compared with $4.4 million a year-ago, an increase of over 90%. We’re certainly pleased with the continued momentum in this product line, which include a growth in the core U.S. CentriMag business of 34% as well as approximately $2.7 million of incremental revenues recorded as a result of the Levitronix Medical transaction, over 90% of which were generate outside the U.S.

Lastly, revenues from the Thoratec product line, the PVAD and IVAD were 5.8 million versus 7.3 million a year ago, a decrease of 21%. We recorded strong year-over-year unit growth in the quarter selling 1,057 pumps, an increase of 23% versus 859 pumps in the first quarter a year ago. In the U.S. market, we shipped 838 pumps representing a 24% year-over-year increase, while internationally pump volume increased 20% in the first quarter of 2012 to 219 units. HeartMate unit volume expanded by 32% in both the U.S. and international markets, offsetting a significant decline in PVAD and IVAD units.

Internationally HeartMate II showed particular strength in both France and Germany, while in the U.S. we achieved strong growth in both the bridge-to-transplant and destination therapy indications. We have seen encouraging development of the referral process facilitated by our market development efforts in conjunction with the outreach efforts of many of our implanting centers, and we’re seeing clear evidence that our D.C. market development strategy is bearing fruit.

Going forward we will continue to focus our investment on this large and sustainable growth opportunity. An important growth driver during the quarter was the continued adoption of HeartMate II by our Group III implanting centers, which consists of smaller transplant and open heart centers. While we achieved HeartMate II unit growth in excess of 20% across each major group of centers. The most rapid growth continues to come from this third group, where volume roughly doubled year-over-year. This group now include 19 transplant centers and 48 open heart centers and during the first quarter contributed close to 20% of our U.S. HeartMate II unit sales.

We anticipate that the adoption at open heart centers will continue to be a significant driver of HeartMate II performance in the U.S. for a few reasons.

First and foremost, clinical outcomes at open heart centers have been strong as evidenced by a presentation at ISHLT this year, which I'll discuss in greater detail later. Second, this group of centers is still early in its DT outreach efforts; so far only 19 open heart centers have received DT certification from the Joint Commission. Last, we anticipate that the vast majority of new VAD program development will come from open heart centers. For all these reasons, we’re excited about the growth prospects from the segments.

That said, I would note that many of these centers are early in their adoption of the therapy and we therefore expect performance to have some variability from quarter-to-quarter.

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