Thoratec reports revenues of $373.9M for fiscal 2009

Jan 29 2010

Thoratec Corporation (Nasdaq: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, said today that a 30 percent growth in revenues from its Cardiovascular Division in fiscal 2009 led to a 19 percent increase in total 2009 revenues versus those in fiscal 2008.

For the year ended January 2, 2010, revenues were $373.9 million versus $313.6 million in the prior year. Revenues for the fourth quarter of fiscal 2009 were $104.5 million, a 22 percent increase over revenues of $85.7 million in the fourth quarter a year ago.

Net income on a GAAP basis in fiscal 2009 was $28.6 million, or $0.49 per diluted share, versus GAAP net income of $18.3 million, or $0.33 per diluted share, in fiscal 2008. Non-GAAP net income, which is described later in this press release, was $56.1 million, or $0.89 per diluted share, in fiscal 2009, versus non-GAAP net income of $36.9 million, or $0.61 per diluted share, in fiscal 2008.

"The dynamic growth we have seen in our Cardiovascular Division during the course of the year continued in the fourth quarter as we generated record revenues from that business in both North America and Europe. Total revenues from our HeartMate product line, which includes both the HeartMate II® LVAS (Left Ventricular Assist System) and HeartMate® XVE, increased 43 percent year-over-year," said Gary F. Burbach, president and chief executive officer of Thoratec.

The company said that it ended the year with 120 HeartMate II centers in North America, an increase of 19 during the year, and 91 internationally, an increase of 14 during 2009. In addition, there are now 76 centers with CMS (Centers for Medicare and Medicaid Services) certification for reimbursement for Destination Therapy (DT).

"We are looking forward to rolling out the HeartMate II for DT, based on the FDA's approval of our PMA (Pre-Market Approval) supplement on January 20, 2010.  This approval creates a new opportunity for the many advanced-stage heart failure patients who are not responding to other forms of treatment to access a proven therapy. We have launched a comprehensive strategy targeted to existing and potential centers, referring cardiologists and patients to build awareness around the efficacy of the device and its ability to dramatically improve survival and quality of life versus other therapy options," Burbach noted.

With this approval, the HeartMate II can be used to provide long-term cardiac support for patients suffering from advanced-stage heart failure who are not eligible for transplantation. Under the approval, the HeartMate II can be used in patients with New York Heart Association (NYHA) Class IIIB or IV end-stage left ventricular failure who have received optimal medical therapy for at least 45 of the last 60 days, and who are not candidates for cardiac transplantation.  

"We begin 2010 in an excellent position to achieve continued strong growth. The clinical community's response to the data from the DT trial has been very positive and we expect a significant number of additional data presentations and publications supporting both the clinical and economic benefits of this therapy to occur during the year. We also have a program in place to generate activity at existing centers and from referring cardiologists, and will continue our successful efforts to add new centers and help centers achieve DT reimbursement certification. We will also increase our investments in key technology initiatives, which include the ongoing introduction of the new HeartMate peripherals, enhancements to the HeartMate II platform, the development of a miniaturized pump based on the HeartMate II platform and our development program for the HeartMate III," Burbach said.

FINANCIAL HIGHLIGHTS

Thoratec reported revenues for 2009 of $373.9 million versus revenues of $313.6 million in 2008.  Cardiovascular Division revenues in fiscal 2009 were $280.0 million versus $215.0 million a year ago. Revenues at the company's International Technidyne Corporation (ITC) division were $94.0 million versus $98.6 million a year ago.

The company provided a breakdown of sales by product for 2009 versus 2008. The HeartMate product line accounted for $229.8 million in revenues, a 43 percent increase over sales of $160.8 million a year ago. The Thoratec product line, which includes the PVAD and IVAD, accounted for sales of $34.8 million, a 16 percent decline versus sales of $41.7 million a year ago.  CentriMag sales in 2009 were $12.6 million, a 28 percent increase over sales of $9.9 million a year ago. The balance of Cardiovascular Division revenues reflects contributions from the company's graft business. During 2009, pump sales accounted for $204.7 million in revenue, with $72.6 million generated by sales of equipment and accessories. This compares with pump revenues of $164.9 million and equipment and accessory revenues of $47.4 million in 2008.  Cardiovascular Division revenues in North America were $234.2 million, a 35 percent increase over North American revenues of $173.1 million a year ago. International Cardiovascular Division revenues were $45.8 million, an increase of nine percent over revenues of $41.8 million a year ago. The FX adjusted growth in 2009 was 16 percent with the majority of this growth occurring in the second half of the year.

At ITC, revenues included $50.5 million for hospital point-of-care, which includes HemoChron, AVOX and IRMA. This represents a decrease of five percent over revenues of $53.3 million a year ago. Revenues for the alternate site business, which is primarily ProTime, were $30.7 million, a two percent increase over revenues of $30.0 million a year ago. Skin incision revenues were $12.7 million, a decline of 17 percent versus revenues of $15.3 million a year ago. The geographical breakout of revenues at ITC was $56.3 million in the U.S., or a decrease of 12 percent versus $64.2 million a year ago. International revenues were $37.6 million, an increase of ten percent versus revenues of $34.3 million a year ago.

GAAP gross margin in 2009 was 58.8 percent versus 59.3 percent a year ago. Non-GAAP gross margin, which is described later in this press release, was 59.3 percent versus 59.9 percent in 2008. The year-over-year decrease in gross margin is due primarily to $6.9 million in excess inventory reserves related to the declining utilization of the HeartMate XVE, unfavorable foreign exchange, and manufacturing variances at ITC offset in part by overall worldwide HeartMate II volume and the rollout of our new HeartMate external peripherals.                                                                                

Operating expenses for 2009 on a GAAP basis were $172.8 million versus $160.3 million a year ago. On a non-GAAP basis, operating expenses were consistent year-over-year at $138.0 million as a result of increased Cardiovascular Division spending on product development and market development initiatives offset by lower bonus and commission expense and decreased spending at ITC.  Operating expenses on a non-GAAP basis are described later in this press release.

The company's GAAP effective tax rate for 2009 was 29.9 percent versus 23.3 percent a year ago.  The non-GAAP tax rate for the full year, which is described later in this press release, was 34.1 percent versus 32.6 percent in 2008.  The increase in the GAAP and non-GAAP tax rates reflect an increase in pre-tax income, lower tax-exempt interest rates, and non-deductible compensation in part offset by a change in state apportionment rates.  

The company's convertible debt was dilutive on a non-GAAP basis for the fourth quarter and full year 2009. The increase in dilutive shares was approximately 7.3 million shares.

Cash and investments at the end of the year were $330.2 million, an increase of $51.7 million from the end of 2008. The cash and investment balance includes $24.6 million of Auction Rate Securities classified as long-term investments.

GUIDANCE FOR FISCAL 2010

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. For a more detailed discussion of forward-looking statements, please see additional information below.

The company expects to see solid growth in 2010, with consolidated revenues expected to be in the range of $420 to $430 million.

Worldwide growth in the Cardiovascular Division is expected to be 15 to 20 percent, with the HeartMate product line expected to grow at a mid-twenties percentage rate and the combination of the Thoratec and CentriMag product lines are expected to decline at a mid-single digit percentage rate from 2009.  The growth in the HeartMate product line reflects the expected positive reception in the market for DT approval and the positive outcomes generated in the trial. Continued adoption of the new HeartMate external peripherals will also be an important growth driver, although not as significantly as in 2009.  ITC revenues are expected to be flat to low single digit percentage growth, with the launch of the next generation ProTime around mid-year.

Gross margins on a non-GAAP basis are expected to be in the range of 61 to 62 percent, reflecting the market expansion of HeartMate II and the benefit of the continuing adoption of our new external peripherals. GAAP gross margin is expected to be in the range of 60.5 percent and 61.5 percent.

Non-GAAP operating income, excluding the one-time $8.5 million charge for the Percutaneous Heart Pump (PHP) acquired earlier this week, is expected to increase 20 to 25 percent over the prior year while GAAP operating income excluding the one-time PHP charge is expected to increase 59 percent to 67 percent for the same period.  This growth in operating income incorporates the significant investments being made to drive near and long term growth including additions to the sales organization, marketing initiatives related to the launch of the HeartMate II for DT and continuing investment in innovation related to the HeartMate II platform, cross platform technologies and next generation pumps, along with the incremental investment in the PHP program .

Non-GAAP net income per diluted share is expected to be in the range of $0.96 to $1.01 and GAAP net income per diluted share is expected to be in the range of $0.68 to $0.72.  The one-time expense from the PHP technology acquisition is expected to impact net income per diluted share by approximately $0.09 on both a non-GAAP and GAAP basis in 2010.  Excluding the acquisition fee, non-GAAP net income per diluted share is expected to be between $1.05 and $1.10 and between $0.77 and $0.81 on a GAAP basis.