We reiterate our Neutral rating on Thoratec Corp (THOR), a leading provider of therapies which addresses advanced-stage heart failure. Third-quarter fiscal 2010 revenues and earnings both beat the Zacks Consensus Estimate, boosted by sustained healthy adoption of the company’s HeartMate II Venricular Assist Devices (“VAD”), used to support heart failure patients.
Thoratec has maintained a positive earnings surprise streak, having beaten the Zacks Consensus Estimates in the first three quarters of 2010.
Thoratec provides mechanical circulatory support with a product portfolio designed to meet a range of clinical requirements of advanced heart failure victims. HeartMate II, its latest product, is an electrically powered, implantable, left ventricular assist device (“LVAD”), which was first launched in Europe in late 2005. The company derives the majority of its revenues from HeartMate II sales.
Thoratec continues to benefit from rapid acceptance of HeartMate II on a global basis. At the end of the most recent quarter, aggregate HeartMate II centers reached 242 globally, representing an increase of 31 centers through the first nine months of 2010.
VAD represent a substantial market opportunity for Thoratec with a significant number of eligible heart failure patients globally. With HeartMate II, Thoratec enjoys a monopoly in the U.S., having the only device of its kind for the destination therapy indication (for heart failure patients who are not eligible for heart transplant). Favorable adoption trend of the device is expected to support revenue growth moving forward.
However, Australian heart pump maker HeartWare International (HTWR) is expected to close the technology gap with the launch of its next generation VAD product. We are also cognizant of Thoratec’s single product line and concomitant lack of diversification in the business model.
Moreover, future VAD adoption is difficult to predict and is contingent on the reimbursement policies of the Centers for Medicare and Medicaid Services (“CMS”). Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
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