HeartWare International Inc. ( HTWR - Snapshot Report ) , a global provider of miniaturized ventricular assist devices (VAD) for diagnosis of advanced heart failure, recently disclosed that the U.S. Food and Drug Administration (FDA) has granted clearance for its HeartWare Ventricular Assist System as a bridge to heart transplantation device for patients with end-stage heart failure.

The HeartWare system was the lead pipeline candidate of the company. The news marks a milestone in the company’s operating history as reflected in the bullish momentum of its stock price. Shares of HeartWare surged 9.18% to close at $89.54 on November 20, 2012.

The FDA approval was eagerly awaited ever since HeartWare submitted its Premarket Approval (PMA) application in December 2010. The company obtained European CE Mark for the HeartWare system in 2009 and Australian Therapeutic Goods Administration (TGA) approval in 2011.

The FDA approval of HeartWare system will challenge the dominance of Thoratec Corporation ( THOR - Analyst Report ) in the bridge-to-transplant (BTT) indication. Moreover, the first-mover advantage of Thoratec in the domestic BTT market might come to naught as HeartWare closes the technological gap, resulting in a slower growth profile for Thoratec. HeartWare’s acquisition of WorldHeart Corporation has already helped it establish a sound base for expansion in the U.S. and offshore markets and overcome entry barriers.

Based on statistics from the American Heart Association, roughly 5.8 million Americans suffer from heart failure. The numbers are increasing as 0.6 million cases are diagnosed annually. Thus, the approval will enable HeartWare to capture a sizeable market share in the U.S.

To date, HeartWare relies heavily on the sale of its offerings in the overseas market with revenues from the U.S. contributing approximately 16% to company-wide revenues in the third quarter. The clearance and subsequent commercialization efforts will enable HeartWare to gain a foothold in the largest market for medical devices.

We currently have a long-term ‘Neutral’ recommendation on HeartWare, which carries a short-term Zacks #3 Rank (Hold).