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Thoratec Corp’s (THOR - Analyst Report) fourth-quarter and 2012 adjusted (excluding one-time items other than stock-based compensation expenses) earnings per share of 34 cents and $1.62, respectively, narrowly beat the corresponding Zacks Consensus Estimates of 33 cents and $1.61.
Net income from continuing operations dropped to ($14.4) million (or a loss of 25 cents per share) from $15.3 million (or 25 cents per share).
Revenues rose 17% year over year to $128.5 million in the fourth quarter, beating the Zacks Consensus Estimate of $119 million. For the year, revenues were $491.7 million, up 16%, surpassing the Zacks Consensus Estimate of $483 million.
Revenues improved on the back of higher volume of HeartMate II product line (up 20% year over year in unit terms) as well as the development of Destination Therapy (DT) in the domestic market in which Thoratec enjoys market monopoly. Geographically, domestic sales surged 15.6% year over year to $102 million, while overseas sales increased 25% to $26.5 million.
By product, HeartMate sales jumped 18.1% to $110.8 million. Sales of the paracorporeal ventricular assist device (PVAD) and implantable ventricular assist device (IVAD) declined 8.2% to $5.6 million, while CentriMag blood pump sales rose 30.7% to $11.5 million.
Thoratec pump sales were up 20.2% year over year to $93 million while non-pump revenues ascended 11.5% to $34.9 million. Unit sales of pumps in the U.S. increased 15.3% year over year to 812 units while overseas sales were up 19.2% to 254 units.
Margins and Expenses
On an adjusted basis, gross margin improved to 71.7% from 71.4% in the prior-year quarter. Adjusted operating expenses shot up 34% year over year to $57.6 million partly on account of increased expenditure on product and market development.
The company exited the quarter with cash and investments of $260.4 million, up 24.3% year over year.
Thoratec has issued its financial forecast for 2013. The company expects revenues between $490 million and $510 million. The guidance includes higher sales estimates for the HeartMate II product line. Gross margin is forecast at 68.5% on reported terms and about 70.5% on an adjusted basis.
For 2013, earnings per share (on a reported basis) are now projected in the range of $1.32 to $1.42 while adjusted earnings are expected in a band of $1.76 and $1.86.
Thoratec enjoys a first-mover advantage in the market it serves. With HeartMate II, Thoratec enjoys a monopoly in the U.S. market since it has developed 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, its dominance in the bridge-to-transplant (BTT) indication has ended following the FDA approval of HeartWare International’s (HTWR - Snapshot Report) Ventricular Assist System in Nov 2012.
Despite limited visibility, we are optimistic about Thoratec successfully expanding its sales on the back of its HeartMate II product line. The company continues to do well in overseas markets despite the economic turmoil in Europe. It received regulatory approval in Japan in the fourth quarter of 2012 to sell the HeartMate II as a BTT for victims of advanced heart failure. The commercialization is expected in the latter part of the first quarter of 2013. .
Thoratec currently retains a Zacks Rank #4 (Sell). We are more positive about ABIOMED, Inc. (ABMD - Analyst Report) and Cyberonics Inc. (CYBX - Analyst Report) both of which carry a Zacks Rank #1 (Strong Buy).