COMPANY ACHIEVES KEY REGULATORY MILESTONES WITH FILING OF PMA SEEKING DESTINATION THERAPY APPROVAL FOR HEARTMATE II(R) AND FDA APPROVAL OF NEW HEARTMATE EXTERNAL PERIPHERALS
PLEASANTON, Calif., May 7 /PRNewswire-FirstCall/ -- Thoratec Corporation (Nasdaq: THOR), a world leader in device-based mechanical circulatory support therapies to save, support and restore failing hearts, today reported revenues of $89.5 million for the first quarter of fiscal 2009.
Revenues for the quarter ended April 4, 2009, increased 39 percent over revenues of $64.4 million in the first quarter of last year, including a 61 percent increase in revenues in the company's Cardiovascular Division.
Net income on a GAAP basis in the first quarter of fiscal 2009 was $5.6 million, or $0.10 per diluted share, compared with a net loss of $700,000, or $0.01 per diluted share, in the same period a year ago. Non-GAAP net income, which is described later in this press release, was $13.8 million, or $0.22 per diluted share, in the first quarter of fiscal 2009 versus non-GAAP net income of $4.5 million, or $0.08 per diluted share, in the same period a year ago.
'Thoratec continued its impressive performance of 2008 into the first quarter of 2009 with expanded market penetration of our HeartMate II LVAS (left ventricular assist system), particularly in North America. Our growth was driven by continued adoption for Bridge-to-Transplantation (BTT) and enrollment in our Destination Therapy (DT) trial under Continuous Access Protocols (CAPs). We also continued to expand the number of HeartMate II centers, adding four during the quarter,' said Gary F. Burbach, president and chief executive officer.
'Clearly a milestone event for the company was the recent filing of our PMA (Pre-Market Approval) supplement with the Food and Drug-Administration (FDA) seeking to add the intended use of DT for the HeartMate II,' Burbach added. 'This PMA filing includes data on a pivotal study cohort of 200 randomized patients, including two-year data on the first 167 patients enrolled. As we indicated previously, we plan to file an amendment to the submission once we have complete two-year data on the primary patient cohort.
'The data from the trial demonstrate that the HeartMate II is superior to the XVE, based on device performance and the primary patient endpoint of two-year survival free from stroke and reoperation for device replacement. The data also showed that key adverse events, such as infection, sepsis and right heart failure, were significantly lower for the HeartMate II versus the XVE. We look forward to working with the FDA on this submission and hope to achieve DT approval by early 2010.'
The company also said that it recently received FDA approval for new external peripherals for the HeartMate product line, including new batteries, charger and power module. These enhancements, which will be launched formally over the next few months, are designed to provide an improved quality of life to patients by offering them additional freedom and mobility.
As the company previously reported, the company and HeartWare International have entered into a definitive merger agreement under which the company will acquire HeartWare International. The consummation of this transaction is subject to a number of conditions, including regulatory approval and the approval of HeartWare's shareholders. As announced in March, both companies are currently engaged in complying with a Request for Additional Information, received in March from the United States Federal Trade Commission. The company continues to expect the transaction to close in the second half of 2009.
The company's International Technidyne Corporation (ITC) Division noted that in mid-March it submitted a response to the 483 Notice of Observation report issued in January by the FDA and it continues to implement the preventative and corrective actions to address the observations raised in the report.
FINANCIAL HIGHLIGHTS
Thoratec reported revenues of $89.5 million in the first quarter of 2009 compared with revenues of $64.4 million in the first quarter of 2008. Cardiovascular Division revenues were $64.6 million versus $40.2 million in the same period a year ago. Revenues at its International Technidyne Corporation (ITC) division were $24.9 million versus $24.2 million a year ago. The company said revenues at ITC were impacted by competitive pressure in its skin incision and professional ProTime businesses, as well as the impact of the current economic environment on hospital and physician capital equipment purchasing activity.
GAAP gross margin for the first quarter of 2009 was 60.4 percent versus 55.6 percent a year ago. Non-GAAP gross margin, which excludes share-based compensation expense and is described later in this press release, was 61.0 percent versus 56.3 percent a year ago. The year-over-year increase in gross margin is primarily attributable to the increase in average selling prices associated with North America HeartMate II sales and worldwide HeartMate II volume. This was partially offset by lower margins at ITC, related primarily to geographic mix, competitive pricing pressure and unfavorable manufacturing variances.
Operating expenses on a GAAP basis for the first quarter of 2009 and 2008 were $44.5 million and $36.5 million, respectively. On a non-GAAP basis, operating expenses in the first quarter of 2009 were $34.1 million versus $30.7 million in the first quarter of 2008. Operating expenses on a non-GAAP basis are described later in this press release. The year-over-year increase in operating expenses is due primarily to product and market development initiatives. Additionally, on a GAAP basis, operating expenses increased year over year due to $3.9 million in HeartWare related transaction costs as well as higher share-based compensation expenses resulting from an increase in the stock price for the same comparative period.
On a GAAP basis, other expense totaled $1.9 million for the first quarter of 2009 versus $400,000 a year ago. On a non-GAAP basis, other expense totaled $20,000 versus other income of $1.3 million a year ago. The increase in other expense is primarily attributable to the decline in interest rates, shortened maturities on our investment portfolio and the strengthening of the U.S. dollar against the U.K. pound year over year.
The company's GAAP effective tax rate for the first quarter of 2009 was 26.7 percent versus a benefit of 33.7 percent a year ago. The non-GAAP tax rate, which is described later in this press release, was 32.6 percent in the first quarter of 2009, compared with 33.5 percent in the prior year. The increase in the GAAP tax rate was attributed to the retrospective application of APB 14-1 to our 2008 pre-tax income, which is primarily related to interest on our convertible debt. GAAP and Non-GAAP tax rates were favorably affected by new state apportionment rates.
On a non-GAAP basis, the company's convertible debt was dilutive to the company's fully diluted weighted average shares outstanding. The increase in shares was approximately 7.3 million.
Cash and investments at the end of the quarter were $275 million, including $20 million of restricted cash, related to a note we have made available to HeartWare and $30 million of Auction Rate Securities classified as long-term investments.
Management affirmed its previously issued overall guidance for 2009. Within that guidance the company expects that ITC's revenues will be flat to an increase in the low single digits in 2009, versus its previous expectation of mid-single digit growth due to increased pressure on hospital and physician capital purchases and competition.
CONFERENCE CALL/WEBCAST INFORMATION
Thoratec will hold a conference call to discuss its financial results and operating activities for all interested parties at 1:30 p.m., Pacific Daylight Time (4:30 p.m., Eastern Daylight Time) today. The teleconference can be accessed by calling (719) 325-4819, passcode 4260684. Please dial in 10-15 minutes prior to the beginning of the call. The webcast will be available via the Internet at http://www.thoratec.com. A replay of the conference call will be available through Thursday, May 14, via http://www.thoratec.com or by telephone at (719) 457-0820, passcode 4260684.
GAAP TO NON-GAAP RECONCILIATION
Thoratec management evaluates and makes operating decisions using various measures. These measures are generally based on revenues generated by its products and certain costs of producing that revenue, such as costs of product sales, research and development and selling, general and administrative expenses. We use the following measures, which are not calculated in accordance with Generally Accepted Accounting Principles ('GAAP'): non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP other income and expense, non-GAAP tax rate, non-GAAP net income, and non-GAAP EPS. These are non-GAAP financial measures under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. These non-GAAP financial measures are calculated by excluding certain GAAP financial items that we believe have less significance to the day-to-day operation of our business.
