Thoratec; Nothing Out of the Ordinary On Results

Tuesday afternoon Thoratec reported first-quarter results that exceeded expectations; however, we estimate that when adjusted for the impact of a stocking order in Japan sales were roughly in line with estimates. The company reiterated its 2014 guidance, which implies acceleration in the core business in the second half of the year, though we believe that expectations are reasonable for the full year. Highlights from the Call: Domestic Market Commentary.

Investor expectations for this segment of the business heading into results were quite low and indeed proved to be the case during the first quarter, with domestic pump sales growth of 2%. The company continues to struggle in the United States (as seen by a two-year-rolling average decline of 6% in HeartMate II units), and we do not see a catalyst to reverse this trend. From a market perspective, it appears that the industry accelerated roughly 100 basis points during the first quarter, though the primary beneficiary in the United States is HeartWare (HTWR $94.05; Market Perform).

International Growth. Internationally, pump unit growth of 28% was buoyed by a 40 unit stocking order in the quarter; excluding this stocking order, units grew 9% internationally. The company mentioned that there was a positive impact from oneoff distributor activities in the quarter as well, and so we anticipate there will be a deceleration in this growth rate heading into the second quarter. This core growth rate implies that the company has been ceding share this quarter (excluding Japan where Thoratec is the only provider); we believe that, even excluding this stocking order, the market grew in the mid-20s this quarter.

We do not foresee any material changes in that dynamic until the HeartMate III is introduced internationally next year, although MVAD from HeartWare should only be about six months behind them from a timing perspective. • 2014 Guidance. Management reiterated its full-year revenue and earnings per share guidance, which, when adjusting first-quarter sales for the inclusion of a Japanese stocking order, imply an acceleration in the second half of the year. The guidance range, in our view, is still achievable as we believe many of the dynamics (thrombus, international softness, and moderate share loss) are implied in guidance.