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Thoratec Corporation (NASDAQ:THOR)

31st Annual JPMorgan Healthcare Conference

January 07, 2013 11:00 am ET

Executives

Gerhard F. Burbach - Chief Executive Officer, President and Executive Director

Taylor C. Harris - Chief Financial Officer and Vice President

Analysts

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Okay, I think we're ready to get started. Welcome, everyone, to the 2013 JPMorgan Healthcare Conference. I'm Chris Pasquale, with the med tech team. And kicking it off this morning, we have Thoratec, and coming to the stage to present for them is the company's President and Chief Executive Officer, Gary Burbach. Gary?

Gerhard F. Burbach

Good morning. Thanks, Chris, and thanks to JPMorgan for having us here. We're certainly pleased to be kicking off the conference. And thanks to all of you for joining us here bright and early on Monday morning.

First, I'd point you to our risk statements that are contained in our 10-Ks and 10-Qs.

So I'd like to cover 3 topic areas: first, a brief overview of Thoratec, who are we; some of our financial results and goals looking forward; and then really focus on 2 -- our 2 primary business focus areas, chronic circulatory support and acute circulatory support.

So let me jump right in. If you look at the company in total, our mission has really been for some time and continues to be to drive the utilization of mechanical circulatory support, to be the leader in that space, and really continue to broaden the patient populations that we can bring these therapies to. Really broken into 2 distinct segments: chronic circulatory support and acute circulatory support. Chronic support has certainly been the primary focus area for us and the largest business opportunity, but I would like to also spend some time on the acute circulatory support area as well today.

In terms of chronic support. It's approaching a $600 million worldwide market. Thoratec has been the strong market share leader in that space. We can expect that to continue into the future. It is a space that's been growing in the upper teens, and we expect to see that continue into the future as well, as there is a very large unserved patient population. In the U.S. alone, there are about 50,000 to 100,000 patients that we believe can be served effectively with chronic circulatory support. As you can see, our objective in 2015 is to only have penetrated a population of 10,000 patients on a worldwide basis. So even with the growth that we're projecting for the next few years, it will still be, we believe, in the early stages of development and significant opportunity even as we look beyond that time period.

On the acute circulatory support side, there's really 2 segments there that we're focused on. One, surgical support where we have an existing strong market share position I'll talk to that later, that's about a $150 million market. We believe we'll see over 10% growth in that space over the next 5 years, so a significant growth opportunity in that surgical space. But an even more exciting opportunity, we believe, exists in the percutaneous support space where we have a new product that we're looking to bring into clinical trial during 2013, the HeartMate PHP, and again I'll touch on that a little bit later.

Looking at our historical financial performance. We're certainly very pleased with what we've seen over the course of the last 5 years. Here you can see, 2007 through 2011, over 30% revenue growth. And that's really driven both by international growth being very strong, as well as domestic growth. You can see, domestic continues to be very much the dominant segment in this chronic support space, but we see significant growth not only domestically but even more so internationally as we continue to penetrate a broader and broader range of markets internationally, and I'll talk about that in a little bit as well. And we've seen even stronger growth on the earnings side as we've driven that revenue growth into increasingly strong operating leverage, with almost 50% annual compounded growth in terms of earnings.

In 2012, we've continued to see very strong performance. While I'm not going to provide results for the full year, I thought it is important to mention that we did see solid momentum through yearend for both the HeartMate II as well as the CentriMag. So we're certainly pleased with what we saw for the full year in terms of revenue growth. The first 9 months, we have reported on that revenue growth of 16% overall, again driven by the HeartMate II and the CentriMag product lines. HeartMate II had 23% unit growth through the first 9 months. CentriMag had organic unit growth in the U.S. of 27%, so very strong utilization in terms of implants of both those platforms. Importantly, for the HeartMate II, that growth is being driven by Destination Therapy in the United States. That's really been our core focus, and that's approaching 50% of the utilization of that technology.

And very importantly, newer centers are becoming an increasingly important part of that franchise. So the newest group of centers, we refer them as the group 3 centers, had 60% growth through -- or over 60% growth through that first 9 months. And now -- and they now represent approximately 20% of our overall volume, and that percentage continues to grow, so we see a broadening of the platform of utilization. You can see here, 23 new centers through the first 9 months worldwide.

And then DT certification is a very important element of being able to ramp up in the U.S.. That's really required to receive Medicare reimbursement for Destination Therapy. And we continue to see strong growth on that front, with 14 new centers receiving that certification, bringing that to 117 centers.

As we look ahead to 2013, there are really 3 key focus areas that you should be measuring us against. One is driving worldwide growth in both chronic and acute mechanical circulatory support. As I mentioned, we see lots of market growth opportunity. We're looking to drive that on both fronts on a worldwide basis. Secondly is maintaining a strong market share leadership position for the HeartMate II through clinical differentiation as well as very strong service and support to our customers. And then third is bringing advanced next-generation technologies in the pivotal clinical trials. So those are really the 3 key focus areas.

You can see 5 key elements of success below in the box. For the HeartMate II, driving continued growth of that franchise through market development, geographic expansion, product enhancements and competitive differentiation. I'll touch on that through the course of the presentation. Launching the HeartMate II Pocket Controller on a worldwide basis; launching the REVIVE-IT study and completing enrollment of the ROADMAP study to explore use of the HeartMate II in earlier-stage patient populations, which will continue to broaden our market opportunity; launching the HeartMate II in Japan, we received an approval in late 2012 so we'll be in the launch process which will be quite exciting for us here early in 2013; and then initiating European pivotal studies for both the HeartMate III as well as the HeartMate PHP.

So let's focus a little bit more on chronic circulatory support. This is clearly our primary growth engine over the course the last few years and expect that to be -- to continue to be the case here over the course of the next few years, certainly in 2013. That's really led by the HeartMate II.

Really, a few key elements there. It is by far the most thoroughly tested device, over 1,300 patient clinical trials in Bridge-to-Transplant and Destination Therapy; very well studied, understood, tremendously terrific clinical outcomes in terms of survival, low adverse events as well as functional outcomes; well proven in commercial settings, challenging patient populations, over 13 patients now implanted over 55, on ongoing support; over 250 peer-reviewed publications, so the performance of this system is very well understood, very well documented; and extremely reliable over long-term support, over 2,000 patients with over 2 years, longest patient now is out beyond 8 years. And it's important that the use of this device is very forgiving in terms of anti-coagulation protocols, patient management generally, which allows it to be used really across the full spectrum of patients.

You can see here the results of that in terms of growth. The bottom part of the bars on the left, the blue there, is the HeartMate II. You can see our growth in terms of overall pump shipments being driven by the strong growth of the HeartMate II from 2007 through 2011. In the last few years, on the right, you can see that that's very much been driven by the increasing adoption of Destination Therapy. So in 2009, that was only 20% of the overall utilization of the HeartMate II in the United States. We received approval at the beginning of 2010, then we're now, through the first 9 months of 2012, at about 50% of the utilization being for Destination Therapy. And that's really the growth engine that we see as we go forward. That population of 50,000 to 100,000 unserved patients is really Destination Therapy.

So the basis of that, as I mentioned, is clinical performance. You can see here the outcomes with the HeartMate II across 3 of the most recent data sets spanning both Bridge-To-Transplantation as well as Destination Therapy and also spanning commercial utilization as well as the trial setting. You can see very consistent strong performance in terms of Kaplan-Meier survival outcomes. These are in very sick patients. So INTERMACS 1 and 2 are the sickest patients, you can see the majority of the patients are in those sickest patient populations.

I mentioned low adverse events. That's really across the full spectrum of adverse events. Most notable is stroke where you can see stroke rates of 0.08 to 0.10 across all these different studies. And then also a 6-minute walk is the most widely used measure of functional improvement. And you can see, almost all of these patients have very strong functional recovery, are able to recapture their quality of life, with 6% to 13% only not being able to complete a 6-minute walk test, which is a very high bar given pretty much none of them were able to complete that test when they began the therapy.

So we continue to drive the clinical investigation of this system really on 2 fronts. One is looking at earlier-stage patient populations to broaden the utilization of the system. ROADMAP, it's been underway. We've enrolled about 1/2 of that study, and that's in the United States. C heart failure is a similar early-stage study to engage cardiologists in the use of the therapy, broaden use in Europe to earlier-stage patients. We're just initiating that study. And on the right side, you can see studies that continue to prove the clinical performance of the system; continue to improve on those adverse event outcomes; trace focus on the anti-coagulation, the opportunity to utilize less anticoagulants, less antiplatelets in patients of certain populations of patients where that's important. And then SSI is focused on new approaches to implantation of the percutaneous line to reduce infection rates, which is, really, the most important issue that ongoing patients in Destination Therapy face is that risk of infection to the percutaneous line. And again, we're seeing very strong enrollment in those studies as well.

So we're very excited this morning to announce that the FDA has approved the REVIVE-IT study with the HeartMate II, so we'll be moving forward with that study here in 2013. I think it's a strong vote of confidence in the HeartMate II and its performance by the FDA; as well of the investigators that we're working with, the University of Michigan, University of Pittsburgh as well as a number of other luminary institutions; and of course, the NIH, which is a lead sponsor of this study. So you can see, this is an earlier-stage Class III patient populations, enrolling up to 100 patients in a randomized study against medical management which is today the standard of care, hoping to show benefit in terms of functional outcomes, quality of life, potentially survival and really generate the opportunity to address these patients in a more meaningful way than they are today. There is a funding commitment that we've made which could be up to $11 million, which will span about 5 years over the course of this study.

It is complementary to the ROADMAP study I mentioned earlier that, that study is going on in the United States. That is also focused on earlier-stage patients. You can see here the spectrum of patients, from the right side of the chart to the left, the right side being the sickest patients. Those are really the patients that are the focus of treatment today, INTERMACS 1 through 3, moving a bit into INTERMACS 4. You can see ROADMAP is focused primarily on kind of the next group of patients, INTERMACS 4 to 6. And then REVIVE-IT is even a step slightly earlier than that. So they are very much complementary to each other, building on that base of data to show that a broader patient population can benefit from this therapy, from the HeartMate II, and should be considered for implantation.

In addition to the clinical study, there are obviously a number of other things that we're doing to drive market to -- development, to realize that opportunity for growth. You can see there are really 5 key areas here. Clinical data and guidelines, I've spoken to. Referral generation is certainly the -- it's probably the most important here most recently and as we look into the near future. Most of these patients continue to be managed in the community by heart failure cardiologists. So getting them referred to an implanting center for consideration for treatment is really job 1 in terms of market development. Our MDM sales force where we have over 40 individuals now, they're focused 100% of their time on that education outreach process. It's the most important focus of that. And you can see a number of other things that we're doing there.

Second is center capacity development. Historically, this is a therapy that's only been utilized at transplant centers, there's about 100 of those in the United States. So broadening that population of centers that are engaged in the therapy, driving its dissemination is critical. We're now up to about 160 centers in the United States that are engaged in this therapy, and those new centers are really focused almost exclusively on Destination Therapy and driving the growth of Destination Therapy.

Global expansion, I mentioned earlier. This have been very much a U.S.-centric technology. We're very excited to be expanding into Japan this year. We're also focused on entering Latin America. We expect a number of regulatory approvals in Latin America during 2013, so that will be a new opportunity for us in terms of global expansion in 2013. And then of course, with that clinical focus also comes a focus on outcomes improvement which I touched on a little bit earlier.

Mentioned the approval in Japan. That happened late last year. We're now getting through the reimbursement process. We expect that to occur here late in Q1. Center training will occur in February. So we really expect to be launching here in late Q1 of this year, initially targeting 15 hospitals that have been engaged in that therapy historically. It has been a relatively small therapy base in Japan, only about 50 implants annually. We do expect to take a strong position in the existing market as we launch here later this quarter, but we do see a very significant growth opportunity there as we look out over the next few years. You can see a potential market over the long term at 15% to 20% the size of the U.S. market.

In terms of our product development pipeline in the chronic space, there's really 3 focus areas. One is continuing to improve the HeartMate II as a system. The Pocket Controller is the most important advance that we expect this year on that front. I'll touch on that in a minute. We also have a number of next-generation pump platform initiatives, the HeartMate III and the HeartMate X. Core focus currently is on the HeartMate III. Again, I'll touch on that in a minute. And then the third focus area is around cross-platform breakthrough technologies that will advance the HeartMate II but will also be addressable to future pump platforms like the HeartMate III. Most important focus area there is FILVAS or a Fully Implantable Ventricular Assist System, and again I'll touch on that in just a minute.

So in terms of the HeartMate II Pocket Controller, we're very excited, a much smaller controller than the current system, easier for the patient to live with. It also has some added safety benefits that will be important for patients, like a backup battery which doesn't exist today in the current controllers that are out there. Program status, we did initiate a limited European launch at about a dozen centers in 2012. We've had very positive feedback both from clinicians as well as patients that have been involved in that experience. We'll be expanding that European launch here later during the first quarter and then expanding to a worldwide commercial launch in the first half of 2013.

HeartMate III is our next-generation full-support chronic platform. We're very excited to bring this into clinical trial this year. What's critically important here is what's inside the pump: a fully magnetically levitated rotor that can generate a near-physiologic artificial pulse. It does incorporate a number of key HeartMate II pump platform capabilities, textured surfaces, other things that have made clinical outcomes with HeartMate II, we believe, superior and that we think are going to be a key part of making HeartMate III a step forward from where we're at currently. And then importantly, in terms of clinical benefits, it will have a less-invasive implantation. We do believe there is potential for reduced adverse events particularly among some of the key adverse event areas like bleeding, thrombus, stroke and AI; as well as the potential reduced anticoagulation, antiplatelet therapy requirements. So a very exciting next-generation platform. Again as I said, full magnetic levitation really is the key behind this which allows for large pump gaps, allows for the rotor to be accelerated and decelerated at very brief intervals, and that's what allows for that near-physiologic pulse capability, low shear and, we believe, really a next-generation capability in terms of a bloodflow pathway.

So we're excited, as I mentioned, to enter a pivotal trial in Europe during -- in the middle of 2013. Preliminary study design is 50 patients at 5 to 10 sites in Europe and Australia. Primary endpoint is survival on HeartMate III at 180 days versus predicted Seattle Heart Failure Model survival on medical therapy. You can see here, there are a number of secondary endpoints as well. So we're very excited to get this launched here later this year.

And then in terms of a fully implanted system, we continue to aggressively move this program forward, focused on the implanted components, really a 3-key-focus area. The implanted electronics. Advanced battery technology where we're partnering with a leader in the field of implanted battery technology with what we believe will be a leading-edge implanted battery capability for an LVAD system. And then the energy transmission capability, we're partnering with a company, WiTricity. We've spoken about this before, really a kind of next-level capability in terms of a patient's ability to live with this wireless energy transmission without having to have exactly coupled internal and external coils. We did reach a significant milestone on that front during Q4. We exercised our option for the WiTricity technology applied to the field of mechanical circulatory support. And the core of that technology transfer has now occurred to Thoratec. So very excited to continue to push this program forward here in 2013 as well.

So those are really the key developments and focus areas on the chronic front. In terms of acute circulatory support, as I mentioned before, there are really 2 distinct aspects of this business for us. The existing business is our surgical acute platform in the CentriMag. We do believe this is very much, again, a leading platform. It is based on the same magnetic levitation technology that's the foundation for the HeartMate III.

So the HeartMate III platform technology has been very well proven in the CentriMag in this acute space. In Europe, it's -- it has 30-day approval and it's used for fairly significantly long time periods with patients. It is both used for adult and pediatric with the same hardware platform. We are pursuing a pathway for a 30-day approval here in the U.S., which will be an improvement, a very important step forward to continue to develop this acute market in the U.S. And we have made some incremental steps forward in terms of the platform, most importantly transportability which is important for application in ECMO.

So in terms of the market opportunities as we look forward in the acute surgical space. You can see, the current market is a little bit below $150 million; primarily VAD but also ECMO, you can see broken up there in the blue and the red. We do expect to see significant growth over the next 5 years driven predominantly by ECMO, so we do expect to see very strong growth there. And we are focused on innovating on this product platform to be able to participate in that. We do have the first innovation on that front which is an integrated CentriMag pump with an oxygenator, which will be deployed in an NIH-sponsored trial focused on pediatric ECMO support. So we're very excited to see that move forward during 2013, and that will be an important step to our ability to participate in what we think will be some very exciting growth in the ECMO space.

You can see that the CentriMag is a very well-proven platform: over 10,000 implants, broad range of implanting centers. And over the last 12-month period through Q3 of last year, we were at about $33 million of sale and believe that we have strong growth opportunities there as we go forward both from share capture as well as market growth.

So finally, the acute percutaneous market opportunity is a new opportunity for us. We're very excited. We think this is very significant. Currently, there is a very significant device therapy that exists here predominantly based on intra-aortic balloon pumps. So over 200,000 patients receive this kind of percutaneous acute support annually. As I mentioned, the vast majority is based on balloon pumps. And we believe -- with the novel therapy that we'll be bringing to the market with the PHP, we believe that this could be $1 billion-plus market opportunity. And importantly, a number of studies that have come out recently, like the SHOCK II trial, I think, have really demonstrated that balloon pumps fall short in significant populations of these patients. So from a clinical need perspective, there's no question that the opportunity is there.

So what is PHP? It's a very exciting innovative platform that, with an expandable cannula and impeller, we're able to deliver a low-profile device percutaneously. Once its delivered into the heart -- as you can see here in this series of cartoons, the sheath is pulled back. That cannula and the impeller extend to roughly double the insertion diameter, which allows the device to deliver 4 to 5 liters of flow. So almost full flow for a typical patient that can be delivered versus the limited, very limited, flow support that's available from existing technologies.

So again, we're looking to enter a clinical trial here in mid 2013 with the PHP in Europe, so we're very excited to move forward on that front. We do expect first-in-human experience to occur in South America in early 2013. You can see here, in terms of that CE Mark study, again we're expecting that to be up to 50 patients in up to 10 sites in Europe and South America. And this is a high-risk PCI patient population that we're expecting to target with a primary endpoint, avoidance of major adverse events at 30 days and device and procedural success. So we look forward to keeping you updated on that as well as the HeartMate III trial as those move forward here during the course of the year.

So with that, again I'd like to thank you for joining us. And I believe that we're going to take Q&A in the Olympic room here in just a few minutes. Thank you.

[Break]

Question-and-Answer Session

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Okay, I think we're ready to get started. So this breakout is going to be webcast. So you'll just have to bear with us, we only have the one mic in the room right now. We'll need to repeat questions for those that are listening on the web. Gary and Taylor, thank you, guys, for joining us. I think, just to start things off, obviously there's a lot of interest in what's happening competitively in the U.S. market. We'll hear from HeartWare later today. Unfortunately, you guys have to go first so you don't get a chance to really respond to what they're going to say. But maybe just talk a little bit about what you're seeing competitively in the market since their FDA approval and how the company is approaching the question of defending share and providing level of service that a new entrant is going to be challenged to match.

Gerhard F. Burbach

Sure. So, so far, we're encouraged by what we see in the way that our team is responding to that launch and kind of the competitive dynamics. I mentioned in the presentation that we saw a strong momentum with HeartMate II and CentriMag through the end of 2012. So certainly, we feel good in terms of our preparation and in kind of our readiness for that launch and our ability to compete here in the short term and the long term. So, so far I'd say, in terms of -- I won't spend a lot of time talking about their launch. They'll spend a lot of time talking about their launch. I'm more interested in talking about our company. But so far, I'd say it hasn't really been a surprise. I'd say they're pursuing a broader range of accounts than, I think, maybe some people. The view, I think, has been kind of that, "Hey, they're going to be focused on their trial sites." That's not the case, and I wouldn't have expected. Our expectation was that they'd be kind of talking to a broader range of accounts. We saw that before the approval happened. But we feel good about our ability to address that broad range of competitions across kind of the universe of accounts. We have 100 people out in the field here in the U.S. Really, we're focused on driving the clinical messaging; educating accounts on HeartMate II clinical outcomes, the very positive nature of those; making sure they do understand the clinical data on our competition. We're also focused on services and the support that we're bringing to these accounts, helping to drive the referral pathways that I mentioned during the presentation, helping them to build their practices successfully in terms of not only positive clinical outcomes but also positive economic outcomes. So we feel good about all of that. We have seen a few more BiVAD implantations than maybe -- if there was one thing that maybe I didn't fully anticipate. I view that as probably a net positive in terms of, if there is an opportunity for expanded market growth, it's for some patients that maybe haven't been treated previously to be treated. We've seen a few more of those kinds of patients than I've -- I hadn't anticipated. So I'd -- but again, I'd view that as kind of probably a net positive overall for the space. Which brings me to the last comment I'd make, which is that we definitely don't view this as a zero-sum game. While we're certainly focused on maintaining a strong leadership position, we have seen in Europe for a number of years ourselves and HeartWare kind of growing robustly, that market growing very robustly. So our expectation is that the market does have a lot of growth left. I talked about that during the presentation. I think we're really still in the early phases of potential expansion in be chronic MCS space. And so I think that's really kind of the key driver to success for ourselves and the other competitors that enter this market. So we're certainly enthused about what we saw in 2012 as well as what we see ahead of us here in 2013.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Yes. One of the things that we picked up in our survey work and, I think, has been echoed in some of the other sell-side surveys we've seen recently, as a little bit surprising is the extent to which surgeons are at least contemplating off-label use of the HVAD in the DT population. I think the street has historically viewed the bridge and DT segments as very distinct. The clinical community views it a little bit more of an artificial regulatory distinction. Could you just talk a little bit about how protected you think that piece of your business is and how you see the pie breaking down between bridge, true DT and what is sort of a gray area in the middle?

Gerhard F. Burbach

Yes, sure. So what I think the surveys have -- there's been a variety of conflicting data in the surveys. One that came out recently last week kind of came to a different kind of conclusion around the DT off-label use. So I think that, that data has been pretty mixed, and I think I certainly wouldn't make any firm conclusion based off of that data. I think it's also significant that, that -- those surveys have been focused just on the surgeons. In the U.S., it is a multidisciplinary kind of process of utilizing these devices at a vast majority of these centers. So certainly, we're focused not just on the surgeons but the cardiologists and the administrators and really kind of the full range of individuals that are involved in this therapy. So we do believe DT will still be a kind of strongly defensible segment. There will certainly be certain accounts that kind of push that envelope a bit harder, that are more committed, a couple of the folks you had on your conference call I'd point to as particular HeartWare bulls. So those people are out there but they don't represent the broad population of clinicians. So we're certainly focused on kind of continuing to drive the education around clinical outcomes. That's not something that happens overnight. It takes repeated exposure, kind of reinforcement. Also, I think, with some centers that haven't had an issue themselves, so then as -- it takes bringing that education to them and them having some experience over time to really reinforce the benefits that HeartMate II has in terms of clinical practice versus other options like the HVAD that they have available to them. So certainly, there is a desire for competition. It's kind of, I think, a natural process in kind of any business situation. And so certainly, we have to combat that desire. But I do believe we have the best pump. The clinical outcomes support that. We have to continue to drive that message, continue to build that knowledge and understanding and also continue to drive that value-added service capability, the importance of that in the centers building their practices which, I think, the substantial majority of these practices appreciate and will be an important part of their decision process as you get past this kind of initial phase. It is a multi-inning game. We're kind of in the first inning here. And I think, as time goes on, time will be our ally as clinical data accumulates, experience accumulates and what we're bringing to the party have kind of -- comes into sharper relief.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

You guys will be providing 2013 guidance here in a few weeks, and maybe we'll let the new CFO take a crack at one. Given the unusual level of uncertainty, the moving pieces, you've got HeartWare in the U.S., you've got Japan on the plus side for you guys, how are you approaching the guidance process this year? Should we assume a broader range than maybe we have in the past? Or how are you kind of setting expectations given some of these things that are still in the early stages of playing out?

Taylor C. Harris

Sure. So Chris, you're right. So 2013 guidance, we'll give on our Q4 Earnings Call. And really, the process is the same year in, year out. There have been, even last year, a bunch of variables, sources of uncertainty, in terms of what's market growth, what's -- when will HeartWare launch? At least, we now know HeartWare has launched, and so you can remove that one source of uncertainty from the table. But we do have ranges for a reason. I don't anticipate that we'll necessarily need to provide a bigger range. We go through a pretty detailed bottoms-up analysis, account by account, with our entire field team. We apply several levels of checks to that. Certainly, the -- a couple sources of upside that we will factor into the forecast that we mentioned in the presentation would be Japan, the Pocket Controller. We've quantified those to some extent. They're not massive sources of new growth in 2013 but should be good sustainable drivers over time. So that's really the process, and we'll obviously give the full detail here in a few weeks.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Maybe just 2 specific areas, maybe to get you talking around recognizing you're not ready to give numbers today. But in the past, I think, Gary, in response to a question on the Third Quarter Call, you had said you do anticipate positive revenue growth in 2013. So are you still comfortable with that even at the lower end of what you would think is a reasonable range? And then on margins, we've seen you guys invest quite a bit in market development. Obviously, you have a lot going on in the R&D pipeline. That was true even in 2012 with a really good top line growth profile as international did very well and U.S. continued to grow. No matter what happens, 2013 is going to be a tougher year on the top line from a growth perspective. So you have the med tech tax, you have the tougher top line. Even if we back out the med tech tax, is it fair to assume that we're going to have to see some margin contraction in 2013 as you guys look at putting the pieces in place for long-term growth in what is now a near-term period of challenging revenue growth?

Taylor C. Harris

So yes, Gary did mention in the presentation that we do still plan on targeting to grow the top line in 2013, both HeartMate II, that franchise, as well as the CentriMag franchise. So that's a consistent statement. In terms of the margin profile, I think you're right in terms of the strategic prioritization of our goals. The first goal is to set Thoratec up and the overall market up for continued long-term growth. So that means investing in things like the REVIVE-IT study, the ROADMAP study, a fully implantable system, HeartMate III, PHP. Those types of investments are strategic priorities. And really, I think, when you think about margins, yes, our long-term plan is absolutely grow in a profitable fashion, and you've seen that. If you look over a 5-year time horizon, you've seen that in spades. Year in, year out, our #1 goal is not to drop as much to the bottom line as we possibly can. The #1 goal is to set up that long-term strategic outlook that we've talked about. So really, I think the margin question depends completely on what the top line profile looks like. We haven't quantified that exactly, but we'll do more of that. Certainly, we're focused on -- outside of those strategic investment priority areas, we're focused on continuing to be very disciplined. This year, you've seen G&A expand only very, very modestly. I think we'll target continued discipline in the areas that we can. You've seen us return capital to shareholders in a pretty consistent fashion. I think we'll continue to do that. So we have -- we do believe that our level of profitability, our level of cash flow generation is a strategic asset that we have that we can continue to deploy. In terms of the exact quantification of what all that means to the bottom line, we'll give more detail here in a few weeks.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Is there any questions from the audience here in the room to get in? Maybe we'll transition to the pipeline a little bit, a number of things that we can talk about. The HeartMate III, you're going to be moving into clinical trials here around the middle of the year. Maybe just talk about what the time line for a regulatory approval would look like, when you anticipate being in Europe, what happens on the U.S. side. And then with the PHP, there's been some interesting occurrences recently with Abiomed and the FDA and how the agency is thinking about this class of devices. Has that changed at all your ideas about what the regulatory pathway for PHP is going to look like in the U.S. and maybe what the best way is to approach that market from a long-term perspective?

Gerhard F. Burbach

Great. Yes, definitely happy to talk about that. So HeartMate III, we -- over the course of the next couple of months, we expect we'll have that trial design finalized, agreed to with the European authorities and kind of really be set up for that midyear launch of that study. So I think that process is pretty straightforward and very far along. We're also pretty far along with FDA in terms of the trial design for the United States for HeartMate III. There is still additional dialogue, finalization of the specific protocol that needs to occur. So that will be kind of over the course of the next couple of quarters that we get that finalized with the FDA so that, as we're launching in Europe, we're also finalizing the trial design and getting that approval from the FDA to be able to launch the trial. We're targeting end of this year to be able to initiate that HeartMate III trial here in the United States, so that's consistent with what we've communicated most recently. And so the part of the -- we've talked about accelerating the kind of "from trial to approval" process for the U.S. in particular. Part of that is certainly more quickly moving from that European trial experience to the U.S. trial experience, and this would be definitely a substantial improvement versus previous device trials in that regard. Relative to PHP, we also feel good about the trial process in Europe, and that's also far along. And kind of over the course of the next couple of months, that should also be nailed down. And know, as we're entering a trial in the middle of the year, certainly we'll have the first-in-man experience here. We expect late this quarter for that to occur, so that will certainly feed into that European trial experience. On the U.S. side, as you mentioned, it's a fair bit more complicated. There was the panel that occurred late last year where it looks like it will be a PMA process for this class of devices going forward. We are engaging in dialogue here in the very near future with FDA. We're trying to get on their calendar to sit down and talk about the trial approach possibilities with the PHP. I won't say today that it's definitely going to be a PMA process, but it certainly looks highly likely that it will be a PMA process. So the bulk of our energy, if it's -- if we can still find a 510K pathway, that's kind of, I guess, upside. But most of our energy at this point is focused on what are the kind of PMA pathway possibilities; what are the trial approaches that we think make the most sense, that lead us to an approval path most rapidly, most confident trial enrollment, confidence of success of the trial, hopefully a label that's important and data that's important in terms of driving the adoption of the device in the market more broadly. So that's something that we're working on very aggressively right now and over the course of the next few months. So I'd -- I wouldn't expect in the Q1 -- or the Q4 call here in a few weeks that we'd have significant more to say on that front. But the Q1 call a few months from now, I'd expect that we'd have quite a bit more to talk about on that front.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

So just a follow-on to that, on the HeartMate III. Do you expect the FDA process to acquire 2 different trials, 1 for DT and 1 for BTT again? And then when you compare HVAD to HeartMate III, what are you trying to bring as a differentiation?

Gerhard F. Burbach

Yes. So we do expect that -- here, kind of for devices that are entering trial in the near term like HeartMate III, that there will still be 2 distinct approvals for Bridge-to-Transplant and Destination Therapy. We're trying to develop a trial design that kind of optimizes our ability to drive aggressively through the process for both of those indications. We haven't given the specifics of that for, I think, fairly obvious competitive reasons. So kind of in the future, as we enter that trial, we'll be able to provide some more clarity and specifics around what that design involves and why we're optimistic about kind of having aggressive time line to drive that forward. And I'm sorry...

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Differentiation, HeartMate III with HVAD.

Gerhard F. Burbach

Yes, right. Okay, so differentiation, HeartMate III versus HVAD, is really around the blood pathway, so it's what's inside the pump. The HVAD is a pump that's based on a hydrodynamic bearing. The HeartMate III is a fully magnetically levitated system, so the gaps are much larger in the HeartMate III. And so we think that, that has significant advantages both in terms of the ability to generate this near-physiologic pulse as well as less shear, less potential for thrombus issues, stroke issues. So our expectation is that there are significant benefits in terms of those adverse event rates, that have been the most problematic for VADs, and really have a next level of performance versus kind of all devices that have been available to date.

Unknown Analyst

Could you talk about how many centers that are that -- HeartWare? Are they -- did they go to your centers and they offered the same stuff or products into your centers or not? And then can you tell us anything about the -- your partners in -- with regard to the HeartMate III batteries and wire, people like that, that you've talked about here? I think [indiscernible]?

Gerhard F. Burbach

Yes. So the question was HeartWare, whether they'll be kind of pursuing the same centers that we're currently working with; and then a question about HeartMate III. The partners that I referred to were for the fully implanted system, so that may be what you're referring to, is that right, for the second part of your question. Okay, so in terms of the centers, it is definitely the same universe of centers that HeartWare or any other competitor would pursue. It's a small universe of centers, traditionally 100 transplant centers. And now there's also a number of what we refer to as open heart centers, not transplant centers that have gotten involved in the therapy, really focused on Destination Therapy. So really, that first group of transplant centers is the primary focus that HeartWare has in their launch, but we have also seen them pursuing some of these newer centers as well, those that have gotten scale. So very much, they are pursuing that same universe of centers, and that's what we're focused on in terms of education, driving our value proposition. In terms of the fully implanted system, WiTricity is a key partner that we're working with in the development of the wireless energy transmission capability. We believe they are the leader in that capability there, working with a variety of companies, including big consumer companies in the automobile space and consumer electronics, et cetera, where wireless energy transmission is important. So we're very excited to have that distinctive relationship with them. I mentioned we just exercised our option here in Q4 and have transferred the bulk of that technology into our internal program. And then there is also a battery technology partner. We have not disclosed the name of that partner. We've been working with them for some time now so we've gone through a couple of generations, and we're also very optimistic about that part of the product.

Unknown Analyst

And then with the PHP, real quick. I mean, you mentioned the SHOCK study and some of these other studies that have been published recently, yet the FDA made the decision to move balloons to Class II versus Class III. So what do you think in terms of non-roller pumps? Or what's the FDA looking for in terms of safety endpoints, why you can -- I mean, you -- for you to get that device approved and on market?

Gerhard F. Burbach

Yes. So the question was around the PHP and the fact that the balloon pumps remained Class II, and what endpoints are going to be required to get PHP approved. So I think the distinction there, the reason the FDA was comfortable with balloon pumps remaining Class II, was just the breadth of usage, the extent of data that exists in terms of the safety of those devices, the utilization and outcomes associated with those devices. So the issue with the trials that have come out is really in efficacy, not a safety issue, and the efficacy has not been particularly good in various patient populations. So that really presents the opportunity that we have with PHP. In terms of the bar that we have to prove, assuming that it is a PMA pathway, is identifying an appropriate kind of clinical application, patient population and then demonstrating safety and efficacy in that patient population. So there's a variety of possibilities there, high-risk PCI, acutely decompensated heart failure, AMI shock patients, a variety of possibilities in terms of what the -- how the comparator group could be constructed in terms of randomized trial, some kind of objective performance criteria. So those are all the kind of options that we're assessing right now working with clinical advisers, biostatisticians, to really come up with what we believe will be a trial that can be hopefully fairly rapidly enrolled, also have kind of high confidence around success and outcome that we expect to achieve to get an approval and also a highly marketable device. Sure.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

We have time for one more question. Maybe just...

Gerhard F. Burbach

Okay. It looks like it's yours.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Yes, I guess, to close it out. Maybe we'll just round out the pipeline discussion a little bit. On the fully implantable system, what are the next milestones we should be looking for there? And then HeartMate X still finds its way onto the slides, but you guys haven't talked in a while about that. So what's the status? What are some of the hurdles you guys are working on before you can give a little more color on what a clinical time line there could look like?

Gerhard F. Burbach

Yes, sure. So HeartMate X, we've really deemphasized, with the emphasis on HeartMate III. So I'd expect that we'll be able to talk to completion of a specific design that we would move forward with. We've talked previously about having still multiple designs that we were iterating. I expect in 2013 that we complete that, we get through proof-of-concept animal work to really have a design that we could move forward with as a kind of very small pump that could serve a partial-support kind of application as well as a full-support application potentially, but certainly partial support, I think, being the more interesting opportunity as it relates to HeartMate X. With the fully implanted system, that is still a much more aggressively pursued program and getting through the -- into the kind of integration phase where we can bring the system together. Move into animal application is the next major milestone that we're looking to be able to talk about. I don't have a specific time line today, but that's something that we'll be able to talk about here in the near future.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Thank you very much.

Gerhard F. Burbach

Okay. Thank you.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Yes, thank you.

Taylor C. Harris

That's it. Thanks, Chris.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Yes. And thank you, guys.

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