Thoratec's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb. 5.13 | About: Thoratec Corporation (THOR)

Thoratec Corporation (NASDAQ:THOR)

Q4 2012 Earnings Call

February 5, 2013 4:30 PM ET

Executives

Gerhard Burbach - President, Chief Executive Officer and Director

Taylor Harris - Vice President and Chief Financial Officer

Analysts

Matt Taylor - Barclays

Larry Biegelsen - Wells Fargo

Brooks West - Piper Jaffray

Rajeev Jashnani - UBS

Jason Mills - Canaccord Genuity

Chris Pasquale - JPMorgan

David Roman - Goldman Sachs

Bob Hopkins - Bank of America

Steven Lichtman - Oppenheimer

Suraj Kalia - Northland Securities

Bruce Nudell - Credit Suisse

Danielle Antalffy - Leerink Swann

Operator

Good day, and welcome to the Thoratec Corporation earnings conference call. At this time, I would like to turn the conference over to Mr. Taylor Harris, please go ahead sir.

Taylor Harris

Good afternoon and thank you for joining us today. With me is Gary Burbach, President and Chief Executive Officer. Gary will discuss highlights from the fourth quarter and fiscal year 2012, and then turn to our key operational and strategic objectives for 2013. I will then review the financial results for the fourth quarter and discuss our financial guidance for 2013. We will then open the call to your questions.

Before turning the call over to Gary, I want to remind you that during the course of today's conference call and the question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events or the financial performance of the company.

We caution you that these statements are only predictions, and that actual results may differ materially. We also alert you to the risks contained in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on forms 10-K and 10-Q. We do not undertake any obligation to update or correct any forward-looking statements.

Gerhard Burbach

Thank you, Taylor, and good afternoon. Thoratec had an excellent year in 2012, capped off by a strong performance in the fourth quarter. For the year, HeartMate II unit volume increased 21% in the United States and 30% internationally. And there have now been over 13,000 patients implanted with this groundbreaking technology, including more than 5,500 on ongoing support.

CentriMag had a strong year as well and has now been implanted in over 10,000 patients. These figures highlight the breadth of experience supporting these two key products, and we truly believe that they are the most proven independable devices of their kind on the market.

As we reflect on 2012, we are pleased with the success of our market development efforts, which in particular have driven increased Destination Therapy utilization and international market expansion, and also with a number of key milestones that we achieved. For example: we ramped enrollment in a range of important post-market studies; received IDE approval from the FDA, to begin the REVIVE-IT study with HeartMate II; launched the Thoratec Connect platform; began offering a service known as Continuum, which manages peripheral accessories and driveline management supplies, following hospital discharge; initiated an evaluation phase for the Pocket Controller, outside of the United States; achieved approval of HeartMate II in Japan; and made strong progress to our pivotal studies of both HeartMate III and HeartMate PHP. Also 2012 was a solid year for Thoratec, setting the stage for continued strength and market leadership in 2013 and beyond.

With respect to our financial results for the fourth quarter, Thoratec generated revenues of $128.5 million, a 17% increase over revenues of $109.4 million in the fourth quarter of 2011. Overall, revenue growth was led by robust performance of the HeartMate II product line, which grew 18% year-over-year as well as 31% growth in the CentriMag product line. These gains in our core chronic and acute product lines were modestly offset by an 8% decline in sales of PVAD and IVAD.

In terms of geographic breakdown, we recorded revenues of $102 million in the United States versus $88.2 million in the prior year, an increase of 16%. While international revenues were $26.5 million versus $21.2 million a year ago, representing an increase of 25%. The year-over-year impact of foreign exchange was unfavorable by $0.8 million.

For the full year 2012, revenues were $491.7 million, above the high-end of our previously issued guidance and a 16% increase relative to revenues of $422.7 million in 2011. The HeartMate and CentriMag product lines drove growth for the full year at 19% and 39% respectively, offsetting a 33% decline in the PVAD and IVAD franchise, which represented less than 4% of total revenues in 2012.

In terms of geographic breakdown, we achieved growth of 15% in the U.S. and 21% internationally. Excluding the effects of foreign exchange, which was unfavorable by $4.6 million as well as acquisition-related revenue, year-over-year international revenue growth was 20%. As for the bottomline, we generated $1.83 in non-GAAP earnings per share, an increase of 17%, while we continue to make important investments in our market and product development initiatives.

Looking back on the full year, HeartMate II volume grew 23% worldwide to 3,858 units in 2012, including 21% growth in the U.S. and 30% outside the U.S. The strong growth highlights the success of our market development activities, including our referral initiatives within the larger cardiology community as well as our center development activities.

In the U.S., Destination Therapy has remained a clear growth driver. The latest public data from the INTERMACS registry shows that DT as a percentage of the total U.S. market has risen from 19% of implants prior to 2011, to 39% of implants in 2011, and to 45% in the first nine months of 2012. For HeartMate II specifically, we estimate that the DT indication currently represents close to 50% of U.S. volume.

We also continue to benefit in the U.S. from our efforts to develop the broad universe of VAD implanting centers, including smaller size transplant programs and open-heart centers or our group 3 centers. This group of over 70 centers, which adopted HeartMate II in 2009 and beyond, grew 30% in the fourth quarter and over 50% for the full year. And as of the fourth quarter, they represented approximately 20% of U.S. HeartMate II volume.

While these centers drove outsized growth during 2012, we also saw strong double-digit increases at the more established transplant programs. Looking forward, we anticipate that the DT indication will continue to drive growth across the spectrum of centers, but with an increasingly important contribution from smaller transplant and open-heart centers.

Turing to 2013, we have three primary goals. First, continuing to drive worldwide market growth, in both chronic and acute circulatory support. Second, solidifying HeartMate II's market leadership position through clinical differentiation and unrivaled breadth of support. And third, driving continued innovation within the MCS field, including advancing both HeartMate III and HeartMate PHP in the pivotal clinical trails.

In terms of market development for chronic MCS, we continue to execute on our core strategy, which incorporates five key elements: referral development; center expansion; clinical data generation and publication; continued improvements in clinical outcomes; and global expansion. We have focused significant effort on educating the referring cardiologist community, primarily through our market development field team and a full calendar of programs at the national and local levels.

We have seen strong productivity gains from our investments in this infrastructure. We closely track referral activity associated with our market development team, in particular, referrals that lead to implants. And in 2012, we estimate that our team helped generate over 45% of our total U.S. HeartMate II implant activity, and accounted for the vast majority of the growth that we achieved.

Additionally, there were over 100 community cardiologists in 2012, who referred three or more patients that were implanted with an LVAD, up from approximately 70 in 2011. An increasing number of these cardiologists are now managing LVAD patients within their practices, some as part of our Shared Care program, and we expect this trend to continue. We anticipate continued success in our referral development efforts in 2013, as we've ramped our team to over 35 individuals in United States.

To compliment our outreach to clinicians, we've also been increasing our patient oriented education efforts in a targeted fashion. In 2012, we expanded our patient ambassador program to include approximately 200 patients. In the fourth quarter we began a pilot of a multimedia direct-to-consumer campaign in partnership with a leading VAD Center.

These efforts supplement the continued focus we place on working with implant centers to generate positive community and local media attention on VAD programs, as well as on providing web-based educational initiatives for patients and their caregivers. Our goal with all of these programs is to raise the level of awareness of LVAD therapy as an important treatment option for advanced heart failure, empower patients and their caregivers, and to demonstrate the significant survival and quality of life improvements achievable with HeartMate II.

We believe an informed patient is an empowered patient, and programs such as these highlight our commitment to providing unparalleled resources to LVAD patients. In 2013, we will continue to build our HeartMate II patient ambassador program, evaluate initial results from our direct-to-patient pilot programs, and test additional patient outreach initiatives.

Center development remains a critical element of our efforts. We ended 2012 with a total of 323 HeartMate II centers worldwide, including 164 in the U.S. and 159 internationally. In 2013, we plan to add approximately 15 new HeartMate II centers in the U.S. and 20 to 25 centers internationally. Of this international increase, approximately half were anticipated to come from the Japanese market, where we plan to launch HeartMate II commercially at the end of Q1.

We also anticipate that the number of DT certified centers in the U.S. will continue to grow from 118 at the end of 2012 to over 125 by the end of 2013. In addition, the new center additions though, a key component of our center development strategy involves improving efficiency, building capacity, and facilitating growth for the existing centers. We've significantly increased our capabilities in this area in recent years, as we view the Thoratec support infrastructure as a critical driver, not only of market growth, but also of competitive differentiation.

In 2012, we launched Thoratec Connect, which has been adopted in 14 sites to date. Thoratec Connect is a unique internet-based MCS program management system, designed to meet critical administrative needs, such as implants and equipment tracking for Thoratec products, and product incident reporting and follow-up.

We also ramped Shared Care, which is a Thoratec initiative, designed to facilitate the post-discharge management of patients by their referring cardiologist and community hospitals. The goal of the program is to return patients to their referring physicians, thereby increasing their engagement in Destination Therapy patient care, at the same time, to increase implant center capacity by reducing the burden of follow-up care.

At the end of 2012, we are close to 50 sites involved in the effort, with the equipment necessary to monitor HeartMate II patients post-discharge, and we plan to expand this to about 80 sites by the end of 2013. The Shared Care program is an important patient quality of life benefit, particularly for VAD patients located outside of metropolitan areas, who might otherwise you have to travel several hours to a major center to receive follow-up treatments.

Late in 2012, we added another service offering to the Thoratec platform, which we are branding as Continuum. Continuum manages the ongoing provision of driveline dressing supplies and replacement accessories for patients living on HeartMate II support, after discharged from the hospital. These activities, including communication with the patient and his or her insurance provider, as well as billing the insurance provider are time consuming and labor intensive, and Continuum provides VAD teams with a resource to outsource these responsibilities.

We established Continuum through the acquisition of the assets of a company called CFK Cardiac Technologies during the fourth quarter. We already increased our resource commitment in an effort to enhance and expand the service offering to additional centers and patients in 2013 and beyond.

The third element of our market development strategy is the continued generation and dissemination of data, describing the approving clinical and economic outcomes with HeartMate II. The key part of the data generation effort, we are pursuing an aggressive post-market study program, and we ended the year with 90 out of 200 patients enrolled in ROADMAP. 102 out of 200 patients enrolled in trace and 206 out of 400 patients enrolled in SSI, and we plan to complete enrollment for all three of these studies during 2013.

Meanwhile, we will be initiating enrollment in C Heart Failure, a European study that aims to involve cardiologists and implant centers in evaluating and implanting HeartMate II in a slightly less sick patient population, similar to the goal of ROADMAP in the United States.

In addition to these post-market studies of HeartMate II for earlier stage patients, we are pleased to be participating in the REVIVE-IT trial in United States, for which we recently announced IDE approval from the FDA. REVIVE-IT is a perspective randomized control trial, designed to enroll up to 100 non-transplant eligible patients in Class III heart failure, predominantly outside the current improved indication for HeartMate II support.

Patients will receive either HeartMate II or optimal medical management, and will be followed for two years. We are collaborating with the University of Michigan, University of Pittsburg, and other preeminent VAD program across the country on this pioneering study, and we look forward to the commencement of enrollment around mid year.

Another important focus is our continued drive toward further improvements in patient outcomes. Post-market study such as SSI and trace certainly contribute to this effort by providing data on best practices in area such as driveline management and anticoagulation. We've also maintained an active focus on site-specific clinical improvement initiatives, which we conducted with over 60 centers worldwide in 2012.

We plan to continue these efforts in 2013 as well as our ongoing work group initiative, focused on patient management techniques for bleeding and thromboembolic risk, infection, and aortic insufficiency, as well as the important topic of older DT patient selection and management. Thoratec takes pride in the proactive and transparent manner with which engage the clinical community on data and best practices, and we aim to continue optimizing the clinician and patient experience with HeartMate II in 2013.

The final element of our commercial expansion strategy is expansion in international markets, and 2012 marked continued progress toward that end. HeartMate II volume grew 30% outside the U.S. last year, including an impressive increase of over 25% in our direct markets in Western Europe, that boosted by close to 50% growth in distributor territories in Europe and Asia.

We believe that these geographies represent sustainable markets for VAD therapy, but we do not anticipate them to grow at the pace they did in 2012. However, we do plan to enter another important new market in 2013, namely Japan.

In December, we announced approval from Japan, the MHLW, to market HeartMate II as a Bridge-to-Transplant therapy for patient suffering from advanced heart failure. We plan to train approximately 15 centers during February, and we anticipate receiving reimbursement approval toward the end of the first quarter, at which point we will initiate our commercial launch.

We are enthusiastic about the long-term potential of the Japanese VAD market, although for 2013, we'll be focused on maintaining excellent clinical outcomes and on a disciplined launch within the existing market opportunity. While we will continue to aggressively pursue our market development initiatives in 2013, we're also highly focused on solidifying Thoratec's leadership position in the VAD market on a global basis.

We believe that HeartMate II offers the most proven and dependable chronic MCS platform on the market, and we'll continue to strengthen efforts to disseminate our compelling clinical data. HeartMate II is the most extensively studied VAD in history, with over 250 published peer-reviewed articles, expanding more than 1,300 clinical trial patients, extensive post-market study analysis and over 13,000 implants.

Despite highly challenging patient population, clinical outcomes with HeartMate II have been excellent. We've spoken in length about HeartMate II's favorable survival rates and low adverse event rates, particularly when it comes to stroke, potentially the most catastrophic complication. However, I would also point you that the quality of life and functional improvement benefits of HeartMate II, which many patients value more than extended survival.

In a review of the entire 486 patient Bridge-to-Transplant clinical trial as well as an extensive 1,496 patient Bridge-to-Transplant real-world commercial experience, Dr. Ranjit John and the other lead authors reported that 94% of HeartMate II patients in the clinical trial were able to complete the six-minute walk test after six months of support, a remarkable improvement from baseline, when only 16% of the patients could complete the test.

When I meet with HeartMate II patients, what gratifies me the most is hearing the stories of how they can once again pursue the activities they love. The message is sustained improvement quality of life and functional status, alongside impressive freedom from catastrophic events like stroke, is one that we will continue to deliver in 2013.

In addition to the clinical story, however, we believe that Thoratec stands alone in the VAD sector with respect to our broad-based service infrastructure, delivered by our highly experienced field team. We refer to these support initiatives collectively as Thoratec 360, a comprehensive program that extends well beyond the initial implant, expanding the full process from referral generation to program development to patient education and outpatient management.

It includes clinical support, training and education, reimbursement, technical support and market development, as well as new initiatives from 2012, such as Thoratec Connect and Continuum. We believe that the Thoratec 360 initiative is a critical component of our strategy to continue to both grow the market and support our leadership position.

Turning now to our product pipeline. I will briefly update you on the status of some key programs and important milestones for 2013. As a reminder, on the chronic side of our business, we have a three-pronged product development strategy that includes continued evolution of the HeartMate II platform, development of next-generation pumps, and the introduction of cross-platform breakthrough technologies that substantially enhance both HeartMate II and future pump platforms.

In the acute space, our strategy is to develop a broader offering around CentriMag, to address additional surgical needs such as ECMO, and to enter the market for percutaneous support with a naval technology known as HeartMate PHP. With respect to the evolution of HeartMate II, our next scheduled introduction is the Pocket Controller, which is designed to provide a significant improvement in patient quality of life as well as enhanced patient safety.

We have concluded a successful limited market evaluation in Europe for the Pocket Controller, in which we received encouraging feedback from clinicians as well as approximately 100 patients who have utilized the device. We plan to launch commercially in Europe, later in the first quarter, following approval of some modest software adjustments by our notified body and during the second quarter in the United States.

As for HeartMate III, we remain on track to begin a pivotal CE Mark study in the middle part of this year. For this study, our preliminary plan is to enroll 50 patients from five to 10 sites across Europe and Australia, with a primary endpoint of survival at 180 days compared to estimated survival of these patients on medical therapy as predicted by the Seattle Heart Failure Model.

As a reminder, HeartMate III will be the first truly compact, fully magnetically levitated chronic VAD on the market. The expected design benefits of our full magnetic levitation technology are numerous, including wider blood flow gaps, with improved blood handling characteristics as well as the ability to generate an artificial pulse, all of which are expected to enable HeartMate III to deliver benefits in a number of key areas, including the reduction of stroke, bleeding, thromboembolic events and other complications.

As for the U.S. regulatory process, we plan to meet with the FDA within the next few months to review our clinical trial strategy and reach agreement on the trial protocol in advance of our IDE submission, and we continue to target yearend for the initiation of our pivotal U.S. trial.

Turning to our efforts to develop a fully implantable system, we remain highly enthusiastic about the technical pathway we are pursuing, following additional focus group testing with clinicians. Our platform is designed to be a truly usable and convenient for patients, while at the same time offering all of the clear advantages related, in particular to quality of life and reduced infection risk, which would come through the elimination of the percutaneous lead.

In the fourth quarter, we achieved an important milestone with respect to the wireless energy transfer approach that we plan to utilize, as we exercise our option on the WiTricity technology for the field of mechanical circulatory support, and completed the vast majority of the technology transfer process to our in-house team.

Through 2013, we will continue to advance the individual component technologies, including the implantable battery, controller and wireless energy coils, and integrate them into a full system. For our acute product line, we are devoting resources to address both surgical and percutaneous support opportunities.

CentriMag and PediMag, our fully magnetically levitated pumps for adult and pediatric use, hold a leadership position in the field of acute surgical support. We continue to advance this platform through introduction such as a new system console and transporter during 2012. And in 2013, we plan to begin exploring evolution of this product family to address the ECMO market. On the percutaneous front, we made encouraging progress with HeartMate PHP during 2012, and look forward to entering clinical trials in 2013.

PHP could open up an entirely new market opportunity for Thoratec, providing acute catheter based support for a number of underserved patient populations worldwide, including high-risk PCI, cardiogenic shock and acutely decompensated heart failure. The key point of differentiation for PHP is expected to be its ability to generate between four and five liters of blood flow, over the full cardiac cycle, significantly more than other percutaneous options.

Our market research today suggests that support at this level would adequately address a broad range of clinical needs, and we've seen significant clinician interest in the device and its upcoming clinical trial. We are currently targeting our first in-man experience beginning later in the first quarter, followed by a pivotal CE Mark trail in up to 50 high-risk PCI patients, beginning in the middle part of the year. As for the U.S. process, we have initiated discussions with FDA, regarding an approvable PMA trail strategy, and we'll have more to report in subsequent calls.

Before turning the call over to Taylor, I would like to say again, how pleased I am with our performance in 2012; and how well positioned I believe we are, entering 2013. I am encouraged by the market's continued strength and expansion, especially for the Destination Therapy indication in the U.S. and emerging markets internationally.

There is overwhelming clinical data supporting the use of HeartMate II, and we continue to build upon an unrivaled service infrastructure to support expanded optimize utilization. At the same time, our product development effort should bare significant fruit in 2013, with commercial launch of the Pocket Controller and the commencement of clinical trails for HeartMate III and PHP.

Thank you, again, for joining us today. I look forward to speaking with you during the Q&A session. I'll now turn the call over to Taylor.

Taylor Harris

Thank you, Gary. Before reviewing our results, I want to remind you that non-GAAP net income excludes the tax affected impact of amortization and impairment of intangible assets, share-based compensation expense, transaction costs and inventory fair market adjustments related to acquisition activity and the accounting for convertible debt instruments that maybe settled in cash. You can find a reconciliation between our GAAP and non-GAAP results in our earnings press release at www.thoratec.com.

Revenues for the fourth quarter of 2012 were $128.5 million compared to revenues of $109.4 million in the fourth quarter a year ago, an increase of 17%.

Non-GAAP gross margin for the quarter was 71.7% versus 71.4% in the fourth quarter a year ago. Factors impacting gross margin versus the prior year, include volume-based efficiencies and favorable product mix, offset in part by a volume-based tax on our VAD sales in France, which we recorded for the first time in the fourth quarter of 2012, and will continue to incur in future periods.

Non-GAAP operating expenses for the quarter were $57.6 million versus $43 million in the fourth quarter a year ago. Of this increase, over $6 million was related to one-time project-related payments and incentive compensation, with the balance driven by our ongoing investment in product and market development initiatives.

On a GAAP basis, we recorded a $50 million non-cash charge in the fourth quarter, due to the impairment of intangible assets related to the PVAD and IVAD product line, reducing the current book value of these intangibles to approximately $13 million. Unit shipments for this product line declined over 40% in 2012, and we anticipate continued erosion of the business in future periods.

As such, we performed an updated analysis of the intangible assets on our balance sheet and wrote them down to fair market value. As a reminder, the PVAD and IVAD business represented less than 4% of our revenues last year.

Turning to our tax rate. The company's effective non-GAAP tax rate for the quarter was 35.2% versus 36.8% last year. This year-over-year decline was attributable to an increased proportion of income generated in lower tax jurisdictions. However, our fourth quarter rate was higher than we had anticipated, due primarily to the delayed enactment of the federal R&D tax credit. We will recognize the benefit of the 2012 credit during the first quarter of 2013.

Non-GAAP earnings per diluted share in the quarter were $0.38, in line with the fourth quarter of 2011. Weighted average diluted shares outstanding for the quarter were 59.4 million versus 60.2 million a year ago. Contributing to the share count reduction was the $75 million accelerated share repurchase program, which we initiated during the fourth quarter and anticipate concluding around the end of Q1 2013. For the full year, our revenues were $491.7 million, up 16% from $422.7 million in 2011.

Non-GAAP gross margin was 71.7%, an increase of 50 basis points compared to 71.2% in 2011. Gross margin expansion was driven by volume-based efficiencies, favorable product mix, as well as the acquisition of Levitronix Medical. Full year non-GAAP operating expenses grew 25%, driven by approximately 30% increases in both R&D and sales and marketing. The largest component of this growth was the addition of R&D and field-based personnel to support the market development and product development strategy that Gary outlined earlier.

Additionally, we incurred greater project related expenses. We ramped our investments in key longer-term growth initiatives such as, Pocket Controller, HeartMate III, PHP, our fully implantable VAD system, post-market study such as REVIVE-IT, and Thoratec Connect.

On a non-GAAP basis, the company's effective tax rate in 2012 was 32.4% versus 34.5% in 2011. Contributing to the lower tax rate was a greater percentage of earnings generated in lower tax jurisdictions, a function of the Levitronix Medical acquisition. This was in part offset by our inability to recognize federal R&D credits.

Weighted average diluted shares outstanding were 59.6 million, down from 62.6 million in 2011. Factors impacting our diluted shares outstanding included share repurchase activity in both years as well as the retirement of our convertible debt during 2011.

With respect to the balance sheet, we ended the year with $260.4 million in cash and investments. This compares to $307.9 million at the end of the third quarter and $209.5 million at year end 2011.

During 2012, we generated over $120 million of cash flow from operations, while our primary use of cash was approximately $80 million for share repurchase activity. As a reminder, during the fourth quarter we initiated $75 million repurchase program, part of $150 million total authorization, which is available through the end of 2013.

Turing now to guidance for 2013, we expect that revenues for the full year will be in the range of $490 million to $510 million, driven by growth of the HeartMate and CentriMag product lines, and partially offset by a continued decline in sales of PVAD and IVAD.

While we don't provide specific quarterly guidance, I would note that we anticipate the second half of the year to be generally stronger than the first. Our expectation is that our key growth drivers, including Destination Therapy and the development of emerging VAD programs, will continue to build as we progress through the year, and that the trialing dynamic for the HVAD device is likely to be more pronounced in the first part of the year.

Moreover, we anticipate that the positive contributions from our entry into Japan and the U.S. launch of the Pocket Controller will not begin until the second quarter. As per non-GAAP gross margin, excluding the medical devices tax, we anticipate gross margin to remain relatively consistent with 2012 levels.

However, we anticipate recording approximately $6 million in our cost of goods line during 2013, related to the U.S. medical device tax. The effect of this tax will be to reduce our reported gross margin both GAAP and non-GAAP, and to reduce EPS by approximately $0.07 per share. Including the effect of the medical device tax, we expect non-GAAP gross margin to be approximately 70.5%.

Given the slower revenue growth that we are expecting in 2013 relative to previous years as well as the impact of the new medical device tax, we had looked closely at opportunities to control operating expenses, while at the same time allocating funds to vital long-term strategic initiatives. As such, while we are planning to grow operating expenses, our guidance does imply a significant deceleration in spending growth relative to recent years.

For 2013, increases in operating expenses are expected to be driven primarily by research and development. As we plan to move PHP and HeartMate III into pivotal clinical trials, continue to advance our fully implantable system initiative, and incur increased post-market study expense for HeartMate II.

Finally, 2012 non-GAAP earnings per diluted share are expected to be in the range of $1.76 to $1.86 per share. This range assumes a tax rate of approximately 30.5% to 31%, and approximately 59 million weighted average shares outstanding.

Thank you, again, for joining us today. And we'll now open the call to your questions. In the interest of time, I would ask you to please limit your questions to one and a follow-up. Operator, we're now ready to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) We'll take our first question from Matt Taylor of Barclays.

Matt Taylor - Barclays

Thanks for the color on your growth expectations for the next year. I just wanted to know if you could give us some additional thoughts on the sources of growth in terms of new centers at U.S., Japan versus other, and then in the U.S. DT versus BTT, and new centers versus core growth?

Gerhard Burbach

Just kind of on a maybe a market basis first, we're expecting mid-teen growth worldwide, and really looking for that to be reasonably consistent in the U.S. as well as internationally, in terms of the chronic implantable market. In terms of our growth, we're definitely looking for that to be driven by Destination Therapy growth in the United States.

We're not really expecting to see much growth in the Bridge market, maybe modest growth there, but in terms of our growth, definitely driven by Destination Therapy domestically. Internationally, we expect to see broad-based growth, both in more traditional markets in Western Europe as well as the newer markets, where we saw a lot of expansion during 2012, places in Eastern Europe, Middle East, et cetera.

And then, as you mentioned, the introduction of Japan. We do have relatively kind of modest expectations for Japan during 2013. We're really just looking to penetrate the market that currently exists, which has been in the kind of 40 to 50 range. There were six units that were sold in. It's kind of an initial stocking event into Japan in Q4. And so it's kind of a growth delta versus that. We expect that to be a contribution of about $3 million during 2013.

Matt Taylor - Barclays

And just a follow-up on that, you mentioned seeing potentially some increased trialing in the first half from the HVAD launch. Can you give us some colors around your expectation for BTT market share in the U.S. for you or for your competitor? And also just curious about pricing, where you're anticipating that in terms of potential price competition?

Gerhard Burbach

We're not prepared to provide specific market share expectations, but directionally we do expect to maintain a substantial market share advantage within the Bridge-to-Transplant space. And I'm sorry, the second part, pricing, so generally kind of the pricing that we've seen in the market from the competition at this point has been generally consistent, relatively similar to our pricing.

There's one account where we've seen a more aggressive pricing structure, so certainly that's something we continue to watch. At this point, we don't have a significant assumption around ASP reduction in the plan. We do have kind of a modest assumption where there's a kind of $2 million to $3 million revenue impact from ASP reductions, that's been not only kind of competitive activities, but also volume-based pricing, as accounts grow, many accounts have volume-based kinds of pricing structure.

Operator

We'll go next to Larry Biegelsen of Wells Fargo.

Larry Biegelsen - Wells Fargo

Gary, one clarification question, typically you gave us the U.S. and OUS. The unit growth rate for the quarter, was it similar to the worldwide growth of 20%?

Taylor Harris

Larry, I think the U.S. was around 19% and international drove growth, I believe it was 23% in the quarter.

Larry Biegelsen - Wells Fargo

So in Europe, Gary, it looks like you took market share there, you recaptured the market leadership position. Maybe you can talk about what happened in the quarter and the sustainability of that? And just touch upon, you said in your prepared remarks or earlier, mid-teens growth for Europe as well as OUS. That mid-teens growth will be a lot slower I think than we've seen recently. So if you can just talk a little bit about what's going on in Europe?

Gerhard Burbach

Yes, we certainly were pleased with our performance internationally, and in Europe, in particular, in Q4. And we do believe that we did gain some market share. Obviously, the final report from our competitors isn't out yet, but based on what's been reported previously we think that's true.

And it's not just based on what happens in a quarter, it's obviously kind of a multi-quarter process to drive initiatives, to drive clinical messaging, et cetera, that kind of focus on account-specific strategies. We did change our leadership in Europe in the kind of late second quarter of last year. So I think that's certainly having a positive impact.

We are adding additional resources. We added a number of additional members to the team there in Q4. So certainly we have ramped up our focus and efforts. And I think that we saw some positive impact of that during Q4.

Taylor Harris

You're right. Market growth in 2012 was very robust outside the U.S. For our business, we gave the statistics that the core Western European markets grew in the mid 20% range, while our distributor territories, which are predominantly Eastern Europe, grew around 50%. We obviously, had dynamic growth in some new market opportunities. We talked about that before, and that was the similar phenomenon across the market.

So as we look to 2013, we believe especially with respect to some of those new markets from 2012, those are sustainable opportunities, we're just not expecting to have the same kind of growth that we did during 2012. So I'd say where you see the real change in market dynamics is in those emerging markets that were new to 2012, obviously supplemented for Thoratec by the entry into Japan.

Operator

And will take our next question from Brooks West from Piper Jaffray.

Brooks West - Piper Jaffray

Gary, there has been a lot of debate on Wall Street on the potential segmentation of the U.S. patient population. We talk about kind of 25% clearly BTT indicated 25%, clearly DT indicated, and then you've got this middle 50% that there seems to be some leeway.

I'm wondering if you've seen since the competitor launch, I realized that's fairly recent, have you seen any trends in the way patients are being categorized? And I wanted to test around, have you seen any kind of trends in your share of that middle 50% and kind of how you're thinking about your share of that middle 50% as we look forward to '13? And then I've got a follow-up?

Gerhard Burbach

So first of all there percentages in INTERMACS are actually more like a quarter of Bridge, a third in that middle section and 45% in DT. And we have not seen a shift here. Now, the INTERMACS data there is a lag in the reporting of that, but certainly in the reporting that we see internally we haven't seen some notable shift in terms of how patients are being identified. So we don't really see any kind of fundamental change in terms of how the markets behaving at this point in that regard.

Brooks West - Piper Jaffray

And as you think about your '13 guidance, is that kind of the assumption that those patient populations are going to, by the definitions are going to stay fairly static?

Taylor Harris

Obviously, were assuming that DT is the predominant growth segment. Our assumption is that that kind of absolute percentage of the market represented by DT is going to continue to expand.

Brooks West - Piper Jaffray

And then, one follow-up along those lines, you spend a lot of time on your market development strategy and I appreciate that. I'm just wondering, broad strokes in the U.S. again since the competitor launch, if you're changing any approach in the market development side?

Gerhard Burbach

Not fundamentally at this point. We continue to add to our resources and we've continued to build out that team. Certainly, we are looking at kind of our partnership with programs kind of where are we building programs together versus potentially a stronger commitment to competitive devices. And we're certainly going to focus our resources in those places that we're building a program collaboratively.

Operator

We will go next to Rajeev Jashnani with UBS.

Rajeev Jashnani - UBS

My question, so I'm just going to go back to the market share dynamics in the U.S. and I know you don't want to provide a whole lot of granularity here. But maybe if you could even qualitatively help us reconcile, I mean it seems like HeartWare got off to a fairly decent start in December. And just for rough math, it seems like the market shares that you maybe assuming for HVAD in the BTT segment are not assuming much improvement from that base, given it was a very short period of time. Maybe just help us, if you can a little bit more, to understand what your expectations for them in the BTT segment?

Gerhard Burbach

I don't think you can extrapolate one month into kind of a trend. If you look at our experience, when we got our approvals for Bridge, DT, there were bolus of activity. So I think you just have to be very careful. You have to look at I think multiple quarters of data to be able to really start to kind of form of view as to kind of how things are progressing.

So we continue to view that the fundamentals of what's going to determine kind of the competitive outlook that we've got strong clinical argument, that we're going to be driving over the course of the coming months. It's not something that kind of in a first interaction is necessarily going to be sticky. I think in most instances, it takes multiple interactions, it potentially takes clinical experience that's consistent with that clinical messaging, and then of course, our service/support offering, continue to enhance back, continuing to build value beyond the pump itself.

Rajeev Jashnani - UBS

And maybe one follow-up, are you seeing a different response in terms of the clients or your customers with respect to the clinical data for those who participate in the HVAD clinical program relative to those who don't have experience with the device? And then separately, on the pipeline, I was wondering if, perhaps I missed this, but when based on the clinical trial timing you discussed for HeartMate III would that imply for potential approval in Europe?

Gerhard Burbach

I don't think experience in the trial is kind of necessarily a determining factor. You have centers who is experienced in the trial was generally more positive and you have centers who is experienced in the trial was generally not so positive. Obviously, to get to a 20% stroke rate, you've got to have a number of centers with not such great experiences.

So not surprisingly, the message is stickier, quicker with centers whose experience wasn't as great versus those that maybe had a better experience. When you get to centers that are outside the trial, a lot of that depends on who they interact with, kind of where are they getting their information. And obviously, we look to influence that overtime by bringing the data to the table versus just kind of anecdotes and the kind of information that typically gets exchanged earlier on.

And then, we haven't provided specific approval timelines at this point. So we wanted to provide some more clarity to the trial process and we'll continue to provide some more specificity in terms of getting through that process to an approval and launch of HeartMate III.

Operator

We'll go next to Jason Mills with Canaccord Genuity.

Jason Mills - Canaccord Genuity

Looking at your guidance, 15% growth international, and I assume that you expect to grow the CentriMag. So if we take those two variables that are mentioned here are generally in the ballpark. It looks like your expectations for U.S. VAD revenue are down on year-over-year basis. I think we've talked about this on your conference calls in the past. You fully expect notwithstanding the launch of the HVAD to grow.

So could you perhaps give us a better assessment than I'm giving here of your thoughts about your U.S. VAD business? And then the important parts over that, my guess is you don't have any interest in just seeding the share in BTT or DT, regardless of indication you're going to be competing across the board. So perhaps talk about your strategies, just from more of a homogenous patient population standpoint. Isn't that what really matters is just competing across the board as opposed to just on the DT side?

Taylor Harris

I think one other dynamic to introduce into the equation is PVAD and IVAD where we're expecting, call it, an $8 million decline year-over-year. I think when you factor that in what you'll see is that on a worldwide basis we're expecting growth in both the HeartMate II and the CentriMag platforms. And that's consistent with what we've said for the last six months or so.

We obviously have a small positive benefit from Japan, a small positive benefit from the Pocket Controller this year. So there is a possibility within the guidance range that U.S. unit volumes will be modestly down year-over-year, but on a worldwide basis we're driving towards growth and will certainly drive towards growth in the U.S. as well.

That's one reason that we've tried to quantify for people over the last several calls, what percentage of our business in the U.S. is at risk, and the fact that we do have growth drivers outside of that.

Gerhard Burbach

And relative to the kind of competitive approach, I think the foundation is really consistent with what I just described in terms of the clinical focus, the service, partnership in driving successful program growth both clinically as well as economically. Very importantly making sure that the multidisciplinary team is engaged in the process, tends to be that the surgeons, which are the ones that seem to be get surveyed kind of most extensively by you guys are the ones that are most friendly to the HVAD value proposition. So we're very focused on not only the surgeons but also the cardiologists, the VAD coordinators, the administrators, really the kind of full spectrum of individuals that are involved in the care of these patients.

Jason Mills - Canaccord Genuity

And my follow-up is on PHP. Is there any contemplated revenue in 2013 from PHP, I guess, it would be outside of the U.S.?

Taylor Harris

No. The trials outside the U.S., both for HeartMate III as well as PHP there is no reimbursement for those devices.

Jason Mills - Canaccord Genuity

And it doesn't contemplate an approval sort of towards the end of the year for PHP at least?

Taylor Harris

Not this year.

Operator

We'll go next to Chris Pasquale of JPMorgan.

Chris Pasquale - JPMorgan

Maybe just to start with this quarter, and it seems that that IVAD and CentriMag really drove the upside relative to our numbers, and it both seem to have a bit of a positive inflection point compared to how they were trending. Can you point to anything specific that drove that? And maybe call out if there was any unusual stocking activities at the end of the year?

Taylor Harris

So you're talking about Q4?

Chris Pasquale - JPMorgan

Yes.

Taylor Harris

So Q4 all three product lines were up versus our expectations. So HeartMate, CentriMag and PVAD, I don't think you mentioned HeartMate, did you?

Chris Pasquale - JPMorgan

No I was talking about relative to our expectations, it seems like PVAD, IVAD and CentriMag really drove the upside. I was wondering if there is any specific there.

Gerhard Burbach

Well, I just wanted to correct, versus our expectations HeartMate was definitely up as well.

Taylor Harris

But with PVAD and with CentriMag, PVAD did have a better quarter in the fourth quarter than it did in the first three quarters of the year. It's a business that is concentrated to small number of accounts, so you can have increased lumpiness in that product line. So I wouldn't say there's anything fundamental to explain that. And as I mentioned before, we're expecting a continued pretty material decline in 2013.

With CentriMag, what you saw, through the first nine months of the year, we have had very strong unit growth. But we have had a weight on overall revenue growth because of some tough comps on the non-pump revenue portion of the CentriMag business. We'd had heavy new center activity in the previous year, lighter in the first nine months of the year.

We got back more imparity between pump-related revenue growth and non-pump related revenue growth in the fourth quarter. So that was certainly positive to bring on some more new centers in the fourth quarter of the year, but again, nothing truly fundamental.

Chris Pasquale - JPMorgan

And then maybe just to touch on a couple of the items that are going to help you in '13. You said about $3 million in revenue from Japan, how should we think about pricing there? Am I right in thinking that that implies something in the mid-20s for pump sold during the year? And that how much do you think the Pocket Controller could contribute to sales?

Gerhard Burbach

With Japan, we're working through a distributor. So you have to realize there will be a distributor cut that's taken there. So the unit assumption is certainly more than that in mid 20s. We're not expecting that we get the full market of that's roughly 50 units that we think are available, but getting close to it, so yes, roughly $3 million in Japan.

With the Pocket Controller, there is an interesting dynamic with the Pocket Controller. There is a positive contribution and then a negative mix effect that we're going to have. So on the positive side, we do anticipate a conversion cycle for patient's who are out passed a year of support, generally reimbursement is going to provide for replacement controller, and we certainly think there are advantages people are going to want to upgrade to the Pocket Controller.

Offsetting that is that for new patients, while they're going to be getting the Pocket Controller at a modest price premium to the existing controller. The Pocket Controller actually eliminates another accessory from the system, that's the display module. So net for a new patient, we actually have a modest reduction in price.

Now from a gross profit perspective, its neutral but this is certainly part of strategy of reducing the overall cost of the therapy overtime while at the same time, having the gross profit neutral to positive for Thoratec. So you've got those counter balancing effects. You net it out, we're expecting a couple of million dollars, call it $2 million to $3 million a quarter following the launch of the Pocket Controller, which is likely, as I mentioned in Europe, hoping by the end of the first quarter and then in the U.S. likely in the mid to latter part of the second quarter.

Taylor Harris

Yes, probably worth adding on the downside that we expect the PVAD, IVAD line to be down between $7 million and $8 million, so that will obviously offset a number of these upsides.

Operator

And we'll go next to David Roman with Goldman Sachs.

David Roman - Goldman Sachs

Maybe just a follow up to your last comment on PVAD and IVAD being down fairly materially in 2013, maybe I'm thinking about this the wrong way, but from the mix perspective, why wouldn't that dynamic with HeartMate II going up as a percentage of total, have a more profoundly positive impact on the gross margin line?

Gerhard Burbach

Well, PVAD is actually a pretty high gross margin product. It's plastic for the most part. So unfortunately that won't create a positive mix effect in 2013.

David Roman - Goldman Sachs

I know people who have asked in a lot of different ways, but just cutting through the numbers in the U.S. I guess, that you could think that the following assumptions were reasonable, obviously DT you're assuming is going to increase as a percentage of total for the market, just based on your comments. So I look through your numbers here, it sounds like you're expecting U.S. BTT to be down in the double digit, even if the overall business grows. Is that not a fair characterization?

Taylor Harris

So for the U.S. Bridge market is a whole, we are anticipating modest growth. We aren't projecting that HeartWare adds materially into market growth. If that happens, great, we're not going to count on it here at the beginning of the year. And then we are assuming market share loss in Bridge-to-HeartWare offset, obviously by growth in Destination Therapy, which we should capture the vast majority of everything except for what shows up in their DT CAP. So those are the two cross-winds.

David Roman - Goldman Sachs

And maybe lastly if I can just get your reflect on 2012. You exceeded your original guidance in revenue by about 10%. And obviously somewhat of that had to do with the timing of the HeartWare approval coming a little bit later. I think you've got $45 million better than you initially guided us.

If you could sort of breakdown the components of the over performance relative to your initial expectations, I'm assuming over half of that was HeartWare timing, but anything else that you'd point at to? And then as you think about that dynamic, is that sustainable in 2013?

Taylor Harris

David, I think you characterized it very well. There was certainly a timing issue and then there was market growth, which did come in better than we had projected at the beginning of the year. International was certainly a significant contributor to that in 2012. And as we think about 2013, if the question is what are the potential sources of upside, so obviously the timing issue is off the table, however, there is both share and there is market growth.

And as Gary, mentioned, we're not backing off the resource commitment to the space. So our plan is to continue to drive market growth and that is both in the U.S. and internationally we want to maximize the opportunity in all of those geographies. And then on the share front, we're highly, highly focused there. And we feel really good about the story that we're able to deliver to accounts.

Now, we have to recognize as part of 2013, which we indicated in our prepared remarks that there is a desire at the number of centers to have second pump on the shelf, and because of that we're making room for this trialing dynamic that we discussed in the first half of the year, where shares ultimately settled out. We feel good about.

We're going to drive to settle out quicker rather than later. And we think the combination of the clinical message, which does takes time to work that through with clinicians, as well as these service and support message and the reality of the infrastructure advantages that we bring. That those are certainly going to play to our favor. At what point that settles out. We're certainly not expecting that to happen over the next quarter or two, but we feel really good the medium-to-long-term.

Operator

And we'll go next to Bob Hopkins with Bank of America.

Bob Hopkins - Bank of America

So few weeks ago we did a fairly large survey of U.S. surgeons and I emphasize that it was surgeons, and I was surprised by the results of that survey, because those surgeons who recently surveyed expressed a willingness to use HVAD off-label, much more to higher degree than we anticipated. And so I guess my question is, are you in the early launch of your HVAD in United States? Are you seeing a willingness amongst physicians to use this device off-label in Destination Therapy? And do you expect or anticipate that and project any of that in your guidance?

Gerhard Burbach

We see that in limited instances, Bob, so not as a kind of broad-based approach. But that's consistent with what our expectations have been, kind of going in that there would be those that are kind of the strongest advocates that would take kind of more aggressive approach. So at this point I'd say, our view to that dynamic hasn't changed.

Bob Hopkins - Bank of America

And then, does your comments on Q1 in trialing, does that imply that you kind of assume great share gains in the first half and that that trailing off in the second half?

Taylor Harris

I think, yes, it reflects when you talk about the first half. And it reflects in expectations, kind of similar as I mentioned what we saw with our approvals and kind of surgeon activity, kind of a level of engagement that occurs quickly, especially with sites that already have experienced in the clinical trial, immediate access, kind of utilization maybe in IVAD patients et cetera.

I think it takes time for us to kind of start to make traction with some of the clinical messaging potentially as individual experiences start to match up again some of that clinical messaging. That starts to gain traction overtime, not kind of straight out of the gate.

Bob Hopkins - Bank of America

Lastly, just a question on clinical data as it relates to stroke, because obviously, that's something that all of us are very, very focused on. So my question is over the course of 2013, are there any data releases that you would point us to that you think would be important in terms of giving us maybe a leading indicator of what we might see in the pivotal clinical trial to come on Destination Therapy. Are there any major data releases in 2013 that you think we ought to be paying attention to?

Gerhard Burbach

That really would probably be a better question for HeartWare because that data would be coming out of their trial, and I am not aware of any releases that are expected this year. I don't think that's going to occur until next year.

Bob Hopkins - Bank of America

I mean also from Thoratec, they would help us again get more evidence on your clinical results. I don't think there is anything coming but I just want to make sure, it was really a question on Thoratec?

Gerhard Burbach

There isn't kind of a new major data set. We have so much data at this point, Bob, on those clinical outcomes. It's extensively documented both in Bridge as well as Destination Therapy in the trial, outside of the trial, that stroke rate is consistently in the kind of 8% or so range. That's really extremely well documented at this point. I say, the next kind of significant data set that will come out from us would be around the ROADMAP study but that wouldn't be until next year.

Operator

We'll go next to Steven Lichtman with Oppenheimer.

Steven Lichtman - Oppenheimer

Gary, you mentioned, your discussions with FDA on HeartMate III continue. And in the past you've talked about potentially a design that could speed to market. Is that still on the table? Are you still feeling good about discussions relative to that point?

Gerhard Burbach

Yes, we definitely are. And as I mentioned we're hoping that this next discussion is really kind of the final review before submitting the IDE that would have that kind of a trial design.

Steven Lichtman - Oppenheimer

And then just a follow-up on the, first half, second half. You've talked a lot about the things that will build in 2013, but to put a final point on first quarter, could we be seeing revenues potentially even slightly down year-over-year because you also face a particularly tough comp relative to that first quarter having a really big BTT last year. HeartWare wasn't on the market. That was kind of usually high first quarter last year. Is that fair as well?

Gerhard Burbach

Yes, we don't provide quarterly guidance. So I'm not going to be able to respond specifically to that question.

Steven Lichtman - Oppenheimer

But I guess qualitatively, 1Q faced a tougher comp even than 2Q as we think about the cadence of the next few quarters, right?

Taylor Harris

The first quarter of last year was a really exceptional quarter. There is not a seasonal dynamic that says that the first quarter is always strong. So there is lumpiness in the business. We pointed that out in the first and second quarters of last year.

Operator

We'll go next to Suraj Kalia of Northland Securities.

Suraj Kalia - Northland Securities

You have talked a lot about clinical messaging on this call. So the questions specifically I have is a derivative question. How is to the best that you can tell us being not sure what pressure being managed with the HeartMate II? And the reason I ask is, if the DT CAP Protocol for HeartWare changes or is changed, and then the subset of that data is mixed with that endurance data, and let's say, the trial is outsourced a technical success. It's a little difficult to understand how two different protocols are put together and then argument is made for non-impurity. What's the clinical messaging would be if DT CAP Protocol for HeartWare gets changed?

Gerhard Burbach

So there aren't any, kind of extraordinary requirements relative to HeartMate II management in the regard. And so I think if that is the course that has to be pursued, so I think there is a kind of with the HeartWare device there's certainly a kind of positive benefit around flexibility with the HeartMate II ease-of-patient management. And those are messages that resonate very strongly, particularly with the cardiologist with the VAD coordinators.

Those individuals that are dealing with those kinds of more ownerish requirements over the long-term, and that obviously becomes an exceptionally significant factor, as you think about Destination Therapy and patients that you're now managing for years and years, as you kind of pile on these more extensive patient management requirements.

Suraj Kalia - Northland Securities

Gary, specifically, at least a rough analysis suggest, you all have taken a back leadership position at Europe, is it safe to say that even though the largest VAD center in Germany is still using twice the amount of HeartWare products you're still were able to claw back to leadership position. Is that a safe assumption?

Gerhard Burbach

The largest VAD center in Germany is definitely still a kind of heavier HeartWare utilizer, that's right.

Suraj Kalia - Northland Securities

And final question, Gary, regarding the PHP. Again I understand it's relatively early to the extent that you can share. When we look at Abiomed's Impella CP, which is you very well know, as I effuse it's contra indicated for high-risk PCI, and it theoretically delivers four liters per minute, I'm curious how you look at the PHP in the context of high-risk PCI clinical trials, especially for high-risk PCI?

Gerhard Burbach

So I don't think that device delivers four liters. I think that's kind of maximum capability at a certain point in the cardiac cycle. We're talking about four to five liters of flow through the cardiac cycle. But we are expecting at this point, Suraj that it is going to be a PMA process for the PHP.

And that we'll have to pursue, that more rigorous approval pathway. The positive with that of course, is that we'll have much stronger data, both for driving market development, reimbursement et cetera, be that high-risk PCI, be that patients in AMI shock, acutely decompensated heart failure, kind of all those areas.

Suraj Kalia - Northland Securities

And one last question, Greg, specifically related to stroke, actually we are focused and probably fixated on the issue of stroke. A number of the clinicians that when you go out the field, the common scene that you hear from a lot of these options about for the most part of these devices are equivalent.

And when we look at the data sets or at least what's in the public domain so far, you can't help but build those that is a delta in the stroke profile, adverse event profiles of the two devices in the market. Is it just because in Europe, if clinicians want that device on the market or are jumping the gun in terms of analysis and correlations? But it seems a little odd, let's put at this way, that given the stroke profile differences, the market shares, at least in some geographies are what they are?

Taylor Harris

I think there is a lack of awareness of the clinical data. So we're finding as we're out kind of educating, driving awareness that the level of true knowledge and kind of deep knowledge of the data is pretty broadly lacking. And so that's why I mentioned that it's not a kind of one interaction and all of a sudden, you've kind of brought someone from limited knowledge to full knowledge, and buy and it takes time and multiple exposures.

I think relative to Europe, that market really evolved in the absence of any data. And so then you get into kind of personal experiences, kind of overwhelming data within many of those instances. But I think the challenge in Europe is more significant in terms of overcoming those established biases.

Operator

We take our next question from Bruce Nudell of Credit Suisse.

Bruce Nudell - Credit Suisse

Gary, everybody is fixated on the HVAD HeartMate II war, but a year from now, attention is going to be focused on next-generation devices. And just with regards to HeartMate III, should we be expecting a pretty significant impression in the interval between BTT and DT approval on the states based on your discussions so far relative to what we've seen in the past?

Gerhard Burbach

Hopefully that gap will be shorter but certainly there still would be a substantive gap.

Bruce Nudell - Credit Suisse

In the next thing on, HeartMate III, some of the design changes kind of make an intuitive sense with regards to adverse event mitigation, but is there anything like in the clinical, in the pre-clinical data that gives you confidence, and in fact that would eventuate? And what is the sort of magnitude of reductions that you hope to achieve in stroke and clot and bleeding with the HeartMate III design.

Gerhard Burbach

Certainly I would think kind of the most significant pre-clinical indicator is as you do your animal work. And so far the animal work is extremely encouraging. So that's very strong data point. But obviously, until you're actually in clinical experience, you have to get that experience to really prove things out.

I think it's pretty mature to kind of pry to give specific statistical data point, but we do believe that there is still room for kind of significant improvement and we're optimistic, based on every thing we've seen so far not only theoretically but in the pre-clinical work about achieving that.

Bruce Nudell - Credit Suisse

I guess my final question pertains to, I mean, you've done a lot of market development work. It sounds like your efforts are becoming more sophisticated. The mortality benefits are so enormous, what are the hurdles that need to be overcome with regards to accelerating the DT space? Is it adverse events? Is it referral development? Is it just general awareness and like are we close to kind of gaining momentum?

Gerhard Burbach

I think we are gaining momentum. We've had our fifth consecutive year of very strong growth. You look at the progression from where we are at in 2007 to where we were in 2012. And it's really kind of pretty remarkable the level of growth not only domestically but also internationally, and expanding to completely new market, that we are really involved with that previously. I do think that kind of core limiting factor continuous to be the referral process, and kind of gaining broader and deeper engagement and support amongst the referring community.

So just to pull kind of couple of data points against that, last year we tracked with all our referral, efforts in market development, little under a 1,000 cardiologist from the United States, that we track, that we impacted, we've had a referred patient who was implanted with a HeartMate II. So that's still a very small percentage of the overall cardiologist population that got engaged in that way. And then of that kind of a little under 1,000, only about a 100 of them, so only about 10% of them had three patients that they referred that were implanted.

So those are both significant steps up from where we were at in 2011. Those numbers in 2011 were at something over 600, and as I mentioned in the beginning about 70. So each of those grew very notably but there is no question, there is still huge opportunity to continue to drive that, continue to gain that volume of the referring community.

Operator

We'll take our last question from Danielle Antalffy with Leerink Swann.

Danielle Antalffy - Leerink Swann

I was at the SCS meeting and I caught wind of, UNO is potentially sort of declassifying LVADs in the Bridge-to-Transplant patient population. So for example, LVAD patients will no longer be sort of prioritized. Wondering what you're hearing about that, if you can confirm or deny that? And if so how that could potentially impact the BTT market broadly, if at all?

Gerhard Burbach

So there was an article that was published number of months ago. I can't remember now who the lead author was, that was on exactly this topic that LVAD patients are doing extremely well. And so it doesn't make sense anymore for them to have top priority versus when that rule was established for these patients for hospital bound. So I can't confirm or deny kind of where the process is at with UNO. We don't have information that would indicate that a change is eminent. If there is that kind of information as things go forward, we'll certainly share that kind of process in that regard.

We wouldn't expect that it has a fundamental impact. There is a population of patients that need to be treated. The patients that are getting VAD today, on the way do a transplant. There is a reason if that's the case. They're not going to get to a transplant on their own. So whether UNO changes this rule or not, we would certainly expect those patients would continue to receive a VAD. They would have a lower priority. They take longer to get to a transplant, but I don't think there would be fundamental change in their practice behavior.

Danielle Antalffy - Leerink Swann

And then on Destination Therapy, just wondering how you guys are thinking about reimbursement going forward? And, I haven't heard that they've done it yet, but possibly CMS could reopen the NCD. How do you think that could limit the ability for you guys to continue to open new centers, if at all or could it actually be positive for LVADs?

Taylor Harris

They may open the NCD. We've heard that as well. There's not a set decision yet. Obviously, that will be publicly announced if it occurs. Based on the panel that happened back a couple of months ago, seems like there is a couple of topics that were more significantly on the minds of the panelist.

One was around qualifications, surgeons and implanting centers, what are the right qualifications, what the data that supports that. The other kind of primary topic was around earlier patients and what are the outcomes with earlier patients. So on the first, on the surgeon side, kind of the main debate has been around, if a surgeon is a fellow at a training center and they're not recorded as the primary surgeon should those count.

And the SCS from all the information we have is going to kind of strongly come out in favor of that those should count. If there was a National Coverage decision and that got clarified, that will be a positive because right now the Joint Commission is making this a problem for new centers that are trying to get certified, and often not allowing that to count in that certification process.

Similarly, for implanting centers, there is data available that wasn't presented at that panel. But I think makes a very strong and compelling case that these centers that are currently being certified by this process, even when they have lower rates of implantation are achieving good outcomes and comparable outcomes to the transplant centers. So I think that again, based on the data that's actually available should be kind of a positive outcome, if they do have that kind of a panel.

And then finally, in terms of earlier patients, those patients aren't predominantly the ones that are being implanted today, anyway. And I think that they're really going to have to wait until there is more data like ROADMAP and REVIVE-IT. And that's kind of a big part of the reason that we're sponsoring those studies, is to bring more data to the table, to be able to expand reimbursement beyond class IV, because you'll recall that today HeartMate II is approved for IIIBs, but CMS doesn't reimburse for IIIBs.

So that's not something I expect would be achieved in this NCD, because the additional data will be available yet, but hopefully here over the course of the next few years, as we can bring ROADMAP data to bear initially, we have started to make some progress on that front.

Gerhard Burbach

I think that's all our questions. I'd just like to thank everyone for joining us today and sticking with us through a relatively long call and Q&A period. And we look forward to keeping you updated through the year.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Thoratec (THOR): Q4 EPS of $0.38 in-line. Revenue of $128.5M (+17% Y/Y) beats by $9.41M. Shares +2.4% AH. (PR)