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Thoratec Corporation (NASDAQ:THOR)

Q4 2011 Earnings Call

February 8, 2012 4:30 pm ET

Executives

Taylor Harris – Senior Director, Investor Relations & Business Development

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

Roxanne Oulman – Interim Chief Financial Officer

Analysts

Danielle Antalffy – Leerink Swann

Matthew Taylor – Barclays Capital

Thomas Gunderson – Piper Jaffray

Lennox Ketner – Bank of America

David Roman – Goldman Sachs

Jayson Bedford – Raymond James

Steven Lichtman – Oppenheimer & Co.

Jason Mills – Canaccord Genuity

Spencer Nam – Thinkequity Llc

Christopher Pasquale – JPMorgan

Larry Biegelsen – Wells Fargo Securities, Llc

Timothy Philosophos – Rodman & Renshaw, LLC

Rajeev Jashnani – UBS

Operator

Good day, and welcome to the Thoratec Corporation Fourth Quarter and Fiscal Year 2011 Earnings Results Conference Call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Taylor Harris, Senior Director, Investor Relations and Business Development. Please go ahead, sir.

Taylor Harris

Thanks, Kevin. Good afternoon, and thank you for joining us today. With me are Gary Burbach, President and Chief Executive Officer; and Roxanne Oulman, the company's Interim Chief Financial Officer. Gary will discuss highlights from the quarter and fiscal year 2011, and then turn to our key operational and strategic objectives for 2012. Roxanne will review the financial results for the quarter and provide an update on guidance for 2012. 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. Gary?

Gerhard F. Burbach

Thank you, Taylor, and good afternoon. 2011 was another exciting year for Thoratec including solid financial performance, continued development of the market for mechanical circulatory support, the acquisition of the CentriMag and PediMag franchise from Levitronix, and important advances in our broad product pipeline.

Our fourth quarter performance reflects strong momentum for the company as we enter 2012, and strategically, I’m very pleased with the company’s positioning for this year and beyond.

With HeartMate II, CentriMag and PVAD, Thoratec offers proven market leading solutions for the full range of mechanical circulatory support needs. In the coming years, we are planning to aggressively grow the market with these flagship products, while at the same time supplementing our core product portfolio with potential breakthrough technological advances, such as our fully magnetically levitated HeartMate III pump platform, our fully implantable LVAD system, and our percutaneous heart pump.

Supporting all of these efforts is the dedicated team at Thoratec in which we’ve been investing heavily, and which we believe provides an unrivaled foundation to serve and support the broader mechanical circulatory support market.

I’m proud of the Thoratec’s success in 2011, but I’m even more enthusiastic about the opportunity ahead as we seek to continue to penetrate the large addressable population of heart failure patients, advance new technologies and extend our market leadership position.

On today’s call, I’ll provide highlights of the fourth quarter and fiscal year 2011. And in the process, provide some additional operating metrics for our business. I’ll then focus on our key initiatives and outlook for 2012.

With respect to our financial results for the quarter, Thoratec generated revenues of $109.4 million, a 12% increase over revenues of $97.6 million in the fourth quarter of 2010. In terms of geographic breakdown, we reported revenues of $88.2 million in the U.S. versus $78.8 million in the prior year, an increase of 12%. While international revenues were $21.2 million versus $18.8 million a year ago, representing an increase of 13%. The year-over-year impact of foreign exchange was roughly neutral.

For the full year, revenues from continuing operations in 2011 were $422.7 million representing the high end of our previously issued revenue guidance, and a 10% increase relative to revenues of $383 million in 2010. The HeartMate and CentriMag product lines drove growth for the full year and populated revenues grew 13% offsetting more modest growth in non-pump revenues of 5%.

We also continue to demonstrate solid operating leverage with 2011 non-GAAP earnings per share rising $1.56 slightly above the high end of our previous guidance, and representing a 27% increase compared to 2010. We achieved this profitability increase through revenue growth and impressive gross margin expansion of over 300 basis points, while we continue to invest aggressively in our markets and product development initiatives.

Revenue growth in the fourth quarter was also led by our HeartMate and CentiMag product lines partially offset by a decline in sales of PVAD and IVAD. HeartMate revenues in the quarter were $93.8 million versus $83.9 million a year ago for an increase of 12%. Revenues from our acute surgical support line, which includes CentriMag and PediMag were $8.8 million compared with $5.7 million a year ago. This strong performance include a growth in the core U.S. CentriMag business of 10%, as well as approximately $2.5 million of incremental revenues recorded as a result of the transaction completed during the third quarter.

Revenues from the Thoratec product line, the PVAD and IVAD were $6.1 million versus $7.2 million a year ago or a decrease of 15%.

We experienced solid year-over-year unit growth in the quarter selling 917 pumps, an increase of 10% versus 836 pumps in the fourth quarter a year ago. Unit growth was driven by a 13% increase in HeartMate offset by a mid-teens decline in PVAD and IVAD units.

In the U.S. market, we shipped 704 pumps representing a strong 15% increase over 613 pumps a year ago. Internationally, we faced a notably challenging comparison and pump units declined 4% year-over-year from 223 in the fourth quarter of 2010 to 213 in the fourth quarter of 2011.

I should note though that the international decline was driven solely by the PVAD and IVAD franchise, while the HeartMate II franchise grew 8% despite the tough comparison in distributor markets. In fact, excluding European distributor territories international HeartMate II unit growth was 18% for the quarter and 17% for the full year.

We were pleased with our fourth quarter HeartMate II performance both domestically and abroad. In international markets, HeartMate II had its best quarter in history driven by strong growth in our direct European territories.

Within the U.S. fourth quarter HeartMate II volume also expanded in the mid-teens driven once again by the destination therapy indication and with the balance contribution form both larger established transplant centers, as well as emerging open heart centers.

Looking back on the full year, our U.S. HeartMate II volume grew 12% during 2011. We view this growth as a positive indicator of the success of our market development activities, including our referral initiatives within the larger cardiology community, as well as our center development activities.

Given the importance of our U.S. franchise, I’d like to take a minute to quantify our 2011 performance on a more detailed level. First, Destination Therapy remain the clear growth driver. We estimate that HeartMate II DT implants grew over 40% year-over-year, with the DT indication representing over 40% of U.S. HeartMate II volume by the fourth quarter of the year.

We also continue to benefit from our efforts to develop the broader universe of VAD implanting centers, including medium and smaller size transplant programs, as well as open heart centers.

During 2011, our Group I transplant centers would participate in our clinical trial, grew their HeartMate II unit volume by 2%, with growth effected by the [volatile] activity experienced in the first quarter of 2010, as well as competitive clinical trial activity.

I would note, though that volume growth at these centers rebounded to the low double-digit range during the fourth quarter. Meanwhile, we experienced strong mid-teens growth in 2011 from our second group of transplant centers, which was also an adopted HeartMate II in 2008, following the Bridge-to-Transplantation commercial launch.

Lastly, our third group which includes lower volume transplant centers and open heart centers grew over 50% year-over-year. This important emerging group of centers represented 15% of U.S. HeartMate II volume during 2011, and 18% as of the fourth quarter, up from less than 10% in the first half of 2010.

Looking forward, we anticipate the DT indication to continue to drive growth across the spectrum of centers, but with an increasingly important contribution from these smaller transplant and open heart centers.

Turning to new center development, we added eight HeartMate II centers in the United States and five internationally during the quarter, bringing the total number of HeartMate II centers in the U.S. to 149, and 144 internationally. This compares to 130 and 124 respectively at the end of 2010, representing a worldwide increase of 39 centers during 2011.

In U.S., there are currently 103 centers that have received Destination Therapy certification from the joint commission. 11 additional centers have submitted application to the joint commission and six of these have survey schedule during the first quarter.

Before moving on to our plans for 2012, I should note a few milestones with respect to both our acute and chronic franchises. We firmly established our commitment to the acute support market in 2011 through the acquisition of the CentriMag and PediMag product lines. Integration of this business has proceeded very well, hitting all of our operational and financial targets, and we continue to view the acute surgical business as an important strategic element of our broader product offering to customers.

In 2012, we plan to continue to expand the universe of centers utilizing CentriMag, provide increased emphasis on PediMag among our customers with pediatric programs, begin efforts to transition certain international markets from distributors to direct sales, and develop an attractive portfolio of new product opportunities associated with the CentriMag technology.

We anticipate over 4,000 implants of CentriMag and PediMag globally in 2012 at over 300 centers, clearly demonstrating the importance of this product platform for clinicians and patients.

As for our chronic franchise, in 2011 we shipped 3,149 HeartMate II pumps, and we’re quickly approaching our 10,000 implant of the device. As of the end of 2011, there were more than 4,000 HeartMate II patients on ongoing life restoring support. Over 1,300 patients have now been supported for two years or longer, and more than 170 have been supported for four years or longer.

I’d like to focus now on our strategy for developing the VAD market in 2012 and beyond. Our strategy incorporates five key elements. Referral development, center expansion, clinical data generation and publication, continued improvements and clinical outcomes and global expansion.

We believe that Thoratec stands alone in the VAD sector with respect to having the technologies and broad-based services including clinical support, training and education, reimbursement, technical support and market development to facilitate these initiatives.

Our primary focus will remain educating the referring cardiologist community, primarily through our market development field team and an active calendar of programs at national and local levels. We have made great strides with this effort over the past few years with positive feedback from implanting centers, as well as community cardiologists. And we have seen strong productivity gains from our investments.

We closely track referral activity associated with our market development team, in particular referral that lead to implant. In 2011, we estimate that out team help generate roughly 35% to 40% of our total U.S. HeartMate II implant activity and accounted for substantially all of the growth that we achieved.

This growth came primarily from productivity gains within the field team generated in part from our strategy of cultivating higher volume referrals. In 2011, there were close to 60 community cardiologists, who referred three or more patients that were implanted with an LVAD, up dramatically from the previous year.

An increasing number of these cardiologists are now managing LVAD patients within their practices that was part of our Shared Care program, and we expect this trend to continue.

We anticipate continued double-digit productive gains within our market development team in 2012, and a growing contribution from high volume referrers. To complement our cardiology outreach efforts, we also plan to expand our direct-to-consumer initiative during 2012 in a targeted fashion.

Historically, we have worked at center level to generate positive community and local media attention on VAD program, but also providing web-based educational initiatives for patients and their caregivers. In 2012, we will pilot a multimedia direct-to-consumer campaign in at least two markets in the United States, and we will evaluate results of this pilot to determine program expansion by the end of the year.

We also plan to expand our patient ambassador program, include at least 100 HeartMate II patients by the end of the year. Many of our patients enjoy telling their stories to other perspective patients, and perspective patients indicate that speaking with an already implanted patient is key to decision making process. Educated and empowered patients also positively impact healthcare professionals by helping them fully understand the quality of life benefit gained with HeartMate II.

Our goal with both the direct-to-consumer campaign and patient ambassador campaign has raised the level of awareness of LVAD therapy as an important treatment option for advanced heart failure to demystify the therapy and to demonstrate how remarkable the quality of life improvements can be for patients implanted with HeartMate II.

Standard development will also be a critical element of our efforts in 2012, both in terms of adding new centers and increasing capacity within existing centers. We expect to add approximately 15 new HeartMate II centers in the U.S., all of which we expect will be open heart centers and 10 to 15 HeartMate II centers internationally as well.

As I mentioned earlier, helping centers achieve joint commission certification for Destination Therapy, as a key objective for us. And we expect they closed 115 U.S. centers lab Destination Therapy reimbursement, certification by the end of 2012.

A key component of our center development strategy involves helping to integrate patients back into their local communities. The goal of these efforts is three-fold, to expand capacity at implanting centers, to return patients to their referring physicians, thereby increasing their enthusiasm for Destination Therapy, and to reduce the burden of follow-up care.

We’ve spoken in the past about a number of our efforts in this area, but I like to focus today on our share care initiative to which we received an encouraging response joining our pilot phase in 2011. Share care is a program designed to facilitate the post discharge management of patients by the referring cardiologist in community hospitals. We now have about 30 sites involved in the effort with the equipment necessary to monitor HeartMate II patients post discharge. And we plan to roughly double this figure during 2012.

As we’ve indicated in the past, we believe there is great value in having community cardiologists involved in the treatment of patients post-implant. Not only to optimize patient outcomes, but also to allow referring cardiologists to assume some of the patient management activities, currently born by implant centers and to facilitate improved understanding of appropriate referral candidate by cardiologists.

The share care program also has an important pacing quality of life benefits, particularly for VAD patients located outside of metropolitan areas that might otherwise have to travel several hours to a major center to receive follow-up treatment.

The third element of our market development strategy is the continued generation and dissemination of data describing the improving clinical and economic outcomes with the HeartMate II. In January, we were pleased to see the initial outcomes from the continued access protocol of our Destination Therapy trial published in circulation heart failure with Dr. Soon Park from the Mayo clinic as the lead author.

The paper compared the outcomes for the first 281 patients enrolled in the DT CAP, from May 2007 through March 2009, with the initial cohort of 133 patients who were enrolled from March 2005 through May 2007.

Despite having similar baseline parameters, the DT CAP patients achieved Kaplan-Meier survival rates of 73% at one year, and 63% at two years, up five percentage points when compared to the initial cohort.

Early and sustained improvements in both quality of life and functional status where it’s observed for both the initial cohort and the CAP patients. Importantly, there were statistically significant improvements in several key adverse event categories, including hemorrhagic stroke, device-related infections, bleeding requiring transfusions, sepsis, and cardiac arrhythmias.

I should focus for a moment on the category of stroke, where DT CAP patients experienced event rates of just 5% per patient year for ischemic stroke, and 3% per patient year for hemorrhagic stroke. Stroke is a significant source of mortality for advanced heart failure patients, and it’s likely considered to be one of the most challenging complications for LVAD patients. We were therefore pleased to see the statistically significant reduction in hemorrhagic stroke without a corresponding increase thromboembolic risk.

We plan to continue to generate additional data from the commercial experience to support expanded utilization of HeartMate II. For example, the roadmap study is up and running with 33 sites initiated and six having made it through the IRB approval process.

As a reminder, ROADMAP is a post market study involving ambulatory advanced heart failure patients who meet HeartMate II’s existing FDA approved indication for Destination Therapy, that are not being referred for LVAD therapy in meaningful numbers.

We anticipate that roadmap will eventually include upto 50 sites and 200 ambulatory NYHA Class IIIB and IV patients who are not dependent on continuous inotropic support. For those typically classified as INTERMACS categories 4, 5 and six. Well, we believe there remains a substantial unmet need for treatment option to improve functional status and quality of life.

In addition to ROADMAP, we plan to initiate the trace study of reduced anticoagulation in HeartMate II patients. The SSI registry looking at new techniques to reduce drive line infection, and the European study that aims to involve cardiologists in evaluating a slightly less sick patient population, as well as their decisions regarding referral for advanced therapies including VAD.

Another important focus for the field organization in 2012 will be a continued drive towards further improvements in patient outcomes. We will once again host, Mechanical Circulatory Support Users' meetings in North America, Europe and Asia, providing a productive form for the sharing of best practices across centers.

Additionally, we will continue to facilitate work groups to study and make recommendations on patient management technique for bleeding and thromboembolic risk, infection and aortic insufficiency as well as the important topic of older Destination Therapy patient selection.

Lastly, we will continue our highly effective site-specific clinical outcomes improvement initiative focused on reduction of adverse events, length of stay and hospital readmissions. Feedback from the roughly 60 worldwide site-specific initiatives undertaken in 2011 was very positive. And in 2012, we plan to continue the effort. In addition to the clinical benefit for patients, improvements in these category should have important economic benefit for implanting centers.

The final element of our commercial expansion strategy is continuing to increase our presence in international markets. An important new market opportunity for us in 2012 will be Japan, where we continue to expect regulatory approval around mid-year followed shortly thereafter by reimbursement approval.

We plan to ramp our efforts in other Asian markets as well, and towards the end of year we anticipate our initial entry into Latin America. Although Asia and Latin America will remain modest contributors to our revenues in 2012, over the long-term we believe these regions could become important markets for mechanical circulatory support. In addition to driving awareness and adoption of VAD therapy, we’re intently focused on fortifying Thoratec's leadership position in the market.

We believe that Thoratec offers the best technology platform for chronic circulatory support in the form of HeartMate II, which has generated outstanding clinical outcomes across a broad range of patients. Through the acquisition of the CentriMag and PediMag production line last year, Thoratec now offers the market leading acute support device CentriMag, as well as a similarly strong platform for pediatric support.

The combination of these flagship products along with our legacy PVAD franchise, provides Thoratec with enhanced relevance to our full customer base. Beyond our technology however, Thoratec also offers an unrivaled level of support for the broad MCS markets. This goes well beyond the initial implant, expanding the full process from referral generation, the program development to patient education to outpatient management.

In 2012 and beyond, look for Thoratec to bolster our support infrastructure even further with additional value-added services as we seek to extend our market leadership position.

Turning now to our product pipeline, I wanted to take a few minutes and summarize our strategy and the status of our key programs. We have a three-pronged product development strategy that includes continued evolution of our HeartMate II platform, the development of next generation pumps and the introduction of cross platform breakthrough technologies that substantially enhance the HeartMate II, as well as future pump platforms.

With respect to the evolution of the HeartMate II, it’s important to note that we’ve had a strong track record of innovation during the past couple of years, including our GoGear peripherals, and field inflow and outflow graphs.

For 2012, we’re planning another important line extension for HeartMate II in the form of the pocket controller, which is designed to provide a significant improvement in patient quality of life. It’s smaller and lighter than currently available controllers, with an easy user interface, and the ability to be stored in a patient’s pocket. In addition there is a backup battery built into the controller to enhance patient safety.

We expect to make our U.S. and European regulatory submissions for the pocket controller by mid-year, with commercial launch scheduled for late this year.

Turning now to our next generation pumps and cross platform technologies, I would like to spend a minute in highlighting why we believe each of these programs represent potential breakthrough technology. HeartMate III would be the first fully compact, fully magnetically levitated chronic VAD. The expected benefits of our four magnetic levitation technology are numerous including wider blood flow gaps with improved blood handling characteristics, as well as the ability to generate a near physiologic artificial pulp. All of which is expected to enable HeartMate III to deliver superior outcomes in a number of key areas, including the reduction of stroke, bleeding, thromboembolic events and other complications.

We have been currently meeting with the FDA in December in which we discuss potential clinical trial pathways, which we believe could facilitate a quicker regulatory process than it’s been experienced by previous VADs.

We also continue to make encouraging progress with PHP, our exciting percutaneous support device. PHP could open up an entirely new market opportunity for Thoratec providing acute catheter based support for a number of unreserved patient population worldwide, including high risk PCI, unstable AMI, acutely decompensated heart failure, postcardiotomy shock, and surgical tuna patients. The key point of differentiation for PHP is expected to be its ability to generate four liters of blood flow from a low profile catheter system, significantly more than other percutaneous options.

Our market research to-date suggest that support at this level would adequately address the clinical needs of these types of patients. Now we’ve seen significant clinician interest in the device in its upcoming clinical trial.

We anticipate upcoming meetings with our European Notified Body as well as the FDA to continue our discussions regarding the regulatory process for PHP, including our plan to submit a 510(k) application to the FDA, and we will provide you with updates on these discussions as well as those on the HeartMate III as they develop.

Lastly, I’ll touch on our fully implantable system. There have been a number previous efforts to develop a viable fill VAD system, but they have generally not been successful due to limitations in the core transcutaneous energy transfer and implantable battery technologies. We believe we are addressing the historical energy transfer issue through our WiTricity partnership, which provide us with a safe and efficient and convenient approach.

We’re also making great strides through separate partnership with respect to implantable battery technology, which addresses the patient needs for extended runtimes, small form factor, durability, and safety. As a result of our fill VAD platform is designed to be truly usable and convenient for patients, while at the same time are offering all of the clear advantages related in particular to quality of life, and reduced infection risk that would come through the elimination of the percutaneous lead.

Before turning the call over to Roxanne, I’d like to reiterate our enthusiasm for the broader VAD market over the next few years. Our estimate is that, VAD market grew at a strong upper teens rate during 2011, and we continue to expect the market to approach 10,000 units in 2015, driven by the Destination Therapy indication, market development and education, continued technology innovation, and geographic expansion.

For Thoratec, we’re focused on driving this overall market growth as well as on fortifying our leadership position within the market. Ultimately, Thoratec look forward to advancing the next era of mechanical circulatory support, allowing us to serve a broader range of patients by enhancing both their survival and quality of life.

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

Roxanne Oulman

Thank you, Gary. Before reviewing our result, I want to remind you that non-GAAP net income excludes ITC for which we completed the divestiture in the fourth quarter of 2010, the tax effective impacted amortization of intangible, share-based compensation, transaction costs and inventory fair market adjustments related to the Levitronix Medical acquisition, and the accounting for convertible VAD instruments that maybe settled in cash. You can find a reconciliation between our GAAP and non-GAAP results and guidance in our press release, at thoratec.com.

Revenues for the fourth quarter of 2011, were $109.4 million, compared to revenues of $97.6 million in the fourth quarter a year-ago. Non-GAAP gross margin for the quarter was 71.4% versus 66.6% in the fourth quarter a year ago. Factors impacting gross margin versus the prior year include lower inventory reserves, reduced warranty costs and favorable mix.

Non-GAAP operating expenses for the quarter were $43 million versus $37.2 million in the fourth quarter a year ago. Factors impacting the increase in operating expenses year-over-year include increased spending on product and market development initiatives, including continued expansion of our research and development and field organization.

Non-GAAP operating margin in the quarter was 32.1% versus 28.5% a year ago. On a non-GAAP basis, the company’s effective tax rate for the quarter was 36.8% versus 35.4% last year. In the fourth quarter of 2010, we recognized the full-year benefit of the federal research and development tax credit, as a result of an active legislation. Also contributing to the increased tax rate was a higher level of pre-tax income in 2011. Non-GAAP earnings per diluted share in the quarter were $0.38 compared to $0.28 a year ago or an increase of 35%.

Weighted average diluted shares outstanding for the quarter were $60.2 million versus $66.7 million a year ago. Contributing to the reduction in our share count was a $50 million share repurchase undertaken in the fourth quarter which reduced our weighted average shares by approximately $700,000. For the full year, our revenues were $422.7 million up 10% from $383 million in 2010. Non-GAAP gross margin was 71.2% an increase of over 300 basis points compared to 68% in 2010.

Strong underlying efficiency trend drove much of our improvement, but we also benefited from a few other items including lower than expected reserve activity and favorable mix.

Full-year non-GAAP operating expenses grew 12% or 20% excluding the acquisition of PHP in 2010. R&D grew 32% excluding the PHP acquisition, while SG&A grew 13% driven by increased spending of market development initiative.

On a non-GAAP basis, the company’s effective tax rate in 2011 was 34.5% versus 35.2% in 2010. Weighted-average diluted shares outstanding were $62.6 million, down from $66.6 million in 2010. Factors impacting our diluted shares outstanding included the reduction of shares associated with the retirement of our convertible debt, as well as the share repurchase activity conducted in the first and fourth quarter of the year.

With respect to the balance sheet, we ended the quarter with $209.5 million in cash and investment. This compares to $232.6 million at the end of the third quarter, and $469.5 million at year-end 2010.

During 2011, we generated $100 million of cash flow from operations, our strongest year ever. We also utilized a significant amount of cash for strategic activity and to return value to our shareholders, including a $110 million to support the acquisition of the CentriMag and PediMag product lines, $164 million for the retirement of our convertible debt, and $100 million as part of our share repurchase program.

As for our share repurchase activity, during the fourth quarter we repurchased $1.7 million shares for approximately $50 million. And we received authorization for an additional $50 million available through November 2012.

Turning now to guidance for 2012, we expect that revenues for the full year will be in the range of $445 million to $460 million driven by the growth of the HeartMate and CentriMag product lines and partially offset by a continued decline in the Thoratec line.

Foreign exchange fluctuations are expected to have a negative impact on worldwide revenues of approximately $2.5 million in fiscal 2010. As for non-GAAP gross margins we anticipate a range of 70.5% to 71%. Although we expect underlying trends to remain positive, we don’t expect to benefit from some of the one-time activities that would positively affect our 2011 results.

Additionally, we expect FX to have a negative 20 basis point impact on our gross margin. Meanwhile, non-GAAP operating expenses are expected to grow 14% to 15% over 2011. R&D spending which grew at a pace of 32% in 2011, excluding the PHP cost in 2010 is expected to grow nearly 25% during 2012; as the development of our next generation pump platforms and our fully implantable system progress into more resource intensive stages.

We also plan to continue to invest in sales and marketing initiatives at a double-digit rate in 2012. As for G&A, we expect spending to remain flat relative to 2011 level. Our 2011 and 2012 spending plan have included meaningful investments in product and market development. As we have been evolving our R&D organization to support a broad number of major new technology platforms as well as building the infrastructure to support long-term growth in the Destination Therapy market.

At this point, our view is that our rate of spending growth will decline in 2013, and we are confident in our ability to reap strong return from these investments for many years to come.

Finally 2012 non-GAAP earnings per diluted share are expected to be in the range of $1.58 to $1.68. This range assumes a tax rate of approximately 33% to 34%, and weighted average shares outstanding of approximately $60 million shares.

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

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to Danielle Antalffy with Leerink Swann.

Danielle Antalffy – Leerink Swann

Hi, good afternoon, everyone.

Gerhard F. Burbach

Hi, Danielle, how are you?

Danielle Antalffy – Leerink Swann

Hi, I’m doing well. How are you? Great quarter by the way. Just, first question on 2012 sales guidance, you guys do tend to be conservative. Can you walk us through the potential sources of upside, and then conversely downside. I also assume that your guidance includes something from a competitive launch. Can you sort of quantify that for us, give us some sense of what you’re anticipating as far as the competitors’ launch in the U.S., any color you can give there will be great, and then touch on the potential for upside?

Gerhard F. Burbach

Okay, sure. I think kind of the main piece is behind the guidance or growth driven by HeartMate II as well as the CentriMag product line before the PVAD, IVAD product line. We expect a little greater rate of decline in 2012. So we expect that to be a greater than 10% decline. Just based on what we’ve seen with that product line over the last six months or so.

We expect market growth to be in the double-digits balanced between the U.S. and international, so kind of similar growth rates across those markets. Clearly, DT-based in the United States, we expect DT to be over 50% of our U.S. HeartMate II implant volume by Q4. So those are I think the key aspects in that DT growth or HeartMate II approaching similar levels as 2011.

In terms of market share, we expect to maintain a strong leadership position really across the range of market. We feel like we have good international momentum as we come out of the second half of 2011. Obviously in DT, we’ll have the exclusive commercial franchise there for a number of years to come.

And then in Bridge, we do expect there to be a launch by HeartWare. Our guidance contemplates a midyear launch for them of that product. So it’s important to put that into context in terms of what aspect of our revenue base does that impact and is that a new dynamic, which we view as really just a larger and mid-sized centers in the U.S., which if you look at our overall worldwide revenue base across all our product lines that represents by about roughly 30% of our revenue base at the end of the year.

In terms of upside, I’d say that greatest upside is certainly around market growth, particularly Destination Therapy growth so, how aggressively can we drive that, how effectively do our new initiatives and expanded initiatives impact the uptick in that markets.

Danielle Antalffy – Leerink Swann

Okay, awesome that was greater color. Thank you so much. And just one more question, thinking about price especially with the competitive launch coming here in the U.S., how do we think about margin expansion going forward even beyond 2012 sort of longer-term, we’ve kind of anniversaried the price increases with new peripherals, you are going to have a competitor, reimbursement, it did come down a little bit for 2012, what happens if that comes down more? How do we think about the price sensitivity here going forward? Thanks so much.

Gerhard F. Burbach

Yes. So, I mean, our expectation is that price doesn’t change in a substantive way. We don’t view that as the primary kind of parameter of competition. So, we don’t expect there’s going to be some substantive change in price relative to that market entry.

In terms of the question of margin expansion I think, as we look forward, the significant opportunities for additional market expansion really come from our product pipeline as we rollout future product that have lower cost structures, the potential for additional pricing opportunity that’s kind of really as you look to 2013 and beyond with things like the Pocket Controller, the HeartMate III et cetera. We’re certainly designing those products looking at the cost structures behind them and with an expectation that will provide an opportunity for continued margin expansion.

Danielle Antalffy – Leerink Swann

That's, great. Thanks so much.

Gerhard F. Burbach

Thank you.

Operator

We’ll go next to Matt Taylor with Barclays Capital.

Matthew Taylor – Barclays Capital

Hey, thanks for taking the question. I just wanted to go into a couple of comments that you made. And I guess first of, it seems like you bounce back a little bit from last quarter. Can you address, in the call last quarter talked a lot about this management issue and maybe some growing (inaudible) centers that seems like the growth was better here. So, I just kind of want to get your thoughts on that to start off with?

Gerhard F. Burbach

Sure. Yeah, I think that topic got, you’re kind of overblown unfortunately in the last call. We got a lot of questions and it seem to generate a life of its own beyond what we were trying to communicate, which was some isolated situation or centers were digesting a rapid pace of growth that they had experienced in Q2 in particular. That’s not a new dynamic or a fundamental market constrain. So we indicated in that Q3 call that we’ve remained very bullish about continued growth potential and I think, we saw that solidly in Q4.

Matthew Taylor – Barclays Capital

Great, and a follow-up. Are you seeing any impact in Europe, you called out the difference between your distributor markets and your core markets? So maybe if you could talk about any disruption or pricing pressure you are seeing there?

Gerhard F. Burbach

Yeah, so couple of things relative to the European distributor markets. One and we’ve mentioned this in the previous call; Q4 of last year was a remarkably strong quarter in some of those distributor markets. So for Q4 in particular and even for the year that created a very difficult comp for that particular aspect of our business. And then there also I think where some challenging local economic dynamics in some of those markets particularly in southern Europe that also added to that particular issue during 2011.

Matthew Taylor – Barclays Capital

Okay. Thanks a lot guys.

Gerhard F. Burbach

Thank you.

Operator

We will go next to Tom Gunderson with Piper Jaffray.

Thomas Gunderson – Piper Jaffray

Hi, good afternoon. The capacity, I’m sorry the market development area you’re going to be growing double digits. Can you talk a little bit about the number of people and then, also towards the end of 2011, did you start to see more productivity as the numbers get bigger as the people get better at their jobs, are you seeing maybe a little less lumpiness that we can expect out of that market development?

Gerhard F. Burbach

So, we have in terms of our market development efforts there is a team of about 35 people now out in the field here in North America that are driving that referral process. We definitely saw nice productivity improvement from that group during the year. Some of that is probably kind gaining scale, a lot of it is definitely learning, learning best practices disseminating those across that team, becoming more effective at what we’re doing. And certainly, I hope and expect that as our business continues to grow and gain scale overtime that it will become a less lumpy business. Having said that, I don’t want to set the expectation that there won’t ever be any lumpiness in the business again, I don't think that's a reasonable expectation yet. But I definitely would expect that over the coming years that will become a less significant aspect of our revenue progression.

Thomas Gunderson – Piper Jaffray

And then a quick question, Gary on roadmap. I missed, I think you said six centers had IRB approval, but I missed if you’ve said, if anybody has started enrolling, but even if they have is there something that slows this down. I guess, I was expecting middle of last year that this would go a little bit faster that helps expand your market, it gets into those better DT patients?

Gerhard F. Burbach

Yeah. It always takes longer than you’d like with these trials to get through the IRB in contracting process at specialty these academic medical centers. So, we have had the first sights enroll patients, it’s still small number at this point. But we’re certainly optimistic that we’ll see the bulk of these patients implanted during 2012 and that this will be an important aspect of building the market during 2012 and even more so beyond as that data comes out to market.

Thomas Gunderson – Piper Jaffray

Great, thank you.

Gerhard F. Burbach

Thank you.

Operator

We'll go next to Lennox Ketner with Bank of America.

Lennox Ketner – Bank of America

Hi, thanks so much for taking the questions. Just one for Gary, I think last quarter you gave us the breakdown between Bridge implant growth and Destination Therapy growth. I think last quarter it was about 30% Destination Therapy and Bridge was relatively flat, is it possible to get those growth rates for this quarter?

Gerhard F. Burbach

Yeah, the Destination Therapy growth was over 40% and the Bridge growth I think was basically zero.

Lennox Ketner – Bank of America

Okay. And then outside the U.S., you obviously saw, you did an uptick in the quarter. What is your sense in terms of what market share looks like outside the U.S.? Do you think there is any meaningful change in market share, or is it remained relatively stable compared to last quarter?

Gerhard F. Burbach

I think we might have had a little bit of a pickup in Q4. So, we certainly felt good about both – if we look at the year in particular, the progression of the market, the continued growth that we’re seeing outside the U.S.

Lennox Ketner – Bank of America

Great, thanks so much.

Gerhard F. Burbach

Thank you.

Operator

We’ll go next to David Roman with Goldman Sachs.

David Roman – Goldman Sachs

Good afternoon, everyone. Can you hear me okay?

Gerhard F. Burbach

Yes, thank you.

David Roman – Goldman Sachs

One question for Gary, and then a follow-up for Roxanne. Gary, in your prepared remarks you touch a little bit about the drivers that will get you to the 10,000, there will be market to spend 10,000 implant level over the next several years. I think you said that, market development initiative as well as international expansion, can you maybe just frame for us, magnitude which is more important than the other, and maybe just sequencing, which comes first and how important each of those are in 2012 maybe?

Gerhard F. Burbach

Yes. So, if you look at the whole period, market development is the most significant. If you look at 2012 in particular, market development is by far the most significant because the other two key factors – and market development even up with the DT indication.

The other two factors that I mentioned were geographic expansion, as well as product innovation. So those are really aspects that kick in more meaningful way as you look beyond this year to 2013, ’14, ’15, where it will be later this year that we see an approval in Japan. So we’ll just be getting started in Japan towards the latter part of this year. So that should be an increasingly important aspect, kind of as you move further into this time horizon.

Similarly, with some of the other markets in Asia and Latin America, they’re kind of relatively nominal aspects related to this year. Then from a technology innovation perspective, the bigger drivers there are, some of the innovation, the big innovations like HeartMate III in the fully implanted system. Those we’ve talked about getting into clinical trial at the end of this year, with the HeartMate III as well as with the PHP.

And then a year subsequent to that, with a fully implanted system. And so, it’s kind of two stages of impact there, one is during a clinical trial setting where I believe there is a positive market impact, and then obviously once we achieve commercial approval and even greater impact.

David Roman – Goldman Sachs

Okay, that’s helpful. And maybe a follow-up on the P&L, if you look at the gross margin in the fourth quarter and compare that to your guidance for 2012, obviously talking about, got a step down and I understand the fourth quarter tend to be sort of the biggest in the overall year, but maybe just what are the factors that are basically driving gross margins to be flattish year-over-year, even though the mix sounds like it’s still going in the right direction?

Roxanne Oulman

Well, if you look at the higher end of our guidance, our gross margin, it’s relatively stable after you adjust it for the 20 basis points for unfavorable FX. And from the lower end, it’s only a modest decline as we’re attributing to some of the one-time items that we realized in 2011, that we don’t anticipate the benefit from 2012. But I think what’s really important to highlight here, as we’ve seen a significant improvement in our gross margin over 2010, and that’s really been driven by efficiencies, and we’re very pleased and we’re not expecting that we will see a meaningful change in our fundamental COGS structure in 2012.

David Roman – Goldman Sachs

Okay, thank you very much.

Gerhard F. Burbach

Thank you.

Operator

We’ll go next to Jayson Bedford with Raymond James.

Jayson Bedford – Raymond James

Good afternoon, and thanks for taking the questions.

Gerhard F. Burbach

Sure.

Jayson Bedford – Raymond James

In answering an earlier question, you mentioned that, I think 30% of the revenue base would come under some competitive pressure when HeartWare comes into the market in 2012, I’m guessing this is a certain percentage of our Bridge business, can you just expand on the comment meaning how do you get to that 30% number?

Gerhard F. Burbach

Yeah, that’s correct, Jayson. So obviously, first you have to pull out CentriMag and the four product line, pull out international, pull out the U.S. DT and then with that remaining bridge business, pull out that kind of small and open heart centers. So its definitely kind of the large, substantially larger portion of that bridge market, given that you are talking about centers that account for the highest volume in that marketplace.

Jayson Bedford – Raymond James

Okay, okay. And I think you mentioned double-digit market growth in both the U.S. internationally looking at your guidance it’s obviously a little lower guessing because of that competitive pressure. Do you expect to grow double-digit internationally?

Gerhard F. Burbach

So the growth expectations are consistent for us, are consistent internationally and domestically. So if you look at our guidance, you should assume that what’s behind that has a pretty similar expectation for ourselves in terms of our organic growth in both international as well as U.S. markets.

Jayson Bedford – Raymond James

And if I could just follow-up on that, why not grow a little faster internationally?

Gerhard F. Burbach

Well, as I mentioned before, some of the larger kind of growth drivers, if we look at this multi-year period or some of the newer markets in Asia, in particular, I mean Latin America secondarily, those won’t come online during 2012. So, I think we just kind of looked at that core historical market as the kind of the place that we look to continue to drive growth. There hasn’t been the DT market is still at an earlier stage of evolution and so we had – I had, answering in earlier question, talked a little bit about kind of the knowledge gained in terms of how do we drive the adoption and the referral process. That which kind of mostly a U.S. centric answer and we’re in the earlier stage of deploying those capabilities outside the U.S. particularly in Europe. So the ability to drive, I think a more aggressive impact will evolve here over the course of the next couple of years.

Jayson Bedford – Raymond James

Okay, thanks. So I’ll jump back in queue, thanks.

Gerhard F. Burbach

All right, thank you.

Operator

We’ll go next to Steven Lichtman with Oppenheimer.

Steven Lichtman – Oppenheimer & Co.

Thank you. Gary, there obviously been some discussion recently about an up tick in thrombosis with HeartMate II. I was just wondering what you learned about it in any company comments on those reports?

Gerhard F. Burbach

Sure. So, few things, first it’s important to put it into the context, there is always been a lot of literature on the HeartMate II’s performance across both the trial and commercial experience showing HeartMate II thrombus rates in the low single-digits per patient a year, that’s been a real positive aspect of the performance of the device. I think, kind of a very important point is, it is we look across the broad base of utilization across our full range of centers. Those rates haven’t changed from what we’ve seen in that literature.

One thing that’s certainly notable could be a contributor here is that the absolute number of patients has obviously increased dramatically, there are now more than 4,000 ongoing HeartMate II patients just a few years ago, that was only a 1,000, so obviously kind of from an absolute number of incidents even with the same event rate, the number of incidents is going to go up pretty substantially.

We do know we talked before about wide variability across centers in the rates of all adverse events, not just thrombus, but you name it, infection et cetera. There is a high rate of variability. So all of that I think is a very important backdrop, we have certainly heard as well as noted in some of the analyst notes from certain centers that they believe they were seeing a higher rate of thrombus. We are working diligently with those centers to understand the dynamics that are going on. And that’s really, I talked earlier in the call about last year, we had 60 of these site specific improvement initiatives.

So that’s not a new aspect of what we do, that’s a fundamental part of what we do to continue to improve the outcomes with HeartMate II across the full range of clinical outcomes, which also obviously impacts our economic outcomes.

And so we’ve been working with those centers, a couple of things we have absorbed is frequent instances where there were issues with INR management or patients with high risk factors such as infection. What we haven’t found, at this point are any aspects of the HeartMate II system, which we believe, which create higher levels of thrombus. So that’s kind of in a nutshell kind of what we’ve learned at this point.

Steven Lichtman – Oppenheimer & Co.

Okay, great. And then just one other one, you mentioned relative to HeartMate III something intriguing in terms your meetings with FDA that potentially could lead to a faster approval. When will you have better visibility on that? And currently what are you referring to there in terms of potential fast approval?

Gerhard F. Burbach

Right. So hopefully we’ll have visibility on that here in the first half of the year and certainly when we do, we will share that with you. As I mentioned, we had a good productive meeting with them, we are waiting for some written feedback to, you know kind of confirm that we are where we think we are in terms of kind of the potential clinical trial approach. So until we get that, I don’t want to set any specific expectations, other than that more qualitative belief that we will have, and ability to run a faster trial, get through that clinical trial process more quickly than it has been the case with previous devices and get to a regulatory approval more quickly as well.

Steven Lichtman – Oppenheimer & Co.

Okay, great. Thanks.

Gerhard F. Burbach

Thank you.

Operator

We'll go next to Jason Mills with Canaccord.

Jason Mills – Canaccord Genuity

Thanks Gary for taking the question.

Gerhard F. Burbach

Sure.

Jason Mills – Canaccord Genuity

Congrats on a good quarter. Following up on Steve’s question, as it pertains to the TRACE study, just looking at lower INR levels, you had mentioned that it seems like some centers may have their own [valuation] dial-back INRs and that may be the source of some of their reports that we're hearing. We're certainly getting that, I guess how is that realizations are just supposed with this trace study and what do you expect that study to show ultimately or how do you expect that to enroll?

Gerhard F. Burbach

Right. So the trace study is really looking at patients that have had a previous kind of bleeding episode, have had their anticoagulation management lowered as a result of that and then what are the outcomes with those patients and then we have a positive progression from therefore in terms of eliminating the bleeding without creating any incremental thromboembolic risk.

we know from the [anti-boyle] paper that as you look at the broad population of patients that they need to be managed within a range, an INR range of 1.5 to 2.5, which is down from the original protocol for the trial, that’s been one of the real positive aspects what we’ve seen in some of – as we’ve interacted with some of these centers is with patients that aren’t that are regular patients, they’re not patients, that have exhibited a bleeding issue. INRs that are below that 1.5 level and that’s well documented in that Boyle paper, but that clearly creates increased risks of thromboembolic events.

Jason Mills – Canaccord Genuity

Okay that’s very helpful. And then just following up on Jayson Bedford’s questions about market growth, you had a nice quarter obviously beating consensus here in the fourth quarter and mentioned high teens growth in the U.S. and other medical device markets that are just under penetrated. And we are looking at 10% penetrated like your perspective, and where you think we are sort of all in DT and BTT on that front, but as we look at that in another markets historically when you have another competitor coming in and developing the market sometimes you see sort of an acceleration in growth rates. And it seems like your guidance as it relates to market growth is a bit more conservative than that, perhaps talk about what you expect to see in 2012 in the U.S. and why we wouldn’t see at least maintaining sort of the upper double-digit rates we’ve been seeing.

Gerhard F. Burbach

Yeah, so you are correct, Jayson. We have not built-in to our guidance that kind of expectation, market acceleration with the entrance of another competitor that certainly is a possibility and I put that in the category of an upside to in terms of guidance that we provided today going back to Daniel’s question earlier. And just we decided given kind of the various variables on the table including the latter kind of they are not coming into the market until the middle of the year that we just didn’t feel that we should assume that they would be that kind of a impetus to the market based on that entry this year.

Jason Mills – Canaccord Genuity

If I can just follow-up on that even with you as a sole competitor in the first half or how long it lasts into the second half, why wouldn’t we see these penetration levels in your market development efforts, something can assist that with 2011, is there something structural in the market, are we seeing sort of a marination of the market at these levels, before we see another growth period or is there any – am I reading too much into that? Thank you.

Gerhard F. Burbach

Yeah, thanks, Jason. We’re not indicating that there are some new structural dynamic that’s in play.

Jason Mills – Canaccord Genuity

Okay. Thank you, Garry.

Gerhard F. Burbach

All right, thank you.

Operator

We’ll go next to Spencer Nam with Thinkequity.

Spencer Nam – Thinkequity Llc

Thanks for taking my questions. Just have a couple of questions here. So in terms of your fourth quarter, could you maybe talk a little bit about how you guys were against competition in the U.S. as well as Europe, I know you mentioned that you may have take some share in Europe against competition, but I was wondering if you guys felt like that you were running into a competitor more often or less during the quarter, and whether that had – may have had impact on your numbers?

Gerhard F. Burbach

Yeah, in terms of U.S. share, I believe that our market share is up because I believe that HeartWare’s number and obviously, these are preliminary, but they provide it at the JPMorgan Conference, so and so far those numbers are accurate. I believe their numbers were slightly down in Q4 versus obviously we had very solid growth during Q4.

Spencer Nam – Thinkequity Llc

Do you have any sense how that happened?

Gerhard F. Burbach

Well, hopefully it’s a combination that we are; we know we’re effectively driving the Destination Therapy market, where we have the only approved indication. So I think that’s clearly a part of it, and hopefully a part of it is also, the strength of our messaging around the benefits of HeartMate II. So I think, those are probably the two core aspect. Certainly, we did see some nice growth amongst smaller of the open heart centers.

So that’s a group that we certainty have exclusively to ourselves, but we did also see growth in that first, what we call the, kind of first group of centers that were in our clinical trial, that are the predominant group that are in the HeartWare trial. So I think there was also that kind of positive competitive dynamic that we accomplished during the quarter.

Spencer Nam – Thinkequity Llc

That’s helpful. And then in terms of your – the pipeline, I’m just – give us little more sort of clarity on, the discussion with the FDA, and all that. Is that fair to assume that you guys have a working model that’s ready to go with trials, or how should I think about that? I mean what exactly are the dynamics of these processes coming together?

Gerhard F. Burbach

Yes, that’s fair to assume, we have a specific trial design that we are discussing with the FDA.

Spencer Nam – Thinkequity Llc

Great. That’s helpful. Thank you.

Gerhard F. Burbach

All right, thank you.

Operator

We’ll go next to Chris Pasquale with JPMorgan.

Christopher Pasquale – JPMorgan

Thanks. A lot of my questions have been answered, but just a couple of quick one. First, Gary, you mentioned the additional $50 million buyback authorization you received in the fourth quarter. You exit 2011 with a lot of cash on the balance sheet, and you should generate well over $100 million in free cash flow this year. So can you just talk about how you’re thinking about capital allocation, are there really enough M&A opportunities in your core market that you shouldn’t be more aggressive returning cash to shareholders?

Gerhard F. Burbach

Yes, good question Chris. So one thing I know is that our guidance does not include the utilization of that $50 million buyback. So if we do execute that that would be an upside to the EPS aspect of our guidance. And we are committed to returning value to shareholders, obviously well that’s within the context of having capital and deploying capital for our strategic needs. So I think that will really be the determining factor of how much share buyback do we execute if any during 2012 is what the scope of any strategic business development activities that we have during the year.

Christopher Pasquale – JPMorgan

Okay. And then one for Roxanne, the tax rate guidance for 2012 does that assume extension of the R&D tax credit or will that also be upside?

Roxanne Oulman

It assumes the extension of the R&D tax credit.

Christopher Pasquale – JPMorgan

Okay. Thank you guys.

Gerhard F. Burbach

Thank you.

Operator

We’ll go next to Larry Biegelsen with Wells Fargo.

Larry Biegelsen – Wells Fargo Securities, Llc

Hi, good afternoon. Thanks for taking my questions.

Gerhard F. Burbach

Hi Larry, sure.

Larry Biegelsen – Wells Fargo Securities, Llc

Hey, congratulations on a good quarter.

Gerhard F. Burbach

Thank you.

Larry Biegelsen – Wells Fargo Securities, Llc

Just two questions from me, the first back to Europe and it’s the first time in a while I think that you guys did better on a sequential basis in HeartWare. Do you think that came from these centers, existing centers, and any color on what you think happened in Europe?

Gerhard F. Burbach

Yeah, that came from existing centers.

Larry Biegelsen – Wells Fargo Securities, Llc

Okay, and any additional color on what you think is happening there?

Gerhard F. Burbach

I think that we had good execution kind of across a range of centers and certain centers in particular where we saw some nice progress in terms of our competitive situation, as well as we have begun to increase our focus on market development in Europe and I think that’s also kind of in the early stage that’s starting to have some positive impact.

Larry Biegelsen – Wells Fargo Securities, Llc

Garry, just to circle back on the – from both of this rates, you talked about it bigger than those single digits in the U.S. similar to the published literature. I guess to be clear, are you saying that on a national level, you have not seen an uptick in the rate, because it sounds like a lot it has anecdotally heard about an uptick and you talked about a few more due to the INR as appose to the device, I’m sure I’m going to get this wrong, but there was one change to the outflow, I think that you made about a year ago. Have you determine that that had not been a factor? Thanks.

Gerhard F. Burbach

Yes. So the first part of what you said the national rate that we are seeing has not changed from that published literature. And the second part of your questions, we released sealed graphs not just the outflow, but also the inflow. And those were in a kind of limited market status beginning back in 2010, and then, we launched those in the early part of 2011. And we don’t believe that those are contributing to these thrombus issues that some of these centers are noting.

Larry Biegelsen – Wells Fargo Securities, Llc

Thanks guys.

Gerhard F. Burbach

Thank you.

Operator

We will go next to Suraj Kalia with Rodman & Renshaw.

Timothy Philosophos – Rodman & Renshaw, LLC

Good afternoon. This is Tim Philosophos asking on behalf of Suraj.

Gerhard F. Burbach

Hi, Tim.

Timothy Philosophos – Rodman & Renshaw, LLC

Hi, thanks for taking the call and congrats on a great quarter.

Gerhard F. Burbach

Sure.

Timothy Philosophos – Rodman & Renshaw, LLC

Yeah. There has been some suggestions, mainly clinical papers recently that rather than treating with thrombolytics, it’s better to just do a pump exchange. And I’d like to hear you comment on that? Do you subscribe to that theory and how do you reconcile the added costs of a [rehab] and subsequent complications with a non pump procedure. Thanks.

Gerhard F. Burbach

Yeah. I don’t think I can give a kind of generalized response to that question. That’s clearly kind of specific clinical judgment kind of a question, as to is TPA, thrombolytic a better course or is the pump exchange a better course. I would think that that’s going to be based on the clinician’s assessment of the bleeding, hemorrhagic stroke and particular risk of a given patient versus their ability to withstand surgical procedure. I haven’t seen that particular clinical article that you’re referring to, so I can’t respond regarding that specific article.

Timothy Philosophos – Rodman & Renshaw, LLC

Okay, thank you.

Gerhard F. Burbach

Thank you.

Operator

We’ll go next to Rajeev Jashnani with UBS.

Rajeev Jashnani – UBS

Hey, good afternoon.

Gerhard F. Burbach

Good afternoon.

Rajeev Jashnani – UBS

Did you give the growth rates for U.S. HeartMate II?

Gerhard F. Burbach

In Q4?

Rajeev Jashnani – UBS

Correct.

Gerhard F. Burbach

Yes. The Q4 U.S. HeartMate II growth rate in units was 15%.

Rajeev Jashnani – UBS

Great, thanks.

Gerhard F. Burbach

International it was 8%.

Rajeev Jashnani – UBS

Right. And I guess something in international then, maybe could you talk a little bit about – maybe even a bit more granular in terms of what you’re seeing at the sites of, do you see any sites that are making a decision to change their mix of business, or they just trying the quarterly luck of the draw, where your sites may have grown a little bit faster than HeartWare sites. Is there any additional visibility there would be helpful? Thank you.

Gerhard F. Burbach

Sure. Yeah, I think sum of both. I wouldn’t quite call it quarterly luck of the draws. I’ve mentioned that we’re trying to work with our centers on market development and helping them to grow their programs in a purposeful way and increasing our focus on that in Europe and that’s a newer phenomenon. They are the newer focus than in the U.S. And then they are also, we have seen some centers where we believe we are realizing an improved mix of business vis-à-vis HeartWare.

Rajeev Jashnani – UBS

Thanks for that.

Gerhard F. Burbach

All right, thank you.

Operator

And that does conclude our question-and-answer session. I’d now like to turn the call back over to Gary Burbach for any additional or closing remarks.

Gerhard F. Burbach

Okay. Thank you very much. Just want to thank everyone for joining us toady. And we’ll look forward to keeping you updated over the course of the year.

Operator

And again, that does conclude today’s call. We appreciate everyone’s participation.

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