HeartWare International BUY

HTWR : NASDAQ : US$96.40
Target: US$110.00

HeartWare is a development-stage company that designs, manufactures, and markets miniaturized left ventricular assist devices (LVADs), which are surgically implanted pumps to offset decreased pumping capability in individuals with heart failure. HeartWare’s axial flow HVAD incorporates its proprietary “hybrid” platform, wherein the impeller (or rotor) used in the pump is suspended by passive magnets and dual hydrodynamic thrust bearings.
All amounts in US$ unless otherwise noted.

Investment recommendation
We recommend investors add to/start positions in HTWR. We view the Circulite acquisition announced Sunday night positively – both in terms of 1) the large, new market opportunity it opens up for HTWR in the Class majority of the potential capital outlays to future milestones (CE Mark, FDA approval, sales goals).
Investment highlights
 We estimate the TAM for device therapy in the Class III HF patient population approximates an incidence of 500,000 potential patients in the US and 570,000 in Europe annually. If we assume a conservative 10% “sweet spot,” we would derive an annual worldwide market opportunity approaching $5 billion.
 The majority of Class III heart failure patients have few viable therapeutic options. To wit, only a small portion of these patients (i.e., 20-30%) are practical candidates for bi-ventricular pacing (i.e., CRT therapy), and studies suggest at least one-third of these patients do not respond to CRT therapy. Many of these Class III HF patients could benefit from Synergy or Sunshine Heart’s C-Pulse.
 Wood to chop – We assume HTWR was able to get this deal done with relatively little money up front in part because of a documented thrombosis issue with Synergy in the early days of its initial commercial launch in Europe. This issue may ultimately prove unsolvable; time will tell. That said, HTWR’s engineers and R&D staff
have proven highly effective addressing issues with HVAD in the past.This experience/productivity, coupled with the relatively low pricepaid for this “shot,” strike us as a risk very much worth taking, as asuccessful re-launch of Synergy would significantly expand HTWR’slong-term revenue potential, not to mention providing a synergistic product platform that spans both Class III and IV HF.


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