Thoratec manufactures medical devices used for
circulatory support, vascular graft applications, and blood
coagulation testing. Thoratec’s ventricular assist device
(VAD) systems are currently marketed in the US and
internationally for use as a bridge to heart transplant and
for recovery of the heart after open-heart surgery. The
company has the only VAD currently FDA-approved for the
destination therapy indication.
All amounts in US$ unless otherwise noted.
Life Sciences — Biomedical Devices and Services
RAISING PRICE TARGET TO $36 FROM $30; REITERATE BUY
We remain positive on the long-term growth potential of the
LVAD market, owing to the size of the TAM (40k+ patients in US
alone), low penetration level (10%E in US/Europe; <5%E in
Japan) and next-generation technology coming down the pipe
(HMIII and MVAD), which we think will drive strong double-digit
growth in this duopolistic market for years to come. We continue
to favor Heartware common (HTWR : NASDAQ : $73.53 | BUY),
but reiterate our BUY on THOR as well. Owning both, while not
likely to elicit out-sized returns in the near term, could very well
do so over the next 12-18 months, in our opinion.
We are increasing our target to $36 from $30, reflecting not only
increasing optimism about the VAD market and THOR’s next-gen
pipeline (HM3, HM-PHP), but also to account for an uptick in the
mean small-cap comp group’s 2015 EV/sales multiple (3.7x
currently vs. 3.4x previously – ex-outliers).
Our 2016 estimates call for revenue growth of 4.7% to
$486M, gross margin expansion to 71%, and pro-forma EPS
growth of 4.8% to $1.35.
For 2016, we estimate THOR’s US VAD revenue will grow
about 1% to $359M, but model faster OUS VAD sales growth
of 11% to $125M.