DOTmed News invited three Wall Street analysts to give us their top picks in the cardiovascular medtech sector. Our experts: Alastair MacKay of Garp Research, Joshua Zable of Natixis Bleichroder and Erik Schneider of UBS--each have their favorite stocks in this fast-growing arena.

However, the only consensus name to emerge among the three men was Thoratec Corporation (THOR-NASDAQ-$25.83-Market Cap $1.6 billion), a company based in Pleasanton, CA.

All three analysts believe that if THOR's HeartMate II left-ventricular assist device (LVAD) is approved as expected for end-stage heart failure--or destination therapy (DT) as the industry calls it--this indication could drive impressive growth for the company over the long-term.

A continuous flow device, the HeartMate II can pump up to 10 liters of blood per minute and is designed to provide long-term cardiac support of about five years. The device is implanted alongside a patient's native heart.

Stock Already High

While all three analysts believe THOR's fundamentals are impressive, both MacKay and Zable have downgraded the stock from "buy" to "hold," based on its already rich valuation. Both analysts say that favorable data announced in December on the company's HeartMate II trial sent the stock up nearly 20 percent to $29, so there isn't much room for upside. Schneider, on the other hand, believes the stock could hit $38 and is maintaining a "buy" on the shares.

THOR is on a roll, everyone agrees. Interim analysis of data from its HeartMate trial DT was so good that FDA has allowed the company to file for clearance in May, rather than next year as originally planned. The company says it will launch the $85,000 heart pump next year.

Trial results showed that patients implanted with the device achieved statistically superior outcomes versus those in the control group who were implanted with the company's older and less durable HeartMate XVE. Based on this evidence, the control group was abandoned, MacKay tells DOTmed News.

The DT study protocol called for an interim analysis to test for overwhelming superiority when 67 percent of the first 200 randomized patients had reached two-years of follow up. The primary endpoint for the trial assessed in this analysis includes patients being alive and free of stroke and the need of device replacement at two years, MacKay says.

In another coup, HeartMate II won clearance for bridge-to-transplant (BT) therapy on April 24, 2008. Back in 2002, FDA approved the company's older HeartMate XVE device for those patients waiting for a transplant. But as FDA was quick to realize, THOR's HeartMate II is clearly superior for this indication, as well.

The HeartMate II is about 40 percent smaller than its predecessor, MacKay points out, and is expected to last five years; more than twice as long as the older HeartMate XVE model.

"We estimate that DT approval for the superior HeartMate II will spur sales growth well beyond the current rate in the low-to-mid teens, albeit at a measured pace until the end of the decade," Mackay says.

He adds that he foresees the number of DT procedures ramping up from roughly 50 in 2003 to several thousand per year with HeartMate II, as THOR overcomes the obstacles that stand in the way of widespread use among the 25,000 to 30,000 Americans who are diagnosed with the most severe forms of heart failure each year.

Potential Negatives

MacKay says whether the $85,000 device constitutes a spending spree or money well spent is still not clear. Patients who need the heart pump clearly want it the company says, providing evidence that their quality of life is superior to taking pills. "I can rake leaves, mow the lawn and I feel wonderful," one HeartMate patient featured on THOR's website says.

A positive for reimbursement, MacKay says, is that third-party payers have accepted the commercial price of $84,000 for the pump, with most patients paying little out-of-pocket. In 2006, he notes, the Centers for Medicare and Medicaid Services (CMS) raised its reimbursement rate for DT by 5 percent to 10 percent, following a 30 percent hike in 2004, aligning Medicare payouts with the procedure's cost.

All Good News, Zable Says

Meanwhile, Zable of Natixis Bleichroeder, says his "hold" rating on THOR is "strictly based on valuation, not on fundamentals. "There's all good news here," Zable tells DOTmed.

For example, he says, "THOR has the smallest ventricular assist device on the market and is targeting a new population who might not have been able to be treated with previous products. For instance, women, or smaller people in general, or more sickly people." He adds he would expect some off-label use for DT before winning FDA approval.

Zable says he was most impressed that when he attended the 54th Annual American Society for Artificial Internal Organs conference last year, a premier world conference that promotes the development and application of artificial organs, "it was evident from speaking with clinicians that THOR is the market leader in the VAD space, being one of the select few companies with an approved device for Bridge to Transplant (BT) Therapy."

He adds that FDA's approval last spring of HeartMate II for BT therapy and its subsequent commercial launch has furthered the preeminence of THOR in this market. And because of the company's long history in the market and its breadth of products, THOR has relationships with every sizable VAD implanting center in the country, Zable says.

Finally, he says that the company's size and resources, relative to its competitors, differentiates the company's ability to support its customers and assists in developing VAD programs at hospitals. He warns, though, that while he still expects THOR to lead the market, especially after a HeartMate II approval, there are a number of competitive trials in the works.

"Despite THOR's strong brand, clinicians are curious about other devices, especially ones with centrifugal flow and magnetic levitation," he says.

Summing up his notes on THOR, he says the company is a world leader in therapies to address advanced heart failure and sells several ventricular assist devices, including the IVAD, PVAD, HeartMate XVE and HeartMate II. In addition, the company's International Technidyne Corp. subsidiary, (ITC), sells tests to evaluate clotting time for patients on warfarin therapy for chronic atrial fibrillation and venous thromboembolism, although this business is not growing as robustly as the cardio unit.


UBS: Majority of Doctors Prefer HeartMate

Disagreeing with his colleagues, UBS analyst Erik Schneider is still recommending investors buy THOR. He has a 12-month target price of $38.88 on the shares, based on 50 percent revenue growth to 2010 and profit margins in the high teens.

Schneider believes that if HeartMate II is approved for DT, it would "crack open the DT market." The LVAD can be used off-label now, but it is prohibitively expensive and Medicare won't reimburse patients until the device is approved, Schneider tells DOTmed.

Most exciting, he says, is according to his survey asking physicians what DT device they expect to use in five years, 51 percent say they'll use the HeartMate II, preferring it to several other brands.

Important: Opinions in this report are solely those of the subject matter experts quoted and not intended as investment advice.