Can't Beat HeartWare, Thoratec
Credit Suisse upgraded the ventricular-assist-devices firms to Outperform.
Credit Suisse
We are upgrading HeartWare International and Thoratec to Outperform from Neutral.
We are lowering our discounted-cash-flow-based target price on HeartWare (ticker: HTWR) to $96 from $105 based on slightly lower market growth assumptions and a slightly higher weighted average cost of capital (WACC).
We are raising our discounted-cash-flow-derived price target on Thoratec (THOR) to $43 from $35 based on the assumption of higher out-year estimates (due to lower assumed HeartWare share) and a lower assumed WACC.
Based on HeartWare's second-quarter results we estimate that the U.S. left ventricular assist device (LVAD) market grew roughly 21% this Q (ex-stocking but including paracorporeal/implantable ventricular assist device (PVAD/IVAD)), implying about 1% HeartWare sequential share gains (excluding stocking), which was light of our 2% estimate and likely light of consensus. HeartWare also pushed back expectations for its U.S. muscle-powered ventricular assist device (MVAD) trial/destination therapy (DT) extension trial enrollment by 12 months/one quarter.
Despite these challenges we see the move in HeartWare shares in the past three months as overdone. If HeartWare ventricular assist device (HVAD) stroke rates are tamed, consistent with our expectations (we expect data to this effect could be shown at HeartWare's bridge to transplantation (BTT) post-approval study (PAS) presentation April 2014), then the surgical versatility of the HVAD (thoracotomy approach, etc.) could confer some advantages over the HeartMate II (HMII) (despite the requirement for closer attention to blood pressure and International Normalized Ratio (INR) [a measurement of the blood thinness]), allowing the HVAD to achieve about 50% U.S. market share over time (consistent with our recent survey and with performance in Europe where HVAD sales exceed HMII with about 48% overall share) despite the sluggish second-quarter share gains.
We believe Thoratec can grow sales about 11% over the next three to four years despite encroachment from HeartWare on its U.S. market share. Our growth estimates assume steady LVAD share outside the U.S. excluding Japan and market growth of about 14%, with an incremental about $40 million per year in sales in Japan by 2017 (Japan adds about 2% to our 2013-2017 growth compounded annualized growth rate (CAGR)). Moreover, we forecast about $30M in percutaneous heart pump (PHP) sales by 2017, which adds another about 1% to our 2013-2017 sales CAGR, helping to offset the U.S. BTT share gains we forecast for HeartWare in 2013 and DT share gains in 2016-2017.
-- Bruce Nudell
-- Matthew Keeler
Barrons
