Thoratec Buys Heartware to Expand LVAD Market

Article preview reprinted from IN VIVO - February 2009

Thoratec's 34% increase in the revenue for 2008 was largely due to the introduction of its left ventricular assist device HeartMate II, a small axial flow pump weighing only 12 oz. while previous devices weighed three pounds.

Thoratec Buys Heartware to Expand LVAD Market

Article preview reprinted from IN VIVO - February 2009

In medtech sectors where it can take decades to get a device to market, companies face the real and ever-present danger that by the time they launch their latest generation product, their technology has already been leap-frogged by competitors, especially small, innovative private companies. Thoratec Corp. was facing exactly that challenge. With 2008 sales of $313 million, Thoratec dominates the market for ventricular assist devices, which are heart pumps that support the failing hearts of patients in late stages of chronic heart failure. Its latest left ventricular assist device (LVAD), the HeartMate II, took off like gangbusters upon its launch in the second quarter of 2008 and was largely responsible for Thoratec's 34% increase in the year's revenues. HeartMate II is a small axial flow pump weighing only 12 oz. (281 grams) while previous devices weighed three pounds. It took more than seventeen years for the HeartMate II to wend its way through development to the marketplace success that it is today, and that's not unusual in the LVAD space. But now, next generation LVADs with advantages are already nipping at Thoratec's heels. HeartMate II is a second-generation pump, but third-generation products are in early stages of commercialization. Thoratec's solution: consolidation. On February 13, Thoratec announced that it would acquire publicly-traded Australian LVAD company HeartWare International Inc. for $282 million, half in stock and half in cash.

Thoratec's HeartMate II was welcomed by the market because it's much less bulky and, with only one moving part and hydrodynamic bearings, potentially much more durable than previous pumps. Because it takes up much less space in the abdominal cavity than its predecessors, it can be used in smaller female patients, who previously might not have qualified for an LVAD simply due to the large size of the first-generation devices. But next generation devices are even smaller and some can be implanted closer to the heart, without the need for a surgically created abdominal pouch, offering a simpler implantation procedure and a shorter path for blood to travel along, a fact that theoretically means fewer complications. HeartWare recently entered the market after gaining the CE mark for its HVAD centrifugal flow device, which is implanted in the pericardial space. Other so-called third generation companies are making progress too. MicroMed Cardiovascular Inc., has a tiny axial flow device that also can be implanted next to the heart. Its HeartAssist 5 LVAD, which weighs only 92 grams, is approved in Europe. It's the smallest LVAD and the only one that can directly measure blood flow, but sales have been limited to date because the company was running into financial problems due to long and costly clinical trials. But the future looks brighter. MicroMed was taken private last year by a private equity group formed by Rodger Ford, (the founder of AlphaGraphics, a global chain of printing service franchises and now the CEO of total artificial heart company Syncardia Systems Inc.) so it's now in a better position to capitalize on its advantages. (See "Newly-Private MicroMed: Is it Destined for Greater Markets?" START-UP, February 2009.) Thoratec too had been developing a next generation candidate, the HeartMate III, a compact implantable centrifugal LVAD smaller than the HeartMate II, but it is years from the market. Under the circumstances, how long would Thoratec have been able to maintain its dominant position by selling its first and second-generation technology?

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Companies mentioned in this article:

HeartWare International Inc.

MicroMed Cardiovascular Inc.

Thoratec Corp.

Ventracor Ltd.

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