HeartWare Shares Rise on Narrower Loss


Leading heart pump-maker HeartWare International’s (HTWR) loss per share of 69 cents in the third quarter of 2013 was significantly narrower than the Zacks Consensus Estimate of a loss of 81 cents per share and the year-ago loss of $1.75. Net loss was $11.4 million, narrower than a loss of $25.0 million reported in the prior-year period.

Based on this better-than-expected result, since the earnings announcement, the company’s share spiked 20.8% to $89.34 after the market closed yesterday.

HeartWare’s revenues climbed a whopping 140% to $54.8 million, comfortably surpassing the Zacks Consensus Estimate of $49 million. The improvement came on solid adoption of the new FDA-approved HeartWare System in the U.S. Currency fluctuations benefited third-quarter revenue growth by 5.7%.

Revenues in the U.S. were $28.2 million, a massive 83.3% rise from the comparable prior-year quarter and up 12% on a sequential basis. International revenues also grew an impressive 38% year over year to $26.6 million.

During the quarter, the company sold 549 units of the HeartWare Ventricular Assist System globally, which more than doubled the year-ago number of 256 units. Out of this, 287 units were sold in the international markets.

Gross margin leaped 1220 basis points to 64.4% from 52.2% in the third quarter of 2012. Selling, general and administrative (SG&A) expenses increased 43.5% to $19.8 million. The escalation was propelled by expanded sales and marketing activities in the U.S., an overall increase in corporate infrastructure to support the company’s rapid growth and the impact of the medical device excise tax.

Research and development (R&D) expenses also grew 21.0% to $25.9 million on the back of increased investments in clinical trials and product development. As a result, operating expenses increased 30.1% to $45.8 million. HTWR’s operating loss was $10.5 million, narrower than the operating loss of $23.2 million in the previous-year period.

Balance Sheet

HeartWare exited the quarter with cash, cash equivalents and investments of $225.0 million, slightly higher than $222.4 million as of Jun 30, 2013. The company’s total current liabilities are pegged at $35.0 million as of Sep 30, 2013 compared with $34.0 million at the end of 2012.

HTWR generated positive cash flow from operations of $2.8 million in the third quarter, a historic first-time achievement for the company. Net cash used in the sequentially prior quarter was $6.5 million.

Our Take

HeartWare makes miniaturized implantable heart pumps, also known as ventricular assist devices, which are used for the treatment of patients suffering from advanced heart failure. The U.S. FDA approval for the company’s HeartWare Ventricular Assist System in November 2012 was a milestone achievement. We believe that the company is on the right track for growth on the back of new cutting-edge products and a rich pipeline of offerings.  

However, HTWR needs to control its expenses to generate profitability going forward. The company competes in the heart devices market with the likes of Thoratec Corp. (THOR).

The stock presently has a Zacks Rank #3 (Hold). Some well-placed medical instruments stocks such as CryoLife Inc. (CRY) and Cynosure, Inc. (CYNO) are worth considering. Both of these stocks carry a Zacks Rank #1 (Strong Buy).

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