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D. KEITH GROSSMAN
President and Chief Executive Officer |
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“Given that the majority of Destination Therapy patients
will be covered by Medicare, the National Coverage Decision
was critical to the development of the market.” |
“Through device enhancements and improved implant procedures,
we believe we are seeing progress in reducing the cost of the
procedure by lowering the incidence of adverse events and improving
patient outcomes.” |
“While we have focused a great deal of attention and corporate
resources on the Destination Therapy opportunity, we have not
lessened our emphasis on the Company's other product development
programs and business activities.” |
“The success of existing products, combined with the integration
of IRMA TRUpoint and planned new product introductions, portends
a continued positive outlook for ITC.” |
“Destination Therapy and the tremendous progress we are
making on the development of next generation devices present
a significant opportunity for Thoratec.” |
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TO
OUR SHAREHOLDERS
We entered 2003 facing both the promise and challenges that came with
FDA approval of Thoratec’s HeartMate XVE for Destination Therapy.
This approval enabled us to pioneer this significant market opportunity
and address some portion of the estimated 100,000 patients each year
who suffer from end-stage heart failure and are not eligible for heart
transplantation. At the same time, the approval also created the need
for us to execute on a strategy that would lay the foundation for
success in this market.
Our most critical challenge was achieving reimbursement from Medicare
as well as private payers. In addition, we needed to begin laying
a foundation of plans and programs that would lead to improved patient
outcomes, reduced costs and adoption of the procedure by leading heart
centers. I am pleased to report that we realized major strides in
all of these efforts intended to capitalize on the Destination Therapy
opportunity.
We also remained centered on our ongoing business efforts, and the
growth of the Company during the year reflects our continuing market
leadership. Revenues increased 15 percent as we benefited from ongoing
growth in bridge-to-transplantation, as well at our International
Technidyne Corporation (ITC) subsidiary. We were able to record these
results and meet our financial guidance for the year, despite minimal
contributions from Destination Therapy as Medicare reimbursement approval
did not occur until the end of 2003.
Gaining Reimbursement
While the National Coverage Decision for Destination Therapy from
the Centers for Medicare & Medicaid Services (CMS) came later
than we had originally hoped, the other CMS initiatives that accompanied
this Coverage Decision were highly encouraging.
The most important of these was the 30 percent increase in the base
payment level under the reimbursement code covering Destination Therapy,
DRG 525. In addition, the criteria for reimbursement qualification
resulted in more than 60 centers being certified initially by Medicare
for Destination Therapy. These centers have accounted for the vast
majority of all VAD procedures done in the U.S.
Finally, CMS made the effective date for reimbursement retroactive
to October 1 of 2003. Given the required center-by-center certification
process, this had little impact on Destination Therapy activity during
the balance of the year. However, we believe it sent a very encouraging
message about CMS’ belief in our technology and the need to serve
these patients who have no other treatment alternatives.
Given that the majority of Destination Therapy patients will be covered
by Medicare, the National Coverage Decision was critical to the development
of the market. We have also been successful in securing coverage from
private payers, including nearly half of the nation’s local Blue
Cross/Blue Shield plans, Aetna, PacifiCare and others.
We continue to work with our clinicians and CMS to obtain future reimbursement
that is commensurate with the actual cost of the procedure. However,
it is important to remember that under Medicare guidelines, many centers
will receive reimbursement significantly beyond the base rate, based
on their location and other factors.
At the same time, through device enhancements and improved implant
procedures, we believe we are seeing progress in reducing the cost
of the procedure by lowering the incidence of adverse events and improving
patient outcomes. Contributing to these improving patient outcomes
are the many lessons learned from the REMATCH trial regarding patient
selection and management. Additionally, the HeartMate XVE—an
enhanced version of the HeartMate LVAS that incorporates a number
of improvements based on the REMATCH trial—was approved for Destination
Therapy during the year. We have already seen marked improvements
in the patient experience through the use of the XVE.
To complement the device improvements we have made and those planned
for the future, we have also implemented training initiatives to ensure
that surgeons are able to employ best practices that are improving
patient outcomes and reducing costs. These market education efforts
will be an important element of Thoratec’s Heart Hope program,
which is designed to create a solid infrastructure for the development
and orderly rollout of the Destination Therapy market.
Progress on Many Fronts
While we have focused a great deal of attention and corporate resources
on the Destination Therapy opportunity, we have not lessened our emphasis
on the Company’s other product development programs and business
activities.
Key milestones included receiving approval to market the Thoratec
IVAD (Implantable Ventricular Assist Device) in Europe and concluding
a highly successful clinical trial for the device in the U.S. We filed
for FDA approval in early 2004 and hope to begin marketing the IVAD
in the U.S. later this year. With its approval, we will have four
approved ventricular assist devices in the U.S., significantly more
than our competitors.
Another important achievement was FDA approval for home discharge
for the Thoratec TLC-II Portable VAD Driver, a lightweight device
used to power the Thoratec VAD System. Patients supported by the Thoratec
VAD, and later this year the IVAD, may leave the hospital to recover
at home, providing a higher quality of life and reducing the cost
of care.
Late in the year, we launched the U.S. trial for the HeartMate II,
our next generation design intended for long-term cardiac support
for patients who are in end-stage heart failure. It is the Company’s
first axial flow device to enter human trials in the U.S. As of early
2004, we had enrolled several patients in the U.S. trial—with
highly encouraging results—and also initiated enrollment in our
European trial for the device. We also made progress in our development
program for the Company’s HeartMate III, our third generation
device designed to provide long-term support, potentially more than
ten years. We are completing product design activities and plan to
have the device in clinical trials in 2005.
ITC, our point-of-care diagnostics business, continues to perform
beyond our expectations. For the second consecutive year, ITC recorded
annual revenue growth in the range of 15 percent. ITC’s ProTime
Microcoagulation System and HEMOCHRON Signature Plus products gained
share in their respective markets, and two new products—the Hgb
Pro and HEMOCHRON Response RxDx—received solid market acceptance
in their inaugural year.
ITC’s product lines complement our VAD offerings and enhance
our presence in the cardiac surgery market, and we have continued
to invest in its growth. As part of this strategy, we purchased the
IRMA TRUpoint blood analysis system product line.
The IRMA TRUpoint system provides intermittent testing of a broad
range of critical care tests, including blood gases in the operating
room or at the patient’s bedside. We have started to realize
tremendous synergies in sales and marketing, as well as new product
development. The success of its existing products, combined with the
integration of IRMA TRUpoint and planned new product introductions,
portends a continued positive outlook for ITC.
We continued to gain market share with our Vectra VAG (Vascular Access
Graft), which provides access to the bloodstream for patients undergoing
hemodialysis. The Vectra is among the leading devices in its sector,
and our marketing partner has been able to command premium pricing.
As we announced in early 2004, we have decided to discontinue development
work on the Aria CABG (coronary artery bypass graft) device, based
on the ongoing and significant challenges we faced in its clinical
development and the compelling opportunities available in the assist
device arena. Since we viewed the device as a long-term market opportunity
at best, this decision has had no impact on our near-term revenue
outlook.
Thoratec ended the year in an excellent financial position, as cash
and investments increased by more than 35 percent to $103 million,
and we have continued to enhance the breadth and depth of our management
team. We are well positioned to further our standing as an advanced
medical technology company through internal resources as well as potential
partnerships, joint ventures and acquisitions.
A Bright Future
Destination Therapy represents a market of vast potential for Thoratec.
We are uniquely positioned to capitalize on this market, which is
not only sizeable, but one that we expect to have to ourselves for
the foreseeable future. We have the tools necessary to build both
a strong franchise as it develops and to maintain a formidable position
when Destination Therapy competition does appear ultimately later
this decade.
However, we also recognize that this is a market that will develop
over time and will be dependent on the development of ever improving
devices, better patient outcomes and a more favorable reimbursement
environment. As has been true in the past, our ability to execute
and deliver will be paramount, and we hope that shareholders will
embrace our long-term view of this opportunity.
Destination Therapy and the tremendous progress we are making on the
development of next generation devices present a significant opportunity
for Thoratec. All of us at the Company look forward to reporting on
our future progress in the months and years ahead.
D. KEITH GROSSMAN
President and Chief
Executive Officer
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