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LOS ANGELES | NEW YORK | SAN FRANCISCO | BOSTON | SEATTLE
World Heart Corporation (WHRT)
February 2, 2010
Levacor Designed for Improved Blood Handling but Awaiting
Clinical Data; Initiating Coverage with a NEUTRAL Rating
Price (Close February 1, 2010)
•
•
•
Cardiovascular, Devices and Regenerative
•
•
World Heart Corporation (WorldHeart) is a former leader in the LVAD market,
now determined to recapture its former prominence. WorldHeart developed the
Novacor, one of the first commercially successful left ventricular assist devices
(LVADs). Although the Novacor reached obsolescence in 2008, the market for LVADs,
designed to address the large unmet needs of patients with end-stage heart failure, is
now beginning to mature, with realistic hope of expanding from the $150 million per
year bridge-to-transplant market (BTT), into a destination therapy (DT) market that is
expected to reach $1.5 – $2.0 billion per year. WorldHeart hopes to recapture its
position as a market leader through the development of both a next-generation LVAD,
the Levacor (designed to treat Class IV patients), as well as a partial flow device, the
MiVAD, which targets the much larger population of Class IIIb patients.
WorldHeart is positioning its devices as potentially having the best bloodhandling characteristics and durability among existing LVADs.
Two players,
Thoratec (THOR-OUTPERFORM) and HeartWare (HTWR-OUTPERFORM) are widely
expected to dominate the LVAD market in the near-future. Both devices have proven to
be durable in the medium-term (~2 years), with an incidence of bleeding and stroke that
is relatively low and which continues to decrease. However, room for improvement still
remains and long-term data is relatively sparse. WorldHeart believes that durability,
bleeding and stroke issues will remain at unacceptable levels with these devices,
particularly when considering the 5-10 year usage expected. WorldHeart also presents
a compelling rationale why its devices should avoid these issues, although clinical data
is limited to 2 patients. In sum, we believe WorldHeart presents an interesting story
that merits continued monitoring as the LVAD market itself matures.
We predict that WorldHeart has cash runway into late 2010. Having just raised
$7.1 million through a private placement, we predict that WHRT has roughly 9-12
months of cash runway. We believe this runway should enable WHRT to continue its
ongoing Levacor BTT study to gauge initial clinical results, although we expect the
company to require additional funding to complete the study.
Our fair value of $7.50 per share suggests that WorldHeart holds upside
potential; however clinical risk is high. Our fair value is calculated using a sum-ofparts analysis, applying a 25% annual discount to our peak annual sales estimate for
WHRT’s VAD pipeline, incorporating a 1-5 multiple based on stage of clinical risk. At a
current market price of $6.11 we believe WHRT is at an attractive valuation. However,
in light of developmental risk due to a current lack of clinical data, we are initiating
research coverage with a NEUTRAL rating.
Risks to the attainment of our fair value include risks that: WorldHeart’s device
candidates obtain disappointing clinical trial results or fail to obtain regulatory approval
in a timely fashion; Physician prescribers are not be impressed with the products’
clinical profiles; WorldHeart fails to effectively commercialize its products; third-party
patents prevent the timely commercialization; superior clinical results are obtained by a
third-party competitor; WorldHeart is unable to raise needed capital.
FYE DEC
REV.
($m)
Q1 Mar
Q2 Jun
Q3 Sep
Q4 Dec
Year
EPS
Q1 Mar
Q2 Jun
Q3 Sep
Q4 Dec
Year
2008A
ACTUAL
2009E
CURR.
$0.6A
0.5A
0.2A
0.4M
$1.7M
2008A
$0.0A
0.0A
0.0A
0.0E
$0.0E
ACTUAL
($22.92)
(7.94)
(23.97)
(0.16)
($4.37)
CURR.
($0.28)A
(0.33)A
(0.30)A
(0.31)E
($1.21)E
PREV.
2010E
CONS.
CURR.
PREV.
$6.11
Rating
NEUTRAL
Fair Valuation
$7.50
Duane Nash, MD JD MBA
(415) 263-6650
[email protected]
Akiva Felt
(415) 263-6648
[email protected]
Company Information
52-Week Range
Shares Outstand.
Avg share volume
Public Float
Market Cap.
ST / LT Debt
Debt/Capital
ROE
Cash & Inv/Share
$1.70 - $8.63
17.6 million
5,042
78%
$107 million
$0 M / $0 M
N/A
N/A
$0.47
Company Description
WorldHeart is developing a full-flow
LVAD (Levacor), designed to address
the traditional market of Class IV Heart
Failure patients, as well as a partial
flow device (MiVAD), designed to
address the much larger market of
Class IIIb patients. WorldHeart hopes
that its devices will benefit from
uniquely robust durability and reduced
rate of bleeding and stroke.
CONS.
$0.3E
1.1E
1.7E
2.6E
$5.8E
2009E
PREV.
2010E
CONS.
CURR.
($0.29)E
(0.28)E
(0.24)E
(0.23)E
($1.02)E
PREV.
CONS.
Source: Nasdaq.com
Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. Please see page 32 of this report
for analyst certification and important disclosure information.
Table of Contents
INVESTMENT SUMMARY ………………………………………………………………………………………………………
3
INTRODUCTION …………………………………………………………………………………………………………………
4
NEAR-TERM MILESTONES, PIPELINE PREDICTIONS AND VALUATION ……………………………………………..
6
CHRONIC HEART FAILURE …………………………………………………………………………………………………...
9
WORLDHEART’S NEXT GENERATION LEVACOR DEVICE ……….……… ……………….…………………….……
11
WORLDHEART’S OTHER VAD PIPELINE DEVICES …..…………………………………………………………………..
22
WORLDHEART HAS A DECADE OF EXPERIENCE IN THE VAD MARKET…………………………………………….
26
REIMBURSEMENT, INTELLECTUAL PROPERTY AND LICENSING AGREEMENTS …………………………………
27
COMPANY BACKGROUND……………………………………………………………………………………………………..
28
RISKS TO INVESTMENT THESIS ……………………………………………………………………………….…………….
30
DISCLOSURES…………………… ……………………………………………………………………………….…………….
32
2 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
INVESTMENT SUMMARY
•
WorldHeart is a pioneer in the developing field of LVAD therapy for the treatment of heart failure.
WorldHeart
developed the Novacor, one of the first commercially successful left ventricular assist devices (LVADs), designed to address
the unmet needs of patients with end-stage heart failure. Although the Novacor reached obsolescence in 2008, the market for
LVADs is still developing, with potential of expanding from the $250 million per year bridge-to-transplant market (BTT), into a
destination therapy (DT) market that is expected to reach $1.5–$2.0 billion per year. WorldHeart hopes to recapture its position
as a market leader through the development of both a next-generation LVAD, the Levacor (designed to treat Class IV patients),
as well as a partial flow device, the MiVAD, which targets the much larger population of Class IIIb patients (potential market $23 billion dollars). In January 2010, WorldHeart implanted its first US patient with a Levacor in a pivotal trial for BTT.
•
We believe that WorldHeart’s clinical stage Levacor device holds the potential to reduce the risk of bleeding among
LVAD patients. Although they are a clear improvement over older technology, current (third-party) LVADs appear to be
associated with relatively high rates of bleeding and clotting complications. These complications are potentially fatal, and can
otherwise prove frustrating and expensive to deal with. The FDA appears keen to these concerns, requiring Thoratec to
conduct a post marketing bleeding study of the HeartMate II, recently approved for DT in January 2010. WorldHeart believes
that its LVAD, the Levacor, will benefit from improved blood handling, leading to a decreased incidence of both bleeding and
clotting complications. WorldHeart also believes that the device will prove uniquely suited to allowing patients to be weaned
from the device, thereby fostering the Bridge-to-Recovery indication. If these attributes are realized, we can envision a
scenario where the company’s technology becomes best-in-class, and the majority of LVAD patients or at least certain subsets
are implanted with WorldHeart devices. In support, while the Levacor is often perceived as one of the largest devices (implying
that it is difficult to implant), we believe these shortcomings will be almost entirely ignored if the device can significantly reduce
bleeding and clotting complications.
•
We hope that near-term clinical data will provide clarity. While WorldHeart’s engineering of the Levacor is impressive, and
its potential superiority is plausible, the device is very early in its clinical development and we do not yet know whether or not
the device will perform as hoped. At the moment only 2 patients have been implanted with a prior version of the device, and
the US pivotal trial in Bridge-to-Transplant is in its infancy. Moreover, while competing devices currently retain relatively high
bleeding and clotting rates, we expect continuing improvements in outcomes with existing devices, which may lessen
WorldHeart’s eventual advantage here. In sum, future data sets will be critical, including those showing: (1) whether or not the
Levacor can achieve clearly superior results; and (2) whether or not existing devices can catch up to those results through
improved patient selection, surgical technique and post-operative care. Regarding the former, the first meaningful Levacor data
set is currently expected around Q2:2012. However, we expect anecdotal data beginning in late 2010.
•
WorldHeart’s next-generation device, the MiVAD, is being developed for the multimillion dollar market of NYHA Class
IIIb heart failure. In addition to the Levacor, WorldHeart is also developing a next-generation device that is designed to retain
the Levacor’s improved blood handling, yet targeting a much larger potential market of less sick heart failure patients. The
MiVAD is a partial flow device designed to provide up to 4 liters per minute of support (compared with up to 10 liters per minute
for traditional LVADs) in patients with Class IIIb heart failure. Not only is this market estimated to be roughly 3-4-times that for
traditional LVADs, but the device is also designed to be implanted over the ribs through a minimally-invasive procedure.
Although we predict peak revenues for the MiVAD could reach over one billion dollars per year, we note that the device is not
expected to enter pivotal trials in the US until 2014 or launch in this country until roughly 2018.
•
We believe that WorldHeart has limited liquidity. The company has a roughly $110 million market capitalization, with an
average daily volume of only about 5,000 shares. This relative lack of liquidity may complicate efforts to either acquire or
dispose of large positions.
•
We consider execution risk to be lowered by Management’s developmental, clinical and regulatory experience.
Management has extensive experience in the development, approval and commercialization of medical devices, including
LVADs. We believe that this valuable experience reduces risks to the company’s clinical pipeline and commercial potential.
•
We calculate that WorldHeart is trading at an attractive valuation with 25% upside potential to our fair value estimate
of $7.50/share. Our fair value is calculated using the equal-weighted average of three sum-of-parts analyses representing our
base, best, and worst case scenarios for the Levacor’s launch.
In brief, the best case scenario envisions the Levacor
persuasively demonstrating blood handling characteristics superior to other LVADs. The middle scenario envisions the Levacor
having better blood handling than most / all other LVADs, but the magnitude of this difference being modest. Finally, the worst
scenario envisions the Levacor’s approval, but subsequent failure to differentiate itself commercially followed by relatively
dismal commercial performance. Because we are unable to predict which outcome will most likely occur, given the current
paucity of clinical data, we are initiating with a NEUTRAL rating. (Please contact your Wedbush PacGrow LifeSciences
salesperson for full calculations.)
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 3
INTRODUCTION
World Heart Corporation (WorldHeart) is a mechanical circulatory support company currently focused on developing a nextgeneration left ventricular assist device (LVAD), the Levacor. LVADs are mechanical devices that are surgically implanted to support
a patient’s own heart by pumping a portion of the cardiac output. These devices are designed to treat the tens of thousands of
patients in the United States with end-stage heart failure who are unable or unwilling to undergo heart transplantation, or to keep
them alive long enough for a heart transplant to become available. See Table 1 for a brief description of the different LVAD
applications.
Table 1. LVAD Applications and Market Sizes
Application
Description
Estimated
Duration of
Support
Implanting an LVAD in a
transplant-eligible patient to
maintain or improve the
patient’s health until a donor
heart becomes available.
Implanting an LVAD to provide
Destination Therapy
long-term support for a patient
(DT)
not currently eligible for a
natural heart transplant.
Implanting an LVAD to restore
a patient’s cardiac function
Bridge-to-Recovery
helping the natural heart to
(BTR)
recover and thereby allowing
removal of the LVAD.
Implanting a device capable of
Long-Term Partial
supporting only a portion of
cardiac output in order to delay
Circulatory Support
(PCS)
or prevent the progression of
heart failure.
Source: Wedbush Securities
Bridge-to-Transplant
(BTT)
Estimated
Total US
Market Size
Comments
3-18 months
$250 million
Relatively mature market.
2-10 years
$1.5-2 billion
Anticipated to be next area of LVAD
growth.
3-12 months
$100-300
million
5-15 years
$2-3 billion
Thought to be roughly 5-10% of the DT
market.
Currently experimental and
unpenetrated.
WorldHeart was initially incorporated in Ontario, Canada on April 1, 1996 with the goal of commercializing the "EVAD" artificial heart
and related technologies developed at the University of Ottawa Heart Institute. With its first-generation Novacor device, which was
acquired from Edwards LifeSciences in 2000, the company spent its first decade as a true LVAD pioneer. Between 1984 and 2008,
the Novacor was implanted in over 1,800 patients worldwide, and became one of the first commercially successful LVAD devices.
The company’s entire product portfolio (past, present and future) is shown in Table 2 below.
Table 2. WorldHeart’s LVAD Portfolio
Device
Status
Novacor LVAS
First implanted in
1984. Discontinued in
2008.
Levacor
First patient in US
BTT trial implanted in
January 2010.
PediaFlow
Currently in animal
studies.
Description
Pioneering 1st generation, pulsatile LVAD
which eventually became obsolete due to
large size and subsequent technical advances
from competing LVADs.
Next-Generation centrifugal, magnetically
levitated, axial rotary VAD. Currently in a
pivotal US trial in BTT.
Small, magnetically levitated, axial rotary VAD
intended for use in infants. Currently under
development by a consortium, including
WorldHeart, the NIH and the University of
Pittsburgh.
MiVAD
Animal studies not yet Small, magnetically levitated, axial rotary VAD
initiated.
intended to provide partial circulatory support
in patients at an earlier stage of heart failure
than traditional VADs. Designed to allow
placement through minimally-invasive
technique.
Sources: World Heart Corporation and Wedbush Securities.
4 | World Heart Corporation
Indications
Approved for BTT in the US,
Canada, Europe and Japan. Also
available for DT and Bridge-torecovery in Europe. Withdrawn
from market in 2008.
Designed for Bridge-to-Transplant;
Bridge-to-Recovery; and
Destination Therapy in Class IV
Heart Failure Patients.
Pediatric Heart Failure.
Designed for Destination Therapy
in Class IIIb Heart Failure Patients.
Duane Nash, MD JD MBA (415) 263-6650
Since the Novacor’s obsolescence, the company is now focused on recapturing its former prominence through the next-generation
Levacor, which the company obtained as part of its July 2005 acquisition of MedQuest Products, Inc. WorldHeart began a pivotal US
trial of this device in Bridge-to-Transplant in January 2010.
The Levacor uses a magnetically-levitated rotor resulting in no moving parts that are subject to wear, and is expected to provide
multi-year support with minimal risk of device failure. Moreover, the Levacor is also designed to have improved blood handling,
thereby reducing the risk of both bleeding and clotting, two of the most common sources of adverse events in LVAD patients. Finally,
the Levacor is relatively rare among LVADs in its ability to operate at different flow rates, thereby allowing bridge-to-recovery patients
to be gradually weaned from the device.
WorldHeart hopes that these attributes will allow the Levacor to gain a substantial portion of the growing market for LVADs, which we
predict to exceed $1 billion by 2014 (collectively). On one hand, we agree with WorldHeart that both durability and blood handling
are of prime concern for all LVAD patients, and particularly those indicated for Destination Therapy (predicted to be the vast majority
of the LVAD market). We also find it plausible that the Levacor may have better blood handling and device durability than other
existing LVADs.
On the other hand, however, the Levacor’s benefits are currently speculative, since only four patients have ever been implanted with
the device, and data is available on only two. Moreover, while room for improvement still remains, the durability and blood handling
of existing LVADs are already better than initially expected and continue to improve. As a result, it remains to be seen how much
room will remain for the Levacor to differentiate itself through these attributes. Finally, in the absence of a clear benefit in blood
handling and/or durability, we believe that WorldHeart will have a hard time gaining market share from other more established
competitors (Thoratec) and devices that are smaller and/or easier to implant (HeartWare, Micromed). That said, if the Levacor’s
durability and blood handling are clearly superior, we predict the Levacor will gain a significant (and possibly the largest) portion of
the LVAD market.
WorldHeart also benefits from a second key product candidate, the MiVAD, which is designed to provide partial flow support for the
much larger market of Class III heart failure patients, thereby reducing the rapidity of disease progression and both increasing
lifespan and relieving symptoms. As with the Levacor, WorldHeart hopes that the MiVAD’s blood handling characteristics and
durability will prove to be best-in-class, allowing WorldHeart to potentially dominate this completely untapped and multi-billion dollar
market.
The company current trades on Nasdaq under the symbol WHRT. Before June 14, 2008, the company also traded on the Toronto
Stock Exchange.
WorldHeart is almost entirely based in the United States, with approximately 50 full time employees, the majority of whom are located
in Salt Lake City, Utah, with one technical team composed of roughly ten employees located in Oakland, California.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 5
NEAR-TERM MILESTONES, PIPE-LINE PREDICTIONS AND VALUATION
Near-Term Milestones
We estimate the following near-term milestones for WorldHeart:
2010
FY:2010
Q4:2010
Continuing enrollment of pivotal US BTT trial
Possible expansion of pivotal US BTT trial to 40 sites
2011
H1:2011
Q1:2011
Anticipated initiation of pivotal US Trial of Levacor in DT
Anticipated initiation of pivotal European Trial of Levacor
We also estimate the following near-term milestones for other LVAD companies:
2010
Q1:2010
Mar 14-16
April 21-24
Q2:2010
Sep 12-15
Nov 13-17
Launch of Thoratec’s HeartMate II in Destination Therapy
Third-party LVAD data updates at ACC Annual Meeting (Atlanta, Georgia)
Third-party LVAD data updates at ISHLT Annual Meeting (Chicago, IL)
Anticipated initiation of DT trial for HeartWare’s HVAD device
Third-party LVAD data updates at HFSA Annual Meeting (San Diego, California)
Third-party LVAD data updates at AHA Annual Meeting (Chicago, Illinois)
Pipeline Predictions
We predict the following timeline for WHRT’s VAD line:
Destination Therapy
Bridge‐to‐Transplant
Levacor ‐ United States
Pivotal Trial
Data
PMA
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013
2014
2015
2009
2010
2011
2012
Pivotal Trial
Data
PMA
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2011
2012
2013
2014
2015
2009
2010
Bridge‐to‐Transplant
Levacor ‐ Europe
Pivotal Trial
Data
CE Mark
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009
2010
2011
2012
2013
2014
2015
6 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
Destination Therapy
Bridge‐to‐Transplant
MiVAD ‐ United States
Preclinical
Pivotal Trial
PMA
IND
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009
2010
2011
2012
2013
2014
2015
Pivotal Trial
Data
PMA
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009
2010
2011
2012
2013
2014
2015
MiVAD ‐ Europe
Pivotal Trial
Data
CE Mark
Approval
Launch
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009
2010
2011
2012
2013
2014
2015
Source: Wedbush Securities
The company is also part of a consortium expected to commercialize the PediaFlow device for use infants. Given the uncertainty
around timing of commercialization of this device, as well as the relatively small portion of eventual revenues to be forwarded to
WorldHeart, we have not included PediaFlow revenues in our valuation.
Valuation
We calculate WHRT is trading at an appropriate valuation with 25% upside potential to our fair value estimate of
$7.50/share. We calculate potential breakeven and full-year profitability in 2015 through revenues received from the potential launch
of the Levacor in the United States in Q3:2013.
Our fair value is calculated using the equal-weighted average of three sum-of-parts analyses representing our base, bull, and bear
case scenarios for Levacor’s launch. In brief, the bull case scenario envisions the Levacor persuasively demonstrating blood
handling characteristics superior to other LVADs. The middle scenario envisions the Levacor having better blood handling than most
/ all other LVADs, but the magnitude of this difference being modest. Finally, the bear scenario envisions the Levacor’s approval, but
subsequent failure to differentiate itself commercially, followed by relatively dismal commercial uptake.
We apply a 25% annual discount to our peak annual sales estimates for WHRT’s VAD pipeline, incorporating a 1-5 multiple based on
stage of clinical risk. Due to the lack of clinical data available to confidently predict how Levacor will compare to its competitors, we
cannot predict which scenario is most likely to occur, and therefore all three contribute equally to our valuation. Moreover, given this
heightened degree of clinical risk (despite clear upside potential) we are initiating with a NEUTRAL rating. (Please contact your
Wedbush Securities salesperson for full calculations.)
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 7
In sum, we believe WorldHeart holds potential and merits continued monitoring. However, in light of the relative lack of clinical data
for the Levacor, we advise investors to proceed with caution, and are initiating coverage with a NEUTRAL rating. We do expect
WorldHeart’s value to become clearer as: (1) the blood handling characteristics (and any deficiencies thereof) of existing LVADs
become better understood; and (2) we gain a better picture of the Levacor’s own clinical potential.
We use multiples to account for
clinical and regulatory risk at
various stages of development.
Today:
Stock (US$)
2/2/10
Wedbush Current Fair Value for WHRT:
MktCap (US$
Upside
000)
$7.65
$134,350
Current Full Pipeline Fair Value:
$7.65
$134,350
Cash:
$0.47
$8,291
Total Stock Value:
Current NASDAQ Price:
$8.13
$6.11
$142,641
$107,254
Total Diluted Shares Outstanding (000):
17,554
1: in preclinical testing
25%
2: passed preclinical
3: IDE filing
4: Pivotal Trial
5: Launched
World Heart Pipeline Valuation
Product
Indication
Eligible #
Annual WW
Treatments Est
Pricing $ per
2016
Patient per
Penetration
Year
Est
Est/Actual
WHRT Est. 2016 WW Sales
($000)
Est/Actual
Launch
Annual
Multiple Discount
Rate
Wedbush
MktCap Fair
Value ($000)
WS Stock Fair
Value
Base Case Scenario
Levacor
Left Ventricular
Assist Device
US BTT
3,700
85,000
4.9%
$24,102
9/1/2013
3
25%
$15,445
$0.88
Levacor
Left Ventricular
Assist Device
US DT
75,000
85,000
0.6%
$54,793
9/1/2015
3
25%
$35,111
$2.00
Levacor
Left Ventricular
Assist Device
Ex-US
BTT/DT
25,000
85,000
1.3%
$42,539
7/1/2013
3
25%
$27,259
$1.55
Current Fair Value for WHRT:
$4.43
Bull Case Scenario
Levacor
Left Ventricular
Assist Device
US BTT
3,700
85,000
14.8%
$72,747
9/1/2013
3
25%
$46,615
$2.66
Levacor
Left Ventricular
Assist Device
US DT
75,000
85,000
3.2%
$302,700
9/1/2015
3
25%
$193,967
$11.05
Levacor
Left Ventricular
Assist Device
Ex-US
BTT/DT
25,000
85,000
3.1%
$102,705
7/1/2013
3
25%
$65,813
$3.75
Current Fair Value for WHRT:
$17.45
Bear Case Scenario
Levacor
Levacor
Levacor
Left Ventricular
Assist Device
Left Ventricular
Assist Device
Left Ventricular
Assist Device
US BTT
3,700
85,000
0.8%
$3,698
9/1/2013
3
25%
$2,370
$0.13
US DT
75,000
85,000
0.2%
$16,254
9/1/2015
3
25%
$10,415
$0.59
Ex-US
BTT/DT
25,000
85,000
0.3%
$9,449
7/1/2013
3
25%
$6,055
$0.34
Indication
Eligible #
Annual WW
Treatments Est
CHF
550,000
Current Fair Value for WHRT:
Product
MiVAD
Left Ventricular
Assist Device
Pricing $ per
2020
Patient per
Penetration
Year
Est
Est/Actual
60,000
0.2%
WHRT Est. 2020 WW Sales
($000)
Est/Actual
Launch
$68,666
10/1/2018
Annual
Multiple Discount
Rate
1
25%
$1.07
Wedbush
MktCap Fair
Value ($000)
WS Stock Fair
Value
$7,509
$0.43
Source: Wedbush Securities estimates
Cash Runway
As of the end of Q3:2009, WorldHeart reported cash and cash equivalents of $10.0 million. In January 2010, the company raised a
net of $7.1 million through a private placement of stock and warrants. We predict cash runway into Q4:2010, by which time initial
clinical results with the Levacor in the US should be available (albeit in limited numbers).
8 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
WORLDHEART IS TARGETING THE LARGE UNMET NEED OF CHRONIC HEART FAILURE
WorldHeart’s entire product portfolio is focused on the large unmet need of chronic Heart Failure (HF).
Heart Failure is a chronic condition where the heart cannot effectively pump enough blood to satisfy the body’s needs. The precise
causes of heart failure are myriad, and include anything that either impairs the heart’s ability to squeeze with sufficient force during
the heart’s contraction phase of systole (systolic heart failure) or relax and fill up with enough blood during the relaxation phase of
diastole (diastolic heart failure). The end result is insufficient cardiac output, which is equivalent to the amount of blood the heart can
pump in a minute and is defined as the heart rate multiplied by the volume of blood ejected with each contraction (stroke volume).
One common way to evaluate the degree of HF is to consider ejection fraction, which is the percentage of blood within the ventricle
that is pumped out with each ventricular contraction. Normal ejection fractions for adults range between 50 to 70%; in systolic heart
failure, it often falls below 40%.
When HF affects the right side of the heart, which pumps deoxygenated blood from the rest of the body to the lungs, a back-up or
congestion of blood can occur in the body, often resulting in swelling of the limbs and abdomen. Conversely, when HF affects the left
side of the heart, which pumps oxygenated blood from the lungs to the rest of the body, congestion and fluid build-up can occur in the
lungs, resulting in dyspnea or difficulty breathing. In both cases, easy fatigueability and decreased exercise tolerance are common.
The most frequent form of HF is left-sided systolic dysfunction, resulting in dyspnea. In most cases, this condition is caused by
coronary artery disease. Other significant risks for chronic HF include cigarette smoking, hypertension, obesity, diabetes, and
valvular heart disease. Rarer causes of HF include severe anemia, hyperthyroidism, viral infections, alcoholism and connective
tissue diseases.
New York Heart Association Functional Classification
One commonly-used measure of HF is the NYHA
functional classification, which documents severity of
symptoms and is often used to assess response to
treatment. Its four classes are summarized below:
Figure 3. The Heart.
Class I: No limitation is experienced in any
activities; there are no symptoms from ordinary
activities.
Class II: Slight, mild limitation of activity; the
patient is comfortable at rest or with mild
exertion.
Class III: Marked limitation of any activity; the
patient is comfortable only at rest.
Class IV: Any physical activity brings on
discomfort and symptoms occur at rest.
Source: NIH.
ACC/AHA Classification
A second HF classification was introduced through 2001 guidelines from the ACC/AHA Joint Working Group:
Stage A: Patients at high risk for developing HF in the future but no functional or structural heart disorder.
Stage B: A structural heart disorder but no symptoms at any stage.
Stage C: Previous or current symptoms of heart failure in the context of an underlying structural heart problem, but
managed with medical treatment.
Stage D: Advanced disease requiring hospital-based support, a heart transplant or palliative care.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 9
The ACC staging system is notable in that Stage A, which does not have a corresponding NYHA class, encompasses “pre-heart
failure,” where intervention with treatment can presumably prevent progression to overt symptoms. Meanwhile, ACC Stage B
corresponds to NYHA Class I, ACC Stage C corresponds to NYHA Class II and III, while ACC Stage D overlaps with NYHA Class IV.
Chronic Heart Failure and Therapy
Heart failure is a major and growing public health problem affecting more than 5 million Americans, with an estimated 550,000 new
cases diagnosed every year. The lifetime risk of a forty-year old eventually developing HF is approximately 20% for both men and
women, and the absolute number of persons with HF is expected to double between 2000 and 2030 due to an aging US population.
The annual mortality for HF is roughly 30% within the first year of diagnosis and 50% within 5 years. Treatment generates annual
costs of approximately $35 billion, of which approximately $3 billion is spent on drugs and $19 billion is spent in the acute hospital
setting. Among Medicare beneficiaries, HF is the leading cause of hospitalization.
Chronic heart failure is generally treated by first addressing any underlying causes, and then, by decreasing stress on the heart,
including that caused by fluid overload. The most commonly prescribed drugs include beta-blockers and ACE-inhibitors. Other
drugs include diuretics, vasodilators, angiotensin-receptor blockers and aldosterone-receptor antagonists.
Pharmaceuticals are typically the first line of therapy in heart failure. Heart function continues to deteriorate while on drug therapy,
however. Eventually, a large number of patients progress into NYHA Classes III and IV, characterized by increasing degrees of
debilitation.
Surgical repair / reshaping of the left ventricle and valve replacements are performed in some patients with heart failure. Cardiac
resynchronization therapy is also being used in NYHA Class III and early Class IV (ambulatory) patients with cardiac dysynchrony
(QRS ≥ 0.12 seconds) to slow the progression of the disease. However these therapies are neither cures nor effective for latter
stages of the disease.
The only cure for end-stage chronic heart failure is cardiac transplant. However, this option is extraordinarily invasive and severely
limited by the scant availability of donated organs (only about 2,200 per year). Currently heart transplantation associated with the
best outcomes: three and ten year survival rates of roughly 80% and 50%, respectively.
Moreover, patients who succeed in gaining admission to a transplant waiting list often deteriorate while waiting for a heart.
Accordingly, a large potential market exists among both persons with end-stage heart failure who are not eligible for cardiac
transplantation (Destination Therapy), as well as for those patients whose condition worsens while awaiting transplant (Bridge-toTransplantation therapy).
Both of these markets are currently being targeted by both WHRT’s Levacor as well as third-party LVADs. Because they are
manufactured, LVADs have the potential for far greater availability than transplantable hearts, whose current supplies are grossly
insufficient. Moreover, LVAD implantation is associated with a shorter hospital stay than heart transplantation, and obviates the
need for the high powered immunosuppression necessary with allografts, as well as its associated tumor and infection risk. Finally,
in the event the native heart recovers, the LVAD can be removed, unlike a transplanted heart.
On the other hand, heart transplant outcomes still appear superior to LVAD outcomes, although the gap is closing. In addition, LVAD
patients need to take anticoagulation drugs and also must change their batteries several times a day or their pump will stop
functioning and become obstructed with blood clots. Finally, the risks of stroke, infections and device malfunction are not negligible.
That said, the supply of transplantable hearts is not expected to grow anytime in the near future. Accordingly, we believe that the
market for LVADs will continue to expand as both the population of elderly individuals increases, and the outcomes associated with
LVADs continue to improve.
10 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
WORLDHEART’S NEXT GEN LEVACOR DEVICE DESIGNED FOR IMPROVED BLOOD HANDLING
WorldHeart’s lead product candidate is the Levacor, a next-generation rotary LVAD whose underlying technology was obtained
through WHRT’s July 2005 acquisition of MedQuest. Unlike earlier generation rotary pumps with blood-lubricated bearings, the
Levacor is a compact, bearingless, magnetically-levitated, centrifugal pump with an impeller that is completely magnetically levitated.
Figure 4. Implanted Levacor.
Figure 5. Levacor close-up.
Legend: 1. Implanted pump; 2. Inflow cannula affixed to the LV apex; 3. Outflow conduit to ascending aorta; 4. Percutaneous
lead; 5. Extension cable; 6. Controller with internal reserve battery; 7. Battery pack.
Source: WorldHeart Corporation (with permission.)
Like other LVADs currently in clinical usage, the Levacor is implanted surgically with an inflow cannula that is attached to the left
ventricle of the heart, and an outflow cannula that is attached to the ascending aorta. Since the left ventricle of the heart functions by
pumping blood into the aorta, the Levacor is able to de-stress and unload the heart, while also increasing cardiac output and blood
flow to the body.
Like other LVADs, the Levacor is also connected via a percutaneous lead that exits the skin of the abdominal wall to attach to a
controller and battery pack that are carried by the patient on a vest. Patients need to change these batteries several times a day to
keep the LVAD constantly powered, and to prevent blood stasis and clotting within the device. Patients also need to take
anticoagulants to further minimize the risk of clotting during device functioning.
The Levacor’s Key Attributes
WorldHeart hopes that the Levacor will prove to be clinically superior to currently approved VADs (such as the HeartMate II), as well
as VADs currently in development (such as the HVAD, HeartAssist 5). In support, WorldHeart cites the following key Levacor
attributes:
•
Full magnetic levitation: Full magnetic levitation is thought to eliminate wear mechanisms within the pump and also provide for
greater clearances with optimized blood flow around the impeller. In contrast, for example, Thoratec’s HeartMate II does not
employ mag-lev technology, while HeartWare’s HVAD is only partially mag-lev, with its impeller suspended by a magnet on one
side and hydrodynamic forces on the other. Theoretically, the Levacor’s full mag-lev approach may provide greater device
durability. With an expectation that these devices may need to perform for 5-10 years in the Destination Therapy application,
such durability is clearly advantageous. However, devices such as the HeartMate II and HVAD, which are not fully mag-lev,
have proven to be surprisingly robust, albeit with relatively limited data for the longest durations.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 11
•
Potentially improved blood handling characteristics: As described in more detail below, WorldHeart believes that the Levacor
may have best-in-class blood handling. In particular, the Levacor’s mag-lev design is anticipated to minimize risks of both
bleeding and clotting, two of the more serious (and often stroke-inducing) consequences of VAD therapy.
•
Simpler, more robust design: The Levacor’s levitation technology employs a unique combination of passive suspension (using
permanent magnets only) in four axes and active suspension (a single electromagnet) in one axis, resulting in a system that is
anticipated to be simpler, more efficient, and more reliable than other mag-lev designs. For example, other mag-lev pumps
currently in development use active electromagnetic control for up to five axes of impeller position of tilt, requiring complex
circuits and sensors, and theoretically increasing the likelihood of device failure. The Levacor’s single axis of control also allows
for a thin percutaneous lead, thereby reducing the risk of lead fracture, as well as risk of skin infection. Finally, the Levacor also
employs a modular percutaneous lead, a unique feature among today’s devices. The implanted part of the lead can be removed
from the VAD and replaced without requiring removal of the VAD itself. The external part of the lead (essentially an extension
cable) can be replaced without requiring surgery.
•
Novel inlet cannula allows good anatomic fit: While centrifugal pumps have historically required an inlet that comes in physically
at right angles to the center of the pump, the Levacor employs a patented inlet that is physically flat, but still provides flow
geometrically at a right angle to the pump inlet. This design permits a pancake-like shape for the Levacor, with a low profile (38
mm thickness) in the anterior-posterior dimension, allowing the device to be implanted in adolescents and small women.
Overall, however, we believe that the Levacor’s relatively large size (440 grams) is the device’s major drawback, as implantation
may be more difficult and time consuming than that for Thoratec’s HeartMate II (281 grams) and HeartWare’s HVAD (145
grams). Indeed, the device is designed to sit in the abdomen, requiring the inflow cannula to pierce the diaphragm, necessitating
extra surgical dissection and effort.
•
Patient-friendly peripherals: Patients implanted with current-generation LVADs must carry several device peripherals at all
times in either a specially-designed belt, carry bag or vest. The three main components are: (1) a controller with alarms to drive
and monitor the LVAD; (2) a battery pack to keep the LVAD powered; and (3) a backup battery to extend battery life and prevent
accidental disconnection. In total these weigh around 5 pounds. WorldHeart hopes to differentiate itself by developing more
patient-friendly peripherals which are significantly lighter and less cumbersome, at a total weight of less than 2 pounds.
Moreover, because one of Levacor’s batteries fits directly into the controller, thereby reducing the number of carried components
from 3 to 2, WorldHeart also hopes to reduce the complexity of connecting wires and eliminate the risk of accidental
disconnection during battery changes.
•
Off-pump insertion and removal: The current generation of LVADs are implanted while the heart is stopped and the patient is
on cardiopulmonary bypass. Although bypass enables continuing perfusion of the brain and vital organs while the LVAD’s inflow
cannula is being attached to the left ventricle, cardiopulmonary bypass itself is associated with stroke and neurologic deficits.
Accordingly, a device that can shorten or avoid cardiopulmonary bypass should not only decrease procedure time, but may also
allow for better clinical outcomes. WorldHeart believes that the Levacor can be implanted without bypass, because of its
incorporation of a specially-designed sleeve. Off-pump implantation has successfully been performed on animals, and may
soon be attempted on humans as well. Finally, both human patients who were implanted and weaned from the Levacor had
their devices removed off-pump through a trans-abdominal procedure that did not require thoracotomy. We are not aware of
this capability with any other existing LVADs.
•
Weaning capability: the Levacor is the one of the few LVADs in clinical trials that can be set to different flow rates. While the
patient can set the device to three different flow rates, physicians can control flow rates to an even higher degree. Because the
Levacor is fully mag-lev, the net flow rate can be decreased to effectively zero without loss of impellor suspension, potentially
reducing the risk of device clotting, unlike with either the HeartMate II or HVAD. While such flow control is also theoretically
possible with Terumo’s DuraHeart, the device does not currently contain this capability. The ability to gradually decrease flow
appears to be highly advantageous in the Bridge-to-Recovery context. Not only can patients be gradually weaned off of support
to enable the heart to slowly recover its strength, but the heart can also be tested by temporarily removing LVAD flow without
actually removing the device.
In summary, the Levacor is the only bearingless, fully-magnetically-levitated implantable centrifugal rotary pump in clinical trials, as
well as the only such device capable of multiple preset flow rates.
Importance of Blood Handling
We believe that the Levacor’s most compelling attribute may be its blood-handling characteristics. Because the device is fully maglev, it is not dependent on blood properties for rotor suspension. Moreover, the Levacor’s greater clearances around its rotor may
provide improved flow patterns across a wider range of cardiac outputs, thereby resulting in less shear-stress and trauma to blood
elements.
Current Bleeding and Clotting Rates Leave Room for Improvement
While Thoratec’s HeartMate II is an impressive device and a dramatic improvement over earlier LVADs, its current short-coming
appears to be its association with bleeding. For example, as shown in Table 6 below, pivotal BTT data suggested that a HeartMate II
12 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
patient could an expect an average of over two major bleeding episodes per year (0.45 episodes requiring surgery and 1.67 nonsurgical episodes requiring transfusion of at least 2 units of packed red blood cells).
Meanwhile, the consequences of unwanted
clotting were relatively low, but not insignificant.
Table 6. Incidence of Bleeding and Clotting Related Complications Among Thoratec and HeartWare Clinical Trials.
Event
HeartWare Intern’l BTT Trial
VERY SICK Patients
Patients
with
Event
No.
Of
Events
Event
Rate per
PatientYear
Thoratec US BTT Trial
EVEN SICKER Patients
Patients
with
Event
No.
Of
Events
Event
Rate per
PatientYear
Thoratec II US DT Trial
SICKEST Patients
Patients
with
Event
No.
Of
Events
Event
Rate per
PatientYear
Bleeding
Requiring
Surgery
16%
10
0.21
6%
82
0.45
30%
40
0.23
Requiring ≥ 2
units
of
packed
red
cells only
8%
4
0.08
53%
303
1.67
81%
108
1.66
Ischemic
4%
2
0.04
5%
16
0.09
8%
11
0.06
Hemorrhagic
6%
3
0.06
3%
9
0.05
11%
15
0.07
Device
Replacement
(excludes
apparently
resolved HTWR
manufacturing
defect)
14%
(10%)
7
(5)
0.14
(0.10)
4%
12
0.07
9%
12
0.06
Stroke
Sources: Francis Pagani, MD, et al., Use of a Continuous-Flow Device in Patients Awaiting Heart Transplantation, J Am Col
Cardiology 2009 54(4); Mark S. Slaughter, MD, et al., Advanced Heart Failure Treated with Continuous-Flow Left Ventricular Assist
Device, N Engl J Med 2009; Martin Strueber, Update on the International Clinical Experience with the HeartWare Ventricular Assist
System (Data as of June 2009).
This bleeding rate appears to have lessened to roughly 1.89 events per patient per year in the pivotal DT trial. Moreover, the overall
stroke rate appears to have also decreased significantly although it still remains above one per ten patient-years with the HeartMate
II.
In comparison, the smaller data set for HeartWare’s HVAD suggests far fewer bleeding complications (0.21 per patient-year requiring
surgery; 0.08 per patient year requiring pRBCs), although also a higher rate of clotting. That said, a significant portion of this clotting
risk appears due to a manufacturing defect that is reported to have been resolved without recurrence.
Recent data also suggests that the rate of complications subsequent to patient-discharge is relatively low for the HeartMate II:
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 13
Table 7. Thrombotic and Hemorrhagic Adverse Events After Initial Hospital Discharge Used in the International Normalized Ratio
Analysis of Figures 3 to 5 (N = 331).
All events (220 PYs)
Events after discharge
Discharge to 6 mon (111 PYs)
Pts (%)
Events
Events/PY
Pts%
Events
Events/PY
Ischemic stroke
8 (2.4)
9
0.041
6 (1.8)
6
0.054
Pump thrombosis
3 (0.9)
3
0.014
3 (0.9)
3
0.027
Hemorrhagic stroke
7 (2.1)
7
0.032
6 (1.8)
6
0.054
Bleeding requiring surgery
4 (1.2)
4
0.018
4 (1.2)
4
0.037
40 (12.1)
60a
0.273
31 (9.4)
43b
0.387
17 (5.1)
b
0.225
Thrombotic Events
Hemorrhagic Events
Transfusion > 2U PRBC/24 hr
For bleedingc
d
For anemia
21 (6.3)
a
42
0.191
25
PRBC, packed red blood cells; PY, patient-year.
a
The combined 60 + 42 = 102 events occurred in 51 patients (15.4%).
b
The combined 43 + 25 = 48 events occurred in 40 patients (12.9%).
c
With identified sites of bleeding.
d
Without identified sites of bleeding.
Source: Andrew J. Boyle, et al., Low Thromboembolism and Pump Thrombosis With the HeartMate II LVAD: Analysis of Outpatient
Anti-coagulation, Journal of Heart and Lung Transplantation 2009, 28(9): 881-7.
In other words, the vast majority of complications appear to occur prior to the initial hospital discharge. However, as noted above, the
risks of bleeding with the HeartMate II remain substantial even post-discharge, with over 0.45 patient events per year of bleeding
requiring surgery (0.018 events per year), bleeding requiring transfusion of at least 2 units of packed red blood cells (0.273 events
per year) and anemia requiring transfusion (0.191 events per year) which we attribute to occult rather than overt GI bleeding.
We expect continuing improvements in post-op care and patient selection to improve outcomes with both Thoratec’s HeartMate II
and HeartWare’s HVAD. For example, much of the data cited above involves patients with INRs targeted between 2.5 and 3.5.
However, many centers are now reducing the degree of anti-coagulation for their LVAD patients to a target INR of 1.7 to 2.2. This
should reduce (at least somewhat) future bleeding rates, although it may also increase clotting risk.
Data presented recently at the Society for Thoracic Surgeons conference suggest that survival outcomes for existing VADs have
been improving. Dr. Mark Slaughter of the University of Louisville showed interim data demonstrating dramatic improvements in
survival over time among DT HeartMate II patients. In particular, while a cohort of 38 early HeartMate II implants in DT from select
centers (March 2005-May 2007) experienced a 2 year survival rate of only 58%, a more recent cohort of 55 HeartMate II implants in
DT (June 2007 – April 2009) from the same centers had approximately an 85-90% survival rate at 21 months. Dr. Slaughter noted
that the two cohorts included very similar patients, and he attributed the difference to improved selection, operative technique and
post-operative care. Dr. Slaughter expects to present the full data set, including 24 month survival for the latest cohort at the
upcoming ISHLT meeting in Chicago (April 21-24, 2010). It will be interesting to see if these improvements in overall survival are
accompanied by significant improvements in clotting and bleeding. If so, the degree to which the Levacor can differentiate itself on
bleeding may be reduced.
In sum, although we believe that, overall, LVAD implantation has already proven to be far superior to medical therapy for many heart
failure patients, we also accept that the bleeding episodes associated with these devices are frustrating, expensive and potentiallylife threatening. The FDA is aware of the bleeding issue as well, evidenced by a post-approval study it requested from Thoratec
following the recent approval of the HeartMate II in DT. This small trial will examine the relationship between the HeartMate II and
the incidence of acquired von Willebrand’s Disease (VWD).
Recent studies suggest that the frequent bleeding episodes experienced by many LVAD patients, including those with the HeartMate
II, may be due to an acquired VWD. See, e.g., Ulrich Geisen, Non-surgical bleeding in patients with ventricular assist devices could
be explained by acquired von Willebrand disease, Eur J. Cardiothoracic Surg. 33 (2008) 679-684. VWD is a disorder characterized
by poor functioning of von Willebrand’s factor, a protein produced by endothelial cells that helps platelets to clump together and bind
to a vessel wall, thereby forming blood clots. Von Willebrand’s factor is a relatively large protein that needs to be bound to other
copies of itself (thereby forming multimers) in order to function properly.
It has been hypothesized that high shear stress caused by some LVADs results in breakage of von Willebrand factor multimers,
preventing these multimers from effectively binding collagen and platelets, resulting in a tendency to bleed. For example, patients
14 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
with severe aortic stenosis often develop an acquired VWD due to high shear stress which then typically resolves upon aortic valve
replacement. VWD has also been shown to occur in patients implanted with LVADs, and to resolve upon heart transplantation. See,
e.g., Severely Impaired von Willebrand Factor-Dependent Platelet Aggregation in Patients with a Continuous-Flow LVAD (HeartMate
II), JACC 2009 53(3):2162-2167.
In support, we note a recent presentation on the relationship between LVADs and Von Willebrand’s Factor (VWF) that was presented
at the Society of Thoracic Surgeons conference on January 26, 2010 by Dr. Villamizar of Duke University. Dr. Villamizar looked at 37
HeartMate II patients implanted between July 2008 and April 2009. According to the presentation, all patients demonstrated
abnormally low VWF platelet binding activity at 30-days post LVAD implantation. However, this activity was restored to normal within
30 days among patients who subsequently received a heart transplant.
Moreover, while bleeds occurred in 27% patients within 30 days post-implantation, there were no differences in VWF activity between
bleeders and non-bleeders. This suggests that while impaired VWF activity likely plays a role in bleeding episodes, it is probably not
the only factor. More work clearly needs to be done in this area. Finally, during comments made after the presentation, one of Dr.
Villamizar’s co-authors (Dr. Crow of Mayo Clinic) noted that in data not presented at STS, similar VWF deficiencies were also seen
among patients implanted with Ventracor VentrAssist devices, as well as Thoratec PVADs and HeartMate XVEs.
WorldHeart Offers Potential Solution
We believe that a device that can show a dramatic reduction in bleeding from current levels will likely generate significant commercial
demand. WorldHeart hypothesizes that the design of its devices may be much gentler on the blood, resulting in less disruption of
von Willebrand factor multimers, and less bleeding episodes. In support, WHRT describes that the Levacor’s impeller spins at 2,000
- 2,500 times per minute compared with 6,000 – 15,000 (usually 8,000-10,000) for Thoratec’s HeartMate II. Likewise, WHRT also
notes that although HeartWare’s HVAD spins only 2000-3000 times per minute, its shear stress may be higher due to the HVAD’s
relatively small gap (of roughly 1/1000 of an inch) between the impeller and device housing through which blood must pass. In
contrast, the Levacor’s gap of roughly 7 / 1000 of an inch may reduce shear stress on blood components.
WorldHeart also hypothesizes that the Levacor has the potential to reduce the risk of clotting. In addition to disrupting von
Willebrand’s factor, high RPMs and high shear stresses are also thought to lead to platelet activation, activation of the extrinsic
coagulation system, and the promotion of unwanted clotting.
See e.g., John R. Panch et al., Activation of endothelial and
coagulation systems in left ventricular assist device recipients, Ann Thorac Surg. 2009, 88(4):1171-9. Under this theory, the
Levacor’s gentler blood handling may reduce the risk of both device clotting as well as ischemic stroke, and may even obviate the
need for treating patients with anti-coagulation therapy, post-implant. Further, the Levacor also contains a proprietary coating which
is designed to mitigate the risk of clotting.
At the moment, however, it must be remembered that WorldHeart’s potential advantages here are currently hypothetical and
therefore speculative: we have no clinical data yet to demonstrate that the Levacor will be associated with superior bleeding and
clotting rates. Moreover, even if the difference in bleeding and clotting rates among devices is shown to be real, we do not know yet
whether or not these differences can be reduced through improvements in medical therapy (i.e., better anti-coagulation protocols
and/or better anticoagulation drugs) and post-operative care, thereby reducing or decreasing any potential advantage of
WorldHeart’s device. For instance, as noted above, significant improvements are already occurring in overall survival, and may also
allow for decreases in bleeding and clotting complications. Finally, it must be noted that Thoratec’s HeartMate II and HeartWare’s
HVAD both appear to be very good devices, overall, and it will likely take an exceptional device to show improvements over existing
technology.
In sum, we do agree with World Heart that both bleeding and clotting are significant issues for LVAD patients and a potential area for
compelling product differentiation. We also find WorldHeart’s proposed solutions to be plausible, and merit continued monitoring of
Levacor’s clinical development. We eagerly await clinical data here.
Weaning Capability for Bridge-to-Recovery
We believe that Bridge-to-Recovery may also present an opportunity for the Levacor to differentiate itself from the competition. An
estimated 3-5% of LVAD patients experience sufficient recovery of myocardial function after the implantation of an LVAD that the
device can eventually be removed, and the patients continue to do well without any implanted device. Another 3-5% of patients may
be amenable to recovery if properly weaned from the device.
We believe that the Levacor’s ease of explantation and weaning capability may make it an attractive option for patients thought to
hold recovery potential. Currently used LVADs are set to a single flow rate by the surgeon in the operating room that is thought to
provide ideal support across a range of activity levels. Flow cannot be easily reduced afterwards, and cannot be stopped without
causing the device to clot.
In contrast, the Levacor’s flow rate can be controlled easily, and the patients themselves are given three separate flow rates that they
can switch among while at home. An even higher degree of control is possible for the treating physicians. As shown in the
Levacor’s completed European pilot study (discussed in more detail below), this ability to gradually decrease flow rates is critical in
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 15
enabling patients to be slowly weaned from support. In particular, the Levacor’s flow rates can be decreased slowly as the heart
builds up strength, and the heart can even be tested by temporarily reducing the device to a net zero flow, with flow then resumed
afterwards, to allow for continuing support.
When combined with off-pump explantation, the Levacor appears poised to become best-in-class for patients deemed candidates for
Bridge-to-Recovery.
Clinical Development
WorldHeart completed an initial human feasibility clinical trial in Europe in 2006, and has recently begun a U.S. clinical trial in BTT in
Q1:2010, with a CE mark trial in Europe planned for late 2010 or early 2011, as follows:
Pilot Study
A feasibility study was performed in Europe involving two male patients (age 67, 78) with end-stage heart failure. The study was
structured as a single center, non-blinded, non-randomized prospective trial, designed to observe the performance of the Levacor in
the short term “bridge-to-recovery” context.
Both patients had NYHA Class IV heart failure for at least six months (LVEF 25% and 22%) and were considered end-stage. Neither
patient was transplant eligible, and despite optimal medical management, both were homebound with a history of deteriorating
disease and repeated hospitalizations. Although both patients had severe mitral regurgitation, ventricular dysynchrony and singlevessel coronary artery disease, they were each refused other heart failure surgeries due to high expected morbidity and mortality.
Both patients were implanted with the Levacor at St. Luke’s Hospital in Thessaloniki, Greece (March 8, 2006; May 10, 2006). At the
same time, both patients underwent mitral valve repair and coronary-artery bypass, with one of the patients also undergoing aortic
valve replacement.
With the Levacor in place, the patients underwent three treatment phases. During the first phase (15 days for patient 1; 6 days for
patient 2), LVAD flows were maintained between 5 and 5.5 liters of flow per minute to allow the heart to rest while the Levacor
assumed almost all of the required cardiac output. During the second phase (until day 57 for patient 1; until day 69 for patient 2),
flow rates were decreased down to approximately 4 liters per minute, in order to prevent ventricular atrophy while still allowing the
heart to rest and undergo reverse remodeling. Finally, the flow rates were reduced to 3.5 liters per minute and the patients were
mobilized. During this period, flow rates were also temporarily reduced to 1 liter per minute to further challenge and test the heart.
Both patients made successful recoveries, and were subsequently explanted (days 85, 89) and discharged from the hospital. As of
early 2010, both patients were still alive, healthy (NYHA Class II) and VAD-free over three years after their Levacor VADs were
removed.
This study demonstrated that the Levacor can be used successfully in the bridge-to-recovery context.
Pivotal US Study in Bridge-to-Transplantation
On January 8, 2008 WorldHeart announced that it had submitted an Investigational Device Exemption application to the FDA for a
pivotal Bridge-to-Transplant study of the Levacor. In August of 2009, WorldHeart announced that it had received conditional approval
from the FDA to this trial at ten US centers, with plans for possible inclusion of additional sites after FDA approval of an anticipated
supplemental IDE application. The first patient in the trial was implanted on January 13, 2010 at the INTEGRIS Baptist Medical
Center in Oklahoma City. The study is designed to enroll a total of 160 patients.
Enrollment criteria include patients listed for heart transplantation. The primary endpoint is survival to the earlier of either 6 months
or heart transplantation, or survival for at least 60 days after device removal, with secondary endpoints that include measures of
device reliability, quality of life, and incidence of adverse events.
As of January 23, 2010, two patients have been implanted in the study, both at the INTEGRIS Baptist Medical Center in Oklahoma
City. We anticipate completion of enrollment within 24 months by late 2011. Although we expect HeartWare’s ongoing BTT trial to
complete enrollment after only 20 months, we note that trial enrollment for WHRT may be more difficult once surgeons have two
other popular choices (Thoratec’s HeartMate II and HeartWare’s HVAD), instead of the only one faced by HeartWare (Thoratec’s
HeartMate II). We expect final data by Q2:2012, with potential approval and launch in Q3:2013.
Because the study was designed CMS Category B2, insurance reimbursement of roughly $88,000 for the device is possible.
Pivotal US Study in Destination Therapy
We also expect the company to study the Levacor in the Destination Therapy context. We anticipate that such as study will enroll
approximately 200 patients with end-stage heart failure, not eligible for heart transplantation. The primary endpoint will likely be two16 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
year survival, free of stroke or device failure, with secondary endpoints that will likely include various measures of quality-of-life and
adverse events.
We anticipate enrollment to begin by H1:2011, final data by Q3:2014, with potential approval and launch in Q4:2015.
Pivotal International Study in Bridge-to-Transplantation
Finally we expect the company to initiate an international trial of the Levacor in Q1:2011 in order to gain CE Marking. While such a
trial would likely focus on Bridge-to-Transplantation, we note that approval would allow international usage in the Destination Therapy
context as well.
We anticipate that such as study will enroll approximately 30 patients with eligible for heart transplantation. The primary endpoint will
likely be a composite of survival to the earlier of six months or heart transplantation.
We anticipate completion of enrollment by Q2:2012, final data by Q1:2013, with potential approval and launch in Q4:2013.
Overview of LVAD Market
The largest market for implantable ventricular assist devices is currently the Bridge-to-Transplant market (although this is expected to
change, as discussed in later sections). The BTT market encompasses persons who have met the eligibility requirements to receive
a cardiac transplant due to advanced heart failure, and experience deterioration while awaiting the availability of a donor organ.
Despite the many drugs available to treat heart failure, the only cure for advanced disease is cardiac transplantation. Unfortunately,
although over 60,000 persons die of heart failure each year in the United States and although experts suggest that roughly 75,000 to
100,000 persons could benefit from heart transplantation (Class IV HF under the age of 70), only about 2,200 transplants are
performed each year in this country due to organ shortages. Moreover, at any given time, approximately 3,000 patients are on the
U.S. transplant waiting list, and an additional number of patients waiting in Europe. The majority of heart failure patients never make
it onto a waiting list, and among those that do, the median wait time for a donor heart is approximately nine months in the United
States and much longer elsewhere.
Bridge-to-Transplant
Approximately 40-50% of those patients on a heart transplant waiting list in the U.S. receive a VAD. Suitability for bridge-totransplantation generally requires all of the following inclusion criteria:
•
•
•
•
estimated life expectancy of less than one year without transplant;
objective evidence of physical incapacity due to documented and isolated heart disease;
agreement that previous medical therapy has been optimal and that no medical or surgical therapy other than transplant offers a
realistic expectation of life-extension and functional improvement; AND
strong family support to help the patient prepare for and recover after surgery.
As shown below, this bridge-to-transplantation has been shown to both increase survival and quality-of-life while awaiting an
available heart.
Meanwhile, persons with any of the following exclusion criteria are typically not eligible for cardiac transplant (limiting any potential
LVAD therapy to DT):
•
•
•
•
•
•
•
•
more than 65 years old;
severe irreversible pulmonary hypertension;
symptomatic peripheral, renal or cerebro-vascular disease;
chronic lung disease;
insulin-dependent diabetes with evidence of end-organ damage;
cancer within the past 5 years
active systemic infection
other life-threatening disease likely to severely limit life expectancy, even if the transplant is successful.
We believe that, as physicians gain greater experience and comfort with VADs, the number of patients bridged-to-transplant will likely
continue to increase. We believe that this will likely occur through both increasing utilization of VADs for patients already on
transplant waiting lists, and also through more aggressive pursuit by physicians and the patients-themselves of entry onto a
transplant waiting list in order to qualify for a device.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 17
Competitive Landscape
A number of LVADs have received FDA approval or are currently under development, as shown in Table 8 below.
Table 8. Ventricular Assist Devices Approved or in Development.
Company
Device
Flow
Pattern
Flow Type
MagLev
Location /
Implantation
Size
Variable
Speed
Status
WorldHeart
Novacor
Pulsatile
Volume
Displacement
No
Requires
pocket
1000
grams
Yes
Withdrawn in
2008.
Thoratec
HeartMate
VE
Pulsatile
Volume
Displacement
No
Requires
pocket
1150
grams
Yes
Withdrawn pre2005.
Thoratec
HeartMate
XVE
Pulsatile
Volume
Displacement
No
Requires
pocket
1150
grams
Yes
Expected to be
withdrawn in
2010.
BerlinHeart
INCOR
Continuous
Axial
No
Requires
pocket
200
grams
No
No US trials
scheduled.
Thoratec
HeartMate
II
Continuous
Axial
No
Requires
pocket
281
grams
No
Currently
dominant LVAD
worldwide.
Ventracor
VentrAssist
Continuous
Centrifugal
Partial
Requires
pocket
298
grams
No
Company
dissolved in
Q3:2009.
Terumo
Duraheart
Continuous
Centrifugal
Full
Requires
pocket
540
grams
No
US pivotal trial in
BTT ongoing
since June 2008.
World
Heart
Levacor
Continuous
Centrifugal
Full
Requires
pocket
440
grams
Yes
US pivotal trial
in BTT ongoing
since Jan 2010
Jarvik Heart
Jarvik 2000
Continuous
Axial
No
Intra-ventricular
90 grams
Yes
US pivotal trial in
BTT ongoing
since 2005.
HeartWare
HVAD
Continuous
Centrifugal
Partial
Intra-pericardial
145
grams
No
CE Mark in
2009; US pivotal
trial ongoing.
MicroMed
HeartAssist
5
Continuous
or Pulsatile
Axial
No
Intra-pericardial
92 grams
Yes
CE Mark in
2009; US pivotal
trial initiated but
may be
redesigned.
HeartWare
MVAD
Continuous.
Centrifugal
Partial
Intra-pericardial
Unknown
No
In chronic animal
studies.
Thoratec
HeartMate
III
Continuous
Centrifugal
Full
Intra-pericardial
Unknown
No
Expected to
begin animal
studies Q1:2010.
HeartWare
Longhorn
Continuous
Centrifugal
Partial
Intra-ventricular
Unknown
No
In chronic animal
studies.
Sources: Company reports, Wedbush Securities research
There are currently four LVAD devices approved in the U.S. for bridge-to-transplant in adults, three of which are manufactured by
Thoratec (HeartMate VE (HM VE); HeartMate XVE (HM XVE); HM II). The fourth approved device is WorldHeart’s Novacor, which
has been withdrawn from the market. In addition, several other devices are in clinical trials with potential approval anticipated over
the next three to four years.
18 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
At the moment, the only LVAD currently marketed in the United States for BTT is Thoratec’s HeartMate II. In addition, a number of
biventricular devices (CardioWest, IVAD, PVAD) are also in use.
Table 9. Competitive Landscape for Bridge-to-Transplant Ventricular Assist Devices.
Pivotal Trial
Company
Device
U.S. Approval
Initiation
Size
Latest Enrollment
Syncardia
CardioWest
October 2004
Complete
81 patients
Completed September
2002.
Thoratec
HeartMate II
April 2008
February 2005
194 patients
Completed May 2006.
Terumo
Duraheart
Uncertain
July 2008
140 patients
Roughly 40 patients as of
November 2009.
Jarvik
Heart
Jarvik 2000
Uncertain
April 2005
160 patients
Roughly 80 patients as of
November 2009.
HeartWare
HVAD
Expected 2011-12
August 2008
150 patients
114 Patients as of
December 2009.
World
Heart
Levacor
Expected 2013
January 2010
160 patients
2 Patients as of January
2010.
MicroMed
HeartAssist
5
Expected 2013
Expected 2010
150-200 patients
expected
None yet.
HeartWare
MVAD
Expected 2015
Expected 2012
150-200 patients
expected
None yet.
Thoratec
HeartMate
III
Expected 2015
Expected 2012-13
150-200 patients
expected
None yet.
HeartWare
Longhorn
Expected 2015-16
Expected 2013
150-200 patients
expected
None yet.
Sources: Company reports, Wedbush Securities research
We believe that with the HeartMate II’s approval for BTT in April of 2008, Thoratec will continue to dominate this indication in the near
future. The earliest potential competitor to reach the US market is HeartWare’s HVAD in late 2011 or 2012. By the time
WorldHeart’s Levacor reaches the market, Terumo’s Duraheart and Jarvik Heart’s Jarvik 2000 may also be on the market, although
their trials have been enrolling very slowly.
Bridge-to-Transplant Revenue Model
Our model predicts the following revenues for US BTT commercial sales and clinical trials, including open-access protocols:
Levacor - Bridge-to-Transplantation (Pivotal Trials and Commercial Sales)
2009E 2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
US Patients
3,794
3,909
Base Case
Penetration
0.0%
1.7%
Treated
0
67
Revenue ($K)
$0
$5,767
Bull Case
Penetration
0.0%
1.7%
Treated
0
67
Revenue ($K)
$0
$5,767
Bear Case
Penetration
0.0%
1.7%
Treated
0
67
Revenue ($K)
$0
$5,767
Source: Wedbush Securities Estimates
Duane Nash, MD JD MBA (415) 263-6650
4,028
4,150
4,276
4,406
4,539
4,677
4,819
4.0%
163
$14,224
3.8%
158
$13,988
3.4%
146
$13,886
3.9%
172
$17,451
4.6%
211
$21,715
4.9%
230
$24,102
5.2%
249
$26,509
4.0%
163
$14,224
3.8%
158
$13,988
3.9%
165
$15,768
6.3%
279
$28,324
10.4%
470
$48,445
14.8%
694
$72,747
19.9%
957
$101,793
4.0%
163
$14,224
3.8%
158
$13,988
2.0%
87
$7,894
0.6%
29
$2,892
0.7%
34
$3,465
0.8%
35
$3,698
0.8%
37
$3,910
World Heart Corporation | 19
Destination Therapy (DT) and Bridge-to-Recovery (BTT)
Destination Therapy is a much larger and potentially more lucrative market for the Levacor. Given the paucity of hearts available for
transplant, the eligibility requirements for admission to a transplant waiting list are relatively stringent. This stringency exists in order
to maximize the expected benefit of each rare heart that is available for transplant. However, it leaves roughly 75,000 to 100,000
patients under the age of 70 with Class IV HF who are not eligible for inclusion on transplant waiting list, of whom 60,000 will die from
heart failure each year. The only alternative to implantation for these patients is aggressive medical therapy, whose efficacy is
severely limited with a predicted survival of roughly 30% at one year, and 10% by two years.
That said, because of the expense of the device, the invasiveness of its implantation, and the eventual approval of competing
devices, we predict that LVADs will only ever capture at most 20% of this market.
Nestled in the market for Destination Therapy appears to be a potential market for Bridge-to-Recovery (BTR). In support, it has
been found that between 3-5% of patients treated with LVADs experience a recovery in heart function, many of whom have their
devices removed. It is further theorized that another 3-5% of patients might be amenable to having their LVADs removed if they were
properly weaned from their devices. As a result, a separate indication for BTR, where patients are implanted with LVADs with the
intention of temporary support (as opposed to the indefinite support characterizing DT) for the roughly 3-12 month range may
develop.
At the moment, very few LVADs are implanted with an expectation of near-term removal (outside of BTT). However, as noted above,
the Levacor’s weaning and off-pump explantation capabilities may provide a key advantage here in the future, and allow BTR to
become a more feasible and popular option.
Competitive Landscape
As noted below, we predict potential approval for the Levacor in Destination Therapy in late 2015. In comparison, the HeartMate II
recently received approval in January 2010, to be followed by HeartWare’s HVAD, which we currently predict to launch in early 2015.
The competitive landscape for Destination Therapy devices is summarized below:
Table 10. Competitive Landscape for Destination Therapy Ventricular Assist Devices.
Pivotal Trial
Company
Device
U.S. Approval
Initiation
Size
Latest Enrollment
Thoratec
HM II
Approved Jan 2010
February 2005
200 patients
Completed May 2007
HeartWare
HVAD
Expected 2014-2015
Expected 2010
200-300 patients
expected
None Yet
Terumo
Duraheart
Expected 2014-2015
Expected 2010
200-300 patients
expected
None Yet
World
Heart
Levacor
Expected 2015
Expected H1:2011
200-300 patients
expected
None Yet
Micromed
HeartAssist
5
Expected 2015
Expected 2010-2011
200-300 patients
expected
None Yet
HeartWare
MVAD
Expected after 2015
Expected after 2011
200-300 patients
expected
None Yet
Thoratec
HeartMate
III
Expected after 2015
Expected after 2011
200-300 patients
expected
None Yet
HeartWare
LongHorn
Expected after 2015
Expected after 2011
200-300 patients
expected
None Yet
Sources: Thoratec Corp., Terumo, HeartWare, World Heart, MicroMed, and Wedbush Securities.
20 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
Destination Therapy Revenue Model
Our model predicts the following revenues for US DT commercial sales and clinical trials, including open-access protocols:
Levacor - Destination Therapy (Pivotal Trials and Commercial Sales)
2009E
2010E
2011E
2012E
2013E
2014E
2015E
US Patients
76,700 79,027
Base Case
Penetration
0.0%
0.0%
Treated
0
0
Revenue ($K)
$0
$0
Bull Case
Penetration
0.0%
0.0%
Treated
0
0
Revenue ($K)
$0
$0
Bear Case
Penetration
0.0%
0.0%
Treated
0
0
Revenue ($K)
$0
$0
Source: Wedbush Securities Estimates
Duane Nash, MD JD MBA (415) 263-6650
2016E
2017E
81,425
83,895
86,441
89,063
91,765
94,549
97,418
0.1%
107
$9,311
0.2%
157
$13,877
0.2%
144
$13,006
0.1%
133
$12,189
0.3%
237
$23,242
0.6%
540
$54,793
0.8%
802
$82,643
0.1%
107
$9,311
0.2%
157
$13,877
0.2%
144
$13,006
0.1%
133
$12,189
0.4%
371
$36,672
3.2%
2,983
$302,700
4.6%
4,448
$458,496
0.1%
107
$9,311
0.2%
157
$13,877
0.2%
144
$13,006
0.1%
133
$12,189
0.2%
159
$15,473
0.2%
160
$16,254
0.1%
140
$14,459
World Heart Corporation | 21
WORLDHEART’S NEXT GENERATION EMBODIES A DRAMATIC TECHNICAL LEAP
PediaFlow
Figure 11. Location of implanted PediaFlow Device.
The PediaFlow is a small, magnetically levitated axial rotary VAD
intended for use in newborns and infants. The device is designed to
provide 0.3 to 1.5 l/min of flow in patients from newborns up to two
years old (3-15 kg body weight) for roughly 6 months of support.
The Pediaflow is currently being developed by a consortium,
consisting of WorldHeart, the University of Pittsburgh, Children’s
Hospital of Pittsburgh, Carnegie Mellon and LaunchPoint, and
employs proprietary maglev technology similar to that incorporated in
the Levacor.
WorldHeart reports that development began in 2004, and that
prototype devices have been successfully tested in acute and chronic
animal studies at the University of Pittsburgh Medical Center
beginning in 2007. Moreover, the company reported in 2009 that the
device had undergone a 70-day duration chronic animal implant.
However, the timing of initiation for human clinical trials remains
uncertain. We currently anticipate human trials beginning in 2013,
with potential approval several years later.
Because the market for pediatric VADs is relatively small, and
because WorldHeart is only one member of the consortium
developing the PediaFlow, we do not anticipate that future PediaFlow
sales will have a material effect on WorldHeart revenues.
Accordingly, we do not include the PediaFlow in our current valuation
model.
Source: World Heart Corporation (with permission).
That said, the PediaFlow is worth mentioning mostly because it serves as the technical foundation for the MiVAD, discussed in more
detail below.
Minimally Invasive VAD (MiVAD)
WorldHeart's Minimally Invasive VAD (MiVAD) is a compact
LVAD, approximately the size of an AA battery, which is
designed to provide partial long-term circulatory support for the
relatively large population of earlier-stage (Class IIIb) heart
failure patients. The MiVAD is a fully magnetically levitated
rotary blood pump and uses WorldHeart's proprietary
technology designed to provide increased safety, durability and
performance.
Figure 12. Location of implanted MiVAD.
The MiVAD is designed to treat patients with Class IIIb heart
failure, of whom there are an estimated 550,000 in the United
States. While this market is roughly 3-4 times bigger than the
traditional LVAD market, the much longer anticipated duration
of therapy places significant engineering demands on the
device. For example, while traditional BTT implants are
typically used for less than a year and DT patients can be
expected to survive 2-5 years, devices for Class IIIb patients
should to be designed to last at least 7-10 years, given the
longer expected survival of this group than Class IV patients.
Accordingly, it is critical that the MiVAD have both a high safety
profile and also a low incidence of adverse events.
WorldHeart expects that its proprietary Mag-Lev technology will
provide this necessary safety and durability. In support, the
pump is configured to have a single flow path, with no
secondary flow paths, thereby improving pumping efficiency
22 | World Heart Corporation
Source: WorldHeart (with permission).
Duane Nash, MD JD MBA (415) 263-6650
and potentially improving blood flow patterns. Likewise, the rotor is fully magnetically levitated using only one single axis of active
control (along the axis of blood flow), with the rest of the axes (radial, tilt) being passively levitated with a unique arrangement of
permanent magnets. Finally, the pump contains relatively large flow pathways, designed to reduce the risk of platelet activation and
Von Willebrand’s factor breakup, thereby further reducing the risks of clotting and
bleeding.
Figure 13. WorldHeart’s MiVAD.
On the other hand, since flow requirements are thought to be less demanding for
Class IIIb patients, the MiVAD is designed to provide up to 4 liters per minute of
flow, compared with up to 10 liters per minute for traditional VADs.
Fortunately, the lower flow requirements enable the device to be relatively small in
size, and even be implanted further away from the natural heart with a simpler,
more minimally-invasive operation than a full-support LVAD. As shown in Figure
12, WorldHeart anticipates placing the MiVAD in a subcutaneous pocket under the
skin but above the ribs, much like today's defibrillators and pacemakers. Unlike
traditional VADs, which draw blood from the left ventricle and pump it into the
aorta, the MiVAD is expected to draw blood from the left atrium and pump it into
the right subclavian artery.
Source: WorldHeart (with permission).
The company reports that the first clinical MiVAD prototype was designed and built in 2009.
In sum, we agree with WorldHeart that durability and blood handling will be critical in Class IIIb patients, and even more important
than in the traditional Class IV patients given their longer lifespans and less symptomatic status. We also believe that WorldHeart
presents a very compelling story as to why its device should meet the stringent demands of this patient population. That said, it is
difficult to currently assess the MiVAD’s true potential given the device’s preclinical status.
Clinical Development
We currently expect clinical development of the MiVAD to mirror the program structure anticipated for Circulite’s Synergy device, as
described below. In particular, we expect WHRT to begin a 3 month CE Mark trial involving roughly 20-30 patients in late 2012 or
early 2013, resulting in potential CE Marking in late 2014. Next, we anticipate a potential US pivotal trial beginning in early 2014 and
leading to possible approval in 2017 in Bridge-to-Transplant, and 2018 in Destination Therapy.
Competitive Landscape
The current leader in partial flow LVADs for chronic heart failure is Circulite (Private;
Saddle Brook, NJ). Like WorldHeart’s MiVAD, Circulite’s Synergy device is a miniature
LVAD designed to enable earlier and less-invasive treatment for a broader population of
heart failure patients than traditional full-flow LVADs.
Figure 14. Circulite’s Synergy Device.
Synergy is a micro-pump, the size of a single AA battery (14 mm diameter by 49 mm
length) and weighing only 25 grams, yet capable of providing up to 3 liters of flow per
minute (See Figure 14). The device contains a hybrid mag-lev and hydrodynamically
levitated rotor design (analogous to HeartWare’s HVAD), and also has a proprietary
self-washing flow path that is hoped to minimize the risk of thrombus formation. Indeed,
in preclinical studies, the Synergy system was shown to be free of thrombus for 4,500
total days even without anticoagulation or platelet inhibition.
Like other full flow LVADs, the Synergy is powered via a percutaneous lead that exits
the skin of the abdominal wall and is attached to a controller and power system. This
power system weighs 3.3 pounds and is designed to power the Synergy for
approximately 16-18 hours.
Source: Circulite (with permission).
The device is designed to allow the heart to rest and recover cardiac function by drawing blood from the left atrium via an inflow
cannula, and pumping it back to the body via an outflow graft to the subclavian artery (See Figure 15). Like WHRT’s MiVAD, the
Synergy is small enough to be implanted subcutaneously in a “pacemaker-like” pocket under the skin yet above the ribcage, through
a minimally-invasive procedure. However, placement of the cannulae currently requires a mini-thoracotomy. Circulite also reports
working on a second-generation Synergy version, whose inflow and outflow cannulae are placed via endovascular techniques (See
Figure 16), obviating the need for opening the chest.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 23
Like the MiVAD, the Synergy is intended for long-term use in NYHA Class IIIb/early IV patients (INTERMACS 4-6).
Figure 15. Configuration of Current Synergy Device.
Source: Circulite (with permission).
Figure 16. Configuration of Endovascular Synergy Device.
Source: Circulite (with permission).
In August 2007, Circulite began enrolling patients in a European Phase I Long-Term Support feasibility trial, designed to evaluate
device safety, as well as quality-of-life improvements. Eligibility was directed to ambulatory patients with NYHA Class IIIb or IVa
despite medical therapy, who were on heart transplant lists or considered suitable for transplant, and who had a life expectancy of at
least 6 months without full VAD support. Endpoints included pump performance, hemodynamic benefits, end organ function,
exercise tolerance and safety. This three-center trial is intended to support potential CE Marking.
On March 30, 2009, at the Annual Meeting of the American College of Cardiology, Circulite presented data from the first 16 patients
(a total of 22 had been implanted by that time). Duration of support ranged from 6 -2 13 (median 87) days, and results showed
statistically significant improvements in hemodynamic function, both at 24 hours and over the longer-term:
Table 17. Hemodynamic Data for Synergy Feasibility Study.
Measure
Baseline (n=16)
Cardiac Index
2.0
Wedge pressure
30
Mean arterial pressure
67
Pulmonary
Artery
Systolic 60
Pressure
Pulmonary Artery Diastolic 29.7
Pressure
Source: Circulite.
24 hours (n=16)
3.3 (p < 0.001)
20.7 (p = 0.01)
70
50 (p = 0.02)
Chronic (10±6 weeks) (n=9)
2.8 (p = 0.01)
18 (p = 0.001)
80 (p = 0.01)
49 (p = 0.02)
20.7 (p = 0.01)
~21.5 (p = 0.02)
These early results suggest that partial support is capable of interrupting the progressive hemodynamic deterioration typically seen in
patients with late stage heart failure.
However, the trial was complicated by device thrombosis in eight patients, requiring ten pump exchanges (one of which was
complicated by stroke).
The rate of other complications, including pump pocket hematoma (3/16), surgical bleeding (2/16),
hemolysis (2/16) and sepsis (2/16) was also relatively high. Thrombosis was thought to be due to a problem with the original rotor
design. After this rotor was redesigned to include a larger washout track, the issue of thrombosis appeared to be resolved. That
said, we do not yet have long-term data for the Synergy device.
Circulite anticipates CE Marking by YE:2010, followed by initiation of a US feasibility trial late 2010 or early 2011, and initiation of a
pivotal US trial in 2011 or 2012. We currently anticipate a potential US launch in H2:2014.
24 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
Market Projections
As shown in Table 18 below, there are roughly 5.5 million persons currently in the United States with heart failure. Of these, we
estimate that here are approximately 550,000 patients in this country with NYHA Class IIIb or IVa Heart Failure, the target population
for the MiVAD. Assuming, that only 10% of these patients are treated with a partial circulatory support device, the peak penetration
could reach over 50,000 patients.
Table 18. Number of U.S. Heart Failure Patients by NYHA Class
Class I
Class II
Class IIIa
Class IIIb
Total HF
patients (US)
5,500,000
5,500,000
% in class
40.0%
30.0%
Patients in
class
2,200,000
1,650,000
Source: Wedbush Securities estimates.
Class IVa
Class IV
5,500,000
17.5%
5,500,000
7.5%
5,500,000
2.5%
5,500,000
2.5%
962,500
412,500
137,500
137,500
Accordingly, we estimate the following potential penetration rate for the MiVAD through 2020. We assume that MiVAD will sell at a
discount to Levacor, and estimate a price of $60,000 at our estimated launch in 2018. Although we assume a rather brisk launch
(100% growth per quarter in the first year), we note that our estimates represent only a tiny fraction of the overall patient population.
Table 19. MiVAD Revenue Estimates
FY:2018
FY:2019
FY:2020
550,000
550,000
550,000
0.02%
0.10%
0.20%
110
550
1,100
ASP
$60,000
$61,200
$62,424
Sales (000)
$6,600
$33,660
$68,666
Patient population
Penetration
MiVAD patients
Growth
n/a
400%
Source: Wedbush Securities estimates.
100%
Considering that no devices are approved yet in this indication, and that the MiVAD is currently in preclinical development, we
acknowledge that our estimates are highly speculative. For these reasons, we currently exclude MiVAD sales from our valuation.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 25
WORLDHEART HAS A DECADE OF EXPERIENCE IN THE VAD MARKET
1st Generation Novacor LVAS
The Novacor LVAS was an implantable, pulsatile
VAD, which was first implanted clinically in 1984
and had been implanted in more than 1,700
patients worldwide, although it is no longer
commercially available. The Novacor was an
electromagnetically-driven pump, about the size
of a human heart, providing circulatory support
for patients with life-threatening heart failure by
taking over part or all of the workload of the left
ventricle of the heart. The Novacor LVAS was
self-regulating, responding instantaneously to the
recipient’s changing heartbeat and circulatory
demands.
Figure 20. WorldHeart’s Novacor Device.
WorldHeart acquired the Novacor from Edwards
Lifesciences in 2000. Under Edwards, the
Novacor received CE Marking in Europe in 1994,
and FDA approval for Bridge-to-Transplant in
1998. In 2000, a feasibility study (INTrEPID) was
initiated for the Novacor in Destination Therapy,
and a pivotal Destination Therapy trial
(RELIANT) began in 2004, although it was
subsequently terminated in 2006:
Clinical Development
Novacor’s clinical development is summarized
briefly below:
INTrEPID Feasibility Study in
Destination Therapy
Between 2000 and 2003, WorldHeart performed
a feasibility study of the Novacor in Destination
Therapy, named Investigation of NontransplantEligible Patients Who Are Inotrope-Dependent
Source: World Heart Corporation (with permission).
(INTrEPID). The study was structured as a
nonrandomized, 2-arm clinical trial conducted at
13 centers in the U.S. and Canada with experience implanting the Novacor LVAD in Bridge to Transplantation. The primary
endpoint was all-cause mortality at 6 months, with secondary endpoints including adverse events, functional capacity, and healthrelated quality-of-life. Eligible patients had severe left ventricular dysfunction for at least months, NYHA functional class IV symptoms
for at least 3 months, an ejection fraction of less than 25%, and were required to fail two attempts at weaning from inotropic support
separated by at least 7 days.
Fifty-five patients were enrolled in the trial, of whom 37 elected to undergo Novacor implantation, with the remaining 18 electing to be
treated with optimal medical management.
Novacor treated patients had 6 month and 12 month survival rates of 46% and 27%, respectively. In comparison, a cohort of patients
treated with optimal medical therapy had 6 month and 12 month survival rates of only 22% and 11%, respectively.
Based on these promising albeit non-randomized results, WorldHeart decided to proceed with a pivotal trial in Destination Therapy,
as described below.
RELIANT Trial in Destination Therapy
WorldHeart’s pivotal DT trial, termed (Randomized Evaluation of the Novacor(R) LVAS In A Non-Transplant Population (RELIANT),
began enrollment in July of 2004. Although RELIANT was initially designed to enroll up to 390 patients at 40 US centers, the FDA
agreed to modify the protocol in June of 2006 to only 208 patients. Moreover, inclusion criteria were widened to also include patients
with NYHA Class IIIB Heart Failure who are not transplant candidates, as well as those with NYHA Class IV. In addition, patients
26 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
needing replacement of a Thoratec HeartMate XVE were also deemed eligible. Finally, the primary endpoint, formerly only patient
survival, was changed to a composite of patient survival, free of device replacement and neurologic events. Secondary endpoints
included measures of quality of life, adverse events and cost effectiveness. As of June 2006, 38 patients had been enrolled in the
trial.
Unfortunately, WorldHeart began to experience increasing financial duress in the second half of 2006, attributed to a shift away from
first generation LVADs like the Novacor to newer devices such as Thoratec’s HeartMate II. During the company’s Q3:2006 quarterly
conference call dated November 14, 2006, the company reported only $1.5 million in cash at the end of September 30, 2006. During
the call the company announced a major corporate restructuring, including a planned move of WHRT’s corporate facilities from
Oakland, California to Salt Lake City, Utah. WHRT also reported the raise of $14.1 million through a private placement.
One month after the restructuring announcement, on December 14, 2006, the company announced that it was discontinuing
enrollment of the RELIANT trial. Management noted that, given improvements to VAD technology, the company determined that
shifting focus to a next-generation mag-lev device like the Levacor would be a better investment of company resources than
continuing to develop and support the Novacor / Novacor II platform.
The following year, WorldHeart continued to market the Novacor, primarily for Bridge-to-Transplant. During its 22 years of clinical
use, the Novacor had been implanted in over 1,800 patients worldwide. Moreover, during its tenure, the Novacor achieved the
following key clinical milestones:
•
•
•
2005: Novacor recipient is the first patient in the US to be weaned successfully from a ventricular assist device.
2004: Novacor recipient continues to hold world record for continuous support on a single device, over 4 years.
2002: Novacor becomes the first implanted heart assist device to support a single patient for longer than five years.
The Novacor was eventually withdrawn from the market worldwide in 2008.
REIMBURSEMENT
The United States Centers for Medicare and Medicaid Services (CMS) currently provide for public reimbursement of VADs used as a
BTT and in DT, and many state Medicaid programs also provide for public reimbursement as well. In addition, the majority of private
insurance carriers also provide for coverage for VAD use.
In October of 2007, the CMS promulgated a final rule allowing for the implementation of Medical Severity Diagnostic Related Groups
(MSDRGs). Unlike the prior DRG system the MSDRG system also incorporate the presence of complications or other diseases a
patient may have. Hospitals now are reimbursed for both inpatient and outpatients costs.
Fortunately for WorldHeart, the current market leader Thoratec has been very successful in obtaining yearly increases for these
DRGs. For example, average hospital reimbursement was less than $40,000 in 2002, despite mean overall hospital costs averaging
around $210,000. In 2009, average reimbursement grew to approximately $190,000, while mean hospital costs fell to less than
$130,000. We believe that this roughly $60,000 delta should help encourage hospitals to embrace LVAD technology.
During the Levacor’s clinical trials, we expect the company to be reimbursed roughly $85,000 for each device implanted.
INTELLECTUAL PROPERTY AND LICENSING AGREEMENTS
Levacor-related Technology
WorldHeart holds rights to seven granted United States patents related to the Levacor implantable blood pump technology, either as
sole owner or with exclusive licenses from the co-owners. These patents are reported to have 8 to 11 years remaining life before
expiration. A subset of these patents has also been filed and granted in the major European countries, in Canada and in Australia.
WorldHeart also holds exclusive licenses to four additional patents, with remaining lives of roughly seven years. Finally, two patents
related to control of rotary blood pumps, with seven years remaining life, are non-exclusively licensed by WHRT. Additional patent
applications are also pending.
Particular licenses related to the Levacor include: (1) an exclusive license from the University of Utah to four issued patents for which
WorldHeart has no future obligations; (2) an exclusive royalty-based license to four patents from the University of Virginia; (3) an
exclusive royalty-based license from the University of Pittsburgh; and (4) a royalty-based agreement with The Heart Lung Institute.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 27
In September 2008, WHRT purchased technology relating to the physiological control of rotary blood pumps from LaunchPoint, as
well as exclusive R&D services for approximately two years. In return, WHRT agree to pay LaunchPoint $230,000 (to be paid in
equal installments of $10,000 over 23 months beginning in October 2008), as well as a 0.5% royalty on net future sales through 2020
of products using the licensed technology.
On November 28, 2008, WHRT also entered into an agreement with Vertellus Specialties UK Limited under which Vertellus agreed to
supply WHRT with a proprietary compound for to decrease the risk of blood clotting. Vertellus also granted WHRT an exclusive sublicense to apply the product in processing the Levacor Rotary VADs and to sell such VADs worldwide.
COMPANY BACKGROUND
We consider execution risk to be lowered by management’s considerable experience
WorldHeart is led by what we consider to be an experienced management team with a valuable background in developing and
commercializing new medical devices:
Table 21. Management of World Heart Corporation.
Name
Position
Experience
John Alexander Martin
President and Chief Executive
Officer
Jal S. Jassawalla MSc
MBA
Executive Vice President and
Chief Technology Officer
Morgan Brown MBA
CPA
Executive Vice President and
Chief Financial Officer
Mr. Martin joined WorldHeart as Director, President and CEO in
February 2009 from Edwards Lifesciences, where he was President
of the North American Region and Corporate Vice President since
2004. Earlier, Mr. Martin was with Cordis Corporation, a Johnson
and Johnson company, where he served as Senior Vice President of
International and prior to that, Vice President of Sales and Marketing.
Before Cordis, Mr. Martin served in sales, marketing and business
development management positions at several institutions, including
C.R. Bards' USCI division, Cambridge Heart and IMED Corporation.
He has also served as Director of the Emergency Medical Services at
The Medical Center at Bowling Green. Mr. Martin received a
bachelor's degree from the University of Kentucky at Lexington.
Mr. Jassawalla is currently WHRT’s Executive Vice President and
Chief Technology Officer. Mr. Jassawalla also served as the
company’s director from December 2005 and was President and
Chief Executive Officer from July 2004 until February 2009. From
June 2000 to July 2004, Mr. Jassawalla also served as Senior Vice
President and subsequently as Executive Vice President and Chief
Technical Officer. Mr. Jassawalla was a co-founder of Novacor
Medical Corporation in 1979, where he served as Vice President of
Research and Development from 1988 to 2000 in Baxter Healthcare
Corporation's Novacor Division. Mr. Jassawalla received his Master
of Science in Mechanical Engineering from Stanford University, and
an MBA from the University of California, Berkeley, with
specialization in Finance. He is a fellow of the American Institute of
Medical and Biological Engineering.
Mr. Brown joined WorldHeart in 2008 from Lifetree Clinical Research
where he served as Chief Financial Officer and Senior Vice
President. Earlier, Mr. Brown was with NPS Pharmaceuticals Inc.,
from 2000 to 2008, where he served as Vice President Finance and
Treasurer, as well as KPMG LLP in Salt Lake City. He is a licensed
certified public accountant in Utah and has has earned a master's
degree in business administration from the University of Utah and a
bachelor's degree in accounting from Utah State University.
Sources: World Heart Corporation and Wedbush Securities.
28 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
Recent Financing History
WHRT’s recent financing-related history is summarized briefly below:
Date
Nov-Dec
2006
Financing event
Private placement consisting of two tranches. The first tranche, completed in November 2006, consisted of 36,667
common shares at $75.00 per share for a total of $2.75 million. The second tranche, completed in December 2006,
raised $11.31 million on the sale 150,667 common shares. Gross proceeds from both tranches of the financing totaled
approximately $14.1 million at a price of $75.00 per common share. In addition, we incurred placement agent fees
equal to 6% of the gross proceeds payable in common shares totaling approximately 11,310 common shares. Under
the terms of the transaction, WHRT registered for resale all of the common shares issued in both tranches.
Nov 2006
WorldHeart announced a significant restructuring and realignment of our business operations to better focus on the
development of the next-generation Levacor VAD. The restructuring program reduced manufacturing, selling and
administrative costs, primarily associated with the Novacor LVAS product. The program included a reduction in
workforce of 41 persons. The costs attributable to the restructuring recorded during the year ended December 31, 2006
were $0.6 million consisting of severance costs and a fixed assets write-down. In addition, WorldHeart wrote-off $4.6
million ($3.5 million and $1.1 million in the third and fourth quarters of 2006, respectively) of raw material, in-process
and finished goods inventory associated with the Novacor LVAS product, which management had determined would
not be utilized in future periods.
May 2007
10-1 reverse stock split announced May 30, 2007.
Dec 2007
WorldHeart entered into a note purchase agreement with Abiomed, Inc. under which WHRT issued a secured
convertible promissory note to Abiomed in the principal amount of $5.0 million. The note was secured by WHRT’s
assets and was convertible into WHRT common shares, in whole or in part, at Abiomed’s option, at approximately
$52.50 per share. On May 9, 2008, WorldHeart reported that its then-available cash was insufficient to pay the
company’s obligations, resulting in default under the Abiomed Note.
Jun 2008
WorldHeart entered into a recapitalization agreement with its investor base, including: Abiomed, Venrock, Special
Situations Fund and New Leaf. Under the agreement, WorldHeart agreed to a 30-1 reverse stock split, which took
place on October 27, 2008, as well as changes to the board of directors. WorldHeart also entered an additional
agreement with Abiomed under which the full amount owed by WorldHeart to Abiomed was converted into 95,555 of
WHRT common shares.
Aug 2008
WorldHeart announced a phased consolidation into a primary facility in Salt Lake City, Utah. On August 22, 2008,
WHRT completed the first phase of our consolidation plan and eliminated five positions at our Oakland facility, including
the position of Vice President of Manufacturing. On February 4, 2009, WHRT appointed Salt Lake City based Mr. John
Alexander Martin as CEO. Mr. Jal S. Jassawalla, former President and CEO, remained in Oakland (along with certain
key employees in areas such as Research and Development, Clinical Affairs and Regulatory Affairs), and continued to
serve as Chief Technology Officer.
Jun 2008
On June 13, 2008, WorldHeart voluntarily delisted its common shares from the Toronto Stock Exchange, as the
company’s business moved primarily to the United States in 2005 and as of June 2008 approximately 80% of the stock
trades occurred on the NASDAQ. WHRT common shares continue to be listed on the NASDAQ Capital Market
Jan 2010
On January 21, 2010, WHRT raised $7.1 million (net) in a private placement of 1,418,726 units comprising of one share
of common stock and two warrants. The warrants are exercisable at $4.90, with half the warrants expiring 15 months
from date of issue and the remainder expiring 5 years from date of issue.
Source: World Heart Corporation and Wedbush Securities.
Manufacturing
WorldHeart currently manufactures, distributes and services its commercial products at the company’s Salt Lake City facility. This
facility is comprised of 32,888 square feet of research and office space of which 24,044 is leased through January 31, 2011, and the
remainder is leased through January 31, 2013.
The company currently has capacity to manufacture roughly 10 - 12 devices per month. As commercialization approaches, we
expect WorldHeart to ramp up its internal production capacity significantly.
Under the revised distribution agreement with Abiomed, WorldHeart is required to negotiate in good faith distribution arrangements
with Abiomed before engaging any third party distributors for the company’s products. However, WorldHeart does retain the right,
without negotiating with Abiomed, to distribute its own products directly.
Sales, Marketing and Distribution
Until the company’s restructuring in November 2006, WorldHeart sold directly within the United States through a dedicated sales
force, and approximately 41% and 76% of company’s 2008 and 2007 revenue, respectively, came from sales of the Novacor LVAS in
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 29
the United States. As of 2008, however, WorldHeart no longer distributes the Novacor LVAS in the US or Europe and currently only
provides support for existing Novacor recipients.
As a result, the company no longer maintains a sales or marketing division.
However, upon approval of the Levacor, we expect WorldHeart to direct its sales and marketing efforts to the approximately 105
hospitals in the U.S. that perform heart transplants, as well as the approximately 100 such hospitals in Europe. We also expect the
company to focus on the minority of open-heart surgery centers capable of implanting LVADs.
RISKS TO OUR INVESTMENT THESIS
Despite our enthusiasm for WorldHeart and its commercial potential, any investment, and particularly one in the medical device field
involves uncertainty and inherent risk. Several of these risks are outlined below:
Intellectual Property Risk. While we believe that WorldHeart generally has a strong IP position, there is some inherent uncertainty
in both the interpretation of patent claims and the application of patent law. In the event that WorldHeart is forced to enforce one of
its patents against a competitor, the litigation process could prove to be expensive, time-consuming and ultimately unsuccessful.
Moreover, when the Company’s existing patents expire, the Company may be unable to prevent third-parties from copying its
products. Furthermore, competitors might challenge the validity or scope of WorldHeart’s patents in court, or simply find ways
around them. Finally, third-party patents that are not licensed to WorldHeart and which could prevent WorldHeart from
commercializing its own product candidates could be granted in the future or even already exist.
Commercialization Risk. Given WorldHeart’s small size and lack of a meaningful commercial track-record, we believe that the
company faces commercialization risk. This risk is heightened by the relative sophistication and high degree of experience required
for a sales-force in this area. Moreover, it is possible that many patients will likely choose to not undergo HVAD implantation given
the invasiveness of the procedure. In addition, the prohibitive expense of the device may also limit commercial uptake.
Manufacturing Risk. WorldHeart is a small company with relatively limited manufacturing capacity. Expanding this capacity will
likely prove to be expensive and time-consuming, and may ultimately be unsuccessful. Moreover, WorldHeart currently relies on
third-party suppliers for some of its components. In the future, these third-parties may be unable or unwilling to supply WorldHeart
with these components on reasonable commercial terms, potentially forcing the company to delay or stop production. Finally, given
the complexity and life-critical nature of ventricular assist devices, some degree of quality-control risk will always remain for these
products.
Clinical Risk. Considering that the WorldHeart’s device candidates are directed to a life-supporting indication in a very sick patient
population, a relatively high degree of clinical risk exists, particularly when considering the known complications associated with
LVADs, including device failure bleeding, infections and stroke. This risk is heightened for the Levacor by the small number of
patients on whom we have clinical data, as well as for preclinical PediaFlow and MiVAD devices.
Regulatory Risk. The Levacor, PediaFlow and MiVAD have not yet received regulatory approval in any indication and may never do
so, given the stringency of the regulatory process for ventricular assist devices. Even after devices are approved, the FDA and other
national agencies retain jurisdiction and the right to remove them from the market. Accordingly, a relatively high degree of regulatory
risk will remain for the entire lifespan of each of WorldHeart’s products, given their purpose, their target population and highly
invasive nature.
Competition Risk. Each of WorldHeart’s product candidates is directed to an indication already being targeted by multiple existing
device products and/or device candidates. Even if the safety and efficacy suggested by earlier data is subsequently confirmed and
these devices are approved by the FDA, active competition will almost certainly remain from third parties, some of which are larger
and have significantly more resources and commercialization experience than WorldHeart. Moreover, additional device candidates
are currently being developed by third parties, and even more can be expected in the future.
Financing Risk. Given WorldHeart’s cash burn required to develop the Levacor, we believe that financing risk exists for the
Company. The development of cardiac medical devices is a complicated and expensive process. Should WorldHeart experience any
significant
or
unexpected
delays
in
development,
the
need
for
further
financing
might
be
possible.
30 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
WorldHeart (WHRT: NASDAQ)
Wedbush PacGrow Life Sciences
Historical and Projected Income Statement
(In thousands of US$ except per share data)
Duane Nash, MD JD MBA
Akiva Felt
(Fiscal Year Ends on December 31)
Fiscal
2008A
Calendar 12/31/2008
Fiscal
FY:08A
2009E
3/30/2009
6/30/2009
9/30/2009
Q1
Q2
Q3
2010E
12/31/2009 12/31/2009
Q4
FY:09E
2011E
3/30/2010
6/30/2010
9/30/2010
12/31/2010
12/31/2010
Q1
Q2
Q3
Q4
FY:10E
2012E
12/31/2011 12/31/2012
FY:11E
FY:12E
Revenues:
Net Product Sales $ 1,732 $ 5 $ ‐ $ ‐ $ ‐ $ 5 $ 341 $ 1,114 $ 1,720 $ 2,591 $ 5,767 $ 37,596 $ 41,180 Total Revenues CARDIOVASCULAR $ ‐ European Levacor Sales Levacor in BTT (US) ­ Levacor in DT (US) ­ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ ­ ­ ­ $ ­ ­ ­ ­ $ ­ $ ‐ $ ‐ $ ­ $ ­ $ 341 $ ‐ $ 341 $ ­ $ 1,114 $ ‐ $ 1,114 $ ­ $ 1,720 $ ‐ $ 1,720 $ ­ $ 2,591 $ ‐ $ 2,591 $ ­ $ 5,767 $ ‐ $ 5,767 $ ­ $ 37,596 $ 14,061 $ 14,224 $ 9,311 $ 41,180 $ 13,315 $ 13,988 $ 13,877 $ 1,732 $ 5 $ ­ $ ­ $ ­ $ 5 $ 341 $ 1,114 $ 1,720 $ 2,591 $ 5,767 $ 37,596 $ 41,180 Cost of Goods
Gross Profit
992 28 25 25 ‐ 78 222 724 1,101 1,632 3,679 23,013 22,018 740 (23) (25) (25) ‐ (73) 119 390 619 959 2,087 14,584 19,163 Cost and Expenses: Sales, General and Administrative
R&D
Clinical and Marketing Support
Amortization of Intangibles
Other
Total Operating Expenses
4,752 1,443 9,048 2,104 6,479 ‐ 191 48 131 53 20,601 3,647 Operating Income (Loss)
Other Income (Expense)
Unrealized Foreign Exchange Gain (Loss)
Investment and Other Income
Interest Income (Expense)
Debt Inducement Expense, Non‐Cash
Income Before Income Taxes
Provision for Income Taxes (benefit)
Net Income (Loss)
18 142 (1,659)
(3,914)
(25,317)
‐ $ (25,317)
12 8 (0)
‐ (3,651)
‐ $ (3,651)
EPS (Basic and Diluted)
(4.37)
(0.28)
(0.33)
(0.30)
(0.31)
(1.21)
(0.29)
(0.28)
(0.24)
(0.23)
(1.02)
(0.45)
(0.41)
Weighted Shares Outstanding (Basic)
Total Shares Outstanding (Diluted)
5,799 5,799 13,254 13,254 13,254 13,254 13,273 13,273 13,298 13,298 13,270 13,270 14,717 17,554 14,742 17,579 17,242 20,079 17,267 20,104 15,992 18,829 17,317 20,154 17,404 20,241 1,476 2,608 ‐ 48 198 4,330 1,315 2,557 ‐ 12 98 3,982 1,341 5,575 1,475 1,505 1,535 1,566 6,080 6,679 7,264 2,608 9,877 2,739 2,876 3,019 3,170 11,804 15,031 18,270 ‐ ‐ ‐ ‐ ‐ 103 452 108 114 119 125 466 567 689 4,052 15,904 4,322 4,494 4,673 4,861 18,350 22,277 26,223 (19,861) (3,671) (4,355) (4,007) (4,052) (16,085) (4,203) (4,104) (4,054) (3,902) (16,263) (7,693) (7,060)
(18) (13) (13) (33) (13) (13) (13) (13) (53) (53) (53)
6 5 (0) (0)
(4,367) (4,016) (4,066) (16,118) (4,216) (4,117) (4,067) (3,916) (16,316) (7,747) (7,113)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ $ (4,367) $ (4,016) $ (4,066) $ (16,118) $ (4,216) $ (4,117) $ (4,067) $ (3,916) $ (16,316) $ (7,747) $ (7,113)
C a rd i ov asc u la r , D evic es a nd R e ge ne rat ive
Source: Company reports, Wedbush Securities estimates
31 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
Covered Public Companies Mentioned in this Report (close 2/1/10)
Company
Abiomed
Edwards LifeSciences
HeartWare
Thoratec
Ticker
ABMD
EW
HTWR
THOR
Price
$7.93
$90.23
$39.20
$28.52
Rating
NEUTRAL
NEUTRAL
OUTPERFORM
OUTPERFORM
Fair Value
$13
$65
$42
$34
WEDBUSH SECURITIES
Wedbush does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
ANALYST CERTIFICATION
I, Duane Nash, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not,
directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in
this report.
IMPORTANT DISCLOSURES
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INVESTMENT RATINGS
OUTPERFORM – Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s
team) coverage universe over the next 6-12 months.
NEUTRAL – Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team)
coverage universe over the next 6-12 months.
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analyst’s team) coverage universe over the next 6-12 months.
The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative
to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).*
DISTRIBUTION OF RATINGS (as of December 31, 2009)
OUTPERFORM – 46% (8% of this rating category were investment banking clients within the last 12 months).
NEUTRAL – 39% (2% of this rating category were investment banking clients within the last 12 months).
UNDERPERFORM – 15% (0% of this rating category were investment banking clients within the last 12 months).
The Distribution of Ratings is required by FINRA rules; however, WS’ stock ratings of Outperform, Neutral, and Underperform most
closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS’ stock ratings are
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The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity.
The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated
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WS makes a market in the securities mentioned herein.
32 | World Heart Corporation
Duane Nash, MD JD MBA (415) 263-6650
WS co-managed a public offering of securities for Heartware (HTWR) and Rockwell Medical (RMTI) within the last 12 months.
WS has received compensation for investment banking services from Heartware (HTWR) and Rockwell Medical (RMTI) within the
last 12 months.
WS provided investment banking services to Heartware (HTWR), Rockwell Medical (RMTI) and World Heart (WHRT) within the last
12 months.
WS expects to receive compensation for investment banking services from World Heart (WHRT) within the next 3 months.
* WS changed its rating system from (Strong Buy/Buy/Hold/Sell) to (Outperform/ Neutral/Underperform) on July 14, 2009.
Please access the attached hyperlink for WS’ Coverage Universe: http://www.wedbush.com/inside/CapitalMarkets/CoverageList.asp
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thereof in the open market or otherwise. The information and expressions of opinion contained herein are subject to change without further notice.
The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm. Additional information with respect to the
information contained herein may be obtained upon request.
Duane Nash, MD JD MBA (415) 263-6650
World Heart Corporation | 33
EQUITY RESEARCH DEPARTMENT
(213) 688-4529
DIRECTOR OF RESEARCH
Mark D. Benson (213) 688-4435
CONSUMER PRODUCTS AND SERVICES
TECHNOLOGY
Consumer Products
Rommel T. Dionisio ………………..……… (213) 688-4418
Kurt M. Frederick, CPA …………………… (213) 688-4459
Communications Equipment
Rohit Chopra …………………...…………. (212) 668-9871
Sanjit Singh …………………...…………... (212) 938-9922
Education
Ariel Sokol …………………..…………...... (212) 668-9874
David Kwon………………………………… (212) 938-9928
Communications Technology
Matthew Robison………..……...…………. (415) 263-6659
Leo Choi ………………………………….… (415) 263-6669
Entertainment Retail
Michael Pachter …………………..……..... (213) 688-4474
Chris White…………..….…………………. (213) 688-4423
Edward Woo, CFA …………………….….. (213) 688-4382
Datacenter Technologies
Kaushik Roy…...………………...…………. (415) 274-6873
Hemant Hebbar..………………...…………. (415) 274-6874
Gaming, Lodging & Leisure
Rachael Rothman, CFA..….…………….… (212) 938-9940
Amanda Bryant, CFA…………………….… (212) 938-9942
Yinan Zhao………………………………..… (212) 938-9941
Restaurants
Rachael Rothman, CFA…...…………….… (212) 938-9940
Michael Sang, CPA…..……………………. (212) 938-9943
Software: Enterprise / Application
Michael B. Nemeroff.……………..………. (212) 668-9876
David Giesecke…...…..…………………... (212) 938-9925
Software: Infrastructure
J. Derrick Wood, CFA…………..…………. (415) 274-6822
David Kaczorowski….……………………….(415) 274-6883
Internet: Infrastructure
Kerry Rice, CPA …………………………… (213) 688-4538
Specialty Retail: Hardlines
Joan L. Storms, CFA ……………………… (213) 688-4537
John Garrett…………………………...…… (213) 688-4523
Semiconductors
Patrick Wang…………………………...…. (212) 938-9938
Michael Lucarelli..………………...…….…. (212) 938-9927
Camilo Lyon …………...…………………… (212) 938-9924
Betsy Van Hees………………………….... (415) 274-6869
Specialty Retail: Softlines
Betty Chen …………………..…………...... (415) 273-7328
Connie Wong…….…………..…………..... (415) 273-7315
Specialty Retail: Sporting Goods
Camilo Lyon …..………………….…..….… (212) 938-9924
ENTERTAINMENT AND MEDIA
Advertising & Broadcasting
James Dix, CFA………………….…..….… (213) 688-4315
Entertainment: Software
Michael Pachter …………………...…….… (213) 688-4474
Edward Woo, CFA ………….…………….. (213) 688-4382
Chris White…………..….…………………. (213) 688-4423
Entertainment: Toys
Chris White…………..………….…………. (213) 688-4423
Edward Woo, CFA …………………….….. (213) 688-4382
Movies & Entertainment
Chris White…………..…...………..…….... (213) 688-4423
Michael Pachter….….………….…………. (213) 688-4474
Internet Advertising/Media
Edward Woo, CFA…….…………….…..… (213) 688-4382
INDUSTRIAL GROWTH AND CLEAN TECHNOLOGY
Industrial Growth
Al Kaschalk....……..….……………………. (213) 688-4539
Kevin Lee…....……..….……………………. (213) 688-4303
Kenneth Herbert......….……………………. (415) 274-6875
Clean Technology
Craig Irwin....……..….…………………..…. (212) 938-9926
Telecommunications Software
Scott P. Sutherland, CFA ……………..…. (213) 688-4522
Suhail Chandy …………………...……..…. (213) 688-4380
Financial Technology
Gil B. Luria....….…..………....……………. (213) 688-4501
Nick Setyan……....……..…………………. (213) 688-4519
Wireless Equipment
Scott P. Sutherland, CFA ………….…….. (213) 688-4522
Suhail Chandy ……………...……….…….. (213) 688-4380
LIFE SCIENCES
Biotechnology / Biopharmaceuticals
Gregory R. Wade, Ph.D.………...……….. (415) 274-6863
Jeremiah Shepard, Ph.D.………...……….. (415) 274-6862
Kimberly Lee, D.O….……………..………. (415) 274-6842
Y. Katherine Xu, Ph.D…………………….. (212) 938-9955
Cardiovascular, Devices & Regenerative
Duane Nash, MD JD MBA…...…..………. (415) 263-6650
Akiva Felt ……………………...…..………. (415) 263-6648
Emerging Pharmaceuticals
Liana Moussatos, Ph.D.….........…………. (415) 263-6626
Richard Lau ..…………….………..………. (415) 274-6851
Specialty Pharmaceuticals
Patricia Bank…………………..……………..(415) 263-6646
Medical Technology
Phillip Nalbone………………….……………(415) 274-6884
Jeffrey Chu……..……………….……………(415) 274-6885
Solar Technology
Christine Hersey....……..…...………………(213) 688-4311
EQUITY SALES
Los Angeles
San Francisco
New York
Boston
(213) 688-4470 / (800) 444-8076
(415) 274-6800
(212) 938-9931
(617) 832-3700
EQUITY TRADING
Los Angeles
San Francisco
New York
Boston
CORPORATE HEADQUARTERS
1000 Wilshire Blvd., Los Angeles, CA 90017-2465
Tel: (213) 688-8000 www.wedbush.com
(213) 688-4470 / (800) 421-0178
(415) 274-6811
(212) 344-2382
(617) 832-3700