In Re: Thoratec Corporation Securities Litigation 04-CV-3168-First

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP JEFFREY W. LAWRENCE (166806) CONNIE M. CHEUNG (215381) BING Z. RYAN (228641) 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax) [email protected] [email protected] [email protected]

– and – WILLIAM S. LERACH (68581) BRIAN O. O’MARA (229737) 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax) [email protected] [email protected]

FEDERMAN & SHERWOOD WILLIAM B. FEDERMAN 120 N. Robinson, Suite 2720 Oklahoma City, OK 73102 Telephone: 405/235-1560 405/239-2112 (fax) [email protected]

Co-Lead Counsel for Plaintiffs

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re THORATEC CORP. SECURITIES LITIGATION

This Document Relates To:

ALL ACTIONS.

) ) ) ) ) ) ) )

Master File No. 5:04-cv-03168-RMW

CLASS ACTION

FIRST AMENDED CONSOLIDATED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL

Case 5:04-cv-03168-RMW Document 52-1 Filed 06/15/2006 Page 1 of 39

FIRST AMENDED CONSOLIDATED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS - 5:04-cv-03168-RMW - 1 -

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

I. INTRODUCTION AND OVERVIEW

1. This is a securities class action on behalf of all purchasers of the publicly traded

securities of Thoratec Corporation (“Thoratec” or the “Company”) between April 28, 2004 and June

29, 2004 (the “Class Period”), against Thoratec and certain of its officers and directors for violations

of the Securities Exchange Act of 1934 (the “1934 Act”).

2. Thoratec, headquartered in Pleasanton, California, claims to be the leading supplier of

implantable heart pumps and left ventricular assist devices (“LVADs”). The Company manufactures

these circulatory support products for use by patients with congestive heart failure (“CHF”),

including end-stage heart failure (“ESHF”) patients. Thoratec says that its ventricular assist devices

(“VADs”) are regarded as the most versatile and widely used circulatory support systems for patients

with late-stage CHF. The Company markets devices that may be implanted or worn outside the

body and that are suitable for treatments for different durations for patients of varying sizes and ages,

and estimates that its VADs have treated over 6,300 patients worldwide. Traditionally, these

products have been used in patients as a “bridge to transplant” for patients awaiting a heart

transplant.

3. Destination Therapy (“DT”), or permanent support, was the Company’s flagship

treatment option for patients with ESHF. The Company’s HeartMate (“HeartMate”) Extended Lead

Vented Electric Left Ventricular Assist System (“XVE LVAS”) is an approved VAD designed to

provide permanent support for these patients. Unlike the “bridge-to-transplant” market, the

Company claims that a far greater patient population is possible since the decision to implant such a

device no longer requires that a patient be in need or otherwise eligible for a heart transplant. The

Company claims not only that the HeartMate has been approved as a bridge to cardiac

transplantation since 1994, used in more than 4,000 patients worldwide, but also that, through DT,

the HeartMate offers a breakthrough treatment option for ESHF patients.

4. The Company’s HeartMate/DT represents the major segment of Thoratec’s business,

accounting for 60% or more of the Company’s revenues since 2001. Thoratec further estimated that

the market for VAD therapies – bridge to transplant use and as DT – was substantial. In Thoratec’s

2003 Report on Form 10-K, for example, the Company noted that it manufactured three of the four



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

devices approved for bridge implants and that because “the surgeon’s level of comfort for the

technology” was increasing, Thoratec estimated an annual market of 8,000 patients worldwide.

Similarly, with the Federal Drug Administration’s (“FDA”) approval of Thoratec’s devices for DT,

the Company asserted that application for the HeartMate device represented a market opportunity of

100,000 additional patients annually in the United States alone.

5. Thoratec not only trumpeted the increasing market for its technology, but also

claimed that it would have the lion’s share of that market. In March 2003, Thoratec claimed that it

had over 90% of the domestic VAD market and 50% internationally. They asserted that potential

competitors were at least three years away from completion of the required DT clinical trials and

could thus, not compete with Thoratec until then. Moreover, in the 2003 Report on Form 10-K filed

on March 17, 2004, Thoratec claimed that “unless our competitor’s products result in significantly

better outcomes than our products, [the Company] believed that absent any compelling reasons,

cardiac centers will not generally change suppliers.” In short, Thoratec asserted that for the next

three years, it virtually owned the market and even after that, it would be difficult for competitors

(even assuming FDA approval) to make serious inroads into it.

6. Beginning on April 20, 2004, Thoratec’s stock price closed under $12 per share for

the first time in 2004. It closed at the same levels for four of the next five trading days. On April

27, 2004, however, when the Company told the market that its DT products were gaining acceptance

and defendants expected to have 300-500 devices implanted in 2004, the stock rose 10% in one day.

7. In fact, the market for Thoratec’s products was not nearly as rosy as the Company

represented it to be. The HeartMate device was overly expensive and had a large degree of potential

for infection, and the potential population market was far smaller than defendants represented.

Nevertheless, with this story, Thoratec was able to maintain its stock price above $12 per share and

with the stock inflated, Thoratec completed a $143 million private placement debt offering. When

the Company finally acknowledged that it could not achieve those results on June 29, 2004, the stock

plummeted 25% in one day. The following stock chart shows the effects of defendants’ fraudulent

conduct:



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

II. JURISDICTION AND VENUE

8. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise

under §§10(b) and 20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder by the Securities

and Exchange Commission (“SEC”) [17 C.F.R. §240.10b-5].

9. Venue is proper in this District pursuant to §27 of the 1934 Act. Many of the false

and misleading statements were made in or issued from this District.

10. The Company’s principal executive offices are in Pleasanton, California, where the

day-to-day operations of the Company are directed and managed.

III. THE PARTIES

11. Lead plaintiff Craig Toby purchased Thoratec publicly traded securities and was

damaged thereby.

12. Defendant Thoratec, headquartered in Pleasanton, California, manufactures

circulatory support products for use by patients with CHF.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13. Defendant D. Keith Grossman (“Grossman”) was the President and Chief Executive

Officer (“CEO”) of Thoratec and a member of the Board of Directors. Previously, Grossman was a

Division President of Major Pharmaceuticals, Inc. Before that, he was the Vice President of Sales

and Marketing for Calcitek, Inc., a manufacturer of implantable medical devices, and a division of

Sulzermedica (formerly, Intermedics, Inc.). During the Class Period, Grossman assisted in the sale

of more than $143.7 million worth of corporate notes.

14. Defendant M. Wayne Boylston (“Boylston”) was the Senior Vice President and Chief

Financial Officer (“CFO”) of Thoratec. Prior to joining Thoratec, Boylston was the CFO at

Flashcom, Inc. Prior to that, he was the CFO, Executive Vice President, Treasurer and Assistant

Secretary of iXL Enterprises, Inc. During the Class Period, Boylston assisted Grossman in the sale

of more than $143.7 million worth of corporate notes. On December 17, 2004, Boylston abruptly

resigned, but remained a consultant for the Company for litigation purposes.

15. Defendant Jeffrey Nelson (“Nelson”) was the President of Thoratec’s Cardiovascular

Division, which develops, manufactures and markets proprietary medical devices used for

circulatory support and vascular graft applications. Previously, Nelson was the general manager of

the nuclear medicine division at Philips Medical Systems (formerly, ADAC Laboratories). He also

was a senior vice president of North American sales and general manager of ADAC Radiology

Solutions. Before that, he was a marketing manager for Syncor International Corporation, an

associate at Cerulean Venture Fund and was in sales with Baxter Healthcare International. During

the Class Period, Nelson assisted Grossman in the sale of more than $143.7 million worth of

corporate notes.

16. The individuals named as defendants in ¶¶13-15 are referred to herein as the

“Individual Defendants.” The Individual Defendants, because of their positions with the Company,

possessed the power and authority to control the contents of Thoratec’s quarterly reports, press

releases and presentations to securities analysts, money and portfolio managers and institutional

investors, i.e., the market. Each defendant was provided with copies of the Company’s reports and

press releases alleged herein to be misleading prior to or shortly after their issuance and had the

ability and opportunity to prevent their issuance or cause them to be corrected. Because of their



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

positions and access to material non-public information available to them but not to the public, each

of these defendants knew that the adverse facts specified herein had not been disclosed to and were

being concealed from the public and that the positive representations which were being made were

then materially false and misleading. The Individual Defendants are liable for the false statements

pleaded herein at ¶¶49-71, as those statements were each “group-published” information and were

the result of the collective actions of the Individual Defendants.

17. In addition to the above-described involvement, each Individual Defendant had

knowledge of Thoratec’s problems and was motivated to conceal such problems. Boylston, as CFO,

was responsible for financial reporting and communications with the market. Many of the internal

reports showing Thoratec’s forecasted and actual growth were prepared by the finance department

under Boylston’s direction. Defendant Grossman, as CEO and President, was responsible for the

financial results and press releases issued by the Company. Each Individual Defendant sought to

demonstrate that he could lead the Company successfully and generate the growth expected by the

market.

18. Further, defendants were also motivated to engage in the fraudulent practices alleged

herein because, among other things, they sought to obtain financing for the Company via a $143.7

million private notes offering, which closed just three weeks before the end of the Class Period when

defendants effectively acknowledged that Thoratec could not reach even its minimal goal of 300

implants.

IV. SUBSTANTIVE ALLEGATIONS

19. Thoratec claims to be the leading supplier of implantable heart pumps and LVADs.

The Company manufactures these circulatory support products for use by patients with CHF,

including ESHF patients. Traditionally, these products have been used in such patients as a “bridge

to transplant,” for patients awaiting a heart transplant. The fact that only 2,120 donor hearts were

available for transplantation in 2003 underscores the fact that only a limited number of units are

needed to service this market.

20. In contrast, DT, or permanent support, was the Company’s flagship treatment option

for patients with ESHF. Unlike the “bridge-to-transplant” market, Thoratec claimed a far greater



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

patient population was possible, since the decision to implant such a device no longer required that a

patient be in need or otherwise eligible for a heart transplant.

21. The HeartMate XVE LVAS consists of an implanted blood pump, external XVE

System Controller, and external power supply components. The blood pump consists of a blood

chamber, a motor chamber, a drive-line, and inflow and outflow conduits. The XVE System

Controller continuously monitors and controls the implanted motor and shows information regarding

alarm conditions. LVAD function is adjusted by a switch panel located on the top of the XVE

System Controller, or via a separate System Monitor. The XVE LVAS is routinely powered through

the XVE System Controller by either a pair of wearable, rechargeable batteries, or via connection to

a dedicated power supply device called a Power Base Unit. The Power Base Unit serves as a battery

charger and as an interface between the System Monitor and the implanted pump.

22. The pump device is implanted into the upper part of the abdominal wall. A tube from

the pump fits into the left ventricle, draining blood from the ventricle into the device. The pump

then sends the blood into the aorta, the artery that sends oxygen-rich blood to the brain and the rest

of the body. Another tube extends outside the body and is attached to a small battery pack that is

worn on a shoulder holster, and a control system, which can be worn on a belt.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(Picture: Implanted and External Components of HeartMate XVE LVAS)

23. Thoratec’s HeartMate LVAS as used in DT for ESHF patients was tested during the

Randomized Evaluation of Mechanical Assistance for the Treatment of Congestive Heart Failure

(“REMATCH”) clinical trial conducted from May 1998 to June 2001. The REMATCH trial was

sponsored by Thoratec, the National Institutes of Health and Columbia University. The 129 enrolled

patients represented those who would be eligible for DT and consisted of the most severe profile in

the heart failure patient population numbering significantly less than 1% of the entire population.

The patients involved in the trial were Class IV patients with end-stage left ventricular failure who

had received optimal medical therapy for at least 60 of the last 90 days, who had a life expectancy of

less than two years, and who were not candidates for cardiac transplantation due to age (older than

65) or chronic diseases such as insulin-dependent diabetes with organ damage, chronic kidney

dysfunction or cancer. Class IV patients are ESHF patients who should be at complete rest, confined

to bed or chair because physical activity would bring on discomfort, according to the New York

Heart Association classification system. The study compared those patients with LVADs with those

using a regimen of drug therapies, diet and exercise.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

24. In its 2003 Report on Form 10-K filed in March 2004, the Company claimed that its

HeartMate product is an approved VAD designed to provide permanent support for these patients.

The Company claims not only that the HeartMate has been approved as a bridge to cardiac

transplantation since 1994, used in more than 4,000 patients worldwide, but also that, through DT,

the HeartMate offered a breakthrough treatment option for ESHF patients.

25. The Centers for Medicare & Medicaid Services (“CMS”) administers the Medicare

program and works in partnership with states to administer Medicaid. In October 2003, CMS

approved a limited reimbursement for LVAD therapy. However, CMS has rigid preset

reimbursement guidelines and schedules for DT implants, including implanting the device in a

Medicare-approved heart transplant facility that, between January 1, 2001 and September 30, 2003,

has implanted at least 15 LVADs. CMS also had a list of requirements before a person was eligible

for reimbursement, such as ineligibility for a heart transplant, failure to respond to optimal medical

management, and functional limitations with peak oxygen consumption.

26. Defendants claimed that a significant increase in reimbursement for Medicare patients

would be an important development that would facilitate successful commercialization of this

opportunity. Defendants also claimed that Medicare patients would represent a majority of DT

patients.

27. Thoratec represented that there were numerous improvements in the HeartMate,

including the recently incorporated improvement in the design of the inflow valve housing, coupled

with the substantial improvements in patient care protocols. Thoratec also represented it had made

significant efforts to reduce device-related morbidity and, therefore, hospital costs.

28. The Company told the market that it enjoyed a monopoly position with respect to the

DT opportunity, which afforded it the luxury of time to penetrate the market while bringing all the

other components necessary to commercialize this opportunity up to “more optimal levels.” The

HeartMate was to remain the only FDA-approved device for DT for a minimum of three more years.

29. In fact, by April 2004, the potential problems and costs associated with LVAD

implantation and Thoratec’s HeartMate LVAD in particular, made it unlikely that Thoratec would

achieve substantial revenue increase. In April 2004, Blue Cross and Blue Shield Association issued



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

a report entitled, “Special Report: Cost-Effectiveness of Left-Ventricular Assist Devices as

Destination Therapy for End-Stage Heart Failure.” The report concluded that “[t]he baseline cost-

effectiveness analysis, using parameter estimates from published sources, showed that use of

LVADs leads to an increase in cost of $802,700 to gain 1 QALY, [Quality of Life Year] compared

with optimal medical management.” Exhibit A is attached hereto.

30. Investigation and consultation with doctors in the medical field regarding DT and

investigations of transplant centers, including Stanford Medical Center, Brigham and Women’s

Hospital Medical Center in association with Harvard Medical Center, and the Sharp Memorial

Medical Center in association with San Diego Cardiac Center, revealed that by at least 2004, the

HeartMate LVAD device would not have the market share defendants claimed. Although Thoratec’s

device has been used in patients as a bridge to transplantation, the majority of patients do not require

a LVAD while awaiting transplantation. In fact, unless absolutely necessary, it is best not to implant

the LVAD device due to the risk of infection, blood clots, neuralgic events and other complications

associated with the device.

31. The medical literature reflects that the number of patients seeking the DT implants to

be approximately a total of 200 per year in both 2004 and 2005. Indeed, as of August 2004, there

had been 115 DT implants since the FDA’s approval in November 2001 and 81 devices implanted

between October 2003 through August 2004 when CMS approved DT reimbursement. Ex. B.

32. Moreover, the potential population for DT was far lower than what Thoratec

expected. In fact, according to investigators involved in the REMATCH trial, the criteria for

enrollment had to be expanded after eighteen months due to the extremely slow enrollment, which

was the first indication that the DT growth was slower than anticipated.

33. The REMATCH study results revealed the frequency of serious problems or events in

the LVAD device group was 2.35 times greater than that of the medical therapy group with a

predominance of infection, bleeding, and malfunction of the LVAD device. Surgery and treatment

of complications meant that the LVAD recipients experienced a higher number of days of

hospitalization than did the medical management group. The average length of hospital stay for the

initial implantation of the LVAD device was 29 days versus five days for a medically managed



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

patient. The median number of overall hospital days was 88 among the DT implant patients and 24

among the medically managed patients – further reducing the cost benefit in Thoratec’s LVAD

device.

34. Indeed, the rate of infection in the LVAD destination patients was double that

compared with patients receiving medical therapy in a randomized trial. Malfunction of the DT

device occurred in 35% of the devices within two years. The most common problem occurred with

the device inflow valve, which was not originally intended to be exposed to high pressures. Device

failure was the second most common cause of death in the DT trial. Infections in the REMATCH

trial accounted for 40% of the overall deaths. Also, even in experienced centers, reoperation for

postoperative bleeding occurred in 20% or more of the patients.

35. In fact, even for those patients referred or eligible for DT, a large percentage of

patients either were put on the cardiac transplantation list or once the patients learned of the device

and the possibilities of complications, including infection, blood clot, stroke, as well as the need to

have wires protruding from their body, chose not to participate in DT. After investigation of several

of the transplant centers, each center had only approximately five to ten DT patients in 2003 and

2004. Indeed, the LVAD devices are not optimal because the device is not fully implantable. The

Thoratec device requires communication with the outside environment through tubes and wires

protruding from the stomach predisposing the patient to a greater degree of infection and other

complications.

36. Investigation of several major cardiac implant centers revealed that even with the

higher CMS reimbursement as of October 1, 2004 for DT, the medical centers and hospitals were

generally losing money on devices installed due to the length of hospital stay, which was not fully

reimbursed by CMS. In fact, a two week hospital stay for the procedure was considered short with

many patients often staying for up to six months. Such lengthy hospital stays racked up hundreds of

thousands dollars in hospital costs. The median cost reported from the study of LVAD as DT was

$137,000 with the average implantation costing closer to $200,000. Indeed, even doctors who

conducted the REMATCH trial concluded that the costs were far in excess of the medical

reimbursement. Exs. C, D.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

37. According to the CMS website, 69 centers were listed as VAD facilities which could

potentially perform DT. Currently, 40 centers in the U.S. are participating in the Thoratec

HeartMate II DT trial. These clinical trials are critical to a cardiac transplant center since VADs, the

same implanted devices used for DT, are used to bridge patients to cardiac transplantation.

38. Plaintiff has retained Dr. Paul Ludmer, a cardiologist and heart failure specialist for

23 years. At plaintiff’s request, Dr. Ludmer contacted several cardiac transplant/DT centers directly.

Because these hospitals/centers participate in Thoratec-sponsored and other company-sponsored

clinical trials on DT, none of the cardiac physicians would speak for attribution since, as they

explained, they would be potentially prevented from taking place in future trials. In talking with Dr.

Ludmer, however, physicians from each of these centers indicated that Thoratec’s HeartMate was

not a cost-effective method of heart failure treatment when used for DT. They indicated that DT

VAD implant was a consistent money loser for their medical centers. Each of the surveyed centers

reported to Dr. Ludmer similar cases in which they had implanted a HeartMate VAD device and the

patient was required to remain in the hospital for over a month. In several cases in Center A (on the

East Coast) and Center B (on the West Coast), the cost for the DT procedure and the hospital care

was well over $1,000,000, and the centers reported an average true cost of over $300,000, not close

to the $202,000 as reported by Thoratec. Further, when the centers sought reimbursement, CMS

only provided slightly over $100,000 for their Medicare patients (over age 65 years) – which made

up the vast majority of patients referred for DT.

39. Reimbursement for DT in Medicare patients is outlined on the CMS and Thoratec

websites. CMS reimbursement in late 2003-2004 for (Heart Assist System Implant) DT VAD

implant initially resulted in base payment of $96,000. In 2004, base payment reimbursement for DT

LVAD implant was increased to $125,000. While there may be additional small reimbursements, all

of these payments are far below the overall costs of the procedures. Thus, even in early 2004, it was

clear that the number of DT procedures was not likely to grow and even with the increased CMS

reimbursement, they were and are cost prohibitive. The 2004 reimbursement increase did not make

any appreciable difference.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

40. That has been borne out. According to physicians at these facilities, there were 6 or

less DT VAD procedures done in the last 12 months at each center. VADs were being used as a

bridge to cardiac transplant, but very few VADs were used for DT. Further, the volume of DT had

not grown significantly. Most referring physicians surveyed felt that referral patient selection did

not lend itself to DT. Most referring physicians still perceive DT with VADs as the last option for

non-cardiac transplant candidates and appropriately exhaust all treatments including medications and

cardiac resynchronization therapy with biventricular pacing. The cardiology community feels that

DT is extremely expensive and invasive and requires long hospital stay to yield only 25% survival at

2 years. The DT implanting physician community is hoping that better survival like 60% at 2 years

can be achieved at high volume centers with smaller implantable devices and better patient selection.

The majority of VAD implanting centers (approximately 40) are taking place in an ongoing Thoratec

trial (HeartMate II DT trial). Despite the incentive to enroll patients in this clinical trial, DT volume

has not substantially increased and has not achieved the levels predicted by Thoratec. Dr. Y. Naka,

director of the Cardiac Transplantation and Mechanical Circulatory Support Program at Columbia

University, N.Y. stated that he “would estimate the number [of procedures] would be probably 200

implants per year for destination therapy in the next two years” (years 2004 and 2005). See Ex. B.

Consistent with the overall reports from the contacted centers, Dr. Y. Naka currently acknowledged

that his center’s DT has occurred much slower than expected with the current available VADs .

41. Finally, Thoratec faces substantial competition. World Heart Corporation (“World

Heart”), one of Thoratec’s largest competitors, develops, manufactures and markets implantable

heart assist devices, including the Novacor Left Ventricular Assist System (“Novacor LVAS”) which

was the first LVAS to provide a recipient with more than six years of circulatory support and

continues to hold the industry’s world record for the longest support on a single device over four

years. Novacor is currently being tested for DT in the Randomized Evaluation of Novacor LVAS in

a Non-Transplant (“RELIANT”) clinical trial comparing it with Thoratec’s HeartMate. Many

cardiac transplantation physicians found the Novacor device superior to Thoratec’s device, which

created significant market pressure at Thoratec. In more than 1,500 implants of Novacor LVAS,

there have been no deaths attributed to device failure. Whereas, during the REMATCH trial, 10 out



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

of 68 patients needed the HeartMate device replaced and device failure was responsible for seven

deaths. In vitro reliability testing of the Novacor LVAS has demonstrated greater than or equal to

99.9% reliability at one year, 98.3% at two years, and 85.9% at three years, respectively. The

probability of failure of Thoratec’s HeartMate device in the REMATCH trial was 35% at two years.

42. The RELIANT population trial began in February 2004, which was a device versus

device clinical trial comparing Thoratec’s HeartMate XVE LVAS to World Heart’s Novacor LVAS

device. The trial was a multi-center, randomized clinical trial which compared the two devices in

ESHF patients who had been treated with optimal medical therapy for 60 of the past 90 days, and

who had a life expectancy of less than two years.

43. Thus, the true facts, which were known by each of the defendants but concealed from

the investing public during the Class Period, were as follows:

(a) Even as the Company estimated that as many as 100,000 patients per year in

the United States could be helped by their new DT treatment option, the actual “true” market for the

product was far less than claimed, and it was severely constrained by limited reimbursement dollars

available under CMS guidelines.

(b) Although the defendants claimed that there were approximately 900 hospital

centers in the United States qualified for the practice of DT and implantation of the HeartMate XVE

LVAS, in fact only 69 centers had been designated as Medicare-approved for DT.

(c) Defendants knew that Medicare had rigid preset reimbursement guidelines and

schedules for DT – guidelines and schedules that could only translate into a serious negative impact

on the Company’s Fiscal Year (“FY”) 2004 sales projections for the HeartMate.

(d) Cardiothorasic surgeons were rejecting and/or not accepting the HeartMate as

a viable device for DT patients because of issues with the device’s reliability in a long-term setting.

(e) The demand for the Company’s DT implants was not growing at the rate

claimed.

(f) The Company’s FY04 projection of $190-$200 million based on the midpoint

range of 300 to 500 pumps, was overstated by tens of millions of dollars.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

44. Additionally, defendant Grossman’s statement that “the majority or more than a

simple majority” of the procedures would be concentrated in the back half of the year (see ¶¶49-50)

is also without foundation. According to Dr. Ludmer and based on his experience, patients whose

prognosis warrants an VAD implant are no more likely to have their doctor prescribe the procedure

in December than in May or June. Indeed, given that CMS had allowed reimbursement in October

2003, by April 2004, physicians knew of the reimbursement amounts, and if the procedure was

warranted, would prescribe it when needed.

45. Moreover, when on June 29, 2004, defendants finally admitted to the market that

Thoratec would only place less than half of the HeartMate’s projection for DT procedure and they

stated that some of the centers might be delaying the program to benefit from the October 1, 2004

increase in reimbursement rates. This, too, further undercuts any rational basis for their April 27,

2004 statement. If the majority of the projected 400 procedures were to be “concentrated in the back

half of the year, and by definition, the fourth quarter being the most important,” the “delay” should

not have changed the validity of their projection since defendants had already factored in the “delay”

(i.e., fourth quarter procedures) in making the projection. In short, the projection had no basis in

April 2004 and the explanation for the delay offered in June 2004 only served to confirm that

defendants lacked any foundation for the conclusion that Thoratec would achieve 400 DT procedures

in 2004.

46. In order to expect an increase in DT, additional centers would have to become

available to institute this new treatment. Proposed clinical guidelines for new centers were published

by M. C. Deng et al. in Destination Mechanical Circulatory Support: Proposal for Clinical

Standards, The Journal of Heart and Lung Transplantation, April 2003, at 365-69. The

requirements for a center to provide DT include the following: 1) experience with evaluation and

management of ESHF, including selection for cardiac transplantation and provision of end-of-life

care; 2) a team of cardiologists, cardiac surgeons, anesthesiologists, perfusionists, nurses, and other

health care professionals who have been properly trained and equipped to perform the VAD

implantation and all subsequent follow-up management, patient training, and long-term care; 3)

formal plan to evaluate, select, and follow patients with VADs for DT; and 4) outpatient facilities for



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

chronic care of patients with VADs and surveillance for VAD malfunction. Some cardiac transplant

medical centers do not meet these guidelines, and most heart failure medical center programs do not

meet these criteria to begin DT.

47. According to Dr. Ludmer, when a new medication or device is approved by the FDA,

there is usually a quantum increase in the number of centers and physicians using the new treatment

and thus volume of the new therapy increases well beyond the volume of the investigating centers.

VAD had already been used as a bridge to transplant for years and thus the investigating centers

were well aware of the implant technique and follow-up. Thus, the centers were aware of, and could

have attempted to become qualified for, the DT application. Even now, however, there have been

few additional centers that have sought to become qualified for DT – lending further support to the

overall limited demand and limited growth for the procedure.

48. All of these facts negatively impacted the prospects for Thoratec’s LVAD segment –

60% of its total business. Defendants, however, recognizing the potentially devastating impact on

the Company, engaged in a scheme to defraud the market into believing that (i) the potential

population for the HeartMate was growing because doctors were using the device, and (ii) in 2004,

Thoratec would have nearly four times the number of devices implanted in order to reach sales of

300 pumps since CMS had approved reimbursement for the device. As a result of the defendants’

false and misleading statements, Thoratec’s stock price was artificially inflated. Defendants were

able to finance more than $143.7 million worth of corporate notes. Defendants used approximately

$60 million of the offering proceeds to repurchase 4,184,100 shares of Thoratec’s common stock.

V. FRAUDULENT SCHEME AND COURSE OF BUSINESS

49. The April 27, 2004 False and Misleading Statements: On April 27, 2004, after the

market closed, the Company issued a press release entitled, “Thoratec Reports Record First Quarter

Sales Results Reflect First Full Quarter for Destination Therapy Approval, Reimbursement.” The

press release stated in part:

Thoratec Corporation, a world leader in products to treat cardiovascular disease, today reported results for the first quarter ended April 3, 2004.

The company said product sales for the period were a record $42.8 million, a 19 percent increase over sales of $36.1 million in the first quarter a year ago.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Taxed cash earnings, which exclude the effect of legal settlement, merger, restructuring and other costs and amortization of purchased intangible assets, were $3.2 million, or $0.06 per share, versus taxed cash earnings of $3.3 million, or $0.06 per share, in the same period a year ago.

On a GAAP basis, Thoratec reported net income in the first quarter of fiscal 2004 of $1.3 million, or $0.02 per share, versus net income of $1.4 million, or $0.03 per share, in the same period a year ago.

“Our results for the quarter reflect solid growth in both our Cardiovascular and ITC divisions,” noted D. Keith Grossman, president and chief executive officer of Thoratec.

“Sales of our heart assist devices benefited from this being the first full quarter in which we had Destination Therapy approval and the National Coverage Decision from Medicare, as sales of our HeartMate(R) device grew by 26 percent. We feel we are off to a very good start with this new indication for use, as 42 Destination Therapy implants took place in the quarter.

* * *

Jeffrey Nelson, president of the company’s cardiovascular division, noted that operating expenses in the quarter reflect costs associated with the ramp up of sales and marketing programs to support Destination Therapy, such as the Heart Hope (TM) initiative.

“This effort, which is a collaboration between Thoratec and leading heart centers committed to advancing clinical, educational and economic outcomes of Destination Therapy, is just beginning to have an impact in the marketplace,” Nelson noted.

“Approximately 20 leading centers have signed up for the Heart Hope program and several more have indicated they will be doing so. We believe that between 25 and 30 centers may accept our invitation to commit to the program this year. We are very pleased with the response to Heart Hope to date. In fact, approximately 70 percent of the 42 Destination Therapy procedures during the quarter were done at our targeted Heart Hope centers,” he added.

Nelson noted that a key element of Heart Hope is the development of HeartMate Destination Therapy Advanced Practice Guidelines and that these were presented at the first Heart Hope Users Conference last week. The meeting was attended by some 50 clinicians, including cardiac surgeons, heart failure cardiologists and VAD coordinators.

“The response from attendees, who are thought leaders, was very positive and they came away with even a higher level of enthusiasm for the Destination Therapy opportunity. They felt that these new practice guidelines were right on target with respect to the important issues facing development of the market-particularly those guidelines related to nutrition management-which are among the first of its kind for heart failure patients,” he noted.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

* * *

The company also reiterated its financial guidance for fiscal 2004, including revenues of $190-$200 million, cash earnings of $30-$35 million, or $0.53-$0.61 per share, or taxed cash earnings of $0.32-$0.38 per share.

Ex. E.

50. The April 27, 2004 Earnings Conference Call False and Misleading Statements:

On the same day, the Company held an earnings conference call. Defendants Grossman, Boylston,

and Nelson attended the conference call and answered questions from the Wall Street analysts.

Defendants’ statements, throughout the call, discussed the (false) positive and expanding market for

Thoratec’s HeartMate device as well as the number of implants Thoratec expected in 2004.

Grossman stated: “As I mentioned a moment ago, the just concluded quarter represents the first full quarter in which we had a DT approval and CMS reimbursement and in which we launched our marketing efforts domestically. . . . And I am very pleased with the early market response to date and the success of our launch initiatives, such as specifically the Heart Hope program.”

* * *

He further stated: “The overall patient experience in outcomes with DT to date have been very positive and the centers are reporting a decreasing number of adverse events. We believe this demonstrates the value of the sharing of best practices among clinicians and also of course, device improvement, including the new inflow valve for the XVE.”

* * *

Boylston stated: “I’d like to reiterate our guidance for 2004 that we have provided in the past two calls. We’re currently projecting full-year revenues of between $190 and $200 million, which is an increase of between 27 and 33 percent over 2003. That revenue guidance assumes the midpoint of the range of 300-500 Destination Therapy units. We would also like to remind you that as we’ve indicated in the past, we see the Destination Therapy market growing over time and that we believe activity will ramp up during the course of the year.”

* * *

He further stated: “We’re projecting tax to cash earnings of $18-$21 million, which equates to 32-38 cents per share, using an effective tax rate of 38 percent. This compares to 22 cents in cash tax earnings for 2003 on an equivalent basis, or growth in earnings-per-share of 45-73 percent.”

* * *

Grossman assured the investors of Thoratec: “I want to be very clear here. After this quarter, we are more certain than ever the Destination Therapy is going to be a very significant market and there is a tremendous amount of enthusiasm in our organization and the marketplace right now.”



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

* * *

Boylston stated: “[Gross margin] will stay in this 59-60 percent kind of range for the next few quarters. And then hopefully, depending on the ramp with Destination Therapy, that is what should take us to something in excess of 60.”

* * *

When asked whether the cost per patient for the Destination Therapy was around $140,000 and the trend of the median cost, Nelson answered: “We have no way of collecting that data. . . . And as adverse even[t]s decrease, that was a major contributor to costs and we would anticipate these costs to migrate down.”

* * *

Nelson touted the sales trend of the Destination Therapy in the second quarter of 2004: “As more centers start implanting, we will see more implants. And as the centers that are implanted today increase their volume, you will have that sort of ramping affect over the course of the year. So there’s really going to be two factors that drive growth in this market – new centers coming on-board and doing implants and the centers that are already on-board and implanting continuing to build their volume.”

* * *

Grossman further told the analysts regarding the sales trend of the Destination Therapy in 2004: “We’ve made it very clear that this is going to be a ramp that will accelerate in the back half of the year and into next year because of the way we have chosen to go after the market and because of the way we think the market will adopt it almost in any case.”

* * *

When asked about the most important milestones for the remainder of the year, Grossman stated: “I think one is anything that has to do with DT penetration. I think that is the number of centers who are active, the number of patients who are treated, the slope of the curve between now and the end of the year, all of the things that I probably don’t have to tell anybody on this call, that reflect upon the success of this first year of this DT adoption.”

* * *

Indeed, during the call, Grossman specifically emphasized the increasing number of DT

implants:

When asked whether sales of 500 Destination Therapy units in 2004 was still a possibility, Grossman assured the market: “Our guidance has not changed. Absolutely, we have said from the beginning that we were going to provide an estimate of market penetration for this year of between 3 and 500 implants, that it would be, as you would expect, the majority or more than a simple majority would be concentrated in the back half of the year, and by definition, the fourth quarter being the most important. So I actually think that we’re very pleased with the



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

number of implants for the first quarter internally. So there would be no reason for us to look at the guidance we gave for the year and change it in any way.”

Ex. F.

51. Defendants’ statements had their desired effect – Thoratec’s below $12 per share

closing prices evaporated with the stock climbing 10% in one day, closing at $13.20 per share on

April 28, 2004.

52. Reasons the April 27, 2004 Statements Were False and Misleading: Defendants’

statements were false and misleading for a number of reasons. Defendants knew that it would be

impossible to grow the HeartMate market for the use as DT at the anticipated rate because of the

existence of major impediments to sales. Specifically, defendants knew or were deliberately reckless

in not knowing that:

(a) As noted above, defendant Grossman’s statement that “the majority or more

than a simple majority” of the procedures would be concentrated in the back half of the year is also

without foundation. See ¶¶44-47. In short, the projection had no basis in April 2004, and the

explanation for the delay offered in June 2004 only served to confirm that defendants lacked any

foundation for the conclusion that Thoratec would achieve 400 DT procedures in 2004;

(b) By 2004, defendants’ statements about the ultimate size of the market for DT,

if they were ever true, were demonstrably false. Defendants’ revenue guidance of $190-$200

million for FY04 was based on the sales of 300-500 DT units. However, the market for DT was

such a small niche that experts and doctors in the field had concluded that the number of implants

could only reach about 200 per year. In fact, the patients enrolled the REMATCH trial represented

the most severe profile in the heart failure patient population, numbering significantly less than 1%

of the entire population of patients;

(c) CMS had rigid preset reimbursement guidelines and schedules for DT

implants, which translated into a serious negative impact on the Company’s FY04 sales projections

for the HeartMate device. Further, CMS only designated 69 medical centers as Medicare-approved

for the DT implants, thus further limiting the likely population for the HeartMate implants;



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(d) The use of Thoratec’s HeartMate device is far too expensive. Even the

increased CMS reimbursement rate, effective October 1, 2004, did not provide sufficient financial

incentives to implantation centers, cardiologists and surgeons. While the CMS reimbursement

covered the costs of the Thoratec device, it did not compensate the hospitalization cost of the patient

in general. According to the REMATCH trial results, the median number of days patients spent in

hospitals for implantation or medical management was 29 and the median number of overall hospital

days was 88 after the DT implant. Any type of a multi-month hospitalization would run into

millions of dollars which would not be covered by the CMS reimbursement. Therefore, cardiac

transplant and CHF centers did not promote DT due to the fact that they would generally lose

money, but only adopted the procedure for research purposes and to provide more options to

patients. As a result, the Heart Hope program was also not as successful as defendants claimed. As

of April 27, 2004, among the 67 centers approved by CMS for DT reimbursement, only 20 of them

signed up for the Heart Hope;

(e) Patients who were offered the therapy often decided not to have the implant

once the significant potential side effects of device malfunction, infection, blood clot, stroke, the

wires protruding from their body, as well as prolonged hospitalization for implantation and

subsequent follow-up were explained; and

(f) Medical care professionals were concerned about the DT in general and were

not ready to use the device as a treatment option. The professionals felt that the current Thoratec

device was not an optimal system due to significant device component failure. In addition, because

the device was not completely implantable and required communication with the outside

environment through wires and pneumatic diaphragms, it exposed patients to various kinds of

infections. In fact, during the REMATCH trial, infections accounted for 40% of the overall death

reported.

53. Nowhere within the April 27, 2004 press release and the conference call did

defendants disclose investors of any of the major impediments to the DT sales. Instead, defendants

repeatedly assured investors that defendants were “more certain than ever” that Thoratec would gain

a significant market share of DT in the near future. When specifically asked about the cost of the



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DT implant and reasons why cardiologists did not want to refer the implants to their patients,

defendants failed to publicly disclose the truth. Defendants knew from the results of the REMATCH

trial that, with an average hospital stay of 88 days, the overall cost of the DT implant per patient was

well over the reimbursed amounts, if not millions of dollars. Defendants also knew from the

reactions of cardiologists and cardio transplant centers that cardiologists refused to refer DT to their

patients because they felt that the implant was not an optimal option to patients and would be

unprofitable for the medical centers that adopted the procedure.

54. In addition, while Boylston touted that the gross margin would stay in the 59%-60%

range and with the possibility of exceeding 60% for the rest of the year due to the success of DT

implants, the trend was precisely the opposite with the gross margins for the third quarter of 2004

declining to 56%.

55. The May 11, 2004 False and Misleading Statements: On May 11, 2004, Thoratec

issued a press release, reported by Dow Jones News Service report entitled, “Thoratec Comments on

CMS Proposal Regarding VAD Reimbursement.” Thoratec stated in part:

In a press release, medical device maker Thoratec Corp. (THOR) said such a change would be a boon for patients opting for its HeartMate XVE LVAS device, which is currently the only device approved by the U.S. Food and Drug Administration for destination therapy, or the permanent support of end-stage heart failure patients who aren’t eligible for heart transplantation.

Thoratec estimated such a change would raise the median reimbursement at the 68 centers recognized by the CMMS for destination therapy to $125,000 from $96,000.

Ex. G. After this news was released, Thoratec’s stock closed at $2 per share closing at $14.99 per

share – a 15.4% increase from its May 10, 2004 close.

56. Reasons the May 11, 2004 Statements Were False and Misleading: The May 11,

2004 statements were false and misleading because defendants knew that the increased CMS

reimbursement rate on average would not cover the overall costs of the DT implants in addition to

the overall problems with the device. Thus, the device would not likely gain widespread use.

Furthermore, by emphasizing the importance of the increase of the CMS reimbursement level,

defendants misrepresented the decreasing sales of the DT implants, which were not growing because

of the small size of the market, doctors’ refusal to refer the product to patients due to its internal



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

component failure and unprofitability, and patients’ decisions not to have the implant because of the

significant potential side effects as discussed above. The increase in CMS reimbursement payments

would not boost the sales of the DT in light of the high incidence of device malfunction of the

HeartMate and the severe potential side effects of the DT implant.

57. The Securities and Exchange Commission Report on Form 10-Q for the First

Quarter of 2004 False and Misleading Statements: On May 13, 2004, the Company filed a Report

on Form 10-Q with the SEC for its financial results for the first quarter of 2004. The SEC filing

stated in part: “We are currently planning 2004 revenue in the range of $190-200 million. This is

highly dependent upon the success of our Destination Therapy activities in generating significant

revenues. We anticipate the majority of these revenues in the second half of 2004.”

Ex. H.

58. Reasons the Securities and Exchange Commission Report on Form 10-Q for the

First Quarter of 2004 Statements Were False and Misleading: The SEC Report on Form 10-Q

for the first quarter of 2004 statements were false and misleading because defendants knew that with

major impediments to sales of DT as stated above, Thoratec could not make its revenue forecast of

$190-$200 million. Furthermore, without any viable solutions to solve the component failure

problems of the HeartMate device and the severe side effects of the DT implants, and to expand the

limited patient population for the implants, defendants lacked a reasonable basis to foresee that the

second half of 2004 would generate the majority of the forecasted revenue. The increase of the CMS

reimbursement rate alone could not boost the DT sales, as it still failed to provide enough financial

incentives to the cardiac transplant and CHF centers.

VI. THE $143.7 MILLION NOTE OFFERING AND MARKET COMPETITION

59. Defendants were motivated to engage in the fraudulent practices alleged herein in

order to complete a $143.7 million note offering for the Company. Defendants incurred substantial

sales and marketing expenses to promote DT and the HeartMate device. However, the slow sales of

DT implants did not generate the forecasted revenue in return. As a result, defendants desperately

needed to finance more capital to run the Company. They also wanted to repurchase Thoratec’s

stocks in order to further boost the stock price.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

60. On May 17, 2004, the Company issued a press release entitled, “Thoratec Announces

Intention to Offer $125 M Senior Subordinated Convertible Notes.” The press release stated in part:

Thoratec Corporation announced its intention to commence an offering, subject to market conditions, of senior subordinated convertible notes due 2034 with gross proceeds to the company of $125 M to be offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Thoratec expects to grant the initial purchaser a 30-day option to purchase up to an additional 15% of principal amount of senior subordinated convertible notes. Thoratec intends to use a portion of the net proceeds to acquire U.S. government securities that will be pledged as collateral for the payment of the first six scheduled interest payments on the notes and to purchase up to $60 M of shares of its common stock in connection with the offering pursuant to the company’s stock repurchase program.

Thoratec intends to use the balance of the net proceeds from the offering for general corporate purposes, which may include additional stock repurchases, strategic investments or acquisitions.

Ex. I.

61. On May 19, 2004, the Company issued a press release entitled, “Thoratec Announces

Pricing of Offering of $125 M Senior Subordinated Convertible Notes.” The press release stated in

part:

Thoratec Corporation today announced the pricing of its offering of senior subordinated convertible notes due 2034 with gross proceeds to the company of $125 million through an offering in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The issuance of notes is expected to close on May 24, 2004.

The notes will be convertible, under certain circumstances, into Thoratec common stock at an initial conversion rate of 29.4652 shares per note (or an initial conversion price of approximately $19.72 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a 37.5 percent premium over the closing sale price of Thoratec common stock on May 18, 2004, which was $14.34 per share. The notes will bear cash interest at a rate of 2.375 percent per annum until May 16, 2011. After that date, original issue discount will accrue daily at a rate of 2.375% per year on a semiannual bond equivalent basis and on the maturity date, a holder will receive $1,000 per note. The notes will be issued at a price of $580.98 per note (58.098% of the principal amount at maturity). The company may redeem for cash all or a portion of the notes at any time on or after May 16, 2011 at a price equal to the sum of the issue price and the accrued original issue discount. Holders of the notes will have the right to require the company to repurchase some or all of the notes at specified prices on May 16 of each of 2011, 2014, 2019, 2024 and 2029 and upon certain events constituting a fundamental change.

The company has granted the initial purchaser a 30-day option to purchase up to $18,749,968 gross proceeds of additional notes.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Thoratec intends to use approximately $8.9 million of the net proceeds to acquire U.S. government securities that will be pledged as collateral for the payment of the first six scheduled interest payments on the notes ($10.2 million if the initial purchaser’s option is exercised in full). In addition, Thoratec has purchased approximately $60 million, or 4,184,100 shares, of its common stock in connection with the offering. Thoratec intends to use the balance of the net proceeds from the offering for general corporate purposes, which may include additional stock repurchases, strategic investments or acquisitions. Pending such uses, Thoratec intends to invest the net proceeds in interest bearing, marketable securities.

This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.

Ex. J.

62. On June 8, 2004, the Company issued a press release entitled, “Thoratec Corp.

Announces Exercise of Option to Purchase Additional Senior Subordinated Convertible Notes.” The

press release stated in part:

Thoratec Corp. announced that the initial purchaser for its offering of senior subordinated convertible notes due 2034 has exercised its option to purchase additional notes generating about $18.7 M of gross proceeds to the company. On 24 May 2004, Thoratec closed its initial offering of about $125 M gross proceeds of senior subordinated convertible notes. Accordingly, the company has generated total gross proceeds of about $143.7 M from the sale of the senior subordinated convertible notes. The senior subordinated convertible notes have been and are being offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Thoratec intends to use about $1.3 M of the additional net proceeds to acquire U.S. government securities that will be pledged as collateral for the payment of the first six scheduled interest payments on the additional notes ($10.2 M in total for the full amount of notes).

In addition, Thoratec previously purchased approximately $60 M, or 4,184,100 shares, of its common stock in connection with the initial offering. Thoratec intends to use the balance of the net proceeds from the offering for general corporate purposes, which may include stock repurchases, strategic investments or acquisitions. Pending such uses, Thoratec intends to invest the net proceeds in interest bearing, marketable securities.

Ex. K.

63. Defendants also needed to raise money while Thoratec could still claim to be in a

leading position in the DT market. World Heart, one of Thoratec’s biggest competitors,

manufactures Novacor LVAS, an alternative to Thoratec’s HeartMate XVE LVAD. In February

2004, World Heart started the RELIANT trial after the FDA approved the use of Novacor LVAS in

the DT for clinical trial purpose. The ongoing RELIANT trial compared the safety and effectiveness

of the Novacor LVAS with the HeartMate XVE LVAD in the nontransplant ESHF population.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Many of the transplant centers are incentivized financially and in other ways to enroll patients into

this trial. Many of the cardiac transplantation physicians feel that the Novacor LVAS device may be

superior to the HeartMate XVE LVAD. In fact, many surgeons participating in the Heart Hope

program are also sitting on the World Heart advisory panel and promoting the Novacor LVAS as the

next generation device. Defendants knew that this ongoing clinical trial would further decrease the

sales of the HeartMate device. Defendants also knew that 2003 and 2004 were years that Thoratec

enjoyed a monopoly position as the HeartMate device was the only FDA approved device for use in

DT implants.

VII. DEFENDANTS’ FRAUD BEGINS TO UNRAVEL

64. Three weeks after Thoratec closed its $143 million notes offer, it began to reveal what

defendants knew all along that the HeartMate DT was not achieving the acceptance, (and not

generating the revenue) that defendants had claimed.

65. The June 29, 2004 Statements: On June 29, 2004, the Company reduced earnings

estimates in a press release entitled, “Thoratec Comments on Second Quarter Destination Therapy

Activity and Financial Results and Outlook.” The press release stated in part:

Thoratec Corporation, a world leader in products to treat cardiovascular disease, today provided an update on its business activities and outlook for the balance of 2004.

The company said that 30-35 Destination Therapy implants will occur in the second quarter of 2004 ending July 3, bringing the total number of Destination Therapy implants to date in 2004 to approximately 75.

Thoratec said that it expects revenues for the second quarter of 2004 will be approximately $40-$41 million, and that taxed cash earnings per share for the second quarter will be approximately $0.02. Taxed cash earnings exclude the effect of merger, restructuring and other costs and amortization of purchased intangible assets. On a GAAP basis, the company expects a net loss in the second quarter of $0.01 per share. The company will report complete results for the second quarter in late July.

“The patient experience with Destination Therapy and response from leading centers and clinicians continue to be very positive and we are very encouraged by the recent proposal from CMS that would significantly increase reimbursement for Destination Therapy by another 30 percent, effective October 1 of this year,” said D. Keith Grossman, president and chief executive officer of Thoratec. “We now expect, however, that certain of our centers may delay some of their Destination Therapy.”

Ex. L.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

66. On June 29, 2004, a Reuters News report entitled, “Thoratec Sees Quarterly Earnings

Below Estimates,” stated in part:

Thoratec said for the full year it expects to sell 200 of the heart pumps for permanent use, something the company calls destination therapy. That is down from an October projection of 300 to 500 in implant sales for destination therapy.

* * *

Thoratec said some medical centers may delay programs using the devices as a permanent alternative to treatment until the fourth quarter in order to benefit from the better reimbursement rates.

Ex. M.

67. On June 29, 2004, a PR Newswire report entitled, “Thoratec Comments on Second

Quarter Destination Therapy Activity and Financial Results and Outlook,” stated in part:

“The patient experience with Destination Therapy and response from leading centers and clinicians continue to be very positive and we are encouraged by the recent proposal from CMS that would significantly increase reimbursement for Destination Therapy by another 30 percent, effective October 1 of this year,” said D. Keith Grossman, president and chief executive officer of Thoratec. “We now expect, however, that certain of our centers may delay some of their Destination Therapy initiatives to benefit from the improving reimbursement environment in the fourth quarter.”

Ex. N.

68. Also on June 29, 2004, a Knobias report entitled, “THOR: Sees Q2 Rev $40M-$41M,

Q2 Taxed Cash EPS Approx 2c,” stated in part:

“We remain very encouraged by the level of interest and activity of our customers and continue to be optimistic that Destination Therapy activity will accelerate later in the year, and especially in 2005,” company CEO D. Keith Grossman said.

Ex. O.

69. Reasons the June 29, 2004 Statements Were False and Misleading: Despite the

knowledge that none of the major obstacles to market development were overcome, defendants

continued to make positive misrepresentations to the market regarding the DT implants, informing

Thoratec’s investors that the sales of the implants would accelerate in the second half of 2004 and in

2005. Although the Company reduced its sales forecast to 200 pumps in 2004, these statements

remained false and misleading. Thoratec sold 76 pumps in the first and second quarters of 2004.

Thoratec had to sell 124 pumps for the second half of the year in order to make defendants’ restated



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

forecast for 2004. Defendants knew that they could not achieve these sales of the DT implants in the

second half of 2004 while the major impediments persisted. In addition, defendants sought to

conceal the true reasons of the slow sales of the DT implants by telling the market that the

disappointing second quarter sales of the DT implants was due to the delay of some medical centers

in order to benefit from the improved CMS reimbursement rate in the fourth quarter. In fact, the

improved reimbursement rate did not provide enough financial incentives to medical centers. The

increased CMS reimbursement rate alone also could not improve the sales of the DT implants

because it did not affect the other problems Thoratec faced with its DT device such as the small size

of the DT market, the internal component failure of the HeartMate, and the severe side effects of the

DT implants.

70. In fact, as the following chart shows, it is clear that defendants knew, even based

upon the procedures Thoratec had already completed, that there was no reasonable basis to believe

400 DT procedures could be completed by the end of 2004:



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

71. As a result of Thoratec’s June 29, 2004 admission, on June 30, 2004, the price of

Thoratec stock dropped precipitously to $10.74 per share from a close of $14.42 per share the prior

day, a drop of more than 25% on extraordinarily heavy volume of over 11 million shares.

VIII. POST CLASS PERIOD ADMISSIONS

72. On December 2, 2004, Thoratec issued a press release entitled, “Thoratec Provides

Update on Fourth Quarter Sales Activity and Destination Therapy Implant Activity Through

November.” The press release stated in part:

Thoratec Corporation (Nasdaq: THOR), a world leader in products to treat cardiovascular disease, announced today that the number of Destination Therapy implants through the first two months of the fourth quarter of 2004 is on a pace that is roughly equivalent to that of each of the first three quarters of the year. Destination therapy implants performed in the first three quarters of 2004 ranged from approximately 34 to approximately 42 per quarter.

Based on sales activity through November, the company said that stronger than expected activity in other areas of its business appears to be helping to offset most or all of the impact of this Destination Therapy implant trend.

Ex. P.

73. Defendants admitted that the Company’s DT implant estimate for FY04 of between

300 to 500 pumps was grossly overstated. Moreover, the restated sales guidance of 200 pumps for

FY04 was also impossible to achieve. In fact, Thoratec only sold 116 pumps in the first three

quarters of 2004. Based on Thoratec’s December 2, 2004 press release, the Company estimated it

would only sell 150 to 158 pumps in 2004.

74. On December 17, 2004, defendant Boylston, CFO and Senior Vice President of

Thoratec, resigned. On the same day, Thoratec filed a Report on Form 8-K with the SEC related to

this event. In the Report on Form 8-K, Thoratec disclosed that the Company would pay over

$300,000 to Boylston for severance, medical benefits, pro-rated bonuses, and professional service

fees. In return Boylston agreed to forfeit all legal rights and potential actions against the Company

and was bound by his original confidential and non-compete agreement with the Company.

Thoratec further hired Boylston as a consultant to defend the Company against the ongoing federal

securities class action and granted Boylston 25,000 shares of Thoratec common stock as

consideration for his consulting services.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

75. On January 10, 2005, the Company finally acknowledged what defendants had known

all along – that even its reduced goal of 200 implants was not attainable. In a press release, the

Company stated that “it was notified of at least 55 DT (Destination Therapy) implants during the

[4th] quarter.” Ex. Q. The Company also acknowledged that its gross margins would remain in the

58%-60% range and in a separate release, stated that its fiscal 2005 revenues might miss the mark.

The Company also stated that it would no longer provide separate guidance for the DT implants.

IX. GROUP PUBLICATION AND CONTROL PERSON ALLEGATIONS

76. The Individual Defendants are liable for the false and misleading statements pleaded

herein, as those statements were each “group-published” information for which each of these

defendants were responsible. The Individual Defendants were each provided with copies of the

Company’s reports and press releases alleged herein to be misleading prior to or shortly after their

issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected.

Because of their positions and access to material non-public information, each of the Individual

Defendants knew that the adverse facts specified herein had not been disclosed to and were being

concealed from the public. The Individual Defendants, by reason of their position with Thoratec as

President and CEO, CFO, and President of the Cardiovascular Division were controlling persons of

Thoratec. Grossman, Boylston and Nelson are liable under §20(a) of the Exchange Act.

77. Grossman, Boylston and Nelson are each sophisticated individuals who held senior

executive, managerial or other relationships and positions with the Company which provided to them

the access and ability to receive and obtain information concerning the numerous material problems

outlined above which adversely impacted the Company’s operations at all relevant times. Based on

Thoratec’s actual business performance compared to that planned, budgeted and forecasted,

defendants knew or recklessly disregarded that the Company’s public statements were false,

misleading and lacking in reasonable basis when made and were inflating the market price of

Thoratec stock, at all relevant times.

78. During the Class Period, Thoratec maintained a website at www.Thoratec.com. The

website included an Investor Relations page, which include links to Thoratec’s SEC filings, annual

report, stock quotes, financial statements and analyst coverage. In addition, the website contained



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

links to other information of interest to investors, including a profile of the Company, corporate

facts, and recent and historical press releases.

X. FRAUD ON THE MARKET PRESUMPTION OF RELIANCE

79. The market for Thoratec’s common stock was open, well-developed and efficient at

all relevant times. Thoratec’s stock met the requirements for listing, and was listed and actively

traded on the National Association of Securities Dealers Automated Quotation System

(“NASDAQ”), a highly efficient and automated market.

80. As a regulated issuer, Thoratec filed periodic public reports with the SEC and the

NASDAQ. Thoratec regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the

national circuits of major newswire services and through other wide-ranging public disclosures, such

as communications with the financial press and other similar reporting services.

81. Thoratec was followed by several securities analysts employed by major brokerage

firms who wrote reports which were distributed to the sales force and certain customers of their

respective brokerage firms. Each of these reports was publicly available and entered the public

marketplace.

82. As a result of the foregoing, the market for Thoratec’s common stock promptly

digested current information regarding Thoratec from all publicly available sources and reflected

such information in Thoratec’s stock price. Under these circumstances, all purchasers of Thoratec’s

common stock during the Class Period suffered similar injury through their purchase of Thoratec’s

common stock at artificially inflated prices and a presumption of reliance applies.

83. During the Class Period, defendants materially misled the investing public, thereby

inflating the price of Thoratec’s common stock, by publicly issuing false and misleading statements

and omitting to disclose material facts necessary to make defendants’ statements not false and

misleading. Said statements and omissions were materially false and misleading in that they failed

to disclose material adverse information and misrepresented the truth about the Company, its

business and operations, as alleged herein.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

84. As a result of these materially false and misleading statements and failures to

disclose, Thoratec’s common stock traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the class purchased or otherwise acquired Thoratec common stock

relying upon the integrity of the market price of Thoratec’s common stock and market information

relating to Thoratec, and have been damaged thereby. Plaintiff and the other members of the class

purchased their Thoratec common stock between the time defendants made the misrepresentations

and the time the truth was fully revealed, without knowledge of the falsity of the misrepresentations.

85. At all relevant times, the material misrepresentations and omissions particularized in

this complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by plaintiff and other members of the class. As described herein, during the

Class Period, defendants made or caused to be made a series of materially false or misleading

statements about Thoratec’s business, prospects and operations. These material misstatements and

omissions had the cause and effect of creating in the market an unrealistically positive assessment of

Thoratec and its business, prospects and operations, thus causing the Company’s common stock to

be overvalued and artificially inflated at all relevant times. Defendants’ materially false and

misleading statements during the Class Period resulted in plaintiff and other members of the class

purchasing the Company’s common stock at artificially inflated prices, thus causing the damages

complained of herein. Defendants’ materially false and misleading statements during the Class

Period also benefited defendants directly.

XI. STATUTORY SAFE HARBOR

86. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint. The

specific statements pleaded herein were not “forward-looking statements” when made, nor were they

adequately identified as such. To the extent there were any forward-looking statements, there were

no meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,

defendants are liable for those false forward-looking statements because at the time each of those



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

forward-looking statements was made, the particular speaker knew that the particular forward-

looking statement was false, and/or the forward-looking statement was authorized and/or approved

by an executive officer of Thoratec who knew that those statements were false when made.

XII. FIRST CLAIM FOR RELIEF

For Violation of Section 10(b) of the 1934 Act and Rule 10b-5 Against All Defendants

87. Plaintiff incorporates ¶¶1-86 by reference.

88. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or deliberately disregarded were misleading in that they contained

misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

89. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they were

made, not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or

deceit upon plaintiff and others similarly situated in connection with their purchases of Thoratec

publicly traded securities during the Class Period.

90. Plaintiff and the class have suffered damages in that, in reliance on the integrity of the

market, they paid artificially inflated prices for Thoratec publicly traded securities. Plaintiff and the

class would not have purchased Thoratec publicly traded securities at the prices they paid, or at all, if

they had been aware that the market prices had been artificially and falsely inflated by defendants’

misleading statements.

91. As a direct and proximate result of these defendants’ wrongful conduct, plaintiff and

the other members of the class suffered damages in connection with their purchases of Thoratec

publicly traded securities during the Class Period.



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

XIII. SECOND CLAIM FOR RELIEF

For Violation of Section 20(a) of the 1934 Act Against All Defendants

92. Plaintiff incorporates ¶¶1-91 by reference.

93. The Individual Defendants acted as controlling persons of Thoratec within the

meaning of §20(a) of the 1934 Act. By reason of their positions as officers and/or directors of

Thoratec, and their ownership of Thoratec stock, the Individual Defendants had the power and

authority to cause Thoratec to engage in the wrongful conduct complained of herein. Thoratec

controlled each of the Individual Defendants and all of its employees. By reason of such conduct,

the Individual Defendants and Thoratec are liable pursuant to §20(a) of the 1934 Act.

XIV. CLASS ACTION ALLEGATIONS

94. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of all persons who purchased Thoratec publicly traded securities (the

“Class”) on the open market during the Class Period. Excluded from the Class are defendants.

95. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. Thoratec had more than 55 million shares of stock outstanding, owned by

hundreds if not thousands of persons.

96. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants’ statements omitted material facts necessary to make the

statements made, in light of the circumstances under which they were made, not misleading;

(d) Whether defendants knew or deliberately disregarded that their statements

were false and misleading;



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(e) Whether the prices of Thoratec’s publicly traded securities were artificially

inflated; and

(f) The extent of damages sustained by Class members and the appropriate

measure of damages.

97. Plaintiff’s claims are typical of those of the Class because plaintiff and the Class

sustained damages from defendants’ wrongful conduct.

98. Plaintiff will adequately protect the interests of the Class and has retained counsel

who are experienced in class action securities litigation. Plaintiff has no interests which conflict

with those of the Class.

99. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

XV. PRAYER FOR RELIEF

WHEREFORE, plaintiff prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding plaintiff and the members of the Class damages, interest and costs;

C. Awarding reasonable costs, including attorney and expert fees; and

D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

XVI. JURY DEMAND

Plaintiff demands a trial by jury.

DATED: June 15, 2006 LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP JEFFREY W. LAWRENCE CONNIE M. CHEUNG BING Z. RYAN

/s/ Jeffrey W. Lawrence JEFFREY W. LAWRENCE

100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)



1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS LLP WILLIAM S. LERACH BRIAN O. O’MARA 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)

FEDERMAN & SHERWOOD WILLIAM B. FEDERMAN 120 N. Robinson, Suite 2720 Oklahoma City, OK 73102 Telephone: 405/235-1560 405/239-2112 (fax)

Co-Lead Counsel for Plaintiffs T:\CasesSF\Thoratec\CPT00031878.doc


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

CERTIFICATE OF SERVICE

I hereby certify that on June 15, 2006, I electronically filed the foregoing with the Clerk of

the Court using the CM/ECF system which will send notification of such filing to the e-mail

addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I have

mailed the foregoing document or paper via the United States Postal Service to the non-CM/ECF

participants indicated on the attached Manual Notice List.

I further certify that I caused this document to be forwarded to the following designated

Internet site at: http://securities.lerachlaw.com/.

/s/ Jeffrey W. Lawrence JEFFREY W. LAWRENCE

LERACH COUGHLIN STOIA GELLER

RUDMAN & ROBBINS LLP 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax) E-mail:[email protected]


Mailing Information for a Case 5:04-cv-03168-RMW

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

Peter A. Binkow [email protected] [email protected]

Connie M. Cheung [email protected] [email protected];[email protected];[email protected]

Paul J. Collins [email protected]

Patrick J. Coughlin [email protected] [email protected]

William B. Federman [email protected] [email protected];[email protected]

Lionel Z. Glancy [email protected]

Michael M. Goldberg [email protected]

Robert S. Green [email protected] [email protected]

Jeffrey W. Lawrence [email protected] [email protected];[email protected]

William S. Lerach [email protected]

Mel E. Lifshitz [email protected]

Darren J. Robbins [email protected]

Bing Ryan [email protected] [email protected];[email protected]

Michael B. Smith [email protected] [email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

Page 1 of 2CAND-ECF

2006/06/15https://ecf.cand.uscourts.gov/cgi-bin/MailList.pl?840019887458639-L_701_0-1


Jack G. Fruchter Abraham Fruchter & Twersky LLP One Penn Plaza Suite 2805 New York, NY 10119 Paul J. Geller Lerach Coughlin Stoia Geller Rudman & Robbins LLP 197 S. Federal Highway Suite 200 Boca Raton, FL 33432 Richard A. Maniskas Schiffrin & Barroway, LLP 280 King of Prussia Road Radnor, PA 19087 Tamara Skvirsky Schiffrin & Barroway LLP 280 King of Prussia Road Radnor, PA 19087 Jonathan M. Stein Lerach Coughlin Stoia Geller Rudman & Robbins LLP 197 S. Federal Highway Suite 200 Boca Raton, FL 33432 Marc A. Topaz Schiffrin & Barroway. LLP 280 King of Prussia Road Radnor, PA 19087

Page 2 of 2CAND-ECF

2006/06/15https://ecf.cand.uscourts.gov/cgi-bin/MailList.pl?840019887458639-L_701_0-1


EXHIBIT A

Special Report: Cost-Effectivenessof Left-Ventricular Assist Devicesas Destination Therapy forEnd-Stage Heart Failure'

Executive Summar yAssessment Left-ventricular assist devices (LVADs) augment the impaired cardiac pumping ability in patientsProgram experiencing end-stage heart failure . The scarcity of donor hearts makes heart transplantationVolume 19, No . 2April 2004 possible for only 2,200 patients per year . Patients with end-stage heart failure who are ineligible for

cardiac transplantation are currently managed with angiotensin-converting enzyme (ACE) inhibitors,diuretics, digoxin, beta blockers, and inotropic agents . These patients may be excluded from hearttransplantation because of advanced age (e .g ., over 65 years), or other major comorbidities such asinsulin-dependent diabetes mellitus or chronic renal failure . LVADs are intended to prolong survivaland improve functional status in comparison with medical management . A randomized trial onthe use LVADs as permanent implants, or as destination therapy, showed they can increase mediansurvival by 7.4 months, while potentially raising the cost of end-of-life care considerably . The presentcost-effectiveness analysis addresses use of LVAD destination therapy, compared with optimal medical

management, among patients who are not heart transplant candidates . This analysis takes a soci-etal perspective ; however, some elements of this perspective, such as use of indirect costs, were notstrictly followed .

The baseline cost-effectiveness analysis, using parameter estimates from published sources, showedthat use of LVADs leads to an increase in cost of $802,700 to gain one QALY, compared with optimalmedical management. Within the range of values used in this analysis, the incremental cost-effec-

tiveness ratio (ICER) was fairly stable amid changes in these variables : utility for New York HeartAssociation (NYHA) category I11/IV; utility discount rate ; cost of outpatient care ; and cost discountrate, cost of rehospitalization, and probability of rehospitalization for I YAD ; and probability of rehos-

pitalization for optimal medical management . Results were more sensitive to variations in utility forNYHA category I/II and the cost of LVAD implantation . ICERs of $500,000/QALY or less depende don improbable assumptions of very low costs for LVAD implantation, usually in combination withextreme values on other variables . Although utilities from a general population would be preferred,

the estimates used here from LVAD recipients suffice, given the wide range of values surroundingthem in the sensitivity analysis . Indirect costs, such as lost wages and costs borne by caretakers,are not included, but as return to work is unlikely for either LVAD or optimal medical management

patients, excluding indirect costs would not affect the strategies' relative standings in the analysis .The short time horizon should limit the impact of excluding indirect costs .

09BlueCrossBlueShieldAssociation

*Please note : This Special Report is a cost-effectiveness analysis of left-ventricular assist devices as destination therapy, and

AnAssouali n complements the 2002 clinical TEC Assessment (Volume 17, Number 19) on the same topic. Special Reports do not attempt to addressIndependen t

BCrows and the question as to whether the TEC criteria are met .Blu elBlue Shield Plans

NOTICE OF PURPOSE: TEC Assessments are scientific opinions, provided solely for informational purposes . TEC Assessmentsshould not be construed to suggest that the Blue Cross Blue Shield Association, Kaiser Permanente Medical Care Program or the

TEC Program recommends, advocates, requires, encourages, or discourages any particular treatment, procedure, or service ; any

-mparticular course of treatment, procedure, or service ; or the payment or non-payment of the technology or technologies evaluated .

KAISERPERIMANENTEe 02004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited .

Contents

Objective 3 Discussion

Background 3 Conclusions

Methods 4 References

Estimates of Outcomes and Costs 12 Appendix

Cost-effectiveness Analysis Results 1 8

Published in cooperation with Kaiser Foundation Health Plan andSouthern California Permanente Medical Group .

TEC Staff Contributors

24

26

28

29

Author-David Samson ; TEC Executive Director-Naomi Aronson, Ph.D .; Managing Scientific Editor-Kathleen M . Ziegler,Pharm .D . ; Research/Editorial Staff-Claudia J . Bonnell, B.S .N., M.L.S . ; Maxine A. Gere, M .S. ; Acknowledgements-Staff wouldlike to thank Alan Garber, M .D ., Ph.D., and Gillian Sanders, Ph .D ., for their contributions to the research and development ofthis Special Report.

Blue Cross and Blue Shield Association Medical Advisory Panel

Allan M. Korn, M .D., F.A .C.P.-Chairman, Senior Vice President, Clinical AQairs/Medical Director; Blue Cross and BlueShield Association; David M. Eddy, M.D ., Ph.D.-Scientific Advisor, Senior Advisor for Health Policy and Management, KaiserPerntanente, Southern California . 0 Panel Members Peter C. Albertsen, M.D., Professor, Chief of Urology, and Residency ProgramDirector; University of Connecticut Health Center,, Edgar Black, M.D ., Vice President, Chief Medical Officer BlueCross BlueShieldof the Rochester Area; Helen Daring; MA., President; Washington Business Group on Health; Josef E . Fischer, M.D ., FA.C.S .,Mallinckrodt Professor of Surgery, Harvard Medical School and Chair, Department of Surgery; Beth Israel Deaconess MedicalCenterAmerican College of Surgeons Appointee ; Alan M. Garber, M .D, Ph.D, Professor of Medic ne, Economics, and Health Research andPolicl; Stanford University Steven N. Goodman, M.D., M.H .S., Ph.D., Associate Professor, Johns Hopkins School of Medicine, Department ofOncology, Division of Biostatistics (joint appointments in Epidemiology; Biostatisucs, and Pediatrics)-American Academy of PediatricsAppointee ; Michael A.W. Hattwick, M.D ., Woodburn Internal Medicine Associates, Ltd American College of Physicians Appointee ;1. Craig Henderson, M.D ., Adjunct Professor of Medicine, University of California, San FS ancisco; Bernard Lo, M .D., Professor ofMedicine and Director, Program in Medical Ethics, University of California, San Francisco ; Barbara J. McNeil, M.D., Ph .D ., RidleyWatts Prgfessor and Head of Health Care Policy, Harvard Medical School, Professor of Radiolog , Brigham and Women's Hospital;Brent O'Connell, M.D ., M .H .S .A., lice President and Medical Director ; Pennsylvania Blue Shield/Highmarl , Inc. ; Stephen G . Pauker,M.D., M .A.C.P., F.A.C .C., Sara Murray Jordan Professor of Medicine, ltis University School of Medicine ; and 1, ice-Chairman,for Clinical4Qairs andAssociate Physician-in-Chief Department ofMedieine, NewEngland Medical Center, William R . Phillips, M .D., M.P.H., ClinicalProfessor of Family Medicine, University of Washington-American Academy of Family Physicians' Appointee ; Earl P. Steinberg, M .D.,M .P.P., President, Resolution Health, Inc.; Paul J . Wallace, M .D., Executive Director; Care Management Institute, Kaiser Permanente;A. Eugene Washington, M.D ., M.Sc ., Executive Vice Chancellor, University of California, San Francisco ; Jed Weissberg, M .D.,Associate Executive Director for Quality and Performance Improvement, The Permanente Federation .

CONFIDENTIAL: This document contains proprietary information that is intended solely for Blue Cross and Blue Shield Plansand other subscribers to the TEC Program . The contents of this document are not to he provided in any manner to any other

parties without the express written consent of the Blue Cross and Blue Shield Association .

©2004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited .

Objective

Left-ventricular assist devices (LV'ADs ) augmentthe impaired cardiac pumping ability inpatients experiencing end-stage heart failure .The scarcity of donor hearts makes heart

transplanta tion possible for only 2,200 patientsper year. Patients with end-stage heart failurewho are ineligible for cardiac transplantation

are currently managed with angiotensin-con-verting enzyme (ACE) inhibitors , diuretics,digoxin , beta blockers, and inotropic agents .These patients may be excluded from heart

transplantation because of advanced age (e .g .,over 65 years ), or other major comorbidities

such as insulin-dependent diabetes mellitusor chronic renal failure . LVADs are intendedto prolong survival and improve functionalstatus in comparison with medical manage-

ment. A randomized trial on the use LVADs aspermanent implants, or as destination therapy,showed they can increase median survival by7 .4 months, while potentially raising the cost ofend-of- life care considerably. The present cost-effectiveness analysis addresses use of LVADdestination therapy, compared with op timal

medical management , among patients who arenot hea rt transplant candidates . This analysistakes a societal perspec tive ; however, some ele-ments of this perspective, such as use of indi-rect costs, were not strictly followed .

Background

Heart Failur e

Chronic heart failure is a common diseaseresponsible for high mortality and morbidity.Heart failure represents a complex clinicalsyndrome caused by many different etiologies

whose clinical manifestations reflect a funda-mental abnormality-a decrease in the myocar-dial contractile state such that cardiac output

is insufficient for the metabolic requirementsof the tissues and organs. The prevalence ofheart failure is estimated at 4 to 5 million cases,

with an incidence rate of 400,000 cases peryear (Eichorn 2001) . The mortality rate is esti-mated to be as much as 700,000 cases per year.

(Zeltsman and Acker 2002) .

Medical management is the mainstay ofsupportive care for patients with chronicheart failure. While medical therapies (e .g .,angiotensin-converting enzyme (ACE) inhibi-

tors and beta blockers) have improved survivaland quality of life outcomes for patients with

mild-to-moderate heart failure (Greenberg

2000; Cohn 2000a), irreversible end-stagecardiac disease unresponsive to medicaltherapy continues to occur at an approximate

rate of 60,000 patients per year (Oz et al . 1995) .Inotropic agents and the infra-aortic balloon

pump are the last options for medical man-agement of patients with severe heart failure .Cardiac transplantation is widely accepted asthe most effective therapy for the treatment of

end-stage cardiac failure, for which survivalrates for patients transplanted within the pastfive years are 85 .6% and 79 .5% after 1 an d

5 years, respectively (Miniati and Robbins2002) . In contrast, patients with New YorkHeart Association (NYHA) class IV heart failure

not receiving transplantation have achieved20-30% survival rates (Oz et al. 1995) .

Despite documented success with long-termsurvival and improved quality of life, useof transplantation is limited to about 2,200

patients per year (United Network for OrganSharing 2001) . The limited supply of donorhearts prevents heart transplantation frombeing a treatment option for many patientswith end-stage heart failure . Patients who havevery poor baseline function, advanced age andcomorbidities, such as insulin-dependent diabe-tes mellitus, are less likely to survive the trans-

plantation procedure and would be expected tohave poorer long-term survival . Such patientsare excluded from transplant eligibility.

Ventricular Assist Device sLeft-ventricular assist devices (LVADs) areintended to augment native left-ventricular

function in several settings . One setting is toallow short-term recovery in patients withpostcardiotomy shock . A second is to serve

as a bridge to heart transplantation, helpingpatients survive long enough on the waitinglist to reach a transplant date . The third settingis the focus of this report, comprising a

permanent alternative to transplantation,or destination therapy, among patients whoare not transplant candidates .

Different LVAD designs may be distinguishedby whether they are powered electrically orpneumatically and whether a pulsatile pump

is used or a rotor mechanism, allowing forcontinuous blood flow. The model for whichits manufacturer submitted a supplementalpremarket approval application (PMA)to the U .S . Food and Drug Administration

(FDA) for destination therapy is the Thoratec

©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited .

Heartmate ® VE (vented electric) LeftVentricular Assist System (LVAS) . The deviceconsists of a fully implantable pump served bya percutaneous driveline , which provides forpower and venting . The patient can achieve ahigh degree of mobility with a wearable batterypack and system controller. An apical anasto-mosis links the left ventricle with the pum pvia an in flow cannula . An outflow cannula isanastomosed to the ao rta .

FDA Status . A pneumatically poweredpredecessor to the Heartmate® VE LVAS wasoriginally approved by the FDA in September1994 as a bridge to transplantation for cardiactransplant candidates . The electrically poweredVE version was approved in September 1998 forthe same indication . Thoratec submitted asupplemental premarket approval applica-tion for use as destination therapy in patientswith end-stage left ventricular failure who areineligible for cardiac transplantation . The FDA

approved this application on November 6, 2002 .

Methods

Time Horizon and PerspectiveThis cost-effectiveness analysis encompasses

the entire remainder of a patient's lifetime,to a maximum of 3 years . The 3-year limit isbased on randomized trial survival data sug-

gesting that all trial patients were likely to bedead by that time . This analysis takes a societalperspective ; however, some elements of this

perspective, such as use of indirect costs, werenot strictly followed . For example, utilities wereestimated from a study of LVAD recipients,whereas a societal perspective would prefer

utilities obtained from a general population . Awide range of utility values will be used in sen-

sitivity analysis to assess whether utilities havean important impact on the results of the analy-sis. As stated, indirect costs, such as lost wages

and costs borne by caretakers, are not included .Given the complicated overall condition of thesepatients, it is unlikely that patients receiving

either LVADs or optimal medical managementwould return to work, so excluding indirectcosts would not greatly affect the strategies'relative standings in the analysis. The shorttime horizon should limit the impact of exclud-ing indirect costs, as well .

Patient Population and Settin gThe REMATCH trial determines the specific

patient population, strategies, and outcomes

of interest to this analysis (Rose et at . 2001 ;1999) . Patients were selected for the REMATCHtrial primarily for belonging to NYHA Class IVfor at least 90 days, despite use of ACE inhibi-

tors, diuretics and digoxin. Patients also had aleft-ventricular ejection fraction of 25% or lessand a peak oxygen concentration of 12 mL/kg

or less, or continued need for intravenous (IV)inotropic therapy for symptomatic hypoten-sion, decreasing renal function, or worseningpulmonary congestion. Patients were allowedto continue on beta-blockers if given for at least60 of the 90 days before randomization . Cardiac

transplantation contraindications included : ageolder than 65 years ; insulin-dependent diabetesmellitus with end-organ damage; chronic renal

failure, and other major physical or mentalcomorbidities . This analysis focuses on patientssimilar to those selected for the REMATCH

trial . Results will apply to institutions simila rto those that participated in the REMATCHtrial, which included 20 experienced cardiac

transplantation centers .

StrategiesThe REMATCH trial used the Heartmate® VE

LVAS . The device was implanted in eithera preperitoneal pocket or intraperitoneally .Rose et al . (1999) described optimal medicalmanagement as follows :

"Patients randomized to the optimal medical

management only treatment group will betreated with digoxin, diuretics and an angfo-tensin-converting enzyme inhibitor . If angio-

tensin-converting enzyme inhibitors cannot betolerated because of allergy or hypotension,then angiotensin II antagonists should be con-sidered. Patients can receive treatment with a

3-blocker at the investigator's discretion. Thegoals of therapy are twofold : to ensure that

systemic perfusion maintains organ functionsufficiently to meet the resting metabolic needsnecessary for survival and to reduce ventricu-

lar filling pressures sufficiently to achiev eand maintain relief from symptomatic restingcongestion . Stabilization in some patients may

require short-term intravenous pharmacologicsupport or mechanical fluid removal, whichcan subsequently be discontinued in favor ofother therapies . "

Surgeons were required to follow a committee'smanagement guidelines . Optimal medicalmanagement guidelines were also developedby a committee and gave specific recommenda-tions on use of ACE inhibitors . Discontinuatio n

©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited .

of IV inotropic agents was encouraged formedically managed patients .

Decision Model /Markov Model

Quality-adjusted life years (QALYs) will bethe effectiveness metric used in this analy-

sis . Figures 1 and 2 show the decision model

and Markov model that were used . The same

Markov model will be used for both treatmentmodalities, but transition probabilities will be

estimated separately. Each includes "alive"

and "dead" as health states. Table 1 shows thetransition probability matrix . Time-dependent

transition probabilities were used for Markovcohort simulations . Both Data 4 .0 and Excelsoftware were used to construct the models .

Two quality - of-life categories were taken intoaccount in the model , based on whether thepatient belonged in New York Hea rt AssociationFunctional Classes 1111 or Classes III/IV * . It wasassumed that the utilities for NYHA catego-ries did not differ between LVAD and optimalmedical management patients.

*New York Heart Association Functional

Classification System for Heart Failure

Class I No limitation on physical

activity (symptoms with greate r

than ordinary activity )

Class II Slight limitation on physical activity

(symptoms with ordinary activity)

Class III Marked limitation on physica l

activity (symptoms with less

than ordinary activity)

Class IV Inability to carry on physical

activity (symptoms at rest )

Calculation of QALYs in the Model

Cycle-specific contributions to QALYs inthese Markov models are shown in Table 2

(row #4) . Utilities will be estimated for the

2 quality of life categories : NYHA I/II and

NYHA III/IV. QALYs in each cycle were theproduct of the cycle-specific survival probabilityand a weighted average derived from a su m

of the products of the probability of being ina quality-of-life category and each category'sutility (Table 2, row #6) . The probability ofbelonging to the 2 quality-of-life categories

varies over time. Monthly estimates of theseprobabilities could be used to let NYHA classstatus contribute to quality-of-life measurementin a dynamic way without creating separate

Markov states for the 2 NYHA categories .Utility values for each NYHA category will bediscounted at a rate of 3% .

Cost Categorie sThree main categories of costs were included:implantation costs, rehospitalization costs, andoutpatient costs . Implantation costs apply onlyto I UAD recipients, while rehospitalizationcosts and outpatients costs apply to both strate-gies . Costs were estimated from a REMATCHcosting study (Oz et al . 2003) and on a studyof long-term LVAD use in bridge-to-transplantpatients at Columbia University (Moskowitz etal . 2001 ; Gelijns et al. 1997) . These studies usedthe ratio of cost to charges method of estimat-ing hospital costs, market prices for drugs anddevices, and payments for physician services .Subcategories for hospitalization (implantation)included : LVAD, professional payment, lengthof stay, special care days, regular floor, oper-ating room, diagnostics, laboratory, bloodproducts, drugs, miscellaneous costs, andrehabilitation. Outpatient costs included profes-sional payments, laboratory tests, and drugs .

It was assumed that monthly rehospitalizationand outpatient costs were the same forpatients receiving LVADs and optimal medical

management.

The following costs were not considered in this

analysis : any amounts that may have increased

the monthly rehospitalization due to devicemalfunction, removal or reimplantation ; anyadded costs associated with specific types of

adverse events that were more common amongLVAD recipients in the REMATCH trial; andindirect costs . Evidence on adverse events was

presented in the 2002 TEC Assessment of LVADsas destination therapy (Volume 17, Number 19) .

Calculation of Costs in the Mode lCosts in each cycle of the Markov model were

the product of the cycle-specific survival prob-ability and a weighted average derived from asum of the products of the probability of beingrehospitalized or not and the cost of rehospital-

ization or outpatient care (Table 2, row #11) . The

probability of being in the hospital was derivedfrom data on the mean percentage of life spent

in the hospital . It was assumed that this percent-

age was constant over time and could be appliedas a fixed weight within each cycle . Costs werevalued in 2002 $US and were discounted at a 3%rate. When costs had to be revalued, the GrossDomestic Product Deflator was used (2004) .

02004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited.

Figure 1 . Decision Model

Ali-

OMM: optimal medical management

Alive

Dead

Aliv e

Dead

Figure 2 . State -cycle Diagram of the Markov Model

EePh1P12Dead

Table 1 . Transition Probability Matrix (P) for Markov Model

To

From

Health State Alive Dead

Dead I p11 p12

Alive I 0

6 02004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited .

Table 2 . Underlying Assumptions for Cost-effectiveness Analysis

Sensitivity AnalysisNo . Characteristic Baseline Value Range of Values Comment Sourc e

1 Survival, cycle- REMATCH Kaplan-Meier not applicablespecific probabilities, curves see Table 3extrapolation past last

follow-up

Figure 3; maximum

follow-up of 27 months

for LVAD, 26 months

for OMM .

Cycle-specific survival probabilities were estimated Data update from Februaryfrom graph of Kaplan-Meier curves . Method 2002 CDRH FDA (2002)for obtaining cycle-specific survival transition

probabilities for Markov cohort simulations is

described in Figure 4 .

All patients in both groups were assumed to be

dead by 36 months . Extrapolation past last follow-up

performed by interpolating between last observed

survival probability and 0% at 36 months . When

cycle-specific survival probability dropped below

0 .005, a value of 0 was substituted .

2 Survival, relation between Hazard ratio citedLVAD and OMM in 2001 : 0 .52 .

Hazard ratio 95% Cl :

0 .34, 0 .78 .

An exponential survival curve was fit to 0MM data, Rose et al . (2001)

with a hazard rate of 0 .128 . Survival was assumed t o

be 0 when the cycle-specific survival probability fellbelow 0 .005.

At the lower limit of the 95% Cl, the hazard ratio is

0 .78; the su rv ival probability fell to 0 after 42 months

for OMM and after 53 months for LVAD . At the upper

limit of the 95% Cl, the hazard ratio is 0 .34, and the

su rv ival probability fell to 0 after 121 months .

V

00Table 2 . Underlying Assumptions for Cost-effectiveness Analysis (cont'd )

Sensitivity Analysi sNo . Characteristic Baseline Value Range of Values Comment Source

3 Extrapolation of survival Linear interpolation from Three other methods The first method, stop and drop, assumes that al lpast point of last follow- survival probability at 26 of extrapolation were patients surviving to 26 months die immediatel yup . months to assumed 0% explored : stop and thereafter. The second method used exponentia l

survival at 36 months . drop; exponential ; and survival models for both LVAD and OMM . The OM MGompertz/exponential . model used the same hazard rate as mentione d

above for the analysis on the hazard ratio confidenc einterval . The LVAD model was fit on the Kaplan-Meie r

curve before 23 months, where the hazard appear sfairly constant (0 .062) . The third method used a

Gompertz model to extrapolate for LVAD and a nexponential model for OMM . The LVAD Kaplan-Meie rcurve shows an increasing hazard between 23 an d26 months, so a Gompertz model was fit for thi sinterval and further.

4 Probability of being in REMATCH data on not applicable Cycle-specific probabilities are based on available Thoratec, Inc . (2002 )NYHA classes I/11 or III/IV NYHA class membership data or interpolations between successive

at 0, 1, 3, 6, 9, 12, 18 reported probabilities . For extrapolations beyondand 24 months . 24 months, it is assumed that 24 month probabilities

stayed constant.

5 Utility of NYHA classes NYHA 1/II : 0.81 NYHA I/II : 0 .50-1 .00 Standard gamble utilities were elicited from Moskowitz et al . (1997 )NYHA III/IV: 0 .55 NYHA III/IV: 0 .30-0 .80 29 bridge-to-transplant patients before LVA D

implantation and during LVAD support . The mea n

utility for pre-implantation was assigned to NYH AIII/IV and the mean for LVAD support was assignedto NYHA I/II . It was assumed that the utilities fo r

NYHA categories did not differ between LVAD an dOMM patients .

Table 2 . Underlying Assumptions for Cost-effectiveness Analysis (cont'd )

Sensitivity AnalysisNo . Characteristic Baseline Value Range of Values Comment Source

6 Cycle-specific Utility within each not applicable QALY, =contribution to QALYs cycle was calculated St [(P,n1 * Uvu) + (Pnmv * U11)] / 1 2

as a weighted averag e

(see right) . Where t is the monthly cycle, S, is the surviva lprobability , P VII and Pile, , are the probabilities of bein gin the two NYHA categories and Uc, and U1 arethe utilities associated with NYHA categories . Thismethod allows NYHA class to contribute to quality o flife measurement in a dynamic way without creatin gseparate Markov states for the two NYHA categories .

7 LVAD implantation cost $277,000 $125,000-425,000 The average cost of the implantation , excluding Oz et al . (2003 ) ;(2002 $US ) professional fees , in 52 destination LVAD patients Moskowitz et al . (2001 ) ;

was repo rt ed by Oz et al . as $210,187 (±193,295) . Oz Gelijns et al . (1997 )

did not specify the year by which costs were valued ,but because data collection ended in June, 2002, thi sanalysis assumes valuation in 2002 $US .

Professional fees were estimated from Moskowitz

study of 12 bridge -to-transplant patients . Fees for

mean 17 .5-day hospital stay were prorated to a

43 .5-day stay, then adjusted for inflation factor from

1995 $US to 2002 $US :

(43 .5 / 17 .5) * $23,935 * 1 .123 = $66,814


Sensitivity Analysi sNo, Characteristic Baseline Value Range of Values Comment Source

8 Monthly $39,896 $10,000-70,000 The average annual readmission cost, reported by Oz et al . (2003) ;rehospitalization cost Oz et al . was $105,326 . The probability of being Moskowitz et al . (2001) ;ee

rehospitalized was 0 .22 . (see below) . The annual Gelijns et al . (1997 )readmission cost was prorated to a full year o fhospitalization, then divided by 12 to yield a monthl y

rehospitalization cost :

[(1 / 0 .22) * $105,326 1 / 12 = $39,89 6

This amount excludes professional fees . It includesthe cost of LVAD replacements .

It was assumed that inpatient costs were the sam efor both groups of patients .

9 Monthly outpatient cost $1,719 $250-3,250 In a study of bridge-totransplant patients, the Moskowitz et al . (2001) ;

average weekly outpatient cost was $352 , yielding Gelijns et al . (1997 )a full month cost of $1,531 (1995 $US ) . This amoun twas revalued in 2002 $US . It was assumed that

outpatient costs were the same for both group sof patients .

10 Probability of LVAD: 0.22 LVAD: There were a total of 18 ,406 LVAD suppo rt days, Oz et al . 2003;rehospitalization OMM: 0.15 0.10-0 . 35 of which 3,896 days (22%) were spent in the hospital . CDRH FDA (2002 )

OMM : Data were lacking on whether the probabilit y0 .05-0 .30 of rehospitalization changed over time, so i t

was assumed that the propo rt ion of days spen t

in the hospital could be applied to each cycl eas a constant weight . The probability of bein gan outpatient was calculated as one minus th eprobability of rehospitalization .

CDRH FDA data for OMM patients state that there

were a total of 10,085 days alive , of which 1,756

(15%) were spent in the hospital


Sensitivity Analysi s

No . Characteristic Baseline Value Range of Values Comment Source

11 Cycle-specific Cost within each cycle not applicable C, = Sr [ 1PrehOep • C„hOepi + (Pautpr * Cou1p1) ]

contribution to costs was calculated as aweighted average Where C1 is the total cycle - specific cost, Prehaep is th e

(see right ) . probability of rehospitalization , Crehoep is the cost o frehospitalization , Peu,pt is the probability of being a n

outpatient, and Co,p, is the cost of outpatient care .

12 Cost correction for cycle 1 $11,673 Implantation cost is entered as an initial cost fo r

and cycle 2, LVAD LVAD , at cycle 0 . Since the average hospital sta yfor implantation is 43.5 days ( 1 .429 months ), cycl e

specific costs for rehospitalization and outpatien tcare for all of cycle 1 and 0.429 of cycle 2 shoul dbe excluded This total is subtracted from the initia lcost of LVAD implantation, then added back in cycle s

1 and 2.

13 Discount rate for 3% 1-5%costs, utilities

Sensitivity Analyse s

One-way sensitivity analyses were conductedfor the following variables :

■ Uncertainty about the relativesurvival of LVAD and optimal medicalmanagement (OMM) groups

■ Methods for extrapolating survivalpast the point of last follow-up

■ Utilities for NYHA categories I/II and III/IV■ Utility discount rate■ Cost of LVAD implantation■ Cost of rehospitalizatio n■ Cost of outpatient care■ Probability of rehospitalization

for LVAD and OMM■ Cost discount rate

Two-way sensitivity analyses were performedfor pairwise combinations of these variables :

■ Utilities for NYHA categories I/11 and III/1V■ Cost of LVAD implantation■ Cost of rehospitalization■ Cost of outpatient car e■ Probability of rehospitalization

for LVAD and OMM

An additional analysis was performed thatset several variables at values that woul dbe highly favorable to LVAD, described as the"best case" scenario .

Estimates of Outcomes and Cost s

Su rv ivalStaff from the Center for Devices and

Radiological Health at the Food and DrugAdministration (CDRH FDA, 2002) made apresentation to the Circulatory System Devices

Advisory Committee in March 2002 . The pre-sentation included an update of survival datathrough February 2002 . These data were usedrather than earlier published data (Rose et al .2001) . Kaplan-Meier curves were overlaid withgrids to derive survival probabilities at monthly

marks (Table 3) . Follow-up ended at 26 monthsfor both groups; the survival probability was 1 %for OMM patients and 10% for LVAD patients .

The published REMATCH report cited a hazardratio of 0 .52, with a 95% confidence intervalbetween 0.34 and 0.78. To assess the impac ton the analysis of uncertainty around relativesurvival, an exponential survival model with ahazard rate of 0.128 was fit to the OMM Kaplan-

Meier curve and the hazard ratios for the con-fidence interval limits were applied to produceLVAD exponen tial survival models .

Extrapolation of survival past the point oflast follow-up was performed according to 4methods : stop and drop ; linear interpolationto 36 months ; exponential survival models forboth LVAD and OMM ; and a Gompertz LVADsurvival model along with an exponential OMMsurvival model . The stop and drop methodassumed that all remaining patients in bothgroups expired immediately after 26 months .

Linear interpolation was based on the assump-tion that all patients in both groups would bedeceased at 36 months, with the additional stop

rule of substituting 0% survival when the sur-vival probability fell below 0 .005. The methodusing exponential survival models applied a

hazard rate of 0.128 for OMM, and a rate of0 .062 for LVAD . The OMM model used the samehazard rate as mentioned above for the analy-

sis on the hazard ratio confidence interval .The LVAD model was fit on the Kaplan-Meiercurve before 23 months, where the hazard

appears fairly constant. The third methodused a Gompertz model to extrapolate forLVAD and an exponential model for OMM. The

LVAD Kaplan-Meier curve shows an increas-ing hazard between 23 and 26 months, so aGompertz model was fit for this interval andfurther . A stop rule was applied for all methods

in which survival probabilities below 0 .005were considered as 0.

Table 4 shows values for median and meansurvival that can be derived from the Kaplan-Meier curves . Extrapolation of survival curveswas performed by linear interpolation to 36months . Mean survival reflects area under thecurve, or life expectancy.

For the Markov model , transitionprobabilities were derived by the method

described in Figure 3 .

NYHA Functional Class Categorie sThe proportions of LVAD and OMM patientsin NYI-IA categories were obtained from apresentation made by representatives of LVAD

manufacturer, Thoratec, to the FDA CirculatorySystems Devices Advisory Committee meetingin March 2002 (Thoratec, Inc . 2002) . Table 5shows the probabilities for the proportions inNYHA I/II or III/IV. Cycle-specific probabilitiesbetween given values were imputed using linea r

12 ©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited .

Table 3. Cycle-specific Su rv ival Probabilities ( Extrapolations in Italics )

Month Probability of Survival, LVAD Probability of Survival, OM M

0 1 .000 1 .00 0

1 0.810 0 .80 0

2 0 .810 0 .69 0

3 0 .720 0.64 0

4 0 .710 0.54 0

5 0 .640 0.49 0

6 0 .590 0.46 0

7 0 .590 0.46 0

8 0 .590 0.39 0

9 0 .540 0.34 0

10 0 .540 0.29 0

11 0 .520 0 .28 0

12 0 .510 0 .280

13 0 .510 0 .240

14 0 .500 0 .21 0

15 0 .440 0 .180

16 0 .410 0 .160

17 0.410 0 .160

18 0.360 0 .11 0

19 0.360 0 .080

20 0.360 0 .080

21 0.360 0 .080

22 0.330 0 .080

23 0.310 0 .080

24 0.240 0 .080

25 0 .160 0 .020

26 0 .100 0.01 0

27 0.090 0.009

28 0.080 0 .008

29 0.070 0 .00 7

30 0.060 0.006

31 0.050 0.005

32 0.040 0.000

33 0.030 0.000

34 0.020 0.000

35 0.010 0.000

36 0.000 0.000

02004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited. 13

Table 4 . Median and Mean Survival

LVAD OMM Difference

Median Survival days 405 180

months 13.30 5.90 7.40

years 1 .11 0.4 9

Mean Survival days 392 22 1

months 12.87 7.26 5.6 1

years 1.07 0.6 1

Figure 3 . Derivation of Transition Probabilities for Markov Cohort Simulation s

Row vector S, represents cycle-specific

state probabilities ; S, is the monthly S, _ I s, 1 - s, ] P, = P,,, pi nsurvival probability. 1 - S, is the [ 0 1monthly probability of death . P, is the

transition probability matrix for cycle t .

Markov cohort simulation entail s

successive multiplication of S, and P

S1Pc = Sc., St., = 15, ., 1 - 51.1 ] _ [ ((S, * p1tt) + (1 - s, * 0)) ((Sc * p,z,) + 11 - s, * 1)) ]

Based on available survival curves, S,, for each t = 0 . . . , is known . Thus, solutions are sought for p,,, and p12, .

s, ., = (s, * pn) + (1 - s, * 0) P„t = Sl., / st

1-s,«, = (s,*P,r)+(1-s,*1) = p;n = ((1-s,«,)-(1-s,))/s,

= (S, - S,.,) / S,

Also: p,u + p,n = 1 = P,z, = 1 - prn

Table 5 . New York Heart Association Function Clas s

LVAD OMM

Month Post-Enrollment % NYHA I/11 % NYHA 111/IV % NYHA I/II % NYHA III/I V

0 0 100 0 100

1 54 46 0 . 100

3 68 32 3 97

6 80 20 9 9 1

9 82 18 0 100

12 71 29 0 100

18 44 56 0 100

24 71 29 33 67


interpolation . It was assumed that the prob-abilities for the last given follow-up point, 24months, stayed constant for all remaining cycles .

Utilities

A study by Moskowitz et al . (1997) assessedquality of life for 29 bridge-to-transplant LVAD

recipients at Columbia University. Standardgamble utilities were elicited before implanta-tion and during LVAD support. The mean utility

value (standard deviation [SD]) for the preim-plantation period was 0.548 (0 .276) . The utilityassociated with preimplantation in this group

should be analogous to being in NYHA categoryIIVIV, so the cost-effectiveness analysis use da value of 0 .55 for this category. During LVADsupport, the mean utility was 0.809 (SD=0 .136) .It was assumed that LVAD support in this groupis representative of being in NYHA category I/II .The cost-effectiveness analysis used 0.81 forthis category.

RehospitalizationData on the probability of rehospitalizationwere obtained from a paper by Oz et al . (2003)and a Center for Devices and Radiologic Health(CDRH) presentation at the FDA Circulatory

Systems Devices Advisory Committee meetingin March 2002. According to Oz et al . (2003),LOAD patients spent a total of 18,406 days onLVAD support, of which 3,896 days (22%) were

spent in the hospital . CDRH data for OMMpatients showed a total of 10,085 days alive, ofwhich 1,756 (15%) were spent in the hospital .

No data are available on whether the probabilityof rehospitalization changed over time, so i twas assumed that the proportion of days spentin the hospital could be applied to each cycleas a constant weight. The probability of beingan outpatient was calculated as one minus theprobability of rehospitalization .

CostsOz et al . (2003) reported on the costs associatedwith LVAD in the REMATCH trial (Table 6) .Of the 68 LOAD recipients in the REMATCHtrial, 52 comprised the costing subgroup .Patients were excluded for not being in CMS

database or participating hospitals were unableto provide cost data . There were no significantdifferences between the costing subgroup andthe excluded subgroup on baseline characteris-tics . .However, the LOAD costing subgroup hada nonsignificantly lower percentage of patientsusing ACE inhibitors (56% vs . 81%, p=0.083)

and a lower mean score on SF-36 physicalfunctioning subscale (17 vs. 26, p=0.0747) .Survival did not differ between subgroups .

To determine hospitalization costs, theREMATCH data set was combined with CMSdata and line item bills from clinical centers .Institution-specific cost reports were use dto calculate ratio-of-cost-to-charges for each

major resource category. There were 17 in-hos-pital deaths and 35 hospital survivors. Hospitalsurvivors had mean hospitalization costs of

$159,271 ± 106,423 ; hospital nonsurvivors hadmean costs of $315,015 ± 278,713 . The average

cost of the implantation, excluding profes-sional fees, was $210,187 (± 193,295) . Oz et al .(2003) excluded professional fees and did not

mention whether costs valued in a constant$year. Since data collection ended in 2002, it

was assumed that costs were expressed as 2002$US. Professional fees were estimated from thestudy by Moskowitz et al. (2001) of 12 bridge-to-transplant patients (Table 7) . Fees for mean17.5-day hospital stay were prorated to a 43 .5-day stay, then adjusted for inflation factor from1995 $US to 2002 $US :

Oz et al . (2003) reported that the averageannual readmission cost was $105,326 . Basedon a probability of being rehospitalized of 0 .22,the annual readmission cost was prorated toa full year of hospitalization, then divided by12 to yield a monthly rehospitalization cost of$39,896 . This amount includes the cost of LVADreplacements but excludes professional fees .It was assumed that inpatient costs were thesame for both groups of patients.

Outpatient costs were estimated from studiesby Moskowitz et al . (2001) and Gelijns et al .(1997), which analyzed costs associated withlong-term LOAD implantation in bridge-to-

transplant patients (Table 7) . All cost estimateswere given in 1995 $US. The average cost ofthe implantation was reported as $141,287 . The17.5-day average length of stay associated with

implantation was derived from a simulation .Clinical discharge criteria were applied to thesample, which had longer actual stays becausethe FDA required long hospitalization periodsfor these patients . The average weekly outpa-tient cost was $352, yielding a full month cost of$1,531 . When valued in 2002 $US, the monthlyoutpatient cost is $1,719 .

02004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited. 15

Table 6 . Oz et al . (2003) Report on Costs of Destination LVADs

Patients LVAD costing subgroup : 52 of 68 LVAD recipients from REMATCH trial .

LVAD noncosting subgroup : 16 patients excluded for not being in CMS database,

participating hospitals unable to provide cost data .

No significant difference between subgroups on baseline characteristics. The LVAD

costing subgroup had a nonsignificantly lower percentage of patients using ACE

inhibitors (56% vs . 81%, p=0.083) and a lower mean score on SF - 36 physical functioning

subscale (17 vs . 26, p=0 .0747).

Survival did not differ between subgroups .

Costs Clinical data set closed 6/20/02. Survival and costs truncated at 22 months of follow-up .

To determine hospitalization costs, REMATCH data set combined with CMS dataand line item bills from clinical centers . Institution-specific cost reports were used tocalculate ratio-of-cost-to-charges for each major resource category .

Analysis excluded professional fees . Report did not mention whether costs valued

in constant $year.

Initial hospitalization, average length of stay 43.5 days, with 17 in-hospital deaths,

35 hospital survivors . Hospital survivors had mean hospitalization costs of

$159,271 ± 106,423; hospital nonsurvivors had mean costs of $315,015 ± 278,713 .

Resource Catego ry Average Cost % of Total Cost

LVAD $62,308 ± 11,651 29 .64 %

ICU days $50,262 ± 82,076 23 .91 %

Regular floor $18,807 ± 45,286 8.95 %

Operating room $10,983 ± 9,913 8.95 %

Diagnostics $3,833 ± 3,222 1 .82 %

Laboratory $10,426 ± 14,161 1 .52 %

Blood products $6,773 ± 10,731 3.22 %

Drugs $15,685 ± 20,219 7 .46 %

Medical Supplies $12,376 ± 21,536 5 .89 %

Therapy $13,784 ± 35,534 6.56 %

Renal $1,674 ± 5,988 0.80 %

Other $79 ± 161 0 .04 %

Total, initial hospitalization $210,187 ± 193,295 100 %

Initial hospitalization cost predicted by : perioperative bleeding, pump housing infection,

and sepsis .

Total LVAD suppo rt days 18,406

In hospital (%) 3,896 (22%)

Out of hospital (%) 15,510 ( 78%)

16 patients had 17 LVAD replacements .

152 readmissions involved 34 patients and 1 , 634 hospital days . Mean readmission

cost: $ 30,627 ± 61,569 . Mean annual readmission cost per patient : $ 105,326.

Mean annual cost for initial hospitalization and readmission : $309,273 .

Outpatient costs not mentioned .

16 ©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited.

Table 7 . Moskowitz et al . (2001 ) Repo rt on Costs of Long-Term LVAD Implantation in Bridge Patients .

Patients 12 individuals implanted with LVAD at Columbia Universi ty during 1994 and 1995 . FDA

prohibited discharge in 1994 and dictated minimum stay in 1995 . To simulate discharge

dates guided by clinical concerns, predefined discharge criteria applied to patient record s

- Recovery from surge ry with adequate general health status

- Absence of fever or evidence of systemic or driveline infections

- Normal liver function test results (transaminases, bilirubin )

- White blood cell count (<11,000/mm3)

- Serum creatinine (<2 mg/dL

- Echocardiographic evidence indicating that the patient's native hea rt has sufficient

contractility to open the ao rtic valve and maintain an arterial pressure with the LVAD

operating at its lowest rate

- Ability of patients/caretakers to change ba tteries, maintain device, and perform ADLs .

By end of study period, 2 patients died, 8 had hea rt transplantation,

and 2 remained on LVAD .

Mean duration of LVAD support, 177 days (13-481 days )

Mean length of stay, implantation, 17 .5 days (± 5.32 days )

Costs Initial Hospitalization, average length of stay 17 .5 days (± 5.32 days), costs generally

estimated by ratio of charges to costs method in 1995 $US .

Resource Category Average Cost % of Total CostLVAD $67,085 48 %

Professional payment $23,935_ 10,897 17 %

Length of sta y

Special care days $14,765 ± 10,874 10 %

Regular floor $7,071 ± 7,376 5 %

Operating room $10,818 ± 1,725 8 %

Diagnostics $3,900 ± 3,574 3 %

Laboratory $3,407 ± 1,767 2 %

Blood products $2,873 ± 2,562 2%

Drugs $3,257 ± 3,229 2 %

Miscellaneous $3,235 ± 1,695 2%

Rehabilitation $670 ± 423 0%

Total, initial hospitalization $141,287 t 18,513 100%

Total LVAD support days 2,01 2

In hospital (%) 746 (37%)

Out of hospital (%) 1,266 (63% )

Outpatient and Rehospitalization

124 hospital days, total cost $215,093 ($1,735 per day, $52,802 per month )

The average outpatient cost was $352 per week ($1,531 per month )

©2004 Blue Cross and Blue Shield Association . Reproduc ti on without prior authorization is prohibited. 17

Cost-effectiveness Analysis Results

Total Costs for One Yea rTable 8 shows the costs of 1 year on 3 interven-tions: LVAD as a bridge to transplantation ; LVADas destination therapy; and OMM. Discountingwas not used in calculating these costs .

Baseline AnalysisUsing the values for all parameters listed inTable 2, the LVAD Markov model produced atotal of 0 .755 QALYs at a total cost of $391,900 .The OMM Markov model yielded 0 .332 QALYsat a cost of $53,025. The incremental cost-effectiveness ratio (ICER) was $802,700 perQALY (Figure 4) .

Sensitivity AnalysesUncertainty Around Relative Survival . Table9 shows that the lower limit on the hazard ratiofor LVAD relative to OMM produces an ICE Rof $1,350,700/QALY. The survival probabilityfell to 0 after 41 months in the OMM groupand after 53 months for the LVAD group . At theupper limit of the confidence interval, the ICERis $447,600/QALY. In this case, survival in theLVAD group dropped to 0 after 121 months .

Extrapolation of Survival . Of the 4 me thodsused to extrapolate survival past the pointof last follow - up, the exponen tial me thodproduces an ICER most favorable to LVAD($641,600/QALY) . This is also the least plau-sible of the 4 because both the original survivaldata (Rose et al . 2001 ) and the update (CDRHFDA 2002) show an increasing hazard for theLVAD group between 23 and 26 mon th s . Theexponential survival model for LVAD allowsthe hazard to stay constant based on a fit withthe earlier segment of the survival curve . Thecurve remains elevated past the period ofaccelerated hazard at 23-26 months and fallsto a survival probabili ty of 0 after 86 months .At last follow- up (26 month s), the survivalprobability was 10% in the LVAD group and1% in the OMM group ; thus an extrapola tionwith an extended tail on the survival curveseems quite un likely.

The Gompertz/exponential method used aGompe rtz model for the LVAD group to fi tthe po rtion of the curve with an acceleratinghazard . This method produced an ICER thatwas least favorable to LVAD ($846,900/QALY) .The stop and drop method differs slightly fromGompe rt z/exponential , probably due to the

low survival probabili ties in both groups at last

follow -up. The 3 methods besides exponentialachieve similar findings and the me thod usinglinear interpolation to 36 months is the mostfavorable , yielding an ICER of $802,700/QALY.This method was used for the baseline analysisand all sensitivity analyses .

Utili ties for NYHA Categories I/II and III/IV.Figure 5 shows how ICER values are affected

by varying the utility for NYHA category I/IIfrom 0 . 50 to 1 .00 . Across this range, ICERsvary from $1 ,588,900/QALY to $615,900/QALY.In Figure 6, the utility for NYHA categoryIII/IV ranges from 0 . 30 to 0 .80 . The result-ing ICERs are between $708,400/QALY and$926,000/QALY.

Utility Discount Rate. The discount rate forutilities was allowed to vary from 1% to 5%(Figure 7) . ICERs did not vary substan tially,taking values between $784 ,500/QALY and$821,100/QALY.

Cost of LVAD Implantation . The cost of theini tial hospital stay for LVAD implantationwas valued between $125 , 000 and $425,000(Figure 8) . The ICER varied from $442,600/QALY to $1,153,200/QALY.

Cost of Rehospitalization . The cost for 1month of being readmitted to the hospitalvaried between $20,000 and $70,000 (Figure 9) .

The low estimate for rehospitalization cost ledto an ICER of $701,400/QALY, while the higherestimate produced an ICER of $904,700/QALY.

Cost of Outpatient Care . This cost categoryhad little impact on the ICER, acros svalues of $250 per month to $3,250 permonth (Figure 10) . ICERs were between$792,900/QALY and $812,900/QALY.

Probability of Rehospitalization for LVADand OMM. Figure 11 shows how ICERs are

affected by varying the probability of rehos-pitalization for LVAD between 0.10 and 0 .35 .The lowest probability yields an ICER of

$679,400/QALY, while the highest has an ICERof $936,200/QALY. It is important to note thatwhile the probability of rehospitalization forLVAD was allowed to vary, the probability forOMM stayed constant at 0.15. Thus, when theLVAD probability of rehospitalization was 0 .10,it was lower than the value for OMM . A lowerrelative probability of rehospitalization fo r


Table 8. Total One Year Costs for Bridge LVAD, Destination LVAD and Optimal Medical Management

Intervention 1995 $ US 2002 $U S

Bridge LVAD 222,460 249,823

Destination LVAD 450, 035 505,37 3

OMM 178,693

Figure 4 . Baseline Cost-effectiveness Analysi s

500

400

OMM LVAD

Cost $53 , 025 $391,906300

0L

Incr Cost $338,88 1

Eff 0.332 QALYs 0 .755 QALYs

0 200 Incr Eff 0 .422 QALYsU

ICER $802 ,674/QALY

100

0

0.30 0. 40 0.50 0 .60 0.70 0 .8 0

Effectiveness (QALYs )

Table 9 . Sensitivity Analysis on 95% Confidence Inte rval Around Hazard Ratio

Cost

LVAD

Cos t

OMM

Cost

Difference

QALYs

LVAD

QALYs

OMM

QALYs

Difference ICER

Lower limit,

95% Cl

$ 357,812 $53 , 160 $304 , 652 0. 560 0 . 334 0.226 $1,350,746

Baseline $ 391,906 $53 ,025 $338 , 882 0.755 0 . 332 0. 422 $802,67 4

Upper limit,

95% Cl

$ 477,413 $53 , 160 $424 , 253 1 .282 0 .334 0.948 $447,64 5


Table 10 . Sensitivity Analysis on Method of Survival Extrapolatio n

Extrapolation Cost Cost Cost QALYs QALYs QALYs ICE RMethod LVAD OMM Difference LVAD OMM Difference (per QALY )

Gompertz/ $389,361 $54,650 $334,711 0.739 0 .344 0 .395 $846,888exponentia l

Stop and drop $387,678 $52,782 $334,896 0.729 0.331 0 .398 $840,738

Linear $391,906 $53,025 $338,882 0.755 0.332 0 .422 $802,67 4

interpolatio n

Exponential $417,516 $54,650 $362,866 0 .910 0 .344 0 .566 $641,59 2

Figure 5 . Sensitivity Analysis on Utility NYHA 1/1 1

1,750

1,500

C5 1,250

0L

1,000

ww750

0U

i 500

250

00.50 0.60 0.70 0.80 0.90 1 .00

Utility NYHA I/II

Utility NYHA 1/II ICE R

0.50 $1,588,87 4

0.60 $1,207,387

0.70 $973,62 2

0 .80 $815,69 3

0 .90 $701,849

1 .00 $615,89 0


Figure 6. Sensitivity Analysis on Utility NYHA IIIRV

1,00 0

C750 Utility NYHA III/IV ICE R

0 .30 $708,3630

0.40 $743,29 6

zt: 500 0 . 50 $781,85 4w

0 0 .60 $824,63 2U

0 .70 $872,36 1

E 250 0.80 $925,95 5

U

00.30 0 .40 0.50 0 .60 0.70 0.8 0

Utility NYHA III/IV

Figure 7 . Sensitivity Analysis on Utility Discount Rat e

1,00 0

750Utility Discount Rate ICE R

N

o 0 .01 $784,49 9

0 .02 $793,55 4500

N

0 .03 $802,67 4

o 0 .04 $811,85 6m

0 .05 $821,10 3E 250c

U

0

0.01 0.02 0.03 0.04 0.0 5

Utility Discount Rate


Figure 8. Sensitivity Analysis on Cost of Implantatio n

1,250

JQ

1,00 0

Ccm

0750

ww

0 500

mCm

250

0125 200 275 350 425

Cost of Implantation ($ thousands)

Cost of Implantation ICE R

$125,000 $442,64 4

$200,000 $620,289

$275,000 $797,934

$350,000 $975,579

$425,000 $1,153,22 4

Figure 9. Sensitivity Analysis on Cost of Rehospitalization per Mont h

1,000

E-8v 750CCO

0.r-

4q

w 500

0U

isc0 250

Cost of

Rehospitalization ICE R

$10,000 $701,39 9

$20,000 $735,27 5

$30,000 $769,15 0

$40,000 $803,026

$50,000 $836,90 1

$60,000 $870,777

$70,000 $904,652

22 ©2004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited.

010 25 40 55 70

Cost of Rehospitalization per Month ($ thousands)

Figure 10 . Sensitivity Analysis on Cost of Outpatient Care Post-implant per Mont h

1,000

0 750C

N

0.r-

CO

r- 500w

0U

m

W 250

0

250 1,000 1,750 2,500 3,250

Cost of Outpatient Care per Month ($)

Cost o f

Outpatient Care ICE R

$250 $792,91 5

$1,000 $797,897

$1,750 $802,879

$2,500 $807,862

$3,250 $812,844

Figure 11 . Sensitivity Analysis on Probability of Rehospitalization LVA D

1,00 0

v 750CN

0r

09

500

NOU

m

250

00.10 0.15 0.20 0.25 0.30 0.35

Probability of Rehospitalization LVAD

Probability of

Rehospitalizatio n

LVAD ICE R

0.10 $679,442

0.15 $730,789

0 .20 $782,135

0 .25 $833,48 1

0 .3 0 $884 ,82 8

0.35 $936,174


LVAD seems very unlikely given evidence fromthe REMATCH trial of a significantly higher rateof serious adverse events for LOAD.

In Figure 12, the probability of rehospitaliza-tion for OMM ranged from 0 .05 to 0 .30, assum-ing a constant probability of 0.22 for LOAD.At the upper end of the range, the probabilityof rehospitalization for OMM is higher thanthat for LVAD, which as noted above, is veryunlikely. ICERs varied from $867,000/QALY to$706,100/QALY.

Cost Discount Rate. When the cost discountrate was varied from 1% to 5%, ICERs werebetween $806,700/QALY and $798,800/QALY.

Two-Way Sensitivity Analyses . AppendixTables Al-A21 present 2-way sensitivity analy-ses for selected variables . When paired withother variables, the cost of LOAD implanta-tion appears to have the greatest influence onthe results . Tables A2, A7, A12, A13, and A14comprise all tables in which the cost of LVADimplantation is paired with another variable .These are the only analyses in which ICERsbelow $500,000/QALY are observed . Suchresults depend on estimates of LOAD costs atthe low extremes (e .g ., $125,000) . The cost of

the LOAD unit alone is approximately $65,000.It is unlikely that all other initial costs associ-ated with implantation would commonly becovered by an amount as low as $60,000 .

Best Case Scenario. An analysis was performedin which variables were set at values thatwould be quite favorable to LOAD (Table 11) .An ICER of $214, 700 is obtained . Such valueswould be highly unlikely to occur both aloneand in combination.

Discussion

Limitations of this AnalysisSimplicity of the Markov Models . Although

2 health states were included in the Markovmodels, these are analogous to 3-state modelsgiven that QALY calculations allowed survivingpatients to make transitions between 2 NYHA

categories, in addition to a death state. It wouldbe interesting to construct a model that hasseparate states for being rehospitalized versusbeing at home . LVAD patients spend 22% oftheir days in the hospital compared with 15%for OMM patients . LVAD patients also had asignificantly higher rate of serious adverse

events (Rose et al . 2001) . The device was

Figure 12 . Sensitivity Analysis on Probability of Rehospitalization OM M

1,000

750C

0

fA

iz 500w

0U

f 250

Probability of Rehospitalization OMM

Probability of

Rehospitalizatio n

OMM ICER

0.05 $867,07 2

0.10 $834,87 3

0.15 $802,67 4

0 .20 $770,47 4

0 .25 $738,27 5

0 .30 $706,07 6

24 ©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited.

00.05 0.10 0.15 0.20 0.25 0.30

Figure 13 . Baseline Cost-effectiveness Analysi s

1,000

750

mN

0r

to

Zt: 500w

00

BCf 250

P

Cost Discount Rate ICE R

0.01 $806,703

0.02 $804,67 2

0 .03 $802,67 4

0 .04 $800,70 6

0 .05 $798,77 0

Table 11 . Values of Best Case Scenari o

Variable Valu e

Utility for NYHA 1/II 1 .0 0

Utility for NYHA 111/IV 0 .3 0

Cost of LVAD Implantation $ 125,000

Cost of rehospitalization ( per mo ) $ 10,000

Cost of outpatient care ( per mo) $250

Probability of rehospitalization , LVAD 0.1 0

Probability of rehospitalization , OMM 0 .1 0

©2004 Blue Cross and Blue Shield Associati on . Reproduction without p ri or authorization is prohibited. 25

00.01 0.02 0.03 0.04 0.05

Cost Discount Rate

replaced 17 times in 16 patients and theprobability of device failure was 35% at 2years (Oz et al . 2003; Rose et al . 2001) . A morecomplex model might be better able to showthe impact on quality of life of rehospitalizationdue to adverse events and device malfunction .The models used here were based on NYHAclass data that likely included a mix ofinpatients and outpatients, but a more detailedapproach might better reflect patients' experi-ences. Unfortunately, data were unavailablefrom the REMATCH trial to permit constructingmore complex models.

Utilities for NYHA Categories I/II and III/IV.Uncertainty exists about which utility valuesshould be used for being in NYHA categoriesI/Il or III/IV. This analysis used publishedmean standard gamble utilities derived from29 bridge-to-transplant patients (Moskowitzet al . 1997) . The preimplantation mean utilitywas assigned to NYHA category III/IV, while themean utility for LVAD support was assigned toNYHA category 1/11 . The Moskowitz paper doesnot provide data on NYHA class for patientsin this study before or after implantation .However, previous studies of bridge-to-trans-plant patients have shown that patients weregenerally in NYHA class III or IV before implan-tation and in class I or II after transplantation(Frazier et al . 1995 ; 1994) . Also, utilities forbridge-to-transplant patients may differ fromdestination patients, even within the sameNYHA categories . Furthermore, the mean utili-ties from Moskowitz may be biased becausethey were not taken from a healthy population,consistent with a societal perspective. Becausethe sensitivity analyses used wide ranges forutility values, and ICERs did not vary substan-tially, these concerns are not critical.

Cost Estimates and Assumptions . TheREMATCH destination therapy costing study byOz et al . (2003) provided estimates for LVADimplantation costs and rehospitalization costs .Earlier costing studies on bridge-to-transplant

LVAD patients gave information on outpatientcosts and professional fees for LVAD implanta-tion (Moskowitz et al. 2001; Gelijns et al. 1997) .The REMATCH estimate on LVAD implantation

excluded professional fees, but this analysisused bridge-to-transplant professional fe edata to augment the overall estimate . TheREMATCH estimate on rehospitalization alsoexcluded professional fees and no useful dataare available for estimating them. So the rehos-pitalization estimate of approximately $40,000

per month for LVAD may be too low. The sen-sitivity analysis on the cost of rehospitalizationranged up to $70,000 per month , and at thatextreme, the ICER increased by about $100,000relative to the baseline analysis result .

This cost-effectiveness analysis used monthlyrehospitalization costs and outpatient costsbased only on LVAD patients and assumed thatthese costs were the same for LVAD and OMM .No estimates of these costs for OMM patientsare available from the REMATCH trial . Thehighly selected nature of REMATCH trial par-ticipants makes it prohibitively difficult to esti-mate OMM costs from some other source. It islikely that both cost categories would be higherfor LVAD; in fact, the rehospitalization costsfrom REMATCH include some individuals whohad device replacement, so the present analysismay be conservative .

Outpatient costs were estimated from LVAD

bridge patients and it was assumed that costsfor outpatient care were the same for LVAD andOMM patients . Outpatient costs for LVAD des-

tination are probably not lower than those forLVAD bridge patients, so estimates used heremay be conservative. It is unclear whether out-patient costs are similar between LVAD destina-tion patients and OMM patients . However, thesensitivity analysis on outpatient costs showed

it to have little impact on ICERs, so this issuedoes not appear critical.

Probability of Rehospitalization for LVADand OMM. The only data available on rehospi-talization described the proportion of days alivespent in the hospital . These proportions wereapplied as constant weights within each cycleof the Markov models for LVAD and OMM .Evidence was lacking on whether the probabil-ity of rehospitalization changed over time, sothe simplest assumption was to hold it constant.

Conclusions

The baseline cost -effectiveness analysis, usingparameter estimates from published sources,showed that use of LVADs leads to an increasein cost of $802,700 to gain I QALY, comparedwith optimal medical management. Withinthe range of values used in this analysis, theICER was fairly stable amid changes in thesevariables : utility for NYHA category III/W;utility discount rate ; cost of outpatient care ;and cost discount rate, cost of rehospitalization ,

26 02004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited.

probability of rehospitalization for LVAD ; andprobability of rehospitalization for OMM .Results were more sensitive to variations inutility for NYHA category UII and the cost ofLVAD implantation . ICERs of $500,000/QALYor less depended on improbable assumptionsof very low costs for LVAD implantation,usually in combination with extreme valueson other variables . This analysis takes asocietal perspective ; however, some elementsof this perspective, such as use of indirect costs,were not strictly followed . Although utilitiesfrom a general population would be preferred,the estimates used here from LVAD recipientssuffice given the wide range of values sur-rounding them in the sensitivity analysis . Asstated, indirect costs, such as lost wages andcosts borne by caretakers, are not included, butas return to work is unlikely for either LVAD orOMM patients, excluding indirect costs wouldnot affect the strategies' relative standings inthe analysis . The short time horizon shouldlimit the impact of excluding indirect costs .

NOTICE OF PURPOSE : TEC Assessments are scientific opinions, provided solely for informational purposes . TEC Assessmentsshould not be construed to suggest that the Blue Cross Blue Shield Association, Kaiser Permanente Medical Care Program or theTEC Program recommends, advocates, requires, encourages, or discourages any particular treatment, procedure, or service ; anyparticular course of treatment, procedure, or service; or the payment or non-payment of the technology or technologies evaluated .

CONFIDENTIAL: This document contains proprietary information that is intended solely for Blue Cross and Blue Shield Plansand other subscribers to the TEC Program . The contents of this document are not to be provided in any manner to any otherparties without the express written consent of the Blue Cross and Blue Shield Association .


Reference s

Center for Devices and Radiologic Health, Food andDrug Administration. (2002). Presentation to Food and

Drug Administration Circulatory System Devices AdvisoryPanel, March 4, 2002.

Cohn JN. (2000a). The management of heart failure . In :JT Willerson and JN Cohn (eds.), Cardiovascular Medicine,Churchill Livingstone, Philadelphia, 1165-83 .

Cohn JN. (2000b). Pathophysiology and clinicalrecognition of heart failure. In : JT Willerson and JN Cohn(eds.), Cardiovascular Medicine, Churchill Livingstone,Philadelphia, 1147-64 .

Eichhorn EJ . (2001) . Prognosis determination in heartfailure . Am J Med, 110(7A) :14S-36S.

Frazier OH, Rose EA, McCarthy P et al. (1995). Improvedmortality and rehabilitation of transplant candidates

treated with a long-term implantable left ventricular assistsystem . Ann Surg, 222(3) :327-38 .

Frazier OH, Macris MP, Myers TJ et al . (1994). Improvedsurvival after extended bridge to cardiac transplantation .Ann Thorac Surg, 57:1416-22 .

Frazier OH, Macris MP. (1994). Current methods forcirculatory support. Inst J, 21 :288-95.

Gross Domestic Product Deflator (2004) . Source:Budget of the United States Government, Fiscal Year 2001,Historical Tables. Table 10.1--Gross Domestic Productand Deflators Used in the Historical Tables: 1940-2005 .Accessed online at: htip ://www.jsc.nasa .gov/bu2/inflateGDP.html, March 17, 2004.

Gelijns AC, Richards AF, Williams DL et al . (1997) .Evolving costs of long-term left ventricular assist deviceimplantati on . Ann Thorac Surg, 64 :1312-9.

Greenberg BH. (2000) . The medical management ofchronic congestive heart failure . In JD Hosenpud andBH Greenberg (eds .), Congestive Heart Failure, SecondEdition, 2000, Lippincott, Williams and Wilkins,Philadelphia, 673-95 .

Miniati DN, Robbins RC. (2002). Heart transplantation : athirty-year perspective . Annu Rev Med, 53:189-205 .

Moskowitz AJ, Rose EA, Gelijns AC. (2001) . The cost oflong-term LVAD implantation. Ann Thorac Surg, 71 :S195-8

Moskowitz AJ, Weinberg AD, Oz MC et al . (1997) .Quality of life with an implanted left ventricular assist

device . Ann Thorac Surg, 64 :1764-9.

Oz MC, Gelijns AC, Miller L et al . (2003) . Leftventricular assist devices as permanent heart failuretherapy. The price of progress .Ann Surg, 238(4) :577-85 .

Oz MC, Rose EA, Levin HR . (1995) . Selection criteria forplacement of left ventricular assist devices . Am Heart J,129(1):173-7 .

Rose E . (2002) . REMATCH trial clinical results .Presentation to Food and Drug Administration Circulatory

System Devices Advisory Panel, March 4, 2002 .

Rose EA, Gelijns AC, Moskowitz AJ et al . (2001) .Long-term mechanical left ventricular assistance forend-stage heart failure . NEngl JMed, 345(20) :1435-43.

Rose EA, Moskowitz AJ, Packer M et at . (1999) .The REMATCH trial : rationale, design, and end points .Randomized Evaluation of Mechanical Assistance for theTreatment of Congestive Heart Failure . Ann Thorac Surg,67(3):723-30 .

Thoratec, Inc . (2002) . REMATCH trial clinical results .Presentation to Food and Drug Administration Circulatory

System Devices Advisory Panel, March 4, 2002 .

United Network for Organ Sharing. (2001). 2001 Annualreport of the U.S. Organ Procurement and TransplantationNetwork and the Scientific Registry for Transplan tRecipients: Transplant Data 1991-2000 . Departmentof Health and Human Services, Health Resources and

Services Administration, Office of Special Programs,Division of Transplantation, Rockville, MD; United

Network for Organ Sharing, Richmond, VA; UniversityRenal Research and Education Association, Ann Arbor, MI .

Zeltsman D, Acker MA . (2002 ) . Surgical managementof heart failure : an overview. Annu Rev Med, 53:383-91 .


Appendix

Table Al . Sensitivity Analysis - Utility for NYHA Classes I/II by Utility for NYHA Classes III/IV.

ICERs (per QALY) Utility NYHA I/I I

Utility NYHA III/IV 0.50 0.60 0 .70 0.80 0.90 1 .00

0.30 $1,257,472 $1,005,931 $838,248 $718,483 $628,663 $558,80 4

0.40 $1 ,371,933 $1,077,870 $887,614 $754,447 $656,026 $580,32 0

0.50 $1 ,509,318 $1,160,890 $943,157 $794,204 $685,879 $603,557

0 .60 $1,677,281 $1,257,766 $1,006,120 $838,381 $718,579 $628,73 6

0 .70 $1,887,308 $1,372,283 $1,078,086 $887,760 $754,553 $656,10 6

0 .80 $2,157,462 $1,509,742 $1,161,141 $943,323 $794,321 $685,967

Table A2 . Sensitivity Analysis - Utility for NYHA Classes I/II by Cost of LVAD Implantatio n


Cost Implant 0.50 0.60 0.70 0.80 0 .90 1 .00

$125,000 $876,204 $665,829 $536,916 $449,824 $387,043 $339,64 0

$200,000 $1,227,847 $933,044 $752,395 $630,350 $542,374 $475,947

$275,000 $1,579,491 $1,200,259 $967,874 $810,876 $697,704 $612,253

$350,000 $1,931,135 $1,467,474 $1,183,353 $991,403 $853,035 $748,560

$425,000 $2,282,779 $1,734,688 $1,398,832 $1,171,929 $1,008,365 $884,867

Table A3 . Sensitivity Analysis - Utility for NYHA Classes I/11 by Cost of Rehospitalizatio n

ICERs (per QALY) Utility NYHA 1/1 l

Cost Rehosp 0.50 0.60 0 .70 0.80 0 .90 1 .00

$10,000 $1 ,388,403 $1,055,050 $850,780 $712,776 $613,295 $538,18 3

$20,000 $1,455,459 $1,106,006 $891,870 $747,201 $642,916 $564,17 5

$30,000 $1,522,515 $1,156,962 $932,960 $781,626 $672,536 $590,16 8

$40,000 $1,589,570 $1,207,918 $974,050 $816,051 $702,156 $616,160

$50,000 $1,656,626 $1,258,874 $1,015,141 $850,476 $731,777 $642,153

$60,000 $1,723,682 $1,309,829 $1,056,231 $884,901 $761,397 $668,146

$70,000 $1 ,790,738 $1,360,785 $1,097,321 $919,326 $791,017 $694,138

@2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited. 29

Table A4. Sensitivity Analysis - Utility for NYHA Classes f/II by Cost of Outpatient Car e


Cost Outpt Care 0.50 0.60 0 .70 0 .80 0 .90 1 .00

$250 $1 ,569,556 $1,192,709 $961,786 $805,776 $693,315 $608,40 2

$750 $1,576,131 $1,197,705 $965,815 $809,151 $696,220 $610,95 1

$1,250 $1,582,706 $1,202,701 $969,844 $812,527 $699,124 $613,49 9

$1,750 $1,589,281 $1,207,698 $973,873 $815,902 $702,028 $616,048

$2,250 $1,595,856 $1,212,694 $977,902 $819,278 $704,933 $618,597

$2,750 $1,602,431 $1,217,690 $981,931 $822,653 $707,837 $621,145

$3,250 $1,609,006 $1,222,687 $985,960 $826,028 $710,742 $623,69 4

Table A5 . Sensitivity Analysis - Utility for NYHA Classes I/II by Probability of Rehospitalization for LVA D

ICERs (per QALY) Utility NYHA [A l

P Rehosp LVAD 0.50 0. 60 0 .70 0. 80 0 .90 1 .00

0.10 $1 ,344,939 $1,022,022 $824,146 $690,463 $594,096 $521,335

0.15 $1 ,446,578 $1,099,258 $886,428 $742,642 $638,993 $560,733

0.20 $1 ,548,217 $1,176,494 $948,710 $794,821 $683,890 $600,13 1

0 .25 $1 ,649,856 $1,253,729 $1,010,992 $847,000 $728,786 $639,529

0 .30 $1 ,751,495 $1,330,965 $1,073,274 $899,180 $773,683 $678,92 7

0 .35 $1,853,134 $1,408,201 $1,135,556 $951,359 $818,580 $718,32 5

Table A6 . Sensitivity Analysis - Utility for NYHA Classes I/II by Probability of Rehospitalization for OM M

ICERs (per QALY) Utility NYHA I/1 1

P Rehosp OMM 0.50 0 .60 0 .70 0.80 0 .90 1 .00

0.05 $1 ,716,348 $1,304,257 $1,051,737 $881,136 $758,158 $665,303

0.10 $1 ,652,611 $1,255,822 $1,012,680 $848,414 $730,003 $640,596

0.15 $1 ,588,873 $1,207,388 $973,623 $815,693 $701,848 $615,890

0 .20 $1 ,525,135 $1,158,954 $934,566 $782,971 $673,694 $591,184

0 .25 $1 ,461,398 $1,110,519 $895,509 $750,250 $645,539 $566,47 7

0 .30 $1 ,397,660 $1,062,085 $856,452 $717,528 $617,385 $541,77 1

30 ©2004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited .

Table A7 . Sensitivity Analysis - Utility for NYHA Classes III/IV by Cost of LVAD Implantatio n

ICERs (per QALY) Utility NYHA III/I V

Cost Implant 0 .30 0 . 40 0 .50 0.60 0 .70 0.8 0

$125,000 $ 390,636 $409 , 900 $431 , 163 $454,753 $481 , 075 $510,63 0

$200,000 $ 547,408 $574,403 $604 , 200 $637 ,257 $674, 143 $715,55 9

$275,000 $704,181 $738 ,907 $777,237 $819,762 $867,211 $920,48 8

$350,000 $860,954 $903 , 410 $950 ,274 $1, 002,266 $1 ,060,279 $1 , 125,41 7

$425,000 $ 1,017 ,726 $1, 067,914 $1 , 123,311 $1,184,770 $1 ,253,347 $1,330;346

Table A8. Sensitivity Analysis - Utility for NYHA Classes III/IV by Cost of Rehospitalizatio n

ICERs (per QALY) Utility NYHA IIIfl V

Cost Rehosp 0 .30 0 . 40 0 .50 0.60 0 .70 0.80

$10,000 $ 618,989 $649,513 $683 , 206 $720,586 $762,295 $809,12 7

$20,000 $648 , 884 $680,883 $716 ,203 $755,388 $799 , 112 $848,20 5

$30,000 $678,779 $712, 252 $749,200 $790 , 191 $835 , 928 $887,283

$40,000 $708 ,675 $743, 622 $782,197 $824 , 993 $872 ,745 $926,362

$50,000 $738 ,570 $774, 992 $815,194 $859,795 $909, 561 $965,440

$60,000 $768 , 465 $806,361 $848, 191 $894 , 597 $946,378 $1 , 004,51 9

$70,000 $798,361 $837 ,731 $881 , 187 $929,399 $983,195 $1 , 043,59 7

Table AS . Sensitivity Analysis - Utility for NYHA Classes III/IV by Cost of Outpatient Care

ICERs (per QALY) Utility NYHA III/IV

Cost Outpt Care 0.30 0 . 40 0 .50 0 . 60 0 .70 0 .80

$250 $699 ,751 $734,259 $772, 348 $814,605 $861,756 $914,698

$1,000 $704,148 $738,873 $777,201 $819,724 $867, 171 $920,445

$1,750 $708,545 $743,487 $782, 054 $824, 842 $872, 586 $926,193

$2,500 $712,942 $748, 100 $786,907 $829 , 961 $878,001 $931,94 1

$3,250 $717,339 $752,714 $791,761 $835 , 080 $883,416 $937,688


Table A10 . Sensitivity Analysis - Utility for NYHA Classes III/IV by Probability of Rehospitalization for LVA D

ICERs (per QALY) Utility NYHA lll/lV

P Rehosp LVAD 0.30 0 .40 0.50 0. 60 0.70 0.80

0.10 $599,611 $629,180 $661,819 $698,028 $738,432 $783,797

0 .15 $644,925 $676,729 $711,833 $750,779 $794,236 $843,030

0 .20 $690,238 $724,277 $761,848 $803,530 $850,040 $902,262

0 .25 $735,552 $771,825 $811,862 $856,281 $905,844 $961,495

0 .30 $780,865 $819,373 $861,877 $909,032 $961,649 $1,020,72 8

0.35 $826,179 $866,921 $911,892 $961,783 $1,017,453 $1,079,960

Table All . Sensitivity Analysis - Utility for NYHA Classes III/IV by Probability of Rehospitalization for OM M

ICERs (per QALY) Utility NYHA III/I V

P Rehosp OMM 0 . 30 0.40 0.50 0.60 0 .70 0 .8 0

0 .05 $765,196 $802,930 $844,582 $890,791 $942,351 $1,000,245

0 .10 $736,780 $773,113 $813,218 $857,711 $907,357 $963,10 0

0.15 $708,364 $743,296 $781,854 $824,631 $872,362 $925,95 5

0.20 $679,948 $713,479 $750,490 $791,551 $837,367 $888,81 1

0.25 $651,532 $683,661 $719,126 $758,471 $802,372 $851,666

0 .30 $623,116 $653,844 $687,762 $725,391 $767,378 $814,52 1

Table A12. Sensitivity Analysis - Cost of LVAD Implantation by Cost of Rehospitalizatio n

ICERs (per QALY) Cost Implan t

Cost Rehosp $125,000 $200 , 000 $275 , 000 $350 ,000 $425,000

$10,000 $341,370 $519,016 $696,661 $874,306 $1,051,95 1

$20,000 $375,246 $552,891 $730,536 $908,181 $1,085,82 7

$30,000 $409 ,122 $586,767 $764,412 $942,057 $1,119,70 2

$40,000 $442,997 $620,642 $798,287 $975,932 $1,153,578

$50,000 $476,873 $654,518 $832,163 $1,009,808 $1,187,453

$60,000 $510,748 $688,393 $866,038 $1,043,684 $1,221,329

$70,000 $544,624 $722,269 $899,914 $1,077,559 $1,255,204

32 ©2004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited.

Table A13 . Sensitivity Analysis - Cost of LVAD Implantation by Cost of Outpatient Car e


Cost Outpt Care $ 125,000 $200 , 000 $275 , 000 $350,000 $425,00 0

$250 $432,886 $610,531 $788,176 $965,821 $1,143,466

$1,000 $437,868 $615,513 $793,159 $970,804 $1,148,44 9

$1,750 $442,851 $620,496 $798,141 $975,786 $1,153,43 1

$2,500 $447,833 $625,478 $803,123 $980,769 $1,158,41 4

$3,250 $452,815 $630,461 $808,106 $985,751 $1,163,396

Table A14 . Sensitivity Analysis - Cost of LVAD Implantation by Probability of Rehospitalization for LVAD


P Rehosp LVAD $ 125,000 $200,000 $275,000 $350,000 $425,00 0

0 .10 $319,413 $497,058 $674,704 $852,349 $1,029,99 4

0 .15 $370,760 $548,405 $726,050 $903,695 $1,081,340

0 .20 $422,106 $599,751 $777,396 $955,042 $1,132,687

0 .25 $473,453 $651,098 $828,743 $1,006,388 $1,184,033

0 .30 $524,799 $702,444 $880,089 $1,057,735 $1,235,380

0 .35 $576,146 $753,791 $931,436 $1,109,081 $1,286,72 6

Table A15 . Sensitivity Analysis - Cost of LVAD Implantation by Probability of Rehospitalization for OM M

ICERs (per QALY) - Cost Implan t

P Rehosp OMM $125,000 $200,000 $275,000 $350,000 $425,000

0 .05 $507,043 $684,688 $862,334 $1,039,979 $1,217,624

0 .10 $474,844 $652,489 $830,134 $1,007,779 $1,185,425

0 .15 $442,645 $620,290 $797,935 $975,580 $1,153,22 5

0 .20 $410 ,445 $588,091 $765,736 $943,381 $1,121,02 6

0.25 $378,246 $555,891 $733,537 $911,182 $1,088,827

0.30 $346,047 $523,692 $701,337 $878,982 $1,056,628

©2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited. 33

Table A16. Sensitivity Analysis - Cost of Rehospitalization by Cost of Outpatient Care

ICERs (per QALY) Cost Rehosp

Cost Outpt Care $ 10,000 $20 , 000 $30,000 $40,000 $50 , 000 $60,000 $70,000

$250 $691 ,641 $725,517 $759,393 $793,268 $827,144 $861,019 $894,89 5

$1,000 $696,624 $730,499 $764,375 $798,250 $832,126 $866,002 $899,87 7

$1,750 $701,606 $735,482 $769,357 $803,233 $837,108 $870,984 $904,85 9

$2,500 $706,589 $740,464 $774,340 $808,215 $842,091 $875,966 $909,84 2

$3,250 $711,571 $745,447 $779,322 $813,198 $847,073 $880,949 $914,82 4

Table A17. Sensitivity Analysis - Cost of Rehospitalization by Probability of Rehospitalization for LVA D

ICERs (per QALY) Cost Rehos p

P Rehosp LVAD $10,000 $20 , 000 $30,000 $40 , 000 $50,000 $60 , 000 $70,00 0

0 .10 $674,670 $676,267 $677,863 $679,460 $681,056 $682,653 $684,24 9

0.15 $685,808 $700,854 $715,900 $730,946 $745,992 $761,038 $776,08 4

0.20 $696 ,945 $725,441 $753,937 $782,432 $810,928 $839,424 $867,920

0.25 $708,083 $750,028 $791,973 $833,919 $875,864 $917,809 $959,755

0 .30 $719,220 $774,615 $830,010 $885,405 $940,800 $996,195 $1,051,590

0 .35 $730,358 $799,202 $868,047 $936,891 $1,005,736 $1,074,580 $1,143,425

Table A18. Sensitivity Analysis - Cost of Rehospitalization by Probability of Rehospitalization for OM M

ICERs (per OALY) Cost Rehos p

P Rehosp OMM $ 10,000 $20,000 $30, 000 $40 , 000 $50,000 $60 , 000 $70,00 0

0.05 $715,369 $766,113 $816,857 $867,601 $918,345 $969,089 $1,019,83 3

0.10 $708,385 $750,694 $793,004 $835,314 $877,624 $919,933 $962,243

0.15 $701,400 $735,276 $769,151 $803,027 $836,902 $870,778 $904,654

0 .20 $694,416 $719,857 $745,299 $770,740 $796,181 $821,623 $847,064

0 .25 $687,432 $704,439 $721,446 $738,453 $755,460 $772,467 $789,47 4

0 .30 $680,447 $689,020 $697,593 $706,166 $714,739 $723,312 $731,88 5

34 02004 Blue Cross and Blue Shield Association. Reproduction without prior authorization is prohibited .

Table A19. Sensitivity Analysis - Cost of Outpatient Care by Probability of Rehospitalization for LVA D

ICERs (per QALY) Cost Outpt Care

P Rehosp LVAD $250 $1,000 $1,750 $2,500 $3,250

0 .10 $664,942 $672,346 $679,749 $687,152 $694,556

0.15 $718,265 $724,659 $731,054 $737,448 $743,843

0.20 $771,587 $776,973 $782,359 $787,745 $793,130

0.25 $824,909 $829,286 $833,663 $838,041 $842,41 8

0 .30 $878,231 $881,600 $884,968 $888,337 $891,70 5

0 .35 $931,553 $933,913 $936,273 $938,633 $940,99 2

Table A20 . Sensitivity Analysis - Cost of Outpatient Care by Probability of Rehospitalization for OM M

ICERs (per QALY) Cost Outpt Car e

P Rehosp OMM $250 $1,000 $1,750 $2,500 $3,25 0

0 .05 $859,792 $863,510 $867,227 $870,944 $874,66 1

0 .10 $826,354 $830,704 $835,054 $839,403 $843,75 3

0 .15 $792,916 $797,898 $802,881 $807,863 $812,845

0 .20 $759,477 $765,092 $770,707 $776,322 $781,937

0.25 $726,039 $732,287 $738,534 $744,782 $751,029

0.30 $692,601 $699,481 $706,361 $713,241 $720,12 1

Table A21 . Sensitivity Analysis - Probability of Rehospitalization for LVAD by Probability of Rehosp italizati on for OM M

ICERs (per QALY) P Rehosp LVAD

P Rehosp OMM 0 .10 0 .15 0.20 0.25 0.30 0.35

0.05 $743,842 $795,188 $846,535 $897,881 $949,227 $1,000,574

0.10 $711,642 $762,989 $814,335 $865,682 $917,028 $968,37 5

0.15 $679,443 $730,790 $782,136 $833,482 $884,829 $936,17 5

0 .20 $647,244 $698,590 $749,937 $801,283 $852,630 $903,97 6

0 .25 $615,045 $666,391 $717,737 $769,084 $820,430 $871,777

0 .30 $582,845 $634,192 $685,538 $736,885 $788,231 $839,57 8

©2004 Blue Cross and Blue Shield Association . Reproduction without prior authoriza tion is prohibited. 35

ec

Technology

Evaluation

Center

Blue Cross and

Blue Shield Association

225 North Michigan Avenue

Chicago, Illinois 60601-7680

888 .832 .432 1

www.bebs .com

@ Registered marks of the Blue Cross and Blue Shield Association, an Association of Independent Blue Cross and Blue Shield Plans

®' Registered trademark of Kaiser Permanente

0 2004 Blue Cross and Blue Shield Association . Reproduction without prior authorization is prohibited .

EXHIBIT B

Advances in LVADs : An Expe rt Interview With Yoshifumi Naka , MD, PhD

Medscapefrom W D

Medscape Today 1 MedGenMed eJournal I Newsletters I ACP Medicine

Page 1 of 4

Mir Homepag I Lc

December 2'

Email this PrintableArticle Version

1k aN1.1edscapeMedical News `

Advances in Left Ventricular Assist Devices : An ExpertInterview With Yoshifumi Naka, MD, Ph D

Laurie Barclay, M D

Aug. 23, 2004 - Editor's Note: Left ventricularassist devices (LVADs) have been in the newslately, in part because last month theUniversity of Pittsburgh Medical Centerdischarged its first patient successfullyimplanted with the Heartmate XVE LeftVentricular Assist System . As opposed to thetraditional use for this type of device (as abridge to transplantation), the LVAD in thispatient was used as a permanent implant inlieu of a heart transplant.

Information from Industry

Aranesp®darbepoetin alfa) for treatment ofanemia associated with chronic kidneydisease - Aranesp(D is indicated for treatment ofanemia associated with chronic kidney disease,including patients on dialysis and patients not ondialysis .

LOTREL®_(amlodipine besylat e /benazeurilHCI)_Learn more about the clinical benefits of fixed-dose combination therapy in patients whosehypertension is inadequately controlled by monotherapy .

Evaluation of Mechanical Assistance for the Indicated for the treatment of moderate to sever e

In the Aug. 16 rapid access issue ofCirculation, a report from the Randomized Namenda® (memantine hydrochloride)-

Treatment of Congestive Heart Failure dementia of the Alzheimer's type . Review clinical(REMATCH) trial described 129 patients with findings, read full Prescribing Information .

end-stage heart failure ineligible for cardiactransplantation . Survival analysis showed a Other Product InfoSites48% reduction in the risk of death from anycause in the group randomized to receive LVAD compared with the group receiving optimummedical treatment. Although the quality of life in the device group was significantly improved at oneyear, the incidence of serious adverse events was 2 .35 times higher. The authors note tha tREMA TCH was praised as a landmark study, supporting the concept of "destination therapy" usingimplantable LVADs, but they say there is still much room for improvement, and additionalrandomized controlled trials with second-generation devices such as the Jarvik 2000 are stillneeded.

To lea rn more about clinical use of L VADs and related devices, Medscape 's Lau rie Barclayinterviewed Yoshifumi Naka, MD, PhD, director of the Cardiac Transplantation and MechanicalCirculatory Support Program and assistant attending surgeon at New York-Presbyterian Hospital,and Herbert Irving Assistant Professor of Surgery at the College of Physicians & Surgeons,Columbia University, in New York City. Dr. Naka is also a consultant for Terumo Hea rt, Inc.

Medscape : Please describe the HeartMate XVE LVAS and its indications for use in lieu of aheart transplant.

Dr. Naka : The HeartMate LVAS is a pusherplate left ventricular assist device . The device can be

SEARCH

l: Medscape

C MEDLINE

C DruglnfoAdvanced S

Ca dust

http://www.medscape .com/viewarticle/48801 I?rss 12/27/2004

Advances in LVADs: An Expert Interview With Yoshifumi Naka, MD, PhD Page 2 of4

implanted intracorporeally, meaning that the mainframe of the device can be placed in the body .The location of the device is in the left upper abdominal quadrant, either intra-abdominal orproperitoneal . The device draws blood from the left ventricle and pushes it back to the aorta . Thisdevice still has the percutaneous driveline, and a patient is tethered to the controller, about the sizeof a portable CD player, which is connected to either the power base unit and the monitor, orbatteries . When the device operates on batteries, it lasts for about four to six hours .

The indication . . . is as a bridge to heart transplant, [for] patients who are on the waiting list for hearttransplant, and their condition has deteriorated even with maximum medical therapy, thus thepatients cannot wait for heart transplant any longer, and then a device is implanted to make thepatients survive until heart transplantation - this is called bridge-to-heart transplantation.

Medscape : What testing has been done with this device to date, how many patients havebeen implanted, and what were the outcomes?

Dr. Naka : For bridge to hea rt transplantation , the prototype of this device , which is anintracorporeal pneumatic pump , was tested more than 10 years ago, comparing the survival ofpatients receiving the device with those who were treated medically . The study showed a muchbetter outcome with the device treatment in terms of the survival to transplant, and the device wasapproved by the FDA [Food and Drug Administration ] for the bridge indication .

The next type of device , which is the same name , Hea rtMate , but Hea rtMate Vented Electric (VE)LVAD, subsequently went through another study . The study again demonstrated better results withthe device than with medical therapy , and the device was approved by the FDA for the bridge use .Another device , the Novacor LVAS, went through a similar study at the same time and wa sapproved by the FDA for the bridge use .

Regarding destination therapy, the Heartmate VE LVAD was studied nationwide, involving 20centers, the National Institutes of Health and the company called Thoratec, and the study wascompleted in 2001 . The REMATCH study showed a significant survival and a [quality-of-life] benefi twith the device therapy compared with the optimal medical therapy .

The Hea rtMate devices , including the intracorporeal pneumatic device and VE device , have beenplaced in close to 4,000 patients all over the world at about 180 implantation centers . The majorityof implants [are still used as a] bridge to transplant .

There have been 115 destination therapy implants since the FDA approval in November 2001 . InOctober 2003, the Center for Medicare and Medicaid Services approved this device for destinationtherapy reimbursement . Since then, 81 devices were implanted .

Medscape : What are the advantages and disadvantages of this technique compared withheart transplantation?

Dr. Naka : First, compared to heart transplant, the device is always available . You don't need to waituntil a donor heart becomes available ; there is no waiting list for the device ; and implantation canbe performed in an elective surgery . Second, the device continues to be modified and improved, sothat you may be able to see a better device . As devices improve or device technology advances,management strategy will change, so that you would expect a better outcome . Third, the device canbe cheaper. Currently the device is very expensive, much the same as automobiles were 80 yearsago. Very few people could afford it then, but now everybody has cars . We would expect that thedevice can be much cheaper as the field expands . Fourth, the patients with a device can be freefrom cumbersome immunosuppression drugs . Such drugs have considerable side effects .

The disadvantages may be : First, the current device still requires a very invasive surgery, andcurrent heart transplantation survival is still better than with the device therapy, although boththerapies have never been compared in a randomized trial . The destination therapy patient isactually sicker than the heart transplant patient. With the current destination therapy indication,patients are older or have organ dysfunctions, which preclude patients from heart transplant . Eventhough the last destination therapy trial using the HeartMate LVADs showed that the device therapy

http://www.medscape .com/viewarticle/488011 ?rss 12 /27/2004

Advances in LVADs: An Expert Interview With Yoshifumi Naka, MD, PhD Page 3 of 4

provided less survival compared with heart transplantation, we have to consider this challengingpatient population . The third disadvantage is that the current device does not last long . The patientsmay need another surgery to exchange the device at around two years . And also the devicetherapy is associated with significant complications such as infections and device malfunction .

Medscape : How many patients could theoretically benefit from this technology, and howmany do you anticipate will be permanently implanted with the HeartMate LVAS ?

Dr. Naka : Many patients need heart replacement therapy, not only device therapy but also hearttransplant therapy . We used to estimate 50,000 to 100,000 patients a year who need some type ofheart replacement therapy . Currently, we don't see such a number of patients visiting clinicsseeking heart replacement therapy . I would estimate the number would be probably 200 implantsper year for destination therapy in the next two years .

Medscape : What additional studies are planned ?

Dr. Naka : For bridge to transplantation there are several different devices being tested, such as theMicromed DeBakey VAD, HeartMate II, Jarvik 2000, and Arrow LionHeart LVAD . All over the world,many device companies are trying to develop new devices . I would count about 30 devices i nclinical trials or that will be in trials soon . Regarding destination therapy, Novocal LVAS is in a trialcomparing it with the HeartMate LVAD . There will be numerous trials comparing new devices to theexisting devices in the near future .

Medscape: Have guidelines been developed regarding selection of patients for LVADimplantation and regarding optimal management ?

Dr. Naka : The selection criteria in terms of bridge to transplant depends on each institute and oneach physician's practice . Basically, patients who are on the heart transplant waiting list and beingtreated by medical therapy, and if the physicians think the patients cannot wait for heart transplant,then that's the time for the device implant .

In terms of destination therapy, I do believe that the majority of physicians are using the indicationsused in the REMATCH study, basically, patients with end-stage congestive heart failure beingtreated with certain heart failure medication and noneligible for heart transplantaion .

Medscape: Have there been any estimates of cost-benefit, and if so, what do they reveal ?

Dr. Naka : The cost of the device therapy is still expensive . The cost analysis of the REMATCH trialhas been published, which demonstrated that the average expense per patient is around $200,000,This amount of money is comparable to the cost of current heart or liver transplants .

Medscape : Do Medicare and other third-party payors reimburse for this treatment?

Dr. Naka : Medicare will reimburse either FDA-approved devices or category B devices for bothbridge to transplant and destination therapies . The third payer insurance will pay for bridge totransplant and destination therapies using FDA-approved devices . The investigational devices suchas Heartmate II, Micromed DeBakey VAD, and Jarvik 2000 currently in trials are called category Bdevices. These should be reimbursed by Medicare, but the third-party payers may not reimburse ;we always negotiate with them for each case .

Circulation . Published online Aug . 16, 2004 .

Reviewed by Gary D. Vogin, MD

Laurie Barclay, MD Freelance writer for Medscape Medical New s

http ://www.medscape.com/viewarticle/488011?rss 12/27/2004

EXHIBIT C

ORIGINAL PAPERS AND DISCUSSION S

Left Ventricular Assist Devices as PermanentHeart Failure Therapy

The Price of Progres s

Mehmet C. Oz, MD , * Annetine C. Gelijns, PhD, * Leslie Miller , MD, . Cuiling Wang, MS, *

Patrice Nickens , MD, f Raymond Arons, PhD, * Keith Aaronson , MD,. Wayne Richenbacher, MD,'

Clifford van Meter, MD, * Karl Nelson , MD, BA, t Alan Weinberg , MS, * John Watson, PhD, f

Eric A. Rose, MD , * and Alan J. Moskowitz, MD *

Summary Background Data : The REMATCH tri al evaluated the

efficacy and safe ty of long-term left ventricular assist device

(LVAD) suppo rt in stage D chronic end-stage heart failure patients.Compared with optimal medical management, LVAD implantation

significantly improved the su rv ival and quality of life of these

terminally ill patients . To date , however, there have been no anal-

yses of the cost related to the LVAD surv ival benefit . This paperaddresses the cost of hospital resource use, and its predictors, forlong-term LVAD patients .

Methods: Detailed cost data were available for 52 of 68 RE-MATCH patients randomized to LVAD therapy . We combined the

clinical dataset with Medicare data, standard billing forms (UB-92),

and line item bills provided directly by clinical centers . Charges

were conve rted to costs by using the Ratio-of-Cost- to-Charges for

each major resource category .Results : The mean cost for the initial implant-related hospitalizationwas $210,187 ± 193,295 . When implantation hospitalization costsare compared between hospital survivors and nonsurvivors, the

mean costs increase from $159 ,271 ± 106,423 to $315,015 ±

From the * International Center for Health Outcomes and Innovation Re-

search and the Department of Surge ry, Columbia University, New York,

NY ; tThe National Hea rt Lung and Blood Institute . Bethesda, MD ; I the

University of Michigan, Anti Arbor . Ml ; §Universi ty of Iowa , Iowa City,

IA ; Ochsner Medical Foundation , New Orleans , LA ; LDS Hospital, Salt

Lake City, UT ; University of Minnesota, Minneapolis, MN .

The REMATCH trial was supported , in part , by a cooperative agreement(HL-53986) funded by the National Heart Lung and Blood Institute of theNational Institutes of Health ( NIH), Bethesda , MD, and Thoratec Cor-

poration , Pleasanton, CA . Additional funding for the routine costs ofclinical care associated with the trial was made available by the Centerfor Medicare and Medicaid Services and by the part icipating clinicalcenters .

Reprints : Annetine C . Gelijns, PhD, International Center for Health Out-

comes and Innovation Research, 600 West 168 'i Street ( 7th Floor), NewYork, NY 10032 . E-mail : acplO@ columbia .edu

Copy ri ght © 2003 by Lippincott Williams & Wilkins0003 - 4932/03/23804-057 7DOI : 10 .1097/01 . slx .0000090447 .73384 . ad

278,713 . Sepsis, pump housing infection, and perioperative bleedingare the major drivers of implantation cost, established by regression

modeling. In the patients who survived the procedure (n = 35),

bypass time, perioperative bleeding, and late bleeding were thedrivers of cost. The average annual readmission cost per patient for

the overall cohort was $105,326 .Conclusions : The cost of long-term LVAD implantation is com-

mensurate with other life-saving organ transplantation procedureslike liver transplantation . As an evolving technology, there are anumber of opportunities for improvement that will likely reduce

costs in the future .

(Ann Surg 2003 ;238 : 577-585 )

S ince the inception of the National Institutes of Health(NIH) artificial heart program in 1964, significant publi c

and private funds have been invested in the development of

left ventricular assist devices (LVAD) . In the mid 1990s,

these devices received Food and Drug Administration (FDA)approval to support patients awaiting cardiac transplantation .

Favorable results in this bridge to transplant population en-couraged the design of the multicenter REMATCH (random-ized evaluation of mechanical assistance for the treatment ofcongestive heart failure) trial to evaluate the efficacy andsafety of long-term LVAD support in patients with chronic

end-stage heart failure (stage D) . Compared with optimalmedical management (n = 61), LVAD implantation (n = 68)doubled the 1-year survival rate (from 25 to 51%) in this

terminally ill population. Moreover, these patients had asignificant improvement in quality of life and functionalstatus compared with their medical counterparts .' The edito-

rial accompanying this publication concluded with the obser-

vation: "We now know that ventricular assist devices prolong

life ; we do not yet know for how long and at what cost." 2

Annals of Surgery • Volume 238, Number 4, October 2003 577

Copyright Lippincott Williams & Wilkins . Unauthorized reproduction of this article is prohibited,

Oz et al Annals of Surgery • Volume 238, Number 4, October 200 3

This concern is critically important because congestiveheart failure is a highly prevalent and growing disorder .

Overall , 4.7 million Americans are affected, and CHF is acontributing factor in over 250 ,000 deaths per year . With over900,000 hospitalizations in 2002, the annual cost of thisdisease is estimated to range from $10 to $40 billion .3 Given

the magnitude of the end-stage heart failure population andthe life-threatening nature of the disease , the clinical andpolicy-making communities will now need to confront chal-lenging resource allocation decisions that require insight intodetailed economic as well as clinical data. To date, there are

no studies exploring the cost of LVAD as destination therapy .Published analyses only review the cost of bridge to trans-

plant patients in single centers .4 This paper examines the costof hospital resource use, and the predictors of such cost, for

the LVAD patients enrolled in the multicenter REMATCHtrial .

METHOD S

Patient Population and Treatment ModalitiesThe trial targeted patients with chronic end-stage hear t

failure, in NYHA class IV for at least 60 of the previous 90days before enrollment, despite adequate medical therapy .Detailed trial eligibility criteria are documented elsewhere .5

We were able to obtain detailed cost records for 52 outof the 68 patients (77%) . The remaining 16 patients were notin the Center for Medicare and Medicaid Services (CMS)database, and the participating hospitals were unable to pro-vide cost data for these patients . All device patients receivedthe HeartMate VE LVAD and associated medical care . A

surgical management committee developed guidelines andmonitored adherence to them. The LVAD patients werecompared with patients on optimal medical management,which included the use of angiotensin-converting enzymeinhibitors (ACEI), diuretics, digoxin, and beta-blockers, if notcontraindicated . Guidelines were established, and a medicalmanagement committee monitored adherence . The study wasapproved by the institutional review board, and all patients

signed informed consent .

Costing MethodologyTo determine hospitalization costs, the REMATCH

data set was combined with data from CMS (common work-ing file), standard billing forms (UB-92), and line item bills

provided directly by clinical centers . All costs prior to patientrandomization were eliminated to provide a uniform startingpoint for trial-related treatment costs . Merging of these data-bases enabled an accurate compilation of implantation hos-pital charges for 52 of the 68 LVAD patients .

Institution-specific cost reports were used to calculateRatio-of-Cost-to-Charges (RCCs) for each major resourcecategory . The VAD cost was estimated to be $60,000, which

was the cost to high-volume institutional users . Fees forprofessional services were not included in this analysis, inpart because many of the physicians in the trial did not bill fortheir services . Implantation hospitalization costs began atrandomization and ended at discharge from the acute carefacility . Rehospitalization costs included readmissions toacute care facilities or intermediate care/rehabilitation cen-ters .

Study Design and Statistical Analysi sThe REMATCH trial was conducted in 20 centers and

supported by a cooperative agreement among the NationalHeart, Lung, and Blood Institute, Thoratec, Inc ., and Colum-

bia University . The clinical data set used for this analysis wasclosed on June 20, 2002. The primary end point was all-causemortality, analyzed by intention to treat, using the log-rank

statistic . Adverse events were adjudicated by an externalmorbidity and mortality committee and designated as seriousif they caused death, permanent disability, threatened life, orrequired or prolonged hospitalization . The trial follow-up wasevery 4 weeks, for a total of 24 visits or 672 days . Survivaland costs were truncated at that time . Frequency of occur-rence for serious adverse events was analyzed by Poisson

regression . Continuous variables were expressed as means ±standard deviation .

Costing data were compared by Student t test afterlog-transformation and predictors determined by regression .

The multiple regression models evaluated baseline factors(eg, age, sex, renal function, and blood pressure), operativefactors (eg, reoperative status, peri-operative bleeding, andbypass time), and postoperative events (eg, stroke and devicereliability) as independent variables . To assure that our cost-

ing population was representative of the overall LVAD co-hort, we compared the frequency of critical adverse events(ie, sepsis, bleeding, and device failure) in those with and

without cost data . Average annual in-patient costs werecalculated by determining the average number of hospitaliza-tions and associated costs per patient-day of LVAD supportand annualized to 1 year. A few readmission costs (7 .4% of

all length of stay [LOS]) were missing from the economicdataset . However, from the clinical dataset we knew thelength of stay (ICU and regular floor days), major operativeprocedures, and whether an LVAD was replaced for eachpatient. We inferred the costs for these readmissions by usingthe average cost of a resource category and multiplying it bythe units of that resource use .

RESULTS

REMATCH Clinical DataTable 1 depicts the patient demographics and baseline

characteristics of the REMATCH LVAD costing subgroup(n = 52) and the balance of the REMATCH LVAD popula-

578 © 2003 Lippincott Williams & Wilkins

Copyright Lippincott Williams & Wilkins . Unauthorized reproduction of this article is prohibited .

Annals of Surgery • Volume 238, Number 4, October 2003 The Hospital Costs of Long-Term Ventricular Assist Device Therap y

TABLE 1 . Baseline Characteristics

LVAD Costing LVAD NoncostingBaseline Characteristics Subgroup (n = 52) Subgroup (n = 16) P

Age (years) 67 ± 9 .4 64 ± 8 .0 0 .268 5

Male gender (% of patients) 79 75 0 .7456

Ischemic cause of heart failure (%) 79 75 0 .7456

Left ventricular ejection fraction (%) 17 ± 5 .4 17 ± 5 .1 0 .949 9

Blood Pressure (mm Hg )

Systolic 101 ± 16 100 ± 12 .9 0 .738 7

Diastolic 62 -!- 11 61 -!- 9 .5 0 .884

Pulmonary capillary wedge pressure(mm Hg) 25 ± 9 .7 24 ± 12 .7 0 .6026

Cardiac index (1/min/m2) 2 -'_- 0 .6 2 ± 0 .5 0 .2766

Heart rate (beats/min) 83 -!- 17 .2 86 ± 13 .2 0 .613 1

Pulmonary vascular resistance(Woods units) 3 .3 ± 1 .8 3 .4 ± 2 .2 0 .836

Serum sodium (mmol/L) 135 -!- 5 .5 134 ± 5 .2 0 .7458

Serum creatinine (Amol/L) 1 .8 ± 0 .6 1 .7 ± 0 .7 0 .5333

Concomitant medications ('% o fpatients )

Digoxin 87 88 0.920 9

Loop diuretics 94 100 0.325 8

ACE inhibitors 56 81 0.083

A11 antagonists 10 13 0.664

Amiodarone 42 44 0.918 7

(3-blockers 21 31 0 .405 1

Intravenous inotropes 67 63 0 .7222

NYHA classification 4 4 1 .0 0

Quality of life

Minnesota Living with HeartFailure questionnaire 76 ± 17 71 ± 19 0 .3119

SF-36 (Physical Functioning) 17 -!- 17 26 ± 22 0 .0747

SF-36 (Role Emotional) 31 ± 40 40 ± 47 .5 0 .503 5

Beck Depression Inve ntory 19 ± 9 .7 17 ± 7 .5 0 .417 6

Mean ± standard deviation ; LVAD, left ventricular assist device; Minnesota Living with Heart Failure

questionnaire: 0 (beat) to 105 (worst) ; SF- 36, Short Form 36 questionnaire : 0 (worst) to 100 (best); BDI, Bec k

Depression Inventory : 0 (best) to 64 (worst); ACE, angiotensin-converting enzyme; A2, angiotensin 11 receptor ;

NYHA, Median New York Heart Association Functional Class : I (best) to 4 (worst) .

tion (n = 16). There was no significant difference between

the 2 groups . The one-year su rv ival in the costing subgroupwas 52% (95% Cl, 38 -66%) and 24% (95% Cl, 10-38%) at

2 years . The surv ival for the LVAD patients not in ourcosting subgroup was not significantly different (P = 0 .87) .As of closure of the data set in June 2002 , there were 16

patients alive in the LVAD coho rt . Serious adverse eventswere similar in frequency for all but 5 event types ( peripheralembolic events ; nonperioperative myocardial infarction; sus-

pected device malfunction ; and percutaneous site/pocket in-

fection) . None of these events were significant predictors of

cost . Sepsis and bleeding were the events with highest fre-

quencies (Table 2) .

LVAD Implantation Hospitalization Cost sThe mean length of stay was 43 .5 days, and the median

length of stay was 29 days, with 17 in-hospital deaths, in ourcosting subgroup, which were not significantly different fromthe subgroup constituting the balance of the LVAD popula-tion (mean = 50 .9 days and median = 29 days, P = 0 .83 and

P = 0.85, respectively) . The mean cost for the initial implant-related hospitalization was $210,187 ± 193,295 . The median

CO 2003 Lippincott Williams & Wilkins 579



TABLE 2 . Serious Adverse Events

Rate per Pati e nt-Y ear

LVAD Costing LVAD NoncostingEvent Subgroup (n = 52) Subgroup (n = 16) P

All 5 .62 8 .62 0 .1 3

Bleeding (non-neurological) 0 .64 0 .26 0 .1 9

Neurologic dysfunction 0 .40 0 .66 0 .2 5Supraventricular arrhythmia 0 .12 0 .07 0 .4 5Peripheral embolic event 0 .04 0 .33 <0 .0 1

Sepsis 0 .46 0 .85 0 .1 4

Local infection (non-systemic) 0 .24 0 .66 0 .04

Renal failure 0 .24 0 .20 0 .7 9Other adverse events 1 .23 1 .64 0 .4 2

Syncope 0 .08 0 .07 0 .7 8

Psychiatric disease 0 0 .13 0 .1 2

Cardiac arrest 0 .06 0 .20 0 .0 7

Non-peri operative MI 0 0 .07 0 .04

Ventricular arrhythmia 0 .28 0 .13 0 .3 3

Hepatic failure 0 .04 0 .00 0 .9 9

Suspected LVAD malfunction 0 .69 1 .58 <0 .0 1

Perioperative bleed 0.42 0.46 0 .8 6

Percutaneous site/pocket infection 0 .28 0.66 0.0 5

Pump housing infection 0 .18 0.26 0.5 6

LVAD-related RHF 0 .12 0.26 0 .2 0

LVAD system failure 0 .06 0.07 0 .8 8

Device thrombosis 0 .06 0.07 0 .8 8

Perioperative MI 0 0 -

Neurologic dysfunction, stroke, TIA, toxic/metabolic encephalopathy ; LVAD, left ventricular assi st device ;percutaneous site/pocket infection, drive line infection ; pump housing, blood contacting surfaces, inflow or

outflow tract .

cost was $137,717 with a range of $72,583 to $1,123,565(Table 3) . The skewing of the costing data set was in part dueto an outlier whose charges were almost 3 standard deviationsabove the mean for the group . Days spent in the ICU andregular floor (33%), and LVAD (30%) were the leading costcategories .

Of the 52 study patients, 35 survived the initial hospi-talization . When implantation hospitalization costs are com-pared between hospital survivors and nonsurvivors, the meancosts increased from $159,271 ± 106,423 to $315,015 ±278,713 . Median costs increased from $136,700 to $183,805 .These differences were partly driven by the increased lengthof stay from 35 ± 21 days to 66 ± 75 days .

Predictors of Implantation CostsTable 4 depicts the independent predictors of implan-

tation cost based on multiple regression analysis . Sepsis,pump housing infection, and perioperative bleeding are themajor drivers of implantation cost (n = 52) . In the patients

TABLE 3 . Resource Categories for the Index Hospitalizatio n

Average Standard Percen t

Resource Category Cost/Patient Devia tion Total Cos t

LVAD $62,308 $11,651 29 .64%

ICU days $50,262 $82,076 23 .91 %

Regular floor $18,807 $45,286 8 .95%

Operating room $10,983 $9,913 5 .23%

Imaging $3,833 $5,209 1 .82%

Other diagnostics $3,197 $3,222 1 .52%

Laboratory $10,426 $14,161 4 .96%

Blood products $6,773 $10,731 3 .22%Pharmacy $15,685 $20,219 7 .46%

Medical supplies $12,376 $21,536 5 .89%Therapy $13,784 $35,534 6 .56%

Renal $1,674 $5,988 0.80°/%

Other $79 $161 0.04 %

580 © 2003 Lippincott Williams & Wilkin s

Copyright (_ Lippincott Williams & Wilkins . Unauthorized reproduction of this article is prohibited .

Annals of Surgery • Volume 238, Number 4, October 2003 The Hospital Costs of Long-Term Ventricular Assist Device Therapy

TABLE 4. Predictors of Cost

All LVAD Patients (n = 52) Parameter Standard Error P

Sepsis 1 .23 0 .35 0.00 1

Pump housing infection 0.93 0 .44 0.038

Perioperative bleeding 0 .44 0 .24 0 .06 6

Su rvivors of Index Hospitaliza tion (n = 34) P a r ameter Estima t e S tandard Error P

Bypass time (15-minute increments) 0 .01 0 .001 0 .00 8

Late bleeding (after 24 hours) 1 .1 0 .5 0 .03 7

Perioperative bleeding 0 .53 0 .27 0 .06 5

who survived the procedure (n = 35), bypass time, periop-erative bleeding, and late bleeding were the drivers of cost .

Table 5 uses the model to predict the cost of the indexhospitalization for all patients. In the absence of sepsis, pumphousing infection, and perioperative bleeding, the predictedcost would be $119,874 . If sepsis alone were present, theimplantation hospitalization would be expected to increase to$263,822 . If all 3 of these adverse events were present, theimplantation hospitalization would be expected to reach$869,199 .

Annual Readmission CostsThe costing cohort experienced a total of 18,406

LVAD-supported days, of which 14,510 days were out of thehospital, during the follow-up period . There were a total of152 readmissions, which involved 34 patients (4 .5/patient)and 1634 hospital days . Sixteen patients in the cohort had 17LVAD replacements during the entire follow-up period . The

average readmission cost was $30,627 ± 61,569 . The aver-age annual readmission cost per patient for the overall cohortwas $105,326, and $99,118 for the 27 patients who survivedmore than I year. When including both the implantation andreadmission cost, the average annual cost for these 27 pa-

TABLE 5 . Cost Predictions

Clinical Predictors Present Predicted Cost

None $119,874

Perioperative bleeding $153,78 9

Pump housing infection $211,75 2

Sepsis $263,82 2

Perioperative bleeding & pum phousing infection $297,70 8

Sepsis & perioperative bleeding $379,27 2

Sepsis & pump housing infection $576,58 8

Sepsis & perioperative bleeding & _pump housing infection $869,199

tients was $196,116 . This is in contrast to the $309,273annual cost for the entire costing cohort (n = 52) .

DISCUSSIONCongestive heart failure (CHF) is a highly prevalent

and life-threatening condition . Randomized trials have shownthe mortality in the subset of patients with refractory end-stage disease to exceed 50% at 1 year, and in the REMATCHtrial it was even higher (75%) . 1,6 These rates are higher than

those for breast, colon, and even lung cancer . Pharmacolog-ical treatment offers limited benefit to these patients, whileheart transplantation is seriously constrained by the shortageof donors . The REMATCH trial paved the way for FDAapproval of LVADs as destination therapy, and payers mustnow confront coverage and reimbursement decisions for this

indication. Shortly after FDA approval, the BlueCross andBlueShield Association's Technology Evaluation Center,which provides scientific assessments of selected medicaltechnologies to the Plans, concluded that the use of LVADsfor destination therapy in patients with end-stage heart failuremet its criteria for coverage . CMS and other private payerswill be tackling this decision soon . While cost and costeffectiveness do not explicitly enter into their coverage deci-sions, these factors will, undoubtedly, shape the conditions ofthe CMS approval and will expressly enter the decision-making process of many of the private payers .

What is the critical evidence that is required to makethese coverage decisions? Although limited in absolute mag-nitude, this technology offers important survival and qualityof life benefits for a population with a dismal prognosis andfew therapeutic options. The device improved the mediansurvival by 8 .6 months in REMATCH, more than doublingwhat was seen with optimal medical management, and sig-nificantly improving the quality of life of recipients, asmeasured by the SF-36, Minnesota Living with Heart Failure,and the Beck Depression Inventory scales . This net improve-ment in health outcome over an established alternative ther-apy was derived from a randomized trial that was conducted

2003 Lippincott Williams & Wilkins 58 1

Copyriqht,', -:? Lippincott Williams Wilkins . Unauthorized reproduction of this article is prohibited .


in cardiac transplantation centers around the nation, makingthe results generalizable to many clinical centers that holdexpertise in the treatment of end-stage heart failure and theimplantation of mechanical ventricular assist devices . Themean total cost to insert an LVAD in the REMATCH patientpopulation was $210,187, which includes a $60,000 chargefor the device . This is comparable to other life-saving organreplacement procedures, such as liver transplant, which hasbeen estimated to cost $203,434 per procedure .7 This proce-dure has long been accepted by payers, and it is no longerconsidered experimental . Finally, as LVADs for destinationtherapy are an emerging procedure, opportunities exist forreducing costs with experience .

The evidence suggests several areas for improvement .First, our analysis revealed that sepsis was the most importantpredictor of cost . By itself, it more than doubled the cost ofthe index hospitalization, adding roughly $140,000 to the costof the stay . Improvements in the design of current devicesoffer a sizeable opportunity to reduce infections and conse-quent costs for future patients . The REMATCH device uses alarge-bore percutaneous driveline, which is a potential con-duit for bacterial and fungal infection . Newer devices havesmaller, more flexible drivelines or use a totally implantabledesign, which eliminates this portal for infection entirely .Moreover, malnutrition, due to the long course of chronicheart failure preceding implantation, and pump-related gas-tric constriction and a chronic inflammatory state that followsimplantation, is a major factor that predisposes this popula-tion to bacterial and fungal infections . Malnutrition may bereduced with newer axial flow devices, which do not have anintra-abdominal component, and with newer approaches toboth nutritional management and chronic inflammation .

Second, improved surgical proficiency and innovativeapproaches to management of bleeding would address an-other important factor that could drive up the cost of deviceimplantation . In particular, efforts to develop antagonists thatwork at higher levels in the coagulation cascade (eg, onfactors 9 and 10a) may offer anticoagulants that will reducethe current rate of postoperative bleeding .8,9 Device-relatedbleeding has already been reduced with bearing housingmodification and strain relief modification to the outflowgraft .

Third, improvement in device reliability will be impor-tant to minimize the cost of readmissions . Seventeen devicesneeded replacement in 52 patients . The leading causes ofreplacement were, in addition to sepsis, mechanical pumpfailure, and inflow valve incompetence . Reinforcement of thevalve housing has already been implemented and may ame-liorate part of the problem .

Finally, patient selection offers an opportunity to re-duce costs . Survivors of the index hospitalization cost onaverage $156,000 less to manage than nonsurvivors . More-over, those surviving more than 1 year had substantially less

hospital resource utilization than the rest of the cohort($196,116 versus $309,273 per annum) . Clearly, this makesthe case for improving patient selection. However, in ourpredictive model, there were no significant predictors of costamong the baseline patient characteristics . But, this may be aresult of our small sample size . In the bridge-to-transplantpopulation, analyses of "wearable" LVADs have identifiedpreimplant patient characteristics that are independent riskfactors for survival .10 This research has led to reliable scoringsystems for predicting implantation survival ." Although ad-ditional data would be necessary to develop such scoringsystems for destination therapy, such systems could identifypatient profiles of high-risk and high-cost patients that wouldassist in the patient selection process .

In short, should these devices be covered and reim-bursed? These decision-making processes are dependent onanalysis, as well as value judgments . Some would argue thatLVADs offer limited benefits at considerable cost . Costs are,indeed, considerable at this stage of the development of thetechnology. However, this perception ignores that LVADtherapy is a substantial gain for a group of people with aterminal illness . This degree of benefit for patients withpancreatic cancer would be hailed as a major breakthroughand stimulate further development of what would be per-ceived to be a promising therapy . The need for such a therapy

is unquestionable; of the estimated 60,000 patients who couldbenefit from cardiac transplantation each year, we conjecturethat approximately 20% would be candidates for long-termLVAD therapy at present . Moreover, there is considerablepotential for improving the technology in terns of effective-ness and cost . Even in the REMATCH trial, there was asignificant improvement in survival in patients enrolled dur-ing the second half of the trial as compared with thoseenrolled during the first half of the trial, which ultimatelyshould result in a decrease in cost. But, such improvementsdepend upon more widespread use of the technology, whichwould require adequate reimbursement . Contrary to acceptedwisdom, innovation does not predominately occur in thelaboratory, but in clinical practice . 12 Such "learning by us-ing," as first identified by the Nobel Laureate Arrow, is acritical phase of the innovation process, particularly formedical devices and surgical procedures, which depend moreon incremental modification than do pharmaceuticals . 1 3

These learning-by-using experiences generate differenttypes of knowledge. On one hand, these experiences maygenerate information about shortcomings or potential newapplications of a technology that require further fundamentalbench research or engineering/design modifications . Thisfeedback loop was responsible for several important changesto the REMATCH device, including locking screw ringconnectors on the inflow and outflow grafts to avert discon-nections, and outflow graft bend relief to prevent kinking,which was responsible for the inflow valve incompetenc e

582 2003 Lippincott Williams & Wilkins

Copyright Lippincott Williams Wilkins . Unauthorized reproduction of this article is prohibited .


ExternalBattery.,Pack

XVELVAD

FIGURE 1 . A wearable left ventricular assist device (LVAD) andits components . The inflow cannula is inserted into the apex ofthe left ventricle, and the outflow cannula is anastomosed tothe ascending aorta . Blood returns from the lungs to the leftside of the heart and exits through the left ventricular apex andacross an inflow valve into the prosthetic pumping chamber .Blood is then actively pumped through an outflow valve intothe ascending aorta . The pumping chamber is placed withinthe abdominal wall or peritoneal cavity . One percutaneous linecarries the electrical cable and air vent to the battery packs andelectronic controls, which are worn on a shoulder holster orbelt .

observed in REMATCH . On the other hand, the knowledgegenerated in clinical practice may lead to changes in patientselection and management that require no design modifica-tions . The recognition of the importance of sepsis, for in-stance, led to infection management guidelines, which de-fined the choice of antimicrobial prophylaxis, and the use ofabdominal binders to stabilize the driveline exit site .

Coverage and reimbursement of this intervention doesnot mean that the procedure is ready for indiscriminate use .Certification standards for centers need to be introduced thatspecify the clinical experience required in the management ofend-stage heart failure, in mechanical circulatory supportdevices, and the knowledge of transplantation selection cri-teria to assure that those who qualify are selected for thisprocedure . Ultimately, such centers should be certified on thebasis of outcomes . However such determinations will requirea data set that is considerably larger than the 68 patients from

© 2003 Lippincott Williams & Wilkins

Left Batteryomitted for clarity

REMATCH . It argues for the conduct of postmarketingstudies to measure the effectiveness and costs associated withdestination therapy, providing a dynamic set of benchmarksfor centers to meet, which would change with improvementsin devices and management . Such a data set could, in turn ,facilitate a dynamic clinical and policy -making decision pro-cess, which would assure that the use of this technology istailored to the most appropriate patients at a reasonable costto socie ty.

REFERENCE S1 . Rose E, Gelijns A, Moskowitz A, et al . Long-term mechanical left

ventricular assistance for end-stage heart failure . N Engl J Med . 2001 ;345 :1435-1443 .

2 . Jessup M . Mechanical cardiac-support devices-dreams and devilishdetails . N Engl J Med . 2001 ;345 :1490-1493 .

3 . O'Connell J, Birstow M. Economic impact of heart failure in the UnitedStates : time for a different approach. J Hems Lung Trans . 1994 ;13 :S107-Sl12 .

4 . Gelijns AC, Richards AF, Williams DL, et al . Evolving costs oflong-term left ventricular assist device implantation . Ann Thoracic Surg.1997 ;64 :1312-1319 .

5 . Rose EA, Moskowitz AJ, Packer M, et al . The REMATCH trial :rationale, design, and end points . Randomized Evaluation of MechanicalAssistance for the Treatment of Congestive Heart Failure . Ann ThoracicSurg . 1999 ;67 :723-730 .

6 . Califf R, Adams K, McKenna W, et al . A randomized controlled trial ofepoprostenol therapy for severe congestive heart failure : The FlolanInternational Randomized Survival Trial (FIRST) . Am Heart .1. 1997 ;134 :44-54.

7 . Showstack J, Katz PP, Lake JR, et al . Resource utilization in livertransplantation : effects of patient characteristics and clinical practice .NIDDK Liver Transplantation Database Group. JAMA . I999 ;281 :1381-1386 .

8 . Spanier TB, Oz MC, Madigan JD, et al . Selective anticoagulation withactive site blocked factor IXa in synthetic patch vascular repair results indecreased blood loss and operative time . ASAIO J. 1997 ;43 :M526-M530.

9 . Buller HR . Treatment of symptomatic venous thromboembolism : im-proving outcomes . Semin Thromb Hemost . 2002 ;28(Suppl 2) :41-8 .

10 . Deng MC, Loebe M, El-Banayosy A, et al . Mechanical circulatorysupport for advanced heart failure : effect of patient selection on out-come . Circulation . 2001 ;103 :231-237 .

11 . Oz MC, Goldstein DJ, Pepino P, et al . Screening scale predicts patientssuccessfully receiving long-term implantable left ventricular assist de-vices . Circulation . 1995 ;92 :II169-11173 .

12 . Gelijns A, Rosenberg N, Moskowitz A . Capturing the unexpectedbenefits of medical research . N Engl J Med. 1998 ;339 :693-698 .

13 . Arrow K . The economic implications of learning by doing . Rev EconStud . 1962 ;29 :155-173 .

Discussio nDR . D. GLENN PENNINGTON (Johnson City, Tennessee) :

Dr. Rose, this is an outstanding report and we are all indebtedto you for showing all of us in this field that device supportcan actually render results better than that we can do medi-cally. As a matter of fact we have been trying to say that formany years, but this is the first real evidence that that is thecase . I wanted to ask some questions regarding the morewidespread application of these devices .

583


XVE SystemController

Oz et a l

One of them relates to the question of whether selectioncriteria might be changed . You indicated that might be 1 wayto improve the results . What specific changes would youmake in this patient population that you think might stillprovide evidence that it is superior to medical therapy butperhaps reduce cost ?

The other question relates to device costs . You madethe point that the device itself accounted for some 30% of thetotal cost, which all of us think is rather high, of course . ButI wondered, with more widespread application will that costactually go up or will it go down? In other words, was this aspecial deal for the study? Are the devices going to cost twiceas much as we begin to implant them more widely ?

I think we all agree that if we could somehow reducethe number of complications in these patients it could cer-tainly impact costs . Along that thought, what will be theimpact of a totally implantable system? Since this system stillhas a tube coming through the chest wall, which creates apossibility for infection, will a totally implantable devicemake a difference, particularly in costs ?

It was an excellent presentation, and I appreciate theopportunity to discuss it .

DR. ERIC A . ROSE (New York, New York) : Thank you,Dr. Pennington. It is particularly gratifying to have thequestion coming from such an important pioneer in this field .

We frankly don't know yet what the selection criteriashould be. When we did a multivariate analysis to see if thereis a subgroup we could define that had better results with this,no facts emerged. But the REMATCH database only includes68 patients who received devices, so the database is not largeenough to definitively answer the question .

That having been said, I think we have some leads . Onethat was not initially obvious to us and should have been isthe issue of nutrition in these patients . Putting a device insomeone who is severely nutritionally depleted is probablyespecially risky . It is an indication of our state of ignorancethat we didn't even gather prospectively serum albumin datain this trial .

Pulmonary vascular resistance, with regard to cost,shakes out as a predictor. With regard to survival, I don'tthink we have enough power to make that judgment . Agemay also be a factor, although even in the cohort of patientsin this trial that were older than 70 years of age, their one-yearsurvival was double that of the control group .

With regard to cost for the device, in these analyses weimputed a cost that is a reasonable estimate of the market costof the device . I think it is likely that once a monopoly isbroken in this field, and in particular when devices areavailable that don't require as much titanium or 2 prostheticvalves as part of the configuration, eg, some of the axial flowpumps and centrifugal pumps that are already in trials, thecost of the device could come down substantially . I think it i s

584

Annals of Surgery • Volume 238, Number 4, October 200 3

not hard to envision a device or at least a manufacturing costto be in the range of something less than an implantable

defibrillator now.In terms of reducing complications, I think it is cer-

tainly arguable that a totally implantable system would re-duce these . There is an experience now with a fully implant-able VAO, the Arrow Lionheart that has had patients survive

as long as 2 years and even more with a fully implantabledevice. The patient experience is just too small to say thatthese devices are not going to be complicated by infection .The incidence of infection is so high with the wearable

transcutaneous type of device that we have to be able to dobetter than we are doing now.

DR . WILLIAM L . HOLMAN (Birmingham, Alabama) : Dr .

Rose, that was a very nice presentation. And I couldn't agree

with you more about looking at the cost of these high-tech

interventions .

I asked earlier today about cost and accessibility tohigh-tech care . I think that is an important issue and some-thing we need to keep in mind . Some of my own patients onassist devices have had problems just purchasing the materi-als that they require following implantation . These include

replaceable batteries, air filters, et cetera .We have seen dramatic improvements in the quality of

life for some of these patients . Presumably as you and theInCHOIR group move forward with analysis you will begin

to tackle the more complex question of cost and benefit . In

that regard, how important do you think device reliability willbe in improving cost efficacy? In the REMATCH trial therewere a substantial number of device failures out at about 12

to 16 months . Recently Jim Long from LDS Hospital in Salt

Lake City presented new data suggesting that the reliability ofthis particular device has been enhanced by several recent

changes . Do you think that improved device reliability will

provide a small or large increment to the quality of adjustedlife years for these patients?

DR . ERIC A . Rose (New York, New York) : I suspect it

will be a blend of incremental and hopefully faster change . Iam a firm believer that dissemination of this technology isgoing to allow the rapid development of better, more durabledevices .

As a result of this trial, there have been more than 40modifications made to the device that we initially employed

in this trial . That set of changes was approved last week bythe FDA .

Our expectation was that this was a two-year device .We did a small preliminary randomized trial before we didREMATCH called PREMATCH in which the two-year sur-vival rate of device patients was zero . That ended in 1998 . In a

CD 2003 Lippincott Williams & Wilkins

Copyright , Lippincott Williams Wilkins . Unauthorized reproduction of this article is prohibited,


mere 5 years we have gone to almost a 40% two-year survivalrate . I am optimistic we will be able to do even better.

DR . NANCY L . ASCHER (San Francisco, California) : Dr .

Rose, I have an unpopular question . You have told us aboutthe cost of caring for these patients, but you haven't told usabout their contribution to margin . The cost of taking care ofthese patients is over $4,000 a day . I doubt that you are ableto recoup that . Can you talk about that?

DR . ERic A . RoSE (New York, New York) : Until the90th patient enrolled there was no contribution margin . All

the costs were borne by the centers that participated in thistrial . And I think that is a remarkable act of multi-institutionalphilanthropy to make this happen .

We actually were the first trial to be approved forreimbursement by Medicare after Clinton announced in hislast 6 months in office that Medicare would pay for random-ized trials of potentially life-saving therapy. And I must say

if that had not happened I am not sure we would havecompleted it, because there was a good deal of negativefeedback from hospitals and their administrators with regardto the costs involved .

That having been said, we have had a very substantialdialogue with Medicare as far as the approval process . I and3 other coinvestigators have petitioned Medicare to pay for

destination therapy . That was the basis for a recent MedicareCoverage Advisory Committee decision .

The Medicare staff tell us that the statute under whichthey operate says that they have to pay for things that are

necessary and reasonable . If they are going to start saying that

approaches that make people live longer and feel better arenot necessary and reasonable care, they realize this essen-tially up-ends their entire reimbursement mechanism . So they

have been enormously cooperative in moving this ahead .

With regard to how much hospitals will be paid, this isalready part of an existing DRG, DRG-525, which right now

pays hospitals poorly. But the reason for that many have thought

was some diabolical plot to restrict this technology. What Medi-

care does is go through their caseload, see what the costs are, andthen they impute a reasonable payment for it .

This DRG also includes postcardiotomy shock support .Those patients had a 75% inpatient mortality and generally a

short length of stay . The devices that are employed for thatindication are much cheaper, about $10,000 each . The pay-

ment just went up about $20,000 this past year because bridgepatients are starting to be blended into that cost .

We did gather the REMATCH data together with theMedicare people, and we are hoping that if they approve

destination therapy that they will use that cost data as a pointof departure to update the DRG payment as well .

0 2003 Lippincott Williams & Wilkins 585

Copyright,. :- Lippincott Will rrl Wilkins . Unauthorized reproduction of this article is prohibited .

EXHIBIT D

The Cost of Long-Term LVAD ImplantationAlan J. Moskowitz, MD, Eric A. Rose, MD, and Annetine C . Gelijns, PhDInternational Center for Health Outcomes and Innovation Research, Departments of Surgery and Medicine, College of Physiciansand Surgeons and the Joseph L . Mailman School of Public Health, Columbia University, and New York Presbyterian Hospital,New York, New Yor k

Background . With increasing use of left ventricularassist devices (LVAD ) worldwide, the economics ofLVAD implantation have become an important focus ofconcern. Although these devices have high unit costs,they are the only hope for su rvival for a large group ofterminally ill patients and are likely to have an expan-sion in indications for use .

Methods . We calculated the costs associated with long-term LVAD implantation . We used the ratio of cost-to-charges method to calculate hospital costs per resourcecategory , market prices for drugs and device, and pay-ments for physician se rvices .

Results . Based on our expe rience with "bridge-to-transplantation" patients , we estimated average first-year

costs to be $222,460 including professional fees and$192,154 excluding professional fees . The latter figure iscomparable to average first-year costs for cardiac trans-plantation, which is $176, 605 without professional fees atour institution .

Conclusions. The costs of LVAD therapy will changeafter the first year of implantation , and device reliabilityand longevity will be important factors in determiningthese costs . Should the costs of LVAD therapy continueto track those of cardiac transplantation, devices will becost-effective only if they offer similar efficacy to cardiactransplantation .

(Ann Thorac Surg 2001;71 :S195-8)© 2001 by The Society of Thoracic Surgeon s

Wtth increasing use of left vent ricular assist devices(LVAD) worldwide, the economics of LVAD im-

plantation have become a key concern for a variety ofreasons . First, LVADs are a "big ticket" item, rivaling thecost of cardiac transplantation and lung volume reduc-tion surgery. Second, LVADs may offer the only hope ofsurvival for a critically ill group of patients, a fact thatraises complex issues related to the economics of care inthe context of a life-threatening condition . Third, withongoing improvements in the device and clinical man-agement, LVADs could be used for an ever-widening setof interventions . The US Food and Drug Administration(FDA) approved their use as a bridge to transplantation .Experience with LVADs in bridge-patients has beenpositive . Such patients have been able to return home totheir families with a comparatively good quality of life[1] . Consequently, many in the field have been givingserious consideration to using these devices for otherindications, such as an alternative to transplantation inpatients who have chronic advanced heart failure andthose with acute cardiogenic shock. Thus, the devices arebeing evaluated for patient populations with commondisorders .

Heart failure is a major public health problem and itsmanagement commands a significant amount of healthcare resources . Population-based studies estimate tha t

Presented at the Fifth International Conference on Circulatory SupportDevices for Severe Cardiac Failure, New York, NY, Sept 15-17, 2000 .

Address reprint requests to Dr Moskowitz, International Center forHealth Outcomes and Innovation Research, Columbia University, Hark-

ness Pavilion, Rm 756, 180 Fort Washington Ave, New York, NY 10032 ;e-mail: [email protected] .

2001 by The Society of Thoracic SurgeonsPublished by Elsevier Science Inc

heart failure afflicts between 3 and 4 million Americans,with about 400,000 new cases being diagnosed each year[2, 3] . The number of hospital admissions has increasedtenfold since 1970, and heart failure is the leading diag-nosis-related group among elderly patients [4, 5] . In fact,Medicare alone paid $2 .4 billion to hospitals for about613,000 heart failure hospitalizations in 199 1.(diagnosis-related group 127 for heart failure cases only, excludingshock), whereas total treatment costs (including inpatientand outpatient costs) for this condition were estimated tobe more than $1.0 billion in 1991 [6] . Using other estima-tion techniques, O'Connell and Bristow estimated thisfigure to be $38 billion [7] . Regardless of which estimateis more accurate, both figures represent significant re-source expenditures (ie, between 1% and 4% of totalhealth care costs) .

Similarly, the economic burden of acute cardiogenicshock, a condition that complicates acute myocardialinfarction and cardiothoracic surgical procedures, is alsohigh. Approximately 1 .7 million Americans have an acutemyocardial infarction each year. Despite major advancesin treating this condition, there has been little impact onthe severe complication of cardiogenic shock . Acutecardiogenic shock remains the leading cause of death inpatients with acute myocardial infarction, occurring in7% to 15% of patients with a 30-day mortality of between50% and 80%. Even the application of revascularization inthe acute setting for these patients has only a modestimpact on short-term survival, suggesting that perhapsthe restoration of blood flow alone is inadequate tosustain them. If revascularization is to have any benefit,the myocardium may need support while recovery isoccurring, offering a possible role for LVADs .

In the current economic environment of constraine d

0003-4975/01/$20 .00PII S0003-4975(00)02621-7

S196 CIRCULATORY SUPPORT MOSKOWITZ ET ALCOST OF LONG-TERM LVAD IMPLANTATION

health care resources, it is imperative that the broaden-ing of indications for this emerging technology be guidedby rigorous trials of its benefits and costs . In a coopera-tive agreement with the National Heart , Lung and BloodInstitute of the National Institutes of Health and ThermoCardiosystems (Woburn, MA), we are currently conduct-ing the REMATCH (randomized evaluation of mechani-cal assistance for the treatment of congestive heart fail-ure) trial, comparing implantation with the ventedelectric (VE) HeartMate with optimal medical manage-ment in patients who require but are ineligible forcardiac transplantation [ 8] . This trial will evaluate thesurvival, quality of life, and cost of the HeartMate LVADtreatment. It will address an essential economic ques ti on,namely, how efficient is this technology in using health careresources to generate health? Moreover, it will provide datato analyze the question of how much of an impact the newindication for using this technology will have on the overallhealth care budget. Trials are also being considered foracute cardiogenic shock.

Commensurate with the increasing number of cardiactransplantation candidates, LVAD use has increased inboth number and duration of implantation . Althoughoriginally restricted to inpatient care, by 1995 FDA liber-alized their regulato ry policy and allowed patients toreturn home after satisfying a release protocol designedto assess whether they would be safe at home with animplanted device . This change in clinical practice gave usthe opportunity to analyze inpatient and outpatient ex-periences of these patients, which provided realisticprojections for the costs of long-term LVAD implanta-tion . In turn, these projections allow us to determine justhow effective this technology will need to be to satisfy ourconcerns about cost - effectiveness . We review here ourcosting experience with LVAD implantation, comparethe results with the costs of cardiac transplantation, andoffer observations about cost-effectiveness .

Costs of Initial Hospitalizatio n

We recently reported on our institution's experience withthe electrically driven LVAD in 12 adult patients from1994 through 1995 [9] . We used the experience of all 12patients, that is, patients implanted during both years, toestimate the cost of the implantation admission, andbased our estimates of outpatient costs on patientstreated in 1995 only . Moreover, because FDA regulationprohibited discharge in 1994 and dictated a minimumhospital stay in 1995, we reviewed the hospital recordsand applied predefined discharge criteria (see Table 1) toestablish a date of discharge dictated by clinical concerns .The outcomes for this population during the period ofstudy included 2 deaths, 8 transplants, and 2 transplantcandidates with device support . The average number ofLVAD supported days was 177 days, with a range from 13(due to perioperative mortality) to 481 days (remainingon LVAD support) . The average length of stay was 17 .5 ±5 .32 days . We used the ratio of cost-to-charges (RCC)method to calculate hospital costs per resource category,market prices for drugs and device, and payments for

Ann Thorac Surg2001;71 :S195- 8

Table 1 . LVAD bnplantation Discharge C ri teri a

Recovery from surgery with adequate general health status

Absence of fever or evidence of systemic or drivelineinfection s

Normal liver function test results (transaminases, bilirubin)

White blood cell count (< 11,000/mm3 )

Serum creatinine (< 2 mg/dL)

Echocardiographic evidence indicating that the patient's nativeheart has sufficient contractility to open the aortic valve andmaintain an arterial pressure with the LVAD operating at itslowest rate

Ability of patients and companions to change batteries,maintain the device, and perform activities of daily living .

LVAD = left ventricular assist device.

physician services . The average cost of the initial-implantrelated hospitalization was $141,287 ± 18,513. The costbreakdown by resource use categories is depicted inTable 2. The largest component of hospital cost is thedevice itself, followed by professional payments and stayin the intensive care unit .

For purposes of comparison, we reviewed the cost ofcardiac transplantation at our institution . The averagecost for the initial hospitalization for this procedure was$137,303 . This amount is based on a review of 47 patientsthat received cardiac transplantation during 1992.and

1993. The results are given in 1995 dollars, adjusted at arate of 5% per annum. We conducted the cost analysis incollaboration with the Baxter Corporate ConsultingGroup. Table 3 contains the cost breakdown by catego-ries . The breakdown is a little different from that depictedin Table 2 . Therapy, blood, and diagnostic tests costswere derived using the direct RCC methods . We derivedhospital facilities cost for labor (eg, nursing, housekeep-ing), supplies (for the operating room and floors) using a"bottom up" direct cost determination . The overheadcosts were derived from a "traceback" report, whichultimately allocates all overhead to patient care areas likethe intensive care unit . Room costs, which are reflected inthe overhead and labor categories in Table 3, comprise39% of total costs . This amount is more than that associ-

Table 2 . LVAD Implantation Hospitalization Costs

Resource Category Average Cost % of Total Cost

LVAD $67,085 48 %

Professional paymt $23,935 ± 10,897 17 %

Length of stay

Special care days $14,765 ± 10,874 10 %

Regular floor $ 7,071 ± 7,376 5 %

Operating room $10,818 ± 1,725 8 %

Diagnostics $ 3,900 ~- 3,574 3 %

Laboratory $ 3,407 ± 1,767 2 %

Blood products $ 2,873 ± 2,562 2 %

Drugs $ 3,257 ± 3,229 2 %

Miscellaneous $ 3,235 ± 1,695 2 %

Rehabilitation $ 670 ± 423 0 %

LVAD = left ventricular assist device

Ann Thorac Surg2001;71:S195- 8

Table 3 . Transplant Hospitalization Cos t

Resource Category cost % of Total Cost

Overhead $36,168 26%

Supplies $25,860 19%

Drugs and intravenous agents $23,551 17%

Professional payments $23,935 17%(estimated )

Labor $17,383 13%

Diagnostic $ 7,439 5%

Blood $ 2,007 1 %

Therapy $ 961 1%

ated with LVAD, which had room costs of about 15% . Thesecond largest component for transplantation was sup-plies, including organ acquisition costs and drugs .

Outpatient and Rehospitalization Costs

Moving beyond the initial hospitalization, we examinedoutpatient costs and readmissions . The cohort experi-enced a total of 2,012 LVAD support days, of which 1,266days were out of the hospital . Looking at the outpatientdays for patients implanted in 1995 only, the average was211 (range 16 to 328 days) . The cost of each weekly visit,including professional payments, was $352. The averageprofessional payment per visit was $128 . There were atotal of 11 readmissions during the period of obse rvation,which involved 5 patients and 124 hospital days . The totalcost of readmissions was $215,093 , which corresponds toan average of $43,019 per readmitted patient, $19,554 per

readmission . Thus, on average, patients were readmitted

2 .5 days per month since implantation discharge, corre-sponding to a cost of $5,550 per month . The total cost forthe postimplantation hospitalization care during year 1

was $81 ,420. This amount is in contrast to the totalposttransplantation hospitalization care costs duringyear 1, which, without professional fees, was $63,237 .Adding in the professional fees for year 1 to transplan-tation costs moves these values considerably closertogether .

Total Costs for Year 1

The average total cost for LVAD therapy during year 1

was $222 ,460. When compared without professional pay-ments LVAD therapy costs $192,154 for year 1 andtransplantation treatment costs $176,605 . In making thiscomparison, several considerations should be kept inmind . First of all, cardiac transplantation is a maturetreatment, whereas LVADs at the time were definitely an

emerging technology . As a result, we can expect reduc-tions in the length of stay and readmission rate for LVAD

patients-two major components of the overall cost .

Second, the cost of the device itself and its performancefeatures should improve over time . At our institution,follow-up visits have decreased already.

CIRCULATORY SUPPORT MOSKOWITZ ET AL S197COST OF LONG-TERM LVAD IMPLANTATION

Implications for Cost-Effectivenes s

Two important economic concerns for expanding the useof a new and expensive technology such as the LVAD is(1) how efficiently the technology uses health care re-sources to generate health and (2) how large an impactthe technology has on the overall health care budget .Although both of these issues will be better addressedwhen REMATCH is complete, we can already draw someinferences about the first concern based on the costs thatwe have projected here .

Medical treatments have broad-ranging cost-effec-tiveness ratios as Table 4 demonstrates-from a littlemore than $300 per quality adjusted life year (QALY)saved for cholesterol testing and diet to more than$160,000/QALY saved for neurosurgery for intracranialtumors . These cost-effectiveness ratios measure the ad-ditional cost per additional unit of health generated . Anobservation that may seem paradoxical but that is highlyrelevant when considering technologies like the LVAD isthis : expensive technologies can be cost-effective andinexpensive technologies can be cost-ineffective .

Despite the high overall costs of cardiac transplanta-tion, the cost-effectiveness ratio is only $37,000 dollars perlife-year saved. By contrast, Pap smears, which togetherwith the professional payment, cost in the order of $100per administration, can be cost-ineffective if done toooften. Compared with biannual screening, annualscreening costs more than $1 million per life year saved .

Based on our experience with bridge-to-transplanta-

tion patients, the first-year cost of LVAD therapy is closeto the first-year cost for cardiac transplantation. The

second- and subsequent-year costs for cardiac transplan-tation are considerably less . Important factors in gener-

ating later costs include rejection and coronary arterydisease. We do not know yet what LVAD therapy costs

will be in the later years . Clearly, device reliability and

longevity will be important factors in determining costsduring these years . If, however, the cost of LVAD therapycontinues to track the costs of cardiac transplantation,then this technology will have to deliver an effectivenesssimilar to that of cardiac transplantation in the late 1980s,when the above cost-effectiveness ratio was derived, tosatisfy society's concerns about cost-effectiveness .

Table 4. Cost-Effectiveness Ratios for Several MedicalInterventions

Incremental Cost-Treatment Effectiveness Ratio

Cholesterol tes ti ng and diet Rx $ 330/QALY

Pacemaker implantation $ 1,650/QALY

CABG (Left main disease ) $ 3,135/QALY

Home hemodialysis $ 25,890/QAL Y

Neurosurgery for malignant $161,170/QAL Yintracranial tumor s

CABG = coronary artery bypass grafting; QALY = quality adjustedlife year .

S198 CIRCULATORY SUPPORT MOSKOWITZ ET ALCOST OF LONG-TERM LVAD IMPLANTATION

Comment

The first-year cost of LVAD therapy is comparable tocardiac transplantation-with the professional fees in-cluded, the cost is about $220,000. The largest portion ofthis cost is for the device, which accounts for 50% of theimplantation hospitalization. We can anticipate decreas-ing cost of the LVAD as the technology matures Thelong-term costs of transplantation go down during thesecond and subsequent years, but rejection and latecoronary artery disease play an important role in gener-ating later costs. So far, we do not know what these costsare going to be with the LVAD in year 2 ; we have to waitfor REMATCH for that answer. Device reliability andlongevity will play an important role in generating costsin subsequent years. Finally, if the costs of LVAD therapycontinue to track cardiac transplantation, this technologywill need to deliver roughly similar efficacy to satisfycost-effectiveness concerns .

In conclusion, we believe that rational decisions con-cerning the allocation of health care resources will in-creasingly need to depend on research that determineswhat works and what does not work and at what cost .Conducting such research, however, will not eliminatethe need to make choices that are exceedingly painful intheir nature . That is part of the price exacted by scientific

and technological progress .

This work was supported in part by that National Institutes of

Health grant no . HL-53986 from the National Heart Lung andBlood Institute .

Ann Thorac Surg2001;71:S195- 8

References

1 . Moskowitz AJ, Weinberg AD, Oz MC, Williams DL . Qualityof life with an implanted left ventricular assist device . AnnThorac Surg 1997;64 :1764-9 .

2. Ho KK, Pinsky JL, Kannel WB, Levy D . The epidemiology ofheart failure : the Framingham study . J Am Coll Cardiol

1993;22(Suppl A) :6A-13A.

3. Schocken DD, Arrieta MI, Leaverton PE, Ross EA. Prevalence,

and mortality rate of congestive heart failure in the UnitedStates. J Am Coll Cardiol 1992;20:301-6.

4 . Yusuf S, Garg R, Held P, Gorlin R. Need for a large random-ized trial to evaluate the effects of digitalis on morbidity and

mortality in congestive heart failure . Am J Cardiol 1992;69:

64G-70G .5 . Lorell B . Mortality/incidence/prevalence of heart failure : cur-

rent and projected clinical need for mechanical circulatorysupport. In: Lorell B, ed. The artificial heart: planning forevolving technologies . Bethesda, MD : National Institutes ofHealth, 1994 :9-14 .

6 . Agency for Health Care Policy and Research (AHCPR). Clin-ical practice guideline no . 11 . Heart failure : evaluation andcare of patients with left-ventricular systolic dysfunction .

Washington, DC: US Department of Health and Human

Services, 1994 .7. O'Connell JB, Bristow MR . Economic impact of heart failure

in the United States : time for a different approach . J Heart

Lung Transplant 1994;13:S107-12 .

8. Rose EA, Moskowitz Al, Packer M, et al. The REMATCH trial :rationale, design, and end points . Randomized evaluation ofmechanical assistance for the treatment of congestive heart

failure . Ann Thorac Surg 1999;67:723-30 .

9. Gelijns AC, Richards AF, Williams DL, Oz MC, Oliveira J,Moskowitz AJ . Evolving costs of long-term left ventricularassist device implantation . Ann Thorac Surg 1997;64:1312-9.

EXHIBIT E

Print Results

faCiva,,,.

Page 177 of 27 1

Daw Jones & Reuters

Thoratec Repo rts Record First Qua rter Sales Results Reflect First Full Qua rter for DestinationTherapy Approval , Reimbursement1,958 words27 April 200412 :05PR Newswire (U .S .)EnglishCopyright © 2004 PR Newswire Association LLC . All Rights Reserved .

PLEASANTON, Calif., April 27 /PRNewswire-FirstCall/ -- Thoratec Corporation , a world leader in products totreat cardiovascular disease, today reported results for the first quarter ended April 3, 2004 .

The company said product sales for the period were a record $42 .8 million, a 19 percent increase over sales of$36 .1 million in the first quarter a year ago .

Taxed cash earnings, which exclude the effect of legal settlement, merger, restructuring and other costs andamortization of purchased intangible assets, were $3 .2 million, or $0 .06 per share, versus taxed cash earningsof $3 .3 million, or $0 .06 per share, in the same period a year ago .

On a GAAP basis, Thoratec reported net income in the first quarter of fiscal 2004 of $1 .3 million, or $0 .02 pershare, versus net income of $1 .4 million, or $0 .03 per share, in the same period a year ago .

"Our results for the quarter reflect solid growth in both our Cardiovascular and ITC divisions," noted D . KeithGrossman, president and chief executive officer of Thoratec .

"Sales of our heart assist devices benefited from this being the first full quarter in which we had DestinationTherapy approval and the National Coverage Decision from Medicare, as sales of our HeartMate(R) device grewby 26 percent . We feel we are off to a very good start with this new indication for use, as 42 DestinationTherapy implants took place in the quarter .

'The overall patient experience and outcomes with Destination Therapy patients to date have been very positiveand the centers are reporting a decreasing number of adverse events . Many of these patients have beenimplanted with our HeartMate(R) XVE that incorporates the new inflow valve conduit and the clinician responseto this product enhancement has been very favorable to date . In addition, we currently have 67 centersapproved by the Centers for Medicare and Medicaid Services (CMS) for Destination Therapy reimbursement byMedicare .

"At ITC," he continued , " revenues grew 34 percent versus the first qua rter a year ago, as its offerings continuedto achieve market share gains . Revenues from ITC's alternate site testing products increased 60 percent versusa year ago , and its point - of-care coagulation testing devices also experienced strong sales growth . We alsorecorded sales from the IRMA(R) TRUpoint product line , which we acquired last year. Even without the IRMATRUpoint revenues , ITC sales would have increased nearly 20 percent versus a year ago . "

Jeffrey Nelson, president of the company's cardiovascular division, noted that operating expenses in the quarterreflect costs associated with the ramp up of sales and marketing programs to support Destination Therapy, suchas the Heart Hope(TM) initiative .

"This effort, which is a collaboration between Thoratec and leading hea rt centers committed to advancingclinical , educational and economic outcomes of Destination Therapy, is just beginning to have an impact in themarketplace ," Nelson noted .

"Approximately 20 leading centers have signed up for the Heart Hope program and several more have indicatedthey will be doing so. We believe that between 25 and 30 centers may accept our invitation to commit to theprogram this year . We are very pleased with the response to Heart Hope to date . In fact, approximately 70percent of the 42 Destination Therapy procedures during the quarter were done at our targeted Heart Hop e

http://global .factiva .com/en/arch/print_results.asp 11/15/2004

Print Result s

centers," he added .

Page 178 of 27 1

Nelson noted that a key element of Heart Hope is the development of HeartMate Destination Therapy AdvancedPractice Guidelines and that these were presented at the first Heart Hope Users Conference last week . Themeeting was attended by some 50 clinicians, including cardiac surgeons, heart failure cardiologists and VADcoordinators .

The response from attendees, who are thought leaders, was very positive and they came away with even ahigher level of enthusiasm for the Destination Therapy opportunity . They felt that these new practice guidelineswere right on target with respect to the important issues facing development of the market-particularly thoseguidelines related to nutrition management-which are among the first of its kind for heart failure patients," henoted .

The company also said that it has now implanted four patients in the U .S . HeartMate II clinical trial, and theyare doing well . The initial two patients have now been supported by the device for nearly six and four months,respectively . Two patients have been implanted in the European trial for the device, although both passed awayfor reasons unrelated to the device .

The company also announced that it received home discharge approval for patients in the U .S . HeartMate IItrial, and approval to resume its clinical trial for the device in the United Kingdom . In addition, the company hasfiled a submission with the FDA to expand the current Phase I U .S . trial from four to ten centers and seven to 15patients .

"The home discharge approval is significant, because we believe this will facilitate the pace of enrollment in thetrial as recovery at home is a plus for both the patient and hospital, and we are hopeful that the FDA willapprove our request for an expanded trial within the next .three weeks . We are also delighted to be underwayagain in the United Kingdom and would anticipate that we might have our first patient enrolled there by laterthis quarter," Nelson said .

The HeartMate II is the company's next generation design heart assist device intended for long-term cardiacsupport for patients who are in end- stage heart failure. It is an implantable LVAS (left ventricular assist system)powered by a rotary pump . It weighs approximately 12 ounces, making it significantly smaller than currentlyapproved devices . The initial U .S . safety and efficacy trial involves seven patients at four centers and the deviceis being evaluated initially for bridge-to-transplantation . The company hopes to use the data from this initial trialfor approval of an expanded trial that will also study use of the device for Destination Therapy .

The company also reiterated its financial guidance for fiscal 2004, including revenues of $190-$200 million, cashearnings of $30-$35 million, or $0 .53-$0 .61 per share, or taxed cash earnings of $0 .32-$0 .38 per share .

Thoratec will hold a conference call to discuss its financial results and operating activities to all interestedparties at 1 :30 p .m. Pacific Daylight Time (4 :30 p .m . Eastern Daylight Time), today, hosted by D . KeithGrossman, president and chief executive officer, and Wayne Boylston, senior vice president and chief financialofficer .

The teleconference can be accessed by calling 719-457-2649 . Please dial in ten to 15 minutes prior to thebeginning of the call . The web cast will also be available via the Internet at http ://www .thoratec .com/ . Areplay of the conference call will be available through Tuesday, May 4, via http ://www .thoratec .com/ , or bytelephone at 719-457-0820, passcode 450744 .

Thoratec Corporation is a world leader in products to treat cardiovascular disease with its Thoratec(R) VADand HeartMate LVAS with more than 8,000 devices implanted in patients suffering from heart failure .Thoratec 's product line also includes the Vectra(R) vascular access graft (VAG) for patients undergoinghemodialysis . Additionally, its International Technidyne Corporation (ITC) division supplies blood testing andskin incision products . Thoratec is headquartered in Pleasanton, California . For more information, visit thecompany's web sites at http ://www.thoratec.com/ or http ://www.itcmed.com/ .

The portions of this news release that relate to future plans, events or performance are forward-lookingstatements . Investors are cautioned that all such statements involve risks and uncertainties, including risksrelated to the results of clinical trials, the ability to improve financial performance, regulatory approvalprocesses, healthcare reimbursement and coverage policies and acquisition activities . These factors, and others ,

http://global .factiva.com/en/arch/print_results.asp 11/15/2004

Print Results Page 179 of 27 1

are discussed more fully under the heading, "Risk Factors," in Thoratec 's 10-K for the fiscal year ended January3, 2004, and other filings with the Securities and Exchange Commission . Actual results, events or performancemay differ materially . These forward-looking statements speak only as of the date hereof . Thoratec undertakesno obligation to publicly release the results of any revisions to these forward-looking statements that may bemade to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipatedevents .

THORATEC CORPORATION AND SUBSIDIARIE S

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

March December2004 2003

ASSETS

Current Assets :

Cash and cash equivalents $48,022 $62,02 0Short-term available-for-sale.

investments 45,828 41,17 9Receivables, net 28,851 27,96 9Inventories 36,830 36,41 7Other current assets 13,193 12,79 6

Total Current Assets 172,724 180,38 1

Property, plant and equipment, net 28,948 28,492Goodwill 95,116 96,065Purchased intangible assets 161,934 164,865Other assets 6,965 6,328

TOTAL ASSETS $465,687 $476,131

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities :

Accounts payable $6,698 $6,952Accrued expenses 11,477 15,820

Total Current Liabilities 18,175 22,772

Long-term deferred tax liability and other 65,600 67,123Total Liabilities 83,775 89,895

Shareholders' Equity 381,912 386,236TOTAL LIABILITIES AN DSHAREHOLDERS' EQUITY $465,687 $476,131

THORATEC CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)(in thousands, except per share data )

Product sale sCost of product sales

Gross profit

Operating expenses :

Selling, general andadministrative

Research and development

Amortization of purchasedintangible assets

Fiscal Quarter Ended

March March2004 2003

$42,792 $36,062

17,721 14,891

25,071 21,17 1

13,013 10,06 07,338 6,26 0

2,931 3,09 6

http :/;global .factiva.com/en/arch/print_results.asp 11 /15/2004


Legal settlement, merger ,restructuring and other costs 133 (57 )

Total operating expenses 23,415 19,359

Income from operations 1,656 1,81 2Interest and other income -- net 465 51 2Income before taxes 2,121 2,32 4Income tax expense 827 906Net income $1,294 $1,41 8

Net income per share :Basic $0 .02 $0 .0 3Diluted $0 .02 $0 .0 3

Shares used to compute ne t

income per share :

Basic 56,106 55,057Diluted 57,458 55,534

Reconciliation of Taxed Cash Earnings to GAAP Income Before Taxe s

This press release discloses "taxed cash earnings" which is not a financial measure prepared in accordance withUnited States Generally Accepted Accounting Principles ("GAAP") . Management believes that taxed cashearnings can be a useful measure for investors to evaluate our financial performance by providing the results ofour company's primary business operations, excluding the effects of charges associated with legal settlement,merger, restructuring and other activities . However, this measure should be considered in addition to, and notas a substitute, or a superior measure to, income before taxes or other measures of financial performanceprepared in accordance with GAAP . Taxed cash earnings reconciles to GAAP income before taxes, as follows :

Fiscal Quarter EndedMarch March2004 2003

Income before taxes as reported

under GAAP $2,121 $2,324Adjustments to reconcile GAAPincome before taxe swith taxed cash earnings :

Amortization of purchased

intangible assets 2,931 3,096Legal settlement, merger ,restructuring and othe rcosts 133 (57 )

Cash earnings before taxes 5,185 5,363Income tax at 39% 2,022 2,09 2Taxed cash earnings $3,163 $3,27 1

Taxed cash earnings per share :

Basic $0 .06 $0 .0 6Diluted $0 .06 $0 .0 6

Web site : http://www .thoratec.com/

CONTACT: Investors : Wayne Boylston, Chief Financial Officer of ThoratecCorporation, +1-925-847-8600 ; orMedia : Susan Benton of FischerHealth, Inc .,+ 1-310-577-7870, or sbenton@fischerhealth .com, for ThoratecCorporatio n



Document PRN0000020040427e04r00ea 4

© 2004 Dow )ones Reuters Business Interactive LLC (trading as Factiva) . All rights reserved .


EXHIBIT F

Print Results

0fac iva-

Q1 2004 Thoratec Corporation Earnings Conference Call - Final14,161 words27 April 200 4FD (FAIR DISCLOSURE) WIREEnglis h(c) Copyright 2004 CCBN and FDCH e-Media .

Page 130 of 27 1

Dow Jones & Reuters

OPERATOR : Good day everyone and welcome to be Thoratec Corporation first-quarter earnings releaseconference call . Today's call is being recorded . At this time for opening remarks, I would like to turn the call overto the Chief Financial Officer, Mr . Wayne Boylston .

WAYNE BOYLSTON, CFO, THORATEC CORPORATION : Thank you . Good afternoon and welcome to Thoratec'sfirst-quarter 2004 conference call . With me today is Keith Grossman, President and Chief Executive Officer . Inaddition, we have Jeff Nelson, President of our Cardiovascular Division, as well as Larry Cohen, President of ourITC Division . They will be available to answer your questions after our prepared remarks . As usual, Keith willprovide an overview of our financial performance and operational highlights, and then I will provide someadditional perspectives on the quarter's financial results before we open the call the questions .

Before we continue, during the course of this conference call and the question-and-answer session that follows,we may make projections or other forward-looking statements which are subject to the Safe Harbor provisionsof the securities laws regarding future events or the financial performance of the Company . We caution thatthese statements are only predictions and that actual results may differ materially . We all wall also alert you tothe risks contained in the documents we file with the SEC, such as our annual and quarterly reports .on forms10-K and 10-Q. We do not undertake any obligation to update or correct any forward-looking statement . Keith ?

KEITH GROSSMAN, CEO, THORATEC CORPORATION : Thanks, Wayne . Good afternoon, everyone . The firstquarter was an important one for the Company, and of course for the launch of our Destination Therapy marketdevelopment program as it was the first full quarter in which we had both approval for the syndication, as wellas a national coverage decision from CMS. Now I'm going to speak at length about Destination Therapy, or DT,in a moment, but first, let the briefly review our financial performance for the quarter .

As we indicated in our press release today, we had record first quarter product sales of nearly $43 million, whichwas a 19 percent increase over sales of just over 36 million in the first quarter a year ago . This quarter alsomarks the first time since the first quarter of 2000 in which we had sequential growth in revenues from thefourth quarter to the first quarter of the following year . As most of you know, I think the seasonality in ourbusiness typically results in a sequential decline in revenues in the first quarter over the preceding fourthquarter. Our revenue growth was driven by sales of our HeartMate XVW device for Destination Therapyprocedures . In fact, HeartMate revenues grew 26 percent over the first quarter of last year and overall sales ofassist devices grew by more than 13 percent versus the comparable quarter last year.

In addition, ITC continues to produce excellent results as revenues there grew 34 percent over year ago, atnearly 20 percent excluding the contribution from the newly acquired IRMA True Point product line . Now Waynewill elaborate on our financial performance in more detail in just a moment, but let me make a couple of points .The Company reported tax cash earnings of 3 .2 million, or 6 cents per share, which is comparable to tax cashearnings in the first quarter a year ago . Our bottom-line performance this quarter was impacted by a $3 millionincrease in SG&A expenses related by the way primarily to our DT marketing efforts and a $1 million increase inR&D expenses, reflecting our HeartMate II program and other research and clinical programs .

As I mentioned a moment ago, the just concluded quarter represents the first full quarter in which we had a DTapproval and CMS reimbursement and in which we launched our marketing efforts domestically . We want tospend much of the call today giving you an update on our DT market development programs . And I am verypleased with the early market response to date and the success of our launch initiatives, such as specifically theHeart Hope program .

To begin with, 42 HeartMate devices were implanted for Destination Therapy during the quarter . This is basedon procedure volume that is reported to us by our customers and we're very pleased with the trends to date . I



also want to remind you that last quarter, we indicated our expectation of a measured ramp throughout the yearin DT activity . These 42 implants during the quarter equaled roughly the amount of DT implants during all of2003, and all but two of them took place at CMS-approved Destination Therapy centers, of which by the waythere are now 67 . Of these 42 procedures, nearly 70 percent took place at either committed or targeted HeartHope centers . Of the 67 Medicare centers, only 26 contributed to this DT implant count in this early phase . Andof the other 40 centers, we know of only a few that have indicated that they do not plan to be acted in someway this year.

Now within those 26 contributing centers, the top 10 contributed 60 percent of the 42 implants during thequarter. So keep the mind that this is not a turnkey process and that feedback from centers has been that sinceCMS approval last October, they want to ensure that an infrastructure and the proper resources are in placebefore commencing wider marketing of this therapy in their area . So we're very encouraged by the number ofbasis that have been treated to date by a relatively small number of first movers and the large number ofcenters that are in the process of ramping up for activity later this year .

The overall patient experience in outcomes with DT to date have been very positive and the centers arereporting a decreasing number of adverse events . We believe this demonstrates the value of the sharing of bestpractices among clinicians and also of course, device improvements, including the new inflow valve for the XVE .In fact, there have been 65 devices with the new inflow valve implanted already in patients and the valveappears to be functioning as expected and we believe it will lead to improved device performance .

In the past we have talked about how we expected the patient experienced post REMATCH would be impactedpositively by factors such as device and procedure improvements, as well as the general health condition of DTpatients, compared to those in the REMATCH trial, who were of course extremely ill . While the patien texperienced for DT post-REMATCH is still, relatively small ; for example, the follow-up time is approximately 31years cumulatively in these patients versus nearly 93 years of follow-up for the REMATCH patients . However,the early results are quite impressive based on our early analysis of the data . For example, after six months, thesurvival rate for DT patients is approximately 70 percent, compared to around 60 percent at that point for theREMATCH patients .

In addition, the level of major complication rates is down dramatically, particularly in areas such as neurologicaldysfunctions, infections and thrombolic event . We're in the process of reviewing this data for publication, whichwe expect will be submitted later this year. However at this past week's ISHLT meeting -- that is th eInternational Society for Heart and Lung Transplantation -- Dr. Robert Cormose (ph) of the University ofPittsburgh reported on the rate of both device and non-device related adverse events since the end of theREMATCH trial . He noted that the device enhancements incorporated into the earlier HeartMate Snap VE, and o fcourse the current design, the XVE, have had a beneficial effect in reducing the device-related complicationrates .

So in summary, the commendation of device enhancements and improved implant and patient managementprocedures in these patients is contributing to a better patient experience and helping to reduce the costs ofcare associated with complications and adverse events . During a panel discussion at the ISHLT meeting,clinicians would experience in DT targeted their expectations for current two-year survival rates in patients thatare now receiving the HeartMate XVE for DT of somewhere between 50 and 80 percent . Of course, that is adramatic increase over the published REMATCH results .

I also want to note that we continue to receive additional reimbursement coverage decisions from privatepayers, including in the past several weeks, Humana, which provides coverage for more than 7 millionbeneficiaries . As I mentioned a moment ago, a key element of the DT effort is our Heart Hope program, whichhas been gaining traction over the past several months . There are approximately 20 leading centers that havesigned up for the Heart Hope program and several more have indicated they will soon be doing so . We believethat somewhere between 25 and 30 centers may ultimately accept our invitation to commit to the program inthis year. As a reminder, the Heart Hope program is a collaboration between Thoratec and these leadingcenters who are committed to advancing clinical, educational and economic outcomes of these patients . Theprogram includes business development and management tools, marketing support, educational grants andsymposia designed to maximize patient outcomes, reduce their costs, and of course position DT centers atleaders in their local markets and make it a more financial viable offering for these hospitals .

As we indicated in our last call, we expect to roll out this program to the top one-third to one-half of theMedicare certified centers this year. And based on the response to date, we're making great strides toward thatgoal . We also launched hearthope .com, a consumer website designed to educate heart failure patients and thei r

http://global .factiva.com/en/archJprint_results.asp 11 /15/2004


families about advanced heart failure therapies and drive patient referrals to their local Heart Hope Center . Thesite includes information about heart failure, Destination Therapy treatment of course, and a list of the centersin their area . A key element of Heart Hope is the development of advanced guidelines and best practices forclinicians . This process began with a multidisciplinary group of 20 clinicians from 10 of our most important andactive HeartMate centers, known as the Park City Working Group . The cumulative experience of this grouprepresents nearly a quarter of all HeartMate implant experience in the U .S ., and it is a very impressive group.This working group met early this year and developed best practices in six key topic areas, including patientselection, infection control, VAD (ph) team development, pre- and intraoperative management, nutritionmanagement and patient discharge . These best practices were published as HeartMate Destination Therapyadvanced practice guidelines and they were presented at our first Heart Hope user's conference last week . Wehad some 50 clinicians from 20 centers, including cardiac surgeons, heart failure cardiologists and VADcoordinated from our Heart Hope centers who attended this meeting .

The response from these thought leaders was very positive and they came away with even a higher level ofenthusiasm for the DT opportunity . The consensus at that meeting was that the key to success in DT will comefrom providing patients with clinical outcomes that approach those of the gold standard in this population, whichis heart transplantation . They believe that this can be realized with better patient selection and managementand of course continuing device improvements and that the guidelines presented at this meeting represent amajor step in achieving that goal .

Some of the key presentations included Dr . Les Miller from the university Minnesota, who presented the mostcomprehensive examination to date of the existing data and factors to be considered specifically in patientselection . In addition, Dr. Devisky (ph) of Sharp Hospital made an excellent presentation on nutritionmanagement for end-stage heart failure patients . As far as we know, this is the first or at least one of the firsttimes that nutritional guidelines such as these have been published for these patients . This week, we will bedistributing the first issue of Assist . This is a locally branded newsletter for Heart Hope centers . It is aneducational piece for cardiologists and other referring physicians and this first issue will reach more than 40,000clinicians .

In addition, two of our Heart Hope centers hosted the first of our regional heart failure symposia for referringphysicians and in fact, several centers have similar events planned during the current quarter .

Before moving onto our clinical trial activity, I want to briefly highlight some more data presented at last week'sISHLT meeting in San Francisco that I think are particularly relevant . A presentation by Dr. Collia (ph) from St .Luke's Medical Center in Milwaukee compared our HeartMate XVE to a competitive device . The data shows thatdevice related hospitalization and infection rates for patients on these devices were similar, but that the stokerate and blood product use was significantly lower for those implanted with the HeartMate . The study attributedthis likely to the lack of anticoagulants needed for the HeartMate device, and of course this is an issue we'vediscussed with you in the past and we believe these data help demonstrate an important competitive advantagefor the HeartMate .

Other presenters included Dr . Patel at the University of Pittsburgh Medical Center, who presented datacomparing adverse events in patients implanted with the Thoratec VAD before and after the year 2000 . And thedata showed that specific patient management strategies implemented since 2000 have resulted in a significantreduction in the rate of neurologic and infections adverse event in these patients .

And finally, Dr . Mark Slaughter, of Price Medical Center in Chicago, presented data on the IVAD, covering morethan six years of cumulative patient support . The average duration was around 76 days, the longest time onsupport was 206 days, or nearly nine months . He reported that there were no pump failure is our pumpinfections and that only eight of the 30 patients in the study experienced device-related adverse events, none ofwhich were significant . In all, there were approximately 45 sessions related to VAD at the ISHLT, includingsymposia, abstract presentations and scientific posters . The session on Destination Therapy was one of the bestattended during the entire meeting with close to 800 clinicians and others in the audience .

Now moving onto clinical trials -- we've now implanted four patients in the U .S . HeartMate II trial with two ofthese occurring over the past couple of weeks at the University of Pittsburgh and at Columbia Presbyterian inNew York . These patients are doing well with the first two having been supported by the device for nearly sixmonths and four months, respectively . And while we are still in the early stages of this trial, we are veryencouraged by the lack of complications we experienced earlier and the overall results of the trial to date as wellas the feedback we received for both the clinicians and the patients .



Two patients have been implanted in our European trial for the HeartMate II . Unfortunately, both have passedaway due to postoperative complications that were unrelated to the device, though likely related in both cases topoor preoperative status of the patients . Since these incidents were not related to the device, we don't expectthem to have any impact on patient enrollment in this trial, either in Europe or the U .S .

We have also had some other important developments related to the HeartMate II as we indicated in our newsrelease today . First, we just received FDA approval to discharge these HeartMate II patients in our U .S. trial to ahome setting . As you may know, our original protocol did not include this discharge provision, which of coursehas been a hindrance to patient enrollment . In fact, we estimate one-third of the patients screened initially forthis trial were ruled out for participation because we did not have this home discharge approval at the time .Based on the positive outcomes to date, the FDA agreed with our investigators that this was now appropriateand we believe it will help facilitate enrollment as recovery at home is obviously a tremendous positive for boththe patients and the hospitals .. In fact, our first patient at Texas Heart has already been discharged from thehospital since that approval .

In addition, we filed a submission with the FDA seeking approval to expand the Phase I trial to 10 centers and15 patients from the current four centers and seven patients . We anticipate hearing back from them within thenext three weeks or so . In the meantime, our four existing centers are continuing to review patients and wehope to have additional procedures occur in the near future .

Finally, we received approval from regulators in the UK to reinitiate trial activity there and we believe we maysee initial patient enrollment during this quarter . And while enrollment is still very early, I really just don't thinkwe could be any more excited about what we're seeing with this device thus far .

With respect to the IVAD, our discussions with the FDA regarded our PMA supplement filing have been verypositive with no significant issues or questions raised and we remain hopeful for getting an approval later thisyear . Before turning to our ITC Division, I want to mention the equity investment we made in Biocardia, a smallprivate company, which announced at the end of the quarter . Biocardia has developed the helical infusioncatheter system, which is a unique corkscrew shaped needle delivery platform that is designed to enable thelocal delivery of biotherapeutics to the heart muscle, the myocardium . And I would refer you to our March 30thpress release that can be found on our website for more information on this strategic investment .

As I mentioned at the outset of the call, ITC had another excellent quarter, driven by our point of carecoagulation testing devices, including over ProTime (ph) where sales increased by more than 50 percent . TheHemoglobin Pro, which was introduced last year, is establishing a very strong presence in the market as well .

Some key events at ITC during the quarter included the final integration of the IRMA product line, which weacquired last fall . We've renamed this product line IRMA True Point to reflect its position as the really only trulypoint of care blood gas diagnostic device for the hospital setting . We're also in the process of going direct withall of our hospital point of care products . By the end of the current quarter, a significant portion of our activity inthis area will be through our direct sales force, and we will be completely direct by the first quarter of 2005 . Inaddition, we believe it will benefit from a decision by a major competitor in the coagulation point of care productarea to exit the market . And as we mentioned last time, we're completing an expansion of ITC's QBATH (ph), ordisposable manufacturing capacity, to address both current and anticipated market demand .

And finally at ITC, we've filed five 10-K's for two new devices . The first is a new test to monitor the lowmolecular weight heparin drug Inoxaparin . The second is an ACTT test for AngioMax, which is a thrombininhibitor, and we hope to have approval for both of these devices later in the year .

Turning to the vector of vascular draft, we mentioned last quarter that we were experiencing some decline in oursales due primarily to the ordering patterns of our distributor C .R. Bard, and a slowing in the growth Bard'smarket penetration with this device . We continue to work through their inventory issues with them . But in themeantime, the device continues to perform very well clinically and hold its own in the marketplace .

Now I will come back in a moment with come closing comments, but what we will do now is have Wayne reviewour financial results in a little bit more detail .

WAYNE BOYLSTON : Thanks, Keith . As Keith mentioned, our product revenues for the quarter were 42 .8 million,which is a 19 percent increase over the revenues of 36 .1 million in the first quarter of last year . Breaking thatdown for the quarter by division, by product area, it was 26 .6 million for cardiovascular, which includes 25 . 6

http://global .factiva.com/en/arch/print results-asp 11/15/2004


million for VADs and 1 million even for grafts, and then the balance of 16 .2 million was ITC . Because we haveessentially used up our NOLs, we will be utilizing a tax cash earnings number beginning this quarter . Thatnumber is 3 .2 million, or 6 cents per share versus a comparable tax cash earnings number for last year of 3 .3

million, or 6 cents a share . Tax cash earnings of course exclude the effect of legal settlements, merger,restructuring and other costs and amortization of purchased intangible assets .

As we mentioned early in the call, operating expenses were up approximately $4 million over the first quarter oflast year, which reflects the launch of our Destination Therapy marketing programs, as well as acceleratedclinical trial activity . Reconciliation of our tax cash earnings to GAAP earnings was available on our form 8-K andpress release, as well as on our website .

On a GAAP basis, we reported net income of 1 .3 million, or 2 cents a share in the first quarter of this yearversus net income of 1 .4 million, or 3 cents a share in the same period a year ago . Gross margin for the quarterwas 59 percent, which is in-line with recent quarters . And as we've stated in the past, we believe that as VADsbecome a larger part of our revenue stream through Destination Therapy, we will maintain a combined grossmargin of 60 percent with some essential upside .

We ended the quarter with cash and investments of 94 million, which is a $9 million decrease from the end ofthe year . That decrease is primarily due to the use of 6 .7 million to repurchase a little over 500,000 of stock inour stock repurchase program. I should point out that that includes 250,000 shares that we purchased directlyfrom Thermo Electron, as well as it reflects the $2 .3 million settlement of our only outstanding patent-relatedlitigation that we also discussed last quarter . With respect to the stock buyback, we announced in February thatour Board had authorized to repurchase a program of up to $25 million in the open market or in privatelynegotiated transactions .

In closing, I'd like to reiterate our guidance for 2004 that we have provided in the past two calls . We're currentlyprojecting full-year revenues of between $190 and $200 million, which is an increase of between 27 and 33percent over 2003 . That revenue guidance assumes the midpoint of the range of 300-500 Destination Therapyunits . We would also like to remind you that as we've indicated in the past, we see the Destination Therapymarket growing over time and that we believe activity will ramp up during the course of the year . We may alsospend ahead of this revenue for market development programs as we have in the past two quarters as we lookto drop market growth for later in the year and beyond .

We're projecting tax to cash earnings of $18-$21 million, which equates to 32-38 cents per share, using aneffective tax rate of 39 percent . This compares to 22 cents in cash tax earnings for 2003 on an equivalent basis,or growth in earnings-per-share of 45-73 percent .

And lastly, we will be appearing at three investment conferences next month -- the Davenport & CompanyEquity Conference on May 13th in Williamsburg, Virginia ; the Bank of America Health Care Conference in LasVegas on May 19th and the Suntrust Robinson Humphrey . Conference in Atlanta on May 21st . Thank you forjoining us today . I'll now turn the call over to Keith for some closing remarks and then we will take yourquestions .

KEITH GROSSMAN : Thanks, Wayne . I wanted to just take a moment to provide a little perspective on themonths ahead, particularly our opportunity in Destination Therapy . As we have indicated to you in the past,we're taking a measured approach to this market to assure that we have the optimum patient outcomes in theright centers and that it proves will be a viable and attractive market opportunity for all of our centers . Webelieve that while it's still early in that effort, the results to date support that strategy . We're seeing that deviceenhancements and the use of best practices among clinicians is resulting in improved patient outcomes andmeaningful reductions in adverse events, all leading to what we believe will be reduced costs associated with theprocedure .

Now in that regard, we're also continuing to work diligently with CMS regarding reimbursement and we continueto believe that along with improving outcomes, device enhancements and reduced levels of adverse events,Medicare reimbursement levels are going to increase over time. I want to be very clear here . After this quarter,we are more certain than ever the Destination Therapy is going to be a very significant market and there is atremendous amount of enthusiasm in our organization and the marketplace right now . As we have indicated allalong, this is also going to be not only a multi-quarter, but a multiyear market building process . And this ofcourse has been the case with other devices where I think the markets have evolved into very large ones overtime in areas such as cardiac surgery and electrophysiology . A significant difference with Destination Therapy isthat we believe we will have the opportunity to build this market years before we anticipate the presence o f



other FDA-approved competitors . Remember that the barriers to entry in this market are significant and that noother company in this field has our depth of experience or resources for developing this particular marketopportunity . We believe we have the tools to build this market over the near-term and foster a leadershipposition over the long-term, particularly as our next-generation devices come into the market . In fact over thelast two quarters, we're begun laying a foundation of support and infrastructure for our customer base that, inaddition to being essential to building the DT market, will prove to be a considerable competitive advantage .

And finally, of course we're achieving key milestones in development of our next generation technologies andthe continued growth in ITC not only helps diversify our revenue stream, but also gives us greater presence inthe cardiology market. So we appreciate your joining us today and we'll now open the call to your questions .

OPERATOR : (Operator Instructions) . Timothy Lee, Merrill Lynch .

TIMOTHY LEE, ANALYST, MERRILL LYNCH : Good afternoon . Just a couple of questions here . Keith , in yourcomments , you had stated that nearly all of the CMS centers have committed to do implanting VADs here thisyear . I'm just curious as to reasons that the centers that have not commi tted that they gave , that they wouldnot be implanting patient 's this year . What's kind of the reasoning that they' re pushing back on ?

KEITH GROSSMAN : I will let Jeff Nelson, who is with us, handle some of that . But I appreciate the need for thequestion . But I want to reemphasize that we're talking about a very small subset of centers who have made thatdetermination . I think it is probably -- were in the range of a couple who have said to us that they don't plan tobe involved, and that really is only this year . It is a very small subset of centers, but so with that context .

JEFFREY NELSON, PRESIDENT, CARDIOVASCULAR DIVISION, THORATEC CORPORATION : Sure . It's primarilyeconomics and infrastructure, and they're both very related . In some centers where they view thereimbursement rate is lower today than where they think they can make those investments . They have notproactively put the infrastructure in place to have a Destination Therapy program . So although we do anticipatemost of the centers to implant devices, we're really focusing .our strategy on those centers that are making thatinvestment to do a lot of Destination Therapy implants this year .

TIMOTHY LEE : If I could just follow-up on that. How different is the infrastructure required for a center doingbridge to transplant implants versus Destination Therapy? What's actually required for the DT centers ?

JEFFREY NELSON : It's really a programmatic approach that they ' re out ge tting for patients , coordinating withthe hea rt failure cardiologists versus just the transplant group, making sure that they can handle managingDestination Therapy patients . They' re going to be out in the community for the rest of their lives, versus comingback from a transplant in a sho rt period of time .

TIMOTHY LEE : Thank you .

OPERATOR : Keay Nakae , Wedbush Morgan Investments .

KEAY NAKAE , ANALYST, WEDBUSH MORGAN INVESTMENTS : Keith , can you talk about maybe the pattern of DTsales that occurred in Q1, in terms of -- did you see sequential increases Janua ry over December, Februa ry overJanua ry, March over February, something of that nature ?

KEITH GROSSMAN : Sure, Keay. I think we probably don't want to get in the habit . These numbers, the N issmall enough that even quarterly buckets are, as you know, going to be pretty variable and jump around a fairamount . And monthly is going to be even less reliable . I will tell you that, if you're looking for whether or notthis was a trend, that from November through March was upward, I can tell you that that is absolutely the case .

KEAY NAKAE : Great . In terms of reimbursement and your effo rts in working with CMS, although I know that'sgoing to be something very difficult to predict, at least for this year, can you give us an idea of at least potentialapproaches they might be looking at? Or perhaps you suggested , in terms of trying to increase reimbursementfor the next fiscal year?

KEITH GROSSMAN : Well, we have talked about these before and they're the same things that we've talkedabout before with CMS . We got much of what we wanted in the last cycle with CMS . I think we were verysuccessful . Certainly, we did not get everything we wanted and we've continued to work with CMS since tha t



time. But they have a number of options from making arbitrary changes to DRG levels to shifting codes aroundbetween DRGs to creating new DRGs, and finally, from taking our device codes and putting them into otherexisting DRGs, like for example, a transplant DRG . So there are a number of different options for them . It wouldbe very difficult for us now to tell you what they might or might not do . I can tell you that the discussions thatwe've had with them have been very positive . They had been very receptive to the information we provided upto the coverage decision and since the coverage decision . And I think that the reimbursement scene withMedicare is likely to get better, not worse . I think it will happen incrementally over time, but I do think it will getbetter .

KEAY NAKAE : Alright, thank you .

OPERATOR : Shitel Medha , Bear Stearns .

SHITEL MEDHA, ANALYST, BEAR STEARNS : Good afternoon . Just a couple of questions . First, just a clari ficationon the 42 Destination Therapy units that were implanted . Is that all Heart Mate XVE, or does that also includesome Hea rtMate II implants? Because those , if I'm correct, are revenue generating as well .

KEITH GROSSMAN : Those are all HeartMate XVE .

SHITEL MEDHA : Second of all, can you talk about the bridge market a little bit and what you saw in the quarterfor bridge? And can you give us kind of a growth rate on what you saw in the quarter for that business?

JEFFREY NELSON : As you may have remembered from the last call, our projections for the bridge and transplantmarket this year are pretty modest, about a 5 percent growth rate . And traditionally, that number has movedaround quite a bit . So quarter to quarter, you will see it up, down. Really, there has been no fundamentalchange in that market over the past year . If you remember a year ago, we were saying the same thing whenthat market was up fairly dramatically over previous quarters . So we really think that's a fairly stable market. Aswe continue to expand into these centers, we expect to have modest growth going forward .

SHITEL MEDHA : So you did not see anything different in the quarter that would suggest as you adjust lastquarter regarding competitors saying certain things in the marketplace ; you did not see anything fundamentallydifferent than what you are expecting ?

JEFFREY NELSON : We've not seen any fundamental impact in competitors in that market ; that's a goodobservation .

SHITEL MEDHA : Finally a question for Wayne regarding the gross margins . They were a little bit downsequentially and relatively flat with a year ago . What surprised me a little bit, given that VADs are becoming anincreasing percentage of the mix . Is there anything else that is playing? Are you experiencing any pricingpressure or anything along those lines ?

WAYNE BOYLSTON : No. ASPs actually are ve ry stable to, if anything, up over a year ago . We have not had aprice increase , so its not dramatic, but we are bene fi ting from some shifts in mix . Margins at the divisional level,which we historically haven 't been very specific about , on cardiovascular to your point about the increase inHea rt Mates, have actually gone up almost 400 basis points over last year . The first qua rter of '04, thecardiovascular division had gross margins ofabout 64 percent . What is so rt of holding the consolidated numberflat or slightly down is really ITC . And I think we talked about late last year after we acquired the IRMA productline from Biometrics for ITC, that because that business had been pretty poorly managed prior to theacquisition , that their margins were even lower than ITC's, which even pre that acquisition , were lower thancardiovascular. So we're seeing ITC margins down in the 50 percent range . And I think we'll have that -- thatwill improve over time, but it is going to take us some number of qua rters to get there .

SHITEL MEDHA : I think I just missed your guidance on gross margin . You said -- you're expecting to get toabout the 60 percent range ?

WAYNE BOYLSTON : Yes . I think we will stay in this 59-60 percent kind of range for the next few quarters . Andthen hopefully, depending on the ramp with Destination Therapy, that is what should take us to something inexcess of 60 .

http ://global .factiva.com/en/arch/pn'nt_results.asp 11/15/2004


SHITEL MEDHA: Great, thank you very much .

OPERATOR : Jayson Bedford , Adams, Harkness & Hill .

JAYSON BEDFORD, ANALYST, ADAMS , HARKNESS & HILL : Hi, guys . I jumped on a little late, so I apologize ifthis is redundant . But did you give the total number of pumps sold in the qua rter?

WAYNE BOYLSTON : I can give it to you -- it was 394 .

JAYSON BEDFORD : 394, and Wayne, could that break that U.S ., O-U .S ., if possible?

WAYNE BOYLSTON : The mix really has not shifted from what we have historically seen, which is sort of in that15-18 percent O-U .S .

JAYSON BEDFORD : Great . Finally on the cost standpoint, were there any kind of onetime (indiscernible) costsrelated to the DT rollout, or is this kind of a level we can build off going forward ?

WAYNE BOYLSTON : I think you need to build off of this level going forward . There were certainly onetimeevents, that there will be sort of onetime events pretty much every quarter from here out as we attempt to buildthis market . So both from R&D as well as SG&A, I would use this as a level to build off of . Although as apercentage of sales, I would expect both to trend down as a percentage, although it's going up in absolutedollars .

JAYSON BEDFORD : That is there . And lastly, on the reimbursement, what is the average rate you're seeing outthere, or at least in the quarter ?

KEITH GROSSMAN: We don't generally have a real-time average rate of reimbursement . We know what theaverage rate of reimbursement is under the current Medicare DRG; it's between 95 and $97,000, but is verydifficult for us to know what the average private payer reimbursement is . We do know that roughly half of thepatients thus far commercially have been Medicare and roughly half of them private pay, which I think is a verypositive breakdown, given that it was more like two-thirds or more were Medicare in the REMATCH trial . So itseems to be a slightly younger patient population we're treating commercially . The private pay reimbursementwe know is significantly better . And we've certainly heard things anecdotally about what centers are beingreimbursement, but we don't have that information from the hospitals .

JAYSON BEDFORD : That's fair. Thanks guys .

OPERATOR : Mike Weinstein , J .P . Morgan .

MIKE WEINSTEIN, ANALYST, J .P . MORGAN : Thank you . Good evening, how are you doing? I just want to jumpinto the numbers a little bit and a little bit the deeper than we have so far . I guess I would like to understand asmuch as anything is this pricing activity, because it's just based on the math, your total net units were up 3percent, but your pricing was up 10 percent year-over-year . And I just want -- I understand there's a little bit ofa mix issue there . But could you just talk your pricing strategy and how much you've raised your average sellingprice over the last few quarters? Thanks .

KEITH GROSSMAN : First of all, as Wayne said a moment ago, we have not taken price increases . So the ASPincreases that we have taken year-over-year have come about through things like taking -- this time last year, Ibelieve we were still selling HeartMates in the German market through a distributor and we're now direct withHeartMate in Germany . And some of it has to do with the -- in fact, quite a lot of it has to do with the mixbetween HeartMate and the lower-priced Thoratec VADs. So it is to some extent, a distribution model at onemarket, it is to a larger extent, product mix .

MIKE WEINSTEIN : Are there are other markets where you are planning on going direct where you have not atthis point ?

KEITH GROSSMAN : Over time, the answer is probably yes . But in the near-term, we're really direct now in justabout every market that we think will be significant to us .



MIKE WEINSTEIN : So if we look at that 10 percent price uptick and maybe we can look at it from a few differentfactors . One is your price increases from the product, two is the mix, three would be currency and four would bethe move to direct . Is there any way we can try and break that down to look at it? Because obviously, it was abig component of the growth is quarter .

KEITH GROSSMAN : First of all, the first one was not a component . I'll say again, the price increases were not apart of the mix here at all .

MIKE WEINSTEIN : Okay, so it's zero?

KEITH GROSSMAN: Yes. Do want to take a pass at trying to break those out ?

WAYNE BOYLSTON : Mike, I can tell you that, if you look at on an individual pump basis, the ASPS were, to theextent they were up, they were up very marginally, on the sort of the 2-3 percent range . That is I think afunction of mix between U .S . and outside of the U.S., as well as between HeartMates and the Thoratec VAD .Foreign exchange is nominal for us, so I would not really put that as a big factor. The last thing that you areperhaps not considering is the effect that we have from just the mix between the pumps and the ancillaryrevenue, the service and training and accessories . And we did have a bit of a shift in mix towards the non-pumprelated stuff, which tends to carry a little bit higher margins . So I think if you're doing an overall blended ASP, Ithink those are the things that are the factors .

MIKE WEINSTEIN : And the ancillary revenues that should just correlate with your pump sales, is there anythingthat's ever lumpy about that from quarter to quarter that might have bumped it up this quarter versus, say, thelast quarter ?

WAYNE BOYLSTON : Well, probably nothing sustaining, although I will tell you that over time, I would expect thatto -- I would expect those revenues to continue to ramp up with the advent of Destination Therapy . Those aregoing to be longer-term patients, they will need replacement batteries, for example, and that type of thing .

MIKE WEINSTEIN : But there was nothing in this particular quarter that was lumpy that is making that priceimpact look like more than it is ?

WAYNE BOYLSTON : No . There was not a large stocking order for a bunch of accessories, anything like that .

MIKE WEINSTEIN : Switching to (indiscernible) on the bridge market, I guess bridge and post cardiomoty (ph) .That market still looks like it's trending downwards a little bit, which if you look at some of the patient numbersthat are out there, it seems to jibe with the trend on the patients that are on the transparent list . Can you justgive us your thoughts on that and maybe what we should be thinking about for the bridge marker goin gforward? And then I will drop .

KEITH GROSSMAN: I think we have answered that . I think that -- we still anticipate a modest increase in thebridge to transplant market . The size of the transplant pool in any given year, and for that matter, the waitinglist, is not something that anybody has been able to predict, either us or anyone in the clinical community . It isa little bit smaller than it was a year or two ago . There have been some speculation about the temporarysuccess of some of the drug trials in prolonging patients making it to the waiting list . The fact that they're goingto get there eventually will the number will come back up . We really don't know . It doesn't seem to be a long-term fundamental shift here . Going the other way is the fact that we know that we're bridge more and morepatients on the waiting list as a percentage over time .

So we have come out, and I'm simplifying the process here for the sake of the discussion, but we have come outbalancing those two and a number of other forces with what we think will be about a 5 percent growth rate inthe bridge market . I appreciate the need for the bridge information . From my standpoint, I doubt anybody is onthis call to hear about whether the growth in the bridge market was 4 percent or 5 percent . I think the bridgemarket will continue to grow modestly . I think the encouraging thing is that the DT market, which is going to bethe growth driver here for some time to come, is off to an awfully good start .

OPERATOR : Douglas Adams, Davenport Equity Research .

DOUGLAS ADAMS, ANALYST, DAVENPORT EQUITY RESEARCH : Good afternoon . I had a couple of questions . The



first has to do with the marketing for Destination Therapy, the Heart Hope Internet site . I have not seen a lot ofnew news releases linked to that site and I'm sort of wondering what you're doing maybe to provide thepublicity surrounding this new procedure ?

JEFFREY NELSON: We're in the process of optimizing Web searches on heart failure around hearthope .com . It isa major focus on our direct to consumer advertising through our centers and through our symposiums to thereferring physicians . And that site just came up and going in March . We will continue to build content in that . Wewill start linking more of our press releases on things like improvements in the results so that we can startgetting some momentum on that site . We think that is going to be a major component of how we reach patientsand get them to self-refer to a center that is providing advanced therapy .

DOUGLAS ADAMS : Thank you . Keith, I have been sort of focused on the Destination Therapy market, ratherthan the bridge market, so what I would really like for you to do is maybe talk about HeartMate II and itsproduct development timeline because I haven't not focused on that .

KEITH GROSSMAN: I think what we -- the specific than we've given on HeartMate II has been related to thephases of the clinical development of the product . And we are in a Phase I trial, which entails seven patients atfour sites . We think that we can get those centers pretty quickly or those patients rather . Now that we havehome discharge, I think it will be a lot easier to get the balance of those patients this quarter . Certainly, we'veasked the FDA to let us expand the trial to another handful of centers and to be able to enroll up to 15 patients .That would involve really the same protocol . It would just allow us to expand the first phase of this trial . Andthat is, again, something that we ought to be able to get through certainly this quarter or next, depending onthe pave of enrollment . The endpoint for these patients is only 30 days follow-up . And as a reminder, these areall bridge to transplant patients .

The real answer to your question, Doug, is really going to be driven by what a pivotal trial looks like . And wereally won't know that until we take our data to the FDA and negotiate a protocol for Phase II . And it will dependon whether or not its just a bridge trial, whether or not we're able to run concurrent bridge and DT trials orsomehow combine them in the same protocol . If it is just a bridge trial, you're probably looking at, depending onthe size of the patient (indiscernible), you're probably looking at something over the next couple of years by thetime we start the pivotal trial . But it's very hard to answer that question without knowing what that pivotal trialis going to look like and we won't know that until we take our Phase I data to the FDA . Now, based on the datawe have now, if we had to stop now and take it to the FDA, I would be very excited to do it because thesepatients looks terrific . But it's a very small end, we have to get more patients and that's something we will bedoing here as soon as we can .

DOUGLAS ADAMS : Okay, thank you .

OPERATOR : Mike Chiou, Lehman Brothers .

MIKE CHIOU , ANALYST , LEHMAN BROTHERS : Hi . Just a quick question on Destination Therapy . The 42 units thatyou reported this qua rter -- is there a chance given maybe at the lag in repo rt ing that number could be higher?And then is there any way that number could actually be lower ?

KEITH GROSSMAN: I think based on where we are right now, we are paying obviously pretty close attention,we're dealing with these centers . As you heard in our remarks, these patients are coming from now a fairlysmall number of the early adopters . We've got a pretty good handle on what is being done where . So I doubt ifthe true number is different, but it is different enough for anyone to be concerned about .

MIKE CHIOU: Okay, thanks .

OPERATOR : Jason Mills, First Albany .

JASON MILLS, ANALYST, FIRST ALBANY : Hi, Keith, hi, Wayne . I was wondering, looking at the bridge totransplant units, as I try to break them out into Destination Therapy, could you talk about at the centers, mostof which obviously are bridge to transplant center customers for you as well, could you talk about their staffingat this point, their capacity to do both in an increasing fashion, obviously, as you ramp in Destination Therapy, ifthat occurs in line with your guidance and if bridge to transplant growth on the unit side, I am guessing you'reassuming units are going to grow in the zero to 5 percent range this year, in line with your guidance, how theymight have to staff up if they're currently staffed to accommodate that? If you might be able to sort of shed a

http://global .factiva.conVen/arch/print_results.asp 11/15/2004

Print Results

little bit more light on that as well? Thanks .

Page 140 of 27 1

JEFFREY NELSON: It's going to vary center to center, depending ICU beds . In general, the sites that have comeon-board have only added incremental headcount . It's primarily organizational -- communication pathways,outreach to the referring physicians -- where the real infrastructure lies . And then the discharging, if they don'thave a dedicated VAD coordinator, needing to hire a dedicated VAD coordinator . Within the current year, I thinkwe do have the capacity in the marketplace . So as this grows and becomes successful, it will probably requiremore infrastructure at our centers . But I think at the current growth rate that we anticipate, our centers are inpretty good shape once they get organized .

JASON MILLS : Okay . If we talk about the 5-15 thousand -- Keith, I think you talk about over, what, the courseof the next 3-5 years -- we would assume that these centers, if they number the amount that are active now inthe 60-70 range for Destination Therapy, that those particularly will have to staff up, correct ?

JEFFREY NELSON : You bet . And I would assume that at the end of a five-year period, if the market is penetratedto that level, you have at that point probably a lot more than 67 centers doing these procedures . Right now, wehave a very small list of hospitals that made kind of an initial and temporary cutoff that was put in place byMedicare . There will long-term be a more formal accreditation process . And if Destination Therapy is that kind ofopportunity, not just for us, but for the hospitals, you're going to find a lot more than 67 hospitals involved . Buteven having said that, of course hospitals will have to have some additional infrastructure at that kind of patientvolume. And at that point, it would be primarily technology and people required to manage patients at home .

JASON MILLS : On the number I just quoted, the 5-15, is there any reason to think that the bottom end of thatrange is unreasonable at this point? I'm understanding the visibility is difficult in the next quarter, let alone, twoor three years from now . But if you could just sort of talk to that a little bit?

KEITH GROSSMAN : It's no easier or no more difficult to see us getting to that point than it was a quarter ago .We are excited, as you can probably tell about what we have accomplished over the last quarter in DT, but it isa very early start for us in what is going to be a long process . So I think everybody here thinks that thosepenetration rates over the next five years are absolutely just as reasonable as we did a quarter ago and twoquarters ago .

JASON MILLS : Okay . And as far as internally when the units are coming in and you're accounting for theDestination Therapy unit sales in the quarter versus bridge to transplant, is that a fairly straightforward processfor you, easy to determine which are going into Destination Therapy patients, which are going into bridge totransplant patients ?

JEFFREY NELSON : Yes. I think we have a very close connection with our customers and it's just a matter ofcollecting that data from our centers . So it is a very straightforward process .

JASON MILLS : Two quick follow-ups and I will get back in queue . Reimbursement, you gave the averagereimbursement last quarter. I believe you thought it was 95,000 based on your internal data . Any update tothat?

WAYNE BOYLSTON : In looking at the sites, because that's going to be site-specific, there really is not acorrelation between their Medicare rate and who's implanting or not . So my guess is that it's going to be a verysimilar number . We have not done that calculation specifically . But there's the fundamental determinant of whatthe reimbursement rate is has not changed from quarter to quarter.

JASON MILLS : Based on the outlier payments then, would that be -- obviously if you're in New York City, forexample, you're probably going to get paid more for the Destination Therapy implant . Maybe the couple ofcenters Keith that you mentioned that don't plan on maybe being involved this year ; could it be possible thatthey are located in the areas of the geographies of the country where they are not receiving that outlierpayments, and therefore, their base reimbursement of 70 is pretty much what they're getting with no outliers .

KEITH GROSSMAN: Sure. I cannot speak to the two centers specifically, but as Jeff mentioned a moment ago,clearly, part of their rationale was, and a big part of it, was economic in nature . And of course, that would bedriven, you know, one big part of the question is their revenue line, and that's what they're getting reimbursed .So as reimbursement improved either regionally on a center by center basis or nationally, then I think it willdrive different decisions on a per-center basis and even on a per-patient basis . But you know, I am actuall y

http://giobal .factiva .com/en/arclVpn'nt-results.asp 11/15/2004


encouraged by the fact that half of our patients thus far are private pay . I think that is very good for us, it's verygood for our hospitals .

JASON MILLS: Finally I will jump back in queue after this one, I promise . Wayne, you gave sort of back of theenvelope guidance for the first quarter on last quarter's call . Could you do the same thing for us for secondquarter at this point? Looking at where gross margins, SG&A margins, R&D and so on and how that might trackto the bottom-line cash EPS? Thanks .

WAYNE BOYLSTON : Jason, as you know, we don't give formal guidance broken down by quarter . And I think wereiterated what we had said about the entire year . And I think we have spoken to the adoption curve ofDestination Therapy, which is going to affect the rate of revenue growth . We've talked a little bit about grossmargins . I think that they will stay in that sort of 59 to maybe 60 percent range for the balance of this year . Andagain, SG&A and R&D will be increasing in absolute dollars, but decreasing as a percentage of sales .

JASON MILLS : Okay, that is helpful .

OPERATOR : Michael Lachman, Think Equity Partners .

MICHAEL LACHMAN, ANALYST, THINK EQUITY PARTNERS : Good afternoon and thank you . Just a couplequestions . First, you talked about some of the real world post-REMATCH experience being favorable with regardto adverse events . Do you have a sense for where the cost per patient is trending? I know the number that waskicked around in REMATCH, I believe it was 140,000 or so on a median basis . Do you have a sense for wherethat mean or median cost is trending today ?

JEFFREY NELSON : We have no way of collecting that data . We got that from the REMATCH trial, because thatwas a specific data collection component . But now that were in the clinical realm, we can only project . And asadverse evens decrease, that was a major contributor to costs and we would anticipate these costs to migratedown .

MICHAEL LACHMAN : With respect to the Destination Therapy ramp, I know you just to Jason's questionreiterated that you don't give quarterly guidance . Is there any way that you can help us think about what weshould be looking for on a Q2 basis, with respect to Destination Therapy number?

JEFFREY NELSON : I can give you the underpinnings, I'm not going to give you any numbers . As more centersstart implanting, we will see more implants . And as the centers that are implanted today increase their volume,you will have that sort of ramping affect over the course of the year . So there's really going to be two factorsthat drive growth in this market -- new centers coming on-board and doing implants and the centers that arealready on-board and implanting continuing to build their volume .

MICHAEL LACHMAN : With regard to the destination and bridge markets as to-somewhat distinct markets, isthere any concern on your part, whether it is the capacity issues at implanting centers that Jason referred to, orany confusion that could exist between which indication a patient falls into . Is there any concern that thedestination ramp is somehow having an impact on the bridge numbers?

KEITH GROSSMAN : No, I really don't think so . There's always a small sliver of patients that fall into a grey areabetween bridge and Destination Therapy . You can describe a patient that was bridged that might be able to becalled DT and vice versa . But they're a small subset of patients . They probably cancel each other out, in terms ofhow they are coded . As Jeff said, we're awfully close to these accounts. At the moment, there aren't that manyof them, and we know the doctors in every case and we know who the patients are . So I think we are prettyclear on what is going on between these patient populations at this early point. I don't think that the rise in onehas anything to do with the .growth rate of the other .

JEFFREY NELSON : I think the fact that the HeartMate product line would be the obvious cannibalization from oneto the other, and that product line is the one that is showing the growth this quarter . It would be unlikely thatyou would have a cannibalization, if you will, of the Thoratec product line and then calling them DestinationTherapy . So I think that is an unlikely .

MICHAEL LACHMAN : Finally, with respect to some of the barriers out there, you made reference to a couple ofthe barriers at the hospital level being reimbursement and infrastructure . One of the other barriers that is ofte n



discussed is cardiology referrals . Is there a particular issue or a couple of primary issues that stand out whenyou talk to referring cardiologists that may be holding them back from making these referrals? And can you talkabout any initiatives that you and your surgeon customers are taking to educate the referral base and anynumbers you could possibly put to that, if we are talking about training ?

JEFFREY NELSON : Sure. Just to clarify infrastructure, the relationship with the referring community is part ofthat infrastructure that we're talking about . Its not just capital, beds and people . But really, this Heart Hopeprogram is directed towards working with the cardiology community and the surgeons to determine which oftheir patient population is most appropriate for this surgery . And I think it is that collaborative effort that hasmade the Heart Hope program successful in those centers and is really going to be the strategy that works goingforward . It is really bringing them into the process of helping determine how Destination Therapy works in theircenter .

MICHAEL LACHMAN : Is there a pa rt icular barrier , whether it 's quality of life concerns or cost or anything else,that seems to be a p rima ry issue that you have to address with the referral basis ?

KEITH GROSSMAN: From my standpoint, there are a number of them, but they're all subsets of a larger issue,which is just a change in practice . But any time you introduce a new surgical practice that requires referral fromanother nonsurgical specialist, you have to change in practice the referral of a patient that otherwise would nothave been referred . And that requires a lot of education, it requires some good experience so they know whatthey are doing . And all of the other reasons they might have for wanting to or not wanting to refer a patientearly on are really just a subset of that issue . It's pretty typical stuff. The curve is there with every -- adoptionof every new technology . What the Heart Hope is trying to do is accelerate the curve as quickly as we can .

MICHAEL LACHMAN : Great, thanks a lot .

OPERATOR : Alex Arrow, Lazard .

ALEX ARROW, ANALYST, LAZARD : Thank you . Just two questions . The number of units of Hea rtMates that youexpect to sell over the course of ' 04 to the clinical trials of World Hea rt and MicroMet , would you be willing togive us any guidance on that ?

KEITH GROSSMAN : No . Because we don't break it out that way . We're the only approved device and we knowwho the centers are that can do this device . We've talked to every single center about what their plans are andtheir intentions . And Alex, frankly, we don't think that either of those trials are going to have a dramatic impacton either the DT market or our penetration of that market . So we would have to know exactly which centersthey plan to enroll and when they plan to get IRV approval and get active and a lot of detail that we don't haveaccess to and that we don't really find relevant to what we think we will do this year .

ALEX ARROW: So, it is not relevant because it is not material, but would it still show up even in a small way inyour sales, or would that be booked in some different way ?

KEITH GROSSMAN : It would show up in the same place . If a hospital is a Medicare-certified DT center and theytreat a patient, they buy out a device and they treat a patient, that patient is going to be captured the sameway any other DT patient will be captured .

ALEX ARROW : Okay, thanks . On the comment you made earlier on this call, you said that you were choosing totake a measured approach . I would like to see if it is possible to understand what you mean by a measuredapproach . Are you purposely in some cases not taking a rapid-fire approach? In other words, are you saying noin some cases to centers or patients that would otherwise have a HeartMate? What did you mean by taking ameasured approach ?

KEITH GROSSMAN : I think a measured approach means two things . Number one, it means we're trying todescribe our effort, which is going after the largest, most prepared, most experienced and most motivatedcenters with regards to DT . We're focusing on those centers, trying to get patients enrolled at those centerswhere we can get good outcomes, where we have centers that we know will generate good results that willshare their experience that will publish and grow the base from there . It does not do us any good to try and getevery patient at every single hospital we can . Don't get me wrong . If somebody is a Medicare-certified center,we are not -- we don't have any control over whether or not they can treat a DT patient and we're notdiscouraging any of these good centers from treating patients . But we know that are certain centers who ar e



really motivated to make this a strategic pa rt of their hea rt failure practice this year and get good outcomes andthat is where we're focused . And we want to sta rt with a nucleus of patients and outcomes that can bepublished , that can be describe to other centers and to the cardiology communi ty and see this take off in theright way . That is what we mean by measured in describing our effo rt. The other side of that is in describing theramp . We've made it very clear that this is going to be a ramp that will accelerate in the back half of the yearand into next year because of the way we have chosen to go after the market and because of the way we thinkthe market will adopt it almost in any case . So that ' s what we mean by measured .

ALEX ARROW: Thank you, Keith .

OPERATOR : Sam Chang, RBC Capital Markets .

SAM CHANG, ANALYST, RBC CAPITAL MARKETS : Good afternoon . Most of my questions have been answered,just one quick one . Is there a difference in pricing for the HeartMate for DT versus bridge?

KEITH GROSSMAN : No .

SAM CHANG : So it is absolutely the same all the way around?

JEFFREY NELSON : Yes .

SAM CHANG : Is there a difference in pricing between different centers ?

JEFFREY NELSON : Marginally . It's really not a price-competitive market, but it is not dramatic.

SAM CHANG : Okay . That's it for me . Thank you .

OPERATOR: Ryan Rauch, Suntrust Robinson Humphrey.

RYAN RAUCH, ANALYST, SUNTRUST ROBINSON HUMPHREY : Good afternoon , just two quick follow -ups . Wayne,what did IRMA add to the top line in the quarter?

WAYNE BOYLSTON : It was about 1 .7 million .

RYAN RAUCH : Okay . And how many centers -- you typically give us the bridge center number, I think it was 303last quarter . I mean is it roughly the same, I would presume ?

WAYNE BOYLSTON : I think we had two NSPs , two new centers come on-board worldwide in the U . S . It is apretty stable number .

RYAN RAUCH : Last quarter, you reported relatively about $1 million in Vectra sales because of ordering patterndisruptions at bard . Can you just briefly describe what is going on there ?

KEITH GROSSMAN : I can try . Obviously, I cannot speak in great detail to what our distributor is doing or notdoing internally . I can tell you that it would appear based on what they have shared with us that they've justsimply bought ahead of where they were . They ended up with some inventory on hand and decided that theyneeded to cut their are ordering back a little bit for some period of time . There is nothing fundamentallychanging in their market, there are no new competitors . The market share for Vectra in that market is notslipping . Though I think it is fair to say it's not going as quickly as it was maybe a year ago because it is not abrand new entrant . And I think that is part of what they are seeing . So they are adjusting to a slight slowdownin the growth rate and ordering less and that is what . we're seeing .

RYAN RAUCH : Finally, Keith, are you going to wait until you implant your fifteenth HeartMate II patient and havea thirty-day follow-up before seeking ID approval on the Destination Therapy side, or are you going to try to doit with 7 patients and just do an ongoing trial with eight more? Can you explain? Has this extended you rHeartMate II plans, as far as seeking ID approval for Destination Therapy, or are you going to go in with seven?Can you just -- maybe you explain it earlier, but I missed it .

http ://global .factiva.com/en/arch/pn'nt_results.asp 11/15/2004


JEFFREY NELSON : Our initial submission to the FDA was 15 patients at 10 centers . They came back and said wewould like you to first do seven patients at four centers . So were on track . As far as when we submit ourapplication to go to pivotal trial, it will really depend on the outcomes from these patients . When we feel wehave enough positive data to demonstrate safety of the device, we will go to the FDA and push to move to apivotal trial . It's less as it would appear from the outside .

RYAN RAUCH : Okay, thanks a lot .

KEITH GROSSMAN : And, Ryan, one of the reasons for that is as the enrollment drags in these trials, one of theunfortunate realities is that sometimes the enrollments are slower than you would like . The only silver liningthere is that you gather an awful lot of data in fewer patients . So you have a thirty-day follow-up period in thesepatients . But by the time you get to say 10th out of a series of 15, you might have a year in your first patient,or eight months . And that is pretty significant, even if the endpoint of your trial is 30 days . So sometimes wecan use fewer patients and go in sooner .

RYAN RAUCH : Okay, thanks a lot .

OPERATOR : Chris DiSoni ( ph), Eagle Asset Management .

CHRIS DISONI, ANALYST, EAGLE ASSET MANAGEMENT : Good afternoon. I had a question to try to understandthe adoption curve and the referral patterns coming from the cardiologists . I am somewhat puzzled by theadoption rates or their willingness to refer patients . If I hear you correctly, in terms of the survival of thesepatients post-REMATCH, it looks to be in the 50 percent range if we're going to be conservative . And so youhave 50 percent versus 8 percent with maximum medical therapy or thereabouts ; that is a huge differential . Yeton the oncology side, I see oncologists getting wildly excited about a drug, a new drug that will come on themarket that will extend life for a couple of months . If you are maximum medical therapy and you have end-stage heart failure, it is pretty much a death sentence, as I understand it, in terms of what the survival is ofthose patients 5-10 years out . So what am I missing, in terms of what the trepidation is with cardiologists, interms of referring patients to the surgeon to be implanted with a device that will basically improve significantlythe survival and basically normalize cardiac output?

KEITH GROSSMAN : I don't know that you're missing anything . I just think that there is a -- fundamentally, thereis a difference between an oncologist who is managing a patient who decides to adopt the use of a new drugbased on data that may be less compelling to REMATCH than REMATCH . But the fact is, it is only a drug . Thebarriers to a trying the drug are minimal . And maybe more significantly, the patient does not leave thatoncologist's hands in order to try the new therapy . Compare and contrast that with a cardiologist who'is nowfaced with going from drug therapy to what they perceive to be an invasive surgical procedure, number one .And number two, giving the patient up, or at least seemingly to them, giving the patient=up . By the way, thereare many cardiologists, heart failure cardiologists out there that agree with you, Chris . There are some of theearly adopters who have been involved with VADs for awhile . I mentioned one of them in the presentations Ireferred to, Dr . Les Miller from Minnesota, who are very knowledgeable, who are absolutely with you on youranalysis, but I think we're just early in the curve . And I think that for the reasons I outlined, it takes some timeand I think past devices, past surgical procedures have demonstrated this phenomenon . And I think it's just acurve we have to try to accelerate .

CHRIS DISONI : But even with the case of a physician that is treating an oncology patient , a cancer patient,typically they will give that patient up at least temporarily for the removal -- the surgical removal of a tumor orsome other invasive procedure , I mean unless, it's a blood -borne condition . It just seems bizarre to me that thecardiologist fears that they ' re going to lose the patient because it ' s inconceivable that the surgeon wouldmaintain care of these patients after the postoperative period is over .

KEITH GROSSMAN: I don't think it seems inconceivable . If you go out and you talk to a few surgeons and a fewdozen cardiologists -- and Chris, I know you have -- you are going to find that this is a struggle between thesetwo specialties . And it's the cardiologist that owns the patient . And they will give that patient up, but they don'talways look for a surgical procedure but they don't typically do it quickly and they don't do it easily and theydon't typically do it until they have tried everything they think they can try . It really is an ongoing educationaleffort with more and more and more data and more successful outcomes, and that is the road on which we haveembarked . And it is going to happen, but it just will take a little time .

CHRIS DISONI : But no additional data that they are ever going to see has ever altered the survival curves . Nodrug has yet altered the survival curve . So along comes a procedure which does alter the survival curve, and I' m



just still scratching my head as to what they are looking at and what they fear . But, okay, so I guess they keepthe patient and watch them die, I guess is the answer .

Second issue that I wanted you to just kind of go through with us is whether it is for the HeartMate II orwhether it's any other milestones -- can you just walk us through what the most important milestones for theremainder of the year will be?

KEITH GROSSMAN : Sure. I think that there are two and then there is everything else . I think -- in addition tofinancial performance and just general execution . I think one is anything that has to do with DT penetration . Ithink that is the number of centers who are active, the number of patients who are treated, the slope of thecurve between now and the end of the year, all of the things that I probably don't have to tell anybody on thiscall, that reflect upon the success of this first year of this DT adoption . And I think number two is that theprogress of HeartMate II . HeartMate II so far has been in a fairly small experience set, very, very successful andwe're very excited about it . We need to do a lot more work, but we are awfully excited about a device that is afifth or sixth the size and could last maybe two to four times as long and be a real market expander down theroad .

So we're pretty excited about that . And of course by the end of the year, we would hope to be concluded withPhase I regardless of the number of patients that end up being called Phase I, certainly have a submission inand my hope would be, have some sort of an approval for a Phase II trial . Look, there's a lot of other things thatwill happen between now and the end of the year, both at ITC and cardiovascular . We will continue to makeprogress working at HeartMate III . We have some other improvements coming for the current device, theHeartMate XVE . We have a bearing improvement project for which we plan to make an FDA approval by year'send that we think will make yet another round of difference in the durability of the devise . A lot of other thingshappening, but I think they are all -- they all come second to DT penetration and HeartMate II .

CHRIS DISONI : And if you were to project out the EU approval, a European approval of HeartMate II and U .S .approval, just roughly what years would that be ?

KEITH GROSSMAN : Chris, I have answered that question . I think it's really going to depend on the nature of theprotocol in the U .S . . I'll tell you, in the European community, it's a little bit more straightforward . And my guessis, before the end of next year, we ought to be in a position to have a CE mark on the HeartMate II, providedthat enrollment goes as expected .

CHRIS DISONI : Okay, thank you .

OPERATOR : Tom Bishop, BI (ph) Research .

TOM BISHOP, ANALYST, BI RESEARCH : Based on the 42 in the current quarter, how do the installations relate tothe units sold as far as revenues go? Are they equal or not ?

KEITH GROSSMAN : I'm not sure I understand the question .

TOM BISHOP: They installed 42 HeartMates . But as far as your revenues go, how many were sold in thequarter? Are they one in the same?

KEITH GROSSMAN : No, they are not . And I'm glad we got the question because we report revenues, we reportunits sold and then we also report DT implants . And that is not units sold ; those are units implanted . When wesell a HeartMate device to a hospital, we don't know two things. We don't know when the device will beimplanted and we don't know in what kind of patient . So they implant it the next week, they might implant it in3 months . It might go into a bridge patient, it might go into a DT patient . So really, the number of implantsplaced in DT patients is really just a measure we are providing to try and give you a sense of the adoption ofthis new therapy . Ultimately of course, it links directly to the number of HeartMates we sell . But in any givencalendar quarter, there may not be a direct match .

TOM BISHOP : Can we know what the units sold was ?

KEITH GROSSMAN : I think we provided that, didn't we, Wayne ?

http ://global .factiva.com/en/arch/print_results.asp 11/15/2004


WAYNE BOYLSTON : The total number of units, Tom, is that what you ' re looking for ? It was 394 .

TOM BISHOP : And the problem is you just don't know whether its going to be for bridge to transplant or DTwhen you sell it? It's the same unit really ?

KEITH GROSSMAN : Its the same unit . Now generally, they don't hold a lot of inventory for a long period oftime. These are expensive devices . So it's not like they're buying a pump now and implanting in a patient 18months from now . But easily, they could buy a pump and it crossed the end of the quarter before they implantit . So it is hard to link up the two . Now we know HeartMate sales for the quarter are up 26 percent over prioryear, and we know how many pumps we sold . And of course we know how many DT patients we actuallytreated .

TOM BISHOP : Based on that 42, though, is 50 really still a possibility -- I'm sorry -- 500 this year really still apossibility? Or are we looking more at a range of 300-400 ?

KEITH GROSSMAN : Our guidance has not changed . Absolutely, we have said from the beginning that we weregoing to provide an estimate of market penetration for this year of between 3 and 500 implants, that it wouldbe, as you would expect, the majority or more than a simple majority would be concentrated in the back half ofthe year, and by definition, the fourth quarter being the most important . So I actually think that we're verypleased with the number of implants for the first quarter internally . So there would be no reason for us to lookat the guidance we gave for the year and change it in any way .

TOM BISHOP : So 500 is still a possibility ?

KEITH GROSSMAN : Our guidance is still the same.

TOM BISHOP : When you said there was 67 centers, that was out of how many possibles ?

KEITH GROSSMAN: One of the criteria for Medicare is that they are be a Medicare transplant center . So right ofthe bat, you're at a maximum of around 130 centers . But only 67 centers made their early criteria of having of15 long-term implants done in their facility over the last three years or so . So its 67 out of 67 for now . Theremay be a few more added in the coming months, but I don't expect the number to be dramatically different untilthey put in place a formal accreditation process, which we will begin hearing more about in the second half ofthis year.

TOM BISHOP : Okay . Is the amount of revenue per units sold still around 70,000 with the extras and so fo rth?

KEITH GROSSMAN : I think the implant to revenue ratio hasn ' t changed much . It's somewhere between 70,$80,000 in revenue brought along by each pump .

TOM BISHOP : And finally , DT in other countries, where do we stand ? I just forget, as far as DT being sold inEurope, for example . What has to happen there ?

JEFFREY NELSON : Nothing . They' re eligible to do it . I think there ' s structural adoption issues in Europe, which isthe primary market that we do that . And I think we will see DT become a stranded of care in the U .S . wellbefore Europe .

TOM BISHOP : It's cleared to be sold in your ?

JEFFREY NELSON : Sure . They don' t have indication-speci fic recommendations and approvals in Europe .

TOM BISHOP : Are their efforts ongoing in that regard, or really not yet ?

JEFFREY NELSON: Were sta rt ing efforts in Europe . Our primary focus, though, the real majority of our focus, isgoing to be in the U.S. where we believe the major market is going to be .

TOM BISHOP : Great . I'm looking forward to the future . Thank you .



OPERATOR : That concludes our question-and-answer session . I'll turn the conference back over to Mr. KeithGrossman for closing remarks .

KEITH GROSSMAN: Okay. Thanks everyone for joining us . We look forward to bringing you up to date nextquarter .

OPERATOR : That does conclude our conference call for today . We do thank you for your participation .

[CCBN reserves the right to make changes to documents, content, or other information on this web site withoutobligation to notify any person of such changes .

In the conference calls upon which Event Transcripts are based, companies may make projections or otherforward-looking statements regarding a variety of items . Such forward-looking statements are based uponcurrent expectations and involve risks and uncertainties. Actual results may differ materially from those statedin any forward-looking statement based on a number of important factors and risks, which are more specificallyidentified in the companies' most recent SEC filings . Although the companies may indicate and believe that theassumptions underlying the forward-looking statements are reasonable, any of the assumptions could proveinaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized .

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLECOMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION,THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCEOF THE CONFERENCE CALLS. IN NO WAY DOES CCBN ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OROTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENTTRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF ANDTHE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS . 1

Document FNDW000020040511e04r0020 o

© 2004 Dow )ones Reuters Business Interactive LLC (trading as Factiva ) . All rights reserved .

http://global .factiva.com/en/arch/pn'nt_results.asp 11/15/2004

EXHIBIT G

Print Results

0' activa .,.

Thoratec Comments On CMS Proposal Regarding VAD Reimbursement198 word s11 May 200411 :01Dow Jones News ServiceEnglish(c) 2004 Dow ]ones & Company, Inc .

Page 41 of 27 1

Dow Jones & Reuters

PLEASANTON, Calif . (Dow Jones)--The Centers for Medicare and Medicaid Services, or CMMS, issued a proposedrule change Tuesday that would increase coverage for permanent ventricular assist divices .

In a press release, medical device maker Thoratec Corp . (THOR) said such a change would be a boon for

patients opting for its Hea rtMate XVE LVAS device , which is currently the only device approved by the U .S. Food

and Drug Administration for destination therapy , or the permanent support of end-stage hea rt failure patients

who aren ' t eligible for hea rt transplantation .

Thoratec estimated such a change would raise the median reimbursement at the 68 centers recognized byCMMS for destination therapy to $125,000 from $96,000 .

The proposed rule change will be open to public comment for the next 60 days . A final ruling on the matter is

due Aug . 1 . Were the measure to be approved, it would take effect in the fiscal year starting Oct . 1 .

Thoratec finished the trading day at $14 .99, up $2, or 15 .4% .

Company Web site : http ://www .thoratec .com

-Andrew Wallmeyer ; Dow Jones Newswires ; 201-938-5400 [ 05-11-04 1606ET ]

Document D300000020040511e05b0001y

© 2004 Dow Jones Reuters Business Interactive LLC (trading as Factiva) . All rights reserved .


EXHIBIT H

THORATEC CORP Filing Date : 04/03/04

Table of Content s

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------U .S . SECURITIES AND EXCHANGE COMMISSIO N

WASHINGTON, D .C . 2054 9

FORM 10-Q

(Mark one )

{X} Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 193 4

For the quarterly period ended April 3, 200 4

or

{ } Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 193 4

for the transition period from to

COMMISSION FILE NUMBER : 1-814 5

THORATEC CORPORATION(Exact name of registrant as specified in its charter)

California(State or other jurisdiction of 94-2340464

incorporation or organization) (I .R .S . Employer Identification No .)

6035 Stoneridge Drive, Pleasanton, California 94588(Address of principal executive offices) (Zip Code )

Registrant's telephone number, including area code : (925) 847-860 0

Indicate by check mark whether the registrant : (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that th eregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days . Yes {X} No { }

Indicate by check mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Exchange Act) : Yes {X} No { }

As of May 7, 2004 registrant had 55,897,252 shares of common stock

outstanding .


1

THORATECCORP Filing Date : 04/03/0 4

TABLE OF CONTENTS

Part I. Financial Information 3

Item 1 . Condensed Consolidated Financial Statements (unaudited) 3Condensed Consolidated Balance Sheets as of April 3, 2004 and January 3, 2004 3Condensed Consolidated Statements of Operations for the Three Months Ended April 3, 2004 and 4

March 29, 200 3Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 3, 2004 and 5March 29, 200 3

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 3, 62004 and March 29, 200 3

Notes to Condensed Consolidated Financial Statements 7Item 2 . Management's Discussion and Analysis of Financial Condition and Results of Operations 13

Item 3 . Quantitative and Qualitative Disclosure of Market Risk 20Item 4. Controls and Procedures 21Part II. Other Information 22

Item 2 . Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 22Item 6 . Exhibits and Reports on Form 8-K 22Signatures 23

Exhibits 24EXHIBIT 31 . 1EXHIBIT 32 . 1

2

--------------------------------------------------------------------------------

Table of Content s

PART I . FINANCIAL INFORMATION

ITEM 1 . CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)(in thousands )

AssetsCurrent Assets :Cash and cash equivalent s

Short-term available-for-sale investment s

Receivables, net of allowances of $409 in 2004 and $486 in 2003Inventorie s

Deferred tax asset and other prepaid asset s

Total Current Asset s

Property, plant and equipment, net

Goodwil lPurchased intangible assets, ne tLong-term deferred tax asset and other assets

April 3, January 3,

2004 2004

$ 48,022 $ 62,020

45,828 41,17928,851 27,96936,830 36,417

13,193 12,796

--------- ----------172,724 180,381

--------- -28,948

-------- -28,492

95,116 96,065161,934 164,865

6,965 6,32 8

2

THORATEC CORP Filing Date: 04/03/0 4

--------- ----------Total Assets $ 465,687 $ 476,13 1

--------- ----------Liabilities and Shareholders' EquityCurrent Liabilities :Accounts payable and accrued expenses $ 18,175 $ 22,772

Total Current Liabilities 18,175 22,772

Long-term deferred tax liability and other assets 65,600 67,123

--------- ----------Total Liabilities 83,775 89,895

Shareholders' Equity :Common shares ; 100,000 authorized ; issued and outstanding 55,812 in 2004 420,053 423,045

and 56,242 in 200 3Deferred compensation (2,403) (2,630)

Accumulated deficit (36,193) (34,594)Accumulated other comprehensive income :

Unrealized gain on investments 20 51Cumulative translation adjustments 435 364

--------- ----------Total accumulated other comprehensive income 455 415

--------- ----------Total Shareholders' Equity 381,912 386,23 6

--------- ----------Total Liabilities and Shareholders' Equity $ 465,687 $ 476,13 1

See notes to condensed consolidated financial statements .

3

--------------------------------------------------------------------------------

Table of Contents


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)(in thousands, except per share data )

Three Months Ended

----------------------------April 3, 2004 March 29, 2003

------------- --------------Product sales $ 42,792 $ 36,062Cost of product sales 17,721 14,891

------------- --------------

3


Gross profit

Operating expenses :Selling, general and administrativeResearch and developmen tAmortization of purchased intangible assetsLegal settlement and restructuring cost s

Total operating expenses

Income from operationsInterest and other income -- ne t

Income before income tax expenseIncome tax expense

Net income

Net income per share :Basic and diluted

Shares used to compute net income per share :Basi cDiluted

25,07 1

------------- ---

21,17 1

---------- -

13,013 10,06 07,338 6,26 02,931 3,09 6

133 (57 )

------------- -- -

23,415

---------- -

19,35 9

------------- -- -1,656

---------- -1,81 2

465 51 2

------------- -- -2,121

---------- -2,32 4

827 90 6

------------- -- -

$ 1,294

- ---------- ---

---------- -

$ 1,41 8

---- --- -- -

$ 0 .02

-

-- -

$ 0 .0 3

------ ------ -- -

56,106

---------- -

55,05 757,458 55,53 4


4

--------------------------------------------------------------------------------

Table of Content s


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited )(in thousands )

Cash flows from operating activities :

Three Months Ended

------------------April 3, March 29 ,

2004 2003

Net income $ 1,294 $ 1,418

Adjustments to reconcile net income to net cash provided by (used in )operating activities :Depreciation and amortization 4,641 4,351Amortization of deferred compensation 227 300Investment premium amortization 282 275

Income tax expense 827 906

4


Changes in assets and liabilities :Receivables ( 882) 3,003Inventories (413) (344 )

Prepaid expenses and other assets ( 787) (957 )Accounts payable and other liabilities ( 5,294 ) ( 3,205 )Other ( 303) 437

Net cash provided by (used in ) operating activities------- -

( 408)-------- -

6,184

Cash flows from investing activities :-------- -------- -

Purchases of available - for-sale and other investments ( 11,325 ) (4,439 )Sales of available -for-sale investments 5,844 5,70 9Purchases of property , plant and equipment ( 2,165 ) (1,317 )

Net cash used in investing activities------- -

( 7,646)-------- -

(47 )

Cash flows from financing activities :-------- -------- -

Proceeds from stock option exercises 715 62 2Repurchase of common stock ( 6,730) - -

Net cash provided by (used in ) financing activities------- -(6,015)

-------- -62 2

Effect of exchange rate changes on cash 71 (56 )

Net increase ( decrease ) in cash and cash equivalents------- -

( 13,998)-------- -

6,70 3Cash and cash equivalents at beginning of period 62,020 42,04 4

Cash and cash equivalents at end of period------- -$ 48,022

-------- -$ 48,74 7

Supplemental Cash Flow Disclosure :-------- -------- -

Cash paid for taxes $ 48 $ 26 0Cash aid for interest -- - -PSupplemental Disclosure of Non-cash Investing and Financing Activities :Tax benefit related to stock option exercises $ 130 $ 107


5

Table of Content s


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)(in thousands)

Three Months Ended

------------------April 3, March 29 ,

2004 2003

5


-------- ---------Net income $ 1,294 $ 1,418

-------- ---------

Other net comprehensive income (loss) :Unrealized gain (loss) on investments (net of taxes of $(20) and $14 in (31) 22

2004 and 2003, respectively )Foreign currency translation adjustments 71 (28 )

Comprehensive income $ 1,334 $ 1,412

-------- ---------


6

--------------------------------------------------------------------------------

Table of Content s


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

(in thousands, unless otherwise stated )

1 . Basis of Presentation

The interim condensed consolidated financial statements of ThoratecCorporation, referred to as "we," "our," "Thoratec," or the "Company," havebeen prepared and presented in accordance with accounting principles generallyaccepted in the United States of America and the rules and regulations of theSecurities and Exchange Commission, or the SEC, without audit and reflect alladjustments necessary (consisting only of normal recurring adjustments) topresent fairly our financial position at April 3, 2004 and January 3, 2004, ourresults of operations for the three-month periods ended April 3, 2004 and March29, 2003 and cash flows for the three-month periods ended April 3, 2004 and

March 29, 2003 . Certain information and footnote disclosures normally includedin our annual financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted . The accompanying financial statements should be read inconjunction with our fiscal 2003 consolidated financial statements filed with

the SEC in our Annual Report on Form 10-K . The operating results for anyinterim period are not necessarily indicative of the results that may be

expected for any future period .

The preparation of our condensed consolidated financial statementsincluded herein necessarily requires us to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the consolidated balance sheet dates andthe reported amounts of revenues and expenses for the periods presented .

We have made certain reclassifications of 2003 amounts to conform to the

current presentation, including a reclassification of $41 .2 million fromlong-term available-for-sale investments to short-term available-for-saleinvestments to reflect management's intent that these investments be consideredavailable for current operations .

Stock Based Compensatio n

We account for stock-based compensation to employees using the intrinsi c

6


value method in accordance with APB No . 25, "Accounting for Stock Issued to

Employees ." Accordingly, no accounting recognition is given to stock options

granted at fair market value until they are exercised . Upon exercise, net

proceeds, including tax benefits realized, are recorded in shareholders'

equity . Similarly, no accounting recognition is given to our employee stock

purchase plan until a purchase occurs . Upon purchase, net proceeds are recorded

in common stock . Under fair value recognition provisions of SFAS No . 123, the

fair value of each option granted as a stock option or as an option to purchaseshares under the employee stock purchase plan is estimated using the

Black-Scholes option-pricing model . If compensation cost for our stock-based

plans had been determined based on the fair value at the grant dates for awards

under those plans, consistent with the method of SFAS No . 123, our reported net

income would have been adversely affected, as shown in the following table (in

thousands, except per share data) :

Table of Contents

Three Months Ended

------------------April 3, March 29 ,

2004 200 3

Net income :As reported $ 1,294 $ 1,418

Add : Stock-based compensation expense included in reported 139 185

net income, net of related tax effect s

Deduct : Total stock-based employee compensation expense (2,043) (2,029)determined under fair value based method for all awards, ne t

of related tax effects

-------- ---------Pro forma $ (610) $ (426)

-------- ---------

Basic and diluted earnings (loss) per share :

As reported $ 0.02 $ 0 .03

Pro forma loss $ (0.01) $ (0 .01 )

2 . New Accounting Pronouncement s

In December 2002, the FASB issued SFAS No . 148, "Accounting for

Stock-Based Compensation-Transition and Disclosure" which amends FASB Statement

No . 123, "Accounting for Stock-Based Compensation," to provide alternativemethods of transition for a voluntary change to the fair value based method of

accounting for stock-based employee compensation . In addition, SFAS No . 148

amends the disclosure requirements of SFAS No . 123 to require prominent

disclosures in both annual and interim financial statements of the method ofaccounting for stock-based employee compensation and the effect of the method

used on reported results . We adopted the disclosure provisions of SFAS No . 148

at the beginning of fiscal 2003 . On March 31, 2004, the FASB issued an exposure

draft, "Share-Based Payment, an Amendment of FASB Statements No . 123 and 95 ."

This proposed statement would require that stock-based compensation berecognized as a cost in the financial statements and that such cost be measuredbased on the fair value of the stock-based compensation . If issued in final

form as proposed by the FASB, our adoption of this proposed statement would

have a material, although non-cash, impact on our consolidated statement o f

7

THORATEC CORP Filing Date : 04103104

operations .

3 . Cash and Investments

We consider highly liquid investments with maturities of three months orless at the date of purchase to be cash equivalents . Short-term investmentsconsist of available-for-sale debt securities that are carried at fair valueand generally mature between three months and two years from the purchase date .

Investments with maturities beyond one year may be classified as short-termbased on their highly liquid nature and because such marketable securitiesrepresent the investment of cash that is available for current operations . We

include any unrealized gains and losses on short-term investments, net of tax,in shareholders' equity as a component of other comprehensive income .

4 . Financial Instrument s

We have a foreign currency exchange risk management program principallydesigned to mitigate the change in value of assets and liabilities that aredenominated in non-functional currencies . Forward exchange contracts that

generally have terms of three months or less are used to hedge thesenon-functional currency exposures on the Company's books . The derivatives used

in the foreign currency exchange risk management program are not designated ascash flow or fair value hedges under SFAS 133 . These contracts are recorded on

the balance sheet at fair value in "Deferred Tax Asset and Other" current

assets . Changes in the fair value of the contracts and the underlying exposuresbeing hedged are included concurrently in "Interest and Other Income -- Net" .

At April 3, 2004, the notional value of outstanding contracts approximated

$10 .3 million with a fair value of approximately $0 .1 million .

8

--------------------------------------------------------------------------------

Table of Contents

5 . Inventories

Inventories consist of the following :

As of

-------------------April 3, January 3 ,

2004 2004

-------- ----------Finished goods $ 17,660 $ 15,504

Work in process 5,893 9,089Raw materials 13,277 11,82 4

-------- ----------Total $ 36,830 $ 36,417

6 . Property, Plant and Equipmen t

Property, plant and equipment consist of the following :

As o f

8

THORATEC CORP Filing Date : 04103/0 4

-------------------April 3, January 3 ,

2004 200 4

-------- ----------Property, plant and equipment, at cost $ 60,183 $ 58,023

Less accumulated depreciation (31,235) (29,531 )

-------- ----------Total $ 28,948 $ 28,492

7 . Goodwill and Other Intangible Asset s

The change in the carrying amount of goodwill, which is attributable toour Cardiovascular business segment, for the three-month periods ended April 3 ,

2004 and March 29, 2003 was as follows :

Three Months Ended

------------------April 3, March 29 ,

2004 2003

-------- ---------Beginning balance $ 96,065 $ 96,492Realization of acquired foreign deferred tax asset (134) --Reversal of accrual for securities registration costs (815) --

Ending balance-------- ---------$ 95,116 $ 96,49 2

In the first quarter of 2004, goodwill related to the 2001 merger ofThoratec and Thermo Cardiosystems, Inc . ("TCA") was adjusted to reflect theutilization of tax net operating loss benefits related to our subsidiary in theUnited Kingdom . At the time of the merger, a deferred tax asset related tothese tax benefits was established with a corresponding valuation allowance forthe full amount . As our UK subsidiary more likely than not will begin utilizinga portion of this benefit, a portion of the original valuation allowance hasbeen reversed against goodwill .

Goodwill was also adjusted in the first quarter of 2004 to reflect thereversal of an accrual, established at the time of the merger with TCA, forsecurities registration costs . Under the terms of the merger agreement, theCompany committed to pay for securities registration related costs shouldThermo Electron Corporation ("TCI") (the majority shareholder in TCA prior tothe merger) decide to sell their shares of the Company via a public offering .This commitment was enforceable until TCI's holdings in Thoratec fell below10%, which occurred in the first quarter of 2004 .

The components of identifiable intangible assets, consisting primarily ofpatents and trademarks, core technology and developed technology, which areincluded in purchased intangible assets on the consolidated balance sheets, areas follows :

9

9

THORATEC CORP Filing Date: 04/03104

Table of Contents

As of April 3, 200 4

-----------------------------------------------Gross Carrying Accumulated

Amount Amortization Net Carrying Amoun t

- -

Patents and Trademarks

----------- -$ 37,815

------------ --- -

$ (11,326)

-------------- -

$ 26,48 9

Core Technology 37,485 (5,826) 31,659

Developed Technology 122,782 (19,079) 103,703

Non-compete Agreement 90 (7) 83

- -Total Purchased Intangible Assets

--

----------- -$ 198,17 2

------------

------------ --- -

$ (36,238 )

------------ ----

-------------- -$ 161,934

-------------- -

As of January 3, 2004

-----------------------------------------------Gross Carrying Accumulated

Amount Amortization Net Carrying Amoun t

Patents and Trademarks

-------------- -

$ 37,815

----------- --- -

$ (10,416)

-------------- -$ 27,39 9

Core Technology 37,485 (5,353) 32,13 2

Developed Technology 122,782 (17,535) 105,24 7

Non-compete Agreement 90 (3) 8 7

Total Purchased Intangible

------------- -Assets $ 198,172

--------------

------------ --- -$ (33,307 )

------------ ----

-------------- -

$ 164,86 5

-------------- -

Subsequent to fiscal 2003 year-end, the Company completed its assessmentof the final results from its feasibility clinical trial for the Aria CABGgraft which was ongoing through fiscal 2003 . Based on the clinical trialresults, the Company determined that it would not devote additional resources

to the development of the Aria graft . Upon the decision to discontinue productdevelopment, the Company recorded an impairment charge of $8,987 in the fourthquarter of 2003 to write off purchased intangible assets related to the Ariagraft, which were recorded as a result of the merger with TCA in 2001 .

On September 30, 2003, we completed our previously announced assetpurchase agreement to acquire the Immediate Response Mobile Analysis, or IRMA,point-of-care blood analysis system product line from Diametrics Medical, Inc .

("Diametrics") . We paid approximately $5 .2 million in cash and assumed trade

payables . Approximately $1 .8 million of the total purchase price was allocated

to purchased intangible assets .

Amortization expense related to identifiable intangible assets for thethree month periods ended April 3, 2004 and March 29, 2003 was $2,931 and$3,096, respectively . Amortization expense is expected to be approximatel y

10

THORATECCORP Filing Date : 04103104

$11 .7 million for each of the next five years . The purchased intangible asset s

have estimated useful lives of seven to twenty years .

8 . Common Stock

In February 2004, the Board of Directors authorized a stock repurchase

program under which up to $25 .0 million of our common stock could be acquired

in the open market or in privately negotiated transactions . The number of

shares to be purchased and the timing of purchases were based on severalconditions, including the price of our stock, general market conditions and

other factors . As of April 3, 2004, we have repurchased and retired 510

thousand shares with an aggregate purchase price of $6,730 under this program .

9 . Legal Settlement and Restructuring Cost s

Legal settlement and restructuring costs were recorded in the condensedconsolidated statements of operations as follows :

Three Months Ende d

Legal SettlementRestructuring

Total

10

------------------April 3, March 29 ,

2004 200 3

-------- ---------$ 133 ---- (57 )

-------- ---------$ 133 $ (57 )

Table of Content s

Legal Settlemen t

In April 2003, a patent infringement claim was filed against the Company

by Bodycote Materials Testing Canada, Inc . and David C . MacGregor, M .D . related

to materials used in the HeartMate LVAS . On February 3, 2004, the Companysettled the claim and recorded a charge of $2,256 in the fourth quarter of 2003for the settlement and related legal costs . The expense recorded in the first

quarter of 2004 is primarily composed of additional legal expenses related tothe settlement .

Restructuring Cost s

All restructuring activities and related expenses were completed in the

second quarter of 2003 . From the inception of our plan to consolidate all ofour ventricular assist device, or VAD, manufacturing operations, which we callthe Restructuring Plan, through the completion date in April 2003, we recorded

$1,495 of restructuring charges . These charges represented employee severancecosts and stock option acceleration charges . Total severance payments under theRestructuring Plan were $1,297 paid to 78 employees . Following is a summary o f

our accrued restructuring costs activity :

11

THORATEC CORP Filing Date: 04/03/04

Three MonthsEnded

March 29,200 3

Accrued Restructuring Costs :Beginning balance $ 679Reduction of severance accrual (61)

Payments of employee severance (521 )

------------

Ending balance $ 97

10 . Income Taxes

Our effective tax rate was 39% for both the three-month periods endingApril 3, 2004 and March 29, 2003 . The effective income tax expense rate forboth quarters differed from the statutory federal income tax rate primarily dueto the impact of state taxes .

At April 3, 2004 and January 3, 2004, we reported a net deferred taxliability of approximately $51,263 and $51,332, respectively, comprisedprincipally of temporary differences between the financial statement and incometax bases of intangible assets .

11 . Net Income Per Share

Basic and diluted net income per share were calculated as follows :

Three Months Ended

------------------April 3, March 29 ,

2004 200 3

-------- ---------Net income $ 1,294 $ 1,418

-------- ---------Weighted average number of common shares-basic 56,106 55,057Dilutive effect of stock options 1,352 477

-------- ---------

Weighted average number of common shares-diluted 57,458 55,53 4

-------- ---------Net income per common share-basic and diluted $ 0 .02 $ 0 .03

Basic income per share is computed by dividing net income by the weightedaverage number of common shares outstanding during the period . Diluted incomeper share reflects the potential dilution that could occur if securities orother contracts to issue common stock were exercised or converted into commonstock . Of the options to purchase shares of common stock outstanding as of

April 3, 2004 and March 29, 2003, 3,675 and 5,531 shares of common stock ,

12

THORA TEC CORP Filing Date: 04/03/04

respectively, were not included in the computation of the diluted income pe r

share as their inclusion would be antidilutive .

11

--------------------------------------------------------------------------------

Table of Content s

12 . Business Segment and Geographical Dat a

We organize and manage our business by functional operating entities . Our

functional entities operate in two segments : (1) Cardiovascular and (2) ITC .

The Cardiovascular segment develops, manufactures and markets proprietarymedical devices used for circulatory support and vascular graft applications .

The ITC segment develops, manufactures and markets point-of-care diagnostic

test systems .

Business Segments :

Three Months Ended

------------------April 3, March 29 ,

2004 200 3

Product sales :

Cardiovascular

ITC

$ 26,553 $ 23,90816,239 12,15 4

-------- ---------

Total product sales $ 42,792 $ 36,06 2

Income before income taxes :Cardiovascular $ 4,028 $ 3,78 8

ITC 2,332 2,34 9

Corporate (a) (1,640) (1,286 )

Amortization of purchased intangibles (b) (2,931) (3,096 )

Legal settlement and restructuring costs (b) (133) 5 7

Total operating income

------- -1,656

-------- -1,812

Interest and other income, net 465 512

Income before income taxes

------- -$ 2,121

-------- -$ 2,324

(a) Represents primarily general and administrative expenses not specifically identified to

any particular business segment .

(b) Related to the Cardiovascular segment .

Geographic Areas :

13

THORATEC CORP Filing Date : 04/03104

Three Months Ended

------------------April 3, March 29 ,

2004 200 3

Product sales :Domestic $ 33,781 $ 30,028

International 9,011 6,03 4

Total $ 42,792 $ 36,06 2

1 2

Table of Contents

ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATION S

Forward-Looking Statement s

With the exception of historical facts, the statements contained in thisForm 10-Q are "forward-looking" statements, within the meaning of Section 27A

of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of

1934 . These forward-looking statements generally can be identified by use ofstatements that include phrases such as "believe", "expect", "anticipate",

"intend", "plan", "foresee", "may", "hope", "will", "estimates", "potential",

"continue" or other similar words or phrases . Similarly, statements that

describe our objectives, plans or goals also are forward-looking statements .

All of these forward-looking statements are subject to risks and uncertainties

that could cause our actual results to differ materially from thosecontemplated by the relevant forward-looking statement . The principal risk

factors that could cause actual performance and future actions to differ

materially from the forward-looking statements include, but are not limited to,the ability to achieve and maintain profitability ; the ability of third party

payors to cover and provide appropriate levels of reimbursement for our

products ; the ability to receive Food and Drug Administration, or FDA, and

foreign regulatory authorities approval to manufacture, market and sell our

products ; the ability to direct and manage current and future growth, including

the growth of the number of Destination Therapy, or DT, procedures performedand the integration of any current and future acquisitions of companies or

technologies ; new product development and introduction, including FDA approval

and market receptiveness ; the ability to realize the full value of our

intangible assets ; the reliance on specialized suppliers ; competition from

other products ; the ability to manufacture products on an efficient and timelybasis and at a reasonable cost and in sufficient volume, including the ability

to obtain timely deliveries of parts from suppliers ; the dependence upon

distributors and any changes made to our method of distribution ; the ability to

protect our proprietary technologies or an infringement of others' patents ;

product liability or other claims ; our ability to identify and correct quality

issues in a timely manner and at a reasonable cost ; the ability to maintain

compliance with changing federal and state regulations ; the long and variable

sales and deployment cycle of our ventricular assist device ("VAD") products ;

worldwide demand for circulatory support and graft products and bloodcoagulation testing and skin incision devices and the management of risks

inherent in selling in foreign countries ; claims relating to the handling ,

14


storage or disposal of hazardous chemicals and biomaterials ; stock pricevolatility due to general economic conditions or future issuances and sales of

our stock ; the occurrence of natural catastrophic disasters ; foreign currency

fluctuations ; the ability to attract and retain talented employees ; and otherfactors identified in our Annual Report on Form 10-K for 2003 which we filedwith the Securities and Exchange Commission, or the SEC . Readers are urged toconsider these factors carefully in evaluating the forward-looking statements .

The forward-looking statements included in this Form 10-Q are made only as ofthe date of this report and we undertake no obligation to publicly update theseforward-looking statements to reflect subsequent events or circumstances .

The following presentation of management's discussion and analysis of our

financial condition and results of operations should be read together with ourconsolidated financial statements included in this Form 10-Q, and our Annual

Report on Form 10-K for 2003 filed with the SEC .

13

--------------------------------------------------------------------------------

Table of Contents

Overview

We are a leading manufacturer of circulatory support products for use by

patients with congestive heart failure, or CHF . According to the American Heart

Association, 4 .9 million patients in the United States suffer from CHF and anadditional 550,000 patients are diagnosed with this disease annually . We were

the first company to receive approval from the United States Food and DrugAdministration, or FDA, to commercially market a ventricular assist device totreat patients with late-stage heart failure, which comprises approximately 5%

to 10% of the CHF patient population . Our VADs are used primarily by these CHF

patients to perform some or all of the pumping function of the heart and we

currently offer the widest range of products to serve this market . We believe

that our long-standing reputation for quality and innovation and our excellent

relationships with leading cardiovascular surgeons worldwide position us tocapture growth opportunities in the expanding congestive heart failure market .

Through our ITC subsidiary we design, develop, manufacture and market

point-of-care diagnostic test systems that provide fast, accurate blood testresults to improve patient management, reduce healthcare costs and improve

patient outcomes .

Our Business Model

The two product lines that represent the majority of our revenues areVentricular Assist Devices and point-of-care diagnostic test systems an d

services . Historical revenue mix has been as follows :

VAD pumps including associated products and services 60-62%Point-of-care diagnostic test systems 34-38%Grafts/Other 2-4%

Ventricular Assist Device s

The VAD is a mechanical device to assist a failing heart pump blood, bothas a temporary measure until a failing heart recovers or is replaced in a hearttransplant (Bridge to Transplant - BTT), and as a permanent implant tosupplement the efforts of the heart to pump blood (Destination Therapy - DT) .

We derive the majority of our VAD revenue from two different VAD products asfollows :

15

THORATEC CORP Filing Date : 04103104

u The HeartMate VAD was acquired in our 2001 merger with Thermo Cardiosystems,

Inc . a subsidiary of Thermo Electron Corporation . This VAD is made of

titanium, contains an electrically powered pump, provides a safe interface

with blood through a sintering process applied to the titanium, and has anaverage selling price that is typically approximately $65 thousand per unit .

The HeartMate VAD is only approved to assist the left ventricle, and is

implanted inside the body cavity . It is currently approved for use in BTT and

DT .u The Thoratec VAD is made of polymers, is powered pneumatically, provides a

safe interface with blood through our proprietary Thoralon coating, and hasan average selling price that is approximately $35 thousand per unit . TheThoratec VAD is approved to assist the left and the right ventricle, and is

worn outside the body cavity . It is currently approved for use in BTT .

VAD revenue historically has been split approximately equally between theHeartMate and the Thoratec VAD, while unit sales volume has historically beenweighted around 2 :1 in favor of the Thoratec VAD . As DT becomes a more

significant element of our business, we expect unit shipments and revenue forthe HeartMate VAD to grow to exceed that of the Thoratec VAD .

We estimate we have in excess of 90% of the VAD market domestically andmore than 50% internationally . Domestic revenue growth will come from expandingthe market through new indications for our current products, in particular therecent approval of Destination Therapy, and from the development and approvalof new, generally smaller and longer lasting products, that can be used in a

broader range of patients . Internationally we expect growth to come by takingmarket share from our competitors and from expanding the market .

1 4

Table of Contents

We believe that potential competitors are at least 3 years away fromcompletion of DT clinical trials required before their products will becomecommercially available and compete with our products in the United States . In

addition, unless our competitor's products result in significantly betteroutcomes than our products, we believe that absent any compelling reasons,

cardiac centers will not generally change suppliers .

The use of our VADs for Destination Therapy in patients who are not

candidates for heart transplantation was approved by the FDA in 2002, and was

approved for reimbursement by CMS in late 2003 . We estimate that there are

approximately 100,000 people who could be candidates for Destination Therapy,of which we believe between 5,000 and 15,000 are treatable using current

technologies . Our future revenue growth is dependent in large part on the

successful adoption and sale of our products for Destination Therapy .

Point-Of-Care Diagnostic Test Systems Busines s

Through our ITC subsidiary, we design, develop, manufacture and marketpoint-of-care diagnostic test systems that provide fast, accurate blood testresults, to monitor a patient's coagulation while they are being administeredanticoagulants, and to monitor a patient's blood gas/electrolyte and chemistry

status . These products are sold into Hospitals, Physician's offices, long-termcare facilities, clinics, visiting nurse associations, and home healthcarecompanies .

Large medical device companies dominate these markets and we estimate ourproducts hold anywhere from 2% to 20% market share . Growth in this market willcome from taking market share away from other companies, and from the shiftin g

16

THORATEC CORP Filing Date: 04/03104

of diagnostic testing from the central laboratory to the point-of-care .However, this market segment is very competitive, and includes the following

potential drivers :

u New drug therapies under development may not require the intense monitoringof a patient's coagulation that the current anti-coagulation drug of choice

requires .u New competitors that might enter the market with broader test menus . To

address this risk, in late 2003 we acquired the IRMA (Immediate Response

Mobile Analysis) product line of blood gas/electrolyte and chemistry tests,which has significantly increased our test menu offering, and also offers usthe opportunity to develop the next generation system that combinescoagulation, blood gas and electrolyte testing in one machine .

Overall, we are planning for sales of our point-of-care diagnostic testsystems to grow at an annual growth rate of up to 10% for the next several

years . This growth assumes increased patient testing, better patient outcomes,and increased decentralization of testing from central laboratories to

point-of-care . We expect our international sales to increase from 26% currentlyand could range up to 30% of ITC's total annual sales by 2007 .

Vascular Graft Product s

The Vectra vascular access graft was approved for sale in the United

States in December 2000 and in Europe in January 1998 . It is designed for use

as a shunt between an artery and a vein, primarily to provide access to thebloodstream for renal hemodialysis patients requiring frequent needle punctures

during treatment . Other currently available vascular access grafts are commonlymade out of ePTFE, which can lose integrity after repeated punctures and

require a three to six week healing period between implantation and the

initiation of dialysis treatment . We believe that the Vectra may providesignificant advantages over existing synthetic vascular access grafts that may

encourage its use by surgeons who are currently using natural vessels for

vascular access . We currently sell Vectra through the Bard Peripheral Vascular

division of C .R . Bard Corporation in the United States, Europe and selected

countries in Scandinavia, the Middle East and Northern Africa and through

Goodman Co . Ltd . in Japan .

15

-----------------

Table of Content s

Acquisition

On September 30, 2003, we completed an asset purchase of the ImmediateResponse Mobile Analysis, or IRMA, point-of-care blood analysis system product

line from Diametrics Medical, Inc . ("Diametrics") . We paid approximately $5 .2

million in cash and assumed trade payables . The purchase price was allocatedbased on the fair value of assets acquired as determined by an independent

valuation firm .

There was no goodwill recorded with the transaction . As a result of theacquisition, $220 relating to in-process research and development was expensed

in the fourth quarter of 2003 .

Restructuring Plan

In June 2001, following the merger with Thermo Cardiosystems, Inc ., we

initiated a restructuring plan to consolidate all of our VAD manufacturing

17

THORATEC CORP Filing Date : 04/03/0 4

operations to our facilities in Pleasanton, California . Through April 2003, thecompletion date of the restructuring plan, we have recorded a total of $1 .5

million of restructuring charges . These charges represent estimated employee

severance costs and stock option acceleration charges .

Recent Event s

On March 30, 2004, we made a small equity investment in BioCardia, Inc .

Under the terms of the investment documents, we will partner with BioCardia toexplore opportunities for developing devices for the surgical delivery of

biotherapeutics, have limited exclusive rights to negotiate the distribution,licensing or purchase of surgical delivery technology developed by BioCardiaand, through an observational board seat, be able to review relevant clinical

data accumulated by BioCardia through their multiple trials . We have accounted

for this investment on the cost basis as we do not have the ability to exercise

significant influence over BioCardia's operating and financial policies . This

investment is included in other long-term assets .

On February 11, 2004 we announced that the board of directors authorized astock repurchase program under which Thoratec common stock with a market valueof up to $25 million may be acquired in the open market or in privatel y

negotiated transactions . The number of shares to be purchased and the timing ofsuch activity is dependent on several conditions, including the price ofThoratec stock, general market conditions and other factors . As of the end ofour fiscal first quarter, we had approximately 56 million shares outstanding .The purchases are funded from available cash and cash equivalents . Purchases

may continue until the authorized limit is reached or the Company discontinuesthe program .

1 6

Table of Contents

Results of Operation s

The following table sets forth selected consolidated statements ofoperations data for the periods indicated as a percentage of total product

sales :

Three Months Ended

------------------April 3, March 29 ,

2004 2003

-------- ---------Sales 100% 100%

Cost of sales 41 41

-------- ---------

Gross profit 59 59

Operating expenses :Selling, general & admini ;Research & developmentAmortization of purchasedLegal settlement, merger,

Total operating expensesIncome from operations

atrative 31 2817 17

intangible assets 7 9restructuring and other costs -- --

-------- ---------55 544 5

18

THORATEC CORP Filing Date : 04/03/ 04

Interest and other income -- ne t

Income before income taxesIncome tax expense

Net income

Three months ended April 3, 2004 and March 29, 200 3

Product Sales

1 1

-------- ---------

5 62 2

-------- ---------3% 4%

Product sales in the first quarter of 2004 were $42 .8 million compared to

$36 .1 million in the first quarter of 2003 . The primary components of the $6 .7

million increase in revenues were as follows :

u Higher VAD sales ($2 .2 million) . This increase resulted from higher sales of the HeartMate VAD .

u Higher revenue from sales of point-of-care diagnostic test systems at our ITC subsidiary ($2 .4

million) .Q Revenue from IRMA product line acquired by ITC in the fourth quarter of 2003 ($1 .7 million) .

We are currently planning 2004 revenue in the range of $190-200 million .

This is highly dependent upon the success of our Destination Therapy activities

in generating significant revenues . We anticipate the majority of these

revenues in the second half of 2004 .

Gross Profit

Gross profit as a percentage of sales in the first quarter of 2004 was

58 .6% compared to 58 .7% in 2003 . Within these essentially flat margins were the

following fluctuations :

u A decrease in margins, driven by a shift in the mix of revenue from highermargin domestic pumps to lower margin product lines and geographies,including the lower margin IRMA product line, which we acquired in the fourthquarter of 2003, offset b y

u Lower manufacturing costs, and higher absorption of costs not variable withmanufacturing activities .

As we recognize higher revenues for our current Destination Therapyinitiatives, we anticipate that margins will trend upwards into the mid 60%range as the higher margin VAD products represent a larger portion of our

overall revenues .

17

--------------------------------------------------------------------------------

Table of Content s

Selling, General and Administrative

19

THORATECCORP Filing Date: 04/03/04

Selling, general and administrative ("SG&A") expenses in the first quarter

of 2004 were $13 .0 million, or 31% of product sales, compared to $10 .1 million,

or 28% of product sales, in the first quarter of 2003 . Underlying the $2 . 9

million increase in spending were the following drivers :

u Increased SG&A headcount from 138 at the end of the first quarter of 2003 to

191 at the end of the first quarter of 2004, together with annual salary

increases aggregating 4 .5% effective January 2004 .

u Higher spending on marketing and related activities, primarily associatedwith Destination Therapy, and costs associated with the IRMA product lineacquired in the fourth quarter of 2003 .

u Higher professional fees .a Higher facilities costs related to higher headcount .

We anticipate that selling, general and administrative costs willgenerally increase each year as our business grows, with some quarterly and

annual spending around events such as product introductions . Spending as a

percentage of revenue is expected to trend downward as revenues from currentproducts increase, in particular as we realize revenue associated with

Destination Therapy .

Research and Developmen t

Research and development expenses in the first quarter of 2004 were $7 .3

million compared to $6 .3 million in the first quarter of 2003, both

representing 17% of product sales . Research and development costs are largelyproject driven, and the level of spending depends on the level of projectactivity planned and subsequently approved and conducted . Projects typically

include efforts to develop new products such as the HeartMate II and HeartMateIII, efforts to improve the operation and performance of current products suchas efforts to improve the life of various components of the HeartMate and the

Thoratec VAD products . Research and development costs also include regulatoryand clinical costs associated with our compliance with FDA regulations . We

anticipate that Research and Development costs will generally increase modestlyeach year as our business grows, with some quarterly and annual spikes inspending around events such as product introductions and regulatory approvals,and with spending as a percentage of revenue trending downward as revenues fromcurrent products increase, in particular as we realize revenue associated with

Destination Therapy .

Amortization of Purchased Intangible Asset s

Amortization of purchased intangible assets in the first quarter of 2004

was $2 .9 million compared to $3 .1 million in the first quarter of 2003 . The

decrease of $0 .2 million is primarily due to the write-off of the purchasedintangible assets related to Aria CABG graft in the fourth quarter of 2003 .

Income Taxes

Our effective tax rate was 39% in both the first quarter of 2004 and the

first quarter of 2003 . The effective income tax expense rate for both quartersdiffered from the statutory federal income tax rate primarily due to the impact

of state taxes .

Liquidity and Capital Resource s

At April 3, 2004, we had working capital of $154 .5 million compared with

$157 .6 million at January 3, 2004, Cash and cash equivalents and short-termavailable-for-sale investments at April 3, 2004 were $93 .9 million compared to

$103 .2 million at January 3, 2004, a decrease of $9 .3 million .

20


1 8

Table of Content s

Cash used in operating activities was $0 .4 million which was afterpayments for legal settlement and annual bonuses, accrued at January 3, 2004,

totaling $5 .2 million . In addition, we paid $2 .2 million to acquire property,

plant and equipment, mainly equipment of $1 .7 million and leasehold

improvements of $0 .5 million . Cash used in financing activities was $6 .0

million, as we paid $6 .7 million during the first quarter of 2004 to repurchase510,000 shares of stock under our stock repurchase program . This was partially

offset by $0 .7 million of proceeds received from stock option exercises during

the quarter .

We believe that cash and cash equivalents and short-termavailable-for-sale investments on hand and expected cash flows from operations,will be sufficient to fund our operations, capital requirements and stockrepurchase program for the foreseeable future .

The impact of inflation on our financial position and the results ofoperations was not significant during any of the periods presented .

Critical Accounting Policie s

We have identified certain accounting policies as critical to our business

operations and the understanding of our results of operations . The impact and

associated risks related to those policies on our business operations isdiscussed in our fiscal 2003 consolidated financial statements filed with the

SEC in our annual report on Form 10-K .

In December 2002, the FASB issued SFAS No . 148, "Accounting for

Stock-Based Compensation-Transition and Disclosure" which amends FASB Statement

No . 123, "Accounting for Stock-Based Compensation," to provide alternativemethods of transition for a voluntary change to the fair value based method of

accounting for stock-based employee compensation . In addition, SFAS No . 148

amends the disclosure requirements of SFAS No . 123 to require prominent

disclosures in both annual and interim financial statements of the method ofaccounting for stock-based employee compensation and the effect of the method

used on reported results . We adopted the disclosure provisions of SFAS No . 148

at the beginning of fiscal 2003 . On March 31, 2004, the FASB issued an exposure

draft, "Share-Based Payment, an Amendment of FASB Statements No . 123 and 95 ."

This proposed statement would require that stock-based compensation be

recognized as a cost in the financial statements and that such cost be measuredbased on the fair value of the stock-based compensation . If issued in final

form as proposed by the FASB, our adoption of this proposed statement would

have a material, although non-cash, impact on our consolidated statement of

operations .

19

--------------------------------------------------------------------------------

Table of Content s

ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Interest Rate Risk

Our investment portfolio is made up of cash equivalent and marketablesecurity investments in money market funds and debt instruments of governmentagencies and high quality corporate issuers . All investments are carried atmarket value and are treated as available-for-sale . All investments maturewithin two years or less from the date of purchase . The holdings of any on e

21


issuer, except government agencies, do not exceed 10% of the portfolio . If

interest rates rise, the market value of our investments may decline whichcould result in a loss if we are forced to sell an investment before the

scheduled maturity . We do not utilize derivative financial instruments to

manage interest rate risks .

Foreign Currency Rate Fluctuation s

We conduct business in foreign countries . Our international operations

consist primarily of sales and service personnel for our ventricular assist

products, who report into our U .S . sales and marketing group and are internally

reported as part of that group . All assets and liabilities of our non-U .S .

operations are translated into U .S . dollars at the period-end exchange rates

and the resulting translation adjustments are included in comprehensive income .

The period-end translation of the non-functional currency assets andliabilities (primarily assets and liabilities on our UK subsidiary consolidatedbalance sheet that are not denominated in UK Pounds) at the period-end exchange

rates result in foreign currency gains and losses, which are included in

"Interest and Other Income-Net . "

We use forward foreign currency contracts to hedge the gains and lossesgenerated by the revaluation of these non-functional currency assets and

liabilities . These derivatives are not designated as cash flow or fair value

hedges under SFAS No . 133 . As a result, changes in the fair value of theforward foreign currency contracts are included as incurred in "Interest andOther Income-Net ." The change in the fair value of the forward foreign currencycontracts typically offsets the change value from revaluation of thenon-functional currency assets and liabilities . These contracts typically have

maturities of three months or less . At April 3, 2004, the Company had forwardforeign currency contracts in Pounds Sterling and Euros with a nominal value of

$10 .3 million with a fair value of approximately $0 .1 million . There were no

such contracts outstanding at March 29, 2003 . The impact of the foreigncurrency revaluation, net of forward foreign currency contracts, was negligiblefor the periods ending April 3, 2004 and March 29, 2003 .

2 0

Table of Content s

ITEM 4 . CONTROLS AND PROCEDURE S

An evaluation was performed under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures as of April 3, 2004 . Based on thatevaluation, our management, including the Chief Executive Officer and ChiefFinancial Officer, concluded that as of April 3, 2004 the Company's disclosurecontrols and procedures were effective in providing reasonable assurance thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC's rules and forms . There

have been no changes in our internal controls during the fiscal quarter endedApril 3, 2004 that have materially affected or are reasonably likely tomaterially affect the Company's internal control over financial reporting .

Our management, including the Chief Executive Officer and the ChiefFinancial Officer, do not expect that the disclosure controls and procedures orinternal controls will prevent all error and all fraud . A control system, no

matter how well conceived and operated, can only provide reasonable assurancesthat the objectives of the control system are met . The design of a control

system reflects resource constraints ; the benefits of controls must beconsidered relative to their costs . Because there are inherent limitations inall control systems, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within the Company hav e

22


been or will be detected . These inherent limitations include the realities thatjudgments in decision-making can be faulty and that breakdowns occur because ofsimple error or mistake . Controls can be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by management override of

the control . The design of any system of controls is based in part upon certain

assumptions about the likelihood of future events . There can be no assurancethat any design will succeed in achieving its stated goals under all future

conditions ; over time, controls may become inadequate because of changes inconditions or deterioration in the degree of compliance with the policies or

procedures . Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected .

We intend to review and evaluate the design and effectiveness of ourdisclosure controls and procedures on an ongoing basis and to improve ourcontrols and procedures over time and to correct any deficiencies that we may

discover in the future . Our senior management has timely access to all materialfinancial and non-financial information concerning our business . While we

believe the present design of our disclosure controls and procedures iseffective, future events affecting our business may cause us to significantlymodify our disclosure controls and procedures .

2 1

Table of Contents

PART II . OTHER INFORMATIO N

ITEM 2 . CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITYSECURITIE S

Total AverageNumberOf Shares Price Paid

Purchased Per Share

Maximum Dollar Value

Total Number Of Shares That May Yetof

Shares Be Purchased Under

Purchased asPart Of The Program

PubliclyAnnounced (in millions)Program

----------- ---------- ------------ ----------------------

January 4, 2004 to -- -- -- $ 25 .0

January 31, 200 4

February 1, 2004 to 185,000 $ 13 .59 185,000 $ 25 .0

February 28, 200 4

February 29, 2004 to 325,000 (2) $ 12 .97 325,000 $ 18 .3

April 3, 2004

------- ------------

Total 510,000 $ 13 .20 510,000

(1) Our stock repurchase program, which authorizes the Company to repurchase upto $25 .0 million of shares, was announced on February 11, 2004 . This

program does not have an expiration date .(2) Includes 250,000 shares which were purchased from Thermo Electron

Corporation in a privately arranged transaction executed through a thir d

23

THORA TEC CORP Filing Date: 04/03/04

party broker at the then current market price .

ITEM 6 . EXHIBITS AND REPORTS ON FORM 8- K

(a) Exhibits :

31 .1 Section 302 Certifications of Chief Executive Officer and Chief Financial officer32 .1 Section 906 Certifications of Chief Executive Officer and Chief Financial office r

(b) Reports on Form 8-K :On February 11, 2004, the Company filed a Current Report on Form 8-K,reporting under items 5 and 7, announcing a program to repurchase up to $25

million in shares of its common stock .

On February 3, 2004, the Company filed a Current Report on Form 8-K,reporting under items 9 and 12, announcing the Company's results for the

first fiscal quarter and fiscal year ended January 3, 2004 .

2 2

Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by the

undersigned, thereunto duly authorized .

THORATEC CORPORATION

Date : May 13, 2004 Is/ D . Keith Grossman

--------------------------------------------

D . Keith Grossman ,

Chief Executive Officer

Date : May 13, 2004 Is/ M . Wayne Boylston

--------------------------------------------M . Wayne Boylston ,

Senior Vice President ,Chief Financial Officer and Secretary(Principal Financial and Accounting Officer )

24


23

25

THORATEC CORP Filing Date : 04/0310 4

EXHIBIT 31 .1

CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 200 2

I, D . Keith Grossman, Chief Executive Officer of Thoratec Corporation, certify

that :

1 . I have reviewed this quarterly report on Form 10-Q of Thoratec

Corporation ;

2 . Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport ;

3 . Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report ;

4 . The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have :

a) designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared ;

b) evaluated the effectiveness of the registrant's disclosure controls andprocedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation ; and

c) disclosed in this report any change in the registrant's internalcontrol over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting ;

5 . The registrant's other certifying officers and I have disclosed, basedon our most recent evaluation, to the registrant's auditors and the auditcommittee of registrant's board of directors (or persons performing theequivalent functions) :

a) all significant deficiencies and material weaknesses in the design oroperation of internal controls which are reasonably likely to adversely affectthe registrant's ability to record , process, summarize and report financial

information ; and

b) any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internal controlsover financial reporting .

/s/ D . Keith Grossman--------------------------------------------------------------------------------

D . Keith GrossmanChief Executive Officer

May 13, 2004

24

26

THORA TEC CORP Filing Date : 04/03/0 4

--------------------------------------------------------------------------------

CERTIFICATION OF CHIEF FINANCIAL OFFICE RPURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 200 2

I, M . Wayne Boylston, Chief Financial Officer of Thoratec Corporation, certify

that :

1 . I have reviewed this quarterly report on Form 10-Q of ThoratecCorporation ;

2 . Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterly

report ;

3 . Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report ;

4 . The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have :

a) designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared ;

b) evaluated the effectiveness of the registrant's disclosure controls andprocedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation ; and

c) disclosed in this report any change in the registrant's internalcontrol over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting ;

5 . The registrant's other certifying officers and I have disclosed, basedon our most recent evaluation, to the registrant's auditors and the auditcommittee of registrant's board of directors (or persons performing the

equivalent functions) :

a) all significant deficiencies and material weaknesses in the design oroperation of internal controls which are reasonably likely to adversely affectthe registrant's ability to record, process, summarize and report financial

information ; and

b) any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internal controls

over financial reporting .

/s/ M . Wayne Boylston--------------------------------------------------------------------------------M . Wayne Boylsto nSenior Vice President, Chief Financial OfficerMay 13, 2004

27


25

28


EXHIBIT 32 .1

CERTIFICATION PURSUANT TO

18 U .S .C . SECTION 1350 ,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Thoratec Corporation (the "Company")on Form 10-Q for the period ending April 3, 2004 as filed with the Securities

and Exchange Commission on the date hereof (the "Report"), I, D . Keith

Grossman, Chief Executive Officer of the Company, certify, pursuant to 18

U .S .C . Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, that :

(1) The Report fully complies with the requirements of Section 13(a) or

15(d) of the Securities Exchange Act of 1934 ; and

(2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of the

Company .

Is/ D . Keith Grossman--------------------------------------------------------------------------------

D . Keith Grossman

Chief Executive OfficerMay 13, 200 4

26

CERTIFICATION PURSUANT TO

18 U .S .C . SECTION 1350 ,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Thoratec Corporation (the "Company")on Form 10-Q for the period ending April 3, 2004 as filed with the Securitiesand Exchange Commission on the date hereof (the "Report"), I, M . Wayne

Boylston, Senior Vice President and Chief Operating Officer of the Company,

certify, pursuant to 18 U .S .C . Section 1350, as adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002, that :

(1) The Report fully complies with the requirements of section 13(a) or

15(d) of the Securities Exchange Act of 1934 ; and

(2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of the

Company .

Is/ M . Wayne Boylston--------------------------------------------------------------------------------M . Wayne Boylsto nChief Financial Officer

May 13, 2004

27

29

EXHIBIT I

Print Result s

0factiva...,

Page 10 of 27 1

Dow Jones & Reuters

Thoratec announces intention to offer $125 M senior subordinated conve rt ible notes .178 words17 May 200 4Press Release (Chemicals)English(c) 2004 Elsevier Engineering Information www .ei .org

Thoratec Corp announced its intention to commence an offering, subject to market conditions, of seniorsubordinated convertible notes due 2034 with gross proceeds to the company of $125 M to be offered and soldto qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended . Thoratecexpects to grant the initial purchaser a 30-day option to purchase up to an additional 15% of principal amountof senior subordinated convertible notes . Thoratec intends to use a portion of the net proceeds to acquire theUS government securities that will be pledged as collateral for the payment of the first six scheduled interestpayments on the notes and to purchase up to $60 M of shares of its common stock in connection with theoffering pursuant to the company's stock repurchase programme .

Thoratec intends to use the balance of the net proceeds from the offering for general corporate purposes,which may include additional stock repurchases, strategic investments or acquisitions .

Document CHPR000020040524e05h0003 e


http://global .factiva .com/en/arch/print-results.asp 11/15/2004

EXHIBIT J

Print Results

factivca,..

Page 5 of 27 1

Dow Jones & Reuters

Thoratec Announces Pricing of Offering of $125 Million Senior Subordinated Convertible Notes704 words19 May 200404:30PR Newswire (U .S .)EnglishCopyright © 2004 PR Newswire Association LLC . All Rights Reserved .

PLEASANTON, Calif ., May 19 /PRNewswire-FirstCall/ -- Thoratec Corporation today announced the pricing of itsoffering of senior subordinated convertible notes due 2034 with gross proceeds to the company of $125 millionthrough an offering in the United States to qualified institutional buyers pursuant to Rule 144A under th eSecurities Act of 1933, as amended . The issuance of notes is expected to close on May 24, 2004 .

The notes will be convertible, under certain circumstances, into Thoratec common stock at an initial conversionrate of 29.4652 shares per note (or an initial conversion price of approximately $19 .72 per share), subject toadjustment upon the occurrence of certain events . The initial conversion price represents a 37 .5 percentpremium over the closing sale price of Thoratec common stock on May 18, 2004, which was $14 .34 per share .The notes will bear cash interest at a rate of 2 .375 percent per annum until May 16, 2011 . After that date,original issue discount will accrue daily at a rate of 2 .375% per year on a semiannual bond equivalent basis andon the maturity date, a holder will receive $1,000 per note . The notes will be issued at a price of $580 .98 pernote (58 .098% of the principal amount at maturity) . The company may redeem for cash all or a portion of thenotes at any time on or after May 16, 2011 at a price equal to the sum of the issue price and the accruedoriginal issue discount . Holders of the notes will have the right to require the company to repurchase some or allof the notes at specified prices on May 16 of each of 2011, 2014, 2019, 2024 and 2029 and upon certain eventsconstituting a fundamental change .

The company has granted the initial purchaser a 30-day option to purchase up to $18,749,968 gross proceeds ofadditional notes .

Thoratec intends to use approximately $8 .9 million of the net proceeds to acquire U .S . government securitiesthat will be pledged as collateral for the payment of the first six scheduled interest payments on the notes($10 .2 million if the initial purchaser's option is exercised in full) . In addition, Thoratec has purchasedapproximately $60 million, or 4,184,100 shares, of its common stock in connection with the offering . Thoratecintends to use the balance of the net proceeds from the offering for general corporate purposes, which mayinclude additional stock repurchases, strategic investments or acquisitions . Pending such uses, Thoratec intendsto invest the net proceeds in interest bearing, marketable securities .

This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shallnot constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful .

The notes have not been registered under the Securities Act of 1933, as amended, or any state securities lawsand may not be offered or sold in the United States absent registration or an applicable exemption from theregistration requirements .

The portions of this news release that relate to future plans, events or performance are forward-lookingstatements . Investors are cautioned that all such statements involve risks and uncertainties, including withoutlimitation, whether or not Thoratec will offer the notes or consummate the offering, the anticipated terms of thenotes and the offering, and the anticipated use of the proceeds of the offering . For a detailed discussion of theseand other cautionary statements, please refer to Thoratec's most recent filings with the Securities andExchange Commission, including its Form 10-K for the fiscal year ended January 3, 2004 . Actual results, eventsor performance may differ materially . These forward-looking statements speak only as of the date hereof .Thoratec undertakes no obligation to publicly release the results of any revisions to these forward-lookingstatements that may be made to reflect events or circumstances after the date hereof, or to reflect theoccurrence of unanticipated events .

Web site : http ://www.thoratec.com/

http ://global .factiva.com/en/arch/pr'nt_results.asp 11/15/2004

EXHIBIT K

Print Results

fac , .

Page 158 of 22 5

Dow Jones & Reuters

Thoratec Corp announces exercise of option to purchase additional senior subordinated convertiblenotes .237 words8 June 2004Press Release (Chemicals)Englis h(c) 2004 Elsevier Engineering Information www .ei .org

Thoratec Corp announced that the initial purchaser for its offering of senior subordinated convertible notes due2034 has exercised its option to purchase additional notes generating about $18 .7 M of gross proceeds to thecompany . On 24 May 2004, Thoratec closed its initial offering of about $125 M gross proceeds of seniorsubordinated convertible notes. Accordingly, the company has generated total gross proceeds of about $143 .7 Mfrom the sale of the senior subordinated convertible notes . The senior subordinated convertible notes have beenand are being offered and sold only to qualified institutional buyers pursuant to Rule 144A under the SecuritiesAct of 1933, as amended . Thoratec intends to use about $1 .3 M of the additional net proceeds to acquire USgovernment securities that will be pledged as collateral for the payment of the first six scheduled interestpayments on the additional notes ($10 .2 M in total for the full amount of notes) .

In addition, Thoratec previously purchased about $60 M, or 4,184,100 shares, of its common stock inconnection with the initial offering . Thoratec intends to use the balance of the net proceeds from the offeringfor general corporate purposes, which may include stock repurchases, strategic investments or acquisitions .Pending such uses, Thoratec intends to invest the net proceeds in interest bearing, marketable securities .

Document CHPR000020040615e0680001 4


http://global .factiva . com/en/arch/printresults .asp 11/15/2004

EXHIBIT L


iva. Dew Jones & Reuters

Thoratec Comments on Second Quarter Destination Therapy Activity and Financial Results andOutlook829 words29 June 200412 :10PR Newswire (U .S .)EnglishCopyright © 2004 PR Newswire Association LLC . All Rights Reserved .

PLEASANTON, Calif., June 29 /PRNewswire-FirstCall/ -- Thoratec Corporation , a world leader in products totreat cardiovascular disease, today provided an update on its business activities and outlook for the balance of2004 .

The company said that 30-35 Destination Therapy implants will occur in the second quarter of 2004 ending July3, bringing the total number of Destination Therapy implants to date in 2004 to approximately 75 .

Thoratec said that it expects revenues for the second quarter of 2004 will be approximately $40-$41 million,and that taxed cash earnings per share for the second quarter will be approximately $0 .02 . Taxed cash earningsexclude the effect of merger, restructuring and other costs and amortization of purchased intangible assets . Ona GAAP basis, the company expects a net loss in the second quarter of $0 .01 per share . The company will reportcomplete results for the second quarter in late July .

"The patient experience with Destination Therapy and response from leading centers and clinicians continue tobe very positive and we are very encouraged by the recent proposal from CMS that would significantly increasereimbursement for Destination Therapy by another 30 percent, effective October 1 of this year," said D . KeithGrossman, president and chief executive officer of Thoratec . "We now expect, however, that certain of ourcenters may delay some of their Destination Therapy initiatives to benefit from the improving reimbursementenvironment in the fourth quarter . "

As a result, the company said that it now expects total Destination Therapy implants for 2004 will beapproximately 200. The company said that it expects revenues for all of 2004 will be approximately $175-$180million, with taxed cash earnings per share in the range of $0 .23-$0.26 . On a GAAP basis, the company expectsfull year 2004 earnings per share to be in the range of $0 .10-$0.13 .

"We have indicated from the beginning that this is a market that would take some time to develop . We remainvery encouraged by the level of interest and activity of our customers and continue to be optimistic thatDestination Therapy activity will accelerate later in the year, and especially in 2005," Grossman noted .

"In the meantime, we are seeing very encouraging results from the initial stages of our U .S . clinical trials for theHeartMate(R) II," he added . "We have now implanted 12 patients in the U .S . and Europe and have notexperienced any serious device-related adverse events . Eight patients remain supported by the device, includingsix who have been discharged to their homes, one patient has been successfully transplanted and three havedied due to factors unrelated to the device . All ongoing patients have been supported by the device for aminimum of 30 days-with the longest being supported for more than seven months-and total cumulative days ofsupport now exceeds two years . We look forward to giving a more detailed update on this exciting technology inour second quarter earnings conference call . "

Thoratec Corporation is a world leader in products to treat cardiovascular disease with its Thoratec(R) VAD(ventricular assist device) and HeartMate LVAS (left ventricular assist system) with more than 8,000 devicesimplanted in patients suffering from heart failure . Thoratec's product line also includes the Vectra(R) vascularaccess graft (VAG) for patients undergoing hemodialysis . Additionally, its International Technidyne Corporation(ITC) division supplies blood testing and skin incision products . Thoratec is headquartered in Pleasanton,California . For more information, visit the company's web sites at http ://www.thoratec .com/ orhttp ://www.itcmed .com/ .

The portions of this news release that relate to future plans, events or performance are forward-lookin g

http ://global .factiva .com/en/arch/piint_results.asp 11/15/2004

Print Results Page 102 of 225

statements . Investors are cautioned that all such statements involve risks and unce rtainties, including risksrelated to the development of new markets including Destination Therapy, the results of clinical t rials includingthe Hea rtMate II, the abili ty to improve financial performance, regulato ry approval processes, healthcarereimbursement and coverage policies and acquisition activities . These factors, and others , are discussed morefully under the heading , "Risk Factors," in Thoratec 's 10-K for the fiscal year ended Janua ry 3, 2004, and otherfilings with the Securities and Exchange Commission . Actual results, events or performance may differmaterially . These forward -looking statements speak only as of the date hereof . Thoratec unde rtakes noobligation to publicly release the results of any revisions to these forward -looking statements that may be madeto reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events .

Web site : http ://www.thoratec.com/http ://www.itcmed .com/

CONTACT: investors, Wayne Boylston, Chief Financial Officer of ThoratecCorporation, +1-925-847-8600 ; ormedia, Susan Benton, +1-310-577-7870,ext. 166, or sbenton@fischerhealth .com, or Jennifer Chan, +1-310-577-7870,ext . 164, or jchan@fischerhealth .com, both of FischerHealth, Inc ., forThoratec Corporation

Document PRN0000020040629e06t00dl 3


h ttp://global . factiva .com/en/arch/p rintresults .asp - 11/15/2004

EXHIBIT M

Print Results

° ac va„„

REUTERS i1

UPDATE 2 -Thoratec sees qua rterly earnings below estimates .By Julie Steenhuyse n454 words29 June 200413:42Reuters NewsEnglish(c) 2004 Reuters Limited

Page 87 of 22 5

Dow Jones & Reuters

CHICAGO, June 29 (Reuters) - Thoratec Corp . (THOR.O) said on Tuesday it expects second-qua rter earningsexcluding items to be below Wall Street estimates as doctors delay implanting the company's pricey heart pumpuntil the fourth quarter, when higher reimbursement rates kick in .

The news sent shares of the Pleasanton, . California-based Thoratec off by more than $2 in after market internettrading .

The artificial heart pumps maker said it expects second-quarter earnings before special items of 2 cents a shareand a net loss of 1 cent per share .

Analysts on average had been looking for earnings before items of 7 cents a share, according Reuters Estimates .

Thoratec said it expects full year net earnings of 10-13 cents a share . It sees earnings excluding the effect ofmerger, restructuring and other costs of 23-26 cents per share .

Analysts' average full-year earnings estimate was for 32 cents a share, according to Reuters Estimates .

Proposed Medicare rules would add 30 percent to coverage for Thoratec 's HeartMate heart pump used on apermanent basis by end-stage heart failure patients .

The device assists the heart's left ventricle to pump blood in patients with advanced heart failure . Until recently,the pumps were used only to keep patients alive while awaiting a heart transplant .

Thoratec said for the full year it expects to sell 200 of the heart pumps for permanent use, something thecompany calls destination therapy . That is down from an October projection of 300 to 500 in implant sales fordestination therapy .

Thoratec has said the proposed change in Medicare reimbursement would cover the company's heart pumps at$125,000 per procedure, compared with $96,000 currently .

Thoratec said some medical centers may delay programs using the devices as a permanent alternative totreatment until the fourth quarter in order to benefit from the better reimbursement rates .

The new reimbursement policy will not take effect until Oct .1, according to Jason Kroll, an analyst at RothCapital Partners .

"We've always viewed Thoratec's original projection into that market place to be a bit aggressive," Kroll said .

"Whenever you change a technology into a new patient population, it takes time for physicians and surgeons (toadopt it)," said Kroll, who has a neutral rating on the stock .


Print Results Page 88 of 225

Thoratec has said most of the patients -who receive its devices as an alternative to a transplant would beeligible for Medicare, the federal health insurance program for the elderly .

Thoratec 's shares fell to $12 .10 in INET internet trading from its close of $14 .42 Tuesday on the Nasdaqmarket . (Additional reporting by Kim Dixon in Chicago) .

Document LBA0000020040629e06t002k a



EXHIBIT N

Press Releases Page 1 of 2

Thoratec Comments on Second Quarter Destination TherapyActivity and Financial Results and Outloo kPLEASANTON, Calif ., June 29 /PRNewswire - FirstCall / -- Thoratec Corporation ( Nasdaq : THOR), a world leader in

products to treat cardiovascular disease , today provided an update on its business activities and outlook for the

balance of 2004 .

The company said that 30-35 Destination Therapy implants will occur in the second quarter of 2004 ending July 3,bringing the total number of Destination Therapy implants to date in 2004 to approximately 75 .

Thoratec said that it expects revenues for the second quarter of 2004 will be approximately $40-$41 million, and thattaxed cash earnings per share for the second quarter will be approximately $0 .02 . Taxed cash earnings exclude theeffect of merger, restructuring and other costs and amortization of purchased intangible assets . On a GAAP basis, thecompany expects a net loss in the second quarter of $0 .01 per share . The company will report complete results forthe second quarter in late July .

The patient experience with Destination Therapy and response from leading centers and clinicians continue to be verypositive and we are very encouraged by the recent proposal from CMS that would significantly increasereimbursement for Destination Therapy by another 30 percent, effective October 1 of this year," said D . KeithGrossman, president and chief executive officer of Thoratec . "We now expect, however, that certain of our centersmay delay some of their Destination Therapy initiatives to benefit from the improving reimbursement environment inthe fourth quarter . "

As a result, the company said that it now expects total Destination Therapy implants for 2004 will be approximately

200 . The company said that it expects revenues for all of 2004 will be approximately $175-$180 million, with taxedcash earnings per share in the range of $0 .23-$0 .26 . On a GAAP basis, the company expects full year 2004 earningsper share to be in the range of $0 .10-$0 .13 .

"We have indicated from the beginning that this is a market that would take some time to develop . We remain veryencouraged by the level of interest and activity of our customers and continue to be optimistic that DestinationTherapy activity will accelerate later in the year , and especially in 2005 ," Grossman noted .

"In the meantime, we are seeing very encouraging results from the initial stages of our U .S . clinical trials for theHeartMate(R) II," he added . "We have now implanted 12 patients in the U .S . and Europe and have not experiencedany serious device-related adverse events . Eight patients remain supported by the device, including six who havebeen discharged to their homes, one patient has been successfully transplanted and three have died due to factorsunrelated to the device . All ongoing patients have been supported by the device for a minimum of 30 days-with thelongest being supported for more than seven months-and total cumulative days of support now exceeds two years .We look forward to giving a more detailed update on this exciting technology in our second quarter earningsconference call . "

Thoratec Corporation is a world leader in products to treat cardiovascular disease with its Thoratec(R) VAD(ventricular assist device) and HeartMate LVAS (left ventricular assist system) with more than 8,000 devicesimplanted in patients suffering from heart failure. Thoratec's product line also includes the Vectra(R) vascular acces sgraft (VAG) for patients undergoing hemodialysis . Additionally, its International Technidyne Corporation (ITC) divisionsupplies blood testing and skin incision products . Thoratec is headquartered in Pleasanton, California . For moreinformation, visit the company's web sites at http ://www.thoratec .com or http://www .itcmed .com .

The portions of this news release that relate to future plans, events or performance are forward-looking statements .Investors are cautioned that all such statements involve risks and uncertainties, including risks related to thedevelopment of new markets including Destination Therapy, the results of clinical trials including the HeartMate II, theability to improve financial performance, regulatory approval processes, healthcare reimbursement and coveragepolicies and acquisition activities . These factors, and others, are discussed more fully under the heading, "RiskFactors," in Thoratec's 10-K for the fiscal year ended January 3, 2004, and other filings with the Securities andExchange Commission . Actual results, events or performance may differ materially . These forward-looking statements

speak only as of the date hereof. Thoratec undertakes no obligation to publicly release the results of any revisions tothese forward-looking statements that may be made to reflect events or circumstances after the date hereof, or toreflect the occurrence of unanticipated events .

SOURCE Thoratec Corporatio n-0- 06/29/2004

/CONTACT : investors, Wayne Boylston, Chief Financial Officer of Thorate c

http://phx.corporate-ir .netlphoenix .zhtml?c=95989&p=irol-newsA rticle_Print&ID=586249 . . . 1/18/2005

EXHIBIT 0

Print Result s

fac0

t' ..

THORATEC CORP - THOR: Sees Q2 Rev $40M -$41M, Q2 Taxed Cash EPS Approx 2c343 words29 June 200405 :47KnobiasEnglish(c) 2004 Market News Publishing, Inc. All Rights Reserved

Page 98 of 22 5

Dow Jones & Reviters

Thoratec Corporation ( NasdaqNM : THOR) provided an update on its business activities and outlook for thebalance of 2004 . Thoratec said that it expects revenues for Q2 of 2004 will be approximately $40M-$41M(BELOW $44M consensus est), and that taxed cash earnings per share for Q2 will be approx 2c (BELOW 7c est) .On a GAAP basis, the company expects a net loss in Q2 of ( 1c) per share . THOR said that it expects revenues forFY04 will be approx $175M -$180M (BELOW $186M est), with taxed cash EPS in the range of 23c-26c (BELOW32c est) . On a GAAP basis, the company expects FY04 EPS to be in the range of 10c-13c .

Press Release

The company said that 30-35 Destination Therapy implants will occur in the second quarter of 2004 ending July3, bringing the total number of Destination Therapy implants to date in 2004 to approximately 75 .

The company said that it now expects total Destination Therapy implants for 2004 will be approximately 200 .

"We have indicated from the beginning that this is a market that would take some time to develop . We remainvery encouraged by the level of interest and activity of our customers and continue to be optimistic thatDestination Therapy activity will accelerate later in the year, and especially in 2005," company CEO D . KeithGrossman said .

41800842FAC41802659-13513620040629

GET KNOBIAS IN REAL-TIME : Delivery of this proprietary Knobias alert has been delayed by at least 10 minutes .To get all Knobias alerts in real-time daily, visit http ://www.knoblas .com/mnp I ABOUT KNOBIAS : Knobias is apremier financial information provider of trading and investing data covering all U .S . equities for investors andsecurity professionals . Knobias is best described by its three major components : Real-time desktop applicationsproviding quotes, charts, level 2, analysis etc . ; Knobias RAiDAR providing thousands of real-time news stories,alerts and documents daily ; Knobias fundamentals providing a comprehensive database of fundamental researchinformation .

Document KNOBIA0020040629eO6t002gx


http ://global .factiva .com/en/arch/pn'nt _results . asp 11/15/2004

EXHIBIT P

Thoratec Provides Update on Fourth Quarter Sales Activity and DestinationTherapy Implant Activity Through NovemberPLEASANTON , Calif ., Dec . 2 / PRNewswire - FirstCall/ -- Thoratec Corporation ( Nasdaq : THOR ), a world leader in products to treatcardiovascular disease, announced today that the number of Destination Therapy implants through the first two months of the fourthquarter of 2004 is on a pace that is roughly equivalent to that of each of the first three quarters of the year . Destination Therapy

implants performed in the first three qua rters of 2004 ranged from approximately 34 to approximately 42 per quarter .

Based on sales activity through November, the company said that stronger than expected activity in other areas of its business appearsto be helping to offset most or all of the impact of this Destination Therapy implant trend . These other areas include positive market

response to the recently introduced Thoratec ( R) IVAD ( Implantable Ventricular Assist Device ), encouraging activity in the use of VADs

(ventricular assist devices ) for bridge - to-transplantation and continued growth at the company's International Technidyne Corporation

(ITC) division .

The company cautions that this update is based only upon the results through November , and that approximately five weeks remain in

its fiscal fourth quarter .

Thoratec ' s HeartMate ( R) XVE left ventricular assist system (LVAS) is the first and only FDA-approved device for Destination Therapy, or

the permanent support of end-stage heart failure patients who are not eligible for hea rt transplantation . The company received this

approval in November 2002 .

As the company indicated in its third quarter 2004 conference call, it plans to provide guidance for fiscal 2005 after the conclusion of the

fou rth quarter . Thoratec will report complete financial results for the fourth quarter of 2004 in late January or early February .

Thoratec Corporation is a world leader in products to treat cardiovascular disease with its Thoratec(R) VAD and HeartMate LVAS withmore than 8,800 devices implanted in patients suffering from heart failure . Thoratec ' s product line also includes the Vectra ( R) vascular

access graft ( VAG) for patients undergoing hemodialysis . Additionally, its International Technidyne Corporation ( ITC) division supplies

blood testing and skin incision products . Thoratec is headquartered in Pleasanton, California . For more information , visit the company's

web sites at http ://www.thoratec . com or http ://www.itcmed .com .

Many of the preceding paragraphs , particularly but not exclusively those addressing guidance for future performance or timeliness and

milestones for clinical trials contain forward - looking statements within the meaning of Section 27A of the Securities Act of 1933 and

Section 21E of the Securities Exchange Act of 1934 . These statements can be identified by the words " expects," "projects, " "hopes,"

"believes, " "anticipates ," "appears, " and other similar words . Actual results could differ materially from these forward - looking statements

based on a variety of factors, many of which are beyond Thoratec ' s control . Therefore , readers are cautioned not to put undue reliance

on these statements . Investors are cautioned that all such statements involve risk and uncertainties , including risks related to the

development of new markets including Destination Therapy, the growth of existing markets for products including bridge-to-transplantation and at our ITC division , market acceptance of new products such as the Thoratec IVAD, customer and physician

acceptance of Thoratec products, changes in the mix of Thoratec product sales , and the related gross margin for such product sales, the

results of clinical trials including the HeartMate II, the ability to improve financial performance , regulatory approval processes , the effect

of healthcare reimbursement and coverage policies, the effects of seasonality in Thoratec product sales, the effects of price competitionfrom any Thoratec competitors and the effects of any merger and acquisition related activities . These factors, and others, are discussed

more fully under the heading , "Risk Factors," in Thoratec ' s 10-K for the fiscal year ended January 3, 2004, and the heading , "Factors

That May Affect Future Results," in Thoratec ' s 10-Q for the fiscal quarter ended October 2, 2004, and other filings with the Securities and

Exchange Commission . Actual results, events or performance may differ materially . These forward-looking statements speak only as of

the date hereof. Thoratec undertakes no obligation to publicly release the results of any revisions to these forward - looking statements

that may be made to reflect events or circumstances after the date hereof , or to reflect the occurrence of unanticipated events .

SOURCE Thoratec Corporation

-0- 12/02/2004

/CONTACT : investors, Wayne Boylston, Chief Financial Officer of Thoratec

Corporation, +1-925-847-8600 ; or Nanette Pietroforte, +1-310-577-7870 ,

ext . 161, or npietroforte@fischerhealth .com, or Jennifer Chan,

+1-310-577-7870, ext . 164, or jchan@fischerhealth .com, both of FischerHealth,

Inc ., for Thoratec Corporation/

/Web site : http ://www .thoratec .com /

(THOR )

CO : Thoratec Corporation

ST : CaliforniaIN : MTC HEA

SU : SLS

ND

-- SFTH069 --

9703 12/02/2004 16 :05 EST http :// www .prnewswire .com

EXHIBIT Q

Press Releases Page 1 of2

Thoratec Provides Financial Outlook for 2005;Updates On Record Fourth Quarter Revenue s

PLEASANTON, Calif., Jan . 10 /PRNewswire-FirstCall/ -- Thoratec Corporation (Nasdaq : THOR), a world leader inproducts to treat cardiovascular disease, today announced that revenues for the fourth quarter of 2004 ended January1, 2005, were approximately $48 .3 million on an unaudited basis, a record quarterly performance for the companyand an increase of 14 percent over the fourth quarter last year and 19 percent over the third quarter of 2004 . Thecompany also said that it was notified of at least 55 DT (Destination Therapy) implants during the quarter . Thecompany plans to announce complete results for the fourth quarter and all of fiscal 2004 in early February .

With respect to 2005, Thoratec provided the following financial outlook :-- Revenues for the company's cardiovascular division, which includes VAD s

(Ventricular Assist Devices) and vascular grafts, are expected to grow

5-10 percent over those in 2004, while revenues for the company'sInternational Technidyne Corporation (ITC) division are expected togrow 10-15 percent over those in 2004 . Overall, the company expects

2005 revenue growth of approximately 10 percent over revenues in 2004 .The company expects gross margin for all of 2005 to be in the range of58-60 percent of sales, consistent with 2004 levels .

-- Due to projected efficiencies in operating expenses relative to revenuegrowth, as well as fewer shares outstanding resulting from our stockrepurchase programs, taxed cash earnings per share in 2005 are expected

to increase 35-40 percent over those in 2004, based on approximately49-50 million fully diluted shares outstanding and a 35 percent

effective tax rate . Taxed cash earnings is a non-GAAP measure of thecompany's financial performance that excludes, as applicable,litigation, merger and restructuring costs, impairment of intangibles,

in-process R&D and amortization of intangibles, and takes into accountthe tax effect of these adjustments . Estimating these expenses for

2005, net income per share on a GAAP basis for 2005 would beapproximately $0 .15-$0 .16 per share, though the company cautioned netincome could be impacted by further litigation related expenses thatare not easily predicted at this point in time .The company said it expects the seasonality in quarterly revenues in2005 will be similar to the trend seen in 2004 .

The company said it will not provide separate guidance for DT implantsin 2005, but will continue to report separately on DT implant activityon a quarterly basis as long as the reporting from its customers

continues to provide a distinction between indications for use that isdiscernible and relevant .

"This guidance for 2005 reflects very modest growth in sales of our devices used for BTT (bridge-to-transplantation)and a measured pace of increased adoption in the use of our HeartMate(R) XVE device for DT. We also expectcontinued solid growth from ITC with both existing and new products," said D . Keith Grossman, president and chiefexecutive officer of Thoratec .

"Our ongoing discussions with the FDA regarding the Phase II design of our HeartMate II clinical trial continue to beencouraging . Based on the very positive outcomes from the Phase I trial, we hope to receive approval to begin thenext phase of the study in the next several weeks," he added .

Thoratec Corporation is a world leader in products to treat cardiovascular disease with its Thoratec(R) VAD(ventricular assist device) and HeartMate LVAS (left ventricular assist system) with more than 9,000 devicesimplanted in patients suffering from heart failure. Thoratec's product line also includes the Vectra(R) vascular acces sgraft (VAG) for patients undergoing hemodialysis . Additionally, its International Technidyne Corporation (ITC) divisionsupplies blood testing and skin incision products . Thoratec is headquartered in Pleasanton, California . For moreinformation, visit the company's web site at http ://www.thoratec .com or http://www .itcmed .com .

Many of the preceding paragraphs, particularly but not exclusively those addressing guidance for future performanceor timeliness and milestones for clinical trials contain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 . These statements can be identifiedby the words "expects," "projects," "hopes," "believes," "anticipates," "appears," and other similar words . Actualresults could differ materially from these forward-looking statements based on a variety of factors, many of which arebeyond Thoratec's control . Therefore, readers are cautioned not to put undue reliance on these statements . Investorsare cautioned that all such statements involve risks and uncertainties, including risks related to the development ofnew markets including Destination Therapy, the growth of existing markets for products including bridge-to-

http://phx.corporate-ir .net/phoenix.zhtml?c=95989&p=irol-newsA rticle_Print&ID=661141 . . . 1/18/2005

Press Releases Page 2 of 2

transplantation and at our ITC division, market acceptance of new products, customer and physician acceptance ofThoratec products, changes in the mix of Thoratec product sales, and the related gross margin for such product sales,the results of clinical trials including the HeartMate II, the ability to improve financial performance, regulatoryapproval processes, the effect of healthcare reimbursement and coverage policies, the effects of seasonality onThoratec products sales, the effects of price competition from Thoratec competitors and the effects of any merger andacquisition related activities . These factors, and others, are discussed more fully under the heading, "Risk Factors," inThoratec's 10-K for the fiscal year ended January 3, 2004, and the heading, "Factors That May Affect Future Results,"in Thoratec's 10-Q for the fiscal quarter ended October 2, 2004, and other filings with the Securities and ExchangeCommission .

Actual results, events or performance may differ materially . These forward-looking statements speak only as of thedate hereof. Thoratec undertakes no obligation to publicly release the results of any revisions to these forward-lookingstatements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence ofunanticipated events .

SOURCE Thoratec Corporatio n-0- 01/10/2005

/CONTACT : Investors : Keith Grossman, President and Chief Executive

Officer of Thoratec Corporation, +1-925-847-8600 ; or Media : NanettePietroforte, ext . 161 or npietroforte@fischerhealth .com, or Jennifer Chan,

ext . 164 or jchan@fischerhealth .com, both of FischerHealth, Inc .,

+1-310-577-7870, or Neal Rosen of Kalt Rosen & Company, +1-415-397-2686, allfor Thoratec Corporation/

/Web site : http ://www .thoratec .com /(THOR )

CO : Thoratec CorporationST : CaliforniaIN : HEA MTC

SU : ERP

JO-- SFM117 --3223 01/10/2005 16 :05 EST http ://www .prnewswire .com

http://phx.corporate-ir .netlphoenix .zhtml?c=95989&p=irol-newsArticle_Print&ID=661141 . . . 1/18/2005

Date post:	11-Sep-2021
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

In Re: Thoratec Corporation Securities Litigation 04-CV-3168-First

Documents