intersuisse buy rating nov 8

Ventracor Limited VCR Thursday, 8 November 2007
Significant Upside at the Heart of this Company
Recommendation Speculative Buy
Approved in Europe and Australia, Trials for US approval Continue.
Ventracor (VCR) is a medical device company manufacturing the VentrAssist device.
VentrAssist is a Left Ventricular Assist Device (LVAD), which has been implanted into
158 patients to assist the failing heart. By June 2008, VCR is forecasting the
cumulative implantation of 300 to 400 VentrAssist devices.
VentrAssist is approved for use in Australia in August 2007 and Europe in December
2006), with US Clinical Trials underway. Once US Clinical Trials are successful, VCR
will market VentraAssist into the US.
There are two US trials underway. The first is the Bridge to Transplant Pivotal (BTT)
Trial and the second is the Destination Therapy (DT) Trial. The former trial is for
patients awaiting a heart transplant and survival is maintained by VentrAssist. The
later trial is for patients who would not be candidates for a heart transplant but require
intervention for survival.
Key Highlights and Expectations
• The key competitor Thoratec (NASDAQ:THOR) is anticipated to launch its
Heartmate II into the US market post the FDA Panel Meeting on 30 November
2007 for BTT therapy. The adoption rate of Heartmate II will be closely watched
by Investors and the Industry as it will provide insights into the adoption rate of
VentraAssist. Speculative Investors are already taking positions in VCR in
anticipation of approval of the competitive Heartmate II.
• The Heartmate II will be the first new generation LVAD to enter the market, and is
expected to be successful because of advantages over older generation
technologies, such as pulsatile devices. The market capitalisation of THOR is
US$1.08bn and is trading on a PE ratio of 184 times.
• Heartmate II is a 2nd generation pump. VentrAssist is a 3rd generation with no
bearings, but uses hydrodynamic bearing of the rotor to minimise mechanical
friction.
• VCR will have second mover advantage over the Heartmate II, as the VentrAssist
has performance advantages. With practitioner familiarity of LVADs in the US,
VentraAssist is expected to take a proportion of HeartMate II’s market share.
• VentraAssist’s BTT US trial is anticipated to conclude around late 2008 / early
2009, with FDA marketing approval around late 2010 / early 2011, at which time
the market would be educated via two years of sales of Heartmate II.
• The DT trials are expected to take longer. For HeartMate II DT applications are
anticipated to enter the US market around early to mid 2011, where as
VentrAssist is expected to enter the US marked around mid to late 2012. Once
again, VentrAssist would have the second mover advantage due to HeartMate II’s
lead in the DT market.
• VCR is receiving revenues on sales of VentraAssist for the US trial. During the
US trials and once approved in the US VentrAssist is anticipated to deliver a
wholesale price of about US$75k per unit and a 75% gross profit margin. We
broadly forecast 618 new implants for FY011.

Recommendation
LVADs are having a similar market profile as Heart Valves. First valves were only put
into the very sick, with poor results. But as the systems improved, it went into
healthier patients and delivered real clinical and economic benefits.
We estimated the value of VCR to be vicinity of 0.92 to 1.41 cents per fully diluted
current share, with a preferred target price of 1.12 per share. This represents a firm
valuation in the range of $276 to $427m, with a preferred valuation of $336m. The
reason for the large valuation range is due the uncertainty over the adoption rate,
Nonetheless, we identify significant upside over its current market capitalisation and
recommend VCR as a Speculative Buy.

Snapshot
Last Price $0.72
Market Cap (A$m) $225.8m
52 Week High $1.20
52 Week Low $0.55
Sector Health Care Equipment & Supplies
Investment Fundamentals
Year-end June FY06A FY07A FY08E FY09E
NPAT ($m) (30.1) (36.5) (32.3) (29.1)
EPS (c) (11.4) (12.0) (10.1) (8.8)
% Change NA NA NA NA
DPS (c) 0.0 0.0 0.0 0.0
Franking (%) 0.0 0.0 0.0 0.0
Yield (%) 0.0 0.0 0.0 0.0
PER (x) NA NA NA NA
Source: Intersuisse Estimates