excellent new broker review of this company

HTW: SMALLER PUMP NOW IN CLINICAL TRIALS A SIGNIFICANT ENTRANT IN THE
LVAD SPACE


HeartWare Limited which listed in Australia on January 31 2005, is
focussed, like Australian pioneer Ventracor on a Left Ventricular
Assist Device (LVAD) - a mechanical alternative to a donor heart for
patients in Stage IV heart failure.


HeartWare, with operations based in Miramar, Florida and a Sydney head
office, is arguably some 3 years behind Ventracor - the first
HeartWare device was implanted in a human patient in March this year
while Ventracor's first implant was in August 2003. However, Heartware
expects to make first sales in late 2007, which is not far behind
Ventracor's timetable. The HVAD is the smallest, full output, 3rd
generation LVAD as yet devised and has significant advantages over
larger pumps - and HeartWare already has the next device, which is
called MVAD and is 1/10th the size of the HVAD, in pre-clinical
trials.


LVAD's have been used for some 20 years to bridge heart failure
patients temporarily until a donor heart becomes available. But it is
only in very recent years that the use of these devices for
"destination" or "lifelong" therapy has gained clinical acceptance.


While the makers of heart assist devices (including Thoratec's second
generation HeartMate II, Micromed, Jarvik Heart's Jarvik 2000, World
Heart, Arrow, Terumo and Berlin Heart as well as Ventracor) are in
competition for the same market segment there are estimated to be some
125,000 persons annually in the US alone who need either a donor heart
or a heart assist device - and only some 3000 donor hearts become
available each year. Unless devices such as the LVADs can meet their
need, the rest of these patients will die. The one year survival rate
for severe heart failure patients is approximately 25 pct.


The average cost of an LVAD is $US75,000, with the cost of surgery and
hospital stay extra. Reimbursement under the US DRG103 is up to
$US150,000 for the device and treatment.


HeartWare recently conducted a secondary raising by a placement (May
2006), which closed oversubscribed and raised $32.7 million (US$25
million) before costs. This is expected to fund HeartWare through to
commercial sales in Europe and Australia (based on a CE mark in 2007)
and commencement of US trials.


What the broker say

In Australia, HeartWare is followed by two medtech industry analysts
EG Capital and Wilson HTM.

*EG Capital's analyst Linda Ong in a report dated May 22 reiterated a
"strong buy" recommendation with a valuation of $1.50, in line with
the March 17 valuation and upgraded from February 2005.

The analyst said in the May 22 report, "The number of centres involved
in the trial is a critical component to measuring success in patient
recruitment .. HeartWare's ability to involve four international
centres in its CE Mark trial is a reflection of the superiority of its
device. .. Mr Ashgar Khaghani, the lead investigator at Harefield
Hospital, has had extensive experience with a wide range of heart
assist devices, including those from Jarvik, DeBakey and Thoratec. We
continue to re-iterate our STRONG BUY recommendation based on a DCF
valuation of $1.50. Through the course of the trial as clinical
evidence of the performance of the HVAD builds, we may increase our
probability measure accordingly with a consequent increase in our
valuation".

*Analyst Dr Graeme-David Wald at Wilson HTM said yesterday, "Since
listing, HTW has met all its development targets on time and the first
two human implants have gone extremely well. We are impressed with the
clinical outcomes thus far, as they indicate not only that the pump is
working well, but that it is also "gentle" on the blood - with very
low levels of hemolysis.

"With the smallest 3rd generation device currently under development
and a pipeline of products, we believe HTW will be a significant
player in the LVAD market. ..We have a 12 month price target of
$1.77".

*In the US, although there is no broker's report on HeartWare, a
number of well regarded medtech analysts are familiar with the
HeartWare story and have mentioned the Company in various industry
reports. Formal coverage of HeartWare is seen as not too far down the
track.


HEARTWARE LTD - A SNAPSHOT


HeartWare Limited is an Australian company, with a US based
subsidiary, HeartWare, Inc.. HeartWare Limited listed on the ASX on
January 31 after raising $A32.4 million (US$24.95 million) and closed
on the first day of trade at 48c against a float price of 50c. At
that time, HeartWare Limited completed the acquisition of HeartWare,
Inc. for scrip.


The company was initially established as Kriton Medical, Inc. and on
July 11, 2003 HeartWare, Inc. completed the acquisition of Kriton's
assets including technology, patents, plant and equipment. Over the
eight years prior to the listing $A46 million was invested and
committed to developing HeartWare's proprietary technology.


The Technology

HeartWare's 3rd generation LVAD technology is based on the use of a
patented wide bladed impeller, designed to achieve optimum performance
with respect to haemocompatibility, size minimisation, long term
reliability and overall system efficiencies.


The impeller is the only moving part in the HeartWare device. The
impeller is held in place by a proprietary hybrid magnetic and
hydrodynamic bearing system. The wide blades of the impeller contain
large motor magnets so the same space is used for pump and motor
elements achieving design efficiencies. The permanent rare earth
magnets in the impeller do not require electricity in order to induce
their magnetic effect, minimising the need for wires and connections,
further simplifying the design and improving reliability. The result
is a compact, energy efficient device, wearless, reliable and shock
resistant and designed to provide full cardiac output with optimal
haemocompatibility. Important additional features of the technology
include two motor stators providing redundancy, a proprietary
integrated inflow cannula enabling pericardial implantation and
electrical leads based on pacemaker technology.


Significant advantages

With a volume of only 45 cc the HVAD is the smallest long term
circulatory assist device with a fully suspended impeller under
development. HeartWare believes the HVAD is the only device of its
type that can be implanted in the pericardial space, directly
surrounding the heart and within the thoracic cavity, rather than in a
pocket in the abdomen. This leads to significant clinical advantages,
both in terms of the ease of surgical implantation and consequent
patient benefits.


Because of the specific design of the flow paths within the HVAD, it
minimises clotting or damage to blood cells. While anticoagulants are
conventionally given to reduce the risk of clotting within implants,
anticoagulants can increase the risk of internal bleeding. In pre
clinical studies the HVAD has shown extremely low levels of haemolysis
(blood damage) and no evidence of thrombogenesis despite the animal
study being conducted without the use of anticoagulants. HeartWare is
confident the level of anticoagulation required for the HVAD will be
lower than that typically recommended with competing devices, helping
to reduce one of the key risks of LVAD therapy.


Also the HVAD's "wearless" design with only one moving part and no
mechanical bearings results in an expected durability in excess of ten
years.


An LVAD that uses less power enables the batteries to last longer.
HeartWare's HVAD has two batteries, each of which last about 8 hours
at the beginning of its life probably going down to 6 hours later.
Essentially the batteries can succeed each other giving a patient up
to 16 hours before replacement, although a low level alarm will begin
after the initial battery has depleted indicating that it needs to be
replaced.


The company is also working on a miniaturised ventricular assist
device, the MVAD, aimed at developing a family of extremely small
cardiac assist devices which are intended to be implantable by
minimally invasive surgery. The current MVAD prototype is
approximately 1/10th of the volume of the HVAD and commenced animal
studies in August 2005. HeartWare is also developing the PedVAD for
infants with heart failure.


Heartware has some 24 granted patents, variously in Australia and the
US. A patent infringement motion instituted by Ventracor and defended
by HeartWare was later settled between the two parties.


Manufacturing strategy

HeartWare's US operations base in Miramar Florida is a 1,383 sq metre
facility dedicated to the development and manufacture of HeartWare
products. HeartWare believes the Miramar facility will be able to
produce the quantities of HVADs required for the planned clinical
trials and initial commercialisation.


Over time, HeartWare expects that it will expand its manufacturing
capacity in line with demand for its products. Certain components of
the HVAD are manufactured by external suppliers in FDA registered
facilities. HeartWare conducts final assembly, quality assurance,
packaging and distribution in the Miramar facility. The strategy of
outsourcing selected manufacturing processes is intended to minimise
capital and operating costs while maintaining the required quality
standards.


HeartWare expects to implement steps to further reduce manufacturing
costs as volumes increase.


HeartWare's implant program

The first implant, into a 48 year Austrian man suffering Class IV
Heart Failure was performed in March this year. The man is now at
home, said to be feeling well and exercising. A video was taken by an
Austrian State TV Channel that shows the first patient enjoying the
sunshine and walking around. It has now been translated from German
and is expected to be available on the company's website shortly. A
second patient was implanted with the HVAD in April and has also been
discharged from hospital.


HeartWare has approvals to implant the HVAD in Austria, Australia and
the UK and has received approval from the Ethics Committee at the
Hanover Medical Centre in Germany and has completed its submissions to
the German regulatory authority. HeartWare plans to enrol 20 patients
across the four participating centres in 2006. Royal Perth Hospital
will be the second centre to begin implanting the HVAD, followed by
Harefield Hospital in the UK and finally by Hanover Medical Centre,
subject to regulatory approval in Germany.


The endpoint of the study is survival to 180 days or cardiac
transplantation. The objective is to complete the enrolment of all 20
patients before the end of 2006, allowing submissions for CE mark in
early 2007.

In parallel with the CE mark trial, HeartWare aims to begin an implant
program in the US late in 2006 or in early 2007.


First sales are expected in Europe and Australia in late 2007 and all
HVADs implanted within the US clinical study will be reimbursed.






HeartWare Financials

Last Traded price 99 cents

Shares Issued 185.77 mln (incl 87 mln in escrow and the May 2006 placement)

Market Cap $183.9 mln


Year ended December 31, Values in Millions$

INCOME 2005
Op Revenue 1.6
Op (loss) (14.7)
Net (loss) (14.7)
E(Loss)PS (Cents) (11.12)




BALANCE SHEET 2005
Current Assets 14.2
Non Current Assets.. 48.0
Current Liabilities 1.6
Non Current Liabilities 1.5
Net Assets & Shareholders' Funds 59.1
Intangibles 46.2
Net Tangible Assets 12.9
Gearing (Net of Cash) % Nil
NTA per share (cents) 8.3
Shares Issued (Millions) 156.1
Options Issued 16.1



Cash Flows: 2006
March qtr
2005
Cash on hand (at open) 13.7 -
Operating Activities (3.2) (11.4)
Investing (0.6) (4.7)
Financing Activates - 29.8
Cash on hand at Year end 9.9 13.7



HeartWare recently conducted a secondary raising by a placement (May
2006), which closed oversubscribed and raised $32.7 million (US$25
million) before costs. This is expected to fund HeartWare through to
commercial sales in Europe and Australia (based on a CE mark in 2007)
and commencement of US trials.


Directors:

Robert Thomas, non exec chair, over 30 years experience in the
securities industry, recently retired as Chairman Global Corporate &
Investment Bank, Australia and New Zealand of Citigroup Global
Markets.

Dr Seth Harrison, Deputy Chair, non exec. Dr Harrison has invested in
life sciences since 1991. Currently is the managing general partner of
Apple Tree Partners, a life sciences venture capital firm based in the
US and HeartWare's largest shareholder.

Stuart McConchie, MD and CEO. Over 25 years experience in the medical
device industry. Prior to joining HeartWare, Stuart consulted to a
range of medical device companies in Europe including over five years
working as the European representative for Jarvik Heart Inc during
their clinical trial and regulatory program. Stuart worked for 17
years with Telectronics, later acquired by Pacific Dunlop. Stuart is
an Australian citizen.

Dr Christine Bennett, non exec, CEO of Research Australia Ltd, a
national alliance of organisations promoting health and medical
research. Dr Bennett's other directorships include Resonance Health
Ltd.

Dr Denis Wade AM, non exec was formerly managing director of Johnson &
Johnson Research Pty Ltd from 1988 to 2003 and chairman from 1989 to
March 2003. Dr Wade's other directorships include Cryptome
Pharmaceuticals Ltd.


Management

Stuart McConchie, MD and CEO

Jeffrey A LaRose, Chief Scientific Officer has a Master of Science in
Mechanical Engineering and 20 years experience. He has been closely
involved in the development of HeartWare's technology for seven years
and is responsible for all aspects of the design and physiological
controls for HeartWare's HVAD. He also leads the development of
HeartWare's miniaturisation technology.

David McIntyre, Chief Financial Officer, Company Secretary

DozierRowe, Chief Operating Officer

Janice T Piasecki, Head of Regulatory Affairs is a regulatory expert
with nearly 30 years experience, having previously worked with the FDA
in Boston, Massachusetts. Ms Piasecki is currently a consultant to
HeartWare Inc.

Jane Reedy, Head of Clinical Affairs. Has a Master of Science in
nursing from St Louis University and has served as Department Head of
Cardiothoracic Services at St Louis University Hospital. Is currently
a consultant to HeartWare.

William J Rissman, Head of Manufacturing and Product Development, 25
years experience in medical device engineering, product development,
operations and project management. He has been intimately involved
with the development of over 20 medical devices through to US FDA
approval. Bill is the author of 5 publications, 6 issued patents and
34 patents pending.

Howard Leibman, Head of Corporate Development, previously executive
director of Aeris Technologies, listed on the ASX. Before joining
HeartWare was Associate Director, Corporate Finance at eG Capital.


Medical Advisory Board

Bud Frazier, MD (Texas Heart Institute) Chairman of Advisory Board.
Chief of Transplant Services, Texas Heart Institute. Implanted over
565 LVADs.

Steven Boyce MD (Washington Hospital Centre) Director of Heart
Transplantation, Washington Hospital Centre. Involved with the
development of HeartWare devices since 1996.

Leslie Miller, MD (Lillehei Heart Institute University of Minnesota)
Director of Heart Failure/Heart Transplant Program at the University
of Minnesota.

Laman A Gray Jr, MD (University of Louisville School of Medicine) Prof
of Surgery and Director of Thoracic and Cardiovascular Surgery at the
University of Louisville School of Medicine. Was the original
investigator for the Novacor VAD System and implanted the first
AbioCor Implantable Replacement Heart.

Stephen Westaby, MD, Ph.D (John Radcliffe Hospital Oxford), -
cardiothoracic surgeon. Implanted the longest surviving LVAD patient,
Peter Houghton.

Georg Wieselthaler, MD (Vienna General Hospital). Clinical Director of
Mechanical Circulatory Support, Vienna General Hospital. Secretary
General of the International Society of Rotary Blood Pumps.

Gerrie O'Driscoll, MD. (Royal Perth Hospital). Consultant
Cardiologist, Medical Head, West Australian Advanced Heart Failure and
Cardiac Transplant Service.


Substantial shareholders:

Apple Tree Partners 58.67 pct.

J Platt 5.13 pct