oppenheimer industry update: htwr-thor-ssh

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July 15, 2014 Intraday Report
Medical Devices
VAD Doctor Dinner Takeaways
Last night, we hosted two leading heart failure specialists to discuss the ventricular
assist device market. Next-generation LVADs were in focus along with the pipeline of
products designed to treat the large Class III heart failure population. We believe the
combined EV/sales on '14E for HTWR/THOR at 3.8x offers a favorable risk/reward for
the names considering near-term market growth in the mid-teens (low double digits
long-term with upside potential from pipeline advancements) and given call options
at both companies (Circulite for HTWR and PHP for THOR). Quick takeaways from
the dinner are below. Please also see our full 2Q LVAD survey published yesterday.
■ The principles behind full magnetic levitation bode well for THOR's HeartMate
III in its goal of reducing the key adverse event of thrombosis. Large gap sizes
within the pump are the primary benefit of HMIII with the goal of reducing blood
shear. We believe this key internal design upgrade of HMIII is an underappreciated
opportunity for THOR. As a reminder, the HMIII CE Mark trial is under way.
■ HTWR's Synergy system from its Circulite acquisition has fallen somewhat off of
investors' radar as HTWR has been making design changes to the platform. The
clinicians are optimistic and see Synergy as a potential game changer for patients
with Class IIIb/early Class IV heart failure. The endovascular version (potentially
implanted by interventionalists) could be particularly market expansive. We expect
Synergy to get more visibility next year as it goes back into the clinic.
■ The national coverage determination by CMS on LVAD reimbursement continues
to require adjustments in the field with the stronger standards for a bridgeto-
transplant designation an advantage for HTWR and for THOR in different
circumstances.
■ The design of THOR's PHP device is encouraging and suggest a potential role
for this device in the acute support market. As a reminder, PHP will begin trials in
both Europe and the US in 2H14.
■ The clinicians highlighted the unique design benefits of SSH's C-Pulse device for
Class III heart failure patients. While enrollment challenges remain, we remain
encouraged the pieces are being put in place to meaningfully accelerate the CPulse
U.S. trial.