WorldHeart Announces Third Quarter Results

OTTAWA, ON, Oct. 27 /PRNewswire-FirstCall/ -- - World Heart Corporation ("WorldHeart"or the "Company"), a worldwide pioneer and technology leader in mechanical circulatory support systems, today released its unaudited consolidated financial statements for the three and nine-month periods ended September 30, 2004.

All amounts in this release are in U.S. dollars. Third Quarter Results for Fiscal 2004

Revenues for the third quarter were $2.3 million, which represents an increase of 5% over the previous quarter and an increase of 10% over the same quarter in 2003. Gross margin for the third quarter of 2004 was $445,000 or 20%, which is consistent with the previous quarter and represents a small increase over the third quarter of 2003. The net loss for the quarter was $6.3 million ($0.41 per share), which represents an improvement of 31% from the net loss of $9.1 million ($2.21 per share) in the second quarter of 2003.

Revenues for the third quarter included the sale of 28 Novacor(R)LVAS implant kits as compared to 24 implant kits in the previous quarter and 27 implant kits in the same quarter last year.

Revenues for the nine months ended September 30, 2004 were $6.6 million, which represents an increase of 8% over the same period in 2003. Gross margin for the 2004 year-to-date was $1.9 million (or 29% of revenues), which represents an increase of 63% compared to the first nine months of 2003. The net loss for the 2004 year-to-date was $16.5 million ($1.08 per share), which represents an improvement of 37% from the net loss of $26.3 million ($7.71 per share) for the same period in 2003.

Revenues for the first nine months of 2004 included the sale of 78 Novacor LVAS implant kits as compared to 93 implant kits in the same period for 2003.

WorldHeart ended the third quarter of 2004 with seven centers enrolled in the RELIANT Trial, five of which were recruited during the quarter. Subsequent to the quarter-end, on October 1, 2004, the Centers for Medicare and Medicaid Services (CMS) in the U.S. implemented its announced increase in payment for implantation of all ventricular assist devices (VADs) which represents an increase in reimbursement to centers implanting the Novacor LVAS by approximately 30 to 40%.

Expenses from operations for the third quarter of 2004 totaled $6.6 million, which is an increase from the previous quarter's operating expenses of $6.2 million and the third quarter 2003 operating expenses of $6.3 million. Excluding the non-cash expensing of options, restructuring costs and amortization, expenses for the third quarter of 2004 totaled $4.8 million as compared to $5.4 million in the previous quarter and $4.1 million in the third quarter of 2003. Higher operational expense levels compared to the previous year's third quarter are the result of the establishment of European operations in 2004 and increased sales and marketing program expenditures, particularly in the United States. In the third quarter of 2004, the Company began to realize reduced expenditures associated with its previously announced decision in the quarter to restructure its operations including the consolidation of its North American operations to Oakland, California.

Other net expenses for the third quarter of 2004 were $156,000 as compared to $3.2 million in the same quarter last year. The significant decrease is as a result of lower interest costs associated with the repayment of loans that were outstanding in 2003.

WorldHeart strengthened its balance sheet in the third quarter with the completion of a convertible debenture and warrant transaction for gross proceeds of $13.3 million. The Company ended the third quarter with cash of $12.7 million and working capital of $18.8 million as compared to cash of $5.3 million and a working capital position of $11.0 million at June 30, 2004.

Additional Third Quarter Highlights: - Unconditional approval of WorldHeart's landmark RELIANT Trial by the U.S. Food and Drug Administration (FDA); - FDA Approved Reliability Label Revision for Novacor LVAS to reflect the demonstrated market-leading performance longevity of the Novacor LVAS and which shows the chance for reoperation to either fix or replace the Novacor LVAS to be 1.6% between zero and 6 months; 2.1% between 6 and 12 months; 11% between 12 and 24 months; and 16% between 24 and 36 months; and, - Commencement of implantation under the RELIANT Trial.

WorldHeart will hold a teleconference today at 11:00 a.m. EDT. To participate, please call 1-800-814-4890 ten minutes before the call is scheduled to begin. A replay of the conference call will be available through November 10, 2004 starting at 2:00 p.m. (EDT) on October 27, 2004. The recording can be accessed at 1-877-289-8525 and entering passcode 21097297 (pound sign).

About the RELIANT Trial -----------------------

The Trial will evaluate the Novacor LVAS for Destination Therapy use by patients suffering from irreversible left ventricular failure who are not candidates for transplantation. Recipients will be randomized, on a 2:1 basis, to receive the Novacor LVAS or the HeartMate(R) XVE LVAS.

The objective of the Trial is to demonstrate that use of Novacor LVAS is superior to optimal medical therapy by demonstrating equivalence to HeartMate XVE LVAS, which has been evaluated and approved for such use. Novacor LVAS has Category B status under the existing IDE that permits reimbursement by the Centers for Medicare and Medicaid Services (CMS) for implants within the Trial.

About Novacor(R)LVAS --------------------

The Novacor LVAS, a pump implanted alongside the patient's own heart to take over a large portion of the workload of the natural heart, supports end- stage heart failure patients. It is an electrically powered, pulsatile flow device with 20 years of clinical use. The Novacor LVAS has unprecedented reliability and durability. It is the first ventricular assist device to provide a recipient with more than 6 years of circulatory support and continues to hold the industry record for longest support on a single device, over 4 years. To date, more than 1,500 patients have been supported with the Novacor, with almost 600 patient years of experience, and no deaths attributable to device failure.

The Novacor LVAS is commercially approved as a bridge to transplantation in the U.S. and Canada. In Europe, the Novacor LVAS has unrestricted approval for use as an alternative to transplantation, a bridge to transplantation, and to support patients who may have an ability to recover the use of their natural heart. In Japan, the device is commercially approved for use in cardiac patients at risk of imminent death from non-reversible left ventricular failure for which there is no alternative except heart transplantation.

About World Heart Corporation -----------------------------

World Heart Corporation is a global medical device company headquartered in Ottawa, Ontario, Canada, with additional facilities in Oakland, California, USA and Heesch, Netherlands. WorldHeart is currently focused on the development and commercialization of pulsatile ventricular assist devices. Its Novacor(R) LVAS, which has unprecedented reliability and durability, is well established in the marketplace. It is the first ventricular assist device to provide a recipient with more than 6 years of circulatory support and continues to hold the industry record for longest support on a single device, over 4 years. To date, more than 1,500 patients have been supported with the Novacor, with almost 600 patient years of experience, and no deaths attributable to device failure. Its next-generation technology is a miniaturized implantable assist device building on the proven Novacor technology.

Any forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risk and uncertainties, including without limitation, risks in product development and market acceptance of and demand for the Company's products, risks of downturns in economic conditions generally, and in the medical devices markets, risks associated with costs and delays posed by government regulation, limitations on third-party reimbursement, inability to protect proprietary technology, potential product liability and other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission. << WORLD HEART CORPORATION Consolidated Balance Sheets (United States Dollars) -------------------------------------------------------------------------- September 30, December 31, 2004 2003 -------------------------------------------------------------------------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 12,713,847 $ 6,337,677 Short-term investments - 11,720,510 Trade and other receivables 4,062,196 3,894,911 Prepaid expenses 634,699 614,222 Inventory 8,194,656 5,902,866 ------------------------------ 25,605,398 28,470,186 Long-term receivable 300,647 - Cash pledged as collateral for lease 750,000 527,997 Capital assets 2,378,337 3,041,657 Goodwill 17,179,643 17,179,643 Intangible assets 382,525 879,118 Other assets - 81,468 ------------------------------ $ 46,596,550 $ 50,180,069 ------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 4,677,853 $ 8,214,090 Accrued compensation 1,078,384 1,748,364 Deferred revenue 986,762 176,573 ------------------------------ 6,742,999 10,139,027 Convertible debentures (note 3) 1,845,984 - Long-term obligation 21,796 - ------------------------------ 8,610,779 10,139,027 ------------------------------ Shareholders' equity Common shares 187,027,058 184,868,488 Issued and outstanding - 15,744,522 common shares (December 31, 2003 - 15,023,689 common shares) Contributed surplus 22,431,643 4,893,750 Cumulative translation adjustment 2,910,988 2,910,988 Accumulated deficit (174,383,918) (152,632,184) ------------------------------ 37,985,771 40,041,042 ------------------------------ $ 46,596,550 $ 50,180,069 -------------------------------------------------------------------------- -------------------------------------------------------------------------- WORLD HEART CORPORATION Consolidated Statements of Operations and Accumulated Deficit (United States Dollars) -------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, September 30, September 30, 2004 2003 2004 2003 -------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 2,250,050 $ 2,050,095 $ 6,588,781 $ 6,088,677 Cost of goods sold (1,805,515) (1,670,907) (4,685,677) (4,921,055) ------------------------------------------------------------- Gross margin 444,535 379,188 1,903,104 1,167,622 ------------------------------------------------------------- Expenses Selling, general and administrative(3,246,213) (1,826,157) (10,084,015) (5,256,987) Research and development (1,585,102) (2,281,934) (4,615,505) (8,393,674) Non-cash share- based compensation costs (476,090) - (1,693,573) - Restructuring costs (1,176,445) (2,078,748) (1,176,445) (2,078,748) Amortization of intangibles (129,166) (114,245) (387,498) (2,587,311) ------------------------------------------------------------- (6,613,016) (6,301,084) (17,957,036) (18,316,720) ------------------------------------------------------------- Loss before the undernoted (6,168,481) (5,921,896) (16,053,932) (17,149,098) Other income (expenses) Foreign exchange gain (loss) (10,882) 26,834 (378,787) (927,989) Investment income 10,778 7,187 135,462 21,137 Loss on disposal of capital assets (44,024) - (44,024) (27,148) Interest expense and financing costs (111,995) (3,237,257) (113,201) (8,181,914) ------------------------------------------------------------- Net loss for the period (6,324,604) (9,125,132) (16,454,482) (26,265,012) Accumulated deficit, beginning of the period (168,059,314) (135,981,424) (152,632,184) (118,841,544) Share-based compensation adjustment - - (5,297,252) - ------------------------------------------------------------- Accumulated deficit, end of the period $(174,383,918) $(145,106,556) $(174,383,918) $(145,106,556) ------------------------------------------------------------- ------------------------------------------------------------- Weighted average number of common shares outstanding 15,355,573 4,125,662 15,249,176 3,408,324 ------------------------------------------------------------- ------------------------------------------------------------- Basic and diluted loss per common share $ (0.41) $ (2.21) $ (1.08) $ (7.71) -------------------------------------------------------------------------- -------------------------------------------------------------------------- WORLD HEART CORPORATION Consolidated Statements of Operations and Accumulated Deficit (United States Dollars) -------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, September 30, September 30, 2004 2003 2004 2003 -------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) CASH FLOWS FROM (USED IN) Operating activities Net loss for the period $ (6,324,604) $ (9,125,132) $ (16,454,482) $ (26,265,012) Items not involving cash - Amortization 366,107 321,247 1,038,015 3,204,761 Loss on disposal of capital assets 44,024 - 44,024 27,148 Write down of capital assets 342,460 - 342,460 Issuance of options and warrants for services and financing costs - 1,049,226 81,466 2,486,232 Share-based compensation 476,090 - 1,693,573 - Interest on preferred shares and debt 111,634 1,200,522 111,634 3,898,291 Unrealized foreign exchange loss (gain) 46,036 (17,447) 233,282 1,189,449 Change in operating components of working capital (516,494) (2,114,142) (6,162,465) (1,349,274) ------------------------------------------------------------- (5,454,747) (8,685,726) (19,072,493) (16,808,405) ------------------------------------------------------------- Investing activities Redemption of short-term investments - - 11,504,032 - Purchase of capital assets (143,523) (16,814) (297,685) (125,925) Cash pledged as collateral for lease - 54,617 (222,003) 222,003 ------------------------------------------------------------- (143,523) 37,803 10,984,344 96,078 ------------------------------------------------------------- Financing activities Capital lease repayments - - - (40,460) Repayment of short-term loan - - - (1,308,558) Senior and subordinated loan proceeds - - - 6,542,790 Repayment of senior and subordinated loan - (7,367,568) - (7,367,568) Convertible debenture proceeds 13,318,750 856,837 13,318,750 856,837 Repayment of convertible debenture - (884,108) - (884,108) Bridge loan proceeds - 767,771 - 767,771 Repayment of bridge loan - (775,068) - (775,068) Common shares issued through exercise of warrants - - 1,499,404 - Issuance of common shares through private placement - 46,536,954 - 48,453,282 Funds received on the exercise of warrants - - - 1,088,435 Payment of expenses relating to convertible debentures (378,163) - (378,163) - Payment of expenses on the exercise of warrants - (12,014) - (33,618) Payment of expenses related to the issuance of common shares - (4,394,874) - (4,640,362) ------------------------------------------------------------- 12,940,587 34,727,930 14,439,991 42,659,373 ------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 98,677 (9,862) 24,328 (3,382) ------------------------------------------------------------- Change in cash and cash equivalents for the period 7,440,994 26,070,145 6,376,170 25,943,664 Cash and cash equivalents, beginning of the period 5,272,853 30,835 6,337,677 157,316 ------------------------------------------------------------- Cash and cash equivalents, end of the period $ 12,713,847 $ 26,100,980 $ 12,713,847 $ 26,100,980 -------------------------------------------------------------------------- -------------------------------------------------------------------------- >>

WORLD HEART CORPORATION

CONTACT: World Heart Corporation, Judith Dugan,(613) 226-4278, http://www.worldheart.com/

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