Thoratec Corporation Reports Third Quarter 2006 Results; Announces Filing Of First Two Modules Of PMA Seeking Bridge-To-Transplantation Approval For HeartMate(R) II

PLEASANTON, Calif., Oct. 31 /PRNewswire-FirstCall/ -- Thoratec Corporation , a world leader in products to treat cardiovascular disease, today reported financial results for the third quarter and first nine months of fiscal 2006.

For the quarter ended September 30, 2006, Thoratec reported revenues of $51.7 million, a six percent increase over revenues of $48.8 million in the same period a year ago. The company's Cardiovascular Division reported revenues of $31.6 million versus $30.6 million in the third quarter a year ago, while the ITC Division reported revenues of $20.1 million versus $18.2 million in the same period a year ago.

Net income on a GAAP basis was $1.5 million, or $0.03 per diluted share, compared with net income of $3.1 million, or $0.06 per diluted share, in the third quarter of 2005. The adoption of SFAS No. 123R negatively impacted GAAP earnings per share by $0.02. Gross margin on a GAAP basis was 57 percent versus 62 percent in the third quarter of 2005.

Non-GAAP net income, which is described in detail later in this release, was $5.1 million, or $0.10 per diluted share, versus non-GAAP net income of $5.6 million, or $0.11 per diluted share, in the third quarter of 2005. Total diluted shares were 52.8 million versus 51.4 million in the third quarter of 2005.

For the first nine months of 2006, Thoratec reported revenues of $155.3 million versus revenues of $146.9 million in the first nine months of 2005. Cardiovascular Division revenues for the first nine months of 2006 were $97.2 million versus $91.5 million in the same period a year ago. ITC revenues for the first nine months of 2006 were $58.1 million versus $55.4 million in the same period a year ago.

Net income on a GAAP basis was $0.9 million or $0.02 per diluted share, compared with net income of $8.7 million, or $0.17 per diluted share, in the same period a year ago.

For the first nine months of 2006, non-GAAP net income was $13.2 million, or $0.25 per diluted share, compared with non-GAAP net income of $15.3 million, or $0.31 per diluted share, in the first nine months of 2005.

The company also announced that it has filed the first two modules of its PMA (Pre-Market Approval) seeking approval to market its HeartMate II for bridge-to-transplantation (BTT). Thoratec said that as of October 26, 2006, it had implanted a total of 416 patients in its Phase II pivotal trial for the next generation assist device, enrolling 97 patients during the past three months, including a record 48 patients in the Destination Therapy arm.

"Our HeartMate product line continued to experience strong growth during the quarter, as a result of our clinical trial activity and continued expansion of commercial sales in Europe. In addition, ITC sales were up 11 percent over the prior year driven by strong increases in our alternate site business," noted Gary F. Burbach, president and chief executive officer of Thoratec. "These improvements were offset by a slowing in sales of our Thoratec(R) VADs (Ventricular Assist Devices) as we had an unusually strong third quarter last year due to the impact of the U.S. rollout of the IVAD(TM) (Implantable VAD), as well as slower PVAD activity in Europe this year. In addition, revenues from our Vectra(R) VAG (Vascular Access Graft) declined by approximately $0.8 million year-over-year."

The company said that gross margins on a comparative basis year-over-year were impacted in the Cardiovascular Division by unfavorable capitalized variances in the third quarter of 2006 related to lower production volumes in earlier periods. In addition, the Cardiovascular Division benefited in the third quarter of 2005 from the recognition of a payment received from Bard for continuation of Vectra distribution rights. The ITC Division was affected by higher freight costs and unfavorable product mix in the third quarter of 2006 compared to the same period of 2005.

The updated HeartMate II pivotal trial patient enrollment includes 220 patients enrolled in the BTT arm versus 171 three months ago, and 196 Destination Therapy (DT) patients versus 148 three months ago. Of the DT patients, 113 are enrolled in the randomized portion of the trial, which means the company is now more than halfway to the 200 patient enrollment called for in the DT arm of the trial.

"Enrollment in our pivotal trial for the HeartMate II remains very encouraging," noted Jeffrey Nelson, president of Thoratec's Cardiovascular Division. "We believe that this reflects the continued positive trial data -- including presentations at two recent major medical meetings -- and increasing confidence about the device among clinicians.

"We have achieved a key milestone in this trial with the filing of the first two modules of our PMA seeking bridge approval. These modules address all of the supporting engineering and pre-clinical studies, as well as manufacturing and quality systems. We remain confident that we will complete this PMA filing before the end of 2006. In addition, we have submitted a filing to the FDA seeking approval to allow enrollment of additional BTT patients under our Continued Access Protocol and expect to receive that approval shortly," he continued.

The company recently completed two important transactions as part of its long-term growth strategy. They included:

-- A distribution agreement with Levitronix under which Thoratec will distribute the Levitronix CentriMag Blood Pumping System in the U.S. The device is used for short-term support of patients requiring extracorporeal circulatory support during cardiac surgery in the U.S., as well as CE Mark approval in Europe to provide support for up to 14 days, and complements Thoratec's market leading presence in the mid-and long-term support market. -- The company's ITC division acquired A-VOX Systems, a leading manufacturer of point-of-care (POC) instruments and disposables used in Co-Oximetry testing. This transaction increases ITC's presence in the hospital POC market, including the cath lab, operating room and intensive care unit. GUIDANCE FOR FISCAL 2006

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. For a more detailed discussion of forward-looking statements, please see additional information below.

-- The company is reconfirming prior guidance for revenues in fiscal 2006 in the range of $206-$215 million, with VAD revenues expected to grow 5-11 percent over those in 2005. Revenues from the company's Vectra(R) VAG (Vascular Access Graft) are expected to be $2.5-$3.0 million in 2006. Revenues at ITC for fiscal 2006 are expected to grow in the range of 4-7 percent versus 2005. -- The company now expects gross margin to be approximately 59 percent for the year. The tax rate on a GAAP basis is expected to be 18-22 percent, and 26-30 percent on a non-GAAP basis. The fully diluted share count for the year is now expected to be approximately 54 million. -- The company continues to expect net income on a GAAP basis of $2.0-$5.0 million in fiscal 2006, or $0.04-$0.09 per diluted share. This includes $9.5-$10.5 million in costs related to the effect of SFAS No. 123R. MANAGEMENT'S REASONS FOR PRESENTING NON-GAAP FINANCIAL MEASURES

Thoratec management evaluates and makes operating decisions using various measures. These measures are generally based on revenues generated by its products and certain costs of producing that revenue, such as costs of product sales, research and development and selling, general and administrative expenses. One such measure is non-GAAP net income, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. Non-GAAP net income consists of GAAP income (loss) before taxes, excluding as applicable, amortization of intangibles, certain litigation and CEO transition expenses and other unusual or non-recurring costs, and also excludes stock-based compensation expense under SFAS No. 123R and changes in the value of the "make whole" provision of our convertible notes, in each case adjusted by the amount of additional taxes payable or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability.

Management believes that it is useful in measuring Thoratec's operations to exclude, as applicable, amortization of intangibles, certain litigation and other unusual or non-recurring costs because these costs are either essentially fixed and cannot be influenced by management in the short or medium term or represent significant non-recurring or infrequent costs not related to current operations.

In addition, management believes that excluding share-based compensation expense under SFAS No.123R is appropriate because this is not a cash expense, but instead is a significant accounting charge that the company was not required to record in the past. Management also believes that changes in the value of the "make whole" provision of the company's convertible notes should be excluded from non-GAAP net income because the amount involved is not an actual cash expense but instead is an estimated amount that we record pursuant to accounting rules that require the "make whole" provision to be treated as a separate security. Accordingly, management believes that excluding these two expenses from non-GAAP net income will provide information that is more generally comparable to prior periods and that reflects the company's core operating results.

Management also believes that non-GAAP net income provides useful supplemental information to management and investors regarding the performance of the company's business operations and facilitates comparisons to our historical operating results. Management also uses this information internally for forecasting and budgeting as it believes that the measure is indicative of Thoratec's core operating results. Note however, that non-GAAP net income is a performance measure only, and it does not provide any measure of the company's cash flow or liquidity. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance in accordance with GAAP, and investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within the attached condensed consolidated financial statements.

CONFERENCE CALL/WEBCAST INFORMATION

Thoratec will hold a conference call to discuss its financial results and operating activities for all interested parties at 8:30 a.m. Pacific Standard Time, (11:30 a.m., Eastern Standard Time) today. The teleconference can be accessed by calling 913-981-5571, passcode 8167346. Please dial in 10-15 minutes prior to the beginning of the call. The webcast will be available via the Internet at http://www.thoratec.com . A replay of the conference call will be available through Tuesday, November 7, via http://www.thoratec.com or by telephone at 719-457-0820, passcode 8167346.

Thoratec is a world leader in therapies to address advanced stage heart failure. The company's product lines include the Thoratec VAD and HeartMate LVAS (Left Ventricular Assist System) with more than 10,000 devices implanted in patients suffering from heart failure. 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 excluding those addressing guidance for fiscal 2006 financial results, future performance or timelines 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," "could," "will" and other similar words. Actual results, events or performance 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 risks and uncertainties, including risks related to the development of new markets including Destination Therapy, the growth of existing markets for our products, 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 enrollment in and timing of clinical trials including the HeartMate II, the ability to improve financial performance, regulatory approval processes, the effects of healthcare reimbursement and coverage policies, the effects of seasonality in Thoratec product sales, the effects of price competition from any Thoratec competitors and the effects of any merger and acquisitions related activities. Forward-looking statements contained in this press release should be considered in light of these factors and those factors discussed from time to time in Thoratec's public reports filed with the Securities and Exchange Commission, such as those discussed under the heading, "Risk Factors," in Thoratec's most recent annual report on Form 10-K, and as may be updated in subsequent SEC filings. 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.

THORATEC CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except for per share data) Fiscal Quarter Ended September 2006 Litigation, Amortization Make-Whole Share Based of CEO Provision GAAP Compensation Purchased Transition and Non-GAAP Results Expense Intangibles Costs Other Results Product sales $51,747 $51,747 Cost of product sales 22,078 (334) 21,744 Gross profit 29,669 334 30,003 Operating expenses: Selling, general and administrative 17,977 (1,317) (98) 16,562 Research and development 8,766 (552) 8,214 Amortization of purchased intangible assets 2,974 (2,974) -- Litigation and other costs -- -- -- Total operating expenses 29,717 (1,869) (2,974) (98) -- 24,776 Income (loss) from operations (48) 2,203 2,974 98 -- 5,227 Interest expense (1,051) (1,051) Interest income and other 2,186 (52) 2,134 Income before income tax expense 1,087 2,203 2,974 98 (52) 6,310 Income tax expense (benefit) (403) 1,255 Net income $1,490 $5,055 Net income per share, basic and diluted $0.03 $0.10 Shares used to compute net income (loss) per share: Basic 51,955 51,955 Diluted 52,755 52,755 Fiscal Quarter Ended September 2005 Amortization Share Based of CEO Litigation GAAP Compensation Purchased Transition and Non-GAAP Results Expense Intangibles Costs Other Results Product sales $48,841 $48,841 Cost of product sales 18,610 18,610 Gross profit 30,231 30,231 Operating expenses: Selling, general and administrative 14,987 (251) (580) 14,156 Research and development 8,093 8,093 Amortization of purchased intangible assets 2,800 (2,800) -- Litigation and other costs -- -- -- Total operating expenses 25,880 (251) (2,800) (580) -- 22,249 Income from operations 4,351 251 2,800 580 -- 7,982 Interest expense (1,037) (1,037) Interest income and other 1,113 1,113 Income before income tax expense 4,427 251 2,800 580 -- 8,058 Income tax expense (benefit) 1,325 2,422 Net income $3,102 $5,636 Net income per share, basic and diluted $0.06 $0.11 Shares used to compute net income per share: Basic 49,562 49,562 Diluted 51,419 51,419 Use of Non-GAAP Financial Measures This press release discloses non-GAAP measures of net income and earnings per share which are not financial measures prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). Management believes that these non-GAAP measures can be useful for investors to evaluate our financial performance by providing the results of our company's primary business operations, excluding, as applicable amortization of intangibles, certain litigation, CEO transition expenses and other unusual or non-recurring costs, as well as share based compensation expense under FAS 123-R and changes in the value of the make-whole provisions for our convertible note and takes into account the tax effect of these adjustments. However, these measures should be considered in addition to, and not as a substitute, or a superior measure to, net income or earnings per share or other measures of financial performance prepared in accordance with GAAP. Prior period non-GAAP amounts have been restated to exclude the effects of share based compensation. THORATEC CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except for per share data) Nine Months Ended September 2006 Litigation, Amortization Make-Whole Share Based of CEO Provision GAAP Compensation Purchased Transition and Non-GAAP Results Expense Intangibles Costs Other Results Product sales $155,285 $155,285 Cost of product sales 64,840 (988) 63,852 Gross profit 90,445 988 91,433 Operating expenses: Selling, general and administrative 55,228 (4,724) (1,046) 49,458 Research and development 28,108 (1,744) 26,364 Amortization of purchased intangible assets 8,921 (8,921) -- Litigation and other costs 447 (447) -- Total operating expenses 92,704 (6,468) (8,921) (1,046) (447) 75,822 Income (loss) from operations (2,259) 7,456 8,921 1,046 447 15,611 Interest expense (3,159) (3,159) Interest income and other 5,678 (37) 5,641 Income before income tax expense 260 7,456 8,921 1,046 410 18,093 Income tax expense (benefit) (637) 4,892 Net income $897 $13,201 Net income per share, basic and diluted $0.02 $0.25 Shares used to compute net income per share: Basic 52,154 52,154 Diluted 53,510 53,510 Nine Months Ended September 2005 Amortization Share Based of CEO Litigation GAAP Compensation Purchased Transition and Non-GAAP Results Expense Intangibles Costs Other Results Product sales $146,917 $146,917 Cost of product sales 57,045 57,045 Gross profit 89,872 89,872 Operating expenses: Selling, general and administrative 44,610 (732) (580) 43,298 Research and development 23,737 23,737 Amortization of purchased intangible assets 8,404 (8,404) -- Litigation and other costs 177 (177) -- Total operating expenses 76,928 (732) (8,404) (580) (177) 67,035 Income from operations 12,944 732 8,404 580 177 22,837 Interest expense (3,082) (3,082) Interest income and other 2,983 2,983 Income before income tax expense 12,845 732 8,404 580 177 22,738 Income tax expense (benefit) 4,187 7,412 Net income $8,658 $15,326 Net income per share, basic $0.18 $0.31 Net income per share, diluted $0.17 $0.31 Shares used to compute net income per share: Basic 48,835 48,835 Diluted 50,168 50,168 Use of Non-GAAP Financial Measures This press release discloses non-GAAP measures of net income and earnings per share which are not financial measures prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). Management believes that these non-GAAP measures can be useful for investors to evaluate our financial performance by providing the results of our company's primary business operations, excluding, as applicable amortization of intangibles, certain litigation, CEO transition expenses and other unusual or non-recurring costs, as well as share based compensation expense under FAS 123-R and changes in the value of the make-whole provisions for our convertible note and takes into account the tax effect of these adjustments. However, these measures should be considered in addition to, and not as a substitute, or a superior measure to, net income or earnings per share or other measures of financial performance prepared in accordance with GAAP. Prior period non-GAAP amounts have been restated to exclude the effects of share based compensation.

Thoratec Corporation

CONTACT: Cynthia Lucchese, Senior Vice President, Chief Financial Officerof Thoratec Corporation, +1-925-847-8600; or Neal Rosen of Kalt Rosen &Co., +1-415-397-2686, for Thoratec Corporation

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