Edwards Initiated at Neutral – Analyst Blog

We initiated our coverage on Edwards Lifesciences Corporation (EW) with a Neutral recommendation.

 

During the second quarter of 2010, Edwards’ adjusted EPS was 46 cents compared with 40 cents in the second quarter of 2009. Revenues were $365.2 million, up 8.9% from the year-ago period. However, the growth rate would have been 14.8%, excluding the impact of currency movement, discontinued products and previous year’s return of repair products.

 

Heart Valve Therapy remained the strongest segment at Edwards with an annualized growth of 18% to reach $214.8 million. Edwards is developing transcatheter heart valve (THV) replacement and repair technologies, aimed to treat heart valve diseases using catheter-based approaches compared to open surgical techniques.

 

Edwards has witnessed increased acceptance of Sapien XT products with its NovaFlex (transfemoral) delivery system. We also note that at the end of the quarter, the company began the limited launch of Sapien XT with its Ascendra 2 (transapical) delivery system with the commercial launch scheduled for the fourth quarter in Europe.

 

The other product line of the company, Critical Care, Cardiac Surgery Systems and Vascular recorded sales of $110.5 million (down 2.2%), $26.5 million (up 10%) and $13.4 million (down 17.8%), respectively. The primary reason for the decline in Critical Care segment was the divestment of the hemofiltration product effective September 2009. Excluding the impact of the divestment ($12.3 million) and forex, this segment recorded a growth of 7.7%. The divestment of LifeStent product line was responsible for the decline in Vascular sales.

 

Although Edwards has witnessed strong growth in the THV segment banking upon the successful launch of Sapien products in Europe, the product is yet to receive approval in the U.S. However, Edwards is working towards getting the Sapien products approved in the U.S. and Japan. Approval of the device in the U.S. or Japan should boost revenues for the company in the long term.

 

Edwards recorded a gross margin of 72.5%, up 290 basis points compared to the year-ago period primarily driven by higher sales of Sapien XT products, sales of premium Critical Care products led by Flotrac system and divestment of low-margin hemofiltration products.

 

The first phase of data for medically managed patients under the PARTNER trial is scheduled for release in September 2010. However, it will be a major disappointment for the company if the data is not encouraging enough to fetch FDA approval. In addition, the company operates in a highly competitive environment and is exposed to the risk of currency movement.