Edwards Lifesciences (EW) has received CE Mark approval for its Intuity valve system. The product, to be used in patients undergoing surgical aortic valve replacement (“AVR”), facilitates small incision surgery and rapid valve deployment. The company plans to commence European launch at centers participating in post-approval clinical studies. Intuity has yet to receive approval in the US.
The Intuity approval in Europe has been on the cards for some time. This is expected to boost surgical heart valve sales in the international market. During the most recent quarter, Edwards’ biggest segment, Heart Valve Therapy, recorded sales of $256.6 million (up 13.4% year over year) with $163.4 million from surgical heart valves (up 1.6%) and $93.2 million (up 42.7%) from transcatheter heart valve (“THV”).
Surgical heart valve sales in US during the quarter declined on the back of flat procedure volume and introduction of a competing product. The situation is expected to improve in the second half of 2012 with the completion of one year of the launch of the competitor’s product. However, sales grew 7.2% year over year in the international market led by strong sales of premium products in Asia. While pricing was stable in each region, strong growth in emerging markets changed the country mix, due to which the global average pricing was slightly lower than the year-ago quarter.
We were disappointed with Edwards missing the revenue estimate for the most recent quarter. Economic uncertainty affecting procedure volume took its toll on the company’s performance. The resulting casualty was a weak guidance for the first quarter, more conservative than our expectation.
Current investor focus primarily lies on the uptake of Edwards’ Sapien THV that received approval in US in November 2011. The company also expects approval for the Cohort A population in the second quarter, which will be preceded by an FDA advisory panel. However, the incidence of higher rates of stroke in the TAVR population keeps us cautious.
Although Edwards has the first mover advantage in the US with Sapien, the European market scenario is a lot more competitive with the presence of Medtronic‘s (MDT) CoreValve and recent launches of two TAVR systems in Europe – JenaValve from Germany-based JenaValve Technology and Acurate TA by Switzerland based Symetis. Additionally, the various developmental programs coupled with higher expenses associated with the launch of Sapien are exerting pressure on operating margin.
We have a Neutral recommendation on Edwards. The stock retains a Zacks #3 Rank (“Hold”) in the short term.
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