Recently, Edwards Lifesciences (EW) completed the acquisition of Embrella Cardiovascular for $43 million in cash. Embrella develops the Embrella Embolic Deflector System which is used during transcatheter heart valve (THV) procedures and received CE Mark approval in May 2010. The company has maintained its EPS guidance for fiscal 2011.
This acquisition makes sense for Edwards as it is currently focused on the THV portfolio consisting of Sapien and Sapien XT. During the fourth quarter of fiscal 2010, Heart Valve Therapy remained the strongest segment at Edwards with an annualized growth of 20.1% to $226.2 million.
Sales of surgical heart valves grew 5% to $160.9 million and THV recorded an 87.2% growth to reach $65.3 million. The launch of Sapien XT valve in Europe primarily led to the growth of THVs while increased adoption of the Magna valve platform and Physio II rings led to the growth of surgical valves.
Sales of THVs have increased over the past few years and represents 14% of Edwards’ total sales in fiscal 2010 compared with 4% in 2008 and 9% in 2009. The company expects its Sapien and Sapien XT THVs to continue to be strong contributors to 2011 sales.
The development of Sapien products holds immense potential for Edwards as it provides surgeons the option to eliminate the possibility of open heart procedures. This is quite significant as the targeted patients are not suitable for surgical valve replacement due to certain medical condition.
Edwards received the CE Mark approval for its next generation THV, Sapien XT (which is delivered using the lower profile NovaFlex delivery system for transfemoral approaches and the Ascendra 2 delivery system for transapical approaches) in March 2010. The company began a limited launch of Sapien XT with NovaFlex at the end of the first quarter and with Ascendra 2 at the end of the second quarter of 2010.
Recommendation
Edwards recorded a strong quarter based on robust performance by its Heart Valve Therapy products. Although the Sapien portfolio of products is not yet approved in the US, the company is quite confident about its future. Data presented in the recent past appear favorable. However, the company faces tough competition from Medtronic (MDT), which is also working towards a US approval for its CoreValve system.
We are currently Neutral on the stock.
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