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Edwards Lifesciences Corp Soars As ‘TAVR’ Takes Hold (EW)

The growth of Edwards Lifesciences Corp (EW) into a $19 billion provider of cutting-edge heart surgery alternatives is an amazing success story of American ingenuity and medical business innovation.

The stock is back to a Zacks #1 Rank and new all-time highs as analysts raise earnings estimates and price targets in advance of the company’s latest data proving superiority, or at least equivalency, of its Sapien 3 valve replacement procedure to open heart surgery.

Edwards Lifesciences began with the vision of the founder-inventor, a hydraulic engineer named Miles “Lowell” Edwards, who in 1958 set out to build the first artificial heart. By dialing down his dream a bit, was able to create an important life-saving industry. Here’s the official story from the company website…

Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.

With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.

After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.

From there, Edwards built an impressive pedigree for R&D in heart devices and minimally-invasive cardiovascular procedures. In 1966, Edwards Laboratories was purchased by American Hospital Supply Corporation and became American Edwards Laboratories. Then, in 1985, American Edwards was acquired by Baxter International. In early 2000, the company was spun-off as an independent, publicly-held corporation and began trading on the NYSE under the symbol EW.

The TAVR Alternative to Open Heart Surgery Opens Up for EW

TAVR stands for transcatheter aortic valve replacement. It is sometimes also called transcatheter aortic valve implantation (TAVI).

This minimally invasive surgical procedure repairs the aortic valve without removing the old, damaged valve. Instead, it wedges a replacement valve into the aortic valve’s place.

A “valve-within-valve” this approach works somewhat similar to a stent placed in an artery, as TAVR delivers a fully collapsible replacement valve to the valve site through a catheter.

Once the new valve is expanded, it pushes the old valve leaflets out of the way and the tissue in the replacement valve takes over the job of regulating blood flow.

In early March, the company announced they had recently won the approval of the Japanese Ministry of Health, Labor and Welfare (MHLW) to market its Sapien 3 transcatheter heart valve (THV) in the country. They plan to fully launch Sapien 3 by the end of 2016 in Japan.

News of this approval surfaced merely a couple of weeks after the company received the FDA nod for expanded use of its Sapien XT THV for pulmonic valve replacement procedures in the U.S. The Japanese clearance is expected to accelerate Edwards’ revenues from its THV business segment, which witnessed 38% underlying growth in 2015.

Current market leaders in TAVR include EW – the first valve approved in the U.S. – and Medtronic (MDT), which roughly splits the EU market with EW and was approved in the U.S. in inoperable patients in January 2014.

EW’s Q4 Earnings and 2016 Outlook Soar

Edwards Lifesciences ended 2015 on an outstanding note, with its fourth quarter numbers squarely beating the Zacks Consensus Estimate. The upward revision in EPS and sales expectation for 2016 further raises investors’ optimism. However, currency headwinds continued to hamper Edwards’ results, reducing fourth quarter sales by $35 million and the company delivered a lower-than-expected gross margin, which also contracted year over year.

Nevertheless, Edwards now expects its 2016 underlying sales growth in the 15–25% range, up from the earlier guided 7–11% and this was the shot in the arm that made it a Zacks #1 Rank again. With the global TAVR market expected to grow at a CAGR of 19.7% during 2013–20, analysts expect these developments to propel the company forward despite ever-present insurance reimbursement challenges.

After a year of better-than-expected growth in both the U.S. and Europe, analysts now believe the global TAVR market can exceed $3B by 2018 from approximately $1.5B today. This is solid growth in the addressable market which EW is expected to dominate.

Analysts Remain Positive On EW Stock 

Edwards Lifesciences shares have raised not just one, but three bullish engulfing candles on strong volume in the past 2 weeks. This follows heavy institutional accumulation in Q4 where Sands Capital was a big buyer along with Fidelity, American Century, Goldman Sachs (GS) and Morgan Stanley (MS). Their collective buying achieved 4.44% net accumulation by institutions.

Jefferies (JEF) reiterated a ‘buy’ rating and $100 price target on Edwards Lifesciences following a TAVR survey. In the survey, TAVR procedures are expected to grow +34% over the next year, in-line with the +31% they model. Jefferies’ view continues to be that eventually the vast majority of all AS (aortic stenosis) patients will be treated with TAVR, regardless of risk.

Analyst Raj Denhoy commented, “With conjecture swirling around the upcoming release of the PARTNER II data at ACC—primarily around whether Sapien 3 will be equivalent or superior to surgery in intermediate risk patients—we think the bigger picture is being missed: TAVR has already won and eventually all AS patients will be treated less invasively. We surveyed 25 TAVR docs and while there is incremental adoption for superiority, the difference is small.”

Aortic valve stenosis — or aortic stenosis — occurs when the heart’s aortic valve narrows. This narrowing prevents the valve from opening fully, which obstructs blood flow from your heart into your aorta and onward to the rest of your body.

When the aortic valve is obstructed, your heart needs to work harder to pump blood to your body. Eventually, this extra work limits the amount of blood it can pump and may weaken your heart muscle.

The Week Ahead: Reaction to the Data

By the time you read this, the American College of Cardiology annual meeting in Chicago will be wrapping up and investors and physicians will be in full swing reacting to EW’s widely anticipated presentation of PARTNER phase II results for Sapien 3.

UBS analyst Matt Miksic believes that EW shares have been held back this quarter waiting for the uncertainty to be relieved and that the stock will trade higher in the aftermath. On Friday, he maintained his Buy rating and $109 price target.

Whatever the short-term reactions to the data this week, as the Jefferies analysts emphasize, non-invasive heart procedures will consistently win more than not going up against heart surgery options, especially for older patients. The medical trends clearly favor the EW solution.

Disclosure: I own EW shares for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/bull-day-edwards-lifesciences-ew/.

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