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Edwards, Analysts Focusing on Valves

It seems Wall Street has come to terms with the bread and butter of Edwards Lifesciences Corp.,as long as it’s profitable.

For years, analysts called for Irvine-based Edwards to boost growth by moving into products other than its mainstay heart valves implanted during open-heart surgery.

Edwards made some moves,including making a run at stents for treating enlarged arteries, which it later dropped.

Wall Street doesn’t seem to mind. Shares of Edwards are up 13% for the year. Key rival St. Jude Medical Inc. of Minnesota is flat for the year.

Edwards counted a market value of $2.8 billion as of last week.

Better profits are the driver.

Edwards is selling more profitable devices, including its Perimount Magna heart valve, which the company bills as longer lasting and holding advantages for surgeons.

Perimount Magna drove a 10% gain in heart valve sales last year, according to Chief Executive Michael Mussallem.

“We expect to see our heart valve business again grow in excess of 10% in 2005,” he said.

The valve also helped nudge up gross profit in the first quarter, which came in at $153 million, up 3.4% from a year earlier.

For the second quarter, analysts expect Edwards to post sales of $250 million, up 7% from the year-ago quarter. Net income could come in at nearly $29 million, up 7%.






Perimount Magna valve: driving sales, profit growth

No one seems to be talking about diversification, including Mussallem: “We don’t have any intention to go beyond our areas of focus.”

“We believe (Edwards’) powerful heart valve franchise remains the only real source of excitement for investors at present,” said Greg Simpson, an analyst with Stifel, Nicolaus & Co. in St. Louis.

For growth, Mussallem said Edwards is looking at its heart valves and hemodynamic monitoring products, which monitor heart pumping.

“We’re fortunate to have a near-term, a mid-term and a long-term pipeline,” Mu-ssallem said.

Besides Perimount Mag-na, newer products include ThermaFix, a system to prevent calcium buildup in patients who receive Edwards’ tissue heart valves, and Perimount Theon, a valve used in the mitral position, or left side, of the heart.

FloTrac, a minimally invasive heart monitoring device, should help boost growth, Simpson said.

Edwards’ big long-term play: a percutaneous, or less-invasive, heart valve.

“For the most part, I would consider those drivers in the long term,” Mussallem said.

In 2004, Edwards paid $125 million to buy Percutaneous Valve Technologies Inc. of Fort Lee, N.J.

Earlier this month, Edwards agreed to pay $25 million to Lake Forest-based 3F Therapeutics Inc., another developer of less-invasive valves, as part of a reworked development and supply pact.

The deal originally stemmed from 3F and Percutaneous.

Edwards “remains on the leading edge in the development of applicable percutaneous heart valves and delivery systems, while maintaining a dominant position in the surgically implanted heart valve market,” wrote Jason Kroll, an analyst with Roth Capital Partners LLC in Newport Beach.

Analyst Simpson is more cautious.

“As in recent quarters, we basically didn’t like much else about the (first) quarter outside of heart valves, and again, even they fell below our expectations,” he said.

Edwards’ first-quarter heart valve sales were $116.7 million, slightly below what Simpson had estimated.

Simpson said he’s skeptical of one of Edwards’ remaining diversification plays, stents for blocked blood vessels.

The analyst wrote he thinks Edwards could have a tough time “successfully and meaningfully penetrate the competitive peripheral stent business, though management continues to suggest full year revenues in the $10 million to $20 million range. We’ll see.”

Supply problems with the stent, called LifeStent, have been resolved, according to Edwards.

“Just at the end of the first quarter, we have been able to build our inventories to a sufficient level that we’re able to consign product into the U.S. accounts,” Mussallem said. “At the same time, we are ramping up availability in Europe this quarter as well.”

The LifeStent news is encouraging, Simpson said. But heart valves still are king for the company, he said.

“Heart surgeons are the most conservative of doctors,” he said. “The Edwards name is solid gold to them.”

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