Michael Mussallem rode one of the biggest advancements in medical devices in years to an epic 2010.
The chief executive of Irvine-based Edwards Lifesciences Corp. saw the company’s Sapien heart valve drive growth and spur its shares on Wall Street.
The company’s stock nearly doubled in 2010 to a market value of some $9.5 billion.
The gain wasn’t the biggest among major companies here—Anaheim drug maker Questcor Pharmaceuticals Inc. saw a 200%-plus gain to $1 billion in market value, while Huntington Beach-based BJ’s Restaurants Inc. doubled to $1 billion.
But Edwards’ gain was the more significant, adding nearly $4 billion in market value during the course of the year.
Edwards now is the third most valuable company here after Broadcom Corp. and Allergan Inc., which both are based in Irvine and have market values of more than $20 billion.
“What really drives the performance is our ability to execute,” Mussallem said.
Edwards’ performance earned Mussallem the Business Journal’s businessperson of the year honor for 2010.
Mussallem has run the maker of heart valves and related devices since 2000, when Edwards spun off from Baxter International Inc. of the Chicago area.
He is quick to share credit for the company’s big 2010. Edwards’ 6,700 workers, including 2,200 in Orange County, “really deliver for patients and their customers every day and really have such a big impact on the innovations,” he said.
Edwards’ year was spurred by early gains and high hopes for Sapien, a replacement heart valve that is sold in Europe and is in a major U.S. clinical trial.
Sapien is inserted into a patient’s heart via a catheter, eliminating the need for open heart surgery.
The valve and rival products are seen as the biggest advancement in medical devices in years and are expected to open up the market to patients who aren’t strong enough for major heart surgery.
The valves are “one of the most compelling new medical technologies since the launch of robotic surgery,” said Sean Lavin of Lazard Capital Markets LLC.
Edwards expects to debut Sapien in the U.S. by late 2011 and is putting money into the launch.
Mussallem and other executives told attendees at a December investor day in New York that Edwards expects a lower profit in 2011 with spending of about $40 million to prepare for Sapien’s rollout here.
“While this will moderate earnings growth in 2011, it allows us to aggressively address this large unmet patient need,” Mussallem said.
Two-Year Lead
Edwards has an estimated two-year lead in catheter valves “and extended our leadership” in 2010, Mussallem said at the conference.
The company’s key rival is Minnesota’s Medtronic Inc., which bought Irvine catheter valve startup CoreValve Inc. in 2009. CoreValve’s device also is sold in Europe and is starting a U.S. trial.
Sapien is expected to have 2010 sales of $190 million to $210 million, up about 75% from 2009.
Edwards projects total 2010 sales of $1.43 billion to $1.46 billion, up about 9% from 2009. Profits are projected at $215.2 million to $217.6 million, up about 20%.
Sapien drove most, if not all, of Edwards’ 2010 growth. In the third quarter, sales of the valve rose 85% to $49 million, accounting for all but $1 million of the $24 million in added sales Edwards saw in the quarter.
The valve spurred growth in what was a difficult year for medical device makers, Mussallem said.
2010 “turned out to be a difficult environment for many of our customers, particularly the hospitals that are suffering with lower numbers of patients enrolled and lower numbers of procedures being done,” he said.
Edwards got Sapien in 2003 when it paid $125 million for New Jersey startup Percutaneous Valve Technologies Inc.
Before buying Percutaneous, Edwards had been working on a catheter valve of its own since 1999.
The company was divided about buying Percutaneous because it felt its valve was better, according to Mussallem.
“But, to our chagrin, PVT was the first to have a valve implanted in humans” in 2002, he said, something that led Edwards to buy the company.
Edwards’ early lead in catheter valves has prompted some to talk about the company as a takeover target.
“The possibility of a buyout must be considered,” said analyst Spencer Nam of New York-based Madison Williams & Co.
Some have cited Johnson & Johnson or Abbott Laboratories as possible suitors.
“We’re very happy with our stand-alone strategy,” Mussallem said in mid-2010. “We don’t feel the need to be owned by a larger company to be successful.”
Being independent allows Edwards to spend more aggressively on research and development.
“When we first spun out the company, we were maybe spending 5% or 6% of our sales on R&D,” Mussallem said. “Today, it’s more like 14%, 15%.”
For the three months through October, rival Medtronic spent 10% of its $3 billion in quarterly sales on R&D.
About half of Edwards’ R&D spending goes toward catheter valves, Mussallem said.
R&D spending is a “bit of a return” to the roots of Edwards, he said. The company dates back to the late 1950s and the work of Miles “Lowell” Edwards, an electrical engineer and heart valve pioneer.
Despite prior attempts at diversification, Edwards isn’t looking to be a broad, diverse company like Medtronic and Johnson & Johnson.
“I don’t think its so much about size,” Mussallem said. “I think it’s more about focus. We have, over time, stayed very focused on our core franchise. Over 95% of what we sell are in No. 1 global positions.”
Edwards has more than 1,000 manufacturing jobs in Irvine, although it is “expensive to do manufacturing” in California,” Mussallem said in a July speech before the Orange County Business Council.
Key Stuff Here
Edwards wants “to keep our brand new stuff close to home. The highest-value (products) will stay in Orange County,” he said.
In September, Mussallem joined U.S. Sen. Orrin Hatch and other officials for the opening of a heart valve plant south of Salt Lake City that replaced one it had outgrown in Utah. Edwards’ 300,000-square-foot plant and research facility is expected to employ more than 1,000 people in coming years.
Mussallem, who holds a bachelor’s degree in chemical engineering from Rose-Hulman Technical Institute in Indiana, joined Baxter in 1979 after a stint with Union Carbide Co.
He rose through the ranks of Baxter, including being named president of its critical care division and management of its heart device business in the 1990s.
