An analyst earlier this month took aim at what’s behind a big run-up in shares of Irvine medical device maker Edwards Lifesciences Corp.: a new type of heart valve that doesn’t require major surgery.
The company’s clinical trial of its Sapien valve could end up showing a higher than expected death rate and prove a catheter insertion method through the ribs to be unworkable, JPMorgan Chase & Co. analyst Michael Weinstein said in a research note.
Hopes for the Sapien valve,and speculation that its success could spur an acquisition of Edwards by a bigger medical device company,drove up the company’s stock by as much as 45% this year, before Weinstein’s report took some wind out of its sails earlier this month.
As of last week, Edwards’ shares were up about 25% for the year with a market value of $3.3 billion.
If the Sapien trial sees problems that put Food and Drug Administration approval in question, there’s little chance of Edwards being acquired, Weinstein said.
“We believe even those that have expressed public interest in transcatheter valves would much rather wait,” he said.
Not everyone agrees with Weinstein, who based his report on talks with doctors in Europe, where Sapien has been in use since late 2007, as well as U.S. surgeons and those working on the Sapien trial.
“We continue to believe the Sapien opportunity is the most compelling story in cardiovascular medical devices,” said Larry Biegelsen, an analyst with Wachovia Corp.
Edwards itself said the points raised in Weinstein’s report “have already been addressed.” The company said it remains confident that Sapien “offers a significant benefit for patients who are not good candidates for traditional open-heart surgery.”
Sapien and similar products are seen as the biggest development in heart valves in years. They are inserted via a catheter through a vein in the leg or through the ribs, instead of during open-heart surgery.
Catheter valves are seen as broadening the market to patients too old or sick for major surgery.
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Edwards got into the catheter valve market in 2003 when it spent $125 million for Percutaneous Valve Technolo-gies Inc. of New Jersey. Edwards is considered to have a two-year lead on its rivals thanks to the deal.
Sapien could be big for Edwards. Analysts and industry figures have estimated the market for catheter valves could reach $1 billion within 10 years of their launch.
For now, Sapien is small. The valve had about $13 million in European sales in the second quarter.
Edwards expects 2008 catheter valve sales of $40 million to $50 million, said Larry Wood, corporate vice president of transcatheter valve replacement, during a conference call last month.
The company previously forecast catheter valve sales of about $35 million for the year.
Edwards is the leading maker of valves inserted during open-heart surgery. They make up half of the company’s projected $1.3 billion in sales this year. Surgery monitoring equipment and devices and products to treat blood vessels make up the rest of sales.
The Sapien valve is undergoing a large trial aimed at gathering evidence for an eventual application for FDA approval.
Edwards is looking at different ways of inserting Sapien, based on whether certain blood vessels are in good enough shape to handle the procedure.
Some analysts remain upbeat about the valve’s prospects.
“In our conversation with physicians, enthusiasm for transcatheter valves remains high, and we believe transcatheter valves are a large market opportunity,” said Kristen Stewart, a medical supply and device analyst with Credit Suisse Group, in a client note.
Catheter valves could “transform a mature market into one of growth,” she said.
Test Results Key
Clinical data and how the valve works stand to determine how the market shakes out, said Greg Simpson, a medical device analyst with Stifel Nicolaus & Co. in St. Louis.
He called the assertion by JPMorgan’s Weinstein that the valves may not find a major market “a little overly dramatic.”
Full results from Edwards’ trial are expected by 2010.
Edwards has a “long way to go,” Simpson said. If it can prove results for Sapien are as good as open-heart surgery, “that’s an absolute home run.”
“Cardiologists will adapt new technologies and take lesser outcomes for a much less-invasive approach,” he said. But “cardiac surgeons, absolutely not. If it’s an inferior outcome for the patient, don’t even talk to them about it.”
Simpson also downplays speculation about Johnson & Johnson or Medtronic Inc., the two largest medical device makers, buying Edwards to get into or boost their catheter valve efforts.
“It’s way too early to consider that one of these companies is going to come in and make a multibillion dollar acquisition of Edwards,” he said.
Earlier this year, a spokesman for Minneapolis-based Medtronic, which makes conventional heart valves at a Santa Ana plant, said it wasn’t interested in Edwards’ catheter valve because of what he characterized as an inability to reposition Sapien after it’s implanted.
“We think they’ve backed the wrong horse,” Daniel Beach told Bloomberg. “We believe we’re going to be able to leapfrog them, relatively quickly and easily.”
More than 30 companies, most of them private, are said to be working on catheter valves, according to Weinstein.
Irvine-based CoreValve Inc. is considered one of the more advanced hopefuls. The company is about two years behind Edwards, according to Credit Suisse’s Stewart.
ATS Medical Inc., a Minnesota company, has a catheter valve in development that it picked up through its 2006 buy of 3F Therapeutics Inc., which was based in Lake Forest.
