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Saturday, Jun 15, 2024

Edwards’ Critical Care Unit Selling for $4.2B

Edwards Lifesciences Corp. (NYSE: EW) made a major pivot last week when Chief Executive Bernard Zovighian said the company would sell its Critical Care unit for $4.2 billion, rather than spin it out.

Becton, Dickinson and Co. (NYSE: BDX), one of the world’s largest medical technology companies, is paying all cash for the Edwards unit, the slowest grower among its four divisions.

“Edwards’ underlying rationale for separating Critical Care remains the same: we are laser
focused on pursuing a strategy centered on structural heart disease,” Zovighian said in a June 3 statement. “Our goal is to serve large unmet patient needs with our differentiated innovations.”

It’s a strategic change for Zovighian, who in December announced he intended to spin off the unit, which by some measures was valued at $2 billion to $3 billion.

The Critical Care unit has traditionally been Edwards’ slowest growth unit, recording sales growth of 2.4% in 2022 and 8.5% to $928 million in 2023. The company has forecast the unit’s sales will climb 8% to 10% this year.

Divesting the Critical Care unit will help annual revenue for Edwards grow more than 10% and will also boost the company’s gross profit and operating margins, executives have previously told investors.

“We view the deal as a win-win as it makes sense for BDX and allows EW a quicker path to focus on structural heart,” Jefferies analyst Matthew Taylor wrote in a note to investors.

After the announcement, shares of Irvine-based Edwards, Orange County’s second-most valuable public company, rose 1.1% to $87.86 and a $53 billion market cap. Shares of Becton, based in Franklin Lakes, N.J., climbed 3% to $238.84 and a $69 billion market cap.

Cash to Grow to $5B+

Edwards’ cash may significantly jump to more than $5 billion after the deal. It reported $1.7 billion in cash and short-term investments as of March 31.

Edwards said it will use the after-tax cash proceeds to fund “strategic growth investments.”

It gave a hint that it may make acquisitions when it said the cash gives the company “flexibility for disciplined investments in technologies for aortic, mitral, tricuspid and pulmonic patients, as well as new therapeutic areas for interventional heart failure.”

Edwards’ biggest “bet the company” acquisition was in 2004 when it paid $155 million to acquire PVT, which laid the groundwork for its game-changing method of inserting heart valves through catheters rather than open-heart surgery.

“I’m pleased with this exciting news that accelerates Edwards to fund our strategic growth investments,” Zovighian said on his LinkedIn page. “We are focused on helping even more structural heart disease patients with unmet needs.

“I’m confident BD will be a great home for Critical Care, and I am proud of the significant contributions the talented Critical Care team has made to our company through its long history of pioneering innovations.”­

10,000 Hospitals Serviced

The Critical Care unit provides products like pulmonary artery catheters, minimally invasive sensors and noninvasive cuffs to monitor hearts and fluids at more than 10,000 hospitals worldwide.

It competes with a variety of companies, including San Clemente-based ICU Medical Inc. (Nasdaq: ICUI) and Cheetah Medical Inc., a subsidiary of Baxter International.

The Critical Care unit says it is developing a next generation monitoring system to replace the standard blood pressure monitoring cuff typically used on a patient’s upper elbow with a device that monitors blood at the fingertips called the ClearSight Acumen IQ Finger Cuff.

The unit is shifting from what it calls “classic monitoring” to “smart monitoring,” which uses artificial intelligence and noninvasive technology. Currently, classic monitoring generates about 50% of the unit’s revenue by monitoring 14 million patients.

By contrast, its smart monitoring generates 30% of revenue with only 2 million patients. Its strategy is to shift all patients to smart monitoring, which it says can reduce complications, morbidity and the length of stay in a hospital.

“Critical Care expands BD’s portfolio of smart connected care solutions with its growing set of leading monitoring technologies, advanced AI-enabled clinical decision tools and robust innovation pipeline that complement BD’s existing technologies serving operating rooms and intensive care units,” BD Chairman and CEO Tom Polen said in the June 3 statement.

“We believe the combination unlocks multiple new avenues for growth and value creation through BD’s broad global footprint, increased penetration across new and existing hospital customers, new innovation opportunities across data sets and platforms, and application of the BD Excellence operating system.”

The transaction is expected to be immediately accretive to all key financial measures, he said.

Beckton, which has 70,000 employees, generated $19.4 billion in 2023 and says it has a presence in virtually every country in the world.

Stays in Irvine

Critical Care may well need new local offices as it will continue to operate in Irvine and will be led by Katie Szyman, who is currently the corporate vice president of Critical Care for Edwards.

About 4,500 employees work for the Critical Care unit, most of whom are based in Irvine.

Edwards currently employs nearly 18,000, including about 5,000 people in Orange County.

The unit typically sells its products to operating rooms and intensive care units, where its total addressable market (TAM) is 20 million patients. Executives said the unit can expand to departments like outpatient surgery, pediatrics and obstetrics, where the TAM is another 30 million patients.

Last December, Szyman told investors at the company’s annual shareholder meeting that the separation “will give us an opportunity to improve care for millions more patients.”

“For us, it’s about having the freedom to go after some areas. The opportunities are endless.”

The transaction is expected to close by the end of 2024.

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