IRVINE — Edwards Lifesciences Corp., the largest medical device maker based in Orange County, saw its value plunge $16.5 billion in one day after unexpectedly slashing its sales outlook for its largest business unit.
Shares in the Irvine-based manufacturer of heart stent valves fell 31% on July 24 following a guidance cut for its transcatheter aortic valve replacement unit (TAVR), which contributed 65% of the company’s net sales in 2023. At press time, shares were around $60.75 with a $36.6 billion market cap (NYSE: EW).
“The guidance cut caught many folks by surprise (us included),” Piper Sandler analyst Adam Maeder wrote in a note to investors.
“We sense the bigger issue for investors is the uncertainty this development presents to the set-up for 2025, where EW has previously guided to a growth acceleration to 10%+ organic growth… and more generally how to think about the durability of the company’s growth profile going forward.”
The stock plummet is the biggest setback for Bernard Zovighian since he took over as chief executive about 15 months ago, replacing Michael Mussallem, who in May also stepped down as executive chairman.
The revised forecast also overshadowed two major acquisitions announced by Edwards to pay $1.2 billion to acquire heart structural companies JenaValve Technology and Endotronix. Both deals are expected to close by the end of 2025.
Edwards is still one of Orange County’s most valuable publicly traded companies, second behind Newport Beach’s Chipotle Mexican Grill Inc. (NYSE: CMG) with a valuation of $70 billion at press time.
Slowing Growth
The company now expects annual sales in its largest unit, called TAVR, to grow by 5% to 7%, down from its prior outlook of 8% to 10% growth, citing slower-than-expected growth in the second quarter.
The TAVR growth was “lower than expected,” Zovighian said.
“The continued growth and expansion of structural heart therapies, including newly approved tricuspid therapies and other fast-growing structural heart therapies put pressure on hospital workflows, which impacted TAVR,” Zovighian told analysts on a conference call.
The company anticipates TAVR sales to stabilize once more hospitals adopt these new therapies, he said.
Edwards reported second-quarter revenue grew 6.7% to $1.63 billion, missing the Zacks Consensus estimate of $1.65 billion. Adjusted profit of 70 cents per share was in line with expectations.
“An uncharacteristic 2Q miss, coupled with decelerating growth in EW’s biggest franchise would be enough to unsettle investors,” Raymond James analysts Jayson Bedford and Glen Shell wrote in a note to investors.
“To be clear, we think highly of management and like the strategy, but slower TAVR growth continues to give us pause, and underpins our market perform rating.”
Edwards in late 2022 projected between 9% and 12% growth for 2023 TAVR sales, which grew 10% that year.
A Major Pivot
In June, Zovighian made a major pivot when he announced that Edwards was selling its Critical Care unit for $4.2 billion to Becton, Dickinson and Co. (NYSE: BDX), one of the world’s largest medical technology companies.
Edwards had previously intended to spin off the unit to direct more focus on its three other divisions that are growing at a faster clip.
While the Critical Care unit is currently Edwards’ third-largest business unit by sales and generated nearly $1 billion in revenue last year, it’s also traditionally been its slowest growing. The transaction is slated to close by the end of this year.
News of the two acquisitions comes just one month after Edwards announced its plans to buy early stage transcatheter mitral valve replacement company Innovalve Bio Medical for $300 million, building on a prior investment made in 2017.
Innovalve is set to join Edwards’ rapidly growing transcatheter mitral and tricuspid therapies (TMTT) unit, led by corporate vice president Daveen Chopra.
The unit grew by 75% to $83 million in sales for the second quarter. Edwards increased full year sales guidance to the higher end of the previous $320 million to $340 million range “based on first half momentum,” the company said.
Its portfolio of products includes the Sapien M3 mitral replacement system that replaces the mitral valve in patients with severe mitral regurgitation. The device is on track to receiving regulatory approval in Europe by mid-2025 and Food and Drug Administration approval in 2026, according to the company.
The Emerging Products
Edwards’ acquisitions of JenaValve and Endotronix will give the company access to therapeutic products for heart conditions that both companies are developing, expanding its structural heart portfolio.
JenaValve has created what’s said to be the first approved therapy for patients suffering from aortic regurgitation and anticipates FDA approval in late 2025.
Endotronix two months ago received approval for Cordella, a sensor that provides pulmonary artery pressure data for at-home heart failure management.
“Discussions with the companies have been ongoing for some time, and the timing of these acquisitions coincided with earnings,” Zovighian said during the July 24 conference call.
“We are pleased to expand into two new structural heart therapeutic areas, AR and heart failure, and we will leverage our innovation capabilities with worldclass science and clinical evidence to ensure accelerated access to life-saving technologies for patients around the world.”
