Softening sales growth for a new type of heart valve threw cold water on Edwards Lifesciences Corp.’s sizzling 2009.
The Irvine company’s shares, which had been up about 20% since the start of the year, fell some last week, despite posting second-quarter results that beat Wall Street’s expectations.
Edwards’ stock fell about 5% last week before gaining back ground to a market value of about $3.7 billion.
The company was hit by some investor disappointment about sales growth for its Sapien valve, which is inserted via a catheter instead of during open heart surgery.
Much of Edwards’ stock rise this year is based on expectations for its Sapien valve, which is in a major U.S. clinical trial with an eye toward possible Food and Drug Administration approval in late 2011 or early 2012.
Sapien already is approved in Europe, where it is seeing small but growing sales. In the second quarter, Sapien sales rose 8% from the first quarter to $26 million with Edwards projecting yearly sales of $100 million.
But Sapien’s growth slowed from the first quarter, when sales were up by 33% from the forth quarter.
And Edwards was cautious about sales in the third quarter. The company said it expects sales “to be impacted by the normal seasonality of procedures in Europe with a rebound expected in the fourth quarter.”
That was enough to spook some company followers who, since the start of sales last year, have come to expect big gains in Sapien sales.
Edwards “has become a victim of its own success with Sapien,” said Greg Simpson, a medical device analyst with Stifel Nicolaus & Co., a St. Louis-based investment bank.
Investors were “modestly disappointed with the lack of upside” in Sapien’s sales, said Simpson, who predicted “heightened focus on Sapien growth rates over the next few quarters.”
The Sapien outlook was part of an overall forecast for the current quarter including a profit projection that was lower than what analysts were expecting on average.
The company said it expected a profit before charges of $36.9 million to $39 million, versus analysts’ expectations of $39.8 million.
Edwards said it projects sales of $305 million to $325 million, in line with the $312 million expected on average from analysts.
For the second quarter, Edwards reported a profit of $46.4 million, up 46% from a year earlier and beating Wall Street’s expectation of $44.5 million.
Edwards’ sales rose 2% to $335.5 million. Excluding the impact of exchange rates, Edwards’ sales were up 9.8%.
Early Lead
The company has an early lead in catheter valves, which are expected to make up a good part of the market in coming years.
Minneapolis-based competitor Medtronic Inc., a larger and more diversified device maker with a recent market value of $38 billion, is making headway with its own catheter valve.
Medtronic, which has a heart valve plant in Santa Ana, got an FDA panel recommendation last week for Melody, a catheter valve that’s targeted toward a limited group of patients who were born with heart defects.
The valve, like Sapien, is sold in Europe.
If the FDA follows the panel’s recommendation, it would be the first catheter valve approved in the U.S., albeit for a limited market.
Earlier this year, Medtronic spent $700 million to buy Irvine-based CoreValve Inc., a rival to Edwards in catheter valves.
There still are unresolved issues with catheter valves, said analyst Suraj Kalia of Sanders Morris Harris Group Inc.’s SMH Capital.
Those include complications such as bleeding and strokes, as well as the cost of the valves.
The Sapien valve sells for the equivalent of $20,000 to $30,000 in Europe.
A traditional heart valve from Edwards’ Perimount line costs $4,000 to $5,000.
“We don’t think (payers) are going to bite on this,they want long-term data,” Kalia wrote.
Winning over doctors will be key.
Canaccord Adams Inc. analyst Jason Mills said he’s heard positive comments about Sapien from doctors.
