Irvine-based Edwards Lifesciences Corp., has had an eventful first five months.
Since Baxter Healthcare Corp. spun off its cardiovascular unit in April as Edwards, the newly independent company has unloaded two of its less profitable units, taken $362 million in charges, accused two major competitors of infringing on its patents and discovered that the wiring on a test product broke inside the abdomens of two patients. And it’s planning the 40th anniversary of its first heart valve.
“We also launched a couple of products,” added Edwards CEO Michael Mussallem. “It has been pretty busy.”
The Street clearly liked the hectic pace. The stock, now at 22, is about 50% over its initial spin-off price and almost double its low, posted in May.
During the past five months, Edwards’ stock price increase has been among the highest in its industry. St. Jude Medical Inc.’s stock has been up 60%, while the prices of other competitors have remained flat, such as Medtronic Inc., Boston Scientific Corp. and Becton Dickinson and Co.
Now the company is awaiting FDA approval for its Carpentier-Edwards Perimount mitral pericardial valve, which has been used in Europe for a few years.
Company officials declined to discuss the new product because it’s still pending at the FDA, but PaineWebber analysts Heath Flick and Stacie Dailery wrote in a recent report, “The pending approval of the pericardial heart valve for the mitral indication (is) the most likely next milestone.”
Tissue valves are 40% of the entire market for repairing heart valves and are seen as a growing area, particularly since baby boomers are now aging. Of the tissue valve market, Edwards has a market share of 65% to 80%.
“Margins are outstanding and barriers to entry are high,” said a report from Glenn Novarro, an analyst with Credit Suisse First Boston Corp. “EW’s tissue valve pipeline should keep them in a leadership position.”
The approval of the new tissue valve should be a shot in the arm for the medical instrument manufacturer, which has been criticized for a lack of new products.
One of the problems with Edwards was that, as a subsidiary of Baxter, its profits were given to the parent company and a low percentage was reinvested in research and development. Analysts said Edwards missed out on many cardiovascular devices that would have boosted its growth. Edwards officials have promised to rectify that.
“Our goal is to increase R & D; by 10% annually,” said Mussallem.
Mussallem said the vast majority of the R & D; investment will take place at its Irvine headquarters. Among key areas the company is researching are the use of laser technology in treating heart disease and angiogenesis, which is using genes to stimulate the growth of new arteries or veins in the heart.
In recent months, the company has won FDA approval for two products: the Vantex central venous catheter and the Thrombex PMT System, which removes blood clots from grafted blood vessels.
Edwards has also had setbacks with some recent research. Metal wiring broke in the abdomens of two test patients for a product called the Lifepath AAA Endovascular Graft System, which is designed to reinforce an artery in the abdominal area. Company officials said the patients are fine and the products don’t have to be removed. Nonetheless, the company suspended sales in Europe and postponed its clinical testing in the United States until it can check other patients and find out why the wiring broke.
Edwards moved quickly to shed less profitable units after its spinoff. In July, Edwards announced the sale for $30 million of its Bentley Labs to Jostra AG, a Hirrlingen, Germany-based manufacturer of medical devices for open-heart surgery.
In June, Edwards sold its heart assist system Novacor to a small Canadian firm called World Heart Corp. for a fourth of that company’s shares, worth about $45 million. Edwards also promised to buy $20 million worth of World Heart’s convertible preferred stock.
Also in June, the company announced it would sue two of its chief competitors in the tissue valve market. In the U.S. District Court of Delaware, Edwards alleged that Minneapolis-based Medtronic Inc. is infringing on two of Edwards’ patents. Medtronic spokeswoman Chris Campbell-Loth said Edwards’ lawsuit “has no merit.” She said the company officials are at a loss as to why Edwards would sue.
“We had the heart valve patents issued to us 16 years ago,” said Campbell-Loth.
In another lawsuit filed in a federal court in California, Edwards alleged that St. Paul, Minn.,-based St. Jude Medical Inc. infringed on three of Edwards’ patents.
“We have confidence in the strength of our patent positions,” said Peter Gove , a spokesman for St. Jude. “They’re asserting patents on products that have been in the market for a long time.”
Mussallem said the patents might be old, but Edwards filed the lawsuits because the two competitors only recently began using the disputed products within the United States.
When Edwards was spun off in late March, its stock price fell from 15 to just less than 14. At the time, analysts from both Merrill Lynch and JP Morgan predicted a 12-month target of 20. It has already surpassed that, trading last week around 22. Analysts are now predicting a 12-month target of 27 to 28.
Mussallem attributed the increase to Wall Street believing company officials can deliver on their promises. He said another factor is that employees now have a bigger say in the company because it no longer reports to Baxter Healthcare. He said the employees now have stock and they understand management’s actions, such as the sale of the two units.
“We had an awful lot of support from our employees worldwide,” he said. “They’re looking at the business not just as employees but as owners.” n
