A Barron’s story last week threw some cold water on what some see as a future growth driver for Irvine-based Edwards Lifesciences Corp.: heart valves that don’t require major surgery.
The valves are proving challenging for Edwards and others, including Minnesota-based rivals, St. Jude Medical Inc. and Medtronic Inc., according to Barron’s.
Edwards is the leading maker of valves implanted during open-heart surgery and has three research programs under way for less-invasive valves inserted via catheters.
The company stopped a less-invasive valve study at a Michigan hospital this summer, citing difficulties with inserting the device.
Edwards hopes to restart the trial with an easier insertion procedure.
“Until Edwards sees light at the end of the tunnel to non-surgical valve replacements, its shares are probably dead money,” Barron’s said. “The existing valve business increases earnings at better than 10%, but with the stock already valued at about 20 times expected earnings for 2006, Edwards leaves most of Wall Street feeling decidedly neutral.”
There wasn’t “any news” in the Barron’s story, an Edwards spokesman said.
“We’ve not reported any new information on the status of U.S. clinical trials,” the spokesman said in a statement. “At a recent investor conference, we reported that we expect to restart U.S. feasibility trials before year-end, consistent with previous expectations.”
Chief Executive Michael Mussallem, in the Barron’s report, said less-invasive heart valves are proving challenging.
“We have a lot to prove yet,” Mussallem was quoted as saying. “We are optimistic that in the long run we will address these issues. What bears observation is just how quickly we can address the various issues.”
In an earlier Business Journal interview, Mussallem referred to the less-invasive heart valve programs as “drivers in the long term.”
The first commercial percutaneous valve is expected to take another two to four years to come to market.
“Edwards is still leading in the clinical race for a percutaneous aortic valve,” said Thom Gunderson and Timothy Nelson, analysts with US Bancorp Piper Jaffray, in a research note after a heart valve symposium hosted by the American Association of Thoracic Surgeons last month.
“We continue to believe the pathway to commercial success in percutaneous therapies for valve disease will be a long-term iterative and that current progress is not necessarily predictive of eventual leadership,” the analysts wrote.
Intriguing Valves
Less-invasive valves are intriguing, said Jason Kroll, who follows Edwards for Roth Capital Partners LLC in Newport Beach. But Edwards’ story remains its traditional valves, he said.
“The first thing you have to look at Edwards and recognize Edwards for its base business,” Kroll said.
“They’re the leader, they have been for several years; they spend more money than any other company in terms of developing traditional valves. I don’t see that changing.”
Harsh Words
Kroll said he felt the Barron’s report was “very harsh” in its description of Edwards and the timeframe it will take to get the less-invasive valves to market.
Less-invasive valves are “something the company’s engaged in, and by no means did we ever say that this was a near-term opportunity,” Kroll said. “This is something that’s going to take time.”
Overall, Edwards derived about $420 million of its 2004 sales of $930 million from heart valves, driven by aging baby boomers who are better candidates to receive the device maker’s core tissue valves, and newer, higher-priced products, including the Perimount Magna.
Edwards said it is spending some 27% of its research and development budget for 2005 on percutaneous valve programs. In the June quarter, Edwards’ R & D; expenses totaled $24.2 million, up 17% from a year earlier.
Most of the added spending was attributable to percutaneous valve research, the company said.
Edwards made its big jump into the field in early 2004, when it paid $125 million to buy Percutaneous Valve Technologies Inc., a New Jersey company.
Edwards’ lead percutaneous program is a replacement for the aortic valve, which is located in the heart’s left ventricle. Edwards is working with Dr. Alain Cribier, a French doctor who inserted the first less-invasive valve in a patient in 2002.
