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Price Competition Results in Mixed Edwards Q2

Recent stock reactions to Orange County’s largest publicly traded company speak to Edwards Lifesciences Corp.’s (NYSE: EW) second-quarter earnings. Shares of the medical device maker have since fallen nearly 10% to about $140 each, giving it a $29 billion market valuation.

Edwards said it continues to experience growth across its portfolio. Its flagship transcatheter aortic valve replacement unit experienced overall 10% sales growth, primarily driven by strong sales in U.S. and Japan, has seen decline in Europe due to competitors’ price discounts. The therapy allows valve implants without open-heart surgery.

Chief Executive Mike Mussallem said the Irvine-based company will maintain price discipline and cede shares to competitors who’ve chosen to price aggressively.

“We are not shaken by what happens in any given quarter on market share,” he said. “These are heart valves. People buy heart valves based on quality, based on proven outcomes with scientific studies, and we think that they’ll continue to do that.”

Edwards will launch two additional transcatheter valves, Sapien 3 Ultra and Centera, in Europe this year, a move executives say should further enhance its leadership position in the region.

All’s Good

Analyst Vijay Kumar told the Business Journal that while Edwards’ share price decline is part of a broader medtech stock trend, “company commentary on pricing competition and share losses have made investors nervous—particularly as these trends continued from Q1 into Q2.” Kumar is managing director of equity research at Evercore Group LLC.

Edwards said the quarter’s sales were $944 million, up 12% year-over-year; global transcatheter heart valve therapeutics sales grew 20%.

Kumar pointed out that though the results were “OK,” it’s important to keep in mind that they’re judged in the context of elevated investor expectations.

“Worldwide [transcatheter aortic valve replacement] numbers were in-line with consensus—and in-line results were not good enough this earnings season,” he said in an email.

Glenn Novarro, analyst and managing director of RBC Capital Markets LLC, doesn’t put much emphasis on stock prices.

“The stock at the time of the reporting was trading at an all-time high.” He said Edwards’ second-quarter earnings were in line with investor expectations and that the recent stock pricing adjustment has more to do with the fact that the stock was trading at an all-time high, not from any major disappointment in the results.

He said he believes the stock price will climb back in the fourth quarter, when Edwards introduces the two new transcatheter heart valves.

New Valve Launches

The Centera valve received European CE Mark approval in February. The self-expanding product is repositionable and retrievable. The valve is fully preattached to a motorized handle that allows a simpler procedure, according to a company press release.

Sapien 3 Ultra builds on Sapien 3, adding features such as a next-generation seamless expandable sheath that allows expansion and contraction, as well as improved hemostasis, or the stopping of blood flow that’s the first stage of wound healing.

Mussallem said the “Sapien 3 valve continues to demonstrate best-in-class clinical performance.” In June of last year, it received Food and Drug Administration clearance for an expanded indication for both aortic and mitral valve-in-valve procedures. The valve can now be used in patients who require a subsequent surgery due to failure of a previously placed aortic or mitral valve.

The FDA approved Sapien 3 nearly three years ago for patients with severe aortic stenosis who would be at risk under open-heart surgery.

Kumar said today’s key focus is whether Edwards, with the addition of Sapien 3 Ultra and Centera, can accelerate growth of its transcatheter aortic valve-replacement portfolio despite competitive pricing pressure in Europe.

Competitors include Medtronic PLC (NYSE: MDT) and Boston Scientific Corp. (NYSE: BSX).

In the U.S., Edwards anticipates European regulatory approval of Sapien 3 Ultra this year. It also plans to start its U.S. pivotal trial this year.

Critical Care

Edwards performed well last quarter in its less publicized crucial-care monitoring segment. Sales were $169 million, up 15% year-over-year.

The company projects that the segment will hit full-year sales growth at the higher end of 6% to 8%. However, Mussallem said the increase is due to new contracts with healthcare providers and that the company doesn’t expect similar growth next year.

Edwards maintained its total sales guidance for the year at the high end of $3.5 billion to $3.9 billion.

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