Edwards Reaffirmed at Neutral (BSX) (EW) (MDT)

Zacks

We maintain our Neutral recommendation on Edwards Lifesciences Corporation (EW), a leading player in heart valves and hemodynamic monitoring.

Edwards is one of the leading players in the field of heart valve therapy which accounts for approximately 61% of its total revenues. Contribution from this segment has increased steadily over the past, from 47% in 2007 to 54% in 2009.

The company has a strong product portfolio with many launched only in the recent past. Increased acceptance of these products and greater market penetration would lead to higher sales in the forthcoming period. In addition, the company seems confident of its transcatheter heart valve (THV) portfolio.

Cardiovascular disease is the most common of ailments facing humanity. An increase in the ageing population further aggravates the risk of cardiovascular problems. Edwards armed with its minimally invasive technology is well poised to take on the challenge.

Within the Critical Care segment, Edwards has been witnessing strong sales of advanced monitoring products. The recent launch of the EV1000 clinical monitoring platform in the US has evinced positive clinician feedback and the company hopes to garner segment growth on the strength of this device.

Current investor focus is on the impending US approval of Sapien THV for Cohort B patients (considered unfit for surgery). Edwards is confident of receiving approval by October 2011 and expects to record approximately $20–$25 million during the first quarter of Sapien’s launch in the US and $150−$250 million in the first full year.

In July 2011, Sapien received favorable recommendation from the advisory panel of the US Food and Drug Administration (FDA). However, the panel expressed concerns about susceptibility to neurological problems, particularly stroke, in patients treated with Sapien. On a cautionary note, any hiccup in the final approval of the device will be a major blow for the company.

In Europe, Edwards operates in a highly competitive environment with the strong presence of Medtronic (MDT). Moreover, Boston Scientific (BSX), banking on the acquisition of Sadra Medical, is working to enter the percutaneous aortic valve replacement market.

In the long term, we have a Neutral recommendation on Edwards, in line with the Zacks #3 Rank (Hold) over the short term. At its peer, Medtronic, the stock retains a Zacks #4 Rank (Sell) owing to various challenges in the CRDM and Spinal segments. However, in the log haul we have a Neutral recommendation on the company.

On the other hand, we are impressed with the various initiatives undertaken by Boston Scientific to revive its top line. These include the adoption of Priority Growth Initiatives to address critical and unmet future patient needs, creation of a robust pipeline and focus on emerging markets.

Moreover, the company was able to reduce its debt burden, improve liquidity and generate healthy free cash flow. Currently we have an Outperform recommendation on Boston Scientific, which is backed by a short-term Zacks #1 Rank (Strong Buy).

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