Morningstar | Edwards Delivers Solid 2Q but Loses Share in Europe; No Change to Our FVE
While Edwards Lifesciences reported second-quarter results that met our expectations and remains on track to hit our full-year projections, the company saw another quarter of market share erosion in Europe, which drove shares lower. Nonetheless, we’re holding steady on our fair value estimate and continue to think the firm will eventually moderate its price on transcatheter aortic valves, especially as the indication expands to include low-risk patients, for whom surgical replacement is a more viable option. We see nothing to change our thinking on Edwards’ narrow economic moat. If we see hints of strength in the clinical data that Edwards is collecting on its various transcatheter mitral valve technologies under development, we would consider turning our moat trend rating positive. We expect to see preliminary data on several TMV technologies through the course of 2019.Although Edwards has been able to command a pricing premium for its Sapien TAVR in Europe since it launched a decade ago, we had already assumed price moderation of roughly 15% by 2022, driven partially by the indication expansion and partially by the entrance of additional competitors. We believe Medtronic has already priced its TAVR slightly below Sapien, and Boston Scientific remains dormant in Europe as it seeks to address issues with the Lotus locking mechanism. Keep in mind that both St. Jude Medical and Boston had entered Europe in 2012-13 and penetrated the duopoly that Edwards and Medtronic shared. Since then, we haven’t seen either late entrant carve out substantial market share. Anecdotal evidence suggests Abbott has significantly lowered the price on its Portico product and may be gaining share at Edwards’ expense. What happens next may hinge on how aggressively Boston prices Lotus once it returns to the market. If both Abbott and Boston significantly undercut Edwards on price, Edwards may need to lower its price too.
Edwards Lifesciences is engaged in patient-focused medical for structural heart disease, as well as critical care and surgical monitoring. The company is a manufacturer of heart valve systems and repair products used to replace or repair a patient's diseased or defective heart valve. The company is also engaged in hemodynamic and noninvasive brain and tissue oxygenation monitoring systems used to measure a patient's cardiovascular function in the hospital setting. The company's products and technologies are categorized into four main areas: Transcatheter Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, Surgical Structural Heart, and Critical Care.
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