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Morningstar | Edwards Lifesciences Makes Progress With Its Transcatheter Mitral Portfolio

Since spinning off from Baxter in 2000, Edwards Lifesciences has demonstrated that it knows how to stick to its knitting: tissue heart valves. Edwards remains the dominant force in surgical heart valves and minimally invasive valve therapy--one of the hottest areas in cardiac devices.Edwards has done a good job of refocusing on higher-margin products and churning out meaningful innovation. These efforts resulted in an impressive 27-percentage-point gross margin improvement since becoming a stand-alone company. Although the firm is significantly smaller than close competitors Medtronic and Abbott in terms of sales, it remains the global leader in its core business of tissue heart valves, commanding more than 60% of the global market. The firm maintains a leadership position in critical-care monitoring equipment to complement its heart valves.While Edwards does not regularly engage in serial acquisition, the firm has recently made a series of purchases of transcatheter mitral valve technologies in order to get a jump on the next wave of innovation. The firm remains on the leading edge when it comes to transcatheter aortic heart valves, with dual aortic franchises in balloon-expanded and self-expanding valves. Not only does Edwards have a robust transcatheter aortic valve pipeline, it is also in the lead to develop transcatheter mitral products. Edwards is poised to ride the wave as new technology shifts more valve replacements to the transcatheter approach, especially as more clinical data support the efficacy and safety of these products.Having said that, we still anticipate some bumps in the road. Edwards has already taken a shot at transcatheter mitral valves before with little success. It is a challenging area, given how heterogeneous the condition is. The economics behind transcatheter aortic valve replacement remain less attractive than surgical valves to many hospitals, though this has been easing. This market is also becoming more crowded with Medtronic, Abbott, and Boston Scientific in the fray. Nonetheless, we think the longer-term clinical trend will shift toward transcatheter technologies, and Edwards is sitting pretty.