Edwards Looks To Sapien As It Targets 15% Year On Year Sales Growth Through 2012.

“Our 50 percent growth in transcatheter heart valve sales in the quarter was less than we expected. Looking forward, we expect a strong close to the year with today’s approval of expanded indications for Sapien, now allowing us to serve many more patients.”

In short

Take Sapien (transcatheter aortic valve) out of the figures and these look like just another set of quarterly financials with modest revenue growth and solid underpinnings. Add a new technology to the equation and it suddenly starts getting interesting.

Background

The full Q3 financial release can be found here.

Sales

Overall third quarter net sales increased 8.5 percent to $447.9 million compared to the same period last year. Sales growth excluding the impact of foreign exchange was 14.3 percent.

Two things leap off the page though; Firstly the decline, or at least slowing down of Sapien growth in Europe compared with the equivalent period a year ago. Q2 European growth of 15% on a currency corrected basis was replaced by 4.8% growth in Q3. The company is attributing this to tough European market conditions and even used the word austerity. Whether tough economic climate is the explanation or whether physicians have just slightly eased off the accelerator in response to some of the slightly negative clinical press remains to be seen. One item in particular, a review published in the BMJ and authored by a Belgian team suggested enthusiasm for the technique was outpacing the evidence, as we covered here.  Of course it could just be the normal progression of things as the rapid growth reaches a natural ceiling.

The second striking observation is uptake of the newly available product in the United States, where sales reached $55.3M, despite the product only having been approved last November and with an indication limited to patients considered inoperable by conventional surgery.

Total global sales of Sapien valves is now actually not far behind conventionally implanted valves, and the likelihood has to be that they will overtake them next quarter as the extended indications for use open up a larger patient cohort in the U.S.

Earnings

Edwards reported net income of $69.2 million, or $0.58 per diluted share, compared to net income of $51.6 million, or $0.43 per diluted share, for the same period in 2011.

Third quarter diluted earnings per share increased 34.9 percent over last year, or 52.6 percent excluding prior year special items. This was driven by improved gross profit margins(up 5% to 75%), resulting from favourable foreign exchange impact and a product mix change towards the high margin Sapien product in the U.S.

Company comments

“In THV, third quarter results were impacted by European austerity, and in the U.S., by temporary reimbursement conditions and pronounced seasonality. Despite this shortfall, we anticipate a full year underlying growth rate of approximately 70 percent,” said Michael A. Mussallem, chairman and CEO. “With the later-than-anticipated approval of Cohort A, we now expect full-year 2012 U.S. THV sales of $230 million to $240 million and global THV sales of $530 million to $560 million.”

“Even in a difficult global economy, given the innovative and medically necessary nature of our portfolio, we are confident in our ability to achieve strong fourth quarter performance,” Mussallem said. “More importantly, we remain unwavering in our belief in the transcatheter valve opportunity, and that our THV technologies can have an increasing impact on the lives of patients well into the future. We are enthusiastic about the potential of our robust product pipeline to strengthen our leadership positions in structural heart disease and critical care technologies.

Outlook

The slightly later than anticipated indication extension in the U.S. has caused Edwards to err on the conservative, modifying its full year sales projections to be at the bottom of its previous $1.90 billion to $1.97 billion range. That still represents an underlying growth rate of more than 15 percent and for reasons already detailed the company is projecting full year net income growth of between 25 and 27 percent.

Source: Edwards Lifesciences Corporation