Edwards Lifesciences CEO Mussallem’s Focus Areas: Heart Health, R&D, and OC
Monday, November 04, 2019
A recurring theme at last week’s Medical Technology Innovation Forum was that the next generation of advancement in the medtech industry would largely be led by startups, forward-looking entrepreneurs, and as yet unknown innovators.
Tell that to Mike Mussallem, chief executive of Edwards Lifesciences Corp. (NYSE: EW), by far Orange County’s largest public company by market value.
In terms of strategic vision for Edwards, whose products—heart valves, delivery systems, critical care monitoring products and other devices—treat structural heart disease, the CEO isn’t willing to cede the future to the next generation just yet.
“We believe in big, bold, breakthrough innovation,” Mussallem told the audience at the MTIF event, hosted by OCTANe, the Aliso Viejo business accelerator for area technology and life science companies.
“Be the leader. Go first.”
The Irvine-based company backs that corporate strategy with serious financial backing. Edwards spent close to $200 million on research and development expenses, representing 17.8% of what it earned in sales—$1.1 billion, up nearly 21% from year-ago levels—last quarter.
By comparison, heart valve competitor Medtronic PLC (NYSE: MDT) spent about 7.8% of sales on R&D last quarter, according to the Minneapolis-based company’s latest earnings report.
Edwards’ goal is to allocate 18% of sales on R&D, Mussallem said at MTIF during a keynote address last Tuesday, six days after the company reported its third-quarter earnings.
As a result of the investments, “more patients are benefiting from our lifesaving technologies than ever before,” he told analysts following the earnings announcement.
Wall Street likes Edwards’ be-first strategy.
Last week, following Edward’s third-quarter earnings report that exceeded analyst expectations, the company’s market cap for a while topped $50 billion for the first time.
That’s the highest value for a public company based in OC in more than four years, since Allergan was sold to Actavis PLC for nearly $70 billion.
Edwards’ stock price has more than doubled since the start of 2018.
Prepping for Failure
The company’s singular focus is on treating heart issues, but its innovation strategy isn’t for the faint of heart.
“It starts with a dream and a big commitment” that can often end in failure.
“Risk-taking is critical” to innovation, he said. That comes at a cost.
Occasionally, he said, “we are just going to get up and walk away” from projects it has made a large commitment to.
That’s what happened this summer when Edwards announced the discontinuation of one of its transcatheter aortic valve replacement systems (also known as TAVR), called Centera.
The company recorded a nearly $27 million charge last quarter as a result of that decision and other strategic moves.
“Our batting average is low—we’re no Ted Williams” when it comes to break- through innovations, he quipped.
The upside of being a leader is that “you learn faster than others,” he said.
The only CEO that Edwards has ever had since splitting Baxter and from going public in 2000 reaffirmed his company’s commitment to heart-related work, with no plans of expansion to other medtech sectors.
“We don’t think that we are so bright, let’s just go into neurology—let’s go into [ophthalmology],” Mussallem said.
While Edwards makes a bulk of its sales from TAVR procedures using its Sapien heart valve and delivery system, the heart isn’t limited to the aortic valve, Mussallem noted.
The company is looking to develop catheters that can replace tricuspid and mitral valves, without the needs for more intensive surgical procedures, he said. “We have 700 people working [on it] with [limited] sales” right now.
A similar statement was made during last month’s earnings call, when he noted the company’s looking to “bring meaningful solutions to underserved mitral and tricuspid patients with few options today.”
OC: Good, or Great
Another area of focus for Mussallem: Orange County, and its business community.
“I’m passionate” about the area, he told the MTIF crowd, noting the talent in Irvine and the greater OC area. “We’re underestimated as an innovation center.”
More can be done, he noted, comparing the efforts being made in places such as Austin, Texas, and the Bay Area.
In terms of the financial commitment toward fostering innovation in the area, the question is, “Do we want to be good, or be great?”
As part of that commitment, Mussallem and James Mazzo, global president of ophthalmology for Carl Zeiss Meditec Inc., founded OCTANe about a decade ago.
The business accelerator will be moving headquarters from Aliso Viejo to Irvine’s FivePoint Gateway campus in the next few months.
The MTIF crowd drew companies from all over the country, as well as those locally, many of which co-host sponsor the event.
Such companies included Medtronic, Edwards, Carl Zeiss, Allergan PLC, Visionary Ventures, and CHOC Children’s.
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