Edwards on Upswing as Surgeries Rebound

Tuesday, August 04, 2020

Main News Photo

(Orange County Business Journal)

Hospital operations across the U.S. continue to be impacted by the coronavirus pandemic, but heart valve maker Edwards Lifesciences Corp.is optimistic that its patients will get the necessary treatments for their life-threatening health conditions as the year goes on.

“We’ve had it proven to us with our own eyes that our patients are not going to be postponed or delayed,” Chief Executive Mike Mussallem told the Business Journal on July 28, noting the resourcefulness of hospitals that took swift action to reschedule postponed elective procedures.

“The back half of the year will be better than what we experienced in the second quarter,” Mussallem said.

Edwards, Orange County’s largest public company with a nearly $50 billion market cap, surpassed analysts’ expectations for its second quarter ended June 30, recording $925 million in sales, compared to an expected $797.5 million.

It also boosted its 2020 earnings-per-share guidance from $1.75 to $1.95 and maintained its top-line outlook at $4 to $4.5 billion in annual sales.

The company reported a nearly $122 million loss for the quarter, due to a $368 million charge it took as a result of an intellectual property settlement with Abbott Laboratories earlier last month.

Edwards’ shares rose following its July 23 earnings announcement, pushing the company’s shares to its highest point since early in the year.

Quick Pivots

“When the pandemic hit, there was intense focus on the pandemic for all the right reasons. Every hospital did everything within their power to prepare,” Mussallem said.

Nevertheless, hospitals across the county stopped elective surgeries—“basically everything, emptied ICUs and postponed procedures that require intense post-op care” per Mussallem—and as a result, Edwards’ patients stopped being treated in April.

These patients face severe health consequences and unfortunately sometimes death.

Mussallem pointed to data from The Annals of Thoracic Surgery that suggests the mortality rate for severe aortic stenosis patients is 4% at 30 days, 8% at three months and 12% at six months.

Fortunately, “we carried on throughout the pandemic,” Mussallem said.

“Our teams came to work every day at our manufacturing facilities, so they were able to keep supply strong through this whole challenge. At the same time, our field groups—that go into hospitals each day and help drive great outcomes—continued on.”

Edwards said in its second-quarter earnings report it saw procedure volumes steadily tick up in May and June, when about 90% of its active sites were preforming surgeries. It ultimately treated 20,000 patients with its Sapien 3 transcatheter aortic heart valve replacement (TAVR) surgery during the quarter, an 11% decline in the minimally invasive surgical procedures from year-ago levels.

Providers Respond

Mussallem attributed the swift rebound in procedures to the hospitals that acted “creatively” and with “great agility” to resume procedures, while at the same time maintaining preparations for COVID-19 care.

Locally, he said the company witnessed a “uniform” and “remarkable” response, as area hospitals segregated COVID-19 patients from others, labeled sections to enhance social distancing and enforced mask-wearing and other safety protocols.

Restarting scheduled services is also essential to “the economic viability of hospitals,” which have thin margins and earn a large portion of their revenue from scheduled procedures, Mussallem said.

On a national basis, the company expects there to be ups and downs in individual regions going forward, as the virus flares up in certain areas.

“We have heard anecdotally of [procedures] being canceled [again] in places like Texas and Florida,” the CEO told analysts on July 23. That’s “built into our guidance.”

Ups and Downs

TAVR sales continued to make up the bulk of revenue in the second quarter with $594 million, with wide variability in procedure levels across the U.S. and Europe that increased in June, May, and early July.

It anticipates TAVR sales to be flat in the third quarter, and transition to growth over 2020 in the fourth quarter.

Meanwhile, Edwards’ Surgical Structural Heart unit recorded a 25% decline to $161 million.

Mussallem said the company expected to see declines in this unit, due to the invasive nature of open-heart surgeries and a recovery period that takes place in ICUs. TAVR surgery, by contrast, requires less time in the ICU; about 40% of TAVR patients require none.

Confidence in Future

Edwards continues to chart a course for growth.

The company, with some 14,000 workers worldwide, hasn’t laid off employees and continues to hire for new roles.

Locally, the company said it is approaching a return of about 50% of its workforce to the office, which includes 1,000 manufacturing workers.

Over the past six weeks, other employees have spent time on the Irvine campus on an as-needed basis.

“The safety of our employees has been paramount from the very beginning … and we’re very much in tune with what trusted experts tell us,” said Mussallem, nodding to the Centers for Disease Control and Prevention.

It’s also “in full go mode” with its Irvine headquarters expansion and construction is on track. Its expected to grow its footprint to more than 1 million square feet and provide for some 4,500 workers.

Edwards continues to invest in its long-term growth strategy, as well as R&D and clinical work.

Mussallem said, “We really try to take a long-term approach to patient-focused innovation. We have bold goals to change the way medicine is delivered and we don’t want to depart from that.”

“Today, we already spend more than the industry norms on R&D, and we’ve practiced that for many years because we feel we create a lot of value when we transform patient care with these bold innovations.”

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