Edwards Lifesciences (NYSE:EW) is a top holding because we think there continues to be a multiyear runway for excellent top-line and bottom-line growth. Adjusted sales during the Company’s fourth quarter grew +10%, driven by a +11% increase in transcatheter heart valve (THV) therapies. Edwards also released positive results of a highly anticipated trial that evaluated the performance of transcatheter aortic valve replacement (TAVR) in a previously unserved population. This population consists of those who are at low-risk of unfavorable outcomes during conventional, open-heart surgical procedures for aortic valve replacement. Edwards’ Sapien 3 valves exhibited superiority to conventional surgical valve replacement in this “low-risk” population, including lower rates of death, stroke or rehospitalization. We believe this clinical evidence increases the likelihood that TAVR will be used as the standard of care for the vast majority of severe aortic stenosis patients and opens up a large unaddressed market for the Company. While most of the near-term market share will come from the disintermediation of surgical procedures, we believe the size of the overall addressable market continues to be underestimated.
Edwards consistently maintains top share in TAVR therapies, thanks to its pioneering efforts in minimally invasive techniques, as well as its long-history in surgical valve development prior to THV. As a percent of revenue, Edwards spends 2X more on R&D than Medtronic and Abbott Labs, two of the Company’s primary competitors in THV therapies. As such, we are optimistic about the Company’s longer-term efforts to test and market new therapies for mitral valve and tricuspid valve repair. While the stock has performed well over the past few years, we continue to think Edwards’ growth potential remains underappreciated, exhibited by relatively modest valuation compared to high-growth (albeit non-THV) med-tech peers.
From David Rolfe (Trades, Portfolio)'s first-quarter 2019 Wedgewood Partners client letter.
