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Edwards Lifesciences (EW - Analyst Report) reported disappointing third quarter 2012 results. The company expects to report $448 million in sales (representing year-over-year growth of 9% or 14% at constant currency), way below the Zacks Consensus Estimate of $478 million. Third quarter revenues also lagged Edwards’ guidance of $465−$485 million provided during the second quarter earnings.

The disappointing performance primarily came on the back of lower-than-expected transcatheter heart valve (‘THV’) sales of $124 million, which included US sales of $55 million. Similar to the second quarter, economic uncertainties in Europe continue to adversely affect the company’s sales in the third quarter.  With lower procedural volume due to austerity measures adopted in several European countries, THV sales (at constant currency) in Europe were flat compared to the year-ago quarter.  

Edwards also noted that THV sales in the US were hampered by the provisions of the National Coverage Decision, which did not provide reimbursement for inoperable patients without femoral access. A clinical protocol for reimbursement for these patients was expected earlier, but got delayed. Moreover, the requirement of the presence of a full heart team during each procedure was hampered during the summer vacation. However, Edwards is progressing well with the launch of Sapien THV in the US and imparting training to commercial centers.

Despite a dismal third quarter performance by THV, Edwards is confident of being able to meet the lower end of its global ($550−$600 million) and US ($240−$260 million) THV sales guidance. However, we remain cautious as the persistent economic downturn in Europe could lead to further disappointment. The company is expecting US approval of Sapien for high-risk patients shortly, which along with the approval of 29 mm Sapien XT valve in Europe (in May 2012) should expand the targeted patient population.

Although Edwards has the first mover advantage in the US, the European market is a lot more competitive with the presence of Medtronic’s (MDT - Analyst Report) CoreValve and some other products. Moreover, any delay in the US approval of Sapien for high-risk patients could make it difficult for Edwards to achieve the low end of the guidance.  We are, nonetheless, optimistic about the company over the long term and have a ‘Neutral’ recommendation. The stock retains a Zacks #3 Rank (Hold) in the short term.

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