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Bull of the Day

The growth of Edwards Lifesciences (EW - Free Report) into a $25 billion provider of cutting-edge heart surgery alternatives is an amazing success story of American ingenuity and medical business innovation.

I last wrote about the company as a Zacks #1 Rank stock in April when I owned it and shares leapt from $90 to new all-time highs above $105 on the company's latest data proving superiority, or at least equivalency, of its Sapien 3 valve replacement procedure to open heart surgery.

Pump Engineer Designs Cardiac Replacement Parts

It all began with the vision of the founder-inventor, a hydraulic engineer named Miles "Lowell" Edwards, who in 1958 set out to build the first artificial heart. By dialing down his dream a bit, was able to create an important life-saving industry. Here's the official story from the company website...

Edwards was a 60-year-old, recently retired engineer holding 63 patents in an array of industries, with an entrepreneurial spirit and a dream of helping patients with heart disease. His fascination with healing the heart was sparked in his teens, when he suffered two bouts of rheumatic fever, which can scar heart valves and eventually cause the heart to fail.

With a background in hydraulics and fuel pump operations, Edwards believed the human heart could be mechanized. He presented the concept to Dr. Albert Starr, a young surgeon at the University of Oregon Medical School, who thought the idea was too complex. Instead, Starr encouraged Edwards to focus first on developing an artificial heart valve, for which there was an immediate need.

After just two years, the first Starr-Edwards mitral valve was designed, developed, tested, and successfully placed in a patient. Newspapers around the world reported on what they termed a “miraculous” heart surgery.

From there, the company built an impressive pedigree for R&D in heart devices and minimally-invasive cardiovascular procedures. In 1966, Edwards Laboratories was purchased by American Hospital Supply Corporation and became American Edwards Laboratories. Then, in 1985, American Edwards was acquired by Baxter International. In early 2000, the company was spun-off as an independent, publicly-held corporation and began trading on the NYSE under the symbol EW.

The TAVR Alternative to Open Heart Surgery

TAVR stands for transcatheter aortic valve replacement. It is sometimes also called transcatheter aortic valve implantation (TAVI).

This minimally invasive surgical procedure repairs the aortic valve without removing the old, damaged valve. Instead, it wedges a replacement valve into the aortic valve’s place.

A "valve-within-valve" this approach works somewhat similar to a stent placed in an artery, as TAVR delivers a fully collapsible replacement valve to the valve site through a catheter.

Once the new valve is expanded, it pushes the old valve leaflets out of the way and the tissue in the replacement valve takes over the job of regulating blood flow.

In early March, the company announced they had recently won the approval of the Japanese Ministry of Health, Labor and Welfare (MHLW) to market its Sapien 3 transcatheter heart valve (THV) in the country. They plan to fully launch Sapien 3 by the end of 2016 in Japan.

News of this approval surfaced merely a couple of weeks after the company received the FDA nod for expanded use of its Sapien XT THV for pulmonic valve replacement procedures in the U.S. The Japanese clearance is expected to accelerate Edwards’ revenues from its THV business segment, which witnessed 38% underlying growth in 2015.

Current market leaders in TAVR include EW – the first valve approved in the U.S. – and Medtronic (MDT - Free Report) , which roughly splits the EU market with EW and was approved in the U.S. in inoperable patients in January 2014.

July Earnings Beat and Raised Estimates

On July 26, Edwards delivered an 8% EPS beat and analysts immediately responded to the company outlook by raising estimates.

Full-year 2016 consensus EPS projections climbed from $2.75 to $2.86, representing 25% growth, while top-line estimates of $3 billion in sales represents just over 20% growth.

Full-year 2017 consensus EPS rose from $3.26 to $3.39 for 18.6% growth. Revenues are projected to hit $3.38 billion next year for 12.5% growth.

The stock trades richly at nearly 40X forward EPS estimates. But as the leader in a growing field, investors seem willing to pay that much, especially as more international markets open up.

Expanded Indication In Europe

On September 19, Edwards received approval from European medical authorities for expanded indications for the SAPIEN 3 transcatheter heart valve for the treatment of patients suffering from severe, symptomatic aortic stenosis who are at intermediate risk for open-heart surgery.

"This expanded intermediate-risk indication allows for the treatment of even more patients whose only previous option was an open-heart surgical procedure," said Prof. Helge Möllmann, Director, Clinic for Internal Medicine (Cardiology) at St. Johannes Hospital, Dortmund, Germany. "I am encouraged by the adoption of the position paper of the German Cardiac Society that recommends the use of transcatheter aortic valve implantation (TAVI) in intermediate-risk patients based on growing clinical evidence."

According to the company press release, "for patients with severe aortic stenosis who are at intermediate risk for an open-heart surgical procedure, TAVI using the Edwards SAPIEN 3 valve has been shown1 to demonstrate outcomes that are superior to surgery at one year on a composite primary endpoint of mortality, stroke and moderate or severe aortic regurgitation."

Edwards Lifesiences is a stock to be accumulated on dips toward $110.

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