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Edward Lifesciences (EW) to Buy Israel's Valtech Cardio

BAX EW NXTM BVX

Trades from $3

Edward Lifesciences Corporation (EW - Free Report) , a major player in patient-focused innovation for structural heart diseases and critical care monitoring, recently announced that it has agreed to buy Israel-based Valtech Cardio Ltd. The privately-held company is engaged in the development of the Cardioband System for transcatheter repair of the mitral and tricuspid valves.

Over the last five months, Edward Lifesciences has been outperforming the broader industry until it released a disappointing third-quarter performance. Immediately after the results, the stock nosedived to a negative 15.4% on Nov 29 compared to the broader industry loss of 5.7%. In the quarter, the company’s earnings were in line with the Zacks Consensus Estimate while revenues missed the mark. However, full-year earnings estimates revision trend over the last two months has been favorable with six estimates moving north while none moved lower, indicating a bullish trend. We believe the aforementioned buyout will add momentum to the company’s price movement.

Coming back to the deal, the Valtech acquisition has been priced at $340 million in stock and cash at closing, with the potential for up to $350 million in additional pre-specified milestone-driven payments over the next 10 years. The transaction is expected to close in early 2017, subject to customary closing conditions. Prior to it, Valtech will spin off its early-stage transseptal mitral valve replacement technology program. EdwardsLifescienceswill also keep an option to acquire that program and its associated intellectual property. 

Meanwhile, Edwards Lifesciences' board of directors authorized a new share repurchase program to acquire up to an additional $1 billion of the company's outstanding common shares.  The company also has $277 million remaining under its current $750 million share repurchase program, which was authorized in Jul 2014.  This agreement allows the company to buy back shares to offset the dilution of the Valtech transaction.

Valtech’s Cardioband System combines a reconstruction implant, similar to a surgical annuloplasty mitral valve repair device, with a transcatheter approach. The system utilizes a catheter inserted into the femoral vein and delivered through a transseptal approach across the septum of the heart. In 2015, the Cardioband transseptal mitral repair system received CE Mark approval. The acquisition allows Edwards Lifesciences to expand its services in the huge heart valve repair and replacement market.

As per Persistence Market Research report, the global heart valve repair and replacement market is projected to be worth $3,767.0 million in 2020, expanding at a CAGR of 8.7%. This opens up scope for Edward Lifesciences to capture the untapped potential of this growing market. Also, in the recently concluded third quarter, the company recorded 1.6% sales growth in its surgical heart valve therapy product group. Globally, mitral valve sales displayed improvement. Thus, it is believed that the addition of Valtech will help the segment address the diverse needs of heart valve disease patients.

Zacks Rank & Key Picks

Edward Lifesciences currently carries Zacks Rank #3 (Hold). Better-ranked medical stocks are NxStage Medical Inc. (NXTM - Free Report) , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation (BVX - Free Report) . NxStage Medical and Baxter International sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NxStage Medical surged 32.5% over the last one year compared to the S&P 500’s 5.8% over the same period. The company has a four-quarter average positive earnings surprise of 50.00%.

Baxter International rallied 23.8% over one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 107.2% gain in the past one year, way better than the S&P 500. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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