Edwards Lifesciences appears to have misjudged how quickly the U.S. would adopt its transcatheter aortic valve replacement technology.

April 24, 2013

4 Min Read
Edwards Lifesciences' Projection of TAVR Adoption Rates in U.S. Turns Out To Be Too Rosy

Transcatheter aortic valve replacement (TAVR) has been hailed as one of the most exciting clinical developments in recent years allowing patients who are too sick to undergo open heart surgery to replace diseased heart valves surgery a less invasive alternative.

Edwards Lifesciences has been on the forefront of this innovation in the U.S. market with the only FDA-approved device - Sapien. Medtronic is not too far behind, although it has been hobbled by a slow-enrolling pivotal trial that finally closed in early January.

But now comes the news from Edwards that sales of Sapien in the U.S. are not matching management projections. In a research note Wednesday, Glenn Novarro, an analyst with RBC Capital Markets, said that U.S. Sapien sales "disappoint again" coming in at $83 million, $12 million below his projection and $7 million below the Street consensus view.

What is causing this disappointing results? In an earnings call Tuesday, Edwards CEO Michael Mussallem said that 20 medical centers that were due to be trained in TAVR procedure postponed the training.

"...those 20 sites would have probably generated something in the neighborhood of $5 million or more of stocking sales, which we did not realize in the quarter," Mussallem told analysts on the call.

He also added that some hospitals are finding the procedure to be too expensive, while others don't have the correct capacity to handle this procedure.

There are some hospitals that question the profitability of this procedure based on their regional reimbursement, as well as how they account for other related services and the allocation of overhead. We continue to engage with these centers to share best practices with a focus on reducing length of stay, as well as lowering procedure-related costs and complications.

I would say a lot of our growth has continued to come out of existing centers with well developed patterns. And there is a steep learning curve that's going on right now in all centers. There are capacity constraints and we hear it on all kinds of shapes and sizes. So we hear some that they need to, for example, get another nurse coordinator to do patient screening. We heard from some that they need to get additional days set aside in the cath lab and the ORs. We hear from others that it's time to get a second team up.

All this is leading management to reduce sales guidance for Sapien to the range of $350 to $400 million, down from previous guidance of $390 million to $440 million for 2013. No surprises that following the call - and the fact that U.S. sales have disappointed three quarters consecutvely - Novarro downgraded the stock to "sector perform" or "hold" from a "outperform" or "buy." 

Still, the unanswered question in all of this is whether management should have known that adoption would not be that quick. Back in late December 2011, soon after Edwards won FDA approval for Sapien, Mayo Clinic published a study that showed that TAVR usage has a steep learning curve [a terms that Mussallem coincidentally also used in the call.] Specifically, Mayo found that doctors had to do 30 TAVR procedures before reaching a level of proficiency.

In fact, while publishing this study in the Journal of the American College of Cardiology, editor Peter Block loudly speculated about the market adoption of TAVR. As reported by Heart.org, Block wrote:

"How all this will play out over the next year should concern every center and operator contemplating the addition of TAVI to their list of available therapies. My feeling is that many centers that would like to do TAVI now that a device is approved will quickly recognize that putting together the personnel and facilities is only a first step. Doing TAVI well is a second hurdle, as pointed out by the Mayo paper," he says, noting that the total costs of caring for these very sick patients and level of third-party reimbursement that will be available to pay for them are not yet clear. "TAVI may well be a center-stage diva, but it is also a jealous, high-maintenance mistress. It should be an interesting rollout."

Indeed what is even more interesting - and something that analysts commented on - was that even though Edwards Lifesciences lowered its U.S. Sapien sales guidance, it did not moderate the long-term opportunity it feels Sapien has in the U.S.

Only time will tell whether this sentiment is also misplaced.

-- By Arundhati Parmar, Senior Editor, MD+DI

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