Is LivaNova's Refined Focus Strategy Really Working?

LivaNova has beaten consensus on sales and earnings per share (eps) in the first quarter of 2018. The earnings  seem to suggest the London-based company’s newly adopted strategy to focus on both its cardiac surgery and neuromodulation businesses is working. However, despite  the strong earnings, shares of the company dipped as much as 8% on Wednesday.

LivaNova raised $250.4 million in 1Q18 easily topping analysts' estimates of $243.42 million. It should also be noted that LivaNova's 1Q18 earnings were a 10.4% increase over the amount earned in the first quarter of 2017. EPS for the quarter was 68 cents – about  3 cents better than analysts’ estimates of 65 cents.

“We are continuing our positive momentum into 2018," said Damien McDonald, LivaNova's CEO in a release. "Since the beginning of the year, we announced the commencement of 4 new clinical studies, received approval for two products, completed a strategic acquisition and executed a divestiture. We delivered solid top-line growth, invested in marketing, product development and clinical activities, and grew our earnings."

How Did LivaNova Get Here?

LivaNova kicked off its plan to alter and refine its core strategy in September of 2017, when it said it would seek out strategic options for its cardiac rhythm and management (CRM) unit, which brought in about $249.1 million in net sales in 2016. About two months later, Shanghai-based Microport stepped in to acquire the CRM unit for $190 million in cash.

Two weeks after the divestiture of the CRM unit, LivaNova picked up ImThera for $225 million. The deal would go toward building up LivaNova’s neuromodulation offerings. San Diego, CA-based ImThera has developed an implantable device to stimulate multiple tongue muscles via the hypoglossal nerve, which opens the airway while a patient is sleeping.

LivaNova just recently closed on the acquisition of Pittsburgh, PA-based TandemLife for $200 million with an additional $50 million to be paid based on specified regulatory milestones. The firm announced it would pickup TandemLife in February, in an attempt to bolster its cardiac surgery portfolio.

“We completed our acquisition of TandemLife and the divestiture of our Cardiac Rhythm Management business to MicroPort Scientific Corporation,”McDonald said. “We will now focus on the next stage of our growth strategy for our Cardiac Surgery and Neuromodulation portfolios, where we have strength and market leadership. While we continue to deliver quality care to patients around the world, this focus will allow us to deliver long-term value to our stakeholders.”