Few companies endure the competitive rigors of the medical device marketplace long or successfully enough to claim the distinction of being a 50-year-old, billion-dollar company. But in 2008, Edwards Lifesciences Corp. (Irvine, CA) is just such a company, celebrating its 50th anniversary while also delighting in its ongoing financial success.
Edwards's drive to remain true to its technological roots is more than a lesson in humility; it's also a recipe for continued success. Fifty years after its founders collaborated to develop the first successful artificial heart valve for implant in humans, Edwards continues to focus its efforts on groundbreaking technologies that offer compelling opportunities to transform patient care in the cardiovascular market.
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Edwards Lifesciences chairman and CEO Michael A. Mussallem on focused growth in a changing cardiovascular sector.
Not every technology Edwards explores lives up to its high standards for clinical superiority and profitable market opportunities. In recent years, the company has made a number of divestitures, including its perfusion products business and angiogenesis program. In late 2006, the company discontinued its Optiwave 980 cardiac laser ablation system. And most recently, in December 2007, Edwards announced plans to sell its LifeStent peripheral vascular product line to C. R. Bard Inc. (Murray Hill, NJ) for up to $140 million.
This transaction will enable the company to allocate an unprecedented level of investment into continued development of its transcatheter heart valve and critical-care product lines, as well as expansion into emerging geographical markets. In addition, the company and its leaders are exerting increased influence in the greater medtech community. Last fall, for example, Edwards announced a $5 million multiyear grant to the Henry Samueli School of Engineering at the University of California, Irvine, to establish the Edwards Lifesciences Center for Advanced Cardiovascular Technology. And in March 2008, Edwards Lifesciences chairman and CEO Michael A. Mussallem will assume the role of chairman of the board of directors for industry association AdvaMed (Washington, DC).
Although the cardiovascular marketand Edwards's role within ithas evolved greatly over the past five decades, Mussallem says such progress pales in comparison with what can be expected over the next 50 years. In this interview with MX editor-in-chief Steve Halasey, Mussallem discusses Edwards's history of innovation, as well as the company's process for continually reevaluating, refocusing, and reinvigorating its product pipeline.
MX: How do the divestitures and acquisitions that Edwards has made over the last few years fit into the overall vision and strategic focus of the company?
Michael A. Mussallem: Edwards is focused on developing clinically superior, differentiated products that provide a compelling competitive advantage. When we start down the product development path, we look for those characteristics. But once we're down that path, if we realize we won't achieve the expected superioritypossibly because clinical practices have changedwe'll move on to an area where we can make a real difference. And so our divestitures have been in areas in which we felt we couldn't fulfill that promise of clinical superiority.
Most recently, we've been increasing our focus toward our market-leading heart valve and critical-care businesses. Edwards is already a leader in those areas, and we believe there are real opportunities for us to generate exciting growth.
You were on the senior management team at Baxter International when the decision to divest Edwards came up. Do you use a similar process in making your current strategic market assessments as you did when you were at Baxter?
Yes. We have a very in-depth strategic planning process. At Baxter, we looked five years into the future. At Edwards, we looked, in a detailed fashion, seven years down the line. But instead of just having that exercise be an annual process, we tee up the issues that are of the greatest strategic importance on a regular basis. Our strategic planning is a year-round activity for us.
Most recently, on December 7, 2007, Edwards Lifesciences announced that it plans to sell its LifeStent peripheral vascular product line to C. R. Bard Inc. for up to $140 million. How did you identify Bard as a potential buyer?
Bard approached us with an unsolicited offer in early November.
Did that offer spark a reevaluation of the product line?
No. During the course of our routine strategic planning, we realized that we were still at subcritical mass in the peripheral vascular space. To drive our leadership in that space, we would have to make substantial investments. At the same time, we recognized some emerging opportunities within heart valves and critical care that were demanding additional investment. So prior to Bard's offer, we had already decided that we either needed to do substantially more in the peripheral vascular space or consider an exit.
We initially reasoned that the peripheral vascular space was an underserved market, and we think that continues to be the case. We further reasoned that clinically superior products would be financially rewarding for us. But as it turns out, it takes a substantial investment in field sales and service to go along with those products. That was a key lesson we learned along the way. Therefore, Edwards's LifeStent product line has been operating at a loss to date, and it would take substantial additional investment and a good deal of time for the business to become profitable.
Continual market assessment and strategy refinement are challenging, but Edwards has a good deal of experience in that area. Do you think small, emerging companies and their investors understand the need for these kinds of recalculations?
Many venture capitalists and executives at start-up companies were formerly leaders inside larger medical technology companies. They come in with solid backgrounds, and they understand their economics well. Obviously, the development of new medical technologies is expensive and involves risks, and so even experienced individuals are probably wrong more often than they are right.
Emerging companies often fall in love with their technologies, which can make it difficult to do a critical market assessment of the financial opportunity for the technology. That's one of the advantages that we have within Edwards. We have a portfolio of opportunities, and we try to remain unemotional and be objective businesspeople when sorting out which are the best opportunities. The most attractive opportunities for us are those that are relatively low risksuch as those in areas where we're already a leaderand those that provide an opportunity to make a difference in the medical profession. We're willing to walk away from opportunities in which our technology wouldn't be clinically superior or those in areas that aren't likely to be important in the future.
Over the past 18 months, the markets for both cardiac rhythm management and interventional cardiology productsespecially implantable cardioverter-defibrillators and drug-eluting stentshave been hit hard by product recalls and questions of efficacy. Although Edwards Lifesciences doesn't operate in these categories, has the company felt any effects of this cardiology market turmoil?
Not directly, but we've been affected by it tangentially, of course. When media outlets focus on the negative side effects of terrific cardiology products and fail to discuss the tremendous benefits they offer patients, such coverage ends up having an impact on all companies in the sector.
The value of medical technology and the ongoing innovation in medical devices make a huge difference in people's lives. Such value gets lost when people only focus on the things that go wrong. When the small percentage of negative occurrences is given prominence in the public spotlight, that can put pressure on regulators. As a result, they might become risk-averse and slow the approval process for new technologies. Such attention can also discourage patients from taking advantage of lifesaving technologies.
The regulatory pressure you mention can influence the data demands that are placed on clinical research. This past October, at the Cardiovascular Research Foundation's Transcatheter Cardiovascular Therapeutics (TCT) scientific symposium, Edwards Lifesciences announced the 12-month results from its Randomized Study Comparing the Edwards Self-Expanding LifeStent versus Angioplasty Alone in Lesions Involving the Superficial Femoral Artery or Proximal Popliteal Artery (RESILIENT) trial of the LifeStent self-expanding stent. What has the trial demonstrated? How did the trial factor into the decision to divest the LifeStent line to Bard?
We're very satisfied with what that trial has delivered. In fact, it was designated as the blockbuster trial of the day at TCT. The trial didn't really factor into the decision to divest the line, but it made the LifeStent technology more valuable. The LifeStent represents a landmark premarket approval (PMA) application in a field where most of the products used in the United States are being used off label. The clinical trial results further helped validate the value of LifeStent.
C. R. Bard currently does not have a state-of-the-art stent, and the company has been well aware of the opportunity presented by LifeStent. For a company like Bard, the product line was a perfect fit.
In early 2007, Edwards Lifesciences received conditional approval from FDA to initiate a pivotal clinical trial of its Sapien transcatheter aortic heart valve technology. The Placement of Aortic Transcatheter Valves (PARTNER) trial is designed to evaluate the valve in patients who are considered high risk for conventional open-heart valve surgery. What is the status of that trial and the implications of the findings to date?
The technology being studied is really groundbreaking. There hasn't been anything like this before. The Edwards Sapien valve is a transcatheter heart valve. It encompasses a lot of proprietary technology and enables patients to have heart valves replaced without open-heart surgery while the heart is still beating.
The PARTNER trial is a partnership between surgeons and cardiologists. The trial is going to study patients who are of high risk for conventional open-heart surgery, and it will compare the Edwards Sapien valve with traditional treatments. There are two arms to the trial: comparison with open-heart surgery and comparison with medical management. In addition, the valve can be implanted via two delivery techniques: a transfemoral and a transapical approach. In the transfemoral approach, the valve is delivered via the patient's circulatory system through the leg. In the transapical approach, it is inserted between the ribs.
Edwards has already received FDA approval to increase the size of the trial to 600 subjects. We're now requesting to expand that to more than 1000 subjects and add the transapical delivery approach as well.
What would the additional 400 subjects enable Edwards to do in the trial?
What's most important to us is that we conduct a trial that ensures approval of this technology. This trial has the potential for a number of important comparisons, and we want to ensure we have enough data to make statistically significant comparisons. The two main arms to the trial compare the Edwards Sapien valve to medical management and surgery. But that will be further divided by the two methods of delivery: transapical and transfemoral. We want to have the ability to evaluate all subgroups independently. So with the addition of the transapical delivery method, we're looking to expand the number of patients in the trial even further.
The trial has been increased from eight sites to 15 sites. It must be a challenge to train all the surgeons on such a complex procedure.
We're happy to be adding the additional sites. It's important for us to be able to evaluate the Edwards Sapien technology in multiple hands. In other words, we need to determine how successful it would be once it moved beyond the initial innovators in the field. We want individuals handling this technology to be well trained. We don't think Edwards Sapien is a technology that, at this time, belongs in the broad medical communityit should remain in the hands of specialist institutions. And we want to ensure we provide sufficient training at these sites so that clinicians can do a great job with both delivery systems of the transcatheter valve.
Is training carried out at the sites themselves, or does Edwards have a separate facility where surgeons go to learn the technique?
It's a multistep process where the team goes to sites where clinicians are already well trained in the procedure. They can learn from those individuals. Next, they spend quite a bit of time on a simulator; we have invested a great deal of resources in developing a very sophisticated simulator for this portion of the training. We've received great feedback from clinicians who say the system really helps them prepare for the variables that they might encounter as they do the procedure.
Finally, there's a proctoring step in which the clinicians perform their first cases. At that point, they'll have somebody with more experience in the room with them until they feel comfortable.
What other significant clinical research activities is the company undertaking?
We continue to follow all of our heart valve productssuch as our family of Magna valvesfor a long time, well after they receive FDA approval. We're also engaged in multicenter clinical trials for our market-leading FloTrac system. The FloTrac system is the minimally invasive hemodynamic monitoring system in our critical-care business, and we have quite a bit of research going on in that space.
Describe the intellectual property (IP) portfolio surrounding Edwards Lifesciences' products and the company's strategy for protecting its technology.
Developing innovative medical technology is expensive and involves risk. Intellectual property protection is an essential requirement for innovators. We're focused on developing a strong intellectual property position, and we're confident that we're achieving this goal.
For example, we have aggressively invested in transcatheter heart valve technology. Edwards has an exclusive license to a patent portfoliocalled the Andersen patentsfor cardiovascular applications. We think these patents will be important going forward.
With these patents and those in our other businesses, we're committed to protecting our intellectual property on behalf of the clinicians and ourselves. We're willing to defend them vigorously.
Does Edwards file everything as patent applications or does the company hold back some intellectual property as trade secrets?
It's a sophisticated process. Most IP is filed as patents. But there are some elements that we keep inside the company as trade secrets. The question of how to protect intellectual property becomes a factor when considering new markets. We have to consider how sound our intellectual property protection is when we enter some emerging markets. For example, we feel more vulnerable from an IP standpoint when operating in a market like China.
When a company is out on the cutting edge of R&D, it's difficult to tell how long it will take for a technology to come to fruition. Does that create problems for Edwards in terms of deciding when to file patent applications?
We always try to have the best IP protection possible, and we file aggressively. But we don't rely on our intellectual property as being the only barrier to market entry for other companies. We work hard to develop clinically superior products and be the first in a given market.
Edwards is spending about 11% of its revenue on R&D. Are you comfortable with that level of investment? And where are the funds being focused?
Yes. At our recent investor conference, we stated that we believe that R&D will be around 11.5% of sales in 2008. That percentage has been steadily increasing. Edwards was at about half that level when the company was spun out from Baxter in 2000.
Recently, most of our R&D money has been spent within our heart valve and critical-care businesses, with our transcatheter valve technology being the single largest investment.
Now that you've divested the LifeStent line, does that free up R&D and selling, general, and administrative (SG&A) funding for other purposes?
It does. That was one of the important considerations going into the transaction. We wanted to make those R&D and SG&A funds available for some of the exciting opportunities that we're seeing in heart valves and critical care.
What percentage of Edwards Lifesciences' technology expansion is developed internally versus through acquisitions or licensing?
Historically, most of Edwards's technology expansion has come from internal development rather than through acquisition. Our legacy of development in heart valves goes back for five decades, and we also have a tremendous history of innovation in hemodynamic monitoring, with our FloTrac system being the most recent innovation.
There are a couple of recent examples of Edwards's growth through acquisition. In 2004, Edwards acquired Percutaneous Valve Technologies Inc. (Fort Lee, NJ). More recently, in November 2007, our company entered into a definitive agreement to acquire the CardioVations division of Ethicon Inc. (Somerville, NJ), a Johnson & Johnson company. The CardioVations acquisition will enhance our tools for minimally invasive cardiac surgery and be a stimulus for continuing R&D spending.
Tell me a little bit more about the CardioVations acquisition. How does Edwards plan to capitalize on that investment?
There are three key elements that Edwards acquires through the transaction. First, we gain access to some valuable intellectual property. Second, we gain a portfolio of surgery products that are growing in popularity. The products are already achieving $20 million in annual sales, and we think we'll be able to grow that through our channels. And finally, the acquisition brings some excellent resources for training physicians. We look forward to combining those with Edwards's own training efforts to help surgeons prepare to perform more minimally invasive procedures in the future.
To what extent do Edwards's research efforts seek to address reimbursement-related issues such as comparative clinical outcomes or cost-effectiveness?
Those issues are becoming more important than ever. In the past, manufacturers were only focused on achieving FDA approvals. But today, it's important for companies to be able to demonstrate a technology's economic viability in addition to strong clinical data. Therefore, it's not uncommon for Edwards to collect economic data as we go through our clinical trials.
Are those factors being considered as part of the ongoing PARTNER trial?
They are. The proper way to go about capturing those data is to start as early as possible. So, as we are collecting clinical data, we'll also be collecting quality-of-life data for the patients. We'll also be collecting data about the duration of hospital stays and other economic issues that are associated with the procedure. These data will enable us to lay out a cost-benefit analysis for all the parties that will have to consider reimbursement of the new procedure.
Is this managed by an in-house team of clinical researchers or do you rely on some outside help?
We have an in-house team that designs our clinical trials, and we also have an in-house group that manages our clinical trials. We supplement those teams with outside resources, such as clinical research organizations and reimbursement experts. These resources help to ensure we design the proper trial, and implement it and execute it properly.
What other activities does Edwards conduct to support coverage and payment decisions?
We maintain an active dialogue with reimbursement authorities. In the United States, that's CMS. Outside the United States, we deal with various ministries of health. In every case, we try to make sure that we understand the agencies' desires. We work with them early on to evaluate the requirements for coverage and educate them on our technology. Based on their requirements, we then work to generate the needed data so that our products can ultimately be reimbursed and available to patients.
What does the current reimbursement landscape for Edwards Lifesciences' products and procedures look like? Are there significant changes expected in the future?
Like all medtech companies, we're concerned that when the government tackles the issue of rising healthcare spending, it could put pressure on reimbursement for medical technologies. That creates a challenging environment, and it puts the burden on manufacturers to demonstrate that their technologies have a strong value proposition. Companies must be able to show evidence of a technology's clinical value and its positive impact on the quality of life of individuals.
Edwards's legacy products are already an integral part of the healthcare systems, so we don't have major payment concerns in those areas. However, that's not the case with newer, more-innovative technologies. Those are going to require a significant amount of credible data to support long-term reimbursement.
Poised for Growth
In the areas in which Edwards does business, where do you see the greatest opportunities for growth?
Within surgical heart valves, Edwards has an opportunity to lead, grow, and transform the market. There is still a large untreated population with heart valve disease, and with our outstanding portfolio and pipeline, we think we can strengthen our leadership position in this area.
Transcatheter heart valves represent one of the most exciting areas in medical technology. The opportunity in that segment is large and transformational because it introduces a new option for previously untreated patients. It's one of the rare procedures in which we believe we can lower the cost of therapy and, at the same time, increase device options. That makes transcatheter heart valves a good business. So Edwards is partnering and doing everything it can to extend its leadership position in that space.
In the critical-care segment, which accounts for more than a third of Edwards's sales, we're focused on delivering critical information. We have a tradition of leadership in that business, and our FloTrac product is opening up new market segments for hemodynamic monitoring. We're excited about that opportunity as well. The transitioning of cardiac surgery systems toward minimally invasive techniques complements our heart valve therapy and gives physicians the tools they need to deliver value for patients in the future.
At its investor conference in December, Edwards Lifesciences reported that it expects to strengthen its position in the heart valve market through several new product launches in 2008. Tell me a little bit more about the company's plans in this area.
Let me walk you around the globe a little bit. In the United States, we expect to launch our Magna mitral tissue valve and our Physio II heart valve repair ring. These are substantial new products that we expect will be very meaningful.
In Europe, we are already in the process of rolling out the Edwards Sapien transcatheter heart valve. Also, we have received European approval to commercialize our Ascendra transapical delivery system.
In Japan, we plan to launch our Magna aortic valve. The Japanese approval process is traditionally much longer than elsewhere in the world, and we are excited about introducing this market-leading valve in Japan during the second quarter of 2008.
Edwards has seen steady sales growth in recent years. In 2002, the company's share price was around $22. Now it's trading at about $49, meaning the stock has appreciated 100% over five years. The company doesn't pay dividendsare the investors remaining happy with the appreciation that they're getting from the company's shares?
Yes. A lot of investors are happy with our long-term share appreciation. We currently don't have any intention to begin paying dividends. We believe that investing our cash back into the businessand sometimes also buying back shares of stockis the best way to drive growth and generate returns.
You already mentioned Europe and Japan. What other geographical markets does Edwards operate in, and how do you assess the opportunities in those markets?
Similar to many other medical technology companies, 90% of our sales today come from the United States, Europe, and Japan. But we find that the emerging markets that make up that remaining 10% of our business represent the fastest-growing portion of it. We think that's very exciting, and we're making investments in those markets. As they become wealthier, they are able to access our advanced technology.
There is still great opportunity for growth in our major markets, especially outside the United States. For example, in Japan, we have a very strong and long-term customer-based organization. As we're able to finally move new products to market there, we see our business in Japan as a nice growth driver.
The most interesting growth opportunities for Edwards over the next several years will be in Europe, due largely to the region's regulatory climate. As an innovator, our company's products tend to be based on new technology, and new technologies tend to become available in Europe first. Thus, we expect our sales in Europe to grow quickly over the next several years.
You mentioned that you're also investing in emerging countries. Does this require additional investment in sales and distribution to tap into those new markets?
It will. To date, our greatest successes have been through direct representation. Those investments make a difference. Fortunately, investments in emerging markets tend to be more nominal than those in more-mature markets. But entering an emerging market is a long-term initiative. Companies don't necessarily enjoy overnight success in these markets; they need to make a commitment to building relationships with the clinicians in that region.
I suppose the need for such investment is one of the areas in which the savings from the LifeStent program will pay off.
That's one of the opportunities, yes.
Past, Present, and Future
In March, you will assume the role of chairman of the board of directors for the industry association AdvaMed (Washington, DC). What are some of the key strategic initiatives you will be focusing on during your two-year term as chairman?
AdvaMed is a powerful organization, and I'm proud to become its chairman. Its member companies produce 90% of the healthcare technology purchased in the United States and more than 50% of the medical technology purchased around the world each year. AdvaMed advocates for legal, regulatory, and economic climates that advance global healthcare by making sure that patients can have access to the benefits of medical technologies.
We're still in the process of developing our strategic plan for AdvaMed in 2008. But without going into too much detail, I can tell you that we're going to continue to focus on making AdvaMed the leading advocacy organization for the medical technology industry by strengthening our partnerships with key stakeholders in Washington, DC. We're working to generate greater awareness for the organization and the valuable life-saving technologies produced by its members.
During my term, I'll be continuing AdvaMed's current initiative to strengthen the industry's image and visibility through its Progress You Can See campaign. Medical technology is being mistakenly branded as one of the drivers of the increase in healthcare spending. In reality, though, it's the diseases themselves. And the value that medtech manufacturers provide through early diagnosis of disease, better treatment options, and improved patient outcomes is really substantial.
I look forward to building stronger AdvaMed relationships with key stakeholders, including outpatient groups, physician groups, and other industry groups. Such relationships bring the healthcare community together. I'd also like to promote an even greater focus on innovation. After all, the true value of medical technology is in its ability to enable patients to live longer, healthier, more-productive lives by reducing disabilities, shortening procedure times and hospital stays, eliminating complications, and easing the pain and suffering that go along with disease.
The lines between the medical device, pharmaceutical, and biotech industries are becoming increasingly blurred as technologies continue to converge. What role does this convergence play in the sectors in which Edwards Lifesciences operates? In the near and long term, how do you see Edwards Lifesciences continuing to evolve as a company?
The convergence of devices, drugs, and biologics is contributing to a holistic philosophy for treating patients and fighting disease. There's significant value in bringing combination technologies together for the good of physicians and patients. Today's life sciences industry is sophisticated enough to bring together devices, drugs, and biologics in ways that can have an unprecedented impact. At Edwards, we certainly keep our eyes open for these opportunities, and there are many great examples of other companies in the industry doing the same.
In 2008, Edwards is celebrating its 50th anniversary. The company began as a collaboration between Miles "Lowell" Edwards, an electrical engineer, and Albert Starr, MD. The collaboration led to the first successful artificial heart valve and the founding of our company.
We're proud that, after all this time, Edwards is still focused on pioneering the cardiology market and introducing many 'firsts' to market. In the valve area, for example, Edwards pioneered mechanical valves and, later, tissue valves. Now we're looking to pioneer less-invasive replacement technologies. Similarly, in the critical-care segment, we have a legacy of innovation in hemodynamic monitoring and look forward to continuing that legacy. So as we celebrate Edwards's 50 years of lifesaving innovations, we're also reflecting on our roots. We want to continue the company's legacy of innovation for the next 50 years and beyond.