Last week Edwards Lifesciences Corporation (EW) received a favorable reimbursement decision from the Centers for Medicare & Medicaid Services ("CMS") for transcatheter aortic valve replacement ("TAVR") procedures. This procedure is meant to treat patients with symptomatic aortic stenosis. The decision memo included several conditions that physicians and hospitals need to follow while performing the procedure. It also emphasized on a joint effort from a multi-disciplinary team of medical professionals to take care of the patient - preoperatively and postoperatively.

Moreover, two cardiac surgeons should independently examine the patient face-to-face and evaluate his/her suitability for open aortic valve replacement ("AVR") surgery. Besides, the justification for their decision should be properly documented and made available to the heart team.

Edwards is also encouraged by CMS issuing a flexible National Coverage Determination ("NCD") that will also include new indications as they are approved by the US Food and Drug Administration ("FDA"). Moreover, coverage would extend to qualified non-inferiority or equivalence clinical studies.

We consider this decision to be a positive development for Edwards' Sapien transcatheter heart valve ("THV") and should accelerate adoption of the device in the US. This is significant since Sapien reimbursement issues, added to the uncertainty in the US market, caused some centers to postpone their training and others to delay procedures during the first quarter of fiscal 2012. Besides, the company had to reduce its THV guidance for the current fiscal by $30 million to $530-$600 million.

The cut in forecast was due to several negatives like a full quarter delay in the approval of Sapien in the high-risk patient population, dismal performance in southern Europe and the adverse impact of foreign exchange rates. Sales of Sapien in the US are expected to be $200-$240 million, lower than the previous guidance of $200-$260 million, due to the delay in approval for high risk (Cohort A) patients.

The FDA Advisory Panel will review Sapien in Cohort A patients on June 13, 2012. The company had expected a speedier review. We believe that the flexible NCD should aid in the adoption of Sapien in high-risk patients following FDA approval.

Neutral on Edwards

The development of the Sapien portfolio holds immense potential for Edwards as it provides surgeons the option to eliminate the necessity of open heart procedures. While the company has the first mover advantage in the US with its launch of Sapien in November 2011, the scenario in Europe is competitive with the presence of Medtronic (MDT) and other players.

Boston Scientific Corporation (BSX) is geared to enter the transcatheter aortic valve market. The company recently completed enrollment in a clinical trial to evaluate the Lotus aortic valve system.

We are currently Neutral on Edwards in the long term. The stock retains a Zacks #3 Rank (Hold) in the short term.

 
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