Opko Health : One To Watch In 2016 – Motley Fool

 

What: After reporting an upside surprise in third-quarter earnings and the mid-month launch of its first royalty-producing drug by partner Tesaro (NASDAQ:TSRO), shares in Opko Health (NYSE:OPK) jumped 15.8% higher in November.

So what: Opko Health is run by legendary biotech leader Phillip Frost, who built up and sold IVAX to Teva Pharmaceutical for $7.4 billion in 2005 and, until recently, served as Teva Pharmaceutical’s chairman.

At Opko Health, Frost has packed the C-suite with former IVAX employees who have been busy orchestrating a flurry of acquisitions and licensing deals, including the acquisition of Bio-Reference Labs, the third largest specialty lab company, and a deal with Tesaro to develop and commercialize Opko Health’s Varubi, a medicine for the treatment of delayed onset nausea and vomiting caused by chemotherapy.

Opko Health closed on the Bio-Reference acquisition in the third quarter, and thanks in large part to a one-time tax benefit, the company reported net income of $128.2 million. Including Bio-Reference in results also led to the company’s third-quarter sales jumping to $143 million, up significantly from the $19.8 million reported in the comparable quarter last year.

Meanwhile, Tesaro won FDA approval for Varubi in September and began marketing the drug in November. The approval and sales could benefit Opko Health investors via both milestone payments, which could total another roughly $110 million and royalties, which will run in the low teens to low-20% range.

Now what:  Previously, I highlighted what I think Opko Health investors ought to a royalty model for Varubi, and while my prediction of $50 million to $100 million isn’t chump change, Opko Health’s other irons in the fire could result in revenue that’s significantly higher.

One of those irons is Rayaldee, a therapy that boosts vitamin D in chronic kidney disease patients. The FDA is expected to make a decision on approving Rayaldee on March 29, and if the agency gives the company the green light, then sales could be substantial.

Current treatments for vitamin D deficiency in CKD patients are arguably lacking and the addressable patient population is big and includes over 20 million patients with stage 3, 4, or 5 kidney disease that could conceivably benefit from Rayaldee.

Opko Health’s financials could also benefit from a pick-up in sales for its 4K prostate cancer test now that the latter is included in national guidelines, and Opko Health has a deal with Pfizer on a promising human growth hormone that could move the needle down the road, too.

Overall, Opko Health’s penchant for deal-making has saddled it with a fair amount of debt, but Phillip Frost’s track record and a number of potential revenue-generating catalysts hitting in 2016 could make this a name worth including in a portfolio.

NOTE: Our managed accounts sold out in the teens and we now contemplate reentering the stock at these levels.

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PHM Gains on Report On Business Story

Out top spec pick ( picked at $1.11  ) gained Monday closing at $1.46 on a feature in the Globe and Mail Report On Business :

Being a top performer on the TSX Venture Exchange doesn’t exactly set the investing community abuzz these days.

One of the elite listings on the lowly Venture of late is Patient Home Monitoring Corp., which has unleashed a wave of acquisitions to bring about a quintupling in share price over the last year.

Now big enough to have overcome most of the startup risks associated with Venture names, but not so big that investor hype has priced in a growth premium on the stock, Patient Home Monitoring still has plenty of room to grow.

“Normally one hears of stocks that the ‘easy’ money has been made,” Beacon Securities analyst Doug Cooper said in a recent note. “However, we believe with PHM, the opposite is the reality.”

Underlying the company’s business model are some powerful trends in U.S. health care. An aging population, combined with capacity strains on health-care facilities, have ensured a high growth rate in the home-based health-care services market.

“In a period of uncertainty in the economy, we believe the U.S. health-care service industry, especially one catering to the aging baby boom generation, offers a relatively safe haven,” Mr. Cooper said.

Patient Home Monitoring focuses on three major categories of illness – diabetes, pulmonary and cardiac – to offer multiple services to the chronically ill.

While listed in Canada, the company targets the highly fragmented U.S. home monitoring market, acquiring smaller regional businesses that need capital to expand.

Investors tend to look upon roll-up strategies with some skepticism, in part because they end up relying exclusively on acquisitions for growth. Patient Home Monitoring, on the other hand, is able to combine acquisition-based growth with considerable organic growth.

It does so through its expanding patient database. While takeover targets ideally have strong revenues and earnings, and are available at favourable prices, an extensive client list is a top priority in hunting for new deals.

“Through mining the aggregate patient database, PHM will cross-sell its various services thus driving revenue-per-patient growth,” Mr. Cooper said. “For example, those with pulmonary issues have a high probability of a cardiac condition … [and] a high probability of being overweight/obese that could require a power mobility solution.”

In the fiscal first quarter, the company generated organic annualized revenue growth of 34 per cent year over year, Mr. Cooper calculated.

And the company’s growing acquisition pipeline should mean much more growth of both kinds. Having already closed two deals this year, Patient Home Monitoring has three pending acquisitions which will just about double the size of the company, generating annual sales of about $125-million by the summer. By the end of this year, the company is targeting $175-million in annual revenue. Sales in 2014 amounted to $21.2-million.

And previous company guidance has consistently proven conservative, said Bruce Campbell, president and portfolio manager at StoneCastle Investment Management Inc., which owns shares of the company. “They’ve been fairly cognizant of not trying to over promise.”

Michael Dalsin, the company’s CEO, has said he thinks $1-billion in revenue is a realistic mark for Patient Home Monitoring, eventually. That 10-figure top line mark might come into view much sooner than many expected, considering the company’s pace of acquisitions.

In the first two months of this year alone, Patient Home Monitoring issued letters of intent or term sheets to 12 companies with combined annual revenues of more than $141-million. Non-disclosure agreements – which are the first step in identifying targets – were signed with another 40.

That kind of growth makes the company’s valuation a moving target. “The real difficulty is trying to figure out what multiple you should put on these things,” Mr. Campbell said. He estimates the stock is trading at an enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of a little less than 10 times, based on future earnings the company has publicly declared.

Mr. Cooper said the company’s growth already realized and yet to come should warrant a multiple in the upper end of the range of 10- to 12-times forward EBITDA, which results in a target price of $1.75. Mr. Cooper is currently the only sell-side analyst covering the stock, according to Bloomberg.

While the stock has risen by more than 60 per cent this year so far, Patient Home Monitoring is now a safer play than it was a year ago, when investors had little proof that the company could execute its roll-out strategy and cross-sell its services, Mr. Cooper said. Plus, the company’s clean balance sheet increases flexibility and lowers risk.

“All of those fears should be dispelled now,” Mr. Cooper said.

Patient Home Monitoring (PHM)

Friday close: $1.39, up 4¢

Thoratec UPDATE BUY  Target: US$36.00

THOR

NASDAQ :

US$31.19 BUY 
Target: US$36.00

COMPANY DESCRIPTION:
Thoratec manufactures medical devices used for
circulatory support, vascular graft applications, and blood
coagulation testing. Thoratec’s ventricular assist device
(VAD) systems are currently marketed in the US and
internationally for use as a bridge to heart transplant and
for recovery of the heart after open-heart surgery. The
company has the only VAD currently FDA-approved for the
destination therapy indication.
All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
RAISING PRICE TARGET TO $36  FROM $30; REITERATE BUY
Investment recommendation
We remain positive on the long-term growth potential of the
LVAD market, owing to the size of the TAM (40k+ patients in US
alone), low penetration level (10%E in US/Europe; <5%E in
Japan) and next-generation technology coming down the pipe
(HMIII and MVAD), which we think will drive strong double-digit
growth in this duopolistic market for years to come. We continue
to favor Heartware common (HTWR : NASDAQ : $73.53 | BUY),
but reiterate our BUY on THOR as well. Owning both, while not
likely to elicit out-sized returns in the near term, could very well
do so over the next 12-18 months, in our opinion.
We are increasing our target to $36 from $30, reflecting not only
increasing optimism about the VAD market and THOR’s next-gen
pipeline (HM3, HM-PHP), but also to account for an uptick in the
mean small-cap comp group’s 2015 EV/sales multiple (3.7x
currently vs. 3.4x previously – ex-outliers).
Investment highlights
 Our 2016 estimates call for revenue growth of 4.7% to
$486M, gross margin expansion to 71%, and pro-forma EPS
growth of 4.8% to $1.35.
 For 2016, we estimate THOR’s US VAD revenue will grow
about 1% to $359M, but model faster OUS VAD sales growth
of 11% to $125M.

DexCom

DXCM : NASDAQ : US$38.21
BUY 
Target: US$48.00

COMPANY DESCRIPTION:
DexCom is a medical device firm focused on pioneering
technologies for the continuous monitoring of glucose
levels in people with diabetes. The company has received
FDA approval for its short-term continuous glucose
monitoring system (CGMS), the DexCom STS system, and
in June 2007 gained approval for its second-generation
STS Seven system.

Life Sciences — Biomedical Devices and Services
DXCM Q2/14 CRUSHES IT; THE BEST IS
YET TO COME; REITERATE BUY, PRICE
TARGET TO $48
Investment recommendation
We reiterate our BUY rating following strong Q2/14 results that came in
well above our and consensus estimates. Demand for the Gen4 system
continues, with pediatric sales demonstrating the potential to be a strong
lever for growth throughout 2014. Specifically, pediatrics accounted for
25-30% of new patient additions in the first full quarter of sales and are
expected to grow as the company further penetrates the pediatric
endocrinology market. Lastly, the JNJ/Animas VIBE SAP in the US and
DexCom Share both present potential upside to current estimates in the
H2/14.
Investment highlights
 Q2/14 results were well above our/Street estimates with product
revenues of $58.2M, up 64% Y/Y, well above our $51.7M estimate.
 Both durable revenues (~$17.5M) and consumable sales (~$40.7M)
beat our estimates of $14.6M/$37.1M, respectively.
 Product GMs of 67.9% were up Y/Y and beat our 66.6% estimate.
 2014 guidance was raised with product revenues now expected in the
range of $220M-$235M (~40%-50% growth Y/Y), up from $205M-
$225M previously.
Valuation
We are increasing our price target to $48.00 from $40.00. We base our
valuation on an 11.8x EV/sales multiple applied to our 2015E revenue
estimate of $301.0M.

IDEXX Laboratories Raising to BUY

 

IDXX 

now at $132

Target Price $148

Life Sciences — Biomedical Devices and Services
RAISING ESTIMATES ON CATALYST ONE
PULL-THROUGH; UPGRADE TO BUY, RAISE
PRICE TARGET TO $148
Investment recommendation
We upgrade IDEXX Laboratories to BUY from Hold and raise our PT to
$148 from $116. We believe the rollout of Catalyst One in Q4/14 will
enable IDEXX to capture share in the lower-volume vet market and
accelerate 2015 revenue growth to 9%. We believe IDXX can achieve
double-digit organic revenue growth by 2016 driven by increased
penetration and conversion to Catalyst Dx, increased cross-selling in the
US from its revamped sales force, and significant global expansion.
Investment highlights
 Catalyst One is another growth driver. We raise our 2015 revenue
estimate by $30M to $1,635M (+9%) vs. consensus of $1,616M and
raise our 2015 EPS estimate to $4.38 (+14%) from $4.32. We
believe IDXX’s roll-out of Catalyst One (a scaled-down version of the
Catalyst Dx instrument) in Q4/14 will help accelerate consumable
reagent growth to 13% in 2015 and 14%+ in 2016.
 Introducing 2016 estimates. We introduce our 2016 EPS estimate of
$5.00, which assumes accelerating EPS growth of 14%+ on
revenues of $1,800M (+10%), consistent with IDXX’s goal of
achieving double-digit organic revenue growth.
 Balanced organic growth. We believe IDXX has solid visibility for
organic growth (8.8% average in the last three quarters) both within
the US (upgrade customers, modest share gains, new product revs)
and OUS. We believe global expansion in the EU, Brazil and Asia
represent major LT growth drivers, as countries outside the US
begin to approach levels of sophistication practiced by US Vets.

LeMaitre Vascular

COMPANY DESCRIPTION:
LeMaitre Vascular markets devices used to treat
peripheral vascular disease (PVD) in either a surgical or
endovascular setting. Open vascular surgery products
comprise ~71% of sales, with endovascular and general
surgery accounting for 21% and 7%, respectively.
LeMaitre has over 65 direct sales reps and also uses
distributors. The company has a diversified product
portfolio with 16 product lines, none of which is more
than 20% of sales.

All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
UPDATING MODEL FOLLOWING EQUITY OFFERING; BUY

The company’s prospects look very attractive to us
given the confluence of material cost-cutting initiatives, manufacturing
consolidation (both of which have been executed) and new, upcoming
product launches/approvals could drive significant gross and operating
leverage as 2014 progresses. In fact, we see a relatively clear pathway to
double-digit operating margins by Q4. Coupled with the company’s solid
execution of its strategy to build strong market share positions through a
diversified product offering, we would be buyers of LMAT. We maintain
our BUY rating and $11.50 price target.
We update our model to account for the completion of the company’s
secondary offering. We believe the offering provides LMAT with sufficient
cash to fund its commercial and product development activities, along
with the ability to augment its growth profile via tuck-in acquisitions,
opportunity for which should be abundant in a relatively fragmented
vascular device market.

Investment highlights

Our $11.50 price target is based on our small-cap medical device group, which carries a
median EV/Sales of 2.7x (ex. hi/low). Applying a 15% discount to this group multiple, we
apply a 2.3x EV/sales multiple on our 2015 revenue estimate of $75.8M.

 

HEICO Corporation BUY

HEI : NYSE : US$52.18

BUY 
Target: US$65.00

 

COMPANY DESCRIPTION:
HEICO is a leading provider of commercial aerospace
spare parts and repair services, as well as niche
technology and electronic products for the space,
defense, industrial, medical and other markets. The
company reports its results in two operating segments:
Flight Support Group (FSG) and the Electronic
Technologies Group (ETG).Transportation and Industrials — Airlines and Aerospace
SELL-OFF OVERDONE; MAINTAIN BUY, PRICE TARGET TO $65
Investment recommendation
We believe the 3.7% drop in HEI shares after its Q2 report was overdone.
Granted, the drop in ETG margins to ~20% was greater than expected and
the H2/14 ETG margin improvement may be slower than a one-quarter hit
would indicate. However, we continue to believe the fundamentals of the
business have not changed and would use the pull-back to revisit HEI
shares. While organic growth may slow due to more difficult comps, we
believe the FSG strength, strong cash flow, and expected 20% growth
across the cycle continue to justify a valuation premium. We maintain our
BUY rating and slightly lower our price target to $65.
Investment highlights
 The company did raise full-year EPS guidance by $0.03 (as expected).
However, we slightly lowered our 2014 EPS estimate to $1.79 (still
above guidance) based on a slower Q3/14 ETG margin improvement.
We maintain our 2015 and 2016 EPS estimates of $2.04 and $2.26,
respectively. Note that due to the lack of acquisitions, the company has
not raised its revenue guidance at all in 2014 (still at up 12%-14%).
 Organic growth in the FSG segment was an impressive 15%. The keys
for the stock in the near term are improvement in the ETG segment,
continued better-than-expected organic growth in the FSG segment,
and potential acquisitions, which would be positive catalysts. We
continue to believe HEI represents a high-quality stock with a very
strong outlook; the Q2/14 results represent a slight step back, but not
a change to our long-term positive thesis.
Valuation
We lower our price target to $65, based on the average of a 32.0x EPS
multiple and a 15.0x EBITDA multiple, applied to our 2015 estimates.

 

All amounts in US$ unless otherwise noted.

Why Investors Love Drug Companies

JAMES SUROWIECKI  APRIL 28, 2014

• The New Yorker

Few people have done better in the recent stock boom than biotech investors. Biotech was the best-performing market sector last year, and in the past two years its stocks rose a hundred and twenty per cent. But suddenly, in late March, the stocks tanked, some falling more than twenty per cent in a few weeks. The selloff can be explained to some extent as a market correction and part of a wider flight from risk. But the real story concerns a revolutionary new hepatitis-C drug developed by the biotech giant Gilead.

Hepatitis C affects 3.2 million Americans; untreated, it leads to scarring of the liver and to liver cancer. Until now, the best treatments cured only about half of patients and often had debilitating side effects. But in December the F.D.A. approved the first in a new wave of hep-C drugs, Gilead’s Sovaldi. This is huge news—not just in medicine but on Wall Street. Vamil Divan, a drug-industry analyst at Credit Suisse, told me, “Sovaldi and the other new hep-C drugs are great drugs for a tough disease.” Sovaldi can cure ninety per cent of patients in three to six months, with only minor side effects. There’s just one catch: a single dose of the drug costs a thousand dollars, which means that a full, twelve-week course of treatment comes to more than eighty grand.

For Gilead this is great. Take an expensive treatment, multiply by a huge number of hepatitis-C patients, and you get a very lucrative business proposition. It’s also good news for patients. But it’s a big problem for insurers and taxpayers, who—given that hepatitis-C patients have an average annual income of just twenty-three thousand dollars—are going to end up footing much of the bill. There has been an uproar of criticism. Private insurers blasted Gilead’s pricing strategy; the pharmacy-benefit manager Express Scripts said that it wanted its clients to stop using Sovaldi once an alternative appears. Then, on March 20th, three Democratic members of Congress sent Gilead a letter asking it to explain why Sovaldi costs so much. The letter had no force of law, but it spooked investors by raising the spectre of what they most fear—price regulation.

Investors love drug companies in part because they often have tremendous pricing power. Drugs designed to fight rare diseases routinely cost two or three hundred thousand dollars; cancer drugs often cost a hundred grand. And, whereas product prices in most industries drop over time, pharmaceuticals actually get more expensive. The price of the anti-leukemia drug Gleevec, for instance, has tripled since 2001. And, across the board, drug prices rise much faster than inflation. The reason for this is that prices for brand-name, patented drugs aren’t really set in a free market. The people taking the drugs aren’t paying most of the cost, which makes them less price-sensitive, and the bargaining power of those who do foot the bill is limited. Insurers have to cover drugs that work well; the economists Darius Lakdawalla and Wesley Yin recently found that even big insurers had “virtually zero” ability to drive a hard bargain when it comes to drugs with no real equivalents. And the biggest buyer in the drug market—the federal government—is prohibited from bargaining for lower prices for Medicare, and from refusing to pay for drugs on the basis of cost. In short, if you invent a drug that doctors think is necessary, you have enormous leeway to charge what you will.

Still, this is an inherently fragile arrangement, dependent on our willingness to keep paying whatever the companies ask. The signs of a backlash are clear. More than a hundred cancer specialists have called for action to lower the price of cancer drugs. The chair of M. D. Anderson’s leukemia department co-authored an article saying that the cost of cancer drugs is “out of control.” The United Kingdom has announced a cap on annual drug spending, and Germany has adopted stringent rules to determine what drugs it pays for. Now Sovaldi has people talking again about allowing the U.S. government to do something similar. “It’s a growing issue, and this outcry may be a sign that we’re going to see more pushback,” Divan said. Every other developed country, after all, has some form of drug-price regulation, and it’s not as if drug companies then abandon those markets. Gilead sells Sovaldi in the U.K. for fifty-seven thousand dollars per treatment, nearly thirty per cent less than the price we pay.

Price restrictions have always been a political non-starter here, but at some point the math of the situation will be hard to resist. According to a study by the research group I.S.I., by 2018 spending on “specialty drugs” like Sovaldi could account for half of all drug spending in the U.S. Furthermore, one traditional argument against price controls is looking weaker: biotech companies claim that prices need to be high to reward risky and expensive innovation, but the fact that they’re churning out drugs and profits so consistently seems to undermine that claim. Biotech, in other words, may become the victim of its own success: the bigger the profits, the bigger the likelihood of regulation.

You might think that this prospect would encourage companies to be more cautious. But, if you assume that price controls are coming, the rational play is to squeeze out all the profits you can now. The uproar over Sovaldi may, somewhere down the line, help contain drug prices. But in the short run it could well make drugs even more expensive. And that’s what you call a serious side effect.

 

At AMP we are looking to Harris and Harris Group ( TINY) – little know and about to file for three or more IPOs in the next year.They avoid long periods of research and expensive investing by investing in advanced research projects.

OPKO Health ( OPK) is following the same route and has the backing of Dr. Phillip Frost – former head of TEVA.

or to the cynic

 

OPKO Health QRT. Report

OPKO Announces First Quarter Operating Results

• 4Kscore™ Test successfully completed clinical validation study and launched on March 31, 2014
• All RAYALDEE™ Phase 3 clinical trials have completed enrollment on schedule – top line data expected for release mid-2014
• Cash and cash equivalents totaled $156.4 million providing sufficient liquidity to fund development programs

MIAMI–(BUSINESS WIRE)– OPKO Health, Inc. (NYSE:OPK), a multi-national biopharmaceutical and diagnostics company, today reported operating and financial results for its first quarter ended March 31, 2014.

Business Highlights

• 4KscoreTest Launch: During the first quarter 2014, OPKO successfully completed the 4Kscore Test clinical trial in the U.S. and on March 31, 2014, launched the 4Kscore Test in the U.S. through its CLIA-accredited OPKO Lab in Nashville, TN. OPKO expects to begin offering the 4Kscore Test through its Spanish subsidiary in late 2014 and through its other subsidiaries shortly thereafter. The laboratory-developed test is designed to enhance the prostate biopsy decision making process that, in the U.S., leads to approximately 1 million biopsies being performed annually, with 80% of the results indicating no cancer or a low-grade cancer. The 4Kscore Test will help to reduce unnecessary prostate biopsies by providing information on the risk (probability) of having high-grade prostate cancer.
• 4Kscore Data Presentations: OPKO will present data from its recently completed U.S. clinical validation study at two upcoming conferences: the American Urological Association (AUA) inOrlando, which selected “The 4Kscore Test as a Predictor of High-Grade Prostate Cancer on Biopsy” as a Late-Breaking Abstract for presentation in Plenary I on Sunday, May 18, 2014; and, the 83^rd Annual Meeting of the New England Section of the AUA in October 2014 in Newport.
• Completed Patient Enrollment in the Third Phase 3 Trial of RAYALDEE: This trial is a 6-month open-label extension of two ongoing identical randomized, double-blind, placebo-controlled, multi-site pivotal phase 3 studies for RAYALDEE intended to support marketing approval in the U.S. This third study is designed to evaluate the product’s long-term safety and efficacy in treating secondary hyperparathyroidism (SHPT) in subjects with stage 3 or 4 chronic kidney disease (CKD) and vitamin D insufficiency. OPKO is on schedule for releasing top-line pivotal data in the third quarter of 2014 and filing a New Drug Application (NDA) with the FDA in the first quarter of 2015.
• Inspiro Acquisition: In April, OPKO entered into a definitive agreement to acquire Inspiro Medical Ltd., an Israeli medical device company with a new platform to deliver small molecule drugs such as corticosteroids and beta agonists, as well as its own new drug working with a novel mechanism of action, to treat respiratory diseases. Inspiro’s Inspiromatic™ is a “smart” easy-to-use dry powder inhaler with several advantages over existing devices.
• Rolapitant Continues on Schedule For a Mid-Year NDA Filing: OPKO’s partner, TESARO announced it is on track for its NDA filing for rolapitant mid-2014 and anticipates completing a dose study for the intravenous (IV) formulation during the second quarter of 2014. The IV formulation is expected to be launched approximately one year after the oral product becomes available.
• Key Management Positions Added: OPKO made a number of important additions to its management team: Greg Stanley joined OPKO as Vice President of Sales and Marketing for the Global Diagnostics Business Unit, and Scott Toner joined OPKO as Vice President, U.S. Marketing and Sales for the Renal Division.
• Establishment of a Global Supply Chain Infrastructure and Holding Company Based in Dublin, Ireland: OPKO is expanding its presence by establishing a global supply chain operation and holding company in Ireland. OPKO is recruiting employees to support the ongoing launch of the 4Kscore diagnostic test and in anticipation of the commercial launch of RAYALDEE. The Irish operation is also expected to manage the global supply of other products over the next several years and to serve as a holding company for many of OPKO’s non-U.S. subsidiaries.
• In January, OPKO completed the acquisition of Laboratorio Arama de Uruguay Limitada (“Arama Uruguay”), a privately-owned company located in Montevideo, Uruguay. Arama Uruguay will expand OPKO’s presence in Latin America and complement the business activities of its operations in Chile and Mexico, as well as permit commercialization of OPKO’s products currently commercialized and those in development.

Edwards Lifesciences UPDATE BUY

EW : NYSE : US$80.27

BUY 
Target: US$86.00

COMPANY DESCRIPTION:
Edwards Lifesciences manufactures minimally invasive
medical devices for the cardiovascular market. Its
primary product line is centered on heart valve therapy
and includes tissue valves, mechanical valves, and repair
products. It has a large offering for critical care, with key
products for hemodynamic and pressure monitoring.

Life Sciences — Biomedical Devices and Services
DEBATE WILL STILL RAGE, BUT WE MAINTAIN A LONG BIAS; BUY
Investment recommendation
We expect the lively bull-bear debate to continue following EW’s Q1 results
given that the company’s performance gave both camps ample ammunition
to voice their positions. Bulls should focus on the strong OUS TAVI results,
imminent XT approval, bullish SAPIEN 3 prospects and TMVR potential.
Bears will focus on TAVI shares losses in US. In the end, we see more “risk”
to the upside – both in terms of upside potential to current estimates and
positive news catalysts (IP litigation, royalty/injunction, XT approval); thus
recommend investors take a long bias.
Q1 turned out pretty much as expected, i.e. the opportunities remain intact
and the challenges (US TAVI share shifts) remain. Overall, recent events
may tip the scales in favor the bull argument — the growing body of clinical
evidence supporting TAVI therapy (CoreValve data could lift all TAVI boats),
coupled with the imminent approval of XT in U.S. Moreover, the potential
for a material royalty from MDT in light of EW’s recent patent wins are not
factored into consensus models, in our view.
We would accumulate EW shares and recommend investors continue to
focus on accelerating EPS growth potential in 2015/2016, when we see new
products accelerating revenue growth and operating margin expansion. We
maintain our BUY rating and raise our price target to $86 from $84.
Investment highlights
 Total sales grew 5% Y/Y to $528.4M (+5%), above our $519M estimate
but below the Street’s $525M.
 WW TAVI sales of $189.2M (+11.5% Y/Y) were above our $181.1M
estimate and the Street’s $188.1M. U.S. TAVI sales of $78M (-6% Y/Y)
were below estimates, while OUS TAVI $111M (+36%) blew past
expectations.