Edwards buy of CardiAQ for $350M a bet on transcatheter mitral valve replacement market

TAVR pioneer Edwards Lifesciences ($EW) is aiming for another transcatheter technology blockbuster--this time applied to mitral valve replacements--with the acquisition of CardiAQ Valve Technologies for $350 million in cash, with an additional $50 million payable based on achieving a European regulatory milestone. The deal is subject to customary closing conditions.

Equity analysts at Jefferies said Edwards is "hoping lightning strikes twice" following the ongoing boom caused by its successful Sapien transcatheter aortic valve replacement device, which has caused the company's share price share to more than double since the beginning of 2014, and given it a valuation of $16 billion.

Due to the success of Sapien and other TAVRs like Medtronic's ($MDT) CoreValve, along with a slew of positive postmarket data, "the markets seems to finally have realized that it will only be a matter of time before nearly all surgical valves are replaced with transcatheter devices--regardless of risk stratification," Jefferies analysts wrote in the research note, adding "the transcatheter mitral market is expected to be 2-3x the size of the aortic & the consensus among clinicians is that it is only a matter of time before the engineering challenges are solved. Acquiring CardiAQ is a bold move that increases EW's chance of both being first to market & ultimately having the best clinical solution."

Based in Irvine, CA (where Edwards is headquartered), CardiAQ has received the FDA's permission to test its transcatheter mitral valve implant in an early feasibility study of up to 20 patients, and has European approval to run 120-patient a study to earn a CE mark. So far, about 10 patients have been implanted with CardiAQ's development-stage device, according to Jefferies.

Edwards' Fortis mitral transcatheter heart valve--Courtesy of Edwards

Edwards' own program to develop a transcatheter mitral valve replacement device, dubbed Fortis, has been on pause since May, after safety concerns related to valve thrombosis (or the formation of blood clots near the device) were detected in early feasibility studies of about 20 patients. During the Goldman Sachs Healthcare Conference in June, company officials said they were evaluating the elderly patients with heart failure implanted with the device who are still alive, and plan to decide whether to move forward with the trial, design enhancements to the device, or "potentially shift gears" by the end of the year.

Edwards Lifesciences CEO Mike Mussallem

But Edwards CEO Michael Mussallem said the acquisition is intended to complement internal efforts, in a statement: "While still early in the development of this therapy, the progress of the team of employees and clinicians working on our Fortis mitral replacement system has reinforced our confidence in a catheter-based approach. We believe the experiences and technologies of Fortis and CardiAQ are complementary and that this combination will enable important advancements for patients."

Meanwhile, Edwards' foray could provoke acquisitions from other bigwigs interested in the space, including Medtronic, St. Jude Medical ($STJ) and Boston Scientific ($BSX), Jefferies says. Two targets would be Neovasc and Tendyne, the only other two companies with confirmed transcatheter mitral valve implants in their pipeline. So far approximately 50 patients have received an implant of such a device in clinical trials. Abbott ($ABT) makes the FDA-approved transcatheter MitraClip to treat mitral valve mitral regurgitation, but it is for valve repair, as opposed to replacement.

While the FDA was late to approve TAVRs, according to the head of FDA's device arm Jeffrey Shuren, the agency isn't behind Europe when it comes to promoting transcatheter (or transcutaneous) technologies for mitral valve replacement. "We have now approved three early feasibility studies for transcutaneous mitral valve replacement. The first patient just got an implant last week, and the rest of the world is in exactly the same place, so we are now starting to see companies say, 'you know what we are going to do an early feasibility study here," he said at a meeting of the Medical Device Manufacturers Association in May.

Edwards, CardiAQ, Neovasc and Tendyne have all implanted their device in clinical trial patients or are recruiting patients to do so. The subjects have been "compassionate use" cases, Jefferies says. "The limited number of cases & the differences in technologies & patient selection criteria has made it all but impossible to tell which, if any, of the existing technologies will prove successful. What EW learned in its due diligence to settle on CardiAQ versus other potential targets isn't clear but with ~$1.4bn in cash ($800mn net) & significant ongoing cash generation, we don't think the company would have been deterred from paying even more for a technology that it considered better able to solidify its leadership in this new segment," Jefferies says.

Other features of CardiAQ's second-generation device include a flap to combat paravalvular leakage, and its design for both transapical (meaning the device is inserted between the ribs) and transefemoral delivery (through the groin). It is a self-expanding, self-positioning, and self-anchoring device. The company implanted the first-ever transcatheter mitral valve replacement in 2012, but the patient died shortly thereafter.

Edwards CFO Scott Ullem foreshadowed the transaction at the Goldman Sachs Healthcare Conference in June, when he said the company was actively looking for "external growth opportunities" in the transcatheter mitral valve replacement space.

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