A new medtech company with almost a billion dollars in sales is being formed in Irvine.
Edwards Lifesciences Corp. (NYSE: EW) is planning next year to spin off its Critical Care unit, which makes a variety of patient monitoring products for hospital settings.
The Critical Care unit is expected to have sales approaching $1 billion in 2024. It’s currently Edwards’ third-largest business unit by sales, but has seen slower sales growth than other units for the company, which is best known for its heart valve products.
“The spinoff will give us an opportunity to improve care for millions more patients,” Critical Care Corporate Vice President Katie Szyman said at the company’s annual shareholder meeting on Dec. 7.
“For us, it’s about having the freedom to go after some areas. The opportunities are endless.”
Szyman will head the new company once the spinoff is complete. Based on revenue multiples for other similar public medtech companies in OC, the Critical Care division could have a valuation between $2 billion and $3 billion.
The expected location of the Critical Care’s headquarters were undisclosed.
About 4,000 of Edwards’ 18,300 worldwide employees work for the Critical Care unit.
Edwards currently employs nearly 5,000 people in OC.
CEO Spotlight
The spinoff is the biggest move for Bernard Zovighian since he became chief executive of Edwards in May, replacing Michael Mussallem, who was the CEO since the Irvine-based company went public—also via a spinoff, from Baxter International—in 2000.
Divesting the Critical Care unit will help annual revenue for Edwards grow more than 10% annually, and will also boost the company’s gross profit and operating margins, executives said.
“Next year is going to be great and the year after that even better,” Zovighian said.
“We expect our sharpened focus in structural heart to drive sustainable growth in the years to come as we embark on a new era of innovation to address large unmet patient needs.”
Shares in Edwards rose about 12% in the six trading sessions after the announcement; the company sports a $47 billion market cap, the second highest in Orange County and by far the biggest among OC-based medtech device makers.
2024 Forecast
Edwards reaffirmed its 2023 forecast and predicted sales will climb 8% to 10% next year, to around $6.3 billion to $6.6 billion. It’s estimating adjusted earnings per share of $2.70 to $2.80, about 10% higher than this year.
Edwards also announced $1 billion of additional share repurchase authorization.
Among highlights at the Dec. 7 annual meeting:
- Edwards’ biggest unit, Transcatheter Aortic Valve Replacement (TAVR), “is positioned for strong sustainable growth as many patients remain undiagnosed and untreated,” the company said. The unit will grow about 8% to 10% to $4 billion to $4.3 billion in sales in 2024.
- Â Its smallest but fastest-growing unit, Transcatheter Mitral and Tricuspid Therapies (TMTT) will boost sales to around $280 million to $320 million, implying a growth that could range from 55% to 77%.
- Its second biggest unit, Surgical Structural Heart, will grow sales to $1 billion to $1.1 billion, which the company said would be a constant currency growth rate of “mid-single digits.”
Critical Care
The Critical Care unit has traditionally been Edwards’ slowest growth unit. Its sales climbed 2.4% to $855 million in 2022.
Its sales this year will climb between 1.8% to 9.9% while next year’s growth could range from $900 million to $1 billion, which the company also said would be a constant currency growth rate of “mid-single digits.”
The Critical Care unit provides products to monitor hearts and fluids. It competes with
a variety of companies, including San Clemente-based ICU Medical Inc. (Nasdaq: ICUI); Cheetah Medical Inc., a subsidiary of Baxter International; and LiDCO Group PLC, a subsidiary of Irvine’s Masimo Corp. (Nasdaq: MASI).
An Edwards presentation at the event showed the Critical Care unit has a product called ForeSight, which is an oximetry sensor. No executive at the conference discussed Masimo, which has expertise in oximetry monitoring devices (see separate story, page 1).
The Critical Care unit says it is developing a next-generation monitoring system, which would replace the typical standard blood pressure monitoring cuff typically used on a patient’s upper elbow with a device that monitors blood at the fingertips called the ClearSight Acumen IQ Finger Cuff.
It’s also shifting from what it calls “classic monitoring” to “smart monitoring,” which uses artificial intelligence and noninvasive technology.
Currently, classic monitoring generates about 50% of the unit’s revenue by monitoring 14 million patients. By contrast, its smart monitoring generates 30% of revenue with only 2 million patients.
“Our market potential is to shift all of the patients to smart monitoring,” Szyman said.
“If you use smart monitoring technology, we can reduce your complication risks, reduce morbidity and reduce the length of stay which makes hospitals more efficient by one to two days.”
The unit typically sells its products to operating rooms and intensive care units, where its total addressable market (TAM) is 20 million patients. Szyman said the unit can expand to departments like outpatient surgery, pediatrics and obstetrics, where the TAM is another 30 million patients.
“We are thrilled about this opportunity,” she said. “We’re going to increase the speed of innovation and we’ll be able to expand into new areas.”
The unit manufacturers mostly in Puerto Rico and the Dominican Republic.
“We are proud of the Critical Care team, its rich legacy of pioneering innovation and the contributions they have made to our company, and we look forward to an even stronger future for Critical Care,” Zovighian said.
