Are Edwards Lifesciences Best Days Behind It?

Edwards Lifesciences' (EW -0.73%) sales growth has been decelerating, and that's caused its share price to slip. However, sales continue to grow at a double-digit rate, and the addressable market for repairing aortic stenosis using Edwards Lifesciences' heart valves is expected to grow. Will Edwards Lifesciences' revenue re-accelerate?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, the cast discusses the aortic stenosis surgical market and how Edwards Lifesciences hopes to profit from it.

A full transcript follows the video.

This podcast was recorded on Feb. 15, 2017.

Kristine Harjes: All right, Todd! We already covered the cholesterol drug market. The next thing we want to talk about on our heart episode is a company called Edwards Lifesciences.

Todd Campbell: This is going to be a stock that not a lot of listeners are going to know about. It's not as well-known as a company like Amgen. But it's still a very important company because it's changing how surgeons treat patients that have narrowing arteries in their heart.

Harjes: Right. Traditionally, that situation is solved with open heart surgery, which is a huge deal. There's some risk involved with it. And while Edwards Lifesciences does have some surgical heart valves that they make, they're also the leader and transcatheter heart valves, which is a non-surgical option.

Campbell: Right. Every once in awhile, we like to play games with our listeners. Let's do a quick game. I know you know the answers, so don't chime in.

Harjes: You don't have to tell them I know! [laughs]

Campbell: [laughs] All right. How many traditional surgeries are done in the U.S. for aortic stenosis, or narrowing of the heart arteries? Is it 500,000, 1 million, or 1.5 million? Let's give our listeners five seconds ... did everybody get the answers in? It's 1.5 million. There are a lot of patients that unfortunately suffer from this life-threatening situation. Treating many of those patients with open heart surgery is, frankly, dangerous. A lot of these patients are older, they may have other diseases that could make them more at-risk. In many cases, open-heart surgery isn't the best choice. And that's where Edwards Lifesciences comes in, because they get about 50% of their revenue in selling products that are used to treat this condition without having to open up the body or the chest cavity. Instead, they can insert a new valve into a major artery, and then put that into the failing valve, and avoid those complications and risk that comes with the more dangerous surgery.

Harjes: Exactly. Right now, this is a market sized at $2.5 billion for Edwards Lifesciences. But they expect the opportunity here is going to double to greater than $5 billion by 2021, which is not really that far away. They're calling that there's going to be increased awareness of this type of surgery, indication expansion, technological advances, all of these tailwinds that can open up this opportunity even more for them.

Campbell: Right. The smallest portion of the people who are going under this open heart surgery are the ones that are most at risk. As you move that out to intermediate-risk patients, you move that to low-risk patients, you're opening up the addressable market of this approach to so many more people, so many more patients. And that should continue to fuel revenue growth over time. That revenue growth may not be in the 30% to 50% year-over-year rate that we've seen historically with this company, but I would imagine that you're going to continue to see double-digit growth in, at least, procedure rates for this approach over the course of the next five years. If so, then investors could come out nicely rewarded.

Harjes: Right. This is a company that has grown a ton already. There's pretty high expectations for it, too. Back in October, when they reported earnings, they fell quite a bit just because their growth stopped being as big. They went from 23% to 20% year-over-year growth in the quarter they were reporting on, and investors sent the stock downwards just because it was only 20% growth.  

Campbell: Right. What's interesting is, investors need to remember, they have these other slow-growing parts of the business that account for 50% of sales. So, if you just break out this fast-growing part of the business, you went from in Q2, year-over-year growth of 49% to $418 million to Q3, 38.5% to $410 million, Q4 up 38% or so to $432 million. So, yes, you're decelerating, but wow, we're still talking about very fast growth for this company. I guess you could say that maybe it was priced to perfection last fall, maybe it's less so priced to perfection now.

Harjes: Yeah. So, interested investors definitely take a look at this one, it's a pretty cool company.