Zacks_Analysts' Blog : Edwards' Sapien under CMS Scanner - Analyst Blog

Edwards Lifesciences (EW) received a major setback as the Centers for Medicare & Medicaid Services (CMS) decided to initiate a National Coverage Analysis (NCA) of transcatheter aortic valve replacement (TAVR). As a result, the stock price of the company closed 6.58% lower on Thursday. According to the agency, it received a formal national coverage determination (NCD) request from the Society of Thoracic Surgeons (STS) and the American College of Cardiology (ACC).

Edwards, a leading player in the field of heart valves and hemodynamic monitoring, issued a statement regarding the matter. The company was aware that CMS was considering initiating an NCA to decide on the reimbursement status of Sapien transcatheter heart valve (THV). Besides, it believes that a well-written NCD should ultimately be positive for patients.

Current investor focus is on the potential US approval of Sapien THV for Cohort B patients (considered unfit for surgery). Edwards is confident of receiving approval by October 2011 and expects to record approximately $20–$25 million during the first quarter of Sapien’s launch in the US. However, any unfavorable reimbursement decision from CMS could have an adverse impact on the potential market of the valve.

In July 2011, Sapien received favorable recommendation from the advisory panel of the US Food and Drug Administration (FDA). However, the panel expressed concerns about vulnerability to neurological problems, particularly stroke, in patients treated with Sapien.

CMS is concerned about high stroke and death rates associated with TAVR (6.7% and 5%, respectively, at 30 days and 10.6% and 30.7%, respectively, at 1 year), as revealed by data from the Partner trial. The agency is also apprehensive that these adverse events may multiply when procedures are carried out by inexperienced physicians. The agency will ask for public comment on the issue during September 28 through October 28, 2011, with a proposed decision expected in March 2012. The whole NCA process is expected to be over by June 2012.  

Recommendation

In Europe, Edwards operates in a highly competitive environment with the strong presence of Medtronic (MDT). Moreover, Boston Scientific (BSX) is also working to enter the THV market banking on the acquisition of Sadra Medical.

We currently have a Neutral recommendation on Edwards, which corresponds to a Zacks #3 Rank (Hold) in the short term. However, any adverse decision regarding Sapien would lead us to revise our estimates for the forthcoming period. While Medtronic carries a Neutral recommendation, in line with the Zacks # 3 Rank (hold) in the short term, we are Outperform on Boston Scientific, which corresponds to Zacks # 2 Rank (Buy).