If you're ever told you need a new heart valve, and that the only way to do it is by sawing apart and prying open your ribs, your surgeon is likely to give you a choice...
Would you like a biologic or mechanical valve?
That's the one decision, in all likelihood, you'll have to make.
It's something people anguish over...
The younger, the more the anguish since biologic valves are increasingly being used in younger and younger people.
The trouble is, there’s a good chance a biologic valve will need to be replaced. The leaflets in these valves are made from the tissue of cows (bovine) or pigs (porcine), and generally last somewhere between eight and 15 years... sometimes going as long as 20.
By contrast, mechanical valves are made of titanium or carbon, and can last a lifetime. But they require regular blood monitoring and the use of blood thinners.... and unlike biologic valves, which are silent, can have a clicking sound.
When I had my valve replaced nearly four years ago, I went the biologic route – cow, to be specific. I was 67 at the time and given my age, and while the choice was mine, biologic was the recommended option. "That would have been my choice, as well," said my surgeon at the Cleveland Clinic, who was slightly younger than I was.
The rest was up to him – including the manufacturer, size, and model.
Every year, an estimated roughly 182,000 people have heart valves replaced in the U.S. alone.
Of those, most involve the aortic valve, followed by mitral and the harder-to-reach tricuspid and pulmonary valves.
Most valves are still replaced the old-fashioned way: by stopping the heart, putting the patient on a heart-lung machine and then surgically removing the old valve before replacing it with a new one.
Through the Groin – A Game Changer
Thanks to newer technologies, more and more doctors are skipping the surgery and – with the heart still beating – dropping a new valve into the old valve through a catheter snaked up from the groin. This kind of transcatheter aortic valve replacement, or TAVR as it is better known, might be cannibalizing traditional valve replacements... but they're helping grow the entire market.
TAVR, which has been around for about a decade, was originally developed as a way to replace valves in older – as in over 80 years old – and other high-risk people who might not otherwise survive surgery.
It has since been extended to younger patients, with a goal to move it even lower... in part as a way to make heart valve replacement less scary.
It's the kind of surgery that singer Mick Jagger recently had, as well as actor Arnold Schwarzenegger, where TAVR was used to replace an existing artificial valve.
The same goes for a few of my friends, who marvel that they were out of the hospital in a day. Among them is veteran business journalist Allan Sloan, who even wrote about his TAVR in the Washington Post, saying...
I had my valve replaced on a Wednesday morning at Cooperman Barnabas Medical Center in Livingston N.J., which has an established TAVR program, and went home shortly after lunch Thursday.
It took only a few days to get back to my normal, feisty self. I was just amazed, and still am.
By contrast, while I was up and around a day or two after my five-hour surgery – and sitting at my desk working 11 days after surgery – I was in the hospital for eight days (a day or two longer than expected because of a minor complication) and my full recovery took two months.
There also are now transcatheter mitral valve replacements, with trials underway for the tricuspid and pulmonary valves.
The use of minimally invasive approaches to valve replacement is a game-changer, and very well could rapidly expand the market.
Not Something to Ignore
To understand why, here's a quick anatomy lesson...
The heart has four heart valves, and they all are supposed to have three leaflets. The aortic valve, such as the one I had replaced, is the most common of all valve replacements. As it opens and closes, it thrusts the blood up through your aorta to the rest of your body.
It becomes a problem if it gets too stiff or starts leaking, which means that with each beat instead of closing fully some blood will flow back into your heart. That's not something you feel... Instead, it's something your doctor will hear as a click-like sound in a routine exam, while listening to your chest through a stethoscope.
Murmurs are common, and doctors often tell patients they're "nothing to worry about," but to simply monitor.
That's fine as long as you get an annual physical. But many people don't and just ignore it – especially if they don't have symptoms, such as extreme fatigue, shortness of breath, or even chest pain.
Ideally, it’s best to get the valve replaced before symptoms arise... because once they start, there's a greater risk of irreversible heart damage – the kind that can lead to heart failure.
After all, if the valve can't pump properly, the blood can't get through your body. Your quality of life plummets... and your life in all likelihood will be cut short.
That’s how I came to know about Edwards Lifesciences (EW)...
A Life-Changing Device
Spun off from Baxter International in 2000, Edwards is the closest thing to a pure play on artificial heart valves.
Before we go further, I need to disclose that when it comes to Edwards, I'm biased. An Edwards valve is beating away in my chest, and earlier this year I was a guest with about 60 other patients at the company’s annual two-day "Patient Experience."
This is an annual cheerleading event Edwards puts on mostly as a morale booster for its employees... so they can personally connect with the significance of what Edwards does.
I put my name on a list to get invited to the event shortly after my surgery, and when I got the call, I wasn’t about to miss out on it. (Memo to anybody who has an Edwards valve: go if you can.)
The highlight was meeting members of the team that hand-sewed my valve. Three of them are with me in the photo on top of this post. (You might have seen the same photo if you saw my post, “The Handmade Tale,” about how valves are hand made.)
Given the lifespan of biologic valves, it's unclear whether my valve will outlive me. If I live long enough, it will need to be replaced. And if it does, my current valve was “sized” so that a new valve could be dropped into the existing one by way of TAVR... without needing to recrack open my chest. These so-called "valve in valve" procedures are expected to grow in popularity.
My experience here also gives me perspective that most investors don't have with this type of product...
Before my surgery, I spent years – specifically, a few decades – researching the heart valve industry... knowing that one day I would likely be a customer.
Early on, when I was younger and technology wasn't as advanced as it is today, my focus was on mechanical valves, where St. Jude Medical – which was acquired by Abbott Laboratories in 2017 – was a leader. As I got older, it shifted to biologic, which is when I ran into Edwards.
This is an industry that unlike pharmaceuticals, has done virtually no brand or direct-to-patient advertising. Yet on patient heart-valve forums, I noticed that there was increased chatter about which valve other folks were getting.
In recent years, the name "Resilia" started showing up... a lot. As it turns out, that's the newest valve from Edwards used in traditional open-heart surgeries. It supposedly lasts longer. (My surgeon actually chose an older model for me.)
Given everything I knew, I made one big mistake...
If you follow the philosophy of the legendary Peter Lynch in his book One Up on Wall Street – the virtues of "buying what you know" – I should have bought Edwards the day I got home from the hospital.
Never mind that I was just starting recovery, which means I had a few other things on my mind...
This was mid-March 2020, almost the very day Edwards hit rock bottom along with the entire stock market as everything was shutting down because of the pandemic.
Like other stocks, Edwards had been pummeled, but it rapidly recovered along with the market... inflating into the bubble. By the end of 2021, it had more than doubled from its pandemic lows.
Edwards has since done round-trip, and now is trading about where it was when I left the hospital... with a lower valuation. (Disclosure: With the stock that low, I recently started buying shares.)
A True Innovator
Edwards is a true innovator in artificial valves, starting with mechanical valves... like the first one below, with a ball that would rise and fall in a cage.
The company went on to focus exclusively on biologic valves. It's widely regarded as the creator of TAVR technology. While Edwards has competition, it's currently the undisputed market leader.
There's a reason for that...
Various studies over the years have shown that high research and development (R&D) spending is correlated, over time, with higher stock prices.
Edwards is a poster child for this, with R&D spending ratcheting higher every year since the company has been public.
Its R&D spending is now just shy of 20% of its revenue. That's enormous, especially with a valuation of $40 billion.
The best part is that it's all internally financed, thanks to the kind of profitability that comes largely from being the market share leader in a product that people can't live without.
Think about it...
Edwards' gross margin last quarter of nearly 77% and operating margin of 28%, while down, is substantially better than its peers. That, in turn, has helped drive enormous cash generation, with free cash flow of $1 billion in 2022. The company is forecasting that this figure may be as high as $1.4 billion this year.
But the real star is Edwards' balance sheet... Last year, the company had negative net debt of roughly $600 million – meaning it had considerably more cash than debt.
Those dynamics create a powerful platform for the next phase of growth, which starts with TAVR, but also the transcatheter replacement of the mitral, tricuspid and pulmonary valves.
I can't stress the importance of this enough...
Transcatheter replacement isn't just changing the market for heart valve surgeries, but expanding it…
People like me will still need to go under the knife to replace their aortic valve because not everybody is candidate for TAVR. In my case, I needed a few other things done under the hood – including replacing part of an increasingly dicey portion of my ascending aorta, which was at risk of bursting.
But TAVR has opened up the procedure to people who were too old or otherwise high risk to have open-heart surgery... or simply too afraid. That's an enormous market, most of it still untapped.
With people living longer, there's a greater chance heart valves will get too stiff or leaky.
And while TAVR can now also be used on younger and lower-risk patients, it couldn't come soon enough for an aging population.
The potential is so great that Edwards believes the worldwide market for TAVR alone will be $10 billion by 2028. That's double the company’s total revenues last year and amount the company had been projecting just a few years ago. It's also 5 times the size of the expected surgical valve-replacement market.
More broadly, Edwards believes that by 2028 the full size of all of its markets, including the transcatheter mitral valve and transcatheter tricuspid – also referred to as TMTT – will expand to $20 billion. Transcatheter tricuspid alone is expected to be $5 billion… or the size of all of Edwards today. It’s barely generating any revenue today… yet it potentially holds a lot of value.
In other words, this like is an entirely new, growing industry.
How new? As recently as a year ago, Edwards CFO Scott Ullem told an investment conference that the company believes it's "in the early innings of TAVR adoption."
That’s just TAVR, and that’s where this gets real interesting...
An Expanding Market
Ullem's reasoning for saying "early innings" is because that treatment is so much higher for other diseases, like cancer, "that have a high degree of mortality like aortic stenosis. We just think there's a big opportunity in the U.S. and in Europe and other regions around the world."
Aortic stenosis is when your valve gets calcified to the point that it stiffens and stops operating properly. Live long enough and some form of stenosis is hard to avoid, but before TAVR the typical older person would just slow down and accept a fate of likely heart failure if the cause was their valve.
Now, people in their 90s are having TAVR procedures... and continuing to live their lives.
Still, right now only 10% of the 1.3 million patients with severe valve problems in the U.S. are getting treated. That’s a remarkable stat.
Edwards is involved in a trial to determine if valve replacement should be done much earlier, as valves start malfunctioning... much the way somebody with stage 1 cancer will likely be treated. (Its rival, Medtronic, is running a similar trial.) With valves, the treatment usually isn't until it's the equivalent of stage 4 for cancer. Or as one top Edwards executive put it an investment conference a few years ago...
We think you're doing damage to your heart during that period of time, much the same way cancer does damage to your body when you're moving from stage 2 to stage 3 or to stage 4.
That's exactly what I experienced. For more than 40 years, I would get annual echocardiograms of my valve, looking for any sign that I was starting to experience heart damage. I got a few MRIs and CT scans, as well. As it turns out, I started having some remote symptoms, and the valve replaced just before there was any damage.
But straddling such a fine line requires diligence, and most people aren't that obsessively diligent. That's why if the trials prove positive, and guidelines change, that would open up an even bigger market.
And that's just for the aortic valve...
The market for transcatheter replacement for the mitral and tricuspid valves, while roughly half the size of the aortic valve, could fuel even further growth. Mitral valve repairs and replacements are fairly common today, but the tricuspid valve has the highest mortality rate of all and is one reason so many old people start slowing down.
There's also something Edwards doesn't talk much about, but has quietly been working on for years...
Treatments for heart failure.
This has been among the project in its Advanced Sciences research unit, which is so under wraps that it's rarely discussed. But at the Patient Experience, I saw interviews with two women who were at death's door until they received the heart failure treatments. Both traveled good distances to be there. (Importantly, this wasn’t a promotion for Wall Street, but rather a behind-the-scenes peek for current patients.)
Heart failure would be a natural progression from heart valves. Or as CEO Bernard Zovighian explained in response to a question at a recent investor presentation (emphasis added)...
We learned a lot in the past few years about aortic stenosis patients, mitral patients, tricuspid patients, and we see an overlap with heart failure patients. So yes, we have not discussed a lot about it, but we see an overlap, we have been very active.
We have some investments, internal, external. We didn't talk a lot about it. We are not ready to talk a lot about it today, but we have some active investments. And when ready, we will talk more about it.
That sounds eerily like TAVR, when the company first started talking about it.
That's the thing about Edwards… what it starts talking about today can generate growth in the future while helping people live longer lives.
And it's spending the money on research to prove it.
Now, for the Fine Print
Edwards, of course, isn't without risk...
To many investors, the retirement earlier this year of CEO Michael Mussallem, at 70, is a concern. He held the job for 22 years, and was widely respected and regarded as the force behind the company's growth, vision and evolution. While he left as competition appears to be heating up, this does not appear to be a real risk.
A considerably bigger risk is that very competition, not just on TAVR, but more on the transcatheter repair or replacement of the mitral and tricuspid valve from the likes of Medtronic, Abbott and Boston Scientific. The concern is potential market share loss as well as pressure on margins as competitors try to woo doctors with lower prices. For its part, Edwards has mind share among surgeons, and management has downplayed the potential impact, but this is a real risk.
There's also the risk associated with the outcomes of several trials, especially one focused on replacing valves before somebody has symptoms. Any unexpected outcome will likely clobber the stock. As with anything in medicine, where trials are involved, this is a real risk.
There’s also the potential impact of the GLP-1 weight-loss drugs, which have been the rage lately. As I’ve written previously, stories about their rapid growth have impacted nearly all healthcare stocks. With heart valves, the theory is that as the weight-loss drugs go mainstream, and people lose weight, there will be less heart valve disease. Some studies say there is a relationship; some say there isn’t.
Asked about it on the company’s most recent earnings call, Zovighian said...
We have not seen any evidence that losing weight has any impact to aortic stenosis disease. We don't know that. We don't see that. We have not seen any evidence. So we don't see any possible implication here.
In other words, based on everything known today – this is not a real risk.
After all, valves seem to fail because for genetic reasons… and simple aging. What’s more, paradoxically: if losing weight helps people live longer, it also means the greater the likelihood as they age their valves start having troubles for no other reason than... old age, and parts – even valves – do wear out.
Even with all of these risks, the reality is this: The market for heart valves is growing, Edwards is the leader and it's working on new products for different heart valve and heart-related problems.
What’s more, Edwards plans to step-up its direct-to-patient marketing for the awareness of valve disease, and is expected to discuss those plans at its Investor Day next month. This is long overdue.
I can’t tell you what Edwards is worth. I’ve seen enough different valuations to know that the analysts don’t really know, either… certainly not as it relates to the long-term.
What I do know is that if Edwards continues to execute, it’s a remarkably well-run company with the leading market share and innovative life-saving technology… and it’s not resting on its laurels.
That’s why with the stock at these levels, it was hard for me to pass up… even with the risks.
Finally, if you missed it the first time around: I’m extremely biased here. I am not a dispassionate observer. I drank the Kool-Aid. And as we all know, that’s the fastest way to trouble with stocks.
But my time horizon is years, not quarters, and I’m willing to make that bet on the company whose product is keeping me alive.
If you liked what you read, don’t hesitate clocking the heart below and sharing this with your friends and family.
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I owned shares at the time of publication, and may sell at any time without notice.
Feel free to contact me at herbgreenberg@substack.com. You can follow me on Threads @herbgreenberg.
Thank you for sharing your heartfelt (pun intended) and personal experiences with your own heart and EW devices. Even if no one buys the shares based on your experience and opinion, my guess is that some readers will make a long overdue appointment for a physical exam. You may even have saved a life or three.
I agree completely with Sam Fawaz - and I’m adding my “thanks so much for sharing”! Also, I’m adding you, and all with similar needs, to my daily prayer list.