Edwards Lifesciences 2005 Annual Report"
Innovative. Trusted. Leadership. These are but three
of the words that characterize Edwards Lifesciences, and the way
we run this company and live our lives. I am pleased to report
that 2005 was another successful year of substantial strengthening
for Edwards Lifesciences on many fronts. In our 5th year as an
independent, publicly-traded company, we achieved all of our financial
goals, introduced a number of new products, and made important
progress on our growth initiatives. We also continued to contribute
meaningfully to the communities in which our employees live and work.
Financial Gains and New Product Introductions
Our solid financial performance created a strong platform
from which we continue to grow. We met or exceeded all of our 2005 financial
goals, achieving sales in excess of $998 million and improving our gross
profit margin by more than 200 basis points. Non-GAAP net income grew
20%, and we also delivered free cash flow of $126 million. We continued
to grow and gain share in our Heart Valve Therapy and Critical Care
franchises, while improving these product lines’ profitability.
On an underlying basis, all of Edwards’ businesses posted higher
sales growth rates over last year, and presently more than 80% of our
sales come from products in #1 global market positions.
Our R&D investment, which we increased nearly 14% this
year, is yielding considerable returns, with newer
products representing a growing proportion of our
sales and further extending Edwards’ leadership in
key areas. New product introductions included our
PERIMOUNT Magna valve with ThermaFix treatment,
Theon mitral tissue valve and Geoform valve repair
ring in the U.S., as well as our PERIMOUNT Magna
mitral valve in Europe. We also unveiled one of
the most exciting new advancements in surgical heart valve
treatment — our
Ascendra minimal access heart valve system, which
enables aortic heart valve replacement to be performed
on a patient’s
beating heart. We also introduced the FloTrac sensor
and Vigileo monitor, the first innovations from a next-generation
Critical Care platform that should yield a number
of additional, less-invasive technologies in the coming
years.
Growth Through Learning
This year, we continued to advance the state of the art and gained additional
strength in our key growth initiatives. Although we
fell short of our original sales goals for LifeStent peripheral vascular
stents, we remain optimistic about our differentiated technology and
the overall market opportunity. Preliminary 12-month results from our
Phase I RESILIENT clinical trial showed promise in improving patients’circulation
in the demanding superficial femoral artery, and we
believe these early results bode well for LifeStent’s future success.
Additionally, we made important progress
in the development of our percutaneous heart valve programs.
In the first quarter, we initiated a U.S. IDE clinical
trial for our Cribier-Edwards percutaneous aortic heart
valve, which uses a catheter delivery system to navigate
the replacement valve through the patient’s circulatory
system instead of taking a surgical approach. We voluntarily
suspended the study at mid-year in order to incorporate
a new delivery system, which had reduced procedural complexity
and improved clinical outcomes in cases outside the U.S.
We were very pleased to have restarted patient cases by
the end of the year.
In our two percutaneous mitral heart valve
repair therapies, we incorporated a number of product enhancements,
and clinical feasibility cases were underway at Canadian
and European sites by year-end.
We believe percutaneous heart valve therapies
offer hope to thousands of patients worldwide who
are not good candidates for conventional open-heart
valve surgery and face limited therapeutic options. With
the experience gained this year, we are well-positioned
for clinical progress in all of our percutaneous
valve programs in 2006.
Strengthening Our Communities
With more than 5,400 employees now working in Edwards’
operations globally, we continue extending our connections
and contributions throughout the world. Fueled by the continued
increasing demand for our innovative PERIMOUNT tissue heart valves,
in June we opened a new heart valve manufacturing plant in Singapore
to serve growing numbers of customers and patients.
Additionally, we announced the creation of The Edwards Lifesciences Fund, a $20
million charitable fund intended to support advancements in knowledge and improvements
in quality of life, focusing primarily on cardiovascular disease and the communities
where our employees live and work. The 17 organizations that received funds from
our first grant cycle will help realize the Fund’s mission by assisting
underserved individuals around the world.
Looking Ahead: Continued Leadership and Innovation
Going forward, Edwards will seek to further
extend growthand leadership in our chosen areas of emphasis: heart
valve disease, critical care technologies and peripheral
vascular disease. We will continue emphasizing differentiated, physician-preference
products with leadership potential, further building upon the contributions
we have been fortunate to make. We also expect to continue investing
aggressively in innovative technologies — balancing disciplined
growth with new platforms that will enable us to treat
even more patients whose conditions are under-diagnosed
or untreated.
For 2006, we are confident in our ability
to achieve our financial goals, generating total sales between $1.02
and $1.06 billion (equating to an underlying growth rate of 8-10%);
increasing gross profit margin by 150 to 200 basis points; delivering
non-GAAP net income growth of 12-15% excluding the impact of special
items and stock option expensing, and generating free cash flow of $140
to $150 million.
Over the decades since Miles Lowell Edwards first started his laboratory,
Edwards has pledged to serve as a trusted partner in the community fighting
cardiovascular disease. We remain a proud member of the medical technology
community, which through its innovations, has contributed to extending
patient longevity, increasing productivity and reducing hospitalizations
around the world.
We expect the demand for Edwards’ technologies to continue
growing, as more patients require treatment for their advanced
cardiovascular conditions, amplified by the increasing
aging population and the progressive nature of this disease. While we
are proud of our accomplishments to date, helping patients is our life’s
work, and there is much yet to do. We thank you for your interest and
support as we continue to pursue our aspirations while serving our customers,
patients, employees and shareholders.
Sincerely,
This letter to shareholders contains figures that are not prepared in conformity with Generally Accepted Accounting Principles (“GAAP”). Management has determined that inclusion of these non-GAAP figures provides a more meaningful comparison of the company’s ongoing operations. For a reconciliation of GAAP to non-GAAP figures, see pages 6-7 of the Annual Report on SEC Form 10-K (PDF).
