We continue our Statesmen Series today and are honored to welcome Edwards Lifescience's CEO Mike Mussallem.

LL: Tell us what influenced you to pursue a career in healthcare.

 

MM: Initially, I was attracted to this innovative sector, because it was characterized by a lot of growth.  Over time, I developed a passion for this career.  I believe you have to have passion for what you do – clearly, if you have passion for something, you will devote more effort and energy toward it. I am passionate about helping patients and playing a role in helping provide them with new treatment options. 

 

 

MM: Working for a company like Edwards Lifesciences, it’s exciting to have the opportunity to participate in developing technologies that save lives and improve people’s quality of life.  We help patients, their families and their communities.  Our Credo at Edwards spells out our mission – “Helping patients is our life’s work, and life is now.”  It means everything we do is for patients, and there is great urgency and value to our work.  I love my job!

 

 

MM: I only discovered my interest in the medical field a few years after I finished college; looking back, I think I would have enjoyed being a doctor.  My education and training is in chemical engineering and what I’ve found working for almost 30 years in the medical device industry is that pairing the ideas of engineers and scientists with the clinical experience of physicians is extremely powerful.  Our best innovations have resulted from this type of collaboration since each brings unique talents and perspectives to the process.  We have people from many different disciplines working at Edwards, and each has the opportunity to contribute to helping patients.

 

 

MM: I’ve had the benefit of growing up in the medical technology industry and worked in many different levels of a company – starting as a production supervisor, working in engineering, product development and then general management.  One of the most important lessons is what I call “living a business cycle.” Rather than coming into a new job to fix issues and immediately moving on to another assignment, I stayed to implement fixes and see how they worked.  When they didn’t or something new cropped up, I had to fix the mistakes.  In so doing, I learned a lot.

 

This is when I also learned that to succeed, you must accept failure because to truly innovate you must take risks.  I did some failing and watched others fail.  If something is unsuccessful, you try not to blame and you learn from the experience so you can continually improve and foster an innovative, risk-taking culture.  This experience has led to one of our key refrains at Edwards: “Don’t blame, learn.” 

 

I also know that honesty, integrity and showing respect for others are the essential ingredients for getting ahead the right way.  While it may be tempting to focus on the short-term, any worthwhile leader or business must operate with the future in mind and balance generating short term results with achieving sustainable long term growth.  For Edwards – and me personally – we aspire to be known as trusted partners with our customers, patients, employees and shareholders.  We must operate with complete honesty, integrity and mutual respect to accomplish this.  This is especially important when the going gets tough.

 

LL: Let us shift gears and talk about Edwards Lifesciences. Of the 13 or so M&A transactions Edwards has conducted since 2003, about half are acquisitions, the other half divestitures: please discuss the strategy behind each, how each contributes to Edwards’ overall business goals.

 

MM: Broadly, Edwards’ strategy is to provide transformational innovations, coupled with world class training and education, to address the unmet clinical needs within advanced cardiovascular disease. With this in mind, Edwards’ M&A transactions have been a part of a very deliberate process starting at the spin-off from Baxter in 2000, when Edwards became an independent, publicly-traded company. In making the decision to become independent, we knew we wanted to be a more rapidly-growing company, and realized we didn’t have the portfolio to achieve this goal.  Over the years we have been refining our portfolio to be more growth-oriented and profitable, focusing on providing higher-margin, clinically differentiated products in areas where we could be the global leader.

 

The first series of divestitures was focused on the global cardiopulmonary bypass products, and cardiopulmonary bypass services in the U.S. and Europe. We didn’t see growth opportunities for these products and services, the market was highly competitive and innovation was not being rewarded.  We also divested the Novacor left ventricular assist device business, since the early stage of the LVAD market development was not compatible with our strategy.

 

Three or four years after the spin, we felt we had the portfolio better aligned with our strategy and moved into the phase we’re in now, which is focused on making strategic enhancements to our portfolio. This strategy has worked well – our margin at the time of the spin was about 44 percent, and now, Edwards' gross profit margin is more than 65 percent, and climbing.  A big part of this improvement in gross profit margin is our stronger product and business portfolio.

 

It’s important to note that not every initiative is going to be successful.  We know you will start with more than you will finish.  We have prided ourselves in making the tough call to exit an initiative when it appeared that we would not attain the goals we set for it, such as achieving leadership or transforming medicine.  This is a living process, and we will re-direct our energies to the best opportunities as we gain experience.

 

 

MM: We think there’s a great deal of novel cardiovascular technology that resides within start-up and private companies.  I’m continually impressed with how much progress they can generate with limited resources – often start-up companies can do more with less, and advance new technologies faster than a larger company can. 

 

The primary criterion as we consider opportunities is that it must be a strategic fit with Edwards.

 

 

MM: We are very selective in our acquisitions, and all of these transactions are driven by and aligned with the company’s strategy. 

 

MM: We are very open to partnering where it makes strategic sense for Edwards, but we’re not locked into any particular structure.  We try to stay flexible and find the right structure for any of these opportunities that are presented.  In general, we have focused on important future trends, and this has led us to novel technologies.

MM: When evaluating acquisition opportunities, we do a very specific, individual evaluation of the technology and how it complements our existing portfolio and business focus.  Like everyone, we prefer less technology risk, however we have a flexible approach as to what stage of development the technology should be in, and we believe that it’s necessary for us to have this varied approach.  We are more willing to take technology risk in markets or product lines in which we have experience or are the leader.  We have been fortunate enough to find that we can achieve our desired level of growth and still remain close to home.  If we were to get into a completely new field, we might feel compelled to buy a larger entity, which would carry with it a greater amount of integration risk.

 

An example of a success with an early-stage acquisition: in 2004, we acquired Percutaneous Valve Technologies, Inc. Edwards had been developing its own unique percutaneous heart valve therapy platform, and this transaction enabled the company to strengthen its IP position and get the technology to patients quicker. Although the technology was in a very early stage of development, and we were assuming the risk of conducting clinical trials, we believed this transaction would provide a path to leadership in minimally invasive alternatives for patients with heart valve disease.

 

 

MM: We turned out to be right – in 2007, Edwards launched what is now known as the Edwards SAPIEN transcatheter heart valve for commercial sale in Europe, and we are making continued progress on a pivotal clinical trial of the technology in the U.S.  We believed then and continue to believe now that there is a large untreated patient population that can benefit from a transcatheter heart valve replacement.  

 

 

MM: Like most companies, we prefer to acquire companies that have successfully passed the pivotal trial stage. However, we are open to acquiring technologies at any stage, especially if they are consistent with Edwards’ strategy and in a field we understand – we might be willing to take more risk in situations in which we have our own program or comparable technology.

 

MM: Executing on our strategy requires R&D, and we continue to invest in it to fuel our product pipeline.  In 2007, R&D investment was about $120 million, or more than 11 percent of our sales. In comparison, in 2000, R&D investment was about $54 million.  We realized at the time of our spin-off from Baxter in 2000 that we needed to make a bigger commitment to R&D, and so during the last eight years Edwards has been substantially and steadily increasing our investment in R&D.

 

Our goal is to be the leader in the product categories in which we participate, and this requires a substantial internal R&D effort. However, we’re not hesitant to look elsewhere if we need something or wish to accelerate projects already underway at Edwards.  We more often rely on others to do the “R” portion of the equation, while we focus on the “D.” If a technology has advanced to development, it will be of more interest to us.

 

We also keep an eye on unique or extraordinary technologies that may prove disruptive to our own markets as they continue in their development, and study these as possible acquisition opportunities.