Miles Lowell Edwards founded Edwards Lifesciences in 1958. Along with Dr. Albert Starr, Edwards invented a life-saving aortic valve prosthesis that has gone on to save the lives of hundreds of thousands of patients. Baxter acquired Edwards in 1985 and spun the company off in 2000. Since then, Edwards built up a global workforce of 15,000 employees, including 2,000 engineers focused on research and development. Edwards' sales went from $932 million to over $5 billion today, and gross margin improved to 76% from under 60% in 2000.
Edwards stands out due to its high spend on research and development (R&D) and its culture of innovation and engineering. The chart above shows the amount of money spent on R&D as a percentage of sales for Edwards and its peers. Edwards spends just above 17% of its sales on R&D, while its peers spend about 10% or less. The vertical axis is estimated earnings growth over the next 3-5 years according to Zacks Research. Being the most innovative company pays off, with estimated earnings growth of 14% for Edwards, compared to peers which are expected to grow 10% or less. This competitive advantage puts Edwards in a class of its own.
The growth opportunities for Edwards over the next decade are large, with the company's global market opportunity expanding to $20 billion by 2028. TAVR, which stands for Transcatheter Aortic Valve Replacement, is currently Edwards' biggest segment, with its SAPIEN product being the most widely prescribed heart valve in the world. In 2021, TAVR sales were $3.4 billion, or 65% of total sales for the company. TMTT, which stands for Transcatheter Mitral and Tricuspid Therapies, is a new, fast growing segment for Edwards, with sales of $86 million in 2021 (106% growth over 2020). Its PASCAL system provides a minimally invasive therapy to repair valves.
There are many milestones to look forward to across all four segments in 2022. Management expects sales in 2022 to be between $5.5 and $6 billion and free cash flow of $1.2 and $1.5 billion. Edwards meets all the criteria of a GPM Grade company: an excellent management team that executes on creating economic value, a focus on long-term sustainable growth, and a high-quality, U.S. based leader with a history of superior innovation leading to strong sales, earnings, and free cash flow growth.