Edwards Lifesciences Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Edwards develops and sells structural heart and critical care medical technologies; TAVR products generated 65% of 2021 sales.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $5.233 billion | $4.386 billion | +19.3% |
| Gross profit / margin | $3.984 billion / 76.1% | $3.306 billion / 75.4% | Margin +0.7 percentage points |
| Operating income / margin | $1.690 billion / 32.3% | $897.6 million / 20.5% | +88.3% |
| Net income | $1.503 billion | $823.4 million | +82.5% |
| Diluted EPS | $2.38 | $1.30 | +83.1% |
| Operating cash flow | $1.732 billion | $1.054 billion | +$677.8 million |
Cash and cash equivalents were $862.8 million; short-term investments were $604.0 million and long-term investments $1.834 billion. Current assets were $3.181 billion against current liabilities of $1.032 billion. Long-term debt was $595.7 million, consisting principally of $600 million of 4.3% senior notes due 2028. The $750 million revolving credit facility was undrawn at year-end.
Capital expenditures were $325.8 million. Investing activities used $1.723 billion, primarily reflecting net investment purchases; financing activities used $356.3 million, primarily share repurchases. Edwards repurchased 5.6 million shares for $498.5 million under its authorization and had $1.1 billion of remaining authorization at year-end. The company has no current plan to pay cash dividends.
Business results and changes versus 2020
- TAVR sales rose 19.8% to $3.423 billion, driven by improved procedure conditions versus 2020, though Delta and Omicron disrupted U.S. hospital capacity in the second half.
- Transcatheter Mitral and Tricuspid Therapy sales rose 105.5% to $86.0 million, primarily from PASCAL adoption in Europe and improved conditions.
- Surgical Heart Valve Therapy sales increased 16.7% to $889.1 million; Critical Care sales increased 15.1% to $834.9 million.
- Sales increased across all reported geographies: United States +17.7%, Europe +22.3%, Japan +15.0%, and Rest of World +26.3%.
- R&D expense increased 18.7% to $903.1 million, equal to 17.3% of sales, reflecting investment in transcatheter programs and clinical research. SG&A expense rose to $1.494 billion, partly as commercial activity resumed.
Reported earnings comparisons were materially affected by unusual items. 2020 included a $367.9 million pretax Abbott patent-settlement charge, while 2021 included $124.1 million of income from a reduction in the fair value of contingent consideration liabilities. Intellectual-property litigation expense was $20.6 million in 2021 versus $405.4 million in 2020. Consequently, the sharp increase in operating income and EPS should not be read as solely reflecting underlying operating growth.
Outlook, risks, and contingencies
- Management anticipated approximately $300 million of 2022 capital expenditures. The filing provides no specific 2022 revenue or earnings guidance.
- Management said liquidity sources were sufficient for current and long-term requirements. It also warned that COVID-19 and variants could continue to affect procedure volumes, hospital resources, clinical trials, supply, and operations.
- The IRS proposed an adjustment to 2015–2017 transfer pricing that could result in approximately $180 million of additional tax expense. Edwards formally protested; no payment is due, if any, until proceedings conclude. The company had $358.4 million of gross uncertain tax positions at year-end.
- Edwards is reviewing and investigating possible FCPA compliance issues relating to business activities in Japan and other markets, after voluntarily notifying the SEC and DOJ. The potential outcome and financial impact are not currently predictable.
- The Abbott settlement requires estimated royalty payments totaling about $100 million through May 2024; the balance-sheet litigation settlement accrual was $191.3 million at year-end. A separate patent-infringement lawsuit concerning SAPIEN 3 Ultra was filed in September 2021; the company could not estimate possible exposure.
- Other key risks include regulatory approval and product-quality requirements, clinical-trial outcomes, competition and reimbursement pressure, reliance on some single-source suppliers, cybersecurity, foreign exchange, and the EU Medical Device Regulation and EU–Switzerland market-access arrangements.
- The 2017 U.S. tax law’s R&D amortization requirement, effective beginning in 2022 unless changed, could materially reduce cash flow, according to the filing.
Important facts for investors to verify
- Underlying earnings growth after separating the 2020 Abbott settlement charge and 2021 contingent-consideration fair-value benefit.
- Progress and resolution of the IRS transfer-pricing dispute, related uncertain tax positions, and the FCPA investigation.
- Whether procedure volumes, particularly U.S. TAVR, recover from COVID-related hospital constraints, and whether growth continues across product groups.
- Clinical-trial and regulatory milestones for mitral and tricuspid therapies and next-generation TAVR products, including their commercial potential and required investment.
- Cash-flow effects of 2022 R&D tax amortization, planned capital spending, share repurchases, and remaining settlement obligations.