Latest Program to End at LivaNova Underscores Our Poor Capital Allocation Rating

Although we weren’t entirely surprised by the halt of LivaNova’s LIVN development of Vitaria for vagus nerve stimulation in heart failure patients and have already lowered our fair value estimate, this latest development underscores our largest concern about LivaNova—the firm does not have enough bandwidth to support multiple development programs (and the inevitable occasional gutter balls) necessary to ultimately successfully commercialize new technologies. It was just about three years ago that LivaNova ended its Caisson program (transcatheter mitral valve replacement). We see little in the pipeline to get excited about and hold tempered views of neuromodulation for refractory depression because the clinical data has been underwhelming. We’re also skeptical about LivaNova’s technology for obstructive sleep apnea, which strikes us as a relatively invasive approach compared with existing alternatives. All this leaves us lukewarm on LivaNova’s ability to generate meaningful innovation, even off its neuromodulation platform and expertise, which we think are significantly more compelling than its cardiopulmonary technology.

Related to some of these gutter balls, LivaNova has taken impairment charges totaling close to $520 million since 2019 associated with the purchase of Caisson, winding down its surgical heart valve business, and most recently, its acquisition of the ACS business. All of this reinforces our view of LivaNova’s poor capital allocation and especially its dismal record with investment strategy and execution. If LivaNova continues down this path, we would likely reconsider the basis of its narrow economic moat.