Edwards Lifesciences Q4 2021 Earnings Call Transcript

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Provided by Quartr
January 26, 2022

Key Takeaways

  • Edwards delivered Q4 sales of $1.3 billion up 13% on a constant-currency basis and full-year underlying sales of $5.2 billion (+18%), while adjusted EPS rose 19% and R&D spend increased 19% in 2021.
  • The Omicron wave notably pressured U.S. hospital capacity in December, slowing Q4 TAVR growth to the low end of expectations and dampening Q1 2022 momentum, though management maintained full-year guidance assuming a gradual recovery.
  • Global TAVR sales grew 13% in Q4 (10% in the U.S., ~20% outside the U.S.), with key pipeline milestones—early asymptomatic trial enrollment complete, moderate AS trial launched, and FDA clearance for the ALLIANCE pivotal study of next-gen SAPIEN X4.
  • In transcatheter mitral/tricuspid therapies (TMTT), Q4 revenue reached $25 million (2021 total $86 million), CLASP IID pivotal enrollment wrapped up with H2 2022 data expected, and U.S. approval of PASCAL for degenerative MR on track for late 2022.
  • Surgical structural heart grew 15% underlying in 2021 on premium Resilia valve adoption, and critical care rose 14% led by HemoSphere and TruWave demand; both segments target mid-single-digit growth in 2022.
AI Generated. May Contain Errors.
Earnings Conference Call
Edwards Lifesciences Q4 2021
00:00 / 00:00

There are 15 speakers on the call.

Operator

Greetings, and welcome to the Edwards Lifesciences 4th Quarter 2021 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilcherding, Vice President, Investor Relations and Treasurer.

Operator

Thank you. You may begin.

Speaker 1

Thanks, Diego, and thank you all for joining us this afternoon. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer and Scott Ullam, our Chief Financial Officer. Just after the close of regular trading, Edwards released Q4 2021 Financial Results. During today's call, management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q and A. Please note that management will be making forward looking statements that are based on estimates, assumptions and projections.

Speaker 1

These statements include, but aren't limited to, financial guidance and expectations for longer term growth opportunities, regulatory approvals, Clinical trials, litigation, reimbursement, competitive matters and foreign currency fluctuations. These speak only as of the date on which they were made and Edwards does not undertake any obligation to update these statements after today. Additionally, the statements involve risks uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, Our 2020 Annual Report on Form 10 ks and Edwards' other SEC filings, all of which are available on the company's website atedwards.com. Finally, a quick reminder that when using the terms underlying and adjusted, management is referring to non GAAP financial measures.

Speaker 1

Otherwise, they're referring to GAAP results. Reconciliations between GAAP and non GAAP numbers mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike Mussallem for his comments. Mike?

Speaker 2

Thank you, Mark. We're proud of our performance in 2021. Although hospitals continue to be impacted by COVID, it was a year of significant milestones and investment for Edwards and our teams were relentless. In TAVR, we made important strides in executing our long term strategy. In particular, we invested in increasing awareness, Pursued further therapy expansion and advanced new technologies.

Speaker 2

We completed enrollment of the early TAVR trial, An important pivotal study studying the treatment of severe aortic stenosis patients before their symptoms develop. Separately, we initiated enrollment in our progress trial for moderate AS patients and we FDA approval for our ALLIANCE pivotal trial to start our next generation TAVR technology, As we continue to make meaningful progress on advancing our 3 key value drivers, a portfolio of pioneering therapies for patients, Positive pivotal trial results to support approvals and adoption and favorable real world clinical outcomes. We are pleased to have treated over 3,000 patients in 2021 with our differentiated portfolio of TMTT therapies, gaining valuable learnings through both our clinical and commercial experiences. Each of our platforms demonstrated promising outcomes and clinical performance. I'm also pleased to announce that we completed enrollment of our CLASP IId pivotal trial in 2021, an important milestone that keeps us on track for U.

Speaker 2

S. Approval late this year. In Surgical Structural Heart, We extended our leadership position through the adoption of our premium technologies. We also implemented valuable additions to our smart monitoring advancements Most importantly, in 2021, even more patients benefited from Edwards' life saving technologies than ever before. I'm also proud to say that throughout the year, our employees remain dedicated to keeping our commitments to patients and to one another.

Speaker 2

Despite the ongoing pandemic that fueled global challenges, our employees found innovative ways to support hospital procedures and to ensure our ability to supply our life saving therapies was not impacted. And through their efforts, we're able to get our technologies in Now I'd like to cover several 2021 financial highlights Before I get into the quarterly details, in 2021, we are pleased to achieve all of our key financial expectations. Underlying sales increased 18 percent to $5,200,000,000 driven by balanced organic sales growth in each region. We achieved 19% growth in adjusted earnings per share, while also increasing R and D 19%. The significant increase in R and D and infrastructure investments this year helps strengthen our long term outlook.

Speaker 2

And as you heard at our investor conference last month, we are as convinced as ever about the tremendous opportunity we have to enhance patients' lives and bring significant value to the healthcare system. Turning to our financial results. 4th quarter sales Of $1,300,000,000 increased 13% on a constant currency basis versus the year ago period. Growth was driven by our portfolio of innovative technologies, although at the lower end of our October expectations due to the pronounced impact of Omicron on Hospital Resources in December, especially in the U. S.

Speaker 2

Full year 2021 global TAVR sales of $3,400,000,000 increased 18% on an underlying basis versus the prior year. Despite intermittent challenges associated with the pandemic throughout the year, sales were in line with our original guidance of $3,200,000,000 to $3,600,000,000 and were driven by increased awareness of the benefits of TAVR therapy with our SAPIEN platform. In the Q4, our global TAVR sales were $872,000,000 an increase of 13% on an underlying basis With impressive strength outside the U. S, we estimated global TAVR procedure growth was comparable with our growth. And globally, Average selling prices were stable as we maintained our disciplined pricing strategy.

Speaker 2

In the U. S, Our TAVR sales grew 10% year over year in the 4th quarter, and we estimate that our share of procedures was stable. As previously mentioned, the omicron variant had a noticeable impact on hospital resources in December as cases were postponed or limited in a number of hospitals. Growth in the U. S.

Speaker 2

Was highest in small to mid volume centers, which are helping provide access to a broader population of aortic stenosis patients. Outside the U. S, In the Q4, our sales grew approximately 20% year over year on an underlying basis, and we estimate total TAVR procedure growth was comparable. We continue to be encouraged by the strong international adoption of TAVR broadly in all regions. In Europe, Edwards' growth was in the mid teens, and we estimate that our competitive position was stable.

Speaker 2

Growth was broad based across the region. It's worth noting that a recent cost effectiveness study Demonstrated that TAVR with SAPIEN 3 was economically dominant when compared to surgical aortic valve replacement in treating French patients With severe symptomatic aortic stenosis, who are at low risk of surgical mortality. We're also encouraged by the recently published guidelines from the European Association of Cardiothoracic Surgery, which now definitively recommend TAVR for patients over 70 5. We believe both of developments represents an important long term opportunity to bring TAVR therapy to even more patients in need. Sales growth in Japan was also strong, where therapy adoption is still relatively low.

Speaker 2

Several important milestones were achieved in Q4. For the first time, the number of TAVR procedures performed in Japan Following the recent reimbursement approval for the treatment of patients at low surgical risk, We remain focused on expanding the availability of TAVR therapy throughout the country. Longer term, we see excellent opportunities for Continued OUS growth as we believe global adoption of TAVR therapy remains quite low. In addition to our geographic expansion of our TAVR therapies, we remain focused on indication expansion. In Q4, we completed enrollment of our early TAVR pivotal trial, which is focused on the treatment of asymptomatic AS patients.

Speaker 2

Separately, we initiated enrollment in progress, an important pivotal trial for moderate aortic stenosis to determine the optimal time to treat patients who have this progressive disease. We believe that some patients may benefit from earlier treatment before they have symptoms or before their AS becomes severe rather than risking irreversible damage to their heart as the disease progresses. We also took steps to advance our innovative product portfolio. In Q4, we received FDA approval for our ALLIANCE pivotal trial to study our next generation TAVR device, SAPIEN X4. Additionally, in Q4, we received FDA approval To use SAPIEN 3 with our Ultera adaptive pre stent for congenital heart patients.

Speaker 2

This should result in a quality of life improvement and a reduction in the number of procedures that these younger patients will require over their lifetime. In summary, despite a slower than expected start to the year, we continue to anticipate 2022 underlying TAVR sales growth of 12% to 15%, consistent with the range we shared at our December Investor Conference. Our outlook assumes COVID related challenges early in 2022 turning to more normalized growth environment as headwinds from Omicron subside and hospital resource constraints stabilize. We remain confident in this Large global opportunity will double to $10,000,000,000 by 2028, which implies a compounded annual growth rate in the low double digit range. Turning to TMTT.

Speaker 2

As I mentioned, in the Q4, we completed enrollment of our Class IId pivotal trial, and we remain on track to present data in the second half of twenty twenty two. This important milestone keeps us on track for U. S. Approval late this year of PASCAL for patients with degenerative mitral regurgitation. We also continue to expect European approval of our next generation PASCAL Precision system later this year.

Speaker 2

At the PCR London Valves Conference in Q4, PASCAL 30 day outcomes from our MY CLASS post market approval study More than 250 patients in Europe were presented. The data highlighted safe and effective MR reduction in a post market setting. We also progressed on the enrollment of our Class IIF pivotal trial for patients with functional mitral disease. In mitral replacement, we continue to expand our experience with both our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 and the MiSEN study for EVOKE EOS. Early experience with these sub French transfemoral therapies increase our confidence in both platforms.

Speaker 2

Turning to transcatheter tricuspid therapies. Results from the TRISEN study were presented at the annual TCT conference in November and demonstrated that early patient outcomes with the EVOQ tricuspid were favorable and sustained at 6 months. We are encouraged by the procedural success rates and also the significant TR reduction and sustained improvements in quality of life measures experienced by these patients. We continue to make meaningful progress in enrolling our 2 tricuspid pivotal trials, The TRICEND-two pivotal trial for the EVOQ system and the CLASP-two TR pivotal trial with PASCAL in patients with symptomatic severe tricuspid regurgitation. We anticipate a late 2022 approval of Evoque Tricuspid in Europe and remain committed to providing solutions for these patients that have very poor prognosis and few treatment options today.

Speaker 2

Turning to the sales performance of TMTT, 4th quarter revenue of $25,000,000 grew sequentially The Q3 as we saw increased adoption of the PASCAL system despite the negative COVID impact in December. Full year 2021 global sales more than doubled to $86,000,000 As we continue to expand the availability of PASCAL to more centers in Europe, we are pleased with the excellent outcomes for patients supported by our high touch model. We look forward to continuing our progress toward advancing our vision to transform the lives of patients With mitral and tricuspid valve disease in 2022 with the milestones that we outlined in our recent investor conference. Despite the COVID impact so far this year, we continue to expect TMTT sales of $140,000,000 to $170,000,000 for 2022. We estimate the global TMTT opportunity will grow to approximately $5,000,000,000 By 2028, and we remain committed to bringing our groundbreaking portfolio of therapies to patients with these life threatening diseases.

Speaker 2

We are confident our portfolio strategy positions us well for leadership. In Surgical Structural Heart, Full year global sales were $889,000,000 up 15% on an underlying basis versus the prior year. 4th quarter 2021 global sales of $221,000,000 increased 9% on an underlying basis over the prior year. Although we saw that hospital staffing shortages continued to worsen throughout the quarter, especially in the U. S, Life saving surgical therapies continue to be prioritized over elective procedures.

Speaker 2

We're excited about the continued global adoption of Inspira's Resilia aortic surgical valve, the Connect Resilia aortic tissue valve conduit and our MITREZ resilient valve. We remain encouraged by the growing evidence that supports Edwards' Resilia Tissue Valves, including 2 studies being presented at the Society of Thoracic Surgeons Conference this weekend. The commenced study demonstrates excellent hemodynamics of this tissue technology across all aortic valve sizes at 5 years. While a European Economic Value Study Shows a cost reduction with the use of Inspiras versus mechanical valves. In summary, we continue to expect that our full year 2022 underlying sales growth will be in the mid single digit range for surgical structural heart, driven by adoption of our premium technologies and procedure growth.

Speaker 2

Even as TAVR adoption expands, we're excited about our ability to provide innovative surgical treatment options for patients, Extend our global leadership and be the partner of choice for cardiac surgeons. Turning to critical care. Full year global sales of $835,000,000 increased 14% on an underlying basis versus the prior year. 2021 growth was driven by balanced contributions from all product lines led by HemoSphere sales as capital spending resumed. Our TruWave disposable pressure monitoring devices used in the ICU also remained in high demand due to the elevated COVID hospitalizations in both the U.

Speaker 2

S. And Europe. 4th quarter critical care sales of $212,000,000 Increased 8% on an underlying basis, driven by strong demand for HemoSphere. Demand for our Broad portfolio of smart recovery sensors also remained robust in the 4th quarter, including ClearSite, our noninvasive finger cuff, which achieves sustained performance at or above pre COVID levels. As discussed at our recent investor conference, the integration of a full range of technologies Creates a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in hemodynamic monitoring.

Speaker 2

In summary, we continue to expect mid single digit underlying sales growth for 2022, and we remain excited about our pipeline of innovative And now, I'll turn the call over to Scott.

Speaker 3

Thanks a lot, Mike. Today, I'll provide a wrap up of 2021, including detailed results from the Q4 as well as provide an update on guidance for the Q1 and full year of this year. Sales in the 4th quarter increased 12.6% on an underlying basis. Adjusted earnings per share was $0.51 And GAAP earnings per share was $0.53 Our 4th quarter sales were negatively impacted by the wave of COVID that began late in the quarter, especially in the U. S.

Speaker 3

Earnings per share in the quarter was below our expectations as it was impacted by weaker than expected sales And we accelerated certain spending into the Q4 of 2021 that we had planned to incur during 2022, including preparation for TMTT product launches. For the full year 2021, we are pleased with our performance as sales increased 18% on an underlying basis to $5,200,000,000 and adjusted earnings per share grew 19% to $2.22 I'll now cover the details of our results and then discuss guidance for 2022. For the Q4, our adjusted gross profit margin was 76.8% compared to 75.3% in the same period last year. This increase was primarily driven by a favorable impact from foreign exchange. We continue to expect our full year 2022 adjusted gross profit margin to be between 78% and 79%.

Speaker 3

This year, our rate should be lifted by a favorable impact from foreign exchange and an improved product mix, partially offset by investments Selling, general and administrative expenses in the 4th quarter were $424,000,000 or 31.9 percent of sales compared to $339,000,000 in the prior year. This increase was driven by the resumption of medical congresses and commercial activities compared to the COVID impacted prior year, as well as the addition of personnel We continue to expect full year 2022 SG and A as a percent of sales, excluding special items to be between 28% 30%. Research and development In the quarter grew 19 percent to $233,000,000 or 17.5 percent of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including increased TMTT clinical trial activity. For the full year 2022, we continue to expect R and D as a percentage of sales to be in the 17% to 18% range as we invest in developing new technologies and generating evidence to support TAVR and TMTT growth.

Speaker 3

During the Q4, we recorded an $18,000,000 net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.03 This gain was excluded from the adjusted earnings per share of $0.51 I mentioned earlier. This reduction reflects an accounting adjustment associated with reduced expectations of making a future milestone payment for a previous acquisition. Turning to taxes. Our reported tax rate this quarter was 10.9% or 12.7%, excluding the impact of special items. This rate included an approximate 3 percentage point benefit from the accounting Our full year 2021 tax rate, excluding special items, was 12.6%.

Speaker 3

We continue to expect our full year rate in 2022 to be between 11% 15%, which includes an estimated benefit of 3 percentage points From stock based compensation accounting, foreign exchange rates decreased 4th quarter reported sales by approximately 1% or $10,000,000 compared to the prior year. At current rates, we now expect an approximate $100,000,000 negative impact Defined as cash flow from operating activities of $374,000,000 less capital spending of $90,000,000 Full year 2021 free cash flow was $1,400,000,000 up from $734,000,000 in 2020. We continue to expect full year 2022 free cash flow to be between $1,200,000,000 $1,500,000,000 In 2022, we expect our cash flow will be reduced by approximately $200,000,000 due to a change in tax regulations involving the timing of the deductions for research and development expenses. Turning to the balance sheet. We have a strong balance sheet with approximately $1,500,000,000 in cash, cash equivalents and short term investments at the end of the year.

Speaker 3

Consistent with our practice of opportunistically repurchasing shares, we purchased approximately $100,000,000 during the 4th quarter. We still have remaining share repurchase authorization of $1,100,000,000 Average shares outstanding during the 4th quarter We're $632,000,000 relatively consistent with the prior quarter. We continue to expect average diluted shares outstanding for 2022 To be between $630,000,000 $635,000,000 Before turning the call back over to Mike, I'll finish with financial guidance for 2022. Despite a slow start to the year associated with Omicron's impact on hospital resources, we are planning for conditions to gradually improve and therefore are maintaining all of our previous sales guidance ranges for 2022. For Total Edwards, We continue to expect sales to grow at a low double digit rate to $5,500,000,000 to $6,000,000,000 For TAVR, we expect sales of 3 point $7,000,000,000 to $4,000,000,000 And for TMTT, we expect sales of $140,000,000 to $170,000,000 We expect surgical structural heart sales of $870,000,000 to $950,000,000 and critical care sales of $820,000,000 to $900,000,000 For full year 2022, we continue to expect adjusted earnings per share of $2.50 to $2.65 For the Q1 of 2022, we project total sales to be between $1,270,000,000 $1,350,000,000 and adjusted earnings per share of $0.54 to $0.62 And with that, I'll pass it back to Mike.

Speaker 2

Thanks, Scott. So in conclusion, we're proud of the significant progress we made in 2020 1 advancing new transformational therapies and delivering strong financial performance. We expect continued growth and progress in 2022. We are enthusiastic about the continued expansion of catheter based therapies for the many structural heart patients Still in need, which positions us well for long term success. As the global population ages And cardiovascular disease remains the number one largest health burden.

Speaker 2

We believe the opportunity to serve our patients will nearly double between now and 2028. We are confident that our patient focused innovation strategy can transform care and bring value to patients And the healthcare system. And with that, I'll turn it back over to Mark.

Speaker 1

Thanks a lot, Mike. With that, we're ready to take your questions. As a reminder, please limit the number of questions to 1 plus one follow-up to allow for broad participation. If you have additional questions, please reenter the queue and management will answer as many

Operator

It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Robbie Marcus with JPMorgan. Please state your question.

Speaker 4

Great. Thanks for taking the questions. Maybe to start first, A little more color on 4th quarter and first quarter assumptions. U. S.

Speaker 4

TAVR came in a little lighter than expected. I don't it's a huge surprise given all the commentary and trends we're hearing, with Omicron late in the quarter. But maybe just walk us through what you saw throughout 4th Quarter, what you're seeing in Q1 and what you're assuming for the balance of Q1?

Speaker 2

Yes. Thanks, Robbie. So, yes, Q4 started very nicely. We saw a nice momentum in October November, And we really saw very strong impact in December. So it was primarily focused in the U.

Speaker 2

S. And it was centered around really hospital capacity. They really They reached their limits in many cases and started deferring procedures. We've seen that continue to lead to a slow start in 2022. So at this point, I would say sales are below what we would have typically expected for a start, probably more in line The kind of thing that we saw toward the end of December.

Speaker 2

But having said that, our assumptions are that we're going to see more normalized growth as The hospital resource constraints stabilize and so as Omicron, we think, comes down pretty hard, we think that our Full year sales guidance is still in place and our best estimate.

Speaker 4

Okay. And then maybe I'll do a follow-up question to that. As we think about the balance of the year, How should we think about the cadence throughout? 1st quarter came in, as you mentioned, under pressure a bit here, lower than where we were thinking. Maybe just walk us through how we should think about as a framework for the rest of the year and what are the assumptions underlying Appreciate it.

Speaker 4

Thanks.

Speaker 2

Yes. Thanks, Robbie. It's we don't have great visibility to Exactly what backlogs look like or what the patient flow might be. So at this point, we assume that many of the patients that are having procedures Postponed or deferred are going to come back. It's not clear to us what month or what quarter we're going to see it.

Speaker 2

In our assumptions, Robbie, is that By the end of the year, that we would see all the COVID related delays sort of return to the system.

Speaker 4

Okay, great. Thanks a lot.

Operator

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question.

Speaker 5

Good afternoon. Thanks for taking the question. Just a follow-up, Mike, on the previous question in Q4. Why it was a tale of 2 geographies, right? OUS was strong, US was soft.

Speaker 5

Why do you think The TAVR business was more impacted in the U. S. Than OUS. And I had one follow-up.

Speaker 2

Yes. Thanks for that, Larry. Yes, there I think actually it was clearer than you think. Omicron hit the U. S.

Speaker 2

Pretty hard and it hit it in large population centers. We saw it across The East Coast, we saw it in the Midwest, you know all the places that it was seen. And so we felt a pretty profound impact. In Europe, it was not the case. So although the UK experienced Omicron, most of Continental Europe just didn't see it In Q4, and so it was a very different picture.

Speaker 2

I think that was the primary reason, same thing in the rest of the globe, I would argue, right?

Speaker 5

That's helpful. And Mike, just looking ahead, you completed the Class IID trial, which is degenerative MR obviously. How do you think physicians will use the product when it's approved? Do you think people will stick to the label? Do you think people will use it Off label for FMR or you think how do you think people will use it once it's approved for DMR?

Speaker 5

Thanks for taking the question.

Speaker 2

Yes. Thanks very much. You know how we deploy these technologies. We're very hands on with them. We use a high touch model and really try and guide clinicians to do what's right.

Speaker 2

So we expect them clearly to be on label. That's the way that We're going to conduct our business. We're going to roll out to people that have experience that we think are very serious about treating mitral disease. And so we think it's going to be one that stays in bounds.

Speaker 5

All right. Thank you.

Operator

Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.

Speaker 6

Hi, guys. Thanks for taking my question. Mike, maybe on one on the guidance, right, I think or perhaps this is more for Scott question. I think in the past, you guys, when you've given the guidance, you said, look, it's prudent to be at the midpoint of the bank. Given Q1 It's about $50,000,000 below Street numbers.

Speaker 6

Perhaps should we be now thinking about bottom half of that range? Would that be more appropriate?

Speaker 3

Well, Vijay, it's Scott. Thanks for the question. It's a little early to talk about where the full year is going to come in, again, just because of the uncertainty of Omicron and how quickly it's going to fall off. Certainly, we feel like the early prospects are Different than we thought back last month at our investor conference. So yes, we'd probably model that a little bit lower in the range.

Speaker 3

But keep in mind, Because the Q4 came in a little bit lower, that brings us up a little bit in the range. So still for modeling purposes, the middle of the range is probably a good place Settle?

Speaker 2

Yes. I'll just add to that. I mean, if you want to think about something, just watch the impact of the pandemic on the healthcare system and on hospitals So if that goes better, then probably there's a better chance that our patients flow through faster. And if it's a greater burden, it would have the opposite impact. So at this point, we still think there's balanced risk in there, but a lot of it's going to depend on whether things transpire the way that we anticipate.

Speaker 6

That's helpful, Mike. And then maybe one follow-up. I think you called out Europe as mid teens, Japan, up strong double digits. I'm curious, given the low risk approval or I guess the receipt of reimbursement in Japan, Were there any stocking orders that benefited Q4 or perhaps Is this real underlying procedures and implications Japan should continue to be strong

Speaker 2

Yes. Thanks, P. J. So, no, clearly, what we felt like we saw OUS was not a result of any kind of stocking. These were real procedures that got done and that holds true Europe, Japan or elsewhere outside the U.

Speaker 2

S. Was there more to the question than that, Vijay?

Speaker 6

No, I was just at Cura. So it implies basically Japan now should be Wrong for the balance of the year unless there's a new variant, I guess.

Speaker 2

Well, yes, I mean, it remains to be seen exactly how this Variant is going to affect the rest of the world. There's one argument that say, hey, it's a little delayed and so it will come a little bit later. But then again, it may not have the same impact Because of a lot of reasons, whether it's seasonality or vaccination rates or their own safety protocols, So a little tough to predict how it's going to roll out, but overall, we've modeled probably a little more growth OUS than U. S. For 2022.

Speaker 6

Understood. Thank you, guys.

Operator

Our next question comes from Joanne Wuensch with Citibank, please state your question.

Speaker 7

Good afternoon or good evening. Thanks for taking the question. I'm interested in the comment that you made, I heard it correctly that you accelerated spending in the Q4 for TMTT that you had expected in 2022. So that if you're planning for U. S.

Speaker 7

Launch near the end of the year, would have been pretty far in advance. So should I assume that's mostly outside the United States? And what was the motivation To accelerate that spending into the Q4?

Speaker 3

Yes. Thanks, Joanne, for the question. So there are a couple of things going on and we are Continuing to invest in our field force as we continue to expand to new sites in Europe. And so that's a piece of The spending that we're doing, we're also starting to build resources in the states. So it takes a while to get ready for a product launch and we're taking very seriously Getting the right team in place, making sure that training is robust and that we're ready to go when the time comes.

Speaker 3

There were some other things that happened in terms of just being ready for doing things like Grants, market research, some of the patient awareness initiatives and starting to fund those in the Q4 is also an important part of Teeing up TMTT and TAVR for continued growth in 2022 and beyond.

Speaker 7

Excellent. And then my follow-up question has to do with the backlog. I appreciate it. It's hard to measure that. But is there any reason that we shouldn't see patients come back Maybe in the Q2 the way we saw last year?

Speaker 2

Yes. Thanks, Joanne. Yes, we remember that very well As well, we saw some pretty incredible surge that we really didn't expect in the second quarter. But I'll remind you, 2021 was a different picture than right now. It wasn't Omicron.

Speaker 2

It was a different variant. Hospitals were probably in a little different position. They weren't dealing with the constraints associated with labor. And I think there's Widespread nursing shortages. We think that all gets worked out over time.

Speaker 2

We think hospitals have a lot of sophistication. They're going to triage their systems and their staffing measures and ultimately find ways to treat the patients that are most in need. So we think that all gets worked out. But whether it pops in Q2, we're more hesitant than that. We really think it's going to be more of a gradual recovery.

Speaker 7

Excellent. Thank you.

Operator

Thank you. Our next question comes from Matt Miksic with Credit Suisse, please state your question.

Speaker 8

Hey, good evening. Thanks for taking the questions. Just I know you're getting a lot of questions on capacity and some of the issues that are constraining the market. But on that topic, Can you talk maybe just a little bit about some of the things you mentioned, Mike, about the impact of labor constraints on different types of centers and maybe coming at the guidance question from another direction, What gives you the confidence that these things will get better, like that you're not going to be sort of constrained by nursing shortage and staff, etcetera, for the brunt of the year. And I have one follow-up.

Speaker 2

Yes. Well, thanks, Matt. And there isn't perfect certainty here, but we get a lot of anecdotal information and we're obviously very close to our customers. The situation now and as we've gone through it in December January here feels very different than the early stages of the pandemic. In the early stages of the pandemic, not only did hospitals sort of shut down and closed their doors, but there were patients that were very concerned That stayed out of the system.

Speaker 2

And I'll remind you that the patients that Edwards serves are exactly the patients that are most vulnerable to COVID. And so we sort of had the double whammy, if you will, in 2020. What we feel now is there's It's less about the patient behavior and more about hospitals' ability to be able to do the cases. So do we hear anecdotal notes? And again, I don't have perfect information for you, Matt, but things like Hospital is saying, you know what, we're just going to limit to a certain number of procedures per week or we're going to postpone procedures till next month Or we're going to involve our Chief Medical Officer and he's going to look at all the procedures that need to be done and decide and triage them and decide which ones they'll Do now and which ones they do later.

Speaker 2

So you have a variety of actions that hospitals are taking, but we think that the patients are there. And so That's why we feel pretty comfortable staying with our current guidance. We don't have perfect visibility, of course, Matt, but that's behind our thinking. Sure.

Speaker 8

And then just on that same topic of resources, one of the things that you've talked about over the past several years is this Shift to more efficient procedures, light sedation and wondering if you're seeing The resource environment drive adoption there or is that one of the levers that folks are pulling on a little

Speaker 2

Yes. I think the hospitals think about that deeply, Matt, and it is a big plus if they believe that the patients don't need to consume And ICU bed and so forth or even impact hospital occupancy. So I think that all goes into the math of those folks that are managing hospitals. But even more important for them is they're trying to serve patients properly. They're trying to think about which patients are in greater risk and How to move them through the system?

Speaker 2

So it's complex and it's highly different from hospital to hospital and region to region, Matt. So It's there's a pretty good variance out there, if you will, but in total, I think that's all incorporated in our guidance.

Speaker 8

Thanks so much.

Operator

Our next question comes from Josh Jennings with Cowen. Please go ahead with your question.

Speaker 9

Hi, good evening. Thanks for taking the questions. Just 2 on the Class II program. I guess, first, just to follow-up with Larry's question. Our checks around from the MitraClip prior to approval for FMR and reimbursement suggested that Up to 20% of FMR cases are mixed etiology and have a degenerative component.

Speaker 9

Mike, just to circle back on your answer about Staying on label, would those patients of mixed immunology be on label, they do have the generic component? Yes.

Speaker 2

I think much of this is going to be physicians making that judgment. And so when it's all when it Actually comes down to it, the physicians are going to be looking at this patient. They're going to realize that our PASCAL device is only approved for degenerative and they'll have to look at this We think by and large are going to stay on label. But as you say, there are mixed patients and so there There's going to be some of that, that I'm sure physicians are going to have to just work through. Great.

Speaker 9

And then just on Class IID and Class IIF, were there any Design modifications because of COVID or any pre specified analysis that have been incorporated into the trial design Or because it's head they're head to head trials against MitraClip, that randomization takes any COVID related risk off the table. Thanks for taking the questions.

Speaker 2

Yes. Thanks very much, Josh. We typically just don't go into some of the particulars associated with the regulatory Process, it tends to be complex. There's a lot of nuance to it. And I think it would just be confusing if we went into all that.

Speaker 2

And so We really don't have anything new to share.

Speaker 9

Okay, understood.

Operator

Thank you. And our next question comes from Cecilia Furlong with Morgan Stanley. Please state your question.

Speaker 10

Great. Thank you for taking the questions. I wanted to follow-up and just ask Class IIF and Class II TR, Just what you've seen from an enrollment standpoint recently, and alongside that, how you're thinking about CBNX004 and Enrollment in that program commencing.

Speaker 2

Yes, thanks. So, Cecilia, we'll start off by saying clearly that many of the same sites We're doing Class IID. We're involved in Class IIF and Class IITR. And so Having completed enrollment in Class IID does mean that they probably will turn some of their attention to 2F and 2TR. And so I think it's likely to be it's only human.

Speaker 2

It's only likely to be a boost to that. I don't think it's going to have real impact on the Completion of the trial, so but we're hopeful that things go well here. Of course, these same groups are working with trying to get through Omicron, Which is no picnic, but we're hopeful that's short lived. As it relates to the SAPIEN X4, the Alliance trial, Remember, this is a new valve. And so this isn't simply a case of, boy, I'm just going to take all my SAPIEN-three patients and just put this new valve.

Speaker 2

And it really is A very novel valve system. And so this is going to be one that we do with a great deal of deliberateness. And so, it's going to there's going to be a learning curve And so we're just going to have to work through it. We really don't have a prediction on how fast that will enroll at this time.

Speaker 10

Okay. Thank you, Mike. And to follow-up as well, I'm just curious if you could talk about, just TAVR in China, what you've been able Recently with COVID, hopefully pulling back in the near term, how do you think about the opportunity to really start

Speaker 2

Yes, we're really looking forward to developing the market in China. And as you say, COVID has been a real setback in that regard because often if we were launching in a new country like that, We would bring a lot of experts from Edwards, key opinion leaders and there virtually is no travel to China right now. So it's just been our local team that's doing that, which doesn't make it any easier. We're excited about it. We know this too shall pass And we'll move on to it and we're really looking forward to bringing truly premium technology to China.

Speaker 2

Well, I'm sorry, there was a let's see. Oh, I think that's probably does that answer your question, Cecilia? Yes.

Speaker 10

It does, Mike. Thank you.

Speaker 2

Okay. Thanks.

Operator

Our next question comes from Danielle Antalffy with SVB Leerink. Please state your

Speaker 11

Hey, good afternoon, everyone. Thanks so much for taking the question. Just a question on PASCAL and how to think about the Go to market strategy here in the U. S. In Europe, you guys have obviously been getting a price premium.

Speaker 11

The trial is powered for non inferiority. So I'm curious if you could comment a little bit more on how you expect to get a premium here as well in the U. S. Or if we should Thinking about that a little bit differently, are there things that we could look for in the data when we do see it that could give us a little bit more And I have one follow-up. Thanks.

Speaker 2

Thanks, Danielle. I mean, 1st and foremost, When we come to the U. S, we're going to do we're going to run some of those exact same playbook that we have in Europe, which is To really focus on physician training, getting great real world results, making sure that we get patient Excellent patient outcomes. Every time we do this, we're going to probably tend to be staying in the places where people have real experience. I don't know that we have a pricing policy that's been established for the U.

Speaker 2

S. Launch at this point, and so we'll tell you about that once it's clear. But our focus is going to be on doing great cases for a while.

Speaker 11

Okay, got it. And then I guess my other question is around PASCAL in the U. S. And go to market. How to think about leveraging?

Speaker 11

I know you guys are I believe you guys are building a separate Sales force here, but how you might be able to leverage your presence that you have very strong presence in TAVR at a lot of these centers and there's a lot of overlap. How can we think about sales synergies or sort of a halo effect on both ends, whether it's for TAVR Or for Pascal from a market share perspective. Thanks so much.

Speaker 2

Yes. Thanks, Danielle. I think you know the way that we've approached this Across the board, as we really feel like the TAVR has a long way to go, have a lot of growth in front of it and deserves a great dedicated team and the TMTT opportunity is a very large one. And so the way we've gone at this is decide that we're going to have a dedicated team. Is there some halo that comes from the Edwards brand and so forth?

Speaker 2

I'd like to think so. Of course, We try and maintain a great reputation, but we don't go into it thinking about leverage so much or it's our bundled sales. That's really not our approach. We're going to sell on really trying to do spectacular procedures and get great outcomes.

Speaker 11

Thanks.

Operator

Our next question comes from Suraj Kalia with Oppenheimer. Please state your question. Good afternoon, everyone. Can you hear me all right, Mike?

Speaker 2

Yes. We hear you, Suraj.

Operator

Perfect. So Mike, I just wanted to follow-up Josh's question about CLASP II d, will there be any paired analysis presented in terms of the types of devices, I. E. MitraClip used and the number of devices used per case?

Speaker 2

Suraj, I'm not sure exactly what's going to be presented, but I would expect that you're going to see a pretty fulsome presentation of the data When it finally does get presented, that's we've said that that's going to happen in the second half of twenty twenty two. And when that happens, I think you're going to get a lot of information. You'll see almost everything related to device performance when that's presented.

Operator

Fair enough. Mike and my follow-up, for the $10,000,000,000 by 2028, how does The pie chart look for symptomatic severe, asymptomatic severe and moderate? Thank you for taking my questions.

Speaker 2

Yes, thanks. So we don't have perfect clarity on what that's what it's going to look like in 2028, but I can tell you basically what's in our assumptions. The great bulk of this is going to be people with symptoms with severe AS. And then I don't know what But it is the overwhelmingly large percentage. We think that there'll be a small portion of it, which will be asymptomatic patients that are severe.

Speaker 2

We have assumed that the The moderate AS patients are really not much in that number. It's really negligible and so not really in the number at all. And so hopefully that gives you a sense for

Operator

Thank you. Our next question comes from Matt Taylor with UBS. Please go ahead with your question.

Speaker 12

Hey, thank you for taking the question.

Speaker 2

So I wanted to ask you a little bit

Speaker 12

more about this U. S, OUS dynamic. I know Some of it may be short term disruption difference, but there's been notable kind of resurgence or renaissance in international growth. And I was wondering if you could talk more about that. Are you opening more centers?

Speaker 12

Is it improved acceptance of the therapy? And what does that mean for international growth Over the next couple of years versus U. S. Growth, do you think it could outgrow the U. S?

Speaker 12

Should they be close to each other? Any thoughts on that would be appreciated.

Speaker 2

Yes. Those are all really good questions. And one thing to keep in mind is the growth rates are all comparable Last year's growth rate, which was less than normal because it was also impacted by the pandemic. So we've been super impressed about what's going on in Europe right now. This mid teens growth because Here's technology that was improved in Europe in 2007 and to be growing at a mid teens growth rate right now It's very encouraging and it speaks to the strength of TAVR.

Speaker 2

I mean, Europe has never had broadly across Let's put it this way, they've never had so for example, TAVR per million population over 65 has been lower in Europe. Pretty good in Germany, but the rest of the country is behind. So there's been some catch up. When we talk about Japan, we say the same thing pretty routinely that And they really probably should be doing more TAVR and have more disease. And so there's quite a bit of catch up to go on.

Speaker 2

So There really is big opportunity and part of what we may be seeing is just healthcare systems that have typically been a little slower to adapt Are coming around and fueling the growth that's a little higher. And at the same time, you have to say Omicron did hit U. S. Pretty hard.

Speaker 12

Got it. Great. Thanks for the color. I'll let some others jump in. Thanks.

Operator

Our next question comes from Chris Squall with Guggenheim, please go ahead.

Speaker 13

Thanks. Mike, just wanted to follow-up on Cecilia's question about Alliance. I don't think it's been posted yet. Could you just tell us a little bit about the design of that trial, number of patients, length of follow-up, things like that?

Speaker 2

Yes. I don't the short answer is I'm not prepared to talk about that at this point, Chris. I think there may be some similarities to past trials, but I don't have the specifics on it. So we're going to have to get that to you at a later date here Because it's just I don't have that available now.

Speaker 6

Okay. No problem.

Speaker 13

And then Mike, I think I heard you say that TAVR volume in Japan has now caught up with Surgical volume, it seems like you may have hit that milestone a little faster there than you did looking at the experiences in the U. S. Or Europe. Can you talk a little bit about How market development is going there? It seems like it may have hit a bit of an inflection, maybe over the past year with low risk coming online.

Speaker 2

Yes. So thanks. For us, it doesn't feel like it's come really fast. It feels like it's Come slower, we think that TAVR should be really popular in Japan where surgery is not necessarily a preferred therapy and A great interventional procedure should have gone. There are a number of reasons that sort of slowed it down.

Speaker 2

They had tighter Regulation, so for example, they limited TAVR to hybrid ORs. They required approvals by national bodies. But at the same time, there have been some really positive developments in Japan. So now that we have Low risk approval, it's really streamlined the prior and it's reimbursed, it's streamlined the process for these patients to receive therapy. And so that was a big one.

Speaker 2

And slowly but surely, there have been more centers that were added so that it covers the geography a little better. So there's some positives there and we're catching up. We're excited about the growth rate, but in our eyes, it should have happened sooner.

Speaker 13

Thanks.

Operator

Thank you. Our next question comes from Jayson Bedford with Raymond James. Please go ahead.

Speaker 5

Hi, good afternoon. Just a couple of quick ones. I'll go off script and ask a critical care question. The segment has A decent capital component. I'm just wondering with labor becoming a bigger issue at hospitals over the last couple of months, Has your view on the environment for capital changed at all?

Speaker 2

Yes. So, it's a good question. Remember when the pandemic hit and Hospitals were in trouble. They really pulled back on capital spending. We saw that even most dramatically in the U.

Speaker 2

S. And that Continued into early 2021, but it started subsiding and we saw hospitals started recapitalizing, if you will, And we were the beneficiary of that during 2021 and even saw that affect our performance in the Q4. And we've got this modern HemoSphere technology, which is really a step forward for these patients and brings together a lot of Our advanced technology for patients that are going needing a great recovery. So the combination of those have been really helpful.

Speaker 5

So is 2022 still a conducive environment for capital sales?

Speaker 2

It is. We think it's still a very conducive environment. Some of our people wonder whether 'twenty two will measure up to 21 because it felt like 'twenty one might have had a little catch up in it. So that makes them nervous about being too bullish, but we think it's going to be a more normalized year.

Speaker 5

Okay. Thanks. And maybe just quickly for Scott. Scott, in describing the factors impacting gross margin, you didn't mention inflationary And just wondering, are you not seeing it? Or is it just not material to the business right now?

Speaker 3

Thanks for the question. We are seeing inflationary pressures in Couple of areas. One is just wage rates around the world. There's upward pressure. And then of course, materials and supplies.

Speaker 3

And so we're managing through those. Our biggest priority has been making sure that we can deliver our finished goods, our lifesaving therapies to Hospitals around the world and we're really proud of our global supply chain team that's been able to navigate the challenges from Shortages to logistics and still continue to be able to meet demand. And so we'll deal with the inflation. It's in our 78% to 79% gross margin Guidance for the year, but we're feeling like we know what needs to get done.

Speaker 5

Great. Thanks.

Operator

Thank you. And our final question comes from Pito Chickering with Deutsche Bank. Please state your question.

Speaker 14

Good afternoon, guys. Thanks for fitting me in here. To follow-up on the U. S. Tower questions, can you help us understand why in the Q3 we saw hospitals near capacity for nearly 2 months in August September, Whereas on COVID only impacted Q4 by a few weeks in December, just probably looking for any more color on sort of why Q4 slowed sequentially versus Q3?

Speaker 2

Yes. So, you're going to test my COVID memory a little bit here, but We felt like we were recovering from Delta. And so it had a pretty significant impact in the 3rd quarter And that was being mitigated to some extent. It was improving in October and improving in November. And then Omicron Showed up and it changed the trend.

Speaker 2

So that was it. We went from recovering from Delta To being impacted hard and quick by Omicron.

Speaker 14

Okay. And then a follow-up question for Scott. Like you talked about pulling forward SG and A investments So if you think about a similar dollar amounts for SG and A spending going into the first And you can start to get leverage on that as revenues increase after Q1 get to your guidance range of 28% to 3%? Thanks so much guys.

Speaker 3

Sure. Thanks for the question. I mean, you can tell from our guidance where the midpoint of our sales guidance is, call it, dollars 1,315,000,000 which is a little bit lower than our 4th quarter sales and yet our EPS we're forecasting in a higher range. And so the difference is going to be really in the cost lines. And we think that a lot of the SG and A that we pulled forward in the 4th quarter

Speaker 14

Great. Thanks so much.

Speaker 2

Okay. Thanks for your continued interest in Edwards. Scott, Mark and I welcome any additional questions by telephone.

Operator

Thank you. And that concludes today's conference. All parties may disconnect. Have a great day.

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