Edwards Lifesciences Q2 2022 Earnings Call Transcript

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Provided by Quartr
July 27, 2022

There are 15 speakers on the call.

Operator

Greetings, and welcome to the Edwards Life Sciences Second Quarter 2022 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, sir. You may begin.

Speaker 1

Good afternoon and thank you all for joining us. With me on today's call are Mike Musalum, Chairman and Chief Executive Officer and Scott Ullum, Chief Financial Officer. Also joining us for the Q and A portion of the call today will be Larry Wood, our Global Leader of TAVR Bernard Zlovaikian, our Global Leader of TMTT Devine Chopra, our Global Leader of Surgical Structural Heart. Katie Ziman, our Global Leader of Critical Care is out of town today, but she'll be with us on future earnings calls. Just after the close of regular trading, Edwards Lifesciences released Q2 2022 financial results.

Speaker 1

During today's call, management will Based on estimates, assumptions and projections, 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 statements speak only as of the date on which they were made and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties, including, but not limited to, those associated with the pandemic 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 2021 Annual Report on Form 10 ks Edwards' other SEC filings, all of which are available on the company's website at edwards.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 are 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 for his comments. Mike?

Speaker 2

Thanks, Mark. In the Q2, total company sales reflected year over year and sequential growth across all Our product groups on a constant currency basis despite several challenging factors. Sales were lifted by strong performance outside the U. S. With Double digit underlying sales growth in Europe and Japan.

Speaker 2

On a constant currency basis, total company sales grew 5% compared to The extraordinary Q2 of 2021 when sales increased 44%, lifted by the treatment of patients who had postponed their care. Nevertheless, 2nd quarter sales and EPS were at the lower end of our expectations as a result of U. S. Hospitals struggling with staffing As well as the stronger U. S.

Speaker 2

Dollar. We now anticipate that these challenges are likely to persist throughout 2022 And as a result, we are lowering our second half outlook to more realistically reflect the current operating environment. Although the near term environment remains uncertain, we are unwavering in our long term pursuit of groundbreaking innovations. We are investing to We continue to make meaningful progress on our pipeline and expect to achieve important milestones by year end. As the global population ages And cardiovascular disease remains the largest health burden.

Speaker 2

We continue to believe the opportunity to serve our patients will nearly double Now turning to the quarterly results by product group. In TAVR, 2nd quarter global sales of $907,000,000 increased 5% on an underlying basis despite Approximately 50% growth in the year ago period. Sales were below our expectations due to the ongoing U. S. Hospital staffing constraints and foreign exchange headwinds, but still represented our highest quarter of TAVR sales.

Speaker 2

We estimate global TAVR Seizure growth was comparable with Edwards' growth in the 2nd quarter. In general, local selling prices We're stable, although the average global selling price declined slightly due to the weakening euro and yen. In Q2, we continued to advance 2 pivotal trials aiming to expand indications. First, our early TAVR trial is Starting the large group of patients with severe aortic stenosis and no diagnosed symptoms. 2nd, our progress trial is evaluating patients Moderate AS, which represents a group that is much larger than those with severe AS.

Speaker 2

And last month, we also began treating patients And our ALLIANCE pivotal trial for our next generation SAPIEN X4. In the U. S, our TAVR sales were approximately flat with the elevated prior year, but increased in the high single digit range Sequentially, we estimate that our share of procedures was stable. As previously mentioned, our 2nd quarter U. STAVR sales were impacted by slower than expected improvement in the U.

Speaker 2

S. Hospital staffing and temporary contrast agent Shortages. Also recall in Q2 of last year, our U. S. TAVR sales increased over 50% on a year over year basis As COVID vaccines became more widely available and patients who had waited were treated.

Speaker 2

On a 3 year compounded annual basis, Our U. S. TAVR sales increased 10% compared to the strong Q2 in 2019. Outside the U. S, in the Q2, our underlying TAVR sales grew in the mid teens on a year over year basis, and we estimate total procedural growth This strong growth outside the U.

Speaker 2

S. Was consistent with our underlying 3 year compounded annual growth rate also in the mid teens. Long term, we see excellent opportunities for OUS growth as we believe international adoption of TAVR therapy remains quite low. In Europe, Edwards sales growth was driven by the continued strong adoption of our SAPIEN platform. We estimate that our competitive position was stable.

Speaker 2

Localized hospital staffing disruptions impacted 2nd quarter results, although this headwind was less pronounced than in the U. S. 15 years after commercialization, it's encouraging to see the resilience of the TAVR programs in Europe despite the Challenging backdrop of today's environment. In Japan, we experienced continued strong TAVR adoption as we remain focused on expanding the availability of TAVR therapy throughout the country. Similar to last quarter, the number of TAVR procedures performed, exceeded surgical aortic valve replacement following approval last year for patients at low surgical risk.

Speaker 2

In summary, we continue to be very optimistic about the long term potential of TAVR because of its transformational impact on the many patients improvement in the U. S. Hospital staffing shortages throughout the year. We're now anticipating a slower improvement And as a result, we are adjusting our full year outlook. We expect underlying TAVR sales growth of around 10% and full year 2022 versus the previous expectation for 12% to 15%.

Speaker 2

Longer term, we remain confident in this large global opportunity and that it will double to $10,000,000,000 by 2028, which implies a compounded annual growth rate in the low double digit range. Now turning to TMTT. To transform treatment and unlock this significant long term growth opportunity for mitral and tricuspid patients, we remain focused on 3 key value drivers: A portfolio of differentiated therapies, positive clinical trial results to support approvals and adoption and favorable real world At the TCT conference in September, we expect the first results of the CLASP II d pivotal trial Evaluating patients suffering from degenerative mitral regurgitation. This is this First of its kind head to head randomized pivotal trial powered for non inferiority will be the first of several Key pivotal trials evaluating the PASCAL technology. Additionally, at TCT, we expect 3 year data from the earlier CLASP study.

Speaker 2

This growing contemporary body of clinical evidence will be important for the physician community, considering transcatheter edge to edge repair treatments PASCAL PRECISION by year end. This next generation system is designed to facilitate price, precise navigation and an intuitive user experience extending our differentiated platform. This will allow us to expand PASCAL adoption in Europe And we're pleased that we'll be launching the newest generation of PASCAL in the U. S. In mitral replacement, we continue to broaden our experience with Both of our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 And the MiSEN study for EVOKE EOS, growing evidence with these sub-thirty French transfemoral therapies Furthers our confidence in both platforms.

Speaker 2

Turning to tricuspid. We also continue to make progress on enrolling the TRICEND-two pivotal While we remain hopeful for year end approval in Europe, uncertainties exist regarding the new MDR approval process for Novel Technologies seeking a CE Mark. We remain committed to bringing the Evoque therapy to these tricuspid We're pleased with the recent data from several late breaking presentations. 1 year results from our Class TR study presented at the American College Cardiology conference demonstrated significantly reduced TR, improved quality of life and maintained TR reduction. Also at the EuroPCR meeting, 30 day post market data from our TriClast study was presented with 90% of the patients showing improvements in their quality of life.

Speaker 2

At upcoming medical conferences this year, we plan for Contemporary evidence to be presented on both our PASCAL and Evoque platforms. Turning to results. 2nd quarter global sales were $28,000,000 driven by the continued adoption of PASCAL platform and activation of more centers across Europe. Our Q2 commercial performance was tempered by lower than expected market growth related primarily to COVID headwinds. We are now updating our full year guidance to $110,000,000 to $140,000,000 which represents approximately 60% underlying growth over the prior year and reflects a stronger than anticipated impact from foreign exchange as the vast majority of TMTT's business is in Europe.

Speaker 2

Bigger picture, we continue to be pleased with our progress and will help unlock this large market potential. In Surgical Structural Heart, 2nd quarter We are encouraged to see global growth despite sales headwinds from the planned discontinuation of certain non Our cannula products as well as the COVID shutdown in China, which combined reduced growth by approximately 500 basis points. Our growth continues to be driven by increased penetration of our premium Resilia products. We've seen strong of the MITREZ RESILIA valve in the U. S.

Speaker 2

Since its initial launch in April. Building on the commercial success Of Inspiris, we believe hospitals value the intuitive product features as well as the benefits of this innovative Resilia Tissue technology. Physician feedback in regions where MITREZ has been launched has been positive and initial clinical outcomes have been favorable. In the Q2, we continued to bolster the overall body of Brasilia evidence. This includes A commenced trial sub analysis, which demonstrated the excellent performance of this tissue technology when treating bicuspid aortic valve disease, which was presented at the 2022 Annual Meeting of the American Association of Thoracic Surgeons in May.

Speaker 2

In a cohort of more than 200 patients, Averaging a relatively young 60 years of age, structural valve deterioration was 0 at 5 years. In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid single digit range for In Critical Care, 2nd quarter sales of $211,000,000 increased 3% on an underlying basis. As expected, growth moderated by strong prior year comparisons. Sales growth was driven by increased adoptions of our hypotension prediction index algorithm and our broad portfolio of sensors. Additionally, we continued enrollment in the HPI SmartBP trial Focused on generating additional clinical evidence to support further adoption.

Speaker 2

Demand for the HemoSphere monitoring platform remains strong with a healthy pipeline of future opportunities. In summary, we continue to expect mid single digit underlying sales growth in 2022. We remain excited about our pipeline of critical care innovations as we shift our focus to smart recovery technologies designed to help And now I'll turn the call over to Scott.

Speaker 3

Okay. Thanks, Despite several challenging factors, hospital staffing and foreign exchange headwinds, Our business fundamentals remain strong. We achieved total sales in the quarter of $1,370,000,000 with double digit underlying sales growth in Europe and Japan. We expected our underlying growth in the Q2 would be our lowest of the year given our strong prior year sales performance. Our higher than expected gross profit margin lifted by the positive impact from our foreign exchange program contributed to an adjusted earnings per share of $0.63 We are adjusting our guidance to more accurately reflect the continuation of the more pronounced FX headwinds and slower than expected improvement in COVID related hospital staffing.

Speaker 3

We expect total company underlying sales growth of approximately 10% in the second half of this year. For full year 2022, we now expect total Edwards sales of $5,350,000,000 to $5,550,000,000 We expect TAVR sales of $3,500,000,000 to 3 $950,000,000 and for critical care, $820,000,000 to $900,000,000 Now expect full year adjusted earnings For the Q3, we're projecting sales to be between $1,301,000,000 $1,370,000,000 and adjusted earnings per share of $0.58 to $0.66 I'll now cover additional details of our results. Our adjusted gross profit margin in the 2nd quarter was 80.5% compared to 75.9% in the same period last year. This improvement was driven by the higher than expected positive impact from our FX program, which includes natural hedges and hedge contract gains that offset the sales impact from the weakening of the euro and yen versus the dollar. At current foreign exchange rates, we now expect our full year and second half twenty twenty two adjusted gross profit margin to increase to approximately 80%.

Speaker 3

This guidance range reflects our assumptions of a favorable impact from FX hedge gains and an improved product mix, partially offset by supply chain inflationary pressures. This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange versus 2021. At current FX rates, in 2023, we expect an approximate 250 basis point reduction in our gross profit rate. Selling, general and administrative expenses in the 2nd quarter were $409,000,000 or 29.8 percent of sales, primarily due to a resumption of in person commercial activities, partially offset by the weakening of the euro and yen against We continue to expect full year 2022 SG and A expenses as a percent of sales to be between 28% 30% as we continue to invest in our high touch model for TAVR and the ongoing build out of the TMTT commercial team. Research and development expenses in the quarter grew 11% compared to the same period last year to $251,000,000 were 18.3 percent of sales.

Speaker 3

This increase was primarily the result of continued investments in our transcatheter innovations, including 8 currently enrolling pivotal clinical trials. For the full year 2022, we continue to expect R and D expenses to be between 17% and During the Q2, we recorded a $21,000,000 net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.03 This benefit was excluded from our adjusted earnings per share of $0.63 This reflects an accounting adjustment from assumptions regarding potential milestone payments for a previous acquisition. Turning to taxes. Our reported tax rate this quarter was 12.5% or 12.9%, excluding the impact of special items. Due to last quarter's new regulations that potentially limit the amount of our foreign tax credits, combined with an estimated reduced Benefit from stock based compensation accounting, we now expect our full year tax rate, excluding special items, to be at the high end of our previous 11% to 15% range.

Speaker 3

Foreign exchange rates decreased 2nd quarter reported sales growth by 4 1,000,000 negative impact or 4.5 percentage points to full year 2022 sales compared to 2021, of which approximately $170,000,000 impacts the second half of the year. FX rates Positively impacted our 2nd quarter gross profit margin by 3 80 basis points compared to the prior year. FX rates had a minimal impact On 2nd quarter earnings per share, we mentioned at the investor conference, in periods of a strengthening dollar like this, sales are negatively impacted, And as a result of financial and natural hedges, margin rates benefit, resulting in a minimal impact to the bottom line in the calendar year. Free cash flow for the Q2 was $289,000,000 defined as cash flow from operating activities of $332,000,000 Less capital spending of $43,000,000 Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a strong and flexible balance sheet with approximately $1,500,000,000 in cash, cash equivalents and short term investments as of June 30, 2020.

Speaker 3

Average shares outstanding during the quarter were 627,000,000, down from the prior quarter as we repurchased 3,700,000 shares during the Q2 for $355,000,000 In the first half of the year, we repurchased 7,300,000 shares. In July, we obtained Board approval We now have $1,900,000,000 remaining under the program. Given our repurchase activity in the first half of the year, We now expect our average diluted shares outstanding for 2022 to be between 625,000,000 630,000,000. With that, I'll pass it back over to Mike.

Speaker 2

Thanks, Scott. Our strong foundation of technology leadership Combined with a robust product pipeline positions us well for continued success. As patients and clinicians increasingly recognize the significant benefits of And with that, I'll turn it back over to Mark.

Speaker 1

Thanks a lot, Mike. Before we open it up for questions, I'm excited to announce that Edwards is planning to host Investor update at TCT on Saturday, September 17th. This event will include a recap of pivotal trial data, updates on our latest technologies and views on longer term market potential. We hope to see you there, but please note this meeting will be webcast for those who

Speaker 4

Diego? Thank you.

Operator

Our first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Speaker 5

Great. Thanks for taking the questions. Maybe to start, TAVR is such a necessary procedure for these patients and It's sad to see it slow down like this, but it's understandable given how many steps are involved in the patient population involved. What's your sense of what the early funnel is like? How are how is the early funnel with patient visits to doctors, diagnosis?

Speaker 5

Where is really the bottleneck that you're seeing and how do you expect the funnel to play out in 3rd Q4 both U. S. And outside the U. S?

Speaker 2

Yes. Thanks, Robbie. Yes, this what we're feeling right now is different than the early days of the pandemic. In the early days of the pandemic, yes, there was impact on hospital capacity, but you also had patients that were just concerned about coming into the system And they stayed away. We feel like patients are entering the system now and are queued up to go through and there's There's just a lack of capacity in hospitals in some cases to handle all the patients and so that care is being postponed.

Speaker 2

You're right, given that this disease is so deadly, it is very concerning because we know these patients don't wait well and there are going to be some Casualties. I don't know, Larry, do you have anything to add to that?

Speaker 6

No, I think that's a good summary. When the pandemic first happened, Hospitals, the beds were all filled up with COVID patients and we don't see that today. Hospitals have beds, they have capacity, they just don't have staff. And I think some of what we're Challenge with a little bit is, as people test positive for COVID, they're not getting hospitalized, but they have to leave the workforce while they isolate. And I think that's exasperating a little bit of the staffing challenges.

Speaker 6

But you're right. The patients don't wait well. And we've already we were already dealing with under treatment of AS before the pandemic hit and certainly this hasn't made it better. But these patients deserve therapy and we're hoping this returns back to a more normal state soon.

Speaker 5

Okay. And maybe as a follow-up on TMTT, it's not surprising given the euro exposure to see The guidance moved down there on a dollar basis, but this is also a market that's recovering probably slower than we had thought at the December Analyst So maybe you could walk us through how much of it is PASCAL and your product set versus the competition And how much is the market and how we should think about cadence there in 3rd Q4 as it still requires a step up to reach the midpoint Thanks

Operator

a lot.

Speaker 2

Yes. Thanks, Robbie. So, yes, a couple of things. As we mentioned, because most of the PASCAL sales Or in Europe, we do get affected by currency in a more dramatic way than we would otherwise. But the other issue is less of a competitive issue as We're really feeling like the market didn't grow.

Speaker 2

It really slowed down in TMTT. And Bernard, why don't you provide some Color on

Speaker 7

that? Yes. Yes, exactly, Mike. So, if you think about on a short term basis, the TMTT procedure More resource intensive, they require general anesthesia, ICU stay for the patients.

Speaker 1

Next question please.

Operator

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

Speaker 8

Good afternoon. Thanks for taking the question. One for Larry, one for Bernard or whoever wants to jump in. Just on TAVR, just Larry, any color on trends in the U. S.

Speaker 8

TAVR market in Q2? How much you think the contrast shortage impacted you? And I'd love to hear why you think the U. S. Has been softer than Europe?

Speaker 8

And I had one follow-up for Bernard.

Speaker 6

Yes, contrast I think was more of an issue here in the quarter than late in the quarter. It seemed to get better as the quarter went on. But certainly there was an impact. It probably impacted smaller hospitals more than the bigger systems that probably had more reserve. So that was that.

Speaker 6

In terms of trends, as much as we get frustrated by it, we did grow sequentially. So we did Some improvement in hospital staffing, just not as much as we were anticipating. And we obviously have a tough comparison to a year ago We grew almost 50%. So that's just kind of where it is. We still anticipate it's going to get better over the course of the year.

Speaker 6

It's just been more slow than we would have hoped.

Speaker 2

Yes. And just to add on, Larry, your question about Europe We did see staffing shortages in Europe, but they were more isolated in nature. We saw them in particular countries or regions, Whereas the U. S, it really felt more widespread, more broad. And so it turned out to be more pronounced.

Speaker 2

We were able to more or less swamp those in Europe.

Speaker 3

That's helpful.

Speaker 8

And then Mike for you or Bernard, For PASCAL in Class IID, I guess should we I assume we should read into your expectations of PASCAL approval by year end. You feel good About the trial meeting, its endpoint, that's Part A and Part B, there have been a lot of changes to both PASCAL and MitraClip since the trial PASCAL ACE Precision, MitroClip has gone from Gen 2 to Gen 4. How might that impact the results? And do you expect kind of a mix Of different devices in the trial? Thanks for taking the question.

Speaker 2

Yes, thanks. You did perceive it correctly. We feel like we're on track For our year end approval in PASCAL and we're looking forward to that. As I'll remind you that trial is designed as a non inferiority trial and so That's what the target is. But you also brought up another interesting point.

Speaker 2

If you look at what's available for clinicians today, some of that data It's kind of old, right? It's for patients who were treated maybe 5 years ago and sometimes even further back and there have been a lot of improvements Our system and competitors as well. And so what will be also interesting about the data that we see is we'll see more or less a Contemporary update of how edge to edge procedures are going. Anything to add to that Bernard?

Speaker 7

No, you're right, Larry. We are what you are going to see is a number of analysis done with these pivotal studies. We have the original PASCAL and ACE, A number of mitral cleavage generation also. But as you can imagine, like in any pivotal randomized study, the first result We'll represent the data necessary to support approval and adoption and what you can expect is additional presentation over time with more analysis.

Speaker 8

Thank you very much.

Operator

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

Speaker 4

Hey, guys. Thanks for taking my question. One on, I guess, on the Pascal Saez here. Given all of these revenues are coming out of Europe And Europe seems to be perhaps less impacted by labor shortages. Did we just get the adoption curve wrong or maybe just talk about what changed in

Speaker 7

So, in Q2, we continue to grow sequentially Quarter over quarter, year over year, we continue to grow our presence, our teams. We opened new sites, You know, both in Germany and outside of Germany, we feel good about our meaningful Presence in Germany, even though there are more to do beyond Germany, there is still a lot to do. So the adoption is Going at the pace we want in term of site adoption and PASCAL adoption, for sure the market growth Was less than anticipated in Q2 and we expect that to last and to improve gradually in the 2nd part of the year. Yes.

Speaker 2

And I might just add, Vijay, that because our business is more concentrated in MTT in certain regions like for example, there's more business in Europe In other parts of Europe, some of those labor shortages and strikes in Germany probably had a little greater impact on this. So that combined with the point that Bernard made earlier that these procedures still require anesthesiologists and ICU space Probably why the market slowed. And you'd also argue in Europe, they're not fully convinced, right, because they have the mitralFR data That also is out there. And so it's another reason why we're kind of excited about bringing a new data set later on this year.

Speaker 4

That's helpful perspective, Mike. And maybe one for Scott. On the EPS guidance, I think the implied 4th quarter EPS, Scott, depending on 3rd quarter assumptions, it could either be flattish or down sequentially. Is that just a function of how the FX hedges roll off or anything else that's going on that drives the 4th quarter EPS?

Speaker 3

Sure. Thanks for the question, Vijay. Well, just maybe the way to answer it is to bridge the midpoint of our original guidance of 2.58 to Guidance Now, which is more like the bottom of that $2.50 to $2.65 And the moving pieces are probably 1st and foremost just the sales Change from the original guidance, partly driven by sales and just some of the headwinds we've talked about, partly driven by FX and how that impacts sales and then flows down to EPS. We're seeing a higher tax rate as we talked about. We think now the tax rate is going to look something more 15% of the top end of our original 11% to 15% range, that probably cost us about a $0.01 And then we've seen some positives as well.

Speaker 3

We think we're going to get Couple of pennies from increased interest income as a result of what's happening in the investment market And $0.02 or so share count based upon all the repurchase activities that we've been doing so far. So We're not guiding to 4th quarter EPS down, but that gives you a sense of how the overall year Looks compared to our prior guidance.

Speaker 4

That's helpful, Scott. Thank you, guys.

Operator

Our next question comes from Joanne Wuensch with Citi. Please state your question.

Speaker 9

Good afternoon or evening and thanks for taking the question. As we think about 2023, I appreciate the commentary on the FX hedges slipping and the impact To gross margins next year, is there anything in particular that you would like to comment on? Because I think generally people are starting to Make sure the 2023 numbers are somewhat in the ballpark based on what we currently know.

Speaker 3

So, Joanna, you're talking about the 2023 gross Profit numbers are in the ballpark based upon what you know?

Speaker 9

Well, I'm telling you just any metric you can give us and thank you for the gross margin commentary, but anything else

Speaker 3

Yes, it's premature to start talking about the different line items of the P and L for 2023. Of course, we'll go that in detail at the investor conference. But because gross margin is being so impacted by FX this year, we did want to give A little bit of lens into what's going to happen as these hedges start rolling off in 2023. So based upon FX rates right now, We'll lose something like 250 basis points of the 350 basis point benefit we're seeing in 2022. Keep in mind, that's compared to 2021.

Speaker 3

So in other words, we still think we'll get something like 100 basis point benefit from FX in 2023 Because we've locked in some hedge gains during the first half of this year. All in, for modeling purposes, if you think about 77.5% or something like that, Somewhere in that range, that's probably a good modeling assumption for now for next year.

Speaker 9

And then as a second question, Assuming FDA approval by the end of this year for PASCAL, how do we think about launch again going into next year? Thank you.

Speaker 2

Yes. So maybe Bernard, your best to go through that, go through the particulars of how we plan to launch.

Speaker 7

Yes. So, first, let me see, we are pleased with our progress in Europe. So, we are building The U. S. Launch plan, having in mind what we did in Europe, obviously, our great success with TAVR in the U.

Speaker 7

S. We are currently building the U. S. TMTT field team, focusing on obviously high quality of training, making sure that we can execute Our high touch model, the same way we are doing in Europe, having in mind excellent patient outcome. So, obviously, we expect our U.

Speaker 7

S. Launch with clinical evidence, which we didn't have when we launched in Europe, which is a big difference. At the same time, one of the other difference also is we are going to have only DMR approval. So that's the way to think about the U. S.

Speaker 7

Launch.

Speaker 2

And maybe just to add a little bit more, Drem. This is going to be a stepwise launch. We're not going to try and serve all hospitals at once. We've really prioritized the group. That will be our first step, but we're trying to make sure that we have a well trained team It assures great outcomes right from the beginning.

Speaker 2

So it will be more of a ramp than a step function.

Speaker 9

Thank you.

Operator

Thank you. Our next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead.

Speaker 10

Great. Good afternoon and thanks for taking the questions. I wanted to ask just if you could provide some color on both the COVID, the staffing shortage impact Enrolling some of the trials in the U. S, both the CLASP studies, alliance. And then if you have an outlook right now just around For timing approval timing, I'd love some color how you're thinking about that as well.

Speaker 2

Yes. Thanks, Yoyo. Maybe I may I start and we'll let Barry and Bernard jump in to add some additional color about the trials. Just broadly, the fact that COVID has been persistent It's a burden on hospitals, anyway you slice it because what happens is even though we don't consider today's COVID so deadly, when someone tests Positive. They're out.

Speaker 2

The people they've had contact with are out and I missed 5 days. So it really is disruptive to a team and that can't help but have some impact. Having said that, overall, we feel pretty good about our clinical research. Larry, why don't you update us on the TAVR side and Bernard you can talk about TMTT? Sure.

Speaker 2

Well, we have We have early TAVR, which

Speaker 6

is fully enrolled. Then we have our progress trial, which is our trial where we're studying moderate Aortic stenosis. And while we certainly see some impact, we've been actually pretty pleased with how that's going so far and there's a lot of clinician interest. And then we just started enrolling last month in our ALLIANCE trial, which is our X4 trial for our next generation Fabian platform and we've been pleased with the enthusiasm there. You always start the trials a little bit slow as you're getting sites up and you're getting them trained and it's Brand new valve platform, but overall we've been pleased with the start.

Speaker 7

Yes. And for TMTC's Class 2 d, we completed enrollment. We have Class 2F, Class 2TR. We have TRICEN 2 for Evoque. So yes, the Mitra and Fracaspi procedure are more resource intensive and they require more staffing.

Speaker 7

But we have seen a little bit of an impact, but not so much. We are pleased with the kind of enrollment we are having across all of the TMTT trial.

Speaker 10

Great. Thank you. And if I could ask as well, just going back to your Analyst Day, you talked about your DTC TAVR Initiative, just would love some color in terms of what you've seen out of that, where you are in that process at this point? And thank you.

Speaker 2

Yes. So thanks. I mean, I don't know, Larry, if you want to update that. We continue to be very focused on trying to make sure that we help patients Come off the sideline just because it is such a big issue and it's going to

Speaker 6

be an important source of growth. Yes. We continue on these efforts. Even though the hospitals are struggling a little bit to train the patients they have, it takes a while for these patients to move through from diagnosis So screening and the treatment. And so we just think it's important to keep raising awareness around aortic stenosis because it remains woefully undertreated.

Speaker 6

Only about 10% to 15% of patients with severe aortic stenosis actually get treated today. And again, we're running the trials to prove the point committed to the evidence and we're committed to making sure patients are aware and we continue to execute on those programs.

Speaker 10

Great. Thank you.

Operator

Our next question comes from Travis Steed with Bank of America. Please go ahead.

Speaker 11

Just looking at Q3, you said some of the Q2 staffing issues ease a bit, contrast is more of a Q2 issue. But in Q3, there's usually some seasonality. So if you look at U. S. TAVR, I was curious if you think TAVR could be up sequentially this time around or if it's probably down sequentially

Speaker 2

Q3. Yes. I'll just start out by reminding you that across Edwards business, it's very normal for us Have Q3 be seasonally down compared to all the other quarters of the year, because our procedures are generally done in Teams and people take their summer vacations, that's routinely going to be down. The other factors that are in there, they just add to So, no, we probably expect Q3 to be lower than Q2 and then Q4 to rebound to a higher level yet, but That would be a more typical seasonality. I don't know, Larry, do you have anything to add on U.

Speaker 6

S? Yes. I think that's right. I think people are still pent up and if you try to get a hotel reservation or an airline reservation lately. I think people are certainly taking their vacations, right?

Speaker 6

But I think the good news is the contrast issue I think is largely behind us, maybe not 100%, but pretty close. We're not hearing near as much issue with that. So I think getting that behind us is helpful. But as Mike said, we typically do see some seasonality in Q3.

Speaker 11

No, that's fair. Thank you. And OUS, it was down sequentially this quarter. I don't know if there was anything else to call out You haven't already called out, but love some more color there. And then if you look at PASCAL and the benefits that you see there versus the competitive device, Just curious if you look at how everything is designed, the product is designed, if you think there's like a way you could potentially compete clinically With a competitive device or if there's other ways that you plan to compete there?

Speaker 2

Okay. Actually, so I'm not under the impression that we were down sequentially in Q2. Maybe that could A byproduct of foreign exchange and that may be what you're seeing. But on an underlying basis, actually there was sequential growth. Bernard, do you want to jump on the second part of the question?

Speaker 7

Yes. So on Pascag, let me address 2 things. 1 is maybe the second half of the year and a little bit about the PASCAR benefit of the device. So second half of the year, We are going to continue executing our strategy, opening more sites in Germany, outside of Germany, driving the adoption of PASCAL with our HiTouch model. And what we see obviously in Europe is that we have a differentiated device.

Speaker 7

We are very pleased with the kind of patient outcome We are having, but obviously at TCT with the first of its kind Class IID randomized study, This is going to inform us, inform the medical community about the difference between the two devices, the tier as a whole.

Operator

Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Please state your question. Good afternoon, everyone. Thanks for taking my questions.

Operator

Mike, Larry, in terms of low risk symptomatic aortic stenosis, Right. A number of patients are bicuspid and I'm curious about the bicuspid registry and alliance. Why so now? And also the 915 patient size, it's a single arm study. So any additional color would be greatly appreciated.

Speaker 6

On clinicaltrials dot gov, I think the 900 plus number relates to the primary cohort along With the registry that we have, we try to study all sort of the adjacencies Bicuspid, we try to study the valve in valve, things all the different ways in which our platform gets used because it's quite versatile. So some of those registries lag a little bit starting the original cohort, but they usually come on and so I think that's what's reflected And the numbers there. Bicuspid patients require sort of a different level of screening anatomically. So we tend to run those in a separate registry So that we can report on them separately, but then we have the primary cohort for all the patients. But I believe this trial is pretty much a near all comer trial.

Speaker 6

I don't think we're limited to just low risk patients. So it's going to be Pretty much a real world trial on how this technology performs.

Operator

Fair enough. And Larry, Mike, again, last question. I'll hop back in queue. 25,000 to 30,000 cases across 250 or so sites, love to get some perspective of where Edwards Stacks up in Japan so that we can strip out that contribution. Thank you for taking my questions.

Speaker 2

Thanks for that. I don't know that I have the level of detail to be able to fully satisfy your question. Indeed, like most Around the world, we're very proud to be market leaders, but there's still a lot of work for us to do in Japan. They have an elderly population And even though we've enjoyed some really nice growth over the last couple of years, we should be getting that kind of growth because there's that under Treatment rate is significant. We've been buoyed over the past year or so by the addition of hospitals, which has been very helpful.

Speaker 2

It had been originally more restricted in Japan and so that's grown and that's been Larry, do you have anything to add to that?

Speaker 6

Yes. Japan has been a little bit unique in terms of how the markets develop. In the other markets, we From this high risk to this intermediate risk to these low risk approvals and in Japan, we went directly from high risk Kind of almost inoperable immediately to low risk. So it's taking time for people to adjust to sort of that new normal Because it's a much bigger step function. But Mike is absolutely right in terms of the number of eligible patients there and the opportunity there, even though we've enjoyed Pretty robust growth there.

Speaker 6

The opportunity there remains large.

Speaker 8

Thank you.

Operator

Thank you. Our next question comes from Ed Ridley with Redburn. Please state your question.

Speaker 12

Good evening. Thanks very much. Just a couple of follow ups, please. First of all, on the contrast media Short Edge. Scott, thanks for your comments.

Speaker 12

Could you just quantify the impact in the quarter? That will be helpful. And it's obviously good to hear that it's pretty much Also, I had a question on capital investment from the hospitals. We've had differing Comments from different management teams during this the last couple of weeks on whether or not there is pressure on CapEx spending, particularly in the U. S.

Speaker 12

And I was wondering if there had been any effects on critical care or whether you're seeing any signs of that? Thank you.

Speaker 2

Okay. Well, thanks. On the contrast media, I don't know that I can specifically Characterize the size. As Larry mentioned, we saw it more in smaller hospitals. We saw it more early in the quarter and dissipate.

Speaker 2

Do we think it had an impact on Q2? We do. But it was a smaller impact than overall hospital staffing. You can almost think of it as an eightytwenty thing, something like that. Contrast Media was relatively small by comparison.

Speaker 2

On the capital spending Trends, our only lens that is the critical care business. So compared to some others in the med tech industry, they may have a better handle on this So, as they are more exclusively in capital, we're in a very limited segment and it's hard for us to know whether it's Capital budget in hospitals, our own performance, we've had pretty significant demand and we've been able to meet that and we continue to be Pleased with the pipeline of orders that are ahead. So we feel pretty good about there really being capital spending. It's nothing like it When it was constrained early on in the pandemic, we feel like hospitals are indeed spending, at least from our narrow perspective.

Speaker 12

That's great. Thanks very much.

Operator

Thank you. Our next question comes from Bill Plavonich with Canaccord, please state your question.

Speaker 13

Great, thanks. Good evening. My first question is in terms of the U. S. TAVR and the number of centers, I think on the Q4 call, you said you had about 850 centers.

Speaker 13

I was wondering where you ended at the end of June and kind of how should we think about center growth going forward? And then my second question is just Your SG and A spend was pretty high. It's a big jump sequentially. And I guess is a lot of that Kind of the pre build or the build of the infrastructure for PASCAL?

Speaker 8

And thanks for taking my questions.

Speaker 2

Sure. Maybe I'll start out here. In terms of U. S. TAVR centers, yes, the addition of centers wasn't necessarily a big deal in terms of a growth driver.

Speaker 2

Larry, you might be characterize that more growth come from large centers or smaller centers this last quarter?

Speaker 6

Well, it's sort of 2 things, right? So in terms of when we add new centers, All of the cases they do are pretty much add to the growth. But the new centers that we had at this point in time tend to be much smaller Programs and they're a little slower to rise, so they're not a huge part of our overall growth story. But one of the things that we do try to keep an eye on is what's happening in the larger programs versus Smaller programs, we have seen a little bit of a trend where when COVID cases start increasing and the variance come on, we tend to see a A little bit more growth in the smaller programs, and I think that's reflective of people staying closer to home. A lot of our big programs, maybe people will travel longer distances, and they're maybe a little bit more reluctant to do so when COVID cases are up.

Speaker 6

So we've seen that dynamic as COVID has risen and fallen and I don't think this quarter was any different.

Speaker 2

Thanks, Larry. Scott, do you want to comment on the SG and A?

Speaker 3

Sure. Bill, on SG and A, it was pretty close to what we expected actually. Remember, In the Q4 of 2021, we ended up having pretty high SG and A relative to our plans. It ended up being lower as a result in the Q1. So It might have looked like a bigger jump just artificially because of the timing and sequencing of Q4 to Q1.

Speaker 3

But year over year in the second SG and A grew high single digits, pretty close to what we expected. You're right that we are investing Pretty aggressively for long term positioning of TAVR and TMTT in particular, both outside of the U. S. And in the U. S.

Speaker 3

So we're feeling good about where we are just in

Operator

Our next question comes from Adam Maeder with Piper Sandler. Please state your question.

Speaker 11

Hi, good afternoon and thanks for taking the questions. I'll keep it to just One, maybe just on evoked tricuspid, would love to get some additional color there. It sounds like you're still Hopeful that that product could come to market in Europe by year end 2022. Just what are the expectations in the marketplace? And then just more broadly, how do you think about the repair versus replacement debate in the tricuspid setting?

Speaker 11

Thanks so much.

Speaker 2

Yes. Thanks very much for that, Adam. Yes, indeed, you did read correctly into our comments that we have introduced some uncertainty in Whether we actually will get Evoque approved by the end of the year for CE Mark. Bernard, do you want to talk a little bit more about that?

Speaker 7

Yes, Mike. So, as you know, there is a new process in Europe, call it MDR. And MDR, it is Probably more uncertain for very novel breakthrough technologies like GIVOCC. It is new, so they are looking at it. They might ask more clinical data, maybe even randomized data, who knows.

Speaker 7

So that's basically what we are Right now, we are obviously partnering with our notified body to make sure we get all that they need to make an approval Here. So now your second question is about repair versus replacement. We believe that we see value in both. I think Mike talked about what we presented at ACC and EuroPCR where our PASCAL TRYCA SPEED class Study we have presented, it is a single arm study and it shows some benefits for patients. And also we are very excited about The kind of patient outcome we are having with Evoque.

Speaker 7

So we believe that we have value for both and it will depend on the patient, patient anatomy, how sick they are.

Speaker 11

That's helpful. Thank you.

Operator

Thank you. Our next question comes from Josh Jennings with Cowen. Please state your question.

Speaker 14

Hi, good evening. Thanks, gentlemen. And I wanted to just ask 2 kind of Market size questions. First, just on the U. S.

Speaker 14

Degenerative mitral regurgitation opportunity. I think Abbott cited about a 70,000 patient Per year number and then building a TAM from there, this is specifically for degenerative MR. I mean, some of our consultants have Cited some bigger numbers, but don't want to front run your investor event at TCT later in the year. But any Initial thoughts before getting into the U. S.

Speaker 14

Market just on the size of the generative MR opportunity. And a similar question for Tricuspid just a little more maybe globally, Similar line of inquiry, just consultants sharing that tricuspid case volumes could be very strong and Ultimate patient opportunity, large and TriQuest could be a $1,000,000,000 plus global opportunity, but wanted to get Your thoughts on both of those two procedures?

Speaker 7

Thanks. No, thank you. So let me start by saying that we believe that there are many patients in need, many mitral patients, many tricuspid patients in need And that Mitral is probably larger than Fracassi from an opportunity standpoint, at least at this point. Having said that, to comment on the U. S.

Speaker 7

DMR opportunity, we are not yet in the U. S. ABOT is probably best positioned to talk about how big is the market, the number of cases, because we are not yet in this market.

Operator

And ladies and gentlemen, I will now turn the floor back to management for closing remarks.

Speaker 2

Okay. Well, thanks everybody for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone. And with that, I'll turn it back over to Mark.

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Earnings Conference Call
Edwards Lifesciences Q2 2022
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