Edwards Lifesciences Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

There are 16 speakers on the call.

Operator

Greetings, and welcome to the Edwards Lifesciences First Quarter 2023 Earnings Results. 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 Wilterding, Senior Vice President, Investor Relations and Treasurer, thank you.

Operator

You may begin.

Speaker 1

Thank you very much, Diego, and thank you, everyone, for joining us. With me on today's call are Mike Musallam, Chairman and CEO Scott Ullam, CFO and Bernard Zavigian, President of Edwards Lifesciences. Also joining us for the Q and A portion of the call are Larry Wood, our Group President of TAVR and Surgical Structural Heart Devine Chopra, our Global Leader of TMTT And Katie Ziman, our Global Leader of Critical Care. Just after the close of regular trading, Edwards Lifesciences released Q1 2020 Please note that management will be making forward looking statements that are 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.

Speaker 1

These statements speak only as of the date on which they are made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and 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 2022 Annual Report on Form 10 ks and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, a quick reminder that when using terms constant currency And adjusted, management is referring to non GAAP financial measures. Otherwise, they're referring to GAAP results.

Speaker 1

Reconciliations

Speaker 2

Thank you, Mark. We're pleased with our Q1 performance, which exceeded our expectations and reflected an improvement In Healthcare Staffing, along with strong execution of our patient focused innovation strategy, sales of 1.46 $1,000,000,000 represented 13% growth on a constant currency basis versus a year ago period. Strong therapy adoption of trans Catheter heart valves drove the majority of growth in the Q1 aided by better than expected performance of Surgical Structural Heart and Critical Care. By geography, strong growth in the U. S, Europe and the rest of the world was partially offset By Japan, where COVID impacts lingered.

Speaker 2

1st quarter results in the U. S. Were also positively impacted in the quarter by some catch up in While staffing remains a concern at many sites globally, We're optimistic that the environment will continue to improve. In TAVR, 1st quarter global sales We're $948,000,000 an increase of 11% year over year on a constant currency basis. We estimate global TAVR procedure growth was comparable with our growth.

Speaker 2

Local selling prices were stable. In the U. S, our first quarter TAVR sales grew in the low double digits versus the prior year, and we estimate Total procedure growth was comparable. As we indicated, we believe that first quarter trends were lifted by improved hospital staffing levels. Results were also lifted by a catch up in procedure volumes early in the quarter following the holiday season slowdown.

Speaker 2

We're optimistic about the early results of our SAPIEN 3 Ultra Resilia launch in the U. S. As you know, the Resilia Tissues Vacation technology has demonstrated a strong track record of performance in Edwards Surgical Valves. Adoptions of this advanced technology is proceeding well, And we expect it to represent the majority of our U. S.

Speaker 2

TAVR sales before year end. TAVR growth in the Q1 was driven by Larger volume centers and our SAPIEN valves continue to demonstrate distinguished clinical performance. We're pleased with the continued enrollment of our progress clinical trial studying patients with moderate AS. Related to this, last month at the ACC conference, data were presented that examined mortality rates and cardiac damage Of 600,000 early stage AS patients in the U. S, this study concluded that all degrees of untreated AS severity We're associated with increased mortality risk.

Speaker 2

Of note, the mean 2 year all cause mortality for moderate AS Was approximately 20%, approaching the rate of those with severe AS. Outside the U. S, in the first quarter, We also have a positive contribution from all regions, excluding Japan, which was still impacted by COVID and the recent trialing of competitive products. We expect to see higher OUS growth as international adoption of TAVR therapy remains low. In Japan, although growth was below our expectations, we were encouraged that conditions improved as the quarter progressed, And we expect COVID headwinds to diminish substantially over the course of 2023.

Speaker 2

With the launch remain significantly undertreated relative to other large developed countries. In Europe, Edward's sales growth was driven by the continued strong adoption of our SAPIEN platform and was broad based across all countries. Total TAVR procedures grew over previous quarters despite persistent disruptions related to hospital staffing shortages. It's encouraging that healthcare systems across Europe are prioritizing life saving structural heart therapies, including TAVR amidst these challenges. Looking ahead to the EuroPCR Medical Congress next month in Paris, we anticipate additional data from the EDWARD benchmark study focusing on strategies to optimize TAVR programs across 28 European centers.

Speaker 2

Data will also be presented on the outcomes of balloon expandable valves for TAVR in TAVR procedures. In summary, given the strength of our Q1 performance, we now expect constant currency growth of 10% to 12% versus our previous expectation of 9% to 12%. Our outlook assumes that hospital resource constraints continue to improve During the year, we remain confident that this large global opportunity will increase to $10,000,000,000 by 2028, which implies a compounded annual growth rate in the low double digits. Turning to TMTT. Our confidence continues to grow in the long term potential to transform care for the many patients with mitral and tricuspid disease who need better We remain steadfast in our 3 key value drivers to unlock this opportunity, developing a portfolio of differentiated therapies For the complex mitral and tricuspid anatomies, driving positive pivotal trial results to support approvals and adoption And prioritizing favorable real world clinical outcomes.

Speaker 2

1st quarter sales of $42,000,000 Grew substantially, driven by overall TIER procedure growth, the ongoing launch and growing adoption of PASCAL Precision in Europe And the initial launch in the United States. We're pleased that we continue to have excellent outcomes for Patients and clinician feedback on PASCAL Precision has been consistently positive, particularly highlighting the differentiated premium features We are ramping production to support the launches of Europe and the U. S. In mitral, we look forward to presenting 1 year data from the full cohort of Class IId pivotal trial later this year. Meanwhile, we continue to enroll the Class IIF pivotal trial with PASCAL for patients with functional mitral regurgitation.

Speaker 2

In mitral replacement, enrollment of the ENCIRCLE pivotal trial with SAPIEN M3 is going It is ongoing and we anticipate completing enrollment of the main cohort around the end of 2023. We believe that this replacement therapy will expand options for a broader population of mitral patients. In tricuspid, we've completed enrollment of the TRISEN-two pivotal trial of the EVOKE tricuspid valve replacement system And remain on track for European approval by the end of 2023 and in the U. S. Around the end of 2024.

Speaker 2

The FDA recently approved continued access allowing U. S. Hospitals that were involved in the clinical trial To continue to offer Evoque as a therapy option. In addition, the Class II TR pivotal trial with PASCAL Continues enrolling well. In summary, we're pleased with our continued progress toward bringing a portfolio of therapies Combined with contemporary clinical data in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease, We now expect full year 2023 sales of $170,000,000 to $200,000,000 versus our previous $160,000,000 to $200,000,000 In Surgical Structural Heart, better than expected Q1 2023 global sales of $248,000,000 Increased a robust 17% on a constant currency basis over the prior year.

Speaker 2

Gross was driven by of our premium products across all regions and bowel surgery growth was higher than our expectations As hospital staffing levels improved, leading to some catch up in procedures. We continue to see Strong momentum of the Resilia portfolio globally. Surgeons and patients value the features and benefits of this proprietary tissue technology For both aortic and mitral surgical valve replacement procedures and we've seen adoption of the MITREZ VALVE in the U. S. Increase in the Q1.

Speaker 2

The 7 year data from our commenced clinical trial will be presented at the annual meeting of the American Association of Thoracic We also began enrollment of our momentous clinical trial to demonstrate the durability of RESILIA In summary, based on our Q1 sales, we are raising our full year sales expectation To the high end of our $870,000,000 to $970,000,000 guidance range, We now expect high single digit underlying growth in 2023, driven by the adoption of our most advanced technologies And an increase in the overall heart valve surgeries. In critical care, 1st Quarter sales of $222,000,000 increased 9% on a constant currency basis, driven by balanced contributions From all product lines, growth was led by our smart recovery portfolio and strong adoption of our Acumen IQ Sensor and finger cuff featuring our unique hypotension prediction index algorithm. Demand for our Swan Ganz pulmonary artery catheters and our HemoSphere monitoring platform also remained strong in the Q1 with a healthy pipeline of future opportunities. Based on the strong first quarter performance, we now expect Critical Care full year 2023 sales of $870,000,000 to $940,000,000 versus our previous $840,000,000 to $940,000,000 We remain excited about our pipeline of critical care innovations As we continue to shift our focus to smart recovery technologies designed to help clinicians make better decisions and get patients And now, I'll turn the call over to Scott.

Speaker 3

Thanks a lot, Mike. We are very pleased by our start to the year. Q1 was particularly strong in January relative to historical seasonality, and the rest of the quarter was more consistent with our growth expectations. All product groups performed well and sales were balanced across all regions with the exception of Japan, which was impacted by lingering COVID headwinds. We achieved total sales in the quarter of $1,460,000,000 which represents 12.6 percent year over year Constant currency growth.

Speaker 3

We achieved adjusted earnings per share of $0.62 Our GAAP EPS was $0.56 and impacted by an intellectual property agreement, which I will speak to later. Contribution from our stronger than expected sales performance was partially offset by a higher provision for performance based compensation. A full reconciliation between our GAAP and adjusted earnings per share for these and other items is included with today's release. For Total Edwards, based on the strong start to the year, we now expect 10% to 12% year over year sales growth on a constant currency basis, An increase from our prior guidance of 9% to 12%. We now expect to be at the high end of our previous range of $600,000,000 to $6,000,000,000 Absent material moves in foreign exchange, we now expect full year TAVR sales Of $3,800,000,000 to $4,000,000,000 TMTT sales of $170,000,000 to $200,000,000 And critical care sales of $870,000,000 to $940,000,000 For surgical structural heart, we now expect to be at the high end of our previous guidance range of $870,000,000 to $970,000,000 Lastly, we now expect our full year adjusted EPS to be between $2.48 $2.60 We're projecting 2nd quarter sales to be between $1,480,000,000 $1,560,000,000 We're also projecting 2nd quarter adjusted earnings per share of 0.62 to $0.68 I'll now cover additional details of our results.

Speaker 3

For the Q1, our adjusted gross profit margin 77.5 percent as expected compared to 77.8% in the same period last year and 81% in Q4. This slight year over year reduction was driven by a less favorable impact from FX. We continue to expect our full year 2023 adjusted gross profit margin to be between 76% 78%. Selling, general and administrative expenses in the Q1 were 4 $36,000,000 or 29.9 percent of sales, primarily reflecting increased investments over the prior year And transcatheter field based personnel in support of our growth strategy. These investments were partially offset by the weakening We continue to expect full year 2023 SG and A as a percent of sales to be 29% to 30% In the quarter grew 14% over the prior year to $261,000,000 or 17.9 percent of sales.

Speaker 3

This increase was primarily the result of continued investments in our transcatheter valve innovations, including increased clinical trial activity. For the full year 2023, we continue to expect R and D to be 17% to 18% of sales as we invest in developing New technologies and generating evidence to support TAVR and TMTT. Turning to taxes. Our reported tax rate this quarter was 14.6%. This rate reflects a 70 basis point excess tax benefit from stock based compensation.

Speaker 3

We continue to expect our full year tax rate, excluding special items, to be 13% to 17%. Earlier this month, we were pleased to enter into an intellectual property agreement with Medtronic in which we agreed to a 15 year mutual covenant not to sue With regard to certain structural heart products, we previously had a long term IP agreement that expired last year. The terms of the new agreement limit what we disclose, but there will be a reference to it in our Form 10 Q, which we will file soon. In consideration for the agreement, we paid Medtronic $300,000,000 approximately half of which has been recorded as a one time charge and the other half will be amortized over time. Foreign exchange rates decreased 1st quarter reported sales growth by 3 80 percentage points or $44,000,000 compared to the prior year.

Speaker 3

At current rates, we continue to expect an approximately flat Year over year impact to full year 2023 sales as compared to 2022. FX rates negatively impacted our 1st quarter gross profit margin by 70 basis points compared to the prior year. Relative to our January guidance, FX rates had a minimal impact On Q1 earnings per share. Free cash flow for the Q1 was $253,000,000 defined as cash flow from operating activities of $314,000,000 less capital spending of $61,000,000 We continue to expect full year 2023 free cash flow We'll be between $1,000,000,000 $1,400,000,000 Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase We continue to maintain a strong and flexible balance sheet with approximately $1,300,000,000 in cash, Cash equivalents and short term investments as of March 31. In the Q1, we repurchased approximately $250,000,000 in stock through an accelerated share repurchase agreement as well as pre established 10b5-1 programs.

Speaker 3

As a result, average diluted shares outstanding The quarter declined by approximately 5,000,000 shares to 611,000,000. We continue to expect average diluted shares outstanding for 2023 To be between $610,000,000 $615,000,000 We have approximately $650,000,000 remaining under our current share repurchase authorization. And with that, I'll hand it back to Mike. But before I do, I know everyone on both ends of this call joins me in congratulating you on this, Your 92nd earnings call. We're now in our 10th year of working together, and it's been a privilege at every step along the way.

Speaker 3

Your leadership and support as the CEO of Edwards has been an inspiration to me, our employees, and I know it's also fair to say the investment community.

Speaker 2

It's also a great segue. As part of the upcoming planned CEO succession, Bernard has been serving as President of Edwards Lifesciences since January 1. Since then, we've invested all our time I'm excited with the Board's selection of Bernard, and I'm confident that the company is in great hands and will prosper under his proven leadership. But before we go to Q and A, I'll ask Bernard to say a few words. Bernard?

Speaker 4

Thanks, Mike. I feel extremely fortunate to be leading this Special company that has pioneered breakthrough technologies and transformed care for patients around the world. During the well planned 5 month transition, Mike has been extremely generous in sharing his learnings and experience, Having successfully transformed Eduard's over the last 20 plus years, I am also grateful For the support of the Board and the partnership of the executive leadership team, in recent months, I have had the pleasure of meeting and listening to our patients, Our trusted partners and our employees around the world have come away from the discussion even more confident in Edouard's bright future. For our patients, we will continue to advance breakthrough innovation that will positively impact their lives. While EDWARDS has grown and evolved, we never lost sight of why we are here.

Speaker 4

We will stay focused on our long term strategic goals And foster a patient first culture that drives everything we do. We know healthcare innovation requires trusted partner with physicians, regulators, payers, providers and innovators and we will continue to build upon And further strengthen our deep partnerships to take on ambitious goals and address large unmet needs. Transforming care like we do at Eduard is complex. So we remain committed to fostering a culture where our employees I really enjoy very impactful work. Our unique organic innovation strategy requires an expert, Motivated and dedicated global team, I want Eduard's to continue to be a place that inspires our employees To grow and succeed and attract bright talent.

Speaker 4

As you heard from Mike and Scott, we believe that 2023 It will be an important year for El Wars as we expect a return to higher sales growth and meaningful progress All our innovations to improve care for many more patients. Looking beyond 2023, I remain confident That our long term strategy and pipeline of innovative therapy will create significant value for patients and healthcare Enabling strong organic sales growth. Finally, I am confident that as we deliver on our innovation strategy, we will create exceptional shareholder value. With that, I will pass it back to Mark to open up for Q and A.

Speaker 1

Thank you very much, Bernard. We're ready to take questions now. Diego, please go ahead with additional details on accessing the Q and A portion of the call. Thank you.

Operator

Thank you. And at this time, we'll conduct our question and answer session. Our first question comes from Larry Biegelsen with Wells Fargo. Please state your question.

Speaker 5

Good afternoon. Thanks for taking the question. Mike, I just want to say, I think I've been on almost 70 of your 92 calls. I just want to take this opportunity to congratulate you on what you've accomplished at Edwards and wish you well in retirement. I just want to take a minute to say, I think your pursuit of transcatheter valves may seem obvious now, Mike, but we know that it was a big risk When you decided to go down that path, and it was clearly the right decision.

Speaker 5

So congratulations again, Mike, and I'll move on to my questions now. So I'd love to start just with 2 on TMTT. Just first on the TMTT Result in the quarter, the $42,000,000 I'd love to hear a little bit about the U. S. OUS trends.

Speaker 5

How much was Did the U. S. Contribute? And just any color on the launch of PASCAL? And I have one follow-up.

Speaker 2

Yes. Why don't I get started? First of all, thanks so much, Larry. That's very meaningful to me. And you're right, we've So why don't I turn it over To Bernard and Devine to sort of answer your questions.

Speaker 2

Yes,

Speaker 4

sure. Thanks, Larry. Good question about TMTT. We are very pleased with this first As you can imagine, we started in Europe way before and we also got the approval in Europe for PASCAL Precision before the U. S.

Speaker 4

So it is going very well in Europe, but we have been in the U. S. Now for a quarter, quarter plus, and it is going well also, which is It is at the beginning of it. I don't know, Devine, if you want to add anything here. Yes.

Speaker 6

I would definitely say, obviously, Europe has obviously been the majority of But in the U. S. And in Europe, we're in launch mode with PASCAL Precision. We've gotten really positive feedback so far from physicians. They love the technology.

Speaker 6

They're seeing excellent safety and efficacy, and we're continuing to grow. We're continuing to open up new center, train physicians for the first time and giving exposure to this new great

Speaker 5

That's helpful. And then just to follow-up on triluminate, The reaction seemed to be mixed from some physicians. I'd love to hear you guys your reaction to the data and put EVOQ, which you've just You completed the U. S. Pivotal trial for TRISAN-two, the enrollment, I'm sorry.

Speaker 5

One would expect with replacement, you're going to see better efficacy In terms of TR reduction, but how confident are you that you'll see an improvement in outcomes, such as mortality and hospitalization with a reasonable

Speaker 7

Thank you for taking the questions.

Speaker 6

Yes, sure. Thanks, Larry. It's Devine again. I'll jump in a little bit on our thoughts on triluminate. Honestly, on triliminate, we're very pleased to see a high quality randomized controlled data for the treatment of tricuspid regurgitation for the first time.

Speaker 6

We're excited to see that this trial show that tricuspid tear is not only safe, but offers significant TR reduction and also offers really meaningful quality of life for patients. And I think what we see is that the TriLumina data actually kind of helps confirm outcomes that we've seen in previous PASCAL studies in the tricuspid space like our Class T REFS, triclos study, etcetera, that we really see the significant TR reduction, great safety And good quality of life. For us, obviously, the Class II TR study is ongoing and maybe that will give us some more potential on tricuspater therapy. But we also believe that you need a toolbox of technologies for tricuspid disease and that not only does TIER offer a great solution, but we also think that Tricuspid replacement also offers a great solution. Obviously, as the data comes out in the future, we'll help figure out and unpack a lot of the questions that you just answered That you just asked right there, but I think we'll all figure this out together on this journey.

Speaker 7

All right. Thanks for taking the questions.

Operator

Your next question comes from Robbie Marcus with JPMorgan. Please state your question.

Speaker 8

Great. Thanks for taking the question. And Mike, I'll add my congratulations as well. Maybe to start, I want to Spend a minute on TAVR trends, U. S.

Speaker 8

And OUS. And you said there was some pent up demand at the beginning of the quarter, But then also it sounds like staffing continues to improve around the world and if you get a little pricing benefit on SAPIEN 3 Ultra Resilia, that might help sales throughout the year. So just love to get your thoughts on what you're seeing. Do you think there was a bolus January and it died off or are these trends that can continue to improve and accelerate throughout the year?

Speaker 2

Yes. Thanks, Robbie, and I appreciate your comments. Why don't we

Speaker 9

go to Larry on this one? Yes. Thanks, Robbie. If I look at the quarter, We typically see a lot of seasonality in January as we come out of the holiday, just kind of refilling up the pipeline with screening. And we saw a much stronger January than we historically have seen, and we just saw less seasonality.

Speaker 9

I'd say February March played out pretty much in line with our expectations. We've anticipated that staffing was going to gradually improve, and I think we I think that's evidenced in the Q1 results, but we expect it to also continually improve throughout the rest of the year. So in terms of trying to judge your backlog, I'm not really it's hard for us to do that, but we do think there was certainly some catch up in January.

Speaker 8

Great. And Scott, maybe one for you. OpEx came in a little higher than the Street had been expecting in the quarter, Yet you reiterated the margin targets for the year. How should we think about the cadence of spending and anything in the Q1 that

Speaker 3

Yes. So we did end up with higher spending in the Q1 than we had originally budgeted. Our plans for spending for the rest of the year are really unchanged. And for the full year, our guidance for SG and A and R and D as a percentage of sales are unchanged. In the Q1, we came in a little bit higher for several reasons.

Speaker 3

We had some performance based compensation. It's highly sensitive to sales by design. So we like to reward people when the top line is performing well. We also had some little things, some one time, one off expenses for projects we're working on. We had a little bit higher tax rate as a result of mix that came in U.

Speaker 3

S. And OUS. So those were some of the special things that you saw flow through in Q1.

Operator

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

Speaker 10

Hey, guys. Thanks for taking my question and congrats on a good start here. And Mike, let me add my congratulations as well. I wanted to go back to the prior question here on, look at TAVR, I think it was 4% or 5% in Q4, For Q1 double digit growth, can you quantify what that improvement from mid single to double digits? What part of that was perhaps a catch up versus an underlying improvement in procedure trends?

Speaker 10

And when you're thinking about procedure trends, Can you perhaps talk about how the quarter progressed and what the exit rates were?

Speaker 2

Yes. Thanks for your comments, P. J. I appreciate that. And I'll give it to Larry, although I think he already gave it his best shot.

Speaker 2

But wanted to see if you have anything to add, Larry.

Speaker 9

Yes. I don't know that I have a lot more to add from the last question. You'll note we took up the bottom of our range, and I think so we try to Reflects all of this in our guidance, but we're just encouraged overall by the staffing trends and where we're going. And I think To see TAVR back in double digit growth, after a couple of tough quarters, just really I think highlights that the system is getting capacity back. And I think that that's a real plus for patients.

Speaker 10

Maybe I'll try to ask this in a different way, Larry. Let's see if we can pin this down. So Saver, this is the 2nd straight quarter Saver is outgrowing Tower. Is that 17% now, What percentage of that 17 is what is volume versus price? And do you have any thoughts on why SAVR Continuing to outgrow TAVR, shouldn't TAVR be growing faster than TAVR?

Speaker 9

Yes. Well, I mean, I think, first of all, we're very excited by the surgical growth that we saw in Q1. I think Probably reach is probably an all time high that we haven't seen in a long time. I think that's really a reflection of the innovation and the investments we've made over the last And at the same time, we did see procedure growth that happened that I think results from the capacity similar to what we saw in TAVR. We saw that capacity improvements on the surgical side of our business as well.

Speaker 9

But we do get some of the price from our premium products in addition To the growth in the market and then probably a little bit of competitive position as well. So there's probably more drivers on the surgical side than there are on the TAVR side.

Speaker 10

Sorry, volume versus price. Larry, can you comment whether majority of this growth was volume versus price on Sabre?

Speaker 9

I mean, volume was certainly a key contributor to it. I mean, there's no question about that. So that's a big thing. But again, there are 3 things that are contributing to growth in the surgical business, whereas HAVR, it's pretty much primarily units.

Speaker 10

Fantastic. Thanks guys and congrats again.

Operator

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

Speaker 11

Good evening. And Mike, you will be missed. But nice quarter to do your 92nd quarter for. I just want to spend a little bit of time on Japan and China. And particularly in Japan, if you had a tough beginning of the quarter with COVID overhang, What is your run rate looking like right now and just generally what's happening in the region?

Speaker 2

Yes. Thanks, Joanna, I appreciate your kind comments. Bernard, do you want to take a shot at that?

Speaker 4

Yes. So Japan has been and still largely impacted by COVID headwinds. We believe it is going to diminish over the course of 2023. We are also bringing our latest technology in Japan, S3 Ultra Resilia, and we are starting to see some positive reaction from our customers here. Together with the recovery from COVID and us bringing our latest technologies, we are very hopeful for the year.

Speaker 2

Yes. The other thing I can add, Joanne, is that China is still relatively small on the TAVR front for us. Remember, we launched during The COVID years, but Japan is also going to benefit from the launch of the ultra resilient product This year and so we think that's going to be a lift for Japan as the year goes on and that just launched here this month.

Speaker 11

Thank you very much.

Operator

Thank you. Our next question comes from Travis Steed with Bank of America. Please state your question.

Speaker 7

Hey, thanks a lot. And congrats, Mike, you'll be missed as well. A couple of questions here. I guess the first, just if you normalize January, I don't know if you could say the U. S.

Speaker 7

Still grew double digits, if you just normalize the January in Q1. But then the real question is like how to think about Q2 from here, Both U. S. And worldwide TAVR, how much of a step up we should expect in Q2 total TAVR sales or growth rates or just any color on what to expect for Q2 TAVR?

Speaker 2

Okay. Thanks, Travis. I appreciate that. So could you repeat your question about the Q1 growth, so I make sure we get it right?

Speaker 7

Yes, of course. So January, if you normalize the January catch up, if you will, if January looks more normal, did the U. S. However, still grow double digits or is it high single digits?

Speaker 9

Well, again, just to try to expand, we typically see Pretty fairly extreme seasonality in January where it's our worst month of the quarter. We just didn't see as much extremism, but January was by no means our strongest month. We continue to see a ramp in the quarter. It's just February March were pretty much in line with our expectations where January was stronger. But it wasn't like it was our strongest month.

Speaker 9

So I hope that gives more context. And I think what we are seeing is the gradual improvement in staffing and I think what we have tried to build into our guidance is, Yes. We took up the bottom of our range because we thought we had a strong Q1, but it's kind of in our expectations now to be in that 10% to 12% range globally.

Speaker 3

Travis, it's Scott. I'll just add to that. Our guidance at the midpoint for Q1 was around 9 Growth, that was the $1,410,000,000 We beat that by $50,000,000 Almost half of that was surgical. And so, it probably would have rounded to low double digits, something like that if we were to normalize January, but we're getting Pretty precise at this point, trying to isolate every single month of the quarter.

Speaker 7

Yes, that's helpful. And I guess the next question would be on the Resilia rollout, in terms of where you're at and penetration there. And then as you move into 2024, how you're thinking about some of the competitive launches In the U. S?

Speaker 9

Yes. We are very pleased with how the S3 OR rollout has gone. We are really following in the footsteps of our surgical franchise. And Resilio, which is on Inspiris and now on Mytris, As you know, I've become extremely popular with surgeons and so we get to follow the legacy that they've really started for us and we've seen Really positive impact from S3UR, and we expect by the end of the year that that's going to be our leading platform in both the U. S.

Speaker 9

And Europe. And remember, we went for a list price increase with that, which is never easy to do. And we've been pretty pleased with how that's gone so far. And I think that just shows that physicians respect and appreciate the value that Resilia brings to the platform. So we are very encouraged with how the launch has gone to date.

Speaker 9

We will continue to roll it out through the rest of the year, but we do expect it to be our leading platform. I think you had a follow-up question on competitive launches. Is that correct?

Speaker 7

That's correct, yes.

Speaker 9

I mean, competitive launches have been going on for a long time. If we look at Europe, There's a whole complement of products out there. And outside of the number 1 and number 2, all of the competitors command about probably around 15% of And that's been fairly stable. So I think it's for us, it's more about us continuing to innovate and rolling out our leading platforms Then it is about anything else.

Speaker 7

Great. And congrats on a better quarter.

Operator

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

Speaker 12

Hey, good afternoon, everyone. Thanks so much And Mike, we sound like a broken record over here, but it's the end of an era and you definitely will be missed. And it's been such a Pleasure, being on this journey with you as you have such a meaningful impact on so many patients' lives. So, Thanks for letting us share that with you. And I guess my first question is on the TAVR growth guidance For the year.

Speaker 12

And if you look at from a comp perspective, I mean, Q1 is a tough comp. You guys put up 11% constant currency growth. So I guess that we had some sort of backlog worked down in January. But I guess my question is, why not a little bit more Aggressive on the TAVR growth guidance given the strong Q1 print. Is there anything to consider as it relates to moving through the quarters, Comps actually get easier as we move through the year.

Speaker 12

So just wondering if you could comment on that. And then I have one quick follow-up.

Speaker 6

Yes.

Speaker 3

So I mean the short answer is we did increase the bottom of our range. So we're expecting 10% to 12%, not 9% to 12%. It's not a huge move, but it does indicate that we had a nice January and we're still positive on the rest of the year. At this point, it's premature to start tinkering any more than that with guidance. We think this is the right Modeling assumption for us in that 10% to 12% range for TAVR.

Speaker 12

Okay. That's fair. And I think historically, you guys Tend to raise guidance very aggressively after the Q1. So that's fair. And quick question for on the TMT I know it's very early in the U.

Speaker 12

S. On PASCAL launching, but Bernard, just curious what you're seeing as it relates to market growth There and how much you're seeing that market recover? Again, I know you guys are so early, so not sure what you can say. But Usually, second entry comes to market and markets accelerate in medtech, but just wondering if we're getting any signs on what market growth could look like going

Speaker 4

Yes. No, that's a fair question. Indeed, we are pleased about Q1. We have seen some positive sign That the market is recovering. I'm sure you remember that the mitral market during COVID was not growing as expected.

Speaker 4

In Q1, we saw that the market was growing again. But again, we are if you think about the U. S, we are not the share leader, correct? So We look at the market. We see a good sign that it is recovering, and we are very pleased about the introduction of our technologies.

Speaker 4

The customers Reacting very well to PASCAL Precision. They see a differentiated benefit. So we feel good about the impact We can have here 2 of these many patients in need.

Speaker 12

Thank you. Thank you.

Operator

Thank you. And our next question comes from Richard Newitter with Truist. Please state your question.

Speaker 7

Hi. Thanks for taking the questions. So 2 from me. I guess Just the first, I know we've talked about hospital staffing. Is that just a catchall phrase?

Speaker 7

I know in the past, you said it's the whole workup And everything from getting the patient diagnosed to the entire kind of work up to referral to getting the patient there. So with respect to the improvement That we saw from late last year, just wanted to get a sense for what specifically Kind of are you referring to when you say hospital staffing is improving? And kind of the second question on that, Just I think you talked about in the past a very varied kind of level of recovery Across your installed base, any comments you can provide, estimate or characterize Where and which types of implanting centers are recovering and at what rates or was it just more uniform across the entire

Speaker 9

Yes. Maybe I'll start and I'll take your second question first, because it might take a couple of us to answer your first question. I think we saw the growth being driven more by larger centers than smaller centers during this quarter. And I think this is sort of a trend that we've seen throughout I think when COVID has spiked, we've seen people stay closer to home. We've seen probably more growth in the smaller centers.

Speaker 9

And as COVID wanes, We see people traveling maybe a little bit further and going to the larger centers. And so I think this is consistent with trends we've seen over the last year and a half or so. In terms of when we talk about staffing, it depends when you're talking about our surgical business or our TAVR business. When you talk about the surgical business, it's primarily OR staff and ICU nurses and sort of the post care initiative. When you're talking about TAVR, there's a lot more that goes into it because there's a lot more upfront workout.

Speaker 9

So it Require staffing improvements for CT and for angio and sort of the broader cath lab, and we don't need it so much on the aftercare side. So What we I think we've seen just generally, and I think hospitals have been working at this for probably better than a year now, trying to Get people trained and get people in. And remember, you don't just hire a person and then they're affected from day 1. They have to go through a training process With that hospital, but I would say generally speaking, you can look at the quarter and say we saw staffing get better and that's reflected in I think Our broad performance, but we certainly saw it in TAVR, we certainly saw it with Surgical, but it needs to continue to improve over the rest of the year. It's not like we're done yet, but I think hospitals Maybe I'll ask Devine to comment on the TMTT side what he saw.

Speaker 6

Yes. I mean, I think it's a similar kind of comment that you made there. Probably not all the differences where there's a lot of A lot of different steps that go into a TMTC case. And again, as Bernard said, we are still a minority player here, but we continue to see be optimistic that all those different parts of the full Patient pathway are continuing to get a little bit better in staffing.

Operator

Thank you. Our next question comes from Matt Miksic with Barclays, please state your question. Matt Miksic, your line is open. Please go ahead and unmute yourself.

Speaker 13

Hi. Thanks so much. Thanks for fitting me in. So a couple of just quick follow ups here. So one on the color that you gave on Brasilia.

Speaker 13

The target of kind of getting that to the majority of U. S. Revenues by the end of the year on the TAVR platform, if I understood that Correctly. But just broadly, I know you've had a policy of maintaining this kind of Set price across your TAVR platform even as you sort of moved it up through the generations of products. And that is a little bit unusual.

Speaker 13

Most companies in Med Devices do tend to sort of Contract and rebate and make adjustments to pricing across like particularly in the U. S. Given the way DRGs work and And I'm just wondering If this having Resilia in the portfolio at a premium having S3, call it standard Or whatever you however you're referring to it in the portfolio. If you're giving any thought to into sort of joining The rest of the group to sort of help some of the smaller centers maybe Be able to afford to do TAVR when paying for $30,000 or $32,000 for a valve just Mike might be out of reach given especially given the way staffing costs have gone up. Love to get your thoughts on that.

Speaker 13

And I have one quick follow-up.

Speaker 9

Sure. Well, we haven't changed really our pricing philosophy. We do try to be good partners with our hospital and we did Take a list price increase, but that's the first price increase we've rolled out really since launch. This is the first time that we've gone through a price increase. And so the other thing that we've always done is we've always rebated based on volume.

Speaker 9

So large volume centers, obviously, get discounted out. We try to treat everybody fairly across the country. And by having that standardized price, that's the way that we try to do that. And then we try to recognize different centers' performance based on their volume and that's been our philosophy throughout. I don't see us changing that philosophy.

Speaker 9

I think that's worked really well for us and we do try to work with hospitals and Bring a lot of value. We still have people supporting virtually every case in the U. S. And the majority of cases in Europe and virtually all the cases in Japan. And that's just sort of the model that we have.

Speaker 9

And the other thing we try to do is partner with hospitals and run our things like our benchmark program to help them be more efficient. If you look at all the data that's been produced from our clinical trials, this is an incredibly cost effective procedure with almost unprecedented benefits when you look at Mortality and you look at some of the other things that it's done. So we feel the prices that we have are more than fair for the value creation that we have.

Speaker 13

That's fair. And then I guess on the as centers have gotten more active and staffing does Pressure starts to ease a little bit. One of the pressure points has been around the extensive imaging and sort of Additional sort of staffing, specialized staffing that's required for some of these mitral procedures, tier procedures. Any thoughts on along the same lines of facilitating broader utilization and adoption through partnering with hospitals, anything that You can see yourself doing to sort of help facilitate those procedures given sort of the specialized staffing needs behind them?

Speaker 6

Yes. This is Devine. I mean, obviously, I think we always going to look to partner with hospitals. We're going to look to try to help them The Board, we're obviously in our very early days. We try to provide excellent training, top notch training to get these patients as efficiently and effectively Treated, getting through the recovery process, etcetera.

Speaker 6

And I think our teams, since we're a little bit more in the infancy, we don't have the same kind of detailed programs Larry has like benchmark, etcetera, in the TAVR program, but we're working really hard to try it on the TIER side as well, start creating those as we start getting more Scale and being a great partner. I mean, that's a part of it. We all together just want to help more patients together in a cost effective manner. And that's kind of how we think about it over the long term.

Speaker 13

That's fair. And Mike, I have to say it's been something to behold, the culture, the accomplishments of the company. Congrats and you will be missed. Thanks so much.

Speaker 2

Thank you, Matt.

Operator

Our next question comes from Cecilia Furlong with Morgan Stanley, please state your question.

Speaker 14

Good afternoon and thank you for taking the questions. I wanted to return to Japan, some of the comments That you called out just around competitive trialing, how you would frame Edwards growth there versus the market understanding you So we're seeing recovery in the region. And then looking forward to, really what's reflected in guidance from Japan recovery at this point as well as Ultra Resilient rollout.

Speaker 2

So, Cecilia, this is Mike. Can you just A little bit on the first part of that question again. I want to make sure that I understand it.

Speaker 14

You talked a bit about competitive dynamics you seeing in the region I believe. So just curious if you could provide a little more detail on just how that impacted your growth versus market growth?

Speaker 9

Yes. So we had 2 of our the 2 other competitors in Japan both rolled out new products. And so It's not uncommon when new products roll out that we see physicians trying those products and understanding how they work and what the features and benefits are. And I think we've seen this throughout our And usually that ends up being largely transient. And we are excited because we are just getting ready to do our biggest launch that we have done in Japan It's our initial launch, which is S3UR.

Speaker 9

And so we're excited about that. I think broader on the what's in the guidance for Japan We're expecting a broader COVID recovery. COVID was still pretty big in Q1, and we're looking for a broader COVID recovery and continued uptake. It got better during the quarter, Right. We're looking forward to continue to improve throughout the year and that's what's in our guidance.

Speaker 9

Yes. The only thing I'd add to it is Japan has

Speaker 2

been a pretty strong grower for us over the last couple of years and then really slowed down when COVID hit in the second half of last year. So we're looking forward here especially with the launch of With COVID waning and the launch of SAPIEN Ultra Resilia, that it's really going to make a difference starting in Q2 and moving forward.

Operator

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

Speaker 15

Hi, good evening. Thanks for taking the questions. And Mike, I appreciate all your insights on these 92 and the earnings calls. I haven't been on half of them. But question really, I mean for Larry, just Wanted to we're getting questions on the TAVR and TAVR replacement cycle.

Speaker 15

I'm wondering if you could just size up the percentage of the Mark, currently the TAVR and TAVR represents and I imagine it becomes a bigger, more meaningful piece as you get out to 2028 and that $10,000,000,000 Market that you guys have forecasted. But when should we start to think about TAVR and TAVR contributing more meaningfully to market growth?

Speaker 9

Yes. No, it's a good question. I don't know that I can quantify it for you today, But we do TAVR and TAVR, but we also do TAVR and TAVR for patients that have gotten tissue valves. But I think one of the things that TAVR enabled with its development was the opportunity for more patients to get tissue valves. So even on the surgical side of our business, younger patients Get tissue valves now because physicians and patients know if they outlive their valve that there is a catheter based option for them down the road.

Speaker 9

So certainly in Time, TAVR and TAVR will continue to grow and TAVR and TAVR will become a bigger part. TAVR bows now are Just probably starting to get to the cusp of reaching that age that, that will start to be more meaningful, but it will be something that grows In time, certainly, as we look at the period that you discussed, which is through 2028. Appreciate it.

Speaker 2

Okay. Well, this is Mike. I'll make some closing comments. First of all, thank you so much for many of your warm remarks. It's been a special honor and a privilege to lead our team at Edwards Life Sciences for more than 20 years.

Speaker 2

And I really want to thank our employees who have made immense Contributions to advancing care and helping millions of patients around the world. I'm particularly proud of our patients first culture And our commitment to innovation and excellence, our success is really a testament to the talented and Passionate executive leadership team and our employees worldwide, and I believe we are well positioned for an even brighter future. It's truly been my greatest honor to be Edwards' CEO, and I look forward to supporting Edwards as I transition to my new role with the Board of Directors. So thanks a lot for your continued interest in Edwards and the team will welcome any additional questions after the call.

Operator

Thank you. And with that, we conclude today's conference. All parties may disconnect. Have a

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Earnings Conference Call
Edwards Lifesciences Q1 2023
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