Edwards Lifesciences Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 14 speakers on the call.

Operator

Greetings, and welcome to the Edwards Life Sciences Second Quarter 2023 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, Senior Vice President, Investor Relations and Treasurer.

Operator

Thank you. You may begin.

Speaker 1

Thank you very much, Diego. Good afternoon and thank you all for joining us. With me on today's call is our Chief Executive Officer, Bernard Zavigian Along with our Chief Financial Officer, Scott Ullem. Also joining us for the Q and A portion of the call are Larry Wood, our Group President of TAVR and Surgical Structural Heart And Devine Chopra, our Global Leader of TMT team. Katie Ziman, our Global Leader of Critical Care is out of town today, but she'll be with us on future earnings calls.

Speaker 1

Just after the close of regular trading, Edwards Lifesciences released Q2 2023 financial results. During today's call, management will discuss those results included in 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. 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.

Speaker 1

Information concerning factors that could cause these differences and important product 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 are referring to GAAP results. Reconciliations between GAAP and non GAAP numbers mentioned during this call are available in today's press release. And with that, I'd like

Speaker 2

to turn the call over to Bernard for his comments. Bernard? Thanks, Mark, and hello, everyone. I am pleased to share with you the work that our team did to help more patients than even before with our life saving therapies. Today, I'm going to talk about the strong second quarter performance across Product groups, our progress in advancing our patient focused innovation strategy and our confidence and the outlook for LORs in the years ahead.

Speaker 2

In the Q2, we achieved double digit sales Growth driven by increased adoption of our innovative therapies. Total sales of $1,530,000,000 Grew 12% on a constant currency basis, slightly higher than our expectation. We experienced broad based growth across the Eduard portfolio. Given improving healthcare staffing In our first half performance, we continue to expect strong results in 2023. As a result, We have lifted our full year 20.23 dollars and EPS guidance.

Speaker 2

Longer term, we are confident In our focus and differentiated strategy given heart valve failure is largely under diagnosed and undertreated. We remain committed to increasing awareness and providing innovative life saving therapies, so even more patients can benefit. Now, I will provide an overview of the 2nd quarter sales performance by product group. In TAVR, we continue to see strong demand for leading Sapient platform with sales of $992,000,000 up 10% year over year on a constant currency basis. Our U.

Speaker 2

S. And OUS sales growth rate were comparable. Local selling prices were stable. In the U. S, our 2nd quarter TAVR sales were aided by improved hospital staffing levels and the continued successful launch of SAPIEN Free Ultra Resilia.

Speaker 2

We estimate that total procedure growth was in line with our sales growth. Additionally, we will be restarting enrollment this quarter In our pivotal trial alliance designed to study our next generation TAVR technology SAPIEN X4. Outside of the U. S, we had positive constant currency sales growth from all regions. In Europe, Edvard's sales growth were driven by the broad based adoption of our Sequium platform.

Speaker 2

Our sales in Japan grew sequentially and year over year on a constant currency basis, although our results continued to be impacted by lower than expected market growth and competitive trialing in the first half of this year. As a result, we estimate overall OUS TAVR procedure growth in Q2 was slightly higher Then Edwards OUS TAVR Growth. During the quarter, at the Euro PCR Medical Congress data on the benchmark We have presented on 2,400 patients treated with Sapient valves across 28 European centers. It was very encouraging to note that patients experienced a 33% reduction in the median hospital length of stay, while maintaining 30 day clinical outcomes. This study showed that by implementing best practices With the SAPIEN platform, centers can be more efficient without compromising patient outcomes.

Speaker 2

Turning to TMTT, we remain focused on 3 key value drivers to unlock this opportunity. A portfolio of differentiated therapies, positive clinical trial results to support approvals and adoption and favorable real world clinical outcome. TNTT's 2nd quarter global sales of $48,000,000 increased nearly 70% on a constant currency basis versus the prior year. Growth was driven by continued strong overall procedure volumes, adoption of our differentiated PASCAL Precision platform and activation of more centers across the U. S.

Speaker 2

And Europe. We continue to hire, Enrollment is ongoing in the Class IIF pivotal trial for functional mitral patients. We are also pleased with the enrollment in the insertable pivotal trial for the SAPIEN M3 mitral valve replacement and remain on track to complete enrollment around the end of this year. In TriCASPID, The Class II TR pivotal trial with PASCAL continues enrolling well. With the completion of TRICEN2 enrollment, Continued access for EVOC allows U.

Speaker 2

S. Centers to continue to offer this therapy for trachecid patients. We remain on track for European approval by the end of 2023 and U. S. Approval around the end of 2024.

Speaker 2

In Surgical, 2nd quarter sales of $256,000,000 increased 13% On a constant currency basis, driven by the adoption of our premium Resilvia products across all regions, Physicians and patients value the future and benefit of this advanced tissue technology for both aortic and mitral Surgical valve procedures. Patient enrollment continued in the Q2 for our momentous clinical study designed to demonstrate the durability of Resilia Tissue in the mitral position. We expect That confidence from the recently presented 7 year data of our COMMENTS clinical trial We continue to support adoption of our Resilia family of products. In critical care, 2nd quarter sales of $2,035,000,000 increased 13% on a constant currency basis, driven by contribution from all product lines. Growth was led by our smart recovery portfolio and healthy adoption Of our Acumen IQ sensor, sales momentum for our Hemosseum monitoring platform Was also positive in the Q2 with a healthy pipeline of future opportunities.

Speaker 2

Before I turn it over to Scott, I also want to mention our expectation for the upcoming TCT conference in October. During the conference, We expect several important presentation regarding our transcatheter technologies. In TAVR, We are expecting the presentation of 5 year clinical data for the Perna free low risk pivotal trial. In TNTT, We anticipate a presentation of a 1 year full cohort of the Class IId pivotal trial results. Additionally, we anticipate a presentation of a planned interim analysis of a TRICEN-two randomized cohort.

Speaker 2

I look forward to seeing many of you at the investor event we plan to host at TCT. Our Investor Relations team We'll communicate details as we get closer to the event. And now, I will turn the call over to Scott.

Speaker 3

Great. Hey, thanks a lot Bernard. We are pleased with our sales performance in the first half of the year, posting our 2nd consecutive quarter of double digit constant currency growth. All product groups grew double digits and sales were balanced across regions with the exception of Japan, which was impacted by the trialing Competitive TAVR products, we achieved total sales in the quarter of $1,530,000,000 which represents 12% year over year In support of our growth strategy, our GAAP earnings per share of $0.50 was impacted by the intellectual property agreement I commented on last quarter. We previously had a long term intellectual property agreement with Medtronic that expired last year.

Speaker 3

And in consideration for the new agreement, we paid $300,000,000 approximately half of which has been expensed and the other half will be amortized over the next 15 years. Reconciliation between our GAAP Adjusted earnings per share for these and other items is included with today's release. I'll now cover some additional details of our 2nd quarter sales results and full year 2023 outlook by product group. A continuation of double digit global TAVR growth reflected a more stable hospital In Europe, Edwards sales growth was driven by the continued demand of our SAPIEN platform and was broad based by country. We still see some health system capacity challenges, but are encouraged that centers are adapting to continue to treat their patients.

Speaker 3

In Japan, although growth was below our expectations in Q2, we anticipate that growth rates will improve driven by the ongoing launch of SAPIEN 3 Ultra Resilient. For global TAVR sales, we are adjusting the low end of our outlook slightly higher to $3,850,000,000 to $4,000,000,000 We now expect full year TAVR growth to be 10% to 13% on a constant currency basis versus previous guidance of 10% to 12%. TMTT growth in the 2nd quarter was driven by strong procedure volumes, Adoption of our differentiated PASCAL Precision platform and activation of more centers across the U. S. And Europe.

Speaker 3

Overall, we're pleased with our continued progress toward bringing a portfolio of TMTT 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 $180,000,000 to $200,000,000 versus our previous expectation of $170,000,000 to $200,000,000 In Surgical Structural Heart, 13% constant currency sales growth in the quarter was driven by the adoption of Edwards Premium Products as well as strength in valve surgery procedures as hospital staffing levels have continued to improve. Based on positive year to date performance, we now expect that our full year sales will be in the range of $960,000,000 to $1,020,000,000 versus previous guidance of $870,000,000 to $970,000,000 This revised range implies low double digit constant currency growth in 2023. Finally, turning to Critical Care. We continue to expect full year 2023 sales of $870,000,000 to $940,000,000 For total Edwards, based on the strong first half of the year, We now forecast full year 2023 sales to be in the range of $5,900,000,000 to $6,100,000,000 versus prior guidance Of the high end of $5,600,000,000 to $6,000,000,000 We now expect full year total company sales growth to be in the 10% to 13% range on a constant currency basis versus previous guidance of 10% to 12%.

Speaker 3

Lastly, we now expect our full year adjusted earnings per share to be between $2.50 $2.60 We are projecting 3rd quarter sales to be between $1,440,000,000 $1,520,000,000 We are also projecting 3rd quarter adjusted EPS of $0.55 to $0.61 I'll now cover additional details of our P and L. For the Q2, our adjusted gross profit margin was 77.7% as expected, compared to 80.5% in the same period last year. This reduction was driven by a less favorable impact from foreign exchange. We continue to expect our full year 2023 adjusted gross profit margin to be between 76 Selling, general and administrative expenses in the quarter were $469,000,000 or 30.6 percent of sales compared to $409,000,000 in the prior year. This increase was driven by performance based compensation and investments in transcatheter Field based personnel in support of our growth strategy.

Speaker 3

We continue to expect full year 2023 SG and A as a percent of sales to be 29% to 30% as we invest in field based personnel and our therapy adoption initiatives. Research and development expenses in the 2nd quarter grew 8% over the prior year to $270,000,000 or 17.7 percent of sales. This increase was primarily the result of continued investments in our transcatheter aortic 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. During the Q2, we recorded a $27,000,000 reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.04 This benefit was excluded from our adjusted earnings per share of Turning to taxes.

Speaker 3

Our reported tax rate this quarter was 9.7% or 13.1% excluding the impact of special items. Our rate benefited from higher R and D tax credits and a 200 basis point excess tax benefit from stock based compensation. We continue to expect our full year tax rate excluding special items to be 13% to 17%. Foreign exchange rates decreased 2nd quarter reported sales growth by 70 basis points or $8,000,000 compared to 2022. At current rates, we continue to expect an approximately flat year over year impact to full year 2023 sales compared to 2022.

Speaker 3

Foreign exchange rates negatively impacted our 2nd quarter gross profit margin by 2 20 basis points compared to the prior year. Relative to our April guidance, FX rates had a minimal impact on 2nd quarter earnings per share. Adjusted free cash flow for the Q2 was $286,000,000 defined as cash flow from operating activities of $34,000,000 Less capital spending of $48,000,000 and excluding a $300,000,000 payment related to the Medtronic intellectual property agreement I mentioned earlier. We continue to expect full year 2023 adjusted free cash flow will be between $1,000,000,000 $1,400,000,000 Before turning the call back over to Bernard, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a solid and flexible balance sheet with approximately $1,500,000,000 in cash, cash equivalents and short term investments as of June 30.

Speaker 3

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 over to you, Bernard.

Speaker 2

Thank you, Scott. So based on our strong first half results, we have increased confidence that 2020 We will be an important year for Edwards and we expect to deliver 10% to 13% sales growth While making meaningful progress on our innovations to improve care for many more patients, Longer term, I have great confidence in our team to further extend our leadership position by bringing our differentiated technologies Pass it back to Mark to open up Q and A.

Speaker 1

Thanks a lot, Bernard. With that, we're ready to take questions now. Operator, please go ahead with additional details on accessing the Q and A portion of the call.

Operator

Thank you. Our first question comes from Robbie Marcus with JPMorgan, please state your question.

Speaker 4

Great. Thanks for taking the questions and congrats on

Speaker 5

a nice

Speaker 4

quarter. Maybe to start global TAVR growth around 10% a little weak in Japan.

Speaker 6

Where do

Speaker 4

you think we are in the recovery process in terms of stabilizing the system, stabilizing Time lines and staffing in the system. And When do you think we'll get to a new normal in TAVR procedures and diagnosis and treatment?

Speaker 2

Hey, Robbie, this is Bernard here. Thanks for the question. We are pleased with our global TAVR result in Q2, 10% constant currency growth, comparable U. S, O U. S.

Speaker 2

Basically. And it has been driven by continued strong demand for our leading Sapient platform. Also what we have experienced Is it improvement in the hospital staffing level in the U. S. And globally?

Speaker 2

But I'm going to let Larry add some comments here.

Speaker 6

Hey, Ravi. Yes, it's deciding what the new normal is, is probably a little bit tricky. But I feel like the system has continued to get better. I think when we track staffing, we're not where we should be and we're not where we would have projected to be in Could it be an absence of the pandemic? But I think patients are certainly coming in and they're getting their visits.

Speaker 6

And I think when we look at some of the leading indicators, we diagnosis Sure, Rob. And patients are moving through the system. We still feel constrained somewhat at the cath lab level. That's still a place that we still struggle. I think centers have made tremendous strides, but it's still an adjustment coming out of COVID and we're not back to what I call pre COVID normal levels.

Speaker 6

And so I think we still have a little ways to go. But to consider that and I think we see that a little bit globally. It varies a lot across Europe and we see it a little bit And depending on, I think they're still dealing with a little bit more COVID here and there. But I think the encouraging thing is we're at 10 Globally, and we know we haven't fully recovered yet. So I think there's still some opportunity for us to continue to do better.

Speaker 6

And we know the under treatment Remains huge and we still think there's a lot of opportunities to continue to grow this over the long term.

Speaker 4

Great. Thanks for that. And maybe just kind of a similar question. TMTT you beat in the quarter. That seems like it was even a bit more impaired over the past few years than The whole TAVR complex, maybe just talk about mitral and tricuspid, Particularly the launch of PASCAL in the U.

Speaker 4

S, how you think adoption is going versus plan? How you're seeing the competitive situation play out and just your thoughts on TMTT in general relative to TAVR normalization?

Operator

Thanks a lot.

Speaker 2

Yes. So let me start Robbie and then I will ask Devine to add some comments here. So we are pleased about Q2, obviously, globally, what we have seen is that the market, the metal market has done well in Q2. It's back Growing and almost double digit something like that. The adoption of Pascal Precision It's going very well.

Speaker 2

It's going very well in U. S. It's going very well in Europe. And we are activating more centers across U. S.

Speaker 2

And Europe. So this is the way to think about it. We had some great momentum from the market from PASCAL Precision And from us activating more centers. But, Devin, do you want to add anything here?

Speaker 7

Yes, definitely. Thanks, Bernard. I think as Larry and Bernard talked about, The market we continue to see recovery from the staffing portion of it. And I think you're right that maybe we've got hit a little bit more on the staffing side during COVID, but coming out we're also So seeing recovery, but I still think there's opportunity to keep getting better on that component. But that being said, with such a large number Of such a large number of patients looking for new therapies, we continue to see relatively strong market growth.

Speaker 7

That being said, as we dive into it, we continue to open up new centers in both the U. S. And Europe. Specifically in the U. S, I think we're continuing to hear great feedback from physicians about the differentiated features and benefits of the PASCAL system.

Speaker 7

We're ramping up the team. We're opening up new centers each week. We're going through kind of the value add, value analysis committees and the contracting With each new center in the U. S. Week in week out and we're really focused as you can imagine on the largest accounts in the U.

Speaker 7

S. Not who do the most Tear so far. And so I'm pretty excited about where we're going in the U. S. Maybe just a comment both on Europe.

Speaker 7

I think as Bernard said, We've been again opening up new centers in Europe. And I want to make a comment that tricuspid especially in Europe continues to see very strong growth at the newer therapy, smaller obviously in market size, but continue to see very strong growth where we're seeing that the market is growing and that people are really Seeing that PASCAL actually in this situation, the tricuspid space has really got these differentiated features for atraumatic and tailored treatment really for So overall, we continue to be excited about where PASCAL is going in its launch.

Speaker 3

Thank you. And then about the financial implications of everything that Bernard and Devine just talked about, which is we're feeling good about how TMTT is developing in 2023. You saw our original guidance for sales was $160,000,000 to $200,000,000 We bumped up the bottom end of the range by $10,000,000 last quarter, bumping at another $10,000,000 this quarter and it's An indication of how positive we feel about our progress this year.

Operator

Thank you. And our next question comes from Matt Taylor with Jefferies. Please state your question.

Speaker 8

Hey, guys. Thanks for taking my question. So I just wanted to ask one about the margins basically. So You had nice gross margins here. And Q2, I know you're making a lot of ongoing investments.

Speaker 8

And so Two things, I guess. What are kind of the key puts and takes to think about in terms of gross margins and OpEx spending through the second half of the year in terms of A phasing or anything discrete to call out? And then just conceptually at a higher level, how should we think about operating margin progression over the course of the next Couple of years, especially as you might have some of your bigger clinical studies starting to wind down. Yes.

Speaker 3

Thanks for the questions. I'll start with gross margin. On gross margin, we're seeing some benefit of mix In 2023, but it's more than offset by the impact of foreign exchange that actually hit us last year in 2022 And it's flowing through our income statement in 2023. You asked about phasing. It's going to get more impactful negatively In Q3 and Q4 based upon current exchange rates.

Speaker 3

Now if exchange rates change, that may change a little bit as well. We're expecting gross margins to come down a little bit in Q3 and Q4 relative to the first half. All that said, we expect to end up Right where we thought we would in the range of gross margin guidance for 2023. So really nothing changed. In terms of operating expenses, You're right.

Speaker 3

We've been putting more investment into especially field based personnel in Europe, in the U. S. And even outside. And that's weighing on operating expenses, but that's okay. It's part of a deliberate plan to really drive top line growth by making sure that we've got the right people in the right places, Supporting our clinician partners and making sure that patients are getting the right kind of care, especially as we're introducing these new products in places like TMTT and what Devine talked about As it relates to operating margin progression over the next couple of years, we continue to see opportunities to expand our operating margin And we're looking for ways that we can do that.

Speaker 3

We've identified areas where we can make changes and gradually Incrementally expand our operating margin, but really it's a secondary focus. The primary focus is investing for long term top line growth. Yes, some clinical trials wind down over the next couple of years, but we've got other ones spooling up. You know about what trials Larry is running and TAVR and Devine has going and TMTT. And this is a super important area of investment for us, again, to drive top line sales by contributing to this really robust body of clinical evidence that we have supporting the growth in those 2 transcatheter businesses.

Speaker 8

Great. Thank you, Scott.

Operator

Thank you. And our next question comes from Vijay Kumar with Evercore ISI, please state your question.

Speaker 8

Hey, guys. Thanks for taking my question. Bernard, maybe my first one on this capital guidance here. Think the underlying was raised at the high end of 13%. The first half CABR underlying has been 10% to 11 I'm curious why the high end was raised?

Speaker 8

Was there something within the quarter that you saw some phasing? Or is there something coming in the back half, Which gives you the confidence perhaps 13% is even possible?

Speaker 3

Go ahead, Scott. Vijay, Matt, I'll jump in here and give you a sense of how we see it. The change in guidance, the expansion on the top end of the range largely reflects Better than expected performance in the 2nd quarter and the first half results compared to what we originally expected back at the time of the investor conference. And so because we overachieved in the first half, we are introducing this higher top end of the range to accommodate a potential Faster growth scenario, the way we saw earlier in the year, we're still modeling and planning around the midpoint of that 10% to 13 That range, but that's the reason why we expanded the top end.

Speaker 8

Understood. And maybe one sort of related question here. Yes. First half, we've seen Sabre grow mid teens. How much of that is volume versus price?

Speaker 8

Why are we still seeing sever outgrower, TAVR? I think I heard Larry mention the macro environment staffing is improving, But I'm just so it's odd for us to see Sabre outgrow tower. Is this a fundamental change in the market or Perhaps new product introductions that's driving SABR or some color on SABR versus SABR would be helpful?

Speaker 2

Yes. So, Vijay, let me start and then I will ask Larry to add his comments here. So both our Saver and TAVR business are growing nicely. And the Saver sales growth has exceeded TAVR because of a combination of things, Market growth, several market growth, but not only premium pricing of our innovative price premium technologies. And because of all of that also our better competitive position.

Speaker 2

So again in TAVR what you have is a number of things happening Well, in TAVR it is mainly the posterior growth. Maybe, Lalor, you want to add anything here?

Speaker 6

Yes. I think that's right. We sort of have the 3 components that help contribute. So You can't look at the growth rates and turn it all into procedures because for the TAVR side, it is overwhelmingly majority procedures, but it's more of a combination of things on surgery. I will say as we move through the COVID recovery though, we probably saw hospitals prioritize their surgical programs probably most.

Speaker 6

And I think that A little bit with patient acuity and just the need to get those patients treated probably a little bit sooner. So I think CAF lab recoveries maybe lagged a little bit beyond the surgical recovery. But again, we're very happy with where we saw TAVR procedure growth This last quarter.

Operator

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

Speaker 5

Good afternoon. Thanks for taking the questions. 2 on the pipeline and the TCT updates on this call. Let me start With the TRICEND 2 comments, it's big news here. Arguably, Evoque is your most important pipeline product.

Speaker 5

So I guess my question is Bernard or just a couple here. 1, has the trial stopped yet? 2nd, what would success look like to you given the triuminate results So only a quality of life benefit, but no positive trends on heart outcomes? And lastly on TRICIN2, if positive, I would think approval could come in mid-twenty 24, not late-twenty 24. And I did have one follow-up.

Speaker 2

Thank you, Larry. I see that you are aggressive. That's good. Look, we are yes, indeed, we completed the enrollment The full cohort of TRYFON2. I think we have been sharing that already in the past.

Speaker 2

We need to wait we wanted to wait 1 year Follow-up and then putting together all of the data, presenting that to the FDA. So this is going to take some time. So it is why we still believe that around 2020 Approval in the U. S. Is reasonable.

Speaker 2

Are we going to go faster? For sure. But I think end of 2024 is reasonable. Now I'm sure your question about how do we feel about study results is in light of what we have seen with thiLuminate. It is tough to comment because TriMas was using one technology.

Speaker 2

Tricent 2 is using a different technology, different devices. We don't know very little about Tricuspid disease. So it's very tough to comment on that. But I have to say that Quality of life is super important for patients. So we will have but again, we will have to see what the result of this study And we are confident.

Speaker 2

Devine, you want to add anything here? Yes.

Speaker 7

I'll set 2 small points. Thanks for the question. If that this Interim analysis was a part of statistical plan. So it's already been planned out and was always a part to kind of show these results. So we're excited to share these results with the clinical community.

Speaker 7

And I'll make the other comment that for us, I'm actually pretty excited by what we've seen actually previously with triluminate. It helps really Confirm outcomes that have come from other studies with TIER technologies that we have on the PASCAL device that TIER in tricuspid delivers great Tricuspid reduction with meaningful quality of life improvements and we are excited to see randomized data. So to me these are all Great positive tailwinds in tricuspid and we're excited to see what the TRICON2 interim planned analysis will show.

Speaker 5

That's helpful. Just for my follow-up, the other one on the PARTNER 3 5 year data. What do you think physicians will be focused on There's been some concern among investors and clinicians given the curves converging Between TAVR and SAVR between year 12 in the 2 year data, is there anything you can say that could allay concerns? Thank you.

Speaker 6

Well, I can't speak to the data or what's going to be presented. I think what are going to be looking at is what the trial was powered for and what was designed to do. And we have a composite endpoint of death, all stroke and rehospitalization and Those are the 3 components. So I think 1st and foremost, if you look at the primary and then I think people are going to look at the sub components of that And say, what do they see happening in the trends in the trial? And I think That's what people are going to be looking for.

Speaker 6

But we're excited to the data is coming forward and the team is going to continue Pulling it in and once it's all adjudicated, the clinicians will obviously take the steering wheel and they'll present the data. But I think overall, every time we have one of these data Reports, it just adds to our body of knowledge and adds to the body of evidence. And I think that's what we do for the clinical community. So again, that I think Primarily, we focus on the primary endpoint just like we did in the trial and we see and we'll see where we are.

Operator

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

Speaker 9

Hey, thanks for taking the question. I just wanted to follow-up on U. S. TAVR growth. I wanted to understand a little bit better.

Speaker 9

I think you said price was stable, but it sounds like resilience going faster than expected. So I don't know if there's any way to kind of parse out that U. S. Sounds like 10% TAVR I don't know if there's any way to kind of parse out that U. S.

Speaker 9

Sounds like 10% TAVR growth in the U. S, how much of that was actually priced versus Resilia in the quarter?

Speaker 6

Yes. So thanks for your question. Yes, the price is a pretty small factor in the U. S. Growth number.

Speaker 6

It's overwhelmingly driven By the procedure growth, when you look at what we're going for with Brasilia for S3UR, we're still in the I'd call it I wouldn't call it necessarily the early part, but we haven't even reached halfway in the launch of Brasilia yet. And while we did go for a list price increase of $1500 if you look at that as a percent of the total device cost, it's a lot smaller than what we did on the surgical So it's certainly a contributor and it's a long term contributor for us, but it's pretty small in comparison to the procedure growth. And remember too, as people's volumes Go up. They continue to hit rebate tiers and they get discounted accordingly. So you got to factor all that in as well.

Speaker 9

Great. That's helpful. And then I did have a follow-up on the raised TAVR guide for the full year. Is there anything you're seeing in July? Just curious like what's going to do with the confidence to raise the full year guide?

Speaker 9

And when you think about Q3, should think about this being down sequentially versus Q2 in dollars, like it has been historically?

Speaker 3

Yes, it's Scott. A couple of things. The increase in the guide was largely reflective of our stronger than expected first half performance And the prospect of potentially overachieving what we had modeled for the second half, although we're still modeling the midpoint of that range that we provided. As far as the July expectation, I guess we'll just leave it as the range that we put out for total company sales in the Q3 incorporates What we see so far month to date, but we're not going to get into the month to month report. In terms of What the later in the year trend may look like?

Speaker 3

A lot of it depends upon seasonality. We get hit by the summer vacation season and not just in Europe, but also in the U. S. We'll be able to talk more about that impact when we get to our Q3 call both for looking back on the Q3 and what the run rate looks like going into Q4.

Operator

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

Speaker 10

Two tab questions. 1 first, Just on the Japan recovery, can you just talk about or share any insights into the

Operator

Good morning, Josh. You're cutting out. Could you pick up your handset?

Speaker 10

Sure. Can you hear me now?

Operator

Yes, much better. Thank you.

Speaker 10

Sorry about that. Just 2 TAVR questions. First on the Japan recovery trajectory, maybe just help us better understand Any factors that are limiting the recovery in Japan and how you see that market shaping up in the back half of the year? And then the second question on Just on the progress trial, any updates on the enrollment pace? I believe first patient was enrolled in Close to the end of 2021, so it's been about a year and a half of enrollment and could that trial complete enrollment in 2023 or in 2024?

Speaker 10

Thanks for taking the questions.

Speaker 2

Thank you, George. So in Japan, what we have seen is a positive, like I said, sequential And also year over year growth in the quarter. It was below our expectation, but we believe it is transient for a couple of reasons. 1, the market as you know, the market is still impacted from COVID and is still recovering from COVID. And also we believe it is strengthened because we are very pleased with the early feedback of the launch of second free hotel Resilient Japan.

Speaker 2

So we feel like we grew year over year sequentially below our expectation, but we are confident that we are going to improve this in Japan. Maybe Larry, you want to add anything here?

Speaker 6

Yes. I think that's right. I think Japan certainly got more impacted during COVID waves, I think even than some other regions in the last year probably. And so as that stabilizes, we think that that helps. And as Bernard said, we did see Growth year over year and sequential, we just probably had higher expectations.

Speaker 6

And I think that's what's reflected in our comments. But we're optimistic the back half of the year that we're going to continue to see recovery in Japan and that's all factored into our guidance. On progress, We don't have any updates on enrollment right now. I will say overall, we've been pleased with how that trial has gone, but probably investor Conference is when we'll probably provide a more fulsome update on that and probably some more projections. We'll have a lot more information under our belt then that we can probably

Operator

Our next question comes from Chris Pasquale with Nephron. Please state your question.

Speaker 8

Thanks. Scott, the 3Q EPS guide So the lower industry was modeling, it looks like operating margins expected to contract by a couple of 100 basis points versus where you were in the first half and then bounce back In 4Q, is there anything in particular about the Q3 that drives that margin dip?

Speaker 3

Well, the only thing Q3 as we pick up the summer seasonality, which hits us on the top line and generally the expenses continue to go through and are not as seasonal. That's really what it reflects.

Speaker 2

Okay. And then I know Catherine is not on the

Speaker 8

call today, but just looking at the critical care guidance, that business has been running hot here, Double digit growth first half of the year. Looks like guidance assumes a pretty meaningful decel in the back half. Is that Just tougher comps or is there something in particular you're looking at there?

Speaker 2

No, exactly. You got it. We had a great Q2, I've seen a great Q1, very balanced across all product lines. And we didn't change the guidance even though we changed the guidance The last quarter, but it is more about the tough year over year comparison in the 2nd part of the year. Thanks for the question.

Operator

Thank you. And our next question comes from Matt Miksic with Barclays. Please state your question.

Speaker 11

Hey, thanks so much for taking the question. So I wanted to follow-up on this very strong performance And SAVR and good, but not as strong performance in SAVR and as it pertains to staffing. And I know you talked about price a little and volumes. But can you talk a little bit about given that TAVR interventional TAVR resources that sort of grew up during the clinical trial of TAVR Across the clinical community in U. S, Europe kind of lost many of those folks who are maybe more proficient and are Good news replacing them with other folks, but bad news maybe some of those folks are still coming up the curve.

Speaker 11

If you could talk about is that more of an issue on the TAVR side? And because TAVR surgical interventions are a bit more mature that That's less of an issue on we've heard that from some centers that are sort of we're more productive, more skilled, more mature on one Versus the other, which is kind of one of the factors, but it'd be great to get some color and then I have one quick follow-up.

Speaker 6

Okay. Sure. Let me take a shot at that. So probably the biggest place we saw turnover on the TAVR side of things were our valve clinic coordinators. And I think we talked before about the number of our clinic coordinators we train.

Speaker 6

And I think part of that is just a really demanding job. There's a lot that goes into that in terms Screening and moving people through the system. And so I think there's a lot. So we see a little bit more turnover than that than certainly. And we don't really have the same Level of work on the surgical side because on the TAVR side remember patients have to get a CT, they have to have a lot more workup and not every patient gets a most surgical patients In fact, don't get a CT.

Speaker 6

And so it's just easier to move surgical patients through the process because literally, if a patient comes in they're deemed a candidate for surgery. They can move right to surgery within a matter of a few days or a week, where for TAVR they're going to have to be scheduled for a CT, you But there's just more systems to impact on the TAVR side. We didn't lose our operators. Those aren't the people we lost. We didn't lose our operators.

Speaker 6

We still have a lot of residents and a lot of people coming up through the system. So it's not so much the In planning positions as much as it is just general support staff.

Speaker 11

Got it. That's helpful. And then just on it's a question about some of the investments you've made and maybe for Bernard And best of the team. The investments that we see coming through the clinical Programs now like Revoke and Pascal are investments and innovations that you made some time ago. And I'm just wondering, Are you at a stage where you've got what you need to address these PMTT markets and sort of more advanced Other valvular disorders?

Speaker 11

Or are you still out there hunting For sort of better mousetraps or additional technology and IP that we should expect to kind of further flesh out Those programs going forward? Thanks.

Speaker 2

Thanks, Matt. This is a very good question. So think about our vision in TMTT. Our vision is there are so many patient in need. My colleagues like us did.

Speaker 2

And we believe that to be able to unlock this very large market opportunity, We need a comprehensive portfolio and we are building this comprehensive portfolio. So What you can expect is us investing in innovation, next gen innovation. So, PASCAL Gen 2, Gen 3, Gen 4, same with Evoque, the same with micro replacement. So this is on the technology side. Ben, we know from our experience in TAVR, It is you need technology with evidence.

Speaker 2

In TAVR, we are I don't know, I mean, randomized clinical study we did 3, 4, 5, even more potentially in the space probably close to 10 between us and our competition. So We will have to think about the same way. So we are in my mind, we are not done at all in the TMT clinical evidence and we are not done in term of further innovating to be able to treat all of the patients, mitral and trachetsis patient. We like definitely our technology. We like so far our clinical evidence that we are providing And more to

Operator

come. Thank you. And our next question comes from Danielle Antalffy with UBS. Please state your question.

Speaker 12

Hey, good afternoon, everyone. Thanks so much for taking the question. Bernard or maybe Larry, just on TAVR, two questions there. Number 1, one of the things everyone's sort of trying to figure out as we move through Q2 is Impact of backlog, I know the high acuity nature of the TAVR procedure likely not much backlog. And I know you did that Marginally in Q1.

Speaker 12

Just curious if you think you saw any of that work down in Q2? That's the first question. Second question is just Over the last few quarters, you gave some color on high volume versus low volume centers driving a lot of the growth. Just curious if you could Give some color there whether this is really broad based across low and high volume centers. Thanks so much.

Speaker 6

Yes. Thanks, Danielle. Yes, we think as the front end of the funnel starts to fill back up again with referrals in that, I think there is a possibility that we are actually seeing a little bit of a backlog grow as we talk about the last mile still being probably the part that we see The most pressure on staffing. I wouldn't be able to quantify that and it's probably just sort of more of a directional thing. But the fact that we've seen the growth in TAVR for 1st couple of quarters of this year and we've been back into double digits and it's not like our centers are out Beat in the bushes for patients.

Speaker 6

We're pretty pleased with our patient flow right now. So I think that that's obviously really positive. I think in terms of large centers, small centers, We saw a dynamic throughout COVID that when COVID would sort of the wave would come through that people would sort of The smaller centers growing faster indicating people maybe stayed a little bit more local. When COVID tends to go away, then people tend to go back to the centers, the large centers of excellence they're willing to travel a little bit more. So I think we saw a little bit more growth in the large centers in this past quarter than we saw in the small centers.

Speaker 6

But that's something that is varied a lot Quarter by quarter, but this last quarter would have been more in the large centers than the small ones.

Operator

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

Speaker 13

Thanks for taking my questions. 2 here. The first one, just on reconciling the raise to the high end of the TAVR range And your Japan commentary relative to expectations, do you need Japan and the dynamic there to improve in the second half To hit the midpoint of your guidance? Or is that kind of what's embedded to get to the upper end? I'm just trying to reconcile those two pieces.

Speaker 3

Yes. We're expecting Japan to perform better in Q3 and Q4 and that's a contributor to Our assumption about the midpoint of the range. Now Japan does better than we're expecting. That could get us into the higher end of the range. And if it does worse, then lower end of the range.

Speaker 3

All of that said, Japan is still a pretty small percentage of our overall sales in TAVR, but it's an important one and it's an important growth driver for us longer term.

Speaker 13

Okay. And then just secondly, thanks for that. Secondly, just as we think about especially in the U. S. TAVR, At about 10% now, you've got Resilia pricing contributing some amount.

Speaker 13

So I guess, if you're 10% with Resilia, As we just think out whether it's 24 or just on a normalized basis, should we be thinking of your view that The TAVR market has approached high single digit volume growth sustainably as we think back to normalized levels. Is that the right way to think about it?

Speaker 6

I'll try to answer that and Bernard or Scott can certainly jump in as well. No, we don't think we're Seeing an overall slowing of growth in the TAVR space, we think we actually have a pretty long runway here. We think there's still a lot of untreated patients in the system and we continue to try to get through that. And patients in the system and we continue to try to get through that. And as I said earlier, I still feel like we're somewhat constrained within the system for staffing and we still put Double digit growth on the board the 1st two quarters.

Speaker 6

So I feel like there's still a long term opportunity and we haven't even begun to talk about long term impact of things like early TAVR and things like progress trial that obviously go out much further. So I think to Trying to think that this is going to go the way of population growth anytime soon. That's just not how we see it.

Speaker 3

I would just add to that Larry just To reinforce that, our confidence in $10,000,000,000 total addressable market hasn't changed one bit in 2028. So while COVID interrupted our trajectory to that larger TAM, we still feel a lot of confidence that we've got big growth ahead of us, not just in With current indications in our current product portfolio, but added to that are new technologies and broader indications in the U. S, Europe and beyond.

Operator

Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Please state your question.

Speaker 6

Hey, good afternoon. So two quick questions here. For the U. S. Markets, are there is there any geographical spread for these large centers that are growing In markets that were still coming out of COVID versus ones in the South that were faster coming out of COVID?

Speaker 6

Or is it broad based geographically? Yes. When we were in the middle of COVID, we saw a lot of variation in the country based on where COVID was at any given point Because there was a lot of variation in healthcare policy for various different states in terms of how they reacted. So we saw a lot of different variations. I would say most of those restrictions have sort of dissipated now.

Speaker 6

And I don't we're not seeing anywhere near that high variability from state to state Or a region to region that we used to see and that's certainly true in the U. S. In Europe, we do see a little bit of regional impact, a little bit more where one regional rolling class in another region, but it's not anywhere near the extremes that we saw during COVID where we saw huge Swings now. They're much more muted now. And I would say we if I look back through history, we've always seen a little variation in Europe from country to country.

Speaker 6

So it feels like it's maybe not normal, but it's getting pretty close to normal, I guess I'd say. Okay. Fair enough. And then like with Competitors talking about lower U. S.

Speaker 6

Growth in Mitral and they need to restart the referral network. Can you talk about what you think the overall Mitral market grew in the market? How your market share is looking and any changes to your long term market growth of that market?

Speaker 2

So let me start here and then Devin here you can add your some comments. What we have seen is a nice In Q1 and in Q2 in the mitral unit market in the U. S. And even in Europe, but I'm sure David, you have more precise commentary here to add?

Speaker 7

Yes, sure. No, definitely, I think I'll follow-up and I'd say the overall TMTD market with Well, Trikasa and mitral continues to grow very well on a global basis, right, in that close to that maybe 20% kind of mark globally. In the U. S. Though, specifically where we're just in mitral, we do see strong growth.

Speaker 7

I think Bernard you were saying something like almost like double digit growth, which is about the ballpark we kind of see in For U. S. Michael, so we think it's there, but not as strong as it is on a global nature. As you remember, in many countries of the world, these Technologies are just coming for the first time in there. We're still launching this technology into many, many countries.

Speaker 7

We're in very few countries. There are countries in Europe, countries outside of Europe that we haven't even So we continue to see as you launch in new countries that will help the market grow as well as the continued adoption of Mitchel in the U. S.

Operator

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

Speaker 13

Hi, good afternoon guys. Thank you for squeezing me in here. Two TAB related questions. I'll ask them both upfront. First, the ALLIANCE study, it sounds like that's going to restart enrollment this quarter.

Speaker 13

Can you just talk about the effects or improvements to get safety and X4 back in the clinic? And remind us where we are in terms of enrollment with that study? And then the second question is just a clarification on S3 Ultra Resilia. I know you're launching that obviously here in the States. I think that's approved in Japan and launching.

Speaker 13

What is the status of that technology in Europe? Thanks for taking the questions.

Speaker 6

Sure. Thanks. Well, in terms of the changes we made to Exfor, they were all delivery system related. So there weren't any Changes made to the valve or anything along those lines, which is why we were able to make the changes pretty quickly and get back into clinic. And so we're really pleased where we are.

Speaker 6

And We were all approved to begin enrollment. Now all of the centers have to go back in and go back through their IRBs and whatnot. But we have a number of centers that They're already green light and ready to go. So we expect to begin enrollment again very, very shortly. And I'm not ready to give an update on enrollment much probably Mike progress.

Speaker 6

We'll probably do that at the Investor Conference once we have a little bit more of a run, because it's not really about where we are, it's projecting where we think we're going to finish. And so I'd rather give you a more fulsome answer on that a little bit later. Ester, you are we're working with European regulators on that. Remember, there's been a huge change in the regulations in Europe to the MDR process. And there's also just a huge bottleneck in terms of the number of devices that are working their way So we don't have any timing on that.

Speaker 6

Frankly, all the notified bodies are sort of learning about how the new regulations play in as are all the sponsors. So we don't have any timing on that yet, but we do have it approved in Japan and that launch is well underway. We do have it approved in the U. S. And that's underway.

Speaker 6

And in both of those markets, We expect that to be the majority platform as we exit the year.

Operator

Thank you. And ladies and gentlemen, we have now reached the end of the question and answer session. I will now turn the call over to Bernard Zavigian for closing remarks.

Speaker 2

Thanks, Diego. So let me close this meeting by saying, I am excited about our performance so far in 2023 and confident in our outlook for the rest of the year. In addition, beyond the numbers, I am pleased with our Progress on pipeline development, clinical trial and confidence in our long term strategy to help even more patients. Thank you for your continued interest in Edwards, Mark, Oliver, Scott and I welcome any additional questions by phone.

Operator

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

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Earnings Conference Call
Edwards Lifesciences Q2 2023
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