Edwards Lifesciences Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2024

There are 14 speakers on the call.

Operator

As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mark Welterding, Senior Vice President, Investor Relations. Thank you. You may begin.

Speaker 1

Thank you very much, Kevin. Good afternoon and thank you all for joining us. With me on today's call is our CEO, Bernard Zavigian and our CFO, Scott Ullam. Also joining us for the Q and A portion of the call will be Larry Wood, our Global President of TAVR and Surgical Structural Heart Devine Chopra, our Global Leader of TMTT Wayne Markowitz, our Global Leader of Surgical Structural Heart and Katie Ziman, our Global Leader of Critical Care. Just after the close of regular trading, Edwards Lifesciences released Q2 2024 financial results.

Speaker 1

During today's call, management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q and A. Please note that management will be making forward looking statements that are based on estimates, assumptions and projections. These statements include, but are not limited to, financial guidance and expectations for growth opportunities, strategy, leverage and integration of acquisitions, 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 safety information can be found in the press release, our 2023 Annual Report on Form 10 ks and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Unless otherwise noted, our commentary on sales growth refers to constant currency sales growth, which is defined in the quarterly press release issued earlier today. Reconciliations between GAAP and non GAAP numbers mentioned during the call are also included in the company's press release. With that, I'd like to turn the call over to Bernard for his comments.

Speaker 2

Thank you, Marc, and thank you all for joining us. This afternoon, we issued 2 press releases, which the team and I will review in more detail with you now. The first, outlining our Q2 results and the second, highlighting our acquisition of YenaVAL, a pioneer in the transcatheter treatment of aortic rehabilitation or AR and Endotronics, a leader in heart failure management solutions. I will start with our 2nd quarter performance. Total company sales of $1,600,000,000 increased 8% on a constant currency basis versus the year ago period.

Speaker 2

In addition, we made important advancements in our clinical research, new product introductions and efforts by Edwards' employees to address the unmet needs of many more patients around the world. TAVR growth in the second quarter was lower than expected, yet we are pleased with the increasingly significant contribution from TMTT. Our vision for TMTT is becoming a reality, and our strategic commitment has developed into a growth portfolio of differentiated technology. Overall, Edouard's remain well positioned to deliver strong sustainable growth. We also announced this afternoon 2 acquisitions, Yena Valve and Endotronics.

Speaker 2

We have known this company for many years. Discussions with the companies have been ongoing for some time and the timing of these acquisitions coincided with earnings. We are pleased to expand into 2 new structural heart therapeutic areas, AR and heart failure. And we will leverage our innovation capabilities with world class science and clinical evidence to ensure accelerated access to life saving technologies for patients around the world. Now I will provide some additional detail on Q2 results by product group.

Speaker 2

In TAVR, 2nd quarter global sales of $104,000,000,000 increased 6% year over year, lower than we planned. Edouard's competitive position did not meaningfully change globally, although we experienced some regional pressure and we maintained pricing. We are confident in our differentiated technology, high quality evidence and the value we continue to demonstrate to patients, clinicians and the health care system. We remain focused on continuing our deep commitment to advancing evidence for AS patients. At the New York Valve meeting in June, we presented additional analysis from the PONNER trials, which demonstrated excellent clinical outcome up to 5 years in women and patient with small analytes.

Speaker 2

Adding to the global body of evidence on the platform, we also anticipate additional data from the RIA study to be presented at the upcoming ESC meeting in London. RHEA is a prospective randomized study in more than 400 patients across 35 sites in Europe, comparing the safety and efficacy of TAVR versus surgery in women with severe symptomatic aortic stenosis. We are actively pursuing significant opportunity to grow TAVR globally over the long term and are proud to continue our deep commitment to advancing science for aortic stenosis patient through the progress and early TAVR trials, which could fundamentally change how AS patients are treated. PERILITAVIR trial results will be presented at TCT this year, and we believe if the data are compelling, it could have a meaningful impact on the timing for patient treatment, while also streamlining referral and patient care for all severe AS patients. In the U.

Speaker 2

S, our year over year second quarter TAVR sales growth was slightly below our global constant currency growth rate. We believe our U. S. Competitive position was largely unchanged. 2nd quarter U.

Speaker 2

S. TAVR sales grew slower than expected. The continued growth and expansion of structural heart therapies, including newly approved Tricuspid therapies and other fast growing structural heart therapies put pressure on hospital workflows, which impacted TAVR. These pressures were also observed in the recent spike in emergent TAVR cases as reflected in claims data. As centers adopt these new therapies and they become part of their standard processes, we expect this will stabilize.

Speaker 2

We know from experience that hospital have historically demonstrated the ability to scale to support Transcatheter procedure growth over time. We believe significant under treatment of severe AS persist. Evidence demonstrate that a large number of in system patients currently go untreated. We are accelerating our efforts to improve referrals and treatment rates for patients already in the hospital system who are suffering from severe symptomatic aortic stenosis. We recently launched the Edwards ELACT patient activation program, which leverage a comprehensive cardiovascular AI platform and world class support to bring real time insights to TAVR program and improve the quality of care for patients.

Speaker 2

This first of this kind program is focused on streamlining the identification, evaluation and treatment of severe aortic stenosis patients within the hospital system. Outside of the U. S, in the Q2, our constant currency TAVR sales growth was slightly above our global TAVR growth. In Japan, we generated double digit sales growth driven by Sapien Free Ultra Resilia. We continue to focus on expanding the ability of this therapy and believe AS remain a significant under treated disease among the substantial elderly population in Japan.

Speaker 2

In Europe, while share is down slightly on an annualized basis, we were pleased with the momentum driven by the launch of Sapiens III Ultra Resilia. We are pleased with high procedure success rate and exceptional patient outcome. We expect the momentum to continue to build as more centers have experienced with the 1st choice valve for lifetime management. In closing, we now anticipate second half TAVR sales growth similar to the first half year over year growth rate, a 5% to 7% full year growth rate versus previously guidance of 8% to 10%. This equates to full year global TAVR sales of €4,000,000,000 to €4,200,000,000 We believe hospitals are motivated to continue scaling to accommodate increasing volume of Transketitare procedures, which will bring tremendous value to patient and the health care system.

Speaker 2

We remain confident that EDOAR is positioned for healthy and sustainable TAVR growth, driven by our differentiated TAVR portfolio, our deep commitment to advancing patient care for high quality clinical evidence and new indications and our investment in patient activation initiative. Turning to TMTT. Our deep structural heart expertise has enabled us to significantly advance our portfolio of differentiated technology, including the PASCAL repair system, the Evoque Tricuspid replacement system and the SAPIEN M3 Mitral replacement system. Our exciting pipeline of innovations is addressing the large unmet needs for patients with mitral and trachep disease. In Q2, we achieved positive results with sales of €83,000,000 representing a 75% increase versus the prior year.

Speaker 2

Q2 sales were led by PASCAL globally and early commercial introduction of EVOC in the U. S. And Europe. PASCAL adoption is growing, reflecting its premium differentiation and the value it brings to physician and patients. We believe the mitral tier market continues to grow double digit in both the U.

Speaker 2

S. And Europe. We are excited to bring this therapy to more geographies, more physicians and more patients. The EVOQ commercial launch continued to progress well. Our disciplined strategy is focused on outstanding patient outcome in centers investing resources required to grow a successful TRACASPEED program.

Speaker 2

We are now opening new centers, both in Europe and the U. S. After having started with our clinical trial sites. We continue to see strong interest in the therapy, which reflects the significant unmet need in this population of patients who have few options for treatment. Our early real world commercial experience has demonstrated excellent clinical results.

Speaker 2

Consistent with those from the TRICEN-two trial. We look forward to presenting the full cohort of TRICEN-two data at the TCT conference in October. Last month, CMS announced the opening of a national coverage analysis for transcatheter tricuspid valve replacement. Since EVOQ was granted FDA breakthrough status and is utilizing the CMS parallel review process, we believe CMS can move quickly to finalize national coverage. Septin M3 remains on track to be our 1st transcatheter mitral valve replacement therapy to get a regulatory approval and launch around the world.

Speaker 2

We are also pleased to have received a breakthrough designation from the FDA and we completed enrollment in the mitral annulus calcification or MAC arm of our encircled study. We now expect SAPIEN M3 to receive CE Mark earlier than previously expected by mid-twenty 25 with FDA approval in the U. S. To follow in 2026. Earlier this month, we announced the acquisition of Inovalve.

Speaker 2

Inovalv early stage technology will add to our growing pipeline of innovative therapy in TMTT, and we expect to close the acquisition later this year. We further expect that Inoval technology combined with Edwards' expertise in mitral disease will enhance the company TMVR technologies to address large unmet structural heart patient needs and support sustainable long term growth. Based on the first half twenty twenty four momentum and the ongoing global adoption of our differentiated technology, PASCAL and Evoque, we are increasing full year sales guidance for TMTT to the higher end of our previous €320,000,000 to €340,000,000 range. We remain confident that our unique portfolio strategy with repair and replacement therapies for both mitral and trachepsy disease will offer clinicians for broader set of options needed to treat this complex, underserved patient. The advancement of our long term TMTT strategy has positioned us for strong, sustainable growth over many years, driven by a growing portfolio of innovative therapies.

Speaker 2

In Surgical Structural Heart, 2nd quarter sales of $264,000,000 increased 5% over the prior year. Growth was driven by strong global adoption of Edwards Premium Surgical Technologies, Inspiris, Mitris and Connect. We continue to see positive procedure growth globally for the many patients best treated surgically, including those undergoing complex procedures. We continue to expand the overall body of Resili evidence and have completed enrollment in the U. S.

Speaker 2

And Canada for a momentous clinical trial studying RESILIA performance in the mitral position. Mitral's adoption in Europe is ramping up and we are pleased to have been granted reimbursement for the device in France earlier than expected. In summary, we remain confident that our full year 2024 surgical sales will be 6% to 8%, driven by continued adoption of our Resilia portfolio and growth in overall heart valve surgeries. In Critical Care, 2nd quarter sales were $246,000,000 which increased 7% versus the prior year. Growth was led by our pressure monitoring devices using the ICU with strong contribution from our smart recovery technologies, including the Acumen IQ sensor.

Speaker 2

Demand was also strong for our SwanScan Scatter. Critical Care remained focused on driving growth through smart recovery and smart expansion, which are designed to help clinicians make more informed decision and get patients home to their family faster. Since announcing the sales of Critical Care to Becton Dickinson in June, our team has made significant progress, and we plan to close by late Q3. I want to thank all of them for their hard work and dedication. Turning down to the strategic acquisition of Yenaval and Endotronics.

Speaker 2

These acquisitions provide an expanded opportunity in new therapeutic areas to address the unmet needs of AR and heart failure patients around the world. Furthermore, the acquisition reflect our deep commitment to advancing patient care through our unique strategy and reinforce our confidence in Elwar's sustainable long term growth. Starting with Yanavals, a pioneer in the transketch tear treatment of AR, a deadly disease that impacts more than 100,000 patients in the U. S. Alone and is largely untreated today.

Speaker 2

And we anticipate U. S. FDA approval of a YENAVALV TRILOVE heart valve system in late 2025, which will represent the 1st approved therapy for patients suffering from AR. Elouard will invest to accelerate development of this novel technology to enable earlier patient access. As the pioneers in valve innovation, we believe we are best positioned to lead this next frontier of aortic valve disease treatment.

Speaker 2

We expect this to be the beginning of a long term iterative strategy similar to TAVR. Turning to Endotronics. Edvardmade its first investment in the company in 2016. So we are very familiar with the technology, the opportunity and the employees. Many structural heart patients Edouard's sales today also suffer from heart failure with limited options.

Speaker 2

This acquisition will expand Eduard's structural heart portfolio into a new therapeutic area to address the large unmet needs of patients suffering suffering from heart failure, which we believe has a significant long term growth opportunity. Last month, Endotronics received FDA approval for Cordelia, an implantable pulmonary artery pressure sensor that directly measure the leading indicator of congestion following the publication of the successful U. S. Pivotal trial. We are pleased to enter the structural heart therapeutic area with innovation, world class science and clinical evidence to provide access to life saving technologies for patients around the world.

Speaker 2

We anticipate this investment will strengthen its leadership in structural heart innovation and represent long term growth opportunity. Minimum revenue contribution from Yanavaven and Nutronics is expected to begin late in 2025. As you can tell, we have a lot of positive momentum and many catalysts across our core businesses, TAVR, CMTT and Surgical, combined with opportunities to reach new patient

Speaker 3

quarter total company sales performance where TAVR sales growth came in below our expectations. However, it's important to understand broader context. We were pleased that TMTT continues to outperform our expectations and overall underlying sales growth including critical care was nearly 8%, adjusted EPS was $0.70 GAAP earnings per share of $0.61 included one time separation expenses related to the sale of Critical Care. A full reconciliation between our GAAP and adjusted earnings per share is included with today's release. So now I'll cover additional details of our P and L, which reflect total company results, including Critical Care.

Speaker 3

Note that Critical Care will be presented as a discontinued operation in the 10 Q we will file next week. As we noted in the press release, we'll provide Q4 2024 information reflecting the sale of Critical Care and the acquisitions announced this month when we report 3rd quarter results. For the 2nd quarter, our adjusted gross profit margin was 77.1 percent compared to 77.7% in the same period last year. Last year's 2nd quarter gross profit margin benefited from a more favorable impact from foreign exchange rates. We expect Edwards Q3 adjusted gross profit margin including Critical Care to be in line with Q2, driven by high value technologies that yield strong gross profit margins.

Speaker 3

Adjusted selling, general and administrative expenses in the quarter were 50 $9,000,000 or 31.2 percent of sales compared to $469,000,000 in the prior year. This increase was driven by an expansion of field based personnel to support growth of our transcatheter therapies, including the launch and rollout of PASCAL and EVOQ. Adjusted research and development expenses in the 2nd quarter grew 12 percent over the prior year to $303,000,000 or 18.6 percent of sales. This increase was primarily the result of continued investments in our transcatheter valve innovations, including increased clinical trial activity. Turning to taxes.

Speaker 3

Our reported tax rate this quarter was 5.2% or adjusted 8.4%. Our unusually favorable non GAAP rate in the 2nd quarter reflects several positive one time items that were recorded during the quarter. This unexpected favorability in our tax rate benefited earnings per share by $0.04 in the 2nd quarter. Foreign exchange rates decreased 2nd quarter adjusted sales growth by 120 basis points or $17,600,000 compared to the prior year. FX rates negatively impacted our 2nd quarter adjusted gross profit margin by 60 basis points compared to last year's Q2.

Speaker 3

Free cash flow for the 2nd quarter was reduced $47,000,000 for payments associated with special activities relating to the separation of critical care. Excluding the impact of these items, adjusted free cash flow was $333,000,000 First half adjusted free cash flow was $539,000,000 We expect to receive cash from the sale of Critical Care in the 3rd quarter. Turning to the balance sheet. We continue to maintain a strong and flexible balance sheet with approximately $2,000,000,000 in cash, cash equivalents and short term investments as of June 30. And now I'll finish this update with comments about our previously announced sale of Critical Care as well as guidance relating to our acquisition announcements.

Speaker 3

We announced on June 3rd that Edwards entered into an quarter, we recorded $80,000,000 of one time costs associated with the sale. Additional one time costs will be incurred throughout 2024. We expect Q3 sales, including the assumption that we own critical care for the full quarter of 1.56 $1,640,000,000 and Q3 earnings per share of $0.67 to $0.71 We do not expect the recently announced acquisitions to contribute to Edwards sales in 2024. We intend to provide 4th quarter guidance reflecting the sale of Critical Care and the acquisitions announced this month when 3rd quarter results are reported in October. We will also provide 2025 guidance at our Investor Conference in New York on December 4.

Speaker 3

In the meantime, I'll share a few early expectations for 2025. Next year, we expect minimal revenue from acquisitions, while we are planning on incremental operating expenses from these early stage companies, partially offset by operational efficiencies we plan to realize following the sale of Critical Care. We do not expect increased operating efficiencies to completely offset the loss of profits from the sale of Critical Care in 2025, but we are planning healthy long term profit growth. In addition, we plan to maintain a strong balance sheet to support continued internal and external investments as well as opportunistic share repurchase. Most importantly, we are confident in the moves we have made to reshape our portfolio of technologies to focus specifically on structural heart.

Speaker 3

The sale of critical care provides extra management bandwidth as well as additional liquidity to fund external growth investments. And at the same time, our original vision for TMTT is becoming a reality and the early stage investments we made in companies like We have other jewels in our portfolio of internal and external investments that will benefit Edwards in the years ahead. Over the long term, we see an exciting future with expanded opportunities in large and growing markets, which we believe will result in sustainable double digit revenue and earnings per share growth. So with that, I'll pass it back to Bernard.

Speaker 2

Thank you, Scott. So let me share a few closing thoughts. In TAVR, we have significant opportunities and we are committed to growing globally by advancing science over the long term. Progress and early TAVR trials could fundamentally change how AS patients are treated. In TMTT, our deep expertise have enabled us to significantly advance our exciting portfolio of innovation and our long term TMTT strategy has positioned us for strong sustainable growth over many years.

Speaker 2

In surgical structural heart, we continue to see strong global adoption of our premium surgical technologies. Our YENAVAS and Endotronics acquisitions provide an expanded opportunity in new therapeutic areas. They both represent significant long term opportunities. We remain confident that our innovative therapy will allow EDHAR to treat more patients around the world and continue to drive strong organic growth in the years to come. As patients and clinicians increasingly recognize the significant benefit of France Cantitur based technology, we remain as optimistic as ever about the long term growth opportunity.

Speaker 2

With that, I will turn back to Mark.

Speaker 1

Thank you, Bernard. We're ready to take questions now. To 1 plus one follow-up. If you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call. Kevin, please go ahead with additional details on accessing the Q and A portion of the call.

Operator

Our first question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Speaker 4

Hey guys, good afternoon. Thanks for taking the question. 2 for me. Let me start with early TAVR and then I had a follow-up for Scott on 2025. So what would be for early TAVR, what would be compelling to you?

Speaker 4

Do you need to show a mortality benefit to be more compelling? And how should we think about the impact on your TAVR growth? If the study is positive, do you expect it to accelerate the TAVR growth in 2025 above the 5% to 7% you expect this year? And I had one follow-up.

Speaker 5

Sure. Hey, Larry, this is Larry. Thanks for your question. I think at a very high level, there needs to be a compelling story for why early intervention is better and basically make the case against watchful waiting. And when we've done a lot of work and we were powering the trial and we obviously had a lot of belief in it.

Speaker 5

The primary endpoint is death, stroke and rehospitalization. And so it's really the composite of all those and winning that trial and obviously the more you would win it by makes the more compelling case. In terms of the individual components, we'll have to look at those. But when you think about it from a patient journey, if they're waiting and bad things are happening to them, why they're waiting is resulting in unplanned rehospitalization or it's resulting in stroke or it's resulting in mortality, All those are very meaningful things and that's why they're all composites in the endpoint. So we'll have to wait and see the data.

Speaker 5

We'll have to see the story, but death, stroke and rehospitalization has kind of become almost a standard now for most of these trials because the clinical community believe these are all important considerations and endpoints.

Speaker 2

Maybe let me add something to what Larry said. For sure asymptomatic is very important to us and to the community and to patients. But it is one thing of all of the many things we are doing and we are confident in growing this target opportunity. So asymptomatic is 1, patient activation, we see some impact already, but also moderate. So if you think about over the next few years, we see many catalysts, which is why we are confident in this TAVR opportunity.

Speaker 2

Granted, we know that Q2 was lower than expected, and I guess we are going to talk about it. But in front of us, we see that this opportunity is a big one like we saw it a few years ago. Still we see it, still we are confident and we are doing all of the things to realize this opportunity.

Speaker 4

That's helpful. And Scott, thanks for the initial color on 2025. I'm sure you know that's important to everyone on this call right now to try to understand try to try it as best as we can to model that. So couple of pieces follow ups on that. The press release says strong sustainable growth.

Speaker 4

It doesn't say 10% operational growth for the remaining business in 2025. I just want to confirm that that 10% from the analyst meeting last year in December is not you're not reiterating that today. And second, on the dilution, we estimate I think most of us estimate about $0.40 of dilution from critical care spend. Any reaction to that? And the incremental spending you talked about from the acquisitions, any additional color on that?

Speaker 4

And just lastly, the use of the proceeds, should we just assume share buyback or additional M and A? Thank you.

Speaker 3

All right. Well, it's a multipart follow-up question. Let me try to hit a couple of the things you asked about, Larry. First of all, on the 10% long term top line growth, we're just not commenting on guidance at this point. It doesn't mean we're increasing it or decreasing it or changing it.

Speaker 3

It's just the kind of thing where we don't update that during the course of the year. So we're not providing an update today. We will definitely provide an update as we always do our December Investor Conference. For dilution from critical care, yes, a lot of this depends upon how we end up prioritizing investments in the company as we separate critical care. And as you can imagine, there are a lot of different moving pieces as

Speaker 2

we do that. So we're not going to

Speaker 3

be able to give you a specific figure on, I'll call it remainco ex critical care at this point. And it does tie to your question about incremental operating expenses that we're absorbing with these acquisitions. And those depend upon a couple of things. One is when we actually close the acquisitions and start to realize that spending. 2, how we end up integrating them inside of Edwards.

Speaker 3

And as you can imagine, we just announced them today. So those plans are not completely developed. Finally, in terms of use of proceeds from critical care, yes, as you know, we're always interested in buying back stock. We're always looking for buying opportunities. But the first call on cash hasn't changed one bit, which is we're going to continue to invest in the company.

Speaker 3

We're going to continue to invest in the capacity that we need to support the growth of the company. We'll certainly be looking at other external investments. And then finally, we'll look at capital at allocating capital to share buyback. So there's a little bit of color and we'll obviously give you

Speaker 6

a lot more as we

Speaker 3

get towards the end of the year.

Speaker 2

Maybe something Larry here on the guidance. I agree with what Scott said about we are not planning to communicate the guidance in 2025. But if you look at the quarter, the Tiger grew about 6%, the company about 8%. So you see a bigger contribution from TMTT and we see that contribution to get bigger as we go because right now we are just at the beginning of your PASCAL expansion, just at the beginning, beginning of the EVORQ expansion, we have M3 coming, in Taverhill, we have asymptomatic end of the year. So are we confident about a sustainable growth over the long term?

Speaker 2

Yes. We are going to talk about guidance in December.

Speaker 7

Thank

Speaker 2

you. Thank

Operator

you. Next question today is coming from Robbie Marcus from JPMorgan. Your line is now live.

Speaker 8

Great. Thanks for taking the questions. 2 for me. Maybe first, you talked about it in the script, but I was hoping you could give a little more. TAVR has clearly come in below your initial expectations for the year.

Speaker 8

The guidance has moved down. The U. S. Is slowing. OUS is facing pressure.

Speaker 8

We saw 2 of your smaller competitors, but still competitors see pretty nice growth sequentially and year over year. So their TAVR is taking more in Europe and outside the U. S, Japan. How are you thinking just about the underlying growth rate of the TAVR market? And I appreciate it's a huge opportunity and it's still a lot to conquer in the future.

Speaker 8

But in let's call it the short to medium term, how are you thinking about the overall market growth? And is there anything you can do to help accelerate it?

Speaker 5

Yes. Thanks, Robbie. Well, obviously, we expected growth rate to be higher in Q2 than it was. We had had a slow start in Q1, but we were exiting March and we felt good about where we were. So this did come as a surprise.

Speaker 5

I think when we reflect back on it and we look more deeply at it, you have to think about all the things that have shown up that are going to the same structural heart team at all of these hospitals. We're seeing rapid growth in mitral repair. We're seeing a lot of growth in other procedures and we had 2 new therapy approvals recently in the tricuspid space. And I think a little bit, we looked at the procedure volumes and the hospitals have shown a pretty good job of being able to handle these things. We probably underestimated the burden of even starting these new programs, even preparing to start these new programs because you have to screen the patients early on.

Speaker 5

There's a lot of learning, screen failures, all of those things. And I think it's just tackling the teams. Now in terms of things we can do to help, there are certainly things we can do to help. We can do a lot of imaging workups and take some of the load off the team. We can do device prep.

Speaker 5

We can come in with our benchmark program and teach them efficiencies and do those things. But once the program's been optimized, then it really does come down to the hospital to add another team or add additional days and do those sorts of things. So there's some things we can do, but we can't do everything. I think the other thing is, I think highlighting this for the clinicians. And we're very confident.

Speaker 5

This isn't some slowdown because there's a lack of patients. We didn't see any of the fundamentals change in terms of new data that was concerning or any of these things. I think it's just a matter of the workflow right now. And we need to be able to engage with hospitals, but two important things we saw is we saw an increase in time from CT to procedure, which indicates patients are waiting longer. And the other thing that we saw was a sharp increase in the number of cases being coded as emergent versus routine.

Speaker 5

And I think that speaks to these patients waiting in the queue as these workflow issues sort out. So I think hospitals will certainly do that in time. These patients don't wait well and we know that there's a lot of them, but we're going to have to continue to work through that

Speaker 2

with the hospitals. So let me add on what Larry said. To be fair, we are contributing a little bit on this pressure. At the same time, we are benefiting. If you look at the TMTT growth in the quarter, so we are contributing and benefiting at the same time.

Speaker 2

Now, big picture, we have seen this picture in the past, don't you think we have seen hospital facing like more to do, more technology to adopt, to be trained on new technologies. And they are very good at scaling, they are very good at learning, they are very good at adapting their workflows in the cath lab. So, we believe it is temporary. And we are David also with his team are with Larry are partnering on this one. So we are fully focusing on this one, helping in the hospital.

Speaker 2

But we have faith the hospital are going to do that like they did it in the last 10 years. Thanks.

Speaker 8

Great. And maybe a follow-up to that. The guidance implies roughly stable TAVR first half into second half. I appreciate the need to be conservative, but it sounds like some of the learnings you saw in second quarter could possibly help in the back half of the year. Maybe just walk through the thought process of the 5% to 7% TAVR guide and kind of what you're baking into that?

Speaker 8

Thanks a lot.

Speaker 3

Yes. We're I mean, it's pretty straightforward, which is we're baking into it, similar market conditions. The year over year calculation is pretty similar. 4th quarter comp gets a little bit tougher, but we think that all things considered that 5% on the low end, 7% on the high end captures the likely scenario for the second half combined with the first half that we've already reported.

Speaker 2

Thanks. We believe to add on that one, we believe early TAVR at TCT, it will be already almost the end of the quarter, Robbie. So TCT is in late October or so. We believe it will have very minimal impact in Q4. So it is why we didn't want to take too much risk here.

Operator

Thank you. Next question today is coming from David Roman from Goldman Sachs. Your line is now live.

Speaker 6

Thank you and good afternoon. I wanted just to come back actually and so Larry's comments there regarding, maybe you're characterizing it as capacity. And as you think about the myriad of therapies going into structural heart right now, whether that is some of the new valve therapies, whether it's WATCHMAN.

Speaker 3

To what extent do you

Speaker 6

think hospital economics factor into the decision and prioritization making here? And how does that if it does in any way impact your kind of pricing decision around TAVR or Evoque?

Speaker 5

Yes, it's a good question and I'll defer to Daveen on Evoque, but I'll start with the TAVR side of it. It doesn't really change the pricing and we don't think this is an economically driven thing. I think when new therapies come forward, hospitals are competitive. They want to be able to offer all of the therapies and that means they want to aggressively start these new programs and make sure that they can offer all of the options for their patients. And so I think that's what's driving some of this more than other things.

Speaker 5

And think all companies before they're willing to bring a new technology in, they want to the center has to demonstrate confidence, right? They have to demonstrate they have the ability to screen. Have to have patients in queue and all those things. And I think it becomes a big thing. But I don't think this is an economically driven thing.

Speaker 5

I think it is just the result of all the new things that are coming into the cath lab. And again, I think that does get corrected with time. Yes.

Speaker 9

And I'll just this is Devine. I'll just jump in for a second here. So we're seeing as we bring a new therapy like Evoque, right, while procedure times are relatively efficient and they are, they're about an hour long procedures, it takes up a lot of energy, effort, thoughts, processes to start a new therapy, right? It takes a lot of bandwidth for people in terms of trying to find the patients. Where are the referrals coming from?

Speaker 9

How does it kind of work through the system? How do we pre case plan? And these are often the same groups of people, valve clinical coordinators, interventional cardiologists, etcetera, that are working on TAVR. As you bring in just a new therapy and start building it up, it takes a while, a lot of bandwidth and a lot of energy to get it going. But then over time, like we've seen for every other therapy, you create efficiency, it gets faster and we're going to help them do that, but hospitals then figure out, okay, now this is how the therapy is going to work its way through the system and it becomes more efficient and becomes better so that there is more capacity to do more procedures overall.

Speaker 6

That's very helpful. And maybe just a related follow-up to that. Can you maybe unpack the $83,000,000 in the TMTT line for us in a little bit more detail? It sounds like minimal Evoque contribution with PASCAL Accelerating. But maybe if you could sort of delineate a little bit the different product drivers within there and then maybe some of the different geographic drivers?

Speaker 6

And then maybe if I could sneak a follow-up into the response there. How long do you think, LARI, it takes to dislodge this sort of capacity constraint or sort of digestion of multiple therapies going through the system?

Speaker 9

No, this is Devine. I'll start off a little bit with TMT. I mean, first just at a higher level, we were actually super excited to see that in quarter 2, our vision of becoming more and more a reality. We've made a strategic commitment that we need a portfolio of repair and replacement technologies for the many different mitral and tricuspid patients, and it was nice to see that step forward in Q2. Also, when you break it down on a level, Q2 sales were led by PASCAL, right?

Speaker 9

PASCAL is a larger pool. It continues to grow in adoption. We believe in this differentiated premium technology, and it was our largest growth driver. We also did see the early commercial introduction in the U. S.

Speaker 9

And Europe of Evoque, right? Evoque got approved in Europe late last year, in the U. S. Early this year. So we're beginning that important process of training centers, getting up to speed, being to train our own internal people and start that kind of case cadence.

Speaker 9

So those were kind of the 2. And in terms of size and scale, just because in Europe, we've been in Europe since 2019 now, that's a much larger base. Since when you have a larger base, you have kind of a stronger growth coming off that. The U. S.

Speaker 9

Is growing up quickly now and we're continuing to expand our technologies around the world beyond just the U. S. And Europe.

Speaker 5

Yes. And just to follow-up, how long does it take to dislodge? It's hard for us to be exact and we I think we tried to account for that in our guidance that it's not a light switch. But the best analogy I can say is when we brought TAVR into all these hospitals, we heard repeatedly that there was impact on coronary procedures and other things that were going on in the cath lab and we were kind of taking up a little bit of that mind share and a little bit of that workflow space, but it wasn't sustainable. You can't just park your coronary patients forever and you can't park AS patients forever.

Speaker 5

So I think once centers have certainty of the added workload and certainty of the volume, I think they add the resource and they do the things necessary. But nobody is going to go hire a bunch of people in advance of the new therapy show up. They always are kind of recovering as the workload gets high. And I think to agree, that's just how hospital systems operate.

Speaker 2

Yes, we are confident by experience that the that the hospital are going to learn fast, adjust their workflow, their processes. And it is why we are seeing it is temporary. Obviously, this patient when they stay home, they have a terrible quality of life and many of them are dying. So I don't believe it is sustainable to and everybody is committed. The hospital are committed, we are committed.

Speaker 2

So when you have a full commitment behind it, we know it is going to be resolved.

Speaker 6

Got it. Thank you for taking the questions.

Operator

Thank you. Next question today is coming from Josh Jennings from TD Cowen. Your line is now live.

Speaker 10

Hi, good afternoon. Thanks for taking the questions. Wanted to just start off with the TAVR outlook and kind of longer term. You guys have put a $10,000,000,000 kind of TAM forecast by 2028 in the past. Is that should investors still be thinking about that TAM and an opportunity being in place, but maybe pushed out a little bit or maybe the aortic regurgitation indication gets you there by 2028?

Speaker 10

But I know you may not be reiterating today, but it sounds like you're confident in the TAVR market and that $10,000,000,000 TAM, but I'm not sure if you're reiterating it now.

Speaker 2

Yes, I think you said it in your question. We are confident. We are not updating the guidance for next year, for 2028 here on the market, but we are confident we will do so in December at the Investor Conference in New York. Thank you.

Operator

Thank you. Next question is coming from Travis Steed from Bank of America. Your line is now live.

Speaker 7

Hey, thanks for taking the question. I wanted to go back and circle back on Ravi's question on TAVR. It feels like there's a little bit more of a change here. Just 3 months ago, you thought TAVR was going to accelerate over the course of the year. I thought the 8% to 10% at the beginning of the year was supposed to be a conservative guide.

Speaker 7

So just want to understand like the I hear what you're saying on TMTT, but it's that's a small number of fraction versus the overall TAVR centers. So I don't know if there's anything else that you'd kind of call out or kind of what surprised you on the TAVR line. I know there was some of the European stuff and competition there that you called out last quarter. Just understanding kind of the full change and why you got the initial TAVR guide wrong at the start of this year?

Speaker 5

Yes. Thanks, Travis. Yes, when we exited Q1, we felt we were on a good ramp and we felt we were on a good pace and that's why we reiterated guidance and we felt good about it. And we just didn't see that play out in Q2 the way that we anticipated. And by no means do I mean to say this is all Dubeen's fault and it's all of both because that's not accurate or fair when you look at the number of procedures.

Speaker 5

I think it's the cumulative impact of all the things that have hit the structural heart teams over the last year. And it's one of those things, you can always increase a little capacity, work a little harder, increase a little capacity, work a little bit harder, but then at some point you reach a breakpoint when it's simply too much. And the heaviest lift for centers is starting a program. And it's not just the procedure volume, it's all that screening and all of the case reviews and all the interaction that just consumes a lot of resources and a lot of time. And the training, they have to go to training and observe cases in many cases and all of those sorts of things.

Speaker 5

And so I think it's just the cumulative impact of those things that happen over time. And we did see the slowdown more acutely in large centers and small centers, which fits a little bit of the model as well in terms of the centers that are most likely to be looking to start these new programs and are competitive about that. And again, I said it earlier, but we did see a spike in emerging cases over routine cases. And I think that fits what we're saying as well. But that's not going to be sustainable for people.

Speaker 5

Emerging cases have more complications. They don't have as good a patient outcomes and people will have longer lengths of stay and that's going to adversely impact patients and the hospitals themselves. So I think people will have to adjust it over time And we're going to have to work closely with them to help them do that.

Speaker 7

All right. That's helpful. Any color on Q3 TAVR and kind of where that's settling out versus the full year guide? I think you guys had extra selling days in Q3. And then on the dilution from the acquisitions, I know there's like a range of outcomes.

Speaker 7

Like that's going to be but we all have a pretty good sense of critical care and the dilution there. But just to give a sense of kind of range of outcomes on some of the dilution that you've got. Like I was thinking $0.10 is kind of ballpark, but I don't know if you'd react to that at all.

Speaker 3

Yes. Thanks for the question, Travis. On Q3, you're right. We do have a little help from extra selling days in the Q3. So and that's factored into our guidance.

Speaker 3

It's in the guide that we provided. In terms of dilution from acquisitions, again, we've got to first close the acquisitions, then work on integrating them. Obviously, we spent a lot of time with the plan, but it takes some time before we actually get businesses in house and start recording what kind of financial implications there are before we can report out on those. We'll know a lot more by the end of next quarter when we've actually gotten further down the path and we'll talk about it then. And of course, we'll give full guidance for EPS in 2025 at our investor conference.

Speaker 7

Great. Thanks a lot.

Operator

Thank you. Next question today is coming from Matt Taylor from Jefferies. Your line is now live.

Speaker 11

Hi, thanks for taking the question. I guess I wanted to follow-up on your U. S. TAVR commentary and the work flow angle. I guess I'd like to understand better why you think it's showing up so acutely now, I guess, given you're still in a limited rollout of Evoque?

Speaker 11

Is this an issue that's been matriculating for a while and we're just seeing it more now? Could you help us understand in your history there, you talked about the impact on coronaries. How long do you think it will take for the hospital to adjust? Is this a 1 quarter or 3 quarter issue? Does it take years?

Speaker 11

What kind of timeframe would you put on them adjusting to accommodate the additional workflows?

Speaker 5

Yes. Thanks, Matt. The thing that I would say is, I guess, if I were to draw an analogy, if you had a factory and you saw demand for your product going up, you can always add a little more hours and you always have a little bit of excess capacity and you can adjust to those things. I think there is just a point in time where you hit a wall and it's harder to do those things. And I think that's a little bit of what we saw here.

Speaker 5

It's the cumulative effect of all of these things that have played out over time. If you look at total cath lab procedures for the structural heart team in the last 3 years, it's probably close to double during that period of time, which is a lot of growth that these teams are having to absorb and they're having to adapt to. And I think it will take time. And again, when you're starting these new programs, these new therapies, that's the heaviest lift part of it. And again, I think this gets corrected over time and we'll work closely with the hospitals to do that.

Speaker 5

But we reflected that in our guidance and just wanted to be realistic and not be tone deaf to what's happened. But of the same thing I'll tell you is none of us are happy with the growth rate. None of us are happy adjusting guidance and we're going to be working as hard as we can to do everything we can to restore the growth to where we think it should be.

Speaker 2

And we are not happy as a company. The patients are not happy. The physician are not happy. The hospital are not happy. So we are all fully aligned about it is a problem, we need to solve it.

Speaker 2

So it is why also we are confident here. Thank you.

Operator

Thank you. Next question today is coming from Vijay Kumar from Evercore ISI.

Speaker 12

I guess one on just based on what competition is saying, I know there's been noise on small NLA trial. Is like how do you respond to this is not comparative dynamics what we're seeing in the U. S. Market?

Speaker 5

Sure. Yes. We presented our data at New York Valve and I don't think we've seen we've seen the impact of that in a meaningful way. I know some of the smaller competitors have reported, but you have to take their growth rates in consideration of the base they're growing off of versus the base that we're growing off of globally.

Speaker 12

Understood. And maybe Scott, one for you on the guidance here EPS. I think prior guidance, dollars 2.70 to $2.80 dollars inclusive of critical care, right? Is that still intact or what's the new range? I just want to get an apples to apples sort of EPS baseline?

Speaker 3

Yes, it's a fair question. We are not providing a new update. And the reason is because we know critical care is going to close sometime late in Q3. But as a result, Q4 will not include critical care. And so we ran obviously, we've looked at a whole bunch of different pro form a scenarios, but it didn't make sense to try to provide some kind of a bridge to the original $270,000,000 to $280,000,000 guidance.

Speaker 3

So sorry, but we're not giving an updated number for the full company, just because it's not it wouldn't be comparable with critical care coming out at the end of the Q3.

Speaker 12

Or is there comparable like without critical care for the full year, what the underlying number is?

Speaker 3

Well, the underlying number is actually pretty similar in terms of growth rate with and without Critical Care. Our guidance for the full company is 8% to 10% underlying growth. That's similar whether it includes critical care for the full year or excludes critical care for the full year. We have not translated that down to EPS with or without.

Speaker 12

Understood. Thanks guys.

Operator

Thank you. Next question is coming from Patrick Wood from Morgan Stanley. Your line is now live.

Speaker 13

Fabulous. Thank you so much. Just two quick ones. I guess on the Evoque side and the initial rollout on the clinical feedback and success rate you guys have had, how has that been going? There's been a little bit of volatility in the Maude database.

Speaker 13

So I'm curious how the clinician feedback has been?

Speaker 9

Hey, thanks so much, Patrick. This is Devine. Overall, if you pull back, we've actually been very pleased with the initial rollout of Evoque in both the U. S. And Europe.

Speaker 9

We continue to see really strong physician demand and it really for us reinforces the unmet need of these patient group who are looking for better solutions. As I mentioned earlier, we're seeing those predictable outcome times. We're seeing it similar to the clinical trial. And to follow-up, just look at, we're seeing very similar clinical results to what we saw in the clinical trials, specifically from TRICEN-two. So we've been seeing very similar rates there of kind of clinical outcomes.

Speaker 9

We've seen so far in the journey, especially in Europe now where PASCAL is actually approved for Evoque, we see that it reinforces the need for both the repair and a replacement technology to really treat the maximum number of EVOKE patients. So overall, we continue to be very excited and happy with where the EVOKE launch is going.

Speaker 13

Very helpful. And then maybe just quickly on Nandertronics. I was with Harry and Ariel at THT and like conical data on their side looks very interesting. How do you see this fitting into the business overall? Because my understanding was that probably this would be initially used for fine tuning medication management, right?

Speaker 13

Is this more about building the rolodex of patients so that you know them a little bit better further downstream when it comes to the transcatheter approach? How do you see it strategically fitting in? Thanks.

Speaker 2

Thanks for the question. So let me start big picture with first of the patients. We decided to get into this field because we see very large patient population in needs. Heart failure is one off, if not the largest driver of health care spending in the U. S.

Speaker 2

We have not the company for a long time. We were an investor in the company. We believe that they have very unique a from FDA last month. There is an NCD ongoing right now. So we see that as a big opportunity, a natural progression for us.

Speaker 2

If you're asking about a very clear strategy about what we are going to do, where we are going to start, all of this, it is a little bit early. Again, we expect to close the transaction in the Q3, correct, Scott here. And in December, we will have a full deep dive on the strategy for Endotronics. We believe that many of these patients are failure patients, are patients we are serving and treating today with our valve technologies. So it is in our space.

Speaker 2

So we are super excited about it. We see this one as a great opportunity, a great long term opportunity to expand our reach as a company. Thank you.

Speaker 5

Thank you. We've reached the end

Operator

of our question and answer session. I'd like to turn the floor back over to Bernard for any further or closing comments.

Speaker 2

Thank you, everyone, for your continued interest in Edwards. Scott, Mark, Sydney and I welcome any additional questions by telephone. Thank you so much. Have a great rest of your day.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Edwards Lifesciences Q2 2024
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