Edwards Lifesciences Corporation

Greetings and welcome to the Edwards Life Sciences third quarter 2019 results call. At this time, all participants are in the listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mark Wilterding. Vice President of Investor Relations. Thank you. You may begin.

Thanks, Diego, and thank you all for joining us. With me on today's call are Mike Musallam, Chairman and Chief Executive Officer, and Scott Allum, Chief Financial Officer. Just after the close of regular trading, Edwards Life Sciences released its third quarter 2019 financial results. During today's call, management will discuss the results included in the press release and accompanying financial statements, and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include, but aren't limited to, financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive manners, 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. Information concerning factors that could cause these differences and important product safety information may be found in the press release, our 2018 annual report on Form 10-K, 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 the terms underlying and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to gap results. Reconciliations between gap and non-gap numbers mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike for his comments. Mike?

Thanks, Mark. We're very pleased to report strong third quarter results, which reflected a large increase in the number of patients that were treated with transcatheter heart valve therapy. Our sales growth this quarter was significantly higher than we expected. Sales grew in the double digits in all regions globally and increased 19% on an underlying basis to $1.1 billion, led by transcatheter aortic valve replacement. We're also pleased to report growing investments in new therapies and clear progress in numerous clinical trials that we believe will have meaningful future impact. More importantly... Even more patients are benefiting from our lifesaving technologies than ever before. In TAVR, third quarter global sales were $700 million, up 27% on an underlying basis. Growth was led by continued strong therapy adoption across all geographies with notable strength in the U.S. We estimate global TAVR procedure growth was comparable with our growth in the mid-20% range. Globally, our average selling price remains stable as we continue to exercise pricing discipline. In the U.S., we estimated total TAVR procedures grew around 30% on a year-over-year basis and that Edwards growth was comparable. Stronger-than-expected growth was driven by an unexpected bolus of TAVR treatments following the strong Partner III evidence that led to the recent FDA indication expansion for our Sapien 3 and Sapien 3 Ultra systems. This approval represents a significant milestone which allows all patients diagnosed with severe AS to be considered for TAVR based on their individual needs and anatomical considerations versus traditional risk scoring. Growth this quarter was broad-based across the U.S. Outside the U.S., in the third quarter, we estimated total TAVR procedures grew just over 20% on a year-over-year basis, and Edward's growth was comparable. We continue to be encouraged by the strong international adoption of TAVR, particularly where overall therapy penetration is still very low. In Europe, Edward's growth was in the teens, and we estimate that our competitive position was stable. Although transcatheter valves have been commercially available for over a decade in Europe, it's encouraging to note that demand remains strong. Outside the U.S. and Europe, we continue to see strong TAVR adoption driven by Sapien 3. Sales growth in Japan and other regions was very strong as aortic stenosis remains an immensely undertreated disease, and we remain focused on increasing the availability of TAVR therapy. As we've discussed, we remain pleased with the Sapien 3 Ultra valve's performance, and clinician feedback continues to be very positive. The valve offers a modified outer skirt, which includes a proprietary material designed to further reduce paravalvular leaks. We decided to accelerate the previously announced migration to the proven Sapien 3 delivery system, and at the same time are finalizing improvements of our Ultra delivery system. The updated rollout plan is expected to ramp over the next several quarters. As such, we now believe that Sapien 3 Ultra will account for most of our TAVR sales in U.S. and Europe in 2020. This updated plan contributed to a charge this quarter. I'm pleased to provide an update to our early TAVR clinical trial, which is now approximately half enrolled. Recall that this is a large, first-of-a-kind trial focused on indication expansion for patients suffering from severe AS who haven't yet reported symptoms. Enrollment continues at nearly 65 sites throughout the U.S., and we now anticipate completion in 2021 versus our initial expectation of 2020. We continue to believe that early TAVR has the potential to change the way that clinicians approach and manage AS patients to prevent irreversible damage. Finally, as you heard at last month's PCT, clinical trial results were presented demonstrating early and sustained quality of life advantages for severe AS patients at low surgical risk treated with Sapien 3. Taken together with the clinical superiority demonstrated in the Partner 3 trial, these quality of life findings further support the use of TAVR in these patients. In summary, given the strength of our year-to-date performance, we're raising our full-year TAVR guidance. We now expect underlying growth of nearly 20% versus our previous expectation of around 15%. In addition, while still early in the 2020 forecasting process and difficult to predict, we're modeling a return to low double-digit growth TAVR procedures globally next year. This is consistent with our estimate of a $7 billion opportunity in 2024. Based on the trend of our 2019 results, it's likely that in 2020 we will report slower second-half growth given the higher year-over-year comparisons. We are encouraged that the TAVR opportunity remains robust and believe that our continuing innovations will sustain our strong global position. In transcatheter mitral and tricuspid therapies, or TMTT, we made important progress in the third quarter in advancing our portfolio of technologies to bring meaningful solutions to underserved mitral and tricuspid patients with few options today. In the third quarter, global revenue was $10 million. The bulk of this was commercial sales of Pascal in Europe. We are pleased with the discipline rollout of Pascal, focusing on physician training, procedural success, and patient outcomes. While we continue to receive positive physician feedback on this differentiated therapy, our premium price strategy was a contributor to the slightly lower than expected revenue. And now I'll give you a brief recap of select developments. In mitral valve repair, we continue to enroll our class 2D US pivotal trial to study Pascal in primary or degenerative mitral valve disease. We have also initiated enrollment in our class 2F pivotal trial for patients with secondary or functional mitral valve disease. In line with our commitment to build a strong body of clinical evidence, we recently presented positive one-year results in 30 patients from our European class study at TCT. We were especially encouraged by the low rate of cardiovascular mortality and heart failure hospitalization, as well as an impressive substantial and sustained reduction in mitral regurgitation. Patients also experienced clinically and statistically significant improvements in functional status, exercise capability, and quality of life. In menstrual valve replacement, we're pleased with the ongoing early feasibility study experience with both Evoke and Sapien M3 transeptal therapies, and we remain on track to initiate a U.S. pivotal trial of Sapien M3 before the end of the year. Data highlighting the latest clinical experience with these platforms were presented at TCT, demonstrating feasibility, an acceptable safety profile, and a significant MR reduction with both therapies. Turning to transcatheter tricuspid repair. In the second quarter, we made the decision to accelerate a Pascal tricuspid pivotal trial by the end of this year. We are pleased that in September we received FDA approval for our CLASP2TR pivotal trial to study Pascal in patients with symptomatic severe tricuspid regurgitations. We plan to start activating sites by the end of the year. At TCT, we highlighted the latest data from our cardio band tricuspid early feasibility study demonstrating acceptable safety and performance with significant TR reduction at 30 days. In summary, for full year 2019, Edwards now expects TMTT revenue to be below $40 million as the company continues a disciplined introduction and premium pricing strategy, which is moderating site activation. In addition, while still early in the 2020 forecasting process, our plan anticipates doubling 2019 TMTT sales in 2020. We remain on track to achieve our ambitious 2019 clinical milestones which include continued enrollment in our CLASP pivotal trials, as well as initiating the Sapien M3 pivotal trial by the end of the year. We continue to estimate the global TMTT opportunity to reach approximately $3 billion by 2024, and our passion about bringing a portfolio of solutions for patients in need. In surgical structural heart, Sales for the third quarter of $204 million increased 3% on an underlying basis. Our growth was driven by continued adoption of our premium high-value technologies and strength outside the U.S. This was partially offset by lower surgical aortic valve procedures in the U.S. as TAVR adoption expanded. We remain very encouraged with the steady adoption of of INSPIRIS resilient tissue valves. In the third quarter, valve utilization grew in all regions, driven by increased demand among younger and more active patients. INSPIRIS is becoming the surgical valve standard of care in many geographies around the world. Separately, we continue to expect European regulatory approval for our Harpoon beating heart mitral valve repair system around the end of the year. Harpoon offers the potential for earlier treatment of degenerative mitral valve disease and faster recovery and more consistent outcomes for surgical patients. In summary, although the superiority results of PARTNER III and the recent indication expansion for TAVR are expected to provide an incremental headwind to our aortic surgical sales, we continue to expect full-year underlying sales growth of 1% to 3% based on our year-to-date results. we remain excited about our ability to provide innovative surgical treatment options for more patients and to extend our global leadership in premium surgical structural heart technologies. In critical care, sales for the quarter were $180 million and grew 7% on an underlying basis. All product lines and geographies contributed to this performance with strong growth boosted by Hemisphere, our all-in-one monitoring platform. We received FDA clearance in the third quarter to use Foresight, our cerebral oximetry technology, from the CAVMED acquisition on Hemisphere. The integration of a full range of technologies on Hemisphere will create a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in smart monitoring. In summary, given the sustained growth through the first Three quarters of the year and the expected momentum from the fully integrated Hemisphere platform in the fourth quarter, we continue to expect full-year 2019 underlying sales growth of 8% to 10%. And now I'll turn the call over to Scott.