Edwards Lifesciences Corporation

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

Thanks, Diego. Good afternoon, and thank you all for joining us. With me on today's call are Mike Mussolini, Chairman and Chief Executive Officer, and Scott Ullum, Chief Financial Officer. Just after the close of regular trading, Edwards Life Sciences released its fourth quarter 2019 financial results. During today's call, management will discuss the results included in the press release and accompanying financial schedules, 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 matters, and foreign currency fluctuations. These statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, our 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 terms underlying and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to GAP measures. Reconciliations between GAP and non-GAP measures mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike Mussolum for his comments. Mike?

Thank you, Mark. 2019 was a year of major milestones and significant investments for Edwards. Ground-breaking Partner III clinical trial results demonstrated superiority of our Sapien III valve technology and led to U.S. regulatory approval for patients at low surgical risk. We also initiated our European introduction of Pascal, an important early addition to our portfolio of transcatheter mitral and tricuspid therapies, or TMTT. We extended our leadership position in surgical heart valves and implemented valuable additions to our smart monitoring technology and critical care with the growth of Hemisphere and the addition of CasMed. Most importantly, in 2019, even more patients benefited from Edwards' life-saving technologies than ever before. I'd like to touch on several full-year financial highlights before I get into the quarterly details. Underlying sales increased 15% in 2019 to $4.3 billion, including double-digit organic growth in each region. Excluding special items, we were able to achieve 19% growth in earnings per share over while increasing R&D by 21%. The significant increase in R&D investments this year helped fuel important breakthrough innovations to strengthen our longer-term outlook. As you heard at our investor conference last month, we are as convinced as ever about the tremendous opportunity to enhance patients' lives through the treatment of life-threatening conditions and bringing significant value to the healthcare system. Now turning to our quarterly results. We're pleased to report strong fourth quarter underlying sales growth of 19%. Our sales growth this quarter was significantly higher than we expected, led by transcatheter aortic valve replacement, or TAVR. Now let's take a closer look at TAVR. Full year 2019 global sales of $2.7 billion increased 21% on an underlying basis over the prior year, significantly exceeding our original guidance of 11% to 15% growth. Stronger than expected 2019 growth was lifted by increased awareness of the benefits of TAVR therapy with Sapien 3 following the Strong Partner 3 clinical results presented and published in the first quarter of the year. The U.S. national coverage determination released late in the second quarter also resulted in improved access for more patients suffering from severe aortic stenosis. In the fourth quarter, Global TAVR sales were $763 million, an increase of approximately 30% on an underlying basis with impressive strength in the US. We estimated global TAVR procedure growth was comparable with our growth in the fourth quarter. Globally, average selling prices were stable and we maintained our disciplined pricing strategy. In the US, we estimate total TAVR procedures grew approximately 40% on a year over year basis and that Edwards growth was comparable. Stronger than expected growth in the fourth quarter continued to be driven by the step up in TAVR treatments following the strong partner three evidence that led to the recent FDA indication expansion for our Sapien 3 and Sapien 3 Ultra systems. Fourth quarter growth was broad based across more than 700 centers in the US. Outside the US, in the fourth quarter, we estimate total TAVR procedures grew in the high teens on a year-over-year basis, and Edward's growth was comparable. I'm particularly gratified to see the meaningful impact that our dedicated employees are having on helping so many patients around the world. In Europe, Edward's growth was in the mid-teens, and we estimate our competitive position was stable. We continue to be encouraged by the strong adoption of TAVR especially in countries where therapy penetration is still low. It is also worth highlighting that in the fourth quarter, Edwards became the first company to receive CE mark in Europe for the treatment of patients diagnosed with severe aortic stenosis who are at low risk for open heart surgery. Lastly, the rollout of Sapien 3 Ultra is well underway in the U.S. and Europe. Early clinician feedback on the UltraValve related to improved paravalvular leak performance has been outstanding. We feel this is a significant step forward, especially for low-risk patients. In summary, based on our momentum in TAVR, we now expect our 2020 underlying sales growth to be around the top of the 12 to 15 percent range that we shared at our investor conference. As previously noted, while we expect this healthy trend to continue, We expect the growth rates will be lower as the year progresses, and we annualize the stepped-up procedure growth following the Partner III presentation. We continue to believe this large global opportunity will exceed $7 billion by 2024, which implies a compounded annual growth rate in the low double-digit range. Turning to TMTT. We're on track to achieve all of the milestones discussed at our recent investor conference, including executing four pivotal studies. We continue to invest aggressively in our portfolio, and you can expect to hear important updates at medical meetings this year. In addition, we're pleased to announce that the Evoque tricuspid replacement valve system has recently received FDA approval for an early feasibility study and a breakthrough device designation, a program intended to help patients receive more timely access to designated medical technologies. Full year 2019 sales of $28 million came in below our original guidance of approximately $40 million as we continued to execute a disciplined introduction and premium pricing strategy of Pascal, which moderated European site activation. Fourth quarter revenue of $7 million was negatively impacted by the voluntary Pascal field corrective action completed in the quarter. Importantly, we were able to minimize disruption to physicians and patients in need. Despite the slowdown of our launch cadence, Pascal acute clinical outcomes are excellent and physician feedback is positive. As we expand the rollout, we will remain focused on procedural success and differentiated patient outcomes. To further update our transcatheter mitral therapies, we continue to enroll patients in the CLASP2D pivotal trial study of mitral valve repair with Pascal in degenerative mitral disease and are on track to complete enrollment by the end of the year. In addition, we're also enrolling our CLASP2F pivotal trial for patients with functional mitral disease. In mitral replacement, we continue to gain experience with Sapien M3 and Evoke and anticipate enrollment in our M3 pivotal trial to begin in the second quarter. Early clinical evidence with both these low-profile, transfemorally delivered technologies has been encouraging. Turning to transcatheter tricuspid therapies, we're committed to providing solutions for patients with poor prognosis and very few treatment options. We've initiated enrollment in our CLASP2TR pivotal trial to study Pascal in patients with symptomatic severe tricuspid regurgitation. As mentioned, we've made meaningful progress on our EVOKE tricuspid replacement program. And in addition, we're continuing to gain experience with our CardioBand tricuspid system in select sites as we develop our next generation technology. In summary, we remain committed to all of the milestones outlined in our recent investor conference and continue to expect TMTT sales of $50 to $70 million for 2020. We are optimistic that the global TMTT opportunity will grow to approximately $3 billion by 2024 and are passionate about bringing our portfolio of solutions to these life-threatening diseases. In surgical structural heart, full year 2019 global sales of $842 million increased 1.5% on an underlying basis over the prior year, in line with our original guidance of 1 to 3%. Fourth quarter sales of $205 million declined 3% on an underlying basis, reflecting lower surgical aortic valve procedures in the U.S. as TAVR adoption stepped up partially offset by our continued strong adoption of our premium high-value technologies. Despite the fourth quarter headwinds, our innovative Inspiris valve continued to be a growth driver in the quarter as it has been throughout the year. We remain encouraged by the actions of our focus team as taken to advance leadership as the partner of choice for surgeons. Our surgical portfolio strategy also positions Edwards to generate sustained growth through innovation. We're pleased to confirm that late in the fourth quarter we received European regulatory approval for our Harpoon beating heart mitral valve repair system and are in the process of beginning our commercial launch. Harpoon offers the potential for earlier treatment of degenerative mitral valve disease with faster recovery and more consistent outcomes for surgical patients. In summary, in surgical structural heart, we continue to expect full year 2020 underlying sales growth of 0 to 3%. We anticipate that surgical aortic valve procedure headwinds experienced in the fourth quarter will continue into 2020 with a return to positive growth expected later in the year as we anniversary the 2019 step up in TAVR growth. Even as TAVR adoption expands, we're 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, full year 2019 global sales of $740 million increased 9% on an underlying basis over the prior year, exceeding our original guidance of 5% to 7% growth. Hemisphere, our all-in-one monitoring platform, grew faster than expected in 2019, following the global launch of that platform with our FlowTrack sensor and our Acumen hypotension prediction index software. Fourth quarter critical care sales of $199 million increased 8% on an underlying basis, driven by strong demand for Hemisphere and continued growth in smart recovery. Growth in the quarter was led by sales in the U.S. In line with our commitment to enhance our broad portfolio of sensors, we initiated the commercial launch of Foresight, a cerebral oximetry technology on Hemisphere in the fourth quarter. As discussed at our recent investor conference, the integration of a full range of technologies on Hemisphere creates a unique offering of enhanced recovery tools and predictive analytic capabilities to further strengthen our leadership in hemodynamic monitoring. In summary, we continue to expect 2020 underlying sales growth of 6% to 9%, and we remain excited about our pipeline of innovative critical care products. And now I'll turn the call over to Scott.