Edwards Lifesciences Corporation

Greetings and welcome to the Edwards Life Sciences first quarter 2020 results. At this time, all participants are in a listen-only mode. After the formal presentation, we will follow with the question and answer session. Instructions will be given at that time. If you have any problems at all, please press star zero on your telephone keypad and an operator will assist you. Without any further ado, I will now turn the call over to Mark Wilterding. Mr. Wilterding, you may begin.

Thanks, Victor. Good afternoon, and thank you for joining us. With me on today's call are Mike Musallam, Chairman and Chief Executive Officer, and Scott Ullum, Chief Financial Officer. Just after the close of regular trading, Edwards Life Sciences released its first quarter 2020 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 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, including but not limited to those associated with COVID-19 pandemic 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 2019 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 GAAP measures. Reconciliations between GAAP and non-GAAP numbers mentioned during this 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. Before we dive into our first quarter results and updated 2020 outlook, I'd like to give you a broader sense of what's happening at the company in light of COVID-19 and how Edwards has responded during these challenging times. As you'd expect, our priority has been to continue to serve patients counting on us, support our clinical partners, and protect the well-being of our employees. We are striving to maintain continuous access of our life-saving technologies as well as offering frontline in-hospital support. Most importantly, on behalf of everyone at Edwards, I want to express our gratitude to our clinician partners and the global healthcare community for their tireless dedication to serving patients during this challenging time. We appreciate their strong leadership and brave commitment to patient care, and we're dedicated to supporting them as they address this global health crisis. I'm encouraged by the recent indication of plateauing and even declining infection rates and deaths from COVID-19 in many areas around the world, but we know that healthcare workers on the front line continue to face unprecedented challenges. In the words of Dr. Craig Smith from Columbia University, I am confident that we will sail through this together in due time. I also want to recognize the extraordinary actions of our 14,000 employees around the world that have taken to overcome the unique challenges associated with COVID-19. Edwards is proud to be a member of the critical healthcare infrastructure, and I admire the agility, resourcefulness, and passion of our employees in maintaining their important work on behalf of patients and also volunteering their help in our communities during this difficult period of time. Thanks to our global supply chain team and our government and regulatory partnerships around the world, despite significant challenges, our manufacturing operations have continued to deliver and we've been able to supply our technologies to more than 100 countries around the world. Our dedicated manufacturing employees have been able to consistently meet the global demand for our structural heart technologies. As noted at our December investor conference, we focused energy and resources to improve the capacity and agility of our global production facilities over the last few years, and it's really become apparent at this time. In Europe, there's been an increased need for supply of our pressure monitoring products in critical care. We're grateful to our employees who are making progress to more than double our production to keep up with this demand and serve critically ill patients in need. Our valued third-party suppliers are a critical piece of this infrastructure, and we have worked closely with them in an effort to avoid disruption. We are proactively managing capacity assessing alternative logistic options, and closely managing the supply of components. Our team's commitment to delivering lifesaving technologies to patients is unwavering. I also want to commend our clinical field teams for their work providing real-time support for patients and frontline clinicians at this time when it's needed most. Their courage and resiliency in assisting clinicians and patients has been truly impressive. In March alone, Edwards provided clinical support for TAVR procedures in all 50 states in the U.S. and in almost 60 countries around the world. At all times, we've adhered to important measures to protect the safety of our employees while also continuing the critical work of providing life-saving technologies for patients. We'll continue to rely on trusted global health sources, governments, and local hospital policies to inform our decision-making. Because of our strong team and patient-focused culture, I have absolute confidence in our ability to successfully navigate this unprecedented global crisis. Finally, I want to recognize the important role and impact of our charitable partners in meeting both local and global community needs at this time. To respond to these needs driven by the pandemic, The Edwards Life Sciences Foundation issued emergency grants to more than 20 partner organizations in communities where our Edwards employees live and work around the world. Additionally, Edwards is providing donations of critical care technologies during this crisis to help physicians care for underserved patients. We will stay closely connected to our charitable partners to understand other ways that we can help in our communities. Also, in the first quarter, our foundation achieved its longstanding goal of screening and treating more than 1.5 million underserved people in over 35 countries through our Every Heartbeat Matters initiative. It's truly a remarkable effort by our charitable partners and one that inspires me personally. We are using our knowledge gained from our first phase of Every Heartbeat Matters to set a new bold goal, to improve the lives of 2.5 million more underserved structural heart and critical care patients by the end of 2025. Finally, before I get into our results, it was 20 years ago this month we rang the bell at the New York Stock Exchange marking the spinoff from Baxter and officially beginning our journey as Edwards Life Sciences. It's been an incredible journey and we are not done yet, not even close. While we continue to actively monitor COVID-19 and its potential business disruptions, we remain confident in our long-term patient-focused strategy and innovation pipeline. There are still many patients in need, and I remain very confident in our global team and culture that once this crisis passes, and it will pass, together we will achieve many more successes. Now turning to first quarter results. Despite challenges associated with COVID-19, we reported $1.1 billion in sales this quarter, representing 14% sales growth. In transcatheter aortic valve replacement, or TAVR, our first quarter global sales were $742 million, up 25% on an underlying basis. Our global TAVR sales growth through early March was consistent with our strong fourth quarter global growth rate. This was dramatically impacted in the last few weeks of the quarter as procedures fell as a result of the COVID-19 disruptions. As you might expect, procedure volumes in March vary greatly by geography, even by hospital, as patients and providers turn their focus to the pandemic. Estimating TAVR procedure growth is more challenging now than ever in the current environment. We anticipate being able to be in a better position to estimate TAVR procedure growth and our competitive share once the global situation begins to normalize. Globally, average selling prices were stable. In the US, our TAVR sales grew approximately 30% on a year-over-year basis in the first quarter. Our US TAVR sales growth through early March was consistent with our strong fourth quarter growth rate driven by a step up in TAVR treatments as new patients entered the system independent of their surgical risk. During the last few weeks of the quarter, procedures dropped precipitously and were highly variable across the country. The rollout of Sapien 3 Ultra continued to be very positive in the first quarter and clinician feedback on improved paravalvular leak performance remains outstanding. ULTRA accounted for more than 30% of our U.S. and European TAVR volumes exiting the first quarter. To ensure the safety of our employees and clinician partners from the threat of COVID-19, however, we've decided to pause proctoring at centers that are not already trained on the device. We anticipate resuming the Sapien 3 ULTRA rollout as soon as we go back to a more stable environment. As you may recall, we committed to following the Partner III patients for 10 years, and in March, the two-year follow-up was presented at the virtual ACC conference. Overall, we were extremely pleased that clinical outcomes of Sapien III in low-risk patients continues to be excellent at two years. Outside the U.S., In the first quarter, TAVR sales grew in the mid teens year over year on an underlying basis. In Europe, Edwards growth was even stronger than our fourth quarter and better than expected through early March before being impacted by dramatically slower procedure growth related to COVID-19. Despite this headwind, we were encouraged by the strong adoption of TAVR across most countries. In Japan, we saw a very good TAVR adoption first quarter procedures in Japan were not meaningfully impacted by COVID-19, although we expected to negatively impact Q2 sales there. In summary, based on what we know today, we assume the impact of COVID-19 on our TAVR sales will be the most severe in the second quarter, followed by a gradual recovery in the third quarter, and a fourth quarter that resembles our original expectations for sales. Although we're encouraged by recent news of improving infection rates from COVID-19, we also recognize the high degree of continued uncertainty in terms of hospital procedure volumes. We now estimate global TAVR sales growth for 2020 to be flat to 2019 with a range of minus 5 to plus 5% versus our previous expectation of approximately 15% sales growth. However, what we know for certain is that severe aortic stenosis is relentless, and Edwards remains committed to delivering critical solutions to these patients, even in the face of the extraordinary challenges caused by COVID-19. We remain confident that the opportunity will exceed $7 billion by 2024. In transcatheter, mitral, and tricuspid therapies, or TMTT, first quarter global sales were approximately $10 million. From a commercial standpoint, we experienced strong momentum and accelerated adoption of Pascal in Europe. We continue to be pleased with Pascal's acute clinical outcomes and physician feedback remains positive. We were tracking to our expectations until the last few weeks of the quarter, when sales declined abruptly due to the impact of COVID-19. As previously announced, we've temporarily paused new enrollments in our mitral and tricuspid active pivotal clinical trials. We are coordinating closely with the trials investigators, and the decision to resume enrollment will be made in consultation with each investigator and hospital. We remain laser-focused on our vision of transforming care for patients with mitral and tricuspid valvular disease by developing a portfolio of innovative therapies supported by a growing body of clinical evidence. We continue to gain experience and make meaningful progress across the portfolio, and you can expect to hear informative updates regarding Pascal, Cardioband, and Evoke at the upcoming URO-PCR medical meetings. In Q2, we expect a significant negative impact on transcatheter, mitral, and tricuspid procedures as healthcare systems focus on fighting the pandemic since these procedures currently require general anesthesia and an ICU stay. We anticipate recovery beginning in Q3 and remain committed to our strategy of ensuring procedural success and differentiated patient outcomes through our high-touch support model. we're revising our revenue range to $30 to $45 million for the full year from our previous expectation of $50 to $70 million. We feel confident that we're well positioned to navigate and manage through these unprecedented challenges with our long-term strategy and dedicated, focused team. We continue to estimate the global TMTT opportunity will reach approximately $3 billion by 2024, and are passionate about bringing solutions for these deadly diseases and improving patients' lives around the world. In surgical structural heart, first quarter sales of $193 million declined 9% on an underlying basis. As expected, driven by the rapid adoption of TAVR, the U.S. surgical aortic valve procedure headwinds experienced in the fourth quarter persisted into the first quarter. During the last few weeks of March, we experienced a sharp deceleration in procedures related to COVID-19. We remain very encouraged by the continued adoption of our premium Inspiris Resilia aortic valve, which is driving an increasing share of surgical aortic valve procedures. Based on favorable patient outcomes and positive physician feedback, it's not surprising that Inspiris valve has become the number one implanted surgical aortic valve in the U.S. and Japan. In Europe, Harpoon, our beating heart mitral valve repair system, is now available commercially, and we plan to launch it as the environment stabilizes. In addition, we're also pleased to report that we recently received FDA approval to begin our U.S. pivotal IDE study and begin enrollment in and expect enrollment to begin in the second half of 2020. Recall that Harpoon offers the potential for earlier treatment of degenerative microvalve disease with faster recovery and more consistent outcomes for surgical patients. In summary, because of the impact associated with COVID-19, we now expect surgical structural heart sales for full year 2020 to decline 5% to 15% from 2019 versus our previous expectation of zero to 3% growth. Our expectation is that lower case rate at the end of Q1 in the US and Europe will continue in Q2. We anticipate that our Q4 sales will return to positive growth driven by market adoption of our newest technologies. As we move beyond COVID-19 and even As transcatheter technology expands, we're excited about our ability to provide innovative surgical treatment options for more patients and extend our global leadership in premium surgical structural heart technologies. To summarize, TAVR, TMTT, and surgical, as the COVID disruption subsides, there ultimately are structural heart patients who delayed their treatment and will get treated. However, sadly, we expect that because of these delays, some patients will worsen and not survive the delay, given the deadly nature of these chronic conditions. It's difficult to quantify the impact on patients at this time, but recall data published in the Annals of Thoracic Surgery suggests that patients waiting for aortic valve replacement have a 4% mortality risk at one month, 8% at three months, and 12% after waiting six months. This is a very difficult time for structural heart patients as they weigh the risk of COVID-19 versus the severe effects of progressive heart valve disease. In critical care, first quarter sales of $183 million increased 1% on an underlying basis. Growth in the first quarter was driven by greater demand in Europe, primarily for our true wave disposable pressure monitoring devices, partially offset by lower demand for enhanced surgical recovery products. Recall that our critical care product line is focused on helping two distinct groups of patients, the larger of which require hemodynamic monitoring in the surgical setting and the smaller group who require support in the ICU. While the pandemic remains active, revenues from our enhanced surgical recovery products will be significantly lower, partially offset by increased demand for ICU products. We have also seen some delay in hemisphere orders in the US as hospitals limit their capital spending as they focus on COVID-19. In summary, because of the uncertainty related to COVID-19, We now estimate critical care sales growth for 2020 to be flat to 2019 with a range of minus 5% to plus 5% versus our previous expectation of 6% to 9% growth. And now I'll turn the call over to Scott.