Edwards Lifesciences Corporation

Greetings and welcome to the Edwards Life Science Corporation second quarter 2020 results conference call and webcast. At this time all participants are in a 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. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilterding, vice president of investor relations. Thank you. You may begin.

Thanks, Diego. Good afternoon to everyone and thank you for joining us. With me on today's call are Mike Musalem, chairman and chief executive officer, and Scott Allum, chief financial officer. Just after the close of regular trading, Edwards Life Sciences released second quarter 2020 financial results. During today's call, management will discuss those 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 were 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 safety information may be found in the press release, our 2019 annual report on Form 10K, 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 results. Reconciliation 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 for his comments. Mike?

Thank you, Mark.

Before we get into the specifics of the second quarter, I'd like to make a few comments on the overall environment and how Edwards is striving to deliver during these challenging times. There's no question that the world has changed considerably as a result of the COVID pandemic. However, some things haven't changed. Most importantly, our patient-focused strategy and our aspirations as a company. At Edwards, our dedication to providing innovative solutions for people fighting cardiovascular disease remains central to our credo. Our aspiration to excel as a trusted partner and to foster an inclusive culture where all employees grow and thrive is stronger than ever. Our desire to improve access to our therapies for underserved and undertreated patient populations around the world motivates our 14,000 employees every day. An unfortunate consequence of the intense focus of the pandemic during the first few months was that many patients, like those with structural heart disease, were not treated. One interesting published source highlighted how the COVID-19 surge in March and April overwhelmed Dutch hospitals and undermined regular ongoing care. In this study, they estimated there were more, there were approximately 10 times more healthy life years lost from regular care not being delivered compared to COVID life years lost during that period. Closer to home in the U.S., recall that the data published in the Annals of Thoracic Surgery suggests that patients waiting for aortic valve replacement had a 4% mortality at one month, 8% at three months, and 12% after waiting six months. The provider community is aggressively and creatively adapting to be able to treat COVID patients while at the same time providing the necessary care to patients with life-threatening underlying conditions. We'd like to thank all the healthcare providers on the front line who've had to face the challenges of COVID-19 without a roadmap and who have made difficult decisions and innovate at the same time to provide the necessary quality of care for patients in need. While the number of COVID cases remains a priority for providers, we observed already in Q2 providers are adapting to ensure treatment of their structural heart patients. As alarming as COVID is, AS remains a deadly disease and treatment delays will inevitably result in increased mortality for a condition which has proven therapies with excellent clinical outcomes. In the case of TAVR, also minimal use of hospital resources. Even with the heroic efforts of the healthcare community, we know that this remains a very difficult time for the patients we serve as they continue to weigh the risks of COVID-19 against the severe effects of progressive heart valve disease. Edwards is committed to providing the opportunity for faster procedures, shorter hospital stays, and exceptional patient outcomes. Irrespective of the unpredictable surges of this deadly pandemic, there is a growing recognition that valve therapy should not be postponed. Not all procedures are the same. Valve replacement therapy is less elective and these patients have a more urgent need. We have found ourselves more aligned than ever with the interests of patients and providers during this challenging time. Now turning to the second quarter. Despite challenges related to the ongoing pandemic, we're pleased to report much better than expected second quarter results. Sales of $925 million exceeded the top end of our April guidance of $700 to $900 million driven by the continued adoption of our life-saving technologies around the world. This performance was made possible by our dedicated team which includes our committed field organization and our global supply chain. Sales were balanced across all major geographies and benefited from improving -to-month as we progressed through the second quarter. We also started to gradually resume patient enrollment in clinical trials that were slowed at the end of the first quarter and we're working with additional centers as many are now ready to reengage. Furthermore, at TVT Connect and the virtual EuroPCR last month, we highlighted positive clinical results in multiple breakthrough therapies. Even though many on our team were working remotely during Q2, we made positive progress on a number of very important new technology milestones that will be detailed later in our comments. Finally, we were pleased to recently announce an intellectual property agreement which allows us to fully dedicate time and resources to helping patients. In TAVR, the second quarter global sales of $594 million declined 11% on an underlying basis. Globally, our average selling price remained stable as we continued to exercise pricing discipline. As noted on our first quarter call, sales were severely depressed in April as providers turned their attention to the pandemic response. However, we were encouraged by the steady improvement in procedure volumes throughout May and June when approximately 90% of our active sites performed TAVR cases. This is a testament to the dedicated heart teams and our committed clinical field teams. We hear from a number of clinicians that new patients are increasingly entering the system as they seek treatment for severe aortic stenosis. We've seen a significant improvement from the steep trough in April. To put things in perspective, during the second quarter in the midst of the onset of this tragic global pandemic, there were more than 20,000 patients around the world who were treated with our SAPIEN technology. In the U.S., our TAVR sales declined in the low teens versus last year. As expected, April marked the most severe month -over-year U.S. TAVR sales declines and procedure rates remained highly variable across the country. In the last week of April, we observed the first signs of recovery and in May and June, we experienced a significant step up in procedure volumes as previously screened patients who temporarily delayed treatment began to return. Recently, we submitted additional data supporting the safety of our SAPIEN3 platform in bicuspid patients and based on these data, FDA has approved the removal of the precaution from the labeling. Outside the U.S., in the second quarter, our TAVR sales declined in the high single digits -over-year on an underlying basis. In Europe, the pace of recovery was faster than expected despite difficult early headwinds from COVID-19. In Japan, second quarter procedures were less impacted by COVID-19 than initially expected. Aortic stenosis remains an immensely undertreated disease in that region where Edwards is very focused on increasing the availability of TAVR therapy. It's also worth noting recent TAVR approvals outside the U.S. Last month in China, Edwards received regulatory approval to begin treating patients suffering from severe AS and at high risk for open heart surgery with SAPIEN3. We look forward to partnering with hospitals throughout China to introduce this therapy. Earlier this month, Australia joined the list of countries that approved our SAPIEN platform for treatment of severe AS patients independent of their risk score. We believe these approvals represent important milestones for patients outside the U.S. Now, shifting gears to our latest TAVR innovation, SAPIEN3 Ultra, clinical feedback on improved paravalvular leak performance remains outstanding. Last month at the virtual TVT Connect Conference, a propensity match analysis of 1,300 patients was presented using data from the TVT registry to compare outcomes of patients treated with SAPIEN3 Ultra and SAPIEN3 valves. This was the largest analysis of TAVR outcomes with Ultra to date. Both valves demonstrated outstanding outcomes for paravalvular leak with Ultra redefining the benchmark for transcatheter heart valve technologies moving forward. This analysis indicated that 90% of the patients treated with SAPIEN3 Ultra had no reported paravalvular leak at discharge. We are also very encouraged by additional data in the study which confirm SAPIEN's ability to facilitate a more expedited in-hospital experience for patients. This included fewer ICU stays with over 40% of the patients requiring no ICU time at all and shorter total hospital lengths of stay with approximately 50% of patients discharged within 24 hours and 80% by 48 hours. In Q2, Ultra accounted for approximately 40% of our U.S. and European TAVR volumes, up from 30% at the end of the first quarter. You'll recall that we temporarily paused SAPIEN3 Ultra proctoring at centerless that were not already trained on the device and we resumed training in the second quarter. In summary, while the sharp decline in April was not as prolonged as we expected, we continue to envision a second half similar to our April expectations. Although there continues to be a high level of -to-site variability, based on our second quarter performance, we now anticipate global TAVR sales growth for 2020 will be at the high end of our previous range of minus 5 to plus 5%. Based on how we've begun the third quarter, we continue to expect sales in the third quarter to be approximately flat to our strong 2019 third quarter and a fourth quarter that transitions to growth over 2019. Furthermore, as patients and clinicians increasingly choose TAVR, we remain confident that the opportunity will grow to over $7 billion by 2024. Turning to TMTT, which is the transcatheter, mitral, and tricuspid therapies for patients suffering from diseases of these heart valves. In the mitral position, we're developing repair therapies with PASCAL and Cardioband as well as replacement therapies with M3 and EVOKE. In the tricuspid position, we're pursuing the PASCAL and Cardioband repair therapies and today we're announcing a pivotal trial of EVOKE for tricuspid valve replacement. We have early commercial sales in Europe with several of these therapies and we're advancing each of these platforms, including five pivotal studies underway in the U.S. We continue to be very pleased with our robust real-world evidence with PASCAL mitral repair as highlighted during a presentation at Virtual EuroPCR. The analysis of more than 1,200 commercially treated patients demonstrated an excellent safety profile and confirmed that significant reduction of mitral regurgitation can be achieved after only a short learning curve for physicians. As previously announced, we're pleased to have received CE-MARC for PASCAL repair system for the treatment of patients with tricuspid regurgitation. Based on our early and positive class tricuspid EFS data, we have initiated an introduction in Europe with a focus on excellent outcome for this new tricuspid repair therapy. Last quarter, we announced a temporary pause of new enrollments for our active mitral and tricuspid pivotal clinical trials. In consultation with investigators and hospitals, more than half of our trial sites have begun, have been reactivated and are beginning to treat patients. We anticipate enrollment in our three class studies will continue to ramp in the third and fourth quarter, and we're still targeting U.S. approval of PASCAL DMR in 2022. Now turning to replacement therapies. We're encouraged by the early clinical experience with evoke tricuspid in 25 patients recently presented by Dr. Neil Pham, which demonstrated 100% 30-day survival as well as very significant acute reduction of tricuspid regurgitation and improvement in functional status. We're pleased to announce that we've received approval to initiate a pivotal study for the evoke tricuspid replacement system, which is designed to gain U.S. clinical experience in the tricuspid system. The tricen2 study is a perspective multicenter randomized pivotal clinical trial to evaluate the evoke system compared to optimal medical therapy in patients with severe TR. In mitral replacement, we continue to gain experience with sapien M3 and evoke. Both systems utilize a transfemoral delivery approach. We are encouraged by the early experience with evoke in patients with severe MR and high surgical risk. Additionally, we anticipate enrollment in our sapien M3 pivotal trial to begin by the end of the year. Second quarter global sales for TMTT were $6 million. We expect to progressively ramp in Q3 and Q4 as we activate more centers in Europe and they resume procedures and patient referrals increase. In summary, we reiterate our confidence in the long-term opportunity in TMTT and are passionate about the significant progress we're making in bringing solutions to these deadly diseases to improve patients' lives around the world. In the second quarter, we continue to expect total TMTT sales this year to be $30 to $45 million. In surgical structural heart, sales for the second quarter of $161 million declined 25% on an underlying basis primarily related to the impact of COVID-19. This was better than our expectations back in April. The ongoing adoption of TAVR also contributed to U.S. surgical aortic valve procedure headwinds. Despite the decline in Q2 sales, we're encouraged by the recovery of procedure demand as we progress through the quarter. Increased and improved management of ICU capacity as well as prioritization of heart surgery in many hospitals contributed to rebounding case volumes in late Q2. We continue to be encouraged by the steady adoption of our most advanced, resilient tissue technology in the Edwards portfolio. Our Inspiris Resilia aortic tissue valve grew in both new and existing sites in the U.S. and abroad, driven by increasing demand among younger and more active patients. Inspiris is becoming the surgical valve standard of care in many geographies around the world and remains the number one implanted surgical aortic valve in the U.S. and Japan. We recently gained U.S. approval and treated our first patients with our second resilient offering, the preassembled, -to-implant Connect Resilia aortic valve conduit. Connect combines our leading Resilia surgical valve technology with a proven surgical graft. This combination allows for the treatment of complex patient anatomies where it's necessary to replace a valve and repair the ascending aorta. Elsewhere in the surgical structural heart portfolio, recently the first commercial cases of a harpoon were successfully completed in Europe. This beating heart mitral valve repair system offers the potential for earlier treatment of degenerative mitral valve disease with faster recovery and more consistent outcomes for surgical patients. In summary, we continue to expect surgical structural heart sales for full year 2020 will decline 5 to 15 percent in 2019. Localized hot spots could continue to limit hospital capacity, slow disease diagnosis, and impact patient willingness to undergo treatment. However, our expectation is that the recovery experience in late Q2 will extend in the U.S. and Europe into Q3. We continue to anticipate that in Q4 our sales will return to positive growth driven by the market adoption of our newest technologies. We're excited about our ability to provide innovative surgical treatment options for patients and extend our global leadership in premium surgical structural heart technologies. In critical care, second quarter sales of $164 million decreased 10 percent on an underlying basis. Increased demand for our two-wave disposable pressure monitoring devices used in the U.S. and Europe in the ICU remains strong but were not enough to offset the COVID-driven impact of delayed elective procedures. Soft global demand was also partially offset by large orders in Europe associated with ICU capacity increases. We also experience a decline in hemisphere orders in the U.S. as hospitals continue to limit their capital spending as a result of COVID-19. Toward the end of the quarter, however, we started to see positive signs of recovery in demand for our products used in cardiac surgeries while demand in products used in more elective surgeries remains depressed. We'd also like to highlight the recently announced collaboration between our critical care team and the Anesthesia Quality Institute. The main focus of this shared initiative will be to improve data collection and analysis of collaborative hyper-tension, which, according to research, is associated with poor clinical outcomes. We're optimistic this joint effort will result in the advancement of patient care through the use of enhanced data collection to create updated guidelines. In summary, we now estimate that critical care sales growth will be negative for 2020 largely due to anticipated reduced capital spending in the U.S., but still within our previous guidance of minus 5 to plus 5%. Before I turn it over to Scott, I'd like to make one last comment. We realize it's difficult to predict the progression of COVID-19, including additional waves and isolated flare-ups and the associated impact on the healthcare system. We are planning on dealing with the ups and downs of this pandemic for the foreseeable future. Because of the severe condition of the patients we serve and our strong patient-focused team, I remain confident in our ability to continue to successfully deliver during this global crisis. And now I'll turn the call over to Scott.

Scott, thanks a lot. Today I'll provide additional perspective along with some of your ideas. This is the operator. We cannot hear Scott's voice coming through.

So let me start over again just in case you missed that. Today I'm going to provide additional perspective on the second quarter along with some indicators of how we anticipate the rest of the year may unfold. Our sales performance in the second quarter was better than we expected because the trough was not as deep as we anticipated. April was the weakest month of the quarter, and we saw sequential improvements in May and June as hospital procedure volumes started to recover. Earnings were also stronger than we expected, both because of the stronger top line as well as because of constrained spending. We implemented cost control measures, but we intentionally did not take any actions to significantly impact our employees or reduce investments supporting our long-term strategy. This allowed us to deliver an adjusted 25% operating profit margin and adjusted earnings per share in the second quarter of 34 cents, which was 26% below last year's second quarter. Gap earnings per share was negative 20 cents as a result of the intellectual property agreement, which I will address in a few minutes. A full reconciliation between our gap and adjusted earnings per share is included with today's release. And now I'll cover the details of our second quarter results as well as discuss guidance for the balance of the year. For the second quarter, our adjusted gross profit margin was 74.4%, down from .4% in the prior year quarter. This year's rate included incremental costs associated with responding to COVID and a negative impact from foreign exchange. In the second half of the year, we expect to see a less pronounced impact from COVID on our gross margin compared to the second quarter. Selling general and administrative expenses in the second quarter were $275 million or .7% of sales compared to $308 million in the prior year. This reduced spending resulted from COVID, which interrupted our planned flow of operating expenses. As I mentioned earlier, we did not initiate any actions to significantly impact our employees nor to significantly reduce investment plans supporting our long-term growth strategy. Research and development expenses in the second quarter were $182 million or .7% of sales compared to $192 million in the prior year. This decrease was primarily the result of high clinical spending in the prior year for Partner III continued access as well as for Centara and paused clinical trial activity this year due to COVID. We expect R&D expenses to resume sequential growth in the second half of the year. As Mike mentioned, earlier this month we were pleased to settle the TMTT intellectual property matter. This impacts our income statement as well as our cash flow statement. The principal impact to our P&L was a $368 million pre-tax charge in the second quarter. In addition, we will incur a total of approximately $100 million in royalty expenses between now and May 2024, which will be recorded in cost of sales. The cash flow impact includes a one-time $100 million payment to Abbott made earlier this month along with quarterly payments in future years. Turning to taxes, we had negative earnings in the second quarter due to the special settlement charge. As a result, we reported a $46 million tax benefit in the second quarter. Excluding the impact of special items, our tax rate was .2% for the quarter. This unusually low rate included an approximate $20 million benefit or 3 cents per share from the accounting for employee stock-based compensation. This stock-based compensation benefit was in line with our expectation. We continue to expect our full year 2020 tax rate, excluding special items, to be between 11 and 15%. Foreign exchange rates decreased second quarter sales growth by approximately 1.1%, or $12 million, compared to the prior year. At current rates, we now expect an approximately $30 million negative impact, or about 1.0%, to full year 2020 sales versus 2019. FX rates negatively impacted our second quarter gross profit margin by 50 basis points compared to the prior year. Relative to our April guidance, FX rates had less than a penny impact on earnings per share, reflecting our effective currency hedging program. Turning to the balance sheet. We have a strong balance sheet with approximately $1.7 billion in cash and investments at the end of the quarter. In addition, we have an undrawn line of credit of up to $1 billion. Our public bonds of approximately $600 million don't mature until 2028. Additionally, we continue to generate healthy cash flows. Average adjusted shares outstanding in the second quarter were $630 million on a post-split basis, and we expect average shares outstanding for the full year to remain stable. Recall that in June, we increased the number of shares outstanding by executing a -for-one stock split. Adjusted free cash flow for the second quarter was $123 million, defined as cash flow from operating activities of $231 million, less capital spending of $108 million. We are not updating our free cash flow guidance for the year, although we continue to expect that it will fall short of our original expectation of $1 to $1.1 billion. Now I'll turn to guidance for the full year 2020. Our guidance assumes that the worst of the COVID financial impact to Edwards is behind us, and that we'll see a progressive recovery during the second half of the year, anticipating that we'll be dealing with ups and downs along the way. Remember that Edwards sales grew 19% in the second half of 2019, so we have high -over-year comparisons. Even so, we expect total sales in the third quarter to return to 2019 levels and for sales to start growing again in the fourth quarter. So, while the second quarter sales decline was less severe than we expected, our expectations for the second half of the year haven't significantly changed from earlier guidance in April. We estimate total company sales growth for the full year to be approximately flat to 2019, with a range of minus 5 to plus 5%. We now estimate TAVR growth to be at the high end of our previous range of minus 5 to plus 5%, and critical care growth to be negative for 2020, but still within our previous guidance range of minus 5 to plus 5%. Surgical growth remains in a range of minus 5 to minus 15% versus 2019, and we continue to expect that TMTT sales will be $30 to $45 million. Full year sales guidance for the total company continues to be $4 to $4.5 billion, and for the third quarter we estimate sales of $1 to $1.2 billion. We are raising our full year adjusted earnings per share guidance range to $1.75 to $1.95 on a post-split basis, up 11% from our previous guidance of $1.58 to $1.75, or on a pre-split basis, $4.75 to $5.25. And with that, I'll turn it back over to Mike.

Thanks, Scott. I want to conclude by once again expressing our gratitude to our clinician partners and the global health care 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 also want to recognize the extraordinary actions that our employees around the world have taken to overcome the unique challenges associated with COVID-19. Edwards is proud to be a member of a critical health care infrastructure, and I admire the agility, resourcefulness, and passion of our employees in maintaining their important work on behalf of patients. And with that, I'll turn it back over to Mark.

Thank you, Mike. We're ready to take questions now. In order to allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up. If you have additional questions, please re-enter the queue, and management will answer as many participants as possible during the remainder of the call. Diego?

Thank you. And to queue up for a question, press star 1 on your telephone keypad. That's the star key, followed by the number 1 key on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. And as the gentleman just said, please limit yourself to one question and one follow-up per queue. You may also press the star key, followed by the number 2 key, if you would like to remove your question from the queue. Our first question comes from Josh Jennings with Cowan & Company. Please state your question.

Hi. Good afternoon, gentlemen. It's great to see how effectively you've navigated through the pandemic. Maybe I could just start with two questions on TAVR. First, taking your US TAVR and European TAVR results and matching against our assumptions for the April and May decline. It seems as if those units may have already returned to growth in June. Did the US or EU TAVR businesses return to growth in June or even in the first weeks of July here?

Yeah. Thanks for the question, Josh. In general, we'd rather not get into the -to-week and -to-month expectations. We've been encouraged by the steady improvement in procedures across all of our businesses as we progress through Q2. The specifics on June sales are not likely to be as helpful as it probably include working down some backlog in addition to new patient screenings. As we said, based on how we've become Q3, we continue to expect sales in Q3 to be approximately flat to our pretty strong 2019 Q3. The Q4 is going to transition to growth over 2019.

Got it. Maybe just to follow up, it would be great to hear any data points that you can share regarding those two elements you just talked about. It might be important for the pace recovery from here. First, where do you think centers are in terms of working through the -19-induced TAVR backlog? And then second, are you seeing evidence that new patient screenings in the referral channel is revving back up in step with the TAVR case volumes? Thanks for taking the questions.

Sure. Thanks, Josh. So we've heard anecdotally of many centers who have already worked off their COVID-driven backlog. And as you may know, some centers operate with no backlog at all. The reasons that some of the backlogs didn't grow is that when treatment stopped, so did screening. Now, this isn't true all over the world. We know of some centers outside the U.S. where the waiting lists have gotten longer and they're likely to get worked down over 2020. But in the U.S., we don't think that there's much of a backlog at this point. And unfortunately due to the deadly nature of severe AS, some of these patients who delayed treatment may never be treated.

Thank you. Our next question comes from David Lewis with Morgan Stanley. Please see your question.

Good afternoon. Mike, just maybe one more specific one on TAVR and a follow-up on Mitral. Just in terms of this recent resurgence, I think investors are very focused on the specific areas, Texas and Florida, and the age of these patients. Has there been any sense in your mind in the month of July or late June, specifically in July, that this resurgence in some of these key geographic markets, has that had any impact on trends here in July?

Yeah, thanks, David. Yeah, you know, we have heard anecdotally of cases being canceled in places like Texas and Florida and some of southern states. But, you know, then again, as we mentioned, we had a chance to sort of, you know, see how Q2 finished and see how Q3 started. And that's kind of built into our guidance. We anticipated there were going to be some levels of ups and downs. And so when we project the Q3 that we think is approximately flat to 2019, it takes that into account.

Okay, very helpful. And then as it relates to TMTT, you know, with the lawsuit resolved, and I know you kind of reiterated your TMTT guidance for the year, but if I could, the lawsuits resolved, does the path to strategy, XUS, change in any way as it relates to either the spending associated with the launch, the breadth of the launch, or the pricing of the valve in XUS markets? Thanks so much.

Yeah, thanks, David. No, broadly, there's no change in the strategy. We continue to have a lot of confidence in this platform. We will continue to offer at a premium price. We're very pleased with the way it's been performing, and we were happy to see that 1200 patient experience reported at the virtual EuroPCR. One of the reasons why there's no real change is we really try and focus on great outcomes, and so we're very deliberate about training center by center across Europe as we implement. And so you'll see more of a continuation of what you've seen in the past.

Thank you. Our next question comes from Bob Hopkins with Bank of America. Please state your question.

No, thanks. Bob, you're breaking up a little bit. Yes, we can't hear you, Mr. Hopkins. Please reconnect. Go ahead,

Diego. We're on the same page.

Okay, thank you. Our next question comes from Matt Mixich with Credit Suisse. Please state your question.

Hi, thanks so much for taking the question. So one, if you could, just on you mentioned rebuilding the pipeline and sort of improving clinic visits, and I'm wondering if you could talk a little bit about the role that some of the newer technology investments that you made over the last couple of years in partnerships with some of the technology companies that have fit into this sort of telemedicine model, either Cardiocare or EKO, maybe talk about the role that they're playing, if any, at this point in helping to close that gap. And then I had one follow-up.

Okay, thanks, Matt. Yeah, you know, the newest technologies are not quite ready to have a broad impact. But one of the things we've seen is an incredible amount of agility and creativity on the part of the HART teams to make things happen. I mean, obviously we tried to support them along the way, but they just pivoted. They found ways to get patients in. They found ways to bring patients to a safe place to do a workup. They found ways to do some things virtually that they had always done in person. So it was remarkable to us to observe sort of a pivot on their part to make it happen.

Okay, so a little more hustle maybe to get that done, it sounds like, for now anyway. And then the other is you gave some color on the number of centers performing TAVR procedures. I'm wondering, you know, given that new center growth has been such a big part of this market over the past several years, if you could talk a little bit about, you know, maybe the way in which some of the new centers are responding or staying on trend, on pace, how they're being affected differently than some of the larger academic centers and how you expect that to kind of play out as we get further into the recovery.

Yeah, thanks, Matt. So, you know, things have been very different by region of the world and certainly region of the country. In terms of the new centers, they didn't have a tremendous impact on the second quarter. Most of it came from centers that were already in place. And again, we've had a chance to spend time with a number of hospital CEOs, and we've been impressed that they just set their mind to trying to make a pivot and be able to treat structural heart and particular A.S. patients during this time. So I think the last time that we addressed it, Matt, we said there were about 700 U.S. centers and that we were headed toward 850. I think COVID does slow that down some, so it will continue, but it wasn't a big part of the story in this quarter.

Thanks so much. Thank you. Our next question comes

from Bob Hopkins with Bank of America. Please go ahead.

Hi, sorry, can you hear me okay?

Yeah, we hear you fine, Bob.

Great, sorry. I apologize if I missed this given I was in transition. But just a quick question on the fourth-border guidance. I realize there's a lot of uncertainty. You said you'd return to growth. I'm just curious, are you comfortable with where the street is at around 8% growth, just trying to understand what's implicit in the guide?

Yeah, you know, Bob, you know what we're dealing with right now. There's so much uncertainty associated with the progression of COVID. It's very difficult. We're being somewhat courageous here to offer guidance at this point with the uncertainty in front of us. So we're not ready to dial into anything very specific. We do have the confidence to say, you know, we really believe we're going to be in growth mode, but we're not prepared to get that precise.

Okay. And then just one question on China. Just curious how you're thinking about the ramp and tavern in China. If you could maybe talk about how you think about the market opportunity and especially how much of an infrastructure you think exists in China and how big an opportunity you think that could be over the next 12 months. Obviously a nice opportunity long term, but just curious about the ramp.

Yeah, thanks, Bob. You know, we're really looking forward to launching in China. Our belief is that there were maybe, I don't know, 24, 2500 cases performed in 2019, so a nice opportunity, and it's been served almost exclusively, or not almost, but exclusively by local companies. We're going to come in with a very different kind of approach where we really focus on outstanding outcomes. We're going to try and really service those accounts. We're going to try and train them and make sure that they have great proctoring and support along the way. So we're not expecting this to be a fast start. As a matter of fact, it will be slow and deliberate. We don't expect it to have an appreciable difference on our 2020 performance, but we really like what it could do on a long-term basis.

Great. Thanks, Mike. Our next question comes from Robbie Marcus with JPMorgan. Please state your question.

Great. Thanks for taking the question, and congrats on a much better than expected quarter. I was wondering if you could talk about global pricing and competition for a minute. I know you said your ASP globally was stable. Are you seeing any of your competitors or are you going forward pursuing any major changes to pricing or a strategy that you're seeing?

Yeah. I can't say, Robbie, that we've seen anything that's major during the quarter. So we feel like much of it has been somewhat consistent to what we've seen in the past. We continue to be very disciplined ourselves. I'm not positive exactly what other competitors are doing, but I haven't heard anything that's particularly noteworthy.

Got it. And then just as a quick follow-up, congrats on getting the bicuspid warning – or not warning, but a negative suggestion removed from the label. How should we think about that in helping your adoption in low-risk care, where it is more important?

Yeah. Thanks. So I think sometimes there was a misconception. We were never contraindicated. There was just always this notion that we didn't have the data that demonstrated safety. So now with the data that's been submitted, we're in a position that there's no longer that safety concern. I don't know if it makes a big difference. We have routinely treated these patients right along, and so it's a positive for patients. We're not expecting it to have a big difference on our future volumes.

Appreciate it.

Thanks.

Our next question comes from Larry Beegelson with Wells Fargo. Please state your question.

Good afternoon. Thanks for taking the question. One on TAVR, Mike, one on TMTT. So, Mike, early on you talked about doctors adapting to COVID, and given the shorter length of stay with TAVR, do you see COVID accelerating the transition to TAVR from SAVR? And I had one follow-up.

No, thanks, Larry. No, we really don't see that. You probably imagine what would be going on in 2020 if it wasn't for COVID. We would be enjoying, we think, some pretty hefty double-digit growth rates. And so, no, COVID's not – we don't see it as an accelerator, but we've been so impressed by the ability of the system to adapt and find ways of treating COVID patients and their AAS patients.

Thanks. And, Mike, I didn't hear you reiterate the $3 billion TMT market in 2024. I apologize if I missed that. But is that – did you not reiterate it as – and is the market, you know, developing slower than you expected, or is just COVID maybe pushing that $3 billion market size out a year or so? Thanks for taking the time to – Yeah, it's

a good question, Larry. You know, we're not prepared to update how big we think the TMTT market is in 2024. You can tell we continue to be really excited about it. We wouldn't be putting this kind of energy into it if we didn't think it was a big opportunity by 2024. And that's just the beginning. It's going to get much bigger beyond that. But you'd have to say that given it's a developing market and it needs clinical trials for it to develop, that COVID is somewhat of a setback. We'll see what it is. We're hoping that it's pretty contained. But we're not prepared to update any thinking at this point.

Thank you.

Sure.

Our next question comes from Matt Taylor with UBS. Please state your question.

I think you – I just had a follow-up on the prior question about adding centers. I mean, could you just give us any color on how many centers have been added in the recent period? Are you able to do that? Or are hospitals really focused on managing patients and managing COVID? Can you talk about when that will resume?

Yeah. Thanks, Matt. You know, I don't know the number, but I would say it's really low. I don't think that new centers were trying to do TAVR during the onset of a global pandemic. I mean, it just wasn't there. So it wasn't really much of a factor. There may have been a few that I'm not aware of, but I think it was an obstacle for people to start. They had bigger issues.

And just related to this a little bit is the idea that as an incumbent and a market leader, does that give you an advantage during a COVID period because doctors don't want to train on new things or necessarily fuss with new or less proven things or smaller companies?

Yeah. Thanks, Matt. Yeah, there may have been some advantage that were the incumbent. But, you know, maybe the bigger issue is that we've got some really trustworthy and proven results. We've got, you know, people can count on the Sapien platform in terms of how it's going to perform. They don't have to worry so much about a pacemaker that's going to mean that a patient has to stay in the hospital longer, very little chance of ICU. So they just have more confidence in the system. And frankly, there's just not many opportunities if you have something brand new to be able to train centers. And so there is some advantage. But I almost think the bigger advantage is from having a reliable system. Great. Thanks, Mike.

Our next question comes from Raj Denhoi with Jefferies. Please state your question.

Thanks and good evening. Maybe we can start with Scott on the SG&A spending in the quarter. You know, it was down almost, I guess, almost $40 million from last year.

Yeah, I know you didn't

purposely cut a lot of expenses in the quarter. And I'm curious about whether we should think about this as kind of a sustained level of expense at this point. Are there going to be changes in the way that you go to market now and given the access to hospitals, will there be any sort of permanent change to the expense level for you guys?

Probably nothing material. I mean, we're learning a lot about how to operate in this environment. But we're expecting that the flow of operating expenses is probably going to start to increase again as our sales increase.

Okay, fair enough. And then maybe one for Mike. I'm just curious your thoughts on, you know, given that TAVR is in such an elderly population, do you think there's going to be any, you know, protracted impact on patients' willingness to go to the hospital in a sense longer to get to a more normalized level of demand for TAVR? Or do you think we'll snap back relatively quickly?

Yeah, no, it's a good question. We've actually been wondering that. And we spent a lot of time with people across the healthcare system that worry about, how do you get patients to reengage and come back to the hospitals? Hospitals have really worked on it, and they try and provide a safe place. They're encouraging direct contact with the physician. But the one thing that we know about AS, it is a deadly disease. It's just got a lousy future. And so those patients are highly incented to enter the system. And I guess we're kind of learning like everybody else. We saw a rebound much faster in May and June than we were expecting.

Great, thank you. Our next question comes from Chris Pasquale with Guggenheim. Please, do your question.

Thanks. Mike, a couple quick ones on the Mitron Trikuspids programs. Is the plan still to develop Evoke for Mitral, or is that becoming more of a Trikuspid system? And any update on CardiaBand?

Yeah, thanks. We're very excited about starting this Evoke trial in the Trikuspid position. It really turns out to be a great platform. It is a platform that can be used in Mitral. We have decided that we were going to advance M3 first. It is the first platform for Mitral regurgitation. We still like Evoke, and it may have a role, but we're going to have Evoke lead in the Trikuspid position and M3 lead in the Mitral position.

And anything new on CardiaBand?

We continue to do cases in CardiaBand. Most of them get done in the Trikuspid position, and we're very pleased with the positive clinical outcomes. It's not broadly adopted, but for those that are engaged in it, they're quite happy, and the procedure times are coming down. We are really focused on updating that design to be able to be one that is more easily used by many other clinicians and can lead to shorter times and more effective procedures. So that's also a key priority for the company.

Thanks. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.

Thanks for taking my question, and congrats on good executions here. Mike, I had one clinical and one financial, maybe on the clinical side. I think I heard this correct. Evoke, Trikuspid, that's a transformable approach, correct? And does it imply the safety and M3? Is that also a transformable approach? Do I need to add?

So the second part of the question, can you say it again, please, Vijay?

The safety and M3. Yeah, so

the M3 and Evoke systems are both transfemoral, right, so if that really gets at it, yes. So we think that they have the opportunity here to be adopted if we can demonstrate strong evidence.

That's wonderful, and that's a transformable and the arterial, not the venous side, correct, Mike? So

on the mitral side, we're going to be coming up the venous side, right? So the transfemoral for MR is... And so also, so if you will, we come across the septum in the case of the mitral valve, whereas we come transfemoral for the Trikuspid valve.

That's helpful, Mike. That's great, Derek. Just one, Scott, quick one on the guidance here. For a tagger at the high end, it implies mid-singles for the back half. You guys said mid-singles in the first half. TQ at the midpoint, the guidance for flat-edge, that would imply W-4Q4. Is that something, you know, Q4 is zero-ming, we don't have a second wave. That's something that you guys are comfortable with? Thank you.

Well, like I said, we're not... We're expecting there are going to be some ups and downs here in the third and the fourth quarter, but with some kind of risk adjustment to factor in little flare-ups that may happen, we do expect that the high end is probably the right way to pencil in TAVR for the full year, largely as a result of the overperformance in the second quarter, less as a result of our expectations for Q3 and Q4 having really changed much since April. Thank you.

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

Good afternoon, guys. Thanks for taking my questions. Back to Bob's question on China. I understand the ramp will be slow here, but can you guys size what the market opportunity is for three or five years from now in China?

You know, thanks, Peter. It's hard for us to know, and let me tell you why, and we're not trying to be evasive here. We're going into a market where the individual pays. It's private pay. It comes out of their pocket, and so our experiences in other places in the world are just not as applicable. We also are going into a market where there's local competitors and they were local first, so it's not clear to us how fast it's going to develop and how big it's going to be. We think there is a lot of disease, and we think there are a lot of people that will be interested in a first-class system to get their disease treated, but we're just not able to size it yet.

Okay, fair enough. It's been a pretty challenging quarter for various reasons, but can you give us any color on what your tab or market share was in the second quarter versus the first quarter and its performance from all to driving any market share gains?

Thanks so much. Yeah, thanks, Peter. You know, during this difficult time, it's really tough for us to know what market share is. There's no how fast the market grew is something we're just not comfortable to talk about. The data is lagging and it's incomplete, and we just don't have a clear picture.

Great,

thanks so much. Sure.

Thank you. Our next question comes from Joanne Wench with Citi. Please state your question.

Good afternoon, and thank you for delivering this quarter. Two quick questions. I may have missed it. Can you talk about what percentage of revenue your run rate was as you exited the quarter?

So say it again, Joanne, please.

What percentage of revenue your run rate was as you exited the quarter?

You mean what did we exit as a growth rate?

Or as year over year, how you think about it, or your growth rate. I'm just trying to understand, you know, your jumping off point.

Well, I can say for this, Joanne, I think if this is your question, in the U.S., our TAVR business declined in low teens in the second quarter. Is that where you're going?

I'm trying to get a little bit more granular as you exit the quarter, not just for the full quarter.

Oh, yeah.

Go

ahead, Mike. No, we're just saying, Joanne, we don't feel comfortable that the exit rate is a good proxy for the rest of the year. Remember, probably some of the cases that we were doing in June were probably catch up from what was postponed earlier in the quarter. And so probably not an ideal way to be able to do modeling. We've tried to share with you our best estimate. We've even included how we started the third quarter and say, based on that, this is how we think Q3 is going to go, and we think it's likely to be flat. But the exit rate, although interesting, is probably not the best measure.

Okay, that's helpful. And my second question has to do a little bit with clinical trial enrollment. I mean, could you just provide a little bit of color how people are beginning to reengage and bring patients into the enrollment process? Thank you.

Yeah, thanks, Joanne. And so what we were pleased with is we saw willingness on the part of centers to get back involved. I think we shared a 50% number. So about a 50% of the people in the class trials that we said, hey, we're pausing, have already approached us and said, we're ready to go. Now, from when they're ready to go to when they're actually treating patients, take some time. There's actually a much smaller number of those centers that actually treated patients, but they're coming back. So it's going to cost us time, Joanne, clearly on these clinical trials. It'll yet to be seen whether it's two quarters more or less. I don't know. But there clearly is some kind of a pause. And it'll be somewhat dependent on the progressive progression of COVID-19.

Very helpful. Thank you.

Sure.

And our final question from today comes from Rick Wise with Stiefel. Please go ahead with your question.

Thanks and good afternoon, Mike. Hi, Scott. Mike, I want to turn back to the IP agreement settlement. And maybe you could just expand a little bit. I'm just curious if you could expand a little bit on the implications. With the agreement in hand, maybe talk to us a little bit about what you can do now that you felt uncomfortable tackling before. What does it teach you to do either clinically, marketing? Just help us appreciate next steps there. And just when I think about over the few decades, honestly, and these kinds of agreements, it's often been a positive for the companies signing it because the bar is raised on competition, et cetera. So what are the implications, the broader implications? It's nice to have it done, I get that part.

Yeah, thanks, Rick. You know we're passionate about this whole area of being able to help these mitral and tricuspid patients. When you're involved in a lawsuit, it just consumes a lot of energy. It not only consumes the energy of the legal team, but it pulls much of the senior team into it, and it pulls our field teams into it, it pulls our R&D teams into it, and it's just a distraction. So instead of having people focused on how can I do great things for patients, how do I advance this therapy, you're involved in some kind of a chess match. So it's a real joy for us to say that that time-consuming distraction is gone, and we can focus on the exciting innovations that help patients that are suffering from valve disease.

And just last, briefly, I know this is not about next quarter, the second half, but I'm always curious to hear your latest thinking on new indications, TAVR indications. We've touched on bicusp a little bit, but anything incremental on asymptomatic or moderate AS to share? Thanks so much.

Yeah, thanks Rick. Yeah, you know those continue to be very important. You can imagine things like early TAVR, you get slowed down a little bit when you go through something like COVID, but we continue to be passionate about being able to treat asymptomatic patients, and we're optimistic about that. And we also really want to get after these moderate patients. We continue to do a lot of thinking about that. We're not ready with a clinical trial design because that will be a very important one, but that's one that's clearly on our radar screen that we're going to continue to evaluate.

Thanks, Mike.

Sure. Okay,

well, thanks

all for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone, and so I'll turn it back to you.

Thank you. That concludes today's conference. All parties may disconnect. Have a good day.