Edwards Lifesciences Corporation

Thank you. Greetings, ladies and gentlemen, and welcome to the Edwards Life Sciences Third Quarter 2020 Results Call. At this time, all participants are in a listen-only mode. A -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, President of Investor Relations. Thank you. You may begin.

Thanks, Diego. Good afternoon, everyone, and thank you for joining us. With me on today's call are Mike Musallem, Chairman and Chief Executive Officer, and Scott Allum, Chief Financial Officer. Just after the close of regular trading, Edwards Life Sciences released Third Quarter 2020 financial results. During today's call, management will discuss those results, included in the press release and accompanying financial schedules, and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include but are not limited to financial guidance and expectations for 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 product 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 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? Thank you, Mark.

Let me begin by saying I am very proud of our passionate team and the way that they continue to serve patients during this difficult period. Our supply chain is delivered, and our field team has continued to support the dedicated clinicians that count on Edwards. We're pleased to report better than expected third quarter results despite the challenges of the ongoing COVID pandemic. Sales of $1.1 billion increased 4%, reflecting growth around the world. Global TAVR sales headlined our growth with continued adoption of our Sapien Valve platform and a step up in procedure volumes as newly diagnosed patients entered the system and were treated. In the third quarter, we're also pleased to report growing investments in new therapies and compelling clinical data announced at the recent TCT Connect conference that we will be having a meaningful impact on future patient care. In TAVR, third quarter global sales were $745 million, up 6%. Growth was led by therapy adoption across all geographies with notable strength in Europe. Globally, our average selling price remains stable. Although third quarter treatment rates were lifted somewhat by the postponement of treatment in the second quarter, particularly in Europe, we believe that going forward there is no significant backlog of patients in the system. Taking a step back, we know that a sad consequence of the intense focus on the pandemic has been that many patients, like those with structural heart disease, are delaying screening and treatment or not being treated at all. Evidence continues to suggest that delaying valve replacement for patients with aortic stenosis inevitably results in adverse events and increased mortality. A recent Swiss study, AS DeFur, demonstrated that nearly 20% of patients who delayed a previous scheduled aortic valve replacement reported to the hospital with valve-related symptoms or worsening heart failure. And closer to home, a study conducted last month by the Structural Heart Program of Mount Sinai Hospital reported that 10% of patients waiting for aortic valve replacement required urgent TAVR or passed away during the first month after elective procedures were halted due to COVID. After three months, 35% of patients affected by the ban on elective procedures required an urgent intervention or passed away. There's growing recognition that postponing treatment of AS has significant consequences. At the same time, however, we know that this remains a very difficult time for the patients we serve as they continue to weigh the risk of COVID against the severe effects of progressive heart valve disease. Our observations indicate that most hospitals globally have determined that they can safely treat their AS patients in need and at the same time care for COVID patients. In conclusion, strong evidence indicates that TAVR is a proven therapy with excellent outcomes. It offers efficient use of hospital resources and can benefit many more patients whose structural heart disease is deadly and undertreated today. Now turning back to the third quarter TAVR results by region, in the U.S. our TAVR sales increased in the -single-digit range versus last year despite approximately 30% growth in the year ago period. We were very encouraged by the improvement in procedure volumes in Q3 with 100% of our active sites across all 50 states performing TAVR cases, up from approximately 90% in Q2. Third quarter growth across the more than 750 centers in the U.S. was highest in smaller centers which are providing access to a broader population of aortic stenosis patients. Two-thirds of our U.S. TAVR centers have completed training and proctoring with Sapien 3 Ultra and physician feedback on ease of use and improved paravalvular leak performance remains outstanding. Outside of the U.S. in the third quarter our underlying TAVR sales increased in the high single-digit range year over year. We continue to be encouraged by the strong international adoption of TAVR, particularly in Europe where growth continues to be faster than expected. Edwards underlying TAVR growth in Europe versus the prior year was in the high single-digit range. We saw unit increases in nearly every country across Europe. Growth was driven by continued strong adoption of our Sapien 3 Ultra platform and although transcatheter valves have been commercially available for over a decade in Europe, AS continues to be significantly undertreated. Outside of the U.S. in Europe we're continuing to see strong TAVR adoption driven by Sapien 3. Sales growth in Japan and other regions was strong as aortic stenosis remains an immensely undertreated disease and we remain focused on increasing the availability of TAVR therapy. In China where Edwards recently received regulatory approval to begin treating high-risk patients suffering from severe aortic stenosis, we successfully completed our first cases in the third quarter. And although it will likely take significant time to expand our TAVR presence in China, we look forward to partnering with hospitals across the country to introduce this therapy through our comprehensive proven training program. In summary, we anticipate regional variability due to the pandemic. Yet based on our -to-date performance, we continue to anticipate global TAVR sales growth for 2020 will be at the high end of our previous range of minus 5 to plus 5 percent. We anticipate a return to double-digit growth in 2021 and we expect quarterly growth rates to be lower year over year in Q1 and Q4 with more normal market dynamics versus higher growth in Q2 and Q3 when the COVID impact was most severe. Global TAVR growth reinforces our belief and our projection of a $7 billion plus opportunity by 2024. Turning to transcatheter mitral and tricuspid therapies or TMTT, we continue to view this opportunity as one with substantial unmet patient needs and the potential to drive significant growth. Our focus will be on the advancement of three key value drivers which we believe are the leading indicators of our success. A portfolio of differentiated therapies, favorable real-world clinical outcomes, and favorable results from rigorous pivotal trials which will ultimately support approvals and adoption. As an example of our differentiated therapies, we recently received the CE mark and began introducing PASCAL ACE implant system for mitral and tricuspid repair. PASCAL ACE has the differentiated features of PASCAL with a narrower profile. It is designed to complement PASCAL and provide further options to optimize treatment for patients with mitral and tricuspid regurgitation. In mitral valve replacement, we continue to advance both transfemoral EVOKE and Sapien M3 platforms and we remain on track to initiate the U.S. Pivotal Trial for Sapien M3 before the end of the year. In addition, with EVOKE tricuspid, we are encouraged by the experience gained in our early feasibility study and are on track to initiate our Pivotal Trial by year end. We are pleased to demonstrate clinical success in these programs as reported at the recent PCT Connect Conference. We presented roll-in data from our CLASP 2D Pivotal Study. In U.S. centers, with no prior experience, the PASCAL system showed favorable 30-day outcomes in patients with degenerative mitral valves, including low complication rates, significant regurgitation reduction, and improvements in quality of life. Our one-year CE-MARC CLASP data for PASCAL mitral repair demonstrated robust and sustained MR reduction. In addition, PASCAL tricuspid repair demonstrated positive 30-day results, and CardiaBand tricuspid follow-up demonstrated favorable two-year results. And importantly, we are making progress on five TMTT Pivotal Studies. While initial Pivotal Clinical Trial results could be delayed by a couple quarters, we are now enrolling patients at pre-COVID rates and looking forward to generating a body of clinical evidence across our portfolio demonstrating excellent outcomes for each one of our therapies. Third quarter global sales were $12 million. Although the situation remained fluid, we were able to resume activation of new centers in Europe and increase commercial procedures. We continue to advance our commercialization of PASCAL in Europe and remain focused on physician training, procedural success, and patient outcomes. In summary, we expect procedures and activation of centers to continue to be subject to COVID interruptions in Europe. We anticipate TMTT sales of around $40 million in 2020 versus our previous estimate of $30-45 million. In addition, while still early in the 2021 forecasting process, our aspiration is to increase the number of patients in the world in 2021. We continue to believe the TMTT opportunity remains significant and now expect a $3 billion global market by 2025. We reiterate our confidence in this long-term opportunity and are passionate about bringing a portfolio of solutions to the many patients in need. In surgical structural heart, sales for the third quarter of $203 million were similar to the 2019 levels, decreasing 1% on an underlying basis. During the third quarter, we observed that patients were more willing to seek heart valve surgery and hospitals more able to manage surgical patient flow. Ongoing prioritization of heart surgery in many hospitals also contributed to rebounding case volumes. We remain very encouraged by the steady adoption of Edwards Premium Resilia tissue valves, including the Inspiris® aortic surgical valve and the recently launched Kinect® aortic valve conduit in the U.S. In the third quarter, Inspiris® 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. We continue to add new Inspiris® centers in both the U.S. and Europe and adoption is growing in our existing centers. Following the first commercial cases of Harpoon® in Q2 in Europe, we continue to focus on intensive physician training and robust data collection for this new beating heart microvalve repair system. We're seeing positive initial patient results with faster surgery and recovery times with this minimally invasive therapy. In summary, we continue to expect surgical structural heart sales for four-year 2020 will decline in the 5 to 15% range from 2019. Localized COVID-19 hotspots may continue to be headwinds to procedure growth. However, our expectation remains 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 more patients and extend our global leadership in premium surgical structural heart technologies. In critical care, sales for the quarter were $181 million in line with the year-ago period. Demand for our products used in cardiac surgeries was solid but was offset by the COVID-driven impact of delayed elective procedures. Sales of our TrueWave disposable pressure monitoring devices used in the ICU were lifted by a large one-time order in Europe associated with ICU capacity expansion. However, we continue to experience a decline in hemisphere orders in the U.S. as hospitals continue to limit their capital spending as a result of COVID. In summary, we continue to anticipate that critical care sales will be negative for 2020 largely due to anticipated reduced capital spending in the U.S., which is still within our original guidance range of minus 5 to plus 5 percent. And now I'll turn the call over

to Scott. Thanks a lot, Mike. Today I'll provide additional perspective on the third quarter along with how we anticipate the rest of the year may unfold. Our 4 percent underlying sales growth in the third quarter was better than we expected as we performed well across all our product lines and geographies, especially Europe. Earnings were also stronger than we expected, driven primarily by the top-line performance combined with our constrained spending. As I previously mentioned, we have implemented cost control measures during COVID, 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 a strong operating profit margin and adjusted earnings per share in the third quarter of 51 cents, a 9 percent increase over 2019. Gap earnings per share was one penny higher at 52 cents. For the third quarter, our adjusted gross margin was 75.5 percent, down from 75.9 percent in the third quarter. This decrease was driven by a negative impact from foreign exchange and incremental costs associated with responding to COVID, partially offset by improved manufacturing efficiencies. Selling general and administrative expenses in the third quarter were $307 million or 26.9 percent of sales, compared to $306 million in the prior year. This consistent level of spending included increased trans-capita structural heart field personnel related expenses, including expanding the TMTT field organization in Europe, offset by reduced spending resulting from COVID. As I mentioned earlier, we did not initiate any actions to significantly impact our employees, nor to reduce investment plans supporting our long-term strategy. Research and development expenses in the third quarter were $196 million or 17.1 percent of sales, compared to $195 million in the prior year. This consistent level of spending included increased investments in transcatheter mitral valve replacement clinical trials, partially offset by lower TAVR clinical trial costs and reduced spending resulting from COVID. Turning to taxes, our reported tax rate this quarter was 10.7 percent or 11.2 percent, excluding the impact of special items. This rate included a 450 basis point benefit from the accounting for employees' stock-based compensation, which was 130 basis points or one cent favorable to our expectations. We continue to expect our full year 2020 tax rate, excluding special items, to be between 11 and 15 percent. Foreign exchange rates increased third quarter sales growth by 60 basis points or $7 million, compared to the prior year. At current rates, we now expect FX to have a neutral impact to full year 2020 sales versus 2019. Our previous guidance estimated a negative $30 million impact. FX rates negatively impacted our third quarter gross profit margin by 140 basis points compared to the prior year. Relative to our July guidance, FX rates lifted our earnings by one penny. Turning to the balance sheet, we have a strong balance sheet with approximately $1.9 billion in cash and investments at the end of the quarter. In addition, we have an undrawn line of credit up to $1 billion. Our public bonds of approximately $600 million don't mature until 2028. Average shares outstanding during the third quarter were $631 million, and we expect average shares outstanding for the full year to remain at this level. Recall that in June, we increased the number of shares outstanding by executing a -for-one stock split. Free cash flow for the third quarter was $113 million, defined as cash flow from operating activities of $216 million, less capital spending of $103 million. Our -to-date free cash flow was $361 million. Free cash flow was negatively impacted by a $100 million payment related to the settlement of the intellectual property matter last quarter. Now I'll finish up with our 2020 guidance for the remainder of the year. Our guidance assumes that the worst of the 20 of the COVID financial impact to Edwards is behind us, although we anticipate regional hot spots and risks for the foreseeable future. Given that, we anticipate we will achieve fourth quarter -over-year underlying sales growth similar to the third quarter. Within our product groups, we now expect TMTT sales of around $40 million. We continue to estimate TAVR growth to be at the high end of our previous range of minus 5 to plus 5 percent, critical care growth to be negative for 2020 but still within our previous guidance range of minus 5 to plus 5 percent, and surgical growth still within the range of minus 5 to plus 5 percent. We are now at the high end of our previous guidance range of minus 5 to minus 15 percent versus 2019. We are raising the bottom end of our full year adjusted earnings per share guidance range to be now between $1.85 and $1.95. And for the fourth quarter, we estimate adjusted earnings per share of $0.50 to $0.60. And with that, I'll turn it back over to Mike.

Thanks, Scott. I want to conclude by saying that Edwards is a dedicated member of the critical health care infrastructure, and I admire the agility, resourcefulness, and passion of our employees and partners in maintaining their important work on behalf of patients. Putting patients first has never been more important than it is today. As we stand together with the global community, I'm gratified for our extraordinary team and partners, and I'm optimistic about the future of delivering innovations to even more patients around the world. With that, I'll turn it back

over to

Mark.

Thank you, Mike. Before we open it up for questions, I'm pleased to announce that our 2020 Investor Conference will be held on Thursday, December 10th. We anticipate a great event and a new virtual format that I hope you'll really like. As usual, this event will include updates on our latest technologies, views on longer-term market potential, and our outlook for the year ahead. More information will be available in the upcoming weeks on our website. With that, we're ready to take questions. 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. Thank

you. At this time, we'll conduct our -and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star followed by the number two key if you would like to remove your question from the queue. One moment, please, while we pull for questions. Our first question comes from David Lewis with Morgan Stanley. Please, see your question.

Good afternoon. Just a couple questions from me. Thank you for taking them. So, Team, you're heading into animal state here. I know raising guidance probably makes limited sense, but I did want to parse out sort of the fourth quarter guidance and just be very crystal clear on what it means. Do we take the fourth quarter TAVR commentary to mean no improvement sequentially in TAVR, or is it more we see some improvement at a lower rate, but we're just adjusting that for potential risk of resurgence, flu, you know, what have you?

Yeah, thanks, David. So, it's a little bit of all that. You know, we grew 4% in the third quarter, and we said that we thought the fourth quarter growth would be similar to that, which we think is pretty remarkable in an environment like this and a real testament to our team and the supply chain. There are three factors that we considered when we set our Q4 sales guidance. One of them related to what we did last year. You'll have to remember as a total company, we grew 20% and 30% TAVR growth in Q4 of 19, even more in the U.S. So, by comparison, it's quite a difference. As a matter of fact, so the absolute sales number in Q4 is going to be certainly higher than the sales number in Q3. There is an issue, I think, associated with our thinking related to the persistence of COVID-19 in the U.S. I don't believe that there's much of a significant backlog in Europe any longer, which probably gave us somewhat of a lift, a little bit of a lift in Q3 and not be repeated in Q4. Okay.

But you are seeing improvement in September, Mike, and you're seeing some improvement into October in that underlying TAVR business in the U.S.?

So, we're not going to get into specific months, David, but you just have to remember the steep curve that we were growing at. So, even if the growth rate were to remain constant, think of how many additional patients are being treated each month.

Yep. So, just a sequential comp issue. Totally understand. And then just maybe one clinical for me, and I'll jump back into you. Just the Metronic -to-head study they announced, Mike, just kind of curious if you think that population they described represents, you know, 40% of the available patients. And frankly, some clinicians feel that trial may actually favor S3 and non-hemodynamic endpoints. Just kind of curious on what patient population you think that targets and, you know, your thoughts on their strategy here and impacts to the market in general. Thanks so much.

Yeah, thanks. I think it's a testament to the fact that, you know, TAVR is certainly a competitive field, right? You know, our whole industry is competitive, and certainly TAVR is that. You know, when we reflect on it, we put more of our focus on bringing new patients into the system. And, you know, we just think this disease is so under-treated. It's a deadly disease. It's what's most important to us. If you look at why Edwards has grown in the past or why we're going to grow in the future, that's the biggest factor. I think you know that we're extremely happy with Sapien 3 and the Ultra Platform, and there's just a large body of high-quality clinical evidence that supports those. So, you know, to have a -to-head study on one factor, you know, it might be, but we believe that clinicians make decisions based on the total patient outcomes and not one singular element. Thanks so

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

Oh, great. Thank you, and good afternoon. Just two quick things. One is a timeline question, and the second is a TAVR follow-up. On the timeline side, Mike, I was wondering if you could just comment on any update on the readout on the asymptomatic trial and then also on timelines for U.S. Pascal approval. I assume those are unchanged, but just wanted to check.

Yeah, thanks, Bob. Yeah, you know, COVID-19 did impact the pace of enrollment, much in line with other trials. We've been encouraged by the pickup of enrollment in Q3 compared to Q2, but we're not really providing an update at this time. We'll have more to talk about at the investor conference, and so we ask you to stay tuned for that.

Okay. And then on the TAVR follow-up side, just curious if you're able to quantify how much rescheduled procedures might have helped Q3, and I was also wondering if you could just comment on, you know, the COVID flare-up that's going on right now. Is that something that is, you know, slowing TAVR currently, or are you just sort of taking that into consideration, you're taking that possibility into consideration as you give Q4 guidance? Thank you.

Yeah, in the beginning part of that question, Bob, that you wanted me to get a little deeper on was about the backlog question and how much was there.

Yeah, in Q3, do you have any? You may not have the answer, but just

any clarification. We did indeed work those down. We feel like at this point in time, there aren't backlogs that are going to significantly impact our Q4 performance. So I don't know if that's clear. You know, we have pretty much in the U.S. all hospitals performing cases, which means you also have all hospitals that are screening patients, and so we're into a little bit more of a normal cadence at this point. In terms of the COVID question, I think it's a general concern. We're not trying to signal something that's an inflection point that we see, just a general concern with the numbers that we're watching in the U.S. and Europe, but we think it's prudent for us to be careful because of the uncertainty.

Yep, fair enough. Thanks so much.

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

Thank you very much for taking the question. I have two. The first one is, can you walk us through the bridge to doubling TMTG revenues in 2021? How much is that coming from Pascal and, you know, your level of confidence of reaching that at this stage? And then my second question is, is geographic reach outside of the three core markets, I think, has been next focused on China. Where are we on that launch and expansion? Thank you.

Yeah, thanks, Joanne. As you can imagine, we're kind of early in our planning process for 2021, so we're kind of, you know, going out there a bit and extending ourselves when we talk about our aspiration to double. So we'll probably have more to talk about that to get in depth when we're together at the investor conference. But much like this year, the majority of those sales are likely to be Pascal. We're not necessarily, it's going to be the addition of new sites that are going to help do that. And, you know, we'll have Pascal and Pascal Ace that will help us. And we'll be doing treatment of not only MR patients, but TR patients next year, I mean, Tricuspid. So that combination is what's leading us to have this aspiration to double. Your question about China, you know, we're really pleased that we completed our first cases. We think it's going to take significant time. Even though we're really excited about this, it was a major milestone for Chinese patients. The first time a multinational company is in there. There's just a lot of hurdles for a couple of reasons. Some are self-imposed. We are committed to make sure that we really carefully work with physicians so that they get well-trained on our systems and get great results every time. There's also a fair amount of, I don't know, maybe bureaucracy is not the right term, but there's a lot of process related to really coming up in China. So it's going to take us some time. And frankly, it's a new journey for us to bring a therapy that's just novel to China so we don't have a lot of experience with that.

Thank you very much.

Thank you. Our next question comes from Raj Denhoy with Jeffreys. Please state your question.

Hi,

good

afternoon. You know, I hate to come back to this point, but you know, the guidance for TAVR for the year, you know, now you're talking about sort of 5% the upper end of the previous range. That sort of implies that the fourth quarter is going to be relatively flat, I guess, to the kind of 6% this quarter. You know, and I appreciate the commentary around, you know, around Europe and maybe not seeing a bolus there. But I guess I'm just curious whether there's anything more to that, right? Is that really a kind of pullback from where you're seeing or is it really just kind of a flattening of the recovery here into the back half of the year or the last quarter of the year?

Yeah, you know, maybe I'm looking at this much different than you, Raj. I'm really excited about what's going on with our business and the fact that we're going to be able to maintain this kind of growth rate. When you consider that last year TAVR grew 30% globally, and a matter of fact I think it was 40% in the U.S. and that we're going to put a growth rate on top of it while a global pandemic is going on, I mean, I feel pretty proud of that. You know, and I don't know that it gets a lot better than that. So to think that there's something that we feel uncomfortable about is probably reading the signals wrong and maybe I didn't state it the way I really feel about it. No,

that's crystal clear. Yeah, we could definitely glass half full, not half empty. So crystal clear. And maybe just on Pascal, right? So a decent, you know, a good quarter actually, you know, in terms of where you ended up there. Is that an indication of what's happening on the ground in Europe? You know, is your strategy of pricing at a premium starting to yield some results for you there? Yeah, so

we were pleased with our results in Pascal in the quarter. You know, and again, a very fluid situation and, you know, having to ramp this up during the pandemic is a little bit challenging. But we're really pleased with the way it's come up. It's because we added new centers in the quarter. We continue to implement what we call our high touch model. So we're very engaged with clinicians involved in every case and working hard to make sure that they get great results each time. So that's really turned out to be what's most important for us. The pricing is as much the same as we've talked about in the past. We do have a premium. We think this is a really good therapy and it performs at a superior level. Obviously, we need to back that up with data, but our strategy is unchanged.

Okay,

very good. Thank you. Appreciate it. Sure.

Our next question comes from Robbie Marcus with JPMorning. Please state your question. Yeah, thanks for

taking the question. And, you know, I'm sure you'll get into this more at the analyst today, but I have to ask the double digit growth next year, you know, it's easy comps this year and I would imagine everybody expected double digit growth. How should we put this in perspective? Is this maybe double digit growth, CAGR off of 2019 numbers? You know, any way you can help frame it because, you know, I'm sure there's a wide variance around what people interpret that to mean.

No, you're so right, Robbie. I mean, everybody should have some pretty terrific growths. I imagine if you're an airline, you could really have impressive growth rates coming off a low base. But one of the things that I think is remarkable about Edwards is we just didn't take as big a dip as many other companies. So to return a double digit growth, I think still is meaningful. If there is something that I can add for color, it's what I tried to relate related to the quarters. And so we would expect in quarters like one and four, they're a little bit more comparable to a steady state. We would be likely to see the lower growth rates and then see much higher growth rates, which would be unusual ones probably for Q2 and Q3 when COVID was hitting the hardest. But hopefully that ends up providing some color. But your point is well taken.

That's really helpful. Appreciate it. And then maybe just a quick follow up here. You know, one of your competitors, smaller in the TAVR space, recently talked about at TCT some fatigue in structural hard trial recruiting. Sounds like you're more back to normal. You know, should we expect trials to continue at pre-COVID levels here given that doctors are still catching up on patients to a degree? Or, you know, should we expect that it was a six month delay for most trials and the clock can restart here?

Thanks. Yeah, it's a good question. As you might imagine, making predictions on something like this is challenging. We're kind of stick our neck out here a little bit. You know, when we were talking about our TMTT trials, we said, you know, we think it did go back to pre-COVID levels. And in TAVR where we have some pretty aggressive enrollment, it's probably getting closer. It might be a little short of it, but it's moving along pretty well. And we're hoping that the situation continues to be stable and roll that way. Great.

Thanks a lot. Our next question comes from Matt Mixick with Credit Suisse. Please state your question.

Hi. Thanks for taking the question. I have just one follow-up on sort of the TAVR environment and one on maybe sort of pipeline for patients and the process for getting more of these patients in the centers. The first, just you mentioned, I think, Mike, in your prepared remarks that smaller centers grew faster in the U.S. here in the third quarter. I'm just wondering, is that off of more of a constrained performance in Q2 or do you find that they're sort of leading or lagging? Is there any kind of pattern in larger small centers or regionally that you can talk about, just color on how all these centers are coming back? And then I have that one follow-up.

Yeah, thanks, Matt. And very fair question. We've given different guidance in the past for other quarters. We're more or less just trying to tell you what we saw, which is that the smaller centers seem to grow faster. In terms of being explained the why behind that, we'd be speculating to some extent. We can make up stories that maybe the larger centers are in big metropolitan areas that were harder hit by COVID. But we really don't have hard evidence to back that up, Matt. But we just did see it in the smaller centers more than the larger.

That's great. And then the follow-up just on the challenges around ramping up patients coming into the centers and being diagnosed. I've seen some of the data you presented on the number of echoes taking a dip in the toughest part of the pandemic. And I'm assuming recovering coming out of that. Is it sort of as you look at or centers look at trying to get the pace of patients up and going again for the reasons you described and the risks of patients and so on, is it that echo is part of the process? Is it just getting patients in to see their cardiologists? Where do you think maybe the biggest challenges are or the greatest progress that's been made in turning that around?

Okay. Yeah, thanks, Matt. I don't want to miss the really big issue, which is that by and large our conversation with hospitals, they have really strongly believed that they now know how to do TAVR cases or to treat structural heart patients and COVID patients at the same time. When this first hit in Q2, that was a question mark. And I think that for all the right reasons for patients and for the health of hospitals, they figured that out. So that's been important. It's hard to speak in generalities around the whole world, but if we just take the U.S., which is the biggest market, when the hospital sort of closed its doors and prepared for COVID, not only did they stop doing procedures, they stopped doing screening. And so when this got turned back on, they turned on both the screening process and the actual procedures at the same way. Now, I don't know that they have actually additional screening capacity beyond what they've had in the past, so that probably becomes somewhat of a constraint. But there probably were some patients that were either lost sadly just because they passed away or are just not in the system today that would have been otherwise in a more normal year.

Thank you for the color. Our next question comes from Danielle and Talfey with SBB Lurink. Please, do your question.

Hey, good afternoon, guys. Thanks so much for taking the question. Just a question on Pascal in your app. And I'm curious, Mike, if you could give a little bit of color on how centers are adopting Pascal. You know we saw with TAVR, a lot of these centers carry more than one device on the market or on their shelves. I'm sorry. Are you seeing the same with the mitral repair product, or are they switching essentially to Pascal from MitraClip?

Yeah, it's a good question, and I know I'd probably be generalizing to some extent, so that's already dangerous. But I wouldn't say that we see people completely switch from one system to another. I think that we see them more or less split. Again, they're very interested in Pascal. They invite us in. In many cases, they're learning. We're part of the procedures and help them work through it. You know, as we think about it, maybe just give you something else to think about. I know we're hyper-focused on how much we sell of Pascal in the quarter, but if you really look for leading indicators of what's going to be most important for TMTT, I think there's three factors. How is this portfolio of differentiated therapies really developing? Are they coming along? Are those good procedures? Are they learnable, teachable? Are they fast procedure? Are they reproducible? How about your real-world clinical outcomes? Well, you saw some of the leading indicators of that at TCT Connect, and I think it's encouraging. And then just how are we doing on the clinical trials? We've got some very rigorous clinical trials that are going to provide really incredible data. And so those are going to be the things that both lead to approvals and adoption. So although the sales are an interesting one to track, I don't know that it's as strong a leading indicator as some of these other factors. We frankly put more energy to make sure we get great results than just try and maximize sales.

Got it. That's helpful. Thanks. And then if I could ask one more question, and that's on the -to-head trials that Medtronic is running or trials, the SMART trial, and just this whole dynamic of the hemodynamic gradient. And I'm curious if you guys have had to counter detail that at all in the field or if this is more noise from Medtronic than something that actual physicians care about. Thanks so much. Sure.

You know, I know our folks probably answer questions about that on a regular basis. You know, what we know is we're just really pleased with the Sapient 3 and especially the Sapient 3 Ultra performance. We think people have relied on it, not just normally, but even during this pandemic. I think the performance speaks for itself. We've got some pretty impressive data that's been generated over time, whether it's death, stroke, paravalvular leak, low pacemaker rate, the list goes on. And so we just have a high level of confidence in this and don't – well, we wonder how important that factor is going to be in the long term to look at one thing.

Thanks. That's helpful.

Our next question comes from Adam Maeder with Piper Sandler. Please, say your question. Hi, guys. Thanks for

taking the questions. Maybe to start, Dastan Pascal-Ace was hoping to get some additional detail there. I think you mentioned that it has a narrow profile. You know, so how should we think about the clinical impact? Is it improved safety or efficacy? Is it for different anatomy? Just any color you could provide there would be great. And then I had a follow-up.

Yeah, thanks for that, Adam. So first of all, think of it as having almost the same differentiated features as Pascal. So it's got the independent paddles, it's got a spacer, it's all those things like Pascal, but with a narrower profile. It's a night and all-based system. The questions you ask about, okay, how is it going to manifest itself clinically, we're expecting it to be a compliment that as physicians gain experience, they'll say, oh, maybe this is a good case to use a Pascal-Ace. Frankly, we're still early in our experience, and those are some of the answers that we're going to get as we get deeper experience. You know, at this point, we're still, it's still new enough that we can't say definitively where that's going to fit on a long-term basis.

Got it. Okay, thanks for the color there, Mike. And then for the follow-up, maybe switching to TAVR, just curious if you had a sense for the number of U.S. TAVR sites that were added in Q3. What are the expectations going forward? Do you think we're in an environment now where we can see new sites start to come back online at a healthy clip? Thanks so much for taking the questions.

Yeah, thanks. You know, I'm trying to think of the data. I know that we talked about the fact that there were about 750. The last time we reported in, I don't remember what the number is, and so I'll have to go back and check on that. Just to give you a little bit color, though, we're probably anticipating in the U.S. that this maxes out maybe in the 850 range, so I don't know if that helps you think about it. You know, the rate that they're actually joining, I don't know off the top of my head.

Got

it.

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

Hi, thank you for taking the question. So I just wanted to follow up on that center question for next year. When you're thinking about the double-digit growth, do you need to add a lot of centers to do that? Can you talk about your assumptions for center ads and how much of that growth comes from existing versus new centers?

Yeah, yeah, thanks for that. Well, you can imagine most of our growth is going to come from existing centers. New centers, by their nature, are smaller. I don't know the specific number that's in there. Maybe that's a good question to ask at the investor conference, but that's not going to be the bulk of our growth. The bulk of our growth is going to come from growth in existing centers. Remember, we're at 750 already, so to drive these kind of big numbers you can anticipate that.

And just to follow up, I know this is kind of jumping around this question, but I mean the consensus is modeled around 19 or 20% growth on the old number, and you're talking about double-digit growth. Can you comment at all about consensus and whether you think that's aggressive, realistic? Is there a scenario that you can do that number?

Yeah, you know, I'm maybe not as intimately familiar with the consensus as you are, but I'll just remind you that what you say, 19% is probably driven off a much lower base than Edwards is actually delivering in 2020. So what you might want to do is to think about it more in terms of the actual sales rather than a sales growth rate. All right. Thanks, Mike.

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

Hey, good afternoon, guys. Thanks for taking the question. Two on the pipeline, one on catalyst in 2021. You know, what are the most important ones, Mike? I'm not interested in, you know, laundry. I'm not asking for a laundry list, but what do you think the most important ones are? And I'm specifically interested to know if we could see the CLASP 2D data next year and evoke for Tricuspid CE Mark approval, and I have one follow-up.

Yeah, I don't think that we're going to see pivotal trial results in 2021. I think those are more likely to come in 2022. I do expect there to be a steady drumbeat of new data almost on a continuous basis. We have so many innovations going on, Larry, that I think at every meeting you're going to see follow-ups on CE Mark studies. You're going to see first experiences. You're going to see a lot of things that are really powerful, leading indicators, but in terms of a pivotal trial, I don't think that we have one in 2021.

Thanks. And, Mike, on the Tricuspid market, there does seem to be a lot of enthusiasm. For, you know, transcatheter Tricuspid therapies. And I guess my question for you is, do you think we're going to need, you know, randomized controlled data to kind of drive that market outside the U.S.? Or do you think it could develop like we saw TAVR develop before you came out with the partner trial? You know, you had pretty strong uptake for, you know, for SAPI in Europe before the randomized control data. So what do you think? What's your view on the Tricuspid market, what it's going to take to drive that?

Yeah, so Larry, I mean, you're pretty familiar, right? You came along for this journey in TAVR. And even though we had nice sales for TAVR in Europe, they really didn't take off until we had the pivotal data in the U.S. and made a significant step up with those big pivotal studies. Now, having said that, kind of like TAVR, there's a lot of excitement on the part of clinicians to treat their Tricuspid patients. There aren't many answers for them, and so they're anxious to have solutions. So, you know, if we can deliver some results, we think it could be interesting. But by predicting the Tricuspid adoption rate is still very difficult. I think it's going to be so important for us to get some long-term results on that before we can make it. You know, we have a lot of studies coming, TRISEN2, the CLASA, which is the EVOKE trial, we have the EVOKE-TR Pivotal Trial, we have CLASF2, which is the Tricuspid Trial. So we have real trials that are pointed at or exploring this and finding the answer to your question, but it's still early, Larry. Thank you, Mike.

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

Hey, guys. Thanks for taking my question. Mike, one on TAVR, the asymptomatic market or moderate AS, if you will, either one of those, any numbers on how big these opportunities would be, sizing up either moderate or asymptomatic?

Yeah. That's a good question. You know, it's interesting. Almost the more we learn about AS, the more we learn about AS. The market turns out to be pretty significant of people that are undiagnosed and not really in the system. And so it's difficult for us to say that quantitatively. We do think the asymptomatic patients is a significant population, and we think that the moderate AS is also a very significant population. We haven't been able to accurately size those at this point. That would be a good one maybe for us to get a little deeper when we're together in December. But this one, you know, we're confident that it's a driver and going to be a driver on a very long-term basis, but it's not clear what the size is at this point.

Understood. And now one quick one for Scott. Maybe when you look at the spending for 21, Scott, as marketing spend comes back, clinical files open up, reopen or restart, I guess, how should we think about OPEX and anything on the FX dynamics for next year when they think of gross margins? Thank you, guys.

Well, it's early to talk about what our operating margins may look like in 2021. I will tell you, we're eager to get back to full pace of travel, of being out in the field, of being with customers, and of ramping our clinical trials back up to fully pre-COVID levels. And so we're anticipating that those expenses will ramp as quickly as we're allowed to do it. In terms of FX for 2021, it's just premature to say. I mean, you know what happened in 2020, which is we expected a big headwind from FX to sales. It ends up that that's dissipated. Now we're expecting no headwinds to sales for FX. And so it's premature to speculate what that's going to look like in 2021, although we will be talking more about that at our investor conference when we give guidance in December.

Thanks, guys.

Thank you. Our next question comes from Margaret Casor with William Blair. Please, your question.

Hi, this is Brandon on for Margaret. Thanks for taking the questions. So, first of all, as you said, on TCC this year, there was a lot of presentations or a lot of focus within the -in-valve, I guess, treatment opportunity. I was curious how meaningful this is today in practice, or is this more kind of a clinical focus? And you guys think that the data that's been collected so far is compelling enough to convince physicians to treat low-risk patients while we're kind of waiting for long-term durability data. And there was even some TAVR within SAVR. So is that a meaningful opportunity as we move forward?

Yeah, thanks. You know, we're really pleased to report that five-year data of -in-valve or TAVR in TAVR, if you will. And it said, hey, pretty good quality of life and so forth maintained through five years. And that data is always valuable. A little bit of what you have to do is to put it in perspective. Remember, that data goes back quite a ways. And so at that time, I'm not sure we even had intermediate approved for very long. And so the average age of those patients were nearly 80 years old. So they were sick and at high risk. And if you just take a look and see what those results look like, and then in this fast-moving TAVR world where improvements have been significant, we would expect that as technologies improve and we move to lower risk patients, that those results get even better. Just having a -in-valve option for these younger patients with tissue valves or transcatheter valves is a big deal for them to be able to avoid surgery. So we think it's something the clinical community and patients especially really value.

Thanks. And then just in terms of kind of the rebound that's going on within TAVR, I think in prior calls we've kind of discussed that it's been broad adoption within all risk classes. Any specific risk classes kind of leading the rebound now? And kind of are you happy with the progress being made into the low-risk opportunity even through COVID? Thank you.

Yeah, thanks. Yeah, I know we don't have any particular visibility of these patients by risk level that gives us deeper insight to the question you're asking about what we're seeing right now. So we just don't have much on that. In terms of the adoption of low risk, you know, we saw a pretty steep inflection point once the data was presented last year. It's getting to a point now where it's been out there for more than a year. We're still seeing steady increases but not at the same pace that we saw when it was first introduced last year.

Thank you. Thank you. That's all the time we have for questions today. I'll turn it back to management for closing remarks.

Okay, well thanks very much for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone. And with that, back to you, Mark.

Thank you very much, Diego. That does it from our perspective.

Thank you.

All parties may disconnect. Have a good day. Thank you.