Edwards Lifesciences Corporation

Greetings and welcome to the Edwards Life Science Corporation fourth quarter 2020 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during this 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, and thank you for joining us, everyone. With me on today's call are Mike Musalem, Chairman and Chief Executive Officer, and Scott Ullum, Chief Financial Officer. Just after the close of regular trading, Edwards Life Sciences released fourth 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 aren't limited to, financial guidance and expectation 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 when 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 the 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 10-K, and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, A quick reminder that when using the terms underlying and adjusted, management is referring to non-GAAP financial measures. Otherwise, they're referring to GAAP results. Reconciliations 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. Before we discuss fourth quarter's results and our expectations for 2021 and beyond, I want to spend a minute reflecting on 2020. Structural heart patients were severely impacted beginning in March, experiencing significant difficulties entering the system, which also had a profound impact on second quarter procedures. And even though healthcare systems adapted to the challenge, the resurgence of COVID that began late in the year continues to impact structural heart patients who need care. Despite unprecedented challenges throughout the year, I'm proud of our team's steadfast dedication to our patient-focused strategy. We continued to invest in developing solutions that extend lives, improve the quality of life, and offer greater value for the healthcare system. Along those lines, we celebrated some exciting milestones in 2020 that directly impacted patients. In TAVR, despite headwinds, more than 100,000 patients benefited from treatment with sapien valves worldwide. In surgical structural heart, we launched our Connect aortic valve conduit, and Inspiris became the leading aortic surgical valve worldwide. We've seen early positive clinical evidence across the TMTT platform. Physician feedback is encouraging, and patient outcomes have been distinguished. And in critical care, we met the increased demand for core pressure monitoring products due to the pandemic, and we're proud that we're able to help over 1 million COVID patients globally with our monitoring technology. To support our innovation and growth, we continued to invest in our people and our infrastructure. During a year when job losses impacted many families across the globe, Edwards prioritized protecting our employees, and we grew our team to 15,000 worldwide. We continued to make strategic R&D investments that enabled us to fuel progress. And despite this unique environment and extraordinary prior year growth, underlying sales grew 1% in 2020 to $4.4 billion, which is a reflection of the life-threatening needs of the patients that Edwards serves. Looking into 2021, while we expect the pandemic to continue to impact the global healthcare system, we remain optimistic about the year ahead. As we indicated at our investor conference, we expect full year sales between 4.9 and $5.3 billion representing mid teens underlying growth on a year over year basis. Based on our year to date experience, we expect q1 sales to be slightly down sequentially, although in line with the first quarter of last year, which was largely unaffected by COVID. Our 2021 guidance continues to assume COVID will stress the global health care system at least through the winter months, with procedures ramping later in the year. This expectation assumes that vaccines are effective and widely administered by mid-year 2021, and hospitals continue to improve their ability to treat non-COVID patients who need care for conditions such as aortic stenosis. And even though we expect the COVID impact on sales at the start of the year, we're continuing to invest now in our innovations that have the tremendous opportunity to enhance patients' lives and bring significant value to the healthcare system. We recognize the uncertain impact and timeframe for recovery from this unique global challenge, but we remain confident that our patient-focused strategy of continued investment positions us well and even stronger when the world emerges. from the pandemic. Now turning to our quarterly results. Consistent with our guidance at our investor conference last month, fourth quarter sales of $1.2 billion were in line with the year ago period when Edwards grew nearly 20% on an underlying basis, reflecting the strength even during the ongoing pandemic. Full year 2020 global sales global TAVR sales of 2.9 billion increased 4% on an underlying basis over the prior year. 2020 growth reflected increased sales in every region, lifted by greater awareness of the benefits of TAVR therapy and increased adoption of our leading technologies. Based on the strength of the Sapien platform, we retained our strong leadership position while also maintaining our disciplined price strategy. In the fourth quarter, global TAVR sales were $776 million, up slightly from the year-ago period. We estimate global TAVR procedure growth was comparable with our growth, and globally, average selling prices were stable. Although the rollout was somewhat impacted, Sapien III Ultra now represents more than two-thirds of our global TAVR sales and physician feedback on ease of use and improved paravalvular leak performance remains outstanding. In the U.S., our Q4 TAVR sales were approximately level with the third quarter and declined in the mid single digit range versus last year. We estimate overall Q4 U.S. procedures declined at a comparable rate. Recall that our U.S. TAVR sales in the year-ago period increased nearly 40% driven by the strong Partner III evidence that led to a third quarter 2019 indication expansion and improved patient access under an updated TABR NCD. We expect these factors to resume lifting treatment rates as the pandemic subsides. Growth at smaller TABR centers, which are providing local access to aortic stenosis patients, was more than offset by declines in larger accounts, where referrals have been disrupted by the resurgence of COVID. Outside the U.S., in the fourth quarter, we estimated total TAVR procedures grew in the high single digits on a year-over-year basis, and Edwards' growth was comparable. Edwards' underlying TAVR growth in Europe versus the prior year was in the mid-single-digit range. Growth was driven by continued strong adoption of our Sapien platform and was more pronounced in countries that were more severely impacted by the first wave of COVID in 2020. Outside of the US and Europe, we continued to see very good TAVR adoption in the fourth quarter. Sales growth in Japan, Australia, and Korea were strong, where therapy adoption is still low. In Japan, we continue to anticipate providing Sapien 3 for low-risk patients prior to the end of this year. In China, which was a minor contributor to Q4 sales, we remain focused on growing our dedicated clinical support team to assist leading hospitals as they build their TAVR programs. In addition to geographic expansion of our TAVR therapies, we remain focused on indication expansion. We talked at our recent investor conference about our early TAVR trial, which is focused on the treatment of asymptomatic patients. Enrollment is now two thirds complete, and we remain optimistic that the trial will be fully enrolled in 2021. Separately, we continue to plan to initiate an important pivotal trial for moderate aortic stenosis to determine the optimal time to treat patients who have this progressive disease. We believe that some patients may benefit from earlier treatment when they have moderate AS rather than risking irreversible damage as the disease progresses. We're optimistic about the potential of this trial and we anticipate FDA approval to begin enrollment this year. In November 2020, we were pleased that the American Heart Association announced the launch of an initiative called Target Aortic Stenosis. a quality improvement program aimed to develop optimal standards of care. The program features a learning collaborative comprised of experts and volunteers from pilot hospital locations around the nation. AHA noticed that if left untreated, the condition worsens and patients with severe aortic stenosis have a survival rate as low as 50% at two years. Aortic stenosis is also a risk factor for heart failure. a costly disease projected to cost the U.S. healthcare system $70 billion in 2030. In summary, we continue to anticipate 2021 underlying TAVR sales growth in the 15% to 20% range as we shared at our investor conference. We expect continuing COVID-related challenges early in 2021, turning to a more normalized growth environment in the second half of the year. We remain confident in this large global opportunity will exceed $7 billion by 2024, which implies a compounded annual growth rate in the low double-digit range. Turning to transcatheter mitral and tricuspid therapies or TMTT, we've made meaningful progress moving from early stage development to clinical use across all of our platforms with over 3,000 patients treated to date. To transform treatment and unlock this significant long-term growth opportunity, we remain focused on three key value drivers, a portfolio of differentiated therapies, positive pivotal trial results to support approvals and adoption, and favorable real-world clinical outcomes. In Europe, Pascal Leaflet Repair continues to deliver excellent results. In Q4, we continued the introduction of Pascal ACE for mitral and tricuspid patients, and we're pleased with the early real-world results and positive physician feedback regarding its differentiated features and narrower profile. We plan to make both Pascal ACE and Pascal available on a single next-generation platform called the Pascal Precision System. This new system is designed to elevate the user experience with enhanced maneuverability, navigation, and stability, enabling improved procedural precision. From a clinical perspective, in this challenging near-term environment, we're experiencing a negative impact to clinical trial enrollment. However, our team and research partners are highly motivated to build on the differentiated data presented in 2020 and expand our body of clinical evidence in this exciting field. We look forward to presenting meaningful follow-up data across our portfolio at medical meetings later this year. We progressed in the enrollment of our three CLASP pivotal studies. We also received approval for use of the Edwards Pascal precision system in these pivotal studies. The company still expects U.S. approval of Pascal for patients with DMR late next year. We continue to enrolling SAPIEN M3 Pivotal Study and CIRCLE designed to demonstrate strong safety and efficacy for transcatheter mitral replacement. And we're on track to initiate our first clinical experience with our next generation EVOKE mitral replacement system. The EVOKE tricuspid replacement study, TRISEND, continued to enroll in Q4 and we're on track to initiate the TRICEN2 randomized pivotal study based on FDA's breakthrough pathway designation. We look forward to bringing this important treatment option to more patients that are in significant need. Turning to recent news, we commend CMS for ensuring mitral valve disease patients have improved access to therapy options through the updated NCD. This update, which includes coverage with evidence development achieves the balance of patient access with high quality outcomes. Fourth quarter global sales were $13 million representing sequential improvement versus Q3. Full year 2020 sales were $42 million. We expect continuing COVID related challenges early in 2021, but we anticipate a ramp up through the rest of the year. We maintain our belief that the total TMTT sales will approximately double in 2021. We continue to estimate the global TMTT opportunity to reach $3 billion by 2025 with significant growth beyond. We remain committed to transforming the treatment of these patients and believe our portfolio strategy positions us well for ultimate leadership. In Surgical Structural Heart, Full year 2020 global sales of $762 million decreased 10% on an underlying basis over the prior year in line with our guidance of 5% to 15% decline. Fourth quarter sales of $204 million held steady with Q3 and declined 2% year over year on an underlying basis, which was below our previous expectation for positive growth. Over the course of the quarter, hospitals experienced an influx of COVID patients limiting surgical procedures. Despite this impact, we are encouraged that the U.S. achieved positive growth in Q4 driven by adoption of our newest premium technologies. We remain very encouraged by the steady global adoption of Edwards Premium Resilia tissue valves, including the Inspiris aortic surgical valve, and the recently launched CONNECT aortic valve conduit. In the fourth quarter, inspirous valve utilization grew in all regions, and we continued to add new centers. Sales in the U.S. are ramping for CONNECT, the first preassembled, ready-to-implant aortic tissue valve conduit for patients who require a replacement of the aortic valve, root, and ascending aorta, which is a critical unmet patient need. We continue to focus on comprehensive physician training and robust data collection for the harpoon beating heart mitral valve repair system. We're seeing favorable patient outcomes with faster surgery and recovery times with this minimally invasive therapy. The US pivotal trial is now underway and the first patient was treated in December. In summary, we expect full year 2021 underlying sales growth in the high single digit range for surgical structural heart driven by market adoption of our newest technologies. After a challenging start, we expect improving year-over-year comparisons as we progress through the year. We are excited by our ability to provide innovative surgical treatment options for more patients and to extend our global leadership in premium surgical structural heart technologies. We believe the current $1.8 billion surgical structural heart opportunity will grow mid single digits through 2026. In critical care, full year 2020 global sales of $725 million decreased 3% on an underlying basis versus the prior year in line with our guidance of flat to down 5%. Fourth quarter critical care sales of $198 million decreased 2% on an underlying basis, driven by the decline in hemisphere orders in the US as hospitals limited their capital spending. Sales of our TruWave disposable pressure monitoring devices used in the ICU were lifted by the increased COVID hospitalizations late in the fourth quarter in both the US and Europe. Demand for our products used in more intense surgeries remains strong, but we're more than offset by the impact of delayed elective procedures. In summary, we expect full year 2021 underlying sales growth in the high single digit range for critical care. We remain excited about our pipeline of critical care innovations as we continue to shift our focus to smart recovery technologies designed to help clinicians make better decisions for their patients. Now I'll ask Scott to provide some more detail on the company's financial results.

Hey, thanks a lot, Mike. Today, I'll provide a wrap up of 2020, including detailed results from the fourth quarter, as well as provide an update on guidance for the first quarter and full year of 2021. Despite the wave of COVID that began during the fourth quarter, we are pleased that we were able to achieve our sales guidance ranges across all product lines. Sales in the fourth quarter were flat year over year on an underlying basis, and adjusted earnings per share grew 2% to 50 cents versus the prior year. Gap earnings per share was similar at 49 cents. For the full year 2020, sales increased 1% on an underlying basis to $4.4 billion. Adjusted earnings per share was flat at $1.86, and we generated over $700 million of adjusted free cash flow. During 2020, we achieved cost efficiencies, but we intentionally did not take any actions to significantly impact our employees or reduce investments supporting our long-term strategy. I'll now cover the details of our results and then discuss guidance for 2021. For the fourth quarter, our adjusted gross profit margin was 75.3%, compared to 75.8% in the same period last year. This reduction was driven by a negative impact from foreign exchange and incremental costs associated with responding to COVID, partially offset by lower performance-based compensation. We continue to expect our 2021 adjusted gross profit margin to be between 76 and 77%. Our rate should be lifted by an improved product mix partially offset by a negative impact from foreign exchange. Selling general and administrative expenses in the fourth quarter were $339 million or 28.4% of sales compared to $347 million in the prior year. This decrease was primarily driven by reduced spending resulting from COVID and lower performance-based compensation partially offset by the impact from foreign exchange. We continue to expect full year 2021 SG&A as a percentage of sales, excluding special items, to be 28 to 29%, which is similar to pre-COVID levels. Research and development expenses in the quarter grew 1% to $196 million, or 16.4% of sales. This small increase was primarily the result of higher investments in TMTT and costs associated with discontinuing our SutraFix program, partially offset by reduced performance-based compensation. For the full year 2021, we continue to expect R&D as a percentage of sales to be in the 17 to 18% range, similar to pre-COVID levels. as we invest in developing new technologies and generating evidence to expand indications for TAVR and TMTT, including enrolling seven clinical trials. Turning to taxes, our reported tax rate this quarter was 13.1% or 13.9% excluding the impact of special items. This rate included a 350 basis point benefit from the accounting for stock-based compensation. Our full-year 2020 tax rate, excluding special items, was 12.5 percent. We continue to expect our full-year rate in 2021, excluding special items, to be between 11 and 15 percent, including an estimated benefit of five percentage points from stock-based compensation accounting. Foreign exchange rates increased fourth-quarter reported sales growth by 150 basis points, or $18 million, compared to the prior year. At current rates, we now expect an approximate $100 million positive impact or about 2% to full year 2021 sales compared to 2020. FX rates negatively impacted our fourth quarter gross profit margin by 150 basis points compared to the prior year. Pre-cash flow for the fourth quarter was $287 million, defined as cash flow from operating activities of $400 million less capital spending of $113 million. Now, turning to the balance sheet, we have a strong balance sheet with approximately $2.2 billion in cash and investments as of the end of the year. In addition, we have an undrawn line of credit of up to $1 billion. We have public bonds outstanding of about $600 million that don't mature until 2028. Average shares outstanding during the fourth quarter were $632 million. relatively consistent with the prior quarter. We now expect average diluted shares outstanding for 2021 to be between 630 and 635 million. So before turning the call back over to Mike, I'll finish with financial guidance for 2021. We are maintaining all of our previous sales guidance ranges for 2021. For total Edwards, we expect sales of 4.9 billion to $5.3 billion. For TAVR, we expect sales of $3.2 billion to $3.6 billion. For TMTT, we expect sales of approximately $80 million. We expect surgical structural heart sales of $800 to $900 million and critical care sales of $725 to $800 million. For the full year 2021, we continue to expect adjusted earnings per share of $2 to $2.20. For the first quarter of 2021, we project total sales to be between $1.1 and $1.2 billion and adjusted earnings per share of 43 to 50 cents. And so with that, I'll pass it back to Mike.

Thanks, Scott. While a year like 2020 could threaten to cause persistent disruptions, our strategy of patient-focused innovations remains unwavering. As we look to 2021 and beyond, I am as excited as ever about the work happening at Edwards and, more importantly, what we envision for the future of patient care. I continue to believe we are poised for success and that our innovation and cultural imperative to put patients first will drive strong organic sales growth and create long-term value. And with that, I'll turn it back over to Mark.

Thanks a lot, Mike. 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. Diego?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in a question queue. You may press the star key followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Bob Hopkins with Bank of America. Please state your question.

Oh, great, and good afternoon. Mike, I was wondering, you know, since we just met in December, if you'd comment on maybe just two quick things. First question would be just how different is the environment out there right now, the selling environment out there right now, versus what you were seeing at the time of the analyst day? You know, kind of on the margins, are things getting a little worse? Are they getting a little better? Just would love some thoughts on that topic, and then I'll have one quick follow-up.

Yeah, I would say in general it's been a little worse. It was already trending negative, and we anticipated it was going to be a tough winter, and it certainly has turned out to be that way, but probably trended a little worse since that time. Okay.

And then the other thing I'd love to get your quick comments on is just thinking a little bit long-term on the tricuspid opportunity. And the reason I ask is that obviously Abbott has reported some numbers, too, and their tricuspid business is already annualizing it. at over $50 million if you just take their results this quarter and multiply them times four. So it looks like some pretty robust interest in tricuspid repair right off the bat. So we'd love your thoughts on that market and how quickly you think that could develop and what hurdles might be. Thank you.

Yeah, thanks, Bob. You know, it's interesting. So the tricuspid Market size in terms of number of patients. It's very large It's certainly as big as the mitral opportunity and we've talked about the fact that that patient group is greatly underserved So in terms of people actually getting procedures you're talking about, you know 1% 2% 3% very low numbers So if we could actually develop a great solution for them, it's going to be an important deal they don't have great answers and so the burden is going to be on us and to develop great solutions and to create evidence that we are actually doing that. We have a high level of confidence that we can do it. Of course, mitral is going to be bigger here in the near term. It's got an earlier start. But we think there's a lot of potential in this. The patients themselves are very diverse. And that's why we think when it's all done for tricuspid patients, it's going to require a portfolio.

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

Great. Thanks for taking the question. Mike or Scott, I just want to follow up here on guidance for a second. So obviously, resurgence trends have probably trended more negatively than when you sort of gave early guidance in December. So why things are trending more negatively, you're still sort of holding the outlook for 21. So I guess what's providing that kind of comfort that even though your near-term things are heading more difficultly, you still feel very good about the 21 numbers. Is that just what you're seeing here in the first quarter? Is that new account recovery? Is that just the pace of the recovery you saw last time? But same confidence, facts have changed. What's providing that confidence? And a quick follow-up.

Yeah, thanks, David. So we always anticipated it was going to be a slow start to the year. It was going to take a while for vaccines to have any impact. It's probably turned out to be a little worse than we thought. But it really hasn't changed our outlook. We really believe that coming out of the winter, we're going to start gaining ground on this, that you're going to have vaccines widely distributed by the middle of the year, and that we're going to be returning to normalization. So when we put that together, it gives us considerable confidence. Yeah, is it maybe slightly weaker than it was when we gave the guidance at the investor conference? Yeah, maybe, but we're still very much in the range.

Okay. And then just, Mike, just strategically, this comment of clinical trial enrollment is coming up a lot from you, other companies now, and I wonder two things. The first is, have you rethought, and you have a significant number of clinical trials sort of ongoing, have you thought at all about changing the clinical trial strategy, slowing some down, emphasizing others is sort of question one, and then related is just figuring, you know, it benefits the incumbent for all the companies that are trying to get into this marketplace. They've lost basically 18 months and sort of competitively Does that start becoming a bigger advantage to those that are already in the market, specifically in structural-hardened TAVR where the trial burden is very high? Thanks so much.

Yeah, thanks, David. You make a good point. The trial burden is high, and so it is more difficult right now. I can tell you that our team and our researchers are very committed. They're ready to get back at it. And so although there were delays, I don't know if it's fair to characterize it as an 18-month delay, David. I think that's probably... overstating it to some extent. I think we talked when we said what happened in 2020, for example, in some of the TMTT trials, it certainly cost us a couple quarters. And now we're seeing it a little slow again. But our team really feels through conversations with researchers that it's going to come back. You know, when you're trying to develop real new opportunities like TMTT or expand indications in TAVR, like early TAVR and and moderate AS, you know, those are heavy lifts that take long-term commitment. And we're getting really nice participation and cooperation with FDA. So it's going to get done. It just is a bit of a headwind right now.

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

Hi. Good evening. You know, what if I ask a little bit on the near term as well? You know, you mentioned that some of the larger centers were maybe seeing, you know, slow referrals. You know, is there anything you can comment really on how that pipeline looks and, you know, how quickly it can refill if things do start to open up? In a sense, will there be a kind of continued lag effect on your recovery relative to what happens in the broader market because of that referral network?

Yeah, thanks, Raj. So what we were referring to is just reflecting back on the fourth quarter, we had this observation that the larger centers saw less growth than the smaller centers. Exactly why that happened, we only kind of speculate, Raj. So we obviously have conversations with them and we have anecdotal information that suggests, hey, you know, those larger centers maybe used to pull from much broader geography and maybe there's less referrals during this time of COVID than you would expect in a normal environment. So having said that, when these centers slow down, yes, they also slow down qualifying patients. So it takes a while for that pipeline to refill. So that's legitimate. But then again, when we gave our estimates, we've taken that into account. So when we say, hey, we think TAVR is going to grow 15% to 20% in 2021, we've taken into account that, yeah, there's this lag at the beginning of the year. So we're still coming on sites to engage with patients, and they're very motivated to do that. But you know where we're headed.

Understood. And just one quick follow-up on that. So Lotus, obviously off the market globally, have you seen much impact in the marketplace? Have you been able to capture some of that share? Any thoughts early on on how that's faring?

Yeah, thanks, Raj. You know, they didn't have a really large share position, and so I'm sure we were the beneficiary to a small extent. You know, if I reflect all the way back to our investor conference in 2019, we estimated that we would probably have some small share loss during 2020, and it's kind of tough for us to find that at this point. We're not sure that that happened. That may have been part of a contributor.

Okay.

Thank you. Our next question comes from Larry Beagleson with Wells Fargo. Please say your question.

Good afternoon. Thanks for taking the question. You know, one on Pascal for me, one on a different one separately. So, Mike, you expect to launch Pascal in the U.S. in late 22. Does that assume completing enrollment in 2021 of CLASP 2D and presenting the data in early 22? And Pascal Precision, Mike, what are the benefits of that and the timing? And I had one follow-up.

Yeah, thanks, Larry. So let me be a little bit more precise. So what we said is that we'll get approval by the end of 22 and the next year, and we'll probably be launching in 23. So I wouldn't want to necessarily model sales in 2022. Exactly what the run-up looks like before that, We're not, we haven't really talked about, we haven't laid it up. Obviously, you're right, there's multiple steps. When do we complete enrollment? When do we complete the follow-up? When do the reports show up? And I don't have clear estimates for you at this time of when that's going to happen. As it relates to the Pascal Precision, we're really proud of that system. It's designed to deliver significant advancements to our stabilizer and our catheter and our handle. It's, you know, the precision one is not, we haven't really laid out timing. I think that's going to sort of evolve over the course of 2021. But I can probably come back with more accurate timing at a later date.

Mike, thanks for that. A few years ago, you were developing a product for aortic insufficiency. What's the status and what are your thoughts on that market opportunity? Is it just too small, given all the bigger opportunities that you're pursuing now? Thank you.

We really don't have there, Larry, to say that that is a pipeline item that's imminent. That goes back quite a way. The one product that we have that sort of helps that group of patients is really in the surgical side. This Connect product that also replaces the aortic root, that certainly helps those kind of patients. But to suggest that we have a transcatheter one around the corner would be overstating it.

Thank you. Our next question comes from Robbie Marcus with J.P. Morgan. Please state your question.

Oh, great. Thanks for taking the question. So with a little slowdown here with COVID, what are you seeing in terms of trial enrollment? Is that also getting delayed, and is that assumed in the timelines that you gave us today?

Yeah, thanks, Robbie. So, yeah, we are feeling it in trial enrollment. This is not an easy time when we're going through what we just saw here at the end of the quarter and the start of this quarter. It is a tough time. You know, it's kind of funny. I mean, the hospitals, it's not like all hospitals have been impacted, but the ones that have been impacted are really full up, right? They really struggle to be able to handle new patients, which includes clinical trials. But having said that, all the dates that we gave you anticipated what's going on. We would give you new dates if we didn't think that we could achieve those. So yes, yes, is it a tough time right now? Yes, it is. But do we think that there's going to be a recovery? There's a lot of interest amongst the clinical researchers to get back at it. And really, they're enthusiastic about it, as we are. And so we think that we're going to get after it pretty hard when it opens back up again.

Great. Still a lot of sick patients that need help.

Yes, there are.

Unfortunately. Maybe just a quick follow-up. You know, you're still generating a very healthy amount of cash, even in 2021 here. How should we think about the priorities for that use of cash? And, you know, are there any areas to the business that might see some M&A potential? Thanks.

Robbie, it's Scott. Thanks for the question. So, you know, our focus and our priorities for use of cash haven't really changed. The first one, of course, is making sure that we've got sufficient cash to invest in internal growth opportunities. And that includes building out our plant infrastructure. So we've got now multiple production facilities around the world. We've recently gotten a lot further along and are almost completed with Costa Rica. We've broken ground on a new facility in Ireland. And as the company continues to grow, we'll continue to in a disciplined fashion, invest capital to support that growth on the production side. As it relates to M&A, we're very active on the business development front and we are continually looking for external growth opportunities. As you know, most of these are typically small. We usually buy pre-revenue companies or technologies or we'll make investments in companies or buy options to acquire companies based upon how they perform in development efforts. Those activities will continue. We've got a good problem to have, which is we continue to generate net cash, and that's why we've got over $2 billion now on the balance sheet. And so we think carefully about how to do that, and we think carefully about how to manage the share count. And for the time being and for the foreseeable future, our preferred means of returning capital to shareholders will be through continued share repurchase. And we've got over $600 million of share repurchase authorization left. Thanks a lot.

Our next question comes from Josh Jennings with Cowan. Please state your question.

Hi. Good evening. Thanks for taking the questions. Just to one, the $7 billion, reiteration of the $7 billion TAVR market by 2024, the first, you've had that target for a little while now in front of the China approval. Does that include an internal assumption within the market for China TAVR? And then the second layer is just thinking about TAVR and TAVR and TAVR and SAVR. Could those two indications represent 10% or more of that $7 billion opportunity in 2024? Thanks for taking the questions, guys.

Yeah, thanks, Josh. Yeah, so we feel pretty confident in that plus $7 billion TAVR market opportunity. It does include China. It also includes most of those indication expansions like you just mentioned, like TAVR and TAVR and TAVR and SAVR. What's not in there really is early TAVR, so this asymptomatic patient. If we got that, it would be very late in the period, so probably hardly any impact, and we're not expecting moderate to read out and really impact that number as well. So maybe that is sufficient to answer your question?

Thanks for the help. I appreciate it. Sure.

Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Please state your question.

Good afternoon, everyone. Thanks for taking my questions. Mike, a couple of quick questions. I just wanted to follow up on Raj's question on TAVR, and then I have a TMTT question. Forgive me if I heard it wrong. Why would referrals in the largest centers in the U.S., be different than the smaller centers? And if I could throw in my TMTT question, for Pascal and Europe, Mike, for the centers that are early adopters, if a patient comes in, what would be the key rationale for them choosing Pascal versus, let's say, a G3 MitraClip? Thank you for taking my question.

Sure. So going back to the large centers versus small centers, First of all, this was simply an observation on our part. If we looked at our largest centers versus our smallest centers, the smallest centers grew faster in the fourth quarter than the largest centers. So now why is that? Now we start speculating to some extent because we really don't have that clear a picture. It's just a fact of how that happened. Part of what we have heard anecdotally is, that the large centers will often prove, matter of fact, attract patients, let's say, from a multi-state area, whereas a small center might only attract patients in their local area. And given COVID being what it is, are these elderly patients willing to travel long distances to a referral center? We wonder and we hear from others. They speculate that that's the reason. So, again, you can take that for what it's worth, but that's probably the best answer that we have on that one. In terms of the centers that are adopted, how does it compare? You know, we feel really good about the outcomes. You know, we've been doing a lot of work in Europe on trying to help people have outstanding outcomes. And so clinicians have experience with Pascal, and many of those clinicians also have experience with the MitraClip system. both Pascal and Pascal Ace, so they have options in terms of what they might use. And I think it's a patient-specific decision that clinicians are making at this point of what they think might be best for their patients. It's still early. Our data, by comparison, is still relatively light, although we're proud that we have 3,000 patients who were treated last year, and most of those are with Pascal, so we're starting to get some pretty good experience But it's still – there's some time before this plays out.

Thank you. Our next question comes from Matt Mixich with Credit Suisse. Please state your question.

Thanks so much for squeezing us in. So I did want to have a follow-up on MitraClip. It's just – and on mitral repair, I should say, and Pascal in Europe. I'm wondering if you're seeing any difference in the sort of – you know, variability or referral of, say, mitral repair in the small, relatively smaller footprint that you have there versus TAVR. Just one of your competitors reported, and those numbers were down a little harder maybe than sort of TAVR volumes are down, and just trying to sort through, you know, what that could mean, if anything, and any color you have would be appreciated. I have one follow-up.

Yeah, thanks, Matt. I think I understand your question. Are you saying, hey, it looks like the mitral numbers are down more than the aortic numbers? And is that the answer to the question? Okay. Yeah. In fact, that is our observation as well. It appears that that is indeed the case. You know, now I'm going to speculate as to why. You know, TAVR's been out there for quite a while. We have really compelling evidence. We have very mature systems and very reproducible results, you know, well-trained infrastructure. By comparison, on the micro side, it's still relatively young. The indications aren't nearly as clear. So it's a less mature market and not a surprise, probably, that that's taken place. But I think your observation's a correct one.

Great. And then just to follow up, and I apologize if it's been asked, but just the sort of maybe confidence in the sort of call it acceleration maybe off of a slightly lower, more sluggish Q1 and then getting to your original range for a full year, you know, what gives you that sort of confidence that you'll be able to kind of bounce back in Q2 and still wind up in roughly the same place?

Yeah, there was a version of that that was at math, but that's fine. Yeah, we really do have confidence that it's going to come back. We think it's going to be ramped during the course of the year. Q1, based on what we're seeing so far, is going to be a tough quarter, and so we acknowledge that. But we always thought it would be tough. It might be a little tougher than we thought, but we really believe that there's a lot of pent-up demand of patients and that they're very much going to seek treatment and Once the fear of COVID, then once hospitals get themselves squared away, and we think they really will, they'll be in much better shape by the time we get into the second half of the year, that we're going to realize those kind of growth rates.

Super. Thank you.

Our next question comes from Danielle Antalfi with SVB Lyric. Please state your question.

Hey, good afternoon, guys. Thanks so much for taking the question. Mike, if I could just follow up on the referral question, and I'm not sure what level of visibility you guys do have into the referral channel, but just curious what you saw in the sort of June, July, August timeframe as far as refilling the funnel and how quickly that happened and whether that could serve as a proxy to what we could see, you know, whenever we get past this most recent COVID resurgence. And I don't know if the right way to think about it is, you know, diagnostic facilities were operating at X percent of normal levels or what, but any color you could give there would be great.

Yeah, Danielle, your observation's a good one. I think we all remember the trauma that happened when sort of the bottom fell out in the middle of March last year. But we also remember that things recovered pretty quickly, right? There was a pretty sharp V that we felt that And so this question about how fast does the pipeline fill up and how fast do patients come back, if that's any indication, it didn't take very, it wasn't quarters. It was, you know, it was a matter of months when things really started bouncing back. So, yeah, you're right. You could use that as some kind of a proxy to try and estimate what might happen now.

That's it for me. Thanks.

Sure.

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

Hey, guys. Thanks for taking my question. A couple of quick, I guess, guidance questions. Gross margins, I think I heard you, Scott, mentioned 150 basis points of headwind and Q4. Given your comments on FX, any changes on how FX impacts gross margins for fiscal year 21 or Q1 perhaps?

Sure. So in 21, we think FX probably hits us another 50 basis points negative on the gross margin line. And so we're coming off of, you know, in the fourth quarter, we finished at 75.3. But we're also expecting better mix as TAVR continues to grow. We've also got some operational efficiencies that are going to continue to benefit us on the gross margin line. And so we think we'll be able to largely offset that additional 50 basis points of FX pressure on gross margin and end up in that 76% to 77% range that we guided to.

That's helpful. And then perhaps, Mike, you can chime in on this, but I'm curious. The share count assumption here for Q1, you know, presumes no buybacks. I'm just curious, given the cash position here. What would cause, I guess, for you guys to be a little bit more aggressive on the buybacks?

Yeah, I'll start and encourage Scott to jump in because he's very much the leader of this and a good partner. We have a long history of opportunistically buying shares when we think that there's a disconnect. But what we do routinely is to try and offset the dilution that's associated with with our equity programs. So we're going to expect to do that, but I think that would be something that's typical. In terms of doing something opportunistic, we basically just look for disconnects.

Yeah. So we don't match exactly period by period the offsetting of dilution from equity awards, but we do over time try to not only offset that dilution, but also buy down the Total net shares outstanding. You've seen us do that consistently over time. So last year we bought back about $625 million for the stock, which was in excess of the dilution from employee option exercises and delivery of restricted stock and the like. And so you should expect that we're going to continue to be opportunistic, as Mike said, and be active repurchasers over time.

Thanks, guys. We considered that an opportunity.

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

Hi. Thank you for taking the question. So I had two related questions. So we talked a lot about your clinical pipeline and new product. I was just hoping you could give us a couple key guideposts. What are you looking for this year in terms of data at PCR or other places, approvals that we should be watching out for? And then as we're talking about the clinical trial delays in terms of enrollment, has it gotten to a point where you feel like you need to adjust any of your timelines, or is it just a little bit slower and we're not there yet?

Yeah, so I'll start with the second question. We really are not changing our timelines. If we were changing our timelines, we would certainly tell you, and we believe that we're going to hit those, and those are our best estimates. We try and do that as accurately as we can. In terms of what you're going to expect to see this year out of meetings like EuroPCR, I think what you're going to see for the most part is follow-up on the many trials, everything from EFS to CE-MARC trials and more. So there'll be more patients, there'll be longer timeframes where data will be shared. And so you'll see that we've got quite an extensive portfolio in TMTT. So I think you're gonna see a number of reports over the course of the year.

Okay.

Thank you.

Thanks, Matt. Diego, next question.

Thank you. And our last question comes from Our next question comes from Pito Checkring with Deutsche Bank. Please state your question.

Good afternoon, guys. Thanks for fitting me in. Two quick ones here. For the U.S. market, your largest competitor has been pretty aggressive trying to take back market share in the back half of 2020. I'm just curious if that gives any color on where the market share ended up during the fourth quarter and how we should think about market share changing one way or the other in 2021.

Yeah, so yeah, I think what we tried to do is to provide a statement in our prepared remarks that said that we felt like the market grew pretty much at the same pace that we did. So we didn't really see an appreciable share change in the quarter. So again, having said that, it's pretty hard to determine what exact share positions are, and it's even more difficult during a pandemic. So we're not suggesting that it's exact. But in our estimates, it was pretty flat.

Great. Then a quick follow-up for guidance. The U.S. market in Europe is obviously weaker than you expected in December. We talked about strength in Japan, Australia, and South Korea. Can you walk us through if those markets have accelerated versus your guidance at the annual stay in getting more color on the markets? Thanks so much.

So we're not suggesting that those markets Three countries, for example, were better since the analyst day. What we're saying is those are examples of countries where the penetration is low and the growth rate is high. So those were really healthy growth rates, significantly above the rest of the portfolio that's pulling it up. Now, some of those are a pretty small base by comparison, you know, like Korea and Australia would be pretty small compared to what's going on in Europe, etc., But nonetheless, you know, as those treatment rates increase in those countries, it certainly helps the growth rate.

Thank you. And we have time for one last question, and that comes from Joanne Wench with Citibank. Please state your question.

Oh, thank you for fitting me in, and good evening. I'll make it quick. Doubling TMTG revenues in 2021 is impressive. Do you think you've hit sort of a tipping point? Can we think of this as an accelerant over the next couple of years? Or how do you think, broadly speaking, and I recognize COVID makes it more difficult, the TMT market in Europe? Thanks.

Yeah, I think maybe it's just fair to say, Joanne, this is a really big market opportunity. Remember when we talk about it, we talk about it in billions. And when you look at where our sales are right now, they're really low. So our opportunity is, to grow at a pretty significant pace. I don't think it should be that surprising. The doubling is nice and we're pleased to do that, but we've got a long way to go. We really think it's important, it's a big opportunity for us. The big drivers are gonna be our evidence. When we really put strong clinical evidence up there that's compelling in significant clinical trials, Those are the kind of things that are really going to drive even more significant inflection points, if you will. Of course, you know, we've got a great team and a nice reputation and a nice really differentiated products, but the data is going to be the bigger issue. And, again, it's got much more potential than this in the long run.

Thank you. And that's all the questions we have. I'll turn it back to Mr. Mussalam for closing remarks.

Okay, well, thanks for all the continued interest in Edwards. And even though COVID is challenging right now, we do see better days ahead, and we're very optimistic about the future of Edwards Life Sciences. So Mark, Scott, and I welcome any additional questions by telephone. And with that, back to you, Mark.

I don't think Mark's mic is open now, sir. Thank you. And this concludes today's conference. And you can access the replay by dialing 877-660-6853. Please use conference ID 13710472. Once again, to access the replay, please dial 877-660-6853. And using conference ID 13710472. Have a good day. Thank you.