Edwards Lifesciences Corporation

Q4 2021 Earnings Conference Call

1/26/2022

spk10: Greetings and welcome to the Edwards Life Sciences fourth quarter 2021 results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilterding, Vice President investor relations, and treasurer. Thank you. You may begin.
spk15: Thanks, Diego, and thank you all for joining us this afternoon. With me on today's call are Mike Nussallem, Chairman and Chief Executive Officer, and Scott Ullum, our Chief Financial Officer. Just after the close of regular trading, Edwards released fourth quarter 2021 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 expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These speak only as of the date on which they were made, and Edwards does not undertake any obligation to update these statements after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important safety information may be found in the press release, our 2020 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 gap and non-gap numbers mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike Mussolini for his comments. Mike.
spk08: Thank you, Mark. We're proud of our performance in 2021. Although hospitals continued to be impacted by COVID, it was a year of significant milestones and investment for Edwards, and our teams were relentless. In TAVR, we made important strides in executing our long-term strategy. In particular, we invested in increasing awareness, pursued further therapy expansion, and advanced new technologies. We completed enrollment of the early TAVR trial, an important pivotal study studying the treatment of severe aortic stenosis patients before their symptoms develop. Separately, we initiated enrollment in our PROGRESS trial for moderate AS patients And we received FDA approval for our Alliance Pivotal Trial to start our next generation TAVR technology, Sapien X4. In TMTT, we achieved our significant 2021 milestones as we continue to make meaningful progress on advancing our three key value drivers, a portfolio of pioneering therapies for patients, positive pivotal trial results to support approvals and adoption, and favorable real-world clinical outcomes. We're pleased to have treated over 3,000 patients in 2021 with our differentiated portfolio of TMTT therapies, gaining valuable learnings through both our clinical and commercial experiences. Each of our platforms demonstrated promising outcomes and clinical performance. I'm also pleased to announce that we completed enrollment of our CLASP2D pivotal trial in 2021 an important milestone that keeps us on track for U.S. approval late this year. In surgical structural heart, we extended our leadership position through the adoption of our premium technologies. We also implemented valuable additions to our smart monitoring advancements in critical care. Most importantly, in 2021, even more patients benefited from Edwards' lifesaving technologies than ever before. I'm also proud to say that throughout the year, our employees remain dedicated to keeping our commitments to patients and to one another. Despite the ongoing pandemic that fueled global challenges, our employees found innovative ways to support hospital procedures and to ensure our ability to supply our life-saving therapies was not impacted. And through their efforts, we're able to get our technologies into the hands of our trusted partners around the world so they could serve their patients. Now, I'd like to cover several 2021 financial highlights before I get into the quarterly details. In 2021, we're pleased to achieve all of our key financial expectations. Underlying sales increased 18% to $5.2 billion, driven by balanced organic sales growth in each region. We achieved 19% growth in adjusted earnings per share while also increasing R&D 19%. The significant increase in R&D and infrastructure investments this year helped strengthen our long-term outlook. And as you heard at our investor conference last month, we are as convinced as ever about the tremendous opportunity we have to enhance patients' lives and bring significant value to the healthcare system. Turning to our financial results, fourth quarter sales of $1.3 billion increased 13% on a constant currency basis versus the year ago period. Growth was driven by our portfolio of innovative technologies, although at the lower end of our October expectations due to the pronounced impact of Omicron on hospital resources in December, especially in the U.S., Full year 2021 global TAVR sales of $3.4 billion increased 18% on an underlying basis versus the prior year. Despite intermittent challenges associated with the pandemic throughout the year, sales were in line with our original guidance of $3.2 to $3.6 billion and were driven by increased awareness of the benefits of TAVR therapy with our Sapien platform. In the fourth quarter, our global TAVR sales were $872 million, an increase of 13% on an underlying basis with impressive strength outside the U.S. We estimated global TAVR procedure growth was comparable with our growth. And globally, average selling prices were stable as we maintained our disciplined pricing strategy. In the U.S., our TAVR sales grew 10% year over year in the fourth quarter, and we estimate that our share of procedures was stable. As previously mentioned, the Omicron variant had a noticeable impact on hospital resources in December as cases were postponed or limited in a number of hospitals. Growth in the U.S. was highest in small to mid-volume centers, which are helping provide access to a broader population of aortic stenosis patients. Outside the U.S., in the fourth quarter, our sales grew approximately 20% year over year on an underlying basis, and we estimate total TAVR procedure growth was comparable. We continue to be encouraged by the strong international adoption of TAVR broadly in all regions. In Europe, Edwards' growth was in the mid-teens, and we estimate that our competitive position was stable. Growth was broad-based across the regions. It's worth noting that a recent cost-effectiveness study demonstrated that TAVR with SAPIEN3 was economically dominant when compared to surgical aortic valve replacement in treating French patients with severe symptomatic aortic stenosis who are at low surgical mortality, who are at low risk of surgical mortality. We're also encouraged by the recently published guidelines from the European Association of Cardiothoracic Surgery which now definitively recommend TAVR for patients over 75. We believe both of these developments represents an important long-term opportunity to bring TAVR therapy to even more patients in need. Sales growth in Japan was also strong, where therapy adoption is still relatively low. Several important milestones were achieved in Q4. For the first time, the number of TAVR procedures performed in Japan was comparable with the surgical aortic valve replacements. Furthermore, in each prefecture in Japan, there is now at least one hospital offering sapien. Following the recent reimbursement approval for the treatment of patients at low surgical risk, we remain focused on expanding the availability of TAVR therapy throughout the country. Longer term, we see excellent opportunities for continued OUS growth as we believe global adoption of TAVR therapy remains quite low. In addition to our geographic expansion of our TAVR therapies, we remain focused on indication expansion. In Q4, we completed enrollment of our early TAVR pivotal trial, which is focused on the treatment of asymptomatic AS patients. Separately, We initiated enrollment in progress, 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 before they have symptoms or before their AS becomes severe rather than risking irreversible damage to their heart as the disease progresses. We also took steps to advance our innovative product portfolio. In Q4, we received FDA approval for our Alliance Pivotal Trial to study our next generation TAVR device, Sapien X4. Additionally, in Q4, we received FDA approval to use Sapien 3 with our Altera Adaptive PreStent for congenital heart patients. This should result in a quality of life improvement and a reduction in the number of procedures that these younger patients will require over their lifetime. In summary, despite a slower than expected start to the year, we continue to anticipate 2022 underlying TAVR sales growth of 12 to 15%, consistent with the range we shared at our December investor conference. Our outlook assumes COVID related challenges early in 2022, turning to more normalized growth environment as headwinds from Omicron subside and hospital resource constraints stabilize. We remain confident in this large global opportunity will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double digit range. Turning to TMTT, as I mentioned, in the fourth quarter we completed enrollment of our class 2D pivotal trial, and we remain on track to present data in the second half of 2022. This important milestone keeps us on track for US approval late this year of Pascal for patients with degenerative mitral regurgitation. We also continue to expect European approval of our next generation Pascal precision system later this year. At the PCR London Valves Conference in Q4, Pascal 30-day outcomes from our MyClass post-market approval study of more than 250 patients in Europe were presented. The data highlighted safe and effective MR reduction in a post-market setting. We also progressed on the enrollment of our Class 2F pivotal trial for patients with functional mitral disease. In mitral replacement, We continue to expand our experience with both our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for sapien M3 and the MISEN study for evoke EOS. Early experience with these subfrench transfemoral therapies increase our competence in both platforms. Turning to transcatheter tricuspid therapies, Results from the TRISEN study were presented at the annual TCT conference in November and demonstrated that early patient outcomes with the EVOKE tricuspid were favorable and sustained at six months. We're encouraged by the procedural success rates and also the significant TR reduction and sustained improvements in quality of life measures experienced by these patients. We continue to make meaningful progress in enrolling our two tricuspid pivotal trials, the TRISEN2 pivotal trial for the EVOKE system and the CLASP2-TR pivotal trial with Pascal in patients with symptomatic severe tricuspid regurgitation. We anticipate a late 2022 approval of EVOKE tricuspid in Europe and remain committed to providing solutions for these patients that have very poor prognosis and few treatment options today. Turning to the sales performance of TMTT, fourth quarter revenue of $25 million grew sequentially from the third quarter as we saw increased adoption of the Pascal system despite the negative COVID impact in December. Full year 2021 global sales more than doubled to $86 million As we continue to expand the availability of Pascal to more centers in Europe, we are pleased with the excellent outcomes for patients supported by our high touch model. We look forward to continuing our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease in 2022 with the milestones that we outlined in our recent investor conference. Despite the COVID impact so far this year, we continue to expect TMTT sales of $140 to $170 million for 2022. We estimate the global TMTT opportunity will grow to approximately $5 billion by 2028, and we remain committed to bringing our groundbreaking portfolio of therapies to patients with these life-threatening diseases. We are confident our portfolio strategy positions us well for leadership. In surgical structural heart, full-year global sales were $889 million, up 15% on an underlying basis versus the prior year. Fourth quarter 2021 global sales of $221 million increased 9% on an underlying basis over the prior year. Although we saw that Hospital staffing shortages continued to worsen throughout the quarter, especially in the U.S. Life-saving surgical therapies continued to be prioritized over elective procedures. We're excited about the continued global adoption of Inspiris Resilia Aortic Surgical Valve, the Connect Resilia Aortic Tissue Valve Conduit, and our Mitras Resilient Valve. We remain encouraged by the growing evidence that supports Edwards Resilia Tissue Valves including two studies being presented at the Society of Thoracic Surgeons conference this weekend. The commenced study demonstrates excellent hemodynamics of this tissue technology across all aortic valve sizes at five years, while a European economic value study shows a cost reduction with the use of inspirous versus mechanical valves. In summary, we continue to expect that our full-year 2022 underlying sales growth will be in the mid single digit range for surgical structural heart driven by adoption of our premium technologies and procedure growth. Even as TAVR adoption expands, we're excited about our ability to provide innovative surgical treatment options for patients, extend our global leadership and be the partner of choice for cardiac surgeons. Turning to critical care. Full-year global sales of $835 million increased 14% on an underlying basis versus the prior year. 2021 growth was driven by balanced contributions from all product lines, led by hemisphere sales as capital spending resumed. Our TrueWave disposable pressure monitoring devices used in the ICU also remained in high demand due to the elevated COVID hospitalizations in both the U.S. and Europe. Fourth quarter critical care sales of $212 million increased 8% on an underlying basis, driven by strong demand for Hemisphere. Demand for our broad portfolio of smart recovery sensors also remained robust in the fourth quarter, including Clairsight, our non-invasive finger cuff, which achieves sustained performance at or above pre-COVID levels. As discussed at our recent investor conference, the integration of a full range of technologies creates a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in hemodynamic monitoring. In summary, we continue to expect mid single digit underlying sales growth for 2022. And we remain excited about our pipeline of innovative critical care products. And now I'll turn the call over to Scott.
spk14: Thanks a lot, Mike. Today, I'll provide a wrap up of 2021 including detailed results from the fourth quarter, as well as provide an update on guidance for the first quarter and full year of this year. Sales in the fourth quarter increased 12.6% on an underlying basis. Adjusted earnings per share was 51 cents and gap earnings per share was 53 cents. Our fourth quarter sales were negatively impacted by the wave of COVID that began late in the quarter, especially in the U.S., Earnings per share in the quarter was below our expectations, as it was impacted by weaker than expected sales, and we accelerated certain spending into the fourth quarter of 2021 that we had planned to incur during 2022, including preparation for TMTT product launches. For the full year 2021, we were pleased with our performance, as sales increased 18% on an underlying basis to $5.2 billion, and adjusted earnings per share grew 19% to $2.22. I'll now cover the details of our results and then discuss guidance for 2022. For the fourth quarter, our adjusted gross profit margin was 76.8% compared to 75.3% in the same period last year. This increase was primarily driven by a favorable impact from foreign exchange. We continue to expect our full year 2022 adjusted gross profit margin to be between 78% and 79%. This year, our rate should be lifted by a favorable impact from foreign exchange and an improved product mix, partially offset by investments in our manufacturing capacity. Selling general and administrative expenses in the fourth quarter were $424 million, or 31.9% of sales, compared to $339 million in the prior year. This increase was driven by the resumption of medical congresses and commercial activities compared to the COVID-impacted prior year, as well as the addition of personnel in preparation for new product launches. We continue to expect full year 2022 SG&A as a percent of sales, excluding special items, to be between 28 and 30 percent. Research and development expenses in the quarter grew 19% to $233 million, or 17.5% of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including increased TMTT clinical trial activity. For the full year 2022, we continue to expect R&D as a percentage of sales to be in the 17 to 18% range as we invest in developing new technologies and generating evidence to support TAVR and TMTT growth. During the fourth quarter, we recorded an $18 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by 3 cents. This gain was excluded from the adjusted earnings per share of 51 cents I mentioned earlier. This reduction reflects an accounting adjustment associated with reduced expectations of making a future milestone payment for a previous acquisition. Turning to taxes, our reported tax rate this quarter was 10.9% or 12.7% excluding the impact of special items. This rate included an approximate three percentage point benefit from the accounting for stock-based compensation. Our full year 2021 tax rate, excluding special items, was 12.6%. We continue to expect our full year rate in 2022 to be between 11 and 15%, which includes an estimated benefit of three percentage points from stock-based compensation accounting. Foreign exchange rates decreased fourth quarter reported sales by approximately 1%, or $10 million, compared to the prior year. At current rates, we now expect an approximate $100 million negative impact or about 2% to full year 2022 sales as compared to 2021. Foreign exchange rates positively impacted our fourth quarter gross profit margin by 140 basis points compared to the prior year. Free cash flow for the fourth quarter was $284 million, defined as cash flow from operating activities of $374 million less capital spending of $90 million. Full year 2021 free cash flow was $1.4 billion, up from $734 million in 2020. We continue to expect full year 2022 free cash flow to be between $1.2 and $1.5 billion. In 2022, we expect our cash flow will be reduced by approximately $200 million due to a change in tax regulations involving the timing of the deductions for research and development expenses. Turning to the balance sheet, we have a strong balance sheet with approximately $1.5 billion in cash, cash equivalents, and short-term investments at the end of the year. Consistent with our practice of opportunistically repurchasing shares, we purchased approximately $100 million during the fourth quarter. we still have remaining share repurchase authorization of $1.1 billion. Average shares outstanding during the fourth quarter were 632 million, relatively consistent with the prior quarter. We continue to expect average diluted shares outstanding for 2022 to be between 630 and 635 million. Before turning the call back over to Mike, I'll finish with financial guidance for 2022. Despite a slow start to the year associated with omicron impact on hospital resources, we are planning for conditions to gradually improve. And therefore, are maintaining all of our previous sales guidance ranges for 2022 for total edwards we continue to expect sales to grow at a low double digit rate to 5.5 billion to $6 billion for taver we expect sales of 3.7 to $4 billion. And for TMTT, we expect sales of $140 to $170 million. We expect surgical structural heart sales of $870 to $950 million and critical care sales of $820 to $900 million. For full year 2022, we continue to expect adjusted earnings per share of $2.50 to $2.65. For the first quarter of 2022, we project total sales to be between
spk08: 1.27 and 1.35 billion dollars and adjusted earnings for share of 54 to 62 cents and with that i'll pass it back to mike thanks scott so in conclusion we're proud of the significant progress we made in 2021 advancing new transformational therapies and delivering strong financial performance we expect continued growth and progress in 2022. We are enthusiastic about the continued expansion of catheter-based therapies for the many structural heart patients still in need, which positions us well for long-term success. As the global population ages and cardiovascular disease remains the number one largest health burden, we believe the opportunity to serve our patients will nearly double between now and 2028. We are confident that our patient-focused innovation strategy can transform care and bring value to patients and the healthcare system. And with that, I'll turn it back over to Mark.
spk15: Thanks a lot, Mike. With that, we're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation. 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.
spk10: And at this time, we'll be conducting our 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 the question queue. You may press the star key followed by the number 2 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. Our first question comes from Robbie Marcus with JP Morgan. Please state your question.
spk01: Oh, great. Thanks for taking the questions. Maybe to start first, a little more color on fourth quarter and first quarter assumptions. U.S. TAVR came in a little lighter than expected. I don't think it's a huge surprise given all the commentary and trends we're hearing with Omicron late in the quarter. But maybe just walk us through what you saw throughout fourth quarter, what you're seeing in first quarter, and... you know, what you're assuming for the balance of first quarter.
spk08: Yeah, thanks, Robbie. So, yeah, fourth quarter started very nicely. We saw a nice momentum in October and November, and we really saw a very strong impact in December. So it was primarily focused in the U.S., and it was centered around really hospital capacity. They really... they reached their limits in many cases and started deferring procedures. We've seen that continue to lead to a slow start in 2022. So at this point, I would say sales are below what we would have typically expected for a start, probably more in line with the kind of thing that we saw toward the end of December. But having said that, our assumptions are that we're going to see more normalized growth as the hospital resource constraints stabilize. And so as Omicron, we think comes down pretty hard. We think that our full year sales guidance is still in place and our best estimate.
spk01: Okay. And then maybe I'll do a follow-up question to that. As we think about the balance of the year, you know, How should we think about the cadence throughout? First quarter came in, as you mentioned, under pressure a bit here, lower than where we were thinking. Maybe just walk us through how we should think about it as a framework for the rest of the year and what are the assumptions underlying that. Appreciate it. Thanks.
spk08: Yeah, thanks, Robbie. You know, we don't have great visibility to exactly what backlogs look like or what the patient flow looks might be. So at this point, we assume that many of the patients that are having procedures postponed or deferred are going to come back. It's not clear to us what month or what quarter we're going to see it. In our assumptions, Robbie, is that by the end of the year that we would see all the COVID-related delays sort of return to the system.
spk01: Okay, great. Thanks a lot.
spk10: Thank you. Our next question comes from Larry Beagleson with Wells Fargo. Please say your question.
spk03: Good afternoon. Thanks for taking the question. Just to follow up, Mike, on the previous question in Q4, you know, it was a tale of two geographies, right? OUS was strong, US was soft. Why do you think the TAVR business was more impacted in the US than OUS? And I have one follow-up.
spk08: Yeah, thanks for that, Larry. Yeah, I think actually it was clearer than you think. Omicron hit the U.S. pretty hard, and it hit it in large population centers. We saw it across the East Coast. We saw it in the Midwest. You know all the places that it was seen. And so we felt a pretty profound impact. In Europe, it was not the case. So although the U.K. experienced Omicron, most of continental Europe just didn't see it in Q4, and so it was a very different picture. I think that was the primary reason. Same thing here. In the rest of the globe, I would argue, right?
spk03: That's helpful. And, Mike, just looking ahead, you completed the Class 2D trial, which is degenerative MR, obviously. How do you think physicians will use the product when it's approved? Do you think people will stick to the label? Do you think people will use it off-label for FMR? How do you think people will use it once it's approved for DMR? Thanks for taking the question.
spk08: Yeah, thanks very much. You know how we deploy these technologies. We're very hands-on with them. We use a high-touch model and really try and guide clinicians to do what's right. So we expect them clearly to be on label. That's the way that we're going to conduct our business. We're going to roll out to people that have experience that we think are very serious about treating mitral disease. And so we think it's going to be one that stays inbounds. All right. Thank you.
spk10: Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
spk09: Hi, guys. Thanks for taking my question. Maybe on one of the guidance, right, I think, or perhaps this is more of a Scott question. I think in the past, you guys, when you've given the guidance, you said, look, it's prudent to be at the midpoint of the range. Given Q1... There's about 50 million below street numbers. Perhaps should we be now thinking about bottom half of the range? Would that be more appropriate?
spk14: Well, yeah, Vijay, it's Scott. Thanks for the question. You know, it's a little early to talk about where the full year is going to come in, again, just because of the uncertainty of Omicron and how quickly it's going to fall off. You know, certainly we feel like, you know, the early prospects are different than we thought back last month at our investor conference. So, yeah, we'd probably model that a little bit lower in the range. But keep in mind, because the fourth quarter came in a little bit lower, that brings us up a little bit in the range. So, you know, still for modeling purposes, the middle of the range is probably a good place to settle.
spk08: Yeah, I'll just add to that. I mean, if you want to think about something, just watch the impact of the pandemic on the healthcare system and on hospitals in particular. So if that goes better, then probably is a better chance that our patients flow through faster. And if it's a greater burden, it would have the opposite impact. So At this point, we still think there's balanced risk in there, but a lot of it's going to depend on whether things transpire the way that we anticipate. That's helpful, Mike.
spk09: And maybe one follow-up. I think you called up Europe as a mid-teens. In Japan, a strong double digits. I'm curious, given the lowest approval, or I guess the receipt of reimbursement in Japan, were there any stocking orders that benefited Q4, or perhaps is this real underlying procedure is, and the implications Japan should continue to be strong for the balance of the year?
spk08: Yeah, thanks, Vijay. So, no, clearly what we felt like we saw OUS was not a result of any kind of stocking. These were real procedures that got done, and that holds true of Europe, Japan, or elsewhere outside the U.S. Was there more to the question than that, Vijay?
spk09: No, I was just curious. So, It implies basically Japan now should be strong for the balance of the year unless there's a new variant, I guess.
spk08: Well, yeah, I mean, it remains to be seen exactly how this variant is going to affect the rest of the world. There's one argument that say, hey, it's a little delayed and so it'll come a little bit later. But then again, it may not have the same impact because of a lot of reasons, whether it's seasonality or vaccination rates or their own safety protocols. So a little tough to predict how it's going to roll out. But overall, we've modeled probably a little more growth OUS than US for 2022. Understood. Thank you, guys.
spk10: Our next question comes from Joanne Wench with Citibank. Please state your question.
spk07: Good afternoon or good evening. Thanks for taking the question. I'm interested in the comment that you made, if I heard it correctly, that you accelerated spending in the fourth quarter for TMTT that you had expected in 2022. So that, if you're planning for a US launch near the end of the year, would have been pretty far in advance. So should I assume that's mostly outside the United States? And what was the motivation to accelerate that spending into the fourth quarter?
spk14: Yeah, thanks, Joanne, for the question. So there are a couple of things going on and we are continuing to invest in our field force as we continue to expand to new sites in Europe. And so that's a piece of the spending that we're doing. We're also starting to build resources in the States. So it takes a while to get ready for a product launch and we're taking very seriously getting the right team in place, making sure that training is robust and that we're ready to go when the time comes. There were some other things that happened in terms of just being ready for doing things like grants, market research, some of the patient awareness initiatives, and starting to fund those in the fourth quarter is also an important part of teeing up TMTT and TAVR for continued growth in 2022 and beyond.
spk07: Excellent. And then my follow-up question has to do with the backlog. I appreciate if Harvard can measure that, but is there any reason that we shouldn't see patients come back maybe in the second quarter the way we saw last year?
spk08: Yeah, thanks, Joanne. Yeah, we remember that very well as well. You know, we saw a pretty incredible surge that we really didn't expect in the second quarter. You know, but I'll remind you, 2021 was a different picture than right now. It wasn't Omicron. It was a different variant. Hospitals were probably in a little different position. They weren't dealing with the constraints associated with laboring. You know there's widespread nursing shortages. We think that all gets worked out over time. We think hospitals have a lot of sophistication. They're going to triage their systems and their staffing measures and ultimately find ways to treat the patients that are most in need. So we think that all gets worked out, but whether it pops in Q2, we're more hesitant than that. We really think it's going to be more of a gradual recovery.
spk07: Excellent. Thank you.
spk10: Thank you. Our next question comes from Matt Mixick with Credit Suisse. Please state your question.
spk13: Hey, good evening. Thanks for taking the questions. I know you're getting a lot of questions on capacity and some of the issues that are constraining the market, but on that topic, can you talk maybe just a little bit about some of the things you mentioned, Mike, about the impact of labor constraints on different types of centers and maybe coming at the guidance question from another direction, what gives you the confidence that these things will get better, like that you're not going to be sort of constrained by nursing shortage and staff, et cetera, for the brunt of the year. And one follow-up.
spk08: Yeah, well, thanks, Matt. And, you know, there isn't perfect certainty here, but we get a lot of anecdotal information, and we're obviously very close to our customers. The situation now, and as we've gone through it in December and January here, feels very different than the early stages of the pandemic. In the early stages of the pandemic, not only did hospitals sort of shut down and close their doors, but there were patients that were very concerned that stayed out of the system. And I'll remind you that the patients that Edward serves are exactly the patients that are most vulnerable to COVID. And so we sort of had the double whammy, if you will, in 2020. What we feel now is it's less about the patient behavior and more about hospital's ability to be able to do the cases so do we hear anecdotal notes and again i i i don't have perfect information for you matt but uh things like hospitals saying you know what we're just going to limit to a certain number of procedures per week or we're going to postpone procedures till next month or we're going to involve our chief medical officer and he's going to look at all the procedures that need to be done and decide and triage them and decide which ones they'll do now and which ones they do later. So you have a variety of actions that hospitals are taking, but we think that the patients are there. And so that's why we feel pretty comfortable staying with our current guidance. We don't have perfect visibility, of course, Matt, but that's behind our thinking.
spk13: Sure. And then just on that same topic of resources, you know, one of the things that you've talked about over the past several years is this shift to more efficient procedures, you know, light sedation and I'm wondering if you're seeing the resource environment drive adoption there, or is that one of the levers that folks are pulling on a little harder to get more patients through the system with fewer resources?
spk08: Yeah, I think the hospitals think about that deeply. Matt, and it is a big plus if they believe that the patients don't need to consume an ICU bed and so forth or even impact hospital occupancy. So I think it all goes into the math of those folks that are managing hospitals. But even more important for them is they're trying to serve patients properly. They're trying to think about which patients are in greater risk and how to move them through the system. So it's It's complex and it's highly different from hospital to hospital and region to region, Matt. So there's a pretty good variance out there, if you will. But in total, I think it's all incorporated in our guidance.
spk13: Thanks so much.
spk10: Our next question comes from Josh Jennings with Cowan. Please go ahead with your question.
spk02: Hi. Good evening. Thanks for taking the questions. Just two on the Class II program. I guess first, just to follow up with Larry's question, I think our checks on the MitraClip prior to approval for FMR and reimbursement suggested that up to 20% of FMR cases are mixed etiology and have a degenerative component. Mike, just to circle back on your answer about staying on label, would those patients of mixed etiology be on label if they do have a degenerative component?
spk08: Yeah, so, you know, I think much of this is going to be physicians making that judgment, and so when it actually comes down to it, the physicians are going to be looking at this patient, they're going to realize that our Pascal device is only approved for degenerative, and they'll have to look at this particular patient and use their own judgment. We think, by and large, they're going to stay on label, but as you say, there are mixed patients, and so they're There's going to be some of that that I'm sure physicians are going to have to just work through.
spk02: Great. And just on class 2D and class 2F, were there any design modifications because of COVID or any pre-specified analyses that have been incorporated into the trial design or because they're head-to-head trials against MitraClip, you know, that randomization takes any COVID-related risk off the table? Thanks for taking the questions.
spk08: Yeah, thanks very much, Josh. You know, we typically just don't go into some of the particulars associated with the regulatory process. It tends to be complex. There's a lot of nuance to it. And I think it would just be confusing if we went into all that. And so we really don't have anything new to share.
spk02: Okay.
spk08: Understood.
spk10: Thank you. And our next question comes from Cecilia Furlong with Morgan Stanley. Please state your question.
spk06: Great. Thank you for taking the questions. I wanted to follow up and just ask, Class 2F and Class 2TR, just what you've seen from an enrollment standpoint recently, and alongside that, how you're thinking about CPNX4 and enrollment in that program commencing.
spk08: Yeah, thanks. Cecilia, we'll start out by saying clearly many of the same sites that were doing Class 2D were involved in Class 2F and Class 2TR. And so having completed enrollment in Class 2D does mean that they probably will turn some of their attention to 2F and 2TR. And so I think it's likely to be, it's only human, it's only likely to be a boost to that. I don't think it's going to have real impact on the completion of the trial, but we're hopeful that things go well here. Of course, these same groups are working with trying to get through Omicron, which is no picnic, but we're hopeful that's short-lived. As it relates to the Sapien X4, the Alliance trial, remember this is a new valve. And so this isn't simply a case of, boy, I'm just going to take all my Sapien 3 patients and just put this new valve in. It really is a very novel valve system. And so this is going to be one that we do with a great deal of deliberateness. And so there's going to be a learning curve associated with this, and so we're just going to have to work through it. We really don't have a prediction on how fast that will enroll at this time.
spk06: Okay. Thank you, Mike. And to follow up as well, I'm just curious, If you could talk about just TAVR in China, what you've been able to do recently with COVID, hopefully pulling back in the near term, how you think about the opportunity to really start developing that market over the next year? And thank you.
spk08: Yeah, we're really looking forward to developing the market in China. And as you say, COVID has been a real setback in that regard because, you know, often if we were launching in a new country like that, we would bring a lot of experts from Edwards, key opinion leaders, and there virtually is no travel to China right now. So it's just been our local team that's doing that, which doesn't make it any easier. We're excited about it. We know this too shall pass, and we'll move on to it, and we're really looking forward to bringing truly premium technology to China. I'm sorry, there was a, let's see. Oh, I think that's probably, does that answer your question, Cecilia? Yeah.
spk06: It does, Mike. Thank you.
spk08: Okay. Thanks.
spk10: Our next question comes from Danielle Entalfi with SVB Lyric. Please state your question.
spk00: Hey, good afternoon, everyone. Thanks so much for taking the question. Just a question on Pascal and how to think about the go-to-market strategy here in the U.S. In Europe, you guys have obviously been getting a price premium. You know, the trial is powered for non-inferiority, so I'm curious if you could, Mike, comment a little bit more on on how you expect to get a premium here as well in the U.S., or if we should be thinking about that a little bit differently. Are there things that we could look for in the data when we do see it that could give us a little bit more comfort that you will be able to successfully get that premium? And I have one follow-up. Thanks.
spk08: Thanks, Danielle. I mean, first and foremost, when we come to the U.S., We're going to run some of the exact same playbook that we have in Europe, which is to really focus on physician training, getting great real-world results, making sure that we get excellent patient outcomes every time we do this. We're going to probably tend to be staying in the places where people have real experience. I don't know that we have a pricing policy that's been established for the U.S. launch at this point, and so we'll tell you about that once it's clear. But our focus is going to be on doing great cases for a while.
spk00: Okay, got it. And then I guess my other question is around Pascal in the U.S. and go-to-market. How to think about leveraging? I know you guys are, I believe you guys are building a separate sales force here, but how you might be able to leverage your presence. You have very strong presence in TAVR at a lot of these centers, and there's a lot of overlap. How can we think about sales synergies or sort of a halo effect on both ends, whether it's for TAVR or for Pascal from a market care perspective? Thanks so much.
spk08: Yeah, thanks, Danielle. I think you know the way that we've approached this across the board is we really feel like TAVR has a long way to go and a lot of growth in front of it and deserves a great dedicated team, and the TMTT opportunity is a very large one. And so the way we've gone at this is decide that we're going to have a dedicated team. Is there some halo that comes from, you know, the Edwards brand and so forth? I like to think so. Of course, we try and maintain a great reputation, but we don't go into it thinking about leverage so much or it's our bundled sales. That's really not our approach. We're going to sell on really trying to do spectacular procedures and get great outcomes.
spk00: Thanks.
spk10: Our next question comes from Suraj Kalia with Oppenheimer. Please state your question.
spk11: Good afternoon, everyone. Can you hear me all right, Mike?
spk08: Yeah, we hear you, Suraj.
spk11: Perfect. So, Mike, I just wanted to follow up on Josh's question about CLASP2D. Will there be any paired analysis presented in terms of the types of devices, i.e., MitraClips used and the number of devices used per case?
spk08: So, you know, Suraj, I'm not sure exactly what's going to be presented, but I would expect that you're going to see a pretty fulsome presentation of the data when it finally does get presented. We've said that that's going to happen in the second half of 22, and when that happens, I think you're going to get a lot of information. You'll see almost everything related to device performance when that's presented.
spk11: Fair enough. Mike, and my follow-up. For the 10 billion by 2028, how does the pie chart look for symptomatic severe, asymptomatic severe, and moderate? Thank you for taking my questions.
spk08: Yeah, thanks. So we don't have perfect clarity on what it's going to look like in 2028, but I can tell you basically what's in our assumptions. The great bulk of this is going to be people with symptoms, with severe AS. And I don't know what percentage that is, but it is the overwhelmingly large percentage. We think that there'll be a small portion of it, which will be asymptomatic patients that are severe. We have assumed that moderate AS patients are really not much in that number. It's really negligible, and so not really in the number at all. And so hopefully that gives you a sense for it.
spk10: Thank you. Our next question comes from Matt Taylor with UBS. Please go ahead with your question.
spk16: Hey, thank you for taking the question. So I wanted to ask you a little bit more about this US-OUF dynamic. I know some of it may be, you know, short-term disruption difference, but there's been notable kind of resurgence or, I don't know, renaissance in international growth. And I was wondering if you could talk more about that. Are you opening more centers? Is it improved acceptance of the therapy? And what does that mean for international growth over the next couple years versus U.S. growth? Do you think it could outgrow the U.S.? Should they be close to each other? Any thoughts on that would be appreciated.
spk08: Yeah, those are all really good questions. And, you know, one thing to keep in mind is the growth rates are all comparable to last year's growth rate, which was, you know, less than normal because it was also impacted by by by the pandemic so we've been super impressed about what's going on in Europe right now this mid-teens growth because here's technology that was improved in Europe in 2007 and to be growing at a mid-teens growth rate right now is very encouraging and it speaks to the the strength of TAVR I mean Europe has never had broadly across Europe let's put it this way they've never had So, for example, TAVR per million population over 65 has been lower in Europe. Pretty good in Germany, but the rest of the country is behind. So there's been some catch-up. When we talk about Japan, we say the same thing pretty routinely, that they really probably should be doing more TAVR and have more disease. And so there's quite a bit of catch-up to go on. So there really is big opportunity, and part of what we may be seeing is just Healthcare systems that have typically been a little slower to adapt are coming around and fueling the growth that's a little higher. And at the same time, you have to say Omicron did hit the U.S. pretty hard. Got it.
spk16: Great. Thanks really, Kyler. I'll let some others jump in. Thanks. Thanks.
spk10: Our next question comes from Chris Pasquale with Guggenheim. Please go ahead.
spk12: Thanks. Mike, I just want to follow up on Cecilia's question about Alliance. I don't think it's been posted yet. Could you just tell us a little bit about the design of that trial, number of patients, length of follow-up, things like that?
spk08: Yeah. The short answer is I'm not prepared to talk about that at this point, Chris. I think there may be some similarities to past trials, but I don't have the specifics on it. So we're going to have to get that to you at a later date here. because it's just I don't have that available now.
spk12: Okay, no problem. And then, Mike, I think I heard you say that TAVR volume in Japan has now caught up with surgical volume. It seems like you may have hit that milestone a little faster there than you did looking at the experiences in the U.S. or Europe. Can you talk a little bit about how market development is going there? It seems like it may have hit a bit of an inflection, you know, maybe over the past year with low risk coming online.
spk08: Yeah, so thanks. For us, it doesn't feel like it's come really fast. It feels like it's come slower. We think that TAVR should be really popular in Japan where surgery is not necessarily a preferred therapy and a great interventional procedure should have gone. There are a number of reasons that sort of slowed it down. They had tighter regulations. So, for example, they limited TAVR to hybrid ORs. They required approvals by national bodies. But at the same time, there have been some really positive developments in Japan. So, you know, now that we have low-risk approval, it's really streamlined the process for these patients to receive therapy. And so that was a big one. And, you know, slowly but surely there have been more centers that were added so that it covers the geography a little better. So there's some positives there. We're catching up. We're excited about the growth rate, but in our eyes, it should have happened sooner. Thanks.
spk10: Thank you. Our next question comes from Jason Bedford with Raymond James. Please go ahead.
spk04: Hi. Good afternoon. Just a couple quick ones. I'll go off script and ask a critical care question. The segment has a decent capital component. I'm just wondering with labor becoming a bigger issue at hospitals over the last couple months, has your view on the environment for capital changed at all?
spk08: Yeah, so it's a good question. Remember when the pandemic hit and hospitals were in trouble, they really pulled back on capital spending. We saw that even most dramatically in the U.S., and that continued into early 21, but it started subsiding. And we saw hospitals started recapitalizing, if you will. And we were the beneficiary of that during 2021 and even saw that affect our performance in the fourth quarter. And we've got this modern hemisphere technology, which is really a step forward for these patients and brings together a lot of our advanced technology for patients that are needing a great recovery. So the combination of those have been really helpful.
spk04: So is 22 still a conducive environment for capital sales?
spk08: It is. We think it's still a very conducive environment. Some of our people wonder whether 22 will measure up to 21 because it felt like 21 might have had a little catch-up in it. So That makes them nervous about being too bullish. But we think it's going to be a more normalized year.
spk04: Okay, thanks. And maybe just quickly for Scott. Scott, in describing the factors impacting gross margin, you didn't mention inflationary pressures. I'm just wondering, are you not seeing it, or is it just not material to the business right now?
spk14: Thanks for the question. We are seeing inflationary pressures in a couple of areas. One is just wage rates around the world. There's upward pressure. And then, of course, materials and supplies. And so we're managing through those. Our biggest priority has been making sure that we can deliver our finished goods, our lifesaving therapies to hospitals around the world. And we're really proud of our global supply chain team that's been able to navigate the challenges from shortages to logistics and still continue to be able to meet demand. And so we'll deal with the inflation. It's in our 78% to 79% gross margin guidance for the year, but we're feeling like we know what needs to get done.
spk04: Great. Thanks.
spk10: Thank you. And our final question comes from Peter Chickering with Deutsche Bank. Please state your question.
spk05: Good afternoon, guys. Thanks for fitting me in here. To follow up on the U.S. Tower questions, can you help us understand why in the third quarter we saw hospitals near capacity for nearly two months in August and September, whereas COVID really only impacted fourth quarter by a few weeks in December? Just trying to look for any more color on sort of why fourth quarter slowed sequentially versus third quarter.
spk08: Yeah, so you're going to test my COVID memory a little bit here, but we felt like we were recovering from Delta. And so it had a pretty significant impact in the third quarter, and that was being mitigated to some extent. It was improving in October and improving in November. And then Omicron showed up, and it changed the trend. So that was it. We went from recovering from Delta to being impacted hard and quick by Omicron.
spk05: Okay, and then a follow-up question for Scott. They talked about pulling forward SG&A investments from 2022 into fourth quarter in preparation of these product launches. So do you think about a similar dollar amount for SG&A spending going into first quarter? And you can start to get leverage on that as revenues increase after first quarter, get to your guidance range of 28% to 30%. Thanks so much, guys.
spk14: Sure. Thanks for the question. I mean, you can tell from our guidance where the midpoint of our sales guidance is, call it $1.315 billion. which is a little bit lower than our fourth quarter sales, and yet our EPS we're forecasting in a higher range. And so the difference is going to be really in the cost lines, and we think that a lot of the SG&A that we pulled forward in the fourth quarter will probably not show up in the first quarter as a result, and that's really the biggest driver of the increase in EPS that we're expecting and guiding to in Q1. Great. Thanks so much.
spk08: Okay, thanks for your continued interest in Edwards. Scott, Mark, and I welcome any additional questions by telephone.
spk10: Thank you. And that concludes today's conference. All parties may disconnect. Have a great day.
Disclaimer

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Q4EW 2021

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