Edwards Lifesciences Corporation

Greetings and welcome to the Edwards Life Sciences second quarter 2022 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, sir.

You may begin. Good afternoon and thank you all for joining us. With me on today's call are Mike Musalem, Chairman and Chief Executive Officer, and Scott Ullum, Chief Financial Officer. Also joining us for the Q&A portion of the call today will be Larry Wood, our Global Leader of TAVR, Bernard Zlavakian, our Global Leader of TMTT, and Devine Chopra, our global leader of surgical structural heart. Katie Zyman, our global leader of critical care, is out of town today, but she'll be with us on future earnings calls. Just after the close of regular trading, Edwards Life Sciences released second quarter 2022 financial results. During today's call, management will discuss those results, included in the press release and accompanying financial statements, and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include but aren't limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These statements speak only as of the date on which they were made, and Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties, including but not limited to those associated with 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 2021 annual report on Form 10-K, and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, a quick reminder that when using the terms underlying and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to GAAP 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?

Thanks, Mark. In the second quarter, total company sales reflected year-over-year and sequential growth across all four of our product groups on a cost of currency basis, despite several challenging factors. Sales were lifted by strong performance outside the U.S. with double-digit underlying sales growth in Europe and Japan. On a constant currency basis, total company sales grew 5% compared to the extraordinary second quarter of 2021 when sales increased 44%, lifted by the treatment of patients who had postponed their care. Nevertheless, second quarter sales and EPS were at the lower end of our expectations as a result of U.S. hospitals struggling with staffing shortages as well as the stronger U.S. dollar. We now anticipate that these challenges are likely to persist throughout 2022, and as a result, we are lowering our second-half outlook to more realistically reflect the current operating environment. Although the near-term environment remains uncertain, we are unwavering in our long-term pursuit of groundbreaking innovations. We are investing to achieve breakthrough therapies that create significant value for patients and the healthcare systems enabling strong organic sales growth. We continue to make meaningful progress on our pipeline and expect to achieve important milestones by year end. As the global population ages and cardiovascular disease remains the largest health burden, we continue to believe the opportunity to serve our patients will nearly double between now and 2028. Now, turning to the quarterly results by product group. In TAVR, Second quarter global sales of $907 million increased 5% on an underlying basis, despite approximately 50% growth in the year-ago period. Sales were below our expectations due to the ongoing U.S. hospital staffing constraints and foreign exchange headwinds, but still represented our highest quarter of TAVR sales. We estimate global TAVR procedure growth was comparable with Edwards growth in the second quarter. In general, local selling prices were stable, although the average global selling price declined slightly due to the weakening euro and yen. In Q2, we continued to advance two pivotal trials aiming to expand indications. First, our early TAVR trial is studying the large group of patients with severe aortic stenosis and no diagnosed symptoms. Second, our progress trial is evaluating patients with moderate AS, which represents a group that is much larger than those with severe AS. And last month, we also began treating patients in our Alliance pivotal trial for our next generation, Sapien X4. In the U.S., our TAVR sales were approximately flat with the elevated prior year, but increased in the high single-digit range sequentially. We estimate that our share of procedures was stable. As previously mentioned, our second quarter U.S. TAVR sales were impacted by slower-than-expected improvement in the U.S. hospital staffing and temporary contrast agent shortages. Also recall, in Q2 of last year, our U.S. TAVR sales increased over 50% on a year-over-year basis as COVID vaccines became more widely available and patients who had waited were treated. On a three-year compounded annual basis, our U.S. TAVR sales increased 10% compared to the strong second quarter in 2019. Outside the U.S., in the second quarter, our underlying TAVR sales grew in the mid-teens on a year-over-year basis, and we estimate total procedural growth was comparable. This strong growth outside the U.S. was consistent with our underlying three-year compounded annual growth rate also in the mid-teens. Long term, we see excellent opportunities for OUS growth as we believe international adoption of TAVR therapy remains quite low. In Europe, Edwards sales growth was driven by the continued strong adoption of our Sapien platform. We estimate that our competitive position was stable. Localized hospital staffing disruptions impacted second quarter results, although this headwind was less pronounced than in the U.S. 15 years after commercialization, it's encouraging to see the resilience of the TAVR programs in Europe despite the challenging backdrop of today's environment. In Japan, we experienced continued strong TAVR adoption as we remain focused on expanding the availability of TAVR therapy throughout the country. Similar to last quarter, the number of TAVR procedures performed exceeded surgical aortic valve replacement following approval last year for patients at low surgical risk. In summary, we continue to be very optimistic about the long-term potential of TAVR because of its transformational impact on the many patients suffering from aortic stenosis and because many remain untreated. Recall that we had previously assumed an improvement in the US hospital staffing shortages throughout the year. We're now anticipating a slower improvement and as a result, we are adjusting our full-year outlook. We expect underlying TAVR sales growth of around 10% in full-year 2022 versus the previous expectation for 12% to 15%. Longer term, we remain confident in this large global opportunity and that it will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double-digit range. Now, turning to TMTT. To transform treatment and unlock this significant long-term growth opportunity for mitral and tricuspid patients, we remain focused on three key value drivers. A portfolio of differentiated therapies, positive clinical trial results to support approvals and adoption, and favorable real-world clinical outcomes. At the TCT conference in September, we expect the first results of the CLASP 2D pivotal trial evaluating patients suffering from degenerative mitral regurgitation. This first of its kind head-to-head randomized pivotal trial powered for non-inferiority will be the first of several key pivotal trials evaluating the Pascal technology. Additionally, at TCT, we expect three-year data from the earlier CLASP study This growing contemporary body of clinical evidence will be important for the physician community considering transcatheter edge-to-edge repair treatments for mitral patients. We remain on track for US FDA approval and CE mark approval of Pascal Precision by year end. This next generation system is designed to facilitate precise navigation and an intuitive user experience extending our differentiated platform. This will allow us to expand Pascal adoption in Europe, and we're pleased that we'll be launching the newest generation of Pascal in the U.S. In mitral replacement, we continue to broaden our experience with both of our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for sapien M3 and the MISEN study for evoke EOS. Growing evidence with these sub-30 French transfemoral therapies furthers our competence in both platforms. Turning to tricuspid, we also continue to make progress on enrolling the TRICEN2 pivotal trial for the EVOC replacement system and the CLAS2TR pivotal trial with Pascal in patients with symptomatic severe tricuspid regurgitation. While we remain hopeful for year-end approval in Europe, Uncertainties exist regarding the new MDR approval process for novel technologies seeking a CE mark. We remain committed to bringing the evoke therapy to these tricuspid patients who have a very poor prognosis and few treatment options today. As we continue to build a body of compelling clinical evidence, we're pleased with the recent data from several late-breaking presentations. One-year results from our class TR study presented at the American College of Cardiology conference demonstrated significantly reduced TR, improved quality of life, and maintained TR reduction. Also, at the EuroPCR meeting, 30-day post-market data from our tri-class study was presented with 90% of the patients showing improvements in their quality of life. At upcoming medical conferences this year, we plan for contemporary evidence to be presented on both our Pascal and Evoke platforms. Turning to results, second quarter global sales were $28 million, driven by the continued adoption of the Pascal platform and activation of more centers across Europe. Our Q2 commercial performance was tempered by lower than expected market growth related primarily to COVID headwinds. We are now updating our full year guidance to $110 to $140 million, which represents approximately 60% underlying growth over the prior year and reflects a stronger than anticipated impact from foreign exchange as the vast majority of TMTT's business is in Europe. Bigger picture, we continue to be pleased with our progress forward on three key value drivers. We're advancing our comprehensive portfolio of differentiated therapies combined with contemporary clinical evidence and favorable real-world patient outcomes. Together, this demonstrates the promise of these therapies for this significant unmet patient need and will help unlock this large market potential. In surgical structural heart, second quarter 2022 global sales of 229 million increased 2%. on an underlying basis over the prior year. We are encouraged to see global growth despite sales headwinds from the planned discontinuation of certain non-core cannula products, as well as the COVID shutdown in China, which combined reduced growth by approximately 500 basis points. Our growth continues to be driven by increased penetration of our premium Resilia products. We've seen strong adoption of the Mitras Resilia Valve in the U.S. since its initial launch in April. Building on the commercial success of Inspiris, we believe hospitals value the intuitive product features as well as the benefits of this innovative Resilia tissue technology. Physician feedback in regions where Mitras has been launched has been positive, and initial clinical outcomes have been favorable. In the second quarter, we continued to bolster the overall body of Resilia evidence. This includes a commenced trial subanalysis, which demonstrated the excellent performance of this tissue technology when treating bicuspid aortic valve disease, which was presented at the 2022 annual meeting of the American Association of Thoracic Surgeons in May. In a cohort of more than 200 patients, averaging a relatively young 60 years of age, structural valve deterioration was zero at five years. In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid-single-digit range for surgical structural heart, driven by market adoption of our newest premium technologies and global surgical market growth. In critical care, second quarter sales of $211 million increased 3% on an underlying basis. As expected, growth was moderated by strong prior year comparisons. Sales growth was driven by increased adoptions of our hypotension prediction index algorithm and our broad portfolio of sensors. Additionally, we continued enrollment in the HPI Smart BP trial, focused on generating additional clinical evidence to support further adoptions. Demand for the Hemisphere monitoring platform remains strong with a healthy pipeline of future opportunities. In summary, we continue to expect mid-single-digit underlying sales growth in 2022. We remain excited about our pipeline of critical care innovations as we shift our focus to smart recovery technologies designed to help clinicians make more informed decisions for their patients. And now I'll turn the call over to Scott.