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spk03: 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.
spk13: 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?
spk06: 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.
spk15: Okay, thanks, Mike. Despite several challenging factors, hospital staffing and foreign exchange headwinds, our business fundamentals remain strong. We achieved total sales in the quarter of $1.37 billion, with double-digit underlying sales growth in Europe and Japan. We expected our underlying growth in the second quarter would be our lowest of the year, given our strong prior year sales performance. Our higher-than-expected gross profit margin, lifted by the positive impact from our foreign exchange program, contributed to an adjusted earnings per share of 63 cents. We are adjusting our guidance to more accurately reflect the continuation of the more pronounced FX headwinds and slower-than-expected improvement in COVID-related hospital staffing. We expect total company underlying sales growth of approximately 10% in the second half of this year. For full year 2022, we now expect total Edwards sales of $5.35 billion to $5.55 billion. We expect TAVR sales of $3.5 to $3.7 billion. For TMTT, $110 to $140 million. For surgical structural heart, $870 to $950 million. And for critical care, $820 to $900 million. Now expect full year adjusted earnings per share guidance at the bottom end of our original guidance range of $2.50 to $2.65. For the third quarter, we're projecting sales to be between 1.30 and $1.37 billion and adjusted earnings per share of 58 to 66 cents. I'll now cover additional details of our results. Our adjusted gross profit margin in the second quarter was 80.5%, compared to 75.9% in the same period last year. This improvement was driven by the higher than expected positive impact from our FX program, which includes natural hedges and hedge contract gains that offset the sales impact from the weakening of the euro and yen versus the dollar. At current foreign exchange rates, we now expect our full year and second half 2022 adjusted gross profit margin to increase to approximately 80%. This guidance range reflects our assumptions of a favorable impact from FX hedge gains and an improved product mix, partially offset by supply chain inflationary pressures. This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange versus 2021, At current FX rates in 2023, we expect an approximate 250 basis point reduction in our gross profit rate. Selling, general, and administrative expenses in the second quarter were $409 million, or 29.8% of sales, primarily due to a resumption of in-person commercial activities, partially offset by the weakening of the euro and yen against the Continue to expect full year 2022 SG&A expenses as a percent of sales to be between 28 and 30% as we continue to invest in our high touch model for TAVR and the ongoing build out of the TMTT commercial team. Research and development expenses in the quarter grew 11% compared to the same period last year to $251 million or 18.3% of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including eight currently enrolling pivotal clinical trials. For the full year 2022, we continue to expect R&D expenses to be between 17% and 18% of sales as we invest in developing our new product pipeline and generating evidence to support TAVR and TMTT. During the second quarter, we recorded a $21 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by 3 cents. This benefit was excluded from our adjusted earnings per share of 63 cents. This reflects an accounting adjustment from assumptions regarding potential milestone payments for a previous acquisition. Turning to taxes, our reported tax rate this quarter was 12.5%. or 12.9% excluding the impact of special items. Due to last quarter's new regulations that potentially limit the amount of our foreign tax credits, combined with an estimated reduced tax benefit from stock-based compensation accounting, we now expect our full-year tax rate, excluding special items, to be at the high end of our previous 11 to 15% range. Foreign exchange rates decreased second quarter reported sales growth by 4.6 percentage points, or $60 million, compared to the prior year. At current rates, we now expect an approximate $250 million negative impact, or 4.5 percentage points, to full-year 2022 sales compared to 2021, of which approximately $170 million impacts the second half of the year. FX rates positively impacted our second quarter gross profit margin by 380 basis points compared to the prior year. FX rates had a minimal impact on second quarter earnings per share. We mentioned at the investor conference, in periods of a strengthening dollar like this, sales are negatively impacted, but as a result of financial and natural hedges, margin rates benefit, resulting in a minimal impact to the bottom line in the calendar year. Pre-cash flow for the second quarter was $289 million, defined as cash flow from operating activities of $332 million, less capital spending of $43 million. Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share our purchase activities. We continue to maintain a strong and flexible balance sheet with approximately $1.5 billion in cash, cash equivalents, and short-term investments as of June 30, 2022. Average shares outstanding during the quarter were $627 million, down from the prior quarter as we repurchased 3.7 million shares during the second quarter for $355 million. In the first half of the year, we repurchased 7.3 million shares. In July, we obtained Board approval to increase the authorization under our share repurchase program, consistent with our long-time practice of seeking new authorization when the prior authorization has been diminished. We now have $1.9 billion remaining under the program. Given our repurchase activity in the first half of the year, we now expect our average diluted shares outstanding for 2022 to be between $625 and $630 million. With that, I'll pass it back over to Mike.
spk06: Thanks, Scott. Our strong foundation of technology leadership combined with a robust product pipeline positions us well for continued success. As patients and clinicians increasingly recognize the significant benefits of transcatheter-based technologies supported by the substantial body of compelling evidence, we remain as optimistic as ever about the long-term growth opportunities. And with that, I'll turn it back over to Mark.
spk13: Thanks a lot, Mike. Before we open it up for questions, I'm excited to announce that Edwards is planning to host a investor update at TCT on Saturday, September 17th. This event will include a recap of pivotal trial data, updates on our latest technologies, and views on longer-term market potential. We hope to see you there, but please note this meeting will be webcast for those who cannot attend in person. More information will be available in the coming weeks. With that, we're ready to take questions now. To allow for broad participation, we ask that you please limit the number of questions to one plus one follow-up. If you have any additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call. Diego?
spk03: Thank you. And ladies and gentlemen, if you'd like to ask a question at this time, simply 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 go ahead.
spk10: Oh, great. Thanks for taking the questions. Maybe to start, you know, TAVR is such a necessary procedure for these patients, and it's, you It's sad to see it slow down like this, but it's understandable given how many steps are involved and the patient population involved. What's your sense of what the early funnel is like? How's the early funnel with patient visits to doctors, diagnosis? Where is really the bottleneck that you're seeing, and how do you expect the funnel to play out in third and fourth quarter, both U.S. and outside the U.S.? ?
spk06: Yeah, thanks, Robbie. Yeah, what we're feeling right now is different than the early days of the pandemic. In the early days of the pandemic, yes, there was impact on hospital capacity, but you also had patients that were just concerned about coming into the system, and they stayed away. We feel like patients are entering the system now and are queued up to go through, and there's just There's just a lack of capacity in hospitals in some cases to handle all the patients, and so that care is being postponed. You're right, given that this disease is so deadly, it is very concerning because we know these patients don't wait well and there are going to be some casualties. I don't know, Larry, do you have anything to add to that?
spk09: No, I think that's a good summary. When the pandemic first happened, hospitals, the beds were all filled up with COVID patients, and we don't see that today. hospitals have beds, they have capacity, they just don't have staff. And I think some of what we're challenged with a little bit is as people test positive for COVID, they're not getting hospitalized, but they have to leave the workforce while they isolate. And I think that's exasperating a little bit of the staffing challenges. But you're right, the patients don't wait well. And we were already dealing with undertreatment of AS before the pandemic hit, and certainly this hasn't made it better. But these patients deserve therapy, and we're hoping this returns back to a more normal state.
spk10: Okay, and maybe as a follow-up on TMTT, it's not surprising given the Euro exposure to see the guidance move down there on a dollar basis. But, you know, this is also a market that's recovering probably slower than we had thought at the December analyst day. Maybe you could walk us through how much of it is Pascal and your product set versus the competition and how much is the market and how we should think about cadence there in third and fourth quarter as it still requires a step up to reach the midpoint of guidance. Thanks a lot.
spk06: Yeah, thanks, Robbie. So, yeah, a couple of things. As we mentioned, because most of the Pascal sales or in Europe, we do get affected by currency in a more dramatic way than we would otherwise. But the other issue is less of a competitive issue as we're really feeling like the market didn't grow. It really slowed down in TMTT. And, you know, Bernard, why don't you provide some color on that?
spk01: Yes. Yes, exactly, you know, Mike. So if you think about on a short-term basis, the TMTT procedures are more resource-intensive. They require general anesthesia, ICU stay for the patient. So therefore, they have been impacting more than any other procedure that we know here.
spk13: Next question, please.
spk03: Thank you. Our next question comes from Larry Beagleson with Wells Fargo. Please state your question.
spk16: Good afternoon. Thanks for taking the question. One for Larry, one for Bernard, or whoever wants to jump in. Just on TAVR, just Larry, any color on trends in the U.S. TAVR market in Q2? How much do you think the contrast shortage impacted you? And I'd love to hear why you think the U.S. has been softer than Europe. And I had one follow-up for Bernard.
spk09: Sure. Yeah, contrast I think was more of an issue earlier in the quarter than late in the quarter. It seemed to get better as the quarter went on. But certainly there was an impact. It probably impacted smaller hospitals more than the bigger systems that probably had more reserve. So that was that. In terms of trends, as much as we get frustrated by it, we did grow sequentially. So we did see some improvement in hospital staffing. just not as much as we were anticipating. And we obviously have a tough comparison to a year ago when we grew almost 50%. So that's just kind of where it is. We still anticipate it's going to get better over the course of the year. It's just been more slow than we would have hoped.
spk06: Yeah. And just to add on, Larry, your question about Europe versus the US. You know, we did see staffing shortages in Europe, but they were more isolated in nature. We saw them in particular countries or regions, whereas the U.S., it really felt more widespread, more broad. And so it turned out to be more pronounced. We were able to more or less swamp those in Europe.
spk16: That's helpful. And then, Mike, for you or Bernard, you know, for Pascal and Class 2D, I assume we should read into your expectations of Pascal approval by year-end. Do you feel good about the trial meeting, its endpoints? That's part A. And part B, there have been a lot of changes to both Pascal and MitraClip since the trial started. You have Pascal A's precision. MitraClip's gone from Gen 2 to Gen 4. How might that impact the results? And do you expect kind of a mix of different devices in the trial? Thanks for taking the question.
spk06: Yeah, thanks. You did perceive it correctly. We feel like we're on track for our year-end approval in Pascal, and we're looking forward to that. As I'll remind you, that trial is designed as a non-inferiority trial, and so that's what the target is. You also brought up another interesting point. If you look at what's available for clinicians today, some of that data is kind of old, right? It's for patients who were treated maybe five years ago and sometimes even further back. And there have been a lot of improvements in our system and competitors as well. And so what will be also interesting about the data that we see is we'll see more or less a contemporary update of how edge-to-edge procedures are going. Anything to add to that, Bernard?
spk01: No, you know, you're right, Larry. You know, we are, what you are going to see is, you know, a number of analyses done, you know, with these, you know, pivotal studies. You know, we have the original Pascal and ACE. a number of mitrically, you know, generation also. But as you can imagine, you know, like in any pivotal randomized study, you know, the first result will represent the data necessary to support approval and adoption. And what you can expect is additional presentation over time with more analysis.
spk16: Thank you very much.
spk03: Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please set your question.
spk05: Hey, guys. Thanks for taking my question. One on, I guess, on the Pascal side here. Given all of these revenues are coming out of Europe, and Europe seems to be perhaps less impacted by labor shortages, did we just get the adoption curve wrong, or maybe just talk about what changed in the revenue branch here for Pascal?
spk01: Thanks for the question. So in Q2, we continue to grow sequentially, quarter over quarter, year over year. We continue to grow our presence, our teams. We open new sites, both in Germany and outside of Germany. We feel good about our meaningful presence in Germany, even though there are more to do. Beyond Germany, there is still a lot to do. So the adoption is going fast. you know, at the pace, you know, we want in terms of site adoption and Pascal adoption, you know, for sure, you know, the market growth was less than anticipated in Q2. And we expect, you know, that, you know, to last, you know, and to improve, you know, gradually in the second part of the year.
spk06: Yeah, you know, and I might just add, Vijay, that, you know, because our business is more concentrated in TMTT in certain regions, like, for example, you know, there's more business in in Europe or in Germany in particular than other parts of Europe. Some of those labor shortages and strikes in Germany probably had a little greater impact on this. So that combined with the point that Bernard made earlier that these procedures still require anesthesiologists and ICU stays are probably why the market slowed. And you'd also argue in Europe they're not fully convinced because they have the mitral FR data that also is out there. And so it's another reason why we're kind of excited about bringing a new data set later on this year.
spk05: That's helpful perspective, Mike. And maybe one for Scott. On the EPS guidance, I think the implied fourth quarter EPS, Scott, depending on third quarter assumptions, it could either be flattish or down sequentially. Is that just a function of... you know, how the FX hedges roll off or anything else that's going on that drives the fourth quarter UPS?
spk15: Yeah, sure. Thanks for the question, Vijay. Well, just maybe the way to answer it is to bridge the midpoint of our original guidance of 258 to guidance now, which is more like the bottom of that $2.50 to $2.65. And the moving pieces are probably first and foremost just the sales change from the original guidance, partly driven by and just some of the headwinds that we talked about, partly driven by FX and how that impacts sales and then flows down to EPS. You know, we're seeing a higher tax rate, as we talked about. We think now the tax rate's going to look something more like 15% or the top end of our original 11% to 15% range. That probably costs us about a nickel. And then we've seen some positives as well. We think we're going to get a couple pennies from increased interest income as a result of what's happening in the investment market. And, you know, two cents or so share account based upon all the repurchase activities that we've been doing so far. So we're not guiding to fourth quarter EPS down, but that gives you a sense of how the overall year looks compared to our prior guidance.
spk05: That's helpful, Scott.
spk03: Thank you, guys. Our next question comes from Joanne Wench with Citi. Please state your question.
spk07: Good afternoon or evening, and thanks for taking the question. As we think about 2023, I appreciate the commentary on the FX hedges slipping and the impact to gross margins next year. Is there anything in particular that you would like to comment on? Because I think generally people are starting to make sure the 2023 numbers are somewhat in the ballpark they currently know.
spk15: So, Joanna, you're talking about the 2023 gross profit numbers are in the ballpark based upon what you know?
spk07: Well, I'm talking just any metric you can give us, and thank you for the gross margin commentary, but anything else you may be able to set us up with?
spk15: Yeah, it's premature to start talking about the different line items of the P&L for 2023. Of course, we'll go through that in detail at the investor conference. But because gross margin is being so impacted by FX this year, we did want to give a little bit of lens into what's going to happen as these hedges start rolling off in 2023. So based upon FX rates right now, we'll lose something like 250 basis points of the 350 basis point benefit we're seeing in 2022. Keep in mind, that's compared to 2021. So in other words, we still think we'll get something like 100 basis point benefit from FX in 2023. because we've locked in some hedge gains during the first half of this year. All in, you know, for modeling purposes, if you think about 77.5% or something like that, somewhere in that range, that's probably a good modeling assumption for now for next year.
spk07: And then as a second question, assuming FDA approval by the end of this year for Pascal, how do we think about launch, again, going into next year? Thank you.
spk06: Yeah, so... Maybe, Bernard, you're best to go through that. You can go through the particulars of how we plan to launch.
spk01: First, let me say we are pleased with our progress in Europe. We are building the U.S. launch plan, having in mind what we did in Europe. Obviously, our great success, we started in the U.S. We are currently building the U.S. TMTT field team. focusing on obviously high quality of training, making sure that we can execute on our high-touch model the same way we are doing in Europe, having in mind excellent patient outcome. So obviously we expect our U.S. launch with clinical evidence, which we didn't have when we launched in Europe, which is a big difference. At the same time, one of the other differences also is we are going to have only DMR approval. So that's the way to think about the U.S. launch.
spk06: And maybe just to add a little bit more, Dren, you know, this is going to be a stepwise launch. We're not going to try and serve all hospitals at once. We've really prioritized the group. That will be our first step, but we're trying to make sure that we have a well-trained team that assures great outcomes right from the beginning. So it will be more of a ramp than a step function.
spk07: Thank you.
spk03: Thank you. Our next question comes from Celia Furlong with Morgan Stanley. Please go ahead.
spk08: Great. Good afternoon, and thanks for taking the questions. I wanted to ask just if you could provide some color on both the COVID, the staffing shortage impact on enrolling some of the trials in the U.S., both the class studies, alliance, and then if you have an outlook right now just around export timing, approval timing, I'd love some color on how you're thinking about that as well.
spk06: Yeah, thanks, Celia. Maybe I may I start and we'll let Larry and Bernard jump in to add some additional color about the trials. Just broadly, the fact that COVID has been persistent is a burden on hospitals. And anyway, you slice it because what happens is even though we don't consider today's COVID so deadly, when someone tests positive, they're out. The people they've had contact with are out and they might have missed five days. So it really is disruptive to a team. and that can help but have some impact. Having said that, overall, we feel pretty good about our clinical research. Larry, why don't you update us on the TAVR side, and Bernard, you can talk about TMTT.
spk09: Sure. Well, you know, we have three big trials. We have early TAVR, which is fully enrolled, and we have our PROGRESS trial, which is our trial where we're studying moderate aortic stenosis and You know, while we certainly see some impact, we've been actually pretty pleased with how that's going so far, and there's a lot of clinician interest. And then we just started enrolling last month in our Alliance trial, which is our X4 trial for our next-generation sapien platform, and we've been pleased with the enthusiasm there. You know, you always start the trials a little bit slow as you're getting sites up and you're getting them trained, and it's a brand-new valve platform. But overall, we've been pleased with the start.
spk01: Yes, and, you know, for TMTCs, the class 2D, you know, we completed enrollment. You know, we have class 2F, you know, class 2TR. We have class 2, you know, for evoke. So, yes, you know, the mitral and tricuspid, you know, procedures are more resource-intensive, and they require, you know, more, you know, staffing. But, you know, we have seen a little bit of an impact, but not so much. You know, we are pleased with the kind of enrollment we are having across all of the TMTC trials.
spk08: Great. Thank you. And if I could ask as well, just going back to your analyst today, you talked about your DTC TAVR initiative. Just would love some color in terms of what you've seen out of that, where you are in that process at this point. And thank you.
spk06: Yeah. So thanks. I mean, I don't know, Larry, if you want to update that. We continue to be very focused on trying to make sure that we help patients come off the sideline just because it is such a big issue and it's going to be an important source of growth.
spk09: Yeah, we continue on these efforts. Even though the hospitals are struggling a little bit to train the patients they have, it takes a while for these patients to move through from diagnosis to screening and to treatment. And so we just think it's important to keep raising the awareness around aortic stenosis because it remains woefully undertreated. Only about 10% to 15% of patients with severe aortic stenosis actually get treated today. And again, we're running the trials to prove the point. with early TAVR and with progress, but we know these patients don't wait well, even though, you know, some people may think they wait better than they actually do. So we're committed to the evidence and we're committed to making sure patients are aware and we continue to execute on those programs.
spk03: Great. Thank you. Our next question comes from Travis Steed with Bank of America. Please go ahead.
spk17: Hey, thanks for taking the question. Just looking at Q3, you said some of the Q2 staffing issues ease a bit. Contrast is more of a Q2 issue. But in Q3, there's usually some seasonality. So if you look at U.S. TAVR, I was curious if you think TAVR could be up sequentially this time around or if it's probably down sequentially in Q3.
spk06: Yeah, I'll just start out by reminding you that across Edwards business, it's very normal for us to have Q3 be seasonally down. compared to all the other quarters of the year. Because our procedures are generally done in teams and people take their summer vacation, that's routinely going to be down. The other factors that are in there, they just add to that. So, no, we probably expect Q3 to be lower than Q2 and then Q4 to rebound to a higher level yet. But that would be a more typical seasonality. I don't know. Larry, do you have anything to add on U.S.?
spk09: Yeah, I think that's right. I think people are still pent up. And, you know, if you try to get a hotel reservation or an airline reservation lately, you know, I think people are certainly taking their vacations. But I think the good news is the contrast issue, I think, is largely behind us. Maybe not 100%, but pretty close. We're not hearing near as much issue with that. So I think getting that behind us is helpful. But as Mike said, you know, we typically do see some seasonality in Q.
spk17: No, that's fair. Thank you. And oh, us there. It was down sequentially this quarter. I don't know if there's anything else to call out that you haven't already called out, but love some more color there. And then if you look at Pascal and the benefits that you see there versus the competitive device, I'm just curious if, if you look at how the, how everything's designed, the product design, if you think there's like a way you could potentially compete clinically with a competitive device or if there's other ways that you plan to compete there.
spk06: Okay. Actually, so I'm not under the impression that we were down sequentially in Q2. Maybe that could be a byproduct of foreign exchange, and that may be what you're seeing. But on an underlying basis, actually, there was sequential growth. Bernard, do you want to jump on the second part of the question?
spk01: Yes. So on Pascal, let me address two things. One is maybe the second half of the year and a little bit about the Pascal benefit of the device. So second half of the year, we are going to continue executing our strategy, opening more sites in Germany, outside of Germany, driving the adoption of Pascal with our high-touch model. And what we see, obviously, in Europe is that we have a differentiated device. We are very pleased with the kind of patient outcome we are having. But obviously, at TCT, with the first of its kind class 2D randomized study, we This is going to inform us, inform the medical community about the difference between the two devices, the tier as a whole. So a lot of learning coming from the TCT presentation here.
spk17: Great. Thanks for that. And I'll recheck my model on the Q2 thing.
spk03: Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Please, your question.
spk02: Good afternoon, everyone. Thanks for taking my questions. Mike, Larry, in terms of low-risk symptomatic aortic stenosis, right, a number of patients have bicuspid, and I'm curious about the bicuspid registry and alliance. Why so now? And also the 915 patient size, it's a single-arm study, so any additional color would be greatly appreciated.
spk09: On clintrials.gov, I think the 900-plus number relates to the primary cohort along with the registries that we have. We try to study all sort of the adjacencies by cuspid. We try to study the valve-in-valve things, all the different ways in which our platform gets used, because it's quite versatile. So some of those registries lag a little bit starting the original cohort, but they usually come on. And so I think that's what's reflected in the numbers there. You know, bicuspid patients require sort of a different level of screening anatomically, so we tend to run those in a separate registry so that we can report on them separately. But then, you know, we have the primary cohort for all the patients. But I believe this trial is pretty much a near-all-comer trial. I don't think we're limited to just low-risk patients, so it's going to be, you know, pretty much a real-world trial on how this technology performs.
spk02: Fair enough. And Larry, Mike, again, last question. I'll hop back in queue. Maybe you all could give us some guideposts in Japan. Our understanding is TAVR is annualizing somewhere 25,000 to 30,000 cases across 250 or so sites. I'd love to get some perspective of where it stacks up in Japan so that we can strip out that contribution. Thank you for taking my questions.
spk06: Thanks for that. I don't know that I have the level of detail to be able to fully satisfy your question. Indeed, like most places around the world, we're very proud to be market leaders, but there's still a lot of work for us to do in Japan. They have an elderly population, and even though we've enjoyed some really nice growth over the last couple of years, we should be getting that kind of growth because that undertreatment rate is significant. We've been buoyed over the past year or so by the addition of hospitals, which has been very helpful. It had been originally more restricted in Japan, and so that's grown, and that's been a contributor as well. Larry, do you have anything to add to that?
spk09: Yeah, you know, Japan's been a little bit unique in terms of how the markets develop. You know, in the other markets, we sort of went from this high risk to this intermediate risk to these low risk approvals, and in Japan, we went directly from high risk and kind of almost inoperable immediately to low risk. So it's taking time for people to adjust to sort of that new normal because it's a much bigger step function. But Mike's absolutely right in terms of the number of elderly patients there and the opportunity there. Even though we've enjoyed pretty robust growth there, the opportunity there remains large. Thank you.
spk03: Thank you. Our next question comes from Ed Ridley with Redburn. Please state your question.
spk11: Good evening. Thanks very much. Just a couple of follow-ups, please. First of all, on the contrast media shortage, Scott, thanks for your comments. Could you quantify the impact in the quarter? That would be helpful, and it's obviously good to hear that it's pretty much behind you. Also, I had a question on capital gains. investment from the hospitals. We've heard differing comments from different management teams during the last couple of weeks on whether or not there is pressure on CapEx spending, particularly in the U.S., and I was wondering if that had been any effect on critical care or whether you're seeing any signs of that. Thank you.
spk06: Okay. Well, thanks. On the contrast media, I don't know that I can specifically characterize the size. As Larry mentioned, we saw it more in smaller hospitals. We saw it more early in the quarter in dissipate. Do we think it had an impact on Q2? We do. But it was a smaller impact than overall hospital staffing. So you can almost think of it as an 80-20 thing, something like that. Contrast media was relatively small by comparison. On the capital spending trends, Our only lens into that is the critical care business. So compared to some others in the med tech industry, they may have a better handle on this because they are more exclusively in capital. We're in a very limited segment, and it's hard for us to know whether it's the capital budget in hospitals or our own performance. We've had pretty significant demand, and we've been able to meet that, and we continue to be pleased with the pipeline of orders that are ahead. So we feel pretty good about there really being capital spending. It's nothing like it was when it was constrained early on in the pandemic. We feel like hospitals are indeed spending, at least from our narrow perspective.
spk11: That's great. Thanks very much.
spk03: Thank you. Our next question comes from Bill Plavanich with Canaccord. Please do your question.
spk14: Great, thanks. Good evening. My first question is, in terms of the US TAVR and the number of centers, I think on the fourth quarter call you said you had about 850 centers. I was wondering where you ended at the end of June and kind of how should we think about center growth going forward? And then my second question is just on, you know, your SG&A spend was pretty high. It's a big jump sequentially. And I guess, Is a lot of that kind of the pre-build or the build of the infrastructure for Pascal? And thanks for taking my questions.
spk06: Sure, maybe I'll start out here. In terms of U.S. TAVR centers, yeah, the addition of centers wasn't necessarily a big deal in terms of a growth driver. Larry, you might be able to characterize, did more growth come from large centers or smaller centers this last quarter?
spk09: Well, it's sort of two things, right? So in terms of when we add new centers, You know, all of the cases they do are pretty much, you know, add to the growth. But the new centers that we had at this point in time tend to be much smaller programs, and they're a little slower to rise. So they're not a huge part of our overall growth story. But one of the things that we do try to keep an eye on is what's happening in the larger programs versus the smaller programs. And we have seen a little bit of a trend where when COVID cases start increasing and the variants come on, we tend to see a little bit more growth in the smaller programs. And I think that's reflective of people staying closer to home. A lot of our big programs, maybe people will travel longer distances, and they're maybe a little bit more reluctant to do so when COVID cases are up. So we've seen that dynamic as COVID has risen and fallen, and I don't think this quarter was any different.
spk06: Okay, thanks, Larry. Scott, do you want to comment on the SG&A?
spk15: Sure, Bill. On SG&A, it was pretty close to what we expected, actually. Remember, in the fourth quarter of 2021, we ended up having pretty high numbers SG&A relative to our plans, it ended up being lower as a result in the first quarter. So it might have looked like a bigger jump just artificially because of the timing and sequencing of Q4 to Q1. But year over year in the second quarter, SG&A grew high single digits, pretty close to what we expected. You're right that we are investing pretty aggressively for long-term positioning of TAVR and TMTT in particular. both outside of the U.S. and in the U.S., so we're feeling good about where we are just in terms of our overall SG&A load. Thank you.
spk03: Our next question comes from Adam Mader with Piper Sandler. Please state your question.
spk04: Hi, good afternoon, and thanks for taking the questions. I'll keep it to just one. Maybe just on a bulk tricuspid, we'd love to Get some additional color there. It sounds like you're still hopeful that that product could come to market in Europe by year end 22. Just what are the expectations in the marketplace? And then just more broadly, how do you think about the repair versus replacement debate in the tri-cuspid setting? Thanks so much.
spk06: Yeah, thanks very much for that, Adam. Yeah, indeed, you did read correctly into our comments that we have introduced some uncertainty into whether we actually will get Evoque approved by the end of the year for CE Mark. Bernard, do you want to talk a little bit more about that? Yes, Mike.
spk01: So, as you know, there is a new process in Europe called MDR. And MDR, it is probably more uncertain for very novel breakthrough technologies like Evoque. It is new, so they are looking at it. They might ask more clinical data maybe even randomized data, who knows. So that's basically what we are facing right now. We are obviously partnering with our notified body to make sure they get all that they need to make an approval here. So now your second question is about repair versus replacement. We believe that we see value in both. I think Mike talked about what we presented at ACC and Europe ECR. where our, you know, Pascal-Trey Cuspid class study were presented. You know, it is a single-arm study, and it shows, you know, some benefits for patients. And also, we are, you know, very excited about, you know, the kind of patient outcome we are having with EVOC. So, we believe that there are values for both, and it will depend on the patient, patient anatomy, how sick they are.
spk04: That's helpful. Thank you.
spk03: Thank you. Our next question comes from Josh Jennings with Cowan. Please state your question.
spk12: Hi. Good evening. Thanks, gentlemen. And I wanted to just ask two kind of market-size questions. First, just on the U.S. degenerative mitral regurgitation opportunity, I think Abbott cited about a 70,000 patient per year number. and then building a TAM from there. This is specifically for degenerative MR. I mean, some of our consultants have cited some bigger numbers, but I don't want to front-run your investor event at TCT or later in the year. But any initial thoughts before getting into the U.S. market just on the size of degenerative MR opportunity? And a similar question for Tricuspid, just more maybe globally, similar line of inquiry, just consultants sharing that tricuspid case volumes could be a very strong and ultimate patient opportunity, large, and tricuspid could be a billion-dollar-plus global opportunity. But I wanted to get your thoughts on both of those two procedures.
spk01: Thanks. No, thank you. So let me start by saying that we believe that there are many patients in need, many mitral patients, many tricuspid patients in need, and that mitral is probably the largest then fracaspeed from an opportunity standpoint, at least at this point. Having said that, to comment on the U.S. DMR opportunity, we are not yet in the U.S., so Abbott is probably in the best position to talk about how big is the market, the number of cases, because we are not yet in this market.
spk03: And ladies and gentlemen, I will now turn the floor back to management for closing remarks.
spk06: Okay, well, thanks, everybody, for your continued interest in Edwards. Scott and Mark and I are going to welcome any additional questions by telephone. And with that, I'll turn it back over to Mark.
spk03: Thank you. This concludes today's conference on Parties May Disconnect. Have a great day.
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