Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Well, good afternoon, everyone. And welcome to the Morgan Stanley Healthcare Conference 2020. As we progress through some of our late afternoon sessions here on our second day, and thanks for being with us here in the first 2 days, and I'm sure you're very excited about the next 3 days. I'm very excited to have with us Scott Ullem, CFO of Edwards Lifesciences, not just because I like Scott, but because Edwards, as you know, has not been a presenter at this conference in several years. So there is one silver lining of COVID-19, and there are a very few, obviously. This is one of them we got Edwards, and I finally wore you down, Scott. So I appreciate you being here today.

It's great to be here. And you're right, this always conflicts with a regularly scheduled board meeting that we have. So by nature of the format here, it's great to be able to participate.

All right. Well, I appreciate you being here.

Let's start on that same topic, maybe the thing brought us together perhaps is COVID-19 and everyone, obviously, all day has been asking you about recovery. You gave some very explicit recovery commentary off the second quarter. But how has recovery trended here post the second quarter as you think about most companies at this conference have talked about? You have some exceptions. I've talked about July, August, even some September based commentary, kind of a ratable sequential month-over-month improvement. How has that trended relative to TAVR in Edwards?

Yes. Well, I'm not going to be able to give you a lot of visibility in terms of month-to-month trends since the second quarter. Really, all I can talk to is what we saw going on in July, leading up to our second quarter call, where we, at the time, felt like we had been through the depths of the COVID experience and that we are on path to end up in a third quarter that looked like flat year-over-year growth, which would be quite an improvement over what we saw in late March and April. We expected flat Q3 going to a growing fourth quarter, which we were pretty impressed with, both because of the depths that we experienced in March, but also because the fourth quarter of 2019 was such a strong quarter. So just a year-over-year comparison makes growing in Q4 this year, a pretty heady task, but we just felt like the tailwinds were such that we were heading in that direction.

Okay. One of the concerns heading into the second quarter actually was just given the age of the patient cohort for TAVR patients, which is still something in the '70s, those patients were going to be more resistant to come back and that's not actually what we saw in the second quarter. Yes, obviously, there was some backlog in these patients to a certain extent, but you didn't sort of flag that to any appreciable extent. So has there been any impact of resurgence here post the second quarter? And are you worried at all about sort of patient willingness given the age of the average TAVR patient?

Yes. We'll, again, just stare and clear of what's happened since the second quarter because we're now towards the end of the third quarter. What I can say is, yes, there was a lot of trepidation among patients, especially patients that we serve who, on average, take an aortic stenosis patient is around 80 years old. So there was a great deal of concern about patients coming into not just a hospital, but even to certain doctors' appointments. I think there's awareness that aortic stenosis is a deadly disease. And while patients don't have the statistics, you've got a 4% mortality risk at a month, 8% mortality risk at 3 months and a 12% mortality risk for waiting for 6 months. And so patients are in this very uncomfortable situation or were back in the depths of COVID of, do I risk going into an environment that may be unsafe or do I risk continuing to live with the disease that is very, very deadly? And unfortunately, some patients did not get treated as they should have. But other patients did make it through the system and got treated. And by July, we started to see whatever kind of backlog there was be addressed. And we felt like we're moving into a period where patients come into the system were new patients who had not been adversely impacted by the disruption of COVID.

Okay. Mike from the -- even the early stage of COVID talked about some segments of normalcy, maybe by the end of the year. Do you have a sense of whenever should get back to normalcy is some symptoms of normalcy about the fourth quarter still makes sense to you?

Yes, I don't think that we're going to be back to a position of normalcy. We do think we'll be growing again by the fourth quarter. But we're still expecting ups and downs and probably flare-ups in certain regions that affects certain systems. And that's modeled into the guidance we provided for the second half. In terms of when we get back to something that's truly normal, that seems like quite a ways off. The good news is that while we see our commercial business continuing to recover in the second half, we've expected, as I said, flat third quarter, growth fourth quarter, we've also seen interest in hospitals in resuming clinical trial activity. So remember, during the second quarter, we had to put our class series of clinical trials on hold in the U.S., that's our PASCAL mitral repair device. And since that time, as hospitals have navigated through the most intense part of the COVID experience, especially here in the U.S., they're now trying to reactivate clinical trial activities. And also for hospitals who are trying to get trained up to activate TAVR programs, they've also resumed efforts in that direction.

Okay. So, look, you had said before, flat in the third, grew up by the fourth, it seems by definition, that implies some sense of recovery. It still sounds like in that prior guidance, that sense of recovery is still intact.

Yes. I mean I'm just going to harken back to what we said in July, with no update since then. But yes, that was certainly the trajectory that we were on, and we haven't had any update to that sense.

Okay. And is there any -- I mean, I'd very successful here, Scott, but I'll try anyway. Some companies have talked about 2021 as investors are trying to get away from sort of this month-by-month guidance dynamic and quarter-by-quarter. If you think about 2021, you think about the recovery in your business. I have 2021 as a percent of '19, 17% above '19, which kind of sense over that 2-year period of time, your business kind of grew 10% underlying '19 through '21. I don't have any margin recovery. Frankly, I kind of have flat margins in '21 over '19. Again, qualitatively or quantitatively, Scott, any thoughts about how crazy those numbers sound you in '21?

Yes. It's just premature for us to get into it. And I'd love to give you some more visibility, but it's early days to start talking about the top line and the line items in the income statement. But we'll do what we do every year and get into all that detail in December at our Virtual Investor Conference. What I will say is we're not strangers to providing guidance. Back in April when a lot of other companies were withdrawing guidance, we went out and gave guidance for the rest of the year, and we did it again with our second quarter earnings report. So we're comfortable sharing what we see coming. It's just premature to talk about the full year 2021 yet.

Okay. One of the companies that was talking here during the quarter was Medtronic, and they were pretty adamant on their call that they gained share on a sequential basis. If you look at the mathematics, it doesn't necessarily look like they gained share either on a year-over-year or quarter-on-quarter basis. And it was a strange comment on that that we certainly believe that SAPIEN is taking share in the low-risk cohort, given some very specific clinical benefits of SAPIEN versus Evolut. What are you seeing from a share perspective here? And you -- do you think you lost share sequentially?

Well, Medtronic reports on a different cadence, obviously, than we do, just differently the way the quarters line up. And so I can't really comment on how they calculated the comment around share. But I will say that reducing this to a market share discussion misses the point completely, and it misses the opportunity. We're talking about a disease that's treated at a rate of about 10% of the prevalence of this disease in the population. I'm talking about 10% of patients with severe symptomatic aortic stenosis. And so it's not about Edwards versus Medtronic versus Boston or anybody else. It's about how do we drive those treatment rates higher. We'll do just fine as patients continue to get treated at a higher rate.

Okay. If you were gaining share prior to this last quarter, do you think you were gaining share more because a better commercial strategy in terms of how you brought new centers on? Or do you think, frankly, you were gaining more disproportionate share in the low-risk cohort post the approval?

Yes. I think what's driving decision-making among practitioners is really clinical data and how that compares to real-world data. And as you know, coming off the results of our PARTNER III low-risk trial that showed statistical superiority of SAPIEN 3 over surgery, that really created some tailwinds and a lot of confidence in physicians that not only were those trial results favorable, but that they were repeatable and teachable to a broad universe of physicians and operators around the world. And we think that has a lot to do with the success that we've been seeing with the SAPIEN 3 and SAPIEN 3 Ultra valves.

Okay. In some near-term data debates on that topic, Scott, there was one there kind of removal of some foci negative bicuspid language. You always sort of said that you were not off-label in bicuspid, which is true and it sounds like bicuspid is really impacting your commercial progress. But that recent labeling change has had any impact on the business? And the second issue I love you could address was during COVID, during ACC, there was this valve thrombosis debate, yes, it was thrust into the clinical community again. One of those could be theoretically positive, one of those could be theoretically negative. Have either, in your mind, shifted usage patterns or clinical patterns here these last 6 months?

It's tough to say definitively, but I think the shorter answer is no. Removing the bicuspid caution language from the label was not something, I think, that had been an impediment prior to that. I know others have talked about it, but it really wasn't a feature of our day-to-day business or our dialogue with our physician partners. And data points from ACC have not slowed down low-risk adoption at all. I think that we're really proud of the data at 1 year, we're really proud of the data at 2 years. And SAPIEN 3 still shows numerical advantages for death, stroke and rehospitalization. So I know these are common questions and they're fair questions, but really, it hasn't changed the trajectory of the adoption of SAPIEN 3.

Okay. You mentioned some of your other clinical programs that have begun to reenroll, which is encouraging. What about early TAVR? I just kind of wonder if you can give us an updated timeline for when we could expect early TAVR to be sort of fully enrolled?

Yes. Well, I can't give you a definitive answer. We said originally that we are going to complete enrollment in 2021. I will tell you that centers participating in this trial are handling the trial differently. And some are further along and didn't miss a step at all, others were severely disrupted as a result of COVID. And so overall, the time line has been affected, and we and the centers participating in the clinical trial would do everything possible to keep enrolling it as quickly as practical. The trial's design is a 2-year follow-up. It's difficult to say when that's going to read out. But we're still really confident in the trial enrolling and in the results of the trial proving the hypothesis that it shouldn't matter whether a patient can discern symptoms or not, if a patient measures severely -- to be severely impacted by aortic stenosis that they need to get a valve replacement.

Okay. But the trial more than likely slips. Most trial time lines have shifted about 6 months based on COVID. So that was from the back half '21, maybe we should be thinking kind of mid-'22?

Yes. I mean it's -- that could be the case, and that's what we think is going to happen in TMTT, specifically, this couple of quarter delay. So it wouldn't -- it would be consistent with that expectation if it impacted early TAVR the same way. Again, we'll tell you more as things start to pick up again as we get all the centers participating in clinical trial enrolling again in the clinical trial, then we'll have a better read on what the revised forecast might look like.

Okay. So the other big debate, obviously, this year was going to be low risk, and we were seeing some pretty substantial numbers out of the business in the last couple of quarters prior to COVID and, obviously, decent recovery. There are different ways that people are sort of looking at the low-risk penetration, Scott. But obviously, one way is to look at the low-risk AVR population. Where are we do you think in terms of that low-risk AVR population? And is that the right way to think about low-risk penetration here over the next 6 to 8 quarters?

Yes. Leading up to low-risk approval in 2019 and especially after low-risk approval in 2019, we've moved away from looking at the TAVR market in terms of the traditional patient-risk cohorts that we established when we first started out in the PARTNER series of clinical trials. They were arbitrary to begin with. There was something we agreed to with FDA as a logical way to try to introduce clinical trialing for this alternative to surgery. But it's not really the way the population of patients breaks out. And so instead, we look at really the overall population of patients with severe symptomatic aortic stenosis. And it's -- what we know is that there is a severe under treatment rate for patients with this deadly disease. 10% is just abnormally low for a therapy that's proven, it's reimbursed. That's conducted in now over 700 centers around the U.S. and similar types of center population in Europe. And so we're really working on driving that overall penetration rate higher, not so much looking at it, by the way, the clinical trial was constructed with high, intermediate and low-risk patients.