Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Well, everybody, welcome to our first meeting in the 2021 Citi Healthcare Virtual conference room. We're going to start this morning with Edwards Lifesciences and thrilled to have Scott Ullem with us. For those of you who don't know him, he is the CFO of Edwards. And Scott and I were just talking before this got started, how -- the whole new world that we are in here, this would be so much more fun if it was live. So Scott, welcome.

Yes. Thanks a lot, Joanne. Well, at least we could do it in this format instead of no format at all, and thanks, everyone, for joining, and we appreciate your interest in Edwards Lifesciences.

Now just trying to remember, Scott, how many years have you been at Edwards?

7 years. I joined in 2014.

And it's changed a little bit.

Yes. It's changed a lot for sure.

So instead of asking you about the last 7 years, I'd be curious what you've seen in the last couple of years, call it 3. And then when we think about the next 3 years, when you and I are not virtual, but in person doing one of these meetings, what do you think we'll be talking about?

Yes. It's a great question. I think about it regularly, especially as we've all had a chance to ponder during this COVID environment. But the best place to start, of course, is you're looking back over the last several years is with the success of TAVR. And so much has happened as this therapy has expanded to be able to serve so many more patients. And of course, most recently, we got the low-risk approval in the United States back in 2019. And it was a major milestone, not just because it was the next class of patients who were able to benefit from access to this therapy, but because it was the last hurdle to overcome to recredentialize this therapy as something that wasn't risky or experimental. So keep in mind, before 2019, TAVR, which has been in Europe since 2007, the U.S. since 2012, TAVR was still considered, rightly so, a therapy only available to those who were especially sick. If you weren't sick enough, you're not allowed to get TAVR. You had to get open heart surgery. And so in 2019, for the first time, now all of a sudden, this therapy is available and for patients suffering from severe symptomatic aortic stenosis, they have a choice of SAVR versus TAVR. So it's a really important breakthrough, and it's a breakthrough that's going to continue to fuel adoption of this therapy for many years to come. Since that time, we've had hundreds of thousands of patients who have benefited from the SAPIEN family of valves, including even in 2020 during COVID, over 100,000 patients received a SAPIEN, which is pretty exciting. We were well short of our plan for 2020, but it demonstrates the strength of this franchise, and it demonstrates the future potential as well. I think about other themes and advancements in the last several years, of course, TMTT, our transcatheter mitral and tricuspid therapies business, was really in its infancy 3 years ago. It still is financially today. But boy, the foundation of that business has been built. We have about 900 people in our TMTT organization. It's dedicated. So they're just working on therapies for mitral and tricuspid patients. It's separate from our THV business. It's separate from our surgical business. There's a lot of overlap and collaboration, of course, but we've got a dedicated team really focused on advancing this therapy, and we've got now multiple successes and some real momentum, both in clinical trials and now as well in commercial experience in Europe with PASCAL. And I guess I just think about surgical, where we've got multiple innovations in an area where many thought innovation in surgical structural heart was over. We've done the exact opposite. We've doubled down on innovation. We had 3 product introductions last year. Several years ago, we really initiated our experience with INSPIRIS, which is now the world's leading surgical aortic valve. And in critical care, we've transformed from a business that used to be a low to mid single-digit grower to one that the last several years has been a mid- to high single-digit grower. It's excessive -- in excess of your typical med tech company, and it kind of gets overshadowed by the rest of Edwards, but it's really a pretty neat business. So there are a lot of things going on. I'm really excited and proud of what we've accomplished at Edwards over the last several years, but I'm even more excited about what's to come.

And so that gets us right to the next question quickly, which is what do you think, when we're talking 3 years from now, were going to be talking about?

Yes. That's a great question. I think -- I kind of think about the same thing. In TAVR, we're going to go from a business that today is over $4 billion in terms of the total addressable market, not just Edwards but total global market over $4 billion to something that looks more like $7 plus billion in 2024. So if you do the math, it's going to be something like a low double-digit compounded annualized growth rate in a business, again, that's been around for over a decade. And so it's pretty exciting. We've got more innovations to come, multiple generations of new technologies in the pipeline for TAVR. And that's going to help fuel a lot of Edwards' growth. As is TMTT, where TMTT now is part of a business, a total addressable market that's still relatively small. But as we get out to 2024 and really 2025, we think this looks more like a $3 billion opportunity. So you combine $7 billion in TAVR in 2024, $3 billion in TMTT in 2025, and you're talking about a $10 billion total addressable market for these catheter-based valve repair and replacement technologies. And there's a lot of innovation that's going to come during that time and a lot of adoption of this therapy that's going to come in multiple regions around the world between now and then. So we're pretty excited about what's on to come.

I wanted to shift to spend a little bit of time talking about the pandemic. And one of the things in our physician conversations that is less clear to us is how much or how many patients there are sort of waiting in queue, elderly that may be waiting to get their vaccine before entering the funnel. And then sadly, how many have passed away before they get the opportunity to get a new heart valve. And how do you think about that concept of both reentry and demand?

Yes. I think there are a lot of patients who suffered last year. And I'm talking about non-COVID patients who suffered last year. We think there were tens of thousands of patients who did not get treated and should have gotten treated, and many of those patients did not survive. Some patients are still struggling with the disease and will get treated as access to hospitals continues to improve and as confidence among patients continues to improve, that they can go to a hospital and be treated safely. So over the next several months, as we get through COVID, we think that gradually, incrementally, access will improve, treatment rates will improve, and we'll be back to a more normalized environment, maybe in the second half of 2021, where there's more open access to the care that these patients suffering from structural heart diseases need.

Am I thinking about it right that the primary population of the elderly who would be getting a TAVR or a valve replacement, they're probably first in queue anyway for a vaccine?

Yes, for sure. It's interesting. When you look at the risk factors for patients or for the population for COVID, it matches up pretty closely with the risk factors for patients who have severe aortic stenosis, which is one of the reasons why this was so damaging to this population of patients in need. But you're right, as this elderly population gets vaccinated, it improves confidence and their desire to go in and get treated in a hospital environment.

One of the things I think you and I have talked in the past about how my father had a TAVR several years ago, and it was remarkable for me to see firsthand the pathway to somebody being diagnosed, coming to grips that they're going to need the surgery, and then getting the OR time, getting the day, everybody setting up. On average, like I think my father was special in how long it took, but on average, how long does it take somebody to move through the pathway?

It can be, on average, 2 or 3 months, but this is one of the things that really has been challenged, in some cases, favorably as a result of COVID. So historically, TAVR patients end up having to go through, oftentimes, more hurdles than surgical aortic valve replacement patients have had to go through. So multiple visits back to hospital, multiple tests, multiple appointments. And during COVID, there were some hospitals and some hospital systems in some countries that identified new ways to get patients through this referral pathway faster. So as soon as the patient is identified as having severe symptomatic aortic stenosis, it's important that they get treated as quickly as possible. And stringing it out for months and months and months is dangerous, not just to the mortality risk of that patient, but to the risk of the heart continuing to remodel and create other problems that exist beyond replacing the aortic valve. And so again, the faster patients can be treated, the better. I think that hospitals are getting smarter at how to treat these patients and process them through the referral pathway more efficiently. But it's also one of the reasons why as hospitals reopen and as access to these treatments reopen, it still takes a while to get going because you need to get people back at the beginning of the, call it, the funnel, where they first get diagnosed, evaluated, tested, to get the preclinical work up and ultimately, their treatment. So it's not as if, if vaccinations happened widespread tomorrow that we'd be back at full volume. It's going to take a while to really ramp during 2021.

So as I think about that, that really makes it a second half strength versus the first half. And actually, we're already talking about 2022, a first half of '22, particularly strong also.

Yes, I think that's right. Again, and it's going to be different regionally. It's going to be different by hospital system. But generally speaking, it's probably going to be a lot more stable environment in the second half than it is here in the first and early second quarters.

All right. One of the things you've talked about a $7 billion market by 2024. And I heard today, a $7 billion-plus market by 2024. I'm not sure if that plus is new or not or -- but what takes you from where we are today to that? What are the obstacles? And what are the things that clear the paths you might be able to move faster?

Yes. Well, not to be too precise, but we did introduce the $7 plus billion a while back. So again, when you're talking about 3 years from now, adding the plus is difficult. But by -- but it does speak to the fact that we really do think there's a broad opportunity here. And it's a broad opportunity that's going to be driven by new indications, new technologies that get introduced, but especially, most importantly, number one driver is really going to be just adoption of this therapy. And the adoption is going to come from better disease awareness, better therapy awareness and better referral pathways. So let's just pick that apart and talk about all 3. Disease awareness is more about just educating not just patients and their families but also earlier in the pathway physicians. Because oftentimes, aortic stenosis is either not recognized or under recognized for the disease that it is. And as a result, patients don't get identified the way they should. So making sure that there's a higher awareness of symptoms and the importance of intervention is a really important part. We're not talking about Edwards and SAPIEN valves. We're talking about just disease awareness. The second piece is therapy awareness. So once patients find out they have the disease, making sure that they're aware and that their caregivers are aware that there are alternatives is really important. There's still a presumption among some that if you get diagnosed with severe aortic stenosis with symptoms that you really need to get surgery. That's not the case. There are options. And so making sure that everyone is informed on those options is an important part of continuing to grow this field. And the third piece is just this referral pathway, where for multiple different reasons, patients don't get through the referral pathway the way they should. What I mean by that is, oftentimes, patients are first diagnosed at the level of the primary care physician or the general practitioner who picks up signs and signals. So maybe this is a patient who's suffering from aortic stenosis. They get referred then to the general cardiologist. So general cardiologists deal with all kinds of patients, like patients with hypertension. And they may not necessarily be as expert in aortic stenosis. There's something -- there are probably 30,000-plus GCs in the United States alone. And they've got different levels of understanding and different biases about how patients should be referred. And so a lot of those patients end up with a general cardiologist not getting referred for treatment the way they should. But even for patients who get referred, they will go get an echocardiogram. If that echocardiogram reading gets done correctly, then they can get referred to a heart team comprised of cardiac surgeons and interventional cardiologists and ultimately get treated. But at every step along that pathway, patients can fall through the cracks. And sometimes, they self-select out. Sometimes their families say, "You know what, mom, you just had a lot of tests lately. You've been going to a lot of doctor's appointments. You're tired. Let's just take a break," which may be exactly the wrong thing to do. But it's one of the things that we're taking on and one of the things that we really think is important to continuing to make this life-saving therapy available to patients as this grows over the next several years.

And one of the things we talked to a lot of physicians about, we run surveys like everyone else, but we always have some of that, are they adding rooms? Are they adding days? I mean, how much of sort of the physical construct is a gating factor?

Yes. Hospitals have gotten much more sophisticated at managing volumes of patients who are getting treated for structural heart defects and valvular disease. And it started with hospitals and the physician groups rearranging their schedules so that surgeons and interventional cardiologists could confer as part of the heart team on the same days. But it's also been driven by the procedures becoming more efficient and the lengths of stay being reduced. So one of the real capacity issues is hospital rooms and beds after the procedures. And so for TAVR now, where at many centers, patients are getting discharged sometimes the same day, but generally a day or 2 after the procedure. That really helps free up capacity, and it helps the hospitals manage the volume of these patients. And it's one of the things that we design into our technologies. It's one of the things that we've improved upon as we've introduced subsequent versions in our SAPIEN family of valves and we're going to continue to be doing that.

And this is going to tie together some of the things we've been talking about. If a patient isn't going into the hospital and they were arriving in a more acute state or more damaged state, maybe the better way of doing that, how does that impact the physician's approach to dealing with that patient once he or she gets vaccinated, gets into the funnel?

Yes. I think every one of these patients who have severe symptomatic aortic stenosis needs to be treated as quickly as possible. And so there's a range of acuity, of course. But by the time someone reaches a severe form of AS, it's important that they get treated.

Okay. And you've sort of hinted at the analyst meeting in December of other iterations of the SAPIEN 4, 5, 6, 7. What do you improve on at this stage? I mean it's -- based on where it's come from, the original SAPIEN, a pretty elegant valve.

There are a lot of areas to improve. I feel like we have this -- we had a conversation like this with a lot of people back when we were introducing SAPIEN 3 in place of SAPIEN XT. And the question was, SAPIEN XT was so much better than SAPIEN, what really can be different about SAPIEN 3? And after we introduced SAPIEN 3, it was a real eye opener. Similar response when we've introduced SAPIEN 3 Ultra in place of SAPIEN 3. And so as we get into clinical experience with SAPIEN X4, we think there are some areas of real improvement like further reduction in mild and moderate paravalvular leak rates and just enhancing the control and the precision to simplify the procedure and the pre-procedural planning. So these are things that just make it more efficient for physicians to deploy the device, to complete the procedures and have the same kinds of safety and efficacy results that we've seen in our clinical trials. One of the things that we've tried to design is not just systems that work for the very best set of hands in the world of interventional cardiology, but for interventional cardiologists around the world in multiple different centers who can be trained efficiently and get excellent results as they practice this therapy, regardless of what center they're in or regardless of what levels they may have had historically.

And you mentioned the word world. So we get so U.S.-focused and started in Europe and now you're heading into Japan. How do you think about taking this really around the world? And do you need those next-generation "easier-to-deliver products" to do so?

Yes. So the first question -- well, maybe I'll start with the second question. No. I think we're at a point where with SAPIEN 3 Ultra and SAPIEN 3, we've got a platform that is really one that can be expanded in all of our major markets around the globe. It is a global business already. There are over 60 countries where TAVR is being used and more joining regularly. Our big regions, of course, historically have been Europe and the U.S. Japan is continuing to grow and has real growth opportunities because it's behind on a per capita basis, treatment rates in U.S. and Europe. But then there are other regions like China where we got approval to introduce SAPIEN in China last year. And other countries in the non-Japan Asia region as well in Latin America and Middle East and Eastern Europe. And so there are a lot of other countries that we think are going to be real contributors to growth in the longer term.

Okay. Anything else in the land of TAVR that we should be talking about before we switch gears a little bit?

Well, the other thing that we should talk about is what comes after this 2024 time milestone that we mentioned, where we think the total addressable market is over $7 billion. There are 2 other really important clinical trials that we're running right now that are going to be contributors to growth after 2024. One is our EARLY-TAVR Trial, which is studying the impact of putting in a replacement valve for patients who do not have symptoms. So asymptomatic patients who currently are not on guideline to be treated. So it's an unusual situation where a patient can have severe aortic stenosis, a severe constraint in oxygenated blood being able to get into their body. And yet if they can't identify or demonstrate symptoms and the physician can't either, then they're not on guideline to be treated. So we're challenging that presumption and going after this in the clinical trial to study whether all patients who have severe aortic stenosis should get treated regardless of whether symptoms can be distinguished or identified. And keep in mind, this is tough because in a lot of these patients whose average age is about 80, sometimes these symptoms get confused with just being old. So lower energy levels, sometimes feeling light-headed, faint. And so it's an important trial that we think is going to unlock an opportunity for patients who need care to get care. The second trial that we're going to begin in 2021 is to look at patients who have a moderate form of the disease. So aortic stenosis is a progressive disease. It starts with mild stenosis, progresses to moderate and ultimately trips over this line into severe. But one of the questions that physicians have been asking is, should some patients get earlier intervention before the heart starts to remodel to accommodate for this disease? And this is what the moderate risk or the moderate AS trial is going to be studying. Now moderate patients with moderate aortic stenosis are -- there are many more patients with that form of the disease than with severe. And so we think there's a real opportunity to potentially tap into an even bigger population of patients who need care.

And can you remind us the timing of the moderate and the asymptomatic?

We plan to initiate the moderate trial this year in 2021 and for the EARLY-TAVR asymptomatic trial, it's about 2/3 enrolled right now. And we are optimistic that we can complete enrollment by the end of the year.