Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Good afternoon. Once again, this is Josh Jennings from the Cowen medical devices team. We are moving through the medical devices track here at the 42nd Annual Cowen Healthcare Conference, and we are thankful and excited to have executives from the Edwards Lifesciences management team, Scott Ullem, CFO; and Mark Wilterding, Vice President, Investor Relations and Treasurer. Gentlemen, great to see you virtually, and thank you for participating again this year.

You too, Josh. Good to see you. We're happy to be here.

Appreciate that. And one of the -- you guys just reported fourth quarter earnings less than 6 weeks ago but if there's -- if there are any updates just in terms of procedure trends in February and early March that you're willing to share, that would be great. I mean our checks, including at this conference, we had a couple of structural heart panels. Physicians are relaying that they're -- they did see an uptick in kind of improved procedure volumes in February and into March, but those are just anecdotal. But anything you're willing to share either on the volume side, the procedure volume side or just as the supply chain headwinds are still challenging, but then any changes, we'd be more than happy to hear about them.

Sure. So -- and we've seen some of those same anecdotal reports, but I agree they're more anecdotal than anything that you could paint a broad brush to any of our major geographies. It's -- we're not in a position where we're going to be talking about the current environment, but I'll just remind you what our expectation was back at our fourth quarter call, which was that we were going to get impacted by Omicron. In fact, we did not expect any real impact from variants back at our investor conference in December. But then almost right after our investor conference, we started seeing Omicron and we felt it in the last part of the fourth quarter, we felt it at the beginning of January. Our expectation was, and continues to be, that we're going to see a gradual improvement during 2022 as Omicron subsides and as hospital resourcing gets rebalanced and more efficient, back to a more normalized environment. You mentioned supply chain. We're continuing to see challenges in our supply chain, both in terms of just getting product procured, getting products shipped. But I'm pleased to report that our global supply chain team has done a really excellent job at navigating all of those challenges and just, day-to-day, making sure that we can continue to produce and supply the lifesaving products that Edwards provides for physicians to treat their patients. So we're pleased about that. We're seeing some inflationary pressures, of course, like everybody else is, both in product and in wage rates, but it's all within the range of guidance that we provided for 2022.

Thanks for that, Scott. And just -- our assumption is that Edwards' exposure to Russia and the Ukraine is immaterial, but I just wanted to ask that question because we had some interest there from our investor clients.

It is. I mean, obviously, it's a devastating, very disturbing situation right now. But our company's exposure to both countries is relatively limited, and it's not material in terms of financial impact.

Appreciate that update. I wanted to dig into the kind of meat of the discussion here, and one of the -- just looking back at the fourth quarter results and the European TAVR franchise delivered mid-teens growth, which was stronger than we expected. I mean the double-digit TAVR growth experienced in Europe over the last decade plus, there seems to be a nice presence in over other markets. But is there kind of a read-through to the U.S. TAVR market trajectory and, I mean, in the sustainability of this kind of mid-teens growth level?

Yes. Well, why don't I comment on that, and then I'll ask Mark to comment on the 3 drivers that we really think underscore the longer-term growth dynamic for TAVR. Just in terms of a read-through for Europe, one of the things that we've learned and really appreciated is the fact that having these different exposures geographically is really helpful to protecting the long-term growth for the franchise. In other words, the fourth quarter, for example, showed Europe performed better than the U.S. Japan and the rest of the world performed even better than Europe, and that all balanced out to mean pretty good growth overall globally for TAVR. We've seen other periods where it's the opposite, where the U.S. is growing faster than other geographies. And having these exposures to different regions, I think, is going to be really helpful in smoothing some of the period-to-period variations and volatility that you might see in growth. But Mark, do you want to talk just about longer term?

Yes, sure. Thanks, Scott. And Josh, the way we frame it, and you're probably aware of this, we introduced it at the investor conference last December, was from a total market opportunity perspective. And we think today, for instance, in all of the markets we compete in and participate in, it's kind of like a $10 billion or so market opportunity. We think that grows to something closer to $20 billion as we look out over the course of -- through 2028. The thing we think that gets us there is, and Scott mentioned this, there's 3 areas of focus. It's really increasing awareness of these various disease states that we participate in, in particular, severe aortic stenosis, and then also advancing the technologies. And so we've got now, I think, our fourth-generation TAVR device in Ultra, but we have talked about SAPIEN X4 as being in the pipeline. And then the last piece, the third piece is just geographic expansion. And I think we've talked there about, for instance, Japan and the low-risk indication that we recently received. And so those are the 3 biggest factors we think to driving that market growth long-term.

Excellent. Actually, I mean that just connected dots, and you guys are confident in kind of forecasting a sustainably strong growth for the TAVR market as well as your TAVR franchise. China is in the mix there, too. And I know the pandemic delayed market development over there. We've done some work. We need to do more, but we're intrigued by the potential revenue channel for the TAVR market and just target market expansion there. But has there been any changes structurally outside just pandemic limiting the timing of market development for Edwards as you've moved in there and introduced SAPIEN 3?

You're talking about China specifically?

China specifically, yes.

Nothing really specific to COVID. I will say that our China strategy has always been a long-term strategy. It's still very early in us developing a network of practitioners and physician relationships where we can really provide the kind of training and support to build a long-term, durable franchise where physicians are treating patients safely and effectively. We think it could be a positive, promising market longer term, but we're just going to take a deliberate and methodical approach to making sure that we put in place the foundations for a long-term, sustainable business in China.

Understood. Understood. You guys have not sized up that market opportunity specifically, correct? I just want to make sure.

No. I mean, obviously, we all know the patient population or the population and the derivative of that is the patient population. So it would be significant in size. There are a lot of differences to the market. In a lot of ways, it's not as developed as our other major markets. It's a self-pay market. And so there are elements to the China market that will represent different challenges and opportunities than what we've seen in the U.S., Europe, Japan and other areas around the world.

Great. Just one element of, I guess, the bare pitch on the TAVR market is that as more competitors enter the U.S. market, you also will see ASP pressure as we've seen in some other interventional cardiology segments. But I think the coronary stent market is the poster child, but TAVR is much different -- has a much different setup in our opinion. But just can you talk about, Scott and Mark, just the disciplined pricing strategy you've maintained and how ASPs have trended internationally and in the U.S. now with Abbott kind of this preliminary launch of Portico?

Yes. I mean for a long time, our global average selling prices have been relatively stable. And it will fluctuate in various different geographies, sometimes relating to competitive activity, sometimes relating to different reimbursement actions, which can go either down or up. But generally, our average selling prices have been stable globally.

Great. One of the things I think that the pandemic has demonstrated is that there are a significant number of TAVR patients that have been -- have received a TAVR implant and discharged within 24 hours or 1 night of overnight stay or 2. But I mean, do you see any risk to the reimbursement environment? I mean TAVR is an inpatient-only designation. So I mean is the shorter length of stay a risk to longer-term reimbursement levels? Or how should investors think about the short-term benefit to hospitals of getting patients out earlier, making those procedures more profitable but also having the patients deliver excellent care or receive excellent care versus the longer-term risk of just cost inputs to Medicare and driving reimbursement down for TAVR procedures?

Yes. Well, there have been all kinds of different economic analyses studying the impact of TAVR, and they've generally been favorable. And so we actually think the shorter length of stay is a really good thing, and it reflects this triple win that has been one of our guiding principles as TAVRs continue to develop. The triple win is extending patients' lives, improving the quality of life and actually improving the economics for the overall system. And it just has to work for patients, providers, payers. And TAVR does, and I think shorter length of stay reflects that. Our goal is to continue to make this as efficient a procedure as we can, and our belief is and our assumptions are that reimbursement will be appropriate and relatively stable in the years ahead.

Excellent. Excellent. I wanted to move into just the recent share gain trajectory that Edwards has been on in the U.S. TAVR market really since the low-risk approval, and I think you maintained the share somewhere in the high 60s to low 70s consistently. And that's relatively uncommon in the medical device market, but even in a duopoly. And I think there's a lot of well-known kind of drivers of that share capture success: some of the cross-trial comparisons and pacemaker rates, coronary access, et cetera. But what I really wanted to ask is how -- what -- has the sales force been a driver, the sales force culture, your sales force strategy in terms of driving those share gains since low-risk approval?

Yes. I mean, I think our strategy for our field support team has been unchanged. And it's a combination of clinical field specialists and salespeople, both of them participate in supporting physicians and patient procedures. So we've got Edwards full-time employees in almost all procedures here in the U.S. I think that what we're most focused on is really patient outcomes, and a lot of the clinical evidence that we've generated over time supports the safety and efficacy of TAVR or at least TAVR with SAPIEN, and that's a big part of the discussion and the decisions that physicians make once selecting the appropriate therapy for their patients. So we're really proud of the body of clinical evidence that we've delivered. We're really proud of our people in the field who every day go to work and help physicians treat patients successfully, and it's resulted in a market position that puts us in the lead in the U.S. and our other major geographies, and we're really proud of that. And we expect to continue to be the leader in TAVR.

Excellent. Understood, I should say. The TAVR [indiscernible] we just had on panels this week, one earlier today. And over the last 6 months to 12 months, kind of related -- I mean, it's very challenging because you don't risk classify as ardently as maybe prior to low-risk approval. But they kind of back of the envelope estimate that their -- in their case volumes, only 30-ish percent are low-risk patients, which suggest that we're still in the very early innings of low-risk penetration, and you still have the symptomatic indication on TAP with the early TAVR trial enrolled. But maybe what is Edwards' internal view on just current penetration of the U.S. TAVR market and just where -- what inning we're in, in terms of the low-risk penetration specifically?

We think we're in the early innings of TAVR adoption generally, including low risk. Now in terms of risk categorization, we think about it more holistically. Now the risk designations were part of the original PARTNER Trial design where we said, "Okay, let's take patients who are at high risk of an adverse outcome from traditional open heart surgery and study them first." And then once that would show successful -- though we expanded and say, "Okay, how about patients who will deem intermediate risk of an adverse outcome from traditional surgery?" And then we got the low risk. And so going back and trying to place patients into those risk categories that were established just for the clinical trial design isn't really the way we're thinking about this. The way we are thinking about it is we've got a patient population that numbers over 1 million patients, something like 1.3 million patients we would estimate in the U.S. who have severe aortic stenosis, and right now, around 10% of those get treated. And so the reason we say it's early innings is because that treatment rate is so much lower than other disease states that have a high degree of mortality like aortic stenosis. We just think there's a big opportunity in the U.S. and in Europe and other regions around the world.

Great. And then we've had some confirmation about the patient opportunity in moderate AS, and then the PROGRESS trial has kicked off. I think first patient was enrolled in November. But I mean, how do you -- how do -- I mean, you guys did a good job kind of road mapping out just the patient opportunity at your Investor Day, and our checks are confirming the kind of doubling or even more than doubling of the patient opportunity relative to the severe aortic stenosis population that is already on label. We also learned that the PROGRESS trial is enrolling faster, at least much faster than in the early TAVR trial because these patients are symptomatic and they're more willing to have an intervention to get relief. But I mean, how do you -- how should we think about the time lines for the moderate AS indication? And any help that you can give in terms of what's baked in, I think, to that TAM update that you provided at the Investor Day for the moderate AS indication?

Yes. Well, Mark mentioned earlier that current TAM for TAVR is something like $5-plus billion. We think it goes to around $10 billion by 2028. Most of that is going to be driven just by patients coming into the system to receive treatment for severe aortic stenosis. Some of those patients towards the end of that time period might be asymptomatic patients, to be determined based upon the readout of that early TAVR trial. But there won't be a big contributor even just during this next 6-or-so years. Where we do think there will be big contributions is beyond that, where you get approval potentially for asymptomatic patients with severe aortic stenosis. And again, post, call it, 2028, if we're successful in demonstrating the benefits of intervention, maybe also start treating some patients who have a moderate form of the disease. So we think there are a lot of different growth drivers, some of which will impact us in the next half a dozen years, some of which are beyond that. But it speaks to the real long-term durability of this strategy and of this patient population that we're trying to serve. It's one of the reasons why we feel like low double-digit compounded annualized growth rates for TAVR over the next 5 or 6 years is realistic, and it's part of our model.

Great. And one more element to add into that or more slice of the TAM pie, if you will, just the TAVR-in-TAVR and the replacement cycle. I mean as we get into this kind of 8 to 10 years out from the low-risk study being fully enrolled, which I think was sometime in 2018, I mean, anywhere, if I think from 2025 and beyond, we can start to see a more meaningful opportunity in the replacement cycle. But how are you guys thinking about, I guess, that "replacement cycle" and this TAVR-in-TAVR opportunity?

Yes. We think it's an important pathway for patients, especially younger patients who will need another replacement valve. And so both TAVR-in-TAVR and TAVR-in-SAVR are included in our growth forecast for the market and we think are going to be important benefits to patients who need more of a lifetime of care for disease valves.

Understood. And then lastly on TAVR, and we'll definitely save some -- try to save some time for the TMTT franchise. But SAPIEN X4, any updates just in terms of -- that you can share on the design enhancements? And what needs to be optimized for the next-generation TAVR devices? Or what needs to be solved for? Is it conquering mild PVL as you get into younger and younger patients? Is it optimizing for TAVR-in-TAVR in the future like you've done on the surgical side with INSPIRIS? Any insights would be welcome.

Right. Well, I'll ask Mark to address that. Before he does, I'll just say we're pleased that we recently got FDA approval for the ALLIANCE trial, this clinical trial that will be used to be testing SAPIEN X4. But Mark, do you want to talk a little bit about it?

Yes, sure. Thanks. So -- thanks, Scott. So no updates, Josh. I would just reiterate some of the things that we talked about at the investor conference in December. First and foremost, we talked a lot about the tissue itself, and so we've had a lot of success over the years with this RESILIA tissue in our surgical platform. So on things like our INSPIRIS valve, also more recently on MITRIS and KONECT, we've been really impressed with some of the anti-calcification properties there. And our hope is that from a durability and longevity perspective, that will also be a benefit of this RESILIA tissue. So the goal is to take that tissue from the surgical platform and apply it to this new valve in SAPIEN X4. That's the biggest thing that we've highlighted. I think beyond that, you touched on PVL, that's certainly something that we've referenced this goal of having further reduction of both mild and moderate PVL. And then lastly, we talked a little bit about just the enhanced precision and optimal valve size associated with X4. So those are the 3 big ones, probably in that order.

Thank you. Thanks, Mark. And maybe moving on to the TMTT business and CLASP IID trial enrollment completion. It was a great update and -- as you're still looking at data presentation in the second half of the year and approval before the end of the year. And just how should we be thinking about the Edwards accessing the U.S. TEER market or transcatheter edge-to-edge repair segment? MitraClip has a monopoly. You'll have a DMR indication on your belt. We've had some clinicians talk about off-label use and FMR and also mixed etiology cases. But do you think there'll be any real restrictions upon approval? Or do you think with the similar mechanism of action and head-to-head data set under clinical meetings belt that you'll have access to both DMR and FMR indications?

Yes. So you're right. We completed the trial. We're really looking forward to getting it approved here in the U.S. Our expectation is that happens before the end of the year so that in 2023, we can really start introducing and launching this technology in earnest. I think that, without getting into predicting exactly what the label says, our expectation is that this will be approved for patients with degenerative mitral regurgitation and that largely physicians will use PASCAL for that purpose. We have a separate clinical trial that's enrolling. And a lot of the centers are the same centers who were in CLASP IID, and that's for studying patients with functional mitral regurgitation. So that trial is -- that sequencing is behind DMR, but we expect FMR to enroll as well. And so we can see ahead when we're at a point where we've got an indication for both DMR and FMR, but the first one will be DMR only.

Got you. Got you. And just thinking about the CLASP IIF trial and -- I mean, should we just expect kind of updates on enrollment as we experienced with CLASP IID? Just you guys will let us know when you get there, and that's how we should be expecting the update on just enrollment of CLASP IIF?

We'll let you know when we get further along. I mean we're still enrolling the trial right now. And you should expect that you're going to hear different physician reports and anecdotal experiences. But in terms of formal report outs, we'll let you know when we get further along.

Understood. Understood. And are you just on the sale -- commercialization strategy, assuming a launch in 2023 for PASCAL? I mean, can you just remind us on sales force initiatives? Are you going to have a specialized mitral team? Or will this be tucked into your current TAVR sales force's bag and let them run with it?

Yes. We are going to have a dedicated, separate team just as we've done in Europe, where we've got the TAVR field team distinct from the Transcatheter Mitral and Tricuspid Therapies field team. So we're just in the process now of starting to build the resources and build capabilities to support the launch of PASCAL here in the U.S. next year.

Great. And how is Edwards thinking -- I know you guys had an update on the TMTT TAM as well at the Investor Day, and just love to hear your current thoughts on -- I mean, I think it's -- the consensus view is that TEER technologies will be the -- hold the predominant share of your TMTT business or PASCAL will on both the -- well, at least on the mitral side. But within that data-updated TAM calculation, where do you see transcatheter mitral replacement fitting in?

Yes. It's a good question. And overall, we're really excited about the broader opportunity encompassing both mitral and tricuspid valve repair and replacement, and so we're putting a bunch of energy into that. We've got a lot of different product platforms under development right now, including some we've talked about. Obviously, today, the repair solutions, and specifically TEER, is on center stage, and the market is most focused on mitral within TEER. We think longer term, there is a role for different therapies in both replacement and repair, which is one of the reasons why we're investing so aggressively in this portfolio of therapies for TMTT. One of the areas where we've been investing is in tricuspid replacement. So we've got both mitral replacement and tricuspid replacement. Tricuspid oftentimes gets overlooked, but we've made meaningful progress in activating trial sites, and we've been pleased with the pace of enrollment in our TRISCEND II pivotal trial for EVOQUE here in the U.S., and we're expecting EVOQUE to be approved in Europe later this year. So we've got a portfolio of technologies. We think they're really going to be big contributors to that significant growth in the TAM between now and 2028.

Got you. I wanted to just circle back, I forgot to ask a question about your sales force build-out for PASCAL next year. But is there -- what type of initiatives can Edwards pursue to, I guess, educate or kind of stimulate the heart failure referral channel, the heart failure specialist referral community as you launch PASCAL? And they seem to be one of the bottlenecks just in terms of having control of these heart failure patients. I guess you have to wait -- part of my question. I'm a little bit ahead of myself because I'm talking about FMR right now instead of DMR. But is there anything that Edwards will do preliminarily just to attack the heart failure community and then help them educate? I'm sure that you'll be seeing some DMR patients, but also they seem to be the bottleneck on the FMR side.

Yes. Well, you're right. It's an important part of the equation, especially for these patients who suffer from functional mitral regurgitation. These folks with diseased left ventricles really need help, and so part of the equation for everyone over the next several years is making sure that there's a greater awareness of the diseases and of the therapeutic alternatives. And so we're just starting those conversations in the U.S., not on the FMR side, but on the DMR side, and we've gotten a glimpse of that in Europe where it is going to take a broader activation effort to really improve the flow of patients from the point of diagnosis to the point of actually getting treated.

Excellent. Maybe we'll end this session, Scott, with just a kind of business development question. And your team's goal has been to maintain its leadership in structural heart. There are a couple of different segments within structural heart outside of TAVR and mitral and tricuspid transcatheter indications. But thinking about heart failure, just as we talked about the heart failure channel -- but heart failure device-based interventions, and you've had some investments historically, I believe, but what's your appetite there to expand into another structural heart vertical, heart failure or other area?

Yes. I'd say we're in a learning mode. We're in a watching mode. As I mentioned earlier, there is an overlap between these patients who have diseased left ventricles with the heart failure population and patients who suffer from mitral regurgitation. It's really early, and right now, we're -- I think most of our efforts and energies are focused on really building and growing our TMTT franchise. But we'll be monitoring and making early-stage investments just in learning mode and other areas as well.

Well, gentlemen, thank you, guys, for the time. Thanks for the discussion. Really appreciate you participating in the Cowen Healthcare Conference, and we're looking forward to catching up soon, but also next year's conference too. Mark it on your calendar.

For sure. Thanks a lot, Josh. We appreciate you having us.

Have a great rest of the day, guys. Thank you.

Thank you, Josh.

Bye-bye.