Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

[Audio Gap] I think it's over 20 that you've been at. So I'll turn it over to you, Mike, and then we'll do some Q&A.

Thanks, Robbie, and welcome all. It's a pleasure to be here. Yes, we've done this a few times, and it's been a pleasure. I always love to talk about our company before we get into it. We're going to be making some forward-looking statements, which involve risks. We've got all of those lists on our website and filed with the SEC. So feel free to take a look and we also use non-GAAP financial measures to make our P&L more understandable for all of you, and those are also available in our filings and on our website. So the credo is not something we just used for these kind of presentations. We talk about it inside the company all the time. It's been with us since the Edwards birth when we rang the bell April 3rd of 2000. And you can see it's a multi-stakeholder model, which is sort of vogue right now, but we were sort of born that way, and it's very comfortable for us. And we ask all of our leadership to really live our credo. As a matter of fact, we give credo awards to our senior leaders for doing things like creating community and being a trusted partner and being bold and decisive. And we closed it with helping patients is our life's work and life is now. And I'm so proud that we've really built a culture at Edwards where we say routinely to our folks, clearly, the #1 priority is patients. Patients first, all the time every day. And on a recent survey, I was pleased to find that 93% of our employees said they think about what's important to patients when they're making decisions every day. And I think that's the kind of thing that builds a robust culture and long-term success. Lots of ways to describe our company. One of the things I'm proud of is our transcatheter technologies are getting close to being able to be applied -- or having been applied on nearly million patients, and that's very exciting. We're fortunate to be a leader in what we do. In fact, over 95% of what we sell are in #1 global positions. We have a terrific supply chain that's proven to be resilient, and it certainly got tested during COVID, and our folks show up every day, and we had made the sufficient investments that was truly resilient through these very difficult times. Our employee base is interesting. It's grown tremendously over the years, but we have a pretty large group of people that have been with the company for a long time, but we also have a lot of people that have joined the company more recently. As a matter of fact, 60% of our employees are millennial and Gen Z. So it makes kind of a cool mix, right, of a culture of people that have deep expertise and a culture of new people with new ideas and new mines that are constantly challenging the status quo. And we had a lot of smart people. Including that we do a lot of research and development of Edwards, spend 17%, 18% of our sales on research and development, which is high for a company of our size and couple of thousand engineers in our company that are dedicated and motivated to really change the world. So that all feels good. And we also ask our folks to be charitable. We have this aspiration. People are just do something charitable that they care about each year and over 86% of our employees do that. So a lot to feel good about that. The strategy at Edwards is different than many other medical technology companies. Many other companies I'd like to diversify, like to grow, grow through acquisition, et cetera. We really have a different formula. It's based first on innovation. And we don't say that lightly. We're very serious about it. We're not talking about small incremental innovations. We're talking about big bold change the practice of medicine kind of innovations. And those are very hard to do, but they're extraordinarily rewarding when you get it right. But one of the things you know about those is that the practice of medicine doesn't change unless you put big evidence on the board. And so we know when we're signing up for these kind of innovations that we're signing up for a decade-long sort of journeys, and we're up for that because that's also what creates the durable growth. The second element of the strategy beyond innovation -- and by the way, innovation has risks associated with it. There's plenty of things that go wrong along the way. And and we learned how to deal with those risks and deal with the failures along the way because it's worth it and have a lot of shots on goal at any point in time. The second element is leadership. We like to go first. It's actually lower risk to go second or third and learn from others, but you learn faster when you go first. And it also puts you in the room when you're shaping how a new therapy or a new practice might happen when you're with the thought leaders, when you're with the regulators, when you're with the payers. We like that position, and we enjoy going first in many regards, but again, encounters risk. And so the way that we handle the risk associated with being a big time innovator and going first is by staying focused. We say we are not going to diversify. We think there is a tremendous number of underserved patients that are structural -- that have structural heart failures or critically ill and that we don't need to diversify to do this. And what's magical about that is we can really learn a lot about these patients and become experts on what the issue is and how we can make a difference. And so this is our strategy, a focused leadership, innovation strategy. And the strategy has served us well. We've been able to clock along at double-digit growth for some time. The benefit is, number one, the patient demand is tremendous. So we haven't come close to fulfilling the demand necessary that's out there. And so it's one of the things that makes us feel great about our strategy. We always strive for this triple win, and there's nothing that's more rewarding. Then you have a therapy that extends life extends the quality of life and saves the system money, and when we do that, then we really ring the bell. And that's always our goal when we're innovating. And finally, as I mentioned earlier, very long-term kind of investments. The kind of things that Edwards does, we're going to be committed to for a while. So the success that Edwards is realizing right now are based on seeds that were planted years ago. And we know that our success in the future is going to be based on the seeds that we're planting today, and we're planting quite a few. So it gives you a sense of our strategy. Let me just walk through our businesses. We're proud of our strong leadership position. Our largest business by far is transcatheter aortic valve replacement. We have a -- It's very simple formula there. We continue to focus on adoption of this therapy. There are still many patients that are underserved. We have a portfolio of innovations over consistent innovators. And we constantly look to expand the indication associated with this as well. We have big opportunities that are associated with it. And we've been involved in groundbreaking trials for some time, and we have more cooking. And it's the kind of thing that we think has a chance to continually redefine. We're so proud of this procedure. Today, this procedure is done all over the world, and it's done very effectively and very safely done in under an hour. Often the patients are not even anesthetized, they're going home in a day or so and actually having their heart valve replaced, which was just unthinkable for somebody like me that has stared into a lot of open chests over the years. We could only be done in the past with open heart surgery. So just remarkable therapy advancement. We're not nearly finished. There's a lot of things going on right now. In the pulmonic position, there are a number of patients in need. It's a smaller population that might be some of the other valvular positions, but it's a serious one. And we've developed this Altera stent platform that you're able to put a Sapient inside of. And that's turned out to be potentially very important for these pulmonic patients. We just had an introduction this last year of SAPIEN 3 Ultra RESILIA. So we have our latest tissue technology that's now in the marketplace in the U.S. and Japan and soon to be more. We are advancing our next-generation platform called SAPIEN X4, which has more features that are very attractive to both patients and clinicians. And then we have 2 market expansion trials, one called EARLY TAVR, which for those of you that aren't very close to this, the way that the indication today reads for treatment is if your aortic valve is closed down to a certain size that you would measure using a sonograph or an echo and the patient has symptoms then you should treat. We think this idea of waiting until the patient has symptoms. It is bizarre and wrong and probably made sense when the only option was surgery, but our EARLY TAVR trial is out to prove that this is not the case. You can imagine patients randomized that some patients got the watchful waiting that they get today. Other patients are getting TAVR follow all the patients for 2 years and let's see who's doing better. And we think that's going to be a really interesting trial. And then we have another trial called Progress and which we're actually measuring patients with moderate aortic stenosis. So don't wait until it's severe, but treat patients while it's moderate. And there's early data that suggests it could make a big difference for patients. And this disease is just progressive. And so why would you wait? And we hope to prove that a similarly randomized trial here comparing waiting to getting a transcatheter aortic valve replacement. So we're excited about those trials and what they'll mean for the future. We have one important job in front of us, which is there's many patients that don't get properly diagnosed or don't properly move through the system to treatment. And we are committed to change the way that, that happens. It means a multifaceted approach in which we're working closely with hospital systems where they're actually patients already in the system that don't move smoothly through the system. We're working directly with patients to educate them. Often, our patients are an elderly population, and they would attribute their symptoms to, "Oh, I'm just getting old, I can't do what I used to do before" when in fact, their aortic valve is closing down and they're not getting the blood flow that they used to get. And then actually educating the health care providers, the clinicians themselves, the frontline clinicians, and many of them, when they went through their training, there was no TAVR option. And so we still have a job in front of us to make sure that they understand the options that are available to them and encourage them more about the results and reminding them also about just how deadly this disease is. And it is it is really severe. A matter of fact, once it's severe aortic stenosis, you could argue that the risk factor is something in the order of 1% mortality per week that you delay. So serious stuff. Our emerging opportunity, which is still small today, but what you expect to be large in the future is what we call TMTT, Transcatheter, Mitral and Tricuspid Replacement. So in the past, the only way that you could treat these patients -- usually, they were treated with pharmaceuticals, the best they could or just watch them a few people treated with surgery, but we believe that the time is now to treat these patients with a catheter-based approach. And there have been sufficient advancements to do that. Our strategy is to develop a whole range of portfolio of differentiated therapies because we don't think that there's going to be one tool for the job kind of like in aortic. We also are going to focus on having these groundbreaking clinical trials to prove that this therapy is better than what the existing therapy is. And finally, get real-world outcomes that match anything that happens in clinicals, and we are prepared to provide all the support necessary to make sure that, that happens. So a big opportunity. We're very excited about this one. We think this opportunity is in the $5 billion range by 2028. Right now, there's a lot of these patients. And today, they're just not treated with therapies, whether you look at the tricuspid patients, where we estimate maybe 2% of those get surgery. And Edwards is the one that offers these products. So when a surgeon is in there doing a, for example, a mitral repair or replacement often, they'll repair the tricuspid valve at the same time. That's pretty much the extent of the surgeries today. But we think, boy, if we could have a great transcatheter option, what can we do for these patients? And on the mitral side, still dismally low, only 4% of these patients treat it. So a big opportunity. And again, a complex disease with complex etiologies. So not likely that there's one size that fits all. I think it's -- we really believe it's going to take a toolbox and that's what Edwards is bringing to the party. We have 5 big pivotal trials going on. It wasn't long ago, it was a 1 pivotal trial going on. That was our partner trials. But to tell you about what's going on just in this space, alone. And so we look forward to reporting on these that each have an opportunity to be game changers because these are highly scientific, centrally adjudicated the kind of trials that are designed to really change the way people think and to really change guidelines and to advance adoption. And so we're excited about these trials. And these trials include not only our PASCAL edge-to-edge system that's used in mitral or tricuspid therapy but also valve replacements, In both the mitral and the tricuspid side. So people sometimes think that Surgery has stopped growing. And actually, it has continued to grow. And a matter of fact, Edwards is probably the single company that has decided to continue to invest and innovate in the world of surgery because we believe that there are many patients whose only option is surgery. This is still a big marketplace, and it's one that we happen to be performing well in. We're particularly our advancing our latest tissue technology called RESILIA. This was developed over 10 years ago, and we've got a lot of data and new data will continue to be reported, which we believe will show that there is extraordinary durability compared to the tissue treatments that were available in the past. And if you go to the -- just the reason that surgery is going to grow, some of it is the transcatheter therapies increases awareness, and it's just going to attract more patients into the system and increase the diagnosis rate. But also there are just going to be more referrals that are associated with it. And there are some patients that are just going to be best for surgery where transcatheter is not going to be an option. So we think that this is still going to grow. And on top of that, we expect to become an even larger and larger part of this global footprint and actually growth internationally, is [ Robbie ] going to be significant in this space compared to U.S. growth. Critical Care is a business that probably a little bit below the radar screen for some of our investors, but it's a clear global leader. We have a history of being a leader in what's called hemodynamic monitoring or think of it as the performance of the heart, how well the heart pumps it becomes a critical parameter for somebody that's going through a major surgery or somebody that's in an ICU. And Edwards has always had the benchmark technologies and been the market leader in how is the heart performing? But what's new here and our -- and this was really led by our leader, Katie Szyman, is to make these technologies smarter than they ever were in the past. And instead of them only being backward looking, is can we create algorithms that look at the history here and be predictive of what you might see in the future. And so give clues to the anesthesiologist or the intensivist that, hey, you might be headed for a low blood pressure situation, which is dangerous. And to give them 10, 15 minutes notice that they can act on it before it happens. We think this is a game changer for these clinicians. And one of the ways that we add value when we have new monitors, we have new disposables and new algorithms that support that. And so this is an aggressive practice that we're moving forward. So let's get into the numbers a little bit. '22 had it's share of challenges from an environmental perspective. But we look back at it and say, "Hey, it was a pretty good year". We had growth prospects that were double digit and we fell a little bit short of that, but we still -- we're a pretty healthy growth company in 2022, and we're pleased that we made progress on a lot of our longer-term important regulatory approvals and milestones. So we -- and this was something that really wasn't seen by others, but we got RESILIA approved to apply on our transcatheter aortic valve, and that we think is going to be a very important innovation when those customers and those patients are demanding more durability than ever before. We've got our PASCAL system that got a CE Mark and U.S. approval and our [ Mitral RESILIA ] valve in the surgical products also approved. So some real nice approvals and at the same time, achieved important clinical milestones. And we just stayed aggressive investors. We didn't pull back because of the pandemic, we didn't pull back because sales fell a little short, we stayed aggressive in terms of investing in the future. It's not our intention to update our guidance at all associated with this. We were just in front of investors at our investor conference in early December, and we'll be reporting our results here by the end of the month. In 2023, we expect it to be a year of strong growth and continued year of investment. We expect our sales to grow in the 9% to 12% range. What's going to drive that? Well, some of it is going to be continued improvement in the environment. We think some of the challenges like staffing for hospitals and just the overhang from COVID will gradually improve during the course of the year. But at the same time, being able to have RESILIA tissue in TAVR, we think is very meaningful being able to launch our precision PASCAL product at this point is going to be very meaningful, and we also expect to have an approval for our [ Voke ] tricuspid replacement valve by the end of the year. In surgical, we continue to gain share and advance our products that are based on RESILIA. So this is the INSPIRIS valve in the aortic position and the Mytrus valve in the mitral position. In Critical Care, we continue to march ahead with this, what Katie would call smartifying our portfolio to have these advanced products that are more predictive and more helpful to clinicians than ever before. So when we look further ahead and we look, say, 5 years from now, we believe that the market opportunity is going to approximately double from where it is today. And it will be approximately a $20 billion opportunity versus the $10 billion that Edwards probably faces today. And why do we think that's going to happen. We think that the TAVR opportunity will approximately double. We think the transcatheter mitral and tricuspid, which is very small today, is going to increase to $5 billion in growth in Critical Care and Surgical as well. And so we're very optimistic this sort of translates to a low double-digit compound annual growth rate if you will. Of course, it won't be a straight line, and that will be bumpy for all the reasons that you know when you're an innovator. But 2028, we don't think it's anything close to peak sales. As a matter of fact, many of the things that Edwards is working on today, won't really bear fruit by 2028. Things like the moderate aortic stenosis trial, it will just be reading out by 2028. So if that's a successful trial that will be a significant driver of growth beyond '28. We think that transcatheter mitral and tricuspid repair will be pretty mature by '28, and there will be some replacement by 2028, but the replacement won't be near peaking at that point, and that will be a big opportunity. And we think there's a way to apply Edwards know-how and skills related to transcatheter technology and interventional, if you will, to treat heart failure that we're not doing today. So we don't have more to share on that one, but we think all 3 significant opportunities for the future. So just to summarize, I am going to be stepping down from the CEO role, but I have a tremendous amount of confidence in our executive team, our leadership team and the talent across Edwards is very driven. We have a pipeline like we've never had before and an outlook like we've never had before. This idea that we have large populations of patients that are untreated is very attractive, and no one focuses like we do. We've got a track record of credibility which allows us to move forward with our innovations in a very positive fashion already having some credibility in that. We've got this incredible culture of patient centricity where our people really do care about patients first. When they get positions us well for durable success. I'm really proud of our R&D team. We're able to attract some of the best and brightest from around the world because they want to go after big bold innovations and they want to be patient-focused and so allows us to bring incredible talent in. And finally, when we get that right, we don't have to worry about growing the company through acquisitions and all that. We can do it organically. We think we're going to create enough innovation that we'll be able to have good, sustainable, solid growth for a long period of time. So it gives me a lot of confidence. So with that, I'll conclude. I'll invite my partners. Bernard Zovighian, who is -- just recently named the President of Edwards Lifesciences is going to become the CEO after our shareholder meeting in May. And Scott Ullem, our CFO and more. And we're happy to take questions.

Well, great. Maybe I'll kick it off, Bernard, a question for you. Your newer face to a lot of investors. So I thought it would be good to start off with your thoughts. What do you like that Edwards was doing before you came in? And anything you want to do differently as the new CEO?

Yes. Thank you so much. Good morning, everyone. Great to be here. Look, first, I'm very confident about this transition. I have been with the company 8 years. Mike and I have been working together. We know each other very well and it is an amazing company. Very -- it is well run. We have this very unique strategy. We care about innovation, we care about the patients. So very often, people ask me, are you going to make any changes? And I'm saying, for now, no, you know what, like you know what do we have? We have an amazing executive team. We know what we are doing. At the same time, I'm going to be very vigilant about the environment. And if we need to make some changes down the line, for sure, we will do it.

Great. when you look across the business, it's obviously TAVR has been the big growth engine and TMTT is coming up and probably, if not the future, a big part of the future. How are you -- as the incoming CEO, how are you thinking about prioritizing investment within Edwards? And do you agree with what I just said and anything you would add to that?

No, for sure, Robbie, but I will start with we have 4 businesses. Critical Care and Surgical are big businesses very successful businesses. We are investing, we are innovating, and we will continue to do that. It is super important to the patient we serve. TAVR today is the biggest business within the company, it has a lot of potential in the years to come. And TMTT, we started this franchise about 5 years ago with the vision to change the practice of medicine. We made a lot of progress. We have a lot of confidence, and there is a lot to do. But yes, TMTT is going to be like with TAVR, a major growth driver for the company.

So I agree with you that structural heart is a huge opportunity for the long run. It has run into some difficulties over the past year as staffing has been a challenge in COVID, disrupted some of the top of funnel for patients coming in. I saw on the slide you're not updating guidance today. I just want to make sure you typically don't preannounce here, but -- are you guys still reaffirming the guidance? Is that one way to read it?

No. We're not updating guidance, but we'll tell you the whole story about the fourth quarter and 3 weeks from today at our fourth quarter earnings report.

Okay. Maybe if I turn to 2023, you did guide to 9% to 13% sales growth for the company.

9 to 12.

9 to 12, sorry. Anything that you've seen since the Analyst Day that maybe gives you a little more confidence in the growth rate? Have any trends changed or any environment improving or not improving around the world?

Well, I mean, look, obviously, there's been a lot going on, and we had a holiday break and everything in between. But no, we're not going to talk about the week-to-week since 4 weeks ago when we had our investor conference in New York. But we'll take everybody through what's been going on 3 weeks from now on January 31, fourth quarter call.

If I turn maybe to some of the new product launches, SAPIEN 3 Ultra with RESILIA a couple of months out in the Market. Maybe you could talk about the feedback you're getting from the clinicians? Is it the reception that you were hoping for? And are they -- do you think they're buying into the durability of the valve that we with the RESILIA on the surgical side?

So I'd be happy to comment. And again, Robbie, it's tempting to give a mid-quarter update, and we're not going to do that but..

Qualitatively.

Yes. No, our premise going into this was this truly was more valuable and that we were going to do a little bump on our list price. But that was -- we were going to also continue to offer our Ultra valve for people that didn't want to step up to the Ultra RESILIA. And so those conversations are going on right now. We feel pretty good about our strategy, and we have from the beginning. We think people will see the value in doing that. And -- but in terms of the pace that, that moves at is very hard to predict. And again, customers also have the option of using volume to be able to get discounts. And so that could be another way that they handle with the change to RESILIA.

Maybe if I look at the TAVR market longer term, you're doing the EARLY TAVR trial. You're also looking at more moderate patients. So right now, severe aortic stenosis and then moderate aortic stenosis. What work do you think Edwards is going to have to do, assuming the trials are positive to drive utilization, those patients populations. Do you think clinicians are already willing and able to buy into that? Or do you think there will have to be a heavy lift on your part to get guidelines changed and really drive it from the ground up?