Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Great. Thanks, everyone. If you could take your seats, we can get started. I'm Robbie Marcus, the med tech analyst at JPMorgan. Really happy to bring in our new session with Edwards Lifesciences. I want to introduce CEO, Bernard Zovighian, do a presentation, then we'll join you on stage for Q&A.

Thank you. Thank you, Robbie. Good morning, everyone. We truly value your interest in Edwards. I'm super excited about sharing our vision for 2024 and long term. I'm going to share also a couple of things that happened since our investor conference in December. I'm going to make some forward-looking statements involving risk. They are filed with the SEC and they are on our website. Using non-GAAP financial measure, also same on our website and filed with the SEC. So as you may have heard at our recent investor conference in December, we are entering a new era of structural heart innovation. So what do we mean by new era? It means a couple of things. With the spinoff of Critical Care, we will have a sharpened focus. You know us well. We have been an amazing innovator. We have been very agile as a company. We believe that with this spin-off, we can even be more agile and bring innovation even faster. This sharpened focus will give us also expanded opportunity to treat even more patients, patients with aortic stenosis disease, mitral disease, tricuspid disease and even more. The foundation of our company remains the same, our credo, being an ethical company, trusted partner our very unique culture. We care about the patient. We focus on the patient. It is what unify basically the 20,000 Edwards employee globally. And finally, our very unique innovation strategy. We like to focus on breakthrough technologies, breakthrough innovation, not just incremental innovation. Being first and being the leader, and it works very well, and this differentiates us. So if you step back and you think about all of this, for many med tech company, an extreme diversification is better. For us, with this sharpened focus, we believe that expansion and diversification into one space, a large space, a growing space, structural heart disease is the way to go. A space where basically no one can match our experience, our expertise, our reputation, our leadership. This is what gives us confidence that we will be able to deliver sustainable growth in our long term. We -- to drive this sustainable growth, we are looking at 4 big type of investment. The first one being continuing to bring breakthrough innovation like we did in the past 60 years. Second one is about continuing to bring world-class evidence to physicians and regulators in order to be able to expand indication. A new one, patient activation, that we started few years ago because given the success of TAVR, we see that many patients are still undiagnosed and untreated. We started that few years ago, and we are now accelerating our investment. And something that we have done a little bit in the past and we are going to do more in our future is getting into new segments. So new segments, adjacent segments, but definitely within structural heart disease. So if you think about these 2 slides, these are a great recap about our long-term vision. You may ask yourself, are there enough patients in structural heart disease to be able to have sustainable growth? And the answer is yes. Structural heart disease is the leading driver of cardiovascular death worldwide. And in the U.S. only, every 33 seconds, there is a person dying from cardiovascular disease. So the answer is yes. There are many patients in need globally. Our vision is to change this patient care, to be able to have this patient diagnosed earlier, treated in a routine fashion and living longer and having a better quality of life. For 60 years, we have been the leading surgical innovator. We have been the pioneer for so many years surgical innovation. And even though we have been doing that for 60 years, we see plenty of opportunity to expand into younger patients, more complex patients, patients requiring multiple procedure at the same time. And emerging market is an important opportunity for us where they are still using a lot of mechanical valves. And we all know that tissue valves is a way better option for patients. In TAVR, about 20 years ago, we had a vision to transform the care for these patients. Everybody at that time believe we were crazy. And Mike Mussallem that you know well, was the visionary behind it. And today, we are the global leader. SAPIEN is by far the preferred therapy for physicians globally. We have 8 New England Journal Medicine publication. So let's take a moment on that one. Don't you think rare publication -- a rare publication in New England Journal of Medicine, that's something very special. 8? I don't believe that many med tech technology have this kind of evidence, world-class evidence behind it. Is there any expansion for us? Plenty. There are so many untreated patients, so many undiagnosed patients. We are focusing also at expanding indication and I'm going to talk more about that later. So even though TAVR has been a huge success in the last 20 years, I believe the best is yet to come. Similarly, about 6, 7 years ago, we had the same vision for mitral and tricuspid patients, where we said, look, these patients have basically very little opportunities, let's commit. Let's go big. Let's bring a portfolio of therapy because we know that these patients are so complex, so diversified that one therapy, TEER, for instance, or repair is not enough. And so we are -- we see plenty of opportunity of expansion because we are the only company today having a portfolio of therapies. We have been seeing and studying heart failure patients, given our involvement with aortic patients, mitral patients and tricuspid patients, and we see heart failure as a natural progression for us as a company to expand our reach and being able to impact even more patients. So this is who we are as a company. We like to address large unmet patient need to create market, to be first and be the leader and we have a proven track record of success, having done that for 60 years. Now let me go quickly through the different businesses. In TAVR, we have a very simple formula. When I say simple, it is simple to talk about. It is not necessarily simple to implement, as you can imagine. But the simple formula is the following: best technology, never slow down, continuing to bring the best technology, best innovation, world-class evidence, large randomized study in big journal. Patient activation is something that we do today. Patient expansion -- indication, sorry, expanded indication, sorry. So we are so proud of this procedure today. And we believe that TAVR as a category has the potential to exceed $10 billion by 2028. Now what gives us confidence in this plus $10 billion by 2028? It's all of these drivers, short term, midterm and long term. First is the patient activation. The first 2 are in-system patients. So the in-system patients are patients that have been diagnosed with the disease and unfortunately, they are not referred to a heart team, and they are not treated. So we believe that it is about 50% of these patients are diagnosed and have not been treated even in the U.S. It is a big opportunity. We have plenty of initiatives behind it. That's more of a short term and midterm. Long term, there are many patients who have the disease, they don't know that yet. And that's truly the out-of-system opportunity. Continuing to bring big evidence, large studies, not focusing on share, focusing on bringing the evidence to be able to treat patients. So right now, all of the approval around severe asymptomatic patients -- severe symptomatic patients, sorry. We have a study that we are going to present later today at TCT for the asymptomatic patients. And then the moderate patient later. We believe that asymptomatic patients is probably as big as symptomatic patients. So this can double the patient population. Moderate is probably 2x bigger than the current indication. So when you think about the next 10 years here, plenty of opportunity to bring in TAVR further. And finally, technologies. All of the studies we talked about with previous TAVR technologies. We are now basically launching Ultra RESILIA, which is the next gen. And we have another next gen beyond Ultra RESILIA, which is X4. So all of this together give us this confidence that indeed TAVR as a category can exceed $10 billion by 2028. In TMTT, think about the same formula: technology, evidence, indication, having in mind patient outcome. The only difference is 1 technology will not be sufficient. We knew that 6, 7 years ago, it is why we build this portfolio of therapy, repair and replacement. And we are the only company having such a portfolio of therapies. So for tricuspid in Europe, PASCAL repair. EVOQUE has just been approved, and so physicians have an option now. EVOQUE is on track to be approved in the U.S. by midyear this year. On the mitral side, repair exists in the U.S., and we just completed the study with M3, the first ever sub 30-French transfemoral mitral replacement. So this put us on track also to offer this kind of technology and toolbox to physicians. On surgical, continuing what we know, what we have been doing for 60 years, bringing in the best innovation, having in mind patients who are not best treated with TAVR, and they are many, and we believe that our innovation, our pipeline will help the category grow to a $2 billion category by 2028. In Critical Care, continuing also to innovate, and move basically patient from classic monitoring to smart monitoring. We believe that Critical Care is here to be very successful and extend their leadership. In December, I'm sure you heard we announced the Critical Care spin. So it has a couple of benefits. Benefit to Edwards, and I talked about it with this sharpened focus in structural heart disease. It has also a benefit for Critical Care. Critical Care has been doing great. Under Katie Szyman leadership, this business has grown to almost $1 billion in revenue, improve profitability, but maybe even more importantly, has plenty of opportunity. And we believe that as an independent company, Critical Care will be a very successful company. So it is why we believe it is the right time, it is a right time for Edwards to have a sharpened focus. It is the right time for Critical Care. We are ready now. They have critical mass. Let's talk a little bit about now the year, starting with last year. Last year, in my mind, was a great year. We are on track to achieve our latest guidance, top line and EPS. We have achieved very important milestones. Our next-gen TAVR, SAPIEN X4. The enrollment of the study is doing very well. SAPIEN M3, the first-ever transfemoral mitral replacement, study was completed. We achieved CE Mark approval for EVOQUE, the world's first transcatheter tricuspid replacement. APTURE, it is 1 internal program for heart failure patients. We have done -- we have treated many patients already and we got an approval by the FDA to start a randomized sham-controlled trial. So all of that together, for me, give me the confidence that we ended the year strong. And what's new since our investor conference? A couple of things. So a couple of exciting things. The first one is we achieved CE Mark of our SAPIEN 3 Ultra RESILIA in Europe. So basically -- so right now, this latest of latest TAVR technology is approved in the 3 biggest region, Europe, U.S. and Japan, and we completed a $400 million ASR in Q4. What about this year, 2024? I believe it is going to be another exciting year with so many important milestones. It is going to be a very big year for TAVR. The asymptomatic trial result will be presented at TCT later this year. Ultra RESILIA basically will be launched across the planet here. Patient activation. We have learned a lot, we know what we need to do and we are scaling many programs. TMTT launching EVOQUE in Europe, soon in the U.S. by midyear and basically now expanding globally PASCAL. Surgical and Critical Care, expanding their leadership and extending their leadership. So financially now, we are guiding to 8% to 10% with an EPS growth of 9% to 11%. So also solid financial performance that we are aiming to. So if you think about it, 2024 will be a very meaningful year, both financially and the kind of milestone we are going to achieve, new technology, new indication, patient activations. So it is why because of all of this, we believe that '25 and beyond will be years where we can be more than 10% in top line growth and double-digit EPS, too. So very exciting about what we have done last year, what we are aiming for this year. So let's talk about long term now. And we see a very well-defined path to deliver sustainable growth over the many years ahead of us. So first, it's possible by demographics. We know that many of these disease are disease of the aging. So demographics is going to help us. Patient activation. Now as a global leader, we are focusing a lot on this. And these 2 together are going to be a great catalyst. Our commitment to innovation. We have about 2,000 engineers. We are investing more than $1 billion in R&D every day to bring these breakthrough technologies, amazing evidence to be able to expand indications. But also the use -- the strategic use of our balance sheet, strong balance sheet. So for instance, in heart failure, it is not just an aspiration. We have 1 internal program. We have already made almost 10 investments, 2 to 3 are near term for us to make a decision about an acquisition. So in summary here, long term, no one is matching our investment, our commitment our capability and our leadership. So in closing, I am very pleased with our 2023 performance, double-digit top line growth, strong profitability. I don't believe there are many med tech company with this kind of performance in 2023. 2024 will be very solid from a financial standpoint, but maybe even more important from a catalyst standpoint, in THV, in TMTT and the Critical Care spinoff. And finally, long term, I'm very confident. We have a growth driver to expand our opportunity in THV, TAVR, TMTT, surgical and heart failure as a natural progression is a great opportunity to extend our global reach. So I want to leave you with that. We are the only global company solely focused on structural heart disease, and I believe we are uniquely positioned to deliver sustainable long-term growth and extend our leadership. So with that, Robbie, back to you for a Q&A session, correct? And Scott, please?

Great. Maybe to kick it off, I feel like investors are very particular about semantics. And Bernard, you said in the presentation you're on track to achieve your guidance for fourth quarter. Does that preclude that you couldn't do better than fourth quarter guidance? I just want to clear that up. And any comments you want to make on how fourth quarter has trended.

No, no. I was very clear about we are expected to deliver on our guidance. And I think it is a great guidance, a year of double-digit growth with strong profitability. We are very proud of it.

Great. We've seen across med tech a pretty healthy fourth quarter. Are you willing to make any comments about how fourth quarter surgical volumes have progressed for Edwards?

We'll be willing to make a lot of comments at our earnings call in early February.

Okay. Fair enough. Guidance for 2024 in the top line that you provided in December, 8% to 10% on the top line. I think that was right down the middle of what investors were expecting you to guide to. The surprise came from the better 10% plus in 2024 and 2025. And I want to dig into that and spend some time understanding, one, what made you feel like you had the confidence to put that out there today for 2 years in advance, and then dive into the different drivers of that accelerated top line growth.

Sure. And we are confident. Scott and I and the leadership team, we talk a lot about it. So if you think about it, we have so many catalysts that are going to happen in 2024. So let me start with TAVR. So a new technology, the newest technology, Ultra RESILIA now in Japan, U.S. and Europe. You have potentially a new indication, asymptomatic is going to be presented at TCT. So we are going to have plenty of learning. And we know that each time we bring a large study, a large randomized study on TAVR, this is increasing the confidence of a space of physicians, of patients, even though the indication approval will come later, probably in 2025. Then you have on TMTT, you have EVOQUE. It's truly a game changer, you're correct. For many years, physicians had only fewer options. And now, they will -- in Europe, they will have basically option between a repair technology and a replacement technology with great outcome. And in the U.S., mid-2024. So all of that will be -- we will see some of the impact in 2024, but most of the impact in 2025 and 2026. In addition, the Critical Care spin will give us like 0.5 point, Scott, correct, in terms of top line growth?

Yes.

I want to touch on EVOQUE. You called it a game changer. We've seen data from a competitor with a TEER product in repair. EVOQUE is replacement. And we've seen 6-month data. This year, we're going to get 1 year data probably with a mortality reading on it. And the data we saw at 6 months had really good symptomatic approval -- improvement. And the patient populations are different, right, competitor product, healthier patient population, no outcome in mortality. What's the likelihood that we could see a mortality outcome in EVOQUE? And how important is that to really driving material uptake versus just really strong symptomatic improvement in a patient population with no good surgical outcomes.

So I am going to -- it is a good question, Robbie. Obviously, everybody wants to know the answer to this question, correct? What I'm trying to do is not talking about a study before we know the outcome. I know it is tempting. I know many people like to talk about study in advance, but we respect so much having a world-class evidence. And for us, it's like let's go one step at a time. The study has been completed. It has been one of the fastest enrolling study, showing the need in the marketplace. We presented the Phase I, like you said, 6 months, 150 patients. What you are going to see is more patient, 1 year follow-up. It's going to be a great learning for the medical community and for all of us. So I know it's tempting. I listen to everybody and people are talking about study before knowing in of a study or before the study has been published. We like to be very disciplined about that.

Well, let me pose it more as a hypothetical, like don't comment on the outcome. But just if you think about the necessity to drive a sales uptake, is symptomatic improvement in a really sick patient population enough? I mean if I think to some of the CRM products that initially came out before there were any mortality benefits, they were doing $1 billion plus. So is symptomatic improvement enough in this market where it is a bit more of an invasive surgery to drive sales uptake? Or do you need a mortality outcome?

I would say a mortality benefit is always better, don't you think?

Yes.

Now I want to reflect on the patient needs. I have seen many of these patients personally when I was running the TMTT business unit. These patients, they are miserable. Their quality of life is horrifying. They cannot do anything. They are overweight. They are in pain. They stay home. They do nothing. They get the EVOQUE valve. 2 weeks later, they have lost 20 pounds of fluid, and they are back to having a normal life. And all -- you asked all of them, do you enjoy your new life? Yes. So in my mind, it is kind of a progression. When I look at many of the people who were commenting on the TRILUMINATE result a year ago, correct, where they didn't achieve mortality benefit, I'm looking at this one as a positive, first step positive. Tricuspid is a new disease. We are learning, physicians are learning. If people suddenly a week later or 2 weeks later, they are back to their normal life, I think it is good enough. A mortality benefit will give even better outlook for the platform and the market, obviously.

If I shift gears to TAVR, you're looking to move earlier and earlier, not only in the patient's age, right, generally from high risk down to low risk. The low risk are typically younger, but also earlier in the treatment paradigm may be up into moderate AS, which we'll get that in a couple of years down the road. But it's going to be really important. I think it was TCT 2022 where the theme of the conference was life cycle patient management of the valve, right? So earlier, maybe you get 2, 3, maybe even 4 valves over the course of the patient's life. So what is Edwards doing to make it so that you can manage a longer life of the valve, but also to be able to do better and easier TAVR-in-TAVR?

Yes. No that's a great question. Let me start and maybe, Scott, if you want to add anything. First for us, lifetime management start with the first procedure. You need to have an amazing technology, first and foremost, and we believe our SAPIEN platform with this kind of outcome we are having is this kind of technology. So best technology first. Then you want the technology to be durable. And it is why we are so excited about Ultra RESILIA with this RESILIA technology. Tissue technology for us as a company has always been a clear area of focus. And again, we have been in the space for 60 years. RESILIA, we started that program, I want to say more than 15 years ago. The first patient received RESILIA in 2011. And so we know that with this RESILIA technology, our TAVR technology has the potential to last longer. So I think the best technology first and foremost with SAPIEN and then lasting longer with RESILIA. We believe that it is truly the starting point of lifetime management. Now if another technology is needed later, that's a good question, correct? If we start treating patients way earlier. And I believe we are going to learn more from that in the years to come.

I'll just to add to that. Our TAVR strategy for lifetime management for a patient is connected to our surgical strategy as well. So our surgical valves are designed now to accommodate future TAVR and SAVR. And what we're really trying to do is make sure that we can preserve the effective orifice area for these patients so that they can have future valve and valve procedures. And we're trying to design our valve platforms so that valves can be either a good host or a good guest in future interventions.

And I believe X4 incorporates some of that technology. When do we -- remind me, when do we get to see more data on X4?