Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Good morning. I'm Josh Jennings from the TD Cowen Medical Devices team, and we are moving down the Medical Devices track here at the 44th Annual TD Cowen Healthcare Conference. And we are very excited to have 2 distinguished members of the executive team from Edwards Life Sciences joining us here in Boston today: Chief Executive Officer Bernard Zovighian and the Chief Financial Officer, Scott Ullem. Gentlemen, thanks so much for joining today. Great to see you in person. And I'm...

Thank you.

Thanks for having us.

Looking forward to this discussion. Also, Bernard, you've been in the COC for not quite a year yet, but you've been on the Edwards team and were working with the distinguished members of your executive teammates for years. And so I guess the question is, as we're moving forward, Edwards has been running a highly successful playbook executing on the strategy of trying to own leadership in the structural heart space. You made one major move so far with the announcement of the spin of critical care. But how are you thinking about the overall corporate strategy? Is it more of the same or whatever has been doing and been successful over the last decade? Or are you -- any tweaks or redirection that you may implement?

Thanks for the question. Good morning, everyone. So I would say a little bit of both. So obviously, I know well the company. I joined the company almost 10 years ago now. I run 2 divisions of the company, the Surgical division initially and then the Mitral and Bicuspid division. So I took the time to think a lot about where we are going, who we are as a company and where we are going. And for me, there are a few things you need to keep. A few things you have to make [ pass within sessions ]. Our culture and the patient focus culture, and our very unique innovation strategy. Where we like to go first, we like to be the leader. We want to [ shake up ] other markets, to bring in breakthrough technologies, not just in incremental technologies. So these are the things I want to keep because these are fundamental to who we are as a company. Now I was thinking about, hey, how to make sure this company really special, growing like we have grown in the past 10 years plus, being highly profitable, impacting so many patients. And so the decision I made is to be able to focus more on structural heart disease. Because I believe that there is such an opportunity, so many patients within structural, valvular and non-valvular there is about 20 million patients in the U.S., Europe and Japan altogether. So we believe we are the only company who can [ are good at ] setting it back. Who can expand, diversify ourself into this large space. It is a growing space, it is a very large space. Therefore, we will make the decision to spin off the critical care. And we said that a priority for us is for sure the TAVR, for sure TMTT, for sure Surgical, but we are also looking at heart failure. Heart failure is an interesting segment for us to get. So that's the way to think about the next few years, how we are going to operate as a company. Scott, do you want to add anything to that?

Nothing.

Excellent. And just maybe to ask a follow-up just on the other structural heart segments, whatever does not participate in heart failure, transcatheter heart failure therapies is one area. Are there any other segments that are attractive? I know that [ advitral vinge occlusion ] is predominantly performed by electrophysiologists but they're also performed in -- by [ endometric ] cardiologists. But how do you look at that -- those dynamics of structural heart in terms of who is performing, is [ interventional ] cardiology your channel? Or can you branch out? I know you have a cardiothoracic surgery channel as well with the surgical valve business.

No, for sure, we are looking at all of the segments within structural heart disease. We have a company focused strictly on heart disease. So like when you see the many [ method ] company having an extreme diversification, for us, it's going to be within structural heart disease, but we want to own it, A to Z. So we are looking at everything. We are looking to strengthen TAVR even further, strengthening TMTT even further, how to grow and expand in surgical. Heart failure is a clear area of focus, but not only.

Understood. And then, Scott, just a question for you, in this prioritization of maintaining leadership in the structural heart segment you participate in and potentially others, investing heavily in R&D. You have some of these new product launches, you've added some sales and marketing expenses. And I guess in that drive to maintain potentially double-digit organic revenue growth, maintain that leadership position, you're not really sacrificing margin, you have a very attractive margin profile for the business. But is there anything that could kind of pivot that strategy where you're more focused on margin expansion and letting more of that upside on the top line flow through to the bottom?

So the short answer is probably not. Our number one objective is to invest in the business, whether it's research and development or adding people to the field who can support our clinicians to drive organic top line growth. That's the number one priority. We're going to see natural margin expansion -- profit margin expansion over time. But we're not -- that's not the number one focus area right now. Not because profitability is not important, because it is, and we're highly profitable, as you know, at the gross margin line and the operating profit line. But we're really trying to put in place the drivers to support long-term profitable growth. And that's why we think we've prioritized properly.

Great. And I just wanted to ask about the impact of the TMTT launch. I know you have a U.S. launch of PASCAL mitral tier platform and now EVOQUE tricuspid replacement valve just reached an approval. Congratulations again, and you're launching that platform in the U.S.? And just how should we be thinking about these early launch days impacting gross margins and operating margins and at scale, as you said, that those will turn, we assume bigger contributors to overall and scale, maybe even be accretive to gross margin and operating margin lines.

Why I don't answer to that question, it's really straightforward, but then ask Bernard to talk more strategically about our launch plans and how we see that playing out. From a gross margin perspective, just on a product line basis, early stage product launches are dilutive to gross margin, but it's a rounding year from an external perspective. Pretty quickly, we'll put in place plans where at higher volumes, we get more overhead absorption and gross profits look attractive and more in line with the company gross profit margin. Short-term, though, it's not quite there, but that's okay.

So what we like to do is, as a company, and you know us, you know well. So let me give you an example first before getting into TMTT. Look at what we are doing with TAVR. 20 years later, we are still investing to expand indication. We are not focusing every day and every investment to compete on share. That's not who we are as a company. Yes, we defend our global leadership position, but we are trying to expand in the market, the market potential. So at TCT this year, we are bringing on this study asymptomatic. Also we just completed a moderated study with TAVR. So all of that, to make it a TAVR, which is an amazing success story today, even more successful when you look back 10 years. So this is who we are as a company: thinking about the patient, shaping the market, to make sure that when we look back we are very proud. In TMTT, we have the same vision. From the beginning, 6, 7 years ago, we said, look, there are so many patients. They have basically almost no options. One technology was only available, we were only capable of treating a very narrow patient population, and we set last spring a portfolio. Let's commit long term, let's take some risk. And we reached that point already this year with EVOQUE being approved in addition of PASCAL in the U.S. [ and in Europe ]. Soon after, we are going to have a mitral replacement, the first ever, also [ sub 30 French of pas geteter ] approved in U.S. and Europe in a couple of years from now. So having this portfolio will give us the opportunity to grow, shaping of the market. But it is not just with technology. Technology is the beginning. You need to have the evidence. You need to work also in the proper payment, coverage, reimbursement so that everybody is seeing us as a company as having a positive impact; patient, payers, providers and physicians. And this is truly how we do things. I like it, I love it if this is our DNA. And I think we are going to do the same in TMTT.

I wanted to follow up on the EVOQUE launch as you gave some details on just some of the deliberate early days, making sure you have successful outcomes and probably kind of attacking those investigator sites that have some experience with the platform. But how should we think about the kind of move into full launch mode, and maybe if you can draw any parallels to the U.S. Pascal mitral tier launch and maybe in conjunction, sorry, I'll ask a multi-multilayered question, but just the progress of the U.S. PASCAL launch and should EVOQUE carry the same path as that. Basically that's just my question.

No, no, thanks. Both good questions. So let me start maybe with PASCAL. We got an approval a little bit more than a year ago, and the launch is going well as planned. We are, as always, targeting patient outcome. We are training our team, hiring, training our team, training physicians, opening more sites and we see a great activation in the U.S. You have seen our results in the last few quarters. We are growing 60%, 70% in TMTT, way faster than the market. So it's a good testament about the success of our platform for patients. For EVOQUE however, the goal is the same except that it is exactly what we like to do, being first, shaping the market. So we were able to get NUB1 in Germany. We are working with CMS to get an NCD or for [ track SP ] hopefully before the end of the year. Training physician to make sure they are going to build their practice. We are going to help them build their practice the same way we did it with TAVR. And that [ silo ], in my mind, a very inspiring mission. It is not just about selling a device. It is building a practice, helping them to get more patients, helping them to be very experienced with the technology. So that's -- so we feel good about that. What you are going to see is the next many years of progression. More sites being offered, being trained, more patients being treated, plus bringing in the next gen: Gen 2, Gen 3 [ valk ] and more evidence.

Excellent. And maybe just to focus back on the U.S. Pascal launch. Just any way you can just quantify the stage of that effort, any test, number of centers that are up and running relative to the number of centers that are doing microtier procedures and maybe just what inning we are in. Are you now in full launch mode in the U.S. or do you need to have the Class 2f data and get that functional indication before you can really initially anticipate over the longer term.

It depends what you mean by a full launch. We haven't full launched in our mind. And the full launch is going to last more quarters, more years. We are opening sites every week, every month. We are hiring more people, 20 more people, on a regular basis. To be fair, if you look back at TAVRR, we are still hiring people today. We are still training new people on TAVRR today. So it's never-ending. We believe that with disease state like [ RT stenosis], mitral and [ prec SP ] there are so many patients that it is a never-ending year story. We are going to be expanding over many years to come. So the full launch mode is here [ sustain ] for a long time.

And now [ ABBA ] just on Class 2f just that functional indication. Is that -- how important is that for Pascal to capture the level share that you team thinks it deserves in the U.S.?

Oh, I think it is important, the study is important. We have not yet gave clear guidance about timing of approval, about all of that. But the studies are enrolling, one with good outcome and more to come on this one.

You said you guys did put a $5 billion TAM target on the TMTT sectors combined and you haven't broken out individual contributions from tricuspid therapies versus mitral cardiotherapies, I don't expect you to do that here today, but feel free if you want to. But I think you guys are still highly confident that, that $5 billion TAM can be achieved, maybe just not in the same time frame just because there has been some sluggishness in the mitral side, primarily due to COVID in that, but that's recovering. And tricuspid therapies may not have come to market as soon as maybe we thought 3 or 4 years ago and COVID may have had an impact on the enrollment of those studies as well. But any updates just on that $5 billion TAM target, and maybe any breakdown between your expectations for mitral and tricuspid therapies to what percentage they could account for that $5 billion?

So let me start with a couple of things. And then Scott, if you want to add anything. One is we believe that the TMTT opportunity is way bigger than $5 billion. We are getting more and more confident that this one is going to be a multibillion opportunity. Now when you look at the current opportunity today, about $1 billion, it is not going to be linear, correct? So it is tough to give you an exact update about when to what number from $1 billion to, let's say, $10 billion or $8 billion, who knows, correct? So it is why we wanted to be cautious here. And it is why in the last year, we didn't give you an exact number with an exact year. But we are very confident, probably even more than before, given all of the positive catalysts we are having. PASCAL is doing very well. EVOQUE earlier than expected and going very well with great clinical outcome, and we got an approval with our panel in the U.S. This is, for sure, a great sign. We are having not only a quality of life benefit but also a trend to mortality and less hospitalization, which is very important. So having said that, the mix between mitral and tricuspid also is an interesting one for us to give you an exact number. But we believe both are going to be very large. They are probably going to grow at different pace. One is already established and one is just at the beginning. But that's the way to think about it, large and both are going to be large. You want to add anything?

Well, I'd just add that one of the reasons why we're confident about the size of this opportunity for Transcatheter Mitral and Tricuspid patients is because the population of those patients is much bigger than the population of patients with aortic stenosis. So when you talk about what's the value of those opportunities that's significant. And you think about our $10 billion TAM forecast for TAVR by the end of this decade and put a multiple on that, that's the TMTT opportunity that we're excited about.

Last question on TMTT. Just on the tricuspid therapy -- tricuspid therapy segment, just the breakdown between replacement and repair. I mean do you expect that? Do you guys put your -- moved your eggs kind of into the replacement basket, but you also have a shot on goal on the repair side as well with the PASCAL CLASP TR study enrolling -- but do you -- how would you have investors think about the replacement first repair opportunity in tricuspid? Are there 2 different anatomical characteristic groups within the tricuspid repair/replacement market where some will be candidates for repair, some replacement. Is that 50-50 or do you think that most patients will be candidates for either one and replacement or repair will be chosen by the operator and based on clinical evidence?

So this is a question that we would love to know. Obviously, for us, we have both. So we believe in both. Both [ tier ] and replacement will be important. They will create a different type of anatomy even type of patients. What we have seen is -- so PASCAL is used in Europe for now a few years, it is going very well. And it is, I believe, one of the leading [ tier in a therapy ] here for tricuspid. And what we see is that for EVOQUE, it is more reproducible. The procedure time is about one hour from case #2 to case #10 to case #20. So easier to use, reproducible, the procedure is more calm, all of that compared to a tier, you can have a very easy procedures or plan for an easy one and have a very complex one and one that can last a couple of hours. So we see that it is tough to know. We believe that replacement is going to be probably slightly bigger, maybe bigger than tier, but we will have to see.

Thank you. The -- it seems you guys have confidence in that $10 billion TAVR TAM target as well by 2028, really strong year in 2023 relative to expectations. I think ended the year super strong. So that seems like TAVR line trends are continuing. But maybe just talk about expectations for TAVR market growth relative to that 8% to 10% TAVR guide. Should we assuming that the 8% to 10% guide for Edwards TAVR franchise is kind of on top of the market growth assumption internally, or is there...

Roughly and look, there are going to be some market shifts, a point or 2 here and there depending on the geography. But roughly, we think the market is going to continue to grow, and we're going to continue to be the leader in it.

And you guys have the early TAVR data coming out of TCT. I think that trial completed last patient follow-up to your follow-up at the end of -- 2022 sorry, end of 2023, excuse me. But if we think about just the timing of submission, timing of the presentation, I mean could we theoretically see an approval for the early TAVR indication in 2024? Or should we be thinking sometime in 2025?

Usually, we don't give an exact timing for approval because obviously, there are so many things at play here. But no, we don't expect an approval in 2024. What we said is you are going to see the data at TCT, which is going to be very inspiring, to be able to know that if treating patients before they get symptom is good or not. And I think that's -- it is going to be a very important study. We are very excited about it. This is going to give plenty of learning to the community. Usually, what we have seen in the past is we see 2 inflection points. The first one is when you release the data and the second one is when you get the indication. So we don't know if it is going to happen here or not, but the approval timing, we have not talked about it yet.

And just think that, that is symptomatic opportunity if you look at the paper and published just on the rationale of the clinical trial design, the authors cite that 1 in every 2 severe stenosis ] patients when they're diagnosed they're asymptomatic. And I think that's based on some epidemiologic work historically. I think with some of the surgical data, there's been some -- I think the clinical community has been more diligent in potentially stressing some patients who are really trying to listen any symptoms from their history. I guess what I'm trying to get at is, is there an assumption internally about kind of the percentage of [ severe stenosis ] patients that are out there and that present asymptomatic and how big of a patient opportunity increase should be thinking about this asymptomatic indication adding to the TAVR patient opportunity as a whole?

I would say we have plenty of assumptions internally, for sure, more than today, correct? Now I know you are looking for a number and it is tough to give you a number. But let me step back on this eligible patient population for TAVR. I think I'd like to give you a big picture first, yes. First is today, if you think about who are the patients who are eligible, severe symptomatic. So it is already very narrow. And we know that many of these patients are undiagnosed and untreated. So for us and for TAVR, this is a huge opportunity for growth in the next many years. Then you are adding asymptomatic. Could be as big, maybe a little bit smaller, but still a lot of additional patients. And then you have moderate, could be for sure a big year. So when I look at all the catalysts, short term, midterm and long term in TAVR, we are very excited and we are going to bring a ton of evidence to help physicians make decisions.

Do you think just from your sales force checks and just your teams discussions with some of your high-volume customers that there is a bolus of asymptomatic patients that are waiting for this indication or just some pent-up demand? I know asymptomatic patients can convert to symptomatic over the course of a year. But -- we've heard just from some of our endometric cardiologic consultants that there are a number of asymptomatic cases that not in the queue that could move into the queue pretty quickly once an indication opens up. But I don't know if that's just anecdotal or if you guys are sensing that through your channels?

It is tough to say and it is tough to draw a conclusion from one or 2 conversations because you meet with customers, everybody has a different opinion here. What we know for sure, like I said, is in the past, each time we presented a positive clinical study, we have seen an acceleration because it is bringing confidence. People have new data, there is new confidence. It is refreshing everybody mindset, all of that. So we expect to see some of that after we present the data, this one in the next one.

There's another angle on this as well, Josh, which is: imagine if the early TAVR trial reads out suggests that it is favorable for -- that the patients with asymptomatic severe aortic stenosis should be treated. Imagine what the implications are for the symptomatic severe patients who have not been treated. So the [ physicians ] who say, it's not urgent, you shouldn't get treated. Imagine what happens if all of a sudden, the asymptomatic data is positive. Similarly for moderate. Imagine if there's evidence that suggests that there should be earlier intervention and that some patients with a moderate form of aortic stenosis should get their valve replaced, boy, that tells you something about all the severe symptomatic patients who are not getting treated. So there's another benefit. It's not just the pent-up potential bolus or backlog. It's everybody else who should be -- is on indication should be treated today, who is not.

In that sense -- I haven't thought about it that way, but that's an interesting way to approach it. I agree. If we wanted to just think about the progress trial, the rapid enrollment, that's always a good signal in terms of the patient opportunity and endometric cardiologist interest in that indication. But the 2-year follow-up to the study, and there have been in structural heart studies we've learned as we move through the process, that there's either been redesigns allowed by the FDA or just the initial inclusion of an interim analysis or an adaptive [ designer based in ] statistical analysis. Is there anything to report on progress or should investors think trial enrolled, wait for tier follow-up, analyze the data and in that typical course? Or could we see an interim analysis that could come earlier?

Yes, thanks for the question. Now you should think about traditional path here. So 2 years will bring us to early 2026, so most likely some kind of presentation in late 2026. That's probably the way to think about it.

Appreciate it. Just wanted to stick, the last couple of minutes sticking on this clinical data piece of the discussion. But one of your competitors is presenting data at BCC in a couple of weeks on the Smart trial and focus on this thesis of small annulus patients benefiting from better hemodynamic outcomes acutely. So one, I guess -- I mean, do you guys have a breakdown of just the small annulus segment within the TAVR market, and whether or not Edwards's share is different than some of the other sized annulus? That may be hard, challenging data to capture. But that's one, just where Edwards sits. And then just what percentage of cases overall in, maybe even in the STS literature, STS database is in the small annulus segment?

No, it is an important segment for sure. We believe we are -- our technology does well in any size, any patients. We are by far a global leader. When we think about -- again, it is very interesting. We are thinking at this opportunity as how can we treat all the patients in need. And I know that some people are very much targeting share and look at valve size, all of these kind of things. It is a good way to think about it. But it is not the way we think about it. We think about the market potential, how can we bring our technology to all of these patients. So when we think about what's important to patients, mortality is important to patients. Stroke is important to patients. [ TVN ] is important to patients. Hemodynamic is important to patients, all of that together. And all of these aspects, we like our clinical results. We are a believer, not for a reason. And so we feel good about all of this. We feel good about our technology and our evidence.

Great. And maybe just a last question here on X4, the Alliance trial has got back up and enrolling again. It seems like that pace has accelerated since the brief stoppage of that trial for the delivery system enhancement. But does X4 provide an enhancement to potentially SAPIEN outcomes or hemodynamics in the small annulus segment? I mean just thinking about prosthetic patient mismatch and some of the findings that Dr. Herman has presented over the last couple of years. But my understanding is X4 kind of helps the SAPIEN platform do better on the -- at least on the prosthetic -- potentially do better on the prosthetic patient mismatch front.

So I would say potentially, we will have to wait and see clinical results of this study. But what I have to say is before this one, we have our latest technology, Ultra RESILIA. All of the study that we presented so far, we have done with our previous technology, SAPIEN 3, SAPIEN 3 Ultra. We just launched Ultra RESILIA which if you think about it, what it is, it is the best valve design, the best TAVR valve design with the best tissue technology. And we are going to start showing some result with this latest technology. X4 is the one after. So we are going to continue innovating, but Ultra RESILIA is already a related technology that nobody has seen yet in terms of clinical outcome and we are going to start reporting it on this year.

Excellent. I think we've got to stop there. I know my question was a little bit longer, but we'll have to catch up soon to fire some more at you, but thank you guys so much.

Thank you. Thank you, everyone.