Edwards Lifesciences Corporation ($EW)

So we can get started. But thank you all for joining. I'm Michael Kratky. I'm our senior med tech analyst, and really thrilled to be joined by Edwards and CFO, Scott Ullem. So Scott, thanks so much for joining us.

Our pleasure. Great to be here. Thanks for having us, Mike.

Great. Well, I'd love to kick things off from your perspective. A lot's happened. But -- how would you say the business has evolved over the last year? And as you look out over the next 12 months or so, what gets you most excited?

Yes. It's actually changed a lot over the last year. I mean, in 2025, maybe I'll start with TAVR. We had this really watershed event, which was the presentation in late 2024 of our early TAVR clinical trial data. And it really addressed the last unknown question at the time about durability of the SAPIEN family of valves and demonstrated -- well, the durability was more taken on with the 7-year trial data. But in 2024, we got the results of the early TAVR data studying asymptomatic patients. And the data really helps spur a lot of momentum in the business in 2025. So over the last year, we've seen the impact of that information along with the 7-year data that I mentioned before, studying the durability of SAPIEN in patients in our PARTNER 3 low-risk study. So TAVR has had a lot of important clinical information that has added to an already large body of clinical evidence. And I think has reinforced physician confidence in this is a therapy for patients who are suffering from severe aortic stenosis. We've got more coming for that. We can talk about in a minute for SAPIEN, but those are some of the key impacts to the business and to our innovation efforts in 2025. In TMTT, our transcatheter mitral and tricuspid therapies business, we saw, for the first time in 2025, the portfolio of therapies for patients suffering from mitral and tricuspid regurgitation. And for the first time, we saw this a long-time vision of ours become a reality, which is to have both a repair and a replacement solution for patients with MR or TR and it's been a game changer. It's been really important for physicians who are treating these patients suffering from these diseases. And it's given Edwards a very different position with physicians as partners in assessing the best therapeutic alternatives for these patients. So instead of just pushing a particular device, we are involved in discussing the right treatment options for these patients. Surgical also as a really important set of influences and catalysts that are driving that business, and we're proud of our surgical portfolio led by our flagship surgical aortic replacement valve called INSPIRIS which is connected to our lifetime management strategy for treating patients with valvular diseases. And we can talk more about that if you'd like. I'll pause there, and we can also talk about some of the other things we're working on in structural heart failure and aortic regurgitation whenever you're ready.

Yes. Certainly, a lot to dig in on. Why don't we take things off with TAVR. So you mentioned some of the different growth drivers and things that have evolved over the last year, but I would love to specifically drill down on the second half of 2025. You saw a nice acceleration in your U.S. TAVR growth. So curious if you can help parse out what were some of the drivers there between asymptomatic alleviating capacity constraints, any shift in share that investors should keep an eye on and how you kind of explain some of the strength there?

Yes. So second half strength, I think, was, we believe, fueled a lot by that early TAVR data that I mentioned before. So the information that severe aortic stenosis is a disease that needs to be treated urgently regardless of whether a patient has symptoms. And so even though we're not seeing asymptomatic patients being treated yet, the data around the disease has really inspired a lot more focus on this disease, and I think inspired physicians and referring physicians to get patients to the point of treatment as quickly as possible. And that's a lot of what's been driving our increases in year-over-year growth rate in the second half of '25. Keep in mind, it was also off of a relatively low baseline comparison in 2024. And so the 10.6% growth that you saw in Q3 and Q4 was off of a lower base in same period in 2024. And just carrying that forward. It's one of the reasons why we're projecting higher first half growth in 2026 than second half growth in 2026 because it's compared to those higher growth rates in the second half of last year.

Yes. Understood. And maybe just to drill down there. In terms of your 2026 TAVR growth guidance, 6% to 8%. What's kind of embedded there in terms of U.S. versus OUS and maybe key points of sensitivity within that?

Now we haven't broken down the 6% to 8% growth forecast by geography. But suffice it to say, we're now in a position with the SAPIEN family of valves, where we have about 2,000 sites performing SAPIEN procedures globally, a little less than half of those are in the U.S. We've got over 60 countries where TAVR is available to patients. And so the -- while it's difficult to predict where the contribution from growth will come in advance, one of the benefits of having this global footprint is strength in one region can sometimes offset weaknesses in another region and vice versa. So overall, we feel good about the business. We feel we've got increased confidence in that 6% to 8% guidance than we had when we first offered it at the investor conference in December. And we'll talk more about it, of course, when we present Q1 earnings on April 23.

Excellent. Well, another big point of focus for investors in our discussions is certainly around the TAVR NCD. Curious how you think about what that can mean from a potential commercial impact for the business and what we still need to find out there?

Yes. So there are actually 2 things upcoming that are important for the analysis of TAVR. One is the NCD, which is, as you know, first round submissions have already been received and CMS is planning to make public a first draft in the June, July time frame as we understand. So that's one important focus area for us in 2026. The other one is guidelines in the U.S. So the guidelines in Europe evolved last year to reflect the early TAVR data, and just the overall growth and impact that we're seeing and the benefits that we're seeing from TAVR, the U.S. guidelines have not been adjusted yet. And we're expecting those will also evolve. We're not sure when, but that's another important factor to evaluate as we're looking at the future performance of TAVR.

Excellent. We'll be sure to stay tuned on that side. You talked a little bit about how some of the readouts that we've seen over the last couple of years have shifted some of the commercial dynamics. You've had some competitor data come out recently. I'm curious if that's kind of changed your perception of how market share could evolve in 2026 for your TAVR business?

Well, time will tell you. You're probably talking about CRT this weekend and the JACC article from a few weeks ago. Obviously, we're very close to the data and are talking with physicians every day. And the physicians are the ones who really matter here. The physicians will interpret this data and determine how it's going to change their practice. And obviously, we've got our own views about what the data means. We're really pleased with the overall body of clinical evidence that we've produced for SAPIEN and it's confirmed the durability of our platform, and we're really proud of that. But it's probably premature to predict what practice changes may come from this most recent data. .

Understood. And I think another big catalyst that certainly investors are keeping an eye on for you this year is the moderate data, the progress readout, I think later at TCT. So in terms of both the clinical expectations for that study and the potential commercial impact, I would love to hear kind of how you're framing it these days?

Yes, we're not framing it really because we don't have the information, and we're really looking forward to getting it. It's a common question we've been getting. What I can say is when we first designed this trial, we did it with a belief that patients suffering from moderate aortic stenosis would benefit by having access to TAVR therapy, and that's the reason why we started this clinical trial. It enrolled about 2 years faster than we thought it would. And that's sometimes an early indicator of how much physician interest there is in studying a question like this. But at this point, we don't have any information yet and we're looking forward to seeing it when everybody else does at TCT later this year.

Understood. I guess just on the potential impact or sizing the commercial opportunity or what that could look like, a, just curious in terms of how large that opportunity might be? And then in terms of how quickly you'd be able to access it or have the pieces in place to drive adoption there? What's the right way to think about the cadence on the back of that data?

Yes. We're still learning a lot -- to your first question, we're still learning a lot about the disease. The estimates are that the population of patients with moderate aortic stenosis is significantly bigger than the patients with severe aortic stenosis. In terms of what the treatment protocols could look like based upon this data, well, time will tell. We'll have to see the data and physicians will evaluate it, and we'll see things unfold afterwards. .

Understood. Maybe just going back to some of the different factors in play in the TAVR market recently. But certainly, hospital capacity constraints was one of the things that had kind of come into the equation more so in '24 and '25. So where do you think those stand today? Is that still part of the bottleneck here? And how could that shift moving forward?

We think the capacity constraints that we saw a couple of years ago have abated and capacity is always a factor for hospitals to manage. It always has been and probably always will be just getting the right balance of physical infrastructure and the resources required to support patient treatment, is something that is being adjusted center by center. But we don't see it as a factor right now. We feel like that congestion, we saw at the cath lab in 2024, resulting partly from new therapies that Edwards is bringing to market is behind us and hospitals have adapted to the requirements to support patient care, especially in these areas where there is new technology like EVOQUE, like PASCAL, like SAPIEN 3 Ultra RESILIA. I think that -- we'll stop there.

Yes. And it's a great segue. So I would love to shift the focus to the TMTT side of the business. Some of the puts and takes embedded within your 2026 growth guidance there. What gives you the confidence that you can deliver on that?

Yes. So I mentioned before, just in the introductory comments that we're in a position with TMTT now where for the first time, we actually have a toolbox of different therapies that physicians can use to treat patients who are suffering from regurgitation in the mitral valve and regurgitation in the tricuspid valve. And just starting with PASCAL, this transcatheter edge-to-edge repair is an important alternative for treating patients with MR and TR. The design of this therapy actually originated from an old surgical procedure called the Alfieri stitch, where you connect the leaflets of the valve together to try to reduce the size of the orifice through which the blood is flowing. And so replicating that same therapeutic approach in the form of a catheter solution has been really valuable for physicians who are treating these diseases. I think that repair is a safe and effective alternative for a lot of patients, but not for all patients. There are patients who have MR or TR who are not eligible or really not -- are not really positioned for that treatment as well as they are for a replacement solution, which is where EVOQUE and SAPIEN M3 come in. So both the PASCAL TEER treatment for mitral and tricuspid, EVOQUE for tricuspid replacement and SAPIEN M3 for mitral replacement is the whole package, and we're really excited about being able to offer that for physicians to treat their patients.

Understood. And I think PASCAL has had a great amount of momentum over the last couple of years. And I think for us, it's always a little bit of a challenge trying to decipher how much of that is overall market growth and adoption versus also some benefit from share gains that you've seen. I'm curious how you think about where your share stands today? How much room is there still for share capture from here?

Yes. Well, our competitor in the TEER space is the share leader. Yes, we've been growing faster than the market, but the market still has been growing double digit and we're pleased about that. I think we're less focused on share at this point and more focused on improving treatment rates for patients because the rate of treatment for patients suffering from mitral regurgitation is significantly lower than treatment rates for patients suffering from aortic stenosis. And the rate of treatment for patients suffering from tricuspid regurgitation is even lower. . So it's not about can we pick up an extra point or 2 of share, it's about how do we bring more patients into the system and make these therapies available to them, whether it's a repair therapy or a replacement therapy.

Got it. And just in terms of kind of parsing out some of the different drivers of the TMTT business, certainly having a holistic portfolio is a huge advantage for you. How should we think about the different contribution of revenue coming from PASCAL versus EVOQUE versus some of the other products you have?

Sure. Well, right now, the biggest revenue contributor, of course, in TMTT is PASCAL because that's where we started. EVOQUE and -- EVOQUE right now is growing at a faster rate than PASCAL because it's entered the system later than PASCAL did, but both are growing really nicely, and we're pleased with having multiple different growth drivers. SAPIEN M3 is very early, but we have a lot of optimism and expectations that SAPIEN M3 is going to be an important contributor to TMTT's growth. But at this point, we haven't broken out the relative contributions between the different therapies. .

Got it. Understood. I think the other part here is you have some clinical readouts that are going to probably shift some of the outlook or the opportunity within the TMTT side of the world. So I guess within those, I think maybe Class II TR is one of them, maybe a couple of others. But curious if there's any that you're most focused on in terms of what they can mean for your TMTT business?

Yes. you're right, Class II TR will be an important view into clinical performance of PASCAL. And that shows up at TCT this year. We're expecting the readout to happen there. The other one that's coming up even sooner at the end of this month is the TRISCEND II clinical trial data for our EVOQUE tricuspid replacement valve. And so we'll see that in New Orleans on March 30. .

And just in terms of framing what that could mean for the business, what within that TRISCEND II study at ACC do you think is going to be most in focus for the medical community or what we might hope to learn there?

Yes. We think everything is in focus. I mean with these clinical trial data, as we look at the primary endpoints, the secondary endpoints and see how they compare to both the 1-year data and the registry experience that we've seen as well, which has been favorable. The registry performance for EVOQUE has been really impressive. And we always like to compare how these different technologies perform in a clinical setting -- in the clinical trial setting to the real-world setting, where if you've got multiple physicians who are using these devices on their patients, and we're just seeing very strong results in terms of safety and efficacy, we're also seeing really strong feedback from physicians. And EVOQUE as a therapy has proven to be this really unique experience where, not only do the data demonstrate the performance of the valve, but the actual -- just the anecdotal evidence of patients coming back after being treated with this device and having shed 20, 30 pounds plus of fluids after the tricuspid regurgitation has been eliminated, getting their lives back as just has been a life changer for them and for their physicians. And you see patients go from being in and out of the hospital all the time being in pain, not being mobile to have their life back and be able to walk, talk and go dance on Saturday night.

Yes. I mean it's fantastic. And I guess sticking with EVOQUE, I'd be curious in terms of the clinical utility there, how you've seen that? Maybe drive some of the early wins and what patients you kind of see is the most suitable fit for EVOQUE?

I think this is something where physicians are learning a lot. I mean, every day is a school day when treating these patients, especially just early on in the journey, and we've got our first-generation devices and limited time periods of clinical data so far. But we're looking at all the different elements, and we'll see more, as I mentioned, with the TRISCEND II report out. We also have a new generation of EVOQUE that we're planning to introduce in the second half of next year, and that will be another step forward in the treatment of tricuspid regurgitation. .

I guess in terms of the next-generation device, was there anything that you were specifically looking to improve on it? Or what could that device mean for the profile of this business?

Yes. Well, we'll talk about more when the time comes. We're not really going to offer reviews to the device. But suffice it to say, this is really Edwards' strategy and our whole focus in terms of innovating is we're competing against a disease. And the better technology we can develop, the better we'll be able to help patients battle these diseases. And so we've always got a Gen 2 in the works and a generation after that as well for all of our major platforms, including EVOQUE and including PASCAL, where we're planning to introduce Gen 2 of PASCAL later this year in 2026.

Got it. And is that similar details on what the next generation PASCAL could look like or have to wait for those as well?

Similar lack of details. Yes, we'll hold off [indiscernible] those when the time comes.

Understood. It was worth asking. But I guess the other part of this business, I recognize it's early days, but SAPIEN M3 launched in the first quarter of this year. So curious what the early feedback has been, the demand and what the commercial strategy for that business might look like?

Yes. So feedback has been positive, but you're right, it's early feedback, and we're just in the process of introducing this therapy, which comes with a big focus on training and just getting sites ready to take on more patients who are coming in who need the therapy. But so far, the feedback has been favorable, both from a safety perspective, efficacy perspective. And what we're really watching is to make sure that the referring physicians are aware of the severity of this disease and that there's a new alternative to TEER, which is a replacement using the SAPIEN family valve platform which has been around for a long time and very known and respected. So the combination of this new technology and starting to build a presence in different sites, I think, has given us confidence that we're on the right track, and we'll continue to build it from there.

Understood. You mentioned the site adoption. I'm curious kind of 2 questions here. One is, should we think about the sites for SAPIEN M3 and the cadence of that looking similar to what it's been like for EVOQUE. And the second question is just where we stand today on the number of sites that have adopted EVOQUE?

So we haven't talked about the number of sites for EVOQUE or PASCAL or M3. We're not going to go there at this point. But it will be a similar playbook. It's a similar playbook to what we've used for the development and expansion of SAPIEN around the world and EVOQUE and now SAPIEN M3. And as I mentioned, it starts with making sure that physicians are well trained, have access to all the resources of Edwards Life Sciences and have confidence that they're going to get predictable, consistent results using this therapy. That's the most important thing. Having strong procedural success rates of success is really the key, especially in early days. We're also training our own people. We've got experts at Edwards Life Sciences who spend full time in the field working shoulder to shoulder with physicians. And we want to make sure that our people have a chance to go through that journey as well and that we've got Edwards personnel that can support the expansion to new sites of this therapy as we roll it out.

Got it. Well, certainly, a lot to be excited about on TAVR and the TMTT business. But I would love to ask you about Surgical. During the 4Q press release, highlighted you're pursuing multiple new innovative surgical solutions including left atrial appendage closure. So curious if you can offer any additional details on this? Maybe we go from there?

Yes. We did acknowledge in the fourth quarter earnings call that we are preparing to introduce an LAA solution for surgeons who are using Edwards surgical solutions to treat valvular disease in their patients. Beyond that, we haven't really talked about any of the details and we're planning to hold off until we really are ready to unveil that solution. But we're excited about it. It's a complement to our existing portfolio of surgical therapies. And I think it's a reflection of the fact that we're still investing in surgical. I mean we've got multiple new valves. We've got our new tricuspid replacement valve TRIFORMIS. We have our MITRIS surgical replacement valve and of course, INSPIRIS, which is our aortic replacement valve. And this is just another new innovation that you're seeing from Edwards Life Sciences with more to come in the future as well.

Yes. And realize that detail is probably limited just based on your comments. But I would like to ask you, we've seen Intuitive has been also making a point to maybe offer their own instrumentation. So curious if you see potential synergies there? Is this something that, that could potentially go hand-in-hand with what you're doing?

Yes. Too soon for us to say. We're obviously watching them carefully. And generally, we really encourage more focus in cardiac care. And it's beneficial to have more technology, more participation by multiple different parties in treating these patients who need care. And so whether it's robotic surgery or wearables for diagnostics, these are all things that we think can be helpful and getting patients identified and getting them into the system and to points of care where they can really have their disease is treated. .

Got it. Well, I'd love to spend a little time in the 5 minutes or so that we have just on the P&L and kind of walking through some of the different drivers of your gross margin guidance, opportunities for upside beyond that as well moving forward?

So we're -- I mean you know our guidance for the year, 78% to 79% gross profit margin and our operating profit margin growing about 150 basis points over 2025. And it reflects the fact that our priority #1 is investing for sustainable organic sales growth, but we're also very focused on continuing to improve margins. And we've got plans in place and programs in place that give us confidence that we'll be able to do that, not just in 2026, but in 2027 and beyond, expanding operating margins by 50 to 100 basis points. So it's an important part of our strategy, an important part of what we think is the value creation opportunity for Edwards.

Got it. And maybe just on that point, talking about operating leverage moving forward. Certainly, R&D has been a huge point of focus for Edwards. Is that something you see as potentially offering a source of upside to that operating leverage moving forward or how R&D as a percent of sales could shift over time?

Yes. Well, it's a contributor to value creation in 2 ways. One, first and foremost, just generating the innovations that drives the top line. But two, we can continue to grow our investments in research and development, but we'll do it at a lower growth rate than the top line growth. And so we're going to see ratio improvement and R&D as a percentage of sales probably drifting down over time. In the fourth quarter of 2024, our R&D as a percentage of sales was 19.4%; in 2025, low 17%; 2026, we're expecting around 17% R&D as a percentage of sales. And so it's still high and it's at an appropriate level for us to be able to continue to drive that top line growth. The last thing I'll say about R&D is we're really focused carefully on prioritizing our investments. So we're exclusively focused on structural heart, as you know. And we're being very selective about where we apply those resources in R&D to make sure that we're chasing after the biggest opportunities to treat patients that are also opportunities to help support sales growth longer term.

Certainly, R&D, a heavy focus on the organic side, but I am curious about capital allocation for the year. And as you explore potential external opportunities, how would you characterize your appetite and what could be a target profile for a deal?

Yes. I mean we do have an appetite for external investments, and it's really the same as it's always been, which is we look actively at technologies that can supplement and augment the internal work that we're already doing to advance innovation in structural heart. So we're really laser-focused in that area. And as a result, most of our focus ends up being on companies that are earlier stage, so start-up stage or pre-commercial stage for sure. We've been active in making investments in providing seed funding, supporting joint ventures, investing in intellectual property, buying options to purchase companies if they meet certain milestones in the future, and we're going to keep doing those same things. We are -- obviously, we're not forecasting what M&A we may do in 2026, but expect that it's going to be more like what we've done over the last several years.

Got it. Well, just with the minute or so we have, obviously, Edwards, a leader in the space, has been a titan of category leadership. Is there anything at this point that you think still might be flying under the radar for Edwards for investors?

No, I think the most important thing for us and for investors is just to continue to recognize the importance of innovation. And it's really the lifeblood of our company's culture. It's the lifeblood of the therapies that we've been able to develop and commercialize over the years, and it remains our focus. And just staying the leader in structural heart, we think, is a really important way to create value for shareholders and to continue to drive solutions for patients.

Got it. Well, Scott, thanks so much for joining us. Really appreciate you having me here, and thanks, everyone, for joining.

Yes. Our pleasure. Well done.

Thank you.