Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us today. Very, very pleased to host Edwards Lifesciences. So it's -- this should be a fun event. I guess, to start off with before we start asking questions, do you want to have any sort of opening statements or [ shall I ] get right into this.

So let's get into it. Good morning, everyone. It's great to be here. I'm glad you have interest in the company. We are pleased about all what we do. We take care of patients in the best way possible. And so we are very proud of the impact we are having.

So Edwards is evolving from basically predominantly a TAVR story for the last decades into TMTT, which is increasing the part of the growth algorithm. I guess from a bigger picture, how should investors think about for the vision of the company and changing composition sort of in terms of TAVR, TMTT, Pascal, also U.S., OUS for your long-term growth rate in the next sort of 3 to 5 years.

[indiscernible]. So let me -- let me start with a couple of comments. One is Director, our new CFO, has been with us 2 months now. She's an amazing partner. She gets the strategy of the company, and she's fully on board to enable this strategy and to accelerate this strategy. So let me talk about strategy very quickly. When a lot about this company is like we have strategic clarity. It is all about structural heart disease. It is a very large space. There is a lot of unmet patient need, and it is growing. As a company, we spent a lot of time on execution, the entire leadership team. It is a rather smaller leadership team. Everybody is deep into structural heart disease, and we deliver flawless execution, and you have seen that. And finally, a culture of the company. We've 17,000 employees, they know that it is mission driven. They know it is about the patient. And every day, they wake up and they are motivated to make a big [ mark ]. And these 3 things together basically has resulted in what you have seen, top-tier performance, top line, bottom line, and us being predictable, adding durable performance. So now to address specifically your question here, Pito, is you're right. The way we are thinking about the company today is mainly in 5 therapy areas, all of them in a leadership position, all of them with many catalysts. So you have [ TAVR ], you have Pascal, you have EVOQUE, you have [indiscernible] and you have surgical. And so this gives us in this rich scale to be confident, short term, to be confident long term and to be able to be confident about durable top-tier performance as a company.

Since the second quarter results, the NCD has come out because now I've been very excited about the NCD for quite some time. And it's been sort of a pretty good debate within the investment community over the last year in say, 3 months as we've been talking about it. Some doctors at large volume centers had different views impact versus doctors at sort of lower small community centers that we've talked to in the last few weeks. I was wondering if you could help guide investors how we should think about the NCD that we have in hand in terms of new centers utilization within those centers, high volume, low volume or any other areas of benefits that we should be thinking about?

Thank you. No, the news last week was a very positive news for patients for the field and for the company. And so CMS after 15 years of a ton of evidence, physician experience, great patient outcome and this technology being like one of the most proven, one of them are studies, the clear that basically, it's not reasonable and necessary, which is a big step if you think about it. We look at the NCD along 4 key elements. The first one is about providing flexibility, flexibility at 2 levels. One is [indiscernible] patient access. So in the past, the former the patients for an evaluation had to go twice to the hospital and see a surgeon and a cardiologist. And today, there is only 1 on-site face-to-face physician visits. The other one could be done through a remote kind of visit. So that's providing it of a patient who are very sick, all patients and easier access to being evaluated for TAVR, but also an additional flexibility at the point of treatment. In the past, it was mandatory to have a surgeon and a cardiologist in the room during a [ TAVR procedure ]. It is not anymore the case. One is mandatory, 1 operator, it could be a surgeon. It could be a cardiologist. But what CMS has done very well in our mind is it provided the opportunity to the [ heart ] team to decide. If they want to be 2 in the room began and both physicians will be covered. So in my mind, this is extremely well done in a sense that it will protect high quality of care. It is empowering the heart team to decide what's best for the patient. But also it is streamlining the processes where it is necessary. So that's about flexibility. The second element is about volume requirement for a hospital to have a TAVR unit. In the past, for hospitals to have a TAVR unit they had to have a certain number of procedures per year, it is not really more the case. Though operating requirements remain the same, which is very good, again, to maintain our excellence in care. So this will provide an opportunity for some cardiac surgery centers who don't have a TAVR unit to open a TAVR unit, and it will happen in cardiac ordinary center only. It is mandatory in this entity. So here, an opportunity here to increase patient access across the U.S. The third one, also very important, is now asymptomatic is covered with CD under this NCD. So it is an additional patient population will be able to receive this very proven therapy. And the fourth one, also very important. It is providing a pathway for upcoming FDA approvals, new indications. So what we need do to step back and think about is NCD is more of an exception and MAC coverage is more of a norm. There are only a few hundreds of NCDs, 400-or-so and thousands of technologies are covering for MAC. So what CMS has done here is clearly providing guidelines that for upcoming FDA approval, the MAC will be very well positioned to cover these new indications. So if you think about altogether, it is empowering the heart team, it is maintaining excellence of care. At the same time, providing flexibility in terms of access to care, in terms of the treatment at the point of treatment. So all of this very positive, very well done, all thinking about, at the end of the day, the patients that leaves you the best care.

So I mean, just a follow-up there. On your second point, change the point of treatment. How should we think about how many new centers exist out there today that have these sort of cardiac cursory centers? Like how many do you guys think will be opening because of change of NCD. And how do we think about the smaller volume centers today that exist that have had issues of staffing that only having 1 on doc in the room helps scale them up. So if you can just help us quantify new centers and also increase capacity in the smaller centers as we think about how this [indiscernible] the drain from the urban guys that are already slammed with lot of things helping basically spread out some of the demand.

So let me start with potential revenue centers. There are about 1,100 cardiac surgery center in the U.S. and about 850 TAVR centers in the U.S. So the difference between these 2 numbers is the potential of this cardiac center opening a new TAVR unit. I don't believe all of them will do. My guess is some of them will do that. It will be a decision between a physician, administration at these centers also looking at the patient access gap or needs leading in this region, in this town, in this city. So it could be 100, it could be 200, it will take time. This asset will have to make their decisions, get an approval. Our team will be ready to train them and do TAVR offshore. But our guess is it is going to take time. It will happen over time. And this is also positive if you think about it because at the end of the day, what do we want we have worked very hard in the last 15 years to build something very special with TAVR. And we want to make sure we maintain that. So excellence of care is very important and we are ready to train all of the sensors. That's the first part of your question. The second part of the question is about how much this flexibility is going to help low-volume centers. It's a good question. I say it's going to be independent, hospital dependent but it has the potential to help when now you have the flexibility, so let's take it a few examples. If it is a very easy TAVR case, 1 single operator is most likely going to be sufficient and the heart team will decide. If it is a complex case and the heart team decided to have a surgeon in a [indiscernible], they can do that. If it is not necessarily a well-experienced operator, and they want to be 2, they can't do that also. So it is full flexibility to do what's best for patient care. So I believe it is going to help.

Yes. And I think the beauty of everything that Bernard just talked about is these are all multiyear opportunities, right? Some will be more -- you may see some impact more shorter term when we talk about flexibility, some centers may adopt that flexibility right away. Others may take a little bit longer. Opening centers may take a little bit longer. So you're not necessarily going to see a huge peak and then a valley. But what you really have is the pathway and the confidence in having a durable long-term TAVR growth rate that we've been talking about of that mid- to high single digits.

It is interesting. We talk to doctors saying Kansas City that were in the trials and their volumes basically peak 10 years ago, haven't changed since we said 10 years ago, I was the only one there, and now they're 6. And so this kind of will keep opening up more capacity where for those guys, we talk to other centers down in Dallas, they have that issue use staffing. And they have 3 TAVR centers and they have -- they've always a focus of issues staffing. So I just think about capacity issues, this could be 20%, 30%, 40% increase of capacity of the simple cases because the [ Compass ] cases, you'll keep sending in, but this has over the multiyear time period, especially as these doctors get more and more demand from mitral and TPT, like there's just demand and you want to ship it out because these doctors take a long time to train.

No, you're right. right. So it is why this NCD very well thought out. And the CMS has done an amazing job listening to all stakeholders, cardiologists, surgeons, industry, societies, patient group. In my mind, it is really very well done because this is going to be like the backbone of least TAVR therapy for the next 10 years. Basically -- and I am assuming that all of the heart team are going to look at this one. And use it to their advantage, whatever the opportunity and challenges are, they are going to use it to challenge themselves and make it better. And that's -- they are in power to do that.

Yes. And [ the loss ] point as we go into the innovation you've done over decades, SAPIEN initially was incredibly hard. And now today, it is simple, and that's what it's known for. And so there's -- this is going to expand capacity significantly as [indiscernible].

And think about it, I love what you said. Think about what it is today for most of the cases. You have a patient getting to the hospital the night before, getting a TAVR in the morning, leaving the hospital at night, being able to have a normal dinner that night with family kids, grandkids. And the complication rate with the SAPIEN platform is very low. The performance is best in class and the durability, best-in-class in the most durable one at 7 years, we know that now. So think about the impact to these patients.

We'll get into the durability in a second. But the second biggest question I'm getting in the last few weeks, and we've done a lot of doc calls and we're hosting an event next week to [indiscernible] obviously the PROGRESS trial, which is 1 of the most exciting catalysts, I think, in MedTechs or in '26 -- in '27 and probably beyond. I guess one of the questions that I'm getting a lot is, how do we think about the impact of in the [indiscernible] versus the TAVR unload in terms of the trial designs. And how can we think about a positive outcome with that aspect of the trial? What's a home run for you guys on this trial? What is a good trial results? And how do you think about this sort of the TAM implications within both home run, good results sort of with this aspect to sort of trial design?

So I get this question a lot, as you can imagine, almost multiple times today. So let me give you a few points that are very important. One is the study you mentioned is different study. It is a heart failure study with some moderate patients, so very different and moderate and progress. When we started the trial, 5, 6 years ago now. We're starting the trial because we know well aortic stenosis. We know it is a deadly disease. We know it's a progressive disease. So we had a belief then, and it is still the case today, that treating this patient earlier before the progression happen makes sense. So this was the belief why we -- this is how we design the trial. We were pleased to see how fast the trial involved which is always a good indicator when physicians see that it is in their own patients. Again, it is a small sample size that. Yes, now it's working not too bad. Having said that, I don't want to speculate. We are very close. We are at 6 weeks from an important trial results at TCT. I don't want to speculate on what it could be, what are the [ res ], how big it is. We know at it is a big patient population, the moderate patient population, at least, at least as big as the severe patient population. So yes, so this was our belief. It is still our belief. Let's -- I encourage all of us to be patient for 6 more weeks. It's going to happen fast. The good news is all of that is also part now of the new NCD. And I don't want necessarily to be back to the new NCD, but I think it is important. So the new NCD is going to help with severe symptomatic patients with all of the flexibility we talk about and all of this. The new NCD is also now covering asymptomatic, which is a patient population also large and uncovered enter last week. And there is a pathway for moderate if we get an FDA approval.

If I can ask it differently, how should I think about the sort of TAM between the symptomatic and asymptomatic moderate AS and ask because some of the calls we've been doing in the last month, I've been talking some clinicians have actively treating moderate symptomatic patients because there's some [ sludginess ] within the guidelines is very good results. And I'm curious if I think about from -- depending on how the trials go, that will be a very easy population to turn on. So I mean there's a thing about moderate size, what percent of the population in the systematic or asymptomatically you've seen?

It is very difficult to know. I know everybody wants detail. I tell very difficult to know because I use this example all the time. When we're starting to a TAVR journey 20 years ago. We thought -- so everybody was telling us at the time, we are treating all patients, all AS patients. And this TAVR opportunity is going to be at best, very small. And then we said maybe it could be a $1 billion opportunity. And to date, it is a $7 billion opportunity. So when you don't see the patient, when you don't treat the patients, it is tough to assess and understand. I know everybody have some prediction, some beliefs they are usually wrong. And the study is going to help us. Again, what you need to think about, it is why we presented the patient characteristic is that this study is selling only the more severe moderate patients with 1 at risk factor. And this is what we will know out of the study.

The other thing I would add is [indiscernible] so many years, right? And still penetration within our existing population is still only in the low teens. And so even the market opportunity asymptomatic, moderate could be additive, but there's still so much opportunity within the market itself.

Switching to the [ after ] markets for a bit, both developed countries like Europe and then like [indiscernible] countries, what's the view of the balance between deep clinical research that you guys have had for decades at a premium price point versus sort of lower-cost products that would be coming out kind of with less clinical data what do you see in terms of market share, market growth within both the developed and underdeveloped as you think about those sort of different ways of selling these devices?

Yes, that's a good way to think about it. I would say the opportunity is probably even bigger outside of the U.S. to the [indiscernible] point, if the adoption in the U.S. is in the low teens outside of the U.S., it is even lower. So we have an even greater opportunity outside of the U.S. Like you have seen lately in our results, we are doing equally well in the U.S. and outside of the U.S., despite having way more competition outside of the U.S. and some of the technologies, I'm not for sure -- not at the same level than our SAPIEN platform. I like our position having a valve like Sapiens, proven, best-in-class performance. very, very low complication rates, pacemaker [ strike ]. And now benchmark durability. I like our chances. It will be very tough. We are not talking about a commodity technology. We are talking about a valve in someone's heart which needs to bid for a long time. And if I am a patient, I know which one I want. And I trust the clinical community in them making the best choices. It is why we are doing well, and it is why we believe that we are in front of the durable top-tier performance.

We talk about the durability for a second. Obviously, the [indiscernible] that was pretty favorable for SAPIEN versus one of your largest competitors. Doctors are often [ scrubber ] in sometimes in terms of changing behaviors with sort of these type of studies. I guess, what have you seen from -- what are you hearing as sales reps? What have you seen in the positions in terms of speed of change, willingness to change because of sort of this study and frankly some of the studies have come out beforehand to kind of does it move the needle, they're just going to stick to what they know. Are they open hearing it? Does it take time? Kind of what's the speed at which this evolves, if at all?

[ Are ] we making 3 points. The first 1 is, it is not going to go fast because nothing goes fast in medicine. The second one is we were pleased with our results, and it is not a surprise. We have been doing valve for 70 years. So I think it is important to remind everybody the first mechanical valve 70 years ago. the first tissue value 10 year later, the first TAVR 20 years ago. The first [indiscernible] valve, EVOQUE, 3 years ago and the first mitral [indiscernible] this year. So this is our domain knowledge. We do that for a living. So no surprise here. It is not easy. It's very complex. And the third one is they -- we have seen in [ NGLs ] many valve technologies coming and going. Companies who were super excited by it at the time we launched it, and didn't last too long. So just to give you a full framework, I think physicians are I trust the clinical community. They are smart people we go deep. Some of them are embracing the change faster than others, but they always do the right for patients.