Q3 2019 Earnings Call
Greetings and welcome to the Edwards Life Sciences third quarter 2019 results.
At this time of participants are in listen only mode.
A question and answer session with final the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like turn the conference over to our host Mark Wilting, Vice President of Investor Relations. Thank you you may begin.
Thanks, Diego and thank you all for joining US with me on todays call or Mike Solemn Chairman and Chief Executive Officer, Scott on Chief Financial Officer.
Just after the close of regular trading at work Life Sciences released its third quarter 2019 financial results. During today's call management will discuss the results included in the press release and accompanying financial statements and then use the remaining time for Q1 night.
Please note that management will be making forward looking statements that are based on estimates assumptions and projections. These statements include but are limited to financial guidance and expectations for longer term growth opportunities regulatory approval clinical trials litigation reimbursement competitive matters and foreign currency fluctuations. These statements speak only as of today.
On which they are made and Edwards does not undertake any obligation to update them. After today. Additionally, the statements involve risks uncertainties that could cause actual results to differ materially information concerning factors that could cause these differences and important product safety information may be found in the press release, our 20 attained annual report on Form 10-K .
And Edwards other FCC filings all of which are available on the company's website that Edwards dot com.
Finally, a quick reminder, that when using the terms underlying and adjusted management is referring to non-GAAP financial measures otherwise, they're referring to GAAP results reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in todays press release with that I'd like to turn the call over to Mike for his comments Mike [noise].
Thanks Mark.
We're very pleased to report strong third quarter results, which reflected a larger increasing the number of patients were treated with Transcatheter heart valve therapy, our sales growth this quarter was significantly higher than we expected.
Sales grew in the double digits in all regions globally, and increased 90, 19% on an underlying basis to $1.1 billion led by Transcatheter aortic valve replacement.
We're also pleased to report growing investments in new therapies and clear progress in numerous clinical trials that we believe well have meaningful future impact more importantly, even more patients are benefiting from our life saving technologies than ever before.
In topper third quarter global sales were $700 million up 27% on an underlying basis growth was led by continued strong therapy adoption across all geographies with notable strength in the U.S.
We estimate global Tapper procedure growth was comparable with our growth in the mid 20% range.
Oh boy, our average selling price remained stable as we continue to exercise pricing discipline.
In the U.S., we estimated total copper procedures grew around 30% on a year over year basis, and the Edwards gross growth was comparable.
Stronger than expected growth was driven by an unexpected bolus Oh tabbert treatments. Following the strong partner three evidence the led to the recent after the theory indication expansion for our SAPIEN, three and say didn't three ultra systems.
This approval represents a significant milestone which allows all patients diagnosed with severe a house to be considered for tapper based on their individual needs and anatomical considerations versus traditional risk scoring.
Growth this quarter was broad based across the U.S.
Outside the U.S. and the third quarter, we estimated total copper procedures grew just over 20% on a year over year basis, and Edwards growth was comparable.
We continued to be encouraged by the strong international adoption of Pepper, particularly where overall therapy penetration is still very low.
In Europe Edwards growth was in the teams that we estimate that our competitive position was stable.
Although transcatheter valves have been commercially available for over a decade in Europe , it's encouraging to know the demand remains strong.
Outside the U.S. in Europe , we continue to seize on tap or adoption driven by SAPIEN three sales growth in Japan in other regions was very strong as they Arctic Sonos is remains at immensely undertreated disease, and we remain focused on increasing the availability of TAVR therapy.
As we've discussed we remain pleased with the SAPIEN three ultra bells performance and clinician feedback continues to be very positive.
The valve offers a modified the older skirt, which includes a proprietary material designed to further reduce paravalvular leaks we.
We decided to accelerate the previously announced migration to the proven safe SAPIEN three delivery system and at the same time are finalizing improvements of our ultra delivery system. The updated rollout plan as expected ramp over the next several quarters.
Such we now believe that SAPIEN three ultra will account for most of our tower sales in the U.S. in Europe and 2020.
This updated plan contributed to a charge this quarter.
I'm pleased to provide an update to our early pepper clinical trial, which is now approximately half enrolled recall that this is a large first of a kind trial focused on indication expansion for patients suffering from severe write offs, who haven't yet reported symptoms.
Enrollment continues at nearly 65 sites throughout the U.S. and we now anticipate completion in 2021 versus our initial expectation of 2020.
We continue to believe that early pepper has the potential to change the way that clinicians approach and manage I ask patients to prevent irreversible damage.
Finally, as you heard at last month's PCT clinical trial results were presented demonstrating early and sustained quality of life advantages for severe yes patients at low surgical risk treated with SAPIEN three taken together with the clinical superiority demonstrated in.
Partner three trial these quality of life findings further support the use of PEVAR in these patients.
In summary, given the strength of our year to date performance, we're raising our full year Tapper guidance, we now expect underlying growth of nearly 20% versus our previous expectation of around 15.
In addition, while still early in the 2020 forecasting process and difficult to predict we're modeling a return to low double digit growth TAVR procedures globally next year.
This is consistent with our estimate of 37 billion dollar opportunity in 2024.
Based on the trend of our 2019 results, it's likely that in 2020, we will report slower second half growth given the higher year over year comparisons.
We had we're encouraged to temper opportunity remains robust and believe that are continuing innovations will sustain our strong global position.
In Transcatheter mitral, the tricuspid therapies or T. M. T. T. We made important progress in the third quarter and advancing our portfolio of technologies to bring meaningful solutions to underserved mitral and tricuspid patients with few options today.
In the third quarter global revenue was $10 million. The bulk of this was commercial sales of Pascal in Europe . We're pleased with the disciplined rollout of Pascal focusing on physician training procedural success and patient outcomes, while we continue to receive positive.
Physician feedback on this differentiated therapy, our premium price strategy was a contributor to the slightly lower than expected Robin.
And now I'll give you a brief recap of select developments.
In mitral valve repair, we continue to enroll our class to the U.S. pivotal trial to study Pascal and primary or do you generative mitral valve disease. We have also initiated enrollment in our class two pivotal trial for patients with secondary or functional mitral valve disease.
In line with our commitment to build up strong body of clinical evidence. We recently presented positive one year results in 30 patients from our European Class study at TCT, we were especially encouraged by the low rate of cardiovascular mortality and heart failure hospitalization as well as an impressive subs.
Satchel and sustained reduction in mitral regurgitation.
Patients also experience clinically and statistically significant improvements in functional status exercise capability and quality of life.
And mitral valve replacement, we're pleased with the ongoing early feasibility study experience with both evoke and sapiens M. Three transseptal therapies remain on track to initiate a U.S. pivotal trial of sapiens M. Three before the under the year.
You know highlighting the latest clinical experience with these platforms were presented at TCT, demonstrating feasibility an acceptable safety profile and a significant edmar reduction with both therapies.
Turning to Transcatheter tricuspid repair in the second quarter, we made the decision to accelerate a Pascal tricuspid pivotal trial by the end of this year. We're pleased that in September we received FTC approval for our class to Tee, our pivotal trial to study Pascal in patients with.
Symptomatic severe tricuspid regurgitation, we plan to start activating sites by the under the year.
I P to P. C. P. We highlighted the latest data from our Cardioband tricuspid early feasibility study demonstrating acceptable safety and performance with significant T. our reduction at 30 days.
In summary.
For full year 2019, Edwards now expects T M T revenue to be below $40 million as the company continues a disciplined introduction and premium pricing strategy, which is moderating site activation. In addition, while still early in the 2020 forecasting process our play.
I don't anticipate doubling 29 team T M T T cells in 20 Twond.
We remain on track to achieve our ambitious 2019 clinical milestones, which include continued enrollment in our class pivotal trials as well as initiating the SAPIEN three pivotal trial, that's they'd be an M. Three pivotal trial by the under the year, we continue to estimate the global T M T opportunity.
Need to reach approximately $3 billion by 2024.
Passionate about bringing a portfolio of solutions for patients in need.
In surgical structural heart sales for the third quarter of $204 million increased 3% on an underlying basis. Our growth was driven by continued adoption of our premium high value technologies and strength outside the U.S.
This was partially offset by lower surgical aortic valve procedures in the U.S. as TAVR adoption expanded.
We were we remain very encouraged with the study adoption I've been spirits resilient tissue valves in the third quarter valve utilization grew in all regions driven by increased demand among younger and more active patients in spirits is becoming the surgical valve standard of care embodied in many.
Geographies around the world.
Separately, we continue to expect European regulatory approval for our harpoon, beating heart mitral valve repair system around the ended the year Harpoon offers the potential for earlier treatment of degenerative mitral valve disease and faster recovery at more consistent outcomes for surgical patients.
In summary, although the superiority results a partner three in the recent indication expansion for Tapper are expected to provide an incremental headwind to our aortic surgical sales. We continue to expect for your underlying sales growth of 1% to 3% based on our year to date results we remain excited.
Cited about our ability to provide innovative surgical treatment options for more patients and to extend our global leadership in premium surgical structural heart technologies.
In critical care sales for the quarter were $180 billion and grew 7% on an underlying basis, all product lines and geography is contributor to this performance with strong growth boosted by hemisphere are all in one monda Green platform.
We received FDA clearance in the third quarter to use foresight, our cerebral oximetry technology from the Calumet acquisition on hemisphere.
The integration of a full range of technologies out hemisphere will create a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in smart monitoring.
In summary, given this sustained growth through the first three quarters of the year and the expected momentum from the fully integrated hemisphere platform in the fourth quarter. We continue to expect full year 2019 underlying sales growth of 8% to 10%.
And now I'll turn the call over to Scott.
Thank you Mike we continued our impressive topline performed this quarter was underlying sales growth of 19%, reflecting global strength across all regions.
Particularly strong was our 27% underlying growth in TAVR, which benefited from the recent clinical evidence supporting our SAPIEN three therapy.
Growth in the quarter was aided by one time items contributing approximately 200 basis points to growth largely related to the increased number of billing days versus prior year.
And forward buying ahead of the consumption tax change in Japan.
Our adjusted earnings per share in the third quarter of $1.41 cents grew 32% over the prior year driven by our notable sales performance.
We achieved this growth while maintaining our significant investments in research and development, primarily in our Transcatheter structural heart programs.
During the third quarter, we recorded an additional $27 million charge, primarily inventory related to last quarter's strategic decisions regarding our transcatheter aortic valve portfolio.
Discharge combined with other normal recurring adjustments reduced our third quarter GAAP earnings per share to one dollar and 30 cents.
Including the second quarter charge, the 2019 impact of the discontinuation of Centera and revised ultra rollout plan is $73 million.
A full reconciliation between GAAP and adjusted earnings per share has included with today's release.
I will now cover the details of our third quarter results and then discuss guidance for 2019.
For the quarter, our adjusted gross profit margin was 75.9% compared to 75.5% and the same period last year.
This improvement was driven primarily by the favorable impacts from foreign exchange and product mix, partially offset by spending in support of the new European device regulations and manufacturing variances.
We expect our full year 2019, adjusted gross profit margin to be consistent with our year to date rate.
Selling general and administrative expenses in the third quarter were $306 million or 28% of sales.
This 14% increase over the prior year was driven by Transcatheter structural heart field personnel related expenses, including expanding the Transcatheter mitral tricuspid therapy field organization in Europe .
We continue to expect SGN, a excluding special items to be between 28 and 29% of sales for the full year 2019.
Research and development expenses in the quarter grew 21% over the prior year to $195 million were 17.9% of sales.
This increase was primarily the result of significant investments in our Transcatheter structural heart programs, including generating clinical evidence.
For the full year 2019, we continue to expect R&D, excluding special items to be between 17 and 18% of sales.
Turning to taxes I reported tax rate was 8.9% for the quarter or 10.8%, excluding the impact of special items.
Stock appreciation this year drove a 580 basis point benefit or nine cents from the accounting for employee stock based compensation.
Our tax rate also benefited from recently passed tax reform and Switzerland.
We now expect our full year 2019 tax rate, excluding special items to be at the bottom of our previous guidance range of 12% to 14%, which reflects the increased benefit of the accounting for employee stock based compensation.
Foreign exchange rates decreased third quarter sales growth versus the prior year by less than 1% or $6 million versus the prior year.
At current rates, we continue to estimate at approximate 60 million dollar negative intact or about 1.5% to full year 2019 sales compared to the prior here.
FX rates positively impacted our third quarter gross profit margin by 130 basis points versus the prior year.
Relative to our July guidance, FX rates had less than a penny impact on earnings per share, reflecting our effective currency hedging program.
Adjusted free cash flow for the third quarter was $319 million defined as cash flow from operating activities, a Florida, <unk> $7 million less capital spending of $76 million and excluding a 42 million dollar tax benefit related to our previously announced global intellectual property litigation.
Settlement.
Our year to date, adjusted free cash flow, which excludes the litigation settlement and related tax benefit was $735 million.
We now expect full year 2019, adjusted free cash flow to be above the top end of our previous 800 to 900 million dollar guidance range.
We remain on track and implementing capital expansion projects inline with our strategy to increase global capacity.
Turning to our balance sheet at the end of the quarter, we had cash cash equivalents and short term investments of $1.4 billion total debt was $594 million.
Average shares outstanding during the quarter remained level with the prior quarter at 212 million.
We continue to expect average diluted shares outstanding for 2019 to be between 211 and 213 million.
And now finishing up with our 2019 guidance given our strong year to date performance, we're increasing our sales guidance ranges for Edwards and for TAVR.
For total Edwards, we now expect sales around the top of our previous 4.0 to 4.3 billion dollar range and for TAVR. We now expect sales around the top of our previous 2.5 billion to $2.7 billion range.
With underlying sales growth of nearly 20%.
For T M. T T. We now expect sales to be below $40 million.
We continue to expect surgical structural heart sales of $810 million to $850 million and critical care sales, including Kaz med around the top end of our $700 million to $750 million range.
We're raising our full year adjusted earnings per share guidance range to $5.50 to $5.65 up from our previous guidance of 520 to $5 in 40 cents.
For the fourth quarter of 2019 at current foreign exchange rates, We project total sales to be between 1.12 billion and $1.16 billion and adjusted earnings per share of $1.40 cents to one dollar and 55 cents.
That I'll toss it back to Mike.
Thanks Scott.
We're very pleased with our strong year to date performance as patients and clinicians increasingly choose tapper, we remain optimistic about our long term growth opportunity, we're committed to aggressively investing in our future consistent with our focused innovation strategy. We remain confident that the innovative therapies wrote resulting from our investment.
Well benefit a broader group of patients suffering from structural heart disease and continue to drive strong organic growth and with that I'll turn it back over to Mark.
Thanks, Mike.
Looking it up for questions I would like to remind you about our 2019 Investor Conference on Thursday December 5th in New York City. This event will include updates on our latest technologies views on longer term market potential as well as our outlook for 2020 more information into registration form are available on our website.
We're ready to take questions now in order to allow for broad participation. We ask that you. Please limit the number of questions to one plus one follow up if you have additional questions. Please reenter the queue and management will answer as many participants as possible during the remainder of the call.
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Our first question comes from Bob Hopkins with Bank of America. Please state your question.
Oh, great Thanks, and good afternoon.
First off just congratulations on such a nice a third quarter.
Mike I just wanted to make sure that I'm hearing the messaging right on on your kind of new views on that TAVR market or updated views I should say I guess the message I'm hearing is that despite obviously very very strong performance in Q3, yeah, you're not really changing your views on the ultimate size of the market or the time that it'll take to get there I guess my.
First impression is that in light of strength is that that seems increasingly like a conservative estimate and timeframe unless I'm missing something else. It's new I just wondering if you could comment on that.
Yeah, Yeah. Thanks, Bob well you know, we've always felt the tapper opportunity was large and growing and that.
We know that the superiority our results are helpful. We caution reading too much into one quarter's results we continue to think that.
We'll know more about it overtime.
But right now we would encourage you to think about this broad growth rate that we've talked about overtime. You know we've struggled sometime to estimate quarters accurately.
We if you go back to our guidance in December we thought that the copper opportunity would grow from 3.5 billion in 28 team to 7 billion in 2024, we still think that that's a reasonable trajectory will we'll take a hard look at it enough. We have an update we'll share that certainly in.
The future.
Great. That's that's fair enough and then just one quick follow up for Scott you offered a few things about 2020 that we should consider.
Just curious if there's any other things that you think we should consider for 2020 modeling purposes.
I know you like for example, one thing that I think people are curious about is just you got a lot of trials going on a great revenue growth. It was 2020 a year. We are you still think you can you will deliver leveraged earnings growth. Thank you.
Well, that's certainly our objective you know we try to inch up operating profit margins every year and we're not perfectly consistent at it but that certainly objective over the long term I think the other things to think about in 2020 are we're going to continue to invest aggressively in research and development and you know every time, we think we've we've.
Got it right, we we end up with programs coming online and other programs rolling off I think year youre going to.
See us continuing to Aggressed at relatively high levels of R&D, you don't expect it to go back down to.
14, or 15%, a where we were a few years ago. The lastly, I'd say, it's just on gross profit I think we're gonna see downward pressure on our gross profit margin because we've got the benefit of some of these FX currency hedges rolling through FX. This year and so we're not ready to quantify that yet, but I expect our gross profit guidance I'm, probably will not be as.
Robust next year as it was this year.
Great. Thanks for taking the questions.
Our next question comes from David Lewis with Morgan Stanley . Please state your question.
Great. Good afternoon, just two quick ones from me, Mike I thought I'd start with Pascal here, just you could parse out sort of the Pascal Boston and I speak initially it was a disciplined launched focused on outcomes. This quarter you raised your premium pricing strategy, so what's driving it rained limit or.
Is it more this discipline launch or was it more your pricing strategy and then what changes in 2020 to give the comfort that this business can double at a quick follow up for Scott.
Thanks, David So no the discipline launch plan has always been there that's what we call before we go through very careful site selection physician training patient screening in case support so that's not really different but we are executing a premium price strategy or because of the differentiated technology that we have and also.
So this high touch clinical support that premium price strategy is moderating our site activation plan. So that's what's changed it was our second part to the question David.
What changes Mike into next year I mean, this business is going to double as you suggested <unk> you change your strategy next year. You think this strategy you employing a 19 can get you to doubling this business next year.
It it we do believe it's a strategy a it'll be an increase the number of sites that are limited today, and we'll be adding sites in a dose disciplined fashion, we've gotten great feedback from clinicians and so that will be the primary driver.
Okay very helpful and Scott you talked about gross margins for next year and I. Appreciate the update if you just thinking about this particular quarter.
Obviously, given the strength in Teva gross margins, probably weren't as strong as as we were expecting so you mentioned manufacturing variances, but can you help us quantify any impact from ultra centera or FX on gross margins. This this particular quarter. Thanks. Thanks, so much.
Sure well, let me tickets through some of the different moving pieces that hit gross margin. Yeah. We had the benefit of these hedge contracts I mentioned before that's probably about 130 basis point contributor to the 75.9% non-GAAP gross margin. It was offset by these manufacturing costs and I think one of the good examples of what's for.
Through their as these new European you device regulations that ended up costing us money and there was some inefficiencies associated with moving delivery system production around and connection with this alternate delivery system strategy that we've talked about and so that did run through manufacturing costs and it was a contributor to some.
The negative variances. We also had some benefit of mix in your all that all up together again and that's how we got up 40 basis points versus 2018 third quarter.
It's possible Scott at the impact its inherent alter it was more than 100 basis points this quarter.
Well I think there there are two pieces work already called out one was the special charge right, but in terms of the gross margin impact no I don't think it's more than honored basis points. This quarter, I think it'd be less than that.
Okay. Thanks, so much.
Next question Daniel.
Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question.
Oh good afternoon, thanks for taking the questions and congrats on a really strong quarter here, Mike I want it to start with a the 2020 outlook for TAVR procedure growth.
In the low double digit that you talked about in the press release in your prepared remarks, I mean, you're calling for about 20% or this year you've grown in line with the market you just got the low risk approval in late August . So why why do you think the market will slow.
So much next year and I had one follow up.
Yeah, I'm not so sure I'd again, we struggle with this Larry up because you know to its tough for us to call. These quarters I'm not sure. It's about slowing next year I think we saw a bolus. This year. So we we believe that most of what we saw a last quarter and this quarter was there was.
All of those spectacular results in partner, three which ultimately led to an F. day approval and we think the bat, but stimulated patients educating physicians.
Increased awareness and that combination started patients moving through the system. They don't move through the system. So fast.
But we think it was a real stimulus to the system. So if you will we might have even pulled a little bit of that forward. So that that's the way that we end up thinking about we're still gonna have hefty usage next year or the growth rates are going to look lower the comparison to the second half of 29 team.
That's helpful and Mike your surgical heart valve business, you know I heard your comments in your prepared remarks.
But I'm curious about 2020 m. beyond.
You know we've heard anecdotes that that savard procedures could be down you know 20, 30% next year in the U.S. give it you know the strength of the a low risk data an indication how confident are you feeling you can still kind of guilt state keep that business growing or even even flat out looking ahead. Thanks for taking the questions guys.
Yeah. Thanks, Larry you know one of the factors, although not as big as new patients coming off the sidelines, where patients that might have been treated with surgery were treated with PEVAR, even now in the third quarter. So when you pick up a big TAVR growth rate and we with stood data and grew 3% in the third quarter. It bolsters our.
Confidence about the future is it going to be challenging do we think TAVR is going to continue to have an impact on servers of course, it will but I'm not sure that that's going to got much worse in the future. We think there's probably been kind of a step change here with a with the partner three data and that you know over time that probably moderate so.
Well.
Thank you.
Thank you. Our next question comes from DJ Kumar with Evercore ISI. Please state your question.
Hey, guys. Congrats on a really nice quarter here, but back on that they did their tower I 2020 question.
I I want to approach it from a slightly different than for different angle given given that the headline numbers on partner to data they came in much better.
Certainly be expecting you know, maybe edwards do better than market I mean, the overall market could be dot low doubles, but shouldn't that better clinical data reflect numbers.
You know of of course, we're proud of our data nobody is more proud or we do everything we can have that that message out there, but you have to also recognize that in the single biggest market in the world. The U.S.. We've got new competitors are coming in at this point I don't think we've really felt that in a large way so a whether its trialing or that an actual adoption we think that.
We'll have some impact and so that's why we stay kind of balanced on if we can oh, we can grow like the market, that's maybe not so bad.
That's helpful. Mike and then not one on mitral so they DMT trial, which is up which is slated to start to year end or is that do you have clarity on on what the trial design is what the comparator arm as <unk> will this be a key F approach our I'm just curious on any additional details.
Oh, Thanks, BJ, we don't have anything to share at this point you know we're in discussions on that and for for competitive reasons, while it's still early and it's not clear we don't share exact trial design. So at this point I really don't have anything new to add in that regard once it's clear of course.
Got posted on Clin trials Dot Gov, and we'll make it clear to everyone.
Thanks, guys.
Thank you. Our next question comes from Mark Robbie Marcus with JP Morgan. Please state your question.
Thanks, and congrats on a nice quarter.
I appreciate the the volume commentary to let us back into Japan growth, that's starting to become a more material contributor here I wondering if you could help us with the at the financial impact from the stocking ahead, if the tax starting and also maybe just some color on the market and what you're seeing there.
Yeah. So in Japan, there was a consumption tax that was put in place I want to say around the Thirtyth at September and we heard reports that some Japan customers did some PEVAR stocking we think it's just less than $2 million worth of stocking that took place there. So it gives you.
A rough idea of that if that if that's your question.
Yeah now that's helpful.
And now with the new eye and fit in place.
How are you thinking about the not just the expansion of TAVR centers, but the shifting in volumes of TAVR centers do you expect this it won't a out how many new centers are you expecting an over what timeframe and B are you expecting them to be incremental volumes to the systemic do you expect them to cannibalize from.
The existing volumes out there thanks.
Yes. So you know we were pleased with the way that a b and C. D turned out and I think our estimate at that time is that it would add approximately 200 news sites. These will be sites that could achieve the eligibility now I don't know whether all of those we'll do that in the near term and suffer some it might take.
Take some time.
I think by and large we believe yes will it take from some other centers, yeah, probably to a small extent, we believe that you know there's still a greatly underserved market and that is somewhat additive to the total as those new centers come on.
Thanks, a lot.
Yep.
Thank you and next question comes from Matt Taylor with Yes. Please state your question.
Matt Taylor your line is open.
Sorry about that I think thanks for taking the question I.
I just wanted to follow up on the TMT comments on next year could you talk about you just in broad strokes, how much of that you expect to be from Pascal and you know how are you thinking about your.
Your annular devices and also if you could give maybe an update on replacing that would be helpful.
Yes, so oh, yeah, just the going the opposite order here.
The bulk of this is likely to come from Pascal I will try and paint a more complete picture the replacement devices will be in clinical trials. So that won't have a a big impact on the number and right now our cardioband product is still relatively small we're gaining experience we got a lot of.
Positive feedback there, but by comparison its got to be more Pascal.
Okay, great. Thank you very much.
Thank you next question comes from Jason Mills with Canaccord Genuity. Please state your question.
Great. Thanks, Mike sorry about the background I'm traveling congrats on a great quarter I wanted to start on mitral.
Back to your long term views sort of long term question $3 billion by 2024, how do you anticipate that breaking up U.S.
Oh, U.S. and at that point in time understanding there's a lot of clinical evidence yet.
Cumulated, you expect Edwards will be a.
Peter.
Leadership position at that point in time trying to get a sense for trajectory.
Your long term projections.
Yeah. So it's a it's a great point, so I don't have an exact breakout of U.S. versus old U.S. you don't given the earlier approval of all U.S. Big head start for all U.S., but you know that U.S. is rapidly adopt or so that that's going to be little trickier to predict with that.
It is there. It does include some bump for the U.S. I think the bigger thing Jason is we're not suggesting a $33 billion is where it stops and 2024, we feel like that's just where it gets going.
We're where you know focus on the long term in that regard, we'll try and provide some more clarity as we get to the Investor Conference.
But right now I would say you know that's sort of a signpost along the way.
Okay. Thank you for that Mike and then Scott on your commentary with respect to operating margins to <unk> question.
If we assume that R&D is not a source of leverage here.
Yes.
Talk about.
Trending as we look at not only 2020.
Your comp does your commentary of previous analyst days hold true.
We stand today in terms of seeing downward pressure on that line as a percentage of sales and perhaps if we do see leverage in 2020, that's where we would.
Well I think there there are a couple of things that are influencing it both in 2020 beyond one is we're trying to.
Scale, our growth and be really efficient with overhead and administrative and back office type expenses that run through yesterday.
At the same time, we're investing aggressively in things like field resources, who are supporting clinical cases, and so I think those too tough to tell what the balance is going to look like but.
Over time, I guess I'll just leave it as we're going to try to be very efficient, an s. Yoo ne and and we'll give you a more update about what that looks like in 2020 and a couple of months when we get to our Investor Conference.
Got it thank you both.
Our next question. Thank your next question comes from Raj Denhoy with Jefferies. Please state your question.
Hi, good afternoon.
Maybe just couple of clarifications.
On the class studies, the F.D. studies in United States I don't believe you you've given us a timelines for U.S. approval I know you're rolling both of them, but you haven't really given as much in terms of how that enrollment is going and when when we might see those products get approved in United States.
You know I think that's right we haven't talked about real approval. So we say that we are on track for our enrollment and so will we may have more details to report at the Investor Conference, but but right now I think our report is that we're on track with enrolling and really haven't put.
Sort of completions in place because we're still relatively early.
Okay, That's fair and maybe just a quick one on competition. You know you mentioned you are being a little cautious in your outlook given potential competition, United States, but you know as you mentioned you haven't seen much yet for Lotus and if some of the updates or the update I suppose on on portico coming out at TCT was perhaps little underwhelming and so I guess I'm.
Here's what's your current thinking is on competition and the potential impact competition will have over the next call. It 12 to 24 months and U.S.
Yeah, we expected to have impact <unk>. These are really good companies. We tend to think that our technology is a pretty substantially superior. So that we think that's going to give us a big advantage, but these are good companies that have a great relationships out there and we think that they will have some impact.
Okay fair enough congratulations on good quarter.
Thank you. Our next question comes from Matt make such with Credit Suisse. Please state your question.
Hi, Thanks.
Wanted to I think we covered the strain.
I should say strain and your best however, in the core again, but want to maybe get a sense everywhere. So your activity is or your involvement.
New center initiation and training just just because it sounds like.
Yours.
Her efforts on that front and.
Wondering if that require the response from you or you sort of business as usual or maybe just a.
Comments on that.
One follow.
Yeah, I, you know I, probably call it a little bit more business as usual, we're fortunate to be the leader in this space and we still or approach on a regular basis I'll say one of the things. It's been kept our team pretty busy this quarters, you could imagine with a 30% bump and U.S. procedures.
We cover all those cases, so our team did a pretty incredible effort just to be able to cover all his bolus of patients. It's come through so have we pivoted to starting new centers that no not at a big way, but of course, we support them and we think that will be gradual and grow overtime.
Okay.
That's helpful and then.
Just on on the U.S. environment I know it focuses on the U.S. and there's been a light conversation around that but you haven't premium price strategy.
The U.S. I think this time last year.
Change and felt like.
Jackson your comments I think that.
Pressure on pricing was was maybe a touch a heavier and I don't know for Annualizing that you've seen a change in that environment.
Generally every year.
Any color you have in that regard.
Yeah, well I'm the one thing I could speak of uncertainty is our discipline, a we continue to exercise a lot of price discipline, if anything I would say there might even be more price pressure, we've watched some competitors get even more aggressive overtime, so some pretty pretty pretty significant differences.
<unk> was disappointing or we think it it may be one of those things, where it's tougher to compete.
Our EBITDA or on evidence and technology, and so they're turning to price a little bit more aggressively, but that's the general environment.
Well congrats on the solid results there. Thanks.
Thank you.
Our next question comes from Rick Wise with Stifel. Please state your question.
Hi, Good afternoon, everybody, Mike maybe if we could talk a little bit more about ultra ultra rollout.
On a cut from a couple of vantage point, what's left to do it in terms of you know ramping device. It sounds like it's going to ramp over the next few quarters, you're very clear that it's going to be most of the the product sales. So in 2020 <unk> for most of 2020, how would you have it yeah I think about ultra.
Is it a is it a growth all things equal a growth accelerate or is it a share gainer.
And just as part of the question after you Scott.
How do we think about the impact on gross margins does it has it been a gross margin drag that turns into a positive as you watch it or no. It's the opposite as volume grows then you moved down the learning curve just any color on all those kinds of things and that'll be it for me. Thank you Mike.
Alright, Thanks, Rick So, let's just start from the top we're really pleased with ultra we think it's a great Val we love the speech or we think the reduction of Paravalvular leaks going to become more and more important overtime.
You know just there's gonna be increased competition, if ultra allows us the just protect our existing positions as leader a we'll be pleased with that so I think that's probably what you should expect that from a margin perspective, I'll, let Scott comment.
As you know we've been making some changes here or there will be a headwind to gross margin, but it's really not something you're going to see externally and over time it'll have a substantially similar margins to SAPIEN three.
Thank you.
Thank you. Our next question comes from Chris Pasquale with Guggenheim. Please state your question.
Yeah. Thanks, Scott you circle back to the 200 basis points sales benefit you called out that how much of that was selling day versus Japan and was that selling day impact making up for one less than you had in the prior quarter.
Yes, and yes, we had about a 1% headwind in the first half and so this third quarter, we had literally most of the of the 2% tailwind was in fact selling days very small piece was the Japan preorder.
Okay. Thanks, and then Mike just following up on Larry's question about the surgical valve business keeps any sense of how much of your procedure make to this point is those premium products Inspur isn't intuity just wondering how long positive mix can still be a tailwind there to help offset to lower volumes.
Yeah. So it does point, it's been growing pretty significantly on the aortic side, it probably accounts for 50% or more of our <unk>, that's growing pretty quickly. So it's a pretty significant portion, it's becoming really the valve a choice it in a number of regions.
Great. Thanks.
Thank you.
Our next question comes from Josh Jennings with Cowen and company. Please state your question.
Hi, good evening and congrats again on the.
Results.
I wanted to start off on just see symptomatic opportunity I think Mike you comment on.
Early tower, I think enrollment being pushed out and just wanted to get some updated thoughts on asymptomatic and just is is the Roman push out due to some of these patients just screening in and being determined.
Symptomatic upon sort of more rigorous interrogation by clinicians are stress testing.
Oh, yeah. Thanks, Josh. So you know we've had really fast enrollment and all of our partner trials. Its really been remarkable and you know partner three was a home run well when we get into this trial are now we're talking about patients that are at not only not on indication, but they're not guidelines right now with.
Hi line sales you only treat patients that have a osten symptoms and so many centers don't even acknowledged these and save and so it's been a it's been kind of Buffy it and it's just a it's just put a slow process slower process because it's a first.
The kind trial and it's a really big ones. So you know we wish it was going faster, but worried about the implications of this trial.
Understood Thanks and.
And just on Bicuspid, if we just had some anecdotal feedback about just the label and.
The current language, maybe limiting some bicuspid utilization in just a low risk indication primarily and the reason I asked the question is just like where the question is you know what are you getting from the field are low risk by customer cases being done in these early days or is that a whole another leg, where with <unk> with label updates that bicuspid opportunity could hope.
One up more fully thanks for taking the questions.
Yeah. So are you, suggesting our growth rate could have been higher if we treated more bicuspid paces and I'm, just saying, okay funny about right. So.
If it's if its a.
I think as we indicated before bicuspid as not off label and we do continue to see many of these patients are treated there are younger they have other.
Your shoes, they often need different procedures and so that's often the case why.
They don't require TAVR therapy.
Thank you.
Next question comes from Peter checking with Deutsche Bank. Please state your question.
Oh good afternoon, guys. Thanks for taking my questions, Mike a before they can use the word bolus when talking about TAVR growth. This quarter, how should we think about the bolus of warehousing low risk patients and how long do you think this bolus can last.
That's a good question so.
We think what started a bolus was the report on the partner three results. The superiority was pretty eye popping that we think that drove a lot of.
Discussion awareness and so forth.
One of the things about that we've learned about tapper patience is even from one though decision gets made they don't move through the system. So fast that many times. It does take some longer the 90 days. So if some of those patients got activated around that time frame, it's not surprising that they would show up in Q3. So what we think we're seeing sort of a above.
But in demand here started in second quarter suit in the third some more in the fourth a and we reached a new level, but we think as we say we think that growth rate moderates over time to what we think it was more consistent with our long term expectations.
Okay Fair enough and then second question so.
Your U.S. Salesforce is asking flat because he this quarter filling that 30% demand you guys saw a what do you think will change your sales and marketing efforts to target more of the general cardiologists to help keep to keep the via low risk patients coming in.
Yeah, So we don't ever anticipate providing less service.
To our existing customers are our model as a high touch model and we do everything within our power to make sure that each patient has a really successful result up you're on a good point, we do find high level of variability between the understanding the general cardiologists have some do a great job of staying current and others are somewhat day.
It in their understanding of what therapy options are so there is a job for us to do there and we are taking that on to some extent, where that's one that we're ramping over time as we're learning how to do that and how to do that effectively.
Right. Thanks, so much and great quarter.
Thank you.
Thank you our final question for today comes from Jason Bedford with Raymond James Please state your question.
Good afternoon, and thanks for taking the questions I just had a quick follow up on Pascal does the doubling of revenue in 2020 stem more from entering new geographies or are you expecting any change in reimbursement in the reason regions, you're currently and to help stimulate a growth.
Yeah.
A good chunk of that is indeed, new geographies that will bring we've long ago onto a very limited number of customers a limited number of geography. So far so yes, there'll be some more penetration in the existing geography is that we're in a like Germany, but there will be entering new geographies as well.
Okay, and just a quick one.
The low double digit however growth in 2020.
Anyway, you can comment on U.S. versus international trends there.
You know of <unk> well it was kind of preliminary for US we wanted to put it out there just so that you could give you some kind of guidance, we're going to try and get into that more more deeply but rather than you know sort of speculated on something that turns into a fall ball, we just thought to be better for us the.
Give you a high level look and then we'll get deeper as time goes on.
Got it thanks.
Thank you and ladies and gentlemen, you still have time for one more question and that last question that comes from Adam meter with Piper Jaffray. Please state your question.
Hi, guys congrats on a quarter and thanks for taking the question I'm just one for me maybe on critical care that business continues to be a positive driven by he must here how should we be thinking about the growth trajectory over.
Over the longer term.
At this level of growth sustainable and can you remind us of the benefit you're seeing from a capital standpoint.
Well you know, we're really pleased with what's going on in in critical care and you can tell the growth rate that we've enjoyed this year, it's been a step up from what we've done in the past the hemisphere. All one platform has really been important in it has stimulated our growth right, having said that that team in critical care continues to add.
Features the hemisphere and there's new features that it'll be added even later this year and some more a in the future. So as those happen or we think it provides you know a lift to growth, although I don't know that you're going to see the you know the same bolus. So we're going to share our expectations a little bit more discreetly.
There are clearly when we get Togethers, the Investor Conference, but right now we continue to feel like we have a strong franchise there in critical care.
Very clear thanks, guys.
Thank you. This includes the came in a session I'll now turn it back to management for closing remarks.
Well I just thanks for your continued interest in Edwards, Scott and market I welcome any additional questions by telephone and I'll turn it back to you.
Thank you.
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