Q1 2020 Earnings Call
Please press star zero on your telephone keypad, and an operator will assist deal without any further or do I will now turn the call over to Mark well today Mr. Wilson you may begin.
Thanks, Victor Good afternoon, and thank you for joining US with me on today's call or Mike Mussallem, Chairman and Chief Executive Officer, and Scott <unk> Chief Financial Officer.
Just after the close of regular trading Edwards Life Sciences released its first quarter 2020 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 <unk>.
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 days.
And speak only as of the date on which they are made and Edwards does not undertake any obligation to update them. After today. Additionally, the statements involve risks and uncertainties, including but not limited to those associated with cobot 19 pandemic 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 2019 annual report on form 10-K, and Edwards other FCC filings all of which are available on the company's website at Edwards Dot Com. Finally quick reminder, that when you think the terms of underlying an adjusted management is referring to non-GAAP financial measures otherwise they refer.
The GAAP measures reconciliations between GAAP and non-GAAP numbers mentioned during this call are included in todays press release with that I'd like to turn the call over to Mike Mussallem for his comments Mike.
Thank you Mark.
Before we dive into our first quarter results, an updated 2020 outlook I'd like to give you a broader sense of what's happening at the company in light of Cobot 19, and I'll Edwards has responded during these challenging times.
As you would expect our priority as Ben.
We continue to serve patients counting on us support our clinical partners and protect the well being up our employees, we're striving to maintain continuous access up our life saving technologies as well as operating front line in a hospital support.
Most importantly on behalf of every one of that words I want to express our gratitude to our coalition partners and the global health care community for their tireless dedication to serving patients. During this challenging time, we appreciate their strong leadership and brave commitment to patient care and were dedicated to supporting them.
They address this global health crisis.
I'm encouraged by the recent indication a plan towing and even declining infection rates and data from cold with 19 in many areas around the world, but we know that healthcare workers on the front line continue to face unprecedented challenges in the words of Dr., Craig Smith from Columbia University I'm confident that.
We will sell through this together in due time.
I also want to recognize the extraordinary actions about 14000 employees around the world.
Got a paper to overcome the unique challenges associated with told at night team.
I'd words is proud to be a member of the critical health care infrastructure and I admire the agility resourcefulness and passion of our employees and maintaining their important work on behalf of patients and also voluntary their help in our communities. During this difficult period of time.
Thanks to our global supply chain team and our government and regulatory partnerships around the world. Despite significant challenges our manufacturing operations have continued to deliver and we've been able to supply our technologies to more than 100 countries around the world.
Our dedicated manufacturing employees have been able to consistently meet the global demand for our structural heart technologies.
As noted at our December Investor Conference, we focused energy and resources to improve the capacity and agility of our global production facilities over the last few years and it's really become apparent at this time.
In Europe, there's been an increase need for supply up our pressure monitoring products in critical care, we're grateful to our employees were making progress to more than double our production to keep up with this the man and serve critically ill patients in need.
Our valued third party suppliers are a critical piece of this infrastructure and we have worked closely with them in an effort to avoid disruption we are proactively managing capacity.
I see alternative logistic options and closely managing the supply of components, our team's commitment to delivering life saving technologies. The patients is unwavering.
I also want to come out and our political field teams for their work, providing real time support for patients and frontline clinicians at this time, what's needed most of their courage and resiliency and assisting clinicians and patients has been truly impressive.
In March alone Edwards provided clinical support for TAVR procedures in all 50 states in the U.S. and then almost 60 countries around the world.
At all times, we've been here two important measures to protect the safety of our employees. While also continuing their critical work Oh, providing life saving technologies for patients will continue to rely on trust the global health sources governments and local hospital policies to inform our decision making big.
Because of our strong team and patient focused culture, I have absolute competence and our ability to successfully navigate this unprecedented global crisis.
Hi, Mike.
I want to recognize the important role and impact of our charitable partners and meeting both local and global community needs. At this time to respond to these needs driven by the pandemic you had with life Sciences Foundation issued emergency grounds to more than 20 partner organizations in communities, where our Edwards employees.
Live and work around the world.
Additionally, Edwards is providing donations of critical care technologies. During this crisis to help positions care for underserved patients.
We will stay closely connected to our charitable partners to understand other ways that we could help in our communities.
Also in the first quarter Alpha our foundation achieved its long stay on the goal of screening in treating.
More than 1.5 billion underserved people in over 35 countries through our every heartbeat matters initiative, it's truly a remarkable effort by our charitable partners and one that inspires me personally.
We are using our knowledge gained from our first phase of every heartbeat matters to set a new bold goal to improve the lives of 2.5 billion more underserved structural heart and critical care patients by the end of 2020 part.
Finally, before I get into our results. It was 20 years ago. This month, we rang the Bell to New York stock exchange, marking the spin off from Baxter unofficially beginning our journey as Edwards life Sciences, it's been an incredible journey and we are not done yet I'm not even close a wall.
We continue to actively monitor cobot night team and its potential business disruptions, we remain confident in our long term patient focused strategy and innovation pipeline. There are still many patients in need and I remain very confident in our global team and culture that once this crisis passes and it will pass.
Together, we will achieve many more successes.
Now turning to first quarter results. Despite challenges associated with Cobot 19, we reported $1.1 billion in sales this quarter, representing 14% sales growth.
In Transcatheter aortic valve replacement or whatever our first quarter global sales were $742 million up 25% on an underlying basis, our global power sales growth through early March was consistent with our strong fourth quarter global growth rate.
This was dramatically impacted and <unk>.
Yeah draws though this was dramatically impacted in the last few weeks of the quarter as procedures fell as a result of the cobot 19 disruptions.
You might expect procedure volumes in March vary greatly by geography, even by hospital as patients and providers turn their focus to the pandemic.
Estimating TAVR procedure growth is more challenging than ever in the current environment, we anticipate being able to better position to be on a better position to estimate pepper procedure growth and our competitive share once the global situation begins to normalize.
Globally average selling prices were stable.
In the U.S., our TAVR sales grew approximately 30% on a year over year basis in the first quarter.
Our U.S. power sales growth through early March was consistent with our strong fourth quarter growth rate driven by a step up and TAVR treatments as new patients entered the system independent other surgical risk.
During the last few weeks of the quarter procedures dropped precipitously and we're highly variable across the country.
The rollout of SAPIEN three ultra ultra continued to be very positive in the first quarter and clinician feedback on improved Paravalvular leak performance remains outstanding ultra accounted for more than 30% of our U.S. and European TAVR volumes exit.
The first quarter to ensure the safety a bar employees and clinician partners from the threat of Cobot 19, However, we've decided to pause proctoring at centers that are not already trained on the device. We anticipate resuming the SAPIEN three ultra rollout as soon as we go back to a more stable environment.
As you May recall, we committed to following the partner three patients for 10 years and in March but to your follow up was presented at the virtual HCC Conference. Overall, we were extremely pleased the clinical outcomes of SAPIEN three in low risk patients continue.
Used to be excellent at two years.
Outside the U.S. in the first quarter TAVR sales grew in the mid teens year over year on an underlying basis.
In Europe Edwards growth was even stronger than our fourth quarter and better than expected through early March before being impacted by dramatically slower procedure growth related to covert 19. Despite this headwind we were encouraged by the strong adoption of TAVR across most countries in Japan, we saw.
Very good pepper adoption first quarter procedures in Japan, we're not me a minimally we're not meaningfully impacted by cold at night team, although we expect that to negatively impact Q2 sales there.
In summary, based on what we know today, we assume the impact of Cobot 19 on our tower sales will be the most severe in the second quarter, followed by a gradual recovery in the third quarter and a fourth quarter that resembles our original expectations for sales.
Although we're encouraged by the recent news of improving infection rates from Cobot 19, we also recognize the high degree of continued uncertainty in terms of hospital procedure volumes.
We now estimate global PEVAR sales growth for 2020 to be flat to 29 team with a range of minus five two plus 5% versus our previous expectation of approximately 15% sales growth.
However, what we know for certain is that severe aortic stenosis is real Atlas and Edwards remains committed to delivering critical solutions to these patients even in the face of of the extraordinary challenges caused by cobot 19, we remain confident that the opportunity will exceed $7 billion by 22.
24.
In Transcatheter, mitral and tricuspid therapies or T. M. P. P first quarter global sales were approximately $10 million from a commercial standpoint, we experienced strong momentum and accelerated adoption of Pascal in Europe. We continue we continue to be pleased with pascal's occur.
<unk> clinical outcomes and physician feedback remains positive.
We were tracking to our expectations until the last few weeks or the quarter when sales declined abruptly due to the impact of coal with 19.
As previously announced we have temporarily pause new enrollments at our mitral and tricuspid active pivotal clinical trials, we are coordinating closely with the trials investigators and the decision to resume enrollment we will be made in consultation with each investigator and hospital.
We remain laser focused on our vision of transforming care for patients with mitral and tricuspid valve EULAR disease by developing a portfolio old innovative therapies supported by a growing body of clinical evidence we continue to gain experience that make meaningful progress across the portfolio and you can.
We expect the here informative updates regarding Pascal cardioband any poke at the upcoming Euro PCR medical meeting.
In Q2, we expect a signal a significant negative impact on Transcatheter mitral and tricuspid procedures as health care systems focus on fighting the pandemic. Since these procedures currently required general anesthesia and and I see you stay.
We anticipate recovery beginning in Q3 and remain committed to our strategy of ensuring procedural success and differentiated patient outcomes through our high touch support model.
We're revising our revenue range to $30 million to $45 million for the full year from our previous expectation of $50 million to $70 million.
We feel confident but we're well positioned to navigate a managed through these unprecedented challenges with our long term strategy and dedicated focus team. We continue to estimate the global TMT T. opportunity will reach approximately $3 billion by 2024 and are passionate about bringing.
Solutions for these deadly disease and improving patients lives around the world.
In surgical structural heart first quarter sales of $193 million declined 9% on an underlying basis as expected driven by the rapid adoption of TAVR. The U.S. surgical aortic valve procedure headwinds experiments in the fourth quarter persisted into the first quarter.
During the last few weeks of March we experienced a sharp deceleration and procedures related to cope with 90.
We remain very encouraged by the continued adopt adoption of our premium in spirits RESILIA aortic valve, which is driving an increasing share of surgical aortic valve procedures based on favorable patient outcomes and positive physician feedback, it's not surprising but in spirits Val has become the.
Number one implanted surgical aortic valve in the U.S. and to payout.
In Europe, Harpoon are beating heart mitral valve repair system is now available commercially we plan to launch it as the environment Stabilizes. In addition, we're also pleased to report that we recently received FDA approval to begin our U.S. pivotal I'd East study and begin.
Enrollment to begin and expect enrollment to begin in the second half of 2020 recall that harpoon offers the potential for earlier treatment of degenerative mitral valve disease with faster recovery and more consistent outcomes for surgical patients.
In summary, because of the impact associated with Cobot 19, we now expect surgical structural heart sales for full year 2022 decline, 5% to 15% from 29 team.
Versus our previous expectation other zero to 3% growth.
Our expectation is that lower case rate at the end of Q1 in the U.S. in Europe will continue into two we anticipate that our Q4 sales will return to positive growth driven by market adoption of our newest technologies as we move beyond cobot 19 and even.
As Transcatheter technology expands we're excited about our ability to provide innovative surgical treatment options for more patients and extend our global leadership in premium surgical structural heart technologies.
To summarize.
Caliber TMT and surgical as the covert disruption subsides, they're ultimately our structural heart patients who delayed their treatment and we'll get treated.
However, sadly weeks that we expect that because of these delays some patients will worsen.
I'm not survive the delay given the deadly nature of these chronic conditions.
It's difficult to quantify the impact on patients at this time, but recall data published in the Annals of thoracic surgery suggests that patients waiting for aortic valve replacement have a 4% mortality risk at one month.
8% at three months and 12% after waiting six months.
This is a very difficult time per structural heart patients as the way the risk of cobot 19 versus the severe APAC, so progressive heart valve disease.
In critical care first quarter sales of $183 million increased 1% on an underlying basis growth in the first quarter was driven by greater demand in Europe, primarily for our true wave disposable pressure monitoring devices.
Partially offset by lower demand for our enhanced surgical recovery products.
Recall that our critical care product line is focused on helping two distinct groups of patients the larger which require hemodynamic monitor monitoring in the surgical setting and the smaller group who require support in the I see you.
While the pandemic remains active revenues from our enhanced surgical recovery products will be significantly lower partially offset by increased demand for IC you products.
We've also seen some delay in hemisphere orders in the U.S. as hospitals limit their capital spending as they focus on cobot 90.
In summary, because of the uncertainty related to Cobot 19, we now estimate critical care sales growth for 2020 to be flat to 29 team with the range of minus five two plus 5% versus our previous expectation of 6% to 9% growth.
And now I'll turn call over to Scott.
Thanks, a lot like today I'll provide a perspective on the first quarter along with some additional direction on how the rest of the year may unfold based upon what we know today.
Hi, I'm very pleased with the overall financial results in Q1, including our sales of $1.1 billion.
Appreciate that our results reflected two very different periods during the quarter.
Through early March our total sales were running a little ahead of our expectations with notable strength and TAVR and Europe.
Recall that we were running at underlying growth rates closer to the fourth quarter of 2019, then to our Q1 guidance expectations.
The second phase of the quarter was when we felt the impact of coal that in Europe, and the U.S. and sales in the last few weeks of March were substantially lower than we originally expected.
Our sales in April remain depressed, even though cobot admissions appear to be plateauing.
While our sales in Q1 were lower than expected so as our spending so that adjusted earnings per share in the first quarter was $1.51 cents, which was within our guidance range GAAP earnings per share with $1.47 cents.
Full reconciliation between our GAAP and adjusted earnings per share is included with today's release.
Now I'll cover the details of our first quarter results as well as discuss guidance for the balance of the year.
For the first quarter adjusted gross margin was 76.7%.
Consistent with the prior year quarter.
This year's rate benefited from a favorable product mix offset by lower foreign exchange hedge gains and spending in support of the new European medical device regulations.
Well that didn't have much of an impact on our GP rate in the first quarter, Although we'll see the negative impact from cobot later this year as the higher cost.
Venturi is sold.
Regarding operating expenses first quarter expenses were lower than expected, primarily as a result of the cobot impact.
<unk> expenses declined naturally due to less travel and meeting expenses as well as delayed clinical trial activity.
We are implementing cost control measures and at the same time, we've intentionally not implemented actions to significantly reduce our investment plans supporting our long term growth strategy.
Our priority has been to keep our people safe secure and focused on helping patients.
Selling general and administrative expenses in the first quarter were $308 million were 27.3% of sales compared to $280 million in the prior year.
This increase was driven by additions we have made at a field clinical personnel to support TAVR cases in the U.S. and TMT and Europe.
Research and development expenses grew 9% to $187 million or 16.6% of sales compared to $171 million in the prior year.
This increase was primarily the result of continued investments in our Transcatheter mitral and tricuspid therapies.
As we announced previously we made a strategic decision to pause T. MTT clinical trials in response to the urgent covert 19 response around the globe.
This will have a moderate negative impact to sales and result in a corresponding reduction in planned research and development spending for the remainder of the here.
Turning to taxes are reported tax rate this quarter was 14.8%.
This rate included a 270 basis point benefit from the accounting for employee stock based compensation, which was 230 basis points or four cents unfavorable to our guidance expectation.
Our rate this quarter also benefited from a favorable tax audit settlement.
As a result of increased uncertainty, we now expect our full year 2020 tax rate, excluding special items to be between 11 and 15%.
Foreign exchange rates decreased first quarter sales growth by approximately 0.9% were $8 million compared to the prior year.
At current rates, we now expect at approximately $50 million negative impact or about 1.5% to full year 2020 sales versus 2019.
Foreign exchange rates negatively impacted our first quarter gross profit margin by 30 basis points compared to the prior year.
Relative to our January guidance FX rates positively impacted earnings per share by about a penny, reflecting our effective currency hedging program.
Turning to the balance sheet, we have a very strong balance sheet with approximately $1 billion in cash cash equivalents and short term investments at the ended the quarter.
In addition, we have an undrawn line of credit up to $1 billion.
Our public bonds don't mature until 2028.
Additionally, we continue to generate healthy cash flows.
Consistent with our practice of Opportunistically repurchasing shares we purchased 3 million shares for $615 million during the first quarter.
We started buying back stock in the open market in February.
In March shares were purchased by a bank on behalf of Edwards through a pre established Tenbfive program.
This program automatically went into effect when Edward stock price declined with the market sell off.
We still have remaining share repurchase authorization of $625 million.
Average shares outstanding in Q1 was 211.7.
And we are updating our guidance for average shares outstanding for the full year to 210 to 212 million down from 212 to 214 million.
Please note that we will host our annual shareholder meeting virtually this year on Thursday may seven.
As outlined in our proxy statement filed last month, one of the proposals to be voted on by our shareholders will be to increase the number of shares outstanding for the purpose of effecting a three for one stock split.
We expect to make split adjusted financial information available under our Investor Relations website. Following the execution of the split.
Adjusted free cash flow for the first quarter was $125 million defined as cash flow from operating activities of $207 million less capital spending of $82 million.
Our first quarter free cash flow is traditionally our lowest quarter during the year.
We are not updating our free cash flow guidance for the year, Although we expect that will fall short of our original expectation of $1.0 billion to $1.1 billion.
Now I'll turn to the guidance for full year 2020.
As you know we cannot accurately predict the progression of coded nor the timeline or extent of the disruption to hospital procedures utilizing the therapies Edwards provides.
As a result, there is a wide range of potential outcomes for sales and earnings and we will provide a wider than usual range of 2020 guidance based upon what we know today.
We have modeled multiple scenarios based on the pace at which hospitals return to more normal treatment rates.
Our guidance assumes the impact of co bid to be most severe in the second quarter, followed by a gradual recovery during the course of the third quarter fourth quarter. The comes close to our original expectations.
Based upon our recovery assumptions Edward sales growth for the full year is estimated to be flat to 2019 with a range of minus five plus 5%.
That reflects TAVR and critical care growth of flat to 2019 with a range of minus five to plus 5%.
Surgical minus 15 to minus 5% versus 2019.
And TMT key revenues of $30 million to $45 million.
Recovery of our structural heart businesses will be influenced by many factors and tempered by the time it takes for patients to seek and receive treatment.
Comment for the screening process alone to take two to three months.
2020 sales guidance for the total company is now expected to be $4.0 billion to $4.5 billion versus our previous range of $4.6 billion to $5 billion for the second quarter, we estimate sales of $700 million to $900 million.
We have also model more conservative recovery scenarios versus our base case, such as a recovery beginning later in the year, where a recovery followed by a resurgence in coated that extends these conditions into 2021.
We're not providing financial guidance related to those scenarios, but we are prepared to operate under those conditions if necessary.
Our guidance does not anticipate second wave of Cobot 19.
So overall, while providing guidance is subject to an abnormally high level of risk. We are providing you transparent view of our forecast, we'll obviously continue to provide visibility into how our thinking evolves in the quarters ahead.
Before I turn it back to Mike I'll make one additional comment about our team at Edwards and the last couple of months, we've learned how to communicate a new ways internally and with all of our external partners keep the global infrastructure and systems of Edwards running smoothly and even close our books remotely.
It has made us a stronger team and I'm confident we will continue to succeed with our patient centered strategy and sustainable growth goals.
Thanks Scott.
So whether you're new to our Storlie story or you followed the company. Since we went public 20 years ago, you'll note that our talented and dedicated team with Edwards as always put patients first never has this been more important than today.
As we stand together with the global community I am grateful for our extraordinary team and our partners and I'm optimistic about the future of continuing to deliver innovations to patients around the world.
And with that I'll turn it over to Mark.
Thank you, Mike 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 Victor.
Thank you.
Reach our question and answer session, if you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation total indicate that your line is in the question Q.
You May press star too.
Move yourself from the Q.
Once again Thats a question press star one on your telephone keypad, and we'll pause to pull for questions. Thank you.
Our first question comes from Bob Hopkins of bank of them.
America.
You May proceed with your question.
Thank you very much can you hear me okay.
Yes, we can hear you Bob.
So.
Everybody's well congratulations on strong results.
I guess.
Yeah.
We are providing.
Seems like the Q2 at the midpoint.
25%.
Just curious is that the run rate that you're currently.
Is your current run rate a little worse than that.
So the.
It varies different different as you can imagine by geography.
It also varies very different bye bye because those I can summarize it this way about Q2 is going to be a really tough quarter, it's come down hard and we're living that right now even the numbers that were providing for Q2 is probably.
Moderately better than it is right now I might add that are structural heart businesses feel up even more acutely that are critical care business.
And then.
Thanks for that is just.
You guys considered.
Sort of informed your view that will be all the way back to a normal quarter in Q4.
It's kind of.
Once in a generation type.
Just curious what are the data points that gave you that confidence.
Thank you.
Yes so.
It's a good question Bob and this is very tough to do so we know that it's challenging time to two estimated revenues.
We're starting to see positive signs already and so the in the tone of the tenor we really we hear people preparing themselves to start recovery, we know that that's going to take some time, we also know.
That.
The diseases, we treat are very serious and that we expect those diseases are not easy to postponed and we know that many of the patients that might have been treated in Q1, Q2, and so forth might indeed be treated in Q4 and so that's the combination of those.
Factors that.
Encourage us to say that we were were likely and again, there's a broad range of possibilities, but we're likely to be more typical volume situation in Q4.
Great.
Your next question please.
Yes. Thank you. Our next question comes from David Lewis with Morgan Stanley You May proceed.
Good afternoon.
Hi can you hear me okay.
Hey, great David Great. Thanks, So one kind of just follow up question quick second one Mike just thinking about the fourth quarter recovery and talking about 2021, yet, but a lot of investors are fixated on fourth quarter is going to be normal it probably implies some sensitive procedure recapture but given the age of these patients and as you thinking about the low risk.
Channel to what extent, you think about or to what extent should investors be concerned about disruption to that referral channel just considering the age of that patient and their willingness or re accessed the system.
In a post coven world not a quick follow up.
No. It so it's very real.
One thing for sure David as our patients were scared other they're afraid of cobot and it's about that.
They have.
In many cases decided to stay home so.
There's many factors that influence the recovery, but it but if you do think of it as though as a bowl as a funnel there's been a bunch of patients that are waiting so beginning the screening process again and that really needs to begin months in advance of the fourth quarter is going to be.
It's going to be a big effort by the whole community, but I think the community is going to come to grips with the fact.
That those these this heartfelt patients and ask patients in particular really need to be treated and that they're in a dangerous situation that we think that they're going to respond to that so right now the screening rates have not return to prior levels not even close but we're anticipating that that's going to happen and that's what will cause Q4 to be what.
It is.
Okay very helpful and I know, it's challenging to think about share right now just given that did moving dynamics, but if we assume the first two and half much in the quarter were running kind of close to 30% consistent with fourth quarter, it's pretty clear that youre taking share in the market certainly in certain regions can you sort of talk about what you're seeing out there in the channel in the early part of the quarter as it relates to what do you think share.
Tied to capitalize embedded in peers on New center expansion. What do you think this is now sort of definitive evidence that the unique attributes of.
Three and low risk patients are sort of shining through with clinicians.
So much.
Yes, Thanks, David well you know, how we feel about our SAPIEN three platform, we think its outstanding and we think the partner three.
Study reinforce that and it's even nice to see this data that was generated in two years.
But as we said trying to estimate overall procedure growth is just really challenging right now in the current environment, we're going to be at a much better positioned to do that sometime in the future, but right now trying to speak the competitive share just seems inappropriate to us, but and will be make a lot more sense to do that one thing normalize.
[music].
Your next question. Please I believe.
Yes.
Our next question comes from Joanne Wench with Citi. Please proceed with your question.
Thank you answered distracted by that Jasmine.
[music].
Couple of questions here I want to spend a moment on the data what did you think about the to your data.
We do you get some pushback comments from investors that the two year Mark.
Caviar versus favour result, close the gap a little bit.
Like to see your thought or your thoughts on that and then I just want to go back to.
Your comments on procedures I'm trying to get my head around this concept of a catch up in terms of the patients that are being delayed did you dial that in your thought process for sturtevant normal fourth quarter and or are these patients ultimately just left out of the system. Thank you.
Yes so.
I'm going to have them a little bit of a follow up on your second question Joanne, but let me try and get your first when you know overall, we're just we're extremely pleased with the outcomes of SAPIEN three in low risk patients with two years remember what this was this was a one it was a one year trial right with a one year endpoint, but we agreed to follow these patients for 10 years and so.
You're going to get a snapshot each year into the future.
Yes, the numbers did come closer together, but one of the things that is positive as the numerically TAVR stayed superior to surgery at two years.
The then it gets.
And it's still numerically better so the numbers are quite small at this point around so just just a couple adults or a couple of strokes can change that can be the difference between statistical superiority and just big called equivalent and so it's it's very small differences, but no we weren't discouraged by.
By that at all we continue to be very encouraged.
Oh and your second question is about.
About catch up and resuming normal as expected treatments. So I want to make sure that I'm answering what you're asking Joanne.
Are you asking.
What about the patients even if we catch up there's a lot of patients that won't have been treated during 2020 are you asking me to comment on those yes, because we've been trying to think about okay patients who are deferred now at what stage they come back into the system and answer maybe at the end of year 2021 or or sadly never.
Yeah. So.
This is a really tough time for patients.
And ultimately there may be some structural heart patients, who delayed the treatment who never get treated.
And just because of Dudley nature summer or not likely to survive.
I know if you just.
Run the numbers here it gets to be an extraordinary large group of patients in that that distresses us greatly.
It's just the difficult times the diseases clearly progressive.
And so we know about some patients already anecdotally, who have passed away on the waiting list, which is very sad, but no. This is a this is a tough time as the world is turned our attention to cope with it it's not it's not a great set of conditions for structural heart patients.
Thank you.
Thank you. Our next question comes from Matt Taylor with you'll be US. Please proceed with your question.
Hi, Thank you for taking the question I guess.
No Atlanta thinking I was just hoping you might give us some color.
Hey, you're getting from your your customers.
Or youre thinking about in terms of supporting them.
Through kind of a different phases recovery.
You talk here.
Hospital customers about how they're going to manage entry as some of the structural heart.
In the early phases of recovery and how they'll news to more normal operations too.
Form some of your assumptions here.
Yes. Thanks, Yes, we certainly have had a lot of conversations about that and so what I will share it will be somewhat anecdotal. It varies so a great deal by region you can imagine the situation in New York City is very different than what you might see and other parts of the U.S. and in other parts of the world frankly.
What.
In the us.
There are many people that are turning their attention to trying to get back to doing procedures. Again, you know hospitals are very dependent on doing procedures to be able to maintain their income and they also know that there are patients out there with real needs and so they want to get back to it.
There are various state regulations that they need to work through and then there's just a lot of machinery to start again and in our case.
We have to influence patients the come in and get screened began and begin that whole process and so the one procedure stop screening also stop and so that's that's the restarting of the system that's going on right now and it's going to take some time, but I think people are clearly motivated to get it going if it is going to be highly Barry.
Bubble of depending on where you are.
Thank you just one follow up I know Youve pausing, the TMT T trial, which makes sense.
Do you have any sense for you and your framework that you laid out here when you might be able to get those restarted.
Yes.
So that's a that's a challenging one for us the you know the way it was paused, we're going to be able to open up individual centers when they're ready.
If you were to ask us broadly what does that mean app probably around two quarters, it's going to.
If you're going to have a site by site restart, but I think a fair estimate is something like that we'd be disappointed if it wasnt much longer and I. We know that we have a lot of really motivated clinical investigators who encourage us to stop but I think we're going to be the same people that encourage us to get started again.
Okay. Thanks.
Thank you.
Our next question comes from Rick Wise with Stifel. You May now proceed with your question.
Hi, Mike.
A couple of questions.
Bigger picture to start with.
And you've touched on this a little bit, but as you reflect on as I start to reflect on.
Post co bid environment.
And again, you've highlighted that patients are going to spec coming.
Back to hospitals.
Sector. It seems to me that an argument that.
The post Kobe recovery environment actually accelerate TAVR adoption.
Very good patients.
Better faster.
Got him out of the hospital quicker.
The the opposite side of that point, obviously could accelerate pressures on surgical valve growth outlook is there any merit.
Accelerate TAVR and pressure on surgical valve.
Thought.
Yes, Thanks, Rick and as you might imagine there there is indeed, a wide range of outcomes and so although it's very hard to say.
But I.
I think there there are a number of people that are going to be motivated to go up the the resources and equipment to restart however, given the short length of stay in the fact that it doesn't need and I see you could encourage people to try and get that procedure going, particularly considering bell serious AOCI.
Sales and so yes, there is a scenario where it could come up faster, but the other thing that we have to be clear on those we've watched the system really screeching halt and so this it so it's a restart process and indeed Im sure you know from your own research that patients are scared and so getting them to re honor.
Whether as hospitals or whether hospitals create places that patients can go and feel more comfortable this was going to be the test of getting the system restarted thats just the it's a it's a wide range of possibilities.
Okay, and just as a second question you emphasize a couple of times.
There will be informative update.
It sounds like I don't know strong language.
At Euro PCR on Pascal Cardioband anybody can you just.
Ill share with it.
No.
You're thinking why.
Not what the data will be.
What the updates are unlikely to consist of what we should expect thank you. So yes.
Yes, thanks, very much Rick, yes, they're going to be a number of things accommodate probably a late breaker and some oral abstracts and some posters, but probably too that we call your attention too on the evoke in the tricuspid position.
I believe the early experience is going to be shared which I believe is going to be 19 patients at 30 days and so that will be the first time that the community has had a chance to see how that outperforms and then and Pascal the the class study the actually the CE Mark.
Study that evaluated both DMR UNEV Omar patients.
We will have 62 patients at one year and a 109 patients at 30 days in six months. So it will be it'll it'll be a nice affirmative update on on those product lines for sure.
Thanks to the call.
Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please proceed with your question.
Good afternoon, thanks for taking the question.
So Mike how are you thinking about the pace of recovery for TAVR. It may be savard compared to other types of procedures do you think valve procedures will come back faster because they're more medically necessary, where do you think the advanced age of the patients make them reluctant to go to hospital. How do you think about that dynamic and I had one.
Yes. Thanks, Larry you know I don't have a strong view on other procedures you know us. We're so focused on structural heart disease is that's where we really put our energy. What we do know is that a us is particularly deadly and there's some data there that that reinforces that and so that makes us think that theres going to be a strong motive.
Question for people to do this and you know it at a time when hospitals really want to get back to providing the care and also I think there are frankly concerned about their economics, here's something that they can do but I think is really good for patients and it also helps them get back on their feet again.
That's helpful and then Scott just on the guidance just to put a finer point on it.
Three should we be thinking about that is basically kind of flattish year over year or.
Actually maybe down a little bit thanks for taking the questions.
Thanks for the question, Larry it's tough to say and we've intentionally not tried to breakout.
Q2 versus three versus for what we know is that our assumptions based on.
Second quarter being the most severe followed by a gradual recovery in the third quarter and a fourth quarter that ultimately better resembles our original expectations for sales, but where that crosses from being below our original expectations to meeting our expectations. That's something that we just can't put a finer point on it this at this place.
Thank you.
Thank you.
Our next question comes from Robbie Marcus with Jpmorgan. Please proceed with your question.
Yes, thanks for taking the question I wanted to follow up on Bob's question about second quarter.
So we're pretty much have one third.
Quarter in the back here and $700 million to $900 million was hoping you could give us a little bit.
What has to happen from this point to get to 700, what has to happen to get to 900.
No. There is there's a wide range of the outcomes, but just help us understand what hits the bottom end from here what hits the top end. Thanks.
Yes.
We're not accustomed to sort of slice of the by month, Ravi, but I'll try and give you a little bit of color here. So the you know a lot of it as good depend what cobot does itself.
Whether cobot keeps receding are not based on what we've seen so far.
Our needs to be improvement from where we are today to get to the middle of the range or certainly the top of the range. If we continue where we are today, we're going to be much closer to the bottom of the range and.
Just a wide range of possibilities in terms of how this quarter will play out we probably never had a quarter that has a greater level of uncertainty as the second.
Got it and John.
Scott I love hearing when companies do right by their employees during tough times I was wondering is you help us think about some of the moving pieces down that PML here for gross margin SGN eight R&D it sounds like you're investing in R&D, but maybe just help us.
Got it all together down the Pn Alan how you reach the EPS. Thanks, Yeah sure. So on gross margin. Your other number things that are really unusual that are happening right now and it includes obviously starting with reduced manufacturing volumes.
We're proactively managing our capacity in our supply chain. We are looking for alternatives in terms of logistics and trying to offset expedited freight.
That will show up in our gross margin and negative degree.
We just got other.
Strict cost that are involved in supporting our manufacturing operations in our seven facilities around the world.
So there will be pressure on on gross profit in terms of Sq Nay, we've had some natural declines just in travel and conferences and the timing on head count growth because we're still growth company.
But they're just some natural headwinds to being able to complete those investments on the time schedule. We had originally envisioned.
R&D most of it is just delays in clinical trial enrollment that we've talked about and that's what's going to.
To a certain extent gate, our ability to invest in that R&D growth.
And then you get into taxation and shares outstanding, which we've talked about a little bit I'm not sure. There is it really is dependent upon.
The recovery or specific to Q2 being so soft does that get to your question.
Yes.
I just might add back.
We have tried to really focus on prioritizing and protecting our employees and their jobs and we're not planning lay offs associated with this pandemic.
No as I said earlier, we continue to support cases in every state in the countries around the world and we're gonna do everything we can that continue to be a great partner through this entire process.
That's great to hear thanks, a lot.
Thank you. Our next question comes from Matt Miksic with Credit Suisse. Please proceed with your question.
Hey, Thanks for fitness and so a couple of follow ups.
One on new New centers Bank, if you could talk a little bit about.
It's been an important trends are developing the market in rolling at of course to us.
What were you seeing and what do you expect over the next couple of quarters as the system kind of restarts and then add one follow up.
Yes I.
I don't have hard data on that one we currently estimate that theres more than 700 centers and we said that.
And this was following the NCB that was approved last year. The were probably headed toward 850 in total so I don't know the exact numbers of where we are right now I can tell you that since cobot hit we've we've stopped doing the training.
And really focused on the existing sites and so.
Probably going to change that adoption rate to some extent, but the bigger driver in terms of the favorable way. The Q1 was going before cobot hip was new patients coming off the sidelines and that wasn't all concentrated in new sites that was across the board.
That's helpful. Thank you for that and then just the other on sort of some of the other geographies and we're all quite focused obviously on what's happening in the U.S. and hopeful signs that some associated metro started to open back up or thinking about picking back up to more like that surgeries, but in other deal.
There is can you give us some sense of either improve.
Re improving.
The emerging.
Like the procedures or stability anywhere else in the world or how would you compare the rest it say Europe.
And Asia to do what you're seeing here.
Sure so.
Let's say in Europe, we saw phenomena that was very similar to the U.S., which was a strip.
A strict drop off in March.
Within Europe, some countries got hit much harder than others, but the net net effect was Europe wasn't so different than the U.S.. So we actually think that the recovery in Europe in the us may not be so different interestingly enough procedures in Japan in Q1, we're not meaningfully impacted by.
Cobot 19, we think that there's going to be a more pronounced effect in Q2 and it just seems from our perspective that the kind of a wave of cope with 19 patients in Japan is trailing what's happening in the U.S. in Europe by a matter of maybe weeks of some sort tough to know for sure those are the.
Biggest markets I mean, there are other places around the world where favour still young like Australia in Latin America, where there are still growth.
Not much impact and cobot, but those are kind of small numbers by comparison.
Got it thank you.
Thank you.
Our next question comes from Raj Denhoy with Jefferies. Please proceed with your question.
Hi, good evening.
I just wanted to build on this comment you made about the fourth quarter and getting back to where you thought you would've been kind of prior to this and so when one thinks about kind of 2021 right.
Do you think about a growth rate in 2021 that is kind of normalized or do you think we actually will be it kind of a heightened growth rate in that year as we maybe make up some of these loss procedures in 2021.
Thank you expect to fall off to be as significant on a dollar basis as we're going to see here in 2020.
Yes.
Yes, Sir I mean, we're obviously, it's premature for us to get into 2021 of the big way, but you can tell when we say that we're going to start approaching recovery in Q4, you'd like to think that in 2021, we've got some pretty favorable comparisons and so I would anticipate that.
Understood and maybe just as a follow up little bit of but I thought the last question or Germany is getting set to open up.
You know to Broadway I guess, the entire country and just next week. If you picked up anything in terms of anticipation for procedures to start to ramp in Germany or any any early feedback is that kind of gets ready to open up again.
Yes, we don't have anything brought at this point Raj, but we do here anecdotal comments I'll be the positions. There are very active researchers and many of them want to start conversations about getting going again. So you know there's a few anecdotal conversations about that but really no hard data about how Germany will start up.
Okay. Thank you.
Sure.
Thank you. Our next question comes from BJ Kumar with Evercore ISI. Please proceed with your question.
Hey, guys. Thanks for squeezing in and now I will try to about ask both of them at the same go one Mike up back to HCC competition was making some noise on a bike us but data in low risk just curious to get your views.
On have you seen any impact in the market and now and it related on the comparative front any update on now Michael litigation say thank you.
Sure, yes, thanks, Vijay so there's a lot of data on bicuspid and there's been some extensive published real world experiences you don't Edwards you know, we're not contra indicated for these patients. So we treat bicuspid patients with SAPIEN valves, all the time and our real world outcomes in these patients have been outstanding.
With the balloon expandable SAPIEN three so we think that body of evidence is just going to grow.
And we expect there'd be more data at cardiology conferences in the future.
Your other question was about the IP.
Yes, So big picture I think you know we believe it our IP positions, we're prepared to defend them.
We don't believe litigations necessarily in the best interest to patients.
We're going to hope that we can move through this but theres. There's a lot of litigation going on at a lot of countries, though with a lot of dates and so it will be a continued source of noise.
At this point.
Thank you guys.
Thank you. Our final question comes from Danielle Antalffy with SBB Leerink you May now ask your question.
Hey, good afternoon, guys. Thanks, so much for taking my question. Thank you also forgiving so much color on the call really appreciate it.
Hi could I just have one question just if I could on the on the recovery and the commentary make around losing how many patients I. Appreciate that these patients are very sad. However, in my checks I am hearing that the most urgent patient E designated their disease will progress you actually Dolby rehash realized or won't survive over the next.
Few line are being done today, therefore will these patients.
It really be lost I guess I'm, a little more bullish on the recovery curve as you probably.
Upgrade so just trying to get a sense that.
How confident you are that that is going to be the kids because it sounds to me like a lot of those very sick patients are actually getting yes. Thanks, so much.
So you're right on Yelp certainly there are very sick patients that are being done right, we're not doing zero.
But it's much lower than we expected to be doing at this time and what I was trying to express if you just think about it and our gross on some of you know, it's a bit dehumanizing, but if you think about what we were going to do and how many patients were going to be treated during 2020 compared to the number of patients that we believe we're going to treat now its a.
It's a much smaller number and that's that's a deep concern.
We know that many eas patients do not get treated thats why its actually one of the reasons why we're so enthusiastic about our work is because we can get after this population that's not treated so that pool of untreated patients just gets bigger and we know that there is mortality associated with that.
Thank you.
Sure.
So Steve Thanks, everybody knows everybody on your.
Thanks for your continued interest that Edwards.
Scott to market I welcome any additional questions by telephone.
We have all one final question with a Josh Jennings here.
James Your line is now open.
Great. Thanks.
Let me in here I guess I'd just keep it at one just in terms of your outlook for the competitive landscape.
Competitors in the market potential new competitor.
As an approval later this year any change in terms you in all countries the competitive headwinds because we just imagine that.
Getting cases Proctored and.
And moving forward the launch could be a little bit challenging for for the competitors just wanted to hear your thoughts on that.
Thanks again.
The conference operator, my apologies I believe we May have just lost our speaker.
Mr. Wilted in can you hear me.
Ladies and gentlemen, I apologize I believe or speaker has concluded the presentation here.
You may now disconnect your lines at this time, thank you for your participation.