Q3 2020 Edwards Lifesciences Corp Earnings Call

Thank you <unk> greetings, ladies and gentlemen, and welcome to the Edwards Life Sciences third quarter 2020 results call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note that this conference is being recorded.

I will now turn the conference over to our host Mark Whats reading President of Investor Relations. Thank you you may begin.

Thanks Diego good afternoon, everyone and thank you for joining US with me on today's call are Mike Mussallem, Chairman and Chief Executive Officer, and Scott <unk>, Chief Financial Officer, just after the close of regular trading Edwards of Life Sciences released third quarter 2020 financial results during todays call management will discuss those results included.

In the press release and accompanying financial schedules and then use the remaining time for queuing <unk>. Please.

Please note that management will be making forward looking statements that are based on estimates assumptions and projections. These statements include but are not limited to financial guidance and expectations for longer term growth opportunities regulatory approvals clinical trials litigation reimbursement competitive matters matters and foreign currency fluctuations.

These statements speak only as of the date on which they were 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 Kobe 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 SEC filings all of which are available on the company's website at Edwards Dot com.

Finally, a quick reminder, that when you think 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 today's press release with that I'd like to turn the call over to Mike for his comments Mike.

Thank you Mark.

Let me begin by saying I am very proud of our passionate team and the way that they continue to serve patients. During this difficult period, our supply chain is deliberate and our field team has continued to support the dedicated clinicians that Collin on Edwards.

We're pleased to report better than expected third quarter results. Despite the challenges of the ongoing cobot pandemic.

Sales of $1.1 billion increased 4% reflecting growth around the world.

Global power sales headlined our growth with continued adoption of our SAPIEN valve platform and a step up in procedure volumes as newly diagnosed patients entered the system and were treated.

In the third quarter were also pleased to report growing investments in new therapies and compelling clinical data announced that the recent TCT connect conference that we will be having a meaningful impact on future patient care.

In PEVAR third.

Third quarter global sales were $745 million up 6% growth was led by therapy adoption across all geographies with notable strength in Europe.

Globally, our average selling price remained stable.

Although third quarter treatment rates were lifted somewhat.

The postponement of treatment in the second quarter, particularly in Europe, We believe that going forward. There was no significant backlog of patients in the system.

Taking a step back we know that a sad consequence, all the intense focus on the pandemic has been that many patients like those with structural heart disease are delaying screening and treatment or not being treated at all.

Since continues to suggest that delaying valve replacement for patients with aortic stenosis inevitably result in adverse events and increased mortality.

Our recent Swiss study.

Stuffer demonstrated that nearly 20% of patients who delayed a previous scheduled aortic valve replacement reported to the hospital with valve related symptoms or worsening heart failure and.

And closer to home a study conducted last month by the structural heart program, a Mount Sinai Hospital reported that 10% of patients waiting free Arctic valve replacement required urgent tauber or passed away. During the first month after elective procedures were halted due to cold weather.

After three months, 35% of patients affected by the ban on elective procedures required an urgent intervention or passed away.

There's growing recognition that postponing treatment of a house has significant consequences at the same time. However, we know that this remains a very difficult time for the patients we serve as they continued to weigh the risk of coal, but against the severe effects of progressive heart valve disease are.

Observations indicate that most hospitals globally have determined that they can safely treat their U.S. patients in need and at the same time care for coal, but patience.

In conclusion strong evidence indicates that TAVR is a proven therapy with excellent outcomes. It offers efficient use of hospital resources and can benefit many more patients whose structural heart disease is deadly and under treated today.

Now turning back to the third quarter capital results by region in the U.S., our TAVR sales increased in the mid single digit range versus last year. Despite.

Despite approximately 30% growth in the year ago period.

We were very encouraged by the improvement in procedure volumes in Q3 with 100% of our active sites across all 50 states performing pepper cases up from approximately 90% in Q2.

Third quarter growth across the more than 750 centers in the U.S. was highest in smaller centers, which are providing access to a broader population, although you Arctic stenosis patients.

Two thirds of our U.S. TAVR centers have completed training and Proctoring with SAPIEN, three ultra and physician feedback on the ease of use and improved her paravalvular leak performance remains outstanding.

Outside of the U.S. and the third quarter, our underlying TAVR sales increased in the high single digit range year over year we.

We continue to be encouraged by the strong international adoption of TAVR, particularly in Europe, where growth continues to be faster than expected.

Edwards underlying tamper growth in Europe versus the prior year was in the high single digit range.

We saw unit increases in nearly every country across Europe.

Growth was driven by continued strong adoption of our SAPIEN three ultra platform.

And although transcatheter valves have been commercially available for over a decade in Europe.

<unk> continues to be significantly under treated.

Outside of the U.S. in Europe, we're continuing to see strong TAVR adoption driven by SAPIEN three sales growth in Japan and other regions was strong as they artix what else is remains an immensely under treated disease and we remain focused on increasing the availability of TAVR therapy.

In China, We're Edwards recently received regulatory approval to begin treating high risk patients suffering from severe aortic stenosis. We successfully completed our first cases in the third quarter.

And although it will likely take significant time to expand our TAVR presence in China, we look forward to partnering with hospitals across the country to introduce this therapy through our comprehensive proven training program.

In summary, we anticipate regional variability due to the pandemic, yes based on our year to date performance. We continue to anticipate global tower sales growth for 2020, well be at the high end of our previous range of minus five plus 5%.

We anticipate a return to double digit growth in 2021, and we expect quarterly growth rates to be <unk> will be lower year over year in Q1, and Q4 with more normal market dynamics versus higher growth in Q2 and Q3, when the cobot impact was most severe.

Global TAVR growth reinforces our belief in our projection of a 7 billion dollar plus opportunity by 2024.

Turning to Transcatheter, mitral and tricuspid therapies or T.M.T.T., we continue to view this opportunity as one with substantial unmet patient needs and the potential to drive significant growth.

Our focus will be on the advancement of three key value drivers, which we believe are the leading indicators of our success.

Portfolio of differentiated therapies.

Favorable real world clinical outcomes and favorable results from rigorous pivotal trials, which will ultimately support approvals and adoption.

As an example of our differentiated therapies. We recently received the CE, Mark and began introducing Pascal ace implant system for mitral and tricuspid repair Pascal Ace How's the differentiated features a pascal with a narrower profile it is design.

To complement Pascal and provide further options to optimize treatment for patients with mitral and tricuspid regurgitation.

In mitral valve replacement, we continue to advance both transfemoral evoke and C. P and M. Three platforms and we remain on track to initiate the U.S. pivotal trial for sapiens M. Three before the end of the year.

In addition, with evoke tricuspid, we're encouraged by the experience gained in our early feasibility study and are on track to initiate our pivotal trial by year end.

We are pleased to demonstrate clinical success in these programs as reported at the recent TCT connect conference we presented Roland day, It all for Mark Clouse to de pivotal study.

In U.S. centers with no prior experience the Pascal systems showed favorable 30 day outcomes in patients with the degenerative mitral valves, including low complication rates significant regurgitation reduction and improvements in quality of life.

Our one year CE Mark class data for Pascal mitral repair demonstrated robust and sustained Amar reduction.

In addition, Pascal tricuspid repair demonstrated positive 30 day results and Cardioband tricuspid follow up demonstrated favorable to your results.

And importantly, we're making progress on five T. M. T T pivotal studies, while initial pivotal clinical trial results could be delayed by a couple of quarters, we're not enrolling patients at pretty cold at rates and looking forward to generating a body of clinical evidence across our pork.

Polio, demonstrating excellent outcomes for each one of our therapies.

Third quarter global sales were $12 million, although the situation remain fluid we were able to resume activation of new centers in Europe and increased commercial procedures. We continue to advance our commercialization of Pascal on Europe and remain focused on physician training.

Procedural success and patient outcomes.

In summary, we expect procedures and activation of centers the continued to be subject to covert interruptions in Europe, we anticipate T.M.T. sales of around $40 million and 2020 versus our previous estimate of 30 to 45 million.

In addition, while still early in the 2021 forecasting process. Our aspiration is to double 2020 T. M. T P sales and 2021.

We continue to believe the T.M.T. opportunity remains significant and now expect a $3 billion global market by 2025, we.

We reiterate our confidence in this long term opportunity in our passionate about bringing a portfolio of solutions to the many patients in need.

In surgical structural heart sales for the third quarter of $203 million were similar to the 2019 levels decreasing 1% on an underlying basis during.

During the third quarter, we observe that patients were more willing to seek heart valve surgery at hospitals more able to manage surgical patient flow.

Going prioritization of heart surgery that many hospitals also contributed to rebounding case volumes were.

We remain very encouraged by the steady adoption of Edwards premium RESILIA tissue valves, including the in spirits aortic surgical valve and the recently launched connect aortic valve conduit in the U.S.

In the third quarter in spirits, well utilization grew in all regions driven by increased demand among younger more active patients.

In spirits is becoming the surgical valve standard of care in many geographies around the world. We continue to add new in spare centers in both the U.S. in Europe and adoption is growing in our existing centers.

Following the first commercial cases harpoon in Q2 in Europe, we continue to focus on intensive physician training and robust data collection for this new beating heart mitral valve repair system.

We're seeing positive initial patient results with faster surgery and recovery times with this minimally invasive therapy.

In summary, we continue to expect surgical structural heart sales for full year 2020 will decline in the 5% to 15% range from 2019 local.

Localized coal, but 19 hot spots may continue to be headwinds to procedure growth. However, our expectation remains that in Q4. Our sales were returned to positive growth driven by the market adoption of our newest technologies. 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.

In critical care sales for the quarter were $181 million in line with the year ago period demand for our products used in cardiac surgeries was solid but was offset by the covance <unk>, the covert driven impact of delayed elective procedures.

Sales of our true wave disposable pressure monitoring devices used in the ice you were lifted by a large onetime order in Europe associated with I see you capacity expansion.

However, we continue to experience a decline in humans severe orders in the U.S. as hospitals continue to limit their capital spending as a result of cold but.

In summary, we continue to anticipate that critical care sales will be negative for 2020, largely due to anticipated reduced capital spending in the U.S., which is still within our original guidance range of minus five to plus 5% and.

Now I'll turn the call over to Scott.

Thanks, a lot Mike today I'll provide additional perspective on the third quarter, along with how we anticipate the rest of the year may unfold.

Our 4% underlying sales growth in the third quarter was better than we expected as we performed well across all our product lines and geographies, especially Europe or.

Earnings were also stronger than we expected driven primarily by the topline performance combined with our constrained spending is.

As I previously mentioned, we have implemented cost control measures during covered but we intentionally did not take any actions to significantly impact our employees or reduce investments supporting our long term strategy. This is.

This allowed us to deliver a strong operating profit margin and adjusted earnings per share in the third quarter of 51 cents, a 9% increase over 2019 gap.

GAAP earnings per share was one penny higher at 52 cents.

For the third quarter, our adjusted gross margin was 75.5% down from 75.9% in the prior year quarter. This day.

This decrease was driven by a negative impact from foreign exchange and incremental costs associated with responding to cove, it partially offset by improved manufacturing efficiencies.

Selling general and administrative expenses in the third quarter were $307 million or 26.9% of sales compared to $306 million in the prior year.

This consistent level of spending included increased Transcatheter structural heart field personnel related expenses, including expanding the T.M.T. field organization in Europe, offset by reduced spending resulting from Cove. It.

As I mentioned earlier, what did not initiate any actions to significantly impact our employees nor to reduce investment plans supporting our long term strategy.

Research and development expenses in the third quarter or $196 million or 17.1% of sales compared to $195 million in the prior year. This.

This consistent level of spending included increased investments in Transcatheter mitral valve replacement clinical trials, partially offset by lower TAVR clinical trial costs and reduced spending resulting from cove. It.

Turning to taxes.

Our reported tax rate this quarter was 10.7% or 11.2%, excluding the impact of special items.

This rate included a 450 basis point benefit from the accounting for employee stock based compensation, which was 130 basis points or one cents favorable to our expectations.

We continue to expect our full year 2020 tax rate, excluding special items to be between 11 and 15%.

Foreign exchange rates increased third quarter sales growth by 60 basis points or $7 million compared to the prior year at current rates. We now expect FX to have a neutral impact to full year 2020 sales versus 2019 are.

Our previous guidance estimated a negative 30 million dollar impact.

FX rates negatively impacted our third quarter gross profit margin by 140 basis points compared to the prior year Red.

Relative to our July guidance FX rates lifted our earnings by our earnings per share by one penny.

Turning to the balance sheet, we have a strong balance sheet with approximately $1.9 billion in cash and investments at the end of the quarter. In addition, we have an undrawn line of credit at up to $1 billion, our public bonds of approximately $600 million don't mature until 2028.

Average shares outstanding during the third quarter were 631 million and we expect average shares outstanding for the full year to remain at this level recall that in June we increased the number of shares outstanding by executing a three for one stock split.

Free cash flow for the third quarter was $113 million defined as cash flow from operating activities of $216 million less capital spending of $103 million.

Our year to date free cash flow was $361 million.

Free cash flow was negatively impacted by a $100 million payment related to the settlement of the intellectual property matter last quarter.

Now I'll finish up with our 2020 guidance for the remainder of the year our.

Our guidance assumes that the worst of the 20 of the cobot financial impact to Edwards is behind us, Although we anticipate regional hot spots and risks for the foreseeable future.

Given that we anticipate we will achieve fourth quarter year over year underlying sales growth similar to the third quarter.

Within our product groups, we now expect T M T T sales of around $40 million, we can.

We continue to estimate TAVR growth to be at the high end of our previous range of minus five to plus 5%.

Critical care growth to be negative for 2020, but still within our previous guidance range of minus five to plus 5% and so.

And surgical growth still within our previous guidance range of minus five to minus 15.

Percent versus 2019.

We are raising the bottom end of our full year adjusted earnings per share guidance range.

To be now between $1.85 cents and $1.95 cents and for the fourth quarter. We estimate adjusted earnings per share of 50 to 60 cents.

With that I'll turn it back over to Mike.

Thanks Scott.

I want to conclude by saying that Edwards is a dedicated member of the critical healthcare infrastructure and I admire the agility resourcefulness and passion of our employees and partners in maintaining their important work on behalf of patients putting patients first is never been more important than it is today.

As we stand together with a global community I'm gratified for our extraordinary team and partners and I'm optimistic about the future of delivering innovations to even more patients around the world.

With that I'll turn it back over to Mark.

Thank you Mike before we open it up for questions I'm pleased to announce that our 2020 Investor Conference will be held on Thursday December 10th we anticipate a great event and a new virtual format that I hope, you'll really like as usual. This event will include updates on our latest technologies views on longer term market potential and our outlook for the year ahead more information.

And will be available in the upcoming weeks on our website.

With that we're ready to take questions 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 Diego.

Thank you.

At this time, we'll conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue. You May press Star followed by the number two key if you would like to remove your question from the Q.

One moment, please while we poll for questions.

Our first question comes from David Lewis with Morgan Stanley. Please state your question.

Hi, Good afternoon, just a couple of questions from me.

Thank you for taking them.

It's heading in analyst day here I know raising guidance, probably makes limited sense, but I do want to parse out sort of the fourth quarter guidance and just to be very crystal clear and what it means do we take the fourth quarter TAVR commentary to mean no improvement sequentially in Canada or is it more we see some improvement at a lower rate, but we're just adjusting that for potential risk.

Resurgence flu you know what have you.

Yes, thanks, David So it's a little bit a ball that you know we grew 4% in the third quarter and we said that we thought the fourth quarter growth would be similar to that which we think is pretty remarkable in an environment like this and a real testament to our team and the supply chain.

There are three factors that we considered when we set our Q4 sales guidance one other unrelated to what we did last year, you'll have to remember as a total company, we grew 20% and 30% tamper growth in Q4 up 19, even more on the U.S. So by comparison, it's quite a difference.

Matter of fact, so the absolute sales number in Q4 is going to be certainly higher than the sales number in Q3.

There is an issue I think associated with our thinking related to the persistence of COVID-19 in the U.S. in Europe, We think it's probably prudent at this stage.

Just to be thoughtful because of the uncertainty associated with that and then the one other factor that I'll mention is we don't believe that there's a much of a significant backlog in Europe any longer which probably gave us a somewhat of a lift a little bit of a lift in Q3 and not be repeated in Q4.

Okay, but you are seeing improvement in September Mike and you're seeing some improvement into October in that underlying TAVR business and the U.S.

So we're not going to get into specific months, David but you know you just have to remember the steep curve that we were growing at so one way even if the growth rate were to remain constant think of how many additional patients are being treated each month, yes.

So just a sequential comp issue totally understand and then just maybe one clinical for me and I'll jump back in queue, just the Medtronic head to head study they announced Mike just kind of curious if you think that population they describe represents 40% of patients and.

Some clinicians feel that trial actually favor S. Three and non human genetic endpoints just kind of curious on what pay.

Patient population that targets and your thoughts on their strategy here and impact to the market in general thanks, So much.

Yeah. Thanks, I think it's a testament to the fact that you know tapper, a certainly a competitive field right or you know our whole industry is competitive and certainly power is that.

You know what when we reflect on it we put more of our focus on bringing new patients into the system and we you know we just think this disease is sold under treated its a deadly disease. It's it's what's most important to us. If you look at why Edwards has grown in the past or why we're going to grow in the future. That's the biggest factor.

I think you know that we're extremely happy with SAPIEN, three and the ultra platform and there's.

And there's just a large body of high quality clinical evidence that supports those so you know the.

So to have a head to head study on one factor you know it might be but we believe that clinicians make decisions based on the total patient outcomes and not one singular element.

Thanks, so much.

Thank you. Our next question comes from Bob Hopkins with Bank of America. Please state your question.

Great. Thank you and good afternoon, just two quick things one is timing timeline question second is a a tavern follow up on the timeline side.

Mike I was wondering if you could just comment on any update on the readout on the asymptomatic trial.

And then also on.

Kinda much for U.S. Pascal approval I assume those are unchanged, but just wanted to check.

Yeah. Thanks, Bob.

Thanks, Bob Yeah, you know COVID-19 did impact the pace of enrollment too much in line with other trials.

We've been encouraged by the pickup of enrollment in Q3 compared to Q2, but we.

But we're not really providing an update at this time. So we'll have more to talk about at the Investor Conference and so we ask you to stay tuned for that okay.

Okay, and then on that on the TAVR follow up side I'm, just curious if you're able to quantify how much rescheduled procedures might have helped Q3 and I was also wondering if you could just comment on that.

The the cobot flare up that's going on right now is that something that is slowing.

Slowing TAVR currently or you just sort of taking that into consideration you're taking that possibility into consideration as you as you get Q4 guidance. Thank you.

Yeah in the beginning part of that question Bob that you wanted me to get old deeper on was about the backlog question. How much was there in Q3 do you have anything you may not yeah yeah.

Yeah, well so we didn't so we saw we feel like we saw a different story in the U.S. in Europe, and so you know U S is the biggest part of our business. We don't think there was much clearing of the backlog in Q3, we think that there just wasn't much carryover U.S. hospitals today.

To run with Big backlogs in Europe by contrast, there occasionally can be those depending on the country and we did indeed work those down we feel like at this point in time, there aren't backlogs that are going to significantly impact our Q4 performance. So I don't know if that's clear.

They're up you know we are pretty much in the U.S. all our hospitals performing cases.

Yeah, which means that the you also have all hospitals that are screening patients and so we're into a little bit more of a normal cadence at this point in terms of the covert question I think it's a general concern we're not trying to signal something that's an inflection point that we see just a general concern with the men.

Others that we're watching in the U.S. in Europe, but we think it's prudent for us to be careful because of the uncertainty.

Fair enough. Thanks, so much.

Thank you.

Next question comes from Joanne Wench with Citi. Please ask your question.

Thank you very much.

I have two the first one is can you walk us through the bridge to doubling TMT revenues in 2021, how much is that coming from Pascal and your level of confidence.

At this stage and then my second question is is geographic reach outside of the three core markets. I think has been next focused on China where are we.

And that expansion. Thank you.

Yeah. Thanks, John as you can imagine we're kind of early in our planning process for 2021. So we're kind of you know going out there a bit and extending ourselves when we talk about our aspiration to double so we'll probably have more to talk about that they get in depth. When we're together at the Investor Conference but.

Much like this year the majority of those sales are likely to be Pascal.

We're not necessarily its going to be the addition of new sites that are going to help do that and you know we'll have Pascal Pascal Ace that'll help us and we'll be doing treatment of not only am our patients, but TTR patients next year, maybe tricuspid. So that combination is is what is leading our us to have this aspiration.

To double.

Oh the your question about China, you know we were really pleased that we completed our first cases.

We think it's going to take significant time, even though we're really excited about this it was a major milestone for Chinese patients. The first time, a multinational company isn't there.

There's just a lot of hurdles for a couple of reasons. Some are self imposed we're committed to make sure that we really carefully work with physicians so that they get well trained on our systems and get great results. Every time. There's also a fair amount of Oh I don't know maybe bureaucracy is not the right term, but there's a lot of price.

Yes, that's related to really coming up in China. So it's going to take us some time and frankly, it's a it's a new journey for us to bring a therapy that this novel to China. So we don't have a lot of experience with that.

Thank you very much sure.

Thank you. Our next question comes from Raj Denhoy with Jefferies. Please state your question.

Hi, good afternoon.

I hate to come back to this point, but no guidance for for tablet for the year I know you're talking about sort of 5%. The upper end of the previous range. It sort of implies that the fourth quarter is going to be relatively flat I guess to that kind of 6% this quarter and I appreciate the commentary around.

You know around Europe, and not maybe not seeing a bullet here, but I guess im just curious whether there's anything more to that rate is that is that really a kind of pull back from where you're seeing or is it really just kind of a flattening of the recovery here in the back half of the year the last for the year.

Yes, I I mean, you know maybe I'm looking at this is much different than you Raj I'm really excited about what's going on with our business and the fact that we're going to be able to maintain this kind of growth rate. When you consider that last year. However grew 30% globally on a matter of fact, I think it was 40% in the U.S. and that we're going to put it.

Rotate on top of it while a global pandemic is going on I mean, I I feel pretty proud of that at all and I don't know that it gets a lot better than that so to think that there is something that we feel uncomfortable about as probably reading the signals wrong and I, maybe I didnt say that the way I really feel about it.

No that that's crystal clear, yeah, definitely glass half will not happen.

It's unclear maybe.

Maybe just on on Pascal rate to a decent you know a good quarter actually you know.

Good quarter actually you know in terms of where you ended up there is that any indication of what's happening on the ground in Europe is your strategy of pricing at a premium.

Starting to yield some results for you there.

Yes. So we were we were pleased with our results I'm Pascal in the quarter.

You know what he got a very fluid situation and you know having the wrapping this up during the pandemic is a little bit challenging, but we're really pleased with the way it's come up but it it's because we added new centers in the quarter. We continue to implement what we would call our high touch model. So we're very engaged with clinicians involved.

In every case and working hard to make sure that they get.

Great results each time, so that's that's really turned out to be what's most important for us. The the pricing is as much a is the same as we've talked about in the past we do have a premium. We think this is a it was a really good therapy and performs at a superior level, obviously, we need to back that up.

Data, but our strategy is unchanged.

Okay very good. Thank you appreciate it sure.

Sure.

Our next question comes from Robbie Marcus with JP Morgan. Please state your question.

Hi, Thanks for taking the question and you know I'm sure you'll get into this more at the analyst day, but I have to ask the double digit growth next year, you know, it's easy comps this year and I would imagine everybody expected double digit growth how should we put this in perspective is this may be double digit growth cagar off.

2019 numbers, you know any way you can help frame it because.

I'm sure there's a wide variance around what people interpret that to me.

No you are so right Robbie I mean, everybody should have some pretty terrific gross I imagine if you're an airline and you could really have impressive growth rates coming off a low base, but one of the things that I think is remarkable lot. Edwards is we just didn't take as big a dip as many other companies so to return to double double digit growth I think still is meaningful it.

There is something that I can add for color. It's what I tried to relate related to the quarters and so we would expect in quarters like one and four that are a little bit more comparable to a steady state will be likely to see.

We would be likely to see that lower growth rates, and then see much higher growth rates, which would be unusual ones probably for Q2 and Q3 when cold it was hitting the hardest but.

But hopefully that ends up providing some color, but your point is well taken.

That's that's really helpful. Appreciate it and then maybe just a quick follow up here you know one of your competitors smaller in the tanker space.

Recently talked about at TCT sound fatigue in structural heart trial recruiting sounds like you're you're more back to normal.

You know should we expect trials to continue at pre coated levels here given that doctors are still catching up on patients to a degree or should we.

Should we expect that it was a six month delay for most trials and the clock and restart here. Thanks, Yeah. It's a good question for you as you might imagine making predictions on something like this is challenging we kind of stick our neck out here a little bit you know when we were talking about our T.M.T. trials. We said you know we think it did go back to pre cold at levels.

And in tap or where we have some pretty aggressive enrollment, it's probably getting close to that might be a little short of it but but it's moving along pretty well and we're hoping that the situation continues to be stable and roll that way.

Great. Thanks, a lot.

Our next question comes from Matt Miksic with Credit Suisse. Please state your question.

Hi, Thanks for taking the question I have just one and a follow up on on sort of the tavern environment and one on maybe sort of pipeline for patients and the process for getting more these patients in the centers. The first just you mentioned I think Mike in your prepared remarks that.

Smaller centers grew faster in the U.S. here in the <unk> in the third quarter and just wondering is that a is that off of a you know more of a more of a.

More of a constrain performance in Q2 or do you find that there's sort of leading or lagging is there any kind of pattern in larger small centers or regionally that you can talk about just just color on how how all these centers are coming back and then I have one follow up.

Yes, Thanks, Matt and very fair question, you know weve given different guidance in the past for other quarters were more or less just trying to tell you. What we saw which is that the smaller centers seem to grow faster in terms of being explained the why behind that we'd be speculating to some extent.

We make we couldn't make up stories that you had maybe the larger centers are in big Mottram metropolitan areas that were harder hit by co that but you know we really don't have hard evidence to back that up Matt, but we just did see other than the smaller centers more than the larger.

Okay, Great and then the follow up just on the.

The challenges around ramping up patients coming into the centers and being diagnosed a I've seen some of the data you presented on the number of echoes taking a dip you know in the toughest part of the pandemic and I'm, assuming recovering coming out of that.

Is it sort of as you look at our centers look at trying to get their pace of patients and going again for the reasons you described in the risk to patients and so on you did is it that you know Echo you said part of the process is it is it just getting patients into either cardiologist, where where do you think.

Maybe the biggest challenges are the biggest greatest progress that's been made in turning that around.

Okay, Yeah, Thanks, Matt I mean.

I don't want to Miss the really big issue, which is that by enlarge our conversations with hospitals they have.

Well it really strongly believed that they now know how to do TAVR cases or to treat structural heart patients and cobot patients who are at the same time when this first hit in Q2.

That was a that was a question mark and I think that for all the right reasons for patients and for the health of hospitals. They figure it out so that's been important it's hard.

It's hard to speak in generalities around the whole world, but if we just take US which is the biggest market you know when when the hospital sort of closed its doors, you know prepared for coal, but not only did they stop doing procedures. They stopped doing screening and so when this got turned back on they turned on both those.

Screening process and the actual procedures. It the same way now I don't know that they have actually additional screening.

Capacity beyond what they've had in the past so that probably becomes somewhat of the constraint, but they're probably worth some patients that were either lost sadly oh, just because they passed away or are just not in the system today that would have been otherwise at a more normal year.

Thank you for the color.

Our next question comes from Danielle Antalffy with SVB Leerink. Please state your question.

Hi, good afternoon, guys. Thanks, so much for taking the question.

And just a question on.

I'm curious, Mike if you could.

Little bit color on how.

Thanks.

[music].

A lot of these centers carry more than one device on the market or you see on their shelves.

Are you seeing the same.

Switching essentially.

Mike.

Yes, it's a good question and I know I, probably oh, it'll be generalizing to some extent so that's all already dangerous, but I wouldn't say that we seek them people completely switch from one system to another I think that we see them more or less split.

Again, there, they're very interested in Pascal they invite us in many cases, they're learning were part of the procedures that help them work through it.

[laughter] you know as we think about it and maybe just give you something else that thinking about I know, we're hyper focused on how much we sell of Pascal in the quarter, but if you really look for leading indicators of what is going to be most important for T. M. T. I think there are three factors how how is this portfolio of differentiated therapies.

Really developing are they coming along are those good procedures are they longer learnable teachable are they fast procedure there reproducible how about your real world clinical outcomes will you saw some of the leading indicators are that at TCT connect and I think that's encouraging and then just how are we doing on the clinical trials we've got.

Very rigorous clinical trials that are going to provide a really incredible data and so those are going to be the things that both lead to approvals an adoption. So although you know the sales are an interesting one to track I don't know that its a strong a leading indicator or some of these other factors.

We frankly put more energy to make sure we get great results than just try and maximize sales.

Got it.

Thanks, and then if I could ask one more question.

No.

Medtronic is running or trial.

And just this whole dynamic.

Great I'm curious.

<unk>.

At all.

This is more noise.

Medtronic and something that actually.

And.

Thanks, so much sure.

Sure.

Oh I know are.

I know our folks probably answer questions about that on a regular basis. You know what we know is we're just really pleased with the the SAPIEN three and especially as they had been three ultra performance. We think people have relied on it not just normally but even during this pandemic.

I think the performance speaks for itself, we've got some pretty impressive data that's been generated over time, whether its death stroke paravalvular leak close little pacemaker rate. The list goes on and so we just have a high level of competence and this and don't well.

Well, we wonder whether that how important that factor is going to be a long term to look at one thing.

Thanks, that's helpful.

Our next question comes from Adam meter with Piper Sandler. Please state your question.

Hi, guys. Thanks for taking the questions maybe to start just on Pascal is I was hoping to get some additional detail. There I think you mentioned that.

That has a narrow profile. So how should we think about the clinical impact is it improve safety or efficacy is it for different anatomy, just any color you could provide there would be great and then I had a follow up.

Yeah. Thanks for that Adam So first of all think of it as having the almost the same differentiated features as Pascal. So it's got the independent panel's. It's gotta space are all those things like Pascal, but with a narrower <unk> profile.

It's it's a night and all based system.

The question you ask about okay, how is that going to manifest itself clinically.

We were expecting it to be a compliment.

That as physicians gain experience they'll say all maybe this is a good case to use.

To use a Pascal ace.

Secondly, we're still early in our experience and those are some of the answers that we're gonna get as we get deeper experience you know at this point, we're still it's still new enough that we cant say definitively where that is going to fit on a long term basis.

Got it okay. Thanks for the color there, Mike and then for the follow up maybe switching to tab or just curious if you had a sense for.

The number of US have are sites that were added in Q3, you know what are the expectations going forward do you think we're in and.

In an environment now, where we can see new sites start to come back online at a healthy clip. Thanks, so much for taking the questions.

Yeah. Thanks, you know I'm trying to think of the data I know that we've talked about the fact that there were about 750. The last time. We reported then I don't remember what the number is and so I'll have to go back and check on that just to give you a little bit color, though we're probably anticipating the U.S., but this max.

Without maybe in the 850 range. So I don't know if that helps you think about it.

The the rate that they're actually joining I I don't know off the top my head.

Got it thank you.

Our next question comes from Matt Taylor with you, Yes. Please state your question.

Hi, Thank you for taking the question.

So I just wanted to follow up on the Netcentric question for next year, when you're thinking about the double digit growth.

Do you need to add a lot of others do that can you talk about your assumptions for center adds and how much of that growth comes from existing versus new centers.

Yeah, Yeah. Thanks for that well you could imagine most of our growth is going to come from existing centers new centers by their nature are smaller I don't know the specific number that's in there and maybe that's a good question to ask at the Investor Conference but.

That's not going to be the bulk of our growth the bulk of our growth is going to come from growth in existing centers remember were at 750 already so to drive these kind of big numbers. You can you can just you can anticipate that.

And just to follow the resident kind answer your question, but.

The consensus is modeled around 19 or 20% growth on the old number and you're talking about double digit growth can you comment at all about consensus and whether you think that's aggressive realistic and is there a scenario that you can do that number.

Yeah, you know I, maybe not as a intimately familiar with the consensus as you are but I'll just remind you that the would you say, 19% is probably driven off a much lower base than Edwards is actually delivering in 2020. So you know you what you might want to do is think about it more in terms of the.

Actual sales rather than a sales growth rate.

Okay, all right Thanks, Mike <unk>.

<unk>.

Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question.

Good afternoon, guys. Thanks for taking the question or two on the pipeline a one.

One on a catalyst in a 2021.

You know what are the most important ones Mike I'm not you know what I'm not interested in you know laundry I'm not just asking for a laundry list, but what what do you think the most important ones item specifically interested to know if we could see the class two D data next year and any vote for tricuspid CE Mark approval and I have one follow up.

Yes, I don't think that we're going to see pivotal trial results and 2021 I think those are more likely to come in 2022, I do expect there to be a a study done drumbeat of new data almost on a continuous basis. We have so many innovations going on Larry that I think.

At every meeting you're going to see follow ups on CE. Mark study is you're going to see first experiences you're going to see a lot of things that are really powerful leading indicators, but in terms of a pivotal trial I I don't think that we have one in 21.

Thanks, Mike on the tricuspid market, there does seem to be a lot of enthusiasm for.

For you know Transcatheter tricuspid therapies and I guess my question for you do you think we're going to need you know randomized controlled data to kind of drive that market outside the U.S. or do you think it could develop like we saw a tavern develop before.

Before you came out with the partner trial. There you had pretty strong uptake for you know for safety and then in Europe before the randomized controlled data. So what do you think what's your view on the tricuspid market when it's going to take to to drive that.

Yeah, So Larry I mean, you're pretty familiar right you came along for this journey in TAVR and even though we had nice sales for TAVR in Europe, They really didn't take off until we had.

The pivotal data in the U.S. it made a significant.

The step up with those big pivotal studies now, having said that I'm kind of like to ever there is a lot of excitement on the part of clinicians to treat their tricuspid patients there aren't many answers for them and so they're anxious to have solutions. So you know if we can deliver some results we think it could be.

Interesting, but why predicting a the the tricuspid UBS adoption rate is still very difficult I think it's going to be so important for us to get some long term results on that before we could make it you know we have we have a lot of studies coming try sun to the class which is.

The Evoque trial.

Of the bulk tea, our pivotal trial, we have class two which is the the the tricuspid trial. So we have real trials.

Better pointing to that Oh exploring this and finally be answer to your question, but it's still early Larry.

Thank you Mike.

Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.

Hey, guys. Thanks for taking my question I might cap one on.

On cabira, either asymptomatic market, a more moderate asset the well either one of those.

Any any numbers around how big these opportunities could be sizing up either moderate or asymptomatic.

Yeah.

[laughter] [noise] that's it.

That's a good question you know its interesting almost the more one way more we learn about a us are the more we learn about us the the the market turns out to be pretty significant of people that are undiagnosed and not really in the system and so it's difficult for us to say that quantitatively we are we.

I do think the asymptomatic patients is a significant population and we think that the moderate.

Yes. It was also a very significant population, we haven't been able to accurately sized those at this point that would be a good one maybe for us to get a little deeper when were together in December but this one you know we're confident that it's a driver and going to be a driver on a very long term basis, but it's not clear what the size is at this point.

Understood and not one not quick one for Scott maybe when you look at down the spending for 21, Scott as a marketing spend comes back clinical trials open up.

We opened a restart I guess out how should we think about opex and anything on the FX dynamics for next year. When you think about gross margins. Thank you guys.

Well, it's it's early to talk about what our permit what our operating margins may look like in 2021, I'll tell you I'm more.

We're eager to get back to a full pace of travel being out in the field to being with customers and of wrapping our clinical trials backup to fully pre covert levels and so we're we're anticipating.

We're we're anticipating that those expenses will ramp as quickly as we're allowed to do it.

In terms of FX for 2021, it's just premature to say I mean, you know what happened in 2020, which is we expected a big headwind from FX to sales ends up that that's dissipated now we're expecting no headwinds to say.

Sales for FX and so it's just it's premature to speculate what that is going to look like in 2021, although we won't be talking more about that are at our Investor conference. When we give guidance in December.

Thanks.

Thank you. Our next question comes from Margaret Consort with William Blair. Please state your question.

Hi, This is that this is.

This is Brandon on for Margaret Thanks for taking the questions.

First one is you said on them at TCT. This year. There was a lot of presentations are a lot of focus within the valve in valve I guess treatment opportunity I was curious how meaningful. This is today in practice that or is this more kind of a clinical focus and do you guys think the data that's been collected so far is compelling enough to convince physicians to treat.

Low risk patients, while we're kind of waiting for long term durability data and there was even some favour within savvier. So was that a meaningful opportunity as we move forward.

Yes. Thanks, you know, we're really pleased to report that five year data of about and are TAVR in TAVR. If you will and it says hey, pretty good quality of life and so forth maintained through five years and that data is always valuable.

A little bit of what you have to do is to put it in perspective remember that data goes back quite a ways and so that will at that time not sure. We even add intermediate approved for very long and so the average age of those patients were nearly 80 years old. So there are sick and at a high risk.

And when if you if you just take a look and see what those results look like a mono in this fast moving tapper world where improvements have been significant we would expect that as technologies improve and we moved to lower risk patients with those results get even better.

Just having a valve and valve option for these younger patients.

With tissue valves or Transcatheter valves is a big deal for them to be able to avoid surgery. So we think it's something the clinical community and patients, especially really value.

Thanks, and then just in terms of kind of the rebound that's going on within Tempur I think in prior calls we we've kind of discussed that it's been broad adoption with.

Adoption within all risk classes any specific risk classes kind of leading the rebound now and and kind of are you happy with the progress being made into low risk opportunity even through covered thank you.

Yeah, Yeah. Thanks, Yeah, no. We don't have any particular visibility of these patients by risk level that gives us a deeper insight to the question you're asking about what we're seeing right. Now. So we just don't have much on that in terms of the adoption of low risk you know, we saw a pretty steep inflection point.

Once the data was presented last year.

It's getting to a point now where it's been out there for more than a year, we're still seeing steady increases but not at the same pace that we saw I was first introduced last year.

Thank you.

Thank you that's all the time, we have for questions today, I'll turn it back to management for closing remarks.

Okay, well, thanks very much for your continued interest in Edwards, Scott and Mark and I are going to welcome any additional questions by telephone with that back to you Mark.

Thank you very much Diego that does it from our perspective.

Thank you all parties may disconnect have a good day. Thank you.