Q2 2021 Edwards Lifesciences Corp Earnings Call
Greetings, ladies and gentlemen, and welcome to the Edwards Lifesciences Corporation second quarter 2021 results at the.
This time, all participants are in a listen only mode.
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.
Note that this conference is being recorded.
I will now turn the conference over to our host Mark Wilcher Day, Vice President of Investor Relations. Thank you you may begin.
Thanks, a lot of Diego.
Good afternoon, and thank you for joining US with me on today's call are Mike Ms Solemn, Chairman and Chief Executive Officer, and Scott all of them Chief Financial Officer.
Just after the close of regular trading Edwards Lifesciences released second quarter 2021 financial results. During today's call management will discuss those results included in the press release.
The company's financial schedules, and then use the remaining time for Q&A.
Please note that management will be making forward looking statements that are based on estimates assumptions and projections. These statements include but aren't limited to financial guidance and expectations for longer term growth opportunities regulatory approvals clinical trials litigation reimburse.
And it meant competitive matters and foreign currency fluctuations. These statements 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 the 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 2020 annual report on form 10-K, and Edwards other SEC filings all of which are available on the company's website.
And Edwards Dot com.
Finally, a quick reminder.
A reminder, that when using the terms of underlying and adjusted management is referring to non-GAAP financial measures otherwise they are 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.
Thanks, Mark we.
Encouraged by clear signs of recovery during the second quarter vaccine adoption in key regions has contributed to an increasing number of patients seeking and most importantly, receiving treatment at.
Ed words, our dedication to providing innovative solutions for people fighting cardiovascular disease around the world motivates.
It's our employees every day, we never stopped our aggressive pursuit of breakthrough technologies with the potential to help an even broader group of patients.
Last year, we noted that we are in the midst of the onset of this tragic global pandemic there were more than 20000 patients around.
The world, who are treated with our SAPIEN valves in that second quarter. This quarter more than 30000 patients were treated with SAPIEN valves and indication that more patients are benefiting from our life changing technologies than ever before.
The comparisons the 'twenty 'twenty are challenging as last year marks that are Mark then.
Canary time for structural heart patients, especially during the second quarter, when the Covid surge overwhelmed hospitals and undermined regular ongoing care.
Patients and their doctors around the world were forced to weigh the risk of COVID-19 versus the severe effects of progressive heart valve disease.
Fortunately.
On the extra now experiencing encouraging signs of increased patient confidence to visit their position.
Turning now to our recent results. We're pleased to report better than expected second quarter sales of $1.4 billion up 44% on a constant currency basis from a year ago period.
We're in the 4 product groups delivered large increases in sales led by <unk> <unk>.
Total company sales increased sequentially versus Q1 and.
And importantly sales grew 11% on a 2 year compounded annual basis compared to the strong pre pandemic second quarter of 12.
2019.
While the hospital heart teams have not been reporting significant backlogs, we believe that procedure rates in Q2 were lifted because patients who previously postpone their doctor visits return and were treated.
We are raising our full.
All outlook for 2021, we remain cautious about the mixed trends of the recovery from the pandemic and Additionally, we expect the more pronounced summer seasonality associated with the pent up demand for vacations, yet given the better than expected year to date performance and momentum exiting the quarter.
All year, how expect total sales growth to be in the high teens versus our previous guidance of mid teens.
In <unk> second.
Second quarter global sales were $902 million up 48% on an underlying basis versus the year ago period or 14%.
On a 2 year compounded annual basis.
We estimate global tab of procedure growth was comparable with Edwards growth in the second quarter.
Globally, our average selling price remains stable as we continued to exercise price discipline.
We continue to be optimistic about.
We have long term potential of <unk> because of its transformational impact on the many patients suffering from aortic stenosis and because many remain untreated.
In a recent article of the American Journal of Cardiology reported it reported on the survival of severe asthma patients since the inter.
Production of <unk> in 2008. The analysis included clinical data on 4000 patients obtained at the mass general and concluded that in the tab of error overall survival of patients with severe a S has doubled.
The long term potential along with the rebound.
The loan procedures reinforces our view that this global tower opportunity will exceed $7 billion by 2024 up for more than 5 billion today and beyond 2024 bolstered by 2 pivotal trials currently being enrolled we believe the impact of treating the steadily.
Rebounds, these before symptoms and before the disease becomes severe has the potential to transform the lives of even more patients.
In the U S. Our tap of sales grew sequentially over Q1 and over 50% on a year over year basis.
Our U S tab.
Lead the zooms were well above pre COVID-19 levels as our 2 year compounded annual growth rate was in the mid teens, we estimate that our share of procedures was stable.
We're encouraged that U S tab of procedures grew as vaccinations increase in patients decided to seek treatment.
Of our volume of quarter growth was broad based across both high and low volume centers.
Outside the U S. In the second quarter, our sales grew approximately 40% on a year over year basis, and we estimate the total tab of procedure growth was comparable.
On a 2 year compounded.
On annual basis, we estimate that sales grew in the low double digits in the second quarter versus 2019, and although were encouraged by the strong results vaccination progress outside the U S creates uncertainty for the remainder of the year long.
Long term, though we see excellent opportunities for all U S.
During as we believe international adoption of tab of therapy remains quite low.
Teva procedure and Edwards growth in Europe also rebounded significantly on a year over year basis Edwards growth was driven by the continued strong adoption of our SAPIEN platform and was broad based across.
Growth countries patient.
Patient flow recovered throughout the quarter, although it remains suboptimal in several countries and uncertainty among patients about the urgency of their disease.
In Japan, we continue to see strong tapper of adoption driven by SAPIEN, 3 and broad growth across.
Centers of all sizes, we remain focused on expanding the availability of tap of therapy throughout the country driven by the fact that aortic stenosis remains an immensely undertreated disease amongst this large elderly population.
As previously announced we received the approval earlier on the second quarter for SAPIEN 3.
In patients at low surgical risk and we continue to anticipate increased treatment rates in Japan when reimbursement is approved in Q3.
Okay.
Now turning to several recent tab of clinical trial highlights last week at the TVT conference data on the.
Hoover's tougher economic study were presented with the further demonstrated the favorable economic value of our SAPIEN 3 platform. A comparison of of 1100 patients was conducted to assess the economic impact of next day discharge the SAPIEN 3 platform with the minimalist approach achieve better.
Van outcomes 30 days post procedure and enhanced resource utilization, which resulted in meaningful cost improvements.
Also of T V T results from the partner 3 Bicuspid registry showed similar outcomes to other tab of patients as well as significant improvement in patient symptoms.
Symptoms and quality of life.
We remain as optimistic as ever about the long term growth opportunity as patients and clinicians increasingly understand the significant benefits of tab of therapy supported by the substantial body of compelling evidence.
In summary, based on the strength that we saw on.
On the second quarter, we have confidence that the underlying tavern sales will grow around 20% in 2021 versus our previous expectation of 15% to 20% growth.
Turning to T. M. T. T. We continue to be very pleased with our clinical outcomes as they remain a key driver.
Many patients in need and unlocking the significant long term growth opportunity, we continue to be committed to ensuring procedural success and employing a high touch clinical support model.
We are progressing in the enrollment of 5 pivotal trials across our differentiated portfolio to support.
Or to trapeze for patients suffering from mitral and tricuspid regurgitation.
We have initiated the use of the Pascal precision platform and are currently enrolling class trials and early physician feedback has been positive we remain on track for U S approval of Pascal for patients with.
Short term our late next year.
We advanced our clinical experience with Transcatheter replacement as we continued enrollment with our <unk> 2 pivotal trial for evoke tricuspid replacement. We also continue to treat patients with both our transcatheter mitral replacement therapies.
He's through the and circle the pivotal trial for sapiens M..3 and the my sense study for evoke iOS.
As we continue to build the body of compelling clinical evidence. We are pleased with the recent data from several late breaking presentations across our comprehensive T. M. T T portfolio.
D on it.
Mitral and analysis of Euro PCR of over 2100 commercially treated patients provided further evidence of the efficacy safety and ease of use of the Pascal platform and.
In addition, 2 year results from the class study of Pascal highlighted strong and sustained.
Adoption as well as high survival rates for both the F M R and DMR patients.
And in Tricuspid 30 day outcomes for our Tri sudden study for the evoke tricuspid valve replacement system demonstrated favorable technical feasibility and safety along with significant improvements in tricuspid regurgitation.
Taishan and quality of life for patients.
Similarly outcomes for Pascal tricuspid valve repair resulted in significant TR reduction low complication rates and sustained functional and quality of life improvements at 6 months.
Turning to the financial performance and.
T M T T global sales of $22 million was driven by the continued adoption of our Pascal platform as we activated more centers across Europe. We now expect 2021 T. M. T T sales of $80 million to $100 million up from our previous sales guidance.
Of $80 million.
We continue to estimate the global T M T T opportunity to triple to approximately $3 billion by 2025, and we are pleased with our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease.
In surgical structural heart record second quarter global sales of $237 million was up 42% on an underlying basis versus a year ago period revenue growth was lifted by increase the adoption of our premium resilient technologies around the world and rebounding.
Surgical aortic treatment rates in the U S. We were encouraged by steady improvement in global surgical procedure volumes as we progressed through the quarter.
We experienced strong year over year adoption of Edwards resilient of tissue valves, including continued adoption of the in spirit resilience.
Of the aortic surgical valve the connect resilient aortic tissue valve conduit as well as our new mitral resilience surgical mitral valve, which was launched in Japan in the second quarter we.
We believe the adoption of Brasilia tissue valves will be further bolstered by the 4 year of mitral data from our commence clinical trial.
<unk> presented at the recent meeting of the American Association of thoracic surgery as well as the gorilla growing body of Brasilia clinical evidence, which demonstrates excellent durability of this tissue technology, even in the high pressure mitral position in.
In summary, given the strength of our year to date performance, we are raising our.
Full year of surgical structural heart guidance, we now expect underlying sales growth in the mid teens versus our previous expectation of high single digit growth. We continue to believe the current $1.8 billion surgical structural heart market will grow in the mid single digits through 2026.
In critical care second quarter global sales were $215 million up 27% on an underlying basis versus the year ago period growth was driven by balanced contributions from all product lines led by he misfire sales in the U S. As hospital capital spending continues to show signs.
The recovery.
Demand for products used in high risk surgeries remains strong and demand for the clear sight non invasive finger coffee used in electric procedures accelerated following its recovery to pre COVID-19 levels in the first quarter.
In smart recovery received FDA clearance for the software.
We're algorithm that powers, our hypotension prediction index H P eye on.
He misfire and the acumen IQ cough.
The non invasive acumen IQ cough provides clinicians with an important new tool to reduce hypotension and a broader range of patients, including those that do not require.
On arterial line.
In summary, given the strength of our year to date performance, we're raising our full year of critical care guidance to low double digits versus our previous expectation of high single digit growth. We remain excited about our pipeline of critical care innovations as we continue to shift our focus to smart recovery.
Covered technologies designed to help clinicians make better decisions for their patients and now I'll turn the call over to Scott Hey, Thanks, a lot Mike I am pleased that the momentum we experienced as we exited the first quarter of continued in the second quarter across all of our product lines.
While we're expecting some headwinds.
It's due to the summer vacation schedule and flare ups of Covid in various regions, we're optimistic about favorable business conditions for Edwards.
Total sales grew 49% year over year as patients increasingly we're more confident about pursuing treatment on the second quarter of course, the unusually high growth rate also.
Headwinds depressed sales in last years second quarter due to COVID-19.
Our underlying 2 year compounded growth rate in the second quarter was 11% another indicator the conditions are improving.
The much stronger than expected sales performance lifted by unexpectedly high procedure volume fell through to the bottom line, resulting in.
Reflected earnings per share of <unk> 64.
Based upon our strong start to the year and positive outlook, we are raising our previous sales guidance ranges for 2021.
For total Edwards, we now expect sales of 5.2 to $5.4 billion for Teva 3.4 to $3.6 billion.
For T M T T $80 million to $100 million for surgical structural heart $875 million to $925 million and for critical care $800 million to $850 million.
Now regarding second half margins were intending to resume of higher rate of spending is commercial.
<unk> activities increase, especially as we continue to build our clinical and field teams to support our planned new product introductions in multiple regions. In addition, we expect growth in research and development expenses as our clinical trial activities increase.
The combination of these actions.
Tributes to our more moderated guidance for margins in the second half.
We expect our full year adjusted earnings per share guidance at the high end of our previous range of $2.07 to $2.27.
While public health conditions remain uncertain, we are projecting total sales.
The conferred quarter to grow sequentially to between 1.29 and $1.37 billion, resulting in adjusted earnings per share of 50 to 56 cents.
Now I'll cover additional details of our results.
For the second quarter, our adjusted gross profit margin was 75.9.
And the <unk> compared to 74, 4% in the same period last year, when we experienced lower sales and substantial costs responding to COVID-19.
This increase was also driven by a more profitable product mix, partially offset by a negative impact from foreign exchange.
We continue to expect our 2.
$9, 1 adjusted gross profit margin to be between 76 and 77%.
Selling general and administrative expenses in the second quarter with $374 million or 27, 2% of sales compared to $275 million in the prior year.
This increase was primarily driven.
Given by personnel related costs, including performance based compensation.
Increased commercial activities compared to the Covid impacted prior year and the strengthening of O U S currencies, primarily the euro.
We're planning to see of ramp up and the expenses noted above in the second half as Covid related.
Twins subside to support continued growth we continue to expect full year 2021, SG&A expenses as a percent of sales excluding special items to be 28% to 29%.
Research and development expenses in the quarter grew 24% to $225 million.
Or 16, 4% of sales.
This increase was primarily the result of continued investments in our transcatheter innovations, including increased clinical trial activity.
We are planning to ramp up expenses in the second half as we invest in developing new technologies and generating evidence to expand indications for.
Restricted and T M D T.
For the full year 2021, we continue to expect research and development expenses as a percentage of sales to be in the 17% to 18% range.
During the second quarter, we recorded a $103 million net reduction in the fair value of our contingent consideration liabilities.
<unk>, which benefited earnings per share by <unk> 14.
This gain was excluded from the adjusted earnings per share of <unk> 64 cents that I mentioned earlier.
This reduction reflects accounting adjustments associated with reduced expectations of making future milestone payments for previous acquisition.
Liabilities this accounting impact does not impact of our 2021guidance.
Turning to taxes, our reported tax rate. This quarter was 10, 3%. This rate included a larger than expected 590 basis point benefit from the accounting for stock based compensation.
We continue.
<unk> spoke specced, our full year rate in 2021, excluding special items to be between 11% and 15%, including an estimated benefit of 5 percentage points from stock based compensation accounting.
Foreign exchange rates increased second quarter reported sales growth by 450.
Continue to points or $29 million compared to.
The prior year.
At current rates, we now expect on approximate $70 million positive impact or about 1.5% to full year 2021 sales compared to 2020.
Foreign exchange rates negatively impacted our second quarter gross.
Based on margin by 180 basis points compared to the prior year.
Relative to our April guidance FX rates positively impacted our second quarter EPS by a penny.
Free cash flow for the second quarter was $457 million defined as cash flow from operating activities of 5.
Profit of $26 million less capital spending of $69 million.
Before turning the call back over to Mike I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a strong and flexible balance sheet with approximately $2.6 billion in cash and investments.
500 June 30th.
Average shares outstanding during the second quarter were $630 million down from the prior quarter as we repurchased 1.3 million shares during the second quarter for $112 million and.
In the first half of the year, we repurchased 4.9 million shares at an average price of 85.
In May we obtained board approval to increase our share repurchase authorization and currently have approximately $1.2 billion remaining under the program.
We now expect our average diluted shares outstanding for 2021 to be at the lower end of our 630 to 635.
As our guidance range.
And with that I'll pass it back to Mike.
Hey, Thanks, Scott. So we're pleased with our performance from the first half of 2021 to serve the many patients suffering from structural heart disease, we never stopped investing on our people our innovative technologies and our new growth capacity.
Millions of patients and clinicians increasingly recognize the significant benefits of Transcatheter based technologies supported by the substantial body of compelling evidence we remain optimistic about the long term growth opportunity.
The foundation of leadership combined with the robust product pipeline positions us well.
<unk> for continued success and with that I'll turn the call back over to Mark.
Thank you very much Mike before we open it up for questions Im excited to announce that our 2020.1 Investor Conference will take place on Wednesday December 8th at our headquarters here in Irvine, California. This event will include updates on our latest technologies views on longer term market potential as well.
As our outlook for 2022, please look for more information on our website next month with that we're ready to take questions now Diego in order to allow for broad participation. We ask that you. Please limit the number of questions to 1 plus 1 follow up if you have any additional questions. Please reenter the queue and management will answer as many participants.
As possible during the remainder of the call Diego.
Thank you.
And as a reminder to ask the question at this time press Star 1 on your telephone keypad.
And if you'd like to withdraw your question. Please press star 2 on your telephone keypad.
Our first question comes from Bob Hopkins.
With Bank of America. Please state your question.
Oh, great. Thank you and good afternoon, and congrats on a strong performance across the board.
I just.
I have 2 quick questions on on the on the guidance first is just on the short term and some of the comments you made about this quarter. Just curious you mentioned the backlog.
Which is not something you'd really talked a lot about before was.
Was that of a major factor in the quarter can you quantify that and any thoughts on what that looks like in the Q3 of the back half.
Thanks, Bob and Ah Yeah, we were pleased with the results and they were broad base. Your observation is correct, we really haven't talked about this much.
<unk> passed on.
Most of our day to historically has come from talking to our heart teams are really around the world, but especially in the U S and when we talk to them they do.
They really don't know the difference in their backlogs compare to what they've seen in the past, but we believe based on a number of sources some of the.
Anecdotal anecdotal conversations some of the watch it was going on with other companies like insurers or others in the health care space. The noted much more patient activity and we believe that this flow of patients so patients visiting their primary.
I'm Mary care of physicians patients going back to the general cardiologists, there general cardiologists, referring them on the heart teams all of those things that we think we are potentially delayed book there was a real pick up in the second quarter end and because of the rate of treatment being much larger than anything we've ever seen on our path.
We believe the that's in there it's not based on we don't have heart data Bob to quantify how much of that was but we believe that that was a key part of what happened.
Okay. Thank you for that just curious any of that kind of feeds into my second question, which is also around the guidance for the back half on the on total revenue because I think you call for roughly of.
3 per cent decline sequentially from what you did in Q2, and then Q4 being kind of flat with Q2 and I'm just curious maybe either for Mike or Scott just maybe talk about some of the moving parts of that went into that guidance or do you expect a little bit of of declined sequentially and then Q4 similar to Q2, I might've thought that would've been a little bit higher given the momentum.
But just curious of the moving parts of you're assuming there.
Yeah, I mean, you've got it right. It all I'll invite the Scott to come in on them and add more color to it but you're right. We did exit with momentum and it was strong momentum coming out of Q2.
But at the same time.
Sure.
We're mindful of the fact that we probably got some helping.
2 from some of these patients coming off the sidelines.
Also on.
All of US are all acutely aware of what's going on with the pandemic and the the recent surge is happening and although it hasn't had a dramatic impact on the health care system. So far we think of it can have impact on so that's also baked into our thinking.
King.
Q3, we think theres going to be a pronounced seasonality.
Associated with our.
People both on the health care system of patients themselves are wanting to get on got away on and take a vacation and so all of those went into our thinking and I don't know Scott if there's much to add to that but no. That's a good summary.
The <unk> tariff, we would not have exceeded our Q2 sales expectations by as much as we did you probably would've seen of different sequential trend from Q2 to 3 as we continue to grow and recover through this pandemic, but we're just exceeded Q2. So much that we do think we'll see some of that seasonality that Mike talked about and then.
You don't wake up to a more normalized level of sales when we get into the fourth quarter.
Fair enough. Thank you very much.
Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Yeah.
Hey, guys. Thanks for taking my question and congrats on a on a nice print here.
Going back Mike maybe a big picture question, what went on when I look at the south of the guys here.
The the beat in the quarter came from tab of our I think there was some nervousness around slowdown in Asia Pac Japan.
Japan due to the the Covid outbreak.
How are you know when you think about the switches.
Have those wages normalized and given U S was so strong it offset the weakness you know when I look at the guide at the other segment was raised so I'm curious.
You know when you thought of what the guide was at.
On some.
Some concerns around these outbreaks that what went on at the thought process around type of guidance.
Yeah. Thanks, Vijay you know 1 of the things you have to be a little bit careful of when you look at growth rates.
Use that as a way of measuring Q2 is to be a little bit more reflective on what the climate was like in Q2 of last year. So Japan, just didn't decline as much as the U S and Europe.
And so while the growth rate looks like less of in Japan, and it looks like it was less of a performer actually Japan was doing quite well and grew very nicely.
Early Europe didn't get hit quite as hard in Q2 as the U S debt as the U S really got hit hard So Europe has actually been performing we think of it.
At a pretty high level now having said that you correctly note that hey, you know, Japan sense of near Lockdown in portions of the region, there's portions of.
Europe that are still troublesome, although you know there's encouraging signs in Europe as well I just saw some data of this morning that said vaccination rates in Europe are comparable.
Last 1 of the U S vaccination rates.
And we know of some places where that are under pressure in the U S. So what we've taken all of that into account when we provided our guidance, but when we look backward at Q2, we feel like we saw strength across each of the regions.
Uh huh.
Helpful. Mike and then 1 maybe on.
Hum on on the.
Some of our portion of the structural heart.
Make sure I heard this correctly.
Did you say mid singles at both out of Peru, 2025, you know I think there's been some concerns about cannibalization of I'm curious is that of comment on the entire.
Both being up mid singles or is that most of that's fit for Edwards.
No. So what we were commenting on was the total market and we said that that total market that's $1.8 billion will grow in the mid single digits through 2026, now that total market as well as total what we call surgical.
On a more structural heart. So it's not just valves that as more of them that end up but we're trying to send the signal that we think that's still a growth market and that is with the tap of impacts. So we consider we think Tamara is definitely going to have impact on surgery during that period of time, but it's going to grow.
In.
In spite of that okay.
We've enjoyed some very nice growth for a number of reasons a lot of it built on just the strength of our premium resilient platform I would just add to that on 1 of the things that happened with when there's a greater awareness of structural heart disease and valvular disease is that more patients are just.
Coming into the system and many of those patients who have isolated aortic stenosis are great candidates for cover.
But there are a lot of patients who come into the system, who need surgery and it's 1 of the reasons why we expect that business to continue to grow.
That's helpful perspective, Scott Thank you guys.
Your next question comes from Larry <unk> with Wells Fargo. Please state your question.
Good afternoon, Thanks for taking the question and congrats on the nice quarter.
Mike I'd Love to hear you talk about the trends Youre seeing in your mitral and tricuspid businesses.
Of the $80 million to $100 million guidance for this year.
What percentage of <unk>.
What percent is tricuspid and how significant of clinical sales in the TMT teen number.
So clinical sales are a portion of it but it's it's minor I don't know the exact Larry but I would guess it's in the maybe maybe it's on the 10% range of.
Of overall sales.
The the market itself feels.
Feels like the growth of Transcatheter mitral and tricuspid did pick up in the quarter and so we said it it's still a market that's driven by mitral more than tricuspid.
So I don't know if that's helpful right.
Mitral is very helpful. I mean, I guess I'd love to hear how you're thinking about that.
The business beyond 2021, $80 million to $100 million of pretty big pick.
Pick up from the from what you did in 2020.
How do you think about that.
Business going forward, thanks for taking the questions.
Thanks, Larry.
So they know our when we said $80 million at the beginning of the year that was about of doubling from last year. So now we think it will more than double but I think you know about how we feel about this market. We formed a visit the junior around it and have an awful lot of our really important differentiated innovations going on in the space.
Yeah, Yeah. So we have a we have of high competence level. This is gonna be important.
The road, we're very focused on making sure that we have great outcomes and that's key to US we work on having rigorous pivotal trials, we have differentiated therapies and we're working on the habit great real.
On the outcomes with our high touch model, we've said that we think it's going to be more than $3 billion by 2025. So it gives you.
On a signal as to what we think we're aware of the market is maybe $1 billion in that neighborhood today.
Thanks, Mike.
Our next question comes from.
Real World of Marcus with JP Morgan Chase. Please state your question.
Yeah nice quarter, thanks for taking the question.
Maybe I could start some sort of P&L questions.
Scott.
Gross margin was a touch light in the quarter you know just maybe walk us through how you get back up.
To the 70.677 guidance through the back part of the year what gives you the confidence.
Well it was a touch light, but keep in mind. There are a couple of moving pieces..1 was we had about 180 basis point hit from foreign exchange, primarily due to these hedge contracts, where the downsides and it works on.
The opposite of the benefit that we get with the translation of sales from outside of the U S. But that was more than swamped by 230 basis points from manufacturing efficiencies and lower special Covid expenses than what we had in the second quarter. So you got FX and manufacturing efficiencies at play.
We came in 10 basis points short of the bottom end of our range for the full year gross margin guidance.
So we're probably right now looking at something that is closer to the lower end of the 76 to 77 per cent range, but it's probably too early to get more granular than that Ravi.
Great.
And.
While we're on the P&L I'll I'll use another here the.
The the accounting.
Charge that was the benefit this quarter I don't I didn't hear what it was related to if you don't mind, just what it's letting us know what it's tied to appreciate it. Thanks, a lot of sure sure.
And.
It was accounting adjustments that were associated with some lower expectations of making future milestone payments connected to some past acquisitions that we've done so the accounting associated with those as we evaluate the probabilities and the timing and the assumptions around whether we might make those milestone payments.
So it was in this case, we think there is some.
Lower likelihood of some of those and so we run it through as a non or as of GAAP gain but not something that shows up in our non-GAAP earnings per share.
Okay is it any specific deals you can talk to or is it just the overall portfolio.
Well.
So the 2 primary deals where we have earn outs 1 of his Val Tex, which is the parent company of the cardio band product on the other is harpoon and I won't get into the details beyond that but those of the 2 big deals where we've got exposure to future milestones and what are the expectations for those move up and move down over time, and we run those accounting results.
<unk> through the P&L.
Great I appreciate it thanks for taking the questions.
Our next question comes from Peter Chickering with Deutsche Bank. Please state your question.
Good afternoon, and thanks for taking my questions on the first of all on his question on the growth of new centers versus the established centers into Q. If you look.
Well go into the back half of year or are there any constraints such of salespeople manufacturer of center capacity at the limit the growth.
Yes. Thanks.
We feel like this quarter, we saw a broad growth across all size centers and so I think that that's the most noteworthy maybe even more than we have seen in the past.
Real strength from some of the big centers, we continue to add centers. This quarter I would say it was kind of a normal addition, kind of what we've been adding right along.
We're probably on an 800 plus level in terms of centers right now.
So that's gonna be a probably a diminishing of important but the ones. We're adding an hour are quite small centers.
Don't really have material impact to our results.
Okay and the question for you on margins like we've been talking about investments some of clinical trials of field teams sort of for this year, but it looks as though you're increasing those investments I'm just curious sort of what's changed in the last 90 days to increase those investments.
You talked about.
Clinical trials yeah.
So you know we've got multiple pivotal is underway right now 5 in TMT T. And then we've got other ones in <unk>.
<unk> in surgical and as we continue to enroll patients those clinical trial expenses increase keep in mind, we incur expenses of 2 points 1 at the point of.
The treatment, but then secondly, we follow these patients a lot of times out to 10 years and so we've got this increasing in recurring clinic.
Clinical expense that.
As part of our strategy, we're trying to build a robust body of clinical evidence and it's an important part of how we're intending to grow the top line over time.
Peter all the all the things definitely picked up in Q2 in terms of clinical trial activity. It could go even faster yet in the future and so that's what we anticipate.
Great. Thanks, so much.
Yeah.
Our next question comes from Matt next sick with Credit Suisse. Please state your question.
Hey, great.
Thanks, so much for taking the question so maybe a follow up to Peter's question there on centers.
I noticed the TVT ease some.
Of the information you had up around the meeting.
Included some comments on the number of interventional centers around the world around the country that that had.
<unk> Tavern debt, we're also performing tavern and the reason I ask is that in the past you've talked about this.
Sneaking up on maybe 850 centers in the U S and not really going to go to the 11% to 100 centers as we have for cardiac surgery, but.
Sort of comparing the number of centers that net are doing.
But not have or it seems a little bit like of Nu.
Way of highlighting the Underpenetrated nature of the of the adoption of and I'm. Just wondering if you could speak a little bit about that a bit on.
Reading that right or were you are exactly in that curve and then I had 1 follow up.
Yes, Thanks, Matt I'm, sorry, if we weren't clear on that.
Stan.
We have been I think pretty consistent.
The new NCD was approved a few years ago that we thought this was going to head toward of around 850 centers that continues to be our belief nothing has really changed in that regard and it's probably constrained by the way that the NCD as written we would probably argue that it.
On larger but it is what it is on so that's where it is but what I really wouldn't focus overly on number of centers. For example on the U S. When you think about what the potential is for <unk> because of the real issue is patients coming off the sidelines. There are many many patients with severe a us the for.
For 1 reason or another don't get diagnosed or don't ever make it to of heart team and treatment and that is gonna be of the key through the the really the growth of tap of our overall and we're fortunate to have a great procedure that has terrific results and we're making progress on encouraging patients to come back now it's it is a challenge obviously.
Might've been out with the Covid because of those same patients that are vulnerable to COVID-19 or those that are.
Very similar characteristics of the severe <unk> patients, but it's a real opportunity and you know the other thing that we find as you know theres much conversation about health disparities of this day. These days that's true in.
<unk>.
For the severe aortic stenosis patients there are real health disparities and so as the overall system looks to tackle that we think that's a bit of a tailwind to our efforts.
Excellent and then just on just you mentioned that Youre growing similar a similar pace to the volumes in the in.
The various regions that we're operating in and any any thoughts or contemplation of share easing of share loss you've had some.
Difficult gains in the past year, and a half of a variety of reasons and so.
Anything changing in that on the share of front.
So were you know that's always very difficult to.
Space or at this point in time and that's the 1 that you've got a chance to look back on after everyone's reported and you get a chance to see the TVT registry. It's it's not truly are our key focus you on most of our growth really comes from these patients coming into the system rather than any sort of changes in share.
The matters as we stated we really think that those positions were stable in the quarter.
Great. Thank you Mike.
Our next question comes from Cecilia furlong with Morgan Stanley. Please state your question.
Great Good afternoon, and thanks for taking the questions Mike I wanted to start with <unk>.
The MTGE in Europe, I'm, just really what you were able to do on <unk> in terms of being able to access new sites opened new sites and then as you contemplate the ADR index of the year, but what's factored in from the.
The new site opening versus just the continued penetration in your existing sites.
Yes.
It is a key part.
But of our growth strategies, that's a correct observation.
We have been involved in a lot of physician training, we have a high touch model. So were there and we really help make sure of that when people start up they start up the rate the right way.
I think at this point, we're in double digit countries more than 10 countries.
Part of the us Europe or opening centers.
And on all of those places and so all of a significant increase to our team and of course, a lot of rigor in terms of trying to back that up.
Yeah.
Great. Thank you and just on Japan as well off of.
The recent traction as Youre thinking.
About reimbursement heading into 'twenty, 2 and just the growth drivers you've seen recently, but how youre thinking about really opening new centers in that region going forward in 'twenty, 2 and new centers really being the growth driver.
We look forward over the next few years.
Yes, thanks, Yeah I.
Well I think we talk about it every time that we're speaking to you that there is a really significant under treatment in Japan, maybe on such a large elderly population that their treatment rates should be much higher and there are a number of structural issues that stand on the way of Japan getting that done and we try and become students of that we're making.
Some progress.
Adding new centers is important and valuable 1 of the things that I think may not be clear to most of those we've only had a high surgical risk indication up until now and so we're going to jump to a low surgical risk indication and and once that reimbursement comes in place which happens.
I think this quarter or we expect to happen this quarter that that's when there should be some real reaction.
From clinicians and in terms of treating these patients. So we look forward to adding these new centers and but we're also mindful of just COVID-19 in Japan. So.
Hum.
It's 1 where.
We're very positive about it in the long term, but you know a little uncertain in the short term.
Great. Thank you.
Our next question comes from Travis Steed with Barclays. Please go ahead.
Alright, Thanks for taking the question I guess, 1 longer term question on margins.
<unk>.
You are spending of lots down on R&D and SG&A, but also of a lot of investments in front of me. So I'm. Just curious how you think longer term how you how you balance the spending versus versus margin expansion.
So yes longer term, we do think we're going to continue to get some benefits from scale and we think about margins I guess in all 3 areas.
<unk> gross margin R&D SG&A on the gross margin line, you've seen us expand gross margins and even as we've invested a lot into our physical footprint of production facilities around the world.
We're getting more and more efficient as our volumes increase and so that's kind of continue to to be helpful. I think on the on.
There is Scott, we're going to continue to invest heavily in that may.
Not in the short term be a source for additional leverage but longer term. We do think revenues are going to outpace operating expenses.
<unk> SG&A, where we're getting more benefits of scale are our administrative some of our back office functions can support of bigger business around.
The globe and so we think we've got opportunities to over time incrementally expand the operating margin.
Alright thats helpful on.
On the international business I don't know if you mentioned any update on China, and how that's going on I noticed Medtronic, followed the starting today and tower for for their device.
And China. So curious if there is any update on China and are you looking at other markets to move into as well longer term.
Yeah. So.
For US China was in terms of Th V was a minor contributor to sales in the quarter. It actually did very nicely in critical care and surgical.
<unk> valves, but you know we're still launching there we've got a very deliberate them. If the hot methodical approach that's aimed at having great patient outcomes and so we're going to be looking at this as a as a long term opportunity on an intermediate and the long term opportunity there and we're going to try and take it from that perspective it.
It doesn't help right now that the sum of escape.
And travel to China, and so all of those kinds of things tend to be obstacles, but overall the team that's out there executing.
Great. Thanks for taking the questions.
Our next question comes from Josh Jennings with Cowen. Please go ahead.
Yeah.
Oh, hi, good evening, thanks for taking the questions.
Mike I was hoping to just get a better understanding of your comments around patient backlog in Tampa.
Our checks with with some physician experts.
On our anecdotal, but they're relaying that when the query of their patients most of their patients day, 1 even said it the highlights.
They can't find the patients have saying that they delayed their procedure because of Covid and so is your backlog when you're talking about primary care physician offices is this just the the incidents in 2020 of the patients that just were not diagnosed are now coming back through the channel and there are just more patients with aortic stenosis.
That said I have not been diagnosed yet and kind of getting diagnosed by the primary care physicians of general cardiologist and then moving to the channel is that is that the primary thrust of your backlog comments.
We think so.
The risk of oversimplifying, Yeah, Indeed, we believe the during Covid.
People were at where more fearful of Covid.
Instead of entering the system with Covid then they were concerned about there a S. In many cases you know we even had some clinicians tell us. The you know when patients are home and they're not very active they may not even demonstrates some of the symptoms. They might have if they were more active but we do hear that.
Theyre coming back now, it's Ben again, anecdotal so I'm, a little hesitant to say that we know exactly where that's coming from Josh. So for example, we had 1 position of the leading center of the tells he thinks that the patients that are coming back now are sicker than they were before and the that will show up on the numbers, but again totally anecdotal 1.
But we have heard enough of this that we believe that there are patients that are coming back into the system and we saw the kind of a surge in the second quarter.
Thanks for that and maybe just 1 quick follow up on a similar topic.
The stronger adoption of handheld ultrasound technology is more technologies.
Coming into play are there any enabling technologies that will enhance.
The accelerate the diagnosis of these undiagnosed Erickson notices of patients and the primary care office or the general Cardiologists. Obviously it gives me some optimism about the deeper penetration of tab of as we move forward here. Thanks for thanks for taking the questions.
Yeah. Thank.
So we think there's a host of technologies that are still pretty early and we've been backers of some of these that could really help with the diagnosis of valvular disease.
There's it comes from many directions, and we think as the world Digitizes and Theres more handheld devices and there is more ability.
U E to bounce signals off the cloud, whether it's E K Gs or stuff the scopes of of our and handheld devices of all sort of especially those that can listen to heart sounds.
This is gonna be enhance I'll I'll avoid doing on commercial for any particular companies, but there are numbers that are pursuing this this exam.
<unk> again, we think it's a very helpful sort of mega trend for us.
Great. Thanks, a lot share.
Our next question comes from Anthony Petrone with Jefferies. Please go ahead.
Great Congrats on the corner I hope everyone's well 2 quick ones 1.1 would be just.
Just on the competitive dynamics in Europe in particular, and just maybe a quick update on the pricing dynamics. There just given that the environment is a little bit more richer with competitors in that region of the world and then the second would be on.
On the $7 billion global tab of our outlook.
That figure has not.
Factored in asymptomatic. So just wondering taking the temperature here on asymptomatic latest thoughts on on size of that opportunity and how.
That that market opportunity can be untapped over time. Thanks.
Yeah, Thanks, well I'm sure of that.
Everybody out there and he gets the chance to track what's going on with the various the companies that are engaged in Havre.
You know in general in Europe, Theres, a pretty full complement of competitors are.
It seems to us that the 2 leading companies probably account to close to 85% of the volume in Europe. So it gives you a.
A bit of a sense I don't know if that's exactly helpful for what Youre looking for.
Was there was there more let's see all of the $7 billion opportunity.
You're right. It has very little asymptomatic and it we have a we have a big early tab of trial, that's going on right now and you also heard that we initiated.
<unk> of trial of patients with moderate E S.
We're not in that number so I tried to cover it and our general remarks the.
The $7 billion in 2025, we don't see of sort of the top of some curve. This has the potential to grow significantly more particularly if.
If we can demonstrate the value of <unk> for these patients of today you know of have are not really indicated and.
And we think these trials have the potential to do that.
Thanks again.
Yeah.
Our next question comes from Joanne Wuensch with Citi. Please state your question.
Thank you for taking the question and the nice quarter.
2 quick questions. If I'm Pascal is approved in United States by the end of next year does that mean data at ACC.
Yeah, you know I, we don't have great visibility as to.
We're going to see data.
Certainly we're going to see it sometime next year, but I'm not sure what what media. We're gonna said, it's too early for us to be able to judge it but you know what we think from a timing perspective is that we should have that approval by the end of next year, which means we're probably launching and you could see it in the numbers in 'twenty 3.
Hi.
And I think that the team.
And outside the United States is inching up nicely.
Is there anything that you're learning from that process or from that launch that will make it easier to bring it into United States and thank you.
Yeah. Thanks, Joanne So obviously a week.
I went on a lot from those experiences and as we mentioned we are of high touch model. So we're in every case, so we get the chance to learn about that on a regular basis. You know we're highly focused not necessarily on just trying to drive sales, but to make sure that we get great results and we've been really pleased so far that we've had differentiate it.
Outcomes and that's that stays the focus because we're in this for the long run we know that these patients today could be served better and we're striving to do exactly that.
Thank you.
Our next question comes from Daniela and healthy with SPD.
The Leerink. Please state your question.
Hi, good afternoon, everyone. Thanks, so much for taking the question.
And congrats on the quarter and just a follow up on to Josh Josh is the question on the backlog I guess, Mike I'm, just curious you know.
Previously you had talked about not being of backlog type.
Type of market given them the.
Mortality rate for these patients if they don't get treated so I guess I'm curious about the.
The increase level of confidence that there is the backlog first of all the testing of all is it really about low risk patients and are you do you have a sense of whether you are treating of hire.
The percentage of low risk patients right now any color you can give on the patient mix that gives you conviction that the this is a backlog work down versus just strong underlying volume.
Sure and again, John we're trying to share with you our best thinking on what we believe.
We believe that this occurred upstream part of what we.
It was driving our comments from the past and you're exactly right. We've said Hey, you know a S patients don't store very well and we think that's true, but remember we said there were 10000 patients treated in a I mean 20000 patients treated in Q2 and 30000 of this Q2, so big difference and so it's.
It's that as though all of those 10000 patients all come it doesn't take very many of the move numbers like they moved in Q2. So we believe that its patients across all risk levels you know even.
Sometimes.
I don't understand the low risk patients are quite old in many cases.
And so.
It's not it's not just the simply I eh the newer indication. It's broadly that these patients that were elderly and had risk of COVID-19. We're hesitant to enter the system. We believe that they were more likely when it signs of optimism really reach their peak in the second quarter.
Out of the system and be treated in the we got some lift out of that.
We don't have perfect visibility on that so I can't be more quantitative.
Thanks.
Yep.
Our next question comes from Chris Pasquale Guggenheim. Please state your question.
Thanks.
2 related the clinical trials since there's such a big part of the pipeline story today first just to piggyback on Julians question has class 2 D. A complete enrollment yet.
Because it would seem like that would have to happen soon to make a spring meeting.
Yeah. Thanks, you know what we don't.
To re share of the details of exactly where we are on that but we do feel like we have a fair amount of visibility into the pipeline. We've been progressing really well feel like we're on track to have our enrollment in place and to be able to make our submissions. So that we get out of it at the end of year next.
Don't shrivel.
Okay.
And then you touched on this a little bit earlier, but theres a lot of overlap between the patients you guys are treating of many of these studies and those that were most impacted by Covid do you of any concern about COVID-19 introducing noise into the studies that could complicate interpretation of the data down the road.
Just curious how youre thinking about that if you're doing anything to try and head that off.
Yeah, Chris that sort of stood observation you. Yes, we are concerned about that especially those studies were re hospitalization or hospitalization is measured as an indicator in both of the control group on the test group both of those things.
Things can definitely got affected by during Ah Ah moment like a COVID-19 outbreak. So it is of concern are it's very much on F. The as Ray the radar screen and I'm sure all companies to do trials that have both sort of end points.
R. P is our [laughter] R. P eyes are all about.
And the then the good news is between our principal investigators and the F. D. A people are cognizant of it and are working together to try and deal with those of variability.
Thanks.
Okay.
Thank you. Our next question comes from Matt Taylor with UBS. Please state your question.
And.
Hi, Thank you for taking the questions and congrats on the good quarter I did just want to see if I could get more specificity from you on the regions that you're operating in that aren't doing so well you mentioned, there's some in Europe and some concerns in Japan and APAC I just want to think about how.
We should be them, improving or getting worse in Q3 versus Q2 could you give us any insight into that.
Yeah, I mean, what what happens as.
You know to get really discreet and go country by country. It might be misleading. Because then we would get into you know countries that are pretty small.
Mall that might not make a difference of what we we tend to look at it in terms of the the U S. In total Europe in total of Japan as as a region of the than the rest of the world. When we when we look at each of those discretely, even though each 1 has the soft spots. So for example, you know very well where the soft.
Spots are in the U S and the places that are vulnerable to low growth, but the U S. In total looks quite positive. The same thing in Europe are there are there countries. Some of the Nordic countries. We can I could go on to a greater level of specifics that are struggling more but overall Europe is doing pretty well they performed at.
And then the second quarter, Japan and of locked down, but then at the same time the have the approval for low risk and we you know we do have optimism about the future. So each of these as positive but even the rest of the world is put up very nice growth. So we don't have a you know we don't have a hotspot that probably affects of major region.
The highlight of those are gonna be smaller and in their nature.
Makes sense Matt.
Yeah, no that's good color. Thanks, so much.
Thank you.
That's the end of today's question and answer session I'll now turn it back to management for closing remarks.
Okay, well thanks, all for your continued interest in Edwards.
Scott and Mark and I are walk of any additional questions by telephone.
Thank you. This concludes today's conference all parties may disconnect have a great day.