Q4 2021 Edwards Lifesciences Corp Earnings Call
Greetings and welcome to the Edwards Lifesciences fourth quarter 2021 results conference 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 Marc will treating Vice President Investor Relations and Treasurer. Thank you you may begin.
Thanks, Diego and thank you all for joining US. This afternoon with me on today's call are Mike <unk>, Chairman and Chief Executive Officer, and Scott Holmes, Our Chief Financial Officer.
Just after the close of regular trading Edwards released fourth quarter 2021 financial results. During today's call management will discuss those results included in the press release and accompanying 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 reimbursement competitive matters and foreign currency fluctuations. These.
We speak only as of the date on which they were made and Edwards does not undertake any obligation to update these statements. After today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially information concerning factors that could cause these differences and important safety information may be found in the press release, our 2020 annual.
Our report on Form 10-K , and Edwards' other SEC filings all of which are available on the company's website at Edwards dotcom.
Finally, a quick reminder, that when using the terms 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 Michelle him for his comments Mike.
Thank you Mark.
We're proud of our performance in 2021, although of hospitals continued to be impacted by Covid. It was a year of significant milestones in investment for Edwards and our teams were relentless.
In Tampa, we made important strides in executing our long term strategy in particular, we invested in increasing awareness pursued further therapy expansion and advance new technologies.
We completed enrollment of the early <unk> trial, an important pilot pivotal study studying the treatment of severe aortic stenosis patients before their symptoms develop separately, we initiated enrollment in our progress trial for moderate a S patients Adam we received FDA approval for.
For our alliance pivotal trial to start our next generation tablet technology SAPIEN X four.
N T M T T. We achieved a significant 2021 milestones as we continued to make meaningful progress on advancing our three key value drivers our portfolio pioneering therapies for patients positive pivotal trial results to support approvals in adoption and favorable real world clinical.
Outcomes.
We're pleased to have treated over 3000 patients in 2021 with our differentiated portfolio of T. M. T T therapies, gaining valuable learnings through both our clinical and commercial experiences.
Each of our platforms demonstrated promising outcomes and clinical performance I'm also pleased to announce that we completed enrollment of our clasp <unk> pivotal trial in 2021, and an important milestone that keeps us on track for U S approval late this year.
In surgical structural heart, we extended our leadership position through the adoption of our premium technologies. We also implemented valuable additions to our smart monitoring advancements in critical care.
Most importantly in 2021, even more patients benefited from Edwards life saving technologies than ever before.
I'm also proud to say that throughout the year, our employees remain dedicated to keeping our commitments to patients and to one another despite the ongoing pandemic the fuels global challenges our employees found innovative ways to support hospital procedures and to ensure our ability to supply our life saving therapy.
<unk> was not impacted and through their efforts, we were able to get our technologies into the hands of our trusted partners around the world. So they can serve their patients.
Now I'd like to cover several 2021 financial highlights before I get into the quarterly details.
In 2021, we were pleased to achieve all of our key financial expectations underlying sales increased 18% to $5.2 billion driven by balanced organic sales growth in each region, we achieved 19% growth in adjusted earnings per share while also increase.
<unk> R&D, 19%.
The significant increase in R&D and infrastructure investments. This year helped strengthen our long term outlook and as you heard at our Investor Conference last month, we are as convinced as ever about the tremendous opportunity we have to enhance patients' lives and bring significant value to the health care system.
Turning to our financial results fourth quarter sales of $1.3 billion increased 13% on a constant currency basis versus the year ago period growth was driven by our portfolio of innovative technologies, although at the lower end of our October expectations due to the pronounced.
Picked up Omicron on hospital resources in December , especially in the U S.
Full year 2021 global <unk> sales of $3.4 billion increased 18% on an underlying basis versus the prior year.
Despite intermittent challenges associated with the pandemic throughout the year sales were in line with our original guidance of 3.2 of the $3 6 billion and were driven by increased awareness of the benefits of tap a therapy with our SAPIEN platform.
In the fourth quarter, our global tablet sales were $872 million, an increase of 13% on an underlying basis with impressive strength outside the U S. We estimated global tab or procedure growth was comparable with our growth and globally average selling prices were stable as.
We maintained our disciplined pricing strategy.
In the U S. Our tablet sales grew 10% year over year in the fourth quarter, and we estimate that our share of procedures was stable.
As previously mentioned the Omicron Varian had a noticeable impact on hospital resources in December as cases were postponed or limited in a number of hospitals.
Growth in the U S was highest in small to mid volume centers, which are helping provide access to a broader population of aortic stenosis patients.
Outside the U S. In the fourth quarter, our sales grew approximately 20% year over year on an underlying basis and we estimate total tab of procedure growth was comparable.
We continue to be encouraged by the strong international adoption of tab are broadly in all regions.
In Europe Edwards' growth was in the mid teens, and we estimate that our competitive position was stable.
Growth was broad based across the region.
It's worth noting that our recent cost effectiveness study demonstrated that tapper with SAPIEN three was economically dominant when compared to surgical aortic valve replacement and treating French patients with severe symptomatic aortic stenosis, who are at low surgical mortality, who are at low risk of surgical mortality.
<unk>.
We're also encouraged by the recently published guidelines from the European Association of Cardio thoracic surgery, which now definitively recommend havre for patients over 75, we believe both of these developments represents an important long term opportunity to bring tabret therapy to even more patients in.
Meat.
Sales growth in Japan was also strong where therapy adoption is still relatively low.
Several important milestones were achieved in Q4 for the first time the number of tab of procedures performed in Japan was comparable with the surgical aortic valve replacements. Furthermore, and each prefecture in Japan. There is now at least one hospital offerings sapiens.
Following the recent reimbursement approval for the treatment of patients at low surgical risk we remain focused on expanding the availability of tap a therapy throughout the country.
Longer term, we see excellent opportunities for continued O U S growth as we believe global adoption of <unk> therapy remains quite low.
In addition to our geographic expansion of our tavern therapies, we remain focus on indication expansion in Q4, we completed enrollment of our early tavern pivotal trial, which is focused on the treatment of asymptomatic patients.
Separately, we initiated enrollment in progress and important pivotal trial for moderate aortic stenosis to determine the optimal time to treat patients who have this progressive disease.
We believe that some patients may benefit from earlier treatment before they have symptoms or before their E. S becomes severe rather than risking irreversible damage to their heart as the disease progresses.
We also took steps to advance our innovative product portfolio in Q4, we received FDA approval for our alliance pivotal trial to study our next generation tablet device SAPIEN X four.
Additionally, in Q4, we received FDA approval to use SAPIEN three with our altera adaptive preset for congenital heart congenital heart patients. This should result in a quality of life improvement and a reduction in the number of procedures that these younger patients will require over their lifetime.
In summary, despite a slower than expected start to the year. We continue to anticipate 2022 underlying tablet sales growth of 12% to 15% consistent with the range. We shared at our December Investor Conference.
Our outlook assumes COVID-19 related challenges early in 2022, turning to more normalized growth environment as headwinds from Amacrinal subside and hospital resource constraints stabilize.
We remain confident in this large global opportunity will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double digit range.
Turning to T. M T T as I mentioned in the fourth quarter, we completed enrollment of our class two the pivotal trial and we remain on track to present data in the second half of 2022 .
This important milestone keeps us on track for U S approval late this year of Pascal for patients with the generative mitral regurgitation.
We also continue to expect European approval of our next generation Pascal precision system later this year.
At the PCR London valves conference in Q4, Pascal 30 day outcomes from our my class post market approval study of more than 250 patients in Europe were presented the data highlight it's safe and effective M. A reduction in a post market setting.
We also progressed on the enrollment of our class two F pivotal trial for patients with functional mitral disease.
In mitral replacement, we continue to expand our experience with both our Transcatheter mitral replacement therapies through the and circle pivotal trial for sapiens M. Three and the my sense study for evoke iOS.
Early experience with these sub French transfer Emerald therapies increase our competence in both platforms.
Turning to Transcatheter tricuspid therapies.
Results from the <unk> study were presented at the annual TCT Conference in November and demonstrated that early patient outcomes with the evoke tricuspid were favorable and sustained at six months. We're encouraged by the procedural success rates and also the significant TR reduction and sustained.
<unk> and quality of life measures experienced by these patients.
We continue to make meaningful progress in enrolling our two tricuspid pivotal trials. There tried the tri send two pivotal trial for the evoke system and the class two T. Our pivotal trial with Pascal in patients with symptomatic severe tricuspid regurgitation.
We.
Eight a late 2022 approval of the evoke tricuspid in Europe and remain committed to providing solutions for these patients that have very poor prognosis and few treatment options today.
Turning to the sales performance of T. M. T T fourth quarter revenue of $25 million grew sequentially from the third quarter as we saw increased adoption of the Pascal system. Despite the negative COVID-19 impact in December .
Full year 2021 global sales more than doubled to $86 million as we continue to expand the availability of Pascal to more centers in Europe . We were pleased with the excellent outcomes for patients supported by our high touch model.
We look forward to continuing our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease in 2022 with the milestones that we outlined in our recent Investor Conference.
Despite the COVID-19 impacts so far this year, we continue to expect T. M. T T sales of $140 million to $170 million for 2022.
We estimate the global T M T T opportunity will grow to approximately $5 billion by 2028, and we remain committed to bringing our groundbreaking portfolio of therapies to patients with these life threatening diseases.
We are confident our portfolio strategy positions us well for leadership.
In surgical structural heart full year global sales were $889 million up 15% on an underlying basis versus the prior year.
Fourth quarter 2021 global sales of $221 million increased 9% on an underlying basis over the prior year.
We saw that hospital staffing shortages continued to worsen throughout the quarter, especially in the U S. Lifesaving surgical therapies continued to be prioritized over elective procedures.
We're excited about the continued global adoption of in spirits resilient aortic surgical valve the connect resilient aortic tissue valve conduit and our mitral resilient valve.
We remain encouraged by the growing evidence that supports Edwards resilient tissue valves, including two studies being presented at the society of thoracic Surgeons conference. This weekend there.
Commence study demonstrates excellent hemodynamics of this tissue technology across all aortic valve sizes at five years, while and while our European economic values study shows a cost reduction with the use of in spirits versus mechanical valves.
In summary, we continue to expect that our full year 2022 underlying sales growth will be in the mid single digit range for surgical structural heart driven by adoption of our premium technologies and procedure growth.
Even as <unk> adoption expands we are excited about our ability to provide innovative surgical treatment options for patients extend our global leadership and be the partner of choice for cardiac surgeons.
Turning to critical care full year global sales of $835 million increased 14% on an underlying basis versus the prior year 'twenty 'twenty. One growth was driven by balanced contributions from all product lines led by haemus spare sales as capital spending resumed our true.
Waived disposable pressure monitoring devices used in the ICU also remained in high demand due to the elevated COVID-19 hospitalizations in both the U S and Europe .
Fourth quarter critical care sales of $212 million increased 8% on an underlying basis driven by strong demand for haemus fear.
For our broad portfolio.
Portfolio of Smart recovery sensors also remained robust in the fourth quarter, including Claire site, our noninvasive finger Cup, which achieved sustained performance at or above pre COVID-19 levels as discussed at our recent Investor Conference. The integration of a full range of technologies creates a unique offering of enhanced.
Recovery tools and predictive analytics capabilities to further strengthen our leadership in hemodynamic monitoring.
In summary, we continue to expect mid single digit underlying sales growth for 2022, and we remain excited about our pipeline of innovative critical care products.
And now I'll turn the call over to Scott.
Yeah. Thanks, a lot Mike today, I'll provide a wrap up of 2021 including detailed results from the fourth quarter as well as provide an update on guidance for the first quarter and full year of this year.
Sales in the fourth quarter increased 12, 6% on an underlying basis adjusted earnings per share was 51 cents and GAAP earnings per share was 53 cents.
Our fourth quarter sales were negatively impacted by the wave of Covid that began late in the quarter, especially in the U S earning.
Earnings per share in the quarter was below our expectations as it was impacted by a weaker than expected sales.
And we accelerated certain spending into the fourth quarter of 2021 that we had planned to incur during 2022, including preparation for T. M T T product launches.
For the full year 2021, we were pleased with our performance as sales increased 18% on an underlying basis to $5.2 billion and adjusted earnings per share grew 19% to $2.22.
I'll now cover the details of our results and then discuss guidance for 2022.
For the fourth quarter, our adjusted gross profit margin was 76, 8% compared to 75, 3% in the same period last year.
This increase was primarily driven by a favorable impact from foreign exchange.
We continue to expect our full year 2022, adjusted gross profit margin to be between 78 and 79%.
This year, our rate should be lifted by a favorable impact from foreign exchange and an improved product mix, partially offset by investments in our manufacturing capacity.
Selling general and administrative expenses in the fourth quarter were $424 million or 31, 9% of sales compared to $339 million in the prior year.
This increase was driven by the resumption of medical Congresses, and commercial activities compared to the Covid impacted prior year.
As well as the addition of personnel and preparation for new product launches.
We continue to expect full year 2022, SG&A as a percent of sales excluding special items to be between 28 and 30%.
Research and development expenses in the quarter grew 19% to $233 million or 17.5% of sales.
This increase was primarily the result of continued investments in our Transcatheter innovations, including increased T. M T T clinical trial activity.
For the full year 2022, we continue to expect R&D as a percentage of sales to be in the 17% to 18% range as we invest in developing new technologies and generating evidence to support caviar and T. M. T T growth.
During the fourth quarter, we recorded an $18 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by three cents.
This gain was excluded from the adjusted earnings per share of 51 cents I mentioned earlier.
This reduction reflects an accounting adjustment associated with reduced expectations of making a future milestone payment for a previous acquisition.
Turning to taxes, our reported tax rate this quarter was 10, 9% or 12.7%, excluding the impact of special items.
This rate included an approximate three percentage point benefit from the accounting for stock based compensation, our full year 2021 tax rate excluding special items was 12, 6%.
We continue to expect our full year rate in 2022 to be between 11, and 15%, which includes an estimated benefit of three percentage points from stock based compensation accounting.
Foreign exchange rates decreased fourth quarter reported sales by approximately 1% or $10 million compared to the prior year.
At current rates, we now expect an approximate $100 million negative impact or about 2% to full year 2022 sales as compared to 2021.
Foreign exchange rates positively impacted our fourth quarter gross profit margin by 140 basis points compared to the prior year.
Free cash flow for the fourth quarter was $284 million defined as cash flow from operating activities of $374 million less capital spending of $90 million full.
Full year 2021 free cash flow was $1.4 billion up from $734 million in 2020.
We continue to expect full year 2022 free cash flow to be between 1.2 and $1.5 billion.
In 2022.
We expect our cash flow will be reduced by approximately $200 million due to a change in tax regulations involving the timing of the deductions for research and development expenses.
Turning to the balance sheet, we have a strong balance sheet with approximately $1.5 billion in cash cash equivalents and short term investments at the end of the year.
Consistent with our practice of Opportunistically repurchasing shares we purchased approximately $100 million during the fourth quarter.
We still have remaining share repurchase authorization of $1.1 billion.
Average shares outstanding during the fourth quarter were 632 million relatively consistent with the prior quarter we continue.
To expect average diluted shares outstanding for 2022 to be between 630 and $635 million.
Before turning the call back over to Mike I'll finish with financial guidance for 2022, despite a slow start to the year associated with Omicron impact on hospital resources, we are planning for conditions to gradually improve and therefore are maintaining all of our previous sales guidance ranges for 2022.
For total Edwards, we continue to expect sales to grow at a low double digit rate to $5 5 billion to $6 billion.
For <unk>, we expect sales of $3.7 billion to $4 billion and for TMT T. We expect sales of $140 million to $170 million.
We expect surgical structural heart sales of $870 million to $950 million and critical care sales of $820 million to $900 million.
For full year 2022, we continue to expect adjusted earnings per share of $2.50 to $2 65.
For the first quarter of 2022, we project total sales to be between one point to seven and $1.35 billion and adjusted earnings per share of 54 to 62 sets and with that I'll pass it back to Mike.
Yeah.
Thanks Scott.
So in conclusion, we're proud of the significant progress we made in 2021, advancing new transformational therapies and delivering strong financial performance. We expect continued growth and progress in 'twenty 'twenty. Two we are enthusiastic about the continued expansion of catheter based therapies for the many structural heart patients.
It's still in need which positions us well for long term success.
As the global population ages and cardiovascular disease remains the number one largest health burden, we believe the opportunity to serve our patients will nearly double between now and 2028, we're confident that our patient focused innovation strategy can transform care and bring value to patients and.
The health care system.
And with that I'll turn it back over to Mark. Thanks.
Thanks, a lot Mike with that we're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow up to allow for broad participation. 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.
And at this time, we will be conducting our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
You May press the Star key followed by the number two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
My first question comes from Robbie Marcus with Jpmorgan. Please state your question.
Oh, great. Thanks for taking the questions.
Maybe to start first a little more color on fourth quarter and first quarter assumptions.
U S. Teva came in a little lighter than expected I don't think it's a huge surprise given all the commentary and trends we're hearing.
With omicron late in the quarter, but maybe just walk us through what you saw throughout fourth quarter, what youre seeing in first quarter and.
What youre assuming.
For the balance of first quarter.
Yeah. Thanks, Robbie so yeah fourth quarter started very nicely, we saw a nice momentum in October and November and we really saw very strong impact.
In December so it was.
Primarily focused in the U S and it was centered around really hospital capacity are they they really they reached their limits in many cases and started deferring procedures, we've seen that continue to.
To lead to a slow start in 2022 so.
At this point I would say sales are below what we would have typically expected for a start probably more in line with the kind of thing that we saw towards the end of December but having said that our assumptions are that we're gonna see more normalized growth as the hospital resource constraints stabilize and so.
I'm a crime, we think comes down pretty hard we think that our full year sales guidance is still in place and our best estimate.
Okay and then.
Maybe I'll do a follow up question to that as we think about the balance of the year.
How should we think about the cadence throughout first quarter came in as you mentioned under pressure a bit here lower than where we were thinking maybe just walk us through how we should think about as a framework for the rest of the year and what you know what what are the assumptions underlying that I appreciate it. Thanks.
Yeah. Thanks, Robbie you know, it's a we don't have great visibility to.
Exactly what backlogs look like or what the patient flow might be so at this point, we assume that many of the patients that are having procedures postponed or deferred are going to come back it's not clear to us what month or what quarter, we're going to see it in our assumptions Robbie is that by the end of the year.
<unk> that we would see all the COVID-19 related delays sort of a return to the system.
Okay, great. Thanks, a lot.
Yeah.
Thank you.
Our next question comes from Larry <unk> with Wells Fargo. Please state your question.
Good afternoon, and thanks for taking the question just a follow up Mike on the previous question. In Q4, you know what why you know it was a tale of two geographies right U O U S was strong U S was with soft why do you think the tavern business was more impacted in the U S and O U S and I had one follow up.
Yeah. Thanks for that Larry Yeah. There there are I think actually it was clearer than you think omicron hit the U S pretty hard and it hit it in large population centers, we saw it across the east coast. We saw it in the Midwest you know all the places that it was seen and so we felt a pretty profound profound impact in Europe . It was not.
The case, so although the U K experienced normal crowd in most of Continental Europe , just didn't see it in Q4 and so it was a very different picture I think that was the primary reason the same to the same thing.
In the rest of the globe I would argue right.
That's helpful and Mike just looking ahead, you completed the class II trial.
Which is degenerative M. R. Obviously, how do you think physicians.
We will use the product when it's approved do you think people will you know stick to the label do you think people will use it off label for F. M. R or do you think you know how do you think people will use it once its approved for DMR. Thanks for taking the question.
Yeah. Yeah. Thanks, Thanks, very much you know you know how we deploy these technologies, we're very hands on with them, we use a high touch model and really try and guide clinicians to do what's right. So we expect them clearly to be on label. That's the that's the way that we're going to conduct our business, we're gonna roll out too.
People that have experience that we think are very serious about treating mitral disease and so we think it's going to be one that stays in balance.
Alright, thank you.
Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hi, guys. Thanks for taking the question Mike.
Mike maybe on that one and.
Guidance range, I think or perhaps it's more for Scott question.
I think in the past you guys when you've given the guidance you said look it's prudent at the midpoint of the range. Given Q1 is about 50 million below street numbers, perhaps should we be now thinking about bottom half of that range out but that would be more appropriate.
Well, yeah Vijay it's Scott. Thanks for the question you know, it's a little early to talk about where the full year is going to come in again, just because of the uncertainty of a micron and how quickly it's going to fall off you know certainly we feel like.
The early prospects are different than we thought back last month at our Investor Conference. So yeah, we'd probably model that a little bit lower in the range, but keep in mind, because the fourth quarter. It came in a little bit lower that brings us up a little bit in the range. So you know its still for modeling purposes. The middle of the range is probably a good place to settle yeah, I'll just add to that I mean, if you want.
Think about somebody just watch the impact of the pandemic on the health care system and out of hospitals in particular, so if that goes better than probably has a better chance that our patients flow through faster than if it's a greater burden. It would have the opposite impact. So at this point, we still think theres balanced risk in there, but a lot of it's going to depend on weather.
Things transpire the way that we anticipate.
Yeah. That's helpful. Mike and then maybe one follow up I think.
You called out Europe as a mid teens.
Japan up strong double digits I'm curious given the low risk approval or I guess, the receipt of thought being burst me in Japan.
Were there any stocking orders that benefited Q4 or perhaps in this real underlying procedures in implications do you finish it continues to be strong for the balance of the year.
Yeah. Thanks P. J so no clearly what we felt like we saw O U S. It was not a result of any kind of stocking. These were real procedures. They've got done and then that that holds true up Europe , Japan or elsewhere outside the U. S was there are there is there more to the question then that Vijay.
No I was just curious so it implies basically a Japan now so it should be strong for the balance of the year on the surface new.
Yes.
Well, yeah, I mean, it's it remains to be seen exactly how this variant is going to affect the rest of the world. There's one argument that say hey, it's a little delayed and so it will come a little bit later, but then again it might not have the same impact because of a lot of reasons, whether it's seasonality or vaccination rates or their own safety protocols. So.
A little tough to predict how it's going to roll out, but overall, we've modeled probably a little more growth O U S than U S for 2022.
Understood. Thank you guys.
Our next question comes from Joanne Wuensch with Citibank. Please state your question.
Hi, good afternoon or good evening.
For taking the question I'm interested in the comment that you made if I heard it correctly that you accelerated spending in the fourth quarter for Cam T. T that you would expect in 2022, so that Youre planning for a U S launch near the end of the year would've been pretty far in advance so should I assume that's mostly out.
The United States, and what was the motivation to accelerate that spending into the fourth quarter.
Yeah. Thanks, Joanne for the question.
So there are a couple of things going on and we are continuing to invest in our field force as we continue to expand to new sites in Europe , and so that's a piece of the spending that we're doing we're also starting to build resources in the state. So it takes awhile to get ready for a product launch and we're taking very seriously getting there.
Right team in place, making sure that our training is robust and we are ready to go when the time comes there were some other things that happened in terms of.
Just being ready for you now.
We're doing things like grants market research some of the.
Patient awareness initiatives and starting to fund those in the fourth quarter was also an important part of teeing up T MTT and cover for our continued growth in 2022 and beyond.
Excellent and then my follow up question has to do with the backlog I'm Christina Clarke I'm not sure that but is there any reason that we shouldn't see patients coming back maybe in the second quarter. The way we saw last year.
Yes, Thanks Joanne.
Yeah, we remember that very well.
As well the you know we saw some pretty incredible surge that we really didn't expect in the second quarter.
But I'll I'll remind you 2021 was a different picture than right now it wasn't omicron it was a different variant.
Hospitals, we're probably in a little different position they weren't dealing with the constraints associated with labor and I think there's you know there's widespread nursing shortages. We we think that all gets worked out over time, we think hospitals have a lot of sophistication there gonna triage their systems and their staffing.
Measures and ultimately find ways to treat the patients that are most in need. So we think that all gets worked out but whether it pops in Q2, where were more hesitant than that where we really think it's going to be more of a gradual recovery.
Excellent. Thank you.
Thank you.
Our next question comes from Matt Mexico with Credit Suisse. Please state your question.
Hey, good evening, thanks for taking the questions.
And youre getting a lot of questions on capacity and some of the issues that have constrained the market but.
And on that topic.
Can you talk maybe just a little bit about.
Some of the things you mentioned, Mike about the impact of of labor constraints on different types of centers and maybe you know coming at the guidance question from another direction you know what what gives you the confidence that these things will get better like that that you're not going to be sort of constrained.
Bye bye, a nursing shortage and staff et cetera.
Going through the year and and one follow up.
Yeah, well, thanks, Matt and you know there isn't perfect certainty here, but then we got a lot of anecdotal information and where we're obviously very close to our customers. It's the situation now and as we've gone through it in December and January here feels very different than the early stages of the pandemic in the early stages of the pandemic not only.
The hospital is sort of a shutdown and close their doors, but there were patients that were very concerned that stayed out of the system and I'll remind you that the patients that Edward serves are exactly the patients that are most vulnerable to COVID-19 and so are we sort of had the double whammy. If you will in 2012.
What we feel now is there's it's less about the patient behavior of more about hospitals ability to be able to do the cases. So do we hear anecdotal notes and again I have the I don't have perfect information for you wrap up things.
Things like [noise] hospitals, saying you know, what we're just going to limit to a certain number of procedures per week or we're going to postpone procedures till next month or we're going to involve our chief medical officer, and he's going to look at all the procedures that need to be done and decide and triage them and decide which ones they'll do now and which ones. They do later so you have a verb.
Alrighty of actions that hospitals are taken but we think that the patients are there and so that's why we feel pretty comfortable staying with our current guidance. We don't have perfect visibility of course, Matt, but that's behind our thinking.
Sure and then just on that same topic of resources.
One of the things that you've talked about over the past several years as this shift to more efficient.
Procedures late sedation and I'm wondering if you're seeing the resource environment drive adoption, there or is that one of the leavers that that folks are pulling a little harder to.
To get more patients through the system with with with fewer resources.
Yeah, I I think I I think hospitals think about that deeply man and it is a is a big plus if they believe that the patients don't need to consume an ICU bed and so forth or even impact hospital occupancy. So I think that all goes into the math of those folks that are managing.
But even more important for them as they're trying to serve patients properly, but I'm trying to think about which patients are in greater risk and how to move them through the system. So it's it's complex and it's highly different being off from hospital to hospital and region to region. Matt. So it's it's there's a pretty good variance out there if you will but you know.
In total I think that's all incorporated in our guidance.
Thanks, so much.
Our next question comes from Josh Jennings with Cowen. Please go ahead with your question.
Hi, good evening, thanks for taking the questions.
Just two on the class two program I guess first just the Fob with Larry's question.
Our checks around from the Mitraclip prior to our approval for FMR and and reimbursement suggested that.
Up to 20% of FMR cases, or mixed etiology and have it degenerative component.
Mike just to circle back on your answer about staying on label.
Those patients are mixed etiology of being on label if they do have the general component.
Yeah. So you.
You know I I figured up much of this is gonna be physicians, making that judgment and so when a when it's all when it when it actually comes down to it the positions can be looking at this patient they're going to realize.
Our Pascal device was only approved for degenerative and they'll have to look at this particular patient and use their own judgment, we think by and large are gonna stay on label, but as you say there are mixed patients and so there there's going to be some of that that I'm sure positions are going to have to just work through.
Great and then just on class two D and class II efforts were there any design modifications because of COVID-19 or any pre specified analysis analyses that have been incorporated into the trial design or because it's had their head to head trials against Mitraclip, you know that randomization takes any COVID-19 related risk off the table.
Thanks for taking the questions.
Thanks, very much as you know we we typically just don't go into some of the particulars associated with the regulatory process, but it tends to be complex theres a lot of nuance to it and I think it would just be confusing. If we went into all of that and so we really don't have anything new to share.
Okay understood.
Thank you and our next question comes from Cecilia furlong with Morgan Stanley . Please state your question.
Hey, Thank you for taking the question I wanted to follow up and just ask them questions to ask and class two tier just what you've seen from an enrollment standpoint recently and alongside that how you're thinking about right.
And enrollment in that program commencing.
Yeah. Thanks, So Cecilia, we'll start out by saying clearly many of the same sites that were doing class two D. We're involved in class two app and class.
Two T R and so having completed enrollment in class two D. Does mean that there probably will turn some of their attention to to two F and two T. R and so I think it's likely to be it's only human it's only likely to be a boost to that I don't think it's going to have real impact.
The completion of the trial, so, but we're hopeful that things go well here you know of course, the same groups or are working with trying to get through omicron, which is which is no picnic, but we're hopeful that's short lived.
As it relates to the SAPIEN <unk> X for the Alliance trial.
Remember this is a new valve and so this isn't simply a case of Oh boy I'm, just going to take all my SAPIEN three patients who just put this new valve and it really is a very novel valve system and so this is going to be one that we do with a great deal of deliberate knows and so it's gonna where theres going to be a learning curve associated with us and so we're just gonna have to work through it.
We really don't have a prediction on how fast that will enroll at this time.
Okay. Thank you, Mike and Hello.
I'm just saying.
If you could talk about just having in China, but you've been able to do recently with Covid.
Hopefully pulling back in the near term how you think about just the opportunity that really started developing that market over the next year.
Yeah, we're we're really looking forward to developing the market in China and as you say.
Covid has been a real setback in that regard because you know often where if we were launching a new country like that we would bring a lot of experts from Edwards key opinion leaders and they're virtually has no travel to China right. Now. So it's just been our local team that's doing that which doesn't make it any easier we're excited about it but we know this too.
I'll pass and we will move onto it and where we're really looking forward to bringing truly premium technology to China.
I'm sorry, there was a let's see Oh I think that's probably does that answer your question Cecilia Yeah.
It does thank you okay. Thanks.
Our next question comes from Danielle <unk> with SBB Leerink. Please state your question.
Hey, good afternoon, everyone and thanks, so much for taking the question.
A question on Pascal.
They go to market strategy.
As in Europe .
Obviously been getting a price premium.
Powered for non inferiority, so I'm curious if you could make.
Little bit more on.
How you expect to get a premium here as well in the U S or if we should be thinking about that a little bit differently are there things that we can look for in the data when we do see it that could give us a little bit more comfort that you will be able to successfully get that premium.
I think.
Thanks, Danielle I mean first and foremost when we come to the U S. We're going to do we're going to run some of those exact same playbook that we have in Europe , which was to really focus on physician training getting great real world results, making sure that we get patient excellent patient outcomes every time, we do this.
We're gonna probably tend to be staying in the places where people have real experience.
I don't know that we have a pricing policy that has been established for the U S launch at this point and so we'll tell you about that once it's clear, but our focus is going to be I'm doing great cases for a while.
Okay got it and then.
I guess my other question is around Pascal in the U S and go to market. How do you think about leveraging I know you guys are I believe you guys are building a separate sales force here, but how you might be able to leverage your present, a very strong presence and hammer out a lot of these tenders and there's a lot of overlap how can we think about sales synergy.
Or sort of a halo effect on both whether it's for camera or four.
Or for Pascal in the market. Thanks, so much yes. Thanks, Danielle I I think you know the way that we've approached this across the board as we really feel like the <unk> has a long way to go and a lot of growth in front of it and deserves a great dedicated team ended the T. M. T. T opportunity is a very large one and so the way.
We've gone out this has decided that we're going to have a dedicated team.
Is there some halo that comes from you know the.
Edwards brand and so forth what I like to think so of course, we we try and maintain a great reputation, but we don't go into it thinking about leverage so much or or it's our bundled sales that that's really not our approach we're going to sell them, but really trying to do is spectacular procedures and get great outcomes.
Okay.
Our next question comes from Suraj Kalia with Oppenheimer. Please state your question.
Good afternoon, everyone can you hear me Alright, Mike.
Yeah, we hear you suraj.
So Mike I just wanted to follow up on Oh, No. Josh is question about class II.
<unk>.
Will there be any.
As presented in terms of the types of devices I E Mitraclip skus and the number of devices used per case.
So you know Suraj I I'm not sure exactly what's going to be presented but I would expect that you're going to see a pretty fulsome presentation of the data when it finally does get presented that's we've said that that's going to happen in the second half of 'twenty, two and when that happens I think you're going to get a lot of information.
You'll see almost everything related to device performance when that's presented.
Mike.
Yeah.
For the 10 billion by 'twenty 'twenty eight.
How does that Pie chart look for symptomatic severe eastern.
Domestic severe and moderate thank you for taking my questions.
Thanks.
So we don't have perfect clarity on what that's what it is going to look like in 2028, but I can tell you basically what's in our assumptions. The great bulk of this is going to be people with symptoms with severe a us in that and I don't know what percentage that is but it is overwhelmingly large percentage, we think that there'll.
A small portion of it which will be asymptomatic patients that are severe Ah we have assumed that the that moderate as patients are really not much in that number it's really negligible and so not really in the number at all and so hopefully that gives you a sense for it.
Thank you.
Yeah.
Our next question comes from Matt Taylor with UBS. Please go ahead with your question.
Hey, Thank you for taking the question.
I wanted to ask you a little bit more about the U S. O U S dynamic I know some of it may be short term.
<unk> different but theres been notable kind of resurgence or I don't know Renaissance and international growth.
Was wondering if you could talk more about that are you opening more centers is it improved acceptance of the therapy and what does that mean for international growth over the next couple of years versus U S growth do you think it could outgrow the U S should they be close to each other any any thoughts on that would be appreciated.
Yeah. Those are all really good questions and you know one thing to keep in mind is.
The growth rates are all comparable to last year's growth rate, which was you know less than normal because it was also impacted.
By by the pandemic. So we've been Super impressed about what's going on in Europe right. Now this mid teens growth because here's technology that was approved in Europe in 2007 and to be growing at a mid teens growth rate right now is very encouraging and it speaks to the strength of tab.
I mean, yeah.
Europe has never had broadly across Europe , let's put it this way they've never had so for example Havre per million population over 65 has been lower in Europe are pretty good in Germany, but the rest of the countries behind so there's been some catch up when we talk about Japan, we say the same thing pretty routinely that they.
Really probably should be doing more tavern have more disease, and so there's quite a bit of catch up to go out. So there there really is a big opportunity and part of what we may be seeing is just health care systems that have typically been a little slower to adapt are coming around and fueling the growth that's a little higher and at the same time.
To say I'm trying to hit us pretty hard.
Got it great.
Great. Thanks for the color I'll, let others jump in thanks.
Our next question comes from Chris Pasquale with Guggenheim. Please go ahead.
Thanks, Mike just wanted to follow up on <unk> question about Alliance I don't think it's been posted yet could you just tell us a little bit about the design of that trial number of patients length of follow up things like that.
Yeah, I don't I.
I don't the short answer is I'm not prepared to talk about that at this point Chris.
I think there may be some similarities to past trials, but I I don't have the specifics on it. So we're gonna have to we're going to have to get that to you at a later date here.
Does it it's just I don't have that available now.
Okay no problem.
And then Mike I think I heard you say that type of volume in Japan has now caught up with surgical volumes. It seems like you may have hit that milestone a little faster there than you did looking at the experiences in the U S or Europe can you talk a little bit about how market development is going there. It seems like it may have hit a bit of an inflection.
Maybe over the past year with with low risk coming online.
Yeah. So so thanks.
Yeah for sure.
It doesn't feel like it's got them really fast it feels like it's come slower we think the tavern should be really popular in Japan, where surgery is not necessarily a preferred therapy and a greater intervention procedure should have gone there are a number of reasons that sort of slowed it down.
You know they had tighter regulations. So for example, they limited tavern to hybrid Oh ours, they required approvals by national bodies.
But at the same time there've been some really positive developments in Japan. So you know now that we have low risk approval, it's really streamlining the prime that's reimbursed that streamline the process for these patients to receive therapy.
So that was a big one and and slowly but surely there been more centers that were added so that it covers the geography, a little better. So there's some there's some positives there and we're catching up we're excited about the growth rate, but in our eyes. It should've happened sooner.
Thanks.
Yeah.
Thank you.
Next question comes from Jason Bedford with Raymond James. Please go ahead.
Hi, Good afternoon, just a couple of quick ones I'll go off script and ask a critical care question.
The segment has a decent capital component I'm, just wondering with labor, becoming a bigger issue at hospitals over the last couple of months.
You on the environment for capital changed at all.
Yeah. So good question remember when the pandemic hit and hospitals were in trouble they really pulled back on capital spending and we saw that even most dramatically in the U S.
And that.
Continued into early 'twenty, one, but it started subsiding and we saw hospitals started recapitalizing. If you will and we were the beneficiary of that.
During the during 2021 and even saw that affect our performance in the fourth quarter.
And we've got those modern he he must we are technology, which is really a step forward for these patients and brings together a lot of our advanced technology for patients that are growing are needing.
Great recovery.
So the combination of those have been really helpful.
So it was 22 still a conducive environment for capital sales.
It is we think it's still a very conducive environment.
Some of our people wonder whether 'twenty two will measure up to 'twenty, one because it felt like 'twenty, one might've had a little catch up in it so that makes them nervous about being too bullish, but we think it's gonna be a more normalized year.
Okay. Thanks.
Maybe just quickly for Scott Scott.
In describing the factors impacting gross margin you Didnt mentioned inflationary pressures and I'm. Just wondering are you not seeing it or is it just not material to the business right now.
Oh. Thanks for the question, we are seeing inflationary pressures in a couple of areas. One is just wage rates around the world there's upward pressure.
And then of course materials and supplies and so we're managing through those our biggest priority has been making sure that we can deliver our finished goods are life saving therapies to hospitals around the world and we're really proud of our global supply chain team, that's been able to navigate.
The challenges from shortages to logistics and still continue to be able to meet demand and so we will deal with the inflation, it's in our 78% to 79% gross margin guidance for the year.
But we're feeling like we we know what needs to get done.
Great. Thanks.
Thank you and our final question comes from Peter Chickering with Deutsche Bank. Please state your question.
Good afternoon, guys. Thanks for fitting me in here to follow up on the U S kind of a question is can you help us understand why in the third quarter, we saw hospitals near capacity for nearly two months in August and September whereas.
Ah comfortably impacted fourth quarter by a few weeks in December just try looking for any more color on sort of why fourth quarter.
Slowed sequentially from the third quarter.
Yeah, So youre going to test my Covid memory, a little bit here, but.
We felt like we were recovering from Delta and so it had a pretty significant impact in the third quarter and that was being mitigated to some extent it was improving in October and are improving in November and then omicron showed up and it changed the trend. So that was that we were we went from.
I'm recovering from Delta two being impacted hard and quick by Omicron.
Okay and then.
It's actually for Scott you talked about pulling forward SG&A investments from 2022 in the fourth quarter in preparation of these product launches. So do you think about a similar dollar amounts for SG&A spending going into the first quarter and you can start to get leverage on that as revenues increase after after first quarter you get to your guidance range of 28, 3%. Thanks, So much guys.
Sure. Thanks for the question I mean, you can tell from our guidance, where the midpoint of our sales guidance is call. It 1.315 billion.
<unk>, which is a little bit lower than our fourth quarter sales and yet our EPS, we're forecasting a higher range and so the differences are going to be really in the cost lines and we think that a lot of the SG&A that we pulled forward in the fourth quarter will probably not show up in the first quarter as a result.
And that's really the biggest driver of the increase in EPS that we're expecting and guiding to in Q1.
Great. Thanks, so much.
Okay. All right. Thanks for your continued interest in Edwards, Scott, Mark and I welcome any additional questions by telephone.
Thank you and that concludes today's conference all parties may disconnect have a great day.