Q2 2022 Edwards Lifesciences Corp Earnings Call
Greetings and welcome to the Edwards Lifesciences second quarter 2022 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 well treating Vice President Investor Relations and Treasurer. Thank you Sir you may begin.
What do you go.
Good afternoon, and thank you all for joining US with me on today's call are Mike <unk>, Chairman and Chief Executive Officer, and Scott All I'm Chief Financial Officer also joining us for the Q&A portion of the call today will be Larry Wood, our global leader of tower.
<unk>, our global leader of T. M. T T intervene sopra, our global leader of surgical structural heart <unk> Zyman, our global leader of critical care is out of town today, but she'll be with us on future earnings calls.
Just after the close of regular trading Edwards Lifesciences released second quarter 2022 financial results. During today's call management will discuss those results included in the press release and accompanying financial statements 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.
<unk> 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 statements speak only as of the date on which they were made and Edwards does not undertake any obligation to update them. After today. Additionally, the statements involve risks and uncertainties, including but not limited to those associated with the pandemic that could cause actual results to differ materially information concerning factors that could cause these differences and important safety information.
<unk> may be found in the press release, our 2021 annual report on Form 10-K, and Edwards' other SEC filings all of which are available on the company's website at Edwards Dot Com. Finally, a quick reminder, that when using the terms underlying and adjusted management is referring to non-GAAP financial measures otherwise they are referring to GAAP result.
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 in the second quarter total company sales reflected year over year and sequential growth across all four of our product groups on a constant currency basis. Despite several challenging factors.
Those were lifted by strong performance outside the U S with double digit underlying sales growth in Europe and Japan.
On a constant currency basis total company sales grew 5% compared to the extraordinary second quarter of 2021, when sales increased 44% lifted by the treatment of patients who had postpone their care.
Nevertheless, second quarter sales and EPS were at the lower end of our expectations as a result of U S hospitals struggling with staffing shortages as well as the stronger U S. Dollar. We now anticipate that these challenges are likely to persist throughout 2022 and as a result, we are lowering our SEC.
Half outlook to more realistically reflect the current operating environment.
All of the near term environment remains uncertain, we are unwavering in our long term pursuit of groundbreaking innovations, we're investing to achieve breakthrough therapies that creates significant value for patients and the health care systems, enabling strong organic sales growth, we continue to make meaningful progress on our pipeline.
And expect to achieve important milestones by yearend.
As the global population ages and cardiovascular disease remains the largest health burden. We continue to believe the opportunity to serve our patients where we will nearly double between now and 2028.
Now turning to the quarterly results by product group in Tapper second quarter global sales of $907 million increased 5% on an underlying basis.
Approximately 50% growth in the year ago period.
Sales were below our expectations due to the ongoing U S hospital staffing constraints and foreign exchange headwinds, but still represented our highest quarter of <unk> sales.
We estimate global tap a procedure growth was comparable with edwards' growth in the second quarter.
In general local selling prices were stable, although the average global selling price declined slightly due to the weakening euro and yen.
In Q2, we continued to advance two pivotal trials aiming to expand indications first our early <unk> trial is studying the large group of patients with severe aortic stenosis and no diagnose symptoms.
Second our progress trial is evaluating patients with moderate a house, which represents a group that is much larger than those with severe a us.
And last month, we also began treating patients in our alliance pivotal trial for our next generation SAPIEN <unk> X four.
As previously mentioned, our second quarter U S to average sales were impacted by slower than expected improvement in the U S Hospital staffing and temporary contrast agent short shortages.
Also recall in Q2 of last year, our U S to have our sales increased over 50% on a year over year basis as Covid vaccines became more widely available in patients who had waited were treated.
The three year compounded annual basis, our U S. <unk> sales increased 10% compared to the strong second quarter in 2019.
Outside the U S. In the second quarter, our underlying <unk> sales grew in the mid teens on a year over year basis, and we estimate total procedure growth was comparable.
This strong growth outside the U S was consistent with our underlying three year compounded annual growth rate also in the mid teens.
Long term, we see excellent opportunities for O U S growth as we believe international adoption of <unk> therapy remains quite low.
In Europe Edwards sales growth was driven by the continued strong adoption of our SAPIEN platform, we estimate that our competitive position was stable.
Local is hospital staffing disruptions impacted second quarter results. Although this headwind was less pronounced than in the U S.
15 years after commercialization, it's encouraging to see the resilience of the tap programs in Europe , despite the challenging backdrop of today's environment.
In Japan.
We experienced continued strong tap of adoption as we remained focus on expanding the availability of tap our therapy throughout the country.
Similar to last quarter, the number of tap procedures performed exceeded surgical aortic valve replacement following approval last year for patients at low surgical risk.
In summary, we continue to be very optimistic about the long term potential of <unk> because of its transformational impact on the many patients suffering from aortic stenosis and because many remain untreated.
Recall that we had previously assumed an improvement in the U S hospital staffing shortages throughout the year.
We're now anticipating slower improvement and as a result, we are adjusting our full year outlook, we expect underlying <unk> sales growth of around 10% and full year 2022 versus the previous expectation for 12% to 15%.
Longer term, we remain confident in this large global opportunity and then it will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double digit range.
Now turning to T M T.
Transform treatment unlock the significant long term growth opportunity for mitral and tricuspid patients. We remain focused on three key value drivers our portfolio of differentiated therapies positive clinical trial results to support approvals in adoption and favorable real world clinical outcomes.
At the TCT conference in September we expect the first results of the clasp <unk> pivotal trial evaluating patients suffering from degenerative mitral regurgitation.
This.
Is this first of its kind head to head randomized pivotal trial powered for non inferiority will be the first of several key pivotal trials evaluating the Pascal technology.
Additionally, at TCT, we expect three year data from the early our class study.
This growing contemporary body of clinical evidence will be important for the physician community considering transcatheter edge to edge repair treatments for mitral patients.
We remain on track for U S FDA approval and CE Mark approval of Pascal precision by year end.
Next generation system is designed to facilitate price precise navigation and an intuitive user experience extending our differentiated platform. This will allow us to expand Pascal adoption in Europe , and we're pleased that we will be launching the newest generation of Pascal in the U S.
In mitral replacement, we continue to broaden our experience with both of our Transcatheter mitral replacement therapies through the in circle pivotal trial for SAPIEN, three and the mice study for evoke yields.
Growing evidence with these sub 30, French transferable therapies furthers our confidence in both platforms.
Turning to tricuspid.
We also continue to make progress on enrolling the <unk> pivotal trial for the evoke replacement system and the class II TR pivotal trial with Pascal in patients with symptomatic severe tricuspid regurgitation.
While we remain hopeful for yearend approval in Europe , uncertainties exist regarding the new MD, our approval process for novel technologies seeking a CE mark.
We remain committed to bringing the bulk therapy to these tricuspid patients who have a very poor prognosis and few treatment options today.
As we continue to build the body of compelling clinical evidence. We're pleased with the recent data from several late breaking presentations one year results from our class T. R study presented at the American College of Cardiology conference demonstrated a significantly reduced T. Our improved quality of life and maintained.
A reduction.
Also at the Euro PCR meeting 30 day post market data from our Tri Class study was presented with 90% of the patients showing improvements in their quality of life.
And upcoming medical conferences. This year, we plan for contemporary evidence to be presented on both our Pascal and evoke platforms.
Turning to our results second quarter global sales were 28 million.
Driven by the continued adoption of Pascal platform and activation of more centers across Europe .
Our Q2 commercial performance was tempered by lower than expected market growth related primarily to Covid headwinds. We are now updating our full year guidance to $110 million to $140 million, which represents approximately 60% of underlying growth over the prior year.
And reflects a stronger than anticipated impact from foreign exchange as the vast majority of <unk> business is in Europe .
Bigger picture, we continue to be pleased with our progress forward on three key value drivers. We are advancing our comprehensive portfolio of differentiated therapies combined with contemporary clinical evidence and favorable real world patient outcomes. Together. This demonstrates the promise of these therapies for the Cigna.
Again, unmet patient need and will help unlock this large market potential.
In surgical structural heart second quarter, 2022, global sales of $229 million increased 2%.
Lying basis over the prior year, we are encouraged to see global growth. Despite sales headwinds from the planned discontinuation of certain noncore cannula products as well as the Covid shutdown in China, which combined reduced growth by approximately 500 basis points.
Our growth continues to be driven by increased penetration of our premium resilient products.
We've seen strong adoption of the mitral resilient valve in the U S. Since its initial launch in April building on the commercial success of in Spirit, We believe hospitals value. The intuitive product features as well as the benefits of this innovative resilient tissue technology physician.
Physician feedback in regions, where Microsoft has been launched has been positive and initial clinical outcomes have been favorable.
In the second quarter, we continued to bolster the overall body of Brasilia evidence. This includes.
A commence trials sub analysis, which demonstrated the excellent performance of this tissue technology, when treating bicuspid aortic valve disease, which was presented at the 2022 annual meeting of the American Association of thoracic surgeons in May.
Cohort of more than 200 patients averaging a relatively young 60 years of age structural valve deterioration was zero at five years.
In summary, we remain confident that our full year.
2022 underlying sales growth will be in the mid single digit range for surgical structural heart driven by market adoption of our newest premium technologies and global surgical market growth.
In critical care second quarter sales of $211 million increased 3% on an <unk>.
Underlying basis as expected growth was moderated by strong prior year comparisons.
<unk> growth was driven by increased adoption of our hypotension prediction index algorithm and our broad portfolio of sensors.
In summary, we continue to expect mid single digit underlying sales growth in 2022, we remain excited about our pipeline of critical care innovations as we shifted our focus to smart recovery technologies designed to help clinicians make more informed decisions for their patients.
And now I'll turn the call over to Scott.
Thanks, Mike.
Alright, several challenging.
Thus hospital staffing and foreign exchange headwinds our business fundamentals remain strong.
We achieved total sales in the quarter of 1.3 dollars 7 billion.
With double digit underlying sales growth in Europe and Japan.
We expected our underlying growth in the second quarter would be our lowest of the year given our strong prior year sales performance our.
Our higher than expected gross profit margin lifted by the positive impact from our foreign exchange program contributed to an adjusted earnings per share of <unk> 63.
We are adjusting our guidance to more accurately reflect the continuation of the more pronounced FX headwinds and slower than expected improvement in Covid related hospital staffing.
We expect total company underlying sales growth of approximately 10% in the second half of this year.
For full year 2022, we now expect total Edwards sales of 5.35 billion to 5.55 billion.
We expect <unk> sales of 3.5 to $3 $7 billion.
For T M T G $110 million to $140 million.
Our surgical structural heart $870 million to $950 million and for critical care $820 million to $900 million.
We now expect full year adjusted earnings per share guidance at the bottom end of our original guidance range of $2 50 to $2 65.
For the third quarter, we are projecting sales to be between $1, three zero and $1.37 billion and adjusted earnings per share of 58 to 66 cents.
I'll now cover additional details of our results.
Our adjusted gross profit margin in the second quarter was 85% compared to 75, 9% in the same period last year.
The improvement was driven by the higher than expected positive impact from our FX program, which includes natural hedges and hedge contract gains offset the sales impact from the weakening of the euro and yen versus the dollar.
At current foreign exchange rates, we now expect our full year and second half 2020, adjusted gross profit margin to increase to approximately 80%.
This guidance range reflects our assumptions of a favorable impact from FX hedge gains and an improved product mix, partially offset by supply chain inflationary pressures.
This year's forecasted gross margin range includes approximately 350 basis points of benefit from foreign exchange versus 2021.
At current FX rates in 2023, we expect an approximate 250 basis point reduction in our gross profit rate.
Selling general and administrative expenses in the second quarter were $409 million or 29, 8% of sales primarily due to a resumption of in person commercial activities, partially offset by the weakening of the euro and yen against the dollar.
And you'd to expect full year 2022 U S. G&A expenses as a percent of sales to be between 28% and 30% as we continue to invest in our high touch model for cover and the ongoing build out of the TMT T commercial team.
Research and development expenses in the quarter grew 11% compared to the same period last year to $251 million or 18, 3% of sales.
This increase was primarily the result of continued investments in our transcatheter organizations, including eight currently enrolling pivotal clinical trials.
For the full year 2022, we continue to expect R&D expenses to be between 17, and 18% of sales as we invest in developing our new product pipeline and generating evidence to support <unk> and TMT.
During the second quarter, we recorded a $21 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by <unk> <unk>.
Benefit was excluded from our adjusted earnings per share of <unk> 63.
This reflects an accounting adjustment from assumptions regarding potential milestone payments for a previous acquisition.
Turning to taxes.
Our reported tax rate this quarter was 12, 5% or 12, 9%, excluding the impact of special items.
Due to last quarter's new regulations that potentially limit the amount of our foreign tax credits combined with an estimated reduced tax benefit from stock based compensation accounting, we now expect our full year tax rate, excluding special items to be at the high end of our previous 11% to 15% range.
Foreign exchange rates decreased second quarter reported sales growth by four six percentage points or $60 million compared to the prior year at current rates. We now expect an approximate $250 million negative impact or four five percentage points to full year 2022 sale.
<unk> compared to 2021 of which approximately $170 million impacts the second half of the year.
FX rates positively impacted our second quarter gross profit margin by 380 basis points compared to the prior year.
FX rates had a minimal impact on second quarter earnings per share.
As we mentioned at the Investor Conference in periods of a strengthening dollar like this sales are negatively impacted as a result of financial of natural hedges margin rates benefit, resulting in a minimal impact to the bottom line in the calendar year.
Free cash flow for the second quarter was $289 million defined as cash flow from operating activities of $332 million less capital spending of $43 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 $1 $5 billion in cash cash equivalents and short term investments as of June 32020.
Average shares outstanding during the quarter were $627 million down from the prior quarter as we repurchased three 7 million shares during the second quarter for $355 million.
In the first half of the year, we repurchased seven 3 million shares.
In July we obtained board approval to increase the authorization under our share repurchase program consistent with our longtime practice of seeking new authorization when the prior authorization has been diminished.
And I'll have $1.9 billion remaining under the program.
Given our repurchase activity in the first half of the year.
Now expect our average diluted shares outstanding for 2020 to be between 625 and $630 million.
And with that I'll pass it back over to Mike.
Thanks Scott.
Our strong foundation of technology leadership, combined with a robust product pipeline positions us well for continued success as patients and clinicians increasingly recognize the significant benefits of Transcatheter based technologies supported by the substantial body of compelling evidence we remain as optimistic as ever.
Thanks, a lot Mike before we open it up for questions Im excited to announce that Edwards is planning to host Investor update TCT on Saturday September 17th.
This event will recap include a recap of pivotal trial data updates on our latest technologies and views on longer term market potential.
We hope to see you there, but please note. This meeting will be webcast for those who cannot attend in person more information will be available in the coming weeks with that we're ready to take questions now to allow for broad participation. We ask that you. Please limit the number of questions to one plus one follow up if you have any additional questions. Please reenter the queue and management will answer it.
Participants as possible during the remainder of the call Diego.
Diego.
Thank you.
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Formation tone will indicate that Youre line is in the question queue.
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Our first question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Oh, great. Thanks for taking the questions.
Maybe to start.
No.
However, it is such a necessary procedure for these patients and it's you know it.
It's sad to see it slow down like this but it's understandable given how many steps are involved in the patient population involved.
What's your sense of what the early final is like how were you know how is the early funnel with patient visits to Doctor is diagnosis, what whereas really the bottleneck that youre seeing and how do you expect the funnel to play out in third and fourth quarter, both U S and outside the U S.
Yeah. Thanks Robbie.
This what we're feeling right now is different than the early days of the pandemic.
Early days of the pandemic, yes, there was impact on hospital capacity, but you also had patients that were just concerned about coming into the system and they say they stayed away. We feel like patients are entering the system now and are queued up to go through and there's just a.
Just a lack of capacity in hospitals in some cases to handle all of the patients and so that care is being postponed youre right. Given that this disease is so dudley is very concerning because we know these patients don't wait well theyre going to be some casualties I don't know Larry do you have anything to add to that.
No I think that's a good summary, you know when the pandemic first happened.
Hospitals, the bedroom all filled up with Covid patients and we don't see that today.
Hospitals have beds. They have capacity. They just don't have staff and I think some of what we are.
Challenged with a little bit is as people test positive for COVID-19, they're not getting hospitalized, but they have to leave the work force Friday isolate and I think that's exasperating.
Challenges, but youre right the patients don't wait well and we've already we're already dealing with under treatment of E. S.
Before the pandemic hit and certainly just hasn't made it better but these patients deserve therapy and we're hoping this returns back to a more normal state.
Soon.
Okay, and maybe as a follow up on <unk>.
The guidance move down there on a dollar basis, but.
This is also a market that is recovering probably slower than we had thought at the December analyst day. So maybe you could walk us through how much of it is Pascal and.
Your product set versus the competition and how much is the market.
And how we should think about cadence there in third and fourth quarter. It still requires a step up to reach the mid point of guidance. Thanks a lot.
Yeah. Thanks, Robbie so yes, a couple of things as we mentioned because most of the Pascal sales are in Europe , we do get affected by currency and a more dramatic way than we would otherwise but the other issue is less of a competitive issue as we're really feeling like the markets.
It didn't grow it really slowed down.
N T MTT and Bernard why don't you provide some color on that yes.
Yes, yes, exactly so.
So if you think about you don't want a short term basis.
Ian GT proceeds you off.
Resource intensive.
Ginny seizure ICU stay you know for the nation. So therefore, if you have been impacted more than any of the proceeds that we know.
Next question please.
Thank you. Our next question comes from Larry <unk> with Wells Fargo. Please state your question.
Good afternoon, thanks for taking the question.
One for Larry one for Bernard or whoever wants to jump in and just on <unk>, just Larry any color on trends in the U S tablet market in Q2, how much do you think the contrast shortage impacted you in.
Love to hear why you think the U S has been softer than Europe , and I had one follow up for Bernard.
Are you contrast, I think it was more of an issue in the quarter than late in the quarter it seem to get better as the quarter went on but certainly there wasn't impacted it probably impacted smaller hospitals more than more than the bigger systems that probably had more more reserved.
So that that was that in terms of trends.
As much as we get.
Get frustrated by we did grow sequentially. So we did see some improvement in hospital staffing just not as much as we were anticipating and we obviously have a tough comparison too.
A year ago, when we grew almost 50%. So that's just kind of where it is we still anticipate it's going to get better over the course of the year. It's just been more slow than we would've hoped.
Just to add on Larry Your question about Europe versus the U S.
We did see staffing shortages in Europe , but they were more isolated in nature, we saw them in particular countries or regions, whereas the U S. It really felt more widespread more broad.
And so it turned out to be more pronounced we were able to more or less swamp those in Europe .
That's helpful and then Mike for you or Bernard.
For Pascal in class T D.
I guess should we I assume we should read into your expectations as Pascal approval by year end you feel good about the trial meeting its endpoint.
That's part a and part B there have been a lot of changes to both Pascal and Mitraclip seems to trials start ADF Pascal <unk> precision Mitraclip is gone from Gen. Two to Gen. Four how might that impact the results and do you expect kind of a mix of different devices in their trial. Thanks for taking the question.
Yeah. Thanks, you you did perceive it correctly, we feel like we're on track.
For our year round approval and Pascal in Florida that is I'll remind you that trial was designed as a non inferiority trial and so but that's what the target is you also brought up another interesting point, if you look at what's available for clinicians today.
Some of that data is kind of old right. It's for patients that were treated maybe five years ago and sometimes even further back and there have been a lot of improvements in our system and competitors as well and so I want to be also interesting about the data that we see is we'll see more or less a contemporary update of how edge.
Edge procedures are going on or anything to add to that Bernard.
Youre right Larry.
We are what you are going to see us.
Hello analyses done vis vis pivotal studies, we have the original Pascal and Ace.
And then Bill Mitraclip generation also because you can imagine you know like in any people to run them. A steady result will represent the data necessary to support approval and adoption and what you can expect these additional presentation at this time.
[noise] analysis.
Okay.
Thank you very much.
Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hey, guys. Thanks for taking my question one.
One on I.
I guess on the on the.
Pascal <unk> here.
The.
Given all of these revenues are coming.
Coming out of Europe .
And Europe seems to be perhaps less impacted by labor shortages.
Did you just get the adoption curve wrong or Rob maybe just talk about what change in the revenue Brian tier for Pascal.
So thanks for the question.
So in Q2, we continued to grow sequentially.
The year over year.
And we continue to grow our presence teams, we opened new sites.
Both in Germany and outside of Germany.
We feel good about.
You know a meaningful presence in Germany, even vote on what.
To do them.
Beyond Germany is still a lot to do so the adoption is going.
At the pace, we wanted demo site adoption and Pascal adoption.
Sure you know the market growth.
Less than anticipated in Q2, and we expect that to last.
And to improve gradually.
The second part of the year.
And you know what I might just add Vijay that.
Because our business is more concentrated in T. MTT in certain regions like for example, Oh theres more business than in Europe or in Germany in particular than other parts of Europe . Some of those labor shortages and strikes in Germany, probably had a little greater impact on this.
So that combined with the point that Bernard made earlier that these procedures still require anesthesiologists and ICU stays.
Probably why the market slowed and you would also argue argue in Europe .
Not fully convinced right because they have the mitral fr data, but also is out there and so it's another reason why we're kind of excited about bringing a new dataset. A later on this year.
That's helpful perspective, Mike and now maybe one for Scott.
The EPS guidance.
Yes.
I think the implied fourth quarter EPS.
Depending on the third quarter assumptions it could either be flat.
If you're down sequentially.
Is that just a function of.
And how the FX hedges roll off or anything else thats going on the drives to fourth quarter EPS.
Yeah sure. Thanks for the question Vijay, but let's just maybe the way to answer is to bridge the midpoint of our original guidance of $2 58 to guidance now which is more like the bottom of that $2 50 to $2 65.
And the moving pieces are probably first and foremost just the sales change from the original guidance.
Partly driven by sales and just some of the headwinds that we talked about partly driven by FX and how that impacts sales and then it flows down to EPS.
We're seeing a higher tax rate as we talked about we think now the tax rate is going to look something more like 15% of the top end of our original 11% to 15% range and probably cost us about a nickel.
And then we've seen some positives as well we think we're going to get a couple of pennies.
From from increased interest income as a result of what's happening in the investment market and.
Uh huh.
Two cents or so a share count based upon all of our repurchase activities.
We've been doing so far so I'm we're.
We're not guiding to fourth quarter EPS down, but that gives you a sense of how the.
Overall year looks compared to our prior guidance.
That's helpful. Scott. Thank you guys.
Our next question comes from Joanne Wuensch with Citi. Please state your question.
Good afternoon or evening and thanks for taking the question.
As we think about 2023 I appreciate the commentary on the FX hedges slipping and the impact to gross margins next year is there anything in particular that you would like to comment on because I think generally people are starting to make sure. The 2023 numbers are somewhat in the ballpark.
You may now.
So John you talked about the 2023 gross profit numbers are in the ballpark based upon what you know.
I'm talking just any metrics you can give us and thank you for the gross margin commentary, but anything else you may be able to set us up with.
Yeah, it's it's premature to start talking about the different line items of the P&L for 2023 of course, we'll go through that in detail at the Investor Conference, but because gross margin has been so impacted by FX. This year, we did want to give a little bit of a lens into what's going to happen as these hedges start rolling off in 2023, so based upon FX.
<unk> right now.
We will lose something like 250 basis points of the 350 basis point benefit we're seeing in 2022.
That's compared to 2021.
So in other words, we still think we'll get something like 100 basis point benefit from FX in 2023, because we've locked in some hedge gains during the first half of this year. All in you know for modeling purposes. If you think about 77, 5% or something like that somewhere in that range. That's probably you did modeling assumption for now for next year.
And then as a second question, assuming FDA approval by the end of this year for Pascal how do we think about launch again going into next year. Thank you.
Yeah. So.
We'd rather do your best to go through that you can go through the particulars of how we plan to launch.
So.
So first and you see we are pleased with our progress in Europe . So we are building the U S launch plan.
I think in mind, you know what we did in Europe , obviously, great success. We we started early in the U S.
We are currently building the U S T M TT field team.
Focusing on the.
High quality of training, making sure that we can execute on our high touch model. The same way we are doing in Europe , having in mind excellent patient outcome.
No.
You see we are we expect our U S launch with clinical evidence, which we did in <unk>. When we launch in Europe , which is a big difference at the same time, you know one of yoga different source Louise we are going to have only DMA approval. So that's the way to think about the U S launch.
Maybe just to add a little bit more DRAM. This is gonna be a stepwise launch, we're not going to try and serve all hospitals at once we're going to really prioritize the group that will be our first step, but we're trying to make sure that we have a well trained team.
<unk> great outcomes right from the beginning so it'll be more of a ramp than a step function.
Thank you.
Thank you. Our next question comes from Sealy, a furlong with Morgan Stanley . Please go ahead.
Great. Good afternoon, and thanks for taking the questions I wanted to ask just if you could provide some color on what the COVID-19 the staffing shortage impact on enrolling the trials in the U S. Both across studies.
And then if you have an outlook right now just around export timing approval timing.
Some color on how youre thinking about that as well.
Yeah. Thanks, So I guess, maybe I mean, I started with luxury and Bernard jump in to add some additional color about the trials just broadly the.
The fact that Covid has been persistent here's the burden on hospitals and anyway, you slice it because what happens is even though we don't consider today's COVID-19. So deadly when someone's tests positive they're out the people worry about contact with her out.
Five days, so it really is disruptive to a team.
That can help it have some impact having said that overall, we feel pretty good about our clinical research Larry why don't you update us on the tavern side and Bernard you can talk about your MTT sure well, we have three three big trials, we have early caviar, which is fully enrolled.
Our progress trial, which is our trial, where we're studying studying moderate.
Critics to gnosis and.
And while we certainly see some impact we've been actually pretty pleased with how that's going so far and there's a lot of clinician interest and then we just started enrolling last month.
Our alliance trial, which is our export trial for our next generation SAPIEN platform and we've been pleased with the enthusiasm there.
You always start the trials, a little bit slow as youre getting sites up and Youre getting them trained in a brand new valve platform, but overall overall, we've been we've been pleased with the start.
Yes.
Mtt's two D. We completed enrollment we have plus two S class two tier we have twice in two year for evoke. So yes. Those are my friends like speaking of proceeding along more resource intensive and getting more of the staffing.
But we have seen a little bit of an impact but not so much. We are pleased with the kind of enrollment we are having across all of the GMT two trillion.
Great. Thank you and then if I could ask as well I'm just going back to your analyst day, you talked about on your DTC Tiger initiative, just would love some color in terms of what you've seen out of that where you are in that process at this point and thank you.
Yeah. So thanks, I mean, I don't know Larry if you want an update that we continue to be very focused on.
Trying to make sure that we hope patients come off the sidelines just because it is such a big issue that's going to be an important source of growth.
We continue on these efforts.
Even though the their hospitals are struggling a little bit to train the patients may have.
It takes a while for these patients to move through from diagnosis to screening into treatment and so we just think it's important to keep raising the awareness around it aortic stenosis because it remains woefully undertreated.
It only about 10% to 15% of patients with severe aortic stenosis actually get treated today and again you were running the trials to prove the point with early tavern with progress, but we know these patients don't wait while even though.
Some people may think they way better than they actually do so we're committed to the evidence and we're committed to making sure patients are aware and we continue to execute on those programs.
Great. Thank you.
Our next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, Thanks for taking my question just looking at Q3, you said some of the Q2 staffing issues either that contrast, with more of a Q2 issue, but in Q3, there's usually some seasonality. So if you look at U S. Cover just curious if you think cabo can be up sequentially. This time around or if it's probably down sequentially in Q3.
Yeah, I'll just start off by reminding you that.
Across Edwards business, it's very normal for us to have Q3 be seasonally down.
Compared to all the other quarters of the year because our procedures are generally done in teams and people take their summer vacation that's routinely gonna be down the other factors that are in there. They just add to that so no. We probably expect Q3 to be lower than Q2, and then Q4 to rebound.
To a higher level, yet, but that would be a more typical seasonality I don't know Larry do you have anything to add on U S. Yeah. I think I think that's right I think I think people are still pent up in.
If you try to get a hotel reservation or an airline reservation lately I think people are certainly taking their vacation right.
The good news is the contrast issue I think is largely behind us maybe not 100%, but pretty close we're not hearing near as much issue with that so I think getting that behind us it's helpful.
But as Mike said, you know, we typically do see some seasonality in Q3.
That's fair, thank you and it.
It was down sequentially. This quarter I don't know is there anything else to call out that you haven't already called out but love some more color. There and then you can look at Pascal.
And the benefit that you see there versus competitive device.
If you look at how the how everything is designed the product design.
A way you could potentially compete clinically or the competitive device or otherwise that you plan to compete there.
Yeah.
Okay, Yeah, actually so I'm not I'm under the impression that we were down sequentially.
In Q2, maybe that so it could be a byproduct of foreign exchange and that maybe what you're seeing but on an underlying basis actually are there was sequential growth.
Brian do you want to jump on the second part of the question. There, yes. So on Pascal you all let me address two things. One is you know maybe you know the second half of the year and a little bit about sort of our Pascal.
Benefits of the device.
So the second half of the year.
I'm going to continue executing our strategy of putting more sites in Germany outside of Germany, driving the adoption of Pascal without a high touch model and what we see obviously in Europe is that we have a differentiated device. We are very pleased with the kind of patient outcome, we are having but obviously at TCT.
With the first of its kind a class two the randomized study this is going to inform us inform the medical community about the difference between the two devices.
As the ore so a lot of fidelity <unk> from the <unk> presentation.
Okay.
Thanks for that and all we checked my model Q2 thing.
Thank you.
Our next question comes from Suraj Kalia with Oppenheimer. Please state your question.
Good afternoon, everyone. Thanks for taking my questions.
Mike Larry in terms of low risk symptomatic aortic stenosis rate a number of patients have bicuspid and I'm curious about the bicuspid registry in alliance.
Why so now.
Also the 915 patient size.
The alarm studies, so any additional color would be greatly appreciated.
Alright.
Trials Dot Gov, I think the 900 plus number relates to the primary cohort along with the with the registry arm with the registries that we have.
We try to study all sort of the Adjacencies are by.
Bicuspid, we try to study the valve in valve things all the different ways in which our platform gets used because it's quite versatile.
No we don't.
Some of those registries lag a little bit starting the original cohort, but they usually come on and so I think that's what's reflected in the numbers there bicuspid patients require sort of a different level of screening anatomically. So we tend to run those in a separate registry.
So that we can report on them separately, but then we have the primary cohort four for all the patients but I believe this trial is pretty much in a near all comer trial I don't think we're limited to just low risk patients. So it's going to be.
Pretty much of a real world trial on how the technology performs.
Fair enough and Larry Mike again last question I'll hop back in queue, maybe you could give us some guideposts in Japan.
Our understanding is catheter is annualized <unk> somewhere 25 to 30000 cases.
<unk> 250, or so sites love to get some perspective of where it was.
It stacks up in Japan, so that we can strip out that contribution. Thank you for taking my questions.
Well thanks for that.
I don't know that I have the level of detail to be able to fully satisfy your question. Indeed.
Indeed, like most places around the world, we're very proud to be market leaders, but theres still a lot of work for us to do in Japan, you know they have an elderly population and even though we've enjoyed some really nice growth over the last couple of years, we should be getting that kind of growth because there is that under treatment rate is significant.
Been buoyed over the past year or so by the addition of hospitals, which has been very helpful.
It had been originally more restricted.
In Japan, and so that's grown and that's been a contributor as well early do you have anything to add to that yeah.
Japan has been a little bit unique in terms of how the markets develop.
And the other markets, we started way from its high risk to this intermediate risk to these low risk approvals and in Japan, We went directly from a high risk and kind of almost inoperable immediately to low risk. So it's taking time for for people to to adjust to that new normal on because it's a much bigger step.
Function right, Mike is absolutely right in terms of the number of eligible patients there and the opportunity there even though we've enjoyed pretty robust growth there the opportunity that remains large.
Thank you.
Thank you. Our next question comes from Ed Ridley with Redburn. Please state your question.
Yeah.
Hi, good evening, thanks, very much just.
Just a couple of follow ups. Please first of all on the contrast media shortage.
Scott Thanks for your comments.
Quantifying the impact in the quarter.
That will be helpful is obviously good to hear that.
Pretty much behind you.
Also.
Question on capital investment from the hospitals, we've had differing comments from different management teams. During this the last couple of weeks on whether or not there is pressure on capex spending.
Particularly in the U S and I was wondering if that had been any effects from critical care, whether you've seen any signs of that thank you.
Okay, well thanks, Ed on the contrast media I don't know that I can specifically.
Characterizes the size as Larry mentioned, we saw it more in smaller hospitals respond more early in the partner and dissipate do.
Do we think about an impact on Q2, we do but it was a smaller impact on overall hospital staffing. So you can almost think of it as an 80 20 thing something like the contrast media was relatively small by comparison.
On the capital spending trends are only lenses that is the critical care business. So compare to some others in the med tech industry. They may have a better handle on this side.
Our more exclusively in capital we're in a very limited segment and it's hard for us to know whether it's the capital budget and hospitals, our own performance, we've had pretty significant demand and we've been able to meet that then.
We continue to be pleased with the pipeline of orders that are ahead. So we feel pretty good about they're really being capital spending.
Nothing like it was when it was constrained early on in the pandemic, we feel like hospitals R&D spending at least from our narrow perspective.
That's great thanks very much.
Thank you.
Our next question comes from Bill <unk> with Canaccord. Please state your question.
Great. Thanks. Good evening. My first question is in terms of the U S have her and the number of centers I think on the fourth quarter call. You said you had about 850 centers I was wondering where you ended at the end of June and kind of how should we think about center growth going forward and then my second <unk>.
Question is just on the your SG&A spend was pretty high it's a big jump sequentially and I guess.
<unk> is a lot of that kind of the pre build or the build of the infrastructure for Pascal and thanks for taking my questions.
Sure maybe I'll start it out here in terms of.
U S. <unk> centers Yeah. The addition of centers wasn't necessarily a big deal in terms of a growth driver Larry you might be able to characterize that more growth come from large centers are smaller centers as last quarter.
Three things right sort of in terms of when we add new centers.
All of the all the cases, they do are pretty much add to the growth, but the new centers that we added at this point in time tend to be much smaller programs and they're a little slower to rise so they're not a huge part of our overall growth story, but one of the things that we do try to keep an eye on is what's happening in the larger programs versus the smaller programs and we have seen a little bit of a.
The trend where we win.
When COVID-19 cases start increasing in the various come on we tend to see a little bit more growth in the smaller programs and I think that's reflective of people staying closer to home a lot of our big programs, maybe people will travel longer distances and there may be a little bit more reluctant to do so when when COVID-19 cases are up so we've seen that dynamic as COVID-19 has risen and fallen and I don't think.
I don't think this quarter was any different.
Thanks Scott.
Scott do you want to comment on the SG&A sure Bill on SG&A, Yeah. It was pretty close to what we expected actually remember in the fourth quarter of 2021, we ended up having pretty high SG&A relative to our plans. It ended up being lower as a result in the first quarter. So it might have looked like a bigger jump just artificially because of this.
Timing and sequencing of Q4 to Q1 the year over year in the second quarter SG&A grew high single digits pretty close to what we expected you are right that we are investing.
Pretty aggressively for long term positioning of <unk> and <unk> in particular, both outside of the U S and in the U S. So we're feeling good about where we are just in terms of our overall SG&A load.
Thank you.
Our next question comes from Adam meter with Piper Sandler. Please state your question.
Hi, good afternoon, and thanks for taking the questions I'll keep it to just one.
Maybe just kind of bulk tricuspid would love to get some additional color there it sounds like youre still hopeful that that product could come to market in Europe by.
At year end 'twenty, two just what are the expectations.
In the marketplace and then just more broadly how do you think about the repair versus replacement debate in the tricuspid setting. Thanks, so much.
Yeah, Thanks, very much for that Adam Yeah. Indeed, you did read correctly into our comments that we have introduced some uncertainty into whether we actually will get.
Evoke approved by the end of the year for CE, Mark Bernard you want to talk a little bit more about that yes, Mike.
So you know as you know there is a new.
Processing neurology MBR.
And yes it is.
It just probably would be more uncertain full very novel.
Breakthrough technologies like like evoke.
So we are looking at T V. They might ask more clinical data.
Maybe you don't even you don't randomized data who knows.
Basically what we are facing right now we all love you are partnering with our notified body to make sure we'll begin.
I need to make it up from there.
<unk> here.
So now your second question is about the repair versus replacement.
We believe that we see value in both.
I think Mike talk about what we presented.
Yeah.
Yeah.
Scalps like speed class City, we have presented it is a scene.
Our steady and it shows you know some benefits for patients and also we are very excited about that.
Kind of patient outcome, we are having with evoke so we believe that the value for both and it will depend on the patient patient anatomy alphaville.
That's helpful. Thank you.
Thank you. Our next question comes from Josh Jennings with Cowen. Please state your question.
Hi, good evening, Thanks, gentlemen, and wanted to just ask two.
Market size questions first just on the U S degenerative mitral surgery patient opportunity I think.
Abbott cited 70000 patient per year number.
And then building a tam from there. This is specifically for degenerative M. R. I mean, some of our consultants.
Cited some some bigger numbers, but don't want to front run your investor event at TCT or later in the year, but any any.
Initial thoughts before getting into the U S, where I could just on the general MRO opportunity.
So my question for Tricuspid, just maybe globally.
A similar line of inquiry, just consultants sharing that okay.
Case volumes could be a very strong and ultimate patient opportunity large.
And that could be $1 billion, plus global opportunity, but I wanted to get your thoughts on both of those two.
Please.
Procedures.
No. Thank you.
Let me start by saying that we believe that there are many patient in need many mitral patients. Many tricuspid patient need and that's you know mitral is probably larger than if I can speak from an opportunity standpoint at least at this point.
Having said that to comment on the U S D M opportunity.
We are not yet in the U S.
Although it is probably the best positioned to talk about how big is the market. The number of cases, because we are not yet in this market.
Thank you.
Thank you.
And ladies and gentlemen, I will now turn the floor back to management for closing remarks.
Okay, well thanks, everybody for your continued interest in Edwards, Scott and Mark and I are going to welcome any additional questions by telephone and with that I'll turn it back over to Mark.
Thank you. This concludes today's conference all parties may disconnect have a great day.