Q3 2022 Edwards Lifesciences Corp Earnings Call
Good afternoon, and welcome to the Edwards Lifesciences third quarter 2022 results conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the 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 the conference over to our host Mark Walter Lang Senior Vice President Investor Relations and Treasurer. Thank you you may begin.
Thank you very much Diego and good afternoon, and thank you all for joining US with me on today's call are Mike Michelle I'm, Chairman and Chief Executive Officer, and Scott All of them Chief Financial Officer also joining us for the Q&A portion of the call are Larry Wood, our global leader of Tavern, Bernard's Avakian, our global leader of T. M T T Devine Chopra.
Global leader of surgical structural heart and kidneys, Zyman, our global leader of critical care.
After the close of regular trading Edwards Lifesciences released third quarter 2022 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.
Shipments 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 that could cause actual results to differ materially information concerning factors that could cause these differences and important product safety information may be found in the press release, our 2021.
Annual 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 terms constant currency 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 and with that I'd like to turn the call over to Mike My phone for his comments.
Mike.
Thanks, Mark the third quarter strengthened our conviction in our company's patient focused innovation strategy globally structural heart procedures grew less than we expected in the third quarter, but that doesn't slow us down as our team accomplished numerous important milestones and made good progress on our multiple clinical trials in <unk>.
Generation technologies.
In August we received European regulatory approval for Pascal precision. This unique system is designed for Transcatheter based edge to edge leaflet repair and patients suffering from mitral and tricuspid regurgitation.
Shortly thereafter in September we received early U S. FDA approval for Pascal precision for the treatment of patients with degenerative mitral regurgitation, which was welcome news for clinicians who appreciate this differentiated platform.
And in Tampa last month, we announced approval to begin selling the <unk>.
Sapiens three ultra reso your valve in the U S. Our industry, leading SAPIEN three ultra Transcatheter aortic heart valve now incorporates Edwards breakthrough resilient technology.
Additionally, during the third quarter enrollment accelerated NR to tap a pivotal trials progress evaluating patients with moderate.
And alliance for our next generation <unk> technology, SAPIEN and explore.
These transformative developments reinforce our confidence in the continued growth of Transcatheter based structural heart interventions, we will continue to aggressively pursue breakthrough technologies with the potential to help even a broader group of patients and in turn drive significant future value.
Now turning to our financial performance third quarter total company sales of $1.3 billion increased 7% on a constant currency basis versus the year ago period, our broad portfolio of innovative technologies drove this growth although it was though.
Lower end of our expectations, reflecting persistent U S hospital staffing shortages and COVID-19 headwinds in Japan.
Adjusted EPS grew 13%, even while aggressively investing in R&D and commercial infrastructure to support new therapies.
For full year 2022, we expect total Edwards sales will be negatively impacted by foreign exchange and be at the low end of our previous range of five.
0.3, $5 billion to $5.55 billion, we anticipate hospital staffing challenges and are predicted difficult winter cold and flu season will continue into next year.
In tavern third quarter global sales of $862 million increased 6% on a constant currency basis.
Sales were below our expectations due primarily to the persistent U S hospital staffing shortages and COVID-19 headwinds in Japan, which intensified the typical impact of summer seasonality.
In the third quarter, we're pleased that well over 30000 patients were treated with SAPIEN across our more than 2000 global power centers.
We estimate the global <unk> procedure growth was comparable with edwards' growth in the third quarter.
Local selling prices were stable, although the average global selling price declined to the due to the weakening euro and yen.
In the U S are tamper procedures increased in the mid single digits versus the prior year, we estimate that our share of procedures was stable.
As expected our third quarter U S. Tableau procedure volumes continued to be impacted by regional U S staffing constraints, which were somewhat worse than we anticipated.
There were a high level of variability in growth rates across centers around the country and while staffing issues limited overall growth during the quarter nearly half of our tavern centers grew double digit in Q3.
Outside the U S. In the third quarter, our tavern sales grew in the low double digits on a constant currency basis, and we estimate total procedure growth was comparable.
Our underlying three year compounded annual growth rate outside the U S remains in the mid teens.
In Q3 geographies outside of Europe , and Japan grew even faster in the quarter.
Long term, we see excellent opportunities for O U S growth as we believe international adoption of traveler remains quite low.
In Europe sales were down sequentially as expected, even though we compete with a broad range of competitors our competitive position remains stable.
Scattered staffing shortages slightly exacerbated summer seasonality.
We anticipate some lingering regional impact on that.
In Japan third quarter procedure growth was impacted by a widespread seventh wave of Covid, which created a significant strain on hospital capacity and limited tab of procedure volumes as you might expect procedure volumes in Q3 varied across the country as patients and the provider.
<unk>, we're incentivized to turn their focus again to the treatment of patients with Covid we.
We saw October procedure volumes improve as Covid hospitalizations decreased late in the third quarter.
We remain focused on expanding the availability of tap a therapy driven by the fact that <unk> remains a significantly undertreated disease amongst this large elderly population.
In summary, we anticipate the continuation of staffing shortages that are difficult winter cold and flu season, we expect Q4, <unk> sales to be around $850 million and full year, two 2022 tavern sales to be at the low end of our previous range of 3.5.
$3 $7 billion.
We remain confident about the long term potential of <unk> as the rapidly evolving evidence recognize by policymakers around the world supports continued adoption of this therapy for the many patients suffering from aortic stenosis. This broadbased favorable evidence combined with the under treatment rate and growth.
Elderly population supports our expectation that this global tower opportunity will reach $10 billion by 2020, H, which implies a low double digit compounded annual growth rate.
Turning now to our Transcatheter mitral and tricuspid therapies product group.
Recently, we received U S FDA and European CE, Mark approval of Pascal precision.
This next generation system designed to facilitate precise navigation and an intuitive user experience will enable us to initiate our.
Commercial presence in the U S for the treatment of patients suffering from degenerative mitral regurgitation and also expand Pascal adoption in Europe for both the mitral and tricuspid patients.
This is exciting news was followed by the presentation of <unk>.
First results from the class two D pivotal trial at the recent TCT conference. This first of a kind head to head randomized pivotal trial further establish the safety and efficacy of mitral transcatheter edge to edge repair. We were pleased that this data demonstrated that Pascal.
<unk> is the beneficial therapy, expanding transcatheter treatment options for DMR patients.
In addition, we continued to advance enrollment of our class two F pivotal trial for patients with functional mitral regurgitation.
Separately, we continue to treat patients with our two transcatheter mitral replacement therapies through the and circle pivotal trial for SAPIEN three and my son study for evoke iOS. We were pleased with our progress and believe these sub 30, French transfer emeralds therapies will help.
Transform treatment for patients and expand the mitral opportunity.
Turning to tricuspid, we continue to make progress enrolling the Tri son, two pivotal trial of the evoke replacement system and the class to our pivotal trial with the Pascal repair system in patients with symptomatic severe tricuspid regurgitation.
We no longer anticipate CE mark approval for evoke tricuspid replacement in Europe . This year.
As uncertainties remain around the MTR process, we now expect a CE Mark approval late in 2023 with sales contribution in 2024, when we expect to have reimbursement in place.
We're excited about this therapy for the many tricuspid patients who have few treatment options today.
Looking ahead to PCR London valves conference in November we expect numerous late breaking data presentations across the T. M T T portfolio, especially.
Especially noteworthy is new one year follow up data on our early experience with the evoke tricuspid valves. We expect these presentations to contribute positively to the growing body of compelling clinical evidence for our comprehensive portfolio of Transcatheter mitral and tricuspid therapies.
Turning to the sales performance of T. MTT third quarter sales of $30 billion grew sequentially from the second quarter. Despite summer seasonality adoption of the Pascal system in Europe increased as we initiated a limited introduction of Pascal precision and we continue to have excellent.
On outcomes for patients as we progressed on a gradual expansion into more centers in Europe .
We forecast to increase the number of procedures. In Q4, you had expect reported Q4 sales to be similar to Q3 as a result of FX headwinds and a spike in Covid in Germany, our largest region in Europe .
We're pleased with our continued progress toward bringing a portfolio of therapies combined with contemporary clinical data in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease.
In surgical structural heart third quarter global sales of $220 million increased 8% on a constant currency basis over the prior year. We were encouraged to see strong global growth driven by increased penetration of our premium resilient products. Despite snap.
Offing challenges in certain regions and although staffing shortages continued to be a concern we're observing the cardiac surgeries are being prioritized.
We continue to see strong momentum of the resilient portfolio globally as we bolster the overall body of evidence, including four abstracts recently presented at the European Association for Cardio thoracic surgery annual meeting in Milan.
We continue to believe that physicians value the features and benefits of this advanced tissue technology for both aortic and mitral surgical valve replacement procedures.
Adoption of the mitral valve launched in the U S. In April now represents the majority of our mitral valve sales in this region.
Separately, we've decided to exit our harpoon surgical mitral repair system and stop enrollment and the related clinical trials given our experience to date, we made the difficult decision to focus on developing other innovative therapies to better serve patients and continue to be the partner.
Choice for cardiac surgeons.
In summary, we remain confident that our full year 2022 underlying sales growth will be in the mid single digit range for surgical structure for surgical structural heart driven by market adoption of our newest premium technologies and surgical market growth.
In critical care third quarter sales of $207 million increased 3% on a constant currency basis over the prior year the growth rate was impacted by a very strong prior year comparison.
Sales growth was driven by increased adoption of our broad portfolio of smart recovery products, including flow track and clear sight sensors with our unique hypotension prediction index algorithm. Additionally demand for our Haemus, we're monitoring platform remains strong.
In summary, we continue to expect mid single digit underlying sales growth for the full year 2022, we remain enthusiastic about our pipeline of critical care innovations highlighted by smart recovery technologies designed to help clinicians make even more informed decisions for patients.
And now I'll turn the call over to Scott Great. Thanks, Mike.
Mike mentioned, our sales of $1.32 billion in the quarter representing growth of six 7% on a constant currency basis fell short of our expectations driven by a slower than expected recovery of U S Hospital staffing and Covid in Japan.
Our strong underlying gross profit margin combined with a minimal spending increase resulted in adjusted earnings per share growth of 13% to 61.
GAAP EPS was <unk> 55.
Which included a net $57 million pre tax charge or <unk> seven per share relating to the harpoon discontinuation.
We anticipate that the U S Hospital staffing challenge is likely to persist and we now expect total company sales at the low end of our previous range of $5 $35 billion to $5.55 billion and <unk> sales also at the low end of our previous range of three five to $3 $7 billion.
We continue to expect surgical structural heart sales of $870 million to $950 million and critical care sales of $820 to $900 million for.
For the fourth quarter, we're projecting sales and adjusted earnings per share to be similar to Q3.
We now expect full year adjusted earnings per share of $2 40 to $2 50.
Up from 'twenty to 'twenty, one adjusted EPS of $2 22.
I'll now cover additional details of our results our adjusted gross profit margin in the third quarter was 81.0% compared to 76, 3% in the same period last year.
This improvement was driven by the expected positive impact from our foreign exchange program, which includes hedge contract gains and natural hedges that offset the negative sales impact from the weakening of the euro and yen against the dollar.
At current FX rates, we continue to expect our full year 2022, adjusted gross profit margin to be approximately 80%.
This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange as compared to 2021.
At current rates FX is expected to result in an approximate 250 basis point reduction in our gross profit and operating margins.
2023.
Selling general and administrative expenses in the third quarter increased three 5% over the prior year to $377 million or 28, 6% of sales primarily due to a resumption of in person commercial activities, partially offset by the strengthening of the dollar.
We continue to expect full year 2022, SG&A expenses as a percent of sales to be between 28% and 30% as we continued to invest in our high touch model for Teva and the ongoing build out of the <unk> commercial team.
Research and development expenses in the quarter declined 2% over the prior year to $234 million or 17, 7% of sales. The decline reflects unusually high year ago spending we continue to expect R&D expenses in 2022 to be between 17 and 18% of sales.
As we invest in developing our new product pipeline and generating evidence to support <unk> and <unk>.
The discontinuation of our surgical Harpoon program resulted in a net seven cent per share charge, consisting of a noncash impairment of intangible assets a reduction of contingent liabilities and other related exit costs.
Additional details of the charge and a reconciliation between our GAAP and adjusted EPS is included with today's release.
Turning to taxes, our reported tax rate this quarter was 15, 7% or 17% excluding the impact of special items. This.
This quarter's higher rate reflected a lower benefit from stock based compensation.
We continue to expect our full year tax rate, excluding special items to be at the high end of our 11% to 15% range.
Foreign exchange rates decreased third quarter reported sales growth by six percentage points or $74 million compared to the prior year at.
At current rates, we estimate our year over year FX impact to fourth quarter sales of more than $100 million. In total we now expect an approximate $270 million negative impact or five percentage points to full year 2022 sales compared to 2021.
And we expect nearly the same negative impact to full year 2023 sales.
FX rates positively impacted our third quarter gross profit margin by 440 basis points compared to the prior year.
Relative to our July guidance FX rates had a minimal impact on third quarter earnings per share.
Free cash flow for the third quarter was $250 million defined as cash flow from operating activities of $310 million less capital spending of $60 million.
So 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 $7 billion in cash cash equivalents and short term investments as of September 30th.
Average shares outstanding during the third quarter were $625 million down from the prior quarter as we repurchased one 1 million shares for $100 million.
Year to date through the end of Q3, we repurchased eight 4 million shares for $861 million. We expect shares at the end of the year will be slightly below our previous $625 million to $630 million share range.
We now have $1 $8 billion remaining under our share repurchase program.
And with that I'll pass it back over to Mike.
Thanks Scott.
Well, despite ongoing procedure headwinds associated with the pandemic, we're pleased with our year to date performance, which includes strong progress on strategic milestones. We believe hospital staffing constraints will gradually improve and are committed to aggressively investing in our focused innovation strategy for the broad group of patients.
Still suffering from structural heart disease, we remain confident that the innovative therapies, resulting from our investments will allow us to treat more patients and continue to drive strong organic growth in the years to come and with that I'll turn it back over to Mark.
Thanks, a lot Mike before we transition to Q&A I want to remind everyone that our 2022 Investor Conference will take place on Thursday December eight at the New York Stock Exchange. Thank you to everyone who has confirmed your in person attendance. We're really looking forward to seeing you. Soon at this historic venue. In addition to our 2023 financial guidance, you'll hear more about Edwards focused innovation strategy.
And our comprehensive and exciting product pipeline more information will be available on the Investor Relations section of the Edwards website at IR Dot Edwards Dot com 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'll conduct a question and answer session to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Larry <unk> with Wells Fargo Securities. Please state your question.
Good afternoon, thanks for taking the question.
Wanted to ask one on 2023, just a framework and some things to consider.
And then one on tricuspid, Mike and Scott.
Just starting with 2023 I think people are going to look at the second half implied growth here call it 7% by my math.
Maybe there'll be maybe that'll raised some concerns about growth next year. So Mike can you provide some framework for how to think about.
23, any catalysts to call out and Scott P&L considerations that we should take into account I heard.
The FX headwind.
The 250 basis points.
Just any high level thoughts.
Given the shortfall last quarter and in this quarter and I had one follow up.
So Larry it's Scott why don't I start with the financial piece of that and then turn it over to Mike to talk about some of the strategic things that we expect in 2023.
Financially, we havent gotten into the quarter by quarter FX impact or growth rates typically we don't give guidance as you know for the next year until our Investor Conference. We will give you more details then but just we thought it was helpful. Because FX has been such an impact this year and it will continue to flow over the next year that we help quantify what the topline impact.
It will be which we think is near what is going to be this year. So this year, we're at like 5% of sales and about $270 million. We think maybe it gets near to that at current rates or forecast start 2023, but we don't have the quarter by quarter breakout yet Mike you want to talk about next year's well I would just just briefly just go.
Through the portfolio I mean, we feel like.
The business, we don't talk about very much like surgical and critical care are strong and are you going to continue to deliver we're going to see catalysts coming from TMT T. As we see a lift coming from the introduction of precision next year, and then tab, where even though we're.
We're suffering right now from some staffing shortages, we think those are going to get gradually better and I expect solid performance. I mean, we were not kidding. When we say we still believe that there is a $10 billion opportunity in 2028, we're highly confident in that and we think we're on a path to achieve it.
That's helpful, Mike and actually I wanted to ask you about tricuspid.
There's a lot of excitement around tricuspid I know you know that.
You you employed a Bayesian design for class two D is it reasonable to assume that you'll employ similar Bayesian design for your tricuspid pivotal trials. The two you mentioned and just how are you thinking about that opportunity our checks suggested.
It should be bigger than mitral, maybe somewhere between mitral and aortic thanks for taking the question.
Yeah, Thanks, Larry well, we're obviously excited about our pipeline and we work very closely with our regulators around the world, including the FDA. We typically just don't comment on some of the real specifics of the regulatory process, because they tend to change and be situational and so I'm not going to really get into or are we going to do.
The amount of specific upcoming trial I mean, we're well aware of all the tools that are available and we'll try and do the smartest thing and work Oh really.
And our collegial fashion with the regulators, but it's not clear I don't know Bernard do you have anything you want to add to that yes just.
Small things you know obviously any in any study any play in.
Different design.
Some are competing devices together solar competing a device to medical treatment. So obviously, she's not as easy as taking a what do we need for two D and are plagued out VLDL studies.
Thank you guys.
Our next question comes from Robbie Marcus with Jpmorgan. Please state your question.
Yeah, Hi, thanks for taking my questions.
Maybe first I think it would be helpful. Maybe walk us through some of the differences between lights have very so much more impacted than the surgical business I know, it's lots of similarities but also differences is it just pure staffing is at the imaging is at the testing is that the patient pipeline.
Any any ideas there and how should we think about the impact.
From the shortfall in Japan, It looks like numbers came in below the street by about 15 plus million dollars is that all Japan.
Sure.
Yeah. So let me let me kick it off Robbie and then I'll turn to Larian Devine to supplement the answer so actually.
The timbre procedures, we believe grew faster than the surgical procedures. If you look at what the what the market did in the quarter. When you look at Edwards itself. It looks like the surgical business was growing faster, but then I've got some more edwards specific performance rather than what was going on in the underlying market. So I think.
We have to be a little cautious I'm debating do you want to add anything from a surgical perspective, and then we'll kick it over to Larry.
Yes, sure Mike I appreciate that yeah, so to follow up with what Mike was saying Ravi.
The growth driver of the surgical business as Mike had mentioned was really about driving adoption of the Brazilian portfolio globally as well as the U S launch of our new mitral valves, mitral, which should provide a nice uplift so resilience might transfer really our top drivers, but as Mike said, we also had.
A little bit of market growth coming from us maybe low single digit market growth and we're generally seeing that out within the world of surgical operating rooms, and certainly beyond cardiac surgery cardiac surgery being an area of that surgical operating in this kind of prioritize resources towards surgical operating rooms. So we generally see that.
I will lead to that slow low single low low.
Low single digit kind of market growth.
Yeah. This is Larry as it relates to <unk>.
There's more upfront work that has to happen with the type of patients in a surgical patients.
In terms of the <unk>.
Imaging that has to be done you know you have to do a C. T for sizing oftentimes you you need to do angiograms to screen out for coronary disease. So that you can do all of your type of case planning. So there's typically more work up that has to be done in for a surgical patient and so you know when we talk about staffing issues a staffing issue at any in any link in the chain.
Those patients to move a little bit slower through the system and take a little longer to recover. So I think that's one of the differences, we see but as Mike said.
<unk> has grown faster than surgery starts.
And a lot of the growth drivers in surgery, I think there'll be an aortic procedures, yeah, Robbie just quickly comment on Japan.
Yeah, the total impact and the shortfall was only from Covid Covid hit hard I'm not I don't know how close you were to our hardest hit in Japan, but it is hard.
And you know we are doing great in Japan.
Turning to do great in Japan, but we have we really felt the impact of that it was probably worse towards the middle of the quarter and it started getting better. So it's a the waivers kind of passing now if you will so it is not continuing but what it hit it hit in a pretty significant way.
That's good to know.
Maybe one more follow up question here, you know the Opex control in the quarter with some of the most severe we've seen probably.
Probably since than ever.
Second and third quarter of 2020 during the worst of Covid.
Should we be thinking about where these pullbacks came from how sustainable they are and.
How pathic pickup going forward. Thanks.
Yes, thanks for the question Ravi.
You know part of this was operating with a with a healthy sense of disciplined about making sure. We're running the company efficiently, but a lot of it was just the benefit of expenses that we incur overseas that translate in to lower U S dollars.
Okay.
Simple enough thanks, a lot.
Yeah.
Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hey, guys. Thanks for taking my question.
Maybe my first one is Mike you, especially on the.
U S tower, I think 850 million Q4, what's the underlying implied that where is that.
Low singles I think you've mentioned that 50% of centers in the U S grew double digits.
I'm curious is that a common just to assure people adopt.
This market is still double digit growing and perhaps even remaining half of the century youre seeing some of these staffing challenges.
Just give us some context on why we're seeing double digit growth in some centers not and perhaps the other.
Yeah, I guess, what we'd need to check the numbers I don't know that low single makes sense to me Vijay, but nonetheless, let's just get into what's there and I'll turn it over to Larry here in a second but yeah and indeed, we saw a great variance across the country in terms of how hospitals has been performing and Larry you could probably give us some color on that but we.
Some centers that are where we're really growing significantly we mentioned, how many had double digit growth in other centers that just weren't growing at all but Larry why don't you get into that a little bit yeah you.
When we looked across the country I think anywhere we go in anybody who we talk to they talk about staffing challenges and I think that's pretty consistent across the country, but clearly it seems to be impacting certain areas of the country more than others. I mean, just anecdotally I had some centers in Texas and there's no other country that we are growing very very well in some of our big pro.
Grams, a more more of the urban.
Urban areas of population density areas.
We're a little bit flatter and so we do see big differences, but it actually it encourages me that.
As these things start to wane the patients are there and I think again anecdotally, we hear backlogs continue to grow.
But I think theres still some challenges in working through these the staffing issues.
Understood and maybe Scott one for you I think that you have 2 billion of cash on the balance sheet.
Why why knockdown announced the big ESR I think your peer has done that.
So it's a market that Edwards still believes in the long term underlying growth of power markets. Clearly there is some nervousness Africa.
The guide cut this out this evening.
Well, you're right we have a lot of cash on the balance sheet and it gives us flexibility to invest for future growth and so part of that is building additional physical infrastructure supporting plant production capacity part of it is.
Making sure that we're ability that we've that we're able to fund external growth and then yeah. We're going to continue to buy back shares and we've done accelerated share repurchases, including earlier. This year in total this year, it's been our biggest share repurchase year ever at over $800 million and so.
The only good thing about the stock price has been under pressure. This year as it has given us a chance to go buy in shares and we think that that's going to be a great long term investment we're going to continue to look for opportunities to do that.
Alright, thanks, guys.
Our next question comes from Joshua Jennings with Cowen. Please state your question.
Hi, good evening, thanks for taking the questions I was hoping to just ask about U S <unk> growth and potential return to the CAGR.
I believe is ingrained in the.
<unk> 10 billion by 2028, Tim.
Tim calculation.
Do we do you think that U S. Taverns returned to double digit growth requires indication expansion is that essential work, where could we see a return to double digit growth prior to <unk>.
Early tavern opening.
Opening up the asymptomatic indication and progress opening up to something back moderate.
Hillary why don't you take that yeah. Thanks, Josh there theres, just because of the nature of the trials and the.
To your endpoints and rehab on these trials, they're not really big contributors to those numbers and what drives those numbers is we still have only about one out of 10 patients with aortic stenosis that are getting treated in the U S. And if you look at the penetration rates outside the U S. There, they're much smaller than that I mean, there's a lot of rest of World Places Theyre, just really just getting started in Japan is very <unk>.
Undertreated. So I think it's just a matter of getting through some of this this COVID-19 lag that we've had getting some of the staffing a little bit healthier than I think it's going to return back to normal I sort of see the indication expansion as <unk>.
Being things that give us way beyond the 10 billion.
Great. Thanks.
And just to follow up on.
The resilient tissue incorporate in the SAPIEN ultra at three and the price premium.
Can you just talk about the reception.
As you as you've marketed that early days.
Should we think about I guess.
Penetration of Brasilia tissue.
JP and franchise in the U S in 2023 or in the coming quarters and into 2020, thanks for taking the questions.
Sure well you know, we're very fortunate that our surgical business has built a great brand around Brasilia and we get to follow that all of the brand work that they've been they've been able to do and so when you look at the surgical site and spirits I think the leading heart valve in the world now and that's largely based on on the Reso your tissue and how receptive people event.
The benefits that it brings for SAPIEN. Three you are that approval came a little bit earlier than we expected we're super excited to add it to our SAPIEN platform. We're really just getting started in the launch we have to scale up inventory and do some of the other things we need to do but I think people are excited about it and we are going for a price premium.
On that we've increased our list price by about $500 now people get rebates and there's different things around the country. So I don't know that I would model that in for for everything but I. You know I expect this is gonna be a popular platform, but it's going to take us a while to get it all rolled out.
Thanks again.
Our next question comes from Joanne Wuensch with Citibank. Please state your question.
Thank you very much.
I wanted to spend a little bit of time on hospital staffing because by our due diligence.
It's getting better but not expected to get great anytime soon.
If we think about next year cabinet growth being more high single digit growth in the U S versus double digit growth.
I just wanted to get my head around how to think about the lingering effects of that.
So I can start us out Joanne so.
You're right, we don't expect snapping to be cured overnight.
It's highly variable as Larry indicated just by the fact that we have almost half of the U S hospitals and Pavel that we're growing at double digits. So theres a bunch of people not really suffering from staffing and then again there is another large swath of people that are really suffering from it the conversations that we have with those folks in many cases say.
Oh, we're making progress it's improving some say it might take them up to a year or two to improve it. There were you know pretty widespread use of traveling nurses that has had such a burden on the P&L of hospitals that they've curtailed added long ways in many ways and been able to move beyond that but this is gonna be a promised.
To us it take some time so does it doesn't hamper our growth next year, probably some I mean, we do anticipated probably a tough winter Joanne just because of whats predicted here with COVID-19 and the flu, but beyond that it's tough to say, we're going to be providing guidance at the Investor Conference. So you can get.
Deep on that and so we'll be prepared to go a little deeper at that time, Larry but anything to add yeah. You know I think it's it's important to remember I mean, the patients are out there and they need to be treated and the physicians are still very very motivated to get these patients treated and so there are as frustrated as anybody elses and I think hospitals are incentivized for doing procedures.
Not for not treating people. So I think everybody wants to get this situation resolved I just think as hospitals have added staff one of the first things. They tried to do as Mike mentioned is you don't use the new staff to replace the traveling nurses to.
Try to help out their own P&L. So that's maybe why we haven't seen as much lift from the staffing, but hospitals are working super hard on this to get this resolved it's going to take time, because you can't just create nurses from scratch quickly, but people are working really hard on getting us into a better place.
Okay. Thank you very much.
Next question comes from.
Rick Wise with Stifel. Please state your question.
Good afternoon, sorry about that.
A couple of follow up questions.
I apologize, it's hard to not focus on.
The U S growth numbers.
Larry.
Actually I have a question for Larry really but I'll just tell you Mike.
Yeah.
Expand on your comments on the U S referral chain.
Talked about one <unk>.
Aspect of getting patients treated the imaging, but alright.
Has COVID-19 or anything about the current dynamics.
Hello patients.
Showing up to clinics, where they can be diagnosed.
In some way or is there some aspect that we can sort of focus on and imagine.
It might get better.
You bet.
Patient gathering change chain and related to that.
One thing I still can't quite understand my brain around is it.
Yeah.
They are very patients are sick.
Are they not being treated.
And it's sort of hard for me to imagine new people being in backlog.
Maybe you can just talk.
Talk around those points.
Why don't I start why don't I start Rick and have Larry jump in Yeah. You know in the early days of the pandemic I really do think it scared patients away from engaging in the system and getting treated I think are the most part we're at a different place now where the a S patients actually they want to be treated they're willing to go.
Into the system, but they're just finding the system grinding along slowly and they're being pushed off and they're being postponed and it's a multi step process, maybe Larry you can get a little bit deeper on that sure. Yeah you know.
I think referrals are increasing I mean, what we hear anecdotally is that backlogs are growing at hospitals, which would seem to indicate that patients are still getting referred at least from what we hear from.
The physicians that we talk to so I think that part of our system is starting to get better but you know as.
As I talked about earlier, there's just a multiple set of testing and screening and imaging that patients have to do before they get their tower and I just don't think that system as it's come back to full health yet right.
I think we certainly have heard from centers that have said they kind of have to juggle patients with the more you know a sick patients moving up the waiting list and and then pushing the less sick patients down a little bit, but you know again hopefully there's this improves with time as staffing gets back to normalcy.
One last quick follow up.
Mike you alluded to the buildup of the TMT commercial team just curious where are we and maybe specifically related to.
The Pascal rollout.
Where are we where are you hoping to be over the next few.
A few months.
As we approached 23, thank you.
Yeah. Thanks, Rick Yeah, we're definitely building up that team and we're growing the team in Europe as well as the U S. We have Bernard radio So Bernard why don't you update us where we are okay. So maybe let me start with the U S.
We are obviously very pleased about having get early approval with Pascal in the U S.
We are executing our plan, which is you know a training and extending out our field organization, we already started to train physicians.
We are negotiating some hospital contract.
We have done some a few cases in the U S with a great great patient outcome and you know what I for US number one objective so.
And we are initially focusing on the site and that's the way a part of the cleaning of the clinical trial with us. So that's basically what we argue in the U S.
Thank you.
Our next question comes from Peter Chickering with Deutsche Bank. Please state your question.
Hey, guys. Thanks for taking my questions first one is looking at the U S cabinet growth this quarter and I apologize for all the questions on this topic looking at the larger urban centers and those centers growing it all around that capacity is all the new growth coming from the smaller or newer centers.
Yeah, Oh, yeah, I can start if it's quite a it's really a mixed bag pedal, but Larry do you want to make a few comments and again it really it really is a mixed bag I mean, certainly some of those centers you know are sort of more more flattish, but we also have some of those big centers.
You know are growing actually really well. So it's just really really hard to generalize or to make broad overreaching comments, but.
As we said before probably about half of our centers were growing in double digits and I, but I think you know I think bigger centers, maybe struggling a little bit more than some of the smaller centers are but you know again I have big centers are growing while I have small centers that aren't growing. So these are just sort of some general comments.
Okay fair enough.
Then looking at the German market, it's the largest.
It's a mature market in Europe , and I know it's sort.
Certainly COVID-19 throughout the year I'm, just curious how is the German market growing in 2022, and they colors or where the growth specifically in the third quarter. Thanks, So much.
So.
It kind of depends on what we're talking about Peter So if you were talking about surgery or you're talking about to hover or you're talking about the transcatheter mitral they each have their own growth rates.
In particular in Germany, they have been hit by Covid, and we tend to see it more in the ICU use in.
In Germany, maybe more than any other country in Europe , which tended to hurt our our transcatheter mitral probably market growth a little bit more than some of the other segments, but I don't know Larry or Bernard do you have anything you want to add to that yes. You know Kartik you know, Mike we have seen a spike in AR in coffee.
In coffee the wave in the specifically in Germany, mainly in October or late September and October . So we don't know yet you know how it is going into a zone of yet is it going to be an acute all you're really doing to get better in November .
Yet to be seen.
Yeah, I think generally speaking Q3 in Europe is always a little bit tougher because we have the seasonality that we typically see with with holiday you.
Vacations and those sorts of things but.
You know, we certainly have seen some challenges there, but I would say the staffing issues are a little bit more scattered there.
In the U S.
But having said all of those things that I know it sounded it all sounds pretty negative, but you also have great Big German centers with dedicated Kols, who are really good and really motivated they're truly global leaders and key opinion leaders. These guys are just cranking, they're just going we'd probably see more energy out of them than we've ever seen in the past.
Thank you. Our next question comes from Cecilia furlong with Morgan Stanley . Please state your question.
Great. Good afternoon, and thank you for taking my questions I wanted to ask about Pascal Pascal precision and yet I'm really what you're seeing either from further penetration versus any finished how youre thinking about.
The growth drivers going forward on the bigger growth drivers and then just turning to you asked as well, but the two Pascal trials.
Summer and took here just if you could provide an update in terms of how you're thinking about recent progress in enrollment as well as any timelines to potential approval.
Okay. So we'll start out by talking about precision in Europe , and then we will also comment on your question regarding to trials. So Bernard you want to yeah, and so we are we began the conversion of center from.
Pascal to the Pascal precision system and the initial feedback from physicians is very positive and.
We got great clinical outcome patient those cub. So the physician appreciate your the ease of use the navigation improvement that this new system is bringing so this year. We are very excited about TD, but voice we at the beginning of it. So we see a lot of promise for this innovation.
T O devices.
So that's in there.
Other question was has any update related to the Pascal T or the the the functional patients that are being studied with Pascal so to US we are continuing to yell them until these two pivotal studies with class two D. I think completed enrollment we believe that the site.
I'm going to put more focus on these two remaining Brian but we are continuing it is going well and I am going to provide you a little bit more data youre doing the investor footprint. So the same trials that we're doing to D are probably doing too.
Through T O Russell Yep.
Great and then if I could just follow up really quickly on your comments on evoke in Europe on and just the MTR process can you talk to what you're seeing today and really what kind of drove that.
At year push out on how you're thinking about just the process from your end.
Going forward in detail.
Yep. Thanks.
We're very excited about the evoke tricuspid valve replacement system, and really think that has the potential to be a game changer, but Bernard you want to comment on M. D. R.
These are the same processes in your process and like everyone. We are maybe getting a little video process.
And then.
New processes ease of uncertainty specifically for breakthrough therapies like like evoke we continue to be very pleased with the elements of the book.
At London valves, and you are going to see additional data with more patients longer follow up and so very much looking for on this one so.
It does not appointed by by not being able to have an approval. This year, but we are very excited about the promise of this technology. We are walking very closely with unlucky fight body answering questions and so we are very much looking forward to bring this important therapy to patients who have <unk> today.
Okay. Thank you for taking the question.
Our next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, Thanks for taking the question I Wonder a little more color on on the top of our guidance implies 850 in Q4, which is down sequentially. Just wanted a better understanding of why down sequentially in <unk> and if that's a comment on both U F and O U S. Do you expect kind of both to be down quarter over quarter.
Sure.
Part of what we're experiencing is continuing foreign exchange headwinds. So the 850 incorporate sales from outside of the U S and in the U S and outside of the U S. You've seen.
Euro and yen, just get weaker and weaker during the course of the year and so that's part of what's hitting us in the fourth quarter. Yeah, we actually expect more procedures, both in the U S and outside the U S in the fourth quarter.
Okay. So you asked have we expect to be up quarter over quarter.
The procedures will certainly be up where we're not prepared to predict swap.
Swamps foreign exchange.
Okay, that's why our U S comment, but okay and I guess the follow up Yeah, you I thought okay. And then the follow up question was on a kind of a on spending opex and margins for next year, given some of the FX flow through I know the Street's got you at like six to seven EPS earnings growth next year I just want to make sure.
Picture were accounting for all the puts and takes on on the P&L. So consider models for 2023.
Yeah, and again I'm going to have to ask you to hold off for the the detail on the ticking and tying until we get to New York on December eight, but we wanted to at least help you on modeling the top line and the gross margin. So top line, we're expecting as we mentioned similar.
Headwinds to what we've seen this year so call it.
Over $200 million in headwinds, we had $2 70. This year and then you add to that lower gross margin. So we go down about 250 basis points from or where you expect the full year. This year, which would take you to 77, 5% just from a modeling perspective. So the combination of those two things flowing down the P&L should get you to it.
Just a preliminary range of what to expect for earnings per share like I said, we'll talk more about yeah, well, we had a little inflated gross margin this year because of the impact of hedge contracts and that will largely go away.
Okay, Great I look forward to December thanks for taking the questions.
Our next question comes from Richard <unk> with <unk> Securities. Please state your question.
Hi, Thanks for taking the questions I just wanted to come back to a couple of points that you guys made.
About certain trends related to flu and COVID-19.
And then Japan, specifically just to be sure about what's getting better what's just not getting worse and then what is getting worse into four <unk> and then you you keep saying the winter months. It sounds like the early part of 'twenty. Three so can you clarify what exactly you take flu and Covid.
<unk> being a tough winter what regions are I want to make sure I understand where and what's factored into the guidance for that.
Same question on Japan, It sounds like that was getting a little better it gets through the worst of it but what's assumed in guidance specifically into <unk> and how should we think beyond that thank you.
Alright, so there's several questions in there, let's see if I'll take a shot at getting after a few of them.
First let me start with the end here in Japan, We said, yes, Japan, we believe is getting better the seventh wave has peaked and is coming down.
They have another wave in Japan, I don't know.
Very difficult to say.
We'd say general the intelligence and this is particularly U S and Europe oriented is that we expect it to be a rugged COVID-19 and flu season and that that we haven't fully experienced that yet, but that's probably more expected to come in the November through January timeframe. So yes to your question.
Sure enough could that also affects early 2023, yes, it could and some of this is just from the experience that we have all had around the world in a number of predictions about what's likely to happen based on the current variance. So I don't know does that get at answering your question.
Yeah, and I guess, what what's the assumed for that in your guide do you assume that that gets worse into the fourth quarter already.
Rich, we assumed in our guidance and so.
There is an appropriate amount of expectation I guess conservatism that we are expecting continuing headwinds from respiratory.
Respiratory illnesses, whether it's cold or flu or something in between and we expect that that's going to continue to play a factor in the fourth quarter and into 2023.
Thanks, and if I could just one more on FX I know that.
<unk>.
You said, a 250 basis point year over year headwind, so that's clear.
Rates continue to go against you I know that that also pushes out the hedge impact into next year. So would that actually caused there to be a little bit even a further push out into 'twenty, four and maybe less or more mitigation of that falloff in 'twenty three am I thinking about that right.
You are thinking about that right. Some of what we're seeing in a lot of what we're seeing in 2023 is what we would have otherwise.
In 2022, and similarly, we're going to see some FX benefit in the first part of 2023 that will then be a headwind in 2024, yeah I just like all.
All assumes that exchange rate.
Yeah, I just want to clarify one thing, it's 250 basis point headwind to gross margin, it's nearly a five percentage point headwind on the topline.
Sure.
Thank you.
Thank you and our next question comes from Adam <unk> with Piper Sandler. Please state your question.
Good afternoon, and thank you for taking my questions and squeezing me in here just two quick ones from me.
Just any update on the enrollment for the moderate AF trial or alliance trial, I think if I heard correctly there's.
You saw some uptick in enrollment pace.
Recently, but I was hoping you could flesh that out a little bit more and then second.
How should we be thinking about the cadence of future data from the Pascal <unk> study, obviously, we got the initial data set at TCT, but when should we expect.
Additional readouts.
From that study thanks, so much.
Alright.
As Larry so as it relates to alliance and progress we just really got those trials going this year and we have seen an acceleration in enrollment, which is which is really encouraging for us to get these trials.
Moving forward and you know given the overall environment are you worried that clinical trials, just really add on and it's a little bit counterintuitive, but our trials are actually starting to enroll.
You know at accelerated rates and so we're very encouraged by that and I think people are excited about the export platform and I think you know the moderate as trial is.
A groundbreaking trial in terms of how we think about this disease and what is the optimal way to treatment treated and I think there's just been a lot of engagement from the physicians to study that in a rigorous randomized trial.
And Adam your your question about additional two D. Readouts is a good one.
So far this has really been an early readout of the the class two D, which was sufficient to get U S approval, but as we follow all of the patients in this trial for the full year there will be additional data Bernard you want to give us a sense of when that data might be available absolutely you want.
You can expect to see.
Additional data.
More patients more follow up.
Stuff that you guys early as next year.
Thank you okay.
Ladies and gentlemen, that's all the time, we have for questions I'll now hand, the floor back to Mike Ms. Allen for closing remarks.
Okay, well thanks, everybody for your continued interest in Edwards, Scott and the IR team and I certainly welcome any additional questions by telephone. Thanks, so much.
Thank you. This concludes today's conference all parties may disconnect have a great day.