Q2 2019 Earnings Call
[music].
Greetings and welcome to the Edwards Life Sciences second quarter 2019 results conference call. At this time all participants are in a listen only mode. A brief 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. As a reminder, this conference is being recorded I would now like turn the conference over to Mark Walter Tang Vice President Investor Relations. Thank you. Please begin.
Thank you.
Good afternoon, and thank you for joining us today, just after the close of regular trading Edwards Life Sciences released its second quarter 2019 financial results. During today's call management will discuss the results included in the press release and accompanying financial schedules and then use the remaining time for Q1 <unk>.
Our presenters on todays call are Mike Mussallem, Chairman, and Chief Executive Officer, and Scott <unk> Chief Financial Officer.
Before we begin I'd like to remind you that today's during todays call 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 mitigation reimbursement competitive matters and foreign currency fluctuations.
These statements speak only as of the date on which they are made and Edwards does not undertake any obligation to update them. After today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially information concerning factors that could cause differences and important product safety information may be found in the press release, our 2018 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.
Underlying and adjusted management is referring to non-GAAP financial measures otherwise, they're referring to GAAP results additional information about the use of non-GAAP measures is included in today's press release and available that Edwards dotcom with that I'd like to turn the call over to Mike for his comments.
Thank you Mark.
We were pleased to report strong second quarter total adjusted sales up $1.1 billion, representing 14% underlying sales growth with Belo strength across all four product lines sales were lifted by high teens global growth in TAVR, which reinforces our belief in our projection of a 7 billion dollar opportunity by 2024.
We continue to aggressively pursue breakthrough technologies with the potential to help an even broader group of patients and in turn drive significant future value.
Given our first half performance, we have increased confidence that we will again achieved double digit sales growth in 29 team.
In Transcatheter aortic valve replacement or TAVR second quarter global sales were $678 million up 18% on an underlying basis, we estimate global TAVR procedure growth was comparable with our growth we anticipated growth would accelerate after the first quarter and our results this quarter exceeded our expectations.
Globally, our average selling price remain stable as we continue to exercise price discipline.
For the first half of the 2019, we estimate global TAVR procedures grew in the mid teens consistent with our guidance from the December Investor Conference.
In the U.S., our TAVR sales grew in the high teens and we estimate that our share of procedures was stable. We believe growth was stimulated by increased competence in the therapy then the therapy. Following the strong partner three clinical results presented and published in late Q1.
It was encouraging to note that growth was broad based across both high and low volume centers.
Nevertheless, based on our continued research we are increasingly confident that there are many patients who would benefit from tapper and who are not diagnosed referred or treated today. We remain focused on our efforts to increase awareness and diagnosis improve referral patterns and help patients received the care that they need based on medical guidelines.
Patients are continuing to be treated with the partner three low risk continued access protocol and more than 30 high volume clinical trial sites.
We now estimate that in the third quarter. The FDA will approve the SAPIEN three and SAPIEN three ultra for patients at low surgical risk.
Late in Q2, the U.S. centers for Medicare and Medicaid services or CMS released the final updated and C D, which we believe better reflects today's practices and the needs of patients. We commenced CMS on its thoughtful approach toward updating the tab or policy, while the M.C.D. did not a cheap equity wise between surgery and tab or we believe the modernized requirements and more streamlined patient evaluation process are meaningful enhancements that should improve access for more patients suffering from severe aortic stenosis.
Outside the U.S. and the second quarter, we estimate total tapper procedures grew in the mid teens on a year over year basis, with edwards' growth being compatible <unk> comparable.
We continue to see excellent opportunities for all U.S. growth as we believe international adoption of TAVR therapy remains quite low.
In Europe , we estimate the TAVR procedures also grow in the mid teens on a year over year basis, and Edwards' growth was comparable.
We're continuing our launch of SAPIEN three ultra system in Europe , which we expect to account for a majority of our TAVR sales in Europe by year end.
Centera was a limited was in a limited number of centers and did not contribute meaningfully to this growth.
In Japan, we continue to see strong TAVR adoption driven by SAPIEN, three and new centers are being qualified we remained focus on expanding the availability of TAVR therapy throughout the country driven by our belief that aortic stenosis remains an immensely undertreated disease, along this large elderly population.
As we discussed earlier this year the landmark partner three trial clearly demonstrated superiority of SAPIEN three over surgery in the low risk patient population.
A highlight was a low 1% risk of death or stroke at one year.
Combined with prior robust clinical evidence, we believe a great majority of patients with aortic stenosis are ideally treated with Edwards a best in class SAPIEN three platform.
Given the pending approval for patients at low risk and the continued excellence and versatility of our balloon expandable platform. We have made the difficult decision to discontinue the Centera program, while the Centera valve has demonstrated excellent clinical outcomes and is performing well for patients the time and resources required to optimize deliverability as well as expanding the indications to match SAPIEN three are significant.
Going forward, we believe we best address patients needs by focusing resources on our robust pipeline of next generation balloon expandable technologies, and indeed indication expansion trials.
We continue to be pleased with the SAPIEN three ultra valve performance and throughout the disciplined launch our competence has been reinforced by positive clinician feedback.
Many clinicians have also expressed a preference for aspects of the SAPIEN three delivery system and we're working to incorporate those changes to optimize the SAPIEN three ultra system.
We expect positions to continue the transition from SAPIEN three to SAPIEN three ultra system around the world.
In summary, our year to date underlying sales growth in TAVR was 14% and we are raising our full year guidance to around the top end of our previous 11% to 15% range.
Although the strategic decisions, we made in the quarter resulted in a special charge. These decisions strengthen the execution of our long term strategy.
We are encouraged that the TAVR opportunity remote remains robust and continue to believe that our TAVR innovations will sustain our strong global leadership position.
Turning to Transcatheter, mitral and tricuspid therapies or T. M. T T second quarter global revenue of $7 million was lifted by the continued rollout of Pascal in Europe .
In our early commercial experience, we remain focused on physician training procedural success and great outcomes for patients. We're pleased with our progress as well as the positive physician feedback that we're receiving regarding Pascal as a differentiated therapy.
We also treated patients commercially with our Cardioband mitral and tricuspid annular reduction therapies and there has been improvement in supply as we continue transferring production to other Edwards manufacturing sites.
As we advance our comprehensive portfolio, we remain focused on developing clinical evidence. We recently presented positive data on our mitral and tricuspid experience with Pascal and Cardioband at the Euro PCR and TBT medical meetings, we're encouraged by the data from the class study of the Pascal system at six months patients experienced substantial MTR reduction as well as clinically and statistically significant improvements in functional status, a functional status exercise capability and quality of life.
Looking ahead and mitral repair as previously announced we receive approval of our class two AF pivotal trial for patients with secondary or functional mitral valve disease and plan to initiate enrollment in late 2019.
And we continue enroll in our class to decouple trial to type two study Pascal in primary ore degenerative mitral valve disease.
And mitral valve replacement, we're pleased with the ongoing early feasibility study experience in both evoke and safety an m. three transseptal therapies, and we remain on track to initiate a U.S. pivotal trial.
<unk> M. Three in late 2019.
In Transcatheter tricuspid repair we've gained significant clinical experience through our three simultaneous U.S. early feasibility studies for Pascal Cardioband informal we believe that Pascal and Cardioband can treat a significant number of patients suffering from tricuspid regurgitation supporting further optimization of our portfolio.
We plan to initiate a pivotal trial using Pascal in the tricuspid position late this year and plan to initiate a second tricuspid pivotal trial with Cardioband in the future.
Further while we have experienced positive clinical outcomes for patients who have been treated with formal we've made the decision to discontinue work on pharma to support the acceleration of other tricuspid programs.
Overall, we remain enthusiastic about the opportunities to treat patients suffering from tricuspid and mitral disease with our Transcatheter therapies, we remain on track to achieve our 2019 milestones, including continued enrollment in our class to the pivotal trial as well as planning to initiate three additional pivotal trials by late 2019, and you can expect to hear more updates regarding our one year class study data at the upcoming TCT medical meeting.
In summary, we remain confident in achieving approximately $40 million of total T.M.T.T. revenue for 2019, we continue to estimate the global T.M.T.T. opportunity to reach approximately $3 billion by 2024, and our passion about bringing a portfolio of solutions for patients in need.
In surgical structural heart sales for the quarter were $218 million or up 2% on an underlying basis growth <unk> growth was lifted by increased adoption of our premium high value technologies and strength outside the U.S.
This was partially offset by lower surgical aortic heart valve procedures in the U.S. as TAVR adoption expanded.
Of particular note then spiros RESILIA aortic valve continue to grow in all regions with notable usage and more active patients who might otherwise get a mechanical valve.
Separately, we now anticipate that our harpoon system and echo guided beating heart mitral valve repair therapy will be commercially available in Europe in late 2019 versus our previous expectation for a mid 2019 launch.
The delay in timing reflects what we believe is generally.
A slower regulatory environment in Europe .
We remain enthusiastic about this unique therapy and believe that it will offer the potential for earlier treatment of degenerative mitral valve disease, while providing faster recovery and more consistent outcomes for patients.
In summary in surgical structural heart, we remain comfortable with our full year underlying sales growth range of 1% to 3%. We remain excited about our ability to provide innovative surgical treatment options for more patients and to extend our global leadership in premiums surgical structural heart technologies.
In critical care sales for the quarter were $184 million and grew 9% on an underlying basis all product lines contributed to this performance boosted by hemisphere sales primarily in the U.S. in Europe .
Hemispheres are all in one monitoring platform is an important growth driver in 29 team and with the recent full market launch of the platform that includes our Flotrac sensor and our acumen hypotension index software.
This platform is designed to provide greater clarity on a patient's hemodynamic status, while introducing a predictive algorithm to improve decision making.
In April we successfully completed our acquisition of cows mads fore sight, a noninvasive cerebral oximetry monitoring technology sales those cows med were $5 million in the quarter.
Integration is underway to enable the use of fore sight on our hemisphere platform. This combination will create a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in smart monitoring.
In summary, given the strong first half sales performance and the momentum from the recent hemisphere launches. We now expect full year 2019 underlying sales growth of 8% to 10% an increase versus our previous 5% to 7%.
Projection and now I'll turn the call over to Scott, It's a lot like our topline performance. This quarter was outstanding with underlying sales growth of 13.6%.
Reflecting strength in all four of our product lines across all regions.
Particularly strong this quarter was our TAVR sales, which likely benefited from the recent clinical evidence supporting SAPIEN three therapy.
Our adjusted earnings per share in the second quarter of one dollar and 38 cents grew 11% over the prior year and it was driven by our strong sales performance.
Partially offset by higher research and development spending primarily in our Transcatheter structural heart programs.
As Mike previously discussed this quarter, we made strategic decisions regarding our transcatheter aortic valve portfolio, which resulted in a $46 million special charge, primarily comprised of finished goods inventory.
This charge combined with other adjustments reduced our GAAP earnings per share to $1.14 cents, a full reconciliation between our GAAP and adjusted earnings per share is included with today's release.
I'll now cover the details of our second quarter results and then discuss guidance for 2019.
For the quarter, our adjusted gross profit margin was 76.4% compared to 74.4% in the same period last year.
This improvement was driven primarily by the favorable impacts from foreign exchange and product mix, partially offset by investments in our global supply chain expansion.
We continue to expect our full year 2019, adjusted gross profit margin to be between 76 and 78%.
Although we are expecting a lower benefit from foreign exchange than originally anticipated at our Investor Conference.
Selling general and administrative expenses in the second quarter were $308 million or 28.4% of sales. This 12% increase over the prior year was driven by Transcatheter structural heart field personnel related expenses.
Including expanding the T.M.T.T. field organization in Europe .
Partially offset by the strengthening of the dollar.
We continue to expect SGN day, excluding special items to be between 28, and 29% of sales for the full year 2019.
Research and development expenses in the quarter grew 25% over the prior year.
The $192 million or 17.7% of sales decrease was primarily the result of significant investments in our transcatheter structural heart programs, including an increase in clinical research for the Pascal system.
For the full year 2019, we continue to expect research and development, excluding special items to be between 17 and 18% of sales.
Turning to taxes, our reported tax rate was 10.7% for the quarter or 12.0%, excluding the impact of special items.
This rate included a 530 basis point benefit or eight cents from the accounting for employee stock based compensation.
We continue to expect our full year 2019 tax rate, excluding special items to be between 12 and 14%.
Which reflects the continuing benefit of accounting for employee stock based compensation.
Foreign exchange rates decreased second quarter sales growth by approximately 2% or $20 million compared to the prior year.
At current rates, we continue to estimate an approximate 60 million dollar negative impact or about 1.5% to full year 2019 sales compared to the prior year.
Foreign exchange rates positively impacted our second quarter gross profit margin by 260 basis points compared to the prior year.
Relative to our April guidance, FX rates had less than a penny impact on earnings per share, reflecting our effective currency hedging program.
Free cash flow for the second quarter was $277 million defined as cash flow from operating activities of $341 million less capital spending of $64 million. We now expect full year 2019, adjusted free cash flow to be around the top of our 800 to 900 million dollar guidance.
We remain on track in implementing capital expansion projects in line with our strategy to increase global capacity and increase the robustness of our global supply chain.
Turning to our balance sheet at the end of the quarter, we had cash cash equivalents and short term investments of $934 million.
Total debt was $594 million.
Consistent with the company's plans to offset dilution from equity based compensation.
Edwards repurchased 1.4 million shares in the second quarter for $250 million.
Average shares outstanding during the second quarter remained level with the prior quarter at 212 million.
We continue to expect average diluted shares outstanding for 2019 to be between 211 and $213 million.
Turning to our 2019 guidance.
Given our strong first half performance, we have increased confidence in achieving our expectations for financial performance in 2019.
We are increasing the bottom end of our sales guidance ranges for Edwards and for TAVR.
For total Edwards, we now expect $4.0 billion to $4.3 billion and underlying sales growth around the top end of our previous 9% to 12% range.
For TAVR, we now expect $2.5 billion to $2.7 billion.
We continue to expect T. M T T sales of approximately $40 million and surgical structural heart sales of $810 million to $850 million.
We now expect critical care sales, including Kaz med around the top end of our previous $700 million to $750 million range.
We are raising our full year adjusted earnings per share guidance range to $5.20 to $5.40 up from our previous guidance of 510 to 535.
For the third quarter of 2019, our seasonally lowest quarter at current foreign exchange rates. We project total sales to be between 1.02 billion and $1.06 billion and adjusted earnings per share of $1.13 cents to $1.23 cents.
And with that I'll pass it back to Mike.
We're very pleased with our strong performance in the first half of 2019 as patients and clinicians increasingly understand the significant benefits of trans catheter based technologies supported by the substantial body of compelling evidence we remain as optimistic as ever about the long term growth opportunity. Our foundation of leadership combined with a robust product pipeline positions us well for continued success and with that I'll turn it back over to Mark.
Thanks, Mike ready to take questions now in order to allow for broad participation. We ask that you. Please limit the number of questions to one plus one follow up if you have additional questions. Please reenter the queue and management will answer as many questions as possible during the remainder of the call.
Thank you.
I will now be conducting a question and answer session.
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For participants using speaker equipment, it may be necessary to pick up your handset before passing the sarkies well known easily poll for questions.
Thank you. Our first question comes from the line of Bob Hopkins with Bank of America. Please proceed.
Okay, great. Thank you and congrats on a phenomenal second quarter.
I guess the first an obvious question is really on the.
The TAVR growth acceleration in the quarter, both for yourselves and for the market can you just comment on you know what what drove that acceleration how much do you think that was actually.
Low risk versus you know some some other driver. Thank you.
Yeah. Thanks, Bob you know there were multiple factors that probably contributed to the growth in Q2, and its pretty hard for us to isolate each one I'll remind you there's been high variability in the past so quarter to quarter. It just has not been uncommon in tapper, a recall of the Q1 growth rate was lower than the recent past and.
And the second quarter here was certainly higher.
You look at the first half in total and you know it was around 14% back in the mid teens, but it was quite a difference between quarters and there could have been some seasonality associated with it.
But to add to that I mean to be fair, we believe that the growth might have been stimulated globally just by the increased competence in the therapy. Following the strong partner three clinical trial results.
It could have had you know several influences a you know there was a lot of awareness and publicity that could have encouraged treatment.
It's possible that there are some borderline patients that received however, there was a minor increase and more cap, but well. We are encouraged by particular, Bob was that it was broad based growth across the globe and that even in the U.S. It was in both large and and lower volume centers.
Great. Thanks for that I, just wanted to ask one follow up just on mitral, you're still guiding to approximately 40 million you know you need to almost triple your revenue in the back half seems can you talk Mike a little bit about what gives you the confidence that you know Pascal and can accelerate as much as you're expecting in the back half of the year.
Yeah. So we weren't really focused on the numbers this quarter. Our our early commercial experience. We just stayed focus on physician training procedural success Im just trying to get great outcomes for patients the procedures did actually increase quite a bit over Q2, and it's it's possible that some of the Q1 sales actually was consumed in Q2, but we're pleased with the kind of feedback that we've gotten on Pascal and we remain confident in achieving the $40 million guidance.
Great. Thank you.
Thank you.
Our next question comes from the line of David Lewis with Morgan Stanley . Please proceed.
Hi, Thanks for taking the question just two for me, Mike just sticking whatever guidance in the back half of the year. It's it's pretty stable frankly, that's what we saw from a growth perspective in the second quarter. So is that how we should think about the business why why should we not expect sort of further inflection or do you expect that after the approval and then C. D. And then a quick follow up.
I'm not sure I, followed it exactly you're saying why shouldn't it be more is that the question David with rates you back half top end of the range means back half of the year is consistent with the second quarter. So is that the question is why not see further inflection or do not expect that until we see the approval or NCD. Yeah. We think its premature as you're well aware here, where we've decided to discontinue the centera program. So that won't be a driver of growth. We know that Boston scientific is in the process of launching and when we would expect that to have some impact. So those are going to be some headwinds and so we feel pretty good about where we guided things David.
Okay. That's helpful. And then Mike just new competition was a big debate. This year. So competition do you estimate third entrant you suggested stable share. This quarter was there any impact in the second quarter from new entrance and how should we think about the second half of the year relative to new entrance. Thanks, so much.
Yeah, you know, it's always difficult for us to estimate market growth, but we assume that we that the the growth in procedures overall and our growth was quite comparable.
As it relates to the Boston. It appears that there are executing a disciplined launch and that they're focusing on training and we expect them to get more active in the coming months, but we remain confident in our guidance.
Thank you.
Our next question will come from the line of music Kumar with Evercore ISI. Please proceed.
Hey, guys. Congrats on a really nice quarter here, Mike just back on this cover guidance for the back half I just want to understand that you know sequentially. We had 800 basis points, if an acceleration versus one Q.
Your comps did not seem like it was easier and based on your comments. This was broad base right. This was not just the U.S. phenomenon or you saw this across the geographies are your comments on Europe accelerating I think that's the first time, we've seen Europe , you guys being holding back to Mike.
The mid teens in a while.
And this is all happening before the formal approval rate so back to I guess the question.
Turkey was so strong what why shouldn't that accelerate post the post the approval in the back half.
Yeah no. Thanks for that reason I can understand how you do that analysis, but you know when you do the sequential walk up Q1 versus Q2, we certainly expected to to to be stronger than Q1 from a growth rate perspective. The way. It turned out Q1, we think turned out surprisingly low and there may be some reasons behind it but we don't fully understand that has to do with seasonality and the way. The calendar fell two turret Q2 turned out to be even stronger. So I I would caution you not to expect that kind of sequential growth on a routine basis and saw one where we lay out the back half of the year as I said you know we would expect to get the approval sometime in Q3 and remember that Q3 is traditionally our slowest seasonal quarter as it is for our customers and a Andr mentioned, you know without Centera and with Boston scientific launching we think that our guidance is in the appropriate place.
Yeah, that's helpful, Mike and maybe one on the mitral side.
Cardioband I'm not sure I heard a unit Cardioband being mentioned are not what its contribution was for in that key MTT isn't isn't being used in mitral because I certainly heard about tricuspid and not the trial starts but I'm just curious on the on a cardioband and now in in the mitral area.
Yeah. So.
No. The Cardioband supply situation has improved a it was used in both the mitral and the tricuspid position a actually more tricuspid this last quarter.
And so we're pleased to see that supply situation or get better. So that we can allow some of our operators to really get in get the come down the learning curve and allow apply that on a regular basis.
Thank you guys.
Thank you.
Our next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed.
Thanks, guys. So thanks for taking my question and congrats on the really really impressive quarter one on the EPS guidance one on the ultra so if I'm doing the math right Scott EPS beat its 0.0, we got at the Q2 guidance by about six cents Ah, but you raise the fiscal Q2 fiscal 2019 bps guidance by only about seven cents at the midpoint why is that and I had one follow up.
[noise] show, you're generally right about the mass Larry.
This is by the way about 12 cents over our Investor conference guidance, but effectively expenses and sales in the second quarter came in higher than we expected.
And so as we look at the second half of the year. We're also expecting expenses to come in higher than we originally expected remember we've got a new pivotal trials coming online and some additional other R&D unless you know expenses that go along with those.
Thank you and then Mike on SAPIEN three ultra do you think the balloon issues have been resolved with the update to the I. If you I know you're now planning to roll out old to more aggressively and can you provide a little more color on the SAPIEN three delivery system comment you mentioned in your prepared remarks, thanks for taking the questions.
Yeah. Thanks, Larry Yeah, what we express is you know we're getting a lot of favorable feedback on the SAPIEN three ultra valve itself and the way that that valve is performing well we are seeing a many clinicians also express a preference for aspects of the SAPIEN three delivery system. So we're working to incorporate those into the ultra system ultimately.
We.
Ultimately, we think that that will have impact on the on the balloon issue with the balloon issue. We identified some factors that were associated with that and actually there's been lots of that that have occurred with us SAPIEN three delivery systems. So we expect that to be a real enhancement in that regard.
Thank you.
Thank you.
Our next question comes from the line of Joanne Lynch with BMO capital markets. Please proceed.
Congratulations.
Very good quarter.
Two quick questions I want to spend a moment on the international market.
The pricing dynamics and last quarter, we talked about stable market share in a slowing market. This quarter, we're talking about stable market share in a faster market and I'm just trying to make sure I understand what's going on here.
Yep. Thanks, Joanne Yeah. So we do think that O.U.S. procedure growth should pick up in the second quarter and you did hear correctly that we feel like our growth was comparable with the market. So we didn't really see a share shift in our minds either last quarter or this quarter and you know this is true year over year and quarter over quarter I know exactly why it picked up is a little difficult to say, while our team would say that there was probably some positive influence that came from the partner three news that came in the end of Q1.
Okay. That's helpful. And then I just want to also understand the impact of the continued access program in low risk on what you may think it helped in the second quarter and how you're thinking about that for the second half contribution. Thank you.
Yeah. Thanks, so that stays in place until there's an approval.
The cap program in the second quarter generated a little more than the first quarter, but it was pretty small it was minor I want to say something maybe in the 10% improvement improvement so.
So, it's so think or maybe a couple of million dollars.
Thank you.
Sure.
Thank you.
Our next question comes from the line of Robbie Marcus JP Morgan. Please proceed.
Great and congrats on a nice quarter.
I heard you mentioned comments that.
The M. three is moving into pivotal trials late this year I didn't hear an update on timing for it folks can you just give us an update on on if you're doing implants and patients in both of those right now in the status for it though.
Yes, we are doing patients with both systems, we've been really pleased with the feedback on both systems. We have at this point decided that we're going to initiate the seep in M. three clinical trial before the end of the year well one of the reasons that we feel comfortable going first with that is because we have literally thousands of patients in which the sapiens valve has been used in the mitral position. So it gives us an opportunity to start there, but we don't mean to send a signal that we're not excited about the vocal platform. We also also feel great CPM three is going to go first.
And you gave some good color on what you thought about second quarter and maybe some of the drivers of growth there, but maybe just diving into the international markets, a little bit and if you could break out Europe and outside of Europe . You know this is a market that's been doing low risk for a while it's been growing mid teens for an impressive number of years.
Well what is it there that you're seeing in trends that drove the growth this quarter well above the expectations was it less competitive pricing was it you know some changing dynamics or was it some markets are better than others any any kind of color you could get would be great. Thanks sure. So I mean this was this was or a really remarkably level quarter for us in that we had we experienced double digit growth are really around the globe.
That was driven by TAVR in Europe in particular, what we have seen is that the less penetrated countries continue to grow faster than the more penetrated countries, but there's still a ways to go.
Europe is influence to some extent by its reimbursement programs and so that's a key element of this but.
I think you said that there was already low risk in Europe actually.
Do it there's no low risk approval at the EU level that will probably come in 2020.
But we do think that there were some influence from the the partner three data, but appeared to that appeared at the end of Q1 and that probably had some impact on the treatment of patients in the quarter.
Thanks, a lot.
Thank you.
Our next question comes from line of Jason Mills with Canaccord Genuity. Please proceed.
Hi, This is actually should tell you on for Jason and thank you for taking the questions I just wanted to ask about Japan, and the strong TAVR adoption trends Youve seen recently, just juxtaposed with the current number of qualified centers in the region and as you look for it can you talk about the tiger outside his views here in the lake work necessary to really open up the opportunity what still needs to be done to increase the total number of qualified centers as well as establish an input currently travel patterns.
Yes. Thank you cecelia, yeah, the growth rate in Japan has been nice and we've we've been pleased with that but we're not pleased at all with the treatment rates in Japan, given the large elderly population. There we would expect to have or penetration to be much higher at this stage of the game and we believe that one of the reasons. It's not higher is because it's really been limited in terms of the way that our system has allowed centers the started up and that there should be more centers and the centers that are doing it should probably be doing more procedures. So we still have our work to do to make sure that the proper policies are put in place and we're applying energy to do that so although Japan is nice it it's still a big opportunity for patients to be treated at a much higher rate.
Okay, great. Thank you and then just turning Europe I realize it so very early in the process, but could you talk more about your ongoing Pascal launch in the region and specifically the training programs, you're implementing the learning curve associated with the popcorn and adoption trends within 10 hours. Following initial utilization and just what types of patients are using the platform you didn't initially a centers child, the device and where does this expand in your view longer term.
Yeah. Thanks. So you know early on here, we've really put a premium on making sure that the training was very well done that we have great procedural success that patients had great outcomes and that's been job one for us it really hasn't been so much about the numbers, we've gotten a lot of great feedback we saw the number of procedures really accelerate in Q2, and we are indeed, adding centers in Europe . During Q3 and Q4. So you can tell from our projection that we expect to do around $40 million in 2019, and that's going to be primarily from Pascal. So.
I think that kind of speaks for itself in terms of what we think the adoption rate will be.
Great. Thank you.
Thank you.
Our next question comes from the line of Matt Taylor with <unk>. Please proceed.
Hi, Thanks for taking the question.
So first question I wanted to ask was you mentioned this difficult decision to discontinue Syncera I was wondering if you could talk a little bit more about that as it certainly implies a lot of confidence.
In SAPIEN, three which you should have but you're not going to have a self expanding option going forward and.
What does that do in terms of the additional flexibility for our horsepower.
You get from discontinuing of it behind you pascale or some of these other programs.
Yeah. Thanks, a lot Matt you you're right a lot of this was headlined the deal.
On the incredible.
Body of evidence that exists on SAPIEN platform and SAPIEN three in particular in the way of performing on the partner three data is just giving us.
A lot of confidence in its also place a very high bar in terms of how systems need to perform and although we were really pleased and excited about centera and there's a number of clinicians are as well and that perf Bell performed well on the <unk>. The <unk> the way that valve delivers didn't work as well in all anatomies as we would've liked so it would have required us to make a some enhancements to delivery system and at the same time remember the Centera trial that were involved in now would only give us an intermediate risk indication that we would have to continue to do trials. So when we put that all together and thought about where we're going to apply the resources of our team and how much confidence we have in the existing platform and how excited we are on future platforms. It was a tough decision, but we made it and decided that we're going to focus our resources on the next generations as well as the excitement we have around our existing platforms.
Okay I understand.
And then can you just spend a second on how you see that kind of retool the investments in mitral and tricuspid as kind of a follow up to that and where are you.
Accelerating the more you mentioned the Pascal trial, starting and Tricuspid later this year, maybe give us some intel on where you're really trying to accelerate.
Yeah. So so a few things one is Pascal is really kinda going first on the repair side. So we were pleased now we already had a program that was focused on these primer degenerative patients and to be able to launch a pivotal trial for the functional or secondary patients were excited about because that's a significant grew as a group of patients. So we're looking forward to treat.
On the tricuspid side after a lot of deliberation, we decided that our first tricuspid trial should be done with Pascal. So we made that call. You also heard that we decided and made the tough decision to discontinue the work that we have on pharma and so that one we're in discussions with FDA in terms of what that trial design would look like and so hopefully that gives you a sense and at the same time I think we just explained where we are on the mitral replacement with 'em three going into a clinical trial late this year.
Great. Thanks very helpful.
Sure.
Thank you.
Our next question comes from the line of Matt Miksic with Credit Suisse. Please proceed.
Hi, Thanks for taking the questions and I'll Echo everyone's congrats on the quarter and so I think one of the things that folks have been trying to get to err on the quarter is sort of the strains and what drove it.
And it doesn't sound like it was continued access per se in it and I guess.
Mike if you could.
You know elaborate maybe it doesn't really sound like it was low risk patients you know that came in but you said a few times awareness of and the impact of the partner data so is it.
I mean is that something like stroke risk or something that stood out or change the conversation for the for the say the intermediate risk indications or.
Any kind of color that you can provide on how does how does awareness translate into volumes and then I had one follow up.
Yeah, Thanks, very much much Matt I understand the confusion and you know.
I wish I could point to one thing that really drove this and I know this call feels a little bit like a birthday party, but it is a there are a bunch of serious issues in here.
We think that there was just plain variability between the first quarter and the second quarter, we believe that all of this.
Our data that was presented at the end of Q1 generated a lot of balls a lot of excitement and that people started moving through the system. We know that people don't move through the system that fast and so often times, we pick it could take.
9100, 20 days, even more for people to move through it. So you know how much could have gotten stimulated and move in Q2 as a question Mark. So well you know again, we don't think its about cap a we don't think there were a significant number of low risk patients that were treated in the quarter.
We really think that it was just the stimulation of the overall number of TAVR procedures.
Okay. That's helpful color I understand its difficult to pin down, but then similar question heading into Q3 and and.
Again cap not let's just say not a factor per se.
Maybe talk about seasonality I mean last year down about 30 million or so sequentially Q2 to Q3, I think and.
Maybe what what does what does cause a number to come down the way they would need to come down sequentially in order to to hit the guidance you've laid out for Q for Q3.
Yeah. It's a good question. So you know that Q3 is a seasonably slow quarter for our customers and so that kind of goes without saying.
It wasn't so long ago I'll remind you back in 2016, a after we got the approval that Q3 was lower growth than Q2.
And I'm not sure we fully explained exactly why that was the case, but it happened and so it causes us to just stay thoughtful and moderate about what our expectations are or where you expect to have approval, but again, if the approval does come it's probably likely to come during one of the slowest times of the year.
Fair enough. Thank you.
Thank you.
Our next question comes from the line of Josh Jennings with Cowen and company. Please proceed.
Hi, good afternoon, and thanks for taking the questions.
Hi, just two questions on low risk approval.
First one is what gives you the confidence to kind of.
Narrowed the guidance range for approval timelines to three Q.
I should be thinking that could that could approval occur. This in the next week or should we be thinking later in the quarter in September .
And then just have one follow up.
Yeah. Thanks, Thanks for the question, Yeah, I, I understand where you're coming from Josh. So what happens usually as we go through our questions back and forth with ft, and you can usually tell when the questions are winding down and when they're coming down to the final questions and so it makes us feel we're pretty close one of the things that's not clear is whether.
Our approval would come at the same time or whether the FDA might choose to move to competitors at the same time could be a factor. So we're saying based on everything we know probably Q3, but we just can't be any more specific than that.
Understood and just in terms of low risk approval in the label I think you've been clear you don't expect any kind of exclusion of bicuspid just wanted a sanity check said that that's still your view.
But to follow up on top of that is I mean could you have a labeling advantage in the early days of low risk approval. It's our understanding that the Medtronic bicuspid arm is still enrolling just gotten started enrolling a couple months ago.
Could you have an advantage in the bicuspid segment or for a period until Medtronic hits that data together and thanks for taking the questions.
Yeah. Thanks, Yeah, I'll, just remind the audience that bicuspid is not contra indicated today and we do not expect it to be contraindicated in the label or in the future you saw Raj Mccars data, which was quite encouraging so I'm not sure it's going to be much of a competitive dynamic going forward are we feel comfortable that it will be treated in the future much like it is today.
Thank you.
Our next question comes from the line of Chris Pasquale with Guggenheim. Please proceed.
Yes, thanks, guys on the quarter guys.
So Mike just start off with how close is class to be completing enrollment just trying to get a better sense for the regulatory timeline there.
Yeah. Thanks, So we've been we've been enrolling for a while it's proceeding largely as planned all we're continuing to activate more centers I don't know if we have anything more to share on that we really haven't laid out what we think it's going to take US is the first time that we've been engaged in a mitral transcatheter trial just like this.
But you know it is going largely as we planned.
Okay. Thank you talk little bit more about the tricuspid opportunity, but we haven't seen a ton of data yet on these devices in that position, but you guys are moving ahead into two trials suggest you're you're encouraged by what you're seeing what types of patients you're looking to treat knee study is going to be any difference in terms of how you set up the one for cardioband versus Pascal anything you can share there would be helpful.
Yeah. Thanks so.
You know this is really going to be new for these patients today. They don't have very much options. One of the reasons were enthused as clinicians are enthused when they say, we really could use a transcatheter option to be able to heart help these patients.
As we mentioned earlier on the call. We actually have done three early feasibility studies in the Tri touchwood position and even though each of those systems behaved differently. We've consistently heard back that patients really get an improvement in their quality of life. Following that now of course, that's anecdotal that we need to do that in a high quality fashion, we really have not define the clinical trial at this point, we're working with FDA at this point, but it's got to be some kind of a trial that actually compares it to medical management, probably and so it'll be a bat fundamentals.
Thanks.
Thank you.
Our next question comes from the line of Raj Denhoy with Jefferies. Please proceed.
Yes, hi, good afternoon.
Wonder if I could maybe get your thoughts on the DNC de expanded NCD or the updated and see they came out a few weeks ago.
Any thoughts on what impact that will have on the market and are you seeing new centers already starting to gear up to start offering TAVR.
Yeah. Thanks for the question Raj So yeah.
You know, we often think that the primary risk the price.
[noise] severe aortic stenosis patients is not the treatment complications, but the risk or not treat receiving treatment at all and we really commend CMS for a thoughtful approach that I think really is going to modernize the requirements and it will be more streamlined for patients.
We know that there are a number of centers that are anxious to open TAVR programs and when we look ahead, we say ads, it's reasonable to estimate that approximately 200, new sites could achieve eligibility to initiate a TAVR program by the end of 2020.
And you know it in that context.
What's your sense on.
How expansive that'll be too to procedure volumes versus are cannibalizing patients that would have been referred previously.
Yeah.
You know, we we don't know this for sure but based on our past experience, we think new centers, often mean new patients.
We think that often patients are trapped in their referral pathways and don't necessarily get referred out to other a larger centers. So we think it is going to be additive, but overall remember that we have an estimate that the overall opportunity is going to grow to $7 billion by 2024, which infers a pretty significant growth rate between now and then are we think thats all part of it.
The M.C.D. kind of turned out the way we had hoped it would turn out and plan for it to turn out so not really outside of our existing guidance.
That's great. Thank you.
Thank you.
Our next question comes from line of Daniel Empathize with SVB lingering Leerink. Please proceed.
Hi, good afternoon, guys. Thanks, so much for taking the question congrats on a really good quarter and Mike I wish It was a birthday party, but anyway. Just a quick question on you mentioned that a lot of these page or you didn't say a lot Im sorry, you mentioned that some of these patients might have been borderline patients do you have any sense of how many patients would be considered borderline and maybe to answer. This question do you have any better way would be to look at age any sense of where the age is is creeping right. Now is that still about average age of 80 is it moving lower have you seen in this quarter.
Yeah. Thanks.
I appreciate the favorable comments you know what we just don't have anything quantifiable, what we hear back is pretty anecdotal. So I really can't track. It for you. The borderline patients. We don't think it was the majority we think it was a factor, but we just think that for whatever reason there was an acceleration. So we track we track what's going on in Asia, but that generally lags by a quarter or two so we don't have a really clear handle on that at this time.
Yeah, Okay. That's totally fair and then just a quick follow up on on Europe , and and following up on Joe's question around cost and just wondering what's happening as you have conversations with some of the healthcare systems over in Europe , because some of the feedback I got a PCR was we love sapiens three but we you know it's too expensive and we actually can't grow volumes because we are limited by the cost of the value you need to get cheaper they need to get cheaper what what are you hearing I understand you guys have been very disciplined about price, but not even as it relates to competition, but just from a volume perspective and act patient access in Europe , and and how might you address that longer term.
Yes, Thanks, Danielle we think some of the healthcare systems in Europe .
Aren't fully prepared to pay for the quality and value that goes along with therapies like tapper actually I think when you compare with the value that it adds to the system, what it would cost to add quality year of life and so forth to ever compares wonderfully with so many other therapies.
We need to do a better job of influencing the policymakers about the importance of this therapy and that's really what's key for US. We can understand why physicians are a tough place they have to live within the existing reimbursement system, but we think in some cases, they don't fully reflect the value of the technology and that's our job to do.
Thank you so much.
Thank you.
Our last question will come from the line of Peter today with Doug. Please proceed.
Hi, good afternoon, thanks for taking the questions and fitting me in on todays call couple questions. The first one can you refresh us on the number of centers in the us that are using ultra.
I Wouldnt say, we order rate for the centers on altar versus SAPIEN three.
And how quickly are they converting into 100% ultra.
So I don't know the number of ultra in the U.S. its a small number.
We were further along in Europe , or we didn't give a projection of how far we were going to be overall, we did say that we thought it would account for the majority of procedures in Europe .
Before the end of the year and that ultimately we think that the ultra system will replace SAPIEN three in all geographies.
Okay, and then two housekeeping questions what impact I, just continuing center, having your gross margins.
Now to shift more valves into alter in Europe , how should we think about how that impacts your gross margins as they need to ramp up to production line to full capacity.
So you're saying how does our gross margin impacted by the switch ultra from SAPIEN three.
Yes.
Yes, yes. Thanks, Bill we think that's pretty it's pretty negligible centera than more expensive system to make but altrus is comparable to the SAPIEN three.
Great. Thanks, so much.
Sure.
Alright, well. Thank you everybody for your continued interest in Edwards, Scott Mark and I welcome any additional questions by telephone and whatnot now back to you Mark.
Thanks, Scott and thank you all for joining us on today's call reconciliations between GAAP and non-GAAP numbers mentioned during the call which include underlying sales and growth rates as well as amounts adjusted for special items are included in today's press release and can be found in the Investor Relations section of the website at Edwards Dotcom. If you missed any portion of today's call replay will be available for 72 hours to access. This please dial 87766, 06853 or 20161 to 7415 and use the conference I'd number 13691682. Additionally, an audio replay will be available on the Investor Relations section of the Edwards Life Sciences Web site. Thank you.
Thank you.
This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.
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