Edwards Lifesciences Corp (EW) — Q1 2019 Earnings Call Transcript

Thank you, Roya. It's been an exciting start to 2019 with multiple positive developments for the company and the patients we serve. Most notably, we announced groundbreaking results of the PARTNER 3 Trial, which demonstrated the superiority of our SAPIEN 3 valve technology and provides a strong platform for future growth. Also, CMS published a draft national coverage determination or NCD for TAVR, which could provide improved access for this therapy in the U.S. for even more patients suffering from aortic stenosis who today don't receive treatment. These important developments reinforce our confidence in the continued growth of TAVR. In addition, we received CE Mark for PASCAL, an important early addition to our portfolio of TMTT therapies. We are also pleased to recently complete the acquisition of CASMED, a cerebral oximetry technology that will enhance the smart monitoring strategy of our critical care platform. I'm more convinced than ever in the tremendous opportunity to drive success for many years to come through our differentiated strategy of focus, innovation, and leadership. Turning to our financial performance. We're pleased to report nearly $1 billion of sales this quarter representing 9% sales growth on an underlying basis. This was consistent with our expectations driven by our broad portfolio of new technologies. In transcatheter aortic valve replacement, first quarter global sales were $59 million, up 10% on an underlying basis as expected. Recall that we previously forecasted our first quarter sales growth would be below our full-year range and that our sales growth rate would ramp following Q1. We grew at a slightly lower rate than the estimated global procedure growth due to a modest year-over-year share decline. We estimate our global competitive position was unchanged versus the fourth quarter and we continue to exercise price discipline holding global average selling prices stable. We continue to believe there is a large number of patients suffering from aortic stenosis who are either undiagnosed or untreated. We're investing more in programs to increase awareness, increase diagnoses, and improve referral patterns, helping patients receive the care they need based on medical guidelines. One of our biggest investments is in clinical evidence to support indication expansion, and in March, the PARTNER 3 trial results were presented at the Annual ACC Scientific Session and published by The New England Journal of Medicine, demonstrating that Edwards SAPIEN 3 valve proved superior to surgery. We were excited that these robust outcomes continued the steady and impressive progress that we have seen from the 17-year series of rigorous clinical experiences and trials which clearly support TAVR as a proven therapy for aortic stenosis patients. In the U.S., we estimate total TAVR procedures for the first quarter grew in the low-double-digits versus the prior year, and our growth was comparable. Growth was highest in newer and smaller centers, which provided access to a broader population of aortic stenosis patients. Patients continue to be treated through the PARTNER 3 low-risk continued access protocol. Our guidance continues to assume receipt of a low-risk indication late this year. We continue to enroll the U.S. pivotal trial to study our self-expanding CENTERA valve in intermediate-risk patients. We estimate enrollment of this trial will be completed next year. The U.S. Centers for Medicare and Medicaid Services, or CMS, recently released a draft with modernized NCD which we believe better reflects today's practices and the needs of patients. We commend CMS on the proposed policy and are encouraged to see elements within the draft NCD to enable patient access, particularly underserved populations. It would enable a future move toward measuring hospitals' quality outcomes with metrics instead of procedural volume measure. We will provide input this week on the draft NCD which is expected to be posted on the CMS website shortly thereafter. We continue to assume any changes to the current NCD are unlikely to significantly affect our estimated long-term global TAVR opportunity. We expect the new NCD to be finalized by the end of June 2019. Outside the U.S., in the first quarter, we estimate total TAVR procedures grew in the low-double-digits, while Edwards' procedure growth on a year-over-year basis was slightly lower. We believe our competitive position remains stable versus the fourth quarter. We continue to see excellent longer-term opportunities for growth as we believe international adoption of TAVR therapy is still quite low. In Europe, we estimate the TAVR procedures grew low-double-digits and our growth was lower. Edwards' growth in countries with lower TAVR adoption rates continues to outpace countries where the therapy is more established. We're implementing a disciplined commercial introduction of our SAPIEN 3 Ultra and CENTERA systems in Europe as we focus on achieving high procedural success rates, and therefore did not significantly impact first quarter growth. We're receiving positive feedback from physicians on the unique features offered by both technologies. In Japan, we continue to see strong TAVR adoption driven by SAPIEN 3 and new centers are being qualified. We believe aortic stenosis remains an immensely undertreated disease among the large elderly population in this country and continue to focus on expanding the availability of this therapy. In summary, we're encouraged by the recent strong PARTNER 3 evidence supporting the adoption of SAPIEN 3, which has reinforced our confidence in achieving our underlying sales growth for 2019 of 11% to 15%. It has also reinforced our confidence in the $7 billion opportunity by 2024. Turning to our Transcatheter Mitral and Tricuspid therapies, or TMTT, first quarter global revenue was approximately $4 million, lifted by the initiation of our PASCAL Mitral launch in Europe. We were pleased to receive the CE Mark a couple of months earlier than expected. As we begin the commercial rollout of this differentiated and novel repair therapy, we remain focused on physician training, procedural success, and great outcomes for patients, and are pleased with our progress thus far. We also continue to treat patients commercially with our Cardioband Mitral and Tricuspid Annual Reduction Therapy, transferring the production of Cardioband to other Edwards manufacturing facilities remains on track, and we continue to expect supply constraints to be progressively lessened throughout 2019. On the political front, we continue to invest heavily in the advancement of our portfolio therapies for patients with mitral and tricuspid valve disease. We are pleased to have treated patients with all of our therapies in the first quarter. Related to PASCAL, in the U.S., we are adding clinical sites and making progress with the enrollment of our CLASP IID pivotal trial to study PASCAL in primary or degenerative mitral valve disease. We also continue to expect the initiation of our CLASP IIF pivotal trial for patients with secondary or functional mitral valve disease in late 2019. In mitral valve replacement, we remain strong believers in our transseptal strategy and are pleased with the progress and early clinical results in both of our novel platforms. We continue to enroll patients in our EVOQUE early feasibility study and we're on track to initiate a U.S. pivotal trial of SAPIEN M3 in late 2019. In Transcatheter tricuspid repair, we're gaining significant clinical experience through our U.S. early feasibility studies for PASCAL, Cardioband, and PHARMA, and we expect to initiate a U.S. Tricuspid pivotal trial in late 2019. As shared previously, Abbott has filed multiple lawsuits against Edwards related to PASCAL in both the U.S. and Europe. Recently, the U.S. District Court in Delaware heard Abbott's motion for a preliminary injunction. We expect a favorable decision in the near future. Litigation does add risk, but we plan to vigorously defend ourselves so that we can continue to provide our differentiated PASCAL therapy as a much-needed option for undertreated patients. Overall, we remain enthusiastic about the opportunities to treat patients suffering from tricuspid and mitral valve disease with our transcatheter therapies. We're on track to achieve our 2019 milestones, including achieving our revenue target and continuing enrollment in four pivotal studies. You can expect to hear more in updates at DGK, the Cardiology Society in Germany, EuroPCR, and TVT Medical meetings. In summary, given our first quarter CE Mark for PASCAL, we have increased confidence in achieving approximately $40 million of total TMTT revenue for 2019. We continue to estimate the global TMTT opportunity to reach approximately $3 billion by 2024, and are passionate about bringing solutions for these deadly diseases and improving patients' lives around the world. In Surgical Structural Heart, sales for the first quarter of $215 million were up 3.5% on an underlying basis. First quarter growth was lifted by the sales of premium products, particularly through the adoption of the INSPIRIS RESILIA aortic valve, which drove an increasing share of surgical aortic valve procedures. We have now successfully launched INSPIRIS in all major regions and are encouraged by the steady growth and adoption of this new class of resilient tissue valves. This valve is designed to be an attractive option for active patients, and we have observed a continued trend of physicians treating younger patients with INSPIRIS versus traditional surgical tissue heart valves. Separately, we remain on track to begin treating patients with our Harpoon system in Europe by mid-2019. In summary, in surgical structural heart, although the superiority results in PARTNER 3 are expected to provide an incremental headwind to our aortic surgical sales, we continue to be comfortable with our full-year underlying sales growth range of 1% to 3% based on our strong first quarter momentum. Even as TAVR adoption expands, we're excited about our ability to provide innovative surgical treatments for more patients and to extend our global leadership in surgical structural heart technologies. In critical care, sales for the quarter were $176 million and grew 11% on an underlying basis. All product lines contributed to this performance, boosted by a surge of HemoSphere sales primarily in the U.S. HemoSphere, our all-in-one monitoring platform, is expected to be an important growth driver in 2019 as we continue with the full market launch of the platform with our FloTrac System and our Acumen Hypotension Predictive Index. This platform is designed to provide greater clarity on a patient's hemodynamic status while introducing artificial intelligence to improve decision-making. Last week, we completed the acquisition of CASMED, a non-invasive cerebral oximetry monitoring technology company. We believe the incorporation of this technology into Edwards’ leading hemodynamic monitoring platform, along with our predictive analytics capability, will strengthen our leadership in smart monitoring technologies. CASMED's annual sales were $22 million in 2018, and we expect minimal impact on our underlying near-term sales growth and earnings from the CASMED acquisition as we work to integrate our technologies. In summary, given the fast start in Q1, we are more confident in achieving full-year 2019 underlying sales growth in critical care of 5% to 7%. Now, I'll turn the call over to Scott.

Thanks Mike. We are pleased with our start to the year in which we generated underlying sales growth of 9%, consistent with our expectations. TAVR sales were $598 million. As previously communicated, we expect our sales growth rate to ramp up following the first quarter as we introduce new products and benefit from the recent clinical evidence supporting TAVR therapy. Let me remind you that in addition to foreign exchange, our reported sales growth this quarter includes two prior-year adjustments. The first quarter of 2018 was impacted by adjustments related to our German stocking sales and surgical consignment conversion in the United States. Adjusted earnings per share was $1.32, higher than we anticipated due to better production efficiencies, a more favorable tax rate, and deferred expenses. GAAP earnings per share was $1.18 and was impacted by our previously announced $24 million charge related to the acquisition of Strategic Transcatheter Technology. 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 first quarter results and then discuss guidance for 2019. For the quarter, our adjusted gross profit margin was 76.7%, compared to 74.5% in the same period last year. This improvement was driven primarily by favorable impacts from foreign exchange and product mix. This quarter, we were pleased that operational efficiencies offset the continued investments in our manufacturing capacity. We continue to expect our full-year 2019 adjusted gross profit margin to be between 76% and 78%. Selling, general and administrative expenses in the first quarter were $280 million or 28.2% of sales, compared to $256 million in the prior year. This increase was driven by field personnel-related expenses, partially offset by the weakening of the Euro against the Dollar. We continue to expect SG&A excluding special items to be between 28% and 29% of sales for the full-year 2019. Research and development expense in the quarter grew 20% over the prior year to $171 million or 17.3% of sales. This increase 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 10.2% for the quarter or 10.6% excluding the impact of special items. This rate included a 610 basis point benefit from the accounting for employee stock-based compensation, which was 190 basis points or $0.03 favorable to our guidance expectation. Our rate also benefited from lower U.S. taxes on foreign earnings stemming from U.S. Tax Reform. We continue to expect our full-year 2019 tax rate excluding special items to be between 12% and 14%. Foreign exchange rates decreased first quarter sales growth by approximately 3% or $26 million compared to the prior year. At current rates, we continue to estimate an approximate $60 million negative impact or about 1.5% to full-year 2019 sales compared to the prior year. FX rates positively impacted our first quarter gross margin by 180 basis points compared to the prior year. Relative to our January guidance, FX rates positively impacted earnings per share by about a penny reflecting our effective currency hedging program. Adjusted free cash flow for the first quarter was $139 million, defined as cash flow from operating activities of $1 million, less capital spending of $42 million, and excluding a $180 million payment related to our previously announced global intellectual property litigation settlement. Our first quarter free cash flow is traditionally our lowest quarter during the year and we continue to expect full-year 2019 adjusted free cash flow to be between $800 million and $900 million. In the first quarter, we were on track in implementing capital expansion projects in line with our strategy to increase global capacity and redundancy. Turning to our balance sheet, at the end of the quarter we had cash, cash equivalents, and short-term investments of $963 million. Total debt was $594 million. Average shares outstanding during the first quarter remained level with the prior quarter at $212 million. We continue to expect average diluted shares outstanding for 2019 to be between $211 million and $213 million. Turning to our 2019 guidance, we remain confident in achieving our expectations for financial performance in 2019, including guidance of $3.9 billion to $4.3 billion in total sales for Edwards. Our guidance for underlying growth rates remains unchanged for Edwards and our product lines. We continue to expect TAVR sales of $2.4 billion to $2.7 billion, TMTT sales of approximately $40 million, and surgical sales of $810 million to $850 million. In light of critical care's fast start to 2019, and recent acquisition of CASMED, we now expect sales of $700 million to $750 million, up from our previous guidance of $670 million to $710 million. For the full-year 2019, we are raising our adjusted earnings per share guidance range to $5.10 to $5.35, up from our previous guidance of $5.05 to $5.30. This increase was reflective of our Q1 performance and incorporates the CASMED acquisition. For the second quarter of 2019, at current foreign exchange rates, we project total sales to be between $1.02 billion and $1.08 billion and adjusted earnings per share of $1.27 to $1.37. And with that, I'll hand it back to Mike.

Thanks, Scott. The exciting developments that occurred so far this year reinforce our confidence in our focused innovation strategy and our longer-term outlook. We anticipate a year of value creation as we pursue important therapies that will benefit many more patients. We look forward to launching a number of new technologies as well as achieving important milestones across all of our product lines. We're confident that our differentiated strategy and focus on leadership will continue to create value and benefit the patients we serve. And with that, I'll turn the call back over to the operator.

Hey everyone, I appreciate you taking my questions. Mike, I'll begin with a broader inquiry regarding the recent positive ACC results. It appears that Q1 TAVR trends aligned closely with your expectations. I’m interested in the speculation surrounding potential acceleration for TAVR in the latter half of the year, especially since the high-end guidance suggests at least a 500 basis points increase. How should we view the role of low risk in this context? Is it expected to be a factor in Q2? The guidance suggests some contribution, so how should we assess share positions? Will low risk enhance your share compared to competitors? We also noticed that Boston received approval for Lotus in the U.S. Could you provide some context on these points?

Sure. Thanks, Vijay. We expected the PARTNER 3 Trial to be positive and that growth rates would accelerate moderately after Q1. The early results have aligned closely with our plans. Regarding our market position, our guidance for TAVR remains unchanged. When we made our assumptions about competition, we anticipated that Boston would receive their approval around mid-year and that the portico technology would be approved by the end of the year. I don't believe any of these developments will significantly affect our guidance. The information from Boston is new to us, and I don't foresee it having a major impact on our outlook.

Regarding the CMS NCD, there seem to be both advantages and disadvantages. It appears that some standards for maintaining existing centers have been elevated. In your prepared comments, you mentioned some positive aspects. Can you help clarify the current state of the NCD as proposed and any impact it may have on the market or on your company specifically?

Well, yes, we believe that the old NCD is outdated and clearly needed to be modernized. And so we really commend CMS on tackling the challenge of improving access while trying to protect the quality of the patient outcomes. We’re encouraged by the progress that they made. Directionally we feel like the draft moves in the right direction. It doesn't achieve equipoise between surgery and TAVR, but it does offer the opportunity to expand patient access and we're optimistic that the final rule is going to be an improvement over the current NCD. We just recall, while this is just a draft, so it's going to be hard to be exact with our assumptions about the impact.

Thanks. Just a couple of questions for me. First is talking about the market, Mike, I think you talked at Analyst Day about more stable share for 2019 obviously in the first quarter you talked about sort of global slight share loss. From here what are the drivers of acceleration throughout the balance of your incremental share capture? And how should we think about old trends in TAVR the next three quarters and simply do we expect you to be talking about share stability and share capture over the next three quarters and a quick follow-up.

Yes. So big picture we thought share was going to be pretty stable. We anticipated with new entrants in the U.S. that that would cost us some share, but we also thought that we would do pretty well outside the U.S. So not a big change. One of the important things in addition to obviously the strength of the PARTNER 3 data is the introduction of Ultra and CENTERA. And as we indicated, those really didn't have an impact on our sales growth rate significantly in Q1 but were positive on the introduction of those products. We're just being very deliberate in terms of the way that we roll those out.

Okay. So you still believe stable share is the right way to think about 2019?

I think it is overall.

Okay. And then two questions on guidance guys, one for Mike, one for Scott. Just TMTT was not expecting PASCAL to contribute as much this particular quarter. So Mike you're still thinking about the contribution of PASCAL and Cardioband the same way or should we have kind of larger expectations for PASCAL and maybe less so for Cardioband. And then for Mike, just on the guide for earnings beat by 10 raised by 5. Just kind of walk us to the bridge assuming currency was pretty neutral, I'm wondering is that just reinvestment or cash medical dilution? Thanks so much.

Yes, so certainly the fact that PASCAL came a couple of months earlier just reinforced our confidence in that. We always felt that there would be more PASCAL than there was Cardioband and the Cardioband supply situation is continuing to improve. But we're also very pleased with the introduction of PASCAL.

And David, it's Scott. On the guidance increase, we're increasing both ends of guidance by a nickel. And if you assume that we beat by about a dime versus our guidance for the first quarter. Keep in mind, we expect some higher spending in Qs two through four mostly because we have some delayed spending from the first quarter and continued investments that we're making in the business. Tax is also going to be a tailwind for the rest of the year versus our January guidance, but it's not large enough to offset the higher spending.

Great, thanks for taking the question. First question is just wondering if you could talk a little bit about the reaction to the data since the ACC Meeting on the low risk side. And the reason I asked the question is that obviously as you remember back in the intermediate risk data, well now, you drove a bolus of activity and revenue before the actual approval. And the low risk data, I think is even more impressive than the intermediate risk data. So I'm just curious what the reaction has been and is there any reason why you wouldn't see a similar type of reaction in the marketplace to the low risk data as you did with the intermediate risk data?

Yes, thanks, Bob. You got to remember when we introduced that intermediate risk data; it was also at a time that we were launching SAPIEN 3. So there were a couple of things going on at the same time. We always assumed that there would be favorable trial results but we didn't assume superiority and we didn't think superiority was necessary to change practice. But having said that, it is a boost. We've heard a lot of favorable comments from clinicians. We just know from experience that the practice of medicine changes pretty slowly with guideline changes, with education, and with awareness. And so we're thoughtful about just how much that changes. Again, probably think of it more as a ramp than a step.

Okay. And then on PASCAL, I just wanted to get a little bit better sense for the launch. Could you just kind of help us understand where is PASCAL launched today in Europe and how does that rollout go over the course of the rest of the year? I understand you're keeping your guidance the same but I'm just curious where it's actually launched today. And also just specifically maybe now that PCR is right around the corner, what will we see on PASCAL and PCR?

Okay. Thanks Bob. So again, we've got the CE Mark a couple of months earlier than we expected and we are launching on a pretty controlled basis in Europe. We're very focused on physician training, procedural success, and great outcomes because it's really a different procedure, it's a different technology than physicians have experienced in the past and we're being very deliberate about that. They're ready for PASCAL and our early experience demonstrates that there are many patients that could benefit from this therapy. In terms of PCR, we do expect there to be data there but even before that at this meeting DGK, we would expect to see the mitral CE Mark trial. This is the class, the 62 patients at 30 days at that meeting. I think you'll see some more information there. At PCR, there's a chance that we'll see six months results on that same group of patients.

Good afternoon. Thanks for taking the question. Mike, one on SAPIEN 3 Ultra, one on low risk. So, Mike, if you could give us a little bit more color on the launch of SAPIEN 3 Ultra in the U.S. and Europe, where are you in the process? And I'm asking because we've heard that there's been some issues with the sheath. Is there any validity to that?

So I would just in general say that we've been more disciplined than we originally anticipated with Ultra. We've learned with experience that the system is different enough from SAPIEN 3 and that as we really try and drive super high performance. It's beneficial for us to be careful, and as you noted, it is a different sheath. And so it's something that clinicians need to learn. We've gotten very favorable feedback on the Ultra valve but I'll also tell you that SAPIEN 3 remains immensely popular with our clinicians. So we're rolling that out at this point. We only began launching in Germany just late in the quarter. So maybe that gives us some insight into how it's going.

Thanks for that, Mike. And then on low risk, just a two-part question here, Mike. So first, is the FDA going to want to see the bicuspid registry data and the leaflet thrombosis data from PARTNER 3 before approving low risk? And if so, what's the status of those two data sets? And then secondly Mike, what's your expectation for the label with low risk with regard to a native versus tricuspid valve? In other words, is it possible that bicuspid could be off-label? Thanks for taking the question.

That's a lot of questions, Larry. I hope I remember them all. So let me start from the beginning. We don't necessarily think that the FDA is going to hold it up waiting for the registry on bicuspid. We think that what was submitted should be adequate for approval. I'll just add that bicuspid is not off-label today and we don't expect that to be a change when the new technology is ultimately approved. In terms of the questions about leaflet thrombosis, we're going to continue collecting that, but we think that the data submitted is adequate for approval.

Thanks. Mike, could you just confirm which tricuspid product do you expect to get into U.S. pivotal trial by the end of this year? I'm assuming that's Cardioband just based on what you said before. But I just wanted to confirm that?

Now that's a good catch, Chris. We had a little subtle change actually into what we're guiding and you're right. We had indicated that it was going to be Cardioband first but at this point we have three technologies that are going through early feasibility studies. So that includes PHARMA, PASCAL, and Cardioband. We're just trying to send a signal that we're going to fully evaluate that data before we make decisions. We're committed to start a pivotal trial by the end of the year but we're going to sort through that data first.

Okay. And then just an update on the status of the Active trial that had begun and then was paused, where are you guys with that at this point?

Yes, so we did pause that trial while we're evaluating trial design and remember some of this was related to the fact that there was co-app data that was relatively new once that trial had started. So we plan to reinitiate that enrollment and get that going once we have that trial approved that we expect that to happen later in the year.

Hi, Mike. Thanks for taking the question. You mentioned the newer and smaller centers grew faster. That's been a trend that you've talked about for several quarters. It seems though that the larger older centers, if you will, would be most prepared fundamentally to take advantage of perhaps screening more patients vis-à-vis the low risk approval when it comes. Could you talk about whether or not that is the case in your mind and also as it relates to the center level, the bottleneck used to the screening process patients can come in, want TAVR, they didn't fit into the risk profile approved by FDA with that criteria sort of liberalized to some extent. How do you think that bottleneck will change if at all or will it get better at the center level? Will the bottleneck change to a different point or will it be ameliorated to some extent altogether?

Thanks, Jason. Let me take a shot at answering your question. You can tell me if I get there or not. You're right. The big centers are the best prepared; they have the most experience and they're the best staffed in the business. And, yes, if we get some streamlining and modernizing the NCD, it clearly will improve that process and should lead to less patient visits and a process that's not as prolonged as it is today because even in the best centers, it can be painful. Having said that, it's the same large centers that also are taking on competing therapies like mitral and tricuspid. So they also have a little bit of split attention. So it's a little bit of a mixed bag. We have a difficult time being very accurate with that at this point.

That's fair. And then just going back to the broad question about how low risk is going to impact the TAVR market in general not only in the United States but my question is really globally and also how your share comments fit into that. Do you expect low risk data to over the next say four to eight quarters have an impact on acceleration not only in the United States but outside the United States and I guess to bring Japan into this discussion, I'm sure they look at these data. Do you think it will have an impact on the government with respect to how many centers they allow to do this procedure or do you think those data are compelling enough to move the needle there?

All right, I'm going to take a shot at answering there are several questions there, Jason. First of all, the data was really positive and we think it's going to have some profound impact in the long-term. As we've mentioned, it's going to take some time to practice; medicine changes slow for a number of reasons. Speaking of international, we've heard a lot of excitement from clinicians but we expect the impact to be a little bit more modest in the near-term because the guidelines are going to take some time to change; the actual low-risk approval probably doesn't come till 2020. Also, reimbursement is important in many of these countries and that's likely to change slowly. In Japan, although this data is going to be very powerful, one of the constraints there we believe is there is simply not enough centers to be able to handle the population and the referral patterns in that country. So there may be constraints that don't have a lot to do with the excellent PARTNER 3 data.

Hi thanks for taking the question. So the first question I wanted to ask was just simply comparing qualitatively what you expect from the ramp once you do get approval in reimbursement for low risk versus intermediate. Do you think it could be quicker, the same, slower? Do you have no opinion? The data once was very good at the time?

Yes, thanks. That's a tough one to call. We do think it's going to be a tailwind and it'll be favorable but again we expect more of a ramp with more of a long-term impact.

Okay. I just wanted to ask one follow-up on the NCD because for some of the smaller centers, we'll see how it ultimately shakes out with the final, it'll change things. And so I was wondering from your perspective as an organization, do you have to do things differently to help them get over the hump? Are you preparing for that to help do some training for them or help them streamline their screening? What are you doing to help prepare for that?

Yes. So I'm not sure that the training is going to change; it's probably going to be the same. So many of the centers that need to be in there and obviously need to have established capabilities, they need to have the capability to handle catheter-based procedures. They need to have surgical capability. It’s just I think the new requirements make it accessible, the potential to make it accessible to a larger group of hospitals but there's still going to need if the draft is adopted 300 PCI's and so forth. So there's a limitation. We don't expect the number of centers to approach, for example, more than 1,100 centers that today do surgical valve replacements. But there is the potential for it to come up and we think that we'll be able to provide the support necessary.

Hi, good evening, thanks for taking the questions. I was just hoping to start on SAPIEN 3 Ultra and hoping you could potentially remind us on how many patients you needed to get CE Mark and an FDA approval, but really the root of my question is just whether or not we should be expecting SAPIEN 3 Ultra to have a similar pacemaker rate as SAPIEN 3. I think the only design difference is the added spurt feature. But if you could help us with that just because the pacemaker rate was so low in the PARTNER 3 trial. I just wanted to sanity check expectations for the SAPIEN 3 Ultra pacemaker rate that is going to ultimately become the workhorse in that portfolio?

Yes, thanks, Josh. See, I'm not going to comment on the number of patients necessary for the CE Mark; I don't know that we would share that and I don't think I know it myself anyway. But in terms of the permanent pacemaker rate, I'd say we don't expect it to be very different because the frame is compact and our balloon expandable designs are relatively similar and very different from the designs that you'll see from our competitors' self-expanding designs. We think there really is going to be a difference but we're going to have to just see that play out in the data but we're not expecting it to be substantially different.

Thanks. And then just my follow-up there was some buzz generated at ACC around prosthesis patient mismatch and potentially self-expanding valves serving patients better that had small annulus. Can you just help us think about Edwards' positioning in those small annulus cases and just wanted to again sanity check that you don't think that SAPIEN 3 has been losing share in those smaller valve patients. Thanks a lot for taking the questions.

Sure. Well, you saw the distribution of valve sizes that was presented in the PARTNER 3 data and that had a full representation of all of our valve sizes, and I think the results kind of speak for themselves. We had 99% of the patients that were alive and without significant stroke at a year in this really important dataset. So I think it kind of answers the question about patient prostheses mismatch. The data is sort of the ultimate arbitrator of that.

Hi, thank you for taking our questions. I have two follow-ups. Mike, regarding the new small centers you mentioned contributing this quarter, could you discuss the growth pace in these centers? Have you noticed any impact from the anticipation of PARTNER 3 or NCD on patient growth? Also, can you remind us how you expect this to play out this year and what the potential looks like over time? And I have one follow-up for Scott.

Yes. So I think what we're really saying is that if you take a look at the new centers, their growth rate was just higher than those centers, they're much larger and been around for a while. I don't know that that's really affected by the NCD or PARTNER 3, I think it's much more attributed to the fact this is a new group of patients and now they have some local referral pathway that wasn't available before, and that's the key driver of their growth.

I see and I was actually speaking more of the growth of the number of centers. Like in other words, have you seen a pickup or a slowdown or a pause or anything around the number of new centers opening up just because of the things I mentioned?

Yes. So far the number of new centers has been pretty consistent here over the recent past. If the draft NCD goes through, it's likely to stay at a relatively consistent basis since there would be more centers added. We think they would be added gradually, but again we don't think it comes anywhere close to approaching the number of centers of the 1,100 plus centers that do surgical AVR.

Yes, it was $181 million cash flow from operations if you add back the payment to Boston Scientific. Our overall cash flow estimates for the year have not changed dollars; we're still at $800 million to $900 million for free cash flow. Just remember the first quarter is always low just seasonally. We've got a lot of confidence that we're going to be on track to do the $800 million to $900 million for the full-year.

Good afternoon everybody. Hi, Mike. Going back to ACC in the low-risk data we saw from your major TAVR competitor, a couple of docs and centers I have spoken with recently are suggesting that the higher pacer rate in the other dataset has prompted them to shift a little more in your direction in terms of share. Are you seeing that? Is that something that I know a lot of moving pieces in all these markets but is that an impact that you're seeing or we should expect to see?

Yes, thanks, Rick. Even though that feels like a long time ago, it really hasn't been so long since ACC, and it's hard to deduce any significant trends at this point in time. In terms of the difference in pacemaker, that's probably best answered by doctors. You know that it's always challenging to compare various clinical trials, but we're very proud of the results that we've generated in PARTNER 3, and we think the results speak for themselves.

Okay. And back to mitral, I may have missed it. Did you all reiterate your $40 million projection for 2019? You may have apologized if I didn't hear it. Reflecting on the first quarter number, please help us understand if $40 million is still a target for 2019. Could you provide more clarity on the drivers? Is it the trials and fewer headwinds for Cardioband? Any additional information would be appreciated. Thank you so much.

Yes. Thanks very much. So what we've said is that we have increased confidence in achieving approximately $40 million sales for total TMTT in 2019. I will add that, of course, the litigation adds some risk to the sales projections. But overall we feel quite good about it. We think that there's going to be a ramp that lifts over time and PASCAL was just introduced partway through the first quarter. So we're pleased with the first quarter results. And as we indicated before, we think there's going to be more PASCAL sales than Cardioband. One of the things that's going to help out Cardioband is as we transfer production from the existing site into Edwards sites, we expect that supply condition to gradually improve. So yes, Cardioband will become more important but PASCAL will become more important at the same time.

Good afternoon and thank you for taking the questions. I want to understand a little bit better on the approach to selling CENTERA in Europe, similar to how you sort of outlined the Ultra marketing efforts. Could you please give us an update on CENTERA?

Sure, Joanne. Yes, I think we would say that we probably have slowed down the launch of CENTERA versus our original rollout plan. The original plan called for minimal proctoring based on site feedback but we're increasing the training and the proctoring requirements and that's going to affect the ramp. So even though we get some very, very positive feedback from those folks that have gone through the training and the proctoring, we find that it is a valuable feature and so we've only gone to a limited number of centers so far and we look forward to ramping that up during the course of the year.

Okay. And as a second question, I want to talk about pricing a little bit. What are you seeing out there on the competitive landscape in terms of average selling prices? And is there a stage at which you create internally sort of a two-tier system to more competitively compete on price? Thank you.

Yes, thanks, Joanne. No, we continue to see much of the same trends that we've talked about in the past in pricing. So pricing is pretty comparable in the U.S. today. In Europe, there's a big delta between us and let's say all of our competitors. We do not plan to implement a tiered pricing strategy. Our thought here is to introduce the very best technology that we have available and we think ultimately the Ultra Valve will be our workhorse product for Europe and the rest of the globe.

Hi, Mike. Thanks for taking the question. You mentioned the newer and smaller centers grew faster. That's been a trend that you've talked about for several quarters. It seems though that the larger older centers, if you will, would be most prepared fundamentally to take advantage of perhaps screening more patients vis-à-vis the low-risk approval when it comes. Could you talk about whether or not that is the case in your mind and also as it relates to the center level, the bottleneck used to the screening process patients can come in, want TAVR, they didn't fit into the risk profile approved by FDA with that criteria sort of liberalized to some extent. How do you think that bottleneck will change if at all or will it get better at the center level? Will the bottleneck change to a different point or will it be ameliorated to some extent altogether?

Thanks, Jason. Let me take a shot at answering your question; you can tell me if I get there or not. You're right. The big centers are the best prepared; they have the most experience and they're the best staffed in the business. And, yes, if we get some streamlining and modernizing the NCD, it clearly will improve that process and should lead to fewer patient visits and a process that's not as prolonged as it is today because even in the best centers, it can be painful. Having said that, it's the same large centers that also are taking on competing therapies like mitral and tricuspid. So they also have a little bit of split attention. So it's a little bit of a mixed bag. We have a difficult time being very accurate with that at this point.

That's fair. And then just going back to the broad question about how low risk is going to impact the TAVR market in general not only in the United States but my question is really globally and also how your share comments fit into that. Do you expect low risk the data to over the next say four to eight quarters have an impact on acceleration not only in the United States but outside the United States and I guess to bring Japan into this discussion, I'm sure they look at these data. Do you think it will have an impact on the government with respect to how many centers they allow to do this procedure or do you think those data are compelling enough to move the needle there?

All right, I'm going to take a shot at answering there are several questions there, Jason. First of all, the data was really positive and we think it's going to have some profound impact in the long-term. As we've mentioned, it's going to take some time to practice; medicine changes slow for a number of reasons. Speaking of international, we've heard a lot of excitement from clinicians but we expect the impact to be a little bit more modest in the near-term because the guidelines are going to take some time to change; the actual low-risk approval probably doesn't come till 2020. Also, reimbursement is important in many of these countries and that's likely to change slowly. In Japan, although this data is going to be very powerful, one of the constraints there we believe is there is simply not enough centers to be able to handle the population and the referral patterns in that country. So there may be constraints that don't have a lot to do with the excellent PARTNER 3 data.

Hi guys. Good afternoon. Most of the questions have of course been asked, but, Mike, just on a qualitative level, what's been the reaction of patients and physicians to PARTNER 3 and Mick Jagger effect, I should add just given especially in PARTNER 3 what looks like a very discernible benefit in hard outcomes. I mean how eye-popping is this to your clinician base and what responses patients had?

Yes, thanks, Bruce. Yes, you said it right. There's been an incredible amount of excitement around this; it was really eye-popping data and the clinicians were truly thrilled, especially those that have been held a long history with this therapy and have seen it over the many years just get better and better. This really feels like a big moment, I think for those of us that are very close to this and for the clinicians as well, we felt like this was one of those top 10 moments in the history of the treatment of heart valves that good to see these kinds of results. It was amazing. I'd say the results were even beyond our own expectations. But having said that, we know Ultra valve that the practice of medicine changes relatively slowly and it's going to take approval and coverage in the rest of it to happen. But we're really encouraged on a long-term basis.

I noticed that the proposed requirements for the NCD indicate an increase in volume needs, not for initiating an institution or program, but for maintaining one. Do you see this as a potential area for improvement, or do you believe that handling 40 SAVR plus TAVR cases annually is an appropriate target? What impact could this have on the sites that are eligible to participate?

Yes, well you know from a big picture perspective, we look forward to the day where we're not measuring quality with a surrogate like volume. So I look forward to that becoming the reality. But having said that, I do think CMS was more moderate in terms of the volume requirements and we're not particularly alarmed by the requirements to maintain the program.