Edwards Lifesciences Corp (EW) — Q3 2019 Earnings Call Transcript

Thanks, Diego and thank you all for joining us. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, Chief Financial Officer. Just after the close of regular trading, Edwards Lifesciences released its third quarter 2019 financial results. During today's call, management will discuss the results included in the press release and accompanied financial statements and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include, but aren't limited to financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These statements speak only as of the date on which they 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 these 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.com. Finally, a quick reminder that when using terms underlying and adjusted, management is referring to non-GAAP financial measures; otherwise, they are referring to GAAP results. Reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike for his comments. Mike?

Thank you, Mark. We are excited to announce strong results for the third quarter, driven by a significant increase in patients receiving transcatheter heart valve therapy. Our sales growth exceeded expectations, with double-digit increases across all global regions and a 19% rise in underlying sales to $1.1 billion, primarily attributed to transcatheter aortic valve replacement. We are also making progress in investments in new therapies and ongoing clinical trials that we believe will have a substantial impact in the future. Importantly, more patients are now benefiting from our life-saving technologies than ever before. In TAVR, global sales for the third quarter reached $700 million, a 27% increase on an underlying basis. This growth was propelled by strong adoption of therapy worldwide, particularly in the U.S. We estimate global TAVR procedure growth mirrored our growth in the mid-20% range. Our average selling price remains steady as we maintain pricing discipline. In the U.S., we estimate total TAVR procedures saw about a 30% year-over-year growth, with Edwards' growth aligned with this trend. The stronger-than-anticipated growth was influenced by an influx of TAVR treatments following the recent FDA indication expansion for our SAPIEN 3 and SAPIEN 3 Ultra systems based on strong PARTNER 3 evidence. This approval is significant, allowing all patients diagnosed with severe aortic stenosis to be considered for TAVR based on their unique needs rather than traditional risk classifications. Growth this quarter was broadly observed across the U.S. Outside the U.S., we estimated total TAVR procedures grew just over 20% year-over-year, with Edwards' growth on par. We remain optimistic about the robust international adoption of TAVR, especially in areas where therapy penetration is still very low. In Europe, our growth was in the teens, and we believe our competitive position is steady. Despite the availability of transcatheter valves in Europe for over a decade, demand remains strong. In other regions, TAVR adoption, particularly with SAPIEN 3, is also strong, with significant sales growth in Japan as aortic stenosis remains an under-treated condition. We are dedicated to increasing access to TAVR therapy. We've been pleased with the performance of the SAPIEN 3 Ultra valve, and clinician feedback continues to be positive. The valve includes a modified outer skirt with proprietary material designed to minimize paravalvular leaks. We decided to expedite the transition to the proven SAPIEN 3 delivery system while finalizing improvements to our Ultra delivery system. The updated rollout plan is expected to gain momentum over the coming quarters, and consequently, we anticipate that SAPIEN 3 Ultra will make up the majority of our TAVR sales in the U.S. and Europe in 2020. This change contributed to a charge this quarter. I’m also happy to provide an update on our Early TAVR clinical trial, which is now about halfway enrolled. This significant trial focuses on expanding indications for patients with severe aortic stenosis who have not yet shown symptoms. Enrollment is ongoing at nearly 65 sites across the U.S., and we now expect completion in 2021 instead of our earlier target of 2020. We believe that Early TAVR has the potential to transform how clinicians manage aortic stenosis patients, preventing irreversible damage. Lastly, as shared at last month's TCT, clinical trial results showcased early and sustained quality-of-life improvements for patients with severe aortic stenosis at low surgical risk treated with SAPIEN 3. When combined with the clinical superiority results from the PARTNER 3 trial, these quality-of-life findings further advocate for TAVR in these patients. In summary, with the strength of our performance so far this year, we are raising our full-year TAVR guidance to expect underlying growth of nearly 20%, up from our previous estimate of about 15%. Early in the 2020 forecasting process, we anticipate a return to low double-digit growth for TAVR procedures globally next year, aligning with our estimate of a $7 billion opportunity in 2024. Based on our 2019 results, it is expected that in 2020 we will see slower second half growth due to higher year-over-year comparisons. We are encouraged that the TAVR opportunity remains strong and believe that our ongoing innovations will maintain our strong global position. In transcatheter mitral tricuspid therapies, we made significant strides during the third quarter in advancing our technologies to provide solutions for underserved mitral and tricuspid patients. Global revenue for the third quarter was $10 million, primarily from commercial sales of PASCAL in Europe. We are pleased with the careful rollout of PASCAL, focusing on training physicians, ensuring procedural success, and enhancing patient outcomes. While we have received positive feedback from physicians regarding this therapy, our premium pricing strategy contributed to slightly lower-than-expected revenue. Now let me provide a brief overview of key developments. In mitral valve repair, we continue to enroll participants in our CLASP IID U.S. pivotal trial for PASCAL in cases of primary or degenerative mitral valve disease. Additionally, we have started enrollment in our CLASP IIF pivotal trial for patients with secondary or functional mitral valve disease. In line with our commitment to building robust clinical evidence, we presented positive one-year outcomes from 30 patients in our European CLASP study at TCT. We were particularly encouraged by the low rates of cardiovascular mortality and hospitalizations for heart failure, as well as a significant and sustained reduction in mitral regurgitation. Patients also saw clinically significant improvements in functional status, exercise capability, and quality of life. In mitral valve replacement, we are pleased with the ongoing early feasibility study of both EVOQUE and SAPIEN M3 transseptal therapies and are on track to initiate a U.S. pivotal trial of SAPIEN M3 before the year's end. Recent data presented at TCT highlighted the clinical feasibility and acceptable safety profile of both therapies, alongside significant reductions in mitral regurgitation. Regarding transcatheter tricuspid repair, we accelerated the PASCAL tricuspid pivotal trial and received FDA approval for our Class II TR pivotal trial to study PASCAL in patients with symptomatic severe tricuspid regurgitation, with site activation planned by year’s end. At TCT, we shared the latest data from our Cardioband tricuspid early feasibility study, which demonstrated acceptable safety and performance, including notable reductions in tricuspid regurgitation at 30 days. For the full year 2019, we now expect TMTT revenue to be below $40 million as we continue our disciplined introduction and premium pricing strategy, which is moderating site activation. Additionally, while still early in 2020 forecasting, we expect to double our 2019 TMTT sales in 2020. We are on track to meet our ambitious clinical milestones for 2019, including continued enrollment in our CLASP pivotal trials and starting the SAPIEN M3 pivotal trial by year’s end. We estimate the global TMTT opportunity could reach approximately $3 billion by 2024, and we are committed to offering a range of solutions for patients in need. In Surgical Structural Heart, third-quarter sales reached $204 million, reflecting a 3% rise in underlying sales. Our growth was fueled by ongoing adoption of our premium high-value technologies and strength outside the U.S. This was somewhat offset by decreased surgical aortic valve procedures in the U.S. as TAVR adoption grew. We are optimistic about the steady adoption of INSPIRIS RESILIA tissue valves, with valve utilization increasing in all regions, particularly among younger and more active patients. INSPIRIS is becoming a standard surgical valve in many regions globally. We also anticipate European regulatory approval for our HARPOON beating heart mitral valve repair system towards the end of the year, which offers the possibility for earlier treatment of degenerative mitral valve disease, leading to quicker recovery and more consistent outcomes for surgical patients. Although the superior results of PARTNER 3 and the recent TAVR indication expansion are expected to put some pressure on our aortic surgical sales, we continue to anticipate full-year underlying sales growth of 1% to 3% based on our year-to-date performance. We remain enthusiastic about our ability to offer innovative surgical treatment options to more patients and extend our global leadership in premium Surgical Structural Heart technologies. In Critical Care, quarterly sales reached $180 million, showing a 7% increase in underlying sales. Our diverse product lines and geographic locations contributed to this growth, particularly with the HemoSphere monitoring platform. In the third quarter, we received FDA clearance to use the FORE-SIGHT cerebral oximetry technology from the CASMED acquisition on HemoSphere. Integrating our comprehensive suite of technologies at HemoSphere will create a distinct offering of enhanced recovery tools and predictive analytics to strengthen our leadership in smart monitoring. Given the sustained performance over the first three quarters of 2019 and the anticipated momentum from the fully integrated HemoSphere platform in the fourth quarter, we expect full-year underlying sales growth of 8% to 10%. Now, I will pass the call to Scott.

Thank you, Mike. We continued our impressive top-line performance this quarter with underlying sales growth of 19% reflecting global strength across all regions. Particularly strong was our 27% underlying growth in TAVR, which benefited from the recent clinical evidence supporting our SAPIEN 3 therapy. Growth in the quarter was aided by one-time items contributing approximately 200 basis points to growth, largely related to the increased number of billing days versus prior year and forward buying ahead of the consumption tax change in Japan. Our adjusted earnings per share in the third quarter of $1.41 grew 32% over the prior year driven by our notable sales performance. We achieved this growth while maintaining our significant investments in research and development, primarily on our transcatheter structural heart programs. During the third quarter, we recorded an additional $27 million charge primarily inventory-related to last quarter's strategic decisions regarding our transcatheter aortic valve portfolio. This charge combined with other normal recurring adjustments reduced our third quarter GAAP earnings per share to $1.30. Including the second quarter charge, the 2019 impact of the discontinuation of CENTERA and revised Ultra rollout plan is $73 million. 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 third quarter results and then discuss guidance for 2019. For the quarter, our adjusted gross profit margin was 75.9% compared to 75.5% in the same period last year. This improvement was driven primarily by the favorable impacts from foreign exchange and product mix, partially offset by spending in support of the new European device regulations and manufacturing variances. We expect our full year 2019 adjusted gross profit margin to be consistent with our year-to-date rate. Selling, general and administrative expenses in the third quarter were $306 million or 28% of sales. This 14% increase over the prior year was driven by transcatheter structural heart field personnel-related expenses including expanding the transcatheter mitral and tricuspid therapy field organization in Europe. 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 expenses in the quarter grew 21% over the prior year to $195 million or 17.9% of sales. This increase was primarily the result of significant investments in our transcatheter structural heart programs including generating clinical evidence. For the full year 2019, we continue to expect R&D excluding special items to be between 17% and 18% of sales. Turning to taxes. Our reported tax rate was 8.9% for the quarter or 10.8% excluding the impact of special items. Stock appreciation this year drove a 580 basis point benefit or $0.09 from the accounting for employee stock-based compensation. Our tax rate also benefited from recently passed tax reform in Switzerland. We now expect our full year 2019 tax rate excluding special items to be at the bottom of our previous guidance range of 12% to 14%, which reflects the increased benefit of the accounting for employee stock-based compensation. Foreign exchange rates decreased third quarter sales growth versus the prior year by less than 1% or $6 million versus 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 third quarter gross profit margin by 130 basis points versus the prior year. Relative to our July guidance, FX rates had less than $0.01 impact on earnings per share reflecting our effective currency hedging program. Adjusted free cash flow for the third quarter was $319 million defined as cash flow from operating activities of $437 million less capital spending of $76 million and excluding a $42 million tax benefit related to our previously announced global intellectual property litigation settlement. Our year-to-date, adjusted free cash flow which excludes the litigation settlement and related tax benefit was $735 million. We now expect full-year 2019 adjusted free cash flow to be above the top end of our previous $800 million to $900 million guidance range. We remain on track in implementing capital expansion projects, in line with our strategy to increase global capacity. Turning to our balance sheet. At the end of the quarter, we have cash, cash equivalents, and short-term investments of $1.4 billion. Total debt was $594 million. Average shares outstanding during the 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. And now finishing up with our 2019 guidance. Given our strong year-to-date performance, we are increasing our sales guidance ranges for Edwards and for TAVR. For total Edwards, we now expect sales around the top of our previous $4.0 billion to $4.3 billion range. And for TAVR, we now expect sales around the top of our previous $2.5 billion to $2.7 billion range with underlying sales growth of nearly 20%. For TMTT, we now expect sales to be below $40 million. We continue to expect Surgical Structural Heart sales of $810 million to $850 million; and Critical Care sales including CASMED around the top end of our $700 million to $750 million range. We are raising our full year adjusted earnings per share guidance range to $5.50 to $5.65, up from our previous guidance of $5.20 to $5.40. For the fourth quarter of 2019, at current foreign exchange rates, we project total sales to be between $1.12 billion and $1.16 billion and adjusted earnings per share of $1.40 to $1.55. And with that I'll pass it back to Mike.

Thanks Scott. We're very pleased with our strong year-to-date performance. As patients and clinicians increasingly choose TAVR, we remain optimistic about our long-term growth opportunity. We are committed to aggressively investing in our future, consistent with our focused innovation strategy. We remain confident that the innovative therapies resulting from our investments will benefit a broader group of patients suffering from structural heart disease and continue to drive strong organic growth. And with that I'll turn it back over to Mark.

Thanks Mike. Before we open it up for questions, I would like to remind you about our 2019 Investor Conference on Thursday, December 5th in New York City. This event will include updates on our latest technologies, news on longer-term market potential, as well as our outlook for 2020. More information and a registration form are available on our website. We're 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 re-enter the queue and management will answer as many participants as possible during the remainder of the call.

Thank you and good afternoon. First, congratulations on a strong third quarter. Mike, I wanted to confirm that I'm understanding your updated perspectives on the TAVR market correctly. It seems that despite a very strong performance in the third quarter, you're not altering your views on the overall market size or the timeline to reach it. My initial reaction is that this appears to be a conservative estimate and timeline unless there's something new that I’m missing. Could you provide some clarification on this?

Yes. Thanks Bob. Well, you know we've always felt the TAVR opportunity was large and growing and we know that the superiority results are helpful. We caution reading too much into one quarter's result. We continue to think that we'll know more about it over time, but right now, we would encourage you to think about this broad growth rate that we've talked about over time. We struggled some time to estimate quarters accurately. If you go back to our guidance in December, we thought that the TAVR opportunity would grow from $3.5 billion in 2018 to $7 billion in 2024. We still think that that's a reasonable trajectory. We'll take a hard look at it, and if we have an update we'll share that certainly in the future.

Great. That's fair enough. And then just one quick follow-up for Scott, you offered a few things about 2020 that we should consider. Just curious, if there's any other things that you think we should consider for 2020 modeling purposes? And I know you have like for example, one thing that I think people are curious about is just you have a lot of trials going on great revenue growth. Is 2020 a year where you still think you can – you'll deliver leveraged earnings growth? Thank you.

Well, that's certainly our objective. We try to inch up operating profit margins every year. And we're not perfectly consistent at it, but that's certainly the objective over the long term. I think the other things to think about in 2020 are we are going to continue to invest aggressively in research and development. And every time we think we've gotten it right, we end up with programs coming online and other programs rolling off. But I think you're going to see us continuing to address it at relatively high levels of R&D. Don't expect it to go back down to 14% or 15% where we were a few years ago. The last thing I'll say is just on gross profit I think we're going to see downward pressure on our gross profit margin because we've got the benefit of some of these FX – currency hedges rolling through FX this year. And so we're not ready to quantify that yet, but I expect our gross profit guidance probably will not be as robust next year as it was this year.

Great. Thanks for taking the questions.

Great. Good afternoon. Just two quick ones for me. Mike, I thought I'd just start with PASCAL here. Just, if you could parse out sort of the PASCAL launch dynamics. Like initially, it was a disciplined launch focused on outcomes. This quarter you raised your premium pricing strategy. So, what's the bigger rate limiter? Is it more this disciplined launch or is it more your pricing strategy? And then what changes in 2020 to give the comfort that this business can double? And I have a quick follow-up for Scott.

Yeah. Thanks David. So know that this launch plan has always been there. That's what we called for. We go through very careful site selection, physician training, patient screening, and case support so that's not really different. But we are executing a premium price strategy, because of the differentiated technology that we have and also this high-touch clinical support. That premium price strategy is moderating our site activation plan. So that's what's changed it. Was there a second part to the question David?

What changes Mike in the next year? I mean, this business is going to double as you suggested. Do you change your strategy next year or do you think this strategy you're employing in 2019 can get you to doubling this business next year?

It – we do believe it's a strategy. It will be an increase in the number of sites. They are limited today and we'll be adding sites in a disciplined fashion. We've gotten great feedback from clinicians and so that will be the primary driver.

Okay. Very helpful. And then Scott you talked about gross margins for next year and I appreciate the update. When you just think about this particular quarter obviously given the strength in TAVR gross margins probably weren't as strong as we were expecting so you mentioned manufacturing variances. But can you just help us quantify any impact from Ultra CENTERA or FX on gross margins this particular quarter? Thanks. Thanks so much.

Sure. Let me take you through some of the different moving pieces that hit gross margin. We had the benefit of these hedged contracts, I've mentioned before. That was probably about a 130 basis point contributor to the 75.9% non-GAAP gross margin. It was offset by these manufacturing costs. And I think one of the good examples of what's flowing through there is these new European EU device regulations that end up costing us money. There were some inefficiencies associated with moving delivery system production around in connection with this Ultra delivery system strategy we've talked about. So that did run through manufacturing cost and was contributor to some of the negative variances. We also had some benefit of mix. And you roll that all up together again and that's how we have gone up 40 basis points versus 2018 third quarter.

Is it possible Scott that the impact of CENTERA and Ultra was more than 100 basis points this quarter?

Well, I think there are two pieces – were called out. One was a special charge, right? But in terms of the gross margin impact, no I don't think it's more than 100 basis points this quarter. I think it would be less than that.

Okay. Thanks so much.

Next question, Diego.

Good afternoon. Thanks for taking the questions. And congrats on a really strong quarter here. Mike, I wanted to start with the 2020 outlook for TAVR procedure growth in the low double-digits that you talked about in the press release and in your prepared remarks. I mean you're calling for about 20%, this year you've grown in line with the market. You just got the low-risk approval in late August. So why do you think the market will slow so much next year? And I had one follow-up.

Yes, I'm not so sure. We struggle with this Larry, because it's tough for us to call these quarters. I'm not sure it's about slowing next year. I think we saw a bolus this year. So we believe that most of what we saw last quarter and this quarter was the result of those spectacular results in PARTNER 3 which ultimately led to an FDA approval. And we think that that stimulated patients, educated physicians, and it increased awareness and that combination started patients moving through the system. They don't move through the system so fast but we think it was a real stimulus to the system. So if you will we might have even pulled a little bit of that forward. So that's the way that we end up thinking about we're still going to have half the usage next year. The growth rates are going to look lower in comparison to the second half of 2019.

That's helpful. Mike, regarding your surgical heart valve business, I appreciate your comments in your prepared remarks, but I'm interested in your perspective for 2020 and beyond. We've been hearing that TAVR procedures might decrease by 20% to 30% next year in the U.S. due to the strong low-risk data and indication. How confident are you that you can maintain or even grow that business looking ahead? Thanks for addressing the questions.

Yes, thanks, Larry. One of the factors although not as big as new patients coming off the sidelines were patients that might have been treated with surgery or treated with TAVR even now in the third quarter. So when you think of a big TAVR growth rate and that we've withstood that and grew 3% in the third quarter, it bolsters our confidence about the future. Is it going to be challenging? Do we think TAVR is going to continue to have an impact on surgeries? Of course, it will. But I'm not sure that that's going to get much worse in the future. We think there's probably been kind of a step-change here with the PARTNER 3 data and that over time that probably moderates as well.

Hey, guys congrats on a really nice quarter here. But back on the TAVR 2020 question. I want to approach it from a slightly different angle. Given the headline numbers on PARTNER 3 data, they came in much better. Shouldn't we be expecting maybe Edwards to do better than the market? I mean the overall market could be low doubles but shouldn't the better clinical data reflect in numbers?

Of course, we're proud of our data. Nobody is more proud. And we do everything we can to have that message out there but you have to also recognize that in the single biggest market in the world, the U.S. we've got new competitors that are coming in. And at this point I don't think we've really felt that in a large way. So whether it's trialing or an actual adoption we think that will have some impact. And so we stay kind of balanced on if we can grow like the market that's really not so bad.

That's helpful, Mike. I have a question about the mitral M3 trial that was expected to begin at the end of the year. Do you have any information on the trial design and what the comparator arm will be? Will this involve a key opinion leader approach? I'm interested in any additional details you can share.

Yes, thanks, Vijay. We don't have anything to share at this point. We're in discussions on that. And for competitive reasons while it's still early and it's not clear we don't share exact trial design. So at this point we really don't have anything new to add in that regard. Once it's clear of course it will get posted on clinicaltrials.gov and then we'll make it clear to everyone.

Thanks, guys.

Thanks and congrats on a nice quarter. I appreciate the volume commentary to let us back into Japan growth. It's starting to become a more material contributor here. Wondering if you could help us with the financial impact from the stocking ahead of the tax starting? And also maybe just some color on the market and what you're seeing there?

Yeah. So in Japan there was a consumption tax that was put in place, I want to say around the 30th of September. And we heard reports that some Japan customers did some TAVR stocking. We think it's just less than $2 million worth of stocking that took place there. So that gives you a rough idea of that if that's your question.

That's helpful to know. With the new NCD now in effect, what are your thoughts on the expansion of TAVR centers and the changes in their volumes? Specifically, how many new centers do you anticipate and what is the expected timeline for this expansion? Additionally, do you foresee these centers generating new volumes for the system, or do you believe they will take away from the existing volumes? Thank you.

Yeah. So we were pleased with the way that the NCD turned out. And I think our estimate at that time is that it would add approximately 200 new sites. These would be sites that could achieve the eligibility. Now I don't know whether all of those will do that in the near term except for some. It might take some time. I think by and large we believe, yes. Will it take from some other centers? Yes, probably to a small extent. We believe that there's still a greatly underserved market and that it is somewhat additive to the total as those new centers come on.

Thanks a lot.

Yeah.

Sorry about that. Hi. Thanks for taking the question. I just wanted to follow up on the TMTT comments on next year. Could you talk about just in broad strokes, how much of that you expect to be from PASCAL? And how are you thinking about your annular devices? And also if you could give maybe an update on replacement that would be helpful?

Yes. So, yes, just to go in the opposite order here. The bulk of this is likely to come from PASCAL. We'll try and paint a more complete picture. The replacement devices will be in clinical trial, so that won't have a big impact on the number. And right now our Cardioband product is still relatively small. We're gaining experience. We get a lot of positive feedback there, but by comparison, it's going to be more PASCAL.

Great. Thanks Mike. Sorry about the background noise. I’m traveling. Congrats on a great quarter. I wanted to start on mitral. With respect to your long-term views sort of a long-term question, $3 billion by 2024. How do you anticipate that breaking up U.S. versus OUS? And at that point in time understanding there's a lot of clinical evidence yet to be accumulated, do you expect Edwards will be if not a leader closing in on a leadership position at that point in time? Just trying to get a sense for trajectory as we look at your long-term projections in mitral.

That's a great question. I don't have a precise breakdown of the U.S. versus international figures. The international market had a head start due to earlier approvals, but the U.S. is known for its quick adoption of new technologies, which makes predictions a bit challenging. However, I want to emphasize that the $3 billion figure for 2024 is just the starting point for us, not the endpoint. Our focus is on the long-term potential. We'll aim to provide more details at the upcoming investor conference, but for now, that figure serves as a milestone for our journey.

Okay. Thank you for that Mike. And then, Scott, on your commentary with respect to operating margins to Bob's question, if we assume that R&D is not a source of leverage next year and potentially SG&A is, maybe talk about SG&A trending as we look at not only 2020. But does your commentary of previous Analyst Days hold true as we stand today in terms of seeing downward pressure on that line as a percentage of sales and perhaps if we do see leverage in 2020 that's where we would get it?

There are a couple of factors influencing this situation in 2020 and beyond. One factor is our focus on scaling growth while maintaining efficiency in our overhead and administrative expenses related to SG&A. At the same time, we are making substantial investments in field resources to support clinical cases. It’s difficult to predict the balance of these elements, but we aim to be very efficient in SG&A. We will provide more details about our expectations for 2020 during our upcoming investor conference.

Got it. Thank you both.

Next question?

Hi. Good afternoon. Maybe just a couple of clarifications. On the CLASP studies, the F&D studies in the United States, I don't believe you've given us timelines for U.S. approval. I know you're enrolling both of them, but you haven't really given us much in terms of how that enrollment is going and when we might see those products get approved in the United States.

I think that's correct; we haven't discussed approval. We are maintaining our enrollment timeline, and we may have more information to share at the investor conference. For now, I can confirm that we are on track with enrolling, and we haven't established completion timelines yet because we are still in the early stages.

Okay. That's fair. I wanted to get your thoughts on competition. You've noted that you're being cautious in your outlook due to possible competition in the United States. However, you also mentioned that there hasn't been much activity from LOTUS, and the update on Portico from TCT was somewhat disappointing. So, what is your current perspective on competition and its potential impact over the next 12 to 24 months in the U.S.?

Yes. We expect it to have impact. These are really good companies. We tend to think that our technology is pretty substantially superior, so we think that's going to give us a big advantage. But these are good companies that have great relationships out there and we think that they will have some impact.

Okay. Fair enough. Congratulations on a good quarter.

Hi. Thanks. I wanted to mention the impressive strength in U.S. TAVR this quarter. I'm curious about your level of activity regarding new center initiation and training, especially since it seems one of your U.S. competitors has increased their efforts in this area. Does that necessitate a response from your side, or is it business as usual? I’d appreciate any comments you have on this matter. I also have a follow-up question.

Yes, I would describe it as more business as usual. We are fortunate to be the leader in this area and we continue to adjust our approach regularly. One of the key factors that kept our team occupied this quarter, as you can imagine, was the 30% increase in U.S. procedures, which we managed to cover. Our team put in an incredible effort to handle the influx of patients. As for starting new centers, we haven't made significant moves in that direction; however, we do support them, and we anticipate that this will develop gradually over time.

That's helpful. Regarding the international environment, I understand your primary focus is on the U.S., and there's been a lot of discussion about it. However, you do have a premium-priced strategy for TAVR outside the U.S. Last year, it seemed that pricing pressure was a bit more intense. I'm curious if that has changed or if you are just comparing it year-over-year. Any insights you can share on that would be appreciated.

Yes. Well, the one thing I could speak of with certainty is our discipline. We continue to exercise a lot of price discipline. If anything, I would say, there might be even more price pressure. We've watched some competitors get even more aggressive over time, so some pretty significant differences, which is disappointing. We think it may be one of those things where it's tougher to compete, are on evidence and technology and so they're turning to price a little bit more aggressively. But that's the general environment.

Well, congrats on the solid results there. Thanks.

Good afternoon, everyone. Mike, could you provide more details about Ultra and its rollout from various perspectives? What remains to be done in terms of ramping up the device? It appears that it will increase significantly in the next few quarters. You mentioned that it will make up most of the product sales for a large part of 2020. How should we view Ultra? Is it a driver of growth or a contributor to market share? Additionally, Scott, how should we consider its impact on gross margins? Is it currently a drag on gross margins that could turn positive as we launch it, or is the opposite true as volume increases and we advance down the learning curve? Any insights on these points would be appreciated. That’s all from me. Thank you, Mike.

All right. Thanks, Rick. So let's just start from the top. We're really pleased with Ultra. We think it's a great valve. We love this feature. We think the reduction of paravalvular leak is going to become more and more important over time. There's going to be increased competition. If Ultra allows us to just protect our existing positions as leader we'll be pleased with that. So I think that's probably what you should expect.

We're in the early days Rick as you know we've been making some changes here. There will be a headwind to gross margin but it's really not something you're going to see externally. And over time it'll have substantially similar margins to SAPIEN 3.

Thank you.

Thanks. Scott can you circle back to the 200 basis point sales benefit you called out? How much of that was selling day versus Japan? And was that selling day impact making up for one less that you had in the prior quarter?

We experienced about a 1% headwind in the first half. In the third quarter, most of the 2% tailwind came from additional selling days, with only a small contribution from the Japan preorder.

Okay. And then Mike just following up on Larry's question about the surgical valve business can you give us a sense of how much of your procedure mix at this point is those premium products INSPIRIS and INTUITY? Just wondering how long positive mix can still be a tailwind there to help offset the lower volumes.

Yes, so at this point it's been growing pretty significantly. On the aortic side, it probably accounts for 50% or more of our volume and it's growing pretty quickly. So it's a pretty significant portion. It's becoming really the valve of choice in a number of regions.

Great. Thanks.

Hi. Good evening. Congrats again on the results. I wanted to start off on just asymptomatic opportunity. I think Mike you commented on EARLY TAVR I think enrollment being pushed out? And just wanted to get some updated thoughts on asymptomatic, and just is the enrollment pushed out due to some of these patients just screening in and being determined symptomatic upon sort of more rigorous interrogation by clinicians or stress testing?

We've seen very quick enrollment in all of our PARTNER trials, which has been impressive. PARTNER 3 was a significant success. However, in this current trial, we're dealing with patients who do not meet the indications or the guidelines. Currently, the guidelines state that only patients with aortic stenosis and symptoms should be treated, and many centers do not recognize these patients, leading to delays. The process has been slower because this is a first-of-its-kind, large trial. We wish it were progressing faster, but we are not concerned about the trial's implications.

Understood. Regarding bicuspid cases, we've received some anecdotal feedback suggesting that the current label and language may be limiting the utilization of bicuspid procedures, particularly for low-risk indications. My question is what insights you're gaining from the field. Are low-risk bicuspid cases being conducted at this early stage, or is there potential for that opportunity to expand significantly with future label updates? Thank you for addressing these questions.

Yes, you're implying that our growth rate might have been greater if we treated more bicuspid patients? I’m just joking, of course. As we mentioned earlier, treating bicuspid patients is not considered off-label, and we continue to see many of these patients receiving treatment. They tend to be younger and often have other medical issues, which means they may require different procedures. This is usually why they don't need TAVR therapy.

Good afternoon, guys. Thanks for taking my questions. Mike, before you used the word bolus when talking about TAVR growth this quarter. How should we think the bolus that we're having with low-risk patients? And how long do you think this bolus can last?

That's a good question. We believe the increase in demand started with the report on the PARTNER 3 results, which were quite impressive and sparked a lot of discussion and awareness. One thing we've learned about TAVR patients is that once a decision is made, they often don't progress through the system quickly. It frequently takes them longer than 90 days. Therefore, if some of those patients were activated around that period, it's not surprising they would appear in Q3. We think we've seen a rise in demand that began in the second quarter, continued into the third, and will likely extend into the fourth, leading us to a new level. However, we anticipate that this growth rate will moderate over time to align more closely with our long-term expectations.

Okay. Fair enough. And then second question. So your U.S. sales force is obviously quite busy this quarter sort of filling that 30% demand you guys saw. When do you think you’ll change your sales and marketing efforts to target more of the general cardiologists to help keep the low-risk patients coming in?

We never expect to reduce the level of service provided to our existing customers. Our approach is very hands-on, and we strive to ensure that every patient achieves a successful outcome. You raise a valid point; we observe significant differences in the knowledge that general cardiologists possess. Some keep up with the latest developments, while others are lagging in their understanding of available therapies. Therefore, there is work for us to do in this area, and we are gradually taking it on as we learn how to do this effectively.

Great. Thanks so much and great quarter.

Thank you.

Good afternoon. Thanks for taking the questions. I just had a quick follow-up on PASCAL. Does the doubling of revenue in 2020 stem more from entering new geographies? Or are you expecting any change in reimbursement in the regions you're currently in to help stimulate growth?

A significant portion of it is indeed from new geographies, as we have engaged with only a limited number of customers and regions so far. Therefore, we anticipate more penetration in the existing markets like Germany, while also planning to expand into new areas.

Okay. And just as a quick one. The low double-digit TAVR growth in 2020, any way you can comment on U.S. versus international trends there?

It was kind of preliminary for us. We wanted to put it out there just so to give you some kind of guidance. We're going to try and get into that more deeply. But rather than sort of speculate on something that turns into a foul ball, we just thought it'd be better for us to give you a high-level look and then we'll get deeper as time goes on.

Got it. Thanks.

Hi, guys. Congrats on the quarter end, and thanks for taking the question. Just one for me maybe on Critical Care, that business continues to be a positive driven by HemoSphere. How should we be thinking about the growth trajectory over the longer term? Is this level of growth sustainable? And can you remind us of the benefit you're seeing from a capital standpoint?

Well, we're really pleased with what's going on in Critical Care. And you can tell the growth rate that we've enjoyed this year, has been a step-up from what we've done in the past. The HemoSphere all-in-one platform has really been important. And it has stimulated our growth rate. Having said that, that team in Critical Care continues to add features to HemoSphere, and there are new features that will be added even later this year and some more in the future. So as those happen, we think it provides a lift to growth. Although, I don't know that you're going to see the same bolus. So we're going to share our expectations a little bit more discreetly or clearly, when we get together at the investor conference. But right now, we continue to feel like we have a strong franchise there in Critical Care.

That's very clear. Thanks, guys.

Well. Just thanks for your continued interest in Edwards. Scott, and Mark, and I welcome any additional questions by telephone. And I'll turn it back to you.