Edwards Lifesciences Corp (EW) — Q4 2021 Earnings Call Transcript

Thanks, Diego, and thank you all for joining us this afternoon. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer; and Scott Ullem, our Chief Financial Officer. Just after the close of regular trading, Edwards released fourth quarter 2021 financial results. During today's call, management will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections. These statements include, but aren't limited to: financial guidance and expectations for longer-term growth opportunities; regulatory approvals; clinical trials; litigation; reimbursement; competitive matters; and foreign currency fluctuations. These speak only as of the date on which they were made, and Edwards does not undertake any obligation to update these statements 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 safety information may be found in the press release, our 2020 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 the 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 Mussallem for his comments. Mike?

Thank you, Mark. We’re proud of our performance in 2021. Although hospitals continued to be impacted by COVID, it was a year of significant milestones and investments for Edwards, and our teams were relentless. In TAVR, we made important strides in executing our long-term strategy. In particular, we invested in increasing awareness, pursued further therapy expansion, and advanced new technologies. We completed enrollment of the EARLY TAVR trial, an important pivotal study studying the treatment of severe aortic stenosis patients before their symptoms develop. Separately, we initiated enrollment in our PROGRESS trial for moderate AS patients, and we received FDA approval for our ALLIANCE pivotal trial to start our next-generation TAVR technology, SAPIEN X4. In TMTT, we achieved our significant 2021 milestones, as we continued to make meaningful progress on advancing our three key value drivers: a portfolio of pioneering therapies for patients; positive pivotal trial results to support approvals and adoption; and favorable real-world clinical outcomes. We are pleased to have treated over 3,000 patients in 2021 with our differentiated portfolio of TMTT therapies, gaining valuable learnings through both our clinical and commercial experiences. Each of our platforms demonstrated promising outcomes and clinical performance. I'm also pleased to announce that we completed enrollment of our CLASP IID pivotal trial in 2021, an important milestone that keeps us on track for U.S. approval late this year. In Surgical Structural Heart, we extended our leadership position through the adoption of our premium technologies. We also implemented valuable additions to our smart monitoring advancements in critical care. Most importantly in 2021, even more patients benefited from Edwards' life-saving technologies than ever before. I'm also proud to say that throughout the year, our employees remained dedicated to keeping our commitments to patients and to one another. Despite the ongoing pandemic that fueled global challenges, our employees found innovative ways to support hospital procedures and to ensure our ability to supply our life-saving therapies was not impacted. And through their efforts, we were able to get our technologies into the hands of our trusted partners around the world so they could serve their patients. Now I'd like to cover several 2021 financial highlights before I get into the quarterly details. In 2021, we are pleased to achieve all of our key financial expectations. Underlying sales increased 18% to $5.2 billion, driven by balanced organic sales growth in each region. We achieved 19% growth in adjusted earnings per share, while also increasing R&D by 19%. The significant increase in R&D and infrastructure investments this year helped strengthen our long-term outlook. And as you heard at our investor conference last month, we are as convinced as ever about the tremendous opportunity we have to enhance patients' lives and bring significant value to the healthcare system. Turning to our financial results. Fourth quarter sales of $1.3 billion increased 13% on a constant currency basis versus the year-ago period. Growth was driven by our portfolio of innovative technologies, although at the lower end of our October expectations due to the pronounced impact of Omicron on hospital resources in December, especially in the US. Full year 2021 global TAVR sales of $3.4 billion increased 18% on an underlying basis versus the prior year. Despite intermittent challenges associated with the pandemic throughout the year, sales were in line with our original guidance of $3.2 billion to $3.6 billion and were driven by increased awareness of the benefits of TAVR therapy with our SAPIEN platform. In the fourth quarter, our global TAVR sales were $872 million, an increase of 13% on an underlying basis, with impressive strength outside the US. We estimate global TAVR procedure growth was comparable with our growth. And globally, average selling prices were stable as we maintained our disciplined pricing strategy. In the US, our TAVR sales grew 10% year-over-year in the fourth quarter, and we estimate that our share of procedures was stable. As previously mentioned, the Omicron variant had a noticeable impact on hospital resources in December as cases were postponed or limited in a number of hospitals. Growth in the US was highest in small to mid-volume centers, which are helping provide access to a broader population of aortic stenosis patients. Outside the US, in the fourth quarter our sales grew approximately 20% year-over-year on an underlying basis and we estimate total TAVR procedure growth was comparable. We continue to be encouraged by the strong international adoption of TAVR broadly in all regions. In Europe, Edwards' growth was in the mid-teens, and we estimate that our competitive position was stable. Growth was broad-based across the region. It's worth noting that a recent cost-effectiveness study demonstrated that TAVR with SAPIEN 3 was economically dominant when compared to surgical aortic valve replacement in treating French patients with severe symptomatic aortic stenosis who are at low risk of surgical mortality. We're also encouraged by the recently published guidelines from the European Association of Cardiothoracic Surgery, which now definitively recommend TAVR for patients over 75. We believe both of these developments represent an important long-term opportunity to bring TAVR therapy to even more patients in need. Sales growth in Japan was also strong, where therapy adoption is still relatively low. Several important milestones were achieved in Q4. For the first time, the number of TAVR procedures performed in Japan was comparable with the surgical aortic valve replacements. Furthermore, in each prefecture in Japan, there is now at least one hospital offering SAPIEN. Following the recent reimbursement approval for the treatment of patients at low surgical risk, we remain focused on expanding the availability of TAVR therapy throughout the country. Longer term, we see excellent opportunities for continued OUS growth as we believe global adoption of TAVR therapy remains quite low. In addition to our geographic expansion of our TAVR therapies, we remain focused on indication expansion. In Q4, we completed enrollment of our EARLY-TAVR pivotal trial, which is focused on the treatment of asymptomatic AS patients. Separately, we initiated enrollment in PROGRESS, an important pivotal trial for moderate aortic stenosis to determine the optimal time to treat patients who have this progressive disease. We believe that some patients may benefit from earlier treatment before they have symptoms or before their AS becomes severe rather than risking irreversible damage to their heart as the disease progresses. We also took steps to advance our innovative product portfolio. In Q4, we received FDA approval for our ALLIANCE pivotal trial to study our next-generation TAVR device, SAPIEN X4. Additionally, in Q4, we received FDA approval to use SAPIEN 3 with our Alterra adaptive pre-stent for congenital heart patients. This should result in a quality of life improvement and a reduction in the number of procedures that these younger patients will require over their lifetime. In summary, despite a slower-than-expected start to the year, we continue to anticipate 2022 underlying TAVR sales growth of 12% to 15%, consistent with the range we shared at our December investor conference. Our outlook assumes COVID-related challenges early in 2022, turning to a more normalized growth environment as headwinds from Omicron subside and hospital resource constraints stabilize. We remain confident in this large global opportunity will double to $10 billion by 2028, which implies a compounded annual growth rate in the low double-digit range. Turning to TMTT. As I mentioned, in the fourth quarter, we completed enrollment of our Class IID pivotal trial, and we remain on track to present data in the second half of 2022. This important milestone keeps us on track for US approval late this year of PASCAL for patients with degenerative mitral regurgitation. We also continue to expect European approval of our next-generation PASCAL Precision System later this year. At the PCR London Valves conference in Q4, PASCAL 30-day outcomes from our MiCLASP post-market approval study of more than 250 patients in Europe were presented. The data highlighted safe and effective MR reduction in a post-market setting. We also progressed on the enrollment of our CLASP IIF pivotal trial for patients with functional mitral disease. In mitral replacement, we continue to expand our experience with both our transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 and the MISCEND study for EVOQUE Eos. Early experience with these sub-French transfemoral therapies increase our confidence in both platforms. Turning to transcatheter tricuspid therapies, results from the TRISCEND study were presented at the Annual TCT Conference in November and demonstrated that early patient outcomes with the EVOQUE tricuspid were favorable and sustained at six months. We are encouraged by the procedural success rates and also the significant TR reduction and sustained improvements in quality of life measures experienced by these patients. We continue to make meaningful progress in enrolling our two tricuspid pivotal trials, the TRISCEND II pivotal trial for the EVOQUE system and the CLASP II TR pivotal trial with PASCAL in patients with symptomatic severe tricuspid regurgitation. We anticipate a late 2022 approval of EVOQUE tricuspid in Europe and remain committed to providing solutions for these patients that have very poor prognosis and few treatment options today. Turning to the sales performance of TMTT. Fourth quarter revenue of $25 million grew sequentially from the third quarter, as we saw increased adoption of the PASCAL system despite the negative COVID impact in December. Full year 2021 global sales more than doubled to $86 million. As we continue to expand the availability of PASCAL to more centers in Europe, we are pleased with the excellent outcomes for patients supported by our high-touch model. We look forward to continuing our progress toward advancing our vision to transform the lives of patients with mitral and tricuspid valve disease in 2022, with the milestones that we outlined in our recent investor conference. Despite the COVID impact so far this year, we continue to expect TMTT sales of $140 million to $170 million for 2022. We estimate the global TMTT opportunity will grow to approximately $5 billion by 2028, and we remain committed to bringing our groundbreaking portfolio of therapies to patients with these life-threatening diseases. We are confident our portfolio strategy positions us well for leadership. In Surgical Structural Heart, full year global sales were $889 million, up 15% on an underlying basis versus the prior year. Fourth quarter 2021 global sales of $221 million increased 9% on an underlying basis over the prior year. Although we saw that hospital staffing shortages continued to worsen throughout the quarter, especially in the US, life-saving surgical therapies continue to be prioritized over elective procedures. We're excited about the continued global adoption of INSPIRIS RESILIA aortic surgical valve, the KONECT RESILIA aortic tissue valve conduit, and our MITRIS RESILIA valve. We remain encouraged by the growing evidence that supports Edwards RESILIA tissue valves, including two studies being presented at the Society of Thoracic Surgeons Conference this weekend. The COMMENCE study demonstrates excellent hemodynamics of this tissue technology across all aortic valve sizes at five years. A European economic value study shows a cost reduction with the use of INSPIRIS versus mechanical valves. In summary, we continue to expect that our full year 2022 underlying sales growth will be in the mid-single-digit range for Surgical Structural Heart, driven by adoption of our premium technologies and procedure growth. Even as TAVR adoption expands, we're excited about our ability to provide innovative surgical treatment options for patients, extend our global leadership, and be the partner of choice for cardiac surgeons. Turning to Critical Care. Full year global sales of $835 million increased 14% on an underlying basis versus the prior year. 2021 growth was driven by balanced contributions from all product lines led by HemoSphere sales as capital spending resumed. Our TruWave disposable pressure monitoring devices used in the ICU also remained in high demand due to the elevated COVID hospitalizations in both the US and Europe. Fourth quarter Critical Care sales of $212 million increased 8% on an underlying basis, driven by strong demand for HemoSphere. Demand for our broad portfolio of smart recovery sensors also remained robust in the fourth quarter, including ClearSight, our non-invasive finger cuff, which achieved sustained performance at or above pre-COVID levels. As discussed at our recent investor conference, the integration of a full range of technologies creates a unique offering of enhanced recovery tools and predictive analytics capabilities to further strengthen our leadership in hemodynamic monitoring. In summary, we continue to expect mid-single-digit underlying sales growth for 2022, and we remain excited about our pipeline of innovative critical care products. And now I'll turn the call over to Scott.

Thanks a lot, Mike. Today, I'll provide a wrap-up of 2021, including detailed results from the fourth quarter as well as provide an update on guidance for the first quarter and full year of this year. Sales in the fourth quarter increased 12.6% on an underlying basis. Adjusted earnings per share was $0.51, and GAAP earnings per share was $0.53. Our fourth quarter sales were negatively impacted by the wave of COVID that began late in the quarter, especially in the US. Earnings per share in the quarter was below our expectations as it was impacted by weaker-than-expected sales and we accelerated certain spending into the fourth quarter of 2021 that we had planned to incur during 2022, including preparation for TMTT product launches. For the full year 2021, we are pleased with our performance as sales increased 18% on an underlying basis to $5.2 billion and adjusted earnings per share grew 19% to $2.22. I'll now cover the details of our results and then discuss guidance for 2022. For the fourth quarter, our adjusted gross profit margin was 76.8% compared to 75.3% in the same period last year. This increase was primarily driven by a favorable impact from foreign exchange. We continue to expect our full year 2022 adjusted gross profit margin to be between 78% and 79%. This year, our rate should be lifted by a favorable impact from foreign exchange and an improved product mix, partially offset by investments in our manufacturing capacity. Selling, general, and administrative expenses in the fourth quarter were $424 million or 31.9% of sales compared to $339 million in the prior year. This increase was driven by the resumption of medical congresses and commercial activities compared to the COVID impacted prior year as well as the addition of personnel in preparation for new product launches. We continue to expect full year 2022 SG&A as a percentage of sales, excluding special items, to be between 28% and 30%. Research and development expenses in the quarter grew 19% to $233 million or 17.5% of sales. This increase was primarily the result of continued investments in our transcatheter innovations, including increased TMTT clinical trial activity. For the full year 2022, we continue to expect R&D as a percentage of sales to be in the 17% to 18% range as we invest in developing new technologies and generating evidence to support TAVR and TMTT growth. During the fourth quarter, we recorded an $18 million net reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.03. This gain was excluded from the adjusted earnings per share of $0.51 I mentioned earlier. Turning to taxes, our reported tax rate this quarter was 10.9% or 12.7%, excluding the impact of special items. This rate included an approximate three percentage point benefit from the accounting for stock-based compensation. Our full year 2021 tax rate, excluding special items, was 12.6%. We continue to expect our full year rate in 2022 to be between 11% and 15%, which includes an estimated benefit of three percentage points from stock-based compensation accounting. Foreign exchange rates decreased fourth quarter reported sales by approximately 1% or $10 million compared to the prior year. At current rates, we now expect an approximate $100 million negative impact or about 2% to full year 2022 sales as compared to 2021. Foreign exchange rates positively impacted our fourth quarter gross profit margin by 140 basis points compared to the prior year. Free cash flow for the fourth quarter was $284 million defined as cash flow from operating activities of $374 million, less capital spending of $90 million. Full year 2021 free cash flow was $1.4 billion, up from $734 million in 2020. We continue to expect full year 2022 free cash flow to be between $1.2 billion and $1.5 billion. In 2022, we expect our cash flow will be reduced by approximately $200 million due to a change in tax regulations involving the timing of the deductions for research and development expenses. Turning to the balance sheet. We have a strong balance sheet, with approximately $1.5 billion in cash, cash equivalents, and short-term investments at the end of the year. Consistent with our practice of opportunistically repurchasing shares, we purchased approximately $100 million during the fourth quarter. We still have remaining share repurchase authorization of $1.1 billion. Average shares outstanding during the fourth quarter were $632 million, relatively consistent with the prior quarter. We continue to expect average diluted shares outstanding for 2022 to be between $630 million and $635. Before turning the call back over to Mike, I'll finish with financial guidance for 2022. Despite a slow start to the year associated with Omicron's impact on hospital resources, we are planning for conditions to gradually improve and therefore, are maintaining all of our previous sales guidance ranges for 2022. For total Edwards, we continue to expect sales to grow at a low double-digit rate to $5.5 billion to $6 billion. For TAVR, we expect sales of $3.7 billion to $4 billion. And for TMTT, we expect sales of $140 million to $170 million. We expect Surgical Structural Heart sales of $870 million to $950 million and Critical Care sales of $820 million to $900 million. For full year 2022, we continue to expect adjusted earnings per share of $2.50 to $2.65. For the first quarter of 2022, we project total sales to be between $1.27 billion and $1.35 billion and adjusted earnings per share of $0.54 to $0.62. And with that, I'll pass it back over to Mike.

Thanks, Scott. So in conclusion, we're proud of the significant progress we made in 2021, advancing new transformational therapies and delivering strong financial performance. We expect continued growth and progress in 2022. We are enthusiastic about the continued expansion of catheter-based therapies for the many structural heart patients still in need, which positions us well for long-term success. As the global population ages and cardiovascular disease remains the number one largest health burden, we believe the opportunity to serve our patients will nearly double between now and 2028. We are confident that our patient-focused innovation strategy can transform care and bring value to patients and the healthcare system. And with that, I'll turn it back over to Mark.

Thanks a lot, Mike. With that, we're ready to take your questions. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation. If you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call. Diego?

Great. Thanks for taking the questions. Maybe to start first, a little more color on fourth quarter and first quarter assumptions. US TAVR came in a little lighter than expected, I don't think it's a huge surprise, given all the commentary and trends we're hearing with Omicron late in the quarter. But maybe just walk us through what you saw throughout fourth quarter? What you're seeing in first quarter and what you're assuming for the balance of first quarter?

Yes. Thanks, Robbie. So yes, fourth quarter started very nicely. We saw a nice momentum in October and November, and we really saw a very strong impact in December. So, it was primarily focused in the US, and it was centered around really hospital capacity. They really reached their limits in many cases and started deferring procedures. We've seen that continue to lead to a slow start in 2022. So at this point, I would say sales are below what we would have typically expected for a start, probably more in line with the kind of thing that we saw towards the end of December. But having said that, our assumptions are that we're going to see more normalized growth as the hospital resource constraints stabilize. And so as Omicron we think, comes down pretty hard, we think that our full year sales guidance is still in place on our best estimate.

Okay. And then maybe I'll do a follow-up question to that. As we think about the balance of the year, how should we think about the cadence throughout first quarter came in, as you mentioned, under pressure a bit here, lower than where we were thinking. Maybe just walk us through how we should think about as a framework for the rest of the year? And what are the assumptions underlying that? Appreciate it. Thanks.

Yes, thanks, Robbie. We currently lack clear visibility on the backlog situation or patient flow. At this moment, we believe that many patients whose procedures were postponed or deferred will return. However, it is uncertain in which month or quarter we will see this happen. Our assumption is that by the end of the year, we will observe a full return of all COVID-related delays to the system.

Good afternoon. Thank you for taking my question. Mike, to follow up on the previous question in Q4, it seems there was a contrast between geographies; OUS performed strongly while the US was weaker. Why do you believe the TAVR business was affected more in the US than OUS? I also have one follow-up.

Yes. Thanks for that, Larry. Yes, there – I think actually it was clearer than you think. Omicron hit the US pretty hard, and it hit it in large population centers. We saw it across the East Coast, we saw it in the Midwest. You know all the places that it was seen. And so we felt a pretty profound impact. In Europe, it was not the case. So although the UK experienced Omicron, most of Continental Europe just didn't see it in Q4. And so it was a very different picture. I think that was the primary reason. Same thing in the rest of the globe, I would argue, right?

That's helpful. Mike, as we look forward, you have completed the Class IID trial for degenerative MR. How do you anticipate physicians will utilize the product once it is approved? Do you believe they will adhere to the label, or do you expect some will use it off-label for FMR? What are your thoughts on how it will be used after approval for DMR? Thank you for addressing this question.

Yes. Yes. Thanks very much. You know how we deploy these technologies. We're very hands-on with them. We use a high-touch model and really try and guide clinicians to do what's right. So, we expect them clearly to be on label. That's the way that we're going to conduct our business. We're going to roll out to people that have experience that we think are very serious about treating mitral disease. And so we think it's going to be one that stays inbounds.

Hi everyone. Thank you for my opportunity to ask a question. Mike, I wanted to discuss the guidance. In the past, you mentioned it's wise to aim for the midpoint of the range. Considering Q1 is approximately $50 million lower than analyst expectations, should we now consider the lower half of that range as more suitable?

Well, yes, Vijay, it's Scott. Thanks for the question. It's a little early to talk about where the full year is going to come in again, just because of the uncertainty of Omicron and how quickly it's going to fall off. Certainly, we feel like early prospects are different than we thought back last month at our investor conference. So, yes, we'd probably model that a little bit lower in the range. But keep in mind, because the fourth quarter came in a little bit lower, that brings us up a little bit in the range. So, still for modeling purposes, the middle of the range is probably a good place to settle.

Yes, I'll just add to that. I mean, if you want to think about some, just watch the impact of the pandemic on the healthcare system and on hospitals in particular. So, if that goes better, then probably has a better chance that our patients flow through faster. And if it's a greater burden have the opposite impact. So, at this point, we still think there's balanced risk in there, but a lot of it is going to depend on whether things transpire the way that we anticipate.

That's helpful, Mike. And maybe one follow-up. I think you call out Europe as mid-teens. Japan up strong double-digits. I'm curious, given the low-risk approval or I guess the receipt of reimbursement in Japan, were there any stocking orders that benefited Q4, or perhaps is this real underlying procedures in the implications Japan should continue to be strong for the balance of the year?

Yes. Thanks, Vijay. So, no, clearly, what we felt like we saw OUS was not a result of any kind of stocking. These were real procedures that got done and that holds true Europe, Japan or elsewhere outside the US.

Good afternoon or good evening. Thanks for taking the question. I'm interested in the comment that you made, if I heard it correctly, that you accelerated spending in the fourth quarter for TMTT that you had expected in 2022. So if you're planning for U.S. launch near the end of the year would have been pretty far in advance. So should I assume that's mostly outside the United States? And what was the motivation to accelerate that spending into the fourth quarter?

Yes. Thanks, Joanne, for the question. So there are a couple of things going on. And we are continuing to invest in our field force, as we continue to expand to new sites in Europe. And so that's a piece of the spending that we're doing. We're also starting to build resources in the states. So it takes a while to get ready for product launch, and we're taking very seriously getting the right team in place, making sure that training is robust and that we're ready to go when the time comes. There were some other things that happened in terms of just being ready for doing things like grants, market research, some of the patient awareness initiatives and starting to fund those in the fourth quarter is also an important part of teeing up TMTT and TAVR for continued growth in 2022 and beyond.

Excellent. And then my follow-up question has to do with the backlog. I appreciate a part can measure that. But is there any reason that we shouldn't see patients come back maybe in the second quarter the way we saw last year?

Yes. Thanks, Joanne. We remember that very well as well. We saw some pretty incredible surge that we really didn't expect in the second quarter. But I'll remind you, 2021 was a different picture than right now. It wasn’t Omicron. It was a different variant. Hospitals were probably in a little different position. They weren't dealing with the constraints associated with labor. And I think as you know, there's widespread nursing shortages. We think that all gets worked out over time. We think hospitals have a lot of sophistication. They're going to triage their systems and their staffing measures and ultimately find ways to treat the patients that are most in need. So we think that all gets worked out. But whether it pops in Q2, we're more hesitant than that. We really think it's going to be more of a gradual recovery.

Good evening. Thank you for answering the questions. I know there have been many inquiries regarding capacity and the challenges affecting the market. Can you discuss the impact of labor constraints on various types of centers? Also, from a different perspective on the guidance question, what gives you confidence that these issues will improve, specifically regarding nursing shortages and staff throughout the year? I have one additional question.

Thank you, Matt. While we don't have complete certainty, we have gathered a lot of anecdotal information and maintain a close relationship with our customers. The current situation, as we've experienced it in December and January, feels very different from the initial phases of the pandemic. Early on, hospitals were closing their doors, and patients were hesitant to seek care, especially those most vulnerable to COVID, which affected the patients we serve. Now, however, the focus seems to be less on patient behavior and more on hospitals' capacity to perform procedures. We are hearing reports from hospitals indicating they may limit the number of procedures each week, postpone some until next month, or have their Chief Medical Officer assess and prioritize which procedures are urgent. There is a range of actions hospitals are taking, but we believe patients are ready to return. This is why we feel confident maintaining our current guidance. While we acknowledge our lack of perfect visibility, this is the basis for our perspective.

Sure. And then just on that same topic of resources. One of the things that you've talked about over the past several years is this shift to more efficient procedures, light sedation and wondering if you're seeing the resource environment drive adoption there, or is that one of the levers that folks are pulling on a little harder to get more patients through the system with fewer resources?

Yes, I believe hospitals are considering this seriously, Matt. It's a significant advantage if they think patients don't require an ICU bed, which can affect overall hospital occupancy. This aspect is part of the calculations made by those managing hospitals. However, what's even more crucial for them is ensuring they serve patients effectively. They're focused on identifying high-risk patients and figuring out how to navigate them through the system. The situation is complex and varies widely from one hospital to another and across different regions, Matt. There's a considerable amount of variability in play. Overall, I think it's all reflected in our guidance.

Hi. Good evening. Thanks for taking the question. Just two on the CLASS II program. Just first to follow Larry’s question. Our checks around from the MitraClip product to approval for FMR. And reimbursement suggested that up to 20% of FMR cases are mixed ideology and have a degenerative component. Mike, just to circle back on your answer about staying on label, were those patients of mixed ideology be on label, if they do have a degenerative component?

Yes. I believe much of this will depend on the physicians' judgment. Ultimately, when it comes down to it, the physician will assess the patient and recognize that our PASCAL device is only approved for degenerative cases. They will have to evaluate the specifics of the patient and apply their own judgment. We generally expect that they will adhere to the label, but as you mentioned, there are mixed patients. So, I am sure physicians will need to navigate that.

Great. And then just on the CLASP IID and CLASP IIF, were there any design modifications because of COVID or already prespecified analyses that have been incorporated in the trial design, or because it's their head-to-head trials against MitraClip, that randomization takes any COVID-related risk off the table? Thanks for taking the question.

Yes. Thanks very much, Josh. We typically just don't go into some of the particulars associated with the regulatory process. It tends to be complex. There's a lot of nuance to it. And I think it would just be confusing if we went into all that. And so we really don't have anything new to share.

Great. Thank you for taking the questions. I wanted to follow-up and just ask CLASP IIF and CLASP IITR, just what you've seen from an enrollment standpoint recently, and alongside that, how you're thinking about SAPIEN X4 and enrollment in that program commencing?

Yes, thanks. Cecilia, I'll start by saying that many of the same sites involved in CLASP IID also participated in CLASP IIF and CLASP IITR. Completing enrollment in CLASP IID likely means they will shift some focus to IIF and IITR, which should provide a boost. However, I don't think it will significantly affect the trial's completion. We are hopeful for positive outcomes. These sites are also working to manage Omicron, which has been challenging, but we hope it will be short-lived. Regarding the SAPIEN X4 or the ALLIANCE trial, this involves a new valve. It's not as simple as transferring all SAPIEN 3 patients to this new valve; it’s a very different valve system. We will approach this cautiously and will need to navigate the process. At this time, we can't predict how quickly enrollment will progress.

Okay. Thank you, Mike. And to follow-up as well. I'm just curious, if you could talk about just TAVR in China, what you've been able to do recently with COVID hopefully pulling back in the near-term, how do you think about the opportunity to really start developing that market over the next year? Thank you.

Yes, we are eager to develop the market in China. As you mentioned, COVID has posed a significant challenge because typically, when entering a new country, we would bring many experts from Edwards and key opinion leaders, but currently, travel to China is almost nonexistent. This means our local team is handling everything, which is challenging. However, we are optimistic and know that this situation will eventually improve. We are excited about the prospect of introducing premium technology to China. I hope that addresses your question, Cecilia.

Hey, good afternoon everyone. Thanks so much for taking the question. Just a question on PASCAL and how to think about the go-to-market strategy here in the US. In Europe, you guys have obviously been getting a price premium. The trial powered for non-inferiority, so I'm curious if you could might comment a little bit more on how you expect to get a premium here as well in the US, or if we should be thinking about that a little bit differently? Are there things that we could look for in the data when we do see it, that could give us a little bit more comfort that you will be able to successfully get that premium? And I have one follow-up. Thanks.

Thanks, Danielle. When we enter the U.S. market, we'll be implementing a strategy similar to what we've executed in Europe, focusing on physician training to achieve excellent real-world outcomes and ensuring we deliver great patient results consistently. We plan to operate primarily in regions with experienced professionals. Currently, we haven't finalized a pricing strategy for the U.S. launch, but we will share that information once it's determined. For now, our priority will be executing high-quality cases.

Okay. I understand. My other question is about PASCAL in the U.S. and the go-to-market strategy. How should we approach leveraging this? I know you are building a separate sales force, but how can you maximize your existing presence? You have a strong foothold in TAVR at many of these centers, and there is considerable overlap. How should we view potential sales synergies or a halo effect for both TAVR and PASCAL from a market share standpoint? Thank you very much.

Yes. Thanks, Danielle. I think you know the way that we've approached this across the board, is we really feel like the TAVR has a long way to go, and a lot of growth in front of it, and deserves a great dedicated team and TMTT opportunity is a very large one. And so the way we've gone at this is decide that we're going to have a dedicated team. Is there some halo that comes from the Edwards brand and so forth, I'd like to think so. Of course, we try and maintain a great reputation, but we don't go into it thinking about leverage so much or it's our bundled sales. That's really not our approach. We're going to sell on really trying to do spectacular procedures and get great outcomes.

Good afternoon, everyone. Can you hear me all right, Mike?

Yes, we hear you, Suraj.

Perfect. So Mike, I just wanted to follow up on Josh's question about CLASP IID, will there be any paired analysis presented in terms of the types of devices, i.e., MitraClips used and the number of devices used per case?

So Suraj, I'm not sure exactly what's going to be presented, but I would expect that you're going to see a pretty fulsome presentation of the data when it finally does get presented. We've said that that's going to happen in the second half of 2022. And when that happens, I think you're going to get a lot of information. You'll see almost everything related to device performance when that's presented.

Fair enough, Mike. And my follow-up, for the $10 billion by 2028, how does the pie chart look for symptomatic severe, asymptomatic severe and moderate? Thank you for taking my questions.

Yes, thanks. So we don't have perfect clarity on what It's going to look like in 2028. But I can tell you basically what's in our assumptions. The great bulk of this is going to be people with symptoms, with severe AS. And I don't know what percentage that is, but it is the overwhelmingly large percentage. We think that there'll be a small portion of it, which will be asymptomatic patients that are severe. We have assumed that moderate AS patients are really not much in that number. It's really negligible. And so, not really in the number at all. And so hopefully, that gives you a sense for it.

Hi. Thank you for taking the question. So I wanted to ask you a little bit more about this US, OUS dynamic. I know some of it may be short-term disruption difference, but there's been notable kind of resurgence or a renaissance in international growth. And I was wondering if you could talk more about that. Are you opening more centers? Is it improved acceptance of the therapy? And what does that mean for international growth over the next couple of years versus US growth? Do you think it could outgrow the US? Should they be close to each other? Any thoughts on that would be appreciated?

Yes, those are great questions. It’s important to note that the growth rates are being compared to last year's, which were lower than usual due to the pandemic's impact. We're really pleased with the developments in Europe, particularly with the mid-teens growth rate. This is encouraging since TAVR technology has been around in Europe since 2007, and seeing it grow at this rate right now reflects its strength. Generally speaking, Europe has seen lower TAVR usage per million population over 65, with Germany performing relatively well, while other countries lag behind. This indicates that there is a gap to bridge. Regarding Japan, we often mention that they should be utilizing TAVR more given the prevalence of disease there, so there’s a significant opportunity for growth. We might also be witnessing healthcare systems that have been slower to adapt begin to change, contributing to this higher growth trend. It's worth noting that the Omicron variant significantly impacted the US.

Mike, I just wanted to follow up on Cecilia's question about ALLIANCE. I don't think it's been post year. Could you just tell us a little bit about the design of that trial, number of patients, length of follow-up, things like that?

I'm not ready to discuss that right now, Chris. There might be some similarities to previous trials, but I don't have the specific details at this time. We'll need to provide that information to you later, as I don't have it available right now.

Okay. No problem. And then, Mike, I think I heard you say that TAVR volume in Japan has now caught up with surgical volumes. It seems like you may have hit that milestone a little faster there than you did looking at the experiences in the US or Europe. Can you talk a little bit about how market development is going there? It seems like it may have hit a bit of an inflection, maybe over the past year with low risk coming online?

Yes. So thanks. For us, it doesn't feel like it's come really fast. It feels like it's come slower. We think that TAVR should be really popular in Japan, where surgery is not necessarily a preferred therapy and a great interventional procedure should have gone. There are a number of reasons that sort of slowed it down, they had tighter regulations. So for example, they limited TAVR to hybrid ORs. They required approvals by national bodies. But at the same time, there have been some really positive developments in Japan. So now that we have low-risk approval, it's really streamlined the pride and it's reimbursed, that streamlined the process for these patients to receive therapy. And so that was a big one. And slowly, but surely, there have been more centers that were added so that it covers the geography a little better. So, there's some positives there. And we're catching up. We're excited about the growth rate. But in our eyes, it should have happened sooner.

Hi, good afternoon. Just a couple of quick ones. I'll go off script and ask a Critical Care question. The segment had a decent capital component. I'm just wondering, with labor becoming a bigger issue at hospitals over the last couple of months, is your view on the environment for capital changed at all?

Yes. So, it's a good question. Remember, when the pandemic hit and hospitals were in trouble, they really pulled back on capital spending. We saw that even most dramatically in the US. And that continued into early 2021, but it started subsiding, and we saw hospitals started recapitalizing, if you will, and we were the beneficiaries of that during 2021 and even saw that affect our performance in the fourth quarter. And we've got this modern HemoSphere technology, which is really a step forward for these patients and brings together a lot of our advanced technology for patients that are needing a great recovery. So, the combination of those have been really helpful.

So, is 2022 still a conducive environment for capital itself?

It is. We think it's still a very conducive environment. Some of our people wonder whether 2022 will measure up to 2021 because it felt like 2021 might have had a little catch-up in it. So, that makes them nervous about being too bullish. But we think it's going to be a more normalized year.

Thanks for the question. We are seeing inflationary pressures in a couple of areas. One is just wage then, of course, materials and supplies. And so we're managing through those. Our biggest priority has been making sure that we can deliver our finished goods, our life-saving therapies to hospitals around the world. And we're really proud of our global supply chain team that's been able to navigate the challenges from shortages to logistics and still continue to be able to meet demand. And so we'll deal with the inflation. It's in our 78% to 79% gross margin guidance for the year, but we're feeling like we know what needs to get done.

Great. Thanks.

Good afternoon guys. Thanks for fitting me in here. To follow-up on the US TAVR questions, can you help us understand why in the third quarter, we saw hospitals near capacity for nearly two months in August and September, whereas COVID only impacted fourth quarter by a few weeks in December? Just if you can provide any more color on sort of why fourth quarter slowed sequentially versus the third quarter?

Yes, you're testing my memory of COVID. We believed we were recovering from Delta, which had a significant effect in the third quarter, but we noticed some improvement in October and November. Then Omicron emerged and altered that trend. We shifted quickly from recovering from Delta to being significantly impacted by Omicron.

Okay. And then a follow-up question for Scott. Like you talked about pulling forward SG&A investments from 2022 into fourth quarter in preparation of these product launches. So if you think about a similar dollar amounts for SG&A spending going into the first quarter and you start to get leverage on that as revenues increase after first quarter to get to your guidance range of 28% to 30%? Thanks so much guys.

Sure. Thanks for the question. I mean you can tell from our guidance, where the midpoint of our sales guidance is, call it, $1.315 billion, which is a little bit lower than our fourth quarter sales, and yet our EPS were forecasting in a higher range. And so, the difference is going to be really in the cost lines. And we think that a lot of the SG&A that we pulled forward in the fourth quarter will probably not show up in the first quarter as a result. And that's really the biggest driver of the increase in EPS that we're expecting and guiding to in Q1.

Okay, all. Thanks for your continued interest in Edwards. Scott, Mark, and I welcome any additional questions by telephone.