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    Edwards Lifesciences Corp (EW)

    Business Description

    Edwards Lifesciences Corporation is a global leader in patient-focused medical innovations, primarily targeting structural heart disease and critical care monitoring . The company operates in several geographical regions, including the United States, Europe, Japan, and the Rest of the World . They sell products categorized into four main groups: Transcatheter Aortic Valve Replacement (TAVR), Transcatheter Mitral and Tricuspid Therapies (TMTT), Surgical Structural Heart, and Critical Care . In 2023, TAVR was a significant driver of revenue growth, and the company has announced plans to spin off its Critical Care product group to focus more on TAVR, TMTT, and Surgical innovations .

    1. Transcatheter Aortic Valve Replacement (TAVR) - Provides minimally invasive procedures for replacing aortic valves, significantly contributing to revenue growth.
    2. Surgical Structural Heart - Offers surgical solutions for heart valve repair and replacement, showing strong sales performance.
    3. Transcatheter Mitral and Tricuspid Therapies (TMTT) - Focuses on developing innovative therapies for mitral and tricuspid valve diseases.
    4. Critical Care - Delivers advanced hemodynamic monitoring systems and disposable pressure transducers, with plans for a spin-off to concentrate on other segments.

    Q3 2024 Summary

    Initial Price$90.30July 1, 2024
    Final Price$65.10October 1, 2024
    Price Change$-25.20
    % Change-27.91%

    What went well

    • Edwards Lifesciences maintains a strong competitive position with best-in-class technology and premium pricing, supported by superior clinical evidence.
    • The company is confident in positive catalysts for TAVR growth and expects sustainable, profitable growth in the coming years.
    • Strong demand for new products like EVOQUE, with recent NTAP approval expected to further drive adoption.

    What went wrong

    • Operating margin pressures: The company expects fourth-quarter operating margins to be in the mid-20s percentage range, lower than the full-year expectation of 27% to 28%, indicating near-term profitability challenges.
    • Increasing competition in the TAVR market: With the potential entry of a fourth valve, Edwards Lifesciences acknowledges that competition is intensifying, which may impact their market share and pricing power in the structural heart space.
    • TAVR growth slowdown in Q4: The company anticipates fourth-quarter TAVR growth to be below the full-year range due to factors such as the impact of hurricanes, a one-time China distributor rebate adjustment, and fewer selling days, suggesting potential headwinds in their core business.

    Q&A Summary

    1. Operating Margin Outlook
      Q: What's the operating margin outlook for Q4 and beyond?
      A: Edwards expects operating margins to be in the mid-20% range for Q4. For next year, they anticipate growth to 27% to 28%, aligning with the full-year 2024 margin.

    2. 2025 EPS Outlook
      Q: How should we think about 2025 EPS guidance?
      A: The company emphasizes that top-line growth will drive 2025 EPS and plans to provide detailed guidance on December 4. Benefits from actions taken this year will contribute in 2025, but special tax benefits from 2024 won't recur.

    3. TAVR Growth Outlook
      Q: Will TAVR growth stay at 5%-7% or reaccelerate?
      A: Edwards sees positive catalysts for TAVR growth but considers it premature to discuss specific rates. More details will be shared in December.

    4. TAVR Capacity Constraints
      Q: Are capacity issues affecting TAVR growth?
      A: The company acknowledges capacity constraints due to new technologies and their market leadership. Hospital administrators are investing to expand capacity, and while backlogs are growing, they don't foresee long-term issues.

    5. EVOQUE Reimbursement Mechanics
      Q: How do NCD and NTAP impact EVOQUE reimbursement?
      A: The NTAP, effective October 1, provides incremental payments for EVOQUE cases. The NCD, expected by Q1 end, will determine coverage and which patients are reimbursed.

    6. Competitive Dynamics in U.S. TAVR Market
      Q: How is competition affecting your TAVR market share?
      A: Edwards maintains a premium pricing strategy, relying on their best-in-class SAPIEN 3 Ultra RESILIA valve. They acknowledge competition but are confident in their technology and clinical evidence supporting their leadership.

    7. Gross Margin Outlook
      Q: What's the gross margin expectation?
      A: Gross margins are expected to return to the high end of the 76%-78% range in Q4. This range is also a reasonable preliminary assumption for 2025.

    8. Q4 One-Time Impacts
      Q: Can you quantify Q4 one-time impacts for TAVR?
      A: They noted a $5 million adjustment related to a China distributor rebate. Other items weren't quantified, but they expect average daily cases to increase in Q4 over Q3.

    9. SAPIEN M3 Update
      Q: What's the update on SAPIEN M3 for mitral replacement?
      A: European launch is anticipated in mid-2025, with U.S. launch thereafter. They're in the one-year follow-up period in the U.S., with data submission and regulatory review to follow.

    10. EVOQUE Reimbursement and 56mm Valve Approval
      Q: Has NTAP boosted EVOQUE uptake? What's the impact of the 56mm valve?
      A: The NTAP provides a tailwind for EVOQUE adoption, with strong demand overall. The 56mm valve approval adds 20%-25% applicability to the patient pool.

    11. Tricuspid Repair vs. Replacement Market
      Q: How are doctors choosing between tricuspid repair and replacement?
      A: The company notes both technologies are important, and they're still determining patient selection criteria. EVOQUE is expected to become a larger part of their portfolio over time.

    12. Impact of Upcoming Trial Results
      Q: When will trial results impact TAVR/TMTT growth?
      A: Details are embargoed until next week; the company will discuss impacts after TCT presentations.

    13. Growth Dynamics in Large vs. Small Centers
      Q: Are growth trends different between large and small centers?
      A: Larger academic centers, early adopters of new therapies, may face capacity constraints impacting growth. Smaller centers may have different profiles.

    14. TCT Data and EVOQUE Reimbursement
      Q: Post-TCT, when will benefits flow through the business?
      A: They plan to discuss activities after TCT and expect the NCD for EVOQUE by Q1 end.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Bernard J. ZovighianChief Executive OfficerMay 2023Bernard J. Zovighian joined Edwards Lifesciences in January 2015 and has held various leadership roles, including President and Corporate Vice President of the TMTT business before becoming CEO .
    Scott B. UllemCorporate Vice President, Chief Financial OfficerJanuary 2014Scott B. Ullem oversees information technology, information security, risk management, indirect sourcing, and corporate services. He previously served as CFO of Bemis Company Inc. and worked in investment banking .
    Donald E. Bobo, Jr.Corporate Vice President, Corporate Strategy and Development2007Donald E. Bobo, Jr. is responsible for corporate strategy and development, heart failure initiatives, and U.S. healthcare solutions. He joined Edwards in 1995 after roles at American Hospital Supply and Baxter Healthcare .
    Catherine M. SzymanCorporate Vice President, Critical Care2015Catherine M. Szyman leads the global critical care and vascular business. She previously held leadership roles at Medtronic plc, including President of the Global Diabetes business .
    Larry L. WoodCorporate Vice President and Group President, TAVR and Surgical Structural HeartJanuary 2023Larry L. Wood has led the TAVR business since 2007, contributing to its significant growth. He has over 35 years of experience in the medical technology industry .
    Wayne MarkowitzGeneral Manager and Senior Vice President, Surgical Structural HeartAugust 2023Wayne Markowitz is responsible for R&D, operations, marketing, and regulatory initiatives. He has over 20 years of experience and previously worked at Siemens Healthineers, Johnson & Johnson, and Boston Scientific .
    Daveen ChopraCorporate Vice President, Transcatheter Mitral and Tricuspid TherapiesJanuary 2023Daveen Chopra has extensive experience in the medical technology industry, having held senior roles at Medtronic plc. He joined Edwards in 2018 as Corporate Vice President of Surgical Structural Heart .
    Jean-Luc LemercierCorporate Vice President, EMEACLAJuly 2017Jean-Luc Lemercier has over 30 years of experience and previously led the Transcatheter Heart Valves EMEA. He joined Edwards after roles at Johnson & Johnson Cordis and Baxter .
    Daniel LippisCorporate Vice President, JAPACJanuary 2024Daniel Lippis has over 25 years of experience in sales, marketing, and management. He joined Edwards in 2010 and has played a key role in the TAVR and SAPIEN valve platforms' global success .
    David T. FeinbergDirectorJuly 10, 2024David T. Feinberg serves as a Director at Edwards Lifesciences Corporation. He joined the board in July 2024 .
    Andrew M. DahlSenior Vice President and Principal Accounting OfficerJuly 1, 2024Andrew M. Dahl became the Senior Vice President and Principal Accounting Officer in July 2024 .
    Robert W.A. SellersSenior Vice President and Principal Accounting Officer (retired)Retired July 1, 2024Robert W.A. Sellers served as the Senior Vice President and Principal Accounting Officer until his retirement in July 2024 .
    Nicholas J. ValerianiChairman of the BoardMay 7, 2024Nicholas J. Valeriani has over 40 years of experience and joined the Edwards Board in 2014. He was appointed Chairman of the Board in May 2024 .
    Michael A. MussallemNon-Executive Chairman and Director (retired)Retired May 7, 2024Michael A. Mussallem served as Chairman and CEO since 2000. He retired as CEO in May 2023 and as a director in May 2024 .

    Questions to Ask Management

    1. Given the increasing competition in the TAVR market, including the potential entry of a fourth valve and instances of regional pricing pressure, how do you plan to sustain your premium pricing strategy and market share while differentiating your products in an increasingly crowded field?

    2. With hospitals facing ongoing heart team capacity constraints that may limit TAVR procedure volumes, what specific initiatives are you implementing to address these limitations, and how confident are you that hospitals will invest to expand capacity in line with your growth expectations?

    3. Considering the FTC's second request and the anticipated mid-2025 closing of the JenaValve acquisition, what risks do you foresee in the regulatory review process, and how might potential delays impact your strategy to address the unmet needs in aortic regurgitation?

    4. As you scale your TMTT business with strong adoption of PASCAL and EVOQUE, how are you managing the significant investments in training, clinical support, and field team expansion, and when do you anticipate this segment achieving profitability?

    5. Can you provide more details on the one-time rebate adjustment in China and discuss any underlying challenges in that market, including how slower growth in regions like Japan might influence your international TAVR sales trajectory going forward?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateDecember 2023 August 2024
    End Date/DurationNo expiration No expiration
    Total additional amount$1.0 billion $1.5 billion
    Remaining authorization$0.0 billion $1.4 billion
    DetailsN/A$500 million ASR agreement, ends December 27, 2024

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      1. Sales Growth: Full-year sales growth of 8% to 10%.
      2. TAVR Growth: Q4 year-over-year TAVR growth below full-year range of 5% to 7%.
      3. Q4 Sales: Between $1.33 billion and $1.39 billion.
      4. Q4 EPS: Between $0.53 and $0.57.
      5. Average Diluted Shares Outstanding for Q4 2024: Between 590 million and 595 million.
      6. Gross Margin: High end of 76% to 78% range.
      7. Operating Margin: Q4 adjusted operating margin in mid-20s; full-year average of 27% to 28%.
      8. Tax Rate: Q4 adjusted tax rate similar to Q3 rate of 12.4%.
      9. TMTT Sales Guidance: High end of $320 million to $340 million for the full year .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2025
    • Guidance:
      1. Q3 2024 Sales: $1.56 billion to $1.64 billion.
      2. Q3 2024 EPS: $0.67 to $0.71.
      3. Full Year 2024 TAVR Sales: $4 billion to $4.2 billion; growth rate of 5% to 7%.
      4. TMTT Sales Guidance: High end of $320 million to $340 million.
      5. Surgical Structural Heart Sales: Growth of 6% to 8% for full year 2024.
      6. 2025 Guidance: To be provided at investor conference in December 2024 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      1. Total Company Sales: $6.3 billion to $6.6 billion for FY 2024.
      2. TAVR Sales: $4.0 billion to $4.3 billion for FY 2024.
      3. Surgical Structural Heart Sales: $1.0 billion to $1.1 billion for FY 2024.
      4. Critical Care Sales: $900 million to $1 billion for FY 2024.
      5. TMTT Sales: High end of $320 million to $340 million for FY 2024.
      6. Q1 Sales: $1.53 billion to $1.61 billion.
      7. Q1 EPS: $0.62 to $0.66.
      8. Full Year Adjusted Gross Profit Margin: 76% to 78%.
      9. Full Year SG&A as a Percent of Sales: 29% to 30%.
      10. Full Year R&D Expenses: 17% to 18% of sales.
      11. 2024 Tax Rate: 14% to 17% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      1. Total Company Sales: $6.3 billion to $6.6 billion for FY 2024.
      2. TAVR Sales: $4.0 billion to $4.3 billion for FY 2024.
      3. Surgical Structural Heart Sales: $1.0 billion to $1.1 billion for FY 2024.
      4. Critical Care Sales: $900 million to $1 billion for FY 2024.
      5. TMTT Sales: High end of $280 million to $320 million.
      6. Q1 Sales: $1.53 billion to $1.61 billion.
      7. Q1 EPS: $0.62 to $0.66.
      8. Full Year Adjusted Gross Profit Margin: 76% to 78%.
      9. Full Year SG&A as a Percent of Sales: 29% to 30%.
      10. Full Year R&D as a Percent of Sales: 17% to 18%.
      11. 2024 Tax Rate: 14% to 17%.
      12. Full Year Adjusted Free Cash Flow: $1.1 billion to $1.4 billion.
      13. Average Diluted Shares Outstanding for 2024: 600 million to 610 million .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Medtronic PLC - Competitor in Transcatheter Aortic Valve Replacement and Surgical Structural Heart .
    • Abbott Laboratories - Competitor in Transcatheter Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, and Surgical Structural Heart .
    • Boston Scientific Corporation - Competitor in Transcatheter Aortic Valve Replacement .
    • Artivion, Inc (formerly CryoLife) - Competitor in Surgical Structural Heart .
    • ICU Medical, Inc. - Competitor in Critical Care .
    • PULSION Medical Systems SE, a subsidiary of Getinge AB - Competitor in Critical Care .
    • Cheetah Medical, Inc., a subsidiary of Baxter International - Competitor in Critical Care .
    • LiDCO Group PLC, a subsidiary of Masimo Corporation - Competitor in Critical Care .