Edwards Lifesciences (EW) Michael A. Mussallem on Q4 2015 Results ...
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`http://seekingalpha.com/article/3858426-edwards-lifesciences-ew-micha...
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`Edwards Lifesciences (EW) Michael A. Mussallem on Q4 2015
`Results - Earnings Call Transcript
`Feb. 2, 2016 11:07 PM ET
`by: SA Transcripts
`
`Edwards Lifesciences Corp. (NYSE:EW)
`
`Q4 2015 Earnings Call
`
`February 02, 2016 5:00 pm ET
`
`Executives
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`David K. Erickson - Vice President-Investor Relations
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Scott B. Ullem - Chief Financial Officer & Vice President
`
`Analysts
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`David Harrison Roman - Goldman Sachs & Co.
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`Brooks E. West - Piper Jaffray & Co (Broker)
`
`Larry Biegelsen - Wells Fargo Securities LLC
`
`Michael Weinstein - JPMorgan Securities LLC
`
`Jason R. Mills - Canaccord Genuity, Inc.
`
`Rick Wise - Stifel, Nicolaus & Co., Inc.
`
`David Ryan Lewis - Morgan Stanley & Co. LLC
`
`Ben C. Andrew - William Blair & Co. LLC
`
`Raj Denhoy - Jefferies LLC
`
`Matt J. Keeler - Credit Suisse Securities (NYSE:USA) LLC (Broker)
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`Danielle J. Antalffy - Leerink Partners LLC
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`Glenn John Novarro - RBC Capital Markets LLC
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`Joanne Karen Wuensch - BMO Capital Markets (United States)
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`Matt Miksic - UBS Securities LLC
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`Joshua Jennings - Cowen & Co. LLC
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`Bruce M. Nudell - SunTrust Robinson Humphrey
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`Operator
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`Edwards Lifesciences (EW) Michael A. Mussallem on Q4 2015 Results ...
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`http://seekingalpha.com/article/3858426-edwards-lifesciences-ew-micha...
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`Greetings, and welcome to the Edwards Lifesciences Corporation Fourth Quarter 2015 Earnings Conference Call. At this time, all
`participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference
`is being recorded.
`
`It is now my pleasure to introduce your host Mr. David Erickson, Vice President, Investor Relations. Thank you, Mr. Erickson. You may
`now begin.
`
`David K. Erickson - Vice President-Investor Relations
`
`Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2015 financial
`results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules, and then use
`remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO, and Scott Ullem, CFO.
`
`Before we begin, I'd like to remind you that, during today's call, we 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 current expectations for
`clinical, regulatory, and commercial matters, as well as therapy trends. These statements speak only as of the date on which they are
`made and we do 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 our press release, our 2014 Annual
`Report on Form 10-K, and our other SEC filings, all of which are available on our website at edwards.com.
`
`Also, as a quick reminder, that when we use the terms underlying, adjusted, and excluding special items, we are referring to non-GAAP
`financial measures. Otherwise, we are referring to our GAAP results. Additional information about our use of non-GAAP measures is
`included in today's press release and on our website.
`
`Now I'll turn the call over to Mike Mussallem. Mike?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thank you, David. We're very pleased to report strong fourth quarter results, which exceeded our expectations and contributed to
`another successful year both in financial performance and progress on important new therapies. We exited the year with total global
`sales of $2.5 billion, representing an underlying growth rate of 17%, which is higher than we predicted a year ago. And just recently, we
`were pleased to receive FDA approval of our PARTNER 3 Trial to study patients determined to be at low surgical risk, which may
`eventually enable heart teams to offer choice of therapies to a broader group of patients.
`
`For the quarter, total underlying sales grew to $267 million, an increase of 15%. Results were driven by robust demand for TAVR
`therapy and the strong performance of all product lines this quarter.
`
`In Transcatheter Heart Valves, full-year global sales were $1.2 billion, up 38% over the prior year on an underlying basis. We exceeded
`our original estimate of 15% to 25% provided a year ago, primarily due to the early approval of SAPIEN 3 in the U.S. and the more rapid
`than expected therapy adoption in Europe.
`
`For the fourth quarter, underlying global sales were up 32% over last year, led by the impact of SAPIEN 3 in the U.S. and double-digit
`underlying sales growth across all regions. Globally, average selling prices remain stable.
`
`In the U.S., underlying THV sales for the quarter grew 50% versus the prior year to $189 million. Our performance was driven by
`procedure growth, which was unexpectedly strong during the holiday season, and has not been our typical experience. We estimate
`that Edwards' growth was similar to the overall procedure growth. Nearly, all of our existing accounts are now using our SAPIEN 3
`valve. Growth was primarily driven by large hospitals and new site training continued during the fourth quarter, finishing the year with
`approximately 400 active centers.
`
`Our recently introduced 20 millimeter SAPIEN 3 valve was also a contributor. We believe the strong growth and adoption of TAVR in the
`U.S. was driven by the growing body of clinical evidence, increased physician experience, and high procedural success. Many hospitals
`are responding to the increased demand by modifying their schedules to perform more procedures each week. We see this trend
`continuing as TAVR provides an attractive therapy option for a large number of untreated elderly patients. We expect these patients will
`be encouraged to seek treatment as indications expand, which is the primary driver behind our belief that the global TAVR opportunity
`will exceed $5 billion in 2021.
`
`Outside the U.S., underlying THV sales grew double-digits in all regions aided by the continued rollout of SAPIEN XT in Japan. We
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`estimate our OUS growth was roughly in line with overall therapy adoption.
`
`In Europe, we estimate that therapy adoption grew more than 20% and our sales growth was somewhat lower. Our sales growth was
`primarily lifted by the continued adoption of SAPIEN 3. We estimate that more recent competitors continue to account for approximately
`15% of total procedures. We saw strong growth across most countries and total procedures are becoming more dispersed throughout
`the region, with other countries growing faster than Germany for the past couple of quarters. Generally, reimbursement trends remain
`stable allowing for continued growth and adoption. In 2016, expanding the indication to treat intermediate risk patients remains a key
`focus. We expect data from the intermediate risk cohorts in two studies to be presented at the American College of Cardiology Meeting
`in April, a randomized study of SAPIEN XT versus surgery and a study of SAPIEN 3.
`
`As we indicated at our Investor Conference, assuming positive results and an expedited FDA review, we're planning for a late 2016
`U.S. approval and a minimal contribution to sales this year. We expect our Continued Access Program for intermediate risk patients in
`the U.S. to continue until commercial approval. We plan to use the U.S data in a CE Mark submission in Europe. And as I mentioned
`earlier, we received FDA approval to study an expanded indication for the SAPIEN 3 valve. The IDE study will enroll elderly patients at
`least 65 years of age with severe symptomatic aortic stenosis who've been determined by a heart team to be at low risk for mortality if
`they were to undergo surgical aortic valve replacement.
`
`The PARTNER 3 Trial will enroll approximately 1,300 patients at up to 50 sites and we're working now to secure IRB and contract
`approvals at those hospitals. Enrollment is expected to continue into 2017, and while we believe this procedure will be attractive to low
`risk patients, randomized trials typically take longer to enroll. The SAPIEN 3 trial will also include a 400 patient sub study using
`advanced imaging to evaluate leaflet motion in surgical and transcatheter tissue valves.
`
`We're looking forward to introducing our SAPIEN 3 Ultra System, which is on track for CE Mark in the fourth quarter of this year. This
`new system, featuring an on-balloon delivery system and next-generation sheath technology, is expected to enhance ease of use,
`further reduce possible complications, and shorten procedure time.
`
`We also remain on track with our efforts to add the Pulmonic indication to our SAPIEN family of valves. During the first quarter, we
`expect to receive approval and launch SAPIEN XT for this indication and then begin enrolling patients in a clinical trial for the SAPIEN 3
`in Q2.
`
`In summary, based on our momentum, and the expectation of continued therapy adoption, we are increasing our 2016 THV global sales
`estimate by $100 million to $1.3 billion to $1.5 billion. We now expect our underlying sales growth in 2016 to be in the range of 15% to
`25%.
`
`Turning to the Surgical Heart Valve Therapy product group, full-year 2015 global sales were $785 million, up 2.5% on an underlying
`basis over the prior year and consistent with our original guidance of 1% to 3%. Total sales for the fourth quarter were $196 million, up
`slightly over last year on an underlying basis. Globally, sales growth was lifted by higher surgical heart valve units, but was lowered by
`the planned exit of non-strategic products.
`
`Sales of our premium products contributed to solid heart valve performance across all major regions led by procedural volume and
`share gains. Surgical Heart Valve units grew approximately 5% and global average selling pricing declined slightly due to country mix.
`During the fourth quarter, we submitted the PMA in support of the FDA approval of our rapid deployment INTUITY Elite valve. We still
`expect to launch in the U.S. mid-2016.
`
`In Germany, adopters (10:16) of our INTUITY Elite valve will now benefit from a new higher DRG for combined procedures. We believe
`this will support greater adoption of our rapid deployment valve for patients who suffer from the combination of aortic stenosis and
`coronary disease, a common occurrence.
`
`Notably, a recent paper published in The Annals of Thoracic Surgery concluded that our PERIMOUNT Magna Ease family of valves
`demonstrated excellent long-term durability and hydrodynamic performance after accelerated in vitro testing equivalent to 25 years of
`heart beats. All valve studies successfully endured 1 billion cycles, which is five times longer than the standard testing requirement for a
`tissue valve.
`
`In summary, we're pleased with the continued strength of our premium surgical valve products and are preparing for new product
`launches in 2016. We continue to focus on improving therapy options for younger patients, streamlining complex surgeries, and
`enabling minimally invasive procedures. We are reiterating our 2016 underlying sales growth expectation for the total product group of
`3% to 6%.
`
`In the Critical Care product group, total sales for the quarter were $141 million and grew 4% on an underlying basis. Total sales for 2015
`were $528 million, up 3% over the prior year on an underlying basis consistent with our original guidance of 2% to 4%.
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`Global growth for the quarter was driven primarily by core hemodynamic monitoring products in the U.S. and our Enhanced Surgical
`Recovery Program, which recorded double-digits underlying growth across most regions. We are focused on strengthening our core
`offerings by strengthening our gold standard products including a next-generation monitor. We are expanding our sales force in the U.S.
`to broaden the adoption of our market-leading products. And, in Japan, we're expecting a contribution to growth from the launch of
`ClearSight, our non-invasive monitoring technology.
`
`Overall, we're pleased with the continuing adoption of Enhanced Surgical Recovery and the strengthening of our core products. We
`continue to expect Critical Care underlying sales growth of 2% to 4% in 2016.
`
`As we highlighted at our Investor Conference, we're investing in a number of structural heart initiatives. We continue to make progress
`on our CardiAQ-Edwards, transcatheter mitral valve program, or TMVR, and our FORMA system for reducing tricuspid regurgitation.
`
`Early U.S. feasibility studies with both of these technologies are currently underway. Additionally, we're continuing to closely follow our
`investments in the Harpoon chordal repair and the CardioKinetix heart failure therapies as they gain clinical experience. While all of
`these technologies are substantial opportunities, they do involve significant challenges and are in their early stages.
`
`Providing some more detail on our TMVR program, we've begun treating patients in our U.S. early feasibility study planned for seven
`sites. Our learnings from these cases will inform our CE Mark trial, which is expected to begin in mid-2016.
`
`Our mitral team is currently working on enhancements to the CardiAQ-Edwards valve platform, including additional sizes, delivery
`system refinements, and the addition of Edwards' clinically proven bovine pericardial tissue. We're also currently developing additional
`next-generation TMVR products that leverage our experience.
`
`We're optimistic about the future of TMVR technology. And although commercialization timelines are still unclear, we continue to believe
`that TMVR will ultimately benefit patients with mitral valve disease who aren't well-served today. And, finally, in regards to the recently
`implemented two year suspension of the U.S. medical device excise tax, we're evaluating a number of meaningful opportunities to
`accelerate existing growth programs or initiate new ones. And, as such, we expect a minimal positive impact to 2016 earnings.
`
`And now, I'll turn the call over to Scott.
`
`Scott B. Ullem - Chief Financial Officer & Vice President
`
`Thanks, Mike. I'm pleased to report that with our strong finish to the year, we achieved our 2015 key financial targets. For the full-year,
`we reported non-GAAP earnings per share of $2.29. Sales increased nearly 17% on an underlying basis to $2.5 billion. Our gross profit
`margin was 75.2% and free cash flow was $447 million.
`
`In the fourth quarter, another strong sales performance in transcatheter valves drove our top line to an overall 15% underlying sales
`growth rate, unusually strong U.S. THV sales during the holiday season lifted performance above our expectations. The strong U.S.
`dollar continued to have a significant negative impact on reported sales, which grew 9%. Non-GAAP earnings per share was $0.63,
`representing 19% growth over the prior-year. Total underlying sales in the fourth quarter were $667 million. This excludes the $4 million
`benefit of the THV sales return reserve, as we substantially completed the SAPIEN 3 product exchange in the United States.
`
`I'll now cover the details behind our results and then share guidance for 2016. For the fourth quarter, our gross profit margin was 73.8%,
`compared to 74.0% in the same period of 2014. We expected fourth quarter gross profit to be approximately 75%, based on a more
`profitable product mix and a positive impact from foreign exchange hedge contracts. Our actual result was below our expectation,
`because we elected to realign some critical care manufacturing operations to improve our cost structure. We continue to expect our
`gross profit margin, excluding special items, to be between 74% and 75% in 2016.
`
`Turning to SG&A, fourth quarter expenses were $222 million or 33.1% of sales, compared to $223 million in the prior year. The modest
`decrease was driven by the favorable foreign exchange impact on our expenses outside the United States, largely offsetting higher
`sales and marketing expenses related to transcatheter valves. Given our increased THV sales estimate, we now expect SG&A,
`excluding special items, to be between 30% and 32% of sales for the full year 2016, which is an improvement over our Investor
`Conference guidance.
`
`Research and development expenses in the quarter grew 17% to $98 million or 14.6% of sales. This increase was primarily the result of
`continued investments in our transcatheter mitral valve and aortic valve programs, including spending on clinical trials. For the full-year
`2016, we continue to expect research and development as a percentage of sales to be approximately 16%. We are evaluating the
`opportunities to reinvest the savings from the two-year suspension of the U.S. medical device excise tax. We're deploying a disciplined
`process to explore value-creating opportunities to accelerate existing programs or initiate new ones.
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`Our reported tax rate for the fourth quarter was approximately 16%, which benefited from the renewal of the federal research and
`development tax credit. Given the expected stronger sales of THV in the U.S., we now expect our full year 2016 tax rate to be between
`23% and 24%. And in light of recent legislation making the R&D tax credit permanent, we expect our rate to be relatively consistent
`across quarters.
`
`Foreign exchange rates negatively impacted fourth quarter sales by $35 million compared to the prior year, driven by the weakening of
`the euro and yen. Compared to our October guidance, foreign exchange rates positively impacted earnings per share by $0.01. At
`current rates, we continue to estimate a $55 million negative impact to full year 2016 sales.
`
`Cash flow from operating activities for the fourth quarter was $104 million and included a $33 million tax payment related to a previously
`reported litigation settlement. After capital spending of $37.5 million, free cash flow was $66.3 million.
`
`Turning to our balance sheet, at the end of the quarter, we had cash, cash equivalents and short-term investments of $1.2 billion. Total
`debt was $600 million. During the full year 2015, we repurchased approximately 3.9 million split-adjusted shares for $280 million.
`
`Now, turning to our 2016 guidance, all of which assumes current foreign exchange rates. For Transcatheter Heart Valve Therapy, due to
`our strong momentum and expectation of continued therapy adoption, we are raising our 2016 guidance provided at our December
`Investor Conference to be between $1.3 billion to $1.5 billion. We continue to expect sales for Surgical Heart Valve Therapy of $780
`million to $820 million, for Critical Care of $510 million to $550 million, and now expect total sales of $2.6 billion to $2.85 billion.
`
`Primarily as the result of increased expectations for sales, we are raising adjusted earnings per share guidance to be between $2.57
`and $2.67, free cash flow to $475 million to $525 million. The suspension of the medical device tax is expected to have minimal impact
`on 2016 earnings per share. We continue to expect shares outstanding in the range of 216 million to 220 million, which reflects our plan
`to repurchase shares during 2016.
`
`As we explained at our Investor Conference, adjusted earnings per share now excludes intangible amortization expense and prior
`period comparisons are available on our website. For the first quarter 2016, at current FX rates, we project total sales to be between
`$640 million and $680 million and adjusted earnings per share of $0.64 to $0.70.
`
`And with that, I'll hand it back to Mike.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thanks, Scott. In conclusion, we're pleased to achieve healthy financial performance and substantial progress on important new
`therapies in 2015. Our focused innovation strategy can transform patient care and drive value to the healthcare system and to
`shareholders. We're enthusiastic about the continued expansion of transcatheter based therapies for the many structural heart patients
`still in need, which positions us for a bright future.
`
`And with that, I'll turn it back over to David.
`
`David K. Erickson - Vice President-Investor Relations
`
`Thank you, Mike. At the upcoming American College of Cardiology Conference in April, we are planning to host an Investor Meeting to
`discuss the latest presentations. Additional details will be provided once the late breaker schedule becomes available. In order to allow
`broad participation in the Q&A, we ask that you please limit the number of questions. If you have additional questions, please re-enter
`the queue and we'll answer as many as we can during the remainder of the hour.
`
`Operator, we're ready for questions, please?
`
`Question-and-Answer Session
`
`Operator
`
`Thank you. We'll now be conducting a question-and-answer session. Our first question is from David Roman of Goldman Sachs. Please
`go ahead.
`
`David Harrison Roman - Goldman Sachs & Co.
`
`Thank you and good afternoon, everybody. I want to just start with your disclosure around the transcatheter valve centers and
`specifically the 400 number that you referenced. I think, at the time of the NCD when that was originally issued, there were some
`concerns that that specifications and qualifications that actually limit that number to being somewhat lower. Can you maybe just sort of
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`talk about what you're seeing in the landscape? Are centers doing things to make themselves more TAVR already? Are you seeing an
`expansion of the addressable market relative to your initial expectations?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah, thanks, David. You're right. When we originally talked about this, I think we estimated that this might take us to the 350 to 400
`range and here we are right at about 400 active centers today. And there are more centers that are interested in getting within the NCD
`qualification. So, they are doing the things that they need to do to have the staff and capabilities in place, so that they can be added.
`And that's an encouraging sight (23:58) from our perspective. So, we're continuing to add. Having said that, David, most of the growth
`that we're seeing is really coming from large centers, and that continues to be a big driver of what's going on right now.
`
`David Harrison Roman - Goldman Sachs & Co.
`
`And maybe just a follow-up on that. Can you maybe help us just piece together the following moving parts. I think in your commentary,
`you had said that some of the upside in the quarter came from unexpected strength at the end of the year, but you're raising your 2016
`guidance for transcatheter valves and maintaining the over $5 billion by 2021. Can you maybe just help us understand why we're not
`sort of pulling forward from future patients here, and what gives you the confidence at this point of the year to raise the expectations?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah. Thanks, David. Yeah, typically we see a real slowdown in the last two weeks of December, just the way the holidays fall, it's not
`common for people to have the kind of procedures that Edwards is involved in during that time. We just didn't see that slowdown this
`year, so that surprised us to see the strength of those procedures.
`
`Now when you couple it with the fact that we're now in the beginning of February, we've had a chance to see our January numbers, and
`it appears that this wasn't stealing procedures from January, but rather we continued at a strong pace. And so, that's really more of a
`commentary about the strength of the therapy adoption. And so, given the strength of that momentum and what we see, that really what
`encouraged us to raise our estimates for full-year 2016.
`
`Operator
`
`Thank you. Our next question...
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thanks, David.
`
`Operator
`
`The next question is from Brooks West of Piper Jaffray. Please go ahead.
`
`Brooks E. West - Piper Jaffray & Co (Broker)
`
`Hi. Thanks. Can you hear me?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yes. Hear you, Brooks.
`
`Brooks E. West - Piper Jaffray & Co (Broker)
`
`Great. Thanks, Mike, and congratulations on a great end of the year. I had, I guess, a two-part question just around expectations for
`data and ultimate FDA reaction coming out of ACC. I wonder if you could just walk us through again the logic path of walking the label
`to SAPIEN 3, obviously, that's the commercial bet you're making but you're going to be mixing data from both the XT valve and also the
`SAPIEN 3 valve. That's question number one. Question number two is, as we've been talking to physicians, there's an expectation for
`non-inferiority versus surgery but some hope that maybe you're able to show superiority, I wonder if you would just comment on that
`thought in general.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Okay. Thanks, Brooks. Yeah. Let me try and take it apart. There are going to be two datasets that are substantial that are presented at
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`the ACC. The original PARTNER II Trial is a randomization of SAPIEN XT versus open heart valve replacement. You'll see the results of
`that, that's a substantial study and again high quality science. Within the contemporary timeframe, we were able to introduce SAPIEN 3
`and so, literally added to the PARTNER II was this separate arm of 1,000 SAPIEN 3 patients that were also enrolled in intermediate
`patients. And the thought here is, it's a comparison of SAPIEN 3 that you'll be able to compare to both the SAPIEN XT data and also
`the surgical data, because it was all done in a contemporary timeframe. And since the SAPIEN 3 valve is the valve that's broadly in use
`today, I think the logic will hold together and we're expecting that physicians and FDA will see it that way. So, that sort of point number
`one.
`
`Point number two, the way the trial was constructed, it was a non-inferiority trial, and we really powered it for non-inferiority. But it's still
`a very large trial to power a trial for superiority. We will assume that the time would have taken a lot of patients. So, we're still assuming
`that we are favorable on non-inferiority. It's always possible that somebody can do a post-hoc analysis of the data and try and analyze
`whether it's superior, but it will be trying to do it with a number of patients that was really intended to demonstrate non-inferiority.
`
`Brooks E. West - Piper Jaffray & Co (Broker)
`
`Perfect. Thanks, Mike. Appreciate the color.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thank you.
`
`Operator
`
`Thank you. The next question is from Larry Biegelsen of Wells Fargo. Please go head.
`
`Larry Biegelsen - Wells Fargo Securities LLC
`
`Good afternoon. Thanks for taking the question, and I also reiterate my congratulations on a strong quarter. So, I guess what stands out
`to me is that you raise sales by about $100 million – sales guidance for 2016 by $100 million, but you raised EPS by about $0.27. It
`suggests about an 80% to 90% operating margin and the incremental $100 million in sales which sounds high – it just sounds like
`you're letting more of the upside fall to the bottom line than you have in past. So, first, is that fair, and it sounds like – and if so, why?
`And, second, you're guiding to 30% to 32%, I think, SG&A in 2016, I think at the Analyst Meeting, your long-term SG&A guidance was
`low-30%. So, how should we think about SG&A going forward? And I did have a follow up. Thanks.
`
`Scott B. Ullem - Chief Financial Officer & Vice President
`
`Larry, it's Scott. Good question, the answer to your first question is, yes, most of that incremental sales generated from THV will fall
`through to the bottom line earnings per share. We're also battling a little bit higher tax rate because of some of those incremental sales
`will be coming out of the U.S. In terms of SG&A as a percentage of sales, I think our guidance for longer term is unchanged, it's still
`going to be in that low-30% of sales range, longer term.
`
`Larry Biegelsen - Wells Fargo Securities LLC
`
`Okay. That's very helpful. And, I guess, I'm just curious, Mike, if you receive approval for intermediate risk later this year, do you think
`SAPIEN 3 will disproportionately benefit until your competitor also receives that indication? Thanks for taking the questions.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah. Thanks. We feel like we're the market share leader today. And because of the way the National Coverage Determination is
`written, the coverage is really linked to an FDA approval and it's product-specific. So, clinicians that were to use a valve that wasn't
`approved for intermediate risk, would run the risk of running afoul of the NCD. So, we think physicians will be somewhat disciplined.
`And so, I think we do end up with some kind of an advantage if we were to have an intermediate risk approval before our competitor.
`
`Larry Biegelsen - Wells Fargo Securities LLC
`
`Thanks for taking the questions, guys.
`
`Operator
`
`Thank you. The next question is from Mike Weinstein of JPMorgan. Please go ahead.
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`Michael Weinstein - JPMorgan Securities LLC
`
`Thanks for taking the question. So, let me just follow up on Larry's kind of question about the guidance, and obviously everybody is
`looking at the fourth quarter and saying fantastic performance and loves to see the numbers moving higher. But the drop-through is
`obviously much more dramatic than what we've seen in the past. In fact, Scott, if you do the back envelope numbers and just took the
`midpoint of the prior sales range, the midpoint of the prior SG&A guidance and the midpoint of the new sales range, the new SG&A
`guidance, it actually implies with the incremental $100 million in sales that SG&A is actually down slightly despite the incremental sales
`numbers. So, is there something else you guys are doing just in terms of your planning for 2016, or was it just, hey, that that we went
`into it initially being conservative on what we thought we'd spend and it's just going to come in lower than what we're initially planning?
`
`Scott B. Ullem - Chief Financial Officer & Vice President
`
`Yeah. It's a good question, Mike. I think we give ranges because there are a lot of moving pieces really the sales estimate does fall
`through to the bottom line. And it's just it's a lot of positive momentum going into earnings per share growth. But, there is really nothing
`else to speak of that's changed in the overall model.
`
`Michael Weinstein - JPMorgan Securities LLC
`
`And let me just ask, Mike. So, if you think about the incremental opportunity from here, because we're obviously only partway through
`the play out of the TAVR market. And we're talking about a $5 billion plus market as we go out. If we think about the earnings
`drop-through from here from your incremental TAVR sales, not talking 2016, but really over the next three years to four years, how do
`you want us to think about that incremental drop-through given what you're saying today about 2016?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah. Thanks for that Mike. As you can imagine, there is a limited number of TAVR centers, and given the fact that this expansion is
`probably likely to occur within their existing centers, we are going to get a fair amount of leverage, and there will be a lot of
`drop-through. Now having said that, we are aggressive investors in our future, and as you know we have a number of initiatives going in
`the area of s