`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014
`Results - Earnings Call Transcript
`Feb. 3, 2015 11:34 PM ET
`by: SA Transcripts
`
`Start Time: 17:07
`
`End Time: 18:08
`
`Edwards Lifesciences Corp. (NYSE:EW)
`
`Q4 2014 Earnings Conference Call
`
`February 2, 2015 05:00 PM ET
`
`Executives
`
`Michael A. Mussallem - Chairman and CEO
`
`Scott B. Ullem - CFO and Corporate Vice President
`
`David Erickson - VP, IR
`
`Analysts
`
`Brooks West - Piper Jaffray
`
`Raj Denhoy - Jefferies LLC
`
`Lawrence Biegelsen - Wells Fargo Securities, LLC
`
`Jason Mills - Canaccord Genuity
`
`David Roman - Goldman Sachs Group Inc.
`
`Frederick Wise - Stifel, Nicolaus & Company
`
`Bruce Nudell - Crédit Suisse AG
`
`Danielle Antalffy - Leerink Partners
`
`Ben Andrew - William Blair & Co.
`
`Kristen Stewart - Deutsche Bank Securities, Inc.
`
`Michael Weinstein - JP Morgan Chase & Co.
`
`Robert Hopkins - BofA Merrill Lynch
`
`James Francescone - Morgan Stanley & Co.
`
`Joanne Wuensch - BMO Capital Markets
`
`Operator
`
`1 of 17
`
`8/2/2016 1:40 PM
`
`Page 01 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Greetings, and welcome to the Edwards Lifesciences Corporation Fourth Quarter 2014 Earnings Conference Call. [Operator
`Instructions] 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 begin.
`
`David Erickson
`
`Welcome, and thank you for joining us today. Just after the close of regular trading, we released our fourth quarter 2014 financial
`results. During today's call, we'll discuss the results included in the press release and accompanying financial schedules and then use
`the 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, our expectations regarding sales, gross profit
`margin, earnings per share, SG&A, R&D, interest expense, taxes, free cash flow and foreign currency impacts. These statements also
`include our current expectations for the timing, status and expected outcomes of our clinical trials, regulatory compliance, submissions
`and approvals, as well as expectations regarding industry growth, adoption rates for new products and competitive positions.
`
`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. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results or
`experiences to differ materially from the forward-looking statements. Information concerning factors that could cause these differences
`may be found in our press release, our annual report on Form 10-K for the year ended December 31, 2013, and our other SEC filings,
`which are available on our Web site at edwards.com.
`
`Also, a quick reminder that when we use the terms underlying 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 Web site.
`
`Now I'll turn the call over to Mike Mussallem. Mike?
`
`Michael A. Mussallem
`
`Thank you, David. Reflecting on 2014, we ended the year with uncertainty around our product launch timing and new competitor
`activity. We are pleased to have exited the year with momentum and having significantly exceeded our initial expectations.
`
`We were proud to introduce several innovative products that helped us maintain our strong global leadership position and resulted in
`annual underlying sales growth of 13%. This growth was led by 29% underlying sales growth in transcatheter heart valves. Importantly,
`we’re particularly gratified to see the meaningful impact that our dedicated employees are having in helping so many patients around
`the world.
`
`For the quarter, we experienced robust growth across all regions with transcatheter heart valves sales that exceeded our expectations,
`most notably in Europe, driven by the further adoption of SAPIEN 3. Other new products like our minimally invasive intuitive valve
`platform and ClearSight also contributed to our growth.
`
`Now turning to quarterly specifics. Total adjusted sales were $640 million, representing an representing growth rate of 16%. In
`transcatheter heart valves therapy, underlying global sales grew 38%. This was driven by strong sales of our innovative new products in
`Europe and in the U.S. Globally, average selling prices remain stable.
`
`Outside the U.S., THV sales grew 41% on an underlying basis during the quarter, once again driven by the strong procedural growth in
`Europe and the ongoing launch in Japan. Growth was seen broadly across most countries in Europe which speaks to the large number
`of untreated patients benefiting from strong TAVR adoption.
`
`SAPIEN 3 with its enhanced features represented more than 85% of our European THV sales this quarter, and continues to generate
`favorable clinician feedback. We estimate competitors moderately gained ground in the quarter. While we expect procedure growth
`rates to slow going forward, we estimate that Europe TAVR procedures grew in excess of 20% in 2014.
`
`In Japan, we ended the year slightly below our full-year guidance of $40 million to $50 million. Even though clinicians remain
`enthusiastic about our SAPIEN XT valve, our launch has been slower than expected due to the Japan’s extensive site certification
`process. We continue to believe that Japan represents a very attractive market opportunity for TAVR and we expect adoption will
`continue to steadily increase.
`
`In the U.S., reported THV sales for the quarter, including royalties were $130 million. On an underlying basis, sales grew 36% to $126
`
`2 of 17
`
`8/2/2016 1:40 PM
`
`Page 02 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`million. During the fourth quarter we recorded minimal clinical sales due to the completion of enrollment in the intermediate risk arm of
`the SAPIEN 3 trial in September. Our performance in the U.S continues to be driven by the strong adoption of SAPIEN XT, which was
`available in all of our accounts by year-end.
`
`During 2014, we added approximately 50 new centers which is in line with our estimate. As a reminder, our SAPIEN 3 U.S pivotal trials
`for both high risk and intermediate risk patients completed enrollment in 2014. And during the year, we received approval for our
`SAPIEN 3 continued access program for 1,000 intermediate risk patients. Enrollment in this program began in January.
`
`As we discussed at our investor conference, we recently submitted our PMA for SAPIEN 3 in the U.S. Our plan assumes a one-year
`FDA review process. Based on our estimates, we expect the first approval of SAPIEN 3 in early 2016. At the same time, we’re actively
`engaged with FDA to discuss ways to bring our latest technology to patients in the U.S more quickly.
`
`At the upcoming American College of Cardiology conference in March, there will be numerous transcatheter valve sessions including
`late breaking presentations of five-year data from the partner trial and early clinical outcomes with SAPIEN 3. We are planning on
`hosting an investor update on Sunday evening March 15 to discuss the latest presentations. Additional details will be forthcoming.
`
`Our self expanding CENTERA valve platform featuring an enhanced motorized delivery system continues to make progress. We have a
`pivotal trial set to start in the second quarter in Europe with the expected commercial launch of this new platform in 2016.
`
`In summary, we’re pleased with the strength of our global THV sales performance. We believe current procedure growth rates will
`moderate and competitive activity will increase. As such, we continue to expect 15% to 25% underlying sales growth in 2015.
`
`Turning to the Surgical Heart Valve Therapy product group. Total sales for this quarter were $206 million, up 3% on an underlying basis.
`Heart Valve unit gains across most geographies drove the majority of the growth, while a favorable product mix also contributed to a
`slightly higher overall valve ASP. As expected, sales of Cardiac Surgery System products or CSS detracted from this product group’s
`growth rate.
`
`As a reminder, last quarter we discussed the strategic decision to integrate the operations of our Surgical Heart Valve and CSS product
`lines. Key activities were completed by year-end as planned. Simultaneously we announced our plan to exit certain non-strategic CSS
`products representing annual sales of $10 million to $20 million as part of our Utah remediation efforts. This is included in our 2015
`guidance.
`
`Globally underlying surgical valves grew 4% led by unit growth of our premium valves. Growth was strongest in Europe, led by the
`continued adoption of INTUITY Elite, our minimally invasive valve platform. In the U.S., we experienced double-digit growth in mitral
`units while pericardial valve adoption propelled significant growth in China.
`
`During the quarter, we completed enrollment of our U.S TRANSFORM Trial for INTUITY Elite and continue to expect a 2015 PMA
`submission. This would keep us on track for a planned U.S approval in 2016. Enrollment in the study of our RESILIA tissue technology
`remains on schedule and we still expect to complete European and U.S regulatory submissions this year.
`
`At the Society of Thoracic Surgery meeting last week, data from the largest single center experience on our INTUITY system were
`presented which showed favorable early clinical and hemodynamic outcomes.
`
`In summary, we are pleased with the continued strength of our premium products in our surgical valve product line. Consistent with our
`active product portfolio management strategy, we will experience reduced sales growth as we discontinued certain non-strategic CSS
`products as such we’re reiterating our underlying sales growth for the total product group of 1% to 3% in 2015.
`
`Turning to the Critical Care product group. Total sales for the quarter grew 4% on an underlying basis to $144 million. Growth was solid
`in the U.S and sales outside the U.S were aided by a favorable comparison as in this -- as inventory levels stabilized in China.
`Enhanced Surgical Recovery product sales, including FloTrac and ClearSight grew in the double-digits.
`
`In 2015, we plan to expand the reach of our non-invasive ClearSight system with our upcoming launch in Japan. The optimization of
`patient’s fluid management through enhanced surgical recovery plays to our strength as leader in hemodynamic monitoring. As clinical
`support for ESR continues to gain momentum, it should enable us to capitalize on the global under penetrated opportunity.
`
`Separately at the start of the year, we were happy to officially welcome Katie Szyman who is now successfully transitioned into a new
`role as Head of our Critical Care team.
`
`To summarize, our Critical Care product line, we're pleased with the continuing adoption of our ESR products and are reiterating our
`underlying sales growth guidance of 2% to 4%.
`
`3 of 17
`
`8/2/2016 1:40 PM
`
`Page 03 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Before turning it over to Scott, I'll close with a brief statement about our transcatheter mitral valve program. We are continuing to make
`progress in the study of our FORTIS transcatheter mitral valve. As previously discussed, we recently received approval to begin a multi-
`center early feasibility study in the U.S and expect to begin enrollment during the first quarter.
`
`We are continuing to aggressively invest in the development of additional mitral technologies as we believe multiple solutions may
`ultimately be needed to address this large patient need.
`
`And now, I’ll turn the call over to Scott.
`
`Scott B. Ullem
`
`Thanks, Mike, and hello everyone. For the full-year, we reported adjusted earnings per share of $3.50. Net sales increased 13% on an
`underlying basis. Gross profit margin was 73.7% and adjusted free cash flow was $445 million.
`
`In the fourth quarter, we reported adjusted sales of $614 million. Our strong sales performance in transcatheter valves drove an overall
`16% underlying growth this quarter. Adjusted earnings per share was $1.06 representing 12% growth over the prior year.
`
`The THV sales return reserve added $4 million to reported sales in the fourth quarter. We completed the next-generation product
`exchanges in the U.S and Europe during the fourth quarter bringing the THV sales return reserve to zero at year-end in closing out this
`reconciling item.
`
`I'll now cover the details behind our results and then share guidance for 2015. For the fourth quarter, our gross profit margin was 74%
`as expected compared to 73.2% in the same period of 2013. This increase was driven primarily by a more profitable product mix and a
`positive impact from foreign exchange. These items were partially offset by higher costs associated with our CSS operations in Utah, as
`well as higher incentive compensation expense.
`
`The stronger U.S dollar will have a significant impact to our results in 2015 even more so than we projected at our investor conference
`in December. Based on current exchange rates, we now expect sales in 2015 to be reduced by $160 million compared to prior year
`rates. We enter into foreign exchange hedging contracts that generate income at the gross profit line when the U.S dollar strengthens
`relative to other currencies.
`
`If today's foreign exchange rates persist, we expect our gross profit margin for the full-year 2015 excluding special items, to bump up to
`the range of 76% to 77%. This includes an estimated mix improvement of approximately 100 basis points over last year's adjusted
`gross profit margin of approximately 74% and currency impact of 100 to 200 basis points.
`
`Fourth quarter selling, general and administrative expenses were $223 million or 36% of sales compared to $187 million in the prior
`year. The largest drivers of the increase were related to the global expansion of transcatheter heart valves and a larger accrual for
`performance-based incentive compensation.
`
`We continue to expect SG&A excluding special items to be between 35% and 36% of sales for the full-year 2015. Research and
`development investments in the quarter grew 7% to $84 million or 13.6% of sales. This increase was primarily the result of continued
`investments in our aortic and mitral valve programs partially offset by lower spending on clinical trials. For the full-year 2015, we
`continue to expect R&D as a percentage of sales to be between 15% and 16%.
`
`During the quarter, we recorded three adjustments to our GAAP results as follows: first, the impact of the THV sales return reserve
`benefited our GAAP net income by $2.5 million or $0.02 per share. Consistent with prior quarters, we excluded this impact from our
`non-GAAP results. Second, we excluded $10.2 million for a previously announced acquisition of Transcatheter Mitral Valve intellectual
`property which we expensed as in process research and development. And third, consistent with our reporting convention, we excluded
`$600,000 of intellectual property litigation expense. Complete reconciliations were included in our press release.
`
`Net interest expense for the quarter was $2 million, down from $4 million in the prior year. This reduction was driven by lower interest
`rates and increased interest income from higher investment balances. For the full-year 2015, we continue to expect net interest
`expense to be approximately $10 million.
`
`Our reported tax rate for the fourth quarter was 17.8% or 16.9% on a non-GAAP basis as we expected. The quarter’s rate benefited
`from the renewal of the federal research and development tax credit for 2014. Assuming a renewal again in 2015, we continue to expect
`our full-year tax rate to be between 21% and 23%.
`
`Based on an expectation of a fourth quarter renewal, the tax rate for the first three quarters should be higher than the fourth. FX rates
`negatively impacted fourth quarter sales by $21 million compared to the prior year, driven by the weakening of the euro and yen.
`
`4 of 17
`
`8/2/2016 1:40 PM
`
`Page 04 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Compared to our recent guidance, FX rates positively impacted earnings per share by $0.01. As I mentioned earlier, at current rates we
`now estimate a $160 million negative impact to full-year 2015 sales, which is $70 million higher than the impact we estimated at our
`December investor conference. The resulting impact to earning should be mitigated by our foreign exchange hedges.
`
`Cash flow from operating activities for the fourth quarter was $93.2 million. After capital spending of $34.5 million and excluding the tax
`impacts of previously reported special items, free cash flow was $107.5 million.
`
`Turning to our balance sheet, at the end of the quarter we had cash, cash equivalents and short-term investments of $1.4 billion.
`Approximately 55% of which is outside the U.S. Total debt was $598 million.
`
`Now turning to our 2015 guidance. Given the impact of foreign exchange, we expect full-year reported sales to be at the lower end of
`the $2.3 billion to $2.5 billion guidance range we provided at our December investor conference. We also expect each of our product
`groups to be at the lower end of our previously stated ranges. Those ranges are $1 billion to $1.1 billion for Transcatheter Heart Valve
`therapy, $780 million to $820 million for Surgical Heart Valve therapy, and $520 million to $570 million in Critical Care.
`
`For the full-year 2015, we continue to expect free cash flow excluding special items to be between $375 million and $425 million. Given
`the momentum of Transcatheter Heart Valve sales and the mitigating effect of our foreign exchange hedging program, we're raising our
`diluted earnings per share guidance to $4 to $4.30 excluding special items.
`
`For the first quarter of 2015, at current foreign exchange rates, we project total sales to be between $570 million and $610 million and
`diluted earnings per share excluding special items to be between $1.02 and $1.10.
`
`And with that, I'll hand it back to Mike.
`
`Michael A. Mussallem
`
`Thanks, Scott. In conclusion, Edwards is poised for solid growth in 2015. Our foundation of leadership and our commitment to transform
`patient care with innovative therapies remain the source of our strength. Our exciting product pipeline positions us well for continued
`long-term success and greater shareholder value.
`
`With that, I’ll turn it back over to David.
`
`David Erickson
`
`Thank you, Mike. 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 will answer as many as we can during the remainder of the hour. Operator,
`we're ready for questions, please.
`
`Question-and-Answer Session
`
`Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Brooks West of
`Piper Jaffray. Please go ahead.
`
`Brooks West
`
`Thanks for taking the question.
`
`Michael A. Mussallem
`
`Sure.
`
`Brooks West
`
`Mike, can I press you a little bit on the mitral valve comments? You talked about having multiple platforms. Can you give us a little bit
`more detail on your thought process there? Is it multiple valve platforms, could there be some repair products in there? Just a little bit
`more about how you're thinking of approaching that opportunity
`
`Michael A. Mussallem
`
`Sure, Brooks. Broadly even though we think replacement mitral valve will be a very important offering for mitral patients, we don't think
`that a single offering is going to be satisfactory for all these patients. We think it's going to take a toolkit, if you will, that will be some
`
`5 of 17
`
`8/2/2016 1:40 PM
`
`Page 05 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`replacement products and some repair products and we are pretty aggressive investors to have multiple programs going. We're really
`only sharing some of the particulars of our Fortis program at this time. But we just wanted to alert you to the fact that we have other
`programs in the work and that we’re focused on being a leader in the transcatheter mitral space.
`
`Brooks West
`
`Okay. I appreciate that. And then, a follow-up just on Japan, can you give a little bit more detail about how we should think about that
`market progressing for you guys? And just kind of understand you might want -- not want to give numbers, but where are you in terms
`of account penetration and how should we think about that from a revenue standpoint for the next couple years?
`
`Michael A. Mussallem
`
`Yes, thanks Brooks. We are still early on -- in the launch. I don’t know how far along we’re. I might say that we’ve trained roughly half of
`the sites that are expected to qualify, but even though those early sites are not really performing at high volume yet. It’s been a pretty
`deliberate scale up, if you will. Big picture we think it’s a very attractive opportunity. We projected that it will be a $300 million to $400
`market in 2019. So that will build over time, but it’s our first share was a slow build and even a little bit below our expectations.
`
`Brooks West
`
`Great. Thanks, Mike.
`
`Michael A. Mussallem
`
`Yes.
`
`Operator
`
`Thank you. The next question is from Raj Denhoy of Jefferies. Please go ahead.
`
`Raj Denhoy
`
`Hi. Good evening.
`
`Michael A. Mussallem
`
`Hi, Raj.
`
`Raj Denhoy
`
`Wonder if I could ask about Europe. I think you commented that you were seeing some -- or you mentioned that competitors had gained
`some ground in Europe. I’m curious if you could maybe offer a little more detail around that. Any particular competitors, any particular
`markets where you might be seeing a little bit more impact?
`
`Michael A. Mussallem
`
`Yes. So broadly although we experience a lot of success and you can see our growth rate, OUS particularly driven by Europe. So we’ve
`got very strong growth and probably gained share in a substantial way year-over-year. But if you make a comparison to the prior
`quarter, there would be a slight loss and this was spread across. We have a number of competitors at this point. This is really spread
`across competitors, not really concentrated with one competitor or in one country.
`
`Raj Denhoy
`
`Okay. And then my second question is related to what you were first talking about. It’s seven or eight years now since the launch in
`Europe and you are still seeing very strong growth there. And I think you continue to point at the large inoperable population or
`underserved population. And I don’t know if you’ve any thoughts around where we’re in terms of penetration into that and really -- how
`long this growth can be sustained at this point?
`
`Michael A. Mussallem
`
`Yes. We haven’t predicted this really well so far, Raj. This has been exceeding our expectations. I mean, we’ve been very vocal that
`there is a lot of patients on the side line that are underdiagnosed and untreated. And it seems maybe it coincides a bit with the
`
`6 of 17
`
`8/2/2016 1:40 PM
`
`Page 06 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`introduction of SAPIEN, but the confidence of physicians is growing, the awareness of physicians and patients is growing. And I think
`the safety profile have been attractive. So it's continuing to lift as evidence builds. I don’t know exactly where we’re on this journey.
`You’ve seen the penetration numbers Raj from others about how far it is and its still at pretty light levels at this point.
`
`Operator
`
`Thank you. The next question is from Larry Biegelsen of Wells Fargo. Please go ahead.
`
`Lawrence Biegelsen
`
`Good afternoon. Thanks for taking the question. Just two for me. Mike, could you give us a little bit of color on the underlying sales of
`commercial implants in Q4 in the U.S versus Q3. It looks like it might have been flattish. And if that’s the case, why was that? Was it
`share loss, was it pent-up demand in the third quarter for the 29 millimeter valve? And I’m asking it that way, because usually Q4 is a
`little stronger than Q3. And if underlying sales in the U.S were flat, in Q4 what’s the outlook for 2015 in the U.S? And I just have one
`follow-up. Thanks.
`
`Michael A. Mussallem
`
`Yes, thanks Larry. I think I know what's behind your question. Yes, they were pretty similar, but you’ve to remember that we still have
`significant clinical sales in the third quarter and almost none, no clinical sales in the fourth quarter. So there was quite a difference.
`There probably was a little bit of a bolus of 29 millimeter demand also in the third quarter. I think that was somewhat muted by
`comparison in the fourth. I think the biggest difference is clinical sales. We still feel good about our momentum and our share.
`
`Lawrence Biegelsen
`
`Just to understand, I know you said clinical sales were close to zero in the fourth-quarter. But if we -- so when you get the answer you
`gave about them being similar, Q3 and Q4, that was commercial plus clinical being similar. Is that fair?
`
`Michael A. Mussallem
`
`That’s correct.
`
`Lawrence Biegelsen
`
`Okay, thanks. And then, for my second question, it looks like you're guiding to underlying sales of about 17% to 25% in Q1, 2015. But
`only about 7% for full-year 2015, which implies a very sharp deceleration in the second through fourth quarter. Is my math directionally
`accurate and what's driving that? Thanks.
`
`Michael A. Mussallem
`
`Yes, I don’t know about the specifics, Larry. I’m not sure, I ran the numbers the same way, but broadly I think your point is a correct one.
`Our growth rate is higher in the first half of the year where the -- broadly the reported sales are going to be of course be impacted by
`foreign exchange. But separate from that; remember we had a big step up in sales in the back half of the year. So the comparisons are
`pretty dramatically different in the back half and the front half, and so the growth rate will also moderate on that basis.
`
`Lawrence Biegelsen
`
`Thanks for taking the questions.
`
`Michael A. Mussallem
`
`Yes.
`
`Operator
`
`Thank you. The next question is from Jason Mills of Canaccord Genuity. Please go ahead.
`
`Jason Mills
`
`Congrats on a great quarter, Mike, and thanks for taking the question. Can you hear me okay?
`
`7 of 17
`
`8/2/2016 1:40 PM
`
`Page 07 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Michael A. Mussallem
`
`Yes, Jason. Thanks.
`
`Jason Mills
`
`Great. Following Larry’s question on sort of the cadence of the revenue through 2015 and focusing on transcatheter valves in the
`United States, XT has -- with the launch of that in the second half; you’ve relatively easy comp on a year-over-year basis. But how
`should we think about sort of the cadence of U.S TAVI revenue through the year?
`
`Michael A. Mussallem
`
`Well, I mean, we still think we have a growing market Jason, and that's the biggest thing and so that will step up. At the same time, we
`expect competition to be intensifying. We know our competitors are going to be coming with a new product as well. So that will happen
`at the same time. But having said that, we got a lot of confidence in the performance of SAPIEN XT. I think it’s proven to be a very
`popular valve in the United States. So we’ve tried to reflect all that's in our guidance and I think that's fair, but hopefully that gives you a
`little bit of color.
`
`Jason Mills
`
`That’s helpful. And just as a follow-up on that, clearly your guidance for 2015, specifically in the United States, doesn’t include an
`expectation that SAPIEN 3 is approved earlier, notwithstanding your conversations with FDA. But I am wondering, what sort of
`magnitude, just based on what you’ve seen in terms of adoption of SAPIEN 3 in Europe qualitatively you might -- what color you might
`give us if we were to see a mid or sort of second half approval for SAPIEN 3 in the United States?
`
`Michael A. Mussallem
`
`Thanks, Jason. Yes, you’re right. We are clearly assuming that SAPIEN 3 doesn’t come till 2016. Of course it would help us to come
`early. We think it would be very popular with our customers. But we also -- you have to remember we’re already and what we think is
`quite an advantage share position and so I don’t know that immediately will drive market growth. So really to see it have appreciable
`impact on our performance, you’d have to think that it has appreciable impact and share even beyond where we’re today. So I’d just
`caution us not to get ahead of ourselves on that one. Its something we’d love to make happen and we’re working on, but I don’t think it
`changes everything.
`
`Jason Mills
`
`Okay. And just on the mitral side lastly, is there a conference that you are pointing to that we might expect to see a more robust update
`on Fortis?
`
`Michael A. Mussallem
`
`Yes. I’m not expecting that there is going to be much at all at the ACC meeting, that’s coming up. I’d expect that it would be more likely
`that there would be presentations at the Euro PCR meeting, in May, probably an update on those patients and some of that.
`
`Jason Mills
`
`Thank you.
`
`Michael A. Mussallem
`
`Yes.
`
`Operator
`
`Thank you. The next question is from David Roman of Goldman Sachs. Please go ahead.
`
`David Roman
`
`Thank you and good afternoon everybody.
`
`Michael A. Mussallem
`
`8 of 17
`
`8/2/2016 1:40 PM
`
`Page 08 of 17
`
`
`
`Edwards Lifesciences' (EW) CEO Michael Mussallem on Q4 2014 Result...
`
`http://seekingalpha.com/article/2881196-edwards-lifesciences-ew-ceo-m...
`
`Hi, David.
`
`David Roman
`
`I wanted to start on the earnings guidance revision that you presented this evening relative to what you gave in December. And I guess
`specifically, Scott, I was hoping you could just real walk us on the bridge from kind of the $3.90 to $4.10 number and the $4 to $4.30
`between what is obviously a negative currency impact offset by the positive hedging impact. And then the positive trends in the
`underlying business from a mix standpoint, because my quick math I did got the sort of incremental $70 million of FX headwind and the
`hedging gains year-over-year as basically a wash with one another, maybe a small positive and then the balance coming from
`underlying performance of the business. So maybe you could just give us some more clarity there?
`
`Scott B. Ullem
`
`I think you just got it exactly right. The FX hedges really -- and our natural hedges from our international locations really offset the
`incremental $70 million hit to sales. And so by the time you get to the bottom line, it really doesn't have an effect and the reason for the
`increase from $3.90 to $4.10, up to $4 to $4.30 is really driven by the momentum that we’ve seen coming out of the fourth quarter in our
`THV business.
`
`David Roman
`
`Okay. That’s helpful. And then, on that last point on the THV business, is the issue here that you’re sort of reaching a more normalized
`level of profitability in that franchise, that have to do with its becoming a larger percentage of sales? When you say momentum, is that
`pricing is holding in better? Maybe just help us understand what that means from a P&L standpoint.
`
`Michael A. Mussallem
`
`I could jump in and Scott can supplement David. Yes, we generated more sales in the fourth quarter than we were expected and
`particularly Europe is performing even at a higher level than we expected. And we expect some of that performance to continue on in to
`2015 and that really provides an additional lift from what we anticipated when we gave our guidance at the investor conference.
`
`David Roman
`
`Okay. That makes a lot of sense. And maybe lastly on mitral, clearly you are spending a lot on it internally, but why not sort of think
`about the external options. I mean, TVT obviously you’re talking about very different valuations now compared to 2004, but TAVR did
`come from external investments. Why not reconsider a similar approach here and