Edwards Lifesciences (EW) Michael A. Mussallem on Q2 2016 Results ...
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`http://seekingalpha.com/article/3991925-edwards-lifesciences-ew-micha...
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`Edwards Lifesciences (EW) Michael A. Mussallem on Q2 2016
`Results - Earnings Call Transcript
`Jul. 27, 2016 5:33 AM ET
`by: SA Transcripts
`
`Edwards Lifesciences Corp. (NYSE:EW)
`
`Q2 2016 Earnings Call
`
`July 26, 2016 5:00 pm ET
`
`Executives
`
`David K. Erickson - Vice President-Investor Relations
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Scott B. Ullem - Chief Financial Officer & Corporate Vice President
`
`Analysts
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Jason R. Mills - Canaccord Genuity, Inc.
`
`Michael Weinstein - JPMorgan Securities LLC
`
`Larry Biegelsen - Wells Fargo Securities LLC
`
`David Ryan Lewis - Morgan Stanley & Co. LLC
`
`Matt Miksic - UBS Securities LLC
`
`Bruce M. Nudell - SunTrust Robinson Humphrey, Inc.
`
`Raj Denhoy - Jefferies LLC
`
`Danielle J. Antalffy - Leerink Partners LLC
`
`John T. Gillings - JMP Securities LLC
`
`Matt J. Keeler - Credit Suisse Securities (NYSE:USA) LLC (Broker)
`
`Glenn John Novarro - RBC Capital Markets LLC
`
`Ben C. Andrew - William Blair & Co. LLC
`
`Joshua Jennings - Cowen & Co. LLC
`
`Operator
`
`Greetings, and welcome to the Edwards Lifesciences Corporation's Second Quarter 2016 Earnings Call. At this time, all participants are
`in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being
`recorded.
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`Edwards Lifesciences (EW) Michael A. Mussallem on Q2 2016 Results ...
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`I would now like to turn the conference over to your host, Mr. David Erickson, Vice President-Investor Relations. Thank you. You may
`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 second quarter 2016 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 this 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, reimbursement and commercial matters, as well as therapy trends and foreign currency movements. 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 2015 Annual
`Report on Form 10-K, and our other SEC filings, all of which are available on our website at edwards.com.
`
`Also, a quick reminder that when we use the terms underlying and adjusted, 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 second quarter performance, which reflected significant growth in the number of
`patients and physicians choosing Transcatheter Heart Valve Therapy. Our results this quarter were better than expected driving strong
`top and bottom line growth.
`
`Global sales grew 21% on an underlying basis, reflecting significant Transcatheter Heart Valve sales that once again drove the majority
`of this quarter's growth, with a solid contribution from Critical Care. In transcatheter heart valves, global sales were $419 million, up
`45% on an underlying basis over prior year. Growth was led by continued strong therapy adoption across all geographies, with notable
`strength in the U.S.
`
`Globally, average selling prices remained stable. In the U.S., Transcatheter Heart Valve sales for the quarter were $246 million and
`grew 66% on an underlying basis versus the prior year. Overall procedure growth exceeded our expectations, and strong sales were
`widespread in both large and small hospitals. Positive clinical results continue to drive adoption, and clinician feedback on the
`intermediate risk trial data presented at the ACC conference has been consistently positive.
`
`During the quarter, the final intermediate risk data sets were submitted to the FDA and we're awaiting for approval of the expanded
`indication. Although it's always difficult to predict regulatory timelines, based on the strength of these data, we anticipate that approval
`will be received during the third quarter.
`
`As a reminder, intermediate risk patients continue to be treated through our Continuous Access Protocol of the PARTNER II trial, which
`has been tracking at close to $10 million in sales per quarter. This would end as commercial sales begin.
`
`Enrollment in our PARTNER III low-risk trial is underway, and approximately half of our expected trial sites are active. As a reminder,
`this is a randomized trial and although difficult to estimate, we believe this trial should be enrolled by mid-2017. And, at the request of
`clinicians, who want to offer this therapy to a broader group of patients, we're revising the trial protocol by removing the 65 years or
`older age qualification.
`
`Outside the U.S., underlying THV sales grew 23%, driven by the ongoing therapy adoption primarily in Europe, and a contribution from
`Japan. We are pleased with the adoption seen in Japan following the launch of SAPIEN 3 earlier this year and we expect Japan to be a
`strong contributor to long-term growth.
`
`In Europe, we estimate total procedures grew around 25% in the second quarter, compared to last year or approximately 20% when
`adjusted for additional selling days this year. Edwards procedures grew at about the same rates. While the PARTNER II data published
`in April was widely acknowledged, we do not believe it provided a significant lift in the quarter.
`
`We saw strong procedure growth across nearly all countries and particularly strong growth in countries outside of Germany. While
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`difficult to estimate, we believe more recent competitive entrants continue to account for about 15% of total European procedures.
`
`As we mentioned, we are using our U.S. intermediate risk data to request an expansion of our CE Mark indication. These data were
`submitted to European regulators during the quarter and we continue to expect approval of an expanded label in late 2016 or early
`2017. We expect gradual expansion into intermediate risk patients when the label is broadened and clinical guidelines are revised.
`
`Our updated guidance anticipates that OUS sales may reflect a negative impact in the fourth quarter. The country of France has a
`policy that limits annual TAVR procedures. Strong therapy adoption there is outpacing this year's rate. We are working with the Ministry
`of Health in an effort to increase the procedure limit. In the absence of resolution, we expect to discontinue sales in France for the
`remainder of 2016 when the cap is reached, and this assumption is reflected in our guidance.
`
`Given the strong performance of SAPIEN 3, we have decided to incorporate additional benefits into our new Ultra system before its
`introduction. This will move the expected European launch to the second half of 2017. 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.
`
`Questions about transcatheter valve durability, which were first discussed during a EuroPCR presentation, were subsequently more
`thoroughly addressed at the TVT meeting last month. Physician presentations suggested there is a lack of evidence that TAVR valve
`durability differs from surgical valves. Edwards has always distinguished itself on the best-in-class performance in heart valves, and we
`remain confident in our SAPIEN platform and are generating long-term follow-up data in our PARTNER trials.
`
`In summary, based on our strong first half results and anticipated third quarter approval of intermediate risk in the U.S. and momentum
`of global therapy adoption, we are increasing our 2016 sales guidance by $100 million to between $1.5 billion and $1.7 billion. We now
`expect our underlying sales growth to exceed 30%.
`
`Turning to Surgical Heart Valve Therapy product group, sales for the second quarter were $199 million, a decrease of 3% over last year
`on an underlying basis. Sales of surgical mitral valves declined, which was partially offset by solid growth in surgical aortic valves.
`Globally, sales of our surgical mitral valves were impacted during the quarter due to our identification of a production matter related to
`the holder that assists surgeons during implantation of the valve, which caused us to temporarily suspend production. We have recently
`resumed shipping and expect a smaller impact in the third quarter as we replenish inventories.
`
`Worldwide surgical aortic valve units grew approximately 5% and global average selling price saw a slight decline due to regional mix.
`INTUITY Elite drove sales growth in Europe, and in Japan, growth was driven by aortic valves and the adoption of the recently launched
`tricuspid valve repair system.
`
`During the quarter, we announced positive clinical data from our COMMENCE, TRANSFORM and FOUNDATION studies at the
`American Association of Thoracic Surgeons Meeting. These compelling new data on more than 2,000 patients provide important clinical
`evidence on the benefits of new surgical treatments, including our RESILIA tissue and INTUITY Elite valve system.
`
`We anticipate approval in the near future of our rapid deployment INTUITY Elite valve in the U.S. This system is built upon our proven
`pericardial valve technology and is designed to facilitate small incision aortic valve replacement surgery and streamline combination
`procedures. The U.S. launch will be deliberate and focused on adoption and ensuring excellent patient outcomes. The valve system
`underscores our ongoing commitment to developing innovative surgical technologies to address patient needs. We continue to invest in
`multiple surgical platforms, as we believe that surgery will remain an important option for patients even as TAVR expands.
`
`In summary, given our first half results, we're reducing our 2016 underlying sales growth expectation for the full year to between 0% and
`2%, and we expect a meaningful contribution to growth from the INTUITY Elite launch in the U.S.
`
`In the Critical Care product group, sales for the quarter were $142 million and grew 7% on an underlying basis. Overall growth for the
`quarter was strong in our core products and, once again, we recorded double-digit underlying growth in our Enhanced Surgical
`Recovery program. Our expansion of the U.S. sales team also stimulated stronger adoption of our market-leading products. Based
`upon the strong first half momentum, we are increasing our Critical Care underlying sales growth expectation to between 5% and 7% in
`2016.
`
`In structural heart initiatives, we continue to make progress on our FORMA system for reducing tricuspid regurgitation and our CardiAQ-
`Edwards transcatheter mitral valve platform.
`
`In our early-generation CardiAQ-Edwards platform, we're in the process of implementing several enhancements, including new delivery
`systems and utilizing Edwards' advanced tissue. We Plan to incorporate these enhancements as part of our first CE Mark trial, and we
`expect to begin treating patients soon.
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`This trial, called the RELIEF trial, includes approximately 15 centers in Europe and Canada and will include Transapical and
`Transseptal delivery systems. This single arm study will include patients suffering from functional and degenerative mitral regurgitation.
`You will hear more specific updates about this and other programs at future clinical meetings.
`
`In the legal matter that CardiAQ brought against Neovasc, a federal jury returned a $70 million verdict in our favor. The jury found that
`Neovasc, a former service provider, breached the non-disclosure agreement, misappropriated trade secrets and breached its duty of
`honest performance.
`
`During the quarter, we completed two small acquisitions that add future-generation technologies to our transcatheter valve portfolio. We
`remain committed to developing innovative structural heart therapies and, although it's still early, we continue to believe that these
`therapies will ultimately benefit patients who are not well-served today.
`
`And with that, let me turn it over to Scott.
`
`Scott B. Ullem - Chief Financial Officer & Corporate Vice President
`
`Thank you, Mike. This quarter, the number of transcatheter procedures exceeded our estimates and drove total sales of $759 million,
`representing 21% growth over last year, excluding the effects of foreign exchange and the prior year sales return reserve.
`
`Adjusted earnings per share in the quarter grew 33% versus prior year to $0.76, reflecting solid leverage. Our GAAP earnings per share
`of $0.58 includes $34 million of acquired intellectual property related to early-stage transcatheter technologies, as Mike mentioned
`earlier. A full reconciliation between our GAAP and adjusted earnings per share is included with today's release.
`
`For the quarter, our gross profit margin was 73.3%, compared to 74.3% in the same period last year. This decrease, which we
`expected, was driven primarily by the foreign exchange impact from inventories sold internationally and a reduced benefit from our FX
`hedge contracts. These were partially offset by a more profitable product mix, reflecting strong growth in THV and the impact of the
`THV return reserve in the prior year.
`
`As we mentioned last quarter, to accommodate our increased sales demand going forward, we are making significant investments in
`manufacturing capacity inside and outside the United States, including our new facility in Costa Rica. These capacity investments
`moderately reduced our gross profit margin in the second quarter and are likely to continue to have a negative impact into 2017. These
`impacts are reflected in our full year gross profit margin guidance, which remains unchanged at 73% to 74%, excluding special items.
`
`Sector quarter selling, general and administrative expenses increased 7% over the prior year to $229 million or 30.1% of sales. This
`increase was driven primarily by sales and personnel related expenses, partially offset by the suspension of the medical device excise
`tax. We continue to expect SG&A, excluding special items, to be between 30% and 32% of sales for the full year.
`
`Research and development investments in the quarter increased 16% over the prior year to $113 million or 14.9% of sales. This
`increase was primarily the result of continued investments in our transcatheter mitral and aortic valve programs. We expect our R&D
`investments, excluding special items, to be approximately 16% of sales in the second half.
`
`During the second quarter, we recorded $9 million in intellectual property litigation expenses, which have been excluded from adjusted
`earnings per share. The expenses include litigation against Neovasc in the United States and with Boston Scientific, where we now
`have multiple litigation matters in the United States and Europe.
`
`Our reported tax rate for the quarter was 25.1%, up from 20.7% in the prior year period. This increase was driven largely by the impact
`of our early-stage intellectual property acquisitions and our increased sales in the United States, our highest tax rate region. We
`continue to expect our full year tax rate, excluding special items such as this quarter's intellectual property acquisitions, to be between
`22% and 23%.
`
`Foreign exchange rates increased second quarter sales by $5 million compared to the prior year. Compared to our April guidance,
`foreign exchange rates boosted sales and favorably impacted earnings per share by $0.01 in the second quarter. At current rates,
`which have been volatile, we now estimate an approximate $10 million favorable impact to full year 2016 sales compared to the prior
`year. Brexit has obviously contributed to rate volatility, but the impact to our bottom line this year will likely be insignificant as most of the
`foreign exchange rate changes are expected to be offset by our hedging program. As a point of reference, UK sales represented less
`than 3%, of our global sales last year.
`
`Free cash flow generated during the quarter was $153 million. We define this as cash flow from operating activities of $190 million, less
`capital spending of $37 million.
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`Turning to the balance sheet, at the end of the quarter, we had cash, cash equivalents and short-term investments of approximately $1
`billion. Total debt was approximately $600 million. Average shares outstanding during the quarter were $217 million. We continue to
`expect average diluted shares outstanding for full year 2016 of $216 million to $220 million.
`
`Turning to our 2016 guidance, given our strong THV momentum and expectation of continuing growth, we are raising guidance for full
`year 2016 THV sales to be $100 million higher than we forecasted last quarter. We now expect THV sales of $1.5 billion to $1.7 billion
`and total Edwards sales to be at the high end of our $2.7 billion to $3 billion range.
`
`We continue to expect sales for Surgical Heart Valves within the range of $780 million to $820 million. And given the strong first half
`performance of Critical Care, we now expect sales within the range of $540 million to $580 million.
`
`With today's increase in sales guidance, we now expect our adjusted earnings per share to be between $2.78 and $2.88 and we
`continue to expect free cash flow, excluding special items, to be between $500 million and $600 million. For the third quarter of 2016, at
`current foreign exchange rates, we project sales to be between $720 million and $760 million, and adjusted earnings per share to be
`between $0.62 and $0.68.
`
`And with that, I'll hand it back to Mike.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thanks, Scott. We are very pleased with our strong performance achieved through the first half of the year. As patients and clinicians
`increasingly prefer TAVR and based on the substantial body of compelling evidence, we remain as optimistic as ever about the
`long-term growth opportunity represented by transcatheter therapies.
`
`Overall, we remain committed to aggressively investing in structural heart disease and critical care technologies. We are confident that
`this will result in more patients being treated with our innovative therapies and continued strong organic growth.
`
`And with that I'll turn it back over to David.
`
`David K. Erickson - Vice President-Investor Relations
`
`Thank you, Mike. Before we open it up for questions, I would like to encourage you to mark your calendars for Thursday, December 8
`when we will be hosting our 2016 Investor Conference in New York. This event will include updates on our latest technologies as well
`as our outlook for 2017. More information will be available in the next couple of months.
`
`In order to allow broad participation in our Q&A, we ask that you please limit the number of questions. If you have additional questions,
`please reenter 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. Our first question comes from the line of Brooks West with Piper Jaffray. Please proceed with your question.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Hi. Thanks for taking the questions. Can you hear me?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`We can hear you fine Brooks. Can you hear us?
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Great. Mike, actually, you were fading in and out quite a bit in the first part of your prepared remarks. I was actually going to ask if it
`would be possible maybe for you guys to email out your script or post it to the website, because I felt like I did miss a lot of what you
`said. I'm sure we'll be useful...
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
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`Yeah.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`...to try to piece it together.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah. If it's helpful, I suppose if it's coming in clear now, we could maybe even read it again I suppose if it's helpful to you.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`I don't know. I guess I'll defer to David Erickson on that, but I thought like I missed a lot of what was said in the first half of your remarks.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Okay. Well, we apologize for that and we'll make sure that the transcript is available.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Perfect. I guess let me ask just two questions. First of all, congratulations on another great quarter. If in terms of raising the guidance,
`the Transcatheter Heart Valve guidance by $100 million, it sounds like intermediate risk may be coming a little bit earlier, U.S. is doing a
`little bit better, Japan doing a little bit better. Can you just kind of parse for us where you see that incremental Transcatheter Heart Valve
`volume coming from that constitutes that $100 million?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah. Thanks, Brooks. Some of it already happened in Q2, right? So you've got a – chunk of it was the Q2 beat. You're right. There is
`an element of it that comes from what might be a little bit earlier approval that might provide a little bit of a sales boost in the third
`quarter. But some of it is just a reflection of the momentum that we have coming out of the second quarter. We've had two quarters of
`strong growth in the U.S. and Europe is growing nicely as well and Japan for that matter. So, you put those together, it's really more of a
`momentum issue.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Okay. And then I guess as a follow-up to that, Mike, where do you feel like the incremental patient is coming from? And I guess,
`specifically, if you look at the U.S. market, do you feel like – it feels like now you're truly starting to cannibalize the surgical business, is
`that where the majority of patients are coming from. Do you still feel like patients are kind of coming out of the woodwork that wouldn't
`have been treated? Can you speak to that at all? I know it's a guesstimate, but would be helpful as well.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah, I think as we mentioned, you may not have picked that up in our earlier remarks, but we saw growth in both large and small
`hospitals this quarter. So it was widespread and it was geographically dispersed across the United States. And I think the U.S. was
`probably the largest source of growth. We don't think there was a significant number of patients that came from surgery. We think, by
`far, there was more patients that just plain came into the system. We continue to believe that there is an under treatment of patients,
`particularly with high risk and those flow into the system.
`
`Brooks E. West - Piper Jaffray & Co. (Broker)
`
`Perfect. Thank you so much.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Sure.
`
`Operator
`
`Our next question comes from the line of Jason Mills with Canaccord Genuity. Please proceed with your question.
`
`Jason R. Mills - Canaccord Genuity, Inc.
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`Thank you very much. Mike, can you hear me okay?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`I hear you great, thanks.
`
`Jason R. Mills - Canaccord Genuity, Inc.
`
`Good. Congrats on a great quarter.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thank you.
`
`Jason R. Mills - Canaccord Genuity, Inc.
`
`Let me follow-up on the question on the Transcatheter Valve business for a second. I'm wondering – we all have, Mike, our
`guesstimates with respect to how the market is bifurcated from extremely high risk, intermediate risk, down to low risk. Some of the
`physicians that have published on it seem to think 60% or so in the low risk, intermediate maybe a third, and high and extreme risk
`maybe 10%.
`
`I'm wondering if you could maybe speak to that at this point. Given the volumes, it would imply that we are seeing some risk creep. I
`know you get the question a lot, but it would imply that you are. I guess the underlying question is, what sort of impact do you expect in
`the intermediate risk approval to actually have, whether it be in terms of patient acquisition, new center development or anything else?
`Thanks.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Sure. Thanks for the question, Jason. Yeah, I realize that it must be confusing for people that are following it. And part of it is that risk
`ratification happened by STS score, and it's traditionally been done that way. And over time here, we've seen that risk scoring has
`changed, and it's changed in two ways. One, just the way that STS evaluates the patients and their scoring system themselves, and the
`other is that heart teams themselves are playing a significant role in that and you know that they're bringing in play factors like frailty
`and anatomy that aren't captured in risk score, so age certainly being a key component of that.
`
`So, I think what you're seeing right now is just a different view of patients. They look at somebody today and say, well, I consider them
`high risk for surgery, knowing the kind of results that they get with transcatheter heart valves. I believe they're largely staying on
`indication as the NCD reinforces that, but we just have less precise estimates of what high risk, intermediate risk and low risk means
`compared to what we've had in the past. We continue to believe that the overall TAVR opportunity is more than $5 billion by 2021 and
`we're seeing that adoption.
`
`In terms of what's going to happen when intermediate is approved, I think a couple of things. We try to remind you that we're treating
`patients under the CAP today, the continued access program. And so that would stop when this began. And also, we tend to think that
`we'll see more or a ramp, if you will, a gradual ramp, rather than a step function when that approval takes place, so that's our
`expectation.
`
`Jason R. Mills - Canaccord Genuity, Inc.
`
`That's helpful, Mike. I appreciate that. Scott, one for you with respect to the guidance. It looks like the TAVI upside that you generated,
`at least relative to consensus, on the top line gave you somewhere between 40% and 50% incremental margin to the operating income
`line just given the beat there relative to consensus, whereas the guidance that you've given, a $100 million increase in TAVI relevant to
`the increase on the bottom line, would imply a much lower incremental margin for the balance of the year. Is that the spending –
`incremental spending – the surge in spending that you talked about last quarter and should we see a little bit better incremental margins
`as you roll off that surge, I guess, maybe in 2017? Thank you very much for taking the questions.
`
`Scott B. Ullem - Chief Financial Officer & Corporate Vice President
`
`It is related to the capacity expansion activities we talked about. Just recall, for the $100 million guidance raise, part of that was already
`experienced in the second quarter along with the incremental profitability. So, about a third of that $100 million sales guidance increase
`will drop through to the operating income line across Q2, Q3 and Q4. There is less benefit to gross profit and SG&A, primarily due to
`these investments we're making in manufacturing and the infrastructure that we need to sustain our growth and, also, we've got some
`incentive performance-driven compensation running through the P&L.
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`Jason R. Mills - Canaccord Genuity, Inc.
`
`Okay. Thanks a lot. I'll get back in queue.
`
`Operator
`
`Our next question comes from the line of Mike Weinstein with JPMorgan. Please proceed with your question.
`
`Michael Weinstein - JPMorgan Securities LLC
`
`Thank you. And Mike, just two cents on the quality of the opening remarks. I would just email this around to people just because you
`were going in and out, and I think it's probably worthwhile for people just to catch everything that you said. I did want to get your
`commentary on a couple of items, Mike. I heard your update on the mitral program and I was just hoping you could give us, number
`one, what are the gating factors, if any, at this point to starting the CE Mark trial? And then, I wanted to follow-up on the TAVR business.
`Thanks.
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Thanks, Mike. First, thanks for the comment on the reception. What we'll do is we'll get that script up on the website just as soon as we
`can, if it's not up already, so that people can view it. In terms of the question, right now, we're teed up to start the CE Mark trial. We
`really don't have obstacles in front of us other than just getting the sites up. So, we're ready to go to begin the trial. There are no internal
`hurdles or regulatory hurdles.
`
`Michael Weinstein - JPMorgan Securities LLC
`
`And then, Mike, you made some comments that when in and out on Ultra. I was hoping you could just explain exactly what you're
`doing. You said that you were incorporating some of the Ultra features into the product earlier. Can you just go through that?
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yes, thanks. Yeah, we said, given the strong performance of SAPIEN 3, we've decided to incorporate additional benefits into our new
`Ultra System before its introduction. This is going to move the expected European launch into the second half of 2017. So then,
`remember that new system features an on-balloon delivery system and a next-generation sheath technology, and we expect it to make
`it easier to use, reduce possible complications and shorten procedure times.
`
`Michael Weinstein - JPMorgan Securities LLC
`
`Got it. Okay. And then, just circling back on the TAVR guidance increase, so if I look at what you reported this quarter versus the Street
`expectations, you exceeded the Street by about 10%, or call it like $36 million, $38 million. So versus that $36 million or $38 million, you
`raised your guidance by $100 million, obviously suggesting that there is a fair amount of momentum in the business.
`
`Can you just talk about what you're seeing in the business today versus maybe what you were seeing earlier in the year? Because we
`all remember January and you guys commenting on how strong the market was in December into January and that continued,
`obviously, (31:43).
`
`Michael A. Mussallem - Chairman & Chief Executive Officer
`
`Yeah, we tried to reflect that in our remarks. Recall that we felt that the U.S. market grew more than 60% in the first quarter, and here
`we are even though coming off a larger base, it's growing again, in our view, more than 60%. So, this is pretty terrific market growth,
`and we would've expected it to begin to slow. So that's one element that's stronger; and just the strength of the SAPIEN 3 data