On October 21, 2020 Edwards Lifesciences (NYSE: EW) reported financial results for the quarter ended September 30, 2020 (Press release, Edwards Lifesciences, OCT 21, 2020, View Source [SID1234568756]).
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Third Quarter Highlights and Outlook
Sales of $1.1 billion grew 4%; similar underlying1 growth expected in the fourth quarter
TAVR global sales grew 6%
EPS was $0.52; adjusted1 EPS grew 9% to $0.51
TMTT clinical trials now enrolling at pre-COVID levels
2020 adjusted EPS guidance increased to $1.85 to $1.95 from $1.75 to $1.95
2021 TAVR sales expected to return to double-digit growth
"I am very proud of the way our passionate team is serving patients during this difficult period. Our supply chain has delivered and our field team has continued to support the dedicated clinicians that count on Edwards," said Michael A. Mussallem, chairman and CEO. "We are pleased to report better-than-expected third quarter results despite the challenges of the ongoing COVID pandemic."
Third Quarter 2020 Results
Sales for the quarter ended September 30, 2020, were $1.1 billion, an increase of 4% over the prior year, on both a reported and underlying basis. Diluted earnings per share for the quarter were $0.52, while adjusted earnings per share grew 9% to $0.51.
Transcatheter Aortic Valve Replacement (TAVR)
For the quarter, the company reported global TAVR sales of $745 million, an increase of 6% over the third quarter last year. TAVR growth was led by continued adoption of the Edwards SAPIEN valve platform and a step-up in procedure volumes as newly diagnosed patients entered the system and were treated. The company reported therapy adoption across all geographies, with notable strength in Europe.
"Our observations indicate that most hospitals globally have determined that they can safely treat their aortic stenosis patients in need at the same time they care for COVID patients," said Mussallem.
Transcatheter Mitral and Tricuspid Therapies (TMTT)
Edwards continues to view the TMTT opportunity as one with significant unmet patient needs and the potential to drive significant growth. The company’s focus is on the advancement of three key value drivers, which it believes are the leading indicators of success: the company’s portfolio of differentiated therapies, favorable real-world clinical outcomes and results from rigorous pivotal trials which will ultimately support approvals and adoption.
Third quarter global sales were $12 million as the company resumed activation of new centers in Europe and increased commercial procedures. Edwards continues to advance commercialization of PASCAL in Europe and remains focused on physician training, procedural success and patient outcomes. The company is making progress on five TMTT pivotal studies. While initial pivotal clinical trial results could be delayed by a couple of quarters, Edwards is now enrolling patients at pre-COVID rates.
"We continue to believe the TMTT opportunity remains significant and expect a $3 billion global market by 2025," said Mussallem. "We reiterate our confidence in this long-term opportunity and are passionate about bringing a portfolio of solutions for the many patients in need."
Surgical Structural Heart and Critical Care
Surgical Structural Heart sales for the quarter were $203 million, similar to 2019 levels. During the third quarter, patients were more willing to seek heart valve surgery and hospitals more able to manage surgical patient flow. Ongoing prioritization of heart surgery in many hospitals also contributed to rebounding case volumes.
Critical Care sales were $181 million for the quarter, in-line with the year-ago period. Demand for the company’s products used in cardiac surgeries was solid but was offset by the COVID-driven impact of delayed elective procedures. Sales of Edwards’ TruWave disposable pressure monitoring devices used in the ICU were lifted by a large one-time order in Europe associated with ICU capacity expansion.
Additional Financial Results
For the quarter, the company’s adjusted gross margin was 75.5%, down from 75.9% in the prior year quarter. This decrease was driven by a negative impact from foreign currency fluctuations and incremental costs associated with responding to COVID, partially offset by improved manufacturing efficiencies.
Selling, general and administrative expenses in the third quarter were $307 million, or 26.9% of sales, compared to $306 million in the prior year. This consistent level of spending included increased transcatheter structural heart field personnel related expenses, including expanding the TMTT field organization in Europe, offset by reduced spending resulting from COVID.
Research and development expenses in the third quarter were $196 million, or 17.1% of sales, compared to $195 million in the prior year. This consistent level of spending included increased investments in transcatheter mitral valve replacement clinical trials, partially offset by lower TAVR clinical trial expenses and reduced spending resulting from COVID.
Free cash flow for the third quarter was $113 million, defined as cash flow from operating activities of $216 million, less capital spending of $103 million.
Cash and investments totaled $1.9 billion at September 30, 2020. Total debt was $595 million.
Outlook
For the fourth quarter of 2020, the company anticipates year-over-year underlying sales growth similar to the third quarter. The company is raising the bottom end of full-year 2020 adjusted earnings per share guidance to $1.85 to $1.95, versus previous guidance of $1.75 to $1.95. Looking ahead to 2021, while still early in the forecasting process, the company anticipates a return to double-digit TAVR growth and aspires to double 2020 TMTT sales.
"Edwards is a dedicated member of the critical healthcare infrastructure and I admire the agility, resourcefulness and passion of our employees in maintaining their important work on behalf of patients. Putting patients first has never been more important than it is today," said Mussallem. "I’m grateful for our extraordinary team and partners, and I am optimistic about the future of continuing to deliver innovations to patients around the world."