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April 28, 2020, 6:17 a.m. EDT

10-Q: EDWARDS LIFESCIENCES CORP

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview

The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws, and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. See "Note Regarding Forward-Looking Statements" preceding Part I, Item 1 in this Quarterly Report on Form 10-Q.

We are the global leader in patient-focused medical innovations for structural heart disease and critical care monitoring. Driven by a passion to help patients, we partner with the world's leading clinicians and researchers and invest in research and development to transform care for those impacted by structural heart disease or who require hemodynamic monitoring during surgery or intensive care. We conduct operations worldwide and are managed in the following geographical regions: United States, Europe, Japan, and Rest of World. Our products are categorized into the following main areas: Transcatheter Aortic Valve Replacement ("TAVR"), Transcatheter Mitral and Tricuspid Therapies ("TMTT"), Surgical Structural Heart ("Surgical"), and Critical Care.

Financial Highlights and COVID-19

TAVR and Surgical procedure volumes in March 2020 varied greatly by geography, and even by hospital, as patients and their physicians analyzed the trade-off between aortic stenosis and their concern for COVID-19. In the last few weeks of the first quarter of 2020, procedure volumes related to our TAVR and Surgical products dropped significantly. In Critical Care, there was greater demand in Europe for our pressure monitoring products, while demand for other Critical Care products began to decrease at the end of the first quarter of 2020 due to COVID-19.

Despite the challenges associated with COVID-19, our net sales for the first quarter of 2020 were $1.1 billion, representing an increase of $135.7 million over the first quarter of 2019. Our sales growth was driven by our TAVR products, primarily increased sales of the Edwards SAPIEN 3 Ultra valve.

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The increase from the prior year period in our diluted earnings per share was primarily driven by the aforementioned sales growth. In addition, the first quarter of 2019 includes the $24 million acquisition of early-stage transcatheter intellectual property for our transcatheter structural heart programs.

We are closely monitoring the impact of COVID-19 on all aspects of our business and geographies, including its impact on our customers, employees, suppliers, vendors, business partners and distribution channels. The extent to which the COVID-19 global pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and are difficult to predict; these developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts on our financial condition and results of operations. For more information on the risks associated with COVID-19, refer to Part II, Item 1A, "Risk Factors" herein.

Healthcare Environment, Opportunities, and Challenges

The medical technology industry is highly competitive and continues to evolve. Our success is measured both by the development of innovative products and the value we bring to our stakeholders. We are committed to developing new technologies and providing innovative patient care, and we are committed to defending our intellectual property in support of those developments. In the first three months of 2020, we invested 16.6% of our net sales in research and development.

New Accounting Standards

For information on new accounting standards, see Note 1 to the "Consolidated Condensed Financial Statements."







        Results of Operations
        Net Sales Trends
        (dollars in millions)
                             Three Months Ended
                                   March 31,
                                2020             2019      Change     Percent Change
        United States   $       667.4          $ 562.8    $ 104.6            18.6 %
        Europe                  249.3            234.7       14.6             6.1 %
        Japan                   110.0             98.4       11.6            11.8 %
        Rest of World           102.0             97.1        4.9             5.3 %
        International           461.3            430.2       31.1             7.2 %
        Total net sales $     1,128.7          $ 993.0    $ 135.7            13.7 %
        


International net sales include the impact of foreign currency exchange rate fluctuations. The impact of foreign currency exchange rate fluctuations on net sales is not necessarily indicative of the impact on net income due to the corresponding effect of foreign currency exchange rate fluctuations on international manufacturing and operating costs, and our hedging activities.

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        Net Sales by Product Group
        (dollars in millions)
                                                                  Three Months Ended
                                                                        March 31,
                                                                     2020             2019       Change      Percent Change
        Transcatheter Aortic Valve Replacement               $       742.2          $ 597.7     $ 144.5           24.2  %
        Transcatheter Mitral and Tricuspid Therapies                  10.5              4.3         6.2             NM
        Surgical Structural Heart                                    193.4            214.7       (21.3 )         (9.9 )%
        Critical Care                                                182.6            176.3         6.3            3.6  %
        Total net sales                                      $     1,128.7          $ 993.0     $ 135.7           13.7  %
        


NM - Not meaningful







                  higher sales of the Edwards SAPIEN 3 Ultra System following its
                  regulatory approval in the United States (December 2018) and in Europe
                  (November 2018); and
        


higher sales of the Edwards SAPIEN 3 valve, particularly in the United States, driven by strong therapy adoption;

Our global TAVR sales growth through early March 2020 was consistent with our fourth quarter 2019 global growth rate. During the last few weeks of the first quarter of 2020, procedures dropped significantly as the result of COVID-19 disruptions. TAVR procedure volumes in March 2020 varied greatly by geography and by hospital, as patients and their physicians analyzed the trade-off between aortic stenosis and their concern for COVID-19.

The launch of the Edwards SAPIEN 3 Ultra System continued to be very positive in the first quarter of 2020. However, to ensure the safety of our employees and clinician partners from the threat of COVID-19, we have decided to pause proctoring at centers that are not already trained on the device.

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Transcatheter Mitral and Tricuspid Therapies

At the end of March 2020, we temporarily paused new enrollments in our active pivotal clinical trials of transcatheter mitral and tricuspid therapies in response to the COVID-19 response around the globe. We are coordinating closely with the trials' clinical investigators, and the decision to resume enrollments in the trials will be made in consultation with each investigator and hospital at the time when their clinicians' and patients' needs can be better served.

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Surgical Structural Heart

In Europe, our HARPOON Beating Heart Mitral Valve Repair System became available commercially at the end of 2019, and we plan to expand the launch as the COVID-19 environment stabilizes. In addition, we received United States Food and Drug Administration approval in April 2020 to begin our U.S. pivotal IDE study. HARPOON offers the potential for earlier treatment of degenerative mitral valve disease, with faster recovery and more consistent outcomes for surgical patients.

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Critical Care

Demand for our enhanced surgical recovery products began to fall significantly in the last few weeks of the first quarter of 2020 as many surgical procedures were delayed due to COVID-19. We have also seen some delay in orders of our HemoSphere advanced monitoring platform in the United States as hospitals limit their capital spending as they focus on COVID-19.

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Gross Profit

Selling, General, and Administrative ("SG&A") Expenses

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Research and Development ("R&D") Expenses

Change in Fair Value of Contingent Consideration Liabilities, net

The change in fair value of contingent consideration liabilities resulted in income of $2.2 million for the three months ended March 31, 2020 and expense of $6.7 million for the three months ended March 31, 2019. The changes in fair value were primarily driven by credit spread assumptions (which increased during the first quarter of 2020), partially offset by discount rates (which decreased significantly in the first quarter of 2020) and the accretion of interest due to the passage of time. The changes to the credit spread and discount rate assumptions were primarily due to COVID-19. For further information, see Note 5 to the "Consolidated Condensed Financial Statements."

Apr 28, 2020

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