Good afternoon, and welcome to the Edwards Lifesciences Third Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilterding, Senior Vice President, Investor Relations and Treasurer. Thank you. You may begin.
Thank you very much, Diego, and good afternoon, and thank you all for joining us. With me on today's call are Mike Mussallem, Chairman and Chief Executive Officer, and Scott Ullem, Chief Financial Officer. Also joining us for the Q&A portion of the call are Larry Wood, our Global Leader of TAVR, Bernard Zovighian, our Global Leader of TMTT, Daveen Chopra, our Global Leader of Surgical Structural Heart, and Katie Szyman, our Global Leader of Critical Care. Just after the close of regular trading, Edwards Lifesciences released third- quarter 2022 financial results. During today's call, management will discuss those results included in the press release and accompanying financial schedules, and then use the remaining time for Q&A. Please note that management 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 expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These statements speak only as of the date on which they were made, and Edwards does 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 the press release, our 2021 annual report on Form 10-K, and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, a quick reminder that when using terms constant currency, underlying, and adjusted, management is referring to non-GAAP financial measures. Otherwise, they are referring to GAAP results.
Reconciliations between GAAP and non-GAAP numbers mentioned during the call are included in today's press release. With that, I'd like to turn the call over to Mike Mussallem for his comments. Mike?
Thanks, Mark. The third quarter strengthened our conviction in our company's patient-focused innovation strategy. Globally, structural heart procedures grew less than we expected in the third quarter, but that didn't slow us down as our team accomplished numerous important milestones and made good progress on our multiple clinical trials and next-generation technologies. In August, we received European regulatory approval for PASCAL Precision. This unique system is designed for transcatheter-based edge-to-edge leaflet repair in patients suffering from mitral and tricuspid regurgitation. Shortly thereafter, in September, we received early U.S. FDA approval for PASCAL Precision for the treatment of patients with degenerative mitral regurgitation, which was welcome news for clinicians who appreciate this differentiated platform. In TAVR, last month, we announced approval to begin selling the SAPIEN 3 Ultra RESILIA valve in the U.S. Our industry-leading SAPIEN 3 Ultra transcatheter aortic heart valve now incorporates Edwards' breakthrough RESILIA technology.
Additionally, during the third quarter, enrollment accelerated in our two TAVR pivotal trials, PROGRESS, evaluating patients with moderate AS, and ALLIANCE for our next-generation TAVR technology, SAPIEN X4. These transformative developments reinforce our confidence in the continued growth of transcatheter-based structural heart interventions. We will continue to aggressively pursue breakthrough technologies with the potential to help even a broader group of patients and in turn drive significant future value. Now turning to our financial performance. Third quarter total company sales of $1.3 billion increased 7% on a constant currency basis versus the year ago period. Our broad portfolio of innovative technologies drove this growth, although it was at the lower end of our expectations, reflecting persistent U.S. hospital staffing shortages and COVID headwinds in Japan. Adjusted EPS grew 13% even while aggressively investing in R&D and commercial infrastructure to support new therapies.
For full year 2022, we expect total Edwards sales will be negatively impacted by foreign exchange and be at the low end of our previous range of $5.35 billion-$5.55 billion. We anticipate hospital staffing challenges, and a predicted difficult winter COVID and flu season will continue into next year. In TAVR, third- quarter global sales of $862 million increased 6% on a constant currency basis. Sales were below our expectations due primarily to the persistent U.S. hospital staffing shortages and COVID headwinds in Japan, which intensified the typical impact of summer seasonality. In the third quarter, we're pleased that well over 30,000 patients were treated with SAPIEN across our more than 2,000 global TAVR centers. We estimate that global TAVR procedure growth was comparable with Edwards growth in the third quarter.
Local selling prices were stable, although the average global selling price declined due to the weakening Euro and Yen. In the U.S., our TAVR procedures increased in the mid-single- digits versus the prior year. We estimate that our share of procedures was stable. As expected, our third- quarter U.S. TAVR procedure volumes continued to be impacted by regional U.S. staffing constraints, which were somewhat worse than we anticipated. There were a high level of variability in growth rates across centers around the country. While staffing issues limited overall growth during the quarter, nearly half of our TAVR centers grew double-digit in Q3. Outside the U.S. in the third quarter, our TAVR sales grew in the low double-digits on a constant currency basis, and we estimate total procedure growth was comparable. Our underlying three-year compounded annual growth rate outside the U.S. remains in the mid-teens.
In Q3, geographies outside of Europe and Japan grew even faster in the quarter. Long term, we see excellent opportunities for OUS growth as we believe international adoption of TAVR remains quite low. In Europe, sales were down sequentially as expected. Even though we compete with a broad range of competitors, our competitive position remains stable. Scattered staffing shortages slightly exacerbated summer seasonality, and we anticipate some lingering regional impact on that. In Japan, third- quarter procedure growth was impacted by a widespread seventh wave of COVID, which created a significant strain on hospital capacity and limited TAVR procedure volumes. As you might expect, procedure volumes in Q3 varied across the country as patients and the providers were incentivized to turn their focus again to the treatment of patients with COVID. We saw TAVR procedure volumes improve as COVID hospitalizations decreased late in the third quarter.
We remain focused on expanding the availability of TAVR therapy, driven by the fact that AS remains a significantly undertreated disease among this large elderly population. In summary, we anticipate the continuation of staffing shortages and a difficult winter COVID and flu season. We expect Q4 TAVR sales to be around $850 million and full- year 2022 TAVR sales to be at the low end of our previous range of $3.5 billion-$3.7 billion. We remain confident about the long-term potential of TAVR as the rapidly evolving evidence recognized by policymakers around the world supports continued adoption of this therapy for the many patients suffering from aortic stenosis.
This broad-based favorable evidence, combined with the undertreatment rate and growing elderly population, supports our expectation that this global TAVR opportunity will reach $10 billion by 2028, which implies a low double-digit compounded annual growth rate. Turning now to our transcatheter mitral and tricuspid therapies product group. Recently, we received U.S. FDA and European CE mark approval of PASCAL Precision. This next-generation system designed to facilitate precise navigation and an intuitive user experience will enable us to initiate our commercial presence in the U.S. for the treatment of patients suffering from degenerative mitral regurgitation and also expand PASCAL adoption in Europe for both mitral and tricuspid patients. This exciting news was followed by the presentation of first results from the CLASP IID pivotal trial at the recent TCT conference.
This first of a kind head-to-head randomized pivotal trial further established the safety and efficacy of mitral transcatheter edge-to-edge repair. We were pleased that this data demonstrated that PASCAL is a beneficial therapy expanding transcatheter treatment options for DMR patients. In addition, we continue to advance enrollment of our CLASP IIF pivotal trial for patients with functional mitral regurgitation. Separately, we continue to treat patients with our two transcatheter mitral replacement therapies through the ENCIRCLE pivotal trial for SAPIEN M3 and the MISCEND study for EVOQUE Eos. We are pleased with our progress and believe these sub-30 French transfemoral therapies will help transform treatment for patients and expand the mitral opportunity. Turning to tricuspid, we continue to make progress enrolling the TRISCEND II pivotal trial of the EVOQUE replacement system and the CLASP IIR pivotal trial with the PASCAL repair system in patients with symptomatic severe tricuspid regurgitation.
We no longer anticipate CE mark approval for EVOQUE tricuspid replacement in Europe this year. As uncertainties remain around the MDR process, we now expect a CE mark approval late in 2023, with sales contribution in 2024, when we expect to have reimbursement in place. We're excited about this therapy for the many tricuspid patients who have few treatment options today. Looking ahead to PCR London Valves Conference in November, we expect numerous late-breaking data presentations across the TMTT portfolio. Especially noteworthy is new one-year follow-up data on our early experience with the EVOQUE tricuspid valve. We expect these presentations to contribute positively to the growing body of compelling clinical evidence for our comprehensive portfolio of transcatheter mitral and tricuspid therapies. Turning to the sales performance of TMTT, third- quarter sales of $30 million grew sequentially from the second quarter despite summer seasonality.
Adoption of the PASCAL system in Europe increased as we initiated a limited introduction of PASCAL Precision, and we continue to have excellent outcomes for patients as we progress on a gradual expansion into more centers in Europe. We forecast to increase the number of procedures in Q4, yet expect reported Q4 sales to be similar to Q3 as a result of FX headwinds and a spike in COVID in Germany, our largest region in Europe. We're pleased with our continued progress to our growing portfolio of therapies combined with contemporary clinical data in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease. In surgical structural heart, third quarter global sales of $220 million increased 8% on a constant currency basis over the prior year.
We were encouraged to see strong global growth driven by increased penetration of our premium RESILIA products despite staffing challenges in certain regions. Although staffing shortages continue to be a concern, we're observing that cardiac surgeries are being prioritized. We continue to see strong momentum of the RESILIA portfolio globally as we bolster the overall body of evidence, including four abstracts recently presented at the European Association for Cardio-Thoracic Surgery annual meeting in Milan. We continue to believe that physicians value the features and benefits of this advanced tissue technology for both aortic and mitral surgical valve replacement procedures. Adoption of the MITRIS valve, launched in the U.S. in April, now represents the majority of our mitral valve sales in this region. Separately, we've decided to exit our Harpoon surgical mitral repair system and stop enrollment in the related clinical trials.
Given our experience to date, we made the difficult decision to focus on developing other innovative therapies to better serve patients and continue to be the partner of choice for cardiac surgeons. In summary, we remain confident that our full- year 2022 underlying sales growth will be in the mid-single-digit range for surgical structural heart, driven by market adoption of our newest premium technologies and surgical market growth. In critical care, third quarter sales of $207 million increased 3% on a constant currency basis over the prior year. The growth rate was impacted by a very strong prior year comparison. Sales growth was driven by increased adoption of our broad portfolio of smart recovery products, including FloTrac and ClearSight sensors with our unique Hypotension Prediction Index algorithm. Additionally, demand for our HemoSphere monitoring platform remains strong.
In summary, we continue to expect mid-single- digit underlying sales growth for the full year 2022. We remain enthusiastic about our pipeline of critical care innovations highlighted by smart recovery technologies designed to help clinicians make even more informed decisions for patients. Now I'll turn the call over to Scott.
Great. Thanks, Mike. As Mike mentioned, our sales of $1.32 billion in the quarter, representing growth of 6.7% on a constant currency basis, fell short of our expectations, driven by a slower than expected recovery of U.S. hospital staffing and COVID in Japan. Our strong underlying gross profit margin, combined with a minimal spending increase, resulted in adjusted earnings per share growth of 13% to $0.61. GAAP EPS was $0.55, which included a net $57 million pre-tax charge or $0.07 per share relating to the Harpoon discontinuation.
We anticipate that the U.S. hospital staffing challenge is likely to persist, and we now expect total company sales at the low end of our previous range of $5.35 billion-$5.55 billion and TAVR sales also at the low end of our previous range of $3.5 billion-$3.7 billion. We continue to expect surgical structural heart sales of $870 million-$950 million and critical care sales of $820 million-$900 million. For the fourth quarter, we're projecting sales and adjusted earnings per share to be similar to Q3. We now expect full- year adjusted earnings per share of $2.40-$2.50, up from 2021 adjusted EPS of $2.22. I'll now cover additional details of our results.
Our adjusted gross profit margin in the third quarter was 81.0% compared to 76.3% in the same period last year. This improvement was driven by the expected positive impact from our foreign exchange program, which includes hedge contract gains and natural hedges that offset the negative sales impact from the weakening of the Euro and Yen against the dollar. At current FX rates, we continue to expect our full- year 2022 adjusted gross profit margin to be approximately 80%. This year's forecasted gross margin rate includes approximately 350 basis points of benefit from foreign exchange as compared to 2021. At current rates, FX is expected to result in an approximate 250 basis points reduction in our gross profit and operating margins in 2023.
Selling, general, and administrative expenses in the third quarter increased 3.5% over the prior year to $377 million, or 28.6% of sales, primarily due to a resumption of in-person commercial activities, partially offset by the strengthening of the dollar. We continue to expect full year 2022 SG&A expenses as a percent of sales to be between 28% and 30% as we continue to invest in our high- touch model for TAVR and the ongoing build-out of the TMTT commercial team. Research and development expenses in the quarter declined 2% over the prior year to $234 million, or 17.7% of sales. The decline reflects unusually high year-ago spending.
We continue to expect R&D expenses in 2022 to be between 17% and 18% of sales as we invest in developing our new product pipeline and generating evidence to support TAVR and TMTT. The discontinuation of our surgical Harpoon program resulted in a net $0.07 per share charge consisting of a non-cash impairment of intangible assets, a reduction of contingent liabilities, and other related exit costs. Additional details of the charge and a reconciliation between our GAAP and adjusted EPS is included with today's release. Turning to taxes, our reported tax rate this quarter was 15.7% or 17% excluding the impact of special items. This quarter's higher rate reflected a lower benefit from stock-based compensation. We continue to expect our full- year tax rate, excluding special items, to be at the high end of our 11%-15% range.
Foreign exchange rates decreased third- quarter reported sales growth by 6 percentage points, or $74 million compared to the prior year. At current rates, we estimate a year-over-year FX impact to fourth quarter sales of more than $100 million. In total, we now expect an approximate $270 million negative impact, or 5 percentage points to full- year 2022 sales compared to 2021. We expect nearly the same negative impact to full year 2023 sales. FX rates positively impacted our third quarter gross profit margin by 440 basis points compared to the prior year. Relative to our July guidance, FX rates had a minimal impact on third- quarter earnings per share.
Free cash flow for the third quarter was $250 million, defined as cash flow from operating activities of $310 million, less capital spending of $60 million. Before turning the call back over to Mike, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a strong and flexible balance sheet with approximately $1.7 billion in cash equivalents and short-term investments as of September thirtieth. Average shares outstanding during the third quarter were 625 million, down from the prior quarter as we repurchased 1.1 million shares for $100 million. Year- to- date, through the end of Q3, we repurchased 8.4 million shares for $861 million.
We expect shares at the end of the year will be slightly below our previous 625 million-630 million share range. We now have $1.8 billion remaining under our share repurchase program. With that, I'll pass it back over to Mike.
Thanks, Scott. Despite ongoing procedure headwinds associated with the pandemic, we're pleased with our year-to-date performance, which includes strong progress on strategic milestones. We believe hospital staffing constraints will gradually improve and are committed to aggressively investing in our focused innovation strategy for the broad group of patients still suffering from structural heart disease. We remain confident that the innovative therapies resulting from our investments will allow us to treat more patients and continue to drive strong organic growth in the years to come. With that, I'll turn it back over to Mark.
Thanks a lot, Mike. Before we transition to Q&A, I want to remind everyone that our 2022 Investor Conference will take place on Thursday, December eighth, at the New York Stock Exchange. Thank you to everyone who has confirmed your in-person attendance. We're really looking forward to seeing you soon at this historic venue. In addition to our 2023 financial guidance, you'll hear more about Edwards' focused innovation strategy and our comprehensive and exciting product pipeline. More information will be available on the Investor Relations section of the Edwards website at ir.edwards.com. With that, we're ready to take your question. As a reminder, please limit the number of questions to one plus one follow-up to allow for broad participation. If you have additional questions, please re-enter the queue and management will answer as many participants as possible during the remainder of the call. Diego?
Thank you. At this time, we'll conduct our question-and-answer session. To ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Larry Biegelsen with Wells Fargo Securities. Please state your question.
Good afternoon. Thanks for taking the question. I wanted to ask one on 2023, just a framework and some things to, you know, consider, and then one on tricuspid, Mike and Scott. Just starting with 2023, I think people are gonna look at, you know, the second half, implied, growth year, call it 7% by my math. You know, maybe they'll be, you know, maybe that'll raise some concerns about growth next year. Mike, can you provide some framework for how to think about, you know, 2023, any catalysts to call out? And Scott, P&L considerations that we should take into account. I heard, the FX headwind, you know, the 250 basis points.
Just any high-level thoughts, you know, given the shortfall last quarter and this quarter, and I had one follow-up.
Larry, it's Scott. Why don't I start with the financial piece of that and then turn it over to Mike to talk about some of the strategic things that we expect in 2023. You know, financially, we haven't gotten into the quarter-by-quarter FX impact or growth rates. Typically, we don't give guidance, as you know, for the next year until our investor conference. We'll give you more details then. Just we thought it was helpful because FX has been such an impact this year, and it will continue to flow over to next year that we help quantify what the top line impact will be, which we think is near what it's gonna be this year. This year, we're at, like, 5% of sales and about $270 million.
We think maybe it gets near to that at current rates when we forecast our 2023, but we don't have the quarter-by-quarter breakout yet. Mike, do you wanna talk about next year's?
I'll just briefly go through the portfolio. I mean, we feel like the business we don't talk about very much, like surgical and critical care, are strong and are going to continue to deliver. We're gonna see catalysts coming from TMTT as we see a lift coming from the introduction of PASCAL Precision next year. TAVR, even though we're suffering right now from some staffing shortages, we think those are gonna get gradually better, and I expect solid performance. I mean, we're not kidding when we say we still believe that there's a $10 billion opportunity in 2028. We're highly confident in that, and I think we're on a path to achieve it.
That's helpful, Mike. Actually, I wanted to ask about tricuspid. There's a lot of excitement around tricuspid. I know you know that. You employed a Bayesian design for CLASP IID. Is it reasonable to assume that you'll employ a similar Bayesian design for your tricuspid pivotal trials, the two you mentioned? Just how are you thinking about that opportunity? Our check suggested should be bigger than mitral, maybe somewhere between mitral and aortic. Thanks for taking the question.
Yeah. Thanks, Larry. Well, we're obviously excited about our pipeline, and we work very closely with regulators around the world, including the FDA. We typically just don't comment on some of the real specifics of the regulatory process 'cause they tend to change and be situational. I'm not gonna really get into are we gonna do Bayesian on a specific upcoming trial. I mean, we're well aware of all the tools that are available, and we'll try and do the smartest thing and work really in a collegial fashion with the regulators. But it's not clear. I don't know. Bernard, do you have anything you wanna add to that?
Yeah, just, you know, small things. You know, obviously, you know, any study, any trial has, you know, different design. You know, some are comparing, you know, devices, you know, together. Some are comparing a device to medical treatment. Obviously, it is not as easy as taking, you know, what we did for 2D and applying that to the other studies.
Thank you, guys.
Our next question comes from Robbie Marcus with JP Morgan. Please state your question.
Yeah. Hi. Thanks for taking the questions. Maybe first, I think it'd be helpful, maybe walk us through some of the differences between why TAVR is so much more impacted than the surgical business. I know it's lots of similarities, but also differences. Is it just pure staffing? Is it the imaging? Is it the testing? Is it the patient pipeline? You know, any ideas there? How should we think about the impact from the shortfall in Japan? It looks like numbers came in below The Street by about $15+ million. Is that all Japan? Thanks.
Let me kick it off, Robbie, and then I'll turn to Larry and Daveen to supplement the answer. Actually, the TAVR procedures, we believe, grew faster than the surgical procedures if you look at what the market did in the quarter. When you look at Edwards itself, it looks like the surgical business was growing faster, but I think that's more Edwards' specific performance rather than what was going on in the underlying market. I think we have to be a little cautious. Daveen, do you wanna add anything from a surgical perspective, and then we'll kick it over to Larry?
Sure, Mike. Appreciate that. To follow up what Mike was saying, Robbie, the growth driver of the surgical business, as Mike had mentioned, was really about driving adoption of the RESILIA portfolio globally, as well as the U.S. launch of our new mitral valve, MITRIS, which provided a nice uplift. RESILIA and MITRIS were really our top drivers. As Mike said, we also had a little bit of market growth coming from us, maybe low- single- digit market growth. We're generally seeing that, you know, within the world of surgical operating rooms and surgery beyond cardiac surgery, you know, cardiac surgery being an area that surgical operating rooms kind of prioritize resources toward surgical operating rooms.
We generally see that led to that slow, low- single- digit kind of market growth.
Yeah. This is Larry. As it relates to TAVR, you know, there's more upfront work that has to happen with a TAVR patient than a surgical patient, both in terms of, you know, the imaging that has to be done. You know, you have to do a CT for sizing. Oftentimes you need to do angiograms to screen out for coronary disease so that you can do all of your TAVR case planning. So there's typically more workup that has to be done than for a surgical patient. You know, when we talk about staffing issues, you know, a staffing issue at any link in the chain can cause patients to move a little bit slower through the system and take a little longer to recover. So I think that's one of the differences we see.
As Mike said, you know, procedures grew faster than surgery. A lot of the growth drivers in surgery, I think, go beyond, you know, aortic procedures.
Yeah. Robbie, just to quickly comment on Japan. Yeah, the total impact and the shortfall was only from COVID. COVID hit hard. I don't know how close you were to how hard it hit in Japan, but it hit hard. You know, we were doing great in Japan, and we continue to do great in Japan, but we really felt the impact of that. It was probably worse toward the middle of the quarter, and it started getting better. It's the wave is kind of passing now, if you will, so it's not continuing. When it hit, it hit in a pretty significant way.
That's good to know. You know, maybe one more follow-up question here. You know, the OpEx control in the quarter was some of the most severe we've seen probably since ever, second and third quarter of 2020, during the worst of COVID. How should we be thinking about where these pullbacks came from, how sustainable they are, and, you know, how fast it could pick up going forward? Thanks.
Yeah. Thanks for the question, Robbie. You know, part of this was operating with a healthy sense of discipline about making sure we're running the company efficiently. A lot of it was just the benefit of expenses that we incur overseas that translate into lower U.S. dollars.
Simple enough. Thanks a lot.
Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.
Hey, guys. Thanks for taking my question. Maybe my first one is, Mike, for you, specifically on US TAVR. I think that $850 million Q4, what's the underlying implied TAVR if that's low singles? I think you mentioned that 50% of centers in the U.S. Grew double- digits. I'm curious, is that common just to assure people that this market is still double-digit growing and perhaps the remaining half of the centers you're seeing some of these staffing challenges? Just give us some context on why we're seeing double-digit growth in some centers and not in perhaps the others.
Yeah, I guess we need to check the numbers. I don't know that low- single makes sense to me, Vijay, but nonetheless, let's just get into what's there, and I'll turn it over to Larry here in a second. Indeed, we saw a great variance across the country in terms of how hospitals have been performing, and Larry could probably give us some color on that. We saw some centers that were really growing significantly. We mentioned how many had double- digit growth and other centers that just weren't growing at all. Larry, why don't you get into that a little bit?
Yeah. You know, when we looked across the country, I think anywhere we go and anybody we talk to, they talk about staffing challenges, and I think that's pretty consistent across the country. Clearly, it seems to be impacting certain areas of the country more than others. I mean, just anecdotally, I had some centers, you know, in Texas and in the middle of the country that were growing very well. Some of our, you know, our big programs in more of the urban areas, the population density areas, you know, they were a little bit flatter. We do see big differences. It actually, you know, it encourages me that, you know, as these things start to wane, you know, the patients are there. I think, again, anecdotally, we hear backlogs continue to grow.
I think there's still some challenges in working through these staffing issues.
Understood. Maybe, Scott, one for you. I think you have $3 billion of cash on the balance sheet. Why not announce a big ASR? I think your peer has done this just to assure the market that Edwards still believes in the long-term underlying growth of TAVR markets. Clearly, there's some nervousness after the guidance cut this evening.
Well, you're right. We have a lot of cash on the balance sheet, and it gives us flexibility to invest for future growth. Part of that is building additional physical infrastructure, supporting plant production capacity. Part of it is making sure that we're able to fund external growth. Yeah, we're gonna continue to buy back shares. We've done accelerated share repurchases, including earlier this year. In total this year, it's been our biggest share repurchase year ever, over $800 million. The only good thing about the stock price having been under pressure this year is it's given us a chance to go buy in shares, and we think that that's gonna be a great long-term investment. We're gonna continue to look for opportunities to do that.
All right. Thanks, guys.
Our next question comes from Joshua Jennings with Cowen. Please state your question.
Hi. Good evening. Thanks for taking the questions. I was hoping to just ask about U.S. TAVR growth and potential return to the CAGR that I believe is ingrained in the $10 billion by 2028 TAM calculation. I mean, do you think that U.S. TAVR's return to double-digit growth requires indication expansion? Is that essential, or could we see a return to double-digit growth prior to-- y ou have an early TAVR opening up the asymptomatic indication and PROGRESS opening up the symptomatic moderate.
Yeah. Larry, why don't you take that?
Yeah. Thanks, Josh. There's just because of the nature of the trials and the two-year endpoints that we have on these trials, they're not really big contributors to those numbers. What drives those numbers is we still have only about one out of ten patients with aortic stenosis that are getting treated in the U.S. If you look at the penetration rates outside the U.S., they're much smaller than that. I mean, in a lot of rest of world places, they're just really getting started, and Japan's very undertreated. I think it's just a matter of getting through, you know, some of this COVID lag that we've had, getting some of the staffing a little bit healthier. Then I think, you know, it's gonna return back to normal.
I sort of see the indication expansion as being things that give us legs beyond the $10 billion.
Oh, great. Thanks. Thanks, Larry. Just to follow up on the RESILIA tissue incorporated in the SAPIEN 3 Ultra and the price premium. Can you just talk about the reception as you've marketed that in the early days, and how should we think about, I guess, the penetration of RESILIA tissue in the SAPIEN franchise in the US in 2023 or in the coming quarters and into 2023? Thanks for taking the questions.
Sure. Well, you know, we're very fortunate that our surgical business has built a great brand around RESILIA, and we get to follow that all of the brand work that they've been able to do. When you look at the surgical side in INSPIRIS, I think it's the leading heart valve in the world now, and that's largely based on the RESILIA tissue and how receptive people have been to the benefits that it brings. For SAPIEN 3 UR, you know, that approval came a little bit earlier than we expected. We're super excited to add it to our SAPIEN platform. We're really just getting started in the launch. You know, we have to scale up inventory and do some of the other things we need to do, but I think people are excited about it.
You know, we are going for a price premium on that. We've increased our list price by about $1,500 now. You know, people get rebates, and there's different things around the country. I don't know that I would model that in for everything. You know, I expect this is going to be a popular platform, but it's going to take us a while to get it all rolled out.
Thanks again.
Our next question comes from Joanne Wuensch with Citibank. Please state your question.
Thank you very much. I wanted to spend a little bit of time on hospital staffing, because by our due diligence, it's getting better, but not expected to get great anytime soon. Should we think about next year TAVR growth being more high single- digit growth in the U.S. versus double-digit growth? I just wanna get my head around how to think about the lingering effects of this.
I can start us out, Joanne. You're right. We don't expect staffing to be cured overnight. It's highly variable, as Larry indicated, you know, just by the fact that we have almost half of the U.S. hospitals in TAVR that were growing at double- digits. There's a bunch of people not really suffering from staffing. Then again, there's another large swath of people that are really suffering from it. The conversations that we have with those folks in many cases say, "Oh, we're making progress. It's improving." Some say it might take them up to a year or two to improve it.
There were, you know, pretty widespread use of traveling nurses, that's had such a burden on the P&L of hospitals that they've curtailed that in many ways and been able to move beyond that. This is gonna be a process that takes some time. Does it hamper our growth next year? Probably some. I mean, we do anticipate probably a tough winter, Joanne, just because of what's predicted here with COVID and the flu. Beyond that, it's tough to say. We're gonna be providing guidance at the Investor Conference so that we can get deep on that, and we'll be prepared to go a little deeper at that time. Larry, you have anything to add?
Yeah. You know, I think it's important to remember, I mean, the patients are out there, and they need to be treated. The physicians are still very, very motivated to get these patients treated, and so they're as frustrated as anybody else is. I think, you know, hospitals are incentivized for doing procedures, not for not treating people. I think everybody wants to get the situation resolved. I just think as hospitals have added staff, one of the first things they try to do, as Mike mentioned, is, you know, use the new staff to replace the traveling nurses to, you know, try to help out their own P&Ls. That's maybe why we haven't seen as much lift from the staffing. Hospitals are working super hard on this to get this resolved.
It's going to take time because you can't just create nurses from scratch quickly, but people are working really hard on getting this into a better place.
Okay. Thank you very much.
Next question comes from Rick Wise with Stifel. Please state your question.
Good afternoon. Sorry about that. A couple of follow-up questions, and I apologize it's hard to not focus on the U.S. growth numbers. Larry. It's actually sort of a question for Larry, really, but I'll just do Mike. I was expanding your comments on the U.S. referral chain. You talked about one aspect of getting patients treated, the imaging. Has COVID or anything about the current dynamics slowed patients showing up to clinics where they can be diagnosed in some way? Or is there some aspect that we can sort of focus on and imagine that it might get better sort of at the front of the patient gathering chain. Related to that, I--
One thing I still can't quite understand or wrap my brain around is. I mean, aortic stenosis patients are very sick. How are they not being treated? It's sort of hard to imagine these people being in backlog. Maybe you could just talk around those points.
Yeah. Why don't I start, Rick, and have Larry jump in. Yeah, you know, in the early days of the pandemic, I really do think it scared patients away from engaging in the system and getting treated. I think for the most part, we're in a different place now where the AS patients actually, they wanna be treated, they're willing to go into the system, but they're just finding the system grinding along slowly, and they're being pushed off and they're being postponed. It's a multi-step process. Maybe, Larry, you can get a little bit deeper on that.
Sure. Yeah. You know, I think referrals are increasing. I mean, what we hear anecdotally is that backlogs are growing at hospitals, which would seem to indicate that patients are still getting referred, at least from what we hear from the physicians that we talk to. I think that part of the system is starting to get better. You know, as I talked about earlier, there's just a multiple set of tests and screenings and imaging that patients have to do before they get their TAVR, and I just don't think that system has come back to full health yet.
You know, I think we certainly have heard from centers that have said they kind of have to juggle patients with the more, you know, sick patients moving up the waiting list and then pushing, you know, the less sick patients down a little bit. You know, again, hopefully this improves with time as staffing gets back to normalcy.
Yeah. One last quick follow-up. Mike, you alluded to the buildup of the TMTT commercial team. Just curious, where are we? Maybe specifically related to the PASCAL rollout, where are we? Where are you hoping to be over the next few months, and as we approach 2023? Thank you.
Yeah. Thanks, Rick. Yeah, we're definitely building up that team, and we're growing the team in Europe as well as the U.S. We have Bernard right here. Bernard, why don't you update us where we are?
Okay. Maybe, you know, let me start with the U.S. You know, we are obviously, you know, very pleased about having gained, you know, early approval with PASCAL in the U.S. We are executing our plan, which is, you know, training and expanding our field organization. We already started to train some physicians. We are negotiating some hospital contract. You know, we have done a few cases in the U.S. with great, you know, patient outcome. You know that for us, it is our number one objective. We are initially, you know, focusing on the site that were part of a clinical trial with us. That's, you know, basically, you know, where we are, you know, in the U.S.
Thank you.
Our next question comes from Peter Chickering with Deutsche Bank. Please state your question.
Hey, guys. Thanks for taking my questions. First one is looking at the U.S. TAVR growth this quarter, and I apologize for all the questions on this topic. Looking at the larger urban centers, are those centers growing at all, or are they at capacity? Is all the new growth coming from the smaller or newer centers?
Yeah, I can start. It's really a mixed bag, Peter, but Larry, you wanna make a few comments, and I can jump in.
Yeah. It really is a mixed bag. I mean, certainly some of those centers that you know are sort of more flattish, but we also have some of those big centers that you know are growing actually really well. It's just really hard to generalize or to make you know broad overreaching comments. You know, as we said before, you know, probably about half of our centers were growing in double- digits. But I think you know bigger centers maybe struggle a little bit more than some of the smaller centers. But you know again I have big centers that are growing well, I have small centers that aren't growing. You know, so these are just sort of some general comments.
Okay. Fair enough. Looking at the German market, it's the largest, you know, most mature market in Europe, and I know this has sort of been COVID throughout the year, but just curious, how is the German market growing in 2022, and any colors or where that grew specifically in the third quarter? Thanks so much.
It kinda depends what we're talking about, Peter. If you're talking about surgery or you're talking about TAVR or you're talking about the transcatheter mitral, they each have their own growth rates. You know, in particular in Germany, they have been hit by COVID, and we tended to see it more in the ICUs in Germany, maybe more than any other country in Europe, which tended to hurt our transcatheter mitral, probably market growth a little bit more than some of the other segments. I don't know. Larry or Bernard, do you have anything you want to add to that?
Yes, you know, correct. You know, Mike, you know, we have seen a spike in COVID wave in, specifically in Germany, you know, mainly in October or late September, you know, in October. We don't know yet, you know, how it is going to resolve yet. Is it going to be an acute, you know, only October? Is it going to get better in November? That's yet, you know, to be seen.
Yeah. I think generally speaking, Q3 in Europe is always a little bit tougher because we have the seasonality that we typically see with holidays, you know, vacations and those sorts of things. We certainly have seen some challenges there, but I would say the staffing issues are a little bit more scattered there than they are in the U.S., where it's more widespread.
Having said all those things that I know, it all sounds pretty negative, you also have great big German centers with dedicated KOLs who are really good and really motivated, and they're truly global leaders and key opinion leaders. These guys are just cranking. They're just going. We probably see more energy out of them than we've ever seen in the past.
Thank you. Our next question comes from Cecilia Furlong with Morgan Stanley. Please state your question.
Great. Good afternoon, and thank you for taking the questions. I wanted to ask about PASCAL Precision in Europe. Really what you've seen either from further center penetration versus expanding new centers, how you're thinking about the growth drivers going forward, the bigger growth drivers. Just turning to U.S. as well, the two PASCAL trials, FMR and for TR, just if you could provide an update in terms of how you're thinking about recent progress, but then in enrollment as well as kinda timelines to potential approval.
We'll start out by talking about Precision in Europe, and then we'll also comment on your question regarding the trials. Bernard, do you wanna--
Yeah. We began, you know, the conversion of centers, you know, from, you know, the PASCAL to the PASCAL Precision system. The initial feedback from physician is very positive. By the way, you know, we got, you know, great, you know, clinical outcome, you know, patient outcome. The physician appreciate, you know, the ease of use, the navigation improvement that this new system is bringing. This year we are very excited about it, even though we are at the beginning of it. We see a lot of promise, you know, from this innovation with TR devices. That's about--
Okay. The other question was, is any update related to the PASCAL TR or the functional patients that are being studied with PASCAL?
You know, we are continuing the enrollment of these two pivotal studies, with CLASP IID having completed enrollment. We believe that, you know, the sites are going to put, you know, more focus on these two remaining trials, but we are continuing. It is going well, and I am going to provide you a little bit more update, you know, during the investor conference.
The same trials that we're doing IID are probably doing IIF.
2 TR.
2 TR.
Mostly.
Yeah.
Great. If I could just follow up really quickly your comments on EVOQUE in Europe, and just the MDR process. Can you talk through what you're seeing today and really what kinda drove the about year push out, how you're thinking about just the process from your end going forward? Thank you.
Yeah, thanks. You know, we're very excited about the EVOQUE tricuspid valve replacement system and really think that it has the potential of being a game changer. Bernard, you wanna comment on MDR?
Yeah. So as you know, this MDR process is a new process. Like, you know, everyone, we are navigating this new process. You know, this new process is uncertain, you know, specifically for breakthrough, you know, therapies like EVOQUE. We continue to be very pleased with the performance of EVOQUE. At PCR London Valves, you are going to see additional data with more patients, you know, longer follow-up. Very much looking forward to this one. For sure, you know, disappointed, you know, by not being able to have an approval this year. We are very excited about the promise of this technology. We are, you know, working, you know, very closely with our notified body, answering questions.
We are very much looking forward to bring, you know, this important therapy to patients who have no other options today.
Great. Thank you for taking the question.
Our next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, thanks for taking the question. I wondered a little more color on the TAVR guidance. It implies, you know, $850 in Q4, which is down sequentially. Just want a better understanding of why down sequentially, and if that's a comment on both U.S. and OUS, you expect kind of both to be down quarter-over-quarter.
Part of what we're experiencing is continuing foreign exchange headwinds. The $850 incorporates sales from outside of the U.S. and in the U.S. Outside of the U.S., you've seen the Euro and the Yen just get weaker and weaker during the course of the year. That's part of what's hitting us in the fourth quarter.
Yeah. We actually expect, you know, more procedures both in the U.S. and outside the U.S. in the fourth quarter.
Okay. Do you think US TAVR you expect to be up quarter-over-quarter?
Well, the procedures will certainly be up, but we're not prepared to predict the foreign exchange.
Okay. That was more a U.S. comment, but okay.
Yeah.
The follow-up. Yeah, U.S. up. Okay. The follow-up question was on, kind of on spending OpEx and margins for next year, given some of the FX flow through. I know the street's got you at like 6%-7% EPS, you know, earnings growth next year. Just wanna make sure, you know, big picture, we're accounting for all the puts and takes on the P&L, you know, to consider models for 2023.
Yeah. Again, I'm gonna have to ask you to hold off for the detail and the ticking and tying until we get to New York on December 8th. We wanted to at least help you on modeling the top line and the gross margin. Top line we're expecting, as we mentioned, similar headwinds to what we've seen this year. Call it, you know, over $200 million in headwinds. We had $270 million this year. Then you add to that, lower gross margin. We go down about 250 basis points from where we expect the full year this year, which would take you to 77.5% just from a modeling perspective.
The combination of those two things flowing down the P&L should get you to at least a preliminary range of what to expect for earnings per share. Like I say, we'll talk more about.
Yeah. Well, we had an inflated gross margin this year because of the impact of hedge contracts, and that will largely go away. Yeah.
Yeah.
Okay, great. Look forward to December. Thanks for taking the questions.
Our next question comes from Richard Newitter with Truist Securities. Please state your question.
Hi, thanks for taking the questions. I just wanted to come back to a couple of points that you guys made about certain trends related to flu and COVID, and then Japan specifically. Just to be sure about what's getting better, what's just not getting worse, and then what is getting worse into Q4, and then you keep saying the winter months. It sounds like the early part of 2023. So can you clarify what exactly you say flu and COVID picking up being a tough winter? What regions? I wanna make sure I understand where and what's factored into the guidance for that. The same question on Japan. It sounds like that one's getting a little better.
You're through the worst of it, but what's assumed in guidance, specifically into Q4, and how should we think beyond that? Thank you.
All right. So there's several questions in there. Let's see if I'll take a shot at getting after a few of them. First, let me start with the end here. In Japan, we said, yes, Japan, we believe is getting better. The seventh wave has peaked and is coming down. Will they have another wave in Japan? I don't know. Very difficult to say. We'd say generally the intelligence, and this is particularly U.S. and Europe oriented, is that we expect it to be a rugged COVID and flu season, and that we haven't fully experienced that yet, but that's probably more expected to come in the November through January timeframe. Yes, your question of could that also affect early 2023? Yes, it could.
Some of this is just from the experience that we have all had around the world and a number of predictions about what's likely to happen based on the current variants. I don't know. Does that get at answering your question?
Yeah. I guess what's assumed for that in your guide? Did you assume that gets worse into the fourth quarter already?
Good. Rich, we assumed it in our guidance. There is an appropriate amount of expectation and I guess conservatism that we are expecting continuing headwinds from, you know, respiratory illnesses, whether it's COVID or flu or something in between. We expect that that's gonna continue to play a factor in the fourth quarter and into 2023.
Thanks. If I could just one more on FX. I know that you know that you said a 250 basis point year-over-year headwind, so that's clear. As FX rates continue to go against you, I know that also pushes out the hedge impact into next year. Would that actually cause there to be a little bit even of a further push out into 2024 and maybe less or more mitigation of that fall off in 2023? Am I thinking about that right?
You are thinking about that right. A lot of what we're seeing in 2023 is what we would have otherwise incurred in 2022. Similarly, we're gonna see some FX benefit in the first part of 2023 that will then be a headwind in 2024.
Yeah. All assumes that all exchange rates stay where they are. Yeah.
I just want to clarify one thing. It's 250 basis point headwind to gross margin. It's nearly a 5 percentage point headwind on the top line.
Thank you.
Thank you. Our next question comes from Adam Maeder with Piper Sandler. Please state your question.
Good afternoon, and thank you for taking the questions and squeezing me in here. Just two quick ones from me. First, just any update on the enrollment for the moderate AS trial or ALLIANCE trial. I think if I heard correctly, you saw some uptick in enrollment pace, you know, recently, but I was hoping you could flesh that out a little bit more. Second, how should we be thinking about the cadence of future data from the PASCAL-2D study? Obviously, we got the initial data set at TCT, but when should we expect additional readouts from that study? Thanks so much.
All right. This is Larry. As it relates to ALLIANCE and PROGRESS, you know, we just really got those trials going this year, and we have seen an acceleration in enrollment, which is really encouraging for us to get these trials moving forward. You know, given the overall environment, you know, you worry that clinical trials just really add on, and it's a little bit counterintuitive. Our trials are actually starting to enroll, you know, at accelerated rates, and so we're very encouraged by that. I think, you know, people are excited about the X4 platform, and I think, you know, the moderate AS trial is, you know, potentially a groundbreaking trial in terms of how we think about this disease and what is the optimal way to treat it. I think there's just been a lot of engagement from the physicians to study that in a rigorous randomized trial.
Adam Maeder, your question about additional CLASP IID readouts is a good one. You know, so far, this has really been an early readout of the CLASP IID, which was sufficient to get U.S. approval. As we follow all of the patients in this trial for the full year, there will be additional data. Bernard Zovighian, do you want to give us a sense of when that data might be available?
Absolutely. You know, you can expect, you know, to see, you know, additional data, you know, more patients, you know, more follow-up, you know, starting as early as next year.
Okay.
Thank you.
Okay.
Ladies and gentlemen, that's all the time we have for questions. I'll now hand the floor back to Mike Mussallem for closing remarks.
Okay. Well, thanks everybody for your continued interest in Edwards. Scott and the IR team and I certainly welcome any additional questions by telephone. Thanks so much.
Thank you. This concludes today's conference. All parties may disconnect.