愛德華生命科學 (EW) 2004 Q1 法說會逐字稿

These statements include sales growth, R&D investment, net income, earnings per share, and free cash flow goals for 2004, expected sales growth in the heart valve therapy product line, the market opportunity for percutaneous therapies, the timing of clinical trials and regulatory approvals, the impact of foreign exchange, and other risk factors that may be found at the end of today's press release and in the SEC filings.

With that, I turn the call over to Mike Mussallem. Mike?

Thank you David. We're very pleased to share with you our first quarter results, highlights of the quarter include strong sales growth led by an acceleration in US heart valve sales and the conclusion of the PVT transaction which quantifies our leadership position in the emerging percutaneous valve market.

I'll begin by discussing our sales results. Then I'll turn it over to Corrine Lyle who'll cover the rest of this quarter's financial.

On a reported basis, total sales for the first quarter increased 10.6% to $235million, driven by strong heart valve therapy and critical care sales. Foreign exchange offset by discontinued businesses contributing $12 million to the growth this quarter.

Sales growth was strong in every major market except for Japan, which on a reported basis, grew a modest 3.3%, lifted by currency and heart valve therapy growth, but offset by lower results in cardiac surgery systems and critical care.

Turning to our product line results, let me remind you that beginning this quarter, we have re-categorized our product lines in order to provide greater visibility on our heart valve business. The results for this quarter and the comparisons to the year ago numbers, incorporate this new reporting format.

On a reported basis, sales of heart valve therapy products grew 15.7% this quarter, with foreign exchange contributing approximately $5.5 million of growth. This quarter's results were driven by strong double digit growth in paramount tissue valves and the heart valve repair products in all markets partially offset by the continuing decline in porcine valve sales which was down more than 20%. Most importantly, sales growth in the U.S. is accelerating as a result of the decisive, competitive responses.

New products were a significant contributor to the sales success this quarter. In addition, our new why compromise clinical education program demonstrates the superiority of the Perimount valves in several important clinical areas including durability and hemodynamics.

The new sales reps we recently added have been fully trained and are making a contribution to sales.

Our recently introduced heart valve therapy products are being well received by our surgeon customers. Global sales of our Magna valve grew to more than $10 million, and we believe total Magna sales this year will exceed $50 million.

Magna is commanding a 20% price premium over the leading aortic Perimount valves and we continue to believe that Magna will become the leading tissue valve in the US within the next few years.

The Tricentric's holder system continues to stimulate double-digit sales growth of our Perimount valve for the mitral position, where mechanical and porcine valves still have significant market shares.

Although sales of our newly launched IMR repair system had little impact on this quarter, this system designed for the unique requirements of the mitral repair is growing in popularity as additional Clinicians in Corporate Distherapy into their practice. These new products along with a robust pipeline of additional surgical heart valve therapies demonstrate Edwards' continued commitment to innovation and enable us to further strengthen our market leadership.

We continue to be excited about the new ThermaFix calcification mitigation process which has been show in lab test to reduce calcifiction up to 44% better than the current tissue treatment. In the second quarter, we'll begin to provide this treatment to the users of the Magna valve and will expand the use more broadly in the Perimount products during 2005.

One of the most important surgical heart valve innovations is Bio-physio. By the end of this year, we plan to begin first human implants of this novel valve which combines more than 20 years of Perimount tissue technology with best in class hemodynamics.

Percutaneous heart valve therapy is certainly the most transformational and market expanding opportunity for the treatment of valve disease.

The recent acquisition of PVT builds out decades of leadership in tissue and valve technology, catheter expertise, and trusted relationships with leading surgeons. The combination of Edwards and PVT establishes the strongest and the most comprehensive program of catheter-based heart valve therapies.

Because the percutaneous treatment of valve disease represents such a significant growth opportunity, we created a special unit inside of Edwards that is singly focused on these therapies.

Stan Row, who was the CEO of PVT has joined Edwards and is heading our entire percutaneous program, which include the leading approaches for mitral repair and aortic replacement. He brings with him a wealth of experience in innovational therapies and the integration of PVT is moving smoothly and rapidly and the merged team in Irvine and Israel is already working together effectively.

Now I'll share with you our plans for gaining regulatory approval for these percutaneous programs. Although we're in the midst of discussions with the various regulatory agencies, we would like to share some of our current thinking on milestones, clinical trial designs and timelines.

The first of our two mitral repair programs, the coronary sinus approach is on schedule and continues to make good pre-clinical progress. We expect to begin the clinical feasibility stage of this program with the first patient implant this year.

The first procedure will be conducted at leading international centers with the US clinical trials commencing in 2005.

Our edge to edge program is proceeding well, and the first clinical use of this device is expected as early as the end of this year.

We have developed this emerging technology in collaboration with Professor Alferiari in Italy who has successfully used a similar procedure on a surgical setting on over a 1,000 patients. If clinical results are favorable for each of the mitral products, we anticipate European regulatory approval could be received as early as 2007.

The PVT aortic cells is currently used in compassionate cases in Europe, and the clinical results from the patients to date have generated valuable feasibility data.

We have demonstrated a heart valve can be successfully deployed and anchored using a catheter-based system and we further demonstrated excellent hemodynamic results that even exceed the performance of surgical heart valves.

To demonstrate long-term patient benefit, we're currently working with various regulatory agencies to design the protocols for a multicenter European clinical trial that will comprise approximately 10 sites. Starting in the third quarter of this year, we will begin enrolling 100 to 150 high-risk patients with severe aortic stanosis.

Assuming a six-month follow-up period, we would expect to obtain a CE mark by the end of 2005. We are also currently in discussion with the FDA to determine the regulatory path in the US, which we expect will initially consist of a filing-focusing primarily on device safety for a humanitarian device exemption or HDE. This will be followed by a PMA for broader indications.

The HDE application will include data from approximately 50 patients and we expect to receive HCE approval by the end of 2005. This assumes we completed patient enrollment by the beginning of 2005, collected six-month follow-up data and submitted our filing to the FDA in the third quarter of 2005.

The receipt of an FDA - of an HDE, will allow us to offer a life-saving device in 2006to as many as 4,000 patients per year.

The path to broader commercialization in the US, will begin with a submission of the IDE by the end of this quarter. We expect the first step of this process to be a feasibility study comprising about 30 patients at three sites with three months of follow-up data.

Enrollment in this phase of the trial would begin in the fourth quarter of this year and results submitted in the first quarter of 2005. This data would allow us to commence the pivotal trial, which should result in a PMA approval by the end of 2007.

The interventional community continues to be extremely enthusiastic about percutaneous heart valve therapies, judging by their eagerness to participate in our upcoming clinical trials.

We - we are continuing to work closely with cardiologists and our surgeon customers to make these technologies available to patients and to encourage broad adoption of these emerging therapies.

Sales of our cardiac surgery systems product line, including Cannula, EMBOL X, TMR, and profusion projects were $2.5 million lower than the same period a year ago.

Positive global sales growth in TMR and Cannula was offset by lower sales in perfusion and Novacor in Japan as well as FX. The prior year comparable was drawn by the initial launch of the Novacor therapy in Japan. Double-digit US TMR sales growth was driven by strong laser sales as more centers adopt this therapy.

Our confidence in maintaining this growth rate was reenforced by the recent establishment of guideline by the Society of Thoracic surgeons to assist heart surgeons in their use of TMR therapy. This first ever practice guidelines references our technology and signify an important milestone in substantiating co-2 TMR as an important emerging therapy.

During the quarter, we transfer manufacturing and on going product development of our Optimaze laser system for treating Atro piblation (ph) to PLC. By moving Optimaze to a focused organization that specializes in laser technologies, we believe we can further enhance the product line and we remain on track to introduce the redesigned Optimaze system in the second half of this year. This agreement enables us to accelerate the development of this therapy on beating hearts and we expect to begin first human use of the market expanding products in the third quarter.

Now, turning to critical care, reported sales grew 13.2% in the quarter with FX contributing $5.2 million to the growth. This quarter's growth was due primarily to strong pressure monitoring product sales, resulting from market share gains and overall strong performance from both the US and emerging global markets. The expected decline in catheter products sales tempered the growth rate.

An exciting new market expanding area that we're investing in is Minimally Invasive Cardiac Output or MICO, which has an unmet clinical need in care. We have completed the market research and determined that MICO could double the addressable patient population as well as double the growth rate of our critical care franchise in a few years.

The transfer of recently acquired technology that makes MICO possible has gone extremely well. Pilot systems of this technology are presently in clinical trials and we continue and that's going to continue throughout the year. Upon successful completion of these trials and receipt of regulatory approval, we anticipate product introduction in 2005.

On a reported basis, vascular sales for the quarter grew 8.6%, comprised almost entirely of foreign exchange gains. Sales of base vascular products were essentially flat, and the current limited offering within our peripheral product line was only a minor contributor.

Earlier this month, we announced our decision to discontinue the LifePath AAA program as of June 30 which allow us to focus our resources on other technologies to have a more meaningful impact on our future growth and profitability. We'll continue to pursue our previously announced patent infringement litigation, and later in the call, Corrine will discuss the charge associated with our exit decision.

The introduction of our Lifescience products is continuing in both the U.S. and Europe with a launch of additional sizes during the first quarter and the rollout of balloon expandable products is proceeding on schedule. The release of more sizes by June of this year will round out our balloon expandable offering. Although sales were modest, less than $0.5 million this quarter, clinical status has been favorable and is meeting our expectations.

In our self-expanding stent line, we completed adjustments to the delivery system and expect to launch the full line of product sizes in the third quarter. This keeps us on track to reach the lower end of our $10 million to $15 million sales projection for 2004, principally in the back half of the year. We're in the process of building an experienced US sales team and to date, we already have 17 onboard. We expect to phase in additional sales reps over the course of the year as more product sizes are launched.

This summer, we expect to start enrolling patients in our resilient clinical trial aimed at establishing the safety and efficacy of our self-expanding stint in the superficial femoral artery of SFA. We - we believe the superior flexibility and radial strength of our stent make it particularly well suited for the demanding requirements of this part of the anatomy.

One other development in the vascular area this quarter was a receipt of an IMD approval for phase one clinical trial of a Novel angeo genesis therapy. It will use CFP technology to stimulate the growth of the normal blood vessels for the treatment of peripheral artery disease. We expect to begin patient enrollment in the second quarter at the national institutes of health in Bethesda, Maryland.

Other distributed products - sales for the quarter were $11.9 million, a small sales decline in Japan was more than offset by foreign exchange gains. We recently made the decision to discontinue sales in Japan of certain low-margin cardiology products in September that represents approximately $3 million in annualized sales.

In summary, based on the momentum we're seeing in the heart valve therapy and critical care product lines, we now expect to be at the high end of our previously stated goal for 2004 total sales of $915 million to $940 million. For heart valve therapy, we also now expect annual sales to be at the high end of our previously stated expectation of $400 million to $415 million, it takes into account the early re-entry of our competitors into the Japan market. For the full year, we expect to obtain a 10% underlying growth rate.

Cardiac surgery system sales are expected to be approximately $115 million, consistent with our earlier guidance. For critical care, we expect sales to be at the high end of the $290million to $300 million range. We expect vascular sales to be approximately $65 million and other distributor product sales to be approximately $45 million.

Finally, we were pleased to announce earlier this week that Alex Martin will be joining Edwards as the new President of our North America region. Alex brings with him a wealth of cardiovascular sales and marketing experience, especially in interventional therapies and with that, I'll turn the call over to Corrine.

Thank you, Mike. To begin, I would like to provide a summary of the impact of the PVT transaction and go over the special charges in the quarter.

Total special charges in the quarter were $92 million with the largest charge being$81 million for in process R&D related to the PVT acquisition. This charge was determined by an independent third party evaluation of in process R&D and intangibles we acquired. The final evaluation of the intangibles results in an annual amortization expense of approximately $7 million, which is included in the R&D line.

In addition, while we had previously assumed our tax rate would increase to 27%, reflect the non-deductibility of this amortization, the review of the purchase resulted in the re characterization of the tax treatment of the asset and a return to a 26%effective tax rate. These changes offset each other, resulting in no net impact or earnings guidance.

We also recorded $9 million to exit the LifePath AAA program, primarily related to inventory and clinical costs. Third charge was for $2 million related to our recent decision to discontinue three low-margin distributed products in Japan later this year.

For the quarter, Edwards growth profit margin remained essentially unchanged at 58% compared to the first quarter of last year as a favorable impact of higher manufacturing volumes in the absence of low margin businesses was offset by the costs of currency hedging.

Going forward, we expect hedging costs to comedown significantly and we are confident that growth margins will increase beginning in the second quarter, resulting in at least a 100 basis point improvement in growth margin for the entire year.

First quarter SG&A expenses of $76.5 million increased compared to the same period a year ago, due almost entirely to the strengthening of the euro and the yen. Cost reductions were made in 2003 enabled us to increase investment in our US sales and marketing efforts in heart valve therapy and peripheral stents.

For 2004, we continue to expect SG&A as a percentage of sales to be slightly above 33%. In the first quarter, we increased R&D investments by 10.5% over last year to$21 million. This increase is attributed mainly to the amortization of intangibles and the expenditures related to the PVT acquisition, which was completed in late January.

We expect R&D investments for 2004 to be slightly below $90 million, which includes the higher PVT-related amortization expenses. Operating performance before interest in taxes grew from $33 million to $38.8 million or 17.8% over last year.

Higher average debt balances resulting from the PVT acquisition caused interest expense to increase to $3.7 million this quarter and we expect quarterly expense to remain fairly steady for the rest of the year. As I mentioned earlier, due to the re characterization of the tax treatment of the PVT asset, we expect our effective tax rate to be 26% for 2004.

This quarter, changes and foreign exchange rates compared to the same quarter last year lifted sales by approximately 7%. If foreign currencies remain at Q1levels, we would expect to see 3 to 4% points of sales growth attributable to FX for the full year.

During the quarter, we repurchased approximately 500,000 shares of common stock for approximately $15 million. Of the current 2 million shares authorized, through the end of the first quarter, we have repurchased approximately 1.6 million shares.

Debt increased to approximately -- debt increased by approximately $79 million in the quarter, primarily due to the $125 million acquisition of PVT, and our debt-to-CAP ratio at quarter's end was 37%. Total accounts receivable decreased by $5 million from last quarter.

Including receivables that are part of our asset fact securitization program for the quarter base sales outstanding declined two days to 73 days. Inventories decreased $6 million to a $115 million primarily due to the write off associated with AAA inventory and inventory returns improved to 3.5 from 3.1 in the fourth quarter.

Finally, free cash flow for the year, for the quarter, which we define as cash flows from operating activities minus CAPEX of $30 million, which reflects more consistent management from our working capital. We are also now anticipating that our free cash flow for the year will be in the 95 million to the $100 million range.

And with that, I'll turn it back to Mike.

Thanks, Corrine. Before we open it up to questions, I'll make a few more final comments. We remain committed to our previously stated financial goals. In particular, we expect to be at the high end of our goals for total sales of $915million to $940 million.

Fund investments in R&D at or above the underlying sales growth rate, delivered net income growth of 13 to 15% excluding the impact of the PVT transaction and exceed our 90 million to $95 million free cash flow goal. Additionally, we are comfortable with the first call main EPS estimates for the second quarter and full year of 2004.

Our strong first quarter results led by accelerating US heart valve sales set the stage for an exciting year of Edwards Lifesciences. Many of our recently introduced new products such as Magna and Tricentrix are gaining momentum in the marketplace.

In addition, the anticipated launch of our differentiated peripheral stand later this year should contribute immediately to a stronger year of sales growth. And right now, our development of percutaneous heart valve therapies puts Edwards at the forefront of the most innovative and transformational opportunity in the treatment of heart valve disease.

Finally, I would like to mention that if you're attending the upcoming AATS meeting in Toronto next week, we would like to invite you to join us for an informal lunch with Edwards management and some leading cardiac surgeons.

The lunch will be held on Monday, April 28th from 12.30 to 2.00 and for more information, please contact our Investor Relations department. With that, we're ready to take our first question.

[OPERATOR INSTRUCTIONS].

The first question of the day is Tim Nelson of US Bankcorp Piper Jaffray.

Great quarter, good to see valve growth growing again. Could you characterize the domestic and US growth rates in the valves as a more specifically, how are we doing per share in the US? And also talk about repair versus tissue growth?

Sure. Yes, in the US, we saw our pericardial growth was over 10%; it was low to mid double digits. If you take a look at that on a total global basis, it was a very similar number, maybe slightly higher. So, what we had was similar growth in pericardial valves across the board.

If you look at repair, Tim, actually the repair on a global basis was in excess of 10% as well. But actually it was far lower in the US and I would attribute that primarily to the fact that our team in the US was so focused on launching Magna and the growth of Tricentrix that it was probably just a little less -- less time invested in repair growth.

Is that giving you what you're looking for?

Yes, it's helpful. Just to talk a little about Magna, you upped your guidance significantly. I think, at the analyst meeting, we were talking about much lowered expectation for Magna?

Well, Magna has gone very well. I think -- I'm not sure exactly what we've talked about in the past in terms of Magna -

29, I believe, was the number.

Yes, I think, we're a little higher than that, Tim. But we're guiding now to $50millionand probably 40 of that will be in the US and $10 million is outside of the US but we are on a pretty good ramp there.

And the 20% price premium, that's the US price -

Well, yes. That is the US premium. We're certainly getting that sort of premium around the globe. Obviously, it's a different starting point in the US if you compare it to an aortic price that's probably between 4500 and $5,000 and it's 20% higher than that where that would be a lower A.S.P. outside of the US

That's without the ThermaFix or -

That's correct.

Will there be another price bump when ThermaFix - there?

Probably a small premium on ThermaFix when that's introduced.

Good and the IMR ring, is that expected to contribute more -- you said it was slow this quarter. What are your expectations for that later on in the year?

Yes, you know, this is one that's not incorporated in most people's practices. So there's a certain amount of training that will take place that will go on in to the future. We do expect it to be popular. But right now, it's very small. We're excited about the prospects.

OK. Remind me again how many sales people you added in the US in the first quarter?

I think probably in the first quarter we added five or six, although there were probably some changes as well too. We probably need to give some other folks a chance to ask some questions.

I get back to you, thanks.

Thank you, Tim.

The next question is Glenn Novarro of Banc of America Securities.

Hi, guys.

Hi, Glenn.

Can you give us the organic growth rate of the tissue valve business for this quarter? I know you gave us the absolute dollar amount, but we don't know if the currency contributed a year ago. First year organic growth rate of valve business and then also in Japan, I think Medtronic, I think, launched like right around March 1, maybe can you give us a little feel for how you did in Japan and that month when Medtronic was coming back? Did they impact the business at all? Thanks.

Sure. The heart valve business on a global basis, Glen, grew 9.3% for the quarter, on an understood lying basis.

So if you take -- underlying basis. If you take currency out of it you can find that in a schedule attached to the back. In terms of Medtronic's return -- yes, they returned in March -- we would guess that their number of implants was probably in the 50 to 100 range, as a matter of fact, I think our guys in Japan think they know exactly what the number is which accounted for probably $500,000 worth of sales in the month and therefore in the quarter.

So our estimation is pretty much where we thought it was in the past. When we do our modeling, we modeled it so they would get half of the business they had previously, which would be something in the neighborhood of $5 million. That's sort of the way we're looking ate now.

OK, great. So nothing out of expectations with respect to the adoption from the Medtronic valve?

That's correct.

I have other questions, but I'll get back in queue.

OK, thanks, Glen.

The next question is Katherine Martinelli of Merrill-Lynch.

Good evening, everyone.

Hi, Katherine.

Mike, just want if you could spend a couple of minutes on the TVT side specifically with respect to the trials.

Could you just try a sense for what the challenge will be if demonstrate efficacy in the European study if you are looking at high-risk patients and the probability that a lot of them won't survive because of their underlying ailment.

And then as a follow-up in the US, the ID study, just in terms of how you view that being structured with patients be randomized to a surgical approach, or how would you be thinking about what type of patients you'd be putting the devices into?

Yes, thanks to that, Katherine. Again, a lot of this is still work in process. But I can give you high levels what we're thinking. When you talk about the European trials. We're talking about being able to move beyond the compassionate cases that we're in right now and move to folks of the high-risk, surgical patients.

And that, I believe in the European trial will give us the opportunity to have follow-up data that demonstrates durability.

As it relates to the US trial, we believe we're going be strongly encouraged to have a randomized trial. Although there are no certainties, but right now the belief is we will randomize versus balloon aortic valvular plastic.

(inaudible) that is had I guess may be a checkered past, will it make a more challenging study?

There is still a number of balloon aortic valvularplasty's that are done every year in this country. I don't know the exact number but it's more than 1,000. It's routinely done for those patients who don't have great alternatives for that. Again, early on, this is going to be a better treatment for that same group of patients.

OK, that's very helpful. And just quickly, any comments on what we should be expecting for the share count going forward? Do you have shares left to buyback? It was up sequentially. Are you back on Q-2 ThermaFix launch? Thanks.

OK. Well, so, in terms of the ThermaFix launch, what we're going do here is probably roll this out on a more deliberate basis than you might be suspecting. So it will go to some Magna customers. And actually, the broad rollout will occur more in 2005. So hopefully that answers that question. Maybe Corrine can speak to share count.

Katherine, as you know, as share price goes up, our fully diluted share prices go up from the treasury account stock methods. But we're about 1,000additional shares per quarter now. But -- and we also will continue to repurchase shares opportunistically.

Thank you.

The next question from Mike Weinstein of JP Morgan.

Thank you, how are you doing?

Good, Mike.

The 9.3% is global currencies, is that the number you cited?

That's correct.

Could you give us, just so we can get a sense of what the impact Magna is having what unit growth looks like versus revenue growth in the US or globally? Do you have that?

Yes, well, we might be able to give you some for that. Out of the sales on the Perimount side, I would guess price accounted for maybe 20% to 25%of that total growth number.

On the Perimount side.

So the combination of Perimount, I put Magna in there. It's all part of the family we look at it.

20% to 25% of the tissue valve growth?

Not really. We left out of that because it was a pretty hefty decline. But out of the Perimount growth, that was 20% to 25% price.

Just trying to -

We indicated that it was shrinking, shrunk about 20%. At this to point, foreseen is probably $20 million worth of sales annualized? Half that in the US

I'm trying to mentally do this. The contribution to overall valves, therapy growth from price -- differentiating it from exchange -- going to back into this but maybe you have a thought on that?

Yes, it's -- I can -- I can try and estimate it -

We can circle back, that's not a problem. And I want to focus on the whole PVT effort and the clinical trials we'll flow up on Katherine's question so we can understand it better.

Sure.

First, on the CE mark, most of the charges you talk about are a six-month follow-up. What's the primary point you're planning there on Europe?

You know what, at this point, I can't tell you exactly what that's going to be, Mike. I can tell you that right now, we do estimate that sort of this number of patients would be in the -- in the range or 100 patients. But the -- but the primary endpoint is not one that I guess I'm prepared to speak to.

OK and then -- and Europe is probably less of a question -- but as we look at both the HDE and the initial 30 patients in the IDE here in the US, I think you six-month follow-up on the HDE and three-month follow-up on the IDE., correct me if I'm wrong, how do you know that's the right amount of follow-up. And really how does the FDA know that's the right amount of follow-up at this time. Six months or 12 months or 24 months?

I don't think at this point I can say that I know what's the proper amount of follow-up. I can tell you that there's ongoing discussion that are going on. I think you've heard it right -- the feasibility study might be one that has 30 patients and basically we're trying to determine safety with that study. And them once you get into pursuing the PMA, that -- that follow-up is probably more like 12-month follow-up, Mike. So I don't know.

The initial PMA?

Yes.

OK. Just without -- I guess sharing with us maybe what the -- what the exact design of the trial is and the end points would be. Philosophically, would you walk through what you've learned six months and why six months might be sufficient?

And what might the pushback be there? That might be some of the questions today. Obviously -- you marketed your valves based on adding, you know, 15, 16, 17 years' worth of data and that's what sold your valve. Is it --is there a -- is there data going out so far? But we're talking about trials and we're going to have a six-month follow-up. Help us understand the --

You might -- you might think of it this way -- you have to remember first the group of patient that is being treated. These are high-risk surgical patients that today are not surgical candidates. So they don't have the option of getting a 20-year fix of their valve because there is a -- for the most part, they have been refused for surgery.

So, by being able to have a patient that goes out that long, there's the -- there's the belief that you understood a tremendous amount of risks just in the first six months and after that, you really tough things durability of the valve. So you understand the valve still functioning or the hemodynamics excellent -- you know, and you -- you probably have a very good chance at predicting what the long-term performance is going to be.

And if you consider the option of what the patients have before, it's a great choice. We're not suggesting that this becomes a choice of surgical patients switching over and getting this sort of device. So we frankly don't think this is going to impact surgical volumes in this decade because, as you suggest, six months follow-up is not much to be able to -- to be able to discern anything about the durability of this procedure.

Just a follow-up -- when do you think you'll have the answer relative to the HDE and IDE, exactly what the follow up period is going to be required? Is that -- do you have the -- do you have the HDE answer I assume in the next few months? do you feel like you have that now?

You know, in terms of the nearer term milestones are, we said that by the end of this quarter, it's our intention to put -- to submit our IDE for the feasibility study. And we expect to get some feedback shortly after that submission.

So we should get a lot of feedback related to that. At the same time, we'll be learning quite a bit about our European study later on this year, because, again, it's our intention to begin enrollment of that soon and in the second half of the year.

So I think we'll learn a lot in that regard. And as we-- as we work through our feasibility study with FDA, I would imagine that we're able to bring a great deal of definition to the pivotal study as well for the PMA approval. I expect -- maybe the more direct answer, mike, is over the next six months, I believe there's going be a tremendous amount of definition that becomes available.

I'm going to ask one final question just to clarify one last thing and I'll drop, I promise the randomization to balloon angioplasty. Is that something that idea -- that concept that this is the right control is something that you put in front of the FDA at this point?

Yes.

Thank you, I appreciate it.

Thank, Mike.

Our next question will come from Alex Arrow of Lazard Asset Management.

This is Lazard Capital Markets. Good afternoon.

Good afternoon, Alex.

Hi, Mike. The first question -- the share gains that your new approach to the heart valve competition for Medtronics that you spoke about, can you characterize that as -- did you gain valve share from Medtronic that you previously lost? Or was it that you gained more share from mechanical side from St. Jude and you were simply doing that faster than you had before?

In other words, can you say whether this new ad campaign and the new sales reps was really a success because of share from Medtronic or St. Jude?

Well, thanks for that, Alex. I don't know -- I suppose we're not going to know that until we see the reporting of results. We would say in general our feeling is that the heart valve market hasn't changed much probably in generalis about a 5% grower.

So we believe we have gained market share versus where we were, for example, at the end of the fourth quarter. I don't think we're back to the levels that we were at. Tat the first of last year. But I think we're making progress and we like the direction that we're headed in.

Was it the ad campaign, the extra seven reps, what was it that did the trick?

It's a combination of all of though thing, certainly new products were an important part of it. The combination of having the new products was very important and also just the fact that we had intense focus on this and focused more than ever in comparing our products and their attributes to our competitors' products.

On the critical care side of the business, you mentioned the growth was offset by the decline in the base catheter business. At some point, the base catheter business is going to either go to zero, or get to some base level that is not going to decline any further.

Can you give us some color on how soon or when we might expect the decline in the business to no longer be an issue?

It's a good question. Part of the decline in the base business is due to the fact that there's less invasive surgery that is done. And, so, you may end up with just less flow of people through surgery and through critical care units that might use a base Swan.

But the same time the people who end up there are much sicker. So although the base has been declining and our advance has been growing, our business still has to be maybe 45% base business. It's still quite substantial. But I think the other thing that's most noteworthy on the horizon is our MICO technology, which we think is market expanding and goes right at this core issue.

Thanks, my last question I know you can't say whether the FDA will say OK to the balloon angioplasty as a control for PVT, can you say whether you feel like that's anymore likely now than you did a quarter ago the last time we - we spoke about this? Is it -- you as you -- obviously that would be an advantage if they expect balloon angioplasty.

I can say what we believe. I can't speak for the FDA. We believe that that would be an important and adequate control. We believe that -- that that would be an excellent test for this valve. And, you know, right now, we wouldn't be talking about it if we didn't think it had a good opportunity of being accepted.

OK, thanks.

Thank you, next question from Sheetal Mehta from Bear Stearns.

Good afternoon.

Hi.

A couple of quick questions following up on the PVT questions. First, regarding the -- the pivotal trial, or I guess the PMA application, is it going to be an issue that you're using an equine valve in -- because equine tissue has not been approved by the FDA yet. And do you have the data to support that type of tissue in humans?

Well, the -- the big answer is, no, we don't think it's an issue. That the valve including the equine pericardium is part of the total system and that's part of what will be tested in this trial and that's been tested in the lab and has demonstrated that it is quite durable in lab tests. So we wouldn't be at this stage to be able to go to clinical trial if we hadn't adequately -- if we don't get to adequately address those sorts of questions to the FDA That will all be part of the process.

A couple of other quick follow-ups. Can you give us an update on what, if anything, you decide to do that with the other endovascular aortic replacement program? Is that going be consolidated in the PVT?

Yes, thanks for that. We have teams actively engaged in that. At this point in time, we are still pursuing that program with vigor. And, so, we're still sorting out just exactly how we want to play that out, whether it will be one generation versus another, and we'll keep you informed as we make decisions on that.

OK, great. And finally just -- kind of a nitpick question with regard to the RDE, one of the stipulations of the HDE is you can't sell the product for more than $250 unless you have an external audit of some sort. Is that going to be an issue? I'm assuming it's not going to be.

I hope it's not because certainly we couldn't provide this product for that sort of price. So it's our belief that we'll be able to, I guess, pull value for the product in the HDE. sort of application.

OK. Great, thanks so much.

Thanks.

Thank you, our next question will come from Larry Keusch of Goldman Sachs.

Hi, good afternoon.

Hi, Larry.

Mike, can you remind me for clinical trials, for a new valve, not apercutaneous valve, but a traditional valve, how long the follow-up is?

I want to say that it's about 800 patient years that's associated with an --an approval for a new valve. But you could happen with just one-year follow-up is actually all that's required within that. So it's -- it's a body of patients, but really only a one-year follow-up is necessary.

So, I guess -- I guess what I'm thinking about here is if you're using a valve material that's not approved in the US, and you're thinking about that as the entire system for your percutaneous device, why wouldn't that have to be the exact same 800 patient years, etc., for that system?

Well, I think, you know, it might end upturning out to be that, Larry. I think the issue here is that this is a different product and a different application. You're going into a -- it's a cath lap procedure versus a surgical procedure which has lower mortality or morbidity associated with it, or we believe that will be the case. That in itself is a substantial argument for that regard. And we have these patients here that don't have other great clinical options. So when you're evaluating that, you know, to deny that sort of therapy to these patients that don't have options because, you know, the valve doesn't have the durability of surgical valves is one that I think is open to serious question.

OK, and just -- just so I understand -- so that makes total sense to me on the HDE side, where these are clearly nonsurgical candidates. But isn't the IDE and the goal of this product to move it into more main stream patients than the minute you get a non HDE, a traditional PMA approval? Is it basically open to anyone? And why wouldn't the FDA be, again, thinking along the lines of being conservative?

Well, you know, art -- the indication that we will go for is likely high-risk surgical patients, Larry. So we're not going to argue that this is the alternative -- an alternative to surgical patients. And so we'll be going first in our PMA will be pointed at this population of high-risk surgical patients. Now, if over time we're able to demonstrate long-term results, and we're able to log, you know, two years, three years. Five years and so forth, them it starts opening up other questions about whether it becomes an alternative, but that's more of a longer-term issue.

Great, two very quick questions for you -- just the comment that you made about being at the higher end of the 915 -- 915 million to $940 million sales, obviously currently stronger than you are guiding to at the fourth quarter. In fact, you said it was 2% to 3% perhaps impact; now you're saying 3% to 4%. Just trying to get a sense of it's a move in upward range of guidance due to currency and then the other quick question is under the HDE, can you actually make a profit on those product that is are sold, profit on those product that is are sold?

Yes, a couple of things, one is currency certainly helps us toward the upper end of that range -- helps us toward the upper end of that range. The other thing is we accomplished Q1, $235 million worth of Q1 we can do the math in terms of what that does to support that effort. And also, we -- I guess we'd say that the results -- you know, sort of the results we have on our heart valve side probably happened a little sooner than we thought it would. So it's a combination of those factors. In terms of the H.D.E., could we make a profit off of that? I think we could, yes. But, you know, this will play out once we have more definition around that. But that would be our expectation.

OK, great, thank you.

Thanks.

Our next question comes from Ben Andrew of William Blair.

Mike, just briefly, can you talk a little bit about the experience in Europe with the PVT product as you kind of accumulated some of the patients in the last six to 12 months. And what you're seeing in these patients.

You know, what we're -- we what weave been treating in patients have been really compassionate cases. These are extraordinarily ill patient that is having very short prognosis for continued life. And so what we're able to demonstrate are a number of things that are very interesting.

We can learn a lot about the procedure itself, about the placement, we can prove that we really can replace an aortic valve with the catheter-based system, we can prove we put it in place without emboli being generated, there's no belong age of the coronary arteries, that we get a solid fixed placement, we get consistent results.

And one of the things that's most remarkable that's following the cases we're able to haemodynamics and we see remarkable improvement there. That's been very consistent. So we're able to learn all of those things, Ben, but we're not able to learn is very much about the long-term durability of these products.

So I guess the -- to put it bluntly, what's the failure mode for these valves? Is it the valve itself or the patients that are illnesses in every case, I guess?

Yes, these patients -- a number of these patients have passed away. And they have not -- they have not passed away because of the valve. It's just not --it's not been the case. It's always been some other sort of issue.

What's the longest you've gotten in terms of patients?

One in the six, seven-month range at this point right now?

OK, great, thanks.

Thanks.

Thank you, the next question is from Greg Simpson of Stifle Nicholas.

Mike, not to beat a dead horse, that's not an equine valve joke, but to talk about PVT a little bit, your comments on valvuoplasty and design from the trial and things like that, we heard from several sources in the FDA is holding a meeting or held a meeting with the interventional and surgical side. Have that meeting taken place, and without getting you in trouble with anybody, especially the FDA, how much of what you're saying here is based on your communications with that agency if that be it taking place coming out of that?

Yes, actually, there's a meeting that's going on today. So I don't - I don't know what the heck is going on. There's a -- there's been -- I think that's the thing you're referring to. But separate from that, there are other meetings that we have had with FDA and other regulatory agencies. So, we're trying to guide you here in areas. There are no final decisions made and I'm not trying to suggest it's a done deal. So, please, if you took that away, that would be a mistake. What we've been strongly encouraged by many of you is try to give you some feel of what the regulatory pathway looks like, what the clinical trial design might look like.

And, so, sort of out there trying to do my best to give you some guidance of, you know, as much as we know right now and how it might go. And our belief here, and we could ultimately be wrong here, but our belief here is it will be a randomized clinical trial and that it may be randomized to balloon aortic valvuoplasty as a likely choice. We won't know that until we get the real decisions.

OK, all right, good enough. Thanks, Mike.

Sure.

Thank you, the next question will come from Keay Nakae of Bush Morgan.

Hey, Mike. If, in fact, you were successful in a study-randomized against valvuloplasty, how would you characterize the market opportunity in terms of number of patients you can treat per year, potentially.

That's tough to estimate. We could estimate the number of high-risk patients that are out there. But it would be tough to know exactly what the interventional community would do over time, and a lot of that would depend on, I suppose, the clinical trial results and the confidence that's associated with that.

You know, we -- we are -- our belief is that out of the folks the people that can have surgery today that there's probably an equal number of patients with severe valve disease that don't see surgery. So, you know, that gives you some sense for the opportunity is.

Now, some of that is because they get refused for surgery and some of it would be that patients actually refuse it themselves, but it gives you a sense for that market as a starter.

All right, and then moving on to another study, the resilience study, can you give us color in that in what the design in that would look like. You were thinking it would be a randomized study as well.

Yes, I don't know if we have anything there to share in terms of the trial design. Let me see. I don't -- I think I remember, but I hate to speculate there. So if you don't mind, Keay, we'll get back to you on that.

That's fine and then finally a question for Corrine. At this point, what percent of your exposure are you hedging?

We have been about two-third covered historically and we tend to keep that kind of -- kind of hedge ratio going forward.

OK, thank you.

Thank you, we have time for one final question. It will come from Jason Mills of First Albany.

Wow, just under the wire. Hey, guys. Mike, going back to the PVT and back to primary influence -- I'm wondering if you can remind us what typically the primary end point is for a normal tissue valve FDA approval clinical trial if that might be a similar end point to look at for PVT as well.

Or if not, maybe if it would be extension of life in -- measured in terms of months or years or would it be some sort of a hemodynamic data point or, you know, flow or could you help us out just a little bit there and maybe what we could see as far as an end point?

Yes, the principle end points today are hemodynamic. We speak to effective orifice areas and pressure drops across the valves. Those would be typical. I wouldn't be surprised if those turn tout be similar sort of end points for this sort of trial.

OK, that's helpful. And would a secondary end point then maybe be measuring the extension of life? Would that be something that would be measured - measured today? But, I guess maybe not during that year, it's hard to get it. But since this is a sicker patient population that really have months to live as opposed to years in terms of a surgical patient. Could we see that being a secondary endpoint? If so, what kind of an extension would we need to see?

I wish I could help, Jason. These are not end points today that are used for surgical heart valve. I wouldn't expect it to be the case here as well. But, I assure you that as we have more definition there that we'll be forthcoming.

OK. And Corrine, maybe a question for you as we think about all of the trials that you're doing in these areas and in the resilient and others -- what can we look at? I know you haven't given guidance as for 2005. I'm not asking for all of it. But, on the R&D side, what -- what could we look at next year over 2004,assuming it's an order of magnitude higher than sales growth, but any other color there?

No, I think that we're committed to growing R&D above our sales growth, but, you know, look for R&D approaching 10% as a percentage of total revenues.

OK. That's helpful. One final question, mike, and I apologize if went over that. Biophysio, can you guarantee the launch timing for that in Europe again?

We're going to be starting the P.M.A. trial at the end of this year. By the time we collect all of the data -- not sure exactly how fast enrollment will be, it will probably be a three-year process. Europe I would expect to happen faster than that, maybe two years from when we start.

OK, guys thank you very much.

OK, thank you very much for your continued interest in Edwards. Corrine, David, and I welcome any additional questions by telephone. By that, back to you, David.

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