愛德華生命科學 (EW) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Edwards Lifesciences second quarter 2007 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Erickson, Vice President, Investor Relations. Thank you, Mr. Erickson, you may begin.

Welcome, and thank you for joining us today. Just after the close of regular trading, we released our Second Quarter 2007 financial results. During our call today, we'll focus our prepared remarks on information that complements the material in the Press Release and financial schedule and then allocate the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO; and Tom Abate, CFO and Treasurer.

Before I turn the call over to Mike, I'd like to remind you that during today's call we will be making forward-looking statements that are based on estimates, assumptions and projections. These statements include but aren't limited to sales, gross margin, net income, earnings per share and free cash flow targets; the regulatory approval and sales of heart valve therapy products including Mitral Magna and Magna Ease; competitive dynamics and market fundamentals of the heart valve market; the continued adoption, expected sales and product enhancements of FloTrac and/or LifeStent; the timing and progress of the RESILIENT, PARTNER, and EVOLUTION clinical trials and the market opportunity for Transcatheter technologies in general; and the expected European launch in 2008 sales of the Edwards SAPIEN valve. Although we believe them to be reasonable, these statements involve risks and uncertainties that could cause actual results or experiences to differ materially from the forward-looking statements. Information concerning factors that could cause actual results to materially differ from those in the forward-looking statements may be found on our Annual Report on Form 10-K, and our other SEC filings which are available on our website at Edwards.Com. With that, I'll turn the call over to Mike Mussallem. Mike?

Thank you, David. As you read in our Press Release, we reported a solid Second Quarter, reaching our highest gross profit margin to date and achieving our earnings per share guidance; however, our lower than expected sales growth was impacted by heart valves which is not yet recovered from the recent competitive pressures in the U.S. We are aggressively addressing this issue, which I will discuss in greater detail in a few minutes. Additionally, while the divestiture of non-core business is negatively impacting our reported near term sales and earnings growth, it is driving gross profit margin expansion. Our redirection of these sales resources into higher growth businesses is expected to lift Edwards sales growth going forward.

In addition, we continue to invest in transformational opportunities and we are very pleased with our meaningful progress, specifically in Transcatheter valve technologies, FloTrac and LifeStent. We have a compelling group of very attractive growth opportunities that are requiring additional near term investments. Additionally, until Magna Mitral was approved, there was uncertainty in our U.S. valve sales growth. As a result, we are lowering our earnings outlook for the balance of 2007, which Tom will explain further. The single largest investment increase is in the acceleration of our SAPIEN Transcatheter heart valve launch plans in Europe. Our positive clinical results, enhanced confidence in CE Mark timing and the clearer reimbursement outlook drove our decision to substantially increase our launch resources in anticipation of a year-end introduction.

Now, turning to the quarterly results. On a reported basis, total sales for the quarter grew 2% to $273 million and grew 4.3% on an underlying basis. Year-to-date our underlying sales growth was 4.5%. In addition, discontinued businesses impacted reported sales by approximately $11 million in this quarter. Now, I'll start a more detailed review of our product line sales and near term pipeline as well as provide an update on our Transcatheter heart valve programs and then Tom will discuss the financial results.

Reported sales for heart valve therapy grew 2.7% to $131 million, which included a $2.9 million contribution from foreign exchange. We are gaining share in Europe and Japan while our sales results continue to be under pressure in the U.S. Overall, we believe the heart valve market fundamentals remain unchanged. We continue to estimate the global market growth averages about 3 to 5% annually, led mainly by unit growth. We believe that for the first half of 2007, U.S. growth has been at the lower end of this range. On a global basis, the market continues to be driven by mechanical to tissue valve conversion and new product launches.

Turning to our own performance. We are continuing to see global growth in our line of Magna valves due to their superior durability in hemodynamics. In Europe, our recent introduction of Magna Ease and Magna Mitral are also contributing to growth due to their ease of implant attributes. Our mechanical and porcine valve sales declined about 20% in the Second Quarter off a small base as we continue to de-emphasize these products. Second Quarter global sales were approximately $3 million to $4 million below our expectations, primarily due to the competitive pressures we are experiencing in the U.S. In the U.S. market, we lost share in the mitral position. We believe this trend will reverse with the launch of Magna Mitral which is still anticipated in the Fourth Quarter. Our aortic performance in the U.S. continues to be driven by our Magna platform, although we have seen some share loss this quarter in our older [base] products.

Global repair sales grew mid single digits, driven by our premium disease specific products including MC Cubed, Myxo and GeoForm Rings. At the AATS Conference in May, we kicked off the European introduction of our next generation aortic valve, Magna Ease. This valve has generated a lot of enthusiasm on the part of initial users because of its low profile and ease of implantation. It also builds on Magna's best-in-class hemodynamics and includes our ThermaFix enhanced tissue treatment. We expect European sales to continue to ramp up and are looking forward to a U.S. introduction by the end of 2008.

During the quarter, our Edwards ONE program continued to generate strong surgeon interest. Edwards ONE helps prepare surgeons for further transcatheter intervention by exposing them to innovative heart valve technologies and basic Transcatheter training as well as intensive stimulator based learning experience. Our heart valve therapy franchise continues to be an ideal platform from which to grow. Edwards has built its leadership position in the heart valve market with superior product offerings and continuous innovations in valve technology. The timing of new product introduction has the biggest influence on both our growth rate as well as the growth rate of the market. Right now, the most significant catalyst for gaining share in the U.S. is the introduction of our Magna Mitral valve which we expect later this year.

In the interim, we are responding decisively to the U.S. competitive environment on several fronts. Most importantly, we are cross-training our cardiac surgery salesforce who formerly sold TMR to also sell heart valves. Bolstering our heart valve salesforce by more than 20 representatives is particularly timely in anticipation of the U.S. launch of Magna Mitral. In critical care, which represents more than one third of Edwards overall revenue, sales were $97 million. Second Quarter reported sales grew 8.7%, which included a $1.7 million contribution from foreign exchange. Sales of FloTrac continued to be the biggest growth driver this quarter. In addition, continuing share gains in our world leading pressure monitoring products also contributed to the results.

We have continued to make great progress in creating new market opportunities for FloTrac, particularly in the high risk surgery patient. In these patients, FloTrac enables clinicians to make a fast, easy, and continuous measurement of cardiac output without the need for calibration. These are patients that would not typically warrant a Swan-Ganz catheter. During the quarter, two studies validating the performance of FloTrac in the high risk surgical segment were published in the Journal of Cardiothoracic and Vascular Anesthesia and the Critical Care Medicine Journal. Additional clinical studies covering a variety of patient segments are underway and we expect these to be published on a continual basis. In addition, important enhancements that allow FloTrac to address a wider range of patients are under development. The first of these enhancements remains on schedule for the Fourth Quarter introduction. For 2007, we remain confident in our ability to double our FloTrac sales and deliver a year of strong growth in critical care.

In Cardiac Surgery Systems, reported sales for the quarter declined 37%, largely due to last year's discontinuation of our Brazil based perfusion product line and the recent exit from the TMR product line. On a reported basis, Cannula sales grew 5% during the quarter. Total reported sales of vascular products grew 16.8% this quarter. Once again, growth was driven by LifeStent products along with a slight increase in the [base] business. I'm pleased to report that Paul Redmond recently joined Edwards as General Manager of our Vascular Business Unit. Paul was previously the Vice President of Cardiovascular Technology at J&J Cordis and he brings to Edwards more than 20 years of experience and leadership in the medical device industry. We look forward to his contributions as he joins an experienced and committed group of leaders at Edwards.

At the Euro PCR Conference in May, co-principal investigator Dr. John Laird presented the complete six-month data set from the RESILIENT pivotal trial, which was comprised of approximately 250 patients randomized against PTA. The Phase II results were very positive and demonstrated a low stent fracture rate of 1%, high primary patency of 95% and no safety issues. During the Second Quarter we submitted this data set to the FDA as part of our application for pre-market approval of an SFA indication. This submission also incorporated data from an acute study using both the new FlexStar delivery system and longer stents up to 170 millimeters. Recently the FDA notified us that our PMA was sufficiently complete and is suitable for filing. This keeps us on track for an approval by the end of the year. We expect additional analysis in our six-month RESILIENT data to be presented at both the VIVA conference in Las Vegas as well as the CIRSE meeting in Athens in September. In addition, we expect the complete 12 month results on the full data set to be presented at the upcoming TCT conference in October.

As planned, we launched our FlexStar system in Europe during the Second Quarter. We remain pleased with FlexStar's initial progress in Europe as well as its ongoing adoption in the United States. In 2007, we expect to double our stent sales and will maintain a 40 person salesforce in the United States while waiting to receive this Landmark PMA approval for the FFA.

Turning to our Transcatheter valve program, we are continuing to make good progress in our partner trial which is the U.S. pivotal trial of our SAPIEN Transcatheter aortic heart valve technology. Currently, there are four U.S. sites performing cases and to date, they've enrolled approximately 25 patients. We will continue to add sites as they receive their IRB approval and complete training. We expect to have 15 partner sites actively implanting by the end of the year and continue to expect enrollment to be completed within our original 12 to 18 month timeframe. We believe our progress in the U.S. gives us a two year lead over the next closest competitor. During the Second Quarter, we submitted the requested additional follow-up data from our U.S. feasibility study to the FDA, which should allow us to expand the trial beyond the initial eight sites and 40 patients. The FDA is reviewing this data and we continue to anticipate no delay to trial enrollment. Also during the quarter, we filed a patent infringement lawsuit in Germany related to our Landmark Transcatheter heart valve technology. We are committed to vigorously protecting our valuable intellectual property as well as the interest of our clinician inventors.

Currently, all of the SAPIEN valves in the PARTNER trial are being delivered transfemorally, using our RetroFlex delivery system. As planned, we submitted data from the recently completed U.S. feasibility study of the Ascendra Trans-Apical system. We remain focused on adding Ascendra to the PARTNER trial and hope to gain FDA approval in this current quarter. We remain very pleased with the performance of our new RetroFlex II delivery system. RetroFlex II further enhances the ease-of-use benefits of RetroFlex I by adding a customized atraumatic tip to enable clinicians to more easily navigate across the native stenotic aortic valve. We have submitted our request to add RetroFlex II to both our U.S. and European trials and are awaiting regulatory approval.

In Europe, we've decided to accelerate our commercialization activities in anticipation of receiving our CE Mark by the end of the year. Before the end of the Third Quarter, we expect to have a total of 15 European reference centers, which gives us a strong pool of all centers to train commercial sites. We have already begun adding clinical specialists as well as dedicated training, market development, and reimbursement resources necessary to support the launch. We expect to generate more than $20 million of Transcatheter valve sales in 2008.

Today the Edwards SAPIEN valve offers an innovative alternative for high risk patients, with two successful live cases presented at the Euro PRC conference in May added to the more than 45O Transcatheter implants performing to date. SAPIEN is demonstrating outstanding performance in our clinical studies. We continue to innovate and are pleased with the development on the next generation Transcatheter heart valve. Leveraging our leadership in the science of heart valves and our SAPIEN experience, we are aggressively developing a new valve with a reduced delivery profile below 20 French, enhanced durability and unsurpassed hemodynamics. The valve's smaller delivery profile will make this technology available to an even wider group of patients and we anticipate the first clinical use of this new valve in 2008.

At Euro PCR, we announced the discontinuation of our MOBIUS Transcatheter repair program. After completing our clinical feasibility study, we determined that it would continue to take considerable additional resources and time to effect durable and long lasting repair results with the MOBIUS device. Therefore, we've decided to redirect these resources into our other advanced technology development programs, including our MONARC program. During the First Quarter we completed enrollment in the 60 patient EVOLUTION I feasibility study of our MONARC system, and the interim data from this study was presented at Euro PCR. We're enthusiastic about these results, which demonstrate early feasibility, a well tolerated implant, a good safety profile, and encouraging efficacy. The early feasibility data suggests that patients with congestive heart failure combined with mitral regurgitation may realize the greatest benefit. We estimate that this group of patients represents a very large and attractive potential market.

Based on the strength of the EVOLUTION I results, we have initiated a follow on clinical study called EVOLUTION II which will enroll up to 120 congestive heart failure patients at up to 19 clinical sites in Europe and Canada. Data gathered from the study will measure clinical and quality of life endpoints and would facilitate European reimbursement and commercialization efforts. This study would also help to support the U.S. pivotal trial which could start as early as next year. A broad range of our innovative technologies will be featured at several upcoming meetings including the PICS Interventional Symposium in Las Vegas that's currently underway, the AATS Valvular Heart Disease course in Chicago in September, and the TCT meeting in Washington D.C. in October. At these meetings, clinicians will present clinical results, case presentations, and we plan to host an Analyst meeting at the TCT. Now I'll turn the call over to Tom.

Thank you, Mike. Reported earnings per diluted share for the Second Quarter were $0.57 compared to $0.58 last year. Excluding special items from the prior year, our Second Quarter 2006 (sic) non-GAAP EPS was $0.54. Our gross profit margin for the Second Quarter was 65.3% compared to 64.2% in the same period last year. This 110 basis point improvement over last year was due to a more profitable product mix, partially offset by substantial investments in quality systems and the negative impact from foreign exchange. For the second half of 2007, we now expect gross profit margins to be approximately 66%. This performance will place us at the upper end of our full year goal to increase gross profit by 100 to 150 basis points. Second Quarter SG&A expenses were $102 million or 37.3% of sales compared to 36.3% in the year ago period. The increase was due to higher sales related spending across our key product lines primarily in the U.S. as well as a $2.2 million impact of foreign exchange. For the second half of 2007, we now expect SG&A as a percentage of sales to increase to approximately 39%, which primarily reflects the additional investments we are making in the preparation for the SAPIEN valve launch in Europe.

R&D investments in the quarter were up slightly to $29 million or 10.7% of sales. While investments in key programs continue to increase in the quarter, the total R&D spending was relatively unchanged as we redirected resources from our discontinued programs, primarily into Transcatheter valve development programs. In the second half of 2007, we now expect R&D as a percentage of sales to increase to 12%. Due to increased Transcatheter expenses, for the full year, R&D as a percentage of sales will be just above 11%. Net interest of $400,000 was slightly lower than the same quarter last year resulting primarily from lower interest expense on our declining average debt sale. For the remainder of 2007, we expect net interest expense of approximately $200,000 per quarter.

For the Second Quarter, our reported tax rate was 25.4% compared to 20.7% a year ago. Last year's rate included a tax benefit resulting from a product line sale. In 2007, we expect our rate to remain at approximately 26%. When compared to the same quarter last year, foreign exchange rates positively impacted Second Quarter reported sales by approximately $5 million. At current foreign exchange rates, we estimate a $9 million benefit to sales in the second half of the year. Free cash flow generated during the quarter was $24 million, which we define as cash flow from operating activities of $38 million minus CapEx of $14 million. For 2007, we now expect free cash flow of $145 million to $155 million. This estimate now includes the impact of our incremental operational investments, along with a $5 million increase in capital spending.

During the Second Quarter, we repurchased approximately 700,000 shares of Common Stock for $35 million. We have already purchased 1.2 million shares for $60 million this year and will continue to actively repurchase shares. At the end of the Second Quarter, we have 1.5 million shares remaining in our current share repurchase authorization. On the Balance Sheet, total debt at June 30 was [$207.6] million which included $58 million of long term debt and $150 million of convertible debentures. Net debt at the end of the quarter was $42.7 million, a decrease of $1.6 million from the First Quarter. Including receivables in our after-tax securitization program, Day Sales Outstanding for the quarter was 68.1 days and inventories were up slightly from the prior quarter.

Turning to guidance. We now expect our full year 2007 to be at the low end of our previous guidance of between $1.070 billion and $1.110 billion. For heart valve therapy, we expect second half sales to be between $250 million to $26O million. In critical care, we are maintaining our full year sales guidance of $385 million to $395 million. In Cardiac Surgery Systems, we continue to expect total annual sales of $55 million to $60 million, and lastly, in vascular, we still project sales of $85 million to $95 million for the year. All of these projections assume foreign currencies remain at current levels.

For the third quarter 2007, we are projecting total sales of $250 million to $26O million. As Mike stated, we're lowering our earnings outlook for the balance of 2007 primarily as a result of incremental investment. The largest of these will be the acceleration of the European SAPIEN launch plan, which includes clinical specialists along with dedicated resources for training, reimbursement, and market development. We are also increasing R&D investments in Transcatheter technology, primarily in next generation Transcatheter heart valve and EVOLUTION II. We are also adding U.S. sales resources in anticipation of a Magna Mitral launch and a LifeStent PMA approval. And the outlook also takes into account the U.S. heart valve near term growth rate. As a result, we estimate the third quarter diluted earnings per share will be between $0.41 and $0.43, and the full year to be between $2.08 and $2.12 per share. With that, I'll turn it back over to Mike.

Thank you, Tom. We recognize that our heart valve sales growth rate has been below our expectations. Our convictions that the heart valve market is an ideal growth platform for Edwards encourages us to aggressively invest in specific programs designed to increase our market share and raise our near term growth rate. At the same time, we're accelerating our SAPIEN launch plan, development of our next generation Transcatheter heart valve, and clinical evaluation of our MONARC system. While these additional investments will impact our ability to reach our 2007 financial goals, we believe these actions will significantly enhance shareholder value by driving an increased sales growth rate beginning in 2008. At the same time, our critical care and vascular franchises are evolving into robust platforms that are lifting the growth rate of the Company. Overall, we're more convinced than ever that Edwards has a bright future as the leader in the treatment of advanced cardiovascular disease. Before we open it up to questions, I'd like to encourage you to mark your calendars for Friday, December 7th, where we will host our 2007 investor conference in New York. At this event, we'll provide an update on our new technologies as well as our outlook for 2008. Watch for more information about this event later this year. With that, pretty much we'll open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Amit Bhalla with Citigroup. Please state your question.

Hi, thanks for taking the question. Just first a quick housekeeping, LifeStent and FloTrac revenues -- can you give us those for the quarter?

I don't know that we're typically doing that. I think LifeStent must be in the $6 million to $8 million range for the quarter and FloTrac is relatively similar.

You mentioned the CoreValve litigation in Europe. Obviously you can't comment on your strategy, but can you tell us what's taken place so far in the courts there and what are some upcoming events to look for in that litigation?

So far, it's procedural. So there really is nothing to report. It's pretty much proceeding as it should. I think the courts in Germany are normally a little faster than courts elsewhere but still it's probably an '08 event before anything happens next.

And then in the heart valve business, can you give us a little bit of a sense here on price mix in the quarter? Give us a little better idea of kind of what's happening here?

Something that I might adhere is just I want to make sure that everybody gets a chance to get questions answered, in general we'll ask you that everybody gets a question and a follow-up question and then just get back in the loop and we'll try and keep this call going a little extra time here to get around to everybody, maybe more than once. But the short answer to your question, Amit, is really price has very little influence this quarter. It was almost pure units of what you saw. You really didn't see any price expansion in the Edwards numbers.

Our next question is coming from Tim Nelson with Piper Jaffrey. Please state your question.

Hi, guys. Let's dissect the valve business a little bit more if we can. Did you change your tone a little bit on the unit growth rate? You said 3 to 5 and previously you talked about 5 at the low end of the range. Can you talk about what's happening in the market, particularly the U.S. market if it's really down that low given a change in the guidelines, given the underpenetration you guys have highlighted, why would it be declining?

It's a good question, Tim. We don't have any really good answers to the question in terms of is the market declining. We think in general that all of the market fundamentals are exactly as they've been in the past and when we talked about growth rates in the past, I think we've talked about units being sort of in the 3 to 4% range. We think frankly in the U.S. based on what we've seen in the quarter and even in the first half it's probably at the low end of that range. We don't have all of the data in front of us at this point, Tim, because there's three competitors that are publicly traded so it's helpful to get that third piece, but even what we're seeing, it seems like we don't know of anything fundamental that's changing with the market.

Okay, it seems to me that on the competitive front that Edwards has certainly been at least in past quarters hurt more by [St. Jude] than some of the competitors are. Is there a reason why that, what that dynamic is?

Well, it's a good question. We probably -- as I mentioned, we probably felt it more in the mitral position than we have in the aortic position, even though we don't think that the BioSTAR heart valve being a pig valve and not having any tissue treatment is a very special valve for patients, that's for sure. I think that they've been somewhat affected with some customers in positioning easier to use, this lower profile makes it one that's a little easier for surgeons to use in a difficult to implant mitral position. And that's why we're looking forward to having the Magna Mitral valve which will not only be an outstanding valve but have even a lower profile and we think will be even easier to implant.

Finally on repair, we've seen growth rates below the double digit rates we're used to for the Second Quarter in a row. What's going on in the repair market?

Tim, I'll answer this question, but just again to try and add a little discipline here I'm going to make sure that we chop the questions off so that we can get you back in the loop.

Okay.

But in repair, it's a little bit softer. Where we're seeing growth is in our disease specific premium ideologic products, and we're seeing slower growth and actually not much growth at all in sort of our older, more mature products. We don't know if there's anything really fundamental going on there, Tim. We think that in the quarter anything can happen, but overall, we expect repair growth rate to stay right around the 10% growth rate.

Okay, thanks.

Yes.

Our next question is coming from Larry Biegelsen with Wachovia Securities. Please state your question.

Good afternoon, everyone. Can you hear me okay?

Yes.

First, on Magna Mitral, my understanding is you responded to the FDA around January with a six-month clock. Could you give us any color on the dialogue with the FDA and my second question is on a finance question for Tom. On the SG&A of 39% in the second half, R&D of 12% in the second half, should we expect that going forward? I know you're not giving 2008 guidance but that's a significant increase from where you've been in the past. Thank you.

Okay, Larry. On Magna Mitral, we're in kind of what you'd call I guess a realtime review process with the FDA. So there's communication going back and forth, verbal and e-mail and so forth, and so there's a lot of dialogue. We continue to feel encouraged that we're on track to get our approval in the Fourth Quarter, so it's not one of those where you sort of get to 180 day clip and it's yes or no. It's been a little more interactive than that, Larry and I'll turn it over to Tom for the other answer.

Sure, Larry. With SG&A being a significantly larger piece, I do expect next year will be a heavy spend year, but we would expect it to see a percentage of sales to come down during the second half of the year, and the first half being a little bit of a continuation and then work our way down (inaudible). For R&D though, in that case, you're probably going to see it stay right around (inaudible).

Tom, I'm sorry, you said stay around 12?

Yes.

Thank you.

Our next question is coming from Glenn Reicin with Morgan Stanley. Please state your question.

Good afternoon, folks.

Hi, Glenn.

So based on sort of the math I think you're giving us, it sounds like the incremental spend is somewhere between $20 to $25 million for this year. Is that -- if you can just confirm that first?

I think you're probably way high on that. I think it's probably half that, Glenn.

Okay. And then what would be the breakdown then?

On a pre-tax basis --

Sorry, are you maybe annualizing that, Glenn?

I'm sorry, I was combining SG&A and R&D together on a pre-tax basis.

No, it's about half that for the back half of the year.

Okay. Right, on the back half of the year, and then what would be the breakdown between Europe and the United States?

The Europe SAPIEN launch is about half of that. I'd say in the neighborhood of $6 million to $7 million for that launch.

Okay, so here is the question and it's sort of multi-dimensional. In the U.S, why are you guys convinced adding sales resources will help, given your market share? I would assume that your customer awareness of your products has to be extremely high and they are pretty low touch at this point, so that's the first part of the question. And secondly, on SAPIEN, you always had the intentions of launching at around year-end, so why is this incremental and then what, you're saying $20 million next year for sales -- we have about half that in our model and I'm just curious what happened on the reimbursement front that gives you confidence in that $20 million number.

We got a lot of questions.

I know, I know.

You broke the rules but we'll still answer them all.

It was all asked as one.

I know. So let's start with the U.S. sales resources. A little bit of what we're seeing, we're feeling more competition probably in the U.S. and there's more representatives out there, competitive representatives sharing their messages. And frankly, it causes us to get a little thinner than we would like to. We can get around to the big centers and we can't get to all of the small centers with our current level of resources. So part of that we think is very helpful for us to be able to have more people out there. And we find it particularly attractive to do that when we're launching an innovative product like the Magna Mitral valve, so we do think it will make a difference. We think on a standalone basis that wouldn't be it but when you combine that with the other things that we're doing including the Magna Mitral launch, we expect it to make a meaningful difference. In terms of the SAPIEN launch, although we have been -- we believe that there was a favorable reimbursement climate we've had, we've had a pretty good picture on CE Mark -- the CE Mark approval is clearer now. We think that we have a much clearer road map on reimbursement and we really like our clinical data, so it's causing us to say let's press our competitive advantage and really go for it. We could, we certainly plan to launch before Glenn, and we might have a number like you did that maybe is half of what we're expecting right now, but we feel like pressing the advantage is good not only in a way but it puts us on a steeper ramp for the future and kind of bodes well in the long term. So it gives a chance to add more centers than we would have had previously.

So any way to judge your success here sort of through milestones?

Well, I think what you're going to be able to do is to keep an eye on the way that we're adding accounts and tracking sales. If you don't mind --

Yes, I'll move on.

Get back in the queue and we'll get you next time around.

Thank you.

Our next question is coming from Dhulsini de Zoysa with Cowen and Company. Please state your question.

Hi, good evening. I wanted to just pick up on that last question. In terms of the European launch plans, Mike, could you talk a little bit about what gives you the increased confidence? Is it the communication with the European regulatory body? Is it the strength of the data? Are you just feeling some pressure because you got a competitor who is talking about going in and so you want to sort of grab some land early?

Well, yes. Real good question, Dhulsini. It's a combination of factors and I think that we mentioned several of those. Yes, we do feel that we have had conversations with the regulators and we are feeling confident about the timing before year-end, but probably the thing that's given us the greatest confidence is the conversations that we've had with clinicians with the centers that are out there. They are anxious to buy the valve and they are willing to step up to our sales price. So it gives us the confidence that we ought to press the advantage that we have right now and being the Company that's in the lead here and we think it would be a missed opportunity for us not to hit it hard.

Okay. If I could, this is a bit sort of off field for you, but I wanted to get your thoughts. It seems that in the last six months or so, both J&J and Medtronic have stepped up their interest or at least their communication about the commitment to the Transcatheter valve replacement opportunity. I think Medtronic even said they anticipate CE Mark this year. On the one hand you must feel validated, and on the other are you worried about the resources these companies can bring to bear? Any thoughts would be interesting.

Yes. Thanks for that. Both of these are smart companies and both of these companies are showing a lot of interest in Transcatheter valves which we think they should. We think it's one of the most exciting growth opportunities in medical devices and we're really happy about the position that we have. We have no idea what they are going to do. Our sense is that they do not have robust internal programs and we have the advantage of being first and it's our intention just to press that advantage, and so whatever they are going to do, I think they would have to do through some sort of acquisition of somebody coming up later.

Okay, I'll get back in queue. Thank you.

Thanks, Dhulsini.

Our next question is coming from Mike Weinstein with JPMorgan.

Thank you, good evening. Just want to follow-up on a couple of the questions here. So the math, Mike, is an extra like $13 million to $15 million of spending in the second half of the year, if that's the right math?

It's close to $13 million.

Okay, and half of that you're saying is Europe and thoughts about building out ahead of the SAPIEN launch?

Yes.

And just the timing question, which people are asking is that -- so if you're going to spend $6 million more on SAPIEN, what are you spending on that wouldn't have come this year, would that have all come next year? Is there some spending here that you're doing that you wouldn't have done anyways, maybe just three months later?

No. I think the way to look at it is it's accelerated spending. It's a spending that we would have done.

When you talk about the $13 million, I just want to be clear that we're talking about pre-tax.

Yes, right. And so then Mike, you threw out that $20 million plus number for next year which I think was the first time we had heard that. So I don't know exactly where you guys are going to come out on pricing, but my guess is from that commentary you're assuming you'll treat 1,500 or so patients, something in that ballpark range next year. That seems like a big number to get out of Europe in year one given the breadth of experience at this point and the challenge of learning curve with the patients. That doesn't seem like a big number to you?

Well, just so we get together on assumptions, we're assuming that we're going to be pricing this valve somewhere around 15,000 Euro.

Okay, so higher than I was assuming, all right.

Okay. Does that help?

Yes, that helps a little bit, but you're still just, so we're thinking about it correctly -- you're still thinking about a relatively broad rollout then. And as we think about the first half of next year, if you are going to do that broad of a rollout I would assume there's a fair amount of expenses you would incur in that rollout early on in the year. So we think about the cadence of 2008, there's obviously more dilution from the SAPIEN program in the first half of the year than the back half of the year, fair statement?

Yes, that is a good assumption, but we think when we talk about adding the number of centers, I think when you sit there and just model that, Mike, it's going to look pretty reasonable to you and that's why we're actually incurring the expenses this year.

Okay and last question, and I'll drop. The LifeStent program, how are you feeling about it right now, the strength of that program and the pace of the development of that business?

Yes. We're pleased with LifeStent. We set a goal for ourselves at the beginning of the year of doubling sales this year. We love the way the RESILIENT data is looking, so we're pleased with that. It's right on track, and we've decided to hold the salesforce right around 40 people at this point, Mike, so we're right where we thought we would be.

Okay, thank you, guys.

Thanks.

Sure.

Our next question is coming from Tim Lee with Caris & Company.

Hi, good afternoon. Thanks for taking the question. Just wanted to follow-up on the previous question regarding the accelerated investment on the SAPIEN launch. I guess what I'm trying to calibrate is -- how quickly do we get a return on investment. Just looking at the mid points of your current '07 goals and your prior '07 target I think you've turned around $0.17 for this year in aggregate, so do we recoup that over two year time frame, a three year time frame, just any kind of framework you could provide, that would be appreciated. Thank you.

You know, good question, Tim. It's going to be relatively current. If we were still working on the revenue numbers -- so obviously that's the piece that you're going to nail down, but the whole economics of the business there are very favorable, so I'm thinking something relatively quick.

Okay, just one quick follow-up if I may, just given the news this morning about the merger between ev3 and FoxHollow, does that change your strategic thinking on how quickly or how big you build out your peripheral salesforce?

Yes, it's a good question. We're still digesting that. It will be interesting how it shakes out. One of the things that appears real apparent to us is there are a lot of peripheral vascular sales guys out looking for work as a result of this acquisition, which I think can only be helpful to us, but no, I don't think it changes our fundamental strategy. We're still convinced that we have the best peripheral stent and we'll certainly be the only one with a PMA approval for the SFA for some time.

Great. Thank you.

Our next question is coming from Paul Choi with Merrill Lynch.

Hi, thanks, guys, for taking the question. If you could just maybe clarify one point on the salesforce. You said that 20 of your former TMR salespeople are going to transfer to HRT (sic). Is that the total incremental salesforce you're going to add to heart valve therapy this year and is that just U.S. or worldwide?

Yes, let me try and clarify, Paul, because with brief comments like that it might not be clear. We had a salesforce that numbered in the low 20s that previously -- what we called in the U.S -- that we called Cardiac Surgery Systems, and they sold TMR as well as our line of research medical Cannula. They will continue to sell the research medical Cannula. Their customer base has been cardiac surgeons but for the first time we're going to cross train them to also sell valves. So this low 20 number of sales reps are going to also -- they are going to be trained during the third quarter and so starting them in the third quarter versus the fourth, they are going to be available here to drive heart valve sales.

Great. Thanks for clarifying that, Mike. And then as a follow-up, I think you guys said you were targeting to have 15 reference centers in Europe by year-end. With the -- can you tell us where you stand currently with that, and how we should think about the incremental centers being added on by year-end? Thanks.

Yes. I think we said that we were going to have 15 reference centers in Europe by the end of this quarter.

Oh, okay.

I don't know exactly where we are as we sit end of July, but it's our intention to have those in place by the end of the Third Quarter.

Our next question is coming from Rick Wise with Bear Stearns. Please state your question.

Hi, good afternoon, this is actually Gil Gabbay for Rick. Two questions, first on the LifeStent. You mentioned in your script that you submitted data the PMA to the FDA and you submitted data on the longer stent version than the new delivery system. Do you expect approval to include both the longer stents and the new delivery system?

Thanks, Gil. Yes, the original data that we submitted was before -- it started out before we had the FlexStar Delivery system in long stent, and so the deal that we agreed to with the FDA is that we would generate data in Europe and submit that alongside, and that is the data that we submitted. So the stuff for the longer stent is up to 107 millimeter and also the FlexStar delivery system. That data looks very consistent and so we expect when we get the PMA, that it will include the FlexStar delivery system and the longer stent.

Wonderful, and the second question relates to a comment you made as well. You were saying the competitor valves are making inroads, at least on the aortic side, into Edwards older base products. Could you share with us what percent of your total heart valve revenues are underneath older base products?

What percentage of our revenue is older base products? I'll tell you what, what I'll do is sort of give you the cut between Magna and traditional valve. So Magna on a global basis probably accounts for something like 55% of our global sales and in the U.S. It probably accounts for close to 70% of our sales, okay? So in the U.S, when we talk about the older ones it accounts for about 30% of our U.S. sales. Does that answer your question, Gil?

Yes, it does. Thank you very much.

Our next question is coming from Jason Mills with Canaccord Adams. Please state your question.

Hi, guys. Thanks for taking the question. Hi, Mike. A couple of questions, one on LifeStent and one on Magna Mitral. I'll start with the second one first. Could you maybe talk about your strategy for launching that product in the U.S, specifically with respect to pricing. Clearly I think we all know Edwards has been typically a price premium player in the market and I wouldn't expect you to be a price discounter, but I know that's what you're facing. So can you talk about just generally I guess your strategy for launching that product specifically in the mitral position against a valve you feel is inferior and with respect to pricing and then I'll ask the LifeStent question.

We think this is going to be best-in-class valve and we expect a matter of fact this Magna Mitral valve gets us a number one position in the U.S. before long, probably within a year. We would expect to price this at some sort of premium, probably around the 10% premium, Jason, over what the valves are -- our current valves are priced, okay?

Okay. So 10% premium, great.

It'll drive the premium.

Okay. And then on the LifeStent side to follow-up on a few questions with respect to the ev3/FoxHollow merger -- seems like one of the driving forces behind that if you talk to those two companies is the desire to have a toolbox approach for lack of a better term and having multiple products to treat the PAD patient which tends to be sort of a heterogeneous patient population in terms of what you see in any given patient, what kind of disease you see. So would be interested your thoughts, Mike, with respect to that market, having in your mind the best stent. Do you feel like that precludes your Company needing sort of other products to treat other areas of the anatomy or having atherectomy products or having multiple products in that area generally?

It's always possible to get synergy if you're able to add great products to the bag without diluting your sales effort. The thing that we feel good about is that we have an outstanding stent and we'll have the only stent with a PMA approval in the SFA position. It's I guess you have to be proven here whether atherectomy and stents necessarily drive better results or there's really no data on that and we'll be looking at that one very carefully and we're always looking at opportunities here to improve our peripheral vascular offering but right now it's the customers that piece together what they need for the best treatment for patients.

So in light of that sorry about it just to follow-up to that, are you planning additional trials? You've been mentioning a lot of additional spending in the heart valve area, where you're clearly a market leader. It would stand to reason with respect to the transformational opportunities that you cite that you would be maybe devoting more resources to bear out these opportunities going forward. So can you talk about maybe your plans for additional spending on the vascular business?

Well, certainly we'll be doing some postmarketing trials on that, Jason, to I think once again sort of press our advantage. We particularly, we think the Life is going to be particularly attractive in these difficult to treat places as you move down the leg.

Thanks.

Our next question is coming from Josh Zable with Natexis Bleichroeder.

Hi, guys. Thanks for taking my question. Most of my questions have been answered but just a follow-up to LifeStent. Obviously your vascular business is doing pretty well here and can you just kind of talk about the environment, maybe clinicians -- are they expecting what they're expecting out there and if it is sort of driving the potential approval is driving sales now or we should expect to see some strong growth once we get approval?

Yes, Josh. I think we've talked about a lot of things. A couple things we haven't talked about -- right now, one of the things that's an advantage for us is that there's clinical data that's becoming available, but there's six-month data out there and soon to be 12 month data out there and that's valuable to us. It's demonstrated great durability, fracture rate is low, and it's looking very safe, and that's helpful and allows us to have something to be able to share with clinicians that are interested. And beyond that, there's also an environment here where clearly, I don't think the FDA is real excited about off-label use and we find it attractive -- the opportunity to be able to market our products once we have a PMA approval to U.S. customers.

Great. And then just quickly on FloTrac. I know you guys are continuing to sort of develop a market there. Can you just kind of talk about the growth trajectory there? Obviously it's been very strong. How long do you think you can keep it up obviously without talking specifics for '08 -- but give us a general idea?

Yes, thanks for that, Josh. It's a little too soon for specifics, but we think that FloTrac has a lot of legs. We're at this point only going after this surgery market, and we think there are real opportunities. When we talk about this software enhancement, this algorithm enhancement that we made for the end of the year, it will open up an ICU segment that hasn't been available in the past and we think we're on the front end with FloTrac. So we expect this trajectory to go for some time and we expect FloTrac to generate sales in the triple digits at some point.

Great. Thanks very much.

Thank you.

Our next question is coming from Kristen Stewart with Credit Suisse. Please state your question.

Hi, good afternoon.

Hi.

I was just wondering, you mentioned that most of St. Jude -- you said you were seeing a little bit more success from them on penetrating into your older generation valves. And I was just wondering as they rollout next generation with anti-calcification -- what you thought on that end in terms of whether it would just be converting existing Biocor users or do you think they will have additional success? And whether you'll have any sort of marketing campaigns to go along with the additional salespeople similar to what you had with the Medtronic situation several years back with the Wyeth compromise campaign. Thanks. Thanks for that, Kristen. We've been actually surprised there's been as much sales in the U.S. of the Biocor valve given the fact there is no anti-calcification treatment and we think it's a credit to that sales organization that's been able to leverage their relationships. We would expect that the primary target of effort would be the Biocor valves themselves and that will be the greatest rate of impact and we wouldn't expect based on the experience that we've had in Europe and elsewhere to really see it have a similar sort of effect that Biocor had when it initially came to the U.S. market. And then just in terms of any sort of campaign on the side of data points like why compromise?

Yes, well, one of the things that we certainly have done has been to take a very careful focused and detailed look at what's going on in the U.S. And we have quite a bit actually in the works here. I'm not going to share just for competitive reasons ways that we're going to respond to the (inaudible). We're not only looking at what's in the marketplace but what we're anticipating seeing here over the next near term and we would plan to be able to aggressively respond to that.

Okay. And just to clarify your additional sales add, is there more beyond the 20 salespeople that you're going to cross train now? Will you be hiring additional people?

No. There are additional expenses in the U.S. But that's the extent in terms of people. There's small numbers, but this is the ballpark.

Okay, thanks.

Our next question is coming from Glenn Novarro with Banc of America Securities.

Hi, thanks. Mike, in Europe, I think the plan has always been for SAPIEN to be sold by what I would call your general salesforce. Have the plans changed? Is any part of this increased spend going to be geared towards a specialist salesforce that would be calling principally on interventional cardiologists?

Yes, Glenn. If we left the impression in the past that we were going to get leverage out of our core surgical heart valve salesforce, then we left the wrong impression. Our plans have always been to introduce specialists associated with the Transcatheter Technology, both because there is a call point that is expanded here to move cardiologists and also because this is going to be sort of a reference center call and it's going to be pretty labor intensive. It's not your traditional salesforce. There's a heavy element of clinical specialists that are associated with it and it's going to be those sort of clinical specialists that will make up the bulk of this. And there's a very heavy training component so that's more of the character of the people we add. Not our traditional heart valve reps.

So then how many of these clinical specialists do you plan on hiring this year and in 2008 for the European launch?

I'm not sure I have that number here to give to you, Glenn. I'm sure that we have it, but I would hesitate to detail it because I would really want to aggregate the resources that we're putting into framing and clinical specialists in order to be reimbursement specialists that also help accounts get reimbursed. And so we have this sort of laid out by priority countries. There's some countries where reimbursement is more favorable or going to be. So I guess it would be a little bit more complicated equation and one that's not that easy. But I think what you can do is to back into that number that Tom gave you that said we're going to spend something in the neighborhood of $6 million to $7 million in the back half of the year on those kind of resources.

Can I just ask one follow-up just on what you just mentioned? You were going to launch into countries where reimbursement is most favorable? Can you list those countries for us?

Well, I think for competitive reasons, we would rather not do that, Glenn. I think it will become apparent here when we start reporting results.

Okay, thanks, Mike.

Sure.

Our next question is coming from Larry Keusch with Goldman Sachs. Please state your question.

Hi, good evening. Mike, two questions for you. First, can we go back to just a competitive situation in the U.S. And I think most people would certainly agree that an uncalcified valve is certainly a different animal as it relates to what you guys are offering. But where and why do you think you are seeing pressure that you're seeing? I just assume you're a bit surprised here, so I'm wondering if it's in a patient population that's older and maybe repeat surgeries don't matter as much or are they playing on price? What is going on that perhaps is a little different from what you're anticipating?

Larry, we didn't exactly see it playing out the way it did and I give credit to our competitors for some interesting positioning. I think indeed what you said is correct. I think they particularly probably targeted the mitral position, probably targeted it with older patients where you didn't have to make an argument that the durability and hemodynamics were important, went to places where their relationships were strong, and really built on the low profile of that valve -- its ease-of-use profile. So particularly for surgeons that were maybe looking to switch to valve implants and used to do a little easier implant so a combination of things allowed them on the margin here to have more success than we originally anticipated.

And then I guess a follow-up is -- so if that is the case in what you're seeing out there, even if you bring some of your new valves into place, your Magna Mitral, et cetera -- again does it really perhaps matter as much in those older patient populations and maybe the only thing that you need to do in this case is perhaps change some pricing strategies there to compete more effectively.

We think actually it's going to be a very compelling story for our clinicians, to be able to have a valve that's very durable, has great hemodynamics and is easy to implant from a Company who is as trusted as Edwards really is going to be a very attractive option for people. We think that it's just much lower risk for clinicians to be able to go that route.

Okay and then I may have missed this, but Tom, did you have the CapEx number for the year-to-date at this point?

Let me look for you. Give me one second.

Okay.

That would be $27 million.

And the $5 million comment was for the full year?

Yes.

Okay, great. Thank you very much.

Our next question is coming from Alex Arrow with Lazard Capital Markets.

Thanks, good afternoon. Did I miss or did you give an enrollment update of the PARTNER trial?

Yes. We said that right now, there's four centers and 25 patients that have been done and we continue to feel like we're on track to meet our original commitment of 12 to 18 months to complete enrollment.

Are there other enrollment milestones that we can anticipate that you can share with us such as at TCT when you have your Analyst meeting will you give us an enrollment update and will you give us specific target goal at that point?

Yes, I'd anticipate, Alex, that on quarterly calls and on substantial meetings like TCT Analyst meeting we'll give you an update on enrollment.

Do you have a target number that you can share with us or is that too soon?

Well, we do have targets. We have it by month and I can't tell you what the target is going to be in October, but I'm sure we have that. And we could start probably trying to provide guidance in the future around what that might be at an interim point.

Okay, and then you mentioned that you have the less than 20 French version of the Ascendra in development and would begin in 2008. Would that be anticipated to be the size that you'd launch with in 2010 when you're ready to launch in the U.S -- the less than 20 French version?

Yes. But just to clarify, that's not Ascendra. Ascendra is the delivery system that's referred to for the transapical approach. What we're referring here to is the next generation valve. Recall the way it works now our SAPIEN valve is the single valve we deliver with totally two different delivery systems, one transapical called Ascendra and the other transfemoral, and that's RetroFlex. The valve that is in design, the next generation valve, we're very excited about. We think it is going to have even better durability, great hemodynamics and be able to get most of the sizes under 20 French -- the most important size is under 20 French -- which we think is going to be particularly attractive for a transfemoral delivery.

Okay, so the whole percutaneous construct, the valve plus the applicator, whether you're talking about retrograde or antegrade, is less than 20 French in diameter if I have that correctly. So I guess what's the difference between this one and the previous one? Why not start with the 20 French when you started this previously?

Well, I think this is simply enhancement that has been added by some great engineering, okay? So what we've been able to do is to take a very careful analysis of what we're doing and find a way to be able to introduce it in even a smaller profile and actually, it's not just diameter that we worry about. We really think about deliverability, and deliverability gets more complex actually than just thinking about the diameter that's delivered. The segment length, for example, the segment length of a balloon expandable valve like ours is much shorter so when you combine that with a low profile, it makes it quite deliverable and we think the best-in-class delivery. And just for clarification, what's going through right now the PARTNER trial is the SAPIEN valve. That is the valve that will be approved first for the U.S. This will be a different valve and require its own trial, Alex, so I don't want you to make you think that this is one of those that is so similar here that just a quick supplement.

Oh, that was my question then. So in 2010 when you launch, it will not be 20 French, it will be what? 24?

It depends on the size of the valve. So it depends on whether it's a 26 millimeter valve or a 23 millimeter valve.

Assuming it's a 26 millimeter, what French would it be?

It's 24.

Okay, and then is the engineering advanced because you're switching --

Go ahead, do you have one more?

Yes, is it because you're switching from Equine to Bovine, is that the event you're referring to?

No, it's not.

Thanks very much.

Our next question is coming from Larry Biegelsen with Wachovia Securities. Please state your question.

Hi, thanks for taking the second round. I know it's early but of the 24 or 25 patients that have been enrolled in the PARTNER trial, could you give us a split between the medical management and the surgery arm, and then a follow-up on the European sites. The 15 sites for the end of the Third Quarter '07, can you give us a goal for how many you hope to have by the end of 08? Thanks.

Sure. First on the U.S. PARTNER trial, we do not plan to share any detailed information about that trial other than enrollment numbers, Larry. I think that's for obvious reasons -- it's just not the kind of thing that we think is in the best interest of getting this technology approved. I hesitate to share a year-end number '08 in terms of number of centers. We'll probably be in a better position to do that as we get close to our investor conference and you can count on that update at that time.

Just to clarify -- the second half heart valve guidance is $250 million to $26O million and that does not include any Transcatheter valve revenues?

That's correct.

Thank you.

Our final question is coming from Kristen Stewart with Credit Suisse. Please state your question.

Hi, I just wanted to circle back on the pricing over in Europe. You mentioned 15,000 Euros and I'm just curious -- I think you previously said 13,000 to 17,000 on a global basis. Is reimbursement just the factor that has prompted you to raise that range a little bit or what's really driving that?

No. I think when we had previously shared any sort of pricing estimates, they would have been unclear and we wouldn't have had the complete research available to us. We've looked at this very carefully and based on the value that we think this technology is going to add for clinicians and patients, we feel that the 15,000 Euro point is an appropriate place for us to introduce.

And are you going to be collecting any sort of economic data in the U.S. trial or have you done so outside the United States to help further support the value difference between this and a surgical valve?

We are collecting that data, and it's going to be valuable in Europe and the U.S, And so we're anxious to be able to have that data to share with you at some point but it's still early on.

Okay, thanks.

Mr. Erickson, there are no further questions at this time. I'd like to turn the floor back over to Management for any closing comments.

Yes, I'll just make a quick closing comment. I know that Tom spoke earlier about the fact that we were going to have some continuing high spend in the early part of '08. And we're not prepared to give '08 guidance at this point because it's just too early in the process and we'll be providing that specific guidance later. But we're setting a goal for ourselves to get '08 earnings into double digit growth rate, and I just wanted -- then I'm talking about double digit EPS growth rate -- and I just wanted to share that before we ended the call. So with that, thanks for your continued interest in Edwards and Tom, David, and I will welcome any additional questions that you may have by telephone so thank you. David?

Thank you for joining us on today's call. Reconciliation between GAAP and non-GAAP numbers mentioned during the call which include underlying growth rates and amounts adjusted for special items are included in today's Press Release and can also be found in the Investor Relations section of our website at Edwards.Com. If you missed any portion of today's call a telephonic replay will be available for 72 hours. To access this, please dial 877-660-6853 or 201-612-7415 and use account number 2995, passcode 246258. I'll repeat those numbers. 877-660-6853 or 201-612-7415. The account number is 2995. The passcode is 246258. Alternatively, an audio replay will be archived on the Investor Relations section of our website. Thank you very much.

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