愛德華生命科學 (EW) 2008 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Edwards Lifesciences second quarter 2008 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 reminder this conference is being recorded. It is my pleasure to introduce your host, 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 2008 financial results. During our call today we'll focus our prepared remarks on information that complements the material included in the press release and financial schedules and then allocate the remaining time for Q&A. Our presenters on today's call are Mike Mussallem, Chairman and CEO; Tom Abate, CFO and treasurer; and Larry Wood, corporate Vice President, transcatheter valve replacements.

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 are not limited to: Sales, gross profit margin, net income; earnings per share and free cash flow goals for 2008; the regulatory approval and sales of Heart Valve Therapy products, including Magna Mitral and Magna Ease; the competitive dynamics of the heart valve market; the continued adoption, expected sales and product enhancements of the FloTrac system; the timing progress and results of the partner clinical trial; the market opportunity for transcatheter technologies; and the adoption in Europe and expected 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 in our annual report on Form 10-K for the year ended December 31, 2007 and our other SEC filings, which are available on our website at Edwards.com.

With that I'll turn the call to Mike Mussallem. Mike?

Thank you, David. We're very pleased to be reporting strong second quarter results, with all of our franchises achieving double-digit sales growth. This quarter was also highlighted by notable results from our SAPIEN transcatheter heart valves with better-than-expected sales of $13.6 million and continued impressive procedural success. Now turning to results, on a reported basis total sales for the quarter grew 20% to $328 million and grew 13.3% on an underlying basis. Currency helped sales this quarter, while discontinued businesses slightly trimmed the underlying rate. Before I provide a more detailed review of our sales results Larry Wood, corporate Vice President of transcatheter heart valve replacement, will discuss the quarterly sales results and provide an update on our US partner trial. Following my remarks Tom will review the financial results.

With that I'd like to introduce Larry Wood. Larry?

Thanks, Mike. I'm very pleased to have the opportunity to report a strong quarter in sales in Europe, along with significant progress in our US partner clinical trial. Starting with our transcatheter heart valve sales, second quarter global sales exceeded our expectations at $13.6 million, nearly all of which was in Europe with the remainder from the US clinical trial and Canada. Continued high procedural success, combined with an expansion in the active centers, drove increased procedures and sales. In Europe during the second quarter we implanted over 350 valves, which is more than double the number of implants we had in the first quarter. Our selling price remained within our expected range of EUR15,000 to EUR22,000. Our sales are increasingly driven by implants and less from initial stocking orders. We saw the implant to sales rate increase to nearly 80% in the second quarter compared to about 50% in the first quarter. We've expanded from having more than 30 centers performing cases in the first quarter to having 50 centers performing cases during the second quarter. There are still many centers eager to join our program and we've expanded our training capabilities. We expect to continue to add at least five centers per month for the remainder of the year.

I'm very pleased to report that our year-to-date and year-to-date commercial sales the combined acute procedurall success rate remained high at around 95%, with the transfemoral rate a little higher than the transatrial approach. This is likely driven by the transfemoral approach being the less invasive of the two procedures and that transatrial patients tend to be sicker of the two groups. We believe our high acute procedural success rate is a direct result of our clinician's dedication to success and our world-class training program. Just as a reminder, the acute procedural success rate that we report each quarter is focused on the procedural results, specifically that the case was successfully performed, that the valve was successfully placed, and that it was functioning properly immediately post procedure. In regard to the 30-day and one-year survival rates even patients that have a successful procedure are going to have significant mortality over time due to their advanced aging comorbidity. Remember, the limited historical data suggests these types of patients have mortality rates between 30% and 50% at one year if left untreated.

Regarding reimbursement we expect most European countries to establish formal reimbursement in 2010. In the meantime, funding for procedures is a complex issue that is account and country specific. Although interim funding is not assured, we are pleased that hospitals are currently able to fund these procedures and we expect this to continue while -- as we make progress toward formal reimbursement. Based on our momentum in Europe, we are now increasing our global transcatheter heart valve sales guidance to between $45 million to $50 million for the full year. We expect third quarter transcatheter valve sales to be less than sales reported in the second quarter due to the normal seasonality of procedures in Europe.

Turning to the US partner trial we now have 16 centers that are actively enrolling patients. At the end of June we had over 300 patients enrolled in the partner trial, which is right on track with the timeline we presented at our investor conference in December. By the end of 2008 we anticipate having 600 patients enrolled. We continue to believe our progress in the US gives us at least a two-year lead over the next closest competitor. During the second quarter we had our first patient receive a SAPIEN valve with the [asendra] delivery system within the partner trial and our participating centers are pro -- are in the process of adding. asendra. This addition to the trial will give cardiac surgeons the opportunity to partner in this transformational technology and, most importantly, it will allow us to address more patients.

We are continuing our dialogue with the European regulatory agencies regarding the trial design for our next generation transcatheter heart valve. We plan to start a trial before the end of the year in support of a mid-2010 CE mark. We continue to anticipate that this will be a nonrandomized trial comparable to the study design of our first generation technology. Last quarter we began our 30 patient US feasibility trial of the SAPIEN valve in the pulmonic position. To date we have performed seven cases and continue to enroll patients in this trial. At EACCS, which is the European Cardiac Surgery meeting in September, and the TCT meeting in October there will be a number of presentations on the Edwards SAPIEN valve. The data will include the latest follow up on the early feasibility study and in addition, we will be providing 30-day follow up from our post approval registry from the European commercial launch. We also expect to perform live cases at both meetings.

I look forward to reporting our continued progress. Now I'll turn the call back over to Mike.

Thanks, Larry. Reported sales for Heart Valve Therapy were $163 million for the second quarter, an increase of 23.8%, which included a $10 million contribution from foreign exchange. On an underlying basis growth was 17.2% for the quarter, led once again by strong performance in international regions, including transcatheter heart valves in Europe. In the US valve sales growth increased to approximately 5%, driven by both units and price. We're particularly pleased to see this progress in advance of our new product launches. Outside of the US our base heart valve business continued to achieve strong double-digit underlying sales growth driven by the expanding adoption of our Magna heart valve platform. The strong uptake of our SAPIEN valve in Europe exceeded our expectations and was the primary driver of sales growth. This technology is generating additional market growth in Europe, as patients who were previously untreated now have more options for therapy. The introduction of transcatheter heart valves has dramatically lifted market growth in Europe from its historical rate of 3% to 5% to approximately 25%.

Turning to Magna Mitral. During the second quarter we submitted our response to the FDA regarding the incremental testing and analysis that they'd requested. We believe that all of the FDA's questions have been addressed and continue to remain optimistic for a US introduction during the third quarter of 2008. With regard to Magna Ease we are waiting for additional clarification on the Magna Mitral approval before submitting our response to the FDA's questions. We continue to anticipate a US launch for Magna Ease in 2009 pending regulatory approval.

Based on this valve's performance in Europe we expect that Magna Ease will surpass Magna and become the market-leading valve. In Japan we received regulatory and reimbursement approval for our Magna Aortic valve during the second quarter. We introduced this valve in June and are very pleased with our first month's performance. We expect this product will accelerate our growth rate in Japan in the second half of 2008, and based on this valve' superior patient benefits we believe it will quickly become the number one heart valve in Japan.

Turning to repair, sales growth in the quarter continued in the mid single digits, led by our disease-specific products. As planned we unveiled our Physio II ring at the AATS conference in May and are pleased with the enthusiastic clinician response. We expect US implants to begin in the third quarter and have moved up the European launch from 2009 into the fourth quarter. Our new Physio II ring represents the next generation repair product for degenerative mitral disease, which is the largest segment in repair and where we've experienced the most competitive activity.

And turning to Cardiac Surgery Systems, reported sales for the quarter increased 54.6% to $24 million, primarily due to the continued strong performance of the CardioVations MIS product line. CardioVations grew over 20% on a pro forma basis as we increased penetration into existing accounts and introduced MIS therapies into new accounts. In addition, our base [canual] products were up 5% on an underlying basis. We were very pleased to have fully integrated the CardioVations product line into our Cardiac Surgery Systems franchise. We fully retained the CardioVations sales force, improved product quality and increased manufacturing capacity to meet the rising product demand. CardioVations offers real synergies with our Heart Valve business and we are committed to leading the way in developing MIS valve products.

Now turning to our Critical Care business. For the second quarter Critical Care reported $117 million in sales, up 19.7%, which included an $8 million contribution from foreign exchange. Once again the underlying sales growth rate exceeded 10%. Sales of new products led by FloTrac continued to be the biggest growth driver this quarter. In addition, our growth is becoming more diversified, with increased adoption of PreSep, strong performance in emerging markets and share gains in our pressure monitoring and hemofiltration products. Our dual-prong strategy of increasing innovation and improving operational execution has transformed Critical Care from a low single-digit growth business to an 8% to 10% franchise in the last few years. We believe this strategy will provide Edwards with a sustainable competitive advantage.

Our most recent product innovations are being well received. We are creating new market opportunities for FloTrac. During the second quarter we released an enhancement that provides additional information in the operating room. Our next significant introduction is a substantial upgrade that enables this system to provide enhancements targeted for the medical ICU. This innovation will continue to broaden the application of FloTrac. During the quarter sales of PreSep, our innovative central venous oximetry catheter for early detection of sepsis continued to ramp up. Detection and treatment of sepsis remains a clinical challenge and PreSep is gaining adoption. In addition, PediaSat, our Venus oximetry system for pediatric patients, continues to be well received.

The second element of our strategy is also contributing to our success. Improvements in our operational execution have enabled us to continue to take share in pressure monitoring products and hemofiltration, and recently we initiated US sales of our hemofiltration products through a distributor. These products contributed almost half of Critical Care's total growth. Total reported sales of vascular products were $25 million this quarter, consistent with our expectations. Sales of our high-margin base vascular products experienced a small decline to $14 million. We are continuing to pursue the PMA approval for LifeStent and continue to anticipate receiving an SFA indication by the end of this year.

Turning to transcatheter mitral repair, in EuroPCR in May, one year follow-up date from the EVOLUTION I feasibility study of our MONARC System was presented. The earlier results are encouraging and are prompting us to move forward with the EVOLUTION 2 study. We look forward to providing additional details about the trial design at the upcoming TCT conference.

Before we move to a discussion of our financial results I'd like to update you on the defense of our transcatheter heart valve patents. As you recall, we initiated litigation against CoreValve in Germany and in the US and they countered by challenging the Anderson patent with a lawsuit in the UK. The UK trial was recently completed and we are awaiting a decision. In the meantime, we are preparing for our next proceeding in Germany scheduled for September. We believe in the strength of our broad transcatheter patent portfolio and are committed to vigorously protecting our valuable intellectual property, as well as the interests of our clinician/inventors.

Now I'll turn the call over to Tom.

Thank you, Mike. In addition to the strong sales that Mike and Larry have already discussed, I am pleased to highlight our strong earnings. Our second quarter non-GAAP EPS was $0.66, which was the top of our previous guidance range. Reported earnings per diluted share for the second quarter were $0.67. During the quarter we fully retired our convertible debenture, which has debt-to-capital ratio to historical low level of less than 14%. In addition, our balance sheet is stronger than ever with our cash position now exceeding our remaining debt. For the second quarter our gross profit margin was 65.5% compared to 65.3% in the same period last year. This increase resulted from a more profitable product mix, which was largely offset by the temporary impact of FX hedges and contract manufacturing. As a result of these items, along with incremental investments in quality systems, we now expect full-year 2008 gross profit margin improvement to be between 50 and 100 basis points. Also, I will remind you that our foreign hedge exchange -- our foreign exchange hedges will continue to suppress the gross profit margin through the third quarter. Looking forward, based on the strength of our improving product mix we continue to expect our gross profit margin to exceed 70% within the next few years.

Second quarter SG&A expenses were 38.6% of sales, or $126 million. The $25 million increase versus last year was due primarily to the significant impact from foreign exchange; expected higher levels of sales-related spending, including the SAPIEN launch in Europe; and compensation expense related to our strong sale performance. For the full-year 2008 we expect SG&A to remain at approximately 38% to 39% of sales. R&D investments in the quarter were $35 million, or 10.8% of sales, compared to $29 million last year. The increased level of spending was focused primarily on our transcatheter and surgical valve program, as well as our Critical Care development efforts. As result of stronger sales performance, we now expect R&D as a percentage of sales to be between 11% and 11.5% for 2008. During the quarter we recorded a special gain of $800,000 representing the reversal of previously-accrued severance costs.

For the second quarter our reported tax rate was 23.8% compared to 25.4% a year ago. Excluding special items our second quarter rate was 24%, resulting in a year-to-date tax rate of 25%. We expect this new lower tax rate to continue for the remainder of this year due to a shift in the geographic mix of our earnings. When compared to the same quarter last year, FX rates positively impacted second quarter reported sales by approximately $20 million. In comparison to the foreign exchange expectation set during our last earnings call, the impact on the top and bottom lines was minimal.

Free cash flow generated during the second quarter with $17.4 million, which we define as cash flow from operating activities of $29 million minus CapEx of $11.6 million. In the third quarter we plan to discontinue securitizing our US accounts receivable. Due to recent changes in the financial markets these instruments no longer offer us an attractive financing alternative. Although terminating the US program will not affect working capital it will reduce free cash flow in the third quarter by approximately $50 million. We have a second program in Japan that we plan to retake. For the full year we continue to expect free cash flow to be at the upper end of our $155 million to $165 million goal, excluding the impact of terminating our US securitization program.

As a result of our decision to redeem our $150 million convertible debenture, we issued approximately 2.7 million shares in the quarter. We subsequently repurchased 2.5 million shares for approximately $150 million to largely offset the issuance of these shares. As previously announced, our board recently authorized a new $250 million share repurchase program. Given the current stock price we now expect fully-diluted shares outstanding to be approximately 59 million in the second half of the year.

On the balance sheet, total debt at June 30th was $142 million, while at the same time we had a cash balance of $188 million. Including receivables in our asset-backed securitization programs, days sales outstanding for the quarter was 67 days, a reduction of three days from the prior quarter. Inventories decreased $3 million from the last quarter to $137 million. For the second quarter domestic sales grew 16% to $140 million and internationally sales grew 24% to $188 million.

Turning to 2008 sales guidance, based on our second quarter results and improved outlook for the remainder of this year we are increasing the midpoint of our full-year guidance by $25 million. We expect our full-year total sales to be between $1.24 billion to $1.280 billion. This revised range reflects expected performance improvements across all of the Company's product lines. For Heart Valve Therapy we were raising our 2008 sales guidance $15 million to between $605 million and $625 million. This includes raising our transcatheter valve assumptions to between $45 million and $50 million. In Critical Care we now expect total annual sales to increase $5 million to between $455 million and $475 million. In Cardiac Surgery Systems we're raising total annual sales by $5 million to between $85 million and $95 million. Lastly, in Vascular we now expect total annual sales to increase $5 million to between $85 million and $95 million, which includes contract manufacturing of stents.

All of these projections assume foreign currencies remain at current levels. For the third-quarter 2008 we are projecting total sales of $295 million to $315 million. We estimate the third quarter diluted EPS will be between $0.53 and $0.57. We are increasing the full-year estimate by $0.05 to between $2.50 to $2.58, excluding special items. This represents a 2008 EPS growth rate of approximately 20%.

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

Thanks, Tom. Overall we had a very successful first six months and we're expecting a strong second half of the year. We're continuing to drive strong core growth in our franchises and our transcatheter valve platform represents a truly transformational growth opportunity. We look forward to sharing our continued progress with you.

Before we open it up to questions I'd like to encourage you to take note of several upcoming events. In October the TCT meeting will be held in Washington, D.C. At this meeting several clinicians will present their experiences with our transcatheter valve technologies, In addition we plan to host an analyst meeting, so stay tuned for more details over the next couple of months. Also on Thursday, December 11th we'll host our 2008 investor conference in New York. At this event we'll provide an update on our new technologies, as well as our outlook for 2009. Watch for more information about this event later in the year.

And with that I'll turn it back over to David.

In order to allow everyone a chance to ask a question, we ask that you limit your questions, and if you have additional questions re-enter the queue and we'll answer as many as we can during the remainder of the call. Operator, we're ready to take questions, please.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Mike Weinstein from JPMorgan. Please state your question.

Thank you. Good evening and thanks for taking the questions. Let me start with just a couple items. One, you're obviously continuing to make a lot of traction in your ramp in Europe with the rollout of the SAPIEN. Could you just describe for us a little bit better the huge success around 95% that you described, just to make sure I understood the description you gave. That's the procedural success that doesn't indicate whether or not the patient survived half the initial procedure, is that right?

No, what that means, just to clarify, is when the case is performed it means the valve was successfully placed and the valve was functioning appropriately and by all accounts the case was deemed a successful procedure, and we believe that's a leading indicator of how results are going to be in 30 days and further out, but keeping in mind that these patients have a lot of comorbidity and often times those comorbidities can lead to mortality that are completely unrelated to the valve procedure itself.

Okay, let me ask just two other quick ones. The first one's a financial question. The gross margins came in lower than people were expecting and you highlighted that part of that was due to FX hedges and part was due to contract manufacturing. Could you just maybe try and quantify what each of those were to the gross margin line?

Sure, Mike. It's not that far off of the expectations that we had last quarter and particularly for this quarter. What changed a little bit more was the rest of the year where I now think that the third quarter is probably going to be in this range once again and then the uptick continuing in the fourth quarter. FX was a small piece. Contract with a little bit of a difference in this quarter, but as I said, we weren't too far off where we thought we would land and tried to signal in the last call.

Okay, then one other financial question and then I'll jump back in queue. You talked about the CoreValve litigation. You obviously just went through the trial and in the UK and you have a trial ahead of you in Germany, how much are you spending in litigation in terms of how much of a hit that was that in the quarter?

I don't think that it was a substantial impact on the quarter, Mike. We are certainly spending money, but I think actually that those -- that might even be an accrual.

No, those expenses are capitalized. As long as you're defending your intellectual property it does not hit the P&L. If you win the case, then it's part of your asset base and it would be depreciated over the remaining life. So at this point, Mike, there's nothing in the P&L for those actually.

You're capitalizing your legal expenses?

Correct.

Okay, I'll jump back into queue.

That's pretty normal. We've done this for -- since the beginning in terms of defending intellectual property.

Okay, thank you.

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

Hi, good evening, good afternoon, whichever it is. Just wanted to touch base a little bit more on Europe and some of the commentary there, if you'd be willing to break out how much of the procedures are really more transatrial versus transfemoral and then just a little bit more context around the reimbursement outlook? I know you'd mentioned several countries -- I;m sorry, several European countries to reestablish, reimbursement in 2010. To what degree do you still feel comfortable on the run rate going forward through 2009 in absence of that?

Sure, Kristen. In terms of TATF I think year to date our procedures have probably been fairly evenly split between the two and we think that's really one of the strengths of our program is clinicians can really decide looking at individual patients what's the best procedure of that individual patient and by having both the technologies available we believe we can treat the vast majority of patients. In terms of reimbursement, we certainly feel confident that in 2010 that the major countries will come on board with reimbursement. In the interim, there still continues to be a tremendous amount of excitement related to centers wanting to get involved in the program and they've been able to secure funding to pay for these procedures and we expect that to continue as we make progress towards formal reimbursement.

And then any additional color on the European trial, the next generation. I know you said mid 2010 CE mark. How long of a follow up and how big of a study are you anticipating to get to that sort of timeline?

I don't want to get too deep into that for competitive reasons. We would expect it to be nonrandomized trial comparable to what we did for the first generation valve and we expect to start that trial before the end of the year. And remember as well, we've already done three (inaudible) with these, so we certainly remain confident around the valve itself, but I don't want to get too deep into the trial design just for competitive reasons.

Fair enough. Thank you.

Thanks, Kristen.

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

Thanks for taking the question and good afternoon, guys. Just a bit on the guidance there with respect to Heart Valve Therapy. If I take the midpoint there and I strip out what was your increased guidance on SAPIEN in Europe, it looks like the growth rate in the back half is slowing down versus the -- to 10% versus the -- looks like the 13% in the core business -- the surgical valve business you guys reported so far this quarter. Can you maybe comment a little bit on what your expectations are in terms of the competitive dynamics in the back half of the year?

Sure, Paul. I didn't cut the numbers that way so I don't know exactly how it turns out, but I can tell you certainly how we're feeling and that is we feel quite good right now that we've generated the results we did in the first half and actually felt like we gained a little bit of momentum here in the US here in the second quarter. Given that we don't have any new product approvals and haven't had that for sometime, and that we've got two competitive launches that we're against that came out in the fourth quarter of last year we're feeling pretty good. And again, we're optimistic about having Mitral Magna approved in the third quarter, so we just expect our US performance to step up and frankly expect our international performance in base heart valves to continue, as well, because we got that approval in Japan. Maybe the difference is foreign exchange, Paul, in terms of the way those numbers work.

Okay, thank you for that. And then maybe just in Critical Care, I think the UK health authority posted a small safety notice for your Fogarty catheter. Can you just comment on whether it's just limited to the UK and what maybe -- what the potential impact of that could be? Thank you.

You know what, I'm not fully familiar with exactly what was posted there, Paul. I can tell you I think we reported the core Vascular sales in the quarter was about $14 million. That was just a slight decline and this has been rock solid for us for a long time in terms what the growth rate of that business is, so we're not really projecting any change in our performance in the Fogarty catheters.

Okay, thank you for that. I'll jump back in queue.

Sure.

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

Hi, everyone, and thanks for taking my question. I'd just like to focus on SAPIEN in Europe. Regarding reimbursement in 2010, is there any change from your expectations from the analyst meeting in December. Is it happening fast or slower than you thought? And Mike, you said at the conference, I think -- and correct me if I'm wrong -- that you expect the ramp of SAPIEN to continue in 2009 and maybe you could touch upon whether -- can you continue to add centers in Europe at about five per month through 2009, and is it still your goal to exit 2008 at about 70 centers? I know it's a lot of questions there.

You're right, that is a lot of questions so let's just try and take them one at a time. Larry, you want to start with the reimbursement question?

Sure. I think reimbursement's pretty consistent with what we communicated at the investor conference. I don't think we have any changes there. I think we're just continuing to work through the process. Reimbursement's ultimately going to be driven by the procedural success and what the results are and the ultimate cost effectiveness of the procedure and right now we think those all look very, very positive for us.

To the others, in terms of the number of centers that we expect to finish the year with, I think we said that there are about 50 centers, Larry, that did procedures in the second quarter and that we expected to add approximately -- or more than five per month for the remainder of the year. So we probably end up a little higher than the 70 to 75 number that we gave you last quarter for full year. And in terms of how it's going to go in 2009, everything we know right now says that the -- what the rate we're on continues. To be able to take it precisely to more than five centers per month, I'm not sure that the math necessarily works like that, Larry, because it gets -- it's a little hard to predict that far out. You never know whether some centers fall out and so forth. So we'll be giving more precise '09 guidance as we get closer to the year, but right now we think we're on a pretty good trajectory and we don't see reason why it's going to necessarily stop at 2009.

Thank you.

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

Mike, thanks for taking the question. Wanted to again lop onto some questions on SAPIEN. Maybe cutting the atom a little bit here, but what were the implants per center per month? It seemed like it increased given that, Larry, I think you said that the implants doubled and centers didn't quite double. But do I have that right? Did we see implants per center per month tic up a bit and do you have those numbers?

It varies a lot center to center. Obviously centers that have been in the program longer have more sustained referrals programs and what not, but I'd say it's probably in the three to four range.

Is that up from the first quarter? It seemed to be, but I'm just wonder --?

Yes, it's probably up a little bit.

Okay. And how many centers are doing transatrial in both partner in the US, as well as in Europe at this point in time? And I'm sorry if I missed that.

No. Partner we're just getting strong with transatrial so we just had a couple of sites that have started, but the remaining sites are in the process now of adding a center or two to the partner protocol in their individual centers and going through the IRB process, so we see that as being obviously really positive news for the second half.

Okay. Okay. And an area that isn't often asked, Mike, I'll turn to quickly Cardiac Surgery. CardioVations seems to be a real driver of that franchise and frankly augmenting the overall growth profile. What should we expect in the second half of the year out of CardioVations and perhaps you could help us gauge where the run rate in that business could be exiting the year to help us with models for 2009 and beyond? Notwithstanding the fact that you haven't given guidance, but it seems that business continues to do better than most of us are expecting.

Yes, I think it is doing better, and thanks for asking, Jason. Yes, the CardioVations business grew a little bit more than 20% on an apples-to-apples basis compared to last year, so right now I'd say Cardiac Surgery Systems is tracking as a business. It's a little less than $100 million. I think we projected -- or we said last year that '07 it was a little over a $20 million business. We think that it'll on an underlying basis grow more than 20% throughout this year, so we think this growth rate continues and that that probably gives you a pretty good sense for what it's going to look like as it goes into '09. So it's clearly pulling up the growth rate for otherwise what would have been a franchise that was growing in the mid single digits.

Great. I'll hop back in queue. Thank you.

Our next question is coming from Amit Bhalla with Citigroup. Please state your question.

Hi, thanks for taking the question. I need to follow up on reimbursement because I'm not clear on one of your answers. I understand what you're say being 2010 and your comfort that there will be reimbursement in place, but looking out through 2009 what is your comfort level that physicians in Europe have also incurred funding through 2009?

Yes, just to get into it a little bit, as we tried to explain here it's complicated because it is account specific and it is country specific. And it's not that necessarily reimbursement is uniform. It's that hospitals are finding a way to pay and they're finding the procedure attractive enough that they want it and they're basically approving the interim funding. And we don't see that trend stopping, but frankly it's difficult for us to predict exactly what's going to happen, Amit. We're working hard on the formal reimbursement, but our assumption is more of a status quo in terms of what's going on in 2008 and that'll continue into '09. But frankly it's not one of those that you have perfect visibility on.

Okay. And on the Cohort B partner trial is that slated to complete enrollment by the end of the year? And I just have one quick follow up after that.

Yes, we remain on track to hit our 600 patient by the end of the year and we expect to complete enrollment in Cohort B by the end of the year.

Okay. And just lastly on the surgical valve business, can you split out unit and price growth with numbers for us? I know you said 5% in the US, but could you --

Are you talking about in the US or on a global basis, Amit?

Both if you could and what's driving price in the US.

Actually, I would say on a global basis price is probably down 1% just from a mix perspective because we have more aggressive growth outside the US than we've had inside the US and the US tends to operate at higher prices. Inside the US pricing is actually up probably 1% and again that's just the mix as people are buying our premium magna products as opposed to the other products that they purchased in the past. And so when I said that US heart valve growth was somewhere in that 5% range then you tell how much is units and how much is price. It's about 1% of that is price. Is that help you get there?

Yes, absolutely. Thanks.

Sure.

Our next question is coming from Charlie Chon with Goldman Sachs. Please state your question.

Thank you. I just wanted to take closer look at the guidance for SAPIEN. Can you talk a little bit more about the seasonality that you expect here in the third quarter around (inaudible) valves? For some reason, given that there are not many options for these patients I have a hard time thinking that there might be elasticity in demand around the summer months for these patients, and I can understand that doctors might be on vacation so they can't perform the procedure, but is that the key driver here of the seasonality that you're talking about?

I think you understand it perfectly. Certainly in third quarter there's a very heavy vacation load in Europe and as almost all of our sales are driven out of Europe, we get affected by that seasonality directly. so we would expect sales in Q3 to probably be less of that than Q2 just related to those vacation schedules.

Okay, great. And just a quick follow up to this guidance question, it doesn't seem to be a tremendous stretch to get to the low end of the full-year range. In fact, you only need to replicate what you did in the first half of the year and add $1 million to get to that $45 million number. On the other hand, if we were to disregard of this anticipated seasonality in the third quarter you just need to put up two more performances of what we saw in the second quarter get to the high end. So is there something about the momentum that we should be reading into, so maybe you can just tell us how came up with this revised guidance? And I have one follow up for Tom, if you don't mind.

Yes, in terms of loss of momentum you definitely should not assume that. We're not trying to send that signal at all. We're just trying to give you what we think is a reasonable estimate for the rest of the year. We know that -- just look at our traditional heart valve business how much things slow down in the third quarter and even the balance of first half to second half kind of sales and this causes us to be thoughtful. This is a brand new business for us and we're trying to give you our best estimate, but no, we're not trying to signal any loss of confidence.

And we're very excited about how we've done. When we started the year we established $20 million as a target for this year and felt we had some upside in that, but I think it's fair to say this has exceeded all of our expectations.

Okay, great. And then just the last follow up for Tom. When I take a look at where the tax rate ended up during the quarter versus where the full-year tax rate guidance had been previously, I estimate that as much as $0.02 in the EPS performance came from tax. So you gave us some directional comments on where tax could go for the remainder of the year, but could you be a little more specific. Are we thinking the tax rate really comes in at 25% for the year, because if I'm calculating this correctly, I think that more than half of the increase in the full-year EPS guidance could be coming from tax. Would that be correct?

First of there's the remaining piece. This quarter was a bit of the story and for the rest of the year this lower number, I say it's maybe $0.01 to $0.015, so it is part of the story.

Okay great. Thank you very much.

Our next question is coming from Sara Michelmore with Cowen and Company. Please state your question.

Thank you. Go back to SAPIEN, I'm afraid. I think when you had done your analyst meeting back at the end of the meeting you talk about thinking about an average caseload per month at the centers that were up were about three cases, and if I just do the straight math from this quarter you're tracking at about seven cases a month. I'm just wondering where you're seeing that fall out? Are some centers doing more. Is that a low number for an average seven cases a month. How are you thinking about that metric at this point?

I don't think we've -- Sara, I don't think we've seen seven cases per month. I think we've still been in that three to four range, so it's maybe a little bit better than what we had talked about the investor conference, but I think we're still pretty much in that range.

Okay. And you must be going up against CoreValve in some of these centers or at least running into them and I'm just wondering can you just talk us through how you think the product selection process goes, assuming that these centers have a choice of two valves in Europe. What makes them select the Edwards products over the CoreValve products? Thanks.

Well, a lot of this I think is driven by just the overall demand and excitement around the transcatheter valve technology in Europe in general and so there's just a lot of centers that are interested in participating and in having this technology in their centers. So we do bump into CoreValve periodically and there's some sites that have used both technologies, but that's just sort of the nature of commercial devices. I think one of the strengths of our program is having both the transatrial and the transfemoral approach and we create the partnership between interventionalists and surgeons. CoreValve does have an advantage as it relates to profile, and so sometime that becomes a driver with some of these folks and those are just -- it's probably not one single issue. There's probably a variety of issues that drive product selection.

To add to that, Sara, we don't know obviously what CoreVal sales are since they're not a publicly traded company, but we wouldn't be surprised if they're doing volumes that are close to the Edwards' volumes, as well.

Okay, that's really helpful color. Thanks.

Our next question is coming from Josh Zable with Natixis Bleichroeder. Please state your question

Hey, guys, thanks very much for taking my question here. Congrats on a good quarter. Just two quick ones again, back to SAPIEN. You talked about the use rates or the implant to sales rate being from 50% to 80%. Obviously I know it hasn't been out that long, but have you seen any -- can you talk to us a little bit about reorder rates? I don't know if it's maybe too early, but maybe some of the centers that initially stocked of they've gone through their inventory and if they're reordering and at what kind of clip they're doing it?

Yes, we absolutely are seeing reordering, Josh, and I think that's been one of the really great things about the program is sites have taken it on and they've had the procedural success that we've seen in the program to date, sites get even more enthused about it and they've been reordering. So where we had about 50% stocking and usage rate in the first quarter we saw that go up to about 80% in the second quarter, which is good. Now we'll continue to see stocking as we add sites for the rest of the year, but we're very pleased with our implant to sales rate right now.

Okay, great. And just on the data, I know you mentioned that you're going to come out with some 30-day follow up, can you just -- two parts to the question. One, can you just remind us just to go over again when you're going to be releasing that. And two, obviously you guys have talked to the FDA about constructing this trial and it's a pretty complex one, and you talked about 30% to 50% mortality within the year for these patients regardless. Obviously you dealing with tough patients who have other comorbidities and you obviously gave us the 95% success rate on the implant, but can you give us an idea what you would be looking for or what you would feel good as far as mortality rate goes when that data comes out just so we know relative to, obviously, these sick people already what you guys would be pleased with and you would think would get you towards approval?

Sure. Well, the data presentations will be coming out primarily at TCT, that's where we'll roll out all the 30-day data along with some of the longer-term data from the feasibility trial. So that'll come out at TCT and maybe a little bit of it'll come out at EACTS, which is in Portugal this year. I think the thing that's important to remember is the patients that fall into this group the historical data, while it's not perfect sort of suggests that you have about a 30% to 50% mortality rate at one year, so what we'd be looking for is certainly having improvement over that in our results. But it's really going to be the partner randomized trial that's really going to bring light to that and as that data's a randomized study it won't be available for quite some time.

We're enthused with the results we're getting. We're not in any way believing that 95% persists. We know that this is a sick group of patients, but we are enthused that it's going better than we thought at this point (inaudible).

Great. Thank you very much.

(OPERATOR INSTRUCTIONS)

Okay, well, thanks for your continued interest in Edwards. Tom, David and I welcome any additional questions by telephone, and with that back to you, David.

Thank you for joining on today's call. Reconciliations between GAAP and non-GAAP numbers mentioned during this call, which include underlying growth rates and amounts adjusted for any special items, are included in today's press release and can also be found in the investor relation 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, and to access this please dial 877-660-6853 or 201-612-7415 and use account number 2995 and passcode 288895. I'll repeat those numbers. Dial 877-660-6853 or 201-612-7415. The account number is 2995. The passcode is 288895. Finally, an audio replay will be archived on the investor relations section of our website. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.