愛德華生命科學 (EW) 2009 Q4 法說會逐字稿

Greetings and welcome to the Edwards Lifesciences Corporation fourth-quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 for Edwards Lifesciences Corporation. 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 fourth-quarter 2009 financial results. During today's call we will discuss those results included in the press release and accompanying financial schedules and then use the remaining time for Q&A. Our presenters 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 re mind 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 our sales, gross profit margin, net income, earnings per share, and free cash flow goals and other financial expectations for 2010; the regulatory approval and sales of heart valve therapy products, including Magna Mitral Ease and Physio II; clinical study of Project Odyssey; the continued adoption and expecta -- and expected 2010 sales of the Edwards SAPIEN valve; the receipt of formal reimbursement for SAPIEN; the timing, progress, and results of clinic studies, including the PARTNER trial and the US approval of SAPIEN; the development of continuous blood glucose monitoring technology; and the impact of foreign exchange fluctuations on our financial results. These statements speak only as of the date on which they were made and we do not undertake any obligation to update them after today.

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 these differences may be found in our press release, our annual report on Form 10-K for the year ended December 31, 2008, 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. 2009 was another successful year for Edwards on several fronts, including substantial earnings growth and continuing to make significant investments in our future. We're proud to report that we met or exceeded all of our 2009 financial goals. Our total sales, diluted earnings per share, and free cash flow all exceeded our original guidance, while our gross profit margin increased to 69.8% of sales, which is at the high end of our 68% to 70% goal. We also extended our leadership in transcatheter valves. We fully enrolled the PARTNER trial and prepared to launch the next generation SAPIEN XT outside the US. We continue to see very favorable clinical results and believe we're well positioned to continue to lead in this transformational therapy. This is a strong year for top-line growth, as we achieved an underlying sales growth of 11% in 2009. In heart valve therapy during our second year of heart valve sales we achieved $112 million and exceeded our goal of doubling SAPIEN implants in 2009. We also introduced our Magna Ease aortic valve in the US and our Physio II ring in the US and Europe.

Now turning to fourth-quarter results, on a reported basis total sales grew 11.9% to $347 million and grew 10.2% on an underlying basis. Reported sales were lifted by approximately $17 million from foreign exchange largely offset by discontinued products. Reported sales for heart valve therapy were $188 million, representing a 26% growth over last year, which included a $9 million contribution from foreign exchange. Sales grew 15% on an underlying basis, driven by strong transcatheter valve sales and recent US surgical product introductions. Globally surgical heart valve sales grew approximately 8% on underlying basis for the fourth quarter. The US continued to play a significant role, as sales grew approximately 10% and we gained share during the quarter.

For the full year 2009 surgical heart valves grew 8.4%. New products drove the global growth and unit share gains. Particularly note worthy were the performances in the US and Japan where we saw strong adoption of our newly-approved Magna valves. We expect these new launches to enable us to continue our surgical heart valve sales momentum in 2010. This year we plan to introduce Magna Mitral Ease in the US and Europe during the third quarter. This new mitral valve enables easier implantation and is specifically configured to facilitate minimally-invasive surgery. We believe this is an important step forward, as it offers patients and surgeons an expanded set of options.

At STS we announced the first implants of our new MIS aortic valve surgery system, called Project Odyssey, and we performed at two centers in Germany. This system marries our expertise in heart valves with innovations in delivery to enable an even faster procedure, with both a shorter patient time on bypass and a smaller incision. We've begun actively enrolling patients in a small clinical feasibility study called TRITON, and if results look favorable, we'll expand to a CE mark trial.

Turning to repair, underlying growth in the quarter was approximately 8%. The strong adoption of our Physio II rings in the US and Europe played a role in driving global sales this quarter, as customers continued to convert to this ring. In addition, we introduced new minimally-invasive accessories to use with our Physio II ring, and in January we launched this ring in Japan and expect to see a strong adoption over the next several quarters. Last month the FDA issued draft guidelines for the development of heart valve products, and these guidelines are currently open to industry and public comment. Upon review there appears ton a high degree of consistency between the new guidelines and current industry practice; therefore, we don't expect this process to result in any significant change to our business. We're working together with our industry peers as part of an Advamed heart valve working group to respond to the FDA during this comment period. To summarize, we're in the first year of launch for Magna Ease and Physio II, and combined with our Magna Mitral Ease launch later this year, we're confident in our ability to drive continued growth and share gains throughout 2010. In addition, we'll continue to make substantial investments in our strong product pipeline, which we expect to fuel our success beyond this year.

Turning to transcatheter valves, we had a strong finish to the year, achieving fourth-quarter SAPIEN sales of $35 million driven by robust sales in Europe and continued international expansion. In addition, for 2009 we exceeded our goal of doubling the number of transcatheter heart valve procedures compared to 2008. We're making good progress on obtaining formal reimbursement in Europe. Last quarter we announced reimbursement for Germany and we're pleased that France also grant formal reimbursement beginning on January 1st. Procedures in France will be reimbursed at approximately EUR27,000 to EUR28,000 with coverage for both transapical and transfemoral approaches. This is important news, as France is the second-largest market in Europe. We expect the implementation of formal reimbursement to expand the use of transcatheter valves. We continue to pursue formal reimburse in the other countries, but in the meantime, the same dynamics surrounding transitional funding continue to exist and we remain pleased that hospitals are able to perform these procedures. We look forward to a steady stream of clinical data being presented at medical meetings during the year. In May one-year source data,which represents our European commercial experience, will be featured at EuroPCR in Paris.

Turning to our US PARTNER trial, as previously discussed, we completed enrollment of both arms of our IDE trial for SAPIEN and are continuing to enroll approximately 40 patients per month under continued access. As previously mentioned, we plan to submit cohort B data independently and expect to complete one-year follow-up by the end of April 2010. Given our current projections, we anticipate cohort B data to be presented in the third quarter and in the fourth quarter we would expect to submit to the FDA for approval. For cohort A we completed enrollment in August of 2009 and anticipate FDA submission in mid-2011. As a reminder, cohort A compares randomized patients to either SAPIEN technology or surgery and includes the transapical approach. We remain confident in our PARTNER trial design. Assuming a favorable data comparison and a one-year approval process, this would result in US SAPIEN approval for medically-managed patients in 2011.

Building upon our transcatheter platform we continue to make excellent progress on our next generation SAPIEN XT, which enables access to smaller arteries, thereby expanding the treatable patient population. In Europe we continue to anticipate CE mark approval and a disciplined launch of SAPIEN XT with our NovaFlex system in the first quarter of 2010 with increases option throughout the year. Additionally, we're pleased to report the completion of several successful cases with our new larger 29-millimeter SAPIEN XT valve. The addition of the 29-millimeter valve to our SAPIEN XT portfolio is important, as it expands the treatable patient population for transcatheter heart valves. This valve is expected to be commercially available in Europe later in 2010. We're also continuing to enroll patients in the PREVAIL TA study of our SAPIEN XT with the lower-profile Ascendra 2 delivery system. We still anticipate introducing this system in the second quarter. In the fourth quarter we submitted our US IDE for the PARTNER 2 trial, which will study our SAPIEN XT valve. This trial, which includes both our NovaFlex and Ascendra 2 delivery system- will target high risk patients. We received questions from the FDA and are working closely with them to further the approval process. Based on the current rigorous regulatory environment, trial approval may be delayed into the second quarter of 2010.

In Japan we completed our first compassionate use cases with the SAPIEN valve using both delivery systems last October. We're pleased to report that we received approval of our clinical trial design and intend to start a trial with our SAPIEN XT during the second quarter of 2010. Successful trial completion could result in an approval as early as 2013. ,We're very excited to achieve this milestone as we expect this technology to be an attractive option for Japanese patients. With regard to the core valve litigation, we were pleased with the recent decision in Germany, which found our German Anderson patent valid. The UK Anderson patent was earlier found valid, as well. We expect a decision on our infringement appeal versus core valve in Germany later this month. In the US case against core valve we continue to prepare for the jury trial, which is scheduled to begin next month. We believe Edwards has the strongest transcatheter valve patent portfolio and enforcing our intellectual property is an important element of our broad leadership strategy.

In summary, we're coming off a great 2009 with $112 million in sales, and based on our momentum we remain confident in meeting our $170 million to $190 million expectation this year. As we expand the reach of this exciting technology, we'll remain focused, as always, on our clinical success. 2010 promises to be an eventful year, with several important commercial and clinical milestones that will help set the stage for the future.

Now turning to Critical Care. For the fourth quarter Critical Care reported $121 million in sales. On an underlying basis we grew 7.2%, which excludes the positive $6 million impact from foreign exchange and a negative $11 million associated with the sale of our hemofiltration product line. Underlying growth was driven by strong sales of FloTrac, pressure monitoring products and PreSep. FloTrac results continue to benefit from the earlier launch of a third-generational algorithm, which enhances its accuracy used in patients with sepsis and other critical illnesses. This product enhancement enables FloTrac to address a wider range of patients and continues to be well received by clinicians. In pressure monitoring we continue to gain share based on our market-leading products, and sales of PreSep showed continued solid growth as a result of clinicians increasing adoption of early goal-directed therapy protocols for the treatment of sepsis. Also, we recently announced an agreement with Philips to display oximetry results while using our catheters on their monitors. This agreement will allow clinicians to more conveniently obtain the valuable information delivered by our products.

As you may be aware, there is a US field corrective action under way on a hemofiltration product, part of a product line we divested to Baxter last year. We're assisting Baxter in providing customers with a software upgrade. We don't expect this to have a material impact on our financial results. With regard to our continuous glucose monitoring program, during the quarter we received a CE mark and have begun clinical evaluation of our first generation product in a limited number of European sites. This year we plan to continue post-approval trials in Europe to gain real-world experience in a variety of clinical situations and implement system enhancements. In addition, in the US we anticipate filing for regulatory approval in the middle of 2010. There is growing evidence that closely monitoring glucose levels in critically-ill patients can positively impact patient care and outcomes. We're excited about this new opportunity to fill an unmet need and anticipate that our investment in this technology will help drive long-term growth in critical care. In conclusion, we stepped up our critical care growth rate in the second half of 2009. We also made significant progress in making our parameters more accessible to clinicians while strengthening the evidence that demonstrates the value of our technology. And in 2010, on an underlying basis we continue to expect critical care sales to grow 5% to 8%.

Turning to cardiac surgery systems, reported sales for the quarter of $24 million were relatively unchanged from the prior period. As previously announced, last September we initiated a volunteer recall of our EndoClamp balloon catheter due to a supplier quality issue with one of the the components. As anticipated, fourth quarter MIS sales were impacted by more than $1 million. We've since addressed the issue and reentered the market last December. Consistent with our previous announcement, we plan to transfer our cardiac surgery system products to our new facility in Draper, Utah, this year, which will enable us to significantly expand our manufacturing and R&D capabilities. For 2010 we continue to expect full-year revenues of [$100 million to $110 million], which represents an underlying growth rate of 11% to 13%. Total reported sales of vascular products were approximately $14 million this quarter and were down year over year due to lower sales of the divested LifeStent products. Sales of our Fogarty products were relatively flat versus the prior year.

Now I will turn the call over to Tom.

Thank you, Mike. In addition to the strong sales results Mike discussed, we met our EPS guidance while we substantially increased our R&D investment, and we are particularly pleased that we also achieved a record gross profit margin. For the quarter our gross profit margin was 70.7% compared to 68.1% in the same period last year. This 260-basis points improvement was due primarily to product mix, partially offset by foreign exchange. For 2010, due to foreign exchange rate changes since our December investor conference, we now expect our gross profit margin to be at the high-end of our previous 50 to 100-basis points increase.-Fourth quarter SG&A expenses were $132 million, or 38.2% of sales, an increase of $12 million over the prior year. This increase was driven by foreign exchange and higher heart valve therapy sales and marketing expenses. For the full-year 2010 we continue to expect SG&A to be between 37% and 39% of sales. R&D investments in the quarter were $48 million, or 13.9% of sales, an increase of $12 million over the prior year. This increase was primarily the result of additional investments in transcatheter technology and glucose monitoring. For full-year 2010 we continue to expect R&D as a percentage of sales to be 13% to 14% as we invest in our growth initiatives.

During the quarter we recorded a $3.7 million special charge related to the write-off of previously-capitalized patented enforcement costs. This write-off resulted from our year -nd assessment of pending appellate court patent litigation in Europe. Our reported tax rate for the fourth quarter was 23.7%. Excluding our special charge the tax rate was 24.7%. For the full-year 2010 we continue to expect our rate to be between 25% and 26%, assuming the federal R&D tax credit is renewed this year. This credit provides an approximate 150-basis points benefit to our annual rate. We are not assuming we annual of the credit in the first quarter of 2010. Accordingly, we are projecting a first quarter tax rate of 27%. When the credit is renewed, our results will reflect the cumulative year-to-date benefit. FX rates positively impacted fourth-quarter sales by approximately $17 million compared to the prior year. Since issuing fourth-quarter guidance last October, the impact from changes in FX rates was immaterial. Looking forward, at current exchange rates we now anticipate an approximate $15 positive FX impact to 2010 full-year sales compared to the $40 million positive impact we compu -- we communicated in our December guidance.

Free cash flow generated during the fourth quarter was $46 million. We define this as cash flow from operating activities of $66 million less capital spending of $24 million plus $4 million in tax payments related to previous LifeStent milestones. For 2010, excluding special items, we continue to expect free cash flow to be between $190 million and $200 million. For fourth quarter we repurchased 208,000 shares of common stock for approximately $16 million. For the full year we repurchased 1.5 million shares for approximately $96 million. At the end of the year we had about $100 million remaining on our existing share repurchase authorization. Our current plan is to request a new authorization at our upcoming board meeting. For modeling purposes, we still expect diluted shares outstanding to be between 49 and 60 million for 2010 -- 59 and 60 million -- excuse me, 59 and 60 million for 2010.

Turning to the balance sheet, we ended the quarter with a net cash position of $244 million. Total cash of $334 million exceeded our total debt of $90 million. Our DSO at the end of the quarter was 66 days, an improvement of five days from the prior quarter. Inventory turns were 2.5, a small increase from the prior quarter. Turning to our 2010 sales guidance, we are projecting no change in the underlying strength of our sales. If FX rates remain at current levels, we would expect reported sales to be at the lower end of our previous full-year guidance of $1.43 billion to $1.50 billion. We continue to expect our product line sales ranges and underlying growth rates to remain unchanged from guidance we provided at our December investor conference. For first-quarter 2010 we project total sales of $335 million to $355 million. We estimate that first-quarter diluted EPS will be between $0.77 and $0.81. For full-year 2010, despite the recent FX headwind, we continue to estimate that diluted EPS will be between $3.50 to $3.60, representing an annual growth rate of 15% to 18%. Finally, our net income growth expectation for the full-year 2010 remains unchanged at 17% to 19%.

Before I turn the call over to Mike, I would like to inform you that in the next few months we have long-term stock option grants that will be expiring. Several of our officers and directors retain their options for the full term and will be required to exercise them. You will see these transactions in SEC filings. but the number of shares involved is relatively modest at less than 400,000.

With that I'll turn it back over to Mike.

Thanks, Tom. We're pleased with our strong finish to a very successful year, as we achieved substantial 2009 earnings growth while continuing to invest in our future. Looking forward, we remained focused on achieving our annual financial goals. For 2010 we expect to generate total sales of $1.43 billion to $1.5 billion, which represents 10% to 13% underlying growth. In addition, we anticipate increasing our gross profit margin by 50 to 100-basis points, achieving net income growth of 17% to 19% and generating free cash flow of $190 million to $200 million. In closing, we're approaching our ten-year anniversary as an independent public company in April. As proud as we are of the Company that we have built and the innovation that we have brought to patients, we remain very focused on creating a bright future for Edwards and believe that the best is yet to come.

With that, I'll turn it back over to David.

Thank you. We intend to end today's call by 6 PM Eastern and in order to allow broad participation in the Q&A, we ask that you please limit the number of questions that you ask. If you have additional questions please reenter the queue and we'll answer as many as we can during the remainder of the hour. Operator, we're ready to take questions, please.

Thank you. (Operator Instructions). Our first question is from the line of Mr. Bob Hopkins with Banc of America. Your line is now open, you may proceed with your question.

Thanks. Good afternoon, can you hear me okay?

Hear you great, Bob.

Great, thanks, Mike. First question for you just on the comments about the status of the SAPIEN XT IDE filing in the United States and the potential for a delay into the second quarter. I was wondering if you could be any more specific on what is going on there. Is that more a function of just the regulatory environment or is there something specific with the filing that needs to be addressed?

No, we don't believe that there's anything specific with the claim -- filing that really needs to be addressed, Bob. We really do believe that it's climate related. We're working very closely with FDA, we're going back and forth on answering their questions, but it just appears that the level of rigor that they're exhibiting is at a higher level than we've seen in the past and so that's why we say that the approval could be delayed here into the second quarter.

So nothing in terms of new data or new analysis that might take any extended period of time?

No. They asked for things, but nothing that's time consuming in developing, Bob.

Okay. And then just to shift gears in terms of the reimbursement climate in Europe, I was wondering if you could comment. Are you -- do you think you're going to be able to generate the same ASP in France as in Germany? And then, can you just give us a sense as to what other countries you might expect offering up reimbursement in Europe in 2010 and should we expect rates to be more lower, like in line with France, or potential for higher, more in line with Germany? Thank you.

Sure. There's a lot there. Overall, Bob, the short answer is we don't expect this to affect our ASPs, and in fact, when we introduce XT we would expect XT to be introduced at a higher ASP. We certainly like the reimbursement in the Germany better than France, but when you compare it to the alternative, that there was not formal reimbursement in place in France, this is still a big upper and we think this is going to have the French market open up for us and so that's a net month positive and we expect this to evolve over Spice time. There's even s a review process on the French number that could influence it favorably. Overall, it's tough to predict exactly what other countries are going to come in line. Fortunately we've got a very nice climate right now that allows people to pay and so any kind of progress that we make on formal reimbursement we see as a net positive, but we've got to feel good about the fact that the two largest countries in Europe already have reimbursement in place. We think it sets a great tone and a great example.

PARTNER still with TCT?

We've never said that, Bob. What we have said is that the PARTNER results we would expect to be available in the third quarter, probably at a major meeting, so it could very well lineup with that, but until we have the data locked and see it specifically, we haven't shared exactly when.

Thank you very much.

You're welcome.

Thank you. Our next question is coming from the line of Mr. David Roman with Goldman Sachs. Your line is open, you may proceed with your question.

Good evening, Mike.

Hi, David.

Hey, David.

I was hoping you could just talk a little bit more about two things. First, the review process in France, how that works and when we could expect to hear something on that? And then secondly, I recall at the analyst meeting you were talking about seeing some data in May regarding proxies for the medical management arm at PCR. Can you maybe elaborate on that? And then lastly, just a follow up on the tax rate?

Let me do a little bit first and then we'll turn it over to Tom on the tax rate. First of all, on French reimbursement, it's in place. It's a two-year reimbursement. It refers to both transapical and transfemoral. We feel good about that. There is a comment period. We'll argue that the rate maybe should be a little larger. I don't know whether that is going to turn out to be fruitful or not, David, so not clear. In terms of the data that's coming up, yes, what we were suggesting and trying to signal at that time is, obviously, the PARTNER measures one-year data related to survival, et cetera, and we have been tracking the European commercial experience in a registry and that source registry should have one-year data that's available for presentation at EuroPCR in May, and so that'll be a pretty substantial data point of arguably sort of the same vintage of technology that's been in the US PARTNER trial. So it's a little more modern and it's more indicative of what US PARTNER patients have had, and we know that there has been a learning curve. So we think there's something there that could be meaningful in terms of a leading indicator. Finally, as it relates to tax rate, I'm glad you picked on that because it actually will affect our first-quarter projections and Tom can (inaudible).

David, I assume -- is your question related to Q1?

Assuming the R&D tax credit gets renewed, so, yes, say Q1 is 27 -- is in fact 27%, the true up throughout the year (inaudible) basically evenly get distributed over the remaining three quarters?

No. Actually what it will do is we'll do a catch up in the quarter that the bill is signed, so we're very confident in the passage of the legislation, but until the actual document is signed by the President, you're not able to actually factor that into your numbers. But when it does -- when it is enacted, then it's a retroactive in that particular quarter.

Got it, okay. So just by my math, the tax rate probably knocked $0.02 to $0.03 off of Q1 earnings relative --

Correct.

(inaudible) we're looking.

You're exactly right, it's about $0.02.

Okay, thank you.

Thank you. Our next question is coming from the line of Mr. Amit Bhalla with Citigroup. Your line is open, please proceed with your question.

Hi, good afternoon. Wanted to ask you about Germany and France and talk a little bit about adoption there. With reimbursement in the place for France -- sorry, with Germany for a couple months and France for the last month, what have you seen in terms of increases in adoption or no changes at all?

I would say -- again without signaling any Q1 on results because we're still early into it, clearly this is a big net positive in Germany. This is the biggest, most important country to us, and the fact that they have this level of reimbursement is very substantial. You can imagine hospitals would just as soon keep as much of that as possible, but our -- actually our selling prices in Germany we think actually will end up probably having a -- be favorably impacted by the current reimbursement climate. In France I think we're just at the front end of this. We think this is going to be a real positive going forward and France is a country that we really look forward to being a lift for us in 2010, so it's -- you can't tell a lot here in terms of there being a step function, but this is meaningful and highly noticed. People start priming their referral basis once this reimbursement is in place, Amit, so we expect this to have building impact.

And in terms of following up, can you give us an update on the percentage of centers that are running independently right now? And then for Tom, CapEx in the quarter in the mid-$20 million range, I haven't seen it at that level in several years, can you just elaborate on what happened with CapEx in the quarter? Thanks.

Okay. Well, thanks, Amit and then we're going to ask you to get back in line. In terms of centers running independently, I don't have the exact number. I want to guess that it's somewhere in the 25% or 30% level right now of centers that are operating independently, so it's clearly stepped up and we're continuing to make progress, and that's one that we expect to make a lot of progress on during the course of the year.

And in CapEx in the quarter I'd say pretty consis -- it's very consistent with our full-year expectation and maybe timing wise a little heavy in the fourth quarter as we pick up the initiative to build the infrastructure for some of the things we're looking forward to.

Okay, thanks.

Thank you. Our next question is coming from the line of Mr. Douglas Tsao with Barclays Capital. Your line is open, you may proceed.

Hi, thanks for taking the questions. Just turning to the Odyssey Project I was just wondering if you could provide a little bit more detail in terms of the timeline for progressing the feasibility study into a CE marking study. Is this something you're looking for a particular number of patients, or are you trying to get a sense of the results the study first?

Yes. No, thanks for the question. Here is what we're trying to relate. We started enrolling these patients, and if things go very well here, and we get all green lights, we're just going to keep it rolling, and we'll just expand the size of this and turn it into a CE mark trial. If we see things that really should be changed or improved, then we'd be willing to go back and make whatever changes are necessary before we embarked on a CE mark trial. So what I'll relate to you is if -- let's say everything goes great, what can happen. Well, we could find ourselves with a CE mark in 2011, right, but that really presumes that we get all green lights at this stage of the game, so hopefully that's helpful.

Yes. And then at what point do you expect to provide us with more details in terms of the technical aspects of the valve, whether it's future [lists] and some of the mechanisms around that?

Yes. There's a few things I could say. We've kept a little bit under wraps at this point, but I can say a couple of things. One, it's very much based on the Magna technology, and so the Magna valve itself, the leaflets, the frame and so forth, it's really a -- pretty much a duplicate of that, but it also employs some technology that's not far from our transcatheter technology in terms of the way that it actually attaches, so it has a stent-like frame that's incorporated into Magna- type body. So maybe that gives you a few clues there. Over time I would say stay tuned for the next medical meetings. I would imagine at a meeting like ATS if we continue to have green lights that we're able to share more.

Okay, great. And then just finally quickly if you could a little bit more detail around on the cap process for the PARTNER trial. Are you having to go back regularly to get the caps extended, or are they filling up and just a little bit more detail there?

Can you repeat that, the what trial?

Just around the continued access protocols for the PARTNER trial in the US. Are you having to go back regularly to the FDA to get those extended or have they given you a certain limit that enables you to continue enrolling patient or implanting at a pretty regular pace?

At this point we see this as continued access, continuing up to the point that -- certainly that the data is available and we would expect up to the point of approval. There's clear pressure from clinicians. Clinicians would like to have many more people available for continued access and it is kind of a -- it's a little bit of a sad story right now that there are a number of patients the waiting list that just don't get the technology. You used to have twice as many patients that at least went into the trial, now have you really only the treatment group. So that's a little rough, but I think the FDA is staying very focused on having a trial that has high scientific significance, so I expect it to stay right at this kind of number for the foreseeable future.

Okay, great. Thank you.

Thank you. Our next question is coming from the line of Mr. Larry Biegelsen with Wells Fargo. Your line is open, you may proceed with your question.

Thanks. Can you hear me okay?

Yes.

Just two questions, first on XT. It sounds like there's no delay to the launch, the original timeframe in Europe first-quarter 2010, but, Mike, in your comments you talked about a disciplined launch of XT. What does that mean and why wouldn't physicians immediately switch over to the XT from the other valve? That's my first question.

Yes. So just the first part of that question, yes, we stay confident that we'll get a CE mark and be able to get started here in Q1. When we say disciplined, you recall what we've done in the past, Larry. There's a tremendous pull on the part of clinicians. They'd like to just go right now, just ship it to us, but we're not willing to go through that. We really want to go through a very deliberate training process so that we're sure that people are fully comfortable and fully confident in terms of implementing the XT, even though there is not much -- not a big change from the SAPIEN valve, it's one that we're going to be very deliberate. So I would expect it to be a ramp, Larry, rather than some kind of step function when we introduce.

Okay, so it's not a supply issue?

No. I fully expect us to be able to supply plenty for what we have planned.

One long-term question. Things have gone well for you recently and I think investors have become more comfortable with the PARTNER trial, and although the US approval is still almost two years away, some investors could draw a parallel with Edwards and other med tech stocks and maybe come to the conclusion that you should sell the stock around the US approval of SAPIEN. I guess my question is, how do you maintain your premium valuation long term once SAPIEN is approved in the US? Thanks.

Well, thanks, Larry. I think big picture the point that you're raising and why we feel confident that valuation should not be a deterrent is that we really see our growth, that's going to be sustainable on a long-term basis and I will tell you why. Even today there is probably some discounting in the price for the risks that exist in the trial and so forth, and we expect those risks to be mitigated over time. But on top of that there will be serial launches in a number of ways. There'll be serial launches around the world as we move from the US to Japan and open up other countries. We'll be building clinical evidence and as we do I would expect us to broaden indications, And, again, with more durability demonstrated. We would expect this technology to be more and more useful for younger patients, and we'd also expect this technology to move to other valve physicians. So just set aside the other things that might be going on inside Edwards that can drive growth. Just within the structural heart disease, the transcatheter space, there's just a lot of layers here that cause us to believe that we'll have sustainable long-term growth, which sort of separates it from some of the other examples that might have a peak and then a trough afterwards.

Thank you.

Thank you. Our next question is coming from the line of Mr. David Lewis with Morgan Stanley. Your line is now open, you may proceed with your question.

Good afternoon.

Hey, David.

Mike, just a quick question. I think you mentioned under the continued access program 40 patients came in last quarter so a significant number of patients have trickled in here in the last couple of quarters. Is there any chance that we'll see presented data from the continued assets program in a registry-type situation prior to the September timeframe?

I don't expect there to be any data that's going to be presented before that third-quarter timeframe. No, I just -- I don't see that. I would say these patients will continue to be tracked, they'll be measured, they'll be probably looked at in terms of the total data set, but I don't think that's going to prompt there to be any early look.

Okay. And you seem pretty adamant on the IP position, Mike, so should we assume that heading into this jury trial with core valves a settlement is simply not on the table?

I think there have been discussions in the past. I don't expect there to be a settlement. I fully expect this to go to trial.

Okay. Just one quick one for Tom and I'll jump back in queue. Tom, just given the fourth quarter there was a bolsas increase in R&D but you maintained your guidance for 2010, should we be assuming, based on this fourth quarter, that perhaps R&D comes at the higher end of the range for 2010, or should we assume that the fourth quarter was somewhat of an anomaly.

I'd go with the latter, David. I think we're pretty consistent where we're at and it will fluctuate a little bit in it's sales, particularly there's some seasonality, but I think the number's solidly in the guidance we gave.

Great, thank you very much.

Thank you. Our next question is coming from the line of Mr. Bruce Nudell with UBS. Your line is open, you may proceed with your question.

Hi, thanks for taking the call. Mike, could you just -- I'm presuming that the $170 million to $190 million is still confirmed for [TAVI] this year and can you talk about the ramp profile across the year, maybe in the context of the training cadence that you'll likely be able to achieve? And then I have a follow up.

Okay. Bruce, first of all, we said yes, we continue to be very confident in the $170 million to $190 million, especially when you consider we finished at $112 million. We expect there to be market growth and that to be a driver of growth and we would expect to probably pick up some transfemoral share during the course of the year. The foreign exchange rates, naturally, are a wild card. When we talk about disciplined launch, I think what you should anticipate is the back half of the year we would expect to be larger than the front half of the year, Bruce, and for the obvious reasons that we'll moving up ramp.

And as a percentage -- Bruce, as a percentage it's not wildly different. This year we ramped up pretty significantly, so it does ramp up, but it is not anything all that unusual.

Okay. And could you give us the units that were actually implanted? And the only other thing is are you seeking injunctive relief in the core valves case?

So, Bruce, we're trying to get out of this units count because we find ourselves in this mode where we say you count these trial units and not count others and so forth, so we really haven't done that starting this quarter and hopefully that's okay with you all. In terms of injunctive relief, yes, we would clearly ask for injunctive relief and damages.

Thanks so much.

Thank you. Our next question is coming from the line of Ms. Kristen Stewart with Credit Suisse. Your line is open, you may proceed with your question.

Hi, thanks for taking the question. Tom, just in terms of guidance you're suggesting because of FX changes that the top line should fall to the low end of the range, just how should we think about the impact relative to FX on the bottom line? Should that -- given your hedges do you still feel like the range is good or should we be middle, low, how should we think about how it falls through the P&L?

You're saying for 2010, correct?

For 2010 guidance, yes.

And the 25 -- the $25 million, actually probably bottom line is in the area of $0.04 to $0.05 of additional pressure on the earnings.

We're not changing our guidance going forward.

Right.

Obviously.

But it does raise the challenge slightly.

Is that since you're (inaudible) low end to the top end that the earnings should be at the low end, as well, of your range?

No, I wouldn't look at it that way. I just want you to know that that is something that we're accommodating for in the guidance and -- but not changing. So we didn't -- we decided consciously not to make a change to the EPS range.

Okay. And then I'm just wondering, the fourth quarter transcatheter valve number obviously came in pretty good, but I was curious whether or not you were seeing any delay in terms of procedures in Germany or France in anticipation of reimbursement coming on line beginning in the first quarter? Any signs in the market there was additional pent-up demand rolling into the first quarter to give extra confidence in the ability to meet the $170 million to $190 million?

It's a little hard to tell, Kristen, exactly what's going on there. I wouldn't say that there is -- there was a postponing of orders necessarily, so I wouldn't look at that as a trend. We do see a difference between those European countries that are, I would say cash strapped, having tough economies than those that are doing a little better, so that might be the only color that we can add that's very meaningful there. But overall, no, we feel very confident in the $170 million to $190 million.

And then last one real quick. Would you be willing to give the number of centers you're in? I know you won't give units of implant.

It's -- we're at approximately the 200 level, Kristen.

Right.

Maybe a little more.

A little more.

Okay. Thank you very much.

Sure.

Thank you. Our next question is coming from the line of Mr. Mike Weinstein with JPMorgan. Your line is open, you may proceed with your question.

Hi, guys, it's Chris Pasquale here for Mike.

Hey, Chris.

A couple quick ones. Mike, you mentioned the source data we're going to see at PCR, are you guys going to continue to follow and report out longer-term results from PARTNER EU?

You know what, there probably is some continued follow up on PARTNER EU. I don't know precisely. I haven't done my homework here in terms of what's going to be presented in EuroPCR, but I do think we end up following that data. The one thing that I would point out about source versus PARTNER EU is the vintage of PARTNER EU is a little older pace, a little earlier on the learning curve, so we like to think there is probably a greater parallel between the source data and the PARTNER data than there would be in PARTNER EU. But, no, where it's going to be interesting and where you're right onto ask the question, it's going to be nice to see long-term data on patients, and that'll be valuable.

Yes, that was my point exactly. And then just on along the same lines, when can we expect to see something from PREVAIL?

You know what that's -- hold on a second, let me see if I have anything on my notes on that. PREVAIL is the TA study with XT, and again, this study was done in anticipation of a CE mark. We'd expect that that CE mark is around the corner, that we can get the CE mark in the second quarter, and we'll -- and I think that we'll have regular updates probably on a -- you'll probably see something at EuroPCR although it's going to be pretty young data at that stage of the game.

Okay, and just one last quick one. Any kind of timeline that we should be thinking of for a verdict in the US core valve trial?

What we're fully expecting is at the end of this trial -- it's jury trial -- that there actually is a verdict and that we get a decision at the end of that, so that means that early April we should have a result.

Okay, great. Thank you.

Thank you. Our next question is coming from the line of Mr. Jason Mills with Canaccord Adams. Your line is now open, you may proceed with your question.

Thanks, Mike, for taking the question. Can you hear me okay?

Hear you great, Jason.

Great. Mike, a lot of questions SAPIEN, let's turn to surgical heart valves where the growth in the quarter seemed to be quite robust, notwithstanding strong transcatheter. You mentioned 8% underline, what was the reported growth there and how did that -- how did underlying growth compare with what you see tissue valve market -- surgical tissue valve market growing, both in the US and worldwide? Seemed like you gained a fair bit of share there.

Yes. We think that the market itself is growing in this 3% to 5% range. In the quarter, I don't know, it probably grew 4%, but we influenced market quite a bit ourselves, so when -- because we're the largest player when we grow, obviously, it lifts the market growth, so we think it is in that sort of range. If we say what is the growth in, say, units versus ASP, probably most of that was units. I would say it's probably two-thirds, one-third units versus ASP, so pretty good share gain in the quarter.

Actually on a reported basis it looks like surgical's 17%.

Definitely got a boost from the exchange rate.

Was that more heavily weighted to repair, Tom, given that you had maybe a bit of easier comp?

Well, no, I think the numbers that Mike gave you were the correct numbers on an underlying basis and I just -- you had asked on a reported basis, correct?

Right, that's correct.

Yes. So it was a pretty big difference there.

Okay. And assuming the R&D tax credit comes -- sorry. Assuming the R&D tax credit comes through, we're obviously assuming a higher tax rate pro forma year over year. With your guidance that gross margin should be at the higher end of your range it would imply that operating margin expansion should be perhaps towards that 100-basis points expansion year over year, as well. Any comments there on operating margin expansion this year?

No, absolutely. I think if you put the pieces together from investor conferences we are definitely confirming all of that. It's about 150- basis points that we're looking for in 2010.

For operating margin?

Yes, you get a little help from SG&A, a little bit back on R&D, but the main driver being GP.

Great. And last question, just as a follow up on that, as we look over the next couple of years, where do you see your SG&A as a percentage of revenue going? Where should it be going?

Well, we showed improvement in the fourth quarter and we talked about a rate that was an improvement year over year in 2010. Overall that is the trend that we've tried to indicate in the direction that we're going and consistently that's the outlook, particularly once you get out a couple of years.

Great. Thanks, guys.

Thank you. Our next question is coming from the line of Mr. Tim Lee with Piper Jaffray.

Hi. Good afternoon and thanks for taking the question. Just wanted to follow up on the core valve trial question, so it's a US-based trial so I'm thinking that Medtronic is manufacturing the product in the US so infringes your patents, it could potential impact their international sales, as well. Is that the right way to think about it?

It is. The way the US law reads not only can you not sell in the US if you infringe but you couldn't produce.

Got it. But hypothetically they could shift manufacturing over to Europe given some of the outcomes we saw in Germany, would that be correct?

Yes, that's -- hypothetically that's the way you would get around infringing a patent would be to produce outside the US and sell that way.

Got it, thank you. And just switching gears on the critical care side, on the glucose front do we see any revenues in the quarter or should we be thinking near-term revenues to be relatively modest?

So -- go ahead, Tom.

You said in glucose in which quarter?

Just this most recent quarter, in the fourth quarter were there any --

No, neglig -- Tim, very negligible.

Okay. And again, just going forward should we think about a couple hundred thousand dollars a quarter? I'm just trying to get a --

You're not far off. It's really -- we're really concentrating on working out the kinks and getting this technology understood.

Got it.

(inaudible) priority.

And then just one last one on the reimbursement front, both in Germany and in France. Once SAPIEN XT comes out those are automatically rolled in under the current reimbursement?

That would be our belief. We believe that XT is going to be covered. There may be paperwork that needs to be filed, but we wouldn't expect there to be a supply interruption.

Great, thank you.

You're welcome.

Thank you. Our next question is coming from the line of Mr. Glenn Novarro with RBC Capital Markets. Your line is open, you may proceed with your question.

I just wanted to follow up with Bruce's question on the valve -- the transcatheter valve guidance for 2010 of $170 million to $190 million. I know you said that guidance is still good despite the dollar strengthening and you anticipate strong market growth in gaining share, but I'm just trying to get a sense of -- in the last two months can you give us any specifics as to what the offset is because as the dollar has strengthened it's probably bringing you closer to the low end of that $170 million range. Is that fair and can you give us any specifics as to in your model what was the offset? Did you just dial in maybe a little bit more share, maybe a little bit more pricing, anything would be helpful? Thanks.

I think what Tom indicated is at the time of the investor conference we thought we would have a tailwind of like $40 million and now $15 million, so it's sort of a $25 million hit to top line across total Edwards sales. When you think about this it's a much smaller part of total Edwards. It attracts a little more than 10% of total Edwards, so this is --, it matters what, $3 million, $4 million if you were to translate that. Because it's all Europe it's probably a little more so maybe you'd call it $5 million, so it's that kind of a number. Within that range when we gave that range in the first place, we knew that there were several variables that could be the most predominant ones for this number in 2010. One would obviously be the foreign exchange rate, and so we provided for some of that. One would be just how fast this market expands. We think there clearly is market expansion that still continues, and we continue to be bullish on that one, Glenn. And then the other is how well this SAPIEN XT valve performs and the kind of transfemoral share that might come from that. So all of those factors are in there. We end up feeling positive enough about just market expansion and the performance of the XT valve that we're not concerned about this FX rate knocking us out of the range.

Okay, great, that was helpful. Thank you, Mike.

You're welcome.

Thank you. Our next question is coming from the line of Ms. Sara Michelmore with Cowen. Your line is open, you may proceed.

Great, thank you. Mike, just back to this whole concept of share gains or share gain potential with SAPIEN XT, can you just remind us what you were assuming in that $170 million to $190 million number and just talk me through how you conceptually looked at that. Is it just as the market continues to expand that you would pick up a higher proportion of new accounts, or are you actually talking about the potential for competitive wins and how might that play out? Thanks.

Sure. Yes, we really haven't offered up any detailed guidance on that one, Sara. Clearly as the market expands we think just because the new XT is smaller it's going to make it even a more preferred option for new customers, but along the way we also think there's potential for -- to pick up some competitive share. We think that'll be quite -- we're not thinking that there's anything there that's very dramatic. We'll serve our existing accounts first and foremost because we obviously want to reward their loyalty, and then later on it'll be available to other customers and we'll find out how people feel about that valve versus core valve.

Okay. And if you could just give us an update on your latest thinking on what you're doing in emerging markets with the transcatheter valve commercially and what you think the potential may be there? Maybe not for 2010 but over the next couple of years?

I'll tell you how we look at emerging markets at this point. The biggest markets, by far, we think for transcatheter heart valves (inaudible) the big markets; the Europe, US, and Japan. Outside of those big markets -- where, obviously, most of the medical technology that we offer is sold today. Outside of that, we're going to be very thoughtful about how we do that. If there is a population of patients where there's really substantial patients with the ability to pay at the existing prices that we're offering at, then those would be the kind of places where we would be able to go and support the program, support the training, support the infrastructure that's necessary, and so it's going to be quite deliberate. You see us doing that, and we're walking that right up. We've been surprised at the high level of interest that's there, but we've been very clear that there's such demand here in the markets with the ability to afford that we're going to continue to keep a high bar up there in terms of our ASP expectations.

Okay, that's a great update. And one last one on critical care. I was curious about this deal you did with Philips on PreSep. Should we think about you doing additional deals like that with other oximetry players and what kind of opportunity is it for that particular product line to have it integrated like that into the existing oximetry systems? Thanks.

Thanks, Sara. We do think about other players, and we are in discussions with other players. We actually could expand our -- expand this offering even more so in Philips, and we could certainly expand it into other players, and we would expect to have others to announce at some point in time. It's not clear to us whether that is one that more or less removes an objection or really is a big driver of growth. It's a clear positive, and we know that our customers very much like to have this on their central monitoring system and it adds to the convenience and gets rid of some extra boxes and wires, but it's not clear to us exactly what it might do to our growth rate, whether it's a mild positive or something more than that.

Okay. And I assume -- just within last quick one. Is that the kind of strategy you might over time pursue with the diabetes product, as well, the glucose monitor, as well?

It's not clear at this point, it probably would be.A lot of this has to do with -- the monitoring companies themselves very much want to have the important parameters on their boxes, so ifwe're as successful as we hope to be, we wouldn't be surprised if that becomes a factor later.

Great. Thanks, Mike.

You're welcome.

Thank you. Ladies and gentlemen, our final question will be coming from Mr. Jeff Englander with standard Standard & Poor's. Your line is now open, you may proceed.

Good afternoon, guys, can you hear me?

We hear you great, Jeff.

Mike, can you just talk a little bit about if you've got anything in the numbers for healthcare reform and if so, can you quantify that at all? And also following up on that, any expectations you have going forward for what healthcare reform might look like, if at all?

Yes. First of all, for 2010 there's really nothing in our numbers that reflects a change in the environment in terms of healthcare. We pretty much expect the environment to be much the same as it is today. In terms of prognosticating on the future of healthcare reform, I'm lost on that one. There's so many possibilities at this point, Jeff, that it's really -- I'm unable to predict how this is going to go. I think we're -- as an industry broadly I think we're well positioned. I think we play a critical role in the healthcare system, and we clearly agree that the healthcare should be reformed. There are some important things that need to happen there. But in terms of being able to predict how it's going to affect medical device companies going forward, it's beyond my ability.

Just so I'm clear, so there's nothing in your numbers for the proposed medical device tax?

That's correct.

Okay. Thanks very much.

Okay, you're welcome, Jeff.

Thank you. Ladies and gentlemen, we have ended the Q&A session. I would like to turn the floor back to management for any closing comments.

Thanks, everybody, for your continued interest in Edwards. Tom and David and I will welcome any additional questions by telephone. With that, back to you, David.

Thank you for joining us on today's call. Reconciliations between GAAP and non-GAAP numbers mentioned during this 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 is available for 72 hours. To access this please dial 877-660-6853 or 201-612-7415. Use account number 2995 and passcode 341603. I'll repeat those numbers. 877-660-6853 or 201-612-7415, account number 2995, the passcode 341606, that's 606. Finally, an audio replay will be archived on the investor relations section of our website. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you, very much, for your participation and have a wonderful afternoon.